Fallout over audit continues

ST. PAUL (AP) -- The Pew Charitable Trusts requested reimbursement Monday after Minnesota's legislative auditor found that the Department of Children, Families and Learning misused roughly $90,000 of a $1.5 million grant.

The Philadelphia-based charity did not explicitly state how much it wants back or who should pay it. But in a letter to Auditor James Nobles, a Pew attorney said the reimbursement should include the "portion of the funds transferred or expended in violation of the purposes for which the grant was made."

Nobles disclosed Pew's request to members of the Senate E-12 Education Budget Division, several of whom expressed outrage that at least five employees at the education department allegedly diverted Pew's money to another charity instead of returning unused funds when it was due to expire.

"The employees were committing, in effect, what in the private sector we would call embezzlement," charged Sen. Michele Bachmann, R-Stillwater. "They perpetrated fraud upon the taxpayers of the state, against the mothers of the state and the fathers of the state and especially against the children who are meant to be served by these funds."

The grant was intended to study and enhance child-development and family services programs in Minnesota.

Nobles has forwarded documents to the attorney general and prosecutors in Olmsted, Ramsey and Blue Earth counties, which could consider civil or criminal charges.

In describing his office's findings, he parsed few words. He said Minnesota's reputation with charities like Pew and the United Way, where the money was apparently stashed, may have been harmed.

"Frankly, we are still unsettled with what happened at CFL," he said. "We cannot say it was an isolated case."

Nobles said his office will conduct a wide-ranging review of grant administration at CFL and other agencies starting in May. In fiscal year 2000 alone, CFL handled $600 million in grants -- 75 percent from the federal government, 20 percent from the state and five percent from charitable groups, an agency official testified.

The 1994 grant technically was made by St. Paul's Amherst H. Wilder Foundation, using money from Pew. Joy Horowitz, Pew's director of legal affairs, noted in her letter to Nobles that the charity is "gratified that the vast majority of the grant" was used for the intended purpose. But the portion the audit says was mismanaged troubled Horowitz -- and the senators who discussed the issue Monday.

The grant was to expire in June 1998. To avoid returning the money, the audit says CFL employees transferred the money to the United Way of Olmsted County, but they retained control over its use and filed a false financial report.

In addition, the five employees sought nearly $20,000 in expense reimbursements for such things as cell-phone use, equipment and travel expenses.

Some of the employees are still on the CFL payroll, although Deputy Commissioner Barb Yates said the department is conducting an "employment investigation" with the help of the Department of Employee Relations.

An internal review of this and other grants is also ongoing, Yates said, but so far it has turned up "no other arrangements like that."

Sen. Jane Krentz, DFL-May Township, agreed that while the audit's allegations are troubling, its scope appears limited.

"I don't think this reflects on the department as a whole," she said.