[Federal Register Volume 75, Number 69 (Monday, April 12, 2010)]
[Rules and Regulations]
[Pages 18377-18393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-8200]



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  Federal Register / Vol. 75, No. 69 / Monday, April 12, 2010 / Rules 
and Regulations  

[[Page 18377]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR part 274

RIN 0584-AD48


Supplemental Nutrition Assistance Program, Regulation 
Restructuring: Issuance Regulation Update and Reorganization To Reflect 
the End of Coupon Issuance Systems

AGENCY: Food and Nutrition Service, USDA.

ACTION: Direct final rule.

-----------------------------------------------------------------------

SUMMARY: This direct final rule updates and reorganizes the 
Supplemental Nutrition Assistance Program (SNAP) (formerly the ``Food 
Stamp Program'') regulations pertaining to the issuance of SNAP 
benefits.
    These changes to the SNAP regulations are put forth to account for 
the replacement of the paper coupon issuance system with the Electronic 
Benefits Transfer (EBT) system as the nationwide method of distributing 
benefits to program recipients. This action is in accordance with the 
Food, Conservation, and Energy Act of 2008, Public Law 110-246, 
(hereinafter referred to as ``the 2008 Farm Bill'') which prohibits 
State agencies from issuing paper food stamp coupons and makes EBT 
cards the sole method of benefit delivery. The 2008 Farm Bill also de-
obligated paper coupons as legal tender as of June 18, 2009. Therefore, 
paper coupons no longer have any value and can no longer be redeemed at 
any store.
    In line with EBT implementation and the elimination of coupons, 
these changes remove coupon issuance and EBT pilot regulations that are 
no longer applicable, revise regulatory language to more appropriately 
reflect the new EBT issuance system and the Program's new name, and 
reorganize sections to develop a more cohesive set of issuance 
regulations.

DATES: This rule will become effective on June 11, 2010, unless the 
Department receives written adverse comments or notices of intent to 
submit adverse comments postmarked on or before May 12, 2010. If 
adverse comments within the scope of the rulemaking are received, the 
Department will publish timely notification of withdrawal of this rule 
in the Federal Register.

ADDRESSES: The Food and Nutrition Service (FNS), USDA, invites 
interested persons to submit comments on this direct final rule. 
Comments may be submitted through the Federal eRulemaking Portal: Go to 
http://www.regulations.gov. Follow the online instructions for 
submitting comments.
    Comments submitted in response to this rule will be included in the 
record and will be made available to the public. Please be advised that 
the substance of the comments and the identity of the individuals or 
entities submitting the comments will be subject to public disclosure. 
FNS will make the comments publicly available on the Internet via 
http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Address any questions regarding this 
rulemaking to Andrea Gold, Chief, Retailer Management and Issuance 
Branch, Benefit Redemption Division at Food and Nutrition Service, 
USDA, 3101 Park Center Drive, Alexandria, Virginia 22302 or by 
telephone at (703) 305-2456 during regular business hours (8:30 a.m. to 
5:30 p.m.) Monday through Friday.

SUPPLEMENTARY INFORMATION: 

Background

    The Food Stamp Program was permanently authorized in 1964, Public 
Law 88-525. The Program first began using paper coupons instead of 
``stamps'' to issue benefits in 1965. These initial coupons were then 
phased out in 1975 and became known as the ``old series'' coupons. The 
subsequent coupons remained essentially unchanged until they expired on 
June 18, 2009. Although these coupons resembled banknotes in size, the 
various colors, designs and booklets they came in were identifiable by 
others as ``food stamps.'' Furthermore, retailers were required to 
provide change above 99 cents in the form of coupons as well to ensure 
that benefits were used solely for eligible food items and not traded 
for cash. The coupon issuance process was used for almost 40 years, 
until 2004 when the Electronic Benefits Transfer (EBT) system 
implementation was completed nationwide. Now, issuing coupons to 
households and providing change is no longer a factor. The EBT system 
works similarly to a debit card system and deducts the exact amount of 
the purchase from the households' EBT account. Furthermore, EBT cards 
look and operate just like commercial debit cards, allowing recipients 
more anonymity at the checkout counter.
    Because coupons did not have an expiration date, they remained 
obligations of the Federal government even after EBT implementation was 
completed and continued to be redeemable at all FNS authorized stores. 
However, the ability to redeem coupons ended as of June 18, 2009, the 
expiration date set by the 2008 Farm Bill. In addition, Section 4115 of 
the 2008 Farm Bill amended Section 7 of the Food and Nutrition Act of 
2008 by adding subsection (g)(3)(A), 7 U.S.C. 2016 (g)(3)(A), to 
prohibit the issuance of coupons and other coupon-related documents, 
making EBT the sole method of benefit delivery. This law also changed 
the name of the ``Food Stamp Program'' to the ``Supplemental Nutrition 
Assistance Program (SNAP),'' to bring the title of the Program in line 
with the modern version of issuance and the focus on nutrition. 
Similarly, it is also time to bring the Program's regulations in line 
with current issuance requirements and practices.
    Since EBT is now the sole method for issuing and exchanging 
benefits, the revisions being promulgated by this rulemaking better 
reflect the new EBT reality. As such, the following changes are being 
made to 7 CFR part 274, previously entitled ``Issuance and Use of 
Coupons,'': Removing coupon issuance and EBT pilot regulations that are 
no longer applicable, revising regulatory language to more 
appropriately connote the new EBT issuance system, and reorganizing 
sections to develop a more cohesive set of issuance regulations.

Reducing Issuance System Options to On-Line or Off-Line EBT Systems

    At 7 CFR 274.3, the Department will eliminate regulatory language 
regarding obsolete issuance system options for the delivery of SNAP 
benefits to

[[Page 18378]]

households. The system options that will be removed are authorization 
document, direct access, and mail issuance systems for the delivery of 
coupons. These systems were legislatively eliminated as options for 
State agencies by the 2008 Farm Bill. State agencies will continue to 
have the option to implement either an on-line or off-line EBT system 
for the delivery of benefits.

Removing Outdated Coupon Issuance and EBT Pilot Regulations

    Throughout 7 CFR part 274, the Department is deleting language and 
several sections which directly address State agency responsibilities 
regarding issuance, replacement, storage, shipping, inventory 
management, reconciliation, and reporting requirements for paper 
coupons.
    The Department is also removing regulations requiring the issuance 
of identification (ID) cards to each certified household that are no 
longer applicable. SNAP benefits are now electronically deposited into 
a household's EBT account on a monthly basis. Therefore, ID is no 
longer needed as proof of program eligibility to pick up benefits. 
Furthermore, to access benefits in their EBT account, households must 
set up a Personal Identification Number (PIN) known only to household 
members and those authorized to make SNAP purchases on the household's 
behalf. A PIN ensures that only authorized persons can conduct SNAP 
transactions. In addition, to account for the elimination of ID cards, 
the required use of specially-marked ID cards for certain households 
eligible for prepared meals and the purchase of hunting and fishing 
equipment is being replaced with a broader requirement that State 
agencies implement a method to ensure that only eligible households are 
able to participate in such programs.
    Border store language, requiring State agencies to provide Point-
of-Sale (POS) equipment to stores that border an EBT system area, is 
also being removed. This requirement was intended to ensure adequate 
benefit access to SNAP clients who lived in areas that bordered a non-
EBT State or a State that was not interoperable with the bordering 
State's EBT system. However, the Electronic Benefit Transfer 
Interoperability and Portability Act of 2000, Public Law 106-171, 
required State EBT systems to be interoperable nationwide by October 
2002. Because every State agency is now operating a Statewide EBT 
system that is interoperable with all other State EBT systems, the 
requirement that a State provide POS equipment to border stores is no 
longer relevant. However, the requirement that State agencies ensure 
that procedures are in place to process manual vouchers in border 
stores deemed necessary for client access still remains in instances 
when the system is down or for those retailers that do not have POS 
equipment.
    Finally, the Department is revising language pertaining to EBT 
system pilot projects and expansion. EBT is no longer in the pilot 
stage, but instead has been in the operation and maintenance stage for 
all State agencies since nationwide implementation was completed in 
June 2004. As a result, EBT conversions have replaced pilots for the 
ongoing operation of State EBT systems. Conversions occur when a State 
EBT reprocurement results in the selection of a new vendor for EBT 
services. When this occurs, the State agency must submit a conversion 
plan instead of a pilot project implementation plan to the Department 
for approval to address how the State intends to transition from the 
current system to the new one. Therefore, the Department is making it 
clearer that pilot and expansion requirements pertain only to new 
technology or enhancements that significantly change the architecture 
of issuing benefits electronically.

Nomenclature Changes

    The Department is replacing Food Stamp Program and coupon 
terminology with new SNAP and EBT terminology throughout the issuance 
regulations at 7 CFR part 274. Again, these changes reflect similar 
updates in the Food and Nutrition Act of 2008, 7 U.S.C. 2011, et seq., 
and the replacement of the coupon issuance system with EBT systems.

Reorganization

    Henceforth, EBT will be synonymous with SNAP issuance rather than 
an exception to the usual issuance process. As a result, EBT, as an 
issuance method, will no longer be separated from overall issuance 
regulations. This will eliminate overlapping requirements that are 
currently found in both the coupon and EBT sections. It will also 
eliminate confusion in areas where coupon issuance requirements do not 
apply to EBT issuance. The Department is also making technical 
corrections for clarity, such as adding missing words or correcting 
inaccurate phrasing. Please note that the Department is changing the 
citation for most paragraphs throughout Part 274. Furthermore, some 
regulations are being moved to different sections and some sections are 
being created or renamed to better reflect the content. The following 
Distribution Table indicates how individual sections will be 
reorganized:

            Distribution Table--Issuance and Use of Benefits
------------------------------------------------------------------------
                  CFR                           Direct final rule
------------------------------------------------------------------------
274.1--State agency issuance             274.1--Issuance System Approval
 responsibility.                          Standards.
274.1(b)(1)-(3)........................  274.1(d)(1)-(3).
274.1(b)(3)(i)-(ii)(B).................  Removed.
274.1(b)(4)-274.1(b)(5)................  Removed.
274.1(c)-(d)...........................  Removed.
274.1(e)...............................  274.1(f).
274.2--Providing benefits to             ...............................
 participants.
274.2(e)-(g)...........................  Removed.
274.3--Issuance systems................  Moved to sections 274.1 and
                                          274.2.
274.3(a)(1)-(a)(3).....................  Removed.
274.3(a)(4)-(a)(5).....................  274.1(b).
274.3(b)...............................  Removed.
274.3(c)...............................  274.1(c).
274.3(d)(1)-(d)(4).....................  274.1(h).
274.3(d)(5)............................  Removed.
274.3(d)(6)............................  274.2(b).
274.3(e)...............................  Removed.
274.4--Reconciliation and Reporting....  ...............................
274.4(a)...............................  Removed.

