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Is the latest DHS scandal really about DHS? Or even a scandal?

DEED had more than double the amount of contract infractions DHS did. And the violations at both agencies mostly involved technical mistakes: No state money was actually spent before contracts were finalized or purchases were approved, say state officials. 

Senate Republicans questioned leaders of the Department of Human Services at a hearing on Wednesday.
MinnPost photo by Peter Callaghan

Senate Republicans hauled leaders of the Department of Human Services to the Capitol on Wednesday to ask why the embattled agency reported hundreds of violations of contract policy in the last year.

State Sen. Michelle Benson
State Sen. Michelle Benson
Before the hearing, however, state officials released data showing the Department of Employment and Economic Development (DEED) had more than double the amount of infractions that DHS did. At the same time, Myron Frans, commissioner of the Minnesota Management and Budget agency (MMB), downplayed the violations at both agencies, saying they’re mostly technical mistakes — state money was not actually spent before contracts were finalized or purchases were approved, he said.

The state data shows DEED had 584 violations in the last year, compared to 219 at the much larger Department of Human Services. Two other agencies — the Department of Health and Corrections — had more than 100 violations in the last year.

Even so, at the hearing state Sen. Michelle Benson, a Ham Lake Republican, said DEED has “compliance and accountability issues” and should get scrutiny even though it’s a smaller agency. “The takeaway from this is it’s not just DHS,” she said.

Past administrations faced same issues

The recent focus on contracting began last week, when the Star Tribune reported DHS had violated state law more than 200 times in the last year by committing money without proper documentation. While state officials contend the infractions break financial policy but aren’t illegal, the story brought a fresh round of criticism to DHS, which has faced a series of scandals under Gov. Tim Walz that include fraud in the state’s child care assistance program and overpayments to tribal governments for opioid treatments. 

Many of the violations involved DHS letting grant-winners and vendors perform work before contracts had been finalized or employees buying products without adequate permission. The violations were reported by DHS staff on forms known as 16A/16C. A tally of those forms across state government was released by the Walz administration on Wednesday.

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But while Frans and other state leaders say the violations should be prevented, they also maintain that the agency reports actually show a functioning state government — with financial systems that identify wrongful payments. At the hearing, Senate DFLers also said past administrations faced the same issues.

“I don’t know why this is a scandal,” said Sen. Chris Eaton, a DFLer from Brooklyn Center. The violations represented a small fraction of overall transactions, she added. “We’re doing a pretty good job of managing a bureaucracy that has to fill the needs of people.”

Frans said DEED’s infractions aren’t a surprise since the agency administers a wide swath of grant money and other spending. About 140 of the violations were on purchases of less than $100, Frans said. And 339 of the problems come from purchases made by people enrolled in programs for those who are blind or have disabilities, Frans said. All told, the 584 violations were on transactions worth $17 million.

Commissioner Myron Frans
Commissioner Myron Frans
Blake Chaffee, the deputy commissioner of operations at DEED, told MinnPost the state often buys things for clients or reimburses them, transactions that have a prescribed legal process to get approved and finalized by state government. But Chaffee said sometimes a client will mistakenly skip ahead, buying something like a textbook that DEED intends to spend money on, but hasn’t been fully authorized. “Under state law that constitutes a purchasing violation,” he said.

Chaffee said clients are often “low-income, vulnerable adults” who have trouble finding work. When problems are found, they’re fixed and the payments are approved by senior officials, he said. “The thing that I really want folks to understand is that no money is spent until these things are corrected,” Chaffee said.

Another source of violations has been slow payments from the federal government. In one recent instance, programs getting awards for youth workforce development services were supposed to start April 1, but the state didn’t receive promised federal money intended for grantees until more than a week later. Chaffee said his agency can either tell programs to stop serving at-risk youth, or continue on and get paid when the federal cash surfaces and contracts are finalized. DEED has chosen the latter.

“What we do is we say, ‘Do your work, we’ll pay you when we get the money,’” Chaffee said. “The money comes in, but we have to process that as a violation.”

Not ‘waste, fraud or abuse’

The Senate hearing on Wednesday did not delve into DEED’s violations, though Benson said she was frustrated at grants being given out by DHS “without paperwork being ticked and tied,” even if it risked halting services. She said it reflected an agency that tries to circumvent rules meant to protect taxpayer money.

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“At some point you just need to say, ‘Stop,’ so people will take this seriously,” she said.

Chaffee said the contract violations are an “area of focus” for the agency. DEED has a training on the subject Friday for staff and leadership. But he said people should not characterize it as “waste, fraud and abuse.” The agency made 33,921 transactions in the last year.

“This is us either catching our mistakes or when something does go sideways as it relates to the timing of funding or our interaction with clients,” Chaffee said. “To me it’s an effort of accountability.”