October 3, 1999
Nonprofit Groups Accused of Bilking Lunch
By ROBERT PEARASHINGTON -- 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
"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
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
"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
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,