Special Supplemental Nutrition Program for Women, Infants and Children (WIC): WIC/Food Stamp Program (FSP) Vendor Disqualification

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service, USDA

7 CFR Part 246

RIN 0584-AC50

Special Supplemental Nutrition Program for Women, Infants and

Children (WIC): WIC/Food Stamp Program (FSP) Vendor Disqualification

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule amends regulations governing the Special

Supplemental Nutrition Program for Women, Infants and Children (WIC) to

mandate uniform sanctions across State agencies for the most serious

WIC Program vendor violations. The implementation of these mandatory

sanctions is intended to curb vendor-related fraud and abuse in the WIC

Program and to promote WIC and FSP coordination in the disqualification

of vendors and retailers who violate program rules. This rule also

implements a mandate of the Personal Responsibility and Work

Opportunity Reconciliation Act of 1996, which requires the

disqualification of WIC vendors who are disqualified from the FSP.

DATES: This regulation is effective May 17, 1999. State agencies must

fully implement the provisions of this rule no later than May 17, 2000,

except that Sec. 246.15 (concerning civil money penalties and fines as

program income) must be implemented no later than October 1, 1999.

FOR FURTHER INFORMATION CONTACT: Barbara Hallman, Supplemental Food

Programs Division, Food and Nutrition Service, USDA, 3101 Park Center

Drive, Room 542, Alexandria, Virginia 22302. (703) 305-2730.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This final rule has been determined to be not significant for

purposes of Executive Order 12866 and therefore has not been reviewed

by the Office of Management and Budget.

Regulatory Flexibility Act

This final rule has been reviewed with regard to the requirements

of the Regulatory Flexibility Act (5 U.S.C. 601-612). Samuel Chambers,

Jr., Administrator of the Food and Nutrition Service (FNS), has

certified that this rule will not have a significant impact on a

substantial number of small entities. This rule will only impact WIC

vendors who have committed fraud and abuse against the WIC Program or

who have been disqualified from the FSP. While some of these vendors

may be small entities, the number affected will not be substantial.

Paperwork Reduction Act

This final rule imposes no new reporting or recordkeeping

requirements that are subject to OMB review in accordance with the

Paperwork Reduction Act of 1995 (44 U.S.C. 3501-20).

Executive Order 12372

The Special Supplemental Nutrition Program for Women, Infants and

Children is listed in the Catalog of Federal Domestic Assistance

Programs under 10.577. For reasons set forth in the final rule in 7 CFR

part 3015, subpart V, and related notice (48 FR 29115), this program is

included in the scope of Executive Order 12372, which requires

intergovernmental consultation with State and local officials.

Executive Order 12988

This final 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

unless so specified in the DATES paragraph of the final rule. Prior to

any judicial challenge to the application of provisions of this rule,

all applicable administrative procedures must be exhausted.

Public Law 104-4

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

Law (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 analysis, for proposed and final rules with ``Federal

mandates'' that may result in expenditures to State, local or tribal

governments, in the aggregate, or the private sector, of $100 million

or more in any one year. When such a statement is needed for a rule,

section 205 of the UMRA generally requires 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 rule contains no Federal mandates (under the regulatory

provisions of Title II of the UMRA) for State, local and tribal

governments or the private sector of $100 million or more in any one

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

202 and 205 of the UMRA.

Good Cause Determination

Most of the provisions in this final rule were subject to a 90-day

public comment period that commenced on April 20, 1998 with the

publication of a proposed rule in the Federal Register. In addition to

the provisions proposed in the April 20, 1998 rule, this rule at

Sec. 246.12(k)(1)(i) implements the provisions in section 203(p)(1) of

the William F. Goodling Child Nutrition Reauthorization Act of 1998,

Pub. L. 105-336 (Goodling Act), concerning permanent disqualification

of vendors convicted of trafficking or selling firearms, ammunition,

explosives, or controlled substances in exchange for food instruments.

Section 203(p)(2) of the Goodling Act requires the Secretary to publish

a proposed rule to carry out these provisions no later than March 1,

1999 and a final rule no later than March 1, 2000.

Section 246.12(k)(1)(i) allows only minimal discretion in its

implementation. Further, the substance of this provision overlaps and

is intertwined with the issues proposed in

[[Page 13312]]

the April 20, 1998 rule. Therefore, to separately propose these

provisions is unnecessary and contrary to public interest. The

Administrator has determined pursuant to 5 U.S.C. 553(b) that there is

good cause to publish the provisions of this rule concerning sanctions

for convictions for trafficking and illegal sales without prior public

comment.

Background

On April 20, 1998, the Department published a proposed rule at 63

FR 19415 to establish mandatory WIC sanctions for the most serious WIC

Program violations. These WIC violations are deemed to be so serious

that, under current FSP regulations, they also result in the loss of

FSP authorization in response to the WIC Program disqualification. The

April 20, 1998 rule also proposed to implement the requirement of

section 729(j) of the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996, Pub. L. 104-193 (PRWORA). As authorized by

the law, the proposal would have required a WIC State agency to

disqualify a WIC vendor who had been disqualified from the FSP, unless

the State agency determined that such disqualification would create

hardship for WIC participant access. In these situations, the State

agency would have been required to impose a civil money penalty (CMP)

in accordance with a formula established in the proposed rule. The rule

also proposed the removal of the current three-year limit on WIC vendor

disqualification, thus permitting permanent WIC vendor disqualification

under specified circumstances.

A total of twenty-six comment letters were received during the

comment period, which ended on July 20, 1998. The Department has given

all comments careful consideration in the development of this final

rule and would like to thank all commenters who responded to the

proposal. Following is a discussion of each provision, as proposed,

comments received, and an explanation of the provisions set forth in

this final rule.

Implementation

As noted above, the amendment to Sec. 246.15 (concerning civil

money penalties and fines as program income) must be implemented no

later than October 1, 1999. The Department has decided to require

implementation no later than October 1, 1999 to coincide with fiscal

year financial reporting for the WIC Program. In addition, this will

give State agencies that have been using these funds in other ways the

time to make the necessary budgeting adjustments.

The remaining amendments are effective May 17, 1999, but are not

required to be implemented for a full year (by May 17, 2000).

Establishing separate effective and implementation dates recognizes the

variations among the operations of State agencies and gives them

flexibility in implementation methods. For example, a State agency for

which all vendor agreements are scheduled to be renewed in December

1999 might decide that it is most feasible and efficient to wait until

then to implement the new sanction and appeal provisions. This way, the

State agency could make the necessary changes to the new agreements

without having to amend the current agreements. Another State agency

that enters into agreements on a rolling basis may decide to amend the

agreements as new ones are entered into, provided that agreements

reflecting the new requirements are in place for all vendors prior to

May 17, 2000, even if it means amending some agreements that will not

expire prior to that date. Another approach would be to send a notice

to all vendors informing them of the new provisions and offering them

the option to either agree to the amendments to their agreements or to

terminate their agreements. The year-long implementation period should

give State agencies sufficient lead time to plan for an orderly

replacement of any vendors that terminate their agreements because they

do not agree to the new provisions.

The mandatory sanctions in this rule apply only to violations

committed after the State agency has provided notice to a vendor of the

new provisions, as discussed above. This means that if a vendor

committed a trafficking violation prior to the time the State agency

provided notice of the new six-year disqualification period for

trafficking, the new mandatory sanction would not apply. Instead, the

State agency would impose whatever sanction the State agency has

previously imposed for trafficking. Furthermore, only mandatory

sanctions imposed under the conditions of this final rule count toward

the number of sanctions that trigger the doubling of sanctions, as

provided under Sec. 246.12(k)(1)(v) and (vi).

State agencies may implement, independent of the remainder of this

rule, the provision concerning the disqualification of WIC vendors who

have been disqualified from the FSP (Sec. 246.12(k)(1)(vii)) and the

associated change to the WIC appeal procedures (Sec. 246.18(a)(1)(ii)).

However, this provision may be implemented only if two conditions are

met: (1) The FSP disqualification occurs after the effective date of

this rule and (2) the vendor received notice prior to his opportunity

to appeal the FSP disqualification that such disqualification may

result in a WIC disqualification that is not be subject to

administrative or judicial review under the WIC Program. The new

provision limiting WIC appeals would not apply to any FSP or WIC

appeals already in process.

Definition of Food Instrument

In recognition of emerging technology in the retail food delivery

area relative to electronic benefits transfer (EBT), the Department

proposed to revise the definition of ``food instrument'' to include an

EBT transfer card. The proposed rule's definition read: ``Food

instrument means a voucher, check, electronic benefits transfer card

(EBT), coupon or other document which is used by a participant to

obtain supplemental foods.'' One commenter was concerned that the

reference to ``participant'' in this definition excluded the approved

use of WIC food instruments by a participant's proxy or by an

undercover agent. The commenter suggested that the phrase ``used by a

participant'' be deleted from the definition of a food instrument. The

commenter also suggested that the definition of ``participants'' be

amended to include a WIC customer, proxy, or an undercover investigator

posing as any of the above.

To avoid confusion, the Department has revised the definition of

food instrument to remove the reference to participants. The Department

does not, however, believe that it is necessary to revise the

definition of ``participants'' to include a proxy or an undercover

agent. Current regulations are already clear about the types of

activities a proxy may perform on behalf of a participant. For example,

current regulations at Sec. 246.12(o) provide that a proxy may transact

food instruments on behalf of a participant. Also, because undercover

investigators are under the direction of the WIC State agency, there is

no need to prescribe exactly the activities investigators may perform

while posing as a participant.

Disqualification of WIC Vendors as a Result of FSP Disqualification

Current regulations at Sec. 246.12(k)(1)(iii) give State agencies

the option to disqualify a vendor who has been disqualified from

another FNS program. Section 729(j) of the PRWORA amended section 17 of

the Child

[[Page 13313]]

Nutrition Act of 1966 (CNA) (42 U.S.C. 1786) by adding a new section

(n) that requires the Secretary to issue regulations providing criteria

for the disqualification of WIC vendors who have been disqualified in

the FSP. This provision states that the WIC disqualification shall be

for the same length of time as the FSP disqualification, may begin at

the same time or a later date than the FSP disqualification, and shall

not be subject to administrative or judicial review. To implement this

provision of the PRWORA and to strengthen program integrity, the

proposed rule would have required mandatory disqualification of WIC

vendors who had been disqualified from the FSP, unless the State agency

determined that disqualification of the vendor would result in hardship

for participant access. Commenters overwhelmingly supported this

provision as proposed. Therefore, the proposal has been adopted with

only technical changes to make clear that a WIC disqualification or CMP

in lieu of disqualification based on an FSP disqualification is a

mandatory sanction.

