Supplemental Nutrition Assistance Program: Suspension of SNAP Benefit Payments to Retailers, 12245-12251 [2013-04037]

Agencies

• DEPARTMENT OF AGRICULTURE
• Food and Nutrition Service

[Federal Register Volume 78, Number 36 (Friday, February 22, 2013)]
[Proposed Rules]
[Pages 12245-12251]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-04037]


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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. 78, No. 36 / Friday, February 22, 2013 / 
Proposed Rules

[[Page 12245]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 278

RIN 0584-AE22


Supplemental Nutrition Assistance Program: Suspension of SNAP 
Benefit Payments to Retailers

AGENCY: Food and Nutrition Service (FNS), USDA.

ACTION: Proposed rule.

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SUMMARY: Integrity in the Supplemental Nutrition Assistance Program 
(SNAP) is a primary Program concern. This proposed rule codifies a 
provision of the Food, Conservation, and Energy Act of 2008 (FCEA) 
which authorizes the Department to suspend the payment of redeemed SNAP 
benefits to certain retail food stores or wholesale food concerns 
pending administrative action to disqualify the firms for fraudulent 
activity. In this proposed rule, the Department is also clarifying 
that, in all trafficking cases, requests for extensions to reply to 
charges of trafficking shall not be granted and that Freedom of 
Information requests will be completed separate from the administrative 
sanction process to prevent retailer-caused delays in the issuance of a 
final determination. Further, under existing authority in the Food and 
Nutrition Act of 2008 (hereinafter referred to as ``the Act''), the 
Department is proposing several changes to enhance retailer business 
integrity requirements.

DATES: Comments must be postmarked on or before April 23, 2013 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 https://www.regulations.gov. Preferred method; follow the online instructions 
for submitting comments on docket [FNS-2012-0029].
     Mail: Send comments to Shanta Swezy, Chief, Retailer 
Management and Issuance Branch, USDA, FNS, SNAP, Benefit Redemption 
Division, 3101 Park Center Drive, Room 426, 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. FNS will make the comments publicly 
available on the Internet via https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Shanta Swezy, Chief, Retailer 
Management and Issuance Branch, USDA, FNS, SNAP, Benefit Redemption 
Division, 3101 Park Center Drive, Room 426, Alexandria, Virginia 22302; 
shanta.swezy@fns.usda.gov; or (703) 305-2238.

SUPPLEMENTARY INFORMATION:

Procedural Matters

Executive Order 12866

    This proposed rule has been determined to be not significant and 
was not reviewed by the Office of Management and Budget (OMB) in 
conformance with Executive Order 12866.

Regulatory Impact Analysis

Need for Action
    The proposed rule is needed to codify a nondiscretionary SNAP 
benefit issuance provision as provided in Section 4132 of the FCEA 
(Pub. L. 110-246), and to further address SNAP-retailer integrity 
utilizing current authority provided by the Act.
Benefits
    Implementing the statutory requirements of Section 4132 of the FCEA 
will codify a provision in the Food and Nutrition Act of 2008, that 
improves Program integrity, enhance the Program's ability to 
appropriately serve those who are truly in need and help to ensure that 
SNAP benefits are used as intended. While committed to providing vital 
nutrition assistance to our most vulnerable Americans, protecting 
taxpayer dollars and ensuring program integrity are equally important. 
Once final, these regulations will allow the Department to take 
appropriate action against retailers who are committing SNAP fraud and 
lack the necessary business integrity to further the purposes of the 
Program.
Costs
    The Department does not anticipate that this provision will have a 
significant cost impact. The primary costs anticipated are those FNS 
will bear in relation to updating systems, retailer-related training 
materials, and letters to reflect the new regulations, as well as 
informing State agencies and 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.
    There may be some cost impact on State agencies whose contracted 
electronic benefit transfer (EBT) systems need enhancement or do not 
have the functionality necessary to hold SNAP funds. While it is 
recognized that some costs may be incurred, it is anticipated that FNS 
will work with State agencies and EBT contractors to keep these costs 
minimal. In addition, the Department shares in State SNAP 
administrative costs such as those that may be associated with this 
rulemaking.
    This rulemaking will have no cost impact on most SNAP-authorized 
firms. SNAP-authorized firms that flagrantly violate Program rules by 
trafficking in SNAP benefits would be subject to SNAP benefit payment 
suspension and would ultimately incur a loss of that benefit payment 
should the final civil, criminal or FNS administrative action result in 
a sanction for SNAP trafficking. Further, firms that fail to report 
ownership changes would lose their ability to accept SNAP benefits for 
six months and SNAP-authorized retailers who allow an unauthorized 
party to use their SNAP authorization to conduct SNAP business would be 
subject to a fine for the unauthorized acceptance of SNAP benefits by 
the unauthorized party.
    Though damaging to the Program, the problems being addressed in the 
proposed rule are limited in scope and FNS has limited data upon which 
to base an estimate of their frequency or

[[Page 12246]]

the amount of benefits that might be involved.

