[Federal Register Volume 77, Number 157 (Tuesday, August 14, 2012)]
[Proposed Rules]
[Pages 48461-48469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-19773]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 77, No. 157 / Tuesday, August 14, 2012 /
Proposed Rules
[[Page 48461]]
DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Parts 278 and 279
RIN 0584-AD88
Supplemental Nutrition Assistance Program: Farm Bill of 2008
Retailer Sanctions
AGENCY: Food and Nutrition Service (FNS), USDA .
ACTION: Proposed rule.
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SUMMARY: The Department is proposing changes to the Supplemental
Nutrition Assistance Program (SNAP) (formerly the Food Stamp Program)
retailer sanction regulations in accordance with amendments made to
Sections 7, 9, and 12 of the Food and Nutrition Act of 2008 (``the
Act'') by the Food, Conservation, and Energy Act of 2008, Public Law
110-246 (``the 2008 Farm Bill''). The proposal would update SNAP
retailer sanction regulations to include authority granted in the 2008
Farm Bill to allow FNS to impose a civil penalty in addition to
disqualification, raise the allowable penalties per violation, and
provide greater flexibility to USDA for minor violations.
DATES: Comments must be received on or before October 15, 2012 to be
assured of consideration.
ADDRESSES: The Food and Nutrition Service, USDA, invites interested
persons to submit comments on this proposed rule. Comments may be
submitted by one of the following methods:
Federal e-Rulemaking Portal: Go to http://www.regulations.gov. Preferred method; follow the on-line instructions
for submitting comments on docket [insert docket number].
Mail: Comments should be addressed to Andrea Gold,
Director, Benefit Redemption Division, Rm. 426, 3101 Park Center Drive,
Alexandria, Virginia 22302.
All comments submitted in response to this proposed rule will be
included in the record and will be made available to the public. Please
be advised that the substance of the comments and the identity of the
individuals or entities submitting the comments will be subject to
public disclosure. Food and Nutrition Service (FNS) will make the
comments publicly available on the Internet via http://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Andrea Gold, Director, Benefit
Redemption Division, Rm. 426, 3101 Park Center Drive, Alexandria,
Virginia 22302, 703-305-2434.
SUPPLEMENTARY INFORMATION:
Executive Summary
I. Purpose of the Regulatory Action
The purpose of this rule is to implement the greater flexibility
provided by the 2008 Farm Bill in assessing SNAP sanctions against
retail food stores and wholesale food concerns found in violation of
program rules by imposing a civil penalty in addition to
disqualification, raising the allowable penalties per violation, and
providing greater flexibility to USDA for minor violations. This rule
is necessary in order to improve the integrity of the program, deter
participating retailers from committing program violations to ensure
voluntary compliance, and adjust civil penalties to better reflect the
value of redemptions. The legal authority for this proposed rule is
addressed by Sections 7, 9 and 12 of the Act, as amended by sections
4115 and 4132 of the 2008 Farm Bill.
II. Summary of the Major Provisions
Trafficking Civil Penalty and Trafficking Civil Money Penalty.
Trafficking is the exchange of SNAP benefits for cash and is the most
serious violation of program rules and firms can be permanently
disqualified from participating in SNAP for such violations. It
significantly undermines the integrity of the program and diverts funds
from their intended use. Section 12 of the Act provides FNS greater
flexibility in assessing sanctions against retailers that traffic
benefits by adding a new trafficking civil penalty in addition to
permanent disqualification. This sanction is designed to recoup the
government provided funds diverted from their intended use by basing
the amount of the civil penalty on a retail food store's SNAP
redemptions. Current regulations allow trafficking civil money
penalties in lieu of permanent disqualification; not in addition to the
disqualification. The change ensures more equitable treatment in the
way civil penalties will be assessed while increasing the deterrent
effect against large scale fraud that may result in significant
administrative penalties beyond existing criminal penalties.
Sale of Common Ineligibles. The sale of common ineligibles, such as
paper products and cooking supplies, is the least egregious violation
against SNAP and firms can be assessed a disqualification from 6 months
to 10 years for such violations. Analysis by FNS indicates that many
firms assessed a 6-month disqualification for the sale of ineligibles
frequently go out of business because they are located in areas with
higher concentration of SNAP recipients. This rule proposes to apply
disqualifications only to repeat offenders or more severe violators;
first time offenders selling only common ineligibles would be assessed
a newly established civil penalty of $1,000 per violation in lieu of
being disqualified. This would allow owners to take corrective actions
to prevent such violations in the future.
Civil Money Penalties: Hardship, Transfer of Ownership, Trafficking
in Lieu of Permanent Disqualification. Pursuant to Section 12 of the
Act, this rule proposes to assess civil money penalties of up to
$100,000 per violation for hardship or transfer of ownership. The civil
money penalty for a trafficking in lieu of permanent disqualification
will continue to be capped at an overall limit of $59,000 per
investigation. The rule also proposes to allow retailers an additional
15 days to obtain and submit a collateral bond, which is currently
required when civil money penalties are imposed. Increasing the time
from 15 days to 30 days is in response to concerns from the retailer
community that it has become more difficult to find financial
institutions offering these services at competitive prices.
Fines for Transactions Conducted without the Presence of an EBT
Card. This rule also proposes a new fine involving EBT transactions. If
the point-of-sale (POS) device that reads the magnetic stripe of the
EBT card cannot read the card, the alternative methods to complete the
transaction involve manual key entry of the EBT card number or the use
of a voucher. In all
[[Page 48462]]
EBT transactions the card must be present. FNS receives complaints from
SNAP recipients who have had their benefits stolen by firms who
conducted transactions without the EBT card being present, and there is
no rule that allows FNS to take action against these firms. This
provision allows FNS to assess fines against firms that engage in this
activity.
