A team of state auditors has begun a forensic audit of the University of Maryland Medical System, as mandated by state lawmakers in response to a self-dealing scandal that engulfed the system’s board of directors and leadership.
Gregory Hook, head of the state’s Office of Legislative Audits, which state lawmakers charged with reviewing the hospital system’s books, said multiple auditors from his office were “on site” at UMMS as of Friday.
“We are actually out there doing the work,” he said.
Lawmakers required Hook’s office to conduct an audit of UMMS in a law passed this spring, after The Baltimore Sun reported the system had contracts with nine members of its board — including then-Baltimore Mayor Catherine Pugh for her “Healthy Holly” children’s books. The Sun later reported a 10th board member had a no-cost contract with the system.
The revelations sparked outrage across the political spectrum, including from Republican Gov. Larry Hogan, who signed the legislation. The outcry also spurred the resignations of UMMS CEO Bob Chrencik, board chairman Stephen Burch and several other board members, including Democrat Pugh — who also resigned as mayor.
UMMS officials hired an outside group, Nygren Consulting of California, to conduct an internal review of contracts, which is under way.
The forensic audit by the Office of Legislative Audits is distinct from that review, and designed to be more robust, according to state lawmakers, who said they wouldn’t be satisfied with an internal review by UMMS or a company it hired.
Hook said his office has a staff of more than 100, including certified public accountants, certified fraud examiners and others trained in forensic accounting.
“Whatever is mentioned in the law, that is what we are going to address in the scope of the review,” he said.
UMMS interim President and CEO John Ashworth, who took over after Chrencik resigned, said the system would “work openly” with the auditors, saying its “goal remains full disclosure and transparency, with an unwavering view toward sound governance and accountability.”
The law requires the office to conduct a forensic audit of UMMS from 2016 through the present that identifies all board members during that period and their businesses, and all of the system’s contracts with or payments to those members.
It requires the auditors to determine which UMMS officials “initiated and approved” the payments or contracts, what the procurement method was, whether the payments or contracts complied with UMMS policies, and whether the full UMMS board approved of the deals.
The law requires the auditors to find out whether and how the contracts were assessed for their propriety, whether they were sole-sourced or competitively bid and, if sole-sourced, whether “the rationale was documented and supportable.”
It also requires the auditors to determine whether payments to board members or their businesses were “monitored effectively to ensure that all deliverables paid for were provided.”
Some UMMS board members have said they were unaware of the contracts between the system and their colleagues. UMMS officials have acknowledged that not all deals with its board members were competitively bid.
The law requires the Office of Legislative Audits to report its findings to Hogan and top lawmakers by Dec. 15. It also calls for the office to include recommendations in its report “regarding how best to evaluate the procurement and contracting processes and any contracts with and payments” between UMMS-affiliated hospitals and their boards.
Some lawmakers have said they hope the state auditor’s report will come sooner than December, but Hook said Friday that “at this point in time, we’re just striving to comply with the date in the law.”
UMMS officials have not provided a date for when they expect the internal Nygren report to be completed, but it is expected to be finished sooner.
After The Sun first reported the UMMS board contracts, Democratic state Senate President Thomas V. Mike Miller criticized the board’s audit committee, saying that “apparently there was no oversight.”
Committee chairman Bob Pevenstein, who had lucrative deals with the system and who has resigned from the board and the University System of Maryland Board of Regents, has said he and his UMMS board colleagues did “nothing wrong.” Pevenstein said the board is not subject to state procurement law and members disclosed their deals internally and to the Maryland Health Services Cost Review Commission.
The audit committee is charged with overseeing the system’s finances and the auditing company the system uses, KPMG. The company, considered one of the “Big Four” firms that provide auditing for major corporations and large institutions like UMMS, has done work for UMMS since 1996.
KPMG also does other consulting work for UMMS, and has been a source of executives for the hospital network. At least five UMMS leaders previously worked at the firm: Chrencik; Henry Franey, senior adviser to the CEO; Chief Financial Officer and Senior Vice President of Corporate Finance Michelle Lee; Senior Vice President and Chief Performance Improvement Officer Keith Persinger, and University of Maryland Medical Center Midtown Campus President Alison Brown.
UMMS officials have said those executives joined UMMS over a 17-year span, ranging from 19 to 35 years ago, and that those connections and KPMG’s work for the system outside of its auditing role — including capital and financial planning — are common in the industry and do not represent conflicts, in part because the audit committee oversees the relationship.
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Bob Wade, a KPMG spokesman, said in a statement that his company cannot comment on its work for UMMS “because of client confidentiality requirements,” but is “confident we have met all professional auditing and independence standards.”