Audit bares more questioned costs

An independent audit has determined that the CNMI is not in compliance with some requirements regarding the Statistical, Research, and Methodology Assistance program of the U.S. Department of Commerce, with questioned costs amounting to a total of $2,019,626.

In a report last week, auditing company Deloitte & Touch LLC said that questioned costs of $1,957,419 exist for noncompliance with allowable costs/cost principles requirements, and questioned costs of $62,207 exist for noncompliance with applicable procurement regulations.

These were among the many deficiencies that Deloitte outlined in its report that was submitted last week to Gov. Arnold I. Palacios.

The Office of the Public Auditor hired Deloitte to audit the financial statements of the Department of Public Lands major fund, and the aggregate remaining fund information of the CNMI as of and for the year ending Sept. 30, 2020, and the related notes to the financial statements. The auditor was also engaged to audit the financial statements of government activities and each of the remaining major funds.

The findings of deficiencies and questioned costs with respect to the Statistical, Research, and Methodology Assistance program are in Deloitte’s report on the CNMI’s compliance with each major federal program, report on internal control over compliance, and report on schedule of expenditures of federal awards.

Deloitte said they identified certain deficiencies in internal control that they consider to be material weaknesses and significant deficiencies.

In response to Deloitte’s findings and recommendations, acting Department of Finance secretary Tracy B. Norita said that Finance will revisit the internal controls of each agency to ensure that it aligns with the compliance requirements and the CNMI’s policies.

Norita said the CNMI just launched its new financial system (Tyler Hub Munis) in October 2021, which is designed to monitor the proper process of each transaction based on the CNMI policies and internal controls. She said all the required approvals and documents will be processed in this new system.

Norita said they will ensure that all the personnel handling the grants will be aware and knowledgeable of the overall compliance requirements for each federal award and a proper approval process will be in place to review the completeness and accuracy of the expenditures.

With respect to the $1,957,419 in questioned costs, Deloitte said the cause is that the CNMI management did not effectively enforce recordkeeping controls and did not monitor transactions for required approvals.

Regarding $62,207 in questioned costs, Deloitte said the cause is that the CNMI did not enforce compliance with established procurement policies and procedures over procurement.

Deloitte recommends that responsible personnel should monitor and enforce compliance with applicable procurement requirements, including the review of procurement files for completeness as to written rationales for any deviations from applicable procurement requirements.

The auditor also recommends that the CNMI management should establish a recordkeeping  system, whereby underlying support is filed accordingly to substantiate costs.

Deloitte said management should also strengthen monitoring controls over transactions so that proper reviews and approvals are documented to substantiate program costs in accordance with applicable costs/cost principles.