The Maryland Department of Human Services did not ensure that local social services departments properly vetted recipients of taxpayer-funded assistance programs, leading to the state sending out thousands in improper payments of food assistance and other benefits, a new audit says.
The July 15 report by the Office of Legislative Audits said some of those improper benefit payments went to a multimillion-dollar lottery winner and to incarcerated individuals who do not qualify for public assistance programs.
The findings come as the federal government is cracking down on states that make improper payments from the Supplemental Nutrition Assistance Program, forcing them to reduce the overpayment or underpayment of benefits or risk millions in financial penalties starting next year.
The audit reviews the performance of the Department of Human Services’ Family Investment Administration from June 1, 2021, to Feb. 28, 2025. The administration handles public assistance programs and is responsible for oversight of local departments of social services that administer those programs.
State auditors outlined nine issues in their investigation. DHS officials largely agreed with the audit, except for one finding involving a contract dispute, and said addressing the issues in the report “is a top priority and a shared responsibility across the agency.”
“FIA has successfully resolved a significant number of findings from our previous audit while aggressively pursuing data-driven modernization that protects taxpayer dollars,” DHS Assistant Secretary for Programs Larry Handerhan said in a written statement Monday. “We are committed to ensuring findings are fully resolved and are used to strengthen program integrity and performance.”
Auditors said that during the audit period, state officials did not ensure that local departments had adequate checks in place to guarantee that those who received SNAP benefits and other assistance were qualified for the program. The audit said that local departments did not have required documentation to evaluate program eligibility, even though the Family Investment Agency is expected to ensure that local departments are collecting that information.
There were dozens of cases where local officials did not have documents to verify that recipients met employment, income and immigration status requirements to qualify for public assistance benefits.
That lack oversight led to benefit payments to the winner of $2 million in the lottery, who received $9,000 in benefits after the win, and at least 1,858 instances where incarcerated individuals, who were not eligible for SNAP or Temporary Cash Assistance, received those benefits.
The audit also rehashes a contract dispute between two vendors that were competing to implement Maryland’s transition to “tap and go” electronic benefit transfer cards, which officials expect will reduce fraud and benefit theft.
The audit says DHS officials should have more closely investigated the original winning vendor’s bid for the EBT card update, which omitted necessary pricing information that allowed it to come in $11.1 million lower than the other bidder.
“The price discrepancy was addressed when the contract was presented to BPW (Board of Public Works) but DHS responded that ‘we would not bring to you, the constitutional officers of Maryland, an unlawful contract to sign,’” the audit said.
The losing bidder appealed the contract decision, and state officials terminated the contract with the original winning bidder.
But DHS officials say the audit does not show the “full context of Maryland’s procurement framework, nor does it indicate a systemic deficiency within the Department’s operations.”
“Labeling a single procurement interpretation error as a failure to follow RFP [request for proposal] terms significantly oversimplifies the procurement process,” Acting Secretary Stacy Rogers said in the letter responding to the audit findings.
That said, DHS said it “acknowledged our mistake in the 2024 procurement process concerning the evaluation of the financial proposals of the two bidders” and took steps to improve the evaluations of later contract proposals.
The department also agrees there are still improvements needed to improve oversight of benefit payments, including efforts to reduce overpayments for those who are not eligible for SNAP benefits and other programs.
Meanwhile, fiscal penalties may lie ahead for Maryland if it does not quickly improve operations.
H.R. 1, the federal budget reconciliation bill passed last year, better known as the “One Big Beautiful Bill Act,” will require that states with numerous instances of underpaying those who qualify for SNAP or overpaying those who are ineligible – the “payment error rate” – pay a percentage of those benefits for the first time. Currently, SNAP benefits are fully paid by the federal government.
Under H.R. 1, states with a payment error rate below 6.00 will continue paying nothing toward SNAP, and states with a rate above 13.30 will qualify for a yearlong grace period to get their affairs in order. State with error rates between 6.00 and 13.30 will pay 5%, 10% or 15% of their SNAP bills, depending on their error rate.
Updated federal data shows that Maryland reduced its payment error rate from 13.64 in fiscal 2024 to 13.08 in fiscal 2025. Had it not improved at all, the state would have qualified for the yearlong grace period, but by cutting its error rate below 13.30 it is subject to the higher penalty, and will be on the hook for more than $240 million in SNAP benefits.
State auditors note that they received a referral on the fraud, waste, and abuse hotline claiming “that DHS management may have intentionally manipulated the error rate to enable the State to defer the increased State contribution for SNAP costs imposed by the One Big Beautiful Bill Act of 2025,” though they were unable to substantiate the allegation.
“Our review did not identify any matters that warranted a referral to the Office of the Attorney General’s Criminal Division,” auditors said.
