Finally Revealed: Processed Food Rebates Dominate School Cafeterias

Chartwells gets big rebates serving meals like this

By Ed Bruske

aka The Slow Cook

When I first started writing about the food being served in my daughter's elementary school cafeteria, I figured there had to be a reason children were being fed Apple Jacks cereal, strawberry milk, Pop-Tarts, Giant Goldfish Grahams and Otis Spunkmeyer muffins for breakfast.

I was right. The manufacturers of those sugar-laden products pay hefty rebates--some call them "kickbacks"--to giant food service companies as an inducement to purchase their highly processed goods. But I have now learned it's not just the lousy food that's fueled by rebates. Just about everything that goes into running a public school cafeteria comes with a rebate check that helps make sure the industrial version of food wins out.

In what may be the first ever detailed look into how industry rebates dominate school food service, documents I obtained under the Freedom of Information Act indicate that more than 100 companies paid rebates in recent years to the food service management company hired by D.C. Public Schools--Chartwells--for everything from breakfast cereal, hamburger patties and canned green beans to paper cups, armored car services and drug counseling for employees.

Far and away the biggest contributor to the rebate dollars collected by Chartwells was a company I had never heard of, but one that apparently plays an oversized role in feeding our city's children--Performance Food Group. According to an itemization released by D.C. Public Schools, Performance Food Group paid more than $400,000 in rebates for goods and services supplied to the city's schools over the last three years.

Based in Richmond, Va., Performance Food Group claims to be "one of the nation's largest foodservice distributors" with multiple brands and more than 1,000 products aimed not only at schools and restaurants but "every kind of eatery from coast to coast." The company has operations in 29 states, "from our distribution warehouses in Tennessee, to our seafood facility in Miami, to our cheese processing facility in Minnesota." It employees 10,000 workers just to transport all of its goods, and its trucks "log millions of miles each year," according to the company's website.

Second on the list of biggest rebate providers in D.C. schools is General Mills, the cereal maker, at $41,218, followed by Kraft, supplier of mayonnaise and salad dressings at $36,165, and Country Pure Foods-Ardmore Farms, manufacturer of fruit juices, at $34.991. The list includes many of the nation's top industrial food processors, such as Kellogg's ($20,717), ConAgra ($25,030) and Tyson ($15,792), as well as frozen pizza giant Schwan's ($24.561) and muffin maker Otis Spunkmeyer ($21,377).

Manufacturers pay rebates based on large volume purchases--literally, cash for placing an order. Rebates are said to be worth billions of dollars to the nation's food industry, although manufacturers as well as the food service companies who feed millions of the nation's school children every day--Chartwells, Sodexo and Aramark--treat them as a closely-guarded secret.

The U.S. Department of Agriculture requires that food service companies engaged in "cost reimbursable" contracts with schools credit any rebates they receive to their school clients. For more than a year, attorneys for D.C. Public Schools refused to make public an itemized list of rebates collected by Chartwells, claiming the information constituted "trade secrets." The schools were overruled by Mayor Vincent Gray's legal counsel after I filed an administrative appeal.

John Carroll, an assistant New York State attorney general investigating rebating practices there, has said rebates pose "an inherent conflict of interest" in school feeding programs because they favor highly processed industrial foods. In cases where schools pay a food service company a flat rate to provide meals, the companies are not required to disclose the rebates they collect. In those cases, Carroll recently told a U.S. Senate Panel, rebates tend to drive up the cost of food, cheating children out of nutrition they might otherwise have on their lunch trays.

Carroll also described cases where rebates discouraged the use of local farm products in school meals. Produce vendors can't afford to pay a rebate for local apples. But in at least one case, a produce distributor raised the prices of his goods so that he could pay a rebate to a food service company.

A Homeland Security sub-committee in the U.S. Senate is investigating possible rebate fraud in contracts across the entire federal government.

Here in the District of Columbia, children were being fed meals manufactured in a suburban factory until Chartwells in the fall of 2009 introduced something it called "fresh cooked." As I discovered while spending a week in the kitchen at my daughter's elementary school, what that entailed was reheating pre-fabricated meal components such as chicken nuggets and tater tots. For breakfast, children were often consuming up to 15 teasoons of sugar in the form of processed cereals, flavored milk, cookies and muffins.

Around that same time, D.C. Public Schools hired a new food services director, Jeffrey Mills, who scoured the entire Chartwells menu item-by-item, removing the flavored milk and processed treats and replacing many of the familiar re-heated lunch items. Funds allocated by a "Healthy Schools Act" approved by the D.C. Council helped pay for fresh local fruits and vegetables. But Mills said he sometimes encountered stiff resistance from the local Chartwells manager because the products Mills wanted to serve were not on Chartwell "preferred" product list.

According to Carroll, site managers for food service companies face punishment from their employers if they deviate from products that pay the biggest rebates. Rebates are extremely lucrative, since they generate revenue that requires virtually no labor. Some products trigger rebates of up to 50 percent of their listed value. And while USDA regulations require that rebates be credited to schools with "cost reimbursable" contracts, it is believed that the big food service companies have found ways to profit from them nonetheless.

For instance, it is speculated that manufacturers offer stepped-up rebates for very large purchase orders. Thus, while a single school district may only be entitled to 10 percent worth of rebates on its share of breakfast cereal, an order for cereal covering multiple school districts might trigger a rebate of, say, 20 percent. The food service company would simply pocket the difference.

Chartwells manages food service in more than 500 school districts across the country. The products it uses are supplied by a sister company called Foodbuy, whose employees concern themselves entirely with writing huge contracts with food manufacturers and collecting the rebates on behalf of their parent company, Compass Group, based in Great Britain. Compass group, which owns numerous food service operations in this country--including Chartwells, Bon Appetit, Restaurant Associates, and Wolfgang Puck Catering--claimed some $22 billion in sales in its most recent annual report.

In July of last year, I disclosed that Chartwells had collected more than $1 million in rebates and discounts during its first 18 months of operation in D.C. schools. Subsequently, the schools acknowledged that they had been waiting nine months for Chartwells to make good on a request to produce an itemized accounting of where those rebates came from.

I can now pass along a list of most of the companies involved, compiled from hundreds of data entries contained in the documents obtained from D.C. Public Schools, representing rebates reported by Chartwells since fall 2008. Some of the companies cited in the documents could not be positively identified.

