A legislative audit has found numerous financial irregularities and cost overruns in a project to convert portions of Spring Grove Hospital Center into state offices, prompting an internal investigation at the Department of Health and Mental Hygiene.
The renovation of closed patient-care buildings at the state psychiatric hospital in Catonsville - which was budgeted at $2.5 million and has cost $6.3 million - was supposed to have been done over the past four years with labor supplied by prison inmates.
But legislative auditors found that "virtually no inmates were used" and that the work was instead contracted out to private firms without seeking competitive bids.
State Use Industries, a division of the Department of Public Safety and Correctional Services, trains inmates and contracts them out to do construction work. But in the Spring Grove project, the agency merely added a 10 percent "administrative fee" after subcontracting the building renovations to private firms, according to a report by the Office of Legislative Audits.
The audit report also charges that the hospital hid the project's cost overruns of more than 100 percent from the General Assembly and paid out large sums based on phony invoices for work that had not been done at the time.
Oscar Morgan, director of the Mental Hygiene Administration, said the Health Department has launched an internal investigation of the Spring Grove project to verify the audit's allegations and evaluate whether personnel or policy changes need to be made. He said he was unaware of the overruns and irregularities alleged by auditors until their report was finished two weeks ago.
"We're just trying to do our own investigation to...see what we have to do so it won't happen again," Morgan said.
The audit of Spring Grove is an outgrowth of another internal investigation late last year by the correctional services agency into improprieties in its prison industry program. That probe resulted in the firing of three employees, including the manager of most of the agency's construction jobs, after investigators found he was using inmate labor and materials from state building projects on his personal residence.
"We've turned it over to the attorney general's office," Leonard A. Sipes, state corrections spokesman, said of that inquiry. He would not identify the three fired employees, saying they were confidential personnel actions.
Carolyn H. Henneman, assistant attorney general in charge of criminal investigations, would not comment on whether her office was looking into the irregularities outlined in the audit.
Spring Grove, which still has beds for 330 psychiatric patients, had budgeted $2.5 million over four years for the conversion into offices of some cottages and larger patient-care buildings that are no longer used.
Auditors charged that the hospital's management hid the size of the cost overruns - nearly $3.8 million - by diverting funds budgeted for other purposes.
The hospital also forwarded large sums to State Use Industries at the end of each budget year for work that had yet to be performed, in what auditors contend was an attempt to skirt state budget law and policies. The transfers were justified with apparently fictitious purchase orders and progress reports, the audit report says.
The office conversion at Spring Grove is now about 80 percent complete, with some former patient-care buildings occupied by branches of the state health department. But renovation work has been halted until the internal review is done, Morgan said, which may take another four to six weeks.
Paul Kotula, assistant superintendent at Spring Grove, also has been reassigned to health department headquarters at 201 W. Preston St. until the internal inquiry is finished, said Morgan.
"His position is that he didn't do anything illegal or fraudulent," Morgan said. "He does agree that the record-keeping could have been better."
A telephone call to Kotula's home was not returned.