As fraud scandals erupt in Minnesota on Gov. Tim Walz’s watch,
accountability is in short supply
By Rob Kuznia, Nelli Black and Kyung Lah
Published 5:00 AM EDT, Fri October 4, 2024
04:47 - Source: CNN
Minneapolis
CNN
—
One state audit found that bonus checks intended for frontline workers
during the pandemic were handed out to undeserving recipients. Another
criticized a Minnesota state agency for failing to ensure there were no
conflicts of interest in taxpayer-funded mental health and addiction
programs. A third detailed lax oversight of a program to feed needy kids
which federal prosecutors say resulted in the nation’s largest Covid-era
fraud scheme.
But when confronted with these and other troubling examples of waste,
fraud and abuse, some state agencies working under the administration of
Democratic Gov. Tim Walz repeatedly minimized or dismissed the
allegations, the state’s nonpartisan auditor, Judy Randall, told CNN.
A CNN review of audits – and the responses they prompted – as well as
interviews with statewide politicians and pundits, found that Walz has
been a hands-off leader when it comes to seeking accountability for
episodes of fraud and mismanagement on his watch. What’s more, some
state agencies headed by his appointees have responded defensively in
recent months to the audits – a dynamic that Randall, who has worked in
the department for 26 years, has found surprising.
Randall told a local media outlet this summer that the responses of some
agencies to her audits have had a “shoot the messenger” feel of late. CNN
reviewed more than a dozen reports from her office that held specific
agencies responsible for allowing fraud, waste or mismanagement on
their watch during the Walz administration.
Some addressed high-profile scandals such as the pandemic fraud
allegations and a troubled light-rail project – whose genesis predates
Walz but is currently monitored by 17 Walz appointees – that has suffered
from more than $1.5 billion in cost overruns. Randall’s office faulted that
agency last year for a lack of transparency about rising costs and failure
to ensure contractors’ ballooning price tags were justified. Others found
holes in safeguards to waste or raised more targeted conflict-of-interest
concerns, such as a state Department of Public Safety employee who
received payments from the recipient of a grant that the employee
oversees.
Randall told CNN that she knows of no personnel changes linked to any
audit by her office since 2019, when Walz was sworn in.
Critics say that is on Walz, now the Democratic candidate for vice
president.
“When he is not holding any commissioners responsible, then yes,
Governor Walz is responsible for the fraud that has been ongoing in the
state of Minnesota,” said Lisa Demuth, the state House GOP leader. “It
falls squarely on his shoulders.”
There are also signs of resentment from the state agencies on the
receiving end of the audits.
Randall said that when her office this year reviewed a 2021 audit of the
agency in charge of doling out the grants pertaining to mental health and
addiction, it discovered that the agency had failed to address most of the
concerns, including the conflict-of-interest vulnerabilities. Other
responses, Randall said, were more pointed, such as the one from this
summer about frontline worker bonus pay that “disagreed with every
single thing we said.”
And then there was her June critique of the state in the blockbuster
meals-for-needy-kids case. The state’s response, Randall felt, was
dismissive.
Elizabeth Flores/Star Tribune/Getty Images
FBI agents raided Twin Cities nonprofit Feeding Our Future in a suburb of
Minneapolis in January of 2022.
Critics – mainly Republicans – believe Walz is the one who set that tone.
“The governor’s appointees across the board at almost all agencies have
been hostile and uncooperative when citizens are seeking transparency
and oversight through the legislative auditor,” said state Sen. Mark Koran,
a Republican who serves as the vice chair of the state’s
bipartisan legislative audit commission. “The hostility is led by Governor
Walz.”
Democrat Rep. Rick Hansen, the chair of the committee, did not return an
email or a phone message requesting comment.
A spokesperson for the Walz administration pushed back on the notion
that it is dismissive of the auditor’s findings. She said in a prepared
statement that the governor’s office in fact often agreed with the
recommendations made by Randall’s Office of the Legislative Auditor and
have “implemented the vast majority of their suggestions.”
