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Flowers for government contractors — but not for government employees

Back in 2009, we suggested in a short Governing piece that it was okay to use public funds to buy flowers for a sick employee or an employee’s close relative. We thought the good will that came with the gesture paid a useful dividend to a public entity for a small price.

We’ve discovered over the years that both taxpayers and most state and local employees who contact us have a clear – almost puritanical – line that they draw when it comes to spending public money. While articles abound about wasteful spending, the limits on compensation, gifts, and extra perks are actually pretty tight.

But the situation gets a lot fuzzier when contractors work with the public sector. There is a clear double standard here.

In our experience, compensation and other spending decisions that would elicit fury in a government setting are often accepted for private contractors doing government work. We suspect that when flowers are sent to sick private sector employees doing public sector work, the gesture doesn’t elicit much criticism.

The difference in expectations and practice was highlighted for us last weekend when we read the May 2017 audit of a quasi-governmental body that delivers managed care services in North Carolina.

This case is particularly interesting because Cardinal Innovations Healthcare  was created by the North Carolina legislature as one of seven “Local Management Entity/Managed Care Organizations”. It’s responsible for delivering behavioral health care and substance abuse services in 20 counties, serving 850,000 individuals.

One question that the audit explores: Is Cardinal a government entity or not?

We’ll skip the details of the discussion. In short, the auditor makes a case that as a “local management entity” Cardinal Innovations should more closely follow government rules. Its “unreasonable spending,” the audit says, “could erode public trust.”

The spending that’s described goes well beyond flowers. As of July 1, 2016, the entity’s Chief Executive Officer was paid a $635,000 annual salary. In the audit, Cardinal was criticized for holding lavish Christmas parties, attending luxury hotel retreats, using chartered flights for travel, and allowing questionable credit card expenses. One Christmas party in FY2016 included 75 attendees, at a cost of $242 each.

Adding fuel to the auditor’s complaints is the fact that based on the per capita rates for each Medicaid individual served, Cardinal was able to save $70 million in FY2015 and FY2016. That’s the difference, the audit explains, between the amount of state and federal Medicaid money received by Cardinal and the amount paid out in its spending on Medicaid claims.

In its response to the audit, Cardinal Innovations argues that it has been adhering to government rules. It says it is a “local government entity” as well as a Managed Care Organization (MCO) and a contractor to the state. It adheres, it says, to North Carolina’s Open Meetings Law, the Public Records Act and the Local Government Budget Control Act. On the other hand, it argues that its spending is in line with what is required of a contractor and MCO that needs to keep a board of directors engaged and needs to compete with private sector companies. It defends compensation practices that are needed to offer “competitive salaries to attract and retain talented professionals.”

Of course the specifics of this case may not be precisely paralleled elsewhere. But the question of a public sector vs. private sector double-standard on spending is well worth considering.


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