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Saturday, May 28, 2011

The problem when doing business with the government is none of your business

Bid Protests Increase; OFPP Works on Building Communication
According to an article in Federal Times, the Government Accountability Office reported that 2010 was the third year in a row where bid protests increased by more than 15 percent.

So what’s behind the uptick?

The process for challenging the awarding of a contract can boil down to financial reasons, but often a messy bid-protest fight points to a lack of communication between the government and industry. A bid protest can be a last, desperate measure to wrest information from a tight-lipped contracting official about requirements.

In fact, Stan Sloane, CEO of government-contracting giant SRA International, has urged for bid-protest reform.

“While implemented to ensure transparency and accountability in the acquisition process,” he wrote in a 2009 editorial, “protests are costly to the government, taxpayers and business.” And making changes to the bid-protest process could go a long way toward the administration’s goals of cutting contracting dollars.

Michael Golden, a procurement lawyer for Washington, D.C., firm Pepper Hamilton reiterated that point. “Companies are protesting because they really don’t understand why they lost, and they assume the worst,” he told Federal Times.

The administration’s point person for government-industry relations is Office of Federal Procurement Policy Dan Gordon, whose “strongest direction to agencies has been to communicate more with businesses,” Federal Times reports.

Gordon has characterized his efforts to enhance communication between government and industry as a “myth-busting” campaign, because often federal program managers often believe a tight-lipped response is warranted or required by regulations.

Bid protests prompt calls for dialogue with vendors
Last year marked the third straight year in which bid protests over disputed contact awards grew by more than 15 percent, according to the Government Accountability Office, which adjudicates protests.

The reasons for the trend are several.

For one, agencies increasingly ball up their anticipated procurements into a single, multiyear contract that is awarded to a select group of vendors from which orders are placed. That means the stakes are higher for companies because a single contract decision can decide their future business with an agency.

In addition, these multiyear contracts are often quite complex, particularly for information technology services. And that has become a challenge for federal procurement staffs, who often lack sufficient experience and training.

Finally, Congress in 2008 expanded the ability of companies to protest not only contract awards, but also the more numerous task orders and delivery orders that are placed against those contracts. About half the growth in protests is attributed to GAO's expanded responsibility to hear disputes on contract task and delivery orders worth more than $10 million.

The proliferation of protests has made agencies more meticulous with their requests for proposals, but it has not generally affected what types of contracts they use, industry groups said.

Dan Gordon, administrator of the Office of Federal Procurement Policy, has been telling agencies to break up some of their larger contracts and to stop trying to write "protest-proof" procurements. But his strongest direction to agencies has been to communicate more with businesses.

Over the last few months, Gordon has been making the rounds at federal conferences and contractor luncheons, encouraging pre-award discussions so companies understand an agency's procurement needs and post-award debriefings to clarify why losing bidders didn't make the cut.

Despite the frustration of losing a contract, most contractors don't rush into protests because of the delays they add to the procurement process, industry groups said.

GAO's use of alternative dispute resolution, an informal analysis that gives the agency or protester a sense of where problems lie, doubled between 2008 and 2010.

Ralph White, GAO's managing associate general counsel for procurement law, said he expects the number to go up.

"When we can find a way to creatively solve a dispute, we will," he said.

Tuesday, May 24, 2011

Announcing Guam Procurement Seminars, June 2011

The Guam Chamber of Commerce Procurement Committee, in cooperation with the Guam Bar Association, the Guam Judiciary and the US District Court of Guam, with the sponsorship of the Bank of Hawaii, will be holding procurement seminars in June.

The featured presenter for the seminars is Professor Steven L. Schooner, Nash & Cibinic Professor of Government Procurement Law and Co-Director of the Government Procurement Law Program at George Washington University, Washington D.C.

The June 27th seminar will focus on local GovGuam procurement, with 5 hours of presentation, topics including:
• Principles of Procurement and procurement lifecycle, overview of the review process, particular issues such as responsiveness vs. responsibility;
• The ABA Model Code, its origin, shared principles with federal contracting law, and its evolution from 1979 to present, including amendments for e-procurement and infrastructure projects;
• The need for trained, educated and professional private and public procurement staff and the means for achievement
Additionally, the featured lunch speaker is Mr. John Weisenberger, Assistant Guam Attorney General, on the topic of the "Role of the Attorney General's Office in the Procurement Process".

The June 29th seminar will focus on federal procurement issues for local Guam contractors, with 3 hours of presentation, topics including:
• Getting the Contract and the Payment Process
• Challenging the award, in a nutshell
• Procurement Integrity and ethics
• Contract Fraud, False Claims, and Qui Tam
• Small Business Preferences
The panel for this module will be led by Mr. Paul Fisher, Counsel Joint Region Marianas, and includes Prof. Schooner and other local Guam federal procurement and legal specialists.

Registration and other details are available from the Guam Chamber of Commerce: email to info@guamchamber.com.gu

Saturday, May 21, 2011

Procurement procedures or ADR?

Having just recently taken part in a Department of Interior, Office of Insular Affairs conference on Alternate Dispute Resolution in the Insular Areas, and in particular in government contracting, I was attracted to the following story.

The facts are not entirely clear from the article, but don't need to be for the analytical purposes of this blawg. Let's just assume that the jurisdiction in question offered an ADR process in its local courts which could be availed of in lieu of normal litigation. And let's assume that the law firm in the article was seeking to direct the dispute to that arbitration process rather than go through the legal processes otherwise applicable to the dispute.

Now let's look at the article.

http://www.azcentral.com/arizonarepublic/local/articles/2011/05/21/20110521phoenix-law-firm-bills-for-audit.html
Over the past several years, Maricopa County has paid the law firm $3 million to $4 million to counsel the Sheriff's and County Attorney's offices.

Last September, County Manager David Smith alleged that Ogletree may have improperly expanded the scope of assignments, leading to duplication of legal services and billings. He claimed the firm refused to stop working certain cases, excessively subcontracted with attorneys, acted antagonistically and unprofessionally, promised to pay an expert $1,500 a month whether or not the expert provided any legal services, lacked transparency in billings and did not comply with county policies.

The county held up about $1.1 million in payments to Ogletree until a professional auditor could review its billings. County officials said the firm would not turn over the billings, so the county sued.

An attorney representing the law firm of Ogletree, Deakins, Nash, Smoak & Stewart, P.C., had argued that the detailed billing records were protected by attorney-client privilege and asked the judge to order the parties into arbitration or dismiss the case.

A Maricopa County Superior Court judge has ruled that a law firm that represented both the County Attorney's and Sheriff's offices during their battles with county management is required by law to submit its billing records for audit. Judge John Buttrick refused to dismiss the case and ruled that the dispute was not subject to arbitration but rather was subject to the county's procurement rules.

"Did Ogletree perform services outside the scope of their contract?" asked Julie Pace, one of the attorneys for the county.

John Doran, an attorney representing Ogletree, said in a hearing this week that the county was merely trying to obtain information to bolster various investigations into the Sheriff's Office and former County Attorney Andrew Thomas.

"They're deeply involved in this Department of Justice matter, and they would love to force me to open the door," Doran said.

Read more: http://www.azcentral.com/arizonarepublic/local/articles/2011/05/21/20110521phoenix-law-firm-bills-for-audit.html#ixzz1NVX4fD2h

As was examined in the DOI OIA conference, there is a place for ADR in the procurement process, but generally only in post-award contract controversies.

Here, it would appear that the dispute in controversy arises from the scope of the contract, which is a matter examining the solicitation itself, not the performance of the contract properly awarded. If the contract was to provide particular services, the services actually rendered pursuant to the contract would have to be examined
, and that inquiry is best handled as a procurement dispute. This is not the usual attorney-client context, it is a principal-contractor context.

Interesting.

Saturday, May 14, 2011

Making procurement reform the law of the land in India

REMINDER: Most articles posted here include only excerpts, sometimes rearranged to suit the blogger. You should thus refer to the original article for complete authenticity.

Public procurement needs an overarching framework to be fair
The objective is to create a system founded on transparency, competition and objective criteria in decision-making that is effective in preventing corruption. They clearly spell out that the cornerstone principles of open, transparent and non-discriminatory procurement based on open competitive bidding are the best tools to achieve value for money and quality benefits as it optimises fair and equal competition.

However, there is no national law exclusively governing the public procurement of goods. Public procurement is regulated through a series of executive directives, mainly instructive in nature. Instructions issued by the Central Vigilance Commission (CVC) also supplement the regulations. The practices are administered by government agencies, who may issue more detailed instructions in conformity with the GFR.

