A state audit of the Maryland Economic Development Corp. has revealed a financially troubled project in Cambridge and the need for beefed-up security for processing remote deposits.
The Department of Legislative Services’ Office of Legislative Audits performed the review of the agency, which is tasked with helping with the expansion, modernization and retention of existing Maryland businesses, and attracting new business to the state. It is managed by a 12-member board of directors appointed by the governor.
The audit covered the period from Sept. 16, 2009, through May 17 of this year and was made public Monday.
As of June 30, Medco owned and managed 14 operating facilities in the state.
Four of the 226 projects it has taken on since its creation in 1984 through December 2011 were financially troubled, according to the audit.
The largest involved the Chesapeake Bay Conference Center in Cambridge, with a $173.3 million bond debt as of June 30. In June, Medco’s own audit of the project showed that the center’s liabilities exceeded its assets by $116.4 million. About $3.7 million of this was attributed to repairs stemming from Tropical Storm Irene last year. The center was built in 2002.
Medco has engaged management consultants to shore up the center’s operations, the audit noted.
The underperformance and eventual sale of the Rocky Gap Resort in Allegany County in August cost Medco and bondholders $67.6 million, according to the audit. Rocky Gap was sold this year to Lakes Entertainment of Minneapolis for $6.8 million. The resort’s liabilities exceeded its assets by $60.0 million as of June 30, according to the Medco audit.
Other outstanding bonds disclosed in the legislative audit included $31.2 million for the Fayette Square Student Housing at the University of Maryland, Baltimore and $2.4 million for the Maryland Technology Development Center incubator in Rockville.
These projects have not met all of their financial covenants, according to the audit. Medco is currently engaged in various improvement strategies with management consultants and lenders for the projects.
All told, the agency had $745 million in non-recourse debt at the end of fiscal 2012, according to the audit. Medco is not liable to bondholders and lenders if the project or borrower defaults.
“There’s no defaults, so we’re not overly concerned with these findings,” Robert C. Brennan, Medco’s executive director, said Monday. “None of these show a failing.”
The audit also raised questions — “significant deficiencies,” is how the report described them — over Medco’s control over processing cash receipts using remote deposit. This process allows people to electronically scan check images and money orders and transmit the images to the bank for deposit.
Auditors recommended that Medco ensure that an employee who is independent of the cash receipts functions verify deposits. They also recommended that Medco assign unique user names and passwords to employees with access to the system — to help ensure individual accountability — and ensure checks are stamped as voided once they are processed and then destroyed in a timely manner.
“We knew we were going to get hit with something since we have a small office,” Brennan said. When Medco employees were out sick, others had been stepping in, resulting in the auditors’ concerns, he said.
During fiscal 2011, Medco processed about $23.2 milliion in receipts, according to the audit.
Medco began addressing these concerns this fall, according to its response to the auditors. It has been using a bookkeeper for deposits as of October, providing unique user names for employees as of Nov. 13 and stamping checks as voided as of October. Also, checks will be destroyed when they longer constitute a reconciling item on the account, the response said.
Technology changes result in procedures not automatically existing for functions such as remote bank checking or destruction of direct deposit checks, Brennan said. Medco has to be continuously updating its policies.
“We’re pleased by the audit findings,” he said. “We’re in good shape.”