Red flags flew high at Health Dept.

Agency still work­ing to fix fi­nan­cial woes

The Oklahoman (Sunday) - - FRONT PAGE - BY MEG WINGERTER Dig Team

While most of Ok­la­homa City was tak­ing a lunch break on a hot and sticky Thurs­day in late July, Jan Fox learned her of­fice was fac­ing a cri­sis.

A $600,000 bill to pay the in­sur­ance pre­mi­ums of low-in­come HIV pa­tients had ar­rived, but an email from the Ok­la­homa State Depart­ment of Health’s pay­ments of­fice said the depart­ment couldn’t cover the cost.

That couldn’t be right. Fox, a ca­reer gov­ern­ment em­ployee who’d over­seen the state’s HIV pro­gram since 2010, knew the bud­get showed the HIV fund had $3.1 mil­lion avail­able for bills like these.

“What do you mean, our funds have been de­pleted…???,” Fox wrote to the depart­ment’s pay­ments of­fice. “WE CAN­NOT al­low our con­trac­tors to go without the pay­ment that they need to con­tinue pro­cess­ing pre­mium pay­ments for our clients with HIV !!!! ”

But the money was gone.

Years’ worth of mis­spending had grown into a mul­ti­mil­lion dol­lar scan­dal that left the depart­ment, one of the state’s largest, fac­ing fi­nan­cial dis­as­ter. Warn­ing signs had gone un­heeded for months, and the day of reck­on­ing was near for the $400 mil­lion agency.

Within the next six months, the depart­ment’s top of­fi­cial would re­sign un­der a cloud, soon fol­lowed by much of his lead­er­ship team. Em­ploy­ees would face fur­loughs, and nearly 200 would lose their jobs. Child abuse preven­tion pro­grams and com­mu­nity health cen­ters would en­dure $3 mil­lion in cuts.

The Leg­is­la­ture would have to come up with $30 mil­lion for an emer­gency bailout, one of the largest in re­cent mem­ory, at a time when they were strug­gling to bal­ance the state’s bud­get.

Law­mak­ers and law en­force­ment also would launch in­ves­ti­ga­tions on mul­ti­ple fronts try­ing to de­ter­mine just ex­actly what had hap­pened.

Less than a month be­fore the tell­tale email had hit Fox’s in­box, Health Com­mis­sioner Terry Cline had as­sured the state bud­get of­fice that all was well within his depart­ment.

But, in fact, the depart­ment had been over­spend­ing for at least two years, cre­at­ing a debt reach­ing into the mil­lions.

For al­most a year, depart­ment lead­ers had ig­nored warn­ings from staff, failed to take ac­tion once they ac­knowl­edged they over­spent and even threat­ened em­ploy­ees who might re­veal the ex­tent of the prob­lem to the pub­lic. Even af­ter the miss­ing HIV funds showed the depart­ment was headed to­ward fi­nan­cial col­lapse, its lead­ers tried to hide the prob­lem for another three months.

Per­haps as alarm­ing, other state over­sight agen­cies were ill-equipped to spot the trou­ble — rais­ing the pos­si­bil­ity the state could find it­self in a sim­i­lar sit­u­a­tion in the fu­ture.

No one at the Health Depart­ment has been ac­cused of em­bez­zle­ment or in­ten­tional mis­use of money. One em­ployee would later tell a House in­ves­tiga­tive com­mit­tee that top of­fi­cials had good in­ten­tions in spend­ing on health pro­grams, but failed to un­der­stand that they didn’t have an un­lim­ited pot of money.

“In my opin­ion, the folks that were lead­ing this agency were not vil­lains,” Deb­o­rah Ni­chols, the depart­ment’s chief op­er­at­ing of­fi­cer, told law­mak­ers in De­cem­ber. “The prob­lem is they’re re­ally bad busi­ness people.”

Early warn­ings

Look­ing back, former em­ploy­ees and oth­ers now say, red flags about the depart­ment’s fi­nan­cial health had been flut­ter­ing for quite some time.

From a 12-story head­quar­ters tucked along a tree-lined street on the Univer­sity of Ok­la­homa Health Sciences Cen­ter cam­pus, the depart­ment’s lead­ers over­saw about 2,500 em­ploy­ees through­out the state, re­spon­si­ble for ev­ery­thing from op­er­at­ing health clin­ics to reg­is­ter­ing birth cer­tifi­cates to in­spect­ing nurs­ing homes.

That head­quar­ters build­ing, a glass and con­crete struc­ture built in the early 1970s, of­fered one of the ear­li­est clues that some­thing had gone wrong in the depart­ment.

