[Federal Register Volume 65, Number 251 (Friday, December 29, 2000)]
[Rules and Regulations]
[Pages 83248-83289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-33111]
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Part VI
Department of Agriculture
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Food and Nutrition Service
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7 CFR Part 246
Special Supplemental Nutrition Program for Women, Infants and Children
(WIC): Food Delivery Systems; Final Rule
Federal Register / Vol. 65 , No. 251 / Friday, December 29, 2000 /
Rules and Regulations
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DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Part 246
RIN 0584-AA80
Special Supplemental Nutrition Program for Women, Infants and
Children (WIC): Food Delivery Systems
AGENCY: Food and Nutrition Service, USDA
ACTION: Final rule.
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SUMMARY: This final rule amends the regulations governing the Special
Supplemental Nutrition Program for Women, Infants and Children. It
strengthens vendor management in retail food delivery systems by
establishing mandatory selection criteria, training requirements,
criteria to be used to identify high-risk vendors, and monitoring
requirements, including compliance investigations. In addition, the
rule strengthens food instrument accountability and sanctions for
participants who violate program requirements. It also streamlines the
vendor appeals process. The rule will increase program accountability
and efficiency in food delivery and related areas and decrease vendor
violations of program requirements and loss of program funds.
DATES: This rule is effective February 27, 2001. State agencies must
implement the provisions of this rule no later than February 27, 2002.
FOR FURTHER INFORMATION CONTACT: Debra Whitford, Branch Chief,
Supplemental Food Programs Division, Food and Nutrition Service, USDA,
3101 Park Center Drive, Room 542, Alexandria, Virginia 22302, (703)
305-2730.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule has been determined to be ``significant'' and was
reviewed by the Office of Management and Budget (OMB) under Executive
Order 12866.
Regulatory Flexibility Act
This rule has been reviewed with regard to the requirements of the
Regulatory Flexibility Act (5 U.S.C. 601-612). Pursuant to that review,
Shirley R. Watkins, Under Secretary, Food, Nutrition, and Consumer
Services, has certified that this rule would not have a significant
impact on a substantial number of small entities. This rule amends
vendor selection, training, monitoring, and appeal procedures and/or
systems. The effect of these changes falls primarily on State agencies.
Local agencies and vendors will also be affected, some of which are
small entities. However, the impact on small entities is not expected
to be significant.
Whereas extensive data is collected regarding program participants,
the WIC Program does not collect data on the size of businesses that
are authorized as vendors. Of the 45,000 authorized vendors, it is
estimated that approximately 20,000 of them may be small businesses.
Stores choose whether to apply for program authorization. All
authorized vendors, regardless of their size, agree to comply with the
program requirements. Although this rule strengthens some of the
program requirements regarding vendors, many State agencies have
already implemented similar provisions using their current authority.
For example, although specific selection criteria are now mandated,
most State agencies already use the noted criteria. As such, we do not
foresee dramatic future decreases in the number of smaller vendors.
Likewise, training is routinely provided to vendors. This final rule
allows such training to be provided on-site at the vendor, off-site
classroom style, or via a training video or newsletter. In addition,
although the State agency is responsible for designating the date,
time, and location of the training, the State agency must offer the
vendor at least one alternative date on which to attend the training.
Executive Order 12372
The Special Supplemental Nutrition Program for Women, Infants and
Children (WIC) is listed in the Catalog of Federal Domestic Assistance
Programs under 10.557. For the reasons set forth in the final rule in 7
CFR 3015, Subpart V, and related Notice (48 FR 29115), this program is
included in the scope of Executive Order 12372 which requires
intergovernmental consultation with State and local officials.
Executive Order 12988
This final rule has been reviewed under Executive Order 12988,
Civil Justice Reform. This proposed rule is intended to have preemptive
effect with respect to any State or local laws, regulations or policies
which conflict with its provisions or which would otherwise impede its
full implementation. This rule is not intended to have retroactive
effect unless so specified in the DATES paragraph of this preamble.
Prior to any judicial challenge to the application of the provisions of
this rule, all applicable administrative procedures must be exhausted.
Executive Order 13132
Executive Order 13132 requires Federal agencies to consider the
impact of their regulatory actions on State and local governments.
Although the proposed rule was published before the Executive Order was
issued, we considered the impact on State agencies when we developed
both the proposed and final rules.
Before drafting both the proposed and final rules, we received
input from State agencies at various times. Because the Program is a
State-administered, federally funded program, our regional offices have
formal and informal discussions with State and local officials on an
ongoing basis. These discussions involve implementation and policy
issues. This arrangement allows State agencies to provide feedback that
forms the basis for many discretionary decisions in this and other
Program rules. In addition, FNS officials attend regional, national,
and professional conferences to discuss issues and receive feedback
from State officials at all levels.
Lastly, the comments on the proposed rule from State officials were
carefully considered in drafting this final rule. For example, in
response to comments from State agencies we revised the proposed rule
to leave the following areas to State agency discretion: (1) Use of
limiting criteria, (2) use of training receipts, (3) development of
alternative criteria for identifying high-risk vendors, and (4) use of
abbreviated rather than full administrative review procedures. The
preamble below contains a more detailed discussion of our response to
all the comments received on the rule.
Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (2
U.S.C. 1531-38) establishes requirements for Federal agencies to assess
the effects of their regulatory actions on State, local and tribal
governments and the private sector. Under section 202 of the UMRA, the
Food and Nutrition Service (FNS) generally must prepare a written
statement, including a cost benefit analysis, for proposed and final
rules with ``Federal mandates'' that may result in expenditures to
State, local or tribal governments, in the aggregate, or the private
sector, of $100 million or more in any one year. When such a statement
is needed for a rule, section 205 of the UMRA generally requires FNS to
identify and consider a
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reasonable number of regulatory alternatives and adopt the most cost-
effective or least burdensome alternative that achieves the objectives
of the rule.
This final rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local and tribal
governments or the private sector of $100 million or more in any one
year. Thus, the rule is not subject to the requirements of sections 202
and 205 of the UMRA.
Paperwork Reduction Act of 1995
The reporting and recordkeeping requirements associated with this
final rule have been submitted for approval to the Office of Management
and Budget (OMB) under OMB No. 0584-0043. This submission includes a
revised reporting requirement for State Plan submissions (Section
246.4) and new reporting requirements for vendor training (Section
246.12(i)(1)), vendor monitoring (Section 246.12(j)(4)), food
instrument disposition (Section 246.12(q)), and targeted local agency
reviews (Section 246.19(b)(5)). In addition, the submission includes
new recordkeeping requirements for vendor training (Section
246.12(i)(4)), vendor monitoring (Section 246.12(j)(6)), and
participant claims disposition (Section 246.23(c)(1)). These new
requirements will be effective upon OMB approval.
1. Background
Major final amendments to the WIC Program regulations regarding
food delivery systems were last published on May 28, 1982 at 47 FR
23626 in response to audits and management evaluations disclosing
problems in the food delivery area that could result in the loss of WIC
Program funds. Both the National Vendor Audit issued by our Office of
Inspector General in 1988 and the WIC Vendor Issues Study in 1993
indicated that significant levels of vendor violations persisted. (See
section 21 of this preamble for the full citations to the reference
materials mentioned in the preamble.)
In response to the National Vendor Audit, we published a proposed
rule on December 28, 1990 at 55 FR 53446 to strengthen State agency
operations in vendor management and related food delivery areas. We
provided a 120-day comment period that closed on April 29, 1991. During
the comment period, we received 1,066 comments from State and local
agencies, vendors and associated groups, public interest groups,
members of Congress, members of the public, and WIC participants. They
indicated that significant modifications to the December 1990 proposed
rulemaking were still required, and that the extent of such
modifications would warrant another opportunity for public input. In
addition, several members of Congress requested that the rule be
proposed again in light of its potential impact on certain State agency
food delivery systems.
In response, we proposed a new food delivery rule on June 16, 1999
at 64 FR 32308. We subsequently extended the comment period from 90
days to 120 days after receiving requests to do so from several
potential commenters. We proposed to amend the WIC regulations to
address the original OIG audit recommendations by strengthening vendor
management systems. We also proposed to implement three provisions of
the William F. Goodling Child Nutrition Reauthorization Act of 1998,
P.L. 105-336 (Goodling Act), which amended the Child Nutrition Act of
1966, 42 U.S.C. 1771-1791 (Child Nutrition Act). These provisions
require the State agency to: (1) Identify high-risk vendors, (2)
conduct compliance buys on high-risk vendors, and (3) consider prices
in the selection of vendors.
We received 4,601 comment letters, including three form letters
from 4,481 participants in California, 22 WIC-only stores in
California, and 7 food store owners in California. This resulted in 94
distinct comment letters, which fell into the following categories:
State agencies (28), local agencies (13), State agency staff (2),
Federal agencies (2), industry groups (23), vendors (7), public
interest groups (7), general public (2), and participants (1). After
the end of the comment period, several members of Congress wrote us to
express their concern about certain aspects of the proposal. We
thoroughly analyzed the comments and made revisions to the proposal
consistent with the mission of the WIC Program.
a. Summary of This Preamble
This preamble addresses our response to the comments. In general,
we only discuss the comments that opposed proposed provisions and the
areas of the proposal that are changed by this final rule. We organized
the preamble by topic rather than the order in which provisions appear
in the final rule. The headings in the preamble identify the sections
of the final rule that are discussed in that part of the preamble. To
help in using the preamble, we included an outline of the areas covered
in the preamble below.
1. Background
2. Definitions of ``Vendor'' and ``Vendor Authorization'' and General
Provisions for Vendor Authorization and Agreements
3. Vendor Limiting Criteria
4. Vendor Selection Criteria
5. Food Instrument Requirements
6. Vendor Violations, Vendor Overcharges, and Vendor Claims
7. Miscellaneous Vendor Agreement Specifications
8. Vendor Training
9. Vendor Monitoring and Identifying High-Risk Vendors
10. Vendor Administrative Review Procedures
11.Vendor Authorization and Local Agency Selection Subject to
Procurement Procedures
12. Preventing and Identifying Dual Participation
13. Participant Provisions
14. Home Food Delivery Systems and Direct Distribution Food Delivery
Systems
15. General Requirements for Food Delivery Systems
16. Vendor Management Staffing
17. Participant Access Criteria in State Plan
18. Management Evaluations and Monitoring Reviews
19. Conflict of Interest
20. Confidentiality
21. References
b. Plain Language
In addition to the changes we made in response to the comments, we
made changes throughout the proposed regulatory language to make the
rule easier to read. We added paragraph headings and made other changes
to use plain language. Eventually, the entire WIC regulations at 7 CFR
Part 246 will be revised similarly.
c. Implementation of This Rule
One commenter requested that we provide State agencies with at
least one year to implement this final rule. Another commenter
suggested that the implementation period for the final rule provide for
the gradual implementation of the provisions to avoid disruption in
State agency vendor services. In their comment letters, many commenters
indicated that their State agencies had already implemented a number of
the provisions in response to our December 28, 1990 proposal, because
they had anticipated that we would finalize that rule. Consequently,
State agencies will vary in the amount of effort necessary to implement
this final rule. We made this rule effective 60 days after publication
and require State agencies to fully implement its provisions no later
than one year after the effective date.
The one-year implementation period recognizes the variations among
State agency operations and provides adequate time for State agencies
to incorporate these changes into their
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food delivery systems. Not all provisions from this final rule must be
implemented at the same time. For example, a State agency that enters
into vendor agreements on a rolling basis may decide to amend the
agreements as new ones are entered into, provided that agreements
reflecting the new requirements are in place for all vendors prior to
the end of the implementation period. Many State agencies have
established vendor councils to facilitate communication between the
State agency and its vendor community. We have found that such councils
can be helpful as State agencies implement changes to their food
delivery systems. We recommend that State agencies either establish
vendor councils or use existing ones to ensure the timely
implementation of this rule.
2. Definitions of ``Vendor'' and ``Vendor Authorization'' and General
Provisions for Vendor Authorization and Vendor Agreements
a. Definition of ``Vendor'' (Section 246.2)
Commenters generally supported the proposed definition of
``vendor.'' However, thirteen commenters suggested that we modify the
definition to use the term ``retailer'' instead of ``vendor,'' because
the term retailer is used by vendors, State governments, and the Food
Stamp Program. Although we acknowledge the two terms are often used
interchangeably, the fact remains that the requirements for WIC vendors
and Food Stamp Program retailers differ in several basic ways. The term
vendor uniquely identifies stores authorized for the WIC Program.
Therefore, we did not make this modification.
Seven commenters noted that the definition of vendor did not
include several types of business entities that may operate stores,
such as limited liability companies, limited partnerships, and
franchisers/franchisees. Rather than attempt to list all types of
business entities in the definition, we decided to specify the more
common types of business entities and include a reference to ``or other
business entity'' to cover all other business entities. This approach
also will accommodate any new types of business entities that may be
created in the future.
Several commenters requested that we distinguish between the
concept of vendor as a business entity and the concept of vendor as the
location of the business (i.e., the store itself). One commenter
asserted that this change is necessary to make the definition of vendor
consistent with the definition of ``vendor violation,'' because a
vendor violation requires an intentional or unintentional action by the
vendor, which cannot be committed by a store. Another commenter noted
that requiring the State agency to enter into separate agreements with
each store, instead of entering into one agreement to cover multiple
stores operated by the same business entity, would triple the State
agency's administrative burden of contracting with its vendors.
Once again, we believe the commenters' suggestions and concerns
have merit, but we believe for a number of reasons that the concept of
``vendor'' must refer to a single store operated by a business entity.
For instance, if the concept of vendor only referred to the business
entity, including a corporation operating multiple stores, what would
happen if one manager at one store of the largest chain in the State is
convicted of trafficking? Similarly, what would happen if one store of
the largest chain is disqualified for three years from the Food Stamp
Program (FSP)? Would such sanctions require the State agency to
disqualify the business entity, including all of its stores, from the
WIC Program? If so, would business entities operating multiple stores
always receive civil money penalties in lieu of disqualification
because their disqualification would always result in inadequate
participant access?
We believe that the State agency should be able to disqualify a
single store of a large chain, provided that participants have adequate
access to other vendors operating in the same area. Consequently, we
revised the definition of vendor to clarify that each store operated by
a single business entity must be authorized separately. However,
Section 246.12(h)(1) of this final rule continues to permit the State
agency to use a single agreement to cover multiple vendors (i.e.,
multiple authorized stores) operated by the same business entity. Under
this approach, the State agency will still be able to sanction multiple
vendors for a vendor violation committed by owners, officers, or
managers of a single business entity, if the State agency determines
that the vendor violation involves multiple vendors.
One commenter suggested that the term vendor refer to the business
entity only so that the State agency must authorize all of a business
entity's stores and not arbitrarily authorize some of the business
entity's stores while denying authorization to some of its other
stores. As discussed below in section 4 of this preamble, vendor
authorization is not an arbitrary process. To be authorized, each
vendor applicant must meet or exceed the State agency's selection
criteria, unless the State agency allows for exceptions, such as for
mobile stores or for pharmacies that provide only exempt infant formula
and/or WIC-eligible medical foods. The State agency's authorization
decisions must balance its need to provide adequate participant access
with its need to ensure effective vendor management, oversight, and
review. Chain stores must apply for vendor authorization in the same
manner as any other store, and the State agency is not obligated to
authorize all stores operated by a business entity.
One commenter suggested that we delete the reference to mobile
stores from the definition of vendor, because such stores create
opportunities for fraud and abuse and can be difficult to monitor. The
State agency may only authorize mobile stores when they are necessary
to ensure adequate participant access. Although we understand the
commenter's concerns, these stores, when authorized, must fall under
the definition of a vendor to be held accountable for compliance with
the Program's vendor requirements. For this reason, we did not accept
the commenter's suggestion.
b. Definition of ``Vendor Authorization'' (Section 246.2)
In response to the proposed definition of the term ``vendor
authorization,'' one commenter noted that the definition improperly
uses the term ``vendor'' when referring to a store that has not yet
been authorized as a vendor. We revised the definition to use ``store''
rather than ``vendor.'' We made conforming changes throughout the rule
to use ``store'' or ``vendor applicant'' when referring to a store that
is not yet authorized.
c. Entering into Vendor Agreements (Sections 246.12(h)(1) and
246.4(a)(14)(iii))
To become a vendor, a store must apply for program authorization,
meet or exceed the State agency's selection criteria, and enter into an
agreement with the State agency. In Section 246.12(h)(1), we proposed
to require vendor agreements to be signed by ``a representative who has
legal authority to obligate the vendor and a representative of the
State agency.'' We proposed this change to ensure that vendors are
authorized consistently statewide. Fifteen commenters opposed this
proposed change for a variety of reasons, including: local agencies
need to sign vendor agreements to establish authority over and
communication with vendors as well as to be accountable to the State
agency for vendor oversight;
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local agencies can use a standard agreement and carry out this activity
using the State agency's procedures and guidance; and requiring the
State agency to enter into all vendor agreements would increase costs,
may cause such agreements to fall under the State's procurement
procedures, and may expose the State agency to additional financial
liability. To address the commenters' concerns, the final rule adds
Section 246.12(h)(1)(ii) to allow the State agency to delegate the
signing of vendor agreements to local agencies as long as such
delegation authority is indicated in its State Plan (Section
246.4(a)(14)(iii)) and the State agency provides supervision and
instruction to ensure the uniformity and quality of local agency
activities. Although the State agency may delegate certain vendor
authorization and management activities to its local agencies, it is
the State agency that is ultimately responsible for such activities and
the language in this final rule reflects that responsibility.
d. Length of Vendor Agreements (Sec. 246.12(h)(1)) and Limiting Periods
for Vendor Applications (Sec. 246.12(g)(7))
In Section 246.12(h)(1), we also proposed to limit the length of
vendor agreements to a period not to exceed three years. Under this
proposed requirement, to continue as an authorized vendor, a store
periodically would need to reapply for program authorization. Whereas
eleven commenters supported this proposed provision, sixteen opposed
the three-year limit on vendor agreements for a variety of reasons,
including: the provision would be counter-productive to State agencies
that use more resource-efficient, automatic renewal or annual renewal
systems; the provision would discourage stores from applying for
authorization; and the provision would result in stores exiting and re-
entering the Program, causing confusion for participants.
One commenter suggested that, rather than requiring stores to
reapply every three years, the State agency be permitted to
automatically renew vendor agreements if there are no vendor
violations. Although we understand the commenter's viewpoint, we
believe only stores that can demonstrate they continue to meet or
exceed the State agency's current selection criteria should continue to
be authorized. Requiring vendors to reapply for authorization at least
every three years does not preclude the State agency from developing a
streamlined system for accepting reapplication information from current
vendors. However, such systems must ensure that the store provides
updated information regarding all of the selection criteria, including
information regarding its current prices, quantities and varieties of
the supplemental foods it stocks, and business integrity, as well as
updated information regarding the store's ownership and management.
Regardless of whether a store is applying for reauthorization or
initial authorization, the State agency must select vendors based on
its current selection criteria. For these reasons, we retained the
three-year limit on vendor agreements.
A majority of commenters opposed the portion of the provision in
proposed Section 246.12(g)(6) that provides that the State agency may
limit the periods during which it will accept and process applications
for vendor authorization, except that applications must be accepted and
processed at least once every three years. Many commenters
misunderstood this provision as requiring all State agencies to only
accept applications once every three years. The commenters noted a wide
variety of arguments against such limited application periods. However,
the State agency has always had the discretion to restrict its
timeframes for accepting and processing vendor applications. Some State
agencies have found such restrictions very useful in establishing
annual workplans for their limited staffs. The proposal would only have
specifically incorporated this discretion in the program regulations
and clarified that if the State agency chose this approach,
applications must be accepted ``at least once every three years.'' The
proposal also would have required the State agency to develop
procedures for processing vendor applications outside of its timeframes
when it determines there will be inadequate participant access unless
additional vendors are authorized. This provision is consistent with
the three-year limit on vendor agreements and is adopted in Section
246.12(g)(7) of the final rule.
e. Vendor Reassessment (Secs. 246.12(g)(3) and (h)(3)(xxiv))
One commenter suggested that, rather than requiring vendors to
reapply every three years, the State agency should be permitted to
conduct annual reviews of vendor qualifications. The requirement for
three-year agreements is not inconsistent with a State agency's
periodic review of vendor qualifications. In Section 246.12(g)(3), we
proposed to authorize the State agency to reassess any authorized
vendor at any time during the vendor's agreement period using the
vendor selection criteria in effect at that time. One commenter
suggested that we modify the provision so that a vendor that fails to
meet a selection criterion during a reassessment be given the
opportunity to correct the deficiency. The State agency may include as
part of both its vendor selection process and its reassessment process
an opportunity to correct any deficiency that would otherwise lead to
nonselection or termination of the vendor agreement. However, this is
at the discretion of the State agency, and the State agency must make
this clear in its procedures for implementing its vendor selection
criteria.
Another commenter pointed out that the vendor agreement section of
the proposal did not clearly reflect the requirement in this section
that specifies that the State agency must terminate the agreements with
vendors that no longer meet its selection criteria. In addition, we
noticed that the vendor agreement section did not make clear that
vendors must comply with the vendor selection criteria throughout the
agreement period. We agree with the commenter and added Section
246.12(h)(3)(xxiv) in the final rule to make these clarifications.
f. Vendor Agreement Not a License or Property Interest
(Sec. 246.12(h)(3)(xxi))
We proposed in Section 246.12(h)(3)(xxi) to clarify that the vendor
agreement does not constitute a license or a property interest and if
the vendor wishes to continue to be authorized beyond the period of its
current agreement, the vendor must reapply for authorization. Although
commenters overwhelmingly supported this provision, fourteen commenters
questioned whether a vendor that has been disqualified for a period of
time that is less than the remaining term of its agreement should be
allowed to resume its authorization without reapplying. Commenters
indicated that when a vendor is disqualified, its slot may need to be
filled immediately to ensure adequate participant access. In addition,
they also noted that this is inconsistent with the State agency's
authority to reassess a vendor at any time during the agreement period
and terminate the vendor's agreement if it no longer meets the
selection criteria. In response to the commenters' concern, we revised
Section 246.12(h)(3)(xxi) to notify vendors that the State agency will
terminate the agreements of vendors that are disqualified. A store may
reapply for vendor authorization after the expiration of its
disqualification period.
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g. Compliance with Applicable Statutes, Regulations, Policies, and
Procedures (Sec. 246.12(h)(3)(xxii)) and Notifying Vendors of Changes
(Sec. 246.12(h)(7))
All five commenters supported our proposal to require vendor
agreements to make clear that vendors must comply with any changes to
the Program statute and regulations and State policies and procedures.
One commenter pointed out that we needed to reference State laws and
regulations as well as State policies and procedures. We revised this
provision to clarify that vendors must comply with the vendor agreement
and Federal and State statutes, regulations, policies, and procedures
governing the Program, including any changes made during the agreement
period. To ensure that vendors are notified of such changes, we also
added Section 246.12(h)(7) in the final rule to require the State
agency to provide vendors with notice of changes to Federal or State
statutes, regulations, policies, and procedures governing the Program
at the time they are implemented by the State agency. We encourage the
State agency to provide as much advance notice of such changes as
possible. In addition, the State agency is required by Section
246.12(i)(2) to include changes to program requirements in their annual
vendor training.
h. Notification of Changes in Vendor Ownership, Store Location, or
Cessation of Operations (Sec. 246.12(h)(3)(xvii))
In Section 246.12(h)(3)(xvii), we proposed to require vendors to
provide the State agency with at least 45 days advance notification in
writing of a change in vendor ownership, store location, or cessation
of operations. A majority of commenters opposed the 45-day advance
notification and recommended a variety of alternative timeframes,
including 30 days, 21 days, 15 days, promptly, as soon as practicable,
and a number of days specified by the State agency in the vendor
agreement. Two commenters noted that the proposed 45-day notice is
unenforceable because in most situations the vendor allows its
agreement to expire. Several commenters noted that a 45-day notice is
impractical because businesses cease operations, buy and sell stores,
and change ownership on short notice. In addition, many business
transactions, such as a change in ownership, contain confidentiality
requirements that prohibit the disclosure of information until the deal
is consummated in order to maintain employees and customers.
Several commenters requested that we delete the last sentence of
the provision regarding changes in business structure. One commenter
noted that vendor agreements are nontransferable; therefore, a transfer
of a majority interest in a store renders the agreement null and void.
Another commenter warned that phrases like ``changes in business
structure'' and ``corporate reorganization'' open the door for hidden
ownership changes. Another commenter indicated that the State agency
must verify changes in business structure through its Secretary of
State's business division, because past experience has shown that some
corporations will call a change in ownership a restructuring in order
to maintain their WIC authorization.
Several commenters asked that we either delete or clarify the
exception for the State agency to ``permit vendors to move short
distances without voiding the agreement.'' One commenter suggested that
we delete the exception to send a clear message to vendors that if a
store changes location, then the vendor must reapply to be a vendor at
the new location. Another commenter indicated that in an urban area a
move across the street may result in a change in zip code, and allowing
a vendor to move into another zip code without voiding its agreement
may result in denial of another vendor in that same zip code without
providing equal review of both potential locations.
In response to commenters' concerns, we modified Section
246.12(h)(3)(xvii) in the final rule to remove the specific length of
advance notice required and to clarify that it is within the State
agency's discretion to determine: the length of advance notice required
for vendors reporting changes under this provision, whether a change in
location qualifies as a short distance, and whether a change in
business structure constitutes a change in ownership. In addition, we
clarified that the notice must be in writing and revised this provision
to use the term ``terminated,'' instead of the term ``voided,'' when
referring to vendor agreements.
i. Sale of Store to Circumvent a WIC Sanction (Sec. 246.12(g)(5))
In Section 246.12(g)(4), we proposed to prohibit the State agency
from authorizing a vendor applicant when it determines that the store
has been sold (i.e., a change in ownership) to circumvent a WIC
sanction. Seventeen commenters supported this provision. One commenter
suggested we modify the provision to prohibit authorization of a store
that has been sold until the disqualification period is over, because
this would be easier for the State agency to implement. We did not
accept this comment because it could impair the owner from selling the
store to a legitimate buyer for its fair market value. One commenter
indicated that a denial of authorization based on this provision would
be difficult to uphold on appeal. Another commenter suggested that a
new owner could be required to sign an affidavit during the application
process stating that the previous owner has no interest and is not
involved in the business. We believe that through its application and
selection process the State agency will be able to prevent and detect
situations in which owners sell stores to circumvent WIC sanctions.
Consequently, we retained this provision in Section 246.12(g)(5) of the
final rule.
j. Data Collection at Authorization (Sec. 246.12(g)(8))
The proposal included a provision that would require the State
agency to collect a vendor applicant's shelf prices and its FSP
authorization number if it participates in that program. One commenter
asked that we clarify whether a vendor applicant had to be authorized
by the FSP to be selected for WIC authorization and whether a WIC
application should be delayed until the vendor applicant provides its
FSP authorization number. Another commenter suggested that we require
vendor applicants to be authorized by the FSP in order to be WIC
authorized. We proposed this requirement in part to improve the State
agency's coordination with the FSP in the reciprocity of sanctions, as
required by the WIC/Food Stamp Program Vendor Disqualification final
rule published on March 18, 1999 at 64 FR 13311 (Vendor
Disqualification final rule). If a vendor applicant that is authorized
in the FSP fails to provide its FSP authorization number, the State
agency must delay or deny authorization, because this provision
requires the State agency to collect this information at the time of
application. Although some State agencies may require FSP authorization
as a condition of WIC authorization, Federal regulations do not include
such a requirement.
In this provision, we also proposed that the State agency collect
the vendor applicant's shelf prices, ``unless the State agency uses
competitive bidding to set vendor prices for such foods.'' In
retrospect, we believe that the exception is inappropriate because a
State agency that uses a competitive bidding system needs the vendor
applicant's shelf prices to ensure that the vendor applicant's bid
prices do not exceed its shelf prices. For this reason, we deleted
[[Page 83253]]
the exception. We added a heading to this provision, ``Data collection
at authorization,'' and retained it in Section 246.12(g)(8) of the
final rule.
3. Vendor Limiting Criteria (Secs. 246.12(g)(2) and 246.4(a)(14)(ii))
We proposed to require the State agency to limit the number of
vendors it authorizes to a level that ensures adequate participant
access as well as effective State agency management, oversight, and
review of authorized vendors. Although current regulations permit the
State agency to limit its number of authorized vendors, commenters
overwhelmingly opposed the proposed provision to require vendor
limitation. Commenters stated that mandatory limitation would be
impossible to implement consistently throughout the State agency's
jurisdiction, add another layer to the authorization process, be an
unnecessary administrative burden, be costly to implement, create
access problems for participants, impede the State agency's ability to
adapt to growth during agreement cycles, result in more appeals and
litigation, and create ill will among cooperating vendors.
