U.S. CITES CONCERN OVER PACIFIC FUNDS

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MANAGEMENT
Lack of internal controls breeds abuse

By Haidee V. Eugenio SAIPAN, CNMI (Saipan Tribune, July 17, 2010) – The U.S. Government Accountability Office has cited long standing concerns with insular area governments' internal control weaknesses, which increase the risk of fraud, waste, abuse and mismanagement, at a Thursday congressional oversight hearing on the effectiveness of the technical assistance program in the CNMI, Guam and other insular areas.

GAO is the investigative arm of the U.S. Congress.

It said this concern with internal control weaknesses is also shared by the U.S. Department of the Interior, which provides some $400 million annually in financial assistance to the CNMI, Guam, American Samoa, the U.S. Virgin Islands, as well as the Federated States of Micronesia, Palau and the Marshall Islands.

GAO said the Interior's Office of Insular Affairs grants are essential in supporting insular areas' economies.

GAO's Anu K. Mittal, director of GAO's Natural Resources and Environment Team, was one of those who testified at the oversight hearing held by the U.S. House Subcommittee on Insular Affairs, Oceans and Wildlife, chaired by Guam Delegate Madeleine Z. Bordallo, on Thursday afternoon in Washington, D.C.

CNMI Commerce Secretary Michael Ada, Interior's Office of Insular Affairs director of Technical Assistance Division Charlene Leizear, and University of the Virgin Islands President Dr. David Hall also testified at the oversight hearing, titled "Technical Assistance Program: Evaluating its Ability to Meet the Needs of the Insular Areas."

Gov. Benigno R. Fitial was also at the hearing but did not testify.

Mittal said GAO has documented these internal control weaknesses in several reports between 2000 and 2009.

In GAO's March 2010 report, for example, it said that nearly 40 percent of grant projects in the CNMI and other U.S. insular areas funded through the Interior's Office of Insular Affairs have internal control weaknesses.

The Commonwealth Health Center’s dialysis project on Saipan ranked first among 24 OIA-funded projects with the highest prevalence of internal control weaknesses.

Of the 24 projects, 13 are in the CNMI, including the dialysis center. These weaknesses in the dialysis center project include frequently changing priorities, lack of local operations and/or maintenance funding, limited local capacity, and contractor issues.

Mittal said internal control is an integral component of an organization's management that provides reasonable assurance that operations are effective and efficient, financial reporting is reliable, and applicable laws and regulations are complied with.

She said examples of such internal control activities include accurate and timely recording of transactions and events, and controls over information processing.

"If federal agencies do not use effective internal control activities, or have weaknesses in their internal controls, they can increase the risk of potential mismanagement or misuse and waste of grant funds," she told Bordallo's subcommittee.

Ada, who is also the CNMI lead person on issues related to the American Recovery and Reinvestment Act, said the effectiveness of OIA's technical assistance program can be measured with the successes that the CNMI has been afforded as a result of the funding.

OIA awarded the CNMI approximately $6.3 million over the course of Fiscal Years 2009 through 2009 alone.

In 2009, OIA also provided $81,250 to the CNMI to assist the islands in managing and requesting ARRA funds.

In the same year, OIA provided $220,000 for geothermal resource assessment related to CNMI volcanoes.

Ada said that while there are a number of benefits and successes resulting directly from OIA's Technical Assistance Program, there are some challenges that continue to hamper the effectiveness of the program in the CNMI.

He said the CNMI has noted three areas that should be identified for consideration by the committee.

These include the absence of technical assistance funding priorities and criteria, the lack of a single database which minimizes data inconsistencies between the CNMI and OIA, and no focus on funding that is based on documented long-term planning.

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