State Requests Change to 2020 Audit after Treasury Review of Iowa’s Use of COVID Funds

By Robin Opsahl
Iowa Capital Dispatch

The Iowa Department of Management is asking the state auditor’s office to amend a report that found Gov. Kim Reynolds had improperly used federal COVID-19 relief funds to pay for staff in 2020 after the U.S. Treasury Department determined this finding was unsustained.

Kraig Paulsen, the director of the Department of Management, sent a letter Wednesday asking Auditor Rob Sand to amend the Iowa’s Fiscal Year 2020 Statewide Single Audit Report to reflect the new U.S. Treasury management decision. Sand is the only Democrat to currently hold statewide elected office and he is running for governor in 2026.

In 2021, Sand released the report that found the Office of Governor had used $448,448 of federal coronavirus relief funds to pay salaries and benefits for 21 employees between March 2020 and June 2020.

Reynolds had defended the decision to use the COVID-19 relief funds on employees in 2020, as the federal dollars were eligible for use of government employees’ salaries if those employees were “substantially dedicated” to COVID-19 response efforts. The governor said the staff whose positions were paid for using the relief funds had been working on virus management instead of performing their regular duties during this time period.

Sand said the governor’s office had failed to prove these employees were dedicated to pandemic relief efforts during the three-month period.

A letter sent June 2 from the Treasury to the state stated the audit finding determination that these funds went to an unsupported use was “unsustained,” and reinstated the funds. According to the letter, the Treasury Office of Inspector General “followed up on the single audit finding in November 2021 and reviewed documentation provided by the State of Iowa to substantiate that the costs were for ‘substantially dedicated’ employees and determined the expenditures to be allowable.”

This correspondence between the state and U.S. Treasury was included in the letter sent by Paulsen to Sand Wednesday when asking for the auditor’s office to amend the 2020 Statewide Single Audit Report.

“The basis for this request is clear: the cognizant federal agency has determined the finding should not be sustained, and the audit record must be corrected to reflect that determination,” the DOM letter states.

The letter further states that not amending the 2020 audit could negatively impact the state moving forward, as the audit is “factually inconsistent with the federal record” following the Treasury’s determination.

“So long as it remains uncorrected, it creates material risk of adverse consequences for Iowa on future federal awards and misrepresents the State’s compliance standing in the Federal Audit Clearinghouse,” Paulsen wrote.

But Sand said the Treasury’s findings under President Donald Trump’s administration are politically motivated. He pointed to correspondence with the U.S. Treasury in 2021 — under former President Joe Biden’s administration — which had supported the auditor’s findings and called for the state to return the nearly $450,000 to the state’s Coronavirus Relief Fund.

The 2021 letter from the Treasury had stated this decision was reached because though the Treasury Office of Inspector General had been provided documentation of work done by the governor’s office staff that included a spreadsheet listing “% Focused on COVID” by employee, “the Office of the Governor was not defined by the U.S. Department of Treasury OIG (Treasury OIG) as ‘substantially dedicated’ and, accordingly, any salaries and benefits charged against the CRF must be specifically, not generally, documented.”

“We stand by the report,” Sand said in a statement. The new administration’s six-year-late retroactive acceptance of the Governor using COVID funds to boost her staff’s salaries doesn’t change the facts at the time. We will not bow to this political pressure.”

Sand also stated “no one should trust an administration that passes a law that lets them hide corruption and keep taxpayers in the dark,” referencing a 2023 law restricting the state auditor’s ability to access personal information during investigations and limits the auditor’s subpoena power.

The use of federal funds for governor’s office employees was not the only dispute between Sand and Reynolds on COVID-19 dollars. In October 2020, Sand said in a report the governor wrongfully allocated $21 million in federal pandemic funds to pay for the state’s transition to Workday software. Reynolds returned the $21 million in December, and the state Legislature approved $21 million in state funds for the contract in 2021.

This story was originally published June 24 on the Iowa Capital Dispatch website. Iowa Capital Dispatch is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.