Auditor finds $363K questioned costs in DOI grant

An independent audit found that the CNMI was noncompliant with some procurement requirements involving a U.S. Department of the Interior’s award on economic, social, and political development of the territories program, and that it resulted in questioned costs in fiscal year 2019 amounting to $363,800.

In the government’s corrective action plan, the CNMI agreed with Deloitte & Touche’s recommendation and states that it will ensure that the responsible personnel will monitor and enforce compliance with procurement requirements, to include a complete review of procurement files for completeness.

This was some of the findings in the report that Deloitte prepared in its audit of the CNMI government’s financial statements as of and for the year ending Sept. 30, 2019. It was the Office of the Public Auditor that hired Deloitte to perform the audit.

In its report dated April 21, 2021, submitted to Gov. Ralph DLG Torres, Deloitte found several deficiencies in the CNMI’s internal control and compliance over financial reporting and major federal programs for the year ending Sept. 30, 2019.

Deloitte also audited the CNMI’s compliance with the types of compliance requirements that could have a direct and material effect on each of the CNMI’s major federal programs for the year ended Sept. 30, 2019.

One of the deficiencies that according to Deloitte they consider to be material weaknesses pertains to such procurement process involving the U.S. Department of the Interior’s grant.

Deloitte said that, in accordance with applicable procurement requirements, procurement transactions shall provide for full and open competition through the use of competitive procedures. For any sole source procurement, a written justification for sole source procurement shall be prepared by the official with expenditure authority. The auditor said the justification shall contain the specific unique capabilities required, the specific unique capabilities of the contractor, the efforts made to obtain competition, and the specific considerations given to alternative sources and specific reasons why alternative sources were not selected.

Deloitte said that, of 20 non-payroll expenditures tested, totaling $4,243,549 of a total population of $10,374,347, deficiencies were noted.

Deloitte said for one (or 5%), documents were not provided to demonstrate that competitive procurement was used.

The auditor said this resulted in FY 2019 expenditures and questioned costs in the amount of $41,334, which represents the purchase order/contract amount.

Deloitte said for one (or 5%) sole source procurement was used and the written justification stated that efforts were made to obtain competition. However, there was no documentation provided to support the assertion, the auditor said.

Deloitte said the purchase order/contract amount was $1,598,087 and this resulted to in FY 2019 expenditures and questioned costs in the amount of $322,466.

Deloitte said the CNMI did not enforce compliance with applicable procurement requirements and that questioned costs in the total amount of $363,800 exist.

In the government’s corrective action plan, the Office of Grants Management and the Department of Finance said they received approval from the federal grantor (Office of Insular Affairs) for a transfer of expenses to a business unit for payment of prior incurred expenses by the CNMI government.

In relation to procurement regulation compliance, OGM and the Finance said the grant award did stipulate that procurement regulations must be adhered to; however, as the expenses were initially recorded under previous two business units, the procurement process should have already been completed.

OGM and Finance said the proposed completion date of their corrective action plan is ongoing.