[Federal Register Volume 64, Number 115 (Wednesday, June 16, 1999)]
[Proposed Rules]
[Pages 32308-32343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14953]
[[Page 32307]]
_______________________________________________________________________
Part II
Department of Agriculture
_______________________________________________________________________
Food and Nutrition Service
_______________________________________________________________________
7 CFR Part 246
Special Supplemental Nutrition Program for Women, Infants and Children
(WIC): Food Delivery Systems; Proposed Rule
Federal Register / Vol. 64, No. 115 / Wednesday, June 16, 1999 /
Proposed Rules
[[Page 32308]]
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: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This proposed rule would amend the regulations governing the
Special Supplemental Nutrition Program for Women, Infants and Children.
It would strengthen the requirements for operation of vendor management
systems by establishing mandatory selection criteria; limitation of
vendors; training requirements; criteria to be used to identify high-
risk vendors; and monitoring requirements, including compliance buys.
In addition, the rule would strengthen food instrument accountability
and sanctions for participants who violate program regulations. It
would also streamline the vendor appeals process. The rule is intended
to ensure greater program accountability and efficiency in food
delivery and related areas, and to promote a decrease in vendor
violation of program requirements and loss of program funds.
DATES: To be assured of consideration, written comments must be
postmarked on or before September 14, 1999. Since comments are being
accepted simultaneously on several separate rulemakings, commenters on
this proposed rule are asked to label their comments ``Food Delivery
Systems.'' In addition, due to the inherent problems associated with
the large volume of comments this rule is expected to generate,
electronic transmissions, including data faxes, will not be accepted.
ADDRESSES: Comments may be mailed to Patricia Daniels, Director,
Supplemental Food Programs Division, Food and Nutrition Service, USDA,
3101 Park Center Drive, Room 540, Alexandria, Virginia 22302, (703)
305-2746. All written submissions will be available for public
inspection at this address during regular business hours (8:30 a.m. to
5:00 p.m.) Monday through Friday.
FOR FURTHER INFORMATION CONTACT: Barbara Hallman, at (703) 305-2730.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This proposed 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 would
modify vendor selection, training, monitoring, sanction and appeal
procedures and/or systems. The effect of these changes would fall
primarily on State agencies. Local agencies and vendors would also be
affected, some of which are small entities. However, the impact on
small entities is not expected to be significant.
Executive Order 12372
The WIC Program 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 part 3015, Subpart V, and related Notice (48 FR
29115), this program is included in the scope of Executive Order 12372
which requires intergovernmental consultation with State and local
officials.
Executive Order 12988
This proposed rule has been reviewed under Executive Order 12988,
Civil Justice Reform. This 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 EFFECTIVE DATE paragraph of the
preamble of the final rule. Prior to any judicial challenge to the
application of the provisions of the final rule, all applicable
administrative procedures must be exhausted.
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 reasonable number of regulatory alternatives
and adopt the most cost-effective or least burdensome alternative that
achieves the objectives of the rule.
This proposed 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 following constitutes a 60-day notice issued by FNS.
Send comments and requests for copies of this information
collection to Lori Schack, Desk Officer, Office of Information and
Regulatory Affairs, Office of Management and Budget (OMB), Washington,
DC 20503. A copy may be sent to Barbara Hallman, Branch Chief,
Supplemental Food Programs Division, Food and Nutrition Service, USDA,
3101 Park Center Drive, Room 540, Alexandria, Virginia 22302, (703)
305-2746.
Comments and recommendations on the proposed information collection
must be received by August 16, 1999. A comment to OMB is best assured
of having its full effect if OMB receives it within 30 days of
publication.
OMB Number: 0584-0043.
Expiration Date: 05/31/99.
Type of Request: Revision of a currently approved reporting and
recordkeeping requirements.
Abstract: In accordance with the Paperwork Reduction Act of 1995
(44 U.S.C. 3501-20) (Paperwork Reduction Act), the reporting and
recordkeeping burden associated with this proposed rule will be used by
FNS as a principal source of information about how each State agency's
food delivery system operates. This proposed rule would primarily
strengthen and improve vendor management, food instrument
accountability, and participant sanctions in the WIC Program. It
addresses vendor selection, training, monitoring and high-risk
identification and food instrument reconciliation and security. The
collection and recordkeeping of this information is necessary to
determine compliance with Federal regulations.
Section 246.4(a) currently requires State agencies to submit
changes to State Plans annually as a prerequisite to
[[Page 32309]]
receipt of funds from FNS. State Plans address specific State agency
program operations such as: a description of the food delivery system,
including the system for the monitoring; the system for the control and
reconciliation of food instruments; State agency efforts to identify
the disposition of food instruments; and efforts to identify dual
participation. FNS estimates that addressing the additional State plan
requirements that would be required by this proposal will take each
State agency 3 hours annually, for a total of 264 personhours (88 State
agencies x 3 personhours per State agency) for this provision
annually.
Proposed section 246.12(i)(1) and (4) would require State agencies
to conduct annual vendor training and to document the contents and
receipt of vendor training, in part to assure that vendors have
knowledge of program rules and procedures. FNS estimates that
developing the content of vendor training materials will take each
State agency an average of 8 personhours per State agency or 704 total
personhours annually (8 hours x 88 State agencies). FNS further
estimates that participation in the annual training will take each
State agency and vendor an average of 2 hours for a total of 90,176
personhours annually (2 hours x 88 State agencies plus 2 hours x
45,000 vendors). Finally, FNS estimates that it will take each State
agency and each vendor approximately 15 minutes to document receipt of
the training for a total estimated annual burden of 11,272 (.25 hours
x 88 State agencies plus .25 hours x 45,000 vendors).
Proposed section 246.12(j)(3) would require State agencies to
monitor 10 percent of its vendor population each year. The monitoring
would be required to be targeted to high-risk vendors. Proposed section
246.12(j)(3)(i) would require the State agency to document the reason
why it has granted a waiver from compliance buys or inventory audits
for vendors identified as high risk. This will allow FNS to identify
whether a State agency has taken appropriate monitoring action against
high-risk vendors, thus enabling FNS to better evaluate State agency
compliance with high-risk monitoring requirements. FNS estimates that
10 percent of the total vendor population, or 4,500 vendors, will be
identified as high-risk and that of those, 5 percent or 225 vendors
will require a waiver from compliance buys or audits. FNS estimates it
will take 2 personhours for the State agency to document each waiver,
resulting in a national total of 450 personhours (225 waivers x 2
hours per waiver) required for this provision annually.
Proposed section 246.12(j)(4) would require that State agencies
provide documentation for all monitoring visits, including compliance
buys, inventory audits, and routine monitoring visits. FNS estimates
that 10 percent or 4,500 vendors will receive compliance buys. FNS
estimates that the average State agency will perform three compliance
buys per vendor for a total of 13,500 compliance buys annually (4,500
vendors x 3 compliance buys per vendor). FNS further estimates that
each buy will require 2 hours to document, for a national total of
27,000 personhours (13,500 compliance buys x 2 hours of documentation
for each buy) spent on this provision annually.
Section 246.12(q) would require State agencies to identify the
disposition of all food instruments as issued or voided, and as
redeemed or unredeemed. Section 246.23(a)(4) would be amended to make
State agencies liable for all redeemed food instruments that are
unaccounted for, unless the State agency could demonstrate the reasons
for the failure to fully account for them. For example, a State agency
may not be able to account for food instruments damaged in computerized
processing, or by water damage. FNS estimates that each State agency
will spend 40 hours a year completing this task and that a total of
3,520 personhours will be required for this provision annually (88
reports x 40 hours per report).
The proposed reporting requirement in section 246.19(b)(5) would
mandate that State agencies target areas specified by FNS during local
agency reviews. This would allow FNS to effectively focus State agency
attention on problem areas of program management needing intensive
review and correction. State agencies review all of their local
agencies once every 2 years. This means that half (1000) of all (2000)
local agencies will be reviewed annually. FNS estimates that State
agencies will be required to address targeted areas during local agency
reviews once every 4 years. This means that an average of 250 (1000 x
\1/4\) targeted reviews will be performed annually. FNS further
estimates that it will take 2 hours for the State agency to address
targeted areas during management evaluations and report the results of
the targeted reviews to FNS. Therefore, 500 total personhours (250
targeted reviews per year x 2 hours per review) is estimated for this
provision.
The proposed amendments to section 246.23(c)(1) would require State
agencies to maintain on file documentation of the disposition of cases
involving improperly obtained benefits. FNS estimates that this effort
will take each of the 88 State agencies an average of 5 personhours per
year, for a national total of 440 personhours (5 hours of recordkeeping
a year x 88 State agencies) estimated for this provision annually.
Respondents: State agencies and vendors.
Estimated Number Respondents: State Agencies: 88 and Vendors:
45,000.
Estimate of Burden: The proposed estimates of the reporting burden
by this rule are detailed below.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated avg. Estimated
Proposed section and title Estimated number of respondents Reports filed Total annual number of total person-
annually responses person-hours hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
246.4(a) State Plan............................ 88..................................... 1 88 3 264
246.12(i)(1) Development of Vendor Training.... 88..................................... 1 88 8 704
246.12(i)(1) Actual Vendor Training............ 88--State.............................. 88 2 176
45,000--Vendors........................ 45,000 2 90,000
246.12(i)(4) Documenting Training Receipt...... 88..................................... 1 88 .25 22
45,000................................. 45,000 .25 11,250
246.12(j)(3) Waiver from Compliance Buys/Audits 88..................................... 1 225 2 450
246.12(j)(4) Documenting Monitoring Visits..... 88..................................... 1 13,500 2 27,000
246.12(q) Disposition of Food Instruments...... 88..................................... 1 8 40 3,520
[[Page 32310]]
246.19(b)(5) Targeted Reviews of Local Agencies 88..................................... 1 250 2 500
246.23(c)(1) Disposition of Participant Claims. 88..................................... 1 88 5 440
--------------------------------------------------------------------------------------------------------
Total...................................... 90,792................................. .............. 104,503 .............. 134,326
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In accordance with the Paperwork Reduction Act, this proposed
regulation invites the general public and other public agencies to
comment on the information collection burdens that would result from
the adoption of the proposals in the rule.
Comments are invited on: (a) Whether the proposed collection of
information is necessary for the proper performance of the functions of
the agency, including whether the information will have practical
utility; (b) the accuracy of the agency's estimate of the burden of the
proposed collection of information including the validity of the
methodology and assumptions used; (c)ways to enhance the quality,
utility and clarity of the information to be collected; and (d) ways to
minimize the burden of the collection of information on those who
respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology.
All responses to this proposed rule will be summarized and included
in the request for OMB approval. All comments will also become a matter
of public record.
This proposed rule contains information collection requirements
which are subject to review by OMB under the Paperwork Reduction Act.
The reporting and recordkeeping requirements established by this
rulemaking in sections 246.4(a), 246.12(i)(1), 246.12(i)(4),
246.12(j)(3), 246.12(j)(4), 246.12(q), 246.19(b)(5), 246.23(c)(1), and
246.25(c) are pending review by OMB.
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 State agencies to design a high-risk vendor identification
system.
(3) WIC Compliance Buy Handbook: produced by 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), USDA.
(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 program
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 agency vendor management information systems.
(9) Vendor Activity Monitoring Profile (VAMP, 1996): Produced
annually by the USDA. This report analyzes WIC State agency vendor
monitoring activities. The report discusses the safeguards that
exist to prevent vendor fraud and program noncompliance from
occurring.
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 which could result in loss of WIC
Program funds. The May 1982 regulations have not brought about an
acceptable level of improvement in vendor management. Since 1982, the
Program has grown in size and complexity. The Fiscal Year 1983
appropriation for the WIC Program was approximately $1.16 billion
dollars. The appropriation has grown to $3.9 billion dollars in Fiscal
Year 1999. As the Program has expanded, so has the potential for loss
through misuse of program funds and violation of program regulations.
State agencies have responded to this need with varying levels of
effort and success. Both the OIG's National Vendor Audit in 1988 and
the WIC Vendor Issues Study in 1993 indicated that significant levels
of vendor violations continue to persist.
In response to the National Vendor Audit, the Department 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.
The Department provided a 120-day comment period that closed on April
29, 1991. During the comment period, 1,066 comments were received 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 to the commenters' requests, the Department's intent is
to propose new food delivery regulations once more. The Department has
made changes to the 1990 proposal based on suggestions of commenters
and subsequent State agency vendor experiences and the 1990 Vendor
Management Study, ``The WIC Files'' and the WIC Vendor Issues Study.
a. Characteristics of This Proposal
This proposal would provide State agencies with detailed design
standards for effective vendor management systems, as opposed to the
more generally worded requirements and emphasis on broad goals which
characterize current WIC food delivery
[[Page 32311]]
regulations. The emphasis in current regulations on general objectives
has not yielded the necessary improvements in vendor management. In
March 1988, the House Surveys and Investigations Staff released a
report on the WIC Program. In that report, they stated that
``knowledgeable fraud investigators believe, at a minimum, the program
needs more stringent regulations and penalties to deter fraud by
vendors. * * *'' In addition, in May 1988 the General Accounting Office
initiated a review of efforts to minimize fraud and abuse in the WIC
Program. The scope of that review includes identification of efforts
that the Department of Agriculture and State and local WIC agencies are
taking to detect and prevent fraud and abuse in the WIC Program.
Therefore, this proposal would mandate procedures and criteria by which
State agencies must manage vendors to effectively control fraud and
program noncompliance. It would define critical vendor management
terms; establish staffing requirements for vendor management; and
strengthen vendor authorization, agreements, training, monitoring, and
high-risk identification. Related food delivery areas such as food
instrument disposition and security, and State agency corrective action
plans are also addressed. This proposal stresses the interaction and
continuity between various food delivery areas. It not only would
strengthen the individual steps in the process of vendor management--
selection, training, monitoring, and high-risk identification, but also
would increase overall system effectiveness by meaningfully tying these
steps together. It would allow State agencies as much flexibility as
possible within the framework of the mandated standards to take into
account the distinct individual characteristics of each State agency's
management system and to facilitate further experimentation and
innovation.
In addition, the proposal recognizes the emergence of technology in
the retail food delivery area relative to electronic benefits transfer
(EBT). An EBT system for WIC, as demonstrated in the Wyoming Pay West
System, can contribute to improved accountability. Some of the
vulnerabilities for fraud and program noncompliance inherent with
printed food instruments can be reduced by the food-item-based type EBT
system used in WIC. With an EBT system, food package benefits are
issued and redeemed through a computer chip on the EBT card or a
computerized account accessed with the card. The participant is issued
an EBT card at the local level instead of paper checks or vouchers. The
EBT card or computerized account contains the participant's Personal
Identification Number (PIN) and lists the authorized supplemental
foods. The PIN ensures that only the participant or proxy uses the card
to obtain the authorized supplemental foods.
At the vendor, the participant selects the authorized supplemental
foods just as she would if paper checks or vouchers were used. At the
check-out counter, the participant enters the PIN into the Point of
Sale terminal located at the counter. A proper PIN alerts the computer
and the store that the participant is authorized to access the food
benefits. The cashier then scans each of the selected food items. The
Universal Product Code (UPC) listed on the food item is checked against
the authorized supplemental foods listed in the participant's account
to determine if that food item is allowable. If the computer indicates
that the food item is allowable, the item is automatically subtracted
from the participant's list of food items. At the same time, the
vendor's bank account is automatically credited for the amount of the
purchase.
Through the use of the UPC, the opportunity for overcharging,
substitution, and charging for food items not received is substantially
reduced in an EBT environment. If, when the food item's UPC is scanned,
the computer does not accept it as an authorized supplemental food for
the participant, the food item will not be accepted as part of the WIC
transaction.
Another benefit of using an EBT system is greater assurance that
only participants receive WIC foods. Since the proper PIN must be
entered in order to initiate the transaction at the check-out counter,
there is added assurance, through the computer's verification of the
PIN, that the individual is a participant or her proxy.
Because EBT and scanning substantially reduce program violations
both for vendors and participants, proposed section 246.12(a) would
provide FNS discretion on a case-by-case basis to modify regulatory
provisions which FNS determines unnecessarily duplicate the
accountability capabilities inherent in the particular EBT system. In
addition, this proposal would amend certain regulatory requirements to
recognize the different operations of EBT. For example, proposed
section 246.12(q) would be amended to clarify that a PIN rather than a
redeemed food instrument may be matched to a valid issuance and
enrollment record (see section 19 of this preamble); and proposed
section 246.12(h)(3)(iv) would clarify that a PIN may be used in lieu
of a signature on the food instrument at the time it is exchanged for
authorized foods (section 12 of this preamble).
Readers should note that as part of the March 18, 1999 final rule
regarding vendor sanctions (64 FR 13311), the definition of food
instrument was amended to include EBT cards.
b. Comments on the December 28, 1990 Proposal
Many commenters expressed general agreement or disagreement with
the Department's decision to strengthen food delivery and related areas
through the rule. General supporters of the December 1990 proposal
commented that it would make positive improvements in vendor management
and related areas. They stated that existing State agency food delivery
systems need standardization, and that much of the proposal would serve
to formalize systems that exist in many State agencies. Those in
general opposition to the proposal believed that it: (1) failed to take
into account the diversity of State agency vendor management systems,
and (2) inappropriately promoted a ``one size fits all'' approach to
vendor management.
Many opponents thought that WIC food delivery regulations should
continue to outline broad vendor management goals, rather than detailed
standards. Commenters were concerned about the resource implications of
the proposal. In particular, some State agencies felt that the
proposal's requirements would overburden their administrative
resources. Vendors expressed concern about the resource burden
associated with the training requirement. They also commented that the
proposal unfairly punished all vendors for the program noncompliance of
a few, and that the current system works well for the most part, and
should not be changed.
The Department acknowledges the commenters' general concerns
regarding the December 1990 proposal and agrees that any
standardization of State vendor management practices must take into
account the current diversity and needs of existing State agency
systems. In designing this current proposal, the Department has
attempted to acknowledge these differences, while at the same time
addressing the fundamental need for a more effective approach to State
agency vendor management.
The Department still firmly believes in the need for a system of
more standardized vendor management practices than currently exists.
[[Page 32312]]
Differences in State agency vendor management systems have resulted in
inconsistent treatment of vendors across State agencies and within
State agencies, as well as unacceptable levels of vendor fraud and
program noncompliance. The variations in vendor management practices
are significant. Some State agencies have established very specific
criteria for vendor selection which allow them to authorize only the
best qualified vendors by excluding those which have indicators of high
risk for fraud or program error. Vendor selection criteria in other
State agencies are weak and ineffective, resulting in the authorization
of more vendors than are needed to adequately ensure participant
access, reasonable food costs, and effective management. Some State
agencies have established strong training programs for authorized
vendors that require annual face-to-face contact with each vendor.
Other State agencies provide no periodic training for their vendors.
For these State agencies, face-to-face training is often limited to an
initial authorization visit, and vendors may operate for years before
they receive additional training. Some State agencies have aggressively
pursued covert compliance investigations as a method of identifying
abusive vendor practices. Other State agencies do not perform
compliance investigations at all, or perform them only nominally.
The Department recognizes the concerns expressed by commenters that
any effort toward standardization must provide State agencies with the
flexibility to pursue innovation. The Department is convinced, however,
that because the Program has increased in size and in complexity,
standardization and strengthening of basic vendor management practices
must occur in order to address current food delivery problems and
ensure that the WIC Program operates effectively in the future.
Many commenters objected to the December 1990 rulemaking's emphasis
on detailed design standards for vendor management versus the goal
oriented standards that exist in current regulations. They stated that
currently mandated regulatory standards adequately address State agency
vendor management needs. It should be noted that more specific design
standards for vendor management were proposed in the past. On January
23, 1981 (46 FR 7846), the Department published a proposed food
delivery regulation in response to OIG audits of WIC food delivery
systems conducted in 1979 and 1980. These audits identified problems
with State agency food delivery systems, including deficiencies in the
areas of vendor monitoring, overcharge detection, and vendor sanctions.
The January 23, 1981 rule proposed a number of design standards for
State agency food delivery systems including: specific selection
criteria for vendor authorization; limited timeframes for vendor
agreements; periodic mandatory training of all authorized vendors; and
mandatory compliance investigations of a specific percentage of each
State agency's authorized vendor population. Comments received on the
January 23, 1981 rule expressed concerns much like those expressed
almost a decade later in the December 1990 proposal: that the proposal
was overly detailed, not cost-effective, and could adversely affect
participants. Commenters urged the Department to outline food delivery
requirements in terms of broad goals rather than specific design
standards. In response, the Department dropped its detailed design
proposals, and in May 1982, published a final food delivery rule which
instead focused on a few carefully selected cost-effective procedures,
and outlined the remaining vendor management requirements as broad
State agency goals.
In the intervening sixteen years since the publication of the May
1982 final food delivery rule, State agencies have had ample
opportunity to develop and implement effective systems for vendor
management within the framework of the current food delivery
regulations. However, the 1988 National Vendor audit and, to a lesser
extent, the 1991 Vendor Issues Study, indicate that many State agencies
have continued to experience the same problems identified earlier. As
such, the Department must conclude that the current approach leaves
much room for improvement. In light of this experience, this proposal,
like the December 1990 proposal, would mandate more detailed design
standards for State agency food delivery systems.
Many commenters stated that the provisions outlined in the December
1990 proposal were too resource-intensive for State agencies. The
Department acknowledges that the December 1990 proposal, as well as
this one, would require some State agencies to devote additional
resources to vendor management, although it is possible that some State
agencies could actually experience a decreased burden. Nevertheless,
the need for State agencies to address problems in this area of
greatest program vulnerability continues to be imperative. As with the
December 1990 proposal, this rule would not propose simply to add new
requirements. Rather, it would replace many current requirements with
more effective procedures. For example, State agencies would no longer
be required to do representative monitoring, that is, on-site
monitoring visits to at least 10 percent of all authorized vendors.
