Fresno Unified paid more than $700,000 above bid price for healthy food, audit finds

Fresno Unified’s Fresh Fruit and Vegetable Program paid at least $700,000 above the bid price for produce over three years before changes were made to the program, according to an audit.

School officials said the mark-ups occurred when certain fruits or vegetables were not available, and substitutions were made. The company at the center of the audit - 1st Quality Produce - said allegations of overcharging were unfounded, and no wrongdoing occurred.

In a statement to The Bee, company President Mike Kahaian said he was pleased the issue had been “put to rest.”

“1st Quality has worked for many years to deliver the highest quality fruits and vegetables that the District wanted for its FFVP program, even items which were not part of the formal bid or which were not in season at the time,” said Kahaian.

Still, the Fresno County District Attorney’s Office continues to investigate the price discrepancies, Assistant District Attorney Jerry Stanley said this week. He declined to elaborate on details of the ongoing investigation conducted by the office’s public integrity unit.

The audit — which cost the district about $120,000 — was triggered when a rival produce vendor in 2018 compared several years of invoices with original bid amounts.

Dave Miller of Fresno Produce lost portions of the Fresh Fruit and Vegetable Program contract to 1st Quality. Miller alleges 1st Quality offered lower prices to win bids but then raised them after.

Miller has supplied produce for the district for nearly 30 years and said he’s only raised prices on Fresno Unified once.

Auditors from Price Paige and Company sifted through some 29,000 invoices from the three years and found 1st Quality invoiced the district higher amounts for several items than what it originally bid.

Another $4 million was spent on produce substitutions not originally in the bids, according to the audit.

Fresno Unified said the program allows for substitutions, depending on inclement weather, in-season items and other factors. For example, if a vendor won a bid for a 2-ounce packet of apple slices, but it had to substitute a half cup of blended apples, it could charge a different price.

Auditors reported the district paid a total of $701,164 above the bid price over the three years, from 2015-2016 to 2017-2018.

“We have determined that price discrepancies do exist between what the vendor originally bid compared to what the vendor ultimately invoiced per item to the district,” the report read.

1st Quality said those were substituted items, but auditors were unable to verify that the products were substitutions, according to the report.

The findings were also sent to the California Department of Education. The USDA and CDE approved the expenses during the three years in question, the district said.

“Where the amount charged differed from the bid, it was typically due to the flexible nature of the program and the produce market by providing available items to substitute for non-available items on the bid,” the district said in a statement.

Kurt F. Vote, an attorney for 1st Quality Produce, said the company cooperated with the audit and said any allegations of overcharging were unfounded.

“Every single purchase from the district was requested, reviewed, and paid in (accordance) with the district’s purchasing process,” Kahaian said.

Guidelines for the program

The audit outlined ways to keep prices from varying so much, some of which it said the district had already put into place by the time the inspection was complete.

Fresno Unified raised the number of items on its bid list from 48 to 146 and standardized its produce descriptions to reduce the number of substitutions, according to the district. More staff was added to review purchases, and that staff has undergone training on procurement best practices. The team includes a budget technician, an accountant, a district supervisor, a business operations manager, and a food services director.

Vendors must also provide electronic invoices instead of paper to identify discrepancies more easily.

Both Fresno Produce and First Quality still supply produce for 40,000 students who attend the 59 elementary schools that participate in the Fresh Fruit and Vegetable Program.

In the 2019-2020 school year, the USDA granted $2.2 million to the district for the daily snack program, according to Karin Temple, chief operations officer at FUSD. She said Fresno Unified is the largest participant in the program statewide.

This story was originally published May 13, 2020 at 11:02 AM.