The state of Colorado may have to return more than $1 million in homeland security grants after a review by the federal government raised concerns about how the money was spent.
Barbara Kirkmeyer, director of the state's Department of Local Affairs, confirmed that she received notice Tuesday from federal officials of several potential problems raised in a "monitoring report" of grants provided to Colorado since 2002.
The concerns include the way that the state used local government grants to pay for its new emergency operations center in Centennial. In that case, the Department of Local Affairs, or DOLA, sent $5.9 million to the South Metro Fire District, which turned around and gave the money back to the state for construction and equipping of the building.
That Byzantine funding route was also cited by a critical state audit in November, when auditors said that the emergency operations center came about through a "less than transparent series of transactions" and said they identified "problems in several areas" of the deal.
Kirkmeyer said she was out of the office Tuesday and had little chance to study the report's details. Although she emphasized that the letter marked the start of negotiations with the federal government, "repayment (of grant monies) is always one of the possibilities."
Several grants were the subject of scrutiny in the report, Kirkmeyer said, including some stretching back to 2002.
It also referred to issues brought up by the state auditor, she said, as well as a need to strengthen "internal controls."
"I do know that this is just the beginning of the process," Kirkmeyer said. "(Federal officials) come in, they review and give us an opinion. We have the opportunity to work with them now."
In all, federal monitors questioned nearly $2 million in expenditures, including money that went for salaries and miscellaneous expenses, the Rocky Mountain News has learned.
In addition, the News has confirmed that state officials were notified of the problems in a letter from monitors in the federal Office of Grant Operations, part of the federal Department of Homeland Security, and were given 90 days to respond.
That letter followed a visit by federal officials to Colorado in the wake of the state audit, and led those officials to conclude they were "in substantial agreement" with the recommendations of the state auditor.
In all, Colorado has received $138 million in federal homeland security grants for anti-terror protections in the aftermath of the Sept. 11 attacks.
The money has been doled out to a vast number of law enforcement and local government agencies across Colorado, for expenditures ranging from emergency equipment for small-town fire departments to sophisticated RV-like incident-command vehicles for use in the Denver metro area. The city and county of Denver and many state agencies have also received funds.
One transaction under particular scrutiny was the use of local government grants provided by DOLA to the South Metro Fire District to build a new 911 dispatch center for the district.
At the time, South Metro also had office space available that the state wanted for its new, state-of-the-art emergency operations center.
The state audit said, "Through a less than transparent series of transactions, DOLA granted South Metro the funds to help design and equip South Metro's 911 Dispatch Center in exchange for the state's lease of office space for the state's" emergency operation center.
In addition, the audit found, DOLA awarded "several other grants" to South Metro so that the state could build out and equip office space for the emergency operations center.
"On paper, DOLA granted about $5.9 million to South Metro; however, substantively, DOLA awarded these funds to itself, funneling the grant funds through South Metro to pay for a state building project," the audit said.
Details of the transaction consume about seven pages of the 80-page state audit, which accuses DOLA officials of failing to comply with federal laws and guidelines when it used the homeland security grant money for the state office space.
But DOLA's then-executive director, Mike Beasley, defended the plan even as state auditors skewered it. He called it perfectly legal and said it was approved in advance by various federal and state officials. He also noted that the state's emergency operations center is a benefit to local communities.
Before the state auditor's finding, Beasley called the financing plan to build the state's emergency operation center an ingenious shuffling of funds to meet state security needs.
Beasley left the agency in December to take a government relations position with Xcel Energy.