Even in instances in which agency heads “may fundamentally disagree”
with the OLA’s findings, “we always take their advice and
recommendations seriously,” the statement added. “We are constantly
evaluating ways to eliminate fraud and improve government programs,
and we’re grateful for the OLA’s assistance.”
A culture of unaccountability in Minnesota?
Walz, a former high school teacher and assistant football coach with a
disarming, affable nature and low-key leadership style, enjoys broad
popular support in Minnesota among Democrats.
His fans were easy to find last month at the Minnesota State Fair, which
drew nearly 2 million people this year.
“He is real; he knows the state,” said Erik Biever, who called Walz “one of
the best governor’s we’ve ever had.” “Tim Walz has a heart.”
But that folksy persona hasn’t been enough to endear him to Republicans
who see him as having caved to the progressive wing of his party, thereby
abandoning early promises to lead as a moderate voice under the banner
of “One Minnesota.” And some of the same traits of Walz’s that appeal to
his base – off-the-cuff, easy-going, non-punitive – are seen by detractors
as liabilities that have contributed to a culture of unaccountability in the
Minnesota state government.
Stephen Maturen/Getty Images
Democratic vice presidential nominee Minnesota Gov. Tim Walz greets
supporters at the Minnesota State Fair in early September.
Willie Jett, a member of Walz’s cabinet, seemed to feed into this
perception when being grilled by state lawmakers this summer on the
alleged meals-for-needy-kids scam, which revolved around a now-
defunct nonprofit called Feeding Our Future.
An audit by Randall’s office found that the state agency overseeing the
program missed key early warning signs.
Pressed on whether anyone in the Minnesota Department of Education
had been disciplined, Jett – who was appointed by Walz in late 2022 to
lead that agency – repeatedly said: “That’s not what MDE is about.”
Walz himself called the audit a “fair critique” of his department of
education, telling the Minnesota Star Tribune earlier this year that some
government employees “didn’t do as much due diligence as they
should’ve.”
He added, however, “There’s not a single state employee that was
implicated in doing anything that was illegal.”
The Feeding Our Future matter reared its head again last month, when
Congressional Republicans sent Walz a subpoena demanding documents
showing how his administration handled the situation.
Walz’s political foes insist that what they see as his laissez faire attitude
toward accountability is exacerbated by one-party rule, which took effect
in 2022, when Democrats narrowly won the senate, giving them control of
all three chambers of state government.
CNN
Republican state Sen. Mark Koran, second from right, speaks with
constituents at the Minnesota State Fair.
“They’ve been emboldened because they’ve got the cover,” Koran said.
“They believe they’re untouchable.”
Some nonpartisan political observers in Minnesota say there’s truth to the
complaints.
Dan Myers, an associate professor of political science at the University of
Minnesota, said Democrats’ so-called trifecta in state government has
likely hindered efforts to get clear answers into what went wrong in
certain cases of fraud and waste.
“There has been less digging into that than there almost certainly would
be if Republicans had had one more seat in the state Senate,” he said.
Blois Olson, a longtime political analyst in the Twin Cities who has
moderated debates featuring Walz and his opponents, said he’s never
seen evidence of any criminal conduct by a Walz staffer in any audit or
indictment.
“They’re not corrupt,” Olson said, “they’re just casual in holding
themselves responsible.”
Olson added that he sees Walz’s story as understandably inspiring to
many people.
“I think it’s amazing that a teacher could be the vice president,” he said. “I
think that’s an American story that everybody can rally around.”
At the same time, he questions whether Walz is ready for the White
House. Olson sees Walz as a “a political animal” whose desire to be liked
and avoidance of “tough topics and critiques” have gotten in the way of
“actually making sure state government runs smoothly.”
‘The buck is still running down the street and stopping nowhere’
In the early weeks of the Covid-19 pandemic, a nonprofit organization in
Minnesota was embarking on what initially seemed a noble cause:
Providing free meals to needy kids who might otherwise go hungry.
Because the nonprofit – Feeding Our Future – was funded through tax
dollars, the program needed to be overseen by a state agency, the
Minnesota Department of Education.
