Idaho state lawmakers on the Legislature’s powerful budget committee are mulling how they’ll respond to an audit that found flaws in how the state health department distributed $72 million in federal grant funds.
The Legislature’s budget committee, the Joint Finance-Appropriations Committee, is meeting for three days this week to review budget requests by state agencies and prepare for the 2024 legislative session. The panel of 20 state legislators on Wednesday heard a report on the audit that found that a lack of internal controls in how the Idaho Department of Health and Welfare administered federal child care grant funds that the audit said led to money being spent on ineligible purposes and ineligible groups.
The Department of Health and Welfare disagreed with all of the audit’s findings. The state health department will not be submitting a corrective action plan in response to the audit, Department of Health and Welfare Director Dave Jeppesen told the Legislative Services Office in an email Nov. 2.
“The department has already provided our response on the recent (Legislative Services Office) accountability report and corrective action plans. As you know, the department respectfully disagreed with all of the findings and thus did not provide and does not plan to provide a corrective action plan,” Jeppesen wrote in the email.
Health department’s response ‘calls into question’ budget committee’s ability to fund the agency
Budget committee co-chair Rep. Wendy Horman, an Idaho Falls Republican, read Jeppesen’s email to the committee.
“This response calls into question our ability to authorize funds for the agency. So we need to see some evidence that there are plans and fiscal controls in place,” Horman said.
Horman said JFAC will likely need to hold oversight hearings in the future.
The budget committee’s responsibility is to appropriate funds and “make sure those funds are appropriately spent,” said Sen. C. Scott Grow, the committee’s co-chair, a Republican from Eagle.
“We expect agencies to comply with statute,” Grow said.
Two processes following up the audit are happening now, Grow said, pointing to the legal review in the Attorney General’s investigation into the funds and the possible fiscal response.
“The other piece we have is, if we have a statute that says that the monies should be spent on ‘A’ and it was spent elsewhere, then we have the responsibility and the opportunity to decide what action to take from a financial standpoint, not from a legal standpoint, to determine appropriation,” Grow said.
State legislation in 2021 and 2022 that authorized the funds said that the funds should go toward children ages 5-13 years old for “in-person educational and enrichment activities.”
All agencies undergo an audit every three years, or as directed by the Joint Finance-Appropriations Committee or Legislative Council, said April Renfro, who led the Legislative Services Office’s audit.
This audit’s findings were serious enough to refer to the Idaho Attorney General’s Office for misuse of public funds, the audit found. Audits by the Legislative Services Office, the research arm of the Idaho Legislature, “very rarely” get referred to the Idaho Attorney General’s Office, said Renfro, who also said the team of auditors spent more than 1,000 hours working on the report.
A state health department spokesperson previously told the Idaho Capital Sun that the state health department “awaits next steps with confidence knowing the grants were distributed legally, as affirmed by the Attorney General’s Office.”
Two legal memos from the Attorney General’s Office in November 2022 and January 2023 said the health department’s distribution of the grants were legally sound. But the Attorney General’s Office withdrew those opinions in March, saying that they were legally inaccurate.
The author of those opinions, a since-fired deputy attorney general, disagreed that they were inaccurate but withdrew the opinions. That attorney recently sued the Idaho Attorney General’s Office for retaliation.
Civil investigative demands withdrawn
Meanwhile, the civil investigative demands as a part of the investigation into the grants brought by Idaho Attorney General Raúl Labrador against the Department of Health and Welfare were withdrawn by a special prosecutor, health department spokesperson AJ McWhorter told the Idaho Capital Sun on Wednesday.
The civil investigative demands were orders similar to subpoenas that sought information related to the state health department’s administration of tens of millions of dollars in grants meant for helping school-aged children recover from pandemic-era learning loss as part of the Community Partner Grant Program.
The demands, served to top agency officials, asked for records on the program and information about former and current state health department employees that worked on the program, including about charitable organizations they work for, volunteer for or donate to.
“The department long maintained the (civil investigative demands) were legally invalid and an unnecessary expense to the public. That is why the department filed the petition asking the court to set them aside. Thus, the department is pleased with the special prosecutor’s decision to withdraw the (demands) and hopeful no further court proceedings are required,” McWhorter said.
What’s the legal response to Health and Welfare’s distribution of child care funds?
Labrador is investigating tens of millions in child care grants distributed by the Idaho Department of Health and Welfare. The Idaho Legislature appropriated $36 million to Health and Welfare in 2021 and 2022 each through legislation that directed the funds be used for community partner grants that address the pandemic’s impacts on school-aged children, including learning loss.
The bills specified that the grants should be used for school-aged children 5-13 years old, “as allowable by federal guidance.” The bills, setting caps on how much organizations could receive, required funds be used for in-person activities only and “for providing behavioral health supports to address student needs.”
Horman told the Capital Sun that the bills were specifically written to exclude pre-schoolers after the Legislature rejected $6 million in funds for child care programming.
“We knew that if we were to bring back a bill that would go to preschool providers, we likely could not get it on the floor either,” Horman said.
Labrador faces three lawsuits over his demands for information from senior Health and Welfare department officials, an ex-department official and 36 organizations that received the grants.
Labrador, by Idaho law, is required to represent the state health department and other state agencies. But since the former congressman took over as the state’s top attorney in January, he has engaged in high profile legal clashes with some of the state’s largest agencies — including the state health department in this case and the State Board of Education, which his office sued alleging open meeting law violations with the University of Idaho’s attempted acquisition of University of Phoenix.
The civil investigative demand for Jeppesen, director of the Idaho Department of Health and Welfare, called for records on the program, including work logs, advertisements, photos, drafts, text and instant messages. It also asked for information about former and current state health department employees that worked on the program, including about charitable organizations they work for, volunteer for or donate to.
