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[Federal Register Volume 63, Number 75 (Monday, April 20, 1998)]
[Proposed Rules]
[Pages 19415-19421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10255]

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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Part 246

RIN 0584-AC50

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

AGENCY: Food and Nutrition Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend regulations governing the 
Special Supplemental Nutrition Program for Women, Infants and Children 
(WIC) to implement a mandate of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996, which requires the 
disqualification of WIC vendors who are disqualified from the Food 
Stamp Program (FSP). According to the law, the disqualification shall 
be for the same length of time as the FSP disqualification and may 
begin at a later date than the FSP disqualification. Furthermore, the 
law states that disqualification from WIC on the basis of an FSP 
disqualification is not subject to judicial or administrative review.
    This proposed rule would also mandate uniform sanctions across 
States for the most serious WIC Program vendor violations, including 
seven specific WIC Program violations that result in FSP 
disqualification in addition to WIC Program

[[Page 19416]]

disqualification. The implementation of these mandatory sanctions is 
intended to promote WIC and FSP coordination in the disqualification of 
retailers and vendors who violate program rules.

DATES: To be assured of consideration, written comments must be 
postmarked by July 20, 1998.

ADDRESSES: Comments should be sent to Barbara Hallman, Acting Director, 
Supplemental Food Program Division, FNS, USDA, 3101 Park Center Drive, 
Room 540, Alexandria, Virginia 22302. Comments on this rule should be 
labeled ``WIC/Food Stamp Vendor Disqualification.'' All written 
comments will be available for public inspection during regular 
business hours (8:30 a.m. to 5:00 p.m., Monday through Friday) at the 
above noted address.

FOR FURTHER INFORMATION CONTACT: Barbara Hallman, at (703) 305-2730.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule has been determined to be not significant for 
purposes of Executive Order 12866 and therefore has not been reviewed 
by the Office of Management and Budget.

Regulatory Flexibility Act

    This proposed rule has been reviewed with regard to the 
requirements of the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-
612). Yvette Jackson, Administrator of the Food and Nutrition Service, 
has certified that this rule will not have a significant impact on a 
substantial number of small entities. This rule will only impact WIC 
vendors who have committed fraud and abuse against the WIC Program or 
who have been disqualified from the Food Stamp Program.

Paperwork Reduction Act

    This proposed rule imposes no new reporting or recordkeeping 
requirements that are subject to OMB review in accordance with the 
Paperwork Reduction Act of 1995.

Executive Order 12372

    The Special Supplemental Nutrition Program for Women, Infants and 
Children is listed in the Catalog of Federal Domestic Assistance 
Programs under 10.577. For reasons set forth in the final rule in 7 CFR 
Part 3015, Subpart V, and related notice (48 FR 29115) this program is 
included in the scope of Executive Order 12372 which requires 
intergovernmental consultation with State and local officials.

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule is intended to have preemptive effect 
with respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the EFFECTIVE DATE paragraph of the final rule. 
Prior to any judicial challenge to the application of provisions of 
this rule, all applicable administrative procedures must be exhausted.

Public Law 104-4

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Food and Nutrition Service generally must prepare a written statement, 
including a cost-benefit analysis, for proposed and final rules with 
``Federal mandates'' that may result in expenditures to State, local or 
tribal governments, in the aggregate, or the private sector, of $100 
million or more in any one year. When such a statement is needed for a 
rule, section 205 of the UMRA generally requires the Food and Nutrition 
Service to identify and consider a reasonable number of regulatory 
alternatives and adopt the least costly, more cost-effective or least 
burdensome alternative that achieves the objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local and tribal 
governments or the private sector of $100 million or more in any one 
year. Thus, this rule is not subject to the requirements of sections 
202 and 205 of the UMRA.

