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.

Idaho Capital Sun is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Idaho Capital Sun maintains editorial independence. Contact Editor Christina Lords for questions: [email protected]. Follow Idaho Capital Sun on Facebook and Twitter.