Federal Register, Volume 64 Issue 52 (Thursday, March 18, 1999)

[Federal Register Volume 64, Number 52 (Thursday, March 18, 1999)]
[Rules and Regulations]
[Pages 13311-13325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6465]

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Rules and Regulations
Federal Register
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Federal Register / Vol. 64, No. 52 / Thursday, March 18, 1999 / Rules
and Regulations

[[Page 13311]]

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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service, USDA

7 CFR Part 246

RIN 0584-AC50

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

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule amends regulations governing the Special
Supplemental Nutrition Program for Women, Infants and Children (WIC) to
mandate uniform sanctions across State agencies for the most serious
WIC Program vendor violations. The implementation of these mandatory
sanctions is intended to curb vendor-related fraud and abuse in the WIC
Program and to promote WIC and FSP coordination in the disqualification
of vendors and retailers who violate program rules. This rule also
implements a mandate of the Personal Responsibility and Work
Opportunity Reconciliation Act of 1996, which requires the
disqualification of WIC vendors who are disqualified from the FSP.

DATES: This regulation is effective May 17, 1999. State agencies must
fully implement the provisions of this rule no later than May 17, 2000,
except that Sec. 246.15 (concerning civil money penalties and fines as
program income) must be implemented no later than October 1, 1999.

FOR FURTHER INFORMATION CONTACT: Barbara Hallman, Supplemental Food
Programs Division, Food and Nutrition Service, USDA, 3101 Park Center
Drive, Room 542, Alexandria, Virginia 22302. (703) 305-2730.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

Regulatory Flexibility Act

This final rule has been reviewed with regard to the requirements
of the Regulatory Flexibility Act (5 U.S.C. 601-612). Samuel Chambers,
Jr., Administrator of the Food and Nutrition Service (FNS), has
certified that this rule will not have a significant impact on a
substantial number of small entities. This rule will only impact WIC
vendors who have committed fraud and abuse against the WIC Program or
who have been disqualified from the FSP. While some of these vendors
may be small entities, the number affected will not be substantial.

Paperwork Reduction Act

This final rule imposes no new reporting or recordkeeping
requirements that are subject to OMB review in accordance with the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-20).

Executive Order 12372

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

Executive Order 12988

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

Public Law 104-4

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

Good Cause Determination

Most of the provisions in this final rule were subject to a 90-day
public comment period that commenced on April 20, 1998 with the
publication of a proposed rule in the Federal Register. In addition to
the provisions proposed in the April 20, 1998 rule, this rule at
Sec. 246.12(k)(1)(i) implements the provisions in section 203(p)(1) of
the William F. Goodling Child Nutrition Reauthorization Act of 1998,
Pub. L. 105-336 (Goodling Act), concerning permanent disqualification
of vendors convicted of trafficking or selling firearms, ammunition,
explosives, or controlled substances in exchange for food instruments.
Section 203(p)(2) of the Goodling Act requires the Secretary to publish
a proposed rule to carry out these provisions no later than March 1,
1999 and a final rule no later than March 1, 2000.
Section 246.12(k)(1)(i) allows only minimal discretion in its
implementation. Further, the substance of this provision overlaps and
is intertwined with the issues proposed in

[[Page 13312]]

the April 20, 1998 rule. Therefore, to separately propose these
provisions is unnecessary and contrary to public interest. The
Administrator has determined pursuant to 5 U.S.C. 553(b) that there is
good cause to publish the provisions of this rule concerning sanctions
for convictions for trafficking and illegal sales without prior public
comment.

Background

On April 20, 1998, the Department published a proposed rule at 63
FR 19415 to establish mandatory WIC sanctions for the most serious WIC
Program violations. These WIC violations are deemed to be so serious
that, under current FSP regulations, they also result in the loss of
FSP authorization in response to the WIC Program disqualification. The
April 20, 1998 rule also proposed to implement the requirement of
section 729(j) of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, Pub. L. 104-193 (PRWORA). As authorized by
the law, the proposal would have required a WIC State agency to
disqualify a WIC vendor who had been disqualified from the FSP, unless
the State agency determined that such disqualification would create
hardship for WIC participant access. In these situations, the State
agency would have been required to impose a civil money penalty (CMP)
in accordance with a formula established in the proposed rule. The rule
also proposed the removal of the current three-year limit on WIC vendor
disqualification, thus permitting permanent WIC vendor disqualification
under specified circumstances.
A total of twenty-six comment letters were received during the
comment period, which ended on July 20, 1998. The Department has given
all comments careful consideration in the development of this final
rule and would like to thank all commenters who responded to the
proposal. Following is a discussion of each provision, as proposed,
comments received, and an explanation of the provisions set forth in
this final rule.

Implementation

As noted above, the amendment to Sec. 246.15 (concerning civil
money penalties and fines as program income) must be implemented no
later than October 1, 1999. The Department has decided to require
implementation no later than October 1, 1999 to coincide with fiscal
year financial reporting for the WIC Program. In addition, this will
give State agencies that have been using these funds in other ways the
time to make the necessary budgeting adjustments.
The remaining amendments are effective May 17, 1999, but are not
required to be implemented for a full year (by May 17, 2000).
Establishing separate effective and implementation dates recognizes the
variations among the operations of State agencies and gives them
flexibility in implementation methods. For example, a State agency for
which all vendor agreements are scheduled to be renewed in December
1999 might decide that it is most feasible and efficient to wait until
then to implement the new sanction and appeal provisions. This way, the
State agency could make the necessary changes to the new agreements
without having to amend the current agreements. Another State agency
that enters into agreements on a rolling basis may decide to amend the
agreements as new ones are entered into, provided that agreements
reflecting the new requirements are in place for all vendors prior to
May 17, 2000, even if it means amending some agreements that will not
expire prior to that date. Another approach would be to send a notice
to all vendors informing them of the new provisions and offering them
the option to either agree to the amendments to their agreements or to
terminate their agreements. The year-long implementation period should
give State agencies sufficient lead time to plan for an orderly
replacement of any vendors that terminate their agreements because they
do not agree to the new provisions.
The mandatory sanctions in this rule apply only to violations
committed after the State agency has provided notice to a vendor of the
new provisions, as discussed above. This means that if a vendor
committed a trafficking violation prior to the time the State agency
provided notice of the new six-year disqualification period for
trafficking, the new mandatory sanction would not apply. Instead, the
State agency would impose whatever sanction the State agency has
previously imposed for trafficking. Furthermore, only mandatory
sanctions imposed under the conditions of this final rule count toward
the number of sanctions that trigger the doubling of sanctions, as
provided under Sec. 246.12(k)(1)(v) and (vi).
State agencies may implement, independent of the remainder of this
rule, the provision concerning the disqualification of WIC vendors who
have been disqualified from the FSP (Sec. 246.12(k)(1)(vii)) and the
associated change to the WIC appeal procedures (Sec. 246.18(a)(1)(ii)).
However, this provision may be implemented only if two conditions are
met: (1) The FSP disqualification occurs after the effective date of
this rule and (2) the vendor received notice prior to his opportunity
to appeal the FSP disqualification that such disqualification may
result in a WIC disqualification that is not be subject to
administrative or judicial review under the WIC Program. The new
provision limiting WIC appeals would not apply to any FSP or WIC
appeals already in process.

Definition of Food Instrument

In recognition of emerging technology in the retail food delivery
area relative to electronic benefits transfer (EBT), the Department
proposed to revise the definition of ``food instrument'' to include an
EBT transfer card. The proposed rule's definition read: ``Food
instrument means a voucher, check, electronic benefits transfer card
(EBT), coupon or other document which is used by a participant to
obtain supplemental foods.'' One commenter was concerned that the
reference to ``participant'' in this definition excluded the approved
use of WIC food instruments by a participant's proxy or by an
undercover agent. The commenter suggested that the phrase ``used by a
participant'' be deleted from the definition of a food instrument. The
commenter also suggested that the definition of ``participants'' be
amended to include a WIC customer, proxy, or an undercover investigator
posing as any of the above.
To avoid confusion, the Department has revised the definition of
food instrument to remove the reference to participants. The Department
does not, however, believe that it is necessary to revise the
definition of ``participants'' to include a proxy or an undercover
agent. Current regulations are already clear about the types of
activities a proxy may perform on behalf of a participant. For example,
current regulations at Sec. 246.12(o) provide that a proxy may transact
food instruments on behalf of a participant. Also, because undercover
investigators are under the direction of the WIC State agency, there is
no need to prescribe exactly the activities investigators may perform
while posing as a participant.

Disqualification of WIC Vendors as a Result of FSP Disqualification

Current regulations at Sec. 246.12(k)(1)(iii) give State agencies
the option to disqualify a vendor who has been disqualified from
another FNS program. Section 729(j) of the PRWORA amended section 17 of
the Child

[[Page 13313]]

Nutrition Act of 1966 (CNA) (42 U.S.C. 1786) by adding a new section
(n) that requires the Secretary to issue regulations providing criteria
for the disqualification of WIC vendors who have been disqualified in
the FSP. This provision states that the WIC disqualification shall be
for the same length of time as the FSP disqualification, may begin at
the same time or a later date than the FSP disqualification, and shall
not be subject to administrative or judicial review. To implement this
provision of the PRWORA and to strengthen program integrity, the
proposed rule would have required mandatory disqualification of WIC
vendors who had been disqualified from the FSP, unless the State agency
determined that disqualification of the vendor would result in hardship
for participant access. Commenters overwhelmingly supported this
provision as proposed. Therefore, the proposal has been adopted with
only technical changes to make clear that a WIC disqualification or CMP
in lieu of disqualification based on an FSP disqualification is a
mandatory sanction.

