DHS inspector general placed on leave after state audit finds fraud in Minnesota's child care program

The inspector general in charge of investigating fraud in Minnesota's health and welfare programs has been placed on investigative leave, less than a week after the legislative auditor found high levels of fraud in the state's child-care assistance program and "significant distrust" within the agency that administers it.

Carolyn Ham remains inspector general of the Minnesota Department of Human Services (DHS), but the agency said she is "out of the office," as of Monday. A spokeswoman for the department declined to explain why Ham was put on leave or say for how long, citing data privacy concerns.

In a report last week, the Office of the Legislative Auditor said it couldn't specify the amount of fraud in the Child Care Assistance Program but said it is likely higher than the $5 million or $6 million that has been documented by county prosecutors who investigated a handful of child-care providers.

The report also cited a rift between Ham and the team of anti-fraud investigators within the agency. Most of the 14 investigators told the auditor's office that they had never met Ham, and several described her as unwilling to speak to them as they passed in the hallway, according to the report.

"This is an important first step in following up on the report," said Rep. Nick Zerwas, R-Elk River, who has been critical of the agency's leadership. Ham "clearly doesn't have the focus and the personality of the top job in the department to root out waste, fraud and abuse."

In a written statement, Ham said the allegations questioning her leadership are "completely without merit" and a distraction from state efforts to solve the problem of child-care fraud in Minnesota. "During my two years as inspector general, my top priority has always been to ensure that the taxpayers' money is being used in a responsible manner, and my record reflects that," she said. "This controversy has become a political distraction and I am eager for the truth to come to light."

Ham added, "I am confident that the upcoming investigation will vindicate not only me, but the hundreds of dedicated [Office of Inspector General] employees whose hard work has been called into question."

Lawmakers called for the audit after a Fox 9 report last year alleged that as much as $100 million annually was lost to fraud — nearly half the program's entire budget — with money possibly diverted by child-care providers to terrorist groups in east Africa.

The legislative auditor found no evidence to substantiate those allegations but did find personal distrust and uncertainty about the role of the inspector general within DHS. The department created the position in 2011 to detect and prevent fraud in state programs that disburse hundreds of millions of dollars every year, but its mission and authority are still not defined in law, the auditor's report found.

Legislative Auditor James Nobles and Republican legislators have recommended that the Office of Inspector General be made a separate, independent office under state law. Nobles also recommended stronger internal controls for the child-care program, including electronic attendance records and other techniques for ensuring integrity.

"To be a champion of rooting out fraud, waste, and abuse, an [inspector general] must have significant independence from department management and program administrators," the auditor's report said.

In the 2018 fiscal year, the state paid $254 million in child-care subsidies for services provided to approximately 30,000 children from low-income families.

An independent consulting firm hired by DHS estimated that, since 2013, about 7 percent of payments were made to centers that used fraudulent billing practices, totaling $72 million over five years, according to the firm's report.

Ham, who has been inspector general since March 2017, has maintained a lower profile than her predecessor, Jerry Kerber, who was the first to hold the position. Kerber was widely credited with transforming the fraud and abuse division at DHS into a high-profile unit and testified frequently at the State Capitol, resulting in more staff and greater authority for the office.

Chris Serres • 612-673-4308 Twitter: @chrisserres