$ 415,051.41 Performance Food Group: food and food service products

$ 41,218.07 General Mills: breakfast cereals

$ 36,165.78 Kraft General Foods: salad dressings, condiments

$ 34,991.20 Country Pure Foods-Ardmore Farms: fruit juices

$ 32,839.50 Jenny-O Turkey Store: processed turkey products

$ 29,075.44 Allen Canning: canned vegetables

$ 25,030.91 ConAgra: prepared foods

$ 24,561.45 Schwan's: frozen pizza

$ 21,377.88 Otis Spunkmeyer: muffins

$ 20,717.38 Kellogg's: breakfast cereal

$ 20,628.47 Ecolab: kitchen sanitation services

$ 19,002.03 Pilgrim’s: chicken products

$ 15,792.67 Tyson: chicken products

$ 13,682.74 Keany Produce: fruits and vegetables

$ 16,583.00 Ford Motor Co.: vehicles

$ 15,011.72 Supply America: food service supplies and equipment

$ 14,324.32 Frito Lay: chips and snacks

$ 13,974.08 JAFCO Foods: breaded chicken

$ 9,959.46 Butensky Services: refrigeration repair

$ 9,830.65 Simplot Food Group: frozen potato products

$ 9,509.46 Smithfield Packing: ham, hot dogs

$ 9,153.11 Pactiv: plastic food packaging

$ 8,226,89 Atlantic Mills: kitchen wipes, aprons

$ 8,056.00 VF Solutions: uniforms

$ 7,344.53 Heinz: ketchup

$ 7,308.33 Dunbar Armored: armored car services

$ 6,727.56 Pinnacle Foods: syrup, pickles, barbecue sauce

$ 6,591.27 Unilever Food Solutions: dressings, sauces, seasonings

$ 6,578.11 Michael Foods: frozen egg products

$ 6,193.99 Coca-Cola: soft drinks, bottled water

$ 5,953.75 Automotive Rentals: vehicle rental

$ 5,680.97 Great Lakes Cheese: cheese products

$ 5,195.30 Mission Foods/Gruma: tortillas

$ 5,152.21 Office Max: office products

$ 4,718.02 McCormick & Co.: spices

$ 4,678.79 Cadbury: chocolate

$ 4,388.70 Cargill Meat Solutions: processed beef

$ 4,368.03 National Paper & Plastic: plastic cutlery, disposables

$ 3,679.00 Network: undetermined

$ 3,571.05 Osborne Co.: undetermined

$ 3,239.65 Sara Lee Bakery: bread, baked goods

$ 3,200.00 Rush Truck Center: trucks

$ 2,882.68 Produce Source Partners: produce, cut fruits and vegetables

$ 2,604.29 Nestle: frozen prepared foods

$ 2,587.67 REMA Foods: canned, frozen and packaged commodity foods

$ 2,516.04 Georgia Pacific-Dixie Foodservice: disposable cups, plates

$ 2,571.30 Tropical Paradise Inc.: frozen fruit slush

$ 1,992.46 Dr. Pepper/7-Up: soft drinks, bottled water, Snapple

$ 1,970.99 Advanced Food Company: Philly steakds, bugers, fajita strips

$ 1,917.71 Schreiber Foods: processed cheese

$ 1,770.04 Hormel: processed meats

$ 1,604.00 MegaMex Foods: salsa, canned jalapeno peppers, refried beans

$ 1,317.36 Lamb Weston: potato products

$ 1,305.25 Campbell’s Foodservice: Pepperidge Farm Goldfish, Giant Goldfish Grahams

$ 1,274.61 Anchor Packaging: plastic food containers

$ 1,219.00 Fabri-kal Corp.: plastic food containers

$ 1,250.20 Iceland Seafood Corp.: frozen fish

$ 1,210.00 Sara Lee Meats—Jimmy Dean: breakfast sausage

$ 1,112.30 Rich Products: frozen foods

$ 963.95 WinCup: Styrofoam cups

$ 913.80 Colavita: olive oil

$ 853.41 Masterfoods—Uncle Ben’s: instant rice

$ 810.25 Ventura Foods-Sunnyland: oils, shortenings, pan coatings

$ 683.94 Verizon Wireless: communications

$ 579.46 First Advantage Occupational Health Services: drug screening, substance abuse assistance

$ 564.24 Schwan’s Bakery: undetermined

$ 539.80 Goodman Foods: undetermined

$ 531.57 Gehl’s Guernsey Farms: cheese sauces

$ 494.54 Bon Chef: food presentation equipment

$ 401.65 Jet Plastica: plastic cutlery, straws

$ 400.80 Smucker's: jams, jellies

$ 400.00 Mickey Truck Bodies: specialty delivery trucks

$ 398.00 Ken’s Foods Inc.: salad dressings

$ 368.75 Wholesome & Hearty Food: vegetarian burgers

$ 314.89 Handi Foil: disposable aluminum containers

How Rebates Keep Local Produce Out of Schools

No rebates for local carrots?

By Ed Bruske
aka The Slow cook

Just in time for Farm to School Week, the state prosecutor investigating fraud in school food rebates in New York yesterday told a U.S. Senate panel how the industry practice of awarding rebates to food service providers for large volume purchases discourages the use of local farm goods in school meals.

Assistant New York Attorney General John Carroll, testifying before a Senate panel investigating rebates in government contracting, said manufacturer rebates have become a pervasive practice in school food service that favors large companies and discourages purchases from small suppliers and local farmers.

"In fact in one instance I observed that a local produce wholesaler increased the prices it charged to the school district for fresh produce, including locally grown produce, so that it could pay the food service company a rebate," Carroll said in his prepared testimony. "In that same market I also observed that the local site manager found it difficult to meet buy local requirements and still comply with the food service company requirement that the vendor pay rebates."

Carroll said the managers who operate local school food operations on behalf of large food service companies face "tremendous pressure" from the parent company to buy products only from suppliers who pay rebates. "So for example, the local site manager wanted to try to buy apples from a local grower directly, but felt pressure not to do so, because the local apple grower could not pay rebates on par with what the food service company expected based on expectations from larger food vendors."

"One of the ways food service companies seek to maximize rebate earnings, is to restrict the number of sources local site managers, the food service employee working in the school, can use to buy foods," Carroll told the panel. "Food service companies endeavor to create lists of the companies which site managers buy from, and site managers are evaluated based on compliance, that is, the degree they adhere to purchasing from the company's list of vendors."

He continued: "I do not think it will surprise you to know that by and large, all vendors on food service company's list of approved vendors pay rebates, and the vendors which do not pay rebates rarely appear on the lists of approved vendors. Food service company site managers - the food service company employee managing a particular location - are strongly discouraged from making purchases from non rebate paying vendors. My investigation determined that some food service employees are evaluated and compensated based in part on the amount of 'compliant' purchases such employees make for a particular account--that is, from vendors which pay rebates."

New York last year collected $20 million from the giant food service company Sodexo after it alleged that the company had failed to credit schools and other state government clients for rebates it collected from manufacturers. Since 2007, the U.S. Department of Agriculture, which oversees the national school meals program, has required that rebates collected by companies such as Sodexo, Chartwells and Aramark engaged in "cost reimbursable" contracts with schools be passed along to the schools.

New York State has had the same requirement in place since 2003.

Carroll said school food accounts represent hundreds of millions of dollars in rebates to food service providers from giant manufacturers such as Tyson, General Mills and Coca-Cola.

His investigation continues. This week a Suffolk County-based company--Whitsons Culinary Group--agreed to pay the state and 30 schools $1.6 million for rebates it failed to pass along to those clients, according to the New York Daily News.

Subpoenas have been issued to 10 food vendors as part of the probe, the Daily News reported.

Companies engaged in "fixed rate" contracts with schools are permitted to keep the rebates they collect, although Carroll said that practice disguises the actual costs of operating school cafeterias and denies children nutritional food they might otherwise have on their trays.

Carroll testified that "to the extent that it is difficult to determine or there is obscurity as to the true value of the food going into the final meal, the more difficult it will be to be certain that school children or our soldiers in the field are getting a healthy meal that they will actually want to eat."

Manufacturer rebates are called "kickbacks" by some because they involve secret arrangements between buyers and sellers that do not appear on invoices or in annual corporate reports. It's an area of food service treated as a closely-guarded secret by the industry. Carroll said rebates were hardly a factor in school meals before 2000, but have since become rampant. A Senate Homeland Security subcommittee is investigating the implications of rebates on contracts affecting the entire federal government.

Carroll said rebates typically amount to 10 to 15 percent of all purchases made by food service providers for school meals in New York. My own investigation here in the District of Columbia revealed that Chartwells claimed it had collected more than $1 million in rebates during the first 16 months of its contract with D.C. Public Schools. But that represented only five percent of Chartwells' total purchases, according to invoices I obtained through the Freedom of Information Act.