III. Costs and Benefits
USDA estimates total sanctions to be assessed from this rule to be
approximately $175 million per year. These provisions are expected to
affect a very few, mostly small, retailers, in each of the next 5
years. Most of the provisions will result in larger or additional
penalties for firms who commit program violations.
The proposed rule is expected to improve program integrity by
increasing sanctions and civil penalties on the small number of
authorized firms that commit program violations. The vast majority of
retailers--those that abide by the rules--will be unaffected by the
proposed changes. The purposes of increased sanctions on the few
authorized firms that willingly violate program rules will be to
provide additional deterrence to strengthen program integrity and
increase public confidence in stewardship of program administration.
Summary of Federal Costs and Benefits Per Year
----------------------------------------------------------------------------------------------------------------
Number of
Costs (in millions of dollars) affected Benefits
retailers
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Implementation Costs................ 0.176............................. 0
(First year only).................
Denials and Withdrawals............. 0................................. 0 Improve program
integrity.
Trafficking Civil Penalty \1\....... (174)............................. 1,211 Improve program
integrity.
Sale of Common Ineligibles \1\...... (1.034)........................... 292 Improve program
integrity; Reduce
number of retailers
facing 6-month
disqualification.
New Maximum Limits on Civil Money (0.256)........................... 100 Improve program
Penalties \1\. integrity.
Fines for Transactions Without EBT *................................. 1-3 Improve program
Cards. integrity.
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Total Cost...................... (175.1)........................... .............. ......................
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\1\ The majority of penalties are turned over to Treasury and never collected.
Executive Order 12866 and Executive Order 13563
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility.
This proposed rule has been designated economically significant.
Accordingly, the rule has been reviewed by the Office of Management and
Budget. A summary of the regulatory impact analysis is included below.
The full analysis is available through www.regulations.gov in the
docket for this rule (RIN 0584-AD88).
Regulatory Impact Analysis Summary
Need for Action
The proposed rule is needed to implement expanded authority and
flexibility for FNS to assess SNAP retailer penalties as provided in
the 2008 Farm Bill.
Benefits
Implementing Farm Bill sanctions and updating regulatory language
will strengthen deterrence of violations among retailers, help clarify
program requirements and improve program integrity.
Costs
FNS estimates that the cost impact of this proposed rule is
minimal. The primary costs anticipated are those FNS will bear in
relation to updating systems, training materials and letters to reflect
the new regulations; as well as informing participating stores of the
changes. The costs are expected to be minimal as the changes may be
incorporated into planned, regularly scheduled maintenance updates and
mailings that already exist to inform participating stores of relevant
program changes.
One provision in this rulemaking will also impact some third party
providers that contract with retail food stores or wholesale food
concerns who wish to purchase point-of-sale (POS) equipment for their
stores to support multiple forms of payment beyond just SNAP electronic
benefit transfer (EBT) cards. While the provision does not add any new
rules that do not exist today, providing only an enforcement mechanism
to ensure that third party providers follow those existing
requirements, there will be some cost impact on the providers who have
failed to comply with these rules to date. The vast majority of third
party POS equipment providers, however, already meet existing
requirements as specified in part 7 CFR 274. Therefore, FNS does not
anticipate that this provision will have a significant cost impact.
The rule will have no cost impact on retail food stores or
wholesale food concerns, as the rule only implements greater authority
and flexibility provided by the Act, but does not change what
constitutes a violation. Those firms must continue to follow the same
program rules as are in place today to prevent any violations.
[[Page 48463]]
Accounting Statement
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Discount rate
Primary estimate Year dollar (percent) Period covered
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Benefits
----------------------------------------------------------------------------------------------------------------
Qualitative:
The proposed changes to the retailer
sanction regulations will improve
program integrity by increasing the
deterrent effect of sanctions on the
small number of authorized firms that
commit program violations..............
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Costs
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/year)... ................ 2013 7 FY2013-2017
................ 2013 3
----------------------------------------------------------------------------------------------------------------
Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/year)... 175 2013 7 FY2013-2017
175 2013 3
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From Authorized Firms to the Federal Government.
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Regulatory Flexibility Act
This rule proposes changes to SNAP by issuing regulations in
accordance with amendments made to Sections 7, 9 and 12 of the Act. The
proposal would codify provisions to provide FNS greater flexibility to
assess a disqualification, civil penalty, or both; revise the caps
currently in place on civil money penalties to reflect the new limits
provided by the Act; and remove penalties that pertain to the issuance
and redemption of paper coupons that are no longer relevant. Each year,
FNS assesses a sanction, either a disqualification or a civil money
penalty, against less than 1% of the participating stores. Of those
impacted roughly half commit trafficking violations and will face
stiffer sanctions as a result of this proposed rule. A portion of the
remaining retail food stores who are disqualified for 6 months under
the current rules due to the sale of common ineligibles would now
receive a civil penalty instead of a disqualification. Because
disqualifications of any duration increase the risk a business may be
forced to close, substituting a civil penalty could potentially allow
the sanctioned business to continue to operate.
The Regulatory Flexibility Act (5 U.S.C. 601-612) requires Agencies
to analyze the impact of rulemaking on small entities and consider
alternatives that would minimize any significant impacts on a
substantial number of small entities. Pursuant to that review and based
on the limited population of retail food stores impacted, this rule is
certified not to have a significant impact on a substantial number of
small entities.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments, and the private sector. Under Section 202 of the UMRA, the
Department generally must prepare a written statement, including a
cost/benefit analysis, for proposed and final rules with Federal
mandates that may result in expenditures to State, local, or tribal
governments, in the aggregate, or to the private sector, of $100
million or more in any one year. When such a statement is needed for a
rule, section 205 of the UMRA generally requires the Department to
identify and consider a reasonable number of regulatory alternatives
and adopt the least costly, more cost-effective or least burdensome
alternative that achieves the objectives of the rule.
