'The buck stops here,' commissioner says, laying out a reform plan at Minnesota DHS

A senior official from the Walz administration acknowledged Monday that the state Department of Human Services (DHS) has been "soft around the edges" for 10 to 20 years, but denied that the agency is in "free fall."

In her most comprehensive remarks since taking over the huge agency in September, Commissioner Jodi Harpstead acknowledged the financial and personnel missteps that have produced repeated embarrassments since early summer. But she also said the agency, which runs an $18.5 billion budget and serves more than 1 million Minnesotans, is facing up to its challenges.

"Every dime matters," Harpstead said. "We have reported inappropriate payments this year … I am deeply sorry to our community partners, such as tribes and counties, as well as individual Minnesotans who were affected by these decisions."

As part of an improvement plan she had promised within 90 days, Harpstead said she's forming an outside advisory council that will include Bill George, the respected former Medtronic CEO who was once Harpstead's boss.

Harpstead's testimony was the most detailed to date about her plan to address oversight lapses that have roiled the agency since the summer and led to some $90 million in improper payments for substance-use disorder treatment. The agency now faces the politically unpopular task of clawing back excess payments to counties and two Native American bands, while trying to restore confidence in its management practices.

In a scathing report issued in October, Legislative Auditor James Nobles found "troubling dysfunction," that led the agency to make $29 million in wrongful payments to two tribal bands that now face painful cuts to their social programs.

The auditor's office found that no one at the DHS could identify who was responsible for the overpayments or offer a rationale for the unorthodox and unauthorized billing that led to them.

To prevent future overpayments, Harpstead said the DHS has begun a new initiative, "Operation Stopgap," in which funds won't be disbursed without multiple signatures from department heads.

"The buck stops right here," Harpstead said emphatically. "We're planning to use the best processes that we know, that have been used in other organizations … It starts now."

Rep. Tina Liebling, DFL-Rochester, chairwoman of the committee hearing Harpstead's testimony, noted that Harpstead's qualifications set her apart from recent DHS commissioners, many of whom were attorneys. Harpstead was a Medtronic executive for two decades before joining Lutheran Social Service of Minnesota in 2004. She became CEO of that organization, one of the state's largest nonprofit social service providers, in 2011.

"Having worked with her over the last 90 days and hearing her thorough report today, I feel confident that DHS is in good hands," Liebling said.

Several Republican committee members pushed back, saying they still lacked confidence that the agency had substantially turned things around. "How can we trust DHS with any new money or programs until we see fundamental reform and change?" asked Rep. Glenn Gruenhagen, R-Glencoe.

Republicans also expressed disappointment after Harpstead announced that an investigation into a former DHS Inspector General, Carolyn Ham, had concluded without any disciplinary action. The inquiry began earlier this year after an audit from the state's Legislative Auditor found high levels of fraud in the state child-care assistance program (CCAP), which pays for the child-care expenses of about 30,000 low-income families statewide. The auditor's office also raised concerns about "significant distrust" between Ham and anti-fraud investigators within her office, in a special review of CCAP completed in March.

"The public deserves to know what her role was and why no one has been held accountable for the failure to stop widespread child-care fraud," said Rep. Mary Franson, R-Alexandria.

Ham is currently assigned to the agency's legal office, and no decisions have been made about her future role, a DHS spokesperson said.

George will co-chair the advisory committee, which includes the chairs of the four Legislative health committees in the House and Senate.

The second co-chair, as well as two to three community members, has not been named.

"We are not there to do the politics but really to kind of advise Commissioner Harpstead as they go about trying to fix the very deep problems at DHS," George said in an interview Monday. "We want to look for solutions."

Gov. Tim Walz said he reviewed the plan before the hearing and was pleased. "It is a robust plan," he said. "I think you're going to see strong bipartisan support."

Harpstead said Walz would make an announcement in the "coming days" on proposals to break up the behemoth agency. But she also appeared to cast doubt on a wholesale restructuring.

"It's my experience that when you split departments and people … that you end up with two more costly departments," she said. But she appeared open to the idea of breaking off a large division at DHS known as Direct Care and Treatment, which oversees facilities and programs for people with mental illnesses, developmental disabilities and substance abuse problems. It alone accounts for 4,900 of the agency's 7,300 employees.

Harpstead punctuated much of her testimony with apologies, while repeatedly urging lawmakers to put the financial missteps in the context of the larger agency.

The $106.5 million in overpayments over the past six years represented just "one-tenth of 1%" of the agency's total payments over the period, she said. "In spite of the attention these issues have received, this department is not in chaos as has been suggested," Harpstead said.

Rep. Nick Zerwas, R-Elk River, said the overpayments may seem small in proportion to the DHS's overall budget, but they are significant to counties and tribes, which are now expected to repay tens of millions of dollars they do not have on hand.

In the end, Zerwas said, it likely will be state taxpayers who foot the bill.

"This drip, drip, drip of problems is really challenging," said Zerwas, who is resigning from the Legislature this week.

Staff writer Torey Van Oot contributed to this report.