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Md. agencies maintained technology ‘slush funds’

03-23-10 ANNAPOLIS, MD. C. William Frick, State Delegate district 16 Montgomery County, MD. Portraits in the House Office Building Lobby in Annapolis. Photo by Maximilian Franz/ The Daily Record.

Del. C. William Frick, D-Montgomery and co-chairman of the legislature’s Joint Audit Committee, called the accounts ‘slush funds’ and asked for assurances that no other such accounts existed. (File Photo)

A decades-old agreement allowing telecommunications companies to share state-owned towers turned into an off-the-books slush fund that handled millions of dollars without oversight, state auditors say.

A report issued by the Office of Legislative Audits found discrepancies with 10 so-called resource sharing agreements with three state agencies — Department of Information Technology, Maryland State Police and the Department of Natural Resources — in which money was kept in an off-the-books escrow accounts. Those agreements included payments totaling $4.4 million and expenditures of $3.8 million that lacked proper controls and state legislative and executive branch oversight, according to the auditor’s review.

The issue came to light last year as the result of concerns brought to state auditors by the Maryland State police, who discovered the issue during an internal review. Auditors referred some of their concerns for investigation by the Criminal Division of the Office of the Attorney General.

The Department of Information Technology “didn’t have complete records of the agreements or even copies of the agreements,” said Matthew L. Streett, a state auditor, adding that the agency didn’t have complete records for its own resource-sharing agreements.

Auditors warned that there are likely more agreements involving more towers and possibly other agencies dating back 15 years.

Auditors noted that employees in the Department of Information Technology became aware of the issues in 2011 but failed to act on concerns raised.

Del. C. William Frick, D-Montgomery County and co-chairman of the legislature’s Joint Audit Committee, called the accounts “slush funds” and asked for assurances that no other such accounts existed.

“We looked at the 10 but we know it’s going on on a broader scale,” Thomas J. Barnickel III, the auditor for the legislature, said. “So far we’ve found about 90 agreements. Where does the money go? I don’t know. That’s what we intend to find out.”

The agreements started in 1996, before the creation of the Department of Information Technology, when cellular companies sought to place equipment on state towers. In lieu of rent payments, the companies agreed to make purchases of equipment for the state as a payment in kind. But that practice was eliminated about five years later and the companies began depositing rent payments into an escrow account controlled by a law firm.

When agencies such as the State Police or Department of Natural Resources needed to purchase equipment they simply called the law firm that paid vendors.

Streett told legislators that often those purchases were controlled by a single person in each department, were not bid out and did not even require the approval of a supervisor. Furthermore, the agencies didn’t keep track of how much money was in the account, payments made to the account or even maintain a register tracking the funds.

“They simply relied on the law firm to tell them how much was in the account at any given time,” Streett said.

Some purchases, including thousands of dollars in what appear to be duplicate payments for construction of a new tower, were referred for criminal investigation, according to Streett.

In one case, the state purchased $259,000 in equipment through the account without going through the bidding process. Streett said the state could have purchased the same equipment through existing contracts for $50,000 less.

Additionally, $900,000 in payments not collected after terms of the initial agreement expired even though the companies were allowed to keep their equipment on the state towers.

Secretaries for the agencies said they have already frozen activities in the accounts and moved to bring the money into an account for major technology projects managed by the Department of Information Technology. They are seeking to identify other similar agreements.

“This started as a legitimate fund in 1996,” Maryland State Police Superintendent Col. William Pallozzi told the committee. “Our concern is how it morphed into something that senior management didn’t know about.”

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