A majority of those who opposed mandatory limitation suggested that
Federal rules focus on selection rather than limitation and that
limitation should remain at the State agency's discretion. The
rationale for this compromise is that strong selection criteria limit
the number of authorized vendors without the problems associated with
limiting criteria. The General Accounting Office (GAO) study (``Efforts
to Control Fraud and Abuse in the WIC Program Can Be Strengthened'')
released in August 1999 states that ``42 of the 51 State agencies
[surveyed] reported making some effort to limit the number of
authorized vendors.'' However, more State agencies reported using
strong selection criteria to limit their number of authorized vendors
than reported using limiting criteria. The GAO recommended that we
``[a]mend the regulations on vendor management to ensure that the
States limit their authorized vendors to a number they can effectively
manage and issue guidance to States on the specific criteria we will
use to assess their compliance with the regulations and the actions
they would need to take if we determine that they have authorized more
vendors than they can effectively manage.''
We believe the compromise noted above, to require strong selection
criteria and retain limitation at the State agency's discretion, will
achieve our goal of reducing vendor fraud and abuse and still address
the GAO's recommendation. Through the management evaluation process, we
assess whether the State agency effectively manages its vendors and
requires the corrective actions when necessary. For these reasons, we
adopted strong selection criteria, as discussed below, and retained the
State agency's authority to establish criteria to limit the number of
vendors it authorizes. We also made a conforming change to Section
246.4(a)(14)(ii) to clarify that the State agency is only required to
include limiting criteria in its State Plan if the State agency opts to
use such criteria.
4. Vendor Selection Criteria
A substantial majority of the comments we received on the use of
mandatory vendor selection criteria supported the provision as
proposed. Commenters pointed out that making vendors meet or exceed
strong selection criteria in order to be authorized is more effective
than conducting compliance investigations on vendors after they have
been authorized. One commenter noted that selection criteria will keep
vendors honest and may improve vendors' attitudes toward participants,
because vendors will not take for granted that they automatically
qualify for WIC authorization. Those few commenters opposing mandatory
selection criteria asserted that the State agency should have the
discretion to establish the selection criteria and that the proposed
mandatory selection criteria were too stringent and would impair the
viability of some vendors.
As noted in the preamble to the proposed rule and by those who
commented on the proposal, State agency experience has shown that
strong selection criteria can provide a cost-effective means of both
cost containment and prevention of vendor violations. Therefore, this
final rule retains the requirement for mandatory vendor selection
criteria. We discuss the comments and changes to the individual
selection criteria below.
a. Competitive Price and Price Limitations (Secs. Sections
246.12(g)(3)(i) and 246.14(b)(2))
A majority of the commenters supported the competitive price
selection criterion, although a number of those commenters suggested
modifications. Some commenters recommended that we either delete the
competitive price criterion or make it a State agency option. Others
indicated that we should allow the marketplace to establish the prices
of supplemental foods.
As noted in the preamble to the proposed rule, section 17(h)(11) of
the Child Nutrition Act (42 U.S.C. 1786(h)(11)) requires the State
agency to take into consideration the prices a store charges for
supplemental foods compared to other stores when selecting stores for
program authorization. This section also requires the State agency to
establish procedures to ensure that authorized stores do not
subsequently raise their prices for supplemental foods to levels that
would otherwise make them ineligible for authorization. Therefore, we
retained the competitive price selection criterion in the final rule.
However, we revised this provision to address commenters' concerns and
to clarify the requirements for this criterion.
First, we clarified the distinction between the ``competitive price
selection criterion'' and ``price limitations.'' The competitive price
selection criterion is the process of considering, at the time of
vendor authorization, the prices a vendor applicant charges for
supplemental foods as compared to the prices charged by other vendor
applicants and authorized vendors. The State agency may evaluate a
vendor applicant based on its shelf prices or on the prices it bids for
supplemental foods, which may not exceed its shelf prices.
The State agency also must establish price limitations that the
authorized vendor may not exceed during its agreement period. The price
limitations must be designed to ensure that the State agency does not
pay a vendor at a level that would otherwise make the vendor ineligible
for authorization. This term is also used in the vendor agreement
section in connection with the provision in Section 246.12(h)(4) that
requires the State agency's redemption procedures ensure that the
vendor is not paid more than the price limitations applicable to that
vendor and in Section 246.12(k)(1) in the context of the requirements
for State agency review of food instruments (and discussed further in
section 6.d of the preamble). We also made a conforming change to
Section 246.14(b)(2) to make clear that for food costs to be allowable,
they may not exceed the price limitations applicable to the vendor.
Several commenters noted the importance of giving the State agency
the flexibility to determine the best method to implement the
competitive price criterion. In response, we included a description of
this requirement in the final rule to clarify the range of flexibility
the State agency has in implementing the competitive price criterion.
In response to a number of
[[Page 83254]]
questions from commenters, the final rule also clarifies that the State
agency may establish competitive price criteria and price limitations
for different vendor peer groups.
Another commenter suggested that we permit the State agency to
except pharmacies that only provide exempt infant formula and/or WIC-
eligible medical foods from the competitive price criterion and price
limitations because pharmacies often do not know the price of exempt
infant formula and/or WIC-eligible medical foods until they order it.
This final rule authorizes such an exception.
Several commenters indicated that the competitive price criterion
would have a negative effect on smaller stores that may have higher
operating costs or that may be unable to offer supplemental foods at
prices below their costs. As noted in the preamble to the proposed
rule, in many areas smaller vendors are essential to ensuring
participant access. As with all aspects of its food delivery system,
the State agency must ensure adequate participant access when it
establishes its competitive price criterion and price limitations.
Developing appropriate vendor peer groups is one way the State agency
can both ensure adequate participant access and consider prices during
the vendor selection process. Contrary to one commenter's suggestion,
the State agency continues to retain the discretion to decide whether
and how to establish its vendor peer groups.
Both supporting and opposing commenters questioned how to handle
price fluctuations that may occur during the agreement period due to
government and market forces beyond a vendor's control. We clarified in
the final rule that the State agency may include a factor in its price
limitations to account for fluctuations in wholesale prices. For
example, the State agency could include an inflation factor in its
price limitations.
Commenters also asked us whether certain scenarios would satisfy
the requirement to ensure compliance with the price limitations
throughout the agreement period. The following scenarios would satisfy
the requirement:
Scenario 1: The State agency assigns vendors to peer groups upon
authorization and then makes price adjustments to its payments to
vendors based on the price limitations applicable to the vendor's peer
group.
Scenario 2: The State agency compares the prices a vendor applicant
charges for supplemental foods with those charged by other vendor
applicants and authorized vendors to determine which vendors to
authorize and then periodically conducts a reassessment of the vendor's
prices to ensure they meet the applicable price limitations.
Scenario 3: The State agency establishes a maximum price it will
pay for each type of food instrument and then includes a provision in
the vendor agreement that the State agency will not pay vendors in
excess of the maximum price established for each food instrument.
b. Minimum Variety and Quantity of Supplemental Foods
(Sec. 246.12(g)(3)(ii))
Almost all of the commenters supported the requirement to consider
as part of the selection process whether vendor applicants stock a
minimum variety and quantity of supplemental foods. Commenters noted
that the minimum variety/quantity requirement is one of the best
selection criteria and is more effective at limiting the number of
vendors the State agency authorizes than using limiting criteria. One
commenter noted that the proposed rule did not make clear that
authorized vendors must maintain the minimum variety and quantity of
supplemental foods at all times, not just at the time of authorization.
As discussed in section 2.e of this preamble, Section
246.12(h)(3)(xxiv) of this final rule puts vendors on notice that they
must comply with all the vendor selection criteria, including this one,
throughout the vendor agreement period.
Four commenters suggested that we adopt the same criterion for
minimum variety and quantity as the FSP has proposed to establish for
its authorized retailers. The FSP proposal would require retailers to
offer for sale at least three varieties of staple food intended for
home preparation and consumption in each of four categories of staple
foods (meat, poultry, or fish; bread or cereals; vegetables or fruit;
and dairy products). The inherent differences in the types of food that
program participants may obtain with food stamps versus WIC food
instruments makes this definition inappropriate for the WIC Program.
Furthermore, the variations in the supplemental foods approved by each
State agency make it difficult to establish a standard definition for
the WIC Program. Therefore, this final rule does not adopt a standard
definition of the minimum variety and quantity of supplemental foods
that vendor applicants must stock. Rather, such decisions are left to
State agency discretion.
Several commenters suggested that we establish some flexibility or
tolerance in this requirement or consider supplemental foods that a
vendor can document it has ordered. Two commenters suggested that the
State agency be permitted to authorize stores that do not stock infant
formula or to authorize pharmacies that only provide exempt infant
formula and/or WIC-eligible medical foods to participants. The State
agency may accommodate such stores when it determines that they are
necessary to ensure adequate participant access. As with the
competitive price criterion, it is critical that the State agency
clearly incorporate any necessary flexibility in its selection criteria
at the time the criteria are established so that all vendor applicants
are held to the same standards. In recognition of the wide range of
stores that serve as vendors, this rule clarifies that the State agency
may establish different minimum variety and quantity standards for
different vendor peer groups. However, we must emphasize the importance
of establishing appropriate minimums so that participants are able to
obtain all of the authorized supplemental foods on their food
instruments. Vendors may not provide substitutions, cash, or credit
(including rainchecks) if the authorized supplemental foods are not
available. Authorizing vendors that do not maintain the required
minimum stocks of supplemental foods undermines the nutritional goals
of the Program.
c. Business Integrity (Sec. 246.12(g)(3)(iii))
Although a majority of commenters supported the proposal to require
the State agency to consider the business integrity of vendors in the
selection process, many commenters suggested modifications to the
business integrity criteria. We proposed three criteria in this
category: (1) Lack of a record of criminal conviction or civil judgment
for certain offenses that indicate a lack of business integrity; (2)
lack of a history of serious vendor violations; and (3) lack of a
history of serious FSP violations.
Even those commenters who agreed with the substance of these
criteria found them confusing. We completely rewrote this section to
clarify the requirements. In addition, we strengthened the regulatory
language to emphasize that the State agency may rely solely on facts
already known to it and representations made by vendor applicants on
their vendor applications. This change responds to the many commenters
who asked whether costly background checks were required and whether
the State agency would be held accountable for authorizing vendors
whose criminal records were not known to the State agency.
[[Page 83255]]
Several commenters indicated that the proposal did not make clear
what would happen if the State agency discovered that a vendor had lied
on its application. This final rule adds a sentence to the termination
provision in Section 246.12(h)(3)(xvi) notifying the vendor that the
State agency will terminate its agreement if the State agency
determines that it has provided false information in connection with
its application. Two commenters questioned the value of vendor self-
declarations on applications. We believe that adding a requirement to
terminate the vendor agreement when a vendor is found to have provided
false information will deter such behavior among vendor applicants.
Several commenters questioned the people covered by the business
integrity criteria. One commenter suggested that the criteria include
immediate family members of the owners, officers or partners, managers,
and any stockholders who have a substantial role in the operation of a
store. Two other commenters questioned who would be covered in a
publicly traded company. The proposed rule would have applied the
business integrity criteria to the business entity itself and its
current owners, officers, directors, or partners. We revised this
provision in the final rule to cover only the vendor's current owners,
officers, and managers. This change conforms the coverage to parallel
the FSP rule and recognizes the important role managers play with
respect to a vendor applicant's business integrity.
i. No Criminal Conviction or Civil Judgment
We also had a number of questions and suggestions about the
specific business integrity criteria. With respect to the criteria
requiring a lack of a record of a criminal conviction or civil judgment
for certain offenses that indicate a lack of business integrity,
commenters wanted to know whether the State agency would be limited to
the listed activities, whether to consider felonies or misdemeanors or
both, and what is meant by ``business integrity'' and ``business
honesty.'' Four commenters opposed this provision on the grounds that
once a person has served a criminal sentence, that person should not be
further penalized through denial of authorization. Two other commenters
suggested that rather than denying authorization for such offenses,
stores that cannot meet this selection criterion should be authorized
and then identified as high-risk vendors subject to compliance
investigations. Another commenter opposed this selection criterion
because it would be difficult for the State agency to apply in a fair
and consistent manner. Two commenters requested that we clarify the
number of years that constitutes a vendor applicant's ``history.''
Vendors play a valuable role in most State agencies' food delivery
systems. We believe it is critical that the State agency consider
business integrity in the selection of its vendors, because the
integrity of vendors reflects on the integrity of the WIC Program.
Congress made clear its concern about the integrity of vendors when it
required: high-risk identification and compliance investigations of
vendors; permanent disqualification for vendors convicted of
trafficking; and disqualification of vendors that have been
disqualified as retailers in the FSP. We substantially revised the
business integrity criterion in the final rule to clarify that only
criminal convictions and civil judgments imposed in the six years prior
to the application must be considered and to clarify the areas of this
criterion in which the State agency has discretion. We have not
distinguished between felonies and misdemeanors because of the wide
variation among States in designating these criminal offenses as
felonies vs. misdemeanors.
ii. No Serious WIC Program Vendor Violations and No Serious Food Stamp
Program Violations
Commenters were divided on the merits of the proposed selection
criteria for a lack of a history of serious WIC violations and a lack
of a history of serious FSP violations. Many commenters believed that
both criteria went too far because serious WIC and FSP violations are
those that give rise to a disqualification, criminal conviction, or
civil judgment. Furthermore, if violations do not rise to such a level,
then they should not be used as a basis to deny authorization. Two
commenters noted that this criterion could effectively extend a one-
year disqualification for up to six more years. Other opposing
commenters reiterated their views that the business integrity criteria
are confusing and bureaucratic and that vendor integrity is better
handled through vendor monitoring. On the other hand, one commenter
suggested that we permit the State agency to set a timeframe of longer
than the proposed six years for cases of particularly egregious
violations.
We did not include these two criteria in the final rule, even
though we believe serious WIC and FSP violations do reflect on the
business integrity of vendor applicants. Rather than make such
violations mandatory vendor selection criteria, we decided to give the
State agency the discretion to establish selection criteria for serious
WIC and FSP violations or use such vendor information to identify high-
risk vendors.
We want to point out that we proposed to make failure to
participate in the annual vendor training a basis for nonselection.
Although this is not required by the selection criteria in the final
rule, many State agencies have found this to be an effective means of
vendor management. The State agency continues to have the authority to
establish failure to attend vendor training as a selection criterion.
iii. Sanctions Imposed by Another WIC State Agency
(Sec. 246.12(l)(2)(iii))
A number of commenters responded to our request for comments on
whether to make mandatory vendor sanctions imposed by another WIC State
agency a mandatory selection criterion. Almost all commenters supported
this idea, although most suggested various modifications. Three
commenters requested that, if established, the selection criterion
should permit the State agency to rely on the representations made by
vendor applicants on their vendor applications. Other commenters
suggested that we maintain a database for State agencies to use for
this purpose. Under the final rule, the State agency has the discretion
to establish a selection criterion to consider WIC sanctions imposed by
another State agency.
Two commenters asked how the State agency would be able to uphold a
denial of authorization on appeal if it denied authorization to a
vendor based on a WIC sanction imposed by another State agency or based
on a FSP sanction. These commenters suggested that information about
WIC sanctions imposed by other State agencies be used to identify high-
risk vendors rather than as a selection criterion. Three commenters
believed that only the mandatory sanctions, not State agency-
established sanctions, imposed by another State agency should result in
nonselection. Whereas one commenter raised concerns about the time and
costs of denying authorization based on WIC sanctions imposed by
another State agency, another commenter asserted that if a vendor
commits vendor violations in one State agency's WIC Program, the vendor
is likely to commit such violations in another State agency's WIC
Program.
For a State agency that opts to deny authorization based a prior
WIC sanction, a WIC sanction by another
[[Page 83256]]
State agency, or a FSP withdrawal of authorization or prior FSP
disqualification, we made a corresponding change to the administrative
review procedures. This change specifies that if the State agency
denies authorization to a vendor applicant based on a WIC sanction
(regardless of which State agency imposed the sanction) or a FSP
withdrawal of authorization or disqualification, the State agency is
only required to provide the vendor applicant with an abbreviated
administrative review. We made this change because the vendor applicant
already had an opportunity to appeal the facts underlying the WIC
sanction or FSP withdrawal/disqualification; therefore, it is not
necessary to provide a second review of these facts. An abbreviated
administrative review provides the vendor applicant with the
opportunity to appeal such narrow factual issues as whether its store
is the same one that received the sanction and whether the sanction
occurred during the applicable period.
One commenter questioned the appropriateness of denying
authorization of a vendor applicant for a vendor violation that did not
result in a sanction. The commenter indicated that the vendor applicant
would be denied authorization based on information that it did not have
an opportunity to examine or refute. If a State agency denies
authorization on this basis, the State agency must include a
description of the vendor violation in the notice of adverse action and
must give the vendor an opportunity to appeal the adverse action.
d. No Current Food Stamp Program Disqualification or Civil Money
Penalty for Hardship (Sec. 246.12(g)(3)(iv))
Twenty-four of the twenty-six commenters supported the proposed
requirement to deny authorization to vendor applicants that are
currently disqualified from the FSP or that have received a FSP civil
money penalty for hardship and the period for the FSP disqualification
that would otherwise have been imposed has not expired. Three
supporting commenters suggested that we require FSP authorization as a
prerequisite for WIC authorization. We did not make this change because
of the differences in the populations served and the benefits provided
under the two programs.
e. Considering Participant Access in Authorization Determinations
In drafting the final rule, we noticed that it was not clear
whether the State agency would be required to deny authorization to a
vendor applicant that did not meet one or more of the selection
criteria. We clarified in the final rule that a vendor applicant that
does not meet the competitive price and minimum variety/quantity
criteria may not be authorized, even if such denial of authorization
would result in inadequate participant access. For the competitive
price criterion, the State agency must compare the prices of the vendor
applicant against those of other vendor applicants and authorized
vendors. Consequently, the State agency is able to adjust its
competitive price criterion to select enough vendors to ensure adequate
participant access. As for the minimum quantity/variety criterion, we
believe that a vendor applicant that does not meet or exceed this
criterion must be denied authorization because such a store cannot
provide participants all the authorized supplemental foods on their
food instruments.
We clarified that the remaining two vendor selection criteria,
business integrity and a current disqualification/civil money penalty
for hardship in the FSP, that the State agency may authorize a vendor
applicant that fails to meet these criteria if necessary to ensure
adequate participant access. We believe this requirement strikes the
necessary balance between program integrity and participant access,
similar to that balance struck when a State agency decides to impose a
civil money penalty in lieu of a disqualification in order to ensure
adequate participant access.
5. Food Instrument Requirements
No commenters opposed the food instrument requirements in proposed
Sections 246.12(f)(1), (f)(2)(i), (f)(2)(iv), (f)(2)(v), (f)(2)(vi),
and (f)(3). Consequently, we adopted these provisions as proposed with
minor revisions to conform to language used throughout the final rule.
Below are separate discussions of the food instrument proposals that
received opposing comments.
a. Printed Food Instrument Requirements (Secs. 246.12(f)(2)(ii),
(f)(2)(iii), (f)(2)(vii), and (r)(5))
One commenter opposed the proposed provisions in Sections
246.12(f)(2)(ii) and (f)(2)(iii), requiring the ``first date of use''
and the ``last date of use'' to be printed on food instruments, because
vendors are often penalized when they accept food instruments either
before or after the specified dates. The commenter indicated that the
State agency issues food instruments too far ahead of the ``first date
of use'' and suggested that food instruments be more specific and to
the point. A major responsibility of vendors is to make sure that they
accept food instruments only during their valid dates. This requirement
is similar to accepting manufacturers' coupons, which are for specific
food items and contain expiration dates. Cashiers must be familiar
enough with the food instruments used by the State agency to identify
whether or not a food instrument is valid for transaction. We believe
the requirements as adopted in Sections 246.12(f)(2)(i) through
(f)(2)(vii) of the final rule address the commenter's concerns in that
they require ``[e]ach printed food instrument must clearly bear on its
face'' the authorized supplemental foods, the first date of use, the
last date of use, the redemption period, the serial number, and spaces
for the purchase price and the signature.
In response to the commenter's concern about issuing food
instruments too far in advance, program regulations that require the
State agency to issue no more than a three-month supply of food
instruments at any one time have been in place since 1982 and were
included in the proposal. No other opposing comments were received on
these regulations. Cashiers need to examine the dates on a food
instrument to ensure it is valid, regardless of when the food
instrument was issued. Requiring shorter issuance cycles would neither
eliminate the need for such an examination nor be a cost-effective
solution to the commenter's concern. However, in our review of this
provision, we did note that although a three-month supply of food
instruments is acceptable, a three-month supply of supplemental foods
is not. Consequently, we modified this provision in Section
246.12(r)(5) so that ``no more than a * * * one-month supply of
authorized supplemental foods is issued at any one time. * * *''
b. Electronic Benefits Transfer (EBT) (Secs. 246.12(a) and (h)(3)(iv))
In the Vendor Disqualification final rule, we amended the
definition of ``food instrument'' to include an electronic benefits
transfer card (EBT). We made this change to recognize that some State
agencies are using EBT cards in place of printed food instruments. For
the same reason, we proposed to include a statement in Section
246.12(a) to acknowledge that the current regulations do not specify
separate requirements or exceptions for EBT systems and that the
operation of EBT systems may require modifications of some regulatory
provisions.
[[Page 83257]]
One commenter suggested that we delete the reference to EBT systems
in Section 246.12(a). Another commenter opposed our ``piecemeal and
potentially premature approach toward WIC EBT.'' This commenter
suggested that we implement a new series of EBT pilot programs and
evaluate them in public forums before we make modifications to the
regulations regarding EBT systems. In addition, three commenters
requested that we clarify the purpose of this proposed change and
suggested that we wait until EBT is fully implemented and then issue a
more practical final rule.
The EBT provision in Section 246.12(a) is intended to recognize the
emergence of EBT systems in the WIC Program and acknowledge that these
systems will not always conform with current regulatory provisions that
apply to printed food instruments. We believe that this authority is a
necessary first step toward the further development of EBT systems in
the WIC Program.
The suggestion that we wait until EBT is fully implemented before
issuing a final rule is unworkable. We do not have separate authority
to modify regulatory requirements for pilot projects. Further, some of
the provisions in this rulemaking are in response to statutory
deadlines, most of the new requirements in this rulemaking will be
unaffected by EBT implementation, and EBT may not be implemented for
decades in areas where it is not a cost-effective alternative to
printed food instruments. Nevertheless, we revised this provision to
clarify the situations in which we will modify a regulatory provision
to accommodate a particular EBT system.
c. Food Instrument Issuance and Security (Secs. 246.12(r)(1) through
(r)(5) and (p) and 246.4(a)(14)(xii))
We received only one comment regarding the proposed provisions in
Sections 246.12(r)(1) through (r)(4), which concern food instrument
issuance. The commenter supported the proposed amendments except for
the use of the term ``proxy.'' The commenter's concern is addressed
below in our discussion of the definition of proxy in section 13.a of
this preamble. We made minor changes to the provisions in Sections
246.12(r)(1) through (r)(5) to incorporate ``parents or caretakers of
infant and child participants'' and to make these provisions conform to
language used throughout the final rule.
Ten commenters expressed various concerns about the food instrument
security requirements in Section 246.12(p) of the proposal. Three
commenters asked that we clarify how this provision applies to State
agencies with print-on-demand technology. Another commenter asked that
we clarify what the term ``perpetual inventory'' means and whether a
system that maintains inventory and receipt of food instruments would
be sufficient to meet this regulatory requirement.
A perpetual inventory refers to an ongoing record maintained by
local agencies and, if applicable, clinics of the food instruments
received from the State agency and the food instruments issued to
participants. The perpetual inventory is a running inventory of a local
agency or clinic's supply of food instruments, and the monthly physical
inventory is used to reconcile the perpetual inventory with the supply
of food instruments on hand. For local agencies and clinics that use a
print-on-demand technology to produce their food instruments, this
requirement would apply only to their supplies of special check stock,
if used, and, if applicable, to their supply of emergency, back-up,
pre-printed food instruments. For local agencies and clinics that issue
EBT cards, this requirement would only apply to the supplies of EBT
cards maintained on premises.
One commenter indicated that monthly physical inventories would be
administratively burdensome for integrated local agencies and were
unnecessary due to the State agency's use of electronic acknowledgment
of receipts of food instruments by local agencies. Three commenters
suggested that the physical inventory be conducted on a quarterly
rather than on a monthly basis; however, one commenter suggested that
monthly inventories are preferable to quarterly inventories because
they become part of the local agency's monthly routine. Another
commenter indicated that monthly inventories are unnecessary because
the State agency uses a one-to-one reconciliation of food instruments,
which is a better and more cost-effective control.
As noted in the preamble to the proposed rule, the purpose of
perpetual and physical inventories is to prevent and detect employee
fraud. Neither an electronic acknowledgment of receipt of food
instruments nor a one-to-one reconciliation of food instruments after
redemption provides for the accountability and security of a local
agency or clinic's food instruments on hand. We believe the most
effective means to prevent employee fraud is to have controls in place
to account for and limit the access to food instruments from the time
they are created or received until the time they are issued to
participants. A monthly reconciliation of perpetual and physical
inventories provides local agencies and clinics with a method to detect
when food instruments are missing from their inventories.
One commenter requested that we modify this provision so that local
agencies are only required to maintain perpetual inventory records for
seven years, because record retention is both expensive and time-
consuming. We did not specify a time limit for the retention of such
records and do not expect that the records be retained beyond the State
agency's current record retention schedule for other WIC records.
Two commenters opposed the proposed provision in Section
246.4(a)(14)(xii), which would require the State agency to include a
description of its system for ensuring food instrument security in its
State Plan. As noted above, we believe that such a system provides a
necessary protection against employee fraud. In addition, we believe
that inclusion of a description of the State agency's system in its
State Plan is essential to ensuring that the system is put into place
in the local agencies and clinics under the State agency's
jurisdiction. One commenter recommended that State agencies currently
designing data systems include a food instrument inventory component in
their data systems that is automated at the local agency as well as at
the State agency level. We agree that automation of the local agency or
clinic's perpetual inventory of food instruments on hand would be a
worthwhile component of any data system.
d. Definition of ``Authorized Supplemental Foods'' (Sec. 246.2)
In Section 246.2, we proposed to define the term ``authorized
supplemental foods.'' One commenter suggested that we delete the phrase
``for a particular participant'' from the definition, so that this term
will not be confused with the existing term ``supplemental foods.'' The
commenter did not understand our need to narrow the definition to ``a
particular participant.'' Current regulations at 7 CFR 246.2 state:
``Supplemental foods means those foods containing nutrients determined
to be beneficial for pregnant, breastfeeding, and postpartum women,
infants and children, as prescribed by the Secretary in Sec. 246.10.''
The proposed definition of authorized supplemental foods was intended
to distinguish between the general categories of supplemental foods
contained in Section 246.10 from the specific supplemental foods
authorized
[[Page 83258]]
for a particular participant, which are listed on the participant's
food instruments.
The commenter further indicated that her State agency uses to term
``authorized supplemental foods'' to refer to the supplemental foods
approved by the State agency for use in the WIC Program. We are aware
that State agencies use various terms for the supplemental foods
approved by the State agency for program use, including the term ``WIC-
approved foods.'' We did not propose to define a term for those foods
approved by the State agency for program use, so we do not believe it
would be appropriate to include such a definition in this final rule.
However, we adopted the definition for authorized supplemental foods as
proposed because the definition provides us with a concise term to
refer to the specific supplemental food items authorized by the State
agency for a particular participant and listed on that participant's
food instruments. The term authorized supplemental foods captures both
the type and quantities of the supplemental foods, which we believe is
essential to understanding other regulatory provisions. For example, in
this final rule, Section 246.12(l)(1)(iv) states: ``The State agency
must disqualify a vendor for one year for a pattern of providing
unauthorized food items in exchange for food instruments, including
charging for supplemental foods provided in excess of those listed on
the food instrument.'' In this provision, ``unauthorized food items''
not only refers to any type of food item not listed on the food
instrument, such as an unauthorized brand of cereal, but also refers a
quantity of supplemental food item in excess of those listed on the
food instrument, such as an extra box of an authorized brand of cereal.
e. No Substitutions, Cash, Credit, Refunds, or Exchanges
(Sec. 246.12(h)(3)(ii))
In Section 246.12(h)(3)(ii), we proposed to expand the regulatory
language that ``vendors shall only provide the supplemental foods
specified on the food instrument'' to specify that vendors must not
provide unauthorized or non-food items, cash, credit, rainchecks, or
refunds in exchange for food instruments. We proposed only one
exception to this provision, to permit exchanges of ``identical
supplemental foods.'' The only opposition to this proposed provision
concerned the exception. Two commenters asked that we clarify the
circumstances under which an exchange may be permitted. One commenter
requested that we delete the exception because it would be the same
thing as offering a raincheck or credit. We clarified in the final rule
that exchanges are only permitted for ``an identical authorized
supplemental food item when the original authorized supplemental food
item is defective, spoiled, or has exceeded its `sell by' or `best if
used by' date.''
