Retirement Fund loses independent auditor

The NMI Retirement Fund has lost another service provider— this time its independent auditor because of the impact of the beneficiaries derivative law.

Fund administrator Richard Villagomez disclosed to Saipan Tribune that independent auditing firm J. Scott Magliari has notified its decision not to accept a contract with the Fund, citing the risks of the newly signed law which seeks to allow retirees to take legal action on behalf of trusts or the Fund when the trustees who manage them refuse to bring such actions.

With J. Scott Magliari’s decision, seven contracts have now either been terminated or did not push through due to the negative impact of the law.

Other companies that decided to leave the fund include investment consultant Wilshire Associates, actuarial adviser Buck Consultants, and money managers Stralem & Company, BlackRock Inc., Fisher Investments, and Richmond Capital.

Wilshire, which was hired in October 2010, ended its relationship with the Fund last Saturday. Other terminated contracts are effective this month.

Villagomez blamed the passage of Public Law 17-51 on the exodus of the Fund’s service providers.

“The contracts between the Fund and investment consultant, actuary, and money managers—respectively—were broken by P.L. 17-51. It is chasing all the service providers away,” said Villagomez.

Last Friday morning, he revealed that J. Scott Magliari called his office withdrawing its proposal for the request for proposal for audit services. The company, he said, was the sole respondent to the recently ended RFP for the audit services.

“He called to inform us that even if indemnification from P.L. 17-51 was an option, he could not accept an indemnification from the Fund because it would violate his requirement to maintain independence as an auditor. The standard of independence applies to all audit firms,” explained Villagomez, alluding to the firm’s owner, J. Scott Magliari.

According to Villagomez, the auditing firm has explored the possibility of obtaining insurance to cover liabilities brought on by P.L. 17-51. But after an extensive search, Magliari, he said, was not able to find an insurance policy to cover liabilities brought by the beneficiaries’ derivative law.

“He said he was sorry that his firm has to withdraw its proposal and will be sending a letter that states this,” said the administrator, adding that the Fund is in the process of re-issuing an “emergency” RFP for audit services. J. Scott Magliari has been conducting the Fund’s audit reports for many years.

Villagomez said the need for an auditor constitutes an emergency because the Fund has deadlines to meet to comply with the auditor’s requirements as well as the CNMI government’s Single Audit. If the Fund is not able to have its books audited, or if the auditors’ opinion is qualified due to the delay in getting the audit done, it will cause the entire CNMI single audit to be a qualified report.

“If this happens, it will be very bad for the CNMI,” he added.

Last Friday, associate judge Kenneth Govendo denied the Fund’s request for a temporary restraining order for P.L. 17-51 citing the law is constitutional.