This rule does not contain Federal mandates (under the regulatory
provisions of Title II of the UMRA) that impose costs on State, local,
or tribal governments or to the private sector of $100 million or more
in any one year. This rule is, therefore, not subject to the
requirements of sections 202 and 205 of the UMRA.
Executive Order 12372
SNAP is listed in the Catalog of Federal Domestic Assistance under
No. 10.551. For the reasons set forth in the Final Rule codified in 7
CFR part 3015, Subpart V and related Notice (48 FR 29115), this Program
is excluded from the scope of Executive Order 12372, which requires
intergovernmental consultation with state and local officials.
Executive Order 13132
Executive Order 13132 requires Federal agencies to consider the
impact of their regulatory actions on State and local governments.
Where such actions have federalism implications, agencies are directed
to provide a statement for inclusion in the preamble to the regulations
describing the agency's considerations in terms of the three categories
called for under section (6)(b)(2)(B) of Executive Order 13132. FNS has
considered the impact of this rule on State and local governments and
has determined that this rule does not have federalism implications.
This rule does not impose substantial or direct compliance costs on
State and local governments. Therefore, under Section 6(b) of the
Executive Order, a federalism summary impact statement is not required.
Executive Order 12988
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. This rule is intended to have preemptive effect with
respect to any State or local laws, regulations or policies which
conflict with its provisions or which would otherwise impede its full
implementation. This rule is not intended to have retroactive effect
unless specified in the DATES section of the final rule. Prior to any
judicial challenge to the provisions of this rule or the application of
its provisions, all applicable administrative procedures must be
exhausted.
[[Page 48464]]
Executive Order 13175--Consultation and Coordination With Indian Tribal
Governments
E.O. 13175 requires Federal agencies to consult and coordinate with
tribes on a government-to-government basis on policies that have tribal
implications, including regulations, legislative comments or proposed
legislation, and other policy statements or actions that have
substantial direct effects on one or more Indian tribes, on the
relationship between the Federal Government and Indian tribes, or on
the distribution of power and responsibilities between the Federal
Government and Indian tribes. In late 2010 and early 2011, USDA engaged
in a series of consultative sessions to obtain input by Tribal
officials or their designees concerning the impact of this rule on the
tribe or Indian Tribal governments. The Joint Consultation sessions
were coordinated by USDA's Office of Tribal Relations and held on the
following dates and locations:
1. Rapid City, SD--October 28-29, 2010
2. Oklahoma City, OK--November 3-4, 2010
3. Minneapolis, MN--November 8-9, 2010
4. Seattle, WA--November 22-23, 2010
5. Nashville, TN--November 29-30, 2010
6. Albuquerque, NM--December 1-2, 2010
7. Anchorage, AK--January 10-11, 2011
There were no comments about this regulation during any of the
aforementioned Tribal Consultation sessions.
Reports from these consultations are part of the USDA annual
reporting on Tribal consultation and collaboration. FNS will respond in
a timely and meaningful manner to Tribal government requests for
consultation concerning this rule. Currently, FNS provides regularly
scheduled quarterly consultation sessions through the end of FY2012 as
a venue for collaborative conversations with Tribal officials or their
designees.
Civil Rights Impact Analysis
FNS has reviewed this rule in accordance with Departmental
Regulations 4300-4, ``Civil Rights Impact Analysis,'' and 1512-1,
``Regulatory Decision Making Requirements.'' This rule is not intended
to have a differential impact on minority owned or operated business
establishments, and woman owned or operated business establishments
that participate in SNAP. FNS does not collect or maintain any data on
the nationality, ethnicity, or gender of owners of participating retail
food stores. Therefore, those factors have no impact on how the Agency
identifies fraud or implements sanctions against firms found violating
program rules.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR
1320) requires the Office of Management and Budget (OMB) approve all
collections of information by a Federal agency before they can be
implemented. Respondents are not required to respond to any collection
of information unless it displays a current valid OMB control number.
This rule does not contain information collection requirements subject
to approval by OMB under the Paperwork Reduction Act of 1995.
E-Government Act Compliance
The Food and Nutrition Service is committed to complying with the
E-Government Act, to promote the use of the Internet and other
information technologies to provide increased opportunities for citizen
access to Government information and services, and for other purposes.
Background
This rulemaking proposes to implement the greater flexibility
provided by the 2008 Farm Bill section 4132 in assessing sanctions and
civil penalties against retail and wholesale food concerns that violate
program rules. Furthermore, in accordance with Section 4115 (Issuance
and Use of Program Benefits) of the 2008 Farm Bill, this rulemaking
proposes to update 7 CFR parts 278 and 279 to reflect the Program's
issuance of benefits through EBT systems. FNS recognizes that this
proposed rule amends a few but not all of the references to coupon(s)
and food stamp(s) in part 278 to reflect the Act's de-obligation of
coupons. FNS plans to address this technical discrepancy in future
rulemaking.
7 CFR Part 278--Participation of Retail Food Stores
The general provisions addressed in part 278 are required by
Sections 9 and 12 of the Act, as amended by the 2008 Farm Bill. The
discussion below and the subsequent regulatory language for this part
provide additional details to address operational processes and clarify
current policy to align the regulations with authority provided in the
Act.
Denial and Withdrawals
The current regulations governing retail food store and wholesale
food concern participation in SNAP stipulates that FNS shall deny new
applicants or withdraw participating firms that fail to pay civil money
penalties or fines assessed under part 278. In accordance with the Act,
FNS proposes to revise the denial and withdrawal language to extend
this authority to unpaid portions of the newly introduced civil
penalties in addition to those already covered. In addition, the
language would be revised to clarify that FNS may deny or withdraw a
firm if any member of ownership committed an intentional program
violation and was disqualified as a SNAP recipient. This provision is
necessary because a person, who violates program rules as a recipient,
lacks the necessary business integrity and responsibility expected of a
store owner who must train employees and oversee operations to ensure
that SNAP EBT transactions are conducted in accordance with Department
rules. Allowing a formerly disqualified program recipient the ability
to conduct transactions would create an unnecessary risk to the
integrity of the program.
