AUGUSTA – The second part of an audit of Maine’s cultural agencies, which will be released in several weeks, has uncovered the inappropriate use of significantly more funds – public and private – than the $4,000 previously reported. In addition, the findings could have legal ramifications, according to state controller Ed Karass.

Speaking to the Legislature’s Appropriations Committee on Thursday, Karass and Commissioner Rebecca Wyke of the state’s Department of Administrative and Financial Services outlined the findings from the earlier audit. The inquiry was sparked by allegations that state and federal money was used improperly to set up a nonprofit corporation, the Maine Community Cultural Alliance, whose sole purpose was lobbying.

The preliminary report found a misuse of $4,000 in public funds and laid out recommendations to tighten the fiscal controls and accountability of the Maine Arts Commission, Maine State Library, Maine Historic Preservation Commission and Maine State Library. It also raised other questions.

“We believed further review of the financial controls and spending patterns was necessary,” Karass said.

Though auditors have not completed the second report, Karass told the committee it involves “other alliances [that have] more significance at the cultural agencies than the one we have with the MCCA … and the amount of money passed from the state to one of these alliances.” He went on to describe a “commingling of funds” and an “inappropriate use of private money to support state functions.”

Agency representatives declined comment.

In an interview after the meeting, Karass described the implications of the second report. The findings will be more significant monetarily than before, he said.

“The concerns in the second report will generally fall into the category of a true lack of appropriate financial and operational control, which led to errors in judgment and poor decision-making on the part of the cultural agencies,” Karass said. “I would say in the second report we will speak to an instance where relationships with external organizations have exceeded the authority granted in the law for the [agencies].”

He didn’t give exact dollar amounts and described the issues involved in general terms. Phase two of the audit involves the four cultural agencies that fall under the purview of state government and their relationships with outside advocacy organizations. Unlike the first report, which recommended the repayment of $3,000 in federal funding but firmly stated that no laws were broken, these findings could have legal ramifications, he said.

In responding to the first phase of the audit, attorneys with the law firm Verrill Dana LLC maintained that their activities on behalf of the MCCA qualified as advocacy, not lobbying. Maine law defines lobbying as working for a given client on pending legislation for more than eight hours in a month. The initial audit stopped short of calling it lobbying as well. However, Karass and Wyke used clear language with the Appropriations Committee on Thursday.

“We’re not so concerned about the expenditure of the $4,000 as we are about the precedent of state money being used to turn around and lobby for more money,” Karass said.

The cultural agencies involved documented their expenditures as dues paid to the MCCA.

“In my opinion, it was masked pretty well and took some digging on the part of our auditors to follow the trail,” Karass told the panel.

The report was met with questions and comments from members of the Appropriations Committee, who consistently expressed their respect and support for the agency directors involved.

“This would be the last area I would think to look,” said Rep. Patrick Flood, R-Winthrop. “This is the library. This is the museum. These are not entities I would expect to step out of bounds.”

In reaction to the first audit, the agency directors issued a lengthy response, questioning the methods and tone of the report. They have since denied all allegations, though they agreed to Karass’ recommendation to move all accounting operations to a DAFS service center.

Wyke told the committee Thursday she was confident that the agency heads now understand the issues raised in the initial audit and she doesn’t foresee them recurring. She said she felt the MCCA was established with the intention of being a diverse, broad voice for the arts, but that’s not what actually happened.

Several committee members questioned what the implications would be for Verrill Dana’s attorneys. That issue is in the hands of the state ethics commission.

Rep. Linda Valentino, D-Saco, expressed concern that the cultural agency directors were relying on their attorneys – who should’ve known the state’s regulations surrounding lobbying – for guidance. But Wyke said that doesn’t absolve them from accountability.

“We do have to hold public officials responsible for knowing what they are and are not allowed to do,” she said. “I can’t excuse that because the law firm they hired didn’t advise them.”