“I am committed to transparency about all aspects of the Community Grant Program. However, the inappropriate (civil investigative demands) process being used along with the demand for sensitive information on specific employees raises serious legal concerns about both the Attorney General’s authority to demand these records and the conflict created when an attorney investigates his own client,” Jeppesen said in an email in March to staff, which was obtained by the Idaho Capital Sun.
In a separate lawsuit, Ada County Judge Lynn Norton on June 21 partially blocked Labrador from enforcing civil investigative demands against 20 of 36 suing organizations. The judge ordered they be redrafted to include limited information, such as program applications, receipts, invoices, staff payroll information, status reports and a written record of spending for their grant receipts. The demands initially also asked for a list of charitable organizations people who worked on the program donate to or are a part of.
That lawsuit has been accepted on appeal to the Idaho Supreme Court.
How did we get here?
May 2021: After a bill authorizing $6 million in to support early childhood education failed in the Legislature, Idaho legislators passed a new bill to funnel $36 million in federal funds to help school-aged children recover from learning loss to the Department of Health and Welfare.
March 2022: The Legislature again approves $36 million in funds for helping school-aged children recover from learning loss. Horman told the Capital Sun the bills were specifically written to exclude pre-schoolers after the Legislature rejected $6 million in funds for child care programming.
October 2022: John Foster, a lobbyist with Kestrel West, filed a records request for documents related to the program. He also later alleged that a state health department employee had a conflict of interest with the program. That’s according to a lawsuit filed in March 2023 by state health department director Dave Jeppesen and two other state health department employees against Attorney General Raúl Labrador, seeking to set aside his civil investigative demands. Foster, over the coming months, “generally expressed his concerns that” the state health department “had approved some grant funds to entities that served children aged 1-4.” Foster “raised the first concern about the Community Grant Program during the fall of 2022,” the lawsuit said.
January 2023: The Idaho Attorney General’s Office publishes a second legal opinion, following up on one issued in November 2022, that said the health department’s distribution of the grants were legally sound. But the Attorney General’s Office withdrew those opinions in March, saying that they were legally inaccurate. The author of those opinions, a since-fired deputy attorney general, disagreed that they were inaccurate but withdrew the opinions. That former deputy attorney sued the Idaho Attorney General’s Office for retaliation in September 2023.
Feb. 2, 2023: Legislative Services Office Legislative Auditor April Renfro sends Rep. Wendy Horman, co-chair of the Joint Finance-Appropriations Committee, a draft of intent language for an audit into the Community Partners Grants Program. The language said the review would “evaluate if the Community Partners Grants applications and expenditures were in compliance with the guidelines and if they were only used for in-person educational and enrichment activities that focus on student needs and for providing behavioral health supports to address student needs.” The audit would also probe whether grants were used to serve “school-aged participants ages 5-13 years, as allowable by federal guidance” and indicate if grant award amounts complies with the limits for providers.
Feb. 10, 2023: Department of Health and Welfare Director Dave Jeppesen meets with Joint Finance-Appropriations Committee co-chairs Rep. Wendy Horman and Sen. C. Scott Grow, identifying that $14 million in funds went to 10 organizations that served children under 5, as previously reported by Idaho Reports. An agency spokesperson told Idaho Reports that “the department has always maintained that only eligible recipients received the grant money. The budget committee co-chairs, Horman and Grow, alerted Labrador that month to concerns about how the state health department handled the grants, Idaho Reports reported.
Feb. 27, 2023: The Legislature’s Joint Finance-Appropriations committee approves an audit into the Idaho Department of Health and Welfare’s administration of the child care funds, as first reported by the Idaho Press. A motion to order the audit passed the committee on a 16-3 vote.
April 5, 2023: Gov. Brad Little signs Senate Bill 1203, removing $14.4 million from the Department of Health and Welfare. In his signing letter on the bill, he referenced concerns from legislators about potential ineligible payments by the state health department. “Maintaining the public’s trust in government is imperative. To do so, government must follow the law, act with transparency, and allow our legal processes to run to completion. Upon internal disagreement or allegations of impropriety, we must not prejudge or impose corrective action without a full and final picture,” Little wrote, noting that the Legislature’s audit process had barely started. Little also signed Senate Bill 1175, a budget bill for the state health department that authorized the audit.
April 27, 2023: Ada County Judge Lynn Norton, in a ruling, allowed the attorney general’s civil investigative demands against more than a dozen grant’s recipients to move forward. That case was later accepted on appeal by the Idaho Supreme Court. “This court finds that there is reason for the attorney general to believe that grant recipients did, are or are about to engage in acts that violate (state law) if the recipients only serve children four years old or younger or only provide online educational or enrichment activities,” Norton wrote.
Aug. 10, 2023: An audit, ordered by the Legislature, finds a lack of internal controls in how the Idaho Department of Health and Welfare administered the child care funds led to funds being used for ineligible purposes and going toward ineligible groups. The head auditor later told the Idaho Capital Sun that the audit does not clearly state that state law was broken, but instead flags the issue for law enforcement to investigate.
Aug. 30, 2023: The Idaho Attorney General’s Office selects Adams County Prosecuting Attorney Christopher Boyd as special deputy attorney general in the state’s investigation into child care grant funds. That’s after Judge Norton barred Labrador from pursuing the civil investigative demands the Attorney General’s Office issued to the Idaho Department of Health and Welfare. Her order centered on legal guidance the Attorney General’s Office provided to the state health department that said the department’s use of the funds didn’t violate guidelines.
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