FBI probes no-bid pacts

Investigators target State Use Industries, Spring Grove Hospital

Contracts of $6.7 million

Agency following up allegations of fraud made by Md. auditors

March 07, 2002|By David Nitkin | David Nitkin,SUN STAFF

Federal investigators have begun a criminal probe of a state mental health hospital in Catonsville where auditors uncovered $6.7 million in no-bid construction work being funneled through an agency that provides prisoners with job training, officials confirmed yesterday.

The arrangement circumvented state procurement rules, which protect taxpayer money, and may have benefited a few contractors hand-picked by state employees, auditors have said. Three state workers lost their jobs after earlier inquiries, which prompted the federal investigation.

"Yes, we are looking into allegations presented by the state auditors of fraud against the government," said Special Agent Barry A. Maddox, a spokesman for the FBI's Baltimore office. "It's early in the investigation."

Maddox said the FBI is "in consultation with the U.S. Attorney's Office" on the case, which involves Spring Grove Hospital Center and State Use Industries, a division of the Department of Public Safety and Correctional Services.

Karen Black, a spokeswoman for the state Department of Health and Mental Hygiene, confirmed that her agency had been contacted by the FBI.

"We intend to cooperate with any issues that are brought to our attention," she said.

A report released last year by the Office of Legislative Audits found that employees at Spring Grove steered millions of dollars in no-bid renovation contracts to State Use Industries, an agency that provides prisoners with skilled-labor training.

Without proper controls, renovations on the 200-acre campus grew from an estimated $2.5 million to $6.7 million between 1997 and 2000 without proper authorization, auditors found.

And inmates did virtually no work, they found. Instead, State Use Industries kept a 10 percent fee, and farmed the jobs out to a few professional subcontractors who were used repeatedly.

In the wake of the audit, Paul Kotula, a deputy superintendent at the hospital, was transferred.

The audit of Spring Grove was an outgrowth of an internal investigation in late 2000 by the public safety department's Division of Correction into improprieties in its prison industry program.

The corrections investigation resulted in the firing of three employees, including Leon McGee, 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. Investigators observed prisoners unloading and installing tiles at McGee's Randallstown home.

State auditors have continued to sort through construction project paperwork.

Presenting updated findings to a House Appropriations subcommittee yesterday, they said some money remained unaccounted for.

Four heating and air-conditioning projects appear to be overbilled by $225,000, and the size of an $882,000 paving project was overstated by 19 percent, they said. Invoices, warranties and other papers are missing, the auditors said.

"When we were at the [Spring Grove] center, they basically said they had no records," said auditor Richard K. Drain.

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