Internal Controls

The mediated agreement announced last week allowing Baltimore schools to keep $18 million in federal funds for low-income students that state auditors said had been misused is welcome, but it's hardly an exoneration. While city school officials don't have to replace all the money, they must give low-income students additional services as well as improve internal controls. That's a fair resolution - and school officials must live up to it. The dispute came to light in July 2004 when state auditors found that from 2001 to 2004, city school officials had used some of the federal funds - known as Title 1 funds - for standard services, instead of the extra tutoring and other special services that the federal money is meant to provide.

Sterling Financial Corp. announced yesterday that officers and employees of its equipment leasing unit ran a "sophisticated loan scheme" that cost the Pennsylvania bank as much as $165 million and may force the sale of the company. Employees of the subsidiary, Equipment Finance LLC, colluded to conceal loan losses, falsify contracts, and "subvert" internal controls over an extended period, Sterling said in a federal regulatory filing yesterday. Five employees were fired, including the subsidiary's chief operating officer and executive vice president, the bank said.

The Securities and Exchange Commission has requested financial and accounting documents from Allegheny Energy Inc. as part of an "informal" investigation into the utility, the Hagerstown company said yesterday. Allegheny disclosed the informal probe as part of an SEC filing yesterday in which it reported earnings showing that its loss narrowed to $51 million, or 40 cents per share, in the third quarter of 2003 from $263 million a year earlier. "We did receive a letter informing us there was an informal investigation the SEC was going to be conducting, and we were asked to provide some documents," said Janice Lantz, an Allegheny spokeswoman.

Inadequate credit checks and lax collection procedures at Maryland's housing agency may have cost the state more than $2.5 million, a new legislative audit concludes.The state Department of Housing and Community Development failed to monitor some programs, kept some inadequate records and violated some of its own internal controls, the report by the legislature's Department of Fiscal Services concludes.Housing Secretary Jacqueline H. Rogers angrily denounced the audit yesterday, calling it misleading and often inaccurate.

Baltimore County Savings Bank said yesterday that its insurer has agreed to pay $3.35 million as compensation for the bank's losses in an alleged check-kiting scheme last year. The Baltimore bank, which is operating under the supervision of federal regulators while it rebuilds its finances, said it is still hoping to recover more of the $10.7 million it lost in the alleged scheme. But any further recovery could take an "extended period of time" to resolve, the bank said in a statement.

The Motor Vehicle Administration's failure to deposit checks promptly and its lax internal controls have cost taxpayers an estimated $275,000 a year and made the agency more vulnerable to employee theft, legislative auditors say.A report to be made public today criticizes the agency for at least 20 specific accounting problems and gives the MVA an overall "poor" management rating.The auditors from the legislature's Department of Fiscal Services said they gave the agency such a low rating because they found many of the same problems 2 1/2 years ago.The problems vary from not keeping tabs on registration stickers to a hefty 207-day backlog in correcting registration information.

In the latest installment of the strange saga of Carnegie International Corp., the Hunt Valley telecommunications holding company -- whose stock has been suspended from trading for nearly six months -- has swapped charges of bad faith with the accounting firm that it recently fired.In a Securities and Exchange Commission filing, Carnegie explained why it dropped its accountant, Grant Thornton LLP of Chicago.Carnegie, whose subsidiaries sell services ranging from Internet access to voice-recognition software, said its firing of Grant Thornton on Sept.

Federal and local authorities are investigating the reported theft of $300,000 from the Baltimore Museum of Industry, a South Baltimore facility that displays artifacts from the manufacturing businesses that shaped the city's history. Officials at the museum announced yesterday that they are missing money -- the equivalent of 20 percent of their annual budget -- and they said authorities are in the midst of a three-month investigation. "This is a very difficult situation," said Paul Cypher, the museum's executive director.

The Board of Education of Harford County is seeking applications from interested county residents to fill one opening on the school system's Audit Committee. The purpose of the five-member committee is to assist the school board in fulfilling its fiduciary oversight responsibilities. The committee serves as an independent party to monitor the school system's financial reporting process and internal controls. The committee meets at least quarterly to review financial performance and may meet annually, in separate sessions, with management, the internal auditor and the external auditor.

How a low-level currency trader for Allied Irish Banks might have been able to bury $750 million in losses without detection is a mystery to bank analysts and those who make their living in the trade. With more than a trillion dollars changing hands every day, major financial institutions have multilayered systems in place to track profits and losses, as well as suspicious trading activity. What insiders don't catch, auditors are supposed to discover during routine checks of every trader's books.