A Republican View Of FSSA's Failed Privatization From The Inside

Mitch Roob didn't know what he was getting into when he brought Carl Moldthan aboard his FSSA ship back in 2005 as a $45,000 a year administrative assistant. Moldthan, a retired firefighter, worked hard to elect Daniels as the head of the Hoosier Taxpayers Association. In the previous years following his retirement, Moldthan, in addition to being a private business owner, provided consulting services to local governmental agencies. Moldthan recounts a phone call he received from Gov. Mitch Daniels in January, 2005 after Moldthan had been interviewed by the news media about Daniels' call for an income tax increase on persons making more than $100,000 a year in his first State of the State address, a move for which Daniels caught flack from conservatives in Indiana and around the country:

On January 19th I received a call from Associated Press (AP) for an interview. They asked me what I thought of the proposal to increase the income tax for those making over $100,000 per year for one year only. I stated that I had no problem with a one year tax such as that but if it lasted any longer I would have a problem with the Governor. I went on to say that most of the people I represent don’t even come close to making that kind of money.


The following day a statement appeared in a number of Indiana newspapers. On Friday, January 21st I received a call from a gentleman name Jeff (I don’t remember his last name) from Chicago who represented FOX NEWS out of New York. He said he would like to meet me and do an interview on the Governor’s proposal. I explained to him the same thing I told AP. He told me that he might focus on the part about people not making that kind of money. He said thank you and we hung up.

After he hung up I thought since there was no interview and because at that time I supported Governor Daniels that maybe I should call his press secretary and give them a heads up. She was busy so I left a message. About ten minutes later I received a call back from Jane Jankowski and she asked what I wanted. I told her that I thought I would give her a heads up on the call from FOX. She said she had a message to call someone from FOX named Jeff (she gave last name) and I said that was him. She thanked me and I told her I thought the Governor was doing a great job. Again she thanked me and we hung up.

On Fridays, I almost always go to dinner with my sister and her husband. I also always forward my home calls to my mobile phone. I was on my way home and I had just entered Beech Grove and my phone rang. I answered it and said, “This is Carl”. The voice on the other end stated, Carl, Mitch Daniels. I said, “Hello Governor, how are you”. He went on to say that he wanted to thank me for not taking a shot at him that morning and that he knew how easy it would have been. I said, “Well, Governor, if you deserved it I would have, but in my opinion you didn’t deserve it.” He said thanks again and we went on talking. I told him that I was very pleased with his plan to save the state money and was trying to get a job inside his administration. He asked if I still did consulting and I said that I did but that I was looking for a job, job. He said he didn’t know that. I explained that I thought there was more waste in Indiana government than anyone realized. He agreed and he made some comment that he knew that I was good at doing that type of work. We went on speaking for another few minutes but nothing more was discussed about any job.

Because of my admiration of the Governor I worked and succeed in obtaining a job with FSSA. That is when this all began.

Following that phone call with the governor, Moldthan would accept an invitation to join Daniels' new team at FSSA. When Moldthan arrived at his his new job, Mitch Roob wasn't quite sure how to best utilize him. Because there had been so much talk about privatizing the services administered by the county welfare agencies, Moldthan suggested he be tasked to visit all of the offices, learn better what they were or were not doing right and make recommendations to Roob and his management team. Roob thought that sounded like a fantastic idea so off Moldthan went to visit every single county welfare agency--all 105 of them--over the next several months. During the course of his visits, Moldthan would make no fewer than 70 suggestions to Roob and his superiors on ways of improving the agency's operations, changes if implemented, he claims would have resulted in hundreds of millions in savings. Little did Moldthan know at the time that his common sense ideas would be met with scorn, laughter or otherwise summarily rejected by his superiors and would culminate in earning him a trip to Roob's office where he would be undressed for being the most disloyal person Roob had ever met.

What Moldthan came to learn was that Roob was going to privatize the work done by those county welfare agencies come hell or high water. Anyone who didn't believe in privatization should leave, an offer Moldthan gladly accepted after less than a year on the job. Moldthan also learned that Roob had no intention of saving money from privatization. After all, the county welfare agencies comprised only $180 million of FSSA's multi-billion dollar budget, representing just 7% of the agency's entire budget. Surely there were other more effective ways of findings savings at the agency than getting rid of your front-line workers.

