Updated Nov. 3.

The Oklahoma State Department of Health went more than a year without a chief financial officer, and questions later arose about whether the agency overestimated revenues and used restricted federal funds to fill the gaps, sources told Oklahoma Watch.

However, a former chief financial officer at the agency said he had no knowledge of restricted funds being used to cover shortfalls.

Complicating the agency’s finances was a struggle by state information technology officials to integrate the health department’s internal financial system with the state’s consolidated system, the former CFO said.

Along with state funding cuts, the cash-crunch issues intensified over time and led to a crisis that came to light in late summer this year. Employees were told Thursday the agency’s budget gap reached $30 million, three times the amount reported by the department earlier, though officials said Friday the figure remains a moving target.

In response, the agency has begun furloughs of certain employees and said it plans to reduce 12 percent of its workforce in early 2018. Also on Thursday, the department told employees it may not have enough money to pay them later this year.

State officials declined to provide details on how the agency might address its looming payroll issues. Also in question is whether the agency can afford to cut jobs, since that reduction must be accompanied by cash payments for health insurance and any longevity payments due to the employee, according to state law.

In recent months, the health department also canceled contracts and tried to expedite billing from partner agencies and counties. It recalled $3 million in state grant money passed to the Tobacco Settlement Endowment Trust for the Healthy Incentive Grants initiative for communities and schools, according to a letter sent to TSET in August. The health department also announced it would end funding for certain services involving 25 health center contracts and nine child abuse prevention providers.

State Auditor and Inspector Gary Jones recently began work on a special audit of the agency requested by the health department in September. However, on Thursday that audit was changed to an investigative audit, or “performance audit,” under the control of Attorney General Mike Hunter.

Finance Secretary Preston Doerflinger took over as interim health department commissioner after the resignations of former Commissioner Terry Cline and Senior Deputy Commissioner Julie Cox-Kain were announced in an emergency board meeting on Monday. Other departures include the agency’s general counsel, Don Maisch, and Felesha Scanlan, business planning director.

“Mr. Doerflinger held several meetings today with managers and employees in the counties and around the state as well as with the entire central office staff,” health department spokesman Tony Sellars said in an email Thursday. “During those meetings, he gave them an idea of the challenges facing the agency and what his focus would be to ease the current financial crisis.”

Oklahoma Public Employees Association spokesman Tom Dunning said cash flow appears to be the issue.

“I’ve never heard of an agency not making payroll – it would be unprecedented,” Dunning said.

Details of how the health department fell into crisis remain vague. Upon accepting resignations on Monday, the state Board of Health attributed the problems to “years of over-expenditures and fiscal mismanagement.”

Several state officials who did not want their names disclosed said questions have emerged about whether restricted federal grant funds were tapped to cover shortfalls in other areas. A previous chief financial officer, Mark Davis, however, said he wasn’t aware of those practices. No official has indicated that illegal diversion of health-department funds for personal gain is suspected.

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The health department’s annual budget last year was about $403 million, with nearly $55 million, or about 14 percent, coming from state appropriations. Much of the agency’s money comes from the federal government for nutrition programs like Women, Infants and Children (WIC), immunizations and other public health needs.

The department said its state appropriation fell almost 30 percent from 2009 to 2017. During that period, the agency’s total budget grew by 8.9 percent, from $370 million to $403 million, according to historical budget documents.

The health department has blamed its current cash shortfall, at least in part, on reductions in federal grants that totaled more than $9 million in recent years. In budget documents submitted to state finance officials at the end of June, the department noted a $2.8 million, or 1.6 percent, reduction in federal grants for fiscal 2018.

Davis, the former CFO, left the department in March 2016, but the CFO position remained open for about a year.

Davis, now living in Colorado, said the agency’s internal financial system dated to 1982 and wasn’t fully integrated with the state’s consolidated PeopleSoft system, called CORE.

“The finances are very complicated,” Davis said. “There’s federal grants, revolving funds and state appropriations, as well as offices in 68 counties. It’s a beast of an operation in terms of finances.”

Officials with the Office of Management and Enterprise Services said integrating the health department’s financial system has been challenging.

“We are working on a plan and have staff putting together possibilities for a proposal, but as of right now, there isn’t anything formal to enforce a move,” said OMES spokeswoman Shelley Zumwalt. Another hurdle is limited resources, she said.

Davis, who worked his way up to CFO after starting as an accountant in 2005, said he wasn’t surprised it took so long to fill the CFO position after he left.

“It was a challenging position,” he said. “I was there for 13 months, and there was a lot of 60- to 80-hour weeks. I imagine they were pretty up front about the challenges in the position to job candidates.”

Sellars said an interim CFO held the position until a permanent hire could be made. He declined to provide details on the job search or name the interim CFO. A job posting from early 2017 lists some of the position’s duties, including ensuring controls are in place and working with internal and external auditors.

The timing of any release of more information on the department’s problems is unknown.

After voting to accept the resignations Monday, state health board members left without comment, and did not respond to requests for interviews.

Officials with the Health Department, the Attorney General’s Office, the State Auditor and Inspector’s Office and the Office of Management and Enterprise Services also declined to explain in detail what known facts precipitated the accepted resignations of top officials.

The shift to an investigative audit could mean less information will be disclosed.

In a 2015 audit examining possible wrongdoing in the awarding of demolition bids at the Tar Creek Superfund site in northeastern Oklahoma, then-Attorney General Scott Pruitt ordered Jones, the state auditor, not to release the results.

Under state law, the attorney general can order investigative audits to remain confidential, or only part of an audit to be released. In the Tar Creek case, Pruitt declined to bring charges against a relocation-assistance trust that awarded the bids.

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