United States

Department of

Agriculture

Food and

Consumer

Service

Office of

Analysis and

Evaluation

Evaluation of Food Retailer Compliance

Management Demonstrations in EBTReady States and Related Initiatives

FINAL REPORT

April 1997

Authors:

Christopher W. Logan

Paul Elwood

Submitted by:

Abt Associates Inc.

55 Wheeler Street

Cambridge, MA 02138

Project Director: Christopher W. Logan

Submitted to:

Office of Analysis and Evaluation

USDA Food and Consumer Service

3101 Park Center Drive, Rm. 214

Alexandria, VA 22302

Project Officer: Ken Offerman

This study was conducted under Contract No. 53-3198-4-021 with the Food and Consumer Service, United States

Department of Agriculture, under the authority of the Food Stamp Act of 1977, as amended. Points of view or opinions

stated in this report do not necessarily represent the official position of the Food and Consumer Service.
ACKNOWLEDGEMENTS

The authors wish to acknowledge the many individuals who contributed to this study and

to the preparation of this report. We gratefully acknowledge the valuable guidance and support

of Ken Offerman, the project officer within FCS’ Office of Analysis and Evaluation. Also at

FCS, Linda Walters and Preston Mears of the Benefit Redemption Division provided a wealth

of information, contacts and helpful comments from their perspectives as successive demonstration coordinators. Additional thanks go to Steven Carlson and Ted Macaluso of the FCS Office

of Analysis and Evaluation, and to Jordan Benderly, Suzanne Fecteau, and Lynn Jordan, of the

Benefit Redemption Division. We also appreciated the assistance and information provided by

the following regional office staff: Dick Dees and Judy Johnson of the Southeast Regional

Office; and Bob Graybill, Ron Gwinn, Patty O’Malley, Phil Swain, and Betty Veasley of the

Southwest Regional Office. Last but certainly not least, we thank the staff of the New Mexico

and South Carolina FCS Field Offices for their time and thoughtful input on their experiences

in the demonstration; we also appreciate the cooperation of the staff of the Arkansas and

Mississippi FCS Field Offices, who provided the vital comparison data.

We are equally grateful for the extensive, unstinting cooperation of the New Mexico

Human Services Department and the South Carolina Department of Social Services. In New

Mexico, we especially appreciated the time and assistance of the EBT project manager, John

Waller, and of Debbie Roybal of his staff. In South Carolina, our special thanks go to Paul

Brawley, EBT Administrator; Robin Verenes, Deputy EBT Administrator; and Jim Apple, Valerie

Johnson and Ric Lawson of the EBT staff.

Finally, the authors want to thank the people at Abt Associates who aided the study.

John Kirlin was a valuable resource as the technical advisor. We are most grateful to Susan

Byers, who managed the production of this report and other project documents with significant

contributions from Jan Nicholson and Stefanie Falzone.
TABLE OF CONTENTS

EXECUTIVE SUMMARY .................................i

Chapter One INTRODUCTION ...................................... 1

1.1 Background ...................................... 1

1.2 Retailer Management Demonstration Objectives ............. 2

1.3 Evaluation Objectives and Design ....................... 3

1.4 Organization of Report .............................. 5

Chapter Two PROJECT IMPLEMENTATION: NEW MEXICO ............... 7

2.1 Site Description ................................... 7

2.2 Project Origins .................................... 7

2.3 Startup .......................................... 9

2.4 Retailer Management During EBT Expansion . . . . . . . . . . . . . . 11

2.5 Return to FCS Administration . . . . . . . . . . . . . . . . . . . . . . . . 13

Chapter Three PROJECT IMPLEMENTATION: SOUTH CAROLINA . . . . . . . . . . 15

3.1 Site Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3.2 Project Origins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3.3 Startup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

3.4 Retailer Management System Database . . . . . . . . . . . . . . . . . . 19

3.5 Retailer Management During EBT Expansion . . . . . . . . . . . . . . 21

3.6 End of the Demonstration . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Chapter Four STATE AND FIELD OFFICE PROCEDURES FOR RETAILER

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

4.1 Key Retailer Management Activities . . . . . . . . . . . . . . . . . . . . 27

4.2 New Mexico Human Services Department Retailer

Management Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

4.3 South Carolina Department of Social Services Retailer

Management Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

4.4 Comparison of Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

4.5 Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Chapter Five RETAILER MANAGEMENT ACTIVITY, RESOURCES, AND

RESULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

5.1 Retailer Management Activity . . . . . . . . . . . . . . . . . . . . . . . . 43

5.2 Retailer Management Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 46

5.3 Changes in Retailer Participation . . . . . . . . . . . . . . . . . . . . . . 52

Chapter Six LESSONS OF THE RETAILER MANAGEMENT

DEMONSTRATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Appendix A: RETAILER MANAGEMENT FUNCTIONS IDENTIFIED IN THE

REQUEST FOR APPLICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXECUTIVE SUMMARY

This report documents the Retailer Compliance Management Demonstrations in EBTReady States. In these demonstrations, the state food stamp agencies in New Mexico and South

Carolina assumed responsibility for managing the participation of food retailers in the Food

Stamp Program, a task previously managed by the federal government. The report describes

these ground-breaking demonstrations and evaluates their results.

Background

The Food Stamp Program (FSP) provides benefits, in the form of paper food stamp

coupons or their electronic equivalents, to increase the food-purchasing power of needy families.

As the administering agency for the FSP, the Food and Consumer Service (FCS) of the U.S.

Department of Agriculture (USDA) is responsible for the authorization, training, and monitoring

of food retailers that agree to redeem FSP benefits. FCS strives to make the FSP as open as

possible to legitimate retailer participation while protecting the integrity of the program from

trafficking (the illegal sale of food stamp benefits for cash or nonfood items) and other types of

redemption fraud and abuse.

Many of the day-to-day activities involved in meeting these objectives are assigned to

the FCS Field Offices. These activities include processing applications from retailers wishing

to obtain FSP authorization, reauthorizing retailers to participate every two to three years,

withdrawing nonparticipating stores, providing FSP information to retailers, and enforcing

compliance with program regulations.

Recent developments have led FCS to reassess the way that retailer management is

carried out in the FSP and the potential roles of state food stamp agencies in this area. The

advent of electronic benefits transfer (EBT) systems, which eliminate paper food stamp coupons,

is changing the way that the Program interacts with retailers. As state agencies implement and

operate their EBT systems, they (or their EBT vendors) must recruit, equip, and train retailers

to accept EBT cards for food stamp (and, in most states, cash) benefits via point-of-sale (POS)

equipment. This process requires interaction with FCS to obtain and update lists of authorized

food retailers.

i
Executive Summary

At the same time, FCS is seeking new ways to improve the integrity of benefit

redemption, placing particular emphasis on the problem of food stamp trafficking. Routine state

contacts with retailers in the course of EBT operations may provide an "on-the-ground" presence

that can help ensure retailer compliance with program regulations. These changes have occurred

in a context of diminishing FCS resources for retailer management, especially for visiting stores

applying for authorization.

Retailer Management Demonstration Objectives

In May 1993, FCS solicited proposals to demonstrate "State Retailer Compliance

Management in EBT-Ready States." The stated purpose of the Request for Applications (RFA)

was "to explore the option of opening retailer management initiatives to States to pursue

alternative approaches and initiatives with Food Stamp Program retailers".1 The RFA was

specifically targeted to EBT-ready states, on the premise that such states’ involvement with

retailer recruitment, training and management for their EBT projects would provide an

opportunity for the states to assume broader retailer management roles. In addition to the control

and simplification that the states would gain by participating in the demonstration, the availability

of grant funds offered the states "an opportunity to defray some of the costs associated with

implementation and operation of EBT systems."

The New Mexico Human Services Department (NMHSD) and the South Carolina

Department of Social Services (SCDSS) received funding under the RFA, established cooperative

agreements with FCS, and conducted retailer management demonstrations in selected areas. FCS

contracted with Abt Associates Inc. to conduct an independent evaluation of these

demonstrations.

Evaluation Objectives and Design

In evaluating the retailer management demonstrations, the principal objectives were:

· to describe demonstration implementation and operations;

· to compare state retailer management procedures in the demonstration sites with

FCS procedures;

1 Request for Applications FNS 93-024-ASW.

ii
Executive Summary

· to assess the states’ retailer management performance, with comparison to FCS field

office performance;

· to compare the administrative costs of demonstration activities with those of

comparable FCS tasks; and

· to assess the demonstrations’ implications for FCS retailer management policy and

procedures.

The data for the evaluation were collected from the participating state agencies and, to

provide points of comparison for the demonstrations, from four FCS Field Offices. Data were

collected from the New Mexico and South Carolina Field Offices (the baseline offices). In

addition, to provide data from settings unaffected by the demonstrations, the Little Rock,

Arkansas Field Office served as a comparison site for the New Mexico demonstration, and the

Jackson, Mississippi Field Office was the comparison site for the South Carolina demonstration.

The principal data sources were three rounds of interviews in New Mexico and South Carolina

with state and Field Office staff, one round of interviews at the comparison Field Offices, retailer

management activity and participation data from FCS’ computer system, and demonstration cost

reports.

Project Description: New Mexico

Exhibit ES.1 provides a profile of the New Mexico retailer management demonstration.

The NMHSD combined two principal activities in its retailer management demonstration:

(1) assumption of responsibility for all aspects of FSP retailer management available

to the state under the terms of the demonstration, including authorizing, reauthorizing and disqualifying retailers, and making referrals to investigators, for seven

counties; and

(2) integration of FSP retailer management for the demonstration area with statewide

EBT retailer enrollment and liaison, both during and after EBT implementation.

New Mexico’s EBT system had been fully operational in Bernalillo County (Albuquerque) since

1992. During most of the demonstration, NMHSD was in the process of implementing EBT in

the remaining counties in the state. The half-time retailer management specialist assisted in the

rollout by establishing contracts between the state and participating merchants and by visiting

stores in advance of implementation. She performed these tasks for the last two demonstration

counties placed on the EBT system, and also for the 25 nondemonstration counties subsequently

iii
Executive Summary

converted to EBT.

Exhibit ES.1

RETAILER MANAGEMENT DEMONSTRATION SUMMARY:

NEW MEXICO HUMAN SERVICES DEPARTMENT

EBT Pilot Implemented: March 1992

Statewide EBT Rollout Began: January 1994

Retailer Management Demonstration Began: October 1, 1993

Demonstration Fully Operational: April 1, 1994

EBT Rollout in Demonstration Area Complete: September 1995

Retailer Management Demonstration Ended: March 31, 1996

Grant Amount: $66,780

Demonstration Area: 7 counties, including 591 retailers, or 46% of

New Mexico’s retailer population (as of January

1996)

Staffing: One half-time employee, working exclusively on

the demonstration project

1995 Calendar Year Activity Level: Retailers as of January 1995: 600

New authorizations: 65

Re-authorizations: 215

Withdrawals: 69

Disqualifications: 1

Store visits were also an integral part of the first-time authorization process. Wherever

feasible, the retailer management specialist visited stores before authorizing them; otherwise, she

visited them within a month of authorization.

Project Description: South Carolina

Exhibit ES.2 provides a profile of the South Carolina retailer management demonstration.

The SCDSS included the following three components in its Retailer Management Demonstration:

(1) state management of retailer participation in the FSP in five counties,

(2) integration of FSP retailer management with statewide EBT implementation

activities, and

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Executive Summary

(3) development of a retailer management information system, including up-to-date

Exhibit ES.2

RETAILER MANAGEMENT DEMONSTRATION SUMMARY:

SOUTH CAROLINA DEPARTMENT OF SOCIAL SERVICES

Retailer Management Demonstration Began: January 1994

EBT Pilot Implemented: November 1994

Demonstration Fully Operational: January 1, 1995

Statewide EBT Rollout Began: March 1995

Statewide EBT Rollout Completed: December 1995

Retailer Management Demonstration Ended: January 4, 1996

Grant Amount: $180,000

Demonstration Area: 5 counties, including 620 retailers, or 19% of

South Carolina’s retailer population (as of December 1995)

Staffing: 8 staff at the state EBT project office worked on

the demonstration, of whom two were primarily

assigned to the retail management project

1995 Calendar Year Activity Level: Retailers as of January 1995: 769

New authorizations: 73

Reauthorizations: 512

(includes stores from 1994 and 1995 lists)

Withdrawals: 217

Disqualifications: 0

redemption information, and a set of retailer fraud indicators.

Intensive work on EBT system development, testing, and implementation was ongoing throughout

South Carolina’s retailer management demonstration. SCDSS arranged for the EBT contractor

(Citibank EBT Services) to fill out food inventory checklists during pre-implementation visits to

stores. Demonstration staff participated fully in all aspects of implementation, including

coordinating and conducting visits to all stores during the first days of implementation in each

county. Development work on the retailer management database application continued

throughout the demonstration period. The system was designed to generate a list of "fraudprone" stores and to allow users to access the database by modem from remote locations. Printed

v
Executive Summary

reports of fraud-prone retailers and limited online access were available in June 1995. More

complete online capabilities were available in early 1996.

Evaluation Results

The demonstrations in New Mexico and South Carolina provided a revealing test of

integrating retailer management for the FSP with EBT retailer liaison functions under state

control. The main lessons of the retailer management demonstrations and their implications for

future state involvement in retailer management are summarized below along four key

dimensions: state performance of retailer management activities, interactions with EBT

implementation and operations, impacts on retailer management activities and cost, and

implications for future state involvement in retailer management.

State performance of retailer management activities:

· New Mexico and South Carolina successfully performed the principal retailer

management functions normally performed by FCS Field Office staff: processing

new authorizations and reauthorizations, withdrawing closed or ineligible stores,

updating retailer information on STARS, and responding to retailer inquiries. New

Mexico, unlike South Carolina, also performed routine retailer monitoring activities,

such as reviewing reports on nonredeeming stores, and implemented administrative

sanctions against retailers found to have violated program regulations.

· In both New Mexico and South Carolina, the state staff received a substantial

amount of training from the FCS Field Offices. Both states relied on the FCS Field

Offices for policy guidance. New Mexico HSD maintained a particularly close

working relationship with the New Mexico Field Office throughout the

demonstration.

· Both New Mexico and South Carolina visited all stores applying to participate in

the FSP. During the demonstration period, both FCS Field Offices visited few such

stores. (Subsequently, both Field Offices have dramatically increased the frequency

with which they visit retailers.)

· South Carolina accomplished its goal of developing a computer system for retailer

management and monitoring, but this achievement was eclipsed by similar FCS

efforts at the national level. The development process, which extended throughout

the demonstration period, was fraught with delays and technical problems.

Interaction of retailer management functions and EBT implementation and operations:

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Executive Summary

· The consolidation of EBT and FSP retailer management clearly improved state

coordination and communication with the EBT vendor.

· The consolidation of EBT and FSP functions streamlined the process for retailers,

allowing them to get the information they needed from a single source. At times,

however, the demands of the EBT rollout process drew resources away from the

retailer management activities, resulting in delays in responding to retailer inquiries,

especially in New Mexico.

· New Mexico and South Carolina used the store visits made during EBT implementation to enhance the presence of the FSP among retailers. Especially in South

Carolina, the EBT-related visits to stores provided an important opportunity to

identify retailers that had gone out of business, changed ownership, changed their

address, or changed their business in a way that affected their eligibility to

participate in the program.

· South Carolina arranged for its EBT vendor to complete a food inventory checklist

on questionable stores. Although all parties agree that the use of such a checklist

is feasible and potentially valuable, the test of this process in South Carolina was

too limited to prove its effectiveness. Checklists were completed only in parts of

the state where the Field Office retained its retailer management responsibilities,

and Field Office staff had difficulties acting quickly and decisively on the EBT

vendor’s information.

· In approaching questions of retailer eligibility, the states appeared to be more

inclined than the Field Offices to deny marginal retailer applications and to

withdraw marginal retailers identified during EBT rollout or reauthorization. State

staff were acutely aware of the financial costs and the risks to EBT system integrity

posed by the inclusion of marginal retailers, and less experienced than the Field

Office staff with the difficulty of sustaining determinations of ineligibility through

the administrative review process.

· There was, however, very limited evidence of any impacts on withdrawals resulting

the states’ store visits and their greater inclination to deny or withdraw marginal

stores. The limitations of the evaluation precluded a conclusive determination as

to whether the states had higher rates of withdrawn or denied applications. In

South Carolina, the Field Office withdrew only 12 of the 31 stores outside the

demonstration area that the state recommended for withdrawal based on information

from the rollout process, suggesting that the state was indeed more aggressive but

not necessarily right. In New Mexico, the state retailer management specialist

deferred to the more conservative judgment of the Field Office when evaluating

applications from stores that she considered marginal.