Another commenter requested that we delete the exception because
the State agency has found that during administrative reviews an
exchange for a ``similar'' food item is considered to be an exchange
for an ``identical'' supplemental food item. The commenter warned that
State agencies would lose administrative reviews regarding the
substitution of non-rebate infant formulas for the authorized infant
formula because preamble language is not considered part of the
regulation. We believe there is a clear distinction between the words
``similar'' and ``identical.'' Nonetheless, we added a sentence to this
provision in the final rule to clarify that an ``identical authorized
supplemental food item means the exact brand and size as the original
authorized supplemental food item obtained and returned by the
participant.''
f. Food Instrument Transaction and Redemption (Secs. 246.12(h)(3)(iv)
through (h)(3)(vi), (h)(3)(viii), and (h)(4))
In the final rule, we added headings to all the paragraphs in
Section 246.12(h) and reordered some of the paragraphs in Section
246.12(h)(3). In addition to making the information in this section
more accessible to readers, we made these changes to help readers
understand the distinction between the concepts of ``transaction'' and
``redemption'' as they apply to food instruments. Food instrument
transaction refers to the process in which a participant, parent/
caretaker, or proxy tenders a food instrument to a vendor in exchange
for authorized supplemental foods. Food instrument redemption refers to
the process in which a vendor submits food instruments for redemption
and the State agency (or its financial agent) makes payment to the
vendor for the food instruments.
The proposed rule contained a single paragraph that addressed the
procedures for entering both the purchase price and the signature on
food instruments. Three commenters requested that we delete the
provision because vendors will be penalized for not following the
requirements. Vendors should not be paid for food instruments that lack
purchase prices or signatures. This provision is necessary so vendors
understand these requirements.
Another commenter requested that we delete the preamble language
that discusses allowing the participant to enter the purchase price on
food instruments, because errors made by the participant when entering
the purchase price, which may result in vendor overcharges or
undercharges, would be attributed to the vendor. Another commenter
suggested that we clarify that the participant or proxy must sign the
food instrument ``in the presence of the cashier'' and that the
purchase price must be entered before the ``food instrument is
tendered.'' In Sections 246.12(h)(3)(v) and (h)(3)(vi) of the final
rule, we clarify that: (1) It is the vendor's responsibility to ensure
that a purchase price is entered on the food instrument in accordance
with the State agency's procedures; (2) the State agency has the
discretion to determine whether the vendor or the participant enters
the purchase price; (3) the purchase price must be entered before the
food instrument is signed; and (4) the participant, parent/caretaker,
or proxy must sign the food instrument in the presence of the cashier.
As discussed below in section 6.b of this preamble, the variety of
redemption systems employed by State agencies combined with the
proliferation of various cost containment measures has made a concise
definition of a ``vendor overcharge'' that is applicable to all State
agencies impossible. In recognition of this, we revised the definition
of vendor overcharge to mean intentionally or unintentionally charging
the State agency more for supplemental foods than is permitted under
the vendor agreement. This approach provides the needed flexibility to
accommodate the wide variety of systems that State agencies have
developed for entering purchase prices and redeeming food instruments.
We made a corresponding change to the vendor agreement provisions to
require in Section 246.12(h)(4) that the State agency describe in the
vendor agreement its purchase price and redemption procedures.
These changes also necessitated a change to the proposed
requirement in Sec. 246.12(h)(3)(viii) that vendors may not charge the
State agency more than the price charged other customers or the current
shelf price, whichever is less, or, when the State agency uses
competitive bidding, the contract price. Whereas the proposed provision
focused on the amount a vendor may ``charge'' the State agency, in the
final rule the provision focuses on the State agency's procedures for
submitting food instruments for
[[Page 83259]]
redemption. The provision also puts the vendor on notice that the State
agency may make price adjustments to the purchase price on food
instruments to ensure compliance with the price limitations applicable
to the vendor.
g. Food Instrument Disposition (Sec. 246.12(q)) and Adjustments to
Expenditures (Sec. 246.13(h))
We proposed to replace the heading of Section 246.12(n),
``Reconciliation of food instruments,'' with the heading, ``Food
instrument disposition,'' and to move this provision to Section
246.12(q). We also proposed to amend the language in this paragraph to
clarify the food instrument disposition process and to include language
regarding the food disposition process in EBT systems. One commenter
requested that we clarify the meaning of the terms used in this
provision, including the terms ``redeemed,'' ``expired,''
``duplicate,'' and ``enrollment record.'' Although we made a few
changes to the terminology used in the proposed provision, most of the
terms are unchanged. Nevertheless, we believe a review of the meanings
of the terminology used in this provision may be helpful for many
readers.
The term ``issued'' refers to food instruments that have been
issued to a participant. The term ``voided'' refers to food instruments
that have been invalidated by the State or local agency or clinic,
including food instruments that were voided after they were issued. All
food instruments that are no longer on hand (i.e., those food
instruments that were received/created that are no longer in inventory)
must be identified as either issued or voided, and as either
``redeemed'' (i.e., submitted for redemption by a vendor and payment
has been made by the State agency) or ``unredeemed'' (i.e., no payment
was has been made by the State agency).
All redeemed food instruments must be identified as falling into
one of the following categories: (1) ``validly issued'' (i.e., the food
instrument matches a participant's enrollment and issuance record); (2)
``lost'' (i.e., the food instrument was reported lost by a participant
or by the State or local agency or clinic); (3) ``stolen'' (i.e., the
food instrument was reported stolen by a participant or by the State or
local agency or clinic); (4) ``expired'' (i.e., the food instrument was
submitted by the vendor after the specified period for redemption and
the State agency provided payment to the vendor in accordance with
Section 246.12(k)(5)); (5) ``duplicate'' (i.e., the food instrument was
issued to a participant to replace a lost, stolen, or voided food
instrument); or (6) ``not matching valid enrollment and issuance
records'' (i.e., the food instrument does not match a participant's
enrollment and issuance record).
One commenter characterized accounting for voided, lost, and stolen
food instruments as not beneficial, unnecessary, and overly burdensome.
We disagree. It is necessary to account for voided food instruments
because otherwise such food instruments would seem to be missing when
the State or local agency or clinic reconciles its perpetual inventory
with its monthly physical inventory. When the State agency makes
payment on a voided, lost, or stolen food instrument, there is evidence
of fraud or abuse. It is the State agency's responsibility to
investigate such incidences to determine if the fraud or abuse was
committed by a participant, an employee, a vendor, or an unauthorized
person. If the State agency detects criminal activity, it must report
it to the proper authorities for investigation.
The commenter also characterized accounting for unredeemed food
instruments as solving a problem that does not exist, because such food
instruments do not represent an expenditure of grant funds. We
disagree. In Sec. 246.13(h), we proposed to require the State agency to
``adjust projected expenditures to account for redeemed food
instruments and other changes as appropriate.'' This provision, which
received no negative comments and has been adopted as proposed,
requires the State agency to adjust its obligations to account for food
instruments that have been paid (i.e., issued and redeemed) as well as
those that have been deobligated (i.e., voided or unredeemed).
Consequently, the State agency needs to account for both voided and
unredeemed food instruments in order to remove them from its
obligations. In addition, we would like to point out that anytime a
food instrument is issued there is an associated nutrition services and
administration cost, regardless of whether the food instrument is
redeemed. An examination of unredeemed food instruments may reveal
irregularities or waste, such as instances of dual enrollment.
One commenter suggested that we modify Sec. 246.12(q) to
differentiate between accounting for automated food instruments and
accounting for manual food instruments that contain no participant
data. The commenter noted that: manual food instruments represent 11.2%
of the State agency's total redemptions, only 0.57% of these manual
food instruments are recorded without participant data, and the State
agency has never uncovered an instance of fraud in its investigations
of such food instruments. The commenter recommended that we permit the
reconciliation of a sample of manual food instruments that contain no
participant data to ensure ``with reasonable statistical certainty''
that they were issued as a result of human error rather than as a
result of fraud.
Although we understand the commenter's concern about the effort
involved in the reconciliation of manual food instruments without
participant data, we believe the fact that a manual food instrument
lacks participant data represents a lapse in program integrity that
should be addressed by the State agency. Such instances should be
investigated, and procedures should be put in place to ensure that all
manual food instruments contain participant data, which allows them to
be reconciled without excessive effort. In addition, we believe that as
State agencies employ new technologies, such as print-on-demand food
instruments and EBT, to issue food instruments, the use of manual food
instruments should decline steadily until there is no longer a need for
them. For these reasons, we did not accept the commenter's
recommendation.
Whereas two commenters supported the proposed amendments to
Sec. 246.12(q) because their systems currently meet these requirements,
three commenters asked that we acknowledge the additional costs for
some State agencies to the implement this provision. We realize that
some State agencies will incur significant costs to reprogram their
systems in order to link participant enrollment records with food
instrument issuance and redemption data. However, we believe this step
is necessary to provide a level of accountability that ensures the
integrity of the Program.
One commenter noted that in Sec. 246.12(q) of the proposal we use
the term ``PIN'' (Personal Identification Number) when we mean ``PAN''
(Primary Account Number). The proposed provision reads: ``In an EBT
system, evidence of matching redeemed food instruments to a valid
issuance and enrollment record may be satisfied through the linking of
the PIN associated with the electronic transaction to a valid issuance
and enrollment record.'' In this instance, the correct term is PAN,
which is a standard term used in the banking industry for the account
number embossed on credit and bank cards. In an EBT system, the PAN is
used to link redemption data to enrollment and issuance records; the
PIN refers to the number entered by the participant at the point-of-
sale device to
[[Page 83260]]
access and transact program benefits. Consequently, we amended the
proposal to reflect this correction.
h. Claims Against the State Agency (Sec. 246.23(a)(4))
One commenter asked that we clarify whether all three conditions
listed in Secs. 246.23(a)(4)(i) through (a)(4)(iii) must be satisfied
to avoid a claim against the State agency for failing to account for
the disposition of all redeemed food instruments. To avoid a claim, the
State agency must satisfy all three conditions, which make up a three-
step process in which the State agency has: (1) ``Made every reasonable
effort to comply with the requirement;'' (2) ``Identified the reasons
for its inability to account for the disposition of each redeemed food
instrument; and'' (3) ``Provided assurances that, to the extent
considered necessary by FNS, it will take appropriate actions to
improve its procedures'' (emphasis added).
One commenter was concerned that the term ``reasonable effort'' is
subjective and open to various interpretations by Federal and State
auditors. Another commenter requested that we clarify what is meant by
``made every reasonable effort.'' We believe that what constitutes
``every reasonable effort'' will vary based on the specific situation
and cannot be defined in such a manner that could be applied to all
situations. Because all three conditions of this provision must be met,
what constitutes every reasonable effort will be driven by whether the
State agency's efforts result in both the identification of the source
of the problem and the State agency's assurance that improvements will
be made to its procedures to correct the problem. For example, in the
situation described above regarding the inability of the State agency
to reconcile its manual food instruments that lack participant data, if
the State agency were to investigate a sample of such food instruments,
identify that the problem is due to local agency staff inadvertently
omitting the participant data, and implement a procedure that requires
local agency staff to use a checklist, which includes entering
participant data, when issuing manual food instruments, then the State
agency would satisfy the conditions of Sec. 246.23(a)(4) and avoid a
claim. If the State agency is unable to satisfy the conditions in
Sec. 246.23(a)(4) and we recommend additional efforts that the State
agency could undertake to identify and correct its accounting problem
and the State agency refuses to make such efforts, then the State
agency has failed to make every reasonable effort and will be subject
to a claim.
One State agency recommended that we establish an unbiased
mediation process to review cases in which our determination of what
constitutes ``every reasonable effort'' is in question. We did not
propose an unbiased mediation process be established for vendor or
State agency claims and do not believe that such a process is necessary
in either case. Similar to the provision in Sec. 246.18(a)(1)(iii)(F)
that prohibits the administrative review of vendor claims, current
regulations at 7 CFR 246.22(a) make clear that we will not provide a
hearing or review for claims against the State agency arising under
Sec. 246.23(a). In addition, similar to the requirements in Section
246.12(k)(3), which provide vendors with ``an opportunity to justify or
correct'' a food instrument error that results in a claim, we provide
the State agency with an opportunity to justify or correct the
situation that results in its inability to reconcile all of its food
instruments and believe this is sufficient.
One commenter suggested that we allow for the withholding of a
portion of the State agency's next year's grant, until the issue is
resolved, rather than withholding up to 100% of the State agency's
current funding, which could result in participants not being served.
Section 246.23(a)(4) sets forth the requirements for establishing a
claim against the State agency for failing to account for the
disposition of all of its redeemed food instruments and for failing to
take appropriate actions to correct its accounting problems. This
provision does not address withholding nutrition services and
administration funds but rather establishing a claim for an amount that
corresponds to the State agency's unreconciled food instruments. Such
claims are not allowable nutrition services and administration costs
for the State agency and must be paid with State funds.
6. Vendor Violations, Vendor Overcharges, and Vendor Claims
a. Definition of ``Vendor Violation'' (Sec. 246.2) and Vendor
Responsibility for Employee Actions (Sec. 246.12(h)(3)(xiii))
Seventeen of the nineteen commenters on the proposed definition of
``vendor violation'' supported the definition. Commenters did suggest a
number of modifications. Seven commenters indicated that focusing on
the acts of the vendor did not make sense, in light of the definition
of vendor as a business entity that operates a store. We revised the
definition to state that a vendor violation is an action of a vendor's
current owners, officers, manager, or employees. Another commenter
recommended that we add ``agents'' to the definition to cover
situations in which friends or relatives are asked by owners to act as
substitute cashiers. We accepted the commenter's recommendation and
revised the definition accordingly.
Another commenter focused on the part of the definition that refers
to actions that violate the Program statute or regulations or State
agency policies or procedures. The commenter recommended that the
definition include actions that violate State law, rules, and
regulations as well. We accepted this recommendation and revised the
definition to include actions that violate ``the vendor agreement or
Federal or State statutes, regulations, policies, or procedures
governing the Program.''
The two commenters who opposed the definition unless we modified it
focused on the inclusion of unintentional actions in the definition. As
noted in the discussion of the definition of vendor violation in the
proposed rule, we believe vendors should be held accountable for all
violations, whether they are deliberate attempts to violate program
requirements or inadvertent errors, because both ultimately result in
increased food costs and fewer participants being served. We
acknowledged the complexity of WIC transactions and noted that even
with training and supervision, cashiers may occasionally make
unintentional errors. We also stated that the State agency has a wide
range of actions that it may take as a result of a vendor violation,
including assessing a claim, requiring increased training, identifying
the vendor as a high-risk vendor subject to compliance investigation,
and imposing a sanction. One supporting commenter questioned whether
this statement is contrary to the mandatory vendor sanctions required
by the Vendor Disqualification final rule. We want to emphasize that
not all vendor violations will give rise to a vendor sanction. For
example, even though an inadvertent mistake in entering the purchase
price on a food instrument may constitute both a vendor violation and a
vendor overcharge, it would not necessarily trigger a sanction. Only a
pattern of vendor overcharges triggers the mandatory sanction.
Consequently, we retained the ``unintentional action'' language in the
vendor violation definition, as well as the State agency's discretion
to take a variety of actions against a vendor when vendor violations do
not rise to a level that triggers a sanction.
[[Page 83261]]
One commenter suggested that the provision in proposed
Sec. 246.12(h)(3)(xiii) provide an exception similar to the one in
Sec. 246.12(l)(1)(i)(B), which provides the State agency with an option
to impose a civil money penalty in lieu of permanent disqualification
when the vendor had, at the time of the violation, an effective program
and policy in effect to prevent trafficking and the ownership of the
vendor was not aware of, did not approve of, and was not involved in
the conduct of the violation. Another commenter asserted that if a
vendor is doing everything it can to comply with program requirements
and fires the employee who committed the vendor violations, the vendor
should be able to retain its authorization. Otherwise, when a vendor is
disqualified, participants are forced to go to a less convenient store
or even drop off the Program completely.
For the same reasons we did not remove unintentional actions from
the definition of vendor violation, we retained in
Sec. 246.12(h)(3)(xiii) of the final rule the requirement that vendor
agreements include a statement concerning the responsibility of the
vendor for the actions of its employees. To be consistent with the
definition of vendor violation, we included a reference in this
provision to the vendor's accountability for the actions of its owners,
officers, and managers. Also, rather than limiting this provision to
actions relating to the ``handling of food instruments,'' we revised
the provision to require accountability for ``vendor violations.'' As
we noted above, not every vendor violation results in a sanction.
Furthermore, for most mandatory sanctions, if the State agency
determines that disqualification of the vendor would result in
inadequate participant access, the State agency must impose a civil
money penalty, except in the case of third or subsequent mandatory
sanctions.
b. Definitions of ``Vendor Overcharge'' and ``Price Adjustment''
(Sec. 246.2)
Nineteen of the twenty-one commenters supported the proposed
definition of ``vendor overcharge.'' Two commenters suggested removing
the word ``pattern,'' noting that although a pattern of overcharging is
required to trigger the mandatory sanction for vendor overcharges, it
is unnecessarily limiting to include the pattern requirement in the
definition itself. We agree and made this change in the final rule.
Two commenters objected to the word ``unintentional.'' As noted in
the discussion of the definition of vendor violation above and the
discussion of vendor overcharges in the preamble to the Vendor
Disqualification final rule, we believe that limiting the scope of
vendor overcharges only to those that are intentional or fraudulent
would undermine the integrity of the WIC Program. It also puts an
additional burden on the State agency to prove the intent of the person
who commits the vendor overcharge. Funds lost due to vendor
overcharges, whether intentional or inadvertent, are not available to
serve program participants. Therefore, we did not remove the word
``unintentional.''
Five of the supporting commenters and one opposing commenter
pointed out that the proposed definition of vendor overcharge did not
adequately distinguish between a vendor overcharge and what they termed
an ``overpriced food instrument'' or ``overage.'' The commenters
described an overpriced food instrument as a food instrument on which
the vendor properly entered purchase price but due to a pre- or post-
payment edit is paid by the State agency an amount lower than the
purchase price.
We agree with the commenters and, in the final rule, added a new
definition of ``price adjustment,'' which is defined as ``an adjustment
made by the State agency, in accordance with the vendor agreement, to
the purchase price on a food instrument after it has been submitted by
a vendor for redemption to ensure that the payment to the vendor for
the food instrument complies with the State agency's price
limitations.'' We made a conforming change to the definition of vendor
overcharge to clarify that a vendor overcharge does not occur when the
State agency makes a price adjustment to the purchase price of a food
instrument in accordance with the procedures outlined in the vendor
agreement.
The definition of price adjustment recognizes the increasing number
of State agency systems under which adjustments routinely are made to
the purchase price on food instruments after they have been submitted
for redemption. For example, in one State agency, prices are
established for supplemental foods through competitive bids. The
purchase price entered by the vendor on the food instrument corresponds
to the current shelf prices for the authorized supplemental food items
provided to the participant. The State agency bills the vendor at the
end of each month for the difference between the purchase prices on its
food instruments and the vendor's contract prices for the supplemental
foods. These adjustments are not made to account for errors but as a
regular part of the State agency's system for redeeming food
instruments. Another State agency may have a system under which the
State agency has established maximum prices for each type of food
instrument and does not pay vendors in excess of that amount,
regardless of their shelf prices for the supplemental foods. These
situations are not properly categorized as overcharges, because the
price adjustments are a regular part of the State agency's redemption
system.
We also recognize that sometimes the price adjustments are not made
directly by State agencies, but rather by the banks they contract with
to redeem food instruments. In these cases, the banks, acting as
financial agents of the State agency, redeem the food instruments and
make price adjustments pursuant to their contracts with the State
agency. Thus, the price adjustments made by contractors of the State
agency would be considered to be price adjustments made by the State
agency and would not be considered vendor overcharges.
A vendor still could commit a vendor overcharge in a system that
uses price adjustments. For example, a vendor agreement may establish a
maximum price by food instrument type but still requires the vendor to
enter a purchase price that corresponds to its shelf prices. Under this
arrangement, anytime the vendor enters a purchase price that exceeds
its shelf prices, the vendor has committed an overcharge. A pattern of
such vendor overcharges would trigger a mandatory sanction under
Sec. 246.12(k)(1)(iii)(C).
We also revised the definition of vendor overcharge to replace the
reference to charging participants more than non-WIC customers or the
shelf or contract price with ``charging the State agency more for
authorized supplemental foods than is permitted under the vendor
agreement.'' We made this modification to recognize the wide variety of
State agency redemption systems. In most cases, the vendor will be
required to enter the purchase price corresponding to the shelf prices
or prices charged non-WIC customers, whichever is less. However, in
some cases the vendor may be required to enter a purchase price that
does not exceed the food instrument's maximum price before submitting
it to the State agency for redemption.
Two commenters suggested incorporating a dollar threshold in the
definition of vendor overcharge. As we have discussed in our guidance
on the mandatory sanction for vendor overcharges, the severity of an
overcharge should be taken into account in establishing a pattern of
vendor overcharges. However, we believe it is
[[Page 83262]]
important to have a firm definition of what constitutes a vendor
overcharge and then for the State agency to establish a threshold for
imposing a sanction or other action according to the number and
severity of the vendor overcharges.
Another commenter recommended that we limit vendor overcharges to
actions that are proven through compliance buys. Most vendor
overcharges will be established through compliance buys. However, State
agencies may be able to develop edits or other means to detect vendor
overcharges that provide sufficient evidence to support their sanction
actions.
We made a conforming change to the mandatory sanction in
Sec. 246.12(k)(1)(iii)(C) to use the defined term ``vendor overcharge''
rather than repeating the substance of the definition within the
sanction provision. Finally, one opposing commenter noted that the
definition should not reference ``charging participants'' because the
State agency, not the participant, is charged for authorized
supplemental foods obtained from a vendor. We agree with commenter and
made this change.
c. Review of Food Instruments (Sec. 246.12(k)(1))
Thirteen of the fifteen commenters on Sec. 246.12(k)(1) supported
the proposal to require the State agency to have systems to identify
vendor overcharges and other errors on redeemed food instruments not
less frequently than quarterly, although a number of the supporting
commenters recommended that we modify the provision. Several commenters
questioned how a State agency could have a system to detect vendor
overcharges because they thought that compliance buys are the only way
to establish vendor overcharges. We agree that compliance buys are the
best way to support sanctioning a vendor for vendor overcharge
violations. These comments pointed out that our reference to a system
to ``identify'' vendor overcharges and other errors needed modification
to apply to all State agencies.
We revised this provision to clarify that the State agency must
have a system to detect ``questionable food instruments, suspected
vendor overcharges, and other errors. * * *'' This language both
responds to the concern that in most instances a review of food
instruments will not be able to identify an actual vendor overcharge,
just a suspected vendor overcharge, and parallels the current language
in 7 CFR 246.12(r)(5)(i) on this point. This revision also takes into
account the need to detect other food instruments that may contain
something questionable, but not clearly an error, that requires follow
up.
We also revised this provision to require that the system ensure
compliance with the applicable price limitations. As discussed in
section 4.a of this preamble, section 17(h)(11) of the Child Nutrition
Act (42 U.S.C. 1786(h)(11)) now requires that the State agency
establish procedures to ensure that authorized stores do not raise
their prices after authorized, to levels that would otherwise make them
ineligible for authorization. As a result, we required in
Sec. 246.12(g)(3)(i) that the State agency establish price limitations
and in Sec. 246.12(h)(4) that the State agency's redemption procedures
must ensure that it does not pay a vendor more than the applicable
price limitations. To further implement this statutory mandate, we
revised the requirement for the review of food instruments to ensure
compliance with the applicable price limitation. The final rule also
makes clear that the review must include a price comparison or other
edit designed to ensure compliance with the applicable price
limitations and to detect suspected vendor overcharges.
Two commenters asked that we clarify whether this requirement could
be satisfied by inspecting a representative sample of food instruments.
It was always our intention to permit the State agency to review only a
representative sample of the food instruments submitted for redemption.
We revised this provision to clarify that the State agency may review
either all or a representative sample of food instruments and that the
review may be done either before or after the State agency makes
payment to the vendor on the food instruments. However, as State
agencies continue to automate their food instrument redemption systems,
they should design their systems to include a review of all food
instruments before they make payment on them.
One commenter suggested that we modify the requirement to detect
``redemption of expired food instruments'' to read ``food instruments
redeemed outside of valid dates.'' We revised this provision to read
``transacted or redeemed after the specified date'' to capture both
food instruments that vendors accept after the date for transacting
them and food instruments submitted for redemption after the specified
date.
Finally, we clarified what we meant when we proposed that the
system must detect vendor overcharges and other errors at least
quarterly. We did not mean that the review was to be conducted
quarterly. Instead, we were trying to establish a timeframe for follow-
up action on any suspected vendor overcharges and other errors. In the
final rule, we specify that the State agency must take follow-up action
within 120 days of detecting any questionable food instruments,
suspected vendor overcharges, or other errors. The review itself must
be done on a continuing basis.
d. Delaying Payment and Establishing Claims (Secs. 246.12(k)(2) and
246.12(h)(3)(ix))
The majority of the commenters supported the proposed requirement
that the State agency assess claims resulting from vendor violations
identified during inventory audits or other reviews. However, in
reviewing the proposed rule, we noted that we did not clearly establish
a general requirement to establish claims against vendors that have
committed vendor violations that affect the payment to the vendor. The
final rule makes this clear in Secs. 246.12(k)(2) and 246.12(h)(3)(ix)
and also clarifies that the State agency may delay payment in cases in
which the vendor violation is discovered before payment has been made.
In response to proposed Sec. 246.12(h)(3)(ix), a number of
commenters asserted that an ``overpriced food instrument'' should give
rise to a claim and a ``vendor overcharge'' should give rise to a
sanction. As noted above, a price adjustment is not a vendor overcharge
and does not trigger a claim. Price adjustments, which must be
described in the vendor agreement, are part of the method used by the
State agency to determine the amount a vendor is paid for a food
instrument.
We want to make clear that claims and sanctions are not mutually
exclusive. Claims arise in situations in which the vendor has not
complied with the requirements for food instrument redemption, such as
recording the wrong price or accepting food instruments without
signatures. In these cases, the State agency must either deny payment
of the food instrument or assert a claim. Sanctions arise as a result
of vendor violations, such as a pattern of vendor overcharges.
One commenter requested that we clarify that in addition to
assessing claims, the State agency may sanction vendors for a pattern
of vendor overcharges. The commenter indicated this clarification is
necessary to avoid dealing with vendor assertions that as long as they
paid claims resulting from vendor overcharges, they cannot be
[[Page 83263]]
sanctioned for vendor overcharge violations. We revised
Sec. 246.12(h)(3)(ix) to clarify that: ``In addition to denying payment
or assessing a claim, the State agency may sanction the vendor for
vendor overcharges or other errors in accordance with the State
agency's sanction schedule.''
Three commenters suggested that a pattern of overcharges be used to
identify high-risk vendors. Another commenter indicated that having a
variable maximum price that is not printed on the food instrument
eliminates the opportunity for systemic and excessive overcharging,
lessening the need for pursuing claims, regardless of the cause or the
size of vendor overcharges. Although we believe both of these
approaches would improve program integrity, they should be used in
addition to, and not in lieu of, strong requirements to pursue claims.
e. Collecting the Full Purchase Price of Food Instruments Containing
Vendor Overcharges or Other Errors (Secs. 246.12(k)(2) and
246.12(h)(3)(ix))
Both Sections 246.12(k)(2) and 246.12(h)(3)(ix) in the proposed
rule would have permitted, but not required, the State agency to
withhold payment or collect from the vendor the full redeemed value of
a food instrument containing a vendor overcharge or other error. Just
under half of the commenters on each of these provisions opposed this
authority for two reasons. First, they pointed out that it treated
inadvertent cashier errors the same as intentional fraud. They asserted
that there is no deterrent effect when human error is the cause.
Second, they noted that establishing a claim for the full purchase
price of the food instrument failed to compensate vendors for the
amount of the supplemental foods that were properly provided to
participants. One commenter suggested that we permit claim assessment
for a percentage of the food instrument value rather than for the full
amount. Another commenter was particularly concerned about this
provision in light of the proposal to limit vendors' ability to appeal
claims.
