The State Highway Administration stripped nine procurement officials of their government--issued credit cards yesterday - months after auditors found that they purchased supplies at exorbitant prices.
SHA Administrator Neil J. Pedersen took the action one day after coming under fire at a General Assembly committee hearing for leaving the cards in the hands of employees who paid up to 28 times the retail price for common janitorial and maintenance items.
The auditors said Tuesday that three state agencies spent $1.4 million to purchase goods at inflated prices from 17 suppliers, including a Florida firm that has been accused of bribing thousands of civil servants in state and local governments across the country.
Bruce A. Myers, the state's chief legislative auditor, identified the company as Stone Cold Chemicals, whose owners face criminal charges in Florida and Georgia.
Agency records show that the SHA has done more than $425,000 in business with Stone Cold since 1997. Two other state agencies, the Department of Juvenile Services and the Department of Public Safety and Correctional Services, have also purchased items from the company, records show.
Law enforcement authorities in other states have charged that company salespeople enticed officials with gifts including fishing gear, a pornographic tape, NFL T-shirts and gift cards to such businesses as Home Depot, Victoria's Secret and Hooters. Officials in Florida estimate that Stone Cold may have bribed as many as 2,000 public officials in 48 states.
Transportation Secretary Robert L. Flanagan said the Stone Cold transactions amounted to "a national conspiracy" to defraud government agencies. "More than just Maryland, it was a national epidemic."
Flanagan strongly defended Pedersen's decision to leave the credit cards in the hands of the nine purchasing officials, saying that the administrators did so at the request of auditors to avoid tipping the employees to the investigation.
Flanagan, who said he "absolutely" retains confidence in Pedersen, said the employees' purchases were carefully monitored during the inquiry.
Flanagan said that since Tuesday's hearing, investigators in Florida and state auditors had authorized the release of information to the SHA that justified the decision to cancel the credit cards. The release will also allow administrators to make decisions about other possible disciplinary action, he said. "I expect the SHA will make appropriate judgments very quickly," he said.
Flanagan and Pedersen said that neither the highway agency nor the parent department has received subpoenas. Pedersen said subpoenas were unnecessary because the agency is cooperating with state investigators.
In launching an investigation involving Stone Cold, Maryland officials are joining law enforcement authorities in at least four other states.
In Georgia, where Stone Cold's business practices were first reported by a local television station in 2003, about 25 state and local government employees were charged in March with taking bribes from the company. Nine company officials, including chief executive Lloyd Glynn "Barney" Barnard, face felony charges.
In Florida, nine company employees and nine current or former government officials were arrested in September 2003. Barnard and three other Stone Cold employees, including his wife, were charged with racketeering, among other charges.
A former purchasing agent in the Pennsylvania Transportation Department was charged in March with taking kickbacks from Stone Cold for buying $175,000 in unneeded supplies.
Four Oregon transportation workers have lost their jobs and dozens are being questioned in a kickback investigation involving Stone Cold. The Oregonian in Portland reported that the case, which also involves purchases of supplies at inflated prices, is expected to go to a grand jury as early as this month.
In Maryland, criminal investigators in the attorney general's office are looking into whether state employees who bought products from Stone Cold and the other, so-far-unnamed companies might have been influenced by similar gifts. Myers identified Stone Cold because its indictments in Florida and Georgia are in the public record.
Officials at the company, whose Web site lists offices in Loganville, Ga., and Ponce Inlet, Fla., could not be reached for comment. The Georgia office's number had been disconnected, and repeated calls to the Florida office yielded busy signals.
In 2003, the Public Safety Department spent about $17,000 with the company in 19 separate credit card transactions, according to the comptroller's office. The Juvenile Services Department accounted for two credit card purchases at slightly more than $750. Neither department was cited by the auditors in Tuesday's hearing.
Most of the SHA's dealings with Stone Cold occurred before Gov. Robert L. Ehrlich Jr. took office and Flanagan became transportation secretary. The transactions began during the late 1990s with relatively small sums, rising to more than $100,000 a year from 2000 to 2002. They dropped to $41,000 in 2003, when the company's business started to unravel.
Slightly less than half of the money that the SHA spent with Stone Cold was billed to credit cards. The rest, more than $250,000 in purchases, were billed to the state.
According to Michael Golden, a spokesman for the comptroller's office, there are 7,877 state government credit cards, also known as "procurement cards," in circulation. He said state agencies charged $186 million to the cards in 2003 - down from a high of $206 million in 2001.
In his testimony before the Joint Audit Committee, General Services Deputy Secretary Steve Cassard told lawmakers that the use of credit cards has streamlined the state's bill-paying process and has shortened the time vendors have to wait for payments. He said the cards generally have a limit of $2,500 on any one purchase and are invalid for certain uses - such as for hotels and restaurants.
Flanagan said yesterday that he has ordered a review of the use of credit cards in all of his department's agencies. He said problems are not limited to the SHA. "We clearly have some areas where we clearly need to tighten up," he said.
Terry Lierman, the new chairman of the state Democratic Party, issued a release criticizing the Ehrlich administration for ignoring "wasteful spending" at government agencies.
But Flanagan said the Ehrlich administration and the Democratic-controlled General Assembly are both committed to preventing waste through methods such as an employee fraud hot line that has helped prompt several criminal investigations.
"There's no partisanship when it comes to cleaning up fraud and abuse," he said.