Disqualification of WIC Vendors as a Result of FSP Civil Money

Penalties

Current program regulations (Sec. 246.12(k)(1)(iii) and (iv)) allow

but do not require a State agency to disqualify a WIC vendor who is

currently disqualified from any FNS program or who has been assessed an

FSP CMP in lieu of disqualification. As noted above, the proposed rule

would have required WIC State agencies to disqualify a vendor from WIC

who has been disqualified from the FSP, unless such disqualification

would result in hardship for participant access, in which case WIC

State agencies would be required to impose a CMP. The proposed rule

would have retained for WIC State agencies the option of disqualifying

a vendor who had been assessed an FSP CMP in lieu of disqualification.

Several commenters requested that an FSP CMP be treated in the same

manner as an FSP disqualification. That is, State agencies should be

required to impose WIC Program disqualifications based on FSP CMPs and

that such actions should not be subject to review under the WIC

Program. Because the law only authorizes WIC disqualification without

any administrative or judicial appeal for actions based specifically on

an FSP disqualification, there is no legal basis to limit appeals for

WIC actions based on FSP CMPs in the same manner as FSP

disqualifications. However, the Department believes a violation that

warrants disqualification under FSP rules is a serious violation,

regardless of whether the FSP imposes a disqualification or a CMP in

lieu of disqualification due to participant hardship. As such, this

final rule retains the State agency option in Sec. 246.12(k)(2)(ii) to

disqualify a vendor against whom the FSP has assessed a CMP in lieu of

disqualification due to participant hardship. Further, the Department

wishes to note that an FSP participant hardship determination in no way

obligates the WIC State agency to also conclude that disqualification

of a vendor would result in inadequate WIC participant access. Although

many WIC participants also participate in the FSP, the WIC Program and

the FSP generally serve different populations. Consequently, there may

be instances where disqualification would result in hardship for FSP

participants but would not result in inadequate participant access for

WIC participants. In these instances, the WIC State agency may choose

to disqualify the violative vendor, provided the State agency documents

its WIC participant access determination in the vendor's case file and

provides prior notice to the vendor of the possibility of such

disqualification in the vendor agreement.

In addition, this final rule makes clear that this provision only

applies to FSP CMPs that are imposed in lieu of disqualification due to

participant hardship. FSP CMPs imposed for other reasons may not be

used as grounds to disqualify a WIC vendor. For example, an FSP

transfer of ownership CMP would not warrant a WIC disqualification

because these CMPs are imposed after a store has already been

disqualified. In addition, a State agency may not disqualify a vendor

for an FSP CMP imposed in lieu of a permanent disqualification for

trafficking based on an FNS finding that the store has an effective

compliance program.

The final rule clarifies that the option to impose a WIC

disqualification based on an FSP CMP is considered a State agency-

established sanction rather than a mandatory sanction.

The Department also wishes to clarify that WIC State agencies may

not impose a WIC CMP in response to an FSP CMP. The only sanction

available to the WIC State agency in response to an FSP CMP is WIC

disqualification, as explained above, and that is permitted solely in

cases where the FSP CMP is assessed due to FSP participant hardship.

A vendor may not request an administrative review of a WIC

disqualification based on an FSP disqualification. However, a vendor

may request an administrative review of a WIC disqualification based on

an FSP CMP. The areas subject to review include: whether the vendor was

assessed a CMP in lieu of disqualification by the FSP, whether the FSP

CMP was imposed due to participant hardship, and whether the vendor

agreement included the required notification that the vendor was

potentially subject to WIC disqualification based on an FSP CMP.

However, neither the FSP decision to impose a CMP in lieu of

disqualification nor the State agency's WIC participant access

determination are subject to administrative review under the WIC

Program.

Length of Disqualification

The April 20, 1998 rule proposed to amend the current regulations

to remove the three-year maximum disqualification period reflected in

Sec. 246.12(k)(1)(ii). This change was proposed in part to accommodate

section 17(n) of the CNA (as amended by the PRWORA), which provides

that a WIC disqualification based on an FSP disqualification shall be

for the same length of time as the FSP disqualification and may begin

at the same time or at a later date than the FSP disqualification. In

addition, the change was proposed to accommodate the other WIC

mandatory sanctions, which include disqualification for periods longer

than three years. No negative comments were received on this change.

Therefore, this rule removes the three-year limitation from the

regulations. This permits both reciprocal permanent disqualification,

as required by the PRWORA, and other mandatory sanctions that impose

disqualification periods in excess of three years.

Mandatory WIC Vendor Sanctions

The proposed rule would have established nine program violations

that warrant mandatory sanctions in addition to the mandatory

reciprocal sanction requiring the disqualification of a WIC vendor as a

result of an FSP disqualification. The WIC violations were based on the

seven WIC Program violations that, pursuant to current Sec. 278.1(o) of

the FSP regulations, result in the loss of a retailer's FSP

authorization. In the proposal, three modifications were made to the

seven violations adopted from the current FSP regulations. Violations

for ``trafficking'' and ``the sale of alcohol or alcoholic beverages or

tobacco products in exchange for WIC food instruments'' were added to

the list of violations that would result in a mandatory WIC sanction.

The word ``cash'' was deleted

[[Page 13314]]

from the ``exchanging WIC food instruments for cash or credit''

violation, because exchanging food instruments for cash was already

included in the proposed violation for trafficking.

Only one commenter opposed the establishment of uniform sanctions

for serious violations. Although most commenters supported uniform

sanctions, clarifications were requested on the difference between an

investigation, a violation, and a sanction, and the number of

incidences of each violation that trigger a mandatory sanction. For

purposes of this final rule, an investigation is a method used by the

State agency to determine if violations are occurring. A violation is

an infraction of program regulations or other requirements. A sanction

is an administrative action taken as a result of a violation. For a

mandatory sanction, this rule requires a State agency to impose either

a disqualification or a CMP in lieu of disqualification. Multiple

violations detected during a single investigation may result in a

mandatory sanction of either a disqualification for the most serious

violation or multiple CMPs.

Regarding the number of incidences of each violation that trigger a

mandatory sanction, the Department has determined that some violations

are so serious that only one incidence warrants disqualification. For

example, trafficking and the sale of alcohol or tobacco products are

flagrant violations of program rules and completely undermine program

goals. As such, this final rule requires a mandatory sanction for one

incidence of either of these violations. All the other violations

require a pattern of incidences to warrant a mandatory sanction. To set

a specific number of incidences that constitutes a pattern for each

violation would fail to account for the extent of the fraud or abuse

being committed. For example, if a vendor overcharged $20 on a gallon

of milk, the number of incidences required to demonstrate a pattern of

the violation would be less than for a vendor who overcharged 5 cents

on a gallon of milk. It is therefore left to the discretion of the

State agency to determine the number of incidences that reflect a

pattern, based on the type and severity of violation.

Finally, the Department proposed in Sec. 246.12(k)(1)(iv) that the

State agency would not have to provide the vendor with prior notice

that violations were occurring and the possible consequences of the

violations prior to implementing any of the mandatory sanctions. Two

commenters opposed this provision. One commenter opposed this provision

because it would be contrary to State legislative reform that includes

a mandate to notify vendors of such violations and give them an

opportunity to correct problems before imposing any sanctions. The

other commenter suggested retention of current language that allows the

State agency to provide a vendor with prior warning and an opportunity

to correct the problem.

The Department decided to adopt the provision with minor

modifications to distinguish between prior warning and prior notice.

The State agency must provide a vendor with prior notice (i.e. the

notice of administrative action) at least fifteen days prior to the

effective date of a sanction, except for a disqualification imposed for

the ``vendors convicted for trafficking/illegal sales'' violation,

which is required by statute to be effective on the date of receipt of

the notice of administrative action. The final rule at

Sec. 246.12(k)(3) reads: ``The State agency does not have to provide

the vendor with prior warning that violations were occurring before

imposing any of the sanctions in this paragraph (k).'' The location of

the provision in the final rule clarifies that it applies to both

mandatory and State agency-established sanctions. The provision clearly

makes the use of prior warning a State agency option. However, such

prior warning cannot be provided for the trafficking violations or

``the sale of alcohol or alcoholic beverages or tobacco products''

violation because these violations warrant a mandatory sanction for the

first incidence. Also, while prior warning for other violations may be

acceptable for the first incidence, continual use of such warning

undermines the State agency's fraud and abuse investigation and

prevention efforts.

Below is a chart illustrating the mandatory sanctions required by

this final rule and a discussion of the WIC violations that warrant a

mandatory sanction.

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WIC violation* Proposed rule sanction Final rule sanction

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Vendors convicted of trafficking/ Not proposed/Non-discretionary..... Permanent.

illegal sales.

Administrative finding of trafficking/ Permanent.......................... 6 years.

illegal sales.

Sale of alcoholic beverages or tobacco 3 years............................ 3 years.

products.

Claiming reimbursement in excess of 3 years............................ 3 years.

documented inventory.

Overcharging.......................... 3 years............................ 3 years.

Outside of authorized channels, 3 years............................ 3 years.

including unauthorized vendors or

persons.

Supplemental food not received........ 3 years............................ 3 years.

Credit or non-food items.............. 1 year............................. 3 years.

Unauthorized food items**............. 3 years............................ 1 year

2nd mandatory sanction, excluding Double sanction.................... Double sanction.

sanctions for trafficking convictions

& FSP DQs.

3rd mandatory sanction, excluding Permanent.......................... Double sanction & no CMP option.

sanctions for trafficking convictions

& FSP DQs.

Disqualification from FSP............. Same as FSP DQ..................... Same as FSP DQ.

