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December 29, 2000

Part VI

Department of
Food and Nutrition Service

7 CFR Part 246
Special Supplemental Nutrition Program
for Women, Infants and Children (WIC):
Food Delivery Systems; Final Rule

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83248 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

DEPARTMENT OF AGRICULTURE these changes falls primarily on State administrative procedures must be
agencies. Local agencies and vendors exhausted.
Food and Nutrition Service will also be affected, some of which are
Executive Order 13132
small entities. However, the impact on
7 CFR Part 246 small entities is not expected to be Executive Order 13132 requires
significant. Federal agencies to consider the impact
RIN 0584–AA80 of their regulatory actions on State and
Whereas extensive data is collected
regarding program participants, the WIC local governments. Although the
Special Supplemental Nutrition
Program does not collect data on the proposed rule was published before the
Program for Women, Infants and
size of businesses that are authorized as Executive Order was issued, we
Children (WIC): Food Delivery Systems
vendors. Of the 45,000 authorized considered the impact on State agencies
AGENCY: Food and Nutrition Service, vendors, it is estimated that when we developed both the proposed
USDA approximately 20,000 of them may be and final rules.
ACTION: Final rule. Before drafting both the proposed and
small businesses. Stores choose whether
final rules, we received input from State
to apply for program authorization. All
SUMMARY: This final rule amends the agencies at various times. Because the
authorized vendors, regardless of their
regulations governing the Special Program is a State-administered,
size, agree to comply with the program
Supplemental Nutrition Program for federally funded program, our regional
requirements. Although this rule offices have formal and informal
Women, Infants and Children. It strengthens some of the program
strengthens vendor management in discussions with State and local
requirements regarding vendors, many officials on an ongoing basis. These
retail food delivery systems by State agencies have already
establishing mandatory selection discussions involve implementation and
implemented similar provisions using policy issues. This arrangement allows
criteria, training requirements, criteria their current authority. For example,
to be used to identify high-risk vendors, State agencies to provide feedback that
although specific selection criteria are forms the basis for many discretionary
and monitoring requirements, including now mandated, most State agencies
compliance investigations. In addition, decisions in this and other Program
already use the noted criteria. As such, rules. In addition, FNS officials attend
the rule strengthens food instrument we do not foresee dramatic future
accountability and sanctions for regional, national, and professional
decreases in the number of smaller conferences to discuss issues and
participants who violate program vendors. Likewise, training is routinely
requirements. It also streamlines the receive feedback from State officials at
provided to vendors. This final rule all levels.
vendor appeals process. The rule will allows such training to be provided on-
increase program accountability and Lastly, the comments on the proposed
site at the vendor, off-site classroom rule from State officials were carefully
efficiency in food delivery and related style, or via a training video or
areas and decrease vendor violations of considered in drafting this final rule.
newsletter. In addition, although the For example, in response to comments
program requirements and loss of State agency is responsible for
program funds. from State agencies we revised the
designating the date, time, and location proposed rule to leave the following
DATES: This rule is effective February of the training, the State agency must areas to State agency discretion: (1) Use
27, 2001. State agencies must offer the vendor at least one alternative of limiting criteria, (2) use of training
implement the provisions of this rule no date on which to attend the training. receipts, (3) development of alternative
later than February 27, 2002. criteria for identifying high-risk
Executive Order 12372
FOR FURTHER INFORMATION CONTACT: vendors, and (4) use of abbreviated
Debra Whitford, Branch Chief, The Special Supplemental Nutrition rather than full administrative review
Supplemental Food Programs Division, Program for Women, Infants and procedures. The preamble below
Food and Nutrition Service, USDA, Children (WIC) is listed in the Catalog contains a more detailed discussion of
3101 Park Center Drive, Room 542, of Federal Domestic Assistance our response to all the comments
Alexandria, Virginia 22302, (703) 305– Programs under 10.557. For the reasons received on the rule.
2730. set forth in the final rule in 7 CFR 3015,
Subpart V, and related Notice (48 FR Unfunded Mandates Reform Act of
29115), this program is included in the 1995
Executive Order 12866 scope of Executive Order 12372 which Title II of the Unfunded Mandates
This final rule has been determined to requires intergovernmental consultation Reform Act of 1995 (UMRA) (2 U.S.C.
be ‘‘significant’’ and was reviewed by with State and local officials. 1531–38) establishes requirements for
the Office of Management and Budget Federal agencies to assess the effects of
Executive Order 12988
(OMB) under Executive Order 12866. their regulatory actions on State, local
This final rule has been reviewed and tribal governments and the private
Regulatory Flexibility Act under Executive Order 12988, Civil sector. Under section 202 of the UMRA,
This rule has been reviewed with Justice Reform. This proposed rule is the Food and Nutrition Service (FNS)
regard to the requirements of the intended to have preemptive effect with generally must prepare a written
Regulatory Flexibility Act (5 U.S.C. respect to any State or local laws, statement, including a cost benefit
601–612). Pursuant to that review, regulations or policies which conflict analysis, for proposed and final rules
Shirley R. Watkins, Under Secretary, with its provisions or which would with ‘‘Federal mandates’’ that may
Food, Nutrition, and Consumer otherwise impede its full result in expenditures to State, local or
Services, has certified that this rule implementation. This rule is not tribal governments, in the aggregate, or
would not have a significant impact on intended to have retroactive effect the private sector, of $100 million or
a substantial number of small entities. unless so specified in the DATES more in any one year. When such a
This rule amends vendor selection, paragraph of this preamble. Prior to any statement is needed for a rule, section
training, monitoring, and appeal judicial challenge to the application of 205 of the UMRA generally requires
procedures and/or systems. The effect of the provisions of this rule, all applicable FNS to identify and consider a

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Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations 83249

reasonable number of regulatory of such modifications would warrant 4. Vendor Selection Criteria
alternatives and adopt the most cost- another opportunity for public input. In 5. Food Instrument Requirements
effective or least burdensome alternative addition, several members of Congress 6. Vendor Violations, Vendor
that achieves the objectives of the rule. requested that the rule be proposed Overcharges, and Vendor Claims
This final rule contains no Federal again in light of its potential impact on 7. Miscellaneous Vendor Agreement
mandates (under the regulatory certain State agency food delivery Specifications
provisions of Title II of the UMRA) for systems. 8. Vendor Training
State, local and tribal governments or In response, we proposed a new food 9. Vendor Monitoring and Identifying
the private sector of $100 million or delivery rule on June 16, 1999 at 64 FR High-Risk Vendors
more in any one year. Thus, the rule is 32308. We subsequently extended the 10. Vendor Administrative Review
not subject to the requirements of comment period from 90 days to 120 Procedures
sections 202 and 205 of the UMRA. days after receiving requests to do so 11.Vendor Authorization and Local
from several potential commenters. We Agency Selection Subject to
Paperwork Reduction Act of 1995
proposed to amend the WIC regulations Procurement Procedures
The reporting and recordkeeping to address the original OIG audit 12. Preventing and Identifying Dual
requirements associated with this final recommendations by strengthening Participation
rule have been submitted for approval to vendor management systems. We also 13. Participant Provisions
the Office of Management and Budget proposed to implement three provisions 14. Home Food Delivery Systems and
(OMB) under OMB No. 0584–0043. This of the William F. Goodling Child Direct Distribution Food Delivery
submission includes a revised reporting Nutrition Reauthorization Act of 1998, Systems
requirement for State Plan submissions P.L. 105–336 (Goodling Act), which 15. General Requirements for Food
(Section 246.4) and new reporting amended the Child Nutrition Act of Delivery Systems
requirements for vendor training 1966, 42 U.S.C. 1771–1791 (Child 16. Vendor Management Staffing
(Section 246.12(i)(1)), vendor Nutrition Act). These provisions require 17. Participant Access Criteria in State
monitoring (Section 246.12(j)(4)), food the State agency to: (1) Identify high-risk Plan
instrument disposition (Section vendors, (2) conduct compliance buys 18. Management Evaluations and
246.12(q)), and targeted local agency on high-risk vendors, and (3) consider Monitoring Reviews
reviews (Section 246.19(b)(5)). In prices in the selection of vendors. 19. Conflict of Interest
addition, the submission includes new We received 4,601 comment letters, 20. Confidentiality
recordkeeping requirements for vendor including three form letters from 4,481 21. References
training (Section 246.12(i)(4)), vendor participants in California, 22 WIC-only b. Plain Language
monitoring (Section 246.12(j)(6)), and stores in California, and 7 food store
participant claims disposition (Section owners in California. This resulted in 94 In addition to the changes we made in
246.23(c)(1)). These new requirements distinct comment letters, which fell into response to the comments, we made
will be effective upon OMB approval. the following categories: State agencies changes throughout the proposed
(28), local agencies (13), State agency regulatory language to make the rule
1. Background easier to read. We added paragraph
staff (2), Federal agencies (2), industry
Major final amendments to the WIC groups (23), vendors (7), public interest headings and made other changes to use
Program regulations regarding food groups (7), general public (2), and plain language. Eventually, the entire
delivery systems were last published on participants (1). After the end of the WIC regulations at 7 CFR Part 246 will
May 28, 1982 at 47 FR 23626 in comment period, several members of be revised similarly.
response to audits and management Congress wrote us to express their
evaluations disclosing problems in the c. Implementation of This Rule
concern about certain aspects of the
food delivery area that could result in proposal. We thoroughly analyzed the One commenter requested that we
the loss of WIC Program funds. Both the comments and made revisions to the provide State agencies with at least one
National Vendor Audit issued by our proposal consistent with the mission of year to implement this final rule.
Office of Inspector General in 1988 and the WIC Program. Another commenter suggested that the
the WIC Vendor Issues Study in 1993 implementation period for the final rule
indicated that significant levels of a. Summary of This Preamble provide for the gradual implementation
vendor violations persisted. (See section This preamble addresses our response of the provisions to avoid disruption in
21 of this preamble for the full citations to the comments. In general, we only State agency vendor services. In their
to the reference materials mentioned in discuss the comments that opposed comment letters, many commenters
the preamble.) proposed provisions and the areas of the indicated that their State agencies had
In response to the National Vendor proposal that are changed by this final already implemented a number of the
Audit, we published a proposed rule on rule. We organized the preamble by provisions in response to our December
December 28, 1990 at 55 FR 53446 to topic rather than the order in which 28, 1990 proposal, because they had
strengthen State agency operations in provisions appear in the final rule. The anticipated that we would finalize that
vendor management and related food headings in the preamble identify the rule. Consequently, State agencies will
delivery areas. We provided a 120-day sections of the final rule that are vary in the amount of effort necessary to
comment period that closed on April 29, discussed in that part of the preamble. implement this final rule. We made this
1991. During the comment period, we To help in using the preamble, we rule effective 60 days after publication
received 1,066 comments from State and included an outline of the areas covered and require State agencies to fully
local agencies, vendors and associated in the preamble below. implement its provisions no later than
groups, public interest groups, members 1. Background one year after the effective date.
of Congress, members of the public, and 2. Definitions of ‘‘Vendor’’ and ‘‘Vendor The one-year implementation period
WIC participants. They indicated that Authorization’’ and General recognizes the variations among State
significant modifications to the Provisions for Vendor agency operations and provides
December 1990 proposed rulemaking Authorization and Agreements adequate time for State agencies to
were still required, and that the extent 3. Vendor Limiting Criteria incorporate these changes into their

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83250 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

food delivery systems. Not all ‘‘vendor violation,’’ because a vendor exceed the State agency’s selection
provisions from this final rule must be violation requires an intentional or criteria, unless the State agency allows
implemented at the same time. For unintentional action by the vendor, for exceptions, such as for mobile stores
example, a State agency that enters into which cannot be committed by a store. or for pharmacies that provide only
vendor agreements on a rolling basis Another commenter noted that requiring exempt infant formula and/or WIC-
may decide to amend the agreements as the State agency to enter into separate eligible medical foods. The State
new ones are entered into, provided that agreements with each store, instead of agency’s authorization decisions must
agreements reflecting the new entering into one agreement to cover balance its need to provide adequate
requirements are in place for all vendors multiple stores operated by the same participant access with its need to
prior to the end of the implementation business entity, would triple the State ensure effective vendor management,
period. Many State agencies have agency’s administrative burden of oversight, and review. Chain stores must
established vendor councils to facilitate contracting with its vendors. apply for vendor authorization in the
communication between the State Once again, we believe the same manner as any other store, and the
agency and its vendor community. We commenters’ suggestions and concerns State agency is not obligated to
have found that such councils can be have merit, but we believe for a number authorize all stores operated by a
helpful as State agencies implement of reasons that the concept of ‘‘vendor’’ business entity.
changes to their food delivery systems. must refer to a single store operated by One commenter suggested that we
We recommend that State agencies a business entity. For instance, if the delete the reference to mobile stores
either establish vendor councils or use concept of vendor only referred to the from the definition of vendor, because
existing ones to ensure the timely business entity, including a corporation such stores create opportunities for
implementation of this rule. operating multiple stores, what would fraud and abuse and can be difficult to
happen if one manager at one store of monitor. The State agency may only
2. Definitions of ‘‘Vendor’’ and ‘‘Vendor the largest chain in the State is authorize mobile stores when they are
Authorization’’ and General Provisions convicted of trafficking? Similarly, what necessary to ensure adequate participant
for Vendor Authorization and Vendor would happen if one store of the largest access. Although we understand the
Agreements chain is disqualified for three years from commenter’s concerns, these stores,
a. Definition of ‘‘Vendor’’ (Section the Food Stamp Program (FSP)? Would when authorized, must fall under the
246.2) such sanctions require the State agency definition of a vendor to be held
to disqualify the business entity, accountable for compliance with the
Commenters generally supported the including all of its stores, from the WIC Program’s vendor requirements. For this
proposed definition of ‘‘vendor.’’ Program? If so, would business entities reason, we did not accept the
However, thirteen commenters operating multiple stores always receive commenter’s suggestion.
suggested that we modify the definition civil money penalties in lieu of
to use the term ‘‘retailer’’ instead of b. Definition of ‘‘Vendor Authorization’’
disqualification because their
‘‘vendor,’’ because the term retailer is (Section 246.2)
disqualification would always result in
used by vendors, State governments, inadequate participant access? In response to the proposed definition
and the Food Stamp Program. Although We believe that the State agency of the term ‘‘vendor authorization,’’ one
we acknowledge the two terms are often should be able to disqualify a single commenter noted that the definition
used interchangeably, the fact remains store of a large chain, provided that improperly uses the term ‘‘vendor’’
that the requirements for WIC vendors participants have adequate access to when referring to a store that has not yet
and Food Stamp Program retailers differ other vendors operating in the same been authorized as a vendor. We revised
in several basic ways. The term vendor area. Consequently, we revised the the definition to use ‘‘store’’ rather than
uniquely identifies stores authorized for definition of vendor to clarify that each ‘‘vendor.’’ We made conforming changes
the WIC Program. Therefore, we did not store operated by a single business throughout the rule to use ‘‘store’’ or
make this modification. entity must be authorized separately. ‘‘vendor applicant’’ when referring to a
Seven commenters noted that the However, Section 246.12(h)(1) of this store that is not yet authorized.
definition of vendor did not include final rule continues to permit the State
several types of business entities that c. Entering into Vendor Agreements
agency to use a single agreement to
may operate stores, such as limited (Sections 246.12(h)(1) and
cover multiple vendors (i.e., multiple
liability companies, limited 246.4(a)(14)(iii))
authorized stores) operated by the same
partnerships, and franchisers/ business entity. Under this approach, To become a vendor, a store must
franchisees. Rather than attempt to list the State agency will still be able to apply for program authorization, meet
all types of business entities in the sanction multiple vendors for a vendor or exceed the State agency’s selection
definition, we decided to specify the violation committed by owners, officers, criteria, and enter into an agreement
more common types of business entities or managers of a single business entity, with the State agency. In Section
and include a reference to ‘‘or other if the State agency determines that the 246.12(h)(1), we proposed to require
business entity’’ to cover all other vendor violation involves multiple vendor agreements to be signed by ‘‘a
business entities. This approach also vendors. representative who has legal authority
will accommodate any new types of One commenter suggested that the to obligate the vendor and a
business entities that may be created in term vendor refer to the business entity representative of the State agency.’’ We
the future. only so that the State agency must proposed this change to ensure that
Several commenters requested that we authorize all of a business entity’s stores vendors are authorized consistently
distinguish between the concept of and not arbitrarily authorize some of the statewide. Fifteen commenters opposed
vendor as a business entity and the business entity’s stores while denying this proposed change for a variety of
concept of vendor as the location of the authorization to some of its other stores. reasons, including: local agencies need
business (i.e., the store itself). One As discussed below in section 4 of this to sign vendor agreements to establish
commenter asserted that this change is preamble, vendor authorization is not authority over and communication with
necessary to make the definition of an arbitrary process. To be authorized, vendors as well as to be accountable to
vendor consistent with the definition of each vendor applicant must meet or the State agency for vendor oversight;

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local agencies can use a standard However, such systems must ensure that selection criteria in effect at that time.
agreement and carry out this activity the store provides updated information One commenter suggested that we
using the State agency’s procedures and regarding all of the selection criteria, modify the provision so that a vendor
guidance; and requiring the State agency including information regarding its that fails to meet a selection criterion
to enter into all vendor agreements current prices, quantities and varieties during a reassessment be given the
would increase costs, may cause such of the supplemental foods it stocks, and opportunity to correct the deficiency.
agreements to fall under the State’s business integrity, as well as updated The State agency may include as part of
procurement procedures, and may information regarding the store’s both its vendor selection process and its
expose the State agency to additional ownership and management. Regardless reassessment process an opportunity to
financial liability. To address the of whether a store is applying for correct any deficiency that would
commenters’ concerns, the final rule reauthorization or initial authorization, otherwise lead to nonselection or
adds Section 246.12(h)(1)(ii) to allow the State agency must select vendors termination of the vendor agreement.
the State agency to delegate the signing based on its current selection criteria. However, this is at the discretion of the
of vendor agreements to local agencies For these reasons, we retained the three- State agency, and the State agency must
as long as such delegation authority is year limit on vendor agreements. make this clear in its procedures for
indicated in its State Plan (Section A majority of commenters opposed implementing its vendor selection
246.4(a)(14)(iii)) and the State agency the portion of the provision in proposed criteria.
provides supervision and instruction to Section 246.12(g)(6) that provides that Another commenter pointed out that
ensure the uniformity and quality of the State agency may limit the periods the vendor agreement section of the
local agency activities. Although the during which it will accept and process proposal did not clearly reflect the
State agency may delegate certain applications for vendor authorization, requirement in this section that
vendor authorization and management except that applications must be specifies that the State agency must
activities to its local agencies, it is the accepted and processed at least once terminate the agreements with vendors
State agency that is ultimately every three years. Many commenters that no longer meet its selection criteria.
responsible for such activities and the misunderstood this provision as
In addition, we noticed that the vendor
language in this final rule reflects that requiring all State agencies to only
agreement section did not make clear
responsibility. accept applications once every three
that vendors must comply with the
years. The commenters noted a wide
d. Length of Vendor Agreements vendor selection criteria throughout the
variety of arguments against such
(§ 246.12(h)(1)) and Limiting Periods for agreement period. We agree with the
limited application periods. However,
Vendor Applications (§ 246.12(g)(7)) commenter and added Section
the State agency has always had the
In Section 246.12(h)(1), we also 246.12(h)(3)(xxiv) in the final rule to
discretion to restrict its timeframes for
proposed to limit the length of vendor make these clarifications.
accepting and processing vendor
agreements to a period not to exceed applications. Some State agencies have f. Vendor Agreement Not a License or
three years. Under this proposed found such restrictions very useful in Property Interest (§ 246.12(h)(3)(xxi))
requirement, to continue as an establishing annual workplans for their
authorized vendor, a store periodically limited staffs. The proposal would only We proposed in Section
would need to reapply for program have specifically incorporated this 246.12(h)(3)(xxi) to clarify that the
authorization. Whereas eleven discretion in the program regulations vendor agreement does not constitute a
commenters supported this proposed and clarified that if the State agency license or a property interest and if the
provision, sixteen opposed the three- chose this approach, applications must vendor wishes to continue to be
year limit on vendor agreements for a be accepted ‘‘at least once every three authorized beyond the period of its
variety of reasons, including: the years.’’ The proposal also would have current agreement, the vendor must
provision would be counter-productive required the State agency to develop reapply for authorization. Although
to State agencies that use more resource- procedures for processing vendor commenters overwhelmingly supported
efficient, automatic renewal or annual applications outside of its timeframes this provision, fourteen commenters
renewal systems; the provision would when it determines there will be questioned whether a vendor that has
discourage stores from applying for inadequate participant access unless been disqualified for a period of time
authorization; and the provision would additional vendors are authorized. This that is less than the remaining term of
result in stores exiting and re-entering provision is consistent with the three- its agreement should be allowed to
the Program, causing confusion for year limit on vendor agreements and is resume its authorization without
participants. adopted in Section 246.12(g)(7) of the reapplying. Commenters indicated that
One commenter suggested that, rather final rule. when a vendor is disqualified, its slot
than requiring stores to reapply every may need to be filled immediately to
three years, the State agency be e. Vendor Reassessment (§§ 246.12(g)(3) ensure adequate participant access. In
permitted to automatically renew and (h)(3)(xxiv)) addition, they also noted that this is
vendor agreements if there are no One commenter suggested that, rather inconsistent with the State agency’s
vendor violations. Although we than requiring vendors to reapply every authority to reassess a vendor at any
understand the commenter’s viewpoint, three years, the State agency should be time during the agreement period and
we believe only stores that can permitted to conduct annual reviews of terminate the vendor’s agreement if it no
demonstrate they continue to meet or vendor qualifications. The requirement longer meets the selection criteria. In
exceed the State agency’s current for three-year agreements is not response to the commenters’ concern,
selection criteria should continue to be inconsistent with a State agency’s we revised Section 246.12(h)(3)(xxi) to
authorized. Requiring vendors to periodic review of vendor notify vendors that the State agency will
reapply for authorization at least every qualifications. In Section 246.12(g)(3), terminate the agreements of vendors
three years does not preclude the State we proposed to authorize the State that are disqualified. A store may
agency from developing a streamlined agency to reassess any authorized reapply for vendor authorization after
system for accepting reapplication vendor at any time during the vendor’s the expiration of its disqualification
information from current vendors. agreement period using the vendor period.

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g. Compliance with Applicable Statutes, regarding changes in business structure. comment because it could impair the
Regulations, Policies, and Procedures One commenter noted that vendor owner from selling the store to a
(§ 246.12(h)(3)(xxii)) and Notifying agreements are nontransferable; legitimate buyer for its fair market
Vendors of Changes (§ 246.12(h)(7)) therefore, a transfer of a majority value. One commenter indicated that a
All five commenters supported our interest in a store renders the agreement denial of authorization based on this
proposal to require vendor agreements null and void. Another commenter provision would be difficult to uphold
to make clear that vendors must comply warned that phrases like ‘‘changes in on appeal. Another commenter
with any changes to the Program statute business structure’’ and ‘‘corporate suggested that a new owner could be
and regulations and State policies and reorganization’’ open the door for required to sign an affidavit during the
hidden ownership changes. Another application process stating that the
procedures. One commenter pointed out
commenter indicated that the State previous owner has no interest and is
that we needed to reference State laws
agency must verify changes in business not involved in the business. We believe
and regulations as well as State policies
structure through its Secretary of State’s that through its application and
and procedures. We revised this
business division, because past selection process the State agency will
provision to clarify that vendors must
experience has shown that some be able to prevent and detect situations
comply with the vendor agreement and
corporations will call a change in in which owners sell stores to
Federal and State statutes, regulations,
ownership a restructuring in order to circumvent WIC sanctions.
policies, and procedures governing the
maintain their WIC authorization. Consequently, we retained this
Program, including any changes made Several commenters asked that we provision in Section 246.12(g)(5) of the
during the agreement period. To ensure either delete or clarify the exception for final rule.
that vendors are notified of such the State agency to ‘‘permit vendors to
changes, we also added Section move short distances without voiding j. Data Collection at Authorization
246.12(h)(7) in the final rule to require the agreement.’’ One commenter (§ 246.12(g)(8))
the State agency to provide vendors suggested that we delete the exception The proposal included a provision
with notice of changes to Federal or to send a clear message to vendors that that would require the State agency to
State statutes, regulations, policies, and if a store changes location, then the collect a vendor applicant’s shelf prices
procedures governing the Program at the vendor must reapply to be a vendor at and its FSP authorization number if it
time they are implemented by the State the new location. Another commenter participates in that program. One
agency. We encourage the State agency indicated that in an urban area a move commenter asked that we clarify
to provide as much advance notice of across the street may result in a change whether a vendor applicant had to be
such changes as possible. In addition, in zip code, and allowing a vendor to authorized by the FSP to be selected for
the State agency is required by Section move into another zip code without WIC authorization and whether a WIC
246.12(i)(2) to include changes to voiding its agreement may result in application should be delayed until the
program requirements in their annual denial of another vendor in that same vendor applicant provides its FSP
vendor training. zip code without providing equal authorization number. Another
h. Notification of Changes in Vendor review of both potential locations. commenter suggested that we require
Ownership, Store Location, or Cessation In response to commenters’ concerns, vendor applicants to be authorized by
of Operations (§ 246.12(h)(3)(xvii)) we modified Section 246.12(h)(3)(xvii) the FSP in order to be WIC authorized.
in the final rule to remove the specific We proposed this requirement in part to
In Section 246.12(h)(3)(xvii), we length of advance notice required and to improve the State agency’s coordination
proposed to require vendors to provide clarify that it is within the State with the FSP in the reciprocity of
the State agency with at least 45 days agency’s discretion to determine: the sanctions, as required by the WIC/Food
advance notification in writing of a length of advance notice required for Stamp Program Vendor Disqualification
change in vendor ownership, store vendors reporting changes under this final rule published on March 18, 1999
location, or cessation of operations. A provision, whether a change in location at 64 FR 13311 (Vendor Disqualification
majority of commenters opposed the 45- qualifies as a short distance, and final rule). If a vendor applicant that is
day advance notification and whether a change in business structure authorized in the FSP fails to provide its
recommended a variety of alternative constitutes a change in ownership. In FSP authorization number, the State
timeframes, including 30 days, 21 days, addition, we clarified that the notice agency must delay or deny
15 days, promptly, as soon as must be in writing and revised this authorization, because this provision
practicable, and a number of days provision to use the term ‘‘terminated,’’ requires the State agency to collect this
specified by the State agency in the instead of the term ‘‘voided,’’ when information at the time of application.
vendor agreement. Two commenters referring to vendor agreements. Although some State agencies may
noted that the proposed 45-day notice is require FSP authorization as a condition
unenforceable because in most i. Sale of Store to Circumvent a WIC of WIC authorization, Federal
situations the vendor allows its Sanction (§ 246.12(g)(5)) regulations do not include such a
agreement to expire. Several In Section 246.12(g)(4), we proposed requirement.
commenters noted that a 45-day notice to prohibit the State agency from In this provision, we also proposed
is impractical because businesses cease authorizing a vendor applicant when it that the State agency collect the vendor
operations, buy and sell stores, and determines that the store has been sold applicant’s shelf prices, ‘‘unless the
change ownership on short notice. In (i.e., a change in ownership) to State agency uses competitive bidding
addition, many business transactions, circumvent a WIC sanction. Seventeen to set vendor prices for such foods.’’ In
such as a change in ownership, contain commenters supported this provision. retrospect, we believe that the exception
confidentiality requirements that One commenter suggested we modify is inappropriate because a State agency
prohibit the disclosure of information the provision to prohibit authorization that uses a competitive bidding system
until the deal is consummated in order of a store that has been sold until the needs the vendor applicant’s shelf
to maintain employees and customers. disqualification period is over, because prices to ensure that the vendor
Several commenters requested that we this would be easier for the State agency applicant’s bid prices do not exceed its
delete the last sentence of the provision to implement. We did not accept this shelf prices. For this reason, we deleted

