The Minnesota Department of Education faced a big choice: Keep demanding that the nonprofit Feeding Our Future document the skyrocketing numbers of poor children they claimed to be feeding, or pay the organization and alert federal investigators about their suspicions of improper billing.

The department took the easier path. Education leaders now acknowledge that requiring extensive receipts and other paperwork might have allowed the state to terminate its relationship with the troubled nonprofit months earlier, before tens of millions of taxpayer dollars were spent reimbursing claims federal investigators have now labeled fraudulent.

It wasn't the department's only missed opportunity in managing the more than $300 million program.

Federal audits obtained by the Star Tribune, court records and interviews show that vague rules and unresolved questions about responsibilities opened the meals program to potential fraud, with federal and state administrators and participants blaming one another.

The audits, typically done every three years, show that the state Education Department has been repeatedly faulted for its management of the two meal programs that the FBI alleges Feeding Our Future and some of its partners exploited.

In 2012, for instance, the department was criticized for approving a new sponsor without first visiting the site where meals were to be served. "In this particular case, the site ended up submitting fraudulent meal counts in excess of $10,000," federal regulators noted. If the Education Department "clearly understood its monitoring responsibilities, it may have been more vigilant and prevented the fraudulent meal counts."

Minnesota addressed that problem, but the state has continued to neglect its duties, records show. In the state's most recent audit, in 2019, federal regulators documented 29 shortcomings in the year-round non-school program, up from eight negative findings in 2012. The compliance audits were conducted by the U.S. Department of Agriculture, which funds the meals programs but leaves oversight to state agencies.

Former Education Department officials say a chronic staffing shortage likely contributed to any theft of federal funds. Steve Dibb, who retired as an assistant commissioner in 2016 after spending seven years in the department, said he wasn't surprised to read news reports about suspected fraud in the meals program.

"They were doing a great job with too few people," Dibb said. "It was going to catch up with you sooner or later ... If you don't have the budget, you aren't going to go out there and monitor."

In January, FBI officials accused Feeding Our Future and some of its partners of stealing at least $48 million by getting paid for hundreds of thousands of meals that were never served. So far, no one has been criminally charged with fraud in connection with the ongoing probe. Aimee Bock, executive director of the now-defunct nonprofit, has denied any wrongdoing.

State Sen. Roger Chamberlain, R-Lino Lakes, said the department's poor oversight likely allowed Feeding Our Future and some of its partners to get away with what he calls the biggest fraud involving the federally funded meals program in its history.

"Why didn't they try harder?" asked Chamberlain, assistant Senate majority leader and chairman of the Senate education committee. "If you believe something is wrong, why didn't you drive forward and dig into it?"

Chamberlain is now proposing that legislators transfer oversight of the meals program to the Minnesota Department of Agriculture, saying the Education Department has proven incapable.

The Education Department's nutrition division has 52 federally funded employees who work with 2,000 meal program sponsors, which partner with more than 10,000 food sites across Minnesota. The department says it has added 11 people to divisions that oversee meals programs since 2012.

Department officials acknowledge that staffing was a problem in the early days of the pandemic, when there was a huge surge in the number of meals provided by non-school sponsors such as Feeding Our Future. Commissioner Heather Mueller said the department did not hire additional staff members but instead redeployed 12 workers to process applications and expand monitoring efforts.

"We didn't need more staff," she said.

Mueller said the problem was the USDA's lack of response to the department's concerns about Feeding Our Future. She 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.

"Our ... team was reaching out to the USDA regional office saying this doesn't feel right, this doesn't look right, this doesn't smell right," Mueller said.

Mueller also said many of the federal rules governing the meals program are vague and difficult to enforce.

She said that became a problem with Feeding Our Future. After the nonprofit sued the Education Department for blocking its expansion plans, a state judge said he thought federal rules allowed the department to seek thousands of invoices and other records showing what was actually happening at the organization's meal sites.

But Assistant Commissioner Daron Korte said the department wasn't comfortable continuing to insist on such records without explicit approval from the USDA on its treatment of suspicious claims.

