Blistering exchange audit questions $32 million in spending including possible illegal lobbying

By Katie Kerwin McCrimmon

A scathing audit of Colorado’s health exchange uncovered more than $32 million in problematic spending of federal tax dollars and possible illegal use of tax money to pay for barred activities such as lobbying and marketing.

Colorado Auditor Dianne Ray right with Rep. Dan Nordberg, R- Colorado Springs and audit committee chair, Sen. Lucia Guzman, D-Denver, at a meeting Monday of the Legislative Audit Committee.

Colorado Auditor Dianne Ray right with Rep. Dan Nordberg, R- Colorado Springs and audit committee chair, Sen. Lucia Guzman, D-Denver, at a meeting Monday of the Legislative Audit Committee.

The problematic spending accounted for nearly one of every four dollars the exchange had spent as of May when the audit period ended. Altogether, Connect for Health Colorado is slated to receive at least $177 million in federal funds and by the end of May, managers had spent $136.5 million.

Lawmakers on the state’s bipartisan audit committee called the financial mismanagement the “tip of the iceberg” and pledged to support a more extensive exchange audit in 2015. A measure supporting a follow-up audit could move forward from the Colorado legislature’s audit committee as soon as tomorrow.

Earlier this year, Connect for Health’s former CEO, Patty Fontneau, hired a private lawyer to lobby against a broad audit. That audit bill passed the House with support from all but one lawmaker, then Senate Democrats killed the bill. (Click here to read: Republicans furious as Dems kill exchange audit bill.)

On Monday, contrite exchange managers and board members promised that they would not fight a more comprehensive audit.

The exchange also contracts with a lobbyist, Joan Turner of J. Andrew Green and Associates. Turner attended Monday’s audit committee meeting along with about a dozen exchange staffers, communications consultants and board members. If exchange managers paid Turner’s bills with federal funds, that could be illegal as well. Exchange spokesmen did not immediately respond to questions about how much Turner has been paid or whether the exchange had tapped federal funds to support lobbying.

Joan Turner, left, a lobbyist for Connect for Health attended Monday's hearing along with communications consultants, Ben Davis and (middle) and Curtis Hubbard. They were among about a dozen consultants, staffers and board members who attended the hearing.

Joan Turner, left, a lobbyist for Connect for Health, attended Monday’s hearing along with communications consultants, Ben Davis (middle) and Curtis Hubbard (right). They were among about a dozen consultants, staffers and board members who attended the hearing.

Lawmakers say the audit shows problems that underscore the need for additional oversight.

“We have several violations of federal law. We have several more that we think are violations of federal law, but we don’t know because of (lack of information) from Connect for Health,” Rep. Dan Nordberg, R-Colorado Springs, said following Monday’s meeting of audit committee.

Nordberg is a member of the committee and was a sponsor of the earlier legislation seeking a broad audit.

He said he was deeply concerned, but not surprised by the allegations of extensive wrongdoing. He said much better oversight is needed.

“This is taxpayers’ money. When you’re in government, you’re in a position of trust,” Nordberg said. “The way that these funds were used is clearly a violation of federal law and is troubling on many levels.”

Auditors found consistent overbilling, improper contracting and oversight of consultants, failure to document spending, improper spending on food and travel for employees and failure to seek approval for hefty bills that were supposed to require board sign-off.

The problems included:

  • Overpayments far beyond contracted amounts. For instance, one contractor, North Highland, had a $350,000 agreement and exchange managers subsequently paid the consultants nearly $3.5 million. That was an increase of 887 percent, the auditors found. An exchange spokesman said North Highland provided invaluable services and that senior managers and board members “were aware” of the increasing costs.
  • Managers paid an unnamed contractor $4.68 million more than the $6.4 million the contract called for.
  • Another contractor received $2.5 million more than the $6.1 million it was supposed to receive. That contractor also is not named.
  • Possible illegal lobbying. Exchange managers paid one vendor $128,798 to “engage voters regarding health care” through canvassing. Connect officials say that company, a firm named Field Works, tried to get people to sign up for health insurance, but did not lobby them. A spokesman said the contract used the wrong words to describe the firm’s work.
  • Managers failed to rein in costs for consultants. In one case, they paid another unnamed contractor $175 an hour and a total of $1.7 million over two years to help negotiate IT contracts instead of having employees perform this job.
  • Connect for Health’s board was supposed to approve any expenditures over $150,000, but the audit found that managers paid at least $21 million to five contractors for expenditures the board did not approve. These included expenses for software licensing and furniture for the call center.
  • Marketing officials paid $38,344 for 100,000 tubes of lip balm when the federal government prohibits promotional giveaways.
  • Connect for Health paid for catering for employees against federal rules and paid $584 for a vendor’s personal travel expenses. The vendor was training call center staff in Arizona and the exchange paid for the person to fly back to Denver during the middle of a three-day period.