Regulatory Flexibility Act

    FNS offices, retailers and other firms participating in SNAP, State 
social service agencies and SNAP clients are the entities affected by 
this change.
    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (RFA) of 1980, (5 U.S.C. 601-612). Pursuant 
to that review, it has been certified that this rule would not have a 
significant impact on a substantial number of small entities. This rule 
will only affect those authorized retailers that violate SNAP rules.

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 by State, local or tribal 
governments, in the aggregate or 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 most cost effective or least burdensome alternative that achieves 
the objectives of the rule.
    This proposed rule does not contain Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for State, local and 
tribal governments or the private sector of $100 million or more in any 
one year. Thus, the rule is 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 
Programs under 10.551. For the reasons set forth in the final rule in 7 
CFR part 3015, subpart V, and related Notice (48 FR 29115, June 24, 
1983), this program is included in the scope of Executive Order 12372, 
which requires intergovernmental consultation with State and local 
officials.

Federalism Summary Impact Statement

    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 13121.
Prior Consultation With State Officials
    We have presented information regarding all FCEA provisions to 
State agencies in various forums. Because SNAP is a State administered, 
Federally-funded program, FNS offices have formal and informal 
discussions with State officials on an ongoing basis regarding program 
implementation and policy issues. This arrangement allows State 
agencies to provide comments that form the basis for discretionary 
decisions in SNAP rules. Further, States support Departmental efforts 
to enhance retailer integrity.
Nature of Concerns and the Need To Issue This Rule
    While all parties believe that retailers should not receive payment 
for fraudulent transactions, not all State EBT contractors may have 
immediate capability to hold SNAP benefit payments. Comments are being 
solicited to address this concern.
Extent to Which We Meet Those Concerns
    This proposal will solicit comments from State agencies and EBT 
contractors regarding concerns associated with enacting these changes. 
The final rule will take these concerns into account and FNS will 
actively work with State agencies and EBT contractors to achieve 
compliance with the new provisions.

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This proposed rule will 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 
and timely implementation. This rule is not intended to have 
retroactive effect unless so specified in the Effective Dates section 
of the final rule. Prior to any judicial challenge to the provisions of 
the final rule, all applicable administrative procedures must be 
exhausted.

Executive Order 13175--Consultation and Coordination With Indian Tribal 
Governments

    Executive Order 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. FNS has regularly scheduled 
quarterly consultation sessions, which act as a venue for collaborative 
conversations with Tribal officials or their designees. The 
consultation session for this rule was held on February 29, 2012. The 
only comment received regarding this regulation at that session was one 
that expressed general support for SNAP integrity efforts to prevent 
trafficking.
    The Department will respond in a timely and meaningful manner to 
all Tribal government requests for consultation concerning this rule. 
Further, the Department is unaware of any current Tribal laws that 
could be in conflict with the proposed rule and requests that 
commenters address any concerns in this regard in their responses.

Civil Rights Impact Analysis

    The Department has reviewed this rule in accordance with 
Departmental Regulations 4300-4, ``Civil Rights Impact Analysis,'' and 
1512-1, ``Regulatory Decision Making Requirements.'' After a careful 
review of the rule's intent and provisions, the Department has 
determined that this rule will not in any way limit or reduce the 
ability of protected classes of individuals to receive SNAP benefits on 
the basis of their race, color, national origin, sex, age, disability, 
religion or political belief nor will it have a differential impact on 
minority owned or operated business establishments and women owned or 
operated business establishments that participate in SNAP.
    The regulation affects or may potentially affect the retail food 
stores and wholesale food concerns that participate in (accept or 
redeem) SNAP. The only retail food stores and wholesale food concerns 
that will be directly affected, however, are those firms that violate 
SNAP rules and regulations. FNS does not collect data from retail food 
stores or wholesale food concerns regarding any of the protected 
classes under Title VI of the Civil Rights Act of 1964. As long as a 
retail food store or wholesale food concern meets the eligibility 
criteria stipulated in the Act and SNAP regulations, they can 
participate in SNAP. Also, FNS specifically prohibits retailers and 
wholesalers that participate in SNAP to

