Food Stamp Program: Retailer Integrity, Fraud Reduction and Penalties

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 271, 278 and 279

RIN 0584-AC46

Food Stamp Program: Retailer Integrity, Fraud Reduction and

Penalties

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed Rule

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SUMMARY: The purpose of this proposed rule is to implement the Food

Stamp Program retailer provisions included in the Personal

Responsibility and Work Opportunity Reconciliation Act (PRWORA) of

1996, as well as the retailer provision included in the Federal

Agriculture Improvement and Reform Act. While a number of amendments to

the current regulations are proposed in order to meet the objectives of

streamlining the regulations in response to the Departmental review of

the regulations, the majority of the proposed changes included in this

proposal are derived from the retailer provisions of the Personal

Responsibility and Work Opportunity Reconciliation Act of 1996. Most of

the provisions in this proposed rule are nondiscretionary and required

by law. The intent of this rule is to strengthen integrity and

eliminate fraud in the Food Stamp Program by ensuring that only

legitimate stores participate in the program, by improving the

Department's ability to monitor authorized firms, and by strengthening

penalties against firms that violate program rules.

DATES: Comments must be received by July 6, 1998 to be assured of

consideration. Comments on the discretionary provisions identified in

this rule are encouraged. Comments will not affect implementation of

those provisions identified as nondiscretionary that are mandated by

law and over which the Secretary has no discretion.

ADDRESSES: Comments should be addressed to Suzanne Fecteau, Chief,

Redemption Management Branch, Food and Nutrition Service, 3101 Park

Center Drive, Alexandria, Virginia 22302-1594. All written comments

will be open for public inspection at the office of the Food and

Consumer Service during regular business hours (8:30 a.m. to 5 p.m.,

Monday through Friday) in Room 706, 3101 Park Center Drive, Alexandria,

Virginia.

FOR FURTHER INFORMATION CONTACT: Questions regarding this rulemaking

should be addressed to Suzanne Fecteau, Chief, Redemption Management

Branch, Benefit Redemption Division, Food Stamp Program, 3101 Park

Center Drive, Alexandria, Virginia 22302, or by telephone at (703) 305-

2418.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This proposed rule has been determined to be not significant under

Executive Order 12866 and therefore has not been reviewed by the Office

of Management and Budget.

Executive Order 12372

The Food Stamp Program is listed in the Catalog of Federal Domestic

Assistance under No. 10.551. For the reasons set forth in the final

rule and related notice(s) to 7 CFR Part 3015, Subpart V (48 FR 29115,

June 24, 1983), this program is excluded from the scope of Executive

Order 12372, which requires intergovernmental consultation with State

and local officials.

Regulatory Flexibility Act

This proposed rule has been reviewed with regard to the

requirements of the Regulatory Flexibility Act of 1980 (5 U.S.C.

Sec. 601-612). Yvette S. Jackson, the Administrator of the Food and

Nutrition Service, has certified that this rule does not have a

significant economic impact on a substantial number of small entities.

This rule may have an effect on a limited number of retail food stores

and other entities that are shown to be negligent in effectuating the

purposes of the FSP by committing violations or fraud in the program.

However, we do not believe this will have a significant effect on most

small businesses.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995, this notice

announces our intent to submit revised application procedures and

associated burden estimates to OMB for approval relative to the

application(s) completed by retail food stores and meal service

providers to request authorization and/or continued authorization to

participate in the Food Stamp Program (FSP). We also intend to request

OMB approval of the revised estimates for 3 years.

Comments on this notice must be submitted by July 6, 1998.

Comments are invited on: (a) Whether the proposed collection of

information is necessary for the performance of the functions of the

agency, including whether the information will have practical utility;

(b) the accuracy of the agency's estimate of the burden of the proposed

collection of information including the validity of the methodology and

assumptions used; (c) ways to enhance the quality, utility and clarity

of the information to be collected; and (d) ways to minimize the burden

of the collection of information on those who are to respond, including

through the use of appropriate automated, electronic, mechanical, or

other technological collection techniques or other forms of information

technology.

Comments may be sent to Laura Oliven, Desk Officer, Office of

Information and Regulatory Affairs, Office of Management and Budget

(OMB), Washington, D.C. 20502 ( a copy may also be sent to Suzanne M.

Fecteau, Chief, Redemption Management Branch, Benefit Redemption

Division, Food and Nutrition Service, U.S. Department of Agriculture,

3101 Park Center Drive, Alexandria, Va. 22302. For further information,

or for copies of the information collection, please contact Ms. Fecteau

at the above address.)

All responses to this notice will be summarized and included in the

request for OMB approval, and will become a matter of public record.

For Further Information Contact: Suzanne M. Fecteau, (703) 305-

2418.

Title: Food Stamp Program Store Applications.

OMB Number: 0584-0008.

Type of Request: Revision of a currently approved collection.

Abstract: The Food and Nutrition Service (FNS) of the U.S.

Department of Agriculture is the Federal agency responsible for the

FSP. The Food

[[Page 24986]]

Stamp Act of 1977, as amended (the Act) (7 U.S.C. 2011-2036), requires

that the Agency determine the eligibility of firms and certain food

service organizations to accept and redeem food stamp benefits and to

monitor them for compliance and continued eligibility.

Part of FNS' responsibility is to accept applications from retail

food establishments and meal service programs that wish to participate

in the FSP, review the applications in order to determine whether or

not applicants meet eligibility requirements, and make determinations

whether to grant or deny authorization to accept and redeem food stamp

benefits. FNS is also responsible for requiring updates to application

information and reviewing that information to determine whether or not

the firms or services continue to meet eligibility requirements.

There are currently 3 application forms approved under OMB No.

0584-0008. Together these forms are used by retailers, wholesalers,

meal service providers, certain types of group homes, shelters, and

state-contracted restaurants, to apply to FNS for authorization to

participate in the FSP. Form FNS-252, Food Stamp Application For

Stores, is generally used by stores, excluding facilities which provide

meal services such as communal dining, shelters, restaurant and other

meal service programs, which are newly applying for authorization; Form

FNS-252R, Food Stamp Program Application For Stores-Reauthorization, is

used by the majority of currently authorized stores to apply for

reauthorization, excluding facilities which provide meal services such

as communal dining, shelters, restaurants and other meal service

programs; and Form FNS-252-2, Application to Participate in the Food

Stamp Program for Communal Dining Facility/Others, generally used by

communal dining and restaurant facilities and other food service

programs which are newly applying or applying for reauthorization. In a

few cases, at the discretion of the FNS field offices, some stores

would be required to complete Form FNS-252 to apply for

reauthorization. Section 9(c) of the Act provides the necessary

authorization(s) to collect the information contained in these forms.

The proposed revisions to the authorization process contained in

Sec. 278.1(a) of this proposed rule do not impose new information

collection, reporting or recordkeeping requirements. There are 3

application forms used by firm's who wish to participate in the

program. These forms and associated burden hours have been approved by

OMB under OMB No. 0584-0008 through October 31, 1999. We are proposing

to adjust the current burden estimates based on more recent data and a

technical correction to capture a change in application requirements

for private restaurants that was inadvertently omitted from the hourly

burden estimates when last submitted to OMB and an error in estimating

the average hourly burden time for Form FNS-252-2. Comments are

solicited on the adjusted burden estimates as discussed in the

following paragraphs and reflected in the summary chart at the end of

this section of the preamble.

