The Maryland Department of Health is unable to provide documentation that it received $1.4 billion in owed federal dollars, according to an audit of the agency released on Tuesday that revealed weaknesses in its procedures for monitoring how funds are received and spent.

If the department isn’t able to recover that money from the federal government, the state may be on the hook for paying off the deficit, said Tuesday’s report, which was released by the Office of Legislative Audits — a subsidiary of the Maryland General Assembly’s Department of Legislative Services.

According to a statewide review of budget closeout transactions for fiscal year 2022 released by the office in January, the Department of Health was unable to account for approximately $3.5 billion in federal revenue.

Tuesday’s audit found that $2.1 billion had been recovered by April of this year but $1.4 billion is still unaccounted for.

The discrepancy came about because, to balance its checkbook, the state agency was using federal money that it had yet to receive. It’s unclear whether the department did not submit reimbursement requests or if it did not track the requests it submitted.

“This audit report is the state’s worst nightmare when it comes to the mismanagement … of the Maryland Department of Health under the prior administration,” said Sen. Clarence Lam, a Democrat representing Anne Arundel and Howard counties. “I’ve been the chair of the Joint Audits Committee for four years now and this is the worst audit I’ve ever seen, by far.”

In a statement emailed to The Baltimore Sun by former Gov. Larry Hogan’s executive assistant, Mike Ricci — Hogan’s former spokesman — did not address the missing $1.4 billion.

“It should come as news to no one that the pandemic took an enormous toll on the operations of state and local health departments,” his statement said. “The normal procurement process was inadequate to address the scale of the crisis and the many life-or-death decisions that were being made every day. We could not be more proud of all the dedicated women and men across state government who worked around the clock to deliver one of the best COVID responses in the country.”

Tuesday’s audit — which included 17 findings — also revealed that the state agency doesn’t always comply with state procurement laws and regulations and had failed to request more than $973 million in owed federal dollars over the course of three years, among other problems.

The audit spanned from February 2019 to June 2022, when, in the throes of the coronavirus pandemic, leadership at the Department of Health changed hands from Robert Neall to Dennis Schrader.

Neall ran the agency from 2018 to Dec. 1, 2020. Hogan tapped Schrader to serve as the department’s acting secretary upon Neall’s retirement. Schrader was officially appointed to the position, which he was initially rejected from by the Maryland Senate when the former Republican governor first nominated him in 2017, during the 2021 legislative session.

Lam, a frequent critic of Hogan and Schrader, said Tuesday’s audit “exemplifies all of the concerns” that the General Assembly has had with the Department of Health “that clearly existed that leadership there really tried to mask.”

In a letter included in the report, Maryland Health Secretary Dr. Laura Herrera Scott said the department is concerned by the severity of the audit findings. To begin addressing them, the state hired an outside accounting firm to improve the way it manages federal funds and conducts other fiscal practices, Herrera Scott wrote. The state also moved all procurement officers into one office to increase oversight over department procurement activities.

“Improving the critical findings identified in this report are essential to best serve Marylanders,” Herrera Scott wrote. “We appreciate the diligent work of [the Office of Legislative Audits] and look forward to working with your team as we correct these findings.”

Former Gov. Larry Hogan and the office of Gov. Wes Moore did not immediately respond to a request for comment Tuesday, nor did the Maryland Department of Health.

Though the mishandling of finances happened largely while Schrader headed the agency, Lam said it’s “incumbent” upon the new administration to clean up the mess that’s been made — “and they have a huge mess on their hands.”

The department’s ransomware attack in December 2021 — which paralyzed local health department services and halted the daily reporting of COVID-19 data at a time when cases were surging — also temporarily hampered the progress of the audit. While the report covers the attack, specific details about department cybersecurity deficiencies were redacted from the publicly released copy.

Not redacted, however, was that the health department didn’t properly restrict user access to the state’s accounting system. Auditors identified nearly 30 users with multiple IDs that allowed them to unilaterally process transactions.

