[Audit Report on U.S. Department of Defense  Contract Funds,
Department of Education,  Government of Guam]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 00-i-172

Title: Audit Report on U.S. Department of Defense  Contract Funds,
       Department of Education,  Government of Guam

Date:  January 10, 2000



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U.S. Department of the Interior
Office of Inspector General



AUDIT REPORT
U.S. DEPARTMENT OF DEFENSE 
CONTRACT FUNDS,
DEPARTMENT OF EDUCATION,
GOVERNMENT OF GUAM


REPORT NO. 00-I-172

JANUARY 2000




                                            N-IN-GUA-004-97-(E)-R
AUDIT REPORT


Honorable Carl T.C. Gutierrez
Governor of Guam
Office of the Governor
Hagatna, Guam  96910

Subject:  Audit Report on U.S. Department of Defense 
          Contract Funds, Department of Education, 
          Government of Guam (No. 00-i-172)

Dear Governor Gutierrez:

This report presents the results of our audit of U.S. Department
of Defense contract funds received by the Department of
Education, Government of Guam.  The objective of our audit was to
determine whether the Government of Guam complied with Federal
and local laws and procedures applicable to funds received under
its contracts with the U.S. Department of Defense.  The audit was
requested by three former directors of the Guam Department of
Education.

BACKGROUND

Title 17, Section 3101, of the Guam Code Annotated established
the Department of Education within the Government of Guam.
Section 3102 of the Code states, "The Department shall be
administered through the Territorial Board of Education which
shall be the governing and policy-making body of the Department."
Further, Section 3102(a) of the Code states that the Territorial
Board of Education will "select and hire a Director and Deputy
Director of Education."  However, on March 25, 1999, Guam Public
Law 25-03 was enacted, which eliminated the Board of Education.
Chapter 4, Section 18, of the Public Law states that "the
governing of the Department of Education shall temporarily revert
to [the Governor of Guam] until further legislative action.  The
Board of Education currently in place . . . shall cease to exist.
[The Governor] shall not appoint a Board, but shall assume all
functions, powers, duties and responsibilities of the Board."  As
a result of the change, on March 31, 1999, the contracts
employing the Department of Education's Director and Deputy
Director were terminated, and an Acting Director was appointed by
the Governor.

During the period of fiscal years 1989 through 1997, the U.S.
Department of Defense executed three successive contracts with
the Government of Guam for the Department of Education "to
provide public education services for Department of Defense
dependents residing on U.S. military installations in Guam."
Each contract provided for annual payments to the Government of
Guam based on a fixed cost for each military dependent child who
attended a Guam public school.  The contracts required that the
contract payments be used to raise teacher qualifications,
recruit teachers, improve curriculum and instruction, provide
staff development training, repair and maintain facilities, and
perform other educational functions.   The third contract, which
covered the period of fiscal years 1994 through 1998, stated that
the Department of Defense would pay the Government of Guam $5,920
per child based on an estimated enrollment of about 2,700
military dependent children in Guam's public schools.

In an April 23, 1999, memorandum for the record, the former
Deputy Assistant Secretary of Defense for Personnel Support,
Families and Education[1] stated, "In July 1997, the Assistant
Secretary of Defense . . . notified [the Guam Congressional
Representative] that the Department of Defense was canceling its
contract with the government of Guam to provide funds for the
education of military children in Guam public schools effective
September 30, 1997.  Furthermore, [the Assistant Secretary of
Defense] informed [the Congressional Representative] that the
Department of Defense would open its own school system on Guam."
In the memorandum, the former Deputy Assistant Secretary further
stated, "In September 1997 I traveled to Guam to present a check
for the final payment of the contract ($12,417,441.08) to [the
Governor of Guam]."

During the period of October 1, 1988, to January 15, 1997, the
Government of Guam's Department of Defense Education Contract
Office administered the U.S. Department of Defense contract funds
within the Department of Education.  However, through Executive
Order 97-01, on January 15, 1997, the Governor transferred the
Contract Office to the Guam Department of Administration.  For
fiscal year 1998, the Contract Office reported revenues of $21.3
million (including the final contract payment of $12.4 million),
expenditures of $6.6 million, and transfers out of $13.3 million.
For fiscal year 1999 (through December 31, 1998), the Contract
Office reported revenues of $751,042, expenditures of $1.1
million, and transfers out of $880,753.  During fiscal year 1999,
the Contract Office had an Administrator and 10 staff members and
an operating budget of $660,000 and a Capital Improvement Project
budget of $7.7 million.