The state, among other things, needed to see proof that the federal
money was being spent on its intended purpose – that is, that the number
of meals the nonprofit claimed to be serving checked out.
Because social-distancing measures complicated the state’s ability to
monitor the program in person, staff members sometimes did so virtually.
On one occasion, they watched a live video via phone shot by the
nonprofit’s executive director, Aimee Bock, as kids and/or their parents
picked up boxes of meals at a site.
In 15 minutes, 30 kids received meals, but Bock’s phone shut off at that
point – ostensibly because it died. Bock would report that within the next
hour while her phone was off, the number of meals skyrocketed by a
whopping 1,900%.
Randall said such a sharp increase struck her as “a little unlikely” and, at a
minimum, worthy of further scrutiny.
“We didn’t see any evidence that the department looked into that,” she
told CNN.
The anecdote, referenced in an audit, offers an example of lax oversight
by the state that allegedly enabled vendors and sites to submit fraudulent
claims for reimbursement.
Federal prosecutors say people who were supposed to be providing the
service stole some $250 million in federal tax dollars to purchase luxury
cars, lavish overseas trips, gold jewelry and lakeside property. About 70
people, including Bock – the alleged mastermind who has yet to stand
trial – have been charged in connection with the scheme; more than 20
have been convicted thus far. Bock has denied wrongdoing and pleaded
not guilty; her trial is scheduled to begin in February, her attorney said.
The audit by Randall’s office dinged the Minnesota Department of
Education for, among other things, missing warning signs. These included
some 30 complaints between 2018 and 2021 about the way business was
being conducted.
For instance, the audit said, when a food vendor contacted the state in
2021 to allege that Feeding Our Future demanded a kickback and
retaliated against the vendor when it refused, staff members at the state
forwarded the complaint to Feeding Our Future – the very organization
that was the subject of the allegation.
“We are troubled by MDE’s decision,” the auditor’s report said, using the
acronym for the Minnesota Department of Education. “In effect, MDE
directed Feeding Our Future to investigate itself.”
Glen Stubbe/Star Tribune/Getty Images
Andrew Luger, the US attorney in Minnesota, held a news conference in
2022 to announce multiple indictments in what he called a "brazen
scheme of staggering proportions" to defraud the government.
However, a memo submitted to the courts last month by Andrew Luger,
the US attorney in Minnesota, painted a more sympathetic portrait of the
state’s attempt to monitor the program. The memo stated that Bock and
Feeding Our Future tried to divert attention from their “fraudulent
scheme” by blaming the state education department when it tried to
perform “legitimate and necessary oversight.”
Luger added that Bock gave false assurances they were monitoring the
sites and, when the state continued to press for clarification, she filed a
lawsuit on behalf of Feeding Our Future in late 2020 with “unfounded
accusations of racism” – many of the vendors working with the nonprofit
were of East African descent. Bock voluntarily dismissed the lawsuit in
January of 2022, a week after the feds raided her home and the
nonprofit’s office.
Walz’s appointed head of the education department – Heather Mueller –
resigned in late 2022 for unspecified reasons; she was replaced with Jett.
But officials have offered no reasons for Mueller’s departure, and even
Democrats have voiced frustration about the lack of accountability for the
massive case of fraud.
“The buck is still running down the street and stopping nowhere, and that
is unacceptable,” said state Sen. Ann Rest – a Democrat – at
a hearing earlier this summer about the state’s response to the Feeding
Our Future case. Rest did not respond to CNN’s request to comment for
this story.
Some insist that politics had something to do with the state’s seeming
reticence to aggressively intervene. Aside from Bock, the vast majority of
the Feeding Our Future defendants are members of the state’s sizable
Somali community, an immigrant group that has become a stronghold of
Democratic support in Minnesota. Some of the defendants had been
regular contributors to prominent Democrats – including Minnesota
Attorney General Keith Ellison.
“Governor Walz and his administration, in addition to Keith Ellison, could
not be seen prosecuting their friends in their community,” Koran said.
