We want to share one of our experiences dealing with the USDA as there is not enough information publicly available. Also, we noted that small business can be extremely impacted from USDA accusations and in certain cases, there is no opportunity to defend himself or herself without professional assistance, specialized legal team. We continue to see unfavorable rulings through our clients, members of Chambers of Commerce, non for profits and general business owners. In many cases, the civil fines, disqualifications, etc. could have been avoided under proper guidance.
USDA FIRST LETTER –Charges of Trafficking – November 4th, 2019
On November 4, 2019, one of our clients received an USDA (United State Department of Agriculture) letter. In that letter, it expressed that “analysis of the records (Electronic Benefit Transfer – EBT) reveals … transactions that establish clear and repetitive patterns of unusual, irregular, and inexplicable activity for your type of firm” violating Supplemental Nutrition Assistance Program (SNAP). The USDA provided a listing of transactions for the period from March 2019 to August 2019. The number of transactions was 1331 and there were 45 pages in this letter.
The 1,331 transactions were broken down in the following categories:
- Multiple transactions were made from the accounts of individual SNAP household within a set time period
- The bulk of SNAP households’ remaining benefits were depleted within short time frames
- SNAP transactions are large based on the observed store characteristics and recorded food stock
The letter indicated that the sanction for trafficking is permanent disqualification. Additionally, the FNS (Food and Nutrition Service).
Also, the letter provided 10 calendar days to submit a response with all the documentation to prove that the client did not commit any fraud.
Based on our reply, “we make a final decision in this matter”.
CALL TO THE USDA OFFICER IN CHARGE OF THE INVESTIGATION – November 7th, 2019
Once we were aware of this letter, we immediately called the officer to understand what happened and the next steps due to the extremely limited response time less that 10 calendar days for a letter with 45 pages in total and flagging 1,331 transactions.
There were no specific instructions or required documents to be provided in our response and the USDA officer mentioned over the phone to reply to the points in the letter as it was not required to get legal counsel.
FIRST RESPONSE TO USDA – Client letter assisted by CPAs and general lawyers – November 14th, 2019
In our response (4 page letter and 42 pages of support – sample of the 1,331 transactions), we communicated that their report flagged transactions just based on rationale not directly connected with trafficking, just regular consumer behavior. We have provided the details that show how for the sample transactions there are eligible items under each SNAP transaction. We have proved that these are not unusual, irregular, and inexplicable activity for our business.
For example, the category one Multiple transactions were made from the accounts of individual SNAP household within a set time period considered flagged transactions because the card was swiped the same day or a few days from now. Considering a store in the middle of the neighborhood, next to the school, next to the Church, etc. a user could get something in the morning and then, again later when picking up the kids, or walking around. Even might have forgot an item and swiped again the card when another family member got the item.
For example, the category two Bulk of SNAP households’ remaining benefits were depleted within short time frames considered flagged transactions for a few dollars to up to a couple of hundred dollars, in some cases, the total bill was even higher and the SNAP card was used to pay part of the transaction. The neighborhood had numerous families (School close by) and many of those people would buy at the store for the full week.
Additionally, we indicated that the store had cameras, that the store manager was around, that the cashier received appropriate training, etc.
After our phone discussion with the USDA officer, we expected that our lengthy reply (4 pages) with over 42 pages of support, we would have no issues as there was not a clear proof of trafficking and/or fraud.
USDA SECOND LETTER – Permanent disqualification – March 20th , 2020
On March 20, 2020, the USDA sent a letter to permanently disqualify the SNAP. The letter read “We have determined that you are not eligible for the CMP (Civil Money Penalty) because you failed to submit sufficient evidence to demonstrate that your firm had established and implemented and effective compliance policy and program to prevent violations of the SNAP. Therefore, your firm shall be permanently disqualified…”
Again, the letter gave us 10 days to request the administrative review “This determination will be final unless you submit a written request for review to the Chief, Administrative Review Branch… Your request for review must be postmarked by midnight of the 10th calendar day…”
This letter was issued in the middle of the pandemic when people was restricted in their movements and not allowing SNAP recipients to use their card in the store. We never expected to receive this letter and we mobilized all our resources as this resolution was not fair.
First of all, we contacted other professionals to understand if there were any specialized attorneys that could take on this case as the client would lose a significant part of their revenues and potentially have to close business.
We reached out to Congressman Evans as the store was in his area, the Hispanic Chamber of Commerce leadership, non for profits that we collaborate with, other CPAs, EAs, lawyers, etc. and we researched on the internet to find a specialized legal team. Unfortunately, there were not many people that our contacts knew, and time was running out. We reach out to a couple of lawyers found in the internet, one from New York and another from Texas, Mansoor Ansari. Mansoor Ansari (Nexus Tax Defense) replied immediately and we had a great conversation where he was honest about the difficult situation and lay down next steps if we wanted to work together.
From the moment we retained Ansari Tax firm, the client got some checklist, questionnaires, etc. for the administrative review. We had to work with our client to get additional support, address legal team questions, fill out questionnaires, request affidavits, etc.
At this point, out of despair, the client considered closing down and transferring the business. Unfortunately, the USDA makes it difficult to just transfer the business and have a different legal entity to operate that business with delays on the SNAP application process due to additional investigation and/or civil fines.
SECOND RESPONSE TO USDA – Ansari legal team – around March 30h, 2020
After preparing the documents mentioned in the previous paragraph, Mansoor Anzari and his legal team lead by Del Husted release the letter for the Administrative Review.
USDA THIRD LETTER – RECEIPT OF ADMINISTRATIVE REVIEW OF ADVERSE ACTION – April 13, 2020
The USDA communicated that they received the “timely request for administrative review” from the legal counsel.
Additionally, they expressed that “If the adverse action was an application denial or permanent disqualification for trafficking, the store cannot be authorized to accept SNAP benefits during the administrative review process”
USDA FOURTH LETTER – FINAL AGENCY DECISION – July 8th, 2020
The letter indicated that the firm has been reinstated and the case was closed.
The USDA can limit your business from accepting SNAP / EBT which might represent a significant percentage of your sales, even put you out of business. In some cases, the Government will pull a report with normal and routine transactions and deem them trafficking or fraud. You will have to prove why is not fraud and the policies in place to avoid these issues. In many instances, small businesses are defenseless unless ready to go to battle for months with legal counsel and other professionals.
This case shows how even replying as requested by the USDA officer, might get you disqualified. There is not an official list of documents or support that you have to provide so you need to rely on specialized professionals.
Even in the middle of the pandemic (COVID19), the SNAP / EBT user might find that their next-door store no longer can use their SNAP card. Even if the Government allows you later on to continue with the SNAP, the Government will not give you back the loss profit and/or compensate to the damage to your store.
- Review and comply the SNAP guides, rules and regulations in the initial package when you are approved and also see updates online such as SNAP Employment and Training at https://www.fns.usda.gov/snap/et and Retailer Training Material https://www.fns.usda.gov/snap/retailer/training
- Keep your SNAP trainings in a log with a) cashier name and last name, b) date training and c) signature
- You are required to do annual training, but we are asking our clients to complete semiannual trainings
- Prevent and reduce any potential fraud (i.e. install cameras, conduct surprise investigations, etc.)
- Make the SNAP sign visible in your store at the entrance and in the cashier area, and display any other required signs
- If you receive a SNAP letter, find professional counsel with experience dealing on these matters. In many cases, you will need legal help so a specialized attorney might be the best choice
- Do not rely on the USDA officer as he/she is not driven by your best interest or even defend you – USDA is the accusation
- Prepare the documentation as quick as possible and get professional help as deadlines are extremely short