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In the Red

Disabilities Administration CFO says she was fired for blowing the whistle

The former Chief Financial Officer of a $1 billion state agency has filed a lawsuit claiming she was fired for alerting her superiors—including Governor Martin O’Malley—to accounting irregularities and financial fraud.

Carrie Phillip, a certified public accountant who served as CFO for the Developmental Disabilities Administration (DDA) from late 2008 until 2011, blew the whistle on a $38 million surplus the department, which is part of the State Department of Health and Mental Hygiene (DHMH), was hiding just as advocates for the disabled were lobbying for—and winning—an increase in the sales tax on alcohol in order to pay for needed services.

“Plaintiff discovered and disclosed defendant hid thirty-eight million dollars in 2010 while defendant denied services to disabled people to cut costs,” Phillip says in her complaint, which she filed on Oct. 24 without a lawyer. “These fraudulent practices seriously endanger people who languish on lengthy waiting lists while being denied services.”

DDA has been subject to a number of critical audit reports in recent years. Two weeks ago, a legislative audit detailed millions of dollars in undercharges and overbillings within the complex system of payments funneled from state and federal sources. The department cares for some 24,000 people with conditions such as cerebral palsy and Down syndrome at a cost of about $33,000 each annually. About 95 percent of DDA’s budget is paid to contractors.

In September of 2013 the inspector general for the federal Department of Health and Human Services determined that the state must return $20.6 million it had improperly billed through Medicaid. Patrick Dooley, DDA’s acting director, says the department has not yet been served with the lawsuit and so cannot comment on it. He says the department is working to correct systemic accounting problems and has hired a consultant, Alvarez and Marsal, to help design new and better systems. The consultant was hired in June on a no-bid, $175,000-per-month contract expected to last through 2014. The department has not yet paid back the $20.6 million to the federal government, Dooley says. “What we have to do is respond to another official within HHS, saying we agree with audit findings—then they get back to us about how and when to pay it.”

He says the payback will not affect services to clients.

The state DHMH audit from 2011 was prompted by Phillip’s concerns, and although it doesn’t name her (or several other DDA employees who apparently spoke to the inspector general anonymously), it paints a picture of a department in fiscal chaos. The audit describes Phillip’s relationship with both her staff and managers as troubled and says the fiscal staff was under stress both due to retirements of knowledgeable senior employees and because of Phillip’s management style.

“No one within DHMH, outside the DDA operation, has a full understanding of DDA funding, programmatic, regulatory, payment or financial (accounting) systems,” the auditor wrote. “One could argue that now, with the departure of experienced DDA staff, the same could be said of DDA itself. This, combined with the leadership void described above, has contributed to many of the administrative and financial system problems currently being experienced by DDA.”

Whatever Phillip’s shortcomings may have been as a manager, the record regarding her firing raises eyebrows.

On June 2, 2011, Phillip wrote to Governor O’Malley: “I write to you with extreme trepidation as doing so comes with professional fallout,” she said, according to a copy of the letter appended to her legal complaint. “As I am a CPA I’m bound by a professional code of ethics and have a duty to report the fraudulent contracts, fraudulent transactions, and fraudulent financial reporting existing in the organization.

“Within the organization, dishonest acts are greeted with nothing more than raised eyebrows,” the letter to the governor continues. “The agency makes multimillion dollar duplicate payments and does nothing to remediate the situation. An ongoing practice of unauthorized interest-free loans continues as well as inflating payments to providers with they are in good favor and merely ask for it or if it creates conveniences for DDA staff.”

Phillip wrote that she had worked at other state agencies “and [has] not previously encountered anything like this.”

The governor did not respond, but Dr. Joshua M. Sharfstein, secretary of DHMH, wrote a letter back to Phillip dated Oct. 7, 2011. He apologizes for the late response and says he takes her charges seriously. Sharfstein said he referred her letter to the DHMH Office of Inspector General, whose investigation was not yet complete. “I thank you for bringing these concerns to my attention,” Sharfstein wrote in closing. “If you have further questions, please contact Frank Kirkland, DDA Executive Director.”

Four days later, in a letter dated Oct. 11, Kirkland fired Phillip. “It is my judgment that your services are no longer needed,” he wrote, adding that, as a management service employee, she was working “at-will.” That means he did not need to give a reason for the firing.

In June of this year, Kirkland was made a special advisor to Acting Director Dooley.

Phillip appealed her firing to an internal board at DHMH, her only option under the law. In her suit, she says her case was heard in February of 2012 but no decision was ever issued, leaving her in limbo. She says unnamed DHMH officials blocked her efforts to get another state job at her skill and pay grade.

Phillip alleges that DDA officials are corrupt, though it is unclear if those allegations have been investigated either by state or federal authorities. On Oct. 16, 2013 she sent a letter to O’Malley’s office via the online complaint system. Writing it in three parts to get around the system’s 4,000-character limit, Phillip again alleged that DDA officials were giving fraudulent contracts to friends: “I exposed and thereby hampered DHMH’s ability to continue to funnel money to personal friends using fraudulent and improper pass-through contracts.”

She also asked the governor to settle her claim personally before she filed a lawsuit: “My non-negotiable base amount in my complaint is $2,378,987 before incurring, if it comes to that, punitive damages, legal fees, and court costs.”

It does not appear that the governor’s office responded before she filed the suit.

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