Au­di­tors fault Fran­chot’s of­fice

$8.7 mil­lion in tax rev­enue was dis­trib­uted to wrong towns in Mont­gomery

Baltimore Sun - - FRONT PAGE - By Luke Broad­wa­ter and Michael Dresser

The of­fice of Mary­land Comptroller Peter Fran­chot dis­trib­uted $8.7 mil­lion in tax rev­enues to the wrong towns in Mont­gomery County, state au­di­tors say in a re­port to be re­leased to­day.

Au­di­tors blame the mis­take on the er­ro­neous clas­si­fi­ca­tion of more than 14,000 re­turns.

Au­di­tors also found prob­lems with how the of­fice han­dles out-of-state tax cred­its, keeps in­for­ma­tion se­cure, and is­sues re­place­ment re­fund checks. The au­dit, ob­tained by The Bal­ti­more Sun, is ex­pected to be broadly re­leased to­day.

The comptroller’s of­fice said it has worked dili­gently to cor­rect the mis­takes.

Fran­chot, a Demo­crat, de­fended his of­fice Wed­nes­day. “We have the finest comptroller’s of­fice in the coun­try,” he said. “I have a ter­rific staff of peo­ple who for the 12 years I’ve been comptroller have done a tremen­dous job.”

Fran­chot said his of­fice in­her­ited the rev­enue distri­bu­tion prob­lem from pre­vi­ous comp­trol­lers, dis­cov­ered and cor­rected it. He said he worked with the Mary­land As­so­ci­a­tion of Coun­ties to re­solve the er­ro­neous trans­fers, and put ju­ris­dic­tions that had been over­paid on le­nient re­pay­ment sched­ules.

But crit­ics used the find­ings to paint

Fran­chot as a grand­stand­ing politi­cian who is fail­ing to run his own of­fice.

“The re­port high­lights deep fail­ures of ba­sic rev­enue col­lect­ing func­tions,” said state Sen. Bill Fer­gu­son, a Bal­ti­more Demo­crat who has clashed with Fran­chot in re­cent weeks. “This type of au­dit hits at the cen­tral rea­son Mary­lan­ders are ever more dis­trust­ful of typ­i­cal politi­cians who fo­cus on me­dia at­ten­tion in­stead of their core job func­tions.”

As one of three of­fi­cials on the state Board of Pub­lic Works, Fran­chot has led an ef­fort to force school of­fi­cials in Bal­ti­more and Bal­ti­more County to in­stall air con­di­tion­ing units more quickly than they planned. Fran­chot and Repub­li­can Gov. Larry Ho­gan, who chairs the board, voted this year to with­hold mil­lions of dol­lars in state school con­struc­tion money un­til lo­cal of­fi­cials pre­sented plans to pick up the pace. That vote drew crit­i­cism from lo­cal school of­fi­cials and Democrats in the Gen­eral Assem­bly.

On Mon­day, Fran­chot and the NAACP called hot class­rooms “a bla­tant ne­glect” of stu­dents’ civil rights and asked the U.S. Depart­ment of Jus­tice to in­ves­ti­gate.

State Sen. Richard S. Madaleno, a Mont­gomery County Demo­crat, said the au­dit shows that Fran­chot should fo­cus on run­ning his of­fice.

“There’s a need for a re­newed fo­cus on the back­bone of the comptroller’s of­fice,” Madaleno said. “The comptroller’s pub­lic per­sona seems to sug­gest he hasn’t been work­ing as much on the back­bone.”

A spokesman for Fran­chot said the comptroller’s of­fice iden­ti­fied the prob­lem with the tax re­turns nearly a year ago, in­formed Mont­gomery County of­fi­cials and the pub­lic, and quickly worked to im­prove.

Spokesman Peter Hamm said any­one whohopes Fran­chot will drop the fight over air con­di­tion­ing have mis­cal­cu­lated.

“We’re sorry that they think it’s shame­ful that we bring up air con­di­tion­ing,” Hamm said. “But we’re not go­ing to stop bring­ing up air con­di­tion­ing un­til it hap­pens.”

Fran­chot ac­cused Se­nate Pres­i­dent Thomas V. Mike Miller, a long­time neme­sis, of politi­ciz­ing the au­dit. “There was no money lost,” he said. “The Se­nate pres­i­dent and staff have tried to in­flate this is­sue.”