An overarching framework will provide government agencies with a yardstick to review procurement norms and it would do well to take into consideration the following recommendations.

First, a public procurement law should be promulgated at the Centre and in each state to cover the objectives of government procurement, substantive procedural requirements to achieve them, debriefing of unsuccessful bidders, publication of contract awards, an appeal or challenge mechanism and post-award contract execution such as bid security, performance security, maintenance contract, advance payment, etc.

This should be complemented by a set of national regulations enshrining the five fundamental principles, namely, open tendering through effective advertisement; non-discriminatory tender conditions and technical specifications; public tender opening; bid evaluation based on pre-disclosed criteria and methodology; and selecting the most advantageous bidder without any negotiation on price or any other term.

Also, there should be provisions for institutionalising 'integrity pacts' or any other enforceable integrity condition as a legally-binding ethical code of conduct to govern the procurement cycle. This needs to be buttressed by provisions penalising violations of the pact's terms and conditions. The steps of decision-making on public procurement should be available for public scrutiny.

It is important that information be provided after the award of the contract on matters such as nature and quantity of products or services in the contract, name and address of the winning tender, value of the winning award and the highest and lowest offer taken into account in the awarding of the contract.

Besides, it should be highlighted in law that alternative methods of procurement such as direct contracting, single-source procurement, limited tendering, etc, can be adopted only where justified, fully explained, documented and, thus, available for public review.

A domestic bid challenge system should be created, giving aggrieved suppliers a right of recourse to an independent quasi-judicial domestic tribunal like a public procurement tribunal, outside government control, to whom bidders can appeal an award decision.

Lastly, the procuring authority should legalise e-procurement. Since corruption thrives in the absence of transparency, there should be an emphasis on facilitating information accessibility through modern procurement methods.

Public procurement is a multi-step process of established procedures to acquire goods, works and services by a government entity. It involves the full cycle through need assessments, process design and bid-document preparation to the awarding and execution of contracts and the final accounting and auditing of a completed contract.

Government procurement provides a fertile ground for private distribution of largesse and having credible procedures and practices can significantly reduce corruption. Therefore, it is critical that reforms in the procurement regime are fast-tracked to ensure that principles of integrity, transparency, accountability, fairness, economy and efficiency are vigorously applied in all public investments and purchases.

Thursday, May 5, 2011

The perils of playing with federal funds

This post is essentially a guest post. It is the basis of a letter to the editor of the Pacific Daily News, written by Guam Attorney Charles D Stake, which is posted here with his permission.
Acceptance of federal financial assistance and procurement dollars under the American Recovery and Reinvestment Recovery Act (Stimulus Funds) presents serious risks for any recipient including the Government of Guam and its local procurement and audit personnel. Federal funds are never distributed without constraints on the manner in which they can be utilized including civil and even criminal penalties for violating those restrictions. This process can already be observed in the emerging problems with procurement methods at the port and the investigation which will inevitably follow.

Having recently attended several informative sessions of the 2009 Association of Pacific Island Auditors Conference, I noticed that local audit personnel were becoming increasingly and justifiably concerned about the disproportionate amount of responsibility being shifted to their shoulders. Under the new law they must now bear the burden of administering the stringent accountability provisions of the economic recovery stimulus package and the billions of dollars involved. In fact one local auditor anonymously complained to the media that, “we are being set up to fail” (See July 31 issue of Marianas Variety page 1 “Fraud”.)


Guam is currently in the midst of vigorously seeking much needed federal funding ,not only the development of the Port of Guam, but also schools ,roads , the hospital, public safety, the landfill, and public assistance. However, local governments would do well to recall the famous adage that past is prologue. President Obama recently gave a speech devoted to procurement fraud and abuse. He intends to reform the process. The stringent accountability standards placed on local governments by Congress in the American Recovery and Reinvestment Act also reflects President Obama’s approach and shifts responsibility to local government.

This is a familiar refrain which is indicative of a recurring cycle. It is a love/hate phenomenon present in most interactions with the federal government and is perhaps most clearly illustrated through the defense industry. Our national security and defense relies heavily on large private military contractors. Justifiable defense acquisition has an historical tendency to spin out of control and begin to take on a life of its own. Needless to say big money and significant benefits are an integral part of the process. Consequently, it can readily metamorphize into a culture of corruption. This involves an implicit cooperative and mutually beneficial understanding between contractors, executive branch officials, military procurement officers, Washington DC K Street lobbyist firms and congress. Eventually, so many corners are cut by so many key players that a lowered legal threshold becomes the norm and virtually everyone is implicated to some extent. Everyone within the circle benefits in one form or another through lucrative job offers, consulting contracts, cost overruns, inferior cheaper goods that do not meet specifications, excessive profits, political contributions, ad nauseam.

