Federal investigators probing big contracts, personnel at DHHS

A federal criminal grand jury is investigating expensive contracts for high-ranking employees at the state Department of Health and Human Services and for a consulting firm that was hired on a no-bid, $3.2 million contract that later was expanded to more than $9 million.

Included in the investigation is Angeline Sligh, a former manager who supervised the replacement of North Carolina’s Medicaid billing system. Sligh was the subject of state audits that accused her of wasting more than $1 million and hiring people with whom she had personal connections.

The News & Observer on Friday obtained copies of subpoenas requesting records related to those people and contracts. They were served on the state agency in July and signed by U.S. Attorney Thomas Walker and another prosecutor, Banumathi Rangarajan. Authorities requested that DHHS’ records custodian provide the documents by mail or bring them to a grand jury meeting scheduled for last month.

“The Department of Health and Human Services team is cooperating and working with the federal government in this process,” communications director Kendra Gerlach said in a written statement Friday afternoon. “We will continue to respect the confidentiality of the process by the federal government to protect the integrity and fairness of this review.”

The U.S. attorney’s office demanded records related to Les Merritt, a former state auditor who was hired at DHHS; Thomas L. Adams, who briefly served as chief of staff to former DHHS Secretary Aldona Wos; Joe Hauck, who was a senior adviser to Wos and had worked with her husband’s company; and the Washington, D.C., consulting firm of Alvarez & Marsal.

The subpoenas also seek information about Wos, who announced her resignation on Aug. 4. The subpoenas were received at DHHS on July 28.

Authorities requested Wos’ employment contract and application as well as “any and all communications” between Wos, Merritt, Adams, Hauck and the Alvarez & Marsal firm.

Merritt was hired to be the chief financial officer for the state’s mental health division shortly after Gov. Pat McCrory took office. During the first six months of the contract, in 2013, Merritt said he worked 200 hours and he was paid $52,000. That rate of $260 an hour made him the highest-paid hourly employee working on a personal services contract in state government that year.

The contract paid Merritt $312,000 for a year, after which he left the department.

Like Merritt, Hauck also received a no-bid contract. He worked for Wos for 11 months, taking a leave from his regular job as an executive in her husband’s company. He signed up to work for two months, but contract extensions kept him there for most of a year. He was paid $310,000, which was about $50,000 more than the annual salary of the agency’s highest-paid doctor.

Adams worked in the department for just one month, after which he received $37,227 in severance pay.

The consulting firm Alvarez & Marsal was hired to manage the state’s Medicaid finance office on a $3.2 million contract that has since been extended four times and is now worth more than $9 million. Its role was expanded from Medicaid budgeting to include responsibility for making sure the government insurance program for the poor, elderly and disabled is running the way it’s supposed to.

One subpoena seeks copies of the agency’s job postings, applications, payment records, performance evaluations, emails and records related to state audits, as well as rules for hiring temporary workers and overtime payment that are related to Sligh and 30 other people identified as DHHS employees.

Three state audits criticized Sligh and her work converting the state’s Medicaid billing system, which was plagued by contract disputes and millions of dollars in unanticipated costs. Audits found that Sligh was responsible for at least $1.6 million wasted over three years through excessive pay to temporary employees, paying temp agencies instead of the state’s less expensive in-house service, paying unjustified overtime, and giving holiday pay to ineligible employees.

At least 15 people with personal connections to Sligh were hired in her office. She had hired friends and others she knew, including some from the church she attended and her hairdresser’s sister.

As auditors were wrapping up their third investigation into the matter, Sligh received a 25 percent pay increase, bringing her salary to $135,000, the same as the governor’s. DHHS said the prior administration initiated the raise but refused to provide to The News & Observer a copy of the document showing who approved it.

Attempts to reach Wos, Sligh and Merritt failed on Friday.

This story was originally published September 25, 2015 at 4:49 PM with the headline "Federal investigators probing big contracts, personnel at DHHS."