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*All violations require a pattern of incidences to warrant a mandatory sanction, except the violations for

``vendors convicted of trafficking/illegal sales,'' an administrative finding of ``trafficking/illegal

sales,'' and ``the sale of alcohol or alcoholic beverages or tobacco products,'' which only require one

incidence to warrant a mandatory sanction.

**The violation for ``unauthorized food items'' was not a separate violation under the proposal. It would have

been considered under the violation: ``Charging for food items not received by the WIC customer or for food

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

I. Trafficking or Illegal Sales

On October 31, 1998, the President signed the Goodling Act, which

includes a non-discretionary provision regarding the permanent

disqualification of ``vendors convicted of trafficking or illegal

sales.'' (Conviction means an action by a criminal court and not an

administrative finding by the State agency or its review office.)

This provision has been included in the final rule with only minor

revisions to make it consistent with current WIC

[[Page 13315]]

terminology. The law mandates that the permanent disqualification for

convicted vendors shall be effective on the date of receipt of the

notice of administrative action. Further, the law specifies that

convicted vendors are not entitled to receive any compensation for

revenues lost as a result of a disqualification which is later

overturned. Finally, the law allows a State agency, at its discretion,

to assess a CMP in lieu of permanent disqualification if: (1) The State

agency determines that the disqualification would result in inadequate

participant access; or (2) the State agency determines that the vendor

had, at the time of the violation, an effective policy and program in

place to prevent this type of violation, and the ownership of the

vendor was not aware of, did not approve of, and was not involved in

the conduct of the violation. State agencies may choose to implement

one, both, or neither of the two options for assessing CMPs in lieu of

disqualification based on a conviction for trafficking or illegal

sales. The option(s) selected by the State agency must be reflected in

the State Plan. These new provisions are at Sec. Sec. 246.12(k)(1)(i)

and 246.4(a)(14)(v).

The inclusion of this legislative mandate necessitated

modifications to the proposed rule with respect to two violations that

would have resulted in permanent disqualification. First, the length of

disqualification for an administrative finding of the trafficking

violation has been reduced in the final rule from the proposed

permanent disqualification to a six-year disqualification. (An

administrative finding of trafficking is a trafficking violation that

has not resulted in a conviction for trafficking by a court of law,

either because the officials responsible for criminal prosecution have

declined to prosecute the matter or because the criminal action is not

complete.) In addition, the length of disqualification for a third

mandatory sanction has been reduced in the final rule from the proposed

permanent disqualification to a sanction equal to double the

disqualification period for the current violation with no option to

impose a CMP. These sanctions were modified to set them apart from the

permanent disqualification required by the Goodling Act for vendors

convicted of trafficking or illegal sales.

In the proposed rule, trafficking was defined as the ``buying or

selling of WIC food instruments for cash or consideration other than

eligible food.'' Twelve commenters indicated that this definition needs

further clarification. Three commented that the phrase ``or

consideration other than eligible food'' could be interpreted to

include other less egregious violations, such as the violation for

exchanging non-food items for food instruments. One commenter pointed

out that, under the proposed rule, selling a non-WIC cereal (``other

than eligible food'') could be considered trafficking. In response to

these concerns, the Department has deleted the phrase ``or

consideration other than eligible food'' from the definition of the

trafficking violation in this final rule.

II. Sale of Alcoholic Beverages or Tobacco Products

Under the proposal, a vendor would have been disqualified for three

years for the sale of alcohol or alcoholic beverages or tobacco

products in exchange for food instruments. Commenters generally agreed

with the proposal. One commenter suggested that selling alcohol is as

intolerable as selling illicit drugs or firearms for food instruments,

and because of the immediate danger alcohol poses to the fetus, a

permanent disqualification is warranted. Another commenter suggested

that lottery tickets and gasoline be added to this violation, because

selling these non-food items is just as egregious as selling alcohol or

tobacco products. In this final rule, the Department has retained a

three-year disqualification for this violation. As stated earlier in

this preamble, in recognition of their obvious inappropriate nature

with respect to the WIC Program, only one incidence of the sale of

alcohol or alcoholic beverages or tobacco products in exchange for food

instruments is necessary to trigger the mandatory sanction for this

violation. In addition, as discussed below, the mandatory sanction for

exchanging non-food items for food instruments has been increased to

three years in this final rule, thus accommodating the commenter's

concern regarding other non-food items.

III. Claiming Reimbursement in Excess of Documented Inventory

In response to the proposed violation for claiming reimbursement in

excess of documented inventory, commenters requested clarification of

the term ``documented inventory.'' One commenter asserted that many

small rural stores will not have detailed documentation regarding their

monthly inventories. Like any business, a retail store is required for

tax purposes to maintain records on its purchases, receipts, and

inventory. Although the type of recordkeeping may vary based on the

size of a store, all vendors should have up-to-date inventory records.

Current regulations at Sec. 246.12(i)(4) include ``review of inventory

records'' as one of the review methods for on-site monitoring visits.

This method of review can be used to detect vendors who are, for

example, redeeming food instruments for unauthorized stores, exchanging

unauthorized food or non-food items for food instruments, or

trafficking.

The final rule requires a pattern of this violation in order to

trigger a mandatory sanction. A pattern for this violation can be

established during a single review where a vendor's records indicate

that the store's redemptions for a specific food item exceed its

documented inventory for a number of months. The requirement of a

pattern for this violation also responds to a commenter who suggested

graduated sanctions based on the severity of the inventory shortfall.

The evidence necessary to show a pattern of abuse for this violation

depends on the magnitude of the shortfalls and the period of time over

which they occur. For example, a pattern can be established over a

short period of disproportionately large inventory shortfalls or over

an extended period of time of small inventory shortfalls.

IV. Overcharging

On the proposed violation for ``charging WIC customers more for

food than non-WIC customers or charging more than the current shelf or

contract price,'' commenters were concerned about establishing a

pattern for this violation, distinguishing between outright fraud and

abuse and inadvertent human error, and having a sanction that is

appropriate for the violation. As noted above in this preamble, the

Department has modified this violation in the final rule to establish

that a pattern of incidences is necessary to warrant a mandatory

sanction. In addition, the Department has clarified that the evidence

necessary to establish a pattern is influenced by both the severity and

number of the incidences of a violation.

The intent to commit a violation versus inadvertent human error is

not a distinction that State agencies must establish in order to impose

sanctions, including sanctions for overcharging. The vendor sanctions

are not criminal; they are imposed in order to protect the integrity of

the WIC Program. If stores consistently overcharge customers for

purchases, customers take their business elsewhere regardless of

whether the overcharges are intentional or inadvertent. Likewise, when

a pattern of overcharging is established, the State agency will be

required to impose a mandatory sanction on the vendor

[[Page 13316]]

regardless of whether the violation is intentional or inadvertent.

Current regulations at Sec. 246.12(f)(2)(ix), which cover the

requirements for vendor agreements, state: ``The food vendor shall be

accountable for actions of employees in the utilization of food

instruments or provision of supplemental foods.'' The WIC Program has

limited resources and cannot tolerate vendors whose employment

practices repeatedly result in direct losses to the Program.

Six commenters questioned the severity of the sanction for this

violation. Overcharging is one of the most common vendor violations.

Funds lost through overcharges could otherwise be used to serve more

participants. As such, the sanction for this type of violation must be

sufficient to deter this type of fraud and abuse. Consequently, the

Department has retained the three-year sanction for this violation in

the final rule.

One commenter suggested that vendors should be granted the

opportunity to correct overcharging problems as outlined in

Sec. 246.12(r)(5)(iii) in the current regulations, which states: ``When

payment for a food instrument is denied or delayed, or a claim for

reimbursement is assessed, the affected food vendor shall have the

opportunity to correct or justify the overcharge or error.* * *''

Another commenter noted that the regulations already require vendors to

refund the difference between their reported price for the food package

and the actual redemption price. The violation, as written in this

final rule, does not prohibit the State agency from pursuing claims for

overcharging before it rises to a level where it warrants a mandatory

sanction. The mandatory sanction for this violation is only triggered

when a pattern of overcharging is established. However, permitting

vendors to just pay claims when the State agency detects overcharges

provides vendors with no incentive to ensure that overcharging does not

occur in the first place.

V. Outside of Authorized Channels and Unauthorized Persons

Several commenters requested a clarification that would distinguish

the violation for ``accepting WIC food instruments from unauthorized

persons'' from the violations for ``trafficking'' and ``receiving,

transacting, and/or redeeming WIC food instruments outside of

authorized channels.'' One commenter requested that the Department

establish procedures a vendor must follow to verify an authorized

person. Another commenter pointed out that some State agencies do not

use WIC identification cards and rely on banks to return WIC checks to

vendors when the signatures do not match. Due to the variety of methods

used by State agencies to document and verify participants, it is

impractical for the Department to establish a single set of procedures

to verify an authorized person. As noted above in the Definition of

Food Instrument section of this preamble, the only persons authorized

to use food instruments to obtain supplemental foods are participants,

designated proxies, and undercover investigators. Nevertheless, even

participants can be unauthorized persons if they are transacting

someone else's food instruments. In response to commenters' concerns,

the Department consolidated the ``unauthorized person'' and ``outside

authorized channels'' violations into a single violation in the final

rule at Sec. 246.12(k)(1)(iii)(D). This violation reads: ``A pattern of

receiving, transacting, and/or redeeming food instruments outside of

authorized channels, including the use of an unauthorized vendor and/or

an unauthorized person.'' This violation includes situations in which a

vendor, who owns more than one store, not all of which are authorized,

accepts food instruments at an unauthorized store and redeems them

through an authorized store.

VI. Supplemental Food Not Received

Commenters suggested several revisions to the sanction for the

violation ``charging for food items not received by the WIC customer or

for food provided in excess of those listed on the food instrument.''

One commenter suggested that the violation be modified to read: ``* * *

for non-substitutionary foods provided in excess.* * *'' Another

commenter requested that the violation differentiate between a minor

violation, such as being shorted a dozen eggs, and a more significant

violation, such as receiving nothing for a food instrument. The

commenter suggested that only the more significant violation should

warrant a three-year disqualification.