Eventually, when the excesses become too blatant a tipping point is reached and the tide begins to turn. Usually this occurs when a new administration, either democrat or republican, takes office. The cycle changes to emphasize fraud investigation and prosecution of the previous abuse. Cynically, the chance to appear as a reformer makes good opportunistic political capital. However, this scrutiny also provides valuable protection for the taxpayer and is both necessary and valid. For example, in the present case the new Obama administration may begin with a review of the Iraq reconstruction contracts and the role of major defense contractors such as Halliburton. The process is historical and circular and has been occurring since the civil war where there was wide spread public outrage over major procurement fraud, profiteering, and abuse. I have experienced this repetitive process myself as a minor participant and procurement fraud attorney with the federal government during the 1980s.

Bureaucratic messages are often somewhat confusing at best. The federal government and its individual agencies rarely speak with one clear voice. Far from being monolithic, one government bureau within an agency can be focused on dispensing federal funds and grants , while yet another bureau such as an inspector general within the very same agency ,may be concentrated on ensuring the funds are utilized by grantees in strict compliance with federal statutes and regulations. Employees of the first agency bureau will be evaluated in part based on their successful distribution of federal funds. Conversely employees of the second agency bureau are evaluated in part based any fraud and abuse of these federal funds they successfully investigate and prosecute. As an example, many Guam residents are familiar with the relatively liberal distribution of FEMA funds immediately after a typhoon. However, in subsequent months FEMA investigators, begin to carefully track the use of these federal funds and when merited, conduct investigations and make referrals for federal prosecution in the District Court.

Any dreams of simply relying on a federal "free money" stimulus bonanza to solve Guam's problems can be extremely deceptive. The restrictions and "strings" attached to federal funds can be so cumbersome that some states actually reject the funding. Also large long term local projects initiated in reliance on federal funding may need to be curtailed prior to completion if congress decides not to continue funding the project. For example this has occurred when local governments hired a large number of new police recruits under a federal grant which was later cut back leaving the local government with no funds to pay the new officers.

Following seemingly liberal expenditures such as the Obama stimulus package and its grants, the trend is toward subsequent strict federal enforcement and scrutiny for compliance with federal statutory and regulatory restrictions. This enforcement trend generally filters down to the states and territories and will include Guam. As long as so much as a pencil is purchased by our local government with federal funds there is federal jurisdiction to review the appropriateness of that expenditure. There is often only a thin margin between poorly planned wasteful spending and arguably intentional ,fraudulent, criminal expenditures. The statute of limitations offers little protection and is rather easily circumvented in procurement fraud prosecutions. Consequently, our local government planning and procurement agencies preparing for the military buildup, the landfill project, highway expansion projects, school construction, and Port of Guam expansion would to do well to immediately initiate a serious comprehensive process of procurement education and to carefully police themselves in all future purchases involving federal funds.

Charles D Stake

Charles D Stake is an Attorney, Member of the Guam and District of Columbia Bars, and graduate of the George Washington University Government Contract Program. He is a Procurement Appeal Hearing Officer with the Office of Public Accountability and a retired federal attorney and law enforcement officer residing in Barrigada.

An era of ARRA error?

An awful lot of federal largess has been thrown at the US economy of late, and quite a bit more in particular is being thrown at the Marianas, especially Guam, as the US military re-postures itself for the challenge of the Pacific Century.

In 2008 Congress threw $700 Billion dollars at the Wall Street bankers to bail them out of their madness which was a main factor in the economic malaise of these times. The TARP monies were typically just paid out by the Treasury or Fed, and have been further made available by easy-money money market facilities. The bail out money was not doled out by procurement processes.

Then, in 2009 Congress threw another $787 Billion at state and local governments under the "American Recovery and Reinvestment Act" (ARRA) to "stimulate" the malaise-ridden economy to some kind of recovery. Some of the money was in the way of tax credits and the like, but a big part of the ARRA funds are meant to be "spent", which means they should go through procurement procedures of the state and local governments that receive them.

