Minnesota DHS chief addresses revelations of shoddy oversight of housing grants

In what has become a yearly ritual, the head of the Minnesota Department of Human Services (DHS) appeared before state lawmakers Thursday to address revelations of poor financial controls at the massive state agency.

A performance audit released last week by the Office of the Legislative Auditor offered a scathing critique of the grant-making process at DHS during the COVID-19 pandemic.

The review found significant deficiencies in the agency's oversight of tens of millions of dollars in grants to support the homeless and others in need of housing during the pandemic.

Among its findings, the auditor said DHS repeatedly failed to comply with state laws designed to ensure grant recipients were evaluated and the money was spent as intended.

The findings echo those found in at least three previous reviews, dating to 2018, in which the legislative auditor uncovered poor financial controls at DHS — the state's largest agency with a $21 billion budget and oversight of public health insurance programs for 1.1 million Minnesotans.

During the past three fiscal years, the DHS dispersed more than $130 million to local governments and nonprofits to help marginalized populations, including the homeless and people struggling with mental illness. Many of the grants were designed to provide emergency shelter and space for homeless individuals who were unable to isolate at home and to help prevent COVID-19 from spreading among that population.

In legislative testimony Thursday, Human Services Commissioner Jodi Harpstead reiterated a pledge she made three years ago — on her second day in the position — to shore up financial controls and rebuild public trust in the agency.

"There is nothing more important for the Minnesota Department of Human Services than to be trustworthy for the people of Minnesota," Harpstead said, repeating almost verbatim what she said at a hearing in September 2019. "This remains as true today as it was then."

At the same time, Harpstead stressed that her agency was under unusual pressure to fund service providers during the pandemic — and that complying with documentation and other processes was less of a priority. The efforts helped to prevent the spread of COVID-19 among the homeless at a time when large outbreaks were occurring at shelters on the East and West coasts.

"It was simply not possible during the COVID pandemic to do it all given an urgent timeframe," Harpstead said, noting other recent audits at the agency have not found misspent funds or other deficiencies.

The auditor's 52-page report said the agency routinely failed to evaluate the financial stability of organizations that received the grants and did not perform required site visits to ensure the money was spent properly. The agency also failed to document potential conflicts of interest.

Such deficiencies left the agency exposed to potential fraud and abuse, the auditor concluded.

"We have a concern about DHS' ability to oversee grants," Legislative Auditor Judy Randall told the Legislative Audit Commission on Thursday. "The problems we're seeing are not just in one division, they're in several divisions across the department."

State law requires agencies to assess the financial stability of any entity requesting more than $25,000. But in its review, the auditor found that DHS failed to do that for 91 of 117 grantees.

The requirement was even more critical during the pandemic, the auditor said, because many of the grant applicants were new and not familiar to the agency.

The legislative auditor also found DHS failed to perform monitoring visits for the vast majority of providers that received COVID-19 emergency response grants. When monitoring did occur, the documentation was often incomplete, the auditor saidadded.

Deputy Legislative Auditor Lori Leysen testified that her office did not find evidence of fraud in its review of DHS housing and homelessness grants. At the same time, she said, continued problems within the agency's grant-making process mean that the agency can't provide assurances.

"We are not saying there is fraud," she said. "But we can also not say that fraud did not occur."

Rep. Tina Liebling, DFL-Rochester, a member of the Legislative Audit Commission, struck a conciliatory tone, noting the pressure that DHS is under to get funds out the door quickly during an emergency while monitoring to ensure the money is spent properly.

"In a way, the department finds itself ... in a kind of a no-win situation here, right?" Liebling said during the hearing. "On the one hand, you have folks who are saying, 'Where's my money, it's an emergency.' ... And of course, the flip side of speed is that then you get more mistakes or you skip pieces of the process. So it's really a delicate balance."