Carroll said rebates represent "an inherent conflict of interest" in school food service, placing monetary interests ahead of the nutritional needs of children.

"Rebating, by any reasonable view, is an intentionally opaque practice." he said. "It is a practice intended to obscure the actual costs incurred by food service companies, and also to obscure the relationship between food service companies and food distributors and vendors."

John Carroll discussed his investigation into rebates at length before a gathering of the School Nutrition Association earlier this year. You can see a video of Carroll's remarks here.

D.C. Mayor Orders Release of Secret School Food Rebate Data

Unveiling rebate secrets

By Ed Bruske

aka The Slow Cook

In a development that could finally crack the code of silence surrounding rebates in school food service, lawyers for D.C. Mayor Vincent Gray have reversed a longstanding decision by local school officials and ordered the release of data showing how much money food manufacturers pay in rebates in order to place their products on children's cafeteria trays in the nation's capitol.

The decision comes in response to an administrative appeal I brought before the mayor after attorneys for D.C. Public Schools denied access to the rebate information on grounds it constituted "trade secrets" that could, if disclosed, harm the competitive position of the schools' hired food service provider, Chartwells.

I originally had sought the information more than a year ago through the city's Freedom of Information Act in an effort to determine the extent to which rebates might influence the choice of food D.C. schools serve. As a result of my FOIA requests, I was able to determine that Chartwells had claimed receiving more than $1 million in rebates from food manafucturers during the second year of its contract with the schools. However, the schools, citing a "trade secrets" exemption to the FOIA law, refused to release an itemization of which manufacturers had paid the rebates. The schools also declined to release detailed contract proposals submitted by Chartwells and Sodexo in the original bidding process.

John F. Carroll, an assistant New York attorney general invesitigating rebates in that state, has said the manufacturer discounts pose an "inherent conflict of interest" in school food service because they provide a financial incentive to choose highly processed and often sugary products over healthier foods. They also encourage purchases of large, national brands over locally produced goods that might be less expensive and more healthful, but do not pay rebates.

My own investigaton of school food in the District of Columbia showed that children routinely were being served the equivalent of 15 teaspoons of sugar in the morning in the form of popular branded products such as Apple Jacks Cereal, Pop-Tarts, Giant Goldfish Grahams and Otis Spunkmeyer muffins, along with chocolate and strawberry milk. D.C. schools have since stopped serving those products, removed flavored milk from the menu and otherwise taken steps to lower the sugar in school food.

The rebating practice is pervasive in the food industry and in school food service, especially where large food service management companies such as Chartwells, Aramark and Sodexo are involved. But while rebating no doubt generates billions of dollars to grease the wheels of the processed food industry, precise information about the practice is a secret closely guarded by manufacturers as well as those who benefit from the cash it produces. Essentially, the manufacturers write checks to companies who purchase their products in large volumes. Chartwells' parent company, the $22 billion international conglomerate Compass Group, maintains an entirely separate entity called Food Buy solely to write purchase contracts and collect rebates generated by its many subsidiaries.

Under the federal school meals program, food service companies retained through "cost reimbursable" contracts must pass any rebates they receive to their school district clients. After I tallied the rebate amounts Chartwells had declared on its monthly invoices to D.C. schools, it was revealed that school officials had asked Chartwells for an itemized accounting of the rebates but had been waiting nine months to receive one. School food services Director Jeffrey Mills was said to be troubled by the rebates and their influence over Chartwells' food purchases.

As a result of the ongoing investigation in New York, Sodexo last year agreed to pay $20 million to settle claims that it had failed to reimburse schools and other government clients for the rebates Sodexo had received. Subsequently, D.C. Council member Mary Cheh (D-Ward 3), author of a "Healthy Schools Act," asked the city's then-attorney general, Peter Nickles, to assist the schools in recovering any rebate monies they might be owed. Cheh also oversees implimentation of the District's FOIA laws.

Information about rebates is so sensitive that the School Nutrition Association, which counts Chartwells and other food management companies as well as numerous manufacturers as members, removed from YouTube a taped version of a speech Carroll delivered to the group in March. In that speech, Carroll disclosed that rebates typically generate checks from manufacturers worth 10 percent to 15 percent of all food purchases. Some items are rebated up to 50 percent of the purchse price.

In Denver earlier this year, representatives of the Service Employees International Union were ejected from a conference held by the American Association of School Administrators because they were distributing information about school food rebates and planned to hold a workshop on rebates in school contracting. Aramark and Chartwells were both sponsors of the event, and Sodexo lists itself as one of the association's "strategic partners."

In a letter to me dated May 26, the mayor's deputy general counsel Donald S. Kaufman wrote that attorneys for D.C. schools had erred when they invoked the "trade secrets" exemption to my FOIA request without showing how releasing the rebate and contract information would "result in substantial harm to the competitive position" of Chartwells, a requirement of the D.C. FOIA law.

"DCPS has not pointed to any authority, nor are we aware of any, which holds that the amount or source of rebates or volume discounts is, as a matter of law, protected commercial or financial information for the purposes of FOIA, nor is it apparent that the disclosure of such information would result in competitive harm," Kaufman wrote.

"The response of DCPS is insufficient to justify the withholding of the documents," Kaufman wrote in this "final decision" of the mayor's office. "The documents must be provided to Appellant," meaning me.

Under the D.C. FOIA, decisions by individual city agencies can be challenged in court, or appealed administratively directly to the mayor. I chose to appeal to the mayor. I suspect that Chartwells may now be contemplating a court filing to block release of the rebate information.

Corporate Food Interests Censor Talk of Rebates in School Meals

By Ed Bruske

aka The Slow Cook

Giant food service companies apparently will do whatever it takes to squelch information about the impact of rebates on meals served to children in the nation's schools.

At a recent conference hosted by the American Association of School Administrators, representatives of the Service Employees International Union (SEIU) who had paid $5,000 to participate in the conference at Denver's convention center were forced to leave after being told that the information they were handing out on industry rebating practices "slandered" at least one of the other participants, which included food service giants Aramark, Chartwells and Sodexo.

Jordan Ash, an SEIU worker from St. Paul, Minn., was manning the union's booth in the conference's exhibition area Feb. 17 alongside Pizza Hut and numerous other vendors when he said he was approached by one of the event's organizers, Kay Dillon.

AASA represents thousands of the nation's school superintendents and principals, billing itself as "committed to creating the conditions necessary for all students to become successful, lifelong learners." The education conference is an annual event, which this year focused on issues bearing on education reform, including "federal funding for education, budgeting in the new economy and the reauthorization of the Elementary and Secondary Education Act," according to the group's website.

Ash said a lengthy discussion with Dillon ensued about some of the literature Ash was handing out, aided by a Denver-based SEIU cohort. The materials included a Bloomberg News report describing last year's settlement between the New York attorney general's office and Sodexo, in which the food service behemoth agreed to pay $20 million to resolve claims it had withheld food manufacturer rebates--or discounts--that should have been credited to its school district clients.

That settlement has reverberated through school food circles--Sodexo, Aramark and Chartwells serve meals to millions of school children nationwide every day. The deputy attorney general in New York handling the state's investigation recently told a gathering of the School Nutrition Association, representing some 53,000 cafeteria workers, that rebates create "an inherent conflict of interest" in the choice of foods served to children, as they favor highly processed convenience foods marketed by giant manufacturers such as Tyson and Kellogg.

Ash said Dillon was vague about the precise reason he was being ejected from the conference, except that his materials were offensive. "We actually went through with her which materials were acceptable. Basically, any materials that mentioned any company by name were not acceptable," Ash said. "We asked if we could talk about the [New York] settlement without naming names, and she said no, because everybody knows who the company was."

At its website, the AASA lists Aramark as a "visionary"--or top tier--corporate sponsor of the conference, along with textbook publishers Houghton Mifflin Harcourt and McGraw-Hill Education. Chartwells is listed as a "supporter," along with Blackboard Inc. and the SEIU group that was ejected, Campaign for Quality Services. Sodexo lists the schools administrators group as one of its "strategic partners."

Campaign for Quality Services says it aims to organize workers, parents and community leaders of various stripes to improve the quality of government services, including school food and custodial services. Sodexo and the Service Employees International Union have been at odds for years over labor practices. Sodexo recently filed suit against the SEIU alleging illegal organizing tactics. The union maintains a website called "Clean Up Sodexo," which calls the Sodexo suit a corporate attempt to silence union voices.

Nonetheless, Ash said he reminded Dillon that the SEIU had been welcomed at prior AASA events, including the group's conference last year in Phoenix. "She said a lot has happened in the last year."

Dillon did not return several telephone messages and an e-mail seeking her side of the story.

In addition to tossing Ash and his SEIU coworker from the exhibition area, Dillon also cancelled a workshop that had been scheduled and paid for by the union group featuring school food consultant Barry Sackin. Sackin, who until 2005 was a chief policy advisor and Capitol Hill lobbyist for the School Nutrition Association, was scheduled to talk to school administrators about ways to better manage their food service contracts, and how to avoid traps involved in food manufacturer rebates. A video of the presentation he was planning to give, along with an account of the Denver incident, was posted online by Campaign for Quality Services.

Ash said he had paid the AASA for use of an e-mail list to notify some 1,300 school administrators about Sackin's workshop and was expecting robust attendance. Sackin said he was five minutes from walking out of his California home to catch a plane to Denver when he got a call from Ash saying the workshop had been cancelled.

"I do a lot of presentations on a variety of topics, a lot of it in the policy arena," said Sackin. But this was the first time any of his talks had been created such a stir.

"You have nothing to fear in presenting facts. It sort of seems contrary to our national beliefs that you should inhibit open discussion on issues of importance," said Sackin. "The whole point of it is, here’s what the law says and here’s what’s been found through audit [in New York], and here are things you should look at as business managers and consider to get the value of what you contracted for."

Sackin said school administrators need to learn these lessons because they are vastly overmatched by giant food service companies when it comes to negotiating contracts. Jeffrey Mills, the food services director for D.C. Public Schools, is said to be highly dissatisfied with his district's contract with Chartwells for a variety of reasons, including rebates and certain promises to reduce the district's deficit spending on meals that he says turned out to be fairly weak promises after all.

The Denver AASA conference is not the only venue where the mention of school food rebates has raised corporate hackles. In March, John F. Carroll, the deputy New York attorney general conducting the rebate investigation, spoke before more than 800 members of the School Nutrition Association attending the group's legislative conference. In the audience were representatives of Sodexo, Aramark and Chartwells--all corporate sponsors of the SNA--as Carroll described at length how he believes rebates have corrupted school food where management companies are involved.

The SNA posted a video of Carroll's speech on YouTube. But it didn't last long. Some weeks later it was removed from the YouTube site. I was able to obtain a copy, and restored the video to my blog post here, and at the Better D.C. School Food blog.

SNA spokeswoman Diane Pratt-Heavner said in an e-mail: "The video was taken down after several LAC [Legislative Action Conference] attendees expressed concerns about the speech." When asked to elaborate, Pratt-Heavner replied: " We don't have a list of the individuals or their specific concerns."

She later added: "John Carroll spoke at a School Nutrition Association Legislative Action conference for 45 minutes at the Association's invitation. As you know, SNA made the video available on YouTube for several weeks, allowing reporters and writers like yourself to access the speech, and that coverage of his speech is still available online. That said, SNA is a membership organization, and when our members contact us with concerns about our resources and materials, we respond accordingly."

D.C. Schools Food Director Calls Chartwells Contract "Crap"

D.C. schools food services chief Jeffrey Mills

D.C. Publice Schools food services chief Jeffrey Mills is deeply disappointed with the district's contract with cafeteria giant Chartwells, The Slow Cook has learned, calling the agreement "crap" and outlining plans to establish nine satellite production kitchens the schools can use to make their own food sometime in the future.

Two new pilot food programs--one with D.C. Central Kitchen, another with Revolution Foods--have revealed the cost of lunch they provide to be $1 cheaper than what DCPS pays Chartwells. The pilot contractors are paid a flat rate to provide meals, while Chartwells receives an annual management fee, a fee for each meal served, plus reimbursement for all of its expenses.

What's more, Mills says he has to "police everything they [Chartwells] do," and still finds Tyson chicken, high-fructose corn syrup and other objectionable items on kids' cafeteria trays, even after he has specifically rejected them.

Mills is said to be convinced that he could "save $10 million" if D.C. Central Kitchen and Revolution Foods replaced Chartwells entirely, but those companies are not equipped to handle more than half the district's 123 schools. Mills envisions serving food cooked from scratch in all of the district's elementary schools, for instance. But that, he has said privately, is not likely to happen in the coming year.

Former schools Chancellor Michelle Rhee hired Chartwells in 2008 after declaring the schools unable to manage their own food service. At the time, according to former Chief Operating Officer Anthony Tata, the schools were losing between $11 million and $14 million annually on their cafeteria operations, buying pre-made "re-heat" meals trucked in from a suburban factory.

The initial contract with Chartwells called for a $28 million food services budget, under which Chartwells would reduce the flow of red ink to no more than $6 million annually. But Mills now says that "only $1 million of the reduction was guaranteed."

Chartwells also caused the schools a good deal of embarrassment. In January of last year, after spending a week in the kitchen of my daughter's elementary school, I published a series of blog posts detailing the highly-processed frozen convenience foods Chartwells routinely served at lunch--chicken nuggets, tater tots, "beef crumbles" and grilled cheese sandwiches made in Los Angeles and re-heated in their plastic wrappers. Breakfast was even worse. Along with frozen scrambled eggs and "french toast sticks" with high-fructose corn syrup, kids were eating Apple Jacks cereal doused with strawberry-flavored milk, Pop-Tarts, Giant Goldfish Grahams and Otis Spunkmeyer muffins.

On some days, children as young as five consumed the equivalent of 15 teaspoons of sugar before classes even started.

Subsequently I learned from documents obtained through the Freedeom of Information Act that Chartwells had turned over to the schools more than $1 million in rebates it had collected from large food manufacturers such as Kellogg, Pepperidge Farm and Otis Spunkmeyer. An assistant attorney general for New York State has said the rebating practice creates "an inherent conflict of interest" in the choice of foods served to children. Food service companies operating under a "cost reimbursable" contract, as is the case in D.C., are required to credit the schools for all rebates or discounts they receive.

The rebates Chartwells reported to D.C. schools represented five percent of total purchases, compared to the 10 to 15 percent that New York Assistant Atty. Gen. John F. Carroll says is the industry average he has encountered in his investigation of rebating practices there. It took D.C. school officials nine 9 months to get an accounting of food rebates from Chartwells, and Mills is said to be suspcious still that the schools are not receiving their due.

Chartwells is a subsidiary of Compass Group, a British-based international food service corporation that reported $23.5 billion in sales last year.