· There were clear synergies resulting from enhanced state involvement in retailer

management during EBT implementation, including:

better state access to retailer information,

vii
Executive Summary

easier and tighter coordination between EBT and FSP retailer management, and

enhanced detection of ineligible or potentially noncompliant stores.

· The experience with state retailer management after EBT implementation was more

limited and less conclusive, but several potential benefits emerged:

streamlined enrollment of new retailers into the FSP and the EBT system,

a single point of contact for retailers with FSP or EBT questions and problems,

completion of inventory checklists during EBT vendors’ pre-installation visits

to stores,

more timely information for the state and its EBT vendor on retailer

withdrawals and disqualifications, and

better flow of information to and from the State Law Enforcement Bureau

(SLEB).

Measured impacts of retailer management demonstrations:

· Differences among the study areas in the rate of new authorizations are small, and

it is unlikely that the demonstrations had a significant influence on the rate of new

authorizations.

· In both the state- and federally administered parts of South Carolina, stores were

withdrawn at a very high rate compared to other Field Offices in both the Southeast

and Southwest Regions. At the same time, fewer stores were withdrawn in both

parts of New Mexico compared to other Field Offices.

· The timing of EBT implementation had a powerful impact on the rate of

withdrawals, overwhelming any influence of the transfer to state retailer

management.

· State labor costs for retailer management were remarkably similar to those of the

FCS Field Offices, once differences in workload and EBT implementation activity

are taken into account. The demonstrations had modest start-up costs, with the

major exception of South Carolina’s $171,000 in expenses for the development of

the retailer management computer system and other project equipment.

Implications for future state involvement in retailer management:

· Both states continue to seek a strong role in retailer management in the FSP,

although funding issues have prevented a continuation of the demonstrations. Both

states submitted proposals to FCS to continue the demonstrations, and South

Carolina sought to significantly expand the scope of its retailer management

activity. FCS and the states, however, were unable to find a mutually acceptable

funding arrangement to extend the demonstrations.

viii
Executive Summary

· States clearly are capable of assuming the more routine retailer management

functions of the FCS Field Offices, freeing the Field Office staff to focus more on

retailer monitoring and other compliance-related activities.

· States require a significant level of training and initial support from FCS if they are

to take on retailer management responsibilities.

· In performing certain infrequent but important retailer management activities, states

would benefit from technical assistance that could be provided by FCS staff.

Examples include disqualifying retailers and supporting administrative review.

Particularly sensitive and technical tasks, such as supporting judicial appeals, may

be best handled by FCS staff.

ix
CHAPTER ONE

INTRODUCTION

This report documents the Retailer Compliance Management Demonstrations in EBTReady States. In these demonstrations, the state food stamp agencies in New Mexico and South

Carolina assumed responsibility for managing the participation of food retailers in the Food

Stamp Program, a task previously managed by the federal government. The report describes

these ground-breaking demonstrations and evaluates their results.

1.1 BACKGROUND

The Food Stamp Program (FSP) provides assistance, in the form of paper food stamp

coupons and electronically-stored benefits, to increase the food purchasing power of needy

families. As the administering agency for the FSP, the Food and Consumer Service (FCS) of the

U.S. Department of Agriculture (USDA) is responsible for the authorization, training, and

monitoring of food retailers that agree to redeem FSP benefits. FCS strives to make the FSP as

open as possible to legitimate participation by food retailers while protecting the integrity of the

program from trafficking (the illegal sale of food stamp benefits for cash or nonfood items) and

other types of redemption fraud and abuse.

Many of the day-to-day activities involved in meeting these objectives are assigned to

the FCS Field Offices. Retailers wishing to obtain FSP authorization apply to the Field Offices,

which review the applications and determine if the stores qualify to participate. The Field

Offices also process the applications for reauthorization that participating retailers must submit

every two to three years (depending on the type of store). In addition, when stores close, change

ownership, cease to be eligible, or no longer redeem food stamp benefits, the FCS Field Office

staff withdraw them from the FSP. Field Office staff also provide information on program

regulations to authorized retailers, answer questions about program policy, and arrange for

educational materials and redemption certificates to be delivered to retailers. To enforce

compliance with program regulations, the Field Office staff monitor retailers’ redemption activity,

receive and follow up on allegations of fraud, and impose disqualifications or monetary penalties

in cases of documented program violations.

1
Chapter One: Introduction

Recent developments have led FCS to reassess the way that retailer management is

carried out in the FSP and the potential roles of state food stamp agencies in this area. The

advent of electronic benefits transfer (EBT) systems is changing the way that the program

interacts with retailers. As state agencies implement and operate their EBT systems, they (or

their EBT vendors) must recruit, equip and train retailers to accept EBT cards for food stamp

(and, in most states, cash) benefits via point-of-sale (POS) equipment. This process requires

interaction with FCS to obtain and update lists of authorized food retailers. (Future EBT systems

may involve states with a broader array of retailers and sellers of food and services, such as

Medicaid providers and WIC vendors.)

At the same time, FCS is seeking new ways to improve the integrity of benefit

redemption, placing particular emphasis on the problem of food stamp trafficking. Routine state

contacts with retailers in the course of EBT operations may provide an "on-the-ground" presence

that can help ensure retailer compliance with program regulations.

These changes have occurred in a context of diminishing FCS resources for retailer

management. Cutbacks at the FCS Field Offices, including the closures of some satellite offices,

have substantially reduced the staff resources available for retailer management from nearly 1,000

staff working full-time in 1976 to 350 staff spending (on average) only a fraction of their time

on retailer management. A notable result of these staff reductions, and the accompanying

reductions in travel budgets, was that the Field Offices became unable to visit the great majority

of retailers applying for FSP authorization or reauthorization.

1.2 RETAILER MANAGEMENT DEMONSTRATION OBJECTIVES

In May 1993, FCS solicited proposals from states wishing to demonstrate "State Retailer

Compliance Management in EBT-Ready States." The stated purpose of the Request for

Applications (RFA) was "to explore the option of opening retailer management initiatives to

States to pursue alternative approaches and initiatives with FSP retailers".1 The RFA was

specifically targeted to EBT-ready states, on the premise that such states’ involvement with

retailer recruitment, training, and management for their EBT projects would provide an

opportunity for the states to assume broader retailer management roles. In addition to the control

and simplification of EBT retailer management that the states would gain by participating in the

1 Request for Applications, FNS 93-024-ASW.

2
Chapter One: Introduction

demonstration, the availability of grant funds offered the states "an opportunity to defray some

of the costs associated with implementation and operation of EBT systems."

The New Mexico Human Services Department (NMHSD) and the South Carolina

Department of Social Services (SCDSS) received funding under the RFA, established cooperative

agreements with FCS, and conducted retailer management demonstrations in selected areas. To

obtain an independent evaluation of these demonstrations, FCS contracted with Abt Associates

Inc.2 The evaluation also included a study of State Law Enforcement Bureau (SLEB)

agreements, under which FCS authorizes states to use food stamp coupons in trafficking

investigations.3

1.3 EVALUATION OBJECTIVES AND DESIGN

In evaluating the retailer management demonstrations, the principal objectives were:

· to describe demonstration implementation and operations;

· to compare state retailer management procedures in the demonstration sites with

FCS procedures;

· to assess the states’ retailer management performance, with comparison to FCS field

office performance;

· to compare the administrative costs of demonstration activities with those of

comparable FCS tasks; and

· to assess the demonstrations’ implications for FCS retailer management policy and

procedures.

To provide points of comparison for the demonstrations, data were collected from four

FCS Field Offices. In each state, data were collected from the Field Office that had previously

served the demonstration area: the Albuquerque, New Mexico and Columbia, South Carolina

Field Offices. These two "baseline" offices still managed retailer participation in the rest of their

respective states; the New Mexico office managed retailer participation in a portion of Texas as

well.

2 FCS contract no. 53-3198-4-021.

3 Leo M. Allman and Christopher W. Logan, Study of State Law Enforcement Bureau Agreements,

Cambridge, MA: Abt Associates Inc., September 1996.

3
Chapter One: Introduction

To provide data from settings unaffected by the demonstrations, the Little Rock,

Arkansas Field Office served as a comparison site for the New Mexico demonstration, and the

Jackson, Mississippi Field Office was the comparison site for the South Carolina demonstration.

The comparison sites were selected for their similarity to the demonstration sites along the

dimensions of region, number of authorized firms, retailer mix, and workload per staff-year.

The data sources for the evaluation were:

· three rounds of in-person interviews with demonstration personnel and other state

EBT project staff;

· three rounds of in-person interviews with FCS personnel in the baseline Field

Offices;

· one round of in-person interviews with FCS personnel in the comparison Field

Offices;

· telephone interviews with FCS Regional Office personnel involved with the

demonstrations;

· retailer authorization and participation data from the Store Tracking and Redemption Subsystem (STARS) of the FSP Integrated Information System; and

· demonstration cost reports prepared by state staff.

For state and federal program administrators, the results of this demonstration provide

valuable lessons on an alternative approach to FSP retailer management. They may not

necessarily predict, however, what might happen if other states assumed retailer management

responsibilities. The demonstration had some important limitations that necessitate caution in

interpreting the observed differences across sites.

The evaluation was based on data from a set of case studies. The number of assessed

sites was small (comprising two state agencies and four FCS Field Offices), and the states sought

the opportunity to participate. Moreover, state retailer management was implemented along with

EBT. This connection was one of the objectives of the demonstration, but it posed analytic

difficulties in separating the effects of EBT and state retailer management on the patterns of

retailer authorization and redemption activity, both in the demonstration sites and in the balance

of New Mexico and South Carolina. As a result, a number of the findings are suggestive, not

conclusive, and differences arising from state retailer management may have been masked by

greater influences from EBT implementation.

4
Chapter One: Introduction

1.4 ORGANIZATION OF REPORT

The next two chapters describe the history of the retailer management demonstrations

in New Mexico (Chapter Two) and South Carolina (Chapter Three). In Chapter Four, each

state’s approach to retailer management is described. This chapter also compares the principal

features of the states’ procedures with those of the Field Offices. Chapter Five examines three

dimensions of demonstration outcomes—activity levels, costs, and retailer participation changes—

through comparisons with the four Field Offices in the study. The concluding chapter of the

report, Chapter Six, summarizes the lessons and other implications of the demonstrations with

respect to future retailer management activity, both by states and by FCS.

5
Chapter One: Introduction

blank page for double-siding

6
CHAPTER TWO

PROJECT IMPLEMENTATION: NEW MEXICO

This chapter presents a description of the New Mexico Retailer Compliance Management

Demonstration and a discussion of the implementation process. Section 2.1 describes the area

included in the demonstration. Section 2.2 discusses the project origins, and Section 2.3 focuses

on demonstration startup. Section 2.4 addresses the interaction of EBT implementation and the

state’s retailer management activities, and Section 2.5 discusses the return to FCS management

of retailer participation in the demonstration area.

A description of state and FCS retailer management procedures is contained in Chapter

Four.

2.1 SITE DESCRIPTION

The seven-county area included in the New Mexico demonstration encompasses a wide

geographic area. Over 590 retailers, or 46 percent of New Mexico’s FSP-authorized retailers,

were included in the demonstration area. The seven counties, Bernalillo, Doña Ana, Sandoval,

San Juan, Santa Fe, Torrance, and Valencia, contain one large metropolitan area, Albuquerque,

and many very sparsely populated rural areas. The state’s EBT system had been fully operational

in Bernalillo County (Albuquerque) since 1992. During much of the demonstration, however,

NMHSD was implementing EBT in the remaining counties in the state. Statewide rollout began

in late 1993, and the final set of counties went live on EBT in August 1995. Exhibit 2.1 presents

key dates in New Mexico’s retailer management demonstrations, including milestones in the EBT

implementation process.

2.2 PROJECT ORIGINS

The New Mexico demonstration was conceived by NMHSD EBT project director. He

recognized in the RFA the opportunity to take advantage of synergies that might come from

combining EBT project management and FSP retailer management in a single state agency. After

learning of the RFA less than a week before an application was due to FCS, he quickly planned

the demonstration, established a budget, gained departmental approval, and submitted an

application. The state retailer management demonstration in New Mexico included the following

7
Chapter Two: Project Implementation—New Mexico

Exhibit 2.1

NEW MEXICO DEMONSTRATION CHRONOLOGY

Date Event

May 1993 FCS issues RFA for "State Retailer Compliance Management in EBT-Ready States."

June 1993 NMHSD submits application to FCS.

October 1993 Two-year demonstration period begins.

December 1993 NMHSD hires retailer management specialist.

January 1994 Statewide Expansion Phase I: EBT implementation completed for retailers in

Sandoval, Valencia, Torrance, and San Juan Counties.a

March 1994 FCS notifies demonstration-area retailers of change to state administration. New

Mexico Field Office (NMFO) retailer files transferred to NMHSD.

April 1994 NMHSD takes over responsibility for all aspects of retailer management in demonstration area.

May 1994 FCS Minneapolis Computer Support Center (MCSC) assigns a STARS identification

number and password to NMHSD.

June 1994 NMHSD mails 1994 reauthorization applications to retailers.

August 1994 NMHSD gains full STARS capability.

September 1994 Statewide Expansion Phase II: EBT implementation completed for retailers in Santa

Fe and Doña Ana Counties.a

November 1994 NMHSD gains access to the FCS electronic mail system.

December 1994 Statewide Expansion Phase III: EBT system implementation completed for retailers

in seven counties not included in the retailer management demonstration.a

March 1995 Statewide Expansion Phase IV: EBT system implementation completed for retailers

in four counties not included in the retailer management demonstration.a

June 1995 NMHSD mails 1995 reauthorization packets to retailers.

July 1995 FCS receives proposals from SC and NM to extend the demonstration.

August 1995 Statewide Expansion Phases V and VI: EBT system implementation completed for

retailers in 13 counties not included in the retailer management demonstration. All

retailers in NM are now on the EBT system.a

September 1995 FCS approves a six-month, no-cost extension of the NM demonstration.

March 1996 NMFO notifies retailers in the demonstration area of the return of FSP retailer

management responsibility to the NMFO. NMHSD returns retailer files to the Field

Office.

April 1996 Demonstration ends. NMFO resumes retailer management activity in the demonstration area.

a Although all participating retailers were able to conduct EBT transactions after the first of the month, recipients were gradually

brought onto the system over several months.

8
Chapter Two: Project Implementation—New Mexico

key elements:

· a half-time staff person supervised by the EBT project director,

· a service area of seven counties, including New Mexico’s largest county (containing

the city of Albuquerque) and most of the state’s other metropolitan counties; and

· integration of FSP retailer management functions for the demonstration service area

with responsibility for statewise EBT retailer enrollment and liaison, both during

and after EBT implementation.

The concept behind the demonstration, bringing together EBT and FSP retailer

management functions in one agency, appealed to NMHSD for several reasons. First, the

NMHSD project director was concerned that the state was "out of the loop" on actions such as

retailer disqualifications. For example, the Field Office might know about negative findings from

a compliance investigation and might even have notified a retailer that he or she was going to

be disqualified. Retailers can appeal disqualification actions, however, and FCS will take action

only when the appeals, or the time limits governing the appeal rights, have been exhausted. The

state and its EBT vendor were learning of such actions only after they had been officially

implemented, which increased the risk of loss or unauthorized use of deployed EBT equipment,

for which the state was potentially liable. Additionally, through its visits to stores during EBT

implementation, NMHSD had encountered stores that were obviously ineligible for participation

in the FSP, but still authorized. The state wanted to resume the practice of making regular visits

to FSP-authorized stores and to have the ability to remove ineligible stores from the system.

In September 1993, NMHSD received word that it had been awarded $66,780 for a twoyear demonstration. FCS and NMHSD established a cooperative agreement that called for the

retailer management demonstration to begin in October 1993 and end in September 1995.

2.3 STARTUP

Shortly after establishing the cooperative agreement, the EBT project director began

recruiting for the half-time retailer management position budgeted in the proposal. The retailer

management specialist began work December 23, 1993.

The NMFO had only recently learned of the project. In reviewing New Mexico’s

proposal for statewide EBT expansion, Field Office staff noticed a reference to a retailer

management demonstration project. The NMFO initially viewed the project as an encroachment

9
Chapter Two: Project Implementation—New Mexico

on their area of responsibility and expertise, and resented headquarter’s failure to consult with,

or even inform, Field Office staff of this major change to their mandate. Further, FCS Field

Office staff could hardly be faulted for viewing the project as a potential threat to their job

security. Despite the awkward beginning, Field Office staff played a crucial role in the

successful launch of the retailer management demonstration.

