875 PART 274—ISSUANCE AND USE OF COUPONS

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875 PART 274—ISSUANCE AND USE OF COUPONS Powered By Docstoc
					                                                                   Food and Nutrition Service, USDA                                                                    § 274.1

                                                                   determine under regular food stamp                        274.11 Issuance and inventory record reten-
                                                                   rules the eligibility and benefits of any                     tion, and forms security.
                                                                   household that it has found ineligible                    274.12 Electronic Benefit Transfer issuance
                                                                   for TANF assistance because of time                           system approval standards.
                                                                   limits, more restrictive resource stand-                    AUTHORITY: 7 U.S.C. 2011–2036.
                                                                   ards, or other rules that do not apply                      SOURCE: 54 FR 7004, Feb. 15, 1989, unless
                                                                   to food stamps.                                           otherwise noted.
                                                                     (d) Standards for shelter costs. Legisla-
                                                                   tion governing the SFSP requires that                       EDITORIAL NOTE: OMB control numbers re-
                                                                                                                             lating to this part 274 are contained in § 271.8.
                                                                   State plans must address the needs of
                                                                   households with high shelter costs rel-                   § 274.1 State agency issuance responsi-
                                                                   ative to their income. If a State choos-                      bility.
                                                                   es to standardize shelter costs under
                                                                   the SFSP, it must, therefore, use mul-                      (a) Basic issuance requirements. State
                                                                   tiple standards that take into consider-                  agencies shall establish issuance and
                                                                   ation households with high shelter                        accountability systems which ensure
                                                                   costs versus those with low shelter                       that only certified eligible households
                                                                   costs. A State is prohibited from using                   receive benefits; that coupons are ac-
                                                                   a single standard based on average                        cepted, stored, and protected after de-
                                                                   shelter costs for all households partici-                 livery to receiving points within the
                                                                   pating in an SFSP.                                        State; that Program benefits are time-
                                                                     (e) Opportunity for public comment.                     ly distributed in the correct amounts;
                                                                   States must provide an opportunity for                    and that coupon issuance and reconcili-
                                                                   public input on proposed SFSP plans                       ation activities are properly conducted
                                                                   (with special attention to changes in                     and accurately reported to FNS.
                                                                   benefit amounts that are necessary in                       (b) Contracting or delegating issuance
                                                                   order to ensure that the overall pro-                     responsibilities. State agencies may as-
                                                                   posal not increase Federal costs)                         sign to others such as banks, savings
                                                                   through a public comment period, pub-                     and loan associations, the Postal Serv-
                                                                   lic hearings, or meetings with groups                     ice, community action and migrant
                                                                   representing participants’ interests.                     service agencies, and other commercial
                                                                   Final approval will be given after the                    businesses, the responsibility for the
                                                                   State informs the Department about                        issuance and storage of food coupons.
                                                                   the comments received from the pub-                       State agencies may permit contractors
                                                                   lic. After the public comment period,                     to subcontract assigned issuance re-
                                                                   the State agency must inform the De-                      sponsibilities.
                                                                   partment about the comments received                        (1) Any assignment of issuance func-
                                                                   from the public and submit its final                      tions shall clearly delineate the re-
                                                                   SFSP plan for Departmental approval.                      sponsibilities of both parties. The
                                                                                                                             State agency remains responsible, re-
                                                                   [Amdt. 388, 65 FR 70211, Nov. 21, 2000]                   gardless of any agreements to the con-
                                                                                                                             trary, for ensuring that assigned duties
                                                                    PART 274—ISSUANCE AND USE OF                             are carried out in accordance with
                                                                              COUPONS                                        these regulations. In addition, the
                                                                                                                             State agency is strictly liable to FNS
                                                                   Sec.                                                      for all losses of coupons, even if those
                                                                   274.1 State agency issuance responsibility.               losses are the result of the performance
                                                                   274.2 Providing benefits to participants.                 of issuance, security, or accountability
                                                                   274.3 Issuance systems.                                   duties by another party.
                                                                   274.4 Reconciliation and reporting.                         (2) All issuance contracts shall follow
                                                                   274.5 [Reserved]                                          procurement standards set forth in
                                                                   274.6 Replacement issuances to households.                part 277.
                                                                   274.7 Coupon management.                                    (3) The State agency shall not assign
                                                                   274.8 Responsibilities of coupon issuers, and
                                                                                                                             the issuance of coupons to any retail
                                                                       bulk storage and claims collection
                                                                       points.                                               food firm unless the State agency pro-
                                                                   274.9 Closeout of a coupon issuer.                        vides evidence that such an arrange-
                                                                                                                             ment is needed to maintain or increase
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                                                                   274.10 Use of identification cards and re-
                                                                       demption of coupons by eligible house-                the efficient and effective operation of
                                                                       holds.                                                the Program, as described below.

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                                                                   § 274.1                                                                  7 CFR Ch. II (1–1–10 Edition)

                                                                     (i) Coupons may be issued inside or                     natives will not compromise the secu-
                                                                   within a retail food store, if the                        rity of the ID system.
                                                                   issuance is performed by a bank, credit                     (c) State monitoring of coupon issuers.
                                                                   union or other financial organization                     The State agency’s accountability sys-
                                                                   independent of the retail food store.                     tem shall include procedures for moni-
                                                                     (ii) Coupons may be issued on-site by                   toring coupon issuers to assure that
                                                                   a retail food store under the following                   the day-to-day operations of all coupon
                                                                   conditions:                                               issuers comply with these regulations,
                                                                     (A) The State agency adequately doc-                    to identify and correct deficiencies,
                                                                   uments that unless the retail food                        and to report violations of the Act or
                                                                   store is permitted to issue coupons on-                   regulations to FNS.
                                                                   site there will be a hardship, not just                     (1) The State agency shall conduct an
                                                                   an inconvenience, to recipients. The                      onsite review of each coupon issuer and
                                                                   State agency shall contract directly                      bulk storage point at least once every
                                                                   with the retail food firm and shall pro-                  three years. All offices or units of a
                                                                   vide oversight to such entity; or                         coupon issuer are subject to this review
                                                                     (B) In the absence of the hardship                      requirement. The State agency shall
                                                                   documentation, a retail food firm itself                  base each review on the specific activi-
                                                                   may perform issuance as a subcon-                         ties performed by each coupon issuer or
                                                                   tractor to a bank, credit union or other                  bulk storage point. A physical inven-
                                                                   independent financial organization,                       tory of coupons shall be taken at each
                                                                   with strict oversight by the financial                    location and that count compared with
                                                                   organization.
                                                                                                                             perpetual inventory records and the
                                                                     (4) The State agency may contract
                                                                                                                             monthly reports of the coupon issuer
                                                                   with the U.S. Postal Service for the
                                                                                                                             or bulk storage point. This review may
                                                                   issuance of benefits. The Department
                                                                                                                             be conducted at branch sites as well as
                                                                   and the Postal Service have signed an
                                                                                                                             the main offices of each issuer and bulk
                                                                   agreement      which    governs    benefit
                                                                                                                             storage point that operates in more
                                                                   issuance by the Postal Service. A State
                                                                                                                             than one office. Except in unusual cir-
                                                                   agency’s contract with the Postal
                                                                                                                             cumstances, the Postal Inspection
                                                                   Service does not exempt the State
                                                                                                                             Service will conduct onsite reviews of
                                                                   agency from the requirement that it
                                                                                                                             Postal Service issuance operations.
                                                                   comply with these regulations. How-
                                                                   ever, State agencies may negotiate                          (2) This review requirement may be
                                                                   contracts with the Postal Service on                      fulfilled in part or in total by the per-
                                                                   all terms and conditions as long as                       formance reporting review system, part
                                                                   such provisions do not conflict with                      275. The State agency may delegate
                                                                   these regulations.                                        this review responsibility to another
                                                                     (5) In project areas or parts of project                unit of the State government or con-
                                                                   areas where FNS has required a Photo-                     tract with an outside firm with exper-
                                                                   graphic identification (Photo ID) sys-                    tise in auditing and accounting. State
                                                                   tem to be used, the State agency shall                    agencies may use the results of reviews
                                                                   include in any contract or agreement                      of coupon issuers by independent audit
                                                                   with an issuing agent a provision es-                     or accounting firms as long as the food
                                                                   tablishing the agent’s liability to the                   coupon issuance operations of the cou-
                                                                   State agency for the face value of cou-                   pon issuer are included in the review.
                                                                   pons issued in any authorization docu-                      (d) Changes. The State agency shall
                                                                   ment transaction where the authoriza-                     inform FNS whenever a project area,
                                                                   tion document is found to have been                       issuance point, reconciliation point, re-
                                                                   stolen or otherwise not received by the                   placement point, bulk storage report-
                                                                   household certified as eligible, if the                   ing point or coupon shipment receiving
                                                                   cashier has not fulfilled the require-                    point is created, relocated, or termi-
                                                                   ments contained in § 274.10. This same                    nated. The State agency shall report
                                                                   provision shall apply to issuance con-                    the change at least 30 days prior to the
                                                                   tracts in project areas or parts of                       effective date of the change. Initial no-
                                                                   project areas where FNS has granted a                     tification may be made by telephone
                                                                   waiver or waivers of any provision(s) of                  but the State agency shall confirm the
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                                                                   the Photo ID requirements based on a                      information in writing as soon as pos-
                                                                   determination that State agency alter-                    sible.

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.2

                                                                     (e) Advance planning documentation.                     make benefits available to the house-
                                                                   State agencies must comply with the                       hold not later than the fifth calendar
                                                                   procurement requirements of part 277                      day following the date of application.
                                                                   for the acquisition, design, develop-                     Whatever system a State agency uses
                                                                   ment, or installation of automated                        to ensure meeting this delivery stand-
                                                                   data processing (ADP) equipment. With                     ard shall be designed to allow a reason-
                                                                   certain exceptions detailed in part 277,                  able opportunity for redemption of
                                                                   State agencies must receive prior ap-                     ATPs no later than the fifth calendar
                                                                   proval for the design and acquisition of                  day following the date of application.
                                                                   ADP systems through submission of                           (c) Combined allotments. For those
                                                                   advance planning documents (APD’s).                       households which are to receive a com-
                                                                                                                             bined allotment, the State agency shall
                                                                   § 274.2 Providing benefits to partici-                    provide the benefits for both months as
                                                                        pants.                                               an aggregate (combined) allotment, or
                                                                      (a) General. Each State agency is re-                  as two separate allotments, with the
                                                                   sponsible for the timely and accurate                     same validity period, made available at
                                                                   issuance of benefits to certified eligible                the same time, in accordance with the
                                                                   households in accordance with these                       timeframes specified in § 273.2 of this
                                                                   regulations. Those households com-                        chapter.
                                                                   prised of elderly or disabled members                       (d) Ongoing households. All house-
                                                                   which have difficulty reaching issuance                   holds shall be placed on an issuance
                                                                   offices, and households which do not                      schedule so that they receive their ben-
                                                                   reside in a permanent dwelling or of a                    efits on or about the same date each
                                                                   fixed mailing address shall be given as-                  month. The date upon which a house-
                                                                   sistance in obtaining their regular                       hold receives its initial allotment after
                                                                   monthly benefits. State agencies shall                    certification need not be the date that
                                                                   assist these households by arranging                      the household must receive its subse-
                                                                   for the mail issuance of coupons to                       quent allotments.
                                                                   them, by assisting them in finding au-                      (1) State agencies that use direct-
                                                                   thorized representatives who can act                      mail issuance shall stagger issuance
                                                                   on their behalf, or by using other ap-                    over at least 10 days of the issuance
                                                                   propriate means.                                          month, and may stagger issuance over
                                                                      (b) Availability of benefits. All newly-               the entire issuance month. State agen-
                                                                   certified households, except those that                   cies using a method other than direct-
                                                                   are given expedited service, shall be                     mail issuance may stagger issuance
                                                                   given an opportunity to participate no                    throughout the month, or for a shorter
                                                                   later than 30 calendar days following                     period. When staggering benefit deliv-
                                                                   the date the application was filed. An                    ery, however, State agencies shall not
                                                                   opportunity to participate consists of                    allow more than 40 days to elapse be-
                                                                   providing households with coupons or                      tween the issuance of any two allot-
                                                                   authorization documents and having                        ments provided to a household partici-
                                                                   issuance facilities open and available                    pating longer than two consecutive,
                                                                   for the households to obtain their bene-                  complete months. Regardless of the
                                                                   fits. State agencies must mail author-                    issuance schedule used, the State agen-
                                                                   ization documents or coupons in time                      cy shall adhere to the reporting re-
                                                                   to assure that the documents can be                       quirements specified in § 274.4.
                                                                   transacted, or the coupons spent after                      (2) Upon the request of the tribal or-
                                                                   they are received but before the 30-day                   ganization that exercises governmental
                                                                   standard expires. A household has not                     jurisdiction over a reservation, the
                                                                   been provided an opportunity to par-                      State agency shall stagger the issuance
                                                                   ticipate within the 30-day standard if                    of benefits for eligible households lo-
                                                                   the authorization document or benefits                    cated on reservations for at least 15
                                                                   are mailed on the 29th or 30th day. Nei-                  days each month.
                                                                   ther has an opportunity to participate                      (3) When a participating household is
                                                                   been provided if the authorization doc-                   transferred from one issuance system
                                                                   ument is mailed on the 28th day but no                    or procedure to another issuance sys-
                                                                   issuance facility is open on the 30th                     tem or procedure, the State agency
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                                                                   day. For households entitled to expe-                     shall not permit more than 40 days to
                                                                   dited service, the State agency shall                     elapse between the last issuance under

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                                                                   § 274.3                                                                  7 CFR Ch. II (1–1–10 Edition)

                                                                   the previous system or procedure, and                     ticable     inconvenience    to    affected
                                                                   the first issuance under the new sys-                     households.
                                                                   tem or procedure. The 40-day require-                       (f) Issuance of coupons to households.
                                                                   ment does not apply to instances in                       The State agency shall issue coupon
                                                                   which actions by recipients, such as                      books in accordance with a table for
                                                                   failure to submit a monthly report, dis-                  coupon-book issuance provided by FNS,
                                                                   rupt benefits. Transfers include, but                     except as provided in paragraphs (e)(1),
                                                                   are not limited to, households being                      (e)(2), and (e)(3) of this section. The
                                                                   moved into or out of a staggered                          State agency shall issue the coupon
                                                                   issuance procedure, households on a                       books in consecutive serial number
                                                                   fluctuating schedule within a staggered                   order whenever possible, starting with
                                                                   system, and households being moved                        the lowest serial number in each cou-
                                                                   from a direct-mail issuance system to                     pon book denomination. The household
                                                                   an authorization document system. If                      member whose name appears on the ID
                                                                   the State agency determines that more                     card shall sign the coupon books; if
                                                                   than 40 days may elapse between                           more than one name appears, any
                                                                   issuances, the State agency shall di-                     named member may sign the books.
                                                                   vide the new issuance into two parts,                       (1) The State agency may deviate
                                                                   with one part being issued within the                     from the table if the specified coupon
                                                                   40-day period, and the second part, or                    books are unavailable.
                                                                   supplemental issuance, being issued on                      (2) Exceptions from the table are au-
                                                                   the household’s established issuance                      thorized for blind and visually-handi-
                                                                   date in the new system or procedure.                      capped participants who request that
                                                                   The supplemental issuance cannot pro-                     all coupons be of one denomination.
                                                                   vide the household more benefits than                     Recipients who have no fixed address
                                                                   the household is entitled to receive.                     (homeless), and residents of shelters for
                                                                      (4) Notwithstanding the above provi-                   battered women and children, as de-
                                                                   sions, in months in which benefits have                   fined in § 271.2, and which are not au-
                                                                   been suspended under the provisions of                    thorized by FNS to redeem through
                                                                   § 271.7, State agencies may stagger                       wholesalers, may request that all or
                                                                   issuance to certified households fol-                     part of their coupons be of the $1 de-
                                                                   lowing the end of the suspension. In                      nomination. State agencies are author-
                                                                   such situations, State agencies may, at                   ized to grant this request when fea-
                                                                   their option, stagger issuance from the                   sible.
                                                                   date issuance resumes through the end                       (3) If a household is eligible for an al-
                                                                   of the month or over a five-day period                    lotment of $1, $3, or $5, the State agen-
                                                                   following the resumption of issuance,                     cy shall adjust those allotments to $2,
                                                                   even if this results in benefits being                    $4, or $6, respectively.
                                                                   issued after the end of the month in                        (g) Issuance in rural areas. Unless the
                                                                   which the suspension occurred.                            area is served by an electronic benefit
                                                                      (e) Issuance services. State agencies                  transfer system, State agencies must
                                                                   are responsible for determining the lo-                   use direct-mail issuance in any rural
                                                                   cation and hours of operation of                          areas where the State agency deter-
                                                                   issuance services. In doing so, State                     mines that recipients face substantial
                                                                   agencies shall ensure that the issuance                   difficulties in obtaining transportation
                                                                   schedules set forth in paragraphs (b)                     in order to obtain their food stamp
                                                                   and (c) of this section are met. In addi-                 benefits by methods other than direct-
                                                                   tion, issuance authorization docu-                        mail issuance. State agencies must re-
                                                                   ments, such as ATP cards, should be                       port any exceptions to direct-mail
                                                                   valid only in the geographic area with-                   issuance as specified under § 272.3(a)(2)
                                                                   in the State that is encompassed by                       and (b)(2) of this chapter.
                                                                   the reconciliation system through                         [54 FR 7004, Feb. 15, 1989, as amended at 54
                                                                   which the issuance will be processed;                     FR 51351, Dec. 15, 1989; 60 FR 20182, Apr. 25,
                                                                   however, the validity area may be ex-                     1995; 65 FR 70212, Nov. 21, 2000]
                                                                   tended within the State at the State
                                                                   agency’s option. State agencies may                       § 274.3 Issuance systems.
                                                                   also restrict the validity of these docu-                    (a) System classification. State agen-
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                                                                   ments to smaller areas or particular                      cies may issue benefits to households
                                                                   issuance sites with minimal prac-                         through any of the following systems:

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.3

                                                                     (1) An authorization document sys-                      with the Office of the Inspector Gen-
                                                                   tem that uses a document produced for                     eral, determines that Program integ-
                                                                   each month’s issuance. The inter-                         rity would be improved by changing
                                                                   mediary document, such as an ATP,                         the issuance system of a State, the
                                                                   may be distributed on a monthly basis                     Secretary shall require the State agen-
                                                                   to each household and surrendered by                      cy to issue or deliver coupons using an-
                                                                   the household to the coupon issuer, or                    other method. The alternative method
                                                                   provided monthly to issuers with ei-                      may be one of the methods described in
                                                                   ther single household authorizations or                   paragraph (a) of this section, or the
                                                                   multiple household authorizations on                      Secretary may require a State agency
                                                                   each (such as a computer-generated                        to issue, in lieu of coupons, reusable
                                                                   listing). For reconciliation and identi-                  documents to be used as part of an
                                                                   fication purposes, the authorization                      automated data processing and infor-
                                                                   document shall contain the following:                     mation retrieval system and to be pre-
                                                                     (i) Serial number;                                      sented by, and returned to, recipients
                                                                     (ii) Case name and address;                             at retail food firms for the purpose of
                                                                     (iii) Case number;                                      purchasing food. The determination of
                                                                     (iv) Allotment amount;                                  which alternative to use will be made
                                                                     (v) Benefit month or expiration date;                   by FNS after consultation with the
                                                                     (vi) Name of issuing project area;                      State agency. The cost of conversion
                                                                   and,                                                      will be shared by the Department and
                                                                     (vii) Space for signature of household                  the State agency in accordance with
                                                                   member. An additional space for an au-                    the cost accounting provision of part
                                                                   thorized representative may be in-                        277.
                                                                   cluded.                                                     (2) The cost of documents or systems
                                                                     (2) A direct access system that di-                     which may be required as a result of a
                                                                   rectly accesses a master issuance file                    permanent alternative issuance system
                                                                   at the time that benefits are issued to                   pursuant to this section shall not be
                                                                   households. This system shall use man-                    imposed upon retail food firms partici-
                                                                   ual card access or an automated access
                                                                                                                             pating in the Program.
                                                                   to the master issuance file. Systems of
                                                                                                                               (d) System requirements. (1) The State
                                                                   this type include the manual House-
                                                                                                                             agency shall establish a master
                                                                   hold Issuance Record (HIR) card sys-
                                                                   tem and on-line issuance terminals.                       issuance file which is a composite of
                                                                     (3) A mail issuance system that di-                     the issuance records of all certified
                                                                   rectly delivers coupons through the                       food stamp households. The State
                                                                   mail to households.                                       agency shall establish the master
                                                                     (4) An on-line Electronic Benefit                       issuance file in a manner compatible
                                                                   Transfer system in which food stamp                       with its system used for maintaining
                                                                   benefits are stored in a central com-                     case record information and shall sepa-
                                                                   puter database and electronically                         rate the information on the master
                                                                   accessed by households at the point-of-                   issuance file into active and inactive
                                                                   sale via reusable plastic cards.                          case file categories. The master
                                                                     (5) An off-line Electronic Benefit                      issuance file shall contain all the infor-
                                                                   Transfer system in which benefit allot-                   mation needed to identify certified
                                                                   ments can be stored on a card or in a                     households, issue household benefits,
                                                                   card access device and used to purchase                   record the participation activity for
                                                                   authorized items at a point-of-sale ter-                  each household and supply all informa-
                                                                   minal without real-time authorization                     tion necessary to fulfill the reporting
                                                                   from a central processor.                                 requirements prescribed in § 274.4.
                                                                     (b) Other systems. A State agency may                     (i) The master issuance file shall be
                                                                   develop an issuance system which can-                     kept current and accurate. It shall be
                                                                   not be readily categorized into one of                    updated and maintained through the
                                                                   the systems described in paragraph (a)                    use of documents such as notices of
                                                                   of this section. FNS shall prescribe the                  change and controls for expired certifi-
                                                                   reporting and reconciliation require-                     cation periods.
                                                                   ments which apply to that system.                           (ii) Before entering a household’s
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                                                                     (c) Alternative benefit issuance system.                data on the master issuance file, the
                                                                   (1) If the Secretary, in consultation                     State agency shall review the master

