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Gov. Reynolds returns $21 million in misspent federal aid to state’s Coronavirus Relief Fund

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John Martinek/Little Village

On Monday afternoon, Gov. Kim Reynolds gave up trying to claim she could use $21 million in federal pandemic relief funds to pay for a computer system upgrade that wasn’t related to COVID-19. In a written statement, the governor’s office shared that “Governor Reynolds has directed the Iowa Department of Management to return $21 million to Iowa’s Coronavirus Relief Fund.”

The misuse of the pandemic aid first became an issue after Iowa Auditor Rob Sand sent a letter on Oct. 16 to Dave Roeder, director of the Iowa Department of Management, explaining the state couldn’t use CARES Act funds to pay for “an HR/accounting computer system intended to replace the State’s legacy mainframe system.”

The state awarded a contract to Workday, a California-based company, in October 2019 for a new cloud-based human resources and accounting computer system, well before the pandemic. The human resources component of the new system is not scheduled to be launched until summer 2021 and according to the state’s contract with Workday, the accounting component will not be ready for use until 2022.

In his letter, Sand explained the state can only use money provided by the federal government under the CARES Act if the expenses:

1. are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19);

2. were not accounted for in the budget most recently approved as of March 27, 2020 (the date of enactment of the CARES Act) for the State or government; and

3. were incurred during the period that begins on March 1, 2020, and ends on December 30, 2020.

Sands pointed out in his letter that the Office of the Inspector General of the U.S. Treasury Department agreed with his assessment.

Responding to Sand’s letter, Reynolds’ office asserted it was appropriate to tap CARES Act funds to make scheduled payments to Workday because “with Workday, the State of Iowa will be able to act quickly to assist essential government employees, giving them flexibility in a number of ways, such as requesting COVID-related hardship help, easier ways to request Family and Medical Leave Act leave types, and automate processes for donating leave, and borrowing leave.”

Five days after Sand’s letter, Reynolds told reporters she was going to send a letter to the Treasury Department’s Inspector General Office asking it to reconsider its decision.

The governor had stopped holding news conferences at that point in October, and didn’t resume holding them until after the election in November, but reporters were able to ask her about the $21 million on Oct. 21, as she was exiting a Joni Ernst campaign event.

“Well, we think it’s an allowable expense,” Reynolds said. “We’re going to talk about why we believe that. So, we’ll send that to them and ask them to respectfully review the allowance. And if not, we do it another path.”

In her statement on Monday, Reynolds still said she believed the payment to Workday should be considered valid, and suggested the Treasury Department had misled her or hadn’t been sufficiently clear on the matter.

“Following multiple conversations with the Treasury Department last spring, we believed we had assurances that the upgrade to Workday qualified as an allowable expense,” the governor said in her statement. “We would not have moved forward without those assurances.”

Reynolds allocated the federal funds to pay Workday after the Appropriations Committee of the Iowa House of Representatives rejected the governor’s request to use $21 million in gambling revenue to make payments on the computer contract. The Republican-led committee turned down Reynolds’ request due to a sharp decline in such revenue after the state’s casinos were closed because of COVID-19.

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“After the Legislature declined to fund the Workday contract, the governor’s office indicated they would find the money another place [in the state budget],” State Rep. Chris Hall, a Democrat from Sioux City, told Iowa Capital Dispatch. “Instead, they found it in the CARES Act.”

The Reynolds administration awarded Workday a $50 million no-bid contract for the new computer system in 2019 using an unusual procedure that allowed it to circumvent the state’s normal contracting process.

Instead of putting the contract out for competitive bidding, the Reynolds administration awarded the contract to Workday through a procurement company based in Texas.

Workday had “little state government experience” when it was awarded the contract, the Gazette found in a review of the process published in March. It did, however, have a connection to the Reynolds administration.

“Workday got this multimillion dollar deal after Jake Ketzner, Reynolds’ chief of staff for more than a year, left her office and became a lobbyist for the company,” the Gazette’s Erin Jordan reported in February.

A spokesperson for Workday said Ketzner played no role in the company getting its contract with the Reynolds administration. The Reynolds administration issued a similar statement.

“Replacing the State’s outdated IT systems remains a critical need, and has received overwhelming bi-partisan support from the Legislature and elected officials,” according to the statement issued by the governor’s office on Monday. “As such, the Workday implementation will continue as planned. The estimated costs and timelines of the project have not changed. Supplemental funding will be needed to support the completion.”

The state still has $47.3 million in CARES Act funds, including the $21 million returned on Monday. The money must be spent before the end of the month, and according to the governor’s office, it will.


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