OKLAHOMA CITY, Okla. — Oklahoma State Auditor & Inspector Cindy Byrd released the Federal Single Audit of expenditures made during the 2022 fiscal year on April 23.
This federally mandated audit ensures the state of Oklahoma spends federal grant money in compliance with federal regulations. The audit covered more than $13 billion in federal government aid, most of which came from COVID relief funds.
During the audit, Byrd uncovered COVID allowed the Office of Management and Enterprise to establish new rules for vendor contracts. One rule OMES violated was neglecting to provide a competitive bidding process to vet potential vendors, instead awarding no-bid contracts with COVID relief funds.
Oklahoma Attorney General Gentner Drummond denounced this:
“The audit findings released today show troubling and all too familiar patterns of mismanagement, costing taxpayers millions as a result. Today’s report confirms my previous order of an investigative audit of OMES, which is sorely needed and long overdue."
CARES FORWARD was given $17 million to help the Oklahoma Employment Security Commission improve its computer network mainframe. OESC had a large backlog of unemployment claims.
In April 2020, OMES reached out to Phase 2 Development, a software company used to stabilize and update the OESC mainframe. The audit found the contract was not competitively bid and had not previously contracted with the state.
For two years, between April 2020 and August 2022, OMES paid P2 a total of $7 million to stabilize and update the OESC mainframe.
Shelly Zumwalt, who was appointed OESC's Executive Director in May 2020, signed contracts and payments.
Zumwalt is currently the Oklahoma Secretary of Tourism.
By 2022, Zumwalt approved contracts and change orders to P2, totaling $8.5 million.
During this period, Zumwalt did not disclose her husband, John Zumwalt, was employed as the Vice President of P2.
As the director of OESC, Zumwalt was legally required to complete annual forms attesting that no party transactions existed in the performance of her duties regarding these funds. In three instances, Zumwalt checked "No" on these forms.
“Federal law requires that any entity receiving Federal grant money must disclose any conflict of interest in writing,” reported Auditor Byrd. “Any person who could possibly benefit from a Federal grant cannot be part of the selection, award, administration, or contracting of that money.”
In Fall of 2022, legislation went into effect requiring appointees to the head of agencies to disclose any conflicts of interest to the Ethics Commission.
Zumwalt then disclosed her husband's employment at P2 after being named the Executive Director of Tourism in 2022.
Drummond released a statement after the audit's findings, calling for Zumwalt's resignation:
“One of the most egregious findings is the wholly inappropriate and potentially unlawful actions of Secretary Shelley Zumwalt, who used her position as executive director of OESC to approve millions of dollars in contracts for a software company where her husband was a vice president. This level of self-dealing represents an unforgiveable breach of trust that disqualifies Ms. Zumwalt from overseeing the expenditure of our tax dollars. She should resign immediately and cooperate fully with my office as I seek to determine whether any Oklahoma statutes were violated."
The audit also found OMES solely responsible for administering funds to multiple programs.
While they are within their rights to hire private vendors, OMES is fully responsible for compliance and accurate reporting.
The federal government can hold the State of Oklahoma responsible for paying back misused funds but cannot hold private vendors responsible for repayment.
Byrd said in her findings the state is 100% responsible for following federal guidelines and Oklahoma taxpayers could be forced to return millions to the federal government.
State auditors are saying of the $206 million granted to CFO in 2022, $21 million was expended as questionable costs.
This includes $33,339 in inappropriate credit card charges for entertainment venues, cooking classes, succulent planting classes, painting, and restaurants.
To read the full audit, click here.
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