State of North Carolina s43

STATE OF NORTH CAROLINA IN THE OFFICE OF

ADMINISTRATIVE HEARINGS

COUNTY OF MECKLENBURG 07 DHR 1045

)

MIDTOWN FOOD MART III, )

CHENET HAILESLASSI and )

FESSEHA ZERU, )

Petitioners, )

)

v. ) DECISION )

N.C. DEPARTMENT OF HEALTH AND )

HUMAN SERVICES, )

Respondent. )

This matter came on for hearing before the undersigned administrative law judge on November 26, 2007, in Charlotte, North Carolina. Attorney Johneric C. Emehel represented the Petitioners. Assistant Attorney General, Donna D. Smith, represented the Respondent. The Petitioner presented one witness. The Respondent presented three witnesses and introduced 19 exhibits.

ISSUE

The issue is whether the Respondent was correct in issuing its intent to disqualify the Petitioners' store, Midtown Food Mart III, from participating as a vendor in the Special Supplemental Nutrition Program for Women, Infants and Children (“WIC Program”) for three years for the following violation:

Claiming reimbursement for the sale of an amount of specific supplemental food items which exceeded the store's documented inventory of those supplemental food items for six or more days within a 60-day period in violation of 7 C.F.R. § 246.12(l)(1)(iii)(B), 10A N.C.A.C. 43D .0706(c)(29), .0706(g)(1) [formerly .0706(g)(2)(A)] and the WIC Vendor Agreement.

Based on the evidence presented by the parties, including sworn testimony of witnesses and documentary evidence, the undersigned makes the following:

FINDINGS OF FACT

1. The WIC Program is the federally funded Special Supplemental Nutrition Program for Women, Infants and Children, administered in North Carolina by the Department of Health and Human Services.

2. The purpose of the WIC Program is to provide supplemental foods to pregnant women, infants and children up to age five (called "participants"), who are at nutritional risk.

3. WIC supplemental foods are provided to participants through the retail grocery system via food instruments that list the authorized foods a participant may obtain. The WIC Program contracts with retail grocery stores to serve as authorized WIC vendors. As an authorized WIC vendor, the vendor agrees to accept food instruments in exchange for WIC supplemental foods provided to participants (called food instrument transaction). The WIC vendor deposits the food instruments in its bank and is paid by the WIC Program for the supplemental foods provided to participants (called food instrument redemption).

4. The WIC Vendor Agreement is the contract between the vendor and the State and local agency under which the vendor agrees to comply with the terms of the Agreement and state and federal WIC Program rules, regulations and laws.

5. Petitioners are the owners of Midtown Food Mart III, a store located at 3007 Shamrock Drive in Charlotte, North Carolina. Petitioners currently operate the store as an authorized WIC vendor, stamp #9126. Midtown Food Mart III has been authorized as a WIC vendor since approximately January, 2004. Petitioner Fesseha Zeru signed a WIC Vendor Agreement on June 30, 2005, which covered the period of October 1, 2005, through September 30, 2006, the time period covering the charged violations.

6. Pursuant to 10A N.C.A.C. 43D .0706(c)(26) and the WIC Vendor Agreement, vendor representatives are required to attend annual vendor training. On June 14 and 16, 2005, the Mecklenburg County Health Department WIC Program conducted annual vendor training on WIC Program procedures, rules and regulations. Copies of the North Carolina WIC Vendor Manual were distributed to the vendor representatives attending these training sessions. Petitioner Fesseha Zeru and another store representative attended the annual vendor training. A store representative has attended annual vendor training each year since the store was authorized. Mr. Zeru has attended annual vendor training for the past nine years since his first store, Midtown Food Mart #1, opened in 1998.

7. Pursuant to 10A N.C.A.C. 43D .0706(c)(27) and (28) and the WIC Vendor Agreement, vendors are responsible for informing and training their cashiers and other staff on WIC Program requirements. Vendors are also accountable for the actions of their owners, officers, managers, agents and employees who commit vendor violations.

