Report: Ahold's Food Unit May Owe Rebates to Government Bodies

COLUMBIA, Md. - U.S. Foodservice, the Ahold-owned food distributor engulfed in an accounting scandal, may have failed to pass along millions of dollars in rebates to government customers, including the U.S. military, public schools, prisons and state agencies, Monday's Wall Street Journal reported, citing current and former senior managers.

That possibility centers around whether certain rebates, known as promotional allowances and received by U.S. Foodservice, should have been passed along to government customers holding "cost-plus" contracts. Generally, these contracts call for paying U.S. Foodservice's cost of buying and delivering food, plus a small premium. If U.S. Foodservice's food costs are lowered by rebates, some contract holders say the prices they pay for food also should be lowered.

Three top executives at U.S. Foodservice said they believe the company has complied with its government supply contracts, though when presented with one possible breach they asked for a copy of the contract and said they would need to study the matter. The executives also said employees at the company's headquarters didn't keep track of all such contracts.

Accounting practices were already under scrutiny at U.S. Foodservice, the nation's second-largest distributor of food to restaurants, hotels and other institutions. Last month, U.S. Foodservice's parent company, Dutch supermarket operator Ahold NV, disclosed that accounting irregularities at U.S. Foodservice had caused Ahold to overstate profits for 2001 and 2002 by a total of at least $500 million. The news prompted investigations by a federal grand jury and the Securities and Exchange Commission.
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