But it also comes with spending, reporting, audit and accountability strictures of the federal ARRA legislation. This puts recipients of these funds under a brighter and hotter spotlight.

The CNMI Public Auditor recently issued a Evaluation Report on CNMI’s Oversight of ARRA Funds. The report summarized some of the bright lights:

To facilitate new levels of accountability, the Recovery Act established the Recovery Accountability and Transparency (RAT) Board to coordinate and conduct oversight of covered funds to prevent fraud, waste and abuse.

Additionally, federal grantor agencies were required to provide oversight and guidance to recipients of Recovery Act funds. Furthermore, the Recovery Act mandated the RAT Board to create and maintain a public website to foster greater accountability and transparency and to act as an official portal or gateway to key information relative to the Recovery Act.

Section 1512 of the Recovery Act outlines reporting requirements for covered funds to satisfy greater transparency and accountability. Specifically, each prime recipient of recovery funds is responsible for submitting a report to the awarding federal agency no later than 10 days after the end of each calendar quarter and, in turn, the awarding federal agencies are mandated to review, comment, and make those reports public on a federal website (www.recovery.gov) created by the RAT Board no later than the 30th day after the end of that quarter.
The jury is out on how "stimulating" that money has been on the economy, but it has certainly stimulated a lot of out of the box thinking on those thinking they've just won the lottery. Most commentators feel the economic effects of the ARRA money will have a lagging effect, as the money slowly percolates through the economy, unlike the gushers of cash thrown off by the bank bailout.

But it is not just the lagging economic effects that are yet to be seen. The whole spending trail and audit process will also lag the spending, and over time the scrutiny of the spending processes will undoubtedly shine light on some light-fingered activities.

Just referring to the money coming in related to the military "build up", a very knowledgeable friend told me, "some one will go to jail before this is through". The temptation is just overwhelming to take the money and run. But, unless it is done properly, some will not run very far.

I'm reminded of the monkey trap story: a coconut or some other container is cut with an opening the size of a monkey's slender hand, and a treat of some kind placed in it. The container is secured in place. A monkey is attracted to the treat, slides hand it and grabs it, but can't pull it out with a clinched fist. And so is caught by its own greed.

The following may look like I am picking on the CNMI. I am not. Every state and other community around the country, Guam included, has its hands in the trap in some way or other. Some will let go and do the right thing with all that easy money. Others will not.

I have chosen these stories because they have been so easily culled from recent reports and because they are in my own back yard.

And because, to some extent there is nothing new in these stories, as this first article reveals.

Questioned costs involving federal funds rising May 04, 2011
OVER $17 million worth of federally funded projects awarded to the CNMI central government and its autonomous agencies spanning from 2004 to 2008 were marred with questionable costs mainly due to lack of documentation relating to expenditures, according to the Office of the Public Auditor.

OPA, in its newly released joint report with the U.S. Department of the Interior’s Office of Inspector General, said “the 2008 CNMI Single Audit report showed a major increase in audit findings and questioned costs relating to major federal award programs.

In comparison to the 2005 Single Audit, questioned costs increased ten-fold from about $719,000 to $7.2 million for the fiscal year ending 2008 and representing about 11 percent of total federal grant expenditures for the period.”

The report added, “One third of the findings alone were attributed to a lack of documentation relating to grant expenditures.”

It noted that the $92.4 million in ARRA funds provided to the CNMI are susceptible to fraud, waste and abuse because there are not enough internal controls to monitor how they are spent.
Nobody in the government committed fraud, Ada says January 15, 2010
THERE are no fraudulent activities related to the use of American Recovery and Reinvestment Act funds and neither the CNMI government nor the offices under it committed any fraud with the grants, Department of Commerce Secretary Michael Ada said yesterday.

He said he was “clarifying” yesterday’s Saipan Tribune’s report which claimed that “fraud is found in some ARRA funds use.”

Ada said the fraud and lies were made by some companies submitting requests for proposal to be eligible for a contract funded by ARRA. But he said those companies were not granted any funds because the local ARRA office and the Attorney General’s Office found out that the proposals they made were fraudulent and contained false information.

For a company to be eligible for a contract with the government regarding ARRA projects, it must submit a proposal and pass certain requirements.

