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Oh, SNAP! FNS Finally Issues 2020 SNAP Retailer Summary

USDA’s Food and Nutrition Service (FNS) has oversight over the Supplemental Nutrition Assistance Program (SNAP). The agency’s responsibilities including the licensing of supermarkets, grocery stores, convenience stores, and other retail food stores as authorized SNAP vendors. FNS publishes annual data compilations regarding SNAP redemptions and enforcement proceedings in connection with the more than 250,000 retailers authorized by the agency. The agency’s year-end summaries provide valuable, albeit limited, insight into what the agency is doing. Unfortunately, it took FNS nearly six months after the end of the 2020 fiscal year before it released its Fiscal Year 2020 Year End Summary

FNS’s summary provides vendors, beneficiaries, and the public with a snapshot regarding what the agency has been up to on the SNAP retailer front during the past year.  For example, there were 250,920 SNAP-authorized retailers across the country as of September 30, 2020, an increase of 1% during the past year.  While nearly 45% of all SNAP-authorized firms are convenience stores, those retailers redeem less than 5% of all SNAP benefits.  On the other hand, superstores comprise only 7.7% of all SNAP-authorized entities but redeem more than half of all SNAP benefits.  Not surprisingly, California led the way with more than $8.5 billion in SNAP benefits redeemed at more than 26,000 SNAP-authorized stores in the Golden State.

The most interesting part of FNS’s 2020 Year End Summary concerns retailer sanctions.  FNS’s administrative process is unique amongst USDA regulatory agencies because the agency does not use Administrative Law Judges (ALJs) to determine whether to disqualify retailers from participation in SNAP.  Instead, FNS relies on Administrative Review Officers (AROs), who are agency employees without formal legal training, to preside over SNAP administrative proceedings.  Unlike SNAP judicial review proceedings in federal court and WIC vendor proceedings before state administrative agencies, where trials and/or evidentiary hearings before judges and hearing officers are held, SNAP retailers can only submit a brief and records in their possession to AROs and have no opportunity to question or cross-examine FNS investigators or agency employees who made the decision to charge and disqualify their stores.

Review of FNS’s published data reveals that its enforcement efforts were directed primarily towards small retailers, especially convenience stores. For example, more than 90% of all permanent disqualification determinations involved convenience stores and small grocery stores.  It is also important to note that FNS issued only five civil monetary penalties (CMPs) in lieu of permanent disqualification for trafficking to SNAP retailers during all of Fiscal Year 2020.  On a positive note, this is an increase from the three CMPs that FNS issued in each of the two prior fiscal years.  FNS’s actions ignore clear Congressional intent that SNAP retailers should have the option of paying a CMP in lieu of permanent disqualification for trafficking when ownership is not personally involved in the allegedly illegal activity.  There are several reasons why FNS issues so few CMPs, including because the agency fails to publicize the requirements needed to be eligible (which are buried in the agency’s SNAP regulations), only provides retailers with 10 days after receipt of charge letters to submit supporting information, and due to the agency’s refusal to conduct an advance review of SNAP compliance protocols and training programs prepared by SNAP retailers.

FNS’s SNAP retailer administrative process is also unique among USDA agencies – and perhaps the entire federal government, because FNS AROs make Final Agency Decisions without holding hearings and based on evidence that is not produced to SNAP retailers or their counsel.   Seemingly unsatisfied with the already one-sided nature of its administrative proceedings, FNS made things even harder for SNAP retailers during 2020 by promulgating a Final Rule that precludes stores from using Freedom of Information Act (FOIA) requests to obtain information about the charges the agency has brought before a decision is rendered, including the records that AROs will review.

Not surprisingly, SNAP retailers didn’t fare well when seeking administrative review of adverse FNS determinations.  FNS reversed under 1% of its initial determinations on administrative review during 2020; that’s only 14 out of the more than 1,500 Final Agency Decisions it issued last year.  Review of FNS’s Final Agency Decisions, which are not indexed and which the agency refuses to make word-searchable, reveals that AROs summarily reject good-faith arguments made by SNAP retailers.  This is especially true in trafficking cases based on FNS’s ALERT system, a computer program that the agency uses to “flag” what it describes as “patterns of suspicious transactions.”  FNS publishes no data or reports supporting the reliability of these so-called “patterns,” resulting in a playing field that often results in the permanent disqualification of SNAP retailers who have done nothing wrong. 