The state’s retailer management specialist spent her first months in on-the-job training,

with the Field Office staff as her trainers. NMFO staff provided instructions in FSP regulations

and procedures.1 NMFO provided a complete set of forms, including both standard-issue FCS

forms and forms developed locally. Importantly, it was through the Field Office that the

NMHSD retailer management specialist gained access to and training on the STARS system.2

In January 1994, the state requested access to STARS, a necessary condition for

authorizing and deauthorizing retailers to participate in the FSP. There were two elements

necessary for NMHSD to have routine access to STARS. First, the state needed special

communications software that would allow a PC to dial in to the system. Second, because the

security features of STARS restrict access to the system, NMHSD needed a system identification

number (ID) and password that would allow the appropriate level of access. Initially, FCS staff

were concerned that the state would have access to data on all retailers in the state, not just those

in the seven-county demonstration area. FCS determined, however, that it was not feasible to

restrict access to specified counties (because STARS security features are set up on a Field Office

basis, not a county basis).

Initially, NMFO provided training to New Mexico’s retailer management specialist using

an NMFO ID and password to access the STARS system. In May 1994, the Minneapolis

Computer Services Center (MCSC) assigned a STARS ID and password to NMHSD. The

communications software needed to dial in to the system, however, was not operational until

1 There was some confusion about which version of the FSC-318 Handbook NMHSD should use. The

NMFO was using for guidance a draft of the Handbook that had not been officially approved, because it was

part of authorizing legislation held up in Congress. NMFO felt they could not release the draft Handbook to

NMHSD, however, because it was still technically a draft version and had not been published for distribution

outside the agency. NMHSD wanted to follow the latest set of guidelines and to follow closely NMFO

procedures in most areas. Although NMHSD had only the "old" version of the handbook, information on the

new guidelines was readily available from NMFO.

2 STARS, the Store Tracking and Redemption Subsystem of the FSP Integrated Information System, is the

nationwide system for maintaining information on FSP retailer authorization and redemption activity.

10
Chapter Two: Project Implementation—New Mexico

August 1994. In the intervening months, Field Office staff allowed the state’s retailer

management specialist to access STARS from the Field Office, using the NMHSD ID and

password. These visits by the retailer management specialist to the NMFO provided an

opportunity for exchanging information and further technical assistance.

In March 1994, FCS sent a letter to all FSP-authorized retailers in the seven-county

demonstration area, announcing that effective April 1, NMHSD was the designated retailer pointof-contact for the FSP. On March 30, 1994, NMFO transferred its retailer files for the

demonstration counties to NMHSD.

2.4 RETAILER MANAGEMENT DURING EBT EXPANSION

The NMHSD retailer management office consisted of the one half-time specialist in an

office near the state’s EBT project office. The retailer management specialist reported directly

to New Mexico’s EBT project director and operated with considerable autonomy. The office was

staffed four hours per day. At other times, the EBT project secretary or an answering machine

received calls.3 The retailer management office had access to STARS and the FCS electronic

mail system. The FCS New Mexico Field Office regularly forwarded electronic mail on retailer

management topics to NMHSD.4

The NMHSD retailer management specialist maintained a close working relationship

with the FCS Field Office throughout the demonstration, and relied on the FCS Field Office staff

for guidance when handling new or difficult situations. One food program specialist at the Field

Office had considerable expertise with the retailer aspects of the FSP (she was the only Field

Office staff member with sufficient tenure to have conducted store visits herself). That program

specialist therefore took the lead in working with New Mexico’s retailer management specialist,

helping her develop store visit procedures and observing her initial visits. After gaining

experience, the NMHSD retailer management specialist continued to rely on NMFO for assistance

in special situations, such as handling a disqualification or an appeal of a denied application. The

3 Initially, when the retailer management specialist was not in the office, all calls were forwarded to the

EBT project office. This volume of retailer-related calls was too great for the already stretched EBT project

office. The answering machine relieved the burden on the EBT project office, but it meant that callers had

to wait for a return phone call.

4 NMHSD was able to access the FCS cc:mail system after November 1994.

11
Chapter Two: Project Implementation—New Mexico

NMHSD retailer management specialist also typically consulted with NMFO on cases in which

a store was only marginally qualified to participate in the program.

The FCS Field Office made it clear to NMHSD that, because responsibility for the

demonstration counties and their retailer management files would be returning to the FCS Field

Office after two years, the project should be operated consistently with existing Field Office

procedures. As a result, many procedures at the demonstration office were identical to those

followed by the Field Office. Chapter Four discusses in greater detail those areas of retailer

management activity in which the demonstration office followed a procedure that differed to

some extent from the procedures established at the FCS Field Office.

The NMHSD retailer management specialist found that her retailer management

responsibilities and EBT implementation responsibilities took more of her time than the 20 hours

per week for which she had been hired. As a result, she routinely worked extensive (unpaid)

overtime. In hindsight, NMHSD’s project director feels the state underestimated the complexity

of the retailer management function. Because the demonstration was planned quickly in order

to meet the deadline for the funding application, NMHSD staff were not able to thoroughly

investigate all aspects of the functions they proposed to take over from the Field Office. A key

oversight was the reauthorization process. NMHSD did not realize that stores were reauthorized

biannually, and did not account for the staff time necessary to perform this set of retailer

management activities when it established the demonstration budget.

EBT Implementation

The retailer management specialist, along with a NMHSD EBT project staff member,

was responsible for establishing merchant agreements with all retailers in counties where EBT

was to be implemented, both within and outside the seven demonstration counties. The two staff

members visited each store one or two weeks before the scheduled implementation date in each

county. The purpose of the visit was to make sure that the retailer knew how to operate the

equipment and was otherwise ready for implementation.

These EBT implementation responsibilities accounted for a significant share of the

retailer management specialist’s overall responsibilities from July 1994 to August 1995, during

which time 25 counties were added to the state’s EBT system. The retailer visits during EBT

rollout would occasionally require the retailer management specialist to be away from the

12
Chapter Two: Project Implementation—New Mexico

Albuquerque office for a week at a time, with only an answering machine to take calls from

retailers. This resulted in a delayed response to some retailer inquiries, which was frustrating for

retailers who wanted an immediate response to their inquiries, and also to the EBT vendor and

the FCS Field Office, to whom retailers would turn when they did not reach someone who could

help them at NMHSD.

In addition to their EBT implementation purposes, these store visits had some value from

a retailer management perspective. Stores occasionally had questions about FSP issues. The

retailer management specialist was often the first representative of the FSP to visit the store in

many years. In a few cases, she encountered stores that were no longer eligible to participate

or that raised her suspicions. In coordinating with the Field Office, the retailer management

specialist either obtained updated application information or requested an investigation.

2.5 RETURN TO FCS ADMINISTRATION

In the summer of 1995, NMHSD submitted to FCS a proposal to extend the retailer

management demonstration for one year, requesting additional funding at a level that would allow

the retailer management specialist to increase her hours from 20 to 30 hours per week. FCS

declined the request for additional funding, but approved a six-month, no-cost extension. On

April 1, 1996, NMHSD returned its delegated food stamp retailer management responsibilities

to the FCS Field Office. New Mexico’s EBT project continues to be responsible for liaison with

retailers and the FCS Field Office regarding the addition or removal of retailers from the EBT

system and other EBT retailer management matters.

13
CHAPTER THREE

PROJECT IMPLEMENTATION: SOUTH CAROLINA

This chapter presents an overview of the South Carolina demonstration. Section 3.1

describes the area included in the demonstration. Section 3.2 discusses the origins of the project.

The period before the demonstration was fully operational is the focus of Section 3.3. Section

3.4 examines a key component of the demonstration, the development and implementation of a

computer-based Retailer Management System. Section 3.5 addresses the interaction of EBT

implementation and the state’s retailer management activities, and Section 3.6 discusses the return

to FCS management of retailer participation in the demonstration area.

3.1 SITE DESCRIPTION

The South Carolina retailer management demonstration included five counties: Berkeley,

Charleston, Darlington, Dorchester, and Florence. The area included the highly-urbanized area

of Charleston, as well as some very rural parts of South Carolina. The demonstration involved

620 retailers, or 19 percent of the FSP-authorized retailers in South Carolina.

SCDSS awarded a contract for EBT services to Citibank EBT Services in early 1994,

with a pilot scheduled for Darlington County in November 1994. SCDSS established an

ambitious agenda for statewide rollout, with new counties going live monthly, starting March 1,

1995, and ending December 1, 1995. Exhibit 3.1 presents a chronology of the retailer

management demonstration, including key events in the EBT implementation process.

3.2 PROJECT ORIGINS

The SCDSS retailer management project temporally spanned two leadership teams at the

SCDSS EBT Project. The RFA was received and the demonstration planned in May and June

1993. The individual who was then managing the EBT project negotiated a cooperative

agreement with FCS that called for SCDSS to receive a grant of $180,000 for a two-year

demonstration project to begin in October 1993. In April 1994, SCEDSS created and filled a

new position of EBT administrator, a position to which all EBT project staff reported. In

September 1994, the previous project manager left the agency, and leadership of the retailer

management demonstration passed to a staff member, who for several years had played a key role

15
Chapter Three: Project Implementation—South Carolina

Exhibit 3.1

SOUTH CAROLINA PROJECT CHRONOLOGY

Date Event

May 1993 FCS issues RFA for "State Retailer Compliance Management in EBT-Ready States"

July 1993 SCDSS submits proposal to FCS

October 1993 Cooperative agreement begins

January 1994 SCDSS awards EBT vendor contract to Citibank EBT Services

April 1994 Paul Brawley becomes EBT administrator

August 1994 Retailer management specialist hired

November 1994 EBT pilot implemented in Darlington County (a demonstration county). SCDSS

begins 1994 reauthorization process

January 1995 SCDSS takes on full responsibility for retailer authorization and withdrawal in

demonstration counties

March 1995 EBT Implementation Phase I (Charleston County, a demonstration county)

April 1995 EBT Implementation Phase II (including two demonstration counties, Berkeley and

Dorchester)

June 1995 EBT Implementation Phase IV (bringing last retailer management demonstration

county, Florence, onto the EBT system).a SCDSS demonstrates RMS system

July 1995 SCDSS submits proposal to extend and expand the retailer management

demonstration. SCDSS installs test version of RMS on a PC at the South Carolina

Field Office

September 1995 FCS and SCDSS agree to three-month, no-cost extension of the demonstration

December 1995 EBT Implementation Phase X completes the statewide rollout of EBT

January 1996 FCS South Carolina Field Office resumes retailer management responsibility for

demonstration area

a There were ten phases for EBT implementation in South Carolina. Only three implementation phases (I, II, and IV) and the

pilot phase involved demonstration counties.

16
Chapter Three: Project Implementation—South Carolina

in planning EBT system implementation.

SCDSS included the following three components in its retailer management demonstration:

(1) state management of retailer participation in the FSP in five counties,

(2) integration of FSP retailer management with statewide EBT implementation

activities, and

(3) development of a retailer management information system, including up-to-date

FSP-authorization and redemption information and a set of retailer fraud indicators.

3.3 STARTUP

As in New Mexico, the South Carolina demonstration relied on significant training and

information sharing from the local Field Office. The South Carolina Field Office (SCFO) learned

about the demonstration when SCDSS contacted the office in the process of preparing its

response to the RFA. Like the New Mexico Field Office staff, the South Carolina FCS staff

were concerned about being left out of the process and about the future implications of the

demonstration for the FSP and for themselves. Nevertheless, SCFO staff took a very professional

approach, providing all the information and training that the state requested. Local and national

FCS staff made it clear to SCDSS that they expected the FCS Field Office to resume its retailer

management duties at the end of the demonstration period and that, consequently, FCS expected

SCDSS to follow established procedures closely.

During the summer of 1994, FCS Regional and Field Office staff became concerned that

SCDSS showed few signs of being ready to manage retailer participation in the five demonstration counties, as called for in the cooperative agreement.1 The Field Office initiated a series of

meetings designed to encourage SCDSS to establish procedures and prepare for its new role. The

retailer management demonstration’s startup activities were characterized by competition for

scarce resources and consequent delays. In particular, the demonstration was hampered by the

intensive effort by EBT project staff to prepare for the pilot of the EBT system. In addition, the

1 The SCDSS proposal called for SCDSS to take on retailer authorization responsibilities in phases, starting

in Darlington County in February 1994, with the final demonstration counties to come under SCDSS

jurisdiction in April 1995.

17
Chapter Three: Project Implementation—South Carolina

change in project leadership and a focus on the technical requirements of the Retailer

Management System (RMS) system delayed the start of demonstration operations.

SCDSS hired a retailer management specialist in August 1994. This individual spent

much time during her first months on the job at the South Carolina Field Office getting hands-on

training on the use of the STARS system and retailer management procedures in general.

Finally, in November 1994, SCDSS took on its first retailer management function by mailing out

reauthorization packets to retailers in the five demonstration counties. In January 1995, SCDSS

took on the full set of retailer management functions called for under the cooperative agreement.

Gaining STARS access, an essential ingredient of retailer management, was problematic

in South Carolina, as it had been in New Mexico. SCDSS needed more than just the basic Field

Office access to STARS. Their planned retailer data system (and indeed their EBT system) relied

on updated information on newly-authorized and withdrawn retailers. To facilitate this update,

MCSC (the site of STARS operations) needed to generate a file that SCDSS could download

daily. The technical problems of developing this functionality were not themselves daunting, but

gaining access to the programming resources at MCSC, at a time when STARS was undergoing

other modifications, took several frustrating months. As a consequence, this capability was not

fully operational until January 1995. The basic STARS access needed for routine authorizations

and withdrawals, however, was available to SCDSS earlier, in November 1994.

The retailer management demonstration in South Carolina was coupled with a less

mature EBT project than the project in New Mexico. New Mexico was one of the pioneers of

EBT, with a system serving the Albuquerque area since 1992. In contrast, South Carolina

implemented its EBT system on a pilot basis in Darlington County at about the mid-point of the

two-year demonstration period. SCDSS had also proposed a more ambitious retailer management

project than NMHSD because, in addition to managing retailer authorization, the state planned

to develop an innovative tool for monitoring retailer activity and identifying retailer fraud. The

RMS data system required a major development effort, and thus competed for staff resources

with the EBT system development effort. As a result, the RMS system development was delayed

until after the pilot EBT system was successfully implemented in November 1994.

18
Chapter Three: Project Implementation—South Carolina

3.4 RETAILER MANAGEMENT SYSTEM DATABASE

As noted, a major component of the SCDSS demonstration was the development of a

database application called the Retailer Management System. Housed in a high-capacity PC, the

RMS has played a critical and continuing function in EBT system operations, as well as

providing a tool for compliance monitoring and targeting investigations.

Each day, the RMS computer dials up the MCSC and downloads a file that contains

newly-authorized or newly-withdrawn retailers in South Carolina. This information is used to

update both the SCDSS RMS and Citibank’s EBT retailer database. SCDSS staff telecopy a list

of newly-authorized and withdrawn stores to Citibank each day. SCDSS also receives from

Citibank each day an electronic file with information on all EBT transactions for the preceding

day. These data are used to update the RMS and to create a weekly redemption file that is sent

to the MCSC by courier.

The key output of the RMS has been a fraud-prone profile, which ranks retailers based

on a combination of indicators such as a high number of even-dollar transactions. The algorithm

used was developed in consultation with FCS Regional and Field Office staff and with

representatives of several investigative agencies. Staff at the FCS Regional and Field Office have

used the RMS to identify candidate stores for further research, which they conduct through direct

access to the transaction information on the Citibank EBT system. On the basis of the Citibank

transaction data, FCS has charged retailers with program violations and targeted stores for

criminal investigation.2

The RMS also allows users to make queries based on any of the individual indicators

that are components of the fraud-prone profile. Another feature of the RMS is the ability for

remote users to access the system via modem. With SCDSS’ assistance, both the FCS Field

Office and the Southeast Regional Office have acquired the necessary hardware and software and

can dial up the RMS system.

SCDSS encountered delays and other challenges that limited the usefulness of the RMS

during the demonstration. The system as originally proposed was a software module that would

reside on the SCDSS mainframe computer. In 1994, SCDSS decided instead to develop the

2 Within FCS, investigations of program violations are normally conducted by the Compliance Branch.

Both New Mexico and South Carolina had previously established State Law Enforcement Bureau (SLEB)

agreements with FCS, authorizing the states to use food stamp coupons in undercover trafficking investigations.

The demonstrations did not give the states any new investigative authority.

19
Chapter Three: Project Implementation—South Carolina

system on a PC and to use new, high-powered database software recently developed for the PC

environment. The first RMS programming priority was to develop the capacity to update

automatically redemption data and FSP authorization data on the system. The EBT control

system provided the RMS system with daily redemption data with minimal difficulty. The FSP

authorization data, however, were available was only from MCSC. Initially, SCDSS had

difficulty getting access to the decisionmakers at FCS who could facilitate the request for special

programming work at MCSC.

