(u) "Program participant" means any (1) household certified as eligible to participate in the program, (2) authorized retail food store, (3) authorized wholesale food concern, (4) bank receiving coupons, or (5) certifying or issuing agency whose plan of operation has been approved.

(v) "Redemption certificate" means AMS Forms: "Food Stamp Program Redemption Certificate"; "Retail Merchants Food Stamp Program Redemption Certificate"; or "Wholesalers Food Stamp Program Redemption Certificate." § 540.3 Administration.

(a) AMS shall act on behalf of the Department in administering the program.

(b) The State agency shall be responsible for certifying households as eligible for the program and for the issuance of coupons to eligible households, except, that another agency of the State Government, or a local agency, may, at the election of the State agency, and with the concurrence of AMS assume responsibility for the issuance of coupons to eligible households: Provided, however, That the City of Detroit Department of Public Welfare shall be the agency for certifying as eligible those households in the City of Detroit which are not receiving benefits under a Federally-aided public assistance program.

(c) AMS shall authorize retail food stores and wholesale food concerns to accept coupons in accordance with the provisions of this part. § 540.4

Payments for certain costs of the certifying agency.

AMS shall make payments to the certifying agency to assist in meeting the cost of receiving applications from, and of certifying and recertifying the eligibility of, households under § 540.5(b). The amount of such payment shall be 50 percent of the sum of: (a) The direct salary costs (including the costs of such fringe benefits as are normally paid by the certifying agency), of the personnel used to interview and to make postinterview field investigations of the eligibility of such households, and of the immediate supervisor of such personnel, for such periods of time as they are employed in certifying or recertifying the eligibility of such households; (b) travel and related costs incurred by such personnel in postinterview field investigations of such households; and (c) an

adequate diet. The cash amount, if any, such households must pay for the coupons issued to them shall be such as will tend to maintain their normal expenditures for eligible foods.

(c) The certifying agency may provide a review procedure under which eligible households may, on the basis of substantial hardship, request an adjustment in the determination of the cash amount to be paid for its coupon allotment and the value of the coupon allotment. Proper documentation of any such adjustments made by the certifying agency shall be maintained in the files of the certifying agency and shall be periodically reviewed to determine the continuing need for such adjustments. § 540.7 Methods of distributing and accounting for coupons and cash receipts.

(a) AMS will distribute coupons directly to a designated receiving agent of the issuing agency who will promptly verify and receipt for the contents of each shipment. Thereupon, the coupons shall be the sole responsibility of the issuing agency until issued to an eligible household. The issuing agency shall provide for the adequate safekeeping of its supplies of coupons, for the maintenance of a reasonable working inventory of coupons, for the ordering of coupons in accordance with AMS instructions, and for proper inventory and accounting controls for such coupons.

(b) The issuing agency shall provide for the issuance of coupons to eligible households. The frequency of the issuance of coupons shall be such as to encourage participation of eligible households but, in any event, shall be no less often than monthly. The coupon allotment to be issued to any household, and the payments therefor, shall be in the amounts determined by the certifying agency in accordance with § 540.6 of this part.

(c) If any eligible household is found to have failed to regularly obtain its coupon allotment, such household shall be eligible to continue to participate in the program only if the certifying agency determines that such household failed to participate regularly because of temporary substantial and emergency circumstances.

(d) The issuing agency shall provide for the reconciliation of coupon inventories, coupon issuance and cash receipts therefor, for each day coupons are is

sued. Cash receipts shall be properly safeguarded at all times and promptly deposited, recorded and reported together with such other accounting information as AMS may specify, in accordance with instructions issued by AMS.

(e) The certifying agency, and also the issuing agency, if a separate and distinct legal entity from the certifying agency, shall be liable to the United States of America for any loss or damage sustained as a result of any violation on the part of such agencies, their agents or employees, of these regulations or the approved plan of operation, or of any failures to fully account for cash or coupons received under the program by such agency. Any such agency shall on demand pay to the United States of America the amount due as a result of any such loss or damage. Every official or employee of such agency who is responsible for receiving and issuing coupons or receiving amounts paid by eligible households must be covered by an appropriate form of surety bond in favor of such agency.

§ 540.8 Plans of Operation.

(a) The certifying agency shall submit a plan of operation to AMS for its approval. Such plan shall: (1) Set forth the coupon allotment to be provided various classes of eligible households and the payments to be made therefor; (2) describe the policies, procedures, and methods to be followed, and the forms and records to be used, in the certification of applicant households, including the verification and documentation of certification information obtained from such households; and in the carrying out of other responsibilities of the certifying agency under the provisions of this part; (3) provide assurance that welfare grants or similar aid shall not be reduced as a result of the program; and that there will be no discrimination in the certification of applicant households because of race, color, creed, or political affiliation; (4) outline the certifying agency's plan for the periodic review of certification of households to determine changes in status which would affect the continued eligibility of the household, the amount of its coupon allotment, or the amount of cash paid therefor; such plan shall provide for reviews for households not receiving public or general assistance at least on a quarterly basis, except that a plan may be submitted for approval which provides a different

schedule of review for certain categories of such households, based upon the probability of changes in the status of these categories of households; (5) provide that written instructions shall be provided to personnel responsible for the certification of applicant families, which instructions shall be submitted to AMS for review for conformance with the provisions of this part and the State Plan of Operation.