Sometimes, Ada said, some companies “try to deceive us so they can win the contract.”
“That is the fraud we are talking about,” he said. “It is not the local ARRA office, nor the government, but those who are applying for the grants who made lies.”
Ada: False info, not misuse of ARRA funds, under review January 21, 2010
SOME false information from bidding companies, not fraud in the use of American Recovery and Reinvestment Act funds, was referred by the Department of Commerce to the CNMI Attorney General’s Office for further action.

In his letter to John Higgins, assistant director of the Audits, Evaluation and Inspections of the Recovery, Accountability, and Transparency Board dated Jan. 19, Commerce Secretary Michael Ada said the Invitation to Bid Document 151, which was for lightning retrofit, was published in the local newspapers as well as on the www.cnmiarra.net Web site.

He said several firms submitted their proposal bids, which the assigned project managers then proceeded to evaluate.

Ada said the project manager initiated the verification of the use of U.S. manufactured products to ensure that the bidders complied with the Buy America Provision of the law. But Commerce learned that the items listed in the proposal were not produced in the U.S. Ada said the project manager then referred the case to the AGO.

“As the CNMI’s ARRA state point of contact, I can appreciate the heightened transparency and accountability requirements mandated by law and investigated by the…board,” Ada said. He added that his office makes every effort to ensure that fraud, abuse and waste do not occur.
ARRA on track in meeting spending rates, employment target July 29, 2010
THE American Recovery and Reconstruction Act funds are moving out promptly but carefully.

Commerce Secretary Michael Ada, in a link he shared with the Variety, pointed out how the ARRA funds are being spent 17 months after the Act was implemented.
NMI has yet to spend $77M in ARRA funds February 22, 2011
COMPLETING only five of the 58 stimulus projects, the CNMI government has yet to spend $77 million in American Recovery and Reinvestment Act funds, according to Congressman Gregorio Kilili Camacho Sablan.

But the Fitial administration said despite “obstacles,” the CNMI managed to spend $34 million as of the fourth quarter of the ARRA implementation.

Sablan, in a statement, said of the $118 million that has been awarded to the CNMI, the office of the governor received the biggest portion: $44.3 million.

ARRA, Sablan said, was one of the first pieces of legislation he voted for.

He still believes that this kind of stimulus spending is the right policy choice during an economic downturn.

But the slow spending of the economic stimulus funds, Sablan reiterated, could cost the CNMI its annual capital improvement project funding as provided for in the Covenant.

The administration said the most significant obstacle for the CNMI in executing ARRA funded projects has been the Buy America waiver.

Because it is a remote destination, the CNMI does not have immediate access to the companies and manufacturers in the states, the administration added.

For his part, ARRA communication compliance director Fred Camacho said the local ARRA office continues to work closely with local agencies and federal counterparts to ensure that “it not only expends the funds but does it in a responsible manner displaying the CNMI’s commitment to quality assurance.”
Report: NMI ARRA funds prone to abuse and fraud April 29, 2011
THE local Office of the Public Auditor and the U.S. Department of the Interior’s Office of Inspector General said the $92.4 million that the CNMI government received from the American Recovery and Reinvestment Act, or ARRA, is susceptible to fraud, waste and abuse because there are not enough internal controls to monitor how it is spent.

According to the joint report, the ARRA funding has weakened internal controls in the CNMI in that (1) recovery funds directly awarded to autonomous agencies fall outside the central government’s visibility and control; (2) prior audit findings and risk management tools were not utilized to identify areas of potential fraud, waste and abuse and potential noncompliance with legislation and grant requirements; (3) monitoring functions performed by the finance department were not adequate with respect to transfers and receipt of recovery funds; and (4) expenditure and award information on the CNMI’s official website for Recovery Act programs was not current and complete.

ARRA grants to autonomous agencies like the Public School System and Northern Marianas College, among others, are not subject to scrutiny by the CNMI ARRA Office, which is under the Department of Commerce.

This in turn has created a situation where there is no supreme oversight agency for the CNMI, the report said.

The inspection also showed poor documentation on how ARRA projects are tracked down by the CNMI government.

“Further, OPA identified grants that were awarded prior to March 31st, 2010 which had not yet been identified by the CNMI ARRA Office. The oversight office has yet to obtain complete information, because funds were awarded prior to the complete hiring of staff members,” it added.

In Oct. 2010, Michael Ada resigned as Commerce secretary and ARRA point man in the CNMI and formed his company, Integrated Professional Solutions LLC.