Disqualification of WIC Vendors as a Result of FSP Civil Money
Penalties

Current program regulations (Sec. 246.12(k)(1)(iii) and (iv)) allow
but do not require a State agency to disqualify a WIC vendor who is
currently disqualified from any FNS program or who has been assessed an
FSP CMP in lieu of disqualification. As noted above, the proposed rule
would have required WIC State agencies to disqualify a vendor from WIC
who has been disqualified from the FSP, unless such disqualification
would result in hardship for participant access, in which case WIC
State agencies would be required to impose a CMP. The proposed rule
would have retained for WIC State agencies the option of disqualifying
a vendor who had been assessed an FSP CMP in lieu of disqualification.
Several commenters requested that an FSP CMP be treated in the same
manner as an FSP disqualification. That is, State agencies should be
required to impose WIC Program disqualifications based on FSP CMPs and
that such actions should not be subject to review under the WIC
Program. Because the law only authorizes WIC disqualification without
any administrative or judicial appeal for actions based specifically on
an FSP disqualification, there is no legal basis to limit appeals for
WIC actions based on FSP CMPs in the same manner as FSP
disqualifications. However, the Department believes a violation that
warrants disqualification under FSP rules is a serious violation,
regardless of whether the FSP imposes a disqualification or a CMP in
lieu of disqualification due to participant hardship. As such, this
final rule retains the State agency option in Sec. 246.12(k)(2)(ii) to
disqualify a vendor against whom the FSP has assessed a CMP in lieu of
disqualification due to participant hardship. Further, the Department
wishes to note that an FSP participant hardship determination in no way
obligates the WIC State agency to also conclude that disqualification
of a vendor would result in inadequate WIC participant access. Although
many WIC participants also participate in the FSP, the WIC Program and
the FSP generally serve different populations. Consequently, there may
be instances where disqualification would result in hardship for FSP
participants but would not result in inadequate participant access for
WIC participants. In these instances, the WIC State agency may choose
to disqualify the violative vendor, provided the State agency documents
its WIC participant access determination in the vendor's case file and
provides prior notice to the vendor of the possibility of such
disqualification in the vendor agreement.
In addition, this final rule makes clear that this provision only
applies to FSP CMPs that are imposed in lieu of disqualification due to
participant hardship. FSP CMPs imposed for other reasons may not be
used as grounds to disqualify a WIC vendor. For example, an FSP
transfer of ownership CMP would not warrant a WIC disqualification
because these CMPs are imposed after a store has already been
disqualified. In addition, a State agency may not disqualify a vendor
for an FSP CMP imposed in lieu of a permanent disqualification for
trafficking based on an FNS finding that the store has an effective
compliance program.
The final rule clarifies that the option to impose a WIC
disqualification based on an FSP CMP is considered a State agency-
established sanction rather than a mandatory sanction.
The Department also wishes to clarify that WIC State agencies may
not impose a WIC CMP in response to an FSP CMP. The only sanction
available to the WIC State agency in response to an FSP CMP is WIC
disqualification, as explained above, and that is permitted solely in
cases where the FSP CMP is assessed due to FSP participant hardship.
A vendor may not request an administrative review of a WIC
disqualification based on an FSP disqualification. However, a vendor
may request an administrative review of a WIC disqualification based on
an FSP CMP. The areas subject to review include: whether the vendor was
assessed a CMP in lieu of disqualification by the FSP, whether the FSP
CMP was imposed due to participant hardship, and whether the vendor
agreement included the required notification that the vendor was
potentially subject to WIC disqualification based on an FSP CMP.
However, neither the FSP decision to impose a CMP in lieu of
disqualification nor the State agency's WIC participant access
determination are subject to administrative review under the WIC
Program.

Length of Disqualification

The April 20, 1998 rule proposed to amend the current regulations
to remove the three-year maximum disqualification period reflected in
Sec. 246.12(k)(1)(ii). This change was proposed in part to accommodate
section 17(n) of the CNA (as amended by the PRWORA), which provides
that a WIC disqualification based on an FSP disqualification shall be
for the same length of time as the FSP disqualification and may begin
at the same time or at a later date than the FSP disqualification. In
addition, the change was proposed to accommodate the other WIC
mandatory sanctions, which include disqualification for periods longer
than three years. No negative comments were received on this change.
Therefore, this rule removes the three-year limitation from the
regulations. This permits both reciprocal permanent disqualification,
as required by the PRWORA, and other mandatory sanctions that impose
disqualification periods in excess of three years.

Mandatory WIC Vendor Sanctions

The proposed rule would have established nine program violations
that warrant mandatory sanctions in addition to the mandatory
reciprocal sanction requiring the disqualification of a WIC vendor as a
result of an FSP disqualification. The WIC violations were based on the
seven WIC Program violations that, pursuant to current Sec. 278.1(o) of
the FSP regulations, result in the loss of a retailer's FSP
authorization. In the proposal, three modifications were made to the
seven violations adopted from the current FSP regulations. Violations
for ``trafficking'' and ``the sale of alcohol or alcoholic beverages or
tobacco products in exchange for WIC food instruments'' were added to
the list of violations that would result in a mandatory WIC sanction.
The word ``cash'' was deleted

[[Page 13314]]

from the ``exchanging WIC food instruments for cash or credit''
violation, because exchanging food instruments for cash was already
included in the proposed violation for trafficking.
Only one commenter opposed the establishment of uniform sanctions
for serious violations. Although most commenters supported uniform
sanctions, clarifications were requested on the difference between an
investigation, a violation, and a sanction, and the number of
incidences of each violation that trigger a mandatory sanction. For
purposes of this final rule, an investigation is a method used by the
State agency to determine if violations are occurring. A violation is
an infraction of program regulations or other requirements. A sanction
is an administrative action taken as a result of a violation. For a
mandatory sanction, this rule requires a State agency to impose either
a disqualification or a CMP in lieu of disqualification. Multiple
violations detected during a single investigation may result in a
mandatory sanction of either a disqualification for the most serious
violation or multiple CMPs.
Regarding the number of incidences of each violation that trigger a
mandatory sanction, the Department has determined that some violations
are so serious that only one incidence warrants disqualification. For
example, trafficking and the sale of alcohol or tobacco products are
flagrant violations of program rules and completely undermine program
goals. As such, this final rule requires a mandatory sanction for one
incidence of either of these violations. All the other violations
require a pattern of incidences to warrant a mandatory sanction. To set
a specific number of incidences that constitutes a pattern for each
violation would fail to account for the extent of the fraud or abuse
being committed. For example, if a vendor overcharged $20 on a gallon
of milk, the number of incidences required to demonstrate a pattern of
the violation would be less than for a vendor who overcharged 5 cents
on a gallon of milk. It is therefore left to the discretion of the
State agency to determine the number of incidences that reflect a
pattern, based on the type and severity of violation.
Finally, the Department proposed in Sec. 246.12(k)(1)(iv) that the
State agency would not have to provide the vendor with prior notice
that violations were occurring and the possible consequences of the
violations prior to implementing any of the mandatory sanctions. Two
commenters opposed this provision. One commenter opposed this provision
because it would be contrary to State legislative reform that includes
a mandate to notify vendors of such violations and give them an
opportunity to correct problems before imposing any sanctions. The
other commenter suggested retention of current language that allows the
State agency to provide a vendor with prior warning and an opportunity
to correct the problem.
The Department decided to adopt the provision with minor
modifications to distinguish between prior warning and prior notice.
The State agency must provide a vendor with prior notice (i.e. the
notice of administrative action) at least fifteen days prior to the
effective date of a sanction, except for a disqualification imposed for
the ``vendors convicted for trafficking/illegal sales'' violation,
which is required by statute to be effective on the date of receipt of
the notice of administrative action. The final rule at
Sec. 246.12(k)(3) reads: ``The State agency does not have to provide
the vendor with prior warning that violations were occurring before
imposing any of the sanctions in this paragraph (k).'' The location of
the provision in the final rule clarifies that it applies to both
mandatory and State agency-established sanctions. The provision clearly
makes the use of prior warning a State agency option. However, such
prior warning cannot be provided for the trafficking violations or
``the sale of alcohol or alcoholic beverages or tobacco products''
violation because these violations warrant a mandatory sanction for the
first incidence. Also, while prior warning for other violations may be
acceptable for the first incidence, continual use of such warning
undermines the State agency's fraud and abuse investigation and
prevention efforts.
Below is a chart illustrating the mandatory sanctions required by
this final rule and a discussion of the WIC violations that warrant a
mandatory sanction.

----------------------------------------------------------------------------------------------------------------
WIC violation* Proposed rule sanction Final rule sanction
----------------------------------------------------------------------------------------------------------------
Vendors convicted of trafficking/ Not proposed/Non-discretionary..... Permanent.
illegal sales.
Administrative finding of trafficking/ Permanent.......................... 6 years.
illegal sales.
Sale of alcoholic beverages or tobacco 3 years............................ 3 years.
products.
Claiming reimbursement in excess of 3 years............................ 3 years.
documented inventory.
Overcharging.......................... 3 years............................ 3 years.
Outside of authorized channels, 3 years............................ 3 years.
including unauthorized vendors or
persons.
Supplemental food not received........ 3 years............................ 3 years.
Credit or non-food items.............. 1 year............................. 3 years.
Unauthorized food items**............. 3 years............................ 1 year
2nd mandatory sanction, excluding Double sanction.................... Double sanction.
sanctions for trafficking convictions
& FSP DQs.
3rd mandatory sanction, excluding Permanent.......................... Double sanction & no CMP option.
sanctions for trafficking convictions
& FSP DQs.
Disqualification from FSP............. Same as FSP DQ..................... Same as FSP DQ.
----------------------------------------------------------------------------------------------------------------
*All violations require a pattern of incidences to warrant a mandatory sanction, except the violations for
``vendors convicted of trafficking/illegal sales,'' an administrative finding of ``trafficking/illegal
sales,'' and ``the sale of alcohol or alcoholic beverages or tobacco products,'' which only require one
incidence to warrant a mandatory sanction.
**The violation for ``unauthorized food items'' was not a separate violation under the proposal. It would have
been considered under the violation: ``Charging for food items not received by the WIC customer or for food
provided in excess of those listed on the food instrument.''