SCOPE OF AUDIT

The scope of the audit included a review of transactions related
to Department of Defense contract funds that occurred during
fiscal years 1998 and 1999 (through December 31, 1998).  To
accomplish the audit, we reviewed pertinent records and
interviewed officials of the Government of Guam's Department of
Administration, Department of Defense Education Contract Office,
Department of Education, Bureau of Budget and Management
Research, Department of Public Works, and Waterworks Authority.
We also interviewed (by telephone) U.S. Department of Defense
officials in Washington, D.C., and Okinawa, Japan, regarding the
contracts with the Government of Guam.

Our review was made, as applicable, in accordance with the
"Government Auditing Standards," issued by the Comptroller
General of the United States.  Accordingly, we included such
tests of records and other auditing procedures that were
considered necessary under the circumstances.

As part of our review, we evaluated the system of internal
controls related to the financial and operational management of
the contract funds by the Contract Office and by the Department
of Education to the extent that we considered necessary to
accomplish the audit objective.  Based on our review, we
determined that the Contract Office generally managed the
processing of purchase orders and invoices in compliance with the
contract and applicable regulations.  However, we identified
internal control weaknesses in the use of contract funds by the
Government of Guam and in the timely use of contract funds by the
Department of Education.  These weaknesses are discussed in the
Results of Audit section of this report.  Our recommendations, if
implemented, should improve the internal controls in these areas.

PRIOR AUDIT COVERAGE

Although the Office of Inspector General did not perform any
audits of the Department of Defense contracts with the Government
of Guam during the past 5 years, prior reports were issued as
follows:

- On March 15, 1993, the U.S. Department of the Interior, Office
of Inspector General, issued the audit report "Selected Special
Revenue Funds, Government of Guam" (No. 93-I-706), which stated
that the Department of Education (1) did not make timely use of
about $13 million of maintenance and repair funds received under
the contracts and (2) lost about $2 million in potential contract
funds by not identifying all military dependent students.  Our
current audit also disclosed that the Department of Education had
not used contract funds in a timely manner.

- On January 20, 1995, the U.S. Department of Defense, Office of
the Inspector General, issued the audit report "DOD [Department
of Defense] Contracts With the Department of Education,
Government of Guam" (No. 95-082), which stated that the
Department of Education had made a concerted effort to use
contract funds in a timely manner and had efficiently expended
contract funds specified for repair and maintenance projects.

- An independent public accounting firm's single audit reports
for the Government of Guam for fiscal years 1996 and 1997 did not
report any deficiencies in the Department of Education's
management of Department of Defense contract funds.

RESULTS OF AUDIT

Although the Government of Guam's Department of Defense Education
Contract Office used contract funds under its control in
conformance with the contract, the Government of Guam did not
ensure that contract funds transferred to the Public Service
Recovery Fund and to the Department of Education General Fund
were used for contract purposes and in a timely manner.  The
requirements for the use of Department of Defense contract funds
were contained in the 5-year contract dated September 30, 1993,
between the U.S. Department of Defense and the Government of
Guam.  However, the Government (1) assumed that after fiscal year
1997 it no longer had to comply with the contract because the
contract would not be renewed, (2) needed the additional funds
because of declining local revenues, and (3) did not establish an
adequate planning and monitoring system to ensure the effective
use of the contract funds.  As a result, as of December 31, 1998,
the Government had expended $4.3 million, obligated $1.1 million,
and retained an additional $802,810 for noneducational purposes.
In addition, the Department of Education used $35,075 for
noneducational purposes and did not use $3.5 million of contract
funds in a timely manner.

Contract Requirements

Section B.2.c.2 of the contract dated September 30, 1993, between
the Department of Defense and the Government of Guam states that
payments are made "subject to the Department of Education
compliance with the Section C,  Statement of Work, and Section H,
Special Provisions."  Section C of the contract states that "the
Department of Education agrees that it shall provide appropriate
education services (grades kindergarten through 12) for eligible
DoD dependents in accordance with the Department of Education
standards and practices and the requirements set forth below [in
the contract]."  The remainder of Section C defines the
requirements for the Department of Education in the areas of
employee qualifications, recruitment of teachers, curriculum and
instruction, performance evaluations of professional educators,
staff development and inservice training, special education,
capital improvements, and repair and maintenance of facilities.
Section H defines special requirements related to the contract
funds, including contract monitoring by Department of Defense
representatives, budgetary procedures, and use of funds.