Background

    Section 729(j) of Pub. L. 104-193, the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996 (PRWORA), amends section 17 
of the Child Nutrition Act of 1996 (42 U.S.C. 1786) (CNA), by adding a 
new section(n) that requires the Secretary of Agriculture to issue 
regulations providing the criteria for the disqualification of WIC 
vendors who have been disqualified as retailers from the FSP. This 
provision also states that the WIC disqualification shall be for the 
same length of time as the FSP disqualification. It may begin at the 
same time or at a later date than the FSP disqualification, and shall 
not be subject to judicial or administrative review. This new provision 
is designed to strengthen WIC Program integrity by promptly removing 
vendors from the WIC Program who have been disqualified from the FSP 
due to FSP violations.
    In addition, a September 1995 Office of Inspector General (OIG) 
audit, number 27601-0004-Ch, on Disqualification of Vendors from Food 
and Nutrition Service (FNS) Programs recommended that FNS develop 
uniform regulatory sanction provisions to be applied to WIC vendors for 
each of seven specific WIC Program vendor violations. These WIC 
violations are deemed to be so serious that, under current FSP 
regulations, they result in the loss of FSP authorization in response 
to the WIC Program disqualification. This proposed rule would establish 
mandatory uniform sanctions against violating WIC vendors and would 
also remove the current three-year limit on WIC vendor 
disqualification, thus permitting permanent WIC vendor disqualification 
under specified circumstances. State agencies can sanction vendors for 
violations other than those listed in proposed Sec. 246.12(k)(1) as 
long as vendors are made aware of such violations and sanctions, and 
such sanctions do not result in disqualification from the WIC Program 
for more than six months.

Criteria for Disqualification of WIC Vendors Who Have Been 
Disqualified From the FSP

    Section 729(j) of the PRWORA amends section 17 of the CNA by adding 
a new section(n) that requires the Secretary of Agriculture to issue 
regulations providing the criteria for the disqualification of WIC 
vendors who have been disqualified from participating as retailers in 
the FSP. In response to that mandate, the Department has determined 
that any FSP violation that is serious enough to warrant 
disqualification from the FSP should also warrant disqualification from 
the WIC Program. The Department believes that retailers that are 
disqualified from the FSP should not be eligible to participate in 
either the WIC Program or the FSP. This proposed rule would require the 
disqualification of such vendors from WIC, with the only exception 
being for participant hardship. That is, WIC State agencies would not 
be required to disqualify a WIC vendor that has been disqualified from 
the FSP when such WIC disqualification would cause undue hardship for 
WIC participant access.
    The Department recognizes that WIC vendors play a vital role in 
ensuring that WIC Program goals are achieved. While the vast majority 
of vendors follow

[[Page 19417]]

program rules, abuse cannot and will not be tolerated. Current program 
rules (Secs. 246.12(k) (iii) and (iv)) allow but do not require a State 
agency to disqualify a WIC vendor who is currently disqualified from 
any FNS program or who has been assessed a civil money penalty (CMP) by 
the FSP in lieu of disqualification. To strengthen program integrity, 
WIC State agencies would be required under this proposed rule to 
disqualify a vendor from WIC who has been disqualified from the FSP, 
unless such disqualification would create undue hardship for WIC 
participant access, in which case WIC State agencies will assess a CMP. 
In cases where a retailer has been assessed a CMP in lieu of 
disqualification by the FSP, WIC State agencies will continue to have 
the option of disqualifying the vendor under Sec. 246.12(k)(iv). 
However, since the disqualification is not based upon a reciprocal FSP 
disqualification, the vendor must be offered an opportunity to appeal 
the WIC disqualification.

Length of Disqualification

    Section 729(j) of the PRWORA also states that the WIC 
disqualification shall be for the same length of time as the FSP 
disqualification and may begin at the same time or at a later date than 
the FSP disqualification. Because FSP regulations provide for permanent 
disqualification, there will be instances in which a WIC vendor is 
disqualified for more than the current three-year maximum 
disqualification period reflected in Sec. 246.12(k)(1)(ii) of the WIC 
Program regulations. Therefore, this proposed rule would remove the 
three-year limitation from the regulations. This permits reciprocal 
permanent disqualification, as required by the PRWORA.

