Whistle blower at disabilities agency fired by O’Malley-Brown administration, she alleges

For two years, MarylandReporter.com has been covering the financial problems with the Developmental Disabilities Administration. The following story by Mark Newgent was published Wednesday evening on Watchdog Wire-Maryland. Rather than just linking to it, we are publishing it in its entirety as it uses court documents to describe corruption and fraud at DDA as alleged by a whistle blower later fired.

By Mark Newgent

Watchdog Wire-Maryland

Whistle by Katerha

Whistle by Katerha

At the time advocates were lobbying for an alcohol tax increase to raise revenue for the disabled, the Developmental Disabilities Administration knew about and covered up $38 million in unspent state and federal funds from fiscal year 2010, according to court documents filed by a whistleblower.

Carrie Phillip, former Chief Financial Officer of the much-beleaguered agency tasked with administering services to Maryland’s disabled community, filed a complaint in Baltimore City Circuit Court, alleging she discovered and notified top agency officials about the unspent funds, top officials in the Department of Health and Mental Hygiene ordered her to hide the surplus funds in 2011, and that she was subsequently terminated for blowing the whistle.

Phillip also alleges she alerted her superiors about inadequate internal controls, and agency staff doing work they were unqualified to perform.

During the 2011 legislative session, disability and public health advocates lobbied for an increase in Maryland’s alcohol tax, citing a lack of funding and a long waiting list of disabled residents needing services.  They were ultimately successful in increasing the state sales tax from 6 to 9 percent on alcohol sales.   DDA received $15 million of the extra revenue generated.

Later that year, DDA officials revealed they had discovered a $38 million surplus from fiscal year 2010, $25 million of which had to be reverted to the general fund.

Phillip, a Certified Public Accountant with a Masters degree in accounting, alleges she discovered and disclosed that DDA hid the $38 million, while the agency denied services to the disabled to cut costs.

Gov. Martin O'Malley

Gov. Martin O’Malley (file photo)

Whistle blower sent letter to Gov. O’Malley

On June 2, 2011 Phillip wrote a letter to Governor O’Malley detailing her concerns.

The latest OLA audit speaks for itself but it does not render a complete illustration of the issues. Auditors rarely detect fraud and DDA’s uniqueness prevents auditors from acquiring the feel for the substance of the thousands of unique transactions.  As a CPA I’m bound by a professional code of ethics and have a duty to report the fraudulent contracts, fraudulent transactions, and fraudulent financial reporting existing the organization. I will provide documentation if requested.

Without objective oversight, exemption from procurement regulations has situated the foxes to guard the henhouse.  The staffing mix is incomprehensible for an organization with an $800,000,000 annual budget and the financial reporting foundation of DDA is built on unreliable data making what comes out of no value.

Within the organization, dishonest acts are greeted with nothing more than raised eyebrows. The agency makes multi-million dollar duplicate payments and does nothing to remediate the situation. An ongoing practice of unauthorized interest free loans continues as well as inflating payments to providers if they are in good favor and merely ask for it or if it creates conveniences for DDA staff….

As troubling as this is, I enjoy my profession and do not speak from the vantage point of someone with tunnel vision or an axe to grind and request protection from the inevitable backlash that will result from these disclosures.  I’ve had the pleasure of working for other state agencies and have not previously encountered anything like this.  I normally disclose questionable acts within the organization but am being pressured to falsify documents and cannot do so.  The power at DHMH rests within a formidable network making change from within impossible and elevating concerns is frowned upon.  Therefore I’m pleading to your administration for guidance.

Phillip received no reply from Governor O’Malley’s office.  The only reply she received was four months later in a letter from, Joshua Sharfstein, Secretary of the Department of Health and Mental Hygiene.

Health secretary thanks her and then she is fired

On October 7, 2011 Sharfstein wrote to Phillp that O’Malley asked him to respond to her letter.  Sharfstein noted that he had referred her concerns to the department’s inspector general and that “the Governor appreciates hearing from you and on his behalf, I thank you for bringing these concerns to my attention.”

On October 11, 2011, four days later, Phillip received a termination notice from then-Developmental Disabilities Administration Executive Director, Franklin Kirkland. Kirkland now serves as a special advisor to the Acting Director, Patrick Dooley.

It took the O’Malley administration four months to acknowledge Phillip’s concerns, and only four days to fire her.

The DHMH Inspector General’s report was released that month as well.

The next month, in November of 2011, news of the unspent funds broke in the media.  Maryland Reporter’s story quoted Senator Ed Kasemeyer, Chairman of the Senate Budget and Taxation Committee saying of phone conversation with Sharfstein, “After he called me, he fired the [chief financial officer].”

Phillip’s allegations counter the narrative put out by agency officials that they were responsible for catching the error, particularly Shafstein’s testimony before Kasemeyer’s committee later that month.

Phillip, according to the complaint, filed for an appeal of her termination.  A hearing was held, but no decision was rendered.

On October 16, 2013, Phillip emailed Governor O’Malley again, stating that DHMH has not paid out her leave or other accrued benefits.  In addition to she says DHMH blocked her from attaining a similar position at another state agency.

In the same email Phillip also states her disclosure of the unspent funds hampered DHMH’s ability to “continue to funnel money to personal friends using fraudulent and improper pass through contracts,” and “unrecoverable and unauthorized multimillion dollar loans to their friends.”

Complained to federal government about Medicaid overbilling

Phillip also indicates she was the originator of the complaint, which led to a federal audit of DDA that determined the agency owed the federal government $21 million for Medicaid overbilling.

Her accusations are in line with the string of negative audits DDA has received from legislative auditors over the last several years, which portrays an agency in turmoil.

In April of 2010, Phillip sent an email to her superiors outlining serious internal control deficiencies within DDA.  “Internal controls are lacking,” Phillip wrote. “Because there aren’t sufficient adequately trained fiscal employees.”  She argued that that overseeing an operation the size of DDA, which has an $800 million budget, requires “an appropriate compliment of subordinate supervisors.”

Phillip wrote that she routinely performed tasks suited for staff level employees, leaving her little time to perform higher-level fiscal management duties.  “I’m performing staff level work that can’t be delegated to current staff…I have to emphasize on the job training of members of the unit will not compensate for a lack of business education and experience gained thereafter.”

She also noted many of her subordinate employees stall and freeze items because they don’t know enough or that there is insufficient time to for her to give hands on supervision.  Phillip warned that auditors will find an unacceptably high number of exceptions and that a deputy would be needed to detect and prevent errors.

In June 2013, Sharfstein hired, through a no-bid $3.1 million contract, the firm of Alvarez & Marsal, which specializes in fixing troubled organizations.