We do not collect information on the number of FSP applications

received annually. Current burden estimates associated with these 3

application forms are determined from information maintained in STARS

(Store Tracking and Redemption System) based on the total number of

currently authorized stores or the number of newly authorized stores.

The number of expected applications is divided between initial

applications from new applicants and applications for reauthorization

from currently authorized stores.

Adjustments--Re-estimates Based on More Recent Data and Corrections

For burden estimates associated with new applicants (initial

authorizations), we used the number of stores (all types) newly

authorized/approved currently estimated at 20,696; (rounded to 20,700)

based on FY 1997 year-end data from STARS and inflated this number by

10% (2,070) to capture a total of 22,770 applications expected to be

received and processed from stores annually. It is estimated that 98%

(22,315) of the 22,770 applications expected to be received would be on

Form FNS-252 and 2% (455) would be on Form FNS-252-2. Due to a

technical correction discussed later in this section of the preamble,

the number of expected applications would be further changed to reflect

an expected total of 22,347 applications using Form FNS-252 and 423

applications using Form FNS-252-2.

For burden estimates associated with applications for

reauthorization, we used the total number of stores (all types)

authorized (184,300) as of December 1997. Generally, authorized stores

are subject to reauthorization at least once every 4 years. Thus, it is

estimated that 25% (46,000) of all authorized stores would be subject

to reauthorization in any given year. Using, the number of authorized

stores as of December 1997, it is estimated that 46,000 reauthorization

applications would be expected to be received annually. Of the 46,000

reauthorization applications expected, it is estimated that 96%

(44,160) will be on Form FNS-252R, 3% (1,380) will be on Form FNS-252-

2, and 1% (460) will be on Form FNS-252.

Hourly burden time per response varies by type of application and

includes the time to review instructions, search existing data

resources, gather and copy the data needed, complete and review the

application, and submit the form and documentation to FNS. It should be

noted that the number of applicant and authorized stores has been

declining over the past few years due to several program changes, such

as changes in eligibility requirements, stronger sanctions against

violators, and implementation of Electronic Benefit Transfer systems.

These declines have resulted in a reduction in the overall number of

respondents and ultimately a reduction in the overall proposed burden

hours reflected in the following summary chart.

Currently, private restaurants applying for FSP participation in

the State-administered special restaurant program use Form FNS-252-2 to

apply for participation. This category of applicant represents about 7%

of the number of current applicants using Form FNS-252-2. Over time, it

has been determined that we need additional information from such

private restaurants to ensure that they meet necessary requirements of

operation to carry out the intent of the FSP. The additional

information needed would be captured by having these respondents,

estimated at about 32, complete Form FNS-252 rather than Form FNS-252-

2. We estimate that these restaurants will spend an estimated 10

minutes of additional burden time using the longer Form FNS-252,

however, this contributes to a negligible amount to the increase in the

average hourly burden rate reflected in the summary chart because the

number of respondents is so small. This change is a technical

correction rather than a re-estimate based on more recent data, and is

reflected in the number of initial applications expected to be received

as shown in the summary chart.

As currently approved by OMB, the hourly burden rate per response

for Form FNS-252 is 20 to 68 minutes, with the average being 27 minutes

and 10 to 20 minutes for Form FNS 252-2, with the average being 10

minutes. These hourly burden rates are not affected by the re-estimated

number of applications expected to be received or the technical

correction. However, previous estimates

[[Page 24987]]

to OMB erroneously reflected the average burden time for Form FNS-252-2

as 10 minutes. The average time is 12 minutes and this correction

appears in the proposed estimates in the summary chart.

Total number of respondents completing at least one of the 3

applications in question, taking into consideration the adjustments

discussed above, would be as follows:

FNS-252:

New authorizations.................. 22,347 (22,770 x .98 + 32)

Reauthorizations.................... 460 (184,000 x .25 x .01)

----------

22,807

FNS-252-2:

New authorizations.................. 434 (22,770 x .02 - 32)

Reauthorizations.................... 1,380 (184,000 x .25 x .03)

----------

1,803

FNS-252R:

Reauthorizations.................... 44,160 (184,000 x .25 x .01 - 1,380 - 460)

----------

Total Responses................... 68,770

The existing estimates, as approved by OMB through May 1999 and

shown on the following chart, reflect the total annual number of

responses as 80,613 and the annual burden hours as 18,396. The proposed

number of responses would be 68,700 with total burden hours of 15,777

hours. The net effect of the proposed burden estimates is an overall

decrease in burden hours of 2,619 hours annually.

Affected Public: Food Retail and Wholesale Firms, Meal Service

Programs, certain types of Group Homes, Shelters, and State-contracted

Restaurants.

Estimated Number of Respondents: 68,770.

Estimated Number of Responses per respondent: 1.

Estimated Time per Response: 0.229416.

Estimated Total Annual Burden: 15,777.

Summary of Proposed Burden Estimates for Forms FNS-252, 252-2 and 252R

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Number of Responses per Total annual Burden hours Total annual

Title respondents respondent responses per response burden hours

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Form FNS-252:

Existing.................... 26,431 1 26,431 .4500 11,894

Proposed.................... 22,807 1 22,807 .4500 10,263

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Difference................ -3,624 1 -3,624 .............. -1,631

Form FNS-252-2:

Existing.................... 2,592 1 2,592 .1855 481

Proposed.................... 1,803 1 1,803 .2000 361

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Difference................ -789 .............. -789 +.0145 -120

Form FNS-252R:

Existing.................... 51,590 1 51,590 .1167 6,021

Proposed.................... 44,160 1 44,160 .1167 5,153

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Difference................ -7,430 .............. -7,430 .............. -868

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Totals:

Existing.................... 80,613 .............. 80,613 .............. 18,396

Proposed.................... 68,770 .............. 68,770 .............. 15,777

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Difference................ -11,843 .............. -11,843 .............. -2,619

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Executive Order 12988

This proposed rule has been reviewed under Executive Order 12988,

Civil Justice Reform. This rule is intended to have preemptive effect

with respect to any State or local laws, regulations or policies which

conflict with its provisions or which would otherwise impede its full

implementation. This rule is not intended to have retroactive effect

except as specified in the ``Effective Date'' paragraph of this

preamble. Prior to any judicial challenge to the provisions of this

rule or the application of its provisions, all applicable

administrative procedures must be exhausted. In the Food Stamp Program,

the administrative procedures are as follows: (1) for Program benefit

recipients--State administrative procedures issued pursuant to 7 U.S.C.

2020 (e)(10) and 7 CFR 273.15; (2) for State agencies--administrative

procedures issued pursuant to 7 U.S.C. Sec. 2023 set out at 7 CFR 276.7

( for rules related to non-quality control (QC) liabilities) or 7 CFR

283 (for rules related to QC liabilities); (3) for program retailers

and wholesalers-administrative procedures issued pursuant to 7 U.S.C.

2023 set out at 7 CFR 278.8.

Unfunded Mandate Reform Act of 1995

Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub.L.