To accommodate commenters' concerns, the Department has deleted the

phrase ``charging for food provided in excess of those listed on the

food instrument'' from this violation and included it as part of a new

violation, discussed below in the Unauthorized Food Items section of

this preamble. The violation now reads ``a pattern of charging for

supplemental food not received by the participant.'' The Department has

retained the three-year disqualification for this violation,

notwithstanding commenters' concerns about the severity of the

sanction. The Department believes that charging for supplemental food

not received is comparable to ``overcharging'' and thus should carry

the same sanction. Nevertheless, ``charging for supplemental food not

received'' is distinct enough from ``overcharging'' to justify its

being a separate violation. For example, a vendor may charge the State

agency the full price on a food instrument, even though the participant

chose not to purchase several items listed on the food instrument. This

would be an incidence of the charging for supplemental food not

received by the participant. On the other hand, a participant may

receive all of the food items listed on the food instrument, but the

vendor charges more for the items than the current shelf prices. This

would be an incidence of overcharging. In the final rule, these

violations will result in three-year sanctions.

VII. Credit or Non-Food Items

Under the proposed rule, ``exchanging WIC food instruments for

credit'' would trigger a one-year sanction. One commenter requested

that the term ``credit'' be defined. Another commenter indicated that

providing credit in exchange for food instruments is comparable to

trafficking and suggested that the credit violation warrants a more

severe sanction. Commenters expressed similar concerns about the

proposed one-year sanction for ``exchanging non-food items, other than

alcohol or alcoholic beverages or tobacco, for WIC food instruments.''

In response to commenters' suggestions, the Department has

consolidated the two proposed violations into a single violation in the

final rule at Sec. 246.12(k)(1)(iii)(F). This violation reads: ``a

pattern of providing credit or non-food items, other than alcohol,

alcoholic beverages, tobacco products, cash, firearms, ammunition,

explosives or controlled substances as defined in 21 U.S.C. 802, in

exchange for food instruments.'' The Department also increased the

sanction for this violation to a three-year disqualification.

Consolidating the violations recognizes that providing credit in

exchange for food instruments is essentially granting the participant

access to any item in a store, including non-food items. As such, the

Department concurs with the commenter who suggested that a more severe

sanction is warranted for this violation. The Department wishes to

clarify that if a vendor allows the credit to be used for the purchase

of alcohol

[[Page 13317]]

or alcoholic beverages or tobacco products, then the vendor's actions

fall under the ``alcohol/tobacco'' violation, which triggers a sanction

after one incidence. In addition, if a vendor allows the credit to be

used for any of the items included in the trafficking violation, then

the vendor's actions fall under that violation, which also triggers a

sanction after one incidence.

VIII. Unauthorized Food Items

Under the proposal, providing unauthorized food items in exchange

for food instruments would fall under the violation for ``charging for

* * * food provided in excess of those listed on the food instrument,''

which would warrant a three-year mandatory sanction. Comments from the

vendor community expressed concern that the sanction was too severe for

the violation. They suggested that the final rule make a clear

distinction between incidences of minor ``substitution'' of food items

and exchanging non-food items for food instruments. Further, they

suggested that substitution of food items should result in a lesser

sanction. In response to these concerns, the Department has inserted a

new violation in the final rule at Sec. 246.12(k)(1)(iv) that reads:

``a pattern of providing unauthorized food items in exchange for food

instruments, including charging for supplemental food provided in

excess of those listed on the food instrument.'' Rather than including

it in the violation for ``charging for supplemental food not received

by the participant,'' the Department decided to include ``charging for

supplemental food provided in excess of those listed on the food

instrument'' in this violation because such food is technically

unauthorized.

The distinction made in this final rule between unauthorized food

items and non-food items is consistent with program goals and

strengthens the uniformity of the mandatory sanction system.

Nevertheless, the Department wishes to make clear that it does not

consider ``providing unauthorized food items in exchange for food

instruments'' (i.e. ``substitution'') to be a minor violation. The WIC

Program is a nutrition assistance program that provides specific foods

to participants in order to improve their health and nutritional well-

being. In addition, one-fourth of participants are able to receive

program benefits due to rebates from manufacturers. Substituting

unauthorized food items for WIC-approved food items may undermine State

agency contracts with rebate manufacturers and is contrary to the

mission and goals of the WIC Program.

Treatment of Mandatory Sanctions

One commenter suggested that the sanctions for WIC violations be

additive within a single investigation. Rather than make

disqualification periods additive, the Department established lengths

of disqualification for the mandatory sanctions that are appropriate

for the severity of the violations. As such, State agencies no longer

need to establish multiple violations during an investigation in order

to justify the length of disqualification. In situations in which a

vendor is found to have committed multiple violations during the course

of a single investigation, while all violations must be reflected in

the notice of administrative action to the vendor, including State

agency-established violations, the length of disqualification for a

mandatory sanction shall be determined by the most serious violation.

This approach recognizes that one investigation results in one

disqualification, which represents a fair balance of both the

Department's desire to address program violations and the vendor

community's concern regarding the lengths of disqualification periods.

However, as discussed below in the Formula for Calculating Civil

Money Penalties section of this preamble, the Goodling Act recognizes

that multiple violations may occur during a single investigation and,

thus, established limits on CMPs for both violations and investigations

involving vendors convicted of trafficking/illegal sales. For

consistency, the Department decided to adopt this approach for all

CMPs, including those imposed as a result of State agency-established

sanctions. Thus, in situations in which the State agency determines

that disqualification of the vendor will result in inadequate

participant access, the State agency must impose a sanction that

includes CMPs for each violation that warrants a mandatory sanction.

The proposed rule included a provision to double the mandatory

sanction if the vendor had been assessed a previous sanction. Four

commenters requested clarification of this provision. Two commenters

asked whether the second sanction had to be for the same violation as

the first. One commenter asked whether the doubling applies to the more

serious of the first and second sanctions or whether it only applies to

the second sanction. Another commenter asked whether the doubling

occurs if the first sanction is a State agency-established sanction. To

clarify this provision in the final rule at Sec. 246.12(k)(1)(v), the

Department has revised it to read: ``When a vendor, who previously has

been assessed a sanction for any of the violations in paragraphs

(k)(1)(ii) through (k)(1)(iv) of this section, receives another

sanction for any of these violations, the State agency shall double the

second sanction. Civil money penalties may only be doubled up to the

limits allowed under paragraph (k)(1)(x)(C) of this section'' (i.e.,

$10,000 per violation and $40,000 per investigation). This revision

clarifies that while both the first and second sanction must be

mandatory sanctions, they do not need to be for the same violation. The

final rule also clarifies that it is the sanction for the second

violation that is doubled. However, mandatory sanctions for vendors

convicted of trafficking/illegal sales and those based on FSP

disqualification do not count toward this provision and cannot be

doubled. In addition, State agency-established sanctions do not count

toward this provision.

As noted earlier, the sanction for a vendor's third mandatory

sanction for a WIC violation has been revised in the final rule at

Sec. 246.12(k)(1)(vi). The provision now reads: ``When a vendor, who

previously has been assessed two or more sanctions for any of the

violations listed in paragraphs (k)(1)(ii) through (k)(1)(iv) of this

section, receives another sanction for any of these violations, the

State agency shall double the third sanction and all subsequent

sanctions. The State agency shall not impose civil money penalties in

lieu of disqualification for third or subsequent sanctions for

violations listed in (k)(1)(ii) through (k)(1)(iv) of this section.''

No CMP option is allowed in these cases because by a third or

subsequent sanction the State agency should have had time to make other

arrangements to ensure adequate participant access. In addition, the

Department specifically omitted the violation for vendors convicted of

trafficking/illegal sales contained in paragraph (k)(1)(i) of this

final rule from the CMP prohibition portion of this provision. This

omission was made to reflect the requirement in the Goodling Act that

gives the State agency the option to impose a CMP in lieu of permanent

disqualification for this violation. However, as noted in the

conference report that accompanied the Goodling Act, Congress expressed

its expectation that State agencies should take the strongest possible

action against each vendor who has been repeatedly convicted of

trafficking or illegal sales of food instruments.

[[Page 13318]]

State Agency Vendor Sanctions

Recognizing that there are other violations in addition to those

covered by the mandatory sanctions, the Department has left the

authority to establish sanctions for any additional violations to State

agency discretion, as long as vendors are made aware of such violations

and sanctions prior to their imposition. Under the proposed rule at

Sec. 246.12(k)(1)(vi), the period of disqualification for State agency-

established violations would be limited to six months. Six commenters

requested more State agency discretion regarding State agency

sanctions. As discussed in the Mandatory WIC Vendor Sanctions and

Participant Access sections of this preamble, the final rule provides

State agencies with little discretion in the imposition and disposition

of the mandatory sanctions. This restriction of discretion ensures

uniformity in the application of the mandatory sanctions across the WIC

Program. However, the Department is sensitive to commenters' requests

for more discretion with regard to State agency sanctions. To balance

the restriction of discretion regarding mandatory sanctions, the

Department decided to provide State agencies with as much discretion as

possible in the imposition and disposition of State agency sanctions in

this final rule.

Seven commenters requested that the sanction period for State

agency sanctions be increased to one year. Two commenters suggested

that the three-year maximum disqualification period contained in the

current regulations should apply to State agency sanctions. One

commenter indicated that a six-month limit was not appropriate unless

State agency sanctions were additive. Another commenter requested

clarification of whether State agency sanctions may be doubled and

whether State agencies may permanently disqualify vendors for non-

compliance with State agency sanctions.

To address these comments, the Department made several

modifications in the final rule. The maximum disqualification period

for State agency sanctions has been increased from six months to one

year. In addition, State agency sanctions may be additive within an

investigation or doubled, provided that the total disqualification

period does not exceed one year per investigation and that any fines or

CMPs imposed do not exceed $10,000 per violation and $40,000 per

investigation. As required for the mandatory sanctions, when a vendor

fails to comply with the terms of a CMP imposed in lieu of

disqualification for a State agency-established violation, such as

failing to pay the CMP, the State agency must disqualify the vendor for

the length of time corresponding to the violation for which the

sanction was assessed. The provisions regarding State agency sanctions

have been moved to Sec. 246.12(k)(2) of the final rule and include the

State agency option to disqualify vendors who have been assessed an FSP

CMP for hardship.