[[Page 12247]]

engage in actions that discriminate based on race, color, national 
origin, sex, age, disability, religion or political belief. This 
proposed rule will not change any requirements related to the 
eligibility or participation of protected classes or individuals, 
minority-owned or operated business establishments or women-owned or 
operated business establishments in SNAP. As a result, this rulemaking 
will have no differential impact on protected classes of individuals, 
minority-owned or operated business establishments or women-owned or 
operated business establishments.
    Further, the Department specifically prohibits the State and local 
government agencies that administer the Program from engaging in 
actions that discriminate based on race, color, national origin, 
gender, age, disability, marital or family status. Regulations at 7 CFR 
272.6, specifically state that ``State agencies shall not discriminate 
against any applicant or participant in any aspect of program 
administration, including, but not limited to, the certification of 
households, the issuance of coupons, the conduct of fair hearings, or 
the conduct of any other program service for reasons of age, race, 
color, sex, handicap, religious creed, national origin or political 
beliefs. Discrimination in any aspect of the program administration is 
prohibited by these regulations, according to the Act. Enforcement may 
be brought under any applicable Federal law. Title VI complaints shall 
be processed in accord with 7 CFR part 15.'' Where State agencies have 
options, and they choose to implement a certain provision, they must 
implement it in such a way that it complies with the regulations at 7 
CFR 272.6.

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 proposed 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

    The Supplemental Nutrition Assistance Program (SNAP) is the largest 
program in the domestic hunger safety net. SNAP provides nutrition 
assistance benefits via electronic debit cards to millions of low 
income people to supplement their food budgets so they can purchase 
more healthy food. FNS authorizes eligible retail food stores and 
wholesale food concerns to accept these benefits as payment for the 
purchase of eligible food. The compliance of authorized retailers and 
wholesalers with the rules of the SNAP is essential to program 
integrity. Unless retail food stores and wholesale food concerns 
consistently and diligently abide by program requirements, SNAP cannot 
fully accomplish its objectives and may, in fact, become less 
effective. The exchange of SNAP benefits for cash, ineligible items or 
other consideration reduces the value of benefits available for 
recipients to purchase eligible food items. Thus, in addition to the 
improper use of Federal funds, the realization of the basic objective 
of the SNAP, to improve nutrition in the diets of needy families, is 
undermined.
    The Department introduces several proposals in this rulemaking. 
While it primarily addresses the implementation of Section 4132 of the 
FCEA, Public Law 110-246, the Department also proposes changes aimed at 
addressing the business integrity of retailers that are participating 
in the Program. The business integrity related proposals focus on 
ownership change reporting, unauthorized redemptions and unpaid debt.

The FCEA Suspension Provision

    The FCEA, enacted on June, 18, 2008, renamed and amended the Food 
and Nutrition Act of 2008, 7 U.S.C. 2011 (the Act). This rulemaking 
addresses the implementation of the provision in Section 4132 of the 
FCEA that authorizes the Department, in certain cases, to suspend the 
payment of redeemed SNAP benefits to a suspected retail food store or 
wholesale food concern pending administrative action to disqualify the 
firm.
    Specifically, the FCEA provision addressed by this rulemaking 
states that the Secretary, in consultation with the Department's Office 
of the Inspector General (OIG), may suspend payment of unsettled 
program funds that have been redeemed if the Department determines that 
flagrant violations of the Act (including regulations promulgated under 
the Act) are being committed by a retail food store or wholesale food 
concern.
    The provision further specifies that if the program 
disqualification is subsequently determined and upheld, these unsettled 
program benefits may be subject to forfeiture. Conversely, if the 
program disqualification is not upheld, then the unsettled program 
benefits will be released to the store with the Department not being 
liable for any interest on the suspended funds.

A Synopsis of the Proposal

    FNS, in this rulemaking, proposes the following procedures for 
implementing this provision:
    A. State EBT contractors will set up their systems to suspend the 
payment of a firm's unsettled funds when directed to do so by FNS.
    B. Affected firms will be notified that payment will continue to be 
suspended until a determination relative to the sanction action that is 
underway is finalized.
    C. Existing procedures will be followed by FNS for charging the 
firm and notifying it of its final determination.
    D. Existing procedures will also be used for administrative and 
judicial reviews.
    E. Existing procedures guiding criminal or civil actions will be 
followed.
    F. Suspended benefits held while actions are underway will be 
forfeited to the Department of Treasury if and when the Agency action 
to sanction firm for trafficking becomes final and/or the civil or 
criminal action is concluded.
    G. Outside of the value of the actual transactions themselves, no 
interest or credit (for benefits held in suspension or any transactions 
estimated to have been subsequently lost due to the suspension) will be 
paid to the firm if it is ultimately determined that the firm is 
subject to a lesser penalty or no penalty.

