Auditors say Office of Public Instruction may have misspent $67M of federal funding

State auditors told Montana lawmakers that they’ve uncovered more than $67 million in questionable spending of federal pass-through money in the state’s education department, including one district that bought massage chairs for the teachers lounge.

And as auditors reviewed the findings which, in some cases, were so incomplete that they couldn’t determine if federal law was even being followed, Montana Superintendent of Public Instruction Elsie Arntzen was traveling on an airplane and couldn’t answer some of the questions, to the irritation of lawmakers who said that relatively recently hired staff should not have to answer for Arntzen’s leadership or legacy.

“These are significant findings and as elected officials in charge of this, we require them to be here,” said Sen. Jason Ellsworth, who serves as both the Senate president and the chairman of the Legislative Audit Committee. “We are going to reserve this opportunity for her to come here and answer these questions.”

Arntzen later appeared via video, apologized for being delayed, and ultimately spent around 20 minutes speaking with lawmakers, assuring them that newly minted positions were created in part because of the negative audit findings. Arntzen is termed out of the elected position and departs at the end of the year.

The Montana Office of Public Instruction audit was just one of a stack the Legislative Audit Committee will examine on Wednesday and Thursday in marathon sessions, which included lawmakers working through lunch. Much of the committee work has been focused on ways that state agencies spend money given by the federal government. But that money comes with strings attached, usually in the form of auditing requirements that ensure the way the state allocates money matches how Congress mandates it.

However, the audit for the state’s Office of Public Instruction found $67.5 million in “known questioned costs,” which was money that didn’t have documentation for how it was spent, or money that was spent, but didn’t seem to match the purpose of the federal programming.

Lawmakers appeared irritated and frustrated at points because they noted that many of the problems identified in the audit had been previously flagged two years ago, but remained largely unresolved. Out of the five adverse opinions issued by legislative auditors for the entire state audit, three were in the OPI.

“That’s an enormous amount of money,” said Sen. Kathy Kelker, D-Billings.

April Grady, the recently hired chief financial officer for OPI,  said that several positive steps had already occurred within the agency, including hiring an internal control auditor as well as making progress on 13 open positions at the agency.

“We were an aging agency with high turnover,” Grady said.

When the new internal control auditor at OPI introduced herself, Ellsworth, R-Hamilton, asked about the reporting structure. The new auditor said she reports to John McCormick, the chief accountability officer.

Ellsworth questioned why the chief accountability officer had not taken responsibility for making changes, and wondered if there was a redundancy.

“Then what’s the role of the accountability officer,” Ellsworth asked.

McCormick was also not in attendance at the meeting.

Jessie Curtis, a certified public accountant and the compliance audit supervisor for the Legislative Audit Division, addressed some of the problems, saying that a lot of money came to the state as a result of the federal government’s response to COVID, creating either new or one-time programs that needed auditing. However, she told the committee of lawmakers that many of the problems were endemic to OPI, and not just the result of new or one-time programs.

“The OPI staff have responded that many of these issues were caused by the federal government,” Curtis said. “However, we found that often incorrect information was submitted or that the office didn’t track required expenditures.”

Much of the information auditors had to report required multiple inquiries, and the auditing staff said that high staff turnover led to an exceptionally long process through OPI.

Auditors faulted the state’s education department for failing to properly ensure that it served the intended purpose, often doling out money, then not following up with documentation. That means as much as $52 million went untracked without receipts, documentation, or site visits. Those problems had been flagged during the 2021-2022 audit cycle, but Curtis told legislators many of the recommendations were not implemented by Arntzen.

For example, Curtis said a lot of the funding tied to federal dollars came in the form of construction. But, federal funding requires contractor wage certification, ensuring that construction contractors are paying required living wages of the workers and contractors on site. That was not tracked, Curtis said.

Curtis said that of $52 million questioned through the Education Stabilization Fund and part of the coronavirus relief, OPI could only provide documentation for around $200,000 when auditors asked.

Among those costs was a grant to a Montana school district for massage chairs. The explanation was that the school district would put them in the teachers’ lounge as a way to help retain staff during the pandemic. Other expenditures included approval for pizza with no accompanying documentation.

Many of those expenses audit staff review were requests for cash from programs and districts that were aimed at supporting literacy. Auditors said there was so little documentation for some of the cash requests that they stopped asking for more information because the system simply failed the audit.

In that case, auditors questioned $5.9 million in costs, but they said that is just an estimate.

“It could be as much as $25 million,” Curtis said.

Two larger school districts were also cut out of hundreds of thousands of dollars for special education programs. Both Great Falls and Billings Public Schools later received full funding, but auditors caught a discrepancy that showed other districts around the state may have been overpaid, while Great Falls was out $290,000 and Billings was short-changed $470,000.