One commenter requested clarification of whether State agency

sanctions may be added to a mandatory sanction required by this rule.

As noted above in the Treatment of Mandatory Sanctions section, State

agency sanctions may not be added to a mandatory sanction within the

same investigation. However, State agencies may impose State agency

sanctions from the same investigation in situations where mandatory

sanctions are not upheld on appeal. Another point the Department has

clarified in the final rule is that State agency sanctions do not count

toward the provisions in Sec. 246.12(k)(1)(v) and (vi) of the final

rule, which cover vendors who have been assessed two or more mandatory

sanctions.

One commenter requested that the Department provide some examples

of possible State agency sanctions. Several commenters suggested

violations that they believe warrant State agency sanctions. These

suggested violations include redeeming food instruments outside of

valid dates, selling stale-dated WIC food items, and charging sales

tax. This list is not intended to be exhaustive but to give State

agencies and other interested parties an idea of the types of

violations that could be included in a State agency sanction schedule.

Any State agency-established sanctions must be reflected in the State

Plan under the description of the State agency's food delivery system,

as currently required in Sec. 246.4(a)(14). The final rule also makes

clear that State agency sanctions may include fines, disqualification,

or CMPs in lieu of disqualification.

Voluntary Withdrawal or Non-renewal in Lieu of Disqualification

Under Sec. 246.12(k)(2) of the proposed rule, State agencies would

not be able to accept voluntary withdrawal or use non-renewal of a

vendor agreement as an alternative to disqualification. This provision

was proposed in response to a September 1995 OIG audit that revealed

that some WIC State agencies allowed vendors to voluntarily withdraw

from the WIC Program in lieu of disqualification. In addition, some

State agencies opted not to renew abusive vendors' contracts or

agreements rather than disqualify them for violations that warrant

disqualification. The Department does not support these practices,

because they allow a vendor to circumvent reciprocal disqualification

from the FSP. Enhanced cooperation between WIC and the FSP in the

detection and removal of abusive vendors and retailers will result in

more effective and efficient vendor/retailer management in both

programs.

Most commenters supported this provision, provided that it only

applies to the mandatory sanctions required by this rule. It was the

Department's intent that the provision only apply to mandatory

sanctions, because only mandatory sanctions trigger a reciprocal FSP

action. As such, in Sec. 246.12(k)(1)(viii), the final rule prohibits a

State agency from either accepting voluntary withdrawal or using non-

renewal as an alternative to imposing a mandatory sanction. When a

State agency establishes that a vendor has committed a violation that

warrants a mandatory sanction, the State agency is required to either

disqualify the vendor or impose a CMP in lieu of disqualification due

to inadequate participant access. State agencies continue to have the

discretion to allow the use of voluntary withdrawal and non-renewal in

connection with State agency-established sanctions.

Two commenters suggested that State agencies be permitted to use

voluntary withdrawal in special circumstances, such as when a witness

is not able to testify at an administrative review. The Department

recognizes that on occasion circumstances may arise that impair the

State agency's ability to successfully defend its action during an

administrative review. Rather than grant exceptions to the rules, the

Department believes that, when extenuating circumstances arise, the

State agency should attempt to reschedule or postpone the review. The

intent of this regulation is to provide State agencies and vendors with

clear, firm, uniform rules for mandatory sanctions and administrative

review procedures. As such, the commenter's suggestion is not adopted.

One commenter suggested that the Department clarify that a vendor

may not voluntarily withdraw to avoid paying a CMP. As noted below in

the Payment of Civil Money Penalties section of this preamble, the

Department has added a paragraph in the final regulations at

Sec. 246.12(k)(6) that addresses this issue. If a vendor does not pay a

CMP or voluntarily withdraws to avoid paying a CMP, the State agency

must impose a disqualification

[[Page 13319]]

corresponding to the violation for which the CMP was assessed and

notify the vendor of such disqualification.

Participant Access

The impact on participants' access to supplemental foods has always

been a primary consideration for State agencies when determining

whether to disqualify a violative vendor or to impose a CMP in lieu of

disqualification. A participant access determination is, in fact, the

only means available to State agencies to ensure that the sanction

imposed is in the best interests of the Program. Several commenters

noted the various terms used in the current regulations and the

proposed rule to describe these determinations, including ``inadequate

participant access,'' ``participant hardship,'' and ``undue hardship.''

One commenter suggested the Department use ``undue hardship.'' Another

commenter asserted that State agencies should determine ``participant

hardship, not participant inconvenience.'' The general consensus among

commenters was that the terminology should be consistent throughout the

regulations. In response to this request, the term ``inadequate

participant access'' has been used throughout the final rule. The

Department decided this term most closely describes the type of

determination that State agencies are required to make.

Several commenters requested that the Department either clearly

define the term ``participant access'' or establish specific criteria

for State agencies' participant access determinations. In addition,

Congress mandated in section 203(p)(1) of the Goodling Act that the

Secretary establish criteria for ``hardship to participants''

determinations that may apply to vendors convicted of trafficking/

illegal sales. The Department decided that any established criteria

should apply to all participant access determinations, not just

participant access determinations for vendors convicted of trafficking/

illegal sales. However, a formal regulatory definition of ``participant

access'' that includes all possible criteria for such determinations is

inappropriate because it would not be flexible enough to apply to the

variety of geographical areas where the WIC Program operates. What may

be acceptable criteria for rural areas may be unreasonable for urban

areas and vice versa.

To address this issue, the final rule in Sec. 246.12(k)(8)

requires: ``When making participant access determinations, the State

agency shall, at a minimum, consider the availability of other

authorized vendors in the same area as the violative vendor and any

geographic barriers to using such vendors.'' This requirement focuses

on the two central questions of these determinations: (1) Is there an

adequate number of authorized vendors operating in the area to meet

participant demand? and (2) Are there any specific geographic barriers

that would significantly restrict participants access to using those

authorized vendors? If the answers to these questions indicate that

disqualification of the vendor would result in inadequate participant

access, then the State agency must impose a CMP in lieu of

disqualification (except that the State agency may not impose a CMP in

lieu of disqualification either as a result of an FSP CMP or for a

third or subsequent sanction as specified in Sec. 246.12(k)(1)(vi)).

Current regulations at Sec. 246.12(k)(1)(iv) require State agencies

to document participant access determinations in cases of WIC

disqualification for FSP CMPs, and current Sec. 246.12(k)(1)(v)

requires these determinations be made prior to disqualifying a vendor.

However, neither provision provides specific guidance as to the

documentation of these determinations. The proposed rule at

Sec. 246.12(k)(1)(viii) intended to clarify that a State agency must

include in the file of each vendor, for whom participant access is

required to be considered, a written record of its participation access

determination and any supporting justification. Under the final rule,

these determinations and their documentation are required for all

mandatory sanctions, except for the vendors convicted of trafficking/

illegal sales violation in Sec. 246.12(k)(1)(i). Participant access

determinations and their documentation are required for vendors

convicted of trafficking/illegal sales only if the State agency chooses

to exercise its option to consider participant access in determining

the sanction for this violation. Participant access determinations and

documentation are also required for WIC disqualification based on FSP

CMPs, if the State agency chooses to exercise this option. Although not

required, the Department also recommends that State agencies conduct

and document participant access determinations prior to imposing

disqualifications or CMPs for other State agency-established sanctions.

One commenter suggested that requiring State agencies to document

participant access determinations is illegal under the Paperwork

Reduction Act because it imposes an additional file burden on State

agencies. This is not the case because participant access

determinations, often targeted by vendors during administrative

reviews, have always been required to be documented in vendors' files.

The reason why the proposed rule explicitly stated that participant

access determinations must be documented in vendors' files is because

State agencies might have decided that documentation of these

determinations would no longer be necessary, since they would no longer

be subject to administrative review. Although no longer subject to

administrative review, participant access determinations continue to be

the only means of determining whether to impose a disqualification or a

CMP and are still subject to audit. Further, if necessary, these

determinations could become part of court proceedings. In the final

rule, the documentation requirements for participant access

determinations are reflected in Sec. 246.12(k)(1)(i), (k)(1)(ix), and

(k)(2)(ii)(B).

One commenter rebutted the statement in the proposed rule's

preamble that State agencies are uniquely qualified to determine

whether the disqualification of a specific vendor would result in

inadequate participant access. Nevertheless, State agencies are

uniquely qualified to make participant access determinations, because

their primary concern is WIC Program participants. Whereas vendors know

the volume of their own WIC business, only State agencies know the

geographic distribution of WIC participants and of other WIC-authorized

vendors, which are the primary criteria for making participant access

determinations. The Department strongly believes that State agencies

are in the best position to make participant access determinations that

are in the best interests of program participants. In addition, the

Department strongly believes that administrative reviews should focus

on whether a vendor committed the violation(s) of which it has been

accused, rather than whether a violative vendor agrees with a State

agency's participant access determination. Consequently, the final rule

maintains that State agencies' participant access determinations are

not subject to administrative review.

Formula for Calculating Civil Money Penalties

To ensure that State agencies use a consistent method to determine

the amount of a CMP imposed in lieu of disqualification, the Department

proposed in Sec. 246.12(k)(1)(x) a formula for calculating a CMP. The

proposed formula is similar to the one used by the FSP and several WIC

State agencies. Commenters generally supported the

[[Page 13320]]

use of a standard formula to calculate CMPs. As such, the final rule

retains the provision with minor modifications.

The formula in the final rule is revised to establish a $40,000 per

investigation cap on CMPs. Section 203(p)(1) of the Goodling Act

amended section 17(o)(4)(B) of the CNA to mandate that the total amount

of CMPs, imposed for violations investigated as part of a single

investigation concerning vendors convicted of trafficking in food

instruments or selling firearms, ammunition, explosives, or controlled

substances in exchange for food instruments, must not exceed $40,000.