In addition, Sec. 278.2(b) specifies FNS policy on equal treatment
at the food retailer, ensuring that program recipients are treated in
the same manner as non-program recipients. This proposed rule
introduces a new provision that would allow FNS to deny or withdraw a
firm for failing to adhere to Sec. 278.2(b) by singling out program
recipients for inequitable treatment compared to a firm's other
customers. This provision is in response to complaints submitted to FNS
of stores that implement policies targeted against SNAP recipients and
not applied equally to all customers. An example would be stores that
institute a minimum purchase requirement for customers using SNAP as a
form of payment, but fail to apply the same requirement on credit,
cash, or debit card customers. Retail food stores and wholesale food
concerns found out of compliance with this provision would be provided
an opportunity to come into compliance prior to being withdrawn.
FNS estimates that half of all participating firms opt to purchase
POS equipment from third party providers and do not utilize government
provided POS equipment. A small percentage of those firms have
purchased POS equipment from providers that fail to properly adhere to
existing requirements for equipment in part 274. Those requirements
include informing the recipient as to the transaction and their
remaining balance, prohibiting the recipient's personal information
from being printed on a receipt to protect
[[Page 48465]]
their privacy, and providing accurate information to FNS to better help
FNS identify and target program fraud. In particular, FNS requires that
each POS device is identified by a unique terminal ID and that the
unique ID is reported to FNS along with transaction information.
Failure to provide unique terminal ID's makes it more difficult for FNS
to monitor transaction activity within a firm and may lead to
inaccurate assessments that divert FNS resources from taking
appropriate actions against stores that violate the Program. This
proposed rule would allow FNS to deny or withdraw a firm that opts to
purchase or lease POS equipment from a third party provider that fails
to comply with part 274, particularly with the requirement to provide
unique terminal ID's. There are many third party equipment providers
and almost all comply with these requirements; therefore, this change
is not expected to result in a significant number of retailer
withdrawals. FNS would inform retailers in advance of this requirement
so they can use this information to ensure that the provider from whom
they elect to purchase equipment meets the requirements. Moreover,
retail food stores and wholesale food concerns found out of compliance
with this provision would be provided an opportunity to switch
providers to avoid being withdrawn.
Trafficking Civil Penalty and Trafficking Civil Money Penalty
Trafficking is the exchange of SNAP benefits for cash and is the
most serious violation of program rules. Trafficking represents
collusion between a retail food concern and a program recipient. The
firm conducts a transaction through the EBT system and provides the
recipient with cash, typically at a discounted rate, that both deprives
the recipient of the full value of their benefits intended for eligible
food products necessary to help provide the nutritional needs of their
household, as well as provides a profit directly to the firm. It
significantly undermines the integrity of the program and diverts funds
from their intended use. As a result, Congress has been clear in its
intent that the administrative penalties for trafficking be severe and
has stipulated that such violations result in the permanent
disqualification of a firm.
In the Food Stamp Act of 1977, Congress granted FNS the authority
to either disqualify a firm for program violations or impose a civil
money penalty, but not both. With the Food and Nutrition Act of 2008,
Congress removed this constraint, specifically providing USDA greater
flexibility in assessing sanctions both for retail food stores and
wholesale food concerns with lesser violations as well as for retail
food stores and wholesale food concerns that commit the most egregious
offenses, such as trafficking. Pursuant to that change, this proposed
rule would add a new trafficking civil penalty in addition to the
permanent disqualification. With this rule, the Department is proposing
a civil penalty that is calculated based on a firm's SNAP redemptions,
thereby adjusting to the size and scope of the fraud, much as existing
provisions do for civil money penalties, such as those associated with
transfer of ownership.
The new proposed trafficking civil penalty is not related to a
firm's future participation, but is designed to recoup the government
provided funds diverted from their intended use. Thus, this rule would
also clarify that, as the trafficking civil penalty and trafficking
civil money penalty in lieu of permanent disqualification serve
different purposes, they are not mutually exclusive and can both be
assessed against a violating retailer. That is, if a firm is granted a
trafficking civil money penalty in lieu of permanent disqualification,
the firm would still be responsible for paying the trafficking civil
penalties assessed pursuant to the violations that had occurred. The
proposed methodology for calculating the trafficking civil penalty is
based on a retail food store's redemptions, ensuring that the penalty
is reflective of a firm's size and sales volume. The proposed rule,
therefore, ensures not only equitable treatment by assessing fines
proportional to the violation, but also increases the deterrent effect
against large scale fraud that may result in significant administrative
penalties beyond existing criminal penalties.
Furthermore, this rule would provide that, if a firm was previously
granted a trafficking civil money penalty in lieu of permanent
disqualification, and again was found trafficking on a second occasion,
the firm would no longer qualify for a trafficking civil money penalty
in lieu of disqualification.
Sale of Common Ineligibles
Current regulations at 7 CFR 278.6 outline the penalties assessed
against stores found violating the program rules, including those for
the sale of common ineligibles. In today's environment, if the
violations are too minor to warrant a sanction, FNS sends the store an
official warning letter describing what FNS found during its
investigation, thus providing the store an opportunity to take
corrective action and come into compliance. However, if during an
investigation FNS finds that non-trafficking violations are
sufficiently extensive or pervasive as to suggest that it is the common
practice of a firm, FNS assesses an administrative disqualification
that can range from 6 months to 10 years, depending on the seriousness
of the violations and whether the retailer has had previous violations.
The longer disqualification time periods are reserved for either more
egregious violations, such as the sale of alcohol or tobacco products
for benefits, or if the firm had been previously sanctioned and has a
history of program violations. If FNS establishes that it is common
practice for a firm to sell common ineligibles for SNAP benefits, those
firms are typically disqualified for six months for the first
violation.
