D.C. Councilmember Mary Cheh (D-Ward 3), author of recently passed “Healthy Schools” legislation, has asked the city’s attorney general, Peter Nickles, to assist D.C. Public Schools to make sure they are receiving all of the rebates to which they are entitled from their hired food services provider, Chartwells.
Cheh’s request follows revelations that prosecutors in New York State have been investigating rebating practices involving large food service companies, resulting in a settlement with Sodexo in which the food service giant agreed to pay $20 million to resolve claims that it failed to pass on rebates to public schools, as required by federal law.
Food manufacturers commonly pay rebates for large volume purchases in the food service industry. Companies like Chartwells, Sodexo and Aramark are believed to take in hundreds of millions in rebates every year in the course of providing food to schools, hospitals, prisons, museums and a host of other clients, both public and private. A U.S. Department of Agriculture audit of midwestern schools found that food service providers sometimes pocketed the money instead of crediting it to their clients. In New York, Attorney General Andrew Cuomo said the rebates amounted to about 14 percent of food purchases. Critics, who sometimes refer to rebates as “kickbacks,” contend that the rebating practice acts as an inducement to serve school children inferior processed food.
My own reporting of rebates claimed by Chartwells in the District of Columbia, based on documents obtained through the Freedom of Information Act, showed that D.C. schools had received more than $1 million in rebates since Chartwells was hired two years ago, representing about 5 percent of the total purchases during that period reported by Chartwells. Schools Chief Operating Officer Anthony Tata subsequently said that he had asked Chartwells for an itemized accounting of where the rebates came from, but had only recently received it after nine months of waiting.
In announcing New York’s settlement with Sodexo, Cuomo said: “This company cut sweetheart deals with suppliers and then denied taxpayer-supported schools the benefits” He said his office’s investigation revealed that over a five-year period beginning in 2004, Sodexo “received significant rebates from its suppliers without acknowledging or passing the savings on to these schools–in violation of the contracts [between Sodexo and the schools] as well as state and federal laws.”
New York’s investigation was sparked by two former Sodexo employees, brothers John and Jay Carciero, who were general managers for the company in Massachussetts and were “outraged when they discovered Sodexo’s practice of pressuring food and beverage vendors to kick back huge rebates and then secretly pocketing the savings rather than passing them on to government clients as required by their contracts,” according to a statement released by the Carciero’s attorney. The clients included hospitals, universities, schools and nursing homes.
In her August 2 letter to D.C. Attorney General Nickles, Cheh wrote:
“Companies that provide school meals receive rebates from food manufacturers for purchasing large quantities of goods. Federal law requires that contractors who provide meals to schools pass these rebates onto the school districts that they serve. See, e.g., 7 C.F,R. § 210.21 (f)(I). Recently New York Attorney General Andrew M. Cuomo discovered that a large school food-service company failed to pass on savings of millions of dollars from rebates to school districts in New York. Two weeks ago, Mr. Cuomo entered into a $20 million settlement agreement with the contractor for overcharging school districts.
“A different large food service company provides meals to District of Columbia Public Schools (“DCPS”). Recently, the Better D. C. School Food blog has raised questions about whether DCPS’ food-service contractor is passing on all or the rebates that it receives. In light of Mr. Cuomo’s investigation, I request that your office assist DCPS in ensuring that it has received all of the rebates that it is owed.”
Under the terms of its contract with Chartwells, D.C. Public Schools are entitled to audit Chartwells’ records pertaining to purchases made and rebates received for up to three years.
Update: Legislators in New Jersey this week asked that state’s attorney general to investigate Sodexo’s dealings with schools there as well.