I. Trafficking or Illegal Sales

On October 31, 1998, the President signed the Goodling Act, which
includes a non-discretionary provision regarding the permanent
disqualification of ``vendors convicted of trafficking or illegal
sales.'' (Conviction means an action by a criminal court and not an
administrative finding by the State agency or its review office.)
This provision has been included in the final rule with only minor
revisions to make it consistent with current WIC

[[Page 13315]]

terminology. The law mandates that the permanent disqualification for
convicted vendors shall be effective on the date of receipt of the
notice of administrative action. Further, the law specifies that
convicted vendors are not entitled to receive any compensation for
revenues lost as a result of a disqualification which is later
overturned. Finally, the law allows a State agency, at its discretion,
to assess a CMP in lieu of permanent disqualification if: (1) The State
agency determines that the disqualification would result in inadequate
participant access; or (2) the State agency determines that the vendor
had, at the time of the violation, an effective policy and program in
place to prevent this type of violation, and the ownership of the
vendor was not aware of, did not approve of, and was not involved in
the conduct of the violation. State agencies may choose to implement
one, both, or neither of the two options for assessing CMPs in lieu of
disqualification based on a conviction for trafficking or illegal
sales. The option(s) selected by the State agency must be reflected in
the State Plan. These new provisions are at Sec. Sec. 246.12(k)(1)(i)
and 246.4(a)(14)(v).
The inclusion of this legislative mandate necessitated
modifications to the proposed rule with respect to two violations that
would have resulted in permanent disqualification. First, the length of
disqualification for an administrative finding of the trafficking
violation has been reduced in the final rule from the proposed
permanent disqualification to a six-year disqualification. (An
administrative finding of trafficking is a trafficking violation that
has not resulted in a conviction for trafficking by a court of law,
either because the officials responsible for criminal prosecution have
declined to prosecute the matter or because the criminal action is not
complete.) In addition, the length of disqualification for a third
mandatory sanction has been reduced in the final rule from the proposed
permanent disqualification to a sanction equal to double the
disqualification period for the current violation with no option to
impose a CMP. These sanctions were modified to set them apart from the
permanent disqualification required by the Goodling Act for vendors
convicted of trafficking or illegal sales.
In the proposed rule, trafficking was defined as the ``buying or
selling of WIC food instruments for cash or consideration other than
eligible food.'' Twelve commenters indicated that this definition needs
further clarification. Three commented that the phrase ``or
consideration other than eligible food'' could be interpreted to
include other less egregious violations, such as the violation for
exchanging non-food items for food instruments. One commenter pointed
out that, under the proposed rule, selling a non-WIC cereal (``other
than eligible food'') could be considered trafficking. In response to
these concerns, the Department has deleted the phrase ``or
consideration other than eligible food'' from the definition of the
trafficking violation in this final rule.

II. Sale of Alcoholic Beverages or Tobacco Products

Under the proposal, a vendor would have been disqualified for three
years for the sale of alcohol or alcoholic beverages or tobacco
products in exchange for food instruments. Commenters generally agreed
with the proposal. One commenter suggested that selling alcohol is as
intolerable as selling illicit drugs or firearms for food instruments,
and because of the immediate danger alcohol poses to the fetus, a
permanent disqualification is warranted. Another commenter suggested
that lottery tickets and gasoline be added to this violation, because
selling these non-food items is just as egregious as selling alcohol or
tobacco products. In this final rule, the Department has retained a
three-year disqualification for this violation. As stated earlier in
this preamble, in recognition of their obvious inappropriate nature
with respect to the WIC Program, only one incidence of the sale of
alcohol or alcoholic beverages or tobacco products in exchange for food
instruments is necessary to trigger the mandatory sanction for this
violation. In addition, as discussed below, the mandatory sanction for
exchanging non-food items for food instruments has been increased to
three years in this final rule, thus accommodating the commenter's
concern regarding other non-food items.

III. Claiming Reimbursement in Excess of Documented Inventory

In response to the proposed violation for claiming reimbursement in
excess of documented inventory, commenters requested clarification of
the term ``documented inventory.'' One commenter asserted that many
small rural stores will not have detailed documentation regarding their
monthly inventories. Like any business, a retail store is required for
tax purposes to maintain records on its purchases, receipts, and
inventory. Although the type of recordkeeping may vary based on the
size of a store, all vendors should have up-to-date inventory records.
Current regulations at Sec. 246.12(i)(4) include ``review of inventory
records'' as one of the review methods for on-site monitoring visits.
This method of review can be used to detect vendors who are, for
example, redeeming food instruments for unauthorized stores, exchanging
unauthorized food or non-food items for food instruments, or
trafficking.
The final rule requires a pattern of this violation in order to
trigger a mandatory sanction. A pattern for this violation can be
established during a single review where a vendor's records indicate
that the store's redemptions for a specific food item exceed its
documented inventory for a number of months. The requirement of a
pattern for this violation also responds to a commenter who suggested
graduated sanctions based on the severity of the inventory shortfall.
The evidence necessary to show a pattern of abuse for this violation
depends on the magnitude of the shortfalls and the period of time over
which they occur. For example, a pattern can be established over a
short period of disproportionately large inventory shortfalls or over
an extended period of time of small inventory shortfalls.

IV. Overcharging

On the proposed violation for ``charging WIC customers more for
food than non-WIC customers or charging more than the current shelf or
contract price,'' commenters were concerned about establishing a
pattern for this violation, distinguishing between outright fraud and
abuse and inadvertent human error, and having a sanction that is
appropriate for the violation. As noted above in this preamble, the
Department has modified this violation in the final rule to establish
that a pattern of incidences is necessary to warrant a mandatory
sanction. In addition, the Department has clarified that the evidence
necessary to establish a pattern is influenced by both the severity and
number of the incidences of a violation.
The intent to commit a violation versus inadvertent human error is
not a distinction that State agencies must establish in order to impose
sanctions, including sanctions for overcharging. The vendor sanctions
are not criminal; they are imposed in order to protect the integrity of
the WIC Program. If stores consistently overcharge customers for
purchases, customers take their business elsewhere regardless of
whether the overcharges are intentional or inadvertent. Likewise, when
a pattern of overcharging is established, the State agency will be
required to impose a mandatory sanction on the vendor

[[Page 13316]]

regardless of whether the violation is intentional or inadvertent.
Current regulations at Sec. 246.12(f)(2)(ix), which cover the
requirements for vendor agreements, state: ``The food vendor shall be
accountable for actions of employees in the utilization of food
instruments or provision of supplemental foods.'' The WIC Program has
limited resources and cannot tolerate vendors whose employment
practices repeatedly result in direct losses to the Program.
Six commenters questioned the severity of the sanction for this
violation. Overcharging is one of the most common vendor violations.
Funds lost through overcharges could otherwise be used to serve more
participants. As such, the sanction for this type of violation must be
sufficient to deter this type of fraud and abuse. Consequently, the
Department has retained the three-year sanction for this violation in
the final rule.
One commenter suggested that vendors should be granted the
opportunity to correct overcharging problems as outlined in
Sec. 246.12(r)(5)(iii) in the current regulations, which states: ``When
payment for a food instrument is denied or delayed, or a claim for
reimbursement is assessed, the affected food vendor shall have the
opportunity to correct or justify the overcharge or error.* * *''
Another commenter noted that the regulations already require vendors to
refund the difference between their reported price for the food package
and the actual redemption price. The violation, as written in this
final rule, does not prohibit the State agency from pursuing claims for
overcharging before it rises to a level where it warrants a mandatory
sanction. The mandatory sanction for this violation is only triggered
when a pattern of overcharging is established. However, permitting
vendors to just pay claims when the State agency detects overcharges
provides vendors with no incentive to ensure that overcharging does not
occur in the first place.

V. Outside of Authorized Channels and Unauthorized Persons

Several commenters requested a clarification that would distinguish
the violation for ``accepting WIC food instruments from unauthorized
persons'' from the violations for ``trafficking'' and ``receiving,
transacting, and/or redeeming WIC food instruments outside of
authorized channels.'' One commenter requested that the Department
establish procedures a vendor must follow to verify an authorized
person. Another commenter pointed out that some State agencies do not
use WIC identification cards and rely on banks to return WIC checks to
vendors when the signatures do not match. Due to the variety of methods
used by State agencies to document and verify participants, it is
impractical for the Department to establish a single set of procedures
to verify an authorized person. As noted above in the Definition of
Food Instrument section of this preamble, the only persons authorized
to use food instruments to obtain supplemental foods are participants,
designated proxies, and undercover investigators. Nevertheless, even
participants can be unauthorized persons if they are transacting
someone else's food instruments. In response to commenters' concerns,
the Department consolidated the ``unauthorized person'' and ``outside
authorized channels'' violations into a single violation in the final
rule at Sec. 246.12(k)(1)(iii)(D). This violation reads: ``A pattern of
receiving, transacting, and/or redeeming food instruments outside of
authorized channels, including the use of an unauthorized vendor and/or
an unauthorized person.'' This violation includes situations in which a
vendor, who owns more than one store, not all of which are authorized,
accepts food instruments at an unauthorized store and redeems them
through an authorized store.

VI. Supplemental Food Not Received

Commenters suggested several revisions to the sanction for the
violation ``charging for food items not received by the WIC customer or
for food provided in excess of those listed on the food instrument.''
One commenter suggested that the violation be modified to read: ``* * *
for non-substitutionary foods provided in excess.* * *'' Another
commenter requested that the violation differentiate between a minor
violation, such as being shorted a dozen eggs, and a more significant
violation, such as receiving nothing for a food instrument. The
commenter suggested that only the more significant violation should
warrant a three-year disqualification.
To accommodate commenters' concerns, the Department has deleted the
phrase ``charging for food provided in excess of those listed on the
food instrument'' from this violation and included it as part of a new
violation, discussed below in the Unauthorized Food Items section of
this preamble. The violation now reads ``a pattern of charging for
supplemental food not received by the participant.'' The Department has
retained the three-year disqualification for this violation,
notwithstanding commenters' concerns about the severity of the
sanction. The Department believes that charging for supplemental food
not received is comparable to ``overcharging'' and thus should carry
the same sanction. Nevertheless, ``charging for supplemental food not
received'' is distinct enough from ``overcharging'' to justify its
being a separate violation. For example, a vendor may charge the State
agency the full price on a food instrument, even though the participant
chose not to purchase several items listed on the food instrument. This
would be an incidence of the charging for supplemental food not
received by the participant. On the other hand, a participant may
receive all of the food items listed on the food instrument, but the
vendor charges more for the items than the current shelf prices. This
would be an incidence of overcharging. In the final rule, these
violations will result in three-year sanctions.

