Fraud allegations in federal nutrition program spur questions about nonprofit boards' oversight - freetxp

Fraud allegations in federal nutrition program spur questions about nonprofit boards’ oversight

A three-person board of directors volunteered to oversee a Minnesota nonprofit distributing money for meals to poor children as part of a federal nutrition program.

But now that the nonprofit, Feeding Our Future, is at the center of an FBI fraud investigation alleging that tens of millions of taxpayer dollars were misused, the allegations are raising questions about the roles and responsibilities of nonprofit boards.

No charges have been filed in the case involving Feeding Our Future, but even if the allegations prove true, its three volunteer board members likely will not face consequences unless they willfully engaged in misconduct, attorneys who work with nonprofits said.

Board members have fundamental legal duties to supervise and govern a nonprofit’s work, attending meetings to review financial information and manage its charitable assets.

“If it’s just [that] they sort of fell down on the job and they should have done a better job, it would be pretty unusual for there to be personal liability, “said Sarah Duniway, a Minneapolis attorney who represents nonprofits and is not involved in the case.” Unless it turns out they were willfully turning a blind eye or actively engaged in the fraud it would be difficult … to impose liability on them. “

The FBI began its investigation into Feeding Our Future last May and raided its offices Jan. 20. In unsealed search warrants, investigators alleged the organization was part of a broad scheme to defraud the U.S. Department of Agriculture, funneling at least $ 48 million from child nutrition programs to an array of entities that spent the money on personal expenses ranging from lavish trips to a $ 1 million house in Plymouth and a Porsche. Prosecutors have moved to seize 14 properties owned by people accused in the scheme.

It’s unclear how much the organization’s board members knew about its finances. None of three board members could be reached for comment. The executive director of Feeding Our Future denies her organization or anyone she worked with did anything wrong.

Under Minnesota law, a nonprofit must have at least three board members and they are considered fiduciaries, responsible for overseeing the organization while the executive director or CEO is the paid leader responsible for the day-to-day operations. Most nonprofit boards are made up of business and community members who volunteer to offer their insight and guidance.

Unlike corporate boards or college and university boards, state and federal laws provide more protection to the unpaid volunteers who serve on Minnesota’s more than 9,000 nonprofit boards, making them immune from legal or criminal liability, unless they engage in willful misconduct, Duniway said. The immunity is meant to encourage people to volunteer their time to serve on boards, she said.Even if a board member breaks their fiduciary duties and did not benefit from it, there would likely be no repercussions.

But the Minnesota Attorney General’s Office, which regulates all charities that solicit donations in Minnesota, could take broader action against a nonprofit such as filing a court order to remove board members or shut a charity down.

“It begs a question in a situation like this where it appears really bad things were happening, it may be that it’s difficult to hold board members accountable,” Duniway said, adding that board members also may only know what they’re told by an organization. “I think it’s a fair question to ask did they know [about these allegations]and if they did not know or say they did not, should they have known? “

The Minnesota Department of Education, which distributes federal funding to schools and organizations, has repeatedly faulted Feeding Our Future founder and executive director Aimee Bock’s nonprofit management, noting that she failed to file required tax forms and did not have a financial staff to manage her complex, growing operation. Then last year, the Attorney General’s Office withdrew Feeding Our Future as a registered charity after unsuccessfully requesting required tax forms and annual reports that all charities must submit.

After a reporter asked Bock and her attorneys about it Jan. 27, they filed the paperwork and fees with the Attorney General’s Office on Jan. 28, saying the failure to file the required forms was inadvertent because the notice was sent to a wrong address. The organization is now listed as an active charity.

Board members are supposed to make sure the required tax forms are filed, but it’s not uncommon for small nonprofits to lapse in filing documents or have their registration lapse compared to major nonprofits with massive staffing and boards, said Jess Birken, who works with nonprofits at her Minneapolis law firm.

“You do not ever want your organization’s great mission to be tarnished by something like this,” Birken said. “It’s really important for boards and staff at the nonprofit to keep both eyes on the mission but also keep tabs on compliance. .. It’s important to keep the community’s trust. “

According to forms filed with the Attorney General’s Office, Feeding Our Future’s three board members in January were Ali Egal, Jamie Phelps, 45, of St. Paul and John Senkler. A previous board president, Benjamin Stayberg, 39, of South St. Paul, also did not return messages for comment. None of the board members are named in FBI documents or accused of any wrongdoing.

Bock said her organization is being targeted for suing the Minnesota Department of Education. She also alleges discrimination because she worked with mostly minority- and immigrant-owned businesses. She said she never stole money nor has seen any evidence of fraud among the more than 100 subcontractors her organization reimbursed for distributing 100,000 meals a day to kids across Minnesota. Bock said she has receipts and documentation – now seized by the FBI – proving they did distribute food.

Neither Bock nor any one else named in search warrants has been charged with any crime and experts say it could be months before charges, if any, could be filed.

Nonprofit board members have faced similar questions in other investigations. Several high-profile DFLers who served on the board of Community Action of Minneapolis resigned as state investigators invaded its offices in 2014, including then-US Rep Keith Ellison, state Sen. Jeff Hayden and several Minneapolis City Council members. Bill Davis, who led the nonprofit, was eventually sentenced to four years in federal prison for theft and fraud, misspending hundreds of thousands of dollars intended to help low-income people.

The Minnesota Department of Education first raised concerns about the amount of reimbursements Feeding Our Future was requesting in 2020 and denied dozens of site applications. But the nonprofit sued and a Ramsey County judge ordered the state to resume reimbursements, saying it did not have the authority to stop payments.

Last year, Charles Amevo of Edina-based CPA Global Portfolio Consulting CA LLC, was asked to do an independent audit of Feeding Our Future’s 2019 and 2020 finances. In 2019, the organization reported about $ 2.4 million in revenue – $ 2.3 million of which came from federal funds – and had a $ 13,000 deficit. By 2020, the organization reported $ 9.2 million in revenue, about $ 8.9 million of which was from federal funds, and a $ 35,000 deficit.

Amevo said in an interview that he reviewed financial statements and grant documents and did a site visit to Feeding Our Future’s St. Anthony office to monitor a food distribution to verify the grant money was going toward the program. His report is “unqualified,” which means it’s considered appropriate and a clean audit. He said the Attorney General’s Office contacted him last week to request the financial statements he received as part of the agency’s investigation into the nonprofit.

As news spread about the allegations, Duniway’s clients began to call with concerns, worried about the intense scrutiny on a Minnesota nonprofit and double-checking that they’re following all state and federal charitable giving laws.

“It’s just making people be vigilant about the fact that they have accountability beyond just their small stakeholder universe and to think about that – and that’s good,” she said.

The investigation has cast scrutiny both on Minnesota’s robust nonprofit sector – which nonprofits worry will jeopardize donations and funding for other child meal programs – and the Department of Education. Some legislators have called for an audit of the agency.

Kris Kewitsch, the executive director of the Charities Review Council in Roseville, said board members and donors have a lot of resources to verify an organization is transparent and accountable such as examining the required tax Form 990 (which can be found on the IRS website) .

The Attorney General’s Office (ag.state.mn.us) also lists charities in active standing and provides financial information. Contact the office at 651-757-1496 to request a copy of a nonprofit’s annual report and Form 990, or consult nonprofit experts, such as the Charities Review Council, which lists organizations at smartgivers.org that have been rigorously reviewed to meet their accountability standards.

“The reality is a majority of nonprofits are doing amazing things,” Kewitsch said. “Hopefully all of us out there doing good things can help donors have confidence that when they give it’s going to support the mission.”

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