ONPA RELEASES AUDIT REPORT ON CFSM FUNDED PUBLIC PROJECTS IN CHUUK

The Office of the National Public Auditor announces the release of report No. 2009-04 Audit of Congress Funded Public Projects in Chuuk State. The report is available for public review online at the Auditor’s website www.fsmopa.fm and copies are available at the Auditor’s offices in Palikir and Weno.

The audit was performed with the objectives of determining whether the administration of Congressionally-funded public projects complied with the Financial Management Regulation (FMR) Part X and other applicable laws, policies, and regulations. Congress appropriated approximately $1 million in local revenue funds from Public Law 13-36 (as amended) for the purpose of funding social and economic projects, often referred to as CFSM public projects, in Chuuk State. The audit team examined 39 of the 69 funded projects and focused on fiscal year 2005 – 2008 (thru July 31, 2008) appropriations. The audit was conducted in accordance with Generally Accepted Government Auditing Standards.

The audit team found that parties involved in the selection, management, and oversight of the projects failed to comply with the FMR and other applicable laws, policies, and regulations. Moreover, the overall process from the selection of projects to the payment of vendors was conducted without the benefit of appropriate management controls.

Section 4 of PL13-36 specifies that funding is provided for “…social and economic development projects in the State of Chuuk.” An examination of the projects revealed that 17 projects accounting for approximately one-third of the Chuuk appropriation did not appear to meet the definition of ‘social and economic development project.’ These 17 projects were, in essence, subsidies for municipal operations and the Chuuk Delegation Office. For example, the Chuuk Delegation Office was awarded $40,000 for the purpose of defraying its operating costs and another $20,000 was awarded for a project titled “Chuuk Delegation Office Operation.” Similarly, the Southern Namoneas region received $45,000 for the purpose of subsidizing general municipal operations. Polle, Satawon, and Ta also received funding to defray operating costs.

The audit team found that the project selection process occurred without any documentation as to why the selected projects were chosen, how they would contribute to the social and economic development of Chuuk, or what criteria was used to select projects. To ensure transparency in the decision making process and fairness, other organizations establish criteria for evaluating proposals and then document why some projects are selected and others aren’t. The audit also revealed that neither the Chuuk State Commission on Improvement Projects (CSCIP) nor the FSM Finance Field Office in Chuuk could account for vehicles, boats, and boat engines purchased with PL 13-36 funds. Seven vehicles, four boats, and ten engines were purchased in conjunction with the 39 projects reviewed. However, no boats or engines could be located or accounted for. Similarly, six of the seven vehicles could not be located or accounted for. Though Project Control Documents (PCDs) are intended to ensure that all purchases are for the project’s intended purpose and within authorized limits, the audit team found that not all expenditures were appropriate and/or within the budget. The Chuuk Delegation Office project and the Chuuk Delegation Office Operations project had the stated purposes of defraying operating costs. However, funds were used to pay reimbursements to Congress members and to make contributions to constituents. In essence, these funds were used as representation funds although the original intent was for the operations of the Chuuk Delegation Office. Auditors also found that funds for a fishing project were used to purchase a vehicle and construction material. A total of 21 of the 69 projects reviewed (30%) exceeded the dollar amount appropriated by law. Inappropriate purchases were allowed to be made because the CSCIP did not have a process for reviewing expenditure requests to verify that the purchases related to the project purpose (as stated on the PCD) prior to CSCIP’s submittal of the request to the Finance Field Office. Similarly, the Finance Field Office lacked a procedure for reviewing requests prior to certifying fund availability and making payment.

The audit also revealed that there were no controls to ensure projects were completed. FSM 10.7 requires that the allottee designate a project inspection official in order to ensure proper oversight and accountability. The project official should be listed on the PCD. However, 87% of the PCDs reviewed did not include a designated project inspection official. Moreover, payments should not be approved by the CSCIP unless a project inspection has been completed. Site inspections conducted by the audit team revealed that several of these projects such as sea walls, a pathway, and a meeting hall were never completed. Furthermore, payments for construction materials related to these projects were paid though the materials could not be accounted for because the FSM Finance Field Office did not require submittal of a completed inspection report.

Some of the findings have been referred to the Compliance Investigation Division for further review. The results of the audit were discussed with the Chuuk State Commission on Improvement Projects, the FSM Finance Field Office, and with Chuuk Congress members. The CSCIP, the Field Office and the Congress Members did not provide the customary written response to the audit.