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California and the West

Fraud Alleged in Children's Food Program

Audit: A federal report says lax state oversight has allowed several nonprofit contractors to plunder funds intended to provide preschoolers with free meals.


SACRAMENTO — California's negligence in running a program that provides meals to needy preschoolers allowed fraud to become rampant, swallowing up dollars that could have been used to give free food to more poor children, a federal audit has found.

In an unusually harsh assessment of the state's performance, U.S. Department of Agriculture Inspector General Roger C. Viadero found that private groups participating in the program were so poorly supervised that it was easy for some to enrich themselves with government money.

They used a variety of schemes to put federal food dollars into their own pockets, the report said, and then spent the money on such things as vacations, clothing, tuition and vehicles. One Los Angeles couple was accused of using funds skimmed from the program to pay for everything from a 5,000-square-foot home on the Palos Verdes Peninsula to ski trips and their children's schooling.

Targeted for criticism in the audit was the California Department of Education, which administers the $168-million program for the Department of Agriculture. The state uses a network of mostly nonprofit groups, called sponsors, to funnel government funds to day care centers to reimburse them for the cost of meals provided to children of the working poor.

"The California Department of Education fostered a lax environment in which . . . sponsors could personally enrich themselves through various questionable or fraudulent schemes which they could perpetrate with little likelihood of detection" by the state, the report said.

The findings, released last week, were based on audits and investigations of 10 sponsoring organizations that got about $45.3 million in federal funds during 1996 and 1997. As a result of the investigation, criminal charges have been filed against 15 individuals and four of the 10 sponsors have been terminated from the program.

Education department officials acknowledged that the program had not been run as tightly as it should have been, but they said the criticisms in the audit do not accurately portray the way the program is being operated today.

Kathy Lewis, state deputy superintendent for Child, Youth and Family Services, said the findings have prompted a number of reforms, including the creation of an investigative unit, the installation of a toll-free hotline to report irregularities, the addition of auditors and extensive training of the staff to identify fraud.

"I think that sometimes not as much attention was paid to the integrity aspects of the program as it was to the nutritional health aspects," she said. "We have absolutely shifted that mentality so that everybody fully understands their job is to make sure that every dollar that is suppose to go for feeding kids goes for that."

The inspector general's report said audits in California and other states showed that most of the fraud was committed by sponsors who shared certain characteristics: They were apt to be family-run operations whose only source of funding was the food program.

Among those investigated for fraud in California were:

* A Visalia-based sponsor accused of defrauding the program of more than $340,000. The husband and wife who owned and operated the business were arrested and charged in a 23-count indictment. The audit report found they had paid themselves reimbursements for day care centers that no longer participated in the program. Federal charges listed in a 23-count indictment are pending, according to the report.

* A Long Beach-based sponsor operated by a husband and wife who were charged with defrauding the program of about $2.2 million by diverting government funds to their own use. They were also accused of using aliases to hide the identity of the wife, who happened to be an employee of the Department of Education. The owners were sentenced to more than two years in federal prison and ordered to pay restitution, the report says.

* A Los Angeles-based organization criticized in the audit for $800,000 in "questionable" costs and payments. Three of the organization's officials also received salaries as operators of a day care center it owned. "While the sponsor underpaid many of its day care centers, it usually overpaid the day care center that it owned," the report said. The organization is still under investigation; no criminal charges have been brought.

Although the audit report repeatedly criticized the department for failing to detect fraud, Lewis said several of the cases highlighted in the federal report had been brought to the attention of the inspector general by the state.

Even so, the federal findings have rocked the tightly knit nonprofit community, which disburses food funds to day care centers throughout the state. California's program, which serves about 280,000 mostly preschool children more than 172 million subsidized meals and snacks a year, is the largest in the nation.

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