Procurement controversies -- US Insular Areas

The US Department of Interior has oversight responsibility for certain so-called "insular areas" of the United States, being wholly-owned, unincorporated, non-state subsidiaries of the US, all of whose citizens are US citizens, which is generally executed through its dedicated and hard-working staff in the Office of Insular Affairs. The US Virgin Islands and the Commonwealth of the Northern Marianas Islands are two such insular areas, as is the Territory of Guam.

As part of that oversight, DOI's Office of Inspector General provides certain audit and other functions. The following two procurement-related reports in the last year are examples of such reports:

Procurement Deficiencies Plague the Virgin Islands Port Authority (September 2010)

Our recent audit of the Virgin Islands Port Authority's (Authority) administration of capital improvement projects (see attachment) revealed program weaknesses that leave the Authority vulnerable to fraud, waste, and mismanagement. Specifically, the Authority's procurement and financial reporting deficiencies have resulted in inefficient and opaque operations, as well as loss of Virgin Island Government (Government) revenues. The problems we observed are not new, having been identified and reported on 5 years ago. We provided recommendations then that have gone unheeded.

Specifically, we found that the Authority regularly circumvented or inadequately documented the procurement process in the issuance of its capital improvement projects. We had, therefore, little or no assurance that contracts were issued to the most qualified, responsive, and deserving contractors. Further, capital improvement files were generally disorganized and incomplete. The files were in such disarray that we could not determine if the Authority followed basic procurement procedures. The disorganization so impeded our audit that we were forced to meet with the Authority's Executive Director and the Engineering Director in an attempt to obtain missing documents. Despite our best efforts at this meeting, the Authority still could not produce the documents that we requested. We therefore questioned over $5.5 million in project costs.

In addition, we found a myriad of deficiencies in the Authority's financial reporting, such as inaccurate records of payments to contractors and service providers, unreported payments, and non-issued tax forms. Those deficiencies resulted in $84.3 million in unreported income to contractors and $12.6 million in taxes lost to the Virgin Islands Government.

[Read more.]

CNMI ARRA Management (July 2011)

The Office of Inspector General investigated allegations of fraud connected to the sole-source award of a service contract for the management of the Commonwealth of the Northern Mariana Islands (CNMI) American Recovery and Reinvestment Act (ARRA) funds to Integrated Professional Services (IPS). IPS is a company owned in part by former CNMI Secretary of Commerce, Michael Ada. Upon Ada’s resignation from his position as Secretary of Commerce in October 2010, IPS was awarded a $392,406 sole-source contract as authorized by CNMI Governor Benigno Fitial.

Our investigation collected evidence suggesting that the contract to IPS violated multiple CNMI ethics rules, including 1 Commonwealth Code (CMC) § 8543: Post-Employment Restrictions; 1 CMC § 8531: Use of Office, Staff or Employees of Public Office; and 1 CMC § 8532: Restraint on Use of Public Position to Obtain Private Benefit; and 1 CMC § 8544: Negotiating for Nongovernment Employment. In addition, we found that the contract may have violated CNMI Procurement and Supply Regulations, Part 700, “Ethics in Public Contracting.” Under the terms and conditions, the contract is null and void if the procurement processes or execution fails to comply with CNMI Procurement and Supply Regulations.

The U.S. Attorney’s Office for the District of Guam and the Northern Mariana Islands declined prosecution of this investigation. We conducted this investigation jointly with the CNMI Office of Public Auditor (OPA). OPA will provide its opinion separately to the CNMI Government.

[Read more.]

And on a somewhat related note:

Report on CNMI Agencies’ Implementation of Audit Recommendations, as of December 31, 2010, Report No. TR-10-02, July 26, 2011

OPA tracked a total of 46 audit recommendations in 2010. Of the 46 audit recommendations, 6 were closed and 40 remained either open or resolved. Of the 40 open or resolved recommendations, 26 were considered delinquent.

Agencies with delinquent recommendations as of December 31, 2010 include the Office of the Attorney General, Commonwealth Ports Authority, Department of Finance, and Department of Public Safety. The recommendations addressed to these agencies were classified as delinquent as OPA was not informed by these agencies within the last 180 days of any corrective action taken to implement OPA’s recommendations.

As of December 31, 2010, audit recommendations in 7 audit reports were referred to the Attorney General’s Office for legal action to recover monies improperly expended. According to these 7 audit reports, approximately $2.6 million is potentially recoverable. The AGO did not provide OPA an update on these referral cases during OPA’s follow-up process, therefore, the status of these referrals remains unchanged.

[Among the funds found recoverable were these items:]

cost of a washing machine for the period December 1993 to March 1996.

Funds misused by the former Secretary of Finance during fiscal years 1995 to 1997.

Recovery of the balance of a loan receivable made to a CNMI constituent by the former Washington Representative.

to recover overpayment of $543,375 from the consultant on grounds of unjust enrichment, conversion, fraud and breach of fiduciary duty and recovery of $195,971 from three other individuals for breach of fiduciary trust.

Overpayments of professional services contracts. Balance of overpayments totaling $1,315,102

Recovery of $164,534 in improper payments made to a surveying contractor and adverse action against contractor for misrepresentation.

Audit of Travel Transactions for fiscal years 1996 - 2001. The potential recovery amount for outstanding advances of $406,925 was reduced by $14,747.

OPA identified potential recoveries of approximately $3.6 million in 8 audit reports addressed to various agencies. During its semi-annual follow-up process for the period July 1, 2010 through December 31, 2010, OPA received updates from the Department of Public Lands and the Northern Mariana Islands Retirement Fund on the status of recovery of funds. Of the $4,726,434 identified as potentially recoverable, $1,054,605 has been partially recovered leaving a balance of $3,671,829 still recoverable as of December 31, 2010.

[Items mentioned in this regard include:]

Collection of rentals from 8 quarry operators for six lease years from 1990 to 1995 totaling $4,690,708, less $946,968 write-off for one bankrupt quarry operator
resulting in an amount recoverable of $3,743,740.

Nonresident Worker Application Process. Amount recoverable consists of uncollected fees of $330,835 from Company A and $181,575 from Company B.

improper payments to two former CPA officials for retirement benefits and compensatory time claimed.

Double payment of travel expenses and overpaid per diem allowances

Promissory note for $96,100 on overpayment of two professional services contracts

Funds misused by the former Secretary of Finance from fiscal years 1995 to 1997.

[Read more. There's plenty plenty.]