According to a recent government audit, the University of Maryland’s Global Campus spun off some of its IT departments into separate companies and then supported them with exclusive contractor contracts valued at $198.1 million without significant oversight.

That lack of oversight over the supposedly independent firms may have contributed to UMGC having to abandon an IT project after spending $25.1 million with nothing to show for it, according to Friday’s audit by the Maryland Department of Legislative Services’ Office of Legislative Audits.

The audit also criticized the campus for its handling of a $500 million advertising contract at a time when enrollment continued to decline, for its tracking of students’ residency status and for its records of checks sent to the school for payment.

Senator Clarence K. Lam (D-Anne Arundel and Howard), co-chair of the Senate Joint Audit and Evaluation Committee, said Monday that after reviewing the audit, it is “our intention” to invite UMGC representatives to appear before the committee in the fall.

“I find it really astounding how much money was spent on advertising and public relations and yet enrollment was down,” Lam said. “I think it’s OK to spend some money and still not get the desired results, but half a billion dollars is a lot of money to spend on advertising.”

“I think there are some questions … that should be asked,” Lam said.

The advertising deal was just one part of the audit, which focused primarily on the university’s decision to spin off two companies under a University System of Maryland policy that allows for High Impact Economic Development Activities (HIEDA). That program was created to give colleges and universities the opportunity to take actions that could boost the state’s economy “in areas such as job creation and workforce development, technology transfer, commercialization and entrepreneurship,” the audit said.

Despite costly advertising campaign, enrollment numbers are falling: University of Maryland Global Campus cuts 43 jobs

In 2015, UMGC spun off its Office of Analytics to form HelioCampus. The company received $10 million in seed funding to help universities with analytics. In 2016, UMGC formed Ventures, a tax-exempt holding company for UMGC companies, which was funded with $15 million. A year later, UMGC spun off its IT office into AccelerEd, a subsidiary of Ventures.

The audit found that Ventures generated $215.3 million in revenue during the 2017-2022 fiscal year, of which $198.1 million came from UMGC. In addition, the audit found, $184 million of those service contracts were entered into without competitive bidding and with little after-the-fact oversight.

In a response to the audit, Ellen Herbst, the university’s vice chancellor for administration and finance, said UMGC disagreed with the requirement that it “ensure that IT services are provided on a competitive basis.” HIEDA policy specifically allows universities to contract with HIEDA-created companies without having to go through a competitive bidding process, the university’s response said.

But the audit, conducted between October 1, 2018, and December 31, 2022, shows that while state law allows the school to do business with HIEDA companies without a competitive tender, “the law does not require exclusive use of these companies.”

“And we believe that the findings in this report demonstrate that UMGC’s practices, including outsourcing services to other vendors, severely limited its ability to obtain IT services from the most qualified vendor and in the most cost-effective manner,” wrote Legislative Auditor Brian S. Tanen.

The university also disagreed with the audit’s recommendation to create a system for bidding on advertising contracts among a group of nine companies that had qualified for advertising contracts for UMGC under two six-year master contracts totaling $500 million. It said its existing procedures created competition and the constant switching between advertising agencies would lead to a loss of campaign knowledge and inefficiencies.

But the audit found that the promotional contracts were part of an effort to increase the number of out-of-state students. During the first three years of the contract, for which the university paid $175.4 million, the number of out-of-state students dropped slightly while the total number of students fell from 91,385 to 86,582.

In 2022, the school announced the layoffs of several dozen employees after the number of freshmen declined in fall 2021. School officials cited the pandemic as the main cause of the decline.

The audit also found that the school needed to better track and verify students’ residency statuses. It said about 67% of students’ residency statuses were not independently verified and approved. Tuition for a military student was $250 per credit in the fall 2022 semester, compared to $312 for in-state students and $499 for out-of-state students.

“Ensuring that students are assigned the correct residency status has financial implications for UMGC because the tuition charged to a student can vary widely depending on the status assigned,” the audit states.

In a letter to school administrators Friday, UMGC President Gregory W. Fowler wrote that several audit recommendations had already been implemented, such as “doubling the number of cashiers and implementing checks and balances to ensure that errors are quickly identified and corrected.”

Fowler wrote that the school has “already taken steps” to arrange a third-party evaluation of the services it received from UMGC Ventures and AccelerEd. And he said enrollment has increased by 8,300, or 9%, over the past two years.

“In the coming months, we will continue to focus on implementing our strategic plan and will provide periodic updates as we work together to address the issues highlighted in the audit report,” Fowler wrote. “I ask that you be patient and diligent throughout this process, and I thank you, as always, for your contribution to fulfilling our public mission.”