In December 2009, Tata tapped Mills, a restaurant developer from New York City, to be food services director, filling a position that had been vacant for more than a year. Within months after my expose of the food Chartwells was serving, Mills decided to remove all flavored milk from D.C. Public Schools and undertook an item-by-item overhaul of the Chartwells menu.

Around that same time, the D.C. Council approved a "Healthy Schools Act" that provided more money for school meals--10 cents for breakfast, 10 cents for lunch, and 5 cents for every lunch containing a locally-grown component. Consequently, meals look substantially different in D.C. schools today. Kids can choose from organic yogurt and home-baked muffins for breakfast. Lunches range from a scratch-cooked spinach lasagna to roasted bone-in chicken to a Cajunp-seasoned tilapia filet.

This year schools have saved $1 million on food, even while serving breakfast in the classrooms of most elementary schools for the first time and implementing a supper program in 99 schools. Breakfast in the classroom boosts participation and brings in federal susbsidy dollars that can be used to improve food quality. The supper program also is a money maker. Meals cost $1.40, but are reimbursed by the U.S. Department of Agiculture to the tune of $2.92 each through the federal Child and Adult Care Food Program.

With the addition of these two programs, the schools expect to serve 2 million more meals this year. Still, participation in the lunch line is down 1.5 percent.

The trouble now is the kids frequently won't eat the roasted local sweet potatoes or the lovingly prepared green bean salad. They need coaching, and schools need to reach out more to parents. Mills reportedly would like to see principals and teachers eating with the students. "Motivated principals make all the difference," Mills is quoted as saying. But the schools face "huge challenges with internal staffing."

Investigation Reveals How Food Industry Rebates Thwart Healthy School Meals

By Ed Bruske

aka The Slow Cook

Food manufacturers catch plenty of grief over the way they market junk food to kids. But the public is entirely unaware of the hundreds of millions of dollars those same corporations spend influencing the choice of foods served to children in schools by paying food service companies off-the-book rebates--sometimes referred to as kickbacks--to push their brand of industrial processed goods on unwitting school districts.

Giving a rare glimpse into the highly secretive rebate system, assistant New York State Attorney General John F. Carroll last week described in detail his unprecedented investigation of the influence rebates wield in the world of food service companies like Sodexo, Chartwells and Aramark. As a result of that investigation, Sodexo, the French-owned food service giant, last year agreed to pay New York $20 million to settle claims it had improperly withheld rebates it was supposed to turn over to its school district clients.

Speaking to a meeting of the School Nutrition Association in Washington, D.C., Carroll said what he uncovered about Sodexo was just the tip of the iceberg. His investigation continues, and he expects more claims to be brought against other food service providers over rebates that not only create "an inherent conflict of interest" in the choice of foods children are served at school, but also discourage the use of locally produced goods from smaller suppliers, including local farmers.

Rebates, Carroll said, raise the potential for abuse in schools across the country. Officials from numerous states, he said, have contacted him since the Sodexo settlement was announced. Here in the District of Columbia, I wondered why children as young as five routinely were being fed sugary brand-name cereal such as Kellogg's Apple Jacks for breakfast along with Pop-Tarts, Giant Goldfish Grahams and Otis Spunkmeyer muffins. From documents obtained through the Freedom of Information Act, I reported last year that the food service provider for D.C. schools--Chartwells--had claimed at least $1 million in rebates from food suppliers.

According to Carroll, companies such as Sodexo, Chartwells and Aramark go to great lengths to ensure that the products they use come from manufacturers who will write them checks for goods they purchase in large volumes, money that doesn't appear on any invoice. These "off-invoice" rebate checks, based on billions of dollars worth of purchases, "are extremely valuable because rebate dollars are the cheapest to earn," Carroll said ,and help explain why Tyson chicken nuggets and Schwan frozen pizza proliferate in thousands of school cafeterias nationwide.

In the case of Chartwells, for instance, purchases are arranged through a branch of its parent company--the $21 billion British behemoth Compass Group. Foodbuy, as the sister company is known, makes more than $5 billion worth of purchases every year for a host of Compass Group subsidiaries, employing dozens of people to focus on negotiating contracts with manufacturers and tracking the rebates that are due.

On some products, rebates amount to as little as five percent of the purchase price. But on others, rebates are extremely lucrative--as much as 50 percent of the cost of the product itself. Rebates act as a potent tool for imprinting popular brands of processed foods in the minds of children at a young age in a place where they eat every day: the school cafeteria.

Carroll said food service companies typically have strict rules for how local managers make purchases for school districts, limiting them to buying from a short list of large, industrial purveyors who give rebates, and punishing those who stray from the company line. Such rules prevent purchases from smaller, more local manufacturers who do not have the financial wherewithal to pay rebates. In particular, they discourage schools that employ food service management companies from serving children local produce.

"Site managers are evaluated based on compliance--the degree that they adhere to purchasing from the company's specific list of vendors," Carroll said.

In my own reporting, I heard from Rick Hughes, a longtime Sodexo manager who now heads food services for Colorado Springs School District 11. “We were rewarded for purchasing specific products,” Hughes told me. "There’s big money tied up in big company food and agribusiness. There’s not a whole lot of money tied up in fresh vegetables and fruits. So just follow the money. That’s what’s being given to kids.”

Carroll said conflicts occur not just in food purchases. He described one case where a site manager was prevented from replacing disposable paper plates with reusable plastic food service gear because the move would of course mean fewer purchases of paper plates, resulting in a cut in rebate payments from the manufacturer. In another case, he said a local produce wholesaler raised the prices he charged schools so he could pay a rebate to the food service company.

Carroll's investigation and his insights into rebate practices are extremely valuable because this is one area the food industry would rather the public not know about. Manufacturers and food service companies alike are loathe to give details into how corporate greed greases the wheels of the U.S. food economy, resulting in industrially processed convenience foods predominating on kids' cafeteria trays. Information about rebates appears on no annual report, or in any other public documents.

According to Carroll, rebating is rampant across all lines of the food economy, but did not begin to insinuate itself into schools until around 2000. The USDA had allowed schools to decide whether they would require their hired food service companies to declare the rebates. That changed in 2007. Now, schools that enter into "cost-reimbursable" contracts with food service companies--contracts that provide the company a fixed management fee and pay for invoiced purchases--must contain a provision requiring the companies to return to the schools any rebates they collect.

New York State has had such a rule on its books since 2003. Schools there are required to use a prototype contract provided by the state education agency.

In districts where schools pay their food service provider a flat rate for meals, rebates represent corporate profit that goes to shareholders instead of into the food kids are being served. The schools involved may have no idea how they are being short-changed by rebates. Carroll said rebates in school food contracts typically amount to 10 percent to 15 percent of total purchases. Here in D.C., the rebates Chartwells declared amounted to only 5 percent of purchases for that period.

Carroll said school officials in the cases he has investigated "had only very limited understanding and knowledge of what in fact the rebates were," and, as a result, "they were not in a position to come to the bargaining table with food service companies on an equal footing."

Under the federal False Claims Act, food service companies are liable for treble damages in cases where they improperly withhold rebates from government clients. Whistleblowers are generously rewarded. The Sodexo case, for instance, was sparked by two former employees who were disciplined after they complained about the company's rebate practices. They were awarded more than $3 million as part of the $20 million settlement with New York.

Sodexo, Carroll said, cooperated in the investigation and later set up an 800 number that school officials could call for information about rebates. But Carroll told the school nutrition group that food service personnel should not be shy about reporting abuses.

Carroll urged them to "go back to your schools and offices and kitchens and...exert all the influence that you have to eliminate this practice of rebating because in my opinion it is not good business and it does not adhere to the values of this industry."

D.C. Schols Refuse to Disclose Food Rebate Accounting

By Ed Bruske
aka The Slow Cook

Attorneys for D.C. Public Schools have refused to release an accounting of more than $1 million in rebates received from corporate food manufacturers, claiming that details about the rebates constitute "trade secrets" and that exposing them to public scrutiny would hurt the "competitive position" of Chartwells, the school system's contracted food service provider.

The ruling by the DCPS general counsel's office places D.C. schools in the awkward position of shielding from public view the practices of Chartwells and its parent company Compass Group, an international food service giant with operations in 40 countries that last year reported nearly $21 billion in sales and $1.37 billion in profits. Compass Group paid shareholders $386 million in dividends during the same period, according to its 2009 annual report [PDF].

D.C. schools have come under steady fire in recent months for the dubious quality of industrially processed convenience foods Chartwells routinely serves to school children here.

School system attorneys handed down their decision in a letter Thursday in response to a Freedom of Information Act request I made for a detailed accounting of food rebates the schools have received through Chartwells. On July 12, I reported that D.C. Public Schools had received more than $1 million in rebates during the two years that Chartwells has been acting as food services contractor.

Some critics charge that the rebates, paid by large food manufacturers, act as an inducement to put highly processed and often sugary convenience foods on children's cafeteria trays. Numerous companies whose products regularly appear in D.C. school meals refused to discuss details of their rebate practices, including Kellogg, Otis Spunkmeyer, Pepperidge Farm and Cloverland Dairy.

Paying rebates for large volume purchases is common practice in the food industry, but shrouded in secrecy. The procurement division of Compass Group and Chartwells in North America--Foodbuy--makes more than $5 billion worth of purchases every year and employs dozens of people to negotiate contracts with manufacturers and track the rebates that are due. Rebates become an important driver for the types of foods Chartwells uses in its meal service as well as its bottom line.

Under the federally subsidized school meal program administered by the U.S. Department of Agriculture, food service providers such as Chartwells are required to turn over to their school system clients any rebates they receive, but many in the industry believe that the companies routinely find ways to pocket the money instead. I was able to calculate the total amount of rebates Chartwells has claimed from copies of its monthly invoices that I obtained from D.C. Public School through the Freedom of Information Act. Those rebates worked out to about 5 percent of the total purchases Chartwells reported on those invoices. But the invoices only report the gross amounts of the rebates and do not give any detail about which food manufacturers the rebates come from.

Just nine days after I published my initial report, the attorney general of New York, Andrew M. Cuomo, announced that Sodexo, another international food services giant, had agreed to pay the state $20 million to settle claims that it had improperly withheld rebates from numerous school districts and universities there. “This company cut sweetheart deals with suppliers and then denied taxpayer-supported schools the benefits,” Cuomo said in a statement.

Subsequently, D.C. councilmember Mary Cheh (D-Ward 3), wrote D.C. Attorney General Peter Nickles, asking him to intervene and assist schools here to make sure they are receiving all of the rebates to which they are entitled from Chartwells.

Cuomo said his action against Sodexo was part of a wider and ongoing investigation of rebates in publicly-funded food service. Concerns about rebates in school food appear to be spreading. Following news of New York's settlement with Sodexo, legislators in New Jersey called on that state's attorney general to investigate the company's practices in schools there as well.

Federal law also stipulates that food service companies must provide a detailed accounting of where their rebates come from, but only when a school district requests it. Following my July 12 report, Anthony Tata, the chief operating officer for D.C. Public Schools, disclosed to The Washington Post that he had made such a request in October 2009 and had waited nine months for Chartwells to comply.

The rebates appear to have become something of an embarrassment to Tata and others in schools Chancellor Michelle Rhee's administration. Tata told The Post testily that his staff was working to improve the food Chartwells serves "and the rebate, if there is one, will not factor at all into our decision making."

When I asked a schools spokeswoman for a copy of Chartwells' rebate itemization, I was told to submit a Freedom of Information Act request. The decision by school system attorneys to deny my request and squelch that report would appear only to increase the drama surrounding food rebates at a time when Tata is trying to show that he and newly-hired food services director Jeffrey Mills are moving the school meals program in a positive direction.

Rebates seem to go hand-in-hand with popular brands of sugary processed foods such as Apple Jacks cereal, Pop-Tarts, Giant Goldfish Graham and Otis Spunkmeyer muffins--all regular fare, up to now, in D.C. school breakfasts. By contrast, healthier alternatives such as Nature's Path organic cereal do not offer rebates. Bonnie Christensen, executive chef for schools in Berkeley, Calif., which serve Nature's Path and make most of their food from scratch using raw ingredients, said she doesn't deal in rebates at all.

Some might also argue that parents have a right to a full disclosure of how money from billion-dollar food corporations influences the meals their children are fed at school.

Sodexo to pay New York $20 Million for School Meal Rebate Fraud

By Ed Bruske
aka The Slow Cook

Sodexo, one of the world's largest food service companies, has agreed to pay New York $20 million to settle complaints that it fraudulently pocketed rebates from food manufacturers that it was supposed to turn over to some 21 school districts and the State University of New York, New York Attorney General Andrew M. Cuomo announced yesterday.

"This company cut sweetheart deals with suppliers and then denied taxpayer-supported schools the benefits," Cuomo said in a statement. An investigation revealed that over a five-year period beginning in 2004, Sodexo "received significant rebates from the suppliers without acknowledging or passing the savings on to these schools--in violation of the contracts [between Sodexo and the schoolsl] as well as state and federal laws."

New York's investigation was sparked by two former Sodexo employees, brothers John and Jay Carciero, who were general managers for the company in Massachussetts and were "outraged when they discovered Sodexo's practice of pressuring food and beverage vendors to kick back huge rebates and then secretly pocketing the savings rather than passing them on to government clients as required by their contracts," according to a statement released by the Carciero's attorney. The clients included hospitals, universities, schools, and nursing homes.

John Carciero complained he was fired after he complained internally about Sodexo's rebate practices. Jay Carciero said he was demoted and later fired for the same reason. The brothers filed a whistleblower lawsuit against Sodexo under the federal False Claims Act in Massachussetts, and later added claims under similar state laws in New York.

The settlement was described as the largest ever under New York's false claims statute that did not involve Medicaid.

Jay Carciero has since died. John Carciero yesterday issues a statement, saying, "My brother, Jay, and I were angry when we learned that Sodexo, a mult-billion dollar company, was ripping off school lunch programs and other government food services. The millions of dollars from the rebates should have gone back to schools and other government clients. Sodexo betrayed the trust of the clients it was supposed to serve and hurt taxpayers at the same time."

Under New York state law, the Carcieros as whistleblowers are entitled to $3.5 million of the $20 million settlement. The rest is to be divided among the school districts involved.

Manufacturers commonly give rebates for purchases from large food service companies such as Sodexo, Chartwells and Aramark. Under federal law, contractors are supposed to credit those rebates as part of their invoices, so that federal agencies are paying only "net costs." Under U.S. Department of Agriculture rules governing the federally-subsidized school lunch program, school contracts with food service providers must explicitly state that all rebates will be credited to the schools. But it has been widely assumed in school food circles that the big food service vendors were not passing on to school all of the rebates they receive. The rebate issue is cloaked in a shroud of secrecy by industry players.