The Department has decided to adopt the $40,000 per investigation cap

for all CMPs, including those imposed as a result of State agency-

established sanctions. As noted above in the Treatment of Mandatory

Sanctions section of this preamble, for the mandatory sanctions listed

in Sec. 246.12(k)(1)(ii) through (k)(1)(iv), the length of the

disqualification period that is imposed for violations investigated as

part of a single investigation may not exceed the disqualification

period corresponding to the most serious violation. However, in cases

in which the State agency is required to impose a CMP in lieu of

disqualification because of inadequate participant access, the State

agency must impose a sanction that includes CMPs for each violation

that warrants a mandatory sanction, provided that the amount of the CMP

for each violation does not exceed $10,000 and the total amount of the

CMPs imposed as a result of a single investigation does not exceed

$40,000.

One commenter requested that the Department clarify whether the CMP

formula applies to State agency-established sanctions. The final rule

makes clear in Sec. 246.12(k)(1)(x) that the CMP formula only applies

to the mandatory sanctions required by this rule. For State agency

sanctions, State agencies may use either this CMP formula or their own

formula. However, for consistency, the Department has adopted the

$10,000 per violation and $40,000 per investigation maximums for all

CMPs, including CMPs resulting from State agency sanctions.

One commenter requested a clarification of what is meant by ``the

month during which the store was charged with violations.'' Three

commenters suggested that the CMP formula should be modified to allow

for six months of redemption data rather than the proposed twelve

months. In response to these comments, the final rule in

Sec. 246.12(k)(1)(x)(A) reads: ``Determine the vendor's average monthly

redemptions for at least the 6-month period ending with the month

immediately preceding the month during which the notice of

administrative action is dated.''

Another commenter asked how to calculate a redemption average for a

vendor who has been authorized under the WIC Program for less than

twelve months. The Department recognizes that some flexibility in the

application of the CMP formula is necessary. For example, if a vendor

has been on the Program for three months or was closed for several

months for renovations, the State agency will need to modify the

formula to use available data to calculate an average that reflects the

vendor's monthly redemptions. Generally, the State agency should use

the same standard for all vendors and only modify the formula to

address unusual circumstances.

Two commenters requested clarification of how to calculate a CMP in

lieu of permanent disqualification. The commenters were unsure what to

use in the last step of the formula for ``the number of months for

which the store would have been disqualified.'' In recognition of the

fact that permanent disqualification in the WIC Program is only imposed

for the most severe violations--vendors convicted of trafficking/

illegal sales and permanent disqualification from the FSP--the

Department decided to require the maximum CMP allowed for such

violations under the Secretary's authority as set in section 203(p)(1)

of the Goodling Act. The final rule at Sec. 246.12(k)(1)(x)(C) reads in

part: ``For a violation that warrants permanent disqualification, the

amount of the civil money penalty shall be $10,000.''

The final CMP formula is as follows: (1) Determine the vendor's

average monthly redemptions for at least the 6-month period ending with

the month immediately preceding the month during which the notice of

administrative action is dated; (2) Multiply the average monthly

redemptions figure by 10 percent (.10); and (3) Multiply the product

from Step 2 by the number of months for which the store would have been

disqualified. This is the amount of the CMP, provided that it does not

exceed $10,000. In addition, the total amount of CMPs imposed for

violations investigated as part of a single investigation must not

exceed $40,000. Following is an example using this methodology:

Monthly WIC Redemptions

Jan.--$10,000

Feb.--$8,500

Mar.--$12,300

Apr.--$9,000

May--$7,000

June--$5,000

July--$6,000

Aug.--$4,000

Sept.--$5,500

Oct.--$7,000

Nov.--$7,000

Dec.--$5,000

Average Monthly Redemptions................................. $7,192.00

Multiply by 10 percent...................................... x .10

-----------

$719.00

Proposed disqualification period=1 year or 12 months:....... x 12

-----------

Civil Money Penalty......................................... $8,630.00

Payment of Civil Money Penalties

The final rule also makes clear in Sec. 246.12(k)(5) that State

agencies may use installment plans for the collection of CMPs and

fines. State agencies must ensure that they are complying with Federal

and State laws concerning the collection of interest on such debts.

Section 246.12(k)(6) of the final rule makes clear that if a vendor

does not pay, only partially pays, or fails to timely pay a CMP, the

State agency must disqualify the vendor for the length of the

disqualification corresponding to the violation for which the CMP was

assessed (for a period corresponding to the most serious violation in

cases where a mandatory sanction included the imposition of multiple

CMPs as a result of a single investigation). ``Failure to timely pay a

CMP'' includes the failure to pay a CMP in accordance with an

installment plan approved by a State agency. This section is not

intended to usurp a State agency's prerogative to revise an installment

plan to accommodate a vendor who has a valid reason for missing a

payment. These two provisions apply to both mandatory and State agency-

established sanctions.

Disposition of Civil Money Penalties

Under the proposal at Sec. 246.15(b), money collected from the

imposition of CMPs or vendor fines would be treated as program income.

Commenters were generally split on their support of or opposition to

this provision. Those opposing wanted State agencies to retain the

current flexibility to use the revenue generated from the fines and

penalties as they deem appropriate. The Department believes that fines

and penalties imposed as a result of WIC Program violations, including

any interest collected as a result of such fines and penalties, should

be used to support WIC Program objectives. As such, this final rule

requires that fines and CMPs be treated as program income.

[[Page 13321]]

Vendor Appeals

Under the proposed rule, regulations at Sec. 246.18(a)(1)(ii) would

be revised to implement section 729(j) of the PRWORA, which provides

that WIC vendors who are disqualified as a result of their

disqualification as retailers from the FSP are not entitled to

administrative or judicial review in the WIC Program. No comments that

specifically opposed this provision were received. In the final rule,

minor revisions were made to the proposed language to make it

consistent with current WIC terminology regarding participant access.

In addition, the Department wishes to clarify that while section

729(j) of the PRWORA eliminates the WIC administrative review for

vendors who are disqualified from WIC as a result of FSP

disqualification, it does not eliminate administrative review for

vendors who are disqualified from WIC based on an FSP CMP. While

regulations at Sec. 246.12(k)(2)(ii) allow WIC disqualification based

on FSP CMPs for hardship, State agencies that use this option must

continue to offer vendors disqualified under this provision an

opportunity to appeal the WIC disqualification. However, neither the

FSP decision to impose a CMP in lieu of disqualification nor the WIC

State agency's participant access determination are subject to

administrative review under the WIC Program. The areas subject to

review include: whether the vendor was assessed a CMP in lieu of

disqualification by the FSP, whether the FSP CMP was imposed due to

``participant hardship,'' and whether the vendor agreement included the

required notice that the vendor was potentially subject to WIC

disqualification based on an FSP CMP.

In response to the proposed rule, one commenter asked whether

vendors may continue to redeem WIC food instruments during the appeals

process. Under Sec. 246.18(b)(1) of the current regulations, the State

agency must provide the vendor with written notification of an

administrative action not less than 15 days in advance of the effective

date of the action. The State agency has discretion to make the action

effective any time after the 15-day notice period has expired. The

State agency's decision about when to make a disqualification effective

determines whether a vendor may continue WIC operations during an

appeal. For example, if a State agency decides to make its

disqualification action effective 20 days after the notice of

administrative action is received, then once that date passes, a vendor

would not be able to redeem food instruments, even if the vendor had an

appeal pending.

Another commenter asked whether vendor agreements may be renewed

during the appeals process. If a vendor's agreement will expire during

the administrative appeal process, the State agency should make the

disqualification effective no later than the agreement's expiration.

This is necessary to avoid the incongruous result of approving a vendor

for reauthorization immediately after having made the decision to

disqualify the same vendor.

As noted below in the Vendor Agreements section of this preamble,

Sec. 246.18(b) is revised to require the State agency to advise vendors

of possible FSP disqualification based on WIC violations in the WIC

notice of administrative action. In addition to this change, the words

``if any'' were inserted into Sec. 246.18(b)(1) of the final rule to

recognize that there are certain actions, such as WIC disqualification

based on FSP disqualification, that are no longer subject to review.

Vendor Agreements

Under the proposal, State agencies would be required to add a

provision to the vendor agreement or contract to advise vendors that

disqualification from the FSP will result in disqualification from the

WIC Program or, under certain circumstances, assessment of a CMP in

lieu of disqualification. Commenters supported this provision. As such,

this final rule adds paragraph (f)(2)(xix) to Sec. 246.12 to require a

statement to this effect in the vendor agreement. One commenter

suggested that the Department add language to this section to cover the

situation in which a State agency imposes a CMP in lieu of

disqualification for a WIC Program violation. In response to this

comment and to provide notice to vendors of the full range of mandatory

sanctions, a new paragraph (f)(2)(xxi) has been added to Sec. 246.12.

This paragraph reads: ``The State agency shall disqualify a vendor for

the mandatory sanctions listed in paragraphs (k)(1)(ii) through

(k)(1)(iv) of this section. However, if the State agency determines

that disqualification of the vendor would result in inadequate

participant access, the State agency shall impose a civil money penalty

in lieu of disqualification, except that, as provided in paragraph

(k)(1)(vi) of this section, the State agency shall not impose a civil

money penalty in lieu of disqualification for third or subsequent

sanctions for violations in paragraphs (k)(1)(ii) through (k)(1)(iv) of

this section.''

In addition to the above changes to this section, a new paragraph

(f)(2)(xx) has been added to 246.12 in order to provide notice to

vendors of the non-discretionary provision of the Goodling Act, which

mandates permanent disqualification for WIC vendors convicted of

trafficking or illegal sales of firearms, ammunition, explosives, or

controlled substances. The final rule also amends

Sec. 246.12(f)(2)(xviii) to provide vendors notice that

disqualification of a vendor based on a FSP disqualification and the

State agency's participant access determinations are not subject to

review. A new paragraph, (f)(2)(xxii), also has been added to

Sec. 246.12 in order to provide notification in the vendor agreement

that disqualification from WIC may result in a disqualification in the

FSP that is not subject to administrative or judicial review in the

FSP.