Legislative Language Clarification

    As stated above, Section 4132 of the FCEA amended the Act. The 
language in this Provision was inserted into section 12(h) of the 
amended Act. Section 12(h)(2)(B)(i) deals with the forfeiture of funds. 
Specifically, this paragraph in the amended Act states that, ``* * * if 
the program disqualification is upheld, (the suspended benefits) may be 
subject to forfeiture pursuant to section 15(g).'' However, the amended 
Act does not contain a section 15(g). This is because, in the same 
revision, section 15(g) was redesignated as section 15(e). Sections 
15(d) and 15(e) were stricken from the amended Act since they dealt 
with

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paper coupons and, as such, were no longer relevant. Therefore, section 
12(h)(2)(B)(i) of the amended Act was intended to refer to section 
15(e) and not section 15(g). Section 15(e) under the amended Act 
authorizes the forfeiture of funds and other items of value 
inappropriately received in exchange for SNAP benefits.

The Proposed Scope and Parameters of Suspension Activity

    In fiscal year 2011, there were a total of 231,465 firms that were 
authorized to accept SNAP benefits. During that fiscal year, 1,219 of 
these firms were sanctioned for trafficking and civil or criminal court 
action was concluded on approximately 5 firms. Trafficking, defined in 
the regulation at 7 CFR 271.2, is primarily (but not exclusively) the 
buying or selling of benefits for cash or consideration other than 
eligible food. Currently, firms that are suspected of trafficking are 
sent a letter of charges by FNS that specifies the violations or 
charges that the agency believes constitute a basis for a permanent 
disqualification. This letter provides the firm with the opportunity to 
submit to FNS information, an explanation or evidence concerning any 
alleged instances of noncompliance. The firm is not disqualified until 
the firm receives a letter advising it of the administrative 
determination that has been made based on the evidence available to the 
agency and information submitted by the firm. Until this time, the firm 
currently retains the ability to remain an active, participating 
retailer in SNAP and no unsettled program benefits are withheld. 
Trafficking of SNAP benefits may continue, and in some cases, retailers 
deliberately delay the FNS determination.
    The Department is not proposing to make any changes in the process 
described above for the vast majority of firms suspected of 
trafficking. Instead, we are proposing that FNS, in conjunction and 
coordination with OIG, apply this suspension provision to the firms 
that are suspected of engaging in flagrant trafficking violations. 
Limiting the applicability of this proposal to the most flagrant 
violators is consistent with the language and intent of the FCEA 
suspension provision.
    FNS will consult with OIG to establish the parameters for 
initiating suspension activities in a memorandum of agreement to ensure 
a common understanding and consistent application of the FCEA 
suspension provision among both agencies of the USDA. In general, 
suspension of funds under this proposal would be triggered when a firm 
flagrantly traffics SNAP benefits in significant amounts. In 
consultation with OIG, FNS will define flagrant violators based on one 
or more factors, such as SNAP redemption levels, the number of 
households utilizing SNAP benefits at the location, store inventory, 
and the SNAP history of the store owners. For example, FNS has 
encountered situations in which SNAP redemptions at a particular 
retailer location suddenly and drastically increase in terms of the 
amount of SNAP redemptions and/or the number of SNAP households 
conducting business at the store. Generally, such activity has been a 
clear indication of trafficking. Within a relatively short period of 
time, these retailers are able to conduct substantial fraudulent SNAP 
activity, take off with the trafficked benefits, and ultimately 
appreciate large profits from trafficking activity before FNS and OIG 
are able to complete a formal investigation. The ability to withhold 
some revenues from such violators would depreciate their profits and, 
hopefully, dissuade them from trafficking.
    To maintain investigative integrity and security, an exact 
definition of ``flagrant'' cannot be provided to the general public. 
The Department would not wish to provide a target for violators to 
avoid action. However, it is in the above and similar types of 
situations that FNS seeks the ability to minimize the extent of the 
fraudulent activity a retailer is able to perpetrate by immediately and 
simultaneously withholding redeemed benefits and initiating an 
investigation. The ability to suspend funds would apply only to the 
most egregious of flagrant cases in which the amount of SNAP benefits 
potentially being diverted from its intended use is substantial. The 
process for handling any other trafficking case would not change as a 
result of this provision. Furthermore, FNS will establish checks and 
balances by requiring consultation with OIG on each case to ensure that 
there is agreement between both agencies that the retailer has met the 
established criteria. FNS is particularly interested in obtaining 
comments from the public on the types of factors and criteria that 
could prove useful in distinguishing between flagrant cases that would 
be impacted by this provision and other more routine trafficking cases 
that would not.
    It is also important to note that the ``flagrant'' violation 
stipulation in this proposal would only apply to the suspension of 
unsettled funds. Any firm found to have trafficked under the existing 
procedures, whether it is considered a ``flagrant'' violation or not, 
is still subject to a permanent disqualification as specified in the 
current regulations at 7 CFR 278.6(e)(1)(i). This proposal has no 
effect on the applicability of this current administrative action.