104-4, establishes requirements for Federal agencies to assess the

effects of their regulatory actions on State, local and tribal

governments, and the private sector. Under section 202 of the UMRA, FNS

generally must prepare a written statement, including a cost-benefit

[[Page 24988]]

analysis, for proposed and final rules with ``Federal mandates'' that

may result in expenditures to State, local or tribal governments, in

the aggregate, or to the private sector, of $100 million or more in any

one year. When such a statement is needed for a rule, section 205 of

the UMRA generally requires FNS to identify and consider a reasonable

number of regulatory alternatives and adopt the least costly, more

cost-effective or least burdensome alternative that achieves the

objectives of the rule. This proposed rule contains no Federal mandates

under the regulatory provision of Title II of the UMRA for State, local

and tribal governments or the private sector of $100 million or more in

any one year. Thus, this rule is not subject to the requirements of

sections 202 and 205 of the UMRA.

Background

Pub. L. 104-193, the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996 (PRWORA) was enacted on August 22,1996, and

contains a number of provisions directly affecting the participation of

retailers, wholesalers and other entities eligible to be authorized to

participate in the Food Stamp Program (FSP). All of the provisions of

the law addressed in this rulemaking were effective on the date of

enactment. Five of the provisions are nondiscretionary and were

immediately implemented in the program through an implementing

memorandum issued on September 16, 1996. While these five provisions

are incorporated into this proposed rule, they are identified as

nondiscretionary in this preamble. Such nondiscretionary provisions are

statutory requirements that the Secretary has no authority to change;

therefore, such provisions or their implementation cannot be modified

by public comment. The PRWORA provides discretion in the implementation

of the remaining provisions of the law, and these provisions are being

proposed for public comment in this proposed rulemaking. The Department

encourages all interested parties to comment on the discretionary

provisions as set forth in this proposed rule.

The PRWORA and this proposed rulemaking include the following

discretionary and nondiscretionary provisions:

Revision in the definition of ``coupon''

(nondiscretionary);

Establishment of a minimum six month waiting period before

stores that initially fail to meet authorization criteria can reapply

to participate in the program (nondiscretionary), and the establishment

of longer periods of time, including permanent prohibition from

participation, which reflects the severity of the basis for the denial

of the firm's application or a firm's reauthorization in the program

(discretionary);

Requirement that USDA, or its designees, conduct

preauthorization visits to applicant firms as specified by the

Secretary (discretionary);

Authority for USDA to disqualify firms based on

inconsistent redemption data and suspicious account activity as

documented through EBT system data (nondiscretionary);

Authority to suspend the program participation of

violating firms subject to a permanent disqualification pending the

outcome of administrative or judicial review (nondiscretionary);

Authority for USDA to establish authorization periods for

the participation of retailers in the program (discretionary);

Authority to disqualify retailers who intentionally submit

falsified applications, including permanent disqualification of such

retailers (discretionary); and

Authority to disqualify retailers that have been

disqualified by State agencies responsible for the administration of

USDA's Special Supplemental Nutrition Program for Women, Infants and

Children (WIC) (discretionary), extension of the periods for

disqualification of such FSP retailers and elimination of the FSP

administrative and judicial review rights of such retailers

(nondiscretionary).

This proposed rulemaking also includes a provision of the Federal

Agriculture Improvement and Reform Act (FAIR), Pub.L. 104-127, which

provides a limitation on the mandatory permanent disqualification

actions that may be taken by USDA for retailers found to be

trafficking. Conforming and minor editorial revisions in response to

the National Performance Review Regulatory Planning and Reform

Initiative are also included in this rule.

FAIR Provision--Eligibility for Trafficking Civil Money Penalties

Section 401 of the FAIR limits mandatory permanent

disqualifications for food coupon trafficking (with no possibility of

avoiding disqualification by paying a trafficking civil money penalty)

to instances in which (1) owners are aware of violations or participate

in the conduct of such food coupon trafficking violations or (2) it is

the second investigation in which a trafficking violation was committed

by firm management.

This provision amends the current automatic ineligibility of a firm

for a civil money penalty (CMP) in lieu of permanent disqualification

if the ownership or management of the firm was aware of, approved,

benefited from or was involved in the conduct of the food coupon

trafficking violations (Sec. 278.6(i)). The FAIR amendment expands the

number of firms that may be eligible for such a CMP in lieu of

permanent disqualification. The law provides that if such a violation

represents first-time management food coupon trafficking, the firm may

be considered eligible for the imposition of a CMP, if the firm

documents that it meets all of the eligibility requirements for the CMP

as specified in Sec. 278.6 (i).

This rulemaking proposes that the provision be applicable to firm

management in general, regardless of whether or not the same individual

manager committed trafficking violations previously. For example, if an

individual manager previously was dismissed from the position for

committing trafficking violations, but a different manager of the same

firm subsequently commits food coupon trafficking violations, the firm

would not be eligible for a second CMP in lieu of permanent

disqualification. However, the expansion of eligibility for a CMP in

lieu of permanent disqualification as stipulated in the FAIR does not

apply to firms where it is shown that ownership or management was

involved in trafficking in ammunition, firearms, explosives or

controlled substances.

This provision was effective on April 4,1996, the date of enactment

of the statute. It was implemented upon the date on which Food and

Nutrition Service (FNS) offices received the implementing memorandum,

and is applicable to all firms issued a final determination letter

subsequent to receipt of the implementing memorandum by FNS offices.

The implementing memorandum was issued on September 16, 1996. The

amendment to Sec. 278.6(i) of this proposed regulation reflects this

change. Comments are invited, however, on the proposed restriction

which prohibits a CMP in lieu of permanent disqualification the second

time management personnel of a firm commit trafficking violations,

regardless of whether it was the same person in the management position

that committed the previous violation(s).

Provisions of the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996 (PRWORA)

The provisions of the PRWORA related to retailer participation in

the FSP represent a three-tiered approach to

[[Page 24989]]

enhancing retailer compliance and integrity in order to further the

purposes of the FSP and to reduce fraud in this critically important

domestic food program. The provisions greatly reinforce USDA's efforts

to effectively administer the FSP by improving the ability of the

Department to screen applicant retailers prior to authorization, to

control retailer performance subsequent to FSP authorization and to

impose stiffer penalties against those firms found to be violating the

public trust by committing FSP violations and defrauding the program.

Pre-Authorization Screening

The participation of retailers in the FSP is a privilege, not a

right. The PRWORA and the provisions of this proposed rulemaking will

serve to increase the Department's ability to cut off fraud and abuse

at the source by allowing more in-depth pre-authorization screening of

applicant firms and verification of the qualifications and continued

eligibility of currently authorized firms to participate in the FSP.

Condition Precedent for Approval of Retail Food Stores and Wholesale

Food Concerns

Section 831 of the PRWORA provides authority for USDA, its designee

or State or local government officials designated by the Department, to

conduct preauthorization visits to selected firms, and provides

discretion to the Secretary to designate such firms on the basis of

size, location and types of items sold. Amendments to Sec. 278.1(a) of

the regulation reflect the Secretary's authority to conduct such

preauthorization visits as contained in the statute. It is anticipated

that firm types subject to preauthorization visits will be determined

by the FNS on an annual basis, as priorities and resources permit.

