An $18 million settlement has been reached between New York state and a food company that serves 39 school and public lunch programs statewide after an investigation into more than seven years of overcharges, Attorney General Eric Schneiderman said Wednesday.
The settlement with Compass Group USA Inc. requires that it repay almost $3 million to the schools for vendor rebates that by law should have been passed on, Schneiderman said. The state is expected to get about $15 million from damages and penalties under New York’s False Claims Act.
“Compass improperly profited by overcharging New York’s taxpayers and shortchanging our schools,” Schneiderman said. “There are no excuses for this kind of misconduct.”
At a glance
Local organizations affected by lunch settlement:
• Albany Housing Authority (Summer School Program)
• Ballston Spa Central School District
• Blessed Sacrament School, Albany
• Enlarged City School District of Troy
• Fonda-Fultonville Central School District
• Lansingburgh Central School District
• Schenectady City School District
• Schenectady Inner City Ministry
• Schodack Central School District
• Scotia-Glenville Central School District
Charlotte, N.C.-based Compass staffs and supplies food services at schools like Manhattan Day School and Schenectady City School District through its subsidiary, Chartwells.
“A misinterpretation of the New York contracts caused Chartwells to neglect to complete proper reconciliation of operating costs to the K-12 schools,” Compass spokeswoman Sarah Hada said Wednesday, adding those contracts are unique. “When the investigation in these legacy K-12 contracts uncovered discrepancies between the contract and our practices, we offered to make immediate payment of amounts due, which amounted to approximately $350 thousand annually over an 8-year period. We also took corrective measures to ensure that such discrepancies would not occur again.”
The Rev. Phillip Grigsby, executive director of the Schenectady Inner City Ministry, said their summer lunch program used Chartwell’s just once at least five years ago. It didn’t win the bid in subsequent years.
The summer program, which costs SICM about $125,000 every year to run, gave about 35,000 lunches this summer and sometimes up to a thousand a day, according to Grigsby. He wasn’t aware of the attorney general’s settlement but was grateful to have money coming back to the organization.
“We would reserve that for use next year and that would be a great,” he said.
Schenectady schools spokeswoman Karen Corona also said the district isn’t aware of how much money it would be receiving but noted that the district hasn’t used Chartwell’s in several years.
The state settlement is largest recovery since the anti-fraud statute for state and local governments was amended in 2007, enhancing penalties and whistle-blower protections, according to the attorney general’s office. Schneiderman, then a state senator, sponsored the measure, which has been used in probes of contractors. The Compass settlement covers 2003 to 2010.
Part of an ongoing investigation by the attorney general’s Taxpayer Protection Bureau of food management companies and food distributors doing business with the state, it follows last year’s $1.6 million settlement with the Whitsons companies.
Compass will be required over the next two years to make quarterly disclosures of the settlement to the 39 customers and provide detailed semi-annual reports of its sales and rebating practices to the Taxpayer Protection Bureau.
The company also agreed to take steps to comply early with the enhanced nutritional standards passed by Congress in January, including partnering with local suppliers of fresh foods.
The Taxpayer Protection Bureau was established by Schneiderman last year to help with fraud recoveries from contractors, who collect about $13 billion annually from state taxpayers and billions more in local government contracts.