The Suspension of the Unsettled Funds

    When a firm begins conducting suspicious transactions that fit the 
parameters of flagrant violations, we are codifying the FCEA provision 
by proposing that all unsettled benefit redemptions be immediately 
suspended for that firm. In addition, we are also proposing that the 
unsettled funds be subject to forfeiture if the Program 
disqualification is upheld. The purpose of these proposals is to ensure 
that a firm does not profit from this illicit activity. This proposal 
also safeguards the use of Federal funds.
    We recognize that there may be some concern regarding the 
suspension of benefits for a firm that has not yet been found to have 
trafficked. However, as stated above, the Department anticipates that 
this provision will affect a relatively small subset of the firms that 
are charged with trafficking. Therefore, we believe that the benefit of 
preventing egregious fraudulent payments far outweighs the risk of 
permitting a firm to possibly profit from trafficking in SNAP benefits 
until a decision is ultimately made on its case.
    The FCEA provision provides that the Department would not be liable 
for the value of any interest on withdrawn or suspended funds. We are 
codifying this provision in this proposed rulemaking. In addition, we 
are also proposing that FNS not be held liable for any lost sales due 
to funds settlement being suspended under this provision.

Effect on SNAP Recipients

    FNS recognizes that there may be some inconvenience to SNAP 
households when benefit deposits into a firm's bank account are 
suspended, thereby causing the retailer to cease accepting SNAP 
payments. As a result, normal shopping patterns, especially for those 
recipients who are within walking distance of the firm, may need to be 
altered. However, neither the Act nor the current regulations at 7 CFR 
278.6 allow for any accommodation due to potential SNAP customer 
hardship under such circumstances.

Notification of the Firm

    The intent of the FCEA provision to suspend settlement is to 
prevent violators from continuing to profit by trafficking in Program 
benefits and to ultimately capture dollars that are the fruits of their 
trafficking. Therefore, the action to suspend the payment of

[[Page 12249]]

unsettled accounts must occur immediately. While we recognize that it 
will not be possible to notify retailers in advance of a suspension 
action, FNS is proposing to advise firms at the time that they apply to 
be an authorized retailer of the suspension provision outlined in this 
proposal. In this manner, firms would be adequately notified of the 
possibility of this occurring if they conduct transactions that could 
be considered flagrant violations.
    In addition, FNS would issue a notice to the firm as soon as 
administratively possible to advise the firm as to the reason why the 
payments have been suspended. The Agency will examine ways on how to 
provide this notification in an automated and expeditious manner and 
welcomes public comments in this area.
    Lastly, firms already have contact numbers provided by the State 
EBT contractors to call if there are any issues concerning benefit 
payments. The EBT contractors will be instructed by States to provide 
the firm with the contact information for the appropriate FNS office 
for the firm to contact concerning any action taken as a result of this 
provision.

Effect on State EBT contractors

    The Department is keenly interested on receiving comments from 
State agencies and EBT contractors regarding necessary system changes, 
costs, necessary timeline for implementation of the ability to hold 
unsettled funds, alternative processes for suspending funds (e.g. 
redirecting payment to FNS for holding purposes), and any other 
associated challenges.

