AUDIT REVEALS CONFLICTS, CONFUSION AT CHUUK

News Release

FSM Information Services Palikir, Pohnpei July 16, 2009

DOE

Palikir, Pohnpei - July 13, 2009 - The Office of the National Public Auditor announces the release of Report No. 2009-02 An Inspection of Procurement Activities at Chuuk Department of Education. 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 inspection was performed with the dual objectives of determining whether supplies were purchased and delivered to schools in a timely manner and whether the Department spent its budget for contracts, fixed assets, and other current expenditures in accordance with applicable laws, policies, and regulations. Work was performed in accordance with the Quality Standards for Inspections issued in 1993, as amended, by the U.S. President’s Council on Integrity and Efficiency and the Executive Council on Integrity and Efficiency.

The inspection revealed that the Department did not provide and deliver the necessary supplies to its schools in a timely manner. Although $232,557 was spent on fuel and vessel charter costs for delivery of textbooks and necessary supplies, school principals surveyed as part of the inspection were not satisfied with the services provided. Inspection of the textbook warehouse revealed science textbooks that had been in storage for eight months and still had not been sorted for delivery. As a result of this finding, the Office of the Public Auditor is conducting a follow-up audit to determine the extent to which Chuukese students had school textbooks available to them during the 2008-2009 school year.

The inspection also concluded that the Department poorly managed and ultimately did not spend the Compact sector and Supplemental Education Grant funds in accordance with applicable laws, regulations, policies and procedures. As a result, purchases were made without obtaining the required number of bids and, at times, appeared to have violated conflict-of-interest laws. Additionally, inventory record keeping practices were lax and state assets were missing. Furthermore, in some instances purchases were made without the proper authorization and required supporting documents were not available for review.

Approximately five percent (5%) of purchases reviewed appeared to violate bidding and conflict-of-interest requirements. The Department purchased laptop computers, solar powered batteries, office supplies, and other items from businesses that were owned by immediate family members of DOE officials. Additionally, in several instances DOE seemed to have violated bidding requirements, which require an agency to obtain several bids before making a large dollar purchase, by making several small purchases rather than one large purchase. For example, in December 2005 DOE made nine separate purchases each worth $23,580 from the same vendor.

Inventory records were incomplete. Eighty-six percent of the fixed assets and vulnerable items tested by the auditors were not recorded in the asset registry or lacked complete financial records. A physical inventory conducted by the auditors revealed that $32,105 worth of DOE properties were missing. DOE staff admitted taking assets and vulnerable items to their residences without having proper authorization to do so and without documenting that they took the items. Similarly, because of poor record keeping practices, $42,041 worth of food purchased for the school lunch program could not be accounted for.

The audit also revealed that supporting documentation was not availed for 35% of the expenditures reviewed. In total, $2.2 million of purchases lacked the proper and adequate supporting documentation such as contracts, purchase orders, etc. Additionally, 23% of tested purchases were approved but the individual approving the purchases lacked the authority to do so.

The audit report was reviewed by the Department of Administrative Services, which agreed with all the findings and recommendations. The Compact Funds Control Commission (CFCC) also reviewed the audit report and generally agreed with the findings and recommendations. The Chuuk DOE received the audit report but did not provide a written response.

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