Vendor Appeals

    This proposed rule would amend Sec. 246.18(a) to modify the current 
requirement to provide a hearing procedure whereby a WIC vendor 
adversely affected by State or local agency actions may appeal such 
action. Section 729(j) of the PRWORA specifically states that WIC 
vendors who are disqualified as a result of their disqualification as 
retailers from the FSP are not entitled to administrative or judicial 
review proceedings in the WIC Program. As such, Sec. 246.18(a) would be 
amended to reflect this change. This change should reduce WIC State 
agency expenses and administrative burdens and eliminate a duplicative 
administrative process. The WIC Program disqualification will not be 
imposed until after all FSP administrative and judicial processes have 
been completed.
    Section 729(j) of the PRWORA only eliminates the WIC appeal for 
vendors who are disqualified as a result of the FSP disqualification. 
The law does not eliminate appeal rights for vendors who are 
disqualified from WIC because they have been assessed a CMP in lieu of 
disqualification from the FSP. Therefore, WIC State agencies that 
utilize the option at Sec. 246.12(k)(iv) which allows the State agency 
to disqualify a vendor who has been assessed a CMP in lieu of FSP 
disqualification must continue to offer such vendors an opportunity to 
appeal the WIC disqualification.

Vendor Agreements

    To ensure that all WIC vendors are aware that disqualification from 
the FSP will result in disqualification from the WIC Program or, under 
certain circumstances, assessment of a CMP in lieu of disqualification, 
Sec. 246.12(f) has been amended to require a statement to this effect 
in the vendor agreement.

Mandatory WIC Program Vendor Sanctions

    In September 1995, the OIG released audit report number 27601-0004-
Ch, Disqualification of Vendors from FNS Programs. The purpose of the 
audit was to evaluate FNS' controls to ensure that retailers/vendors 
who committed serious violations in one FNS program are considered for 
disqualification from participation in all FNS programs for which they 
were authorized.
    The audit disclosed widely inconsistent sanction policies among the 
States for WIC vendors who commit similar or identical WIC Program 
violations. A previous nationwide OIG audit of WIC Program vendor 
operations, audit report 27661-2-Ch issued June 1988, also disclosed 
inconsistent sanction policies across States. For example, a vendor who 
overcharged a WIC State agency for WIC foods could receive a sanction 
that varied from additional mandatory training, to a voluntary 
withdrawal, to a warning letter, or a one to three year 
disqualification, depending upon the particular State. To ensure that 
appropriate and consistent sanctions are taken against vendors abusing 
the WIC Program, the audit recommended that FNS revise WIC Program 
regulations to mandate specific uniform sanctions for each of seven 
categories of WIC Program violations that, under current regulations, 
result in the loss of FSP authorization in addition to WIC 
disqualification. This would promote consistency of sanction treatment 
for violative WIC vendors. This proposed rule would implement the OIG's 
recommendation.
    In 1987, the FSP issued codified regulations at 7 CFR Sec. 278.1(o) 
that required FNS Field Offices to withdraw the FSP authorization of 
any firm that is disqualified from the WIC Program based in whole or in 
part on any act that constitutes a violation of that program's 
regulations, and which is shown to constitute a misdemeanor or felony 
violation of law, or for any of the following specific program 
violations:
    (1) Claiming reimbursement for the sale of an amount of a specific 
food item which exceeds the store's documented inventory of that food 
item for a specific period of time;
    (2) Exchanging WIC food instruments for cash or credit;
    (3) Receiving, transacting and/or redeeming WIC food instruments 
outside of authorized channels;
    (4) Accepting WIC food instruments from unauthorized persons;
    (5) Exchanging non-food items for a WIC food instrument;
    (6) Charging WIC customers more for food than non-WIC customers or 
charging WIC customers more than current shelf price; or
    (7) Charging for food items not received by the WIC customer or for 
food provided in excess of those listed on the food instrument.
    The Department proposes two modifications to the above-noted seven 
violations. First, the Department proposes to add trafficking to this 
list of violations. Trafficking is generally recognized as the most 
flagrant and egregious example of program fraud and abuse. As such, 
under this proposed rule, vendors found to be committing trafficking 
would be subject to permanent disqualification from the WIC Program 
upon their first offense, as in the FSP. The Department proposes to 
adopt the FSP's definition of trafficking, with some minor revisions to 
accommodate WIC terminology. Trafficking, in this proposal, is defined 
as the buying or selling of WIC food instruments for cash or 
consideration other than eligible food; or the exchange of firearms, 
ammunition, explosives, or controlled substances (i.e, drugs) as the 
term is defined in section 802 of title 21, United States Code, for 
food instruments. Consideration other than eligible food would include 
items such as furniture, appliances or other property, etc.
    Second, the Department proposes to add the sale of alcohol, or 
alcoholic beverages or tobacco products in exchange for WIC food 
instruments to the list of violations that would result in

