USDA Audits on Contracting Practices

The US Department of Agriculture recently implemented new procurement regulations tightening oversight of food and other purchases made by contractors operating school meal programs. The new rules were prompted by two USDA OIG audits that found improper contracting practices had undermined open competition and resulted in food service companies improperly billing School Food Authorities.

In These Times Investigation on Kickbacks

In March 2009, In These Times ran an investigative report that claimed Sodexo generates hundreds of millions of dollars each year in revenue from kickbacks provided by food manufacturers and distributors, which appear to have led to inflated food costs for some publicly funded schools and possibly other institutions.

The article lead with an allegation made by a Rhode Island-based child nutrition advocate Dorothy Brayley that Sodexo was over-charging districts for milk in order to generate back-end revenue. According to the article, at the end of the 2006 school year, a salesman for Garelick Farms, New England's largest dairy, explained to Brayley that Sodexo was paying Garelick more than competitors in order to get a bigger rebate.

State Education records showed that Sodexo passed on the price hike, billing schools 24 cents to 27 cents per half-pint, while milk was available from a competing company for only 18 to 21 cents per carton. According to the In These Times report, the loss to RI schools and families resulting from the higher milk prices was more than $100,000.

Other Investigations

More recent school milk price charts obtained from the Rhode Island Department of Education indicate Sodexo's milk prices in FY 2008 continued to be above those of other school food service contractors. State records show that in 2008 Sodexo billed schools participating in the federal Special Milk Program 23 cents to 27 cents for a half pint of milk while at the same time Aramark was selling the same half-pints to RI districts for 17 cents to 20 cents - a difference of up to ten cents per pint.