Minnesota Department of Education pushes more rules for meal programs to avert fraud

In the wake of the massive Feeding Our Future fraud investigation, the Minnesota Department of Education is seeking to bolster state regulations for organizations that provide meals to kids outside of the school day.

The proposed legislation, which would require new training and exclude newly created meal-sponsoring organizations, is part of the omnibus House education finance bill and the omnibus Senate education policy bill.

Lawmakers are also considering boosting oversight of state nonprofit grants after a February report found "pervasive noncompliance" by state agencies overseeing millions of dollars distributed to nonprofits each year.

The proposals come amid heavy scrutiny of government funding to Minnesota nonprofits. The FBI raided Feeding Our Future's St. Anthony offices in 2022, revealing a fraud scheme amounting to more than $250 million — one of the largest pandemic-related fraud cases in the United States, according to prosecutors.

Assistant Education Commissioner Daron Korte said the proposed legislation would have prevented Feeding Our Future from opening so many food distribution sites and would help close loopholes going forward.

"These are things that we think will ... increase the integrity and performance of the programs," Korte said. "Would it have prevented fraud? I guess I can't speculate on that."

The state Education Department enforces federal rules and disburses money for the federally funded meal programs, but the Legislature has to sign off on any policy changes because Minnesota is one of seven states where the state agency doesn't have general rulemaking authority.

Sen. Steve Cwodzinski, DFL-Eden Prairie, who chairs the Senate Education Policy Committee, said the regulations have bipartisan support, given the Feeding Our Future scandal, and are likely to be approved this year.

"We want to make sure there are safeguards and that we're holding these organizations accountable," said Rep. Laurie Pryor, DFL-Minnetonka, chair of the House Education Policy Committee. "These are commonsense ideas."

Since September, 60 people have been charged in the Feeding Our Future case. Prosecutors say they stole taxpayer money to buy luxury cars, lakefront homes and other personal items instead of feeding needy kids. Some food sites fed no children, prosecutors say, while others greatly inflated meal counts.

The meal programs are funded by the U.S. Department of Agriculture (USDA), reimbursing schools, child care centers and nonprofits for feeding low-income students after school and in the summer.

Minnesota Republicans have blasted Education Department officials for poor oversight, but the department has also been criticized by judges for being too aggressive or taking premature actions.

In 2016, the department tried to block a St. Paul nonprofit, Partners in Nutrition, from expanding its meal sites, saying the group had failed to prove it was "financially viable." The Minnesota Court of Appeals found that the Education Department imposed a "more stringent standard" than allowed under federal rules.

The proposed legislation would require new organizations that want to sponsor multiple food sites to prove their financial viability with tax returns and financial statements before they apply for the programs. New applicants must have operated for at least a year and must draw at least 10% of their revenue from sources other than USDA, unlike Feeding Our Future and many of its partners.

Under the proposed rules, food sites couldn't transfer to a new sponsor more than once a year and would have to receive training. Summer food sites couldn't operate within a half-mile of an existing food site, unless serving a different group of children.

"What we saw with Feeding Our Future was they were opening sites right next to each other, sometimes in the same building," Korte said, "and we really had no authority or ability to limit that. So this would have helped there."

The Education Department sought to add these regulations last year, Korte said, but the measures didn't pass the politically divided Legislature. Now Democrats control both houses.

The USDA granted Minnesota more than 100 COVID-19 waivers to dispense food quickly and safely when schools closed, letting for-profit restaurants participate and lifting some in-person monitoring requirements. Prosecutors say those waivers opened up the programs to fraud. The state returned to pre-pandemic rules last year.

Lawmakers are also considering boosting funding for the state Office of Grants Management and oversight of nonprofit grants, after the Office of the Legislative Auditor released a report this year saying that state policies overseeing nonprofit grants are vague. It recommended better oversight, improved data on grants and more training for state employees.

A separate review of the Education Department's oversight of Feeding Our Future is slated to be released this summer by the Legislative Auditor's Office.

The Minnesota Council of Nonprofits supports increased funding for the Office of Grants Management and a grants management platform for all state agencies that would streamline what are now 13 different systems.

"It will allow the state to much more successfully and equitably oversee the myriad of grants to nonprofits," said Marie Ellis, the council's public policy director.

Sen. Carla Nelson, R-Rochester, is sponsoring a bill in response to the Legislative Auditor's report requiring nonprofits to file tax returns if they receive state money. Her bill, which hasn't had a hearing, stipulates that nonprofits getting state grants would not be able to pay an employee more than the governor, or have a voting board member who worked for a state agency or served in any elective local or state office. The nonprofits council opposed similar legislation last session.

"We've had some bad actors who have taken advantage of our lax controls, and we must not let that happen," Nelson said. "We must restore the trust."