[[Page 18379]]

 
274.4(b)(1)............................  Removed.
274.4(b)(2)............................  274.4(c)(1).
274.4(b)(3)............................  Removed.
274.4(b)(4)............................  274.4(c)(2).
274.5--Reserved........................  274.5--Record retention and
                                          forms security.
274.6--Replacement issuances to          274.6--Replacement issuances
 households.                              and cards to households.
274.6(a)(1)(i)-(a)(1)(ii)..............  Removed.
274.6(a)(1)(iv)........................  Removed.
274.6(a)(2)............................  Removed.
274.6(a)(3)............................  274.6(a)(2).
274.6(a)(4)............................  Removed.
274.6(b)...............................  274.6(a)(3).
274.6(b)(2)(i)-(b)(2)(ii)..............  Removed.
274.6(b)(2)(iii).......................  274.6(a)(3)(ii).
274.6(b)(2)(iv)........................  Removed.
274.6(b)(3)............................  274.6(a)(3)(iii).
274.6(c)...............................  274.6(a)(4).
274.6(c)(3)(i)-(c)(3)(iv)..............  Removed.
274.6(d)-(d)(1)........................  274.6(a)(5)-(a)(5)(i).
274.6(d)(2)(i)-(d)(2)(ii)..............  Removed.
274.6(d)(1)(iii).......................  274.6(a)(5)(ii).
274.6(d)(2)............................  274.6(a)(5)(iii).
274.6(e)...............................  Removed.
274.6(f)...............................  274.6(a)(6)(i).
274.6(f)(1)............................  Removed.
274.6(f)(2)............................  274.6(a)(6)(ii).
274.6(f)(3)-(4)........................  Removed.
274.6(g)...............................  Removed.
274.6(h)-(h)(2)........................  274.6(a)(7)-(a)(7)(ii).
274.6(h)(2)(i)-(ii)....................  Removed.
274.6(h)(3)............................  Removed.
274.6(h)(4)............................  274.6(a)(7)(iii).
274.6(h)(4)(i)-(h)(4)(iii).............  Removed.
274.7 Coupon Management................  Removed.
274.8--Responsibilities of Coupon        Removed.
 Issuers.
274.9--Closeout of Coupon Issuer.......  Removed.
274.10--Use of Identification Cards and  274.7--Benefit Redemption by
 Redemption of Coupons by Eligible        Eligible Households.
 Households.
274.10(a)-(a)(3).......................  Removed.
274.10(a)(4)(i)-(a)(4)(ii).............  274.7(g)(1)-(g)(2).
274.10(a)(4)(iii)......................  274.7(g)(4)(ii).
274.10(a)(4)(iv).......................  274.7(h).
274.10(a)(5)...........................  Removed.
274.10(b)-(c)..........................  Removed.
274.10(d)..............................  274.7(a).
274.10(e)..............................  274.7(g)(1).
274.10(f)-(f)(3).......................  274.7(g)(3)-(g)(3)(iii).
274.10(g)..............................  274.7(g)(4)(i).
274.10(h)..............................  Removed.
274.10(i)..............................  274.7(b).
274.10(j)..............................  Removed.
274.11--Issuance and Inventory Record    274.5--Record Retention and
 Retention and Forms Security.            Forms Security.
274.11(a)..............................  274.5(a).
274.11(a)(1)...........................  Removed.
274.11(a)(2)...........................  274.5(a)(ii).
274.11(b)..............................  274.5(b).
274.11(c)(1)(i)........................  274.5(c).
274.12--EBT System Approval Standards..  274.8--Functional and Technical
                                          EBT System Requirements.
274.12(a)..............................  Removed.
274.12(b)(1)...........................  274.1(f).
274.12(b)(2)-(b)(4)....................  274.1(g)(1)-(3).
274.12(c)..............................  274.1(f)(1).
274.12(c)(2)-(3).......................  274.1(f)(2)-(3).
274.12(c)(4)...........................  274.1(f)(1)(iii).
274.12(d)..............................  274.1(f)(1)(iv).
274.12(e)-(e)(3).......................  274.8(a)-(a)(3).
274.12(e)(4)(i)........................  274.3(e)(1)-(e)(2).
274.12(e)(4)(ii)-(vi)..................  274.3(e)(3)-(7).
274.12(e)(4)(vii)-(e)(4)(vii)..........  274.1(j).
274.12(f)(1)...........................  274.7(c).
274.12(f)(2)...........................  274.7(d)(1)-(2).
274.12(f)(3)...........................  274.7(d)(3) and 274.8(b)(7).

[[Page 18380]]

 
274.12(f)(4)...........................  274.2(d).
274.12(f)(4)(i)-(f)(4)(iii)............  274.2(g).
274.12(f)(5)(i)........................  274.2(f).
274.12(f)(5)(ii)-(v)...................  274.6(b).
274.12(f)(6)...........................  Removed.
274.12(f)(7)...........................  274.2(h).
274.12(f)(8)...........................  274.2(a).
274.12(f)(9)...........................  274.7(e) and 274.7(f)(2).
274.12(f)(10)..........................  274.2(e).
274.12(g)-(g)(2).......................  274.3(a)-(a)(2).
274.12(g)(3)...........................  274.1(g)(4).
274.12(g)(4)-(4)(i)....................  274.7(f)-(f)(1).
274.12(g)(4)(ii).......................  274.3(b).
274.12(g)(5)...........................  274.3(a)(3).
274.12(g)(6)...........................  274.3(c).
274.12(h)-(h)(4).......................  274.8(b)-(b)(4).
274.12(h)(5)...........................  274.3(d).
274.12(h)(6)-(h)(7)....................  274.8(b)(5)-(b)(6).
274.12(g)(8)-(10)......................  274.8(b)(8)-(b)(10).
274.12(h)(11)..........................  Removed.
274.12(i)..............................  274.8(c).
274.12(j)-(j)(1).......................  274.4(a)-(a)(1)(vi).
274.12(j)(2)-(2)(i)....................  274.4(b).
274.12(j)(2)(ii)-(iii).................  274.4(b)(ii)-(b)(iii).
274.12(j)(3)-(j)(4)....................  Removed.
274.12(j)(5)...........................  274.1(i)(2).
274.12(k)..............................  274.1(k).
274.12(l)..............................  274.8(d).
274.12(m)..............................  274.8(e).
274.12(n)..............................  274.1(e).
------------------------------------------------------------------------

Implementation

    In accordance with the parameters set forth in 62 FR 55141 (October 
23, 1997), ``Use of Direct Final Rulemaking,'' this rule will become 
effective on June 11, 2010, unless the Department receives written 
adverse comments or notices of intent to submit adverse comments 
postmarked on or before May 12, 2010.
    Adverse comments on regulatory requirements that existed prior to 
the publication of this rule are not within the scope of this 
rulemaking. Furthermore, the Department does not have the authority to 
consider comments on nondiscretionary regulatory changes mandated by 
the 2008 Farm Bill. Only comments pertaining to discretionary changes 
in current requirements will be considered. In addition, this 
rulemaking is intended to address only the provision of the 2008 Farm 
Bill that requires EBT to be the sole method of benefit delivery. The 
other EBT and issuance requirements of the 2008 Farm Bill will be 
addressed in subsequent rulemaking.

Executive Order 12866

    This rule has been determined to be not significant and was not 
reviewed by the Office of Management and Budget under Executive Order 
12866.

Executive Order 12372

    SNAP is listed in the Catalog of Federal Domestic Assistance under 
No. 10.551. For the reasons set forth in the final rule in 7 CFR part 
3015, Subpart V and related Notice (48 FR 29115), this Program is 
excluded from the scope of Executive Order 12372, which requires 
intergovernmental consultation with State and local officials.

Executive Order 13132

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have federalism implications, agencies are directed 
to provide a statement for inclusion in the preamble to the regulations 
describing the agency's considerations in terms of the three categories 
called for under section (6)(b)(2)(B) of Executive Order 13132. The 
Department has considered the impact of this rule on State and local 
governments and has determined that this rule does not have Federalism 
implications. This rule does not impose substantial or direct 
compliance costs on State and local governments. Therefore, under 
Section 6(b) of the Executive order, a federalism summary impact 
statement is not required.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-612). It has been certified 
that this direct final rule will not have a significant economic impact 
on a substantial number of small entities. Departmental Field Offices, 
retailers participating or applying to participate in the Supplemental 
Nutrition Assistance Program, State agencies that distribute 
Supplemental Nutrition Assistance Program benefits and treatment 
centers, homeless meal providers, group living homes, and other meal 
services eligible to participate in the Supplemental Nutrition 
Assistance Program are the entities affected by this change.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 
1320) requires the Office of Management and Budget (OMB) approve all 
collections of information by a Federal agency before they can be 
implemented. Respondents are not required to respond to any collection 
of information unless it displays a current valid OMB control number. 
This rule does not contain additional reporting or recordkeeping 
requirements other than those information collections impacted that

[[Page 18381]]

will be submitted or has been previously approved by the Office of 
Management and Budget (OMB) under the Paperwork Reduction Act of 1995.

Executive Order 12988

    This 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. This rule is not intended to have 
retroactive effect unless so specified in the ``Effective Date'' 
paragraph of this preamble. Prior to any judicial challenge to the 
provisions of this rule or the application of its provisions, all 
applicable administrative procedures must be exhausted.

Public Law 104-4

    Unfunded Mandate Reform Act of 1995 (UMRA) Title II of UMRA 
establishes requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and Tribal governments and 
the private sector. Under Section 202 of the UMRA, the Department 
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 to the private sector, of $100 million or more in any 
1 year. When such a statement is needed for a rule, section 205 of the 
UMRA generally requires the Department 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 1 year. This rule is, therefore, not subject to 
the requirements of sections 202 and 205 of the UMRA.

List of Subjects in 7 CFR part 274

    Food stamps, Grant programs-social programs, Reporting and 
recordkeeping requirements.

0
Accordingly, 7 CFR part 274 is revised as follows:

PART 274--ISSUANCE AND USE OF PROGRAM BENEFITS

Sec.
274.1 Issuance system approval standards.
274.2 Providing benefits to participants.
274.3 Retailer management.
274.4 Reconciliation and reporting.
274.5 Record retention and forms security.
274.6 Replacement issuances and cards to households.
274.7 Benefit redemption by eligible households.
274.8 Functional and technical EBT system requirements.

    Authority: 7 U.S.C. 2011-2036.

    Editorial Note: OMB control numbers relating to this part 274 
are contained in Sec.  271.8.

Sec.  274.1  Issuance system approval standards.

    (a) Basic issuance requirements. State agencies shall establish 
issuance and accountability systems which ensure that only certified 
eligible households receive benefits; that Program benefits are timely 
distributed in the correct amounts; and that benefit issuance and 
reconciliation activities are properly conducted and accurately 
reported to FNS.
    (b) System classification. State agencies may issue benefits to 
households through any of the following systems:
    (1) An on-line Electronic Benefit Transfer (EBT) system in which 
Program benefits are stored in a central computer database and 
electronically accessed by households at the point of sale via reusable 
plastic cards.
    (2) An off-line EBT system in which benefit allotments can be 
stored on a card or in a card access device and used to purchase 
authorized items at a point-of-sale (POS) terminal without real-time 
authorization from a central processor.
    (c) Alternative benefit issuance system.
    (1) If the Secretary, in consultation with the Office of the 
Inspector General, determines that Program integrity would be improved 
by changing the issuance system of a State, the Secretary shall require 
the State agency to issue or deliver benefits using another method. The 
alternative method may be one of the methods described in paragraph (b) 
of this section. The determination of which alternative to use will be 
made by FNS after consultation with the State agency. The cost of 
conversion will be shared by the Department and the State agency in 
accordance with the cost accounting provision of part 277 of this 
chapter.
    (2) The cost of documents or systems which may be required as a 
result of a permanent alternative issuance system pursuant to this 
section shall not be imposed upon retail food firms participating in 
the Program.
    (d) Contracting or delegating issuance responsibilities. State 
agencies may assign to others such as banks, savings and loan 
associations, and other commercial businesses, the responsibility for 
the issuance of benefits. State agencies may permit contractors to 
subcontract assigned issuance responsibilities.
    (1) Any assignment of issuance functions shall clearly delineate 
the responsibilities of both parties. The State agency remains 
responsible, regardless of any agreements to the contrary, for ensuring 
that assigned duties are carried out in accordance with these 
regulations. In addition, the State agency is strictly liable to FNS 
for all losses of benefits, even if those losses are the result of the 
performance of issuance, security, or accountability duties by another 
party.
    (2) All issuance contracts shall follow procurement standards set 
forth in part 277 of this chapter.
    (3) The State agency shall not assign the issuance of benefits to 
any retail food firm.
    (e) Ownership rights and procurement requirements. (1) The State 
agency shall comply with the software and automated data processing 
equipment ownership rights prescribed under Sec.  277.13 and Sec.  
277.18(1) of this chapter.
    (2) The State agency shall comply with the procurement standards 
prescribed under Sec.  277.18(j) of this chapter. Under service 
agreements, the procurement of equipment and services which will be 
utilized in the SNAP EBT system shall be conducted in accordance with 
the provisions set forth under Sec.  277.18(f) of this chapter.
    (f) Advance planning documentation. State agencies must comply with 
the procurement requirements of part 277 of this chapter for the 
acquisition, design, development, or implementation of initial and 
subsequent EBT systems. With certain exceptions detailed in part 277, 
State agencies must receive prior approval for the design and 
acquisition of EBT systems through submission of advance planning 
documents (APDs).
    (1) Pilot project approval requirements. To the extent the State is 
moving EBT to new technology or incorporating enhancements or upgrades 
that significantly change the architecture and interface requirements 
or functionality of issuing benefits electronically:
    (i) The State agency shall comply with the two stage approval 
process for submitting an EBT system proposal to FNS for approval. The 
Planning APD shall contain the requirements specified under Sec.  
277.18(d)(1) of this chapter, including a brief letter of intent, 
planning budget, cost allocation plan, and schedule of activities and 
deliverables.
    (ii) The State agency shall implement EBT systems in a pilot area 
prior to

