The Federated States of Micronesia's United Nations Mission "did not comply with FSM laws, regulations, policies and procedures in disbursing funds and submitting monthly operations fund reports," FSM National Public Auditor Haser Hainrick said in a recent letter to President Manny Mori and the FSM Congress.
The audit was concluded in February and identifies what the Public Auditor describes as the improper use of funds without required authorizations or supporting documentation, including reimbursement of personal credit cards for what appeared to be personal expenses of UN Mission staff.
But the audit also brings to light - through a six-page response letter from the FSM's UN Permanent Representative Masao Nakayama - how late transmission of funds from Pohnpei to the New York City Mission forced Nakayama to pay rent with money that was supposed to be used to pay UN membership fees to stave off eviction of the FSM Mission offices.
Nakayama's lengthy reply acknowledged a number of findings and promised correction, while also contending that some of the criticisms were unfair. For example, Nakayama said that in light of established practice of embassies paying for their ambassador's utilities and Internet expenses, as well as covering commute costs for embassy workers, these items should not be questioned. His comments led Public Auditor Hainrick to remove two of its original recommendations - Hainrick's recommendation that two signatures be required on all checks was deleted because Nakayama pointed out the UN Mission has only two authorized signatories and if one was out of town, there would be delays in processing payments; and the recommendation that a single debit card be used instead of multiple personal credit cards was also dropped, though the auditor in turn added additional recommendations to address his concerns about possible credit card abuse. The audit covered fiscal years 2005, 2006 and seven months of FY2007.
The UN Mission overspent its total operations budget in fiscal year 2006, and most of the budget categories in fiscal year 2005 and 2006 were overspent, the audit reported. Additional funds were not reprogrammed to authorize spending above the amounts set for the total operations budget and categories, it said. "An appropriation for UN membership contributions was improperly used to provide additional funds for the over-spending without proper authorization," the audit said. "As a result, the total amount allotted to the Mission in fiscal year 2005 and 2006 were overspent. We also found that an unexpended balance existed from the fiscal year 2005 operations fund budget, which has not been transferred to the FSM General Fund at end of the fiscal year as required."
"The Mission had to resort to using some of the UN contributions fund to meet payments for our leases (office space and staff housing) because sometimes there was a delay in the release of our allotments, thereby resulting in the delayed payment of these leases and bills," Nakayama said in his reply. "These delays in payment resulted in the Mission being penalized by closure of the office, court summons for the Mission's diplomatic personnel and notice of eviction from the diplomatic personnel's residences."
To head off embarrassment to the FSM government and its diplomats, "the Mission resorted to using UN contributions to meet the upcoming quarterly obligations," Nakayama added. "The Mission's error was in not reimbursing the (UN) contributions fund upon finally receiving the quarterly allotments."
The audit was critical of the UN Mission's late submission of financial reports. "All of the monthly operations fund reports reviewed were submitted to the Department of Finance and Administration an average of 47 days past the deadline established by regulation," the audit said. Nakayama acknowledged the problem and said the UN Mission would work to provide timely reports in the future.
The FSM UN Mission had annual budgets of $636,994, $583,577 and $576,296 for fiscal years 2005, 2006 and 2007, respectively.
Among the detailed findings of the 200-07 audit:
o The travel category was overspent by 163 percent in fiscal year 2005 and 175 percent in fiscal year 2006. The consumables category was overspent by 63 percent in fiscal year 2005 and 29 percent in fiscal year 2006.
o 45 out of 182 expenditures selected for testing totaling $67,470 were not properly approved. This represents 25 percent of the total expenditures checked by auditors. Specifically, 18 expenditures totaling $30,601 were approved by the Deputy Chief of Mission although he was not delegated the authority to approve payments. In addition, Travel Authorizations for 27 travel expenditures totaling $36,869 did not contain evidence of approval. Nakayama outlined the payment approval process at the UN Mission, explaining that it involved preparation of documentation, and then approval and signing by either the Permanent Representative or his deputy. But one of these two top Mission diplomats is away "then the remaining signatory has no recourse but to approve and sign all checks and the corresponding forms for obligations that fall due even if these may be payable to the signatory (such as a payroll check)," he said.
o 39 (21 percent) of 182 expenditures selected for testing totaling $41,227 were not adequately supported to justify the expense. This included: 13 expenses totaling $15,108 were not supported by timesheets; three purchases totaling $13,721 were not supported by invoices; nine travel claims totaling $8,448 were not supported by boarding passes; and eight travel claims totaling $3,663 were not supported by receipts.
