""We could not close our eyes to the urgent needs of our staff..." Mida"

June 11, 2008

By Bill Jaynes
The Kaselehlie Press

After financial irregularities were discovered at the FSM's Embassy in Washington D.C. the FSM's Office of the National Public Auditor made arrangements to audit all of the overseas diplomatic offices of the FSM. The office has audited the FSM Embassy to the United States located in Washington D.C., the Permanent Mission to the UN in New York City (see story on page 5), the FSM Embassy in Fiji, and on May 23rd they released their audit on the FSM Embassy in Tokyo which covered Fiscal Years 2005 through 2007. It was the fourth audit of the Embassy in Tokyo performed by the ONPA.

The audit says that because of the way that exchange rates were calculated when salaries were paid to the six staff members of the Embassy in Tokyo, and because of other factors, employees were paid significantly more than was authorized by Congress. It said that the Embassy overspent its budget authorizations in 2005 and that the Department of Finance and Administration had an incomplete and inaccurate accounting of expenditures.

The audit report was in process for months before it was finally released on May 23rd. As is the usual practice ONPA presented a draft report of their findings to those who could make authoritative responses to the report. The responses received spanned 17 pages of small type set. ONPA replied to the comments in another five pages. Responses were received from the current FSM Chief of Staff Kasio Mida who was the Ambassador in Tokyo during the period of time covered in the audit.

An additional response was received from current Ambassador to Japan, John Fritz. Both Fritz and Mida disagreed strongly with the findings presented in the report. Secretary for the Department of Finance and Administration, Finley Perman submitted a response on April 11 that also disagreed with the findings in the report. His response led to a meeting with the ONPA in which documentation and synchronization of accounting figures occurred. On May 3, Acting DF&A Secretary Juliet Jimmy wrote a new response for the department that essentially concurred with ONPA's numbers.

The audit said that starting in October of 1998 salaries at the Embassy were calculated and paid based on an exchange rate of 130 yen for every U.S. Dollar. In 1998, the US Dollar would buy more Yen than it could do in later years. In 1999 the FSM Congress, in a standing committee report authorized the Embassy to calculate salaries based on 130 yen to the dollar. At that time the predominant rate was actually 137 yen to the dollar. Ambassador Fritz essentially contended that the Standing Committee report was the authorization they needed. Chief of Staff Mida, though he did not quote that Standing Committee Report said, "The fix(ed) exchange rate is not a creation of the Embassy and (it) should not be blamed for it."

During the three years under review by ONPA the bank exchange rate averaged 107 to 115 Yen a year. By using the higher rate of 130 Yen when making payroll payments, ONPA says that the Embassy incurred $93,738 of additional payroll cost during that time.

Ambassador Fritz said in his April 11 response to the draft copy of the audit, that the Embassy has sought guidance from the Department of Foreign Affairs, the Department of Finance and Administration, and Congress on many issues including the problem of constantly shifting exchange rates. He said that Congress instructed the DFA and DF&A to devise a plan to solve the ongoing problem and recommended that a "Hedge Fund" be set up to resolve the problem. Fritz said that neither the DF&A nor the DFA ever followed through on that instruction and the Embassy therefore still carries out the instruction of the Congressional Standing Committee report lacking any other instruction. He said that at the time that the Standing Committee report SCR 10-190 was issue, the prevailing exchange rate was 137 yen to the U.S. Dollar. According to the audit the Public Service System Regulations (PSSR) and the Financial Management Regulations (FMR) detail the types of allowances that can be provided to FSM employees working at overseas Missions. "However, Embassy employees received increased allowances that exceeded these regulations and in some instances, appeared excessive in dollar terms." During the period that was under review, Renster Andrew served as Minister-Consul, John Fritz served as Deputy Chief of Mission, and Kasio Mida was the Ambassador.

The audit says that the Embassy paid residential utilities (electricity, gas, and water) for two FSM staff employees that amounted to $48,657 over three years. PSSR Part 8.11 considers residential utility costs to be personal in nature and not an allowable expense to be paid by the government. In 2006, one of the employee's utility bill averaged $845 a month. The Ambassador, as is standard practice for heads of overseas offices was provided housing, transportation, and utilities.

Commuting costs were also paid by the Embassy though PSSR Part 8.11 says that those costs are personal in nature. The Embassy paid an annual cost of $3156 for city wide unlimited train passes for two FSM employees. The DCM used the Embassy's second vehicle to commute to and from work.

In 2006 monthly rents paid for the homes of the DCM and Minister-Consul were $5239 and $3932 respectively. From audit findings it appears that in order to avoid the $5000 per month cap on rents for overseas missions housing for FSM employees an exchange rate of 120 yen was used instead of the prevailing rate of 107 yen. An unidentified former Ambassador of the FSM Embassy in Tokyo did not provide documentation of housing prices to the Secretary of DF&A as required by PSSR 12A.8b to justify that the rents were typical, fair and reasonable.

PSSR Part 12B.4 defines home furnishings needs that can be provided for Embassy employees as essentially, basic necessities (i.e. beds, refrigerators, and dining sets). The Embassy's list of government property located at employee residences totaled $64,223 and included a flat panel plasma television for $5,039, a TV sound system for $817, silk carpet for $2,384, a dining set for $6350, a sofa living room set for $3300, and two chests for $2300. We talked with the previous two Ambassadors to Japan. Both of them said that they didn't know who had bought the television. The auditor said that the TV was located at the house of then DCM John Fritz.