[[Page 18382]]

expansion statewide or to other project areas. The areas of pilot 
operation and full scale operation shall be identified in the planning 
APD when submitted to FNS for approval.
    (A) Pilot project site and expanded site descriptions. At a 
minimum, the proposed pilot project site and expanded site descriptions 
shall include the geographical boundaries, average number and 
characteristics of Program participants and households, the number and 
type of authorized food retailers and authorized retailers bordering 
the pilot and expanded areas, the SNAP redemption patterns of food 
retailers, the status of commercial POS deployment and the estimated 
number of checkout lanes that will require POS equipment; and
    (B) A description of major contacts. A description of initial 
contacts the State agency has made in the proposed pilot area among 
food retailers, financial institutions and households or their 
representatives that may be affected by implementation of the EBT 
system. Written commitments from the retail grocer community (including 
supermarket chains, independent retailers, and convenience stores) and 
participating financial institutions in the pilot area shall be 
provided along with other documentation that demonstrates the 
willingness to support the proposed EBT system within the pilot area 
and expanded system area. The State agency shall submit evidence of 
contacts with recipient organizations and others.
    (iii) Pilot project reporting. The State agency is required to 
report to FNS all issues that arise during the pilot period. Reports to 
FNS shall be provided as problems occur. In instances where the State 
agency must investigate the issue, FNS must receive the information no 
later than 1 month after completion of the pilot operations.
    (iv) Expansion requirements. The pilot and expansion schedule must 
be delineated in the State agency's approved implementation plan. As 
part of the plan, the State agency must indicate a suitable pilot area 
to serve as the basis of the 3-month analysis and reporting, however, 
expansion can occur simultaneously with pilot operations. Submission of 
an Advanced Planning Document Update to request FNS approval to 
implement and operate the EBT system in areas beyond the pilot area is 
only required in instances where there are substantial changes to the 
implementation plan. However, if significant problems arise during the 
pilot period or expansion, the Department can require the roll-out be 
suspended until such problems are resolved.
    (2) EBT Implementation APD. The EBT Implementation APD shall 
include the completed documents required under Sec.  277.18 of this 
chapter for implementation APDs, where appropriate. Also, the State 
agency shall commit to completing and submitting the following 
documents for FNS approval and obtaining such approval prior to 
issuance of benefits to eligible households in the project area:
    (i) Functional demonstration. A functional demonstration of the 
functional requirements prescribed in Sec.  274.8 in combination with 
the system components described by the approved system design is 
recommended in order to identify and resolve any problems prior to 
acceptance testing. The Department reserves the right to participate in 
the functional demonstration if one is conducted. FNS may require that 
any or all of these tests be repeated in instances where significant 
modifications are made to the system after these tests are initially 
completed or if problems that surfaced during initial testing warrant a 
retest;
    (ii) An acceptance test plan. The Acceptance Test Plan for the 
project shall describe the methodology to be utilized to verify that 
the EBT system complies with Program requirements and System Design 
specifications. At a minimum, the Acceptance Test Plan shall address:
    (A) The types of testing to be performed;
    (B) The organization of the test team and associated 
responsibilities, test database generation, test case development, test 
schedule, and the documentation of test results. Acceptance testing 
shall include functional requirements testing, error condition handling 
and destructive testing, security testing, recovery testing, controls 
testing, stress and throughput performance testing, and regression 
testing;
    (C) A ``what-if'' component shall also be included to permit the 
opportunity for observers and participants to test possible scenarios 
in a free-form manner.
    (D) The Department reserves the right to participate and conduct 
independent testing as necessary during the acceptance testing and 
appropriate events during system design, development, implementation 
and operation.
    (iii) An acceptance test report. The State agency shall provide a 
separate report after the completion of the acceptance test only in 
instances where FNS is not present at the testing or when serious 
problems are uncovered during the testing that remain unresolved by the 
end of the test session. The report shall summarize the activities, 
describe any discrepancies, describe the proposed solutions to 
discrepancies, and the timetable for their retesting and completion. In 
addition, the report shall contain the State agency's recommendations 
regarding implementation of the EBT system.
    (iv) A prototype food retailer agreement. The State agency shall 
enter an agreement with each FNS authorized retailer that complies with 
the requirements under Sec.  274.3.
    (v) An implementation plan. The implementation plan shall include 
the following:
    (A) A description of the tools, procedures, detailed schedules, and 
resources needed to implement the project;
    (B) The equipment acquisition and installation requirements, 
ordering schedules, and system and component testing;
    (C) A phase-in-strategy which permits a measured and orderly 
transition from one EBT system to another. In describing this strategy, 
the plan shall address schedules that avoid disruption of normal 
shopping patterns and operations of participating households and food 
retailers. Training of SNAP households, State agency personnel and 
retailers and/or their trainers shall be coordinated with the 
installation of equipment in retail stores;
    (D) A description of on-going tasks associated with fine-tuning the 
system and making any corrective actions necessary to meet contractual 
requirements. The description shall also address those tasks associated 
with ongoing training, document updates, equipment maintenance, on-site 
support and system adjustments, as needed to meet Program requirements; 
and,
    (E) A plan for orderly phase-out of the project and/or for 
continuing benefit issuance operations if it is demonstrated during the 
pilot project or conversion operations that the new system is not 
acceptable.
    (vi) A contingency plan. The State agency shall submit a written 
contingency plan for FNS approval. The contingency plan shall contain 
information regarding the back-up issuance system that will be 
activated in the event of an emergency shut-down which results in 
short-term or extended system inaccessibility, or total discontinuation 
of EBT system operations. The contingency plan shall be incorporated 
into the State system

[[Page 18383]]

security plan after FNS approval as prescribed at Sec.  277.18(p) of 
this chapter.
    (3) EBT Implementation APD budget. The Implementation APD budget 
shall be prepared and submitted for FNS approval in accordance with the 
requirements of paragraph (k) of this section and Sec.  277.18(d)(2) of 
this chapter.
    (g) EBT system administration. (1) The State agency shall be 
responsible for the coordination and management of the EBT system. The 
Secretary may suspend or terminate some or all EBT system funding or 
withdraw approval of the EBT system from the State agency upon a 
finding that the State agency or its contracted representative has 
failed to comply with the requirements of this section and/or Sec.  
277.18 of this chapter.
    (2) All EBT systems within a State must follow a single EBT APD and 
system architecture submitted by the State agency. Multiple EBT designs 
will be acceptable only if such designs can be fully justified by the 
State agency; the system differences are transparent to participating 
households that move within the State; operating costs are the same or 
lower; and the different systems have the ability to readily 
communicate (transaction interchange) with one another.
    (3) The State agency shall indicate how it plans to incorporate 
additional programs into the EBT system if it anticipates the addition 
of other public assistance programs concurrent with or after 
implementation of the SNAP EBT system. The State agency shall also 
consult with the State agency officials responsible for administering 
the Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC) prior to submitting the Planning APD for FNS approval.
    (4) The State agency shall ensure that a sufficient number of 
authorized food retailers have agreed to participate throughout the 
area in which the EBT system will operate to ensure that eligible SNAP 
households will not suffer a significant reduction in their choice of 
retail food stores and that a sufficient number of retail food stores 
serving minority language populations are participating.
    (h) Master issuance file. (1) The State agency shall establish a 
master issuance file which is a composite of the issuance records of 
all certified SNAP households. The State agency shall establish the 
master issuance file in a manner compatible with its system used for 
maintaining case record information and shall separate the information 
on the master issuance file into active and inactive case file 
categories. The master issuance file shall contain all the information 
needed to identify certified households, issue household benefits, 
record the participation activity for each household and supply all 
information necessary to fulfill the reporting requirements prescribed 
in Sec.  274.4.
    (i) The master issuance file shall be kept current and accurate. It 
shall be updated and maintained through the use of documents such as 
notices of change and controls for expired certification periods.
    (ii) Before entering a household's data on the master issuance 
file, the State agency shall review the master issuance file to ensure 
that the household is not currently participating in, or disqualified 
from, the Program. If benefits are issued under the expedited service 
requirements of Sec. Sec.  273.2(i) of this chapter and 274.2(b), the 
State agency shall complete as much of the master issuance file review 
as possible prior to issuing the benefits. Any uncompleted reviews 
shall be completed after issuance and appropriate corrective action 
shall be taken to recover overissuance.
    (2) State agencies should divide issuance responsibilities between 
at least two persons to prevent any single individual from having 
complete control over the authorization of issuances and the issuances 
themselves. Responsibilities to be divided include maintenance of 
inventory records, the posting of benefits to an EBT account and 
preparation of EBT cards and PINs for mailing. If issuance functions in 
an office are handled by one person, a second-party review shall be 
made to verify card inventory, the reconciliation of the mail log, and 
the number of mailings prepared.
    (3) State agencies shall establish controls to prevent a household 
from concurrently receiving benefits through expedited and normal 
issuance services.
    (4) State agencies shall clearly identify issuances in their 
accountability systems as initial, supplemental, replacement, or 
restored benefits.
    (i) State monitoring, examinations, and audits. (1) The State 
agency's accountability system shall include procedures for monitoring 
benefit issuers to assure that the day-to-day operations of all benefit 
issuers comply with these regulations, to identify and correct 
deficiencies, and to report violations of the Act or regulations to 
FNS.
    (2) The State agency must obtain an examination by an independent 
auditor of the transaction processing of the State EBT service provider 
regarding the issuance, redemption, and settlement of Program benefits. 
The examination must be done at least annually and the report must be 
completed ninety days after the examination period ends. Subsequent 
examinations must cover the entire period since the previous 
examination. Examinations must follow the American Institute of 
Certified Public Accountants (AICPA) Statement on Auditing Standards 
No. 70, Service Organizations (SAS No. 70), requirements for reports on 
controls placed in operation and tests of the operating effectiveness 
of the controls.
    (i) The examination report must include a list of all States whose 
systems operate under the same control environment. Auditors conducting 
the examination must follow EBT guidance contained in the Office of 
Management and Budget (OMB) Circular A-133 Compliance Supplement to the 
extent the guidelines refer to SNAP benefits. (For availability of OMB 
Circulars referenced in this section, see 5 CFR 1310.3.)
    (ii) The State agency must retain a copy of the SAS No. 70 
examination report.
    (iii) The State agency shall respond to written requests from the 
Food and Nutrition Service (FNS), USDA Office of the Inspector General 
(OIG), or the General Accountability Office (GAO) for completed SAS No. 
70 examination reports by providing the report within thirty days of 
receipt of the written request.
    (iv) The State agency shall respond to written requests from FNS, 
OIG, or GAO to view auditor's workpapers from SAS No. 70 reports by 
arranging to have workpapers made available within thirty days of 
receipt of the written request.
    (v) FNS and the USDA OIG shall rely on SAS No. 70 reports on EBT 
transaction processing services provided by contractors to the State. 
FNS and USDA OIG reserve the right to conduct other reviews or audits 
if necessary.
    (vi) EBT services provided directly by the State are not subject to 
SAS No. 70 examination requirements of this section but remain subject 
to the single audit requirements at 7 CFR 277.7 and OMB Circular A-133.
    (j) Compliance Investigations. State agencies shall provide on-line 
read-only access to State EBT systems for compliance investigations.
    (1) The State agency is required to provide software and 
telecommunications capability as necessary to FNS Retailer 
Investigation Branch Area offices, Regional offices and Field offices 
so that FNS compliance investigators, other appropriate FNS personnel 
and USDA OIG investigators have access to the

