Employee cooked up scam that may cost charity $192,000

The staff at Open Arms of Minnesota, one of the biggest meal delivery programs in the Twin Cities, was conducting a routine computer upgrade this month when staff members noticed something odd.

The agency had contracts to cook and deliver 2,000 meals a day to sick and elderly folks across the Twin Cities. But documents showed another 200 to 225 meals were going out the door. Week after week after week.

An employee, it seems, had set up phantom food contracts with four suburban Meals on Wheels programs. While Open Arms cooked the meals and delivered them to Hopkins, St. Louis Park, Burnsville and Bloomington, the employee collected the payments. The exact financial hit from the scam, which started last May, is still being determined. But the cost of just one meal is roughly $4, or $800 a week. In six months, the loss could be as high as $192,000.

"We're using the word 'significant' in terms of dollars but not in terms of the impact on the organization," said Tim Meyer, chairman of the board for Open Arms. "Nonprofits tend to be trusting of people. We got thrown a dose of reality that we are a business as well."

Open Arm's board of directors will meet Tuesday night to determine future steps to deal with the mess. They've already fired the employee, contacted Minneapolis police, and notified thousands of supporters and key funders.

While the police investigate, an auditing firm is now calculating the extent of the losses. In addition to the money diverted from the four unsuspecting Meals on Wheels nonprofits, cash also apparently was pocketed from a summer Loaves and Fishes program in the Twin Cities.

Open Arms is the single largest caterer of Meals on Wheels in the Twin Cities, preparing about 1,200 of the 4,500 daily meals, said Patrick Rowan, executive director of Metro Meals on Wheels.

The scam points to the need for tight checks and balances at nonprofit organizations, he said, especially those serving the poor and disadvantaged that tend to attract the most trusting souls.

Shadow meals service

Open Arms of Minnesota holds a unique niche in meals programs. It provides 800 fresh meals a day -- including organic, gluten-free, salt-free options -- to people suffering from HIV, cancer and other life-threatening diseases.

After years of providing free meals to chronically ill clients, Open Arms began catering last January for 1,200 Ramsey County seniors who had signed up for Meals on Wheels.

That apparently opened the door to the fraud.

Laurie Mahoney, executive director of the Bloomington Meals on Wheels, explained how she was hoodwinked.

The renegade Open Arms employee called her last fall, saying Open Arms wanted to expand its Meals on Wheels programs, she said. Mahoney was scouting for a new caterer, so after phone discussions she and a board member drove to Open Arms to tour the cooking facilities and meet him.

"It was all very professional," she said. "He introduced us to some other staff."

The food was tasty and the price was right, said Mahoney, whose agency later decided to sign a contract. But there was no contract, though she said she repeatedly asked for one.

Nonetheless, roughly 500 meals a week began arriving in October. They were then distributed to seniors across the Bloomington area.

At the end of the month, the Open Arms employee personally picked up the check, which was supposed to be made out to him so he could swiftly pay other vendors, she said.

"We got good quality meals, so I didn't question," said Mahoney, who handed over about $26,000. "I just thought we'd eventually get a contract. But we never did."

About this time, Rowan learned that Open Arms was concerned about its new Meals on Wheels contracts because they seemed to be losing money.

He said he tried to set up a meeting with Open Arms directors, but it was through the same employee working with Mahoney. The meetings never happened, he said.

"We were all duped," said Rowan.

A 'bizarrely unique' scheme

One reason the scam was not detected is because the number of meals cranked out at Open Arms has been growing steadily during the past few years, said Meyer. So an extra 200 meals didn't set off any alarms.

Meyer stressed that the nonprofit is still in solid financial shape. It owns a new $8 million building in Minneapolis with state-of-the-art cooking facilities. No meals were disrupted to clients.

In the vast scheme of alleged thefts from nonprofits, the Open Arms case is intriguing, said Kate Barr, executive director of the Nonprofit Assistance Fund of St. Paul.

"It's bizarrely unique," said Barr. "Usually, if it's a phantom operation, it's with phantom invoices or phantom employees. Here, he actually delivered the program."

Open Arms has appointed a consultant, Teresa Matsui Sanders, to serve as interim executive director. Longtime executive director Kevin Winge resigned in December.

An auditing firm has been brought on board to recommend "enhanced checks and balances" to prevent similar problems, said Meyer.

Jean Hopfensperger • 612-673-4511