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Audit: Minnesota failed to investigate fraud complaints in child nutrition program

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Audit: Minnesota failed to investigate fraud complaints in child nutrition program

Jun 13, 2024 | 11:55 am ET
By Deena Winter
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Audit: Minnesota failed to investigate fraud complaints in child nutrition program
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FBI agents search the Shakopee townhome of Abdimajid Mohamed Nur, who was convicted Friday in the Feeding Our Future case. Photo by Madison McVan/Minnesota Reformer.

The state’s legislative auditor found that the Minnesota Department of Education failed miserably in its duty to properly oversee millions of federal dollars it administered to nonprofits to feed children during the COVID-19 pandemic, according to a special review by the Office of the Legislative Auditor released Thursday.

The audit examined how MDE administered a child nutrition program for the U.S. Department of Agriculture and found the agency’s inadequate oversight “created opportunities for fraud.”

Legislative Auditor Judy Randall said MDE was “ill-prepared to handle” a burgeoning fraud, with child nutrition workers used to working with schools and daycares, and not equipped to do investigations.

“Maybe we all were naïve that there aren’t bad actors,” Randall said. “This certainly has woken us up.”

Randall wouldn’t comment when asked whether she was aware of any investigation into MDE involvement in the federal prosecution charging scores of Minnesotans with ripping off the federal program by at least $250 million in the nation’s largest pandemic fraud scheme. Federal prosecutors say they gave away very little food, but got paid millions of dollars, which they used to buy Porsches and Teslas, vacations in the Maldives, and homes from Prior Lake to Kenya.

Prosecutors have charged 70 people so far with being part of the Feeding Our Future case, named after one of two nonprofits at the center of the scheme. Eighteen people have pleaded guilty, one fled the country, and five were convicted of bribery, money laundering and wire fraud charges last week. Two were acquitted.

The nonprofit Feeding Our Future was supposed to oversee other vendors and nonprofits purporting to be giving away ready-to-eat meals at sites all over the state, but instead, prosecutors said they enabled and participated in the fraud. 

MDE has said its “fast action and diligence launched the investigation that stopped the fraud and led to dozens of indictments.” But the report said MDE could have taken more decisive action, sooner.  

Auditors found MDE failed to act on red flags even prior to the pandemic and didn’t exercise its authority to make Feeding Our Future follow program requirements. MDE received at least 30 complaints about the nonprofit from mid-2018 through 2021 — including allegations that Feeding Our Future used unethical or inappropriate methods to recruit food sites; operated sites at locations without the property owners’ permission; ran a messy and haphazard food distribution process; and demanded kickbacks from food vendors.

Among some of the complaints MDE received about Feeding Our Future:

  • A June 2018 complaint alleging that Feeding Our Future’s executive director had, through theft and forgery, taken control of the organization from the other founding members. MDE responded that they should not provide further information to MDE unless “there is a conviction for any business related offense; or the organization is no longer in good standing with the IRS.”
  • In August 2021, a vendor told MDE that Feeding Our Future had demanded a kickback, and when the vendor refused to pay, Feeding Our Future canceled the vendor’s contract in retaliation.
  • MDE received at least three complaints from a sponsor alleging that Feeding Our Future was inappropriately recruiting people at meetings of a child care provider association.
  • In October 2021, MDE was told Feeding Our Future was “delivering food to nobody in particular — just leaving it in common areas or entry ways” and creating messes at three locations where it did not have permission to operate.

Although the agency is required by law to promptly investigate complaints or irregularities, it didn’t investigate some complaints about Feeding Our Future at all. When MDE did follow up on complaints, its investigations were inadequate, to the point where “MDE inappropriately asked Feeding Our Future to investigate complaints about itself,” the report said.

MDE often relied on the statements made by Feeding Our Future’s executive director Aimee Bock, the report said. Bock is charged with overseeing the massive fraud scheme.