[[Page 18384]]

system in order to conduct investigations of program abuse and alleged 
violations;
    (2) The State agency must ensure that FNS compliance investigators 
and USDA OIG investigators have access to EBT cards and accounts that 
are updated as necessary to conduct SNAP investigations.
    (k) Federal financial participation. (1) The cost of administering 
statewide benefit issuance after implementation of the EBT system shall 
be funded at the regular Federal financial participation rate.
    (2) The State agency shall comply with the provisions set forth 
under 7 CFR 277.18 and appendix A of 7 CFR 277.18 of this chapter in 
determining and claiming allowable costs for the EBT system.
    (3) Access to system documentation, including cost records of 
contractors or subcontractors shall be made available and incorporated 
into contractual agreements in accordance with Sec.  277.18(k) of this 
chapter.
    (4) State agencies may receive one hundred percent Federal funding 
for the costs they incur for switching and settling all SNAP interstate 
transactions. For purposes of this section, the term ``switching'' 
means the routing of an interstate transaction that consists of 
transmitting the details of a transaction electronically recorded 
through the use of an EBT card in one State to the issuer of the card 
that is in another State; and the term ``settling'' means movement, and 
reporting such movement, of funds from an EBT card issuer located in 
one State to a retail food store, or wholesale food concern, that is 
located in another State, to accomplish an interstate transaction. The 
total amount of one hundred percent funding available annually is 
limited to $500,000 nationwide. Once the $500,000 limitation is 
exceeded, Federal financial participation reverts to the standard fifty 
percent program reimbursement rate and procedure. To qualify for this 
funding, the State agency must:
    (i) Meet standards of interoperability and portability under Sec.  
274.8;
    (ii) Sign and submit, in each fiscal year for which the State 
agency requests enhanced funding, an Interoperability Funding Agreement 
to comply with the administrative procedures established by the 
Department. The State agency must submit the signed agreement to the 
Department before the end of the fiscal year in which costs are 
incurred in order to qualify for payment for that fiscal year, and
    (iii) Submit requests for payment on a quarterly basis after the 
end of the quarter in which interoperability costs are incurred, in 
accordance with the Department's administrative procedures. Requests 
for payments shall be due February 15 (for the period October through 
December), May 15 (January through March), August 15 (April through 
June), and November 15 (July through September). Requests for payment 
submitted after the required date for a quarter shall not be considered 
until the following quarter, when such requests for payments are 
scheduled to be processed.


Sec.  274.2  Providing benefits to participants.

    (a) General. Each State agency is responsible for the timely and 
accurate issuance of benefits to certified eligible households, 
including EBT system compliance with the expedited service benefit 
delivery standard and the normal application processing standards, as 
prescribed by these regulations. Those households located in rural 
areas or comprised of elderly or disabled members who have difficulty 
reaching issuance offices, and households which do not reside in a 
permanent dwelling or of a fixed mailing address shall be given 
assistance in obtaining an EBT card. State agencies shall assist these 
households by arranging for the mailing of EBT cards to them, by 
assisting them in finding authorized representatives who can act on 
their behalf, or by using other appropriate means.
    (b) Availability of benefits. All newly certified households, 
except those that are given expedited service, shall be given an 
opportunity to participate no later than 30 calendar days following the 
date the application was filed. An opportunity to participate consists 
of providing households with an active EBT card and PIN, and benefits 
that have been posted to the household's EBT account and are available 
for spending. State agencies, utilizing a centralized mailing system, 
must mail EBT cards and PINs, if applicable, in time to assure that the 
benefits can be spent after they are received but before the 30-day 
standard expires. A household has not been provided an opportunity to 
participate within the 30-day standard if the EBT card or PIN is mailed 
on the 29th or 30th day. For households entitled to expedited service, 
the State agency shall make benefits available to the household not 
later than the seventh calendar day following the date of application. 
State agencies which issue EBT cards by mail shall, at a minimum, use 
first class mail and sturdy nonforwarding envelopes or packages to send 
EBT cards to households.
    (c) Combined allotments. For those households which are to receive 
a combined allotment, the State agency shall provide the benefits for 
both months as an aggregate (combined) allotment, or as two separate 
allotments, made available at the same time, in accordance with the 
timeframes specified in Sec.  273.2 of this chapter.
    (d) Ongoing households. State agencies shall establish an 
availability date for household access to their benefits and inform 
households of this date. All households shall be placed on an issuance 
schedule so that they receive their benefits on or about the same date 
each month. The date upon which a household receives its initial 
allotment after certification need not be the date that the household 
must receive its subsequent allotments.
    (1) State agencies may stagger issuance throughout the month, or 
for a shorter period. When staggering benefit delivery, however, State 
agencies shall not allow more than 40 days to elapse between the 
issuance of any two allotments provided to a household participating 
longer than two consecutive, complete months. Regardless of the 
issuance schedule used, the State agency shall adhere to the reporting 
requirements specified in Sec.  274.4.
    (2) Upon the request of the Tribal organization that exercises 
governmental jurisdiction over a reservation, the State agency shall 
stagger the issuance of benefits for eligible households located on 
reservations for at least 15 days each month.
    (3) When a participating household is transferred from one issuance 
system or procedure to another issuance system or procedure, the State 
agency shall not permit more than 40 days to elapse between the last 
issuance under the previous system or procedure, and the first issuance 
under the new system or procedure. The 40-day requirement does not 
apply to instances in which actions by recipients, such as failure to 
submit a monthly report, disrupt benefits. Transfers include, but are 
not limited to, households being moved into or out of a staggered 
issuance procedure and households on a fluctuating schedule within a 
staggered system. If the State agency determines that more than 40 days 
may elapse between issuances, the State agency shall divide the new 
issuance into two parts, with one part being issued within the 40-day 
period, and the second part, or supplemental issuance, being issued on 
the household's established issuance date in the new system or 
procedure. The supplemental issuance cannot provide

[[Page 18385]]

the household more benefits than the household is entitled to receive.
    (4) Notwithstanding the above provisions, in months in which 
benefits have been suspended under the provisions of Sec.  271.7 of 
this chapter, State agencies may stagger issuance to certified 
households following the end of the suspension. In such situations, 
State agencies may, at their option, stagger issuance from the date 
issuance resumes through the end of the month or over a five-day period 
following the resumption of issuance, even if this results in benefits 
being issued after the end of the month in which the suspension 
occurred.
    (e) Household training. The State agency shall provide training to 
each household prior to implementation and as needed during ongoing 
operation of the EBT system. Training functions for an EBT system may 
be incorporated into certification procedures. At a minimum, the 
household training shall include:
    (1) Content which will familiarize each household with the 
provisions of paragraphs (e) through (h) of this section and Sec.  
274.6 and Sec.  274.7;
    (2) Notification to the household of the procedures for manual 
transactions and re-presentation as described in Sec.  274.8(d);
    (3) The appropriate utilization and security of the PIN;
    (4) Each household's responsibilities for reporting loss or damage 
to the EBT card and who to report them to, both during and outside 
business hours. Information on a 24 hour hotline telephone number shall 
be provided to each household during training;
    (5) Written materials and/or other information, including the 
specific rights to benefits in an EBT system, shall be provided as 
prescribed under 7 CFR 272.4(b) for bilingual households and for 
households with disabilities. This shall include the statement of non-
discrimination found in Departmental Regulation 4300-3 (available from 
USDA, Office of Civil Rights, Room 326-W, Whitten Building, Washington, 
DC 20250). Written materials shall be prepared at an educational 
reading level suitable for SNAP households;
    (6) Information on the signs or other appropriate indicators 
located in checkout lanes that enable the household to identify lanes 
equipped to accept EBT cards.
    (7) Disclosure information regarding adjustments and a household's 
rights to notice, fair hearings, and provisional credits. The 
disclosure must also state where to call to dispute an adjustment and 
request a fair hearing.
    (f) Personal Identification Number (PIN). The State agency shall 
permit SNAP households to select their PIN. PIN assignment procedures 
shall be permitted in accordance with industry standards as long as PIN 
selection is available to clients if they so desire and clients are 
informed of this option.
    (g) Adjustments. (1) The State agency may make adjustments to 
benefits posted to household accounts after the posting process is 
complete but prior to the availability date for household access in the 
event benefits are erroneously posted.
    (2) A State agency shall make adjustments to an account to correct 
an auditable, out-of-balance settlement condition that occurs during 
the redemption process as a result of a system error. A system error is 
defined as an error resulting from a malfunction at any point in the 
redemption process: from the system host computer, to the switch, to 
the third party processors, to a store's host computer or POS device. 
These adjustments may occur after the availability date and may result 
in either a debit or credit to the household.
    (i) Client-initiated adjustments. The State agency must act on all 
requests for adjustments made by client households within 90 calendar 
days of the error transaction. The State agency has 10 business days 
from the date the household notifies it of the error to investigate and 
reach a decision on an adjustment and move funds into the client 
account. This timeframe also applies if the State agency or entity 
other than the household discovers a system error that requires a 
credit adjustment to the household. Business days are defined as 
calendar days other than Saturdays, Sundays, and Federal holidays.
    (ii) Retailer-initiated adjustments. The State agency must act upon 
all adjustments to debit a household's account no later than 10 
business days from the date the error occurred, by placing a hold on 
the adjustment balance in the household's account. If there are 
insufficient benefits to cover the entire adjustment, a hold shall be 
placed on any remaining balance that exists, with the difference being 
subject to availability only in the next future month. The household 
shall be given, at a minimum, adequate notice in accordance with Sec.  
273.13 of this chapter. The notice must be sent at the time the initial 
hold is attempted on the household's current month's remaining balance, 
clearly state the full adjustment amount, and advise the household that 
any amount still owed is subject to collection from the household's 
next future month's benefits.
    (A) The household shall have 90 days from the date of the notice to 
request a fair hearing.
    (B) Should the household dispute the adjustment and request a 
hearing within 10 days of the notice, a provisional credit must be made 
to the household's account by releasing the hold on the adjustment 
balance within 48 hours of the request by the household, pending 
resolution of the fair hearing. If no request for a hearing is made 
within 10 days of the notice, the hold is released on the adjustment 
balance, and this amount is credited to the retailer's account. If 
there are insufficient funds available in the current month to cover 
the full adjustment amount, the hold may be maintained and settled at 
one time after the next month's benefits become available.
    (3) The appropriate management controls and procedures for 
accessing benefit accounts after the posting shall be instituted to 
ensure that no unauthorized adjustments are made in accordance with 
paragraph (h)(3) of this section.
    (h) Stale account handling. Stale benefit accounts are those 
Program benefit accounts which are not accessed for three months or 
longer.
    (1) If EBT accounts are inactive for 3 months or longer, the State 
agency may store such benefits offline.
    (i) Benefits stored off-line shall be made available upon 
reapplication or re-contact by the household;
    (ii) The State agency shall attempt to notify the household of this 
action before storage of the benefits off-line and describe the steps 
necessary to bring the benefits back on-line;
    (2) The State agency shall expunge benefits that have not been 
accessed by the household after a period of one year. Issuance reports 
shall reflect the adjustment to the State agency issuance totals to 
comply with monthly issuance reporting requirements prescribed under 
Sec.  274.4.
    (3) Procedures shall be established to permit the appropriate 
managers to adjust benefits that have already been posted to a benefit 
account prior to the household accessing the account; or, after an 
account has become dormant. The procedures shall also be applicable to 
removing stale accounts for off-line storage of benefits or when the 
benefits are expunged. Whenever benefits are expunged or stored off-
line, the State agency shall document the date, amount of the benefits 
and storage location in the household case file.