In Jan­uary 2016, work on a planned $8 mil­lion ren­o­va­tion of the top three floors came to an un­ex­pected halt, af­ter em­ploy­ees who worked on those floors al­ready had re­lo­cated their desks. Not long af­ter that, Ni­chols learned the whole project had been shelved, she told the Spe­cial In­ves­tiga­tive Com­mit­tee to Review Agency Mis­man­age­ment of Tax­payer Funds in De­cem­ber.

“All of a sud­den in Jan­uary the project is stopped,”

Ni­chols told law­mak­ers in a ques­tion-and-an­swer ses­sion that lasted more than an hour. “They don’t have the $8 mil­lion.”

Over the next few months, Ni­chols tes­ti­fied, she started to hear com­plaints from con­trac­tors un­re­lated to the ren­o­va­tion that the Health Depart­ment wasn’t pay­ing on time.

Ni­chols, a former health in­sur­ance in­dus­try ex­ec­u­tive who’d only joined the depart­ment the pre­vi­ous year, told law­mak­ers she raised the is­sue with top of­fi­cials. Un­for­tu­nately, the depart­ment was led by a “clique” that re­sisted in­put from per­ceived out­siders, she said.

Cline, the health com­mis­sioner, had served as an agency head un­der three gov­er­nors. His top deputy,

Julie Cox-Kain, had worked at the Health Depart­ment for 25 years and been sec­ond-in-com­mand since 2014. Fe­le­sha Scan­lan, the busi­ness plan­ning di­rec­tor who was in charge of re­port­ing fi­nan­cial in­for­ma­tion to the board over­see­ing the depart­ment, had an even longer ten­ure, 36 years.

None were re­cep­tive to an out­sider telling them some­thing was wrong, Ni­chols told the in­ves­tiga­tive com­mit­tee.

“I al­ways got push­back,” Ni­chols told law­mak­ers. “The an­swer was al­ways ‘You don’t un­der­stand.’”

By Au­gust 2016, Ni­chols told the leg­isla­tive panel, she be­gan notic­ing the depart­ment was hav­ing pay­roll prob­lems. The depart­ment’s ac­count­ing

sys­tem, for rea­sons she didn’t ini­tially un­der­stand, wouldn’t record the pay­ments.

It wasn’t just a glitch, but another red flag that the depart­ment was spend­ing be­yond its means.

The Health Depart­ment’s ac­count­ing sys­tem tracks spend­ing by pro­gram, which is par­tic­u­larly im­por­tant for agen­cies that get fed­eral money. The fed­eral gov­ern­ment can hit agen­cies with fines if they min­gle or mis­use money, even for other wor­thy pro­grams. Money meant for an HIV pro­gram, for ex­am­ple, is not to be spent on chil­dren’s im­mu­niza­tions.

While the Health Depart­ment tracks its spend­ing, it doesn’t cut its own checks.

That re­spon­si­bil­ity lies with the state’s Of­fice of Man­age­ment and En­ter­prise Ser­vices, which pays the bills for many state de­part­ments and agen­cies.

That agency’s sys­tem only ver­i­fied that the Health Depart­ment’s bud­get held enough fed­eral funds to pay a bill — not whether the depart­ment was charg­ing the bill to the right pro­gram. The sys­tem’s lim­i­ta­tions made it pos­si­ble to over­spend in some pro­grams us­ing funds meant for oth­ers.

Ni­chols told law­mak­ers she thought the prac­tice prob­a­bly had started in­no­cently enough.

She spec­u­lated that per­haps as far back as 2011, the depart­ment may have had to make pay­roll for a pro­gram be­fore fed­eral funds to help cover those costs came in and took the money from another pro­gram in­tend­ing to pay it back.

It’s un­likely any­one would have no­ticed if they con­sis­tently paid the money back, Ni­chols told law­mak­ers.

Be­cause the depart­ment’s ac­count­ing sys­tem wouldn’t record over­spend­ing, the books ap­peared bal­anced, but Ni­chols knew some­thing was off. No one could tell her what, though. The depart­ment had op­er­ated without a chief fi­nan­cial of­fi­cer for months, af­ter the pre­vi­ous CFO de­camped for Colorado, and other lead­ers had frozen her out, she told law­mak­ers.

A small group of mi­dlevel em­ploy­ees at the Health Depart­ment had kept de­tailed spread­sheets of the money the depart­ment had “bor­rowed” from pro­grams. They didn’t speak up about what they knew be­cause top of­fi­cials tended to re­tal­i­ate against those who brought them bad news, Ni­chols told law­mak­ers.