The ability to establish a claim for the full purchase price of a
food instrument can provide a powerful incentive for vendors to ensure
that their cashiers are properly trained in order to reduce inadvertent
errors during WIC transactions. As such, we retained this option for
the State agency.
f. Opportunity to Justify or Correct Errors (Sec. 246.12(k)(3))
Two commenters supported retaining the current provision requiring
the State agency to give vendors the opportunity to justify or correct
errors before denying payment or assessing a claim. One commenter
indicated that our example was inadequate because some State agencies
do not pay for food instruments with missing purchase prices or
signatures and do not permit, under their vendor agreements, vendors to
make these types of corrections after a food instrument has been
submitted for redemption. We agree with the commenter and deleted this
example.
One commenter on the claims provision of the vendor agreement noted
that we had removed the current provision requiring the State agency to
give vendors an opportunity to justify or correct food instrument
errors. To emphasize that vendors must still be provided this
opportunity, we added a reference to this opportunity in the claims
provision of the vendor agreement.
g. Timeframe for Initiating Claims (Sec. 246.12(k)(4))
Two commenters pointed out that requiring the State agency to begin
collection efforts before an investigation is complete could jeopardize
the investigation. We agree and revised the requirement for initiating
collection action to read ``the date of detection of the vendor
violation or the completion of the review or investigation giving rise
to the claim, whichever is later.'' We also reordered paragraph (k) to
clarify that the opportunity to justify or correct must occur within
the 90 days the State agency has to make a final decision to deny a
payment or initiate claims collection action.
h. Food Instruments Redeemed after the Specified Period
(Sec. 246.12(k)(5))
Two commenters suggested that we raise the dollar limit for
permitting the State agency to pay vendors for food instruments
submitted for redemption after the specified date without our approval.
They indicated that this dollar limit was outdated. We agree and raised
the limit for prior FNS Regional Office approval from $200 to $500.
7. Miscellaneous Vendor Agreement Specifications
a. Recordkeeping (Sec. 246.12(h)(3)(xv))
We proposed to require the vendor agreement to provide that vendors
must maintain inventory records used for Federal tax reporting purposes
and other records the State agency may require for a period of time
specified by the State agency. One commenter recommended that we set
the length of time in the final rule, rather than defer to the State
agency. Other commenters requested that we specify what records must be
retained and that we require that shelf price records be maintained to
facilitate follow-up on suspected vendor overcharges. Finally, one
commenter questioned whether the records may be kept off-site.
This rule adopts the provision largely as proposed. We left it to
the State agency to specify the record retention period. We clarified
that the time period must be specified by the State agency in the
vendor agreement. The State agency has the discretion to require as
part of the vendor agreement that the vendor maintain shelf price
records. Finally, this rule retains the requirement that the records be
available at any reasonable time and place. This means that records may
be kept off-site as long as they are readily accessible.
b. Sanction Schedule (Sec. 246.12(h)(5))
All commenters supported our proposal to require the State agency
to include its sanction schedule as part of the vendor agreement. This
provision would replace the current approach of separately listing in
the program regulations the mandatory sanctions that the State agency
must include in its vendor agreement. Several commenters suggested that
we clarify that the sanction schedule may be included as an attachment
to the vendor agreement. Another commenter requested that we permit
cross-reference to State laws or regulations in areas in which the
State agency's sanction schedule has been incorporated in State law or
regulations. We made these changes and also revised the provision to
clarify that the sanction schedule must include both the mandatory and
State agency vendor sanctions.
One commenter suggested that the required sanction schedule only
include the mandatory sanctions, because the State agency needs some
flexibility in assessing the State agency sanctions in order to take
into account the nuances of each case. We disagree. A State agency may
build some flexibility into its sanction schedule, such as factors that
will be taken into account in determining the length of a
disqualification. However, vendors need advance notice of the
consequences of committing vendor violations. We believe that allowing
the State agency to either attach the sanction schedule to or cross-
reference it in the vendor agreement provides the State agency with an
efficient and effective means to provide vendors with such advance
notice.
Two commenters asked whether the State agency would be permitted to
[[Page 83264]]
continue to include its sanction schedules in the vendor handbook that
is provided to vendors along with the vendor agreement. This practice
is permissible only if the sanction schedule section of the vendor
handbook is referenced in the vendor agreement. Providing vendors with
advance notice of the sanction schedule through the vendor agreement
prevents vendors from arguing during administrative reviews that they
were unaware of the sanctions for various vendor violations.
c. Adverse Actions Subject to Administrative Review and Administrative
Review Procedures (Sec. 246.12(h)(6))
We proposed to require the State agency to include with the vendor
agreement a list of the actions a vendor may appeal and a copy of the
State agency's administrative review procedures. Commenters generally
supported this provision, but suggested some modifications to provide
the State agency with some flexibility in the implementation of this
provision. One commenter asked that we clarify that such procedures may
be included in a vendor handbook or as an attachment to the agreement.
Another commenter suggested that when the procedures are included in
State law or regulations, that the vendor agreement just cross-
reference those documents. Finally, one commenter asked whether this
provision is necessary in light of the requirement that the State
agency must provide such procedures to the vendor along with its notice
of an adverse action that is subject to review.
The final rule incorporates many of these suggestions. It permits
the State agency to include the list of adverse actions and the
administrative review procedures either in the agreement or as an
attachment to it. If these items are included in State law or
regulations or in another document, such as a vendor handbook, provided
at the time the vendor is authorized, the State agency may simply
include an appropriate cross-reference in the vendor agreement. As an
alternative to these approaches for the administrative review
procedures, the State agency may include a statement in the vendor
agreement that the administrative review procedures are available upon
request and applicable procedures will be provided along with a notice
of adverse action that is subject to review.
One commenter indicated that the vendor agreement should include a
list of the adverse actions that are not subject to administrative
review, rather than a list of the adverse actions that are subject to
administrative review. The commenter asserted that an all-inclusive
list of all actions that may be subject to administrative review is
impossible. We did not intend the State agency to include a laundry
list of all possible adverse actions. However, we also do not believe
that simply providing a list of adverse actions not subject to
administrative review is appropriate in light of the two categories of
administrative reviews established under this rule (full and
abbreviated administrative reviews). We expect the State agency to list
the adverse actions in the same level of detail as they are described
in Section 246.18. We revised this provision to require the State
agency to list the adverse actions that are not subject to review as
well. As with the sanction schedule, we believe it is critical that
vendors receive advance notice of the consequences of their actions and
whether they will be able to obtain administrative review in the event
of an adverse action by the State agency.
8. Vendor Training
The proposal included several provisions that would strengthen the
vendor training requirements. The goal of these changes is to improve
vendors' understanding of program rules and requirements in order to
prevent program noncompliance and errors. The proposal specified where
vendor training would take place, who would be required to attend
training, how often training would take place, and what type of
training would be provided. Commenters were primarily concerned about
the costs associated with the proposed changes.
a. Location of Training (Sec. 246.12(i)(1)), Preauthorization Visits
(Sec. 246.12(g)(4)), and Personnel Required to Attend Training
(Secs. 246.12(h)(3)(xi) and (i)(1))
The most common concern among commenters was the location of vendor
training. The proposal would have required the State agency to provide
training to new vendors ``on the site of the vendor.'' This provision
was intended to combine the initial vendor training with the documented
on-site visit that currently is required by Sec. 246.12(e)(1) prior to
or at the time of initial authorization of a new vendor. Most of those
who commented on this aspect of the provision indicated that on-site
training was ineffective for a variety of reasons, including constant
interruptions, inadequate space in stores for training, and
inefficiency due to training vendors individually rather than training
a large group of vendors at the same time. Three commenters preferred
on-site training because off-site training creates a burden for small
businesses with few employees. To address commenters' concerns, we
decided to revise this provision to give the State agency discretion to
determine the appropriate location for vendor training. When possible,
we believe that the State agency should attempt to accommodate requests
from small businesses to provide on-site vendor training. To
accommodate this revision, we retained the current requirement that the
State agency conduct an on-site visit prior to or at the time of a
vendor's initial authorization. This requirement appears in
Sec. 246.12(g)(4) of the final rule.
Proposed Sec. 246.12(h)(3)(xi) would have required ``the manager of
the vendor or other member of management'' to participate in vendor
training. Commenters were divided on the issue of who should be
required to attend training. One commenter suggested that we require
store owners and/or general managers as well as key store personnel to
participate in annual training. Another commenter indicated that
requiring ``management'' to attend training was inappropriate. A third
commenter asserted that, because the vendor is responsible for its
employees' actions regardless of who commits violations or attends
training, the vendor should have the discretion to determine who is in
the best position to participate in the training and to provide
training information and materials to other store employees. Based on
the comments we received, it appears that there are a variety of
successful formats for vendor training, ranging from large, off-site,
train-the-trainer programs to on-site, cashier training programs. To
allow for a variety in formats, we believe it is necessary to provide
both the State agency and vendors with discretion regarding the
appropriate audience for vendor training. Consequently, we revised both
the vendor agreement and vendor training provisions to clarify that at
least one representative from each vendor is required to participate in
the training and that the State agency will designate the audience
(e.g., managers, cashiers, etc.) to which the training is directed.
b. Frequency and Format of Training (Secs. 246.12(i)(1) and (h)(3)(xi))
Of the seven commenters who requested that we delete the annual
training requirement: two misunderstood the proposed provision and
opposed it because attending off-site training on an annual basis would
be a burden, three opposed it because they do not think it would be the
best
[[Page 83265]]
use of limited resources, one opposed it because it would prohibit the
State agency from directing its resources to vendors that need more
training than others, and one commenter just opposed annual training.
Due to the high turnover in vendor personnel, which was noted by a few
commenters, and the complexities of and periodic changes in program
requirements, we believe that an annual training requirement is both
reasonable and necessary. Providing vendors with training materials on
current program requirements on an annual basis is not overly
burdensome for the State agency. Similarly, examining training
materials provided by the State agency on an annual basis is not overly
burdensome for the vendor. Consequently, we decided to adopt the annual
training requirement as proposed.
Several commenters opposed attaching the frequency of the required
face-to-face training to the agreement period, especially for State
agencies that use probationary or one-year agreement periods. One
commenter indicated that State agencies would adopt longer agreement
periods to avoid the costs of providing more frequent face-to-face
training. Three commenters suggested that we modify the provision to
require face-to-face training once every three years. We accepted this
suggestion and made a corresponding change in the final rule because it
creates a standard requirement for all State agencies irrespective of
the length of their vendor agreements.
Another area of commenter concern was the proposed requirement for
``face-to-face'' training. Three commenters suggested that we use the
term ``interactive'' instead of ``face-to-face'' because it would give
the State agency the flexibility to use new technologies, such as video
teleconferencing. Several commenters made a related point that group
training is often more successful than on-site training because some
group members ask questions that are informative to other trainees. Our
rationale for requiring face-to-face training was to provide vendor
representatives with the opportunity to ask questions in order to fully
understand how the program requirements apply to their store
operations. We agree with the commenters' suggestion that this goal can
be achieved through other interactive formats. For this reason, we
accepted the commenters' suggestion and revised the provision so that
``interactive'' training is required prior to or at the time of a
vendor's initial authorization and once every three years thereafter.
We also added language to clarify that interactive training ``includes
a contemporaneous opportunity for questions and answers.''
c. Training Content (Sec. 246.12(i)(2)) and Training Documentation
(Sec. 246.12(i)(4))
In Sec. 246.12(i)(2), we proposed to require that specific topics
be covered by the annual training. One commenter indicated that the
required subjects could not, as suggested in the preamble, be
effectively communicated by simply revising the handbook or using audio
tapes. The proposed provision states that the ``annual training shall
include instruction'' on the required subjects. Whereas the vendor
agreement must contain very specific information about the program
requirements, annual training is intended to provide more general
information about how these requirements apply to vendor operations.
For instance, instruction on the vendor sanction system may reference
where the sanction schedule is located in the vendor agreement and
generally cover the process the State agency uses to impose sanctions
and the procedures that vendors must follow to appeal sanctions. To
clarify our intent, we revised this provision to delete the requirement
that the training cover the vendor agreement in order to avoid the
implication that the entire vendor agreement must be reviewed each
year. Instead, Sec. 246.12(i)(2) requires the annual training to cover
any changes to program requirements since the last training.
Five commenters suggested that we delete the ``training receipt''
requirement in proposed Secs. 246.12(i)(4) and (h)(3)(xi) because they
believe it is clear that the State agency will hold vendors responsible
for violations regardless of whether they are intentional or
inadvertent and regardless of who commits the violations or who attends
vendor training. We proposed this requirement because some State
agencies have indicated in the past that violative vendors have argued
during administrative reviews that they were not appropriately trained
on their program responsibilities. A signed receipt, acknowledging the
vendor's receipt and understanding of training, would provide the State
agency with evidence that vendors received training and understand
program requirements. Nevertheless, we believe that by signing their
agreements vendors have accepted the terms of the agreement and are
legally responsible for understanding program requirements. Vendors
should thoroughly read and understand their vendor agreements prior to
signing them. Vendor training is not intended to educate vendors on
every aspect of the vendor agreement; vendor training is provided by
the State agency to assist vendors in understanding program
requirements in order to reduce program errors, prevent program
noncompliance, and improve program service. We accepted the commenters'
suggestion and amended Sec. 246.12(i)(4) to require the State agency to
document the content of its annual training but not to require vendor
receipts. This change holds the State agency accountable for covering
the training subjects required by Section 246.12(i)(2) and provides the
State agency with the discretion of whether to require signed receipts
for vendor training. Consequently, if the State agency finds such
receipts helpful during administrative reviews, it has the option to
require signed receipts for vendor training. We also made a conforming
change to Sec. 246.12(h)(3)(xi).
d. Training of Staff by Vendor (Sec. 246.12(h)(3)(xii)) and Vendor
Accountability (Sec. 246.12(h)(3)(xiii))
We received no comments opposing proposed Section
246.12(h)(3)(xii), which requires the vendor to inform and train
cashiers and other staff on program requirements. This provision is
related to Section 246.12(h)(3)(xiii), which establishes the vendor's
accountability for the actions of its employees in the handling of food
instruments. We adopted both of these provisions in the final rule with
technical and conforming changes to make them consistent with language
used throughout the final rule.
9. Vendor Monitoring and Identifying High-Risk Vendors
a. Definitions of ``High-Risk Vendor,'' ``Compliance Buy,'' ``Inventory
Audit,'' and ``Routine Monitoring'' (Sec. 246.2)
Ten commenters supported the proposed definition of ``high-risk
vendor.'' One commenter opposed the proposed definition, unless it is
modified to distinguish between intentional and unintentional conduct.
As discussed in the preamble to the Vendor Disqualification final rule,
the violations that trigger mandatory sanctions do not require the
State agency to distinguish between fraudulent (intentional) and
abusive (unintentional) vendor violations, because both types of vendor
violations result in loss of program funds. The State agency is not
required to demonstrate that a vendor intended to commit a vendor
violation(s) to support its sanction. Instead, the State agency is
required to provide evidence that the vendor committed the vendor
violation(s) and that the evidence is
[[Page 83266]]
sufficient to support the sanction being imposed. For this reason, we
did not accept the commenter's recommendation and adopted the
definition with one revision to incorporate the defined term ``vendor
violation.''
Ten commenters also supported the proposed definition of
``compliance buy.'' One commenter suggested that we modify the
definition to cover situations in which an investigator poses as a
proxy. We accepted this recommendation and also added language to the
definition to cover situations in which an investigator poses as a
``parent or caretaker of an infant or child participant.''
Whereas ten commenters supported our proposed definition of
``inventory audit,'' one commenter requested that we delete the
definition because inventory audits rely on internal store records,
which should not form the basis of a compliance investigation. We did
not accept the commenter's request because inventory audits are useful
in investigating vendors who may be, for example, redeeming food
instruments for unauthorized stores, exchanging unauthorized food or
non-food items for food instruments, or trafficking. Another commenter
suggested that we modify the definition to include the ``examination of
beginning and ending inventory levels and food invoices.'' We did not
accept this commenter's suggestion because the meaning of the phrase
``during a given period of time'' implies an examination that covers a
specific period, which naturally must have a beginning and an ending
point. We adopted the definition in the final rule with one
modification to conform to language used throughout the final rule.
Of the ten commenters who supported the definition of ``routine
monitoring,'' one commenter noted that it was odd that in the proposal
we replaced ``representative monitoring'' with routine monitoring and
then dropped the requirement for routine monitoring. The routine
monitoring requirement is discussed below in section 9.d of this
preamble. We adopted the definition of routine monitoring as proposed.
b. Vendor Monitoring (Sec. 246.12(j)(1))
Two commenters suggested that we add language to proposed
Sec. 246.12(j)(1) to permit the State agency to delegate all of its
vendor monitoring to another State agency by written agreement. We did
not accept this comment for two reasons. First, if one State agency
pays another State agency for compliance investigation services, then
the State agency that conducts the investigations would be considered a
contractor under this provision. No additional regulatory language is
necessary to address this type of agreement. Second, even if one State
agency chooses to meet its entire requirement for compliance
investigations by counting the compliance investigations conducted by
another State agency, the first State agency still will need to
establish its own vendor monitoring system to address the monitoring
activities that may not be delegated. Each State agency must conduct
its own routine monitoring visits, identify its high-risk vendors, and
track its progress toward meeting the thresholds for routine monitoring
visits and compliance investigations. The circumstances under which a
State agency may count the compliance investigations conducted by
another State agency are discussed in Section 9.d of this preamble.
c. Identifying High-Risk Vendors (Sec. 246.12(j)(3))
Of the forty-one commenters who addressed proposed
Sec. 246.12(j)(2), which covers the requirements for the identification
of high-risk vendors, thirty opposed it for a variety of reasons. Many
opposed it because we did not include our high-risk criteria in the
regulatory language or discuss the specifics of these criteria in the
preamble. We believe that these criteria should not be included in the
regulatory language because doing so would compromise State agency
investigative techniques. Unscrupulous vendors may use this information
to avoid being identified as high-risk vendors subject to compliance
investigations. Although some stores post signs warning their customers
that shoplifters will be subject to criminal prosecution, no stores
post signs that specifically disclose the techniques they use to
identify potential shoplifters. Most vendors, like most shoppers, are
honest and have no reason to be concerned about investigative
techniques.
Several commenters criticized the provision as a ``one-size-fits-
all'' approach that would require all State agencies to use the same
high-risk identification criteria and asserted that State agencies are
in the best position to determine which criteria are most effective.
Our experience with State agency-established criteria is mixed.
According to The Integrity Profile (TIP) report for fiscal year 1998,
the two most common indicators that State agencies use in their high-
risk systems were complaints from participants, local agencies, and
other vendors and WIC business volume. Complaints do not take into
account vendor redemption patterns, and WIC business volume simply
identifies larger vendors. Of the seven most commonly used high-risk
indicators reported by State agencies for the fiscal year 1989 through
fiscal year 1994 Vendor Activity Monitoring Profile (VAMP) reports,
complaints and WIC business volume ranked fifth and sixth at
identifying vendors that subsequently committed overcharge violations
during compliance buys.
We believe there is sufficient data to support the effectiveness of
particular high-risk identification criteria and that State agencies
are not making the best use of these criteria. However, to address
commenters' concerns about the potential ineffectiveness of our
criteria, we revised the regulatory language to permit the State agency
to use other statistically-based criteria we approve in lieu of the our
criteria. This revision gives the State agency the flexibility to
employ other criteria when it believes that our criteria are
ineffective in its jurisdiction.
Several commenters were concerned about the length of the advance
notice we would provide to the State agency prior to changing our high-
risk identification criteria. One commenter suggested that we provide
the State agency with a minimum of eighteen months advance notice,
while another commenter suggested that we agree to use our criteria for
five years prior to making changes. Commenters were concerned about the
length of time it takes to make changes to their automated systems and
the costs associated with frequent changes. Strengthening high-risk
identification systems certainly will require a commitment of resources
by State agencies. However, the result of this effort will be a more
efficient compliance investigation system, which identifies and removes
violative vendors from the Program. We will not change our high-risk
identification criteria more frequently than once every two years and
will change the criteria only when more effective criteria have been
identified. To address commenter's concerns about the time required for
implementing changes, we revised this provision to provide State
agencies with ``adequate advance notice,'' which will allow for various
implementation timeframes depending on the change.
One commenter suggested that we modify the provision to specify the
period for identifying high-risk vendors. We accepted this suggestion
and revised the provision to require high-risk identification ``at
least once a year.'' Establishing this as an annual requirement is
consistent with the period during which the State agency
[[Page 83267]]
must conduct the specified number of compliance investigations. In
addition, the commenter suggested that we specify that vendors
appearing on multiple lists be given a higher priority for compliance
investigations. This is a valid comment, but we believe that such
direction should be provided to State agencies as part of the guidance
that contains our high-risk criteria rather than be included in
regulatory language.
d. Routine Monitoring (Sec. 246.12(j)(2)) and Compliance Investigations
(Secs. 246.12(j)(4), 246.12(l)(2)(iii), and 246.18(a)(1)(ii)(H))
Many of those who commented on the requirement in proposed Section
246.12(j)(3)(i), which would require the State agency to conduct
compliance investigations on ten percent of its vendors, were concerned
that the ten percent level was too high, too expensive, a ``one-size-
fits-all'' approach, and would make routine monitoring prohibitive due
to the cost of the required compliance investigations, and shift
resources away from nutrition education and breastfeeding promotion. As
noted in the Fiscal Year 1998 TIP report, State agencies vary widely in
the areas of high-risk identification and compliance investigations.
Whereas some State agencies reported identifying no high-risk vendors,
others reported identifying over one third of their vendors as high-
risk. Similarly, some State agencies reported conducting no compliance
investigations; others reported conducting compliance investigations on
nearly all of their vendors. Currently, the State agency must design
and implement a high-risk identification system and have the capability
to conduct compliance buys. Some State agencies would need to do very
little to implement this proposed provision; others would need to
modify their systems to identify high-risk vendors to incorporate our
criteria and begin conducting compliance buys on their vendors.
Section 203(f) of the Goodling Act amended section 17(f)(24) of the
Child Nutrition Act (42 U.S.C. 1786(f)(24)) to require each State
agency to identify high-risk vendors and conduct compliance
investigations of the vendors. A number of commenters indicated that
their number of high-risk vendors is well below ten percent and
suggested that we modify the provision to a lower percentage, such as
three or five percent, or that the State agency be granted discretion
to determine the percentage of vendors that should be monitored. Under
the current regulations, which allow for State agency discretion, a
number of State agencies neither identify high-risk vendors, nor
conduct compliance investigations. To implement a provision consistent
with the Goodling Act, we must require the State agency both to
identify high-risk vendors and to conduct compliance investigations.
Setting a minimum percentage for compliance investigations is the most
effective means of ensuring that the legislative mandate is implemented
consistently by State agencies.
One suggested modification that was supported by ten commenters was
to modify the provision so that the State agency must monitor ten
percent of its vendors and conduct compliance investigations on half of
those vendors subject to monitoring. This compromise would set a
standard for compliance investigations, as we proposed, as well as
retain a standard for routine monitoring, as recommended by thirteen
commenters. The compromise would address the majority of commenters'
concerns regarding this provision. Consequently, we adopted the
compromise but clarified that the standards for routine monitoring and
compliance investigations are separate standards--five percent routine
monitoring and five percent compliance investigations. This compromise
retains half of the current requirement for ten percent routine
(representative) monitoring and reduces the proposed ten percent
compliance investigations requirement by half, thereby reducing the
amount of resources necessary to carry out this provision. To
accommodate these changes, this rule reorganizes and renumbers the
requirements for compliance investigations in proposed
Sec. 246.12(j)(3) into two paragraphs, Sec. 246.12(j)(2), Routine
monitoring, and Sec. 246.12(j)(4), Compliance investigations.
Throughout this final rule, we used the term ``compliance
investigations'' to refer to both inventory audits and compliance buys.
Several commenters expressed concern that requiring compliance buys
would set up an adversarial relationship with vendors. Others commented
that the most effective vendor monitoring system is a preventive
approach. Although we agree that vendor training and routine
monitoring, including ``educational buys,'' are effective methods to
curb vendor abuse by reducing cashier errors that result in the loss of
program funds, preventive methods are ineffective at addressing vendor
fraud, because vendors do not inadvertently commit fraud. By mandating
that we require State agencies to conduct compliance investigations of
high-risk vendors, Congress has directed that program resources be used
to combat vendor fraud. In the final rule, we balanced our desire to
continue to commit resources toward preventive methods, such as
strengthening the vendor training requirements and retaining a routine
monitoring requirement, with our responsibility to remove fraudulent
vendors from the Program.
Two commenters suggested that we modify this provision to require
compliance investigators to notify vendors of violations detected
during compliance buys in a timely manner. One of these commenters
suggested that the required timely notification should be either when
violations occur or within seven days of their occurrence. One
commenter indicated that it is unfair to notify vendors of violations
45-60 days after they were discovered, because such late notification
may limit the vendor's ability to discipline cashiers under their labor
agreements. Another commenter suggested that compliance investigators
assist checkers with honest mistakes.
Although we understand the concerns expressed by these commenters,
we do not believe that corresponding modifications to the regulatory
language are justified. As defined by this final rule, a compliance buy
is ``a covert, on-site investigation in which a representative of the
Program poses as a participant, parent or caretaker of an infant or
child participant, or proxy, transacts one or more food instruments,
and does not reveal his or her identity during the visit.'' Unlike
personnel conducting a routine monitoring visit, compliance
investigators must adhere to strict procedures in order for their
compliance buys to be admissible as evidence in administrative reviews
and, if necessary, judicial proceedings. These procedures prohibit
investigators from revealing their identity and the fact that the
vendor is under investigation, because revealing this type of
information could compromise both current and on-going investigations.
For the same reasons, we included a provision in the proposed rule and
this final rule to protect the identity of compliance investigators
when they testify in administrative reviews. Whereas timely feedback is
essential to the effectiveness of monitoring visits, often it is
contrary to the effectiveness of compliance investigations.
Three commenters suggested that we modify this provision to permit
the State agency to count toward the proposed ten percent standard
compliance investigations conducted by another WIC State agency on
vendors authorized by both State agencies,
[[Page 83268]]
especially in situations in which one of the State agencies is an
Indian Tribal Organization. The proposed rule would have allowed the
State agency to ``waive'' conducting a compliance investigation on a
high-risk vendor if the State agency documented that the vendor was
under investigation by a Federal, State, or local law enforcement
agency or for some other such compelling reason. To clarify this
provision, we revised it to allow the State agency to ``count'' toward
this requirement investigations conducted by a Federal, State, or local
law enforcement agency, provided that such investigations include the
investigation of either WIC or FSP fraud or abuse. In addition, we
accepted the commenter's suggestion and revised this provision so that
the State agency may count compliance investigations conducted by
another State agency on shared vendors, provided that certain
conditions are met.
In order for a State agency to count compliance investigations
conducted by another WIC State agency on vendors shared by the two
State agencies, the final rule requires the State agency to implement a
system for reciprocal sanctions with the other WIC State agency. This
means that the State agency counting the compliance investigations of
another WIC State agency must take reciprocal action based on mandatory
sanctions imposed by the other State agency. To take such reciprocal
action, the State agency must include in its sanction schedule, which
is a required part of the vendor agreement, a sanction that requires
disqualification for any mandatory sanction imposed by the other State
agency. This serves to put vendors on notice of the reciprocal effect
of the mandatory sanctions imposed by the other WIC State agency. Prior
to imposing a disqualification, the State agency must consider whether
disqualification of the vendor would result in inadequate participant
access. If disqualification of the vendor would result in inadequate
participant access, then the State agency must impose a civil money
penalty in lieu of disqualification. This provision does not permit the
State agency to impose a civil money penalty in response to a civil
money penalty for a mandatory sanction imposed by the other WIC State
agency. Vendors that appeal a sanction based on another State agency's
mandatory sanction must be provided an abbreviated administrative
review in accordance with the procedures in Sec. 246.18(c). The areas
subject to administrative review are limited to: (1) Whether the vendor
received a disqualification for a mandatory sanction from the other WIC
State agency and (2) whether the State agency's sanction schedule
included a sanction based on a mandatory sanction imposed by the other
WIC State agency.
To incorporate this change, we made conforming changes to the
sanction and administrative review sections of the regulations. We
added Sec. 246.12(l)(2)(iii) to the final rule to clarify that the
State agency has the option to establish a sanction based on a
mandatory sanction imposed by another WIC State agency. We also added
Sec. 246.18(a)(1)(ii)(H) to clarify that the State agency may provide
abbreviated administrative reviews, rather than full administrative
reviews, to vendors that appeal a ``disqualification or a civil money
penalty imposed in lieu of disqualification based on a mandatory
sanction imposed by another WIC State agency.'' In addition, we want to
clarify that although compliance investigations conducted by other
State agencies may be counted toward a State agency's five percent
compliance investigations requirement, these activities should not be
reported on the TIP report as compliance buys or inventory audits
conducted by the State agency, because such double counting would lead
to inflated numbers.
