Auditors report ‘pervasive noncompliance’ with grant management policies at MDE, DPS

A new report says, in recent years, some state agencies have failed repeatedly to comply with many grant management policies and the state has systemic issues with oversight of grants.

Thursday morning, the Office of the Legislative Auditor released the findings of its evaluation of how Minnesota manages state-funded grants and raised some serious concerns.

State lawmakers on the Legislative Audit Commission directed OLA last March to look into how the Minnesota Department of Education (MDE) and Minnesota Department of Public Safety’s (DPS) Office of Justice Programs have complied with grant management policies. That direction was in light of several 5 EYEWITNESS NEWS reports about Feeding Our Future, which raised concerns in some lawmakers about state agencies’ oversight of nonprofits getting government funding.

Six months later, the U.S. Attorney’s Office charged dozens of people in connection to a $250 million fraud scheme linked to Feeding Our Future, which led to more calls for investigations into the departments, particularly from Republican lawmakers. However, the auditors’ direction wasn’t to look into the specific Feeding Our Future grants but rather overall grant management.

OLA looked at the departments’ grant-management procedures and how well they followed Minnesota Office of Grants Management (OGM) policies, but the auditors also looked at how comprehensive OGM’s policies are compared to other states and national organizations.

The review, which was conducted from last April into the start of this year and looked at grants in fiscal years 2020-21, found that OGM does have some effective policies but MDE doesn’t comply with all of them. Additionally, OLA determined that many OGM policies “lack sufficient detail for state agencies on how to best implement them,” so while DPS largely complied with OGM policies, the auditors found ways to improve grant management procedures in that department, too.

“OGM policies are only effective if state agencies implement them,” OLA said in its report.

The auditors recommended MDE create agency-specific grant-management procedures to provide more specific direction to grant managers and ensure they comply with all OGM policies. For DPS, they urged leaders to revise and formalize grant-management procedures to include greater specificity and direction and ensure grant managers fully comply with all OGM policies.

The report also noted that several factors can affect an agency’s ability to comply with OGM’s policies. One of those is accountability, and the auditors say state statutes currently provide little authority for anyone to make sure state agencies comply with OGM requirements or force fixes during noncompliance. Because of that, the office recommended lawmakers update the statutes to allow for increased oversight of grant management.

Additionally, OLA noted that Minnesota doesn’t have a comprehensive, statewide repository for data on state-funded grants that would allow lawmakers or others to look at how well state agencies manage grants. The auditors recommended lawmakers have the Minnesota Department of Administration (MDA) look into changing that and have OGM develop a required grant-management training program for state agency staff, as training is currently only provided for one of OGM’s 13 policies.

The commissioners for MDE, DPS and MDA all sent letters to OLA in response to the auditors’ report, agreeing with some of the issues raised while disagreeing with others.

MDA Commissioner Alice Roberts-Davis agreed with OLA’s recommendations for state lawmakers to update statutes to increase external monitoring of grants management and have MDA create a training program that agency staff would be required to complete. She also agreed that lawmakers should have MDA come up with recommendations for improving access to comprehensive statewide data on state-funded grants, although said several other stakeholders besides MDA would be needed.

Roberts-Davis also only partially agreed that OGM should strengthen its grant-management policies and offer more specific guidance on their implementation, stating, “We believe that the OGM policies are sufficient in requiring the necessary internal controls to prevent fraud, waste, and abuse,” adding that the current policies “set forth an important balance between establishing best practices, while broadly accommodating the variety of grants administered by state agencies.” However, she agreed that more specific guidance and clarity for agencies would be good.

MDE Commissioner Willie Jett II said his department has already started working on a couple of OLA’s recommendations to ensure staff is better trained and given more specific direction, adding that “all grant managers at MDE will be required to successfully complete these (training) courses.” Additionally, Jett said, “MDE is reviewing and updating its grants standards of work with the grants staff to ensure MDE’s agency specific policies align with OGM policies,” and the department will then create a new grants management manual for grant managers with more clearly defined responsibilities.

Also, Jett said the department is working with Minnesota IT Services to develop a new grants management system that can help ensure MDE meets its state and federal requirements. The first phase of that new system is expected to be ready in May.

Finally, DPS Deputy Commissioner Cassandra O’Hern called it “reassuring” that OLA found the department largely complied with OGM policies and said, “DPS will work with OGM to develop stronger policies and practices to improve and strengthen our policies, and provide necessary training to support our grants staff to ensure compliance with all OGM policies.” O’Hern said her department is “confident that we can address the two DPS recommendations in the next few months.”

While the Legislative Audit Commission’s hearing of the report Thursday night was canceled and there currently aren’t any plans to reschedule it, according to OLA, some of the auditors are scheduled to discuss the report with the Senate’s Education Policy Committee next week and other committee hearings are possible.

Rep. Ginny Klevorn, DFL-Plymouth, who chairs the House State and Local Government Finance and Policy Committee, said in a statement that public grants require “strong systems” to “ensure the proper use of resources” and acknowledged MDE’s shortcomings in following grant-making policies.

“It’s important to note, over the last four years, MDE, DPS and OGM have requested additional resources to ensure effective grant management. Unfortunately, under our divided legislature, those dollars were not forthcoming,” Klevorn added. “Prior to the release of the report, OGM requested funding for a study to evaluate the viability of implementing a single grants management system for executive agencies: technology options, organizational & operational controls, resources, and costs for implementation roadmap. House DFLers are committed to delivering these needed resources.”

Republican House Minority Leader Lisa Demuth highlighted OLA’s findings and blamed DFL lawmakers for not taking them seriously.

“For too long, Governor Walz and the Democrats have tried to downplay or outright dismiss Minnesotans’ concerns about fraud within the nonprofit sector. However, this latest report from OLA shows Minnesotans are justified in that concern, particularly within the Minnesota Department of Education,” Demuth said in a statement. “The report reveals glaring and disturbing holes in MDE’s grant management process, including pervasive noncompliance with even the most basic accountability measures. This is completely unacceptable, and we should be taking swift bipartisan action to implement the recommendations from OLA and consider what else we can do to ensure there is accountability within our state agencies.

“To be clear, this is not an indictment of nonprofits—the vast majority of which are upstanding and generously serve our communities,” Demuth added. “This is an indictment of the state agencies that are failing to implement even the most basic processes to ensure state funds are getting to the people they are intended to help.”

To read OLA’s full report, click here.