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IFUND exposed Sodexo fraud in 2009; company now pays $20 million settlement

Last week, the New York Attorney General announced a $20 million settlement with Sodexo, a $20-billion-a-year global leader in the food and facility management industry that runs cafeterias for schools, colleges, hospitals and nursing homes, businesses and even the military. It accused Sodexo of keeping “rebates” (or “kickbacks”) from the companies that provide the chicken, French fries, soft drinks, and other supplies it serves its clients. That was fraud when contracts were “cost-plus” — cost plus a percentage based on the Sodexo's real costs — and Sodexo didn't deduct the “rebates.”

The Attorney General's press release said, “the company promised to provide goods at cost but failed to acknowledge rebates from suppliers, resulting in illegal overcharges to the schools.” It also quoted Attorney General Andrew Cuomo: “This company cut sweetheart deals with suppliers and then denied taxpayer-supported schools the benefits. The state and federal regulations regarding such contracts exist to protect taxpayers, and I thank the whistleblowers for having the courage to bring this to our attention.”

This practice was first exposed in my story, supported by The Investigative Fund, “Cafeteria Kickbacks,” published in In These Times in March 2009.

The New York AG claimed a payback of $20 million, which was divided between two whistleblowers who were the sources for the ITT article, the State of New York and 21 educational institution victims of the Sodexo scam.

The Attorney General indicated that there was an ongoing, industry-wide inquiry. The press release continued, “The investigation continues to examine the rebating practices of other large, multi-national corporate providers of food service and facilities management to taxpayer-funded organizations within New York State.” Compass (based in the UK) andAramark (U.S.) divide the market with Sodexo (headquartered in France) and, according to an expert cited in my article, engage in the same practice.

So, if one took a conservative estimate that Sodexo/New York represented 10 percent of the kickbacks, that would bring the national total to $200 million, on the very low side. Considering that the New York City public school system runs its own supply operation and is not included among the victims, it's very likely more. And considering that the other two major competitors do the same, we talking about half a billion, a billion dollars or much more. And that's only schools. There are also public universities and hospitals contracting with Sodexo and the other companies for cafeterias.

There are two astonishing aspects to this development.

The first is that after The Investigative Fund exposé more than a year ago, journalists around the country did not look into the situations in their own communities to see if their public institutions were being cheated by Sodexo or the other food service companies. (Though websites republished the story.) Fast forward to this month. Sodexo, a global multi-billion-dollar company caught cheating public institutions, settles for $20 million. This does not merit an article in The New York Times or The Wall Street Journal. Is anyone now investigating what this means across the country, where Sodexo exists in every state? Where states are hurting for money and might like to get a settlement like New York's? If we include schools, colleges, and hospitals contracting with Sodexo, Compass and Aramark, we are talking multiple billions of dollars. Are American journalists asleep?

The second surprise is that attorneys-general in other states — including Massachusetts and Connecticut to whom the whistleblowers took their documents — so far give no indication of having taken action. Or are they just a lot slower than New York?

About the reporter

Lucy Komisar

Lucy Komisar

Lucy Komisar is an investigative journalist focused on financial and corporate corruption.

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