VII. Credit or Non-Food Items

Under the proposed rule, ``exchanging WIC food instruments for
credit'' would trigger a one-year sanction. One commenter requested
that the term ``credit'' be defined. Another commenter indicated that
providing credit in exchange for food instruments is comparable to
trafficking and suggested that the credit violation warrants a more
severe sanction. Commenters expressed similar concerns about the
proposed one-year sanction for ``exchanging non-food items, other than
alcohol or alcoholic beverages or tobacco, for WIC food instruments.''
In response to commenters' suggestions, the Department has
consolidated the two proposed violations into a single violation in the
final rule at Sec. 246.12(k)(1)(iii)(F). This violation reads: ``a
pattern of providing credit or non-food items, other than alcohol,
alcoholic beverages, tobacco products, cash, firearms, ammunition,
explosives or controlled substances as defined in 21 U.S.C. 802, in
exchange for food instruments.'' The Department also increased the
sanction for this violation to a three-year disqualification.
Consolidating the violations recognizes that providing credit in
exchange for food instruments is essentially granting the participant
access to any item in a store, including non-food items. As such, the
Department concurs with the commenter who suggested that a more severe
sanction is warranted for this violation. The Department wishes to
clarify that if a vendor allows the credit to be used for the purchase
of alcohol

[[Page 13317]]

or alcoholic beverages or tobacco products, then the vendor's actions
fall under the ``alcohol/tobacco'' violation, which triggers a sanction
after one incidence. In addition, if a vendor allows the credit to be
used for any of the items included in the trafficking violation, then
the vendor's actions fall under that violation, which also triggers a
sanction after one incidence.

VIII. Unauthorized Food Items

Under the proposal, providing unauthorized food items in exchange
for food instruments would fall under the violation for ``charging for
* * * food provided in excess of those listed on the food instrument,''
which would warrant a three-year mandatory sanction. Comments from the
vendor community expressed concern that the sanction was too severe for
the violation. They suggested that the final rule make a clear
distinction between incidences of minor ``substitution'' of food items
and exchanging non-food items for food instruments. Further, they
suggested that substitution of food items should result in a lesser
sanction. In response to these concerns, the Department has inserted a
new violation in the final rule at Sec. 246.12(k)(1)(iv) that reads:
``a pattern of providing unauthorized food items in exchange for food
instruments, including charging for supplemental food provided in
excess of those listed on the food instrument.'' Rather than including
it in the violation for ``charging for supplemental food not received
by the participant,'' the Department decided to include ``charging for
supplemental food provided in excess of those listed on the food
instrument'' in this violation because such food is technically
unauthorized.
The distinction made in this final rule between unauthorized food
items and non-food items is consistent with program goals and
strengthens the uniformity of the mandatory sanction system.
Nevertheless, the Department wishes to make clear that it does not
consider ``providing unauthorized food items in exchange for food
instruments'' (i.e. ``substitution'') to be a minor violation. The WIC
Program is a nutrition assistance program that provides specific foods
to participants in order to improve their health and nutritional well-
being. In addition, one-fourth of participants are able to receive
program benefits due to rebates from manufacturers. Substituting
unauthorized food items for WIC-approved food items may undermine State
agency contracts with rebate manufacturers and is contrary to the
mission and goals of the WIC Program.

Treatment of Mandatory Sanctions

One commenter suggested that the sanctions for WIC violations be
additive within a single investigation. Rather than make
disqualification periods additive, the Department established lengths
of disqualification for the mandatory sanctions that are appropriate
for the severity of the violations. As such, State agencies no longer
need to establish multiple violations during an investigation in order
to justify the length of disqualification. In situations in which a
vendor is found to have committed multiple violations during the course
of a single investigation, while all violations must be reflected in
the notice of administrative action to the vendor, including State
agency-established violations, the length of disqualification for a
mandatory sanction shall be determined by the most serious violation.
This approach recognizes that one investigation results in one
disqualification, which represents a fair balance of both the
Department's desire to address program violations and the vendor
community's concern regarding the lengths of disqualification periods.
However, as discussed below in the Formula for Calculating Civil
Money Penalties section of this preamble, the Goodling Act recognizes
that multiple violations may occur during a single investigation and,
thus, established limits on CMPs for both violations and investigations
involving vendors convicted of trafficking/illegal sales. For
consistency, the Department decided to adopt this approach for all
CMPs, including those imposed as a result of State agency-established
sanctions. Thus, in situations in which the State agency determines
that disqualification of the vendor will result in inadequate
participant access, the State agency must impose a sanction that
includes CMPs for each violation that warrants a mandatory sanction.
The proposed rule included a provision to double the mandatory
sanction if the vendor had been assessed a previous sanction. Four
commenters requested clarification of this provision. Two commenters
asked whether the second sanction had to be for the same violation as
the first. One commenter asked whether the doubling applies to the more
serious of the first and second sanctions or whether it only applies to
the second sanction. Another commenter asked whether the doubling
occurs if the first sanction is a State agency-established sanction. To
clarify this provision in the final rule at Sec. 246.12(k)(1)(v), the
Department has revised it to read: ``When a vendor, who previously has
been assessed a sanction for any of the violations in paragraphs
(k)(1)(ii) through (k)(1)(iv) of this section, receives another
sanction for any of these violations, the State agency shall double the
second sanction. Civil money penalties may only be doubled up to the
limits allowed under paragraph (k)(1)(x)(C) of this section'' (i.e.,
$10,000 per violation and $40,000 per investigation). This revision
clarifies that while both the first and second sanction must be
mandatory sanctions, they do not need to be for the same violation. The
final rule also clarifies that it is the sanction for the second
violation that is doubled. However, mandatory sanctions for vendors
convicted of trafficking/illegal sales and those based on FSP
disqualification do not count toward this provision and cannot be
doubled. In addition, State agency-established sanctions do not count
toward this provision.
As noted earlier, the sanction for a vendor's third mandatory
sanction for a WIC violation has been revised in the final rule at
Sec. 246.12(k)(1)(vi). The provision now reads: ``When a vendor, who
previously has been assessed two or more sanctions for any of the
violations listed in paragraphs (k)(1)(ii) through (k)(1)(iv) of this
section, receives another sanction for any of these violations, the
State agency shall double the third sanction and all subsequent
sanctions. The State agency shall not impose civil money penalties in
lieu of disqualification for third or subsequent sanctions for
violations listed in (k)(1)(ii) through (k)(1)(iv) of this section.''
No CMP option is allowed in these cases because by a third or
subsequent sanction the State agency should have had time to make other
arrangements to ensure adequate participant access. In addition, the
Department specifically omitted the violation for vendors convicted of
trafficking/illegal sales contained in paragraph (k)(1)(i) of this
final rule from the CMP prohibition portion of this provision. This
omission was made to reflect the requirement in the Goodling Act that
gives the State agency the option to impose a CMP in lieu of permanent
disqualification for this violation. However, as noted in the
conference report that accompanied the Goodling Act, Congress expressed
its expectation that State agencies should take the strongest possible
action against each vendor who has been repeatedly convicted of
trafficking or illegal sales of food instruments.

[[Page 13318]]

State Agency Vendor Sanctions

Recognizing that there are other violations in addition to those
covered by the mandatory sanctions, the Department has left the
authority to establish sanctions for any additional violations to State
agency discretion, as long as vendors are made aware of such violations
and sanctions prior to their imposition. Under the proposed rule at
Sec. 246.12(k)(1)(vi), the period of disqualification for State agency-
established violations would be limited to six months. Six commenters
requested more State agency discretion regarding State agency
sanctions. As discussed in the Mandatory WIC Vendor Sanctions and
Participant Access sections of this preamble, the final rule provides
State agencies with little discretion in the imposition and disposition
of the mandatory sanctions. This restriction of discretion ensures
uniformity in the application of the mandatory sanctions across the WIC
Program. However, the Department is sensitive to commenters' requests
for more discretion with regard to State agency sanctions. To balance
the restriction of discretion regarding mandatory sanctions, the
Department decided to provide State agencies with as much discretion as
possible in the imposition and disposition of State agency sanctions in
this final rule.
Seven commenters requested that the sanction period for State
agency sanctions be increased to one year. Two commenters suggested
that the three-year maximum disqualification period contained in the
current regulations should apply to State agency sanctions. One
commenter indicated that a six-month limit was not appropriate unless
State agency sanctions were additive. Another commenter requested
clarification of whether State agency sanctions may be doubled and
whether State agencies may permanently disqualify vendors for non-
compliance with State agency sanctions.
To address these comments, the Department made several
modifications in the final rule. The maximum disqualification period
for State agency sanctions has been increased from six months to one
year. In addition, State agency sanctions may be additive within an
investigation or doubled, provided that the total disqualification
period does not exceed one year per investigation and that any fines or
CMPs imposed do not exceed $10,000 per violation and $40,000 per
investigation. As required for the mandatory sanctions, when a vendor
fails to comply with the terms of a CMP imposed in lieu of
disqualification for a State agency-established violation, such as
failing to pay the CMP, the State agency must disqualify the vendor for
the length of time corresponding to the violation for which the
sanction was assessed. The provisions regarding State agency sanctions
have been moved to Sec. 246.12(k)(2) of the final rule and include the
State agency option to disqualify vendors who have been assessed an FSP
CMP for hardship.
One commenter requested clarification of whether State agency
sanctions may be added to a mandatory sanction required by this rule.
As noted above in the Treatment of Mandatory Sanctions section, State
agency sanctions may not be added to a mandatory sanction within the
same investigation. However, State agencies may impose State agency
sanctions from the same investigation in situations where mandatory
sanctions are not upheld on appeal. Another point the Department has
clarified in the final rule is that State agency sanctions do not count
toward the provisions in Sec. 246.12(k)(1)(v) and (vi) of the final
rule, which cover vendors who have been assessed two or more mandatory
sanctions.
One commenter requested that the Department provide some examples
of possible State agency sanctions. Several commenters suggested
violations that they believe warrant State agency sanctions. These
suggested violations include redeeming food instruments outside of
valid dates, selling stale-dated WIC food items, and charging sales
tax. This list is not intended to be exhaustive but to give State
agencies and other interested parties an idea of the types of
violations that could be included in a State agency sanction schedule.
Any State agency-established sanctions must be reflected in the State
Plan under the description of the State agency's food delivery system,
as currently required in Sec. 246.4(a)(14). The final rule also makes
clear that State agency sanctions may include fines, disqualification,
or CMPs in lieu of disqualification.

Voluntary Withdrawal or Non-renewal in Lieu of Disqualification

Under Sec. 246.12(k)(2) of the proposed rule, State agencies would
not be able to accept voluntary withdrawal or use non-renewal of a
vendor agreement as an alternative to disqualification. This provision
was proposed in response to a September 1995 OIG audit that revealed
that some WIC State agencies allowed vendors to voluntarily withdraw
from the WIC Program in lieu of disqualification. In addition, some
State agencies opted not to renew abusive vendors' contracts or
agreements rather than disqualify them for violations that warrant
disqualification. The Department does not support these practices,
because they allow a vendor to circumvent reciprocal disqualification
from the FSP. Enhanced cooperation between WIC and the FSP in the
detection and removal of abusive vendors and retailers will result in
more effective and efficient vendor/retailer management in both
programs.
Most commenters supported this provision, provided that it only
applies to the mandatory sanctions required by this rule. It was the
Department's intent that the provision only apply to mandatory
sanctions, because only mandatory sanctions trigger a reciprocal FSP
action. As such, in Sec. 246.12(k)(1)(viii), the final rule prohibits a
State agency from either accepting voluntary withdrawal or using non-
renewal as an alternative to imposing a mandatory sanction. When a
State agency establishes that a vendor has committed a violation that
warrants a mandatory sanction, the State agency is required to either
disqualify the vendor or impose a CMP in lieu of disqualification due
to inadequate participant access. State agencies continue to have the
discretion to allow the use of voluntary withdrawal and non-renewal in
connection with State agency-established sanctions.
Two commenters suggested that State agencies be permitted to use
voluntary withdrawal in special circumstances, such as when a witness
is not able to testify at an administrative review. The Department
recognizes that on occasion circumstances may arise that impair the
State agency's ability to successfully defend its action during an
administrative review. Rather than grant exceptions to the rules, the
Department believes that, when extenuating circumstances arise, the
State agency should attempt to reschedule or postpone the review. The
intent of this regulation is to provide State agencies and vendors with
clear, firm, uniform rules for mandatory sanctions and administrative
review procedures. As such, the commenter's suggestion is not adopted.
One commenter suggested that the Department clarify that a vendor
may not voluntarily withdraw to avoid paying a CMP. As noted below in
the Payment of Civil Money Penalties section of this preamble, the
Department has added a paragraph in the final regulations at
Sec. 246.12(k)(6) that addresses this issue. If a vendor does not pay a
CMP or voluntarily withdraws to avoid paying a CMP, the State agency
must impose a disqualification

[[Page 13319]]

corresponding to the violation for which the CMP was assessed and
notify the vendor of such disqualification.

Participant Access

The impact on participants' access to supplemental foods has always
been a primary consideration for State agencies when determining
whether to disqualify a violative vendor or to impose a CMP in lieu of
disqualification. A participant access determination is, in fact, the
only means available to State agencies to ensure that the sanction
imposed is in the best interests of the Program. Several commenters
noted the various terms used in the current regulations and the
proposed rule to describe these determinations, including ``inadequate
participant access,'' ``participant hardship,'' and ``undue hardship.''
One commenter suggested the Department use ``undue hardship.'' Another
commenter asserted that State agencies should determine ``participant
hardship, not participant inconvenience.'' The general consensus among
commenters was that the terminology should be consistent throughout the
regulations. In response to this request, the term ``inadequate
participant access'' has been used throughout the final rule. The
Department decided this term most closely describes the type of
determination that State agencies are required to make.
Several commenters requested that the Department either clearly
define the term ``participant access'' or establish specific criteria
for State agencies' participant access determinations. In addition,
Congress mandated in section 203(p)(1) of the Goodling Act that the
Secretary establish criteria for ``hardship to participants''
determinations that may apply to vendors convicted of trafficking/
illegal sales. The Department decided that any established criteria
should apply to all participant access determinations, not just
participant access determinations for vendors convicted of trafficking/
illegal sales. However, a formal regulatory definition of ``participant
access'' that includes all possible criteria for such determinations is
inappropriate because it would not be flexible enough to apply to the
variety of geographical areas where the WIC Program operates. What may
be acceptable criteria for rural areas may be unreasonable for urban
areas and vice versa.
To address this issue, the final rule in Sec. 246.12(k)(8)
requires: ``When making participant access determinations, the State
agency shall, at a minimum, consider the availability of other
authorized vendors in the same area as the violative vendor and any
geographic barriers to using such vendors.'' This requirement focuses
on the two central questions of these determinations: (1) Is there an
adequate number of authorized vendors operating in the area to meet
participant demand? and (2) Are there any specific geographic barriers
that would significantly restrict participants access to using those
authorized vendors? If the answers to these questions indicate that
disqualification of the vendor would result in inadequate participant
access, then the State agency must impose a CMP in lieu of
disqualification (except that the State agency may not impose a CMP in
lieu of disqualification either as a result of an FSP CMP or for a
third or subsequent sanction as specified in Sec. 246.12(k)(1)(vi)).
Current regulations at Sec. 246.12(k)(1)(iv) require State agencies
to document participant access determinations in cases of WIC
disqualification for FSP CMPs, and current Sec. 246.12(k)(1)(v)
requires these determinations be made prior to disqualifying a vendor.
However, neither provision provides specific guidance as to the
documentation of these determinations. The proposed rule at
Sec. 246.12(k)(1)(viii) intended to clarify that a State agency must
include in the file of each vendor, for whom participant access is
required to be considered, a written record of its participation access
determination and any supporting justification. Under the final rule,
these determinations and their documentation are required for all
mandatory sanctions, except for the vendors convicted of trafficking/
illegal sales violation in Sec. 246.12(k)(1)(i). Participant access
determinations and their documentation are required for vendors
convicted of trafficking/illegal sales only if the State agency chooses
to exercise its option to consider participant access in determining
the sanction for this violation. Participant access determinations and
documentation are also required for WIC disqualification based on FSP
CMPs, if the State agency chooses to exercise this option. Although not
required, the Department also recommends that State agencies conduct
and document participant access determinations prior to imposing
disqualifications or CMPs for other State agency-established sanctions.
One commenter suggested that requiring State agencies to document
participant access determinations is illegal under the Paperwork
Reduction Act because it imposes an additional file burden on State
agencies. This is not the case because participant access
determinations, often targeted by vendors during administrative
reviews, have always been required to be documented in vendors' files.
The reason why the proposed rule explicitly stated that participant
access determinations must be documented in vendors' files is because
State agencies might have decided that documentation of these
determinations would no longer be necessary, since they would no longer
be subject to administrative review. Although no longer subject to
administrative review, participant access determinations continue to be
the only means of determining whether to impose a disqualification or a
CMP and are still subject to audit. Further, if necessary, these
determinations could become part of court proceedings. In the final
rule, the documentation requirements for participant access
determinations are reflected in Sec. 246.12(k)(1)(i), (k)(1)(ix), and
(k)(2)(ii)(B).
One commenter rebutted the statement in the proposed rule's
preamble that State agencies are uniquely qualified to determine
whether the disqualification of a specific vendor would result in
inadequate participant access. Nevertheless, State agencies are
uniquely qualified to make participant access determinations, because
their primary concern is WIC Program participants. Whereas vendors know
the volume of their own WIC business, only State agencies know the
geographic distribution of WIC participants and of other WIC-authorized
vendors, which are the primary criteria for making participant access
determinations. The Department strongly believes that State agencies
are in the best position to make participant access determinations that
are in the best interests of program participants. In addition, the
Department strongly believes that administrative reviews should focus
on whether a vendor committed the violation(s) of which it has been
accused, rather than whether a violative vendor agrees with a State
agency's participant access determination. Consequently, the final rule
maintains that State agencies' participant access determinations are
not subject to administrative review.