8. The Respondent is required by federal regulation to conduct compliance investigations of a minimum of five percent of its WIC vendors per year. These investigations may be conducted through compliance buys or inventory audits.

9. An inventory audit is an examination of food invoices or other proofs of purchase to determine whether a vendor has purchased sufficient quantities of supplemental foods to provide participants the quantities specified on food instruments redeemed by the vendor during a given period of time.

10. Pursuant to 10A N.C.A.C. 43D .0706(c)(29) and the WIC Vendor Agreement, a WIC vendor is required to retain and allow access to all vendor records pertinent to the purchase and sale of WIC supplemental foods, including invoices, copies of purchase orders, and any other proofs of purchase, for a period of three years or until any audit pertaining to these records is resolved, whichever is later. Vendors were advised of these requirements at the annual vendor training on June 14 and 16, 2005.

11. Craig Forsythe is employed by the North Carolina Department of Health and Human Services as an Internal Auditor for the WIC Program. Mr. Forsythe conducts inventory audits at authorized WIC vendors to determine whether the vendor has purchased sufficient quantities of supplemental foods to provide participants the quantities specified on the food instruments transacted by the vendor during the audit period. Respondent conducted an inventory audit of Midtown Food Mart III for the period of October 26, 2005 to February 8, 2006, using standard accounting audit procedures.

12. On October 26, 2005, Mr. Forsythe went to Midtown Food Mart III, identified himself to the store representative in charge of the store at that time, stated that he was there to count all WIC inventory and gave the store representative his Internal Auditor's Office business card. Mr. Forsythe physically counted all of the store's WIC inventory, including inventory in storage (called beginning inventory), and verified with a signed statement from the store representative that all WIC inventory was currently located at the store and had been counted. On October 27, 2005, Mr. Forsythe was notified of inventory at the store that had not been counted on October 26, 2005. Mr. Forsythe added this additional inventory to the beginning inventory count. On February 8, 2006, Mr. Forsythe returned to Midtown Food Mart III and again physically counted all of the store's WIC inventory, including inventory in storage (called ending inventory), and verified with a signed statement from the store owner, Fesseha Zeru, who was present at the store that day, that all WIC inventory was currently located at the store and had been counted.

13. Mr. Forsythe reviewed all WIC food instruments transacted at Midtown Food Mart III between the beginning inventory count on October 26, 2005 and the ending inventory count on February 8, 2006 to determine the quantities of WIC supplemental foods provided to WIC participants and paid for by the WIC Program.

14. Mr. Forsythe also requested all purchase records of WIC supplemental foods purchased for Midtown Food Mart III between the beginning and ending inventory counts. Mr. Forsythe reviewed these purchase records to determine if sufficient quantities of WIC supplemental foods had been purchased to equal or exceed the quantity of WIC supplemental foods provided to participants at Midtown Food Mart III during the audit period.

15. Mr. Forsythe compared the quantities of WIC supplemental foods provided to WIC participants through WIC food instrument transactions at Midtown Food Mart III during the audit period to the beginning inventory count, purchases, and the ending inventory count. The audit period totaled 105 days and allowed for a maximum of forty-six different 60-day periods. Mr. Forsythe found that the Petitioners claimed reimbursement for the sale of cheese to WIC participants which exceeded the store's documented inventory of that food for six or more days within thirty-nine of the 60-day periods, for the sale of cereal to WIC participants which exceeded the store's documented inventory of that food for six or more days within all forty-six 60-day periods, and for the sale of powdered formula to WIC participants which exceeded the store's documented inventory of that food for six or more days within twenty-nine of the 60-day periods.

16. Mr. Forsythe did not take into account the sales of WIC supplemental foods to non-WIC customers when performing his audit. This approach benefited the vendor because taking into account the sales of WIC supplemental foods to non-WIC customers would have made the deficiencies in documented inventory greater and occur sooner.

17. Mr. Forsythe met with Petitioner Zeru and Mr. Giebrehiwot on December 5, 2006 to discuss his preliminary audit findings and to request that they provide additional purchase records or provide a written statement that they had no additional documentation. By letter postmarked December 14, 2006, Petitioner Zeru notified Mr. Forsythe that they were unable to produce additional receipts "due to our poor document handlings."

