Owners of retail food stores permanently disqualified from participation in the Supplemental Nutrition Assistance Program (SNAP) are saddled with serious consequences in addition to the loss of the store’s ability to accept food stamp benefits (EBT). After USDA’s Food & Nutrition Service (FNS) permanently disqualifies a store, the agency promptly searches its SNAP retailer database to determine if the disqualified store’s shareholders have ownership interests in other SNAP-authorized stores. A store whose owner has been permanently disqualified from SNAP based on trafficking activity at another store will soon receive a letter from FNS advising that their SNAP authorization will be withdrawn based on the lack of business integrity of the owner. Owners will also not be able to sell or transfer a permanently disqualified store without being subject to a substantial transfer penalty. The transfer civil money penalty (CMP) imposed by FNS is calculated using a complicated formula and can exceed $113,000 – an amount greater than the CMP that FNS can assess against a store in lieu of permanent disqualification from trafficking.
One issue affecting permanently disqualified retailers that has largely fallen under the radar screen concerns FNS listing of owners on the General Services Administration’s System for Award Management (SAM).
What is SAM?
SAM is a website run by the federal government that serves as a central registration point for government contractors. SAM tracks individuals and entities that do business with the federal government and is the Federal Government’s system for suspension and debarment. It is designed to ensure that it only does business with responsible persons in both non-procurement activities (including, grants, cooperative agreements, and loan guarantees) and procurement activities (including contracts). An individual or entity placed on SAM is prohibited from doing business with the federal government for the duration of the exclusion. Not surprisingly, FNS interprets “permanent” as meaning for the life of the individual.
Suspension and debarment are administrative actions taken by Federal agencies to prevent the Federal government from doing business with persons and entities that are not presently “responsible.” In the world of government contracts, a “responsible party” is the person who has a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual, directly or indirectly, to control, manage or direct the entity and the disposition of its funds and assets. Suspension is a temporary action that immediately prohibits a person or entity from participating in covered procurement and non-procurement transactions for a temporary period, usually pending completion of an agency investigation or judicial or administrative proceedings that may ensue. Debarment is usually longer – typically three years – and is based on not less than a preponderance of evidence. These actions are not designed to be punitive in nature, but are intended to protect the Federal Government from fraud, waste, and abuse. Federal agencies are required to consult SAM before granting new benefits or issuing new contracts so that they may be certain they are dealing with responsible persons and entities.
FNS permanently lists all owners of stores permanently disqualified from participation in SNAP for engaging in trafficking as excluded persons in SAM. This is true even when the owner was not involved in the alleged trafficking and when FNS’s administrative determination is based on circumstantial evidence (including its ALERT system) or when the illegal acts were committed by employees outside of the scope of employment. FNS has listed more than 10,000 permanently disqualified retailers on SAM as excluded persons as a result of SNAP and WIC violations.
The potential adverse impacts of being listed on SAM cannot be understated. Owners listed on SAM cannot ever conduct business again with any federal agency. They also cannot serve in a high-level position of responsibility with a company that does business with the federal government. Shockingly, FNS does not provide retailers with written notice that they have been placed on SAM’s excluded parties list following the permanent disqualification from SNAP and only recently changed their training guide to advise retailers that they may be placed on SAM if they are permanently disqualified.
One recent example illustrates the fundamental unfairness of FNS’s placement of SNAP retailers on SAM. During 2017, the wife of the owner of a Pennsylvania retail food store was placed on SAM despite her lack of any ownership interest in the store. The wife worked as a nursing home administrator and never worked at the store. After the store was permanently disqualified, FNS placed the husband and the wife on SAM. Because her nursing home participated in Medicare and Medicaid (thereby receiving federal funds), her placement on SAM meant that she could no longer serve as administrator. As a result, she was demoted and suffered a substantial loss of pay. After her efforts to convince FNS to remove her from SAM were unsuccessful, OFW’s attempt to convince FNS’s Retailer Policy and Management Division (RPMD) to remove her from SAM were unsuccessful; RPMD denied the request in a one paragraph response, advising “there is no further recourse or relief in this matter.” Despite RPMD’s statement that there was no appeal or other resource available to her, OFW Law petitioned FNS Administrator Brandon Lipps to remove her from SAM. A petition was required because FNS does not have an administrative appeal process available for owners listed on SAM. Less than one month later, Administrator Lipps granted OFW Law’s petition and removed the wife from SAM. Although she was ultimately reinstated to her former position, she was not able to recover her lost income or the attorneys’ fees she incurred in connection with removing her from SAM.
The Pennsylvania woman’s experience is hardly unique and is likely to be repeated in the future. To prevail this gross miscarriage of justice, Congress should change the law to require FNS to (1) notify retailers that they might be placed on the SAM list when issuing Charge Letters; (2) advise them they have been placed on the SAM list at the same time FNS permanently disqualifies retailers; and (3) provide for a formal evidentiary administrative review process that requires FNS to prove that the owner personally committed wrongdoing. Failure to do so hurts small businesses and their owners regardless of the owner’s knowledge or participation in any trafficking or other SNAP violations.
OFW Principal Stewart Fried represents SNAP-authorized retail food stores and their owners in matters relating to FNS’s listing of persons on the SAM list, withdrawals of authorization, and concerning trafficking and other SNAP violations before FNS, the federal courts, and Congress.