Affum v. United States of America et al

Memorandum in opposition to re MOTION to Stay of Administrative Action MOTION for Preliminary Injunction

D.D.C.April 4, 2008

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ____________________________________ PHILOMENA AFFUM ) d/b/a Asafo Market, ) ) Plaintiff, ) ) v. ) Civil Action No. 08-300 (RCL) ) UNITED STATES OF AMERICA ) and ED SCHAFER, ) ) Defendants. ) ) DEFENDANTS’ OPPOSITION TO PLAINTIFF’S APPLICATION FOR STAY OF ADMINISTRATIVE ACTION AND FOR PRELIMINARY INJUNCTION Pursuant to 7 U.S.C. § 2023(a)(17), (18) and Federal Rule of Civil Procedure 65, the Defendants hereby oppose Philomena Affum’s application for a stay of the administrative action and for preliminary injunction. (Dkt. 6.) Affum, the owner of a store that was eligible to accept food stamp benefits, seeks to stay the administrative penalties resulting from her store’s admitted and repeated violations of the Food Stamp Act. These penalties include a six-month disqualification from the Food Stamp Program for the sale of ineligible items and a permanent disqualification from the program for “trafficking” in food stamp benefits (i.e., selling food stamp benefits for cash). As the United States Department of Agriculture (“USDA”) sets forth below, the Court should deny the plaintiff’s application for three reasons. First, Affum’s request for a preliminary injunction is premature. She has not sought review of the six-month disqualification for selling ineligible items, and that time period does not lapse until May 16, 2008. Thus, regardless of the permanent disqualification, Affum is not eligible to participate in the program at this time. Second, the Food Stamp Act prohibits store owners from obtaining preliminary injunctive relief Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 1 of 25 2 when they have been permanently disqualified from the program. Third, Affum cannot meet the standard for preliminary injunctive relief set forth in the Food Stamp Act or Rule 65. In particular, Affum is not likely to prevail on the merits, she has not shown a likelihood of suffering irreparable injury, and the USDA and the public will suffer great harm if a store owner who admits to violating the Food Stamp Act is permitted to re-enter the program. BACKGROUND A. THE FOOD STAMP PROGRAM The USDA’s Food and Nutrition Service (“FNS”) administers the Food Stamp Program. See 7 U.S.C. §§ 2011-2036; 7 C.F.R. 271.3. The Food Stamp Program is designed “to safeguard the health and well-being of the Nation’s population by raising the levels of nutrition among low-income households.” 7 U.S.C. § 2011. The program helps increase the food purchasing power of eligible households by supplementing the funds families have to spend on food with food stamp benefits. 7 U.S.C. § 2013. Recipients may use these benefits (or allotments) to purchase food items at authorized retail food stores. Id. The FNS currently delivers food stamp benefits through electronic benefit transfer (“EBT”) cards. These EBT cards operate similarly to automated teller machine (“ATM”) cards used by banks. At the beginning of each month, the FNS credits a Food Stamp recipient’s card with a dollar amount of food stamp benefits for that month. A recipient may then use the EBT card at authorized retail food stores to purchase eligible food items. A retail store must apply to the USDA to be authorized to accept and redeem food stamp benefits. Once admitted into the program, retail food stores receive one or more EBT terminals. As a recipient makes a purchase, the retailer swipes the EBT card through the EBT terminal, the recipient enters a personal identification number (“PIN”) code on a keypad, and the amount of Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 2 of 25 3 the purchase is deducted from the recipient’s EBT card. The EBT terminal generates a receipt for each transaction that reflects the balance remaining in the recipient’s account for the month. The amount of the recipient’s purchase is electronically credited to the retail food store owner’s bank account through an arrangement between the store owner and FNS. The Food Stamp Act strictly prohibits retail stores from exchanging food stamp benefits for cash. See 7 U.S.C. § 2021(b)(3). This type of fraudulent transaction is called “trafficking.” The Food Stamp Act and the accompanying regulations also expressly prohibit retail food stores from accepting food stamp benefits as payment for “ineligible” items, which are generally non- food items and some prepared hot food items. See, e.g., 7 U.S.C. § 2021; 7 C.F.R. § 271.2. Congress has repeatedly emphasized the importance of combating fraud in the Food Stamp Program. See, e.g., H.R. Rep. No. 100-828, at 27 (1988) (“Sale of food stamps at a discount price or trading food stamps for non-food items is a serious offense. It violates the purpose of the food stamp program and harms needy food stamp families.”) Trafficking in food stamp benefits is estimated by the USDA to exceed $1 billion each year. See H.R. Rep. 104-651, at 68-69 (June 27, 1996), accompanying Pub. L. No. 104-193, 1996 U.S.C.C.A.N. 2202. “The USDA has found that most trafficking occurs in smaller retail food stores.” Id. Therefore, FNS monitors stores, conducts periodic reviews of stores, and will initiate an investigation of a store when the Agency believes it is warranted by suspicious data. Selling ineligible items and engaging in trafficking are both punishable by disqualification from the Food Stamp Program. See, e.g., 7 U.S.C. § 2021(b)(3). For selling ineligible items, the disqualification may last only six months for a first offense. 7 C.F.R. § 278.6. The disqualification for trafficking, however, is permanent even for a first time offender unless the USDA, in its discretion, imposes a civil money penalty (“CMP” or “fine”) instead. Id. Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 3 of 25 4 In order to be eligible for a CMP, the store owner must show, among other things, that she had an effective policy and program in place to prevent trafficking. 7 U.S.C. § 2021(b)(3). B. FACTUAL BACKGROUND AND PROCEDURAL HISTORY The essential facts in this case are undisputed. Affum owns and operates Asafo Market, a retail food store located at 1309 5th Street, N.E., Washington, D.C. (Administrative Record (“A.R.”) at 3.) In July 2006, Affum applied to participate in the Food Stamp Program. (Id. at 3.) In her application, Affum explicitly agreed that: I will follow, and ensure that employees will follow, the Food Stamp Program regulations. I am aware that violations of program rules can result in fines, legal sanctions, withdraw, or disqualification from the Food Stamp Program. I accept responsibility on behalf of the firm for violations of the Food Stamp Program regulations, including those committed by any of the firm’s employees, both paid or unpaid, new, full-time or part time. These include violations, such as but not limited to: . . . – Trading cash for food stamp benefits . . . – Accepting food stamp benefits as payments for ineligible items. (Id. at 9.) The FNS authorized Affum to participate in the Food Stamp Program as a retailer in August of 2006. (Id. at 1.) In doing so, the FNS informed Affum of all applicable rules and regulations, including the prohibition on trafficking and selling ineligible items and the penalties for violations. (Id. at 1-2.) FNS employs fraud monitoring software to assist in the detection of trafficking. Within just two months of becoming an authorized retailer, the Asafo Market triggered several suspicious activity reports. In the first category, the Asafo Market processed multiple transactions (or swipes of the EBT card) on EBT accounts at a single terminal, with most swipes occurring within just a few minutes of each other and totaling over $100. (Id. at 13-15.) This type of activity is suspicious because the size, inventory and check-out lanes of a store like the Asafo Market generally do not substantiate this amount of EBT activity. Second, the Asafo Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 4 of 25 5 Market processed repeated transactions on the same EBT account within a short period of time. (Id. at 16.) In this situation, retailers often attempt to hide trafficking involving a single food stamp recipient by disguising the transaction as multiple transactions. The last report shows 26 suspicious high dollar transactions which occurred at Affum’s store. (Id. at 17.) Notably, the average transaction for a store similar in size and location to the Asafo Market is only $10.18. (Id.) The Asafo Market’s average transaction in September 2006, however, was $140.93. 1 (Id.) As a result of this suspicious activity, FNS referred Affum for formal investigation. From February 2007 until April 2007, an undercover investigator for FNS witnessed several significant violations of the Food Stamp Act at the Asafo Market. (Id. at 25-49.) On two separate occasions, an employee of Affum engaged in trafficking. (Id. at 25.) In particular, the employee exchanged a total of $30 in food stamps benefits for $30 in cash for an undercover investigator on April 19 and 27, 2007. (Id. at 25, 44-49.) On six separate occasions, the employee (or perhaps Affum herself (Id. at 28)) also sold ineligible items to the investigator. (Id. at 25-43.) For example, the undercover investigator was able to purchase non-food items such as soap, shaving cream, cleaning pads, plastic containers, deodorant, and body lotion at the Asafo Market using food stamp benefits. (Id.) On October 10, 2007, the FNS informed Affum of the investigation and told her that she was being considered for a permanent disqualification from the Food Stamp Program as a result of the trafficking charge. (Id. at 22-24). The letter invited Affum to submit evidence that she qualified for the alternative penalty of a CMP, either in writing or in person. (Id.) Affum was also given the opportunity to present “any information, explanation, or evidence regarding the 1 These reports were not ultimately used to substantiate either charge against the Asafo Market because, as set forth below, the FNS undertook a formal investigation. Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 5 of 25 6 trafficking violations” to the Officer-in-Charge of the Towson, Maryland Field Office. (Id.) The letter emphasized that even if Affum qualified for the CMP for the trafficking charge, she would still be required to serve the six-month disqualification for the sale of ineligible items. (Id. at 23.) The letter also informed Affum that if the trafficking violations were found to have occurred and she was ineligible for the CMP, she would be permanently disqualified from the program when she received the letter informing her of the Agency’s final decision. (Id.) On November 5, 2007, Affum chose to meet with Officer-in-Charge Sarah Duncan and Program Specialist Joseph Pecora in the Towson, Maryland office to discuss the charges. (A.R. at 50.) At this meeting, Affum admitted that the violations alleged in the October 10 letter occurred and further stated that both she and the clerk knew that the clerk had violated the rules of the Food Stamp Program. (Id.; see also Affum Affidavit at ¶ 4.) She said she believed the clerk had broken the rules in order to please the customer, and emphasized that it was the employee who broke the rules. (Id.) At the meeting, Affum did not provide any documentation to indicate that she should be granted a CMP. Nor did she describe in any detail a training program for her employee to prevent trafficking from occurring. (Id.) On November 14, 2007, the FNS sent its decision letter to Affum. (Id. at 57-58.) The FNS informed Affum that it had determined that the alleged violations occurred at her store, and that she would be permanently disqualified from the Program when she received the letter. (Id.) The letter also informed her that while she had been considered for the CMP rather than permanent disqualification, she was not eligible for the fine because she had not provided any supporting evidence to show that she had an effective policy and program in place to prevent trafficking. On November 19, 2007, the FNS turned off the EBT terminal at the Asafo Market. (Id. at 62.) Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 6 of 25 7 On November 24, 2007, Affum appealed the decision to disqualify her permanently from the program to the Administrative Review Branch. (Id. at 63.) She did not, however, enclose any supporting documentation or give any further explanation regarding the details of a training policy or program. Notably, Affum did not appeal the six-month disqualification for the sale of ineligible items. Rather, she simply requested that the penalty of permanent disqualification be reduced. (Id. at 63, 69-70.) On January 22, 2008, after a thorough review of the record, the Agency issued its “Final Agency Decision.” (Id. at 72-76.) The Agency upheld the decision to permanently disqualify Affum from the Food Stamp Program. (Id.) This litigation followed. ARGUMENT I. PLAINTIFF MUST SERVE A SIX-MONTH DISQUALIFICATION FOR SELLING INELIGIBLE ITEMS Affum does not dispute that her store committed two separate and distinct violations of the Food Stamp Act: (1) selling ineligible items for food stamp benefits, and (2) trafficking in food stamp benefits. (A.R. at 22-24.) The penalty for selling ineligible items is disqualification from the Food Stamp Program for six-months. See 7 C.F.R. § 278.6(e)(5). The penalty for trafficking in food stamp benefits is either permanent disqualification from the Food Stamp Program or a CMP. Id., § 278.6(e)(1)(i). In seeking preliminary injunctive relief, Affum challenges her permanent disqualification for trafficking in food stamp benefits. (Dkt. 6 at 1.) However, she does not challenge the six-month disqualification for selling ineligible items for food stamp benefits. (Id.) Even if Affum prevails on reducing the penalty for the trafficking offense from permanent disqualification to a CMP, she still would be subject to the six-month disqualification Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 7 of 25 8 for selling ineligible items. The USDA made this clear to Affum in its October 10, 2007 letter, which states in pertinent part: If you meet all the conditions for a CMP in lieu of PERMANENT disqualification, you would still be subject to serving the SIX MONTH disqualification for the aforementioned sale of ineligible items. (A.R. at 22) (emphasis in original). The relevant regulations also explicitly provide that “Firms assessed a CMP . . . shall be subject to the applicable penalties included in § 278.6(e)(2) through (6) for the sale of ineligible items.” See 7 C.F.R. § 278.6(i) (emphasis added). Thus, even if the Court concludes that Affum’s permanent disqualification for trafficking should be stayed, she has failed to provide any basis for this Court to order her reinstatement into the program before the six-month disqualification period for selling ineligible items is complete. Id. Affum’s disqualification from the Food Stamp Program began on November 16, 2007. (A.R. at 62.) The six-month disqualification for selling ineligible items remains in effect through May 16, 2008. Affum’s March 20, 2008 request for an injunction reinstating her into the Food Stamp Program is plainly premature at this time, and should therefore be denied. II. PRELIMINARY RELIEF IS NOT AVAILABLE IN CASES OF PERMANENT DISQUALIFICATION Affum relies on 7 U.S.C. § 2023(a)(17) in seeking preliminary injunctive relief. (Dkt. 6 at 13-14.) Section 2023(a)(17) empowers the Court to “temporarily stay” the “administrative action pending disposition of [the] trial or appeal.” However, Affum completely ignores 7 U.S.C. § 2023(a)(18), which provides that a stay of administrative action is not available in cases where, as here, a store owner has been permanently disqualified from the Food Stamp Program. Specifically, § 2023(a)(18) states that: Suspension of stores pending review – Notwithstanding any other provision of this subsection, any permanent disqualification of a Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 8 of 25 9 retail food store . . . shall be effective from the date of receipt of the notice of disqualification. If the disqualification is reversed through administrative or judicial review, the Secretary shall not be liable for the value of any sales lost during the disqualification period. See 7 U.S.C. § 2023(a)(18). The implementing regulation also plainly provides that “permanent disqualification actions taken in accordance with § 278.6(e)(1) of this chapter shall not be subject to such a stay of administrative action.” See 7 C.F.R. § 279.7(d) (formerly found at § 279.10.) At least two courts have held that store owners subject to permanent disqualification are statutorily barred from obtaining preliminary injunctive relief. See Ameira Corp. v. Veneman, 169 F. Supp.2d 432, 436-37 (M.D.N.C. 2001); Ilaian v. United States Dep’t of Agriculture, 87 F. Supp.2d 1047, 1048 (S.D.Cal 2000). In Ameira Corporation, the owner of a grocery store sought preliminary injunctive relief after the USDA permanently disqualified him based on two incidents of trafficking. Ameira Corp., 169 F. Supp.2d at 433-34. The court held, however, that the Food Stamp “Act does not allow a stay to be granted in the case of food stamp trafficking.” Id. at 436. In reaching this conclusion, the court relied on the text of the statute as well as the legislative history of 7 U.S.C. § 2023(a)(18). Id. In particular, the court noted that the House Report accompanying § 2023(a)(18) provides that: “To combat trafficking . . . [t]he committee believes that where an authorized retail food store or wholesale food concern is permanently disqualified, such disqualification should be effective from the date of receipt of the notice of disqualification pending any administrative or judicial review. Id. (emphasis added). The court found that while Congress enabled a store owner to challenge the permanent disqualification, it did not enable a store owner to obtain preliminary relief. Id. (“Because a district court may not Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 9 of 25 10 stay an administrative action during judicial review in trafficking cases such as this one, Plaintiff is not entitled to a stay pending a trial de novo or pending administrative review.”) Moreover, in Ilaian, the owners of a small market that “caters to a large number of food stamp recipients” sought a stay of their permanent disqualification from the Food Stamp Program. Ilaian, 87 F. Supp.2d at 1047. In denying the plaintiffs’ motion, the court found that “the plain language of 7 U.S.C. § 2023(a)(18) reflects that a stay is not available in cases of permanent disqualification for trafficking.” Ilaian, 87 F.Supp.2d at 1048. The court further found that “the regulations promulgated to implement this section support this plain meaning” (i.e., 7 C.F.R. § 279.7) and that the regulation is “entitled to deference.” Id. 2 In this case, Affum has availed herself of the detailed remedial scheme set forth in the Food Stamp Act. Under this scheme, Affum is entitled to a trial de novo on her trafficking claim. This standard of review is plainly more favorable to Affum than she would otherwise be afforded under the Administrative Procedure Act (“APA”). Bon Supermarket v. United States, 87 F.Supp.2d 593, 598 (E.D.Va. 2000) (noting that, under the APA, agency decisions are reviewed under the arbitrary and capricious standard). However, the Food Stamp Act does not permit store owners who have been permanently disqualified from the program to obtain preliminary injunctive relief. The court should accordingly hold that Affum, like the plaintiffs in Ameira and Ilaian, may not seek preliminary injunctive relief. 3 2 Defendants note that the court in Lazaro v. United States, 186 F. Supp.2d 1203 (M.D. Fla. 2001) reached a contrary result. The court found that 7 U.S.C. § 2023(a)(18) was ambiguous and that the USDA’s interpretation of that provision was not reasonable. Id. Defendants respectfully submit that the decisions in Ameira and Ilaian present the more persuasive analysis. 3 In seeking interim relief, Affum also relies on Rule 65. (Dkt. 6 at 13-14.) However, where Congress has implemented a detailed remedial scheme, that scheme trumps generally applicable rules. Cf. Harrison v. Bowen, 815 F.2d 1505, 1514-15 (D.C. Cir. 1987). Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 10 of 25 11 III. PLAINTIFF IS NOT ENTITLED TO PRELIMINARY INJUNCTIVE RELIEF The grant of a preliminary injunction is a drastic and unusual judicial measure. Marine Transport Lines, Inc. v. Lehman, 623 F. Supp. 330, 334 (D.D.C. 1985). “[T]he party seeking injunctive relief bears a substantial burden to show that the party is entitled to such an extraordinary remedy.” Competitive Enterprises Institute, Inc. v. United States Department of Agriculture, 954 F. Supp. 265, 269 (D.D.C. 1996). Issuance of a preliminary injunction under Rule 65 is appropriate only if the plaintiff clearly demonstrates that: (1) she has a substantial likelihood of succeeding on the merits; (2) she will suffer irreparable harm if the injunction is not granted; (3) other interested parties will not suffer substantial harm if the injunction is granted; and (4) the public interest will be furthered by the injunction. Serono Laboratories, Inc. v. Shalala, 158 F.3d 1313, 1317-18, 1325 (D.C. Cir. 1998); see also Virginia Petroleum Jobbers Ass'n v. Federal Power Commission, 259 F.2d 921, 925 (D.C. Cir. 1958). The standard set forth in the Food Stamp Act similarly requires the party seeking a stay to demonstrate a likelihood of prevailing on the merits and irreparable harm. 7 U.S.C. § 2023(17); 7 C.F.R. § 279.7(d). However, the Food Stamp Act does not include as factors the public interest or the impact a stay would have on other interested parties. Id. As the USDA demonstrates below, Affum has failed to meet these standards in this case. Thus, even assuming that interim injunctive relief is available in a case of this type, Affum is not entitled to such interim relief in this case. A. Affum Is Likely To Fail On The Merits Affum admits that her store violated the Food Stamp Act several times by selling ineligible items and trafficking in food stamp benefits. (Compl. ¶ 33; Affum Affidavit at ¶ 4.) Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 11 of 25 12 Thus, she does not contest the factual predicate for her disqualification from the Food Stamp Program. Instead, Affum contends that the penalty for trafficking in food stamp benefits is unlawful. Specifically, she alleges that the applicable USDA regulations are arbitrary and capricious and that they violate her substantive due process rights under the Fifth Amendment. Affum further contends that, even though the FNS did not assess a CMP against her, the amount of any CMP would be too high. None of these claims has merit. 1. Standards Of Review The court’s review of Affum’s permanent disqualification for trafficking is subject to two markedly different standards. Bon Supermarket, 87 F. Supp.2d at 598. Under the first standard, the Court reviews de novo the FNS’ finding that Affum violated the Food Stamp Act. Id. “The scope of [this] review . . . is significantly beyond the scope of review available under the general provisions of the Administrative Procedure Act.” Id.; see also Cross v. United States, 512 F.2ds 1212, 1216 (4th Cir. 1975). Affum has the burden of showing by a preponderance of the evidence that the violations did not occur. Kim v. United States, 121 F.3d 1269, 1272 (9th Cir. 1997). The appropriate standard for the second inquiry is less clear. The United States Court of Appeals for the Sixth Circuit has found that the decision to impose a specific penalty for trafficking (i.e., permanent disqualification or CMP) is committed to agency discretion by law and is, therefore, not reviewable by a court. See, e.g., Goldstein v. United States, 9 F.3d 521, 524 (6th Cir. 1993) (“The regulations confer on the FNS discretion to mitigate by imposing only a civil money penalty, the sanction of permanent disqualification for trafficking and the regulations also require the satisfaction of certain criteria before such discretion may be Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 12 of 25 13 exercised. As the decision to mitigate relates to the severity of the sanction, the FNS’ denial of Goldstein’s request for a civil money penalty in lieu of permanent disqualification is precluded from our review[.]”) (internal citations omitted); Bakal Bros., Inc. v. United States, 105 F.3d 1085, 1088-89 (1997) (same). Under this standard, the Court would simply conduct a de novo review of whether trafficking occurred. It would not review the USDA’s exercise of discretion to disqualify Affum permanently in lieu of a fine. Id. Other courts have concluded that they can review the penalty imposed for trafficking. However, these courts recognize that the inquiry at this stage “is strictly cabined – the court only determines whether the agency’s sanction was arbitrary and capricious.” Bon Supermarket, 87 F. Supp.2d at 598; see also Carlson v. United States, 879 F.2d 261, 263 (7th Cir. 1989) (noting that “a penalty may only be set aside if [it is] arbitrary and capricious”); Willy’s Grocery v. United States, 656 F.2d 24, 26 (2d Cir. 1981) (same). Where the FNS has “followed the applicable laws and regulations, its decision may not be overturned as arbitrary and capricious.” Kassem v. United States, 2003 WL 21382906, at *3 (W.D.N.Y. April 15, 2003). Affum has failed to meet either standard. 