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(The Daily Record/Maximilian Franz)

Audit faults Maryland Port Authority on collections, fraud control

Agency says it has addressed the issues

The Maryland Port Authority failed to use a common fraud-fighting practice for several years and did not always refer delinquent accounts for collection, resulting in one tenant racking up nearly $1 million in back rent and penalties, a state legislative audit report found.

The report from the Office of Legislative Audits was made public on Wednesday, and the Maryland Port Administration responded that it has since made all the recommended changes to its practices.

“Our audit disclosed that certain cash receipts and accounts receivable functions were not adequately segregated. We also noted that delinquent accounts receivable were not always submitted to the state’s Central Collection Unit when required, including one account that was delinquent for four years and was not submitted until the outstanding balance was approximately $1 million,” Legislative Auditor Thomas J. Barnickel wrote in a letter to members of the Maryland General Assembly’s Joint Audit Committee.

The analysis covered a three-year period ending Jan. 12, 2014. It found the Maryland Port Authority did not have adequate control over cash receipts, which totaled more than $26.4 million during fiscal 2013. The audit found that an employee who occasionally handled collections also maintained related cash-receivable records — an overlap that could result in collections being misappropriated without being noticed. The review found at least four times when the employee handled $202,000 in deposits.

Auditors were also concerned about the agency’s failure to turn past-due accounts over to the Central Collection Unit more than 180 days after the billing date. The audit singled out a particular incident where an unnamed tenant delinquent on lease payments was allowed to rent space for four years without being turned over to central collections.

In July 2010, the authority extended the tenant’s lease even though the tenant owed $55,000 in back rent and operating expenses of about $172,000. In fact, as an incentive for the tenant to renew the lease, the port authority forgave the money it was owed. By January 2011, the tenant owed the state $400,000. But by the time the tenant was referred to Central Collection in April 2014, the combined back rent, fees and penalties totaled about $1 million.

In a letter attached to the appendix of the report, and signed by Maryland Department of Transportation Secretary James T. Smith, the agency responded that it has already taken steps to address the issues.

As of June 1, 2014, the accounts receivable staff no longer handle cash receipts and an accounts receivable supervisor now serves as a back-up processor, Smith wrote. Also a “comprehensive review hierarchy” will ensure that accounts delinquent 180 days or more will be forwarded to the Central Collection Unit.

About Adam Bednar

Adam Bednar covers real estate and development for The Daily Record.