Audit: Mismanagement at health department could cost Maryland $1.4B

Maryland could be on the hook for as much as $1.4 billion because of years of accounting errors at the state Department of Health, according to an audit released Tuesday.

One lawmaker said the audit revealed “the worst nightmare scenario playing out” for the department’s poor accounting methods, which could prevent the state from recouping federal funding for the money it spent on health care programs like Medicaid.

“It’s very clear that, during the prior administration, particularly under former Secretary (Dennis) Schrader, there was complete mismanagement and lack of oversight into expenses that were taking place at the department,” said state Sen. Clarence Lam, a co-chair of the legislative Joint Audit and Evaluation Committee.

Lam, a Democrat representing Anne Arundel and Howard counties, said the administration of Republican former Gov. Larry Hogan left the department’s accounting and finance practices “in shambles and complete disarray,” which the administration of Democratic Gov. Wes Moore will be responsible for rectifying.

Schrader and the department’s upper management, Lam said, were “completely asleep at the wheel” trying to manage tens of millions of dollars in contracts with outside vendors and ensure the state could fully recover all federal reimbursements.

Neither Schrader nor a spokesman for the former governor could be reached for comment by email or phone call on Tuesday.

Lam has been a frequent critic of the Hogan administration and was the lone dissenting vote against Schrader being appointed health secretary during a Senate Executive Nominations Committee vote in 2021.

Schrader, who was secretary from April 2021 to January 2023, also had two stints as acting secretary — from July 2017 to January 2018 and from December 2020 to April 2021.

The audit, which covers February 2019 to June 2022, shows that the department didn’t regularly reconcile its expenditures to ensure it could recoup federal funding for state spending.

A report from January showed that the department couldn’t provide documentation to support $3.5 billion in spending.

The department later reported that it had recovered about $2.1 billion of that amount, but “general funds may be needed” if federal funding isn’t available to cover the $1.4 billion that remained unaccounted for, the audit states.

For how much the state may be responsible will become more clear during a Joint Audit and Evaluation Committee hearing with the Department of Health scheduled for Nov. 15.

Health Secretary Laura Herrera Scott, who assumed the role in March, wrote to state auditors that the department was “concerned about the severity” of the audit findings and has turned to an external accounting firm to help improve its accounting and ability to leverage federal funds.

Lam said that Scott has “a huge mess on her hands that was left at her doorstep as she was coming in,” but he said he expects the department to explain what it’s been doing in recent months to reconcile its accounts, offer a deadline by which it will determine the state’s potential deficit and explain how it will prevent similar mismanagement from recurring.

The department is “moving swiftly” to correct the fiscal, cybersecurity and procurement process shortcomings at the department, spokesman Chase Cook said in a statement.

The state is already heading into a budget cycle with projections of a $418 million structural deficit that’s estimated to grow to $1.8 billion by 2027.

Democratic Gov. Wes Moore has for months called for budgetary “discipline” as his administration looks to invigorate Maryland’s stagnant economy and expand its tax base.

Moore’s messaging and the state’s fiscal outlook have already raised questions about which items in the state’s roughly $63 billion budget the administration and state lawmakers will prioritize, and how the deficit will affect the governor’s ambitious campaign promises.

A spokesman for the governor didn’t immediately respond to email questions about how the health department’s accounting woes might affect the state budget.