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                                                                   § 274.4                                                                  7 CFR Ch. II (1–1–10 Edition)

                                                                   issuance file to ensure that the house-                   tended use, which may or may not be a
                                                                   hold is not currently participating in,                   calendar month. However, in instances
                                                                   or disqualified from, the Program. If an                  in which authorization documents are
                                                                   authorization document is issued under                    distributed, or benefits become avail-
                                                                   the expedited service requirements of                     able for ongoing households late in the
                                                                   §§ 273.2(i) and 274.2(b), the State agency                issuance month, the State agency shall
                                                                   shall complete as much of the master                      extend the validity or availability pe-
                                                                   issuance file review as possible prior to                 riod for either twenty (20) additional
                                                                   issuing the authorization document.                       days, or until the end of the following
                                                                   Any uncompleted reviews shall be com-                     issuance month, at the State agency’s
                                                                   pleted after issuance and appropriate                     option. The State agency may also
                                                                   corrective action shall be taken to re-                   choose one of two dates which will ini-
                                                                   cover overissuance.                                       tiate this extension of the validity or
                                                                      (2) State agencies should divide                       availability period. The State agency
                                                                   issuance responsibilities between at                      may choose to extend the period for au-
                                                                   least two persons to prevent any single                   thorization documents distributed or
                                                                   individual from having complete con-                      for benefits made available, on or after
                                                                   trol over the authorization of issuances                  the 20th day of the issuance month or
                                                                   and the issuances themselves. Respon-                     after the 15th day of the issuance
                                                                   sibilities to be divided include mainte-                  month. Whichever date the State agen-
                                                                   nance of inventory records, assembly of                   cy chooses to initiate the required ex-
                                                                   benefits and preparation of envelopes                     tension, the State agency must use the
                                                                   for mailing. If issuance functions in an                  date consistently for all extensions in
                                                                   office are handled by one person, a sec-                  this category. A household which does
                                                                   ond-party review shall be made to                         not transact its authorization docu-
                                                                   verify coupon inventory, the reconcili-                   ment, or obtain the benefits directly
                                                                   ation of the mail log, and the number                     from an issuance point during the
                                                                   of mailings prepared.                                     issuance’s validity period, shall lose its
                                                                      (3) State agencies shall establish con-                entitlement to the benefits, and the
                                                                   trols to prevent a household from con-                    State agency shall not issue benefits to
                                                                   currently receiving benefits through                      such a household for such a period.
                                                                   more than one issuance system.                              (2) State agencies experiencing exces-
                                                                      (4) State agencies shall clearly iden-                 sive issuance losses may develop sys-
                                                                   tify issuances in their accountability                    tems that have authorization docu-
                                                                   systems as initial, supplemental, re-                     ments that expire in shorter time
                                                                   placement, or restored benefits.                          frames than those set forth in para-
                                                                      (5) State agencies shall establish a                   graph (e) of this section. However, such
                                                                   Statewide      record     of   replacement                systems shall include methods that
                                                                   issuances granted to households to pre-                   allow households the opportunity to
                                                                   vent a household from receiving more                      obtain their benefits for the full valid-
                                                                   than      two    countable     replacement                ity period of a month’s issuance.
                                                                   issuances as defined in § 274.6(b) in a                   [54 FR 7004, Feb. 15, 1989, as amended at 54
                                                                   six-month period.                                         FR 51351, Dec. 15, 1989; 57 FR 11249, Apr. 1,
                                                                      (6) State agencies which issue bene-                   1992; 60 FR 20183, Apr. 25, 1995; Amdt. 390, 65
                                                                   fits by mail shall, at a minimum, use                     FR 59110, Oct. 4, 2000]
                                                                   first class mail and sturdy nonfor-
                                                                   warding envelopes or packages to send                     § 274.4 Reconciliation and reporting.
                                                                   benefits to households.                                      (a) Reconciliation. State agencies
                                                                      (e) Validity periods. (1) State agencies               shall account for all issuance through a
                                                                   shall establish validity periods for                      reconciliation process. The manner in
                                                                   issuances made in both authorization                      which this is done varies depending on
                                                                   document and direct access systems. A                     the type of issuance system being used.
                                                                   validity period is the time frame dur-                       (1) Described below are the required
                                                                   ing which a household may obtain ben-                     reconciliation procedures for each type
                                                                   efits by transacting an authorization                     of system.
                                                                   document, or receiving the benefits di-                      (i) In all issuance systems coupon
                                                                   rectly at an issuance point. Generally,                   issuers shall reconcile their issuances
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                                                                   the validity period coincides with the                    daily using daily tally sheets, cashiers’
                                                                   issuance month or the period of in-                       daily reports, tapes or printouts.

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.4

                                                                      (ii) In systems where a record-for-                    report. At a minimum, such docu-
                                                                   issuance is used, all issuances author-                   mentation shall include documents
                                                                   ized for the month shall be merged into                   supporting coupon shipments, trans-
                                                                   one record-for-issuance at the end of                     fers, issuances, and destruction.
                                                                   each month. All issuances made during                       (iii) For those State agencies which
                                                                   the month shall then be posted to the                     use     an   authorization     document
                                                                   record-for-issuance. The record-for-                      issuance system, coupon issuers shall
                                                                   issuance shall then be compared with                      submit transacted authorization docu-
                                                                   the master issuance file. Findings from                   ments batched according to each day’s
                                                                   this comparison shall be reported on                      activity in accordance with a schedule
                                                                   the Form FNS–46 as prescribed in para-                    prescribed by the State agency, but not
                                                                   graph (b)(2) of this section.                             less often than monthly.
                                                                      (iii) In systems where no record-for-                    (iv) All mail issuance activity, in-
                                                                   issuance is used, issuances made during                   cluding the value of mail issuance re-
                                                                   each month shall be reconciled to the                     placements, shall be reported. Original
                                                                   master issuance file. Findings from                       allotments (first benefits issued for a
                                                                   this reconciliation shall be reported on                  particular month to an ongoing house-
                                                                   the Form FNS–46 as prescribed in para-                    hold) subsequently recovered by the
                                                                   graph (b)(2) of this section.                             issuance office during the current
                                                                      (iv) In addition to the reconciliation                 month shall be returned to inventory
                                                                   activity prescribed in the paragraphs                     and noted on the mail issuance log.
                                                                   (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this             When the original allotment is re-
                                                                   section, the following steps shall be                     turned to inventory and the replace-
                                                                   followed in authorization document                        ment issuance is issued during the cur-
                                                                   systems:                                                  rent month (month in which original
                                                                      (A) The State agency shall determine                   benefits were issued), the ‘‘replace-
                                                                   and verify the transacted value of au-                    ment’’ shall not be reported.
                                                                   thorized coupon issuances.
                                                                                                                               (v) The Form FNS–250 shall be re-
                                                                      (B) Any batches of transacted au-
                                                                                                                             viewed by the State agency for accu-
                                                                   thorization documents that do not rec-
                                                                                                                             racy, completeness and reasonableness.
                                                                   oncile shall be maintained intact by
                                                                   the State agency until the discrepancy                    The State agency shall attest to the
                                                                   is resolved with the coupon issuer and/                   accuracy of these reports and shall sub-
                                                                   or a review of the case files.                            mit the reports so they will be received
                                                                      (C) The State agency shall compare                     by FNS by the 45th day after the report
                                                                   all transacted authorization documents                    month. Any revisions to the Form
                                                                   with the record-for-issuance or master                    FNS–250 for a given month shall be sub-
                                                                   issuance file as appropriate. Any docu-                   mitted to FNS within 105 days after
                                                                   ments that do not match with the                          the end of the report month.
                                                                   record-for-issuance or master issuance                      (vi) FNS shall review each form, sub-
                                                                   file shall be identified and reported as                  mitted through the State agency, for
                                                                   required in paragraph (b)(2) of this sec-                 completeness, accuracy and reason-
                                                                   tion.                                                     ableness and shall reconcile inventory
                                                                      (b) Required reports. The State agency                 with shipping records, and shall review
                                                                   shall review and submit the following                     State agency verification of coupon
                                                                   reports to FNS on a monthly basis:                        issuer and bulk storage point monthly
                                                                      (1) Form FNS–250, Food Coupon Ac-                      reports. FNS may supplement the
                                                                   countability Report.                                      above reviews by unannounced spot
                                                                      (i) This report, executed monthly by                   checks of inventory levels and coupon
                                                                   coupon issuers and bulk storage points,                   security arrangements at coupon
                                                                   shall be signed by the coupon issuer or                   issuers and at bulk storage points.
                                                                   appropriate official, certifying that the                   (2) Form FNS–46, Issuance Reconcili-
                                                                   information is true and correct to the                    ation Report, shall be submitted by
                                                                   best of that person’s knowledge and be-                   each State agency operating an
                                                                   lief.                                                     issuance system. The report shall be
                                                                      (ii) Coupon issuers and bulk storage                   prepared at the level of the State agen-
                                                                   points shall submit supporting docu-                      cy where the actual reconciliation of
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                                                                   mentation to the State agency which                       the record-for-issuance and master
                                                                   will allow verification of the monthly                    issuance file occurs.

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                                                                   § 274.5                                                                  7 CFR Ch. II (1–1–10 Edition)

                                                                     (i) The State agency shall identify                     second preceding months of January
                                                                   and report the number and value of all                    and July.
                                                                   issuances which do not reconcile with                       (iii) State agencies shall submit any
                                                                   the record-for-issuance and/or master                     proposed changes in their estimation
                                                                   issuance     file.   All   unreconciled                   procedures to be used in determining
                                                                   issuances shall be identified as speci-                   the Form FNS–388 data to the FNS re-
                                                                   fied on this reporting document.                          gional office for review and comment.
                                                                     (ii) The report shall be received by                    FNS shall monitor the accuracy of the
                                                                   FNS no later than 90 days following                       estimated dollar value of coupons
                                                                   the end of the report month.                              issued as reported on the Form FNS–388
                                                                     (3) Form FNS–259, Food Stamp Mail                       against the Statewide total dollar
                                                                   Issuance Report.                                          value of coupons as reported by the
                                                                     (i) Form FNS–259 reports shall be sub-                  issuance agents on the Form FNS–250,
                                                                   mitted by State agencies for each unit                    Food Stamp Accountability Report, for
                                                                   using a mail issuance system as speci-                    the corresponding month. FNS shall
                                                                   fied in the Mail Issuance Loss Report-                    monitor the accuracy of the Statewide
                                                                   ing Plan required in § 272.2(d)(1)(iv).                   estimated number of households and
                                                                   The State agency shall submit the                         persons participating as reported on
                                                                   Form FNS–259 reports so that they are                     the Form FNS–388 report against the
                                                                   received in FNS by the 45th day fol-                      Statewide actual total participation as
                                                                   lowing the end of each quarter.                           reported on succeeding Form FNS–388
                                                                     (ii) The State agency shall verify the                  reports and against the semiannual
                                                                   issuance by a comparison with issuance                    project area participation totals at-
                                                                   on the appropriate coupon issuer’s                        tached to the March and September
                                                                   Form FNS–250.                                             Form FNS–388 reports. The FNS accu-
                                                                     (4) Form FNS–388, State Coupon                          racy standards for the issuance and
                                                                   Issuance and Participation Estimates.                     participation estimates are that esti-
                                                                     (i) State agencies shall telephone or                   mates for the current month be within
                                                                   transmit by computer the Form FNS–                        (+) or (¥) four (4) percent of actual lev-
                                                                   388 data and mail the reports to the                      els, and the estimates for the previous
                                                                   FNS regional office no later than the                     month be within (+) or (¥) two (2) per-
                                                                   19th day of each month. When the 19th                     cent of actual levels. State agencies
                                                                   falls on a weekend or holiday, the                        shall    explain    any   unusual     cir-
                                                                   Form FNS–388 data shall be reported by                    cumstances that cause coupon issuance
                                                                   telephone or transmitted by computer                      and/or participation data to not meet
                                                                   and mailed on the first work day after                    these accuracy standards. If a State
                                                                   the 19th. The Form FNS–388 report                         agency fails to meet these accuracy
                                                                   shall be signed by the person respon-                     standards, FNS shall notify the State
                                                                                                                             agency and assist the State agency in
                                                                   sible for completing the report or a
                                                                                                                             revising its estimating procedures to
                                                                   designated State agency official.
                                                                                                                             improve its reporting.
                                                                     (ii) The Form FNS–388 report shall
                                                                                                                               (iv) A participating household is one
                                                                   provide Statewide estimated or actual
                                                                                                                             that is certified and has been, or will
                                                                   totals of issuance and participation for
                                                                                                                             be, issued benefits (whether or not the
                                                                   the current and previous month, and
                                                                                                                             benefits are used), and households that
                                                                   actual or final participation totals for
                                                                                                                             have met the eligibility requirements,
                                                                   the second preceding month. In addi-
                                                                                                                             but will receive zero benefits.
                                                                   tion to the participation totals for the
                                                                   second preceding months of January                        [54 FR 7004, Feb. 15, 1989, as amended at 54
                                                                   and July, provided on the March and                       FR 51351, Dec. 15, 1989]
                                                                   September reports, non-assistance (NA)
                                                                   and public assistance (PA) household                      § 274.5     [Reserved]
                                                                   and person participation breakdowns
                                                                   shall be provided. As an attachment to                    § 274.6 Replacement              issuances   to
                                                                   the March and September Form FNS–                             households.
                                                                   388 reports, State agencies shall pro-                      (a) Providing replacement issuance. (1)
                                                                   vide project area breakdowns of the                       Subject to the restrictions in para-
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                                                                   coupon issuance and NA/PA household                       graph (b) of this section, State agencies
                                                                   and person participation data for the                     shall provide replacement issuances to

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.6

                                                                   a household when the household re-                        the household, or an authorization doc-
                                                                   ports that:                                               ument, coupons, or food purchased
                                                                     (i) Its authorization document was                      with food stamps is destroyed in a
                                                                   not received in the mail or was stolen                    household misfortune. In mail issuance
                                                                   from the mail, was stolen after receipt,                  (ATPs or coupons), the report must be
                                                                   was destroyed in a household misfor-                      made within the period of intended use,
                                                                   tune, or was improperly manufactured                      unless the original issuance was made
                                                                   or mutilated;                                             after the 20th of the month, in which
                                                                     (ii) Its coupons were not received in                   case the period of intended use is 20
                                                                   the mail, were stolen from the mail,                      days from original issuance, or the last
                                                                   were destroyed in a household misfor-                     day of the next month (State agency
                                                                   tune, or were improperly manufactured                     option).
                                                                   or mutilated;                                               (2) The number of replacement
                                                                     (iii) Food purchased with food stamps                   issuances which a household may re-
                                                                   was destroyed in a household misfor-                      ceive shall be limited as follows:
                                                                   tune; or                                                    (i) State agencies shall limit replace-
                                                                     (iv) It received a partial coupon al-                   ment issuances to a total of two count-
                                                                   lotment.                                                  able replacements in six months for au-
                                                                     (2) State agencies shall not provide                    thorization documents or coupons not
                                                                   replacement issuances to households                       received in, or stolen from, the mail;
                                                                   when coupons are lost, stolen or mis-                     authorization documents stolen after
                                                                   placed after receipt, authorization doc-                  receipt; and partial coupon allotments.
                                                                   uments are lost or misplaced after re-                    However, no limit shall be put on the
                                                                   ceipt, when authorization documents                       number of replacements of partial al-
                                                                   or coupons are totally destroyed after                    lotments if the partial allotments were
                                                                   receipt in other than a disaster or mis-                  due to State agency error. Separate
                                                                   fortune, or when coupons sent by reg-                     limits shall not apply for each of these
                                                                   istered or certified mail are signed for                  types of loss.
                                                                   by anyone residing with or visiting the                     (ii) State agencies shall limit re-
                                                                   household. In addition, replacement                       placement issuances per household to
                                                                   issuances shall not be made if the                        two countable replacements in six
                                                                   household or its authorized representa-                   months for authorization documents or
                                                                   tive has not signed and returned the                      coupons reported as destroyed in a
                                                                   household statement required in para-                     household misfortune. This limit is in
                                                                   graph (c) of this section, where applica-                 addition to the limit in paragraph
                                                                   ble.                                                      (b)(2)(i) of this section.
                                                                     (3) Where FNS has issued a disaster                       (iii) No limit on the number of re-
                                                                   declaration and the household is eligi-                   placements shall be placed on the re-
                                                                   ble for disaster food stamp benefits                      placement of authorization documents
                                                                   under the provisions of part 280, the                     or coupons which were improperly
                                                                   household shall not receive both the                      manufactured or mutilated or food pur-
                                                                   disaster allotment and a replacement                      chased with food stamp benefits which
                                                                   allotment for a misfortune.                               was destroyed in a household misfor-
                                                                     (4) In order for a replacement to be                    tune.
                                                                   considered non-countable, the replace-                      (iv) The replacement issuance shall
                                                                   ment must not result in a loss to the                     not be considered a countable replace-
                                                                   Program.                                                  ment if:
                                                                     (b) Replacement restrictions. (1) Re-                     (A) The original or replacement
                                                                   placement issuances shall be provided                     issuance is returned or otherwise re-
                                                                   only if a household timely reports a                      couped by the State agency;
                                                                   loss orally or in writing, and provides a                   (B) The original authorization docu-
                                                                   statement of nonreceipt if the original                   ment is not transacted;
                                                                   authorization document or allotment                         (C) The replacement authorization
                                                                   has not been returned to the State                        document is not transacted; or
                                                                   agency at the time of the request for                       (D) The replacement is being issued
                                                                   replacement. The report will be consid-                   due to a State agency issuance error.
                                                                   ered timely if it is made to the State                      (3) Except for households certified
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                                                                   agency within 10 days of the date an                      under 7 CFR part 280, replacement
                                                                   authorization document is stolen from                     issuances shall be provided in the

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                                                                   § 274.6                                                                  7 CFR Ch. II (1–1–10 Edition)

                                                                   amount of the loss to the household, up                      (iv) If the statement of nonreceipt is
                                                                   to a maximum of one month’s allot-                        not signed and returned within ten (10)
                                                                   ment, unless the issuance includes re-                    days of the date the loss was reported,
                                                                   stored benefits which shall be replaced                   the State agency shall not replace the
                                                                   up to their full value.                                   coupons or authorization document.
                                                                     (c) Household statement of nonreceipt.                     (d) Time limits for making replacements.
                                                                   (1) Prior to issuing a replacement, the                   (1) Replacement issuances shall be pro-
                                                                   State agency shall obtain from a mem-                     vided to households within 10 days
                                                                   ber of the household a signed state-                      after report of nondelivery or loss (15
                                                                   ment attesting to the household’s loss.                   days if issuance was by certified or reg-
                                                                   This statement shall not be required if                   istered mail) or within two (2) working
                                                                   the reason for the replacement is that                    days of receiving the signed household
                                                                   the original authorization document or                    statement required in paragraph (c) of
                                                                   coupons were improperly manufactured                      this section, whichever date is later.
                                                                   or mutilated, or if the original issuance                    (i) Replacement of mutilated coupons
                                                                   has already been returned. The re-                        shall be delayed until a determination
                                                                   quired statement may be mailed to the                     of the value of the coupons can be
                                                                   State agency if the household member                      made in accordance with paragraph
                                                                   is unable to come into the office be-                     (f)(3) of this section.
                                                                   cause of age, handicap or distance from                      (ii) If the household has already been
                                                                   the office and is unable to appoint an                    issued the maximum allowable number
                                                                   authorized representative.                                of countable replacements, subsequent
                                                                     (2) If the signed statement or affi-                    replacements shall be delayed until the
                                                                   davit is not received by the State agen-                  agency has verified that the original
                                                                   cy within 10 days of the date of report,                  issuance was returned or the original
                                                                   no replacement shall be made. If the                      authorization document was not trans-
                                                                   10th day falls on a weekend or holiday,                   acted. In a system using authorization
                                                                   and the statement is received the day                     documents, due to the time it takes to
                                                                   after the weekend or holiday, the State                   post and reconcile all authorization
                                                                   agency shall consider the statement                       documents, it may not be known at the
                                                                   timely received.                                          time of the replacement request wheth-
                                                                     (3) The statement shall be retained in                  er prior replacements are countable re-
                                                                   the case record. It shall attest to the                   placements and, therefore, whether the
                                                                   nonreceipt, theft, loss or destruction of                 household has reached its limit. In
                                                                   the original issuance and specify the                     such cases, the allotment shall be re-
                                                                   reason for the replacement. It shall                      stored when the State agency verifies
                                                                   also state that the original or replace-                  that the limit on countable replace-
                                                                   ment issuance will be returned to the                     ments has not been reached.
                                                                   State agency if the original issuance is                     (iii) The State agency shall deny or
                                                                   recovered by the household and that                       delay replacement issuances in cases in
                                                                   the household is aware of the penalties                   which available documentation indi-
                                                                   for intentional misrepresentation of                      cates that the household’s request for
                                                                   the facts, including but not limited to,                  replacement appears to be fraudulent.
                                                                   a charge of perjury for a false claim. In                    (2) The household shall be informed
                                                                   addition, the statement shall advise                      of its right to a fair hearing to contest
                                                                   the household that:                                       the denial or delay of a replacement
                                                                     (i) The household may request to be                     issuance. Replacements shall not be
                                                                   placed on an alternate issuance system                    made while the denial or delay is being
                                                                   after one report of nonreceipt;                           appealed.
                                                                     (ii) After two reports in a six-month                      (e) Replacing issuances lost in the mail
                                                                   period of loss or theft prior to receipt,                 or stolen prior to receipt by the household.
                                                                   the household shall be placed on an al-                   State agencies shall comply with the
                                                                   ternate delivery system;                                  following procedures in replacing
                                                                     (iii) After two reports in a six-month                  issuances reported lost in the mail or
                                                                   period of loss or theft prior to receipt                  stolen prior to receipt by the house-
                                                                   and/or theft of an authorization docu-                    hold:
                                                                   ment after receipt the State agency                          (1) Determine if the authorization
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                                                                   may delay or deny further replace-                        documents or benefits were validly
                                                                   ments for such causes; and                                issued, if they were actually mailed, if

