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Companies Overcharged Taxpayers for School Lunches

Hicksville among 30 school districts and education providers to be reimbursed

Attorney General Eric T. Schneiderman announced on Oct. 5 a $1.6 million settlement with a food service provider for illegally overcharging school districts and other education providers. The Suffolk County-based Whitsons Culinary Group received savings from food vendors it worked with, but did not pass on those savings to customer schools, resulting in more than $800,000 in illegal charges, Schneiderman stated. Whitsons must now pay $1.6 million to the state and affected school districts, and comply with a series of reforms to improve transparency in its contracting and service.

This investigation was among the first undertaken by the Taxpayer Protection Bureau, which Attorney General Schneiderman established in January to target fraud and abuse of taxpayer dollars.

“These are difficult financial times for New Yorkers and our state. For a company to profit off of sweetheart deals while overcharging our schools is simply unconscionable,” said Schneiderman. “Recovering taxpayer dollars is exactly what the Taxpayer Protection Bureau was established to do – and today’s announcement sends a clear message that those who seek to defraud New York taxpayers will be held accountable. On behalf of students, parents and taxpayers, we are pleased that these schools will get their money back, and that Whitsons will no longer be able to siphon funds meant to benefit students.”

The Attorney General’s investigation determined that from the 2002-03 school year through the end of 2010, Whitsons received rebates from its food vendors but failed to pass those savings onto the schools – a violation of contracts, as well as state and federal regulations. Schneiderman said that Whitsons also entered into what it called marketing agreements with food and materials vendors, claiming to market services, but the Office considered these agreements to really conceal the receipt of rebates that were required to be credited to New York schools with which Whitsons contracted.

The Attorney General’s Taxpayer Protection Bureau will continue to investigate fraudulent rebates practices in the food services industry, including the conduct of major food service companies, distributors, and vendors.

In addition, a member of the Office of the Attorney General testified Oct. 5 before the United States Senate’s Homeland Security & Governmental Affairs Committee, Subcommittee on Contracting Oversight concerning the Attorney General’s investigation into food service industry practices and the impact on government programs like the National School Lunch Program.

Funds from the settlement will be distributed to the impacted school districts and educational entities. They include:

Nassau County

Hicksville Public School District
Syosset Central School District     
Plainview-Old Bethpage School District   
Mill Neck Family of Organizations
SCO Family of Services - The Robert J. McMahon Children’s Center   

Suffolk County

SCO Family of Services - Madonna Heights        
East Hampton Union Free School District
South Country Central School District      
Huntington Union Free School District    
Bridgehampton Union Free School District         
East Quogue School District
Kings Park Central School District 

The settlement also requires greater transparency in the contracting process and to create built-in safeguards to ensure that clients are informed about rebates. The Attorney General stated that Whitsons must:

• 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; and;

• Pay for an independent auditor’s review of Whitsons’ off-invoice rebate program for the next two to three years, depending on the progress of Whitsons’ effort to eliminate rebates from its business altogether.

This case was pursued under the New York False Claims Act. As a state senator, Attorney General Schneiderman authored amendments to strengthen the False Claims Act. These enhancements, known as the Fraud Enforcement and Recovery Act, allow the state to collect triple damages and between $6,000 and $12,000 per violation from corporations or people who defraud the government, or violate their obligations to pay government entities.

 The Attorney General’s investigation was led by Taxpayer Protection Bureau Senior Counsel Emily Bradford and Deputy Bureau Chief John F. Carroll, under the supervision of Bureau Chief Randall Fox and Executive Deputy Attorney General for Criminal Justice Nancy Hoppock.