Waiting Period for Firms That Fail To Meet Authorization Criteria

Section 834 of the PRWORA amends section 9(d) of the Food Stamp Act

to require that a firm that does not qualify for authorization because

the firm fails to meet the eligibility criteria for approval be

prohibited from submitting a new application to participate in the FSP

for a minimum period of 6 months. The statute also allows the Secretary

to establish longer time periods, including a permanent prohibition

from participation, that is reflective of the severity of the basis for

the denial of the application.

Section 278.1(k) of the regulation is proposed to be revised to

include the minimum 6-month prohibition from reapplication, which

applies to those firms that are shown to not meet Criterion A or

Criterion B of the eligibility requirements of the Food Stamp Act, (7

U.S.C. 2012(k)) and, for co-located wholesale/retail firms, the

requirements of Sec. 278.1(b)(1)(iv). Criteria A and B were

incorporated into the definition of ``retail food store'' in the Food

Stamp Act, as amended by the Pub. L. 103-225, the Food Stamp Program

Improvements Act of 1994. While this change in the definition was

effective immediately upon enactment of the law and has been

implemented, a proposed rule incorporating this statutory change

specifically in the regulations is currently in Departmental clearance.

Currently, there is no waiting period for stores that wish to

reapply to participate in the FSP after their application is denied

because the stores fail to meet basic eligibility criteria for

authorization. Such stores can adjust the types of staple food items

that they offer for sale in order to meet minimal standards and reapply

immediately, and then decrease their inventory after obtaining

authorization. Such firms tend to be stores that do not effectuate the

purpose of the FSP. The implementation of the 6-month waiting period

will reduce the number of firms that temporarily stock minimum

requirements of food items solely for the purpose of becoming

authorized in the program and then engage in food stamp trafficking as

their primary business. This provision applies to initial applicants as

well as to those firms being reviewed for the purpose of

reauthorization, or any other purpose, that are found not to meet

program eligibility requirements. At the time of initial application

and reauthorization, firms will be provided notice of this provision.

This 6-month prohibition is nondiscretionary.

This rulemaking also proposes to implement the Secretary's

authority to establish longer periods of time during which a firm would

be restricted from reapplying for program authorization. Section 834 of

the PRWORA provides that the Secretary may establish such time

restrictions, up to a permanent denial, of a firm's ability to reapply

for program authorization depending upon the severity of the reason for

the denial of such a firm's initial application or subsequent

application for authorization or reauthorization. Section 278.1(b)(3)

sets out the criteria discussed below that are proposed to be used by

FNS to make determinations regarding reapplication restrictions against

firms that are denied authorization or reauthorization, or are

otherwise withdrawn from the program. Section 278.1(k) details the

proposed periods of time for which a firm will be denied authorization

in the program in response to the criteria set out in Sec. 278.1(b)(3).

It is proposed that these provisions be applicable to denials of

initial authorization and reauthorization in the FSP, as well as to the

continued authorization of a firm for participation in the program.

Section 9 of the Food Stamp Act, as amended, provides the Secretary

with the authority to consider the business integrity and reputation of

program applicants when determining the qualifications of such

applicants for participation in the program. The business integrity of

a firm is critically important to the effective operation of the FSP.

Therefore, the criteria in this proposed rulemaking focus on the

business integrity and reputation of the ownership, management and

other personnel of those firms seeking authorization or reauthorization

in the program. Fraudulent activity in the FSP or other government

programs, or in business-related activities in general, reflects on the

ability of a firm to effectuate the purposes of the FSP and abide by

the rules governing the program. Therefore, this rulemaking proposes

that a firm be permanently denied the opportunity for reapplication if

a firm is denied authorization or reauthorization in the program on the

basis of criminal convictions or a finding of civil liability of the

ownership or management of an applicant firm for reasons that affect

the business integrity of such firms. If personnel of the firm have

been criminally convicted or found civilly liable for reasons related

to business integrity, the firm will be denied the opportunity for

reapplication to the program for as long as that person is employed by

the firm. Examples of such business integrity matters include

conviction or civil liability for offenses such as insurance fraud, tax

fraud, and embezzlement.

In addition, this proposal stipulates that firms that have been

removed from other federal, State or local government programs shall be

prohibited from applying for the FSP during the period of removal from

such programs. Such action in the FSP would be taken, for example, if a

firm is removed from the WIC Program, or had their State or local

liquor or lottery license suspended.

It is also proposed that firms for which it is found that an

attempt has been made to circumvent a period of disqualification, a

civil money penalty

[[Page 24990]]

or a fine imposed for FSP violations, or firms for which evidence

exists of prior violative behavior which is not related to the FSP,

shall be denied the opportunity to apply for the program for a period

of 3 years. For example, a firm fined for lottery or liquor license

infractions, but not removed from the State or local program through

suspension, would be restricted from participation in the FSP for 3

years, commencing from the effective date of the FSP denial.

Further, this rulemaking proposes that firms in which violations of

the program have been committed but a sanction has not been served,

shall be denied the opportunity to apply for the program for a period

of time equivalent to the appropriate sanction period that should have

been served. This provision would apply, for example, when a firm goes

out of business prior to FNS' sanctioning the firm for FSP violations

that were uncovered prior to its going out of business. If the same

owner seeks authorization for a different store, such a store would not

be immediately authorized in the FSP and would be subject to a waiting

period equivalent to the period of time that the previously

investigated firm under that ownership would have been disqualified.

This waiting period would be applicable whether or not the previously

investigated firm was authorized in the FSP or was an unauthorized firm

found to be violating the FSP.

This provision also applies to persons who are owners or officers

of multi-unit firms, as well as management and personnel who are

employed by the owner of a multi-unit firm. If an owner or officer of a

multi-unit firm personally committed FSP violations at one unit of a

multi-unit firm, and a sanction was not served, it is proposed that an

applicant firm under that same ownership would be denied authorization

for a period of time that should have been served for the previously

committed violations. Moreover, as currently provided in the FSP

regulations, the authorization of other units of such multi-unit firms

may be withdrawn in response to violations of the FSP by ownership.

If management or personnel of such multi-unit firms commit

sanctionable violations at more than one location, this would indicate

that such actions are reflective of the overall operating practice of

the firm, thus indicating a lack of business integrity on the part of

ownership. If such violations occur and an appropriate penalty was not

served, the applicant firm will be denied or restricted from applying

for authorization in the FSP for the period of time that should have

been served by the firm for violations committed at these other

locations under the same ownership. The period would be equivalent to

the longest sanction period that would have been served for the most

serious of violations committed by any one of the associated firms.

Finally, it is proposed that firms for which any other evidence

exists that negatively impacts on the business integrity or reputation

of the firm shall be denied the opportunity to apply for authorization

in the FSP for one year from the effective date of the denial. Firms

adversely affected by any such actions would be entitled to appeal

rights provided by section 14 of the Food Stamp Act.

This proposal also makes an editorial change unrelated to the

PRWORA provisions to conform the language of Sec. 278.1(k), Denying

authorization. and Sec. 278.1(l), Withdrawing authorization. An

additional editorial change is also being made to Sec. 278.1(m) so as

to conform this section with Sec. 278.1(k) and Sec. 278.1(l). These

revisions do not result in any substantive change in the program, but

simply clarify the intent that the provisions are applicable to both

denials and withdrawals in the program. In addition, language is

proposed to be added in Sec. 278.1(k) and Sec. 278.1(l) that reflects

the current prohibition against participation in the program as

specified in the current rule at Sec. 278.6(f)(4), which prohibits

authorization for participation of firms that have outstanding transfer

of ownership civil money penalties owed to FNS.