Sec.  274.3  Retailer management.

    (a) Retailer participation. (1) All authorized retailers must be 
afforded the

[[Page 18386]]

opportunity to participate in the EBT system. An authorized food 
retailer shall not be required to participate in an EBT system.
    (i) Retailers who do not have immediate access to telephones at the 
time of authorization shall be accommodated by an alternative system 
(e.g., manual vouchers with preliminary or delayed telephone 
verification) for redeeming Program benefits from eligible SNAP 
customers. These retailers include stationary food stores which opt to 
make home deliveries to SNAP households, house-to-house trade routes 
which operate on standing orders from customers, e.g. milk and bread 
delivery routes, food buying cooperatives authorized to participate as 
well as other food retailers authorized under Sec.  278.1 of this 
chapter. Prior to delivery or upon returning to the store, the retailer 
shall telephone the EBT central computer or hotline number to log the 
transaction and obtain an authorization number. If authorization cannot 
be obtained before or at the time of purchase, the retailer assumes the 
risk for sufficient benefits being available in the household's 
account. Any alternate method cannot be burdensome on either the 
household or the retailer, and it must include acceptable privacy and 
security features. Such systems shall only be available to retailers 
that cannot be equipped with a POS terminal at the time of 
authorization.
    (ii) Newly authorized retailers shall have access to the EBT system 
within 2 weeks after the receipt of the FNS authorization notice. 
However, whenever a retailer chooses to employ a third party processor 
to drive its terminals or elects to drive its own terminals, access to 
the system shall be accomplished within a 30 day period or a mutually 
agreed upon time to enable the third party interface specifications and 
any State required functional certification to be performed by the 
State agency and/or its contractor.
    (2) Authorized retailers shall not be required to pay costs 
essential to and directly attributable to EBT system operations as long 
as the equipment or services are provided by the State agency or its 
contractor and are utilized solely for SNAP. In addition, if Program 
equipment is deployed under contract to the State agency, the State 
agency may, with USDA approval, share appropriate costs with retailers 
if the equipment is also utilized for commercial purposes. The State 
agency may choose to charge retailers reasonable fees in the following 
circumstances:
    (i) Cost for the replacement of lost, stolen or damaged equipment;
    (ii) The cost of materials and supplies for POS terminals not 
provided by the State agency;
    (iii) Telecommunication costs for all non-EBT use by retailers when 
lines are provided by the State agency. In addition, State agencies may 
remove phone lines from retailers in instances where there is 
significant misuse of the lines.
    (3) The State agency shall ensure that the EBT system provides 
credits to the financial institution holding the accounts for retailers 
or third party processors within two business days of the daily cut-
over period for retailer settlement. The cut-over period is the time of 
day established by the system to define the end of a transaction day 
for settlement and reconciliation.
    (b) POS deployment. POS terminals shall be deployed as follows:
    (1) For an FNS authorized retailer with Program benefit redemption 
amounting to 15 percent or more of total food sales, all checkout lanes 
shall be equipped;
    (2) For an FNS authorized retailer with Program benefit redemptions 
representing less than 15 percent of total food sales, superstores and 
supermarkets shall, at a minimum, receive one terminal for every 
$11,000 in monthly redemption activity up to the number of lanes per 
store. All other food retailers shall receive one terminal for every 
$8,000 in monthly redemption activity up to the number of lanes per 
store. However, a State agency may utilize an alternative deployment 
formula that permits equipment deployment at higher levels than 
required by this paragraph up to the number of lanes in each store. The 
State agency shall review terminal deployment on a yearly basis and 
shall be authorized to remove excess terminals if actual redemption 
activity warrants a reduction.
    (3) For newly authorized retailers, the State agency and retailer 
shall negotiate a mutually agreed level of terminal deployment up to 
the number of lanes per store. The State agency may consult with the 
appropriate FNS field office in order to determine the previous SNAP 
redemption activity that could be utilized in determining the initial 
number of terminals to deploy in newly authorized retailer firms. State 
agencies will also need to make accommodations for border stores that 
are deemed necessary for client access. To do so, State agencies must 
ensure that procedures are in place to process manual vouchers in 
instances when the system is down or for those retailers that do not 
have POS equipment. Redemption information shall remain confidential. 
Unauthorized release of redemption information is subject to penalties 
defined in Section 15 of the Food and Nutrition Act of 2008 (7 U.S.C. 
2024).
    (4) Any FNS authorized retailer shall be able to submit further 
evidence that it warrants additional terminals after the initial POS 
terminals are deployed. SNAP households may also submit evidence to the 
State agency that additional POS terminals are needed. State agencies 
may provide retailers with additional terminals above the minimum 
number required by this paragraph at customer service booths or other 
locations if appropriate.
    (c) Retailer agreements. The State agency shall enter into an 
agreement with each authorized retailer. The retailer agreement shall 
describe the terms and conditions of participation in the SNAP EBT 
system. At a minimum, the agreement shall:
    (1) Describe all terms and conditions with respect to equipment 
ownership, lease arrangements, handling and maintenance for which the 
State agency and merchant are liable;
    (2) Describe the agreed upon procedures and policies for 
participation and withdrawal from the EBT system;
    (3) Comply with all Program regulations with respect to retailer 
participation in the Program and treatment of SNAP households. This 
shall include specific requirements with respect to the deployment of 
terminals and the identification of checkout lanes for SNAP customers;
    (4) Delineate the liabilities during system downtime and the 
associated responsibilities of each party with respect to the use of 
off-line and/or manually entered data, paper vouchers, and re-presented 
vouchers.
    (d) Third party processors are financial institutions, cardholder 
authorization processors other than the party with which the State 
agency has contracted for EBT services, and food retailers driving 
their own terminals that are capable of relaying electronic 
transactions to a central database computer for authorization. The 
State agency shall afford retailers the opportunity to use third party 
processors and shall provide interface specifications and certification 
standards in order for the third party processor to participate in the 
EBT system.
    (1) In order to participate in a SNAP EBT system, a third party 
processor must be able to meet all third party interface specifications 
and certification standards associated with Sec.  274.8. The State 
agency shall make available to

[[Page 18387]]

third party processors the third party interface specifications prior 
to implementation of the EBT system to enable third party processors to 
access the database. Third party processors shall undergo functional 
and acceptance tests as specified by the State agency;
    (2) Third party processors shall be liable for transactions until 
the transaction has been electronically accepted by the contracted 
vendor or an intermediate processing facility;
    (3) The State agency shall ensure that third party processors and 
food retailers driving their own terminals comply with this section and 
all applicable Program regulations.
    (e) Managing retailer participation. The State agency shall:
    (1) Convey retailer authorization information provided by FNS to 
the system operator using the Retailer EBT Data Exchange (REDE) system. 
The State agency must access the REDE files to ensure that the FNS 
retailer files used to authorize valid EBT SNAP transactions are 
updated on a daily basis.
    (2) Follow-up on actions taken regarding any disqualification or 
withdrawal of an authorized retailer from the Program must occur within 
two business days after receipt;
    (3) Add newly authorized retailers or third party processors to the 
EBT system as prescribed under paragraph (a)(1)(ii) of this section.
    (4) Ensure that only currently authorized retailers can access the 
system;
    (5) Monitor retailers to ensure that equipment deployment complies 
with paragraph (b) of this section;
    (6) Ensure that equipment and supplies are maintained in working 
order for retail stores equipped by the State agency or its contractor. 
Equipment shall be replaced or repaired within 48 hours;
    (7) Ensure that retail store employees are trained in system 
operation prior to redeeming benefits. Retailer training shall be 
offered by the State agency and include the provision of appropriate 
written and program specific materials. Retailers have the option to 
waive instruction by the State agency if they desire. State agencies 
shall direct retailers to confirm in writing that they are waiving 
their option to training;
    (8) Conduct adjustments as prescribed under Sec.  274.2(g) of this 
chapter;


Sec.  274.4  Reconciliation and reporting.

    (a) Reconciliation. State agencies shall account for all issuance 
through a reconciliation process. The EBT system shall provide reports 
and documentation pertaining to the following:
    (1) Reconciliation. Reconciliation shall be conducted and records 
kept as follows:
    (i) Reconciliation of benefits posted to household accounts on the 
central computer against benefits on the Issuance Authorization File;
    (ii) Reconciliation of individual household account balances 
against account activities on a daily basis;
    (iii) Reconciliation of each individual retail store's SNAP 
transactions per POS terminal and in total to deposits on a daily 
basis;
    (iv) Verification of retailer's credits against deposit information 
entered into the automated clearinghouse (ACH) network;
    (v) Reconciliation of total funds entered into, exiting from, and 
remaining in the system each day;
    (vi) Maintenance of audit trails that document the full cycle of 
issuance from benefit allotment posting to the State issuance 
authorization file through posting to POS transactions at retailers 
through settlement of retailer credits.
    (b) Management reports. The State agency shall require the EBT 
system to provide reports that enable the State agency to manage the 
system. The reports shall be available to the State agency or FNS as 
requested on a timely basis and consist of:
    (1) Information on how the system operates relative to its 
performance standards, the incidence, type and cause of system 
problems, and utilization patterns.
    (2) Retailer transaction data submitted to FNS on a monthly basis. 
This data must be submitted in the specified format in accordance with 
the required schedule.
    (3) Data detailing by specified category the amount of Program 
benefits issued or returned through the EBT system shall be provided in 
a format and mechanism specified by FNS to the FNS Account Management 
Agent as the benefits become available to recipients. This data will be 
used to increase or decrease the SNAP EBT benefit funding authorization 
for the State's Automated Standard Application for Payment (ASAP) 
account.
    (c) Required reports. The State agency shall review and submit the 
following reports to FNS on a monthly basis:
    (1) Form FNS-46, Issuance Reconciliation Report, shall be submitted 
by each State agency operating an issuance system. The report shall be 
prepared at the level of the State agency where the actual 
reconciliation of posted benefits and the master issuance file occurs.
    (i) The State agency shall identify and report the number and value 
of all issuances which do not reconcile with the master issuance file. 
All unreconciled issuances shall be identified as specified on this 
reporting document.
    (ii) The report shall be received by FNS no later than 90 days 
following the end of the report month.
    (2) Form FNS-388, State Issuance and Participation Estimates. (i) 
State agencies shall telephone or transmit by computer the Form FNS-388 
data and mail the reports to the FNS regional office no later than the 
19th day of each month. When the 19th falls on a weekend or holiday, 
the Form FNS-388 data shall be reported by telephone or transmitted by 
computer and mailed on the first work day after the 19th. The Form FNS-
388 report shall be signed by the person responsible for completing the 
report or a designated State agency official.
    (ii) The Form FNS-388 report shall provide Statewide estimated or 
actual totals of issuance and participation for the current and 
previous month, and actual or final participation totals for the second 
preceding month. In addition to the participation totals for the second 
preceding months of January and July, provided on the March and 
September reports, non-assistance (NA) and public assistance (PA) 
household and person participation breakdowns shall be provided. As an 
attachment to the March and September Form FNS-388 reports, State 
agencies shall provide project area breakdowns of benefit issuance and 
NA/PA household and person participation data for the second preceding 
months of January and July.
    (iii) State agencies shall submit any proposed changes in their 
estimation procedures to be used in determining the Form FNS-388 data 
to the FNS regional office for review and comment. FNS shall monitor 
the accuracy of the Statewide estimated dollar value of benefits issued 
and the number of households and persons participating as reported on 
the Form FNS-388 report against the Statewide actual total 
participation as reported on succeeding Form FNS-388 reports and 
against the semiannual project area participation totals attached to 
the March and September Form FNS-388 reports. The FNS accuracy 
standards for the issuance and participation estimates are that 
estimates for the current month be within (+) or (-) four (4) percent 
of actual levels, and the estimates for the previous month be within 
(+) or (-) two (2) percent of actual levels. State agencies shall 
explain any unusual circumstances that cause benefit issuance and/or 
participation data to not meet these accuracy standards. If a State

[[Page 18388]]

agency fails to meet these accuracy standards, FNS shall notify the 
State agency and assist the State agency in revising its estimating 
procedures to improve its reporting.
    (iv) A participating household is one that is certified and has 
been, or will be, issued benefits (whether or not the benefits are 
used), and households that have met the eligibility requirements, but 
will receive zero benefits.


