ANNAPOLIS, Md. — Maryland education officials failed to properly document or timely recover hundreds of millions of dollars in federal funding, including nearly $879 million in accrued revenue, according to a legislative audit released in January 2026 that cited widespread oversight and financial control failures at the State Department of Education.
The fiscal compliance audit, conducted by the Office of Legislative Audits, reviewed the Maryland State Department of Education’s operations from June 1, 2021, through July 15, 2024. Auditors examined MSDE’s oversight of local education agencies, educator licensing, administration of Blueprint for Maryland’s Future funds, federal reimbursements, and the awarding of grants and contracts.
Auditors found MSDE could not provide sufficient documentation to support accrued federal revenue entries recorded at the close of fiscal year 2024. The audit said the department recorded 101 accrued revenue entries totaling about $878.8 million without verifying that the amounts were valid or collectible. As of November 2024, MSDE had not requested reimbursement or could not document recovery for hundreds of millions of dollars tied to those entries, raising concerns that state funds could ultimately be required to cover any unrecovered balances.
The audit also found MSDE failed to request federal reimbursements in a timely manner, resulting in at least $3.6 million in lost investment income. In one instance, the department delayed seeking reimbursement for more than $194 million in federal grant expenditures for several months, forfeiting interest the state could have earned had the funds been drawn down promptly.
Beyond financial management, auditors identified gaps in MSDE’s oversight of local education agencies, particularly in employee screening practices. The report said MSDE lacked sufficient procedures to ensure school systems conducted required pre-employment screenings and criminal background checks for employees working with children. Auditors also found the department did not ensure districts enrolled employees in systems designed to alert authorities to subsequent criminal activity.
In one local education agency reviewed, approximately 34% of teachers hired prior to September 2024 were not enrolled in a state alert system for criminal activity, a lapse MSDE officials were unaware of at the time of the audit.
The report further cited weaknesses in educator licensing oversight. Auditors found MSDE independently reviewed only about 1% of initial educator license applications, meaning the vast majority were approved without secondary verification by the department. While auditors did not identify improperly issued licenses during testing, they said the limited review reduced assurance that all licenses were issued in compliance with state requirements.
Auditors also raised concerns about the administration of Blueprint for Maryland’s Future prekindergarten funding. The audit said MSDE did not independently verify whether local education agencies accurately determined student eligibility for funding. Testing found instances where districts could not fully document household income used to qualify students, potentially resulting in improper payments.
Procurement practices were also scrutinized. The audit found MSDE awarded grants and contracts totaling $1.2 million without a competitive process and could not always document that required services or deliverables were received. Some of those matters were referred to the Office of the Attorney General’s Criminal Division, though auditors emphasized that such referrals do not imply criminal wrongdoing or guarantee charges will be filed.
Cybersecurity-related findings were identified during the audit but redacted from the public report in accordance with state law, which requires sensitive security information to be withheld.
MSDE generally agreed with many of the audit’s recommendations and outlined corrective actions, including strengthening oversight of local education agencies, revising federal fund management procedures, improving procurement controls and increasing staffing in key fiscal roles. In some instances, the department disputed aspects of the findings, but auditors said they reviewed the responses and reaffirmed their conclusions.
The Office of Legislative Audits said it will continue monitoring MSDE’s progress and report unresolved issues to the General Assembly.
Read the full MSDE audit report below:
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