FNS also improperly saddles SNAP retailers with the burden of proving the legitimacy of these flagged transactions and that they are not evidence of trafficking.  Without question, the best way for retailers to do so is through itemized register receipts.  This is virtually impossible for most small SNAP retailers to do because few have sophisticated point-of-sale registers and many are aware of FNS’s suggestion that retailers keep registers receipts and purchase invoices for a year.

The time is long overdue for FNS to promulgate regulations requiring SNAP retailers to install optical scanners and sophisticated point-of-sale (POS) that produce and store itemized register receipts.  If FNS’s SNAP regulations required SNAP retailers to utilize such equipment – which is already used at virtually every supermarket and superstore, this would almost certainly result in a dramatic reduction in SNAP retailer fraud.  It would eliminate most mistakes made by clerks who inadvertently permit customers to use SNAP benefits for ineligible items. This is unquestionable because sophisticated point-of-sale (POS) systems that are integrated with the EBT terminal are programmed to prevent the redemption of SNAP benefits for paper products, cleaning suppliers, and other ineligible items. 

Retailers that install sophisticated POS systems and have itemized registers receipts and other transaction data backed up in the cloud will be able to properly respond to trafficking and other charge letters by producing electronic copies of such receipts, thereby demonstrating the legitimacy of those SNAP transactions.  Conversely, those retailers who cannot do so will not have good cause to complain about being disqualified from participating in SNAP and will be less likely to seek administrative review, thereby freeing scarce agency resources for other purposes that will benefit SNAP beneficiaries.

SNAP retailers should not wait for FNS to issue regulations before installing optical scanners, sophisticated POS systems, and integrated EBT terminals.  While there are numerous Third Party Processors (TPPs) that provide services for SNAP retailers, a few stand apart from the pack.  For example, Agent Payment Solutions (www.agentps.com) provides an array of TPP services for SNAP retailers, including assistance with FNS’s SNAP application process, preparation of compliance protocols, training guides, and complimentary online SNAP retailer training for managers and clerks.  Installing modern technology, including optical scanners and sophisticated POS systems that are integrated with their EBT terminals, will also serve to reduce theft and permit retailers to gain a better understanding of their customers and their purchasing and sales activity.   The cost of making these changes pales in comparison with the adverse financial impacts on a store following permanent disqualification from SNAP.  Most convenience stores and other small retailers in impoverished areas are highly dependent on purchases by SNAP beneficiaries and the loss of a store’s SNAP authorization is tantamount to a death sentence. 

Whether FNS issues regulations that mandate installation of optical scanners, sophisticated POS systems, and integrated POS systems as conditions of SNAP authorization remains to be seen.  However, if the agency fails to do so promptly, the time is ripe for Congress to pass legislation that make these changes a condition of SNAP authorization for vendors.  It is also long overdue for Congress to require FNS to reform its inequitable SNAP retailer administrative process; at a minimum, the agency should be required to provide SNAP retailers with what it requires states to provide when they charge WIC retailers with program violations: a full administrative review process that includes the opportunity to cross-examine witnesses, to examine the evidence used by the state to take the adverse action that is being appealed, and to seek review before an impartial decision-maker. 

The need for immediate reform is especially true when taking into account the discriminatory impacts of FNS’s adverse actions against minority SNAP retailers from the Middle East, South Asia, and the Far East.  Given USDA Secretary Vilsack’s recent comments about addressing discrimination at an agency that has been referred to as The Last Plantation and the arrival of new political leadership at FNS, SNAP retailers should be optimistic that meaningful change in the food stamp program may finally take place.

Stewart D. Fried represents SNAP and WIC retailers before FNS, the federal courts, and the legislative branch.

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