USDA’s Food and Nutrition Service (FNS) has oversight over the Supplemental Nutrition Assistance Program (SNAP). The agency’s SNAP-related responsibilities include licensing of supermarkets, grocery stores, convenience stores, and other retail food stores. 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 does. Unfortunately, it took FNS months after the end of the 2021 fiscal year before it released its Fiscal Year 2021 Year End Summary.
FNS’s summary provides vendors, beneficiaries, and the public with a snapshot of what the agency has been up to on the SNAP retailer front during the past year. For example, there were 254,350 SNAP-authorized retailers across the country as of September 30, 2021, 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 7.6% of all SNAP-authorized entities but redeem more than half of all SNAP benefits. Not surprisingly, California led the way with more than $11.7 billion in SNAP benefits redeemed at more than 26,000 SNAP-authorized stores.
The most interesting part of FNS’s 2021 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 employees without formal legal training known as Administrative Review Officers (AROs) 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 administrative proceedings are limited to unilateral paper submissions that are reviewed by AROs who issue written Final Agency Decisions.
Review of FNS’s published data reveals that its enforcement efforts were primarily directed toward small retailers, especially convenience stores. For example, nearly 95% of all permanent disqualification determinations involved convenience stores and small grocery stores. It is also important to note that FNS issued only four civil monetary penalties (CMP) in lieu of permanent disqualification for trafficking to SNAP retailers during Fiscal Year 2021. This is even fewer than the five trafficking CMPs that FNS issued in FY20 and only one more than it issued during FY18 and FY19. 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 alleged illegal activity. Among the reasons why FNS issues few CMPs is the agency only provides retailers ten days to respond with supporting information after receipt of charge letters and because the agency refuses 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, several years ago, FNS made it more challenging for SNAP retailers by promulgating a Final Rule that precludes stores from using Freedom of Information Act (FOIA) requests to obtain information about the charges the agency brought before a decision is rendered, including the records that AROs will review.
Therefore, it is not surprising that SNAP retailers didn’t fare well when seeking administrative reviews of adverse FNS determinations. FNS reversed only 49 – only 3% of the more than 1,400 Final Agency Decisions it issued during FY21. Review of FNS’s Final Agency Decisions, which is not indexed and 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” that often result in the permanent disqualification of innocent SNAP retailers.
FNS also improperly saddles SNAP retailers with the burden of proving the legitimacy of these flagged transactions. Without question, the best way for retailers to do so is through itemized register receipts. This is almost impossible for most small SNAP retailers because few have sophisticated point-of-sale registers and many are unaware of FNS’s suggestion that retailers keep register receipts and purchase invoices for a year.
Years ago, FNS should have promulgated regulations requiring SNAP retailers to install optical scanners and sophisticated point-of-sale (POS) systems that generate and store itemized register receipts. If FNS’s SNAP regulations required 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. Regulations requiring the use of sophisticated POS systems would eliminate most mistakes made by clerks who inadvertently permit customers to use SNAP benefits for ineligible items. This is unquestionable because sophisticated 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.
The House and Senate Agriculture Committees should explore these issues and require FNS to require SNAP retailers to install such equipment as part of the 2023 Farm Bill. Congress should also reform FNS’s entire administrative system which has clear discriminatory impacts on minorities and immigrants – especially those from the Middle East and South Asia – and harm those people the agency is charged with helping. FNS’s overzealous enforcement activities against SNAP retailers has resulted in the expansion of food deserts across the country, especially in rural areas and impoverished parts of inner cities.
SNAP retailers should not wait for FNS to issue regulations before installing optical scanners, sophisticated POS systems, and integrated EBT terminals. While numerous Third-Party Processors (TPPs) 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 a variety of POS systems. The benefits of installing modern technology, including optical scanners and sophisticated POS systems integrated with their EBT terminals, will also reduce theft and permit retailers to better understand 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 for the business.
Whether FNS issues regulations that mandate the installation of optical scanners and/or sophisticated POS systems as conditions of SNAP authorization remains to be seen. Because FNS refuses to do so, it is time for Congress to pass legislation that makes these changes a condition of SNAP authorization for vendors. These and other reforms are long overdue and are critical to addressing FNS’s inequitable SNAP retailer administrative process. At a minimum, Congress should require FNS to provide SNAP retailers with what it requires states to do 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 to impose the adverse action that is 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. It is important to note that USDA’s Equity Commission has no members who are SNAP retailers or attorneys with experience with retail issues. It also failed to address claims of disparate treatment by FNS, despite formal complaints being lodged with it. The Equity Commission also refused to create a SNAP or retailer submission. This is an abdication of its responsibility of ensuring that USDA is not continuing to discriminate in how it operates the SNAP program, which utilizes more than 80% of its annual budget. This is especially true given USDA Secretary Vilsack’s promises to finally address discrimination at an agency that has long been referred to as The Last Plantation. Perhaps pressure put on USDA and FNS by the House of Representatives, which is now controlled by Republicans, will finally result in meaningful change at FNS.
Stewart D. Fried represents SNAP and WIC retailers before FNS, the federal courts, and the legislative branch.