Authority To Establish Authorization Periods

Section 832 of the PRWORA provides authority for the Secretary to

establish specific periods of time during which a firm may be

authorized to accept food stamps. The intent of this provision is to

eliminate the current open-ended authorization of firms in the program.

Further, it is intended to protect the integrity of the FSP by

requiring a firm to re-apply periodically for continued participation

and thereby ensuring that only legitimate and eligible firms are

authorized to accept FSP benefits.

It is proposed that no firm be assigned an authorization period for

participation in the FSP for longer than 5 years. Moreover, the FNS

Officer in Charge may assign a lesser period of authorization,

depending on the circumstances. Such circumstances may include the fact

that a store is a new firm with unknown sales history, an additional

outlet of a chain grocery store with an inconsistent FSP compliance

record or a firm that only minimally meets the eligibility criteria for

participation in the FSP.

The Department believes that the five year maximum authorization

period, after which a firm is required to apply to be reauthorized in

the program, is reasonable and necessary for the effective

administration of the program, and will ensure that the eligibility of

all firms are routinely and periodically reviewed.

The specification of an authorization period in no way precludes

FNS from periodically requesting information from a firm or concern for

purposes of reauthorization in the program or from withdrawing or

terminating the authorization of a firm in accordance with program

regulations. The Department will develop administrative procedures to

ensure that, prior to the time of expiration of a firm's authorization

period, the firm will be provided with reauthorization materials and be

given the opportunity to submit such materials and information to

enable FNS to evaluate the firm's qualifications for continued

participation in the FSP. This proposal is included in Sec. 278.1(j) of

the regulation.

Post-Authorization Controls and Stiffer Penalties in the Program

Retailers that abuse the privilege of authorization in the FSP will

have that privilege revoked. The PRWORA includes a number of

significant tools that will enhance the Department's ability to enforce

the effectiveness of the FSP and the monitoring of retailers.

Authority to Suspend Stores Violating Program Requirements Pending

Administrative and Judicial Review

Section 845 of the PRWORA amends section 14 of the Food Stamp Act

to require that a permanent disqualification of a firm from the FSP be

effective from the date of the firm's receipt of the notice of

disqualification. The PRWORA also provides that if such an

administrative action by FNS is reversed through administrative or

judicial review, the Secretary is not liable for the value of any

revenues lost by the firm during such a disqualification period. This

provision is nondiscretionary and was effective upon the date of

enactment of the law. This provision pertains to firms that are subject

to permanent disqualification for trafficking in the program, as well

as to those firms subject to permanent disqualification for having been

sanctioned twice before for violations of the program. Changes

reflecting this

[[Page 24991]]

provision of the law have been made at Sec. 278.6(b). Editorial

revisions have also been made to Sec. 278.8(a), Sec. 279.7(a) and

Sec. 279.10(d). Since this provision is nondiscretionary, its

implementation cannot be affected by public comment. It is important to

note that the statute specifically refers only to permanent

disqualification actions. Therefore, firms that request and are found

to be eligible for a civil money penalty in lieu of permanent

disqualification for trafficking are not affected by the immediate

suspension requirement of the statute nor would such firms be expected

to pay the civil money penalty pending appeal and may continue to

participate in the program pending appeal.

Investigations

Section 278.6(a) of the regulation is proposed to be amended in

accordance with section 841 of the PRWORA to make an editorial change

that stipulates that findings of program violations and the subsequent

suspension or disqualification of a firm may be made based on evidence

established through on-site investigations, inconsistent redemption

data, or evidence obtained through a transaction report under an

electronic benefit transfer system. This supports current practice in

the program and the current authority provided to the Secretary to

enforce program compliance. The provision is nondiscretionary.

Disqualification of Retailers Disqualified From the WIC Program

Section 843 of the PRWORA amends section 12 of the Food Stamp Act

to require the Secretary to develop standards by which firms

disqualified from the Special Supplemental Nutrition Program for Women,

Infants and Children (WIC) are to be reciprocally disqualified from

participation in the FSP. Currently, FSP regulations provide for the

withdrawal of such firms from the FSP in response to WIC

disqualification action. Such withdrawals must run for a concurrent

period of time. This has proven to be problematic in that it is

sometimes difficult for the Food Stamp withdrawal action to catch up to

the WIC disqualification, particularly if the WIC disqualification is

for a 6 month period or less. Under the current regulations, a firm has

the right to appeal the Food Stamp action, and often, by the time the

firm has appealed the FSP withdrawal, the WIC disqualification period

is ending. Thus, the impact of reciprocal withdrawal is not

significant. The change in the law provides that the FSP

disqualification period (1) shall be for the same period of time as the

WIC disqualification period; (2) may run consecutive to the WIC

disqualification; and (3) shall not be subject to FSP administrative or

judicial review. These provisions of the statute are nondiscretionary.

In addition, the law stipulates that the Secretary establish

criteria for such reciprocal disqualification actions. Current

regulations set forth the types of WIC violations that will result in

withdrawal of a firm from participation in the FSP.

The Department proposes to retain these same criteria, with some

editorial changes to ensure that trafficking violations are fully

covered in the listed violations. The WIC violations included here,

therefore, represent very serious violations of the WIC Program that

are comparable to serious violations of the FSP. These violations best

represent the potential risk of violations of a similar nature being

committed by unscrupulous firms in the FSP, thus necessitating

reciprocal FSP action to protect the integrity of the FSP. The

Department solicits comments on the reciprocal disqualification

standards set out in Sec. 278.6(e)(8).

Conforming changes to restrict those firms subject to reciprocal

disqualification from eligibility for FSP administrative and judicial

review are made to Sec. 278.6(n), Sec. 278.8(a), Sec. 279.3(a)(2) and

Sec. 279.10(a) of this regulation. The changes made to these sections

are nondiscretionary and will not be affected by public comment.

Disqualification of Retailers Who Intentionally Submit Falsified

Applications

Section 842 of the PRWORA amends section 12(b) of the Food Stamp

Act to authorize the Secretary to disqualify, including permanently

disqualify, participating retailers who knowingly submit applications

that contain false information about substantive issues. This proposed

rule proposes to subject a firm to permanent disqualification if it is

found that false information directly related to the eligibility of the

firm for authorization is knowingly submitted on the application. In

addition, this rule proposes that in cases in which any false

information is knowingly submitted that would impact on the ability of

FNS to monitor and identify potentially violative firms, the firm shall

be disqualified for three years.

This proposed rule outlines examples of the type of information

that would be considered ``substantive'' for the purpose of determining

eligibility, as well as the type of information that is considered to

be substantive from a monitoring standpoint. These examples, however,

are not inclusive of all of the information that, if fraudulently

submitted, may result in disqualification of a firm.

This rule also proposes to deny authorization of any such firm

which is found to have knowingly submitted such false information on

the application at the time of initial application processing. It is

proposed that such firms be denied for the same period of time for

which they would be disqualified under Sec. 278.6(e). The Department

encourages comments on this discretionary provision.

