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Inside City Hall: Another accounting “black hole” revealed in unpublicized study

PART 1: Report by the budget bureau warns that the city has no firm grip on how it spends federal and state grants

Above: Former Budget Director Andrew Kleine discusses revenue projections for fiscal year 2014. (Mark Reutter)

For more than a decade, a large deficit in Baltimore’s annual operating budget has been attributed to “timing differences” that will be “covered” by revenues in the following year.

But it never is.

At issue are the grants that the city receives from Washington and Annapolis as well as special grants from private sources. Every year, the city gets about 250 federal, state and special grants totaling more than $280 million – or over 16% of the city’s total budget.

Since 2001, however, the cumulative amount the city expends in grant funds has exceeded the amount of money it received.

In fiscal 2012, for example, the city collected $285 million in grant revenues but apparently spent $298 million (the exact number is unclear).

The $13 million deficit for 2012 – when added to previous deficits from other years – makes for a cumulative “Grants Revenue Fund Deficit” of negative $40.2 million.

This deficit – and its potential impact on city taxpayers who may wind up paying for it in the future – is one of many alarming findings of a 97-page report written by the Bureau of the Budget and Management Research headed by director Andrew Kleine.

Report Never Publicized

The report, “Improving City Grants Management,” was completed six months ago in September, but was never cited until the mayor’s staff let out word of its existence last week after the federal government ordered the city to repay nearly $4 million in misspent federal grants earmarked for the homeless.

A spokesperson for Mayor Stephanie Rawlings-Blake said the city was interviewing candidates for a new position to better oversee federal and state grants. A copy of the report requested last week by The Brew was not released by the mayor’s office.

We found the report deep inside the website of the budget bureau next to the study, “Evaluating the Operations and Revenue Generation Potential of the Inner Harbor Dock Master.”

The Grants Management Report contains none of the trappings of the mayor’s Ten-Year Financial Report, which was printed last year as a glossy full-color brochure and cost more than $1 million in outside consultant fees.

But more importantly – unlike the Ten-Year Report that never utters the word the word “audits” – the Grants Management Reports calls for an audit to determine whether the city has overspent or improperly accounted for state and federal grants.

The report says that without a thorough financial accounting, the city cannot determine how much of the longstanding deficit results from “a timing lag with revenue receipts” and how much is “overspending of grant dollars and/or accounting transactional errors.”

Whatever has been overspent amounts to a liability for the city, the report warns, which sooner or later will have to be paid off from general funds chiefly raised from taxpayers.

Obsolete Rules, Widespread Noncompliance

The recommendation of a grants audit is backed up by a series of revelations about how Baltimore manages (or rather doesn’t) hundreds of millions of grant dollars each year:

• The city has not updated its Administrative Manual for handling grants since 1990, a period when federal and state regulations have changed drastically.

• The current process for applying for grants “is cumbersome, many agencies are not following it, and there is no city office that ensures its compliance.”

• Of 10 agencies surveyed, “none submit copies of grant applications to the Mayor’s Office, BBMR  [Bureau of the Budget and Management Research], BAPS [Bureau of Accounting and Payroll Services], Planning and the Civil Service Commission for review and comments as instructed in the Administrative Manual Procedure.”

This page of the city's Comprehensive Annual Financial Report (CAFR) shows the grants deficits and attributes it to

This page of the city’s Comprehensive Annual Financial Report (CAFR) shows the grants deficits and attributes it to “timing differences,” an assertion challenged by the budget bureau. (pg. 86, “Improving City Grants Management”)

• “Poor planning has led to spending occurring without proper appropriation and fixed costs such as pensions being improperly allocated to positions that are no longer active.” (The latter is important because city agencies automatically receive more funding if they report positions that require pensions.)

• “Most agencies tend to focus more on the programmatic oversight and less on the financial oversight of grants.”

No Internal Monitoring of Funds

The latter is what tripped up the Mayor’s Office of Human Services, which was blasted in a 2012 report by the Inspector General of U.S. Department of Housing and Urban Development (HUD) for not properly overseeing $9.5 million in federal homeless grants.

Homeless Services did not directly handle the finances of the grant – it handed that function over to the United Way of Central Maryland as its “fiscal agent” – but neither the city nor United Way ensured that the funds were used to help eligible clients for services specified by the grant.

After more than a year of back-and-forth, the federal government has ordered the city to repay millions in undocumented or ineligible costs – an embarrassment to Rawlings-Blake who has repeatedly vouched her commitment to ending homelessness in Baltimore by 2018.

As reported in The Brew, Homeless Services did not develop internal monitoring protocols until HUD placed of all of the city’s federal homeless disbursements on “auto review” last February, requiring pre-approval of all funds by HUD’s Baltimore office.

Only then did Human Services institute new procedures for reviewing awards to private and non-profit groups with the help of a specialist supplied by HUD.

PART 2: With little oversight, city agencies vary widely in how they account for federal and state grants.

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