MINNEAPOLIS — Long before the FBI accused the Minnesota nonprofit Feeding Our Future and some of its prime contractors of fraud, the federal government's child nutrition programs were wasting more than $1 billion a year on "improper payments," according to the U.S. Government Accountability Office.
The GAO first raised the issue of sloppy oversight in 1999, when a whistle-blower complained about financial irregularities at a California nonprofit, spurring a nationwide investigation that led to the convictions of at least 28 people on charges of defrauding the Child and Adult Care Food Program, or CACFP.
But the U.S. Department of Agriculture, which oversees more than $20 billion in spending on meals for children, has failed to close loopholes that allow meal providers to pad their bills and obtain millions of dollars they are not entitled to, according to a review of government reports and court records.
The problems seem to have gotten worse during the pandemic, when USDA sharply reduced the monitoring of meal providers in an effort to prevent kids — and inspectors — from catching COVID-19.
For the past two years, USDA has issued waivers that allowed state regulators to suspend all on-site monitoring of providers and reimburse them for meals even if the state has not approved them for the program. Other waivers mean children are no longer required to eat their meals on site, and sponsoring organizations such as Feeding Our Future are not required to monitor meal service to make sure a provider is capable of meeting the program's needs.
All of the alleged fraud that took place at Feeding Our Future and its partners occurred after the federal government first relaxed its rules in March 2020, records show.
Kathryn Larin, a 22-year GAO veteran who oversees all federal child welfare programs, said the waivers created a fertile environment for fraud.
"The USDA issued a lot of waivers that eliminated some of the checks and balances in these programs," Larin said. "The lack of in-person oversight, the fact that kids were no longer required to eat their meals on site. All of this contributed to the potential for fraud to take place."
In Minnesota, the FBI has alleged that dozens of meal providers sponsored by Feeding Our Future were paid tens of millions of dollars for food they never provided to needy children, using most of that money to purchase real estate, luxury vehicles and other goods. So far, a federal grand jury has issued no indictments.
In addition to the Minnesota probe, federal authorities have conducted at least three investigations in the past year involving fraudulent payments to USDA meal-providers. Two of the cases have led to indictments and one guilty plea.
Altogether, federal prosecutors have pursued at least 20 fraud cases over the past decade involving the CACFP and the Summer Food Service Program, the two primary USDA programs that rely on child-care centers, nonprofit organizations and certain for-profit companies to deliver food to needy children.
None of the publicly reported cases approach the scope of the Feeding Our Future investigation, which involves at least $48 million in alleged fraud. The second biggest case took place in Arkansas, where a dozen people were charged with misappropriating $10 million from the two programs, court records show.
The Arkansas case is one of several in which government officials were accused of participating in the schemes. Two veteran employees of the Arkansas Department of Human Services pleaded guilty in 2016 to taking bribes to approve inflated reimbursement claims, court records show. They were both sentenced to nine years in prison. The ringleader was sentenced to 121/2 years in prison and ordered to pay $3 million in restitution.
Most of the schemes around the country involved legitimate operators who inflated their reimbursement claims to cover meals that were never served, sometimes on days when their facilities were closed, court records show. Similar to the accusations in the Feeding Our Future investigation, operators in other states were accused of using money that should have covered food bills to buy real estate, luxury vehicles and expensive jewelry.
Among those convicted: a highly regarded school principal who also operated several day-care centers in Georgia; several ministers who ran their own nonprofit organizations distributing meals; a former congressional candidate and a parish commissioner (similar to a county commissioner) in northern Louisiana.
In a previous interview, Aimee Bock, the executive director of Feeding Our Future, said she never saw any evidence of fraud among her operators. She said she visited food providers and verified they were serving the number of meals they claimed on reimbursement forms. However, Bock acknowledged firing one of three prime contractors accused of fraud for "poor service delivery."
Bock said her staff members usually tried to visit every site once a month, especially the newer ones, "to make sure there are no mistakes happening." Bock began shutting down the nonprofit last week, with the organization citing "negative media reports and frozen assets."
The FBI accused Bock of taking a $310,000 "kickback" from one of her prime contractors, court records show. Bock said the money was payment for selling a shuttered day care she owned in Burnsville.
Federal prosecutors have a good batting average on prosecuting fraud in the meals programs: Of 19 publicly reported cases that yielded an indictment, prosecutors obtained at least one conviction or guilty plea in each of the 16 cases that reached a final disposition so far, court records show. The average prison sentence in those cases for prime offenders: 36 months.
Three cases are still pending, and investigators are still looking into fraud claims in Oklahoma, where state officials said they uncovered $1.6 million in fraud involving the meals programs last summer. Oklahoma regulators became suspicious when the number of meals reportedly served through the summer program leaped 700% in one year.
Larin said it has been difficult for government officials to spot such red flags because USDA and the state agencies that oversee the programs have done such a bad job of tracking the number of children served food outside of schools.
"We found that the methods that they were using to estimate participation are very unreliable," Larin said.
Officials with the Minnesota Department of Education, or MDE, which pays providers on behalf of USDA and monitors compliance, declined an interview request to discuss the effect of waivers on program integrity. Most of the waivers have been extended through the end of the current school year or until "30 days after the end of the public health emergency," records show.
"Minnesota did accept some waivers from the USDA that allowed MDE and sponsors the flexibility to conduct in-person site visits virtually," department spokeswoman Ashleigh Norris said in a written response to questions. "We have now resumed in-person visits. At this time, we don't anticipate using the in-person waivers broadly going forward."
Norris said the department resumed some in-person site visits last summer.
"The reason we were able to identify concerning activities in the food programs so quickly in summer 2020 was because of our diligent monitoring," Norris said in her statement.
The department cut funding to the organization and its contractors in March 2021. But a Ramsey County judged ordered the state to resume reimbursements after Feeding Our Future appealed the decision, arguing that the organization's minority contractors were being targeted because of their race and because they served low-income children of color.
The FBI launched its investigation a month later, after the department alerted it to potential fraud, court records show.
Local nonprofit leaders now worry the allegations will affect nonprofits that are doing legitimate work, feeding a growing number of Minnesotans in need during the pandemic.
"It's some of the best taxpayer dollars going to feeding children," said Cathy Maes, executive director of Loaves & Fishes, a Minneapolis-based free meal program that has binders of paperwork accounting for every hot meal prepared the last six years. "I have no idea how this all happened because this is a very regulated program. I feel like we are going to be taken to task for a bad actor."
In GAO's most recent national review of the food programs, the agency documented at least $1.8 billion in improper payments for four child nutrition programs in 2018, down from $6.2 billion in 2013.
Larin said the problem could be much larger because USDA has yet to come up with a way to measure improper payments for the two meals programs that operate outside of schools.
Although USDA has tried to address its weak financial controls, the level of improper spending hasn't improved, GAO found. Improper payments include fraud and abuse, overpayments, payments to ineligible recipients and other mistakes.
In the 2019 report, GAO said USDA has failed to address improper payment problems for seven years, noting it was one of just three federal agencies that have been out of compliance for at least three consecutive years.
The audit singled out the summer meals program as being at "high risk of improper payments." Several of the invoices involving Feeding Our Future contractors that were flagged by the FBI as suspicious came during the summer months, court records show.
USDA officials declined an interview request. In a written response to questions, agency spokesperson Jalil Isa said USDA "takes fraud and the protection of taxpayer dollars very seriously. Given this is an ongoing investigation, we cannot comment on this case—other than to confirm this sponsor, Feeding our Future, was a participant in our programs."
(Staff writer Kelly Smith contributed to this report.)
