Why? Because as you say it is a formality. I would expect that BG would know she would have to at least compete with other interviewees, even if she is the favorite.
Again if they plan to just name her, then the formality is a waste of time and money. But if they need to do the formality for due diligence etc. why wait months to do this, as I would expect any time a job opens and there is an interim person in place they should always expect they are going to at least open the search and application process. As many state jobs have to at least be posted, etc even if the plan is to hire/promote from within, they have to follow state rules.
I would say the same thing if it was going on at ISU. It is a waste of time and money. But probably a formality that is required by the state., but if they waited this long to start the process, I would also question the delay.
The only thing I can see is the plan was to Hire BG, but wanted to give her basically an On Job interview, let her audition for a few months to see. Then now they are getting the formality out of the way so they can hire her. It still seems like a committee could have been in place to search and critique BG at the same time.
But there is a lot of bureaucracy to deal with in these types of jobs so we are probably being too critical of the process.