Sec.  274.5  Record retention and forms security.

    (a) Availability of records. (1) The State agency shall maintain 
issuance, inventory, reconciliation, and other accountability records 
for a period of three years as specified in Sec.  272.1(f) of this 
chapter. This period may be extended at the written request of FNS.
    (2) In lieu of the records themselves, easily retrievable 
microfilm, microfiche, or computer tapes which contain the required 
information may be maintained.
    (b) Control of issuance documents. The State agency shall control 
all issuance documents which establish household eligibility while the 
documents are transferred and processed within the State agency. The 
State agency shall use numbers, batching, inventory control logs, or 
similar controls from the point of initial receipt through the issuance 
and reconciliation process.
    (c) Accountable documents. (1) EBT cards shall be considered 
accountable documents. The State agency shall provide the following 
minimum security and control procedures for these documents:
    (i) Secure storage;
    (ii) Access limited to authorized personnel;
    (iii) Bulk inventory control records;
    (iv) Subsequent control records maintained through the point of 
issuance or use; and
    (v) Periodic review and validation of inventory controls and 
records by parties not otherwise involved in maintaining control 
records.
    (2) For notices of change which initiate, update or terminate the 
master issuance file, the State agency shall, at a minimum, provide 
secure storage and shall limit access to authorized personnel.


Sec.  274.6  Replacement issuances and cards to households.

    (a) Providing replacement issuance. (1) Subject to the restrictions 
in paragraph (a)(3) of this section, State agencies shall provide 
replacement issuances to a household when the household reports that 
food purchased with Program benefits was destroyed in a household 
misfortune.
    (2) Where a Federal disaster declaration has been issued and the 
household is eligible for disaster SNAP benefits under the provisions 
of part 280, the household shall not receive both the disaster 
allotment and a replacement allotment for a misfortune.
    (3) Replacement restrictions. (i) Replacement issuances shall be 
provided only if a household timely reports a loss orally or in 
writing. The report will be considered timely if it is made to the 
State agency within 10 days of the date food purchased with Program 
benefits is destroyed in a household misfortune.
    (ii) No limit on the number of replacements shall be placed on the 
replacement of food purchased with Program benefits which was destroyed 
in a household misfortune.
    (iii) Except for households certified under 7 CFR part 280, 
replacement issuances shall be provided in the amount of the loss to 
the household, up to a maximum of one month's allotment, unless the 
issuance includes restored benefits which shall be replaced up to their 
full value.
    (4) Household statement of loss. (i) Prior to issuing a 
replacement, the State agency shall obtain from a member of the 
household a signed statement attesting to the household's loss. The 
required statement may be mailed to the State agency if the household 
member is unable to come into the office because of age, handicap or 
distance from the office and is unable to appoint an authorized 
representative.
    (ii) If the signed statement or affidavit is not received by the 
State agency within 10 days of the date of report, no replacement shall 
be made. If the 10th day falls on a weekend or holiday, and the 
statement is received the day after the weekend or holiday, the State 
agency shall consider the statement timely received.
    (iii) The statement shall be retained in the case record. It shall 
attest to the destruction of food purchased with the original issuance 
and the reason for the replacement. It shall also state that the 
household is aware of the penalties for intentional misrepresentation 
of the facts, including but not limited to, a charge of perjury for a 
false claim.
    (5) Time limits for making issuance replacements. (i) Replacement 
issuances shall be provided to households within 10 days after report 
of loss or within two (2) working days of receiving the signed 
household statement required in paragraph (a)(4) of this section, 
whichever date is later.
    (ii) The State agency shall deny or delay replacement issuances in 
cases in which available documentation indicates that the household's 
request for replacement appears to be fraudulent.
    (iii) The household shall be informed of its right to a fair 
hearing to contest the denial or delay of a replacement issuance. 
Replacements shall not be made while the denial or delay is being 
appealed.
    (6) Verifying issuance and household misfortune. (i) Upon receiving 
a request for replacement of an issuance for food destroyed in a 
household misfortune, the State agency shall determine if the issuance 
was validly issued. The State agency shall also comply with all 
applicable provisions in paragraphs (a)(3) through (a)(5)of this 
section.
    (ii) Prior to replacing destroyed food that was purchased with 
Program benefits, the State agency shall determine that the destruction 
occurred in a household misfortune or disaster, such as, but not 
limited to, a fire or flood. This shall be verified through a 
collateral contact, documentation from a community agency including, 
but not limited to, the fire department or the Red Cross, or a home 
visit.
    (7) Documentation and reconciliation of replacement issuances. (i) 
The State agency shall document in the household's case file each 
request for replacement, the date, the reason, and whether or not the 
replacement was provided. This information may be recorded exclusively 
on the household statement required in paragraph (a)(4) of this 
section.
    (ii) The State agency shall maintain, in readily-identifiable form, 
a record of the replacements granted to the household, the reason, and 
the month. The record may be a case action sheet maintained in the case 
file, notations on the master issuance file, if readily accessible, or 
a document maintained solely for this purpose.
    (iii) When a request for replacement is made late in an issuance 
month, the replacement will be issued in a month subsequent to the 
month in which the original benefit was issued. All replacements shall 
be posted and reconciled to the month of issuance of the replacement 
and may be posted to the month of issuance of the original benefit, so 
that all duplicate transactions may be identified.
    (b) Providing replacement EBT cards or PINs. In general, the State 
agency shall replace EBT cards within 2 business days following notice 
by the household to the State agency that the card has been lost or 
stolen. In cases where the State agency is using

[[Page 18389]]

centralized card issuance, replacement can be extended to take place 
within up to five calendar days. In all instances, the State agency 
must ensure that clients have in hand an active card and PIN with 
benefits available on the card, within the time frame the State agency 
has identified for card replacement.
    (1) The State agency shall ensure that a duplicate account is not 
established which would permit households to access more than one 
account in the system.
    (2) An immediate hold shall be placed on accounts at the time 
notice is received from a household regarding the need for card or PIN 
replacement. The State agency shall implement a reporting system which 
is continually operative. Once a household reports that their EBT card 
has been lost or stolen, the State agency shall assume liability for 
benefits subsequently drawn from the account and replace any lost or 
stolen benefits to the household. The State agency or its agent shall 
maintain a record showing the date and time of all reports by 
households that their card is lost or stolen.
    (3) The State agency may impose a replacement fee by reducing the 
monthly allotment of the household receiving the replacement card; 
however, the fee may not exceed the cost to replace the card. If the 
State agency intends to collect the fee by reducing the monthly 
allotment, it must follow FNS reporting procedures for collecting 
program income. State agencies currently operating EBT systems must 
inform FNS of their proposed collection operations. State agencies in 
the process of developing an EBT system must include the procedure for 
collection of the fee in their system design document. All plans must 
specify how the State agency intends to account for card replacement 
fees and include identification of the replacement threshold, 
frequency, and circumstances in which the fee shall be applicable. 
State agencies may establish good cause policies that provide exception 
rules for cases where replacement card fees will not be collected.


Sec.  274.7  Benefit redemption by eligible households.

    (a) Eligible food. Program benefits may be used only by the 
household, or other persons the household selects, to purchase eligible 
food for the household, which includes, for certain households, the 
purchase of prepared meals, and for other households residing in 
certain designated areas of Alaska, the purchase of hunting and fishing 
equipment with benefits.
    (b) Prior payment prohibition. Program benefits shall not be used 
to pay for any eligible food purchased prior to the time at which an 
EBT card is presented to authorized retailers or meal services. Neither 
shall benefits be used to pay for any eligible food in advance of the 
receipt of food, except when prior payment is for food purchased from a 
nonprofit cooperative food purchasing venture.
    (c) Transaction limits. No minimum dollar amount per transaction or 
maximum limit on the number of transactions shall be established. In 
addition, no transaction fees shall be imposed on SNAP households 
utilizing the EBT system to access their benefits.
    (d) Access to balances. (1) Households shall be permitted to 
determine their SNAP account balances without making a purchase or 
standing in a checkout line.
    (2) The State agency shall ensure that the EBT system is capable of 
providing a transaction history for a period of up to 2 calendar months 
to households upon request.
    (3) Households shall be provided printed receipts at the time of 
transaction in accordance with Sec.  274.8(b)(7).
    (e) Access to retail stores. (1) The EBT system shall provide for 
minimal disruption of access to and service in retail stores by 
eligible households.
    (2) The EBT system shall not result in a significant increase in 
the cost of food or cost of transportation to authorized retailers for 
SNAP households.
    (f) Equal treatment. The EBT system shall be implemented and 
operated in a manner that maintains equal treatment for SNAP households 
in accordance with Sec.  278.2(b) of this chapter. The following 
requirements for the equal treatment of SNAP households shall directly 
apply to EBT systems:
    (1) Retailers shall not establish special checkout lanes which are 
only for SNAP households. If special lanes are designated for the 
purpose of accepting other electronic debit or credit cards and/or 
other payment methods such as checks, SNAP customers with EBT cards may 
also be assigned to such lanes as long as other commercial customers 
are assigned there as well.
    (2) Checkout lanes equipped with POS devices shall be made 
available to SNAP households during all retail store hours of 
operation.
    (g) Households eligible for prepared meals. (1) Meals-on-wheels. 
Eligible household members 60 years of age or over or members who are 
housebound, physically handicapped, or otherwise disabled to the extent 
that they are unable to adequately prepare all their meals, and their 
spouses, may use Program benefits to purchase meals prepared for and 
delivered to them by a nonprofit meal delivery service authorized by 
FNS.
    (2) Communal dining facilities. Eligible household members 60 years 
of age or over and their spouses, or those receiving SSI and their 
spouses, may use Program benefits issued to them to purchase meals 
prepared especially for them at communal dining facilities authorized 
by FNS for that purpose.
    (3) Residents of certain institutions. (i) Members of eligible 
households who are narcotics addicts or alcoholics and who regularly 
participate in a drug or alcoholic treatment rehabilitation program may 
use Program benefits to purchase food prepared for them during the 
course of such program by a private nonprofit organization or 
institution or publicly operated community mental health center which 
is authorized by FNS to redeem benefits in accordance with Sec.  278.1 
and Sec.  278.2(g) of this chapter.
    (ii) Eligible residents of a group living arrangement may use 
Program benefits issued to them to purchase meals prepared especially 
for them at a group living arrangement which is authorized by FNS to 
redeem benefits in accordance with Sec.  278.1 and Sec.  278.2(g) of 
this chapter.
    (iii) Residents of shelters for battered women and children as 
defined in Sec.  278.1(g) of this chapter may use their Program 
benefits to purchase meals prepared especially for them at a shelter 
which is authorized by FNS to redeem benefits in accordance with Sec.  
278.1 and Sec.  278.2(g) of this chapter.
    (4) Homeless households. (i) Homeless SNAP households may use their 
Program benefits to purchase prepared meals from authorized homeless 
meal providers.
    (ii) Eligible homeless households may use Program benefits to 
purchase meals from restaurants authorized by FNS for such purpose.
    (h) Eligible households residing in areas of Alaska determined by 
FNS as areas where access to authorized retailers is difficult and 
which rely substantially on hunting and fishing for subsistence may use 
all or any part of the Program benefits issued to purchase hunting and 
fishing equipment such as nets, hooks, rods, harpoons and knives, but 
may not use benefits to purchase firearms, ammunition, and other 
explosives.
    (i) State agencies shall implement a method to ensure that access 
to prepared meals and hunting and fishing equipment is limited to 
eligible

[[Page 18390]]

households as described in paragraphs (g) through (h) of this section.


