Last May, Maryland's Secretary of Health and Mental Hygiene, Adele A. Wilzack, told employees in a department newsletter that she was "proud to be a partner" with the Maryland State Games Foundation in sponsoring last year's state sports festival.

"I encourage each one of you to get involved with this year's Maryland Sports Festival as an athlete or as a volunteer," she wrote in a signed front-page appeal in HealthScope '90.

Less than a year later, Wilzack finds herself moving as quickly as she can to distance herself and the department from the State Games program and its affiliated foundation. Two days ago, her department announced it had disbanded the effort.

The change of heart came after state auditors noted nearly a half-million dollars in questionable spending by the State Games project and its foundation.

The reports found payments by the foundation for a political action committee, country club memberships, questionable travel by relatives of state employees, a scholarship for a state employee's niece, and rents for two Ocean City, Md., condominiums, one owned by a Health Department employee.

The audits have prompted a criminal investigation by the state Attorney General's Office.

They also prompted Wilzack last month to force two state officials overseeing the State Games effort to resign. She then seized control of the foundation so it could no longer operate independently.

Wilzack's action to clean up the mess, however, has so far failed to quiet calls for her dismissal -- the most recent from state Senate President Thomas V. Mike Miller Jr. (D-Prince George's).

She has said she will not step down, and she has the support of Gov. William Donald Schaefer (D). But she also will not talk about her management of the program until an in-house review is completed.

"I've got to look at this and try to put the pieces together . . . so I can respond to the governor and the people," she said in an interview Thursday.

Wilzack's reluctance to talk about her role in managing the State Games project leaves hanging questions about why she didn't spot trouble earlier.

The program was founded two years ago with several goals in mind: to attract the lucrative U.S. Olympic Festival to Maryland and to provide a state forum for gifted young Maryland athletes.

But more attention recently has been paid to Wilzack's approval of some extensive travel associated with the State Games, as well as other expenditures. Legislators have questioned how the State Games staff, which had a budget for seven people -- two regular and five contractual positions -- according to a state legislative audit, grew to more than a dozen employees, even though the department was under a hiring freeze.

"With the state's financial condition what it is, when we start looking for places to cut, I know where to start," said state Sen. Julian Lapides (D-Baltimore), chairman of the joint Budget and Audit Committee. "This program is an embarrassment."

State legislators, who convene for the 1991 session on Wednesday, may not get a chance to weigh in on the State Games budget.

On Friday, state officials announced that they had effectively disbanded the project.

"The State Games is out of commission, certainly for this fiscal year," said Richard Proctor, chief of the Health Department's office of governmental affairs. "There's no money left. They've overspent their appropriated budget."

Proctor said the project was running about $50,000 in the red, making this the second year it exceeded its budget.

Seven contractual employees have been let go and four department employees are being reassigned to other duties.

One other employee is continuing to monitor the state's now questionable bid to host a U.S. Olympic sports festival, but state officials have not decided whether to pursue the bid because of the State Games controversy.

Wilzack originally supported the program as a way to get youth interested in a positive activity, one that would steer them away from alcohol and illegal drug use.

The moving force behind the program has been her deputy, John Staubitz Jr.

Staubitz, who has been unavailable for comment since his resignation Dec. 14, supervised the program's director, James E. Narron. Narron also headed the Maryland State Games Foundation, a private, nonprofit corporation established April 18, 1989, which received some state funds but was not subject to regular state scrutiny.

After first trying to line up corporate sponsorship, the foundation turned to the state and received $631,451 in federal and state grants from Dec. 5, 1988, to Sept. 12, 1990, according to the state audit.

About $460,000 went to the foundation, after first being funneled through the state-run Carroll County Health Department, from the state's Alcohol and Drug Abuse Administration for "prevention activities for youth utilizing sports mediums as alternatives to drug and alcohol use."

Staubitz also helped Narron secure a $125,000 loan from a Howard County bank by sending Narron a letter last June 7 stating that the Health Department would be giving the foundation a grant of up to $250,000 in fiscal 1991, and "should you need to borrow funds prior to receipt, this grant may be used for repayment."

State auditors have found that the loan has yet to be repaid, and recommended that the foundation return about $371,000 because the expenditures didn't meet state requirements for the grant.

It may be difficult to recover the money. Auditors found that the foundation has about $1,100 in its bank account and has liabilities of about $187,000, including the bank loan.

The questionable expenditures noted by the state audit include: a $25,000 donation to a fencing academy that employed Narron's wife; the purchase of three cars through Staubitz's father, a car salesman; travel on behalf of the games by relatives of Narron and Staubitz; a $3,000 scholarship to a niece of Staubitz's for volunteer service; and an Aug. 11 payment of $30,000 for clothing for a retail operation and for State Games activities.

Auditors were unable to verify what happened to the money spent or the clothing purchased. The audit also noted $95,000 in payments for a tournament sponsored by a table-tennis organization in which Narron sat on the board of directors.

Narron has said he acted with the support of his superiors in the Health Department, and has expressed surprise at the current criminal investigation. He could not be reached last week for comment.

Department officials are now reviewing the audits and will respond to questions from legislators after the General Assembly session gets underway.