COMMONWEALTH OF MASSACHUSETTS

Suffolk, ss. Division of Administrative Law Appeals

Department of Public Health,

Petitioner

v. Docket No. PH-08-338

Cloverdale Farms, Inc.,
Ishtiaq Naqvi, and
Zahid Mahmood,

Respondents


Appearance for Petitioner:

Madeline Piper, Esq.


Department of Public Health
250 Washington Street, 2nd Floor
Boston, MA 02108

Appearance for Respondents:

John P. Francoeur, Esq.

Levin & Levin
138 Rock Street
P.O. Box 2566
Fall River, MA 02722

Administrative Magistrate:

James P. Rooney, Esq.


DECISION


On April 28, 2008, the Department of Public Health issued a "Notice of Termination of WIC [Women, Infants, and Children] Vendor Agreement and Disqualification from the WIC Program/Right of Appeal" to a convenience store called Cloverdale Farms, Inc. d/b/a Cloverdale

Farms operating at 1892 South Main Street in Fall River, its owner Ishtiaq Naqvi, and its manager, Zahid Mahmood. In the notice the Department stated that, based on its analysis of four visits to the store by a compliance buyer, it had found that the store had violated its WIC Vendor Agreement by committing a pattern of "Class II" violations and, as a consequence, the store, its owner, and its manager were disqualified from participating in the WIC program for three years. Counsel for the store filed a timely appeal on behalf of all three charged parties in a letter dated May 6, 2008.

I held a hearing on July 25, 2008 at the Division of Administrative Law Appeals, 98 North Washington Street, Boston, Massachusetts. Mary Blocksidge, the WIC vendor manager for the Department of Public Health, testified for the Department, as did an undercover compliance buyer. I introduced 26 documents into evidence - 23 that were submitted by the Department of Public Health and 3 submitted by Cloverdale Farms. Over the objection of the store's counsel, I granted the Department's motion in limine to conceal the identity of the compliance buyer. The compliance buyer testified behind a screen positioned to allow me to see the witness, but not to allow Mr. Naqvi, Mr. Mahmood, or the store's counsel to do so. Mr. Naqvi and Mr. Mahmood testified for themselves and for Cloverdale Farms. I recorded the hearing on two cassette tapes.

FINDINGS OF FACT

Based on the testimony and exhibits admitted at the hearing, I make the following findings of fact:

1. The Massachusetts Department of Public Health/WIC program administers the Special Supplemental Food Program for Women, Infants and Children of the United States Department of Agriculture, Food and Nutrition Services. [Ex. 3.] Women eligible to participate in the WIC program use checks provided by the program to pay for specified foods at stores that have entered into a vendor agreement with the WIC program after being selected as vendors. [Blocksidge testimony and Exs. 3 and 23.]

2. Ishtiaq Naqvi has owned the Cloverdale Farms store at 1892 South Main Street in Fall River since 2005. [Naqvi testimony.] Cloverdale Farms became a WIC vendor in 2006. [Blocksidge testimony.] Mr. Naqvi signed a vendor agreement for the period from October 2006 to September 2007; the store's manager, Zahid Mahmood, signed a vendor agreement for the period from October 2007 to September 2008. [Exs. 4 and 5.]

3. The WIC vendor agreement requires that the store owner or manager participate in training to learn how to handle WIC checks and train all relevant store staff in the correct WIC check handling procedure. [Ex. 3 (sections 1 and 2).] The agreement also informs vendors that they are accountable for the actions of their employees. [Ex. 3 (section 3).] Mr. Naqvi and Mr. Mahmood trained the store's employees in the proper method for handling WIC checks. [Naqvi and Mahmood testimony.]

4. The WIC vendor agreement also requires the vendor to (a) provide correct vendor price lists to the WIC program, (b) comply with federal, state, and local law by affixing a price to any items offered for sale to WIC shoppers, (c) never charge the WIC program except for products actually purchased and received, (d) never charge by check type rather than for WIC items actually purchased, (e) write on the WIC check a price no higher than the actual, current shelf price of an item purchased with a WIC check, (f) fill in the WIC check with the actual price of the items purchased before the WIC shopper signs the WIC check, and (g) observe the WIC shopper sign the check and ensure that the signature matches the authorized signature in the WIC ID folder. [Ex. 3 (sections 5, 6, and 9).] The WIC program requires vendors to provide price lists annually on a form that seeks the "highest actual shelf prices" of WIC food items; vendors may amend their lists as prices change. [Blocksidge testimony and Exs. 22 and 23.]

