LV school food contractor sues state, federal agencies for cutting its funding

Grace Leong

Tuesday, July 18, 2000 | 11:19 a.m.

A Las Vegas company is suing the U.S. Agriculture Department and the Nevada Department of Education in U.S. District Court for more than $2.7 million and an order to reinstate its sponsorship of a school food program that it says was wrongfully terminated by the government.

Smart Start Summer Food Service Program, which was funded by the federal agriculture agency under a program administered by the state education department, said it sued June 27 because it now faces the possibility of lawsuits from its creditors after the government refused to approve many of its expenses and ended funding in November.

"We now have a problem. The food vendors are owed money and we've been sued for unpaid food," said John Fadgen, Smart Start's attorney. U.S. Food Service, doing business as Valley Foods Distribution, filed a lawsuit in Clark County District Court on June 16 against the sponsor, alleging it is owed $47,362 for unpaid goods and services.

But Mary Peterson, the State Education Department's superintendent of public instruction, disagreed with Smart Start's claims, saying the government was charged for fraudulent expenses.

"We found there was an inappropriate use of funds, improper book and record keeping and non-compliance with the USDA's requirements of the program."

Some 85 workers were terminated after the government ended the program by Smart Start, which said it was the largest food service program sponsor in Nevada with 13 sites that provided an average of 100,000 meals monthly to needy children. Smart Start received $1 to $2 million a year in government funding.

The government said it has found other food service sponsors in Nevada.

Smart Start also seeks an injunction to stop the office of the Inspector General, the USDA's legal arm, from distributing what it claims is an incomplete audit report that led to the sponsor's termination, until it has had a chance to respond to the report.

But the government disputed Smart Start's claims, saying the audit was done to determine the merit of allegations by an anonymous whistleblower that the sponsor inflated meal claims it submitted to the state education agency.

The Inspector General's office in November 1999 said it identified $1.01 million in questionable expenses. It also said Smart Start is being investigated by its criminal investigation department. The government said it found Smart Start had "disregarded program rules and regulations governing the summer food service program, failed to report program income and obtain required audits since it began participating in the program."

"Although we only reviewed claims for reimbursement dating back to fiscal year 1998, we believe the pattern of fund misuse existed over a number of years," the report said.

The government said it found funds generated from allegedly inflated meal counts were used for "unallowable and questionable purposes," including the purchase and repair of vehicles, renting feeding sites, improper labor costs, providing promotional activities and car insurance on personal vehicles.

The report also noted that 11 of the 95 individuals on the sponsor's payroll contributed "very little labor" to the program, and the sponsor was unable to provide support for the hours worked by many of its employees and for some vendor purchases.

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