Fresno Unified School District paid a produce vendor nearly $4.9 million over three years for fruits and vegetables that either cost more than the original bid prices or weren’t even on the bid list, according to an audit by the Clovis accounting firm Price Paige & Company.

The audit report, which GV Wire obtained through a public records request, said contract monitoring deficiencies by the district prevented accurate tracking of produce costs for the federally funded Fresh Fruit and Vegetable Program.

In addition, the Fresno County District Attorney Public Integrity Unit has not closed its investigation of the district’s fresh produce program, chief deputy district attorney Jerry Stanley said.

The audit, which cost the district $119,640, was commissioned in March 2019 after another vendor alleged that the district had vastly overpaid for produce items for the Fresh Fruit and Vegetable Program.

Fresno Unified spokeswoman Amy Idsvoog said in an email to GV Wire that the district’s payments to 1st Quality Produce were approved by the U.S. Department of Agriculture, which funds the Fresh Fruit and Vegetable Program, based on the recommendation of the California Department of Education’s Nutrition Services Division.

The district did not seek reimbursement from the vendor because the USDA signed off on the district’s expenditures for the Fresh Fruit and Vegetable Program, she said.

“Because for FFVP the district makes purchases and receives funding dollar for dollar, the district has been made whole,” she said.

District Tightens Controls

Idsvoog noted, however, that the district has changed its bid and invoicing processes.

According to the Price Paige report, the district “recognizes the need to maintain strong internal controls to prevent these issues from reoccurring” and instituted a multi-pronged “preventative action plan.”

Karin Temple oversees the food services operations as the district’s chief operations officer.

Investigation Continues

The Public Integrity Unit investigates and prosecutes public officials or employees suspected of committing a crime related to their public duties.

Because the investigation is still open, “we cannot comment at this time,” Stanley said.

No details as to the nature of the investigation have been released, other than the following mention in the Price Paige audit: “The District will continue to communicate with the Public Integrity Unit of the District’s attorney office as the District’s investigation goes forward.”

Vendor Alleged Overpayments

The Price Paige audit was commissioned after David Miller, owner of Fresno Produce, Co., said he had reviewed invoice records that showed the district had paid more to 1st Quality Produce for produce items than what the company originally bid.

Miller contended that 1st Quality Produce had underbid Fresno Produce, a longtime Fresno Unified supplier, for the Fresno Fruit and Vegetable Program contract but then submitted invoices that charged higher amounts for items.

“Why have a bid if you’re going to allow the prices to go up?” he said to GV Wire. “How do I bid next time?”

Miller was unaware that the audit had been completed in October 2019 until he was contacted by GV Wire.

Overbilling Allegations ‘Unfounded’

1st Quality Produce released a statement Thursday that called the allegations of overbilling “unfounded” and said that Fresno Unified and the California Department of Education had determined that no further action was needed.

“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,” president Mike Kahaian said. “Every single purchase from the District was requested, reviewed, and paid in accord with the District’s purchasing process.”

But according to the Price Paige report, purchases and deliveries could not be substantiated based on the records provided.

The audit reviewed 29,000 invoices submitted by 1st Quality Produce for the fiscal years 2015-16 through 2017-18.

Audit Finds Price Discrepancies

The auditors categorized the purchases in question as either invoices with price discrepancies from the original bid or invoices for produce that was not included on the district’s request for proposal or the vendor’s original bid. The district and 1st Quality Produce called the second category “substitute items,” the audit said.

“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 audit said.

The auditors reported that the invoices with price discrepancies totaled $701,164.16, while the no-bid invoices totaled $4,169,330.55.

The auditors noted that the district had “significant” purchases that were not on the original bid “due to the required flexible nature of the program.”

The Fresh Fruit and Vegetable Program is designed to provide fresh produce for students to encourage healthier eating habits.

Fresno Unified is the largest participant in the program in California and received a grant of $2.2 million to provide daily fruit and vegetable snacks to approximately 40,000 students at 59 elementary schools in the 2019-20 school year, Idsvoog said.

Substitute Items Had Different Prices

When Price Paige shared its preliminary findings of the invoice review with 1st Quality Produce, the vendor told auditors that the price discrepancies also were the result of substitutions.

The California Department of Education then asked Price Paige to examine 15 of the invoices with price discrepancies to determine the validity of 1st Quality Produce’s explanation.

The auditors determined that 1st Quality Produce provided adequate documentation for four invoices that a different item or quantity had been delivered to the district, although the invoice was billed under the original bid.

On two invoices, 1st Quality Produce had requested a pricing adjustment from the district.

On five invoices, the vendor could not provide adequate documentation that a different product had been delivered; on four invoices the item description matched the bid, but the vendor could not provide adequate documentation on the delivered product, the audit found.

Remedies Adopted by Fresno Unified

After reviewing the audit report, state and federal officials validated the district’s payments, Idsvoog said.

She said the California Department of Education had reported that the USDA found the expenditures were allowable and that the district “has taken the necessary steps to address their contract monitoring deficiencies, to ensure no break in service to their students of fresh produce, and to maintain integrity in their FFVP operations.”

The Price Paige report outlines the district’s “Preventative Action Plan” establishing internal controls to prevent future problems, They include:

• Tripling the number of bid items, from 48 to 146, to eliminate the need for unbid “substitutions.”
• Contract with two vendors “to improve order fulfillment by reducing the ordering quantities borne by a single bidder.”
• Require vendor invoices to be provided in electronic spreadsheets.
• Eliminate or reduce the belief that the entire grant must be spent (“use it or lose it”). In an October 2018 story in The Fresno Bee, Paul Rosencrans, then the executive director of purchasing, said the district might get smaller grants in the future if it failed to use its entire annual grant.
• Develop a temporary price increase protocol, in the event that weather or other factors lead to temporary price hikes.

Idsvoog said the district would not comment on whether any of the managers in charge of the Fresh Fruit and Vegetable Program faced repercussions for the contract monitoring deficiencies.

“It’s not our practice to comment on personnel matters,” she said.

FUSD FFVP Internal Audit Final Report (002) (Text)