Another area of concern was the number of compliance buys necessary
to close a compliance investigation in which no vendor violations are
found. The proposal would have established two separate standards:
three negative compliance buys within a twelve-month period to close
compliance investigations of high-risk vendors and State agency
discretion to close compliance investigations of non-high-risk vendors.
Several commenters recommended that we establish a single standard for
all compliance investigations. As part of the compromise discussed
above, ten commenters suggested that the State agency be provided with
the discretion to determine when to close all compliance
investigations. However, as noted in the WIC Vendor Issues Study,
compliance investigations that consist of more than one compliance buy
are more effective at uncovering vendor violations than compliance
investigations consisting of a single compliance buy. In addition,
conducting compliance investigations on non-high-risk vendors helps to
verify the effectiveness of the high-risk identification criteria used
by the State agency. If the same standard is not used to close
compliance investigations of both high-risk and non-high-risk vendors,
then the results of the two types of compliance investigations cannot
be compared to verify the effectiveness of the high-risk criteria. For
these reasons, we revised this provision to require at least two
compliance buys be conducted before the State agency may close a
compliance investigation in which no vendor violations are detected.
The reduction in the number of negative compliance buys to close an
investigation of a high-risk vendor should offset the corresponding
increase in the number of negative buys necessary to close compliance
investigations of non-high-risk vendors.
One commenter recommended that we specify the time period during
which compliance buys must be conducted. Another commenter suggested
that we delete the twelve-month limit on compliance buys for compliance
investigations and allow the State agency to conduct compliance
investigations without a strict time limitation. Once again, rather
than specifying such detail in regulations, we believe that the period
of time a compliance investigation remains open depends on the type of
investigation and should be based on the State agency's investigative
techniques. We established above that high-risk identification must be
done on an annual basis. Due to the time it takes to identify high-risk
vendors, plan and conduct compliance buys, and examine redeemed food
instruments used during compliance buys, we believe some
investigations, especially those in which violations are detected, may
take longer than twelve months. For this reason, we deleted the twelve-
month timeframe contained in the proposal. We still believe that a
twelve-month timeframe is reasonable, but we want to ensure that the
State agency has sufficient time to obtain the evidence necessary to
support its sanctions and uphold them upon appeal.
In situations in which the State agency is unable to establish the
level of evidence necessary to support a sanction, we recommend that
the State agency issue a warning to the vendor identifying the vendor
violations found and recommending corrective actions, such as
additional training. Providing the vendor with a warning that
violations are occurring puts the vendor on notice and also provides
support for sanctions in the event that additional violations are
uncovered during future compliance investigations. One commenter
suggested that the regulations include timeframes for follow-up
compliance buys after warning letters are issued. Once again, we
believe that such investigative
[[Page 83269]]
techniques should be discussed in guidance rather than being included
in the regulations.
As in the proposed rule, the final rule specifies that, when the
number of vendors identified as high-risk is below five percent of the
State agency's total number of vendors, the State agency must conduct
compliance investigations of randomly selected non-high-risk vendors to
reach the five-percent requirement. When the number of vendors
identified as high-risk exceeds five percent, the State agency must
conduct compliance investigations on the high-risk vendors it
determines to have the greatest risk for program noncompliance and/or
loss of program funds. Vendors identified as high-risk by multiple
criteria should receive higher priority for compliance investigations.
In the event they are subsequently identified as high-risk vendors,
high-risk vendors not subject to compliance investigations due to the
priority system should be subject to compliance investigations the
following year. Over time, we anticipate that State agencies will be
able to conduct thorough compliance investigations on all vendors
identified as high-risk and that the percentage of high-risk vendors
will decrease as noncompliant vendors are removed from the Program.
e. Report on Vendor Monitoring Results (Sec. 246.12(j)(5))
One commenter requested that we clarify that the required report in
proposed Sec. 246.12(j)(4) refers to the TIP report or replaces the TIP
report, because the commenter opposes any additional reporting
requirements. This provision does refer to submission of TIP report
data to us. We did not specifically identify the TIP report in the
regulatory language because the names of reports occasionally change
when the reports are updated. For example, the TIP report was
previously known as the VAMP report. For this reason, we adopted the
regulatory language as proposed.
f. Documentation of Monitoring Visits (Sec. 246.12(j)(6))
One commenter suggested that, instead of documenting the price
charged for each item purchased during a compliance buy, investigators
only document the price shown on the item, shelf, or sign. In order to
determine whether a vendor has committed an overcharge violation, the
investigator must document both the current shelf price, or price
charged other customers, and the price the vendor actually charged for
each item. Consequently, we did not accept the commenter's suggestion.
Two commenters requested that we delete the requirement that
reviewers or investigators document for all monitoring visits their
``observation that the vendor appears to be in compliance with program
requirements.'' One commenter noted that an investigator would not know
if a food instrument being transacted contains an overcharge until
after it is redeemed. The other commenter noted that a reviewer
conducting a routine monitoring visit who makes this kind of judgment
in writing can destroy the effectiveness of months of covert
monitoring, because attorneys for vendors appealing sanctions have used
this type of documentation to cast doubt on the findings of compliance
investigations. To address the commenters' concerns, we deleted this
requirement from the provision in the final rule.
10. Vendor Administrative Review Procedures
We proposed to amend the procedures for administrative review of
vendor appeals by limiting the types of actions subject to
administrative review, establishing abbreviated administrative review
procedures for certain adverse actions, and extending the timeframe for
rendering a review decision. As part of limiting the types of actions
subject to administrative review, we proposed to create three
categories: (1) Adverse actions subject to full administrative reviews;
(2) adverse actions subject to abbreviated administrative reviews; and
(3) actions not subject to administrative review. Commenters were
divided on the issue of limiting the types of actions subject to
administrative reviews. Commenters were especially concerned about the
proposal to eliminate administrative reviews of vendor claims.
Regardless of whether they supported or opposed our efforts to
streamline the administrative review process, commenters were concerned
that limiting the administrative review of some actions may violate a
vendor's due process protections.
We have always held that authorization as a WIC vendor is not a
license and does not convey property rights to a store or business
entity. To clarify our position, we included a provision to this effect
in the proposed rule, which we adopted in the final rule at
Sec. 246.12(h)(3)(xxi). In any case, due process does not always
include full trial-type hearings, and sometimes does not require
hearings at all. We re-evaluated the three categories of adverse
actions in the proposed rule and continue to believe that the proposed
procedures do not present due process implications. With respect to
claims, we want to point out that anytime the State agency delays
payment to a vendor or establishes a claim the State agency must
provide the vendor an opportunity to justify or correct a vendor
overcharge or other error.
However, in recognition of possible State procedures that require
all administrative reviews to meet certain procedural requirements, the
final rule provides the State agency with the option to provide full
administrative reviews of the adverse actions listed in
Sec. 246.18(a)(1)(ii) of the final rule, which covers the adverse
actions subject to abbreviated administrative reviews. In addition, we
want to emphasize that the procedural requirements set forth in the
regulations for both full and abbreviated administrative reviews are
minimum requirements. The State agency may include additional
procedural requirements in its administrative review procedures.
a. Adverse Actions Subject to Abbreviated Administrative Reviews
(Sec. 246.18(a)(1)(ii))
Several commenters suggested that the termination of a vendor
agreement based on changes in ownership or location or cessation of
operations be moved to the category of actions receiving no
administrative review. Another commenter made a similar suggestion with
regard to the denial of authorization because the vendor submitted its
application outside the timeframe for accepting applications. Although
we agree that in most cases these determinations will be clear-cut, we
believe that an abbreviated review provides an appropriate level of
review in cases in which the vendor disputes the State agency's
determination.
Two commenters suggested we add permanent disqualifications based
on trafficking convictions to the list of actions that are not subject
to administrative review. We believe that a permanent disqualification
based on a trafficking conviction presents a narrow factual question:
Was the sanctioned vendor convicted of trafficking? Consequently, we
added permanent disqualifications based on trafficking convictions to
the list of adverse actions subject to abbreviated administrative
reviews.
We also want to point out that we retained the requirement that a
denial of authorization based on vendor limiting criteria is subject to
an abbreviated administrative review. This requirement only applies to
those State agencies that choose to use vendor limiting criteria.
[[Page 83270]]
b. Actions Not Subject to Administrative Reviews
(Sec. 246.18(a)(1)(iii))
Several commenters asserted that eliminating or restricting the
administrative review of certain actions would force vendors to seek
judicial review of these actions, which in the long run would create an
administrative burden on the State agency. Although we understand the
commenters' concerns, we believe that, by carefully limiting the
actions that are not subject to review, we can streamline the
administrative review procedures without shifting these matters to the
courts. Therefore, the final rule retains the proposed categories of
actions that are not subject to administrative review. We did clarify
in this final rule that, like the participant access determinations
themselves, the validity and appropriateness of the participant access
criteria are not subject to administrative review.
In response to commenters, the final rule includes a cross-
reference to the requirement in Sec. 246.12(k)(3) that the State agency
must provide vendors the opportunity to justify or correct vendor
overcharges or other errors. In addition, we added to the list of
actions not subject to administrative reviews the State agency's
determinations of whether the vendor has an effective policy and
program in effect to prevent trafficking. Both the statute (section
17(o)(4)(A) of the Child Nutrition Act (42 U.S.C. 1786(o)(4)(A))) and
the regulations (Sec. 246.12(l)(1)(i)) commit this determination to the
sole discretion of the State agency.
c. Effective Date of Adverse Actions (Sec. 246.18(a)(2))
Although they generally supported the effective date provision in
proposed Sec. 246.18(a)(3), commenters raised a number of issues. One
suggested that we set an effective date for all adverse actions against
vendors, another asked that we clarify the standard for determining
when to postpone the effective date. A third commenter noted the
potential hardship on vendors when adverse actions are made effective
after 15 days and review decisions are not rendered for 90 days. We
believe that the State agency is in the best position to balance these
competing concerns. In the final rule, Sec. 246.18(a)(2) provides the
State agency with the discretion to make its adverse actions effective
no earlier than 15 days after the date of the notice and no later than
90 days after the date of the notice or, in the case of an adverse
action that is subject to administrative review, the date the vendor
receives the review decision. As always, the State agency should make
adequate participant access the chief concern in determining the
effective date of such actions.
d. Full Administrative Review Procedures (Sec. 246.18(b))
We proposed in Sec. 246.18(b)(1) to require the State agency to
notify a vendor receiving a mandatory disqualification that: ``This
disqualification from WIC may result in a disqualification as a
retailer from the Food Stamp Program.'' One commenter recommended that
we modify the required statement to provide that the WIC
disqualification ``will'' result in a FSP disqualification, rather than
``may'' result in a FSP disqualification. Most, but not all,
disqualifications that are mandatory vendor sanctions require
reciprocal FSP disqualifications. Consequently, it is inappropriate to
use ``will'' instead of ``may.'' The complete list of WIC
disqualifications that give rise to reciprocal FSP disqualifications
appears in the FSP regulations at 7 CFR 278.6(e)(8). Accordingly, we
did not accept the commenter's recommendation.
A number of comments concerned the proposed changes to the
procedures for full administrative reviews. Five commenters indicated
that the proposed provision permitting cross-examination of WIC program
investigators ``in camera'' was confusing. We clarified this concept in
Sec. 246.18(b)(5) of the final rule.
Another commenter questioned whether the provision in
Sec. 246.18(b)(7), which would give appellant vendors the opportunity
to examine the evidence upon which an adverse action is based, would
require the State agency to divulge its high-risk identification
criteria. This provision does not require the State agency to turn over
its complete vendor file. Only the documents, both pro and con, the
State agency relied upon to take the adverse action under review must
be provided. The State agency's high-risk identification criteria are
only used to determine which vendors will be subject to compliance
investigations. It is the information found as a result of a compliance
investigation or periodic review of the vendor's qualifications that
will normally form the basis for the adverse action.
One commenter suggested that we retain the current provision in 7
CFR 246.18(b)(8), which requires the decision-maker to make his or her
decision based solely on the statutory and regulatory provisions
governing the Program. We agree with the commenter that the proposed
revision to this section did not fully convey our intent that the
decision-maker for an administrative review must base his or her
decision solely on applicable statutes, regulations, policies and
procedures, including the policies and procedures established by the
State agency. The decision-maker must then apply these standards to the
factual evidence in the case at hand. The decision-maker should not,
however, be in the position of determining the validity of Federal or
State requirements. These are legal issues that should be reserved for
the courts. We clarified this point in the final rule.
Most commenters supported the proposal to increase from 60 to 90
days the time for rendering a decision on a full administrative review.
Five commenters suggested that we extend the timeframe to 120 days.
Opposing commenters asserted that this provision violated due process
requirements, citing the possibility that a State agency could make an
adverse action effective 15 days after providing notice, leaving the
vendor in an unauthorized status until the review decision is rendered.
We acknowledge the competing needs of the State agency and needs of the
vendor, and encourage the State agency to ensure that review decisions
are made as quickly as possible. We believe that this final rule
streamlines the administrative review process and assists the State
agency in reducing the time it takes to render review decisions.
However, as noted by several commenters, even with these changes some
State agencies may not be able to consistently meet the current 60-day
timeframe. Therefore, this final rule retains the proposed 90-day
timeframe. We clarified in Sec. 246.18(b)(9) of the final rule that
this timeframe is only an administrative requirement for the State
agency and is not jurisdictional. This means that the failure of a
decision-maker to render a decision within 90 days may not be cited as
a basis for overturning a State agency adverse action.
e. Effective Date of Review Decisions (Sec. 246.18(e)) and Judicial
Review (Sec. 246.18(f))
One commenter suggested that the effective date of review decisions
be left up to the decision-maker. We still believe that once a decision
is rendered it must take effect immediately; therefore, we retained the
proposed provision in Sec. 246.18(e) that requires decisions to take
effect on the date of receipt of the review decision, if the adverse
action has not previously taken effect.
[[Page 83271]]
Three commenters objected to the proposed modification to the
current provision requiring the State agency to explain the right to
judicial review. As we noted in the preamble to the proposed rule, the
availability and type of judicial review of State agency adverse
actions is a matter of State law and may vary depending on the action
taken. This change was not intended to preclude or discourage vendors
from seeking judicial review, but to avoid putting the State agency in
the position of determining the appropriate avenue of judicial review.
Accordingly, this final rule adopts Sec. 246.18(f) as proposed. State
agencies that have the ability to determine the details of available
judicial review are free to provide this information to their vendors.
11. Vendor Authorization and Local Agency Selection Subject to
Procurement Procedures (Sec. 246.18(a)(1)(iii)(D) and (a)(3)(ii)(B))
We proposed in Sec. 246.18(a)(1)(iii)(D) to include in the category
of actions not subject to administrative review those vendor
authorization determinations that are subject to the procurement
procedures of the State agency. We proposed this change in recognition
of the procedural safeguards built into procurement requirements that
would be duplicated if included in the administrative review
requirements of the WIC regulations. The one commenter on this
provision indicated that some State agencies select their local
agencies using State procurement procedures as well. The commenter
suggested that we modify the proposal so that local agency selection
determinations that are subject to procurement procedures are not
subject to administrative review. We accepted this comment and added a
provision to this effect to Sec. 246.18(a)(3)(ii)(B). We clarified in
both the vendor and local agency provisions that the exception from
administrative review applies only to administrative reviews pursuant
to section 246.18 and also made other revisions to clarify the coverage
of these exceptions.
12. Preventing and Identifying Dual Participation (Secs. 246.4(a)(15),
246.7(l), and 246.23(c)(2))
Nine of the fifteen commenters supported the proposal to require
the periodic identification of dual participation. However, two
commenters recommended that the rule require semiannual, rather than
quarterly detection. Those commenters noted that the six-month
certification periods for most participants make quarterly detection
unnecessary. They also cited their experience that the cost of
detecting the dual participants far outweighed the improperly issued
benefits. Commenters also noted that the new requirements for verifying
identity and residency will assist in preventing dual participation. We
agree that a balance must be struck between the goal of detecting and
preventing program fraud and the cost of doing so. Accordingly, this
rule requires dual participation detection semiannually, rather than
quarterly, and that follow-up action must be taken within 120 days of
detecting instances of suspected dual participation.
Two of the opposing commenters objected to reporting on dual
participation. The proposed changes to the requirements for detecting
dual participation do not establish reporting requirements. However, as
with all program operations the State agency must keep records of its
efforts to identify and follow up on instances of dual participation.
The State agency's compliance with these requirements will then be
assessed during our management evaluations of the State agency.
One commenter questioned whether a system designed to detect dual
enrollment would meet the proposed requirement to detect dual
participation. Dual enrollment occurs when a participant enrolls in
more than one clinic or program, but actually receives benefits from
only one of them. Dual participation is when benefits are actually
obtained from more than one clinic or program. In order to receive
benefits from more than one clinic or program, a participant would have
to be enrolled in more than one. Therefore, a system to detect dual
enrollment would satisfy the requirement to detect dual participation,
provided the State agency takes appropriate follow-up action for
persons identified as dual enrolled. Such action would include
terminating the individuals from all clinics and programs, except the
one in which they are currently participating.
The majority of the commenters approved of the proposal to require
interstate detection of dual participation where geographical or other
factors make it likely that participants travel regularly between
contiguous local service agencies located across State agency borders.
However, both supporting and opposing commenters thought that this
requirement could be costly, especially when the level of automation
varies significantly between the adjoining State and for States that
have a large number of bordering States. One commenter asked whether
additional funds would be available and another thought we would need
to provide significant assistance to State agencies as they implemented
this requirement.
The State agency is already required to coordinate dual
participation detection efforts with Commodity Supplemental Food
Program State agencies and WIC Indian State agencies. The State agency
should be able to draw on this experience in expanding such efforts to
adjoining States. In addition, we recognize that the methods for
coordination may be limited by the systems used by the various State
agencies. Finally, the State agency should remember that it needs to
develop interstate systems only in areas where participants travel
regularly across State lines.
Commenters generally supported the proposed provisions requiring
disqualification, and in some instances claims, for participants who
are found to be participating in more than one program. Similarly,
commenters also supported the proposal that FNS will assert a claim
against the State agency if the State agency fails to take adequate
steps to pursue participant disqualification and claims as a result of
dual participation. The comments raised on these provisions mostly
concerned larger issues relating to participant claims and sanctions
and are discussed in section 13 of this preamble. We did notice that we
inappropriately used the term ``disqualification'' in
Sec. 246.7(l)(1)(iii) when referring to cases of dual participation
that did not result from intentional misrepresentation.
Disqualification means terminating the participation of a participant
and prohibiting further participation for a specified period and is
only used in cases of intentional misrepresentations. In all other
situations, the appropriate action is to ``terminate'' the
participation of the participant in one of the programs or clinics. We
revised this provision accordingly.
13. Participant Provisions
a. Definition of ``Proxy'' (Sec. 246.2)
Fifteen of twenty-three commenters supported the proposed
definition of ``proxy.'' The most prevalent comment, made by both
supporting and opposing commenters, concerned the inclusion in the
proxy definition of parents or caretakers who apply for program
benefits on behalf of infants or children. These commenters noted that
this approach did not reflect the common usage of this term by their
State agencies. One commenter asserted that the parent or caretaker
applying on behalf of an infant or child participant
[[Page 83272]]
is actually the person authorized to designate a proxy. Another
commenter noted that the proxy definition did not clearly permit a
woman participant to designate a proxy. Finally, one commenter
recommended that the proxy definition require proxies to be approved by
the State or local agency.
In response to commenters' concerns and recommendations, we revised
the definition of proxy to clarify that a parent or caretaker applying
on behalf of an infant or child participant is not a proxy and that
such a parent/caretaker may designate another person, such as a spouse,
other family member, or friend, as a proxy for an infant or child
participant. We made conforming changes throughout this rule to
incorporate this change and to clarify which persons are authorized to
take certain actions. We also clarified in the definition of proxy that
proxies must be designated consistent with the State agency's
procedures established pursuant to Sec. 246.12(r)(1).
b. Definition of ``Participant Violation'' (Sec. 246.2)
All ten commenters supported the inclusion of dual participation as
a type of participant violation. In order to emphasize that participant
violations include all intentional acts that violate Federal or State
statutes, regulations, policies, or procedures governing the Program,
we included a new definition of ``participant violation'' in
Sec. 246.2, which includes the examples that were in Sec. 246.12(u)(1)
of the proposed rule. The participant violation definition clarifies
that a participant violation may be committed by a participant, a
parent or caretaker of an infant or child participant, or a proxy.
c. Participant Sanctions (Sec. 246.12(u)(1) through (u)(4))
Sixteen of the twenty commenters supported increasing the maximum
disqualification period for a participant sanction to one year.
Commenters generally supported requiring a disqualification for
participant violations that give rise to a claim. However, a number of
commenters suggested that State and local agencies be given the
discretion to adjust the length of the mandatory disqualification to
correspond to the period of the dual participation or the amount of the
claim. Another commenter noted that claim amounts are normally small
and that participants often make restitution quickly. The four opposing
commenters objected to any action that affects benefits for infant and
child participants.
Participant claims are only imposed when a participant commits a
participant violation. Participant violations must involve intentional
actions by a participant, parent/caretaker, or proxy. Although we
believe that these situations are generally serious enough to warrant a
mandatory one-year disqualification, we agree with commenters that the
State agency should have the flexibility to determine whether to
disqualify a participant in cases of small claims. Therefore, this rule
requires a one-year disqualification only in cases of claims of $100 or
more, claims resulting from dual participation, or second or subsequent
claims of any amount.
One commenter thought that the determination of whether a
participant (or parent/caretaker or proxy) intended to commit the
action giving rise to disqualification or a claim should not be left to
the judgment of a WIC eligibility worker or supervisor. We acknowledge
that the decision to assert a claim or to disqualify a participant
requires the exercise of discretion. However, this is but one of many
decisions that WIC staff must make about program participation. In all
cases, the State agency is responsible for ensuring that the decisions
made by State and local agency staff are made in accordance with the
regulatory requirements. In this instance, it means ensuring that the
WIC staff knows the standards for determining when to assert a claim or
disqualify a participant, and how to correctly apply those standards.
If the State agency fails to do so, it will find that it is unable to
sustain these determinations when participants appeal the decisions.
This rule does not change the requirement in Sec. 246.9 that the State
agency must have a hearing procedure under which participants may
appeal claims of any amount and disqualifications of any length.
Further, Secs. 246.12(u)(4) and 246.23(c)(1)(i) of this rule require
the State agency to advise participants of the procedures to follow to
obtain a fair hearing at the time they are notified of a claim or
disqualification.
Other commenters suggested that we permit a pregnant or
breastfeeding woman to continue program participation if an acceptable
proxy can be found, which would be consistent with the proposal to
permit infant and children participants to avoid disqualification if a
proxy is approved. If adopted, this change would extend the proxy
exception to all program participants, except for postpartum women. We
did not accept the commenters' suggestion. However, this rule does
permit the State agency to approve proxies in lieu of disqualification
for participants under age 18 in addition to infant and child
participants.
The final rule retains the proposed provision permitting the State
agency to allow a disqualified participant to reapply to the Program if
restitution is made. In response to a suggestion made by two
commenters, we clarified in the final rule that if restitution is made
or a repayment plan is agreed to within 30 days of the receipt of the
letter demanding repayment of the claim, the State agency may permit
the participant to continue participation without disqualification.
d. Participant Claims (Sec. 246.23(c)(1))
Although only seven of the twenty-five commenters supported the
proposed participant claims provisions, a majority of the objections
reflected a misunderstanding of the provisions. First, many commenters
objected to the provision concerning in-kind restitution. Those
commenters indicated that this practice would not be cost-effective.
One commenter was concerned about allowing participants who are being
punished for program violations to work in a clinic setting. We want to
emphasize that, like the proposal, the final rule makes in-kind
restitution the option of the State agency, and not the participant.
Second, commenters asserted that collection efforts should be
pursued only to the extent that they are cost-effective. Again, we wish
to emphasize that, like the proposal, the final rule requires the State
agency to pursue claims collection after the initial letter demanding
repayment only to the extent that it is cost-effective. To clarify this
point, we added a sentence to require the State agency to establish
standards, based on a cost benefit analysis, for determining when
collection actions are not longer cost-effective. This provision is the
same as in current 7 CFR 246.23(c). One commenter suggested that we
establish a $500 threshold for pursuing claims. Although the final rule
requires demand letters to be sent out for all claims, the State agency
could include dollar thresholds for the subsequent steps in the
collection process as part of its standards for claims collection.
Six commenters indicated that establishing mandatory restitution
for all claims would preclude the State agency from considering the
family's ability to pay a claim. Two commenters opposed both requiring
participant restitution in all cases and permitting the State agency to
force participants to ``work off'' claims resulting from State
[[Page 83273]]
agency mistakes. This rule requires claims collection actions only in
the case of intentional acts of the participant, parent/caretaker, or
proxy. The State agency is not required to assess claims in cases of
unintentional participant error or State agency error. Although we
believe we need to protect the Program's integrity by pursuing claims
resulting from participant violations, we also recognize the financial
circumstances of program participants. In the final rule, we balance
these considerations by requiring claims collection only in cases of
intentional actions that qualify as participant violations and by
providing the State agency with the discretion to enter into repayment
schedules with participants and to allow in-kind restitution. The final
rule also clarifies that the State agency must assess claims for both
benefits that have been obtained improperly and disposed of improperly.
Benefits that have been disposed of improperly include exchanging food
instruments for cash or credit or selling supplemental foods that were
obtained with food instruments.
One of the supporting commenters suggested permitting collection
through offset of future program benefits, provided that the
participant agrees to this arrangement. Section 17(f)(14) of the CNA
requires overissuances of food benefits resulting from intentional
actions to be collected in cash. Therefore, this rule does not permit
collection through offset.
14. Home Food Delivery Systems and Direct Distribution Food Delivery
Systems (Secs. 246.2, 246.12(m), 246.12(n), 246.12(o), and 246.12(s))
Only one commenter opposed our proposed amendments to the
provisions concerning home food delivery and direct distribution food
delivery systems. The commenter suggested that home food delivery
systems be categorically banned and that we grandfather in State
agencies that currently operate such systems. Although most State
agencies currently operate retail food delivery systems and we
encourage their use, we did not propose to eliminate home food delivery
systems and do not want to limit the options available to the State
agency at this time. For this reason, we adopted the proposed
amendments to the home food delivery and direct distribution food
delivery systems with minor revisions to make them consistent with
changes made by this rule.
15. General Requirements for Food Delivery Systems
a. Food Delivery System Contracts Must Conform with 7 CFR Part 3016
(Sec. 246.12(a)(4))
We proposed to retain the requirement that all contracts or
agreements entered into by the State or local agency for the management
or operation of food delivery systems must be in conformance with the
requirements of 7 CFR Part 3016. Part 3016 sets forth the general
requirements applicable to grants to State and local governments. One
of the three supporting commenters suggested that we delete the
reference to contracts or agreements entered into by the local agency,
in light of the requirement in Sec. 246.12(h)(1) that all vendor
agreements must be entered into by the State agency. We retained the
reference to local agencies because this provision covers home food
delivery and direct distribution contracts as well as vendor
agreements.
b. No Charge for Authorized Supplemental Foods (Sec. 246.12(c) and
(h)(3)(x))
Currently, 7 CFR 246.12(c) reads: ``Participants shall receive the
Program's supplemental foods free of charge.'' We proposed to amend
this provision to read: ``State and local agencies shall provide
participants the Program's supplemental foods free of charge.'' Our
intent with this change was to make clear that the burden was on State
and local agencies to ensure that supplemental foods are provided to
participants free of charge, regardless of whether they are provided
through a home food delivery system, direct distribution food delivery
system, or retail food delivery system.
One commenter supported this proposed change, whereas another
commenter indicated that the proposed language was confusing. Nine
commenters opposed the proposed language and recommended that we either
retain the language from the current rule or modify the proposed
language, because the proposal makes it sound as if State and local
agencies provide supplemental foods directly to participants. To
address the commenters' concerns and to clarify our intent, we amended
this provision to read: ``The State agency must ensure that
participants receive their authorized supplemental foods free of
charge.'' We also added a sentence to Sec. 246.12(h)(3)(x) to require
the vendor agreement to include a provision that the vendor may not
charge participants, parents or caretakers of infant and child
participants, or proxies for authorized supplemental foods obtained
with food instruments.
16. Vendor Management Staffing (Sec. 246.3(e)(5))
Commenters were split about evenly on the merits of the proposed
provision that would require State agencies with more than fifty
vendors to employ one full-time or equivalent vendor management
specialist. Supporters noted that the provision would ensure that
resources are allocated to vendor management and that they would be
surprised if there was any resistance to the provision. Those who
opposed the proposed provision indicated that: there is no evidence
that relates vendor staffing equivalents to desired outcomes;
centralization of vendor management functions to one position is not
cost-effective; the provision would create an inequitable burden on
small State agencies; and the requirement would result in a diversion
of resources from client services and local agencies. Two commenters
noted that some State agencies might circumvent this staffing
requirement either by limiting the number of vendors they authorize to
fewer than fifty or by modifying their position descriptions to meet
the requirement without making any meaningful change in
responsibilities.
