Minnesota COVID-19 grants invited fraud, but none found, audit finds

An audit of $200 million in grants awarded to health care providers during the COVID-19 pandemic found weaknesses in Minnesota’s processes but found no waste or fraud.

The Office of the Legislative Auditor’s report released Wednesday shows the Minnesota Department of Health generally had adequate controls over grants.

But the agency did not consistently document conflict-of-interest disclosures, how it assessed grant applications or how it complied with state requirements, auditors found. And health officials have not always recovered unspent funds from grant recipients.

Minnesota Health Commissioner Jan Malcolm said she disagreed with some of the findings and her agency has addressed other issues found by auditors.

“Today’s report from the Office of the Legislative Auditor finds no evidence that grant dollars were misspent, misallocated, wasted or unaccounted for during the early stages of the pandemic, and confirms that the department has adequate internal controls,” Malcolm said in an emailed statement.

As uncertainty swirled around the pandemic in March 2020, state lawmakers gave the health department $200 million. The first $50 million was earmarked for health care providers to prepare for and respond to the pandemic. The remaining $150 million could be used to set up testing sites or treatment beds, pay staff overtime or hire new staff and provide personal protective equipment.

Health officials have awarded 1,314 grants, Malcolm said. The biggest prizes went to the biggest hospitals in the state. Hennepin Healthcare and Fairview Health Services received the most, $14.5 million. Fourteen health systems received at least $1 million each, according to state data.

The health department assigned 35 staff members to review grant applications and recommend awards, but failed to meet state requirements and document conflict-of-interest disclosures from individuals. , the audit revealed.

“Failure to meet conflict of interest requirements leaves the state open to potential fraud and waste,” the auditors said. “Grant reviewers may assess grant applications in a biased manner and may award grants to applicants who are not in the best position to serve the interests of the state.”

Malcolm countered that his agency received conflict of interest information from individuals, but did not keep electronic records of it. This has been corrected, she said in her response to the audit.

Auditors sampled 60 grants awarded during the pandemic. In four of them, the health department did not document its recommendations or justification for the prices, which totaled $550,000, auditors said.

Malcom disagreed. Health officials used multiple layers of scrutiny in an “ever-changing environment of the pandemic,” she said. The department could have documented the decisions more clearly, she said.

For three of 60 grants reviewed, the state had not collected unspent funds from grant recipients more than a year after they expired, auditors said. The unspent money was $336,000. Malcolm said a review is underway and the state will return all outstanding payments to collections by Oct. 31.

The audit is the latest to challenge the oversight and decisions of state agencies during the pandemic. This month, auditors found that the Department of Social Services lacked internal controls over housing and homelessness subsidies and did not always comply with legal requirements.

James V. Hayes