Gary Drews, interim CEO of Connect for Health Colorado, repeatedly stated that he agreed with the findings and that the state exchange would try to do better.

When Nordberg wanted to know why the exchange had paid the $128,000 for what appeared to be lobbying, Drews paused for more than a minute trying to come up with an answer and ultimately couldn’t provide one.

“This one is true,” he said, almost inaudibly. “It’s a finding we couldn’t correct.”

“I don’t understand what it is,” Nordberg said, adding that a “paid canvassing operation “ sounds highly political.

“I’m afraid I can’t answer that,” Drews said.

Drews did say that the exchange would correct any wrongdoing quickly.

“We know we can improve,” said Drews who took over as interim chief three months ago and now is leading the organization that has no permanent CEO, a CFO or a COO.

Gary Drews, interim CEO for Connect for Health Colorado sits with the exchange's controller (left) and board members (right) during a hearing of the Colorado legislature's audit committee. Drews vowed to fix the financial problems at the exchange.

Gary Drews, interim CEO for Connect for Health Colorado sits with the exchange’s controller (left) and board members (right) during a hearing of the Colorado legislature’s audit committee. Drews vowed to fix the financial problems at the exchange.

“We’re very committed to maintaining the trust that we must convey not only to our customers, but to our carriers and ultimately to the people of Colorado,” Drews said.

Lawmakers from both sides of the aisle attacked exchange managers on multiple fronts, from using some call center employees outside of Colorado in Arizona to spending far too much money on marketing.

“Why are we spending 10 percent, or about $7.2 million (during the audit period) for a program that we anticipated people are going to flock to,” Rep. Jerry Sonnenberg, R-Sterling, asked about the exchange’s marketing and outreach spending.

Lawmakers also questioned how much the exchange has spent to hire Jonathan Gruber, the MIT consultant who has been vilified for saying that the Obamacare architects had relied on the stupidity of Americans so they would support health reform. Connect for Health paid Gruber and his team $240,000.

Lawmakers were especially irked that Fontneau had hired lawyer Mark Grueskin to help her testify about why lawmakers shouldn’t conduct a full audit of the exchange.

“(That bill) was killed rather abruptly after some swift lobbying. Are public funds used to hire lobbyists and are those lobbyists being used to oppose public policy?” Nordberg asked.

Exchange officials did not give specific answers to that question and audit staffers said the exchange routinely failed to adequately document payments.

Drews stated that his approach was quite different from his predecessor’s.

“I value audits no matter the source. I stand here indicating that we are agreeing with all of the recommendations made and will implement (fixes). Obviously it’s your choice whether to expand the scope of the audit. I would invite you to look more closely at the organization,” Drews said.

But Nordberg and others wanted more specific answers.

“If we’re breaking federal law, we’re breaking federal law,” he said.

Members of the auditing staff said they did not have broad enough authority and couldn’t get specific enough answers to know if the exchange improperly paid lobbyists.

“Often, payments in our samples weren’t clearly documented,” said Jenny Page, a member of the auditor’s staff who presented the findings.

“So we just don’t know?” Nordberg said.

“Yes, that’s correct,” Page responded.

The audit found that exchange officials failed on numerous fronts to spend money wisely and properly account for it.

“Overall, Connect for Health didn’t have adequate controls over its purchases and some (staffers) weren’t aware that they needed to support the payments with documents,” Page said. “We heard from staff that they were trying to pay people quickly. We also found that (the exchange) didn’t always allocate staff to oversee payments. It didn’t have a controller or key accounting staff to see how payments were made.”

Sonnenberg asked if there will be repercussions with federal officials.

Auditors said they will report all their findings to the federal government and they could decide to seek reimbursements or pursue allegations of illegal payments.

Lawmakers said they wanted to see a dramatic turnaround in what they perceived as an attitude of cavalier spending.

Said Sen. David Balmer, R-Centennial: “I am profoundly concerned that there may have been an attitude at Connect for Health Colorado that this early influx of tax dollars was money from the federal government and that the exchange felt they needed to spend quickly before it ran out.

“I’m very disappointed that any entity would spend tax dollars in a less than efficient manner. We should never allow that to happen at any level of government.”


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