West Virginia audits of Division of Homeland Security, Corrections raise eyebrows
CHARLESTON — Two divisions of the state Department of Military Affairs and Public Safety received scrutiny by the West Virginia Legislature’s Post Audit Division for activities done without the knowledge of the department.
Auditors briefed lawmakers on the reports during a Post Audits Subcommittee meeting Sunday in Charleston.
The reports focused DMAPS and two of its divisions: the Division of Corrections (DOC) and the Division of Homeland Security and Emergency Management (DHSEM). DMAPS Secretary Jeff Sandy asked the Post Audit Division to look into his department.
In a letter to Senate President Mitch Carmichael and House Speaker Roger Hanshaw, the preliminary findings during an audit of homeland security were serious enough to warrant alerting the subcommittee immediately.
“Due to the serious nature of the problems at the DHSEM, the Performance Evaluation and Research Division finds that it is critical to advise the Post Audits Subcommittee of our present findings, although a complete audit of the DHSEM internal control and management issues will not be completed until the December 2018 interim meetings,” wrote Legislative Manager Aaron Allred.
According to the letter, deficiencies in internal control and management results in federal financial penalties. On November 12, 2015, the Federal Emergency Management Agency notified DHSEM Director Jimmy Gianato that the state was being placed on manual reimbursement, a form of penalty for not following federal grant requirements dating back to 2009.
“The November 12, 2015, letter notes: 1) instances of DHSEM failing to respond to issues timely and/or simply not responding and 2) instances of FEMA. granting extensions and/or postponing site visits due to DHSEM’s inability to complete the required actions and/or simply not responding within the required timeframe,” Allred wrote.
According to Allred, a manual reimbursement penalty added additional requirements, including having the state pay up front for expenditures and only reimbursed after the state had thoroughly detailed the need for the expenditure to FEMA. The penalty added as much as 90 days before the state could be reimbursed for expenditures of more than $100,000. The penalty affected multiple grant programs, including grants for the 2016 flood.
Former DMAPS Secretary Joe Thornton told auditors he was never notified about the penalty by Gianato or DHSEM.
“(Thornton) had ‘no recollection receiving notice from any parties mentioned and I also have no correspondence in my files from November 2015 through January 2017 notifying me of any such corrective actions or restrictions placed on DHSEM,'” Allred wrote.
Sandy also checked with current and prior officials with the governor’s office and no one had been made aware of the penalty.
“It’s very disappointing to my staff and the governor’s staff that we were unaware of that letter,” Sandy told subcommittee members. “I assure contact with FEMA has been conducted, and henceforth they are required to send us notification of all issues to the cabinet secretary’s office.”
The Post Audit Division has only found one other FEMA grantee under a similar penalty as West Virginia: Puerto Rico. The state is still on manual reimbursement as of Oct. 9, though FEMA has made a site visit and is considering taking West Virginia off the penalty. Auditors recommend that DHSEM create policies regarding grant management and report regularly to the legislature regarding corrective actions the agency is taking.
In October, Gianato stepped down as director of DHSEM, replaced by deputy director Michael Todorovich. He still serves as homeland security advisor. DHSEM is also being moved to the West Virginia National Guard. Adjutant Gen. James Hoyer told subcommittee members they are making reforms based on the audit.
“I think there were management controls and processes that needed to be there but were not in place,” Hoyer said. “Those are the things the governor recognized and said ‘you’ve got the staff and the depth to get it on track and move it where it needs to go.'”
Gianato and DHSEM were also scrutinized in an audit last month for losing track of $254,000-worth of trailers and other emergency equipment.
“That’s astounding,” Carmichael said after hearing the report. “I want to make sure we’re not on track for reviewing this again in another nine years.”
Another audit, requested by Sandy, revolves around a lease agreement between the Division of Corrections and the Moundsville Economic Development Council. The MEDC leases parts of the West Virginia Penitentiary from the DOC and uses the former state prison for events and tourism.
According to the audit, between 1997 and 2013 the DOC has paid electric costs for the MEDC, which the non-profit was responsible for. That continued after the two entities signed a new lease agreement in 2013, with DOC paying $204,000 for electrical costs MEDC should have been paying.
After the matter was brought to the attention of the MEDC in April, they started paying for their share of the electrical costs. Suzanne Park, executive director for the MEDC, told the subcommittee that her non-profit would not be able to reimburse the state for the $204,000.
“There was never any intent to do wrong,” Park said. “We have always supported and shared that facility with the division.”
Another issue for auditors was the poorly-written leases in 1997, 2004, and 2013 that open up the state for liability for MEDC events. The MEDC is insured by the state Board of Risk and Insurance Management as a non-profit, though the MEDC’s non-profit status was revoked by the IRS. Attorneys for the Legislative Auditor’s Office determined that the 2004 lease agreement was poorly written and flawed.
“As a result, the current language of the lease agreements potentially increases the state’s liability for claims due to an accident during a MEDC sponsored event,” according to the audit. “The requirement for insurance as written in the 2004 lease agreement appear flawed, making them potentially unenforceable.”
The audit report shows that language in the 2013 MOU between corrections and the MEDIC “potentially voided” the insurance requirements.
MEDC’s lack of non-profit status also means their liability insurance through BRIM was almost canceled. BRIM gave the MEDC a 30-day notice on Oct. 9, but extended MEDC’s coverage to Nov. 8 in order to investigate the matter further. They determined they could still insure MEDC, but auditors said the legislature should look at the state code regarding insuring of non-profits by BRIM.
“About 45 or 60 days into my term as your cabinet secretary, I found out about this,” Sandy said. “This structure was built after the Civil War, after this state was formed. It is old. A piece of stone fell off and hit the ground. What brought this to our attention was the lapse in insurance.”
The DOC entered into the lease agreements with MEDC without the knowledge of DMAPS. Auditors also said this kind of 25-year lease agreement is unusual in state government, and any leases with non-state entities need to be reviewed by the Real Estate Division. Legislation passed earlier this year also now limit leases of the West Virginia Penitentiary to no more than five years.