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.6

                                                                   sufficient time has elapsed for delivery                  authorization document matches that
                                                                   or if they were returned in the mail. If                  on the household statement. In a Photo
                                                                   a delivery of a partial allotment is re-                  ID or serialized area, the State agency
                                                                   ported, the State agency shall deter-                     shall determine if the ID serial number
                                                                   mine the value of the coupons not de-                     annotated on the authorization docu-
                                                                   livered and determine whether the re-                     ment matches the serial number on the
                                                                   port of receipt of a partial allotment is                 recipient’s ID card. Any replacement
                                                                   corroborated by evidence that the cou-                    which results in duplicate participa-
                                                                   pon loss was due to damage in the mail                    tion shall be considered a household
                                                                   before delivery or by a discrepancy in                    error, and the replacement countable,
                                                                   the issuance unit’s inventory;                            when the ID serial number shown on
                                                                     (2) Determine, to the extent possible,                  the authorization document matches
                                                                   the validity of the request for a re-                     the serial number on the recipient’s
                                                                   placement. This includes determining                      card, unless the ID card was reported
                                                                   whether the original issuance has been                    lost or stolen prior to the replacement.
                                                                   returned to the State agency and, in a                    The State agency may require house-
                                                                   system utilizing authorization docu-                      holds, on a case-by-case basis, to report
                                                                   ments, whether the original authoriza-                    the theft to a law enforcement agency
                                                                   tion document has been transacted                         and to provide verification of such re-
                                                                   and, if so, whether the recipient’s sig-                  port.
                                                                   nature on the authorization document                         (2) Prior to replacing destroyed cou-
                                                                   matches the signature on the ID card.                     pons or authorization documents, or
                                                                   In a Photo ID area, the State agency                      destroyed food that was purchased with
                                                                   shall determine if the ID serial number                   food stamp benefits, the State agency
                                                                   annotated on the authorization docu-                      shall determine that the destruction
                                                                   ment matches the serial number on the                     occurred in a household misfortune or
                                                                   recipient’s ID card;                                      disaster, such as, but not limited to, a
                                                                     (3) Issue a replacement in accordance                   fire or flood. This shall be verified
                                                                   with paragraphs (b), (c) and (d) of this                  through a collateral contact, docu-
                                                                   section if the household is eligible;                     mentation from a community agency
                                                                     (4) Place the household on an alter-                    including, but not limited to, the fire
                                                                   nate delivery system, if warranted, in                    department or the Red Cross, or a
                                                                   accordance with paragraph (g) of this                     home visit. The State agency shall pro-
                                                                   section; and                                              vide replacements of coupons, author-
                                                                     (5) Take other action, such as cor-                     ization documents, and/or food in the
                                                                   recting the address on the master                         actual amount of the loss, but not ex-
                                                                   issuance file, warranted by the re-                       ceeding one month’s allotment, unless
                                                                   ported nondelivery.                                       the exception in paragraph (b)(3) of this
                                                                     (f) Replacing issuances after receipt by                section, applies.
                                                                   the household. Upon receiving a request                      (3) Households cannot receive a re-
                                                                   for replacement of an issuance reported                   placement for coupons lost or stolen
                                                                   as stolen or destroyed after receipt by                   after receipt.
                                                                   the household, the State agency shall                        (4) The State agency shall provide re-
                                                                   determine if the issuance was validly                     placements for improperly manufac-
                                                                   issued. The State agency shall also                       tured or mutilated coupons or author-
                                                                   comply with all applicable provisions                     ization documents as follows:
                                                                   in paragraphs (b), (c) and (d) of this                       (i) Coupons received by a household,
                                                                   section, as well as the following proce-                  and subsequently mutilated or found to
                                                                   dures for each type of replacement:                       be improperly manufactured shall be
                                                                     (1) Prior to replacing an authoriza-                    replaced in the amount of the loss to
                                                                   tion document which was reported sto-                     the household. State agencies shall re-
                                                                   len after receipt by the household, the                   place mutilated coupons when three-
                                                                   State agency shall determine, to the                      fifths of a coupon is presented by the
                                                                   extent possible, the validity of the re-                  household. The State agency shall ex-
                                                                   quest for replacement. For example,                       amine the improperly manufactured or
                                                                   the State agency may determine                            mutilated coupons to determine the va-
                                                                   whether the original authorization doc-                   lidity of the claim and the amount of
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                                                                   ument has been transacted and, if so,                     coupons to be replaced. If the State
                                                                   whether the signature on the original                     agency can determine the value of the

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                                                                   § 274.6                                                                  7 CFR Ch. II (1–1–10 Edition)

                                                                   improperly manufactured or mutilated                      replacement ATP’s reported as non-
                                                                   coupons, the State agency shall replace                   delivered in a six-month period, the
                                                                   the unusable coupons in a dollar-for-                     State agency shall issue benefits to
                                                                   dollar exchange. After exchanging the                     that household under an alternate
                                                                   coupons and completing a Form FNS–                        issuance system. The two requests may
                                                                   135, Affidavit of Return or Exchange of                   be for either an original or a replace-
                                                                   Food Coupons, the State agency shall                      ment ATP. The State agency shall
                                                                   destroy the coupons in accordance with                    keep the household on the alternate
                                                                   the procedures contained in § 274.7(f). If                issuance system for the length of time
                                                                   the State agency cannot determine the                     the State agency determines to be nec-
                                                                   value of the improperly manufactured                      essary. The State agency may return
                                                                   or mutilated coupons, the State agency                    the household to the regular issuance
                                                                   shall cancel the coupons by writing or                    system if the State agency finds that
                                                                   stamping ‘‘canceled’’ across the face of                  the circumstances leading to the loss
                                                                   the coupons and forward the coupons                       have changed and the risk of loss has
                                                                   to FNS for a determination of the                         lessened. The placement of a household
                                                                   value by the U.S. Bureau of Engraving                     on an alternate issuance system and
                                                                   and Printing.                                             the length of time the household is on
                                                                     (ii) Authorization documents re-                        this system is not subject to the fair
                                                                   ceived by a household and subsequently                    hearing process.
                                                                   mutilated or found to be improperly                         (h) Documentation and reconciliation of
                                                                   manufactured shall be replaced only if                    replacement issuances. (1) The State
                                                                   they are identifiable. ‘‘Identifiable’’                   agency shall document in the house-
                                                                   means that the State agency is able to                    hold’s case file each request for re-
                                                                   determine the amount of the issuance                      placement, the date, the reason, and
                                                                   and that the authorization document                       whether or not the replacement was
                                                                   was validly issued to the household                       provided. This information may be re-
                                                                   within the last 30 days. For example, if                  corded exclusively on the household
                                                                   the authorization document serial                         statement required in paragraph (c) of
                                                                   number is legible, the State agency can                   this section.
                                                                   determine from the record-for-issuance                      (2) The State agency shall maintain,
                                                                   or manual authorization document log                      in readily-identifiable form, a record of
                                                                   to which household the authorization                      the replacements granted to the house-
                                                                   document was issued, the date of                          hold, the reason, the month, and
                                                                   issuance, and the amount. Similarly, if                   whether the replacement was count-
                                                                   the case number and validity period                       able as defined in paragraph (b)(2)(iv)
                                                                   are legible, the State agency may be                      of this section. The record may be a
                                                                   able to determine to whom the author-                     case action sheet maintained in the
                                                                   ization document was issued and the                       case file, notations on the master
                                                                   amount. If more than one authoriza-                       issuance file, if readily accessible, or a
                                                                   tion document was issued to the house-                    document maintained solely for this
                                                                   hold and the State agency cannot de-                      purpose. At a minimum, the system
                                                                   termine which authorization document                      shall be able to identify and differen-
                                                                   was mutilated, the replacement shall                      tiate among:
                                                                   be issued in the lesser amount. Improp-                     (i) Authorization documents or cou-
                                                                   erly manufactured or mutilated au-                        pons not received in, or stolen from,
                                                                   thorization documents shall be surren-                    the mail, and authorization documents
                                                                   dered to the State agency.                                stolen after receipt; and
                                                                     (g) Alternate issuance system for a                       (ii) Replacement issuances which are
                                                                   household. The State agency shall offer                   not subject to a replacement limit.
                                                                   to place a household in an alternate                        (3) Upon completion of reconciliation
                                                                   issuance system after the first report                    in a system utilizing authorization
                                                                   of nonreceipt, or when circumstances                      documents, the State agency shall up-
                                                                   exist that indicate that the household                    date the record required in paragraph
                                                                   may not receive its benefits through                      (h)(2) of this section to indicate wheth-
                                                                   the normal issuance system, such as                       er both the original and replacement
                                                                   when a household has a history of re-                     authorization documents were trans-
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                                                                   ported nonreceipt of ATP’s. After two                     acted. If both were not transacted, the
                                                                   requests for replacement of original or                   record shall clearly indicate that the

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.7

                                                                   replacement authorization document                        cordance with the requirements of
                                                                   was not a countable replacement.                          these regulations.
                                                                     (4) When a request for replacement is                     (1) State agencies shall monitor the
                                                                   made late in an issuance month, the re-                   coupon inventories of coupon issuers
                                                                   placement will be issued in a month                       and bulk storage points to ensure that
                                                                   subsequent to the month in which the                      inventories are neither excessive nor
                                                                   original authorization document was                       insufficient to meet the issuance needs
                                                                   issued. All replacements shall be post-                   and requirements. In determining rea-
                                                                   ed and reconciled to the month of                         sonable inventory needs, State agen-
                                                                   issuance of the replacement and may                       cies shall consider, among other
                                                                   be posted to the month of issuance of                     things, the ease and feasibility of re-
                                                                   the original authorization document,                      supplying such inventories from bulk
                                                                   so that all duplicate transactions may                    storage points within the State. The
                                                                   be identified.                                            inventory levels at coupon issuers and
                                                                     (i) Further action on replacement                       bulk storage points should not exceed a
                                                                   issuances. The State agency shall take                    six-month supply, taking into account
                                                                   the following further actions on re-                      coupons on hand and on order.
                                                                   placements:
                                                                                                                               (2) State agencies shall establish ac-
                                                                     (1) On at least a monthly basis, the
                                                                                                                             counting systems for monitoring the
                                                                   State agency shall report to the appro-
                                                                                                                             inventory activities of coupon issuers.
                                                                   priate office of the Postal Inspection
                                                                                                                             State agencies shall review the Form
                                                                   Service all authorization documents
                                                                                                                             FNS–250, from coupon issuers and bulk
                                                                   reported as stolen or lost in the mail.
                                                                   The State agency shall assist the Post-                   storage points, to determine the pro-
                                                                   al Service during any investigation                       priety and reasonableness of the inven-
                                                                   thereof and shall, upon request, supply                   tories. Forms FNS–261, Advice of Ship-
                                                                   the Postal Service with facsimiles of                     ment, Forms FNS–300, Advice of Trans-
                                                                   the original authorization document, if                   fer (or an approved State agency form),
                                                                   transacted, and the replacement au-                       and reports of returned mail-issued
                                                                   thorization document and a copy of the                    coupons, reports of replacements of
                                                                   nonreceipt statement.                                     mail-issued coupons, reports of improp-
                                                                     The State agency shall advise the                       erly manufactured or mutilated cou-
                                                                   Postal Service if the original author-                    pons, reports of shortage or overage of
                                                                   ization document is not transacted.                       food coupon books and physical inven-
                                                                     (2) When a duplicate replacement au-                    tory controls shall be used by State
                                                                   thorization document is transacted,                       agencies to assure the accuracy of
                                                                   the State agency shall, at a minimum:                     monthly reports, issuers’ compliance
                                                                     (i) Compare the handwriting on the                      with required inventory levels, and the
                                                                   authorization documents to documents                      accuracy and reasonableness of coupon
                                                                   contained in the household’s case file,                   orders.
                                                                   including the nonreceipt statement;                         (b) Coupon controls. State agencies
                                                                     (ii) Establish a claim in accordance                    shall establish control and security
                                                                   with § 273.18, where it appears that the                  procedures to safeguard coupons that
                                                                   household has transacted, or caused                       are similar to those used to protect
                                                                   both authorization documents to be                        currency. The exact nature of security
                                                                   transacted; and                                           arrangements will depend on State
                                                                     (iii) Refer the matter to the State                     agency evaluation of local coupon
                                                                   agency’s investigation unit, where in-                    issuance and storage facilities. These
                                                                   dicated.                                                  arrangements must permit the timely
                                                                   [54 FR 7004, Feb. 15, 1989, as amended at 54              issuance of coupons while affording a
                                                                   FR 51351, Dec. 15, 1989; 56 FR 63617, Dec. 4,             reasonable degree of coupon security.
                                                                   1991]                                                     The State agencies, as well as all per-
                                                                                                                             sons or organizations acting on their
                                                                   § 274.7 Coupon management.                                behalf, shall:
                                                                      (a) Coupon inventory management.                         (1) Safeguard coupons from theft, em-
                                                                   State agencies shall establish coupon                     bezzlement, loss, damage, or destruc-
                                                                   inventory management systems which                        tion;
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                                                                   ensure that coupons are requisitioned                       (2) Avoid unauthorized transfer, ne-
                                                                   and inventories are maintained in ac-                     gotiation, or use of coupons;

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                                                                   § 274.7                                                                  7 CFR Ch. II (1–1–10 Edition)

                                                                     (3) Avoid issuance and transfer of al-                  tiable specimen coupons to State agen-
                                                                   tered or counterfeit coupons; and                         cies for the administration of the Pro-
                                                                     (4) Promptly report in writing to                       gram and enforcement of the rules, and
                                                                   FNS any loss, theft, or embezzlement                      to authorized food firms for the pur-
                                                                   of coupons.                                               pose of educating and training employ-
                                                                     (c) Coupon requisitioning, shipping and                 ees on Program operations.
                                                                   transferring. (1) State agencies shall ar-                  (1) The State agency or firm shall
                                                                   range for the ordering of coupons on                      store specimen coupons in secure stor-
                                                                   the Form FNS–260, Requisition for                         age with access limited to authorized
                                                                   Food Coupon Books, and the prompt                         personnel. The State agency or firm
                                                                   verification and written acceptance of                    should maintain a record of specimen
                                                                   each coupon shipment. FNS shall be                        coupons received.
                                                                   furnished with appropriate delivery                         (2) Specimen coupons that are muti-
                                                                   hours and the names of the persons au-                    lated, improperly manufactured, or
                                                                   thorized to sign delivery acknowledge-                    otherwise unusable, shall not be dis-
                                                                   ments.                                                    tributed by the State agency. Such
                                                                     (2) FNS shall assess the reasonable-                    coupons shall be destroyed by the
                                                                   ness and propriety of food stamp req-                     State agency and the destruction shall
                                                                   uisitions submitted by State agencies                     be witnessed by two persons and noted
                                                                   based on prior inventory changes and                      on the perpetual inventory records
                                                                   shall notify the State agency of any                      maintained by the FNS regional offices
                                                                   adjustments made to requisitions.                         for specimen coupons.
                                                                     (3) FNS shall ship coupons, in such
                                                                                                                               (3) Specimen coupons shall not be
                                                                   denominations as it may determine
                                                                                                                             issued to private individuals or firms
                                                                   necessary, directly to State agency re-
                                                                                                                             for the purpose of collection or display.
                                                                   ceiving points approved by FNS. FNS
                                                                   shall promptly advise the State agency                      (e) Replacement and destruction of cou-
                                                                   in writing when coupons are shipped to                    pons and authorization documents by
                                                                   receiving points using Form FNS–261,                      issuance points. (1) The State agency
                                                                   Advice of Shipment. Coupons shall be                      shall provide for the replacement to
                                                                   considered delivered to the State agen-                   issuers of improperly manufactured or
                                                                   cy when FNS or its carrier has a signed                   mutilated coupons as provided below.
                                                                   receipt.                                                  Replacement provisions pertaining to
                                                                     (4) Once coupons have been accepted                     households are contained in § 274.6.
                                                                   by receiving points within the State,                       (i) The State agency shall examine
                                                                   any further movement of the coupons                       the improperly manufactured or muti-
                                                                   between coupon issuers and bulk stor-                     lated coupons to determine the validity
                                                                   age points within the State is at the                     of the claim and the amount of coupons
                                                                   risk of the State agency. To minimize                     to be replaced.
                                                                   the risk of loss, coupons should be                         (ii) If the State agency can determine
                                                                   shipped by armored vehicle or some                        the value of an improperly manufac-
                                                                   other method of transportation that af-                   tured or mutilated coupon, the State
                                                                   fords the State agency the maximum                        agency shall replace the unusable cou-
                                                                   security available.                                       pon, dollar for dollar, when at least
                                                                     (5) In every instance when coupons                      three-fifths of the coupon is presented
                                                                   are transported within a State, the per-                  by the issuer. After the exchange, the
                                                                   son(s) transporting coupons shall:                        State agency shall destroy the unus-
                                                                     (i) Acknowledge in writing the re-                      able coupon in accordance with the
                                                                   ceipt of the coupons;                                     procedures contained in paragraph (f)
                                                                     (ii) Provide as much protection for                     of this section.
                                                                   the coupons as is reasonable;                               (iii) If the State agency cannot deter-
                                                                     (iii) Advise issuance supervisors of                    mine the value of the improperly man-
                                                                   the routes to be taken, the shipment                      ufactured or mutilated coupons, the
                                                                   departure time and the estimated ar-                      State agency shall cancel the coupons
                                                                   rival time. This information, if in writ-                 by writing or stamping ‘‘canceled’’
                                                                   ten form, may be destroyed after the                      across the face of the coupons and for-
                                                                   coupons have been received.                               ward the coupons to FNS for a deter-
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                                                                     (d) Specimen coupons. FNS may pro-                      mination of the value by the U.S. Bu-
                                                                   vide upon written request, non-nego-                      reau of Engraving and Printing. The

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.7

                                                                   dollar amount shall be shown on the                         (ii) If either the coupon issuer or
                                                                   Form FNS–250 report.                                      bulk storage point, or the State agency
                                                                     (2) The State agency shall void all                     cannot determine whether coupons or
                                                                   authorization documents mutilated or                      coupon books were in fact improperly
                                                                   otherwise rejected during the prepara-                    manufactured or cannot establish the
                                                                   tion process. The voided authorization                    value of the coupons involved, the
                                                                   documents shall either be filed for                       State agency shall promptly forward a
                                                                   audit purposes or destroyed, provided                     written statement of findings and the
                                                                   destruction is witnessed by at least                      canceled coupon(s) or coupon book(s)
                                                                   two persons and the State agency                          to FNS for determination.
                                                                   maintains a list of all destroyed au-                       (3) The State agency shall destroy
                                                                   thorization documents. Provisions per-                    the coupons and coupon books by burn-
                                                                   taining to the replacement of author-                     ing, shredding, tearing, or cutting so
                                                                   ized documents mutilated subsequent                       they are not negotiable. Two State
                                                                   to receipt by a household are provided                    agency officials shall witness and cer-
                                                                   in § 274.6.                                               tify the destruction and report the de-
                                                                     (f) Destruction of unusable coupons                     struction information as follows:
                                                                   found in inventory or received as claim                     (i) The destruction of improperly
                                                                   payments. (1) The State agency shall re-                  manufactured, mutilated or exchanged
                                                                   quire coupon issuers, bulk storage                        coupons from coupon issuers and bulk
                                                                   points, and claims collection points to                   storage points shall be reported on the
                                                                   dispose of unusable coupons received                      Form FNS–471, Coupon Account and
                                                                   from the manufacturer or received as
                                                                                                                             Destruction Report, and submitted
                                                                   payment for claims within 30 days
                                                                                                                             with the Form FNS–250 for the appro-
                                                                   after the close of the month in which
                                                                                                                             priate month. For coupons received
                                                                   unusable coupons shipped from the
                                                                                                                             from recipients, a Form FNS–135 shall
                                                                   manufacturer are discovered, or are re-
                                                                                                                             be completed and attached to the Form
                                                                   ceived from recipients as payment for
                                                                                                                             FNS–471.
                                                                   claims. There is no dollar limit on the
                                                                   amount of coupons which may be dis-                         (ii) The destruction of coupons re-
                                                                   posed of by the State agency. Disposal                    ceived from claims collection points
                                                                   shall be by one of the following two                      that are the result of the payment of
                                                                   methods:                                                  household claims shall be reported on
                                                                     (i) Sending unusable coupons to the                     the Form FNS–471 (with Form FNS–135
                                                                   State agency for destruction; or                          documentation) and submitted with
                                                                     (ii) Holding the unusable coupons in                    the Form FNS–209, Status of Claims
                                                                   secure storage pending examination                        Against Households, for the appro-
                                                                   and destruction by the State agency at                    priate rnonths. A State agency may
                                                                   the coupon issuance, bulk storage, or                     consolidate its monthly Form FNS–471
                                                                   claims collection point.                                  for claims collection destruction re-
                                                                     (2) Prior to the destruction of im-                     porting by providing one completed
                                                                   properly manufactured or mutilated                        Form FNS–471 that reflects the total
                                                                   coupons or coupon books that were ex-                     claims destruction figure for each
                                                                   changed, or collected from households                     month. However, the State agency
                                                                   for claims, the State agency shall:                       must attach a breakdown which re-
                                                                     (i) Verify that the coupons were im-                    ports the required Form FNS–471 infor-
                                                                   properly manufactured or mutilated.                       mation for each reporting point. If a
                                                                     If one or more boxes of coupons were                    State agency chooses to submit a con-
                                                                   improperly manufactured, the State                        solidated Form FNS–471, all individual
                                                                   agency shall contact FNS prior to dis-                    Forms FNS–471 must be retained by the
                                                                   position for instructions on the disposi-                 State agency for future review and
                                                                   tion of the coupons. If FNS has not re-                   audit purposes. The Form FNS–135 may
                                                                   sponded within the 30-day time limit,                     not be consolidated, and all originals of
                                                                   the State agency shall destroy the box                    that form must accompany a consoli-
                                                                   of coupons and document the manufac-                      dated Form FNS–471.
                                                                   turing irregularity and the book num-                       (g) Undeliverable or returned benefits.
                                                                   bers, and retain a copy of the State                      The State agency shall exercise the fol-
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                                                                   agency’s request to FNS for permission                    lowing security and controls for au-
                                                                   to destroy.                                               thorization documents and coupons

