In a report released Thursday, auditors found a series of fiscal, management and regulatory problems at the agency, including potential violations of state law for hiring a retiring employee as a consultant. The audit also faulted the department's handling of a computer system upgrade and oversight of construction sites, hazardous-materials facilities and rental housing containing lead paint.
Auditors suggested that the apparent irregularities could explain why the grants in those cases averaged nearly $20,000, well over the $12,600 cost of septic systems installed elsewhere in Maryland.
David Paulson, spokesman for Attorney General Douglas F. Gansler, said the office is reviewing the audit report. He declined to comment further.
Sen. James C. Rosapepe, a Prince George's County Democrat who is co-chairman of the legislature's joint audit committee, said the panel plans to review the apparent septic bidding irregularities at a hearing on Dec. 13.
"We take this seriously," Rosapepe said. He noted that auditors had been tipped to check the septic grants by a call to the state's fraud hotline, and said the findings illustrate the need for state employees and the public to speak up whenever they see questionable government activities.
The audit's criticism of the department's handling of the Bay Restoration Fund, which pays for installing less-polluting septic systems as well as upgrading sewage treatment plants, comes as a state task force calls for increasing the fund to pay for more pollution cleanups by tripling the $30 annual "flush fee" paid by all homeowners. But Rosapepe said that he did not think questions about the management of the septic grants should affect lawmakers' policy decision on whether to increase the fee.
The audit also faulted the department for paying a former employee nearly $225,000 in a series of consulting contracts that it said may have broken state ethics and procurement laws. The employee, who was not identified, set up a consulting business while still with the agency and was awarded an initial $25,000 contract just before retiring at the end of May 2007.
The specifications for the contract appeared to have been tailored to fit this particular employee's skills and experience, the audit said. The employee was the only one to bid, and did so a week before giving official notice of retiring, the report noted. State law prohibits rehiring employees within 45 days of retirement, the report said. Auditors also noted that the consultant was paid significantly more per hour than the hourly wage earned while in state service.
MDE spokesman Jay Apperson said officials concurred with most of the audit's findings, and would seek to follow as many of the auditors' recommendations as they could. He would not give any information about the septic grants because of the potential investigation, and declined to identify the former employee in question, saying it was a personnel matter.
Apperson pointed out that the department had addressed the concerns about septic installation grants before the audit came out. Effective July 1, 2010, a cap was set on grants, which are now handled by local health departments, and in June of this year the department specifically disallowed funding for the septic system being installed by the two contractors.
The spokesman said the hiring of the former MDE employee as a consultant was an "isolated and unusual incident" and said the department would comply with whatever the state Ethics Commission determined in the case.
Among other findings:
•Auditors faulted the department for not fully disclosing problems with an overhaul of its electronic records management system. The original $6.4 million contract awarded in 2004 to establish a centralized database failed to incorporate permitting and compliance tracking of most of the agency's regulatory programs, and the cost has swelled to $7.8 million, with officials estimating it may cost up to $3 million more to complete.
•State inspectors made just 2,213 visits to 12,900 active construction sites last year, according to the environment department's annual enforcement report, even though state regulations require on-site inspections every two weeks.
•The agency failed to perform required audits of security precautions at 36 facilities that reported storing hazardous materials.
•And it wasn't keeping close track of rental properties required to register with the state because they contain potentially harmful lead paint.
Apperson said that the MDE has already acted to tighten up its oversight of the leaded rental housing, increasing the staff and instituting an online registration system. He said the department would follow the auditors' other recommendations as much as it was able, but suggested long-standing staffing shortages would prevent the agency from ever meeting its legal obligations for inspecting sediment and erosion controls on inspection sites.
The MDE suffers from chronic understaffing, the spokesman said, noting that a fiscal analysis had found the agency needed another 342 employees to handle its regulatory workload. Apperson said the agency would need to hire 47 more inspectors, more than doubling the current staff of 39, to reach every construction site once a year – still short of the two-week inspection interval called for to ensure sediment does not pollute nearby waterways.
The MDE spokesman said officials have compensated for the staffing shortage by prioritizing inspections to focus on the largest construction sites and those generating complaints from the public. He noted that the state had cited 73 in the past year for significant violations and collected $795,000 in penalties.
"All of this, we believe, serves as a deterrent," he said.