Arren Kimbel-Sannit

(MTFP) Montana Department of Commerce Director Scott Osterman resigned this week after an internal probe found that he racked up more than $26,000 in disallowed government expenses in possible violation of state law and policy, according to documents obtained by Montana Free Press.

Osterman spent the majority of that sum — almost $18,000 — on vehicle and lodging expenses for travel between his home in Kalispell and his office in Helena. The probe also flagged thousands of dollars in disallowed meal expenses and questioned an additional roughly $4,500 of Osterman’s reported vehicle maintenance costs, bringing the total sum of potentially improperly spent funds to more than $30,000 since Osterman took office in 2021.

Osterman resigned Wednesday evening, according to a copy of his letter obtained by MTFP.

As of Thursday morning, the Department of Commerce website listed Deputy Director Mandy Rambo as the department’s acting director.

“Following an internal review, the Budget Office found the director violated state policy related to travel expenses, and the governor took decisive action,” a statement from Gov. Greg Gianforte’s office said Thursday. “[Gianforte] found out about it, had the director pay the amount he owed to the State of Montana in full, and accepted his resignation.”

The investigation into Osterman’s spending began over the summer when Chet McLean, the state internal control coordinator with the governor’s Office of Budget and Program Planning, “identified a potential internal control vulnerability at the senior leadership level,” he reported in a memo to Gianforte’s office. That led to a review of expenses for the various executive agencies, not including those led by elected officials like the Montana Department of Justice, from January 2021 to the end of June 2023, the end of the most recent fiscal year.

McLean reviewed procurement law, interviewed agency accounting staff and inspected expense reports. He identified several agencies — unnamed in an October memo obtained by MTFP — with comparatively minor compliance issues, such as improper classification of food expenses as office supplies or inconsistent record keeping. And he wrote that one agency director, later identified as Osterman, “charged approximately $27,000 for lodging, meals, and state vehicle usage (fuel and maintenance) when commuting to the agency’s headquarters in Helena.”

State law and policy “only permit lodging, per diem, and state‐vehicle usage when the director is in a travel status,” McLean continued, and “travel status does not include a commute from the director’s home to the department’s headquarters.”

That official, McLean found, was Osterman, who, among other violations, was using his state vehicle to commute between his home in Flathead County and Helena.

Osterman accrued about $9,500 worth of these expenses at the DoubleTree hotel in Helena, where he appeared to stay while in town. But the statute says the state only must provide for an employee’s meals, lodging and transportation when they are “away from the person’s designated headquarters,” which, in Osterman’s case, would mean away from Helena.

This distinction applied to many of the expenses in question: meals, transportation and lodging. The state is only responsible for reimbursing expenses of this nature when “travel status” applies, McLean wrote, and Osterman was, based on the fact that he made these expenditures while traveling to and from his office or staying in Helena, not in “travel status.”

In some instances, Osterman may have also submitted expense reports for food costs that would be covered by a per diem, a spreadsheet supporting McLean’s memo shows. He also used a government credit card to pay club fees while on a golf meeting, a “questionable” expense, according to supporting materials attached to the memo.

It’s not clear how the roughly $26,000 total compares to the total sum of expenses Osterman submitted while in office.

On Nov. 8, Ryan Osmundson, the director of the Office of Budget and Program Planning, notified Osterman of the probe’s findings. In a letter, Osmundson told Osterman that he was prohibited from using state resources, including a state vehicle, “for costs associated with commuting to and from your duty station in Helena.”

Over the ensuing weeks, Osterman had the opportunity to supply the governor’s office with relevant records and challenge its findings. He had until Dec. 8 to reimburse the state for whatever expenses it concluded were improper. Osterman indeed paid back the state about $29,700 this week, the governor’s office said, roughly equal to the sum of the expenses the probe identified as disallowed and those identified as questionable. The governor’s office also referred the matter to both the Legislative Audit Division and the Montana attorney general for possible further investigation, an official confirmed Thursday.

“I write today to bring to your attention what, following an internal review, the Office of Budget and Program Planning discovered involving the misuse of state resources,” Osmundson wrote the legislative auditor and attorney general’s office. ”Although the matter does not appear to rise to the level of theft of state resources or fraudulent conduct, we identified irregularities that implicate former Montana Department of Commerce Director Scott Osterman, who resigned December 13, 2023, for violating Montana law and policy during his employment with the State of Montana.”

A Gianforte spokesperson said the governor has directed his budget office to “conduct an internal review of the Commerce Department and to conduct a regular review of directors’ use of state resources.

“The long-standing practice has been for directors to submit their expense and other reports to subordinates for approval,” the spokesperson continued. “Going forward to strengthen fiscal controls and at the governor’s direction, the Budget Office will conduct a regular review of directors’ use of state resources.”

In 2019, then-Montana Secretary of State Corey Stapleton, a Republican, faced similar scrutiny after legislative auditors found that he traveled nearly 28,000 miles in a state vehicle for personal travel. The audit division notified the attorney general’s office, which in turn referred the investigation to Helena police. The Helena city attorney ultimately declined to prosecute the relevant misdemeanor charge because the statute of limitations had expired.

Osterman could potentially be legally liable under the same statute, though it’s unclear how his reimbursement of the expenses and subsequent resignation would affect the prosecutorial calculus.

Gianforte announced his appointment of Osterman as commerce director early in his term. Osterman, from northcentral Montana, had most recently worked as “senior director of business unit operations” at Applied Materials, an engineering company in Kalispell, according to a statement at the time.

“Getting our economy going again, getting Montana open for business, and getting Montanans back to work and thriving in good-paying jobs require a strong leader at the Department of Commerce,” Gianforte said then of Osterman. “With his extensive experience in business development and management, Scott will be an outstanding leader for the department.”

The Department of Commerce works with public and private sector partners to attract employers and develop the state’s economy. Osterman is the second Gianforte-appointed department head to resign after controversy since he took office. In July, then-Department of Labor and Industry director Laurie Esau resigned a day after she was arrested in Missoula on a misdemeanor charge of driving under the influence.

This article was first published by MTFP.