Formula for Calculating Civil Money Penalties

To ensure that State agencies use a consistent method to determine
the amount of a CMP imposed in lieu of disqualification, the Department
proposed in Sec. 246.12(k)(1)(x) a formula for calculating a CMP. The
proposed formula is similar to the one used by the FSP and several WIC
State agencies. Commenters generally supported the

[[Page 13320]]

use of a standard formula to calculate CMPs. As such, the final rule
retains the provision with minor modifications.
The formula in the final rule is revised to establish a $40,000 per
investigation cap on CMPs. Section 203(p)(1) of the Goodling Act
amended section 17(o)(4)(B) of the CNA to mandate that the total amount
of CMPs, imposed for violations investigated as part of a single
investigation concerning vendors convicted of trafficking in food
instruments or selling firearms, ammunition, explosives, or controlled
substances in exchange for food instruments, must not exceed $40,000.
The Department has decided to adopt the $40,000 per investigation cap
for all CMPs, including those imposed as a result of State agency-
established sanctions. As noted above in the Treatment of Mandatory
Sanctions section of this preamble, for the mandatory sanctions listed
in Sec. 246.12(k)(1)(ii) through (k)(1)(iv), the length of the
disqualification period that is imposed for violations investigated as
part of a single investigation may not exceed the disqualification
period corresponding to the most serious violation. However, in cases
in which the State agency is required to impose a CMP in lieu of
disqualification because of inadequate participant access, the State
agency must impose a sanction that includes CMPs for each violation
that warrants a mandatory sanction, provided that the amount of the CMP
for each violation does not exceed $10,000 and the total amount of the
CMPs imposed as a result of a single investigation does not exceed
$40,000.
One commenter requested that the Department clarify whether the CMP
formula applies to State agency-established sanctions. The final rule
makes clear in Sec. 246.12(k)(1)(x) that the CMP formula only applies
to the mandatory sanctions required by this rule. For State agency
sanctions, State agencies may use either this CMP formula or their own
formula. However, for consistency, the Department has adopted the
$10,000 per violation and $40,000 per investigation maximums for all
CMPs, including CMPs resulting from State agency sanctions.
One commenter requested a clarification of what is meant by ``the
month during which the store was charged with violations.'' Three
commenters suggested that the CMP formula should be modified to allow
for six months of redemption data rather than the proposed twelve
months. In response to these comments, the final rule in
Sec. 246.12(k)(1)(x)(A) reads: ``Determine the vendor's average monthly
redemptions for at least the 6-month period ending with the month
immediately preceding the month during which the notice of
administrative action is dated.''
Another commenter asked how to calculate a redemption average for a
vendor who has been authorized under the WIC Program for less than
twelve months. The Department recognizes that some flexibility in the
application of the CMP formula is necessary. For example, if a vendor
has been on the Program for three months or was closed for several
months for renovations, the State agency will need to modify the
formula to use available data to calculate an average that reflects the
vendor's monthly redemptions. Generally, the State agency should use
the same standard for all vendors and only modify the formula to
address unusual circumstances.
Two commenters requested clarification of how to calculate a CMP in
lieu of permanent disqualification. The commenters were unsure what to
use in the last step of the formula for ``the number of months for
which the store would have been disqualified.'' In recognition of the
fact that permanent disqualification in the WIC Program is only imposed
for the most severe violations--vendors convicted of trafficking/
illegal sales and permanent disqualification from the FSP--the
Department decided to require the maximum CMP allowed for such
violations under the Secretary's authority as set in section 203(p)(1)
of the Goodling Act. The final rule at Sec. 246.12(k)(1)(x)(C) reads in
part: ``For a violation that warrants permanent disqualification, the
amount of the civil money penalty shall be $10,000.''
The final CMP formula is as follows: (1) Determine the vendor's
average monthly redemptions for at least the 6-month period ending with
the month immediately preceding the month during which the notice of
administrative action is dated; (2) Multiply the average monthly
redemptions figure by 10 percent (.10); and (3) Multiply the product
from Step 2 by the number of months for which the store would have been
disqualified. This is the amount of the CMP, provided that it does not
exceed $10,000. In addition, the total amount of CMPs imposed for
violations investigated as part of a single investigation must not
exceed $40,000. Following is an example using this methodology:

Monthly WIC Redemptions

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

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

Payment of Civil Money Penalties

The final rule also makes clear in Sec. 246.12(k)(5) that State
agencies may use installment plans for the collection of CMPs and
fines. State agencies must ensure that they are complying with Federal
and State laws concerning the collection of interest on such debts.
Section 246.12(k)(6) of the final rule makes clear that if a vendor
does not pay, only partially pays, or fails to timely pay a CMP, the
State agency must disqualify the vendor for the length of the
disqualification corresponding to the violation for which the CMP was
assessed (for a period corresponding to the most serious violation in
cases where a mandatory sanction included the imposition of multiple
CMPs as a result of a single investigation). ``Failure to timely pay a
CMP'' includes the failure to pay a CMP in accordance with an
installment plan approved by a State agency. This section is not
intended to usurp a State agency's prerogative to revise an installment
plan to accommodate a vendor who has a valid reason for missing a
payment. These two provisions apply to both mandatory and State agency-
established sanctions.

Disposition of Civil Money Penalties

Under the proposal at Sec. 246.15(b), money collected from the
imposition of CMPs or vendor fines would be treated as program income.
Commenters were generally split on their support of or opposition to
this provision. Those opposing wanted State agencies to retain the
current flexibility to use the revenue generated from the fines and
penalties as they deem appropriate. The Department believes that fines
and penalties imposed as a result of WIC Program violations, including
any interest collected as a result of such fines and penalties, should
be used to support WIC Program objectives. As such, this final rule
requires that fines and CMPs be treated as program income.

[[Page 13321]]

Vendor Appeals

Under the proposed rule, regulations at Sec. 246.18(a)(1)(ii) would
be revised to implement section 729(j) of the PRWORA, which provides
that WIC vendors who are disqualified as a result of their
disqualification as retailers from the FSP are not entitled to
administrative or judicial review in the WIC Program. No comments that
specifically opposed this provision were received. In the final rule,
minor revisions were made to the proposed language to make it
consistent with current WIC terminology regarding participant access.
In addition, the Department wishes to clarify that while section
729(j) of the PRWORA eliminates the WIC administrative review for
vendors who are disqualified from WIC as a result of FSP
disqualification, it does not eliminate administrative review for
vendors who are disqualified from WIC based on an FSP CMP. While
regulations at Sec. 246.12(k)(2)(ii) allow WIC disqualification based
on FSP CMPs for hardship, State agencies that use this option must
continue to offer vendors disqualified under this provision an
opportunity to appeal the WIC disqualification. However, neither the
FSP decision to impose a CMP in lieu of disqualification nor the WIC
State agency's participant access determination are subject to
administrative review under the WIC Program. The areas subject to
review include: whether the vendor was assessed a CMP in lieu of
disqualification by the FSP, whether the FSP CMP was imposed due to
``participant hardship,'' and whether the vendor agreement included the
required notice that the vendor was potentially subject to WIC
disqualification based on an FSP CMP.
In response to the proposed rule, one commenter asked whether
vendors may continue to redeem WIC food instruments during the appeals
process. Under Sec. 246.18(b)(1) of the current regulations, the State
agency must provide the vendor with written notification of an
administrative action not less than 15 days in advance of the effective
date of the action. The State agency has discretion to make the action
effective any time after the 15-day notice period has expired. The
State agency's decision about when to make a disqualification effective
determines whether a vendor may continue WIC operations during an
appeal. For example, if a State agency decides to make its
disqualification action effective 20 days after the notice of
administrative action is received, then once that date passes, a vendor
would not be able to redeem food instruments, even if the vendor had an
appeal pending.
Another commenter asked whether vendor agreements may be renewed
during the appeals process. If a vendor's agreement will expire during
the administrative appeal process, the State agency should make the
disqualification effective no later than the agreement's expiration.
This is necessary to avoid the incongruous result of approving a vendor
for reauthorization immediately after having made the decision to
disqualify the same vendor.
As noted below in the Vendor Agreements section of this preamble,
Sec. 246.18(b) is revised to require the State agency to advise vendors
of possible FSP disqualification based on WIC violations in the WIC
notice of administrative action. In addition to this change, the words
``if any'' were inserted into Sec. 246.18(b)(1) of the final rule to
recognize that there are certain actions, such as WIC disqualification
based on FSP disqualification, that are no longer subject to review.

Vendor Agreements

Under the proposal, State agencies would be required to add a
provision to the vendor agreement or contract to advise vendors that
disqualification from the FSP will result in disqualification from the
WIC Program or, under certain circumstances, assessment of a CMP in
lieu of disqualification. Commenters supported this provision. As such,
this final rule adds paragraph (f)(2)(xix) to Sec. 246.12 to require a
statement to this effect in the vendor agreement. One commenter
suggested that the Department add language to this section to cover the
situation in which a State agency imposes a CMP in lieu of
disqualification for a WIC Program violation. In response to this
comment and to provide notice to vendors of the full range of mandatory
sanctions, a new paragraph (f)(2)(xxi) has been added to Sec. 246.12.
This paragraph reads: ``The State agency shall disqualify a vendor for
the mandatory sanctions listed in paragraphs (k)(1)(ii) through
(k)(1)(iv) of this section. However, if the State agency determines
that disqualification of the vendor would result in inadequate
participant access, the State agency shall impose a civil money penalty
in lieu of disqualification, except that, as provided in paragraph
(k)(1)(vi) of this section, the State agency shall not impose a civil
money penalty in lieu of disqualification for third or subsequent
sanctions for violations in paragraphs (k)(1)(ii) through (k)(1)(iv) of
this section.''
In addition to the above changes to this section, a new paragraph
(f)(2)(xx) has been added to 246.12 in order to provide notice to
vendors of the non-discretionary provision of the Goodling Act, which
mandates permanent disqualification for WIC vendors convicted of
trafficking or illegal sales of firearms, ammunition, explosives, or
controlled substances. The final rule also amends
Sec. 246.12(f)(2)(xviii) to provide vendors notice that
disqualification of a vendor based on a FSP disqualification and the
State agency's participant access determinations are not subject to
review. A new paragraph, (f)(2)(xxii), also has been added to
Sec. 246.12 in order to provide notification in the vendor agreement
that disqualification from WIC may result in a disqualification in the
FSP that is not subject to administrative or judicial review in the
FSP.