5. The WIC vendor agreement warns that vendors may be disqualified from participating in the WIC program if they violate the program's requirements. [Ex 3. (Sanction Policy).]

6. Class II violations include overcharging the WIC program or charging by check type rather than by the amount of the authorized WIC items actually purchased. A pattern of overcharging or charging by check type, which the vendor agreement explains is two or more incidences of a violation, will result in a three year disqualification. [Ex. 3 (Sanction Policy and Appendix A).]

7. Class III violations include substitution of unauthorized food products for the WIC products specified on the WIC check. Vendors who commit Class III violations are disqualified from the WIC program for one year. [Ex 3 (Sanction Policy and Appendix A).]

8. Class IV violations include failure to observe an authorized WIC shopper sign the check and to ensure that the signature matches the authorized signature in the WIC ID folder, failure to affix prices on food items offered for sale, and failure to fill in the WIC check price in the presence of the authorized shopper before the shopper has signed the check. Vendors who commit Class IV violations are assigned sanction points and may be disqualified depending on the cumulative total of sanction points. The accumulation of twenty or more sanction points constitutes sufficient grounds to disqualify a vendor for one year. The examples of Class IV violations just noted are each worth ten sanction points. [Ex. 3 (Sanction Policy and
Appendix A).]

9. The WIC program monitors vendors' compliance by hiring an investigative company to send anonymous compliance buyers to stores selected by the WIC program where they purchase specified items with WIC checks. [Blocksidge and compliance buyer testimony.] The Cloverdale Farms store was selected in part because the WIC program had received complaints from WIC participants that the store was allowing purchases of non-WIC approved cereals with WIC checks. [Blocksidge testimony.]

10. Based on instructions from the WIC program, a compliance buyer visited the Cloverdale Farms store four times, each time purchasing the items she had been directed to buy with WIC checks. On each occasion, she attempted to purchase a non-WIC approved cereal. After making her purchases, she prepared a report of each visit that noted the items purchased, whether the item price was listed by the store, whether the store clerk asked for her WIC identification, and whether the clerk filled out the purchase amount on each WIC check before presenting it to her to sign. [Compliance buyer testimony and Exs. 6, 9, 12, and 15.]

11. The compliance buyer then submitted her reports to the WIC program. The WIC vendor manager, Mary Blocksidge, reviewed the reports and prepared calculations for each check to determine whether the vendor charged the WIC program the correct amount. To prepare these reports, she compared the figure shown on each check with the prices of the items purchased. She determined the price of the items purchased by reviewing the prices shown on the corresponding compliance report and, if no price was shown there, the price list or update the vendor submitted to the WIC program. If the report showed that a non-WIC approved cereal was purchased with a WIC check, she did not include the price paid for the cereal in the total amount that should have been charged the program. [Blocksidge Testimony.]

12. On February 11, 2008, the compliance buyer visited Cloverdale Farms. She purchased milk, cereal, and juice with one WIC check, including Kelloggs Apple Jacks, which is not a WIC-approved cereal. She purchased milk, cheese, beans, and juice with another WIC check. No price was posted in the store for any of these items except for the beans. The compliance buyer noted that the middle aged, average size clerk, who was neither Mr. Naqvi nor Mr. Mahmood, failed to check her identification and had her sign the WIC checks without first ringing up the grocery items or entering the purchase total. [Compliance buyer testimony and
Ex. 6.]

13. The check totals for the items purchased that day were $26.54 and $16.95. Ex. 7. Blocksidge, working with the prices reported by the compliance buyer, a price list Cloverdale Farms submitted on May 4, 2006, and an updated price list submitted on September 27, 2007 calculated that the correct totals should have been $8.67 for the first check, excluding the ineligible Apple Jacks, and $11.76 for the second check. [Blocksidge testimony and Ex. 8.] Based on these calculations, the store overcharged the WIC program by $17.87 on the first check and $5.19 on the second check. [Ex. 8.]

