Over $34.3M in questioned costs

An independent audit has determined that the CNMI is not in compliance with the Coronavirus Relief Fund of the U.S. Department of the Treasury, as well as its reporting requirements, and that questioned costs in the total amount of $34.3 million exist.

In a report on Monday, auditing company Deloitte & Touche LLC said that questioned costs of $19,600,539 exist for noncompliance with allowed or unallowed program requirements; questioned costs of $14,632,280 exist for noncompliance with allowable costs/cost principles program requirements; questioned costs of $70,711 exist for non-compliance with financial progress reporting requirements.

These were among the many deficiencies that Deloitte & Touche LLC outlined in its report, which was submitted Monday 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. Deloitte 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 Coronavirus Relief Fund, or CRF, are in the Deloitte’s report on the CNMI’s compliance for each major federal program, report on internal control over compliance, and report on schedule of expenditures of federal awards required by the uniform guidance.

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

The CRF was designed to provide ready funding to address unforeseen financial needs and risks created by the COVID-19 public health emergency. Payments must be used to cover costs that are, among other things, necessary expenditures incurred due to the public health emergency with respect to COVID-19, and incurred from March 1, 2020, to Dec. 30, 2021.

In May 2021, the CNMI received an estimated total of $481.9 million in Coronavirus State and Local Fiscal Recovery Funds that the U.S. Congress appropriated under the American Rescue Plan Act.

In December 2021, then-Finance secretary David DLG Atalig disclosed that the $21.7 million in CRF that then-U.S. House of Representatives speaker Nancy Pelosi has asked about had already been spent by the CNMI government.

Deloitte said one of the causes for the questioned costs is that the CNMI lacks monitoring control procedures over the use of the CRF funding.

The auditor said the other cause is that CRF and Federal Emergency Management Agency COVID-related expenditures were recorded in Fund 1010, Business Unit 1699J, instead of segregating the expenditures in separate Business Units to facilitate identification and segregation of program expenditures.

The auditor said the expenditures detail report was manually prepared in an Excel worksheet and was not an expenditure general ledger detail generated from CNMI’s accounting system.

The auditor said expenditures reported on the final revised expenditures detail report are to agree to the amounts reported in the Grant Solutions portal.

The auditor found, among other causes, that the CNMI lacks adequate documentation and systematic filing of relevant documentation supporting program costs.

The auditor recommends that the CNMI should, among other things, establish and implement monitoring control procedures over the use of the CRF funding, and preparation of the expenditures detail report to verify its completeness and accuracy.

The auditor recommends that the CNMI should consider recording program expenditures in the same Fund account and Business Unit separate from other program expenditures to facilitate identification and segregation of program expenditures.

The auditor said CRF expenditures should be supported by data in the CNMI’s accounting system.

Deloitte said responsible CNMI personnel should periodically review the recordation of CRF expenditures and maintain adequate documentation to support program costs and approximately file all relevant documents.

With respect to the questioned $19.6 million costs, the auditor noted that expenditures of $1,608,662 incurred and paid prior to and subsequent to the covered period beginning March 1, 2020 to Sept. 30, 2020 (fiscal year end) were included and reflected as FY 2020 expenditures.

This resulted in approximately $19,367,119 in CRF funding at Sept. 30, 2020, that was unaccounted for, Deloitte said, and for which an explanation of the difference was not provided.

The auditor found other questioned costs in the amount of $185,919; $36,215; $6,913; $2,567; and $1,806.

With respect to the questioned $14.6 million costs, the auditor noted, among other things, that overtime exempt employees were paid for hours worked in addition to regular pay. Yet an overtime exempt waiver approval by the Office of Personnel Management director for 16 employees was not provided.

For the rest of the employees, although overtime exempt waivers were approved by the OPM director, the justification documentation substantiating that an overtime-eligible employee is not available to perform the work was not provided to substantiate the extra hours paid.

In addition, four other employees were also paid at a 1.5 overtime rate.

Per OPM’s guidelines, elected officials, gubernatorial appointees, division directors, personnel staff of senior employees and other senior managers are not eligible for extra hours or special payments under any circumstances.

The auditor said no other documentation was provided to indicate that such restriction was waived during the COVID-19 public health emergency or that this requirement was no longer in effect.

For 16 (or 94%), either the federal clause section states that only Federal Emergency Management Agency financial assistance will be used to fund the contracts or the FEMA disaster number DR-4511-MP was indicated on the task orders.

Other than four document numbers, the auditor said they were unable to determine whether the costs were also charged to the FEMA program or to any other federally financed programs, as the numbering system from the CNMI’s accounting system was not reflected on the expenditures detail report provided for the audit.

The auditor said the cause is that the CNMI lacks monitoring control procedures over the use of CRF funding, fund transfers to other government entities, and preparation of the expenditure detail report for completeness and accuracy.

On the questioned $70,711 costs, the auditor said that accounting records supporting the amounts reported were not provided.

Alternatively, the auditor said, since the prime recipient’s quarterly financial progress report submissions should be supported by date in the prime recipient’s accounting system, they examined the expenditures detail report provided for the audit and determined the amounts per category based on the descriptions and the transaction dates covering the period from March 1, 2020 to June 30, 2020 and noted variances for which no reconciliations were provided.