"They (USDA) wouldn't do it," Korte said. "I don't know why."

If the department had gotten those records, Mueller acknowledged, the state may have been able to terminate its contract with Feeding Our Future sooner. Altogether, Feeding Our Future and its partners collected $197 million in 2021, up from $3.4 million in 2019.

"It may not have gotten to the level that it did, had we been able to have that information," Mueller said.

The USDA has been repeatedly criticized by the U.S. Government Accountability Office for sloppy management of the meals program, with more than $1 billion per year wasted on "improper payments" including fraud.

USDA officials declined to comment, citing the "ongoing investigation."

Vague federal rules

Former employees say the Education Department has long struggled with oversight of meals programs.

"It really was chaos when I first got there," said Crista Walsh, a former team leader who left the meals program after three years in 2016. "They didn't have the staff to focus on this. It was pretty much ignored for a long time."

Walsh said vague federal rules were a big problem.

"You could ask two different people to interpret the rules and you'd get two different answers," she said.

In several cases, the Education Department was forced to pull back when its interpretation of the rules proved to be too aggressive, records show.

In 2016, for instance, the department tried to block Partners in Nutrition, a St. Paul nonprofit, from expanding its network of meal sites by saying the group had failed to prove it was "financially viable," even though one of its leaders had secured a $1 million line of credit.

Partners in Nutrition took its case to the Minnesota Court of Appeals, which overturned the denial in 2017 after finding the Education Department imposed a "more stringent standard" than allowed under federal rules. The department subsequently agreed to pay $450,000 to settle the lawsuit and approved Partners in Nutrition's request to operate more meal sites.

The department recently moved to boot Partners In Nutrition from the meals program after the FBI accused several of its meal providers of receiving $26 million in allegedly fraudulent payments. The organization itself was not accused of wrongdoing by federal investigators and has appealed the proposed termination.

In most cases, however, federal regulators have chided Minnesota for not doing enough to make sure sponsors are following the rules.

In the most recent audit, the USDA criticized the department for failing to properly review budgets to make sure a sponsor was not charging "unallowed costs." The department also has been flagged for not digging into suspicious changes in meal counts.

"It's not like they are improving," Chamberlain said. "There are always some deficiencies, because it's hard to be perfect. But the number of deficiencies has grown steadily and some of those deficiencies are much more serious than the previous ones."

Education Department officials noted that the audits show the state has corrected all of the problems identified by federal regulators.

"They should be finding little things that give us the opportunity to continue to grow, because we're a learning organization and our job is to consistently get better," Mueller said.

Boosting state rules

In fraud cases in other parts of the country, prosecutors have noted how vulnerable the meals program is to fraud because so much trust is placed in sponsors who are allowed to operate largely on the honor system.

"The ... program depends in large part on its participants accurately reporting the number of children that it must feed each day," former Eastern District of New York U.S. Attorney Richard Donoghue wrote in a 2017 court filing. "The recipients are not required to file invoices for their purchases or itemize their expenses. Instead, the system relies upon the participants properly administering the programs."

Feeding Our Future cited those rules when Minnesota regulators tried to obtain back-up documents for all of its reimbursement claims in early 2021. The organization's attorney, Rhyddid Watkins, noted that the state typically reviewed a sampling of records once a year from about 10% of its providers, not all of them.

"MDE all of a sudden, for the first time, created a validation process," Watkins told the court. "This is new. Never, in the history of MDE's program, has it ever refused to issue payment until it goes through a painstaking process to validate a claim ... It's thousands and thousands of documents."

The judge agreed that the department couldn't hold up those payments while it worked through the paperwork, but he said federal regulations allow the state to impose "additional conditions" on how it verifies questionable claims.

The Education Department dropped its demands for the validation records after the judge indicated he would soon order the payment of $20 million in disputed claims.

Correction: A previous version of this story incorrectly attributed two statements made by Minnesota Department of Education Assistant Commissioner Daron Korte to Commissioner Heather Mueller.