14. The compliance buyer returned to Cloverdale Farms on February 26, 2008. She purchased milk, cereal, and juice with one WIC check, including General Mills Cinnamon Toast Crunch, which is not a WIC-approved cereal. She purchased milk, cheese, peas, and juice with another WIC check. No price was posted in the store for any of these items except the peas. The same clerk acted as cashier. He again failed to check her identification and had her sign the WIC checks without first ringing up the grocery items. [Compliance buyer testimony and Ex. 9.]

15. The checks for the total items purchased that day were $26.22 and $16.95. [Ex. 10.] Blocksidge, relying on the one price submitted by the compliance buyer and the September 27, 2007 and May 4, 2006 price lists, calculated that the correct amount for the first check should have been $9.47, excluding the Cinnamon Toast Crunch, and $10.76 for the second check. Based on these calculations, the store overcharged the WIC program by $16.75 on the first check and $6.19 on the second check. [Blocksidge testimony and Ex. 11.]

16. On March 4, 2008, the compliance buyer returned to the store for a third time. She purchased milk, cereal, and juice with one WIC check, including Post Fruity Pebbles, which is not a WIC approved cereal. She purchased milk, cheese, peas, and juice with a second WIC check. Once again, the only price she could find was for peas. The same clerk was the cashier. He again failed to check her identification and had her sign the WIC checks without first entering the total amounts on the checks. [Compliance buyer testimony and Ex. 12.]

17. The checks for the items purchased were made out for $26.42 and $16.95. Ex. 13. Blocksidge compared the check totals with the price of peas reported by the compliance buyer and the vendor price lists from 2006 and 2007. She determined that the correct price for the items purchased should have been $9.47 for the first WIC check, excluding the Fruity Pebbles, and $12.16 for the second WIC check. Based on these calculations, Cloverdale Farms overcharged the WIC program by $16.95 and $4.79 respectively. [Blocksidge testimony and Ex. 14.]

18. On March 25, 2008, the compliance buyer returned to Cloverdale Farms for a fourth time. She purchased milk, cereal, and juice with one WIC check, including Post Honeycomb, which is not a WIC authorized cereal. She purchased milk, cheese, peas, and juice with a second check. The only price she found was for the peas. The clerk was a middle-aged man who was shorter than the clerk who had been the cashier on her other three visits. This clerk as well failed to check her identification and had her sign the WIC checks without first ringing up the grocery items. [Compliance buyer testimony and Ex. 15.]

19. The checks for the items purchased were made out for $26.22 and $16.95. Ex. 16. Blocksidge compared the check totals with the price of peas reported by the compliance buyer and the vendor price lists from 2006 and 2007. She determined that the correct price for the items purchased should have been $9.47 for the first WIC check, excluding the Honeycomb, and $10.82 for the second WIC check. Based on these calculations, Cloverdale Farms overcharged the WIC program by $16.75 and $6.13 respectively. [Blocksidge testimony and Ex. 17.]

20. On April 28, 2008, the Department of Public Health/WIC program sent Cloverdale Farms, Mr. Naqvi, and Mr. Mahmood a notice of termination of the WIC vendor agreement for Cloverdale Farms. It stated that each recipient would be disqualified from participating as vendors for the following three years because the compliance buys had turned up a pattern of Class II violations involving overcharging the WIC program and charging by check type rather than for the actual items purchased. The termination notice also recited a Class III violation (substituting an unauthorized food product) and three types of Class IV violations revealed by the compliance buys: failure to affix prices on goods for sale, failure to observe the authorized WIC shopper sign the WIC check and to ensure her signature matched the authorized signature in the WIC ID folder, and failure to fill out the amount of the purchases in the presence of the authorized WIC shopper before the shopper signed the check. [Ex. 1.]

21. At the time the WIC program sent the termination letter, Mr. Mahmood, Cloverdale Farms' store manager, was visiting Pakistan and had been there since early April 2008. When he returned in late May 2008, he investigated what had occurred. He examined the store inventories for April and May 2008 that had been analyzed by the store's accountant and discovered an unexpected shortfall. He concluded that the cause of the discrepancy was employee theft and fired the two clerks who had acted as cashiers when the compliance buyer visited the store. [Mahmood testimony.] The store returned to profitability in June with new employees at the cash register. [Naqvi testimony.]