Instead, the Department proposes that State agencies perform either
covert compliance buys or inventory audits focused on their high-risk
vendors (up to 10 percent of all authorized vendors), a potentially
more focused way of detecting vendor noncompliance than the current
representative monitoring requirement. Compliance buys have been shown
to be the most effective means of detecting and minimizing vendor
noncompliance. The 1988 National Vendor audit of WIC vendor management
referenced the need to require compliance buys in WIC regulations. In
this report, the Inspector General stated that ``We believe that
compliance purchases are the most effective method to identify that a
vendor is abusing the WIC Program''. While a shift in resources may be
necessary to address the proposed compliance buy and inventory audit
requirements, such a shift may be accomplished by reducing their
routine monitoring efforts, which frequently include annual
representative monitoring visits to all authorized vendors. The 1996
VAMP Report indicated that out of a universe of 45,397 vendors, 51
percent received on-site monitoring visits annually.
The Department has addressed the resource concerns expressed by
commenters by lessening some of the requirements proposed in the
December 1990 rule. The requirement for annual face-to-face vendor
training in the December 1990 proposal would be reduced to one face-to-
face training session each agreement period, which could run for a time
period up to 3 years. Requirements for food instrument disposition and
security and many reporting requirements would also be clarified and/or
reduced.
Like the December 1990 proposal, this proposal would not only
establish additional specific vendor management requirements, but would
also strengthen the State agencies' ability to take successful action
against violative vendors, possibly reducing the long-term
administrative burdens. For example, the proposed selection criteria
would help to prevent the authorization of vendors with a past history
of noncompliance. The proposed mandatory training would help lower the
frequency of cashier errors and reduce the level of improperly redeemed
food instruments. The
[[Page 32313]]
Department also proposes to place limits on appeal rights and
procedures.
Although vendor sanctions were addressed in the December 1990
proposed rule, they are not included in this proposal. On March 18,
1999, the Department published a final rule at 64 FR 13311 establishing
mandatory uniform sanctions across WIC State agencies for the most
serious WIC violations, including specific WIC violations that result
in disqualification from the Food Stamp Program (FSP) in addition to
the WIC Program. That rule also allows State agencies to establish
State agency sanctions in addition to the mandated WIC sanctions.
Finally, that rule mandates the disqualification of any WIC vendor who
has been disqualified from the FSP. This proposal would make a number
of other changes to conform the sanction requirements to other changes
proposed in this rule.
c. Comments Solicited
The Department encourages comments on this proposal and would like
to know which provisions have support, as well as which cause concern.
This proposal has been modified from the December 1990 proposal. Only
those timely comments in response to this second proposal will be
considered in the development of a final rule. Commenters are asked to
indicate at the outset that they are commenting on the Food Delivery
Systems rule and to cite the section number (e.g., 246.12(g)(2)(iv)) of
each provision addressed. Comments prove most helpful when they are
specific, stating the reasons for support or opposition, suggesting
modifications which would resolve a commenter's concerns, and providing
relevant background information and State agency-specific data as
appropriate. Due to the inherent problems associated with the large
volume of comments this rule is expected to generate, electronic
transmissions, including data faxes, will not be accepted. All comments
postmarked during the comment period will be carefully considered.
Specific changes are discussed in the following sections of this
preamble. While provisions are generally addressed in their order of
appearance in the regulatory text, considerable cross-referencing and
occasional repetition have proven necessary due to the close
interrelationship between areas of the vendor management and food
delivery processes.
Most of the regulatory provisions relative to food delivery systems
appear in section 246.12 of the regulations. The rulemaking proposes
numerous significant changes to this section. The standard procedure
would be to print only the proposed amendments to this section.
However, each of the steps in the management process addressed in
section 246.12 are thoroughly integrated. Proposed changes cannot be
fully understood and meaningfully assessed except in the context of the
management function to which they apply. In addition, section 246.12
has been completely reorganized. The preamble will indicate both the
current cites and the new cites for changed provisions. Therefore, the
Department is printing section 246.12 in its entirety. However,
comments are solicited only on the substantive changes and deletions to
the text; these are discussed in the preamble.
d. Impact of this proposal on affected entities
The following chart summarizes the effect of this proposal on
vendors, participants and State agencies. The chart also provides an
estimate of the costs and benefits associated with this proposal. It is
estimated that the proposal would reduce waste, fraud and program
noncompliance by 50 percent, resulting in savings of approximately $25
to $50 million. The savings would allow more participants to be served.
BILLING CODE 3410-30-P
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2. Definitions (Section 246.2)
Food delivery systems vary significantly in structure from State
agency to State agency. However, the discussion of issues must be based
on a common understanding of key terms. In order to clarify some
frequently used terms, the Department is proposing definitions for 14
terms related to vendor management.
``Authorized supplemental foods'' would be defined as those
supplemental foods authorized by the State or local agency for a
particular participant.
``Compliance buy'' is proposed to be defined as a covert, on-site
investigation in which a representative of the Program poses as a
participant, transacts one or more food instruments, and does not
reveal his or her identity during the visit. This definition would
exclude on-site buys used by some State agencies in which WIC staff or
their agents pose as participants, purchase foods, and then introduce
themselves to the vendor at the end of the transaction to discuss the
results as a training mechanism.
A ``high-risk vendor'' would be defined as a vendor identified as
having a high probability of violating program requirements through
application of criteria mandated by the Department and any additional
criteria the State agency may choose to establish. This definition
would allow State agencies the flexibility to continue identifying
high-risk vendors using their own criteria, in addition to the criteria
that would be mandated by the Department by this rule. Criteria
developed by the State agency are subject to approval by FNS through
the State Plan process.
A ``home food delivery contractor'' would be defined to mean a sole
proprietorship, a partnership, a cooperative association, or a
corporation that contracts with a State agency to deliver authorized
supplemental foods to the residences of participants under a home food
delivery system. Adding this definition is necessary to accommodate the
proposal to limit the term ``vendor'' to retail food delivery systems
(see further discussion under the definition of ``vendor'').
This proposal would define ``inventory audit'' as an examination of
food invoices or other proofs of vendor purchases to determine if the
vendor purchased sufficient quantities of authorized supplemental foods
to have sold the amounts of such foods to WIC participants for which
the vendor has requested payment from the State agency during a given
period of time. These audits are useful for identifying vendors who:
buy food instruments from unauthorized vendors or from participants and
submit them to the State agency for payment, without having provided to
participants the quantities of authorized supplemental foods prescribed
on the food instruments; and/or exchange food instruments for non-food
items, or unauthorized foods.
This proposed rule would also define ``proxy'' to mean any person
designated by a participant to act on her behalf and, in the case of an
infant or child, the parent or caretaker who applies on behalf of the
infant or child. Traditionally, proxy has been used in program
regulations only to refer to a person designated by a participant to
transact food instruments. This definition would make clear that when
proxies are referred to in program regulations that parents and
caretakers applying on behalf of infants and children are also
included.
``Routine monitoring'' would mean overt, on-site monitoring during
which program representatives identify themselves to vendor personnel.
Such monitoring is used for technical assistance purposes.
Routine monitoring contrasts with compliance buys, which are
defined as covert investigations, and with inventory audits, which
entail a review of specific records. The proposed requirements for a
specific number of compliance buys or inventory audits (see section 14
of this preamble) necessitates a clear distinction between these
activities and all other forms of monitoring, which would be
encompassed by the term ``routine monitoring.'' This term would replace
the term ``representative monitoring,'' which is used in current
regulations and has proven to be confusing because it implies a method
for selecting vendors to be reviewed (i.e., random selection) that
yields a representative sample.
The term ``vendor'' would be defined as a sole proprietorship, a
partnership, a cooperative association, or a corporation operating an
individual retail site authorized to provide supplemental foods to
participants under a retail food delivery system. Under this
definition, each individual retail site would still be considered a
separate vendor. The Department proposes to use the term ``vendor''
only in retail food delivery systems. Currently, the term also applies
in home food delivery and direct distribution food delivery systems.
However, experience has shown that most of the vendor requirements are
inappropriate in those systems. Rather than create numerous exceptions
to the vendor requirements, this proposed rule would limit the use of
``vendor'' to retail food delivery systems.
Although mobile vendors can be problematic, they may be the only
means to ensure services to WIC participants in outlying areas, or to
homeless persons. The proposed definition would permit State agencies
to authorize mobile stores when necessary to meet the special needs
established in their State Plan. The definition is meant to preclude
the general use of temporary food stands and trucks, or other mobile
food sales operations without fixed locations, from consideration for
routine authorization because their mobility makes it impracticable to
monitor them adequately; because their sanitation and refrigeration
capabilities are generally limited and problematic; and, because it is
difficult to limit their areas of operation. State agencies must
present clear rationales for the specific areas or locales proposed for
mobile store service coverage in their State Plans.
The term ``vendor authorization'' would be defined as the process
by which vendors who initially apply for authorization or subsequently
apply for reauthorization are assessed, selected, and enter into an
agreement with the State agency. This definition is proposed to clarify
that the regulatory requirements for authorization apply equally to
both new and reapplying vendors.
``Vendor limiting criteria'' would be defined as those criteria
established by the State agency and approved by FNS as part of the
State Plan process to determine the maximum number and distribution of
vendors to be authorized in its jurisdiction. These criteria must be
designed to result in a number and geographical distribution of
authorized vendors that ensures adequate participant access, and allows
for effective State agency management. Limiting criteria establish the
number and distribution of vendors to be authorized and are not
intended to have any bearing on which specific vendors will be
authorized.
This proposal would define ``vendor overcharge'' as a pattern of
intentionally or unintentionally charging participants more for
authorized supplemental foods than non-WIC customers or charging more
than the current shelf price or contract price. The definition would
clarify that inadvertent mistakes that result in excess charges to the
Program are considered overcharges; that is, the State agency would not
have to establish that the vendor intended to overcharge in order to
determine that this form of program noncompliance has taken place. It
would also take into account
[[Page 32316]]
State agencies which contract for a set price for supplemental foods
with vendors during the life of the agreement.
The term ``vendor selection criteria'' would be defined as the
criteria mandated by the Department in section 246.12(g)(3), and any
additional criteria established by the State agency and approved by FNS
as part of the State Plan process, to select individual vendors for WIC
authorization. Application of these criteria is meant to ensure
systematic selection of only vendors who are best qualified to provide
food benefits to participants in a manner consistent with the WIC
Program's mission and effective program operations. While selection
criteria may have the incidental effect of limiting the number of
vendors who are authorized, their primary purpose is to determine the
best qualified vendors, not the number, of such vendors.
``Vendor violation'' is proposed to be defined as any intentional
or unintentional action of a vendor (with or without management
knowledge) which violates the Program statute or regulations or State
agency policies or procedures. This definition would clarify that
vendors should be held accountable for violations, whether they are
deliberate attempts to violate program regulations, or inadvertent
errors, since both ultimately result in increased food costs and fewer
participants being served. This definition clarifies that it would not
be necessary for the State agency to ascertain the intent behind an
action which, whether inadvertent or deliberate, has the same negative
effect on the Program. The Department acknowledges that the inherent
complexity of the WIC transaction is such that, even with training and
supervision, cashiers may occasionally make unintentional errors. While
this definition would include both intentional and unintentional
actions (with or without management knowledge), this does not mean that
a minor unintentional action by a cashier without management knowledge
would result in disqualification. State agencies have a wide range of
actions that they 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 monitoring, assessing administrative
fines, and imposing a sanction.
The Department believes that a vendor is not relieved of the
responsibility for an employee's continuing noncompliant actions just
because the vendor's management was unaware of the violations. Allowing
vendors with continuing violations to sustain their authorization by
simply permitting them to remove an employee who violates program
regulations would result in few disqualifications, since the claim that
the violation was caused by a dishonest employee, who has since been
fired, is one of the most common defenses used during vendor appeals
(see ``The WIC Files''). Removing such an employee does not mitigate
the effects of chronic vendor error and mismanagement on program costs,
nor does it lessen the vendor's responsibility to provide effective
oversight and appropriate employee training.
``WIC'' would be defined as the Special Supplemental Nutrition
Program for Women, Infants and Children authorized by section 17 of the
Child Nutrition Act of 1966.
3. Vendor Management Staffing (Section 246.3(e)(5))
Proposed section 246.3(e)(5) would require that State agencies
which anticipate 50 or more authorized vendors as of October 1 of each
fiscal year devote a full-time staff year to vendor management. State
agencies would have the option of designating a single full-time vendor
management specialist or to assign vendor management duties to more
than one staff person, provided the total time spent on vendor
management is equivalent to one staff year. The State agency would
identify these positions as part of the staffing pattern already
required by section 246.4(a)(4). State agencies which anticipate fewer
than 50 vendors as of October 1 of each fiscal year would be required
by this proposal to designate a staff person responsible for vendor
management. No standards for the amount of time this person would
devote to these duties are proposed in this rulemaking.
The requirements for staffing of vendor management are being
proposed because, although, according to the 1990 WIC Vendor Management
Study, at least 37 percent of geographical State agencies had a
designated full-time vendor management position, a wide range exists in
State agency staff devoted to vendor management. In some State
agencies, vendor management responsibilities are not clearly assigned
to specific staff, resulting in the increased possibility of vendor
noncompliance due to insufficient resource allocation, imprecisely
fixed management responsibility, and the lack of an expert in this
highly technical area of program management. The results of the 1988
National Vendor Audit and the requirements proposed elsewhere in this
rulemaking make it necessary for State agencies to focus increased
attention on vendor management. The Department is, therefore, proposing
this minimum vendor management staffing requirement to promote
assignment of adequate resources to, as well as to assign specific
responsibility for, vendor management functions, particularly among
State agencies with 50 or more vendors.
4. State Plan Requirements (Section 246.4)
Section 246.4(a)(14)(ii) is proposed to be amended to require the
State agency to describe its vendor limiting criteria. Limiting
criteria are discussed in more detail in section 8 of this preamble.
Section 246.4(a)(14)(iv) would be amended to require State agencies
which choose to delegate any aspect of vendor monitoring to describe
their system of quality control to ensure uniformity and quality of
local agency or contractor efforts. In addition, section
246.4(a)(14)(iv) requires State agencies to include in their State Plan
the criteria used to determine which vendors will receive routine
monitoring visits. Section 246.4(a)(14)(vi) would be amended to require
a description of the system the State agency will use to account for
the disposition of food instruments, in accordance with section
246.12(q), rather than the current requirement of a description of the
State agency's system for reconciliation of food instruments in section
246.14(a)(14)(vi). This change is discussed further in section 19 of
the preamble.
Two paragraphs are proposed to be added to the section of the State
Plan that addresses food delivery systems in recognition of the
emphasis this rule would place on vendor training and food instrument
security. These provisions would require descriptions of the State
agency's vendor training procedures (section 246.4(a)(14)(xii) and
section 12 of this preamble) and the system for ensuring the security
of food instruments (section 246.4(a)(14)(xiii) and section 18 of this
preamble). The provision on food instrument security would replace the
current requirement concerning food instrument control in section
246.4(a)(14)(vi).
State agencies would be required by proposed section
246.4(a)(14)(xiv) to include in their State Plans a description of
their criteria for making participant access findings. In addition,
proposed section 246.4(a)(14)(xv) would require State agencies wishing
to authorize mobile stores to include in their State Plans the special
needs necessitating this action.
[[Page 32317]]
Finally, proposed section 246.4(a)(15) would be amended to require
a description of the State agency's system to prevent and identify dual
participation as required by section 246.7(l)(1)(i) and (ii), including
the amendments proposed to be made to that section and discussed in
section 5 of this preamble.
5. Prevention and Identification of Dual Participation (Section
246.7(l))
This rulemaking proposes to amend section 246.7(l)(1) to strengthen
intra-State agency and inter-State agency dual participation detection
efforts within the WIC Program, and between WIC and the Commodity
Supplemental Food Program (CSFP) (7 U.S.C. 612c note), by requiring the
identification of all suspected dual participants at least quarterly.
In addition, in cases of dual participation resulting from intentional
misrepresentations, State agencies would be required to pursue the
collection of improperly obtained benefits in accordance with proposed
section 246.23(c)(1). If the participant failed to make full
restitution, the State agency would be required to disqualify the
participant from both programs for one year in accordance with proposed
section 246.12(u)(2). If full restitution is made prior to the end of
the disqualification period, the State agency may permit the
participant to reapply for the Program. Proposed changes to the
participant claims and disqualification procedures are discussed in
section 22 of this preamble.
Dual participants are persons simultaneously participating in the
Program in one or more WIC clinics or persons participating in the
Program and CSFP during the same period of time. The Department's
Office of Inspector General recommended at least quarterly reporting
after finding in the 1988 National Vendor Audit that some State
agencies have inadequate systems for preventing and detecting dual
participation and sometimes fail to take action against possible dual
participants whom they have identified. This proposal would further
strengthen integrity by requiring State agencies to work together to
attempt to identify dual participation between contiguous local service
areas located across State agency borders if geographical and other
factors make it likely that participants travel regularly between such
locations.
The Department also wishes to clarify that dual enrollment does not
necessarily constitute dual participation. However, as a sound
management practice, State agencies should create accountability
systems to identify and correct situations in which a participant is
enrolled and receiving benefits from one WIC or CSFP agency, but
continues to be enrolled (but not receiving benefits) in another.
Although such a participant may not technically be receiving dual
benefits, the potential for dual participation exists and should be
eliminated by removing the participant from one of the enrollment
rosters. The Department is not addressing controls on enrollment in
this proposal.
Nor does this proposal mandate that specific minimum data matching
criteria be used to identify dual participants. Because the Department
has limited evidence of the effectiveness of the various criteria
currently used by State agencies, the Department is not mandating
specific matching criteria. It seems likely, however, that social
security numbers are the most effective and readily available personal
identifiers. State agencies have long had authority to require social
security numbers as a condition of participation, pursuant to the Tax
Reform Act of 1976 (codified at section 205(c)(2)(C)(i) of the Social
Security Act, 42 U.S.C. 405(c)(2)(C)(i)). The Department recommends but
does not require that social security numbers be used whenever possible
to identify dual participation. However, section 7(b) of the Privacy
Act of 1974 (5 U.S.C. 552a note) requires that notice be given of the
planned use of social security numbers by State agencies. Therefore,
State agencies should consult with their State's attorneys before using
social security numbers to identify dual participation.
Section 246.23(c)(2) of this proposal includes a new provision that
would authorize FNS to establish a claim against State agencies when
they have not complied with the requirements to identify dual
participants, if the State agency has not taken steps to recover funds
from or disqualify certain dual participants.
6. General Food Delivery System Requirements (Sections 246.12(a)
Through 246.12(d))
The Department proposes to reorganize the food delivery system
requirements in section 246.12 in recognition of the new definition of
vendor that applies only in the retail food delivery system context.
Under the proposal, the general requirements for food delivery systems
would be grouped in section 246.12(a)-(d). The special requirements for
retail food delivery systems would be in section 246.12(e)-(l), the
home food delivery system requirements in section 246.12(m), the direct
distribution food delivery system requirements in section 246.12(n),
and the remaining general requirements in section 246.12(o)-(v). The
Department is only seeking comments within Section 246.12 on those
areas where substantive changes have been made. These areas include:
paragraph (f) (food instrument requirements); paragraph (g) (vendor
authorization); paragraph (h) (vendor agreements); paragraph (i)
(vendor training); paragraph (j) (monitoring vendors and identifying
high-risk vendors); paragraph (k) (vendor claims); paragraph (q) (food
instrument disposition); paragraph (t) (conflict of interest); and
paragraph (u) (participant violations and sanctions). The specific
proposed changes within this reorganized structure follow.
As discussed in section 1.a of this preamble, proposed section
246.12(a) would be amended to give FNS the authority to modify program
regulations for EBT systems. In addition, the current requirement in
section 246.12(e) that only food vendors authorized by the State agency
may redeem food instruments would be moved to section 246.12(b) and
revised to make clear that it applies whenever food instruments are
redeemed under any of the food delivery systems. Finally, proposed
section 246.12(b) would make clear that each system must ensure
adequate participant access to supplemental foods.
7. Retail Food Delivery Systems: Food Instrument Requirements
(Section 246.12(f))
The current food instrument requirements in sections 246.12(r) that
have relevance only in retail food delivery systems would be moved to
section 246.12(f). Proposed section 246.12(f)(1) would make clear that
food instruments must be used in retail food delivery systems. As
proposed, section 246.12(f)(2) would make clear which food instrument
requirements are applicable only to printed food instruments. This
change is necessary in recognition of the March 18, 1999 final rule
concerning vendor sanctions that amended the definition of food
instruments in section 246.2 to include EBT cards.
In addition, new provisions would be added in section
246.12(f)(2)(i) and (vii) to require printed food instruments to
provide: (1) a list of the supplemental foods authorized to be obtained
with the food instrument, and (2) a signature space in which the
participant or proxy must sign at the time the supplemental foods are
obtained.
[[Page 32318]]
8. Vendor Limiting Criteria (Section 246.12(e)(2))
Under this proposed rule, the vendor authorization requirements
currently found in section 246.12(e) would be moved to proposed section
246.12(g). In addition, the Department proposes to mandate limiting
criteria as described in section 246.12(g)(2). Limiting criteria permit
State agencies to authorize only a sufficient number of vendors in an
area to ensure adequate participant access and effective program
oversight.
There are also other benefits to implementing limiting criteria.
The State agency must apply a significant amount of resources to the
management of each authorized vendor. A case file must be established
and data collected and entered. Each vendor must be visited on-site at
initial authorization. Training would have to be provided annually, as
proposed in section 246.12(i) of this rulemaking. Other costs also
increase with the number of authorized vendors. Compliance buys and
other forms of monitoring would have to be performed as outlined in
proposed section 246.12(j). Reports must be produced and analyzed,
mailings initiated, sanctions applied and tracked, and appeals held as
appropriate. If the State agency authorizes more vendors than necessary
to ensure adequate participant access, the administrative resources
available to manage vendors may not be sufficient to ensure effective
oversight, thus increasing the possibility that program noncompliance
will be undetected and/or forcing curtailment of other critical State
and local agency activities.