Cox-Kain, the depart­ment’s sec­ond-in-com­mand, wanted to bring in a “crony” of hers who worked at another agency as CFO, Ni­chols later told the in­ves­tiga­tive com­mit­tee. Ni­chols told law­mak­ers she in­sisted on bring­ing in an out­sider to of­fer an in­de­pen­dent view of the sit­u­a­tion.

In April 2017, Mike Romero, a former ac­count­ing firm owner and floor­ing com­pany CFO, took over the job. Other than a year work­ing in the top fi­nance post for the city of Mi­ami, OK, Romero had no gov­ern­ment ex­pe­ri­ence.

He would later tell the in­ves­tiga­tive com­mit­tee that he spent much of his first month on the job vis­it­ing re­gional health de­part­ments to get a feel for how the sys­tem worked.

When state au­di­tors con­ducted a rou­tine au­dit of the depart­ment in May and asked Romero and other staff if they knew of any ev­i­dence of fraud, he said no — but that he’d get back to them if he found any. At that point, Romero knew only that the depart­ment was hav­ing some is­sues bal­anc­ing its books and was un­aware of how big the prob­lems re­ally were.

When later asked by the House in­ves­tiga­tive com­mit­tee why the May au­dit didn’t de­tect the over­spend­ing, State Au­di­tor Gary Jones said his of­fice was only au­tho­rized to spot-check the depart­ment’s records to make sure pay­ments matched bills. Those records were ac­cu­rate, he said — the prob­lem was that the depart­ment had over­stated how much money it had avail­able to pay the bills, which au­di­tors weren’t as­signed to check.

Had they checked, they might have found that, by that point, the depart­ment al­ready racked up more than $7.7 mil­lion in off-book pay­ments, with no clear way to re­place that money.

Still, Cline and other se­nior lead­er­ship didn’t seem wor­ried, Romero would later re­call. It took him two months to get his first face-to-face meet­ing with Cox-Kain, whom he ex­pected to be more in­ter­ested in learn­ing about the depart­ment’s fi­nances, he said.

In the meet­ing, Cox-Kain seemed open to dis­cussing the pay­roll prob­lem, he later told law­mak­ers, but that will­ing­ness ap­par­ently was short-lived. Spring turned into sum­mer, and the depart­ment still hadn’t told its over­sight board that it faced a bud­get short­fall, nor had it taken any ac­tion to ad­dress the grow­ing prob­lem.

The gap widens

On June 30, Cline sent a let­ter to Of­fice of Man­age­ment and En­ter­prise Ser­vices Di­rec­tor Pre­ston Do­er­flinger, whose of­fice over­saw state agen­cies’ bud­gets, say­ing his depart­ment could cover its ex­pected needs for the new fis­cal year that would start the next day.

That was false.

A day ear­lier, Scan­lan, the depart­ment’s busi­ness plan­ning di­rec­tor, had sent an email to Cox-Kain, Romero, Ni­chols and four other people call­ing the bud­get sit­u­a­tion “bleak.” She told them the depart­ment faced a bud­get gap of at least $8 mil­lion and pos­si­bly as much as $12 mil­lion. Cline wasn’t in­cluded on the email, and it isn’t pos­si­ble to prove whether he knew the bal­anced bud­get claim was a lie.

Romero re­sponded in a group email that the num­ber might even be higher, that the depart­ment had to re­duce its ex­penses im­me­di­ately and warned “the only mean­ing­ful path” to do that was through lay­offs.

Cox-Kain didn’t see it that way.

In a July 5 email, she ex­pressed hope the depart­ment could “for­give bor­rows” of cer­tain funds — in other words, sim­ply wipe the debt off the books. She also sug­gested the num­bers might be wrong — not­ing that se­nior lead­er­ship had can­celed its monthly bud­get meet­ings “since our re­port­ing has been off so much of late.”

She was par­tially right — the $12 mil­lion bud­get gap didn’t ac­cu­rately show the depart­ment’s fi­nan­cial po­si­tion. In fact, the to­tal gap was much larger.

In early July, Ni­chols, at last, got her chance to warn Cline of the im­pend­ing dis­as­ter.

They met for 45 min­utes. “It was a pretty no­holds-barred con­ver­sa­tion. I was pretty clear with him that the agency was on the verge of fi­nan­cial col­lapse,” she later told law­mak­ers.

But noth­ing changed. On July 18, Romero and Ni­chols met with top lead­er­ship and drove the point home, again.

But this time the news was even worse.

