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By Janet David

PALIKIR, Federated States of Micronesia (June 14, 1998 - The Island Tribune)--- A recent internal audit of the Federated States of Micronesia (FSM) Embassy in Tokyo, Japan has repeated a recommendation to FSM President Jacob Nena and the Secretary of Foreign Affairs Epel Ilon to seriously consider closing the Embassy.

The audit report stated that the FSM Government "should easily be able to maintain and carry on its economic and diplomatic relations with Japan at minimal cost" after closure of the Embassy.

The audit, which was conducted by the FSM Public Auditor's for the period from 1994 through September 30, 1997, listed three main conclusions:

1). The Embassy does not follow the Accounting Policies and Procedures for Embassies and Liaison Offices issued by the Department of Finance;

2). FSM employees owe significant sums of money to both the Embassy and the FSM Government for, among other things, personal phone usage, unrecouped expenses and travel advances, unpaid taxes and unallowable dependent educational expenses;

3). The Government should give serious consideration to closing the Tokyo Embassy, which could save the Government $1 million per year.

The audit report found that the Tokyo Embassy had "very little documented activity and correspondence files were relatively thin" making a cost-benefit analysis of the Embassy's operations "virtually impossible." A similar finding has been repeatedly made in prior audit reports. The report also suggested that little benefit is received from the Embassy in relation to the money spent on it.

According to the audit, "the majority of ongoing programs of technical and economic assistance to the FSM from the government of Japan and other organizations existed before the establishment of the FSM Mission in Tokyo and would likely continue if the Embassy were closed."

In another section, the report noted that the system of internal controls within the Embassy "does not adequately ensure that assets are safeguarded and that transactions are executed" in accordance with proper procedures. This finding had also been cited in previous audit reports.

The Report also found that former Ambassador Masao Nakayama was reimbursed $38,500 for unallowable educational expenses between 1994 and 1997, and recommended that he be required to repay the misspent funds. According to the report, Nakayama used a "dependent educational allowance" to pay for college tuition at four different schools, though the money was not intended to cover college costs; and used additional funds to pay for high school tuition at schools outside Japan.

According to the audit, the allowance should only have been used for to pay for dependents attending school in Japan. An additional portion of the allowance was used to purchase a subscription to a magazine and to rent a tuxedo. In a separate finding, the audit stated that the former Ambassador and Minister James Naich received Foreign Service Premium payments to which they were not entitled. According to the reports, theses premiums should not have been available to exempt (non public service system) employees of the Embassy.

One key finding of the Audit was that Embassy employees have not paid FSM income taxes since the inception of the Embassy, though required to do so by FSM law. This finding had also been cited in a previous audit report. According to the Audit, Public Law No. 7-41 provides that "the salaries earned by the Embassy personnel, who are FSM citizens, are taxable for the purposes of income tax and therefore subject to withholding."

Minister Naich, who was also the Deputy Chief of the Mission, challenged this finding claiming that "there were ambiguities within the law that may exempt overseas personnel from income taxation."

The FSM Attorney General's office agreed that the law is unclear in some respects, but added "there can be little doubt that wages paid to our own personnel abroad fall within the boundary of our taxing authority."

The auditors noted that the FSM Department of Finance began processing the payroll for the Embassy on October 1, 1997. Income taxes have been deducted from the salaries of FSM employees at the Embassy since that date.

The Auditors recommended that the Secretary of Foreign Affairs and the Secretary of Finance ensure that taxes owed to the FSM Government from the time of the passage of Public Law No. 7-41 until September 30, 1997, be collected from all former and current FSM employees of the Embassy.

Included in the audit report was an analysis of budgeted verses actual expenditures for the Embassy. In 1997, which was used as an example, the Embassy overspent its budget by 2.6 percent. The proposed budget for Fiscal Year 1999 has allocated $754,325 to the Tokyo Embassy. If the budget is approved, $95,000 will go to the new Ambassador, Alik Alik, as salary; Minister Naich will receive $81,575; and $61,815 will be paid to First Secretary Fritz. The Embassy's travel expenses for 1999 are listed at $23,300. The 1999 budget proposes $25,000 for a representation account. The three key employees of the Embassy have also been allocated an additional annual housing allowance totaling $204,886.

Masao Nakayama responded to the audit findings in a letter to the National Public Auditor, Rensley Sigrah, dated April 23, 1998. In his letter, Nakayama stated that he will repay whatever is owed. He said, "some of those accounts could have been settled, had the staff of the Embassy in Tokyo not encountered payless pay periods toward the end of the last fiscal year, or had (he) not been transferred so abruptly."

Nakayama disputed the findings regarding the foreign service premiums and educational allowance. He argued that the use of the educational allowance for a subscription to Time-Asia Magazine and for rental of a tuxedo, were for a class project and an end-of-school function, during which a graduating FSM student was presented two awards. Nakayama claimed that renting a tuxedo was similar to buying a school uniform.

Minister Naich also responded to the audit report in a letter to Sigrah dated April 28, 1998. In his letter, Naich stated that "the recommendation to close the Embassy is indeed a serious matter, which goes far beyond the desirability of earmarking the Embassy's annual appropriation for other uses." Naich claimed that the recommendation calls for adequate scrutiny of its justification and underlying assumptions, as it came at a time when "increasing expectations are being placed upon overseas missions to diversify the external sources of future assistance to the FSM." Naich continued that "overseas missions are the FSM's agencies in position to explore, seek, and negotiate such external sources of assistance." In his lengthy letter, Naich attempted to provide clarifications or explanations to each finding in the audit report, and finally stated that most of the problems cited could have been avoided with timely audits.

Prior to receipt of the Audit, Epel Ilon, Secretary of the Department of Foreign Affairs, was questioned regarding the high cost of maintaining foreign embassies. Ilon told The Island Tribune that the overseas missions provide a vital service as being the ears and mouthpiece for FSM in receiving and providing information. Ilon declared that overseas missions, which can be cross-accredited to represent our nation in other countries, serve the FSM's interests in the international community and are responsible for commercial, economic, cultural and scientific development. He maintained that the "possible benefits of having these embassies, and other overseas offices, are tremendous, depending on how the FSM Government organizes itself to serve those purposes." Ilon stated that the embassies are placed in key locations reflecting our interests. The FSM presently has embassies in New York, Fiji, Washington, D.C. and Tokyo.

The Embassy in Japan was first established as an Economic Liaison Office in 1984, and upgraded to an Embassy in 1989. The official purpose of the Embassy is to represent the interests of the FSM to the government of Japan and other organizations, to attract foreign investment and to promote tourism and trade. Additionally, the Embassy provides consular assistance to FSM citizens residing in or visiting Japan. The Tokyo Embassy operates with a staff consisting of the Ambassador, the Minister (Deputy Chief of Mission), the First Secretary, an Administrative Officer, a Secretary and a part-time Staff Officer/Driver.

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