An American Tradition: Chronic Anti-Poverty Waste Via the Federal-to-Local Distribution Pipeline

For six years, beginning in 2014, the accounting firm for the Southeast Alabama Community Action Partnership warned administrators that the organization was doing a poor job of managing the millions of dollars in taxpayer money it received annually for its poverty-reduction work, including home energy assistance and foster grandparenting.  

In 2018, a longtime employee filed a federal complaint alleging that the group spent public money profligately on extravagant travel and for other unauthorized purposes, and that it retaliated against employees who questioned its financial practices. 

Although the case was dismissed upon agreement by both parties, the U.S. Department of Justice fined the Alabama nonprofit $30,000 last year for fiscal failures, including keeping federal money “even after being told by its outside accountant that it needed to return those funds to the United States.”

The fine was largely borne by U.S. taxpayers – the Southeast Alabama Community Action Partnership in 2021 received $5.5 million in federal grant funding, representing 97% of its support and revenue for the year.

The Alabama agency is part of a national network of over 1,000 local "community action agencies," or CAAs, distributing some $14 billion a year for so-called poverty-reduction programs, according to the Community Action Partnership, a national group that provides spending guidance and training to the local agencies. 

That spending, part of a tangle of 89 programs spanning 14 federal departments and agencies, is a relatively small part of the federal outlay for low-income individuals and families, now totaling $1.16 trillion annually. Yet CAAs are significant as the main engines of such high-profile programs as Temporary Assistance for Needy Families (TANF) and Head Start education efforts. And they offer a case study in how such spending can be virtually impossible to unwind, even if riddled with problems, critics say.  

Despite a steady flow of federal audits and other reviews finding egregious waste in poverty relief over the past five decades, the Biden administration has doubled down on such programs since taking office last year. Food stamps, housing assistance, tax credits, and energy subsidies have been broadened in President Biden’s vast welfare expansion.

As RealClearInvestigations recently reported, the budget for the administration’s home weatherization programs nearly tripled to $1 billion a year under the Infrastructure Investment and Jobs Act of 2021, despite a long history of fraud and mismanagement among the CAAs that disburse the funds. Enforcement and policing of these programs has not been widely enhanced.

“The federal government just tosses money at the states and it’s up to them to figure it out,” said Robert Rector, a senior research fellow at the conservative Heritage Foundation, who has studied poverty and welfare programs since the ’90s. “No one pays attention or follows up on it, because it’s not state money and the federal government sends it and says, ‘Do whatever you want.’ There’s no data, so these bureaucracies spend this money autonomously.” 

Yet despite a 92% increase in spending on low-income individuals and families since 2008, poverty rates in the U.S. have remained well above 10% of the population since the early ’60s, according to U.S. Census data. The lowest it has been since 1959 was 10.5% in 2019, and it has since escalated to 12.8%. The poverty threshold for a single adult under 65 in 2021, the most recent metric available, was $14,097. 

Problem areas include the Child Care and Development Fund, which provides child-care assistance to low-income families. It made $1.1 billion in overpayments between 2016 and 2021, according to the Department of Health and Human Services.  

Over the years, thievery among CAAs has made headlines, such as the leader of a Maine community action group caught embezzling $1.3 million. 

In 2015, three people were sentenced for bribery connected to the Gulf Coast Community Action Agency. Their scheme stole hundreds of thousands of dollars meant for a Head Start preschool for disadvantaged children.  

In 2012, the former chief executive officer of the York County, Maine, Community Action Corporation pled guilty to embezzling some $900,000 in federal grant money.  

In 2002, a former official with the Community Action Agency of New Haven (Connecticut) pled guilty to stealing over $1 million in federal and state funds intended for poverty programs such as Meals on Wheels and subsidizing heating bills and heating assistance. 

Even organizations designed to promote best practices at community action agencies are prone to chicanery. In 2013, the finance director of the Louisiana Association of Community Action Partners pled guilty to embezzling over $50,000.  

Errors or mismanagement across the welfare spectrum are often described with bureaucratic blandness by government overseers: “Administrative or process errors made by state or local agency resulted in overpayments.” 

The problems have flourished because there are evidently few consequences for failure at any level.

