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An internal audit at the Minnesota Department of Human Services has found several violations of laws designed to prevent fraud, waste and abuse in the branch responsible for a recent series of improper payments.

The agency’s behavioral health division, which was responsible for $29 million in overpayments to two Indian bands and $70 million in improper payments to chemical dependency providers, skirted state laws on contracting and conflicts of interest, according to the report, which was released Tuesday.

None of the violations involved multimillion dollar payment errors, but most revealed failures to follow rules designed to prevent bigger problems from happening. The audit was conducted in response to several complaints lodged internally. Agency auditors substantiated five of the nine alleged violations.

“We want people to see that we are listening and we are taking action,” Human Services Commissioner Jodi Harpstead said in an interview Tuesday. “I am grateful to anyone who came forward to report things.”

State Sen. Michelle Benson, R-Ham Lake, chairwoman of the health and human services finance and policy committee, said the report pointed to the need for a broader, “organizational transformation” at the DHS, which she said could take years.

“This is like the tennis shoe-buying stage of running a marathon,” Benson said of the report. “It’s going to take a long time, and it will take dedication, to make sure things are put in the right order.”

The audit appeared to substantiate some concerns raised by an internal whistleblower about the division prior to the investigation.

Last July, Faye K. Bernstein, an attorney and lead contract specialist at the DHS, alleged she was retaliated against and eventually prevented from doing her job after she raised alarms about contracting practices. A short time later, she was escorted out of the central DHS office in St. Paul after she wrote an e-mail encouraging division employees to speak out about problems. Bernstein was allowed to return to the building but she alleged that she was sidelined to the point where she was no longer able to do her job.

Bernstein told the Star Tribune on Tuesday that she took a leave of absence and has since been reassigned to another DHS division.

State Rep. Mary Franson, R-Alexandria, said the audit appeared to vindicate Bernstein. “This [audit] is a reminder that whistleblowers need to be taken seriously and not be ostracized and made to feel like they can’t work in that environment,” Franson said. “It’s better to take these allegations seriously … than wait and let them blow up later.”

Among the findings, the auditor determined that the behavioral health division, which has about 110 employees and funds about $350 million annually for chemical dependency and mental health services, essentially created its own separate procedures for reporting conflicts of interest and for monitoring contracting. Even so, the auditors found that the division failed to follow its own rules, let alone the broader state laws and regulations.

The division stands out among DHS units for the number of contract violations it incurred, as first reported by the Star Tribune in November.

Last August, division officials told the DHS finance office that they would improve contract compliance. But the number of violations actually increased by approximately 200% between state fiscal years 2018 and 2019, the auditor noted. Only nine division employees completed recent training on contracts — none of them a director, manager or supervisor within the division.

CFO departs

In a separate development Tuesday, Alexandra Kotze announced her resignation after serving six years as the agency’s top finance officer. She will fill the same position for Ramsey County beginning in March.

It was Kotze who warned division employees, “We broke the law,” after one of the contracting violations was revealed last year. She has since been working with the division to improve its performance.

The auditor also found that “several conflicts of interest may exist between [division] staff, vendors and third-party businesses outside of DHS.” The report did not name the employees involved, but said those issues were referred to the agency’s human resources department for investigation.

Additionally, “multiple” division employees billed DHS for work they performed independently, “yet none of these employees submitted a signed conflict of interest form to the DHS ethics officer,” the report said.

The division created its own reporting form, which bypassed the agency’s ethics officer completely, creating “confusion” and “inconsistent and ineffective oversight over conflict of interest issues.”

The agency’s ethics officer needs more tools to oversee the myriad conflict-of-interest issues across the department, the auditor said, and to spend less time tracking problems and “more time addressing them.”

The Minnesota Legislative Auditor is investigating a different conflict-of-interest issue from the previous administration, when the former assistant commissioner for health care signed contracts with an outside organization while he sat on its board of directors. A report is expected within the next few weeks.

The DHS auditor proposed that the agency tighten controls in several areas. Harpstead she will implement the recommendations “immediately.”

State Sen. Jim Abeler, R-Anoka, chairman of the human services reform finance and policy committee, said the highly detailed report appears to signal a new openness at the giant state agency.

“It’s clear that [Harpstead] realizes that the only way out of their current troubles is to grab the bull by the horns and dig into each of their problems,” Abeler said.

Although several division employees failed to follow procedures at the time, Harpstead said her focus will be on compliance going forward.

“I am much more interested in being tough in the process and being supportive of our employees,” she said. “We are certainly going to implement new processes and controls in the department and make sure they are followed.”

Glenn Howatt • 612-673-7192 Twitter: @GlennHowatt Chris Serres • 612-673-4308 Twitter: @ChrisSerres