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State Auditor: Iowa Governor Improperly Used CARES Funds For Software System

Grant Gerlock
IPR file
Iowa State Auditor Rob Sand has notified Gov. Kim Reynolds that she misused some federal pandemic relief funding.

State Auditor Rob Sand has notified Iowa Gov. Kim Reynolds that her use of $21 million of federal pandemic relief funding for a new state software system that was approved before the pandemic started is not allowed under the CARES Act.

Sand, a Democrat, said in a letter dated Friday that the U.S. Treasury Office of the Inspector General confirmed his conclusions.

The state contracted with Workday, a human resources and accounting software system, in 2019 and established a five-year payment schedule at that time.

After the coronavirus pandemic began, Congress passed the CARES Act, which sent $1.25 billion to Iowa. Reynolds decided to use $21 million of that for Workday payments that were agreed upon before COVID-19 hit the state.

The CARES Act puts restrictions on what the money can be used for. The first rule is they have to be “necessary expenditures incurred due to the public health emergency with respect to [COVID-19].”

Sand’s office concluded the Workday payments are not “due to the public health emergency.”

“If the governor does not redeploy these dollars to a lawful use, they will have to be repaid to the federal government,” Sand wrote.

Reynolds’ office did not immediately respond to a request for comment Monday afternoon.

According to the letter from Sand, Reynolds’ office tried to justify the expenditure by saying, “with Workday, the State of Iowa will be able to act quickly to assist essential government employees, giving them flexibility in a number of ways, such as requesting COVID-related hardship help, easier ways to request Family and Medical Leave Act leave types, and automate processes for donating leave, and borrowing leave.”

Sand wrote COVID-19 has not changed the purpose of contracting with Workday. The new system was also scheduled to go live in the summer of 2021, which means state employees aren’t using it during the height of the pandemic.

The Cedar Rapids Gazette reported in February that the state didn’t go through the typical competitive bidding process before signing the $50 million contract with Workday, a company that employed Reynolds’ former chief of staff Jake Ketzner as its lobbyist.

In early March, Reynolds said Ketzner was not involved in the contract and that she worked with the attorney general and Sand when deciding to sidestep the competitive bidding process.

Sand wrote his office also reviewed Reynolds’ decision to spend $448,449 of the CARES Act funding to help pay 21 of her existing staff members. Asked about this in December, Reynolds said she believed it’s allowed.

Sand said the use of funds is questionable and recommends “re-deploying those funds” for things like small business relief grants, PPE for essential workers, and expanding testing and contact tracing efforts.

“The work the governor’s staff are doing that is directly related to the pandemic must be tracked separately from their ordinary work, and supported with appropriate documentation,” Sand wrote. “Only then may that portion of their salaries qualify, and not if the work is only indirectly related to the pandemic.”

In a statement, Sen. Claire Celsi, D-West Des Moines, said she had asked Sand to look into the use of CARES funds for Workday.

“Instead of directing more money to testing and contact tracing, paid sick leave for essential workers, food assistance, childcare subsidies, additional money for rent assistance, unemployment insurance, utility assistance, providing PPE to healthcare workers and educators, and to help schools prepare for the winter season—and myriad of other uses—Gov. Reynolds is using the CARES Act money as a means to fund pet projects and make Iowa's budget appear flush with excess funds," Celsi said.

The state of Iowa ended the most recent fiscal year with a $300 million surplus.

On Wednesday, Reynolds told We Are Iowa News that she will ask the U.S. Treasury Office of the Inspector General to review her use of CARES Act funding for the IT project and to help pay her staff salaries.

Shortly after, Sand's office released a letter that the U.S. Treasury Office of the Inspector General sent to the Reynolds administration. The letter, dated Oct. 16, directs Reynolds to stop using coronavirus relief funds for the Workday contract, and to instead use the $21 million for expenses allowed under the CARES Act. The letter does not mention Reynolds' use of CARES Act funds for staff salaries.

This story was updated Wednesday, Oct. 21, at 1:28 p.m.

Katarina Sostaric is IPR's State Government Reporter