Remainder of the Disqualification Process

    We are proposing in this rulemaking that once firms have their 
benefits suspended, the administrative process associated with 
disqualification would continue as described above and under 7 CFR 
278.6, as well as Subparts A and B of 7 CFR part 279, and the 
suspension of benefits would remain in effect. Suspension of benefit 
payments would also remain in effect until any civil or criminal 
actions are concluded.
    The current disqualification process for firms suspected of 
trafficking includes the issuance of a letter of charges, an 
examination of the firm's response to the charges, and the issuance of 
a notice of determination disqualifying the firm (if appropriate). In 
some cases, retailers deliberately delay the FNS determination by 
requesting additional time to respond to the charges and/or submitting 
Freedom of Information Act (FOIA) requests. As such, the Department is 
taking this opportunity to clarify that, in all trafficking cases, 
retailer requests to extend the 10-day period, provided in current 
regulations at 7 CFR 278.6(b)(1), to respond to the letter of charges 
shall not be granted. The Act provides retailers charged with 
trafficking or other program violations a full opportunity to present 
FNS with information through the administrative and judicial review 
process. In addition, FNS instituted a 10-day retailer response period 
between the time the letter of charges and the notice of determination 
are each issued. FNS proposes to maintain this 10-day response period, 
but to revise language in current 7 CFR 278.6(b) to clarify that a 
firm's full opportunity to submit information, explanation, or evidence 
concerning any instances of noncompliance to FNS is during the 
administrative review process and not prior to the notice of 
determination issued by the FNS regional office. Upon the date of 
receipt of the notice of determination, the action to permanently 
disqualify the retailer continues to take effect immediately. The 
retailer then has an additional 10 days to file a written request for 
an opportunity to submit further information in support of its position 
through an administrative review or, if appropriate, a judicial review 
of the original agency action. See current 7 CFR 278.6 and 7 CFR part 
279.
    Furthermore, Freedom of Information Act (FOIA) requests will be 
completed separate from the administrative sanction process. The 
opportunity to present information prior to a final determination or 
during the administrative review process should not be considered an 
opportunity for discovery. Therefore, FOIA requests shall not delay a 
final determination. Any information the retailer is seeking though 
FOIA requests may be presented, if necessary, at the judicial review 
level. Because the Department is merely clarifying its policy through 
this rulemaking, we are not proposing any regulatory changes regarding 
FOIA requests.

Business Integrity Provisions

    In this rulemaking, the Department is proposing several revisions 
and additions to the existing regulations to ensure that retailers who 
are accepting SNAP benefits are furthering the purposes of the Program 
and have the requisite business integrity to ensure that their firms 
follow all of the Program rules.

Reporting Changes in Ownership

    Applicant retailers sign and certify that they understand and will 
abide by a myriad of Program requirements. One such requirement is that 
the SNAP authorization be maintained by the applicant owner or owners, 
that any changes in ownership be reported to FNS, and that the 
authorization not be conveyed to a new business owner should the 
applicant sell the SNAP authorized firm. FNS provides an approved firm 
with a standard retailer authorization package when a firm is initially 
authorized to become a SNAP retailer. The authorization letter that is 
part of this package states, among other things, that the firm is to 
report to FNS any changes in firm ownership. However, in the course of 
conducting recent reauthorization and compliance activity, the 
Department has come across instances in which there were unreported 
changes of ownership.
    In an effort to enhance ownership integrity, the Department is 
proposing, in 7 CFR 278.1(j) and 7 CFR 278.1(l), to codify this 
ownership change reporting requirement and authorize FNS to withdraw 
the SNAP authorization of any firm that timely fails to report changes 
in ownership within the firm. For purposes of reporting changes in 
ownership, ``timely'' would be defined as 10 business days after the 
occurrence of the change in ownership. This provision would apply to 
any firm initially authorized subsequent to the implementation date of 
this provision that fails to report either any additional owner(s) as 
well as the loss of any owner(s). Also under this provision, any 
affected owner would not be able to reapply for authorization for a 
period of six months. All owners involved, including all of those named 
on the original application, as well as any additional owners, are 
affected by the six-month timeframe of this provision. Action for 
failure to report ownership changes would not supersede the Act and 
companion regulations that provide for penalties associated with 
falsification of ownership information.

Unauthorized Redemptions

    The Department is concerned when an authorized retail establishment 
is sold or transferred to a different owner, and the selling owner(s) 
allows the buyer(s) of the store to continue to operate as a SNAP 
retailer under the selling owner(s)'s authorization. This type of 
activity is expressly forbidden under the existing regulations at 7 CFR 
278.4, 7 CFR 278.6(m) and 7 CFR 278.7(c), which prohibit the acceptance 
of SNAP benefits by an unauthorized