During a September 1997 meeting with the Governor of Guam, the
former Deputy Assistant Secretary of Defense for Personnel
Support, Families and Education presented a check for $12.4
million to the Governor "to be used to benefit the Guam public
schools."  Subsequent to receiving the $12.4 million final
contract payment, the Governor of Guam and the Chairperson of the
Board of Education entered into an agreement on November 21,
1997, in which the final contract payment of $12.4 million was to
be used as shown in Table 1.  

Table 1.  Planned Uses of the Final Contract Payment

-------------------------------------------

Description                         Allotment  
-------------------------------------------
Textbooks                        $2,400,000
-------------------------------------------
Staff Development Training        1,500,000
-------------------------------------------
High School                       1,000,000
Bleachers/Playground Equipment
-------------------------------------------
Technology                        1,800,000
-------------------------------------------
School Buses                      2,532,000
-------------------------------------------
Dededo Middle School Library         68,000
-------------------------------------------
Infrastructure Support            1,900,000
-------------------------------------------
Astumbo Recreational Facility
                                 1,200,000
-------------------------------------------
          Total Final Contract  $12,400,000
Payment
-------------------------------------------

However, as discussed in the paragraphs that follow, the funds
were not used for the purposes described in the November 21,
1997, agreement.

Department of Defense Contract Fund

During fiscal years 1998 and 1999 (through December 31, 1998),
the Contract Office had revenues totaling $22 million (including
the $12.4 million final contract payment), expenditures totaling
$7.7 million, and transfers to other Government funds totaling
$14.2 million.  According to Contract Office records, a total of
1,990 transactions were processed during this period.  We
selected a judgmental sample of 51 transactions, totaling $7.9
million (expenditures of $1.8 million and transfers of $6.1
million), for testing to determine whether the Contract Office
had complied with contract provisions.  We determined that
Contract Office expenditures were made for the purposes specified
by the contract.  However, the amounts transferred to other
Government funds were not used in compliance with the contract or
in a timely manner.

Public Service Recovery Fund

Through Executive Order 98-12, on March 20, 1998, the Governor of
Guam established the Public Service Recovery Fund, which was to
be administered by the Department of Administration.  The
Executive Order stated that "the Governor has been relieved of
all financial and contractual responsibilities to the Department
of Defense under the agreement and is solely responsible for
determining the utilization of the remaining unexpended and
unobligated funds."  The Executive Order also stated that
"various agencies of the government of Guam have expended
significant amounts of their own funding in support of the
educational system, without reimbursement, and . . . budget
resources to these agencies have been severely compromised by the
effects of recent disasters and diminishing revenue streams from
lower business, resident, and visitor spending."  The Executive
Order further stated that "expenditures from the Public Service
Recovery Fund shall be expended for the following purposes:
equipment and contracts directly related to public service;
facilities and infrastructure repair, improvement and development
for the public's use and benefit; and reimbursement to autonomous
agencies."

On March 31, 1998, the Department of Administration transferred
$7.5 million from the Department of Defense Contract Fund to the
Public Service Recovery Fund and then used these monies to
reimburse the Department of Public Works and the Guam Waterworks
Authority for noneducation expenses incurred by those agencies.
According to documents provided by the Contract Office
Administrator, the transfers were made based on the Government's
understanding that the requirements of the contract had lapsed
when the contract was terminated.  As a result, the Government of
Guam used $5.4 million ($4.3 million expended and $1.1 million
encumbered) and may use the remaining $802,810 in the Public
Service Recovery Fund for noneducation purposes.

