Nearly every state agency in Minnesota “violated” state contract and spending laws over the past year, according to data released Wednesday.
The violations total nearly 1,800 and include all but one state agency.
But wait. This has been going on for at least a decade, the data show, with agencies from the Department of Human Services to the Department of Employment and Economic Development self-reporting hundreds of violations annually under laws designed to safeguard taxpayer funds from being misspent.
So … this is either a travesty of governance, or … something else.
On Wednesday, a panel of lawmakers struggled to understand the matter, which emanates from the deep weeds of state accounting procedures and is filled with nuance and the trappings of government bureaucracy.
An important point: Several public officials have said that no public funds were misspent and no fraud was committed in connection with this issue. Instead, they have described “technical violations” that were actually examples of the system working, although they acknowledge the number is high.
Here’s what’s going on:
WHAT’S THE NEWS?
On Wednesday, the state Senate Finance Committee held a hearing that was initially intended to look into how the Department of Human Services appears to have violated state contracting and procurement processes.
The issue has captured the attention of some lawmakers, especially Republicans, given the sheer volume of the violations. You could count as many as 200 in the past year, depending on how you count. It was all the more attention-grabbing because DHS has been under intense scrutiny for months for a variety of problems.
Shortly before the hearing, new data was released showing how widespread the violations were — and how they’ve been happening for years.
Some agencies logged hundreds of such violations — which are recorded through written reports — while others had just a handful. Agencies fill out violation forms in cases when vendors or grantees start work before contracts were signed, or when employees commit to spend money on products and services without permission
The agencies with the most violations from November 2018 to November 2019 include:
- Department of Employment and Economic Development: 584
- Department of Health: 222
- Department of Human Services: 219
- Department of Corrections: 114
- Department of Public Safety: 91
- Minnesota IT Services: 86
- Department of Administration: 76
- Department of Transportation: 74
Sen. Julie Rosen, R-Vernon Center, who chairs the committee, said the revelation threatened to turn the hearing “upside down.”
FUNDS AT RISK?
Rosen and several other Republicans questioned whether the violations could put taxpayer funds at risk, but state officials explained that the reports actually prevent any money from being spent until the violation is corrected.
These violations are reported via a pair of state laws. One, from 1994, requires a “violation report” to be generated when contractors or grantees start work before a contract or grant agreement has been fully signed. The other, from 1973, requires the same violation report if a state worker agrees to make a purchase — not actually making the purchase, but committing to — before filling out the proper forms.
To actually send money out the door would be “illegal” under the laws, but to commit to the spending, or allow contract work to start before the contract is fully authorized, merely requires the violation report — an acknowledgment that things are happening out of order. In every case, officials say, those violation reports triggered things to be done in the right order, and money was ultimately spent properly.
“I think it is a mischaracterization to say (the contract violations are) anything other than technical violations,” Minnesota Management and Budget Commissioner Myron Frans told the Pioneer Press, adding that “the only illegal action is by making a payment in violation of the statute.”
WHY SO MANY VIOLATIONS?
The lion’s share of the violation reports — 1,342 — involve relative small amounts of funds and often involve such things as this: A state worker registers for a seminar (and thus commits to spending state funds) with their supervisor’s approval but without filling out the proper paperwork to spend the money.
DHS Chief Financial Officer Alex Kotze told lawmakers that scenario is the result of ignorance of the process, and nothing more. “They were trying to follow the rules, they were trying to follow the process,” she said. “No one was trying to do anything wrong. … They didn’t understand the process.”
Nonetheless, Frans, Kotze and others acknowledged that having so many violations of process shouldn’t be business-as-usual — even though that’s exactly what it appears to have become in some instances.
For example, a number of the violations generated by the Department of Employment and Economic Development stem from a summer youth grant program that involves federal funds. The federal funds invariably arrive late in the summer, but the money is needed at the start of the summer. To stick to the letter of the law, officials would have to delay the grants, which would mean the beneficiaries — the youth — would be back in school, and the whole thing would be a waste.
So instead, DEED officials allow the program to proceed, knowing that it will generate a violation report for each recipient.
Ongoing situations like that might be understandable, but there’s gotta be a better way, officials said.
“Clearly, there’s an opportunity for additional improvements,” said Eric Hallstrom, deputy commissioner for Minnesota Management and Budget, which oversees the state’s finances.
Hallstrom, Frans and Department of Administration Commissioner Alice Roberts-Davis told lawmakers that they plan to analyze the violation reports in hopes of avoiding the year-in, year-out violations of the process. It’s possible they’ll recommend changes to state laws, they said.