Maine Not Likely To Face Penalty For Misspending $13.4M In Federal Welfare Funds

Nov 9, 2017

The Maine Department of Health and Human Services spent more than $13 million in federal welfare funds unlawfully in 2015 and 2016, but the state is unlikely to face a financial penalty for the misuse.

Maine DHHS spent $13.4 million in federal welfare funds over the course of those two years on services for elderly and disabled Mainers, including in-home care and Meals on Wheels. Federal law, however, requires that states use the money on programs or services for low-income families with children.

The misspending of money the state receives each year through the Temporary Assistance for Needy Families grant rose to the attention of the federal government through a BDN Maine Focus article in June 2016 and a subsequent report from Maine’s state auditor. Maine DHHS had taken funds from the state’s TANF grant, transferred them to another federal grant account called the Social Services Block Grant, and spent the money on services for elderly residents — a violation of the federal law governing those fund transfers.

The report from State Auditor Pola Buckey, first released in October 2016, highlighted the state’s “improper management” of federal funds. The department “took an overly aggressive approach” that showed “troublesome” practices in managing federal grant awards, Buckley wrote in her report.

The federal government relies on an annual report submitted by the state auditor to flag any misuse of federal funds by the state.

Under federal law, states can face penalties for their misuse of TANF funds; the agency that disburses the funds, the Administration for Children and Families, would reduce funding in the following year by the amount the state misused. In addition, the department can impose an additional penalty if it finds a state has intentionally misspent the federal funds.

Federal officials are still reviewing the audit report, but a penalty is unlikely in this case, Administration for Children and Families spokesman Patrick Fisher wrote in an email.

That’s because Maine DHHS reversed its unlawful spending of TANF money following the BDN’s reporting — retroactively paying for the services in question with state taxpayer funds and returning the federal funds to the TANF grant account. The agency met a Sept. 30, 2016, deadline for reversing the transfer of the 2015 funds.

Liz Schott, a lawyer and senior fellow at the Center on Budget and Policy Priorities who specializes in assistance programs, said it’s not a surprise Maine will face no penalty for the misuse of federal funds, given that the state eventually returned the misspent money to the TANF account.

The U.S. Department of Health and Human Services “is really about getting states to do things correctly and come into compliance, and less about penalizing states,” she said. “Taking money away just penalizes the services and recipients for whom that money was intended.”

The fact that Maine DHHS faced no questions from federal overseers about the misspending until the BDN asked questions highlights how little federal oversight there is over how states spend grants such as TANF and the Social Services Block Grant, Schott said.

“Even though there’s a lot of flexibility, there are supposed to be some parameters, but there’s not really a mechanism for monitoring or enforcing those parameters,” she said.

Maine DHHS has publicly maintained that it misspent the money because department officials were unclear on federal rules, which state that the funds “shall be used only for programs and services to children or their families whose income is less than 200 percent of the income official poverty line.”

The spending was part of a DHHS effort to save state taxpayer money by using TANF funds for a broader range of services. In 2016, the state had accrued a balance of $150 million in unspent TANF funds as the result of more than four years during which the number of low-income families receiving TANF-funded cash benefits fell by more than 60 percent.

“When DHHS could not obtain formal guidance from federal officials permitting more flexible use of TANF dollars, the Department reversed prior transfers,” DHHS wrote in response to the state auditor’s finding.

But records show DHHS didn’t request that federal guidance until after it had reversed the spending.

More than 300 pages of internal DHHS emails released to the BDN earlier this year also showed that staff members in then-Commissioner Mary Mayhew’s office were aware that federal law prohibited their use of the federal welfare funds on services for the elderly. They also had warnings from state finance staff that the spending was questionable.

Mayhew later promoted the staff member who oversaw the spending, Sheryl Peavey, then DHHS’ director of strategic reform, to the top position at the Maine Center for Disease Control and Prevention, chief operating officer.

Mayhew is now running for the Republican nomination for governor. DHHS’ current commissioner, Ricker Hamilton, announced recently that Peavey has returned to the role of director of strategic reform, the position she held when she oversaw the misspending of TANF funds.

This story appears through a media sharing agreement with Bangor Daily News.