[[Page 19418]]

a mandatory sanction in recognition of their obvious inappropriate 
nature with respect to WIC food instrument exchanges. ``Alcoholic 
Beverage'' is defined by 27 U.S.C. Sec. 214 as ``any beverage in liquid 
form which contains not less than one-half of one percent of alcohol by 
volume and is intended for human consumption.'' In recognition of the 
addition of this new violation, number (5) above would be modified to 
read ``exchanging non-food items, other than alcohol or alcoholic 
beverages or tobacco products, for WIC food instruments.'' The proposed 
penalty for the first disqualification for this violation is three 
years, consistent with the FSP sanction for this type of violation.
    Third, the Department has removed the word ``cash'' from number (2) 
above, exchanging WIC Food Instruments for cash and credit, because 
exchanging food instruments for cash is included in the trafficking 
violation as explained earlier in this preamble.
    The Department is proposing mandatory WIC Program disqualifications 
for the nine violations. The proposed WIC disqualifications set forth 
herein are similar to disqualifications imposed by the FSP for similar 
violations. This will conform WIC sanctions among the States, and 
establish WIC disqualifications that are similar to FSP 
disqualifications. The following chart illustrates the mandatory WIC 
disqualifications that would be imposed for the noted violation. 
Although the Department only proposes to address nine violations in 
this regulation, of course there are other violations that may occur. 
We have left to State agency discretion the authority to establish 
disqualifications for additional violations they deem appropriate. 
However, such State agency established disqualifications cannot exceed 
six months.

----------------------------------------------------------------------------------------------------------------
                WIC violation                                            WIC sanction                           
----------------------------------------------------------------------------------------------------------------
Trafficking.................................  Permanent Disqualification (DQ).                                  
Sale of alcohol or alcoholic beverages or     1st--3 year DQ; 2nd--6 year DQ; 3rd--Permanent DQ.                
 tobacco products in exchange for WIC food                                                                      
 instruments.                                                                                                   
Accepting WIC food instruments from           Same as above.                                                    
 unauthorized persons.                                                                                          
Claiming reimbursement for the sale of an     Same as above.                                                    
 amount of a specific food item which                                                                           
 exceeds the store's documented inventory                                                                       
 for food item for a specific period of time.                                                                   
Receiving, transacting and/or redeeming WIC   Same as above.                                                    
 food instruments outside authorized                                                                            
 channels.                                                                                                      
Charging WIC customers more for food than     Same as above.                                                    
 non-WIC customers or charging WIC customers                                                                    
 more than current shelf price.                                                                                 
Charging for food items not received by the   Same as above.                                                    
 WIC customer or for food provided in excess                                                                    
 of those listed on the food instrument.                                                                        
Exchanging non-food items, except alcohol or  1st--1 year DQ; 2nd--2 year DQ; 3rd--Permanent DQ.                
 alcoholic beverages or tobacco, for WIC                                                                        
 food instruments.                                                                                              
Exchanging WIC food instruments for credit..  Same as above.                                                    
----------------------------------------------------------------------------------------------------------------

    To ensure that WIC vendors are aware that disqualification from the 
WIC Program will also result in the loss of FSP authorization, proposed 
amendments to Sec. 246.18(b) would require that the State agency 
provide formal written notice of possible disqualification by FSP in 
the formal notice of WIC disqualification. Such written notice shall be 
made to such vendors prior to the time available for the WIC vendor to 
request appeal of the WIC action.

