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School lunch firm in $18M fraud settlement

ALBANY -- 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 yesterday.

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."

The Charlotte, N.C.-based company staffs and supplies food services at schools such as 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 yesterday, 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 $350,000 annually over an 8-year period. We also took corrective measures to ensure that such discrepancies would not occur again."

It's the 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.

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