Miller, through a spokesman, called Fran­chot’s charges “asi­nine.”

The rev­enue ad­min­is­tra­tion di­vi­sion of the comptroller’s of­fice was au­dited by the Of­fice of Leg­isla­tive Au­dits, part of the Depart­ment of Leg­isla­tive Ser­vices, which sup­ports the work of state leg­is­la­tors.

The au­dit be­gan af­ter of­fi­cials re­ceived com­plaints that tax re­turns in Mont­gomery County were us­ing in­cor­rect spe­cial tax rates for the towns that set their own tax rates in ad­di­tion to the county and state rates.

Au­di­tors found er­rors in the re­turns of 14,861 tax­pay­ers that re­sulted in the trans­fer of $8.7 mil­lion to the wrong ju­ris­dic­tions.

Au­di­tors found 1,393 tax re­turns that had ad­dresses that were not le­git­i­mate, and re­ported that the comptroller’s of­fice did not in­ves­ti­gate. They con­cluded that the comptroller’s of­fice poli­cies were de­fi­cient, and man­agers did not suf­fi­ciently train em­ploy­ees to catch such er­rors.

In a re­sponse to the au­dit, of­fi­cials from Fran­chot’s of­fice said er­rors were made in just a small per­cent­age of the tax re­turns they process.

“For tax years 2010 to 2014, more than $6 bil­lion was dis­trib­uted,” they wrote. “The re­al­lo­ca­tion rep­re­sents less than 0.2% of the to­tal dis­tribut­ing dur­ing this pe­riod.”

But state Del. Bill Frick, a Mont­gomery County Demo­crat, said the er­rors have been “very prob­lem­atic” for com­mu­ni­ties such as Chevy Chase and Rockville, which have their own tax rates.

“Some mu­nic­i­pal­i­ties al­ready re­ceived rev­enues and spent them. That’s an egg you can’t un­scram­ble,” Frick said. “The mu­nic­i­pal­i­ties that were short­changed are un­der­stand­ably ea­ger to get their own hands on the rev­enues they were en­ti­tled to.”

Hamm said towns have un­til 2024 to be­gin pay­ing back the funds and those who re­ceived too lit­tle have been made whole.

Au­di­tors also took is­sue with the way Fran­chot’s of­fice pro­cessed out-of-state tax cred­its. They said re­quired doc­u­men­ta­tion for the cred­its could not be found.

Au­di­tors said they ex­am­ined 20 tax re­turns claim­ing out-of-state cred­its for the year 2013 and noted that six — to­tal­ing $27.2 mil­lion — lacked the doc­u­men­ta­tion needed to award the cred­its.

Au­di­tors also said su­per­vi­sion of “sig­nif­i­cant fi­nan­cial ad­just­ments to cor­po­rate tax­payer ac­counts” was in­ad­e­quate, and that the of­fice lacked doc­u­men­ta­tion that $125 mil­lion in re­place­ment re­fund checks were re­viewed prop­erly.

Two top of­fi­cials de­fended the of­fice in a let­ter to leg­isla­tive au­di­tor Thomas J. Bar­nickel. Deputy Comptroller Sharonne Bonardi and Rev­enue Ad­min­is­tra­tion Di­vi­sion di­rec­tor Wayne P. Green wrote, “We’ve de­tected and blocked more than 11,600 fraud­u­lent re­turns worth nearly $20 mil­lion in 2016 alone — on top of the 64,859 fraud­u­lent re­turns that the Comptroller’s Of­fice has blocked and de­tected since 2007.”

But Fer­gu­son said the au­dit shows Fran­chot should fo­cus on run­ning his of­fice rather than fight­ing over air con­di­tion­ing.

“We need to take a closer look at the ex­tent of these prob­lems,” Fer­gu­son said. “It’s scary to think what else we’ll find when we look deeper into man­age­rial de­ci­sion­mak­ing and ex­ec­u­tive staffing in the of­fice.”

Hamm said the comptroller’s of­fice is con­duct­ing a statewide au­dit to make sure there aren’t sim­i­lar prob­lems in other ju­ris­dic­tions. So far, he said, they have not un­cov­ered er­rors in towns out­side of Mont­gomery County.

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