List of Subjects

7 CFR Part 271

Administrative practice and procedure, Food stamps, Grant

programs--social programs.

7 CFR Part 278

Administrative practice and procedure, Banks, banking, Claims, Food

stamps, Groceries--retail, Groceries, General line--wholesaler,

Penalties.

7 CFR Part 279

Administrative practice and procedure, Food stamps, Groceries--

retail, Groceries, General line--wholesaler.

Accordingly, 7 CFR parts 271, 278 and 279 are proposed to be

amended as follows:

1. The authority citation for parts 271, 278 and 279 continues to

read as follows:

Authority:

7 U.S.C. 2011-2032.

PART 271--GENERAL INFORMATION AND DEFINITIONS

2. In Sec. 271.2, the definition of ``coupon'' is revised to read

as follows:

Sec. 271.2 Definitions.

* * * * *

Coupon means any coupon, stamp, type of certificate, authorization

card, cash or check issued in lieu of a coupon, or access device,

including an electronic benefit transfer card or personal

identification number issued pursuant to the provisions of the Food

Stamp Act of 1977, as amended, for the purchase of eligible food.

* * * * *

PART 278--PARTICIPATION OF RETAIL FOOD STORES, WHOLESALE FOOD

CONCERNS AND INSURED FINANCIAL INSTITUTIONS

3. In Sec. 278.1:

[[Page 24992]]

a. Paragraph (a) is revised;

b. Paragraph (b)(3) is revised;

c. Paragraph (j) is revised;

d. Paragraph (k) is amended by revising the first sentence of

paragraph (k)(2) and redesignating the paragraph (k)(2) as paragraph

(k)(7), and adding new paragraphs (k)(2), (k)(3), (k)(4), (k)(5) and

(k)(6);

e. Paragraph (l) is amended by redesignating paragraphs (l)(1)(iii)

through (l)(1)(v) as (l)(1)(v) through (l)(1)(vii), respectively,

revising newly redesignated paragraph (l)(1)(vi), and adding new

paragraphs (l)(1)(iii) and (l)(1)(iv);

f. The introductory text of paragraph (m) is revised;

g. Paragraph (o) is removed, and paragraphs (p) through (u) are

redesignated as paragraphs (o) through (t), respectively; and

h. Newly redesignated paragraph (o) is revised and newly

redesignated paragraph (q) is amended by removing references to (r)(2),

(r)(3), (r)(1)(ii), (r)(1)(i), (r)(2)(ii), (r)(2)(iv), (r)(3)(iv) and

(r), wherever they appear, and adding in their place references to

(q)(2), (q)(3), (q)(1)(ii), (q)(1)(i), (q)(2)(ii), (q)(2)(iv),

(q)(3)(iv) and (q), respectively.

The revisions and additions read as follows:

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

(a) Application. Any firm desiring to participate or continue to be

authorized in the program shall file an application as prescribed by

FNS. Such an application shall contain information which will permit a

determination to be made as to whether such an applicant qualifies, or

continues to qualify, for authorization under the provisions of the

program. FNS may require that a retail food store or wholesale food

concern be visited to confirm eligibility for program participation

prior to such store or concern being authorized or reauthorized in the

program. FNS shall determine, based on factors that include size,

location, and types of items sold, which stores or concerns shall be

visited. Required visits shall be conducted by an authorized employee

of the Department, a designee of the Secretary, or an official of the

State or local government designated by the Secretary. FNS shall deny

or approve the application, or request additional information from the

applicant firm, within 30 days of receipt of the initial application.

(b) Determination of authorization. * * *

(3) The business integrity and reputation of the applicant. FNS

shall deny the authorization of any firm from participation in the

program for a period of time as specified in paragraph (k) of this

section based on consideration of information regarding the business

integrity and reputation of the firm as follows:

(i) Criminal conviction records reflecting on the business

integrity of owners, officers, managers, or other personnel of the

applicant firm;

(ii) Judicial determinations in civil litigation adversely

reflecting on the business integrity of owners, officers, managers or

other personnel of the applicant firm;

(iii) Official records of removal of the applicant firm from other

Federal, State or local government programs;

(iv) Evidence of an attempt by the applicant firm to circumvent a

period of disqualification, a civil money penalty or fine imposed for

violations of the Food Stamp Act and program regulations;

(v) Evidence (other than a record of a civil or criminal

conviction) of prior fraudulent behavior of owners, officers, managers,

or other personnel of the applicant firm that is not Food Stamp Program

related for which a Food Stamp Program sanction had not been previously

imposed and satisfied;

(vi) Previous Food Stamp Program violations by owners, officers,

managers, or other personnel of the applicant firm for which a sanction

had not been previously imposed and satisfied;

(vii) Evidence of prior Food Stamp Program violations personally

committed by the owner(s) or the officer(s) of the firm at one or more

units of a multi-unit firm, or evidence of prior Food Stamp Program

violations committed by management or other personnel at other units of

multi-unit firms which would indicate a lack of business integrity on

the part of ownership and for which sanctions had not been previously

imposed and satisfied; or

(viii) Any other evidence adversely reflecting on the business

integrity or reputation of the applicant firm.

* * * * *

(j) Authorization. Upon approval, FNS shall issue a nontransferable

authorization card to the firm. The authorization card shall be valid

only for the time period for which the firm is authorized to accept and

redeem coupons under the program. The authorization card shall be

retained by the firm until such time as the authorization period has

ended, authorization in the program is superseded, or the card is

surrendered or revoked as provided in this part. No firm may be

assigned an authorization period in the program of longer than 5 years;

however, the FNS Officer in Charge may assign a lesser period for

authorization of a firm, depending on the circumstances of such firm.

The specification of an authorization period in no way precludes FNS

from periodically requesting information from a firm or concern for

purposes of reauthorization in the program or from withdrawing or

terminating the authorization of a firm in accordance with this part.

(k) Denying authorization. * * *

(2) The firm has failed to meet the eligibility requirements for

authorization under Criterion A or Criterion B, as specified in the

Food Stamp Act of 1977, as amended; or, for co-located wholesale/retail

firms, the firm fails to meet the requirements of paragraph (b)(1)(iv)

of this section. Any firm that has been denied authorization on these

bases shall not be eligible to submit a new application for

authorization in the program for a minimum period of six months from

the effective date of the denial;

(3) The firm has been found to lack the necessary business

integrity and reputation to further the purposes of the program. Such

firms shall be denied authorization in the program for the following

period of time:

(i) Firms for which criminal conviction records reflecting on the

business integrity of owners, officers, or managers exist shall be

denied authorization permanently; firms for which such records exist

with regard to other personnel employed by the firm shall be denied for

as long as such person continues to be employed by the firm;

(ii) Firms for which judicial determinations in civil litigation

adversely reflecting on the business integrity of owners, officers or

managers of the firm have been made shall be denied authorization

permanently; firms for which such determinations have been made with

regard to other personnel employed by the firm shall be denied

authorization for as long as such person continues to be employed by

the firm;

(iii) Firms which have been officially removed from other Federal,

State or local government programs shall be denied for a period

equivalent to the period of removal from any such programs;

(iv) Firms for which evidence exists of an attempt to circumvent a

period of disqualification, a civil money penalty or fine imposed for

violations of the Food Stamp Act and program regulations shall be

denied for a period

[[Page 24993]]

of three years from the effective date of denial;