Roob must not have shared his "no savings" comments about privatization with his boss. Gov. Daniels promised savings of more than $500 million over the first decade at the time he publicly proposed the privatization initiative in 2006. “Today, we act to clean up welfare waste, and to provide Indiana’s neediest people a better chance to escape welfare for the world of work and dignity,” Daniels said in his press release. “We will make America’s worst welfare system better for the people it serves, a much fairer deal for taxpayers, and for its own employees.”

Moldthan traces the privatization charade back to a KPMG report Roob had done on behalf of the agency in 2005, which he says did nothing more than restate problems that had been identified over the past 20 years but never addressed. As Moldthan explained:

In the early part of 2005, KPMG was hired and completed a report called the Indiana Family and Social Services Administration Diagnostic Report. If any report could be called unfair in it’s use this would be the report. Knowing full well that the operations of FSSA is and has been in terrible shape for years, the new management of FSSA put this totally biased report out saying, “This is prove something needs to be done.”


This report listed known problems that have existed for over 20 years in FSSA. It’s somewhat like telling someone that their roof leaks and they have known about it for 20 years. The best example I can think of is a person who is brought into the Governors office and told by him that he wants you to operate the State Garage. You look at him and because it is such a challenge, you accept. The Governor hands you a pair of pliers and a regular screw driver and says, “Here you go, here’s your tools.”

You immediately take a deep breathe and accept the seemingly unbelievable task and proceed to try and do the job. After 5 years the Governor says, “Well, he’s tried his best to do the job but I’m going to hire a consultant to see if we cannot privatize it to do better.” The consultants report comes back and says that even though you have tried to do a good job, all of the screws are messed up and all the bolts are rounded off. Their advice, privatize!

Now anyone who would read this would say that this scenario isn’t fair. The person in charge wasn’t given the proper tools, the proper money the proper support so how could they succeed? The answer is they couldn’t. If this sounds vaguely familiar to what has happened at FSSA, it is.

While Moldthan disagreed with Roob's plan to privatize the family services work performed by county welfare agencies, he hastens to add that he is not opposed to privatization in general. "I have always been a supporter of privatization and still believe in it," he says. "However, I believe that when privatization is used its purpose should be to bring better service at a less expensive price but it should not be used as an end all tool for problems in government." He continued, "We should check it out to insure it will not harm what we are trying to do. And by far the most important thing is we should not pass on something that we can do ourselves and save even more money."

Moldthan warned Roob and his superiors that they had failed to check out the root of the problems at the county level before making a decision to privatize. "After reviewing the situation in FSSA it has become clear that no one has checked this out and in my opinion will be a very BIG mistake [to privatize]," he warned. "It is also clear that there was NO ONE who spoke against it and if they did, they were told as I was that, "Since you don’t believe in what we are going to do, maybe you shouldn’t work here'" "This cuts out all discussion in the negative and causes much of it to be canned or without truth," Moldthan says. "It also increases the chance of failure when the other side is kept quiet." How prophetic his warning to Roob and his superiors turned out to be.

Moldthan became very disturbed by the disparaging comments Roob was making about the county welfare workers as he was visiting their offices. “They are nothing but glorified order takers”, “They give away too much”, are just but a few of the disparaging remarks that Moldthan noted Roob had made about them. Astonishingly, Roob sent an e-mail to all employees complaining about comments AFSCME representatives had made to them about his privatization plans that included warnings that they would lose their jobs. Roob wrote in that September 1, 2005 e-mail, in part:

It disappoints me greatly to learn of this recent communication to FSSA employees from union representatives. This information intends to persuade you by frightening you. The union representatives who took the time to create this scare tactic have not only given you false information, they have been intentionally misleading by improperly using the seal of the State of Indiana, suggesting they represent the leadership of the state, which they do not . . .

In addition to emails and newsletters to provide you with current information, I am also very willing to respond to phone calls and emails to keep you informed. It is my hope that with enough direct lines of communication between us, misleading memos like the one sent this week will simply go unnoticed by those not willing to fall victim to such a blatant manipulation of the truth.

Moldthan, who by that point had been taken off his road trip to the county welfare offices and reporting back to Roob and his superiors what he learned, took Roob up on his offer of "direct lines of communications between us" and e-mailed him to express his concerns about privatization. He wrote:

I would suggest as I have to Jim Robertson and Zach Main that you start by producing a weekly update to all employees on the issue and progress of privatization. Having been to all counties I can say the fear out there is thick enough to cut and to be honest they don't believe you. Many of them have heard nothing so far except for rumors and such and most of them don't even know what you look like. To be honest I have my doubts and if I do others will surely have them also. By taking me off the road this made some of them even more suspicious. They need someone to talk to, someone they can see and someone they can trust. I believe in privatization and I have many doubts of whether or not it will work and I know a great deal about what is going to happen. If I feel this way then can you blame them?