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the exception. We added a heading to and still address the GAO’s As noted in the preamble to the
this provision, ‘‘Data collection at recommendation. Through the proposed rule, section 17(h)(11) of the
authorization,’’ and retained it in management evaluation process, we Child Nutrition Act (42 U.S.C.
Section 246.12(g)(8) of the final rule. assess whether the State agency 1786(h)(11)) requires the State agency to
effectively manages its vendors and take into consideration the prices a store
3. Vendor Limiting Criteria
requires the corrective actions when charges for supplemental foods
(§§ 246.12(g)(2) and 246.4(a)(14)(ii))
necessary. For these reasons, we compared to other stores when selecting
We proposed to require the State adopted strong selection criteria, as stores for program authorization. This
agency to limit the number of vendors discussed below, and retained the State section also requires the State agency to
it authorizes to a level that ensures agency’s authority to establish criteria to establish procedures to ensure that
adequate participant access as well as limit the number of vendors it authorized stores do not subsequently
effective State agency management, authorizes. We also made a conforming raise their prices for supplemental foods
oversight, and review of authorized change to Section 246.4(a)(14)(ii) to to levels that would otherwise make
vendors. Although current regulations clarify that the State agency is only them ineligible for authorization.
permit the State agency to limit its required to include limiting criteria in Therefore, we retained the competitive
number of authorized vendors, its State Plan if the State agency opts to price selection criterion in the final rule.
commenters overwhelmingly opposed use such criteria. However, we revised this provision to
the proposed provision to require address commenters’ concerns and to
vendor limitation. Commenters stated 4. Vendor Selection Criteria
clarify the requirements for this
that mandatory limitation would be A substantial majority of the criterion.
impossible to implement consistently comments we received on the use of First, we clarified the distinction
throughout the State agency’s mandatory vendor selection criteria between the ‘‘competitive price
jurisdiction, add another layer to the supported the provision as proposed. selection criterion’’ and ‘‘price
authorization process, be an Commenters pointed out that making limitations.’’ The competitive price
unnecessary administrative burden, be vendors meet or exceed strong selection selection criterion is the process of
costly to implement, create access criteria in order to be authorized is more considering, at the time of vendor
problems for participants, impede the effective than conducting compliance authorization, the prices a vendor
State agency’s ability to adapt to growth investigations on vendors after they applicant charges for supplemental
during agreement cycles, result in more have been authorized. One commenter foods as compared to the prices charged
appeals and litigation, and create ill will noted that selection criteria will keep by other vendor applicants and
among cooperating vendors. vendors honest and may improve authorized vendors. The State agency
A majority of those who opposed vendors’ attitudes toward participants, may evaluate a vendor applicant based
mandatory limitation suggested that because vendors will not take for on its shelf prices or on the prices it bids
Federal rules focus on selection rather granted that they automatically qualify for supplemental foods, which may not
than limitation and that limitation for WIC authorization. Those few exceed its shelf prices.
should remain at the State agency’s commenters opposing mandatory The State agency also must establish
discretion. The rationale for this selection criteria asserted that the State price limitations that the authorized
compromise is that strong selection agency should have the discretion to vendor may not exceed during its
criteria limit the number of authorized establish the selection criteria and that agreement period. The price limitations
vendors without the problems the proposed mandatory selection must be designed to ensure that the
associated with limiting criteria. The criteria were too stringent and would State agency does not pay a vendor at
General Accounting Office (GAO) study impair the viability of some vendors. a level that would otherwise make the
(‘‘Efforts to Control Fraud and Abuse in As noted in the preamble to the vendor ineligible for authorization. This
the WIC Program Can Be Strengthened’’) proposed rule and by those who term is also used in the vendor
released in August 1999 states that ‘‘42 commented on the proposal, State agreement section in connection with
of the 51 State agencies [surveyed] agency experience has shown that the provision in Section 246.12(h)(4)
reported making some effort to limit the strong selection criteria can provide a that requires the State agency’s
number of authorized vendors.’’ cost-effective means of both cost redemption procedures ensure that the
However, more State agencies reported containment and prevention of vendor vendor is not paid more than the price
using strong selection criteria to limit violations. Therefore, this final rule limitations applicable to that vendor
their number of authorized vendors than retains the requirement for mandatory and in Section 246.12(k)(1) in the
reported using limiting criteria. The vendor selection criteria. We discuss the context of the requirements for State
GAO recommended that we ‘‘[a]mend comments and changes to the individual agency review of food instruments (and
the regulations on vendor management selection criteria below. discussed further in section 6.d of the
to ensure that the States limit their preamble). We also made a conforming
authorized vendors to a number they a. Competitive Price and Price change to Section 246.14(b)(2) to make
can effectively manage and issue Limitations (§§ Sections 246.12(g)(3)(i) clear that for food costs to be allowable,
guidance to States on the specific and 246.14(b)(2)) they may not exceed the price
criteria we will use to assess their A majority of the commenters limitations applicable to the vendor.
compliance with the regulations and the supported the competitive price Several commenters noted the
actions they would need to take if we selection criterion, although a number importance of giving the State agency
determine that they have authorized of those commenters suggested the flexibility to determine the best
more vendors than they can effectively modifications. Some commenters method to implement the competitive
manage.’’ recommended that we either delete the price criterion. In response, we included
We believe the compromise noted competitive price criterion or make it a a description of this requirement in the
above, to require strong selection State agency option. Others indicated final rule to clarify the range of
criteria and retain limitation at the State that we should allow the marketplace to flexibility the State agency has in
agency’s discretion, will achieve our establish the prices of supplemental implementing the competitive price
goal of reducing vendor fraud and abuse foods. criterion. In response to a number of

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83254 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

questions from commenters, the final and then periodically conducts a document it has ordered. Two
rule also clarifies that the State agency reassessment of the vendor’s prices to commenters suggested that the State
may establish competitive price criteria ensure they meet the applicable price agency be permitted to authorize stores
and price limitations for different limitations. that do not stock infant formula or to
vendor peer groups. Scenario 3: The State agency authorize pharmacies that only provide
Another commenter suggested that we establishes a maximum price it will pay exempt infant formula and/or WIC-
permit the State agency to except for each type of food instrument and eligible medical foods to participants.
pharmacies that only provide exempt then includes a provision in the vendor The State agency may accommodate
infant formula and/or WIC-eligible agreement that the State agency will not such stores when it determines that they
medical foods from the competitive pay vendors in excess of the maximum are necessary to ensure adequate
price criterion and price limitations price established for each food participant access. As with the
because pharmacies often do not know instrument. competitive price criterion, it is critical
the price of exempt infant formula and/ that the State agency clearly incorporate
b. Minimum Variety and Quantity of
or WIC-eligible medical foods until they any necessary flexibility in its selection
Supplemental Foods (§ 246.12(g)(3)(ii))
order it. This final rule authorizes such criteria at the time the criteria are
an exception. Almost all of the commenters established so that all vendor applicants
Several commenters indicated that the supported the requirement to consider are held to the same standards. In
competitive price criterion would have as part of the selection process whether recognition of the wide range of stores
a negative effect on smaller stores that vendor applicants stock a minimum that serve as vendors, this rule clarifies
may have higher operating costs or that variety and quantity of supplemental that the State agency may establish
may be unable to offer supplemental foods. Commenters noted that the different minimum variety and quantity
foods at prices below their costs. As minimum variety/quantity requirement standards for different vendor peer
noted in the preamble to the proposed is one of the best selection criteria and
groups. However, we must emphasize
rule, in many areas smaller vendors are is more effective at limiting the number
the importance of establishing
essential to ensuring participant access. of vendors the State agency authorizes
appropriate minimums so that
As with all aspects of its food delivery than using limiting criteria. One
participants are able to obtain all of the
system, the State agency must ensure commenter noted that the proposed rule
authorized supplemental foods on their
adequate participant access when it did not make clear that authorized
food instruments. Vendors may not
establishes its competitive price vendors must maintain the minimum
provide substitutions, cash, or credit
criterion and price limitations. variety and quantity of supplemental
(including rainchecks) if the authorized
Developing appropriate vendor peer foods at all times, not just at the time
supplemental foods are not available.
groups is one way the State agency can of authorization. As discussed in section
2.e of this preamble, Section Authorizing vendors that do not
both ensure adequate participant access
246.12(h)(3)(xxiv) of this final rule puts maintain the required minimum stocks
and consider prices during the vendor
vendors on notice that they must of supplemental foods undermines the
selection process. Contrary to one
comply with all the vendor selection nutritional goals of the Program.
commenter’s suggestion, the State
agency continues to retain the discretion criteria, including this one, throughout c. Business Integrity (§ 246.12(g)(3)(iii))
to decide whether and how to establish the vendor agreement period.
Four commenters suggested that we Although a majority of commenters
its vendor peer groups.
Both supporting and opposing adopt the same criterion for minimum supported the proposal to require the
commenters questioned how to handle variety and quantity as the FSP has State agency to consider the business
price fluctuations that may occur during proposed to establish for its authorized integrity of vendors in the selection
the agreement period due to government retailers. The FSP proposal would process, many commenters suggested
and market forces beyond a vendor’s require retailers to offer for sale at least modifications to the business integrity
control. We clarified in the final rule three varieties of staple food intended criteria. We proposed three criteria in
that the State agency may include a for home preparation and consumption this category: (1) Lack of a record of
factor in its price limitations to account in each of four categories of staple foods criminal conviction or civil judgment
for fluctuations in wholesale prices. For (meat, poultry, or fish; bread or cereals; for certain offenses that indicate a lack
example, the State agency could include vegetables or fruit; and dairy products). of business integrity; (2) lack of a history
an inflation factor in its price The inherent differences in the types of of serious vendor violations; and (3)
limitations. food that program participants may lack of a history of serious FSP
Commenters also asked us whether obtain with food stamps versus WIC violations.
certain scenarios would satisfy the food instruments makes this definition Even those commenters who agreed
requirement to ensure compliance with inappropriate for the WIC Program. with the substance of these criteria
the price limitations throughout the Furthermore, the variations in the found them confusing. We completely
agreement period. The following supplemental foods approved by each rewrote this section to clarify the
scenarios would satisfy the requirement: State agency make it difficult to requirements. In addition, we
Scenario 1: The State agency assigns establish a standard definition for the strengthened the regulatory language to
vendors to peer groups upon WIC Program. Therefore, this final rule emphasize that the State agency may
authorization and then makes price does not adopt a standard definition of rely solely on facts already known to it
adjustments to its payments to vendors the minimum variety and quantity of and representations made by vendor
based on the price limitations supplemental foods that vendor applicants on their vendor applications.
applicable to the vendor’s peer group. applicants must stock. Rather, such This change responds to the many
Scenario 2: The State agency decisions are left to State agency commenters who asked whether costly
compares the prices a vendor applicant discretion. background checks were required and
charges for supplemental foods with Several commenters suggested that we whether the State agency would be held
those charged by other vendor establish some flexibility or tolerance in accountable for authorizing vendors
applicants and authorized vendors to this requirement or consider whose criminal records were not known
determine which vendors to authorize supplemental foods that a vendor can to the State agency.

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Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations 83255

Several commenters indicated that the criterion because it would be difficult such violations mandatory vendor
proposal did not make clear what would for the State agency to apply in a fair selection criteria, we decided to give the
happen if the State agency discovered and consistent manner. Two State agency the discretion to establish
that a vendor had lied on its commenters requested that we clarify selection criteria for serious WIC and
application. This final rule adds a the number of years that constitutes a FSP violations or use such vendor
sentence to the termination provision in vendor applicant’s ‘‘history.’’ information to identify high-risk
Section 246.12(h)(3)(xvi) notifying the Vendors play a valuable role in most vendors.
vendor that the State agency will State agencies’ food delivery systems. We want to point out that we
terminate its agreement if the State We believe it is critical that the State proposed to make failure to participate
agency determines that it has provided agency consider business integrity in in the annual vendor training a basis for
false information in connection with its the selection of its vendors, because the nonselection. Although this is not
application. Two commenters integrity of vendors reflects on the required by the selection criteria in the
questioned the value of vendor self- integrity of the WIC Program. Congress final rule, many State agencies have
declarations on applications. We believe made clear its concern about the found this to be an effective means of
that adding a requirement to terminate integrity of vendors when it required: vendor management. The State agency
the vendor agreement when a vendor is high-risk identification and compliance continues to have the authority to
found to have provided false investigations of vendors; permanent establish failure to attend vendor
information will deter such behavior disqualification for vendors convicted of training as a selection criterion.
among vendor applicants. trafficking; and disqualification of
iii. Sanctions Imposed by Another WIC
Several commenters questioned the vendors that have been disqualified as
State Agency (§ 246.12(l)(2)(iii))
people covered by the business integrity retailers in the FSP. We substantially
criteria. One commenter suggested that revised the business integrity criterion A number of commenters responded
the criteria include immediate family in the final rule to clarify that only to our request for comments on whether
members of the owners, officers or criminal convictions and civil to make mandatory vendor sanctions
partners, managers, and any judgments imposed in the six years imposed by another WIC State agency a
stockholders who have a substantial role prior to the application must be mandatory selection criterion. Almost
in the operation of a store. Two other considered and to clarify the areas of all commenters supported this idea,
commenters questioned who would be this criterion in which the State agency although most suggested various
covered in a publicly traded company. has discretion. We have not modifications. Three commenters
The proposed rule would have applied distinguished between felonies and requested that, if established, the
the business integrity criteria to the misdemeanors because of the wide selection criterion should permit the
business entity itself and its current variation among States in designating State agency to rely on the
owners, officers, directors, or partners. these criminal offenses as felonies vs. representations made by vendor
We revised this provision in the final misdemeanors. applicants on their vendor applications.
rule to cover only the vendor’s current Other commenters suggested that we
ii. No Serious WIC Program Vendor maintain a database for State agencies to
owners, officers, and managers. This
Violations and No Serious Food Stamp use for this purpose. Under the final
change conforms the coverage to
Program Violations rule, the State agency has the discretion
parallel the FSP rule and recognizes the
important role managers play with Commenters were divided on the to establish a selection criterion to
respect to a vendor applicant’s business merits of the proposed selection criteria consider WIC sanctions imposed by
integrity. for a lack of a history of serious WIC another State agency.
violations and a lack of a history of Two commenters asked how the State
i. No Criminal Conviction or Civil serious FSP violations. Many agency would be able to uphold a denial
Judgment commenters believed that both criteria of authorization on appeal if it denied
We also had a number of questions went too far because serious WIC and authorization to a vendor based on a
and suggestions about the specific FSP violations are those that give rise to WIC sanction imposed by another State
business integrity criteria. With respect a disqualification, criminal conviction, agency or based on a FSP sanction.
to the criteria requiring a lack of a or civil judgment. Furthermore, if These commenters suggested that
record of a criminal conviction or civil violations do not rise to such a level, information about WIC sanctions
judgment for certain offenses that then they should not be used as a basis imposed by other State agencies be used
indicate a lack of business integrity, to deny authorization. Two commenters to identify high-risk vendors rather than
commenters wanted to know whether noted that this criterion could as a selection criterion. Three
the State agency would be limited to the effectively extend a one-year commenters believed that only the
listed activities, whether to consider disqualification for up to six more years. mandatory sanctions, not State agency-
felonies or misdemeanors or both, and Other opposing commenters reiterated established sanctions, imposed by
what is meant by ‘‘business integrity’’ their views that the business integrity another State agency should result in
and ‘‘business honesty.’’ Four criteria are confusing and bureaucratic nonselection. Whereas one commenter
commenters opposed this provision on and that vendor integrity is better raised concerns about the time and costs
the grounds that once a person has handled through vendor monitoring. On of denying authorization based on WIC
served a criminal sentence, that person the other hand, one commenter sanctions imposed by another State
should not be further penalized through suggested that we permit the State agency, another commenter asserted
denial of authorization. Two other agency to set a timeframe of longer than that if a vendor commits vendor
commenters suggested that rather than the proposed six years for cases of violations in one State agency’s WIC
denying authorization for such offenses, particularly egregious violations. Program, the vendor is likely to commit
stores that cannot meet this selection We did not include these two criteria such violations in another State
criterion should be authorized and then in the final rule, even though we believe agency’s WIC Program.
identified as high-risk vendors subject serious WIC and FSP violations do For a State agency that opts to deny
to compliance investigations. Another reflect on the business integrity of authorization based a prior WIC
commenter opposed this selection vendor applicants. Rather than make sanction, a WIC sanction by another

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83256 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

State agency, or a FSP withdrawal of authorization to a vendor applicant that food instruments be more specific and
authorization or prior FSP did not meet one or more of the to the point. A major responsibility of
disqualification, we made a selection criteria. We clarified in the vendors is to make sure that they accept
corresponding change to the final rule that a vendor applicant that food instruments only during their valid
administrative review procedures. This does not meet the competitive price and dates. This requirement is similar to
change specifies that if the State agency minimum variety/quantity criteria may accepting manufacturers’ coupons,
denies authorization to a vendor not be authorized, even if such denial of which are for specific food items and
applicant based on a WIC sanction authorization would result in contain expiration dates. Cashiers must
(regardless of which State agency inadequate participant access. For the be familiar enough with the food
imposed the sanction) or a FSP competitive price criterion, the State instruments used by the State agency to
withdrawal of authorization or agency must compare the prices of the identify whether or not a food
disqualification, the State agency is only vendor applicant against those of other instrument is valid for transaction. We
required to provide the vendor vendor applicants and authorized believe the requirements as adopted in
applicant with an abbreviated vendors. Consequently, the State agency Sections 246.12(f)(2)(i) through
administrative review. We made this is able to adjust its competitive price (f)(2)(vii) of the final rule address the
change because the vendor applicant criterion to select enough vendors to commenter’s concerns in that they
already had an opportunity to appeal ensure adequate participant access. As require ‘‘[e]ach printed food instrument
the facts underlying the WIC sanction or for the minimum quantity/variety must clearly bear on its face’’ the
FSP withdrawal/disqualification; criterion, we believe that a vendor authorized supplemental foods, the first
therefore, it is not necessary to provide applicant that does not meet or exceed date of use, the last date of use, the
a second review of these facts. An this criterion must be denied redemption period, the serial number,
abbreviated administrative review authorization because such a store and spaces for the purchase price and
provides the vendor applicant with the cannot provide participants all the the signature.
opportunity to appeal such narrow authorized supplemental foods on their In response to the commenter’s
factual issues as whether its store is the food instruments. concern about issuing food instruments
same one that received the sanction and We clarified that the remaining two
too far in advance, program regulations
whether the sanction occurred during vendor selection criteria, business
that require the State agency to issue no
the applicable period. integrity and a current disqualification/
more than a three-month supply of food
One commenter questioned the civil money penalty for hardship in the
instruments at any one time have been
appropriateness of denying FSP, that the State agency may
in place since 1982 and were included
authorization of a vendor applicant for authorize a vendor applicant that fails to
in the proposal. No other opposing
a vendor violation that did not result in meet these criteria if necessary to ensure
comments were received on these
a sanction. The commenter indicated adequate participant access. We believe
regulations. Cashiers need to examine
that the vendor applicant would be this requirement strikes the necessary
the dates on a food instrument to ensure
denied authorization based on balance between program integrity and
it is valid, regardless of when the food
information that it did not have an participant access, similar to that
instrument was issued. Requiring
opportunity to examine or refute. If a balance struck when a State agency
shorter issuance cycles would neither
State agency denies authorization on decides to impose a civil money penalty
eliminate the need for such an
this basis, the State agency must include in lieu of a disqualification in order to
examination nor be a cost-effective
a description of the vendor violation in ensure adequate participant access.
solution to the commenter’s concern.
the notice of adverse action and must
5. Food Instrument Requirements However, in our review of this
give the vendor an opportunity to
No commenters opposed the food provision, we did note that although a
appeal the adverse action.
instrument requirements in proposed three-month supply of food instruments
d. No Current Food Stamp Program Sections 246.12(f)(1), (f)(2)(i), (f)(2)(iv), is acceptable, a three-month supply of
Disqualification or Civil Money Penalty (f)(2)(v), (f)(2)(vi), and (f)(3). supplemental foods is not.
for Hardship (§ 246.12(g)(3)(iv)) Consequently, we adopted these Consequently, we modified this
Twenty-four of the twenty-six provisions as proposed with minor provision in Section 246.12(r)(5) so that
commenters supported the proposed revisions to conform to language used ‘‘no more than a * * * one-month
requirement to deny authorization to throughout the final rule. Below are supply of authorized supplemental
vendor applicants that are currently separate discussions of the food foods is issued at any one time. * * *’’
disqualified from the FSP or that have instrument proposals that received b. Electronic Benefits Transfer (EBT)
received a FSP civil money penalty for opposing comments. (§§ 246.12(a) and (h)(3)(iv))
hardship and the period for the FSP
a. Printed Food Instrument In the Vendor Disqualification final
disqualification that would otherwise
Requirements (§§ 246.12(f)(2)(ii), rule, we amended the definition of
have been imposed has not expired.
(f)(2)(iii), (f)(2)(vii), and (r)(5)) ‘‘food instrument’’ to include an
Three supporting commenters suggested
that we require FSP authorization as a One commenter opposed the electronic benefits transfer card (EBT).
prerequisite for WIC authorization. We proposed provisions in Sections We made this change to recognize that
did not make this change because of the 246.12(f)(2)(ii) and (f)(2)(iii), requiring some State agencies are using EBT cards
differences in the populations served the ‘‘first date of use’’ and the ‘‘last date in place of printed food instruments.
and the benefits provided under the two of use’’ to be printed on food For the same reason, we proposed to
programs. instruments, because vendors are often include a statement in Section 246.12(a)
penalized when they accept food to acknowledge that the current
e. Considering Participant Access in instruments either before or after the regulations do not specify separate
Authorization Determinations specified dates. The commenter requirements or exceptions for EBT
In drafting the final rule, we noticed indicated that the State agency issues systems and that the operation of EBT
that it was not clear whether the State food instruments too far ahead of the systems may require modifications of
agency would be required to deny ‘‘first date of use’’ and suggested that some regulatory provisions.

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One commenter suggested that we this provision applies to State agencies to participants. A monthly
delete the reference to EBT systems in with print-on-demand technology. reconciliation of perpetual and physical
Section 246.12(a). Another commenter Another commenter asked that we inventories provides local agencies and
opposed our ‘‘piecemeal and potentially clarify what the term ‘‘perpetual clinics with a method to detect when
premature approach toward WIC EBT.’’ inventory’’ means and whether a system food instruments are missing from their
This commenter suggested that we that maintains inventory and receipt of inventories.
implement a new series of EBT pilot food instruments would be sufficient to One commenter requested that we
programs and evaluate them in public meet this regulatory requirement. modify this provision so that local
forums before we make modifications to A perpetual inventory refers to an agencies are only required to maintain
the regulations regarding EBT systems. ongoing record maintained by local perpetual inventory records for seven
In addition, three commenters requested agencies and, if applicable, clinics of the years, because record retention is both
that we clarify the purpose of this food instruments received from the expensive and time-consuming. We did
proposed change and suggested that we State agency and the food instruments not specify a time limit for the retention
wait until EBT is fully implemented and issued to participants. The perpetual of such records and do not expect that
then issue a more practical final rule. inventory is a running inventory of a the records be retained beyond the State
The EBT provision in Section local agency or clinic’s supply of food agency’s current record retention
246.12(a) is intended to recognize the instruments, and the monthly physical schedule for other WIC records.
emergence of EBT systems in the WIC inventory is used to reconcile the Two commenters opposed the
Program and acknowledge that these perpetual inventory with the supply of proposed provision in Section
systems will not always conform with food instruments on hand. For local 246.4(a)(14)(xii), which would require
current regulatory provisions that apply agencies and clinics that use a print-on- the State agency to include a description
to printed food instruments. We believe demand technology to produce their of its system for ensuring food
that this authority is a necessary first food instruments, this requirement instrument security in its State Plan. As
step toward the further development of would apply only to their supplies of noted above, we believe that such a
EBT systems in the WIC Program. special check stock, if used, and, if system provides a necessary protection
The suggestion that we wait until EBT applicable, to their supply of against employee fraud. In addition, we
is fully implemented before issuing a emergency, back-up, pre-printed food believe that inclusion of a description of
final rule is unworkable. We do not instruments. For local agencies and the State agency’s system in its State
have separate authority to modify clinics that issue EBT cards, this Plan is essential to ensuring that the
regulatory requirements for pilot requirement would only apply to the system is put into place in the local
projects. Further, some of the provisions supplies of EBT cards maintained on agencies and clinics under the State
in this rulemaking are in response to premises. agency’s jurisdiction. One commenter
statutory deadlines, most of the new One commenter indicated that recommended that State agencies
requirements in this rulemaking will be monthly physical inventories would be currently designing data systems
unaffected by EBT implementation, and administratively burdensome for include a food instrument inventory
EBT may not be implemented for integrated local agencies and were component in their data systems that is
decades in areas where it is not a cost- unnecessary due to the State agency’s automated at the local agency as well as
effective alternative to printed food use of electronic acknowledgment of at the State agency level. We agree that
instruments. Nevertheless, we revised receipts of food instruments by local automation of the local agency or
this provision to clarify the situations in agencies. Three commenters suggested clinic’s perpetual inventory of food
which we will modify a regulatory that the physical inventory be instruments on hand would be a
provision to accommodate a particular conducted on a quarterly rather than on worthwhile component of any data
EBT system. a monthly basis; however, one system.
commenter suggested that monthly
c. Food Instrument Issuance and d. Definition of ‘‘Authorized
inventories are preferable to quarterly
Security (§§ 246.12(r)(1) through (r)(5) Supplemental Foods’’ (§ 246.2)
inventories because they become part of
and (p) and 246.4(a)(14)(xii)) the local agency’s monthly routine. In Section 246.2, we proposed to
We received only one comment Another commenter indicated that define the term ‘‘authorized
regarding the proposed provisions in monthly inventories are unnecessary supplemental foods.’’ One commenter
Sections 246.12(r)(1) through (r)(4), because the State agency uses a one-to- suggested that we delete the phrase ‘‘for
which concern food instrument one reconciliation of food instruments, a particular participant’’ from the
issuance. The commenter supported the which is a better and more cost-effective definition, so that this term will not be
proposed amendments except for the control. confused with the existing term
use of the term ‘‘proxy.’’ The As noted in the preamble to the ‘‘supplemental foods.’’ The commenter
commenter’s concern is addressed proposed rule, the purpose of perpetual did not understand our need to narrow
below in our discussion of the and physical inventories is to prevent the definition to ‘‘a particular
definition of proxy in section 13.a of and detect employee fraud. Neither an participant.’’ Current regulations at 7
this preamble. We made minor changes electronic acknowledgment of receipt of CFR 246.2 state: ‘‘Supplemental foods
to the provisions in Sections food instruments nor a one-to-one means those foods containing nutrients
246.12(r)(1) through (r)(5) to incorporate reconciliation of food instruments after determined to be beneficial for
‘‘parents or caretakers of infant and redemption provides for the pregnant, breastfeeding, and postpartum
child participants’’ and to make these accountability and security of a local women, infants and children, as
provisions conform to language used agency or clinic’s food instruments on prescribed by the Secretary in § 246.10.’’
throughout the final rule. hand. We believe the most effective The proposed definition of authorized
Ten commenters expressed various means to prevent employee fraud is to supplemental foods was intended to
concerns about the food instrument have controls in place to account for distinguish between the general
security requirements in Section and limit the access to food instruments categories of supplemental foods
246.12(p) of the proposal. Three from the time they are created or contained in Section 246.10 from the
commenters asked that we clarify how received until the time they are issued specific supplemental foods authorized

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for a particular participant, which are because it would be the same thing as provision is necessary so vendors
listed on the participant’s food offering a raincheck or credit. We understand these requirements.
instruments. clarified in the final rule that exchanges Another commenter requested that we
The commenter further indicated that are only permitted for ‘‘an identical delete the preamble language that
her State agency uses to term authorized supplemental food item discusses allowing the participant to
‘‘authorized supplemental foods’’ to when the original authorized enter the purchase price on food
refer to the supplemental foods supplemental food item is defective, instruments, because errors made by the
approved by the State agency for use in spoiled, or has exceeded its ‘sell by’ or participant when entering the purchase
the WIC Program. We are aware that ‘best if used by’ date.’’ price, which may result in vendor
State agencies use various terms for the Another commenter requested that we overcharges or undercharges, would be
supplemental foods approved by the delete the exception because the State attributed to the vendor. Another
State agency for program use, including agency has found that during commenter suggested that we clarify
the term ‘‘WIC-approved foods.’’ We did administrative reviews an exchange for that the participant or proxy must sign
not propose to define a term for those a ‘‘similar’’ food item is considered to be the food instrument ‘‘in the presence of
foods approved by the State agency for an exchange for an ‘‘identical’’ the cashier’’ and that the purchase price
program use, so we do not believe it supplemental food item. The must be entered before the ‘‘food
would be appropriate to include such a commenter warned that State agencies instrument is tendered.’’ In Sections
definition in this final rule. However, would lose administrative reviews 246.12(h)(3)(v) and (h)(3)(vi) of the final
we adopted the definition for authorized regarding the substitution of non-rebate rule, we clarify that: (1) It is the
supplemental foods as proposed infant formulas for the authorized infant vendor’s responsibility to ensure that a
because the definition provides us with formula because preamble language is purchase price is entered on the food
a concise term to refer to the specific not considered part of the regulation. instrument in accordance with the State
supplemental food items authorized by We believe there is a clear distinction agency’s procedures; (2) the State
the State agency for a particular between the words ‘‘similar’’ and agency has the discretion to determine
participant and listed on that ‘‘identical.’’ Nonetheless, we added a whether the vendor or the participant
participant’s food instruments. The term sentence to this provision in the final enters the purchase price; (3) the
authorized supplemental foods captures rule to clarify that an ‘‘identical purchase price must be entered before
both the type and quantities of the authorized supplemental food item the food instrument is signed; and (4)
supplemental foods, which we believe means the exact brand and size as the
the participant, parent/caretaker, or
is essential to understanding other proxy must sign the food instrument in
original authorized supplemental food
regulatory provisions. For example, in the presence of the cashier.
item obtained and returned by the As discussed below in section 6.b of
this final rule, Section 246.12(l)(1)(iv)
participant.’’ this preamble, the variety of redemption
states: ‘‘The State agency must
disqualify a vendor for one year for a f. Food Instrument Transaction and systems employed by State agencies
pattern of providing unauthorized food Redemption (§§ 246.12(h)(3)(iv) through combined with the proliferation of
items in exchange for food instruments, (h)(3)(vi), (h)(3)(viii), and (h)(4)) various cost containment measures has
including charging for supplemental made a concise definition of a ‘‘vendor
In the final rule, we added headings overcharge’’ that is applicable to all
foods provided in excess of those listed
to all the paragraphs in Section State agencies impossible. In
on the food instrument.’’ In this
provision, ‘‘unauthorized food items’’ 246.12(h) and reordered some of the recognition of this, we revised the
not only refers to any type of food item paragraphs in Section 246.12(h)(3). In definition of vendor overcharge to mean
not listed on the food instrument, such addition to making the information in intentionally or unintentionally
as an unauthorized brand of cereal, but this section more accessible to readers, charging the State agency more for
also refers a quantity of supplemental we made these changes to help readers supplemental foods than is permitted
food item in excess of those listed on understand the distinction between the under the vendor agreement. This
the food instrument, such as an extra concepts of ‘‘transaction’’ and approach provides the needed flexibility
box of an authorized brand of cereal. ‘‘redemption’’ as they apply to food to accommodate the wide variety of
instruments. Food instrument systems that State agencies have
e. No Substitutions, Cash, Credit, transaction refers to the process in developed for entering purchase prices
Refunds, or Exchanges which a participant, parent/caretaker, or and redeeming food instruments. We
(§ 246.12(h)(3)(ii)) proxy tenders a food instrument to a made a corresponding change to the
In Section 246.12(h)(3)(ii), we vendor in exchange for authorized vendor agreement provisions to require
proposed to expand the regulatory supplemental foods. Food instrument in Section 246.12(h)(4) that the State
language that ‘‘vendors shall only redemption refers to the process in agency describe in the vendor
provide the supplemental foods which a vendor submits food agreement its purchase price and
specified on the food instrument’’ to instruments for redemption and the redemption procedures.
specify that vendors must not provide State agency (or its financial agent) These changes also necessitated a
unauthorized or non-food items, cash, makes payment to the vendor for the change to the proposed requirement in
credit, rainchecks, or refunds in food instruments. § 246.12(h)(3)(viii) that vendors may not
exchange for food instruments. We The proposed rule contained a single charge the State agency more than the
proposed only one exception to this paragraph that addressed the procedures price charged other customers or the
provision, to permit exchanges of for entering both the purchase price and current shelf price, whichever is less, or,
‘‘identical supplemental foods.’’ The the signature on food instruments. when the State agency uses competitive
only opposition to this proposed Three commenters requested that we bidding, the contract price. Whereas the
provision concerned the exception. Two delete the provision because vendors proposed provision focused on the
commenters asked that we clarify the will be penalized for not following the amount a vendor may ‘‘charge’’ the State
circumstances under which an exchange requirements. Vendors should not be agency, in the final rule the provision
may be permitted. One commenter paid for food instruments that lack focuses on the State agency’s procedures
requested that we delete the exception purchase prices or signatures. This for submitting food instruments for

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redemption. The provision also puts the and issuance records’’ (i.e., the food of fraud in its investigations of such
vendor on notice that the State agency instrument does not match a food instruments. The commenter
may make price adjustments to the participant’s enrollment and issuance recommended that we permit the
purchase price on food instruments to record). reconciliation of a sample of manual
ensure compliance with the price One commenter characterized food instruments that contain no
limitations applicable to the vendor. accounting for voided, lost, and stolen participant data to ensure ‘‘with
food instruments as not beneficial, reasonable statistical certainty’’ that
g. Food Instrument Disposition unnecessary, and overly burdensome. they were issued as a result of human
(§ 246.12(q)) and Adjustments to We disagree. It is necessary to account error rather than as a result of fraud.
Expenditures (§ 246.13(h)) for voided food instruments because Although we understand the
We proposed to replace the heading of otherwise such food instruments would commenter’s concern about the effort
Section 246.12(n), ‘‘Reconciliation of seem to be missing when the State or involved in the reconciliation of manual
food instruments,’’ with the heading, local agency or clinic reconciles its food instruments without participant
‘‘Food instrument disposition,’’ and to perpetual inventory with its monthly data, we believe the fact that a manual
move this provision to Section physical inventory. When the State food instrument lacks participant data
246.12(q). We also proposed to amend agency makes payment on a voided, represents a lapse in program integrity
the language in this paragraph to clarify lost, or stolen food instrument, there is that should be addressed by the State
the food instrument disposition process evidence of fraud or abuse. It is the State agency. Such instances should be
and to include language regarding the agency’s responsibility to investigate investigated, and procedures should be
food disposition process in EBT such incidences to determine if the put in place to ensure that all manual
systems. One commenter requested that fraud or abuse was committed by a food instruments contain participant
we clarify the meaning of the terms used participant, an employee, a vendor, or data, which allows them to be
in this provision, including the terms an unauthorized person. If the State reconciled without excessive effort. In
‘‘redeemed,’’ ‘‘expired,’’ ‘‘duplicate,’’ agency detects criminal activity, it must addition, we believe that as State
and ‘‘enrollment record.’’ Although we report it to the proper authorities for agencies employ new technologies, such
made a few changes to the terminology investigation. as print-on-demand food instruments
used in the proposed provision, most of The commenter also characterized and EBT, to issue food instruments, the
the terms are unchanged. Nevertheless, accounting for unredeemed food use of manual food instruments should
we believe a review of the meanings of instruments as solving a problem that decline steadily until there is no longer
the terminology used in this provision does not exist, because such food a need for them. For these reasons, we
may be helpful for many readers. instruments do not represent an did not accept the commenter’s
The term ‘‘issued’’ refers to food expenditure of grant funds. We disagree. recommendation.
instruments that have been issued to a In § 246.13(h), we proposed to require Whereas two commenters supported
participant. The term ‘‘voided’’ refers to the State agency to ‘‘adjust projected the proposed amendments to § 246.12(q)
food instruments that have been expenditures to account for redeemed because their systems currently meet
invalidated by the State or local agency food instruments and other changes as these requirements, three commenters
or clinic, including food instruments appropriate.’’ This provision, which asked that we acknowledge the
that were voided after they were issued. received no negative comments and has additional costs for some State agencies
All food instruments that are no longer been adopted as proposed, requires the to the implement this provision. We
on hand (i.e., those food instruments State agency to adjust its obligations to realize that some State agencies will
that were received/created that are no account for food instruments that have incur significant costs to reprogram
longer in inventory) must be identified been paid (i.e., issued and redeemed) as their systems in order to link participant
as either issued or voided, and as either well as those that have been deobligated enrollment records with food
‘‘redeemed’’ (i.e., submitted for (i.e., voided or unredeemed). instrument issuance and redemption
redemption by a vendor and payment Consequently, the State agency needs to data. However, we believe this step is
has been made by the State agency) or account for both voided and necessary to provide a level of
‘‘unredeemed’’ (i.e., no payment was unredeemed food instruments in order accountability that ensures the integrity
has been made by the State agency). to remove them from its obligations. In of the Program.
All redeemed food instruments must addition, we would like to point out One commenter noted that in
be identified as falling into one of the that anytime a food instrument is issued § 246.12(q) of the proposal we use the
following categories: (1) ‘‘validly there is an associated nutrition services term ‘‘PIN’’ (Personal Identification
issued’’ (i.e., the food instrument and administration cost, regardless of Number) when we mean ‘‘PAN’’
matches a participant’s enrollment and whether the food instrument is (Primary Account Number). The
issuance record); (2) ‘‘lost’’ (i.e., the food redeemed. An examination of proposed provision reads: ‘‘In an EBT
instrument was reported lost by a unredeemed food instruments may system, evidence of matching redeemed
participant or by the State or local reveal irregularities or waste, such as food instruments to a valid issuance and
agency or clinic); (3) ‘‘stolen’’ (i.e., the instances of dual enrollment. enrollment record may be satisfied
food instrument was reported stolen by One commenter suggested that we through the linking of the PIN
a participant or by the State or local modify § 246.12(q) to differentiate associated with the electronic
agency or clinic); (4) ‘‘expired’’ (i.e., the between accounting for automated food transaction to a valid issuance and
food instrument was submitted by the instruments and accounting for manual enrollment record.’’ In this instance, the
vendor after the specified period for food instruments that contain no correct term is PAN, which is a standard
redemption and the State agency participant data. The commenter noted term used in the banking industry for
provided payment to the vendor in that: manual food instruments represent the account number embossed on credit
accordance with Section 246.12(k)(5)); 11.2% of the State agency’s total and bank cards. In an EBT system, the
(5) ‘‘duplicate’’ (i.e., the food instrument redemptions, only 0.57% of these PAN is used to link redemption data to
was issued to a participant to replace a manual food instruments are recorded enrollment and issuance records; the
lost, stolen, or voided food instrument); without participant data, and the State PIN refers to the number entered by the
or (6) ‘‘not matching valid enrollment agency has never uncovered an instance participant at the point-of-sale device to

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83260 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

access and transact program benefits. One State agency recommended that manager, or employees. Another
Consequently, we amended the proposal we establish an unbiased mediation commenter recommended that we add
to reflect this correction. process to review cases in which our ‘‘agents’’ to the definition to cover
determination of what constitutes situations in which friends or relatives
h. Claims Against the State Agency
‘‘every reasonable effort’’ is in question. are asked by owners to act as substitute
(§ 246.23(a)(4))
We did not propose an unbiased cashiers. We accepted the commenter’s
One commenter asked that we clarify mediation process be established for recommendation and revised the
whether all three conditions listed in vendor or State agency claims and do definition accordingly.
§§ 246.23(a)(4)(i) through (a)(4)(iii) must not believe that such a process is Another commenter focused on the
be satisfied to avoid a claim against the necessary in either case. Similar to the part of the definition that refers to
State agency for failing to account for provision in § 246.18(a)(1)(iii)(F) that actions that violate the Program statute
the disposition of all redeemed food prohibits the administrative review of or regulations or State agency policies or
instruments. To avoid a claim, the State vendor claims, current regulations at 7 procedures. The commenter
agency must satisfy all three conditions, CFR 246.22(a) make clear that we will recommended that the definition
which make up a three-step process in not provide a hearing or review for include actions that violate State law,
which the State agency has: (1) ‘‘Made claims against the State agency arising rules, and regulations as well. We
every reasonable effort to comply with under § 246.23(a). In addition, similar to accepted this recommendation and
the requirement;’’ (2) ‘‘Identified the the requirements in Section revised the definition to include actions
reasons for its inability to account for 246.12(k)(3), which provide vendors that violate ‘‘the vendor agreement or
the disposition of each redeemed food with ‘‘an opportunity to justify or Federal or State statutes, regulations,
instrument; and’’ (3) ‘‘Provided correct’’ a food instrument error that policies, or procedures governing the
assurances that, to the extent considered results in a claim, we provide the State Program.’’
necessary by FNS, it will take agency with an opportunity to justify or The two commenters who opposed
appropriate actions to improve its correct the situation that results in its the definition unless we modified it
procedures’’ (emphasis added). inability to reconcile all of its food focused on the inclusion of
One commenter was concerned that unintentional actions in the definition.
instruments and believe this is
the term ‘‘reasonable effort’’ is As noted in the discussion of the
subjective and open to various One commenter suggested that we definition of vendor violation in the
interpretations by Federal and State allow for the withholding of a portion proposed rule, we believe vendors
auditors. Another commenter requested of the State agency’s next year’s grant, should be held accountable for all
that we clarify what is meant by ‘‘made violations, whether they are deliberate
until the issue is resolved, rather than
every reasonable effort.’’ We believe that attempts to violate program
withholding up to 100% of the State
what constitutes ‘‘every reasonable requirements or inadvertent errors,
agency’s current funding, which could
effort’’ will vary based on the specific because both ultimately result in
result in participants not being served.
situation and cannot be defined in such increased food costs and fewer
Section 246.23(a)(4) sets forth the
a manner that could be applied to all participants being served. We
requirements for establishing a claim
situations. Because all three conditions acknowledged the complexity of WIC
against the State agency for failing to
of this provision must be met, what transactions and noted that even with
account for the disposition of all of its
constitutes every reasonable effort will training and supervision, cashiers may
redeemed food instruments and for
be driven by whether the State agency’s occasionally make unintentional errors.
efforts result in both the identification failing to take appropriate actions to
We also stated that the State agency has
of the source of the problem and the correct its accounting problems. This
a wide range of actions that it may take
State agency’s assurance that provision does not address withholding
as a result of a vendor violation,
improvements will be made to its nutrition services and administration
including assessing a claim, requiring
procedures to correct the problem. For funds but rather establishing a claim for
increased training, identifying the
example, in the situation described an amount that corresponds to the State
vendor as a high-risk vendor subject to
above regarding the inability of the State agency’s unreconciled food instruments.
compliance investigation, and imposing
agency to reconcile its manual food Such claims are not allowable nutrition
a sanction. One supporting commenter
instruments that lack participant data, if services and administration costs for the
questioned whether this statement is
the State agency were to investigate a State agency and must be paid with contrary to the mandatory vendor
sample of such food instruments, State funds. sanctions required by the Vendor
identify that the problem is due to local 6. Vendor Violations, Vendor Disqualification final rule. We want to
agency staff inadvertently omitting the Overcharges, and Vendor Claims emphasize that not all vendor violations
participant data, and implement a will give rise to a vendor sanction. For
procedure that requires local agency a. Definition of ‘‘Vendor Violation’’ example, even though an inadvertent
staff to use a checklist, which includes (§ 246.2) and Vendor Responsibility for mistake in entering the purchase price
entering participant data, when issuing Employee Actions (§ 246.12(h)(3)(xiii)) on a food instrument may constitute
manual food instruments, then the State Seventeen of the nineteen both a vendor violation and a vendor
agency would satisfy the conditions of commenters on the proposed definition overcharge, it would not necessarily
§ 246.23(a)(4) and avoid a claim. If the of ‘‘vendor violation’’ supported the trigger a sanction. Only a pattern of
State agency is unable to satisfy the definition. Commenters did suggest a vendor overcharges triggers the
conditions in § 246.23(a)(4) and we number of modifications. Seven mandatory sanction. Consequently, we
recommend additional efforts that the commenters indicated that focusing on retained the ‘‘unintentional action’’
State agency could undertake to identify the acts of the vendor did not make language in the vendor violation
and correct its accounting problem and sense, in light of the definition of definition, as well as the State agency’s
the State agency refuses to make such vendor as a business entity that operates discretion to take a variety of actions
efforts, then the State agency has failed a store. We revised the definition to against a vendor when vendor violations
to make every reasonable effort and will state that a vendor violation is an action do not rise to a level that triggers a
be subject to a claim. of a vendor’s current owners, officers, sanction.

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One commenter suggested that the violation above and the discussion of agency’s system for redeeming food
provision in proposed vendor overcharges in the preamble to instruments. Another State agency may
§ 246.12(h)(3)(xiii) provide an exception the Vendor Disqualification final rule, have a system under which the State
similar to the one in § 246.12(l)(1)(i)(B), we believe that limiting the scope of agency has established maximum prices
which provides the State agency with an vendor overcharges only to those that for each type of food instrument and
option to impose a civil money penalty are intentional or fraudulent would does not pay vendors in excess of that
in lieu of permanent disqualification undermine the integrity of the WIC amount, regardless of their shelf prices
when the vendor had, at the time of the Program. It also puts an additional for the supplemental foods. These
violation, an effective program and burden on the State agency to prove the situations are not properly categorized
policy in effect to prevent trafficking intent of the person who commits the as overcharges, because the price
and the ownership of the vendor was vendor overcharge. Funds lost due to adjustments are a regular part of the
not aware of, did not approve of, and vendor overcharges, whether intentional State agency’s redemption system.
was not involved in the conduct of the or inadvertent, are not available to serve We also recognize that sometimes the
violation. Another commenter asserted program participants. Therefore, we did price adjustments are not made directly
that if a vendor is doing everything it not remove the word ‘‘unintentional.’’ by State agencies, but rather by the
can to comply with program Five of the supporting commenters banks they contract with to redeem food
requirements and fires the employee and one opposing commenter pointed instruments. In these cases, the banks,
who committed the vendor violations, out that the proposed definition of acting as financial agents of the State
the vendor should be able to retain its vendor overcharge did not adequately agency, redeem the food instruments
authorization. Otherwise, when a distinguish between a vendor and make price adjustments pursuant to
vendor is disqualified, participants are overcharge and what they termed an their contracts with the State agency.
forced to go to a less convenient store ‘‘overpriced food instrument’’ or Thus, the price adjustments made by
or even drop off the Program ‘‘overage.’’ The commenters described contractors of the State agency would be
completely. an overpriced food instrument as a food considered to be price adjustments
For the same reasons we did not instrument on which the vendor made by the State agency and would not
remove unintentional actions from the properly entered purchase price but due be considered vendor overcharges.
definition of vendor violation, we to a pre- or post-payment edit is paid by A vendor still could commit a vendor
retained in § 246.12(h)(3)(xiii) of the the State agency an amount lower than overcharge in a system that uses price
final rule the requirement that vendor the purchase price. adjustments. For example, a vendor
agreements include a statement We agree with the commenters and, in agreement may establish a maximum
concerning the responsibility of the the final rule, added a new definition of price by food instrument type but still
vendor for the actions of its employees. ‘‘price adjustment,’’ which is defined as requires the vendor to enter a purchase
To be consistent with the definition of ‘‘an adjustment made by the State price that corresponds to its shelf prices.
vendor violation, we included a agency, in accordance with the vendor Under this arrangement, anytime the
reference in this provision to the agreement, to the purchase price on a vendor enters a purchase price that
vendor’s accountability for the actions food instrument after it has been exceeds its shelf prices, the vendor has
of its owners, officers, and managers. submitted by a vendor for redemption to committed an overcharge. A pattern of
Also, rather than limiting this provision ensure that the payment to the vendor such vendor overcharges would trigger
to actions relating to the ‘‘handling of for the food instrument complies with a mandatory sanction under
food instruments,’’ we revised the the State agency’s price limitations.’’ We § 246.12(k)(1)(iii)(C).
provision to require accountability for made a conforming change to the We also revised the definition of
‘‘vendor violations.’’ As we noted above, definition of vendor overcharge to vendor overcharge to replace the
not every vendor violation results in a clarify that a vendor overcharge does reference to charging participants more
sanction. Furthermore, for most not occur when the State agency makes than non-WIC customers or the shelf or
mandatory sanctions, if the State agency a price adjustment to the purchase price contract price with ‘‘charging the State
determines that disqualification of the of a food instrument in accordance with agency more for authorized
vendor would result in inadequate the procedures outlined in the vendor supplemental foods than is permitted
participant access, the State agency agreement. under the vendor agreement.’’ We made
must impose a civil money penalty, The definition of price adjustment this modification to recognize the wide
except in the case of third or subsequent recognizes the increasing number of variety of State agency redemption
mandatory sanctions. State agency systems under which systems. In most cases, the vendor will
adjustments routinely are made to the be required to enter the purchase price
b. Definitions of ‘‘Vendor Overcharge’’ purchase price on food instruments after corresponding to the shelf prices or
and ‘‘Price Adjustment’’ (§ 246.2) they have been submitted for prices charged non-WIC customers,
Nineteen of the twenty-one redemption. For example, in one State whichever is less. However, in some
commenters supported the proposed agency, prices are established for cases the vendor may be required to
definition of ‘‘vendor overcharge.’’ Two supplemental foods through competitive enter a purchase price that does not
commenters suggested removing the bids. The purchase price entered by the exceed the food instrument’s maximum
word ‘‘pattern,’’ noting that although a vendor on the food instrument price before submitting it to the State
pattern of overcharging is required to corresponds to the current shelf prices agency for redemption.
trigger the mandatory sanction for for the authorized supplemental food Two commenters suggested
vendor overcharges, it is unnecessarily items provided to the participant. The incorporating a dollar threshold in the
limiting to include the pattern State agency bills the vendor at the end definition of vendor overcharge. As we
requirement in the definition itself. We of each month for the difference have discussed in our guidance on the
agree and made this change in the final between the purchase prices on its food mandatory sanction for vendor
rule. instruments and the vendor’s contract overcharges, the severity of an
Two commenters objected to the word prices for the supplemental foods. These overcharge should be taken into account
‘‘unintentional.’’ As noted in the adjustments are not made to account for in establishing a pattern of vendor
discussion of the definition of vendor errors but as a regular part of the State overcharges. However, we believe it is

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83262 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

important to have a firm definition of to detect other food instruments that mean that the review was to be
what constitutes a vendor overcharge may contain something questionable, conducted quarterly. Instead, we were
and then for the State agency to but not clearly an error, that requires trying to establish a timeframe for
establish a threshold for imposing a follow up. follow-up action on any suspected
sanction or other action according to the We also revised this provision to vendor overcharges and other errors. In
number and severity of the vendor require that the system ensure the final rule, we specify that the State
overcharges. compliance with the applicable price agency must take follow-up action
Another commenter recommended limitations. As discussed in section 4.a within 120 days of detecting any
that we limit vendor overcharges to of this preamble, section 17(h)(11) of the questionable food instruments,
actions that are proven through Child Nutrition Act (42 U.S.C. suspected vendor overcharges, or other
compliance buys. Most vendor 1786(h)(11)) now requires that the State errors. The review itself must be done
overcharges will be established through agency establish procedures to ensure on a continuing basis.
compliance buys. However, State that authorized stores do not raise their
agencies may be able to develop edits or prices after authorized, to levels that d. Delaying Payment and Establishing
other means to detect vendor would otherwise make them ineligible Claims (§§ 246.12(k)(2) and
overcharges that provide sufficient for authorization. As a result, we 246.12(h)(3)(ix))
evidence to support their sanction required in § 246.12(g)(3)(i) that the The majority of the commenters
actions. State agency establish price limitations supported the proposed requirement
We made a conforming change to the and in § 246.12(h)(4) that the State that the State agency assess claims
mandatory sanction in agency’s redemption procedures must resulting from vendor violations
§ 246.12(k)(1)(iii)(C) to use the defined ensure that it does not pay a vendor identified during inventory audits or
term ‘‘vendor overcharge’’ rather than more than the applicable price other reviews. However, in reviewing
repeating the substance of the definition limitations. To further implement this the proposed rule, we noted that we did
within the sanction provision. Finally, statutory mandate, we revised the not clearly establish a general
one opposing commenter noted that the requirement for the review of food requirement to establish claims against
definition should not reference instruments to ensure compliance with vendors that have committed vendor
‘‘charging participants’’ because the the applicable price limitation. The final violations that affect the payment to the
State agency, not the participant, is rule also makes clear that the review vendor. The final rule makes this clear
charged for authorized supplemental must include a price comparison or in §§ 246.12(k)(2) and 246.12(h)(3)(ix)
foods obtained from a vendor. We agree other edit designed to ensure and also clarifies that the State agency
with commenter and made this change. compliance with the applicable price may delay payment in cases in which
limitations and to detect suspected the vendor violation is discovered
c. Review of Food Instruments
vendor overcharges. before payment has been made.
(§ 246.12(k)(1)) In response to proposed
Two commenters asked that we
Thirteen of the fifteen commenters on clarify whether this requirement could § 246.12(h)(3)(ix), a number of
§ 246.12(k)(1) supported the proposal to be satisfied by inspecting a commenters asserted that an
require the State agency to have systems representative sample of food ‘‘overpriced food instrument’’ should
to identify vendor overcharges and other instruments. It was always our intention give rise to a claim and a ‘‘vendor
errors on redeemed food instruments to permit the State agency to review overcharge’’ should give rise to a
not less frequently than quarterly, only a representative sample of the food sanction. As noted above, a price
although a number of the supporting instruments submitted for redemption. adjustment is not a vendor overcharge
commenters recommended that we We revised this provision to clarify that and does not trigger a claim. Price
modify the provision. Several the State agency may review either all adjustments, which must be described
commenters questioned how a State or a representative sample of food in the vendor agreement, are part of the
agency could have a system to detect instruments and that the review may be method used by the State agency to
vendor overcharges because they done either before or after the State determine the amount a vendor is paid
thought that compliance buys are the agency makes payment to the vendor on for a food instrument.
only way to establish vendor the food instruments. However, as State We want to make clear that claims
overcharges. We agree that compliance agencies continue to automate their food and sanctions are not mutually
buys are the best way to support instrument redemption systems, they exclusive. Claims arise in situations in
sanctioning a vendor for vendor should design their systems to include which the vendor has not complied
overcharge violations. These comments a review of all food instruments before with the requirements for food
pointed out that our reference to a they make payment on them. instrument redemption, such as
system to ‘‘identify’’ vendor overcharges One commenter suggested that we recording the wrong price or accepting
and other errors needed modification to modify the requirement to detect food instruments without signatures. In
apply to all State agencies. ‘‘redemption of expired food these cases, the State agency must either
We revised this provision to clarify instruments’’ to read ‘‘food instruments deny payment of the food instrument or
that the State agency must have a redeemed outside of valid dates.’’ We assert a claim. Sanctions arise as a result
system to detect ‘‘questionable food revised this provision to read of vendor violations, such as a pattern
instruments, suspected vendor ‘‘transacted or redeemed after the of vendor overcharges.
overcharges, and other errors. * * *’’ specified date’’ to capture both food One commenter requested that we
This language both responds to the instruments that vendors accept after clarify that in addition to assessing
concern that in most instances a review the date for transacting them and food claims, the State agency may sanction
of food instruments will not be able to instruments submitted for redemption vendors for a pattern of vendor
identify an actual vendor overcharge, after the specified date. overcharges. The commenter indicated
just a suspected vendor overcharge, and Finally, we clarified what we meant this clarification is necessary to avoid
parallels the current language in 7 CFR when we proposed that the system must dealing with vendor assertions that as
246.12(r)(5)(i) on this point. This detect vendor overcharges and other long as they paid claims resulting from
revision also takes into account the need errors at least quarterly. We did not vendor overcharges, they cannot be

