The FBI and the Internal Revenue Service are investigating Community Action of Minneapolis, a defunct nonprofit organization whose leaders allegedly misspent hundreds of thousands of dollars in taxpayer money.

The investigations were disclosed for the first time Thursday in a new court filing by the organization’s court-appointed receiver, Michael Knight. He was hired by the state to assess the full scope of the organization’s finances after a state audit revealed the agency’s board and its chief executive, Bill Davis, used taxpayer money for a celebrity cruise, tropical vacations, a personal car loan and other questionable expenses.

“There are ongoing investigations by the FBI, the IRS and the [Department of Commerce] that are draining time and resources from what’s left of CAM,” Knight wrote.

Community Action of Minneapolis provided heating assistance and weatherization to low-income residents before a state raid shut down the organization in September. The raid came after the Star Tribune first reported on a state audit that found more than $800,000 in questionable spending. The state Department of Human Services found the organization was spending an increasing share of state aid on soaring administrative costs and less on serving the needs of low-income residents.

The new documents, first obtained by Minnesota Public Radio, revealed new allegations of misspending that go beyond what was uncovered in the initial state audit. The latest allegations include senior management using the organization’s money for medical bills and to pay personal expenses of their friends.

The new inquiry found that close friends of senior management were getting paid as contractors without giving proof they completed any work.

Knight noted that these newest allegations need further substantiation.

In an interview, Davis said he had not heard anything about the investigations and does not know why federal authorities may be looking into the organization.

He reiterated his belief that the investigation will ultimately show he did nothing improper.

“I did nothing wrong,” he said in a brief phone interview.

Amount owed unclear

Despite reviews of Community Action’s financial records over the past several months, it is not clear how much the organization owes the state.

The Department of Human Services claimed it is owed more than $800,000 in misspent money.

Knight told the court that he agrees with some of the state’s allegations, but not all of them.

Most of the organization’s money came from the Department of Commerce. Knight says that Commerce officials have initiated their own investigation, but have yet to begin an audit.

Knight says he and his attorney are also looking into claims of further misspending by Davis and former and current board members.

The documents reveal new allegations that the organization spent money on senior officials’ travel that had no business purpose, paid personal credit card bills for friends and made excessive gifts to board members.

Several elected officials served on the board, including Minneapolis City Council President Barbara Johnson, U.S. Rep. Keith Ellison, DFL-Minn., and former City Council Member Robert Lilligren. Most of the elected officials appointed people to serve on their behalf, as allowed by state statute.

State Sen. Jeff Hayden, DFL-Minneapolis, appointed his wife, Terri Hayden.

The Star Tribune obtained receipts showing that the Haydens traveled to New York with Davis and his fiancée at the organization’s expense.

Hayden’s involvement with the organization led to a state Senate ethics inquiry, led by Republicans.

Hayden could not be reached for comment, but has said he did nothing wrong.

As criticism intensified, the board suspended Davis in December. Now he is making a claim against the organization, saying he is owed more than $260,000 in deferred compensation. He earned $273,060 in salary, bonuses and deferred compensation in 2011.

Knight wrote that Davis may not be entitled to that money because he might not have had an enforceable employment contract.

He wrote that there could be financial claims against Davis, which also might violate the terms of the employment agreement.

As part of his report to the court, Knight evaluated the viability of Community Action to continue operating. He said that even if the federal investigations into the organization result in no charges, Community Action of Minneapolis is unlikely to ever return.

“The stigma associated with some of the revelations in the DHS audit and associated press coverage will … make it extremely challenging to reconstitute CAM in the near future,” Knight said.

Since folding last fall, other nonprofit organizations have reached out to serve residents who had been getting assistance from Community Action of Minneapolis.

 

Alejandra Matos • 612-673-4028