2. The Asafo Market Engaged In Trafficking The undisputed evidence in this case reflects that trafficking occurred in the Asafo Market. Indeed, Affum herself has repeatedly admitted that trafficking occurred on two separate occasions in her store. In the Complaint, Affum states that when she met with the FNS regarding the trafficking allegations she “had no basis to contest the charges, and told the officer-in-charge that her employee had admitted the charged conduct.” (Compl. ¶ 33.) Similarly, in her affidavit, Affum acknowledges that her employee “admitted” to trafficking in food stamps. (Affum Affidavit ¶ 4.) Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 13 of 25 14 The documentary evidence in the Administrative Record confirms that trafficking took place in the Asafo Market. (A.R. at 22-49.) For example, the investigative reports plainly detail an employee at the Asafo Market exchanging cash for food stamp benefits. (Id. at 44-49.) On two separate occasions, the employee of Asafo Market provided cash to an FNS agent in exchange for food stamp benefits. (Id.) Even under the de novo standard of review, the Court should find that trafficking took place at the Asafo Market. See, e.g., Phany Poeng v. United States, 167 F. Supp.2d 1136, 1140 (S.D. Ca. 2001) (finding that violations took place since the “plaintiff candidly admits that violations did occur”). The fact that Affum, the owner of Asafo Market, may not have personally engaged in trafficking does not change this result because owners are strictly liable for the actions of their employees. Traficanti v. United States, 227 F.3d 170, 174-75 (4th Cir. 2000). “Congress chose such a strict liability regime in order to ensure that the person in the best position to prevent fraud – the owner – had sufficient incentive to stop wayward employees from stealing from the government.” Traficanti, 227 F.3d at 174-75; see also Kim, 121 F.3d at 1274 (“Congress believed that punishing innocent employers for the misdeeds of their employees would create a powerful incentive for employers to guard against illegal or improper conduct.”) Thus, “[t]he innocence of the store owner is relevant only to determine which sanction shall be imposed – a civil penalty or permanent disqualification – not whether a sanction shall be imposed.” Bakal Bros., 105 F.3d at 1088 (emphasis in original). Under the Sixth Circuit’s approach in Goldstein, 9 F.3d at 523, and Bakal Brothers, 105 F.3d at 1088-89, this should end the Court’s inquiry. The decision whether to disqualify Affum permanently or to issue her a fine is committed to the discretion of the USDA. 7 U.S.C. § 2021(b)(3)(B) (“[T]he Secretary shall have the discretion to impose a civil money penalty[.]”) Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 14 of 25 15 The Court should not review the USDA’s exercise of that discretion in this case. Moreover, even if the Court reviews the penalty in this case, it should not disturb the UDSA’s exercise of discretion because it is not arbitrary or capricious. 3. The Food Stamp Act Mandates Permanent Disqualification For Affum The Food Stamp Act requires the FNS to disqualify permanently a store owner, even upon the first occasion of trafficking, unless it “determines that there is substantial evidence that” the store “had an effective policy and program in effect to prevent violations[.]” 7 U.S.C. § 2021(b)(3)(B). The store owner also must show that she “was not aware of, did not approve of, did not benefit from, and was not involved in the conduct of the violation.” 7 U.S.C. § 2021(b)(3)(B). In accordance with the Food Stamp Act, the USDA promulgated regulations to determine if a store owner qualifies for a fine. Under these regulations, a store owner must show that: (1) the store had an effective compliance policy; (2) the store’s compliance program was in effect prior to the violation; (3) the store developed and instituted an effective personnel training program; and (4) the store’s ownership was not involved in the violation. See 7 C.F.R. § 278.6(i). If the FNS concludes that the store owner meets this standard, then it may assess a CMP in lieu of permanent disqualification. 7 U.S.C. § 2021(b)(3)(B). Congress added § 2021(b)(3) to the Food Stamp Act by enacting the Hunger Prevention Act of 1988, Pub. L. No. 100-435. The House Report accompanying the Hunger Prevention Act recognizes that the FNS has the discretion to impose a CMP instead of disqualification, but states that the FNS may exercise that discretion only if it determines that there is substantial evidence that the store had an effective policy in place to prevent these violations. H.R. Rep. No. 100- 828, at 27-28 (1988). See also Freedman v. United States Dep’t of Agriculture, 926 F.2d 252, 257 (3d Cir. 1991) (“The amendment to section 2021(b) was meant to provide discretion for Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 15 of 25 16 imposition of a less severe punishment than disqualification for trafficking offenses, provided the employer had implemented an effective program to prevent such independent violations.”). The House Report also emphasized that it “expects the Department of Agriculture to continue to vigorously pursue and punish those perpetrators involved in food stamp fraud, including store personnel and owners that are culpable and negligent with respect to trafficking offenses.” Id. In this case, Affum alleges that she told the Officer-in-Charge that “the store employee had been trained and that the employee knew that it was prohibited to (a) exchange cash for food stamp benefits; and (b) to accept food stamp benefits for ineligible items.” (Affum Affidavit, ¶ 4.) On appeal at the administrative level, Affum further stated that “My helper who was responsible for this great error was informed from the very beginning that the EBT was strictly for use with food items only and nothing else.” (A.R. at 69.) Even assuming that these facts are true, the FNS did not abuse its discretion in concluding that Affum did not provide “substantial evidence” that she “had an effective policy and program in effect to prevent violations[.]” 7 U.S.C. § 2021(b)(3)(B); 7 C.F.R. § 278.6(i). Affum has failed to explain to the USDA (and this Court) when this employee received training; the specific training that she received; who provided the training; whether the employee received training one time or whether there was follow-up training; whether the store tested this employee’s understanding of the Food Stamp Act; and whether Affum monitored the employee’s compliance with the Food Stamp Act’s prohibition on trafficking. Nor has Affum submitted any written documentation that reflects the training provided to this employee. A store owner’s uncorroborated assertion that she told her employee not to exchange food stamp benefits for cash is insufficient to justify a fine instead of permanent disqualification. See Traficanti, 227 F.3d at 175; Thabit v. United States Dep’t of Agriculture, 2003 WL 1798302, Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 16 of 25 17 at *4 (N.D. Cal. April 3, 2003). In Traficanti, for example, a permanently disqualified store owner argued that he should have received a fine instead of being disqualified. Traficanti, 227 F.3d at 175. In rejecting his argument, the Fourth Circuit held that: Traficanti’s permanent disqualification from the food stamp program is well within the bounds of agency discretion. Indeed his permanent disqualification is mandated by the statute itself. Congress specifically required innocent owners to show that an effective anti-fraud program existed in order to qualify for the monetary fine in lieu of disqualification. . . . Store owners cannot simply attest to having effective antifraud programs; rather, they must prove it. Traficanti fell well short of meeting the standards of the statute or the regulations. The FNS decision not to convert the permanent disqualification into a fine was mandated by statute. Id. (emphasis added); see also Goldstein, 9 F.3d at 522-25 (rejecting argument by store owner that he had effective policy based on “training sessions with his employees [that] instruct[ed] them on the applicable regulations.”); Thabit, 2003 WL 1798302, at *4 (upholding FNS conclusion that a store owner’s providing an employee “walkthrough training” was insufficient.) A contrary ruling would render the statutory language regarding an “effective policy and program” null, because every store owner could assert after trafficking occurred that she had told the culpable employee not to exchange food stamp benefits for cash. Such a result is plainly inconsistent with the penalty scheme set forth in the Food Stamp Act. Cf. Kim, 121 F.3d at 1276 (observing that the Food Stamp Act prohibits the FNS from imposing “a civil money penalty in lieu of permanent disqualification for a trafficking violation where the store did not have in effect an effective policy and program to prevent violations[.]”). In these circumstances, the FNS’ decision to disqualify Affum permanently was not only consistent with the Food Stamp Act, it was required by the statute. Traficanti, 227 F.3d at 175. Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 17 of 25 18 In her application for a stay, Affum makes no effort to show how she satisfied the requirements of the Food Stamp Act. (Dkt 6 at 16-23.) Rather, she devotes her entire brief to addressing alleged deficiencies in the FNS’ implementing regulations. (Id.) Affum’s failure to show how she fulfilled the statutory requirements is dispositive. Traficanti, 227 F.3d at 175. In addition, Affum’s arguments regarding the deficiencies in the implementing regulations lack merit. Affum contends that the regulations contain “unyielding requirements” that “reflect a reluctant or hostile attitude toward the alternative monetary sanction.” (Dkt. 6 at 17-19.) However, cases cited in plaintiff’s own brief show that the FNS has granted fines in lieu of permanent disqualification in trafficking cases. See, e.g., Corder v. United States, 107 F.3d 595, 596 (8th Cir. 1997) (“FNS determined that Corder meets the criteria for a monetary penalty set forth in 7 C.F.R. § 278.6(i)[.]”); Freedman, 926 F.2d at 254 (“[T]he FNS informed Freedman that it had determined that she did have an effective policy to prevent violations[.]”) Other reported cases also demonstrate that the FNS has issued fines instead of permanently disqualifying store owners. See, e.g., Vasudeva v. United States, 214 F.3d 1155, 1157-58 (9th Cir. 2000) (“The government agreed that all of the store owners in this case met [the necessary] conditions and offered them the opportunity to pay a CMP.”). In Vasudeva, the court further noted that “[t]he USDA in fact exercises discretion on a case-by-case basis in evaluating whether store owners are qualified for a CMP in lieu of permanent disqualification[.]” Id. at 1159. Indeed, “[e]ach year retail food stores qualify and are issued CMPs in lieu of permanent disqualification for trafficking.” (Gold Decl. at ¶ 22.) Affum relies heavily on the Eighth Circuit’s decision in Ghattas v. United States, 40 F.3d 281 (8th Cir. 1994), but that case is entirely consistent with the FNS’ decision in this case. (Dkt. 6 at 18-19.) In Ghattas, the Eighth Circuit concluded that the FNS had improperly refused to Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 18 of 25 19 even consider whether the store owner was eligible for a CMP. Ghattas, 40 F.3d at 287. The store owner had not responded to the FNS’ charge letter within ten days, as required by the regulations. Id. In this case, however, the FNS did consider Affum for a CMP. (A.R. at 57.) Specifically, the FNS informed Affum that “[w]e considered your eligibility for a trafficking civil money penalty (CMP) . . . [but] we have determined that you are not eligible for the CMP because you failed to submit sufficient evidence to demonstrate that your firm had established and implemented an effective compliance policy and program to prevent violations of the Food Stamp Program.” (Id.) The FNS’ ultimate conclusion that Affum was not eligible for a fine does not mean that it did not consider her for one. Affum also alleges that the USDA’s implementing regulations – which have been in effect for over 15 years – are “in direct conflict with the Food Stamp Act.” (Dkt. 6 at 16-19.) Specifically, she contends that the regulations require a store owner to present more evidence than the statute requires in showing that they have an effective training program. (Id.) This argument fails for two reasons. First, as noted above, Affum failed to meet the standard set forth in the Food Stamp Act itself. Thus, regardless of the regulations, Affum is not entitled to a CMP under the statute. Second, the USDA’s promulgation of the regulations at issue in this case is based on a reasonable interpretation of the Food Stamp Act and is well within the agency’s discretion. Indeed, numerous federal circuit courts have applied these regulations in cases similar to Affum’s. See, e.g., Traficanti, 227 F.3d at 174-75; Kim, 121 F.3d at 1274-75. These courts have done so without even hinting that they are inconsistent with, let alone “in direct conflict with,” the Food Stamp Act. Id. The USDA’s decision to articulate the type and substance of the evidence that it considers in determining whether to exercise its discretion to grant a CMP in lieu Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 19 of 25 20 of permanently disqualifying a store owner is in full accord with the Food Stamp Act’s provision that “the Secretary shall have the discretion to impose a civil money penalty . . . if the Secretary determines that there is substantial evidence that such store . . . had an effective policy and program in effect to prevent violations.” Id. Affum’s inability to meet that standard in this case does not mean that the regulations violate the Food Stamp Act. Finally, Affum contends that the Secretary’s regulations are arbitrary and capricious because they fail to consider the impact on small stores. (Dkt. 6 at 20-22.) Affum asserts that “the documentation requirements virtually ensure that a small store owner will never qualify for a civil money penalty and, thus, never trigger the exercise of secretarial discretion contemplated by Congress.” (Id.) However, two cases cited in plaintiff’s own brief belie this contention. See Corder, 107 F.3d at 596 (fine issued to owner of “a small 7-Eleven store in St. Louis.”); Freedman, 926 F.2d at 253 (fine issued to owner of “Superior Store Number 3 in Harrisburg, Pennsylvania.”) In addition, “[l]arge, medium, and small retail food stores have all qualified for trafficking CMPs” in lieu of permanent disqualification. (Gold Decl. ¶ 22.) Moreover, Affum’s claim of undue burden on small store owners is exactly backwards: owners of smaller stores should have an easier time documenting the training that they provide to employees than large retail stores. Affum had a single employee to train. She was able to apply for entry into the Food Stamp Program herself, and she was able to accept on average more than $15,000 in benefits from the program each month. Affum should have been able to train effectively her lone employee. Affum’s assertion that it was more difficult for her to comply with the regulatory requirements than it would be for a large retail store with many employees to train is not supported by the record or by logic. Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 20 of 25 21 In addition, the USDA notes that it thoughtfully considered this issue in the preamble to the final regulation. See 55 Fed. Reg. at 31810. In responding to a comment regarding small stores, FNS stated that: “Trafficking is a serious offense for which the statute requires permanent disqualification unless substantial evidence of an effective policy and program to prevent such violations exists. The Department believes that it is imperative that firms wishing to be determined eligible for a civil money penalty in lieu of permanent disqualification for trafficking provide written evidence of an effective policy and program to prevent such violations in order for an appropriate determination to be made. . . . Although such firms may not have developed written policies in the past, small business[es] are not precluded from eligibility for a civil money penalty since they may now establish and implement such a compliance policy and program. Further, the Committee report did not differentiate between acceptable compliance programs in smaller stores and those acceptable in larger stores.” 4 Id. 4. The FNS Did Not Violate Affum’s Substantive Due Process Rights Affum contends that her permanent disqualification from the Food Stamp Program violates her Fifth Amendment substantive due process rights because it is “not sufficiently keyed to any legitimate state interest.” (Dkt. 6 at 22.) However, “it is beyond dispute that the prevention of illegal trade in food stamps is a legitimate government purpose, which itself serves the overarching purposes of the food stamp program.” TRM, Inc. v. United States, 52 F.3d 941, 946 (11th Cir. 1995). Accordingly, the decision to disqualify Affum permanently does not run afoul of the Fifth Amendment as long as it is rationally related to this end. Id. 4 Affum contends that she never received any information about how to train employees and that the agency did not inform her of the potential penalties for trafficking. (Dkt. 6 at 21.) Both assertions are demonstrably false. (A.R. at 1-9.) Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 21 of 25 22 “Congress believed that punishing innocent employers for the misdeeds of their employees would create a powerful incentive for employers to guard against illegal or improper conduct.” Kim, 121 F.3d at 1274. Moreover, “[a] strict liability regime places ultimate economic responsibility for fraud on the owner, who is in the best position to deter deception ex ante. Traficanti, 227 F.3d at 175. Thus, in short, “[t]he imposition of liability on innocent store owners for their employees’ trafficking violations is a rational method of deterring illegal food stamp trade.” TRM, Inc., 52 F.3d at 947; Kim, 121 F.3d at 1274 (“Clearly, permanently disqualifying store owners guilty of intentionally trafficking in food stamps is rationally related to the legitimate goal of reducing the instances of trafficking violations.”); Traficanti, 227 F.3d at 174-75 (holding in the case of a permanently disqualified store owner that “[n]o violation of substantive due process occurred[.]”) 5 In this case, the FNS did not violate Affum’s substantive due process rights by permanently disqualifying her from the Food Stamp Program. 6 C. A Stay Will Adversely Affect Food Stamp Recipients And The United States Trafficking in food stamps is anathema to the primary objective of the Food Stamp Program – namely, increasing the food purchasing power of low income households. Bon Supermarket, 87 F.Supp.2d at 601-02 (noting that “trafficking is directly at odds with the 5 Nor is plaintiff’s permanent disqualification “gravely unfair.” (Dkt. 6 at 22.) As Affum herself recognizes, “grave unfairness” requires “a deliberate flouting of the law[.]” (Id.) The FNS did not flout the law in this case. To the contrary, the FNS applied the standard set forth in the Food Stamp Act to Affum, as it did to the store owners in cases such as Traficanti and Kim. 6 The FNS did not issue a CMP to Affum; it permanently disqualified her from participating in the program. Affum nevertheless contends that a fine would have been too high, had one been imposed. (Dkt. 6 at 22-23.) This assertion, even if true, is not a ripe issue in this case at this juncture. Indeed, as someone who is permanently disqualified from the program, Affum lacks standing to challenge the manner in which the FNS calculates CMPs. Cf. Middleton v. Kelly, 2008 WL 859189, at *1 (D.D.C. April 1, 2008). Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 22 of 25 23 principal purpose of the food stamp program[.]”) “Congress has repeatedly expressed its concern that trafficking in food stamps was undermining the goals of the food stamp program.” Abdelaziz v. United States, 837 F.2d 95, 98 (2d Cir. 1988). This concern, which is shared by the USDA, is plainly valid and warranted. Indeed, the USDA’s Office of Inspector General believes that trafficking in food stamp benefits exceeds $1 billion dollars each year. See 1996 U.S.C.C.A.N. at 2202. In an effort to reduce trafficking, Congress has implemented a strict liability regime that imposes permanent disqualification even for first time offenders. See, e.g., 7 U.S.C. § 2021(b)(3)(B). Permitting the owners of stores in which trafficking occurs (like Affum) to remain in the Food Stamp Program without satisfying the applicable statutory and regulatory requirements will likely hurt food stamp recipients and the USDA’s ability to fulfill the goals of the Food Stamp Act because it will diminish the deterrent effect of the strict liability regime Congress created. Cf. Kim, 121 F.3d at 1274. Moreover, the USDA trusts retail food store owners like Affum to comply with the applicable rules and regulations of the program and not to engage in trafficking. When, as here, that trust is broken, it is ultimately the public and the very people that the Food Stamp Program was designed to assist who suffer the most, as already limited federal funding is reduced even more through trafficking. 7 Affum argues that “during the pendency of this litigation, [she] has every incentive to ensure that no violations occur.” (Dkt. 6 at 15) But this same incentive existed before her employee engaged in trafficking during 2007. However, even though the FNS provided Affum 7 FNS conducted a review of other authorized retail food stores located within 1 mile of Asafo Market and found that there are at least 60 other authorized retail stores within the 1 mile radius; therefore, FNS is not concerned about the potential hardship for recipients who were previously customers at Asafo Market. Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 23 of 25 24 with written materials and a video when she entered the program (A.R. at 1-2), Affum has not presented any evidence that shows that she presented these materials to her employee. Indeed, Affum falsely contends “that the Department of Agriculture . . . never provided me with any written materials that would have assisted me in achieving compliance.” (Affum Affidavit at ¶ 6.) In these circumstances, the public, the USDA, and the recipients of food stamp benefits should be able to rely on the enforcement mechanism established by Congress in combating fraudulent trafficking. Affum should remain disqualified from the program. D. Plaintiff has Failed to Establish Irreparable Injury Affum alleges that her store will go out of business if the Court does not grant a stay of administrative action because “90-95% of Asafo Market’s gross receipts [are] derived [from] food stamp purchases.” (Dkt. 6 at 14-15.) However, even assuming that this type of economic injury is “irreparable,” Affum has not presented any evidence to substantiate these claims other than her own affidavit. That is not enough. In Phany Poeng v. United States, 167 F.Supp.2d 1136 (S.D. Cal. 2001) the plaintiff argued that losing “half his customer base will force him out of business.” Phany Poeng, 167 F. Supp.2d at 1142. In concluding that the plaintiff had not shown irreparable harm, the court noted that he “has not established, via objective and reasonable documentary evidence, that [he] will necessarily lose fifty percent of his business while barred from the food stamp program.” Id. at 1143; see also Junel Food Center Corp v. U.S., 1997 WL 634175 (S.D.N.Y. 1997) (“Even assuming that food stamps constitute a high percentage of Junel's sale, Junel has not presented any evidence proving that it would lose all of its business now attributed to food stamps. Thus, Junel has not demonstrated that it will be irreparably injured if a preliminary injunction is not granted.”). Notably, on her application to enroll into the Food Stamp Program, Affum represented that her annual retail sales were Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 24 of 25 25 approximately $650,000. (A.R. at 6.) Yet, her reported sales using food stamp benefits appear to be well below this amount. (A.R. at 12 (noting that in October 2006, the Asafo Market had $19,106 in food stamp benefits redeemed).) In addition, the FNS disqualified the Asafo Market from the Food Stamp Program more than four months ago. It still remains open, however, even though Affum claims that 90-95% of her store’s sales are comprised of food stamp benefits. Id. Moreover, the administrative review process concluded on January 22, 2008. At that point, Affum had been disqualified from the program for two months. But Affum waited nearly two additional months to seek a stay and preliminary injunctive relief. (Dkt. 6 (filed 3/20/08).) The “seeming lack of urgency on the part of a plaintiff who has been denied interim relief tends to confirm the view that irreparable harm was not imminent.” Cf. Federal Express Corp. v. Federal Espresso, Inc., 201 F.3d 168, 178 (2d Cir. 2000). CONCLUSION For the foregoing reasons, the Court should deny Affum’s application for a stay and preliminary injunction. Respectfully submitted, __ JEFFREY A. TAYLOR, D.C. Bar # 498610 United States Attorney __________________________________________ RUDOLPH CONTRERAS, D.C. Bar # 434122 Assistant United States Attorney /s/ Harry B. Roback HARRY B. ROBACK, D.C. Bar # 485145 Assistant United States Attorney United States Attorneys Office 555 4th Street, N.W. Washington, D.C. 20530 Tel: 202-616-5309 April 4, 2008 harry.roback@usdoj.gov Case 1:08-cv-00300-RCL Document 9 Filed 04/04/2008 Page 25 of 25 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 1 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 2 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 3 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 4 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 5 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 6 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 7 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 8 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 9 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 10 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 11 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 12 of 43 Case 1:08-cv-00300-RCL Document 9-2 Filed 04/04/2008 Page 13 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Filed 04/04/2008 Page 30 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 31 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 32 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 33 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 34 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 35 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 36 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 37 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 38 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 39 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 40 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 41 of 42 Case 1:08-cv-00300-RCL Document 9-3 Filed 04/04/2008 Page 42 of 42 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA PHILOMENA AFFIIM, d/b/a ASAFO MARKET. Plaintiff, v. UNITED STATES OF AMEzuCA" and ED SCHAFER. Civil Action No. 08-300 (RCL) 1 . Defendants. DECLARATION OF ANDREA GOLD I, Andrea Gold, do hereby declare and state the following: I have been employed as the Branch Chief of the Retailer Management and Issuance Branch, Benefit Redemption Division, at the Food and Nutrition Service (FNS) in the United States Department of Agriculture (USDA) since September 2004. In my current position as Branch Chief, I am responsible for policy related to issuance and to the participation of retail food stores in the Food Stamp Program (FSP), as well as oversight of retailer and Electronic Benefit Transfer (EBT) related activities. Prior to that time, I worked as Assistant Director of Field Operations in the Northeast Regional Office of FNS for two years and Assistant to the Director of Field Operations for three years. I also served as the retailer EBT liaison in the Northeast Region. Overall, I have been employed at FNS since June 1991. Jeff Cohen is the Director of the Food Stamp Program's Benefit Redemption Division. The Benefit Redemption Division consists of four branches: the Retailer Operations Branch, the Retailer Management and Issuance Branch, the Retailer Investigations Branch and the Administrative Review Branch. As Director of the Benefit Redemption Division, Mr. Cohen is responsible for policy formulation and oversight of the FSP's retailer operations and EBT operations. He is also responsible for compliance activities, which serve to detect fraud among authorized retailers. Furthermore, Mr. Cohen oversees the administrative actions taken in response to violations by authorized retailers and the administrative appeals of those retailers. 2. Case 1:08-cv-00300-RCL Document 9-4 Filed 04/04/2008 Page 1 of 4 4. 5. 6. 10 . 11 . I am periodically asked to serve as the Acting Director of the FSP Benefit Redemption Division. When I serve as Acting Director, I have the authority otherwise delegated to Mr. Cohen. Due to Mr. Cohen's extended absence, I am currently serving as Acting Director of the FSP Benefit Redemption Division. Section 12 of the Food Stamp Act (FSA) provides for disqualifications and civil monetary penalties (CMP) in the event that an approved retail food store violates the FSA. This Section also states that the regulations shall provide the criteria for finding such violation. Section 12(b)(3XB) of the FSA specifically provides that the Secretary shall have the discretion to impose a CMP in lieu of permanent disqualification for trafficking if the Secretary determines that there is substantial evidence that such store had an effective policy and program in effect to prevent violations of the Act and regulations. In particular, the store must show evidence that: the ownership of the store was not aware of, did not approve of, did not benefit from, and was not involved in the conduct of the violation; and the management of the store was not aware ol did not approve of did not benefit from and was not involved in the conduct of the violation; or the management was aware of, approved of benefitted from, or was involved in the conduct of no more than 1 previous violation by the store. The regulations implementing this statute arc at 7 C.F.R. $ 278.6(i). These regulations list the criteria for eligibility for a CMP in lieu of permanent disqualification for trafficking. FNS may impose a CMP in lieu of a permanent disqualification for trafficking if the store timely submits to FNS substantial evidence which demonstrates that the store had established and implemented an effective compliance policy and program to prevent violations of the Food Stamp Program. There are four criteria that a store must meet to demonstrate substantial evidence. The first criterion is that the store shall have established an effective compliance policy as specified in 278.6(i)(l ). The second criterion requires that the store prove that its compliance policy and program were in operation at the location where the violation occurred prior to the occu:rence of the violations cited in the charge letter. The third criterion requires that the store had developed and instituted an effective personnel training program as specified in278.6(1)(2). The fourth criterion is that the store ownership was not aware oi did not approve and did not benefit from the transaction or that it is only the first occasion in which a member of the store management was aware of, approved, benefitted from or was involved in the conduct of any trafficking violations by the store. 8. 9. Case 1:08-cv-00300-RCL Document 9-4 Filed 04/04/2008 Page 2 of 4 12. 13. t4. 15. 16 . It is FNS's goal to provide information to retailers on how to satisfy the requirements of the Food Stamp Act and regulations and how to remain in compliance with these laws. FNS fully understands that the Secretary, and FNS, by delegation, has discretion to assess CMPs in lieu of permanent disqualifications for trafficking pursuant to the Act. Our regional and field offices are well aware that they have the authority to assess CMPs when a retail food store provides the necessary information outlined in the statute and the regulation. When a retailer is charged with trafficking in Food Stamp Program benefits, the standard FNS letter of charges informs the retailer that FSP regulations provide for imposition of a CMP in lieu of permanent disqualification, directs the retailer to the appropriate regulatory citation that lists the CMP criteria, and describes the process for requesting a CMP. FNS provides all authorized retailers with a compilation of the regulations pertaining to retailers. The regulations that are discussed above regarding CMPs are contained in this document. FNS provides all approved retailers with a Retailer Training Guide and a retailer training video which contains the requirements of the Program. The retailer training video is also accessible on the USDA's website. Page 11, in Part 2 of this Guide provides, "What Can Food Stamps Benefits Buy?" and lists specifically those items that may be purchased with food stamp benefits. (Attached hereto as Exhibit A) Page 13 of this Guide states in bold that "No Trafficking is Allowed: You can never give cash in exchange for food stamps benefits. This practice is known as "trafficking." Page 22 of this Guide, in Part 4, lists the consequences that can occur for trafficking and fraud, in "What Happens if You Break the Rules." In each retailer's authoization packet, retailers are provided with a contact phone number and are invited to call their assigned FNS field office with any questions that they might have regarding the Program. Retailers are also invited to visit www.usda.gov to seek information for retailers or to find contact phone numbers. Each year retail food stores qualify and are issued CMPs in lieu of permanent disqualifications for trafficking. Large, medium and small retail food stores have all qualified for trafficking CMPs. 19. 17 . 18 . 20. 2r. 22. Case 1:08-cv-00300-RCL Document 9-4 Filed 04/04/2008 Page 3 of 4 Pursuant o 28 U.S.C. g 1746,I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. Executed on this , Sf day of April2008. Branch Chiel Retailer Management and Issuance Branch Acting Director, Benefit Redemption Division Food and Nutrition Service United States Department of Agriculture 3101 Park Center Drive Alexandria, Virginia 223 02-l 59 4 ANDREA GOLD Case 1:08-cv-00300-RCL Document 9-4 Filed 04/04/2008 Page 4 of 4 The Food Stamp Program Training Guide for Retailers United States Department of Agriculture Food and Nutrition Service Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 1 of 28 United States Department of Agriculture Food and Nutrition Service FNS-330 July 2003 Revised September 2005 USDA is an equal opportunity provider and employer. Note to Retailer: Your contact with the Food Stamp Program will be through your local field office of the USDA Food and Nutrition Service. If you do not know the address and phone number of this field office, you can find it by searching the following web site: http://www.fns.usda.gov/cga/Contacts/FieldOffices/ Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 2 of 28 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Criteria for Retailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Program Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Part 1: Basic Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Learn and Enforce the Program Rules . . . . . . . . . . . . . . . . . . 