22. The terminated employees had been hired after Mr. Naqvi bought the store. [Naqvi testimony.] One had been an employee for over two years, the other for approximately six months. Both had been trained for one week by Mr. Naqvi and Mr. Mahmood in the correct processing of WIC checks. [Naqvi and Mahmood testimony.] To assist its cashiers in the processing of WIC checks, the store maintains a printed price list at its sole cash register and a list of allowable WIC items. Mr. Mahmood, who is in the store on a daily basis, examined the register tapes for each day. The tapes never revealed a problem in the handling of WIC checks; all the WIC checks Mahmood saw had the total price filled in. He spotted only one error in check processing: a date was wrong on one of the checks. WIC occasionally paid less than the face amount of a check if the total exceeded an allowable price limit, but had never otherwise questioned Cloverdale Farms' processing of WIC checks. [Mahmood testimony.]

23. On May 6, 2008, Cloverdale Farms appealed the termination notice and requested a hearing. [Ex. 2.]

CONCLUSION AND ORDER


The evidence establishes that on four separate occasions, clerks at the Cloverdale Farms store overcharged the WIC program on a total of eight WIC checks, charged the program based on check type on each of those occasions (the four checks that each totaled $16.95) rather than based on items actually purchased, allowed unauthorized cereals to be purchased during each of the compliance buys, failed to observe the authorized WIC shopper sign any WIC check presented by the compliance buyer or to ensure during any of the compliance buys that her signature matched the authorized signature in the WIC ID folder, and failed to fill out the amount of the purchases on the WIC checks in the presence of the compliance buyer before she signed the checks. The store also failed on these occasions to affix prices to most of the authorized goods that the compliance buyer purchased.

Although the store quibbles that most of the live testimony concerned the overcharge allegations and not the other charges, it does not seriously dispute the allegations made by the Department of Public Health. It asserts, rather, that the violations can be attributed to rogue employees who stole from both the store and the WIC program and that once the store became aware of this situation, it fired the employees and resolved the problem.

The evidence establishes that the store had an employee theft problem. Although the analysis of store inventory that showed such a problem focused on the months immediately following the compliance buyer's visits, the problem doubtless predated the inventory analysis performed by the store's accountant. That analysis does not specifically identify a problem with theft associated with WIC checks, and the daily register tapes failed to show any WIC check discrepancies. Nonetheless, given the scope of the theft identified and the compliance buyer's testimony that the subsequently-fired clerks chose not to fill in the check amounts in her presence, I accept the store's conclusion that the experienced clerks had figured out a way to overcharge WIC and pocket the difference without leaving evidence that would appear during Mr. Mahmood's daily review of the register tapes.

That does little to help the store, its owner, or its manager here because the WIC vendor agreement makes the vendor be accountable for the actions of any of its employees who handle WIC checks. [Ex. 3.] Cloverdale Farms' employees overcharged the WIC program on multiple occasions. This is a Class II violation, the sanction for which is termination from the WIC program for three years.
The three year bar from participation in the WIC program is particularly harsh here when the pattern of overcharges that led to the sanction was caused by dishonest employees who stole both from WIC and from their employer, covered their tracks sufficiently to avoid detection for a time, and were fired once the store discovered the theft. I do not set the sanction, however; that is established by the WIC program. WIC vendors are informed in the WIC vendor agreement that Class II violations, including a pattern of overcharging the WIC program are "serious, ... prevent WIC Program goals from being achieved, undermine the integrity of the WIC Program, and will result in mandatory disqualification for three years for first time offenders." [Ex. 3 (Sanction Policy)(emphasis in original).] Because the evidence shows a pattern of overcharging, the sanction follows automatically. The store had the opportunity (and the responsibility under the WIC agreement) to detect employee theft before it led to a pattern of overcharging the WIC program.


Because the Department of Public Health has established a pattern of overcharging by Cloverdale Farms, Inc., the store, its owner, Ishtiaq Naqvi, and its manager, Zahid Mahmood, are disqualified from participating in the WIC program for three years.


SO ORDERED.

DIVISION OF ADMINISTRATIVE LAW APPEALS

/s/ James P. Rooney
James P. Rooney
Administrative Magistrate

DATED: August 11, 2009