Timely Referral of WIC Disqualified Vendors

To remove disqualified WIC vendors from participating as retailers

in the FSP, FNS Instruction 906-1, issued December 1, 1988, requires

the State agency to provide information on disqualified WIC vendors to

the appropriate FNS office within 15 days after the date a vendor's

opportunity to file for a WIC administrative appeal has expired or all

of a vendor's WIC administrative appeals have been exhausted. To

strengthen the Department's effort to ensure that reciprocal

disqualification actions are taken in a timely manner, the 15-day

notification period required by FNS Instruction 906-1 was included in

the proposed rule at Sec. 246.12(k)(3). The proposed rule also amended

Sec. 246.18(b)(1) to require the State agency to include in the

notification of administrative action a statement that reads: ``This

disqualification from WIC may result in disqualification as a retailer

in the Food Stamp Program.'' To remind vendors that this type of

reciprocal disqualification may not subject to appeal under the FSP,

the following sentence was added to the notification statement in the

final rule: ``Such disqualification may not subject to administrative

or judicial review under the Food Stamp Program.''

In its May 6, 1998 proposed rule, the FSP proposed, under

Sec. 278.6(e)(8)(ii)(B), would require the WIC State agency to provide

FNS with a signed and dated copy of the notice informing vendors that

they could be disqualified from the FSP based on WIC violations. In

[[Page 13322]]

addition, the FSP proposed rule would require that such notice be

provided to vendors prior to their time to request administrative

review. To meet this requirement, the State agency would need to

provide the appropriate FNS office with a copy of the notice of

administrative action sent to a violative vendor. One method of meeting

this requirement would be to provide FNS with a copy of the notice of

administrative action at the same time it is sent to the vendor and

then follow-up with FNS within fifteen days of the date the action is

final. Another method would be to send FNS a copy of the vendor's

notice of administrative action, which includes a notation that the

action is final, within fifteen days of the date the action is final. A

State agency, which sends vendors a notice of administrative action

followed by a formal notice of disqualification, could meet this

requirement in a timely manner by providing FNS with copies of both

notices at the same time they are sent to vendors.

While six commenters supported the proposed 15-day notification

period, one commenter suggested that it be extended to thirty days to

account for scheduling and staffing constraints. The Department

believes that a 15-day notification period is both reasonable and

preferable and that with current technologies, including fax and e-

mail, State agencies should be able to design a system to notify FNS in

a timely manner. Therefore, the final rule retains the 15-day

notification requirement in Sec. 246.12(k)(1)(xi) and requires the

State agency to send a copy of FNS the notice of administrative action.

The final rule deletes judicial review from this provision in order to

initiate the 15-day period at either the expiration of a vendor's time

to file for an administrative review or the exhaustion of all of a

vendor's administrative reviews. This change is being made in order to

be consistent with the original requirements outlined in FNS

Instruction 906-1 and to avoid undue delays between the time of the

actual WIC disqualification and the reciprocal FSP disqualification.

This would also eliminate the need for each State agency to determine

the full range of potential bases for judicial review and the

corresponding time periods in which the requests for judicial review

must be filed.

An additional change is made by the final rule regarding notifying

FNS of WIC CMPs. While the May 6, 1998 FSP proposed rule would not

specifically mandate FSP disqualifications based on WIC CMPs, the WIC

violation underlying a CMP in lieu of WIC disqualification could be

used as a basis for a FSP disqualification. Therefore, the final rule

requires WIC State agencies to notify FNS of WIC vendors who have been

assessed CMPs in lieu of disqualification and the length of the

disqualification periods corresponding to the vendors' violations.

List of Subjects in 7 CFR Part 246

Administrative practice and procedure, Civil rights, Food

assistance programs, Food donations, Grant programs-health, Grant

programs-social programs, Indians, Infants and children, Maternal and

child health, Nutrition, Nutrition education, Penalties, Public

assistance programs, Reporting and recordkeeping requirements, WIC,

Women.

For the reasons set forth in the preamble, 7 CFR part 246 is

amended as follows:

PART 246-SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS

AND CHILDREN

1. The authority citation for part 246 continues to read as

follows:

Authority: 42 U.S.C. 1786.

2. In Sec. 246.2, the definition of ``Food instrument'' is revised

to read as follows:

Sec. 246.2 Definitions.

* * * * *

Food instrument means a voucher, check, electronic benefits

transfer card (EBT), coupon or other document which is used to obtain

supplemental foods.

* * * * *

3. In Sec. 246.4, paragraphs (a)(14)(v) through (a)(14)(x) are

redesignated as paragraphs (a)(14)(vi) through (a)(14)(xi), and a new

paragraph (a)(14)(v) is added to read as follows:

Sec. 246.4 State Plan.

(a) * * *

(14) * * *

(v) The option exercised by the State agency to sanction vendors

pursuant to Sec. 246.12(k)(1)(i).

* * * * *

4. In Sec. 246.12:

a. paragraph (f)(2)(xviii) is revised;

b. paragraphs (f)(2)(xix) and (f)(2)(xx) are redesignated as

paragraphs (f)(2)(xxiii) and (f)(2)(xxiv), respectively;

c. new paragraphs (f)(2)(xix), (f)(2)(xx), (f)(2)(xxi), and

(f)(2)(xxii) are added;

d. paragraph (f)(3) is revised; and

e. paragraph (k) is revised.

The revisions and additions read as follows:

Sec. 246.12 Food delivery systems.

* * * * *

(f) * * *

(2) * * *

(xviii) The State agency may disqualify a vendor or impose a civil

money penalty in lieu of disqualification for reasons of program abuse.

The State agency does not have to provide the vendor with prior warning

that violations were occurring before imposing such sanctions. The

vendor has the right to appeal a State agency decision pertaining to

disqualification, denial of application to participate, or other

adverse actions that affect participation during the contract or

agreement performance period; except that, expiration of a contract or

agreement with a vendor, disqualification of a vendor as a result of

disqualification from the Food Stamp Program, and the State agency's

determination regarding participant access are not subject to review.

(xix) The State agency shall disqualify a vendor who has been

disqualified from the Food Stamp Program. However, if the State agency

determines that disqualification of the vendor would result in

inadequate participant access, the State agency shall impose a civil

money penalty in lieu of WIC disqualification.

(xx) The State agency shall permanently disqualify a vendor

convicted of trafficking in food instruments or selling firearms,

ammunition, explosives, or controlled substances (as defined in section

102 of the Controlled Substances Act (21 U.S.C. 802)) in exchange for

food instruments. A vendor shall not be entitled to receive any

compensation for revenues lost as a result of such violation. If

reflected in its State Plan, the State agency shall impose a civil

money penalty in lieu of a disqualification for this violation when it

determines, in its sole discretion, and documents (in accordance with

paragraph (k)(8) of this section) that--

(A) disqualification of the vendor would result in inadequate

participant access; or

(B) the vendor had, at the time of the violation, an effective

policy and program in effect to prevent trafficking; and the ownership

of the vendor was not aware of, did not approve of, and was not

involved in the conduct of the violation.

(xxi) The State agency shall disqualify a vendor for the mandatory

sanctions listed in paragraphs (k)(1)(ii) through (k)(1)(iv) of this

section. However, if the State agency determines that disqualification

of the vendor would result in inadequate participant access, the State

agency shall impose a civil money penalty in lieu of

[[Page 13323]]

disqualification, except that, as provided in paragraph (k)(1)(vi) of

this section, the State agency shall not impose a civil money penalty

in lieu of disqualification for third or subsequent sanctions for

violations in paragraphs (k)(1)(ii) through (k)(1)(iv) of this section.

(xxii) Disqualification from the WIC Program may result in

disqualification as a retailer in the Food Stamp Program. Such

disqualification may not be subject to administrative or judicial

review under the Food Stamp Program.

* * * * *

(3) Other provisions shall be added to the contracts or agreements

to implement the State agency options in paragraphs (k)(2)(i),

(k)(2)(ii), and (r)(5)(iv) of this section.

* * * * *

(k) Participant and vendor sanctions.

(1) Mandatory vendor sanctions.

(i) Permanent disqualification. The State agency shall permanently

disqualify a vendor convicted of trafficking in food instruments or

selling firearms, ammunition, explosives, or controlled substances (as

defined in section 102 of the Controlled Substances Act (21 U.S.C.

802)) in exchange for food instruments. A vendor shall not be entitled

to receive any compensation for revenues lost as a result of such

violation. If reflected in its State Plan, the State agency shall

impose a civil money penalty in lieu of a disqualification for this

violation when it determines, in its sole discretion, and documents (in

accordance with paragraph (k)(8) of this section) that--

(A) Disqualification of the vendor would result in inadequate

participant access; or

(B) The vendor had, at the time of the violation, an effective

policy and program in effect to prevent trafficking; and the ownership

of the vendor was not aware of, did not approve of, and was not

involved in the conduct of the violation.

(ii) Six-year disqualification. The State agency shall disqualify a

vendor for six years for: one incidence of buying or selling food

instruments for cash (trafficking); or one incidence of selling

firearms, ammunition, explosives, or controlled substances as defined

in 21 U.S.C. 802, in exchange for food instruments.

(iii) Three-year disqualification. The State agency shall

disqualify a vendor for three years for:

(A) One incidence of the sale of alcohol or alcoholic beverages or

tobacco products in exchange for food instruments; or

(B) A pattern of claiming reimbursement for the sale of an amount

of a specific supplemental food item which exceeds the store's

documented inventory of that supplemental food item for a specific

period of time; or

(C) A pattern of charging participants more for supplemental food

than non-WIC customers or charging participants more than the current

shelf or contract price; or

(D) A pattern of receiving, transacting and/or redeeming food

instruments outside of authorized channels, including the use of an

unauthorized vendor and/or an unauthorized person; or

(E) A pattern of charging for supplemental food not received by the

participant; or

(F) A pattern of providing credit or non-food items, other than

alcohol, alcoholic beverages, tobacco products, cash, firearms,

ammunition, explosives, or controlled substances as defined in 21

U.S.C. 802, in exchange for food instruments.

(iv) One-year disqualification. The State agency shall disqualify a

vendor for one year for a pattern of providing unauthorized food items

in exchange for food instruments, including charging for supplemental

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

(v) Second mandatory sanction. When a vendor, who previously has

been assessed a sanction for any of the violations in paragraphs

(k)(1)(ii) through (k)(1)(iv) of this section, receives another

sanction for any of these violations, the State agency shall double the

second sanction. Civil money penalties may only be doubled up to the

limits allowed under paragraph (k)(1)(x)(C) of this section.