The investigation in New York "has revealed that it is common practice within the food service industry for service providers like Sodexo to leverage their size and market dominance to obtain these rebates from vendors that supply food products, equipment, and supplies," said Cuomo. Those rebates typically amounted to about 14 percent of Sodexo's purchases from suppliers, according to the New York Attorney General's office. Cuomo said his investigation "continues to examine the rebating practices of other large, multi-national corporate providers of food service and facilities management."

A report I recently published based on documents obtained under the Freedom of Information Act showed that D.C. Public Schools had received more than $1 million in rebates from Chartwells, its contracted food service provider, since Chartwells took over the job two years ago. The rebates help explain why children in D.C. schools are often served brand-name products of dubious nutritional value. But the rebates Chartwells declared on its invoices totaled only 5 percent of purchases, a rate some observers say is low--and certainly far less than the 14 percent cited by Cuomo in the Sodexo case.

D.C. school officials said they requested an itemized accounting from Chartwells last October of where the rebates it claimed had come from, but had only recently received it, some nine months later. They have not made it public.

At attorney for the Carcieros in Washington, D.C., Colette G. Matzzie, said in a statement, "New York is not the only state where Sodexo operates school cafeterias and accepts rebates from vendors. With so many state and local governments short on funds, we hope that other governments will look to what New York has done for its citizens and make sure that Sodexo and other food vendors pass along savings to those who are paying the bills."

As part of the settlement announced yesterday, Sodexo must:

* Disclose in future contracts with public entities that it is receiving rebates and indicate whether rebates will be retained by Sodexo or credited to the client.

* Provide written disclosure to school district clients for the next two years that it is receiving off-invoice rebates.

* Establish a hotline for clients to call with any questions concerning rebates.

* Pay for an independent auditor's review of its off-invoice rebate program for the next three years.

D.C. Schools Wait Nine Months for Rebate Accounting from Chartwells

By Ed Bruske
aka The Slow Cook

D.C. Schools Chief Operating Officer Anthony Tata told The Washington Post yesterday that he has been waiting some nine months for Chartwells, the school system's hired food sesrvice provider, to furnish an itemized accounting of the rebates it receives from food manufacturers in connection with its purchases for school meals.

Tata made the disclosure to Post education reporter Bill Turque after I reported here yesterday that Chartwells since beginning its contract with D.C. schools in the fall of 2008 had collected more than $1 million in rebates from major food suppliers who are seen as discounting popular brands in order to place them before impressionable children on cafeteria trays. Under federal laws governing the national school meals program, food providers such as Chartwells are required to credit the schools for any rebates they receive and furnish a detailed accounting of where the rebates come from upon request from the school district.

Tata told Turque I was "just flat wrong" when I reported yesterday that school officials had not asked Chartwells for such an accounting until after I filed a Freedom of Information Act request last month seeking the information. In fact, Tata said, he had been pressing Chartwells for the information since last October, and it had only just arrived.

Under its contract with D.C. schools, Chartwells receives a $1 million administrative fee annually, plus fees on each meal served that total more than $1 million each year. Chartwells provides food service in 122 D.C. schools. In a number of ways, Tata and other school officials have indicated they are not entirely happy with the industrially-process convenience foods Chartwells has been serving. DCPS recently sought bids on two pilot programs that would each ostensibly provide improved food to seven schools across the city "to create some competition," in Tata's words.

I filed my FOIA request for the rebate itemization June 1. On June 4, I asked schools spokeswoman Jennifer Calloway in an e-mail, "Has DCPS ever requested from Chartwells a breakdown of where the 'rebates' are coming from according to specific manufacturers or suppliers, or even by category of product?" Calloway replied, "Tata's team is reviewing your request, we'll get back to you Monday." But they did not get back to me.

More than a month later, on July 8, I again asked Calloway, "whether DCPS has ever asked Chartwells for a breakdown on where--meaning which manufacturers or vendors--all of the rebates come from that are reflected on Chartwell's monthly invoices." Later that day, Calloway responded: "We have requested a breakdown. You need to file a FOIA for DCPS to share it--and you've already done so. When it's complete, the General Counsel's office will contact you."

I regret if I misinterpreted what the schools spokeswoman said. Apparently, the information Tata had been trying to get hold of from Chartwells since last October arrived sometime between my last e-mail exchange with Jennifer Calloway on Thursday and Tata's conversation with The Post on Monday. It was also on Thursday that I interviewed a procurement official with Foodbuy, a sister company of Chartwells that is responsible for negotiating food purchases and rebates with manufacturers.

Tata further told Bill Turque that I was "irresponsible" for referring to the food rebates as "kickbacks." But I did not coin that term in reference to food rebates. It may be that Mr. Tata is simply unaware that "kickbacks" is a common usage in food service circles to describe the system whereby powerful companies such as Chartwells, Sodexo and Aramark expect and receive generous rebates on a host of products, much the same way that grocers expect and receive payments from manufacturers in order to give their products prominent display on supermarket shelves.

In fact, Ann Cooper, one of the most prominent school food directors in the country, now in charge of food for schools in Boulder, CO, used the word "kickbacks" in a Twitter item about my story that she broadcast yesterday.

The $1 million-plus in rebates Chartwells had collected through February of this year represented five percent of the total purchases reported on invoices the company submitted to D.C. Public Schools for reimbursement. In other jurisdictions, that percentage is much higher. It will be interesting to see the details of where Chartwells says the rebates came from, and how quickly the schools make that information public.

Meanwhile, Tata told Turque that schools food services director Jeffrey Mills is reviewing menu changes in the food Chartwells serves for the upcoming school year with an eye toward improvements. "And the rebate, if there is one, will not factor at all into our decision making," Tata said.

Corporate Rebates: The Million-Dollar Elephant in the Cafeteria

By Ed Bruske
aka The Slow Cook

D.C. Public Schools in the last two years have taken in more than $1 million in corporate rebates--referred to by some as "kickbacks"--paid by giant food manufacturers as an inducement to place their brands on kids' cafeteria trays at school.

Documents obtained through the Freedom of Information Act show that Chartwells, the company hired by D.C. Schools to provide food services at 122 schools across the city, through February of this year had declared $1,076,738 in rebates it received since its contract began in the fall of 2008. That represents five percent of the $18.7 million in purchases Chartwells billed the school system during that period. Under federal law, Chartwells is required to credit D.C. schools for any rebates it receives.

Food manufacturers use the rebates as an incentive to entice purchasing agents to buy certain products over others for school meals. Rebates sometimes are referred to as "kickbacks" because powerful food service companies such as Chartwells expect to receive them, much the way grocers expect manufacturers to pay fees to have their goods displayed on supermarket shelves.

Critics charge that the rebates--also referred to as "volume discounts" or "buy backs"--act as a tool to help imprint processed and often sugary food brands in the minds of young children. Rebates help explain why kids in D.C. schools routinely are served sugary cereals such as Kellogg's Apple Jacks, and treats like Kellogg's Pop-Tarts, Otis Spunkmeyer muffins, Pepperidge Farm Giant Goldfish Grahams, and flavored milk from Cloverland Dairy that is nearly the sugar equivalent of Coke or Mountain Dew.

It could not be immediately determined from which manufacturers the rebates paid to D.C. Schools originated or in what amounts. Under U.S. Department of Agriculture rules governing the federally-subsidized school meals program, food service providers such as Chartwells are required to itemize the rebates they receive only when schools ask them to do so. Otherwise, the rebates appear simply as a lump-sum line item on the monthly invoices Chartwells submits to D.C. Public Schools for reimbursement.

