Suspension and debarment could discourage rebate schemes

The federal government should consider suspending and debarring food service contractors who exploit invoice loopholes to overcharge the Agriculture and Defense departments, witnesses told a Senate panel Wednesday.

Agriculture Department Inspector General Phyllis Fong suggested threatening to prevent contractors from doing business with the government either temporarily (suspension) or over the long-term (debarment) to deter rebate schemes, in which companies that receive rebates from food manufacturers for large-volume purchasing leave them off invoices and pocket the difference. The IG has been investigating contractors providing food purchasing services for the National School Lunch Program since 2002, and has found omitting information on rebates to be a frequent issue.

Withheld rebates account for between 5 percent and 50 percent of the price charged to the school districts participating in the lunch program, John Carroll, assistant attorney general for New York, told the Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight.

"Every dollar that's being lost through rebate schemes is a dollar we cannot use to feed our soldiers and our children who need nutrition," said Sen. Claire McCaskill, D-Mo., chairwoman of the subcommittee.

Previous USDA audits found a service management company overcharged school districts more than $8 million through inflated invoices in 2003, and another company received $1.3 million in hidden rebates in 2005.

Agriculture's inspector general is starting a new investigation this month to assess the effectiveness of the recommendations issued after previous audits.

Similar fraud occurs with contractors working with the Defense Department to provide food to soldiers serving overseas, witnesses said.

Public Warehousing Co. is reportedly in talks to reach a settlement with the Justice Department after allegedly violating its prime vendor contract with the Defense Logistics Agency, overcharging the agency for food costs by $8.5 billion in 2009.

Charles Tiefer, a former member of the Wartime Contracting in Iraq and Afghanistan Commission and a law professor at the University of Baltimore, suggested revising contracts to allow auditors more access and requiring companies to identify any rebates on invoices. Tiefer also recommended conducting a survey of contractors to determine the extent of rebate schemes.

McCaskill announced that the subcommittee intends to submit document requests to investigate the issue more. "I think there's real money here if we pull this thread," she said.

CORRECTION: An earlier version of this story misstated the status of the contractor Public Warehousing Co.'s case involving allegations of overcharging the Defense Logistics Agency for food costs in 2009. The case remains unsettled, and the company, since renamed Agility, says it did nothing wrong.

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Going Agile:Revolutionizing Federal Digital Services Delivery

    Here’s one indication that times have changed: Harriet Tubman is going to be the next face of the twenty dollar bill. Another sign of change? The way in which the federal government arrived at that decision.

    Download
  • Cyber Risk Report: Cybercrime Trends from 2016

    In our first half 2016 cyber trends report, SurfWatch Labs threat intelligence analysts noted one key theme – the interconnected nature of cybercrime – and the second half of the year saw organizations continuing to struggle with that reality. The number of potential cyber threats, the pool of already compromised information, and the ease of finding increasingly sophisticated cybercriminal tools continued to snowball throughout the year.

    Download
  • Featured Content from RSA Conference: Dissed by NIST

    Learn more about the latest draft of the U.S. National Institute of Standards and Technology guidance document on authentication and lifecycle management.

    Download
  • GBC Issue Brief: The Future of 9-1-1

    A Look Into the Next Generation of Emergency Services

    Download
  • GBC Survey Report: Securing the Perimeters

    A candid survey on cybersecurity in state and local governments

    Download
  • The New IP: Moving Government Agencies Toward the Network of The Future

    Federal IT managers are looking to modernize legacy network infrastructures that are taxed by growing demands from mobile devices, video, vast amounts of data, and more. This issue brief discusses the federal government network landscape, as well as market, financial force drivers for network modernization.

    Download
  • eBook: State & Local Cybersecurity

    CenturyLink is committed to helping state and local governments meet their cybersecurity challenges. Towards that end, CenturyLink commissioned a study from the Government Business Council that looked at the perceptions, attitudes and experiences of state and local leaders around the cybersecurity issue. The results were surprising in a number of ways. Learn more about their findings and the ways in which state and local governments can combat cybersecurity threats with this eBook.

    Download

When you download a report, your information may be shared with the underwriters of that document.