Once the programming resources were made available, there were still technical hurdles

to overcome. SCDSS’ programming resources were also heavily committed at this time to

another effort, i.e., the implementation of the EBT system itself. Therefore, the SCDSS

programming work did not begin until late October. Finally, in January 1995, six months after

making its initial inquiries, SCDSS was able to download the necessary information from

STARS.

The next system development challenge was to define a set of indicators for use in the

proposed fraud-prone profile. Here the problem was one of communication between SCDSS and

the potential end-users of the system. These discussions culminated in a two-day meeting in

Atlanta in May 1995 that brought together FCS Southeast Regional Office (SERO) and SCFO

staff, USDA Office of Inspector General (OIG) investigative staff, and SCDSS’s system

development team. During the meeting, SCDSS staff voiced their frustration that FCS would not

clearly define what fraud indicators the agency wanted SCDSS to use. For their part, FCS staff

were frustrated by the state’s delays in providing specifics about the RMS and the potential

components of the fraud-prone profile. In addition, the meeting addressed highly technical

system design issues. Once the participants in the Atlanta meeting worked through the principal

design issues for the fraud-prone profile, SCDSS was able to proceed with this phase of RMS

development. By July, SCDSS had a test version of the RMS in operation. SCDSS equipped

the South Carolina Field Office with a PC that could access the RMS system via modem. SERO

acquired the necessary hardware and software in August 1995.

The RMS development effort, and subsequent efforts to smooth out the system’s

problems, took much more time than expected. The lead programmer’s unfamiliarity with the

hardware and software environment was one factor. Another was the sheer volume of data

involved, which pushed the limits of the system’s processing capacity. Remote users found the

20
Chapter Three: Project Implementation—South Carolina

system to be unstable, frequently "locking up," and causing much frustration. The RMS, like all

the computers at the SCDSS office, used a different operating system, OS/2, than the computers

at FCS. No RMS documentation was available to users, and both the system designer and users

often lacked the time and patience for training on a new and complex system.

FCS staff made little use of the RMS’s remote access capabilities before the end of the

demonstration in December 1995. As an interim measure, SCDSS provided printouts of the

fraud-prone profile, which ranked stores according to a set of indicators of suspicious redemption

patterns. FCS Field Office staff were able to use this list to identify stores for further

investigations.

By early 1996, a more stable version of the RMS was operational at SCDSS, the FCS

South Carolina Field Office, and the FCS Southeast Regional Office. FCS staff used the RMS

in their retailer integrity efforts, using the fraud prone profile to identify stores for an in-depth

analysis of redemption patterns based on data drawn directly from the EBT system. By the end

of February 1996, FCS staff had used the RMS to take action on 16 stores with suspicious

redemption patterns. In most of the cases, SCFO initially requested that the store owner come

to the Field Office to discuss their FSP redemptions. One of the 16 had been referred to the

Compliance Branch for investigation, and 9 were disqualified (including 7 permanent

disqualifications).3 The RMS ultimately has proven to be a valuable tool, but FCS staff expect

it will be superseded by a recently-developed national system for gathering and analyzing EBT

redemption data.

3.5 RETAILER MANAGEMENT DURING EBT EXPANSION

The SCDSS retailer management demonstration was fully integrated with its EBT

implementation effort. The two retailer management specialists were full-time, permanent

members of the state’s EBT project staff, with significant responsibilities in the roll-out effort.

These two staff played a role analogous to the food program specialists at an FCS Field Office.

Both SCDSS specialists made store visits and determined retailers’ eligibility for the FSP. The

junior specialist managed STARS data entry and retailer files. Other members of the EBT

3 Of the remaining six cases, three received warning letters, one was withdrawn after failing to respond

to the request for a meeting, one explained the redemption patterns satisfactorily, and one case was still

pending at the time the information for this study was provided.

21
Chapter Three: Project Implementation—South Carolina

project staff, including clerical staff and the project’s senior computer programmer, also worked

on the retailer management demonstration.

EBT implementation was intertwined with the demonstration at many levels. The list

of authorized South Carolina retailers on FCS’ STARS database had obsolete information and

included many stores that were no longer eligible for participation in the FSP. This situation

resulted in an intensive effort, first by the SCDSS EBT office and later by the FCS South

Carolina Field Office, to resolve questions raised about individual retailers.

In the course of implementing the EBT system, representatives of South Carolina’s EBT

vendor (Citibank EBT Services) made a "pre-installation" visit to each store to verify its location,

get a merchant agreement signed, and complete a site survey.4 Citibank and SCDSS found that

a large number of authorized retailers had either closed, changed ownership, or otherwise had a

significant change in their eligibility status. Furthermore, in many rural parts of South Carolina,

the rural route system of addresses had recently been converted to street addresses to support

adoption of 911 emergency phone service. In this process, new addresses were assigned to many

authorized stores, making their addresses on the STARS system obsolete.

The pre-installation visits often resulted in "problem reports," which were essentially a

request by the EBT vendor for confirmation of the store’s eligibility to participate in the FSP.

When the vendor staff could not locate stores, they submitted problem reports to verify the

stores’ locations and status. When the problem was not the existence or location of the store,

but its eligibility for participation in the FSP, the EBT installers encountered a dilemma—should

they install the EBT equipment in a potentially ineligible store? The EBT vendor did not have

the authority to make an on-the-spot eligibility assessment, and the FCS Field Office (or, in

demonstration areas, the SCDSS retailer management specialists) did not have the benefit of

visiting the store in making an eligibility determination. All parties were concerned about

protecting the new EBT system from abuse (and bad publicity). Furthermore, the vendor was

at risk for the additional expense of removing a terminal, or even losing a terminal altogether if

a store was later deemed ineligible. In the end, the EBT installers chose not to install the EBT

equipment in certain stores they felt were clearly ineligible to participate in the FSP.

4 In contrast, the merchant agreement to participate in the EBT system in New Mexico was between the

state and the retailer, and state staff were responsible for establishing the agreements with retailers. In both

states, the approach to the merchant agreement was established before the demonstration was planned, and the

basic approach was unaffected by the demonstration.

22
Chapter Three: Project Implementation—South Carolina

In the process of working with Citibank and the FCS Field Office on retailer eligibility

criteria, SCDSS sought to operationalize the concept of "ample variety" that is part of the

eligibility criteria for retailer participation in the FSP. The program definition may have been

adequate for trained FCS program specialists, but it left too much room for interpretation to be

used by the vendor’s field representatives, who had no special knowledge of FSP regulations and

policies.

The FCS Southeast Regional Office provided SCDSS with guidance in the form of a

food inventory checklist. At SCDSS’ request, Citibank agreed to have its field representatives

complete the food inventory checklists, which were then used by SCDSS and Field Office retail

management staff as evidence regarding the stores’ eligibility for participation in the FSP. The

checklists were also used by SCDSS and vendor staff who made visits to all stores in the first

few days after the EBT system was implemented in a county.

In retrospect, Citibank staff had reservations about the value of their participation in the

eligibility assessment process. There were several cases in which Citibank chose not to equip

a store because it seemed to be ineligible for participation in the FSP. Months later, Citibank

learned that these stores were to be authorized for participation in the program. EBT installers

then had to return to the area and bring the store onto the EBT system. This "backfilling" was

costly to the EBT vendor, because the installation process had to be concentrated in a limited

area at any one time to achieve cost efficiencies.

SCDSS and the FCS Field Office divided the responsibility for handling problem reports

generated by the pre-installation visits according to the geographic areas where they had retailer

management responsibility. Citibank sent all problem reports to SCDSS, which passed on the

reports to be handled by the Field Office and reported the results back to Citibank. In the early

months of EBT implementation, most of the retailers were in the demonstration area, so the

SCDSS retailer management specialists handled most of the problem reports. (The exception to

this pattern was the Darlington County pilot site, where the FCS Field Office handled the

problem reports because the SCDSS retailer management team was not yet in place and lacked

STARS access.) Once the five demonstration counties were live on the EBT system, new

problem reports were primarily for retailers in the area managed by the FCS Field Office.

Ultimately, 1,330 problem reports were generated, of which 1,115 were handled by the

Field Office. The Field Office withdrew 897 stores from the FSP based on the problem reports;

23
Chapter Three: Project Implementation—South Carolina

the Field Office found these stores to be closed, ineligible, under new ownership, or no longer

willing to participate. SCDSS did not separately track withdrawals based on problem reports,

but many of the state’s 217 withdrawals resulted from this process. The sheer volume of the

problem reports overwhelmed the capacity of the Field Office and required extensive interaction

between the SCDSS retailer management staff and Field Office staff. To help the Field Office

resolve the large number of problem reports, a staff member of the SERO was assigned to work

in Columbia for several weeks.

Retailer integrity was a major theme of the SCDSS demonstration effort, even though,

unlike New Mexico, South Carolina did not take up the option to assume responsibility for

compliance-related activities as part of the demonstration. South Carolina’s approach emphasized

the "front-end" activities of authorization and reauthorization, and the development of the RMS.

The major technique used to strengthen the integrity of store authorizations and reauthorizations

was the state’s practice of making store visits to retailers applying for FSP authorization and to

some stores applying for reauthorization. As noted earlier, the state adopted a food inventory

checklist developed by SERO as a way to document store conditions observed during these visits.

Over the course of the demonstration, some tension developed between the FCS Field

Office and SCDSS over a difference between the two agencies in their approach to assessing

retailers’ eligibility for participation in the FSP. SCDSS was quicker to deny FSP participation

to stores whose eligibility was in question. FCS staff appeared to value the goals of client access

and retailer due process more highly than did the state. SCDSS staff were frustrated when FCS

did not withdraw stores identified by Citibank as potentially ineligible, and felt the Field Office

was too cautious and too overwhelmed by the volume of problem reports to make a careful and

timely assessment. For their part, FCS Field Office staff felt that the EBT vendor had a

pecuniary self-interest in limiting the number of terminals installed and may have inappropriately

discouraged unsophisticated merchants in rural areas from participating in the program. FCS

Field Office staff may also have been more aware than SCDSS staff of the likelihood of

successful appeals to the FCS Administrative Review Officers. Although it seems likely that

both SCDSS and the FCS Field Office were making eligibility assessments consistent with the

broad language of the Food Stamp Act, each office clearly brought different emphases to their

review of questionable stores.

24
Chapter Three: Project Implementation—South Carolina

3.6 END OF THE DEMONSTRATION

In July 1995, SCDSS submitted to FCS a proposal to extend and expand the retailer

management demonstration. The proposed expansion would have allowed the state to continue

its retailer management activity in the five original demonstration counties for two more years,

brought an additional dozen counties under the state’s retailer management authority, enhanced

the state’s role in compliance monitoring, and added remote functionality to the RMS system.

As with New Mexico, FCS declined to fund the new proposal, and arranged a three-month, nocost extension of the existing cooperative agreement instead.

On January 4, 1996, the FCS Field Office retrieved the retailer files from the SCDSS

office and began the process of integrating the new information into their filing system. Both

of the retailer management specialists have continued to work on the EBT project staff as part

on a new initiative funded by FCS, the Client Integrity Project. In this initiative, SCDSS will

establish coordinators at SCDSS field offices who will use EBT transaction data to identify and

charge clients suspected of trafficking their food stamp benefits. SCDSS will maintain and

enhance the RMS to facilitate this new demonstration project.

25
CHAPTER FOUR

STATE AND FIELD OFFICE PROCEDURES

FOR RETAILER MANAGEMENT

This chapter examines basic retailer management procedures in the two demonstrations.

It begins in Section 4.1 with an description of key retailer management procedures at FCS Field

Offices. Section 4.2 presents an overview of procedures followed by NMHSD, and Section 4.3

does the same for SCDSS. Section 4.4 draws on interviews with FCS Field Office staff in each

of the demonstration sites and two comparison sites to examine differences in retailer

management procedures. The levels of retailer management activity in each site are discussed

in Chapter Five.

4.1 KEY RETAILER MANAGEMENT ACTIVITIES

The FCS Field Offices are the primary points-of-contact for retailers who currently

participate in the FSP and those who want to participate. Retailers wishing to obtain FSP

authorization request an application from the Field Offices. Retailers submit the applications by

mail, in most cases. FCS Field Office staff review the application for completeness, and request

documentation or other confirmation to verify information provided by the retailer. FCS Field

Office staff also provide information to retailers about FSP regulations and procedures. These

discussions often take place by telephone, but many Field Offices also conduct group training and

information sessions with new applicants, which provide an opportunity for in-person discussions.

After an eligibility determination has been made, Field Office staff enter the appropriate

information onto STARS via a modem-link to the FCS processing center. Retailers must apply

for reauthorization, usually by submitting an abbreviated application with up-to-date information

on the store. FCS Field Offices mail out reauthorization packets prepared by MCSC, receive the

completed applications, enter the new information onto STARS, and follow up with retailers who

fail to return the reauthorization applications.

FCS Field Offices must also withdraw stores from the FSP when they cease to be

eligible. Stores typically become ineligible when they close or change ownership. Field Office

staff also answer questions on program policy and arrange for educational materials and

redemption certificates to be delivered to retailers. Field Offices play a key role in retailer

27
Chapter Four: State and Field Office Procedures for Retailer Management

integrity efforts through their review of reports on FSP redemption activity generated by MCSC.

MCSC provides each Field Office with a list of authorized stores that have redeemed no FSP

benefits (the non-redeemer report), a list of stores redeeming more FSP benefits than their

reported food sales would warrant (the high-redeemer report), and a list of redemptions by

unauthorized stores (known as the "Fast Freddy" report). MCSC also generates monthly reports

on redemptions by all authorized retailers in each Field Office territory. Field Office staff use

this information to identify potentially ineligible or noncompliant stores. For example, the

nonredeemer report helps the Field Office identify stores that have gone out of the retail food

business.1 Because these defunct stores have authorization numbers on STARS, they are a

potential source of fraud. Regular review of the non-redeemer report is necessary because many

authorized retailers do not notify FCS when they go out of business.

Field Offices also receive and follow up on reports of alleged violations of FSP

regulations, and they take administrative action against retailers committing fraud against the

program. In cases of serious fraud, FCS Field Offices support the criminal and civil cases

brought against retailers.

The Request for Applications that structured the demonstrations in New Mexico and

South Carolina listed the retailer management activities performed by the Field Offices and

allowed the states to choose which activities to include in the demonstration.2 The states were

not given the option to undertake direct investigative activities (i.e., making compliance buys)

or support for judicial review of eligibility actions. NMHSD chose to take on all the activities

on the FCS list, whereas SCDSS chose to take on all except the compliance-related activities of

monitoring retailers and sanctioning those found to have violated program regulations. SCDSS

opted instead to provide FCS and other investigators with a new monitoring tool, the RMS. Both

states proposed to integrate the traditional FCS Field Office activities with the EBT

implementation activities that have usually been performed by the states. Exhibit 4.1 summarizes

the retailer management activities performed by the typical FCS Field Office and the activities

taken on by each of the states participating in the demonstration.

1 The report is typically generated once a year, but Field Offices can request updated lists more frequently.

2 Appendix A lists the retailer management functions identified in the Request for Applications.

28
Chapter Four: State and Field Office Procedures for Retailer Management

The RFA encouraged state FSP agencies to "explore the possibility of teaming with their

Exhibit 4.1

RETAILER MANAGEMENT FUNCTIONS

Function

FCS Field

Office SCDSS NMHSD

Authorization, reauthorization, withdrawals,

updates ♦ ♦ ♦

Retailer monitoring ♦ ♦

Investigations, sanctioning ♦ ♦

Support EBT retailer enrollment, installation, and

start-up ♦ ♦

WIC state agency in terms of retailer management activities in the area of authorization,

monitoring, high risk data collection and compliance investigation/buys." Although state WIC

agencies typically exchange some information about the authorization status of retailers with FCS

Field Offices, the potential exists for more extensive collaboration and cost-sharing between the

two programs. Neither New Mexico nor South Carolina took up this option. In both cases, there

was little routine interaction between state WIC program staff and the EBT project staff running

the retailer management demonstrations and no effort to increase coordination of retailer

management activities for the two programs.

4.2 NEW MEXICO HUMAN SERVICES DEPARTMENT RETAILER MANAGEMENT

PROCEDURES

The distinctive feature of NMHSD’s approach to retailer management was that all

activities were conducted by a single half-time staff person. Making a virtue of necessity, the

NMHSD retailer management specialist offered FSP-authorized retailers in the demonstration area

a single point-of-contact, providing information on FSP policies, processing FSP applications and

withdrawals, and completing EBT merchant agreements with retailers.

Retailer Authorization

Because there was only one staff person, the division of labor between a clerkreceptionist and a food program specialist that typically exists at FCS Field Offices was not

29
Chapter Four: State and Field Office Procedures for Retailer Management

present at the NMHSD retailer management office. The retailer management specialist would

either take a call regarding authorization in person or respond to a message. When she was out

of the office for an extended period of time, she would forward her phone to the EBT project

office. The clerks there could take messages or refer high-priority calls to the EBT project

director.