When I attended the meeting on July 1st you made two statements that surprised and confused me. One was that the part of the budget you were talking about (county offices at $180 million) was only 7% of DFR's total budget. The other is that privatization was not going to save any money. If both of these are true then why may I ask are we going to privatize? You need to keep them informed.

As I stated before these people are paid poorly, eat lunch at their desks and most are more conservative than you and I. They feel what needs to change are the rules and policies and other changes. I think if they were given a chance they could and would succeed at the task of saving money. Unfortunately they're not going to get that chance.

Roob never responded to Moldthan's e-mail.

Moldthan admits to being surprised by the dedication of the more than 1,000 county welfare workers he met during his road trip. Many of them had worked in their jobs for more than 20 years, earning low pay and seldom receiving pay raises. Moldthan said he was shocked to see the conservative leanings of many of the workers, who experienced first hand the fraud and abuse taking place in the system but found themselves completely frustrated by efforts to make changes by middle management folks at FSSA to whom they reported. Moldthan believed that the vast majority of the county welfare workers had voted for Daniels in 2004, even the ones who previously were hired under Democratic administrations. They honestly believed he would make the changes Governors Bayh, O'Bannon and Kernan had failed to address if he was elected. Moldthan outlined some of the basic problems that these workers confronted on a day-to-day basis:

1. No new computers for over 9 years.


2. Many of the forms are still done in paper which takes many extra hours from caseworker’s days.

3. Many very simple problems that cause counties extra work have not been addressed and have been left to fester.

4. Contrary to current beliefs county caseworkers DO NOT make decisions, Indiana’s written polices must be followed. If changes are expected the rules need to be changed and this move would save millions in the cost of employees alone.

5. Present computer forms for various programs such as Medicaid and TANF are out dated and are not equipped with relational ship databases.

6. Counties DO NOT control or have any input into their yearly budgets.

7. No raises. According to some people, out of 25 years they have only received raises 11 times. These people eat their lunch at their desks, work over without extra pay, come in early without pay and many other things that most people would quit over. This being the case they deserve a chance to make it work.

8. Starting wage for a caseworker is $22,700 and most are college graduates and are NOT big supporters of the union. Most are also very dedicated, however, they are anything but liberals in their beliefs about whom and how much the State gives to clients.

"County Offices have computers that are over 9 years old, forms and computer programs that are over 12 years old and many totally outdated policies, rules and regulations," Moldthan lamented to his superiors. "If a private company is hired the rules will be changed and regulations will be suspended to allow things such as phone banks and rules and regulations will be waived." Moldthan was right about that. We all know about the infamous call center in Marion, Indiana run by ACS that much has been written about over the past few years. Moldthan had a whole list of changes Roob and his superiors could make that would achieve real savings without actually privatizing. They included:

• Closing 15 to 20 offices and combining them with other local county offices.
• Reduce staffing at the offices by one-third.
• Modernize the technology used by the workers to increase efficiency, including newer leased computers supported by relational databases instead of static information contained on outdated computers that are unable to communicate with other databases.
• Employ independent medical review teams rather than relying on a client's physician exclusively. Moldthan noted that some offices experienced as many as 50% of the disability claims being based on a clients' claims that they suffered from bipolar disorder. Workers told Moldthan they believed that many of those claims would have and should have been disallowed if independent medical review teams were utilized instead of the client's physician.
• Hire more fraud investigators. Moldthan learned that as much as 25% of the benefits may have been consumed by fraudulently-claimed benefits.
• Allow clients access to computers placed in the office lobbies to fill out basic information in advance of meeting with welfare workers to aid the workers in assisting the clients more efficiently.
• Provide incentive bonuses to county workers who come up with ideas that are implemented and save the agency money.