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                                                                   § 274.8                                                                  7 CFR Ch. II (1–1–10 Edition)

                                                                   that are undeliverable or returned dur-                     (d) Supporting documentation. Coupon
                                                                   ing the valid issuance period. Forms                      issuers and bulk storage points shall
                                                                   FNS–471 and FNS–135 shall be completed                    submit to the State agency supporting
                                                                   by the State agencies, as appropriate.                    documentation       which   will   allow
                                                                     (1) Coupons which are in book form,                     verification of the monthly report as
                                                                   complete, and with original and un-                       provided in § 274.4. At a minimum, such
                                                                   signed covers shall be returned to in-                    documentation shall include docu-
                                                                   ventory and noted as such on the                          ments supporting coupon shipments,
                                                                   issuance log, and the Form FNS–250.                       transfers, and issuances. In those
                                                                     (2) Authorization documents shall be                    States using issuance systems with au-
                                                                   recorded in the control log noting the                    thorization documents, coupon issuers
                                                                   serial number, household name and
                                                                                                                             shall submit transacted authorization
                                                                   case number. The documents shall be
                                                                                                                             documents batched according to each
                                                                   kept in secure storage with limited ac-
                                                                                                                             day’s activity, in accordance with the
                                                                   cess. The documents may be voided as
                                                                   long as households which report non-                      schedule prescribed by the State agen-
                                                                   delivery are provided an immediate re-                    cy but, in any case, not less often than
                                                                   placement.                                                monthly.
                                                                     (h) Old series coupon exchange. House-                    (e) Handling of improperly manufac-
                                                                   holds which have old-series (no longer                    tured or mutilated coupons. Coupon
                                                                   issued) coupons shall be entitled to a                    issuers, and bulk storage and claims
                                                                   dollar-for-dollar exchange of old-series                  collection points shall cancel improp-
                                                                   coupons for current series coupons.                       erly manufactured or mutilated cou-
                                                                   Households in possession of old-series                    pons or coupon books by writing or
                                                                   coupons shall submit the coupons and a                    stamping ‘‘canceled’’ across the face of
                                                                   request for exchange to the State agen-                   the coupon(s) and coupon book(s). De-
                                                                   cy. State agencies may make direct ex-                    pending upon State agency policy, the
                                                                   change to claimants or request FNS to                     coupon issuer or bulk storage point
                                                                   make the exchange. Forms FNS–471 and                      shall forward the coupons with the ap-
                                                                   FNS–135 shall be completed by the                         propriate documentation (determined
                                                                   State agencies, as appropriate.                           by the State agency) to the State agen-
                                                                   [54 FR 7004, Feb. 15, 1989, as amended at 54              cy, or hold the coupons in secure stor-
                                                                   FR 51351, Dec. 15, 1989]                                  age, pending examination and destruc-
                                                                                                                             tion by the State agency at the coupon
                                                                   § 274.8 Responsibilities     of   coupon                  issuer, bulk storage point or claims
                                                                        issuers, and bulk storage and                        collection location. The documentation
                                                                        claims collection points.
                                                                                                                             is not required if the State agency in-
                                                                      (a) Receipt of coupons. Coupon issuers,                spects the coupons at the issuance,
                                                                   and bulk storage and claims collection                    storage or collection point. Additional
                                                                   points shall promptly verify and ac-                      requirements pertaining to the han-
                                                                   knowledge, in writing, the content of                     dling of these types of coupons by the
                                                                   each coupon shipment or coupon trans-                     State agency are provided in § 274.7(e).
                                                                   fer delivered to them and shall be re-
                                                                   sponsible for the custody, care, control,                 § 274.9     Closeout of a coupon issuer.
                                                                   and storage of coupons.
                                                                      (b) Inventory levels. Coupon issuers                     (a) Definition of responsibilities. When-
                                                                   and bulk storage points shall maintain                    ever the services of a coupon issuer or
                                                                   a proper level of coupon inventory not                    bulk storage point are terminated, the
                                                                   in excess of reasonable needs, taking                     State agency shall perform the respon-
                                                                   into consideration the ease and feasi-                    sibilities described below. If a coupon
                                                                   bility of resupplying such coupon in-                     issuer or bulk storage point has more
                                                                   ventories. Such inventory levels should                   than one functioning unit and one of
                                                                   not exceed the six-month supply pro-                      these facilities is terminated, the cou-
                                                                   vided for in § 274.7(a).                                  pon issuer or bulk storage point shall
                                                                      (c) Monthly reporting. Coupon issuers,                 fulfill the responsibilities described in
                                                                   and bulk storage and claims collection                    paragraphs (b) and (c) of this section.
                                                                   points shall report monthly to FNS,                       The coupon issuer or bulk storage
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                                                                   through the State agency, using Form                      point shall notify the State agency of
                                                                   FNS–250, as provided in § 274.4.                          the pending termination of any of its

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.10

                                                                   services prior to the actual termi-                       seek other issuance or storage alter-
                                                                   nation. The State agency shall prompt-                    natives.
                                                                   ly notify FNS as provided in § 274.1(d).
                                                                     (b) Closeout accountability. The State                  § 274.10 Use of identification cards and
                                                                   agency shall perform a closeout audit                         redemption of coupons by eligible
                                                                   of a coupon issuer or bulk storage                            households.
                                                                   point within 30 days of termination of                      (a) General provisions. State agencies
                                                                   the issuance or storage point. The                        shall issue an ID card to each certified
                                                                   State agency shall report the findings                    household as proof of Program eligi-
                                                                   of the audit to FNS immediately upon                      bility. Upon request, the household or
                                                                   its completion. If the audit determines                   the authorized representative, shall
                                                                   that the final Form FNS–250 is incor-                     present the household’s ID card at
                                                                   rect, the State agency shall promptly                     issuance points, retail food stores or
                                                                   provide a corrected report to FNS.                        meal services in order to transact the
                                                                     (c) Transfer of coupon inventory. (1)                   allotment authorization or when ex-
                                                                   Prior to the transfer of coupon inven-                    changing benefits for eligible food. The
                                                                   tory to another coupon issuer or bulk                     household member or members whose
                                                                   storage point, the State agency shall                     name(s) appear on the ID card shall
                                                                   perform an actual physical count of                       sign the coupon books issued to the
                                                                   coupons on hand.                                          household.
                                                                     (2) The State agency shall transfer                       (1) All ID cards shall be issued in the
                                                                   the inventory to another coupon issuer                    name of the household member who is
                                                                   or bulk storage point, preferably with-
                                                                                                                             authorized to receive the household’s
                                                                   in the same project area. The transfer
                                                                                                                             issuance. In areas not designated by
                                                                   of coupons shall be properly reported
                                                                                                                             FNS as requiring Photo ID cards, the
                                                                   and documented by both the point
                                                                                                                             ID card shall contain space for the
                                                                   being terminated and the point receiv-
                                                                                                                             name and signature of the household
                                                                   ing the inventory.
                                                                                                                             member to whom the coupon allotment
                                                                     (d) Maintenance of participant service.
                                                                                                                             is to be issued and for any authorized
                                                                   (1) At least 30 days before actual termi-
                                                                                                                             representatives designated by the
                                                                   nation of a coupon issuer, the State
                                                                                                                             household. Section 274.5(b) provides
                                                                   agency shall notify project area par-
                                                                   ticipants of the impending closure. No-                   further requirements pertaining to
                                                                   tification shall include identification                   emergency authorized representatives.
                                                                   of alternative issuance locations and                     Any person listed on the ID card shall
                                                                   available public transportation. The                      sign the ID card before that person can
                                                                   State agency shall post notices at the                    use it to obtain benefits. If the house-
                                                                   offices of the coupon issuer of the im-                   hold does not name an authorized rep-
                                                                   pending closure and may use mass                          resentative, the State agency shall
                                                                   media or notices with allotments to ad-                   void that area of the ID card to prevent
                                                                   vise participants about the expected                      names and signatures being entered at
                                                                   closure of the issuance office.                           a later date. The ID card may be seri-
                                                                     (2) If closure of the issuer will affect                ally numbered.
                                                                   a substantial portion of the caseload or                    (2) The State agency shall limit
                                                                   a specific geographic area, the State                     issuance of ID cards to the time of ini-
                                                                   agency shall take whatever action is                      tial certification, with replacements
                                                                   necessary to maintain participant serv-                   made only in instances of loss, mutila-
                                                                   ice without interruption.                                 tion, destruction, changes in the per-
                                                                     (3) If a coupon issuer or bulk storage                  son authorized to obtain coupons, or
                                                                   point is to be closed for noncompliance                   when the State agency determines that
                                                                   with contractual requirements and al-                     new ID cards are needed to keep the
                                                                   ternative issuance facilities or systems                  photographs up-to-date or if the State
                                                                   are not readily available, the State                      agency changes its ID card format or
                                                                   agency may continue to use the coupon                     system. Whenever possible, the State
                                                                   issuer or bulk storage point for a lim-                   agency shall collect the ID card that it
                                                                   ited time. In this situation, the State                   is replacing.
                                                                   agency shall perform weekly onsite                          (3) The State agency shall place an
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                                                                   reconciliations of coupon issuance. The                   expiration date on all temporary ID
                                                                   State agency shall continue to actively                   cards, and on the regular ID cards

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                                                                   § 274.10                                                                 7 CFR Ch. II (1–1–10 Edition)

                                                                   issued to households certified for deliv-                 arms, ammunition, and other explo-
                                                                   ered meals for a specific period, and to                  sives. Any household residing in a re-
                                                                   homeless households certified for res-                    mote section of Alaska which has been
                                                                   taurant meals.                                            determined by FNS to be an area in
                                                                     (4) Specially-marked ID cards shall                     which food coupons may be used to
                                                                   be issued in the following cir-                           purchase hunting and fishing equip-
                                                                   cumstances:                                               ment shall have its ID card marked
                                                                     (i) Eligible household members 60                       with the letters ‘‘HF’’.
                                                                   years of age or over or members who                         (5) ID cards delivered to households
                                                                   are housebound, physically handi-                         by mail shall not be mailed in the same
                                                                   capped, or otherwise disabled to the ex-                  envelope with authorization documents
                                                                   tent that they are unable to ade-                         or coupons.
                                                                   quately prepare all their meals, and                        (b) Photo ID cards. (1) Photo ID cards
                                                                   their spouses, may use coupons to pur-                    shall be issued in those project areas or
                                                                   chase meals prepared for and delivered                    portions thereof with 100,000 or more
                                                                   to them by a nonprofit meal delivery                      food stamp participants, except for
                                                                   service authorized by FNS. Any house-                     those project areas serviced entirely by
                                                                   hold eligible for and interested in using                 mail issuance or an Electronic Benefit
                                                                   delivered meal services shall have its                    Transfer system, or where FNS, in con-
                                                                   ID card marked with the letter ‘‘M’’.                     sultation with the Office of the Inspec-
                                                                     (ii) Eligible household members 60                      tor General, approves a State agency’s
                                                                   years of age or over and their spouses,                   request for an exemption. FNS shall re-
                                                                   or those receiving SSI and their                          spond to a State agency’s request for
                                                                   spouses, may use coupons issued to                        exemption within 30 days of its receipt
                                                                   them to purchase meals prepared espe-                     of the request.
                                                                   cially for them at communal dining fa-                      (i) FNS shall evaluate the January
                                                                   cilities authorized by FNS for that pur-                  participation data reported as an at-
                                                                   pose. Any household eligible for and in-                  tachment to the March Form FNS–388
                                                                   terested in using communal dining fa-                     report. Based on the evaluation, FNS
                                                                   cilities in those States or project areas                 shall notify State agencies at the be-
                                                                   where restaurants are authorized to ac-                   ginning of each fiscal year of any areas
                                                                   cept food stamps, shall have its ID card                  that either require or no longer require
                                                                   marked with the letters ‘‘CD’’. In areas                  the use of Photo ID cards. In cases
                                                                   where restaurants are not authorized                      where an entire State is a single
                                                                   to accept food stamps, the State or                       project area, FNS shall consult with
                                                                   project area may mark such ID’s with                      the State agency to determine whether
                                                                   the letters ‘‘CD’’.                                       Photo IDs should be required in any
                                                                     (iii) Eligible homeless households                      specific parts of the project area. At
                                                                   may use food stamp benefits to pur-                       the conclusion of this consultation,
                                                                   chase meals from restaurants author-                      FNS shall inform the State agency
                                                                   ized by FNS for such purpose. Any                         whether the use of Photo IDs will be
                                                                   homeless household eligible for, and in-                  mandated in any parts of the State
                                                                   terested in, using restaurants in those                   agency, based on the need to protect
                                                                   areas where restaurants are authorized                    Program integrity, and the cost-effec-
                                                                   to accept food stamp benefits shall                       tiveness of Photo ID cards.
                                                                   have a specially-marked ID card. The                        (ii) In cases where a project area
                                                                   State agency shall provide samples of                     serves between 100,000 and 110,000 par-
                                                                   specially-marked ID cards to author-                      ticipants, FNS shall inform the State
                                                                   ized restaurants.                                         agency in which the project area is lo-
                                                                     (iv) Eligible households residing in                    cated that it is prepared to mandate
                                                                   areas of Alaska determined by FNS as                      the use of Photo IDs in the project
                                                                   areas where access to retail food stores                  area. FNS shall also inform the State
                                                                   is difficult and which rely substan-                      agency that it will not mandate use of
                                                                   tially on hunting and fishing for sub-                    Photo ID’s if, within 30 days of being
                                                                   sistence may use all or any part of the                   notified by FNS that Photo ID’s must
                                                                   coupons issued to purchase hunting                        be used, the State agency demonstrates
                                                                   and fishing equipment such as nets,                       to FNS that participation in the
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                                                                   hooks, rods, harpoons and knives, but                     project areas has fallen below the
                                                                   may not use coupons to purchase fire-                     100,000 participant level in the recent

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.10

                                                                   past, or justifies to FNS why participa-                     (iii) Households entitled to expedited
                                                                   tion is likely to fall below that level                   service if the State agency’s Photo ID
                                                                   during the next year.                                     card system is incapable of producing a
                                                                      (2) FNS may, at any time, in con-                      Photo ID card in time for the house-
                                                                   sultation with the Office of the Inspec-                  hold to participate as required by
                                                                   tor General, designate project areas or                   § 273.2(i). A Photo ID card shall be
                                                                   portions thereof with less than 100,000                   issued to the household prior to
                                                                   participants as requiring the use of                      issuance of the household’s next allot-
                                                                   Photo ID cards if, in reviewing such                      ment;
                                                                   factors as the level of duplicate                            (iv) Households certified under the
                                                                   issuances and results of management                       SSA-food stamp joint processing rules
                                                                   evaluation reviews, the Department de-                    in § 273.2(k). State agencies shall not
                                                                   termines that the issuance of Photo ID                    require such households to obtain
                                                                   cards in such areas would be justified.                   Photo IDs as long as they continue to
                                                                      (3) A State agency may request that                    be certified for food stamps at SSA of-
                                                                   FNS require that Photo IDs be man-                        fices. However, a household shall ob-
                                                                   dated throughout either the entire                        tain a Photo ID if a household member
                                                                   State or specified project areas. FNS                     or authorized representative reports to
                                                                   shall respond to such requests within                     a food stamp office for recertification;
                                                                   30 days of the request and, if the re-                    and,
                                                                   quest is not approved, FNS shall jus-                        (v) Residents of drug/alcohol treat-
                                                                   tify its reasons for the disapproval to                   ment and rehabilitation programs.
                                                                   the State agency.                                            (5) In addition to the general provi-
                                                                      (4) In project areas where issuance of                 sions in paragraph (a) of this section,
                                                                   Photo ID cards is mandatory, the State                    Photo ID cards shall include the photo-
                                                                   agency shall issue a Photo ID card at                     graph of the person who will receive
                                                                   the time of certification to each eligi-                  the household’s issuance; i.e., who will
                                                                   ble household except those listed in                      either transact the household’s author-
                                                                   § 274.10(b)(4). Households exempt from                    ization document or pick up the house-
                                                                   mandated Photo ID cards shall be                          hold’s allotment. A Photo ID card shall
                                                                   issued ID cards which meet the speci-                     be signed by only the person pictured
                                                                   fications in paragraph (d) of this sec-                   on the card, who may be the household
                                                                   tion except that in lieu of a photo-                      member or authorized representative.
                                                                   graph, the State agency shall annotate                    Only the person photographed may ob-
                                                                   the cards to show an exception was                        tain the household’s coupons. All
                                                                   granted to the household and that the                     Photo ID card formats are subject to
                                                                   ID card is valid. The following house-                    FNS approval.
                                                                   holds are exempt from the Photo ID re-                       (6) Photo ID cards shall be serially
                                                                   quirement:                                                numbered and laminated after they are
                                                                      (i) Households certified by out-of-of-                 signed by the person whose photograph
                                                                   fice     interviews   as   specified   in                 appears on the card. ID cards shall also
                                                                   § 273.2(e)(2). However, the State agency                  include a color photograph of the per-
                                                                   shall replace the non-Photo ID card                       son designated by the household to ob-
                                                                   issued to such households with a Photo                    tain coupons and the household’s case
                                                                   ID card when the appropriate house-                       number or other identifying informa-
                                                                   hold member or authorized representa-                     tion.
                                                                   tive visits the certification office. The                    (7) A Photo ID card used to receive
                                                                   State agency shall not require any                        benefits under a welfare or public as-
                                                                   member of such a household to visit                       sistance program may be adapted for
                                                                   the office exclusively for the purpose of                 food stamp purposes if it meets the
                                                                   issuing a Photo ID card;                                  specifications contained in this section
                                                                      (ii) Household members whose reli-                     and can be annotated to indicate food
                                                                   gion does not allow them to be photo-                     stamp eligibility.
                                                                   graphed. The State agency shall re-                          (8) The State agency shall provide a
                                                                   quire such a household to provide a                       household with a reasonable oppor-
                                                                   signed statement to the effect that the                   tunity to obtain a food stamp Photo ID
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                                                                   members’ religious beliefs do not allow                   card in any project area where its use
                                                                   them to be photographed;                                  is mandated.

