By Deena Winter | Nebraska Watchdog

LINCOLN – A former head of the Illinois child welfare agency — who resigned after an audit found his friend was awarded millions in taxpayer dollars with little to show for it — is now helping Nebraska negotiate how much it will pay a private company to provide child welfare services.

LARGE-SCALE FRAUD: A former head of Illinois’ child welfare system, who resigned amid scandal, is now consulting for the state of Nebraska on child welfare.

Erwin McEwen left his job as director of the Illinois Department of Children and Family Services in September 2011 after that state’s executive inspector general found that a man McEwen described as his “personal friend and mentor” – Dr. George Smith — perpetrated a “large scale fraud” upon the state. The inspector general’s report says both McEwen and Smith failed to cooperate during the investigation, which found millions in grants awarded to Smith’s companies for services that could not be substantiated.

The investigation found more than 100 instances of forged signatures, excessive administrative expenses, ghost employees and suspicious expense reimbursements.

Smith’s companies won $18 million worth of contracts between 2008 and 2011, including about $3 million annually from McEwen’s department. The report said Smith’s fraud went on so long in part due to inadequate oversight by McEwen’s department – for example, one $450,000 grant was “completely unmonitored” by the department for years while other grants had “little to any fiscal or programmatic oversight.”

The investigation found Smith’s companies spent thousands of dollars on tickets to Chicago Cubs, White Sox, Bulls and Bears games.

State employees told investigators they were intimidated by Smith, who told them he only answered to “Mac,” his nickname for McEwen. The report says McEwen repeatedly ignored red flags his employees raised about Smith.

Now McEwen is consulting for Nebraska in its case rate negotiations with Nebraska Families Collaborative – a nonprofit that handles child welfare for the state in Douglas and Sarpy counties.

A spokeswoman for the Nebraska Department of Health and Human Services, Kathie Osterman, said McEwen doesn’t work for the state of Nebraska, but for Casey Family Programs, which provides free assistance with child welfare reform to Nebraska.

Osterman said the department was aware of McEwen’s past in Illinois when he was “offered by Casey as a resource.”

“We reviewed the allegations at that time and determined they were not related to the limited kind of technical assistance he would be providing us,” Osterman said in an email.

Last year he came to Nebraska for some meetings on case rate negotiations, and this year he is available by phone as needed, Osterman said.

A spokeswoman for Casey Family Programs, Sara Fridovich, said the organization has a policy of not commenting on “questions related to staff members, particularly when it is unrelated to the duties they perform for the organization.”

Casey is the nation’s largest operating foundation focused on foster care and improving child welfare systems and helps states implement child welfare practices. The Seattle-based foundation was established by UPS founder Jim Casey.

McEwen did not return a call seeking comment.

David Newell, president of Nebraska Families Collaborative, or NFC, said the state used McEwen for case rate negotiations last year, and the resulting case rate resulted in NFC being shorted about $2 million of its actual costs this year. He contends a third-party study commissioned by the Legislature buttresses his point. The report by Hornby Zeller Associates said NFC “must be compensated based on rates sufficient to cover its allowable and required costs.”

“It doesn’t allow us to cover our true costs,” Newell said of the rate McEwen helped develop. “To me the case rate that the department developed with Mr. McEwen was critically flawed, and the Hornby Zeller report supports that.”

Newell hopes negotiations this year – which are in the early stage and were to include McEwen, according to an HHS document – will resolve that. Up until mid-2012, NFC received a lump sum for handling child welfare for the state in the Omaha area, but now is paid a set rate per case.

“We can’t just continue to invest millions of dollars,” Newell said. “I don’t think that we got a good product last year. The case rate that was constructed last year with the department clearly didn’t cover NFC’s costs.”

Contact Deena Winter at deena@nebraskawatchdog.org. Follow Deena on Twitter at @DeenaNEWatchdog

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