Proposed section 246.12(g)(2) mandates that the State agency
establish and implement criteria to limit the number and specify the
distribution of vendors to be authorized. The State agency would not be
required to use specific criteria when limiting vendor numbers. It
would however, be required when developing the criteria to at least
consider the establishment of participant-to-vendor ratios for sub-
areas of its jurisdiction based on factors such as population density,
distribution of participants, location of local agencies and clinics,
and availability of public transportation and road systems to the WIC
population.
The vendor limiting process must balance the need to provide
adequate participant access to authorized vendors and the need for a
vendor population that State agencies can effectively manage given the
administrative resources available to them. Weighing these concerns,
State agencies might, for example, develop one or more participant-to-
vendor ratios. Typically, the State agency would first establish sub-
areas within its jurisdiction based on such factors as the distribution
of caseload, the location of local agencies and clinics, availability
of public transportation and road systems to the WIC population, and
the supply of prospective WIC vendors. Each type of sub-area, in turn,
would be assigned an appropriate participant to vendor ratio.
Theoretically, a State agency with a highly refined methodology might
assign a different ratio to each individual sub-area, but State
agencies will more likely limit themselves to a small set of ratios
capable of addressing the differing needs of particular areas.
Limiting criteria would be required to be implemented consistently
throughout the State agency's jurisdiction, with due consideration for
the varying geographic and other characteristics within the
jurisdiction. The important point in establishing limiting criteria is
that State agencies apply them fairly and with clear rationales
throughout their jurisdictions. The State agency would be required to
establish system to revise and/or reapplying its limitation criteria
whenever it determines that relevant demographic shifts or significant
changes in local caseload allocation, growth, or decline make such
action necessary.
Most State agencies agree that limiting the number and distribution
of vendors is of benefit to the Program. However, some have pointed out
that the resources required to establish limiting criteria and manage
the resultant appeals if a vendor is denied authorization would be
overly burdensome. Moreover, many State agencies do not distinguish
between limiting criteria and selection criteria. Through limiting
criteria, the State agency first decides how many vendors should be
authorized and where, in general terms, they should be located.
Limiting criteria are applied before selection criteria. Only after
these decisions have been made can the State agency apply selection
criteria to determine which specific vendors will be authorized. Many
State agencies believe that vendor numbers can be effectively
controlled through the application of strong selection criteria. This
is true. While selection criteria may have the incidental effect of
limiting vendor numbers and determining vendor distribution, such
criteria establish the number and distribution of vendors which is
based on vendor ability to meet basic authorization qualifications
rather than the need for a vendor in the area.
Many vendors believe that limiting the number and distribution of
authorized vendors is anti-competitive. They feel that any vendor who
meets basic authorization qualifications should be authorized. Vendors
have also expressed concern that implementation of limiting criteria
would not allow smaller stores to effectively compete with the larger
chains for WIC authorization.
The Department does not believe that every vendor who meets basic
authorization qualifications should necessarily be authorized to accept
WIC food instruments. Authorization to accept WIC food instruments must
be governed by the access needs of participants and the qualifications
of the vendor. It must be remembered that, in a few State agencies,
retail stores play little or no role in their WIC food delivery
systems. Those State agencies either purchase all WIC foods through
large-scale competitive procurement and distribute them directly to
participants or contract with home food delivery contractors. On the
other hand, the majority of State agencies deliver WIC benefits through
retail stores, and their cooperation and service contribute
significantly to program operations. The Department gratefully
acknowledges their contributions, in exchange for which vendors benefit
from the considerable volume of food purchases made through WIC in the
retail marketplace, and the additional non-WIC purchases that
participants often make while in the store. The Department also
acknowledges the critical importance of small non-chain stores in
assuring adequate participant access.
Congress established the WIC Program as a preventive nutrition and
health program for pregnant women, infants and young children. The
Program receives annual appropriations from Congress. WIC is not an
entitlement program, with unlimited resources to accommodate changes in
the economy or to serve all eligible persons. Rather, WIC's funding is
discretionary, meaning it is provided a set amount of funding and can
serve only as many participants as this funding allows. Hence, the
Department pursues policies which enhance serving the maximum number of
eligible women, infants, and children with this limited funding.
Vendors are a critically important service component of the Program.
They provide the foods needed by the participants and in turn receive
payment for the foods.
The Department's view is that, in order to use both nutrition
services and administration funds and food dollars effectively and
efficiently for the benefit
[[Page 32319]]
of participants, the State agency must first have the right and
authority to limit the number and determine the geographical
distribution of vendors to be authorized in accordance with its
analysis of how to ensure adequate participant access to the Program.
Second, the State agency must be able to select individual vendors in a
way that will promote efficient use of its food grant through both
reasonable food prices and the reduced possibility of vendor
noncompliance.
State agencies are reminded that they must develop and implement
vendor selection and limitation criteria consistent with the anti-
discrimination provisions of civil rights legislation. However,
Congress has enacted legislation, Public Law 105-336, which requires
that the price a vendor charges for WIC foods be a key factor in
selecting a vendors for authorization. In implementing this
requirement, State agencies may evaluate the food costs of small
vendors on the basis of food cost among peers--other small vendors--
when small vendors are vital to participant access. The use of peer
group cost comparisons mitigate any negative impact on small vendors of
the legislative requirement to select vendors on the basis of cost.
In summary, while any vendor may apply to be authorized as a WIC
vendor, State agencies have the right and the authority to establish
vendor selection and limitation criteria which ensure:
Adequate participant access to the Program;
Maximum usage of funds;
Minimum possibility of vendor misuse or mismanagement of
funds, or fraud;
Consistency with civil rights legislation.
While this approach to vendor authorization may restrict the
ability of a particular retail store to secure or retain WIC
authorization, the Department believes that it is ultimately in the
best interests of the Program.
The smaller vendors who are concerned that their authorization
could be adversely affected by limiting or selection criteria should be
aware that the Department does not foresee dramatic future decreases in
the number of authorized smaller WIC vendors. Smaller vendors will
always be needed to ensure adequate participant access, particularly in
areas where there is a lack of larger chain stores and areas where the
number of vendors is small and transportation is difficult. In these
cases, it should be reiterated that small vendors will compete for WIC
authorization on the basis of their costs relative to other small
vendors serving the same area.
A number of vendors have also expressed concern that limiting
criteria would adversely affect participant access. Section 246.12(b)
would continue to require that all food delivery systems ensure
adequate participant access and proposed section 246.12(g)(1) would
require State agencies to authorize an appropriate number and
distribution of vendors to ensure adequate participant access (as is
currently required in section 246.12(e)(2)). Again, it is important to
stress that smaller vendors are critical to the Program, and where
instrumental in ensuring adequate participant access, will have equal
opportunity to compete for WIC business.
As proposed in section 246.4(a)(14)(ii), the State agency's
limiting criteria would be a mandatory component of the food delivery
system description in its State Plan. The State agency's limitation
system would be subject to public scrutiny and comment as part of the
State Plan development process as is currently required by section
246.4(b). The Department believes that it is at this stage where there
is an opportunity for dialogue between State agencies and their vendor
communities about proposed changes to the State Plan that might affect
them. While the limiting criteria themselves would not be subject to
administrative review, vendors would be able to appeal a denial of
authorization resulting from application of the limiting criteria. For
example, where the limiting criteria provided for four vendors within a
zip code area, a vendor within that zip code area could file an appeal
alleging the State agency incorrectly determined it to be outside that
zip code area. However, the State agency's decision to use zip code
areas as the basis for the limiting criterion or the number of vendors
the State agency determined to be necessary for that area would not be
subject to administrative review. In most cases, though, vendor appeals
will be based on the application of the selection criteria. In general,
the limiting process will be irrelevant to denial of authorization of a
particular vendor because it is a systematic process that establishes
only the desired number of vendors and does not consider the
qualifications of a specific vendor. These qualifications are
considered during the selection process. Denial of an application for
authorization may be appealed by a vendor.
The Department is particularly interested in receiving comments on
the proposed limitation provision. Comments are most helpful when they
are specific, stating the reasons for support or opposition, suggesting
modifications that would resolve commenter's concerns, and providing
relevant background information and State agency-specific data as
appropriate.
9. Retail Food Delivery Systems: Vendor Selection Criteria (Section
246.12(g)(3))
State agency experience (see ``The WIC Files'') has shown that
development and application of good vendor selection criteria during
the authorization process can provide a very cost-effective method of
cost containment and prevention of program noncompliance. Current
regulations do not specifically address the establishment of vendor
selection criteria. They only require vendors to be evaluated in
connection with the biennial assessment of vendor qualifications
mandated by Section 246.12(g). Selection criteria have sometimes been
confused with limiting criteria, because selection criteria may have
the incidental effect of limiting the number of vendors authorized. The
Department wishes to reiterate that, while limiting criteria determine
a specific number and distribution of vendors for an area, selection
criteria determine which vendors meet basic yes/no eligibility
criteria, such as adequate stock and inventory, and prices below a
specified maximum amount.
The Department is proposing in section 246.12(g)(3) to require
State agencies to implement six specific selection criteria. State
agencies would be permitted to supplement the mandatory criteria with
criteria of their own choice. Such State agency-established criteria
must be approved by FNS as part of the State Plan process. The six
proposed mandatory selection criteria are: (1) Competitive price; (2)
minimum variety and quantity of authorized supplemental foods; (3) lack
of a record of a criminal conviction or civil judgment for specified
activities; (4) lack of a history of serious vendor violations; (5)
lack of a history of serious FSP violations; and (6) not currently
disqualified from the FSP or, if subject to a FSP civil money penalty
for hardship, the period of the disqualification that otherwise would
have been imposed has expired.
Competitive pricing (section 246.12(g)(3)(i)) is widely accepted as
a successful cost containment mechanism, facilitating service to
greater numbers of eligible participants. Section 203(l) of Public Law
105-336 now requires all State agencies to
[[Page 32320]]
consider, in selecting retail stores for authorization, the prices the
store charges for WIC foods as compared to other stores' prices for
such foods. The law further provides that State agencies must establish
procedures to ensure that selected stores do not subsequently raise
prices to a level that would make them ineligible for authorization.
The price criterion may consist of assessing applicants based on
either their shelf prices for supplemental foods or their price bids
for supplemental foods, which may be lower than their shelf prices.
Dollar limits could be developed based on historical data such as
average redeemed prices for food instruments or on shelf prices. The
limit calculated for each food package could be a statewide average, or
could vary by area and/or vendor type. For example, a State agency may
decide to establish a higher competitive price in an area in which the
only reasonably located stores have higher prices than the surrounding
areas in order to ensure adequate participant access for that area. The
stores in that area would thus not be penalized for their higher prices
that may be the result of the higher costs of doing business in that
area. As with all limiting and selection criteria, State agencies may
not adopt criteria that will result in inadequate participant access,
such as a competitive price limitation that results in an insufficient
number of vendors located where participants can reasonably be expected
to shop.
Proposed section 246.12(h)(3)(viii) would require that vendor
agreements contain a provision limiting vendors to charging no more
than the competitive price limitation. This change is necessary to
comply with section 203(l) of Public Law 105-336 and to make the use of
competitive price as a selection criterion effective.
State agencies would then need to have a procedure to ensure
authorized vendors comply with the competitive price limitation. Such
procedures could include setting a not-to-exceed limit for the food
instrument (either by printing it directly on the food instrument or
through a bank or system edit), collection of periodic price survey
data from vendors, or surveying price data during monitoring visits.
Some vendors have commented that the ``free market'' approach in
which the ``market'' dictates prices works best and that basing
authorization on competitive price is exclusionary, unfair, and
``against the free enterprise system.'' Some also feel that predatory
pricing of supplemental foods to gain authorization by larger stores
would result in a smaller market share for smaller independent grocers.
Vendors should be aware that this proposal would not result in State
agencies dictating the prices for authorized supplemental foods.
Competitive pricing is already used by most State agencies as a
selection criterion in retail food delivery systems. Prices of
authorized foods are based on the current shelf or ``market'' price
that is charged to non-WIC customers. This price is established by the
vendor. In home food delivery systems and some retail food delivery
systems, prices are based on the lowest ``contract'' or ``bid'' price.
Again, these prices are established by the vendor and based on market
conditions, not WIC Program dictates. Although competitive price has
been used as a selection criterion by most State agencies since the
Program's inception, this has not generally resulted in a lessening of
the market share for smaller independent vendors. It is important,
then, to note that any vendor can improve its position in the vendor
selection process by decreasing prices of its WIC-eligible foods. In
addition, as mentioned earlier in the discussion of limiting criteria,
smaller vendors will always continue to be authorized because they are
needed to ensure adequate participant access, particularly in urban
areas where large chain stores are less likely to be located, and in
rural areas where transportation is difficult.
Finally, the Department has recently noticed a significant increase
in the number of ``WIC-only'' stores authorized under the Program. WIC-
only stores are stores which may only serve WIC participants and are
sustained through their WIC business. While the free market environment
allows establishment of such entities, the Department is concerned that
such stores may profit through use of unreasonably high prices of the
foods charged to the WIC Program. Congress has expressed its concern
regarding the costs of foods under the Program by requiring all State
agencies to consider price when selecting vendors. As such, the
Department will pay particularly close attention to implementation of
the competitive price requirement in States where ``WIC-only'' stores
exist.
The second selection criterion (section 246.12(g)(3)(ii)), minimum
variety and quantity of authorized supplemental foods, would require
the vendor to have supplies of such foods that are adequate, as
quantitatively defined by the State agency, to ensure that participants
can receive the prescribed amounts and types of foods. Minimum variety
requirements refer to the minimum types and brands of authorized
supplemental foods, e.g., two types of milk (whole and low fat) or two
types of cheese (American and Swiss), that a vendor would be required
by the State agency to keep on the shelf at all times. Minimum quantity
refers to keeping a minimum number of each type or brand of food, e.g.,
three containers for each type of milk or three packages of each type
of cheese, on the shelves at all times. In addition, if the State
agency mandates specific package sizes, the State agency could require
that the vendor stock the required package sizes. The Department
encourages State agencies to take into account the availability of
various package sizes and the shelf space of the whole range of their
vendors in establishing the minimum variety and quantity requirements.
The third selection criterion (section 246.12(g)(3)(iii)) is lack
of a record of certain business-related criminal convictions or civil
judgments, on the part of the vendor itself, or any of its current
owners, officers, directors, or partners. Covered criminal convictions
and civil judgments would include offenses such as fraud, violations of
Federal anti-trust statutes, embezzlement, theft, forgery, and bribery.
The fourth selection criterion (section 246.12(g)(3)(iv)) would
require the lack of a history of serious vendor violations during a
period set by the State agency, but not less than one year and not more
than six years prior to the date of application, resulting from the
acts or omissions of any persons currently associated with the vendor
as an owner, officer, director, or partner. If the vendor violation
also resulted in one of the convictions or civil judgments specified in
section 246.12(g)(3)(iii), the vendor would not be eligible for
authorization as required in section 246.12(g)(3)(iii), and the six-
year cap on considering past WIC history would not apply. In
determining what constitutes ``serious vendor violations,'' the State
agency would be required to include whether the vendor has been subject
to any of the mandatory vendor sanctions established under proposed
section 246.12(l)(1) (current section 246.12(k)(1)) and whether the
vendor has failed to participate in the annual training required by
proposed section 246.12(h)(3)(xi). These are minimum criteria. State
agencies may include other violations under the heading of serious
vendor violations such as failure to provide restitution to the State
agency for overcharge claims, repeated failure to take requested
corrective actions, failure to provide requested data or records to the
State agency, failure to allow monitoring by program personnel,
[[Page 32321]]
and other similar violations. The State agency would also have the
discretion to define how many instances of a violation constitute a
``history of'' serious vendor violations both for the mandatory and
State agency-developed criteria. Some types of violations could be so
serious or so blatant that one instance would warrant nonselection. For
others, the State agency could require a series of repeated instances
or combinations of violations before it decides nonselection is
warranted. The Department would like comments on whether to make
mandatory vendor sanctions imposed by another WIC State agency a
mandatory criterion for nonselection.
The fifth selection criterion would mandate the lack of a history
of serious FSP violations (section 246.12(g)(3)(v)). The State agency
would be required to establish a period of consideration for this
criterion of not less than one year and not more than six years prior
to the date of application unless the FSP offense also resulted in a
conviction or civil judgment outlined in section 246.12(g)(3)(iii), in
which case the provisions in section 246.12(g)(3)(iii) would apply and
the six-year maximum period for consideration of past FSP history would
not apply. The State agency would be required to deny the application
of any vendor when the vendor, or any individual who at the time of
application is associated with the vendor as an owner, officer,
director, or partner, has a history of serious FSP violations during
the period of consideration. The State agency would be permitted to
define serious FSP violations, except that such definition would be
required to include withdrawal of FSP authorization for program
noncompliance, a FSP disqualification which is in effect at any time
during this period, or receipt of a FSP civil money penalty for
hardship during this period. The Department wishes to point out that
the State agency would also have the option to consider FSP violations
which did not result in any of these actions. As with the fourth
criterion, State agencies would also have the discretion to determine
what constitutes a ``history'' of serious FSP violations.
The fourth and fifth criteria would not require that the vendor or
someone associated with the vendor be the subject of a criminal
conviction or civil judgment. Serious vendor violations and serious FSP
violations may include actions that are documented in a monitoring
visit or other review or investigation even if a conviction or judgment
did not result from the investigation. The violation would have to fall
within those defined by the State agency as constituting a history of
serious vendor or FSP violations and the State agency would need to
document the basis and defend its determination in the event the vendor
decides to appeal its nonselection. The sixth criterion (section
246.12(g)(3)(vi)) would require that the vendor currently not be
disqualified from the FSP or, if subject to a FSP civil money penalty
for participant hardship, the period of the disqualification that would
otherwise have been imposed has expired.
The third, fourth, fifth, and sixth selection criteria are intended
to ensure that only vendors with business integrity are authorized to
participate in the Program. Proposed section 246.12(g)(3) would make
clear that State agencies do not have to create an elaborate system of
background checks to identify criminal convictions, civil judgments, or
WIC or FSP violations. They may rely on facts known to them and
representations made by applicant vendors on the vendor application.
State agencies are encouraged to make an effort to check with
appropriate State and Federal authorities to ensure that a record of
the specified criminal convictions, civil judgments, or WIC or FSP
violations does not exist. However, they are not expected to do so on a
routine basis. State agencies would be routinely expected to rely upon
the applicant vendors' responses to questions regarding their records,
and if a State agency had reason to doubt the veracity of such
responses, the State agency would be expected to follow up on the
information.
These selection criteria address the Department's growing awareness
of unauthorized vendors involved in defrauding or abusing the WIC
Program. During investigations, State agencies have sometimes found
unauthorized vendors colluding with authorized vendors to defraud the
WIC Program. For example, one or several unauthorized vendors may
accept WIC food instruments at their store(s) and ``launder'' or pass
them through an authorized WIC vendor in exchange for a portion of
their value. These actions are unlawful and the Department believes
that the responsible vendors should not only be prosecuted under
Federal, State and local law, but that the violations preclude the
vendor from consideration in the vendor authorization process.
Local agencies would not be excluded from providing input into the
selection process. The Department recognizes that local agencies can
provide the State agency with valuable input regarding areas of
participant concentration, vendor reputation in the community, and the
quality of service which vendors provide WIC participants. While
encouraging the State agency to receive input from its local agencies
during the selection process in areas the State agency considers
appropriate, the Department wishes to stress that the State agency must
itself have the documentation necessary to make the final decision
regarding fulfillment of all selection criteria.
``The WIC Files'' indicate that high-risk vendors who are
sanctioned often attempt to circumvent the sanctions by selling their
stores for a nominal fee to a relative or associate who then reapplies
for authorization while the persons responsible at the time of the
sanctions actually maintain control of the stores and their profits.
The Department believes that such vendors should not be authorized. As
such, proposed section 246.12(g)(4) would prohibit authorization of a
vendor if the State agency determines the store has been sold by its
previous owner in an attempt to circumvent a WIC sanction. In
determining whether an owner has attempted to circumvent a sanction,
the State agency may consider whether the applicant store was sold to a
relative by blood or marriage, or was sold for less than its fair
market value. This does not mean the State agency must develop a
comprehensive system for routinely tracking the fair market value and
the family relationships for all vendors. The purpose of the provision
is only to provide State agencies with guidelines to define
``circumvention'' of a sanction and respond accordingly.
10. Retail Food Delivery Systems: Timeframes for Accepting and
Processing Vendor Applications and Collection of FSP Authorization
Numbers (Sections 246.12(g)(6) and 246.12(g)(7))
The Department is proposing in section 246.12(g)(6) to allow State
agencies to limit the time frames for accepting and processing vendor
applications. The Department considers limiting the periods of time
during which applications for authorization will be accepted and
processed preferable to accepting and processing applications on a
continuous basis during the entire year. Limiting periods for
acceptance and processing of vendor applications allows the State
agency to use staff resources during the authorization process most
efficiently since training, collection of price data, and evaluation of
selection criteria can be clustered for more efficient execution. These
advantages far outweigh the disadvantages associated
[[Page 32322]]
with the delay before a vendor may apply. The Department considers that
State agencies have always had the authority to limit application
periods as part of their general responsibility for, and control over,
vendor selection. However, data from the 1995 NAWD National Vendor
Management Roundup Survey indicate that of the 75 WIC State agencies
who responded, only 22 State agencies reported they accepted
applications during a set time of the year.
To emphasize this authority, this proposed rule would expressly
give State agencies the option of limiting their vendor authorization
periods, with the condition that vendor applications must be accepted
and processed at least once every three years. A State agency that
chooses to exercise this option would be required in section
246.12(g)(6) to develop procedures for accepting and processing
individual vendor applications outside of its established periods when
it determines there would be inadequate participant access unless
additional vendors are authorized.
Section 246.12(g)(7), as amended by this proposal, would also
require that the State agency collect the FSP authorization number of
all applicant vendors that participate in the FSP and, except when the
State agency uses a competitive bidding procedure in which vendors bid
on prices for authorized supplemental foods, the current shelf prices
for such foods. The FSP authorization number facilitates the receipt of
information on vendor history from the FSP. Although State agencies are
not required to contact the FSP before authorizing vendors, the
Department strongly encourages State agencies to do so and make use of
this valuable information. Shelf price data provide the State agency
with information it needs to establish whether the prices of authorized
supplemental foods are competitive. Shelf price data can also be used
by the State agency to develop and/or update its competitive price
selection criteria, and to update price data used to identify
overcharging.
11. Retail Food Delivery Systems: Time Limit on Vendor Agreements
(Section 246.12(h)(1))
Current food delivery regulations at section 246.12(g) require that
the State agency perform a review of each vendor's qualifications once
every two years, but do not limit the period of the agreement. Proposed
section 246.12(h)(1) would limit vendor agreements to not more than
three years, and would delete the regulatory requirement for periodic
reviews of vendor qualifications since fixed-period agreements would
render this requirement superfluous. The Department believes that fixed
period agreements enable the State agency to manage its vendor
population on a periodic basis more easily and allows it to be more
responsive to changing program conditions and needs than is the case
with open-ended agreements. According to the 1990 Vendor Management
Study, 78 percent of the geographic State agencies already authorize
vendors for three years or less, making fixed-period agreements the
norm. A vendor would need to reapply at the expiration of each
agreement and would have to meet the selection criteria and the
limiting criteria in effect at the time of reapplication.
In addition, current section 246.12(f) allows local agencies to
establish agreements with vendors. Proposed section 246.12(h)(1) would
require that all vendor agreements be established by the State agency.
The Department believes that all vendor agreements should be executed
by the State agency, rather than local agencies, to ensure consistent
application of vendor authorization standards statewide. Conforming
amendments would also be made to sections 246.4(a)(14)(iii) and
246.12(f) (which would be redesignated as section 246.12(h)).
12. Retail Food Delivery Systems: Vendor Agreement Specifications
(Sections 246.12(h)(2) Through 246.12(h)(4))
This proposed rule would revise current section 246.12(f)(1) to
make clear that State agencies may make exceptions to their standard
vendor agreements only when necessary to meet unique circumstances and
must document the reasons for any exception. One such legitimate reason
would be adjustments to accommodate a State agency's EBT system. The
proposed rule would move this requirement to section 246.12(h)(2).
The Department proposes to reorganize and modify a number of the
requirements for vendor agreements. A few new provisions are proposed.
The provisions that would be changed or added are discussed below in
the order in which they appear in the proposed rule.
Proposed section 246.12(h)(3)(i) would make clear that vendors may
accept food instruments only from participants or their proxies. This
does not represent a change from current program operations.
The Department also proposes to change the provision currently at
section 246.12(f)(2)(i) to address concerns raised by State agencies
about problems with substitutions for supplemental foods designated on
the food instrument. A sentence would be added to prohibit vendors from
substituting other foods, non-food items or cash in lieu of
supplemental food listed on the food instrument. The vendor would also
be prohibited from giving credit, refunds, or exchanges (except for
identical supplemental foods). Credit or rainchecks offered to
participants are usually given because vendors have inadequate WIC food
stocks on hand. Participants should not be inconvenienced by vendors
who do not honor their contractual obligation to maintain adequate WIC
food stocks in their stores. Ultimately, it is the participants who
suffer nutritionally from an incomplete food package. In addition, many
commenters expressed concern about the increased opportunity for
program noncompliance when vendors allow refunds for foods purchased
with WIC food instruments. The rule would permit vendors to exchange a
supplemental food with an identical item. This should address instances
of defective supplemental foods without compromising the nutritional
benefit of the participant's food package. These revisions appear in
proposed section 246.12(h)(3)(ii) and are included in this rulemaking
so as to reflect longstanding WIC policy in program regulations.
This proposed rule would add a new section 246.12(h)(3)(iv)
requiring that the vendor ensure the actual purchase price be entered
on the food instrument prior to the signature by the participant or
proxy. Many State agencies require the vendor to enter the purchase
price prior to participant signature. However, a few State agencies
require the participant to enter the purchase price, citing the
educational value for participants. The proposed language would
accommodate either situation. In addition, this provision would make
clear that the provision applies to printed food instruments only.
Thus, where an EBT system is used and the purchase price is scanned and
entered electronically, rather than entered directly on the food
instrument, the provision would not apply. Proposed section
246.12(h)(3)(iv) would also make clear a PIN may be used in EBT systems
in lieu of the signature requirement.
Current section 246.12(f)(2)(ii) would be moved to section
246.12(h)(3)(viii) and would require vendors to charge State agencies
no more than the price charged other customers (i.e. no surcharge may
be imposed for WIC
[[Page 32323]]
purchases) or the current shelf price, whichever is less. Vendors
subject to contract prices would be able to charge no more than the
contract prices. This proposal would modify the current language to
account for competitively bid vendor selection systems being used by
some State agencies in which vendors are selected on the basis of
specific prices they submit in response to a competitive procurement.
This proposal would also make clear that in no case may the vendor
charge the State agency more than the competitive price limitation.
Proposed section 246.12(h)(3)(ix) would clarify current section
246.12(f)(2)(v) concerning claims collection. Under this new section,
the vendor would be required to reimburse the State agency upon demand,
or have its payment from the State agency reduced, for the value of
each vendor overcharge or other error. It would also allow the State
agency to withhold or collect the entire redemption value of a food
instrument containing an overcharge or other error, rather than just
the amount of the error. Finally, it would permit the State agency to
offset any amount owed by the vendor against subsequent amounts to be
paid to the vendor.
Current regulations at section 246.12(f)(2)(vi) prohibit the vendor
from seeking restitution from participants for food instruments not
paid by the State or local agency. The Department proposes to clarify
in proposed section 246.12(h)(3)(x) that the prohibition would also
apply to any food instrument partially paid by the State agency and to
remove the reference to the local agency in order to conform to the
requirement at proposed section 246.12(h)(1) that only State agencies
may enter into vendor agreements.
Current section 246.12(f)(2)(vii) requires the manager or an
authorized representative of the store (such as a head cashier) to
accept training on program procedures. This proposal would move this
provision to section 246.12(h)(3)(xi) and modify it by requiring
participation in training prior to, or at the time of, the vendor's
initial authorization and at least once annually thereafter. The
initial training of a new vendor would be required to take place at the
site of the vendor (see proposed section 246.12(i)(1)). The proposal
would also make clear that the training after the initial authorization
training is to take place at a time and location designated by the
State agency. However, State agencies would be required to provide
vendors at least one opportunity to attend training on an alternative
date and may offer additional alternative training dates. The
Department encourages State agencies to be understanding of the
particular scheduling limitations of vendors with small staffs when
scheduling training.
The reference to ``head cashier'' would be removed and replaced by
language requiring that a member of management participate in the
training, because a head cashier may not be a store management official
and thus may not possess the necessary authority to accept training
responsibilities for the vendor. Further details on the proposed
training requirements may be found in section 13 of this preamble and
proposed section 246.12(i). Section 246.12(h)(3)(xi) would further
require a vendor agreement provision putting the vendor on notice of
the mandatory selection criterion in section 246.12(g)(3)(iv) making a
history of failing to participate in the annual training a condition of
authorization in the next authorization cycle.
This proposal has made one change to current section
246.12(f)(2)(ix). In proposed section 246.12(h)(3)(xiii), the term
``utilization'' of food instruments would be replaced with the term
``handling'' of food instruments as a clarification for the vendor.
The Department proposes to modify section 246.12(f)(2)(xiii) to
require vendors to retain inventory records that are used for State or
Federal tax reporting purposes, and other records as the State agency
may require. State agencies would have the flexibility to determine
both the length of time for retention of the inventory records and
additional records that must be retained. Vendors would be required to
allow access to these records by representatives of the State agency,
the Department, and the Comptroller General of the United States for
inspection and audit. Vendors must make these records available at any
reasonable time and place. The requirement in current section
246.12(f)(2)(xii), concerning access to food instruments during
monitoring visits, would be included in this access requirement. These
changes would appear in section 246.12(h)(3)(xv).
Currently, section 246.12(f)(2)(xxiii) requires the vendor to
notify the State agency when the vendor ceases operations or ownership
changes and the agreement to be voided in cases of change of ownership.
Strict interpretation of the current section 246.12(f)(2)(xxiii) has
resulted in some State agencies treating corporate reorganizations as
changes in ownership. Such an interpretation has resulted in
terminating agreements with vendors that have undergone corporate
reorganizations even though they did not affect the ownership of the
corporation. This rule would make clear in section 246.12(h)(3)(xvii)
that a change in business structure that does not result in a change in
ownership would not trigger this provision. State agencies should focus
on the substance of the transaction rather than the form of the
transaction. The State agency should ensure that the vendor agreement
is amended to reflect the change in business structure.
This rule would also require vendors to give notice of any change
in a vendor's location. This notice is necessary in light of the role
that location plays in vendor selection and limiting criteria.
In order to give State agencies sufficient time to analyze any
change in ownership, location, or cessation of operations, this rule
would require that vendors give 45 days notice in writing prior to the
effective date of the change. In cases in which the change will trigger
termination of the agreement, the lead time also would give State
agencies time to seek a new vendor when necessary to ensure adequate
participant access.
Proposed section 246.12(h)(3)(xviii) would specify that a vendor
may be sanctioned for vendor violations in addition to claims
collection. Such sanctions would be required to be in accordance with
the State agency's sanction schedule.
The Department also proposes to add in section 246.12(h)(3)(xix) a
provision notifying the vendor that the State agency will terminate the
vendor's agreement if the State agency determines that a conflict of
interest exists between the vendor and the WIC Program, at either the
State or the local level. This change reflects the requirement at
section 246.12(q) of the current regulations (redesignated as section
246.12(t) in the proposed rule) with the addition of a reference to
conflicts with the State agency given their role in vendor
authorization.
The current requirement in section 246.12(f)(2)(xiv) would be
redesignated as section 246.12(h)(3)(xx) and amended to revise the
reference to current section 246.23(d) regarding criminal penalties for
program noncompliance.
Proposed section 246.12(h)(3)(xxi) would specify that WIC
authorization is not a license, and that it does not convey property
rights. Vendors would also be put on notice that in order to continue
to be authorized beyond their current agreement periods they must
reapply for authorization. Further, vendors would be notified that if a
vendor has been disqualified for a
[[Page 32324]]
period of time less than the remaining term of its vendor agreement,
participation in the WIC Program may be resumed upon completion of its
disqualification period for the duration of the agreement without
reapplying. If the vendor agreement expires before the vendor has
served out the full disqualification period, and the vendor wishes to
again participate in the Program after serving the disqualification,
the vendor must apply to be authorized. In all cases, the vendor's new
application would be subject to the State agency's selection and
limiting criteria in effect at the time of the reapplication.
Proposed section 246.12(h)(4) would require that the State agency
include the sanction schedule in the vendor agreement. The sanction
schedule must be consistent with the current vendor sanction
requirements, which would be redesignated as Section 246.12(l), and
include both the mandatory vendor sanctions and any State agency vendor
sanctions. This addition was made to consolidate several paragraphs
that required that specific vendor sanction provisions be included in
the vendor agreement. The Department recommends that State agencies
include the sanction schedule as an addendum to the vendor agreement,
so that it may be amended during the agreement period without having to
amend the entire agreement.
The Department proposes a new section 246.12(h)(5) that would
require State agencies to provide vendors a list of the actions subject
to administrative review and a copy of the State agency's
administrative review procedures. Proposed revisions to vendor appeals
are discussed in section 22 of this preamble.
13. Retail Food Delivery Systems: Vendor Training (Section
246.12(i))
The December 1990 WIC Vendor Management Study indicated that
training is the most frequently used non-investigative method for
ensuring the integrity of the Program. ``The WIC Files,'' a summary of
case studies of vendor investigations produced by the vendor managers
of State agencies in the Southeast Region, found that vendor training
is one of the most effective controls on vendor noncompliance that a
State agency can implement.
The Department proposes in section 246.12(i) to strengthen the
training requirements by requiring annual training for all vendors.
Such training would be required to be face-to-face at least once during
the vendor's agreement period, that is, once every three years or more
frequently in State agencies using shorter agreements. The face-to-face
training could be conducted at any time during the agreement period
except that, in instances where a vendor is new to the WIC Program, the
training would be required to be provided prior to, or at the time of,
initial authorization, and at the site of the new vendor.
The face-to-face training could count towards fulfillment of the
annual training requirement for all vendors. In other years of the
agreement period, the annual training could, for example, consist of a
training video, written material such as a handbook update, or verbal
instructions relayed by audiotape.
The vendor's requirements for both annual and face-to-face training
would be required to be outlined in the vendor agreement (section
246.12(h)(3)(xi)), including the stipulation that a history of
noncompliance with these requirements would bar reauthorization (see
proposed section 246.12(g)(3)(iv)). The vendor agreement would be
required to make clear that the State agency has the sole discretion to
determine the date, time, and place of all training, except that the
vendor would have to be given at least one opportunity to reschedule.
Vendors would be required to sign a receipt that they have received
training. Training could take the form of individual or group sessions
and could be conducted on the vendor's premises or at a State agency-
selected location, except for the initial training, which would be
required to be given at the vendor's site.
The Department believes that it is important that certain basic
topics be covered in the annual training sessions, whether the training
is provided face-to-face or is included in some other form of
presentation, such as a film or printed material. As such, the
Department is proposing in section 246.12(i)(2) that the following
topics must be covered annually: the purpose of the WIC Program; the
varieties of supplemental food authorized by the State agency; the
minimum varieties and quantities of authorized supplemental foods that
must be stocked; the procedures for transacting and submitting food
instruments; the vendor sanction system; the vendor complaint process;
the terms of the vendor agreement; and the State agency's claims
collection procedures. The primary difference between the face-to-face
training that would occur once during the agreement period and the
training that would occur during each of the other years of the
agreement period is how the training is delivered. The content would
remain the same.
At the discretion of the State agency, section 246.12(i)(3) would
permit training to be conducted by a local agency, a contractor, or a
vendor representative. The State agency would be required to provide
supervision and instruction to ensure the uniformity and quality of the
training. Proposed section 246.4(a)(xii) would require that the
oversight system be described in the State Plan.
Proposed section 246.12(i)(4) would require State agencies to
document the content of the annual training, including the vendor
receipts required by section 246.12(h)(3)(xi). By requiring an
acknowledgment of the receipt and understanding of training, the State
agency retains evidence of awareness of program rules and procedures by
vendors. Thus, violative vendors cannot successfully argue during
administrative reviews that they were not appropriately trained on
their responsibilities.
14. Retail Food Delivery Systems: Monitoring Vendors and
Identifying High-Risk Vendors (Section 246.12(j))
The 1988 National Vendor Audit, while not nationally
representative, is consistent with the conclusion that current
regulatory requirements for representative monitoring have not been
effective in controlling program noncompliance. In addition, VAMP data
and findings of the WIC Vendor Issues Study indicate the need to focus
more attention on high-risk vendors. Therefore, this proposed
rulemaking would shift emphasis away from the less effective
representative monitoring and toward high-risk monitoring. This would
concentrate resources on a subset of vendors which have been identified
as having a high probability of abusing the Program and is likely to be
more effective in combating program noncompliance.
As discussed in section 2 of this preamble, the term
``representative monitoring'' has proven to be misleading. It describes
the method by which vendors are selected to be monitored rather than
the type of monitoring actually conducted (see section 246.12(i)(2) of
the current regulations). Representative, or random, selection for
monitoring is intended to yield a sample of vendors that is generally
representative of vendors authorized by the State agency. Because
vendors are selected at random rather than targeted as potential high-
risk vendors, the monitoring technique generally considered to be most
appropriate is routine monitoring, i.e., overt monitoring in which WIC
staff identify themselves to vendor personnel. Routine monitoring
provides
[[Page 32325]]
the State agency with an overview of vendors statewide. It also has
program noncompliance-deterrent and educational functions, and can
adequately address inventory, sanitation, and processing of food
instruments available on the premises for inspection. For these
reasons, the Department proposes to replace the term ``representative
monitoring'' with the term ``routine monitoring'' in the regulations.
Section 246.12(i)(2) of the current regulations requires that the
State agency implement a system to conduct representative monitoring on
at least 10 percent of its authorized vendors each year. The current
section 246.12(i)(1) requires that the State agency also establish a
system for identifying high-risk vendors and take effective action to
follow up on vendors so identified, including monitoring, further
investigation, and sanctioning, as appropriate. Current regulations do
not mandate high-risk identification criteria, a specific technique for
monitoring high-risk vendors, or a specific number of high-risk vendor
that must be monitored. The result of these deficiencies has been
uneven implementation of high-risk identification and monitoring
systems with often limited effectiveness in terms of investigating
high-risk vendors and taking appropriate actions based on the findings.
Given that resources available for monitoring are finite, it is
more logical to concentrate on vendors with a high probability of
program noncompliance than on randomly selected vendors. This is also
consistent with the requirement in section 203(f) of Public Law 105-
336, which requires State agencies to identify vendors that have a high
probability of program noncompliance and to conduct compliance
investigations of these vendors. In order to ensure effective
deployment of monitoring resources for high-risk monitoring, effective
high-risk criteria must be used. This proposal would help ensure that
such criteria are used by State agencies by requiring them to use new
high-risk criteria. Under proposed section 246.12(j)(1), State agencies
would continue to be required to monitor vendors. State agencies would
be permitted to delegate the monitoring to a local agency or
contractor, but would be required to provide supervision and training
to ensure the quality and uniformity of the monitoring.
Under this proposal, State agencies would also be required to
implement high-risk vendor identification criteria specified by FNS
(proposed section 246.12(j)(2)). State agencies could employ indicators
of their own choice in addition to those required by FNS, and this is
highly recommended. Such State-established criteria would be subject to
FNS approval through the State Plan process, and such approval would
involve a review of the civil rights implications of the criteria.
Much has been learned over the years about high-risk vendor
identification through innovation and experimentation by State
agencies; two studies, (the WIC State Agency Guide to Vendor Monitoring
and the Applied Research on Vendor Abuse); the investigative activities
of the Office of Inspector General in connection with the National
Vendor Audit; and the data reported by State agencies through the VAMP
system. While much remains to be learned about high-risk vendor
identification, it is now possible to specify some basic criteria that
are strongly associated with documented vendor noncompliance. For
example, a vendor may routinely submit food instruments at or around
their maximum possible dollar value, or at the same set value for every
food instrument. Given the variation in the types and brands of
authorized supplemental foods that a participant may choose, a small or
no cost variation among a vendor's food instrument claims signals a
possible problem meriting further review. Indicators used in the WIC
Program to detect potentially high-risk vendors may not violate civil
rights laws by classifying vendors as potentially high-risk solely on
the basis of their minority status.
Section 246.12(j)(2) of this proposal establishes FNS's authority
to mandate minimum criteria. However, the criteria themselves would not
be included in the regulations. Public disclosure of the high-risk
criteria would undermine their usefulness in identifying high-risk
vendors and would interfere with timely changes to the criteria as
knowledge about the effectiveness of various criteria increases. This
flexibility also ensures that State agencies are not required to use
criteria that subsequent analysis reveals to be ineffective or
obsolete. The Department will inform the State agencies of changes in
the minimum mandated high-risk criteria through its announcement of
requirements for the annual summary of the results of vendor
monitoring, which has been mandated by the WIC Program regulations
since 1982 and would continue to be required by section 246.12(j)(4).
While there is a need for flexibility in establishing criteria to
be used as part of high-risk identification systems, the Department
also recognizes the State agencies' operational need for a certain
level of stability in required high-risk identification criteria.
Changes in criteria inevitably require modification of data collection
procedures and management information systems. Therefore, the required
criteria would not be changed more frequently than once every two
years, and State agencies would be informed one year in advance of all
such changes. The Department does not envision a proliferation of
mandatory criteria over time or the frequent replacement of criteria.
The more likely event is greater specificity in established criteria as
experience indicates how they can be most effectively employed.
The Department wishes to stress that the mandated criteria would
represent the minimum number of criteria a State agency must utilize in
its high-risk identification system. State agencies would continue to
have flexibility to use criteria which they have found to be effective
in addition to those criteria established by the Department.
In this proposal, State agencies would be required by section
246.12(j)(3)(i) to annually conduct compliance buys or inventory audits
on at least 10 percent of the number of vendors authorized by the State
agency as of October 1 of each fiscal year. The number would not need
to be adjusted based on fluctuations in the vendor population during
the fiscal year. State agencies would be required to conduct buys or
audits for all high-risk vendors up to the 10 percent minimum. Under
proposed section 246.12(j)(3)(i), a State agency would be allowed to
waive the investigation of a high-risk vendor if it documents that the
vendor is under investigation by a Federal, State, or local enforcement
agency or that another compelling reason based on good program
management exists for not conducting a compliance buy or inventory
audit. This would include investigations by the Department's Office of
Inspector General and FSP investigations by FNS, but not a routine
action like a health inspection.
If fewer than 10 percent of the State agency's total vendor
population is identified as high-risk and are not exempted from
monitoring, section 246.12(j)(3)(ii) would require the difference to be
made up with vendors not so identified. These vendors would have to be
selected at random as a means of testing the effectiveness of the State
agency's high-risk identification system. Random selection also should
result in a cross-section of all vendors being reviewed, thereby
precluding a disparate over-selection of small and
[[Page 32326]]
minority-owned vendors. Conducting compliance buys or inventory audits
on the population the State agency has identified as high-risk should
result in detection of a higher percentage of violative vendors than
those performed on a random sample of the entire vendor population. If
the random sample and the high-risk population yield similar
percentages of violative vendors and the State agency has used a large
enough random sample to be statistically valid, the State agency should
reassess its high-risk detection system.