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                                                                   § 274.10                                                                 7 CFR Ch. II (1–1–10 Edition)

                                                                      (i) A household required to have a                     designating the emergency authorized
                                                                   Photo ID card shall not participate                       representative and attesting to the sig-
                                                                   until such time as a household member                     nature of the emergency authorized
                                                                   or a designated authorized representa-                    representative. The designation may be
                                                                   tive obtains such a card. If a des-                       on the ID card or authorization docu-
                                                                   ignated authorized representative does                    ment or a separate form. The house-
                                                                   not obtain the required Photo ID, the                     hold shall not be required to travel to
                                                                   household may designate a household                       a food stamp office to execute an emer-
                                                                   member or another authorized rep-                         gency designation. The emergency au-
                                                                   resentative to be photographed.                           thorized representative may present a
                                                                      (ii) If the person whose photograph                    separately written and signed state-
                                                                   appears on the ID is unable to travel to                  ment from the head of the household or
                                                                   the issuance point to obtain a par-                       his or her spouse, authorizing the
                                                                   ticular allotment, the household may                      issuance of the certified household’s
                                                                   use the emergency authorized rep-
                                                                                                                             food stamps to the authorized rep-
                                                                   resentative procedures provided in
                                                                                                                             resentative. The emergency represent-
                                                                   § 274.5 and in paragraph (c) of this sec-
                                                                                                                             ative shall sign the written statement
                                                                   tion.
                                                                      (9) State agencies which have the ca-                  from the household and present the
                                                                   pability may develop systems to issue                     statement and the household ID card
                                                                   more than one household member a                          to obtain the allotment. A separate
                                                                   Photo ID card. These systems shall en-                    written designation is required each
                                                                   sure that the safeguards provided by                      time an emergency representative is
                                                                   Photo ID cards, as specified in this sec-                 authorized.
                                                                   tion, are maintained.                                       (2) In any issuance system, the cash-
                                                                      (10) If a mutilated or altered Photo                   ier shall compare the signatures on the
                                                                   ID card is presented at the issuance                      issuance document and on the ID card.
                                                                   point, the household shall obtain a re-                   If they do not match, issuance shall
                                                                   placement Photo ID card prior to                          not be made.
                                                                   issuance.                                                   (i) If the household is required by
                                                                      (11) A household shall be entitled to                  these regulations to present a Photo ID
                                                                   unobtained benefits, lost as a result of                  card, coupons shall be issued only when
                                                                   being unable to obtain a particular al-                   the person presenting the authoriza-
                                                                   lotment, if the issuance month elapses                    tion document or requesting the cou-
                                                                   between the time the household re-                        pons is pictured on the ID card. The
                                                                   quested a replacement Photo ID card                       cashier shall write the serial number of
                                                                   and the delivery of that card to the                      the Photo ID card on the authorization
                                                                   household.                                                or issuance document.
                                                                      (12) FNS may waive one or more of                        (ii) If the Photo ID card appears to be
                                                                   the requirements in this section if a                     mutilated or altered, the issuing agent
                                                                   State agency can demonstrate to FNS
                                                                                                                             shall not issue the coupons, but shall
                                                                   that its alternate ID card or system
                                                                                                                             require the household to obtain a re-
                                                                   will     provide   adequate    safeguards
                                                                                                                             placement ID card from the State
                                                                   against fraudulent and/or duplicate
                                                                   issuances.                                                agency.
                                                                      (c) Emergency authorized representative                  (d) Eligible food. A household member
                                                                   and recipient identification. State agen-                 should sign each coupon book issued to
                                                                   cies shall develop a method by which a                    the household. The coupons may be
                                                                   household may designate an emergency                      used only by the household, or other
                                                                   authorized representative to obtain the                   persons the household selects, to pur-
                                                                   household’s allotment when none of                        chase eligible food for the household,
                                                                   the persons specified on the ID is avail-                 which includes, for certain households
                                                                   able.                                                     residing in certain designated areas of
                                                                      (1) At a minimum, the method devel-                    Alaska, the purchase of hunting and
                                                                   oped by the State agency shall require                    fishing     equipment    with   coupons.
                                                                   a document with the signature of the                      Uncanceled and unendorsed coupons of
                                                                   emergency authorized representative                       $1 denomination, returned as change by
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                                                                   as well as a place for the household                      authorized retail food stores, may be
                                                                   member named on the ID card to sign                       presented as payment for eligible food.

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.11

                                                                   All other detached coupons may be ac-                       (i) Prior payment prohibition. Coupons
                                                                   cepted only if accompanied by the cou-                    shall not be used to pay for any eligible
                                                                   pon book which bears the same serial                      food purchased prior to the time at
                                                                   number as the detached coupons. It is                     which the coupons are presented to au-
                                                                   the right of the household or the au-                     thorized retail food stores or meal serv-
                                                                   thorized representative to detach the                     ices. Neither shall coupons be used to
                                                                   coupons from the book.                                    pay for any eligible food in advance of
                                                                      (e) Meals-on-wheels. Eligible house-                   the receipt of food, except when prior
                                                                   hold members 60 years of age or over or                   payment is for food purchased from a
                                                                   members who are housebound, phys-                         nonprofit cooperative food purchasing
                                                                   ically handicapped, or otherwise dis-                     venture.
                                                                   abled to the extent that they are un-                       (j) Cash change. When change in an
                                                                   able to adequately prepare all their                      amount less than $1 is required in a
                                                                   meals, and their spouses, may use cou-                    coupon transaction, the household
                                                                   pons to purchase meals prepared for                       shall receive the change in cash not to
                                                                   and delivered to them by a nonprofit                      exceed 99 cents. However, in the case of
                                                                   meal delivery service authorized by                       homeless food stamp households, nei-
                                                                   FNS.                                                      ther cash change nor credit slips shall
                                                                      (f) Residents of certain institutions. (1)             be returned for coupons used for the
                                                                   Members of eligible households who are                    purchase of prepared meals from au-
                                                                   narcotics addicts or alcoholics and who                   thorized homeless meal providers. Such
                                                                   regularly participate in a drug or alco-                  meal providers may use uncancelled
                                                                   holic treatment rehabilitation program                    and unmarked $1 coupons which were
                                                                   may use food stamp benefits to pur-                       previously accepted for meals served to
                                                                   chase food prepared for them during                       food stamp recipients when change is
                                                                   the course of such program by a pri-                      required for $5 and $10 coupons. How-
                                                                   vate nonprofit organization or institu-                   ever, in the case of homeless food
                                                                   tion or publicly operated community                       stamp households, neither cash change
                                                                   mental health center which is author-                     nor credit slips shall be returned for
                                                                   ized by FNS to redeem benefits in ac-                     food stamps used for the purchase of
                                                                   cordance with §§ 278.1 and 278.2(g) of                    prepared meals from authorized public
                                                                   this chapter.                                             and private nonprofit homeless meal
                                                                      (2) Eligible residents of a group living               providers. Such meal providers may
                                                                   arrangement may use food stamp bene-                      use the lowest denomination coupons
                                                                   fits issued to them to purchase meals
                                                                                                                             that are uncancelled and unmarked for
                                                                   prepared especially for them at a group
                                                                                                                             making change in food stamp trans-
                                                                   living arrangement which is authorized
                                                                                                                             actions. Restaurants which are author-
                                                                   by FNS to redeem benefits in accord-
                                                                                                                             ized by FNS under § 278.1 to provide
                                                                   ance with §§ 278.1 and 278.2(g) of this
                                                                                                                             meals to homeless food stamp recipi-
                                                                   chapter.
                                                                                                                             ents shall return cash change to such
                                                                      (3) Residents of shelters for battered
                                                                                                                             recipients in food stamp transactions
                                                                   women and children as defined in
                                                                                                                             when the amount of change due is less
                                                                   § 278.1(g) of this chapter may use their
                                                                                                                             than one dollar. If change of one dollar
                                                                   food stamp benefits to purchase meals
                                                                   prepared especially for them at a shel-                   or more is due, uncancelled and un-
                                                                   ter which is authorized by FNS to re-                     marked one dollar coupons shall also
                                                                   deem benefits in accordance with                          be used for change.
                                                                   §§ 278.1 and 278.2(g) of this chapter.                    [54 FR 7004, Feb. 15, 1989, as amended at 54
                                                                      (g) Homeless food stamp households.                    FR 51352, Dec. 15, 1989; 57 FR 11249, Apr. 1,
                                                                   Homeless food stamp households may                        1992; 61 FR 53600, Oct. 15, 1996; Amdt. 397, 70
                                                                   use their food stamp benefits to pur-                     FR 72354, Dec. 5, 2005]
                                                                   chase prepared meals from authorized
                                                                   homeless meal providers.                                  § 274.11 Issuance and inventory record
                                                                      (h) Use of ID cards. Upon request, the                     retention, and forms security.
                                                                   household or the authorized represent-                      (a) Availability of records. The State
                                                                   ative shall present the household’s ID                    agency shall maintain issuance, inven-
                                                                   card to the retail food store or meal                     tory, reconciliation, and other ac-
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                                                                   service when exchanging food coupons                      countability records for a period of
                                                                   for eligible food.                                        three years as specified in § 272.1(f) of

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                                                                   § 274.12                                                                 7 CFR Ch. II (1–1–10 Edition)

                                                                   this chapter. This period may be ex-                      § 274.12 Electronic Benefit Transfer
                                                                   tended at the written request of FNS.                          issuance system approval stand-
                                                                     (1) Issuance, inventory, reconcili-                          ards.
                                                                   ation, and other accountability records                      (a) General. This section establishes
                                                                   shall include all Agency, State, and                      rules for the approval, implementation
                                                                   local forms involved in the State agen-                   and operation of Electronic Benefit
                                                                   cy’s     receipt,   storage,   handling,                  Transfer (EBT) systems for the Food
                                                                   issuance, and destruction of coupons                      Stamp Program as an alternative to
                                                                   completed by contract agents or any                       issuing food stamp coupons. By Octo-
                                                                   other individuals or entities involved                    ber 1, 2002, State agencies must have
                                                                   in issuance or inventory, as well as                      EBT systems implemented statewide,
                                                                   those completed by the State agency.                      unless the Secretary provides a waiver
                                                                     (2) In lieu of the records themselves,                  for a State agency that faces unusual
                                                                   easily retrievable microfilm, micro-                      barriers to implementing an EBT sys-
                                                                   fiche, or computer tapes which contain                    tem. In general, these rules apply to
                                                                   the required information may be main-                     both on-line and off-line EBT systems,
                                                                   tained.                                                   unless stated otherwise herein, or un-
                                                                     (b) Control of issuance documents. The                  less FNS determines otherwise for off-
                                                                   State agency shall control all issuance                   line systems during the system plan-
                                                                   documents which establish household                       ning and development process.
                                                                   eligibility while the documents are                          (b) Program administration. (1) The
                                                                   transferred and processed within the                      State food stamp agency shall submit
                                                                   State agency. The State agency shall                      Planning and Implementation Ad-
                                                                   use numbers, batching, inventory con-                     vanced Planning Documents (APDs) for
                                                                   trol logs, or similar controls from the                   FNS approval in accordance with the
                                                                   point of initial receipt through the                      requirements of § 277.18 of this chapter
                                                                   issuance and reconciliation process.                      and this section for development and
                                                                   The State agency shall also ensure the                    implementation of initial and subse-
                                                                   security and control of authorization                     quent EBT systems. The State agency
                                                                   documents in transit from the manu-                       shall implement EBT systems in a
                                                                   facturer to the State agency.                             pilot area prior to expansion Statewide
                                                                     (c) Accountable documents. (1) HIR                      or to other project areas. The areas of
                                                                   cards, authorization documents, and                       pilot operation and full-scale operation
                                                                   mandated Photo ID cards shall be con-                     shall be identified in the Planning APD
                                                                   sidered accountable documents. The                        when submitted to FNS for approval.
                                                                   State agency shall provide the fol-                          (2) The State agency shall be respon-
                                                                   lowing minimum security and control                       sible for the coordination and manage-
                                                                   procedures for these documents:                           ment of the EBT system. The Sec-
                                                                     (i) Preprinted serial numbers;                          retary may suspend or terminate some
                                                                     (ii) Secure storage;                                    or all EBT system funding or withdraw
                                                                     (iii) Access limited to authorized per-                 approval of the EBT system from the
                                                                   sonnel;                                                   State agency upon a finding that the
                                                                     (iv) Bulk inventory control records;                    State agency or its contracted rep-
                                                                                                                             resentative has failed to comply with
                                                                     (v) Subsequent control records main-
                                                                                                                             the requirements of this section and/or
                                                                   tained through the point of issuance or
                                                                                                                             § 277.18 of this chapter.
                                                                   use, and
                                                                                                                                (3) All EBT systems within a State
                                                                     (vi) Periodic review and validation of                  must follow a singular EBT APD and
                                                                   inventory controls and records by par-                    system architecture submitted by the
                                                                   ties not otherwise involved in main-                      State agency. Multiple EBT designs
                                                                   taining control records.                                  will be acceptable only if: such designs
                                                                     (2) For notices of change which ini-                    can be fully justified by the State
                                                                   tiate, update or terminate the master                     agency; the system differences are
                                                                   issuance file, and blank ID cards, the                    transparent to participating house-
                                                                   State agency shall, at a minimum, pro-                    holds that move within the State; oper-
                                                                   vide secure storage and shall limit ac-                   ating costs are the same or lower; and
                                                                   cess to authorized personnel.                             the ability of the different systems to
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                                                                   [54 FR 7004, Feb. 15, 1989, as amended at 60              readily      communicate     (transaction
                                                                   FR 20183, Apr. 25, 1995]                                  interchange) with one another.

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.12

                                                                      (4) The State agency shall indicate                      (A) The types of testing to be per-
                                                                   how it plans to incorporate additional                    formed;
                                                                   programs into the EBT system if it an-                      (B) The organization of the test team
                                                                   ticipates the addition of other public                    and associated responsibilities, test
                                                                   assistance programs concurrent with                       database generation, test case develop-
                                                                   or after implementation of the Food                       ment, test schedule, and the docu-
                                                                   Stamp Program EBT system. The                             mentation of test results. Acceptance
                                                                   State agency shall also consult with                      testing shall include functional re-
                                                                   the State agency officials responsible                    quirements testing, error condition
                                                                   for administering the Special Supple-                     handling and destructive testing, secu-
                                                                   mental Nutrition Program for Women,                       rity testing, recovery testing, controls
                                                                   Infants and Children (WIC) prior to                       testing, stress and throughput perform-
                                                                   submitting the Planning APD for FNS                       ance testing, and regression testing.
                                                                   approval.                                                 FNS may require that any or all of
                                                                      (c) Pilot project approval require-                    these tests be repeated in instances
                                                                   ments—(1) EBT planning APD. The                           where significant modifications are
                                                                   State agency shall comply with the                        made to the system after these tests
                                                                   two-stage approval process for APDs in                    are initially completed or if problems
                                                                   submitting an EBT system proposal to                      that surfaced during initial testing
                                                                   FNS for approval. The Planning APD                        warrant a retest;
                                                                   shall contain the requirements speci-                       (C) A ‘‘what-if’’ component shall also
                                                                   fied under § 277.18(d)(1) of this chapter,                be included to permit the opportunity
                                                                   including a brief letter of intent, plan-                 for observers and participants to test
                                                                   ning budget, cost allocation plan, and                    possible scenarios in a free-form man-
                                                                   schedule of activities and deliverables.                  ner.
                                                                      (2) EBT Implementation APD. The EBT                      (D) The Department reserves the
                                                                   Implementation APD shall include the                      right to participate and conduct inde-
                                                                   completed documents required under                        pendent testing as necessary during
                                                                   § 277.18 of this chapter for Implementa-                  the Acceptance testing and appropriate
                                                                   tion APDs, where appropriate. In addi-                    events during system design, develop-
                                                                   tion, EBT Implementation APDs shall                       ment, implementation and operation.
                                                                   include the detailed pilot project site                     (iii) An acceptance test report. The
                                                                   description and expanded site descrip-                    State agency shall provide a separate
                                                                   tion, as described in this paragraph.                     report after the completion of the ac-
                                                                   Also, the State agency shall commit to                    ceptance test only in instances where
                                                                   completing and submitting the fol-                        FNS is not present at the testing or
                                                                   lowing documents for FNS approval                         when serious problems are uncovered
                                                                   and obtaining such approval prior to                      during the testing that remain unre-
                                                                   issuance of benefits to eligible house-                   solved by the end of the test session.
                                                                   holds in the pilot project area:                          The report shall summarize the activi-
                                                                      (i) Functional demonstration. A func-                  ties, describe any discrepancies, de-
                                                                   tional demonstration of the functional                    scribe the proposed solutions to dis-
                                                                   requirements prescribed in paragraph                      crepancies, and the timetable for their
                                                                   (f) of this section in combination with                   retesting and completion. In addition,
                                                                   the system components described by                        the report shall contain the State
                                                                   the approved System Design is rec-                        agency’s recommendations regarding
                                                                   ommended in order to identify and re-                     implementation of the EBT system in
                                                                   solve any problems prior to acceptance                    the pilot site.
                                                                   testing. The Department reserves the                        (iv) A prototype food retailer agree-
                                                                   right to participate in the Functional                    ment. The State agency shall enter an
                                                                   Demonstration if one is conducted.                        agreement with each food retailer that
                                                                      (ii) An acceptance test plan. The Ac-                  complies with the requirements of
                                                                   ceptance Test Plan for the pilot project                  paragraph (g)(6) of this section.
                                                                   shall describe the methodology to be                        (v) A pilot project implementation plan.
                                                                   utilized to verify that the EBT system                    The pilot project implementation plan
                                                                   complies with Food Stamp Program re-                      shall include the following:
                                                                   quirements and System Design speci-                         (A) A description of the tools, proce-
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                                                                   fications. At a minimum, the Accept-                      dures, detailed schedules, and resources
                                                                   ance Test Plan shall address:                             needed to implement the pilot project;

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                                                                   § 274.12                                                                 7 CFR Ch. II (1–1–10 Edition)

                                                                     (B) The equipment acquisition and                       tion no later than one month after
                                                                   installation requirements, ordering                       completion of pilot operations.
                                                                   schedules, and system and component                         (d) Expansion requirements. The pilot
                                                                   testing;                                                  and expansion schedule must be delin-
                                                                     (C) A phase-in strategy which per-                      eated in the State agency’s approved
                                                                   mits a measured and orderly transition                    implementation plan. As part of the
                                                                   to EBT. In describing this strategy, the                  plan, the State agency must indicate a
                                                                   plan shall address training schedules                     suitable pilot area to serve as the basis
                                                                   that avoid disruption of normal shop-                     of the three-month analysis and report-
                                                                   ping patterns and operations of partici-                  ing; however, expansion can occur si-
                                                                   pating households and food retailers.                     multaneously with pilot operation.
                                                                   Training of food stamp households,                        Submission of an Advanced Planning
                                                                   State agency personnel and retailers                      Document Update to request FNS ap-
                                                                   and/or their trainers shall be coordi-                    proval to implement and operate the
                                                                   nated with the installation of equip-                     EBT system in areas beyond the pilot
                                                                   ment in retail stores;                                    area is only required in instances
                                                                     (D) A description of on-going tasks                     where there are substantial changes to
                                                                   associated with fine-tuning the system                    the implementation plan. However, if
                                                                   and making any corrective actions nec-                    significant problems arise during the
                                                                   essary to meet contractual require-                       pilot period or expansion, the Depart-
                                                                   ments. The description shall also ad-                     ment can require that roll-out be sus-
                                                                   dress those tasks associated with on-                     pended until such problems are re-
                                                                   going training, document updates,                         solved.
                                                                   equipment maintenance, on-site sup-                         (e) Functional requirements. The State
                                                                   port and system adjustments, as need-                     agency shall ensure that the EBT sys-
                                                                   ed to meet Food Stamp Program re-                         tem is capable of performing the fol-
                                                                   quirements; and,                                          lowing functional requirements prior
                                                                                                                             to implementation:
                                                                     (E) A plan for orderly phase-out of
                                                                                                                               (1) Authorizing household benefits. (i)
                                                                   the pilot project if it is demonstrated
                                                                                                                             Issuing and replacing EBT cards to eli-
                                                                   during the pilot project operations that
                                                                                                                             gible households;
                                                                   the system is not acceptable.                               (ii) Permitting eligible households to
                                                                     (vi) A contingency plan. The State                      select a personal identification number
                                                                   agency shall submit a written contin-                     (PINs) at least four digits in length;
                                                                   gency plan for FNS approval. The con-                       (iii) Establishing benefit cards and
                                                                   tingency plan shall contain informa-                      accounts with the central computer
                                                                   tion regarding the back-up issuance                       database;
                                                                   system that will be activated in the                        (iv) Maintaining the master house-
                                                                   event of an emergency shut-down                           hold issuance record file data and cur-
                                                                   which results in short-term or ex-                        rent authorization information;
                                                                   tended system inaccessibility, or total                     (v) Training households and other
                                                                   discontinuation of EBT system oper-                       users in system usage;
                                                                   ations. The contingency plan shall be                       (vi) Authorizing benefit delivery;
                                                                   incorporated into the State system se-                      (vii) Posting benefits to each house-
                                                                   curity plan after FNS approval as pre-                    hold’s account for regular and supple-
                                                                   scribed at § 277.18(p) of this chapter.                   mental issuances;
                                                                     (3) EBT Implementation APD Budget.                        (viii) Providing households with ac-
                                                                   The Implementation APD budget shall                       cess to information on benefit avail-
                                                                   be prepared and submitted for FNS ap-                     ability;
                                                                   proval in accordance with the require-                      (ix) Ensuring the privacy of house-
                                                                   ments of paragraph (k) of this section                    hold data and providing benefit and
                                                                   and § 277.18(d)(2) of this chapter.                       data security;
                                                                     (4) Pilot project reporting. The State                    (x) Inventorying and securing ac-
                                                                   agency is required to report to FNS all                   countable documents; and
                                                                   issues that arise during the pilot pe-                      (xi) Zeroing out benefit accounts and
                                                                   riod. Reports to FNS shall be provided                    other account authorization activity.
                                                                   as problems occur. In instances where                       (2) Providing food benefits to house-
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                                                                   the State agency must investigate the                     holds. (i) Verifying the identity of au-
                                                                   issue, FNS must receive the informa-                      thorized households or authorized