After Moldthan failed on numerous occasions to get Roob or his other superiors to listen to him and act on any of his suggestions, causing him to become increasingly frustrated, he hand-delivered his findings to Gov. Mitch Daniels, then-Senate President Robert Garton and then-House Speaker Brian Bosma. Moldthan's cover letter included a scathing indictment of Roob's administration of FSSA. Moldthan wrote in his October 31, 2005 letter, in part:

My job with FSSA was to suggest methods to save money. To date, I have made over 70 suggestions with an estimated savings of many hundreds of millions of dollars. However, not one of these suggestions has been implemented and as far as I know have not even been studied. In fact, I have heard every obscure and ridiculous reason NOT to do them. I wish I could count the number of times I have heard, “that’s not our problem” or “that’s not our area”.


I have seen irresponsible management within the agencies and a total disregard for taxpayer’s dollars. I have also witnessed incompetence. The sad part is the only people who seem to give a damn about saving taxpayer money are those employees who work in the trenches and deal directly with the public. They see the waste and tell the appropriate people and then they are ignored.

I believe one of your favorite sayings is, “If you are not keeping score then all you are doing is practicing”. It is sad for me to say that many of the functions in Indiana Government are just practicing due to a lack of interest in change found in middle and upper management.

It is this type of total disregard for taxpayer’s funds that concerns me and creates skeptics in the public sector. After careful thought and consideration I have come to the conclusion that the leaders of FSSA are so focused on privatization that they are disregarding numerous opportunities worth potentially hundreds of millions of dollars in savings. I generally am in favor of privatization and I have made that known on many occasions, however, I have made known my reservations about moving too quickly and without studying this situation to insure success . . .

I voted for you and have worked very hard for your administration because I feel you stand for good and low cost government. I am not convinced that those in middle and upper management are looking out for your best interests and believe as you do in serving the people. Thank you very much for your time and consideration. I would be happy to sit down and talk with you further about my findings and how I think FSSA can better serve the public and make your administration look good while costing less.

Unfortunately, Daniels never took Moldthan up on his offer to meet with him and discuss his ideas and the problems he encountered at FSSA under Roob's leadership. His letter did result in an angry Roob summoning him to his office for a verbal undressing and a demand that he recant the comments in his letter. As Moldthan recounts his meeting with Roob:

On the morning of November 23rd I met with Mr. Roob and John Davis, General Counsel for FSSA and I apologized for not copying Mr. Roob in the original document. Mr. Roob then told me I should write him a letter recanting the entire document as "innuendos", “factually incorrect information" and merely “my opinion”.  Roob stated that I was the "most disloyal person he had ever met." During the entire meeting I sat there quietly and NEVER said a word. I let Mr. Roob babble on.


After the meeting Mr. John Davis came running out of the meeting and stated that he had told me that Mr. Roob was angry. He handed me notes he had taken during the meeting and stated that I should write the letter. I never wrote the letter and NEVER will.

Following that cold meeting with Roob, Moldthan was reassigned to work as an administrative law judge, a post he held for another two months before leaving to join his son in a private venture.

Four years later it has become abundantly clear how right Moldthan was and how wrong Roob was. After spending $361 million on a privatization contract with IBM and its partner, ACS, who just happened to be Roob's former employer before joining the Daniels administration, even Daniels had to agree the effort had become an unmitigated disaster and had become a major embarrassment for him. Daniels cancelled the contract Roob executed on behalf of the state and sued IBM, which in turn has filed suit against the state. The Daniels administration declined requests by the media to compare the cost of the old system run by county welfare workers to the costs under the IBM-ACS-led effort. Daniels' spokesperson said there were too many variables to make such a comparison beneficial. Before the privatization was undertaken, the administration claimed an internal modernization would cost $220 million a year compared to an annual cost of $150 million under the privatization plan.

Daniels has retained ACS's services after cancelling the contract with IBM under a new hybrid approach to delivering welfare services. The fallout from the ill-fated privatization plan continues, however. The Associated Press recently reported that the federal government has levied a $1.2 million penalty against FSSA for miscalculating food stamp benefits.  According to the report, Indiana was only one of four states in the nation facing financial penalties. "The federal Food and Nutrition Service said FSSA, in running the food stamp program for USDA in Indiana, overpaid in 5.45 percent of cases and unpaid in 1.68 percent of cases," Ken Kusmer reported. "That's a combined error rate of 7.1 percent, or more than 1.5 times the national average of 4.36 percent." "FNS also said Indiana erred in 13.69 percent of cases when it came to denying benefits or granting eligibility. The national average was 9.41 percent." FSSA blamed the problems on IBM and its partners, from whom it would seek to recover the financial penalty in its lawsuit against IBM.