Sec.  274.8  Functional and technical EBT system requirements.

    (a) Functional requirements. The State agency shall ensure that the 
EBT system is capable of performing the following functional 
requirements prior to implementation:
    (1) Authorizing household benefits. (i) Issuing and replacing EBT 
cards to eligible households;
    (ii) Permitting eligible households to select a personal 
identification number (PINs) at least four digits in length;
    (iii) Establishing benefit cards and accounts with the central 
computer database;
    (iv) Maintaining the master household issuance record file data and 
current authorization information;
    (v) Training households and other users in system usage;
    (vi) Authorizing benefit delivery;
    (vii) Posting benefits to each household's account for regular and 
supplemental issuances;
    (viii) Providing households with access to information on benefit 
availability;
    (ix) Ensuring the privacy of household data and providing benefit 
and data security;
    (x) Inventorying and securing accountable documents; and
    (xi) Zeroing out benefit accounts and other account authorization 
activity.
    (2) Providing food benefits to households. (i) Verifying the 
identity of authorized households or authorized household 
representatives at issuance terminals or POS;
    (ii) Verifying the PIN and/or PIN off-set, primary account number 
(PAN), terminal identification number and retailer identification 
number;
    (iii) Determining the sufficiency of the household's account 
balance in order to debit or credit household benefit accounts at the 
point of sale;
    (iv) Sending messages authorizing or rejecting purchases;
    (v) Providing back-up purchase procedures when the system is 
unavailable;
    (vi) Ensuring that benefits are available and carried over from 
month-to-month.
    (vii) Responding to issuance problems in a timely manner.
    (3) Crediting retailers and financial institutions for redeemed 
benefits. (i) Verifying electronic transactions flowing to or from 
participating retailers' bank accounts;
    (ii) Creating and maintaining a file containing the individual 
records of EBT transactions;
    (iii) Totaling all credits accumulated by each retailer;
    (iv) Providing balance information to retailers or third party 
processors from individual POS terminals, as needed;
    (v) Providing each retailer information on total deposits in the 
system on a daily basis;
    (vi) Preparing a daily tape in a National Automated Clearinghouse 
format or other process approved by FNS with information on benefits 
redeemed for each retailer and in summary;
    (vii) Transmitting the ACH tape to a financial institution for 
transmission through the ACH or other method approved by FNS;
    (viii) Transferring the information on the ACH tape or other 
process approved by FNS containing daily redemption activity of each 
retailer to the FNS Minneapolis Computer Support Center at least once 
weekly. Transmittal may be by tape, disc, remote job entry or other 
means acceptable to FNS.
    (4) Managing retailer participation in accordance with Sec.  
274.3(e).
    (b) Performance and technical standards. The State agency shall 
ensure that EBT systems comply with POS technical standards established 
by the American National Standards Institute (ANSI) or International 
Organization for Standardization (ISO) where applicable. This includes 
the draft EBT ISO 8583 Processor Interface Technical Specifications 
contained in the ANSI standards, which delineates a standard message 
format for retailers and third parties. In addition, the State agency 
shall ensure that the EBT system meets performance and technical 
standards in the areas of system processing speeds, system availability 
and reliability, system security, system ease-of-use, minimum card and 
terminal requirements, performance bonding, and a minimum transaction 
set. With prior written approval from FNS, the State agency may utilize 
the prevailing industry performance standards in its region in lieu of 
those identified in this section. The standards shall be included in 
all requests for proposals and contracts.
    (1) System processing speeds. (i) For leased line systems, 98 
percent of EBT transactions shall be processed within 10 seconds or 
less and all EBT transactions shall be processed within 15 seconds. 
Leased line systems rent telecommunications carriers specifically to 
connect to the central authorizing computer. For dial-up systems, 95 
percent of the EBT transactions shall be processed within 15 seconds or 
less and all EBT transactions shall be processed within 20 seconds or 
less. Dial-up systems utilize existing telecommunications lines to dial 
up and connect to the central computer at the time of the transaction. 
Processing response time shall be measured at the POS terminal from the 
time the `enter' or `send' key is pressed to the receipt and display of 
authorization or disapproval information. Third party processors, as 
defined in paragraph (h)(5) of this section, shall be required by the 
State agency to comply with the same processing response times required 
of the primary processor.
    (ii) The EBT system shall provide re-ports, as determined by the 
State agency, that document transaction processing response time and 
the number and type of problematic transactions that could not be 
processed within the standard response time.
    (2) System availability and reliability. (i) The EBT system central 
computer shall be available 99.9 percent of scheduled up-time, 24 hours 
a day, 7 days per week. Scheduled up-time shall mean the time the 
database is available for transactions excluding scheduled downtime for 
routine maintenance. The total system, including the system's central 
computer, any network or intermediate processing facilities and 
cardholder authorization processors, shall be available 98 percent of 
scheduled up-time, 24 hours per day, 7 days per week. Scheduled 
downtime for routine maintenance shall occur during non-peak 
transaction periods. State certification procedures shall determine 
whether intermediate processing facilities and cardholder authorization 
processors are capable of complying with system availability standards 
prescribed herein prior to permitting the interface with the central 
computer system.
    (ii) The system central computer shall permit no more than 2 
inaccurate EBT transactions for every 10,000 EBT transactions 
processed. The transactions to be included in measuring system accuracy 
shall include all types of SNAP transactions permitted at POS terminals 
and processed through the host computer, manual transactions entered 
into the system, credits to household accounts, and funds transfers to 
retailer accounts.
    (iii) Reconciliation reports and other information regarding 
problematic transactions shall be made available to the State agency by 
the system operator, individual retailers, households or financial 
institutions as appropriate. Reports on problematic transactions, 
including inaccurate transactions shall be delineated by the source of 
the problem such as card failure, POS terminal failure, interruption of

[[Page 18391]]

telecommunications, or other component failure. Errors shall be 
resolved in a timely manner.
    (3) System security. As an addition to or component of the Security 
Program required of Automated Data Processing systems prescribed under 
Sec.  277.18(p) of this chapter, the State agency shall ensure that the 
following EBT security requirements are established:
    (i) Storage and control measures to control blank unissued EBT 
cards and PINs, and unused or spare POS devices;
    (ii) Measures to ensure communication access control. Communication 
controls shall include the transmission of transaction data and 
issuance information from POS terminals to work-stations and terminals 
at the data processing center. The following specific security measures 
shall be included, as appropriate, in the system design documentation, 
operating procedures or the State agency Security Program:
    (A) Computer hardware controls that ensure acceptance of data from 
authorized terminals only. These controls shall include the use of 
mechanisms such as retailer identification codes, terminal identifiers 
and user identification codes, and/or other mechanisms and procedures 
recognized by the industry;
    (B) Software controls, placed at either the terminal or central 
computer or both, that establish separate control files containing 
lists of authorized retailers, terminal identifying codes, and user 
access and identification codes. EBT system software controls shall 
include separate checks against the control files in order to validate 
each transaction prior to authorization and limiting the number of 
unsuccessful PIN attempts that can be made utilizing standard industry 
practices before the card is deactivated;
    (C) Communications network security that utilizes the Data 
Encryption Standard algorithm to encrypt the PIN, at a minimum, from 
the point of entry. Other security may include authentication codes and 
check-sum digits, in combination with data encoded on the magnetic 
stripe such as the PIN and/or PIN offset, to ensure data security 
during electronic transmission. Any of the network security measures 
may be utilized together or separately and may be applied at the 
terminal or central computer as indicated in the approved system design 
to ensure communications control;
    (D) Manual procedures that provide for secure access to the system 
with minimal risk to household or retailer accounts. Manual procedures 
may include the utilization of manager identification codes in 
obtaining telephonic authorization from the central computer system; 
requirements for separate entry with audio response unit verification 
and authorization number; and/or the utilization of 24 hour hotline 
telephone numbers to authorize transactions.
    (iii) Message validation shall include but shall not be limited to:
    (A) Message format checks for completeness of the message, correct 
order of data, existence of control characters, number and size of data 
fields and appropriate format standards as specified in the approved 
system design;
    (B) Range checks for acceptable date fields, number and valid 
account numbers, purchase and refund upper limitations in order to 
prevent and control damage to the system accounts;
    (C) Reversal of messages that are not fully processed and recorded.
    (iv) Administrative and operational procedures shall ensure that:
    (A) Functions affecting an account balance are separated or dually 
controlled during processing and when requesting Federal reimbursement 
through a concentrator bank under the provisions of paragraph (i) of 
this section. These functions may include but are not limited to the 
set up of accounts, transmittal of funds to and from accounts, access 
to files to change account records, and transmittal of retailer 
deposits to the ACH network or other means approved by FNS for 
crediting retailer bank accounts;
    (B) Passwords, identity codes or other security procedures must be 
utilized by State agency or local personnel and at data processing 
centers;
    (C) Software programming changes shall be dual controlled to the 
extent possible;
    (D) System operations functions shall be segregated from 
reconciliation duties;
    (v) A separate EBT security component shall be incorporated into 
the State agency Security Program for Automated Data Processing (ADP) 
systems where appropriate and as prescribed under Sec.  277.18(p) of 
this chapter. The periodic risk analyses required by the Security 
Program shall address the following items specific to an EBT system:
    (A) EBT system vulnerability to theft and unauthorized use;
    (B) Completeness and timeliness of the reconciliation system;
    (C) Vulnerability to tampering with or creating household accounts;
    (D) Erroneous posting of issuances to household accounts;
    (E) Manipulation of retailers' accounts such as creation of false 
transactions or intrusion by unauthorized computer users;
    (F) Capability to monitor systematic abuses at POS terminals such 
as debits for a complete allotment, excessive manual issuances, and 
multiple manual transactions at the same time. Such monitoring may be 
accomplished through the use of exception reporting;
    (G) Tampering with information on the ACH tape or similar 
information utilized in a crediting method approved by FNS; and,
    (H) The availability of a complete audit trail. A complete audit 
trail shall, at a minimum, be able to provide a complete transaction 
history of each individual system activity that affects an account 
balance. The audit trail shall include the tracking of issuances from 
the Master File and Issuance File, network transactions from POS 
terminals to EBT central computer database and system file updates.
    (vi) The State agency shall incorporate the contingency plan 
approved by FNS into the Security Program.
    (4) System ease-of-use. (i) For all system users, the State agency 
shall ensure that the system:
    (A) Minimizes the number of separate steps required to complete a 
transaction;
    (B) Minimizes the number of codes or commands needed to make use of 
the system;
    (C) Makes available clear and comprehensive account balance 
information with a minimum number of actions necessary;
    (D) Provides training and instructions for all system users 
especially those persons with disabilities;
    (E) Makes available prompts on POS terminals or balance only 
terminals, where appropriate;
    (F) Identifies procedures for problem resolution;
    (G) Provides reasonable accommodation for the needs of households 
with disabilities in keeping with the Americans with Disabilities Act 
of 1990.
    (ii) In addition to the requirements of paragraph (h)(4)(i) of this 
section, the State agency shall ensure that retailers utilizing the EBT 
system:
    (A) Have available manual backup procedures;
    (B) Can obtain timely information on daily credits to their banks;
    (C) Have available deposit information in a format readily 
comparable to information maintained in the store; and
    (D) Have available instructions on resolving problems with 
equipment and retailer accounts.
    (5) Minimum card requirements. (i) The address of the office where 
a card

