By Lucy Komisar
July 21, 2010

The global food services company Sodexo, which I exposed last year for exacting rebates from suppliers and charging clients full price, has agreed to a $20 million settlement with the New York Attorney General for that illicit practice.

Attorney General Andrew Cuomo today said the company had overcharged 21 New York school districts as well as the State University of New York system.

He found that the company promised to provide goods at cost but failed to acknowledge rebates from suppliers, resulting in illegal overcharges to the schools.

The settlement was unsealed in Federal Court in Massachusetts and is the largest monetary settlement under the Act that does not involve Medicaid funds. Two whistleblowers, John and Jay Carciero, who worked for Sodexo, had brought a qui tam lawsuit against Sodexo in federal court in Boston and filed charges under the New York False Claims Act.

Sodexo’s policy of eliciting kickbacks (called rebates) from suppliers but improperly charging full price to clients such as schools, hospitals, colleges and private businesses, was described in my article, Cafeteria Kickbacks, which appeared in the March 2009 issue of In These Times, a monthly magazine.

The article was prompted by internal documents provided exclusively to me by the Carciero brothers.

It drew on interviews with the Carcieros and with dozens of others who had direct knowledge of the system. That number included small business people who were excluded from selling to schools and other purchasers because they could not match the kickbacks provided to Sodexo by large corporations. It included suppliers who were offering more healthy foods than the less nutritional products Sodexo preferred because they provided greater rebates.

When I was writing the article, I sent Sodexo officials copies of the key internal documents that described the kickback system, and they raised no challenge to their authenticity. The Sodexo counsel said the system was not abusive. My In These Times article and the New York Attorney General came to the conclusion that it was.

According to the Attorney General, The 21 schools and the SUNY system contracted with Sodexo to provide food services, vending and facilities services. An investigation by Attorney General Cuomo‘s Office determined that from September 1, 2004 through August 31, 2009, Sodexo received significant rebates from its suppliers without acknowledging or passing the savings on to these schools — in violation of the contracts, as well as state and federal laws.

The 21 K-12 schools participate in the New York State Education Department‘s Child Nutrition Programs and the National School Lunch Program, which require that rebates, credits and discounts be credited to the schools. On average, Sodexo received 14 percent rebates from its suppliers.

The settlement funds will be distributed to the whistleblowers — the Carcieros ($3.6 million), New York State ($15 million) and the impacted school districts.

Sodexo must also implement greater transparency in the contracting process and create built-in safeguards to ensure that clients are informed about rebates.   The company must:

●                   Disclose in future contracts with public entities that it is receiving rebates and indicate whether rebates will be retained by Sodexo or credited to the client;

●                   Provide written disclosure to school district clients for the next two years that it is receiving off-invoice rebates;

●                   Establish a hotline for clients to call with any questions concerning rebates;

●                   Pay for an independent auditor‘s review of its off-invoice rebate program for the next three years.

Sodexo is among the world‘s largest food services companies and the world‘s largest private food purchaser, with more than 313,000 employees serving 6,000 clients.

The school districts and the amounts they will get are:

Children‘s Village and Abbott House (Westchester County): $1.03 million
Albion CSD (Orleans County): $2,918
Cheektowaga – Maryvale (Erie County): $2,806
Cleveland Hill Union FSD (Erie County): $1,757
Dunkirk City School District (Chautauqua County): $2,210
Elmwood Franklin School (Erie County): $1,264
Lackawanna City School District (Erie County): $11,597
Lakeshore CSD (Erie County): $26,022
Letchworth (Wyoming County): $1,370
Lewiston Porter CSD (Niagara County): $2,113
Lockport City School District (Niagara County): $7,551
Medina CSD (Orleans County): $2,022
North Tonawanda (Niagara County): $12,121
Royalton – Hartland CSD (Niagara County): $2,440
Salamanca City School District (Cattaraugus County): $2,637
Schenectady City School District (Schenectady County): $14,044
Sodus City School District (Wayne County): $2,397
Springville – Griffith CSD (Erie County): $2,874
Tonawanda City School District (Niagara County): $3,541
Tuckahoe Union FSD (Westchester County): $8,556
JCCA – Buffalo (Erie County): $59,381

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  corporate fraud, Fraud, kickbacks, Sodexo