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City of Philadelphia Signs Settlement Agreement with Aramark and Strother Enterprises

December 13, 2012

Philadelphia, Dec. 13, 2012 –The City of Philadelphia has signed a no-fault settlement agreement with Aramark Correctional Services (ACS) and Strother Enterprises, Inc. (Strother) to conclude a dispute over allegations that the companies circumvented the City’s minority-business requirements and anti-discrimination policies by submitting inaccurate invoices to the City for payment under ACS’ food-services contracts with the Philadelphia Prison System (PPS).  

According to the settlement, the companies will pay the City a total of $400,000 and incorporate new internal policies to ensure their compliance with anti-discrimination policies on future contracts with the City and/or City-related agencies.

The settlement was the result of a Philadelphia Office of the Inspector General investigation into allegations that ACS had inaccurately reported payments made to Strother in documentation submitted to the City. Although Strother, a City-certified minority-business entity, performed actual work in connection with PPS food-services contracts, the OIG found that the company had engaged in a circular billing arrangement with ACS, which made it appear that Strother had performed a larger percentage of the contracted work than it had actually performed.

“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,” said Inspector General Amy Kurland. “Everyone deserves a fair shot to compete for contracts in Philadelphia, and ACS’ scheme denied opportunities to legitimate M/W/DBEs. We will continue to pursue companies that circumvent the City’s anti-discrimination policies.”

ACS was required by contract to meet a minority-, women- and disabled-owned business entity (M/W/DBE) participation range of 20 to 25 percent, established by the Office of Economic Opportunity pursuant to Executive Order 02-05, which has since been replaced by Executive Order 03-12. If ACS had made a good faith effort to fulfill the requirement but could not do so, the City could have granted a reduction in the participation range. However, ACS did not attempt to demonstrate a good faith showing, according to the OIG’s investigation, nor did the company apply for a participation reduction. Instead, the OIG found, ACS used a circular billing arrangement to create the appearance of compliance.

Evidence of the circular billing arrangement between ACS and Strother was first discovered by the City Controller’s Office, which prompted an investigation by the OIG. The OIG established that Strother, at ACS’ direction, invoiced ACS for food-service and food-product costs. However, ACS provided the food for the contract, and Strother received a net payment for only the food service portion of the contract.  

The billing arrangement did not increase the amount of money that the City paid to ACS because Strother’s purportedly larger participation did not affect how much ACS charged PPS for food. Instead of paying Strother at least 20 percent of the contract proceeds, ACS passed on only 4 percent of the total contract value to Strother, overstating Strother’s revenue by more than $2 million. 

ACS and Strother deny any wrongdoing. ACS maintains that Strother purchased food from the company. ACS also maintains that the method by which it calculated its payments to Strother was consistent with its legal and contractual obligations.

The OIG maintains that its evidence is well-founded.

“The Office of Economic Opportunity concurs with the findings of the Inspector General’s Office,” said OEO Executive Director Angela Dowd-Burton. “M/W/DSBEs should represent arms-length relations with prime contractors on City contracts. OEO will work with the Philadelphia Prison System and ACS to insure good faith efforts are used to meet their M/W/DBE goals.”

ACS has agreed to change its minority participation-reporting procedures to more clearly explain its financial relationship with Strother to the City. ACS has also implemented a comprehensive compliance program related to the identification, retention and payment of M/W/DBEs.

Among the key provisions is a requirement that ACS executives certify that all contractual documents and invoices submitted to the City or City-related agencies are true and accurate. Similarly, Strother executives must certify the truth and accuracy of all contractual documents and invoices submitted to prime contractors performing work for the City or City-related agencies. Both companies have pledged to provide compliance training to employees involved in bidding, contract negotiation and invoicing.

The compliance programs will remain in effect for as long as ACS and Strother perform work under City contracts that contain participation requirements for M/W/DBEs.

To view the settlement agreement and an executive summary of the case, visit www.phila.gov/oig and click on the “reports” link.

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