The retailer management specialist had a fairly in-depth conversation with each potential

applicant before sending out an application. The retailer management specialist felt that callers

often "didn’t really know what they wanted." People would call and say they wanted EBT

access, but it would turn out that they were not yet authorized retailers. Others would call and

request an FSP application when they really wanted EBT equipment that AFDC recipients could

use to access their benefits.

The initial conversation also played a screening function. Some retailers would call and

request an application, but in the course of a brief conversation, it would become quite evident

that they were not qualified. Other retailers changed their minds about applying when they

learned that retailer management staff would be visiting their store and that sales and redemption

information would be reviewed. Although this sort of exchange may also occur at some FCS

Field Offices, a distinctive feature of the one-person NMHSD office was that a retailer’s initial

contact was with the person who would ultimately evaluate the application.

NMHSD’s policy was to visit the store of every new applicant for food stamp

authorization. In most cases, there were multiple contacts and even multiple store visits in the

process. Typically, the retailer management specialist made an initial unannounced visit to the

store to assess its eligibility, verify information, and request any information missing from the

application. (In response to an initiative from the SWRO, an inventory checklist was employed

after October 1995.)

Usually, there was a second conversation with the store owner or manager, either in

person (if it was convenient to do so) or over the telephone. During the second conversation the

retailer management specialist reviewed the retailer guidebook, discussing FSP regulations and

procedures and also addressing any EBT issues. If she made the second contact at the store, she

delivered the authorization packet.

For stores that were a great distance away from the Albuquerque office, visits for several

stores were generally conducted on a single overnight trip. In some cases, this meant that stores

30
Chapter Four: State and Field Office Procedures for Retailer Management

were visited after they had been authorized. In these cases, retailers were advised that their

authorization was conditioned on the outcome of the follow-up visit. The visits typically were

made within a month of the authorization, and it was never necessary to withdraw a store based

on information gathered during the visit.

Reauthorization. All aspects of the reauthorization process (mail-out, review, and data

entry) were performed by the lone retailer management specialist. The FCS Field Office simply

divided the New Mexico reauthorization list and packets into two groups, one for the

demonstration area and one for the Field Office area. (Starting in February 1995, the FCS New

Mexico Field Office was responsible for 26 Texas counties, in addition to the 25 New Mexico

counties outside the demonstration area.) The 1994 reauthorization project came shortly after

NMHSD had taken over responsibility for the demonstration area. For both the 1994 and 1995

reauthorization efforts, NMHSD added a letter on NMHSD stationery to the pre-stuffed

reauthorization packets provided by MCSC. With the new shorter form in 1995, the process was

very much streamlined. For stores that had been visited in the process of EBT implementation,

there was no effort to require additional documentation when processing reauthorization

applications.

Retailer Monitoring and Compliance Management

The demonstration office performed all routine monitoring activities on the same

schedule as the FCS Field Office. When the Field Office received a STARS report, such as a

list of high redeemers or nonredeemers, Field Office staff copied the list, identified the retailers

in the demonstration area, and gave the annotated list to NMHSD.

Following Field Office practice, the retailer management specialist maintained a list of

newly authorized and withdrawn stores. Each month, she forwarded the list to the WIC central

office in Santa Fe and to seven WIC Field Offices. The WIC central office sent NMHSD and

NMFO an updated list of WIC-authorized vendors each quarter.

Handling Complaints of Retailer Violations. NMHSD closely followed the FCS Field

Office’s procedure in recording all complaints regarding retailer violations on a complaint log

(provided by the Field Office). The response depended on the nature of the complaint. For

minor complaints, the retailer management specialist usually called the retailer and discussed the

problem. If she was not satisfied with the retailer’s response over the phone, she frequently

31
Chapter Four: State and Field Office Procedures for Retailer Management

followed up with a store visit. For more serious issues, such as a retailer charging tax on food

stamp benefit purchases or accepting ineligible items, she routinely made a store visit. If there

was suspicion of trafficking, she did not make a direct contact with the store, but instead referred

the retailer for investigation by the NMHSD Inspector General (NMHSD IG), the office

designated under the State Law Enforcement Bureau agreement. The NMHSD IG typically did

not respond to a single complaint about a retailer accepting ineligible items, because the IG’s

priority was to pursue trafficking investigations. In some cases, the NMHSD IG did investigate

repeated complaints of noncriminal violations of FSP regulations.

Coordination with Investigative Agencies. The NMHSD retailer management

specialist typically did not make referrals directly to NMHSD IG. Rather, she generally referred

complaints to her supervisor, the EBT Project Manager, who forwarded all complaints that he

received to the IG’s office. The majority of retailer fraud complaints forwarded by the EBT

Project Manager to the IG came through the EBT Help Desk, which received them directly from

retailers, recipients and county office staff. Referrals for investigations were done in the form

of telephone calls, not via the more structured written referral process used by FCS.

NMHSD IG contacted the retailer management office directly when seeking information

for an investigation. Investigators would call the NMHSD office for information or visit the

office to review files. The retailer management office also had occasional contact with the

USDA OIG investigator in Albuquerque and would share information with him, but referrals

were generally made to NMHSD IG.

Interface with Electronic Benefit Transfer System

On a day-to-day basis, the main retailer management interaction with the EBT system

was to advise the EBT vendor of new authorizations and changes in the status of existing

retailers. The retailer management specialist was responsible for establishing a merchant

agreement between the state and the retailer. Once new stores were authorized, the vendor would

set up the merchant on the EBT database. The merchant’s designated EBT transaction acquirer

had 10 days after the authorization notification to install EBT equipment. In the occasional cases

when a large chain was opening a new store, more extensive coordination with the EBT vendor

would be required to ensure that the store was able to do EBT transactions on opening day.

32
Chapter Four: State and Field Office Procedures for Retailer Management

Many retailers would contact the retailer management office when they had a question,

whether it was EBT-related or FSP-related, because the retailer management specialist had visited

many stores and was involved with both EBT rollout and FSP authorization. The retailer

management specialist estimated that she spent approximately 20 percent of her time responding

to such inquiries, and that one-third of the inquiries were about EBT issues (and thus could have

been handled by the state’s EBT Help Desk). Although there was some overlap of responsibility

with the Help Desk, it certainly made sense to retailers to be able to speak with one person who

understood both aspects of the system. In many cases, the retailer management specialist was

able to simplify and clarify a potentially confusing situation for retailers, thereby facilitating

access to both the FSP and the EBT system.

4.3 SOUTH CAROLINA DEPARTMENT OF SOCIAL SERVICES RETAILER MANAGEMENT

PROCEDURES

In contrast to the one-person retailer management office at NMHSD, the retailer

management specialists are SCDSS were full-fledged members of the EBT Project staff. The

retailer management project thus had the benefit of administrative support and up-to-date office

equipment. Key elements of the retailer management process, such as a log for tracking

applications, were maintained on computer files accessible to all project staff over the office’s

computer network. Also available over the office computer network was the RMS system

developed as part of the demonstration.

Authorization of Retailers

First-time Authorization. From the outset of the demonstration, SCDSS made store

visits a priority. When retailers called the EBT Project Office to request an application, they

were sent an application and instructions to call back to make an appointment for a store visit.

Applications could not be returned by mail and could only be submitted during an in-person visit

to the store by SCDSS staff. During the pre-authorization visit, an SCDSS retailer management

specialist completed a food inventory checklist, reviewed the application, and asked about any

missing or questionable information. The retailer was required to produce a business license and

social security card for verification purposes. If the retailer appeared to qualify, the SCDSS

retailer management specialist would provide a copy of the relevant FSP regulations and discuss

33
Chapter Four: State and Field Office Procedures for Retailer Management

FSP policies and EBT issues. The retailer was told that notice of an eligibility determination

would be sent within 30 days.

Although SCDSS closely followed the guidelines established by the FCS Field Office

for processing applications, SCDSS developed its own system for tracking applications. A

tracking file was established on a personal computer (PC), maintained by a clerk, but available

over the office’s local area network to other EBT project staff. (A similar system was used for

tracking reauthorizations and the "problem reports" described below.)

Reauthorization. SCDSS extensively screened the list of retailers due for reauthorization, which was generated by the FCS MCSC. SCDSS compared the FCS reauthorization list

to its in-house retailer management database and removed withdrawn stores. The FCS Field

Office also removed certain retailers from the list, presumably because they were under

investigation.

Clerical staff mailed pre-stuffed and pre-addressed reauthorization packets provided by

FCS after adding an SCDSS cover letter. A clerk recorded the returned applications on a PCbased tracking system that was separate from the RMS. A retailer management specialist

reviewed the applications, followed up on missing information, and entered the new information

on STARS.

SCDSS visited all non-chain stores on the 1994 reauthorization list. For the 1995

reauthorization, SCDSS decided that store visits would be the exception, not the rule, because

so many stores had recently been visited as part of the EBT implementation process. Therefore,

in conducting the 1995 reauthorization, SCDSS visited only the stores in the demonstration

counties about which some question regarding eligibility had been raised during EBT

implementation.

Retailer Monitoring and Compliance Management. In South Carolina, the FCS Field

Office retained responsibility for the compliance-related "back-end" activities related to retailer

management (i.e., the STARS monitoring reports, reports on investigations and sanctions).

Retailer integrity was clearly a major focus of the SCDSS demonstration effort, but the state’s

approach emphasized the front-end activities of authorization and reauthorization and the

development of a retailer database as a tool for use by investigative agencies.

Because the FCS Field Office had not handed over responsibility for compliance matters

to SCDSS, SCDSS did not review and follow up on the STARS monitoring reports. Similarly,

34
Chapter Four: State and Field Office Procedures for Retailer Management

SCDSS had no formal procedure or log for recording complaints regarding retailers, which were

forwarded verbally to the FCS Field Office.

Coordination with Investigative Agencies. When SCDSS retailer management staff

suspected retailer fraud, they would make a referral through the deputy EBT project director to

the SCDSS Division of Investigation (DOI). As the designated agency under the SLEB

agreement, the DOI was responsible for coordination with federal investigators, including the

provision of EBT cards and accounts for investigations. The compliance specialist at the FCS

Field Office was the official point of contact with the federal investigative agencies, under

authority delegated by the FCS Southeast Regional Office.

Interface with Electronic Benefit Transfer System

Part of the RMS system, described in Chapter Three, involves a daily download of

changes made by FCS or SCDSS retailer management staff to the STARS database. SCDSS uses

this file to provide the EBT vendor with information about newly-authorized and newlywithdrawn stores in all parts of South Carolina. As a result, FCS Field Office staff do not have

to communicate directly with the EBT vendor about changes in retailer authorization status.

4.4 COMPARISON OF PROCEDURES

This section examines how the specific retailer management procedures employed by

each demonstration site compare to those followed by FCS Field Offices. For comparison

purposes, we look in detail at retailer management procedures at two FCS Field Offices for each

demonstration: the baseline FCS Field Office (normally serving the demonstration area) and a

comparison FCS Field Office in the same region and of approximately the same scale as the

baseline Field Office. For this study, three site visits were conducted to each demonstration site.

At each of these site visits, information was also collected on procedures at the baseline FCS

Field Office. Data on procedures at the comparison sites were collected during a single site visit

to each comparison Field Office toward the end of the demonstration.

For the New Mexico demonstration, the procedures followed by the state can be

compared to both the New Mexico Field Office and the Arkansas Field Office. Because the

NMHSD retailer management specialist was trained in FSP procedures by the Field Office staff,

and because retailer management procedures are highly structured by the FCS-318 Handbook,

35
Chapter Four: State and Field Office Procedures for Retailer Management

there was more similarity than difference in the approach taken by the three offices in the

Southwestern region. The principal areas of difference in procedures are presented in Exhibit 4.2.

Although NMHSD used many of the forms and procedures developed by the New Mexico Field

Office, NMHSD did not maintain records about requests for applications or applications received.

The Arkansas Field Office has developed a specific form on which to record information about

a retailer requesting an application, which is then kept on file. Like the New Mexico Field

Office, the Arkansas Field Office tracks applications on a personal computer.

Store visits are a key component of NMHSD’s approach to retailer management. All

stores are visited, and the vast majority are visited before being authorized. Both FCS Field

Offices only recently resumed routine store visits, and both only visit those stores deemed at risk

for eligibility or compliance problems. For stores not visited in person, the New Mexico Field

Office conducts telephone interviews with a store owner or manager to verify application

information and to review the information on FSP rules and procedures provided in the

authorization packet. The Arkansas Field Office also uses telephone interviews, but supplements

them with mandatory retailer training sessions.

In general, NMHSD’s operating style entailed more direct contact and less paperwork

than either of the FCS Field Offices. A case in point is the approach taken to requests for

investigations (RFIs) involving stores suspected of program violations. Both FCS Field Offices

follow FCS procedure for RFIs, whereby Field Office staff prepare and submit a highly structured

written request to the regional office, which forwards the RFI to the Compliance Branch.

NMHSD requested investigations by calling the state investigative office and discussing the case

over the telephone.

For the South Carolina demonstration, we compared retailer management procedures at

SCDSS, the South Carolina Field Office, and the Mississippi Field Office. Exhibit 4.3 presents

key areas where procedures differed. In South Carolina, the state converted the system of paper

logs used by the South Carolina Field Office to an automated system based on word processing

software residing on a networked PC. The Mississippi Field Office did not have a centralized

tracking mechanism for either requests for applications or for the applications themselves before

approval.

Both FCS Field Offices used regional grocer education meetings to review applications

and train retailers in FSP rules and procedures. SCDSS relied on store visits; state retailer

36
Chapter Four: State and Field Office Procedures for Retailer Management

management specialists accepted the application, requested additional information, and provided

information to retailers in a single, in-store meeting. SCDSS was the only one of the six sites

to use reauthorization as an occasion to visit stores (only "questionable" stores were visited

during the 1995 reauthorization effort). The Arkansas Field Office regularly supplemented the

reauthorization list with additional stores to make sure up-to-date information was available on

all stores (and to bring all stores with a single owner on to the same reauthorization schedule).

Unlike NMHSD, SCDSS did not assume responsibility for retailer monitoring and

sanctioning. SCDSS related information on retailers suspected of fraud to the state’s Division

of Investigation with a telephone call, whereas the FCS Field Offices made written requests for

investigation to the Compliance Branch. Although SCDSS did not have a formal responsibility

for the compliance aspects of retailer management, the office was very attuned to retailer

integrity issues. Investigators from USDA OIG and the Compliance Branch were quite active

in South Carolina during the demonstration, in contrast to New Mexico, which saw very little

investigative activity during the demonstration. The South Carolina demonstration happened to

coincide with a major multi-agency effort to identify and prosecute stores trafficking in food

stamps in the Charleston area. Furthermore, there were simply more investigators working FSP

fraud cases in South Carolina than there were in New Mexico.

4.5 CHAPTER SUMMARY

At the outset of the demonstrations, in early 1994, both the South Carolina and New

Mexico demonstrations were quite innovative in their proposal to use store visits in the retailer

authorization process. By the end of the demonstrations, however, in early 1996, the baseline

and comparison FCS Field Offices in both regions had begun routinely visiting at least some

stores as part of the retailer authorization process. The other procedural innovations by the states

streamlined the process somewhat, but the range of innovation was limited to a large degree by

the need to conform to FSP regulations and established Field Office procedures. The states

proved that they could effectively implement FSP policies for retailer participation, but converting

to state administration had only modest impact on retailer management procedures.

As discussed in Chapter Three, SCDSS and the South Carolina Field Office were

occasionally at odds in the application of retailer eligibility criteria. In New Mexico, the

differences between the state and the field office in interpreting the regulations governing retailer

37
Chapter Four: State and Field Office Procedures for Retailer Management

Exhibit 4.2

HIGHLIGHTS OF RETAILER MANAGEMENT PROCEDURES

IN THREE SOUTHWEST REGION SITES

Questions

New Mexico Human

Services Department

(Demonstration)

FCS New Mexico

Field Office

(Baseline)

FCS Arkansas

Field Office

(Comparison)

First Time Authorizations

How are requests for

applications tracked?

No tracking Cover letter and

contact sheet kept on

file

"Kit request form" kept

on file

How are applications

tracked once received?

No tracking Computerized log Computerized log after

application is

substantially complete

Are stores visited

before or soon after

authorization?

All stores visited before

or soon after

authorization

In 1996, began visiting

stores targeted as "high

risk"

Since Fall 1995,

visiting 40% of

applicants, targeting

based on telephone

interviews

How are retailers

trained in FSP rules

and procedures?a

During store visit or

follow-up phone call

Telephone conversation Grocer education

meetings

Reauthorizations

What stores are visited

during reauthorization?

None None None

Who processes and

enters reauthorization

forms?

Retailer Management

Specialist

Clerk or FPS FPS

Retailer Compliance Management

What records of

complaints against

retailers are kept?

