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SAIPAN, CNMI (Marianas Variety, August 18) – During a four-year period, the cash-strapped government’s general fund deficit has gone up by almost 100 percent, its liabilities have climbed by 46.8 percent, its expenditures by 6.7 percent, and revenues by 0.6 percent, while its assets dropped by 7.7 percent, an independent audit report shows.

At the end of fiscal year 2005, the general fund deficit reached $174.3 million, a 98.3 percent increase from FY 2001’s $87.9 million.

This also marked a 13.6 percent increase from FY 2004’s $153.4 million.

Independent auditing firm Deloitte & Touche described the 98.3 percent increase in the unreserved fund deficit as "staggering."

"As in prior fiscal years, the (increase in the) general fund deficit (resulted) largely from the failure of the general fund to pay employer contributions to the NMI Retirement Fund," said Deloitte & Touche, which was contracted by the Office of the Public Auditor to conduct a single audit of the CNMI government as a whole for the fiscal year ending Sept. 30, 2005.

OPA released the audit report yesterday.

The highest yearly increase in the deficit in the four-year period was in FY 2004 — during the Babauta administration — at 30 percent to $153.4 million from $118.4 million in FY 2003.

"The inability of the government to pay its retirement obligations has resulted in over $20 million in recorded penalties, which have never been budgeted," said the report.

The other factors in the general fund deficit increase are the unpaid government utilities, bad debts, and failure to collect $98 million in debt owed to the Department of Public Health.

The general fund revenue collections totaled $214.9 million in FY 2005, an increase of $4.3 million from the prior year.

However, the increased general fund revenues were insufficient to cover total general fund expenditures during FY 2005 by $30 million, due largely to the failure to pay employer contributions to the Retirement Fund.

"This increase in the general fund deficit contributed significantly to the increase in the CNMI’s total unreserved fund deficit which rose from $153.4 million in FY 2004 to $174.3 million in FY 2005. The total unreserved fund deficit has nearly doubled since FY 2001 when it stood at $87.9 million," said the report.

Repayment to feds

OPA said local agencies’ inability to properly administer certain aspects of the CNMI’s federal grants has led to a cumulative questioned cost of $3.57 million as of the end of FY 2005.

In FY 2005, the questioned costs reached $718,716. About 72 percent of this amount was related to programs administered by the Workforce Investment Agency primarily related to payroll.

"These (audit) findings could lead to eventual repayment by the CNMI general fund to the federal government," said the report.

An analysis of the 30 audit findings relating to federal awards and questioned costs shows an inordinate amount relating to three program areas. Eight of those findings pertained to the medical assistance program; eight to programs related to disaster recovery and 7 to procurement-related issues.

The report said the direct, recorded liability owed by the general fund to the retirement system increased in FY 2005 by $8.6 million, to a cumulative total of $120.3 million.

"Additionally, based on an actuarial report dated Oct. 1, 2004, the unfunded pension liability totaled $552 million," it added.

Other contingent liabilities included: landfill closure costs; questioned costs relating to federal grants, $3,567,232; potential insurance costs from self-insurance; prior service awards for former Trust Territory retirement payments, $780,733; and unused sick leave for government workers, which had a balance of $35,249,780.

OPA said for FY 2005, the auditors (at Deloitte & Touche) could only attest to a "qualified" audit opinion.

This was due primarily to "inadequacies in the accounting records over financial reporting, we (the auditors) were unable to form an opinion regarding the amount at which taxes receivable, advances, accounts payable, tax rebates payable, other liabilities and accruals, due to other component units and reserves for continuing appropriations are recorded on the government fund balance sheet."

Economic factors

Deloitte & Touche, in the audit report addressed to Gov. Benigno R. Fitial, said economic factors continue to play a large role in developing the tax and other revenue budgets for the general fund of the CNMI.

These include the closure of garment factories due to liberalization of international trade rules, the pullout of Japan Airlines, and the continuing increase in the price of fuel.

The FY 2006 estimated available revenue and budget were reduced to $198 million in January 2006, and the FY 2007 budget is based on $193 million in estimated available revenue.

"We expect economic conditions to improve after 2007 as flights from Japan are added and tourism from other major markets, particularly Korea and China, continues to increase," the report said.

August 18, 2006

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