As fraud scandals erupt in Minnesota on Gov. Tim Walz’s watch, accountability is in short supply

CNN

By Rob Kuznia, Nelli Black and Kyung Lah

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.

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.

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.

“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.”

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.

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.”

Winter Hawk contributed to this report.

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