The Minnesota Management and Budget department has failed to implement a required program that would reward state employees for cost-saving ideas, an auditor's review found.

The Office of the Legislative Auditor (OLA) released a report Thursday saying the department needs to add a mandated "gainsharing" program. But Management and Budget officials called such a program unworkable.

Legislators passed a law in 2011 requiring the department to start a program that would give employees who identify ways to cut costs a one-time financial award of up to 10 percent of the first year's savings, with a $50,000 cap. The Management and Budget department had "unresolved questions" about how to implement such a program and instead opted to give staff achievement awards for outstanding performance, according to the review from Legislative Auditor Jim Nobles' office.

Over the past six years, agencies gave out more than $11 million in employee bonuses through the achievement awards program, the review found. The awards program, which started in 2012, complied with state statute, Minnesota Management and Budget Commissioner Myron Frans wrote in a letter to Nobles. The awards were given to employees who, among other things, reduced state government operating costs or found ways to provide more efficient services, he said.

Frans acknowledged some legislators would have preferred the model that shared profits with employees, but noted his department has "significant, continued, and well-documented concerns" with gainsharing. The implementation, cost and internal controls for would be problematic and other states have ended similar programs, Frans wrote, and Minnesota should learn from their mistakes.

Despite those concerns, the law's mandate is clear and Management and Budget staff must comply, said Joel Alter, director of special reviews for the legislative auditor. The department has the authority to create the achievement awards. But that doesn't satisfy the requirement for a gainsharing program, which must be based on documented cost savings, he said.

"We believe the OLA's interpretation ... is wrong," Frans said. "Supreme Court case law supports our position that we fully complied with the law."

The likely next step would be for legislators to try to hold the department accountable by asking them about the program at a hearing, Alter said.

Rep. Jim Nash, vice chairman of the State Government Finance Committee, said he feels Management and Budget officials have had a "cavalier" attitude about the requirement.

"One of the most troubling pieces is they are openly not abiding by a law," Nash, R-Waconia, said. "If it's in statute, you should abide by it."

The department must provide a biannual report to the Legislature on the program, and Nash said he is waiting to see what's in the next report. He said the department should either be implementing the gainsharing program to "the letter of the law, or let's get rid of it."