In the fall of 2019, only weeks after taking the helm of Minnesota's largest state agency, Human Services Commissioner Jodi Harpstead was thrust into a political firestorm over her department's mishandling of tens of millions of dollars in Medicaid funds.

Before a chamber of angry lawmakers, Harpstead pledged to rebuild trust in the $21 billion agency, reinforcing her point by testifying next to a plaque with the word "trustworthy" etched in granite.

"There is nothing more important for the Minnesota Department of Human Services than to be trustworthy," she declared.

A year and a half later, the ex-Medtronic executive and former head of Lutheran Social Service of Minnesota appears as determined as ever to correct the costly mistakes of the past while putting the department she leads on a sounder financial footing. In recent interviews and legislative testimony, Harpstead has taken pains to demonstrate that, even during a pandemic, her team is making progress in repairing the embarrassing breakdowns in internal controls that caused the agency to make more than $100 million in overpayments for substance-use treatment services.

"We have come a long way toward everyone in our department owning the issue of 'crossing our t's and dotting our i's,' " Harpstead said in an interview this week. "With this big a budget, it was really time, past time, that the Department of Human Services had this full, thorough look at process controls and put them in place."

Over the past year, as the world has focused on combating the deadly coronavirus, Harpstead has quietly rolled out a series of measures designed to improve accountability at the DHS and repair its reputation. These steps include centralizing financial decisionmaking and compliance, identifying flaws in grant-making processes and convening quarterly leadership meetings on compliance and risk mitigation strategies. The agency also has fully repaid the federal government $103 million in Medicaid overpayments to Indian tribes and counties and completed a review finding no further payment errors in 2020.

While not glamorous, the actions have drawn praise from key lawmakers and helped stabilize a department in such dire straits 18 months ago that several of its top leaders abruptly resigned. Some lawmakers were calling for the massive agency, which oversees public health insurance programs for 1.1 million Minnesotans, to be split into smaller units.

"You have to give [Harpstead] credit for hunkering down and cleaning things up," said Sen. Jim Abeler, R-Anoka, chairman of the Human Services Reform Finance and Policy Committee. "They are spending their money with more accountability."

Even so, Harpstead said the department's efforts to strengthen internal process controls — a project she has dubbed "Operation Swiss Watch" — is still in its early stages, and major challenges remain.

The Office of the Legislative Auditor, an independent, nonpartisan arm of the Legislature, is scheduled to release a report Monday with more troubling revelations of poor internal controls within the agency's behavioral health division, where many of the billing problems occurred in 2019. The audit report is expected to reveal extensive problems with the division's oversight of multimillion-dollar grants for mental health and substance use services.

Among the findings: The division's grant-making process failed to comply with a "significant number" of state policy and legal requirements, and it did not ensure that employees had the appropriate skills, knowledge and training to manage grants, according to a draft of the report shared with the Star Tribune. The division also failed to follow state rules and policies to document potential conflicts of interest.

The audit is focused on grants and payments made between July 2017 through March of last year.

"There will be significant findings" in the coming audit report, said Sen. Michelle Benson, the Republican chairwoman of the Health and Human Services Finance and Policy Committee. "The Department of Human Services has a history of not training their managers, and then expecting these managers to have a basic understanding of compliance."

Harpstead declined to discuss the auditor's findings until the report's public release but acknowledged problems within the behavioral health division.

The division was created in late 2018 through the merger of the department's substance abuse and mental health divisions and has struggled ever since with leadership churn and compliance lapses.

The behavioral health division is also unusually complex. Unlike other DHS divisions, it is largely reliant on hundreds of individual grants to fund programs rather than Medicaid payments. And staffing has not kept pace with the growing workload: The number of contracts the division oversees more than doubled over a five-year period, from 173 in 2014 to nearly 360, according to DHS data.

"With differing funding streams, contract requirements, and timelines, these grant programs are complex, difficult to manage and rife with risk," Harpstead recently wrote to employees. "Medicaid, in contrast, is complicated but cleaner in its consistency."

The depth of the division's contract-oversight problems became more apparent in the summer of 2019, when an internal whistleblower raised alarms about the legality of some of the contracts.

A Star Tribune analysis of public records later found the division broke state law more than 200 times by committing public funds without required documentation. The violations were self-reported by DHS staff. Months later, an internal audit by DHS found that contract violations were not always documented and the division did not properly evaluate potential conflicts of interest between its staff and grant recipients.

While problems remain, Harpstead said the behavioral health division has shored up many of its process controls and is rolling out new software that will reduce errors by standardizing the grant-making process. The division reduced violations for not properly documenting contracts by nearly 80% in 2020, according to agency numbers. The division's new process controls will be implemented across the department, Harpstead added.

"They are putting structures in place and that is a good first step, but the culture has to change," Benson said of the department. "Managers have to be trained and they have to be held accountable."

For her part, Harpstead has vowed to identify the causes of the problems she inherited and to persist with a "full-on commitment" to restoring trust in the department. When asked how far along the agency was in that process, Harpstead reflected for awhile and then said, "We're in the second inning of a nine-inning baseball game."

Chris Serres • 612-673-4308

Twitter: @chrisseres