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.12

                                                                   household representatives at issuance                       (i) Convey retailer authorization in-
                                                                   terminals or POS;                                         formation provided by FNS to the sys-
                                                                      (ii) Verifying the PIN and/or PIN off-                 tem operator using the Retailer Elec-
                                                                   set, primary account number (PAN),                        tronic Benefit Transfer (EBT) Data Ex-
                                                                   terminal identification number and re-                    change (REDE) system. The State
                                                                   tailer identification number;                             agency must access the REDE files to
                                                                      (iii) Determining the sufficiency of                   ensure that the FNS retailer files used
                                                                   the household’s account balance in                        to authorize valid EBT Food Stamp
                                                                   order to debit or credit household ben-                   transactions are updated on a daily
                                                                   efit accounts at the point-of-sale;                       basis. Follow-up on actions taken re-
                                                                      (iv) Sending messages authorizing or                   garding any disqualification or with-
                                                                   rejecting purchases;                                      drawal by an authorized food retailer
                                                                      (v) Providing back-up purchase pro-                    from the Food Stamp Program must
                                                                   cedures when the system is unavail-                       occur within two business days after
                                                                   able;                                                     receipt;
                                                                      (vi) Ensuring that benefits are avail-                   (ii) Add newly authorized food retail
                                                                   able and carried over from month-to-                      stores or third party processors to the
                                                                   month.                                                    EBT system as prescribed under para-
                                                                      (vii) Converting EBT benefits to cou-                  graph (g)(1)(ii) of this section.
                                                                   pons in accordance with paragraph                           (iii) Ensure that only currently au-
                                                                   (f)(6) of this section; and                               thorized retailers can access the sys-
                                                                      (viii) Responding to issuance prob-                    tem;
                                                                   lems in a timely manner.                                    (iv) Monitor food retailers to ensure
                                                                      (3) Crediting retailers and financial in-              that equipment deployment complies
                                                                   stitutions for redeemed benefits. (i)                     with paragraph (g)(4) of this section;
                                                                   Verifying electronic transactions flow-                     (v) Ensure that equipment and sup-
                                                                   ing to or from participating retailers’                   plies are maintained in working order
                                                                   bank accounts;                                            for retail stores equipped by the State
                                                                      (ii) Creating and maintaining a file                   agency or its contractor. Equipment
                                                                   containing the individual records of                      shall be replaced or repaired within 48
                                                                   EBT transactions;                                         hours;
                                                                      (iii) Totalling all credits accumu-                      (vi) Ensure that retail store employ-
                                                                   lated by each retailer;                                   ees are trained in system operation
                                                                      (iv) Providing balance information to                  prior to implementation. Retailer
                                                                   retailers or third party processors from                  training shall be offered by the State
                                                                   individual POS terminals, as needed;                      agency and include the provision of ap-
                                                                      (v) Providing each retailer informa-                   propriate written and program specific
                                                                   tion on total deposits in the system on                   materials. Retailers have the option to
                                                                   a daily basis;                                            waive instruction by the State agency
                                                                      (vi) Preparing a daily tape in a Na-                   if they desire. State agencies shall di-
                                                                   tional Automated Clearinghouse for-                       rect retailers to confirm in writing
                                                                   mat or other process approved by FNS                      that they are waiving their option to
                                                                   with information on benefits redeemed                     training;
                                                                   for each retailer and in summary;                           (vii) Provide on-line read-only access
                                                                      (vii) Transmitting the automated                       to State EBT systems for compliance
                                                                   clearinghouse (ACH) tape to a financial                   investigations. The State agency is re-
                                                                   institution for transmission through                      quired to provide software and tele-
                                                                   the ACH or other method approved by                       communications capability as nec-
                                                                   FNS;                                                      essary to FNS Compliance Branch Area
                                                                      (viii) Transferring the information on                 offices, Regional offices and Field of-
                                                                   the ACH tape or other process approved                    fices so that FNS compliance inves-
                                                                   by FNS containing daily redemption                        tigators, other appropriate FNS per-
                                                                   activity of each retailer to the FNS                      sonnel and investigators from the De-
                                                                   Minneapolis Computer Support Center                       partment’s Office of Inspector General
                                                                   at least once weekly. Transmittal may                     have access to the system in order to
                                                                   be by tape, disc, remote job entry or                     conduct investigations of program
                                                                   other means acceptable to FNS.                            abuse and alleged violations;
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                                                                      (4) Managing retailer participation. The                 (viii) Ensure that FNS compliance
                                                                   State agency shall:                                       investigators and investigators from

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                                                                   § 274.12                                                                 7 CFR Ch. II (1–1–10 Edition)

                                                                   the Department’s Office of Inspector                      from the system host computer, to the
                                                                   General have access to EBT cards and                      switch, to the third party processors,
                                                                   accounts that are updated as necessary                    to a store’s host computer or point of
                                                                   to conduct food stamp investigations.                     sale (POS) device. These adjustments
                                                                     (f) Household participation—(1) Trans-                  may occur after the availability date
                                                                   action limits. No minimum dollar                          and may result in either a debit or
                                                                   amount per transaction nor maximum                        credit to the household.
                                                                   limit on the number of transactions                         (A) Client-initiated adjustments. The
                                                                   shall be established. In addition, no                     State agency must act on all requests
                                                                   transaction fees shall be imposed on                      for adjustments made by client house-
                                                                   food stamp households utilizing the                       holds within 90 calendar days of the
                                                                   EBT system to access their benefits.                      error transaction. The State agency
                                                                     (2) Access to balances. Households                      has 10 business days from the date the
                                                                   shall be permitted to determine their                     household notifies it of the error to in-
                                                                   food stamp account balances without                       vestigate and reach a decision on an
                                                                   making a purchase or standing in a                        adjustment and move funds into the
                                                                   checkout line. The State agency shall                     client account. This timeframe also ap-
                                                                   ensure that the EBT system is capable                     plies if the State agency or entity
                                                                   of providing a transaction history for a                  other than the household discovers a
                                                                   period of up two calendar months to                       system error that requires a credit ad-
                                                                   households upon request.                                  justment to the household. Business
                                                                     (3) Transaction receipts. Households                    days are defined as calendar days other
                                                                   shall be provided printed receipts at                     than Saturdays, Sundays, and Federal
                                                                   the time of transaction. At a minimum                     holidays.
                                                                   this information shall:                                     (B) Retailer-initiated adjustments. The
                                                                     (i) State the date, merchant’s name                     State agency must act upon all adjust-
                                                                   and location, transaction type, trans-                    ments to debit a household’s account
                                                                   action amount and remaining balance                       no later than 10 business days from the
                                                                   for the food stamp account;                               date the error occurred, by placing a
                                                                     (ii) Comply with the requirements of                    hold on the adjustment balance in the
                                                                   12 CFR part 205 (Regulation E) in addi-                   household’s account. If there are insuf-
                                                                   tion to the requirements of this sec-                     ficient benefits to cover the entire ad-
                                                                   tion; and                                                 justment, a hold shall be placed on any
                                                                     (iii) Identify the food stamp house-                    remaining balance that exists, with the
                                                                   hold member’s account number (the                         difference being subject to availability
                                                                   PAN) using a truncated number or a                        only in the next future month. The
                                                                   coded transaction number. The house-                      household shall be given, at a min-
                                                                   hold’s name shall not appear on the re-                   imum, adequate notice in accordance
                                                                   ceipt except when a signature is re-                      with § 273.13 of this chapter. The notice
                                                                   quired when utilizing a manual trans-                     must be sent at the time the initial
                                                                   action voucher.                                           hold is attempted on the household’s
                                                                     (4) Issuance of benefits. State agencies                current month’s remaining balance,
                                                                   shall establish an availability date for                  clearly state the full adjustment
                                                                   household access to their benefits and                    amount, and advise the household that
                                                                   inform households of this date.                           any amount still owing is subject to
                                                                     (i) The State agency may make ad-                       collection from the household’s next
                                                                   justments to benefits posted to house-                    future month’s benefits.
                                                                   hold accounts after the posting process                     (1) The household shall have 90 days
                                                                   is complete but prior to the avail-                       from the date of the notice to request
                                                                   ability date for household access in the                  a fair hearing.
                                                                   event benefits are erroneously posted.                      (2) Should the household dispute the
                                                                     (ii) A State agency shall make ad-                      adjustment and request a hearing with-
                                                                   justments to an account to correct an                     in 10 days of the notice, a provisional
                                                                   auditable, out-of-balance settlement                      credit must be made to the household’s
                                                                   condition that occurs during the re-                      account by releasing the hold on the
                                                                   demption process as a result of a sys-                    adjustment balance within 48 hours of
                                                                   tem error. A system error is defined as                   the request by the household, pending
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                                                                   an error resulting from a malfunction                     resolution of the fair hearing. If no re-
                                                                   at any point in the redemption process:                   quest for a hearing is made within 10

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.12

                                                                   days of the notice, the hold is released                  households that their card is lost or
                                                                   on the adjustment balance, and this                       stolen.
                                                                   amount is credited to the retailer’s ac-                    (v) The State agency may impose a
                                                                   count. If there are insufficient funds                    replacement fee by reducing the
                                                                   available in the current month to cover                   monthly allotment of the household re-
                                                                   the full adjustment amount, the hold                      ceiving the replacement card; however,
                                                                   may be maintained and settled at one                      the fee may not exceed the cost to re-
                                                                   time after the next month’s benefits                      place the card. If the State agency in-
                                                                   become available.                                         tends to collect the fee by reducing the
                                                                     (iii) The appropriate management                        monthly allotment, it must follow FNS
                                                                   controls and procedures for accessing                     reporting procedures for collecting pro-
                                                                   benefit accounts after the posting shall                  gram income. State agencies currently
                                                                   be instituted to ensure that no unau-                     operating EBT systems must inform
                                                                   thorized adjustments are made in ac-                      FNS of their proposed collection oper-
                                                                   cordance with paragraph (f)(7)(iii) of                    ations. State agencies in the process of
                                                                   this section.                                             developing an EBT system must in-
                                                                     (5) Issuance and replacement of cards or                clude the procedure for collection of
                                                                   PINs. (i) The State agency shall permit                   the fee in their system design docu-
                                                                   food stamp households to select their                     ment. All plans must specify how the
                                                                   Personal Identification Number (PIN).                     State agency intends to account for
                                                                   PIN assignment procedures shall be                        card replacement fees and include iden-
                                                                   permitted in accordance with industry                     tification of the replacement thresh-
                                                                   standards as long as PIN selection is                     old, frequency, and circumstances in
                                                                   available to clients if they so desire                    which the fee shall be applicable. State
                                                                   and clients are informed of this option.                  agencies may establish good cause poli-
                                                                     (ii) In general, the State agency shall                 cies that provide exception rules for
                                                                   replace EBT cards within two business                     cases where replacement card fees will
                                                                   days following notice by the household                    not be collected.
                                                                   to the State agency that the card has                       (6) Benefit conversion. (i) Households
                                                                   been lost or stolen. In cases where the                   leaving an EBT State must be able to
                                                                   State agency is using centralized card                    use their electronic benefits upon relo-
                                                                   issuance, replacement can be extended                     cation. States must provide a means
                                                                   to take place within up to five calendar                  for a client to be able to use their bene-
                                                                   days. In all instances, the State agency                  fits upon relocation. A State agency
                                                                   must ensure that clients have in hand                     may convert electronic benefits to
                                                                   an active card and PIN with benefits                      paper coupons if a household is relo-
                                                                   available on the card, within the time                    cating to a State that is not interoper-
                                                                   frame the State agency has identified                     able and where electronic benefits are
                                                                   for card replacement.                                     not portable from the household’s cur-
                                                                     (iii) The State agency shall ensure                     rent State of residence, or assist cli-
                                                                   that a duplicate account is not estab-                    ents in finding an authorized retail lo-
                                                                   lished which would permit households                      cation where out-of-State electronic
                                                                   to access more than one account in the                    benefits can be used. At State agency
                                                                   system.                                                   option, a household entering an EBT
                                                                     (iv) An immediate hold shall be                         area may be required to spend any re-
                                                                   placed on accounts at the time notice                     maining food coupons prior to utilizing
                                                                   is received from a household regarding                    the EBT system to access their bene-
                                                                   the need for card or PIN replacement.                     fits. Conversion shall occur within one
                                                                   The State agency shall implement a re-                    business day following notice to the
                                                                   porting system which is continually                       State agency by the household when
                                                                   operative. Once a household reports                       inventories of food coupons are stored
                                                                   that their EBT card has been lost or                      at local agency locations. Conversion
                                                                   stolen, the State agency shall assume                     shall occur within three business days
                                                                   liability for benefits subsequently                       if the State maintains coupon inven-
                                                                   drawn from the account and replace                        tories in a central location.
                                                                   any lost or stolen benefits to the                          (ii) Requests for conversions to food
                                                                   household. The State agency or its                        coupons solely for purposes of shopping
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                                                                   agent shall maintain a record showing                     outside the project area shall be pro-
                                                                   the date and time of all reports by                       hibited. However, the State agency

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                                                                   § 274.12                                                                 7 CFR Ch. II (1–1–10 Edition)

                                                                   may allow benefits in an EBT account                      ly issuance reporting requirements pre-
                                                                   to be converted to coupons for short-                     scribed under § 274.4 of this part.
                                                                   term absences from the EBT system                           (iii) Procedures shall be established
                                                                   area for family emergencies or similar                    to permit the appropriate managers to
                                                                   isolated occurrences.                                     adjust benefits that have already been
                                                                     (iii) Splitting food stamp benefits be-                 posted to a benefit account prior to the
                                                                   tween food coupons and an electronic                      household accessing the account; or,
                                                                   benefit access card at the time of                        after an account has become dormant
                                                                   issuance shall not be permitted.                          or the household has not used the funds
                                                                     (iv) At State agency option, a limit                    which remain after conversion. The
                                                                   may be imposed on the number of con-                      procedures shall also be applicable to
                                                                   versions per household that may occur                     removing stale accounts for off-line
                                                                   annually for the purposes prescribed                      storage of benefits or when the benefits
                                                                   under paragraph (f)(6)(ii) of this sec-                   are expunged. Whenever benefits are
                                                                   tion. A limit on conversions to food                      expunged or stored off-line, the State
                                                                   coupons shall not be imposed on house-                    agency shall document the date,
                                                                   holds moving from the EBT area.                           amount of the benefits and storage lo-
                                                                     (v) The State agency shall develop                      cation in the household case file.
                                                                   procedures for conversion whenever a                        (8) Timely benefit availability. The
                                                                   household has left a State. These pro-                    State agency shall ensure that the EBT
                                                                   cedures shall not conflict with mailing                   system complies with the expedited
                                                                   restrictions regarding Authorization to                   service benefit delivery standard and
                                                                   Participate documents or other author-                    the normal application processing
                                                                   izing documents.                                          standards prescribed by §§ 273.2 and
                                                                     (vi) The State agency shall round                       274.2 of this chapter.
                                                                   EBT benefits remaining in an account
                                                                                                                               (9) Access to retail stores. The EBT sys-
                                                                   down to the nearest dollar amount
                                                                                                                             tem shall provide for minimal disrup-
                                                                   suitable for coupon issuance. The State
                                                                                                                             tion of access to and service in retail
                                                                   agency shall require the household to
                                                                                                                             stores by eligible households. The EBT
                                                                   spend any remaining balance that can-
                                                                                                                             system shall not result in a significant
                                                                   not be converted to food coupons. If a
                                                                   household fails to spend the remaining                    increase in the cost of food or cost of
                                                                   benefits within one week after conver-                    transportation to authorized food re-
                                                                   sion occurs, the State agency shall ex-                   tail stores for food stamp households.
                                                                   punge the benefits from the account                       Checkout lanes equipped with POS de-
                                                                   and report the adjustment to the De-                      vices shall be made available to Food
                                                                   partment.                                                 Stamp households during all retail
                                                                     (7) Stale account handling. Stale ben-                  store hours of operation.
                                                                   efit accounts are those food stamp ben-                     (10) Household training. The State
                                                                   efit accounts which are not accessed                      agency shall provide training to each
                                                                   for three months or longer.                               household prior to implementation and
                                                                     (i) If EBT accounts are inactive for                    as needed during ongoing operation of
                                                                   three months or longer, the State                         the EBT system. Training functions for
                                                                   agency may store such benefits off-                       an EBT system may be incorporated
                                                                   line.                                                     into certification procedures. At a min-
                                                                     (A) Benefits stored off-line shall be                   imum, the household training shall in-
                                                                   made available upon reapplication or                      clude:
                                                                   re-contact by the household;                                (i) Content which will familiarize
                                                                     (B) The State agency shall attempt                      each household with the provisions of
                                                                   to notify the household of this action                    paragraphs (f)(1) through (f)(9) of this
                                                                   before storage of the benefits off-line                   section;
                                                                   and describe the steps necessary to                         (ii) Hands-on experience in the use of
                                                                   bring the benefits back on-line;                          the EBT equipment must be available
                                                                     (ii) The State agency shall expunge                     for households that request it or dem-
                                                                   benefits that have not been accessed by                   onstrate a need for that kind of train-
                                                                   the household after a period of one                       ing;
                                                                   year. Issuance reports shall reflect the                    (iii) Notification to the household of
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                                                                   adjustment to the State agency                            the procedures for manual transactions
                                                                   issuance totals to comply with month-                     and re-presentation;

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.12

                                                                     (iv) The appropriate utilization and                    computer or hotline number to log the
                                                                   security of the Personal Identification                   transaction and obtain an authoriza-
                                                                   Number;                                                   tion number. If authorization cannot
                                                                     (v) Each household’s responsibilities                   be obtained before or at the time of
                                                                   for reporting loss or damage to the                       purchase, the retailer assumes the risk
                                                                   EBT card and who to report them to,                       for sufficient benefits being available
                                                                   both during and outside business hours.                   in the household’s account. Any alter-
                                                                   Information on a 24 hour hotline tele-                    nate method cannot be burdensome on
                                                                   phone number shall be provided to each                    either the household or the retailer,
                                                                   household during training;                                and it must include acceptable privacy
                                                                     (vi) Written materials and/or other                     and security features. Such systems
                                                                   information, including the specific                       shall only be available to retailers that
                                                                   rights to benefits in an EBT system,                      cannot be equipped with a POS ter-
                                                                   shall be provided as prescribed under 7                   minal at the time of sale.
                                                                   CFR 272.4(b) for bilingual households                       (ii) Newly authorized retailers shall
                                                                   and for households with disabilities.                     have access to the EBT system within
                                                                   Written materials shall be prepared at                    two weeks after the receipt of the FNS
                                                                   an educational reading level suitable                     authorization notice. However, when-
                                                                   for food stamp households;                                ever a retailer chooses to employ a
                                                                     (vii) Information on the signs or                       third party processor to drive its ter-
                                                                   other appropriate indicators located in                   minals or elects to drive its own termi-
                                                                   checkout lanes that enable the house-                     nals, access to the system shall be ac-
                                                                   hold to identify lanes equipped to ac-                    complished within a 30 day period or a
                                                                   cept EBT cards.                                           mutually agreed upon time to enable
                                                                     (viii) Disclosure information regard-                   the third party interface specifications
                                                                   ing adjustments and a household’s                         and any State required functional cer-
                                                                   rights to notice, fair hearings, and pro-                 tification to be performed by the State
                                                                   visional credits. The disclosure must                     agency and/or its contractor.
                                                                   also state where to call to dispute an                      (2) Authorized retailers shall not be
                                                                   adjustment and request a fair hearing.                    required to pay costs essential to and
                                                                   State agencies that have already im-                      directly attributable to EBT system
                                                                   plemented EBT shall have one year in                      operations as long as the equipment or
                                                                   which to grandfather adjustment dis-                      services are provided by the State
                                                                   closure into their training materials.                    agency or its contractor and are uti-
                                                                     (g) Retailer participation. (1) All au-                 lized solely for the Food Stamp Pro-
                                                                   thorized retailers must be afforded the                   gram. In addition, if Food Stamp Pro-
                                                                   opportunity to participate in the EBT                     gram equipment is deployed under con-
                                                                   system. An authorized food retailer                       tract to the State agency, the State
                                                                   shall not be required to participate in                   agency may, with USDA approval,
                                                                   an EBT system.                                            share appropriate costs with retailers
                                                                     (i) Retailers who do not have imme-                     if the equipment is also utilized for
                                                                   diate access to telephones at the time                    commercial purposes. The State agen-
                                                                   of purchase shall be accommodated by                      cy may choose to charge retailers rea-
                                                                   an alternative system (e.g., manual                       sonable fees in the following cir-
                                                                   vouchers with preliminary or delayed                      cumstances:
                                                                   telephone verification) for redeeming                       (i) Cost for the replacement of lost,
                                                                   food sales to eligible food stamp cus-                    stolen or damaged equipment;
                                                                   tomers. These retailers include sta-                        (ii) The cost of materials and supplies
                                                                   tionary food stores which opt to make                     for POS terminals not provided by the
                                                                   home deliveries to food stamp house-                      State agency;
                                                                   holds, house-to-house trade routes                          (iii) Telecommunication costs for all
                                                                   which operate on standing orders from                     non-EBT use by retailers when lines
                                                                   customers, e.g. milk and bread delivery                   are provided by the State agency. In
                                                                   routes, food buying cooperatives au-                      addition, State agencies may remove
                                                                   thorized to participate as well as other                  phone lines from retailers in instances
                                                                   food retailers authorized under § 278.1                   where there is significant misuse of the
                                                                   of this chapter. Prior to delivery or                     lines.
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                                                                   upon returning to the store, the re-                        (3) The State agency shall ensure
                                                                   tailer shall telephone the EBT central                    that a sufficient number of authorized

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                                                                   § 274.12                                                                 7 CFR Ch. II (1–1–10 Edition)

