Maryland’s college savings plan agency ― where dozens of boxes of old documents were discovered 4 ½ years ago ― should undergo a comprehensive forensic audit, the state’s legislative auditors have recommended.
In a report released publicly Monday, auditors cited frequent turnover of high-level staff, the cache of documents and accounting practices at Maryland 529 as causes for concern.
Maryland 529, which was previously known as the College Savings Plans of Maryland, manages two college savings plans ― the Maryland Prepaid College Trust and Maryland College Investment Plan ― and a program that allows families to financially support Marylanders with disabilities.
The audit findings centered on issues with the Maryland Prepaid College Trust, which offers tuition contracts and requires scheduled payments for the future cost of tuition at state universities in exchange for tax benefits. As of June 30, 2018, the value of that program’s investments for 32,900 tuition contracts was about $1.2 billion.
The audit did not include findings related to the Maryland College Investment Plan, which includes about 199,200 savings accounts with balances of $5.8 billion, or the ABLE savings plans to support Marylanders with disabilities.
The audit reviewed Maryland 529’s operations between November 2014 through June 2018.
Many of the concerns outlined in the audit began in May 2015, when the Maryland 529 board removed its executive management. At that time, volumes of unopened and unprocessed business documents ― at least 187 boxes ― were discovered in the agency’s offices.
Auditors expressed concern that the agency retained scant documentation about the discovery of the documents and how they were ultimately handled, making it difficult for the auditing team to determine whether accounts were fully reconciled.
However, in a written response from late November, the agency said the 187 boxes were from or en route to the State Archives, which kept the agency’s old business records. If an account needed reconciliation after the documents were archived, Maryland 529 would have requested an entire box of records from that time period to obtain the one document of interest. The agency disputed that records in the boxes were unprocessed.
A number of U.S. Postal Service mail bins also discovered in 2015 contained unopened and undelivered mail, including financial transactions. While most of the documents found in the mailroom were outdated marketing materials and annual reports, the documents that related to individual accounts were retained and action was taken at the time, the agency’s written response stated.
In 2015, after the documents were reviewed, the issue was disclosed to external auditors during an annual review and the auditors issued a clean audit report to the board.
Nevertheless, the agency agreed with auditors that a forensic audit now is appropriate and has started the procurement process for one.
Legislative auditors also questioned whether the Maryland 529 board ― which includes the secretary of the Higher Education Commission, the state superintendent of schools, the secretary of the Department of Disabilities, the state treasurer, comptroller, University System of Maryland chancellor and five public members ― exercised effective oversight over management and in response to finding the records.
“There was an overwhelming lack of specific documentation supporting whether effective oversight was provided by the Maryland 529 Board regarding Maryland 529’s MPCT operations during the audit period, particularly in light of the recurring management turnover, discovered unprocessed business documents and irregularities with a former employee’s accounts,” the auditing team wrote. “In addition, there was a significant lack of documentation supporting investigative steps taken, findings and conclusions reached.”
Looking back, Maryland 529 agreed that more records could have been retained about the agency’s actions at the time. “However, the Board disagrees that it was not proactive in providing oversight of the Maryland 529 MPCT. In fact, it has taken significant action both to address the specific issues of 2015 and to strengthen management and Board oversight in general,” the agency wrote in response.
Between May 2015 and March 2019, there have been four different CEOs or acting CEOs at the agency and four different people have served in the chief financial officer position, which was also vacant for two different periods, once for four months and once for eight months.
Since a new CFO took office in May 2018, she has been working with auditors and has restructured accounting practices. The agency has also hired a separate chief investment officer and the board has prioritized increased oversight since the audit started, according to the agency’s response.
The auditors also reviewed rollover payments and refunds from the MPCT and concluded that interest rate calculations were too generous. While the program calculates interest at the end of a contract period based on the account’s final balance, auditors argued that interest should be based on the incremental annual balances and reflect the actual interest rates earned on investments.
For one account reviewed by auditors, the rollover amount was determined to be $77,012, which included $32,110 in interest. Auditors thought a fairer interest calculation would have been $17,290 or $22,649 under two different scenarios.
The agency is currently studying whether its method for calculating interest is appropriate, particularly when compared to other state plans. The agency expects a review to be complete by January 2021.
Maryland 529 should also tighten current policies for mail collections, according to the audit report. In the 2018 fiscal year, MPCT collected about $47.7 million, about $13 million of which was sent through the mail.
The agency also did not complete adequate bank reconciliations for three accounts, though accounting disparities were mostly the result of checks voided by the agency that had not been cancelled with the bank, according to the response from Maryland 529.
New policies have been put in place for regular bank reconciliations and outstanding checks are now voided after 90 days.
Since the auditors finished their work in November 2018, Maryland 529 has been working to address all areas of concern, the agency said.
“The Maryland 529 is fiscally sound, fully funded, and we remain committed to providing excellent service for college savers in Maryland,” Erin Layton, the agency’s executive director wrote in a response attached to the audit.
“We acknowledge the findings and take responsibility and we continue to improve internal controls to ensure calculations are completed timely, accurately, and with the more robust documentation recommended by the auditors,” she continued.