U.S. DEPARTMENT OF THE INTERIOR

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Office of Inspector General

SEMIANNUAL REPORT TO THE CONGRESS October 1, 1998 - March 31, 1999

Commonwealth of the Northern Mariana Islands

PERSONNEL SERVICES COSTS ADEQUATELY SUPPORTED, BUT PROPERTY AND PROCUREMENT IMPROVEMENTS NEEDED

We found that personnel services costs charged to Federal grant programs were adequately supported by time and attendance records and that cash draw downs were made in compliance with Federal cash management standards. However, the Commonwealth of the Northern Mariana Islands Public School System did not adequately justify the use of sole source and emergency procurement methods; split procurements into small purchases, which resulted in noncompetitive procurements; and did not obtain the required written price quotations for small purchases. Furthermore, the Public School System did not maintain accurate inventory records for reportable property and did not ensure that all controlled property was entered into the property records. Also, the Public School System used Federal funds to pay for school bus repairs covered by factory warranties. As a result, the Public School System did not have full assurance that the best prices were obtained on at least 139 small purchases, totaling $523, 589; did not have control over Federally funded property of $197,964; and unnecessarily used Federal funds of $17,044 to repair buses. Based on the board of Education’s response to the report, we considered six of the report’s 10 recommendations resolved and implemented, three recommendations resolved but not implemented, and 1 recommendation unresolved.

DISCRETIONARY FUND EXPENDITURES UNAUTHORIZED AND QUESTIONED

Based on a request from U.S. Government officials, we examined the Governor’s discretionary fund. We found that the Office of the Governor authorized the expenditure of funds from the discretionary fund which exceeded appropriated amounts and made expenditures from the discretionary fund which were either not adequately supported or, in our opinion, did not appear to have been made for a "public purpose." In addition, during fiscal years 1996 and 1997, the Office of the Governor authorized the reprogramming of funds between objective classifications for appropriations that the Legislature had specifically restricted from reprogramming authority. These conditions occurred because the former Governor and the former Secretary of Finance (who served as the certifying officer) charged expenditures to the discretionary fund, although the annual appropriations for the fund had been depleted. In addition, there were no written policies and procedures that clearly identified the purposes for which the discretionary fund could be used, and there was no requirement for the Governor’s Office to prepare and submit periodic reports on the status of the discretionary fund to the Commonwealth Legislature for oversight purposes. Also, the Office of the Governor had not assigned responsibility for preparing and submitting the required quarterly and annual reports on reprogramming actions to the Legislature. As a result, expenditures from the discretionary fund exceeded appropriations by $900,000 in fiscal year 1996, $3.8 million in fiscal year 1997, and $1.8 million in fiscal year 1998. In addition, during fiscal years 1996 and 1997, appropriated funds totaling $432,764 were reprogrammed improperly. We made four recommendations to the Governor and one recommendation to the President of the Senate and the Speaker of the House of Representatives. However, because we did not receive responses to the report, we considered all five of the recommendations unresolved.

CIVIL SETTLEMENT OF $1.35 MILLION PAID

After a 3-year investigation, a joint effort by OIG and the FBI found that a California not-for-profit health care corporation made payments totaling $96,000 to a former official of the Commonwealth of the Northern Mariana Islands. The payments were made pursuant to a patient referral agreement with the health care corporation whereby Commonwealth patients would be referred to the corporation for treatment if the patients required health care that was beyond the capabilities of the Commonwealth’s Health Center. These referrals resulted in payments to the health care corporation from local and Federal sources. The patient referral agreement was in effect from April 14, 1991 to July 1, 1994. The former official who received the payments was the negotiating and contracting officer on behalf of the Commonwealth for the patient referral agreement. The Commonwealth was unaware of the payments to the former Commonwealth official, who cooperated with investigators and later pled guilty to bribery concerning a government agency receiving Federal funds. Sentencing by a Federal court is pending.

The health care corporation denied liability but agreed to resolve the matter by a civil settlement with the Department of Justice that included payments of $1.1 million to the Department of Justice and $250,000 to the Commonwealth’s medical referral fund.

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