Transparency and Accountability
USDA Office of Inspector General - "Food and Nutrition Service: National School Lunch Program: Cost-Reimbursable Contracts with a Food Service Management Company."
A 2005 USDA Office of the Inspector General (OIG) audit of one food service management company found that, in 106 contracts with school food authorities, the corporation did not pass on at least $1.3 million in savings it received, even though the 106 contracts specifically required the crediting back of the funds. The savings came from incentives, discounts and rebates that the company negotiated from food manufacturers.
Read the audit report here: http://www.usda.gov/oig/webdocs/27601-15-KC.pdf
USDA Office of Inspector General - "Food and Nutrition Service: National School Lunch Program: Food Service Management Companies."
In 2002, USDA's Office of the Inspector General (OIG) reported on instances where food service management companies were allowed to retain the value of USDA-donated commodities, purchase discounts, rebates and credits. In many of these cases, contracts were missing the necessary controls to ensure nonprofit school food authorities was getting the benefit of those commodities and discounts. In others, management companies profited from discounts and credits contrary to their contracts. The OIG report found that five out of eight management companies reviewed had improperly retained benefits from 53 school food authorities, valued at about $6 million.
Read the audit report here: http://www.usda.gov/oig/webdocs/27601-27-Ch.pdf
USDA Food and Nutrition Service - New Procurement Rules for the National School Lunch, School Breakfast and Special Milk Programs
In response to the 2002 OIG report referenced above, the USDA's Food and Nutrition Service developed new procurement rules designed to provide the necessary controls by:
Requiring state agency review and approval of contracts and contract amendments between school food authorities and FSMCs prior to each contract's execution.
Requiring the following provisions in all new cost reimbursable contracts and bid solicitations:
(i) Allowable costs will be paid from the nonprofit school food service accounts to the contractor net of all discounts, rebates and other applicable credits accruing to or received by the contractor or any assignee under the contract, to the extent those credits are allocable to the allowable portion of the costs billed to the school food authority;
(ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or
(B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in a manner suitable for contract cost determination and verification;
(iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars;
(iv) The contractor must identify the amount of each discount, rebate and other applicable credit on bills and invoices presented to the school food authority for payment and individually identify the amount as a discount, rebate, or in the case of other applicable credits, the nature of the credit. If approved by the State agency, the school food authority may permit the contractor to report this information on a less frequent basis than monthly, but no less frequently than annually.
(v) The contractor must identify the method by which it will report discounts, rebates and other applicable credits allocable to the contract that are not reported prior to conclusion of the contract; and
(vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits and must furnish such documentation upon request to the school food authority, the State agency, or the Department.