Note in retailer file and

entry on paper complaint

log

Note in retailer file and

entry on paper

complaint log

Note in retailer file

and entry on paper

complaint log

What research is done

on complaints before

referring retailers for

investigation?

Call or visit to store Call retailer, review

redemption data,

complete FCS-238

contact sheet

Call retailer, review

redemption data,

complete FCS-238

contact sheet

To whom are referrals

for compliance

investigation made?

NMHSD Inspector

General (designated

SLEB)

FCS Compliance

Branch; occasionally to

USDA OIG

FCS Compliance

Branch

How are referrals for

compliance

investigation made?

Telephone call Written RFI Written RFI

38
Chapter Four: State and Field Office Procedures for Retailer Management

Exhibit 4.2 (continued)

HIGHLIGHTS OF RETAILER MANAGEMENT PROCEDURES

IN THREE SOUTHWEST REGION SITES

Questions

New Mexico Human

Services Department

(Demonstration)

FCS New Mexico

Field Office

(Baseline)

FCS Arkansas

Field Office

(Comparison)

Retailer Monitoring

What special

monitoring efforts have

been undertaken?

In Fall 1995, began

making monitoring visits

to randomly- selected

stores (in response to

Southwest Regional

Office initiative)

In Fall 1995, began

making monitoring

visits to randomlyselected stores (in

response to Southwest

Regional Office

initiative)

Requests and reviews

STARS monitoring

reports on monthly

basis; added stores to

reauthorization process

Who researches

retailers identified by

MCSC as nonredeemers and how

often is this done?

Retailer management

specialist works lists

generated semi-annually

by MCSC

FPS works list

generated semiannually by MCSC

FPS works list

generated semiannually by MCSC

Who researches

retailers identified by

MCSC as high

redeemers and how

often is this done?b

Retailer management

specialist works lists

generated annually by

MCSC

FPS works list

generated annually by

MCSC

FPS works list

generated monthly by

MCSC at Field Office

request

NOTE: FPS = Food Program Specialist; MCSC = FCS Minneapolis Computer Support Center

a All sites provided retailers with a standard "authorization packet" that included a booklet of relevant program regulations.

b Following standard procedure, MCSC supplies all FCS Field Offices once a year with a list of retailers whose monthly

redemptions are greater than 90 percent of the total food sales recorded on STARS. Field Office staff research each case,

typically requesting updated sales information. Field Offices can request interim reports, as the Arkansas Field Office does.

The more frequent reports allow for a more rapid response to potential cases of fraud.

39
Chapter Four: State and Field Office Procedures for Retailer Management

Exhibit 4.3

HIGHLIGHTS OF RETAILER MANAGEMENT PROCEDURES

IN THREE SOUTHEAST REGION SITES

Questions

South Carolina

Department of Social

Services

(Demonstration)

FCS South Carolina

Field Office

(Baseline)

FCS Mississippi

Field Office

(Comparison)

First Time Authorizations

How are requests for

applications tracked?

Computerized log Paper request log Contact sheet kept on file

How are applications

tracked once received?

Computerized log Paper applications log No log prior to authorization

Are stores visited

before or soon after

authorization?

Application accepted

only during store visit

Beginning Fall 1995,

visit 20-30% of applicants before authorization

Since June 1995, visit all

stores (except supermarkets) before authorization

How are retailers

trained in FSP rules

and procedures?a

During store visit Grocer education

meetings

Grocer education meetings

Reauthorizations

What stores are visited

during reauthorization?

1994: All stores 1995:

Only marginal stores

identified during EBT

rollout

None Occasionally visit marginal stores

Who processes and

enters reauthorization

forms?

Clerks and retailer

management specialist

Clerks and, as

needed, FPSs

One FPS processes up to

the point data entry,

second FPS enters data in

STARS

Retailer Compliance Management

What records of complaints against retailers

are kept?

FCS notified verbally,

no record at SCDSS

Note in retailer file

and entry on paper

complaint log

Note in retailer file and

entry on paper complaint

log

What research is done

on complaints before

referring retailers for

investigation?

None Since Fall 1995,

review SCDSS RMS

data. More recently,

review EBT transaction detail

Call retailer, review

redemption data, complete

FCS-238 contact sheet

To whom are referrals

for compliance investigation made?

SCDSS Division of

Investigation (designated SLEB)

FCS Compliance

Branch

FCS Compliance Branch;

occasionally to USDA

OIG

40
Chapter Four: State and Field Office Procedures for Retailer Management

Exhibit 4.3 (continued)

HIGHLIGHTS OF RETAILER MANAGEMENT PROCEDURES

IN THREE SOUTHEAST REGION SITES

Questions

South Carolina

Department of Social

Services

(Demonstration)

FCS South Carolina

Field Office

(Baseline)

FCS Mississippi

Field Office

(Comparison)

How are referrals for

compliance investigation made?

Telephone call Written RFI Written RFI

Retailer Monitoring

What special monitoring efforts have been

undertaken?

Developed RMS database application as a

monitoring tool

Under SERO initiative, requested sales

documentation for

retailers with a high

rate of redemptions,

used RMS fraud profile as basis for

charge letters and

referrals for investigations

Under SERO initiative,

requested sales documentation for retailers with a

high rate of redemptions

Who researches

retailers identified by

MCSC as nonredeemers and how

often is this done?

Retailer management

specialist works lists

generated semiannually by MCSC

FPS works list

generated semiannually by MCSC

FPS works list generated

semi-annually by MCSC

Who researches

retailers identified by

MCSC as high

redeemers and how

often is this done?b

No SCDSS

involvement; Columbia

Field Office annually

works list for entire

State

FPS works list

generated annually by

MCSC

FPS works list generated

annually by MCSC

NOTE: FPS = Food Program Specialist; MCSC = FCS Minneapolis Computer Support Center

a All sites provided retailers with a standard "authorization packet" that included a booklet of relevant program regulations.

b Following standard procedure, MCSC supplies all FCS Field Offices once a year with a list of retailers whose monthly

redemptions are greater than 90 percent of the total food sales recorded on STARS. Field Office staff research each case,

typically requesting updated sales information. Field Offices can request interim reports, as the Arkansas Field Office does.

The more frequent reports allow for a more rapid response to potential cases of fraud.

41
Chapter Four: State and Field Office Procedures for Retailer Management

eligibility were less intense. Nevertheless, both states had a tendency to be more ready than the

FCS Field Offices to deny authorization or reauthorization to stores of questionable eligibility.

Within the limited time frame and scope of the demonstration, however, it is difficult to assess

what impact that difference may have made.

42
CHAPTER FIVE

RETAILER MANAGEMENT ACTIVITY,

RESOURCES, AND RESULTS

In evaluating the retailer management demonstrations, we considered three outcome

dimensions:

· the level of retailer management activity;

· the cost of retailer management and other functions performed; and

· the changes in FSP participation by retailers.

Each of these dimensions is an important aspect of the basic question of how well the states

performed their retailer management responsibilities, encompassing considerations of productivity,

efficiency, and effectiveness. Therefore, we compared the demonstrations with the four Field

Offices in the study along the dimensions of activity, cost, and retailer participation.

5.1 RETAILER MANAGEMENT ACTIVITY

The demonstrations were compared with the Field Offices on three measures of retailer

management activity: new authorizations, withdrawn firms, and disqualified firms. All three of

these activities contributed to the retailer management workload in the study sites, along with

retailer monitoring and support activities that occur more frequently but generally require less

effort for each episode of activity (e.g., answering retailer questions about FSP policy). The

chosen indicators are also the prime activities for which data could be obtained from STARS,

allowing an unobtrusive and consistent means of measuring activity in all sites.

Exhibit 5.1 summarizes the average monthly rates of retailer management activity in the

demonstrations, the baseline and comparison Field Offices, and the Southeast and Southwest

regions. All values are averages from February through December 1995, the period when both

demonstrations were operational and all Field Offices had stable service areas. The activity data

have been normalized as rates per 100 currently authorized retailers, to facilitate comparisons

43
Chapter Five: Retailer Management Activity, Resources, and Results

across sites serving different numbers of firms. As indicators of the scale of operations in each

Exhibit 5.1

RETAILER MANAGEMENT ACTIVITY RATES FOR DEMONSTRATION,

BASELINE AND COMPARISON FIELD OFFICES, AND REGIONS

(February-December 1995, Averages)

Location

Total

Authorized

Firms

Monthly Rates per 100 Authorized Firms

New

Authorizations Withdrawals

Disqualifications

New Mexico Demonstration 568 0.88 0.77 0.02

FCS New Mexico Field Officea 1,643 0.93 1.05 0.01

FCS Arkansas Field Office 2,610 0.91 1.58 0.06

Southwest Regionb 28,602 1.07 1.71 0.07

South Carolina Demonstration 664 0.91 2.42 0.11c

FCS South Carolina Field Officea 3,052 0.81 3.04 0.09

FCS Mississippi Field Office 4,161 1.14 1.48 0.12

Southeast Regionb 47,942 0.97 1.50 0.08

SOURCE: Store Tracking and Redemption Subsystem (STARS), Food Stamp Program Integrated Information System.

a Data for baseline FCS Field Offices (South Carolina and New Mexico) exclude demonstration retailers and activities.

b Regional data include retailers and activities in the demonstration sites and the areas served by the baseline and comparison

Field Offices. Therefore, the regional data represent averages against which the individual site data can be compared.

c Disqualifications for retailers in the South Carolina demonstration were performed by FCS South Carolina Field Office.

site, the total number of firms is provided.

As Exhibit 5.1 shows, the South Carolina demonstration had a slightly higher rate of

new authorizations per 100 currently authorized firms than the South Carolina Field Office (0.91

versus 0.81), whereas the New Mexico demonstration had a slightly lower authorization rate per

100 firms (0.88 versus 0.93). All four of these sites had authorization rates below their

respective regional averages, perhaps because the presence of EBT systems discouraged

applications from marginal retailers.

The use of store visits might be expected to reduce authorization rates in the

demonstration sites relative to other sites, but the data do not bear out this supposition. The lack

of a consistent pattern of demonstration-Field Office differences across the two regions suggests

44
Chapter Five: Retailer Management Activity, Resources, and Results

that these differences are more related to geography than to the use of store visits or other

procedural factors.1

The greatest difference in activity across the study sites was in the rate of withdrawals

of authorized firms. The South Carolina Field Office was the most active with over three

withdrawals per 100 firms—twice the average for the Southeast region. The South Carolina

demonstration had the second-highest monthly withdrawal rate by far, whereas the New Mexico

demonstration had the lowest withdrawal rate at only 0.77 per 100 firms. The withdrawal rates

in the Arkansas and Mississippi Field Offices were about average for their respective regions.

EBT implementation appears to have played the largest role in these cross-site

differences. The period of analysis coincided with the rollout of the EBT system throughout

South Carolina, with the exception of the Darlington County pilot site, where the EBT system

went live in November 1994. As discussed in Chapter Three, a large number of inactive and

ineligible stores were identified during EBT implementation in South Carolina, chiefly through

the problem reports submitted by the EBT system vendor. The lower rate of withdrawals in the

South Carolina demonstration (relative to the Field Office territory) is probably due to the fact

that the withdrawals associated with EBT implementation in Darlington County (one of the five

demonstration counties) had already taken place by February 1995, whereas all of the Field

Office territory was converted to EBT between March and December 1995.

Differences in the timing of EBT implementation may also explain the difference in

withdrawal rates between the demonstration and the Field Office in New Mexico. All of the

1995 EBT implementation activity in New Mexico took place outside the demonstration site, and

the Texas portion of the Field Office’s territory also underwent EBT implementation during this

period. Thus, during this time period, only the Field Office dealt with withdrawals resulting from

EBT implementation. Both New Mexico sites had substantially lower withdrawal rates than the

Arkansas Field Office. This difference may be due to a more stable retailer population in New

Mexico, but the aggressive approach to non-redeemers by the Arkansas Field Office—in part as

preparation for the coming of EBT—probably was a factor as well.

1 The evaluation did not have access to data on the rates at which applications are denied or withdrawn,

which would have provided another test of the effectiveness of state store visits relative to the screening

techniques used by the Field Offices. The evaluation relied on STARS for uniform data on retailer

management, and denied or withdrawn applications are not recorded on STARS.

45
Chapter Five: Retailer Management Activity, Resources, and Results

The rate of disqualifications varied little between the demonstration sites and the

baseline Field Offices in New Mexico and South Carolina. The slightly higher rates in the

demonstration sites most likely reflect decisions about where investigators chose to target their

efforts, rather than any demonstration effects (especially in South Carolina, where the state took

no responsibility for disqualifications). A relatively low level of investigative resources in New

Mexico, plus the fact that a major sting operation by the NMSHD Inspector General had recently

concluded, led to the relatively low level of disqualifications throughout the state in 1995,

especially as compared to disqualification rates throughout the region.

5.2 RETAILER MANAGEMENT COSTS

The considerable differences in approach between the demonstrations in New Mexico

and South Carolina are highlighted by the comparison of total reported demonstration costs in

Exhibit 5.2, which is based on the claims for grant funds submitted to FCS. From the beginning

of the two demonstrations through December 1995 (when the South Carolina demonstration

ended), South Carolina spent $248,272—nearly five times as much as New Mexico, even though

the South Carolina demonstration served only about 17 percent more retailers. The principal

source of the cost difference between the demonstrations was the development of South

Carolina’s RMS computer system, which required much of the $156,286 in expenditures for

equipment, software and data processing service consultants, as well as a substantial portion of

the project labor cost.2 Another difference between the demonstrations was in travel costs,

which were much lower in New Mexico because of cost-sharing with the EBT project, the

concentration of stores within an easy drive of the state office, and strenuous efforts to minimize

hotel costs on out-of-town trips.

For cost comparisons between the demonstrations and the Field Offices, the best

available measure is the labor resource cost of retailer management, including salaries and

fringe benefits. For all sites, this measure is based on interview data: the demonstration cost

reports did not include all staff performing retailer management duties, and the Field Offices did

not have any procedures to track staff time (or other costs) for retailer management separately

2 The equipment cost for the RMS could not be separated from the rest of the demonstration equipment

cost in South Carolina, because some of the equipment was used for both routine retailer management and

RMS operations.

46
Chapter Five: Retailer Management Activity, Resources, and Results

from other functions. Therefore, the interviews obtained quarterly estimates of time, by function,

Exhibit 5.2

TOTAL REPORTED DEMONSTRATION COSTS BY LINE ITEM

(October 1993-December 1995)

South Carolina New Mexico

Salaries and fringe benefits $76,040 $40,007

Data processing service consultants 22,965 0

Telephone 498 a

Postage a 550

Supplies 2,620 490

Travel 10,984 1,322

Overheadb 1,844 7,650

Total Operating Cost 114,951 50,019

Equipment and software 133,321 3,846

Grand Totalc,d $248,272 $53,865

Number of authorized firmse 664 568

SOURCES: Demonstration invoices and supporting documents

a Included in overhead.

b South Carolina charged overhead only for July-December 1995, and then only for temporary staff, which accounted for 11

percent of total salaries and benefits. New Mexico charged overhead only for October-December 1995, although this figure

can be considered to represent four months’ overhead for the 0.72 FTE of staff on the project.

c South Carolina invoices total $200,163. The difference from these figures arises from a recalculation of equipment cost

to reflect equipment in use for demonstration activities. This recalculation was performed by SCDSS for evaluation

purposes. Final costs may differ once the grant close-out process is complete.

d New Mexico costs for January-March 1996, which totalled $13,963, are excluded for this comparison.

e Monthly average, February-December 1995.

in 1995 in the demonstration sites and the New Mexico and South Carolina Field Offices; for the

Arkansas and Mississippi Field Offices, we obtained a single set of estimates for October through

December 1995.3 Because of considerable differences in accounting for nonlabor direct costs

and overhead across the sites, we limited the comparisons to labor costs and did not attempt to

construct the full resource cost of retailer management.

3 We did not attempt to obtain retrospective time estimates for the year in the comparison offices, because

we were concerned that recall over such a long period would not be sufficiently reliable.

47
Chapter Five: Retailer Management Activity, Resources, and Results

Exhibit 5.3 shows the 1995 labor resource cost by activity for the New Mexico and

South Carolina sites. Each site’s total cost is shown and broken down into four activities:

retailer management (encompassing all routine, ongoing activities performed by the typical Field

Office), EBT implementation (including the resolution of problem reports), other (non-retailerrelated) Field Office activities, and (for the South Carolina sites) retailer database development.

These costs are not standardized by any measure of size.

The South Carolina Field Office, the largest of these four sites, had the highest labor

cost, both overall and for retailer management, followed by the New Mexico Field Office. The

smallest site, the New Mexico demonstration, had the lowest labor costs in all categories.

