Vanessa discusses a federal case where 47 defendants stole $250 million in pandemic relief meant for feeding children in Minnesota through a nonprofit called Feeding Our Future. The scheme used shell corporations and fake documents. The conversation covers board oversight, grant compliance, D&O insurance, and why nonprofits must document every dollar to prevent fraud.
Hello Vanessa, how's it going? It's going okay, it's going okay. I think, um, you know, a lot of, um, what is it, shenanigans, as my sister likes to say. A lot of shenanigans are like being revealed as people are coming out of— so we're no longer in a pandemic, we're now in just the epidemic. So as we go into this stage of, you know, we will be living with COVID for the rest of our lives, we're finding how people have taken advantage.
Yes, yes, yes, yes. And that's good, you know. And when we talk about taking advantage, is that people— the government has given out a lot of money and people think that that's free money. And one of the myths that people believe when they're starting their nonprofit is there's a lot of free money. And so there's no such thing as free money. However you look at it, you cannot get any free money for starting, building, and having a nonprofit, any business, right?
Yeah. So, so do you want to read that article that you found in the newspaper, or at least just share where people can find it?
Yes, yes, yes, yes. This is what it brings out. The U.S. Attorney announces federal charges against 47 defendants in a $250 million nonprofit scheme. Yeah. And so what it happened was— what happened was in Minnesota during the pandemic, they had millions of dollars. I think it was, what, $200 million? I could be mistaken. $200 million allocated for feeding the children, hungry children, during this time. And so one com— one nonprofit organization called Feeding Our Future, they, they were some of the ones that was allocating the money, and they went and they helped set up dummy shell corporations, okay? And they had other people run it, and they took the money from the government that they were supposed to use to feeding the kids, and they put it into these shell corporations, and they bought luxury cars and traveling, and it was all for their personal use, and none of it went to the kids. And they fraudulently created documents because you think you're getting free money. There's no free money. You have to report what you've done with that money, whether you're getting it from a grant, from a, uh, the federal government, from a corporation, anybody. You have to be transparent about what is that you're doing, right? And you have to report what you've done with this money. So they just made up all kinds of lies. So they have 47 defendants, and the federal government is going after them and they're going to prosecute them, which they should. It's like, these kids are hungry, you know? So that's one of the things that I— when people first get their nonprofit status, one of the things that they're starting to do, which I love because it's an easy process— easier process, I'm not going to say it's easy, it's an easier process now— is that they— some of the people that give funding, they make you have a 2-year holding period, and they won't give you any grant money for 2 years to make sure that you got some skin in the game and that you're still here. Because a lot of people get this money and they're gone. Like it brought out here, It says these sites created and operated by the defendants and others fraudulently claim to be serving meals to thousands of children a day within just days or weeks of being formed. So with days and weeks of being formed, they got this money and they use it and then they're gone. And that's what a lot of— that's what some people have been doing with their nonprofit status once they get it. So that's why they have this waiting period.
Yeah. It's sad. I think one of the things that you said that I think people need to, you know, like, we need to make sure people hear is you have to report everything you do with the money. So this money doesn't just come to you and then there you have, you know, no responsibility. You can just spend it however you want. You have to report it. So, uh, that's on the administrative side of the nonprofit organization. On the board side of the nonprofit, what's their responsibility? Like, what should the responsibility have been for the board of this particular organization?
So one of the things that the board should have done, if you are— if you have government funding and you're subcontracting it out, or you are going to put it out, you have to put it out to bid. Some of that money, and everybody has to be able to have transparency that you're putting it out there. The board should know who you're choosing to give this money to. That's their fiduciary responsibility. The board's responsibility is to oversee this money and make sure that it's going to where it's supposed to be going to and who it's going to, because they are now responsible. Because as a board, you're saying that I am going to have the fiduciary responsibility for this money just the executive director. Okay, she's the founder and the executive director, she did it, but anyone on her board is also responsible. So when you say, I'ma sign up for a board, you have to know what you're signing up for. And then the founders and the CEOs, you start these organizations and then you think your board shouldn't know anything. You have to be so transparent with your board.
Yeah. Well, you know, another thing I think that is important is when, um, you, you have a board, your board is active, and when your board, um, when these sorts of things come up, your board is in it, you know, gets caught up in the, uh, what is the word, I'm so sorry, but your board gets caught up in the um, indictments as well. This is why board insurance is important as well, to make sure that you protect the, um, the private income and properties of each board member, because this is a fault of the organization, not of the individuals.
Yes, absolutely. And one thing that you have to realize is that as a not a nonprofit organization, you have to show, um, transparency. You can't think you're hiding anything because when you complete your tax returns, those are public knowledge, right? People can look, you can go like online and you can find out what's going on, who, how much your board members are making, if they're making anything, how much salary everyone is making. Those things have to be clearly identified. And with you being a public community-based organization, If I find out that you got a grant, I can come in and ask, hey, what's going on with this grant?
You know?
Yeah, because it's for the public benefit of the community. And so, you know, it's sad that people will take money any way they can, but if you're starting a nonprofit and you think you're starting because you're going to get free money, you know, people will get their 501, they'll go and they'll find someone to write a grant for them, and then the person who wrote the grant, they'll get money, and then the, the nonprofit organization to get money. And then a year later or so, if that long the nonprofit is gone. Yeah. So we have to, we have to do a better job. If we're— if you, if you really feel like this is your purpose and your passion, you will be doing it whether or not you get funding. Until you get to that place, some people get their nonprofit and like, okay, as soon as I get my nonprofit, I should be getting grant funding. I know I always preach this, so I'm not going to preach this on this one.
Well, the— and the thing is, is that there really is money out there for nonprofits. The— what the takeaway is for the nonprofits that are trying to do things correctly, the takeaway is, you know, make sure you back up everything legitimately, make sure your board is informed, and then, you know, protect, protect the members of your organization with, um, what is it, directors and officers insurance.
Yes, yes, yes. And the other takeaway is there's no such thing as free money, right, in the nonprofit world. Even if people donate cash to you, you have to document that. You cannot just say, oh, I'm just gonna put this in my pocket, I'm just gonna do— you have to document every dime you get. There's no such thing as free money. And I think one of the things we also need to talk about next time is talking about commingling. That's that money.
Okay, sounds good.
All right, so I hope this was helpful, and we will talk to you again soon. Peace, love, and wisdom, everybody. Bye-bye.
