A state audit of Maryland's Military Department found that the agency claimed it had $700,000 from a federal grant that was never authorized. That money will have to come out of taxpayers' pockets if the department can't convince the federal government to reverse its denial of the grant.

The report by the Office of Legislative Audits also found that the department gave too much money to local fire departments that weren't meeting their own obligations and failed to install safeguards on purchasing cards, which allowed one employee to run up more than $100,000 in questionable purchases and remain undetected for about three years.

The Maryland Military Department maintains the state National Guard and coordinates disaster management efforts through the Maryland Emergency Mangement Agency. It also administers loan and grant programs to local volunteer fire companies.

The department claimed in fiscal 2011 that it had secured a federal grant for $701,318 to cover expenses for that year. However, the federal government had denied the grant, leaving the state with the responsibility of appealing to the federal government or making up the money out of state coffers, the audit reported.

In its response to the audit, the Military Department wrote that it was working with the federal government and hopes that the money will be obtained by June 30.

Another of the Military Department's functions is to distribute funds to volunteer fire departments to help buy or rehabilitate equipment and facilities used in fighting fires. State law requires local governments to spend a certain amount on equipment and upgrades before becoming eligible for state funds.

The audit found that during fiscal 2011, 11 jurisdictions didn't meet that local funding requirement but still received $5.2 million from the agency. The audit dinged the department for not penalizing those jurisdictions. Some departments also used the money for items unrelated to firefighting, including office computers and uniforms to wear around the station. In fiscal 2012 one fire department made $24,000 in payments to "cash."

"Based on our calculations, these jurisdictions, at least, should have been penalized $585,000," auditors wrote.

The audit also found that poor monitoring and record keeping of corporate credit cards allowed one employee to spend $107,493 on home electronics, clothing and gift cards starting in 2008. That employee wasn't caught until 2010 and is awaiting sentencing after pleading guilty to fraud in January.