Romero and Ni­chols were al­lot­ted an hour to ex­plain the fi­nan­cial sit­u­a­tion, Romero said. They told Cline, Cox-Kain and oth­ers that, ac­count­ing for over­spend­ing from pre­vi­ous years, the Health Depart­ment bud­get ac­tu­ally stood $29.4 mil­lion in the red. While some top of­fi­cials looked “aghast,” he said, Cline and CoxKain seemed “un­fazed.”

“As soon as the 60 min­utes had elapsed, Dr. Cline looked at his watch and said, ‘That’s an hour, we have to move on,’ and the dis­cus­sion was sum­mar­ily ended,” Romero later told a re­porter. He was then asked to leave the room be­cause the chief fi­nan­cial of­fi­cer wasn’t con­sid­ered part of se­nior lead­er­ship, and he’d only been in­vited to give a pre­sen­ta­tion.

When about a week later, on July 26, the depart­ment re­al­ized it could not pay its $600,000 HIV in­sur­ance bill, it went into “in­ci­dent com­mand” mode, a sta­tus usu­ally re­served for epi­demics or nat­u­ral dis­as­ters, when quick de­ci­sion-mak­ing can save lives.

What it meant in prac­tice, Romero said, was that all de­ci­sions had to go through Cox-Kain, who, pos­si­bly seek­ing to con­tain the grow­ing scan­dal, threat­ened to dis­ci­pline any em­ploy­ees who re­leased bud­get in­for­ma­tion without her per­mis­sion.

That same day, depart­ment lead­ers sent an email to the en­tire staff say­ing that it faced a deficit of “less than 10 per­cent of the agency’s to­tal bud­get,” which was true. The mes­sage blamed the gap on re­duc­tions in state and fed­eral fund­ing. It made no men­tion of the mil­lions of dol­lars in over­spend­ing.

The next day, af­ter Fox had sent her the in­cred­u­lous email about the miss­ing HIV fund­ing, Cox-Kain sent an email of her own to Ni­chols with a plan to get $3 mil­lion dol­lars back from the To­bacco Set­tle­ment En­dow­ment Trust. The Health Depart­ment had given about $8.5 mil­lion tothe trust to­fund com­mu­nity health pro­grams. CoxKain asked that any un­used funds be sent back.

The trust didn’t ob­ject and sent the money. But for Romero and Ni­chols, the ar­range­ment only raised more con­cerns. The trust was only sup­posed to be re­im­bursed for ac­tual ex­penses. Why then did the Health Depart­ment pro­vide so much money up front, they won­dered? And was it OK to sim­ply ask for it back?

On Aug. 1, now wor­ried about pos­si­ble fraud within the Health Depart­ment, Romero, Ni­chols and another fi­nance em­ployee went to the au­di­tor’s of­fice with their con­cerns. Romero told au­di­tors about the mis­spent fed­eral funds, the ques­tion­able ma­neu­ver with money given to the trust and what he called a “cul­ture of fear and in­tim­i­da­tion” that kept em­ploy­ees from alert­ing the Board of Health.

Jones, the state au­di­tor, later told the in­ves­tiga­tive com­mit­tee that his staff went to work gath­er­ing in­for­ma­tion to de­ter­mine whether Romero’s con­cerns were war­ranted.

De­spite later claims that the Of­fice of Man­age­ment and En­ter­prise Ser­vices didn’t learn the Health Depart­ment had fi­nan­cial prob­lems un­til Oc­to­ber, emails show at least two em­ploy­ees were aware of the trust trans­fer by Aug. 4, be­cause they helped co­or­di­nate it. It isn’t clear whether they told their su­per­vi­sors, but the trans­fer could have been a warn­ing sign, be­cause it came only a month af­ter Cline had said the bud­get was bal­anced.

Nei­ther the au­di­tor’s of­fice nor the Of­fice of Man­age­ment and En­ter­prise Ser­vices alerted the Board of Health. It was only on Aug. 12, a month and a half af­ter top health of­fi­cials ac­knowl­edged to each other they had a bud­get gap in the mil­lions, that the board over­see­ing their depart­ment learned the truth.

At a board re­treat held in a fourth-floor con­fer­ence room of the Ok­la­homa State Univer­sity stu­dent union build­ing, Cox-Kain gave a pre­sen­ta­tion that ac­knowl­edged the depart­ment faced a fund­ing short­fall but em­pha­sized it was man­age­able and again falsely blamed de­clin­ing state and fed­eral ap­pro­pri­a­tions.

When she in­vited Romero to com­ment, he laid out a dif­fer­ent, more ac­cu­rate pic­ture. He told the board the bud­get gap ex­ceeded $29 mil­lion, though he left out his sus­pi­cions of fraud.

