AUGUSTA (AP) – A state controller’s audit, focusing in part on an effort to revive a once dormant Maine Community Cultural Alliance, has found flaws in the financial management of several state cultural agencies and suggests that several thousand dollars of state money has been misused.

The audit, which has drawn sharp responses from leaders of the state agencies, looked at connections between the agencies, the Maine Cultural Affairs Council on which they and other organizations are represented, the Maine Community Cultural Alliance and the Verrill Dana law firm.

State Controller Edward Karass’s report, which was forwarded Friday to Gov. John Baldacci’s chief administrator, was made final over the objections of the cultural agency chiefs.

“While the money involved to date is less than $5,000 of state and federal money, we find this relationship to be odd in its nature,” Karass wrote to Commissioner Rebecca Wyke of the state Department of Administrative and Financial Services.

“There is no clear separation between the state, its employees and the MCCA. Also, we find there to be too many vagaries surrounding the activity that has been engaged in by all involved including the role of the MCCA’s contract with its vendor,” Karass wrote.

The controller’s internal audit review said it was touched off in June by allegations by unnamed individuals of possible wrongdoing. A central issue, the review said, was whether steps were taken “to circumvent the prohibition of using state or federal funds to pay for lobbying activities by creating a corporation through which to process these payments.”

The controller’s report said, in part, “we argue that the Arts Commission and the Maine State Museum contributed state funds to the MCCA with the knowledge that these funds would be directly used to pay for costs incurred by MCCA for Verrill Dana’s services.”

Controller findings included “material weaknesses in the internal control structure of the administration of the cultural agencies’ finances.”

Additionally, the report said: “While in this series of events only a few thousand dollars of state money is directly connected to the funding of the activities of the MCCA, we believe the funds have been used in an inappropriate manner.

“Our review of the budgets enacted by the Legislature for these agencies did not reveal an identifiable request for an appropriation or allocation of funds to be used for funding of a private nonprofit corporation to be set up to pay the costs of the retention of advocacy or other strategic services on behalf of the cultural agencies.”

Last week after reviewing his draft audit report, the directors of the Maine State Museum, the Maine Arts Commission, the Maine Historic Preservation Commission and the Maine State Library wrote to Karass with their response.

“At this point, we recommend that the report be tabled, and the parties involved be convened to resolve issues constructively and amicably,” they wrote.

“This is one of those junctures where those in governmental authority can provide leadership on behalf of the citizens they represent, or follow a path of continued contentiousness and negativity which is a disservice to the state of Maine.”

State museum Director Joseph Phillips, arts commission Director Alden Wilson, historic preservation commission Director Earle Shettleworth and state library Director Gary Nichols wrote that they would “appreciate the opportunity to meet with” Commissioner Rebecca Wyke of the state Department of Administrative and Financial Services “and to offer our willingness to work constructively on these matters in the future.”

In an attachment, they called the audit process “seriously flawed and poorly managed” and concluded: “The lack of confidentiality and breaches in ethical behavior by the participants who brought these charges leads us to the conclusion that the audit lacked integrity and therefore credibility.”

Verrill Dana partner Jim Cohen said Monday the firm had not billed the state or understood itself to be working for the state.

AP-ES-10-29-07 1514EDT