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The Wall Street Journal reports this morning that Ahold’s US Foodservice division, which already has had to declare that it overstated profits by a half-billion dollars, may have yet another accounting problem -- the failure to pass along millions of dollars in rebates to government customers.

According to the WSJ, many government customers -- which include the military, school systems and prisons -- have what are known as “cost-plus” contracts, which have them paying the company’s costs plus a small premium. If the costs of products are lowered because of promotional allowances, then the costs to the government ought to be lowered as well.

The newspaper quotes “current and former senior managers” as saying this may not have happened.

However, for the record US Foodservice reportedly is saying that it complied with the terms of its government contracts, though it did need to study the matter more.

In related news, Sara Lee Corp. said that it had not acted inappropriately in its relationship with US Foodservice. This statement followed Friday’s report that the US Securities and Exchange Commission (SEC) investigation into accounting irregularities at Ahold and its US Foodservice division could be expanded to include Sara Lee Corp. and ConAgra Foods,

The company also said that it has not been in contact with investigators about the Ahold accounting scandal.

The Wall Street Journal reported on Friday that federal investigators have been told that some representatives of major US food manufacturers colluded with executives of US Foodservice to inflate supplier rebates.

A person familiar with the investigation told the WSJ that the expanded probe could have serious implications for the $500 billion American food industry that how retailers buy products from manufacturers.
KC's View:
We also reported on Friday that US Foodservice’s CEO, James Miller, was being clear that he does not intend to step down. "I intend to stay and run the company," Miller said. "I have been running this company for 30 years and don't see any reason to step down."

Enough of these stories come out, and you begin to wonder if he really was running the company, and what kind of accountability there is.

Because either Miller knew what was going on at US Foodservice, or he was asleep at the switch.