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sanctioned for vendor overcharge agency to give vendors the opportunity to the State agency. Other commenters
violations. We revised § 246.12(h)(3)(ix) to justify or correct errors before requested that we specify what records
to clarify that: ‘‘In addition to denying denying payment or assessing a claim. must be retained and that we require
payment or assessing a claim, the State One commenter indicated that our that shelf price records be maintained to
agency may sanction the vendor for example was inadequate because some facilitate follow-up on suspected vendor
vendor overcharges or other errors in State agencies do not pay for food overcharges. Finally, one commenter
accordance with the State agency’s instruments with missing purchase questioned whether the records may be
sanction schedule.’’ prices or signatures and do not permit, kept off-site.
Three commenters suggested that a under their vendor agreements, vendors This rule adopts the provision largely
pattern of overcharges be used to to make these types of corrections after as proposed. We left it to the State
identify high-risk vendors. Another a food instrument has been submitted agency to specify the record retention
commenter indicated that having a for redemption. We agree with the period. We clarified that the time period
variable maximum price that is not commenter and deleted this example. must be specified by the State agency in
printed on the food instrument One commenter on the claims the vendor agreement. The State agency
eliminates the opportunity for systemic provision of the vendor agreement noted has the discretion to require as part of
and excessive overcharging, lessening that we had removed the current the vendor agreement that the vendor
the need for pursuing claims, regardless provision requiring the State agency to maintain shelf price records. Finally,
of the cause or the size of vendor give vendors an opportunity to justify or this rule retains the requirement that the
overcharges. Although we believe both correct food instrument errors. To records be available at any reasonable
of these approaches would improve emphasize that vendors must still be time and place. This means that records
program integrity, they should be used provided this opportunity, we added a may be kept off-site as long as they are
in addition to, and not in lieu of, strong reference to this opportunity in the readily accessible.
requirements to pursue claims. claims provision of the vendor b. Sanction Schedule (§ 246.12(h)(5))
e. Collecting the Full Purchase Price of agreement.
All commenters supported our
Food Instruments Containing Vendor g. Timeframe for Initiating Claims proposal to require the State agency to
Overcharges or Other Errors (§ 246.12(k)(4)) include its sanction schedule as part of
(§§ 246.12(k)(2) and 246.12(h)(3)(ix)) the vendor agreement. This provision
Two commenters pointed out that
Both Sections 246.12(k)(2) and requiring the State agency to begin would replace the current approach of
246.12(h)(3)(ix) in the proposed rule collection efforts before an investigation separately listing in the program
would have permitted, but not required, is complete could jeopardize the regulations the mandatory sanctions
the State agency to withhold payment or that the State agency must include in its
investigation. We agree and revised the
collect from the vendor the full vendor agreement. Several commenters
requirement for initiating collection
redeemed value of a food instrument suggested that we clarify that the
action to read ‘‘the date of detection of
containing a vendor overcharge or other sanction schedule may be included as
the vendor violation or the completion
error. Just under half of the commenters an attachment to the vendor agreement.
of the review or investigation giving rise
on each of these provisions opposed this Another commenter requested that we
to the claim, whichever is later.’’ We
authority for two reasons. First, they permit cross-reference to State laws or
also reordered paragraph (k) to clarify
pointed out that it treated inadvertent regulations in areas in which the State
that the opportunity to justify or correct
cashier errors the same as intentional agency’s sanction schedule has been
must occur within the 90 days the State
fraud. They asserted that there is no incorporated in State law or regulations.
agency has to make a final decision to
deterrent effect when human error is the We made these changes and also revised
deny a payment or initiate claims
cause. Second, they noted that the provision to clarify that the sanction
collection action.
establishing a claim for the full schedule must include both the
purchase price of the food instrument h. Food Instruments Redeemed after the mandatory and State agency vendor
failed to compensate vendors for the Specified Period (§ 246.12(k)(5)) sanctions.
amount of the supplemental foods that One commenter suggested that the
Two commenters suggested that we
were properly provided to participants. required sanction schedule only include
raise the dollar limit for permitting the
One commenter suggested that we the mandatory sanctions, because the
State agency to pay vendors for food
permit claim assessment for a State agency needs some flexibility in
instruments submitted for redemption
percentage of the food instrument value assessing the State agency sanctions in
after the specified date without our
rather than for the full amount. Another order to take into account the nuances
approval. They indicated that this dollar
commenter was particularly concerned of each case. We disagree. A State
limit was outdated. We agree and raised
about this provision in light of the agency may build some flexibility into
the limit for prior FNS Regional Office
proposal to limit vendors’ ability to its sanction schedule, such as factors
approval from $200 to $500.
appeal claims. that will be taken into account in
The ability to establish a claim for the 7. Miscellaneous Vendor Agreement determining the length of a
full purchase price of a food instrument Specifications disqualification. However, vendors need
can provide a powerful incentive for advance notice of the consequences of
a. Recordkeeping (§ 246.12(h)(3)(xv))
vendors to ensure that their cashiers are committing vendor violations. We
properly trained in order to reduce We proposed to require the vendor believe that allowing the State agency to
inadvertent errors during WIC agreement to provide that vendors must either attach the sanction schedule to or
transactions. As such, we retained this maintain inventory records used for cross-reference it in the vendor
option for the State agency. Federal tax reporting purposes and agreement provides the State agency
other records the State agency may with an efficient and effective means to
f. Opportunity to Justify or Correct require for a period of time specified by provide vendors with such advance
Errors (§ 246.12(k)(3)) the State agency. One commenter notice.
Two commenters supported retaining recommended that we set the length of Two commenters asked whether the
the current provision requiring the State time in the final rule, rather than defer State agency would be permitted to

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continue to include its sanction subject to administrative review. The preferred on-site training because off-
schedules in the vendor handbook that commenter asserted that an all-inclusive site training creates a burden for small
is provided to vendors along with the list of all actions that may be subject to businesses with few employees. To
vendor agreement. This practice is administrative review is impossible. We address commenters’ concerns, we
permissible only if the sanction did not intend the State agency to decided to revise this provision to give
schedule section of the vendor include a laundry list of all possible the State agency discretion to determine
handbook is referenced in the vendor adverse actions. However, we also do the appropriate location for vendor
agreement. Providing vendors with not believe that simply providing a list training. When possible, we believe that
advance notice of the sanction schedule of adverse actions not subject to the State agency should attempt to
through the vendor agreement prevents administrative review is appropriate in accommodate requests from small
vendors from arguing during light of the two categories of businesses to provide on-site vendor
administrative reviews that they were administrative reviews established training. To accommodate this revision,
unaware of the sanctions for various under this rule (full and abbreviated we retained the current requirement that
vendor violations. administrative reviews). We expect the the State agency conduct an on-site visit
State agency to list the adverse actions prior to or at the time of a vendor’s
c. Adverse Actions Subject to
in the same level of detail as they are initial authorization. This requirement
Administrative Review and
described in Section 246.18. We revised appears in § 246.12(g)(4) of the final
Administrative Review Procedures
this provision to require the State rule.
(§ 246.12(h)(6)) Proposed § 246.12(h)(3)(xi) would
agency to list the adverse actions that
We proposed to require the State are not subject to review as well. As have required ‘‘the manager of the
agency to include with the vendor with the sanction schedule, we believe vendor or other member of
agreement a list of the actions a vendor it is critical that vendors receive management’’ to participate in vendor
may appeal and a copy of the State advance notice of the consequences of training. Commenters were divided on
agency’s administrative review their actions and whether they will be the issue of who should be required to
procedures. Commenters generally able to obtain administrative review in attend training. One commenter
supported this provision, but suggested the event of an adverse action by the suggested that we require store owners
some modifications to provide the State State agency. and/or general managers as well as key
agency with some flexibility in the store personnel to participate in annual
implementation of this provision. One 8. Vendor Training training. Another commenter indicated
commenter asked that we clarify that The proposal included several that requiring ‘‘management’’ to attend
such procedures may be included in a provisions that would strengthen the training was inappropriate. A third
vendor handbook or as an attachment to vendor training requirements. The goal commenter asserted that, because the
the agreement. Another commenter of these changes is to improve vendors’ vendor is responsible for its employees’
suggested that when the procedures are understanding of program rules and actions regardless of who commits
included in State law or regulations, requirements in order to prevent violations or attends training, the
that the vendor agreement just cross- program noncompliance and errors. The vendor should have the discretion to
reference those documents. Finally, one proposal specified where vendor determine who is in the best position to
commenter asked whether this training would take place, who would participate in the training and to
provision is necessary in light of the be required to attend training, how often provide training information and
requirement that the State agency must training would take place, and what materials to other store employees.
provide such procedures to the vendor type of training would be provided. Based on the comments we received, it
along with its notice of an adverse Commenters were primarily concerned appears that there are a variety of
action that is subject to review. about the costs associated with the successful formats for vendor training,
The final rule incorporates many of proposed changes. ranging from large, off-site, train-the-
these suggestions. It permits the State trainer programs to on-site, cashier
agency to include the list of adverse a. Location of Training (§ 246.12(i)(1)),
Preauthorization Visits (§ 246.12(g)(4)), training programs. To allow for a variety
actions and the administrative review in formats, we believe it is necessary to
procedures either in the agreement or as and Personnel Required to Attend
Training (§§ 246.12(h)(3)(xi) and (i)(1)) provide both the State agency and
an attachment to it. If these items are vendors with discretion regarding the
included in State law or regulations or The most common concern among appropriate audience for vendor
in another document, such as a vendor commenters was the location of vendor training. Consequently, we revised both
handbook, provided at the time the training. The proposal would have the vendor agreement and vendor
vendor is authorized, the State agency required the State agency to provide training provisions to clarify that at least
may simply include an appropriate training to new vendors ‘‘on the site of one representative from each vendor is
cross-reference in the vendor agreement. the vendor.’’ This provision was required to participate in the training
As an alternative to these approaches for intended to combine the initial vendor and that the State agency will designate
the administrative review procedures, training with the documented on-site the audience (e.g., managers, cashiers,
the State agency may include a visit that currently is required by etc.) to which the training is directed.
statement in the vendor agreement that § 246.12(e)(1) prior to or at the time of
the administrative review procedures initial authorization of a new vendor. b. Frequency and Format of Training
are available upon request and Most of those who commented on this (§§ 246.12(i)(1) and (h)(3)(xi))
applicable procedures will be provided aspect of the provision indicated that Of the seven commenters who
along with a notice of adverse action on-site training was ineffective for a requested that we delete the annual
that is subject to review. variety of reasons, including constant training requirement: two
One commenter indicated that the interruptions, inadequate space in stores misunderstood the proposed provision
vendor agreement should include a list for training, and inefficiency due to and opposed it because attending off-
of the adverse actions that are not training vendors individually rather site training on an annual basis would
subject to administrative review, rather than training a large group of vendors at be a burden, three opposed it because
than a list of the adverse actions that are the same time. Three commenters they do not think it would be the best

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use of limited resources, one opposed it clarify that interactive training educate vendors on every aspect of the
because it would prohibit the State ‘‘includes a contemporaneous vendor agreement; vendor training is
agency from directing its resources to opportunity for questions and answers.’’ provided by the State agency to assist
vendors that need more training than vendors in understanding program
c. Training Content (§ 246.12(i)(2)) and
others, and one commenter just opposed requirements in order to reduce program
Training Documentation (§ 246.12(i)(4))
annual training. Due to the high errors, prevent program noncompliance,
turnover in vendor personnel, which In § 246.12(i)(2), we proposed to and improve program service. We
was noted by a few commenters, and the require that specific topics be covered accepted the commenters’ suggestion
complexities of and periodic changes in by the annual training. One commenter and amended § 246.12(i)(4) to require
program requirements, we believe that indicated that the required subjects the State agency to document the
an annual training requirement is both could not, as suggested in the preamble, content of its annual training but not to
reasonable and necessary. Providing be effectively communicated by simply require vendor receipts. This change
vendors with training materials on revising the handbook or using audio holds the State agency accountable for
current program requirements on an tapes. The proposed provision states covering the training subjects required
annual basis is not overly burdensome that the ‘‘annual training shall include by Section 246.12(i)(2) and provides the
for the State agency. Similarly, instruction’’ on the required subjects. State agency with the discretion of
examining training materials provided Whereas the vendor agreement must whether to require signed receipts for
by the State agency on an annual basis contain very specific information about vendor training. Consequently, if the
is not overly burdensome for the the program requirements, annual State agency finds such receipts helpful
vendor. Consequently, we decided to training is intended to provide more during administrative reviews, it has the
adopt the annual training requirement general information about how these option to require signed receipts for
as proposed. requirements apply to vendor vendor training. We also made a
Several commenters opposed operations. For instance, instruction on conforming change to § 246.12(h)(3)(xi).
attaching the frequency of the required the vendor sanction system may
face-to-face training to the agreement reference where the sanction schedule is d. Training of Staff by Vendor
period, especially for State agencies that located in the vendor agreement and (§ 246.12(h)(3)(xii)) and Vendor
use probationary or one-year agreement generally cover the process the State Accountability (§ 246.12(h)(3)(xiii))
periods. One commenter indicated that agency uses to impose sanctions and the We received no comments opposing
State agencies would adopt longer procedures that vendors must follow to proposed Section 246.12(h)(3)(xii),
agreement periods to avoid the costs of appeal sanctions. To clarify our intent, which requires the vendor to inform and
providing more frequent face-to-face we revised this provision to delete the train cashiers and other staff on program
training. Three commenters suggested requirement that the training cover the requirements. This provision is related
that we modify the provision to require vendor agreement in order to avoid the to Section 246.12(h)(3)(xiii), which
face-to-face training once every three implication that the entire vendor establishes the vendor’s accountability
years. We accepted this suggestion and agreement must be reviewed each year. for the actions of its employees in the
made a corresponding change in the Instead, § 246.12(i)(2) requires the handling of food instruments. We
final rule because it creates a standard annual training to cover any changes to adopted both of these provisions in the
requirement for all State agencies program requirements since the last final rule with technical and conforming
irrespective of the length of their vendor training. changes to make them consistent with
agreements. Five commenters suggested that we
language used throughout the final rule.
Another area of commenter concern delete the ‘‘training receipt’’
was the proposed requirement for ‘‘face- requirement in proposed §§ 246.12(i)(4) 9. Vendor Monitoring and Identifying
to-face’’ training. Three commenters and (h)(3)(xi) because they believe it is High-Risk Vendors
suggested that we use the term clear that the State agency will hold
a. Definitions of ‘‘High-Risk Vendor,’’
‘‘interactive’’ instead of ‘‘face-to-face’’ vendors responsible for violations
‘‘Compliance Buy,’’ ‘‘Inventory Audit,’’
because it would give the State agency regardless of whether they are
and ‘‘Routine Monitoring’’ (§ 246.2)
the flexibility to use new technologies, intentional or inadvertent and
such as video teleconferencing. Several regardless of who commits the Ten commenters supported the
commenters made a related point that violations or who attends vendor proposed definition of ‘‘high-risk
group training is often more successful training. We proposed this requirement vendor.’’ One commenter opposed the
than on-site training because some because some State agencies have proposed definition, unless it is
group members ask questions that are indicated in the past that violative modified to distinguish between
informative to other trainees. Our vendors have argued during intentional and unintentional conduct.
rationale for requiring face-to-face administrative reviews that they were As discussed in the preamble to the
training was to provide vendor not appropriately trained on their Vendor Disqualification final rule, the
representatives with the opportunity to program responsibilities. A signed violations that trigger mandatory
ask questions in order to fully receipt, acknowledging the vendor’s sanctions do not require the State
understand how the program receipt and understanding of training, agency to distinguish between
requirements apply to their store would provide the State agency with fraudulent (intentional) and abusive
operations. We agree with the evidence that vendors received training (unintentional) vendor violations,
commenters’ suggestion that this goal and understand program requirements. because both types of vendor violations
can be achieved through other Nevertheless, we believe that by signing result in loss of program funds. The
interactive formats. For this reason, we their agreements vendors have accepted State agency is not required to
accepted the commenters’ suggestion the terms of the agreement and are demonstrate that a vendor intended to
and revised the provision so that legally responsible for understanding commit a vendor violation(s) to support
‘‘interactive’’ training is required prior program requirements. Vendors should its sanction. Instead, the State agency is
to or at the time of a vendor’s initial thoroughly read and understand their required to provide evidence that the
authorization and once every three years vendor agreements prior to signing vendor committed the vendor
thereafter. We also added language to them. Vendor training is not intended to violation(s) and that the evidence is

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83266 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

sufficient to support the sanction being would be considered a contractor under patterns, and WIC business volume
imposed. For this reason, we did not this provision. No additional regulatory simply identifies larger vendors. Of the
accept the commenter’s language is necessary to address this seven most commonly used high-risk
recommendation and adopted the type of agreement. Second, even if one indicators reported by State agencies for
definition with one revision to State agency chooses to meet its entire the fiscal year 1989 through fiscal year
incorporate the defined term ‘‘vendor requirement for compliance 1994 Vendor Activity Monitoring Profile
violation.’’ investigations by counting the (VAMP) reports, complaints and WIC
Ten commenters also supported the compliance investigations conducted by business volume ranked fifth and sixth
proposed definition of ‘‘compliance another State agency, the first State at identifying vendors that subsequently
buy.’’ One commenter suggested that we agency still will need to establish its committed overcharge violations during
modify the definition to cover situations own vendor monitoring system to compliance buys.
in which an investigator poses as a address the monitoring activities that We believe there is sufficient data to
proxy. We accepted this may not be delegated. Each State agency support the effectiveness of particular
recommendation and also added must conduct its own routine high-risk identification criteria and that
language to the definition to cover monitoring visits, identify its high-risk State agencies are not making the best
situations in which an investigator vendors, and track its progress toward use of these criteria. However, to
poses as a ‘‘parent or caretaker of an meeting the thresholds for routine address commenters’ concerns about the
infant or child participant.’’ monitoring visits and compliance potential ineffectiveness of our criteria,
Whereas ten commenters supported investigations. The circumstances under we revised the regulatory language to
our proposed definition of ‘‘inventory which a State agency may count the permit the State agency to use other
audit,’’ one commenter requested that compliance investigations conducted by statistically-based criteria we approve in
we delete the definition because another State agency are discussed in lieu of the our criteria. This revision
inventory audits rely on internal store Section 9.d of this preamble. gives the State agency the flexibility to
records, which should not form the employ other criteria when it believes
basis of a compliance investigation. We c. Identifying High-Risk Vendors that our criteria are ineffective in its
did not accept the commenter’s request (§ 246.12(j)(3)) jurisdiction.
because inventory audits are useful in Of the forty-one commenters who Several commenters were concerned
investigating vendors who may be, for addressed proposed § 246.12(j)(2), about the length of the advance notice
example, redeeming food instruments which covers the requirements for the we would provide to the State agency
for unauthorized stores, exchanging identification of high-risk vendors, prior to changing our high-risk
unauthorized food or non-food items for thirty opposed it for a variety of reasons. identification criteria. One commenter
food instruments, or trafficking. Another Many opposed it because we did not suggested that we provide the State
commenter suggested that we modify include our high-risk criteria in the agency with a minimum of eighteen
the definition to include the regulatory language or discuss the months advance notice, while another
‘‘examination of beginning and ending specifics of these criteria in the commenter suggested that we agree to
inventory levels and food invoices.’’ We preamble. We believe that these criteria use our criteria for five years prior to
did not accept this commenter’s should not be included in the regulatory making changes. Commenters were
suggestion because the meaning of the language because doing so would concerned about the length of time it
phrase ‘‘during a given period of time’’ compromise State agency investigative takes to make changes to their
implies an examination that covers a techniques. Unscrupulous vendors may automated systems and the costs
specific period, which naturally must use this information to avoid being associated with frequent changes.
have a beginning and an ending point. identified as high-risk vendors subject Strengthening high-risk identification
We adopted the definition in the final to compliance investigations. Although systems certainly will require a
rule with one modification to conform some stores post signs warning their commitment of resources by State
to language used throughout the final customers that shoplifters will be agencies. However, the result of this
rule. subject to criminal prosecution, no effort will be a more efficient
Of the ten commenters who supported stores post signs that specifically compliance investigation system, which
the definition of ‘‘routine monitoring,’’ disclose the techniques they use to identifies and removes violative vendors
one commenter noted that it was odd identify potential shoplifters. Most from the Program. We will not change
that in the proposal we replaced vendors, like most shoppers, are honest our high-risk identification criteria more
‘‘representative monitoring’’ with and have no reason to be concerned frequently than once every two years
routine monitoring and then dropped about investigative techniques. and will change the criteria only when
the requirement for routine monitoring. Several commenters criticized the more effective criteria have been
The routine monitoring requirement is provision as a ‘‘one-size-fits-all’’ identified. To address commenter’s
discussed below in section 9.d of this approach that would require all State concerns about the time required for
preamble. We adopted the definition of agencies to use the same high-risk implementing changes, we revised this
routine monitoring as proposed. identification criteria and asserted that provision to provide State agencies with
State agencies are in the best position to ‘‘adequate advance notice,’’ which will
b. Vendor Monitoring (§ 246.12(j)(1)) determine which criteria are most allow for various implementation
Two commenters suggested that we effective. Our experience with State timeframes depending on the change.
add language to proposed § 246.12(j)(1) agency-established criteria is mixed. One commenter suggested that we
to permit the State agency to delegate all According to The Integrity Profile (TIP) modify the provision to specify the
of its vendor monitoring to another State report for fiscal year 1998, the two most period for identifying high-risk vendors.
agency by written agreement. We did common indicators that State agencies We accepted this suggestion and revised
not accept this comment for two use in their high-risk systems were the provision to require high-risk
reasons. First, if one State agency pays complaints from participants, local identification ‘‘at least once a year.’’
another State agency for compliance agencies, and other vendors and WIC Establishing this as an annual
investigation services, then the State business volume. Complaints do not requirement is consistent with the
agency that conducts the investigations take into account vendor redemption period during which the State agency

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must conduct the specified number of agencies neither identify high-risk Congress has directed that program
compliance investigations. In addition, vendors, nor conduct compliance resources be used to combat vendor
the commenter suggested that we investigations. To implement a fraud. In the final rule, we balanced our
specify that vendors appearing on provision consistent with the Goodling desire to continue to commit resources
multiple lists be given a higher priority Act, we must require the State agency toward preventive methods, such as
for compliance investigations. This is a both to identify high-risk vendors and to strengthening the vendor training
valid comment, but we believe that such conduct compliance investigations. requirements and retaining a routine
direction should be provided to State Setting a minimum percentage for monitoring requirement, with our
agencies as part of the guidance that compliance investigations is the most responsibility to remove fraudulent
contains our high-risk criteria rather effective means of ensuring that the vendors from the Program.
than be included in regulatory language. legislative mandate is implemented Two commenters suggested that we
consistently by State agencies. modify this provision to require
d. Routine Monitoring (§ 246.12(j)(2)) One suggested modification that was compliance investigators to notify
and Compliance Investigations supported by ten commenters was to vendors of violations detected during
(§§ 246.12(j)(4), 246.12(l)(2)(iii), and modify the provision so that the State compliance buys in a timely manner.
246.18(a)(1)(ii)(H)) agency must monitor ten percent of its One of these commenters suggested that
Many of those who commented on the vendors and conduct compliance the required timely notification should
requirement in proposed Section investigations on half of those vendors be either when violations occur or
246.12(j)(3)(i), which would require the subject to monitoring. This compromise within seven days of their occurrence.
State agency to conduct compliance would set a standard for compliance One commenter indicated that it is
investigations on ten percent of its investigations, as we proposed, as well unfair to notify vendors of violations
vendors, were concerned that the ten as retain a standard for routine 45–60 days after they were discovered,
percent level was too high, too monitoring, as recommended by because such late notification may limit
expensive, a ‘‘one-size-fits-all’’ thirteen commenters. The compromise the vendor’s ability to discipline
approach, and would make routine would address the majority of cashiers under their labor agreements.
monitoring prohibitive due to the cost of commenters’ concerns regarding this Another commenter suggested that
the required compliance investigations, provision. Consequently, we adopted compliance investigators assist checkers
and shift resources away from nutrition the compromise but clarified that the with honest mistakes.
education and breastfeeding promotion. standards for routine monitoring and Although we understand the concerns
As noted in the Fiscal Year 1998 TIP compliance investigations are separate expressed by these commenters, we do
report, State agencies vary widely in the standards—five percent routine not believe that corresponding
areas of high-risk identification and monitoring and five percent compliance modifications to the regulatory language
compliance investigations. Whereas investigations. This compromise retains are justified. As defined by this final
some State agencies reported identifying half of the current requirement for ten rule, a compliance buy is ‘‘a covert, on-
no high-risk vendors, others reported percent routine (representative) site investigation in which a
identifying over one third of their monitoring and reduces the proposed representative of the Program poses as a
vendors as high-risk. Similarly, some ten percent compliance investigations participant, parent or caretaker of an
State agencies reported conducting no requirement by half, thereby reducing infant or child participant, or proxy,
compliance investigations; others the amount of resources necessary to transacts one or more food instruments,
reported conducting compliance carry out this provision. To and does not reveal his or her identity
investigations on nearly all of their accommodate these changes, this rule during the visit.’’ Unlike personnel
vendors. Currently, the State agency reorganizes and renumbers the conducting a routine monitoring visit,
must design and implement a high-risk requirements for compliance compliance investigators must adhere to
identification system and have the investigations in proposed § 246.12(j)(3) strict procedures in order for their
capability to conduct compliance buys. into two paragraphs, § 246.12(j)(2), compliance buys to be admissible as
Some State agencies would need to do Routine monitoring, and § 246.12(j)(4), evidence in administrative reviews and,
very little to implement this proposed Compliance investigations. Throughout if necessary, judicial proceedings. These
provision; others would need to modify this final rule, we used the term procedures prohibit investigators from
their systems to identify high-risk ‘‘compliance investigations’’ to refer to revealing their identity and the fact that
vendors to incorporate our criteria and both inventory audits and compliance the vendor is under investigation,
begin conducting compliance buys on buys. because revealing this type of
their vendors. Several commenters expressed information could compromise both
Section 203(f) of the Goodling Act concern that requiring compliance buys current and on-going investigations. For
amended section 17(f)(24) of the Child would set up an adversarial relationship the same reasons, we included a
Nutrition Act (42 U.S.C. 1786(f)(24)) to with vendors. Others commented that provision in the proposed rule and this
require each State agency to identify the most effective vendor monitoring final rule to protect the identity of
high-risk vendors and conduct system is a preventive approach. compliance investigators when they
compliance investigations of the Although we agree that vendor training testify in administrative reviews.
vendors. A number of commenters and routine monitoring, including Whereas timely feedback is essential to
indicated that their number of high-risk ‘‘educational buys,’’ are effective the effectiveness of monitoring visits,
vendors is well below ten percent and methods to curb vendor abuse by often it is contrary to the effectiveness
suggested that we modify the provision reducing cashier errors that result in the of compliance investigations.
to a lower percentage, such as three or loss of program funds, preventive Three commenters suggested that we
five percent, or that the State agency be methods are ineffective at addressing modify this provision to permit the
granted discretion to determine the vendor fraud, because vendors do not State agency to count toward the
percentage of vendors that should be inadvertently commit fraud. By proposed ten percent standard
monitored. Under the current mandating that we require State compliance investigations conducted by
regulations, which allow for State agencies to conduct compliance another WIC State agency on vendors
agency discretion, a number of State investigations of high-risk vendors, authorized by both State agencies,

