The Maryland Insurance Administration violated state procurement rules and did not always have adequate oversight over contractor services, according to a state audit released Monday.
The MIA used an “improper procurement process” in September 2011 to hire a contractor to help its staff develop a new system for processing premium tax payments, which totaled more than $400 million annually, auditors said.
But that project was abandoned, according to the audit, and the MIA “significantly” changed the contractor’s scope of work without conducting a new competitive procurement process. The contractor was then required to implement a proprietary system that it had previously developed for another state, but the MIA did not create a specific project plan or break down cost estimates, the audit said.
The audit also said that a managerial employee at the MIA who had experience with the contractor’s work in the other state had “excessive control” over the procurement process. That employee was responsible for monitoring the project and approving contractor invoices.
As of April 2014, the MIA’s contracts with the contractor totaled about $221,000, according to the audit.
The Maryland Insurance Administration licenses and regulates insurance companies, brokers and agents who conduct business in the state, monitors them for financial solvency and collects taxes on premiums that are levied on insurance companies.
In a response to the auditors’ report, Insurance Commissioner Therese Goldsmith said she agreed with the findings and that the agency has already implemented “organizational changes, personnel changes and new procedures to ensure compliance with all state procurement regulations.”
As recommended by the Office of Legislative Audits, the MIA referred to the State Ethics Commission the issue of whether one employee had “excessive control” over operations.
The contract in question was for creating an online payment feature for a system under development by MIA staff for premium tax credits. The feature would allow insurers to pay taxes through a web-based portal.
However, although the new system had new capabilities, old functions were lost from the former system, which “adversely impacted operations,” auditors wrote.
The MIA received two bids for that contract. The aforementioned contractor was awarded the contract even though the other company offered a lower hourly rate ($68 per hour compared to $98 per hour). The unsuccessful bidder was also rated higher by two of the three employees who evaluated the bids.
Auditors said they found no documentation explaining the reason for selecting the higher-cost, lower-rated bidder.
That contract was worth $25,000 — just below the threshold for requiring approval by the state Department of Information Technology.
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