When more than 10 percent of the total vendor population has been
identified as high-risk, section 246.12(j)(3)(iii) would require the
State agency that elects not to exceed the 10 percent minimum to
prioritize vendors in order to review those with the greatest potential
for program noncompliance and loss. Factors such as degree of risk of
program noncompliance (e.g., point systems), location of the vendor
relative to other high-risk vendors and likelihood of successful buys
or audits based on past experience could be considered in establishing
priorities.
The Department chose not to propose that compliance buys or
inventory audits be performed on all high-risk vendors. Since high-risk
identifiers can be manipulated, the high-risk identification process
could be driven by the objective of minimizing compliance buy and audit
activity rather than the need to identify vendors with a high
probability of program noncompliance. Conversely, the identification of
too many vendors as high-risk could impose an unreasonable monitoring
burden on the State agency. Finally, as the WIC Program continues to
grow, so will the need for compliance monitoring and accountability.
Given these facts, the Department chose to propose that State agencies
conduct compliance buys on at least 10 percent of their vendors. The 10
percent requirement ensures a minimum presence each year of monitoring
staff as a means of deterrence, as well as detection, of program
violations. When the use of percentages in setting minimum requirements
for compliance buys and inventory audits results in fractional numbers,
State agencies should round upward to the nearest whole number.
This proposal would no longer require State agencies to conduct any
routine monitoring (currently set at a minimum of 10 percent of
authorized vendors annually). The Department strongly recommends that
State agencies continue to conduct routine monitoring to the extent
that resources permit, but recognizes that the routine monitoring
requirement must be relaxed so that State agencies can shift resources
as necessary to meet the proposed high-risk monitoring requirements.
VAMP data show that one-buy investigations are not generally
successful in revealing program violations such as overcharging, and
that State agencies that conduct, on average, three or more compliance
buys per vendor are much more likely to find occurrences of
overcharging. Therefore, the Department also proposes a new requirement
in section 246.12(j)(3)(i) of this rule. For investigations of high-
risk vendors which result in negative compliance buys (i.e. buys in
which no violations occur), the State agency would be allowed to close
the investigation only after three negative compliance buys have
occurred within a 12-month period. These negative compliance buys would
not have to be consecutive in order for the State agency to close the
investigation. For instance, the first buy could be negative, the
second positive, and the third and fourth negative, which would lead to
closing the investigation. Investigations containing a mix of positive
and negative buys could be closed by the State agency after the third
negative buy if the State agency determines that the number of positive
buys was not sufficient to provide evidence of program noncompliance.
An investigation of a high-risk vendor would also be considered to be
complete when the State agency determines that: a sufficient number of
buys has been conducted to provide evidence of program noncompliance or
when an inventory audit has been completed. Investigations on randomly
selected vendors would be considered complete when the State agency
determines there is sufficient evidence to conclude whether the vendor
is in compliance with program requirements.
Proposed section 246.12(j)(5) would establish documentation
requirements for monitoring visits, including compliance buys,
inventory audits, and routine monitoring visits. These are: the
vendor's name and address; the date of the visit; the name(s) and
signature(s) of the reviewer(s); the nature of the problem(s) detected
or the observation that the vendor appears to be in compliance with
program requirements. For compliance buys, State agencies would also be
required to document: the date of the buy; a description of the cashier
involved in each transaction; the types and quantities of items
purchased; and, if available, the shelf price or contract price, and
the price charged for each item purchased; and the final disposition of
all items as either destroyed, donated, provided to other authorities,
or kept as evidence. Recognizing that shelf prices or contract prices
are sometimes difficult to obtain during a compliance buy, proposed
section 246.12(j)(5) would permit the collection of shelf price or
contract price data before or after the compliance buy visit. State
agencies are encouraged, however, to collect shelf prices the same day
as the compliance buy whenever possible to ensure that the State agency
cannot be challenged during an administrative review that the prices
are not truly reflective of shelf prices on the day of the compliance
buy. This defense has been used by vendors during previous
administrative reviews (see ``The WIC Files'').
The current requirement in section 246.12(i)(4) of documenting how
the vendor plans to correct any detected deficiencies would be dropped.
The Department believes that the requirements that State agencies
assess claims and sanction vendors when appropriate adequately address
the need to follow up on deficiencies noted in monitoring visits and
that to require documentation of the follow-up in the monitoring report
is duplicative and unnecessary. However, since the report will form the
basis for any sanction, it is important that the report clearly
document any deficiencies found. Thus, this proposed rule would retain
that requirement.
a. Compliance Buy Techniques
Compliance buys are usually the best method of high-risk monitoring
because they can identify and document a broad range of major program
noncompliance. The fact that the program noncompliance is identified
on-site and witnessed by the compliance monitor provides a strong case
which can withstand the challenges of vendor appeal. As discussed in
section 2 of this preamble, a compliance buy is an undercover visit to
a vendor in which a person acting on behalf of the Program poses as a
WIC participant and transacts food instruments in order to determine
whether program noncompliance is taking place. The rationale and
methodology for different types of compliance buys are outlined in the
WIC Compliance Handbook issued in June, 1985. The most common type of
buy is a ``safe buy,'' in which only allowed foods, either in the
authorized quantities or in lesser quantities, are purchased. Once the
food instrument is redeemed by the vendor, it is reviewed to see if the
vendor has made the appropriate charge, based on the foods actually
purchased and their prices.
[[Page 32327]]
In other types of buys, the buyer might, for example, attempt to
purchase an ineligible food, purchase a non-food item, purchase less
than the full food package, exchange food instruments for credit, or
sell food instruments at a discount, i.e. trafficking.
The State agency must decide what type(s) of compliance buys to
employ. As stated above, in order for the State agency to conclude that
a high-risk vendor is in compliance with program requirements, proposed
regulations at section 246.12(j)(3)(i) would require three negative
buys. However, it would be up to the State agency to decide how many
positive buys must be conducted before instituting administrative
action against the vendor, except in situations where one incidence of
the violation (i.e. trafficking or the sale of alcohol or tobacco
products) triggers a mandatory sanction.
b. Inventory Audit Techniques
The inventory audit is a method for identifying program
noncompliance in which a vendor's records of foods purchased for a set
period of time, such as food invoices or receipts, are examined and
compared to the amount of the same foods for which the WIC Program paid
the vendor for that same period of time. Proposed section 246.12(k)(3)
would require claims to be assessed when vendor violations are
identified as a result of an inventory audit or other review. In
addition, the March 18 vendor sanction rule requires State agencies to
disqualify vendors for 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.
Inventory audits are usually more expensive to perform than
compliance buys because they require staff with a higher level of
training, and because the volume of information which must be reviewed
in order to establish a claim may require considerably more time. Data
from the 1996 VAMP report reveal that 15 State agencies conducted
inventory audits during Fiscal Year 1996. These audits are useful for
obtaining evidence against suspected vendors who traffic in food
instruments, or otherwise request reimbursement for more food than
inventory records can support, and who are not susceptible to
compliance buys because they have a small clientele and will only
commit violations with known customers. As a result, the Department
expects inventory audits to be used in limited circumstances.
c. Workload Implications
The proposed requirement for compliance buys and inventory audits
exceeds the level of compliance buys currently conducted by a number of
State agencies. The Department further acknowledges that replacement of
the current requirement for 10 percent representative monitoring plus
an unspecified level of high-risk monitoring with the proposed 10
percent targeted monitoring requirement may not be an even exchange
since both compliance buys (given the probable need for more than one
at each vendor) and inventory audits are almost always more expensive
than routine monitoring visits. Data from the 1996 VAMP report indicate
that 33 percent of State agencies annually conducted routine monitoring
at 100 percent of their authorized vendors. For some State agencies,
such visits would appear to be of questionable value when compared to
high-risk monitoring. The considerable resources which extensive
routine monitoring consume could be focused much more effectively on
the conduct of compliance buys and inventory audits. It should also be
noted that some State agencies currently exceed the proposed 10 percent
requirement, thus indicating that it can be met within current and
anticipated levels of State administrative funding.
15. Retail Food Delivery Systems: Vendor Claims (Section 246.12(k))
Current regulations at section 246.12(r)(5) require that the State
agency establish procedures to ensure the propriety of redeemed food
instruments. They require the State agency to design and implement a
system of food instrument review to detect suspected overcharges and to
identify vendors with high levels of suspected overcharges. The 1988
National Vendor Audit demonstrated that these general regulatory
requirements have been ineffective in detecting overcharges in some
State agencies. Furthermore, current regulations do not explicitly
require, and some State agencies do not always take, effective follow-
up action on suspected and documented overcharges. The 1991 Vendor
Issues Study both accounted for over $39 million in vendor overcharges
and found a close correlation between overcharging and other program
violations. Consequently, the Department proposes to strengthen State
agencies' general approach to overcharges.
Two basic types of overcharge detection systems are currently in
operation. Price-based systems use vendors' shelf or contract prices to
develop edit levels that are applied to redeemed food instruments.
Redemption-based systems use edit limits derived from the value of
redeemed food instruments. Both systems can be designed in a number of
different ways. Given the potential for significant variation in each
type of system, it is not possible to make meaningful, practical
comparisons between the two types, or to argue that one type will
always and unconditionally be better than all varieties of the other.
Redemption-based systems are used by more State agencies than
price-based systems. The quality of redemption-based systems varies
significantly according to such factors as whether and how the State
agency establishes vendor peer groups in order to develop a statistical
methodology sensitive to differences in redemption levels between peer
groups; the tolerance levels that the State agency includes in its
analysis in order to minimize the incidence of flagged food instruments
that do not, in fact, include overcharges; and, the frequency with
which its statistical tolerances are updated. Price-based systems also
differ qualitatively according to how they address a number of
variables. Because of the complexity and variability inherent in such
systems, the Department believes that it would not be appropriate to
attempt to govern them at this time through the regulatory process.
Rather, State agencies can expect the effectiveness of whatever system
they choose to be subjected to greater scrutiny by FNS Regional Offices
in the future as part of their review of State Plans and management
evaluations. Improvement in these systems can best be pursued through
careful assessment of each individual system.
The Department does, however, propose through regulation to
strengthen State agencies' general approach to overcharges. First, the
Department proposes at section 246.12(k)(1) to require that State
agencies develop and implement a system to identify overcharges and
other errors on redeemed food instruments at least quarterly. That
section would also list the other types of errors the State agency's
system must detect.
Proposed section 246.12(k)(2) would confirm the State agency's
authority to withhold or collect from vendors the entire redemption
value of food instruments that include an overcharge, as opposed to the
current practice in some State agencies of denying payment for, or
collecting, only the amount of the overcharge itself. A parallel
provision
[[Page 32328]]
would be required to be contained in the vendor agreement by proposed
section 246.12(h)(3)(ix).
Proposed section 246.12(k)(4) would require State agencies to
initiate collection actions within 90 days of the date of detection of
an overcharge or other error. The Department believes that timely
claims assessment and collection will provide an incentive for vendors
to correct problems within their organization in a more timely manner.
While State agencies have a number of options in pursuing vendor
claims, the Department encourages State agencies to exercise their
authority to demand repayment of the entire redeemed value of each food
instrument containing an overcharge or other error, to offset claims
when possible, and to sanction vendors for chronic violations or for
failure to pay claims without sufficient justification. These actions
can act as powerful deterrents to overcharging.
16. Retail Food Delivery Systems: Vendor Sanctions (Section
246.12(l))
As discussed earlier in this preamble, on March 18, 1999, the
Department published a final rule amending the vendor sanction
provisions. Among other things, that rule establishes mandatory
disqualification periods for certain vendor violations and requires any
vendor disqualified from the FSP to be disqualified from WIC, unless
such disqualification would result in inadequate participant access.
That rule also establishes a formula for calculating civil money
penalties in lieu of disqualification. These changes are reflected in
the text of this rule for reference only.
Vendor and participant sanctions are currently addressed in section
246.12(k). This proposed rule would split these requirements into
different paragraphs for clarity: Section 246.12(l) for vendor
sanctions and section 246.12(u) for participant sanctions. Except for
the deletion of the participant sanctions section, proposed section
246.12(l) is only a redesignation, with no substantive changes, from
section 246.12(k) as it appeared in the March 18 final rule. Prior to
the publication of the final rule, the Department published a proposed
rule on April 20, 1998, which provided the public with a 90-day comment
period on the provisions in current 246.12(k). Consequently, the
Department will not consider any comments at this time on proposed
section 246.12(l).
17. Home Food Delivery Systems and Direct Distribution Food
Delivery Systems (Sections 246.2, 246.12(m), 246.12(n), 246.12(o),
and 246.12(s))
The requirements for home food delivery and direct distribution
food delivery systems currently found at section 246.12(s) and (t)
would be moved to section 246.12(m) and (n). Both sections would be
amended to delete the requirements concerning food instruments. The
food instrument requirements that would apply to all food delivery
systems have been grouped together in sections 246.12(p), (q), and (r);
the current requirement for uniform food instruments continues to be
found at section 246.12(b). The Department recognizes that food
instruments are not used in all home food delivery and direct
distribution food delivery systems. The food instrument provisions only
apply to those food delivery systems using food instruments.
Finally, the current requirement for participant and vendor
complaints (section 246.12(j)) and prompt payment of vendors (section
246.12(m)) would be moved to sections 246.12(o) and (s), respectively,
and references would be added to home food delivery contractors.
18. Food Instrument Security (Section 246.12(p))
The 1988 National Vendor Audit and management evaluations indicate
that some local agencies fail to maintain adequate security for food
instruments received from the State agency and fail to track the food
instruments they distribute to clinics. Both of these problems increase
the chance of theft and misuse. Examples of the kind of misuse that can
occur are provided in ``The WIC Files.'' These include employee fraud
and collusion. The Department believes that local agencies and clinics
must take appropriate measures to keep food instruments (whether manual
or computer-generated, and including on-line check stock or EBT cards)
secure. In response to this concern, the Department is proposing to
strengthen the current requirement at section 246.12(l) that State
agencies control and provide accountability for the receipt and
issuance of food instruments. Proposed section 246.12(p) would require
the State agency to develop minimum standards for ensuring the security
of food instruments, including: maintenance by the local agency of a
perpetual inventory recording receipt of food instruments from the
State agency and, if applicable, distribution to clinics; monthly
physical inventory of food instruments on hand by the local agency and,
if applicable, by clinics; reconciliation of perpetual and physical
inventories of food instruments; and maintenance of all such food
instruments under lock and key by the local agency and clinic, except
for supplies needed for immediate use. State agencies should also be
mindful of the various security risks associated with data files, such
as fabrication of records and food instruments. The reference to the
control of supplemental foods would be dropped as this is already
covered in current section 246.12(t) (proposed section 246.12(n)).
19. Food Instrument Disposition (Sections 246.12(q), 246.13(h), and
246.23(a)(4))
Current regulations at section 246.12(n) require State agencies to
identify disposition of all food instruments as validly redeemed, lost
or stolen, expired, duplicate, voided, or not matching issuance
records. State agencies are also required to be able to demonstrate the
capability to match redeemed food instruments with valid certification
records. As the 1988 National Vendor Audit observed, State agencies do
not always attempt to account for all redeemed food instruments, and
they sometimes fail to take effective follow-up action on instruments
found not to have been validly redeemed. The reconciliation process as
established in section 246.12(n) is itself deficient because it does
not require that the accountability loop be completed by determining
that all redeemed food instruments are supported by a valid
certification record. This section also refers to ``reconciliation of
each food instrument issued with food instruments redeemed and
adjustment of previously reported financial obligations to account for
actual redemptions and other changes in the status of food
instruments.'' Finally, the term ``reconciliation'' itself has been the
source of confusion among State agencies.
First, these provisions would be moved to section 246.12(q) and the
term ``reconciliation'' would be replaced by the more general phrase
``accounting for the disposition of,'' which is generally applicable to
all of the activities addressed in this paragraph of the regulations.
State agencies would continue to be required to account for the
disposition of all food instruments as either issued or voided, and as
redeemed or unredeemed. The first two categories would allow the State
agency to identify which food instruments are paid or deobligated.
Instead of the
[[Page 32329]]
current requirement in section 246.12(n) that obligations be adjusted
to account for actual redemptions, subsection (h) of the financial
management system requirements in proposed section 246.13 would be
amended to require the State agency to adjust projected expenditures to
account for redeemed food instruments and other changes. The current
food instrument reconciliation requirement in section 246.13(h) would
be removed as duplicative. Second, proposed section 246.12(q) would
require State agencies to match redeemed food instruments not only
against issuance information, but also against a current masterfile of
enrolled persons. Typically, the food instrument would contain a unique
serial number, as currently required, and a participant identification
number. A successful identification of the disposition of all food
instruments would entail matching these numbers on the redeemed food
instrument with their counterparts in the issuance report or file, and
matching the participant identification number on the food instrument
against the enrollment master file. Achieving a complete accounting for
all food instruments is not expected to require State agencies to
radically alter their current structure of reports. For most State
agencies, it is the enrollee's certification record which triggers the
production of each enrollee's food instruments and an issuance record.
Other State agencies may find it necessary to reprogram their systems
in order to link certification or enrollment records with food
instrument issuance and redemption. In an EBT system, the PIN encoded
on the card would be required to be linked to the issuance and
enrollment record to indicate that a redemption was valid. Merely
having the ``capability to reconcile'' redeemed food instruments
against valid certifications, as current rules at section 246.12(n)(2)
require, does not provide an adequate level of accountability. The
Department believes that this final step must actually be carried out.
In the past, some State agencies that do not attempt to account for
the disposition of all redeemed food instruments have misinterpreted
section 246.23(a)(4) in the current regulations, which allows the
reconciliation process to be considered complete when ``all reasonable
efforts have been devoted to reconciliation and 99 percent or more of
the food instruments have been accounted for.'' This language has
incorrectly been interpreted to mean that State agencies may stop their
reconciliation efforts when they have reached the 99-percent level. The
current regulatory language was meant only to acknowledge that
accounting for 100 percent of redeemed food instruments may not be
possible due to such factors as mutilation of food instruments and
coding errors. The Department wishes to stress that State agencies'
efforts to account for the disposition of food instruments have never
been considered complete when 99 percent of food instruments had been
accounted for through reconciliation. State agencies are expected to
account for the disposition of 100 percent of their food instruments
utilizing all reasonable management efforts. Therefore, proposed
section 246.23(a)(4) would both continue to assert FNS's intention to
establish claims against a State agency for all food instruments which
have not been accounted for.
In order to account for all food instruments, the State agency
would be required in proposed section 246.12(q) to identify food
instruments as either issued or voided, and as either redeemed or
unredeemed. Redeemed food instruments would be required to be
identified as validly issued, lost, stolen, expired, duplicate, or not
matching valid issuance and enrollment records. FNS would consider the
process of accounting for the disposition of food instruments complete
only if the State agency can demonstrate that all reasonable management
efforts have been made to account for the disposition of 100 percent of
its food instruments.
State agencies should be aware that FNS will carefully scrutinize
their efforts to identify the disposition of food instruments and will
establish a claim against any State agency, pursuant to section
246.23(a)(4), which has not accounted for the disposition of all
redeemed food instruments, including appropriate follow-up action on
food instruments that cannot be matched against valid issuance or
certification records, unless the State agency can demonstrate that it
has: made every reasonable effort to meet this requirement; has
identified the reasons for its inability to account for the disposition
of each redeemed food instrument; and, to the extent considered
necessary by FNS, has undertaken appropriate actions to improve its
procedures.
20. Issuance of Food Instruments and Supplemental Foods (Section
246.12(r))
Proposed section 246.12(r) would consolidate the existing
provisions in Sections 246.12 (o), (p), (r)(7), and (r)(8) concerning
the issuance of food instruments and supplemental foods. The only
change would be to add a reference to supplemental foods in the
requirement that no more than a three-month supply of food instruments
may be issued to any participant at one time.
21. Conflict of Interest (Section 246.12(t))
Current regulations at section 246.12(q) require only that the
State agency ensure the absence of conflict of interest between any
local agency and the vendor(s) under the local agency's jurisdiction.
Section 246.12(t) of this proposal would also require the absence of
conflict of interest between the State agency and any vendor. Reference
to the State agency would be added in recognition of the pivotal role
the State agency plays in authorizing and monitoring vendors. While the
State procurement rules governing home food delivery contracts likely
include conflict of interest provisions, this provision would make
explicit the conflict of interest prohibition for home food delivery
contractors.
In this context, a conflict of interest is generally where an
individual employed by the State agency or local agency has an interest
in a vendor. The interest may be financial, may relate to past,
current, or future employment with the vendor, or may arise from a
family relationship. Such circumstances create, at minimum, the
appearance or potential that the employee's official actions on behalf
of the WIC Program will be improperly influenced by the interest in the
vendor. This discussion is provided for guidance purposes, and is in no
way exclusive. The Department believes that this is an area which is
based more appropriately on State laws or regulations governing
conflict of interest.
22. Participant Violations and Sanctions (Section 246.12(u)) and
Claims Against Participants (Section 246.23(c))
Participant sanctions are currently found in section 246.12(k)(9)
and would be moved to section 246.12(u)(2). The Department proposes to
increase the maximum disqualification period for participant violations
from 3 months to 1 year and to consider actions by proxies as
participant violations. Current regulations require that State agencies
establish a maximum disqualification period of 3 months for
participants. Many State agencies believe this maximum is ineffective
in deterring participant program noncompliance. In addition, the
current regulations do not address program noncompliance by proxies.
Some forms of participant violations require
[[Page 32330]]
collusion on the part of the proxy (which may include a parent, a
caretaker, or another person designated to accept and redeem food
instruments--see the discussion of the proposed definition of proxy in
section 2 of this preamble). Examples of this kind of collusion are
given in ``The WIC Files.''
