‘MPLT expenses unreasonable, excessive’

For three fiscal years covering 2002 to 2004, the Marianas Public Land Trust spent more than half a million dollars in travel expenses and incurred administrative expenses that “are higher than they should be,” according to a Nov. 15 interim report by the Office of Public Auditor.

The MPLT is the government agency entrusted with the “prudent” management of funds from public land leases [collected by the Marianas Public Lands Authority].

In the report, Public Auditor Michael Sablan said that based on the records provided by MPLT, the Trust board members spent $297,920 for compensation during the three-year period.

It means that each board member, except for one who was appointed in mid 2004, received over $50,000 in compensation during the period.

At the same time, the board and the Executive Director, Bruce MacMillan, who is actually an independent contractor, spent $500,195 for travel expenses.

OPA also said that during this period, “virtually no interest” was transferred by MPLT to the general revenues of the Commonwealth.

Further, OPA said that in 2004, the trustees, chaired by Juan S. Torres, began paying themselves $150 for meetings lasting four hours or less and $300 for meetings over four hours.

The raise in rate was made in resolution adopted by the board in December 2003.

OPA said the increased rate was retroactive to 2002.

The CNMI law provides compensation of board members of government corporations and councils at $30 for a half day meeting and $60 for a whole day meeting.

Frequent meetings

While the MPLT bylaws provides that regularly scheduled meetings are held on the third Friday of each month, OPA said that the board met ”significantly more often” than the 12 set meetings.

OPA said that MPLT met 50 times in 2002, 115 times in FY 2003, and 90 meetings in FY 2004.

In February 2004, the board reportedly adopted a new per meeting fee of $150 for half-day meetings and $300 for full day meetings.

“Further, in adopting the new higher fee, it appears the trustees also made it retroactive to the meetings held in 2002.”

To put the frequency of meetings in perspective, OPA said that MPLT met once every 2.14 days in FY 2003 and once every 2.73 days in FY 2004.

OPA said MPLT justified the increased meetings by saying that those were needed due to the proactive efforts of the trustees to maximize investments and attend to litigations.

“But [OPA] has to wonder why the Trust pay money managers to manage trust investments, and attorneys to handle litigation,” said OPA, noting that duration of board meetings is not recorded in the official minutes of meetings or in any other document provided to OPA.

OPA said that MPLT trustees are also compensated for attending on-island and off-island publicly and non-publicly announced meetings, for doing “extraordinary work” and while traveling on business class.

Extraordinary work includes meeting with the governor or a member of the Legislature and reporting about the meeting to the board.

Travel expenses

In the report, OPA said that one factor that may explain the large expenditure for travel is MPLT’s policy of flying business or first-class for all official travels over five hours.

The CNMI Executive Branch travel policies only authorize economy class when traveling on official business and in the event the traveler chooses business class, he or she is responsible for paying the difference in airfare.

“MPLT’s policy of first class travel…seems to be a significant contrast to what is being required of other CNMI government agencies. In OPA’s opinion, MPLT’s policy…does not meet the prudent person rule for strict fiduciary care,” said Sablan.

Independent contract

OPA revealed that MPLT entered into an “Executive Service Agreement” with a certified public accountant [MacMillan] for five years beginning Oct. 1, 1999 to Sept. 30, 2004.

On April 29, 2004, the contract was amended and extended through Sept. 30, 2007.

The original contract called for a $90 per hour rate with a 5 percent increase each year.

OPA said that in FY 2002, the executive director/independent contractor received $121,879; $147,064 in FY 2003; and $147,198 in FY 2004 or a total of $416,141 during the three-year period.

OPA noted that the executive director, instead of being an independent contractor, functions in every way as an employee of the Trust.

Besides, he hands out business cards that identify him as executive director, a position that is generally thought to be held by an employee.

Further, OPA said that MacMillan has an MPLT credit card.

In addition to his contractual payment, MPLT also pays MacMillan to attend training courses, seminars, as well as all his travel expenses including business or first class airfare, transportation, and per diem.

“It seems to OPA that the Executive Director is treated as an employee when it is convenient and economical to do so, and then treated as an independent contractor when it is convenient and economical for him to be that way,” said OPA.

