Updated 2:45 p.m.
Minnesota officials said Friday they have cut ties with the controversial nonprofit Community Action of Minneapolis and intend to take back any state or federal funds the group "misspent."
Minnesota's human services and commerce departments said they've taken steps to "terminate all contracts" with Community Action.
The move comes after a scathing state audit found the organization had overcharged state and federal grant programs for more than $600,000 of administrative costs. It found $226,679 in "unallowable" expenses for travel, food, alcohol, spas, golf and pay bonuses for its employees and executives.
State officials on Friday used subpoenas to seize the organization's files, which are needed to provide continuous services to Community Action's low-income clients, Human Services Commissioner Lucinda Jesson said.
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"We did not see evidence, based on what we know right now, of criminal wrongdoing," she said. "But what we did see was a serious misuse of state and federal tax dollars, and we're going to do whatever we can to recoup them."
The state commerce department said it was immediately pulling its energy assistance and weatherization programs away from Community Action and distributing them to neighboring community action agencies.
Community Action of Minneapolis was formed in 1994 by the city of Minneapolis to disperse federal community action grants. Its broad mission was to help ease poverty and to help connect low income families to needed services.
Questions had been raised for years about Community Action's spending on salaries and perks like spas and massages. Critics said little was ever done to stop it.
Some blamed the excesses on Bill Davis, the organization's long-serving chief executive. Davis is well connected in DFL political circles. He has said Community Action has not misused any funds.
Executive salaries: Twin Cities metro-area community partnerships
Data: 2012 IRS filings
Attempts to reach Davis were unsuccessful. Repeated phone calls to the organization's administrative offices also went unanswered.
Politicians who once served on Community Action's board, all DFLers, including Minneapolis City Council president Barbara Johnson, say they had little direct involvement with group. Many of them have cut ties with the nonprofit in the wake of the audit.
Commerce officials on Friday said Community Action had been on a "corrective action" plan because of its poor performance, including "60 percent slower application processing than the statewide average for Minneapolis residents seeking heating assistance."
The human services audit, however, was apparently the last straw. On Friday, the agencies summarized their findings:
Inadequate board oversight. Program budgets and actual expenses were not sufficiently scrutinized by the board. Four current board members have served terms in excess of 10 years, a violation of state law governing nonprofits.
Excessive administrative expenses. Administration spending was 54 percent of the budget in fiscal years 2012 and 2013. The organization originally proposed to spend 68 percent of its budget on administration in the upcoming fiscal year.
Poor performance. Positive outcomes in the agency's job participation program (Community Action Assistance) were 85 to 96 percent lower than previous years based on a review of an annual report.
Bonus payments for employees. The Community Action of Minneapolis Board approved a bonus of over $17,600 for the organization's executive director, which is over three times the amount allowed by its own merit pay policy.
Personal auto loans for employees. The Community Action of Minneapolis Board approved a $36,000 car loan for the organization's executive director.
Inappropriate spending. Community Action of Minneapolis spent public dollars on trips to the Bahamas and Palm Beach, spa treatments, alcohol, golf, and other inappropriate purchases.
Minneapolis city officials backed the state's move to end the Community Action contracts.
The city is working now to sign an outside auditor to examine the city's contracts with Community Action and determine if money was spent appropriately, Johnson and Mayor Betsy Hodges said in statement.
"We are extremely disappointed by this entire situation," they added. "Moving forward, our top priority is to work with our partners to ensure that people who need services that Community Action provided can still access them both in the short term and long term."