Audit questions millions in Oklahoma COVID spending. Drummond calls for agency head to resign.

OKLAHOMA CITY — Poor oversight and loose contracting practices led to questionable spending of millions of pandemic relief funds meant to help struggling Oklahomans during COVID-19, a state audit has found.

In a report released Tuesday, the Oklahoma State Auditor and Inspector’s Office questioned how state officials spent millions of CARES Act funds and how an Oklahoma City-based nonprofit used $21 million in pandemic relief dollars, among several other concerns.

“The state is 100% responsible for following federal guidelines and ensuring any recipients or subrecipients comply with the terms of federal grants,” State Auditor and Inspector Cindy Byrd said. “Oklahoma taxpayers could be forced to return millions of dollars to the federal government.”

Auditors also found the former head of the Oklahoma Employment Security Commission, Shelley Zumwalt, approved $8.5 million in contract payments to a software company where her husband is vice president. 

Attorney General Gentner Drummond called for Zumwalt to resign in light of the audit report. Zumwalt is now the executive director of the Oklahoma Department of Tourism and Recreation and is Gov. Kevin Stitt’s tourism secretary.

“This level of self-dealing represents an unforgivable breach of trust that disqualifies Ms. Zumwalt from overseeing the expenditure of our tax dollars,” Drummond said. “She should resign immediately and cooperate fully with my office as I seek to determine whether any Oklahoma statutes were violated.”

Zumwalt said there was never a conflict of interest because her husband isn’t an owner of the company and he never worked on state contracts. She said she won’t resign.

“The Auditor’s report is misleading,” she said. “I’ve never had a conversation with Auditor Byrd or her team regarding this matter. A thorough review of this situation would have easily cleared up any confusion on the many sign-offs and disclosures that happened well before I was named executive director of OESC. Transparency has always been a top priority of mine, and I will not be resigning.”

The audit reviewed how the state spent $13 billion in federal COVID-19 relief funds during the 2022 fiscal year.

As a result of the audit, Byrd said the attorney general has asked her office to investigate contracting and procurement policies at the Office of Management and Enterprise Services (OMES). 

Drummond said the investigation into OMES is “sorely needed and long overdue.” A spokesperson for OMES did not immediately return a request for comment.

Byrd urged the state Legislature to investigate a practice of “rolling solicitations” at OMES that she said the agency has used to ignore competitive bidding requirements.

OMES acts as the center of accounting, budgeting, employee resources, IT and more for Oklahoma state agencies. 

OMES was in charge of hundreds of millions of federal aid intended to address challenges related to the COVID-19 pandemic.

State auditors said OMES officials awarded a $325,000 no-bid contract to their former colleague, former state budget director Jill Geiger, in May 2020 to administer CARES Act programs and the Governor’s Emergency Education Relief Fund, which Byrd’s office found in an audit last year to be rife with questionable expenses. 

Byrd said Geiger and her firm appeared to have little experience managing federal grants before the pandemic. 

OMES then failed to verify the specific services and hours of work it paid Geiger’s consulting company to complete, the state auditor said. 

Auditors questioned $718,416 of the $1.1 million that OMES paid Geiger’s company from 2020 to 2022. Byrd said her office received no supporting documentation to fully explain the payments.

“Oklahoma law requires the delivery of goods and/or services prior to payment of vendor contracts,” Byrd’s news release states. “However, OMES made payments to (Jill Geiger Consulting) before verifying any work had been performed. In some instances, (the state auditor’s office) was unable to determine whether the work had been performed.”

Geiger said most of the issues the auditors found were “mistakes of proper documentation or procedural steps that we believed were waived as part of the Catastrophic Health Declaration we were under.” 

“We believe the mistakes that we made represent a small percentage of overall dollars that were reimbursed to agencies and organizations,” Geiger said. “Even though the report contains factual errors, the SAI audits find fault with less than 2% of the total dollars deployed by the procedures we executed. In other words, our company performed the duties for which we were hired and got better than 98% of the reimbursement efforts correct in the middle of a global health pandemic.” 

The Communities Foundation of Oklahoma also hired Geiger to complete federal reports while the nonprofit helped the state government disburse hundreds of millions of dollars in pandemic aid for rental assistance. The programs were meant to help Oklahoma renters facing eviction and experiencing financial hardship as a result of COVID-19. 

Auditors questioned $21 million from the foundation’s contract with OMES, including $8.6 million of “excessive management fees” and almost $6.6 million of rental assistance that instead went to Afghan refugee relocation.

Auditors also found the nonprofit spent $33,399 on restaurants, gift cards and entertainment, like Topgolf and an escape room.

The questioned $21 million could have helped more than 5,300 Oklahomans, auditors found.

The foundation’s executive director, Teresa Rose, said the nonprofit “worked to stay in alignment with the state of Oklahoma and the guidance they provided to ensure compliance and transparency while allocating as much money, as quickly as possible.”

“We remain proud of the work we accomplished as an organization and the amount of people we were able to help in such a desperate time of need,” Rose said.

Geiger’s firm worked for both the nonprofit and the state at the time, the audit states.

OMES didn’t follow the typical competitive bidding process when it hired Geiger’s consulting firm, potentially in violation of state and federal law, Byrd said. The agency used the concept of “rolling solicitations” instead of seeking bids from other, potentially more qualified firms, auditors found.

“In my opinion, Oklahoma is rapidly becoming a no-bid state,” Byrd said. “This is a grave disservice to every Oklahoman. The ‘Rolling Solicitation’ design allows for circumvention of financial safeguards and could place potentially better state vendors at an unfair disadvantage.”

Requirements for competitive bidding were suspended at the time because of the governor’s Catastrophic Health Declaration, Geiger said. 

OMES used the same “Rolling Solicitation” method to hire Phase 2 Development, a local software company, in April 2020 to do IT work for the Oklahoma Employment Security Commission (OESC). 

But auditors found a potential conflict of interest emerged when Zumwalt took over OESC as its executive director in May 2020.

Her husband is a vice president at Phase 2. By 2022, Zumwalt approved $8.5 million in change orders to Phase 2 and additional contracts with the software company. 

Zumwalt’s husband isn’t an owner of Phase 2 and has never worked on state business, she said.

She said she informed attorneys for OESC and OMES about the relationship before she was hired as executive director and “was assured there was no conflict.”

“We did our due diligence to make sure that we had we had disclosed everything we needed to, and there was no box that hadn’t been checked as far as, ‘Is there something we need to put in place?'” Zumwalt told reporters Tuesday evening. “Essentially, we put a firewall between my husband and the state business so that the two shall never meet.”

Zumwalt reported on accounting forms that OESC had not engaged in any related-party transactions, auditors found. Byrd said the executive director should have done so because her husband worked at a contracted company.

Zumwalt later reported the connection to Phase 2 after she was hired as the head of the Tourism Department in 2022.

“Federal law requires that any entity receiving Federal grant money must disclose any conflict of interest in writing,” Byrd said. “Any person who could possibly benefit from a Federal grant cannot be part of the selection, award, administration, or contracting of that money.”

Editor’s Note: This story has been updated to include comments Shelley Zumwalt made during a news conference Tuesday evening after initial publication of this story.