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83268 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

especially in situations in which one of Whether the vendor received a vendors, then the results of the two
the State agencies is an Indian Tribal disqualification for a mandatory types of compliance investigations
Organization. The proposed rule would sanction from the other WIC State cannot be compared to verify the
have allowed the State agency to agency and (2) whether the State effectiveness of the high-risk criteria.
‘‘waive’’ conducting a compliance agency’s sanction schedule included a For these reasons, we revised this
investigation on a high-risk vendor if sanction based on a mandatory sanction provision to require at least two
the State agency documented that the imposed by the other WIC State agency. compliance buys be conducted before
vendor was under investigation by a To incorporate this change, we made the State agency may close a compliance
Federal, State, or local law enforcement conforming changes to the sanction and investigation in which no vendor
agency or for some other such administrative review sections of the violations are detected. The reduction in
compelling reason. To clarify this regulations. We added § 246.12(l)(2)(iii) the number of negative compliance buys
provision, we revised it to allow the to the final rule to clarify that the State to close an investigation of a high-risk
State agency to ‘‘count’’ toward this agency has the option to establish a vendor should offset the corresponding
requirement investigations conducted sanction based on a mandatory sanction increase in the number of negative buys
by a Federal, State, or local law imposed by another WIC State agency. necessary to close compliance
enforcement agency, provided that such We also added § 246.18(a)(1)(ii)(H) to investigations of non-high-risk vendors.
investigations include the investigation clarify that the State agency may One commenter recommended that
of either WIC or FSP fraud or abuse. In provide abbreviated administrative we specify the time period during
addition, we accepted the commenter’s reviews, rather than full administrative which compliance buys must be
suggestion and revised this provision so reviews, to vendors that appeal a conducted. Another commenter
that the State agency may count ‘‘disqualification or a civil money suggested that we delete the twelve-
compliance investigations conducted by penalty imposed in lieu of month limit on compliance buys for
another State agency on shared vendors, disqualification based on a mandatory compliance investigations and allow the
provided that certain conditions are sanction imposed by another WIC State State agency to conduct compliance
met. agency.’’ In addition, we want to clarify investigations without a strict time
that although compliance investigations limitation. Once again, rather than
In order for a State agency to count
conducted by other State agencies may specifying such detail in regulations, we
compliance investigations conducted by
be counted toward a State agency’s five believe that the period of time a
another WIC State agency on vendors percent compliance investigations compliance investigation remains open
shared by the two State agencies, the requirement, these activities should not depends on the type of investigation
final rule requires the State agency to be reported on the TIP report as and should be based on the State
implement a system for reciprocal compliance buys or inventory audits agency’s investigative techniques. We
sanctions with the other WIC State conducted by the State agency, because established above that high-risk
agency. This means that the State such double counting would lead to identification must be done on an
agency counting the compliance inflated numbers. annual basis. Due to the time it takes to
investigations of another WIC State Another area of concern was the identify high-risk vendors, plan and
agency must take reciprocal action number of compliance buys necessary to conduct compliance buys, and examine
based on mandatory sanctions imposed close a compliance investigation in redeemed food instruments used during
by the other State agency. To take such which no vendor violations are found. compliance buys, we believe some
reciprocal action, the State agency must The proposal would have established investigations, especially those in which
include in its sanction schedule, which two separate standards: three negative violations are detected, may take longer
is a required part of the vendor compliance buys within a twelve-month than twelve months. For this reason, we
agreement, a sanction that requires period to close compliance deleted the twelve-month timeframe
disqualification for any mandatory investigations of high-risk vendors and contained in the proposal. We still
sanction imposed by the other State State agency discretion to close believe that a twelve-month timeframe
agency. This serves to put vendors on compliance investigations of non-high- is reasonable, but we want to ensure
notice of the reciprocal effect of the risk vendors. Several commenters that the State agency has sufficient time
mandatory sanctions imposed by the recommended that we establish a single to obtain the evidence necessary to
other WIC State agency. Prior to standard for all compliance support its sanctions and uphold them
imposing a disqualification, the State investigations. As part of the upon appeal.
agency must consider whether compromise discussed above, ten In situations in which the State
disqualification of the vendor would commenters suggested that the State agency is unable to establish the level of
result in inadequate participant access. agency be provided with the discretion evidence necessary to support a
If disqualification of the vendor would to determine when to close all sanction, we recommend that the State
result in inadequate participant access, compliance investigations. However, as agency issue a warning to the vendor
then the State agency must impose a noted in the WIC Vendor Issues Study, identifying the vendor violations found
civil money penalty in lieu of compliance investigations that consist and recommending corrective actions,
disqualification. This provision does not of more than one compliance buy are such as additional training. Providing
permit the State agency to impose a civil more effective at uncovering vendor the vendor with a warning that
money penalty in response to a civil violations than compliance violations are occurring puts the vendor
money penalty for a mandatory sanction investigations consisting of a single on notice and also provides support for
imposed by the other WIC State agency. compliance buy. In addition, sanctions in the event that additional
Vendors that appeal a sanction based on conducting compliance investigations violations are uncovered during future
another State agency’s mandatory on non-high-risk vendors helps to verify compliance investigations. One
sanction must be provided an the effectiveness of the high-risk commenter suggested that the
abbreviated administrative review in identification criteria used by the State regulations include timeframes for
accordance with the procedures in agency. If the same standard is not used follow-up compliance buys after
§ 246.18(c). The areas subject to to close compliance investigations of warning letters are issued. Once again,
administrative review are limited to: (1) both high-risk and non-high-risk we believe that such investigative

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techniques should be discussed in did not accept the commenter’s procedures do not present due process
guidance rather than being included in suggestion. implications. With respect to claims, we
the regulations. Two commenters requested that we want to point out that anytime the State
As in the proposed rule, the final rule delete the requirement that reviewers or agency delays payment to a vendor or
specifies that, when the number of investigators document for all establishes a claim the State agency
vendors identified as high-risk is below monitoring visits their ‘‘observation that must provide the vendor an opportunity
five percent of the State agency’s total the vendor appears to be in compliance to justify or correct a vendor overcharge
number of vendors, the State agency with program requirements.’’ One or other error.
must conduct compliance investigations commenter noted that an investigator However, in recognition of possible
of randomly selected non-high-risk would not know if a food instrument State procedures that require all
vendors to reach the five-percent being transacted contains an overcharge administrative reviews to meet certain
requirement. When the number of until after it is redeemed. The other procedural requirements, the final rule
vendors identified as high-risk exceeds commenter noted that a reviewer provides the State agency with the
five percent, the State agency must conducting a routine monitoring visit option to provide full administrative
conduct compliance investigations on who makes this kind of judgment in reviews of the adverse actions listed in
the high-risk vendors it determines to writing can destroy the effectiveness of § 246.18(a)(1)(ii) of the final rule, which
have the greatest risk for program months of covert monitoring, because covers the adverse actions subject to
noncompliance and/or loss of program attorneys for vendors appealing abbreviated administrative reviews. In
funds. Vendors identified as high-risk sanctions have used this type of addition, we want to emphasize that the
by multiple criteria should receive documentation to cast doubt on the procedural requirements set forth in the
higher priority for compliance findings of compliance investigations. regulations for both full and abbreviated
investigations. In the event they are To address the commenters’ concerns, administrative reviews are minimum
subsequently identified as high-risk we deleted this requirement from the requirements. The State agency may
vendors, high-risk vendors not subject provision in the final rule. include additional procedural
to compliance investigations due to the 10. Vendor Administrative Review requirements in its administrative
priority system should be subject to Procedures review procedures.
compliance investigations the following We proposed to amend the a. Adverse Actions Subject to
year. Over time, we anticipate that State procedures for administrative review of Abbreviated Administrative Reviews
agencies will be able to conduct vendor appeals by limiting the types of (§ 246.18(a)(1)(ii))
thorough compliance investigations on actions subject to administrative review,
all vendors identified as high-risk and establishing abbreviated administrative Several commenters suggested that
that the percentage of high-risk vendors review procedures for certain adverse the termination of a vendor agreement
will decrease as noncompliant vendors actions, and extending the timeframe for based on changes in ownership or
are removed from the Program. rendering a review decision. As part of location or cessation of operations be
limiting the types of actions subject to moved to the category of actions
e. Report on Vendor Monitoring Results receiving no administrative review.
(§ 246.12(j)(5)) administrative review, we proposed to
create three categories: (1) Adverse Another commenter made a similar
One commenter requested that we actions subject to full administrative suggestion with regard to the denial of
clarify that the required report in reviews; (2) adverse actions subject to authorization because the vendor
proposed § 246.12(j)(4) refers to the TIP abbreviated administrative reviews; and submitted its application outside the
report or replaces the TIP report, (3) actions not subject to administrative timeframe for accepting applications.
because the commenter opposes any review. Commenters were divided on Although we agree that in most cases
additional reporting requirements. This the issue of limiting the types of actions these determinations will be clear-cut,
provision does refer to submission of subject to administrative reviews. we believe that an abbreviated review
TIP report data to us. We did not Commenters were especially concerned provides an appropriate level of review
specifically identify the TIP report in about the proposal to eliminate in cases in which the vendor disputes
the regulatory language because the administrative reviews of vendor the State agency’s determination.
names of reports occasionally change claims. Regardless of whether they Two commenters suggested we add
when the reports are updated. For supported or opposed our efforts to permanent disqualifications based on
example, the TIP report was previously streamline the administrative review trafficking convictions to the list of
known as the VAMP report. For this process, commenters were concerned actions that are not subject to
reason, we adopted the regulatory that limiting the administrative review administrative review. We believe that a
language as proposed. of some actions may violate a vendor’s permanent disqualification based on a
due process protections. trafficking conviction presents a narrow
f. Documentation of Monitoring Visits
We have always held that factual question: Was the sanctioned
(§ 246.12(j)(6))
authorization as a WIC vendor is not a vendor convicted of trafficking?
One commenter suggested that, license and does not convey property Consequently, we added permanent
instead of documenting the price rights to a store or business entity. To disqualifications based on trafficking
charged for each item purchased during clarify our position, we included a convictions to the list of adverse actions
a compliance buy, investigators only provision to this effect in the proposed subject to abbreviated administrative
document the price shown on the item, rule, which we adopted in the final rule reviews.
shelf, or sign. In order to determine at § 246.12(h)(3)(xxi). In any case, due We also want to point out that we
whether a vendor has committed an process does not always include full retained the requirement that a denial of
overcharge violation, the investigator trial-type hearings, and sometimes does authorization based on vendor limiting
must document both the current shelf not require hearings at all. We re- criteria is subject to an abbreviated
price, or price charged other customers, evaluated the three categories of adverse administrative review. This requirement
and the price the vendor actually actions in the proposed rule and only applies to those State agencies that
charged for each item. Consequently, we continue to believe that the proposed choose to use vendor limiting criteria.

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b. Actions Not Subject to Administrative always, the State agency should make section did not fully convey our intent
Reviews (§ 246.18(a)(1)(iii)) adequate participant access the chief that the decision-maker for an
Several commenters asserted that concern in determining the effective administrative review must base his or
eliminating or restricting the date of such actions. her decision solely on applicable
administrative review of certain actions statutes, regulations, policies and
d. Full Administrative Review
would force vendors to seek judicial Procedures (§ 246.18(b)) procedures, including the policies and
review of these actions, which in the procedures established by the State
We proposed in § 246.18(b)(1) to agency. The decision-maker must then
long run would create an administrative require the State agency to notify a
burden on the State agency. Although apply these standards to the factual
vendor receiving a mandatory evidence in the case at hand. The
we understand the commenters’ disqualification that: ‘‘This
concerns, we believe that, by carefully decision-maker should not, however, be
disqualification from WIC may result in in the position of determining the
limiting the actions that are not subject a disqualification as a retailer from the
to review, we can streamline the validity of Federal or State
Food Stamp Program.’’ One commenter requirements. These are legal issues that
administrative review procedures recommended that we modify the
without shifting these matters to the should be reserved for the courts. We
required statement to provide that the clarified this point in the final rule.
courts. Therefore, the final rule retains WIC disqualification ‘‘will’’ result in a
the proposed categories of actions that Most commenters supported the
FSP disqualification, rather than ‘‘may’’
are not subject to administrative review. proposal to increase from 60 to 90 days
result in a FSP disqualification. Most,
We did clarify in this final rule that, like the time for rendering a decision on a
but not all, disqualifications that are
the participant access determinations full administrative review. Five
mandatory vendor sanctions require
themselves, the validity and commenters suggested that we extend
reciprocal FSP disqualifications.
appropriateness of the participant the timeframe to 120 days. Opposing
Consequently, it is inappropriate to use
access criteria are not subject to commenters asserted that this provision
‘‘will’’ instead of ‘‘may.’’ The complete
administrative review. list of WIC disqualifications that give violated due process requirements,
In response to commenters, the final rise to reciprocal FSP disqualifications citing the possibility that a State agency
rule includes a cross-reference to the appears in the FSP regulations at 7 CFR could make an adverse action effective
requirement in § 246.12(k)(3) that the 278.6(e)(8). Accordingly, we did not 15 days after providing notice, leaving
State agency must provide vendors the accept the commenter’s the vendor in an unauthorized status
opportunity to justify or correct vendor recommendation. until the review decision is rendered.
overcharges or other errors. In addition, A number of comments concerned the We acknowledge the competing needs
we added to the list of actions not proposed changes to the procedures for of the State agency and needs of the
subject to administrative reviews the full administrative reviews. Five vendor, and encourage the State agency
State agency’s determinations of commenters indicated that the proposed to ensure that review decisions are
whether the vendor has an effective provision permitting cross-examination made as quickly as possible. We believe
policy and program in effect to prevent of WIC program investigators ‘‘in that this final rule streamlines the
trafficking. Both the statute (section camera’’ was confusing. We clarified administrative review process and
17(o)(4)(A) of the Child Nutrition Act this concept in § 246.18(b)(5) of the final assists the State agency in reducing the
(42 U.S.C. 1786(o)(4)(A))) and the rule. time it takes to render review decisions.
regulations (§ 246.12(l)(1)(i)) commit Another commenter questioned However, as noted by several
this determination to the sole discretion whether the provision in § 246.18(b)(7), commenters, even with these changes
of the State agency. which would give appellant vendors the some State agencies may not be able to
opportunity to examine the evidence consistently meet the current 60-day
c. Effective Date of Adverse Actions upon which an adverse action is based, timeframe. Therefore, this final rule
(§ 246.18(a)(2)) would require the State agency to retains the proposed 90-day timeframe.
Although they generally supported divulge its high-risk identification We clarified in § 246.18(b)(9) of the final
the effective date provision in proposed criteria. This provision does not require rule that this timeframe is only an
§ 246.18(a)(3), commenters raised a the State agency to turn over its administrative requirement for the State
number of issues. One suggested that we complete vendor file. Only the agency and is not jurisdictional. This
set an effective date for all adverse documents, both pro and con, the State means that the failure of a decision-
actions against vendors, another asked agency relied upon to take the adverse maker to render a decision within 90
that we clarify the standard for action under review must be provided. days may not be cited as a basis for
determining when to postpone the The State agency’s high-risk overturning a State agency adverse
effective date. A third commenter noted identification criteria are only used to action.
the potential hardship on vendors when determine which vendors will be e. Effective Date of Review Decisions
adverse actions are made effective after subject to compliance investigations. It (§ 246.18(e)) and Judicial Review
15 days and review decisions are not is the information found as a result of (§ 246.18(f))
rendered for 90 days. We believe that a compliance investigation or periodic
the State agency is in the best position review of the vendor’s qualifications One commenter suggested that the
to balance these competing concerns. In that will normally form the basis for the effective date of review decisions be left
the final rule, § 246.18(a)(2) provides the adverse action. up to the decision-maker. We still
State agency with the discretion to make One commenter suggested that we believe that once a decision is rendered
its adverse actions effective no earlier retain the current provision in 7 CFR it must take effect immediately;
than 15 days after the date of the notice 246.18(b)(8), which requires the therefore, we retained the proposed
and no later than 90 days after the date decision-maker to make his or her provision in § 246.18(e) that requires
of the notice or, in the case of an decision based solely on the statutory decisions to take effect on the date of
adverse action that is subject to and regulatory provisions governing the receipt of the review decision, if the
administrative review, the date the Program. We agree with the commenter adverse action has not previously taken
vendor receives the review decision. As that the proposed revision to this effect.

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Three commenters objected to the also cited their experience that the cost another thought we would need to
proposed modification to the current of detecting the dual participants far provide significant assistance to State
provision requiring the State agency to outweighed the improperly issued agencies as they implemented this
explain the right to judicial review. As benefits. Commenters also noted that requirement.
we noted in the preamble to the the new requirements for verifying The State agency is already required
proposed rule, the availability and type identity and residency will assist in to coordinate dual participation
of judicial review of State agency preventing dual participation. We agree detection efforts with Commodity
adverse actions is a matter of State law that a balance must be struck between Supplemental Food Program State
and may vary depending on the action the goal of detecting and preventing agencies and WIC Indian State agencies.
taken. This change was not intended to program fraud and the cost of doing so. The State agency should be able to draw
preclude or discourage vendors from Accordingly, this rule requires dual on this experience in expanding such
seeking judicial review, but to avoid participation detection semiannually, efforts to adjoining States. In addition,
putting the State agency in the position rather than quarterly, and that follow-up we recognize that the methods for
of determining the appropriate avenue action must be taken within 120 days of coordination may be limited by the
of judicial review. Accordingly, this detecting instances of suspected dual systems used by the various State
final rule adopts § 246.18(f) as proposed. participation. agencies. Finally, the State agency
State agencies that have the ability to Two of the opposing commenters should remember that it needs to
determine the details of available objected to reporting on dual develop interstate systems only in areas
judicial review are free to provide this participation. The proposed changes to where participants travel regularly
information to their vendors. the requirements for detecting dual across State lines.
participation do not establish reporting Commenters generally supported the
11. Vendor Authorization and Local requirements. However, as with all
Agency Selection Subject to proposed provisions requiring
program operations the State agency disqualification, and in some instances
Procurement Procedures must keep records of its efforts to
(§ 246.18(a)(1)(iii)(D) and (a)(3)(ii)(B)) claims, for participants who are found
identify and follow up on instances of to be participating in more than one
We proposed in § 246.18(a)(1)(iii)(D) dual participation. The State agency’s program. Similarly, commenters also
to include in the category of actions not compliance with these requirements supported the proposal that FNS will
subject to administrative review those will then be assessed during our assert a claim against the State agency
vendor authorization determinations management evaluations of the State if the State agency fails to take adequate
that are subject to the procurement agency. steps to pursue participant
procedures of the State agency. We One commenter questioned whether a disqualification and claims as a result of
proposed this change in recognition of system designed to detect dual dual participation. The comments raised
the procedural safeguards built into enrollment would meet the proposed on these provisions mostly concerned
procurement requirements that would requirement to detect dual larger issues relating to participant
be duplicated if included in the participation. Dual enrollment occurs claims and sanctions and are discussed
administrative review requirements of when a participant enrolls in more than in section 13 of this preamble. We did
the WIC regulations. The one one clinic or program, but actually notice that we inappropriately used the
commenter on this provision indicated receives benefits from only one of them. term ‘‘disqualification’’ in
that some State agencies select their Dual participation is when benefits are § 246.7(l)(1)(iii) when referring to cases
local agencies using State procurement actually obtained from more than one of dual participation that did not result
procedures as well. The commenter clinic or program. In order to receive from intentional misrepresentation.
suggested that we modify the proposal benefits from more than one clinic or Disqualification means terminating the
so that local agency selection program, a participant would have to be participation of a participant and
determinations that are subject to enrolled in more than one. Therefore, a prohibiting further participation for a
procurement procedures are not subject system to detect dual enrollment would specified period and is only used in
to administrative review. We accepted satisfy the requirement to detect dual cases of intentional misrepresentations.
this comment and added a provision to participation, provided the State agency
In all other situations, the appropriate
this effect to § 246.18(a)(3)(ii)(B). We takes appropriate follow-up action for
action is to ‘‘terminate’’ the
clarified in both the vendor and local persons identified as dual enrolled.
participation of the participant in one of
agency provisions that the exception Such action would include terminating
the programs or clinics. We revised this
from administrative review applies only the individuals from all clinics and
provision accordingly.
to administrative reviews pursuant to programs, except the one in which they
section 246.18 and also made other are currently participating. 13. Participant Provisions
revisions to clarify the coverage of these The majority of the commenters
approved of the proposal to require a. Definition of ‘‘Proxy’’ (§ 246.2)
interstate detection of dual participation Fifteen of twenty-three commenters
12. Preventing and Identifying Dual where geographical or other factors supported the proposed definition of
Participation (§§ 246.4(a)(15), 246.7(l), make it likely that participants travel ‘‘proxy.’’ The most prevalent comment,
and 246.23(c)(2)) regularly between contiguous local made by both supporting and opposing
Nine of the fifteen commenters service agencies located across State commenters, concerned the inclusion in
supported the proposal to require the agency borders. However, both the proxy definition of parents or
periodic identification of dual supporting and opposing commenters caretakers who apply for program
participation. However, two thought that this requirement could be benefits on behalf of infants or children.
commenters recommended that the rule costly, especially when the level of These commenters noted that this
require semiannual, rather than automation varies significantly between approach did not reflect the common
quarterly detection. Those commenters the adjoining State and for States that usage of this term by their State
noted that the six-month certification have a large number of bordering States. agencies. One commenter asserted that
periods for most participants make One commenter asked whether the parent or caretaker applying on
quarterly detection unnecessary. They additional funds would be available and behalf of an infant or child participant

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is actually the person authorized to Participant claims are only imposed approve proxies in lieu of
designate a proxy. Another commenter when a participant commits a disqualification for participants under
noted that the proxy definition did not participant violation. Participant age 18 in addition to infant and child
clearly permit a woman participant to violations must involve intentional participants.
designate a proxy. Finally, one actions by a participant, parent/ The final rule retains the proposed
commenter recommended that the caretaker, or proxy. Although we believe provision permitting the State agency to
proxy definition require proxies to be that these situations are generally allow a disqualified participant to
approved by the State or local agency. serious enough to warrant a mandatory reapply to the Program if restitution is
In response to commenters’ concerns one-year disqualification, we agree with made. In response to a suggestion made
and recommendations, we revised the commenters that the State agency by two commenters, we clarified in the
definition of proxy to clarify that a should have the flexibility to determine final rule that if restitution is made or
parent or caretaker applying on behalf of whether to disqualify a participant in a repayment plan is agreed to within 30
an infant or child participant is not a cases of small claims. Therefore, this days of the receipt of the letter
proxy and that such a parent/caretaker rule requires a one-year disqualification demanding repayment of the claim, the
may designate another person, such as only in cases of claims of $100 or more, State agency may permit the participant
a spouse, other family member, or claims resulting from dual participation, to continue participation without
friend, as a proxy for an infant or child or second or subsequent claims of any disqualification.
participant. We made conforming amount. d. Participant Claims (§ 246.23(c)(1))
changes throughout this rule to One commenter thought that the
determination of whether a participant Although only seven of the twenty-
incorporate this change and to clarify five commenters supported the
which persons are authorized to take (or parent/caretaker or proxy) intended
to commit the action giving rise to proposed participant claims provisions,
certain actions. We also clarified in the a majority of the objections reflected a
definition of proxy that proxies must be disqualification or a claim should not be
left to the judgment of a WIC eligibility misunderstanding of the provisions.
designated consistent with the State First, many commenters objected to the
worker or supervisor. We acknowledge
agency’s procedures established provision concerning in-kind
that the decision to assert a claim or to
pursuant to § 246.12(r)(1). restitution. Those commenters indicated
disqualify a participant requires the
b. Definition of ‘‘Participant Violation’’ exercise of discretion. However, this is that this practice would not be cost-
(§ 246.2) but one of many decisions that WIC staff effective. One commenter was
must make about program participation. concerned about allowing participants
All ten commenters supported the who are being punished for program
In all cases, the State agency is
inclusion of dual participation as a type responsible for ensuring that the violations to work in a clinic setting. We
of participant violation. In order to decisions made by State and local want to emphasize that, like the
emphasize that participant violations agency staff are made in accordance proposal, the final rule makes in-kind
include all intentional acts that violate with the regulatory requirements. In this restitution the option of the State
Federal or State statutes, regulations, instance, it means ensuring that the WIC agency, and not the participant.
policies, or procedures governing the staff knows the standards for Second, commenters asserted that
Program, we included a new definition determining when to assert a claim or collection efforts should be pursued
of ‘‘participant violation’’ in § 246.2, disqualify a participant, and how to only to the extent that they are cost-
which includes the examples that were correctly apply those standards. If the effective. Again, we wish to emphasize
in § 246.12(u)(1) of the proposed rule. State agency fails to do so, it will find that, like the proposal, the final rule
The participant violation definition that it is unable to sustain these requires the State agency to pursue
clarifies that a participant violation may determinations when participants claims collection after the initial letter
be committed by a participant, a parent appeal the decisions. This rule does not demanding repayment only to the extent
or caretaker of an infant or child change the requirement in § 246.9 that that it is cost-effective. To clarify this
participant, or a proxy. the State agency must have a hearing point, we added a sentence to require
c. Participant Sanctions (§ 246.12(u)(1) procedure under which participants the State agency to establish standards,
through (u)(4)) may appeal claims of any amount and based on a cost benefit analysis, for
disqualifications of any length. Further, determining when collection actions are
Sixteen of the twenty commenters §§ 246.12(u)(4) and 246.23(c)(1)(i) of not longer cost-effective. This provision
supported increasing the maximum this rule require the State agency to is the same as in current 7 CFR
disqualification period for a participant advise participants of the procedures to 246.23(c). One commenter suggested
sanction to one year. Commenters follow to obtain a fair hearing at the that we establish a $500 threshold for
generally supported requiring a time they are notified of a claim or pursuing claims. Although the final rule
disqualification for participant disqualification. requires demand letters to be sent out
violations that give rise to a claim. Other commenters suggested that we for all claims, the State agency could
However, a number of commenters permit a pregnant or breastfeeding include dollar thresholds for the
suggested that State and local agencies woman to continue program subsequent steps in the collection
be given the discretion to adjust the participation if an acceptable proxy can process as part of its standards for
length of the mandatory disqualification be found, which would be consistent claims collection.
to correspond to the period of the dual with the proposal to permit infant and Six commenters indicated that
participation or the amount of the claim. children participants to avoid establishing mandatory restitution for
Another commenter noted that claim disqualification if a proxy is approved. all claims would preclude the State
amounts are normally small and that If adopted, this change would extend agency from considering the family’s
participants often make restitution the proxy exception to all program ability to pay a claim. Two commenters
quickly. The four opposing commenters participants, except for postpartum opposed both requiring participant
objected to any action that affects women. We did not accept the restitution in all cases and permitting
benefits for infant and child commenters’ suggestion. However, this the State agency to force participants to
participants. rule does permit the State agency to ‘‘work off’’ claims resulting from State

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agency mistakes. This rule requires 15. General Requirements for Food participants, or proxies for authorized
claims collection actions only in the Delivery Systems supplemental foods obtained with food
case of intentional acts of the instruments.
a. Food Delivery System Contracts Must
participant, parent/caretaker, or proxy. Conform with 7 CFR Part 3016 16. Vendor Management Staffing
The State agency is not required to (§ 246.12(a)(4)) (§ 246.3(e)(5))
assess claims in cases of unintentional
We proposed to retain the Commenters were split about evenly
participant error or State agency error.
requirement that all contracts or on the merits of the proposed provision
Although we believe we need to protect
agreements entered into by the State or that would require State agencies with
the Program’s integrity by pursuing local agency for the management or more than fifty vendors to employ one
claims resulting from participant operation of food delivery systems must full-time or equivalent vendor
violations, we also recognize the be in conformance with the management specialist. Supporters
financial circumstances of program requirements of 7 CFR Part 3016. Part noted that the provision would ensure
participants. In the final rule, we 3016 sets forth the general requirements that resources are allocated to vendor
balance these considerations by applicable to grants to State and local management and that they would be
requiring claims collection only in cases governments. One of the three surprised if there was any resistance to
of intentional actions that qualify as supporting commenters suggested that the provision. Those who opposed the
participant violations and by providing we delete the reference to contracts or proposed provision indicated that: there
the State agency with the discretion to agreements entered into by the local is no evidence that relates vendor
enter into repayment schedules with agency, in light of the requirement in staffing equivalents to desired
participants and to allow in-kind § 246.12(h)(1) that all vendor outcomes; centralization of vendor
restitution. The final rule also clarifies agreements must be entered into by the management functions to one position is
that the State agency must assess claims State agency. We retained the reference not cost-effective; the provision would
for both benefits that have been to local agencies because this provision create an inequitable burden on small
obtained improperly and disposed of covers home food delivery and direct State agencies; and the requirement
improperly. Benefits that have been distribution contracts as well as vendor would result in a diversion of resources
disposed of improperly include agreements. from client services and local agencies.
Two commenters noted that some State
exchanging food instruments for cash or b. No Charge for Authorized
agencies might circumvent this staffing
credit or selling supplemental foods that Supplemental Foods (§ 246.12(c) and
requirement either by limiting the
were obtained with food instruments. (h)(3)(x))
number of vendors they authorize to
One of the supporting commenters Currently, 7 CFR 246.12(c) reads: fewer than fifty or by modifying their
suggested permitting collection through ‘‘Participants shall receive the Program’s position descriptions to meet the
offset of future program benefits, supplemental foods free of charge.’’ We requirement without making any
provided that the participant agrees to proposed to amend this provision to meaningful change in responsibilities.
this arrangement. Section 17(f)(14) of read: ‘‘State and local agencies shall As a compromise, two commenters
the CNA requires overissuances of food provide participants the Program’s suggested that we modify the provision
benefits resulting from intentional supplemental foods free of charge.’’ Our to require the State agency to designate
actions to be collected in cash. intent with this change was to make a staff person responsible for vendor
clear that the burden was on State and management and place all vendor
Therefore, this rule does not permit
local agencies to ensure that management functions under the direct
collection through offset.
supplemental foods are provided to supervision of this person. Another
14. Home Food Delivery Systems and participants free of charge, regardless of commenter noted that State agencies are
Direct Distribution Food Delivery whether they are provided through a responsive to our use of State Technical
Systems (§§ 246.2, 246.12(m), 246.12(n), home food delivery system, direct Assistance Review (STAR) findings to
246.12(o), and 246.12(s)) distribution food delivery system, or cite staffing needs, which allows for
retail food delivery system. more flexibility in small State agencies.
Only one commenter opposed our One commenter supported this We believe it is essential that each State
proposed amendments to the provisions proposed change, whereas another agency have at least one staff member
concerning home food delivery and commenter indicated that the proposed who is knowledgeable about its entire
direct distribution food delivery language was confusing. Nine food delivery system, who thoroughly
systems. The commenter suggested that commenters opposed the proposed understands the regulations and policies
home food delivery systems be language and recommended that we regarding vendor management, and who
categorically banned and that we either retain the language from the can be held accountable for resolving
grandfather in State agencies that current rule or modify the proposed issues and problems involving the food
currently operate such systems. language, because the proposal makes it delivery side of program operations. We
Although most State agencies currently sound as if State and local agencies accepted the suggested compromise and
operate retail food delivery systems and provide supplemental foods directly to revised this provision to read: ‘‘A staff
participants. To address the person designated for food delivery
we encourage their use, we did not
commenters’ concerns and to clarify our system management. The person to
propose to eliminate home food delivery
intent, we amended this provision to whom the State agency assigns this
systems and do not want to limit the
read: ‘‘The State agency must ensure responsibility may perform other duties
options available to the State agency at that participants receive their
this time. For this reason, we adopted as well.’’
authorized supplemental foods free of
the proposed amendments to the home charge.’’ We also added a sentence to 17. Participant Access Criteria in State
food delivery and direct distribution § 246.12(h)(3)(x) to require the vendor Plan (§ 246.4(a)(14)(xiv))
food delivery systems with minor agreement to include a provision that The proposal contained a provision to
revisions to make them consistent with the vendor may not charge participants, require the State agency to include in its
changes made by this rule. parents or caretakers of infant and child State Plan ‘‘[a] description of the State