To Romero, it seemed the board didn’t grasp the mag­ni­tude of the sit­u­a­tion. Board mem­bers seemed sur­prised and asked some ques­tions, he said, but the meet­ing moved on to a pre­sen­ta­tion about fight­ing syphilis, and he never heard from the board af­ter­ward.

“It just went over like a lead bal­loon,” he later said in an in­ter­view.

The state of­fice han­dling the Health Depart­ment’s pay­ments learned about the pre­car­i­ous fi­nan­cial sit­u­a­tion about two weeks af­ter Romero’s pre­sen­ta­tion to the Board of Health.

Jones later told law­mak­ers his of­fice had spent all of Au­gust in­ves­ti­gat­ing the sit­u­a­tion at the Health Depart­ment. He said he no­ti­fied then-Of­fice of Man­age­ment and En­ter­prise Ser­vices Di­rec­tor Do­er­flinger on Sept. 1 that the Health Depart­ment might not make pay­roll.

Do­er­flinger told law­mak­ers he didn’t learn the ur­gency of the Health Depart­ment’s prob­lems un­til late Oc­to­ber, some­thing Jones told law­mak­ers he found im­plau­si­ble.

“I don’t know what part of not mak­ing pay­roll doesn’t throw up a red flag,” Jones said.

In spite of the wors­en­ing sit­u­a­tion, Cox-Kain and Cline still were fo­cused only on the ex­pected $10 mil­lion deficit for that fis­cal year, Ni­chols said — not the nearly $30 mil­lion to­tal short­fall that had built up over the pre­vi­ous few years.

“We could not get them to fo­cus on any of that old debt that had been cre­ated,” she said. “They never be­lieved the num­bers. They be­lieved there was money in the sys­tem be­cause they’d been trans­fer­ring money around.”

Even as late as Sept. 21, when the Health Depart­ment had nearly $11 mil­lion in off-book costs for the year, Cox-Kain still wanted to dis­cuss a cash-man­age­ment plan and sug­gested they find out what fed­eral funds they could legally tap, Romero told law­mak­ers. She didn’t seem to grasp that the depart­ment had al­most no cash left to man­age, and an email she sent in Oc­to­ber sug­gested she hadn’t read daily re­ports about how much cash the depart­ment had, he said.

“I kept say­ing, ‘The cash doesn’t ex­ist,’” he said. “I don’t think these folks un­der­stood that they would go bank­rupt with this method­ol­ogy be­cause I don’t think they even un­der­stood how it worked.”

Truth breaks out

On the morn­ing of Sept. 27, Health Depart­ment heads met with re­gional ad­min­is­tra­tors and di­rec­tors at the Ok­la­homa City head­quar­ters. They’d re­ceived no com­mu­ni­ca­tions about the bud­get other than mass emails with few de­tails like the one the depart­ment had sent in late July.

What they learned was un­pleas­ant: They and their staff faced fur­loughs, buy­outs or lay­offs.

In the meet­ing, ac­cord­ing to an email he sent to top staff, Cline pledged to “im­prove our in­ter­nal con­trols.” Even so, of­fi­cials still gave “mis­lead­ing” in­for­ma­tion about state and fed­eral bud­get cuts driv­ing the prob­lem, Romero told law­mak­ers.

“No one’s telling the truth that you’ve over­ex­pended your dol­lars,” he said. “I was so an­gry I could barely say a word.”

Fi­nally, the next day, two months af­ter the depart­ment couldn’t pay its HIV bill and at least two years af­ter it be­gan over­spend­ing, Cline re­quested a spe­cial au­dit. He told top staff in an email that he had con­sid­ered re­quest­ing one “a cou­ple of months ago,” but de­layed to avoid bur­den­ing staff. That au­dit is on­go­ing.

Ul­ti­mately, the depart­ment would aban­don the buy­out idea, be­cause it couldn’t af­ford to put to­gether pack­ages that would en­tice enough em­ploy­ees to leave.

In mid-Oc­to­ber, it be­came clear that the depart­ment couldn’t af­ford lay­offs ei­ther, be­cause it only had enough money to of­fer former em­ploy­ees three months of health in­sur­ance in­stead of the usual 18 months. The Of­fice of Man­age­ment and En­ter­prise Ser­vices would have had to give spe­cial per­mis­sion to of­fer the lower amount.

For the Of­fice of Man­age­ment and En­ter­prise Ser­vices, the re­quest to pay less to laid-off em­ploy­ees and to fur­lough em­ploy­ees was the first clear in­di­ca­tion some­thing was wrong at the Health Depart­ment, Do­er­flinger’s suc­ces­sor later told the in­ves­tiga­tive com­mit­tee. But it wasn’t un­til an Oct. 11 meet­ing with the Health Depart­ment that the other agency’s of­fi­cials un­der­stood the scope of the prob­lem, said Denise Northrup, the of­fice’s in­terim di­rec­tor.