Voluntary Withdrawal and/or Non-renewal of Contract/Agreements in 
Lieu of Disqualification

    The September 1995 OIG audit revealed that some WIC State agencies 
allowed vendors to voluntarily withdraw from the WIC Program or pay a 
CMP in lieu of disqualification. The Department does not support such a 
practice. It provides a means for a vendor to circumvent reciprocal 
disqualification from the FSP. The two programs must cooperate in every 
reasonable manner to facilitate the detection and removal of abusive 
vendors and retailers. The result of such cooperation is more effective 
and efficient vendor/retailer management in both programs. Therefore, 
under proposed Sec. 246.12(k)(2), State agencies would not be able to 
accept voluntary withdrawal of the vendor from the program or an offer 
by the vendor to pay a CMP in lieu of disqualification where a 
disqualification is required under this proposed rule.
    In addition, some State agencies fail to disqualify a noncompliant 
WIC vendor from the program, opting instead to not renew the vendor's 
contract or agreement at the next available renewal period. State 
agencies take this action because it is believed to be less costly and 
burdensome than disqualifying the vendor and going through the appeals 
process. However, unless the vendor is actually disqualified from the 
WIC Program, the mandatory reciprocal FSP disqualification cannot be 
imposed. In addition, without disqualification, the opportunity for 
abuse continues until expiration of the agreement. Therefore, the 
Department proposes at Sec. 246.12(k)(2) to prohibit the practice of 
nonrenewal of the contract/agreement as an alternative to or in lieu of 
disqualification.

Timely Referral of WIC Disqualified Vendors

    In order to effectively remove disqualified WIC vendors from 
participating as retailers in the FSP, WIC State agencies must provide 
the FNS field offices with timely information on disqualified WIC 
vendors. The September 1995 OIG report found that timely referrals were 
not occurring. The delays in notifying FNS field offices ranged from 9 
to 349 days with the majority of cases over 100 days. These untimely 
referrals have delayed or prevented noncompliant WIC vendors who have 
been disqualified from WIC from being promptly disqualified from the 
FSP. Therefore, to assure that action to remove abusive retailers is 
taken in a timely manner, the Department is proposing at 
Sec. 246.12(k)(3) that State agencies provide the FNS field office with 
written notification, including fax or e-mail, on vendors it has 
disqualified from WIC for any one of the nine violations noted above 
that result in a mandatory disqualification period. This information 
shall be provided within 15 days after the opportunity to file for a 
WIC administrative appeal has expired or all WIC administrative and 
judicial appeals have been exhausted.

Participant Access

    Impact on participant access has always been a primary 
consideration when determining whether to disqualify an abusive vendor 
from the WIC Program. When disqualifying a vendor

[[Page 19419]]

from WIC, either because of WIC Program abuse, or based on an FSP 
disqualification, the State agency will continue to be required to 
document its determination that participants will have access to WIC 
supplemental foods notwithstanding the disqualification of the vendor 
in question.
    In assessing participant access, the State agency would need to 
consider factors such as availability of other authorized vendors in 
the same area and geographic barriers to such vendors. The Department 
would like to point out that a FSP CMP, granted in lieu of 
disqualification due to a participant access concern, does not obligate 
the WIC State agency to concur with the FSP hardship determination. Nor 
does it require reciprocal disqualification from the WIC Program. 
Recognizing that FSP and WIC serve different populations, it is 
possible that there may be instances where a disqualification in one 
program would not negatively affect participant access for recipients 
in the other Program.
    For example, a retailer found to be abusing the FSP may have a 
large FSP population that is predominantly elderly. This establishment 
may also serve a small population of younger more mobile WIC 
participants. The FSP may determine that it would jeopardize FSP 
participant access if the retailer were disqualified and instead issues 
a CMP in lieu of disqualification. The WIC State agency may determine 
that WIC participant access would not be unduly harmed and therefore 
choose to disqualify the abusive WIC vendor under Sec. 246.12(k)(iv). 
Of course, full appeal rights would be available to the WIC vendor 
under these circumstances.
    In the rare instance where the State agency determines that 
disqualification of a WIC vendor would jeopardize access for 
participants, the State agency shall assess a CMP against the vendor in 
lieu of disqualification. The WIC State agency should actively monitor 
the vendor to ensure that the vendor complies with program rules as a 
condition to remain an authorized vendor.
    The State agency must include in the file of each WIC vendor who is 
disqualified from the Program or receives a CMP in lieu of 
disqualification, a written record of its participant access 
determination and any supporting justification. The State agency, with 
its knowledge of the locations of authorized WIC vendors and the 
geographical distribution of WIC participants, is uniquely qualified to 
determine whether any given vendor is needed to ensure participant 
access to WIC foods, and whether a disqualification will not adversely 
affect participant access to authorized foods. The WIC State agency 
determination regarding participant access is, therefore, not subject 
to appeal by the vendor.