Timely Referral of WIC Disqualified Vendors

To remove disqualified WIC vendors from participating as retailers
in the FSP, FNS Instruction 906-1, issued December 1, 1988, requires
the State agency to provide information on disqualified WIC vendors to
the appropriate FNS office within 15 days after the date a vendor's
opportunity to file for a WIC administrative appeal has expired or all
of a vendor's WIC administrative appeals have been exhausted. To
strengthen the Department's effort to ensure that reciprocal
disqualification actions are taken in a timely manner, the 15-day
notification period required by FNS Instruction 906-1 was included in
the proposed rule at Sec. 246.12(k)(3). The proposed rule also amended
Sec. 246.18(b)(1) to require the State agency to include in the
notification of administrative action a statement that reads: ``This
disqualification from WIC may result in disqualification as a retailer
in the Food Stamp Program.'' To remind vendors that this type of
reciprocal disqualification may not subject to appeal under the FSP,
the following sentence was added to the notification statement in the
final rule: ``Such disqualification may not subject to administrative
or judicial review under the Food Stamp Program.''
In its May 6, 1998 proposed rule, the FSP proposed, under
Sec. 278.6(e)(8)(ii)(B), would require the WIC State agency to provide
FNS with a signed and dated copy of the notice informing vendors that
they could be disqualified from the FSP based on WIC violations. In

[[Page 13322]]

addition, the FSP proposed rule would require that such notice be
provided to vendors prior to their time to request administrative
review. To meet this requirement, the State agency would need to
provide the appropriate FNS office with a copy of the notice of
administrative action sent to a violative vendor. One method of meeting
this requirement would be to provide FNS with a copy of the notice of
administrative action at the same time it is sent to the vendor and
then follow-up with FNS within fifteen days of the date the action is
final. Another method would be to send FNS a copy of the vendor's
notice of administrative action, which includes a notation that the
action is final, within fifteen days of the date the action is final. A
State agency, which sends vendors a notice of administrative action
followed by a formal notice of disqualification, could meet this
requirement in a timely manner by providing FNS with copies of both
notices at the same time they are sent to vendors.
While six commenters supported the proposed 15-day notification
period, one commenter suggested that it be extended to thirty days to
account for scheduling and staffing constraints. The Department
believes that a 15-day notification period is both reasonable and
preferable and that with current technologies, including fax and e-
mail, State agencies should be able to design a system to notify FNS in
a timely manner. Therefore, the final rule retains the 15-day
notification requirement in Sec. 246.12(k)(1)(xi) and requires the
State agency to send a copy of FNS the notice of administrative action.
The final rule deletes judicial review from this provision in order to
initiate the 15-day period at either the expiration of a vendor's time
to file for an administrative review or the exhaustion of all of a
vendor's administrative reviews. This change is being made in order to
be consistent with the original requirements outlined in FNS
Instruction 906-1 and to avoid undue delays between the time of the
actual WIC disqualification and the reciprocal FSP disqualification.
This would also eliminate the need for each State agency to determine
the full range of potential bases for judicial review and the
corresponding time periods in which the requests for judicial review
must be filed.
An additional change is made by the final rule regarding notifying
FNS of WIC CMPs. While the May 6, 1998 FSP proposed rule would not
specifically mandate FSP disqualifications based on WIC CMPs, the WIC
violation underlying a CMP in lieu of WIC disqualification could be
used as a basis for a FSP disqualification. Therefore, the final rule
requires WIC State agencies to notify FNS of WIC vendors who have been
assessed CMPs in lieu of disqualification and the length of the
disqualification periods corresponding to the vendors' violations.

List of Subjects in 7 CFR Part 246

Administrative practice and procedure, Civil rights, Food
assistance programs, Food donations, Grant programs-health, Grant
programs-social programs, Indians, Infants and children, Maternal and
child health, Nutrition, Nutrition education, Penalties, Public
assistance programs, Reporting and recordkeeping requirements, WIC,
Women.

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

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

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

Authority: 42 U.S.C. 1786.

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

Sec. 246.2 Definitions.

* * * * *
Food instrument means a voucher, check, electronic benefits
transfer card (EBT), coupon or other document which is used to obtain
supplemental foods.
* * * * *
3. In Sec. 246.4, paragraphs (a)(14)(v) through (a)(14)(x) are
redesignated as paragraphs (a)(14)(vi) through (a)(14)(xi), and a new
paragraph (a)(14)(v) is added to read as follows:

Sec. 246.4 State Plan.

(a) * * *
(14) * * *
(v) The option exercised by the State agency to sanction vendors
pursuant to Sec. 246.12(k)(1)(i).
* * * * *
4. In Sec. 246.12:
a. paragraph (f)(2)(xviii) is revised;
b. paragraphs (f)(2)(xix) and (f)(2)(xx) are redesignated as
paragraphs (f)(2)(xxiii) and (f)(2)(xxiv), respectively;
c. new paragraphs (f)(2)(xix), (f)(2)(xx), (f)(2)(xxi), and
(f)(2)(xxii) are added;
d. paragraph (f)(3) is revised; and
e. paragraph (k) is revised.
The revisions and additions read as follows:

Sec. 246.12 Food delivery systems.

* * * * *
(f) * * *
(2) * * *
(xviii) The State agency may disqualify a vendor or impose a civil
money penalty in lieu of disqualification for reasons of program abuse.
The State agency does not have to provide the vendor with prior warning
that violations were occurring before imposing such sanctions. The
vendor has the right to appeal a State agency decision pertaining to
disqualification, denial of application to participate, or other
adverse actions that affect participation during the contract or
agreement performance period; except that, expiration of a contract or
agreement with a vendor, disqualification of a vendor as a result of
disqualification from the Food Stamp Program, and the State agency's
determination regarding participant access are not subject to review.
(xix) The State agency shall disqualify a vendor who has been
disqualified from the Food Stamp Program. However, if the State agency
determines that disqualification of the vendor would result in
inadequate participant access, the State agency shall impose a civil
money penalty in lieu of WIC disqualification.
(xx) The State agency shall permanently disqualify a vendor
convicted of trafficking in food instruments or selling firearms,
ammunition, explosives, or controlled substances (as defined in section
102 of the Controlled Substances Act (21 U.S.C. 802)) in exchange for
food instruments. A vendor shall not be entitled to receive any
compensation for revenues lost as a result of such violation. If
reflected in its State Plan, the State agency shall impose a civil
money penalty in lieu of a disqualification for this violation when it
determines, in its sole discretion, and documents (in accordance with
paragraph (k)(8) of this section) that--
(A) disqualification of the vendor would result in inadequate
participant access; or
(B) the vendor had, at the time of the violation, an effective
policy and program in effect to prevent trafficking; and the ownership
of the vendor was not aware of, did not approve of, and was not
involved in the conduct of the violation.
(xxi) The State agency shall disqualify a vendor for the mandatory
sanctions listed in paragraphs (k)(1)(ii) through (k)(1)(iv) of this
section. However, if the State agency determines that disqualification
of the vendor would result in inadequate participant access, the State
agency shall impose a civil money penalty in lieu of

[[Page 13323]]

disqualification, except that, as provided in paragraph (k)(1)(vi) of
this section, the State agency shall not impose a civil money penalty
in lieu of disqualification for third or subsequent sanctions for
violations in paragraphs (k)(1)(ii) through (k)(1)(iv) of this section.
(xxii) Disqualification from the WIC Program may result in
disqualification as a retailer in the Food Stamp Program. Such
disqualification may not be subject to administrative or judicial
review under the Food Stamp Program.
* * * * *
(3) Other provisions shall be added to the contracts or agreements
to implement the State agency options in paragraphs (k)(2)(i),
(k)(2)(ii), and (r)(5)(iv) of this section.
* * * * *
(k) Participant and vendor sanctions.
(1) Mandatory vendor sanctions.
(i) Permanent disqualification. The State agency shall permanently
disqualify a vendor convicted of trafficking in food instruments or
selling firearms, ammunition, explosives, or controlled substances (as
defined in section 102 of the Controlled Substances Act (21 U.S.C.
802)) in exchange for food instruments. A vendor shall not be entitled
to receive any compensation for revenues lost as a result of such
violation. If reflected in its State Plan, the State agency shall
impose a civil money penalty in lieu of a disqualification for this
violation when it determines, in its sole discretion, and documents (in
accordance with paragraph (k)(8) of this section) that--
(A) Disqualification of the vendor would result in inadequate
participant access; or
(B) The vendor had, at the time of the violation, an effective
policy and program in effect to prevent trafficking; and the ownership
of the vendor was not aware of, did not approve of, and was not
involved in the conduct of the violation.
(ii) Six-year disqualification. The State agency shall disqualify a
vendor for six years for: one incidence of buying or selling food
instruments for cash (trafficking); or one incidence of selling
firearms, ammunition, explosives, or controlled substances as defined
in 21 U.S.C. 802, in exchange for food instruments.
(iii) Three-year disqualification. The State agency shall
disqualify a vendor for three years for:
(A) One incidence of the sale of alcohol or alcoholic beverages or
tobacco products in exchange for food instruments; or
(B) A pattern of claiming reimbursement for the sale of an amount
of a specific supplemental food item which exceeds the store's
documented inventory of that supplemental food item for a specific
period of time; or
(C) A pattern of charging participants more for supplemental food
than non-WIC customers or charging participants more than the current
shelf or contract price; or
(D) A pattern of receiving, transacting and/or redeeming food
instruments outside of authorized channels, including the use of an
unauthorized vendor and/or an unauthorized person; or
(E) A pattern of charging for supplemental food not received by the
participant; or
(F) A pattern of providing credit or non-food items, other than
alcohol, alcoholic beverages, tobacco products, cash, firearms,
ammunition, explosives, or controlled substances as defined in 21
U.S.C. 802, in exchange for food instruments.
(iv) One-year disqualification. The State agency shall disqualify a
vendor for one year for a pattern of providing unauthorized food items
in exchange for food instruments, including charging for supplemental
food provided in excess of those listed on the food instrument.
(v) Second mandatory sanction. When a vendor, who previously has
been assessed a sanction for any of the violations in paragraphs
(k)(1)(ii) through (k)(1)(iv) of this section, receives another
sanction for any of these violations, the State agency shall double the
second sanction. Civil money penalties may only be doubled up to the
limits allowed under paragraph (k)(1)(x)(C) of this section.
(vi) Third or subsequent mandatory sanction. When a vendor, who
previously has been assessed two or more sanctions for any of the
violations listed in paragraphs (k)(1)(ii) through (k)(1)(iv) of this
section, receives another sanction for any of these violations, the
State agency shall double the third sanction and all subsequent
sanctions. The State agency shall not impose civil money penalties in
lieu of disqualification for third or subsequent sanctions for
violations listed in paragraphs (k)(1)(ii) through (k)(1)(iv) of this
section.
(vii) Disqualification based on a Food Stamp Program
disqualification. The State agency shall disqualify a vendor who has
been disqualified from the Food Stamp Program. The disqualification
shall be for the same length of time as the Food Stamp Program
disqualification, may begin at a later date than the Food Stamp Program
disqualification, and shall not be subject to administrative or
judicial review under the WIC Program.
(viii) Voluntary withdrawal or nonrenewal of agreement. The State
agency shall not accept voluntary withdrawal of the vendor from the
Program as an alternative to disqualification for the violations listed
in paragraphs (k)(1)(i) through (k)(1)(iv) of this section, but shall
enter the disqualification on the record. In addition, the State agency
shall not use nonrenewal of the vendor agreement as an alternative to
disqualification.
(ix) Participant access determinations. Prior to disqualifying a
vendor for a Food Stamp Program disqualification pursuant to paragraph
(k)(1)(vii) of this section or for any of the violations listed in
paragraphs (k)(1)(ii) through (k)(1)(iv) of this section, the State
agency shall determine if disqualification of the vendor would result
in inadequate participant access. The participant access determination
shall be made in accordance with paragraph (k)(8) of this section. If
the State agency determines that disqualification of the vendor would
result in inadequate participant access, the State agency shall impose
a civil money penalty in lieu of disqualification. However, as provided
in paragraph (k)(1)(vi) of this section, the State agency shall not
impose a civil money penalty in lieu of disqualification for third or
subsequent sanctions for violations in paragraphs (k)(1)(ii) through
(k)(1)(iv) of this section. The State agency shall include
documentation of its participant access determination and any
supporting documentation in the file of each vendor who is disqualified
or receives a civil money penalty in lieu of disqualification.
(x) Civil money penalty formula. For each violation subject to a
mandatory sanction, the State agency shall use the following formula to
calculate a civil money penalty imposed in lieu of disqualification:
(A) Determine the vendor's average monthly redemptions for at least
the 6-month period ending with the month immediately preceding the
month during which the notice of administrative action is dated;
(B) Multiply the average monthly redemptions figure by 10 percent
(.10);
(C) Multiply the product from paragraph (k)(1)(x)(B) of this
section by the number of months for which the store would have been
disqualified. This is the amount of the civil money penalty, provided
that the civil money penalty shall not exceed $10,000 for each
violation. For a violation that warrants permanent disqualification,