“It was at that meet­ing we dis­cov­ered the prob­lem was much more sig­nif­i­cant,” she told a House in­ves­tiga­tive com­mit­tee.

Even then, Of­fice of Man­age­ment and En­ter­prise Ser­vices em­ploy­ees didn’t seem to un­der­stand the source of the prob­lem, Ni­chols told law­mak­ers. They rec­om­mended mov­ing around fed­eral funds un­til more money came in, and then re­pay­ing them, she said — the idea that had got­ten the Health Depart­ment in trou­ble in the first place.

“It’s very clear from that rec­om­men­da­tion that from their van­tage point, they did not have a re­ally clear un­der­stand­ing of the state of the agency fi­nances or the comin­gling that goes on with fed­eral funds,” she said.

Romero would later say the meet­ing proved that the Of­fice of Man­age­ment and En­ter­prise Ser­vices knew the Health Depart­ment could mis­use fed­eral funds and was will­ing to al­low the prac­tice to con­tinue.

Northrup coun­tered that her agency’s em­ploy­ees were just ask­ing ques­tions to de­ter­mine the Health Depart­ment’s fi­nan­cial con­di­tion.

“In the course of the dis­cus­sion, the bud­get staff in­quired about the avail­abil­ity of all and any funds to as­sist with mak­ing pay­roll,” she said in a let­ter to a House in­ves­tiga­tive com­mit­tee. “This in­quiry has been char­ac­ter­ized as a rec­om­men­da­tion — it was not. It was a dis­cus­sion ad­dress­ing any and all pos­si­bil­i­ties.”

What­ever Of­fice of Man­age­ment and En­ter­prise Ser­vices em­ploy­ees’ in­ten­tions were, they didn’t have a so­lu­tion. The Health Depart­ment was out of money.

On Oct. 30, the Board of Health held an emer­gency meet­ing. Af­ter 30 min­utes meet­ing be­hind closed doors, Cline and Cox-Kain re­signed. Scan­lan would do so the next day.

The board ap­pointed Do­er­flinger, then state fi­nance sec­re­tary and Of­fice of Man­age­ment and En­ter­prise Ser­vices di­rec­tor, to fill in as in­terim com­mis­sioner.

Northrup said, to her knowl­edge, Gov. Mary Fallin only learned of the Health Depart­ment’s fi­nan­cial trou­bles the day Cline re­signed.

So­lu­tions in the works?

In the short term, the res­ig­na­tions solved lit­tle.

The Health Depart­ment still was scram­bling for cash. On Nov. 7, Do­er­flinger warned that the depart­ment wouldn’t be able to pay its em­ploy­ees by the end of the month without $30 mil­lion in sup­ple­men­tal funds, which the Leg­is­la­ture voted to sup­ply a week later as part of a pack­age that tried to patch the state’s $215 mil­lion bud­get short­fall. Fallin ve­toed much of the bill, but al­lowed the spe­cial fund­ing for the Health Depart­ment to move for­ward. The bill passed the House 17-13 and the Se­nate 29-14.

On the same day Do­er­flinger re­quested the ex­tra fund­ing, Fallin signed an ex­ec­u­tive or­der cre­at­ing a com­mis­sion to rec­om­mend im­prove­ments to the Health Depart­ment’s bud­get­ing process and ser­vice de­liv­ery. In March, the com­mis­sion re­leased its ideas to im­prove ser­vices, but made no bud­get rec­om­men­da­tions, say­ing they couldn’t ob­tain the needed in­for­ma­tion.

On Nov. 20, House Speaker Charles McCall ap­pointed the spe­cial House in­ves­tiga­tive com­mit­tee, chaired by Rep. Josh Cock­roft. The com­mit­tee ques­tioned six cur­rent and former state em­ploy­ees in a se­ries of hear­ings in De­cem­ber and Jan­uary, but has yet to is­sue a re­port.

Ni­chols, one of the first Health Depart­ment em­ploy­ees to raise the alarm about fi­nan­cial prob­lems, re­signed shortly be­fore she tes­ti­fied to the com­mit­tee. She de­clined to com­ment on her rea­sons for re­sign­ing, but the an­nounce­ment came about a week af­ter she had ques­tioned an in­for­ma­tion tech­nol­ogy project the Health Depart­ment and the Of­fice of Man­age­ment and En­ter­prise Ser­vices had ap­proved. Ni­chols de­clined to dis­cuss her time at the Health Depart­ment. Cline, Cox-Kain, Do­er­flinger and Scan­lan didn’t re­turn mes­sages seek­ing com­ment.