8 Display the “We Accept Food Stamp Benefits” Poster . . . . . . 8 Report Violations to Your Local FNS Field Office . . . . . . . . . . 9 Cooperate With Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Respect Your Food Stamp Program Customers . . . . . . . . . . 10 Part 2: What Can Food Stamp Benefits Buy? . . . . . . . . . . 11 Proper Use of Food Stamp Benefits . . . . . . . . . . . . . . . . . . . 12 Separate Eligible Foods . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Sales Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Credit Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Bottle Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Making the Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 No Trafficking Is Allowed . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Store Coupons and Trading Stamps . . . . . . . . . . . . . . . . . 13 Part 3: Electronic Benefits Transfer (EBT) Cards . . . . . . . 14 EBT Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 EBT Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Point-of-Sale (POS) Equipment . . . . . . . . . . . . . . . . . . . . . 15 Food Stamp EBT Purchases . . . . . . . . . . . . . . . . . . . . . . . 15 Other Types of Food Stamp Program EBT Transactions . . . . 16 Manual (Key Entry) Transactions . . . . . . . . . . . . . . . . . . . . 16 Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Voiding a Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Paper EBT Vouchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Payment for EBT Transactions . . . . . . . . . . . . . . . . . . . . . . . 17 System End-of-Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 The Food Stamp Program: Training Guide for Retailers 3 Contents Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 3 of 28 Payment to Your Bank Account . . . . . . . . . . . . . . . . . . . . . 17 Important . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Watch the POS Response . . . . . . . . . . . . . . . . . . . . . . . . . 18 Other Payment for “Denied” Transactions . . . . . . . . . . . . . 18 Never Keep the PIN or the Card . . . . . . . . . . . . . . . . . . . . 18 Customer ID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 No Cash Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Customer Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Questions About EBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Part 4: What Happens if You Break the Rules? . . . . . . . . . 22 Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Appendix: Food Stamp Information for Customers . . . . . 25 4 Contents Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 4 of 28 The Food Stamp Program: Training Guide for Retailers 5 Introduction America’s health depends on good nutrition. However, many low-income households still need help to have a healthy diet. Each month millions of low-income Americans—more than half of them children—get that help through the Federal Food Stamp Program. Under the Program, State and local social services agencies give monthly food stamp benefits to households that qualify. These food stamp benefits—in the form of Electronic Benefits Transfer (EBT) debit cards—can be used to buy food at authorized retail food stores. Every retailer who participates in the Food Stamp Program must follow all Program laws and regulations. This guide will help you learn the Program rules and answer common questions about the Food Stamp Program. Even an honest mistake could cost you your authorization, so please make sure you pay special attention to Part 4: What Happens if You Break the Rules? The Food Stamp Program is administered by the Food and Nutrition Service (FNS) of the U.S. Department of Agriculture, through its nationwide network of FNS field offices. FNS field offices authorize qualified retailers to accept food stamp benefits, provide information to retailers, and enforce the Program rules to prevent errors and abuse. The staff of your local FNS field office is available to answer your questions and advise you on Program rules and procedures. Always consult with them if you have a problem or are unsure how to handle a particular situation. At the end of this publication, we have also included information that will be helpful to anyone wanting to know more about the Program and how to apply for food stamp benefits. This may be helpful in case any of your customers ask, or if you wish to tell somebody about the Program. Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 5 of 28 Criteria for Retailers Local FNS field offices determine whether retail food stores meet the eligibility criteria to be authorized to accept food stamp benefits. The Food Stamp Program laws and regulations require that retail food stores must meet one of these two criteria: 1. Your store must offer for sale, on a continuous basis, at least three varieties of qualifying foods in each of the four categories of staple foods: • breads/cereals • dairy products • fruit and vegetables • meat, fish, poultry At least two of these categories must include perishable foods. 2. Your store must have over 50 percent of its total gross sales in staple foods, not counting food items such as coffee, tea, cocoa, carbonated and noncarbonated drinks, candy, condiments, spices, and prepared, ready-to-eat foods. Remember that you may be visited at any time to ensure that these criteria continue to be met. In addition, your store will be reauthorized at least once every 5 years. Introduction Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 6 of 28 The Food Stamp Program: Training Guide for Retailers You must be authorized to participate. When you are authorized you will receive a 7-digit FNS number. This number will be one of the ways the local FNS field office will use to identify you and your store. You will also receive a Food Stamp Program Permit (see below). You cannot begin to accept food stamp benefits until you have it. You cannot use the permit that belonged to any previous owner of your store. If your store changes ownership, if you move, or if you close your store, your authorization permit is void. You cannot transfer it to someone else. You must return your permit to your local FNS field office. If you own more than one store, you must apply for a Food Stamp Program Permit for each store. Program Permit Food Stamp Program Permit Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 7 of 28 Part 1: Basic Guidelines Accepting food stamp benefits can help build your business. If you violate the rules, however, you could lose your authorization, be fined, or both. Protect your business. Learn the proper way to handle food stamp transactions. You are responsible for the actions of your employees. Train them before they begin ringing sales. Monitor their performance. Conduct refresher courses when necessary. When changes in the Program are announced, make sure everyone knows about them. It is a good idea to document the training you provide for your employees. Your local FNS field office will give you a “We Accept Food Stamp Benefits” poster, FNS-132 (see below). Post it in a prominent place, to let your customers know that you participate in the Program. Part 1: Basic Guidelines Learn and Enforce the Program Rules. Display the “We Accept Food Stamp Benefits” Poster. “We Accept Food Stamp Benefits” Poster, FNS-132 Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 8 of 28 The Food Stamp Program: Training Guide for Retailers USDA Office of Inspector General Hotline 1-800-424-9121 Help us keep the Food Stamp Program honest. If you are unsure of a procedure, or you suspect someone is violating the Program’s laws and regulations, contact your local FNS field office. You can also call the USDA Office of Inspector General Hotline at 1-00-424-121. To encourage people to report fraud and abuse, retail stores must post a sign giving information on how to report Program abuse. When you become an authorized retailer, this poster is provided to you in your authorization package. Display your “Report Abuse of the Food Stamp Program” poster prominently. “Report Abuse of the Food Stamp Program” Poster, FNS-240 Report Violations to Your Local FNS Field Office. Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 9 of 28 From time to time USDA employees or their representatives may visit your store or request information from you. You may also be visited by contractors who work for USDA and they may take pictures of your store, both inside and out. You are required to cooperate and to respond to all requests. If you do not, you may lose your Food Stamp Program authorization. Finally—and most importantly—treat your food stamp customers as you do your other customers: with courtesy and respect. DO NOT: • restrict food stamp customers to shopping at certain times during store hours, charge them higher prices, or make them use lanes designated “Food Stamp ONLY Checkout.” • require customers to make minimum purchases. • ask customers for their Personal Identification Number (PIN). Only the customer may enter his or her PIN at the Point of Sale (POS) terminal to complete the food stamp sale. Each of these practices violates the law or regulations. 10 Part 1: Basic Guidelines Respect Your Food Stamp Program Customers. Cooperate With Authorities. Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 10 of 28 The Food Stamp Program: Training Guide for Retailers 11 The goal of the Food Stamp Program is to help low-income households have healthy diets. Households CAN use food stamp benefits to buy: • all food intended to be eaten at home. This includes the four staple food categories mentioned earlier as well as nonalcoholic beverages, snack foods, soft drinks, candy, and ice. • seeds and plants intended to grow food (but not for growing flowers or feeding to birds). Households CANNOT use food stamp benefits to buy: • beer, wine, liquor, tobacco, or cigarettes • foods that are hot at the point of sale • food to be eaten in the store • vitamins or medicines • pet foods • nonfood items such as tissues, soaps, cosmetics, or other household goods. If you have questions about specific food items, contact your local FNS field office. You can find the field office by going to: http://www.fns.usda.gov/cga/Contacts/FieldOffices/ A poster describing what can and cannot be bought with food stamp benefits will be provided to you (see illustration at left). Part 2: What Can Food Stamp Benefits Buy? “Using Food Stamp Benefits” Poster, FNS-110 Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 11 of 28 Customers should present food stamp benefits BEFORE they pay for food. Separate Eligible Foods If your customers separate their eligible and ineligible items— or if you do it—it will make it easier to total the food items that qualify for food stamp benefits. If your store has electronic registers or scanners that automatically identify eligible items, separating items is not necessary. Equipment should be periodically checked for proper programming, to avoid errors that might cost you your authorization. Sales Tax You cannot charge State or local sales taxes on eligible items purchased with food stamp benefits. You may not include the sales tax in the purchase price as a hidden cost. (Keeping eligible and ineligible items separate will also prevent you from accidentally charging sales tax on eligible items.) If you have questions about your State’s sales tax laws, you should contact your State tax department. Credit Accounts Food stamp customers must pay for their purchases at the time