[[Page 12250]]

party. Currently, an unauthorized firm that accepts such benefits is 
subject to an unauthorized redemption fine under 7 CFR 278.6(m). 
However, there is currently no penalty for the seller in this instance. 
The buyer cannot accept SNAP transactions without the seller's active 
knowledge and participation. This is because the buyer would need to 
use the seller's EBT point-of-sale terminal, and the funds secured from 
the SNAP purchases would still be settled into either the sellers bank 
account or into a bank account that the seller is complicit in 
arranging for the buyer's use. To address the seller's complicit 
involvement in this area, and as a preventative for unauthorized 
redemptions, the Department is proposing to make the seller(s) of a 
store that continues to make unauthorized redemptions subject to two 
separate penalties. The first penalty, proposed in 7 CFR 278.1(b)(3)(v) 
and 7 CFR 278.1(k)(3)(vii), would make the seller(s) permanently 
ineligible for SNAP participation due to lacking the business integrity 
to further the purposes of the Program. In addition to not being able 
to be authorized in a new store, the seller(s) would also have the 
authorization of any another existing participating store in which they 
have a share of ownership permanently withdrawn. The second penalty, 
proposed in 7 CFR 278.6(m), would make the seller(s) subject to an 
unauthorized redemption fine. The amount of the fine would be the same 
as authorized to be assessed against the buyer.

Unpaid Debt

    The current regulations at 7 CFR 278.1(k)(7) allow FNS to deny or 
withdraw the authorization of any store that fails to pay certain 
fiscal claims or fines based on a lack of business integrity. The 
Department proposes to expand this authority by allowing the denial or 
withdrawal of a store owned by a firm that fails to pay any fine, claim 
or fiscal penalty assessed against it under Part 278 of the 
regulations. The denial or withdrawal would be able to be assessed 
against any store owned by a firm at any time after FNS determines that 
the debt has become delinquent. The expansion of this authority is 
being proposed because the Department strongly believes that a firm 
that is delinquent on any FNS debt lacks the business integrity 
necessary to remain an authorized retailer. The withdrawal would remain 
in effect as long as the debt remains unpaid. Once the debt is repaid, 
the owner(s) may reapply for authorization.
    In addition, any administrative review requested as a result of a 
denial or withdrawal of an unpaid debt will be limited to the existence 
of, and delinquent nature of, the debt. The initial reason for and the 
amount of the original debt would not be subject to review at this time 
as the debtor received those review rights when the initial debt was 
established.

Establishing Firm Practice to Violate the Program

    Current regulations at 7 CFR 278.6(e)(2) and (e)(3) state that a 
firm is to be disqualified if it has been found to have been the firm's 
practice to exchange major non-food items for SNAP benefits. Major non-
food items, for the purposes of this discussion, are expensive or 
conspicuous nonfood items, cartons of cigarettes, or alcoholic 
beverages. Under these regulations, the appropriate disqualification 
time period would be three years if the firm had not been warned that 
such violations might be occurring or five years if the firm had 
received prior warning. In either case, firm practice must also be 
established; if there was no finding that it was the firm's practice, 
then the appropriate penalty would be a six-month disqualification due 
to carelessness or poor supervision (7 CFR 278.6(e)(5)).
    The Department is taking this opportunity to realign policy with 
the current regulations. FNS policy states that in instances involving 
sale of major items by two or more store clerks, firm practice is 
established if the firm has received prior warning. This proposed rule 
would clarify that prior warning is not needed to establish firm 
practice in instances when major ineligible items are sold by two or 
more clerks and that in such instances, a three year disqualification 
as prescribed by regulation, would apply.

List of Subjects in 7 CFR Part 278

    Banks, Banking, Food stamps, Grant programs-social programs, 
Penalties, Reporting and recordkeeping requirements, Surety bonds.
    Accordingly, 7 CFR part 278 is proposed to be amended as follows:

0
1. The authority citation for 7 CFR part 278 continues to read as 
follows:

    Authority:  7 U.S.C. 2011-2036.

0
2. In Sec.  278.1:
0
a. In paragraph (b)(3) introductory text, place the words ``or 
withdraw'' between ``shall deny'' and ``the authorization.''
0
b. Redesignate paragraph (b)(3)(vi) as paragraph (b)(3)(vii) and add 
new paragraph (b)(3)(vi).
0
c. Add a new sentence to the end of paragraph (j).
0
d. Add new paragraph (k)(3)(vii)).
0
e. Revise paragraph (k)(7).
0
f. Redesignate paragraphs (l)(1)(v) through (l)(1)(vii) as paragraphs 
(l)(1)(vi) through (l)(1)(viii) and add a new paragraph (l)(1)(v).
    The revisions and additions read as follows:


Sec.  278.1.  Approval of retail food stores and wholesale food 
concerns.