The Fitial administration then awarded a sole source contract to Ada’s firm to oversee ARRA programs that were previously under the Department of Commerce.
Ada’s firm checks ARRA spending May 02, 2011
Integrated Professional Solutions says it has begun “compliance checks” to implement the recommendations of the local Office of the Public Auditor and the U.S. Department of the Interior’s Office of Inspector General.

Headed by former Commerce Secretary Michael Ada, Integrated Professional Solutions, or IPS, manages CNMI ARRA funds through a $392,406 sole-source contract awarded by the administration.

In his letter to CNMI Public Auditor Michael Pai on April 18, Ada said he will “swiftly implement the recommendations that your office makes in the report to the greatest extent possible.”

Saying the recommendations have “tremendous value,” Ada told Pai he is confident IPS will be able to make the required adjustments to improve controls as outlined in the report.

IPS has also begun working with the Public School System and the Northern Marianas Housing Corp., Ada added.

The use of ARRA funds at the Commonwealth Ports Authority and Northern Marinas College will also be evaluated, he said.
Lawmaker forms team to probe federal spending May 05, 2011
REPRESENTATIVE Fredrick P. Deleon Guerrero says he is forming a team that will audit all federal grants provided to the CNMI.

In an interview yesterday, Deleon Guerrero, Ind.-Saipan, disclosed that prior to the release of the Office of the Public Auditor’s critical report regarding the CNMI’s American Recovery and Reinvestment Act spending, he was already in the process of creating the team.

Even before ARRA became law, he said he had heard talks about the misuse of federal funds.

Deleon Guerrero said he plans to hire an attorney and audit experts to scrutinize the CNMI’s spending of federal grants.

“We receive federal funding but accountability is not up to par. There are also problems with documentation,” he said.
The OPA evaluation that has been mentioned above describes a monkey trap, and time will tell if any monkeys take the bait:
During our fieldwork, OPA learned that neither the CNMI ARRA Office nor the federal grantor agencies performed risk assessments to identify high risk agencies or programs. Given the increased findings and questioned costs in prior CNMI Single Audit reports, it appears there is an indication of such risks . Had the Single Audit reports been used in a risk assessment process, the CNMI ARRA Office may have learned of the serious degradation of grant management, and identified high-risk agencies. Doing so may have improved the monitoring process.

Although they saw the value of such a process, the CNMI ARRA Office stated that they did not have the human resources to conduct a risk assessment. Unless the CNMI, through collaborative efforts by finance officers and agency heads, closely monitors these deficiencies and internal control weaknesses, the Recovery Act funds are placed at significant risk.

During our fieldwork, OPA learned that neither the CNMI ARRA Office nor the federal grantor agencies performed risk assessments to identify high risk agencies or programs. Given the increased findings and questioned costs in prior CNMI Single Audit reports, it appears there is an indication of such risks. Had the Single Audit reports been used in a risk assessment process, the CNMI ARRA Office may have learned of the serious degradation of grant management, and identified high-risk agencies. Doing so may have improved the monitoring process.

Although they saw the value of such a process, the CNMI ARRA Office stated that they did not have the human resources to conduct a risk assessment. Unless the CNMI, through collaborative efforts by finance officers and agency heads, closely monitors these deficiencies and internal control weaknesses, the Recovery Act funds are placed at significant risk.

OPA identified grants that were awarded prior to March 31st, 2010 which had not yet been identified by the CNMI ARRA Office. The oversight office has yet to obtain complete information, because funds were awarded prior to the complete hiring of staff members. After having been in operation for almost a year, the office should complete the compilation of all ARRA grant award documents, including those awarded prior to creation of the office.

As discussed earlier, lack of documentation for grant expenditures comprise about one-third of all findings in the 2008 single audit. Grant oversight officials should stress the importance of adequate documentation to all recipients and sub-recipients to eliminate the same findings in future audits and avoid the risk of losing future funding.

OPA does not expect an immediate improvement in grants management. Moreover, with the increase in federal grant activity created by ARRA, we also anticipate increases in the number of audit findings and the amount of questioned costs.

If dedicated resources, such as funding, technical assistance, and training in the area of grants management and reporting are not made available, the degree of risk of incurring a substantial amount of questioned costs will likely increase which will potentially result in less revenue for government operations.