As a compromise, two commenters suggested that we modify the
provision to require the State agency to designate a staff person
responsible for vendor management and place all vendor management
functions under the direct supervision of this person. Another
commenter noted that State agencies are responsive to our use of State
Technical Assistance Review (STAR) findings to cite staffing needs,
which allows for more flexibility in small State agencies. We believe
it is essential that each State agency have at least one staff member
who is knowledgeable about its entire food delivery system, who
thoroughly understands the regulations and policies regarding vendor
management, and who can be held accountable for resolving issues and
problems involving the food delivery side of program operations. We
accepted the suggested compromise and revised this provision to read:
``A staff person designated for food delivery system management. The
person to whom the State agency assigns this responsibility may perform
other duties as well.''
17. Participant Access Criteria in State Plan (Sec. 246.4(a)(14)(xiv))
The proposal contained a provision to require the State agency to
include in its State Plan ``[a] description of the State
[[Page 83274]]
agency's participant access determination criteria consistent with
Sec. 246.12(l)(8).'' Six commenters supported adopting this provision
as proposed. One commenter suggested that we modify the provision to
allow for some flexibility, because there is no single objective
standard that could be applied and defended statewide. Another
commenter opposed the provision, unless it is modified to read: ``A
statement that the State agency uses or does not use a `participant
access policy' to assist in the determination of vendor participation
in the WIC Program.'' A third commenter opposed including the
participant access determination criteria in the State Plan, because
participant access must be determined on a case-by-case basis and each
community requires different criteria. We believe it is necessary for
the State agency to include its participant access determination
criteria in its State Plan because the State agency's participant
access determinations are not subject to administrative review. The
State Plan approval process provides the public with an opportunity to
comment on the criteria the State agency proposes to use to make these
determinations. We also made a conforming change to Sec. 246.12(l)(8)
to clarify the State agency's responsibility to establish participant
access determination criteria.
Section 246.12(l)(8) specifies that, when making participant access
determinations, the State agency must consider ``the availability of
other authorized vendors in the same area as the violative vendor and
any geographic barriers to using such vendors.'' We understand that the
various urban, suburban, and rural areas under a State agency's
jurisdiction may require the use of different participant access
criteria. We do not expect the State agency to be able to include every
variation of its criteria in its State Plan. However, we do expect the
State agency to include in its State Plan the general criteria that it
uses to make its participant access determinations. For instance, a
State agency may use such general criteria as: (1) A minimum vendor-to-
participant ratio in the local agency or clinic service area; (2) the
number of other vendors within a specified distance of the violative
vendor, where the distance used depends on whether the area is
classified as urban, suburban, or rural; and (3) the existence of any
geographical barriers to the other vendors, such as rivers or mountains
that increase driving distances to other vendors. None of these
criteria specify the actual ratios, numbers, or mileage used by the
State agency to make its participant access determinations. However,
the criteria do provide the public with some assurance that the State
agency's participant access determinations rely on objective measures.
18. Management Evaluations and Monitoring Reviews
a. State Agency Corrective Action Plans (Sec. 246.19(a)(2))
The majority of commenters supported the proposal to require the
State agency to develop a corrective action plan if we make negative
findings about its administration of the WIC Program. The specific
objections to this provision were that ``negative findings'' is not a
precise enough standard, 60 days are not long enough to develop a
corrective action plan, and some negative findings may be too minor to
warrant a corrective action plan.
Although ``negative findings'' is a frequently used term in audits
and evaluations, we revised this provision to say ``findings that the
State agency did not comply with agency program requirements.'' With
respect to the concern about the timeframe, we want to point out that
the 60-day period is not the period during which corrective action must
be taken, but just the period during which a corrective action plan,
outlining the corrective action to be taken, must be developed and
submitted. In addition, even findings that are easily corrected must be
documented in the corrective action plan. In many cases, the State
agency will be able to describe corrective action that it already took
in response to such findings.
Several commenters addressed the portion of this provision that is
in current regulations concerning the withholding of nutrition services
and administration funds for various types of program noncompliance.
Those commenters indicated that there needs to be a better definition
of the situations in which such withholding may occur and also specific
remedial actions that must be taken before such withholding may occur.
We do not think it is possible to list more specifically the situations
that would trigger withholding. The specific remedial actions will
generally be those agreed to in the State agency's corrective action
plan.
b. Standard Areas of Review of Local Agencies (Sec. 246.19(b)(2))
Five of the six commenters supported the minor revisions to the
requirements for the areas of local agency activities that the State
agency must review. One commenter questioned the meaning of the added
area of ``participant services.'' We added this provision to make sure
that the State agency evaluates not only certification and nutrition
education, but also the many other contacts that local agencies have
with participants, such as setting up appointments, issuing food
instruments and explaining their use, and referring participants to
other health and social services.
Another commenter suggested that the State agency's review of
vendor training conducted by its local agencies be limited to verifying
whether the training was conducted, and not the effectiveness of the
training. Although we agree that it can sometimes be difficult to
determine the effectiveness of training, we believe it is critical that
any State agency that delegates training activities look closely at the
content of the training and any vendor feedback on the training. In
recognition of the new provision in Sec. 246.12(h)(1)(ii) that permits
the State agency to delegate signing of vendor agreements to its local
agencies, we also added a provision to this section requiring the State
agency to review the local agencies' effectiveness in conducting this
activity.
c. Areas of In-Depth Review of Local Agencies (Sec. 246.19(b)(5))
The majority of commenters opposed the proposal to require the
State agency to conduct in-depth reviews of specified areas of local
agency operations during monitoring reviews when requested to do so by
us. Commenters both pro and con were confused about whether these
focused reviews would be a part of, or in addition to, the currently
required monitoring reviews. Three local agency commenters indicated
that in-depth reviews are not necessary, because local agencies are
already subject to State and Federal monitoring, almost to the point of
over-evaluation.
First, we want to clarify that the in-depth review of these areas
would be a part of the regular monitoring reviews of local agencies and
would be an area of focus within the standard areas required to be
reviewed. Second, we do not expect that we would routinely specify
focused areas for review. Instead, we would use this when necessary to
get a better understanding of a particular aspect of local agency
operations or to monitor compliance with a particular
[[Page 83275]]
program requirement that has been identified as a problem area
nationally.
Several commenters expressed concern that adding these areas of in-
depth review would further strain the limited State agency resources
available for local agency reviews. To address this concern, one
commenter suggested that we drop one area that would normally be
required to be covered in the review in years in which an in-depth
review is required. Another commenter suggested that we limit areas of
in-depth review to no more than two areas every other year in order to
limit the burden and to conform to the two-year cycle for local agency
reviews. We recognize the additional work that may be required to
conduct in-depth review of a particular area. As a result, we proposed
to limit the number of areas to two in any fiscal year and to give at
least six months' advance notice. We further revised this provision in
the final rule to require that the areas not be added or changed more
often than once every two fiscal years. We did not adopt the suggestion
that we drop one of the standard areas of review in years in which we
require an in-depth review of an area. The areas of in-depth review
will be areas of focus within the standard review areas. Further, we
believe that requiring review of the standard review areas is critical
to ensuring the uniformity of local agency reviews and the
effectiveness of program operations.
d. Local Agency Corrective Action Plans (Sec. 246.19(b)(4))
The majority of the commenters supported the proposal to require
local agencies to prepare corrective action plans to address
deficiencies identified by the State agency during monitoring reviews.
However, many of the commenters recommended that we increase the time
for submitting the corrective action plan from 45 days to 60 days. We
made this change. We also moved this provision to Sec. 246.19(b)(4) in
order to integrate it better with the existing regulatory language
requiring the State agency to establish a corrective action process for
local agencies. Finally, we revised the wording to parallel the new
requirements for State agency corrective action plans.
19. Conflict of Interest (Sec. 246.12(t) and 246.12(h)(3)(xix))
All the comments on the conflict of interest provision supported
the amendment, although some commenters suggested modifications. Most
of these comments concerned the need to clarify what is meant by
``conflict of interest.'' One commenter asked whether a conflict of
interest exists when a person with a financial interest in a vendor is
employed by the WIC Program, but has no involvement in vendor selection
or vendor management.
In the preamble to the proposed rule, we stated our view that this
is an area which is based more appropriately on State laws or
regulations governing conflict of interest. For that reason, we decided
not to include a definition of ``conflict of interest'' in the WIC
regulations. We continue to believe that the State agency is in the
best position to make these determinations, based on its knowledge of
the structure of the State agency and the responsibilities of its
staff. We did not intend our discussion in the preamble to indicate
that no one employed by the State agency could have any financial
interest in a vendor. This determination must be made on a case-by-case
basis taking into account State laws, regulations, and policies and the
particular facts of the situation, such as the size of the financial
interest and whether the employee has any responsibilities for vendor
selection or management.
One commenter suggested that the provision be amended to prohibit
``known'' conflicts of interest. We did not make this change. This
provision is designed to require the State agency to establish
standards for avoiding conflicts of interest. These may be actual or
apparent conflicts. Just because a State agency does not know of a
conflict does not relieve the State agency from the burden of taking
the necessary steps to ensure that it avoids such conflicts and to take
action when a conflict is discovered.
20. Confidentiality
a. Vendor Information (Sec. 246.26(e))
We proposed to restrict the use and disclosure of vendor
information. The vast majority of the commenters supported the
proposal, although several of those who supported the provision
recommended modifications. Two commenters questioned how this provision
would apply to information requested under State freedom of information
acts or other open record laws. These commenters indicated that because
the WIC regulations currently are silent on this point some State
agencies have had to disclose vendor information under these laws. It
is up to the State agency to make sure it complies with all WIC Program
requirements and if there is a conflict with State law, to ensure that
it takes the necessary steps to remove the conflict. Therefore, we urge
the State agency to consult with its legal counsel on the effect of
this provision on any State laws concerning public access to State
records.
One of the commenters who opposed this provision asserted that,
unlike participants, vendors do not have comparable expectations of
privacy that justify the creation of new privacy rights. The reason for
limiting the use and disclosure of vendor information is two-fold--to
encourage vendors to provide the information necessary to authorize and
monitor vendors and to avoid compromising State agency investigative
techniques. We believe that these benefits outweigh the commenter's
concern.
The other commenter who opposed this provision suggested that
applicant vendors be allowed full access to information concerning an
adverse action against them. In the proposal, we specified that the
State agency could disclose confidential vendor information to
appellant vendors to the extent that the information provided the basis
of an action under review. However, this comment pointed out to us that
we needed to broaden and clarify this category of disclosure in order
to take into account those adverse actions that are not subject to
administrative review, such as claims. The final rule permits
disclosure of confidential vendor information to a vendor that is
subject to an adverse action, including claims, to the extent that the
information concerns the vendor subject to the adverse action and the
information to be disclosed is related to the adverse action.
Some commenters suggested we clarify that vendor information may be
disclosed to other WIC State agencies. As noted in the preamble to the
proposed rule, other WIC State agencies would be authorized to receive
vendor information. They fall in the category of persons directly
connected with the administration or enforcement of a Federal law
(i.e., the Child Nutrition Act, which authorizes the WIC Program). In
order to avoid confusion, we revised this provision to list separately
the use and disclosure of confidential vendor information to personnel
directly connected with the administration and the enforcement of the
WIC Program and Food Stamp Program who the State determines have a need
to know for the purposes of these programs. In addition, we listed
personnel from WIC local agencies and other WIC Sate agencies and
persons investigating or prosecuting WIC Program or FSP violations as
examples of the persons who fall in this category.
One commenter objected to the requirement for a written agreement
as administratively unworkable,
[[Page 83276]]
particularly within the short timeframes for vendor administrative
reviews. We assume the commenter was referring to situations in which
the administrative reviews are conducted for the WIC State agency by
another agency of the State and the commenter's perception that a
written agreement would be required before disclosing vendor
information to the agency providing the administrative review. We
revised this provision to clarify that written agreements are not
required prior to disclosing confidential vendor information for
purposes of WIC Program and Food Stamp Program administration, which
includes administrative reviews.
Further, in any situations in which the State agency needs to
disclose confidential vendor information on a regular basis for other
permitted purposes, the State agency may enter into a single written
agreement that generically covers the disclosure and use of
confidential vendor information for such activities. Individual
agreements for each disclosure of information are not necessary.
One commenter suggested that we give the State agency the
discretion to release non-proprietary vendor information to the extent
that the State agency determines the disclosure to be for the benefit
of the Program. We think that this approach is overly complicated and
did not accept this suggestion.
We did revise this provision in the final rule to clarify that only
information that individually identifies a vendor (other than its name,
address, and authorization status) is considered confidential.
Aggregate data about vendors and other data that does not individually
identify a vendor are not subject to these limitations on use and
disclosure. This change addresses a commenter who requested that we
permit redemption data to be used in community meetings as part of
program outreach and expansion. Putting this data in aggregate or other
forms that does not identify the vendor should serve this purpose.
b. Food Stamp Program Retailer Information (Sec. 246.26(f))
Commenters generally supported the proposal to restrict the use and
disclosure of FSP retailer information to persons directly connected
with the administration or enforcement of the WIC Program. The one
opposing comment questioned whether vendor information should be
afforded any confidentiality. As noted in the preamble to the proposed
rule, section 9(c) of the Food Stamp Act of 1977, as amended, 7 U.S.C.
2011-2036 (Food Stamp Act) (7 U.S.C. 2018(c)) specifically restricts
the use and disclosure of information obtained from FSP retailers to
two areas: (1) Federal and State law enforcement and investigative
agencies for the purposes of administering or enforcing any Federal or
State law or implementing regulations; and (2) WIC State agencies for
the purposes of administering the Child Nutrition Act and implementing
regulations. Therefore, we must retain the proposed restriction on the
use of information obtained from FSP retailers. The preamble to the
proposed rule also discussed the need to restrict the use of
information obtained from the FSP even when it is not protected under
section 9(c) of the Food Stamp Act. Subsequently, we realized that the
regulatory language in the proposed rule was not clear on this point.
This final rule revises proposed Sec. 246.26(f) to clarify that all
information obtained from the FSP may be used only in the
administration or enforcement of the WIC Program.
c. Access by USDA and Comptroller General of the United States
(Sec. 246.26(g))
This final rule also clarifies that the confidentiality provisions
do not relieve the State agency of its responsibility to provide USDA
and the Comptroller General of the United States access to all program
records pursuant to Sec. 246.25(a)(4). We added a new paragraph (g) to
Sec. 246.26 to this effect.
21. References
(1) WIC State Agency Guide to Vendor Monitoring and Fraud and Abuse
Control: Grant No. FNS-59-3198-0-96 (April 1982). Prepared by Arthur W.
Burger and Steven Stollmack, ANALOGS, Incorporated. This study
identifies methods for reducing vendor fraud and abuse in the WIC
Program.
(2) Applied Research on Vendor Abuse: Grant No. FNS-59-3198-1-117
(June 1985). Produced by David Kornetsky, Nancy Wogman, and the
Massachusetts WIC Program. This study worked with a consortium of ten
States to design a high-risk vendor identification system.
(3) WIC Compliance Buy Handbook: produced by the USDA, June 1985.
This handbook provides guidance for State agencies in conducting WIC
compliance investigations.
(4) National Vendor Audit: Audit Report 27661-2-Ch, Special
Supplemental Food Program for Women, Infants and Children--Vendor
Monitoring and Food Instrument Delivery Systems, June 15, 1988.
Conducted by the Office of Inspector General (OIG), U.S. Department of
Agriculture.
(5) Vendor Management Study (1990): Contract No. 53-3198-5-33
(December 1990). Conducted for FNS by Professional Management
Associates. This study surveyed the 50 geographic WIC State agencies
and the District of Columbia, excluding Vermont and Mississippi, which
provide benefits exclusively through home food delivery and direct
distribution, respectively.
(6) WIC Vendor Issues Study: Contract No. 53-3198-9-53 (May 1991).
Conducted for FNS by Aspen Systems Corporation. This study investigated
the extent of program losses due to fraud and regulatory noncompliance
from vendor overcharging in the WIC Program.
(7) The WIC Files: Case Studies of Vendor Audits and Investigations
in the WIC Program, June 1991. Produced by the vendor managers of
Southeast Region in cooperation with the Florida WIC Program.
(8) National Association of WIC Directors (NAWD) National Vendor
Management Roundup Survey (1995). This survey, designed by FNS and the
NAWD Vendor Committee representatives, provided profile date on State
vendor management information systems.
(9) Vendor Activity Monitoring Profile (VAMP) and The Integrity
Profile (TIP): VAMP reports produced annually by USDA through 1997 and
TIP reports annually thereafter. These reports analyze WIC State agency
vendor monitoring activities.
(10) Efforts to Control Fraud and Abuse Can Be Strengthened: GAO/
RCED-99-224 (August 1999). Report to Congressional Committees by the
United States General Accounting Office (GAO). For its review, GAO
collected information, through surveys and interviews, from FNS and
State and local WIC agencies on the extent of fraud and abuse in the
Program.
List of Subjects in 7 CFR Part 246
Food assistance programs, Food donations, Grant programs--Social
programs, Infants and children, Maternal and child health, Nutrition
education, Public assistance programs, WIC, Women.
For reasons set forth in the preamble, 7 CFR Part 246 is amended as
follows:
PART 246--SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS
AND CHILDREN
1. The authority citation for Part 246 continues to read as
follows:
Authority: 42 U.S.C. 1786.
[[Page 83277]]
2. In Section 246.2, add in alphabetical order the definitions of
Authorized supplemental foods, Compliance buy, High-risk vendor, Home
food delivery contractor, Inventory audit, Participant violation, Price
adjustment, Proxy, Routine monitoring, Vendor, Vendor authorization,
Vendor limiting criteria, Vendor overcharge, Vendor selection criteria,
Vendor violation, and WIC to read as follows:
Sec. 246.2 Definitions.
* * * * *
Authorized supplemental foods means those supplemental foods
authorized by the State or local agency for issuance to a particular
participant.
* * * * *
Compliance buy means a covert, on-site investigation in which a
representative of the Program poses as a participant, parent or
caretaker of an infant or child participant, or proxy, transacts one or
more food instruments, and does not reveal during the visit that he or
she is a program representative.
* * * * *
High-risk vendor means a vendor identified as having a high
probability of committing a vendor violation through application of the
criteria established in Sec. 246.12(j)(3) and any additional criteria
established by the State agency.
Home food delivery contractor means a sole proprietorship,
partnership, cooperative association, corporation, or other business
entity that contracts with a State agency to deliver authorized
supplemental foods to the residences of participants under a home food
delivery system.
* * * * *
Inventory audit means the examination of food invoices or other
proofs of purchase to determine whether a vendor has purchased
sufficient quantities of supplemental foods to provide participants the
quantities specified on food instruments redeemed by the vendor during
a given period of time.
* * * * *
Participant violation means any intentional action of a
participant, parent or caretaker of an infant or child participant, or
proxy that violates Federal or State statutes, regulations, policies,
or procedures governing the Program. Participant violations include
intentionally making false or misleading statements or intentionally
misrepresenting, concealing, or withholding facts to obtain benefits;
exchanging food instruments or supplemental foods for cash, credit,
non-food items, or unauthorized food items, including supplemental
foods in excess of those listed on the participant's food instrument;
threatening to harm or physically harming clinic or vendor staff; and
dual participation.
* * * * *
Price adjustment means an adjustment made by the State agency, in
accordance with the vendor agreement, to the purchase price on a food
instrument after it has been submitted by a vendor for redemption to
ensure that the payment to the vendor for the food instrument complies
with the State agency's price limitations.
* * * * *
Proxy means any person designated by a woman participant, or by a
parent or caretaker of an infant or child participant, to obtain and
transact food instruments or to obtain supplemental foods on behalf of
a participant. The proxy must be designated consistent with the State
agency's procedures established pursuant to Sec. 246.12(r)(1). Parents
or caretakers applying on behalf of child and infant participants are
not proxies.
* * * * *
Routine monitoring means overt, on-site monitoring during which
program representatives identify themselves to vendor personnel.
* * * * *
Vendor means a sole proprietorship, partnership, cooperative
association, corporation, or other business entity operating one or
more stores authorized by the State agency to provide authorized
supplemental foods to participants under a retail food delivery system.
Each store operated by a business entity constitutes a separate vendor
and must be authorized separately from other stores operated by the
business entity. Each store must have a single, fixed location, except
when the authorization of mobile stores is necessary to meet the
special needs described in the State agency's State Plan in accordance
with Sec. 246.4(a)(14)(xiv).
Vendor authorization means the process by which the State agency
assesses, selects, and enters into agreements with stores that apply or
subsequently reapply to be authorized as vendors.
Vendor limiting criteria means criteria established by the State
agency to determine the maximum number and distribution of vendors it
authorizes pursuant to Sec. 246.12(g)(2).
Vendor overcharge means intentionally or unintentionally charging
the State agency more for authorized supplemental foods than is
permitted under the vendor agreement. It is not a vendor overcharge
when a vendor submits a food instrument for redemption and the State
agency makes a price adjustment to the food instrument.
Vendor selection criteria means the criteria established by the
State agency to select individual vendors for authorization consistent
with the requirements in Sec. 246.12(g)(3).
Vendor violation means any intentional or unintentional action of a
vendor's current owners, officers, managers, agents, or employees (with
or without the knowledge of management) that violates the vendor
agreement or Federal or State statutes, regulations, policies, or
procedures governing the Program.
WIC means the Special Supplemental Nutrition Program for Women,
Infants and Children authorized by section 17 of the Child Nutrition
Act of 1966, 42 U.S.C. 1786.
* * * * *
3. In Section 246.3:
a. Redesignate paragraph (e)(5) as paragraph (e)(6); and
b. Add a new paragraph (e)(5).
The addition reads as follows:
Sec. 246.3 Administration.
* * * * *
(e) * * *
(5) A staff person designated for food delivery system management.
The person to whom the State agency assigns this responsibility may
perform other duties as well.
* * * * *
4. In Sec. 246.4:
a. Add a heading to paragraph (a)(14)(i);
b. In paragraph (a)(14)(v), add a heading and remove the reference
to ``Sec. 246.12(k)(1)(i)'' and add a reference to
``Sec. 246.12(l)(1)(i)'' in its place;
c. Revise paragraphs (a)(14)(ii), (a)(14)(iii), (a)(14)(iv), and
(a)(14)(vi);
d. Remove paragraph (a)(14)(vii) and redesignate paragraphs
(a)(14)(viii) through (a)(14)(xi) as paragraphs (a)(14)(vii) through
(a)(14)(x), respectively;
e. In newly redesignated paragraph (a)(14)(vii), add a heading and
remove the words ``food vendors'' and add ``vendors'' in its place;
f. In newly redesignated paragraph (a)(14)(viii), add a heading;
g. In newly redesignated paragraphs (a)(14)(ix) and (a)(14)(x), add
headings and remove the periods at the end and add semicolons in their
place;
h. Add new paragraphs (a)(14)(xi) through (a)(14)(xiv);
[[Page 83278]]
i. Revise the first sentence of paragraph (a)(15); and
j. In paragraph (a)(21), remove the reference to
``Sec. 246.12(r)(8)'' and add a reference to ``Sec. 246.12(r)(4)'' in
its place.
The revisions and additions read as follows:
Sec. 246.4 State plan.
(a) * * *
(14) * * *
(i) Type of system. * * *
(ii) Vendor limiting and selection criteria. Vendor limiting
criteria, if used by the State agency, and the vendor selection
criteria established by the State agency consistent with the
requirements in Sec. 246.12(g)(3);
(iii) Vendor agreement. A sample vendor agreement, including the
sanction schedule, which may be incorporated as an attachment or, if
the sanction schedule is in the State agency's regulations, through
citation to the regulations. State agencies that intend to delegate
signing of vendor agreements to local agencies must describe the State
agency supervision and instruction that will be provided to ensure the
uniformity and quality of local agency activities;
(iv) Vendor monitoring. The system for monitoring vendors to ensure
compliance and prevent fraud, waste, and program noncompliance, and the
State agency's plans for improvement in the coming year in accordance
with Sec. 246.12(j). The State agency must also include the criteria it
will use to determine which vendors will receive routine monitoring
visits. State agencies that intend to delegate any aspect of vendor
monitoring responsibilities to a local agency or contractor must
describe the State agency supervision and instruction that will be
provided to ensure the uniformity and quality of vendor monitoring;
(v) Options regarding trafficking convictions. * * *
(vi) Food instruments. A facsimile of the food instrument, if used,
and a description of the system the State agency will use to account
for the disposition of food instruments in accordance with
Sec. 246.12(q);
(vii) Names of contractors. * * *
(viii)Nutrition services and administration funds conversion. * * *
(ix) Homeless participants. * * *
(x) Cost containment systems. * * *
(xi) Vendor training. The procedures the State agency will use to
train vendors in accordance with Sec. 246.12(i). State agencies that
intend to delegate any aspect of training to a local agency,
contractor, or vendor representative must describe the State agency
supervision and instruction that will be provided to ensure the
uniformity and quality of vendor training;
(xii) Food instrument security. A description of the State agency's
system for ensuring food instrument security in accordance with
Sec. 246.12(p);
(xiii) Participant access determination criteria. A description of
the State agency's participant access determination criteria consistent
with Sec. 246.12(l); and
(xiv) Mobile stores. The special needs necessitating the
authorization of mobile stores, if the State agency chooses to
authorize such stores.
(15) The State agency's plans to prevent and identify dual
participation in accordance with Sec. 246.7(l)(1)(i) and (l)(1)(ii). *
* *
* * * * *
5. In Sec. 246.7:
a. In paragraph (f)(2)(iv), remove the reference to
``Sec. 246.12(r)(8)'' and add a reference to ``Sec. 246.12(r)(4)'' in
its place;
b. In paragraph (h)(1)(i), remove the reference to
``Sec. 246.12(k)(2)'' and add the words ``the definition of Participant
violation in Sec. 246.2'' in its place; and
c. Revise paragraph (l)(1).
The revision reads as follows:
Sec. 246.7 Certification of participants.
* * * * *
(l) * * *
(1) The State agency is responsible for the following:
(i) In conjunction with WIC local agencies, the prevention and
identification of dual participation within each local agency and
between local agencies under the State agency's jurisdiction, including
actions to identify suspected instances of dual participation at least
semiannually. The State or local agency must take follow-up action
within 120 days of detecting instances of suspected dual participation;
(ii) In areas where a local agency serves the same population as an
Indian State agency or a CSFP agency, and in areas where geographical
or other factors make it likely that participants travel regularly
between contiguous local service areas located across State agency
borders, entering into an agreement with the other agency for the
detection and prevention of dual participation. The agreement must be
made in writing and included in the State Plan;
(iii) Immediate termination from participation in one of the
programs or clinics for participants found in violation due to dual
participation; and
(iv) In cases of dual participation resulting from intentional
misrepresentation, the collection of improperly issued benefits in
accordance with Sec. 246.23(c)(1) and disqualification from both
programs in accordance with Sec. 246.12(u)(2).
* * * * *
6. Revise Sec. 246.12 to read as follows:
Sec. 246.12 Food delivery systems.
(a) General. This section sets forth design and operational
requirements for food delivery systems. In recognition of emergent
electronic benefits transfer (EBT) technology, FNS may, on a case-by-
case basis, modify regulatory provisions to the extent FNS determines
the particular EBT system provides adequate safeguards that serve the
purpose of the provisions being modified.
(1) Management. The State agency is responsible for the fiscal
management of, and accountability for, food delivery systems under its
jurisdiction. The State agency may permit only authorized vendors, home
food delivery contractors, and direct distribution sites to accept food
instruments.
(2) Design. The State agency must design all food delivery systems
to be used by its local agencies.
(3) FNS oversight. FNS may, for a stated cause and by written
notice, require revision of a proposed or operating food delivery
system and will allow a reasonable time for the State agency to effect
such a revision.
(4) Part 3016. All contracts or agreements entered into by the
State or local agency for the management or operation of food delivery
systems must conform to the requirements of Part 3016 of this title.
(b) Uniform food delivery systems. The State agency may operate up
to three types of food delivery systems under its jurisdiction--retail,
home delivery, or direct distribution. Each system must be procedurally
uniform throughout the jurisdiction of the State agency and must ensure
adequate participant access to supplemental foods. When used, food
instruments must be uniform within each type of system.
(c) No charge for authorized supplemental foods. The State agency
must ensure that participants receive their authorized supplemental
foods free of charge.
(d) Compatibility of food delivery system. The State agency must
ensure that the food delivery system(s) selected is compatible with the
delivery of health and nutrition education services to participants.
