Feeding Our Future: Nonprofit sector braces for 2023 backlash

On Boxing Day, the Minneapolis Star Tribune published an article documenting concerns in the state’s nonprofit sector of a backlash arising from the Feeding Our Future scandal.

The paper quotes one nonprofit executive:

As the legislative session approaches on Jan. 3, nonprofits also are bracing for new state regulations in response to the scandal.

[Nonoko] Sato, the executive director of the Minnesota Council of Nonprofits, said she welcomes strong oversight but worries about new “blanket rules” for the diverse range of nonprofits.

Such concerns seem entirely misplaced. The nonprofit sector in Minnesota is closely associated with the state’s Democratic party. It is unlikely that, with total control, state Democrats would enact any laws or rules detrimental to the industry.

More plausible are nonprofits’ concerns about the scandal’s impact on donors. The Star Tribune reports,

Feeding Our Future relied mostly on federal funding rather than donations for revenue. But some nonprofits are worried the scandal has also made donors more wary.

“Given the fraud we’ve seen, it could be a turnoff to individual donors,” said Marcus Pope, CEO of Youthprise, a Minneapolis nonprofit that participates in the federal food programs.

Although they share the nonprofit corporate form with more traditional donor-supported charities, free-food nonprofits are a different sort of company. It’s not “mostly” federal funding; the free-food nonprofits relied almost entirely, and in some cases completely, on government funding for their operations. They were not in the business, or were even equipped, to accept donations from the general public.

In a sidebar to the main story, the Star Tribune helpfully includes five suggestions that donors could follow when vetting potential recipients. Among the suggestions,

  1. Is the nonprofit or charity registered with the state and the IRS? 
  2. Does the nonprofit disclose required financial data?
  3. Does the nonprofit have a board of directors providing proper oversight and governance? 
  4. Is the nonprofit transparent in how donations are spent? 
  5. Does the nonprofit meet sector standards? 

These suggestions should have been followed by the state Department of Education (MDE) when overseeing the free-food programs. The Star Tribune itself documents how Feeding Our Future failed several of the above tests.

For a time, the nonprofit was not registered with the state, and allowed its federal tax-exempt status to lapse: all easily discovered with a few clicks of the keyboard.

As we recently documented, Feeding Our Future went several years before producing any financial statements. The nonprofit did not file its 2018 tax return until 2021. To this day, only the nonprofit’s most recent return (2020) is available on the IRS website.

We’ve also documented how dozens of local nonprofits had food distribution operations up and running within days of incorporation. These entities have yet to file their first tax returns and likely never will file any. We’ve documented dozens of such examples. The actual figure likely runs into the hundreds. So, the idea that “99.9%” of state nonprofits are in compliance does not match the reality.

MDE documented (with another nonprofit) how multiple vendors were paid that hadn’t even gotten around to registering as businesses (p. 5).

All of this can be (and was eventually) discovered by MDE. But of the five tests above, the last two do not apply to organizations that don’t take donations from the private sector.

It’s true, many charities do great work on shoestring budgets. But the more urgently needed reform is to separate into a different category those nonprofits that rely primarily on government dollars.

If you are interested in the origins of the Feeding Our Future scandal, I did this 20-minute video over the summer.