Auditors clear former Commerce Department director of wrongdoing

An annual report into fraud, waste and abuse in Montana shows that the number of reports may have increased in 2024, but the Legislative Audit Division that oversees the complaint investigation said the number of cases that have resulted in disciplinary action has remained fairly constant.

The report also found that while the state’s Department of Transportation had repeatedly misused the state plane, wasting as much as $163,000, a former Commerce director was cleared of violating the state’s employee travel policy and said that he may have had to pay back nearly $30,000 he didn’t rightfully owe.

The Legislative Audit Division published its annual report, “Accountability, Compliance and Transparency in Montana State Government,” which was completed last month. The purpose of the report is to summarize the reports received and processed through the state’s hotline.

In 2024, the hotline hit a record level of 130 complaints, roughly a 60% increase from a year ago. However, most of those reports were referred to other parts of state government that have statutory authority to investigate them. Complaints from employees and residents come via a 1-800-hotline, email, online forms, text or mail. Of those reports, hotline staff had jurisdiction over 45 complaints.

Other reports went to agencies like the Montana Department of Public Health and Human Services or the Attorney General’s Office for more investigation.

Thirty-two of the complaints, or nearly 40%, were reported to be concerns with public assistance, whether that is Supplemental Nutritional Assistance Program or public housing programs. Those complaints are referred to the DPHHS, which has a legal authority to investigate them, or for, example, the Montana Department of Justice.

“The most common example of a ‘no-jurisdiction’ report is an allegation of fraud involving public assistance programs administered by the DPPHS; the agency has existing legal authority and programmatic resources to investigate the allegation, so LAD refers the report, rather than investigating it,” the auditors said.

While overall, the number of complaints flowing into the hotline increased, the number of human resource-related complaints remained steady at 10, with misuse or abuse of company assets or privileges topping the list.

Two particular instances of fraud, waste or abuse were addressed specifically by auditors. One involves the Montana Department of Transportation and the other involves the former Montana Department of Labor and Industry director.

AUDITORS ALSO said that it was Gov. Greg Gianforte’s office that flagged a potential problem with an internal control of state agencies.

The Governor’s Office of Budget and Program Planning noted that subordinates in departments normally approve travel expenses incurred by directors. As a result, staff from that office said that former Commerce Director Scott Osterman had improperly claimed $30,000 in travel costs between his home in the Flathead and the Commerce Department’s Office in Helena.

Osterman resigned in December 2023, and repaid the state $29,700.

But the auditors found that Osterman had not violated state policy after a close analysis of the situation and state law.

While the Montana Constitution says that some elected officials, like the Secretary of State or governor, must live in Helena, the state’s capital, the same is not true for agency department heads. Osterman remained and leased office space in Kalispell. His daily commute, auditors said, was between his home in the area and the office in Kalispell. Therefore, his travel to Helena and back was in line with the state’s travel policy, and therefore permitted.

“The allegation that the director had violated state law by using a state vehicle and claiming expense reimbursements for travel to and from Helena was not substantiated,” the report said.

The Daily Montanan reached out to Gov. Gianforte for comment on the report, but the office did not respond on Tuesday afternoon.

While auditing staff said they found that Osterman had not incurred travel policy violations as originally reported, the audit did not say whether the money had been returned or if the state had plans to do that.

DURING 2022 and 2023, auditors at the state learned through the auditing process about allegations of misusing the state’s airplane by MDOT personnel for in-state flights.

“It became evident that MDOT’s aircraft use exceed that of other state agencies. Of 98 total rentals, 65 were by MDOT during the period examined,” the audit said. “After investigating the use of the airplane, we determined that the use of the airplane, rather than more economical motor vehicle travel, constituted a waste of state resources and abuse of the state airplane.”

State policy requires that state employees utilize the most economical means of travel, which includes state employees coordinating travel together. The policy also considers per diem meal and hotel costs, but does not factor employee or staff time.

“Our investigation found that if personal vehicles (least savings) or motor pool vehicles (most savings) had been utilized for the 65 trips, MDT would have saved from $44,780 to $163,015. This resulted in our finding of a waste of state resources and abuse of the state airplane.”