Audit finds CYFD misspent funding intended to expand behavioral health services for children

SANTA FE — A recent audit into the Children, Youth and Families Department’s handling of funds intended for children’s behavioral health services found more than $4.2 million in misspent dollars and lax internal controls.

In a letter to top-ranking members of the Legislative Finance Committee, state Auditor Joseph Maestas also said $6 million of an initial $20 million appropriation had gone unspent due to procurement delays.

The state auditor said the findings largely substantiate the concerns of the legislative committee, which asked his office last summer to review how the $20 million appropriation was carried out.

However, a CYFD spokesman said Thursday the agency does not believe it acted improperly in spending the funds, saying the department sought and relied on legal and fiscal counsel before moving forward.

"The expenditures were made in good faith to expand behavioral health services and strengthen community child welfare capacity, with the understanding that they were consistent with legislative direction," CYFD spokesman Jake Thompson said in a statement.

He also said the agency, which is under new leadership after Gov. Michelle Lujan Grisham appointed Valerie Sandoval as acting secretary in September, is working on updating its processes to avoid similar situations in the future.

"The audit reflects a difference in interpretation regarding allowable uses tied to this specific appropriation," Thompson said. "While there was no finding of intentional misuse, CYFD agrees that internal controls and documentation processes surrounding this funding could have been clearer and more formalized."

The $20 million in question was appropriated by the Legislature in 2022 to address statewide shortages in behavioral health providers for children. After going largely unspent, most of the funding was transferred from the state Health Care Authority to CYFD in September 2024.

After that transfer, the recent audit found CYFD ultimately spent more than 20% of the appropriation on group homes or other shelter-related services.

That’s despite legislative budgetary directions that stipulated the funding be directed toward “behavioral health and community child welfare services” that are eligible for federal Medicaid spending.

The spending on group homes, or congregate care, is not eligible for federal reimbursement, the State Auditor’s Office concluded.

While it appears unlikely the Legislature would seek to claw back the funding from CYFD, a key legislator said Thursday the incident shows a need for increased scrutiny.

"The auditor’s findings confirm the need for continued robust legislative oversight at CYFD," said Rep. Meredith Dixon, D-Albuquerque, the chairwoman of the LFC's child welfare subcommittee.

"We look forward to working with acting Secretary Sandoval to ensure taxpayer dollars are well-spent and children in CYFD’s care are receiving the support and services they need and deserve," Dixon added.

After a preliminary review last year prompted by lawmakers' request, the State Auditor’s Office expanded the scope of the annual audit for CYFD and another agency — the state Health Care Authority — in order to better examine the agencies’ procurement processes and internal financial controls.

In addition to the misaligned spending, the audit also found deficiencies within both agencies that made financial tracking difficult.

“Invoices and supporting documentation frequently lacked sufficient detail to demonstrate compliance with federal eligibility requirements or to substantiate that costs represented start‑up activities rather than ongoing operational expenses,” Maestas said in his Feb. 18 letter.

Despite increased spending and changes in law, CYFD has struggled in recent years with high turnover among social workers.

In addition, the state's rate of repeat maltreatment of children reached nearly 16% in the first quarter of the current budget year, a figure almost twice as high as the national average, according to legislative data. The number of children in foster care in New Mexico has also increased and was at more than 2,000 children monthly as of July 2025.

Given that backdrop, CYFD officials have tried new ways to increase the agency's staffing levels and the number of available foster homes.

The department, which has now had four different secretaries since Lujan Grisham took office in 2019, will also be subject to additional outside oversight after lawmakers approved creation of a new Office of the Child Advocate last year.

The governor selected Dawn Walters to lead the new office in January, and Walters was confirmed by the state Senate this month.

Dan Boyd covers state government and politics for the Journal in Santa Fe. Follow him on X at @DanBoydNM or reach him via email at dboyd@abqjournal.com