Sha Lax With $25.7 Million

Agency Isn't Tracking All Its Materials, Audit Finds

August 18, 2009|By Michael Dresser | Michael Dresser,

Legislative auditors have criticized the State Highway Administration for lax controls over its contracts, equipment and spending in a report that found continuing problems in the way the agency keeps track of public property.

The report, released late last week, found that the agency maintained inadequate controls over about $25.7 million in materials and supplies during the budget year that ended June 30, leaving auditors unable to account for articles worth hundreds of thousands of dollars.

However, in contrast with past audits of the huge agency, the review found no examples of criminal wrongdoing, and auditors made no referrals to prosecutors.

"It is always a relief when the issues that are identified are process issues as opposed to personnel engaged in illegal activities," said highway Administrator Neil J. Pedersen. "It definitely shows improvement."

In 2004, a fraud investigation by the Office of Legislative Audits found that about a half-dozen highway administration employees had purchased janitorial and maintenance supplies at exorbitant prices from a company named Stone Cold Chemicals. About a half-dozen agency workers were subsequently fired and convicted of bribery for their roles in the scandal.

While the new audit found no abuses on that scale, it faulted the agency for failing to follow up on some of the inventory control issues identified in the wake of that scandal. Auditors said the agency, which has an annual budget of about $1.7 billion, was still failing to ensure supervisory approval and adequate documentation of purchases at about one-third of its 35 locations.

The auditors reported that at three locations, there were more than 10,000 missing articles worth about $266,000 - including 68 items worth more than $1,000 each.

In other findings, auditors said the highway administration:

* Failed to gather enough information from contractors to verify the reasonableness of labor charges on more than half of the invoices auditors examined.

* Did not sell off excess property within the deadlines prescribed in state law and its own policies. In some cases, previous owners were not notified of their right to reacquire property that the agency later found it did not need.

* Failed to recover local jurisdictions' share of the costs of installing traffic signals.

* Allowed construction contractors to buy items such as cellular phones and digital cameras on the agency's behalf, then allowed the contractors to keep the items after the work was finished.

In the Maryland Department of Transportation's response to the auditors, acting head Beverley K. Swaim-Staley concurred with most of the findings and said the highway administration has taken steps to resolve the problems. She said the agency's own auditors would conduct more in-depth investigations at shops where the numbers don't add up.

The acting secretary also said the agency has taken steps to address the findings in the contract auditor's report, including stepped-up internal audits at its maintenance shops to make sure they comply with the rules for small procurements.

Swaim-Staley defended the practice of allowing certain contractors - consultants brought on as project managers - to make purchases for field offices at construction sites. She said the highway administration did not want to take on the burden of directly equipping such offices and noted that the electronic devices used by consultants are not always compatible with those used by the agency.

She said the practice of letting consultant contractors furnish their field offices is consistent with federal policies for the use of the funds on highway projects.

Pedersen said he finds the audits, which normally take place every three years, useful.

"They're very helpful to me as the head of the agency in terms of identifying some management issues we need to concentrate on," he said.

The highway chief said the agency has tightened internal procedures to prevent a recurrence of the Stone Cold affair.

"The possibility of something happening is far less likely than it would have been with the process and controls we had in place five years ago," Pedersen said.

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