In early 2002, the DHHR received complaints about the Wheels program run by Community Action of South Eastern West Virginia (CASE), and sent a team to investigate.
Months later, they published a scathing audit that found the agency was paying too much for cars, had leased "extremely poor" cars to welfare recipients and bought most of the vehicles from one dealer.
State officials never shared the review with state legislators, or with local or state prosecutors. Instead, they issued a corrective-action plan and gave the agency millions of dollars to run the program the following year.
Nusbaum said yanking the contract from CASE would have hurt program employees and Wheels participants.
The agency conducted three more reviews. The last one, of Human Resources Development Foundation, was not completed until the nonprofit already received a $1 million grant for the new donated-car program.
Those reviews were glowing. Now, investigators are investigating those reports to see whether DHHR staff members overlooked problems and gave those programs preferential treatment.
The Wheels-to-Work program was born out of a huge surplus in federal welfare funds — and the threat of "use it or lose it."
Three years ago, the welfare rolls in West Virginia were cut dramatically, mostly because of tougher requirements. As a result, the state sat on tens of millions in unspent welfare money.
Officials from former Gov. Cecil Underwood's administration sent a message to nonprofit groups: Come up with a good idea, and we'll give you money. In some cases, all an agency had to do was write a letter to get money.
Welfare spending almost quadrupled, from $60 million in 1999 to $226 million in 2002.
The Wheels program was designed in a matter of months. It became one of the largest low-income car programs in the country, serving about 2,900 participants over three years.
When Nusbaum took office in 2001, he realized the federal welfare surplus was dwindling, and the welfare program would face deficits soon unless it was cut.
Today, Nusbaum isn't convinced the federal government would have taken back West Virginia's welfare money if it hadn't been spent right away.
Instead, he wishes the DHHR had taken more time to design a better program.
"Could we have spent the money more appropriately? Sure," Nusbaum said. "Can we do better oversight and review? Absolutely.
"But we're taking our eye off the ball here. We've got to break the cycle of welfare in West Virginia. This did get people to work."
As for recent allegations of kickbacks, overcharging and other improper Wheels spending, Nusbaum said he "would not be surprised" if that occurred.
"Some of that happens every day, in lots of different programs," he said. "If there are indeed improprieties that require prosecution, we do that every month. We take this stuff very seriously."
Nusbaum believes nonprofits managed Wheels programs with the best of intentions, but some used-car dealers and repair shops might have taken advantage of them.
"These were well-meaning people," he said. "They just didn't know the car business."
Last week, Sen. John Unger, D-Berkeley, said he was pleased that Nusbaum has acknowledged Wheels program shortcomings, after DHHR officials were unwilling to admit to mistakes during recent legislative meetings.
Still, Unger said, DHHR officials should have told prosecutors if they suspected illegal activities, and they should have told legislators about problems much sooner.
"The best step is to be open and transparent about your problems, and also have a plan of action for correcting those problems," said Unger, who has spearheaded legislative inquiries into the Wheels program.
"That creates confidence among the public in that program," he said. "People are forgiving of mistakes, if you are forthcoming."
To contact staff writers Scott Finn or Eric Eyre, use e-mail or call 357-4323.