In providing greater flexibility for the Department to increase the
penalties against trafficking violations, the Act also allows USDA to
expand the progressive scale of penalties faced by firms whose
violations are less severe. The sale of common ineligibles is the least
egregious violation that is issued a sanction by FNS. Common
ineligibles typically consist of paper products, cooking supplies, or
household products. Research by FNS has indicated that many firms
assessed a 6-month disqualification, due to the usual practice of
selling common ineligibles, tend to close and/or undergo a change in
ownership. This occurs because the firms are typically located in areas
that have a higher concentration of SNAP recipients; therefore, even a
limited 6-month suspension can result in the firm no longer being
economically viable. Consequently, this rule proposes to apply
disqualifications only to those repeat offenders or more severe
violators; first time offenders that sell only common ineligibles would
be assessed a newly established civil penalty and no longer be
disqualified.
The proposed civil penalty is $1,000 per violation and must be paid
within 30 calendar days after FNS's final determination. This civil
penalty is proposed as a flat fine, instead of being based on
redemption volume, to reflect that the sale of common ineligibles for
first time offenders is a minor violation, typically the result of
negligence or oversight in training on the behalf of management, as
opposed to more egregious violations, with the clear intent to defraud
the government, that are based on redemption volume. The proposed civil
penalty would allow retail food stores to pay the civil penalty,
without enduring a disqualification, take corrective action, and re-
evaluate their training
[[Page 48466]]
methodology to ensure that there are no repeat offenses.
Civil Money Penalties: Hardship, Transfer of Ownership, Trafficking in
Lieu of Permanent Disqualification
The current regulations reference parts of the Act that had imposed
limits on the amount FNS could assess through a civil money penalty,
applying caps that were based on individual violations and, in some
cases, in a single overall investigation. The maximum limits currently
used by FNS are $11,000 per violation for hardship civil money
penalties and transfer of ownership civil money penalties and $32,000
per violation, with an overall limit of $59,000 per investigation, for
trafficking civil money penalties in lieu of permanent
disqualification. In the Act, Congress removed the limitations for
hardship civil money penalties and provided new language that allows
the Secretary to issue a penalty of up to $100,000 per violation. This
rule revises the caps placed on calculations for hardship and transfer
of ownership civil money penalties to bring the regulations in
compliance with the Act. The cap for trafficking civil money penalty in
lieu of permanent disqualification will remain unchanged.
In addition, the Act removed specific language referencing revised
penalties assessed if the removal of a retail food store or wholesale
food concern for non-trafficking violations would cause a hardship to
SNAP recipients. Nevertheless, pursuant to the flexibility provided to
the USDA by Section 12 of the Act, the USDA proposes to retain the
qualification criteria for the hardship civil money penalty as it
exists in current regulations. Today, upon request by the violating
retailer and after FNS assesses whether a retailer qualifies, the
hardship civil money penalty is assessed against retail food stores or
wholesale food concerns that serve areas with limited food access or
provide inventories that are not readily available in a given area, as
their removal would cause a hardship to SNAP recipients. Typically,
hardship civil money penalties are assessed against retail food stores
and wholesale food concerns that sell common ineligibles. As this rule
replaces the current 6-month disqualification with a new civil penalty
for those situations, FNS estimates that, while hardship civil money
penalties are not common today, they will be even less common going
forward. However, as some geographic areas continue to struggle with
adequate food access, USDA will be keeping the hardship provision in
the regulations to better address unforeseen circumstances that may
arise.
Furthermore, when imposing a hardship civil money penalty, current
regulations require a retailer to submit a collateral bond within 15
days to be eligible for reinstatement. The proposed rule would extend
this time frame to allow retailers up to 30 days to submit a collateral
bond. This change is necessary to respond to concerns from the retailer
community indicating that it is becoming more difficult to find
financial institutions offering these services at a competitive price
within the time allotted. The additional time proposed in this rule
would allow retailers more time to shop for these services.
Eliminating Fines for the Acceptance of Loose Coupons
This rule would eliminate provisions of part 278 that were enacted
to address violations that occurred as a result of how retail food
stores and wholesale food concerns accepted and redeemed paper coupons.
Section 12(e)(3) of the Act continues to give the Secretary discretion
to impose a fine against any retail food store or wholesale food
concern that accepts food coupons not accompanied by the corresponding
book cover; however, the 2008 Farm Bill de-obligated paper coupons, and
such coupons are no longer issued, accepted, or redeemable. As a
result, this rule proposes to eliminate a fine for accepting loose
coupons at Sec. 278.6(l).
Fines for Transactions Conducted Without the Presence of an EBT Card
Pursuant to Section 7(h)(2) of the Act, this rule proposes to
impose a fine for conducting a transaction without an EBT card being
present. Current rules require that a card be present at the time of
transaction. This new fine would apply to those retailers that conduct
transactions without having the card present.
To complete a transaction, a program recipient must present their
EBT card, swipe the card through a POS device, and enter their personal
identification number (PIN). The PIN identifies the individual as the
one responsible for that card and authorizes the transaction. If a POS
device is not working, the magnetic stripe of an EBT card is not
reading, or if a business does not have ready access to a phone line,
the EBT system offers alternative methods for completing the
transaction. The typical alternative methods involve manual key entry
of the EBT card number or the use of a manual voucher process, the
latter of which is more common among delivery routes, farmers' markets,
or traditional stores experiencing a system outage. However, the
alternative methods do not change the requirement for the recipient and
card to be present at the POS. Today, FNS receives complaints that
program recipients who have benefits stolen by firms who conduct
transactions without the EBT card being present or the knowledge and
consent of the recipient. This may be enabled by households providing
their card and PIN number to a retail food concern despite training by
State Agencies not to ever divulge their PIN. Nevertheless, this is a
violation of the regulations and this rule would allow FNS to assess
penalties against firms that engage in this activity.