A preliminary draft report was provided to the ARRA State Lead, Michael J. Ada, on August 12, 2010. OPA received a response from Mr. Ada on August 31, 2010 followed by a meeting to discuss the content of the draft report and management’s response.

However, the CNMI ARRA Office did not adequately address the finding with respect to monitoring the functions performed at DOF to ensure that reconciliations are performed and the correct accounts are charged. The monitoring performed by the CNMI ARRA Office is limited to the review of incurred expenditures when agencies make a request for reimbursements.

OPA is concerned with the implementation of management’s actions as the CNMI ARRA Office is now privately managed by an independent contractor, Integrated Professional Solutions LLC. Therefore, OPA will address the final report to the Governor.

Now, flash back to January 14, 2010, Local ARRA office vows transparency, fraud prevention
THE CNMI American Recovery and Economic Act office has vowed to be transparent and to prevent all potential fraud. “Our office has worked diligently to maintain the highest level of transparency and accountability with ARRA funds,” information technology and communications manager for the CNMI ARRA office Fred Camacho said.

Michael Janiga of the U.S. Inspector General’s Office recently conducted training to ensure that federal funds are expended appropriately, Camacho added. “We learned a lot, and have always been committed to a constructive working relationship with federal officials,” Camacho said.

ARRA is a new federal program with unique guidelines and regulations, he added.

Camacho said during Janiga’s presentation, potential “red flags” facing the CNMI in its efforts to expend ARRA funding were raised. He said they have increased their level of diligence in ensuring that all ARRA funding comply with federal and local regulations.

As I said, the issues in the CNMI are but a microcosm of the bigger picture, repeated across the US. And the economic issues are only just beginning. The monkey trap for the greater community is whether to take the federal funds at all if the only good that comes of it is to delay the inevitable.

U.S. States Face `Cliff' as Federal Stimulus Ending Opens $38 Billion Hole
As stimulus programs under the 2009 American Recovery and Reinvestment Act conclude and the money they have supplied stops flowing, it “will create big holes in state budgets -- what many officials are calling the ‘ARRA cliff’,” the report said.

At least 31 states and Puerto Rico are forecasting deficits of $82.1 billion in the next fiscal year even as tax receipts are picking up, the National Conference of State Legislatures said today. Under a temporary mandate since 2009, the U.S. has provided economic aid to states, helping to pay government workers and shoulder the cost of the Medicaid program to provide health care for the poor. That aid will be gone, the group said.

The report, which says states will get $37.9 billion less in stimulus money in fiscal 2012 compared with 2011, is the second in as many weeks to warn of renewed financial pressure on states as the funding winds down. Last week, Raymond Scheppach, executive director of the National Governors Association, said states may confront $175 billion in budget gaps through June 2013, forcing leaders to weigh spending cuts and tax increases.

`Short-Term Maneuvers' Save Public Jobs, Risk Bond Defaults
Payrolls have been propped up by federal stimulus spending under the $787 billion American Recovery and Reinvestment Act of 2009. The program sent $100 billion to public schools alone, said Sandra Abrevaya, a U.S. Education Department spokeswoman.

“Many of the states that achieved a balanced budget in the spring of 2009 did so not by cutting expenses as far as they needed, but by applying ARRA funding,” said an October report from Deloitte LLP, a consulting and accounting firm.

States and cities may be forced to make deeper cuts once the stimulus money expires. Seventy percent of the funds will be distributed by October, said Cheryl Arvidson, a spokeswoman at the Recovery Accountability and Transparency Board, which monitors the program’s spending.

“The federal government cannot plug the holes forever,” Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University in Fairfax, Virginia, said in a telephone interview.
More Trims

The current recession is so long and deep that cities and states facing their third year of declining tax revenue will have to trim payrolls more, said Peter Hayes, who supervises $106 billion of municipal bonds at New York-based Blackrock Inc., the world’s largest money manager.

“In the private sector they have to react immediately to downturns,” he said in an interview.

Los Angeles, which almost ran out of cash in April when its water and power department withheld payments to the city in a dispute over electricity rates, will have eliminated 2,905 of 35,800 workers by the end of June, said Mayor Antonio Villaraigosa.

“This is by far more than we’ve ever done,” he said in an interview. “Even in the Depression, they ended up taking a cut in salary.”

See, also, prior post, The Perils of Playing with Federal Funds