(b) The issuing agency shall submit a plan of operation to AMS for approval. Such plan shall state the policies, procedures, and methods to be followed, and the forms and records to be used, to insure the proper discharge of its responsibilities under the provisions of this part. Written instructions shall be provided to personnel responsible for the issuance of coupons. Such instructions shall be submitted to AMS for review for conformance with the provisions of this part and the State Plan of Operation.

(c) As a condition of approval, AMS may require any plan of operation submitted for approval to be modified as AMS may deem necessary to effectuate the purposes of this part or to make provision for testing variations in administration of the program in one or more project areas.

(d) No amendment to the plan of operation of any certifying or issuing agency shall be made without prior written approval of AMS, and AMS may require amendment of any agency's plan of operation as a condition of continuing approval.

§ 540.9 Use of coupons by eligible households.

(a) The head of the eligible household shall sign each book of coupons provided to him in his coupon allotment. The coupons may be used only by the head of the household or other persons designated by him to purchase eligible food for such household. Except for those coupons of twenty-five or fifty-cent denominations returned to him as change by the authorized retail food store, coupons shall be detached from the book only at the time such coupons are used for payment of eligible foods purchased in or delivered by authorized retail stores.

(b) Coupons shall be used only to purchase eligible foods at the prices prevailing in the authorized retail food store in which coupons are exchanged for food. Upon request, the head of the eligible household or his designated representa

tive shall present the identification card of the head of the household in the retail food store when exchanging food coupons for eligible foods.

(c) Coupons shall not be used to pay for any eligible foods purchased prior to the time at which the coupons are used to pay for eligible foods purchased in or delivered by authorized retail stores. § 540.10 Participation of retail food

stores.

(a) Food retailers desiring to participate in the program shall file an application with AMS on AMS Form "Retailer Application for Authorization to Participate in the Pilot Food Stamp Programs" for each unit under their ownership which such retailers desire to have participate in the program. The filing of an application containing erroneous information may be the basis for denying or withdrawing approval to participate. AMS may also deny the application of any food retailer, or unit under his ownership, if it determines that such retailer's or unit's participation will not effectuate the program. In making such determination, AMS may consider, but shall not be limited thereto, such factors as the following: (1) The nature and extent of the retail food business conducted by the applicant; (2) the volume of food stamp program business which may reasonably be expected to be conducted by the applicant or unit under consideration; and (3) the business integrity and reputation of the applicant. Upon approval, AMS will issue an authorization evidencing such approval for the store covered by the application. Such authorization shall be retained in the retail store and no coupon shall be accepted by any retail food store prior to the receipt of such authorization by AMS, nor after withdrawal of such authorization by AMS.

(b) Authorized retail food stores shall post in the store the "Official Food List" issued by AMS or a notice of similar import.

(c) Coupons shall be accepted by the authorized retail food store only in exchange for eligible foods, and at the same prices and on the same terms and conditions applicable to cash purchases of the same foods at the same store.

(d) No owner or employee of any retail food store authorized to receive coupons shall accept coupons marked "paid" or "cancelled"; coupons marked with the name or authorization number of any

other retail store; or any coupons bearing the name of any bank; or coupons of other than twenty-five or fifty-cent denominations which have been detached from the coupon book prior to the time of purchase of eligible food nor shall any such person knowingly accept coupons from a person presenting coupons in exchange for eligible food who has no right to the possession of such coupons for such use. Retailers should request persons to show the identification card of the head of the household when deemed necessary to establish right of possession of food coupons.

(e) Change in cash shall not be given for coupons, but authorized retail food stores may use for the purpose of making change those coupons having a denomination of twenty-five or fifty cents which were previously accepted in exchange for eligible foods. If change in an amount of less than fifty cents is required, the eligible household shall have the option of paying in cash or receiving credit from the authorized retail food store for the future delivery of an equivalent value of eligible foods: Provided, however, That to the extent twenty-five cent coupons are available, the food retailer shall utilize such coupons in making change in amounts of less than fifty cents.

(f) Authorized retail food stores which received coupons in accordance with the provisions of this part, shall be entitled to receive payment, for the face value of such coupons upon presentation through the banking system or through authorized wholesale food concerns.

(g) Food retailers shall not retain custody of any unexpended coupons of eligible households.

(a) Wholesale food concerns desiring to participate in the program shall file an application with AMS on AMS Form "Wholesaler Application for Authorization to Participate in the Pilot Food Stamp Program." The filing of an application containing erroneous information may be the basis for denying or withdrawing approval to participate. AMS may also deny the application of any food wholesaler if it determines that such wholesaler's participation will not effectuate the program. In making such determination, AMS may consider, but shall not be limited thereto, such factors as the following: (1) The nature and extent of the wholesale food business

conducted by the applicant; (2) the volume of food stamp program business which may reasonably be expected to be conducted by the applicant under consideration; and (3) the business integrity and reputation of the applicant. Upon approval, AMS will issue an authorization evidencing such approval for the concern covered by the application. Such authorization shall be retained by the concern and no coupons shall be accepted by any wholesale food concern prior to the receipt of such authorization by AMS, nor after withdrawal of such authorization by AMS.