The Department acknowledges that some may view the proposed 1-year
maximum as contrary to program goals because it could adversely affect
the health of participants. However, the Department wishes to point out
violative participants and proxies subvert the purpose of the Program
so that it cannot achieve its objectives. Since WIC benefits diverted
to other purposes do not benefit participants in the intended way, a
longer disqualification cannot be expected to have additional serious
negative consequences on a participant's nutritional status than
continued program noncompliance would have. This is regrettably true
whether the program noncompliance is by the participant (e.g., a
pregnant woman trafficking food instruments), the participant's parent
or caretaker in the case of an infant or child, or another type of
proxy. WIC funds are better spent on participants whose health and
well-being can be improved through the Program.
The Department is also proposing to expand the list of participant
violations in current section 246.12(k)(9) to include dual
participation (now section 246.12(u)(1)). Dual participation, as
defined in section 246.2 entails ``simultaneous participation in the
Program in one or more than one WIC clinic, or participation in the
Program and in the Commodity Supplemental Food Program (CSFP) during
the same period of time.'' Dual participation is discussed in more
detail in section 5 of this preamble.
Section 17(f)(14) of the Child Nutrition Act (42 U.S.C.
1786(f)(14)) requires the State agency to recover the value of benefits
provided to participants who have defrauded the Program to the extent
that recovery is cost-effective. This mandate is implemented in section
246.23(c) of current regulations. However, the limit on participant
disqualifications, be it the current three months or the proposed year,
may hinder the State agencies' collection efforts because a person who
subsequently becomes eligible may reenter the Program after having been
disqualified for improper receipt of benefits without first making
restitution. Proposed section 246.12(u)(2) would require State agencies
to disqualify participants for one year in cases where a participant
violation gives rise to a claim. In recognition of the hardship that
such a disqualification could place on an infant or child participant,
who could not have committed the violation, the proposed rule would
require the State agency to permit another proxy to be designated
before disqualifying an infant or child participant. In addition, under
the proposal, the State agency could permit a disqualified participant
to reapply if full restitution is made prior to the end of the
disqualification period.
The Department wishes to clarify the difference between a
participant sanction and a participant claim. A participant sanction is
an administrative action taken in response to program violations in
order to protect the integrity of the Program. A participant claim is
an assessment of financial liability for the value of improperly
obtained program benefits. This proposal would also revise section
246.23(c)(1) to require State agencies in all cases to send a letter to
the participant requesting payment for improperly obtained program
benefits and indicating that, if the request for repayment is not
appealed or is unsuccessfully appealed, the participant must be
disqualified for one year, unless the participant is an infant or child
for whom an alternate proxy acceptable to the State agency is found. If
full restitution is made prior to the end of the disqualification
period, the State agency would be allowed to permit the participant to
reapply for the Program. If the participant fails to make payment in
response to this letter, the State agency would be required to assess
the cost-effectiveness of each additional step in the collection
process against the value of the benefits involved and to take such
actions until the recovery process ceases to be cost-effective. To help
facilitate resolution of such claims, the Department proposes to permit
State agencies to allow participants for whom financial restitution
would cause undue hardship to perform in-kind service, determined by
the State agency, in lieu of monetary repayment. While the Department
acknowledges that collection efforts could in many instances prove
prohibitively expensive, it believes that at least an initial, low-cost
effort would always be cost-effective. This paragraph would continue to
permit the State agency to delegate the responsibility for the
collection of participant claims to the local agency, though it would
be moved to proposed section 246.23(c)(3).
23. Vendor Appeals (Section 246.18)
Current regulations at section 246.18 establish minimum
requirements for vendor and local agency appeal rights and State agency
administrative review procedures. The procedural requirements are
intended to establish a simple and fair appeal process at a reasonable
cost to State agencies. Some State agencies have significantly exceeded
the regulatory procedural requirements, for example, by requiring that
the decision makers be administrative law judges and providing for a
verbatim transcription of their administrative review proceedings. In
response to this situation, the Department's Office of Inspector
General recommended in the 1988 National Vendor Audit that the
Department mandate standard administrative review procedures in order
to limit costs. This would prevent State agencies from exceeding the
minimum procedures required by the current regulations. The Department
continues to believe that the procedures mandated by program
regulations are adequate. While the Department is not proposing to
prohibit the use of more elaborate procedures, the Department does not
consider such procedures to be an effective use of the limited
nutrition services and administrative funds and encourages State
agencies to develop administrative review procedures that stick to the
minimum requirements in this section.
To support State agency efforts to control appeal costs, make the
process more manageable, and ensure fairness to vendors, the Department
is proposing to: (1) Limit the types of State agency actions subject to
administrative review; (2) establish abbreviated administrative review
procedures for certain adverse actions; and (3) relax review procedure
timeframes.
Current regulations at section 246.18(a)(1) allow vendors and local
agencies to appeal a denial of an application for authorization, a
disqualification from the Program, and ``any other adverse action which
affects participation.'' The Department considers the phrase ``any
other adverse action which affects participation'' to be inappropriate
for vendor appeals. A vendor could, for example, seek to appeal a State
agency decision to authorize another vendor in the area on the grounds
that the action would reduce the first vendor's volume of WIC business.
In situations such as this, the State agency's responsibility is to
ensure adequate participant access to the Program, not to protect the
individual interests of a vendor. Thus, the
[[Page 32331]]
Department proposes to limit the State agency actions that are subject
to administrative review. Except in certain circumstances discussed
herein, these actions include: (1) A denial of authorization based on
selection criteria or the State agency's determination in accordance
with proposed section 246.12(g)(4) that the vendor is attempting to
circumvent a sanction, (2) a termination of an agreement for cause, (3)
a disqualification, and (4) the imposition of a fine or a civil money
penalty in lieu of disqualification. Vendors that believe their civil
rights have been violated in the authorization process may file
complaints under the authority of civil rights legislation.
Questions have also arisen about whether fines imposed by courts
may be appealed to the State agency. Only those actions taken by the
State agency are subject to administrative review by the State agency.
Thus, any sentence or civil judgment imposed by a court may only be
pursued in the courts. Conversely, fines or civil money penalties in
lieu of disqualification imposed by a State agency are subject to
review by the State agency.
Readers should note, however, that to the extent that the amount of
a fine or civil money penalty is precisely set in the State agency's
sanction schedule, the decision maker would not have the authority to
alter the amount of the fine or civil money penalty on appeal unless
the decision maker found that either it had been incorrectly calculated
or the vendor did not commit the cited violation.
Proposed section 246.18(a)(1)(ii) would list the adverse actions
that would receive an abbreviated administrative review: (1) A denial
of authorization based on the selection criteria set out in proposed
section 246.12(g)(3)(iii) or (vi), (2) a denial of authorization based
on the State agency's limiting criteria or because the vendor submitted
its application outside the timeframes during which applications are
being accepted and processed as established by the State agency under
section 246.12(g)(6), (3) a termination of an agreement because of a
change in ownership or location or cessation of operations, and (4) a
disqualification based on the imposition of an FSP civil money penalty
for hardship.
These actions each present circumstances in which the issue on
appeal is a very narrow one. For example, the selection criterion at
section 246.12(g)(3)(iii) would prohibit authorization of a vendor if
the vendor or certain persons associated with the vendor had been
convicted of the listed crimes. The only issue in such an appeal would
be whether the vendor or a person currently associated with the vendor
actually was convicted of the crime. Recognizing that errors can be
made, this rule would require State agencies to provide such vendors an
opportunity to point out, for example, that the conviction had been
overturned or that the convicted person was no longer associated with
the vendor. To reduce the costs of administrative reviews required by
the regulations, this proposed rule would require State agencies to
establish abbreviated administrative review procedures for such
actions.
Proposed section 246.18(c) would specify the procedures for
abbreviated administrative reviews. As with the current procedures, the
State agency would be required to provide the vendor written
notification of the adverse action, the procedures to follow to appeal
the action, and the cause(s) and effective date of the action. The
State agency would also be required to provide the vendor an
opportunity to provide a written response. The State agency would not
be required to conduct a full administrative review where the vendor is
provided with an opportunity to confront and cross-examine adverse
witnesses. All that would be required is a review of the information
given to the vendor forming the basis for the adverse action, the
vendor's response, and relevant statutes, regulations, policies, and
procedures. The decision maker would not have to be independent from
the State agency. The decision maker would only have to be someone
different from the person who made the initial decision. These
abbreviated administrative review procedures would provide the vendor
an opportunity to appeal actions in which the decision is largely
systematic. At the same time, it would eliminate the need for the State
agency to provide a more lengthy and costly full administrative review.
Proposed section 246.18(a)(1)(iii) lists those actions that would
not be subject to administrative review. As discussed in section 8 of
this preamble and above in this section, while the validity or
appropriateness of the limiting and selection criteria would not be
subject to review, a decision to deny authorization would be subject to
review. Similarly, the March 18 vendor sanction rule included a
provision that participant access determinations are not subject to
review. These provisions ensure that State agencies have the necessary
discretion to establish program operating parameters. Limiting and
selection criteria and the criteria for making participant access
determinations would all be included in the State Plan. Concerns about
these criteria are properly raised during the public comment phase of
the State Plan process.
Some State agencies are beginning to implement vendor selection
procedures in which applicant vendors submit competitive bids for a
specified number of authorizations in a particular geographical area.
Under this proposed rule, any time a State agency's authorization
determinations are subject to the State agency's procurement
procedures, nonselection would not be subject to review. In this
situation, a separate administrative review would be redundant and
could disrupt the procurement procedures.
Similarly, the Department proposes to eliminate administrative
review of vendor claims given the requirement in current section
246.12(r)(5)(iii) (redesignated as section 246.12(k)(5) in this
proposal) that State agencies provide vendors an opportunity to correct
or justify the error giving rise to a claim. An administrative review
in this instance would be redundant.
Under current sections 246.18(b)(1) and (9), timeframes are
established for the advance notice of adverse action (15 days) and the
notification of the appeal decision (within 60 days of the date of
receipt of the vendor's request for administrative review). While the
advance notice requirement is easily met, the 60-day timeframe for
decisions has proven difficult for some State agencies, particularly
those which must rely on a State board of appeals or other external
organizational unit that is beyond the State agency's control.
Therefore, the Department is proposing in section 246.18(b)(9) to
extend the time limit for providing decisions on vendor--but not local
agency--appeals to 90 days.
While there is some doubt that 90 days still may not be sufficient
in some State agencies to render decisions on vendor appeals, other
State agencies have been clearly able to meet the timeframe. The
Department does not believe that there is sufficient justification for
extending the time period beyond 90 days, nor would lengthening the
time period promote the goal of improving and streamlining the appeals
process. Rather, State agencies that have problems in this area should
work to improve the efficiency of their appeals system. The Department
hopes that the proposed limitations on actions subject to
administrative review and the new abbreviated administrative review
procedures will help State agencies reduce their costs for
administrative
[[Page 32332]]
reviews and better target their efforts and thus assist in timely
decisions on vendor appeals.
At proposed section 246.18(b)(5), the Department would provide
State agencies the opportunity to conduct examinations in camera, i.e.,
behind a protective screen or other device, to protect the identity of
WIC Program investigators. Protecting the identity of the investigator
is paramount in conducting covert investigations and revealing the
investigators identity during an administrative review would compromise
future investigations.
Proposed section 246.18(b)(7) would strengthen current language
regarding the disclosure of information to appellants. Current
regulations at section 246.18(b)(7) afford the appellant vendor or
local agency ``the opportunity to review the case record prior to the
hearing.'' The vendor's ``case record,'' or file, may contain
investigative information, i.e. information regarding how the State
agency established the vendor's high-risk status, which, if released,
would jeopardize efforts to combat program noncompliance. Thus,
proposed section 246.18(b)(7) would clarify that the appellant vendor
or local agency is allowed to examine only ``the evidence upon which
the State agency's action is based.'' This restriction is consistent
with due process rights. Appellant vendors would, under the
confidentiality provisions proposed in section 246.26(e)(2), have
access to information otherwise protected by current section 246.26(d),
to the extent that such information is part of the evidence upon which
the action being appealed is based.
The local agency adverse actions subject to administrative review
are unchanged in this proposal, except they would be consolidated under
246.18(a)(2) with the current provision regarding the effective date of
local agency adverse actions. In addition, sections 246.18 would be
revised throughout to differentiate between a vendor or local agency
which ``appeals'' an action and the State agency which ``reviews'' an
action.
Finally, the current requirements in sections 246.18(c) and (d)
would be redesignated as sections 246.18(d) and (f) and a new section
246.18(e) would be added. Current section 246.18(d) requires State
agencies to notify appellants of the availability of any further
administrative review within the State agency. The Department believes
that this requirement duplicates the current requirement in section
246.18(b)(2) and proposed requirement in section 246.18(c) that the
State agency inform vendors and local agencies of their opportunity to
appeal the adverse action and could be viewed as encouraging State
agencies to provide an additional level of administrative review. This
section would be revised to make clear that the decisions rendered
under both the full and abbreviated administrative review procedures
are the final State agency action. If the action being appealed has not
already taken effect, the appeal decision would be required to indicate
the effective date of the action. The Department is also proposing to
clarify the State agency requirements regarding judicial review.
Instead of the current regulatory language that requires the State
agency ``to explain'' the right to pursue judicial review, the
Department proposes to require the State agency ``to inform''
appellants that they may be able to pursue judicial review. Review of
State agency actions is a matter of State law and may vary depending on
the action taken. The Department believes that the State agency should
not be put in the position of determining the appropriate avenue of
judicial review for an appellant vendor or local agency.
24. State Agency Corrective Action Plans and Delegation of
Monitoring to Local Agencies (Sections 246.19(a)(2) and
246.19(b)(2)).
Under current regulations at section 246.19(a)(3)(ii), the State
agency is required to submit a corrective action plan with
implementation timeframes in response to management evaluations only
when FNS has notified the State agency of its intention to impose a
sanction. However, management evaluation findings may be significant
and require timely corrective action even when they do not justify
imposition of a sanction. As reported in the 1988 National Vendor
Audit, some State agencies do not take timely action to correct
deficiencies identified by FNS. Therefore, the Department is proposing
in section 246.19(a)(2) that the State agency be required to submit a
corrective action plan, including implementation timeframes, within 60
days of receipt of a management evaluation report containing negative
findings even where the findings do not justify a sanction. The
Department believes 60 days should be sufficient time to develop a
corrective action plan. Extending the timeframe would unnecessarily
prolong the time before corrective action could be achieved.
In addition, proposed section 246.19(b)(2) would require monitoring
of local agencies to include, if the State agency delegates any vendor
training or monitoring to local agencies, the local agency's
effectiveness in carrying out these responsibilities.
25. Areas of Special Focus during Local Agency Reviews (Sections
246.19(b)(5) and (6))
Current regulatory requirements for coverage in local agency
reviews at section 246.19(b)(2) are broad and very general in nature.
State agencies are required, for example, to include ``certification''
and ``accountability'' in their local agency reviews. The Department
believes that effective monitoring depends on comprehensive coverage.
However, FNS may, from time to time, identify a problem in a more
precisely defined aspect of local agency operations and may want State
agencies to review this aspect intensively. For example, within the
broad category of ``certification,'' there may be a need to focus
attention on income eligibility determination procedures. Security of
food instruments may be identified within the broader area of
``accountability'' as requiring in-depth monitoring. These targeted
areas would be areas identified through management evaluations, audits,
or other means which document the need for intensified monitoring and
corrective action, as appropriate. Therefore, the Department is
proposing in section 246.19(b)(5) to require State agencies to conduct
in-depth review of areas specified by FNS through FNS policy memoranda
or other guidance. Under this proposal, FNS could also require State
agencies to implement a standard form or protocol for such focus-area
reviews and to report the results to FNS. No more than two such areas
would be stipulated for any fiscal year, and they would be announced at
least six months before the beginning of the fiscal year. This
provision would reflect the current requirement that State agencies
provide FNS special reports on program activities.
The Department wishes to stress that this requirement does not mean
that State agency reviews of local agencies should be less
comprehensive than in the past. Full, comprehensive reviews of local
agencies are necessary to identify deficiencies. This proposal simply
enables FNS to gather information on areas of special emphasis in
greater depth than might otherwise be possible. Areas of focus would
change periodically, and there also could be fiscal years for which FNS
does not identify any such areas.
In addition, section 246.19(b)(6) would be amended to require that
local agencies submit to State agencies, within 45 days of written
notification of deficiencies, a written corrective action
[[Page 32333]]
plan which explains how all of the identified problems will be
addressed and stipulates a timeframe for completion of each corrective
action. It is important that when problems are identified that they be
corrected in a timely manner. State agencies are expected to pursue
timely follow-up action to assure that planned corrective actions are
actually taken.
26. Confidentiality of Vendor Information (Section 246.26(e))
The Department is proposing to add a new provision to section
246.26 of the WIC regulations addressing the confidentiality of vendor
information. Heretofore, the WIC Program regulations have been silent
on the issue of the confidentiality of vendor information, and
provisions protecting vendor information from disclosure are still
needed. The purpose of protecting vendor information is two-fold: to
gain vendor cooperation and to aid in the control and monitoring of
vendors.
Under this proposal, State agencies would be required to restrict
the disclosure of information obtained from vendors or generated by the
State agency on vendors (other than the vendor's name, address, and
authorization status) to persons directly connected with the
administration and enforcement of any Federal or State law, including
the WIC Program and the FSP, and to the Comptroller General of the
United States. While this would authorize local agencies under the
State agency's jurisdiction, other WIC state and local agencies, and
their contractors to receive vendor information, the proposed rule
would require State agencies to enter into a written agreement with any
non-Federal agency before disclosing any vendor information. The
agreement would be required to specify that they will use or disclose
such information only for authorized purposes directly connected with
the administration or enforcement of a Federal or State law.
In accordance with the requirements in current sections
246.18(b)(1) and (7) that the State agency disclose to vendors the
cause of the adverse action and provide them an opportunity to review
the case record, proposed section 246.26(e)(2) would permit the
disclosure to appellant vendors of information that forms the basis of
an adverse action subject to administrative review. This would not
include information concerning other vendors or information that would
compromise the State agency's vendor monitoring system. While
information about other vendors, such as average redemption data, might
have been used to assist the State agency in targeting vendors for
investigation, the Department does not consider such information as the
basis for the State agency's action. Similarly, information that would
compromise the State agency's monitoring system, such as the names of
investigators, would not be considered to be information on which an
action is based.
Efforts to control program noncompliance in the WIC Program are
significantly enhanced by the State agency's access to information on
vendors who also participate in the FSP. Section 9(c) of the Food Stamp
Act of 1977 (7 U.S.C. 2018(c)) permits the FSP to disclose information
provided by retail food stores and wholesale food concerns in order to
gain or maintain authorization in the FSP to WIC State agencies for
purposes of administering the provisions of the Child Nutrition Act and
its implementing regulations. Proposed Section 246.26(f) would reflect
this limitation and make clear that ``administering the provisions of
the Child Nutrition Act'' includes both administering and enforcing the
WIC Program. Accordingly, this information could not be disclosed to
other vendors or the general public.
The FSP may share with WIC State agencies other information about
authorized retailers that is not obtained from FSP retailer
applications and is therefore not protected under section 9(c) of the
Food Stamp Act. This information, e.g., results of investigations,
along with information the WIC State agency collects directly from WIC
vendors and its analysis of such material, contribute to the WIC State
agency's vendor selection and high-risk detection systems. These
systems can be effectively operated only if such data is protected from
release to WIC vendors or other members of the public. State agency
experience has shown that many vendors will commonly attempt to gain
access to this information during the administrative review process.
Such information must be kept confidential, so that vendors cannot
secure unfair competitive advantages.
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 proposed
to be amended as follows:
PART 246--SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS
AND CHILDREN
1. The authority citation for Part 246 continues to read as
follows:
Authority: 42 U.S.C. 1786.
2. In Sec. 246.2, the definitions of Authorized Supplemental foods,
Compliance buy, High-risk vendor, Home food delivery contractor,
Inventory audit, Proxy, Routine monitoring, Vendor, Vendor
authorization, Vendor limiting criteria, Vendor overcharge, Vendor
selection criteria, Vendor violations, and WIC are added in
alphabetical order to read as follows:
Sec. 246.2 Definitions.
* * * * *
Authorized supplemental foods means those supplemental foods
authorized by the State or local agency for a particular participant.
* * * * *
Compliance buy means a covert, on-site investigation in which a
representative of the Program poses as a participant, transacts one or
more food instruments, and does not reveal his or her identity during
the visit.
* * * * *
High-risk vendor means a vendor identified as having a high
probability of violating program requirements through application of
the criteria established in Sec. 246.12(j)(2) and any additional
criteria established by the State agency.
Home food delivery contractor means a sole proprietorship, a
partnership, a cooperative association, or a corporation 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 authorized supplemental foods to provide
participants the quantities specified on food instruments redeemed by
the vendor during a given period of time.
* * * * *
Proxy means any person designated by a participant to act on her
behalf and, in the case of an infant or child, the parent or caretaker
who applies on behalf of the infant or child.
* * * * *
Routine monitoring means overt, on-site monitoring during which
[[Page 32334]]
representatives of the Program identify themselves to vendor personnel.
* * * * *
Vendor means a sole proprietorship, a partnership, a cooperative
association, or a corporation operating an individual retail site
authorized to provide authorized supplemental foods to participants
under a retail food delivery system. Each individual retail outlet
under a business entity which operates more than one site constitutes a
separate vendor. Each vendor must have a 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 vendors who apply
or subsequently reapply for authorization are assessed, selected, and
enter into an agreement with the State agency.
Vendor limiting criteria means criteria established by the State
agency to determine the maximum number and distribution of vendors to
be authorized in its jurisdiction pursuant to Sec. 246.12(g)(2).
Vendor overcharge means a pattern of intentionally or
unintentionally charging participants more for authorized supplemental
foods than non-WIC customers or charging participants more than the
current shelf or contract price.
Vendor selection criteria means the criteria in Sec. 246.12(g)(3)
and any additional criteria established by the State agency to select
individual vendors for program authorization.
Vendor violation means any intentional or unintentional actions of
a vendor (with or without the knowledge of management) which violate
the Program statute or regulations or State agency policies or
procedures.
