School lunch overcharge resolved; firm to pay $1.6M

A Long Island-based food service company agreed to pay $1.6 million to settle allegations that it overcharged schools for lunches, state Attorney General Eric Schneiderman announced Wednesday.

The Islandia-based Whitsons Culinary Group failed to disclose and pass through rebates from its vendors to it school clients, as required under state and federal laws, according to the settlement.

"These are difficult financial times for New Yorkers and our state," Schneiderman said in a news release. "For a company to profit off of sweetheart deals while overcharging our schools is simply unconscionable."

Whitsons failed to credit 30 school district and private school clients with more than $807,343 of rebates they received from vendors since 2002, according to the settlement, which includes punitive damages. It has 20 days to refund money to its school clients, which include seven in Nassau County and six in Suffolk County.

The investigation began as part of a broad inquiry of the food service industry by the Taxpayer Protection Bureau, a new division that Schneiderman established in January. The settlement follows a $20 million settlement in a similar investigation last year against Sodexo that was initiated by Gov. Andrew M. Cuomo, who was then attorney general.

Schneiderman's investigation focused on Whitsons Food Service Corp. and Whitsons School Nutrition Corp., two businesses within the umbrella organization, a family-run business.

The company admitted to certain overcharges in a statement but said that they were caused by confusion with new laws that took effect during the period in question.

"Whitsons determined that it inadvertently and unintentionally failed to account for certain rebates to some NY school districts for the period 2003-2007," the company said in a statement.

The company said it updated its rebate accounting procedures in 2007 and is in compliance with federal and state regulations.

While the company neither admitted nor denied the allegations in the settlement, Whitsons spokeswoman Holly Von Seggern said the company had a "difference of opinion" on one aspect of the settlement.

Schneiderman alleged that Whitsons had taken marketing fees from vendors that were actually rebates. "OAG determined that the funds Whitsons received under the 'marketing agreements' did not correlate to whatever services Whitsons performed for the vendors," the settlement said.

Von Seggern said the company "did provide legitimate marketing services" such as putting up product posters or pushing certain products.