The Maryland Department of Health engaged in poor accounting practices for years, potentially causing the state to miss out on $1.4 billion in federal aid that could have ripple effects on the state budget, according to an audit released Tuesday.

The state had spent the money on a variety of health care programs, including Medicaid, but without proper documentation the department may not get reimbursed by the federal government as expected. If the state does not get paid for the $1.4 billion, it could cause a significant hole in the overall state budget, which runs about $63 billion.

The initial problem was worse: Auditors found $3.5 billion in unreimbursed expenses during their review, but state health officials were able to document them and get reimbursed for about $2.1 billion.

The 74-page audit report, produced by the nonpartisan Office of Legislative Audits, noted “pervasive deficiencies” in how the health department handled federal money that comes in for various programs. The audit covered a period of time from February 2019 through June 2022, during the tenure of former Gov. Larry Hogan.

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The report covered such a long time period because a cyberattack at the Department of Health caused key documents to be inaccessible, so auditors paused their investigation for seven months and then extended their review.

“This audit report demonstrates there was a complete breakdown in oversight and management of how the Maryland Department of Health was spending and receiving funds under the prior administration,” said state Sen. Clarence Lam, a Howard County Democrat who is co-chair of the legislature’s audit committee. Lawmakers plan to hold a hearing on the health department’s accounting problems next month.

Del. Jared Solomon, a Montgomery County Democrat who is the other co-chair of the audit committee, called the report “frustrating” and also blamed Hogan’s administration.

“The previous administration was so often quick to criticize and hurl really nasty vitriol at anybody who dared to criticize them, and now we see that for years, they were asleep at the wheel,” Solomon said.

The state health secretary at the time of the audit review, Dennis Schrader, could not immediately be reached for comment.

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The former governor’s team provided a statement from Mike Ricci, who was Hogan’s communications director during the period covered by the audit.

“It should come as news to no one that the pandemic took an enormous toll on the operations of state and local health departments,” the statement read. Ricci said the normal procurement process “was inadequate to address the scale of the crisis.”

“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,” the statement read.

If the state can’t recover the $1.4 billion, that’s a “worst-case scenario,” Lam said. Solomon said he doesn’t yet have “heart palpitations” over the potential lost money, because the number could come down if the health department can manage to get more reimbursements.

Still, he said: “We know every dollar counts. I think how that money could be used for transportation priorities or feeding children or providing better support to disability providers or child care providers. Pick any number of worthwhile causes that we could be spending that money on.”

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The current state health secretary, Dr. Laura Herrera Scott, who started in her position after the audit period, did not challenge any of the audit findings.

In a response letter to auditors, Scott wrote that her team is “concerned about the severity of the audit findings” and said she’s hired an outside accounting firm to help make improvements.

“Improving the critical findings identified in this report are essential to best serve Marylanders,” Scott wrote.

“The report raises grave concerns about the stewardship of taxpayer dollars during a critical period for public health,” Scott wrote in a statement to The Baltimore Banner. “The Department is moving swiftly to correct these issues using all tools available.”

Scott said the outside accountants are supporting efforts to “improve fiscal practices” in areas that were cited in the audit. The department has also centralized procurement duties and improved information security in response to other findings in the audit.

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The audit also found significant problems with an emergency contract to a consultant during the coronavirus state of emergency.

The contract started as $3.8 million in consulting services for the vaccine rollout. But over time, it was expanded and extended, with the cost ballooning to $83.3 million, according to the report.

The report did not identify the consulting contractor, but the details match a contract awarded to Ernst & Young in January 2021 that was questioned at the time.

Then-secretary Schrader provided lawmakers with vague answers to their questions, saying Ernst & Young was handling “a number of things” related to vaccines and “helping us unravel some of the mysteries of the federal allocation and accounting system.”

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And Hogan responded to reporters’ questions, saying that Ernst & Young was “earning their keep.”

But even as late as February 2022, then-Comptroller Peter Franchot remarked that “it’s still not very clear what the state is getting from these particular consultants.”

The Ernst & Young contract was expanded beyond the coronavirus-related work to include helping with the response to the December 2021 cyberattack on the health department. When auditors asked officials for an explanation, the report states they “only provided us with two presentations (prepared by the vendor) describing assistance the vendor had provided to other entities that experienced similar cybersecurity threats.”

Dr. Laura Herrera Scott, Gov. Wes Moore's nominee for secretary of health, answers questions from the Maryland Senate Executive Nominations Committee in Annapolis on Monday, Feb. 6, 2023.
Maryland Health Secretary Laura Herrera Scott answers questions from lawmakers earlier this year. She said her department is working to correct problems uncovered in an audit. (Pamela Wood)

The health department also didn’t adequately monitor the work Ernst & Young was doing, the audit found. The department couldn’t offer auditors documentation of the tasks carried out by the vendor and the number of employees approved to do the work. “Virtually all of the relevant documentation” was prepared by the vendor, including invoices listing employees and “a vague description” of work performed and the hours worked, according to the report.

“It’s like the department gave a blank check to them and told them to fill out the amount. ‘Tell us how many people you’re sending, and also what they’re going to be doing.’ And this went on for two years,” Lam said.

Other problems uncovered in the audit include:

Pamela Wood covers Maryland politics and government. She previously reported for The Baltimore Sun, The Capital and other Maryland newspapers. A graduate of the University of Maryland, College Park, she lives in northern Anne Arundel County. 

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