A.G. Schneiderman Announces $330k Settlement With Illinois Food Distributor For Overcharging State And Local Institutions In New York

Investigation Into Failure Of Food Distributors To Pass Through Discounts Results In Nearly $40 Million In Recoveries For New York State Institutions

Schneiderman: There Must Be Transparency, Accountability And Fair Dealing In All Government Procurement Contracts

NEW YORK- Attorney General Eric T. Schneiderman today announced a $330,000 settlement with national food distributor US Foods, Inc., for overcharging 67 New York state and local institutions by failing to pass on cost savings it received from manufacturers. The institutions include homes for the elderly and disabled, schools, the New York State Museum and the New York State Senate. 

The Attorney General’s Taxpayer Protection Bureau’s investigation into US Foods was part of an ongoing, industry-wide probe into whether food service companies are overcharging government customers. The investigation into the Illinois-based distributor found that, since April 2009, US Foods has failed to disclose and pass through to New York institutions the cost-saving discounts it received for volume and growth programs. US Foods, a national distributor of food and other items, receives these discounts from manufacturers when it meets certain sales goals. Under the terms of its contract with the New York State Office of General Services, the company is required to disclose and pass on these discounts to state and local institutions that make purchases through the contract.

“Financial transparency and accountability are requirements when doing business with the State of New York and my office is here to ensure that contractors are playing by the rules,” Attorney General Schneiderman said. “Rules that require the full disclosure of discounts are meant to pass savings on to local and state government agencies and institutions that benefit from these contracts.”

Last year, the Attorney General’s office recovered $18 million as part of this ongoing investigation in a settlement with Compass USA, Inc., which provides food services directly to schools and other governmental customers for failing to pass on rebates to those customers. A press release for that case is available here. In 2011, the office reached a $1.6 million settlement with Whitson’s Food Service Corporation and, in 2010, it reached a $20 million settlement with Sodexo, Inc. Those earlier releases can be viewed here and here.

Proceeds from the settlement with US Foods will be distributed to the 67 institutions that purchased food products based on their level of purchases. The groups, spread across numerous counties, will be reimbursed for the discounts they did not receive. The reimbursements will range from a high of $15,353 going to the Hamilton Fulton Montgomery BOCES, a consortium of community colleges and school districts in Fulton County, and the Capital Region BOCES-Albany Campus, for example, to a low of $205 going to New York State Museum, and Utica’s Mohawk Valley Psychiatric Center.

Other institutions receiving money include the Hamilton Fulton Montgomery BOCES, a consortium of community colleges and school districts in Fulton County, and the Capital Region BOCES-Albany Campus, which are each set to receive $15,353. Three camps run by the New York State Department of Environmental Conservation, including camps DeBruce, Colby and Pack Forest, and the Greater Binghamton Health Center will receive about $3,000 each. The New York State Senate will receive $1,228 and the Oswald D. Heck Developmental Center in Schenectady is getting $3,071. 

The OGS contract covers government entities, which receive taxpayer dollars, and non-profit institutions.

The investigation of US Foods was conducted by Attorney General Schneiderman’s Taxpayer Protection Bureau, which investigates fraud and abuse in connection with taxpayer dollars. The Attorney General thanks the New York State Office of General Services for helping to develop the operational facts and technical information crucial to this investigation.    

Of the total settlement, the state and local organizations will receive $200,000 and the Attorney General will receive $130,000 to cover the cost of the investigation.

This case was handled by Taxpayer Protection Bureau Assistant Attorney General Marvin Peguese and Legal Support Analyst Devin Gould, under the supervision of Bureau Chief Randall Fox, Deputy Bureau Chief Scott Spiegelman and Executive Deputy Attorney General for Criminal Justice Kelly Donovan.

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