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Report: ‘Pervasive noncompliance’ in Minnesota agencies’ management of nonprofit grants [1]
['Deena Winter', 'More From Author', '- February']
Date: 2023-02-02
The state of Minnesota does not do a good job of overseeing the nonprofits to which it gives a half-billion state dollars annually in grants, a new report shows.
The Office of the Legislative Auditor found “pervasive noncompliance” with grant management policies by state agencies in recent years, “signaling issues with accountability and oversight.”
Out of concern about how agencies oversee nonprofits that get state dollars, lawmakers directed auditors to review how the Minnesota Department of Education and Department of Public Safety manage grants, and how the state manages grants in general.
Although MDE administered federal child nutrition money at the center of the pandemic relief fraud leading to a massive federal dragnet, this review focused on state grant dollars. The nutrition program is the subject of a separate OLA review.
Still, the report shows weaknesses in the way MDE oversees nonprofits. For example: MDE didn’t conduct monitoring visits for most grants reviewed by the auditors. The department has faced questions about how often it checked to make sure children were being fed by nonprofits claiming to be feeding thousands of children daily. Federal prosecutors say hardly any of the nonprofits were feeding kids.
Republicans said the report is evidence of Gov. Tim Walz’s administration’s “lax oversight.”
House Minority Leader Lisa Demuth, R-Cold Spring, released a statement saying Democrats have downplayed concerns about fraud in the nonprofit sector, but the report shows the concern is justified, particularly within MDE.
“We should be taking swift bipartisan action to implement the recommendations from OLA and consider what else we can do to ensure there is accountability within our state agencies,” Demuth said.
In a written response to the report, MDE Commissioner Willie Jett said the department takes its responsibility to manage grants seriously and agrees that its procedures, training, and documentation can be improved. Jett said MDE has already begun to take steps recommended by auditors.
Education Department vulnerable to fraud
The auditors said MDE’s failure to comply with state policies on awarding grants, progress reports, monitoring and payments leaves the department “vulnerable to potential misuse of funds.”
MDE doled out over $400 million in state grants to 114 nonprofits from 2018 to 2022, with more than a third going to schools, 13% to human services organizations and 9% other types of educational institutions.
The report found:
MDE made at least $4 million in payments to grantees with past-due progress reports, in violation of state policy.
MDE couldn’t provide evidence it conducted monitoring visits to review progress, as required, for 14 of 15 grants reviewed.
MDE didn’t do any of the required “closeout evaluations” of grants reviewed.
MDE provided insufficient written guidance to grant managers.
MDE did financial reconciliations for all grantees reviewed that received competitively awarded grants, but none for legislatively named grants, even though they’re supposed to do at least one for grants over $50,000 before final payment is made.
Department of Public Safety
The auditors said DPS largely complied with grant management policies, but could make improvements.
The review focused on the department’s Office of Justice Programs, which provides grants to organizations that focus on victims of sexual assault, domestic violence and child abuse and other crimes. OJP also provides grants to groups to prevent and control crime and improve the criminal and juvenile justice systems.
OJP doled out about $134 million in state grants to 196 nonprofits over the past five years. Most went to groups focused on human services (37%), followed by legal services organizations (11%) and hospitals and clinics (6%).
Some key findings:
DPS paid nearly $580,000 to nonprofits with past-due progress reports, in violation of policy.
DPS conducted only about one-half of required financial reconciliations.
DPS did closeout evaluations for all the grants reviewed.
Department of Public Safety Deputy Commissioner Cassandra O’Hern said in response to the report, “We are pleased that this report acknowledges that DPS’ established procedures for managing grants address most of the OGM policies, but we recognize that improvements can be made. … We are confident that we can address the two DPS recommendations in the next few months.”
‘Systemic concerns’ persist despite 2007 overhaul
In 2007, the OLA found the state had a fragmented approach to managing grants and lacked oversight and accountability.
The 2007 Legislature directed the Department of Administration to set up a Grants Management Office, as recommended by the auditors, to strengthen accountability and grant management.
But auditors still found compliance problems in numerous state agencies in recent years.
Agencies didn’t document conflicts of interest before awarding grants and didn’t properly resolve the conflicts, leaving them vulnerable to fraud and waste.
Auditors found the Department of Human Services failed to determine whether nonprofits were financially stable before awarding grants, and repeatedly found agencies didn’t always do financial reconciliations, monitoring visits, progress reports or withhold payments to grantees with past-due progress reports.
The auditors say the OGM needs to strengthen its management policies, increase oversight of grants management and give more specific guidance to state agencies on how to implement policies.
But they said the Legislature bears some responsibility for the problem because it funds grants management expenses inconsistently, which affects agencies’ ability to manage grants. Staff from several agencies told OLA they were unable to do certain tasks due to limited resources.
Meanwhile, the amount of state money being sent to nonprofits is on the rise, increasing from $389 million in 2018 to $558 million last year. The Department of Human Services gave the most money to nonprofits in the past five years, at $436 million, followed by MDE, at $404 million.
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