(b) Authorized wholesale food concerns may accept coupons for redemption only from authorized retail food stores, and only when coupons are presented with the authorized retail food store's properly executed, signed redemption certificate and have not otherwise been marked "paid" or "cancelled."

(c) Authorized wholesale food concerns which have received coupons in accordance with the provisions of this part shall be entitled to receive payment through the banking system for the face value of such coupons, upon presentation of the coupons together with (1) the authorized retail food store's signed redemption certificate for such coupons, and (2) the authorized wholesale food concern's properly executed, signed redemption certificate.

(a) Each authorized retail food store or authorized wholesale food concern shall stamp or otherwise indicate its authorization number or the name of such store or concern on the back of each coupon prior to the time such coupons are presented for redemption under the procedure outlined in this part.

(b) Authorized retail food stores and authorized wholesale food concerns will be provided by AMS with redemption certificates which shall be used in presenting coupons to commercial banks for credit or for cash. Authorized retail food stores shall also use such certificates in presenting coupons to authorized wholesale food concerns for redemption. § 540.13 Participation of banks.

(a) Banks may accept coupons for redemption from authorized retail food stores and authorized wholesale food concerns in accordance with the provisions of this part and the instructions of

the Federal Reserve Banks. Coupons submitted to banks for credit or for cash must be properly endorsed in accordance with 540.12 of this part and accompanied by a properly executed redemption certificate. No bank shall knowingly accept coupons used by ineligible persons or transmitted for collection by unauthorized retail food stores, wholesale food concerns, or any other unauthorized persons, partnerships, corporations, or other legal entities. Banks may require persons presenting coupons for redemption to exhibit AMS authorization to deal in such coupons. The redemption certificates shall be held by the receiving bank until final credit has been given by the Federal Reserve Bank, after which they shall be forwarded by the receiving bank to AMS. Coupons

accepted for account or payment in cash must be cancelled by or for the first bank receiving the coupons by indelibly marking "paid" or "cancelled" together with the name of the bank, or its routing symbol transit number, on the face of the coupons by means of an appropriate stamp. A portion of a coupon consisting of not less than three-fifths (5) of a whole coupon may be accepted for redemption at face value. A portion of a coupon of less than three-fifths (35) of a whole coupon will not be accepted for redemption. Banks who are members of the Federal Reserve System and nonmember clearing banks may forward cancelled coupons directly to Federal Reserve Banks for payment in accordance with applicable regulations or instructions of the Federal Reserve Banks. Other banks may forward cancelled coupons through ordinary collection channels.

(b) Federal Reserve Banks, acting as fiscal agents of the United States, are authorized to receive cancelled coupons from member banks of the Federal Reserve System and nonmember clearing banks for collection as cash items and charge such items to the general account of the Treasurer of the United States in accordance with the terms and conditions of the agreement between the Secretary of Agriculture and Federal Reserve Banks.

(c) While in the course of shipment cancelled coupons shall be considered to be at the risk of the Department, if the bank transmitting such coupons has exercised due diligence and taken ordinary care in making the shipment. Reports

of loss, destruction, or damage shall be given promptly on discovery to all of the following: AMS; the nearest Secret Service Office; and the Post Office or other carrier; and the Secretary of the Treasury, Bureau of Accounts. Claim for replacement or credit in the event of loss, damage or destruction of any shipment of coupons shall be filed in writing with AMS and shall be supported by the redemption certificates received from the retail food stores or wholesale food concerns, relating to the coupons included in the particular shipment involved in such claim.

§ 540.14 Miscellaneous provisions.

(a) Reports. Certifying and issuing agencies shall submit such reports on the operation of the program as AMS shall prescribe.

(b) Right of inspection and audit. Records pertaining to the program maintained by certifying and issuing agencies, by retail food stores, and by wholesale food concerns, shall be available for review or audit by the United Such States at any reasonable time. records shall be maintained for such review or audit for a period of three years following the close of the fiscal year to which they pertain.

(c) Disqualification and noncompliance-(1) Households. any eligible household may be disqualified from future participation by the certifying agency, for such period as the certifying agency shall determine, if such household fails to comply with the provisions of this part, the plan of operation, or any procedures or instructions issued by the certifying agency or AMS pursuant thereto.

(2) Certifying and issuing agencies. Any certifying or issuing agency may be disqualified from future participation by AMS, for such period as AMS may determine, if the certifying or issuing agency fails to comply with the provisions of this part, the plan of operation, or any procedures or instructions issued pursuant thereto. Such agencies shall have full opportunity to submit to AMS information, explanation, or evidence concerning any instances of noncompliance before a final determination is made in such cases by AMS.

(3) Retail food stores and wholesale food concerns. Any authorized retail food store or authorized wholesale food concern may be disqualified from future participation by AMS, for such period