                                                                   food retailers have agreed to partici-                    dering the EBT system area, the State
                                                                   pate throughout the area in which the                     agency and food retailer shall nego-
                                                                   EBT system will operate to ensure that                    tiate a mutually agreed level of ter-
                                                                   eligible food stamp households will not                   minal deployment up to the number of
                                                                   suffer a significant reduction in their                   lanes per store. The State agency may
                                                                   choice of retail food stores and that a                   consult with the appropriate FNS field
                                                                   sufficient number of retail food stores                   office in order to determine the pre-
                                                                   serving minority language populations                     vious food stamp redemption activity
                                                                   are participating.                                        that could be utilized in determining
                                                                      (4) The EBT system shall be imple-                     the initial number of terminals to de-
                                                                   mented and operated in a manner that                      ploy in newly authorized retailers or
                                                                   maintains equal treatment for food                        border stores. The State agency shall
                                                                   stamp households in accordance with                       examine household shopping patterns
                                                                   § 278.2(b) of this chapter. The following                 in the EBT operating area in order to
                                                                   requirements for the equal treatment                      establish the needs for border store
                                                                   of food stamp households shall directly                   equipment. The need to deploy equip-
                                                                   apply to EBT systems:                                     ment outside the State is limited to
                                                                      (i) Retailers shall not establish spe-                 neighboring States that are not inter-
                                                                   cial checkout lanes which are only for                    operable due to exemptions for techno-
                                                                   food stamp households or welfare cus-                     logical barriers or temporary waivers.
                                                                   tomers. If special lanes are designated                   State agencies will also need to make
                                                                   for the purpose of accepting other elec-                  accommodations for border stores in
                                                                   tronic debit or credit cards and/or                       interoperable States that are deemed
                                                                   other payment methods such as                             necessary for client access. To do so,
                                                                   checks, food stamp customers with                         State agencies must ensure that proce-
                                                                   EBT cards may also be assigned to                         dures are in place to process manual
                                                                   such lanes as long as other commercial                    vouchers in instances when the system
                                                                   customers are assigned there as well.                     is down or for those retailers that do
                                                                      (ii) POS terminals shall be deployed                   not have POS equipment. Redemption
                                                                   as follows in EBT systems requiring
                                                                                                                             information shall remain confidential.
                                                                   food stamp households to participate:
                                                                                                                               (D) Any food retailer shall be able to
                                                                      (A) For an authorized food retail
                                                                                                                             submit further evidence that it war-
                                                                   store with food stamp benefit redemp-
                                                                   tion amounting to 15 percent or more                      rants additional terminals after the
                                                                   of total food sales, all checkout lanes                   initial POS terminals are deployed.
                                                                   shall be equipped;                                        Food stamp households may also sub-
                                                                      (B) For an authorized food retail                      mit evidence to the State agency that
                                                                   store with Food Stamp benefit redemp-                     additional POS terminals are needed.
                                                                   tions representing less than 15 percent                   State agencies may provide retailers
                                                                   of total food sales, supermarkets shall,                  with additional terminals above the
                                                                   at a minimum, receive one terminal for                    minimum number required by this
                                                                   every $11,000 in monthly redemption                       paragraph at customer service booths
                                                                   activity up to the number of lanes per                    or other locations if appropriate.
                                                                   store. All other food retailers shall re-                   (5) The State agency shall ensure
                                                                   ceive one terminal for every $8,000 in                    that the EBT system provides credits
                                                                   monthly redemption activity up to the                     to the financial institution holding the
                                                                   number of lanes per store. However, a                     accounts for retailers or third party
                                                                   State agency may utilize an alter-                        processors within two business days of
                                                                   native deployment formula that per-                       the daily cut-over period for retailer
                                                                   mits equipment deployment at higher                       settlement. The cut-over period is the
                                                                   levels than required by this paragraph                    time of day established by the system
                                                                   up to the number of lanes in each                         in which a transaction day is estab-
                                                                   store. The State agency shall review                      lished for settlement and reconcili-
                                                                   terminal deployment on a yearly basis                     ation.
                                                                   and shall be authorized to remove ex-                       (6) The State agency shall enter into
                                                                   cess terminals if actual redemption ac-                   an agreement with each authorized
                                                                   tivity warrants a reduction.                              food retailer. The retailer agreement
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                                                                      (C) For newly authorized food retail-                  shall describe the terms and conditions
                                                                   ers and authorized food retailers bor-                    of participation in the Food Stamp

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.12

                                                                   EBT system. At a minimum, the agree-                      seconds. Leased line systems rent tele-
                                                                   ment shall:                                               communications carriers specifically
                                                                     (i) Describe all terms and conditions                   to connect to the central authorizing
                                                                   with respect to equipment ownership,                      computer. For dial-up systems, 95 per-
                                                                   lease arrangements, handling and                          cent of the EBT transactions shall be
                                                                   maintenance for which the State agen-                     processed within 15 seconds or less and
                                                                   cy and merchant are liable;                               all EBT transactions shall be processed
                                                                     (ii) Describe the agreed upon proce-                    within 20 seconds or less. Dial-up sys-
                                                                   dures and policies for participation and                  tems utilize existing telecommuni-
                                                                   withdrawal from the EBT system;                           cations lines to dial up and connect to
                                                                     (iii) Comply with all Food Stamp                        the central computer at the time of the
                                                                   Program regulations with respect to                       transaction. Processing response time
                                                                   retailer participation in the program                     shall be measured at the POS terminal
                                                                   and treatment of Food Stamp Program                       from the time the ‘enter’ or ‘send’ key
                                                                   households. This shall include specific                   is pressed to the receipt and display of
                                                                   requirements with respect to the de-                      authorization or disapproval informa-
                                                                   ployment of terminals and the identi-                     tion. Third party processors, as defined
                                                                   fication of checkout lanes for food                       in paragraph (h)(5) of this section, shall
                                                                   stamp customers;                                          be required by the State agency to
                                                                     (iv) Delineate the liabilities during                   comply with the same processing re-
                                                                   system downtime and the associated                        sponse times required of the primary
                                                                   responsibilities of each party with re-                   processor.
                                                                   spect to the use of off-line and/or                          (ii) The EBT system shall provide re-
                                                                   manually entered data, paper vouchers,                    ports, as determined by the State agen-
                                                                   and re-presented vouchers.                                cy, that document transaction proc-
                                                                     (h) Performance and technical stand-                    essing response time and the number
                                                                   ards. The State agency shall ensure                       and type of problematic transactions
                                                                   that EBT systems comply with Point                        that could not be processed within the
                                                                   of Sale (POS) technical standards es-                     standard response time.
                                                                   tablished by the American National                           (2) System availability and reliability.
                                                                   Standards Institute (ANSI) or Inter-                      (i) The EBT system central computer
                                                                   national Organization for Standardiza-                    shall be available 99.9 percent of sched-
                                                                   tion (ISO) where applicable. This in-                     uled up-time, 24 hours a day, seven
                                                                   cludes the draft EBT ISO 8583 Proc-                       days per week. Scheduled up-time shall
                                                                   essor Interface Technical Specifica-                      mean the time the database is avail-
                                                                   tions contained in the ANSI standards,                    able for transactions excluding sched-
                                                                   which delineates a standard message                       uled downtime for routine mainte-
                                                                   format for retailers and third parties.                   nance. The total system, including the
                                                                   In addition, the State agency shall en-                   system’s central computer, any net-
                                                                   sure that the EBT system meets per-                       work or intermediate processing facili-
                                                                   formance and technical standards in                       ties and cardholder authorization proc-
                                                                   the areas of system processing speeds,                    essors, shall be available 98 percent of
                                                                   system availability and reliability,                      scheduled up-time, 24 hours per day, 7
                                                                   system security, system ease-of-use,                      days per week. Scheduled downtime for
                                                                   minimum card and terminal require-                        routine maintenance shall occur during
                                                                   ments, performance bonding, and a                         non-peak transaction periods. State
                                                                   minimum transaction set. With prior                       certification procedures shall deter-
                                                                   written approval from FNS, the State                      mine whether intermediate processing
                                                                   agency may utilize the prevailing in-                     facilities and cardholder authorization
                                                                   dustry performance standards in its re-                   processors are capable of complying
                                                                   gion in lieu of those identified in this                  with system availability standards pre-
                                                                   section. The standards shall be in-                       scribed herein prior to permitting the
                                                                   cluded in all requests for proposals and                  interface with the central computer
                                                                   contracts.                                                system.
                                                                     (1) System processing speeds. (i) For                      (ii) The system central computer
                                                                   leased line systems, 98 percent of EBT                    shall permit no more than 2 inaccurate
                                                                   transactions shall be processed within                    EBT transactions for every 10,000 EBT
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                                                                   10 seconds or less and all EBT trans-                     transactions processed. The trans-
                                                                   actions shall be processed within 15                      actions to be included in measuring

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                                                                   § 274.12                                                                 7 CFR Ch. II (1–1–10 Edition)

                                                                   system accuracy shall include all types                   clude separate checks against the con-
                                                                   of food stamp transactions permitted                      trol files in order to validate each
                                                                   at POS terminals and processed                            transaction prior to authorization and
                                                                   through the host computer, manual                         limiting the number of unsuccessful
                                                                   transactions entered into the system,                     PIN attempts that can be made uti-
                                                                   credits to household accounts, and                        lizing standard industry practices be-
                                                                   funds transfers to retailer accounts.                     fore the card is deactivated;
                                                                      (iii) Reconciliation reports and other                   (C) Communications network secu-
                                                                   information      regarding   problematic                  rity that utilizes the Data Encryption
                                                                   transactions shall be made available to                   Standard algorithm to encrypt the
                                                                   the State agency by the system oper-                      PIN, at a minimum, from the point of
                                                                   ator, individual retailers, households                    entry. Other security may include au-
                                                                   or financial institutions as appro-                       thentication codes and check-sum dig-
                                                                   priate. Reports on problematic trans-                     its, in combination with data encoded
                                                                   actions, including inaccurate trans-                      on the magnetic stripe such as the PIN
                                                                   actions shall be delineated by the                        and/or PIN offset, to ensure data secu-
                                                                   source of the problem such as card fail-                  rity during electronic transmission.
                                                                   ure, POS terminal failure, interruption                   Any of the network security measures
                                                                   of telecommunications, or other com-                      may be utilized together or separately
                                                                   ponent failure. Errors shall be resolved                  and may be applied at the terminal or
                                                                   in a timely manner.                                       central computer as indicated in the
                                                                      (3) System security. As an addition to                 approved system design to ensure com-
                                                                   or component of the Security Program                      munications control;
                                                                   required of Automated Data Processing                       (D) Manual procedures that provide
                                                                   systems prescribed under § 277.18(p) of                   for secure access to the system with
                                                                   this chapter, the State agency shall en-                  minimal risk to household or retailer
                                                                   sure that the following EBT security                      accounts. Manual procedures may in-
                                                                   requirements are established:                             clude the utilization of manager identi-
                                                                      (i) Storage and control measures to                    fication codes in obtaining telephonic
                                                                   control blank unissued EBT cards and                      authorization from the central com-
                                                                   PINs, and unused or spare POS devices;                    puter system; requirements for sepa-
                                                                      (ii) Measures to ensure communica-                     rate entry with audio response unit
                                                                   tion access control. Communication                        verification and authorization number;
                                                                   controls shall include the transmission                   and/or the utilization of 24 hour hotline
                                                                   of transaction data and issuance infor-                   telephone numbers to authorize trans-
                                                                   mation from point-of-sale terminals to                    actions.
                                                                   work-stations and terminals at the                          (iii) Message validation shall include
                                                                   data processing center. The following                     but shall not be limited to:
                                                                   specific security measures shall be in-                     (A) Message format checks for com-
                                                                   cluded, as appropriate, in the system                     pleteness of the message, correct order
                                                                   design documentation, operating pro-                      of data, existence of control char-
                                                                   cedures or the State agency Security                      acters, number and size of data fields
                                                                   Program:                                                  and appropriate format standards as
                                                                      (A) Computer hardware controls that                    specified in the approved system de-
                                                                   ensure acceptance of data from author-                    sign;
                                                                   ized terminals only. These controls                         (B) Range checks for acceptable date
                                                                   shall include the use of mechanisms                       fields, number and valid account num-
                                                                   such as retailer identification codes,                    bers, purchase and refund upper limita-
                                                                   terminal identifiers and user identi-                     tions in order to prevent and control
                                                                   fication codes, and/or other mecha-                       damage to the system accounts;
                                                                   nisms and procedures recognized by the                      (C) Reversals of messages that are
                                                                   industry;                                                 not fully processed and recorded.
                                                                      (B) Software controls, placed at ei-                     (iv) Administrative and operational
                                                                   ther the terminal or central computer                     procedures shall ensure that:
                                                                   or both, that establish separate control                    (A) Functions affecting an account
                                                                   files containing lists of authorized re-                  balance are separated or dually con-
                                                                   tailers, terminal identifying codes, and                  trolled during processing and when re-
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                                                                   user access and identification codes.                     questing     Federal      reimbursement
                                                                   EBT system software controls shall in-                    through a concentrator bank under the

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.12

                                                                   provisions of paragraph (i) of this sec-                  from the Master File and Issuance File,
                                                                   tion. These functions may include but                     network transactions from point-of-
                                                                   are not limited to the set up of ac-                      sale terminals to EBT central com-
                                                                   counts, transmittal of funds to and                       puter database and system file updates.
                                                                   from accounts, access to files to change                    (vi) The State agency shall incor-
                                                                   account records, and transmittal of re-                   porate the contingency plan approved
                                                                   tailer deposits to the ACH network or                     by FNS prior to pilot implementation
                                                                   other means approved by FNS for cred-                     and subsequently updated as part of
                                                                   iting retailer bank accounts;                             the Expansion Implementation Plan
                                                                     (B) Passwords, identity codes or                        into the Security Program.
                                                                   other security procedures must be uti-                      (4) System ease-of-use. (i) For all sys-
                                                                   lized by State agency or local per-                       tem users, the State agency shall en-
                                                                   sonnel and at data processing centers;                    sure that the system:
                                                                     (C) Software programming changes                          (A) Minimizes the number of separate
                                                                   shall be dual controlled to the extent                    steps required to complete a trans-
                                                                   possible;                                                 action;
                                                                     (D) System operations functions                           (B) Minimizes the number of codes or
                                                                   shall be segregated from reconciliation                   commands needed to make use of the
                                                                   duties;                                                   system;
                                                                     (v) A separate EBT security compo-                        (C) Makes available clear and com-
                                                                   nent shall be incorporated into the                       prehensive account balance informa-
                                                                   State agency Security Program for                         tion with a minimum number of ac-
                                                                   Automated Data Processing (ADP) sys-                      tions necessary;
                                                                   tems where appropriate and as pre-                          (D) Provides training and instruc-
                                                                   scribed under § 277.18(p) of this chapter.                tions for all system users especially
                                                                   The periodic risk analyses required by                    those persons with disabilities;
                                                                   the Security Program shall address the
                                                                                                                               (E) Makes available prompts on POS
                                                                   following items specific to an EBT sys-
                                                                                                                             terminals or balance only terminals,
                                                                   tem:
                                                                                                                             where appropriate;
                                                                     (A) EBT system vulnerability to
                                                                                                                               (F) Identifies procedures for problem
                                                                   theft and unauthorized use;
                                                                                                                             resolution;
                                                                     (B) Completeness and timeliness of
                                                                   the reconciliation system;                                  (G) Provides reasonable accommoda-
                                                                     (C) Vulnerability to tampering with                     tion for the needs of households with
                                                                   or creating household accounts;                           disabilities in keeping with the Ameri-
                                                                     (D) Erroneous posting of issuances to                   cans with Disabilities Act of 1990.
                                                                   household accounts;                                         (ii) In addition to the requirements of
                                                                     (E) Manipulation of retailers’ ac-                      paragraph (h)(4)(i) of this section, the
                                                                   counts such as creation of false trans-                   State agency shall ensure that retail-
                                                                   actions or intrusion by unauthorized                      ers utilizing the EBT system:
                                                                   computer users;                                             (A) Have available manual backup
                                                                     (F) Capability to monitor systematic                    procedures;
                                                                   abuses at POS terminals such as debits                      (B) Can obtain timely information on
                                                                   for a complete allotment, excessive                       daily credits to their banks;
                                                                   manual issuances, and multiple manual                       (C) Have available deposit informa-
                                                                   transactions at the same time. Such                       tion in a format readily comparable to
                                                                   monitoring may be accomplished                            information maintained in the store;
                                                                   through the use of exception reporting;                   and
                                                                     (G) Tampering with information on                         (D) Have available instructions on re-
                                                                   the ACH tape or similar information                       solving problems with equipment and
                                                                   utilized in a crediting method approved                   retailer accounts.
                                                                   by FNS; and,                                                (5) Third party processors. Third party
                                                                     (H) The availability of a complete                      processors are financial institutions,
                                                                   audit trail. A complete audit trail                       cardholder authorization processors
                                                                   shall, at a minimum, be able to provide                   other than the party with which the
                                                                   a complete transaction history of each                    State agency has contracted for EBT
                                                                   individual system activity that affects                   services, and food retailers driving
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                                                                   an account balance. The audit trail                       their own terminals that are capable of
                                                                   shall include the tracking of issuances                   relaying electronic transactions to a

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                                                                   § 274.12                                                                 7 CFR Ch. II (1–1–10 Edition)

                                                                   central database computer for author-                       (iv) State agencies may require the
                                                                   ization. The State agency shall afford                    use of a photograph of one or more
                                                                   retailers the opportunity to use third                    household members on the card. If the
                                                                   party processors and shall provide                        State agency does require the EBT
                                                                   interface specifications and certifi-                     cards to contain a photo, it must estab-
                                                                   cation standards in order for the third                   lish procedures to ensure that all ap-
                                                                   party processor to participate in the                     propriate household members or au-
                                                                   EBT system.                                               thorized representatives are able to ac-
                                                                     (i) In order to participate in a Food                   cess benefits from the account as nec-
                                                                   Stamp Program EBT system, a third                         essary.
                                                                   party processor must be able to meet                        (7) POS terminals. POS terminals
                                                                   all third party interface specifications                  shall meet the following requirements:
                                                                   and certification standards associated                      (i) Balance information shall not be
                                                                   with this section. The State agency                       displayed on the screen of the POS ter-
                                                                   shall make available to third party                       minal except for balance-only inquiry
                                                                   processors the third party interface                      terminals;
                                                                   specifications prior to implementation                      (ii) PINs shall not be displayed at the
                                                                   of the EBT system to enable third                         terminal; and
                                                                   party processors to access the data-
                                                                                                                               (iii) PIN encryption shall occur from
                                                                   base. Third party processors shall un-
                                                                                                                             the point of entry in a manner which
                                                                   dergo functional and acceptance tests
                                                                                                                             prevents the unsecured transmission
                                                                   as specified by the State agency;
                                                                                                                             between any point in the system.
                                                                     (ii) Third party processors shall be
                                                                   liable for transactions until the trans-                    (8) Performance bonding. The State
                                                                   action has been electronically accepted                   agency may require a performance
                                                                   by the contracted vendor or an inter-                     bond in accordance with § 277.8 of this
                                                                   mediate processing facility;                              chapter or utilize other contractual
                                                                     (iii) The State agency shall ensure                     clauses it deems necessary to enforce
                                                                   that third party processors and food re-                  the requirements of this section.
                                                                   tailers driving their own terminals                         (9) Minimum transaction set. At a min-
                                                                   comply with this section and all appli-                   imum, the State agency shall ensure
                                                                   cable Food Stamp Program regula-                          that the EBT system, including third
                                                                   tions.                                                    party processors and retailers driving
                                                                     (6) Minimum card requirements. (i) The                  their own terminals, is capable of pro-
                                                                   State agency shall ensure that the fol-                   viding for authorizing or rejecting pur-
                                                                   lowing information is printed on the                      chases, refunds or customer credits,
                                                                   card:                                                     voids or cancellations, key entered
                                                                     (A) The address of the office where a                   transactions, balance inquiries and set-
                                                                   card can be returned if found or no                       tlement or close-out transactions. The
                                                                   longer in use;                                            system must be capable of completing
                                                                     (B) The abbreviated statement of                        this transaction set across State bor-
                                                                   nondiscrimination, which reads as fol-                    ders nationwide in accordance with
                                                                   lows: ‘‘The USDA is an equal oppor-                       standards specified in paragraph (h)(10)
                                                                   tunity provider and employer.’’ In lieu                   of this section.
                                                                   of printing the required information on                     (10) Interoperability. State agencies
                                                                   the EBT card, the State agency shall                      must adopt uniform standards to facili-
                                                                   provide each household a card jacket or                   tate interoperability and portablilty
                                                                   sleeve containing the nondiscrimina-                      nationwide. The term ‘‘interoper-
                                                                   tion statement.                                           ability’’ means the EBT system must
                                                                     (ii) FNS reserves the right to require                  enable a coupon issued in the form of
                                                                   State agencies to place a Department                      an EBT card to be redeemed in any
                                                                   logo on the EBT card and/or sleeves or                    State. The term ‘‘portablity’’ means
                                                                   jackets.                                                  the EBT system must enable a coupon
                                                                     (iii) EBT cards and/or sleeves or jack-                 issued in the form of an EBT card to be
                                                                   ets shall not contain the name of any                     used in any State by a household to
                                                                   State or local official. EBT informa-                     purchase food at a retail food store or
                                                                   tional materials shall not indicate as-                   a wholesale food concern approved
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                                                                   sociation with any political party or                     under the Food Stamp Act of 1977. The
                                                                   other political affiliation.                              standards must include the following:

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.12

                                                                      (i) EBT system connectivity. State                     connected to the State’s authorization
                                                                   agencies are responsible for estab-                       system. Each terminal operator that
                                                                   lishing     telecommunications      links,                uses a routing table for routing ac-
                                                                   transaction switching facilities and                      quired transactions must, within seven
                                                                   any other arrangements with other                         calendar days of receiving an IIN rout-
                                                                   State agencies necessary for the rout-                    ing table update, modify its routing ta-
                                                                   ing of interoperable transactions to                      bles to reflect the updated routing in-
                                                                   such other State EBT authorization                        formation.
                                                                   systems. State agencies are also re-                        (iv) Third Party Processor Require-
                                                                   sponsible for facilitating the settle-                    ments. Each Third Party Processor or
                                                                   ment of such interoperable trans-                         terminal operator must have primary
                                                                   actions and the handling of adjust-                       responsibility and liability for oper-
                                                                   ments. These connections need not be                      ating the telecommunications and
                                                                   direct connections between State au-                      processing system (including software
                                                                   thorization systems but may be facili-                    and hardware) through which trans-
                                                                   tated through agreements and linkages                     actions initiated at POS terminals it
                                                                   with other designated agents or third                     owns, operates, controls or for which it
                                                                   party processors. All State agencies                      has signed an agreement to accept EBT
                                                                   must agree to the timing and disposi-                     transactions, are processed and routed,
                                                                   tion of disputes, error resolution, and                   directly or indirectly, to the appro-
                                                                   adjustments in accordance with De-                        priate State authorization system.
                                                                   partment regulations at § 273.13(a),                      Each terminal operator must maintain
                                                                   § 273.15(k) and paragraph (f) of this sec-                the necessary computer hardware and
                                                                   tion. State agencies or their designated                  software to interface either directly
                                                                   agents must draw funds from State                         with a State authorization system or
                                                                   food stamp accounts for food stamp                        with a third party service provider to
                                                                   benefits transacted by that State’s                       obtain access to one or more State au-
                                                                   food stamp recipients, regardless of                      thorization systems. Each terminal op-
                                                                   where benefits were transacted.                           erator must establish a direct or indi-
                                                                      (ii) Message format. Each authoriza-                   rect telecommunications connection
                                                                   tion system must use the International                    for the routing of transactions to the
                                                                   Organization for Standards (ISO) 8583                     State authorization system or to a
                                                                   message format, modified for EBT, in a                    processor directly or indirectly con-
                                                                   version mutually agreed to between                        nected to the State authorization sys-
                                                                   the authorization agent and the party                     tem.
                                                                   connected for all transactions. Each                        (v) REDE File. The State agency must
                                                                   authorization system must process                         ensure that their EBT system verifies
                                                                   each financial transaction as a single                    FNS retailer numbers for all interstate
                                                                   message financial transaction, except                     transactions against the National
                                                                   for pre-authorized transactions and re-                   REDE file of all FNS EBT retailers to
                                                                   versals, processed as paired trans-                       validate these transactions.
                                                                   actions.                                                    (11) Waivers. The State agency may
                                                                      (iii) Card Primary Account Number                      request a waiver from the Department
                                                                   (PAN) Requirements. Track 2 on each                       for a temporary exemption from com-
                                                                   card shall contain the PAN. Each Gov-                     pliance with the requirements for
                                                                   ernment entity must obtain an Issuer                      interoperability and portability, as
                                                                   Identification Number (IIN) from the                      found in this section, if they can ade-
                                                                   American Banker’s Association (ABA).                      quately demonstrate that: (1) There are
                                                                   The IIN should be included as the first                   unusual technological barriers to the
                                                                   six digits of the Primary Account                         implementation of interoperability;
                                                                   Number. The PAN must comply with                          and (2) it is in the best interest of the
                                                                   International Organization for Stand-                     FSP to grant the waiver. All waivers
                                                                   ards (ISO) 7812, Identification Cards—                    must specify a date by which the State
                                                                   Numbering System and Registration                         agency will achieve interoperability
                                                                   Procedures for Issuer Identifiers. Each                   and portability.
                                                                   State agency must be responsible for                        (i) Concentrator bank responsibilities.
                                                                   generating, updating, and distributing                    The concentrator bank shall be a Fed-
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                                                                   IIN files of all States to each retailer,                 erally insured financial institution or
                                                                   processor, or acquirer that is directly                   other entity acceptable to the Federal

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                                                                   § 274.12                                                                 7 CFR Ch. II (1–1–10 Edition)

                                                                   Reserve which has the capability to                         (1)    Reconciliation.   Reconciliation
                                                                   take retailer credits and/or debits, ob-                  shall be conducted and records kept as
                                                                   tained from the EBT system operator,                      follows:
                                                                   and transmit them to the ACH network                        (i) Reconciliation of benefits posted
                                                                   operated by the Federal Reserve or                        to household accounts on the central
                                                                   through another process for crediting                     computer against benefits on the
                                                                   retailers approved by FNS. Trans-                         Issuance Authorization File;
                                                                   mittal shall be by tape or on-line in a                     (ii) Reconciliation of individual
                                                                   format suitable for the Automated                         household account balances against ac-
                                                                   Clearinghouse (ACH) or as approved by                     count activities on a daily basis;
                                                                   FNS.                                                        (iii) Reconciliation of each individual
                                                                     (1) The minimum functions of the                        retail store’s food stamp transactions
                                                                   concentrator bank are:                                    per POS terminal and in total to depos-
                                                                     (i) Preparing a daily ACH tape or                       its on a daily basis;
                                                                   other crediting process approved by                         (iv) Verification of retailer’s credits
                                                                   FNS with information on benefits re-                      against deposit information entered
                                                                   deemed and creditable to each retailer;                   into the ACH network;
                                                                     (ii) Transferring the ACH tape or                         (v) Reconciliation of total funds en-
                                                                   other crediting process approved by                       tered into, exiting from, and remaining
                                                                                                                             in the system each day;
                                                                   FNS to the Federal Reserve or other
                                                                                                                               (vi) Maintenance of audit trails that
                                                                   entity approved by FNS;
                                                                                                                             document the full cycle of issuance
                                                                     (iii) Initiating and accepting reim-
                                                                                                                             from benefit allotment posting to the
                                                                   bursement from the appropriate U.S.                       State     issuance    authorization   file
                                                                   Treasury account through the Auto-                        through posting to point-of-sale trans-
                                                                   mated Standard Application for Pay-                       actions at retailers through settlement
                                                                   ment (ASAP) system or other payment                       of retailer credits.
                                                                   process approved by FNS. At the op-                         (2) Management reports. The State
                                                                   tion of FNS, the State agency may des-                    agency shall require the EBT system to
                                                                   ignate another entity as the initiator                    provide reports that enable the State
                                                                   of reimbursement for food stamp re-                       agency to manage the system. The re-
                                                                   demptions provided the entity is ac-                      ports shall be available to the State
                                                                   ceptable to FNS and U.S. Treasury.                        agency or FNS as requested on a time-
                                                                     (iv) Cooperating in the reconciliation                  ly basis and consist of:
                                                                   of discrepancies and error resolution                       (i) Information on how the system
                                                                   when necessary.                                           operates relative to its performance
                                                                     (2) With the approval of FNS, another                   standards, the incidence, type and
                                                                   procedure, other than the ACH system,                     cause of system problems, and utiliza-
                                                                   may be utilized to credit retailer ac-                    tion patterns.
                                                                   counts and/or debit FNS’ account, if it                     (ii) Retailer transaction data sub-
                                                                   meets the needs of FNS and the EBT                        mitted to FNS on a monthly basis.
                                                                   system.                                                   This data must be submitted in the
                                                                     (3) The State agency shall be liable                    specified format in accordance with the
                                                                   for any errors in the creation of the                     required schedule.
                                                                   ACH tape or its transmission. The                           (iii) Data detailing by specified cat-
                                                                   State agency may transfer the liability                   egory the amount of food stamp bene-
                                                                   associated with creation of the ACH                       fits issued or returned through the
                                                                   tape, its transmission or another cred-                   EBT system. Data shall be provided in
                                                                   iting process approved by FNS as ap-                      a format and mechanism specified by
                                                                   propriate to the EBT system operator                      FNS to the FNS Account Management
                                                                   or the concentrator bank. Appropriate                     Agent as the benefits become available
                                                                   system security administrative and                        to recipients. This data will be used to
                                                                   operational procedures shall be insti-                    increase or decrease the food stamp
                                                                   tuted in accordance with paragraph                        EBT benefit funding authorization for
                                                                   (h)(3) of this section.                                   the State’s ASAP account.
                                                                     (j) Reconciliation, management report-                    (3) Pilot project reports. The State
                                                                   ing, examinations and audits. The EBT                     agency shall provide quarterly reports
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                                                                   system shall provide reports and docu-                    as described in paragraph (c)(4) of this
                                                                   mentation pertaining to the following:                    section during the pilot project.

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                                                                   Food and Nutrition Service, USDA                                                                    § 274.12

                                                                     (4) Program reporting. When benefits                       (vi) FNS and the USDA OIG shall
                                                                   are initially issued through an EBT                       rely on SAS No. 70 reports on EBT
                                                                   system, the State agency shall report                     transaction processing services pro-
                                                                   as required by FNS in § 274.4 and in ac-                  vided by contractors to the State. FNS
                                                                   cordance with the FNS instructions                        and USDA OIG reserve the right to
                                                                   specific to EBT issuances.                                conduct other reviews or audits if nec-
                                                                     (5) Examinations and audits. (i) The                    essary.
                                                                   state agency must obtain an examina-                         (vii) EBT services provided directly
                                                                   tion by an independent auditor of the                     by the State are not subject to SAS No.
                                                                   transaction processing of the State                       70 examination requirements of this
                                                                   EBT service provider regarding the                        section but remain subject to the sin-
                                                                   issuance, redemption, and settlement                      gle audit requirements at 7 CFR 277.7
                                                                   of Food Stamp Program benefits. The                       and the Office of Management and
                                                                   examination must be done at least an-                     Budget Circular A–133.
                                                                   nually and the report must be com-                           (k) Federal Financial Participation. (1)
                                                                   pleted ninety days after the examina-                     The cost of administering statewide
                                                                   tion period ends. Subsequent examina-                     benefit issuance after implementation
                                                                   tions must cover the entire period                        of the EBT system shall be funded at
                                                                   since the previous examination. Ex-                       the regular Federal financial participa-
                                                                   aminations must follow the American                       tion rate.
                                                                   Institute of Certified Public Account-                       (2) The State agency shall comply
                                                                   ants (AICPA) Statement on Auditing                        with the provisions set forth under 7
                                                                   Standards No. 70, Service Organiza-                       CFR 277.18 and appendix A of 7 CFR
                                                                   tions (SAS No. 70), requirements for re-                  277.18 in determining and claiming al-
                                                                   ports on controls placed in operation                     lowable costs for the EBT system.
                                                                   and tests of the operating effectiveness                     (3) Access to system documentation,
                                                                   of the controls.                                          including cost records of contractors or
                                                                     (ii) The examination report must in-                    subcontractors shall be made available
                                                                   clude a list of all States whose systems                  and incorporated into contractual
                                                                   operate under the same control envi-                      agreements       in    accordance     with
                                                                   ronment. Auditors conducting the ex-                      § 277.18(k) of this chapter.
                                                                   amination must follow EBT guidance                           (4) State agencies may receive one
                                                                   contained in the Office of Management                     hundred percent federal funding for the
                                                                   and Budget (OMB) Circular A–133 Com-                      costs they incur for switching and set-
                                                                   pliance Supplement to the extent the                      tling all food stamp interstate trans-
                                                                   guidelines refer to FSP benefits. (For                    actions. For purposes of this section,
                                                                   availability of OMB Circulars ref-                        the term ‘‘switching’’ means the rout-
                                                                   erenced in this section, see 5 CFR                        ing of an interstate transaction that
                                                                   1310.3.)                                                  consists of transmitting the details of
                                                                     (iii) The State agency must retain a                    a transaction electronically recorded
                                                                   copy of the SAS No.70 examination re-                     through the use of an EBT card in one
                                                                   port.                                                     State to the issuer of the card that is
                                                                     (iv) The State agency shall respond                     in another State; and the term ‘‘set-
                                                                   to written requests from the Food and                     tling’’ means movement, and reporting
                                                                   Nutrition Service (FNS), USDA Office                      such movement, of funds from an EBT
                                                                   of the Inspector General (OIG), or the                    card issuer located in one to a retail
                                                                   General Accounting Office (GAO) for                       food store, or wholesale food concern,
                                                                   completed SAS No.70 examination re-                       that is located in another State, to ac-
                                                                   ports by providing the report within                      complish an interstate transaction.
                                                                   thirty days of receipt of the written re-                 The total amount of one hundred per-
                                                                   quest.                                                    cent funding available annually is lim-
                                                                     (v) The State agency shall respond to                   ited to $500,000 nationwide. Once the
                                                                   written requests from FNS, OIG, or                        $500,000 limitation is exceeded, federal
                                                                   GAO to view auditor’s workpapers from                     financial participation reverts to the
                                                                   SAS No. 70 reports by arranging to                        standard fifty percent program reim-
                                                                   have workpapers made available within                     bursement rate and procedure. In order
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                                                                   thirty days of receipt of the written re-                 to qualify for this funding, the State
                                                                   quest.                                                    agency must:

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                                                                   § 274.12                                                                 7 CFR Ch. II (1–1–10 Edition)

                                                                     (i) Adhere to the standard of inter-                      (A) The manual transaction occurred
                                                                   operability and portability adopted by                    because the host computer was down
                                                                   a majority of State agencies for inter-                   and authorization was obtained by the
                                                                   operability costs incurred for the pe-                    retailer for the transaction; or
                                                                   riod from February 11, 2000 through                         (B) The manual transaction occurred
                                                                   September 30, 2002;                                       because telephone lines were down.
                                                                     (ii) Meet standards of interoper-                         (ii) Re-presentation of manual vouch-
                                                                   ability and portability under para-                       ers shall not be permitted when the
                                                                   graphs (e) and (h) of this section for                    EBT card, magnetic stripe, PIN pad,
                                                                   costs incurred after September 30, 2002;                  card reader, or POS terminal fails and
                                                                     (iii) Sign and submit, in each fiscal                   telephone lines are operational. Man-
                                                                   year for which the State agency re-                       ual transactions shall not be utilized to
                                                                   quests enhanced funding, an Interoper-                    extend credit to a household via re-
                                                                   ability Funding Agreement to comply                       presentation when the household’s ac-
                                                                   with the administrative procedures es-                    count balance is insufficient to cover
                                                                   tablished by the Department. The                          the planned purchase.
                                                                   State agency must submit the signed                         (iii) The State agency may debit the
                                                                   agreement to the Department before                        benefit allotment of a household fol-
                                                                   the end of the fiscal year in which                       lowing the insufficient funds trans-
                                                                   costs are incurred in order to qualify                    action in either of two ways:
                                                                   for payment for that fiscal year, and                       (A) Any amount which equals at
                                                                                                                             least $10 or up to 10% of the trans-
                                                                     (iv) Submit requests for payment on
                                                                                                                             action. This amount will be deducted
                                                                   a quarterly basis after the end of the
                                                                                                                             monthly until the total balance owed
                                                                   quarter in which interoperability costs
                                                                                                                             is paid-in-full. State agencies may opt
                                                                   are incurred, in accordance with the
                                                                                                                             to re-present at a level that is less than
                                                                   Department’s administrative proce-
                                                                                                                             the 10% maximum, however, this lesser
                                                                   dures. Requests for payments shall be
                                                                                                                             amount must be applied to all house-
                                                                   due February 15 (for the period October
                                                                                                                             holds.
                                                                   through December), May 15 (January
                                                                                                                               (B) $50 in the first month and the
                                                                   through March), August 15 (April
                                                                                                                             greater of $10 or 10% of the allotment
                                                                   through June), and November 15 (July                      in subsequent months until the total
                                                                   through September). Requests for pay-                     balance owed is paid-in-full. If the
                                                                   ment submitted after the required date                    monthly allotment is less than $50, the
                                                                   for a quarter shall not be considered                     State shall debit the account for $10.
                                                                   until the following quarter, when such                      (2) The State agency shall establish
                                                                   requests for payments are scheduled to                    procedures for determining the validity
                                                                   be processed.                                             of each re-presentation and subsequent
                                                                     (l) Re-presentation. The State agency                   procedures authorizing a debit from a
                                                                   shall ensure that a manual purchase                       household’s monthly benefit allotment.
                                                                   system is available for use during                        The State agency may ask households
                                                                   times when the EBT system is inacces-                     to voluntarily pay the amount of a re-
                                                                   sible.                                                    presented transaction or arrange for a
                                                                     (1) Under certain circumstances,                        faster schedule of payment than identi-
                                                                   when a manual transaction occurs due                      fied in paragraph (l)(1)(iii) of this sec-
                                                                   to the inaccessibility of the host com-                   tion.
                                                                   puter and the transaction is rejected                       (3) The State agency shall ensure
                                                                   because insufficient funds are available                  that retailers provide notice to house-
                                                                   in a household’s account, the State                       holds at the time of the manual trans-
                                                                   agency may permit the re-presentation                     action that re-presentation may occur
                                                                   of the transaction during subsequent                      if there are insufficient benefits in the
                                                                   months. At the State agency’s option,                     account to cover the transaction. The
                                                                   re-presentation may be permitted with-                    statement shall be printed on the paper
                                                                   in the EBT system as follows:                             voucher or on a separate sheet of
                                                                     (i) Re-presentation of manual vouch-                    paper. The State agency shall also pro-
                                                                   ers when there are insufficient funds in                  vide notice to the household prior to
                                                                   the EBT account to cover the manual                       the month when a benefit allotment is
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                                                                   transaction may be permitted only                         reduced when a re-presentation is nec-
                                                                   under the following circumstances:                        essary. Notice shall be provided to the

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                                                                   Food and Nutrition Service, USDA                                                                    Pt. 275

                                                                   household for each insufficient trans-                    with the balance remaining in the ac-
                                                                   action that is to be re-presented in a                    count through a one-step process;
                                                                   future month. The notice shall be pro-                      (B) The transaction should be in ac-
                                                                   vided prior to the month it occurs and                    cordance with the standard message
                                                                   shall state the amount of the reduction                   format requirements for store and for-
                                                                   in the benefit allotment.                                 ward; and
                                                                     (4) The Department shall not accept                       (C) Re-presentation, as described in
                                                                   liability under any circumstances for                     paragraph (m) of this section, to obtain
                                                                   the overissuance of benefits due to the                   the uncollected balance from current
                                                                   utilization of manual vouchers, includ-                   or future months’ benefits shall not be
                                                                   ing those situations when the host                        allowed for store-and-forward trans-
                                                                   computer is inaccessible or tele-                         actions.
                                                                   communications lines are not func-                          (n) Ownership rights and procurement
                                                                   tioning. However, the State agency, in                    requirements. (1) The State agency shall
                                                                   consultation with authorized retailers                    comply with the software and auto-
                                                                   and with the mutual agreement of the                      mated data processing equipment own-
                                                                   State agency’s vendor, if any, may ac-                    ership rights prescribed under §§ 277.13
                                                                   cept liability for manual purchases                       and 277.18(l) of this chapter.
                                                                   within a specified dollar limit. Costs                      (2) The State agency shall comply
                                                                   associated with liabilities accepted by                   with the procurement standards pre-
                                                                   the State agency shall not be reimburs-                   scribed under § 277.18(j) of this chapter.
                                                                   able.                                                     Under service agreements, the procure-
                                                                     (5) The State agency shall be strictly                  ment of equipment and services which
                                                                   liable for manual transactions that re-                   will be utilized in a Food Stamp EBT
                                                                   sult in excess deductions from a house-                   system shall be conducted in accord-
                                                                   hold’s account.                                           ance with the provisions set forth
                                                                     (m) Store-and-Forward. As an alter-                     under § 277.18(f) of this chapter.
                                                                   native to manual transactions:                            [57 FR 11249, Apr. 1, 1992; 57 FR 44791, Sept.
                                                                     (1) State agencies may opt to allow                     29, 1992, as amended by Amdt. 378, 64 FR
                                                                   retailers, at the retailer’s own choice                   48938, Sept. 9, 1999; 65 FR 10678, Feb. 29, 2000;
                                                                   and liability, to perform store-and-for-                  Amdt. 385, 65 FR 33439, May 24, 2000; Amdt.
                                                                   ward transactions when the EBT sys-                       378, 65 FR 41325, July 5, 2000; Amdt. 384, 65 FR
                                                                   tem cannot be accessed for any reason.                    49724, Aug. 15, 2000; Amdt. 390, 65 FR 59110,
                                                                   The retailer would be able to forward                     Oct. 4, 2000; Amdt. 384, 68 FR 37697, June 25,
                                                                   the transaction to the host one time                      2003; Amdt. 394, 70 FR 18270, Apr. 11, 2005;
                                                                                                                             Amdt. 397, 70 FR 72354, Dec. 5, 2005]
                                                                   within 24 hours of when the system
                                                                   again becomes available. Should the 24-
                                                                   hour window cross into the beginning                               PART 275—PERFORMANCE
                                                                   of a new benefit issuance period, retail-                             REPORTING SYSTEM
                                                                   ers may draw against all available ben-
                                                                   efits in the account.                                                 Subpart A—Administration
                                                                     (2) State agencies may also opt, in in-                 Sec.
                                                                   stances where there are insufficient                      275.1    General scope and purpose.
                                                                   funds to authorize an otherwise ap-                       275.2    State agency responsibilities.
                                                                   provable      store-and-forward   trans-                  275.3    Federal monitoring.
                                                                   action, to allow the retailer to collect                  275.4    Record retention.
                                                                   the balance remaining in the client’s
                                                                   account, in accordance with the re-                        Subpart B—Management Evaluation (ME)
                                                                   quirements detailed in this section. In                                  Reviews
                                                                   States that elect not to give retailers                   275.5 Scope and purpose.
                                                                   this option, all store-and-forward                        275.6 Management units.
                                                                   transactions with insufficient funds                      275.7 Selection of sub-units for review.
                                                                   will be denied in full.                                   275.8 Review coverage.
                                                                     (i) State Agencies may elect to allow                   275.9 Review process.
                                                                   store and forward to provide remaining
                                                                   balances to retailers as follows:                          Subpart C—Quality Control (QC) Reviews
                                                                     (A) The EBT processor may provide
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                                                                                                                             275.10   Scope and purpose.
                                                                   partial approval of the store-and-for-                    275.11   Sampling.
                                                                   ward transaction, crediting the retailer                  275.12   Review of active cases.

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