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.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.
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.
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.Nobody in the government committed fraud, Ada says January 15, 2010
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.
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.Ada: False info, not misuse of ARRA funds, under review January 21, 2010
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.”
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.ARRA on track in meeting spending rates, employment target July 29, 2010
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.
THE American Recovery and Reconstruction Act funds are moving out promptly but carefully.NMI has yet to spend $77M in ARRA funds February 22, 2011
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.
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.Report: NMI ARRA funds prone to abuse and fraud April 29, 2011
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.”
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.Ada’s firm checks ARRA spending May 02, 2011
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.
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.Lawmaker forms team to probe federal spending May 05, 2011
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.
REPRESENTATIVE Fredrick P. Deleon Guerrero says he is forming a team that will audit all federal grants provided to the CNMI.The OPA evaluation that has been mentioned above describes a monkey trap, and time will tell if any monkeys take the bait:
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.
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
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