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83274 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

agency’s participant access vendors. None of these criteria specify b. Standard Areas of Review of Local
determination criteria consistent with the actual ratios, numbers, or mileage Agencies (§ 246.19(b)(2))
§ 246.12(l)(8).’’ Six commenters used by the State agency to make its
supported adopting this provision as Five of the six commenters supported
participant access determinations.
proposed. One commenter suggested the minor revisions to the requirements
However, the criteria do provide the
that we modify the provision to allow for the areas of local agency activities
public with some assurance that the that the State agency must review. One
for some flexibility, because there is no State agency’s participant access
single objective standard that could be commenter questioned the meaning of
determinations rely on objective the added area of ‘‘participant services.’’
applied and defended statewide. measures.
Another commenter opposed the We added this provision to make sure
provision, unless it is modified to read: 18. Management Evaluations and that the State agency evaluates not only
‘‘A statement that the State agency uses Monitoring Reviews certification and nutrition education,
or does not use a ‘participant access but also the many other contacts that
a. State Agency Corrective Action Plans local agencies have with participants,
policy’ to assist in the determination of
vendor participation in the WIC (§ 246.19(a)(2)) such as setting up appointments, issuing
Program.’’ A third commenter opposed food instruments and explaining their
The majority of commenters use, and referring participants to other
including the participant access supported the proposal to require the
determination criteria in the State Plan, health and social services.
State agency to develop a corrective
because participant access must be Another commenter suggested that
action plan if we make negative findings
determined on a case-by-case basis and the State agency’s review of vendor
about its administration of the WIC training conducted by its local agencies
each community requires different
Program. The specific objections to this be limited to verifying whether the
criteria. We believe it is necessary for
provision were that ‘‘negative findings’’ training was conducted, and not the
the State agency to include its
participant access determination criteria is not a precise enough standard, 60 effectiveness of the training. Although
in its State Plan because the State days are not long enough to develop a we agree that it can sometimes be
agency’s participant access corrective action plan, and some difficult to determine the effectiveness
determinations are not subject to negative findings may be too minor to of training, we believe it is critical that
administrative review. The State Plan warrant a corrective action plan. any State agency that delegates training
approval process provides the public Although ‘‘negative findings’’ is a activities look closely at the content of
with an opportunity to comment on the frequently used term in audits and the training and any vendor feedback on
criteria the State agency proposes to use evaluations, we revised this provision to the training. In recognition of the new
to make these determinations. We also say ‘‘findings that the State agency did provision in § 246.12(h)(1)(ii) that
made a conforming change to not comply with agency program permits the State agency to delegate
§ 246.12(l)(8) to clarify the State requirements.’’ With respect to the signing of vendor agreements to its local
agency’s responsibility to establish concern about the timeframe, we want agencies, we also added a provision to
participant access determination this section requiring the State agency to
to point out that the 60-day period is not
criteria. review the local agencies’ effectiveness
the period during which corrective
Section 246.12(l)(8) specifies that, in conducting this activity.
action must be taken, but just the period
when making participant access during which a corrective action plan, c. Areas of In-Depth Review of Local
determinations, the State agency must outlining the corrective action to be Agencies (§ 246.19(b)(5))
consider ‘‘the availability of other taken, must be developed and
authorized vendors in the same area as The majority of commenters opposed
submitted. In addition, even findings the proposal to require the State agency
the violative vendor and any geographic that are easily corrected must be
barriers to using such vendors.’’ We to conduct in-depth reviews of specified
documented in the corrective action areas of local agency operations during
understand that the various urban,
plan. In many cases, the State agency monitoring reviews when requested to
suburban, and rural areas under a State
will be able to describe corrective action do so by us. Commenters both pro and
agency’s jurisdiction may require the
use of different participant access that it already took in response to such con were confused about whether these
criteria. We do not expect the State findings. focused reviews would be a part of, or
agency to be able to include every Several commenters addressed the in addition to, the currently required
variation of its criteria in its State Plan. portion of this provision that is in monitoring reviews. Three local agency
However, we do expect the State agency current regulations concerning the commenters indicated that in-depth
to include in its State Plan the general withholding of nutrition services and reviews are not necessary, because local
criteria that it uses to make its administration funds for various types agencies are already subject to State and
participant access determinations. For of program noncompliance. Those Federal monitoring, almost to the point
instance, a State agency may use such commenters indicated that there needs of over-evaluation.
general criteria as: (1) A minimum to be a better definition of the situations First, we want to clarify that the in-
vendor-to-participant ratio in the local in which such withholding may occur depth review of these areas would be a
agency or clinic service area; (2) the and also specific remedial actions that part of the regular monitoring reviews of
number of other vendors within a must be taken before such withholding local agencies and would be an area of
specified distance of the violative may occur. We do not think it is focus within the standard areas required
vendor, where the distance used possible to list more specifically the to be reviewed. Second, we do not
depends on whether the area is situations that would trigger expect that we would routinely specify
classified as urban, suburban, or rural; focused areas for review. Instead, we
withholding. The specific remedial
and (3) the existence of any would use this when necessary to get a
actions will generally be those agreed to
geographical barriers to the other better understanding of a particular
vendors, such as rivers or mountains in the State agency’s corrective action aspect of local agency operations or to
that increase driving distances to other plan. monitor compliance with a particular

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program requirement that has been with a financial interest in a vendor is State laws concerning public access to
identified as a problem area nationally. employed by the WIC Program, but has State records.
Several commenters expressed no involvement in vendor selection or One of the commenters who opposed
concern that adding these areas of in- vendor management. this provision asserted that, unlike
depth review would further strain the In the preamble to the proposed rule, participants, vendors do not have
limited State agency resources available we stated our view that this is an area comparable expectations of privacy that
for local agency reviews. To address this which is based more appropriately on justify the creation of new privacy
concern, one commenter suggested that State laws or regulations governing rights. The reason for limiting the use
we drop one area that would normally conflict of interest. For that reason, we and disclosure of vendor information is
be required to be covered in the review decided not to include a definition of two-fold—to encourage vendors to
in years in which an in-depth review is ‘‘conflict of interest’’ in the WIC provide the information necessary to
required. Another commenter suggested regulations. We continue to believe that authorize and monitor vendors and to
that we limit areas of in-depth review to the State agency is in the best position avoid compromising State agency
no more than two areas every other year to make these determinations, based on investigative techniques. We believe
in order to limit the burden and to its knowledge of the structure of the that these benefits outweigh the
conform to the two-year cycle for local State agency and the responsibilities of commenter’s concern.
agency reviews. We recognize the its staff. We did not intend our The other commenter who opposed
additional work that may be required to discussion in the preamble to indicate this provision suggested that applicant
conduct in-depth review of a particular that no one employed by the State vendors be allowed full access to
area. As a result, we proposed to limit agency could have any financial interest information concerning an adverse
the number of areas to two in any fiscal in a vendor. This determination must be action against them. In the proposal, we
year and to give at least six months’ made on a case-by-case basis taking into specified that the State agency could
advance notice. We further revised this account State laws, regulations, and disclose confidential vendor
provision in the final rule to require that policies and the particular facts of the information to appellant vendors to the
the areas not be added or changed more situation, such as the size of the extent that the information provided the
often than once every two fiscal years. financial interest and whether the basis of an action under review.
We did not adopt the suggestion that we employee has any responsibilities for However, this comment pointed out to
drop one of the standard areas of review vendor selection or management. us that we needed to broaden and
in years in which we require an in- One commenter suggested that the clarify this category of disclosure in
depth review of an area. The areas of in- provision be amended to prohibit order to take into account those adverse
depth review will be areas of focus ‘‘known’’ conflicts of interest. We did actions that are not subject to
within the standard review areas. not make this change. This provision is administrative review, such as claims.
Further, we believe that requiring designed to require the State agency to The final rule permits disclosure of
review of the standard review areas is establish standards for avoiding confidential vendor information to a
critical to ensuring the uniformity of conflicts of interest. These may be vendor that is subject to an adverse
local agency reviews and the actual or apparent conflicts. Just action, including claims, to the extent
effectiveness of program operations. because a State agency does not know that the information concerns the
of a conflict does not relieve the State vendor subject to the adverse action and
d. Local Agency Corrective Action Plans the information to be disclosed is
(§ 246.19(b)(4)) agency from the burden of taking the
necessary steps to ensure that it avoids related to the adverse action.
The majority of the commenters Some commenters suggested we
such conflicts and to take action when
supported the proposal to require local clarify that vendor information may be
a conflict is discovered.
agencies to prepare corrective action disclosed to other WIC State agencies.
plans to address deficiencies identified 20. Confidentiality As noted in the preamble to the
by the State agency during monitoring proposed rule, other WIC State agencies
a. Vendor Information (§ 246.26(e))
reviews. However, many of the would be authorized to receive vendor
commenters recommended that we We proposed to restrict the use and information. They fall in the category of
increase the time for submitting the disclosure of vendor information. The persons directly connected with the
corrective action plan from 45 days to vast majority of the commenters administration or enforcement of a
60 days. We made this change. We also supported the proposal, although Federal law (i.e., the Child Nutrition
moved this provision to § 246.19(b)(4) in several of those who supported the Act, which authorizes the WIC
order to integrate it better with the provision recommended modifications. Program). In order to avoid confusion,
existing regulatory language requiring Two commenters questioned how this we revised this provision to list
the State agency to establish a corrective provision would apply to information separately the use and disclosure of
action process for local agencies. requested under State freedom of confidential vendor information to
Finally, we revised the wording to information acts or other open record personnel directly connected with the
parallel the new requirements for State laws. These commenters indicated that administration and the enforcement of
agency corrective action plans. because the WIC regulations currently the WIC Program and Food Stamp
are silent on this point some State Program who the State determines have
19. Conflict of Interest (§ 246.12(t) and agencies have had to disclose vendor a need to know for the purposes of these
246.12(h)(3)(xix)) information under these laws. It is up to programs. In addition, we listed
All the comments on the conflict of the State agency to make sure it personnel from WIC local agencies and
interest provision supported the complies with all WIC Program other WIC Sate agencies and persons
amendment, although some commenters requirements and if there is a conflict investigating or prosecuting WIC
suggested modifications. Most of these with State law, to ensure that it takes Program or FSP violations as examples
comments concerned the need to clarify the necessary steps to remove the of the persons who fall in this category.
what is meant by ‘‘conflict of interest.’’ conflict. Therefore, we urge the State One commenter objected to the
One commenter asked whether a agency to consult with its legal counsel requirement for a written agreement as
conflict of interest exists when a person on the effect of this provision on any administratively unworkable,

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83276 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

particularly within the short timeframes specifically restricts the use and General (OIG), U.S. Department of
for vendor administrative reviews. We disclosure of information obtained from Agriculture.
assume the commenter was referring to FSP retailers to two areas: (1) Federal (5) Vendor Management Study (1990):
situations in which the administrative and State law enforcement and Contract No. 53–3198–5–33 (December
reviews are conducted for the WIC State investigative agencies for the purposes 1990). Conducted for FNS by
agency by another agency of the State of administering or enforcing any Professional Management Associates.
and the commenter’s perception that a Federal or State law or implementing This study surveyed the 50 geographic
written agreement would be required regulations; and (2) WIC State agencies WIC State agencies and the District of
before disclosing vendor information to for the purposes of administering the Columbia, excluding Vermont and
the agency providing the administrative Child Nutrition Act and implementing Mississippi, which provide benefits
review. We revised this provision to regulations. Therefore, we must retain exclusively through home food delivery
clarify that written agreements are not the proposed restriction on the use of and direct distribution, respectively.
required prior to disclosing confidential information obtained from FSP retailers. (6) WIC Vendor Issues Study: Contract
vendor information for purposes of WIC The preamble to the proposed rule also No. 53–3198–9–53 (May 1991).
Program and Food Stamp Program discussed the need to restrict the use of Conducted for FNS by Aspen Systems
administration, which includes information obtained from the FSP even Corporation. This study investigated the
administrative reviews. when it is not protected under section extent of program losses due to fraud
Further, in any situations in which 9(c) of the Food Stamp Act. and regulatory noncompliance from
the State agency needs to disclose Subsequently, we realized that the vendor overcharging in the WIC
confidential vendor information on a regulatory language in the proposed rule Program.
regular basis for other permitted was not clear on this point. This final (7) The WIC Files: Case Studies of
purposes, the State agency may enter rule revises proposed § 246.26(f) to Vendor Audits and Investigations in the
into a single written agreement that clarify that all information obtained WIC Program, June 1991. Produced by
generically covers the disclosure and from the FSP may be used only in the the vendor managers of Southeast
use of confidential vendor information administration or enforcement of the Region in cooperation with the Florida
for such activities. Individual WIC Program. WIC Program.
agreements for each disclosure of (8) National Association of WIC
information are not necessary. c. Access by USDA and Comptroller Directors (NAWD) National Vendor
One commenter suggested that we General of the United States Management Roundup Survey (1995).
give the State agency the discretion to (§ 246.26(g)) This survey, designed by FNS and the
release non-proprietary vendor This final rule also clarifies that the NAWD Vendor Committee
information to the extent that the State confidentiality provisions do not relieve representatives, provided profile date on
agency determines the disclosure to be the State agency of its responsibility to State vendor management information
for the benefit of the Program. We think provide USDA and the Comptroller systems.
that this approach is overly complicated (9) Vendor Activity Monitoring Profile
General of the United States access to all
and did not accept this suggestion. (VAMP) and The Integrity Profile (TIP):
program records pursuant to
We did revise this provision in the VAMP reports produced annually by
final rule to clarify that only § 246.25(a)(4). We added a new
paragraph (g) to § 246.26 to this effect. USDA through 1997 and TIP reports
information that individually identifies annually thereafter. These reports
a vendor (other than its name, address, 21. References analyze WIC State agency vendor
and authorization status) is considered monitoring activities.
confidential. Aggregate data about (1) WIC State Agency Guide to Vendor
Monitoring and Fraud and Abuse (10) Efforts to Control Fraud and
vendors and other data that does not Abuse Can Be Strengthened: GAO/
individually identify a vendor are not Control: Grant No. FNS–59–3198–0–96
(April 1982). Prepared by Arthur W. RCED–99–224 (August 1999). Report to
subject to these limitations on use and Congressional Committees by the
disclosure. This change addresses a Burger and Steven Stollmack,
ANALOGS, Incorporated. This study United States General Accounting Office
commenter who requested that we (GAO). For its review, GAO collected
permit redemption data to be used in identifies methods for reducing vendor
fraud and abuse in the WIC Program. information, through surveys and
community meetings as part of program interviews, from FNS and State and
outreach and expansion. Putting this (2) Applied Research on Vendor
local WIC agencies on the extent of
data in aggregate or other forms that Abuse: Grant No. FNS–59–3198–1–117
fraud and abuse in the Program.
does not identify the vendor should (June 1985). Produced by David
serve this purpose. Kornetsky, Nancy Wogman, and the List of Subjects in 7 CFR Part 246
Massachusetts WIC Program. This study Food assistance programs, Food
b. Food Stamp Program Retailer worked with a consortium of ten States donations, Grant programs—Social
Information (§ 246.26(f)) to design a high-risk vendor programs, Infants and children,
Commenters generally supported the identification system. Maternal and child health, Nutrition
proposal to restrict the use and (3) WIC Compliance Buy Handbook: education, Public assistance programs,
disclosure of FSP retailer information to produced by the USDA, June 1985. This WIC, Women.
persons directly connected with the handbook provides guidance for State For reasons set forth in the preamble,
administration or enforcement of the agencies in conducting WIC compliance 7 CFR Part 246 is amended as follows:
WIC Program. The one opposing investigations.
comment questioned whether vendor (4) National Vendor Audit: Audit PART 246—SPECIAL SUPPLEMENTAL
information should be afforded any Report 27661–2–Ch, Special NUTRITION PROGRAM FOR WOMEN,
confidentiality. As noted in the Supplemental Food Program for INFANTS AND CHILDREN
preamble to the proposed rule, section Women, Infants and Children—Vendor
9(c) of the Food Stamp Act of 1977, as Monitoring and Food Instrument 1. The authority citation for Part 246
amended, 7 U.S.C. 2011–2036 (Food Delivery Systems, June 15, 1988. continues to read as follows:
Stamp Act) (7 U.S.C. 2018(c)) Conducted by the Office of Inspector Authority: 42 U.S.C. 1786.

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2. In Section 246.2, add in non-food items, or unauthorized food authorized supplemental foods than is
alphabetical order the definitions of items, including supplemental foods in permitted under the vendor agreement.
Authorized supplemental foods, excess of those listed on the It is not a vendor overcharge when a
Compliance buy, High-risk vendor, participant’s food instrument; vendor submits a food instrument for
Home food delivery contractor, threatening to harm or physically redemption and the State agency makes
Inventory audit, Participant violation, harming clinic or vendor staff; and dual a price adjustment to the food
Price adjustment, Proxy, Routine participation. instrument.
monitoring, Vendor, Vendor * * * * * Vendor selection criteria means the
authorization, Vendor limiting criteria, Price adjustment means an criteria established by the State agency
Vendor overcharge, Vendor selection adjustment made by the State agency, in to select individual vendors for
criteria, Vendor violation, and WIC to accordance with the vendor agreement, authorization consistent with the
read as follows: to the purchase price on a food requirements in § 246.12(g)(3).
instrument after it has been submitted Vendor violation means any
§ 246.2 Definitions. intentional or unintentional action of a
by a vendor for redemption to ensure
* * * * * that the payment to the vendor for the vendor’s current owners, officers,
Authorized supplemental foods food instrument complies with the State managers, agents, or employees (with or
means those supplemental foods agency’s price limitations. without the knowledge of management)
authorized by the State or local agency that violates the vendor agreement or
for issuance to a particular participant. * * * * *
Proxy means any person designated Federal or State statutes, regulations,
* * * * * by a woman participant, or by a parent policies, or procedures governing the
Compliance buy means a covert, on- or caretaker of an infant or child Program.
site investigation in which a participant, to obtain and transact food WIC means the Special Supplemental
representative of the Program poses as a instruments or to obtain supplemental Nutrition Program for Women, Infants
participant, parent or caretaker of an foods on behalf of a participant. The and Children authorized by section 17
infant or child participant, or proxy, proxy must be designated consistent of the Child Nutrition Act of 1966, 42
transacts one or more food instruments, with the State agency’s procedures U.S.C. 1786.
and does not reveal during the visit that established pursuant to § 246.12(r)(1). * * * * *
he or she is a program representative. Parents or caretakers applying on behalf 3. In Section 246.3:
* * * * * of child and infant participants are not a. Redesignate paragraph (e)(5) as
High-risk vendor means a vendor proxies. paragraph (e)(6); and
identified as having a high probability * * * * * b. Add a new paragraph (e)(5).
of committing a vendor violation Routine monitoring means overt, on- The addition reads as follows:
through application of the criteria site monitoring during which program
established in § 246.12(j)(3) and any § 246.3 Administration.
representatives identify themselves to
additional criteria established by the vendor personnel. * * * * *
State agency. (e) * * *
Home food delivery contractor means * * * * *
(5) A staff person designated for food
Vendor means a sole proprietorship,
a sole proprietorship, partnership, delivery system management. The
partnership, cooperative association,
cooperative association, corporation, or person to whom the State agency
corporation, or other business entity
other business entity that contracts with assigns this responsibility may perform
operating one or more stores authorized
a State agency to deliver authorized other duties as well.
by the State agency to provide
supplemental foods to the residences of * * * * *
authorized supplemental foods to
participants under a home food delivery 4. In § 246.4:
participants under a retail food delivery
system. a. Add a heading to paragraph
system. Each store operated by a
* * * * * business entity constitutes a separate (a)(14)(i);
Inventory audit means the vendor and must be authorized b. In paragraph (a)(14)(v), add a
examination of food invoices or other separately from other stores operated by heading and remove the reference to
proofs of purchase to determine whether the business entity. Each store must ‘‘§ 246.12(k)(1)(i)’’ and add a reference
a vendor has purchased sufficient have a single, fixed location, except to ‘‘§ 246.12(l)(1)(i)’’ in its place;
quantities of supplemental foods to when the authorization of mobile stores c. Revise paragraphs (a)(14)(ii),
provide participants the quantities is necessary to meet the special needs (a)(14)(iii), (a)(14)(iv), and (a)(14)(vi);
specified on food instruments redeemed described in the State agency’s State d. Remove paragraph (a)(14)(vii) and
by the vendor during a given period of Plan in accordance with redesignate paragraphs (a)(14)(viii)
time. § 246.4(a)(14)(xiv). through (a)(14)(xi) as paragraphs
* * * * * Vendor authorization means the (a)(14)(vii) through (a)(14)(x),
Participant violation means any process by which the State agency respectively;
intentional action of a participant, assesses, selects, and enters into e. In newly redesignated paragraph
parent or caretaker of an infant or child agreements with stores that apply or (a)(14)(vii), add a heading and remove
participant, or proxy that violates subsequently reapply to be authorized the words ‘‘food vendors’’ and add
Federal or State statutes, regulations, as vendors. ‘‘vendors’’ in its place;
policies, or procedures governing the Vendor limiting criteria means criteria f. In newly redesignated paragraph
Program. Participant violations include established by the State agency to (a)(14)(viii), add a heading;
intentionally making false or misleading determine the maximum number and g. In newly redesignated paragraphs
statements or intentionally distribution of vendors it authorizes (a)(14)(ix) and (a)(14)(x), add headings
misrepresenting, concealing, or pursuant to § 246.12(g)(2). and remove the periods at the end and
withholding facts to obtain benefits; Vendor overcharge means add semicolons in their place;
exchanging food instruments or intentionally or unintentionally h. Add new paragraphs (a)(14)(xi)
supplemental foods for cash, credit, charging the State agency more for through (a)(14)(xiv);

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i. Revise the first sentence of provided to ensure the uniformity and improperly issued benefits in
paragraph (a)(15); and quality of vendor training; accordance with § 246.23(c)(1) and
j. In paragraph (a)(21), remove the (xii) Food instrument security. A disqualification from both programs in
reference to ‘‘§ 246.12(r)(8)’’ and add a description of the State agency’s system accordance with § 246.12(u)(2).
reference to ‘‘§ 246.12(r)(4)’’ in its place. for ensuring food instrument security in * * * * *
The revisions and additions read as accordance with § 246.12(p); 6. Revise § 246.12 to read as follows:
follows: (xiii) Participant access determination
criteria. A description of the State § 246.12 Food delivery systems.
§ 246.4 State plan. (a) General. This section sets forth
agency’s participant access
(a) * * * determination criteria consistent with design and operational requirements for
(14) * * * § 246.12(l); and food delivery systems. In recognition of
(i) Type of system. * * * (xiv) Mobile stores. The special needs emergent electronic benefits transfer
(ii) Vendor limiting and selection necessitating the authorization of (EBT) technology, FNS may, on a case-
criteria. Vendor limiting criteria, if used mobile stores, if the State agency by-case basis, modify regulatory
by the State agency, and the vendor chooses to authorize such stores. provisions to the extent FNS determines
selection criteria established by the (15) The State agency’s plans to the particular EBT system provides
State agency consistent with the prevent and identify dual participation adequate safeguards that serve the
requirements in § 246.12(g)(3); in accordance with § 246.7(l)(1)(i) and purpose of the provisions being
(iii) Vendor agreement. A sample modified.
(l)(1)(ii). * * *
vendor agreement, including the (1) Management. The State agency is
sanction schedule, which may be * * * * *
responsible for the fiscal management
incorporated as an attachment or, if the 5. In § 246.7: of, and accountability for, food delivery
sanction schedule is in the State a. In paragraph (f)(2)(iv), remove the systems under its jurisdiction. The State
agency’s regulations, through citation to reference to ‘‘§ 246.12(r)(8)’’ and add a agency may permit only authorized
the regulations. State agencies that reference to ‘‘§ 246.12(r)(4)’’ in its place; vendors, home food delivery
intend to delegate signing of vendor b. In paragraph (h)(1)(i), remove the contractors, and direct distribution sites
agreements to local agencies must reference to ‘‘§ 246.12(k)(2)’’ and add to accept food instruments.
describe the State agency supervision the words ‘‘the definition of Participant (2) Design. The State agency must
and instruction that will be provided to violation in § 246.2’’ in its place; and design all food delivery systems to be
ensure the uniformity and quality of c. Revise paragraph (l)(1). used by its local agencies.
local agency activities; The revision reads as follows: (3) FNS oversight. FNS may, for a
(iv) Vendor monitoring. The system stated cause and by written notice,
§ 246.7 Certification of participants.
for monitoring vendors to ensure require revision of a proposed or
compliance and prevent fraud, waste, * * * * * operating food delivery system and will
and program noncompliance, and the (l) * * * allow a reasonable time for the State
State agency’s plans for improvement in (1) The State agency is responsible for agency to effect such a revision.
the coming year in accordance with the following: (4) Part 3016. All contracts or
§ 246.12(j). The State agency must also (i) In conjunction with WIC local agreements entered into by the State or
include the criteria it will use to agencies, the prevention and local agency for the management or
determine which vendors will receive identification of dual participation operation of food delivery systems must
routine monitoring visits. State agencies within each local agency and between conform to the requirements of Part
that intend to delegate any aspect of local agencies under the State agency’s 3016 of this title.
vendor monitoring responsibilities to a jurisdiction, including actions to (b) Uniform food delivery systems.
local agency or contractor must describe identify suspected instances of dual The State agency may operate up to
the State agency supervision and participation at least semiannually. The three types of food delivery systems
instruction that will be provided to State or local agency must take follow- under its jurisdiction—retail, home
ensure the uniformity and quality of up action within 120 days of detecting delivery, or direct distribution. Each
vendor monitoring; instances of suspected dual system must be procedurally uniform
(v) Options regarding trafficking participation; throughout the jurisdiction of the State
convictions. * * * (ii) In areas where a local agency agency and must ensure adequate
(vi) Food instruments. A facsimile of serves the same population as an Indian participant access to supplemental
the food instrument, if used, and a State agency or a CSFP agency, and in foods. When used, food instruments
description of the system the State areas where geographical or other must be uniform within each type of
agency will use to account for the factors make it likely that participants system.
disposition of food instruments in travel regularly between contiguous (c) No charge for authorized
accordance with § 246.12(q); local service areas located across State supplemental foods. The State agency
(vii) Names of contractors. * * * agency borders, entering into an must ensure that participants receive
(viii)Nutrition services and agreement with the other agency for the their authorized supplemental foods
administration funds conversion. * * * detection and prevention of dual free of charge.
(ix) Homeless participants. * * * participation. The agreement must be (d) Compatibility of food delivery
(x) Cost containment systems. * * * made in writing and included in the system. The State agency must ensure
(xi) Vendor training. The procedures State Plan; that the food delivery system(s) selected
the State agency will use to train (iii) Immediate termination from is compatible with the delivery of health
vendors in accordance with § 246.12(i). participation in one of the programs or and nutrition education services to
State agencies that intend to delegate clinics for participants found in participants.
any aspect of training to a local agency, violation due to dual participation; and (e) Retail food delivery systems:
contractor, or vendor representative (iv) In cases of dual participation General. Retail food delivery systems
must describe the State agency resulting from intentional are systems in which participants,
supervision and instruction that will be misrepresentation, the collection of parents or caretakers of infant and child