7 CFR Part 279--Administrative and Judicial Review
The Department is proposing to update this part to align the
regulations with the Act by updating the FNS Administrative Review
Branch mailing address and revising references to Sec. 278.6(e)(8),
which is being moved as part of the changes, and removing some of the
references to coupon claims as the Act de-obligated coupons and
prohibits them from being issued, accepted or redeemed.
List of Subjects
7 CFR Part 278
Approval and participation of retail food stores and wholesale food
concerns, food stamps; participation of financial institutions,
disqualification and imposition of civil penalties or fines for retail
food stores and wholesale food concerns; and disposition of claims;
penalties.
7 CFR Part 279
Administrative practice and procedure; administrative review,
judicial review.
For reason set forth in the preamble, 7 CFR parts 278 and 279 are
proposed to be amended as follows:
1. The authority citation for 7 CFR parts 278 and 279 continues to
read as follows:
Authority: 7 U.S.C. 2011-2036.
PART 278--PARTICIPATION OF RETAIL FOOD STORES, WHOLESALE FOOD
CONCERNS AND INSURED FINANCIAL INSTITUTIONS
2. In Sec. 278.1:
a. Amend paragraph (b)(3)(vi) by removing the period and adding the
phrase ``, including the commission of intentional program violations
while receiving benefits in the Supplemental Nutrition Assistance
Program.'' at the end.
[[Page 48467]]
b. Revise paragraph (k)(7);
c. Add paragraph (k)(8);
d. Add paragraph (k)(9);
e. Revise paragraph (l)(1)(v);
f. Remove paragraph (1)(l)(vi) and redesignate paragraph
(l)(1)(vii) as paragraph (l)(1)(vi);
g. Add new paragraphs (l)(1)(vii) and (l)(1)(viii).
The revisions and additions read as follows:
Sec. 278.1 Approval of retail food stores and wholesale food
concerns.
* * * * *
(k) * * *
(7) The firm has failed to pay any civil penalties assessed under
Sec. 278.6(e)(1) or (e)(6); pay a transfer of ownership or hardship
civil money penalty assessed under Sec. 278.6(g); pay any fines
assessed under Sec. 278.6(m) or Sec. 278.6(l); or pay in full any
fiscal claim assessed against the firm under Sec. 278.7.
(8) The firm has failed to adhere to the equal treatment provisions
as specified in Sec. 278.2(b).
(9) The firm utilizes any access device that fails to comply with
Sec. 274.8(b)(6) and (b)(7) or fails to provide unique terminal
identification to the EBT system.
* * * * *
(l) * * *
(1) * * *
(v) The firm has failed to pay any civil penalties assessed under
Sec. 278.6(e)(1) or (e)(6); pay a transfer of ownership or hardship
civil money penalty assessed under Sec. 278.6(g); pay any fines
assessed under Sec. 278.6(m) or Sec. 278.6(l); or pay in full any
fiscal claim assessed against the firm under Sec. 278.7; or
(vi) The firm is required under State and/or local law to charge
tax on eligible food purchased with benefits or to sequence or allocate
purchases of eligible foods made with benefits and cash in a manner
inconsistent with Sec. 272.1 of these regulations.
(vii) The firm has failed to adhere to the equal treatment
provisions as specified in Sec. 278.2(b).
(viii) The firm utilizes any access device that fails to comply
with Sec. 274.8(b)(6) and (7) or fails to provide unique terminal
identification to the EBT system.
* * * * *
3. In Sec. 278.2, remove paragraphs (c) and (d) and redesignate
paragraphs (e) through (l) as paragraphs (c) through (j), respectively.
4. Remove Sec. 278.2(e)(2).
5. Remove and reserve Sec. Sec. 278.3 and 278.4.
6. In Sec. 278.6:
a. Amend the section heading by adding the words ``civil
penalties'' and removing the words ``in lieu of disqualifications'';
b. Revise the heading of paragraph (a);
c. Revise the first sentence of paragraph (a);
d. Amend paragraph (b)(1) by removing the words ``disqualification
or imposition of a civil money penalty'' wherever they appear and add
in its place the words ``disqualification or imposition of a civil
penalty or civil money penalty'' and by removing the words ``The firm
shall make its response, if any, to the officer in charge of the FNS
field office which has responsibility for the project area in which the
firm is located'' in the seventh sentence and adding in its place the
words ``The firm shall make its response to FNS.''
e. Revise the first sentence of paragraph (b)(2)(i);
f. Revise the first and second sentences of paragraph (c);
g. Amend paragraph (d) by removing the word ``regional'' in the
first sentence;
h. Revise paragraph (e)(1);
i. Redesignate paragraph (e)(4)(ii) as paragraph (e)(4)(iii) and
add a new paragraph (e)(4)(ii);
j. Amend paragraph (e)(5) by removing the period adding the words
``and FNS had previously advised the firm of the possibility that
violations were occurring and of the possible consequences of violating
regulations'' at the end of the paragraph;
k. Redesignate paragraph (e)(6) to (e)(8) as paragraphs (e)(7) to
(e)(9) and add a new paragraph (e)(6);
l. Revise paragraphs (g) and (h);
m. Revise the introductory text of paragraph (i);
n. Revise paragraphs (j) and (l);
The revisions and additions read as follows:
Sec. 278.6 Disqualification of retail food stores and wholesale food
concerns, and imposition of civil penalties and civil money penalties.
