Poor oversight cost University of Maryland Global Campus millions on failed IT project, audit says

Faculty of the University of Maryland Global Campus, Asia, congratulate a graduate during an April 2023 graduation ceremony in Okinawa, Japan. UMGC was founded to serve students in the military, which is still a large part of its mission, serving service members in more than 175 locations around the globe. Photo by Lance Cpl. Thomas Sheng/U.S. Marine Corps

The University of Maryland Global Campus spun off some of its information technology units into independent businesses that it then supported with $198.1 million in sole-source contracts with little oversight, according to a recent state audit.

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

The audit also took the campus to task for its handling of a $500 million advertising contract at a time when enrollment continued to decline, its tracking of student residency status and its record-keeping on physical checks sent to the school for payment.

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

“I think it was really striking to me look at the amount that was spent on advertising and publicity, and yet enrollment went down,” Lam said. “I think it’s OK if there’s some money spent and yet it didn’t produce the results that you wanted, but a half-billion dollars is a lot of money to spend on advertising.

“I think there’s some questions … that ought to be asked,” Lam said.

The advertising contract was just one part of the audit, which was largely dedicated to the university’s decision to spin off two companies under a University System of Maryland policy allowing High Impact Economic Development Activities, also known as HIEDA. That program was created to let colleges and universities 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.

With declining enrollment despite pricey ad campaign, University of Maryland Global Campus cuts 43 jobs

In 2015, UMGC spun off its Office of Analytics to create HelioCampus, providing $10 million in startup funding for the company that was to assist universities with analytics. In 2016, UMGC created Ventures, a tax-exempt holding company for UMGC businesses that it seeded with $15 million. A year later, UMGC spun off its IT office into AccelerEd, a subsidiary of Ventures.

The audit noted that Ventures had $215.3 million in revenues from fiscal 2017 to 2022, of which $198.1 million came from UMGC. Further, the audit said, $184 million of those service agreements were made without competitive bids and with little oversight after the fact.

In a response to the audit, Ellen Herbst, senior vice chancellor for administration and finance with the school, said UMGC disagreed with the charge that it should “make sure IT services are provided on a competitive basis.” The HIEDA policy specifically allows universities to contract with HIEDA-created businesses without going through a competitive bidding process, the university’s response said.

But the audit, conducted between Oct. 1, 2018, and Dec. 31, 2022, notes that while state law permits the school to do business with HIEDA firms without competitive bids, “the law does not mandate exclusive use of these entities.”

“And we believe that the findings in this report demonstrate that UMGC’s practice of doing so, including services that were subcontracted out to other vendors, severely restricted its ability to ensure that it obtains IT services from the best qualified vendor and in the most cost-effective manner,” wrote Legislative Auditor Brian S. Tanen.

The university also disagreed with the audit’s recommendation that it create a system for competitively bidding advertising jobs among a group of nine companies that had prequalified to do advertising work for UMGC under two six-year master contracts totaling $500 million. It said its existing procedures ensure competition, and that constantly shifting between ad agencies would lead to a loss of campaign knowledge and inefficiencies.

But the audit noted that the advertising master contracts came as part of an effort to increase out-of-state enrollment. In the first three years of the contract, for which the university shelled out $175.4 million, out-of-state enrollment dipped slightly while overall enrollment fell from 91,385 to 86,582.

In 2022, the school announced layoffs of several dozen employees after a decline in fall 2021 undergraduate enrollment. School leaders pointed to the pandemic as a major cause for the decline.

The audit also said the school needed to do a better job tracking and reviewing student residency status. It said about 67% of student residency statuses were not independently reviewed and approved. The tuition rate for an undergraduate 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 a financial implication to UMGC since tuition costs charged to a student can vary greatly depending on the assigned status,” according to the audit.

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

Fowler wrote the school has “already taken steps” to initiate a third-party evaluation on services received from UMGC Ventures and AccelerEd. And he said student enrollment increased by 8,300, or 9%, in the last two years.

“In the coming months, we will continue to focus on implementing our Strategic Plan, and we will provide periodic updates as we work together to address the points highlighted in the auditors’ report,” Fowler wrote. “I ask that you be patient and diligent throughout this process, and I thank you, as always, for the part you play in fulfilling our public mission.”