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participants, and proxies obtain infant or child participants, or proxies requirements and price limitations for
authorized supplemental foods by must sign. different vendor peer groups, may
submitting a food instrument to an (3) Vendor identification. The State include a factor to reflect fluctuations in
authorized vendor. agency must implement procedures to wholesale prices in its price limitations,
(f) Retail food delivery systems: Food ensure each food instrument submitted and may except pharmacy vendors that
instrument requirements. (1) General. for redemption can be identified by the supply only exempt infant formula and/
State agencies using retail food delivery vendor that submitted the food or WIC-eligible medical foods from both
systems must use food instruments that instrument. Each vendor operated by a the competitive price selection criterion
comply with the requirements of single business entity must be identified and the price limitations.
paragraph (f)(2) of this section. separately. The State agency may (ii) Minimum variety and quantity of
(2) Printed food instruments. Each identify vendors by requiring that all supplemental foods. The State agency
printed food instrument must clearly authorized vendors stamp their names must establish minimum requirements
bear on its face the following and/or enter a vendor identification for the variety and quantity of
information: number on all food instruments prior to supplemental foods that a vendor
(i) Authorized supplemental foods. submitting them for redemption. applicant must stock to be authorized.
The supplemental foods authorized to (g) Retail food delivery systems: The State agency may not authorize a
be obtained with the food instrument; Vendor authorization. (1) General. The vendor applicant unless it determines
(ii) First date of use. The first date on State agency must authorize an that the vendor applicant meets these
which the food instrument may be used appropriate number and distribution of minimums. The State agency may
to obtain supplemental foods; vendors in order to ensure adequate establish different minimums for
(iii) Last date of use. The last date on participant access to supplemental different vendor peer groups.
which the food instrument may be used foods and to ensure effective State
to obtain authorized supplemental (iii) Business integrity. The State
agency management, oversight, and
foods. This date must be a minimum of agency must consider the business
review of its authorized vendors.
30 days from the first date on which it integrity of a vendor applicant. In
(2) Vendor limiting criteria. The State
may be used, except for the participant’s agency may establish criteria to limit the determining the business integrity of a
first month of issuance, when it may be number of stores it authorizes. The State vendor applicant, the State agency may
the end of the month or cycle for which agency must apply its limiting criteria rely solely on facts already known to it
the food instrument is valid. Rather than consistently throughout its jurisdiction. and representations made by the vendor
entering a specific last date of use on Any vendor limiting criteria used by the applicant on its vendor application. The
each instrument, all instruments may be State agency must be included in the State agency is not required to establish
printed with a notice that the State Plan in accordance with a formal system of background checks
participant must transact them within a § 246.4(a)(14)(ii). for vendor applicants. Unless denying
specified number of days after the first (3) Vendor selection criteria. The authorization of a vendor applicant
date on which the food instrument may State agency must develop and would result in inadequate participant
be used; implement criteria to select stores for access, the State agency may not
(iv) Redemption period. The date by authorization. The State agency must authorize a vendor applicant if during
which the vendor must submit the food apply its selection criteria consistently the last six years the vendor applicant
instrument for redemption. This date throughout its jurisdiction. The State or any of the vendor applicant’s current
must be no more than 90 days from the agency may reassess any authorized owners, officers, or managers have been
first date on which the food instrument vendor at any time during the vendor’s convicted of or had a civil judgment
may be used. If the date is fewer than agreement period using the vendor entered against them for any activity
90 days, then the State agency must selection criteria in effect at the time of indicating a lack of business integrity.
ensure that the allotted time provides the reassessment and must terminate the Activities indicating a lack of business
the vendor sufficient time to submit the agreements with those vendors that fail integrity include fraud, antitrust
food instrument for redemption without to meet them. The vendor selection violations, embezzlement, theft, forgery,
undue burden; criteria must include the following bribery, falsification or destruction of
(v) Serial number. A unique and categories and requirements and must records, making false statements,
sequential serial number; be included in the State Plan in receiving stolen property, making false
(vi) Purchase price. A space for the accordance with § 246.4(a)(14)(ii). claims, and obstruction of justice. The
purchase price to be entered. At the (i) Competitive price and price State agency may add other types of
discretion of the State agency, a limitations. The State agency must convictions or civil judgments to this
maximum price may be printed on the consider the prices a vendor applicant list.
food instrument that is higher than the charges for supplemental foods as (iv) Current Food Stamp Program
expected purchase price of the compared to the prices charged by other disqualification or civil money penalty
authorized supplemental foods for vendor applicants and authorized for hardship. Unless denying
which it will be used, but that is low vendors. The State agency may evaluate authorization of a vendor applicant
enough to protect against potential loss a vendor applicant based on its shelf would result in inadequate participant
of funds. When a maximum price is prices or on the prices it bids for access, the State agency may not
printed on the food instrument, the supplemental foods, which may not authorize a vendor applicant that is
space for the purchase price must be exceed its shelf prices. The State agency currently disqualified from the Food
clearly distinguishable from the must also establish price limitations on Stamp Program or that has been
maximum price. For example, the words the amount that it will pay vendors. The assessed a Food Stamp Program civil
‘‘purchase price’’ or ‘‘actual amount of price limitations must be designed to money penalty for hardship and the
sale’’ could be printed larger and in a ensure that the State agency does not disqualification period that would
different area of the food instrument pay a vendor at a level that would otherwise have been imposed has not
than the maximum price; and otherwise make the vendor ineligible for expired.
(vii) Signature space. A space where authorization. The State agency may (4) On-site preauthorization visit. The
participants, parents or caretakers of establish different competitive price State agency must conduct an on-site

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83280 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

visit prior to or at the time of a vendor’s in accordance with § 246.4(a)(14)(iii). In provided and must be entered on the
initial authorization. such cases, the State agency must food instrument before it is signed.
(5) Sale of store to circumvent WIC provide supervision and instruction to (vi) Signature on food instruments.
sanction. The State agency may not ensure the uniformity and quality of For printed food instruments, the
authorize a vendor applicant if the State local agency activities. vendor must ensure the participant,
agency determines the store has been (2) Standard vendor agreement. The parent or caretaker of an infant or child
sold by its previous owner in an attempt State agency must use a standard vendor participant, or proxy signs the food
to circumvent a WIC sanction. The State agreement throughout its jurisdiction, instrument in the presence of the
agency may consider such factors as although the State agency may make cashier. In EBT systems, a Personal
whether the store was sold to a relative exceptions to meet unique Identification Number (PIN) may be
by blood or marriage of the previous circumstances provided that it used in lieu of a signature.
owner(s) or sold to any individual or documents the reasons for such (vii) Sales tax prohibition. The vendor
organization for less than its fair market exceptions. may not collect sales tax on authorized
value. (3) Vendor agreement provisions. The supplemental foods obtained with food
(6) Impact on small businesses. The vendor agreement must contain the instruments.
State agency is encouraged to consider following specifications, although the (viii) Food instrument redemption.
the impact of authorization decisions on State agency may determine the exact The vendor must submit food
small businesses. wording to be used: instruments for redemption in
(7) Application periods. The State accordance with the redemption
(i) Acceptance of food instruments.
agency may limit the periods during procedures described in the vendor
The vendor may accept food
which applications for vendor agreement. The vendor may redeem a
instruments only from participants,
authorization will be accepted and food instrument only within the
parents or caretakers of infant and child
processed, except that applications must specified time period. As part of the
participants, or proxies.
be accepted and processed at least once redemption procedures, the State
every three years. The State agency must (ii) No substitutions, cash, credit, agency may make price adjustments to
develop procedures for processing refunds, or exchanges. The vendor may the purchase price on food instruments
vendor applications outside of its provide only the authorized submitted by the vendor for redemption
timeframes when it determines there supplemental foods listed on the food to ensure compliance with the price
will be inadequate participant access instrument. The vendor may not limitations applicable to the vendor.
unless additional vendors are provide unauthorized food items, non- (ix) Vendor claims. When the State
authorized. food items, cash, or credit (including agency determines the vendor has
(8) Data collection at authorization. rainchecks) in exchange for food committed a vendor violation that
At the time of application, the State instruments. The vendor may not affects the payment to the vendor, the
agency must collect the vendor provide refunds or permit exchanges for State agency will delay payment or
applicant’s Food Stamp Program authorized supplemental foods obtained establish a claim. The State agency may
authorization number if the vendor with food instruments, except for delay payment or establish a claim in
applicant is authorized in that program. exchanges of an identical authorized the amount of the full purchase price of
In addition, the State agency must supplemental food item when the each food instrument that contained the
collect the vendor applicant’s current original authorized supplemental food vendor overcharge or other error. The
shelf prices for supplemental foods. item is defective, spoiled, or has State agency will provide the vendor
(h) Retail food delivery systems: exceeded its ‘‘sell by,’’ ‘‘best if used by,’’ with an opportunity to justify or correct
Vendor agreements. (1) General. (i) or other date limiting the sale or use of a vendor overcharge or other error. The
Entering into agreements. The State the food item. An identical authorized vendor must pay any claim assessed by
agency must enter into written supplemental food item means the exact the State agency. In collecting a claim,
agreements with all authorized vendors. brand and size as the original the State agency may offset the claim
The agreements must be for a period not authorized supplemental food item against current and subsequent amounts
to exceed three years. The agreement obtained and returned by the to be paid to the vendor. In addition to
must be signed by a representative who participant. denying payment or assessing a claim,
has legal authority to obligate the (iii) Treatment of participants, the State agency may sanction the
vendor and a representative of the State parents/caretakers, and proxies. The vendor for vendor overcharges or other
agency. When the vendor representative vendor must offer program participants, errors in accordance with the State
is obligating more than one vendor, the parents or caretakers of infant of child agency’s sanction schedule.
agreement must specify all vendors participants, and proxies the same (x) No charge for authorized
covered by the agreement. When more courtesies offered to other customers. supplemental foods or restitution from
than one vendor is specified in the (iv) Time periods for transacting food participants. The vendor may not charge
agreement, the State agency may add or instruments. The vendor may accept a participants, parents or caretakers of
delete an individual vendor without food instrument only within the infant and child participants, or proxies
affecting the remaining vendors. The specified time period. for authorized supplemental foods
State agency must require vendors to (v) Purchase price on food obtained with food instruments. In
reapply at the expiration of their instruments. The vendor must ensure addition, the vendor may not seek
agreements and must provide vendors that the purchase price is entered on restitution from these individuals for
with not less than 15 days advance food instruments in accordance with the food instruments not paid or partially
written notice of the expiration of their procedures described in the vendor paid by the State agency.
agreements. agreement. The State agency has the (xi) Training. At least one
(ii) Delegation to local agencies. The discretion to determine whether the representative of the vendor must
State agency may delegate to its local vendor or the participant enters the participate in training annually. Annual
agencies the authority to sign vendor purchase price. The purchase price vendor training may be provided by the
agreements if the State agency indicates must include only the authorized State agency in a variety of formats,
its intention to do so in its State Plan supplemental food items actually including newsletters, videos, and

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interactive training. The State agency disqualification, and civil money the vendor fails to meet the current
will have sole discretion to designate penalties in lieu of disqualification. The vendor selection criteria.
the date, time, and location of all State agency does not have to provide (xxv) Reciprocal Food Stamp Program
interactive training, except that the State the vendor with prior warning that disqualification for WIC Program
agency will provide the vendor with at violations were occurring before disqualifications. Disqualification from
least one alternative date on which to imposing such sanctions. the WIC Program may result in
attend such training. (xix) Conflict of interest. The State disqualification as a retailer in the Food
(xii) Vendor training of staff. The agency will terminate the agreement if Stamp Program. Such disqualification
vendor must inform and train cashiers the State agency identifies a conflict of may not be subject to administrative or
and other staff on program interest, as defined by applicable State judicial review under the Food Stamp
requirements. laws, regulations, and policies, between Program.
(xiii) Accountability for owners, the vendor and the State agency or its (4) Purchase price and redemption
officers, managers, and employees. The local agencies. procedures. The State agency must
vendor is accountable for its owners, (xx) Criminal penalties. A vendor who describe in the vendor agreement its
officers, managers, agents, and commits fraud or abuse in the Program purchase price and redemption
employees who commit vendor is liable to prosecution under applicable procedures. The redemption procedures
violations. Federal, State or local laws. Those who must ensure that the State agency does
(xiv) Monitoring. The vendor may be not pay a vendor more than the price
have willfully misapplied, stolen or
monitored for compliance with program limitations applicable to the vendor.
fraudulently obtained program funds
requirements. (5) Sanction schedule. The State
(xv) Recordkeeping. The vendor must will be subject to a fine of not more than
agency must include its sanction
maintain inventory records used for $10,000 or imprisonment for not more
schedule in the vendor agreement or as
Federal tax reporting purposes and than five years or both, if the value of
an attachment to it. The sanction
other records the State agency may the funds is $100 or more. If the value
schedule must include all mandatory
require for the period of time specified is less than $100, the penalties are a fine
and State agency vendor sanctions and
by the State agency in the vendor of not more than $1,000 or
must be consistent with paragraph (l) of
agreement. Upon request, the vendor imprisonment for not more than one this section. If the sanction schedule is
must make available to representatives year or both. in State law or regulations or in a
of the State agency, the Department, and (xxi) Not a license/property interest. document provided to the vendor at the
the Comptroller General of the United The vendor agreement does not time of authorization, the State agency
States, at any reasonable time and place constitute a license or a property instead may include an appropriate
for inspection and audit, all food interest. If the vendor wishes to cross-reference in the vendor agreement.
instruments in the vendor’s possession continue to be authorized beyond the (6) Actions subject to administrative
and all program-related records. period of its current agreement, the review and review procedures. The State
(xvi) Termination. The State agency vendor must reapply for authorization. agency must include the adverse actions
will immediately terminate the If a vendor is disqualified, the State a vendor may appeal and those adverse
agreement if it determines that the agency will terminate the vendor’s actions that are not subject to
vendor has provided false information agreement, and the vendor will have to administrative review. The State agency
in connection with its application for reapply in order to be authorized after also must include a copy of the State
authorization. Either the State agency or the disqualification period is over. In all agency’s administrative review
the vendor may terminate the agreement cases, the vendor’s new application will procedures in the vendor agreement or
for cause after providing advance be subject to the State agency’s vendor as an attachment to it or must include
written notice of a period of not less selection criteria and any vendor a statement that the review procedures
than 15 days to be specified by the State limiting criteria in effect at the time of are available upon request and the
agency. the reapplication. applicable review procedures will be
(xvii) Change in ownership or location (xxii) Compliance with vendor provided along with an adverse action
or cessation of operations. The vendor agreement, statutes, regulations, subject to administrative review. These
must provide the State agency advance policies, and procedures. The vendor items must be consistent with § 246.18.
written notification of any change in must comply with the vendor agreement If these items are in State law or
vendor ownership, store location, or and Federal and State statutes, regulations or in a document provided
cessation of operations. In such regulations, policies, and procedures to the vendor at the time of
instances, the State agency will governing the Program, including any authorization, the State agency instead
terminate the vendor agreement, except changes made during the agreement may include an appropriate cross-
that the State agency may permit period. reference in the vendor agreement.
vendors to move short distances without (xxiii) Nondiscrimination regulations. (7) Notification of program changes.
terminating the agreement. The State The vendor must comply with the The State agency must notify vendors of
agency has the discretion to determine nondiscrimination provisions of changes to Federal or State statutes,
the length of advance notice required for Departmental regulations (Parts 15, 15a regulations, policies, or procedures
vendors reporting changes under this and 15b of this title). governing the Program before the
provision, whether a change in location (xxiv) Compliance with vendor changes are implemented. The State
qualifies as a short distance, and selection criteria. The vendor must agency should give as much advance
whether a change in business structure comply with the vendor selection notice as possible.
constitutes a change in ownership. criteria throughout the agreement (i) Retail food delivery systems:
(xviii) Sanctions. In addition to period, including any changes to the Vendor training. (1) General
claims collection, the vendor may be criteria. Using the current vendor requirements. The State agency must
sanctioned for vendor violations in selection criteria, the State agency may provide training annually to at least one
accordance with the State agency’s reassess the vendor at any time during representative of each vendor. Prior to
sanction schedule. Sanctions may the agreement period. The State agency or at the time of a vendor’s initial
include administrative fines, will terminate the vendor agreement if authorization, and at least once every

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83282 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

three years thereafter, the training must The State agency must develop criteria program violations are found, or when
be in an interactive format that includes to determine which vendors will receive an inventory audit has been completed.
a contemporaneous opportunity for routine monitoring visits and must (iii) Prioritization. If more than five
questions and answers. The State include such criteria in its State Plan in percent of the State agency’s vendors are
agency must designate the date, time, accordance with § 246.4(a)(14)(iv). identified as high-risk, the State agency
and location of the interactive training (3) Identifying high-risk vendors. The must prioritize such vendors so as to
and the audience (e.g., managers, State agency must identify high-risk perform compliance investigations of
cashiers, etc.) to which the training is vendors at least once a year using those determined to have the greatest
directed. The State agency must provide criteria developed by FNS and/or other potential for program noncompliance
vendors with at least one alternative statistically-based criteria developed by and/or loss of funds.
date on which to attend interactive the State agency. FNS will not change (5) Monitoring report. For each fiscal
training. Examples of acceptable vendor its criteria more frequently than once year, the State agency must send FNS a
training include on-site cashier training, every two years and will provide summary of the results of its vendor
off-site classroom-style train-the-trainer adequate advance notification of monitoring containing information
or manager training, a training video, changes prior to implementation. The stipulated by FNS. The report must be
and a training newsletter. All vendor State agency may develop and sent by February 1 of the following
training must be designed to prevent implement additional criteria. All State fiscal year. Plans for improvement in the
program errors and noncompliance and agency-developed criteria must be coming year must be included in the
improve program service. approved by FNS. State Plan in accordance with
(2) Content. The annual training must (4) Compliance investigations. (i) § 246.4(a)(14)(iv).
include instruction on the purpose of High-risk vendors. The State agency (6) Documentation.
the Program, the supplemental foods must conduct compliance investigations (i) Monitoring visits. The State agency
authorized by the State agency, the of a minimum of five percent of the must document the following
minimum varieties and quantities of number of vendors authorized by the information for all monitoring visits,
authorized supplemental foods that State agency as of October 1 of each including routine monitoring visits,
must be stocked by vendors, the inventory audits, and compliance buys:
fiscal year. The State agency must
procedures for transacting and (A) the date of the monitoring visit,
conduct compliance investigations on
redeeming food instruments, the vendor inventory audit, or compliance buy;
all high-risk vendors up to the five
sanction system, the vendor complaint (B) the name(s) and signature(s) of the
percent minimum. The State agency
process, the claims procedures, and any reviewer(s); and
may count toward this requirement a (C) the nature of any problem(s)
changes to program requirements since
compliance investigation of a high-risk detected.
the last training.
(3) Delegation. The State agency may vendor conducted by a Federal, State, or (ii) Compliance buys. For compliance
delegate vendor training to a local local law enforcement agency. The State buys, the State agency must also
agency, a contractor, or a vendor agency also may count toward this document:
representative if the State agency requirement a compliance investigation (A) the date of the buy;
indicates its intention to do so in its conducted by another WIC State agency (B) a description of the cashier
State Plan in accordance with provided that the State agency involved in each transaction;
§ 246.4(a)(14)(xi). In such cases, the implements the option to establish State (C) the types and quantities of items
State agency must provide supervision agency sanctions based on mandatory purchased, current shelf prices or prices
and instruction to ensure the uniformity sanctions imposed by the other WIC charged other customers, and price
and quality of vendor training. State agency, as specified in paragraph charged for each item purchased, if
(4) Documentation. The State agency (l)(2)(iii) of this section. A compliance available. Price information may be
must document the content of and investigation of a high-risk vendor may obtained prior to, during, or subsequent
vendor participation in vendor training. be considered complete when the State to the compliance buy; and
(j) Retail food delivery systems: agency determines that a sufficient (D) the final disposition of all items as
Monitoring vendors and identifying number of compliance buys have been destroyed, donated, provided to other
high-risk vendors. (1) General conducted to provide evidence of authorities, or kept as evidence.
requirements. The State agency must program noncompliance, when two (k) Retail food delivery systems:
design and implement a system for compliance buys have been conducted Vendor claims. (1) System to review
monitoring its vendors for compliance in which no program violations are food instruments. The State agency
with program requirements. The State found, or when an inventory audit has must design and implement a system to
agency may delegate vendor monitoring been completed. review food instruments submitted by
to a local agency or contractor if the (ii) Randomly selected vendors. If vendors for redemption to ensure
State agency indicates its intention to do fewer than five percent of the State compliance with the applicable price
so in its State Plan in accordance with agency’s authorized vendors are limitations and to detect questionable
§ 246.4(a)(14)(iv). In such cases, the identified as high-risk, the State agency food instruments, suspected vendor
State agency must provide supervision must randomly select additional overcharges, and other errors. This
and instruction to ensure the uniformity vendors on which to conduct review must examine either all or a
and quality of vendor monitoring. compliance investigations sufficient to representative sample of the food
(2) Routine monitoring. The State meet the five-percent requirement. A instruments and may be done either
agency must conduct routine compliance investigation of a randomly before or after the State agency makes
monitoring visits on a minimum of five selected vendor may be considered payments on the food instruments. The
percent of the number of vendors complete when the State agency review must include a price comparison
authorized by the State agency as of determines that a sufficient number of or other edit designed to ensure
October 1 of each fiscal year in order to compliance buys have been conducted compliance with the applicable price
survey the types and levels of abuse and to provide evidence of program limitations and to assist in detecting
errors among authorized vendors and to noncompliance, when two compliance vendor overcharges. For printed food
take corrective actions, as appropriate. buys are conducted in which no instruments, the system also must detect

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the following errors: purchase price the Controlled Substances Act (21 violations in paragraphs (l)(1)(ii)
missing; participant, parent/caretaker, U.S.C. 802)) in exchange for food through (l)(1)(iv) of this section, receives
or proxy signature missing; vendor instruments. A vendor is not entitled to another sanction for any of these
identification missing; food instruments receive any compensation for revenues violations, the State agency must double
transacted or redeemed after the lost as a result of such violation. If the second sanction. Civil money
specified time periods; and, as reflected in its State Plan, the State penalties may only be doubled up to the
appropriate, altered purchase price. The agency may impose a civil money limits allowed under paragraph
State agency must take follow-up action penalty in lieu of a disqualification for (l)(1)(x)(C) of this section.
within 120 days of detecting any this violation when it determines, in its (vi) Third or subsequent mandatory
questionable food instruments, sole discretion, and documents that: sanction. When a vendor, who
suspected vendor overcharges, and (A) Disqualification of the vendor previously has been assessed two or
other errors and must implement would result in inadequate participant more sanctions for any of the violations
procedures to reduce the number of access; or listed in paragraphs (l)(1)(ii) through
errors when possible. (B) The vendor had, at the time of the (l)(1)(iv) of this section, receives another
(2) Delaying payment and establishing violation, an effective policy and sanction for any of these violations, the
a claim. When the State agency program in effect to prevent trafficking; State agency must double the third
determines the vendor has committed a and the ownership of the vendor was sanction and all subsequent sanctions.
vendor violation that affects the not aware of, did not approve of, and The State agency may not impose civil
payment to the vendor, the State agency was not involved in the conduct of the money penalties in lieu of
must delay payment or establish a violation. disqualification for third or subsequent
claim. Such vendor violations may be (ii) Six-year disqualification. The sanctions for violations listed in
detected through compliance State agency must disqualify a vendor paragraphs (l)(1)(ii) through (l)(1)(iv) of
investigations, food instrument reviews, for six years for: this section.
or other reviews or investigations of a (A) One incidence of buying or selling (vii) Disqualification based on a Food
vendor’s operations. The State agency food instruments for cash (trafficking); Stamp Program disqualification. The
may delay payment or establish a claim or State agency must disqualify a vendor
in the amount of the full purchase price (B) One incidence of selling firearms, who has been disqualified from the
of each food instrument that contained ammunition, explosives, or controlled Food Stamp Program. The
the vendor overcharge or other error. substances as defined in 21 U.S.C. 802, disqualification must be for the same
(3) Opportunity to justify or correct. in exchange for food instruments. length of time as the Food Stamp
When payment for a food instrument is (iii) Three-year disqualification. The Program disqualification, may begin at a
delayed or a claim is established, the State agency must disqualify a vendor later date than the Food Stamp Program
State agency must provide the vendor for three years for: disqualification, and is not subject to
with an opportunity to justify or correct (A) One incidence of the sale of administrative or judicial review under
the vendor overcharge or other error. If alcohol or alcoholic beverages or the WIC Program.
satisfied with the justification or tobacco products in exchange for food (viii) Voluntary withdrawal or
correction, the State agency must instruments; nonrenewal of agreement. The State
provide payment or adjust the proposed (B) A pattern of claiming agency may not accept voluntary
claim accordingly. reimbursement for the sale of an amount withdrawal of the vendor from the
(4) Timeframe and offset. The State of a specific supplemental food item Program as an alternative to
agency must deny payment or initiate which exceeds the store’s documented disqualification for the violations listed
claims collection action within 90 days inventory of that supplemental food in paragraphs (l)(1)(i) through (l)(1)(iv)
of either the date of detection of the item for a specific period of time; of this section, but must enter the
vendor violation or the completion of (C) A pattern of vendor overcharges; disqualification on the record. In
the review or investigation giving rise to (D) A pattern of receiving, transacting addition, the State agency may not use
the claim, whichever is later. Claims and/or redeeming food instruments nonrenewal of the vendor agreement as
collection action may include offset outside of authorized channels, an alternative to disqualification.
against current and subsequent amounts including the use of an unauthorized (ix) Participant access
owed to the vendor. vendor and/or an unauthorized person; determinations. Prior to disqualifying a
(5) Food instruments redeemed after (E) A pattern of charging for vendor for a Food Stamp Program
the specified period. With justification supplemental food not received by the disqualification pursuant to paragraph
and documentation, the State agency participant; or (l)(1)(vii) of this section or for any of the
may pay vendors for food instruments (F) A pattern of providing credit or violations listed in paragraphs (l)(1)(ii)
submitted for redemption after the non-food items, other than alcohol, through (l)(1)(iv) of this section, the
specified period for redemption. If the alcoholic beverages, tobacco products, State agency must determine if
total value of such food instruments cash, firearms, ammunition, explosives, disqualification of the vendor would
submitted at one time exceeds $500.00, or controlled substances as defined in result in inadequate participant access.
the State agency must obtain the 21 U.S.C. 802, in exchange for food The State agency must make the
approval of the FNS Regional Office instruments. participant access determination in
before payment. (iv) One-year disqualification. The accordance with paragraph (l)(8) of this
(l) Retail food delivery systems: State agency must disqualify a vendor section. If the State agency determines
Vendor sanctions—(1) Mandatory for one year for a pattern of providing that disqualification of the vendor
vendor sanctions—(i) Permanent unauthorized food items in exchange for would result in inadequate participant
disqualification. The State agency must food instruments, including charging for access, the State agency must impose a
permanently disqualify a vendor supplemental foods provided in excess civil money penalty in lieu of
convicted of trafficking in food of those listed on the food instrument. disqualification. However, as provided
instruments or selling firearms, (v) Second mandatory sanction. When in paragraph (l)(1)(vi) of this section, the
ammunition, explosives, or controlled a vendor, who previously has been State agency may not impose a civil
substances (as defined in section 102 of assessed a sanction for any of the money penalty in lieu of

