Reading about the seemingly bottomless Minneapolis government grant fraud investigations in recent weeks, I’ve noticed one aspect not covered in either the traditional media or emerging “citizen” journalism: complete silence from the leaders of the philanthropic community including large national foundations, significant philanthropists like Michael Bloomberg and MacKenzie Scott (who usually won’t shut up), and advocacy groups like the Council on Foundations or National Council of Nonprofits. While The Silence of the Lambs is not one of my favorite movies, there could be a remake, The Silence of the Philanthropists.
In case you’ve been a coma, here’s a brief summary of the Minneapolis fraud situation.
Minnesota, and especially the greater Minneapolis area, is the epicenter of one of the largest federal fraud scandals in American history. This involves exploiting various government grants intended to support high-need/low-resource children and families. While official investigations began several years ago with a nonprofit 501(c)3 organization, Feeding Our Future (FOF), recent exposes by Nick Shirley and other non-traditional journalists have expanded to encompass allegations of widespread fraud in daycare centers, home healthcare agencies, and the like.
Much of this fraud is centered on the large Somali population. Recent estimates place the number of people of Somali descent in Minnesota at around 100,000, including about 80,000 in the Twin Cities metro area, concentrated in Minneapolis. This makes it the hub for Somali Americans nationwide. Whie Aimee Bock, who founded FOF in 2016, is not Somali, most of the 78 people charged in this case are Somali. FOF quickly became a large grantee for such USDA programs as the Child and Adult Care Food Program (CACFP) and the Summer Food Service Program (SFSP). These programs reimburse organizations for providing meals to low-income children in schools, after-school programs, and daycares. Pre-pandemic, FOF received modest funding—about $3.4 million in 2019. When USDA rules relaxed, however, in April 2020 to ensure food access amid lockdowns, including allowing for-profit restaurants to participate and easing oversight, FOF’s reimbursements skyrocketed to $198 million in 2021!
Still, this post is not about Somali-involved fraud even though it’s reached epic levels in Minneapolis. There are many obvious fraudsters operating in places like California that do not have large Somali populations. Simply put, fraud among nonprofit and for-profit human services providers is based on greed, not ethnic origin, and is facilitated by government bureaucrats, who are incompetent, fraud-involved, or both.
S + A has worked for well over 1,000 clients, most of which were nonprofits, but I only know of six client executive directors who were convicted of fraud, a tiny percentage—most nonprofits are focused on service delivery, although certain types of minor fraud are common, including:
- The ED or a board member buys a building and leases it to the nonprofit often at inflated rent
- Relatives and relatives/friends of politicians are hired for the kind of “no show jobs” featured on The Sopranos.
- The FTE of management team members (i.e., ED, CFO, etc.) are included in multiple grant budgets, leading to billing one person for 200% or more of their time. A single full-time staff person should only be billed for 100% of their time (2,080 hours annually); over billings are just administrative gravy for the nonprofit
- Billing multiple funders for the same services delivered to the same client, which is frequent in substance abuse treatment, healthcare, etc.
- Fudging on the number of persons served in programs like child care, foster care, substance abuse treatment, etc., which are usually reimbursed on a per-head capitated basis.
This kind of minor league fraud pales in comparison to the mega-fraud recently uncovered in Minneapolis, which involved crazy and brazen schemes like setting up entirely fake service sites, including daycares, home healthcare, etc., in which grantees submitted fabricated invoices for phantom clients, with billions in grant funds siphoned off through kickbacks, shell companies, and personal expenditures on luxury items like cars, real estate, and designer goods.
This brings me back to the central point of this post: where are the voices of outrage from the philanthropic community? I have ~100K followers/newsletter subscribers on LinkedIn and am a member of many nonprofit-oriented LinkedIn groups but have not read a single post or comment on this unprecedented fraud epidemic. This is very odd and disturbing. First, there is the obvious harm to the most venerable people in need since the grant funding system is zero sum: every grant dollar stolen or otherwise mismanaged means an equal amount of money that can’t be used to fund supportive services for someone in need. By extension, this also means that legit nonprofits can’t compete with fake nonprofits which are soaking up huge grants without incurring many real expenses.
But perhaps the more significant issue is the overall damage being done to nonprofits writ large. For decades, Americans, even including cynics like me, have assumed that nonprofits are essentially good and deserve not only grants, but also donations. While the United States ranks among the most charitable nations globally, in terms of such metrics as the percentage of people who donate money and the amount given relative to income or economic output, we’ve slipped to sixth place. One would think that the philanthropic community would want to preserve this hard won reputation, but all I hear are crickets. If anyone wants to write a guest post arguing why I’m wrong, we’ll post it without editing.
As an aside, since I’m in the nonprofit-grant sausage factory, I’m often asked by people for advice on which charities they should donate to or otherwise support. Here’s what I always recommend:
- Pick a charity that is close to your interests or experience. If you have family members who are cancer survivors, pick a cancer charity; if you like pets, pick a rescue organization; if you’re religious, support your church, synagogue, or other local faith-based organization; etc.
- Avoid nonprofits that advertise on TV. For example, Tunnels to Towers, which seems to do good work, spends about 25%, ~$138 million of their annual revenue of ~$500 million, on paid advertising (source: Grok). So, if you give $100 to T-to-T, $25 will be used to get others to donate before deducting other admin expenses.
- Avoid donation aggregators like United Way, United Jewish Appeal, Red Cross, etc., which distribute funds, but only after taking their rake. I’m particularly annoyed with Red Cross, as the International Red Cross failed to visit the Israeli hostages in Gaza even once.
- Find a nonprofit that is closest to those being served. So, instead of the American Cancer Society, find a local nonprofit that provides direct volunteer support to cancer patients/survivors in your community. The less administrative overhead, the more people will be served directly by your support.
- The tax returns of nonprofits, which are called “990s,” are public information. Forget outfits like GuideStar that rank nonprofits, mostly using 990 data, and instead read the 990 yourself, paying attention to line items like manager salaries, advertising, etc. Just do your homework.