Audit finds Minnesota agency's lax oversight fostered theft of $250M from federal food aid program

MINNEAPOLIS (AP) — A Minnesota agency's inadequate oversight of a federal program that was meant to provide food to kids, and its failure to act on red flags, created the opportunities that led to the theft of $250 million in one of the country's largest pandemic aid fraud cases, the Legislature's watchdog arm said Thursday in a scathing report.

The Minnesota Department of Education “failed to act on warning signs known to the department prior to the onset of the COVID-19 pandemic and prior to the start of the alleged fraud, did not effectively exercise its authority to hold Feeding Our Future accountable to program requirements, and was ill-prepared to respond to the issues it encountered with Feeding Our Future,” the nonpartisan Office of the Legislative Auditor concluded.

Seventy people have been charged in federal court for their alleged roles in a scheme prosecutors say centered on a nonprofit called Feeding Our Future. Five of the first seven defendants to stand trial were convicted Friday. The trial gained widespread attention after someone tried to bribe a juror with a bag of $120,000 in cash the night before the case went to the jury. Authorities are still trying to determine the source of that money.

Eighteen other defendants have already pleaded guilty. Trials are still pending for the others.

Education Commissioner Willie L. Jett II disputed the auditor's characterization of his agency's oversight as inadequate. He said in a written response in the 120-page report that its oversight “met applicable standards” and that department officials “made effective referrals to law enforcement.” He said department staffers first spotted problems in summer 2020 and raised their concerns with federal authorities.

“What happened with Feeding Our Future was a travesty — a coordinated, brazen abuse of nutrition programs that exist to ensure access to healthy meals for low-income children,” the commissioner wrote. "The responsibility for this flagrant fraud lies with the indicted and convicted fraudsters.”

But Republican legislative leaders said at a news conference that the report shows that the failure to stop the fraud lies with the administration of Democratic Gov. Tim Walz, which has said that the state’s hands were tied by a 2021 court order to resume payments despite its concerns — a charge the judge disputed — and that the FBI asked the state to continue making payments while the investigation continued.

“This is stunning,” said GOP Senate Minority Leader Mark Johnson, of East Grand Forks. “The Department of Education and Gov. Walz have repeatedly tried to tell the public that they did all they could ... but this report clearly demonstrates that was a false narrative.”

Sharp criticism also came from some Democrats during a hearing on the report. Sen. Ann Rest, of New Hope, said it was unfortunate that Jett's predecessors, who ran the agency during the time in question, were not there to answer questions.

“Those commissioners had the authority, as was pointed out in this report by the legislative auditor, and they clearly did not exercise it to discover and to report fraud,” Rest said. “We do not hear of ... similar programs using federal money to feed students in other states that experienced such fraud.”

Rest lamented that nobody in the department has taken responsibility for what happened. In a variant on the expression, “The buck stops here,” Rest said: "But what we really do have is the buck is still running down the street — running down the street and stopping nowhere. And that is unacceptable.”

Republican Rep. Patti Anderson, of Dellwood, who served as state auditor from 2003-07, said the disruption of the pandemic was no excuse.

“They could have stopped this long before there were 250 plus million dollars in fraudulent claims sent out to these folks," Anderson said. "All this could have all been avoided.”

Jett, who was appointed commissioner in January 2023 amid the fallout, said his agency has implemented changes to strengthen its oversight capabilities, including establishing an office of inspector general in 2023, adding a general counsel’s office in 2022, providing training to all staff on its updated fraud-reporting policies, and contracting with a firm to conduct financial reviews of certain partners.

Federal prosecutors say the conspiracy exploited rules that were kept lax so the economy wouldn’t crash during the pandemic. The FBI began digging into it in spring 2021. The defendants allegedly produced invoices for meals never served, ran shell companies, laundered money, indulged in passport fraud and accepted kickbacks. More than $250 million in federal funds was taken in the Minnesota scheme overall, and only about $50 million of it has been recovered, authorities say.

The money came from the U.S. Department of Agriculture and was administered by the state agency, which funneled the funds through partners including Feeding Our Future. The defendants awaiting trial include Aimee Bock, the founder of the group. She has maintained her innocence.

An Associated Press analysis published last June documented how thieves across the country plundered billions in federal COVID-19 relief dollars. Fraudsters potentially stole more than $280 billion, while an additional $123 billion was wasted or misspent. The combined loss represented 10% of the $4.3 trillion the government disbursed by last fall. Nearly 3,200 people have been charged and about $1.4 billion in stolen aid has been seized, according to the Justice Department.