Although the school system's newly hired food services director, Jeffrey Mills, was said to be disturbed by the potentially corrosive effect rebates might have on D.C. school food purchases, apparently no one in the DCPS hierarchy had ever asked Chartwells for a breakdown of where the rebates come from. On May 28, I filed a second Freedom of Information Act request for an itemization of rebates received by Chartwells. Schools spokeswoman Jennifer Calloway last Thursday said DCPS has since asked Chartwells for a breakdown, but has not yet received one.

Much like rebates in the consumer world, rebates in the multi-billion-dollar universe of corporate food service are awarded by manufacturers after products are purchased. For instance, after a truckload of cereal is delivered, the purchasing company--Chartwells, in this case--would apply for the rebate and later receive a check.

But unlike you as an ordinary consumer sending in a coupon for a rebate on, say, a computer you purchased at Staples, Chartwells and other large food service companies that specialize in school food deal in millions of dollars worth of rebates every day. Sodexo and Aramark are the two other companies most prominent in the field.

Chartwells is just part of a huge international food services conglomerate based in the United Kingdom--Compass Group--that reports annual sales of $9.3 billion. Chartwells provides the food each day for 2.5 million kids in more than 500 school districts across the U.S., according to its website. Other affiliated companies in the group--Bon Appetit, Restaurant Associates, Thompson Hospitality, Morrison Management, Wolgang Puck Catering, to name a few--are responsible for the food served in universities, corporate campuses, museums--all sorts of public and private venues, even oil drilling platforms--nationwide.

One thing all of these Compass Group subsidiaries have in common is a procurement operation that negotiates food purchases--and rebates--for the entire group. Called Foodbuy, and based along with Compass Group's North American headquarters in Charlotte, NC, Foodbuy bills itself as "the nation's largest group purchasing organization," dealing in more than $5 billion worth of goods annually.

Between 35 and 40 Foodbuy employees are engaged full-time in negotiating contracts and rebates with manufacturers. Rebates become a major driver of purchasing decisions, said Ken Jaycox, vice-president for category development at Foodbuy. "We're focused on the net cost," Jaycox said. "Our job is to try and get the best net cost for our customers."

Jaycox suggested that the choice of foods served in school cafeterias is determined less by the rebates manufacturers offer than by negotiations between schools and Chartwells representatives over which foods are the best choices, and how they balance against the local food budget. But Rick Hughes, who spent eight years as a manager for Sodexo in Colorado, said performance evaluations were based in part on how well Sodexo employees adhered to the company's choice of products, determined in large part by manufacturer rebates.

"We were rewarded for purchasing specific products," said Hughes, who now works the other side of fence--as food services director of Colorado Springs School District 11. "Especially if the company is mandating that you buy their foods, absolutely that's what food service directors are buying," Hughes said. "There's big money tied up in big company food and agribusiness. There's not a whole lot of money tied up in fresh vegetables and fruits. So just follow the money. That's what's being given to the kids."

As prevalent and influential as they may be, rebates are treated as a kind of third rail in school food services. Food manufacturers are loathe to talk about them.

Kellogg, with $13 billion in annual sales, is prominently represented in D.C. school cafeterias by Apple Jacks, Raisin Bran, Frosted Mini-Wheats and other cereals, as well as treats such as Pop-Tarts, all highly processed and laced with sugar. I first contacted the company via its "media hotline" on May 28 and posed questions about it's rebate practices. When there was no response, I called again on June 15 and a third time on June 28, at which point I was asked to submit my questions in an e-mail.

On June 29, I received this e-mail reply from a Susanne Norwitz at Kellogg:

"With 14,000 plus school districts, there may be some exceptions--but overall, this is how the process works. The USDA sets the nutritional guidelines that schools follow to receive reimbursement from the government. The individual school boards may set additional specifications above and beyond the USDA requirements. Determinations about what cereals are offered in schools are based on these specifications--and rebates to the schools are intended to assist them in meeting their menu-cost requirements."

Otis Spunkmeyer muffins, usually wrapped in plastic and warmed in a school kitchen steamer, also appear with some regularity as a D.C. school breakfast option. When I called the company headquarters in San Leandro, CA, I was referred to a public relations firm in Missouri, DEEP Group. Stephanie Heart, the DEEP representative I spoke with, was quite chatty at first, saying she was absolutely familiar with rebate practices from her years working in the food industry. "You'd be surprised how much like consumer rebates they are," she said.

But Heart clammed up fast after she called her client, Otis Spunkmeyer, to pursue my questions. "Everything is confidential. There's not any information we can give you at this time," she said. "In don't think it's a secret, but it's just not something they [Otis Spunkmeyer] can share because of client confidentiality."

Pepperidge Farm, the maker of Giant Goldfish Grahams, a breakfast staple in D.C. food lines, referred me to a representative, Frances Sirico, in Norwalk, CT. Some weeks after talking to Sirico by telephone, I received a curt e-mail stating: "You request has been forwarded to our legal department. When I receive further information, I will contact you."

I left serveral messages for James Cella, general manager at Cloverland Dairy in Baltimore, the main milk supplier for D.C. schools. On June 28, I received an e-mail from Cella, saying, "In response to your question--Cloverland serves some of the D.C. schools thru a contract cafeteria management company. We currently do not deal directly w/ the schools, and do not invoice the schools. The best group to answer your question would be Compass Food group, and the other cafe magt. companies D.C. has contracted with."

So why all the secrecy? A March 2009 article in In These Times magazine, focused on Sodexo, suggested that the giant food service companies were taking in hundreds of millions of dollars in rebates in ways that ended up costing customers money by focusing food purchases on large, national brands that can afford to give hefty discounts, rather than smaller, local companies that sell their goods more cheaply.

"The money involved is massive," In These Times reported. "Charles C. Kirby, former USDA regional director for child nutrition in Atlanta, says he ran a Mississippi Education Department cooperative buying program from 1992 to 2001. He dealt directly with companies such as Heinz and Kellogg's and received rebates ranging from 10 percent to 50 percent. In the last year, his rebates were $15 million out of $90 million in purchasing."

A 2002 audit by the U.S. Department of Agriculture found that in a sample of Midwestern school districts, food service companies routinely ignored the rule that requires them to pass on to the schools any rebates they receive. They were just pocketing the money. In 2008, the USDA beefed up it's rule on rebates, requiring that school contracts with food service companies clearly state that any rebates received by the companies will be credited to the schools.

Despite the new rules, it's widely assumed in food service circles that the big players--Chartwells, Sodexo, Aramark--are not declaring all of the rebates to which school districts are entitled, hence the shroud of secrecy.

When I put that to Foodbuy's Ken Jaycox, he replied without a trace of irony: "I'm shocked and surprised by that allegation," he said.

But Robert Pritsker, a New York City restaurateur who unsuccessfully sued Chartwells, Sodexo and Aramark in federal court, claiming the food service giants had since the 1990s improperly withheld at least $1 billion in rebates from schools, said the 5 percent rebate figure Chartwells has declared in D.C. sounds too small. In his own school district of Weston, CT, Pritsker said Chartwells claims at least 15 percent in rebates.

Jaycox said there are many factors that could explain the wide difference in rebate percentages reported by Chartwells in two different school districts.

Still, there's enough intrigue and money surrounding the rebate question--and the role of corporate discounting in feeding popular but nutritionally dubious foods to millions of children in the federal meals program--that attorneys general in some state have taken notice. It may be less of an issue in D.C. schools in the coming year. Officials have decided to discontinue serving flavored milks and sugary cereals. But they have yet to answer questions about the future of Pop-Tarts, Otis Spunkmeyer muffins and Giant Goldfish Grahams.

Note: The In These Times article cited above was written by freelance journalist Lucy Komisar.