The Contract Office Administrator stated that the contract funds
were transferred to the Public Service Recovery Fund as a result
of the September 25, 1997, meeting between U.S. Department of
Defense and Government of Guam officials.  The Contract Office
Administrator's February 12, 1998, memorandum to the file on the
results of the September 25, 1997, meeting states, "Upon
presentation of the final check in the amount of $12,417,441.08
in September 1997 . . . the Deputy Assistant Secretary of Defense
commented to the Governor that the contract was not being
renewed."  The memorandum further stated that the Deputy
Assistant Secretary of Defense told the Governor that "the
expenditures of these funds were up to his [the Governor's]
discretion."  Based on this understanding, on February 18, 1998,
the Contract Office Administrator issued a memorandum to the
Director of the Department of Administration, informing him that
"since the DOD [Department of Defense] contract between DOD and
the Government of Guam has been terminated, it would be up to the
Governor to decide how the funds would best be used."  The
Administrator subsequently told us that she had not been informed
of how the funds were expended once they were transferred from
the Department of Defense Contract Fund to the Public Service
Recovery Fund.  However, in a February 20, 1999, telephone
conversation, which was confirmed in an April 23, 1999,
memorandum for the record, the former Deputy Assistant Secretary
of Defense for Personnel Support, Families and Education told us
that during the September 1997 meeting with the Governor of Guam,
she presented a check in the amount of $12.4 million to the
Governor and "stressed that the money was to be used to benefit
the Guam public schools."  (Emphasis added.)  In the memorandum,
the former Deputy Assistant Secretary also stated, "The Governor
discussed his desire to devote part of the moneys to enhance
technology in the schools.  He also discussed construction needs
and other equipment needs for the school system."  In the
memorandum, the former Deputy Assistant Secretary further stated
that "in February 1998, [an official of Guam's Contract Office]
called me to ask that I approve a list of items as appropriate
expenses for the schools of Guam.  I informed her that, with the
suspension of the contract, the Governor was charged with the
allocation of the moneys for the benefit of the public schools on
Guam."  (Emphasis added.)  Based on the Deputy Assistant
Secretary's statements, we believe that the Department of Defense
clearly intended that the $12.4 million be used for educational
purposes. Therefore, we concluded that the statements of
Government of Guam officials that contract funds could be used
for purposes other than educational was not supported.

Department of Administration records showed that, as of December
31, 1998, the Public Service Recovery Fund had revenues totaling
$8 million (the $7.5 million transfer from the Department of
Defense Contract Fund plus earned interest of $482,028),
expenditures and transfers out totaling $6.1 million, and
unexpended funds totaling $1.9 million.  We found that the $6.1
million was used for operating expenses of the Department of
Public Works ($3.3 million), transfers to the Guam Waterworks
Authority ($1 million), and transfers to the Department of
Education ($1.8 million).

Department of Public Works.  The $3.3 million expended for
operating expenses of the Department of Public Works was used for
asphalt mix for road construction and repair ($2.5 million), fuel
charges ($1,550), construction of a community gymnasium
($56,237), salaries of employees of Public Works Highway Division
($726,959), and the rental of dump trucks ($43,740).  In our
opinion, none of these expenses directly benefited the Guam
public schools, as required by the contract, and therefore were
unallowable costs.

Guam Waterworks Authority.  The $1 million transferred to the
Guam Waterworks Authority was used to reimburse the Authority for
costs it incurred for routine operations.  According to the
Authority's Director, the Authority needed the funds because of
shortfalls in local revenues and to recover costs incurred by
purchasing water from the U.S. Navy water system at a higher cost
than what the Authority was able to bill its customers.  However,
the Contract Office Administrator stated that the Authority's
original claim for reimbursement was to recover the costs,
totaling $815,972, of extending waterlines at nine public
schools.  The Contract Office Administrator added that she had
not been aware that the Authority was paid $1 million to recover
costs incurred in buying water.  The Department of
Administration's Federal Grants Supervisor, who authorized the
transfer of the $1 million to the Guam Waterworks Authority,
stated that she requested that the Authority submit other
documents to support its reimbursement claim because the Guam
General Fund had incurred the cost of extending the waterlines at
the public schools.  In our opinion, the $1 million transferred
to the Guam Waterworks Authority was an unallowable cost because
it was not used to reimburse the General Fund for the cost of
services provided to Guam's public schools.

Department of Education.  Of the $1.8 million transferred from
the Public Service Recovery Fund to the Department of Education
for "technology" purposes, only $4,075 was not used for
educational purposes in accordance with the contract provisions.

Department of Education General Fund

On December 12, 1997, subsequent to the Department of Education's
November 21, 1997, agreement with the Governor, the Department of
Administration transferred $4.9 million of the $12.4 million
final contract payment to the Department of Education General
Fund to be used for "textbooks, staff development training, and
high school bleachers/playground equipment."  On May 12, 1998,
the Department of Administration transferred an additional $1.8
million from the Public Service Recovery Fund to the Department
of Education to be used for "technology."

According to Department of Education records, as of December 31,
1998, about $2.9 million was expended and $348,688 was encumbered
(obligated) in four of the eight categories listed in the
November 1997 agreement, as shown in Table 2.


