The Office of the Public Auditor has found that the CNMI Medical Referral Services Office lacks controls pertaining to its contracts and agreements with its vendors, and that MRSO has been using terms and conditions from expired contracts and agreements.
According to an OPA report last week, claim reimbursements and service fees from one of MRSO’s vendors are automatically withdrawn from a CNMI revolving account with limited reconciliation.
MRSO, through the CNMI Office of the Governor, has established multiple contracts and agreement with numerous vendors in the Philippines, Guam, Hawaii, California, South Korea, and Taiwan. The contracts and agreements include services for medical utilization, transportation and logistics, hotel accommodations, and office rental spaces for MRSO’s satellite offices.
OPA recommended that MRSO and related agencies review previously executed contracts and/or agreements and renegotiate terms to ensure a cost-effective and equitable program. OPA also recommended that MRSO implements standard operating procedures to ensure reconciliation of all vendor billings and payments.
In MRSO’s response, MRSO director Ronald D. Sablan agreed with OPA’s recommendation about reviewing previously executed contracts and/or agreements, adding that the OPA’s recommendation was MRSO’s standard practice prior to February 2019. Now, the special assistant for administration is responsible for contracts as appointed by the governor, and that MRSO is not privy to any contract negotiations and approvals, Sablan said.
OPA said the lack of any valid executed formal contract between MRSO and its vendors create a risk that may negatively hamper MRSO’s operations, resources, and stakeholders.
Based on the contracts provided by MRSO on July 9, 2020, OPA discovered that MRSO’s contracts and agreements have expired for two vendors for medical utilization, two for transportation and logistics support, and six for hotel accommodations.
OPA also requested from the Department of Finance any updates pertaining to all of MRSO contracts, but no updates were provided.
OPA said they learned during an interview that the CNMI government issued a request for proposal for transportation and logistics services in one of the foreign countries where medical referral services are commonly sought for CNMI patients. Only one vendor submitted a bid and was awarded the contract. However, that lone vendor later withdrew its bid even if contract negotiation was nearly completed due to the shutting down of borders worldwide because of the COVID-19 pandemic, resulting in the evacuation of nonresidents from certain foreign countries. This prompted the CNMI government to revert to the terms and conditions of the expired contracts with its former vendor for transportation and logistics services in that country.
OPA learned the request for proposal was for one of two services previously contracted for within that country.
Based on a review of an email correspondence received on April 20, 2021, OPA found the CNMI government elected to operate on a month-to-month basis for the two expired contracts.
OPA recognizes that MRSO has been operating in an unprecedented situation worldwide but, according to the auditor, this may potentially violate CNMI procurement regulations.
OPA noted that, according to standards, management may design control activities to include verification and reconciliation of transactions. OPA said the verification and reconciliation process will provide a better overview of the expenses paid to one vendor to quantify potential savings realized or conduct a cost-benefit analysis for contract negotiation.
The CNMI government contracted that one vendor for discounted services on medical expenses incurred by CNMI medical referral patients. In return, OPA said, the contract grants that one vendor the authority to automatically withdraw monthly payments through automated clearing house from a revolving account for all claims paid on behalf of the CNMI government.
In addition, a 15% access cost fee for all claims paid by that vendor is charged and automatically withdrawn monthly.
As of April 30, 2021, OPA noted that the vendor has withdrawn an estimated $3.3 million from the revolving account.
Through MRSO and Department of Finance, the vendor provided OPA documentation claiming the total “savings” incurred by the CNMI government as of March 31, 2021. However, OPA could not validate claims of CNMI savings due to the limited data provided by MRSO and Finance.
To ensure effective internal controls are implemented for accurate reconciliation, OPA requested for documents pertaining to the vendor that should have been maintained and verified at MRSO and Finance. However, OPA was notified that the listing of documents requested were forwarded directly to the vendor by both MRSO and Finance. The listing includes invoices paid by the vendor for individual medical claims that references to the monthly automatic automated clearing house withdrawals, monthly funds transfer confirmations indicating the amount automatically withdrawn, and invoices for the 15% fee automatically withdrawn from the revolving account.
Although OPA received a listing of the claims paid on behalf of the CNMI government and the monthly funds transfer confirmations, OPA found the listing of all claims:
– Did not have any identifiers that reference the monthly funds transfer confirmations for reconciliation purposes;
– Did not have any identifiers that reference the 15% access cost fee automatically withdrawn each month; and
– Had multiple erroneous transactions that were identified by the vendor and were automatically offset in the next month without concurrence from MRSO and/or Finance.
Through OPA’s analysis and interviews conducted, OPA noted that the vendor automatically withdraws payments from the revolving account without invoices being reconciled or approved by MRSO to ensure accuracy and validity.
Documents reviewed by OPA indicated erroneous transactions that were corrected and addressed in the subsequent month by the vendor without concurrence from MRSO and/or Finance.
OPA said the lack of internal controls to maintain, review, and reconcile payments timely to identify these erroneous transactions puts the CNMI government at risk for potential fraud, waste, and abuse.
In addition, the auditor said, the lack of reconciliation puts MRSO at risk of not properly recording potential outstanding balances for other MRSO vendors.