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 Sec. 246.3:
a. Paragraph (e)(5) is redesignated as paragraph (e)(6); and
b. A new paragraph (e)(5) is added to read as follows:
Sec. 246.3 Administration.
* * * * *
(e) * * *
(5) For State agencies which anticipate 50 or more authorized
vendors as of October 1 of each fiscal year, one full-time or
equivalent vendor management specialist. State agencies which
anticipate fewer than 50 authorized vendors as of that date shall
designate a staff person responsible for vendor management.
* * * * *
4. In Sec. 246.4:
a. Paragraphs (a)(14)(ii), (a)(14)(iii), (a)(14)(iv), and
(a)(14)(vi) are revised;
b. In paragraphs (a)(14)(vii), (a)(14)(viii), and (a)(17) are
amended by removing the words ``food vendors'' and adding in their
place the word ``vendors'';
c. In paragraph (a)(14)(ix) the word ``and'' at the end is removed;
d. In paragraphs (a)(14)(x) and (xi) the periods at the end are
removed and semicolons added in their place;
e. New paragraphs (a)(14)(xii) through (a)(14)(xv) are added; and
f. The first sentence of paragraph (a)(15) is revised.
The revisions and additions read as follows:
Sec. 246.4 State plan.
(a) * * *
(14) * * *
(ii) Vendor limiting criteria and any vendor selection criteria
established by the State agency in addition to the selection criteria
required by Sec. 246.12(g)(3);
(iii) A sample vendor agreement, including the sanction schedule;
(iv) 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. The State agency shall also
include the criteria it will use to determine which vendors will
receive routine monitoring visits. State agencies which intend to
delegate any aspect of vendor monitoring responsibilities to a local
agency or contractor shall describe the State agency supervision and
training which will be provided to ensure the uniformity and quality of
vendor monitoring efforts;
* * * * *
(vi) Where food instruments are used, a facsimile of the food
instrument 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);
* * * * *
(xii) The procedures the State agency will use to train vendors in
accordance with Sec. 246.12(i). State agencies which intend to delegate
any aspect of training to a local agency, contractor, or vendor
representative shall describe the State agency supervision and
instruction which will be provided to ensure the uniformity and quality
of vendor training;
(xiii) A description of the State agency's system for ensuring food
instrument security in accordance with Sec. 246.12(p);
(xiv) A description of the State agency's participant access
determination criteria consistent with Sec. 246.12(l)(8); and
(xv) The special needs necessitating the authorization of mobile
stores, if the State agency chooses to authorize such stores.
(15) 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 (h)(1)(i), the reference to ``Sec. 246.12(k)(2)''
is removed, and a reference to ``Sec. 246.12(u)'' is added in its
place; and
b. Paragraph (l)(1)(i) through (l)(1)(iv) is revised.
The revision reads as follows:
Sec. 246.7 Certification of participants.
* * * * *
(l) * * *
(1) * * *
(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
the quarterly identification of dual participation;
(ii) In areas where a local agency serves the same population as an
Indian State agency or a CSFP agency, and 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 disqualification from one of the programs or
clinics for participants found in violation due to dual participation;
(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. Section 246.12 is revised 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 which FNS determines
[[Page 32335]]
unnecessarily duplicate the accountability capabilities inherent in the
particular EBT system.
(1) The State agency is responsible for the fiscal management of,
and accountability for, food delivery systems under its jurisdiction.
(2) The State agency shall design all food delivery systems to be
used by local agencies under its jurisdiction.
(3) 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) All contracts or agreements entered into by the State or local
agency for the management or operation of food delivery systems shall
be in conformance with 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 within its jurisdiction--
retail, home delivery, or direct distribution. Each system shall be
procedurally uniform within the jurisdiction of the State agency and
shall ensure adequate participant access to supplemental foods. When
used, food instruments shall be uniform within each type of system. The
State agency shall permit only authorized vendors, home food delivery
contractors, and direct distribution sites to redeem food instruments.
(c) Free of charge. State and local agencies shall provide
participants the Program's supplemental foods free of charge.
(d) Compatibility of food delivery system. The State agency shall
ensure that the food delivery system(s) selected is compatible with
delivery of health and nutrition education services to participants.
(e) Retail food delivery systems: General. Retail food delivery
systems are systems in which participants obtain supplemental foods by
submitting a food instrument to an authorized vendor.
(f) Retail food delivery systems: Food instrument requirements. (1)
State agencies using retail food delivery systems shall use food
instruments and the food instruments shall comply with the requirements
of this paragraph (f).
(2) Each printed food instrument shall clearly bear on its face the
following information:
(i) The supplemental foods authorized to be obtained with the food
instrument;
(ii) The first date on which the food instrument may be used by the
participant to obtain supplemental foods.
(iii) The last date by which the participant may use the food
instrument to obtain supplemental foods. This date shall be a minimum
of 30 days from the first date on which it may be used, or, for the
participant's first month of issuance, it may be the end of the month
or cycle for which the food instrument is valid. Rather than entering a
specific expiration date 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) The date by which the vendor must redeem the food instrument.
This date shall 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 shall ensure that the time allotted provides the
vendor sufficient time to redeem the food instruments without undue
burden.
(v) A unique and sequential serial number.
(vi) At the discretion of the State agency, a maximum purchase
price which is higher than the price of the supplemental food for which
it will be used, but low enough to be a reasonable protection against
potential loss of funds. When the maximum value is shown, the space for
the actual value of the supplemental foods obtained shall be clearly
distinguishable. For example, the words ``actual amount of sale'' could
be printed larger and in a different area of the food instrument than
the maximum value.
(vii) A signature space in which the participant or proxy must sign
at the time the supplemental foods are obtained.
(3) The State agency shall implement procedures to ensure every
redeemed food instrument can be identified by the vendor which redeemed
the food instrument. Each individual vendor in a chain participating in
the Program shall be separately identified. The State agency may
identify vendors by requiring that all authorized vendors stamp their
names and/or enter a vendor identification number on all redeemed food
instruments prior to submission.
(g) Retail food delivery systems: Vendor authorization. (1) The
State agency shall 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 authorized vendors in its jurisdiction.
(2) The State agency shall develop and implement criteria to limit
the number of vendors to be authorized and establish their
distribution. This system shall ensure adequate participant access and
effective management, oversight, and review of authorized vendors in
their jurisdiction. When developing limiting criteria, the State agency
shall consider, at a minimum, participant access in terms of
participant-to-vendor ratios based on population density, distribution
of participants, location of local agencies and clinics, and
availability of public transportation and road systems to the WIC
population. The State agency shall apply its limiting criteria
consistently throughout its jurisdiction taking into account varying
geographic and other characteristics within the jurisdiction. The State
agency shall establish a system for revising and/or reapplying its
limiting criteria whenever it determines that relevant demographic
shifts or significant changes in caseload allocation make such action
necessary.
(3) The State agency shall develop and implement criteria to select
vendors. The State agency shall apply its selection criteria
consistently throughout its jurisdiction. The State agency may reassess
any authorized vendor using these criteria at any time during the
vendor's agreement period and shall terminate the agreements with those
vendors that fail to meet them. In applying the criteria set forth in
paragraphs (g)(3)(iii) through (g)(3)(vi) of this section, the State
agency may rely on facts already known to it and representations made
by applicant vendors; the State agency is not required to establish a
formal system of background checks for applicant vendors. The selection
criteria shall include:
(i) Competitive price;
(ii) Minimum variety and quantity of authorized supplemental foods;
(iii) Lack of a record of a criminal conviction or civil judgment
of the applicant vendor or any person currently associated with the
vendor as an owner, officer, director, or partner for: commission of
fraud or a criminal offense in connection with obtaining, attempting to
obtain, or performing a public or private agreement or transaction;
violation of Federal or State antitrust statutes, including those
proscribing price fixing between competitors, allocation of customers
between competitors, and bid rigging; commission of embezzlement,
theft, forgery, bribery, falsification or destruction of records,
making false statements, receiving stolen property, making false
claims, or obstruction of justice; or, commission of any other offense
indicating a lack of business integrity or business honesty of the
[[Page 32336]]
vendor or its owner, officer, director, or partner;
(iv) Lack of a history, during a period preceding the date of
application specified by the State agency (but not less than one year
and not more than six years), of serious vendor violations resulting
from the acts of omissions by the applicant vendor or any person
currently associated with the vendor as an owner, officer, director, or
partner, except that the time limit established by the State agency
shall not apply to a vendor violation which results in a criminal
conviction or civil judgment described in paragraph (e)(3)(iii) of this
section. Serious vendor violations include: being subject to any of the
vendor sanctions established in paragraph (l)(1) of this section and
failure to participate in the annual training required by paragraph (i)
of this section;
(v) Lack of a history, during a period preceding the date of
application specified by the State agency (but not less than one year
and not more than six years), of serious Food Stamp Program violations
by the applicant vendor or any person currently associated with the
vendor as an owner, officer, director, or partner, except that the time
limit established by the State agency shall not apply to a Food Stamp
Program violation which results in a criminal conviction or civil
judgment described in paragraph (g)(3)(iii) of this section. Serious
Food Stamp Program violations include: withdrawal of Food Stamp Program
authorization for reasons of program noncompliance; a Food Stamp
Program disqualification which is in effect at any time during this
period; and assessment of a Food Stamp Program civil money penalty for
hardship during this period; and
(vi) Not being currently disqualified from participation in the
Food Stamp Program or, if a Food Stamp Program civil money penalty for
hardship has been assessed, the period of the disqualification that
would otherwise have been imposed has expired.
(4) The State agency shall not authorize an applicant vendor 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 applicant 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.
(5) The State agency is encouraged to consider the impact of
authorization decisions on small businesses.
(6) The State agency may limit the periods during which
applications for authorization from vendors will be accepted and
processed, except that applications shall be accepted and processed at
least once every three years. The State agency shall develop procedures
for processing individual vendor applications outside of its timeframes
for use when it determines there will be inadequate participant access
unless additional vendors are authorized.
(7) At the time a vendor applies for authorization, the State
agency shall collect the vendor's Food Stamp Program authorization
number if the applicant vendor participates in that program. In
addition, the State agency also shall collect the vendor's current
shelf prices of authorized supplemental foods, unless the State agency
uses competitive bidding to set vendor prices for such foods.
(h) Retail food delivery systems: Vendor agreements. (1) The State
agency shall enter into written agreements with all authorized vendors.
The agreements shall be for a period not to exceed three years. The
agreement shall 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, all
vendors shall be specified in the agreement. When more than one vendor
is specified in the agreement, an individual vendor may be added or
deleted without affecting the remaining vendors. The State agency shall
require vendors to reapply at the expiration of their agreements and
shall provide vendors with not less than 15 days advance written notice
of the expiration of their agreements.
(2) The State agency shall use a standard vendor agreement
throughout its jurisdiction, though the State agency may make
exceptions to meet unique circumstances and must document the reasons.
(3) The vendor agreement shall contain the following
specifications, although the State agency may determine the exact
wording to be used:
(i) The vendor shall accept food instruments only from participants
or their proxies.
(ii) The vendor shall provide participants only the supplemental
foods listed on the food instrument. The vendor shall not substitute
other foods or non-food items not listed on the food instrument, or
provide cash in lieu of the listed supplemental foods. The vendor shall
not give credit, including rainchecks, for supplemental foods listed on
the food instruments, give refunds for supplemental foods obtained by
participants with food instruments, or permit exchanges for
supplemental foods obtained by participants except for identical
supplemental foods.
(iii) The vendor shall accept food instruments from a participant
only within the allowed time period, and submit them for payment within
the allowed time period.
(iv) For printed food instruments, the vendor shall ensure the
participant or proxy signs the food instrument and that the purchase
price is entered on the food instrument before the participant or proxy
signs it. In EBT systems, a Personal Identification Number (PIN) may be
used in lieu of a signature.
(v) The vendor shall offer program participants the same courtesies
as offered to other customers.
(vi) The vendor shall comply with the nondiscrimination provisions
of Departmental regulations (Parts 15, 15a and 15b of this title).
(vii) The vendor shall not collect sales tax on WIC food purchases.
(viii) The vendor shall 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 to set vendor
prices, the contract price. In no case may the vendor charge the State
agency more than the competitive price limitation applicable to the
area in which the vendor is located.
(ix) The vendor shall reimburse the State agency upon demand, or
will have its payment from the State agency reduced, for the value of
each vendor overcharge or other error. The State agency may collect the
full redeemed value for each food instrument that contained a vendor
overcharge or other error. The State agency may offset any amount owed
by the vendor to the State agency against subsequent amounts to be paid
to the vendor.
(x) The vendor shall not seek restitution from participants for
food instruments not paid or partially paid by the State agency.
(xi) The manager of the vendor or other member of management shall
participate in training prior to, or at the time of, the vendor's first
authorization and annually thereafter, and sign and date a receipt
acknowledging understanding of the training given. At least once during
the agreement period such training will be face-to-face. Failure to
participate in the annual training is a serious vendor violation that
precludes subsequent authorization of the vendor. The State agency
shall have sole discretion to determine the date, time, and place of
all training, except that the vendor shall have at least one
opportunity to attend annual
[[Page 32337]]
training on an alternative date established by the State agency. The
State agency may, at its discretion, offer additional alternative
training dates.
(xii) The vendor shall inform and train cashiers and other staff on
program requirements.
(xiii) The vendor shall be accountable for actions of employees in
the handling of food instruments.
(xiv) The vendor may be monitored for compliance with program
rules.
(xv) The vendor shall 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. Upon request, the
vendor shall 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) Either the State agency or the vendor may terminate the
agreement for cause after providing advance written notice within a
timeframe established by the State agency, which may not be less than
15 days.
(xvii) The vendor shall give the State agency at least 45 days
advance notification, in writing, of a change in vendor ownership,
store location, or cessation of operations. In such instances, the
vendor agreement shall be terminated, except that the State agency may
permit vendors to move short distances without voiding the agreement.
Changes in business structure (such as a corporate reorganization)
without any change in ownership do not constitute a change of
ownership.
(xviii) In addition to claims collection, the vendor may be
sanctioned for vendor violations in accordance with the State agency's
sanction schedule.
(xix) The vendor's agreement will be terminated if a conflict of
interest is identified between the vendor and the State or local
agencies.
(xx) A vendor who commits fraud or abuse in the Program is liable
to prosecution under applicable Federal, State or local laws. Under
Sec. 246.23(d) of the regulations, those who have willfully misapplied,
stolen or fraudulently obtained program funds shall 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) 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. A vendor that has been disqualified for a period of time
less than the remaining term of its vendor agreement may resume
participation in the WIC Program upon completion of its
disqualification period for the duration of the agreement without
reapplying. If the vendor agreement expires before the vendor has
served out the full disqualification period, and the vendor wishes to
again participate in the Program, the vendor must apply to be
authorized. In all cases, the vendor's new application will be subject
to the State agency's selection and limiting criteria in effect at the
time of the reapplication.
(xxii) The vendor shall be bound by any changes in the Program
statute and regulations and State policies and procedures, including
changes in selection criteria if the State agency chooses to reassess
the vendor during the agreement period.
(xxiii) 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) The State agency shall include in the vendor agreement the
sanction schedule, which must be consistent with paragraph (l) of this
section.
(5) The State agency shall include in the vendor agreement a list
of the actions a vendor may appeal and a copy of the State agency's
administrative review procedures, which are consistent with
Sec. 246.18.
(i) Retail food delivery systems: Vendor training. (1) The State
agency shall provide training to all vendors prior to, or at the time
of, initial authorization of a vendor, and annually thereafter. The
training shall be designed to prevent program noncompliance and errors
to improve program service. At the initial authorization of a new
vendor, the training provided shall be face-to-face and on the site of
the vendor. At least once during each subsequent agreement period, the
State agency shall require that vendors attend face-to-face training at
the site of the vendor or at another location. Both the initial
training of a new vendor and the subsequent face-to-face training may
fulfill the annual training requirement for the year in which it is
given.
(2) The annual training shall include instruction in the purpose of
the WIC Program; the varieties of 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 food instruments at the time of purchase and submitting
food instruments for payment; the vendor sanction system; the vendor
complaint process; the terms of the vendor agreement; and the claims
collection procedures.
(3) The State agency may delegate the 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)(xii). In such cases, the State agency shall provide
supervision and instruction to ensure the uniformity and quality of
vendor training.
(4) The State agency shall ensure that the content of annual
training is documented, including the signed vendor receipts required
in paragraph (h)(3)(xi) of this section, and that each vendor signs and
dates a receipt for annual training.
(j) Retail food delivery systems: Monitoring vendors and
identifying high-risk vendors. (1) The State agency shall design and
implement a system for monitoring vendors within its jurisdiction. The
State agency may delegate the monitoring to a local agency or a
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 shall provide supervision and training to ensure the
uniformity and quality of the monitoring.
(2) The State agency shall identify high-risk vendors using
criteria developed by FNS. FNS will not change these criteria more
frequently than once every 2 years and will provide advance
notification of changes 1 year prior to implementation. The State
agency may develop and implement additional criteria.
(3)(i) The State agency shall conduct compliance buys or inventory
audits on a minimum of 10 percent of the number of vendors authorized
by the State agency as of October l of each fiscal year. The State
agency shall conduct compliance buys or inventory audits on all high-
risk vendors up to the 10 percent minimum, except that the State agency
may waive a compliance buy or inventory audit on a high-risk vendor if
it documents that the vendor is under investigation by a Federal, State
or local law enforcement agency or that some other compelling reason
exists for not conducting a compliance buy or inventory audit. An
investigation of a high-risk vendor shall be considered
[[Page 32338]]
complete when the State agency determines that a sufficient number of
compliance buys have been conducted to provide evidence of program
noncompliance; when three compliance buys are conducted in which no
program violations are found within a 12-month period; or when an
inventory audit has been completed.
(ii) If fewer that 10 percent of the State agency's authorized
vendors are identified as high-risk and not exempted from monitoring
under paragraph (j)(2) of this section, the State agency shall randomly
select additional vendors upon which to conduct compliance buys or
inventory audits sufficient to meet the 10-percent minimum. An
investigation of a randomly selected vendor shall be considered
complete when, in the judgment of the State agency, sufficient evidence
exists to determine whether or not the vendor is complying with program
requirements.
(iii) If more than 10 percent of the State agency's authorized
vendors are identified as high-risk and not exempted from monitoring
under paragraph (j)(2) of this section, the State agency shall
prioritize such vendors so as to perform compliance buys or inventory
audits on those determined to have the greatest potential for program
noncompliance and loss.
(4) For each fiscal year, the State agency shall send to FNS a
summary of the results of vendor monitoring containing information
stipulated by FNS. The report shall be sent by February 1 of the
following fiscal year. Plans for improvement in the coming year shall
be included in the State Plan, in accordance with the requirements of
Sec. 246.4(a)(14)(iv).
(5) The State agency shall document the following information for
all monitoring visits, including compliance buys, inventory audits, and
routine monitoring visits: the vendor's name and address; the date of
the visit or inventory audit; the name(s) and signature(s) of the
reviewer(s); and the nature of the problem(s) detected or the
observation that the vendor appears to be in compliance with program
requirements. For compliance buys, the State agency shall also
document: the date of the buy; a description of the cashier involved in
each transaction; the types and quantities of items purchased, shelf
prices or contract prices, and price charged for each item purchased,
if available; and the final disposition of all items as either
destroyed, donated, provided to other authorities, or kept as evidence.
Shelf or contract price information may be obtained prior to, during,
or subsequent to the compliance buy.
(k) Retail food delivery systems: Vendor claims. (1) The State
agency shall design and implement a system to identify vendor
overcharges and other errors on redeemed food instruments not less
frequently than quarterly. For printed food instruments, this system
shall detect the following errors: purchase price missing, participant
or proxy signature missing, vendor identification missing, redemption
of expired food instruments, and, as appropriate, altered prices. The
State agency shall implement procedures to reduce the number of errors
where possible.
(2) The State agency may withhold or collect from the vendor the
entire redeemed value of food instruments identified as containing a
vendor overcharge or other error.
(3) The State agency shall also assess claims resulting from vendor
violations identified in inventory audits or other reviews.
(4) The State agency shall initiate collection action within 90
days of the date of detection. Collection action may include offset.
(5) When payment for a food instrument is denied or delayed, or a
claim for reimbursement is assessed, the State agency shall provide the
vendor an opportunity to provide justification or correction. For
example, if the actual price is missing, the vendor may demonstrate
what price should have been included. If the State agency is satisfied
with the correction or justification, it shall provide payment or
adjust the claim accordingly.
(6) With justification and documentation, the State agency may pay
vendors for food instruments redeemed after the expiration date. If the
total value of the food instruments submitted at one time exceeds
$200.00, payment may not be made without the approval of the FNS
Regional Office.
(l) Retail food delivery systems: Vendor sanctions--(1) Mandatory
vendor sanctions.
(i) Permanent disqualification. The State agency shall permanently
disqualify a vendor convicted of trafficking in food instruments or
selling firearms, ammunition, explosives, or controlled substances (as
defined in section 102 of the Controlled Substances Act (21 U.S.C.
802)) in exchange for food instruments. A vendor shall not be entitled
to receive any compensation for revenues lost as a result of such
violation. If reflected in its State Plan, the State agency shall
impose a civil money penalty in lieu of a disqualification for this
violation when it determines, in its sole discretion, and documents
that--
(A) Disqualification of the vendor would result in inadequate
participant access; or
(B) The vendor had, at the time of the violation, an effective
policy and program in effect to prevent trafficking; and the ownership
of the vendor was not aware of, did not approve of, and was not
involved in the conduct of the violation.
(ii) Six-year disqualification. The State agency shall disqualify a
vendor for six years for: one incidence of buying or selling food
instruments for cash (trafficking); or one incidence of selling
firearms, ammunition, explosives, or controlled substances as defined
in 21 U.S.C. 802, in exchange for food instruments.
