Food Service Providers to Face Nationwide Audit Aimed at Preventing Improper Pocketing of Millions at School Kids' and Taxpayers' Expense

Following Sodexo's multimillion dollar settlement with NY & nearly half a million in OH for illegally overcharging school districts

Could bring relief to cash strapped school districts, cities, states

WASHINGTON, May 4, 2011 /PRNewswire-USNewswire/ -- The following is being released today by Service Employees International Union:

After the New York Attorney General settled a $20 million lawsuit in which Sodexo, a France-based outsourcing giant, was accused of illegally overcharging public schools and universities by withholding discounts obtained on their clients' behalf, Rep. Rosa DeLauro (D-CT), requested that the Department of Agriculture (USDA) begin an investigation. Agriculture Secretary Tom Vilsack confirmed the USDA will launch an audit targeting the procurement practices of contract school meal providers. Specifically, the nationwide audit will investigate if all federal dollars are being accounted for properly to ensure companies such as Sodexo are not improperly withholding rebates and discounts that should go to local school districts.

Food service management companies currently provide school meals to nearly one fifth of all U.S. school children. These contracted out school meal programs receive more than $2.3 billion each year in federal funding, and given the consolidation of the industry the largest players have access to discounts through their high volume purchasing power.

USDA regulations require school food service programs to run on a non-profit basis. When a food service provider receives discounts, rebates or allowances from a food manufacturer, regulations stipulate that these funds be disclosed and/or reimbursed to the school district.

But increasing evidence demonstrates this has not always been the case. In 2010, it was revealed that Sodexo was routinely overcharging 21 public school districts across New York and agreed to pay a $20 million settlement with New York Attorney General Andrew M. Cuomo. Less than 6 months later in Ohio, the USDA told Sodexo that it owed the Columbus City Schools almost $400,000 because the company had charged the district for some government food commodities that Sodexo had received for free.

According to a Chicago Tribune article last month, "food service providers…get large payments of between 10 and 50 percent of purchases," for using products from processed food companies. The New York Attorney General's office found that for the 21 New York school districts served by Sodexo, the company received an average of 14 percent rebates from its suppliers.  Given the $2.3 billion in federal funding towards school meals programs and using the average of 14 percent in rebates as found in New York, food service companies could be improperly withholding as much as an estimated $150 million annually.

Prompted by the results of a previous and similar audit, the USDA issued revised procurement regulations in 2007 to address deficiencies in school procurement practices related to the handling of rebates by school food service contractors. It is possible that the current audit planned by the USDA also could result in further regulatory action.

SOURCE Service Employees International Union