The Minnesota Department of Human Services (DHS) violated state law more than 200 times over the past year with $52 million in contracts and grant commitments to vendors, Indian bands and other state government agencies without proper documentation, according to records obtained by the Star Tribune.
In some cases, agency employees allowed vendors and grantees to perform work or services as if they were being paid by the state, even though contracts and agreements had not been finalized and signed. In other cases, employees bought products, such as software, without required permission.
DHS officials said Tuesday that the agency has backstops that prevent money from actually going out the door in these situations, but several legislators contend the violations put the agency at risk for misuse of taxpayer dollars and weaken the agency's leverage in ongoing negotiations with vendors.
"We broke the law," DHS Chief Financial Officer Alexandra Kotze wrote in an April e-mail, responding to one internal report that detailed more than $300,000 in violations. "We need to be able to explain internally and to the [Department of Administration] how we will prevent this in the future."
Taken together, the records suggest a pattern of financial mismanagement that reaches well beyond the handful of high-profile cases involving opioid treatment overpayments to Minnesota Indian bands and that has occurred at multiple divisions and functions across the sprawling agency.
"We shouldn't have 200 of these [violations] sitting here at this point in the year," Deputy DHS Commissioner Chuck Johnson said in an interview Tuesday.
"We have a lot of room for improvement and a lot of work to do in order to live up to our trustworthy reputation."
In a report released last week, Minnesota Legislative Auditor James Nobles said the known cases of overpayments to the tribal bands "indicate a level of mismanagement and dysfunction within DHS that is extremely troubling."
An official in Nobles' office said state law "encourages" employees to report some violations to the legislative auditor but said his office has not received any reports from DHS.
Deputy Legislative Auditor Christopher Buse said his office would expect such reporting in cases where law violations are widespread — "and this certainly looks to be widespread," he said.
"We would want to know about a situation where a state law had been violated 200 times so we can go out and do our investigation," Buse said.
The Star Tribune reviewed more than 400 pages of documents, obtained under a public records request, that detail contract violations that were self-reported by DHS staff.
State law requires employees of all agencies to file a report when funds are committed in violation of statutory requirements.
Johnson said the violations sometimes occur in cases in which the services are critical for the health and safety of vulnerable populations, or when agency staff underestimate how long it would take to complete a contract.
"We don't like to see this happen," Johnson said. "The exceptions should be rare, and they're not as rare as they should be."
More than half the violations involve contracts that are for less than $100,000, agency officials noted, and about one-third are for less than $1,000.
The largest number of violations were reported by the agency's troubled Behavioral Health Division, which funds mental health and chemical dependency treatment.
That division was responsible for $48 million in previously reported improper payments to addiction treatment centers and the $29 million in overpayments to two Indian bands.
Altogether, the Behavioral Health Division reported 30% of all violations disclosed to top DHS administrators this year. Its 63 violations involved grants and contracts totaling $16 million, including 27 separate grants for Indian bands.
In explaining commitments made to the bands, one division employee wrote in August that the requirement to obtain signed agreements "is cumbersome and time-consuming."
In a different series of grants that were committed without signed agreements, a program officer deflected blame to the division's contracts employees, complaining that contract staff "declines to work" on a series of amendments and that the contracts team "unilaterally implements unprecedented" new requirements.
At some point the division decided to ask the agencies that received the money to stand down before the agreements were signed, but no action was taken due to bureaucratic chaos within the division.
The program officer wrote in the violation report: " 'Cease work' letters are not delivered due to confusion over expectations to continue serving the population."
Those 11 grants were for agencies that help women recover from addiction.
Asked about the Star Tribune's findings, Rep. Nick Zerwas, R-Elk River, said the number and scope of contract violations is "absolutely startling" and reflects a breakdown in internal controls at the agency.
"DHS is putting tens of millions of taxpayer dollars at risk with no leverage to ensure the contracts are being fulfilled," Zerwas said. "There is no accountability."
Zerwas said the many violations underscore the need for an independent forensic audit of all the programs at the DHS, the state's largest agency, with a $17.5 billion biennial budget.
Faye K. Bernstein, a DHS whistleblower and compliance officer in the Behavioral Health Division, said she became alarmed by the contract violations early this year when she noticed money being dispersed without the necessary signatures. Bernstein said she could not find a compelling rationale for why so many violations were occurring except in emergency situations.
"There was just this longstanding nonchalance in the division," said Bernstein, who has previously raised concerns publicly about DHS contracts. "Everyone knew the behavioral health division was the worst violator. It was a real black eye on leadership and indicated they were not taking the problem seriously."
Kotze said in an interview that she has been working with Behavioral Health, at their request, to prevent contract violations.
She also has been working to raise awareness about the importance of complying with the contract law within the DHS through more internal training and better communication. "I'm hopeful we're turning the curve. I just don't think we've turned the curve yet," Kotze said.