(a) Authority to disqualify and subject to a civil penalty and
civil money penalty. FNS may assess a civil penalty and civil money
penalty against and disqualify any authorized retail food store or
wholesale food concern from further participation. For the purposes of
this part, civil money penalty refers to a civil penalty issued for
hardship, transfer of ownership, or trafficking in lieu of
disqualification. * * *
* * * * *
(b) * * *
(2) * * *
(i) The charge letter shall advise a firm being considered for
permanent disqualification based on evidence of trafficking as defined
in Sec. 271.2 that the firm must notify FNS if the firm desires FNS to
consider the sanction of a trafficking civil money penalty in lieu of
permanent disqualification and that if granted, the trafficking civil
money penalty in lieu of permanent disqualification is in addition to
any other civil penalties assessed under Sec. 278.6(e). * * *
* * * * *
(c) 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 office, which shall then issue the
determination. In the case of a firm subject to permanent
disqualification and civil penalty under paragraph (e)(1) of this
section, the determination shall inform such a firm that action to
permanently disqualify the firm shall be effective immediately upon the
date of receipt of the notice of determination from FNS, regardless of
whether a request for review is filed in accordance with part 279 of
this chapter; however, any civil penalties shall be held in abeyance
pending the outcome of administrative or judicial review. * * *
* * * * *
(e) Penalties. FNS shall take action as follows against any firm
determined to have violated the Act or regulations. For the purposes of
assigning a period of disqualification, a warning letter shall not be
considered to be a sanction. A civil money penalty, a civil penalty,
and a disqualification shall be considered sanctions for such purposes.
FNS shall:
(1) Disqualify a firm permanently and assess a civil penalty in
accordance with Sec. 278.6(g) if personnel of the firm have trafficked
as defined in Sec. 271.2; or only disqualify a firm permanently if:
(i) Violations such as, but not limited to, the sale of ineligible
items occurred and the firm had twice before been sanctioned.
(ii) It is determined that personnel of the firm knowingly
submitted information on the application that contains false
information of a substantive nature that could affect the eligibility
of the firm for authorization in the program, such as, but not limited
to, information related to:
(A) Eligibility requirements under Sec. 278.1(b), (c), (d), (e),
(f), (g) and (h);
(B) Staple food stock;
(C) Annual gross sales for firms seeking to qualify for
authorization under Criterion B as specified in the Food Stamp Act of
1977, as amended;
(D) Annual staple food sales;
(E) Total annual gross retail food sales for firms seeking
authorization as co-located wholesale/retail firms;
[[Page 48468]]
(F) Ownership of the firm;
(G) Employer Identification Numbers and Social Security Numbers;
(H) Food Stamp Program history, business practices, business
ethics, WIC disqualification or authorization status, when the store
did (or will) open for business under the current ownership, business,
health or other licenses, and whether or not the firm is a retail and
wholesale firm operating at the same location; or
(I) Any other information of a substantive nature that could affect
the eligibility of a firm. * * *
(4) * * *
(ii) It is to be the second sanction for the firm and evidence
shows that personnel of the firm have committed violations, such as the
sale of common nonfood items in amounts normally found in a shopping
basket; or
* * * * *
(6) Impose a civil penalty if it is to be the first sanction for
the firm and evidence shows that personnel of the firm have committed
violations such as but not limited to the sale of common nonfood items
due to carelessness or poor supervision by the firm's ownership or
management and FNS had not previously advised the firm of the
possibility that violations were occurring and of the possible
consequences of violating regulations. The civil penalty shall be
$1,000 for each violation and must be paid in full within 30 days of
the individual's or legal entity's receipt of FNS' notification to pay
the penalty. FNS may withdraw the authorization of any firm that has
failed to pay the civil penalty in full within 30 days, as specified
under Sec. 278.1(l).
* * * * *
(g) Amount of trafficking civil penalties and civil money penalties
for hardship and transfer of ownership. FNS shall determine the amount
of the trafficking civil penalty and hardship and transfer of ownership
civil money penalty as follows:
(1) Determine the firm's average monthly redemptions of benefits
for the 12-month period ending with the month immediately preceding the
month during which the firm was charged with violations.
(2) Multiply the average monthly redemption figure by 10 percent.
(3) Multiply the product by arrived at in paragraph (g)(2) by the
number of months for which the firm would have been disqualified under
paragraph (e) of this section. Firms disqualified permanently for
trafficking shall multiply the product arrived at in paragraph (g)(2)
by 120 when determining the amount of a trafficking civil penalty.
Firms disqualified permanently for trafficking shall multiply the
product arrived at in paragraph (g)(2) by 240, to reflect double the
penalty for a ten year disqualification, when determining a transfer of
ownership civil money penalty in accordance with Sec. 278.6(f). The
penalty may not exceed an amount specified in Sec. 3.91(b)(3)(i) of
this title for each violation.
(h) Notifying the firm of trafficking civil penalties and civil
money penalties for hardship and transfer of ownership. A firm has 15
days from the date that FNS notifies the firm in writing in which to
pay the penalty, or to notify FNS in writing of its intent to pay in
installments as specified by the Agency. For hardship civil money
penalties, FNS shall:
(1) Require the firm to present to FNS a collateral bond as
specified in Sec. 278.1(b)(4), within 30 days, and the civil money
penalty must be paid in full by the end of the period for which the
firm would have been disqualified;
(2) Disqualify the firm for the period determined to be appropriate
under paragraph (e) of this section if the firm refuses to pay any of
the civil money penalty;
(3) Disqualify the firm for a period corresponding to the unpaid
part of the civil money penalty if the firm does not pay the civil
money penalty in full or in installments as specified by FNS; or
(4) Disqualify the firm for the prescribed period if the firm does
not present a collateral bond or irrevocable letter of credit within
the required 30 days. Any payment on the hardship civil money penalty
which has been received by FNS shall be returned to the firm. If the
firm presents the required bond or irrevocable letter of credit during
the disqualification period, the civil money penalty may be reinstated
for the duration of the disqualification period.