As the com­mit­tee be­gan to in­ves­ti­gate, Health Depart­ment em­ploy­ees were deal­ing with the fall­out from their bud­get crunch. Em­ploy­ees who earned more than $35,000 were re­quired to take one un­paid fur­lough day ev­ery two weeks for about two months, end­ing in late De­cem­ber. Between De­cem­ber and March, the depart­ment laid off 187 em­ploy­ees, or about 10 per­cent of its work­force, sav­ing about $10.5 mil­lion an­nu­ally.

The depart­ment also cut grants to child abuse preven­tion pro­grams and com­mu­nity health cen­ters to save about $3 mil­lion. Ad­vo­cates called the cuts short­sighted be­cause of the long-term cost of foster care for abused chil­dren.

Us­ing those savings and money from the $30 mil­lion emer­gency ap­pro­pri­a­tion, the depart­ment had paid back all but $7.4 mil­lion of the money it had “bor­rowed” from some of its ac­counts.

Now, dis­agree­ments would sur­face on how to han­dle the re­main­ing debt.

In a Jan. 23 memo, the Of­fice of Man­age­ment and En­ter­prise Ser­vices staff sug­gested that the Health Depart­ment could wipe some of its “bor­rows” off the books — the same po­si­tion Cox-Kain had taken months ear­lier — and rec­om­mended seek­ing an at­tor­ney gen­eral’s opin­ion to clar­ify the is­sue.

Romero, the Health Depart­ment CFO, ob­jected. In an email, he re­minded them the Health Depart­ment had told the Leg­is­la­ture it needed the $30 mil­lion to cover pay­roll and to re­pay the mis­spent money. Us­ing the money for any­thing else would raise ques­tions, he warned. He also ques­tioned why the Of­fice of Man­age­ment and En­ter­prise Ser­vices needed an out­side le­gal opin­ion about what he con­sid­ered stan­dard op­er­at­ing pro­ce­dure.

“Since when does the AG tell us what gen­er­ally ac­cepted ac­count­ing prin­ci­ples are?” he asked.

By then, he’d had enough. On Feb. 1, Romero sub­mit­ted his res­ig­na­tion.

“I be­lieve that the process for the fi­nan­cial re­cov­ery for the OSDH is cur­rently tainted with mul­ti­ple con­flicts of in­ter­est,” Romero wrote in his res­ig­na­tion let­ter.

The depart­ment’s re­cov­ery also could be jeop­ar­dized by some sig­nif­i­cant in­for­ma­tion tech­nol­ogy ex­pen­di­tures that still were planned, Romero said in his res­ig­na­tion let­ter.

Tony Sel­lars, spokesman for the Health Depart­ment, told a re­porter that the depart­ment is re­view­ing the law and is work­ing to re­solve its fi­nan­cial prob­lems. He said the depart­ment has bud­geted about $16.7 mil­lion of the $30 mil­lion spe­cial ap­pro­pri­a­tion to cover its pay­roll and debts.

“We will do what­ever the law re­quires,” he said.

The CFO job still is va­cant, as is the se­nior deputy com­mis­sioner post, va­cated by Cox-Kain. Kim Bai­ley, former ex­ec­u­tive di­rec­tor of the Ok­la­homa Work­ers Com­pen­sa­tion Com­mis­sion, who had taken over as chief op­er­at­ing of­fi­cer when Ni­chols re­signed in Novem­ber, also took on the CFO role.

Do­er­flinger also would leave only a few weeks later. He had sparred ver­bally with Jones, the state au­di­tor, and Cock­roft, the head of the in­ves­tiga­tive com­mit­tee, but it was ul­ti­mately a nearly 6-year-old do­mes­tic vi­o­lence po­lice call that prompted his res­ig­na­tion.

The Board of Health el­e­vated Brian Downs, di­rec­tor of state and fed­eral pol­icy, to act­ing com­mis­sioner. He held the act­ing job for about a month be­fore the board named former As­sis­tant At­tor­ney Gen­eral Tom Bates as the in­terim com­mis­sioner in late March. Bates most re­cently was a spe­cial ad­viser to Fallin on child abuse preven­tion. It isn’t clear when the board might name a per­ma­nent com­mis­sioner.

Nearly six months af­ter the fi­nan­cial prob­lems came to light, Bates’ task re­mains daunt­ing. A cor­rec­tive plan said the depart­ment will cut its bud­get by as much as $17.8 mil­lion, or one-third, this year. The depart­ment’s fi­nan­cial team still is work­ing to make sure fi­nan­cial in­for­ma­tion is re­li­able, Bates said. The depart­ment has spent less than an­tic­i­pated since De­cem­ber be­cause more than 200 em­ploy­ees left, on top of those who were laid off, he said.