Table 2.  Status of Contract Funds Transferred to the Department
of Education General Fund as of December 31, 1998

-----------------------------------------------------------------
Nov.    Transfers
1997       to        Expenditures Encumbrances
Description                                                      
Balances  
Agreement  Education   
-----------------------------------------------------------------
Textbooks          $2,400,000 $2,400,000 $2,400,000    0        0
-----------------------------------------------------------------
Staff Development     1,500,000  1,500,000            0$1,454,563
Training                                                   45,437
-----------------------------------------------------------------
High School
Bleachers/Playground
Equipment             1,000,000  1,000,000               $348,688
                                   359,923                291,389
-----------------------------------------------------------------
Technology         1,800,000*  1,800,000**                      0
                                 58,595                 1,741,405
-----------------------------------------------------------------
School Buses         2,532,000*          0                      0
                                         0                      0
-----------------------------------------------------------------
Dededo Middle
School    Library                        0                      0
68,000*               0                      0
-----------------------------------------------------------------
Infrastructure       1,900,000*          0                      0
Support                                  0                      0
-----------------------------------------------------------------
Astumbo
Recreational
Facility           1,200,000* 0          0          0           0
-----------------------------------------------------------------
Total Final      $12,400,000  $6,700,000  $2,863,955    $348,688
$3,487,357
Payment
-----------------------------------------------------------------

*These five amounts, which totaled $7.5 million, were transferred
on March 31, 1998, to the Public Service Recovery Fund instead of
to the Department of Education General Fund.

**The $1.8 million was subsequently transferred from the Public
Service Recovery Fund to the Department of Education General
Fund.


Of the 277 transactions related to the expenditures of about $2.9
million, we selected a judgmental sample of 30 transactions,
totaling $1.3 million, for testing to determine whether the
Department of Education had used the funds as provided for in the
Department of Defense contract and the agreement with the
Governor of Guam.  We found that only 2 transactions, totaling
$35,075, of the 30 tested were not for purposes intended by the
contract and the subsequent agreement.  One expenditure of
$31,000 was for a noncontract-related off-island trip, and the
other expenditure of $4,075 was for expenses of other Government
agencies. According to the former Deputy Controller of the
Department of Education, the former Director of Education had
approved the use of contract funds in these two instances because
the Department did not have other financial resources available
to pay for these activities.  The former Deputy Controller also
stated that because of the Department's shortage of cash for
payroll and other critical operating costs, the Department used
contract funds to relieve temporary cash flow shortages.

We also found that, as of December 31, 1998, the Department of
Education had controlled $4.9 million for more than 12 months and
$1.8 million for more than 7 months but had expended only $2.9
million of the available contract funds.  Of the remaining $3.8
million, about $349,000 had been obligated and $3.5 million was
available for contract-related educational expenses.  The former
Deputy Controller stated that, as of April 2, 1999, the
Department of Education had not developed a detailed plan for
using the remaining $3.5 million other than for the general
categories specified in the November 1997 agreement.  On June 21,
1999, the Acting Director of Education stated, "In general, there
is a continuing need for staff development training, supplies and
equipment, and technology throughout the Department of
Education."  In our opinion, the Department of Education should
develop plans and monitoring procedures to ensure that the
available contract funds of $3.5 million in the Department's
General Fund are used promptly to achieve the purposes for which
they were allotted, as defined in the November 1997 agreement
with the Governor of Guam.

Recommendations

We recommend that the Governor of Guam:

1.  Instruct the Director of the Department of Administration to
reimburse the Department of Defense Contract Fund for the $4.3
million expended and the $1.1 million obligated for
noneducational purposes and for the interest of $482,028 earned
on these funds while in the Public Service Recovery Fund and to
use the funds only for the educational purposes defined in the
Department of Defense contract.

2.  Instruct the Director of the Department of Education to
reimburse the Department of Defense account in the Department of
Education General Fund for the $35,075 used for noneducational
purposes.

3.  Instruct the Director of the Department of Education to
establish controls to prohibit the Department from using
Department of Defense contract funds for routine Department of
Education operations when regular operating funds are not
available because of cash flow shortages.

4.  Instruct the Director of the Department of Education to
develop and implement plans and a monitoring process for the
timely use of the remaining $3.5 million of Department of Defense
contract funds.