Formula for Calculating Civil Money Penalties

    To ensure that WIC State agencies are using a consistent method in 
determining the amount of a CMP issued in lieu of disqualification, the 
Department proposes to establish a formula for calculating the CMP. The 
proposed formula is currently used by several WIC State agencies and is 
identical to the CMP formula used by the FSP. The proposed formula is 
as follows: (1) Determine the vendor's average monthly WIC redemptions 
for the 12-month period ending with the month immediately preceding the 
month during which the store was charged with violations; (2) Multiply 
the average monthly redemptions figure by 10 percent (.10); (3) 
Multiply the product from Step 2 by the number of months for which the 
store would have been disqualified. This is the amount of the CMP. The 
amount of the CMP may not exceed $10,000 for each violation. Following 
is an example using this methodology:

Monthly WIC Redemptions

Jan.--$10,000
Feb.--$8,500
Mar.--$12,300
Apr.--$9,000
May.--$7,000
June--$5,000
July--$6,000
Aug.--$4,000
Sept.--$5,500
Oct.--$7,000
Nov.--$7,000
Dec.--$5,000

Average Monthly Redemptions.................................   $7,192.00
Multiply by 10 Percent......................................       x .10
                                                             -----------
                                                                 $719.00
Proposed disqualification period=1 year or 12 months:.......        x 12
                                                             -----------
Civil Money Penalty.........................................   $8,630.00
                                                                        

Disposition of Civil Money Penalties

    Money collected from imposition of civil money penalties or vendor 
fines shall be treated as program income. Authority granted the 
Department in 7 CFR 3016.25 permits the characterization of such fines 
as program income. As program income, their use will be governed by 
Sec. 246.15 of the WIC regulations. This change will be reflected in 
Sec. 246.15(b).

Definition of Food Instrument

    In recognition of emerging technology in the retail food delivery 
area relative to electronic benefits transfer (EBT), the Department 
proposes to revise the definition of ``food instrument'' to include an 
EBT transfer card. ``Food instrument'' is now proposed to be defined as 
a voucher, check, electronic benefits transfer card (EBT), coupon or 
other document which is used by a participant to obtain supplemental 
foods.

List of Subjects in 7 CFR Part 246

    Food assistance programs, Food donations, Grant programs--social 
programs, Indians, Infants and children, Maternal and child health, 
Nutrition, Nutrition education, Public assistance programs, WIC, Women.

    For reasons set forth in the preamble, 7 CFR part 246 is proposed 
to be amended as follows:

PART 246--SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS 
AND CHILDREN

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

    Authority: 42 U.S.C. 1786.

