November 14, 2007

The Kaselehlie Press

Palikir, Pohnpei - On October 29 the Office of the National Public Auditor (ONPA) released the "Review of Congress Funded Public Projects in Kosrae State" for 2005-2006. Some of the findings in the audit have been passed on to ONPA's Compliance Investigation Division for further review.

It is the job of the CID to determine whether or not laws were violated in the handling of public money and if so to make recommendations to the Department of Justice (DOJ) that charges be filed. The specific items from the review that the CID will be investigating were not specifically identified in the report.

From a review of the audit document it appears that thousands of dollars of public money were misspent, mishandled, misappropriated, or mismanaged. Whether there was theft will be for the investigators from CID to determine. Investigators from that Department are Deputized National Police Officers.

The 13th Congress overrode a Presidential veto to pass a $2.8 million CFSM appropriation law from local, non-Compact revenues. The appropriation was to provide funding for "social and economic development projects" a term that according to a legal opinion issued by the DOJ has never been defined in FSM law. The October 2006, DOJ legal opinion written by former staff attorney, Matthew Olmsted said the CFSM appropriation law was "arguably…defective because it fails to specify the projects for which the funds are to be used or provide sufficient guidance on how to determine what kind of project qualifies for these funds." The funds were allocated to the States in proportion to the number of their Congressional representatives at a rate of $200,000 per representative. Kosrae has two representatives so the State received $400,000.

ONPA reviewed "a) whether appropriate processes for reviewing and selecting projects were followed for Congress of the FSM (CFSM) public projects; and; b) whether implementations of CFSM public projects were in accordance with laws and regulations." The ONPA audit said that when Kosrae Congress members selected public projects to fund under CFSM appropriation law, they did so without following selection standards employed by other government agencies in the region. ONPA used four standards commonly used in order to evaluate the 34 projects that Kosrae Senators chose to fund. 59% of the funded projects had proposals without a clear description. 59% had proposals with scant detailed costs. 65% had proposals without a description of the projects' benefits to the community. 79% had proposals with no implementation plan. 88% or 30 of the 34 projects that were funded had at least one deviation from common selection standards. ONPA said, "regardless of how a project was selected for funding, the Financial Management Regulations (FMR) describe how public projects should be managed and implemented…because of non-compliance with FMR, there is little assurance that project funds were safeguarded and properly accounted. As a result, we noted some instances where project funds were mismanaged and misused."

Several problems were mentioned as headings in the audit: mismanaged funds, overpriced purchases, misappropriated project funds, questionable contracts, mismanaged receipt and payment, and improper disbursement. Project Control Documents (PCD's) were not clear or complete. Under each heading at least one example of a particular project was described as an illustration. ONPA pointed out that the suballottee of 29 of 34 of the total projects was the Deputy Assistant Secretary for Customs and Tax Administration who was already stretched too thin as the sub-allottee for the majority of 161 public projects. Though the duties of administering the projects were assigned to him in addition to his regular duties he was provided no additional staff members.

ONPA suggested that Congress should consider making the State Governor the allottee of all CFSM public projects since the Governor's office has the resources to ensure adequate oversight and implementation of CFSM public projects.

As Appendix Three ONPA listed some of the details of several projects with significant exceptions. Listed first was a project of the Kosrae Department of Education to procure classroom furniture at a projected cost of over $300,000. Congress funded $50,000 of that amount. The winning bidder was given the "contract" because of a parts warranty they offered. The bid $230,757 higher than the lowest bid. ONPA said the contracting process was unfair because the warranty was not solicited by Kosrae DOE. Other bidders were not given the opportunity to offer a warranty for their products.

The Purchasing and Contracts Act of FSM Law requires that bid winners be publicly announced yet the department kept the award decision private. Even losing bidders were not informed of the award decision. Instead of a signed contract as required for purchases over $50,000, an open purchase order was used that did not specify unit prices or quantities ordered. An inspection and inventory was not performed to be certain that the vendor had delivered what they said they had. DOE was over billed and paid $38,548 more than the cost of the items delivered. In October 2005, $90,000 was given to the Kosrae Utility Authority. They deposited the money into their cash account where it has been earning no interest.

KUA was to use the money to extend electrical power to the remote village of Walung. The project has been stalled because the road to Walung needs to be repaired and improved before the utility can move its heavy machinery into the area. Funds to improve the road are not currently available. No one knows how long it will be until the project can be completed.

