August 16, 2006

The Kaselehlie Press

A recent inspection of FEMA expenditures in Chuuk conducted by the Office of the National Public Auditor revealed several transactions that as the inspection words it, "contribute to the appearance of the misuse of these funds". The funds were intended as disaster relief from typhoons Chataan, Pongsona and Lupit. The inspection covered the 2004 and 2005 fiscal years. According to National Public Auditor Mr. Haser Hainrick an inspection is strenuous and thorough but has slightly different requirements than what he called a "yellow book audit".

FEMA funds in the amount of $4,961,952 were allocated for recovery from the three typhoons. $1,195, 278 of those funds were given for "hazard mitigation" projects; infrastructure projects designed to remove or prepare against future hazards should another typhoon hit Chuuk. $76,575 of the money given to the FSM National Government for disbursement to Chuuk was intended for Administration expenses. The remaining $3,690,099 was intended for direct public assistance projects related to the three typhoons.

As part of an inspection it is standard practice for public auditors to take a random sampling of vouchers when reviewing financial information. In the case of the FEMA review public auditors took a random sampling of 115 vouchers reflecting $1,088,069. Of those vouchers 22 (18%) could not be found. The missing vouchers represented $444,491 or over 40% of the value of the 115 sampled vouchers. The inspection document says that since 22 vouchers were missing they could not be examined for their propriety.

16 travel vouchers were inspected. Of those it was found that 3 of them totaling $4,635 did not have supporting documentation for the actual cost of the airline ticket. According to the inspection document, inconsistent filing practices for travel documentation may have been the cause for this discrepancy.

According to the inspection, "checks were made payable in the name of the official in office giving the appearance of misuse of FEMA funds…Most checks to office holders were to mayors, but we did see several that were written to officials in the state government such as the director of a department." The inspection goes on to say, "Prudent business practice requires that checks should be written to the entity that is to receive the funds. For example, payments for goods received at the hardware store are made payable to the store, not to the president of the company."

The public auditor goes on to say in the inspection document that, "since the check could be intended for the official's personal use and not the office he/she represents, it is harder to prevent and/or identify when funds are actually misappropriated by government officials…The official could commingle government and personal funds by depositing the check into the official's personal account."

The Chuuk Department of Administrative Services (CDAS) in its response to the finding that checks were issued to office holders said that the payments, made mostly to mayors and officials of the municipalities, were due to the fact that many of the offices had no bank account for their municipality or office. CDAS said that in order to avoid the appearance of misuse of funds in the future it would no longer offer exceptions to the rule that payments not be made to office holders.

Several other internal control issues were listed as items of concern in the inspection document which can be downloaded by the public at A follow up inspection will be conducted in 6 to 9 months to insure that internal controls have been corrected.