State Auditors: Morgan State Financial Aid, Contract Management Discrepancies Total Millions

A new report issued by the Maryland Office of Legislative Audit says that a lack of internal controls and executive oversight at Morgan State University resulted in millions in vendor payments for services not rendered, unclaimed federal student financial aid funds and scholarships awarded to ineligible students between 2013 and 2017.

The report outlines 17 total findings against the university, which also says that the university failed to properly administer receivables from grants, and to protect student data in electronic systems.

FINANCIAL AID

According to the report, 40 students admitted into the MSU Honors College in 2015 received more than $244,000 in scholarship awards, despite being ineligible for admission into the program as mandated by Board of Regents’ Grade Point Average and SAT score requirements.

This discrepancy was consistent with a regular failure by the university to reconcile financial aid awards from federal funding disbursement programs between 2014 and 2017. Auditors specifically noted a $1.6 million gap between awards and available federal funds in 2016.

From the report:

We also tested four MSU reimbursement requests submitted to DoE in September 2016 through November 2016, totaling $9.1 million (including two requests submitted for one of the aforementioned months for which there were no documented reconciliations), and found that MSU did not recover all the amounts disbursed to the students. This condition appeared to be due to differences between DoE’s records and MSU’s automated system, which should have been identified if MSU had performed the appropriate reconciliations.

MSU had distributed $10.7 million to students, but only requested reimbursement for the $9.1 million of the aid previously approved by the [US Department of Education]. The $1.6 million difference was subsequently recovered by MSU.

Contract Administration

Morgan State officials paid more than $2.2 million for personnel and services of a food service vendor that were never provided to the university, mostly through position vacancies and incorrect calculations of fee increases.

In response to our request, the vendor provided us the staffing data for the key management employees. Our review of these data disclosed several vacancies, certain of which were for extended periods. For example, one position had been vacant beginning one week after the start of the contract term. We estimated that MSU could have reduced vendor payments by approximately $1.2 million for seven vacant management positions during the period from July 1, 2014 to June 30, 2017. MSU management stated that certain of these positions were removed during initial contract negotiations, but could not provide us with documentation of these changes to the contract.

The report continued,

MSU allowed the vendor to increase its fee without obtaining and reviewing justification for the increases, certain of which were not consistent with the contract. Contract language provided for MSU to pay the vendor a set weekly fee for the students enrolled in meal plans each semester. The fee was subject to modification annually based on changes in the applicable consumer price index (CPI), and for other reasons if the reasons were deemed justified by MSU.

However, MSU could not document that it reviewed the CPI prior to approving vendor fee increases. We noted that MSU approved CPI-related increases in the fee which ranged from 1.2 percent to 4 percent that were not consistent with the change in CPI. For example, MSU approved a 4 percent rate increase for fiscal year 2015 when the applicable CPI increase was only 0.8 percent. MSU could not provide documentation supporting or justifying those fee increases. Based on our estimates, these unsupported fee changes, beyond actual CPI increases, resulted in MSU paying the vendor an additional $962,000 during fiscal years 2015 through 2018.

In their response to the auditors report, Morgan State officials concurred with each of the 17 findings and provided commitments to resolve each of the issues. But auditors took the additional step of describing how each of the several steps were only rectified as a result of the auditors’ reporting, and that the university was unable to provide proof of correction for many of the issues.

The state auditors’ report comes two months after Morgan State officials released an internal audit of the university’s finances, which showed sound operability according to MSU President David Wilson.

That audit also showed a fundraising drop of more than $2 million between 2017 and 2018, with an increase of more than $500,000 in operational expenses for the MSU Foundation.

“It is very encouraging to know that the people, policies and procedures that we have in place to govern our operations and finances continue to provide Morgan with a stable foundation as we navigate the many challenges often faced throughout today’s higher education landscape,” said Morgan President David Wilson. “Having a clean financial audit statement strengthens our position and provides us with the confidence to make decisions that will prepare Morgan for future success.”