Audit: Ducey’s office misused COVID-19 relief funds

Arizona misappropriated more than $20 million in federal COVID-19 dollars in the first few months of the pandemic and another $1.6 billion was given away in fraudulent claims, state auditors concluded in a report.

The Arizona Auditor General’s Office on Wednesday issued a report to lawmakers detailing how Gov. Doug Ducey approved $22 million in “unallowable costs” that were not incurred in response to the COVID-19 public health emergency as defined by federal regulations.

The Governor’s Office allowed the state to give that money to state agencies to pay for $19 million in payroll costs incurred before March 1, 2020. The remaining $3 million was to reimburse local governments for the same purpose. 

The audit only examined fiscal year 2020, which ended on June 30 of that year; auditors are already compiling information for the entirety of fiscal year 2022, which is due later this year. 

Ducey was also previously found to have spent $400 million to beef up salaries for state agencies and other government employees, which in turn would pump money back into the state’s general operating fund to offset the spending. 

This new indiscretion from Ducey’s office is one in a series of questionable pandemic relief spending by the governor. In one case, the state is fighting in court over how Ducey directed federal aid for schools only to school districts that did not have mask mandates, withholding aid from those that required students and staff to wear masks on campus. And additional COVID-19 relief money was set aside to fund school vouchers for parents who pulled students out of schools to avoid mask mandates. 

Ducey has since signed a bill into law banning mask mandates in schools. 

Auditor General Lindsay Perry and her team told a legislative panel this week that Ducey’s office has worked with the state agencies and local governments to “replace all $22.4 million in unallowable costs with allowable costs the state incurred during fiscal year 2020.”

While auditors noted the $1.6 billion in unemployment fraud in the report, problems the Department of Economic Security faced combating fraud through the pandemic and with its unemployment benefits system was already known, as the Arizona Mirror previously reported. 

And the total, which only includes money received from the feds and spent through June 30, 2020, is less than half of what was given to unemployment fraudsters: The agency was bilked out of another roughly $2 billion in fraudulent claims through Sept. 4, 2021. That fraud could have been largely avoided, but wasn’t because DES “did not put all critical identity verification or other anti-fraud measures in place before paying federal CARES Act unemployment insurance (UI) benefits,” the report notes. 

Part of the Joint Legislative Audit Committee agenda on May 25 was for the auditor general to provide a report of the office and how its handling its work, which Perry noted is not going as smoothly as it could. 

Perry told lawmakers that her office, like the Legislature and everywhere else, was not immune to the “great resignation” and it has clearly affected the day to day duties. 

“In 2021, the Office lost several experienced auditors who left for other State and local governmental agencies or private entities paying higher salaries,” she said in a letter to the committee, adding that many cited their reason for leaving was “compensation package below market value.” 

As was common during the pandemic, Perry noted that the high turnover was filled with recent graduates that did not have any auditing experience — and that the number of applicants were significantly lower than pre-pandemic levels. She said the office is still understaffed by 34 auditors, which accounts for roughly 50,000 lost audit hours.

The auditor general is tasked with looking into state agencies overall government ability at the behest of the legislature. They provide lawmakers with factual statements about how agencies and other bodies of government are spending taxpayer money and provide recommendations as improvements. Perry was adamant that she and her staff stay out of “politics” and leave decisions to be made by the state legislators. 

“Our ultimate goal is to make a positive difference by promoting better government,” Perry wrote, adding that her office conducts 170 audits per year, which equates to “one report every 1.5 business days.” 

The auditor general has oversight of roughly $50 billion annually and has to report it all back to the state legislature, so having inexperienced and underpaid staff is worrisome to Perry, who is in the fourth year of a five-year term leading the office. 

“We understand that matching private sector salaries is not financially feasible. However, the inadequate compensation affects all professional staff, and compared to other State and local government agencies, the Office’s salaries are low,” Perry told the lawmakers.

Lawmakers are currently deadlocked on a budget for the 2023 fiscal year, which begins in July. The auditor general has asked for an additional $2.25 million on top of the roughly $20 million it currently receives.