‘$11.1M in questioned  costs just tip of iceberg’

Gov. Arnold I. Palacios said yesterday that he believes the desk audit’s finding of $11.1 million in questioned costs in the CNMI’s use of the coronavirus relief funds, commonly known as CARES Act funds, is just the tip of the iceberg that they need to figure out. 

At a press briefing in the governor’s small conference room, Lt. Gov. David M. Apatang also stated that he is sure that it’s not going to be a surprise  to have more findings of questioned costs of federal funds that happened during the previous administration. 

“Besides [American Rescue Plan Act] ARPA issue,  and COVID issue, there’s going to be more,” Apatang said. 

Palacios said if this CARES Act’s $36 million provided to the CNMI is problematic, he wonders if that’s the same case with all the other funding opportunities and funding sources.

Palacios said he is not sure if the Federal Bureau of Investigation is looking into the $11.1 million questioned costs as the FBI hasn’t shared anything with the administration. 

The governor said, however, that given the fact that CARES Act funding involves the U.S. Department of Treasury, he would not be surprised if they have a much more targeted review of it. 

“I’m not sure if it’s the FBI or the Department of Treasury. The U.S. department of Treasury, they have a much more detailed review audit,” he said.

Palacios agreed with Department of Finance Secretary Tracy B.  Norita’s earlier statement that obviously there’s a lot of possible implications resulting from the desk audit. 

“Obviously, we want to try our best to get the documentation that’s required,” the governor said.

Castro & Company LLC, a public auditing firm in Washington, D.C. that specializes in providing services to the federal government, reviewed and assessed obligation and expenditure data in CARES Act funds for the CNMI for the period of March 1, 2020, through March 31, 2022.

Palacios said what the desk audit review did was just kind of went in and took some of the expenditures and tried to look through documentation to validate those expenditures. 

He said he believes it was a failure at the  time with the Department of Finance to provide those documentation. 

The governor said from what he understands based on some of the communications, that the auditor asked for some documents and they just ignored them.

“And that’s pretty freaking ridiculous. That’s pretty bad on our part, right?” Palacios said.

He said according to Finance Secretary Norita, the single audit also looked at part of questioned costs and the amount is larger in terms of not finding the documents “for somebody’s money.”

Palacios said some of those consequences are there and that’s  what they have to deal with to the best of their ability, try  to fix that mess. 

“And the unfortunate part is, you know, as we go into try to fix  our books and improve our financial management system, we  still have to go back again and get additional resources,  whether it’s human resources or financial resources for time to get those things done. But certainly, we have to do that,” he said.

He said there’s a lot of documents that are missing. 

Palacios said as to what will happen to the 2021 and 2022  audits are something that they need to find out in order for  the CNMI to improve. 

“So whether there’s misuse of those funds, we have to identify,” he said, adding that one of the U.S. Department of Treasury’s options is to probably do a full blown audit on the CARES Act itself.  

The governor said  the CNMI’s economy was basically closed down during the pandemic and the Commonwealth was provided a substantial amount of money for COVID expenses and even for operational funds just to help survive.

“It’s unfortunate that this is where we are. but I think a lot of you have a funny feeling, had that feeling that, you  know, there’s just so many questions out there regarding the amount of resources that were provided to us and the ARPA is going to be another issue,” he said.

Palacios said even though he was the lieutenant governor at the time, he had no idea what those major contracts involved in the questioned costs. 

“I was completely taken out of the loop. I wish I could answer that question. But that’s the fact of life. And, believe me, even the janitor downstairs, was reluctant to talk to me. That’s how crazy it was. Because they were afraid of getting disciplinary adverse action. Because people see them talking to me. So that’s how isolated I was,” Palacios said.

He said they were in the JD Edwards financial management system at the time and they transitioned right away into the new Munis system. 

Palacios said a lot of the data from the old system were not transferred into the new system. 

“So now, even when I ask for records or expenditure records or resource records prior to 2021, Finance  staff  have to go back into the JD Edwards system. So it’s just all convoluted,” he said.

Palacios said he is really tired of talking negative things so they 

need to just address this the best they can  and continue to  hope that the sanctions are not as bad as they think they might be.

Apatang said everybody else have to go through  a Procurement process in order to spend government money and that there’s no excuse for that.

Apatang said they are still looking for help as far as forensic audit. 

“That’s  what we’re looking forward  to. We are waiting  for that system for the forensic auditors  to come in and help us out,” he said.

Apatang said  everybody would have to follow the proper procedures  that’s why they have the management system. 

He said they were still doing good with JD Edwards so he does  not understand why they have to switch over to a very expensive computer system that until now is confusing them.