The high cost of labor for "other" (non-retailer management) activities in the New

Mexico Field Office is quite striking, in light of the usual expectation that retailer management

is the Field Offices’ primary mission. In 1995, New Mexico Field Office staff spent an estimated

61 percent of their time on non-retailer management activities, whereas the South Carolina Field

Office staff sent only 7 percent of their time on this activity category. Both Field Offices had

the same responsibility for responding to civil rights complaints regarding any FCS program. The

New Mexico Field Office had responsibility for overseeing WIC program administration by the

seven participating Indian Tribal Organizations in New Mexico, plus some child nutrition

program oversight responsibilities. The South Carolina Field Office, on the other hand, was

temporarily relieved (by the Southeast Regional Office) of responsibility for the Summer Feeding

Program and other nutrition programs in which sponsors operate under direct FCS supervision.

The combination of EBT implementation, the retailer management demonstration, and a high

level of compliance investigations forced the South Carolina Field Office to focus almost

exclusively on retailer-related activities.4

To control for the differences in the number of firms served across sites, Exhibit 5.4

presents the retailer management labor resource costs and hours per firm, along with the number

of firms in each site. These figures tell a much different story than the totals: when the retailer

management costs are normalized, both demonstrations are found to be more expensive (on a perretailer basis) than the baseline Field Offices. The cost difference is very large (93 percent) in

4 The extreme difference in the reported level of non-retailer management labor cost between the New

Mexico and South Carolina Field Offices may also be the result of differences between respondents. As

indicated in the text, the allocation of time among activities is based on retroactive estimates and therefore

subject to recall error and other potential sources of bias.

48
Chapter Five: Retailer Management Activity, Resources, and Results

South Carolina, but much smaller (12 percent) in New Mexico.

Exhibit 5.3

TOTAL LABOR RESOURCE COST BY ACTIVITY

(January-December 1995)

Site

Retailer

Management

Activitiesa

EBT

Implementationb

Other Field

Office

Activitiesc

Retailer

Database

Development Total

New Mexico Human

Services Department

(demonstration)

$28,157 $5,297 n/a n/a $33,454d

FCS New Mexico Field

Office

72,486 n/ae $115,365 n/a 187,851f

South Carolina

Department of Social

Services (demonstration)

56,046 8,783 n/a $37,781 102,611g

FCS South Carolina Field

Office

133,660 81,996 16,673 726 233,055f

SOURCE: Demonstration cost reports, FCS personnel data, and interviews with demonstration and FCS staff.

a Retailer management activities include authorization, reauthorization, withdrawing stores from participation,

disqualifications, monitoring redemptions, recording and investigating complaints, training and providing information to

retailers on FSP rules and procedures, and other ongoing interactions related to retailers’ FSP participation.

b EBT implementation includes processing EBT merchant agreements and problem reports, planning and conducting store

visits related to EBT implementation, and resolving merchant questions or problems regarding EBT system involvement.

c Other Field Office Activities include all duties not related to retailer management or EBT implementation. Management

time is allocated across all field office activities.

d New Mexico total includes all retailer management specialist time, both paid and unpaid, and unbilled time for oversight

by the EBT Project Manager. All of the retailer management specialist’s EBT implementation time in 1995 involved stores

outside the demonstration area.

e FCS New Mexico Field Office role in EBT implementation was minimal and could not be separated from retailer

management.

f Field office totals represent the entire staffing of these offices.

g South Carolina demonstration totals exclude EBT implementation time outside the demonstration area, but include staff time

that was not charged against the demonstration grant.

In comparing the state and Field Office costs in South Carolina, looking at the ongoing

retailer management costs in isolation overstates the true difference. The South Carolina Field

Office spent $26.87 per firm on EBT implementation in 1995, nearly all on processing and

resolving the EBT vendor’s reports of closed, ineligible and unlocatable stores. Much, if not all,

of this cost would have been spent (perhaps over a longer period) even if the EBT system had

not been implemented, during the course of the reauthorization process and normal retailer

49
Chapter Five: Retailer Management Activity, Resources, and Results

monitoring. In contrast, the state spent only $13.23 per firm on retailer-related EBT implementation activity within the demonstration area, and much of this activity involved preparing for and

conducting the store visits to monitor the first days of live EBT operation.5 Nevertheless, the

state’s approach to retailer management, with its emphasis on store visits, was more expensive

than that of the Field Office, especially when the higher level of activity in the Field Office is

factored in.

In New Mexico, too, the differences in activity levels must be considered when

comparing the state and Field Office retailer management costs. If the state had authorized stores

at the Field Office’s higher rate, the added effort for in-person visits would have driven up the

state’s cost, though not by a large margin.

The retailer management cost and hours per firm for all six study sites, including the

Arkansas and Mississippi comparison offices, are presented in Exhibit 5.5. The source data are

for October through December 1995, but they are annualized for comparison to Exhibit 5.4.6

As discussed previously, the cost data collection in the comparison offices was limited to the

three-month period leading up to the interviews.

As in the costs for the full year, the data in Exhibit 5.5 indicate that the South Carolina

DSS had the highest retailer management cost per firm, whereas the South Carolina Field Office

had the lowest. The South Carolina Field Office cost would be the highest, however, if retailer

management and EBT implementation costs were combined, because the annualized EBT

implementation cost for this period was $40.44 per firm. The Mississippi Field Office had the

highest pure retailer management cost of any of the four Field Offices; this office also had the

highest rate of store visits for new authorizations among the Field Offices. The retailer

management costs for the New Mexico and Arkansas Field Offices are very similar to those of

the South Carolina Field Office; these three offices shared the same basic approach of visiting

selected "high-risk" applicants.

All four of the sites included in both Exhibit 5.4 and Exhibit 5.5 show higher retailer

management costs for the last quarter of 1995 than for the year as a whole. In the two state

5 The EBT implementation costs for the South Carolina DSS in Exhibit 5.2 do not include retailer-related

EBT activity outside the demonstration or non-retailer-related implementation activity.

6 This approach provides a better basis for comparing costs across all six study sites, but it does mean that

the annualized demonstration of field office cost numbers in Exhibit 5.5 do not match the annual cost numbers

in Exhibit 5.4.

50
Chapter Five: Retailer Management Activity, Resources, and Results

Exhibit 5.4

LABOR DEVOTED TO RETAILER MANAGEMENT, PER FIRM

(January-December 1995 annual total)

Site Labor Resource Cost Labor in Hours Number of Firmsa

New Mexico Human Services

Department (demonstration) $49.57 2.23 568

FCS New Mexico Field Office 44.12 1.99 1,643

South Carolina Department of

Social Services (demonstration) 84.41 4.42 664

FCS South Carolina Field

Office 43.79 2.06 3,052

SOURCE: Demonstration cost reports, FCS personnel data, and interviews with demonstration and FCS staff.

a Number of firms is monthly average, February-December 1995. See Exhibit 5.3 for additional notes.

Exhibit 5.5

LABOR DEVOTED TO RETAILER MANAGEMENT, PER FIRM

(October-December 1995 data, annualized)

Site Labor Resource Cost Labor in Hours Number of Firmsa

New Mexico Human Services

Department (demonstration) $62.97 2.78 568

FCS New Mexico Field Office 50.75 2.33 1,630

FCS Arkansas Field Office 51.22 2.87 2,610

South Carolina Department of

Social Services (demonstration) 92.48 5.48 620

FCS South Carolina Field

Office 50.34 2.40 2,751

FCS Mississippi Field Office 64.57 3.15 4,161

SOURCE: Demonstration cost reports, FCS personnel data, and interviews with demonstration and FCS staff.

a Number of firms is monthly average, October-December 1995. See Exhibit 5.3 for additional notes.

51
Chapter Five: Retailer Management Activity, Resources, and Results

demonstration offices, the higher cost represents a shift of resources formerly devoted to EBT

implementation and (especially in South Carolina) preparations for the end of the demonstration.

For the New Mexico and South Carolina Field Offices, the increase reflects a renewed emphasis

on retailer integrity, especially on store visits for new authorizations. The comparison Field

Offices, too, reported that their level of retailer management effort in the October-December

period was higher than in previous quarters, but this difference was not quantified.

5.3 CHANGES IN RETAILER PARTICIPATION

To seek possible evidence of demonstration impacts on retailer integrity, we examined

two measures of retailer activity: the number of authorized firms (by store type and overall)

and the percent of benefits redeemed by supermarkets. A decrease in the number of the most

fraud-prone types of stores (i.e., those other than supermarkets and chain convenience stores)

could be an indication that better retailer management is forcing out violators, both by removing

authorized stores and by deterring potential violators from completing the application process.

Similarly, an increase in the percent of benefits redeemed by supermarkets, where program

violations are considered to be least frequent, could be indicative of a reduction in food stamp

trafficking. These are, at best, suggestive indicators of the risk of retailer fraud, but they are the

most comprehensively available data.

As can be seen in Exhibit 5.6, both the demonstration and the Field Office in South

Carolina experienced large reductions (16 to 21 percent) in the total number of authorized firms

between February and December, 1995. The reduction was greatest among grocery stores and

"nontraditional" stores (route vendors, treatment facilities, etc.), but all store types except

supermarkets experienced reductions of 10 percent or more. The overall reduction in firms in

both South Carolina sites, and the difference between them, echo the earlier findings of a higher

rate of withdrawals in the Field Office’s territory, perhaps due to the EBT effect having already

occurred in one of the five demonstration counties. In New Mexico, the low rates of change in

the number of authorized firms matches the earlier finding of low withdrawal rates; the exception

to this pattern is the sizable reduction in the number of nontraditional stores, even though these

stores were not specifically targeted for review by the state or the Field Office.

With the exception of the New Mexico demonstration site, all of the study sites and their

regions saw increases in the percent of food stamp benefits redeemed in supermarkets during

52
Chapter Five: Retailer Management Activity, Resources, and Results

1995 (see Exhibit 5.7). Once again, the South Carolina Field Office led the group in showing

Exhibit 5.6

CHANGE IN NUMBER OF AUTHORIZED FIRMS

BY STORE TYPE AND OVERALL

February-December 1995

Convenience

Stores

Grocery

Stores

NonTraditional

Stores

Other

Stores Supermarkets

Total

Firms

New Mexico

Demonstration

-1.97% 5.13% -12.12% 4.46% 3.70% 0.34%

FCS New Mexico

Field Officea

2.16 0.00 -13.53 -1.99 -3.00 -1.41

Arkansas Field

Officea

-3.64 -5.06 -9.09 -8.32 0.80 -4.66

Southwest Regionb -4.45 -7.97 -18.67 -6.32 -1.54 -6.03

South Carolina

Demonstration

-10.25 -28.68 -37.88 -14.04 -0.85 -15.53

FCS South Carolina

Field Officea

-23.59 -31.63 -32.37 -14.50 -0.41 -20.59

FCS Mississippi

Field Officea

-7.53 -7.54 -15.90 -2.12 -2.27 -4.98

Southeast Regionb -6.71 -9.26 -13.44 -4.13 -0.15 -5.93

SOURCE: Store Tracking and Redemption Subsystem (STARS), Food Stamp Program Integrated Information System.

a Data for baseline FCS field offices exclude demonstration retailers and activities.

b Regional data include demonstration retailers and activities.

the largest change (6 percentage points), and both baseline Field Offices showed larger gains in

their territories than occurred in the demonstration areas. The increase of 3.4 percentage points

in the South Carolina demonstration was, however, greater than in any other site except the South

Carolina Field Office. Clearly, the EBT implementation process in South Carolina must have

played a part in this change, either by culling out ineligible non-supermarkets (as evidenced in

the drop in the number of authorized firms) or by encouraging recipients to redeem more of their

benefits at supermarkets. The difference in effects between the South Carolina Field Office and

the demonstration might be due to procedural improvements in the state’s store visits during the

latter phases of EBT implementation, which were conducted in the Field Office’s territory. An

53
Chapter Five: Retailer Management Activity, Resources, and Results

EBT effect could be the explanation for the New Mexico Field Office results as well. As

Exhibit 5.7

CHANGE IN SUPERMARKET PERCENT OF TOTAL FOOD STAMP

BENEFIT REDEMPTIONS

February-December 1995

February

1995

June

1995

December

1995

FebruaryDecember

Difference

(Percentage

Points)

New Mexico Demonstration 84.96% 83.42% 84.32% -0.64%

FCS New Mexico Field Officea 83.88 82.36 86.17 2.29

FCS Arkansas Field Officea 79.11 78.86 80.80 1.69

Southwest Regionb 79.22 78.37 81.79 2.57

South Carolina Demonstration 81.77 84.76 85.17 3.40

FCS South Carolina Field Officea 81.40 82.30 87.56 6.16

FCS Mississippi Field Officea 75.42 76.89 78.41 2.99

Southeast Regionb 78.27 78.02 79.47 1.20

SOURCE: Store Tracking and Redemption Subsystem (STARS), Food Stamp Program Integrated Information System.

a Data for baseline FCS field offices exclude demonstration retailers and activities.

b Regional data include demonstration retailers and activities.

discussed earlier, the New Mexico demonstration site had already experienced the effects of EBT

before February 1995, so none would be expected for this period.

Taken together, the data on retailer management activity and retailer participation do not

provide any significant indication of impacts from the states’ innovations in retailer management.

The data do, however, substantiate the expectation that EBT implementation can lead to the

removal of ineligible and undesirable firms, and to a shift in redemptions towards the firms with

the lowest prices and the least likelihood of fraud. The innovations of the South Carolina

demonstration—especially the store visits and the use of inventory checklists—may have

enhanced the EBT effect. Finally, the patterns of retailer activity explain a substantial portion

of the variation in retailer management costs, but the states’ use of store visits and other

differences in approach appear to have contributed to the cost differences.

54
CHAPTER SIX

LESSONS OF THE RETAILER MANAGEMENT DEMONSTRATIONS

The demonstrations in New Mexico and South Carolina provided a revealing test of

integrating retailer management for the FSP with EBT retailer liaison functions under state

control. In this chapter, we summarize the lessons of the retailer management demonstrations

and their implications for future state involvement in retailer management.

New Mexico and South Carolina successfully performed the Field Offices’ principal retailer

management functions, with substantial training and technical assistance from the Field

Offices.

The demonstrations proved that states can learn and carry out the FSP retailer

management functions of authorization, reauthorization, monitoring, training and support,

withdrawal, and disqualification. Successful performance of these functions required that the

states learn a complex web of regulations and procedures, and acquire competence in the use of

STARS. The on-the-job training and ongoing technical assistance provided by both Field Offices

were critical to the states’ success. Field Office support was particularly important in New

Mexico, because of the limited support available to the retailer management specialist through

the NMHSD EBT project office.

The states’ success in performing FSP retailer management functions was clearest in the

more routine areas of first-time authorization, reauthorization, and voluntary withdrawals. Both

states performed these functions in a timely, procedurally-correct manner. Other than the use of

store visits, the states made only modest innovations in these functions. FSP regulations and the

temporary nature of the demonstration constrained further innovation.

Only one state, New Mexico, demonstrated the full array of Field Office functions,

including review of STARS high-redeemer reports and disqualifications; the latter was so

infrequent that Field Office assistance was required each time a store was disqualified. It should

be noted, however, that the Field Offices in the study generally delegated this sensitive task to

a retailer compliance specialist.

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Chapter Six: Lessons of the Retailer Management Demonstrations

The consolidation of EBT and FSP retailer management into a single point of contact

clearly improved coordination and communication with the EBT vendor, but the impact on

retailers’ ease of access was mixed.

During and after EBT implementation, the state retailer management staff in both sites

served as the single point of contact for all retailer management issues involving the EBT vendor.

All parties—the states, the Field Offices, and the vendors—felt that this arrangement improved

communications. The vendors clearly preferred having a single point of contact to the

conventional division of labor between states and Field Offices, although one vendor felt that

having retailer management functions based in a single location was more important than having

all functions within one organization.

Bringing the FSP retailer management processes within the EBT project team did

simplify the retailer enrollment and withdrawal processes, but the states never fully took the place

of the Field Offices from the retailers’ perspective. The enrollment and withdrawal processes

in New Mexico were particularly streamlined, because the NMHSD retailer management

specialist took responsibility for both the FSP application and the EBT merchant agreement. This

"one-stop shopping" approach worked well, except when the lone retailer management specialist

was in the field during her EBT rollout trips. These functions remained separate in South

Carolina, but the constant communications between SCDSS and vendor EBT project staff helped

ensure smooth service to retailers. In both sites, according to both vendors and EBT staff, many

retailers lacked a clear awareness of the state’s expanded role during the demonstration and

continued to rely on the Field Offices for FSP information and support.

New Mexico and South Carolina used the opportunity of store visits during EBT

implementation to enhance the presence of the FSP among retailers. The states identified

ineligible or problematic stores during these visits, but most of the withdrawals during EBT

rollout were the result of EBT vendor activity.

