State Auditor Matt Dunlap’s annual review of Maine’s compliance with various federal programs flagged several potential problems Thursday tied to Medicaid and how the state handles contracts.

But Gov. Janet Mills’ administration didn’t agree with some of the key findings.

Dunlap, a Democrat, appeared before the Legislature’s Government Oversight Committee on Friday to touch on his fiscal year 2025 findings — but mostly to answer lingering questions from his 2024 audit that found deficiencies in spending on school meals and welfare benefits.

Dunlap emphasized that his audit is only meant to highlight potential issues for agencies to then tackle.

“We don’t fix storm damage,” Dunlap told lawmakers Friday. “We tell people what the weather is.”

Perhaps most notable in the newest audit, which stretched more than 500 pages, was its findings of potential noncompliance with certain federal regulations under the Medicaid health care program known in the state as MaineCare. President Donald Trump’s administration has accused Mills and Maine of turning a blind eye to alleged Medicaid fraud in the state.

It’s difficult to separate the back and forth about the audits from the 2026 election cycle. Both Mills and Dunlap are running for higher office this year: Mills is running for the U.S. Senate and Dunlap is seeking the 2nd Congressional District seat currently held by U.S. Rep. Jared Golden, who is not running for reelection. Conservative critics have repeatedly accused Mills of ignoring claims of potential Medicaid fraud.

Maine’s Utilization Control program, which monitors $3.2 billion in Medicaid payments made to more than 10,000 providers in 2025, had major deficiencies, Dunlap’s audit found. His office could not determine the completeness of the program due to a lack of adequate policies, which could result in potential noncompliance with federal rules.

But Mills’ team disagreed, saying in a dense response that Dunlap’s audit erred in finding that the MaineCare Program Integrity Unit is responsible for overseeing the control program. The state said it has a “myriad of other systems and processes” in place to monitor benefits.

Dunlap’s audit also noted the state did not complete any of its 88 nursing facility cost reviews in 2025, as required under Medicaid-related rules. The state’s health department agreed with that finding, and cited continued difficulties with hiring staff and completing COVID-19-related audit work.

The Mills administration’s finance commissioner, Elaine Clark, and State Controller Doug Cotnoir appeared alongside Dunlap during Friday’s meeting. At times, they voiced frustration with the auditor’s team. Clark said her team and Dunlap met last December to discuss the 2024 audit findings, but she said she was not included on follow-up communication that Dunlap had with Mills’ executive staff.

“Resolution of an audit should be a two-way street, and in this way, it was a one-way street,” Clark said.

Dunlap, who was appointed by the Legislature, called that “a breakdown” in communication. He took questions from oversight committee members of both parties about how the state could fix the issues or risk a loss of federal funds.

Mills said earlier this month she expects Trump to withhold Medicaid funding over the federal government’s perception of fraud from the state despite the state’s response to a federal request for information. In a letter to the Trump administration earlier this month, Mills officials outlined how the state properly investigates fraud claims and said it operates MaineCare properly.

Dr. Mehmet Oz, the Centers for Medicare and Medicaid Services administrator, and Trump have repeatedly aired claims of Medicaid fraud against Maine, Minnesota and other Democratic-led states while taking unprecedented steps to withhold hundreds of millions of dollars in funding from Minnesota.

The Mills administration paused MaineCare payments in December to the Portland-based Gateway Community Services amid fraud allegations tied to interpreting services. Dunlap’s audit did not mention the Gateway case.

The audit instead covered a range of other federal programs or entities that serve Mainers, ranging from child welfare to National Guard operations and the Supplemental Nutrition Assistance Program, or SNAP. State lawmakers have been considering bolstering the nutrition program against cuts at the federal level.

Dunlap’s audit noted Maine distributed about $355.9 million in federal SNAP benefits last year to about 169,000 residents. The state’s internal work to oversee eligibility and benefit calculations “needs improvement,” auditors found. It found 29 benefit overpayments totaling $25,800 due to “manual processing errors,” among other issues.

The Maine Department of Health and Human Services said it “partially agrees” with the SNAP findings but “contended the extent of the issues is far less than those cited,” per the state’s response included in the audit.

Dunlap’s audit also flagged a “significant deficiency” with the state’s internal controls over contract procurement and payment procedures. Maine spent about $1.6 billion on contracts in 2025.

In one example, the audit found 36 contracts out of a sample of 57 were not signed at least 14 days prior to a contract’s start date, as required under the state procurement office’s policy.

The state disagreed with this finding, arguing that fault was “misassigned” to the state procurement office that actually shares “hybrid” procurement duties with other agencies.

What happens next is unclear, though lawmakers warned Friday of federal consequences if the state does not fix the issues flagged in the audit.

“We can’t predict what the federal government will do,” Dunlap said, “but they might ask for reimbursement, as has happened in the past.”