Education expenses paid by the Embassy amounted to $73,135 over three years. One employee's education expenses totaled $70,020 for three years to send his three children to private school. Foreign Service Premiums (FSP) were established in order to equitably compensate employees permanently assigned to overseas missions. In New York City FSM employees of the Permanent Mission to the UN for example receive an FSP of 95% meaning that they receive an additional 95% above their salaries due to cost of living. An FSM employee working at the Embassy in Tokyo receives an FSP of 280%.

The additional amount, by law is not subject to FSM tax. The FSP, according to the auditor resulted in $506,352 in additional salaries being paid to employees over the period of three years. If the FSP has been taxable it would have generated $70,889 in income and social security taxes over that period. Further, the audit went on to say, the amount that employees received due to the practice of a fixed yen to dollar conversion rate over the three years reviewed ($93,738) would have generated additional tax dollars but that amount also was not taxed.

ONPA questioned in its audit whether a FSP should be provided to FSM employees working in Tokyo considering that their housing, utilities costs, commuting expenses, and household furnishings costs were paid for them. The FSP, according to the ONPA audit was designed to offset the high prices of the cost of living in other countries.

For medical expenses, a problem mentioned in nearly every Embassy audit an imprest fund was established at the Embassy. When employees of the Embassy need medical care they pay the up front medical care expense from the imprest fund. MiCare then evaluates the medical care expense to determine whether or not they will cover the expense. If they decide that the expense is allowable they reimburse the Embassy for the expense up to 90%. The employee is responsible to reimburse the remaining 10%. If MiCare does not cover the cost the employee is responsible for the entire bill.

By July 2007 the imprest account to handle medical bills at the Tokyo Embassy had been depleted to only $212. The auditor was quick to say that they did not audit the imprest fund and merely mentioned the depletion to point out that reimbursement from MiCare, or DF&A or employees is needed in order to replenish the account.

Chief of Staff Mida, who was the sitting Ambassador at the time of the audit said in his response regarding the imprest fund for medical expenses, "There are two problems as I see it: getting reimbursements from MiCare in a timely manner and getting reimbursed from employees for their portion of the medical/dental costs."

Regarding the overall audit he said, "I feel some of the following may have contributed to the situation in the overseas missions including our Embassy in Tokyo.

"1. The lack of close oversight and monitoring by the Department of Foreign Affairs and Finance and Administration over the overseas missions.

"2. The applicability of policies and regulations that are designed primarily for our governmental operations in-country. Some of these are impeding our work overseas.

"3. The lack of a comprehensive review by an independent professional of the foreign service in terms of compensation, benefits, etc. The government has tried to address some of these long standing issues in a piecemeal fashion and it has not worked at all. We have yet to successfully address issues like FSP, exchange rate, etc.

"4. The lack of clear directions/instructions from home on these issues. This results in the overseas missions having to make decisions on their own on a number of things in order to address some of their urgent needs."

Vice President Alik Alik, who served as FSM's Ambassador to Japan from 1999 to 2003 said that he appreciates the Office of the National Public Auditor's work in bringing up the issues that have been a problem in Japan for a long time. He said that the Public Service System Regulations have long been out of date and need a review and that the problem of exchange rates, the FSP, and other problems have been a problem not just for the Embassy in Japan but in the other Embassies as well particularly the FSM Embassy in Fiji.

He said that a plan of action was suggested by Jack Sullivan when he was doing consulting work for the National Government. Sullivan apparently suggested many changes in the system that in some areas actually increased the compensation package for FSM diplomats. Alik implied, though he did not directly say it, that the DFA had not wanted to implement the plan because it would have increase the cost and so the report is still "gathering dust sitting on a book shelf."

He said "This administration takes the situation very seriously and the President has made it a priority." He said that President Mori has assigned him, the Secretary for the Department of Foreign Affairs, Lorin Robert, and Chief of Staff Kasio E. Mida to begin work on solving the systemic problems that led to the poor audit report.

He said that the employees of the various FSM Embassies are highly skilled professional diplomats and not accountants. When he was the Ambassador he was required to submit two reports on a monthly basis, one was an activity report and the other was a financial report. The idea was that if something was going wrong at the Embassy, those personnel at the DF&A who are experts in accounting would point out the errors and help the Embassy to make corrective action but it rarely happened. The ONPA came to that conclusion as well.

"People who have never lived in Tokyo don't understand how expensive it is." He illustrated saying, "If a bag of rice costs $16 in the FSM that bag will cost $60 in Tokyo." He said that in Tokyo a few ounces of fish would cost $40 where in the FSM you could buy a big fish for only $11 or so. He said that one year he had to have a tooth pulled when he was the Ambassador and that trip to the dentist cost $900 "People just see the numbers and they think it's too much."

He said that years ago the National Government had considered the possibility of relocating the Embassy from Tokyo to someplace where it would be less expensive. "But if we want breadfruit we must go to the breadfruit tree." Tokyo is where FSM Diplomats need to be to foster the best possible relationship with Japan's Government leadership.

The complete audit is available at http://www.fsmpublicauditor.fm/audits.htm