(e) Retail food delivery systems: General. Retail food delivery
systems are systems in which participants, parents or caretakers of
infant and child
[[Page 83279]]
participants, and proxies obtain authorized supplemental foods by
submitting a food instrument to an authorized vendor.
(f) Retail food delivery systems: Food instrument requirements. (1)
General. State agencies using retail food delivery systems must use
food instruments that comply with the requirements of paragraph (f)(2)
of this section.
(2) Printed food instruments. Each printed food instrument must
clearly bear on its face the following information:
(i) Authorized supplemental foods. The supplemental foods
authorized to be obtained with the food instrument;
(ii) First date of use. The first date on which the food instrument
may be used to obtain supplemental foods;
(iii) Last date of use. The last date on which the food instrument
may be used to obtain authorized supplemental foods. This date must be
a minimum of 30 days from the first date on which it may be used,
except for the participant's first month of issuance, when it may be
the end of the month or cycle for which the food instrument is valid.
Rather than entering a specific last date of use on each instrument,
all instruments may be printed with a notice that the participant must
transact them within a specified number of days after the first date on
which the food instrument may be used;
(iv) Redemption period. The date by which the vendor must submit
the food instrument for redemption. This date must be no more than 90
days from the first date on which the food instrument may be used. If
the date is fewer than 90 days, then the State agency must ensure that
the allotted time provides the vendor sufficient time to submit the
food instrument for redemption without undue burden;
(v) Serial number. A unique and sequential serial number;
(vi) Purchase price. A space for the purchase price to be entered.
At the discretion of the State agency, a maximum price may be printed
on the food instrument that is higher than the expected purchase price
of the authorized supplemental foods for which it will be used, but
that is low enough to protect against potential loss of funds. When a
maximum price is printed on the food instrument, the space for the
purchase price must be clearly distinguishable from the maximum price.
For example, the words ``purchase price'' or ``actual amount of sale''
could be printed larger and in a different area of the food instrument
than the maximum price; and
(vii) Signature space. A space where participants, parents or
caretakers of infant or child participants, or proxies must sign.
(3) Vendor identification. The State agency must implement
procedures to ensure each food instrument submitted for redemption can
be identified by the vendor that submitted the food instrument. Each
vendor operated by a single business entity must be identified
separately. The State agency may identify vendors by requiring that all
authorized vendors stamp their names and/or enter a vendor
identification number on all food instruments prior to submitting them
for redemption.
(g) Retail food delivery systems: Vendor authorization. (1)
General. The State agency must authorize an appropriate number and
distribution of vendors in order to ensure adequate participant access
to supplemental foods and to ensure effective State agency management,
oversight, and review of its authorized vendors.
(2) Vendor limiting criteria. The State agency may establish
criteria to limit the number of stores it authorizes. The State agency
must apply its limiting criteria consistently throughout its
jurisdiction. Any vendor limiting criteria used by the State agency
must be included in the State Plan in accordance with
Sec. 246.4(a)(14)(ii).
(3) Vendor selection criteria. The State agency must develop and
implement criteria to select stores for authorization. The State agency
must apply its selection criteria consistently throughout its
jurisdiction. The State agency may reassess any authorized vendor at
any time during the vendor's agreement period using the vendor
selection criteria in effect at the time of the reassessment and must
terminate the agreements with those vendors that fail to meet them. The
vendor selection criteria must include the following categories and
requirements and must be included in the State Plan in accordance with
Sec. 246.4(a)(14)(ii).
(i) Competitive price and price limitations. The State agency must
consider the prices a vendor applicant charges for supplemental foods
as compared to the prices charged by other vendor applicants and
authorized vendors. The State agency may evaluate a vendor applicant
based on its shelf prices or on the prices it bids for supplemental
foods, which may not exceed its shelf prices. The State agency must
also establish price limitations on the amount that it will pay
vendors. The price limitations must be designed to ensure that the
State agency does not pay a vendor at a level that would otherwise make
the vendor ineligible for authorization. The State agency may establish
different competitive price requirements and price limitations for
different vendor peer groups, may include a factor to reflect
fluctuations in wholesale prices in its price limitations, and may
except pharmacy vendors that supply only exempt infant formula and/or
WIC-eligible medical foods from both the competitive price selection
criterion and the price limitations.
(ii) Minimum variety and quantity of supplemental foods. The State
agency must establish minimum requirements for the variety and quantity
of supplemental foods that a vendor applicant must stock to be
authorized. The State agency may not authorize a vendor applicant
unless it determines that the vendor applicant meets these minimums.
The State agency may establish different minimums for different vendor
peer groups.
(iii) Business integrity. The State agency must consider the
business integrity of a vendor applicant. In determining the business
integrity of a vendor applicant, the State agency may rely solely on
facts already known to it and representations made by the vendor
applicant on its vendor application. The State agency is not required
to establish a formal system of background checks for vendor
applicants. Unless denying authorization of a vendor applicant would
result in inadequate participant access, the State agency may not
authorize a vendor applicant if during the last six years the vendor
applicant or any of the vendor applicant's current owners, officers, or
managers have been convicted of or had a civil judgment entered against
them for any activity indicating a lack of business integrity.
Activities indicating a lack of business integrity include fraud,
antitrust violations, embezzlement, theft, forgery, bribery,
falsification or destruction of records, making false statements,
receiving stolen property, making false claims, and obstruction of
justice. The State agency may add other types of convictions or civil
judgments to this list.
(iv) Current Food Stamp Program disqualification or civil money
penalty for hardship. Unless denying authorization of a vendor
applicant would result in inadequate participant access, the State
agency may not authorize a vendor applicant that is currently
disqualified from the Food Stamp Program or that has been assessed a
Food Stamp Program civil money penalty for hardship and the
disqualification period that would otherwise have been imposed has not
expired.
(4) On-site preauthorization visit. The State agency must conduct
an on-site
[[Page 83280]]
visit prior to or at the time of a vendor's initial authorization.
(5) Sale of store to circumvent WIC sanction. The State agency may
not authorize a vendor applicant if the State agency determines the
store has been sold by its previous owner in an attempt to circumvent a
WIC sanction. The State agency may consider such factors as whether the
store was sold to a relative by blood or marriage of the previous
owner(s) or sold to any individual or organization for less than its
fair market value.
(6) Impact on small businesses. The State agency is encouraged to
consider the impact of authorization decisions on small businesses.
(7) Application periods. The State agency may limit the periods
during which applications for vendor authorization will be accepted and
processed, except that applications must be accepted and processed at
least once every three years. The State agency must develop procedures
for processing vendor applications outside of its timeframes when it
determines there will be inadequate participant access unless
additional vendors are authorized.
(8) Data collection at authorization. At the time of application,
the State agency must collect the vendor applicant's Food Stamp Program
authorization number if the vendor applicant is authorized in that
program. In addition, the State agency must collect the vendor
applicant's current shelf prices for supplemental foods.
(h) Retail food delivery systems: Vendor agreements. (1) General.
(i) Entering into agreements. The State agency must enter into written
agreements with all authorized vendors. The agreements must be for a
period not to exceed three years. The agreement must be signed by a
representative who has legal authority to obligate the vendor and a
representative of the State agency. When the vendor representative is
obligating more than one vendor, the agreement must specify all vendors
covered by the agreement. When more than one vendor is specified in the
agreement, the State agency may add or delete an individual vendor
without affecting the remaining vendors. The State agency must require
vendors to reapply at the expiration of their agreements and must
provide vendors with not less than 15 days advance written notice of
the expiration of their agreements.
(ii) Delegation to local agencies. The State agency may delegate to
its local agencies the authority to sign vendor agreements if the State
agency indicates its intention to do so in its State Plan in accordance
with Sec. 246.4(a)(14)(iii). In such cases, the State agency must
provide supervision and instruction to ensure the uniformity and
quality of local agency activities.
(2) Standard vendor agreement. The State agency must use a standard
vendor agreement throughout its jurisdiction, although the State agency
may make exceptions to meet unique circumstances provided that it
documents the reasons for such exceptions.
(3) Vendor agreement provisions. The vendor agreement must contain
the following specifications, although the State agency may determine
the exact wording to be used:
(i) Acceptance of food instruments. The vendor may accept food
instruments only from participants, parents or caretakers of infant and
child participants, or proxies.
(ii) No substitutions, cash, credit, refunds, or exchanges. The
vendor may provide only the authorized supplemental foods listed on the
food instrument. The vendor may not provide unauthorized food items,
non-food items, cash, or credit (including rainchecks) in exchange for
food instruments. The vendor may not provide refunds or permit
exchanges for authorized supplemental foods obtained with food
instruments, except for exchanges of an identical authorized
supplemental food item when the original authorized supplemental food
item is defective, spoiled, or has exceeded its ``sell by,'' ``best if
used by,'' or other date limiting the sale or use of the food item. An
identical authorized supplemental food item means the exact brand and
size as the original authorized supplemental food item obtained and
returned by the participant.
(iii) Treatment of participants, parents/caretakers, and proxies.
The vendor must offer program participants, parents or caretakers of
infant of child participants, and proxies the same courtesies offered
to other customers.
(iv) Time periods for transacting food instruments. The vendor may
accept a food instrument only within the specified time period.
(v) Purchase price on food instruments. The vendor must ensure that
the purchase price is entered on food instruments in accordance with
the procedures described in the vendor agreement. The State agency has
the discretion to determine whether the vendor or the participant
enters the purchase price. The purchase price must include only the
authorized supplemental food items actually provided and must be
entered on the food instrument before it is signed.
(vi) Signature on food instruments. For printed food instruments,
the vendor must ensure the participant, parent or caretaker of an
infant or child participant, or proxy signs the food instrument in the
presence of the cashier. In EBT systems, a Personal Identification
Number (PIN) may be used in lieu of a signature.
(vii) Sales tax prohibition. The vendor may not collect sales tax
on authorized supplemental foods obtained with food instruments.
(viii) Food instrument redemption. The vendor must submit food
instruments for redemption in accordance with the redemption procedures
described in the vendor agreement. The vendor may redeem a food
instrument only within the specified time period. As part of the
redemption procedures, the State agency may make price adjustments to
the purchase price on food instruments submitted by the vendor for
redemption to ensure compliance with the price limitations applicable
to the vendor.
(ix) Vendor claims. When the State agency determines the vendor has
committed a vendor violation that affects the payment to the vendor,
the State agency will delay payment or establish a claim. The State
agency may delay payment or establish a claim in the amount of the full
purchase price of each food instrument that contained the vendor
overcharge or other error. The State agency will provide the vendor
with an opportunity to justify or correct a vendor overcharge or other
error. The vendor must pay any claim assessed by the State agency. In
collecting a claim, the State agency may offset the claim against
current and subsequent amounts to be paid to the vendor. In addition to
denying payment or assessing a claim, the State agency may sanction the
vendor for vendor overcharges or other errors in accordance with the
State agency's sanction schedule.
(x) No charge for authorized supplemental foods or restitution from
participants. The vendor may not charge participants, parents or
caretakers of infant and child participants, or proxies for authorized
supplemental foods obtained with food instruments. In addition, the
vendor may not seek restitution from these individuals for food
instruments not paid or partially paid by the State agency.
(xi) Training. At least one representative of the vendor must
participate in training annually. Annual vendor training may be
provided by the State agency in a variety of formats, including
newsletters, videos, and
[[Page 83281]]
interactive training. The State agency will have sole discretion to
designate the date, time, and location of all interactive training,
except that the State agency will provide the vendor with at least one
alternative date on which to attend such training.
(xii) Vendor training of staff. The vendor must inform and train
cashiers and other staff on program requirements.
(xiii) Accountability for owners, officers, managers, and
employees. The vendor is accountable for its owners, officers,
managers, agents, and employees who commit vendor violations.
(xiv) Monitoring. The vendor may be monitored for compliance with
program requirements.
(xv) Recordkeeping. The vendor must maintain inventory records used
for Federal tax reporting purposes and other records the State agency
may require for the period of time specified by the State agency in the
vendor agreement. Upon request, the vendor must make available to
representatives of the State agency, the Department, and the
Comptroller General of the United States, at any reasonable time and
place for inspection and audit, all food instruments in the vendor's
possession and all program-related records.
(xvi) Termination. The State agency will immediately terminate the
agreement if it determines that the vendor has provided false
information in connection with its application for authorization.
Either the State agency or the vendor may terminate the agreement for
cause after providing advance written notice of a period of not less
than 15 days to be specified by the State agency.
(xvii) Change in ownership or location or cessation of operations.
The vendor must provide the State agency advance written notification
of any change in vendor ownership, store location, or cessation of
operations. In such instances, the State agency will terminate the
vendor agreement, except that the State agency may permit vendors to
move short distances without terminating the agreement. The State
agency has the discretion to determine the length of advance notice
required for vendors reporting changes under this provision, whether a
change in location qualifies as a short distance, and whether a change
in business structure constitutes a change in ownership.
(xviii) Sanctions. In addition to claims collection, the vendor may
be sanctioned for vendor violations in accordance with the State
agency's sanction schedule. Sanctions may include administrative fines,
disqualification, and civil money penalties in lieu of
disqualification. The State agency does not have to provide the vendor
with prior warning that violations were occurring before imposing such
sanctions.
(xix) Conflict of interest. The State agency will terminate the
agreement if the State agency identifies a conflict of interest, as
defined by applicable State laws, regulations, and policies, between
the vendor and the State agency or its local agencies.
(xx) Criminal penalties. A vendor who commits fraud or abuse in the
Program is liable to prosecution under applicable Federal, State or
local laws. Those who have willfully misapplied, stolen or fraudulently
obtained program funds will be subject to a fine of not more than
$10,000 or imprisonment for not more than five years or both, if the
value of the funds is $100 or more. If the value is less than $100, the
penalties are a fine of not more than $1,000 or imprisonment for not
more than one year or both.
(xxi) Not a license/property interest. The vendor agreement does
not constitute a license or a property interest. If the vendor wishes
to continue to be authorized beyond the period of its current
agreement, the vendor must reapply for authorization. If a vendor is
disqualified, the State agency will terminate the vendor's agreement,
and the vendor will have to reapply in order to be authorized after the
disqualification period is over. In all cases, the vendor's new
application will be subject to the State agency's vendor selection
criteria and any vendor limiting criteria in effect at the time of the
reapplication.
(xxii) Compliance with vendor agreement, statutes, regulations,
policies, and procedures. The vendor must comply with the vendor
agreement and Federal and State statutes, regulations, policies, and
procedures governing the Program, including any changes made during the
agreement period.
(xxiii) Nondiscrimination regulations. The vendor must comply with
the nondiscrimination provisions of Departmental regulations (Parts 15,
15a and 15b of this title).
(xxiv) Compliance with vendor selection criteria. The vendor must
comply with the vendor selection criteria throughout the agreement
period, including any changes to the criteria. Using the current vendor
selection criteria, the State agency may reassess the vendor at any
time during the agreement period. The State agency will terminate the
vendor agreement if the vendor fails to meet the current vendor
selection criteria.
(xxv) Reciprocal Food Stamp Program disqualification for WIC
Program disqualifications. Disqualification from the WIC Program may
result in disqualification as a retailer in the Food Stamp Program.
Such disqualification may not be subject to administrative or judicial
review under the Food Stamp Program.
(4) Purchase price and redemption procedures. The State agency must
describe in the vendor agreement its purchase price and redemption
procedures. The redemption procedures must ensure that the State agency
does not pay a vendor more than the price limitations applicable to the
vendor.
(5) Sanction schedule. The State agency must include its sanction
schedule in the vendor agreement or as an attachment to it. The
sanction schedule must include all mandatory and State agency vendor
sanctions and must be consistent with paragraph (l) of this section. If
the sanction schedule is in State law or regulations or in a document
provided to the vendor at the time of authorization, the State agency
instead may include an appropriate cross-reference in the vendor
agreement.
(6) Actions subject to administrative review and review procedures.
The State agency must include the adverse actions a vendor may appeal
and those adverse actions that are not subject to administrative
review. The State agency also must include a copy of the State agency's
administrative review procedures in the vendor agreement or as an
attachment to it or must include a statement that the review procedures
are available upon request and the applicable review procedures will be
provided along with an adverse action subject to administrative review.
These items must be consistent with Sec. 246.18. If these items are in
State law or regulations or in a document provided to the vendor at the
time of authorization, the State agency instead may include an
appropriate cross-reference in the vendor agreement.
(7) Notification of program changes. The State agency must notify
vendors of changes to Federal or State statutes, regulations, policies,
or procedures governing the Program before the changes are implemented.
The State agency should give as much advance notice as possible.
(i) Retail food delivery systems: Vendor training. (1) General
requirements. The State agency must provide training annually to at
least one representative of each vendor. Prior to or at the time of a
vendor's initial authorization, and at least once every
[[Page 83282]]
three years thereafter, the training must be in an interactive format
that includes a contemporaneous opportunity for questions and answers.
The State agency must designate the date, time, and location of the
interactive training and the audience (e.g., managers, cashiers, etc.)
to which the training is directed. The State agency must provide
vendors with at least one alternative date on which to attend
interactive training. Examples of acceptable vendor training include
on-site cashier training, off-site classroom-style train-the-trainer or
manager training, a training video, and a training newsletter. All
vendor training must be designed to prevent program errors and
noncompliance and improve program service.
(2) Content. The annual training must include instruction on the
purpose of the Program, the supplemental foods authorized by the State
agency, the minimum varieties and quantities of authorized supplemental
foods that must be stocked by vendors, the procedures for transacting
and redeeming food instruments, the vendor sanction system, the vendor
complaint process, the claims procedures, and any changes to program
requirements since the last training.
(3) Delegation. The State agency may delegate vendor training to a
local agency, a contractor, or a vendor representative if the State
agency indicates its intention to do so in its State Plan in accordance
with Sec. 246.4(a)(14)(xi). In such cases, the State agency must
provide supervision and instruction to ensure the uniformity and
quality of vendor training.
(4) Documentation. The State agency must document the content of
and vendor participation in vendor training.
(j) Retail food delivery systems: Monitoring vendors and
identifying high-risk vendors. (1) General requirements. The State
agency must design and implement a system for monitoring its vendors
for compliance with program requirements. The State agency may delegate
vendor monitoring to a local agency or contractor if the State agency
indicates its intention to do so in its State Plan in accordance with
Sec. 246.4(a)(14)(iv). In such cases, the State agency must provide
supervision and instruction to ensure the uniformity and quality of
vendor monitoring.
(2) Routine monitoring. The State agency must conduct routine
monitoring visits on a minimum of five percent of the number of vendors
authorized by the State agency as of October 1 of each fiscal year in
order to survey the types and levels of abuse and errors among
authorized vendors and to take corrective actions, as appropriate. The
State agency must develop criteria to determine which vendors will
receive routine monitoring visits and must include such criteria in its
State Plan in accordance with Sec. 246.4(a)(14)(iv).
(3) Identifying high-risk vendors. The State agency must identify
high-risk vendors at least once a year using criteria developed by FNS
and/or other statistically-based criteria developed by the State
agency. FNS will not change its criteria more frequently than once
every two years and will provide adequate advance notification of
changes prior to implementation. The State agency may develop and
implement additional criteria. All State agency-developed criteria must
be approved by FNS.
(4) Compliance investigations. (i) High-risk vendors. The State
agency must conduct compliance investigations of a minimum of five
percent of the number of vendors authorized by the State agency as of
October 1 of each fiscal year. The State agency must conduct compliance
investigations on all high-risk vendors up to the five percent minimum.
The State agency may count toward this requirement a compliance
investigation of a high-risk vendor conducted by a Federal, State, or
local law enforcement agency. The State agency also may count toward
this requirement a compliance investigation conducted by another WIC
State agency provided that the State agency implements the option to
establish State agency sanctions based on mandatory sanctions imposed
by the other WIC State agency, as specified in paragraph (l)(2)(iii) of
this section. A compliance investigation of a high-risk vendor may be
considered complete when the State agency determines that a sufficient
number of compliance buys have been conducted to provide evidence of
program noncompliance, when two compliance buys have been conducted in
which no program violations are found, or when an inventory audit has
been completed.
(ii) Randomly selected vendors. If fewer than five percent of the
State agency's authorized vendors are identified as high-risk, the
State agency must randomly select additional vendors on which to
conduct compliance investigations sufficient to meet the five-percent
requirement. A compliance investigation of a randomly selected vendor
may be considered complete when the State agency determines that a
sufficient number of compliance buys have been conducted to provide
evidence of program noncompliance, when two compliance buys are
conducted in which no program violations are found, or when an
inventory audit has been completed.
(iii) Prioritization. If more than five percent of the State
agency's vendors are identified as high-risk, the State agency must
prioritize such vendors so as to perform compliance investigations of
those determined to have the greatest potential for program
noncompliance and/or loss of funds.
(5) Monitoring report. For each fiscal year, the State agency must
send FNS a summary of the results of its vendor monitoring containing
information stipulated by FNS. The report must be sent by February 1 of
the following fiscal year. Plans for improvement in the coming year
must be included in the State Plan in accordance with
Sec. 246.4(a)(14)(iv).
(6) Documentation.
(i) Monitoring visits. The State agency must document the following
information for all monitoring visits, including routine monitoring
visits, inventory audits, and compliance buys:
(A) the date of the monitoring visit, inventory audit, or
compliance buy;
(B) the name(s) and signature(s) of the reviewer(s); and
(C) the nature of any problem(s) detected.
(ii) Compliance buys. For compliance buys, the State agency must
also document:
(A) the date of the buy;
(B) a description of the cashier involved in each transaction;
(C) the types and quantities of items purchased, current shelf
prices or prices charged other customers, and price charged for each
item purchased, if available. Price information may be obtained prior
to, during, or subsequent to the compliance buy; and
(D) the final disposition of all items as destroyed, donated,
provided to other authorities, or kept as evidence.
(k) Retail food delivery systems: Vendor claims. (1) System to
review food instruments. The State agency must design and implement a
system to review food instruments submitted by vendors for redemption
to ensure compliance with the applicable price limitations and to
detect questionable food instruments, suspected vendor overcharges, and
other errors. This review must examine either all or a representative
sample of the food instruments and may be done either before or after
the State agency makes payments on the food instruments. The review
must include a price comparison or other edit designed to ensure
compliance with the applicable price limitations and to assist in
detecting vendor overcharges. For printed food instruments, the system
also must detect
[[Page 83283]]
the following errors: purchase price missing; participant, parent/
caretaker, or proxy signature missing; vendor identification missing;
food instruments transacted or redeemed after the specified time
periods; and, as appropriate, altered purchase price. The State agency
must take follow-up action within 120 days of detecting any
questionable food instruments, suspected vendor overcharges, and other
errors and must implement procedures to reduce the number of errors
when possible.
(2) Delaying payment and establishing a claim. When the State
agency determines the vendor has committed a vendor violation that
affects the payment to the vendor, the State agency must delay payment
or establish a claim. Such vendor violations may be detected through
compliance investigations, food instrument reviews, or other reviews or
investigations of a vendor's operations. The State agency may delay
payment or establish a claim in the amount of the full purchase price
of each food instrument that contained the vendor overcharge or other
error.
(3) Opportunity to justify or correct. When payment for a food
instrument is delayed or a claim is established, the State agency must
provide the vendor with an opportunity to justify or correct the vendor
overcharge or other error. If satisfied with the justification or
correction, the State agency must provide payment or adjust the
proposed claim accordingly.
(4) Timeframe and offset. The State agency must deny payment or
initiate claims collection action within 90 days of either the date of
detection of the vendor violation or the completion of the review or
investigation giving rise to the claim, whichever is later. Claims
collection action may include offset against current and subsequent
amounts owed to the vendor.
(5) Food instruments redeemed after the specified period. With
justification and documentation, the State agency may pay vendors for
food instruments submitted for redemption after the specified period
for redemption. If the total value of such food instruments submitted
at one time exceeds $500.00, the State agency must obtain the approval
of the FNS Regional Office before payment.
(l) Retail food delivery systems: Vendor sanctions--(1) Mandatory
vendor sanctions--(i) Permanent disqualification. The State agency must
permanently disqualify a vendor convicted of trafficking in food
instruments or selling firearms, ammunition, explosives, or controlled
substances (as defined in section 102 of the Controlled Substances Act
(21 U.S.C. 802)) in exchange for food instruments. A vendor is not
entitled to receive any compensation for revenues lost as a result of
such violation. If reflected in its State Plan, the State agency may
impose a civil money penalty in lieu of a disqualification for this
violation when it determines, in its sole discretion, and documents
that:
(A) Disqualification of the vendor would result in inadequate
participant access; or
(B) The vendor had, at the time of the violation, an effective
policy and program in effect to prevent trafficking; and the ownership
of the vendor was not aware of, did not approve of, and was not
involved in the conduct of the violation.
(ii) Six-year disqualification. The State agency must disqualify a
vendor for six years for:
(A) One incidence of buying or selling food instruments for cash
(trafficking); or
(B) One incidence of selling firearms, ammunition, explosives, or
controlled substances as defined in 21 U.S.C. 802, in exchange for food
instruments.
(iii) Three-year disqualification. The State agency must disqualify
a vendor for three years for:
(A) One incidence of the sale of alcohol or alcoholic beverages or
tobacco products in exchange for food instruments;
(B) A pattern of claiming reimbursement for the sale of an amount
of a specific supplemental food item which exceeds the store's
documented inventory of that supplemental food item for a specific
period of time;
(C) A pattern of vendor overcharges;
(D) A pattern of receiving, transacting and/or redeeming food
instruments outside of authorized channels, including the use of an
unauthorized vendor and/or an unauthorized person;
(E) A pattern of charging for supplemental food not received by the
participant; or
(F) A pattern of providing credit or non-food items, other than
alcohol, alcoholic beverages, tobacco products, cash, firearms,
ammunition, explosives, or controlled substances as defined in 21
U.S.C. 802, in exchange for food instruments.
(iv) One-year disqualification. The State agency must disqualify a
vendor for one year for a pattern of providing unauthorized food items
in exchange for food instruments, including charging for supplemental
foods provided in excess of those listed on the food instrument.
(v) Second mandatory sanction. When a vendor, who previously has
been assessed a sanction for any of the violations in paragraphs
(l)(1)(ii) through (l)(1)(iv) of this section, receives another
sanction for any of these violations, the State agency must double the
second sanction. Civil money penalties may only be doubled up to the
limits allowed under paragraph (l)(1)(x)(C) of this section.
(vi) Third or subsequent mandatory sanction. When a vendor, who
previously has been assessed two or more sanctions for any of the
violations listed in paragraphs (l)(1)(ii) through (l)(1)(iv) of this
section, receives another sanction for any of these violations, the
State agency must double the third sanction and all subsequent
sanctions. The State agency may not impose civil money penalties in
lieu of disqualification for third or subsequent sanctions for
violations listed in paragraphs (l)(1)(ii) through (l)(1)(iv) of this
section.
(vii) Disqualification based on a Food Stamp Program
disqualification. The State agency must disqualify a vendor who has
been disqualified from the Food Stamp Program. The disqualification
must be for the same length of time as the Food Stamp Program
disqualification, may begin at a later date than the Food Stamp Program
disqualification, and is not subject to administrative or judicial
review under the WIC Program.
(viii) Voluntary withdrawal or nonrenewal of agreement. The State
agency may not accept voluntary withdrawal of the vendor from the
Program as an alternative to disqualification for the violations listed
in paragraphs (l)(1)(i) through (l)(1)(iv) of this section, but must
enter the disqualification on the record. In addition, the State agency
may not use nonrenewal of the vendor agreement as an alternative to
disqualification.
(ix) Participant access determinations. Prior to disqualifying a
vendor for a Food Stamp Program disqualification pursuant to paragraph
(l)(1)(vii) of this section or for any of the violations listed in
paragraphs (l)(1)(ii) through (l)(1)(iv) of this section, the State
agency must determine if disqualification of the vendor would result in
inadequate participant access. The State agency must make the
participant access determination in accordance with paragraph (l)(8) of
this section. If the State agency determines that disqualification of
the vendor would result in inadequate participant access, the State
agency must impose a civil money penalty in lieu of disqualification.
However, as provided in paragraph (l)(1)(vi) of this section, the State
agency may not impose a civil money penalty in lieu of
[[Page 83284]]
disqualification for third or subsequent sanctions for violations in
paragraphs (l)(1)(ii) through (l)(1)(iv) of this section. The State
agency must include documentation of its participant access
determination and any supporting documentation in the file of each
vendor who is disqualified or receives a civil money penalty in lieu of
disqualification.