OPA opined that this arrangement “appears to be a deal that was entered into by the chairman of the Trust and the contractor, and approved by the other board members, to avoid CNMI’s salary cap,” which is at $50,000 a year.

In the report, OPA also questioned the off-island residency of the board chairman, Juan S. Torres.

OPA said Torres currently resides in Boise, Idaho.

“This is in violation of the CNMI law,” it said.

It cited that 1 CMC section 2901 provides that appointed department heads, board members, or commission members must be a resident of the Commonwealth, among others.

The OPA’s report was addressed to Gov. Juan N. Babauta and Senate president Joaquin G. Adriano.

In its Nov. 22 response letter addressed to the same officials, MPLT refuted the OPA findings.

“OPA’s portrayal of the trustee’s misconduct is, at the very least, made recklessly and without foundation,” said the MPLT letter that was signed by chair Juan S. Torres.

On chairman’s residency, the MPLT said, “Chairman is not sure what records they [OPA] are referring to.”

It cited that in the Trustee’s board minutes where the issue was discussed, “the chairman specifically stated that he was residing here.”

The same MPLT letter said that, “according to the chairman, the incidences of residency are currently being met as he is on-island for a majority of the year, is registered to vote here, and maintains a home here.”

It further justified Torres’ stay in Idaho, saying “it is not uncommon as there are many residents …having homes in this area” and for that matter in other areas in the U.S. as their families live there for educational and other purposes.

Meantime, MPLT said that OPA’s analysis of its executive director’s services “is somewhat misleading.”

MPLT maintained that MacMillan is an independent contractor, not an employee.

It said that while his business card says he is MPLT’s executive director, “it does not automatically make him an employee.”

It said the executive director position has always been performed on an independent contractual basis since the beginning of the agency 22 years ago.

It said that the same person kept the position since the Trust’s inception.

The MPLT admitted that MacMillan has an MPLT credit card used for the agency’s business: travel arrangement, renting cars, purchasing supplies.

It said there has been no allegation that MacMillan has used the credit card inconsistent with the function of the trust.

MPLT said the comment about a “deal” between the chairman and MacMillan to avoid the salary cap “is patently untrue and seems to imply that something unsavory is being perpetrated.”

It said MacMillan’s contract rate, originally set at $75 per hour, has increased over the years.

If a so-called deal was made, then it goes back to the original board members who hired him since his contract is but one of a succession of contracts going back to the inception of the Trust, it said.

On first-class travels, MPLT said that its board policy allows traveling business or first-class for flights over five hours “due to the fact that long flights in coach class are extremely tiring.”

If trustees would be traveling economy, members would arrive at their destination exhausted “to the point where their effectiveness would be adversely affected,” it said.

“The trustees strongly disagree with OPA’s finding that they are not complying with strict fiduciary care. The trustees believe that traveling on a business class fare is reasonable for long flights to the U.S.,” said the MPLT.

On frequent meetings, MPLT said trustees have had to meet with their attorney “much more frequently” to handle complicated legal issues.

It said it could not leave these matters to legal counsels as doing so would be to ignore a basic step of prudent investment management: to monitor and supervise.

MPLT also objected to OPA’s findings that MPLT trustees compensation is unjustified, citing that trustees increased only their per diem only after a lengthy process of research and discussion.

This process cumulated in board adopting a resolution in Dec. 2003.

It said it invited public comments on the matter by way of a notice, which was advertised for seven weeks.

MPLT further said that the trustees have always been clear that 1 CMC section 8247 does not apply to the Trust.

“MPLT is a constitutional trust and not a government corporation or council or other autonomous agency created by legislation,” it said.

The agency’s independence and unique standing was affirmed by the local court in NMHC v. MPLT, it added.

In its letter, MPLT took particular note of OPA’s “accusation” that it failed to transfer funds to the General Fund during the period.

MPLT said the allegation indicates that OPA was not aware of the law and it had ignored the financial reports, which showed that the Trust distributed $1.3 million in 2004; $1.2 million in 2003; and $1.6 million in 2002.

“To transfer any additional funds to the General Fund, as suggested by OPA, would clearly violate the law, specifically 2 CMC sections 4481-84 and a breach of the Trustees fiduciary duty,” MPLT said.