Nakayama said that timesheets for the Permanent Representative and his deputy were provided to auditors. Time sheets for local staff are attached to the checks for their salaries, "although it may be possible that some time sheets were misplaced." He also said "the Mission has never paid a travel claim without a corresponding travel voucher."
Nakayama said that past practice with travel was to submit ticket stubs, not boarding passes. But with e-tickets the norm for travel now, staff are submitting boarding passes as additional documentation of travel.
But the auditor responded to this last point, saying "the requirement that boarding passes are submitted is not new. The auditor quoted a section from FSM financial regulations requiring that among other documents, an "original boarding pass" be included in a report for government-financed travel.
o There was no prior approval for personal credit card purchases. "Purchasing items that appear to be for personal use and using a personal credit card without prior authorization can appear to be self-serving without the proper controls and safeguards," the audit said. "We found that personal credit card charges were reimbursed for 139 expenditures totaling $44,964 without sufficient supporting documentation to justify payment and substantiate prior authorization. These expenses includes cash advance, fuel, parking, tolls, car wash, representation expenses, online ticket purchases, office supplies, furniture and fixtures, education expenses, utilities, Christmas cards and computer equipment and accessories."
Nakayama responded that there are times when Mission personnel have to use their approval. "The Mission believes that there are sufficient controls on the use of personal credit cards because such expenses are not automatically charged to the Mission but, instead, are still subject to approval before being reimbursed," he said.
The audit went into detail on some of these questioned credit card expenses: One claim included a $2,052 cash advanced to two FSM employees on an official trip without prior approval, which the Mission reported as a travel expense instead of travel advance; one claim included a $1,500 personal credit card purchase for a mattress and computer table for personal use without evidence of prior approval; nine claims were for purchases of computer equipment and accessories without proper justification and evidence of prior approval; various claims for use of the representation fund contained no justification or evidence of prior approval; various claims included expenses for tolls, parking and gas without proper justification and evidence of prior approval; and various claims included personal Internet usage fees without evidence of prior approval.
Nakayama contends, however, "it is standard practice for any overseas Mission to pay for the utilities of the Ambassador. In addition, Mission diplomats are entitled to household furniture." Regarding the mattress and table purchase, he approved these, Nakayama said. He also said that it is "reasonable" for the Mission to pay for Internet costs for its diplomats since the time difference between the FSM and New York requires the UN Mission personnel to work from their homes to communicate with FSM government officials, as well as conducting normal working operations with the UN. He said it has been the long-standing practice to pay for the commuting costs of its local staff to be competitive with other employers in the New York market.
This is now included in the contracts for the local employees, Nakayama said. Nakayama's comments sparked additional comments from Public Auditor Hainrick, who cited government regulations allowing the government to pay for furniture only for the President, Vice President, Speaker and justices of the Supreme Court. "All other exempt employees must supply their own furniture, except that a refrigerator and a stove shall be supplied by the government, if necessary," the regulations read. "The government shall also supply beds and dinette set, if necessary, to exempt employees hired for the first time after June 1, 1992."
Hainrick also questioned payment for home Internet services, citing FSM regulations that "no National Government employee is entitled to direct payment for local transportation, utilities, telephone or other expenses which are personal in nature."
In addition to making recommendations to the UN Mission, the audit said "to further ensure that our findings are resolved, we made recommendations to the Secretaries of the Department of Foreign Affairs and Department of Finance and Administration to strengthen the level of oversight being provided."