More Rebate Settlements Coming, NY AAG Tells SNA

There will be additional settlements on the issue of invoice rebating by contractors doing business in New York State, said New York Assistant Attorney General John F. Carroll, Jr., to the School Nutrition Association (SNA) Legislative Action Conference (LAC) in Washington last week.

Carroll's presentation on the New York Investigation on School Meal Rebates focused on the state attorney general office's examination of the practice of net-off-invoice rebates that recently led to NY State's $20 million settlement with foodservices contractor Sodexo.

Observing that Sodexo had cooperated fully with his office throughout the investigation, Carroll said that "[a]ll are trying to serve and all are trying to do the right thing in a very challenging environment.

"Off invoice rebating is a practice that is engaged in throughout the foodservice industry and there's no reason to focus on only one participant. It's only fair to say that other members of the industry have also cooperated on an ongoing basis with my investigation and I anticipate announcing other settlements with these other companies in the months to come."

Carroll also revealed that "officials in numerous other states have been in contact with the office of the attorney general of New York about this investigation, especially given the extraordinary financial pressures that all of the states and all of the schools across the country are under right now. I think it is also magnified by the interest and the attention and the concern that all of us have for child nutrition at this time."

He called on the child nutrition professionals in the audience 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."

Carroll went on to discuss the history and mechanics of invoice rebating.

"My research seems to show that rebates were not a significant revenue source or economic factor prior to 2000 for foodservice companies," he said. "However, from 2002 onward earnings from rebates have become an increasingly important revenue source for all foodservice companies. Rebates are now an important element to the foodservice business model. This fact is in my opinion not readily apparent from publicly available financial statements for foodservice companies or any other public documentation that foodservice companies generally make available."

He estimated that the larger companies "actually earn hundreds of millions of dollars in rebates across all of their business lines. This importance of foodservice rebates is magnified by an important economic factor. Of all of the dollars that they earn and all the myriad ways in which they do so, rebate dollars are the cheapest to earn and so they have an especially high profit margin."

He noted that this factor often excludes vendors that don't pay rebates from lists of preferred suppliers, putting smaller local firms at a disadvantage at a time when buying locally is otherwise being advocated or sometimes even mandated.