[[Page 13324]]

the amount of the civil money penalty shall be $10,000. When during the
course of a single investigation the State agency determines a vendor
has committed multiple violations, the State agency shall impose a CMP
for each violation. The total amount of civil money penalties imposed
for violations investigated as part of a single investigation shall not
exceed $40,000.
(xi) Notification to FNS. The State agency shall provide the
appropriate FNS office with a copy of the notice of administrative
action and information on vendors it has either disqualified or imposed
a civil money penalty in lieu of disqualification for any of the
violations listed in paragraphs (k)(1)(i) through (k)(1)(iv) of this
section. This information shall include the name of the vendor,
address, identification number, the type of violation(s), and the
length of disqualification or the length of the disqualification
corresponding to the violation for which the civil money penalty was
assessed, and shall be provided within 15 days after the vendor's
opportunity to file for a WIC administrative review has expired or all
of the vendor's WIC administrative reviews have been completed.
(xii) Multiple violations during a single investigation. When
during the course of a single investigation the State agency determines
a vendor has committed multiple violations (which may include
violations subject to State agency sanctions), the State agency shall
disqualify the vendor for the period corresponding to the most serious
mandatory violation. However, the State agency shall include all
violations in the notice of administration action. If a mandatory
sanction is not upheld on appeal, then the State agency may impose a
State agency-established sanction.
(2) State agency vendor sanctions.
(i) The State agency may impose sanctions for violations that are
not specified in paragraphs (k)(1)(i) through (k)(1)(iv) of this
section as long as such violations and sanctions are included in the
vendor agreement. State agency sanctions may include disqualifications,
civil money penalties assessed in lieu of disqualification, and fines.
The total period of disqualification imposed for State agency
violations investigated as part of a single investigation may not
exceed one year. A civil money penalty or fine shall not exceed $10,000
for each violation. The total amount of civil money penalties imposed
for violations investigated as part of a single investigation shall not
exceed $40,000.
(ii) The State agency may disqualify a vendor who has been assessed
a civil money penalty for hardship in the Food Stamp Program, as
provided under 7 CFR 278.6. The length of such disqualification shall
correspond to the period for which the vendor would otherwise have been
disqualified in the Food Stamp Program. If a State agency decides to
exercise this option, the State agency shall:
(A) Include notification that it will take such disqualification
action in its vendor agreement, in accordance with paragraph (f)(3) of
this section; and
(B) Determine if disqualification of the vendor would result in
inadequate participant access in accordance with paragraph (k)(8) of
this section. If the State agency determines that disqualification of
the vendor would result in inadequate participant access, the State
agency shall not disqualify the vendor or impose a civil money penalty
in lieu of disqualification. The State agency shall include
documentation of its participant access determination and any
supporting documentation in each vendor's file.
(3) Prior warning. The State agency does not have to provide the
vendor with prior warning that violations were occurring before
imposing any of the sanctions in this paragraph (k).
(4) Appeal procedures. The State agency shall provide adequate
procedures for vendors to appeal a disqualification from participation
under the Program as specified in Sec. 246.18.
(5) Installment plans. The State agency may use installment plans
for the collection of civil money penalties and fines.
(6) Failure to pay a civil money penalty. If a vendor does not pay,
only partially pays, or fails to timely pay a civil money penalty
assessed in lieu of disqualification, the State agency shall disqualify
the vendor for the length of the disqualification corresponding to the
violation for which the civil money penalty was assessed (for a period
corresponding to the most serious violation in cases where a mandatory
sanction included the imposition of multiple civil money penalties as a
result of a single investigation).
(7) Actions in addition to sanctions. Vendors may be subject to
actions in addition to the sanctions in this section, such as claims
for improper or overcharged food instruments and penalties outlined in
Sec. 246.23, in the case of deliberate fraud.
(8) Participant access determination criteria. When making
participant access determinations, the State agency shall consider, at
a minimum, the availability of other authorized vendors in the same
area as the violative vendor and any geographic barriers to using such
vendors.
(9) Participant sanctions. The State agency shall establish
procedures designed to control participant abuse of the Program.
Participant abuse includes, but is not limited to, intentionally making
false or misleading statements or intentionally misrepresenting,
concealing or withholding facts to obtain benefits; sale of
supplemental foods or food instruments to, or exchange with, other
individuals or entities; receipt from food vendors of cash or credit
toward purchase of unauthorized food or other items of value in lieu of
authorized supplemental foods; and physical abuse, or threat of
physical abuse, of clinic or vendor staff. The State agency shall
establish sanctions for participant abuse. Such sanctions may, at the
discretion of the State agency, include disqualification from the
Program for a period up to three months. Warnings may be given prior to
the imposition of sanctions. Before a participant is disqualified from
the Program for alleged abuse, that participant shall be given full
opportunity to appeal a disqualification as set forth in Sec. 246.9.
(10) Referral for prosecution. The State agency shall refer food
vendors and participants who abuse the Program to Federal, State or
local authorities for prosecution under applicable statutes, where
appropriate.
* * * * *
5. In Sec. 246.15, a sentence is added to the end of paragraph (b)
to read as follows:

Sec. 246.15 Program income other than grants.

* * * * *
(b) * * * Money received by the State agency as a result of civil
money penalties or fines assessed against a vendor and any interest
charged in the collection of these penalties and fines shall be
considered as program income.
6. In Sec. 246.18:
a. paragraph (a)(1) is revised;
b. the first sentence of paragraph (a)(3) is revised;
c. paragraph (b)(1) is revised.
The revisions read as follows:

Sec. 246.18 Administrative appeal of State agency decisions.

(a) * * *
(1) The right of appeal shall be granted when a local agency's or a
vendor's application to participate is denied or, during the course of
the contract or agreement, when a local agency or vendor is
disqualified or any other adverse action which affects participation is
taken. The following are exceptions to this provision:

[[Page 13325]]

(i) Expiration of a contract or agreement with a vendor and the
State agency's determination regarding participant access shall not be
subject to administrative review; and
(ii) Disqualification of a vendor as a result of disqualification
from the Food Stamp Program shall not be subject to administrative or
judicial review.
* * * * *
(3) Except for disqualifications assessed under
Sec. 246.12(k)(1)(i), which shall be made effective on the date of
receipt of the notice of administrative action, the State agency may
take adverse action against a vendor after the 15-day advance
notification period mandated by paragraph (b)(1) of this section has
elapsed. * * *
(b) * * *
(1) Written notification of the administrative action, the
procedures to file for an administrative review, if any, the cause(s)
for and the effective date of the action. Such notification shall be
provided to participating vendors not less than 15 days in advance of
the effective date of the action. When a vendor is disqualified due in
whole or in part to violations specified in Sec. 246.12(k)(1), such
notification shall include the following statement: ``This
disqualification from WIC may result in disqualification as a retailer
in the Food Stamp Program. Such disqualification may not be subject to
administrative or judicial review under the Food Stamp Program.'' In
the case of disqualification of local agencies, the State agency shall
provide not less than 60 days advance notice of pending action.
* * * * *
Dated: March 12, 1999.
Samuel Chambers, Jr.,
Administrator.
[FR Doc. 99-6465 Filed 3-17-99; 8:45 am]
BILLING CODE 3410-30-P