(v) Firms for which evidence exists of prior fraudulent behavior of

owners, officers, or managers of the firm which is not Food Stamp

Program related and for which a Food Stamp Program sanction had not

been previously imposed and satisfied shall be denied for a period of

three years from the effective date of denial; firms for which such

fraudulent behavior was committed by personnel employed by the firm

shall be denied authorization for as long as such person continues to

be employed by the firm;

(vi) Firms for which evidence exists of prior Food Stamp Program

violations by owners, officers, managers, or other personnel of the

firm for which a sanction had not been previously imposed and satisfied

shall be denied for a period of time equivalent to the appropriate

disqualification period for such previous violations, effective from

the date of denial;

(vii) Firms for which evidence exists of prior Food Stamp Program

violations at other units of multi-unit firms for which a sanction had

not been previously imposed and satisfied shall be denied for a period

of time equivalent to the appropriate disqualification period for such

previous violations, effective from the date of denial;

(viii) Firms for which any other evidence exists which reflects

negatively on the business integrity or reputation of the applicant

firm shall be denied for a period of one year from the effective date

of denial;

(4) The firm has filed an application that contains false or

misleading information about a substantive matter, as specified in

Sec. 278.6(e). Such firms shall be denied authorization for the periods

specified in Sec. 278.6(e)(1) or Sec. 278.6(e)(3);

(5) The firm's participation in the program will not further the

purposes of the program;

(6) The firm has been found to be circumventing a period of

disqualification or a civil money penalty through a purported transfer

of ownership;

(7) The firm has failed to pay in full any fiscal claim assessed

against the firm under Sec. 278.7, any fines assessed under

Sec. 278.6(l) or Sec. 278.6(m), or a transfer of ownership civil money

penalty assessed under Sec. 278.6(f). * * *

(l) Withdrawing authorization. (1) * * *

(iii) The firm fails to meet the requirements for eligibility under

Criterion A or Criterion B, as specified in the Food Stamp Act of 1977,

as amended, or, for co-located wholesale/retail firms, the firm fails

to meet the requirements of paragraph (b)(1)(iv) of this section, for

the time period specified in paragraph (k)(2) of this section;

(iv) The firm fails to maintain the necessary business integrity to

further the purposes of the program, as specified in paragraph (b)(3)

of this section. Such firms shall be withdrawn for lack of business

integrity for periods of time in accordance with those stipulated in

paragraph (k)(3) of this section for specific business integrity

findings;

* * * * *

(vi) The firm has failed to pay in full any fiscal claim assessed

against the firm under Sec. 278.7 or any fines assessed under

Sec. 278.6(l) or Sec. 278.6(m) or a transfer of ownership civil money

penalty assessed under Sec. 278.6(f) or

* * * * *

(m) Refusal to accept correspondence or to respond to inquiries.

FNS may withdraw or deny the authorization of any firm which:

* * * * *

(o) Applications containing false information. The filing of any

application containing false or misleading information may result in

the denial of approval for participation in the program, as specified

in paragraph (k) of this section, or disqualification of a firm from

participation in the program, as specified in Sec. 278.6, and may

subject the firm and persons responsible to civil or criminal action.

* * * * *

4. In Section 278.6:

a. Paragraph (a) is revised;

b. Paragraph (b)(1) is amended by adding one new sentence to the

end of the paragraph;

c. Paragraph (b)(2)(i) is amended by adding two new sentences to

the end of the paragraph;

d. Paragraph (c) is amended by adding three new sentences to the

end of the paragraph;

e. Paragraph (e) is amended by adding new paragraphs (e)(1)(iii),

(e)(3)(vi) and (e)(8);

f. Paragraph (i) is amended by removing the first sentence of

Criterion 4 and adding three new sentences in its place, and by

removing the words ``or management'' in paragraph (i)(1)(v); and

g. Paragraph (n) is revised.

The revisions and additions read as follows:

Sec. 278.6 Disqualification of retail food stores and wholesale food

concerns, and imposition of civil money penalties in lieu of

disqualifications.

(a) Authority to disqualify or subject to a civil money penalty.

FNS may disqualify any authorized retail food store or authorized

wholesale food concern from further participation in the program if the

firm fails to comply with the Food Stamp Act or this part. Such

disqualification shall result from a finding of a violation on the

basis of evidence that may include facts established through on-site

investigations, inconsistent redemption data, evidence obtained through

a transaction report under an electronic benefit transfer system, or

the disqualification of a firm from the Special Supplemental Nutrition

Program for Women, Infants and Children (WIC), as specified in

paragraph (e)(8) of this section. Disqualification shall be for a

period of 6 months to 5 years for the firm's first sanction; for period

of 12 months to 10 years for a firm's second sanction; and

disqualification shall be permanent for a disqualification based on

paragraph (e)(1) of this section. Any firm which has been disqualified

and which wishes to be reinstated at the end of the period of

disqualification or at any later time shall file a new application

under Sec. 278.1 so that FNS may determine whether reauthorization is

appropriate. The application may be filed no earlier than 10 days

before the end of the period of disqualification. FNS may, in lieu of a

disqualification, subject a firm to a civil money penalty of up to

$10,000 for each violation if FNS determines that a disqualification

would cause hardship to participating households. FNS may impose a

civil money penalty of up to $20,000 for each violation in lieu of a

permanent disqualification for trafficking, as defined in Sec. 271.2 of

this chapter, in accordance with the provisions of paragraphs (i) and

(j) of this section.

(b) Charge letter. (1) * * * In the case of a firm for which action

is taken in accordance with paragraph (e)(8) of this section, the

charge letter shall inform such firm that the disqualification action

is not subject to administrative or judicial review, as specified in

paragraph (e)(8) of this section.

(2) Charge letter for trafficking. (i) * * * The charge letter

shall also advise the firm that the permanent disqualification shall be

effective immediately upon the date of receipt of the notice of

determination, regardless of whether a request for review is filed in

accordance with Sec. 279.5 of this chapter. If the disqualification is

[[Page 24994]]

reversed through administrative or judicial review, the Secretary shall

not be liable for the value of any sales lost during the

disqualification period.

* * * * *

(c) * * * In the case of a firm subject to permanent

disqualification under paragraph (e)(1) of this section, the

determination shall inform such a firm that action to permanently

disqualify the firm shall be effective immediately upon the date of

receipt of the notice of determination from FNS, regardless of whether

a request for review is filed in accordance with Sec. 279.5 of this

chapter. 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. In the case of a firm

for which action is taken in accordance with paragraph (e)(8) of this

section, the determination notice shall inform such firm that the

disqualification action is not subject to administrative or judicial

review, as specified in paragraph (e)(8) of this section.

* * * * *

(e) Penalties. * * *

(1) * * *

(iii) It is determined that personnel of the firm knowingly

submitted information on the application that contains false

information of a substantive nature that could affect the eligibility

of the firm for authorization in the program, such as, but not limited

to, information related to:

(A) Eligibility requirements under

Sec. 278.1(b),(c),(d),(e),(f),(g) and (h);

(B) Staple food stock;

(C) Annual gross sales for firms seeking to qualify for

authorization under Criterion B as specified in the Food Stamp Act, as

amended;

(D) Annual staple food sales;

(E) Total annual gross retail food sales for firms seeking

authorization as co-located wholesale/retail firms;

(F) Ownership of the firm;

(G) Employer Identification Numbers and Social Security Numbers;

(H) Food Stamp Program history, business practices, business

ethics, WIC disqualification or authorization status, when the store

did (or will) open for business under the current ownership, business,

health or other licenses, and whether or not the firm is a retail and

wholesale firm operating at the same location; or

(I) Any other information of a substantive nature that could affect

the eligibility of a firm.