    2. In Sec. 246.2, the definition of ``Food instrument'' is revised 
to read as follows:

Sec. 246.2  Definitions

* * * * *
    Food instrument means a voucher, check, electronic benefits 
transfer card (EBT), coupon or other document which is used by a 
participant to obtain supplemental foods.
* * * * *
    3. In Sec. 246.12:
    a. paragraphs (f)(2)(xix) and (f)(2)(xx) are redesignated as 
paragraphs (f)(2)(xx) and (f)(2)(xxi), respectively;
    b. new paragraph (f)(2)(xix) is added;
    c. paragraph (f)(3) is revised;
    d. paragraph (k)(1) introductory text is revised;
    e. paragraph (k)(1)(iii) is removed, paragraphs 
(k)(1)(i),(k)(1)(ii),(k)(1)(iv) and (k)(1)(v) are redesignated as 
(k)(1)(v), (k)(1)(vi),(k)(1)(vii) and (k)(1)(viii), respectively, and 
revised, and new paragraphs (k)(1)(i) through (k)(1)(iv) and (k)(1)(ix) 
are added;
    f. paragraphs (k)(2) and (k)(3) are redesignated as (k)(4) and 
(k)(5), respectively; and new paragraphs (k)(2) and (k)(3) are added.
    The revisions and additions read as follows:

Sec. 246.12  Food delivery systems.

* * * * *

[[Page 19420]]

    (f) * * *
    (2) * * *
    (xix) The State agency shall disqualify a vendor who has been 
disqualified from the Food Stamp Program. However, if the State agency 
determines that such disqualification will create hardship for 
participant access to authorized foods, the State agency shall issue a 
civil money penalty in lieu of WIC disqualification.
* * * * *
    (3) Other provisions shall be added to the contracts or agreements 
to implement the State agency option in paragraph (r)(5)(iv) of this 
section.
* * * * *
    (k) * * *
    (1) The following sanctions shall be used by each State agency. The 
State agency shall provide adequate procedures for vendors to appeal a 
disqualification from participation under the Program as specified in 
Sec. 246.18. The State agency sanctions shall include:
    (i) Permanent disqualification for:
    (A) Buying or selling of WIC food instruments for cash or 
consideration other than eligible food (trafficking); or the exchange 
of firearms, ammunition, explosives, or controlled substances as 
defined in 21 U.S.C. 802, for food instruments; or
    (B) When a vendor has twice before been sanctioned for any 
violation listed in paragraphs (k)(1)(ii) and (k)(1)(iii) of this 
section.
    (ii) Disqualification for three years if it is the vendor's first 
sanction for:
    (A) The sale of alcohol or alcoholic beverages or tobacco products 
in exchange for WIC food instruments; or
    (B) Claiming reimbursement for the sale of an amount of a specific 
food item which exceeds the store's documented inventory of that food 
item for a specific period of time; or
    (C) Charging WIC customers more for food than non WIC customers or 
charging WIC customers more than the current shelf or contract price; 
or
    (D) Accepting WIC food instruments from unauthorized persons; or
    (E) Receiving, transacting and/or redeeming WIC food instruments 
outside of authorized channels; or
    (F) Charging for food items not received by the WIC customer or for 
food provided in excess of those listed on the food instrument.
    (iii) Disqualification for one year if it is the vendor's first 
sanction for:
    (A) Exchanging WIC food instruments for credit; or
    (B) Exchanging non-food items, other than alcohol or alcoholic 
beverages or tobacco, for WIC food instruments.
    (iv) The sanctions for violations in paragraphs (k)(1)(ii) and 
(k)(1)(iii) of this section shall be doubled if the vendor has once 
before been assigned a sanction. In addition, the State agency does not 
have to provide the vendor with prior notice that violations were 
occurring and the possible consequences of the violations prior to 
implementing any of the mandatory sanctions in this paragraph.
    (v) Food vendors may be subject to sanctions in addition to, or in 
lieu of, disqualification, such as claims for improper or overcharged 
food instruments and the penalties outlined in Sec. 246.23, in the case 
of deliberate fraud.
    (vi) The State agency may impose sanctions for violations that are 
not specified in paragraphs (k)(1)(i) through (k)(1)(iii) of this 
section as long as the vendor is made aware of such violations and 
sanctions. The period of disqualification from Program participation 
for such State-established violations shall not be more than six months 
as determined by the State agency.
    (vii) The State agency shall disqualify a vendor who has been 
disqualified from the Food Stamp Program. The disqualification shall be 
for the same length of time as the FSP disqualification; may begin at a 
later date than the FSP disqualification; shall not be subject to 
administrative or judicial review under the WIC Program. If the State 
agency determines that such disqualification will create hardship for 
participant access to authorized foods, the State agency shall issue a 
civil money penalty in lieu of WIC disqualification. The State agency 
may disqualify a vendor who has been assessed a civil money penalty in 
the Food Stamp Program, as provided under 7 CFR 278.6, only if the 
State agency:
    (A) Documents that any such disqualification will not create undue 
hardship for participants; and
    (B) Includes notification that it will take such disqualification 
action in its vendor agreement, in accordance with paragraph (f)(3) of 
this section.
    (viii) Prior to disqualifying a food vendor, the State agency shall 
consider whether the disqualification would create undue hardship for 
participants. The State agency shall include documentation of its 
participant access determination and any supporting documentation in 
the file of each vendor who is disqualified or receives a civil money 
penalty in lieu of disqualification.
    (ix) The State agency shall use the following formula to calculate 
a civil money penalty issued in lieu of disqualification:
    (A) Determine the vendor's average monthly WIC redemptions for the 
12-month period ending with the month immediately preceding the month 
during which the store was charged with violations;
    (B) Multiply the average monthly redemptions figure by 10 percent 
(.10);
    (C) Multiply the product from Step 2 by the number of months for 
which the store would have been disqualified. This is the amount of the 
civil money penalty. The amount of the civil money penalty may not 
exceed $10,000 for each violation.
    (2) The State agency shall not accept voluntary withdrawal of the 
vendor from the Program as an alternative to disqualification, but 
shall enter the disqualification on the record. In addition, the State 
agency shall not use nonrenewal of the vendor agreement as an 
alternative to disqualification.
    (3) The State agency shall provide the appropriate FNS office with 
written notification and information on vendors it has disqualified for 
any of the violations listed in (k)(1)(i) through (k)(1)(iv) of this 
section. This information shall include the name of the vendor, 
address, identification number, the type of violation, and the length 
of disqualification, and shall be provided within fifteen days after 
the opportunity to file for a WIC administrative appeal has expired or 
all WIC administrative appeals have been exhausted and all judicial 
appeal rights have expired or have been exhausted.
* * * * *
    4. In Sec. 246.15, a sentence is added to the end of paragraph (b) 
to read as follows:

