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Audit blasts Maryland 529 plans’ handling of documents, uncashed checks

The Maryland agency charged with overseeing the state’s college savings plans left hundreds of documents and millions of dollars unaccounted for and failed to properly document steps it took to investigate those problems, a critical legislative audit released Monday said.

The audit also called for a forensic investigation of Maryland 529’s handling of the Maryland Senator Edward J. Kasemeyer College Prepaid Trust, a plan that offers tuition contracts requiring scheduled payments for the future cost of tuition at universities. The trust has 32,900 tuition contracts for $1.2 billion, as of June 30, 2018.

Despite the problems found, the audit also noted that the prepaid trust is in a strong financial position, with a $432.5 million surplus as of June 30, 2018. The audit, conducted by the Office of Legislative Audits,  took place between November 2014 and June 2018.

Still, the audit was critical of the agency’s response to the 2015 discovery of a cache of documents — including 187 boxes of files that had been retrieved from the state archives — for which action had never been taken, including:

  • Documentation of disbursement transactions, totaling $4.3 million, that had never been recorded or had been improperly recorded in Maryland 529 records;
  • Unopened and undelivered mail dating back 10 years;
  • Undeposited checks;
  • Disbursement checks prepared but never sent to account holders;
  • Unprocessed refund requests;
  • Unpaid invoices and delinquency notices from collection agencies;
  • Unresolved transactions;
  • Incomplete records; and
  • Documentation of overpayments to account holders of about $200,000.

The auditors found that there was a lack of documentation of how Maryland 529 investigated the discovery of these problems and reported their findings to the Maryland 529 board.

“There was a significant lack of documentation supporting investigative steps taken, findings and conclusions reached,” the auditors wrote in their report. “For example, there is no documentation that the Board required any operational corrective actions be taken to resolve the conditions that may have contributed to these situations, and the Board did not require a forensic audit or other comprehensive examination to be conducted or take other actions to help identify and address internal control deficiencies and any other discrepancies or irregularities.”

Complicating Maryland 529’s investigation of the documents was a period of significant leadership turnover at the agency.

Just after the audit team began its work, the Maryland 529 board solicited the resignation of the agency’s long-time CEO and fired its long-time chief financial officer. Since then, the agency has had four CEOs and four CFOs, including two monthslong periods where it had no CFO.

In an agency response form dated Nov. 22, Maryland 529 said it disagrees that the agency’s board was not proactive in providing oversight of the investigation.

“In fact, (Maryland 529) has taken significant action both to address the specific issues of 2015 and to strengthen management and Board oversight in general,” the agency wrote. “The (Maryland Prepaid College) Trust is well invested and fully funded, our students can count on going to college with reduced or no debt, and families have a safe investment for their future.”

The agency wrote that it responded immediately to the document discovery, resolving differences with the agency’s books, bringing on additional staff and authorizing overtime and updating the board with verbal progress reports.

But in a rare auditor rebuttal to the agency response, the legislative auditors say that verbal reports were not enough and left little documentation of what investigative steps had been taken, what findings the agency had reached and what conclusions were made about the documents.

“Consequently, it was and still is not possible to confirm the assertions made by Maryland 529 regarding Board oversight and the investigative process and results,” the auditors wrote.

The investigation into the document cache was one of eight findings of the auditors about management of the prepaid college trust program.

Other findings included concerns about oversight of transactions and accounts; a failure to determine whether uncashed checks could have been forwarded to the state comptroller under the Maryland Abandoned Property Act; and a method for calculating disbursement amounts of refunds and rollovers that resulted in excessive payments.

Maryland 529 also includes the Maryland Senator Edward J. Kasemeyer College Investment Plan, college savings portfolios managed by T. Rowe Price. The audit did not find issues with that plan, which as of June 30, 2018, had about 199,200 beneficiaries and balances totaling $5.8 billion.


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