[[Page 18392]]

can be returned if found or no longer in use should be printed on the 
card.
    (ii) FNS reserves the right to require State agencies to place a 
Department logo on the EBT card and/or sleeves or jackets.
    (iii) EBT cards and/or sleeves or jackets shall not contain the 
name of any State or local official. EBT informational materials shall 
not indicate association with any political party or other political 
affiliation.
    (iv) State agencies may require the use of a photograph of one or 
more household members on the card. If the State agency does require 
the EBT cards to contain a photo, it must establish procedures to 
ensure that all appropriate household members or authorized 
representatives are able to access benefits from the account as 
necessary.
    (6) POS terminals. POS terminals shall meet the following 
requirements:
    (i) Balance information shall not be displayed on the screen of the 
POS terminal except for balance-only inquiry terminals;
    (ii) PINs shall not be displayed at the terminal; and
    (iii) PIN encryption shall occur from the point of entry in a 
manner which prevents the unsecured transmission between any point in 
the system.
    (7) Transaction receipts. Households shall be provided printed 
receipts at the time of transaction. At a minimum this information 
shall:
    (i) State the date, merchant's name and location, transaction type, 
transaction amount and remaining balance for the SNAP account;
    (ii) Comply with the requirements of 12 CFR part 205 (Regulation E) 
in addition to the requirements of this section; and
    (iii) Identify the SNAP households member's account number (the 
PAN) using a truncated number or coded transaction number. The 
households' name shall not appear on the receipt except when a 
signature is required when utilizing a manual transaction voucher.
    (8) Performance bonding. The State agency may require a performance 
bond in accordance with Sec.  277.8 of this chapter or utilize other 
contractual clauses it deems necessary to enforce the requirements of 
this section.
    (9) Minimum transaction set. At a minimum, the State agency shall 
ensure that the EBT system, including third party processors and 
retailers driving their own terminals, is capable of providing for 
authorizing or rejecting purchases, refunds or customer credits, voids 
or cancellations, key entered transactions, balance inquiries and 
settlement or close-out transactions. The system must be capable of 
completing this transaction set across State borders nationwide in 
accordance with standards specified in paragraph (h)(10) of this 
section.
    (10) Interoperability. State agencies must adopt uniform standards 
to facilitate interoperability and portability nationwide. The term 
``interoperability'' means the EBT system must enable benefits issued 
in the form of an EBT card to be redeemed in any State. The term 
``portability'' means the EBT system must enable benefits issued in the 
form of an EBT card to be used in any State by a household to purchase 
food at a retail food store or a wholesale food concern approved under 
the Food and Nutrition Act of 2008. The standards must include the 
following:
    (i) EBT system connectivity. State agencies are responsible for 
establishing telecommunications links, transaction switching facilities 
and any other arrangements with other State agencies necessary for the 
routing of interoperable transactions to such other State EBT 
authorization systems. State agencies are also responsible for 
facilitating the settlement of such interoperable transactions and the 
handling of adjustments. These connections need not be direct 
connections between State authorization systems but may be facilitated 
through agreements and linkages with other designated agents or third 
party processors. All State agencies must agree to the timing and 
disposition of disputes, error resolution, and adjustments in 
accordance with Department regulations at Sec.  273.13(a) and Sec.  
273.15(k) of this chapter and paragraph (f) of this section. State 
agencies or their designated agents must draw funds from State SNAP 
accounts for SNAP benefits transacted by that State's SNAP recipients, 
regardless of where benefits were transacted.
    (ii) Message format. Each authorization system must use the ISO 
8583 message format, modified for EBT, in a version mutually agreed to 
between the authorization agent and the party connected for all 
transactions. Each authorization system must process each financial 
transaction as a single message financial transaction, except for pre-
authorized transactions and reversals, processed as paired 
transactions.
    (iii) Card Primary Account Number (PAN) Requirements. Track 2 on 
each card shall contain the PAN. Each Government entity must obtain an 
Issuer Identification Number (IIN) from the American Banker's 
Association (ABA). The IIN should be included as the first six digits 
of the PAN. The PAN must comply with ISO 7812, Identification Cards--
Numbering System and Registration Procedures for Issuer Identifiers. 
Each State agency must be responsible for generating, updating, and 
distributing IIN files of all States to each retailer, processor, or 
acquirer that is directly connected to the State's authorization 
system. Each terminal operator that uses a routing table for routing 
acquired transactions must, within 7 calendar days of receiving an IIN 
routing table update, modify its routing tables to reflect the updated 
routing information.
    (iv) Third Party Processor requirements. Each Third Party Processor 
or terminal operator must have primary responsibility and liability for 
operating the telecommunications and processing system (including 
software and hardware) through which transactions initiated at POS 
terminals it owns, operates, controls or for which it has signed an 
agreement to accept EBT transactions, are processed and routed, 
directly or indirectly, to the appropriate State authorization system. 
Each terminal operator must maintain the necessary computer hardware 
and software to interface either directly with a State authorization 
system or with a third party service provider to obtain access to one 
or more State authorization systems. Each terminal operator must also 
establish a direct or indirect telecommunications connection for the 
routing of transactions to the State authorization system or to a 
processor directly or indirectly connected to the State authorization 
system.
    (v) REDE File. The State agency must ensure that their EBT system 
verifies FNS retailer numbers for all interstate transactions against 
the National REDE file of all FNS EBT retailers to validate these 
transactions.
    (c) Concentrator bank responsibilities. The concentrator bank shall 
be a Federally-insured financial institution or other entity acceptable 
to the Federal Reserve which has the capability to take retailer 
credits and/or debits, obtained from the EBT system operator, and 
transmit them to the ACH network operated by the Federal Reserve or 
through another process for crediting retailers approved by FNS. 
Transmittal shall be by tape or on-line in a format suitable for the 
ACH or as approved by FNS.
    (1) The minimum functions of the concentrator bank are:
    (i) Preparing a daily ACH tape or other crediting process approved 
by FNS with information on benefits redeemed and creditable to each 
retailer;

[[Page 18393]]

    (ii) Transferring the ACH tape or other crediting process approved 
by FNS to the Federal Reserve or other entity approved by FNS;
    (iii) Initiating and accepting reimbursement from the appropriate 
U.S. Treasury account through the ASAP system or other payment process 
approved by FNS. At the option of FNS, the State agency may designate 
another entity as the initiator of reimbursement for SNAP redemptions 
provided the entity is acceptable to FNS and U.S. Treasury;
    (iv) Cooperating in the reconciliation of discrepancies and error 
resolution when necessary.
    (2) With the approval of FNS, another procedure, other than the ACH 
system, may be utilized to credit retailer accounts and/or debit FNS' 
account, if it meets the needs of FNS and the EBT system.
    (3) The State agency shall be liable for any errors in the creation 
of the ACH tape or its transmission. The State agency may transfer the 
liability associated with creation of the ACH tape, its transmission or 
another crediting process approved by FNS as appropriate to the EBT 
system operator or the concentrator bank. Appropriate system security 
administrative and operational procedures shall be instituted in 
accordance with paragraph (h)(3) of this section.
    (d) Re-presentation. The State agency shall ensure that a manual 
purchase system is available for use during times when the EBT system 
is inaccessible.
    (1) Under certain circumstances, when a manual transaction occurs 
due to the inaccessibility of the host computer and the transaction is 
rejected because insufficient funds are available in a household's 
account, the State agency may permit the re-presentation of the 
transaction during subsequent months. At the State agency's option, re-
presentation may be permitted within the EBT system as follows:
    (i) Re-presentation of manual vouchers when there are insufficient 
funds in the EBT account to cover the manual transaction may be 
permitted only under the following circumstances:
    (A) The manual transaction occurred because the host computer was 
down and authorization was obtained by the retailer for the 
transaction; or
    (B) The manual transaction occurred because telephone lines were 
down.
    (ii) Re-presentation of manual vouchers shall not be permitted when 
the EBT card, magnetic stripe, PIN pad, card reader, or POS terminal 
fails and telephone lines are operational. Manual transactions shall 
not be utilized to extend credit to a household via re-presentation 
when the household's account balance is insufficient to cover the 
planned purchase.
    (iii) The State agency may debit the benefit allotment of a 
household following the insufficient funds transaction in either of two 
ways:
    (A) Any amount which equals at least $10 or up to 10 percent of the 
transaction. This amount will be deducted monthly until the total 
balance owed is paid-in-full. State agencies may opt to re-present at a 
level that is less than the 10 percent maximum, however, this lesser 
amount must be applied to all households.
    (B) $50 in the first month and the greater of $10 or 10 percent of 
the allotment in subsequent months until the total balance owed is 
paid-in-full. If the monthly allotment is less than $50, the State 
shall debit the account for $10.
    (2) The State agency shall establish procedures for determining the 
validity of each re-presentation and subsequent procedures authorizing 
a debit from a household's monthly benefit allotment. The State agency 
may ask households to voluntarily pay the amount of a represented 
transaction or arrange for a faster schedule of payment than identified 
in paragraph (d)(1)(iii) of this section.
    (3) The State agency shall ensure that retailers provide notice to 
households at the time of the manual transaction that re-presentation 
may occur if there are insufficient benefits in the account to cover 
the transaction. The statement shall be printed on the paper voucher or 
on a separate sheet of paper. The State agency shall also provide 
notice to the household prior to the month when a benefit allotment is 
reduced when a re-presentation is necessary. Notice shall be provided 
to the household for each insufficient transaction that is to be re-
presented in a future month. The notice shall be provided prior to the 
month it occurs and shall state the amount of the reduction in the 
benefit allotment.
    (4) The Department shall not accept liability under any 
circumstances for the overissuance of benefits due to the utilization 
of manual vouchers, including those situations when the host computer 
is inaccessible or telecommunications lines are not functioning. 
However, the State agency, in consultation with authorized retailers 
and with the mutual agreement of the State agency's vendor, if any, may 
accept liability for manual purchases within a specified dollar limit. 
Costs associated with liabilities accepted by the State agency shall 
not be reimbursable.
    (5) The State agency shall be strictly liable for manual 
transactions that result in excess deductions from a household's 
account.
    (e) Store-and-forward. As an alternative to manual transactions:
    (1) State agencies may opt to allow retailers, at the retailer's 
own choice and liability, to perform store-and-forward transactions 
when the EBT system cannot be accessed for any reason. The retailer may 
forward the transaction to the host one time within 24 hours of when 
the system again becomes available. Should the 24-hour window cross 
into the beginning of a new benefit issuance period, retailers may draw 
against all available benefits in the account.
    (2) State agencies may also opt, in instances where there are 
insufficient funds to authorize an otherwise approvable store-and-
forward transaction, to allow the retailer to collect the balance 
remaining in the client's account, in accordance with the requirements 
detailed in this section.
    (i) State Agencies may elect to allow store-and-forward to provide 
remaining balances to retailers as follows:
    (A) The EBT processor may provide partial approval of the store-
and-forward transaction, crediting the retailer with the balance 
remaining in the account through a one-step process;
    (B) The transaction should be in accordance with the standard 
message format requirements for store and forward; and
    (C) Re-presentation, as described in paragraph (d) of this section, 
to obtain the uncollected balance from current or future months' 
benefits shall not be allowed for store-and-forward transactions.
    (ii) In States that elect not to give retailers the option 
described in this paragraph, all store-and-forward transactions with 
insufficient funds will be denied in full.

    Dated: April 2, 2010.
Julia Paradis,
Administrator, Food and Nutrition Service.
[FR Doc. 2010-8200 Filed 4-9-10; 8:45 am]
BILLING CODE 3410-30-P