“Unless there is something that ensures that the money being spent locally and spent effectively or they don’t get more, then the problem is going to go forward,” said Thomas Schatz, president of Citizens Against Government Waste, a DC-based policy group. “I’ve seen members of Congress saying that this program didn’t work so we’ll create a new one. If they had spent the money well or tracked it better in the first place, maybe more communities would have been helped.”  

The waste is compounded by poorly prepared local management, he added. CAAs are led by local community leaders and activists, some with experience in grant handling, some not. The agency boards are required to include elected officials, representatives of the low-income community and members from local charities, civic groups, and businesses. As such, the board, supposedly a layer of oversight, is often better versed in the virtues of helping the poor but less so in the intricacies of finance.  

“There’s poor planning in sending the money in the first place, then there are people receiving it with no experience in creating or funding projects,” Schatz said.  

Mismanagement is so endemic to the programs that Care Providers, a boutique business insurance company, offers insurance “exclusively designed for Community Action Agencies.” Its list of crimes the organizations need to insure against includes “fraud, dishonesty, and theft by employees [which] are major problems confronting businesses of all sizes, including non-profit organizations,” the insurer writes. Care Providers “protects CAAs from loss of money, securities, or inventory resulting from crime. Common crime and fidelity insurance claims include employee dishonesty, embezzlement, forgery, robbery, safe burglary, computer fraud, wire transfer fraud, counterfeiting, and other criminal acts.” 

Care Providers did not respond to an interview request.

The Obama administration several times proposed a reduction of community services block grants, noting that the program’s “current structure does little to hold [community action] agencies accountable for outcomes.”  

The effort encountered loud political resistance, in which lawmakers insisted the program was working as planned and shouted down reform efforts.  

While most CAAs do varying degrees of private fundraising, the cash cow is federal money. 

Most recently, CAAs had their coffers bolstered with even more than the annual grant money: $1 billion in COVID-19 economic relief under the CARES Act. The agencies have struggled to spend it all.  

“[CARES Act] funding is flexible,” Charisse Johnson, who helps direct federal grants for the U.S. Department of Health and Human Services, told CAA members in April. She urged the groups to look at stepping up their expenditures, noting that “a small portion of states have not spent their money at a reasonable rate,” referring to those that have not been able to spend more than 25% of their additional funding.  

There are few incentives for reform, and when an agency fails and lawmakers want to pare back funding, there is a lot of resistance that makes it politically unfavorable, said Merrill Matthews, co-author of the book “On the Edge: America Faces the Entitlements Cliff.” 

“Who wants to be the politician that cuts off a plan to help low-income people?” Matthews said.   

“And there’s also an attitude of not caring, as it’s just chump change given the federal budget,” said Matthews, who is also a resident scholar with the Dallas-based Institute for Policy Innovation. “It could also be considered a cost of doing business.” 

The Improper Payments Act of 2002, for purposes of ferreting out waste, defines significant improper payments as those that exceed either 1.5% of a program spend and $10 million, or $100 million regardless of the rate.  

The Single Audit Act of 1996 lessened the burden of oversight on the nonprofits, requiring they conduct one annual audit rather than multiple audits of individual programs, as previously required. 

Audits, though, also have their flaws, as most of the CAA annual reviews are internal audits, rarely far-reaching enough to snuff out fraud or misspending.  

“An internal audit is never independent, “said Sandy Alexander, a Dallas-based forensic auditor and CPA who has performed comprehensive audits of school districts and other government agencies. In the case of an internal audit performed by the organization’s tax preparer, “You’re working for your employer and are at their beck and call. You really can’t audit your own work; it’s more like consulting. “ 

RCI reached out to executives of the 15 CAAs on the board of the national Community Action Partnership. None responded, nor did Denise Harlow, CEO of Community Action Partnership. David Bradley, who heads the lobbying and political action committee of the Community Action Partnership, also did not respond to an interview request, nor did Jennifer Chaffin, interim director of the National Association for State Community Services Programs.  

“A number of these agencies are headed by good people who are doing the best they can,” said Matthews, of the Institute for Policy Innovation. “And others have figured out a way to get on a gravy train and they end up doing questionable things. And you almost never hear about it – unless the media picks it up.” 

Eric Felten contributed to this article.