Sec. 246.15  Program income other than grants.

* * * * *
    (b) * * * Money received by the State agency as a result of civil 
money penalties or fines assessed against a WIC vendor shall be 
considered as program income.
    5. In Sec. 246.18, paragraphs (a)(1) and (b)(1) are revised to read 
as follows:

Sec. 246.18  Administrative appeal of State agency decisions.

    (a) * * *
    (1) The right of appeal shall be granted when a local agency's or a 
food vendor's application to participate is denied or, during the 
course of the contract or agreement, when a local agency or vendor is 
disqualified or any other adverse action which affects participation is 
taken. The following actions shall not be subject to judicial or 
administrative review:

[[Page 19421]]

    (i) Expiration of a contract or agreement with a food vendor;
    (ii) Disqualification of a food vendor as a result of 
disqualification from the Food Stamp Program; and
    (iii) The State agency's determination that participant access 
would not be adversely affected by disqualification of the vendor.
* * * * *
    (b) * * *
    (1) Written notification of the administrative action, the 
procedures to file for an administrative review, the cause(s) for and 
the effective date of the action. Such notification shall be provided 
to participating food vendors not less than 15 days in advance of the 
effective date of the action. When a vendor is disqualified due in 
whole or in part to violations specified in Sec. 246.12(k)(1), such 
notification shall include the following statement: ``This 
disqualification from WIC may result in disqualification as a retailer 
in the Food Stamp Program.''
    In the case of disqualification of local agencies, the State agency 
shall provide not less than 60 days advance notice of pending action.
* * * * *
    Dated: April 13, 1998.
Yvette S. Jackson,
Administrator, Food and Nutrition Service.
[FR Doc. 98-10255 Filed 4-17-98; 8:45 am]
BILLING CODE 3410-30-U
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