USDA’s Food and Nutrition Service (FNS) may impose civil monetary penalties (CMP) on retailers that are determined to have violated Supplemental Nutrition Assistance Program (SNAP) regulations. These penalties are most frequently imposed against SNAP retailers who transfer ownership of their stores after being disqualified for trafficking. FNS may also grant a CMP in lieu of permanent disqualification for trafficking in the event that the store has an appropriate training program and compliance protocol that conforms with the requirements of 7 CFR §278.6(i).
Under FNS regulations, SNAP retailers charged with trafficking, may request that a CMP be imposed in lieu of permanent disqualification. The request must be made in writing within 10 days after receipt of FNS’s charge letter. Note that FNS refuses to grant extensions of time for CMP requests. The request must contain evidence that the store had an (1) effective training program; (2) effective compliance protocol; (3) evidence that employees have been trained prior to the date of the violations referenced in the charge letter; and (4) that firm ownership was not aware of, did not approve, did not benefit, and was not otherwise involved in the trafficking violations, unless it was the firm’s first offense. Although many retailers diligently train their employees, few have the written training program, compliance protocol, and other records needed to be eligible for a trafficking CMP.
FNS calculates the CMP in lieu of permanent disqualification for trafficking based on a formula that typically amounts to twelve times the store’s average monthly SNAP redemption during the preceding year for initial violations. Because many SNAP retailers redeem tens of thousands of dollars in EBT each month, the potential penalties under this formula could easily exceed $100,000. Recognizing that few SNAP retailers could pay such a steep penalty, FNS’s civil monetary penalty regulation places caps on the amounts that eligible SNAP retailers are required to pay. 7 CFR §3.91(b)(3). As a result of a recently issued final rule promulgated by FNS pursuant to the Federal Civil Penalty Inflation Adjustment Act Improvement Act of 2015 (the Act), which requires federal agencies to adjust civil penalties for infliction on an annual basis, the caps on civil monetary penalties are increasing. See Civil Monetary Penalty Inflation Adjustment for 2018 final rule (Final Rule), 83 Fed. Reg. 11129 (March 14, 2018),
The Final Rule increases civil monetary penalties that retailers may be required to pay. For example, the CMP for violating a provision of the Food and Nutrition Act of 2008 or a SNAP regulation is increasing to $113,894 for each violation; to $73,906 for the sale of firearms, ammunition, explosive, or controlled substances in exchange for SNAP benefits for violations occurring during a single investigation; and to a maximum of $60,161 for trafficking in SNAP benefits for violations occurring during a single investigation. FNS also imposes civil monetary penalties when a term disqualification is determined to cause hardship to SNAP beneficiaries and when a store transfers ownership following a term or a permanent disqualification. In those instances, FNS uses the formula set forth in 7 CFR §278.6(g), except that if a store has been permanently disqualified, the transfer penalty is doubled. For reasons that are unclear, FNS limits the penalty in transfer of ownership CMP determinations arising from its ALERT system to $11,000 per pattern of violation. FNS’s Anti-fraud Locator using EBT Retailer Transactions (ALERT) system flags patterns of what FNS views as “suspicious transactions” and charges retailers with engaging in trafficking based on up to five categories of patterns of transactions that are contended to be indicative of trafficking. These patterns include too many “same cents” transactions, transactions “too rapidly” to be credible, redemption of a household’s monthly allotment in “unusually short” periods of time, and “unusually large” SNAP redemption transactions.
The importance of implementing an effective compliance protocol and training program cannot be understated as the failure to do so may result in the retailer – and its owners, officers, and managers, being permanently disqualified from participation in SNAP. Additionally, FNS also places owners, officers, and managers on the General Services Administration’s Excluded Persons List (EPLS). Being listed on the EPLS is tantamount to being permanently debarred from doing business with the entire federal government. Shockingly, FNS does not advise SNAP retailers in writing (or otherwise) that they are being placed on EPLS following a disqualification of their store. In light of the steep civil monetary penalties associated with SNAP trafficking violations and the frequency that FNS permanently disqualifies SNAP retailers based on circumstantial evidence , it is critical for SNAP retailers to remain vigilant about complying with the Food and Nutrition Act and FNS’s regulations at all times and to maintain evidence that their employees have been properly trained.
Stewart Fried represents supermarkets, grocery stores, convenience stores, and retailer associations on SNAP and WIC-related issues, including defense of trafficking charges and other program violations, as well as assists retailers in the preparation of training programs and compliance protocols.