The Katonah-Lewisboro School Board spent a fair amount of time Tuesday evening discussing the effect on the district of accounting irregu­larities at Finehost Corporation, the district's former food service provider. Finehost had overstated its net income by $49 million and, when the fraud was made public in December 2001, a class action law-suit was initiated by its stockholders.

In October 2002, Finehost was purchased by Aramark, a Philadelphia corporation, which undertook a forensic audit and dis­covered several irregularities such as Finehost's failure to return to its cus­tomers rebates it had received for bulk purchases of food and double-billing for some of its services.

The district's superintendent for business, John Spang, said at least 14 New York school districts in addition to Katonah-Lewisboro were defraud­ed by Finehost. In 2003, Aramark notified the district about the fraud,but since Aramark thought the irreg­ularities had occurred in only one year, the company said it expected the settlement between Finehost and Katonah-Lewisboro would be only $30,000 to $40,000. When it was later found that the fraud had occurred over several years, the set­tlement rose to $281,000.

Mr. Spang said he communicated with Jae-Min Han, the attorney who is overseeing the settlement, to ask why the district had been unable to discover the irregularities on its own.

He said Ms. Han told him the dis­trict's business office could not have known about the billing issues unless it had reviewed Finehosts's records every month.

"And because the bill that Katonah received did not provide the level of detail that would have been required to catch the discrepancy, Katonah could not have known what was going on," Ms. Han wrote in a May 9 e-mail to Mr. Spang.

Mr. Spang said that the discrepan­cies were small compared to the size of the district's overall food services expenses.

"There were no flags that got raised because things were very high, according to the accountant who handles the school-lunch fund," he said. "They were just too small."

Board member Robert Meyer said he found it hard to believe that the district hadn't been able to detect the discrepancies.

"This was really a large corporate fraud," Mr. Spang replied. "This would have been very difficult for a school district our size to uncover. As you heard from the attorney, unless we had actually gone in and audited Finehost's records, it would have been very difficult to detect."

"Finehost was required to pass a rebate on to us," said board president Don Scott. "There's no way that we could know they got a rebate from Conagra Foods on bread for $1 bil­lion. The only way that that comes up is because there's a published accounting in a class action lawsuit."

According to the district's assistant business administrator, Kevin Sheldon, the entire $281,000 must go into the district's school lunch fund.

"We'll be serving lobster next year," Mr. Lichtenfeld quipped.