The Idaho Department of Health and Welfare failed to follow state law when it distributed millions in federal child care grants, according to an audit released Monday.

The grant program has been the center of a legal battle between the health department and Idaho Attorney General Raúl Labrador. State lawmakers called for an audit earlier this year after a lobbyist raised concerns that the health agency didn’t properly distribute $72 million in Community Partner grants, which addressed learning loss among children during the COVID-19 pandemic.

Lawmakers had previously dictated that the federal funding go to programs serving kids 5 to 13. State health officials failed to follow those instructions, according to a 55-page report released Monday. Auditors with the Idaho Legislative Services Office found that nearly 30% of grant applicants planned to use the funds on programs that served children outside that age range.

“Based on the evidence available, the lack of controls related to expenditures of public funds allowed for grant recipients to use the funds for ineligible purposes and for ineligible age groups that did not meet the purposes specifically defined in the appropriation laws,” the report said.

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Idaho Department of Health and Welfare Director Dave Jeppesen rejected all of the audit’s findings.

“All along, we have welcomed independent, unbiased review of the department’s administration of the Community Partner grants,” Jeppesen said in a Monday news release. “We will meet any review, audit or investigation with cooperation because we stand by our work.”

DHW officials say they followed laws

Health officials said in the report that they complied with lawmakers’ age requirements. Legislation authorizing the grants said that they “shall be used for serving school-aged participants ages 5 through 13 years, as allowable by federal guidance.”

Federal guidance allowed the grants to be used on programs serving children up to 13 years old, and state lawmakers should have included the word “only” in their legislation if they wanted to preclude the funds from going to children younger than 5, the health officials said.

According to the report, the Department of Health and Welfare also didn’t keep sufficient documentation of the grants; some grant recipients received more than the maximum amount allowed; the department provided no evidence that it ensured the age requirements were followed; and the department didn’t properly review applications to verify eligible grant expenses.

The auditors “identified a lack of internal controls throughout the program that resulted in several deficiencies,” and the findings were “serious enough to report to the Idaho attorney general,” the report said.

Labrador, the first-term Republican attorney general, is separately investigating the grants and in March issued investigative demands to Jeppesen, two other high-ranking department officials and dozens of Community Partner grant recipients. The health officials and grant recipients sued to block the investigative demands.

“Sadly, it seems that the auditors adopted the same flawed interpretation of the law that the attorney general has embraced in the last few months,” Greg Chaney, a Caldwell attorney and former Idaho House member who is representing the grant recipients, said in a news release Tuesday.

The health officials also pointed to 4th Judicial District Judge Lynn Norton’s recent decision in their case against Labrador. A former deputy attorney general assigned to the Department of Health and Welfare twice issued a legal opinion that said the department followed the law while distributing the grants. Nortion ruled this month that health officials were “justified” in relying on those opinions.

“We await the (attorney general’s) next step with confidence knowing the grants were distributed legally, as affirmed by his office,” Jeppesen said.