The legislative auditor found MDE failed in numerous ways to prevent the fraud, including:

  • By failing to use its authority to deny applications for the program years before the pandemic. MDE had concerns about nearly all of Feeding Our Future’s sponsor applications and budget revisions, but approved them anyway.
  • By failing to verify statements made by the Feeding Our Future before approving applications, especially “high-risk applicants.”
  • By failing to follow up on its 2018 review of Feeding Our Future’s child nutrition operations, which raised concerns. 
  • MDE provided no documentation showing it visited any of Feeding Our Future’s sites in person during the pandemic. Even though many monitoring requirements were waived during the pandemic, the USDA still encouraged states to continue some kind of oversight and monitoring. But MDE did limited “desk audits.”

MDE did stop payments to the nonprofit in 2021, but Feeding Our Future sued the state, alleging racial discrimination. Ramsey County District Judge John Guthmann ruled that the state couldn’t halt payments unless they found fraud, so MDE resumed payments. 

During a Thursday hearing on the OLA report, Education Commissioner Willie L. Jett II called the fraud ​​coordinated, flagrant and brazen and said MDE “made effective referrals to law enforcement” and “cooperated with their direction to not impede their investigation.”

“The responsibility for this flagrant fraud lies with the indicted and convicted fraudsters,” he said in written response to the report.

Jett said the department has made changes to strengthen its oversight, establishing an Office of Inspector General, adding a general counsel’s office, training staff on updated fraud reporting policy, and contracting with a firm to conduct financial reviews of certain sponsors.

MDE officials told auditors they lacked the investigative authority to prove sponsors knowingly submitted false claims in order to take administrative action. For example, MDE didn’t have the authority to subpoena bank records. Another reason the department didn’t take action: Feeding Our Future’s lawsuits and public relations campaign pushed back when the state rejected site applications. The nonprofit held a protest outside MDE headquarters and sued repeatedly.

MDE officials told auditors they expected the nonprofit would challenge them in court if it denied any of the organization’s sponsorship applications.

MDE General Counsel Maren Hulden said the department was not equipped to prove fraud happened.

“We really did need their help,” she said of the FBI.

This came up during the recent trial of seven defendants charged with defrauding the program. The director of Minnesota’s nutrition program acknowledged she got some pushback from her own supervisors when she raised concerns about suspiciously high reimbursement claims. Honer said due to Feeding Our Future’s “very nasty lawsuit,” MDE employees were often hauled into court.

Emily Honer, MDE director of nutrition program services, testified that she quickly became suspicious of huge reimbursement requests and alerted her superiors, the USDA, and eventually, the FBI.

Outside of a month where MDE payments were stopped to some sponsors, MDE kept paying reimbursement claims until the FBI investigation went public in January 2022.

Republicans have blamed Gov. Tim Walz’s administration for failing to prevent the fraud. Walz has said the state’s hands were tied by a court order to resume payments, although Ramsey County District Judge John Guthmann disputed that in a rare rebuke.

Senate Minority Leader Mark Johnson said during a press conference that Republicans were “completely vindicated” by the report, after MDE has been “extremely defensive” and taken no responsibility for the fraud. He said commissioners normally are “let go” when something like this happens, but two left MDE with “glowing reviews” and the administration has suggested it helped stop the fraud. 

Sen. Mark Koran, R-North Branch, vice chair of the legislative audit commission, said MDE was “divorced from reality” and could have prevented the fraud.

“The red flags were blinding,” he said.

He said the state needs an independent inspector general that can’t be thwarted by the executive branch.

Randall, the legislative auditor, said her office didn’t find any indication MDE was ordered by higher-ups to continue paying Feeding Our Future.

Even Democrats were outraged by what they read and heard Thursday.

Sen. Ann Rest, DFL-New Hope, called it “extremely disappointing” that MDE didn’t clearly endorse all of the OLA recommendations and nobody took responsibility.

“The buck is still running down the street and stopping nowhere, and that is unacceptable,” she said very loudly during the OLA hearing.