The demonstrations enabled the states to add the FSP mission of retailer service and

integrity to the basic EBT retailer recruitment, training, and installation process. For some

retailers, the presence of a FSP representative was a valuable opportunity to get needed

information or even encouragement to participate in the FSP. At the other end of the scale of

retailer integrity, both states identified suspicious stores during their implementation visits and

took appropriate followup steps.

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Chapter Six: Lessons of the Retailer Management Demonstrations

The most visible results, in terms of withdrawn stores during EBT implementation, came

from the vendor’s reports on problem stores in South Carolina. A major consequence of the

large number of retailer withdrawals (for all reasons) was that the EBT vendor installed 800

fewer POS terminals than specified in its contract with SCDSS. In the final months of the South

Carolina demonstration, the use of food inventory checklists enhanced this process, though the

lack of capacity at the Field Office limited the effectiveness of this tool. Although the state’s

involvement in the demonstration led to the adoption of the checklist, the feasibility of using

checklists did not depend on the state’s assumption of responsibility for FSP authorization.

The demonstrations highlighted the pressures of EBT implementation on states, FCS and

EBT vendors, and pointed out the competing priorities when FSP and EBT retailer

management are combined.

In both sites, the state retailer management staff had to cope with the competing

demands of meeting EBT implementation schedules and keeping up with their retailer

management responsibilities. In New Mexico, these competing demands resulted in lapses of

FSP retailer service when the retailer management specialist was conducting her preimplementation store visits, leaving the Field Office and even the vendor to fill the gap. In South

Carolina, both the state and the Field Office focused a great deal of energy on tracking and

resolving the vendor’s retailer problem reports, a task made more urgent by the rapid pace of

EBT implementation. These experiences point out the need to anticipate and manage competing

demands if FSP and EBT retailer management are combined in the future.

A more subtle tension between FSP and EBT objectives arose when questions of retailer

eligibility arose, both during EBT implementation and in the ongoing authorization process. The

states brought to these decisions an acute awareness of the financial costs of including marginal

retailers in the EBT system and a very proprietary attitude toward the integrity of "their" EBT

systems. These factors probably contributed to the states’ more aggressive stance toward the

denial of marginal retailer applications, and to the disagreements that arose between the states

and the Field Offices over the eligibility of certain stores.

The impact of EBT implementation on state retailer management was heightened by the

timing of the demonstration. In South Carolina, there was no post-implementation period in

which the state could focus on retailer authorization and monitoring activities. Even in New

Mexico, where the demonstration continued for six months after all retailers had been converted

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Chapter Six: Lessons of the Retailer Management Demonstrations

to EBT, the opportunity for the state to develop a stable process of ongoing retailer management

was diminished by uncertainties about whether and for how long the state would continue that

process. A longer post-implementation phase would have provided a much clearer picture of how

capable the states might be at sustaining an effective and innovative process of protecting the

integrity of the FSP redemption process.

The demonstrations highlighted the feasibility and challenges of state involvement in preauthorization store visits.

When the demonstrations were conceived, the states’ plans to conduct pre-authorization

visits were seen as a potential means to fill an important void in retailer management activities.

New Mexico and South Carolina proved the feasibility of a particular approach to this role:

training and empowering state staff to act in place of FCS Field Office staff. The limitation of

this approach (heightened by the constraints of a demonstration) was that only one or two staff

in each site were able to conduct the visits, so they faced similar travel costs and logistics to

those of the Field Offices. The states were able to conduct pre-authorization visits when the

Field Offices could not, but only because FCS had provided demonstration funds for this purpose.

When FCS made store visits a priority in the latter part of the demonstration, the Field Offices

substantially increased their level of store visit activity.

The South Carolina project also demonstrated the use of a store survey checklist by the

EBT vendor during pre-installation visits. Most of this activity was implementation-related. As

noted in Chapter Three, this process posed several challenges, especially the need for timely,

decisive followup by the Field Office. There was little evidence as to whether the outcome of

the authorization process was affected by the vendor completing pre-installation checklists for

new stores, in part because of the limited time period in which this approach was tested.

Nevertheless, the South Carolina vendor clearly demonstrated the feasibility of this option. Both

EBT vendors identified contractual issues, including funding and liability, that would need to be

addressed if the completion of a checklist were added to their formal responsibilities.

South Carolina accomplished its goal of developing a computer system for retailer

management, but the process highlighted the inherent challenges and limitations of state

efforts in this area.

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Chapter Six: Lessons of the Retailer Management Demonstrations

South Carolina produced a computer system (the RMS) to maintain and manipulate data

on retailer authorization and redemptions, including detailed EBT transaction data. The state

faced resource management and technical issues in developing the RMS. As a result, the RMS

was delivered well behind schedule, underdocumented, and subject to breakdowns, but it was

usable enough to generate solid leads for investigative and administrative action.

The larger challenge, however, was that the state—which had chosen not to take on

retailer compliance responsibilities—was developing a system that needed to be integrated with

FCS computer systems and with the needs and methods of FCS and other federal fraud

investigators. The lack of a truly integrated project team not only contributed to the delays and

other difficulties encountered, but also diminished the understanding and sense of ownership

among those responsible for retailer integrity that would have helped realize the potential of the

RMS. Even with greater teamwork between SCDSS and FCS, the potential of the RMS probably

would still have been constrained by the limited FCS staff resources available to develop facility

with the system and explore its capabilities. The appeal of the RMS to federal investigators was

eclipsed by FCS’ development of a similar EBT transaction analysis system at the national level.

EBT implementation had very substantial effects on retailer management activity and

retailer participation in South Carolina, but the effects in New Mexico were less clear and

modest at best.

Among the six sites in the study, the New Mexico demonstration had the lowest rate of

store withdrawals from February through December 1995, the South Carolina demonstration had

the second-highest, and the South Carolina Field Office had the highest. The presence and

timing of EBT implementation appeared to be the prime cause of this variation, especially

throughout South Carolina where FSP participation by non-supermarkets—the most fraud-prone

types of stores—declined dramatically. The fact that the New Mexico Field Office had a

somewhat higher withdrawal rate than the New Mexico demonstration site may have been due

to differences in the timing of EBT implementation: the EBT system had been operating in the

largest county of the demonstration site for years, whereas the Field Office experienced EBT

rollouts throughout its portion of the state and in its portion of Texas as well. The after-effects

of EBT implementation may have contributed to the marked decline in FSP participation by New

Mexico’s nontraditional retailers (route vendors, treatment centers, etc.).

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Chapter Six: Lessons of the Retailer Management Demonstrations

The demonstrations did not have any discernible effects on retailer authorizations,

withdrawals, or disqualifications, but the circumstances of the demonstrations preclude a

definitive conclusion on this question.

The use of store visits during EBT implementation and ongoing retailer authorization

in the demonstrations might have been expected to reduce the rate of new authorizations and

increase the rates of store withdrawals and disqualifications, but the data do not bear out this

supposition. In South Carolina, however, the substantial effects of EBT implementation could

have overshadowed any demonstration effect. Moreover, in both sites, the store visits during

implementation were statewide, so the lack of a difference between the demonstration sites and

the Field Offices does not mean that these efforts did not enhance the EBT effect.

State labor costs for retailer management were remarkably similar to those of the FCS

Field Offices, once differences in workload and the role of EBT implementation activity

were taken into account.

The states had higher labor costs per retailer for ongoing retailer management than the

Field Offices, and South Carolina had substantially higher per-retailer costs for this function than

all other sites. When retailer-related EBT implementation costs were included, however, the

South Carolina Field Office had the second-highest labor cost per retailer for the 1995 study

period and the highest cost for the last quarter of 1995. Much of the cost difference between the

two South Carolina offices and the rest of the sites was probably due to the withdrawals and

update activity arising from EBT implementation, compounded by the compression of nearly two

years’ reauthorization activity into the operational year of the demonstration. The higher labor

costs in the New Mexico demonstration, when compared with those of the New Mexico and

Arkansas Field Offices, provide some indication that the emphasis on store visits modestly

increased retailer management costs.

The states took definite steps to limit the number of marginal stores authorized to

participate in the FSP. Both states, like the Field Offices, were hampered by the difficulty

of justifying the withdrawal of marginal stores under current regulations.

Both states took specific measures designed to limit the number of marginal stores in

their EBT systems, going beyond the standard Field Office practices in place at the outset of the

demonstration. SCDSS was particularly aggressive in getting information about stores and using

it to encourage marginal retailers to withdraw applications or withdraw from the program. (Like

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Chapter Six: Lessons of the Retailer Management Demonstrations

the Field Offices, the states often encouraged a voluntary withdrawal as a quicker alternative to

a denial or disqualification.) Unlike the SCFO, SCDSS visited all stores seeking initial

authorization. Stores already authorized to participate were visited twice during the EBT rollout

process. Stores subject to re-authorization before EBT roll-out (and a small number of marginal

stores already on the EBT system) were also visited as part of the re-authorization process.

Retailers could only submit an application during a visit to the store by SCDSS staff, sending

a clear message that an in-store review was part of the application process.

As the roll-out process progressed, SCDSS visited stores outside the demonstration area,

where the SCFO had retained all retailer management responsibilities. The differences in attitude

and interpretation of the eligibility criteria between the Field Office and the state were evident

in 31 cases of marginal stores outside the demonstration area that SCDSS recommended for

withdrawal based on information from the roll-out process. In 19 of these cases, the Field Office

decided not to withdraw the stores; the other 12 were withdrawn. It is difficult to know in these

cases whether SCFO was more cautious because of its experience with administrative review, its

inability to visit the stores in person, or a lack of confidence in vendor-provided information, or

other reasons. Perhaps with more experience the state would have learned that it too had to be

more cautious in dealing with marginal stores. Certainly SCDSS showed a willingness to

interpret retailer eligibility criteria in a way that excluded more marginal stores than the SCFO

would have excluded.

In New Mexico, the state’s potential to reduce the number of marginal stores in the FSP

was limited by the reliance of the NMHSD retailer management specialist on advice and

assistance from the NMFO in evaluating marginal stores. NMHSD had more information than

NMFO about stores because of store visits during the roll-out process and because of its policy

of visiting all stores making applications for initial authorization to participate in the program.

Because of the limitations of the evaluation design, it is unclear if that additional information

resulted in more withdrawals, withdrawn applications, or denials of marginal stores. Although

the roll-out of EBT likely drew attention to some marginal stores, the focus of NMHSD’s store

visits during this process was on ensuring that retailers were trained and ready to perform EBT

transactions.

Neither demonstration provided quantitative evidence of an impact on the number of

marginal stores in the FSP. Nevertheless, both states gave all new applicants and a large

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Chapter Six: Lessons of the Retailer Management Demonstrations

proportion of currently authorized retailers (including current retailers outside the demonstration

counties) the kind of scrutiny that the FCS Field Offices provided much less often: personal

visits by state or vendor staff trained to observe and document inadequate inventories of staple

foods and other indicators of marginal stores. This accomplishment alone represented a

significant advance in promoting the integrity of the FSP in these states.

The states retained some retailer management functions at the end of the demonstration and

were willing to keep more. Future state participation in retailer management is clearly an

option, although funding issues have to be resolved.

Both states continued to be active in retailer management after the end of EBT

implementation and the demonstration. New Mexico continued to take responsibility for

merchant agreements. South Carolina retained the responsibility to provide updates on retailer

authorizations, changes, and withdrawals to the EBT contractor, using the automated notification

process from STARS established for the demonstration.

Both states were sufficiently interested in ongoing involvement in retailer management

to submit proposals for extensions of the demonstration. New Mexico proposed to continue the

demonstration in the same counties (but at a higher level of effort) for one year. South Carolina

made a more ambitious proposal of a two-year extension accompanied by an expansion of the

territory and further automation. Both states settled for no-cost extensions when FCS decided

not to fund either proposal; neither state was willing to continue the full set of retailer

management activities under conventional 50 percent FCS funding. Nevertheless, both states

remained positive about the feasibility and value of participating in retailer management, and they

left open the possibility of a future compromise regarding the extent of federal funding.

There were clear synergies from the enhanced state involvement in retailer management

during EBT implementation, with benefits for both the states and FCS. The experience

with state retailer management after EBT implementation was more limited and less

conclusive, but potential benefits for retailer access and integrity emerged.

During EBT implementation, the states’ enhanced role in retailer management had three

main benefits:

· better state access to retailer information for planning and problem-solving, with

less demands on the FCS Field Offices to provide this information;

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Chapter Six: Lessons of the Retailer Management Demonstrations

· easier and tighter coordination between EBT and FSP retailer management, with all

retailer needs addressed by the EBT project team; and

· value added to store visits during EBT rollout, including FSP technical assistance

to retailers and detection of ineligible or potentially noncompliant stores.

The states’ enhanced role in implementation did give rise to some disputes over the eligibility

of marginal stores, but clearer rules and more training would have largely eliminated this

problem. Other than the cost of equipping and training the state retailer management staff,

realizing the benefits of enhanced state participation in retailer management during implementation required little if any additional FSP resources.

The experience with state retailer management in the aftermath of EBT implementation

was mainly gained from the last months of the New Mexico demonstration. The potential

benefits of ongoing state involvement in FSP retailer management that emerged in New Mexico

were:

· streamlined enrollment of new retailers into the FSP and the EBT system;

· a single point of contact for retailers with FSP or EBT questions and problems;

· more timely information for the state and its EBT vendor on retailer withdrawals

and disqualifications, albeit with FSP rules regarding appeal procedures still

constraining the ability to act sooner on this information; and

· better flow of information to and from the SLEB, enhancing the effectiveness of

state investigations in a state with very limited federal investigative resources.

In South Carolina, the enhanced state involvement with retailer management during ongoing EBT

operations also streamlined retailer enrollment, but the most promising result was the addition

of the inventory checklist to the EBT vendor’s site surveys. The relatively high cost of ongoing

retailer management in South Carolina suggests a possible downside to state involvement, but

further experience clearly would be necessary before any definitive conclusions could be reached

on the cost-effectiveness of state retailer management.

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APPENDIX A

RETAILER MANAGEMENT FUNCTIONS IDENTIFIED

IN THE REQUEST FOR APPLICATIONS

The Request for Applications (RFA) for the demonstration identified the following

retailer management functions as ones that could be included in the demonstration.

· Evaluation of current EBT capabilities of authorized stores.

· Processing of all retailer requests for authorization and reauthorization, including:

— Providing application packets upon request;

— Reviewing application forms for completion and following up on incomplete

or inconsistent information;

— Verification of questionable information;

— If deemed necessary, conducting pre-authorization/reauthorization onsite visits

for the purpose of resolving questionable applications;

— Review of past FSP/WIC history;

— Determining eligibility based on Food Stamp Act and regulations;

— Notifying firms of decision to deny or approve participation;

— Providing training to approved new applicants and providing FCS and any

state-designed informational and training materials;

— Inputting all required data into the national FCS retailer database; and

— Withdrawing firms which no longer meet eligibility criteria, advising the firm

of such action and the right to administrative review, and deleting the firm

from the national FCS retailer database (Note: administrative review of

withdrawn actions will be retained by FCS).

· Ongoing retailer monitoring, training and technical assistance, including:

— Reviewing computer generated monitoring reports, including EBT system

transaction data, to identify potential violators;

— Conducting on-site visits for monitoring and educational purposes as deemed

appropriate and evaluating the effectiveness of retailer training;

A-1
Appendix A: Retailer Management Functions Identified in the Request for Applications

— Resolving all complaints about retailers from participants and the general

public, as well as the USDA Hotline Complaint System;

— Referring suspicious firms to FCS Compliance Branch for investigation;

— Responding to inquiries from retailers and the general public;

— Responding to retailer requests for technical assistance, including policy

questions and requests for written materials and training aids;

— Updating the retailer database with changes reported by authorized firms;

— Arranging for emergency supplies of redemption certificates retailers use to

deposit coupons at financial institutions;

— FSP/WIC coordination and information sharing regarding retailer status and

activity; and

— Conducting initial and ongoing state staff training.

· Sanction activity, including:

— Coordinating with FCS Compliance Branch staff on compliance investigations;

— Reviewing FCS and USDA Inspector General investigative reports on violating

retailers;

— Determining appropriate sanction (disqualification, civil money penalty, fine)

and advising firm of determination and right to administrative review. (Note:

FCS will retain the administrative review function and the collection of civil

money penalties and fines);

— Determining the amount of any fiscal claim against the firm (Note: FCS will

retain the claims collection function); and

— Inputting all required data into the national FCS retailer database on

investigative findings and resultant sanction activity on each individual case.

FCS further indicated that it would retain responsibility "for all retailer investigations including

high risk identification and compliance buys." The RFA went on to say that "State agencies may

offer to assist FCS by doing some of the identification work by sharing EBT system generated

data."

A-2