* * * * *

(3) * * *

(vi) Personnel of the firm knowingly submitted information on the

application that contained false information of a substantive nature

related to the ability of FNS to monitor compliance of the firm with

FSP requirements, such as, but not limited to, information related to:

(A) Annual eligible retail food sales;

(B) Store location and store address and mailing address;

(C) Financial institution information; or

(D) Store name, type of ownership, number of cash registers, and

non-food inventory and services.

* * * * *

(8) FNS shall disqualify from the Food Stamp Program any firm which

is disqualified from the WIC Program:

(i) Based in whole or in part on any act which constitutes a

violation of that program's regulation and which is shown to constitute

a misdemeanor or felony violation of law, or for any of the following

specific program violations:

(A) Claiming reimbursement for the sale of an amount of a specific

food item which exceeds the store's documented inventory of that food

item for a specified period of time;

(B) Exchanging WIC food instruments for cash, credit or

consideration other than eligible food; or the exchange of firearms,

ammunition, explosives or controlled substances, as defined in section

802 of title 21 of the United States Code, for food instruments;

(C) Receiving, transacting and/or redeeming WIC food instruments

outside of authorized channels;

(D) Accepting WIC food instruments from unauthorized persons;

(E) Exchanging non-food items for a WIC food instrument;

(F) Charging WIC customers more for food than non-WIC customers or

charging WIC customers more than the current shelf price; or

(G) Charging for food items not received by the WIC customer or for

foods provided in excess of those listed on the food instrument.

(ii) FNS shall not disqualify a firm from the Food Stamp Program on

the basis of a WIC disqualification unless:

(A) Prior to the time prescribed for securing administrative review

of the WIC disqualification action, the firm was provided individual

and specific notice that it could be disqualified from the Food Stamp

Program based on the WIC violations committed by the firm;

(B) A signed and dated copy of such notice is provided to FNS by

the WIC administering agency; and

(C) A determination is made in accordance with Sec. 278.6(a) that

such action will not cause a hardship for participating Food Stamp

households.

(iii) Such a Food Stamp disqualification:

(A) Shall be for the same length of time as the WIC

disqualification;

(B) May begin at a later date than the WIC disqualification; and

(C) Shall not be subject to administrative or judicial review under

the Food Stamp Program.

* * * * *

(i) Criteria for eligibility for a civil money penalty in lieu of

permanent disqualification for trafficking. * * *

Criterion 4. Firm ownership was not aware of, did not approve,

did not benefit from, or was not in any way involved in the conduct

or approval of trafficking violations; or it is only the first

occasion in which a member of firm management was aware of,

approved, benefited from, or was involved in the conduct of any

trafficking violations by the firm. Upon the second occasion of

trafficking involvement by any member of firm management uncovered

during a subsequent investigation, a firm shall not be eligible for

a civil money penalty in lieu of permanent disqualification.

Notwithstanding the above provision, if trafficking violations

consisted of the sale of firearms, ammunition, explosives or

controlled substances, as defined in 21 U.S.C. 802, and such

trafficking was conducted by the ownership or management of the

firm, the firm shall not be eligible for a civil money penalty in

lieu of permanent disqualification.

* * * * *

(n) Review of determination. The determination of FNS shall be

final and not subject to further administrative or judicial review

unless a written request for review is filed within the period stated

in Sec. 279.5. Notwithstanding the aforementioned, any FNS

determination made on the basis of paragraph (e)(8) of this section

shall not be subject to further administrative or judicial review.

* * * * *

5. In Sec. 278.8, paragraph (a) is revised to read as follows:

Sec. 278.8 Administrative review--retail food stores and wholesale

food concerns.

(a) Requesting review. A food retailer or wholesale food concern

aggrieved by administrative action under Sec. 278.1, Sec. 278.6 or

Sec. 278.7 may, within the period stated in Sec. 279.5 of this chapter,

file a written request for review of the administrative action with the

review officer, except that disqualification actions taken against

firms in accordance with Sec. 278.6(e)(8) shall not be subject to

administrative or judicial review. On receipt of the request for

review, the questioned administrative action shall be stayed pending

disposition of the request for review by the review officer, except in

the case of a permanent disqualification as

[[Page 24995]]

specified in Sec. 278.6(e)(1). A disqualification for failure to pay a

civil money penalty shall not be subject to administrative review.

* * * * *

PART 279--ADMINISTRATIVE AND JUDICIAL REVIEW--FOOD RETAILERS AND

FOOD WHOLESALERS

6. In Sec. 279.3, paragraph (a)(2) is revised to read as follows:

Sec. 279.3 Authority and jurisdiction.

(a) Jurisdiction. * * *

(2) Imposition of a fine under Sec. 278.6(l) of this chapter or

Sec. 278.6 (m) of this chapter or disqualification from participation

in the program or imposition of a civil money penalty under Sec. 278.6

of this chapter, except for disqualification actions imposed under

Sec. 278.6(e)(8) of this chapter;

* * * * *

7. In Sec. 279.7, paragraph (a) is amended to add two new sentences

after the first sentence to read as follows:

Sec. 279.7 Action upon receipt of a request for review.

(a) Holding action. * * * However, in cases of permanent

disqualification under Sec. 278.6(e)(1) of this chapter, such

administrative action shall not be held in abeyance pending such a

review determination. If the disqualification is reversed through

administrative or judicial review, the Secretary shall not be held

liable for the value of any sales lost during the disqualification

period. * * *

* * * * *

8. In Sec. 279.10, the first sentence of paragraph (a) and

paragraph (d) are revised to read as follows:

Sec. 279.10 Judicial review.

(a) Filing for judicial review. Except for firms disqualified from

the program in accordance with Sec. 278.6(e)(8) of this chapter, a firm

aggrieved by the determination of the food stamp review officer may

obtain judicial review of the determination by filing a complaint

against the United States in the U.S. district court for the district

in which the owner resides or is engaged in business, or in any court

of record of the State having competent jurisdiction. * * *

* * * * *

(d) Stay of action. During the pendency of any judicial review, or

any appeal therefrom, the administrative action under review shall

remain in force unless the firm makes a timely application to the court

and after hearing thereon, the court stays the administrative action

after a showing that irreparable injury will occur absent a stay and

that the firm is likely to prevail on the merits of the case. However,

permanent disqualification actions taken in accordance with

Sec. 278.6(e)(1) of this chapter shall not be subject to such a stay of

administrative action. If the disqualification action is reversed

through administrative or judicial review, the Secretary shall not be

liable for the value of any sales lost during the disqualification

period.

Dated: April 24, 1990.

Yvette S. Jackson,

Administrator, Food and Nutrition Service.

[FR Doc. 98-12038 Filed 5-5-98; 8:45 am]

BILLING CODE 3410-30-U