AUGUSTA (AP) – Gov. John Baldacci announced Wednesday he has called back an experienced state budget manager to assume leadership of financial operations at Maine’s Department of Human Services.

Baldacci introduced John Nicholas, who served as Maine’s state budget officer from 1992 to 2002, as incoming deputy DHS commissioner at the same time he released a final report by outside auditors that pegs an unfunded state liability to the Medicaid program at as much as $42.5 million.

The Medicaid liability that previously accumulated over time and that was cited by PricewaterhouseCoopers LLP is separate from a prospective Medicaid funding shortfall that analysts have said could exceed $100 million without budget adjustments.

A Baldacci administration proposal for covering a DHS budget gap is expected next month.

“We’ll be presenting a budget strategy to the Appropriations Committee,” Baldacci said Wednesday at a Cabinet Room news conference at the State House.

The final PricewaterhouseCoopers report included cautions based on the limited scope of the auditors’ examination.

“Our engagement cannot be relied upon to disclose all potential errors, irregularities or illegal acts, including fraud or defalcations that may exist; however, no such matters other than those specifically identified herein came to our attention,” the report said.

Directly addressing previously raised questions, the report concluded:

“As of the quarter ended June 30, 2003, the unfunded state liability to the Medicaid program was approximately $38.8 million. Our analysis to estimate unidentified additional unfunded liabilities resulted in an additional $3.7 million of unidentified costs that may exist.”

Reiterating previous criticism, the report called DHS accounting processes “inadequate to handle the volume and complexity of the programs being administered” and said the department had “insufficient resources to adequately manage fiscal operations.”

Since leaving state government, Nicholas has worked as chief financial officer for Catholic Charities Maine.

From 1986 to 1989, Nicholas served as director of finance and administration for the Maine Technical College System.

He first went to work for the state in 1973 as an employment counselor for the Maine personnel department.

Earlier this month, Appropriations Committee panelists were told that spending patterns within the Medicaid program could result in an annualized shortfall of more than $100 million.

According to Baldacci administration officials, the Medicaid weekly payment cycle has been running about $1 million above last year.

Pricewaterhouse Coopers was retained by the state in July to investigate the state’s administration of the Medicaid program, a state-federal partnership created to provide medical care to low-income people.