of sale. You may not accept food stamp benefits as payments on credit accounts. You may not hold your customers’ food stamp EBT cards at your store for future use. Bottle Deposits Food stamp benefits can cover the entire cost of items such as eligible drinks in returnable bottles, where the price includes a specific bottle deposit. This is true even if the deposit is not included in the shelf price. Making the Sale If a customer does not have enough food stamp benefits to pay for all his or her eligible items, give the customers the option of paying for the remaining items with cash or not buying them. The client can pay the difference with a second card swipe to debit the cash benefits account (if the client has one) on his or her EBT card, or with cash. Remember: you cannot extend credit to be paid with food stamp benefits at a later date. 12 Part 2: What Can Food Stamps Buy? Proper Use of Food Stamp Benefits ● ● ● ● ● Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 12 of 28 No Trafficking Is Allowed You can never give cash in exchange for food stamp benefits. This practice is known as “trafficking.” Store Coupons and Trading Stamps If you accept in-store coupons from cash customers, you must also accept them from food stamp customers. You must treat food stamp customers as you do cash customers. The Food Stamp Program: Training Guide for Retailers 13 ● ● Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 13 of 28 Today, the only form of benefit issuance is the EBT card. One of the biggest advantages of the electronic system is that it automatically deducts the exact amount of the purchase from the customer’s EBT account and deposits it in your store’s bank account. EBT Systems EBT systems operate like other debit card systems. An electronic message goes to a computer for approval. If the purchase is approved, the customer’s EBT account gets an immediate debit and your account gets an immediate credit. At the end of the business day, transactions are totaled and the funds are moved. You will usually receive money from an EBT transaction within 2 banking days. The State’s EBT contractor will contact you soon after you are authorized to accept food stamp benefits. They will help you determine if you need EBT equipment. If the contractor supplies you with EBT equipment, they will also provide training on how to use it. You will receive a manual with information on how to use the system. All but two States have “on-line” EBT systems which send transactions to a remote computer for approval. Ohio (OH) and Wyoming (WY) are different. They have “off-line” EBT systems and use "smartcards" with a microprocessor chip embedded, but visible, in the plastic card. “Off-line” means the transaction approval is done by the microprocessor in the card. The transaction does not travel “on-line” to a remote computer. OH and WY cards work only at POS terminals provided to stores in those States. Although OH and WY cards work only in OH or WY, all other State cards work in all States as well as in stores in OH and WY that have their own POS terminal. Note: OH will change to an on-line system and will have magnetic strip cards in 2006. Those will be usable in all States. As of this printing, WY has not made a decision to change. 14 Part 3: Electronic Benefits Transfer (EBT) Cards Part 3: Electronic Benefits Transfer (EBT) Cards ● Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 14 of 28 EBT Cards Each State has its own EBT card design. The EBT cards are plastic and look like commercial debit and credit cards. Almost all cards have embossed numbers on the front and a magnetic strip and a signature line on the back. Often, the toll-free numbers for Customer Service are on the back of the card. The law requires EBT systems to have food stamp EBT cards that can work in any State, except for the smartcards issued by Ohio and Wyoming. Point-of-Sale (POS) Equipment All authorized retailers can process EBT food stamp benefit transactions. States may supply POS equipment or vouchers, or you may choose to use commercial equipment provided to you by a third party processor (which needs to be arranged by you). Commercial equipment can also be used to process credit and debit card transactions. The State will contact you and connect your commercial equipment to its EBT system. This service is provided at a cost that you negotiate with the third party processor. Commercial equipment is often integrated, meaning that the POS terminal, cash register, and scanning device are all connected together in order to speed transactions and eliminate errors. Food Stamp EBT Purchases Although EBT equipment set-up varies from State to State, the cashier should follow these general steps for a food stamp EBT purchase: • Separate eligible foods from nonfood items. Total the food amount on the cash register. This step may not be necessary depending on the type of equipment you have in your store. • Press “Food Stamp Purchase” key and swipe the EBT card through the POS card reader. • Enter purchase amount into the POS terminal (if separate equipment from cash register). • Customer enters secret Personal Identification Number (PIN) and hits the enter key. Only the customer may do this. • “Approved” message will appear on POS terminal and a receipt is printed. • Give the customer a receipt that shows the EBT balance. The Food Stamp Program: Training Guide for Retailers 15 ● ● ● Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 15 of 28 Manual (Key Entry) Transactions When EBT cards are swiped through your POS device, the device reads the card number and other information from the strip on the back of the card. Sometimes the magnetic strip on the card is damaged and swiping the card will not work. IF and ONLY IF the card strip cannot be read by the POS machine, and the customer is present, then you may use the keys to type in the card number. You cannot keep the card numbers on file, or enter them manually unless the EBT cardholder is present. The card holder must still enter his or her PIN to authorize a key-entered transaction. Food Stamp Program regulations permit key entry as a back-up convenience for recipients, but the recipient is expected to get a replacement for his or her damaged card. Damaged cards are replaced free. Please do not use the manual key-entry method unless the POS device or the client’s card is not working. FNS monitors the frequency of key entry by store. If a key- entry transaction fails, the recipient needs to pay by another method (e.g., cash)—do not use a paper EBT voucher (see page 17) in this situation. Cards are hard to damage. If your POS terminal frequently does not accept EBT cards, it may need servicing. Advise customers to replace their cards if the magnetic strip is damaged. Refunds You can make refunds into the EBT account if the customer returns food bought with food stamp benefits. Do not refund cash. Learn to use the Food Stamp Program Refund Transaction. This may require a supervisor’s or manager’s approval as part of the transaction. Your EBT retailer manual will have details. Voiding a Transaction If you enter the wrong amount into the POS terminal and it is approved, some systems allow you to immediately void that transaction. This may have to be done at that same POS terminal and may require a manager’s password. You may then redo the transaction correctly. 1 Part 3: Electronic Benefits Transfer (EBT) Cards ● ● Other Types of Food Stamp Program EBT Transactions ● Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 16 of 28 Paper EBT Vouchers Paper vouchers are used only when the EBT transaction cannot be done electronically. This may happen if your POS terminal fails, telecommunications fail, or the host computer is down. You must complete the voucher, have your customer sign it, and call Customer Service at the time of the purchase to get an approval for the purchase. This guarantees that the funds will be held for the purchase. Always keep your copy of the voucher in case of disputes. You must electronically clear the voucher within 15 days or send the voucher to the State by a set expiration date in order to be paid for the transaction. Some stores do not qualify for equipment. For these stores, the paper voucher is the only way to take EBT cards. See your EBT retailer manual for details. System End-of-Day EBT systems have an end-of-day or cutover time when all the transactions for the day are totaled and the transfer of funds for settlement of accounts begins. Find out when your State’s EBT system’s day ends. If you have a State POS system, you can use it to produce totals for your store. This will help you keep your accounts in order. You will get an EBT retailer manual that explains this. If you have commercial equipment, your system may have a different cutover time from the EBT system. Ask your processor for more information. Payment to Your Bank Account If you have State equipment, the State contractor will need your bank account information to make payments to your account. If you change your bank or your account, you must tell the contractor so that the payment will go to your new account. Payment will usually arrive in your account within 2 banking days. If you have commercial POS equipment, payment will go from the State EBT contractor to your processor within 2 days. Your processor will then pay your account according to your agreement. According to Food Stamp Program policy, banks cannot charge retailers to deposit Food Stamp Program EBT payments. The Food Stamp Program: Training Guide for Retailers 1 ● ● ●Payment for EBT Transactions Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 17 of 28 Watch the POS Response Always watch the messages on the POS display. They indicate the transaction type and the results. Your store will be paid only when purchases are approved. Be sure you press the purchase key and not the refund key. Be sure the purchase is approved. Be sure your POS is not in training mode. Other Payment for “Denied” Transactions If the purchase is denied because there are insufficient funds in the Food Stamp Program account, the customer may pay in cash. Some customers may have an EBT cash account in addition to a food stamp account. If so, you may run another transaction and use the cash account to pay the balance of the transaction. Otherwise, the customer will need to pay with actual cash. Never Keep the PIN or the Card Never ask your customer for the PIN and do not watch the PIN being entered. Do not enter the PIN for the customer. Store cashiers may have to swipe EBT cards for the customer, depending on where the POS is located. Give the card back immediately. Never keep the card or the card number. 