The Lelu Municipal Government rents out its heavy equipment and operators in order to generate revenue. CFSM gave them $28,800 for existing farm road maintenance. $8000 of that was spent on fuel, oil and lubricants, and equipment parts. Fuel was stored in bulk barrel drums without delivery gauges. ONPA says that the municipality did not account for fuel and oil consumed on separate job orders. As a result there was no way to determine if the consumables were used to do farm road work as agreed or if the FSM Government paid for their rental business.

Lelu completed 40 unrelated job orders that earned $5,020 in assessed rental fees in the same period of time that they performed three job orders for the farm road project. ONPA said in the audit that they don't believe that the money was used as it was appropriated. Lelu also received a $10,000 appropriation for "technical, legal, or professional services". At the end of two years when no contractual services were used the mayor requested a change to the Project Control Document so that the Municipality could use the money to pay for six job orders for $500 each to pay 50 workers to work for 4 hours each at $2.50 per hour to cleanup the roadside. All six of the job orders were issued on the same day and did not specify a timeframe for completion, nor did they say where the work was to be performed.

Tafunsak Municipality was given $15,000 to use for existing farm road improvement. Instead, the mayor hired a contractor to build a new farm road on private land, "remote from the island's main paved road and away from populated areas of Tafunsak proper." The $10,000 contract for the road which was signed by the FSM Attorney General's Office included no details about the road. It didn't even state the road's location but it did specify that the contractor was to be paid $10,000 for construction of a farm road. The contract was awarded without going to bid. The contractor was selected by the mayor.

There were no records of any easement that would allow public access to the road built on private land. For the project, the mayor purchased $3500 worth of landfill for the road's sub-base from a quarry owned by a member of the municipal council when it could have been purchased from another quarry for $2100 less than was paid. Since there were no listed specifications for the road the auditor could not determine whether or not the quantity of landfill purchased was appropriate.

Malem Municipality received $14,000 to acquire land for a playground project. The mayor's request to Congress only specified the amount of money to be spent on the purchase but contained no details as to where the land was located, the size of the properties or basis for the amount of money to be spent on the land. Property acquisition regulations require that property values be determined before negotiations for land purchases are initiated. Property values in zone 51 in Malem are valued at between $2.00 and $2.50 per square meter, a figure that was verified by ONPA with the Kosrae State Audit Office. The mayor paid $9,000 to one land owner, $10.99 per square meter for 819 square meters of land. He paid $5,000, $18.32 per square meter for a 273 square meter parcel of land belonging to the Chairman of the Malem Municipal Council. The manager of Utwe/Walung Marine Park received an appropriation for renovation and improvement of the park. The project request said that $1420 would be spent for labor and that materials would cost $7,235. Congress funded $6500 of the project. Actual expenditures amounted to $4,500 for labor, three times the requested amount and $1,783 for materials, 25% of the amount proposed for the project.

The park manager hired a contractor to renovate three picnic huts, one traditional hut and to provide general maintenance. He purchased the materials himself. ONPA could only substantiate that $144 worth plywood and $285 worth of lumber had actually been purchased.

The audit document said that there is a dispute between the Park manager and the contractor over payments received for work performed. ONPA, without saying so seems to be saying that money may not have gone where they were told that it went. The Kosrae Red Cross Chapter was given $6000 for a project that would provide "emergency aids to the community and to the villages" and to "train and register as many Kosraeans as possible to stand-ready for all emergencies and needed assistance in the State."

Nearly 45% of the $5000 they spent went to travel by the Chairman and the Coordinator to attend a conference in Pohnpei. After the conference, the Coordinator moved to Hawaii and the Kosrae Red Cross Chapter shut down. Invoices of over $1500 were submitted for fuel despite a $500 budget for it. Four of the fuel purchases were made during the holidays. The sub-allottee disallowed one receipt because its date was the day after another fuel purchase had been made. $1276.73 was spent on an executive chair, a file cabinet and other supplies. The Kosrae State Scholarship Board received $12,000 for scholarships for Kosrae students. The scholarship administrator prepared minutes listing the four awardees and the scholarship amounts but the minutes were not signed by any board member.

The files do not contain any documents indicating that board members ever reviewed the student applications, or approved the students selected for the awards. The audit findings were discussed with "all of the pertinent" officials. Each was allowed an opportunity to respond in writing to the audit and to have their responses included. No management comments were submitted. ONPA released the report without comments from them.

A copy of the twenty two page audit can be downloaded at no charge from the ONPA website at or by visiting The Kaselehlie Press website at and following the weblinks menu item. News