“When you have in­sta­bil­ity, people leave,” he said.

It’s dif­fi­cult to say ex­actly how much money the Health Depart­ment may need from the state, be­cause the team still is as­sess­ing how many people are needed to per­form core func­tions like lab test­ing, nurs­ing home in­spec­tions and reg­is­ter­ing births and deaths, Bates said. Some of­fices, like the depart­ment’s in­ter­nal au­di­tor, clearly need more staff to pre­vent fu­ture mis­spending, he said.

Af­ter it be­comes clear how much money the Health Depart­ment has and how many people it needs to carry out core func­tions, Bates said he plans to get in­put from law­mak­ers, em­ploy­ees and stake­hold­ers about whether the depart­ment can of­fer any sup­ple­men­tal ser­vices — and if so, what they should be.

“We’re go­ing to build the house back brick by brick by brick,” he said.

Could it hap­pen again?

The depart­ment still faces in­ves­ti­ga­tions on mul­ti­ple fronts. The Ok­la­homa At­tor­ney Gen­eral’s of­fice, the FBI, the U.S. Depart­ment of Health and Hu­man Ser­vices’ Of­fice of the In­spec­tor Gen­eral and a mul­ti­county state grand jury have an­nounced they are in­ves­ti­gat­ing whether any crimes were com­mit­ted at the Health Depart­ment. None have re­leased any con­clu­sions.

While the U.S. Health Re­sources and Ser­vices Ad­min­is­tra­tion hasn’t opened a for­mal in­ves­ti­ga­tion into the Health Depart­ment, it did de­mand an ex­pla­na­tion of why the depart­ment failed to pay two of its HIV ser­vices con­trac­tors on time. If the feds aren’t sat­is­fied that Ok­la­homa has cor­rected the prob­lem, they could cut the state’s HIV funds, forc­ing the depart­ment to come up with more money on its own or leave pa­tients without health in­sur­ance.

Rep­re­sen­ta­tives for the state au­di­tor’s of­fice and the Of­fice of Man­age­ment and En­ter­prise Ser­vices, which also over­sees the state bud­get, told law­mak­ers they couldn’t be cer­tain other agen­cies wouldn’t face sim­i­lar prob­lems, though they said they weren’t aware of any fi­nan­cial mis­man­age­ment.

Sev­eral agen­cies have sup­ple­men­tal sys­tems like the Health Depart­ment’s that don’t con­nect di­rectly with the state’s Peo­pleSoft ac­count­ing sys­tem, said Northrup. The agency is look­ing at poli­cies to force agen­cies to close their books on time.

“Not hav­ing vis­i­bil­ity into that … is how this is able to hap­pen over time,” she said.

Shel­ley Zumwalt, spokes­woman for the Of­fice of Man­age­ment and En­ter­prise Ser­vices, said bud­get staff still are work­ing with the Health Depart­ment to make it eas­ier to track money between their sys­tems.

They also still are work­ing on re­solv­ing debts from pre­vi­ous years, she said.

“This isn’t a fi­nan­cial prob­lem that can be fixed in a day,” she said.

Jones said the au­di­tor’s of­fice needs more re­sources and the abil­ity to con­duct per­for­mance au­dits of state agen­cies.

“A per­for­mance au­dit would have been a lot more likely to ex­pose this quicker,” he said.

In her tes­ti­mony to the in­ves­tiga­tive com­mit­tee shortly af­ter she re­signed, Ni­chols urged law­mak­ers to view the Health Depart­ment’s prob­lems as part of a “sys­temic is­sue” of poor prac­tices. The same thing could eas­ily hap­pen at other agen­cies, she said.

“It wasn’t a sin­gle fac­tor that led to this. It was a mul­ti­tude of fac­tors that came to­gether in the per­fect storm,” she said.


Ok­la­homa State Au­di­tor and In­spec­tor Gary Jones, back to cam­era, told a House Spe­cial In­ves­ti­ga­tion Com­mit­tee in De­cem­ber that a state Health Depart­ment em­ployee came for­ward in July about fi­nan­cial mis­man­age­ment within that agency.


Leg­is­la­tors Ryan Martinez, Don­nie Con­dit and Tom Gann lis­ten to then-In­terim State Health Com­mis­sioner Pre­ston Do­er­flinger as he re­sponds to ques­tions about the depart­ment dur­ing an in­quiry at the state Capi­tol in De­cem­ber.

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