Minnesota lawmakers blast agency heads for sloppy contracting

State legislators leveled stinging criticism at leaders of the Minnesota Department of Human Services (DHS) and other state agencies at a Wednesday afternoon hearing on mismanagement of financial contracts that led to nearly 1,800 violations of state law over the past year.

"It is very, very troubling that there's this attitude that we can go ahead and spend whatever we want, and then we'll get approval and then we'll tell you what it's for," said Sen. Julie Rosen, R-Vernon Center, chairwoman of the Senate Finance Committee. "This has got to change."

The Minnesota Department of Administration, which oversees contracting activities by state agencies, released figures Wednesday showing that DHS is not alone, despite its high-profile incidents of sloppy paperwork; 32 agencies failed to follow contracting rules in the year that ended in early November.

The Minnesota Department of Employment and Economic Development (DEED) led the list with 584 violations, more than double the number at DHS or the Minnesota Department of Health.

Lawmakers expressed a mix of frustration and confusion and questioned the urgency of some of the state contracts that incurred violations.

"At some point, are you going to just … stop agreeing to pay people until contracts are done?" asked Sen. Michelle Benson, R-Ham Lake, chairwoman of the Senate Health and Human Services Finance and Policy Committee. "There are very few life-ending things on this list. Let's be really careful about how much we let go before we expect a contract in place."

Addressing Alexandra Kotze, the DHS chief financial officer, Benson said: "There is just a never-ending list of people that we're handing money out to — and you shouldn't have to be the only one held accountable for it."

Kotze said she took action when she noticed an increase in the self-reported violations a few years ago. She then intervened to review all violations herself.

"I take very seriously my responsibility to follow state law and guidelines," Kotze said. "It is also why I have spent a lot of time and effort working on this process personally."

She said that DHS allowed some vendors to proceed with work without a completed contract so that vital services could be provided, including child care and assistance to women who are recovering from substance use disorders.

The Star Tribune reported last week that the DHS incurred $52 million in contract violations over the past year, with the most violations coming from a division that had previously allowed $29 million in Medicaid overpayments to two Indian bands for opioid treatment and $48 million in improper payments to chemical dependency treatment centers. About one-third of the recent violations involved contracts worth less than $1,000 apiece, but many exceeded $100,000.

The new DHS commissioner, Jodi Harpstead, has responded to the barrage of embarrassing revelations with an internal campaign to encourage employees to speak up about improprieties in the agency. Over the past week, large bronze-colored posters with the word "trustworthy," have appeared throughout the agency's central office in St. Paul. They encourage agency employees to "speak up and do the right thing."

In a video message to DHS employees this week, Harpstead struck an upbeat and conciliatory tone, saying, "I appreciate how discouraging blaring headlines can be … and while our issues still add up to a small portion of the work of the department, they do require our attention and diligence." She then implored employees "to be gentle with each other."

"We will work to get as close to perfection as possible in our processes and systems that organize our deeply meaningful human work," she said.

Eric Hallstrom, deputy commissioner at Minnesota Management and Budget (MMB), explained that when state employees report such incidents, they start a process that triggers an administrative review and protects taxpayer dollars.

"Ultimately it is a check to prevent those payments from going out," he said in testimony.

Noting that only 2% of the state's contracts had violations, Sen. Chris Eaton, DFL-Brooklyn Center, said that the self-reported violations are an indication that the system is working.

"I don't know why this is a scandal," she said. "We are doing a pretty good job of managing a bureaucracy that has to fill human needs."

Although the hearing did not delve into the violations at DEED, MMB Commissioner Myron Frans said in an interview Wednesday that two-thirds of the violations at that agency stemmed from "technical glitches" involving purchases made for clients in the vocational services and state services for the blind.

Frans said he supports the intent of strict state contracting laws because "until the deal is done it is not done." But he said it might be time to update the laws.

"We will recommend to the Legislature that it is time to fix the statute to make it more amenable to modern business practices," he said.

The hundreds of DHS contract violations, combined with recent revelations of Medicaid mispayments, have shaken lawmakers' confidence in the DHS leadership and have fueled a growing sense among lawmakers that more financial improprieties may be lurking at the agency.

"What's next?" Rosen asked after the hearing. "We're starting to peel away at this mammoth institution that seems to have an endless amount of money to spend and lacks the proper checks and balances. I think we are going to see more infractions and more issues that will be very troubling for taxpayers."