Auditor: Reynolds administration has misused at least $21 million in federal funds meant for COVID-19 programs

John Martinek/Little Village

The Reynolds administration has misused at least $21 million in federal funds meant to help pay for expenses related to COVID-19, according to Iowa State Auditor Rob Sand. In a letter to Dave Roederer, director of the Iowa Department of Management, dated Oct. 16, Sand said the Office of the Inspector General of the U.S. Treasury Department agreed with his assessment.

The money in question came from Coronavirus Relief Fund (CRF), and was provided to the state by the federal government as part of the Coronavirus Aid, Relief, and Economic Security Act, better known as the CARES Act.

Sand said in his letter that as part of his duty to audit the Department of Management and the governor’s office, he reviewed two of the uses CRF funds that Gov. Kim Reynolds has approved.

The first, the use of $21 million to pay California-based Workday for “an HR/accounting computer system intended to replace the State’s legacy mainframe system,” was clearly inappropriate according to Sand. Also questionable is the $448,449 in CRF funds used by the governor to pay part of the salaries of members of her staff, according to Sand.

The state will have to repay the federal government for an improper or not properly documented use of CARES funds at the end of the calendar year.

In his letter, Sand explained the state can only use CRF money 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.

The state awarded a contract to Workday in October 2019 for the 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.

The governor’s office told Sand the use of CFR money to make scheduled payments to Workday was appropriate 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.”

Sand rejected that argument, pointing out the contract was concluded before anyone knew COVID-19 existed, and therefore the costs associated with it are not “due to the public health emergency.”

“Spending $21M on Workday is not an appropriate use of CRF funds,” Sand wrote. “If the Governor does not redeploy these dollars to a lawful use, they will have to be repaid to the federal government. That will result in a $21M loss for Iowa taxpayers.”

Sand also questioned $448,449 in CRF money the governor has used to pay part of the salaries of 21 members of her staff. CARES Act dollars can only be used to pay salaries when their work is “substantially dedicated to mitigating or responding to the COVID-19 public health emergency.” If the governor cannot provide clear documentation that money was used in accordance with federal regulations before the end of the year, the state will have to repay it to the federal government.

In his letter, Sand said “this Office recommends re-deploying those funds.”

The Small Business Relief Grant Fund is one example of an appropriate redeployment; purchasing PPE for essential workers, expanding testing and/or contact tracing efforts, and increasing staffing at the State Hygienic Lab to process COVID-19 tests more are others to consider as ways to redeploy the $448,449.00 prior to the close of the calendar year.

Roederer is referring requests for comment on Sand’s letter to the governor’s office. The governor’s office has not yet replied to requests for comment.

State Sen. Claire Celsi, a Democrat from West Des Moines, did issue a statement.

“Instead of directing more money to testing and contact tracing, paid sick leave for essential workers, food assistance, child care subsidies, additional money for rent assistance, unemployment insurance, utility assistance, providing (personal protective equipment) to health care workers and educators, and to help schools prepare for the winter season — and myriad of other uses — Gov. Reynolds is using the CARES Act money as a means to fund pet projects and make Iowa’s budget appear flush with excess fund.”

In March, Celsi, along with her fellow Democrat Sen. Tony Bisignano, requested the Iowa Senate Government Oversight Committee review the $50 million no-bid contract awarded to Workday. The request came following an investigation by the Gazette that revealed the Reynolds administration used a procurement organization in Texas to avoid the normal competitive bidding process when it awarded the contract to Workday.

Workday had “little state government experience” when it was awarded the contract, the Gazette found. 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.

Government Oversight Committee Chair Sen. Amy Sinclair, a Republican from Allerton, rejected Celsi and Bisignano’s request one day after receiving it.

The Workday contract is not the most prominent no-bid contract issued by the Reynolds administration that the Republican-led committee has declined to review. The committee has also turned down requests from Democrats to examine how the $26 million no-bid contract that created Test Iowa was awarded to Utah-based tech companies that had less than a month of experience in running a large-scale testing program.

In July, Auditor Sand issued a report stating Test Iowa’s system for reporting test results violated Iowa law, because the test results are sent to two of the Utah-based companies who then provide the data to the Iowa Department of Public Health. Sand said state law requires the data be provided directly to IDPH.

IDPH and the Iowa Attorney General’s Office disagreed with Sand’s assessment, saying the system in place was the equivalent of directly reporting the data to IDPH, and the reporting system has not been changed.

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