City of Phila. and food services co.'s enter into $400K settlement agreement

By Jon Campisi | Dec 27, 2012

The City of Philadelphia announced earlier this month that it has entered into a no-fault settlement agreement with Aramark Correctional Services and Strother Enterprises Inc. to resolve allegations that the companies circumvented the city’s minority-business requirements and anti-discrimination policies by submitting inaccurate invoices relating to food services contracts with Philadelphia’s prison system.

According to the settlement, the two companies will pay the city $400,000 and create new policies to ensure their future compliance with the city’s anti-discrimination policies.

“We take our anti-discrimination policies very seriously because it is our mission to ensure fairness and equality for all who do business with the city,” Philadelphia’s Inspector General, Amy Kurland, said in a statement. “Everyone deserves a fair shot to compete for contracts in Philadelphia, and ACS’s scheme denied opportunities to legitimate M/W/DBEs. We will continue to pursue companies that circumvent the city’s anti-discrimination policies.”

The abbreviation M/W/DBEs is short for minority, women and disabled-owned business entities.

Their prison food services contract required Aramark to meet a M/W/DBE participation range of 20 to 25 percent, according to the city.

The range was established by the city’s Office of Economic Opportunity pursuant to a mayoral executive order.

If Aramark had made a good faith effort to fulfill the requirement, but could not do so, the city would have granted a reduction in the participation range, according to a city news release.

But an Office of Inspector General investigation revealed that Aramark did not attempt to demonstrate such a good faith effort, nor did the food services contractor apply for a participation reduction.

“Instead, the OIG found, ACS used a circular billing arrangement to create the appearance of compliance,” the city’s news release states.

The City Controller’s Office first discovered the circular billing arrangement between ACS and Strother, which prompted the investigation by the OIG.

The companies’ billing arrangement didn’t increase the amount of money the city paid to ACS because Strother’s purportedly larger participation didn’t affect how much ACS charged the prison system for food.

Instead of paying Strother at least 20 percent of the contract proceeds, the city announced, ACS passed on only 4 percent of the total contract value to Strother, overstating Strother’s revenue by more than $2 million.

Both of the companies denied wrongdoing as part of the settlement agreement.

Aramark contends that the method by which it calculated its payments to Strother was consistent with its legal and contractual obligations.

As part of the agreement with the city, Aramark has agreed to change its minority participation-reporting procedures to more clearly explain its financial relationship with Strother to city officials.

The company has also created a comprehensive compliance program relating to the identification, retention and payment of M/W/DBEs.

Angela Dowd-Burton, executive director of the city’s Office of Economic Opportunity, praised in a prepared statement the findings of the Inspector General’s Office investigation.

“M/W/DBEs should represent arms-length relations with prime contractors on city contracts,” she said. “OEO will work with the Philadelphia Prison System and ACS to insure good faith efforts are used to meet their M/W/DBE goals.”

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