Walz calls for review of fraud after fraud charges vs. nonprofit




  • In Business
  • 2022-09-24 02:15:00Z
  • By Star Tribune (Minneapolis)
 

A day of recriminations over the Feeding Our Future scandal ended Friday with Gov. Tim Walz backing away from a call for an investigation of the judge who presided over a lawsuit challenging the state's handling of the nonprofit at the center of a massive federal fraud case, while the judge said his conduct has been misrepresented.

At issue is a 2021 lawsuit that led the Minnesota Department of Education to resume payments to Feeding Our Future, the nonprofit that federal prosecutors say was used to orchestrate a $250 million scheme to defraud the federal government of money meant to feed poor children.

Asked by a reporter if the judge should resign, Walz had said Thursday he hoped "there would be an investigation into that."

But on Friday, Walz said he isn't calling for any investigation into Ramsey County District Judge John Guthmann. Rather, Walz said, he wants a review done of "how this fraud was allowed to continue, including lies the defendants told the court."

The Minnesota Department of Education (MDE), which oversees the federal nutrition program, said in January that a judge had told the department "that it does not have the authority to stop payment to Feeding Our Future and must continue to pay Feeding Our Future's claims."

A rare state Judicial Branch statement, authorized by Guthmann on Friday, said Guthmann never ordered the department to resume payments, however. The statement said that the Star Tribune, other news media and MDE officials had inaccurately described him doing so. MDE voluntarily resumed payments, the statement said.

In response Friday, MDE officials said that "Feeding Our Future demanded that MDE make payments, and the court made it clear that if MDE were to continue the legal fight to withhold payments, MDE would incur sanctions and legal penalties."

A transcript of the April 2021 hearing shows Guthmann said that MDE can "establish additional conditions, but you can only stop paying if those additional conditions cannot ... if the deficiencies cannot be remedied by imposing those additional conditions. You can't impose the additional conditions and stop paying before you determine that those additional conditions won't work. You've put the cart before the horse."

MDE restarted payments and decided to work with federal investigators, leading to this week's charges - the largest pandemic-related fraud case in the country.

MDE leaders acknowledged in a May interview with the Star Tribune that, had they required extensive receipts and other paperwork, they may have been able to end the department's relationship with Feeding Our Future sooner.

Republican legislators held hearings earlier this year, questioning MDE leaders and arguing that the agency should have detected and stopped the fraud sooner.

"Gov. Walz and the Department of Education should have done more to stop the Feeding Our Future fraud scandal," Republican House Minority Leader Kurt Daudt said in a statement. "They failed to appeal the court ruling that allowed [the] scam to continue, and didn't sound the alarm with the media or the federal government which allowed these organizations to continue their scam and steal another $200 million from taxpayers."

Walz defended the department Thursday and said he and his team couldn't speak publicly about the case while the FBI was investigating.

"So while Senate Republicans held hearings and took my commissioner and threatened to fire her, she was under orders from the FBI," he said. "The way the system works is to not say anything."

Halting payments

Feeding Our Future sued the Education Department in November 2020 after the department delayed action on applications for 51 meal sites, including nine that federal prosecutors now say collected more than $50 million in fraudulent reimbursement payments.

Though for-profit sites had previously been barred from the program, USDA changed he rules after the pandemic to make it easier for children who were not attending school to continue receiving free meals.

However, the department disputed Feeding Our Future's contention at the hearing that it had just 30 days to approve or reject new applications for meal sites. Assistant Attorney General Attorney Kristine Nogosek said the department was still waiting for Feeding Our Future to provide more information about the disputed sites, and she argued that there was no deadline for that process to finish.

Guthmann disagreed. In December, Guthmann ordered the department to approve or disapprove the pending applications "in a reasonably prompt manner."

Seven months later, when the backlog of site applications reached 144, Guthmann held the department in contempt of court and ordered MDE to pay a sanction of $35,750 to Feeding Our Future.

"MDE cannot divide the application process into pieces and take as long as it wishes at every stage of the process except the last," Guthmann wrote in his order.

The judge also concluded that Feeding Our Future's request for an order compelling the department to pay $20 million in overdue reimbursement claims to the nonprofit's approved sites was "moot" because the department had already paid those claims.

MDE elected to pay those claims after the judge told the agency that it was entitled to request receipts, attendance records and other documents from Feeding Our Future to ensure those were valid claims. The agency had found that the organization violated multiple performance standards and was in a state of "serious deficiency."

Though Feeding Our Future had challenged the department's request for such records, Guthmann told the nonprofit at the April 2021 hearing that MDE was entitled to request supporting documentation. But he said MDE couldn't withhold payment unless it determined that "the deficiencies cannot be remedied by imposing those additional conditions."

The department didn't claim that any of the reimbursement claims were fraudulent, according to the transcripts. This week, the department said that, because it was assisting with the federal investigation, the agency couldn't "assert certain defenses" when Feeding Our Future sued because it didn't want to tip off the organization about the investigation.

MDE leaders have blamed the USDA for not responding with urgency to their repeated concerns about Feeding Our Future. Commissioner Heather Mueller said state officials repeatedly contacted the USDA after they became suspicious about "inexplicable growth" by the nonprofit in July 2020. But nobody took those reports seriously, Mueller said, until the department approached the FBI in April 2021.

Staff writer Briana Bierschbach contributed to this report.

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