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83284 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

disqualification for third or subsequent may include violations subject to State of the disqualification must be for the
sanctions for violations in paragraphs agency sanctions), the State agency must same length of time as the
(l)(1)(ii) through (l)(1)(iv) of this section. disqualify the vendor for the period disqualification by the other WIC State
The State agency must include corresponding to the most serious agency or, in the case of a civil money
documentation of its participant access mandatory violation. However, the State penalty in lieu of disqualification
determination and any supporting agency must include all violations in assessed by the other WIC State agency,
documentation in the file of each the notice of administration action. If a for the same length of time for which
vendor who is disqualified or receives a mandatory sanction is not upheld on the vendor would otherwise have been
civil money penalty in lieu of appeal, then the State agency may disqualified. The disqualification may
disqualification. impose a State agency-established begin at a later date than the sanction
(x) Civil money penalty formula. For sanction. imposed by the other WIC State agency.
each violation subject to a mandatory (2) State agency vendor sanctions. (i) If a State agency decides to exercise this
sanction, the State agency must use the General requirements. The State agency option, the State agency must:
following formula to calculate a civil may impose sanctions for vendor (A) Include notification that it will
money penalty imposed in lieu of violations that are not specified in take such action in its sanction
disqualification: paragraphs (l)(1)(i) through (l)(1)(iv) of schedule; and
(A) Determine the vendor’s average this section as long as such vendor (B) Determine if disqualification of
monthly redemptions for at least the 6- violations and sanctions are included in the vendor would result in inadequate
month period ending with the month the State agency’s sanction schedule. participant access in accordance with
immediately preceding the month State agency sanctions may include paragraph (l)(8) of this section. If the
during which the notice of adverse disqualifications, civil money penalties State agency determines that
action is dated; assessed in lieu of disqualification, and disqualification of the vendor would
(B) Multiply the average monthly administrative fines. The total period of result in inadequate participant access,
redemptions figure by 10 percent (.10); disqualification imposed for State the State agency must impose a civil
(C) Multiply the product from agency violations investigated as part of money penalty in lieu of
paragraph (l)(1)(x)(B) of this section by a single investigation may not exceed disqualification, except that the State
the number of months for which the one year. A civil money penalty or fine agency may not impose a civil money
store would have been disqualified. may not exceed $10,000 for each penalty in situations in which the
This is the amount of the civil money violation. The total amount of civil vendor has been assessed a civil money
penalty, provided that the civil money money penalties and administrative penalty in lieu of disqualification by the
penalty shall not exceed $10,000 for fines imposed for violations investigated other WIC State agency. Any civil
each violation. For a violation that as part of a single investigation may not money penalty in lieu of
warrants permanent disqualification, exceed $40,000. disqualification must be calculated in
the amount of the civil money penalty (ii) Food Stamp Program civil money accordance with paragraph (l)(2)(x) of
shall be $10,000. When during the penalty for hardship. The State agency this section. The State agency must
course of a single investigation the State may disqualify a vendor that has been include documentation of its participant
agency determines a vendor has assessed a civil money penalty for access determination and any
committed multiple violations, the State hardship in the Food Stamp Program, as supporting documentation in each
agency must impose a CMP for each provided under § 278.6 of this chapter. vendor’s file.
violation. The total amount of civil The length of such disqualification must (3) Prior warning. The State agency
money penalties imposed for violations correspond to the period for which the does not have to provide the vendor
investigated as part of a single vendor would otherwise have been with prior warning that violations were
investigation may not exceed $40,000. disqualified in the Food Stamp Program. occurring before imposing any of the
(xi) Notification to FNS. The State If a State agency decides to exercise this sanctions in paragraph (l) of this
agency must provide the appropriate option, the State agency must: section.
FNS office with a copy of the notice of (A) Include notification that it will (4) Administrative reviews. The State
adverse action and information on take such disqualification action in its agency must provide administrative
vendors it has either disqualified or sanction schedule; and reviews of sanctions to the extent
imposed a civil money penalty in lieu (B) Determine if disqualification of required by § 246.18.
of disqualification for any of the the vendor would result in inadequate (5) Installment plans. The State
violations listed in paragraphs (l)(1)(i) participant access in accordance with agency may use installment plans for
through (l)(1)(iv) of this section. This paragraph (l)(8) of this section. If the the collection of civil money penalties
information must include the name of State agency determines that and administrative fines.
the vendor, address, identification disqualification of the vendor would (6) Failure to pay a civil money
number, the type of violation(s), and the result in inadequate participant access, penalty. If a vendor does not pay, only
length of disqualification or the length the State agency may not disqualify the partially pays, or fails to timely pay a
of the disqualification corresponding to vendor or impose a civil money penalty civil money penalty assessed in lieu of
the violation for which the civil money in lieu of disqualification. The State disqualification, the State agency must
penalty was assessed, and must be agency must include documentation of disqualify the vendor for the length of
provided within 15 days after the its participant access determination and the disqualification corresponding to
vendor’s opportunity to file for a WIC any supporting documentation in each the violation for which the civil money
administrative review has expired or all vendor’s file. penalty was assessed (for a period
of the vendor’s WIC administrative (iii) A mandatory sanction by another corresponding to the most serious
reviews have been completed. WIC State agency. The State agency may violation in cases where a mandatory
(xii) Multiple violations during a disqualify a vendor that has been sanction included the imposition of
single investigation. When during the disqualified or assessed a civil money multiple civil money penalties as a
course of a single investigation the State penalty in lieu of disqualification by result of a single investigation).
agency determines a vendor has another WIC State agency for a (7) Actions in addition to sanctions.
committed multiple violations (which mandatory vendor sanction. The length Vendors may be subject to actions in

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addition to the sanctions in this section, (3) Procurement. Procurement of management requirements of § 246.13.
such as claims pursuant to paragraph (k) supplemental foods in accordance with The State agency will be subject to
of this section and the penalties set forth § 246.24, which may entail measures claims as outlined in § 246.23(a)(4) for
in § 246.23(c) in the case of deliberate such as purchase of food in bulk lots by redeemed food instruments that do not
fraud. the State agency and the use of meet the conditions established in
(8) Participant access determination discounts that are available to States; paragraph (q) of this section.
criteria. The State agency must develop (4) Availability. The availability of (r) Issuance of food instruments and
participant access criteria. When program benefits to participants and authorized supplemental foods. The
making participant access potential participants who live at great State agency must:
determinations, the State agency must distance from storage facilities; and (1) Parents/caretakers and proxies.
consider the availability of other (5) Accountability. The accountable Establish uniform procedures that allow
authorized vendors in the same area as delivery of authorized supplemental parents and caretakers of infant and
the violative vendor and any geographic foods to participants. child participants and proxies to obtain
barriers to using such vendors. (o) Participant, parent/caretaker, and transact food instruments or obtain
(9) Termination of agreement. When proxy, vendor, and home food delivery authorized supplemental foods on
the State agency disqualifies a vendor, contractor complaints. The State agency behalf of a participant. In determining
the State agency must also terminate the must have procedures to document the whether a particular participant or
vendor agreement. handling of complaints by participants, parent/caretaker should be allowed to
parents or caretakers of infant or child designate a proxy or proxies, the State
(m) Home food delivery systems.
participants, proxies, vendors, home agency must require the local agency or
Home food delivery systems are systems
food delivery contractors, and direct clinic to consider whether adequate
in which authorized supplemental foods
distribution contractors. Complaints of measures can be implemented to
are delivered to the participant’s home.
civil rights discrimination must be provide nutrition education and health
Home food delivery systems must
handled in accordance with § 246.8(b). care referrals to that participant or, in
provide for: (p) Food instrument security. The the case of an infant or child
(1) Procurement. Procurement of State agency must develop standards for participant, to the participant’s parent
supplemental foods in accordance with ensuring the security of food or caretaker;
§ 246.24, which may entail measures instruments from the time the food (2) Signature requirement. Ensure that
such as the purchase of food in bulk lots instruments are created to the time they the participant, parent or caretaker of an
by the State agency and the use of are issued to participants, parents/ infant or child participant, or proxy
discounts that are available to States. caretakers, or proxies. For pre-printed signs for receipt of food instruments or
(2) Accountability. The accountable food instruments, these standards must authorized supplemental foods, except
delivery of authorized supplemental include maintenance of perpetual as provided in paragraph (r)(4) of this
foods to participants. The State agency inventory records of food instruments section;
must ensure that: throughout the State agency’s (3) Instructions. Ensure that
(i) Home food delivery contractors are jurisdiction; monthly physical inventory participants, parents or caretakers of
paid only after the delivery of of food instruments on hand throughout infant and child participants, and
authorized supplemental foods to the State agency’s jurisdiction; proxies receive instructions on the
participants; reconciliation of perpetual and physical proper use of food instruments, or on
(ii) A routine procedure exists to inventories of food instruments; and the procedures for obtaining authorized
verify the correct delivery of authorized maintenance of all food instruments supplemental foods when food
supplemental foods to participants, and, under lock and key, except for supplies instruments are not used. The State
at a minimum, such verification occurs needed for immediate use. For EBT and agency must also ensure that
at least once a month after delivery; and print-on-demand food instruments, the participants, parents or caretakers of
(iii) Records of delivery of standards must provide for the infant and child participants, and
supplemental foods and bills sent or accountability and security of the means proxies are notified that they have the
payments received for such to manufacture and issue such food right to complain about improper
supplemental foods are retained for at instruments. vendor and home food delivery
least three years. Federal, State, and (q) Food instrument disposition. The contractor practices with regard to
local authorities must have access to State agency must account for the program responsibilities;
such records. disposition of all food instruments as (4) Food instrument pick up. Require
(n) Direct distribution food delivery either issued or voided, and as either participants, parents and caretakers of
systems. Direct distribution food redeemed or unredeemed. Redeemed infant and child participants, and
delivery systems are systems in which food instruments must be identified as proxies to pick up food instruments in
participants, parents or caretakers of validly issued, lost, stolen, expired, person when scheduled for nutrition
infant or child participants, or proxies duplicate, or not matching valid education or for an appointment to
pick up authorized supplemental foods enrollment and issuance records. In an determine whether participants are
from storage facilities operated by the EBT system, evidence of matching eligible for a second or subsequent
State agency or its local agencies. Direct redeemed food instruments to valid certification period. However, in all
distribution food delivery systems must enrollment and issuance records may be other circumstances the State agency
provide for: satisfied through the linking of the may provide for issuance through an
(1) Storage and insurance. Adequate Primary Account Number (PAN) alternative means such as EBT or
storage and insurance coverage that associated with the electronic mailing, unless FNS determines that
minimizes the danger of loss due to transaction to valid enrollment and such actions would jeopardize the
theft, infestation, fire, spoilage, or other issuance records. This process must be integrity of program services or program
causes; performed within 150 days of the first accountability. If a State agency opts to
(2) Inventory. Adequate inventory valid date for participant use of the food mail food instruments, it must provide
control of supplemental foods received, instruments and must be conducted in justification, as part of its alternative
in stock, and issued; accordance with the financial issuance system in its State Plan, as

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required in § 246.4(a)(21), for mailing Program before the end of a mandatory (A) denial of authorization based on
food instruments to areas where food disqualification period if full restitution the vendor selection criteria for
stamps are not mailed. State agencies is made or a repayment schedule is competitive price or for minimum
that opt to mail food instruments must agreed upon or, in the case of a variety and quantity of authorized
establish and implement a system that participant who is an infant, child, or supplemental foods (§ 246.12(g)(3)(i)
ensures the return of food instruments under age 18, the State or local agency and (g)(3)(ii)) or on a determination that
to the State or local agency if a approves the designation of a proxy. the vendor is attempting to circumvent
participant no longer resides or receives (3) Warnings before sanctions. The a sanction (§ 246.12(g)(4));
mail at the address to which the food State agency may provide warnings (B) termination of an agreement for
instruments were mailed; and before imposing participant sanctions. cause;
(5) Maximum issuance of food (4) Fair hearings. At the time the State (C) disqualification; and
instruments. Ensure that no more than agency notifies a participant of a (D) imposition of a fine or a civil
a three-month supply of food disqualification, the State agency must money penalty in lieu of
instruments or a one-month supply of advise the participant of the procedures disqualification.
authorized supplemental foods is issued to follow to obtain a fair hearing (ii) Adverse actions subject to
at any one time to any participant, pursuant to § 246.9. abbreviated administrative reviews. The
parent or caretaker of an infant or child (5) Referral to law enforcement State agency must provide abbreviated
participant, or proxy. authorities. When appropriate, the State administrative reviews to vendors that
(s) Payment to vendors and home agency must refer vendors, home food appeal the following adverse actions,
food delivery contractors. The State delivery contractors, and participants unless the State agency decides to
agency must ensure that vendors and who violate program requirements to provide full administrative reviews for
home food delivery contractors are paid Federal, State, or local authorities for any of these types of adverse actions:
promptly. Payment must be made prosecution under applicable statutes. (A) denial of authorization based on
within 60 days after valid food
7. Revise § 246.13(h) to read as the vendor selection criteria for business
instruments are submitted for
follows: integrity or for a current Food Stamp
redemption. Actual payment to vendors
Program disqualification or civil money
and home food delivery contractors may § 246.13 Financial management system. penalty for hardship (§ 246.12(g)(3)(iii)
be made by local agencies. * * * * *
(t) Conflict of interest. The State and (g)(3)(iv));
(h) Adjustment of expenditures. The (B) denial of authorization based on a
agency must ensure that no conflict of
State agency must adjust projected State agency-established vendor
interest exists, as defined by applicable
expenditures to account for redeemed selection criterion if the basis of the
State laws, regulations, and policies,
food instruments and for other changes denial is a WIC vendor sanction or a
between the State agency and any
as appropriate. Food Stamp Program withdrawal of
vendor or home food delivery
contractor, or between any local agency * * * * * authorization or disqualification;
and any vendor or home food delivery 8. In § 246.14: (C) denial of authorization based on
contractor under its jurisdiction. a. Revise paragraph (b)(2); and the State agency’s vendor limiting
(u) Participant violations and b. In paragraph (e)(3)(i), remove the criteria (§ 246.12(g)(2));
sanctions. (1) General requirements. The reference to ‘‘§ 246.12(r)(5)(iii)’’ and add (D) denial of authorization because a
State agency must establish procedures a reference to ‘‘§ 246.12(k)(3)’’ in its vendor submitted its application outside
designed to control participant place. the timeframes during which
violations. The State agency also must The revision reads as follows: applications are being accepted and
establish sanctions for participant processed as established by the State
violations. Participant sanctions may § 246.14 Program costs. agency under § 246.12(g)(7);
include disqualification from the * * * * * (E) termination of an agreement
Program for a period of up to one year. (b) * * * because of a change in ownership or
(2) Mandatory disqualification. (i) (2) For costs to be allowable, the State location or cessation of operations
General. Except as provided in agency must ensure that food costs do (§ 246.12(h)(3)(xvii));
paragraphs (u)(2)(ii) and (u)(2)(iii) of not exceed the customary sales price (F) disqualification based on a
this section, whenever the State agency charged by the vendor, home food trafficking conviction (§ 246.12(l)(1)(i));
assesses a claim of $100 or more, delivery contractor, or supplier in a (G) disqualification based on the
assesses a claim for dual participation, direct distribution food delivery system. imposition of a Food Stamp Program
or assess a second or subsequent claim In addition, food costs may not exceed civil money penalty for hardship
of any amount, the State agency must the price limitations applicable to the (§ 246.12(l)(2)(ii)); and
disqualify the participant for one year. vendor. (H) disqualification or a civil money
(ii) Exceptions to mandatory * * * * * penalty imposed in lieu of
disqualification. The State agency may 9. Revise § 246.18 to read as follows: disqualification based on a mandatory
decide not to impose a mandatory sanction imposed by another WIC State
disqualification if, within 30 days of § 246.18 Administrative review of State agency (§ 246.12(l)(2)(iii)).
receipt of the letter demanding agency actions. (iii) Actions not subject to
repayment, full restitution is made or a (a) Adverse actions subject to administrative reviews. The State
repayment schedule is agreed on, or, in administrative reviews. (1) Vendor agency may not provide administrative
the case of a participant who is an appeals. (i) Adverse actions subject to reviews pursuant to this section to
infant, child, or under age 18, the State full administrative reviews. Except as vendors that appeal the following
or local agency approves the designation provided elsewhere in paragraph (a)(1) actions:
of a proxy. of this section, the State agency must (A) the validity or appropriateness of
(iii) Terminating a mandatory provide full administrative reviews to the State agency’s vendor limiting or
disqualification. The State agency may vendors that appeal the following selection criteria (§ 246.12(g)(2) and
permit a participant to reapply for the adverse actions: (g)(3));

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(B) the validity or appropriateness of (iii) Effective date of adverse actions governing the Program, according to the
the State agency’s participant access against local agencies. The State agency evidence presented at the review. The
criteria and the State agency’s must make denials of local agency State agency may appoint a reviewing
participant access determinations; applications effective immediately. The official, such as a chief hearing officer
(C) the State agency’s determination State agency must make all other or judicial officer, to review appeal
whether a vendor had an effective adverse actions effective no earlier than decisions to ensure that they conform to
policy and program in effect to prevent 60 days after the date of the notice of the approved policies and procedures.
trafficking and that the ownership of the adverse action and no later than 90 days (9) Written notification of the review
vendor was not aware of, did not after the date of the notice of adverse decision, including the basis for the
approve of, and was not involved in the action or, in the case of an adverse decision, within 90 days from the date
conduct of the violation action that is subject to administrative of receipt of a vendor’s request for an
(§ 246.12(l)(1)(i)(B)); review, no later than the date the local administrative review, and within 60
(D) denial of authorization if the State agency receives the review decision. days from the date of receipt of a local
agency’s vendor authorization is subject (b) Full administrative review agency’s request for an administrative
to the procurement procedures procedures. The State agency must review. These timeframes are only
applicable to the State agency; develop procedures for a full administrative requirements for the
(E) the expiration of a vendor’s administrative review of the adverse State agency and do not provide a basis
agreement; actions listed in paragraphs (a)(1)(i) and for overturning the State agency’s
(F) disputes regarding food (a)(3) of this section. At a minimum, adverse action if a decision is not made
instrument payments and vendor claims these procedures must provide the within the specified timeframe.
(other than the opportunity to justify or vendor or local agency with the (c) Abbreviated administrative review
correct a vendor overcharge or other following: procedures. Except when the State
error, as permitted by § 246.12(k)(3); and (1) Written notification of the adverse agency decides to provide full
action, the procedures to follow to administrative reviews for the adverse
(G) disqualification of a vendor as a
obtain a full administrative review and actions listed in paragraph (a)(1)(ii) of
result of disqualification from the Food
the cause(s) for and the effective date of this section, the State agency must
Stamp Program (§ 246.12(l)(1)(vii)).
the action. When a vendor is develop procedures for an abbreviated
(2) Effective date of adverse actions
disqualified due in whole or in part to administrative review of the adverse
against vendors. The State agency must
violations in § 246.12(l)(1), such actions listed in paragraph (a)(1)(ii) of
make denials of authorization and this section. At a minimum, these
disqualifications imposed under notification must include the following
statement: ‘‘This disqualification from procedures must provide the vendor
§ 246.12(l)(1)(i) effective on the date of with the following:
receipt of the notice of adverse action. WIC may result in disqualification as a
retailer in the Food Stamp Program. (1) Written notification of the adverse
The State agency must make all other action, the procedures to follow to
adverse actions effective no earlier than Such disqualification is not subject to
administrative or judicial review under obtain an abbreviated administrative
15 days after the date of the notice of the review, the cause(s) for and the effective
adverse action and no later than 90 days the Food Stamp Program.’’
(2) The opportunity to appeal the date of the action, and an opportunity
after the date of the notice of adverse to provide a written response; and
action or, in the case of an adverse adverse action within a time period
specified by the State agency in its (2) A decision-maker who is someone
action that is subject to administrative other than the person who rendered the
review, no later than the date the vendor notification of adverse action.
(3) Adequate advance notice of the initial decision on the action and whose
receives the review decision. determination is based solely on
time and place of the administrative
(3) Local agency appeals. (i) Adverse whether the State agency has correctly
review to provide all parties involved
actions subject to full administrative applied Federal and State statutes,
sufficient time to prepare for the review.
reviews. Except as provided in (4) The opportunity to present its case regulations, policies, and procedures
paragraph (a)(3)(ii) of this section, the and at least one opportunity to governing the Program, according to the
State agency must provide full reschedule the administrative review information provided to the vendor
administrative reviews to local agencies date upon specific request. The State concerning the cause(s) for the adverse
that appeal the following adverse agency may set standards on how many action and the vendor’s response; and
actions: review dates can be scheduled, (3) Written notification of the review
(A) denial of a local agency’s provided that a minimum of two review decision, including the basis for the
application; dates is allowed. decision, within 90 days of the date of
(B) disqualification of a local agency; (5) The opportunity to cross-examine receipt of the request for an
and adverse witnesses. When necessary to administrative review. This timeframe is
(C) any other adverse action that protect the identity of WIC Program only an administrative requirement for
affects a local agency’s participation. investigators, such examination may be the State agency and does not provide
(ii) Actions not subject to conducted behind a protective screen or a basis for overturning the State
administrative reviews. The State other device (also referred to as an ‘‘in agency’s adverse action if a decision is
agency may not provide administrative camera’’ examination). not made within the specified
reviews pursuant to this section to local (6) The opportunity to be represented timeframe.
agencies that appeal the following by counsel. (d) Continuing responsibilities.
actions: (7) The opportunity to examine prior Appealing an action does not relieve a
(A) expiration of the local agency’s to the review the evidence upon which local agency or a vendor that is
agreement; and the State agency’s action is based. permitted to continue program
(B) denial of a local agency’s (8) An impartial decision-maker, operations while its appeal is in process
application if the State agency’s local whose determination is based solely on from the responsibility of continued
agency selection is subject to the whether the State agency has correctly compliance with the terms of any
procurement procedures applicable to applied Federal and State statutes, written agreement with the State
the State agency; regulations, policies, and procedures agency.

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83288 Federal Register / Vol. 65, No. 251 / Friday, December 29, 2000 / Rules and Regulations

(e) Finality and effective date of of a monitoring review containing a effective. At the time the State agency
decisions. The State agency procedures finding of program noncompliance. The issues the demand letter, the State
must provide that review decisions State agency must monitor local agency agency must advise the participant of
rendered under both the full and implementation of corrective action the procedures to follow to obtain a fair
abbreviated review procedures are the plans. hearing pursuant to § 246.9 and that
final State agency action. If the adverse (5) As part of the regular monitoring failure to pay the claim may result in
action under review has not already reviews, FNS may require the State disqualification. In addition to
taken effect, the State agency must make agency to conduct in-depth reviews of establishing a claim, the State agency
the action effective on the date of specified areas of local agency must determine whether
receipt of the review decision by the operations, to implement a standard disqualification is required by
vendor or the local agency. form or protocol for such reviews, and § 246.12(u)(2).
(f) Judicial review. If the review to report the results to FNS. No more (ii) Types of restitution. In lieu of
decision upholds the adverse action than two such areas will be stipulated financial restitution, the State agency
against the vendor or local agency, the by FNS for any fiscal year and the areas may allow participants or parents or
State agency must inform the vendor or will not be added or changed more often caretakers of infant or child participants
local agency that it may be able to than once every two fiscal years. These for whom financial restitution would
pursue judicial review of the decision. areas will be announced by FNS at least cause undue hardship to provide
10. In § 246.19, revise the section six months before the beginning of the restitution by performing in-kind
heading and revise paragraphs (a)(2), fiscal year. services determined by the State agency.
(b)(2), (b)(4), and (b)(5) to read as * * * * * Restitution may not include offsetting
follows: 11. In § 246.23, revise paragraphs the claim against future program
(a)(4) and (c) to read as follows: benefits, even if agreed to by the
§ 246.19 Management evaluation and participant or the parent or caretaker of
monitoring reviews. § 246.23 Claims and penalties. an infant or child participant.
(a) * * * (a) * * * (iii) Disposition of claims. The State
(2) The State agency must submit a (4) FNS will establish a claim against agency must document the disposition
corrective action plan, including any State agency that has not accounted of all participant claims.
implementation timeframes, within 60 for the disposition of all redeemed food (2) Claims against the State agency.
days of receipt of an FNS management instruments and taken appropriate FNS will assert a claim against the State
evaluation report containing a finding follow-up action on all redeemed food agency for losses resulting from program
that the State agency did not comply instruments that cannot be matched funds improperly spent as a result of
with program requirements. If FNS against valid enrollment and issuance dual participation, if FNS determines
determines through a management records, including cases that may that the State agency has not complied
evaluation or other means that during a involve fraud, unless the State agency with the requirements in § 246.7(l)(1).
fiscal year the State agency has failed, has demonstrated to the satisfaction of (3) Delegation of claims responsibility.
without good cause, to demonstrate FNS that it has: The State agency may delegate to its
efficient and effective administration of (i) Made every reasonable effort to local agencies the responsibility for
its program, or has failed to comply comply with this requirement; collecting participant claims.
with its corrective action plan, or any (ii) Identified the reasons for its * * * * *
other requirements contained in this inability to account for the disposition
part or the State Plan, FNS may 12. In § 246.26, revise the heading of
of each redeemed food instrument; and paragraph (d), and add new paragraphs
withhold an amount up to 100 percent (iii) Provided assurances that, to the
of the State agency’s nutrition services (e), (f), and (g) to read as follows.
extent considered necessary by FNS, it
and administration funds for that year. will take appropriate actions to improve § 246.26 Other provisions.
* * * * * its procedures. * * * * *
(b) * * * * * * * * (d) Confidentiality of applicant and
(2) Monitoring of local agencies must (c) Claims. (1) Claims against participant information. * * *
encompass evaluation of management, participants. (i) Procedures. If the State (e) Confidentiality of vendor
certification, nutrition education, agency determines that program benefits information. Confidential vendor
participant services, civil rights have been obtained or disposed of information is any information about a
compliance, accountability, financial improperly as the result of a participant vendor (whether it is obtained from the
management systems, and food delivery violation, the State agency must vendor or another source) that
systems. If the State agency delegates establish a claim against the participant individually identifies the vendor,
the signing of vendor agreements, for the full value of such benefits. For except for vendor’s name, address and
vendor training, or vendor monitoring to all claims, the State agency must issue authorization status. Except as
a local agency, it must evaluate the local a letter demanding repayment. If full otherwise permitted by this section, the
agency’s effectiveness in carrying out restitution is not made or a repayment State agency must restrict the use or
these responsibilities. schedule is not agreed on within 30 disclosure of confidential vendor
* * * * * days of receipt of the letter, the State information to:
(4) The State agency must promptly agency must take additional collection (1) Persons directly connected with
notify a local agency of any finding in actions until restitution is made or a the administration or enforcement of the
a monitoring review that the local repayment schedule is agreed on, unless WIC Program or the Food Stamp
agency did not comply with program the State agency determines that further Program who the State agency
requirements. The State agency must collection actions would not be cost- determines have a need to know the
require the local agency to submit a effective. The State agency must information for purposes of these
corrective action plan, including establish standards, based on a cost programs. These persons may include
implementation timeframes, within 60 benefit analysis, for determining when personnel from its local agencies and
days of receipt of a State agency report collection actions are no longer cost- other WIC State and local agencies and

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persons investigating or prosecuting (3) A vendor that is subject to an this chapter, to persons directly
WIC or Food Stamp Program violations adverse action, including a claim, to the connected with the administration or
under Federal, State, or local law; extent that the confidential information enforcement of the WIC Program.
(2) Persons directly connected with concerns the vendor subject to the (g) USDA and the Comptroller
the administration or enforcement of adverse action and is related to the General. The State agency must provide
any Federal or State law. Prior to adverse action. the Department and the Comptroller
(f) Confidentiality of Food Stamp General of the United States access to all
releasing the information to one of these
Program retailer information. Except as WIC Program records, including
parties (other than a Federal agency),
confidential vendor information,
the State agency must enter into a otherwise provided in this section, the
pursuant to § 246.25(a)(4).
written agreement with the requesting State agency must restrict the use or
party specifying that such information disclosure of information about Food Dated: December 21, 2000.
may not be used or redisclosed except Stamp Program retailers obtained from Shirley R. Watkins,
for purposes directly connected to the the Food Stamp Program, including Under Secretary, Food, Nutrition, and
administration or enforcement of a information provided pursuant to Consumer Services.
Federal, or State law; and Section 9(c) of the Food Stamp Act of [FR Doc. 00–33111 Filed 12–28–00; 8:45 am]
1977 (7 U.S.C. 2018(c)) and § 278.1(q) of BILLING CODE 3410–30–P

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