18. Upon receipt of the December 14, 2006 letter, Mr. Forsythe concluded his audit and an audit report dated March 22, 2007, containing Mr. Forsythe's findings was submitted by the Office of the Internal Auditor to Ms. Alice J. Lenihan, Division of Public Health, Women's and Children's Health Section.

19. 7 C.F.R. § 246.12(l)(1)(iii)(B), incorporated by reference at 10A N.C.A.C. 43D .0706(g), provides that a vendor must be disqualified for three years for a pattern of claiming reimbursement for the sale of an amount of a specific supplemental food item which exceeds the store's documented inventory of that supplemental food item for a specific period of time.

20. 10A N.C.A.C. 43D .0706(g)(1) (previously .0706(g)(2)(A)) provides that a pattern shall be established when a vendor claims reimbursement for the sale of an amount of a specific supplemental food item which exceeds the store's documented inventory of that supplemental food item for six or more days within a 60-day period. The six or more days do not have to be consecutive days within the 60-day period. Failure or inability to provide records for an inventory audit shall be deemed a violation of 7 C.F.R. § 246.12(l)(1)(iii)(B) and 10A N.C.A.C. 43D .0706(g)(1).

21. Applying the foregoing provisions to the findings in the March 22, 2007 audit report, the Respondent notified Petitioners by letter dated May 30, 2007, of its intent to disqualify Midtown Food Mart III from participating as a WIC vendor for a period of three years. Respondent advised the Petitioners of their right to appeal to the Office of Administrative Hearings. Petitioners filed a petition for a contested case hearing on June 29, 2007.

22. Prior to issuing its intent to disqualify the Petitioners' store, the Respondent complied with 7 C.F.R. 246.12(l)(1)(ix), 246.12(l)(8), and 10A N.C.A.C. 43D .0706(k) by considering participant access to other WIC vendors. The criteria for adequate participant access are met based on the location of other authorized WIC vendors in the area.

23.. The Petitioners' attorney submitted additional receipts to the Respondent prior to the hearing. Mr. Forsythe reviewed the receipts and determined that the receipts were for purchases made prior to the beginning date of the audit. Therefore, these receipts would not change the audit findings because any inventory in the store from these purchases was included in Mr. Forsythe's beginning inventory count.

24. Petitioner Zeru testified that he did not always keep receipts for the purchase of cereal because cereal was often purchased from other grocery stores with their personal groceries and also because he did not expect to be audited. Petitioner Zeru acknowledged that through vendor training he was informed that an inventory audit could be conducted at authorized WIC vendors and that vendors must retain purchase receipts for three years or until an audit pertaining to those receipts is resolved, whichever is later.

25. Although Petitioner Zeru stated that he assumed the local agency had monitored for minimum inventory on October 26, 2005, Petitioner Zeru acknowledged that he saw Mr. Forsythe's Internal Auditor's Office business card provided by Mr. Forsythe at the beginning inventory count on October 26, 2005.

26. Petitioner Zeru also acknowledged that he had not fully read the WIC Vendor Manual and the WIC Vendor Agreement which requires vendors to inform and train their cashiers and other staff on WIC Program requirements and to be accountable for the actions of their owners, officers, managers, agents and employees. This Agreement also requires the vendor to retain and allow access to all vendor records pertinent to the purchase and sale of WIC supplemental foods, including invoices, copies of purchase orders, and any other proofs of purchase, for a period of three years or until any audit pertaining to these records is resolved, whichever is later.

27. Corey Menees reviewed the records for Midtown Food Mart and found that no points had been assessed against any of Petitioners’ stores in the previous years; nor had there been any previous discrepancies, disqualification nor sanction point as a result of the local agency monitoring.

CONCLUSIONS OF LAW

1. The North Carolina WIC Program is vested with the authority to authorize and disqualify WIC vendors pursuant to G.S. § 130A-361 and 10A N.C.A.C. 43D .0700 et seq.