[Audit Report "Grant for Hazard Mitigation Projects, Virgin Islands Police Department, Government of the Virgin Islands"]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 2003-I-0031

Title: Audit Report "Grant for Hazard Mitigation Projects, Virgin
       Islands Police Department, Government of the Virgin Islands"

  
Date:  March 31, 2003

Honorable Governor Charles W. Turnbull
Governor of the Virgin Islands
No. 21 Kongens Gade
Charlotte Amalie, Virgin Islands 00802

Subject:  Audit Report "Grant for Hazard Mitigation Projects, Virgin Islands Police Department, Government of the Virgin Islands" (No. 2003-I-0031)

Dear Governor Turnbull:

This report presents the results of our audit of a $1.85 million grant from the Department of the Interior for hazard mitigation projects administered by the Virgin Islands Police Department.

Section 5(a) of the Inspector General Act (5 U.S.C. app. 3) 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 Congress.

Please provide a response to this report by May 21, 2003.  The response should provide the information requested in Appendix 4 and should be addressed to Mr. Roger La Rouche, Assistant Inspector General for Audits, Office of Inspector General, U.S. Department of the Interior, 1849 C Street, NW (MS-5341),  Washington, DC 20240; with a copy to our Caribbean Field Office,
Federal Building - Room 207, St. Thomas, VI 00802.

Sincerely,


William J. Dolan, Jr.
Regional Audit Manager

cc:  Police Commissioner
Director of Management and Budget



March 31, 2003

Memorandum

To:    David Cohen
       Deputy Assistant Secretary for Insular Affairs

From:  William J. Dolan, Jr.
       Eastern Regional Audit Manager

Subject:  Final Audit Report "Grant for Hazard Mitigation Projects, Virgin Islands Police Department, Government of the Virgin Islands" (No. 2003-I-0031)

The Office of Inspector General has completed an audit of the costs incurred by the Government of the Virgin Islands under a $1.85 million grant for hazard mitigation projects from
the Office of Insular Affairs.  The grant was accepted by the Governor of the Virgin Islands in January 1995, and was administered by the Virgin Islands Police Department.  By June 30, 2001, the Virgin Islands had spent grant funds of $1.38 million.  The remaining $470,000 was deobligated by the Office of Insular Affairs and reprogrammed for use by the Virgin Islands Department of Health.

The audit did not identify any unauthorized use of grant funds.  In addition, the audit discusses three areas of noncompliance by the Virgin Islands with administrative requirements pertaining to reconciling grant accounts, processing requests for grant  reimbursements, and documenting noncompetitive procurements.

We made four recommendations to the Governor of the Virgin Islands to address the noncompliance issues.  We received a response from the Commissioner of Police, which generally
agreed with the recommendations.  However, we did not receive a response to two of the recommendations related to the Virgin Islands Office of Management and Budget.

A response to this memorandum is not required. If you or your staff have any questions about the report, please contact me at (703) 487-8011.


CONTENTS

INTRODUCTION   

Background . . . . . . . . . . . . . . . . . . . . . . . . . .  1
Objective and Scope  . . . . . . . . . . . . . . . . . . . . .  1
Prior Audit Coverage . . . . . . . . . . . . . . . . . . . . .  2


RESULTS OF AUDIT

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
Financial Accountability . . . . . . . . . . . . . . . . . . .  3
Contract Administration. . . . . . . . . . . . . . . . . . . .  8


RECOMMENDATIONS. . . . . . . . . . . . . . . . . . . . . . . . 10

APPENDICES

1. Monetary Impact . . . . . . . . . . . . . . . . . . . . . . 11
2. Prior Audit Report. . . . . . . . . . . . . . . . . . . . . 12
3. Response to Draft Report. . . . . . . . . . . . . . . . . . 13
4. Status of Recommendations . . . . . . . . . . . . . . . . . 14


INTRODUCTION   


BACKGROUND     

The Virgin Islands Police Department was established in accordance with the Virgin Islands Code (3 V.I.C. Chapter 15) to (1) exercise general control over the enforcement of laws relating to public safety; (2) protect life and property; (3) ensure a safe, secure environment for the citizens of the
Virgin Islands; and (4) administer the licensing of drivers and registration of motor vehicles.

