The curious case of the foodless food charity
It turns out that giving away free food to poor hungry children was an extremely lucrative enterprise in 2021. I’ve mentioned before how hundreds of nonprofits sprung up overnight (or…
The major nonprofit players in the free-food scandal may be dead and gone as corporate beings, but they live on in tax return and audit trails.
Examining the official IRS tax returns from the biggest nonprofits caught up in the scandal sheds some light on the events of the past few years.
Although they are generally exempt from paying income taxes, nonprofit corporations are required to file annual returns with the IRS, on Form 990.
The St. Anthony-based nonprofit at the center of the free-food scandal, Feeding Our Future, shut down not long after the FBI raids of January 2022. According to records kept by the state Secretary of State’s office, Feeding filed an “intent to dissolve” on February 25, 2022.
Hence, no one was around from the company to file its 2021 tax return. The most recent tax return for Feeding covers the fiscal year ending September 2020, some six months into the pandemic.
Feeding was just beginning to ramp up its operations, but for much of 2020, the nonprofit was fighting the state Department of Education (MDE) over adding additional food distribution sites.
Feeding’s business really began to take off in late 2020, and the nonprofit did nearly $200 million in business in calendar year 2021, according to the FBI (p. 14).
But, for fiscal year 2020 revenue was about the same for Feeding as it was for fiscal year 2019 at about $2.5 million. A contemporaneous report by the nonprofit’s accountants accounted for additional $7 million coming into the organization above those levels.
But because of the timing of Feeding’s demise, official records (tax returns, audit statements) account for less than $12 million taken in by the organization from the free-food programs out of more than $245 million total in its brief existence.
The record for a similar free-food charity, Partners in Nutrition (d/b/a Partners in Quality Care) is much more extensive. Partners took in nearly $215 million during the same period and managed to file tax returns for both fiscal years 2021 and 2022 (again, ending September 30).
For those tax years, Partners accounted for more than $200 million in revenue. Tax returns reveal that for fiscal year 2022, Partners’ largest vendor was Haji’s Kitchen. This operation was the subject of a major indictment in the Feeding case, which has already produced guilty pleas Nos. 10 and 12.
Partners’ third largest vendor that year was a catering company first incorporated in December 2020. The other two largest vendors were law firms representing the nonprofit in various litigation efforts.
In fiscal year 2021, Partners’ largest single vendor ($2.5 million that year) was a south Minneapolis pizza restaurant which no longer appears to be in business.
The second largest vendor that year was Empire Cuisine, another food vendor subject to a major indictment in the Feeding case.
The third largest vendor to Partners in 2021 was another, unrelated nonprofit that operated several food distribution sites. This other nonprofit later formed its own free-food network and took more than $2 million out of the programs before shutting down.
This other nonprofit has dutifully filed tax returns for all four years of its existence. However, its most recent filing (for 2022) consists of just two numbers, revenue and expenses, with no supporting detail and no balance sheet.
Partners’ accountants issued an audit report of the nonprofit in July 2023. The headline of the document (p. 3) is the questioning of the company’s ability to continue as a going concern after it was shut down by MDE in January 2022 (it subsequently closed for good). But there are a few nuggets buried in the footnotes.
Page 13 of the audit report reveals the Internal Revenue Service is auditing Partners’ pre-pandemic tax return for 2019.
The proximate cause of Partners’ demise was MDE’s refusal to pay dozens and dozens of invoices submitted between December 2021 and May 2022. MDE’s refusal was upheld on appeal. The audit report appears to put the dollar amount of these unpaid invoices at about $11 million (Note 8, p. 14).
In addition, the audit report documents that Partners did not submit to MDE another $35 million in invoices that Partner received from its vendors for the same period (Jan. 2022 through May 2022). (See Note 10, p. 18).
The third-largest free-food nonprofit shut down by MDE was Youth Leadership Academy, d/b/a Gar Gaar Family Services. Gar Gaar has no relationship to the other nonprofits and has not been named in any indictments made in the case.
Gar Gaar filed its first tax return for the calendar year of 2021, reporting revenue of over $25 million. The nonprofit reports having a two-person board of directors, but claims an employed workforce of 178 people. It paid its CEO and COO $158,000 and $104,000, respectively, in 2021.
Gar Gaar’s accountants issued an audit report on the 2021 financials in December 2022. As with Partners, Gar Gaar’s audit report (p. 3) questioned the ability of the nonprofit to continue as a going concern.
The audit report (Note 4) reveals that the nonprofit was trying to claw back overpayments to two vendors totaling more than $370,000. They had been unsuccessful as of December 2022.
Gar Gaar purchased a truck for $55,000 (Note 6) that turned out not to be an allowable expense under the free-food program.
The audit (beginning p. 26) reviewed Gar Gaar’s internal controls and made seven (7) findings related to payroll, vendor payments, the truck, and other deficiencies.
These larger nonprofits are the exceptions. There were hundreds of new, smaller nonprofits founded in 2020 and 2021 who enrolled in the food programs, ended operations, and never got around to filing a single tax return.
But we’ll keep digging, read part 2 here.
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