Official notes agency's accounting

The Baltimore Sun

A senior official in the state comptroller's office has recommended that legislative auditors look into "unusual" accounting practices at the Maryland Higher Education Commission.

John D. Kenney, director of the General Accounting Division, also said yesterday that he will ask the commission's chief of accounting to stop spending money out of a "nonbudgeted" state account - where spending authority controls are less stringent.

The account has included millions in federal grant money.

Generally, nonbudgeted funds in the state treasury are used as temporary holding accounts for money that is not appropriated by the General Assembly. The higher education commission has been keeping millions of dollars in federal scholarship money and other funds in such an account.

Kenney said it appeared that the commission was also making payments to state colleges directly out of the nonbudgeted fund, a practice he called "unusual."

"When you make expenditures out of a nonbudgeted fund ... it's possible you could overspend your appropriation" because of a lack of internal controls, Kenney said. "We don't like it."

Kenney, who made his inquiry this week after learning of accounting records obtained by The Sun, emphasized that he has found no evidence of wrongdoing or fraud at the commission, an executive branch agency that oversees post-secondary education in the state and administers college scholarship programs.

"Right now, it looks like an accounting shortcut," Kenney said. "I have no reason to believe that there's anything inappropriate going on. ... But it's hard to say that it's all OK without doing an audit of all of this."

G. Edward Ommert, the Maryland Higher Education Commission's director of administrative services, said he believes the comptroller's office is "confused" about MHEC's accounting practices and that he will happily comply with any inquiries or audits. "We do not pay out of the nonbudgeted account," Ommert said.

In the fiscal year ending June 30, 2007, about $19 million flowed through a nonbudgeted account used by the commission, including federal scholarship money appropriated by Annapolis lawmakers and earmarked for needy college students, Kenney said.

Ommert said that appropriation - about $3.3 million - has been kept in the nonbudgeted account to segregate it from other money while it accrued interest. He acknowledged that MHEC officials had recently discovered a "bookkeeping error" in which the agency gave about $235,000 of the scholarship money to grant recipients of a different federal grant designed to improve teacher quality. The error has been corrected, Ommert said.

Most federal grants appropriated in Maryland are subject to audit by a state-hired accounting firm, but the scholarship program in question, known as the GEAR UP program, has never been audited, Kenney said.

Bruce A. Myers, the head of the state Office of Legislative Audits, said that Kenney called him yesterday to recommend legislative auditors look into the use of the nonbudgeted account and the mix-up between the two federal grant programs.

Myers said that "unless we have a fraud tip that they're using the money illegally or improperly" he would likely wait until the next scheduled audit to look into Kenney's concerns.

State agencies are subject to routine fiscal audits roughly every three years. The most recent audit of the Maryland Higher Education Commission was released in March 2007.

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