Food Firm Admits Switching Products in School Lunches : Fraud: Kold Kist operators plead guilty to substituting inferior ingredients in scam that cost district $1 million.

Three former operators of a City of Commerce food supply company have pleaded guilty to defrauding the National School Lunch Program by using substandard ingredients in burritos, which children complained sometimes contained foreign substances such as pebbles.

In a complex scam, Kold Kist Brands Inc. accepted government surplus ingredients such as cheese and beans from school districts--provided for free by the U.S. Department of Agriculture for school lunches. But the company admitted it cooked those ingredients into its commercial products instead, a violation of federal law.

It then put inferior ingredients into the school burritos, including meat that was more than half fat, breaking laws regarding school lunch quality.

“There’s nothing new under the sun--people will try anything,” USDA inspector David Dixon said Tuesday about the ingredient switch, noting that a similar ruse was employed several years ago in Kentucky by a company supplying school pizzas.

Although the Kold Kist burritos were distributed to schools all over Southern California, the Los Angeles Unified School District, which serves 600,000 meals a day, was the company’s largest school customer.

The district signed a three-year contract in 1990 to buy 40,000 cases of burritos annually, which represented a majority of the burritos served at schools, said food service Director Warren Lund. It canceled its contract two years later, after learning of the federal investigation.

“Kids weren’t complaining about it so . . . we didn’t know anything was wrong,” Lund said, speculating that the higher fat content, in particular, may have made the burritos seem tastier.

As part of the federal investigation, individual schools were contacted to determine whether there had been complaints about the burritos. Among them were reports that children and teachers had found various foreign items, including small stones.

A former Kold Kist employee told investigators that the substitute beans contained “rocks, field trash, broken glass and metal,” according to search warrant documents.

Los Angeles Unified had no inkling of the substandard ingredients when it contracted with Kold Kist, the federal investigation found, because the company provided higher-quality samples to district nutritionists and independent laboratory analysts.

The district is able to test food only at the onset of a contract, Lund said, because routine testing is too expensive.

“Obviously, there’s a good deal of trust between us and the vendor community,” he said. “But normally if there’s a switch, it’s going to affect the taste, and complaints will come in.”

Problems with the burritos first came to light in the fall of 1992, after a citizen complaint, Dixon said. Los Angeles Unified terminated its contract with Kold Kist four months later as its own laboratory analysis of the burritos turned up the high fat content.

The original indictments, issued late last year, alleged that between January and September, 1992, Kold Kist defrauded the Los Angeles district of nearly $1 million by charging it for a product that was not provided. So far, the district has recouped only about $50,000, Lund said.

In a plea bargain agreement, the three Kold Kist operators changed a not-guilty plea made in February to guilty, although details of their fines or possible jail sentences were not available on Tuesday.

The original charges against the three--former President Roger Peters, former Vice President of Manufacturing Dahl Casey and former Quality Control Manager John Jones--carried the potential for fines of up to $12 million and life prison sentences.

The three men are scheduled to be sentenced in December.