(x) Civil money penalty formula. For each violation subject to a
mandatory sanction, the State agency must use the following formula to
calculate a civil money penalty imposed in lieu of disqualification:
(A) Determine the vendor's average monthly redemptions for at least
the 6-month period ending with the month immediately preceding the
month during which the notice of adverse action is dated;
(B) Multiply the average monthly redemptions figure by 10 percent
(.10);
(C) Multiply the product from paragraph (l)(1)(x)(B) of this
section by the number of months for which the store would have been
disqualified. This is the amount of the civil money penalty, provided
that the civil money penalty shall not exceed $10,000 for each
violation. For a violation that warrants permanent disqualification,
the amount of the civil money penalty shall be $10,000. When during the
course of a single investigation the State agency determines a vendor
has committed multiple violations, the State agency must impose a CMP
for each violation. The total amount of civil money penalties imposed
for violations investigated as part of a single investigation may not
exceed $40,000.
(xi) Notification to FNS. The State agency must provide the
appropriate FNS office with a copy of the notice of adverse action and
information on vendors it has either disqualified or imposed a civil
money penalty in lieu of disqualification for any of the violations
listed in paragraphs (l)(1)(i) through (l)(1)(iv) of this section. This
information must include the name of the vendor, address,
identification number, the type of violation(s), and the length of
disqualification or the length of the disqualification corresponding to
the violation for which the civil money penalty was assessed, and must
be provided within 15 days after the vendor's opportunity to file for a
WIC administrative review has expired or all of the vendor's WIC
administrative reviews have been completed.
(xii) Multiple violations during a single investigation. When
during the course of a single investigation the State agency determines
a vendor has committed multiple violations (which may include
violations subject to State agency sanctions), the State agency must
disqualify the vendor for the period corresponding to the most serious
mandatory violation. However, the State agency must include all
violations in the notice of administration action. If a mandatory
sanction is not upheld on appeal, then the State agency may impose a
State agency-established sanction.
(2) State agency vendor sanctions. (i) General requirements. The
State agency may impose sanctions for vendor violations that are not
specified in paragraphs (l)(1)(i) through (l)(1)(iv) of this section as
long as such vendor violations and sanctions are included in the State
agency's sanction schedule. State agency sanctions may include
disqualifications, civil money penalties assessed in lieu of
disqualification, and administrative fines. The total period of
disqualification imposed for State agency violations investigated as
part of a single investigation may not exceed one year. A civil money
penalty or fine may not exceed $10,000 for each violation. The total
amount of civil money penalties and administrative fines imposed for
violations investigated as part of a single investigation may not
exceed $40,000.
(ii) Food Stamp Program civil money penalty for hardship. The State
agency may disqualify a vendor that has been assessed a civil money
penalty for hardship in the Food Stamp Program, as provided under
Sec. 278.6 of this chapter. The length of such disqualification must
correspond to the period for which the vendor would otherwise have been
disqualified in the Food Stamp Program. If a State agency decides to
exercise this option, the State agency must:
(A) Include notification that it will take such disqualification
action in its sanction schedule; and
(B) Determine if disqualification of the vendor would result in
inadequate participant access in accordance with paragraph (l)(8) of
this section. If the State agency determines that disqualification of
the vendor would result in inadequate participant access, the State
agency may not disqualify the vendor or impose a civil money penalty in
lieu of disqualification. The State agency must include documentation
of its participant access determination and any supporting
documentation in each vendor's file.
(iii) A mandatory sanction by another WIC State agency. The State
agency may disqualify a vendor that has been disqualified or assessed a
civil money penalty in lieu of disqualification by another WIC State
agency for a mandatory vendor sanction. The length of the
disqualification must be for the same length of time as the
disqualification by the other WIC State agency or, in the case of a
civil money penalty in lieu of disqualification assessed by the other
WIC State agency, for the same length of time for which the vendor
would otherwise have been disqualified. The disqualification may begin
at a later date than the sanction imposed by the other WIC State
agency. If a State agency decides to exercise this option, the State
agency must:
(A) Include notification that it will take such action in its
sanction schedule; and
(B) Determine if disqualification of the vendor would result in
inadequate participant access in accordance with paragraph (l)(8) of
this section. If the State agency determines that disqualification of
the vendor would result in inadequate participant access, the State
agency must impose a civil money penalty in lieu of disqualification,
except that the State agency may not impose a civil money penalty in
situations in which the vendor has been assessed a civil money penalty
in lieu of disqualification by the other WIC State agency. Any civil
money penalty in lieu of disqualification must be calculated in
accordance with paragraph (l)(2)(x) of this section. The State agency
must include documentation of its participant access determination and
any supporting documentation in each vendor's file.
(3) Prior warning. The State agency does not have to provide the
vendor with prior warning that violations were occurring before
imposing any of the sanctions in paragraph (l) of this section.
(4) Administrative reviews. The State agency must provide
administrative reviews of sanctions to the extent required by
Sec. 246.18.
(5) Installment plans. The State agency may use installment plans
for the collection of civil money penalties and administrative fines.
(6) Failure to pay a civil money penalty. If a vendor does not pay,
only partially pays, or fails to timely pay a civil money penalty
assessed in lieu of disqualification, the State agency must disqualify
the vendor for the length of the disqualification corresponding to the
violation for which the civil money penalty was assessed (for a period
corresponding to the most serious violation in cases where a mandatory
sanction included the imposition of multiple civil money penalties as a
result of a single investigation).
(7) Actions in addition to sanctions. Vendors may be subject to
actions in
[[Page 83285]]
addition to the sanctions in this section, such as claims pursuant to
paragraph (k) of this section and the penalties set forth in
Sec. 246.23(c) in the case of deliberate fraud.
(8) Participant access determination criteria. The State agency
must develop participant access criteria. When making participant
access determinations, the State agency must consider the availability
of other authorized vendors in the same area as the violative vendor
and any geographic barriers to using such vendors.
(9) Termination of agreement. When the State agency disqualifies a
vendor, the State agency must also terminate the vendor agreement.
(m) Home food delivery systems. Home food delivery systems are
systems in which authorized supplemental foods are delivered to the
participant's home. Home food delivery systems must provide for:
(1) Procurement. Procurement of supplemental foods in accordance
with Sec. 246.24, which may entail measures such as the purchase of
food in bulk lots by the State agency and the use of discounts that are
available to States.
(2) Accountability. The accountable delivery of authorized
supplemental foods to participants. The State agency must ensure that:
(i) Home food delivery contractors are paid only after the delivery
of authorized supplemental foods to participants;
(ii) A routine procedure exists to verify the correct delivery of
authorized supplemental foods to participants, and, at a minimum, such
verification occurs at least once a month after delivery; and
(iii) Records of delivery of supplemental foods and bills sent or
payments received for such supplemental foods are retained for at least
three years. Federal, State, and local authorities must have access to
such records.
(n) Direct distribution food delivery systems. Direct distribution
food delivery systems are systems in which participants, parents or
caretakers of infant or child participants, or proxies pick up
authorized supplemental foods from storage facilities operated by the
State agency or its local agencies. Direct distribution food delivery
systems must provide for:
(1) Storage and insurance. Adequate storage and insurance coverage
that minimizes the danger of loss due to theft, infestation, fire,
spoilage, or other causes;
(2) Inventory. Adequate inventory control of supplemental foods
received, in stock, and issued;
(3) Procurement. Procurement of supplemental foods in accordance
with Sec. 246.24, which may entail measures such as purchase of food in
bulk lots by the State agency and the use of discounts that are
available to States;
(4) Availability. The availability of program benefits to
participants and potential participants who live at great distance from
storage facilities; and
(5) Accountability. The accountable delivery of authorized
supplemental foods to participants.
(o) Participant, parent/caretaker, proxy, vendor, and home food
delivery contractor complaints. The State agency must have procedures
to document the handling of complaints by participants, parents or
caretakers of infant or child participants, proxies, vendors, home food
delivery contractors, and direct distribution contractors. Complaints
of civil rights discrimination must be handled in accordance with
Sec. 246.8(b).
(p) Food instrument security. The State agency must develop
standards for ensuring the security of food instruments from the time
the food instruments are created to the time they are issued to
participants, parents/caretakers, or proxies. For pre-printed food
instruments, these standards must include maintenance of perpetual
inventory records of food instruments throughout the State agency's
jurisdiction; monthly physical inventory of food instruments on hand
throughout the State agency's jurisdiction; reconciliation of perpetual
and physical inventories of food instruments; and maintenance of all
food instruments under lock and key, except for supplies needed for
immediate use. For EBT and print-on-demand food instruments, the
standards must provide for the accountability and security of the means
to manufacture and issue such food instruments.
(q) Food instrument disposition. The State agency must account for
the disposition of all food instruments as either issued or voided, and
as either redeemed or unredeemed. Redeemed food instruments must be
identified as validly issued, lost, stolen, expired, duplicate, or not
matching valid enrollment and issuance records. In an EBT system,
evidence of matching redeemed food instruments to valid enrollment and
issuance records may be satisfied through the linking of the Primary
Account Number (PAN) associated with the electronic transaction to
valid enrollment and issuance records. This process must be performed
within 150 days of the first valid date for participant use of the food
instruments and must be conducted in accordance with the financial
management requirements of Sec. 246.13. The State agency will be
subject to claims as outlined in Sec. 246.23(a)(4) for redeemed food
instruments that do not meet the conditions established in paragraph
(q) of this section.
(r) Issuance of food instruments and authorized supplemental foods.
The State agency must:
(1) Parents/caretakers and proxies. Establish uniform procedures
that allow parents and caretakers of infant and child participants and
proxies to obtain and transact food instruments or obtain authorized
supplemental foods on behalf of a participant. In determining whether a
particular participant or parent/caretaker should be allowed to
designate a proxy or proxies, the State agency must require the local
agency or clinic to consider whether adequate measures can be
implemented to provide nutrition education and health care referrals to
that participant or, in the case of an infant or child participant, to
the participant's parent or caretaker;
(2) Signature requirement. Ensure that the participant, parent or
caretaker of an infant or child participant, or proxy signs for receipt
of food instruments or authorized supplemental foods, except as
provided in paragraph (r)(4) of this section;
(3) Instructions. Ensure that participants, parents or caretakers
of infant and child participants, and proxies receive instructions on
the proper use of food instruments, or on the procedures for obtaining
authorized supplemental foods when food instruments are not used. The
State agency must also ensure that participants, parents or caretakers
of infant and child participants, and proxies are notified that they
have the right to complain about improper vendor and home food delivery
contractor practices with regard to program responsibilities;
(4) Food instrument pick up. Require participants, parents and
caretakers of infant and child participants, and proxies to pick up
food instruments in person when scheduled for nutrition education or
for an appointment to determine whether participants are eligible for a
second or subsequent certification period. However, in all other
circumstances the State agency may provide for issuance through an
alternative means such as EBT or mailing, unless FNS determines that
such actions would jeopardize the integrity of program services or
program accountability. If a State agency opts to mail food
instruments, it must provide justification, as part of its alternative
issuance system in its State Plan, as
[[Page 83286]]
required in Sec. 246.4(a)(21), for mailing food instruments to areas
where food stamps are not mailed. State agencies that opt to mail food
instruments must establish and implement a system that ensures the
return of food instruments to the State or local agency if a
participant no longer resides or receives mail at the address to which
the food instruments were mailed; and
(5) Maximum issuance of food instruments. Ensure that no more than
a three-month supply of food instruments or a one-month supply of
authorized supplemental foods is issued at any one time to any
participant, parent or caretaker of an infant or child participant, or
proxy.
(s) Payment to vendors and home food delivery contractors. The
State agency must ensure that vendors and home food delivery
contractors are paid promptly. Payment must be made within 60 days
after valid food instruments are submitted for redemption. Actual
payment to vendors and home food delivery contractors may be made by
local agencies.
(t) Conflict of interest. The State agency must ensure that no
conflict of interest exists, as defined by applicable State laws,
regulations, and policies, between the State agency and any vendor or
home food delivery contractor, or between any local agency and any
vendor or home food delivery contractor under its jurisdiction.
(u) Participant violations and sanctions. (1) General requirements.
The State agency must establish procedures designed to control
participant violations. The State agency also must establish sanctions
for participant violations. Participant sanctions may include
disqualification from the Program for a period of up to one year.
(2) Mandatory disqualification. (i) General. Except as provided in
paragraphs (u)(2)(ii) and (u)(2)(iii) of this section, whenever the
State agency assesses a claim of $100 or more, assesses a claim for
dual participation, or assess a second or subsequent claim of any
amount, the State agency must disqualify the participant for one year.
(ii) Exceptions to mandatory disqualification. The State agency may
decide not to impose a mandatory disqualification if, within 30 days of
receipt of the letter demanding repayment, full restitution is made or
a repayment schedule is agreed on, or, in the case of a participant who
is an infant, child, or under age 18, the State or local agency
approves the designation of a proxy.
(iii) Terminating a mandatory disqualification. The State agency
may permit a participant to reapply for the Program before the end of a
mandatory disqualification period if full restitution is made or a
repayment schedule is agreed upon or, in the case of a participant who
is an infant, child, or under age 18, the State or local agency
approves the designation of a proxy.
(3) Warnings before sanctions. The State agency may provide
warnings before imposing participant sanctions.
(4) Fair hearings. At the time the State agency notifies a
participant of a disqualification, the State agency must advise the
participant of the procedures to follow to obtain a fair hearing
pursuant to Sec. 246.9.
(5) Referral to law enforcement authorities. When appropriate, the
State agency must refer vendors, home food delivery contractors, and
participants who violate program requirements to Federal, State, or
local authorities for prosecution under applicable statutes.
7. Revise Sec. 246.13(h) to read as follows:
Sec. 246.13 Financial management system.
* * * * *
(h) Adjustment of expenditures. The State agency must adjust
projected expenditures to account for redeemed food instruments and for
other changes as appropriate.
* * * * *
8. In Sec. 246.14:
a. Revise paragraph (b)(2); and
b. In paragraph (e)(3)(i), remove the reference to
``Sec. 246.12(r)(5)(iii)'' and add a reference to ``Sec. 246.12(k)(3)''
in its place.
The revision reads as follows:
Sec. 246.14 Program costs.
* * * * *
(b) * * *
(2) For costs to be allowable, the State agency must ensure that
food costs do not exceed the customary sales price charged by the
vendor, home food delivery contractor, or supplier in a direct
distribution food delivery system. In addition, food costs may not
exceed the price limitations applicable to the vendor.
* * * * *
9. Revise Sec. 246.18 to read as follows:
Sec. 246.18 Administrative review of State agency actions.
(a) Adverse actions subject to administrative reviews. (1) Vendor
appeals. (i) Adverse actions subject to full administrative reviews.
Except as provided elsewhere in paragraph (a)(1) of this section, the
State agency must provide full administrative reviews to vendors that
appeal the following adverse actions:
(A) denial of authorization based on the vendor selection criteria
for competitive price or for minimum variety and quantity of authorized
supplemental foods (Sec. 246.12(g)(3)(i) and (g)(3)(ii)) or on a
determination that the vendor is attempting to circumvent a sanction
(Sec. 246.12(g)(4));
(B) termination of an agreement for cause;
(C) disqualification; and
(D) imposition of a fine or a civil money penalty in lieu of
disqualification.
(ii) Adverse actions subject to abbreviated administrative reviews.
The State agency must provide abbreviated administrative reviews to
vendors that appeal the following adverse actions, unless the State
agency decides to provide full administrative reviews for any of these
types of adverse actions:
(A) denial of authorization based on the vendor selection criteria
for business integrity or for a current Food Stamp Program
disqualification or civil money penalty for hardship
(Sec. 246.12(g)(3)(iii) and (g)(3)(iv));
(B) denial of authorization based on a State agency-established
vendor selection criterion if the basis of the denial is a WIC vendor
sanction or a Food Stamp Program withdrawal of authorization or
disqualification;
(C) denial of authorization based on the State agency's vendor
limiting criteria (Sec. 246.12(g)(2));
(D) denial of authorization because a vendor submitted its
application outside the timeframes during which applications are being
accepted and processed as established by the State agency under
Sec. 246.12(g)(7);
(E) termination of an agreement because of a change in ownership or
location or cessation of operations (Sec. 246.12(h)(3)(xvii));
(F) disqualification based on a trafficking conviction
(Sec. 246.12(l)(1)(i));
(G) disqualification based on the imposition of a Food Stamp
Program civil money penalty for hardship (Sec. 246.12(l)(2)(ii)); and
(H) disqualification or a civil money penalty imposed in lieu of
disqualification based on a mandatory sanction imposed by another WIC
State agency (Sec. 246.12(l)(2)(iii)).
(iii) Actions not subject to administrative reviews. The State
agency may not provide administrative reviews pursuant to this section
to vendors that appeal the following actions:
(A) the validity or appropriateness of the State agency's vendor
limiting or selection criteria (Sec. 246.12(g)(2) and (g)(3));
[[Page 83287]]
(B) the validity or appropriateness of the State agency's
participant access criteria and the State agency's participant access
determinations;
(C) the State agency's determination whether a vendor had an
effective policy and program in effect to prevent trafficking and that
the ownership of the vendor was not aware of, did not approve of, and
was not involved in the conduct of the violation
(Sec. 246.12(l)(1)(i)(B));
(D) denial of authorization if the State agency's vendor
authorization is subject to the procurement procedures applicable to
the State agency;
(E) the expiration of a vendor's agreement;
(F) disputes regarding food instrument payments and vendor claims
(other than the opportunity to justify or correct a vendor overcharge
or other error, as permitted by Sec. 246.12(k)(3); and
(G) disqualification of a vendor as a result of disqualification
from the Food Stamp Program (Sec. 246.12(l)(1)(vii)).
(2) Effective date of adverse actions against vendors. The State
agency must make denials of authorization and disqualifications imposed
under Sec. 246.12(l)(1)(i) effective on the date of receipt of the
notice of adverse action. The State agency must make all other adverse
actions effective no earlier than 15 days after the date of the notice
of the adverse action and no later than 90 days after the date of the
notice of adverse action or, in the case of an adverse action that is
subject to administrative review, no later than the date the vendor
receives the review decision.
(3) Local agency appeals. (i) Adverse actions subject to full
administrative reviews. Except as provided in paragraph (a)(3)(ii) of
this section, the State agency must provide full administrative reviews
to local agencies that appeal the following adverse actions:
(A) denial of a local agency's application;
(B) disqualification of a local agency; and
(C) any other adverse action that affects a local agency's
participation.
(ii) Actions not subject to administrative reviews. The State
agency may not provide administrative reviews pursuant to this section
to local agencies that appeal the following actions:
(A) expiration of the local agency's agreement; and
(B) denial of a local agency's application if the State agency's
local agency selection is subject to the procurement procedures
applicable to the State agency;
(iii) Effective date of adverse actions against local agencies. The
State agency must make denials of local agency applications effective
immediately. The State agency must make all other adverse actions
effective no earlier than 60 days after the date of the notice of the
adverse action and no later than 90 days after the date of the notice
of adverse action or, in the case of an adverse action that is subject
to administrative review, no later than the date the local agency
receives the review decision.
(b) Full administrative review procedures. The State agency must
develop procedures for a full administrative review of the adverse
actions listed in paragraphs (a)(1)(i) and (a)(3) of this section. At a
minimum, these procedures must provide the vendor or local agency with
the following:
(1) Written notification of the adverse action, the procedures to
follow to obtain a full administrative review and the cause(s) for and
the effective date of the action. When a vendor is disqualified due in
whole or in part to violations in Sec. 246.12(l)(1), such notification
must include the following statement: ``This disqualification from WIC
may result in disqualification as a retailer in the Food Stamp Program.
Such disqualification is not subject to administrative or judicial
review under the Food Stamp Program.''
(2) The opportunity to appeal the adverse action within a time
period specified by the State agency in its notification of adverse
action.
(3) Adequate advance notice of the time and place of the
administrative review to provide all parties involved sufficient time
to prepare for the review.
(4) The opportunity to present its case and at least one
opportunity to reschedule the administrative review date upon specific
request. The State agency may set standards on how many review dates
can be scheduled, provided that a minimum of two review dates is
allowed.
(5) The opportunity to cross-examine adverse witnesses. When
necessary to protect the identity of WIC Program investigators, such
examination may be conducted behind a protective screen or other device
(also referred to as an ``in camera'' examination).
(6) The opportunity to be represented by counsel.
(7) The opportunity to examine prior to the review the evidence
upon which the State agency's action is based.
(8) An impartial decision-maker, whose determination is based
solely on whether the State agency has correctly applied Federal and
State statutes, regulations, policies, and procedures governing the
Program, according to the evidence presented at the review. The State
agency may appoint a reviewing official, such as a chief hearing
officer or judicial officer, to review appeal decisions to ensure that
they conform to approved policies and procedures.
(9) Written notification of the review decision, including the
basis for the decision, within 90 days from the date of receipt of a
vendor's request for an administrative review, and within 60 days from
the date of receipt of a local agency's request for an administrative
review. These timeframes are only administrative requirements for the
State agency and do not provide a basis for overturning the State
agency's adverse action if a decision is not made within the specified
timeframe.
(c) Abbreviated administrative review procedures. Except when the
State agency decides to provide full administrative reviews for the
adverse actions listed in paragraph (a)(1)(ii) of this section, the
State agency must develop procedures for an abbreviated administrative
review of the adverse actions listed in paragraph (a)(1)(ii) of this
section. At a minimum, these procedures must provide the vendor with
the following:
(1) Written notification of the adverse action, the procedures to
follow to obtain an abbreviated administrative review, the cause(s) for
and the effective date of the action, and an opportunity to provide a
written response; and
(2) A decision-maker who is someone other than the person who
rendered the initial decision on the action and whose determination is
based solely on whether the State agency has correctly applied Federal
and State statutes, regulations, policies, and procedures governing the
Program, according to the information provided to the vendor concerning
the cause(s) for the adverse action and the vendor's response; and
(3) Written notification of the review decision, including the
basis for the decision, within 90 days of the date of receipt of the
request for an administrative review. This timeframe is only an
administrative requirement for the State agency and does not provide a
basis for overturning the State agency's adverse action if a decision
is not made within the specified timeframe.
(d) Continuing responsibilities. Appealing an action does not
relieve a local agency or a vendor that is permitted to continue
program operations while its appeal is in process from the
responsibility of continued compliance with the terms of any written
agreement with the State agency.
[[Page 83288]]
(e) Finality and effective date of decisions. The State agency
procedures must provide that review decisions rendered under both the
full and abbreviated review procedures are the final State agency
action. If the adverse action under review has not already taken
effect, the State agency must make the action effective on the date of
receipt of the review decision by the vendor or the local agency.
(f) Judicial review. If the review decision upholds the adverse
action against the vendor or local agency, the State agency must inform
the vendor or local agency that it may be able to pursue judicial
review of the decision.
10. In Sec. 246.19, revise the section heading and revise
paragraphs (a)(2), (b)(2), (b)(4), and (b)(5) to read as follows:
Sec. 246.19 Management evaluation and monitoring reviews.
(a) * * *
(2) The State agency must submit a corrective action plan,
including implementation timeframes, within 60 days of receipt of an
FNS management evaluation report containing a finding that the State
agency did not comply with program requirements. If FNS determines
through a management evaluation or other means that during a fiscal
year the State agency has failed, without good cause, to demonstrate
efficient and effective administration of its program, or has failed to
comply with its corrective action plan, or any other requirements
contained in this part or the State Plan, FNS may withhold an amount up
to 100 percent of the State agency's nutrition services and
administration funds for that year.
* * * * *
(b) * * *
(2) Monitoring of local agencies must encompass evaluation of
management, certification, nutrition education, participant services,
civil rights compliance, accountability, financial management systems,
and food delivery systems. If the State agency delegates the signing of
vendor agreements, vendor training, or vendor monitoring to a local
agency, it must evaluate the local agency's effectiveness in carrying
out these responsibilities.
* * * * *
(4) The State agency must promptly notify a local agency of any
finding in a monitoring review that the local agency did not comply
with program requirements. The State agency must require the local
agency to submit a corrective action plan, including implementation
timeframes, within 60 days of receipt of a State agency report of a
monitoring review containing a finding of program noncompliance. The
State agency must monitor local agency implementation of corrective
action plans.
(5) As part of the regular monitoring reviews, FNS may require the
State agency to conduct in-depth reviews of specified areas of local
agency operations, to implement a standard form or protocol for such
reviews, and to report the results to FNS. No more than two such areas
will be stipulated by FNS for any fiscal year and the areas will not be
added or changed more often than once every two fiscal years. These
areas will be announced by FNS at least six months before the beginning
of the fiscal year.
* * * * *
11. In Sec. 246.23, revise paragraphs (a)(4) and (c) to read as
follows:
Sec. 246.23 Claims and penalties.
(a) * * *
(4) FNS will establish a claim against any State agency that has
not accounted for the disposition of all redeemed food instruments and
taken appropriate follow-up action on all redeemed food instruments
that cannot be matched against valid enrollment and issuance records,
including cases that may involve fraud, unless the State agency has
demonstrated to the satisfaction of FNS that it has:
(i) Made every reasonable effort to comply with this requirement;
(ii) Identified the reasons for its inability to account for the
disposition of each redeemed food instrument; and
(iii) Provided assurances that, to the extent considered necessary
by FNS, it will take appropriate actions to improve its procedures.
* * * * *
(c) Claims. (1) Claims against participants. (i) Procedures. If the
State agency determines that program benefits have been obtained or
disposed of improperly as the result of a participant violation, the
State agency must establish a claim against the participant for the
full value of such benefits. For all claims, the State agency must
issue a letter demanding repayment. If full restitution is not made or
a repayment schedule is not agreed on within 30 days of receipt of the
letter, the State agency must take additional collection actions until
restitution is made or a repayment schedule is agreed on, unless the
State agency determines that further collection actions would not be
cost-effective. The State agency must establish standards, based on a
cost benefit analysis, for determining when collection actions are no
longer cost-effective. At the time the State agency issues the demand
letter, the State agency must advise the participant of the procedures
to follow to obtain a fair hearing pursuant to Sec. 246.9 and that
failure to pay the claim may result in disqualification. In addition to
establishing a claim, the State agency must determine whether
disqualification is required by Sec. 246.12(u)(2).
(ii) Types of restitution. In lieu of financial restitution, the
State agency may allow participants or parents or caretakers of infant
or child participants for whom financial restitution would cause undue
hardship to provide restitution by performing in-kind services
determined by the State agency. Restitution may not include offsetting
the claim against future program benefits, even if agreed to by the
participant or the parent or caretaker of an infant or child
participant.
(iii) Disposition of claims. The State agency must document the
disposition of all participant claims.
(2) Claims against the State agency. FNS will assert a claim
against the State agency for losses resulting from program funds
improperly spent as a result of dual participation, if FNS determines
that the State agency has not complied with the requirements in
Sec. 246.7(l)(1).
(3) Delegation of claims responsibility. The State agency may
delegate to its local agencies the responsibility for collecting
participant claims.
* * * * *
12. In Sec. 246.26, revise the heading of paragraph (d), and add
new paragraphs (e), (f), and (g) to read as follows.
Sec. 246.26 Other provisions.
* * * * *
(d) Confidentiality of applicant and participant information. * * *
(e) Confidentiality of vendor information. Confidential vendor
information is any information about a vendor (whether it is obtained
from the vendor or another source) that individually identifies the
vendor, except for vendor's name, address and authorization status.
Except as otherwise permitted by this section, the State agency must
restrict the use or disclosure of confidential vendor information to:
(1) Persons directly connected with the administration or
enforcement of the WIC Program or the Food Stamp Program who the State
agency determines have a need to know the information for purposes of
these programs. These persons may include personnel from its local
agencies and other WIC State and local agencies and
[[Page 83289]]
persons investigating or prosecuting WIC or Food Stamp Program
violations under Federal, State, or local law;
(2) Persons directly connected with the administration or
enforcement of any Federal or State law. Prior to releasing the
information to one of these parties (other than a Federal agency), the
State agency must enter into a written agreement with the requesting
party specifying that such information may not be used or redisclosed
except for purposes directly connected to the administration or
enforcement of a Federal, or State law; and
(3) A vendor that is subject to an adverse action, including a
claim, to the extent that the confidential information concerns the
vendor subject to the adverse action and is related to the adverse
action.
(f) Confidentiality of Food Stamp Program retailer information.
Except as otherwise provided in this section, the State agency must
restrict the use or disclosure of information about Food Stamp Program
retailers obtained from the Food Stamp Program, including information
provided pursuant to Section 9(c) of the Food Stamp Act of 1977 (7
U.S.C. 2018(c)) and Sec. 278.1(q) of this chapter, to persons directly
connected with the administration or enforcement of the WIC Program.
(g) USDA and the Comptroller General. The State agency must provide
the Department and the Comptroller General of the United States access
to all WIC Program records, including confidential vendor information,
pursuant to Sec. 246.25(a)(4).
Dated: December 21, 2000.
Shirley R. Watkins,
Under Secretary, Food, Nutrition, and Consumer Services.
[FR Doc. 00-33111 Filed 12-28-00; 8:45 am]
BILLING CODE 3410-30-P