Audit accuses former state agency director of conflict of interest—AG wants Shelley Zumwalt’s resignation


A newly-released audit of Oklahoma’s spending of $13 billion in federal grant money found a conflict of interest involving the former head of the Oklahoma Employment Security Commission and led to the Attorney General’s call that Shelley Zumwalt should resign as State Tourism Secretary.

State Auditor Cyndi Byrd released the Federal Single Audit of expenditures made during FY 2022 and discovered what she called new rules created by the Office of Management and Enterprise Services when it received millions in COVID funds,that were  not in the best interest of Oklahoma taxpayers. She said OMES neglected to follow the Oklahoma Central Purchasing Act in conducting a competitive bidding process for private vendors.

The contract in question involved a company named Phase 2 Development (P2) which obtained a 2020 contract without competitive bidding. The contract was for needed improvements to OESC’s computer network mainframe—improvements that were necessary because of the agency’s large backlog of unemployment claims.

Zumwalt was named Executive Director at OESC in May of 2020 and by 2022 had approved additional contracts and change orders to P2 totaling $8.5 million. But Auditor Byrd said Zumwalt did not reveal during the time period in question that her husband, John Zumwalt was Vice President of P2.

“As the Director of OESC, Zumwalt was required to complete annual forms attesting that no related party transactions existed in the performance of her duties regarding the expenditure of funds. In three separate instances, Zumwalt checked ‘No’ on these forms,” stated Byrd’s audit.

“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.”

It wasn’t until the fall of 2022 when Zumwalt finally disclosed her husband’s employment at P2 after she was named Executive Director of Tourism.

Byrd’s audit prompted Attorney General Gentner Drummond to issue an immediate call Tuesday for Zumwalt’s resignation. He said her actions were “wholly inappropriate and potentially unlawful actions.”

He said she used her position as OESC executive director to approve millions of dollars in contracts for the software company where her husband was employed.

“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 Attorney General went on to say the audit findings “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.”

Zumwalt responded immediately by holding a news conference to state she would not resign and there was no conflict of interest.

“Transparency has always been a top priority of mine and I will not be resigning,” Zumwalt declared. “It was not an issue and it’s not a conflict of interest.”

She contended she had been transparent the entire time as OESC Executive Director.

“”This is not something new that is just popping up. I have disclosed this information for probably three years now,” Zumwalt professed.

“I did not have any decision-making authority when OMES hired Phase 2 to work with OESC.”

Zumwalt wasn’t the only target of criticism in Byrd’s audit. She took aim at OMES saying, “The millions in questioned costs during FY 2022 are related to OMES’s disregard for competitive bidding requirements and the systemic lack of oversight and accountability.”

Byrd said it appears OMES was in violation of Federal and State law by not having competitive bidding policies and procedures in place before awarding vendor contracts.

“In my opinion, Oklahoma is rapidly becoming a no-bid state. This is a grave disservice to every Oklahoman,” concluded Byrd.

​”The Office of State Auditor has learned through its audit that questionable conduct has led to an abuse of taxpayer dollars and I am sounding the alarm.”

As a result, Byrd wants the legislature to investigate OMES and its use of a “Rolling Solicitation” process, probe the revenue stream associated with the process and review the “growing list of exemptions to competitive bidding laws that do not protect taxpayer dollars.”

The full FY 2022 Federal Single Audit is now posted here on the Oklahoma State Auditor & Inspector’s official website: