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October 3, 1999
Nonprofit Groups Accused of Bilking Lunch Programs
By ROBERT PEAR
ASHINGTON -- Officers of many nonprofit organizations have illegally enriched themselves by pocketing millions of dollars of Federal money that was meant to feed poor children in day care homes, Federal investigators and state officials say.
The inspector general of the Agriculture Department, Roger C. Viadero, said the nonprofit organizations had routinely filed false claims overstating the number of meals served at the homes, which are recruited and supervised by the nonprofit groups. Some of these groups, he said, claimed Federal money for meals served to "nonexistent children" in fictitious day care homes, while others extorted money by demanding kickbacks from legitimate day care providers.
"This type of fraud takes food out of the mouths of children," Viadero said, summarizing what his agents had found in more than 3,200 unannounced visits to private day care homes and child care centers that receive Federal money.
The Federal government spends $1.7 billion a year to provide meals for 2.4 million children in day care. Viadero began a nationwide investigation of the program after a whistle-blower complained about problems at a nonprofit organization in California.
Viadero's office issued a comprehensive audit last month laying out the abuses, which he said were attributable in part to basic flaws in the program's structure that Federal officials had not moved fast enough to correct.
The nonprofit groups, known as sponsors, play a critical role as middlemen between the government and day care homes and centers. The sponsors are supposed to monitor the day care homes. They review and pay claims for meals served. And they are supposed to insure that the meals meet Federal nutrition standards.
So far the Federal government has filed criminal charges against 44 people, asserting that they defrauded the program, known formally as the Child and Adult Care Food Program. Twenty-eight of them have been convicted or pleaded guilty; the other cases are still open.
Child care advocates see the Federal program as a guarantor of quality care. But Viadero said children were often short-changed.
In his audit report, Viadero, a former New York City police officer who worked for 15 years at the FBI, said: "Day care providers and their sponsors were found to be submitting false claims on a grand scale. Some were engaging in money laundering, embezzlement, forgery and extortion. Many simply padded their payrolls to justify fatter government checks."
Katherine J. O'Neill, a dietitian at B.J. Enterprises in Scottsdale, Ariz., a sponsor for 380 day care homes, said the Federal investigators had focused too much on paperwork and bookkeeping errors.
"Children can be happy even if day care providers don't do all their paperwork on time," said Ms. O'Neill, whose company was criticized for such errors. "Kids are eating better because of this program. Instead of a bologna sandwich and Kool-Aid, they have a turkey sandwich, lettuce, fruit and milk for lunch."
The need for day care has grown in recent years because a booming economy has drawn more parents into the labor force and millions of women are trying to comply with work requirements of new Federal and state welfare laws.
On the average, each sponsor supervises 150 day care homes, but some are responsible for more than 1,500. State licensing rules vary, but typically a home may have up to six children. Most of the children are under the age of 5, but some may be as old as 12. Day care homes receive more Federal money if they are in low-income neighborhoods or serve children from low-income families.
The audit cited many improprieties. In California, the husband-and-wife owners of Pacific Asian American Family Care pleaded guilty to defrauding the government and were ordered to pay $2.2 million in restitution. Prosecutors said the owners had submitted claims for inflated budgets, which included payments to nonexistent employees and bogus business entities.
The government said the defendants, Kyung Ho Moon and Wan Hee Moon, used Federal money to buy four houses and to pay college expenses for their children. Mrs. Moon worked simultaneously for the state of California, monitoring the work of child care sponsors, including her own company.
In another case, Federal prosecutors said a Salt Lake City couple had misappropriated Federal money "designated solely for the reimbursement of meals previously eaten by underprivileged children." The indictment says the couple, William and Magda Evans, demanded kickbacks from legitimate day care providers and claimed Federal payments for day care homes that did not exist or had been excluded from the program. A trial is scheduled for Nov. 15.
In Toledo, Ohio, the New Jerusalem Church of God in Christ claimed Federal reimbursement for meals served in day care homes that did not exist. The homes listed vacant lots and abandoned houses as their addresses. Seven people have pleaded guilty and been ordered to pay restitution totaling more than $1.3 million.
In his recent report, the inspector general said, "We found sponsors operating as nonprofit organizations, but enriching themselves at the expense of the children to whom they were supposed to provide meals."
In some places, Viadero said, sponsors have retained 15 percent to 30 percent of the food money intended for child care centers. "This is one of the most significant causes of fraud and mismanagement" in the program, he said.
Sponsors defend the practice by saying they need the money to cover their administrative costs. But the inspector general said he could find "no correlation" between the sponsors' actual costs and the amounts they kept for themselves.
The inspector general said that many sponsors "honestly did not understand" the child care food program, and that Federal officials "could have prevented or detected much of the fraudulent activity" if they had been more vigilant. Officials of the Food and Nutrition Service, a unit of the Agriculture Department, have often failed to act on warnings from the inspector general for the last four years, Viadero said.
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