Risk Management

The State is involved in legal proceedings, which normally occur in government operations. Such
proceedings, in the opinion of the Attorney General, are not likely to have a material adverse impact on the
financial position of the State's funds, with the possible exception of litigation pertaining to the savings and
loan crisis, the outcome of which cannot presently be determined.

Shortly after the savings and loan crisis, the State enacted legislation which created the Maryland Deposit
Insurance Fund Corporation (MDIFC), an agency of the State, and required savings accounts of all
associations operating in the State to be insured by either MDIFC or FSLIC. Six of the associations are
currently in receivership, three of which the insured accounts have been acquired by three different banks.
The State has pledged to repay depositors who had funds in these failed associations by the end of calendar
year 1989. It is attempting to do this through the liquidation of the associations' assets, legal settlements,
and increased general fund appropriations; all in lieu of selling general obligation bonds.

In addition, the State is very active in the management of its fleet safety program and its various
inspection services pertaining to property, plant, and equipment. The State recently replaced commercial
insurance with self-insurance for a number of minor coverages. Other self-insured risks include: damage to
State property below the limits of the blanket catastrophic policy, fidelity bond, volunteer accident,
deductibles on numerous commercial policies, and judgements and settlements arising from actions in which
the violations of constitutional right are asserted.

OTHER INFORMATION

The statutes of the State require an audit of every unit of the Executive and Judicial branches of
government, including the Comptroller of the Treasury's records, by the Legislative Auditor at least every
two years. The Legislative Auditor is required to be and is a certified public accountant. The Legislative
Auditor makes fiscal, compliance and performance audits of the various agencies and departments of the State
and issues a separate report covering each of those audits. Although certain of those reports include
presentations of detailed financial data and contain expressions of opinion thereon, the audits are usually not
made for that purpose. The primary purpose of the reports is to present the Legislative Auditor's findings
relative to the fiscal management of those agencies and departments.

Additionally, my office requires an audit of the State's general purpose financial statements by a firm
of independent certified public accountants selected by an audit committee composed of members from the
Executive and Legislative branches of State government. This requirement has been complied with, and the
opinion of Touche Ross & Co. has been included in the financial section of this report. Touche Ross & Co. also
performs audits to meet the requirements of the federal Single Audit Act of 1984, OMB Circular A-128, and
OMB Circular A-110; such information being contained in other reports.

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a
Certificate of Achievement for Excellence in Financial Reporting to the State of Maryland for its
comprehensive annual financial report for the fiscal year ended June 30, 1988.

In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable
and efficiently organized comprehensive annual financial report, whose contents conform to program
standards. Such reports must satisfy both generally accepted accounting principles and applicable legal
requirements.

A Certificate of Achievement is valid for a period of one year only. We believe our current comprehensive
annual financial report continues to conform to Certificate of Achievement Program requirements and we are
submitting it to the GFOA to determine its eligibility for another certificate.

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