Two Maryland nonprofit groups overcharged the U.S. government to weatherize low-income homes and misused federal grant money, including to pay for a director’s home improvements and to cover personal credit-card expenses, according to federal auditors.
Between 2009 and 2013, C&O Conservation and Maryland Energy Conservation collected a combined $1.5 million in improper, prohibited or unsupported reimbursements, an Energy Department watchdog said in a report released Tuesday. The amount represents about 2 percent of all federal weatherization funds distributed to Maryland during that time.
One of the groups challenged the report, questioning the review’s thoroughness and denying any accusations of fraud.
Inspector General Gregory H. Friedman said his review exposed oversight problems within the department and Maryland’s Department of Housing and Community Development, which administers federal weatherization grants through local nonprofits and governments.
“Although personal responsibility was at its core, the audit disclosed an operating environment that allowed significant deficiencies in subgrantee accounting systems,” Friedman said in a letter last week to Maryland Housing and Community Development Secretary Kenneth C. Holt.
The federal weatherization program provides federal grants to retrofit the homes of low-income individuals, with a special focus on homeowners who have children, are elderly, are disabled or have high energy use. Since 2009, the U.S. government has awarded about $74 million in funding to Maryland through the initiative.
Auditors estimated that the funds flagged in the report could have paid for weatherizing 100 additional low-income homes in the state.
The U.S. government has barred C&O and Maryland Energy Conservation from doing federal business for three years because of the findings, and the matter has been referred for possible criminal or civil charges.
C&O founder Timothy Kenny said that the inspector general’s office mischaracterized the situations described in the audit and that it did not conduct a thorough review. He said that his company never committed fraud and that he thought it was handling its accounting correctly.
“It was a lack of monitoring on the behalf of the state,” Kenny said. “We were doing what they asked, and they said the way we were doing things was right.”
Maryland Energy Conservation declined to comment.
The questioned costs in the report included $910,000 in payments exceeding actual expenses, such as dozens of instances in which C&O added an additional $300 fee to its reimbursement claims for furnace replacements, even though it could not support the charge.
Additionally, auditors found 33 examples of C&O’s billing the government for a significantly higher-grade insulation than it had installed in homes, increasing the cost to U.S. taxpayers by nearly four times .
The questionable costs cited by the report also included $130,000 in personal credit-card expenses for meals, travel and other expenses that C&O staff members charged to the federal government as “Supplies — Other,” even though the items had no clear connection to the weatherization program.
Similarly, Kenny classified about $4,000 in donations to his child’s school as “Supplies — Other.”
Auditors said they could not precisely calculate the total amount of inappropriate charges because the companies used flawed accounting practices.
“It became apparent at the beginning of our audit that C&O’s accounting system was inadequate for tracking federal awards when it was unable to produce a basic statement of federal income and expenditures for our review,” the report said.
Although the report focused largely on C&O, it also cited Maryland Energy Conservation for questionable charges, including $6,000 in depreciation expenses for unauthorized vehicles.
Auditors concluded that weak oversight at the federal and state levels led to the weatherization program’s providing “improper payments to local agencies rather than furthering the program’s goals of installing energy efficiency retrofits for low-income families.”
The state Energy Department agreed with the findings and said it would address them by resolving the questioned costs, working to recover payments that exceeded actual costs and developing internal controls to address oversight weaknesses.
“We recognize that even the most well-run programs can benefit from an external evaluation, and we appreciate the input of the [Office of the Inspector General] as we continue to enhance” the weatherization-assistance program, the department said in its response to the audit.
Maryland’s Department of Housing and Community Development also concurred with the findings, agreeing to resolve the questioned costs and develop policies to determine whether grantees’ accounting systems are adequate during the application process. The agency said it eliminated flat-fee payments last month.
The Department of Housing and Community Development “is committed to resolving all questioned costs accurately and efficiently,” the agency said in its response letter. The department “has since implemented appropriate financial controls to minimize the opportunity for future risk.”