1 Part 3: Electronic Benefits Transfer (EBT) Cards Important ● ● ● Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 18 of 28 Customer ID When using POS equipment, the PIN identifies the customer. No other identification is needed. Most States no longer issue food stamp ID cards to EBT customers. Balances Customers can check the balance in their EBT food stamp account in four ways. POS terminals can be programmed to have a balance inquiry function that will provide the balance. Many POS terminals have this function. The customer can also call a toll-free number to get the balance over the phone. After each EBT purchase transaction, the POS receipt shows the remaining food stamp account balance. Finally, in some States, recipients can check their balance through the Internet. You may not charge a customer to do a balance inquiry. No Cash Change No cash change is given back in EBT transactions because the exact amount of the purchase is entered and debited. When EBT cards are used, it is illegal for you to give cash change back. EBT systems allow for returns and refunds to be processed using the card. Customer Signatures You do not need the customer’s signature when the EBT transaction is done with a PIN. You do not need a signature for purchase or refund transactions. If you are using a voucher to process the food stamp transaction, the customer must sign the voucher. This is needed in case of a dispute, so keep the voucher with the original signature for your records and provide a copy to the customer. The Food Stamp Program: Training Guide for Retailers 1 ● ● ● ● Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 19 of 28 Q. Who does what in EBT? A. FNS authorizes the stores for the Food Stamp Program. FNS sets general EBT rules. Each State manages its own EBT system and hires contractors to process EBT transactions, issues EBT cards, and furnishes POS equipment. Q. What is a third party processor? A. We use the name "third party processor" for any transaction processing provider hired by a store. This distinguishes third party processors from the State’s EBT contractor hired to provide or arrange transaction processing for stores that do not have their own POS equipment. Q. How does the customer know how much money is in his or her account? A. Food stamp customers are trained to keep their EBT receipts, which have the account balance. This is why you must always provide the receipt. Customers may also call a toll-free number or do a balance inquiry on the POS terminal in the store. In some States, if customers have access to the Internet they can check their balance. Q. What happens if the customer lost the card? A. You may NOT do the transaction without the card. Refer the customer to the State's toll-free Customer Service Help Line her or she was given during EBT training, or to the county office—not the local FNS field office. Q. What if the customer forgot the PIN? A. You may NOT do the transaction without the PIN. Refer the client to the toll-free Customer Service Help Line that her or she was given during EBT training to get a new PIN. The customer service number may be on the back of the card. 20 Part 3: Electronic Benefits Transfer (EBT) Cards ● ● ● ● ● Questions About EBT Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 20 of 28 Q. What will EBT cost you? A. If you have State equipment, EBT costs nothing. If you use your own equipment, you will work out costs with your own transaction processing provider. Q. What if a customer presents paper food stamp coupons rather than an EBT card? A. There are still some food stamp coupons in circulation. You must accept them. Contact your local FNS field office for redemption information. Q. Is there a risk in accepting paper EBT vouchers when system problems occur? A. Only if you fail to make the call to Customer Service for an approval number or if you fail to follow the voucher instructions in the EBT retailer manual. Q. What if I sell my store? A. The new owner is NOT authorized to accept food stamp benefits. You cannot transfer Food Stamp Program authorization. If you have State equipment, tell the State EBT contractor by calling the Retailer Customer Service number before you hand over the store. Read the retailer instructions you get with your State POS machine or materials provided by your own processor. The Food Stamp Program: Training Guide for Retailers 21 ● ● ● ● Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 21 of 28 22 Introduction The Federal Government spends about $25 billion a year to support the Food Stamp Program. This is a tremendous investment by American taxpayers. USDA protects that investment by vigorously enforcing the Program’s laws and regulations and aggressively pursuing violators. Thousands of retailers have discovered that the penalties for violations can be severe. As a store owner or operator, you are legally responsible not only for your own actions but for those of everyone who works in your store, whether or not they are paid. If you, your staff, your employees, or relatives redeem more food stamp benefits than your total food sales; sell ineligible items; accept food stamp benefits in payment for food sold to a food stamp household on credit; or buy or sell food stamp benefits, you will be disqualified from the Program, and/or assessed a monetary penalty, and could face criminal prosecution. You can be fined up to $10,000 for each illegal transaction, plus three times the dollar value of the transaction, and you can be put in prison. In addition, violators may be referred to the Internal Revenue Service for more extensive investigation, and may lose their State lottery licenses and alcohol beverage sales licenses. The most common penalty is being disqualified from the Food Stamp Program. If you are disqualified from the Food Stamp Program, you could also be disqualified from the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). Even a temporary disqualification can blemish your business’ reputation and its standing in the community. Know and follow the laws and regulations, train your employees carefully, and monitor their performance. If a situation arises that you are not sure how to handle, always call the local FNS field office first. 2 Part 4: What Happens if You Break the Rules? Part 4: What Happens if You Break the Rules? Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 22 of 28 The Food Stamp Program: Training Guide for Retailers 23 The following Federal penalties apply to retailers. Trafficking—Buying or selling food stamp benefits for cash or other items besides eligible food will result in permanent disqualification, forfeiture of property, and/or a penalty of up to $27,000 for each violation and will not exceed $54,000 for all violations occurring during a single investigation. Sale of Firearms, Ammunition, Explosives, or Controlled Substances—Sale of firearms, ammunition, explosives, or controlled substances for food stamp benefits will result in permanent disqualification or a penalty of up to $27,000 for each violation and will not exceed $54,000 for all violations occurring during a single investigation. Sale of Cigarettes, Tobacco, and Alcohol—Sale of cigarettes, tobacco, alcohol, or expensive nonfood items for food stamp benefits may result in a 3- to 5-year disqualification period or equivalent civil money penalty. A claim may also be assessed. The Food Sta p Progra : Training uide for Retailers “Penalties for Violation of the Food Stamp Program,” FNS-13 Penalties Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 23 of 28 24 Introduction Sale of Ineligible Items—Sale of common ineligible nonfood items on a regular basis for food stamp benefits may result in a 6-month to 3-year disqualification or equivalent civil money penalty. A claim may also be assessed. Food Stamp Benefit Redemptions Exceeding Food Sales— A store whose food stamp benefit redemptions for a specified period of time exceed its food sales for the same period of time may be disqualified for 3 to 5 years. Accepting Food Stamp Benefits Without Authorization— Accepting food stamp benefits without authorization or after the effective date of disqualification will result in a fine of $1,000 for each violation, plus an amount equal to three times the value of the illegally accepted food stamp benefits. Second and Third Violations—The period of disqualification will be doubled for a second violation. For a third violation, the action is permanent disqualification. WIC/Food Stamp Reciprocal Actions—Stores that are disqualified from WIC may be disqualified from the Food Stamp Program for an equivalent period of time. NOTE: In addition to the preceding Federal penalties, many States have their own laws pertaining to the improper use of food stamp benefits, and their own penalties. Part 4: What Happens if You Break the Rules? Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 24 of 28 The Food Stamp Program: Training Guide for Retailers 25 As a retailer in the Food Stamp Program, you might like to know how the Program works from the customer’s point of view. You might also wish to have some information in case a customer is interested in knowing more about the Program. The following questions and answers are from a booklet called “Food Stamp Program,” Publication No. FNS-313 (also available in Spanish, FNS-313-S). Your customer can ask for a copy by calling toll free 1-800-221-5689. He or she can also find out the toll-free number in your State, which can tell the customer the location and phone number of the nearest food stamp office. There is also more information about the Program on the following Web site: http://www.fns.usda.gov/fsp How do I get food stamp benefits? Look in the government section (blue pages) of your phone book. You can find food stamp benefits under “social services department” or “human services department.” Call the food stamp office to set up a meeting with a worker. Ask what papers you need to bring. The worker will need to see your pay stubs, rent or mortgage payments, utility bills, child- or elder-care bills, and child-support orders (the court order and canceled checks). At the food stamp office you will talk with a worker, answer some questions, and sign some papers. If you can’t go to the food stamp office, you may send a relative or a friend to talk with the worker. Or you may be able to talk with a worker on the phone. The Food Sta p Progra : Training uide for Retailers Appendix: Food Stamp Information for Customers ● Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 25 of 28 2 Introduction One way to see if you might be able to get food stamp benefits is to go to http://www.foodstamps-step1.usda.gov on the Internet. Answer the questions. If it looks like you might be eligible, you can also find out how much you could receive. But to find out for sure, you must apply. Can I get food stamps just for myself if I live with my family or with others? People who live together and buy food and prepare meals together are grouped as a “household.” Husbands and wives and most children under age 22 must be one household. Will I have to get a social security number? Yes, you must have or will have to get a social security number for each household member. People in the household who do not want food stamp benefits do not have to give their social security number. But they do have to give their financial information. Can legal noncitizens get food stamp benefits? You might be able to get food stamp benefits. Talk with a food stamp worker about this. Even if you can’t get food stamp benefits, family members born in this country can. Getting food stamp benefits won’t cause you any problems if you want to become a citizen. Can I get help if I’m not working? Yes, but if you are able to work, you must look for work, take a job offer, or go to training. How much income and resources can we have? The food stamp office will tell you if your income and resources are low enough to get food stamp benefits. It depends on the number of persons in your household and also changes slightly every year. The food stamp office will also tell you if any of your expenses can be deducted from your income to help you qualify for food stamp benefits. If my household is eligible, how much will we get? The food stamp office will tell you how much you will get. It will depend on your income and on the number of people in your household. Appendix: Food Stamp Information for Customers ● ● ● ● ● ● Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 26 of 28 The Food Stamp Program: Training Guide for Retailers 2 Are food stamp benefits cash? No. Food stamp benefits come on a plastic card that you use just like a bank card. You can use them in most food stores, but only for food. What if I have more questions? You should call your local food stamp office. Our toll-free number, 1-800-221-5689, can direct you to your State’s toll-free number. For more information about this program and other Federal food assistance programs, please visit our Web site at http://www.fns.usda.gov. Find your balance between food and physical activity. A healthy eating plan is one that: • Emphasizes fruits, vegetables, whole grains and fat-free or low-fat milk and milk products • Includes lean meats, poultry, fish, beans, eggs and nuts • Is low in saturated fats, trans fats, cholesterol, salt (sodium) and added sugars Be physically active for at least 30 minutes most days of the week. The Food Sta p Progra : Training uide for Retailers ● ● Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 27 of 28 2 Introduction United States Department of Agriculture Food and Nutrition Service Case 1:08-cv-00300-RCL Document 9-5 Filed 04/04/2008 Page 28 of 28