Walz has vigorously defended his education department, saying in 2022
that staff members there noted irregularities and alerted the FBI to the
suspected fraud.
Still, he has been vague about when he first learned of the suspicious
activity. When a local journalist asked this question after federal
prosecutors broke news of the indictments in the fall of 2022, Walz and
his staff members gave three different answers, each with a significantly
later date than the prior.
News of the indictments landed like a bombshell in the latter stages of
Walz’s 2022 reelection campaign. His opponent, Dr. Scott Jensen, tried to
capitalize.
“What did Governor Walz know? When did he learn what he knew?”
Jensen, a family practice physician and a noted vaccine skeptic, said
during a news conference. “Who’s he trying to protect?”
Walz would win reelection by a comfortable margin, taking 52% of the
state’s votes to Jensen’s 45%.
Some folks at the state fair last month said they found it a stretch to hold
one person responsible for fraud during the pandemic, when it was
rampant across the nation.
“People took advantage of the situation,” Miriam Ackerman said. “I
certainly don’t blame Governor Walz for it.”
But Olson, the political analyst, said he believes the fraud under Walz is
more prevalent in “dollars” and “scope” than under his predecessors.
“One instance is not new for a state, any state,” he said. “Multiple
instances in the same administration on public-program fraud becomes a
trend or a culture that the legislative auditor says is not right and we need
to change.”
Randall, the auditor, said the number of critical audits has held steady
under Walz relative to his predecessor, Democrat Mark Dayton – though
she added that the number of audits is not by itself a good way to
compare the amount of fraud happening under different governors.
Feds launch probes into additional fraud cases in Minnesota
The Feeding Our Future saga isn’t the only case of alleged taxpayer grift
or mismanagement to plague Minnesota in recent years.
Another involved the statewide effort to give out $500 million worth of
bonus checks to frontline workers as a token of appreciation for their
service during the pandemic.
Auditors reviewed a sampling of some 300 recipients of the $487 checks
and found 40% were either ineligible or their eligibility could not be
confirmed; most of those fell into the latter category. Some of the
recipients were deceased.
Other cases have involved alleged Medicaid scams, two of which
prompted federal probes into programs run by the same state agency in
recent months.
In May, a Minneapolis TV station revealed that federal authorities –
prompted by the outlet’s investigative reporting – are looking into
whether addiction-recovery facilities have engaged in fraudulent billing.
In June, an alternative online news site in Minnesota reported that the FBI
was investigating federal- and state-funded autism centers for children
amid a skyrocketing increase of the number of providers in recent years.
CNN
Minnesota House GOP Leader Lisa Demuth
Walz was asked by a local reporter about the autism probe more than
three weeks after the story broke in the Minnesota Reformer. Though the
amount of annual expenses mushroomed in five years from $6 million to
$192 million in state and federal funding, he said he was not aware of it.
Demuth, the state House GOP leader, found his lack of knowledge
exasperating.
“I just thought, you’re kidding,” she told CNN, adding that she feels it fits
a pattern. “He’s allowing fraud because there haven’t been any
consequences.”
The scope of the autism-center investigation has expanded significantly
since the July announcement, according to local media reports.
Both the addiction recovery and autism programs are overseen by the
same state agency – the Department of Human Services – which has a
troubled history, involving numerous claims of fraud and whistleblower
allegations over the years.
Randall, the nonpartisan state auditor, told CNN that DHS is the agency
that her office criticized in April for failing to resolve potential conflict-of-
interest and other concerns flagged three years earlier.
She believes that, in general, much of the fraud in Minnesota government
boils down to a well-intended but flawed workplace culture in some
agencies of wanting to help rather than wanting to oversee.
Bill Walsh, the director of communications with a conservative think tank
called the Center of the American Experiment, emphatically agreed –
telling CNN that Randall “nailed it” with that assessment – and said Walz
was to blame.
“You appoint your commissioners … you’re responsible for the
administration,” he said. “If you’re the governor, you have to change that
culture, and he hasn’t.”
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