* * * * *
    (b) * * *
    (3) * * *
    (vi) Evidence that an owner(s) or officer(s) of the firm permitted 
an unauthorized third party to use its POS terminal to conduct SNAP 
transactions.
* * * * *
    (j) * * * In addition, firms are required to report any changes in 
ownership either of the firm or within the firm to FNS within 10 
business days after the change occurs.
    (k) * * *
    (3) * * *
    (vii) Any firm that contains an owner(s) or officer(s) who 
previously allowed an unauthorized third party to use a POS terminal to 
conduct SNAP transactions shall be withdrawn and permanently denied.
* * * * *
    (7) The firm failed to pay in full any fiscal claim assessed 
against the firm under 7 CFR Part 278. FNS shall issue a notice to the 
firm (using any delivery method that provides evidence of delivery) to 
inform the firm of any authorization denial or withdrawal and advise 
the firm that it may request a review of that determination. Any review 
of the determination will be limited to the existence of and delinquent 
nature of the debt.
    (l) * * *
    (1) * * *
    (v) The privately owned firm failed to report any changes in 
ownership within the firm to FNS within 10 business days after the 
occurrence of the change in ownership. The owner(s), officer(s) or 
manager(s) of such firms shall be withdrawn and shall not be able to 
submit a new application for authorization in the Program for a minimum 
period of six months from the effective date of the withdrawal;
* * * * *
0
3. In Sec.  278.6:
0
a. Redesignate paragraphs (b) through (o) as paragraphs (c) through (p) 
and add a new paragraph (b).
0
b. Revise the first sentence and remove the second sentence of 
redesignated paragraph (c)(1).

[[Page 12251]]

0
c. Revise redesignated paragraph (f)(2)(i).
0
d. Revise redesignated paragraph (f)(3)(i).
0
e. Revise redesignated paragraph (m).
    The revisions and additions read as follows.


Sec.  278.6.  Disqualification of retail food stores and wholesale food 
concerns, and imposition of civil money penalties in lieu of 
disqualifications.

* * * * *
    (b) Suspension of benefit payments. FNS may have State benefit 
providers suspend the payment of unsettled Program benefits to a 
suspected firm pending administrative action to disqualify the firm. 
This shall apply to those firms that are suspected by FNS, in 
consultation with the Department's Office of the Inspector General, to 
have committed flagrant violations of the Food and Nutrition Act of 
2008, as amended, or this Part.
    (1) Suspension of benefits under this paragraph will remain in 
effect during the entire sanction process, including during the 
administrative or judicial review process.
    (2) Any firm that has had its unsettled payments suspended under 
this paragraph shall forfeit those funds if a final determination is 
made to permanently disqualify the firm. Conversely, the funds shall be 
released to the firm if a permanent disqualification is not upheld.
    (3) FNS shall not be liable for paying either any interest for 
unsettled payments suspended under this paragraph or compensation for 
any lost sales due to the authorization being suspended under this 
paragraph.
    (c) * * * (1) * * * The FNS regional office shall send any firm 
considered for disqualification, or imposition of a civil money penalty 
under paragraph (a) of this section, or a fine as specified under 
paragraph (l) or (m) of this section, a letter of charges before making 
a final administrative determination. * * *
* * * * *
    (f) * * *
    (2) * * *
    (i) It is the firm's practice to sell expensive or conspicuous 
nonfood items, cartons of cigarettes, or alcoholic beverages in 
exchange for SNAP benefits. It is considered the firm's practice when, 
based on investigative evidence, the exchanges of these ineligible 
items for SNAP benefits involved two or more clerks.
* * * * *
    (3) * * *
    (i) It is the firm's practice to commit violations such as the sale 
of common nonfood items in amounts normally found in a shopping basket, 
and the firm was previously advised of the possibility that violations 
were occurring and of the possible consequences of violating the 
regulations. It is considered the firm's practice when, based on 
investigative evidence, the exchanges of any ineligible items for SNAP 
benefits involved two or more clerks.
* * * * *
    (m) Fines for allowing the use of POS equipment by an unauthorized 
user. Any firm that allows either a new owner or any other unauthorized 
user to utilize its POS equipment to conduct SNAP transactions is 
subject to the same fine that may be assessed against the unauthorized 
third party that conducts the transactions. The amount of this fine is 
specified in Sec.  278.6(n).
* * * * *

    Dated: February 14, 2013.
Audrey Rowe,
Administrator, Food and Nutrition Service.
[FR Doc. 2013-04037 Filed 2-21-13; 8:45 am]
BILLING CODE 3410-30-P