(vi) Third or subsequent mandatory sanction. When a vendor, who

previously has been assessed two or more sanctions for any of the

violations listed in paragraphs (k)(1)(ii) through (k)(1)(iv) of this

section, receives another sanction for any of these violations, the

State agency shall double the third sanction and all subsequent

sanctions. The State agency shall not impose civil money penalties in

lieu of disqualification for third or subsequent sanctions for

violations listed in paragraphs (k)(1)(ii) through (k)(1)(iv) of this

section.

(vii) Disqualification based on a Food Stamp Program

disqualification. The State agency shall disqualify a vendor who has

been disqualified from the Food Stamp Program. The disqualification

shall be for the same length of time as the Food Stamp Program

disqualification, may begin at a later date than the Food Stamp Program

disqualification, and shall not be subject to administrative or

judicial review under the WIC Program.

(viii) Voluntary withdrawal or nonrenewal of agreement. The State

agency shall not accept voluntary withdrawal of the vendor from the

Program as an alternative to disqualification for the violations listed

in paragraphs (k)(1)(i) through (k)(1)(iv) of this section, but shall

enter the disqualification on the record. In addition, the State agency

shall not use nonrenewal of the vendor agreement as an alternative to

disqualification.

(ix) Participant access determinations. Prior to disqualifying a

vendor for a Food Stamp Program disqualification pursuant to paragraph

(k)(1)(vii) of this section or for any of the violations listed in

paragraphs (k)(1)(ii) through (k)(1)(iv) of this section, the State

agency shall determine if disqualification of the vendor would result

in inadequate participant access. The participant access determination

shall be made in accordance with paragraph (k)(8) of this section. If

the State agency determines that disqualification of the vendor would

result in inadequate participant access, the State agency shall impose

a civil money penalty in lieu of disqualification. However, as provided

in paragraph (k)(1)(vi) of this section, the State agency shall not

impose a civil money penalty in lieu of disqualification for third or

subsequent sanctions for violations in paragraphs (k)(1)(ii) through

(k)(1)(iv) of this section. The State agency shall include

documentation of its participant access determination and any

supporting documentation in the file of each vendor who is disqualified

or receives a civil money penalty in lieu of disqualification.

(x) Civil money penalty formula. For each violation subject to a

mandatory sanction, the State agency shall use the following formula to

calculate a civil money penalty imposed in lieu of disqualification:

(A) Determine the vendor's average monthly redemptions for at least

the 6-month period ending with the month immediately preceding the

month during which the notice of administrative action is dated;

(B) Multiply the average monthly redemptions figure by 10 percent

(.10);

(C) Multiply the product from paragraph (k)(1)(x)(B) of this

section by the number of months for which the store would have been

disqualified. This is the amount of the civil money penalty, provided

that the civil money penalty shall not exceed $10,000 for each

violation. For a violation that warrants permanent disqualification,

[[Page 13324]]

the amount of the civil money penalty shall be $10,000. When during the

course of a single investigation the State agency determines a vendor

has committed multiple violations, the State agency shall impose a CMP

for each violation. The total amount of civil money penalties imposed

for violations investigated as part of a single investigation shall not

exceed $40,000.

(xi) Notification to FNS. The State agency shall provide the

appropriate FNS office with a copy of the notice of administrative

action and information on vendors it has either disqualified or imposed

a civil money penalty in lieu of disqualification for any of the

violations listed in paragraphs (k)(1)(i) through (k)(1)(iv) of this

section. This information shall include the name of the vendor,

address, identification number, the type of violation(s), and the

length of disqualification or the length of the disqualification

corresponding to the violation for which the civil money penalty was

assessed, and shall be provided within 15 days after the vendor's

opportunity to file for a WIC administrative review has expired or all

of the vendor's WIC administrative reviews have been completed.

(xii) Multiple violations during a single investigation. When

during the course of a single investigation the State agency determines

a vendor has committed multiple violations (which may include

violations subject to State agency sanctions), the State agency shall

disqualify the vendor for the period corresponding to the most serious

mandatory violation. However, the State agency shall include all

violations in the notice of administration action. If a mandatory

sanction is not upheld on appeal, then the State agency may impose a

State agency-established sanction.

(2) State agency vendor sanctions.

(i) The State agency may impose sanctions for violations that are

not specified in paragraphs (k)(1)(i) through (k)(1)(iv) of this

section as long as such violations and sanctions are included in the

vendor agreement. State agency sanctions may include disqualifications,

civil money penalties assessed in lieu of disqualification, and fines.

The total period of disqualification imposed for State agency

violations investigated as part of a single investigation may not

exceed one year. A civil money penalty or fine shall not exceed $10,000

for each violation. The total amount of civil money penalties imposed

for violations investigated as part of a single investigation shall not

exceed $40,000.

(ii) The State agency may disqualify a vendor who has been assessed

a civil money penalty for hardship in the Food Stamp Program, as

provided under 7 CFR 278.6. The length of such disqualification shall

correspond to the period for which the vendor would otherwise have been

disqualified in the Food Stamp Program. If a State agency decides to

exercise this option, the State agency shall:

(A) Include notification that it will take such disqualification

action in its vendor agreement, in accordance with paragraph (f)(3) of

this section; and

(B) Determine if disqualification of the vendor would result in

inadequate participant access in accordance with paragraph (k)(8) of

this section. If the State agency determines that disqualification of

the vendor would result in inadequate participant access, the State

agency shall not disqualify the vendor or impose a civil money penalty

in lieu of disqualification. The State agency shall include

documentation of its participant access determination and any

supporting documentation in each vendor's file.

(3) Prior warning. The State agency does not have to provide the

vendor with prior warning that violations were occurring before

imposing any of the sanctions in this paragraph (k).

(4) Appeal procedures. The State agency shall provide adequate

procedures for vendors to appeal a disqualification from participation

under the Program as specified in Sec. 246.18.

(5) Installment plans. The State agency may use installment plans

for the collection of civil money penalties and fines.

(6) Failure to pay a civil money penalty. If a vendor does not pay,

only partially pays, or fails to timely pay a civil money penalty

assessed in lieu of disqualification, the State agency shall disqualify

the vendor for the length of the disqualification corresponding to the

violation for which the civil money penalty was assessed (for a period

corresponding to the most serious violation in cases where a mandatory

sanction included the imposition of multiple civil money penalties as a

result of a single investigation).

(7) Actions in addition to sanctions. Vendors may be subject to

actions in addition to the sanctions in this section, such as claims

for improper or overcharged food instruments and penalties outlined in

Sec. 246.23, in the case of deliberate fraud.

(8) Participant access determination criteria. When making

participant access determinations, the State agency shall consider, at

a minimum, the availability of other authorized vendors in the same

area as the violative vendor and any geographic barriers to using such

vendors.

(9) Participant sanctions. The State agency shall establish

procedures designed to control participant abuse of the Program.

Participant abuse includes, but is not limited to, intentionally making

false or misleading statements or intentionally misrepresenting,

concealing or withholding facts to obtain benefits; sale of

supplemental foods or food instruments to, or exchange with, other

individuals or entities; receipt from food vendors of cash or credit

toward purchase of unauthorized food or other items of value in lieu of

authorized supplemental foods; and physical abuse, or threat of

physical abuse, of clinic or vendor staff. The State agency shall

establish sanctions for participant abuse. Such sanctions may, at the

discretion of the State agency, include disqualification from the

Program for a period up to three months. Warnings may be given prior to

the imposition of sanctions. Before a participant is disqualified from

the Program for alleged abuse, that participant shall be given full

opportunity to appeal a disqualification as set forth in Sec. 246.9.

(10) Referral for prosecution. The State agency shall refer food

vendors and participants who abuse the Program to Federal, State or

local authorities for prosecution under applicable statutes, where

appropriate.

* * * * *

5. In Sec. 246.15, a sentence is added to the end of paragraph (b)

to read as follows:

Sec. 246.15 Program income other than grants.

* * * * *

(b) * * * Money received by the State agency as a result of civil

money penalties or fines assessed against a vendor and any interest

charged in the collection of these penalties and fines shall be

considered as program income.

6. In Sec. 246.18:

a. paragraph (a)(1) is revised;

b. the first sentence of paragraph (a)(3) is revised;

c. paragraph (b)(1) is revised.

The revisions read as follows:

Sec. 246.18 Administrative appeal of State agency decisions.

(a) * * *

(1) The right of appeal shall be granted when a local agency's or a

vendor's application to participate is denied or, during the course of

the contract or agreement, when a local agency or vendor is

disqualified or any other adverse action which affects participation is

taken. The following are exceptions to this provision:

[[Page 13325]]

(i) Expiration of a contract or agreement with a vendor and the

State agency's determination regarding participant access shall not be

subject to administrative review; and

(ii) Disqualification of a vendor as a result of disqualification

from the Food Stamp Program shall not be subject to administrative or

judicial review.

* * * * *

(3) Except for disqualifications assessed under

Sec. 246.12(k)(1)(i), which shall be made effective on the date of

receipt of the notice of administrative action, the State agency may

take adverse action against a vendor after the 15-day advance

notification period mandated by paragraph (b)(1) of this section has

elapsed. * * *

(b) * * *

(1) Written notification of the administrative action, the

procedures to file for an administrative review, if any, the cause(s)

for and the effective date of the action. Such notification shall be

provided to participating vendors not less than 15 days in advance of

the effective date of the action. When a vendor is disqualified due in

whole or in part to violations specified in Sec. 246.12(k)(1), such

notification shall include the following statement: ``This

disqualification from WIC may result in disqualification as a retailer

in the Food Stamp Program. Such disqualification may not be subject to

administrative or judicial review under the Food Stamp Program.'' In

the case of disqualification of local agencies, the State agency shall

provide not less than 60 days advance notice of pending action.

* * * * *

Dated: March 12, 1999.

Samuel Chambers, Jr.,

Administrator.

[FR Doc. 99-6465 Filed 3-17-99; 8:45 am]

BILLING CODE 3410-30-P