Legislative auditor: DHS had ‘significant control deficiencies’ in handling homelessness, housing support grants

A newly released report is faulting the state for how it has managed homelessness and housing support grants.

The Office of the Legislative Auditor’s (OLA) report, released Wednesday, looked at the office within the Department of Human Services (DHS) that managed the grant program from July 2019 through December 2021.

Overall, it found that DHS didn’t have the proper internal controls to make sure it was complying with legal requirements and, therefore, it failed to always follow the legal requirements for managing the grants, and it had “significant control deficiencies” in how it managed the grants.

Over the past three fiscal years, the program has spent just shy of $131 million. Prior to the COVID-19 pandemic, the majority of that funding was from the state’s general fund, but the program received significant federal funding after the pandemic started. Altogether, $63 million of the money spent by the program during OLA’s review came from state funds, with the other nearly $68 million coming from federal revenue.

One of the issues highlighted by the report is how DHS documents scoring for grant applications to help determine who is selected for a grant. OLA noted DHS couldn’t always provide scoring sheets and didn’t accurately record scores from all sheets, although the department’s staff said updated scores may not have been reflected on the sheets. While it’s not clear that the issue impacted who was selected for a grant, OLA notes it could lead to money being sent to a wrong grantee without stronger controls.

Also, DHS didn’t get conflict of interest documents consistently from everyone who evaluated grant proposals.

A larger error noted by the report says DHS paid two service providers more than $73,000 at one point that the providers never asked for. Staff said they accidentally paid the provider twice but instead of getting the money back, the department let the providers spend the extra money on allowable expenditures during the next period. Another provider also received nearly $13,000 more than it asked for, which staff claimed was due to the provider saying over the phone that it forgot to note administrative costs in its request.

Another law requires the DHS to evaluate whether nongovernmental organizations are financially sound enough to achieve the purpose of the grant program if the agency is planning to give the organization at least $25,000. However, the DHS failed to do that for the vast majority of grantees, OLA says, and the department also failed to ensure grantees submitted progress reports that are required by department policy.

In regards to housing services and COVID-19 emergency grants, OLA says the DHS didn’t reconcile advance payments in an accurate and timely fashion, and the department may not have collected all unspent money as a result.

Finally, the audit states the DHS didn’t always perform closeout evaluations of grantees, which look at how the grantee complied with the provisions and outcomes that were expected, and also can look into concerns about fraud, waste or abuse of grant money. Without those evaluations, OLA says the agency may award grants to entities that shouldn’t receive them based on past performance.

On top of correcting the noted issues, OLA recommended implementing more internal controls, such as more supervisory review and instructions, to ensure the problems don’t continue in the future.

In a lengthy response to the report by DHS Commissioner Jodi Harpstead, the department blamed part of its struggles on the pandemic and related orders that forced employees to work from home.

“Our staff made some deliberate choices that prioritized getting resources out to our partners that would save lives, protect communities, and preserve our health care system’s capacity. In doing so, we
prioritized rapid, nimble processes over established processes that would have provided more documentation of our decision-making, but would have impeded our speed or capacity to respond as it was simply not possible to do it all given the urgent timeframe,” Harpstead said in part.

Harpstead also noted that improving grant and contract processes has been a key focus of the department in recent years and new systems are still being implemented. She said those systems will address many of the issues noted by OLA’s report. For the others, Harpstead said department policy is being updated to ensure better results in the future and updated staff training will also be scheduled for certain items.

After the audit was published, republican lawmakers issued a statement regarding the findings:

“Waste, fraud, and abuse have plagued DHS programs for years, and once again an audit has found that the Walz administration failed to protect taxpayer dollars. During the pandemic, DHS oversaw hundreds of millions of COVID relief dollars but they did not effectively manage grant distribution or comply with all legal requirements. Minnesotans expect DHS to be a better steward of their taxpayer dollars and once again the department fell short.”

Rep. Anne Neu Brindley (R-North Branch), the Deputy Minority Leader and Republican Lead of Preventing Homelessness Division

To view the full report and DHS’ full response, click here.