**FOOTNOTES**

[1]:During the period of October 1993 to October 1998, the Deputy
Assistant Secretary of Defense for Personnel Support, Families
and Education was responsible for Department of Defense education
activities; morale, welfare, and recreation programs; adult and
continuing education programs; and family programs.  In November
1998, the Deputy Assistant Secretary of Defense was appointed to
the position of Assistant Secretary of the Navy for Manpower and
Reserve Affairs.

Governor of Guam Response and Office of Inspector General Reply

The October 15, 1999, response (Appendix 2) to the draft report
from the Governor stated that  "the Government of Guam is
compelled to dispute the Draft Audit findings and disagree with
all of the recommendations.  Furthermore, the Government of Guam
does not intend to make any changes in the disposition of funds."
Therefore, we consider the four recommendations unresolved (see
Appendix 5).  

The response further stated that "it was made clear" that as of
September 1, 1997, the Governor had "no further obligation to
provide educational services" to Department of Defense students.
The response further stated that "[i]t was also clearly
understood that the contract that had been entered into between
the Government of Guam and the Department of Defense to provide
educational services was simply that, a contract to provide
educational services for which the Government of Guam would
receive a dollar amount per student."  Further, the response
stated that "[t]his was simply a service that DOD [Department of
Defense] agreed to pay for, and a service that was delivered
fully and faithfully by the Government of Guam until the contract
concluded on September 1, 1997."

In addition, the response stated that "a recent review of this
contract by the Attorney General of Guam concurs and supports my
position."  The response also stated that in a letter dated
September 20, 1999 (Appendix 3), the Guam Attorney General had
requested that our office provide the "legal basis" for the
conclusions contained in our draft report.   The Attorney General
stated in his letter that "there is no prospective language in
the contract that would allow it to be used to evaluate the use
of any money transferred . . . subsequent to September 1, 1997."
Further, the Governor's response stated, "Finally, I again
reiterate that the $12.4 million was in fact, spent on
education."

As indicated in our response (Appendix 4) to the Attorney
General's letter, we believe, based on the contract provisions
and statements made by a Department of Defense official, that the
$22 million (including the final $12.4 million payment) available
pursuant to the contract was to be used exclusively for
educational purposes.  However, as shown in our report, the money
was not used exclusively for this purpose.  Therefore, because
there is a significant difference of opinion regarding how the
$22 million (including the final $12.4 million payment) should
have been used, we will refer the report to the Contracting
Officer of the Department of Defense for a determination on the
allowability of the questioned costs of $5.4 million and for
resolution of the matter.

Section 5(a) of the Inspector General Act (Public Law 95-452, as
amended) requires the Office of Inspector General to list this
report in its semiannual report to the U.S. Congress.  In
addition, the Office of Inspector General provides audit reports
to the Congress.  

In view of the above, please provide a response to this report by
February 18, 2000.  The response should be addressed  to the
Inspector General of the Department of Defense, and a  copy
should  be  provided  to  our  Pacific  Office,  415  Chalan  San
Antonio,  Suite  306, Tamuning, Guam 96911.  The response should
provide the information requested in Appendix 5.

                                       Sincerely,

                                       Earl E. Devaney
                                       Inspector General


cc: Acting Director, Department of Education


APPENDIX 1

CLASSIFICATION OF MONETARY AMOUNTS

Questioned Funds To Be Put
Finding Area                          Costs*       To Better Use*

Public Service Recovery Fund           $5,396,659  $802,810
Department of Education General Fund       35,075 3,487,357

Total                                 $5,431,734  $4,290,167

*Amounts represent Federal funds.

APPENDIX 2
Page 1 of 3


INSERT GOVERNOR OF GUAM'S RESPONSE


APPENDIX 3
Page 1 of 2


INSERT LETTER FROM THE GUAM ATTORNEY GENERAL

APPENDIX 4
Page 1 of 4


INSERT OIG'S RESPONSE TO THE GUAM ATTORNEY GENERAL
(NOTE: ** This letter is still in legal review and hasn't been
issued yet **)

APPENDIX 5


STATUS OF AUDIT REPORT RECOMMENDATIONS

--------------------------------------------------
Finding/Recommendation

Reference            Status      Action Required   

1, 2, 3, and 4   Unresolved.Provide a response to the Contracting
Officer of the Department of Defense, with a copy of the response
to our Pacific Office.  The response should include a rationale
for the Government of Guam's nonconcurrence with the 
recommendations.
---------------------------------------------------





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