Minnesota Department of Education officials testified during a Senate hearing on oversight of meal distribution programs, including Feeding Our Future, in April 2022. (Jeff Wheeler, Star Tribune/The Minnesota Star Tribune)

Minnesota's Education Department is getting an inspector general who can investigate allegations of fraud, waste and abuse after the agency was scrutinized for its oversight in the Feeding Our Future case.

State education officials say the addition of an Office of Inspector General gives them something they lacked in the $250 million Feeding Our Future fraud case: investigatory power. The new office created by the Legislature this year will conduct independent investigations and is tasked with reporting fraud and misused funds to law enforcement. The office must also work with law enforcement on any investigations and subsequent prosecutions.

"It does give us the really important authority to be able to investigate. We know that this is going to be critical," said Stephanie Graff, deputy commissioner at the Minnesota Department of Education (MDE). "We're confident that this new office is going to ensure that we have proper oversight of all of the programs."

MDE enforces federal rules and disburses money for meal programs that are funded by the U.S. Department of Agriculture (USDA). Those meal programs reimburse schools, child-care centers and nonprofits for feeding low-income students after school and during the summer.

Federal prosecutors have charged dozens of people involved with the nonprofit Feeding Our Future, accusing them of robbing a federal meals program of $250 million. Prosecutors allege the large group of Feeding Our Future associates inflated the number of meals they claimed to serve to children during the pandemic, with some serving no meals at all, and instead used millions of federal dollars to enrich themselves.

Before all the money went out the door, MDE tried in court to block Feeding Our Future's expansion plans and terminate its involvement in the meals program, but it was unsuccessful. Regulators shared their suspicions about Feeding Our Future's growing volume of reimbursement claims, but court records show the department never directly accused the nonprofit of fraud while in court, nor did it provide sufficient evidence.

The Education Department ended up sharing its suspicions with the USDA and, later, federal investigators, who launched their own sprawling probe.

With its new Office of Inspector General, the department will be able to launch more robust investigations on its own, officials said. The office will have access to all data related to programs that receive funds from MDE.

It also will be tasked with developing a public platform that Minnesotans can use to report possible fraud, waste or abuse of public funds administered by the department.

Other changes passed by the Legislature this year seek to hold organizations involved in federal meals programs more accountable.

An organization applying to sponsor food sites must prove its financial viability by showing documentation that it has operated for at least one year; its most recent tax return; a "profit and loss statement and balance sheet"; and evidence that at least 10% of its operating revenue comes from sources other than the USDA's child nutrition program.

Those organizations must also provide documentation to MDE verifying that all their staff have completed program-specific training chosen by the education commissioner. The Education Department must not approve new summer food service sites that seek to operate within a half-mile radius of an existing site unless they meet certain criteria.

"These are the types of controls that are needed to hold sponsors and [food] sites accountable," Graff said.

State Sen. Mark Koran, R-North Branch, said he thinks MDE staff need to more seriously monitor, and even question, what food sites claim reimbursements for. Without that "grassroots agency-level work," Koran said the changes made by the Legislature this year may not be enough to prevent another massive fraud.

Koran also said he would have preferred if state lawmakers separated the Office of Inspector General from MDE instead of housing it within the Education Department. He called it a "huge conflict" to have a fraud inspector reporting directly to the very agency whose oversight might be in question.

"I think an office with all of the tasks that are identified in the new statute would be better freestanding from the agency they're expected to oversee," Koran said.

House Education Policy Committee chairwoman Laurie Pryor, DFL-Minnetonka, said she has "a fair amount of confidence" that the changes will help prevent such a massive fraud from happening again.

Pryor said she's eager to hear from regulators and nonprofits next year about whether the new office and rules are effective. She added that she also will be interested to see if there were any unintended consequences.

"You don't want to create lots of red tape that just is a barrier for nonprofits entering in these partnerships," Pryor said. "But on the other hand, you have to make sure there's the protections. I think these strike a good balance."