(iii) Three-year disqualification. The State agency shall
disqualify a vendor for three years for:
(A) One incidence of the sale of alcohol or alcoholic beverages or
tobacco products in exchange for food instruments; or
(B) A pattern of claiming reimbursement for the sale of an amount
of a specific supplemental food item which exceeds the store's
documented inventory of that supplemental food item for a specific
period of time; or
(C) A pattern of charging participants more for supplemental food
than non-WIC customers or charging participants more than the current
shelf or contract price; or
(D) A pattern of receiving, transacting and/or redeeming food
instruments outside of authorized channels, including the use of an
unauthorized vendor and/or an unauthorized person; or
(E) A pattern of charging for supplemental food not received by the
participant; or
(F) A pattern of providing credit or non-food items, other than
alcohol, alcoholic beverages, tobacco products, cash, firearms,
ammunition, explosives, or controlled substances as defined in 21
U.S.C. 802, in exchange for food instruments.
(iv) One-year disqualification. The State agency shall disqualify a
vendor for one year for a pattern of providing unauthorized food items
in exchange for food instruments, including charging for supplemental
food provided in excess of those listed on the food instrument.
(v) Second mandatory sanction. When a vendor, who previously has
been assessed a sanction for any of the violations in paragraphs
(l)(1)(ii) through (l)(1)(iv) of this section, receives another
sanction for any of these violations, the State agency shall double the
second sanction. Civil money penalties may only be doubled up to the
[[Page 32339]]
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 shall double the third sanction and all subsequent
sanctions. The State agency shall not impose civil money penalties in
lieu of disqualification for third or subsequent sanctions for
violations listed in paragraphs (l)(1)(ii) through (l)(1)(iv) of this
section.
(vii) Disqualification based on a Food Stamp Program
disqualification. The State agency shall disqualify a vendor who has
been disqualified from the Food Stamp Program. The disqualification
shall be for the same length of time as the Food Stamp Program
disqualification, may begin at a later date than the Food Stamp Program
disqualification, and shall not be subject to administrative or
judicial review under the WIC Program.
(viii) Voluntary withdrawal or nonrenewal of agreement. The State
agency shall not accept voluntary withdrawal of the vendor from the
Program as an alternative to disqualification for the violations listed
in paragraphs (l)(1)(i) through (l)(1)(iv) of this section, but shall
enter the disqualification on the record. In addition, the State agency
shall not use nonrenewal of the vendor agreement as an alternative to
disqualification.
(ix) Participant access determinations. Prior to disqualifying a
vendor for a Food Stamp Program disqualification pursuant to paragraph
(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 shall determine if disqualification of the vendor would result
in inadequate participant access. If the State agency determines that
disqualification of the vendor would result in inadequate participant
access, the State agency shall impose a civil money penalty in lieu of
disqualification. However, as provided in paragraph (l)(1)(vi) of this
section, the State agency shall not impose a civil money penalty in
lieu of disqualification for third or subsequent sanctions for
violations in paragraphs (l)(1)(ii) through (l)(1)(iv) of this section.
The State agency shall include documentation of its participant access
determination and any supporting documentation in the file of each
vendor who is disqualified or receives a civil money penalty in lieu of
disqualification.
(x) Civil money penalty formula. For each violation subject to a
mandatory sanction, the State agency shall use the following formula to
calculate a civil money penalty imposed in lieu of disqualification:
(A) Determine the vendor's average monthly redemptions for at least
the 6-month period ending with the month immediately preceding the
month during which the notice of administrative action is dated;
(B) Multiply the average monthly redemptions figure by 10 percent
(.10);
(C) Multiply the product from paragraph (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 shall impose a CMP
for each violation. The total amount of civil money penalties imposed
for violations investigated as part of a single investigation shall not
exceed $40,000.
(xi) Notification to FNS. The State agency shall provide the
appropriate FNS office with a copy of the notice of administrative
action and information on vendors it has either disqualified or imposed
a civil money penalty in lieu of disqualification for any of the
violations listed in paragraphs (l)(1)(i) through (l)(1)(iv) of this
section. This information shall include the name of the vendor,
address, identification number, the type of violation(s), and the
length of disqualification or the length of the disqualification
corresponding to the violation for which the civil money penalty was
assessed, and shall be provided within 15 days after the vendor's
opportunity to file for a WIC administrative review has expired or all
of the vendor's WIC administrative reviews have been completed.
(xii) Multiple violations during a single investigation. When
during the course of a single investigation the State agency determines
a vendor has committed multiple violations (which may include
violations subject to State agency sanctions), the State agency shall
disqualify the vendor for the period corresponding to the most serious
mandatory violation. However, the State agency shall include all
violations in the notice of administration action. If a mandatory
sanction is not upheld on appeal, then the State agency may impose a
State agency-established sanction.
(2) State agency vendor sanctions. (i) The State agency may impose
sanctions for violations that are not specified in paragraphs (l)(1)(i)
through (l)(1)(iv) of this section as long as such violations and
sanctions are included in the vendor agreement. State agency sanctions
may include disqualifications, civil money penalties assessed in lieu
of disqualification, and fines. The total period of disqualification
imposed for State agency violations investigated as part of a single
investigation may not exceed one year. A civil money penalty or fine
shall not exceed $10,000 for each violation. The total amount of civil
money penalties imposed for violations investigated as part of a single
investigation shall not exceed $40,000.
(ii) The State agency may disqualify a vendor who has been assessed
a civil money penalty for hardship in the Food Stamp Program, as
provided under Sec. 278.6 of this chapter. The length of such
disqualification shall correspond to the period for which the vendor
would otherwise have been disqualified in the Food Stamp Program. If a
State agency decides to exercise this option, the State agency shall:
(A) Include notification that it will take such disqualification
action in its vendor agreement, in accordance with paragraph (f)(4) of
this section; 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 shall not disqualify the vendor or impose a civil money penalty
in lieu of disqualification. The State agency shall include
documentation of its participant access determination and any
supporting documentation in each vendor's file.
(3) Prior warning. The State agency does not have to provide the
vendor with prior warning that violations were occurring before
imposing any of the sanctions in this paragraph (l).
(4) Appeal procedures. The State agency shall provide adequate
procedures for vendors to appeal a disqualification from participation
under the Program as specified in Sec. 246.18.
(5) Installment plans. The State agency may use installment plans
for the collection of civil money penalties and fines.
(6) Failure to pay a civil money penalty. If a vendor does not pay,
only partially pays, or fails to timely pay a
[[Page 32340]]
civil money penalty assessed in lieu of disqualification, the State
agency shall disqualify the vendor for the length of the
disqualification corresponding to the violation for which the civil
money penalty was assessed (for a period corresponding to the most
serious violation in cases where a mandatory sanction included the
imposition of multiple civil money penalties as a result of a single
investigation).
(7) Actions in addition to sanctions. Vendors may be subject to
actions in addition to the sanctions in this section, such as claims
for improper or overcharged food instruments and penalties outlined in
Sec. 246.23, in the case of deliberate fraud.
(8) Participant access determination criteria. When making
participant access determinations, the State agency shall consider, at
a minimum, the availability of other authorized vendors in the same
area as the violative vendor and any geographic barriers to using such
vendors.
(m) Home food delivery systems. Home food delivery systems are
systems in which food is delivered to the participant's home. Systems
for home delivery of food shall provide for:
(1) 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) The accountable delivery of supplemental foods to participants.
The State agency shall ensure that:
(i) Home food delivery contractors are paid only after the delivery
of supplemental foods to participants;
(ii) There exists a routine procedure to verify the correct
delivery of prescribed supplemental foods to participants, and, at a
minimum, such verification occurs at least once a month after delivery;
and
(iii) There is retention of records of delivery of supplemental
foods and bills sent or payments received for such supplemental foods
for at least three years and access of State, local and/or Federal
authorities to such records.
(n) Direct distribution food delivery systems. Direct distribution
food delivery systems are systems in which participants or their
proxies pick up food from storage facilities operated by the State or
local agency. Systems for direct distribution of food shall provide
for:
(1) Adequate storage and insurance coverage that minimizes the
danger of loss to theft, infestation, fire, spoilage, or other causes;
(2) Adequate inventory control of food received, in stock, and
issued;
(3) 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) The availability of program benefits to participants and
potential participants who live at great distance from storage
facilities; and
(5) The accountable delivery of supplemental foods to participants.
(o) Participant, vendor, and home food delivery contractor
complaints. The State agency shall have procedures that document the
handling of complaints by participants, vendors, and home food delivery
contractors. Complaints of civil rights discrimination shall be handled
in accordance with Sec. 246.8(b).
(p) Food instrument security. The State agency shall develop
minimum standards for ensuring the security of food instruments from
the time the food instruments are created or received by the State
agency to the time of issuance to participants at local agencies and
clinics. These standards shall include maintenance by the local agency
of perpetual inventory records of receipt of food instruments from the
State agency and, if applicable, distribution to clinics; monthly
physical inventory of food instruments on hand by the local agency and,
if applicable, clinics; reconciliation of perpetual and physical
inventories of food instruments; and, maintenance of all food
instruments under lock and key by the State agency, local agencies and
clinics, except for supplies needed for immediate use.
(q) Food instrument disposition. The State agency shall account for
the disposition of all food instruments as issued or voided, and as
redeemed or unredeemed. Redeemed food instruments shall be identified
as validly issued, lost, stolen, expired, duplicate, or not matching
valid issuance and enrollment records. 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.
This process shall be performed within 150 days of the first valid date
for participant use of the food instruments and shall be conducted in
accordance with the financial management requirements of Sec. 246.13.
The State agency shall be subject to claims as outlined in
Sec. 246.23(a)(4) for redeemed food instruments that do not meet the
conditions established in this paragraph (q).
(r) Issuance of food instruments and supplemental foods. The State
agency shall:
(1) Establish uniform procedures which allow proxies designated by
participants to act on their behalf. In determining whether a
particular participant should be allowed to designate a proxy or
proxies, the State agency shall 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;
(2) Ensure that the participant or proxy signs for receipt of food
instruments or supplemental foods, except as established in paragraph
(r)(4) of this section;
(3) Ensure that participants and their proxies receive instructions
on the proper use of food instruments, or on the procedures for
receiving supplemental foods when food instruments are not used.
Participants and their proxies shall also be notified that they have
the right to complain about improper vendor and home food delivery
contractor practices with regard to program responsibilities;
(4) Require participants or their 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 required in Sec. 246.4(a)(21), for mailing food instruments to
areas where food stamps are not mailed. State agencies which opt to
mail food instruments must establish and implement a system which
ensures the return of food instruments to the State or local agency if
the participants no longer resides or receives mail at the address to
which the food instruments were mailed; and
(5) Ensure that no more than a three-month supply of food
instruments or supplemental foods is issued to any participant at one
time.
(s) Payment to vendors and home food delivery contractors. The
State agency shall ensure that vendors and home food delivery
contractors are promptly paid for food costs. Payment for valid food
instruments redeemed shall be made within 60 days after receipt of the
food instruments. Actual
[[Page 32341]]
payment to vendors and home food delivery contractors may be made by
local agencies.
(t) Conflict of interest. The State agency shall ensure that no
conflict of interest exists 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) Participant
violations. The State agency shall establish procedures designed to
control participant violations of program requirements. Participant
violations include the following actions by a participant or a proxy:
intentionally making false or misleading statements or intentionally
misrepresenting, concealing, or withholding facts to obtain benefits;
sale of supplemental foods or food instruments to, or exchange with,
other individuals or entities; receipt from food vendors of cash or
credit toward purchase of unauthorized food or other items of value in
lieu of authorized supplemental foods; physical abuse, or threat of
physical abuse, of clinic or vendor staff; and dual participation.
(2) Participant sanctions. The State agency shall establish
sanctions for participant violations. Such sanctions may include
disqualification from the Program for a period up to one year. In cases
in which the participant violation gives rise to a claim (including
dual participation), the participant shall be disqualified for one
year, except if the participant is an infant or child. In those cases,
the State agency may permit another proxy to be designated. If an
alternate proxy acceptable to the State agency cannot be found, the
infant or child shall be disqualified for one year. However, if full
restitution is made prior to the end of the disqualification period,
the State agency may permit the participant to reapply for the Program.
Warnings may be given prior to the imposition of sanctions. Before a
participant is disqualified from the Program for an alleged violation,
that participant shall be given full opportunity to appeal the
disqualification as set forth in Sec. 246.9.
(v) Referral to law enforcement authorities. The State agency shall
refer vendors, home food delivery contractors, and participants who
violate the Program to Federal, State or local authorities for
prosecution under applicable statutes, where appropriate.
7. In Sec. 246.13, paragraph (h) is revised to read as follows:
Sec. 246.13 Financial management system.
* * * * *
(h) Adjustment of expenditures. The State agency shall adjust
projected expenditures to account for redeemed food instruments and for
other changes as appropriate.
* * * * *
8. In Sec. 246.18:
a. The section heading is revised;
b. Paragraphs (a) and (b) are revised; and
c. Paragraphs (c) and (d) are redesignated as paragraphs (d) and
(f), respectively, and are revised, and new paragraphs (c) and (e) are
added.
The revisions and additions read as follows:
Sec. 246.18 Administrative review of State agency actions.
(a)(1) Vendor appeals.--(i) Actions receiving full administrative
reviews. Except as provided elsewhere in this paragraph (a)(1), the
State agency shall provide a full administrative review to vendors that
appeal the following actions: a denial of authorization based on the
selection criteria or on a determination that the vendor is attempting
to circumvent a sanction, a termination of an agreement for cause, a
disqualification, and the imposition of a fine or a civil money penalty
in lieu of disqualification.
(ii) Actions receiving abbreviated administrative reviews. Except
as provided elsewhere in this paragraph (a)(1), the State agency shall
provide an abbreviated administrative review to vendors that appeal the
following actions: a denial of authorization based on the selection
criteria in Sec. 246.12(g)(3)(iii) or (g)(3)(vi), the State agency's
limiting criteria, or because the 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)(6);
termination of an agreement because of a change in ownership or
location or cessation of operations; and a disqualification based on
the imposition of a Food Stamp Program civil money penalty for
hardship.
(iii) Actions not subject to administrative review. The State
agency shall not review a vendor's appeal of the following: the
validity or appropriateness of the State agency's limiting or selection
criteria as defined in Sec. 246.2, the State agency's participant
access determinations, authorization determinations subject to the
State agency's procurement procedures, the expiration of the vendor's
agreement, disputes regarding food instrument payments, vendor claims,
and disqualification of a vendor as a result of disqualification from
the Food Stamp Program.
(2) Local agency appeals. The State agency shall grant a full
administrative review to local agencies that appeal the following
actions: a denial of a local agency's application to participate, a
local agency's disqualification, or any other adverse action that
affects a local agency's participation. Expiration of an agreement with
a local agency shall not be subject to review. The State agency shall
postpone the effective date of adverse actions that are subject to
review (except denials of applications to participate) until a decision
is made on the local agency's appeal.
(3) Effective dates of actions against vendors. Denials of vendor
authorization and disqualifications imposed under Sec. 246.12(l)(1)(i)
shall be made effective on the date of receipt of the notice of
administrative action. All other adverse actions subject to
administrative review shall be effective no earlier than 15 days after
the date of the notice of the action. A State agency may postpone the
effective date of an adverse action subject to administrative review
(except for denials of authorization and disqualifications imposed
under Sec. 246.12(l)(1)(i)) until a decision is made on the vendor's
appeal, only if the State agency determines that the delay is necessary
to ensure either adequate participant access or the effective and
efficient operation of the Program.
(b) Full administrative review procedure. The State agency shall
develop procedures for a full administrative review of the actions
listed in Sec. 246.18(a)(1)(i) and (a)(2). The procedures shall provide
the local agency or vendor with the following:
(1) Written notification of the administrative action, the
procedures to file for an administrative review, if any, and the
cause(s) for and the effective date of the action. Such notification
shall be provided to participating vendors not less than 15 days in
advance of the effective date of the action. When a vendor is
disqualified due in whole or in part to violations in
Sec. 246.12(l)(1), such notification shall include the following
statement: ``This disqualification from WIC may result in
disqualification as a retailer in the Food Stamp Program. Such
disqualification may not be subject to administrative or judicial
review under the Food Stamp Program.'' In the disqualification of local
agencies, the State agency shall provide not less than 60 days advance
notice of pending action.
(2) The opportunity to appeal the adverse action within a time
period
[[Page 32342]]
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. Where
necessary to protect the identity of WIC Program investigators, such
examination may be conducted in camera.
(6) The opportunity to be represented by counsel, if desired.
(7) The opportunity to examine the evidence upon which the State
agency's action is based prior to the review.
(8) An impartial decision-maker, whose determination is based
solely on whether the State agency has correctly applied its policies
and procedures, according to the evidence presented at the review and
the statutory and regulatory provisions governing the Program. State
agencies 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 decision on the appeal, 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.
(c) Abbreviated administrative review procedures. The State agency
shall develop procedures for an abbreviated administrative review of
the actions listed in Sec. 246.18(a)(1)(ii). These procedures shall
provide the vendor written notification of the adverse action, the
procedures to follow for an abbreviated administrative review, the
cause(s) and the effective date of the action, and an opportunity to
provide a written response. The State agency shall render a decision
based on the information provided to the vendor, the vendor's response,
and relevant statutes, regulations, policies and procedures. The
decision maker shall be someone other than the person who rendered the
initial decision on the action. The decision maker shall provide the
vendor a written decision on the appeal, including the basis for the
decision.
(d) Continuing responsibilities. Appealing an action does not
relieve a local agency, or a vendor permitted to continue in the
Program while its appeal is in process, from the responsibility of
continued compliance with the terms of any written agreement with the
State or local agency.
(e) Finality and effective date of decisions. The State agency
procedures shall provide that the decisions rendered under both the
full and abbreviated review procedures are the final State agency
action. If the action under appeal has not already taken effect, the
action shall take effect on the date of receipt of the decision.
(f) Judicial review. If the decision on the appeal is rendered
against the local agency or vendor, the State agency shall inform the
appellant that it may be able to pursue judicial review of the
decision.
12. In Sec. 246.19, paragraphs (a)(2), (b)(2), (b)(5) and (b)(6)
are revised to read as follows:
Sec. 246.19 Management evaluation and reviews.
(a) * * *
(2) The State agency shall submit a corrective action plan,
including implementation timeframes, within 60 days of receipt of an
FNS management evaluation report containing negative findings. 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 shall encompass, but need not be
limited to, evaluation of management, certification, nutrition
education, participant services, civil rights compliance,
accountability, financial management systems, and food delivery
systems. If the State agency delegates vendor training or monitoring to
the local agency, it shall evaluate the local agency's effectiveness in
carrying out these responsibilities.
* * * * *
(5) 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.
These areas will be announced by FNS at least six months before the
beginning of the fiscal year.
(6) The State agency shall require local agencies to establish
management evaluation systems to review their operations and those of
associated clinics or contractors and shall require, within 45 days of
written notification of deficiencies, a written corrective action plan
which explains how all of the identified problems will be addressed and
stipulates timeframes for completion of each corrective action.
13. In Sec. 246.23, paragraphs (a)(4) and (c) are revised to read
as follows:
Sec. 246.23 Claims and penalties.
(a) * * *
(4) FNS will establish a claim against any State agency which has
not accounted for the disposition of all redeemed food instruments and
taken appropriate follow-up action on all redeemed food instruments
which cannot be matched against valid issuance and certification
records, including cases which 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 against participants. (1) If the State agency determines
that program benefits have been improperly obtained as the result of a
participant or proxy intentionally making a false or misleading
statement or intentionally misrepresenting, concealing, or withholding
facts, the State agency shall issue a letter requesting repayment and
indicating that, if the request for repayment is not appealed or is
unsuccessfully appealed, the participant must be disqualified in
accordance with Sec. 246.12(u)(2). If the participant does not make
full restitution in response to this letter, the State agency shall
weigh the cost of each subsequent action in the collection process
against the amount to be recovered and take such action until recovery
is achieved or until the recovery process ceases to be cost-effective.
The State agency may allow participants for whom financial restitution
would cause undue hardship to perform in-kind service determined by the
State agency in lieu of restitution. If full restitution is made prior
to the end of the disqualification period, the State agency may permit
the participant
[[Page 32343]]
to reapply for the Program. The State agency shall maintain on file
documentation of the disposition of all cases of improperly obtained
program benefits covered by this paragraph (c).
(2) 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. 246.12(u)(2) concerning participant
sanctions or the requirements in paragraph (c)(2) of this section
concerning participant claims.
(3) The State agency may delegate to its local agencies the
responsibility for the collection of participant claims.
* * * * *
14. In Sec. 246.26, the heading of paragraph (d) is revised, and
paragraphs (e) and (f) are added to read as follows.
Sec. 246.26 Other provisions.
* * * * *
(d) Confidentiality of applicant and participant information. * * *
* * * * *
(e) Confidentiality of vendor information. Except for vendor name,
address and authorization status, the State agency shall restrict the
use or disclosure of information obtained from vendors, or generated by
the State agency concerning vendors, to:
(1) Persons directly connected with the administration or
enforcement of any Federal or State law, including the WIC Program or
the Food Stamp Program, and the Comptroller General of the United
States. Prior to releasing the information to a party other than a
Federal agency, the State agency shall 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
(2) Appellant vendors, to the extent that the information to be
disclosed is a basis of the action under review as set forth in
Sec. 246.18(b)(1), (b)(7), and (c).
(f) Confidentiality of Food Stamp Program retailer information. The
State agency shall restrict the use or disclosure of Food Stamp Program
retailer information furnished to it, pursuant to Section 9(c) of the
Food Stamp Act of 1977 (7 U.S.C. 2018(c)) and Sec. 278.1(r) of this
chapter to persons directly connected with the administration or
enforcement of the WIC Program.
Dated: June 7, 1999.
Shirley R. Watkins,
Under Secretary for Food, Nutrition and Consumer Services.
[FR Doc. 99-14953 Filed 6-15-99; 8:45 am]
BILLING CODE 3410-30-P