(i) Criteria for eligibility for a civil money penalty in lieu of
permanent disqualification for trafficking. FNS may impose a civil
money penalty in lieu of a permanent disqualification for trafficking
as defined in Sec. 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. A civil money penalty is in lieu of the
permanent disqualification does not replace, but is in addition to, the
trafficking civil penalty described in Sec. 278.6(e)(1). Firms
assessed a civil money penalty under this paragraph shall be subject to
the applicable penalties included in Sec. 278.6(e)(2) through (e)(7)
for the sale of ineligible items. In determining the minimum standards
of eligibility of a firm for a civil money penalty in lieu of a
permanent disqualification for trafficking, the firm shall, at a
minimum, establish by substantial evidence its fulfillment of each of
the following criteria:
Criterion 1. The firm shall have developed an effective compliance
policy as specified in Sec. 278.6(i)(1); and
Criterion 2. The firm had developed and instituted an effective
personnel training program as specified in Sec. 278.6(i)(2) and that
both its compliance policy and program were in operation at the
location where the violation(s) occurred prior to the occurrence of
violations cited in the charge letter sent to the firm; and
Criterion 3. The firm's ownership was not aware of, did not
approve, did not benefit from, or was not in any way involved in the
conduct or approval of the trafficking violations; and
Criterion 4. It is the first occasion of any trafficking violations
at the firm, regardless of whether the firm's management was aware of,
approved of, benefited from, or was in any way involved in the conduct
or approval of the trafficking violations. Upon the second occasion of
trafficking, regardless of whether the violations were committed by
firm management or employees, a firm shall not be eligible for a civil
money penalty in lieu of permanent disqualification. Notwithstanding
the above provision, if trafficking violations consisted of the sale of
firearms, ammunition, explosives, or controlled substances, as defined
in 21 U.S.C. 802, and such trafficking was conducted by ownership or
management of the firm, the firm shall not be eligible for a civil
money penalty in lieu of permanent disqualification. For purposes of
this section, a person is considered to be part of firm management if
that individual has substantial supervisory responsibilities with
regard to directing the activities and work assignments of store
employees. Such supervisory responsibilities shall include the
authority to hire employees for the store or to terminate the
employment of individuals working for the store.
* * * * *
(j) Amount of civil money penalty in lieu of permanent
disqualification for trafficking. A civil money penalty assessed in
accordance with Sec. 278.6(i) shall not exceed the amount specified in
Sec. 3.91(b)(3)(ii) of this title for each violation and shall not
exceed the
[[Page 48469]]
amount specified in Sec. 3.91(b)(3)(ii) of this title for all
violations occurring during a single investigation. FNS shall determine
the amount of the civil money penalty as follows:
(1) Determine the firm's average monthly redemptions for the 12-
month period ending with the month immediately preceding the month
during which the firm was charged with violations;
(2) Multiply the average monthly redemption figure by 10 percent;
(3) Multiply the product by 120, in accordance with Sec. 278.6(f),
to reflect double the penalty for a ten year disqualification;
(4) If a second trafficking offense is committed by the firm, the
firm shall not be eligible for a civil money penalty in lieu of
permanent disqualification.
* * * * *
(l) Fines for acceptance of benefits without an EBT Card being
present. FNS may impose a fine against any retail food store or
wholesale food concern that accepts benefits that are not accompanied
by an EBT card being present and with the intent of conducting a
transaction without a recipient's knowledge or consent. The fine to be
assessed against a firm found to be accepting benefits without an EBT
card being present shall be $1,000 per investigation plus an amount
equal to double the value of each transaction that occurred without an
EBT card being present, and may be assessed in addition to any fiscal
claim or civil penalty established by FNS under Sec. 278.6(e)(1)
through (e)(6), Sec. 278.6(g), or Sec. 278.6(j). The fine shall be
paid in full within 30 days of receipt of FNS' notification to pay the
fine. The Attorney General of the United States may institute judicial
action in any court of competent jurisdiction against the store or
concern to collect the fine. FNS may withdraw the authorization of the
store, as well as other authorized locations of a multi-unit firm which
are under the same ownership, for failure to pay such a fine as
specified under Sec. 278.6(l).
7. In Sec. 278.7, remove paragraphs (d) through (g);
8. Remove Sec. 278.8 and redesignate Sec. 278.9 as Sec. 278.8;
9. In the newly redesignated Sec. 278.8, remove paragraph (a) and
redesignate paragraphs (b) through (m) as (a) through (l),
respectively;
10. Remove Sec. 278.10.
PART 279--ADMINISTRATIVE AND JUDICIAL REVIEW--FOOD RETAILERS AND
FOOD WHOLESALERS
11. In Sec. 279.1:
a. Paragraph (a)(2), remove the reference to ``Sec. 278.6(e)(8)''
and add in its place the reference ``Sec. 278.6(e)(9)'';
b. Revise paragraph (a)(4) to read as follows:
Sec. 279.1 Jurisdiction and authority.
* * * * *
(a) * * *
(4) Denial of all or part of any claim asserted by a firm against
FNS under Sec. 278.7(c) of this chapter;
* * * * *
12. In Sec. 279.2, revise paragraph (a) to read as follows:
Sec. 279.2 Manner of filing requests for review.
(a) Submitting requests for review. Requests for review submitted
by firms shall be mailed to or filed with the Branch Chief,
Administrative Review Branch, U.S. Department of Agriculture, Food and
Nutrition Service, 3101 Park Center Drive, Alexandria, Virginia 22302.
* * * * *
13. In Sec. 279.6, revise paragraph (a) to read as follows:
Sec. 279.6 Legal advice and extensions of time.
(a) Advice from the Office of the General Counsel. If any request
for review involves any doubtful questions of law, FNS shall obtain the
advice of the Department's Office of the General Counsel.
* * * * *
14. In Sec. 279.7, remove the reference to ``Sec. 278.6(e)(8)''
and add in its place the reference ``Sec. 278.6(e)(9)''
Dated: July 10, 2012.
Kevin W. Concannon,
Under Secretary, Food, Nutrition, and Consumer Services.
[FR Doc. 2012-19773 Filed 8-13-12; 8:45 am]
BILLING CODE 3410-30-P