Two of the findings included in Tuesday’s report — that the health department didn’t always comply with state procurement requirements and that it didn’t have procedures to ensure the accuracy of employee pay and leave balances — were flagged by auditors in previous reports.

Tuesday’s audit found that for three years, the health department had not conducted quarterly reconciliations — a fundamental accounting process that ensures the actual money spent or earned in a quarter matches the money that left or entered the account.

The employee previously charged with this responsibility left their role in December 2019 and their job was never reassigned, managers at the agency told auditors. As a result, the department failed to request more than $973 million in owed federal dollars over the course of three years.

While the agency later recovered the funds when state auditors alerted officials about the discrepancy in August 2022, the lapsed time resulted in $6.4 million in lost interest to the state, according to the report.

Tuesday’s audit report also demonstrated that the health department’s Cost Accounting and Reconciliation division was months behind billing insurance companies and government agencies like Medicare for services rendered at its inpatient facilities.

As of Dec. 5, 2022, billing had not been processed by the Department of Health for services rendered between April and November 2022. According to the report, the Office of Legislative Audits was unable to determine the dollar amount of unbilled services during that time period, but the Department of Health estimated that it totaled approximately $45.4 million.

To explain the unbilled services, the agency pointed to the cyberattack, which disrupted its automatic billing software between December 2021 and August 2022.

Though the billing system is back online, the agency said it has yet to catch up with the backlog.

The Office of Legislative Audits also found that the health department was not adequately reviewing pay and leave balance adjustments, and was approving employee time sheets without verifying that employees had worked the time they had recorded.

Additionally, the agency did not have a procedure to ensure that employees who were terminated or left the agency were not still on its payroll, causing at least 45 former employees to be improperly paid a total of $151,000.

Auditors in Tuesday’s report also discovered that the state health department lacked procedures for making sure all federal fund reimbursements were properly transferred from the Medicaid clearing account to the related health department spending account.

They found that funds were either not allocated or were allocated improperly from the Medicaid clearing account.

That resulted in accounts with “questionable balances,” including a $1.1 billion deficit in the clearing account as of June 30, 2022.

Since the Medicaid clearing account is only used to record and account for federal revenue until it’s allocated to the appropriate expenditure account, it should not have a negative balance, the report said. A deficit means the state health department allocated more federal funds than it had actually received.

The state health department also did not have a procedure to make sure it received all reimbursement requests sent to the federal government, according to the report. Auditors found that staff members did not verify the department had gotten the money from three federal grants that together accounted for 96% of the department’s $10.6 billion in federal fund expenditures in fiscal year 2022.

Auditors did not identify any instances where federal fund requests were not received. However, they recommended that the state health department establish a documented procedure for verifying the receipt of each fund request.

The agency continued to have problems complying with Maryland procurement laws and regulations, auditors found.

The report honed in on one emergency contract, which was originally approved for consulting services for the state’s COVID vaccination program in January 2021. As of November 2022, the state agency had processed four modifications to the $3.8 million contract that collectively increased its cost by $83.3 million.

Auditors found the agency lacked documentation to justify the initial contract or the first modification — and that the other three modifications also violated state procurement regulations.

The state health department also failed to justify the noncompetitive procurement of three contracts — totaling $946,000 — and did not notify the Board of Public Works of one emergency procurement, auditors found. Staff members didn’t always publish contract solicitations and awards on the state’s online marketplace, as required by state procurement rules.

During the 2021 legislative session, former Democratic Sen. Paul Pinsky sponsored legislation requiring the governor to notify the Maryland General Assembly’s Legislative Policy Committee within 72 hours of the authorization of emergency procurements made during states of emergency for review and potential audits.

When introducing the legislation, Pinsky pointed to several emergency purchases made by the Hogan administration during the state of emergency, including $9 million spent on South Korean COVID-19 test kits that largely went unused.

Originally Published: Oct 24, 2023 at 3:06 pm