In January 1995, the Office of Territorial and International Affairs (now the Office of Insular Affairs) awarded a grant of $1.85 million to the Government of the Virgin Islands for hazard
mitigation projects.  The funds were awarded to provide the Virgin Islands Police Department with essential emergency communication capabilities in the event of a disaster.  The approved spending plan for the grant allowed the Police Department to purchase communications base sites, portable
radios and accessories, telephone interconnects, backup control stations, and five police vehicles.  Of the $1.85 million grant, approximately $1.38 million was expended and $470,000  was
deobligated.

The Virgin Islands Office of Management and Budget was the single point of contact between the Office of Insular Affairs and the Government of the Virgin Islands.  The Police Department was
responsible for maintaining supporting documentation for grant expenditures and for preparing drawdown requests, financial status reports, and other required reports for submission to the Office of Insular Affairs through the Office of Management and Budget.


OBJECTIVE AND SCOPE

The objective of the audit was to determine whether (1) the Police Department complied with grant terms and applicable laws and regulations; (2) charges made against grant funds were reasonable, allowable, and allocable; (3) contracts were awarded competitively and administered in accordance with applicable laws and regulations; and (4) funds received through electronic transfers were appropriately deposited and accounted for in the financial management system.  The scope of the audit included a review of grant-related transactions that occurred and policies and procedures in effect during fiscal years 1995 to 2001.

To accomplish our audit objective, we interviewed officials and reviewed grant-related records at the Police Department on St. Croix, and at the Office of Management and Budget and the
Department of Finance on St. Thomas.  We also made site visits to verify hazard mitigation
purchases on St. Croix and St. Thomas.

Our audit was conducted 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.  The "Standards" require that we obtain sufficient, competent, and relevant evidence to afford a reasonable basis for
our findings and conclusions. 

As part of our audit, we evaluated the internal controls related to the accountability of grant funds and the awarding of contracts to the extent we considered necessary to accomplish the audit objective.  Internal control weaknesses were identified in the areas of financial accountability and contract administration.  These deficiencies are discussed in the Results of Audit section of this report.  The recommendations, if implemented, should improve the internal controls in these areas.


PRIOR AUDIT COVERAGE

In February 2002, the Office of Inspector General issued the audit report "Administrative Functions, Virgin Islands Police Department, Government of the Virgin Islands."  Deficiencies identified in the report related to property management and grant management at the Police Department, management of confidential funds at the Narcotics Strike Force, and grant management at the Law Enforcement Planning Commission  (see Appendix 2).

RESULTS OF AUDIT

OVERVIEW

The Police Department used hazard mitigation funds for approved grant purposes, generally complied with grant terms and applicable laws and regulations, and ensured that charges against
Grant funds were allowable and allocable.  However, internal control weaknesses were identified in the areas of financial accountability and contract administration, as follows:

Although the Police Department reconciled its grant-related records to the financial management system at the Department of Finance, it did not reconcile to grant records at the Office of Insular Affairs.  As a result, the available grant balances shown in the Police Department's internal records and the financial management system were incorrect.

Grant funds totaling $467,765 remained unused for an excessive period of time, and the Virgin Islands Office of Management and Budget did not communicate the reasons for the delays to the Office of Insular Affairs.  As a result, the Office of Insular Affairs deobligated the $467,765 and reprogrammed the funds for projects at the Department of Health.

Reimbursement requests totaling $408,000 were submitted up to 16 months after local funds had been expended.

Five police vehicles costing $110,000 were purchased with grant funds without the benefit of competition.  
FINANCIAL ACCOUNTABILITY

The Police Department and the Virgin Islands Office of Management and Budget did not maintain adequate financial accountability over hazard mitigation grant funds.  As a result, grant funds
totaling $467,765 were deobligated by the Office of Insular Affairs and local accounts were not timely reimbursed for grant-related expenditures totaling $408,000.

Grant-Related Accounting Records Were Not Adequately Reconciled

Although the Police Department maintained records to support the drawdown of grant funds, records at the Police Department and the Department of Finance were not adequately reconciled to the grant
accounting records at the Office of Insular Affairs.  As a result, errors in the Police and Finance records were not detected.  Specifically, we found that:  

- The Police Department's records for the hazard mitigation grant showed an available balance of $283,983 as of June 5, 2001.  However, when the Police Department attempted to make a final payment to the main communications contractor, it found that, according to the financial management system, the account had a zero balance.  Therefore, the Police Department paid the communications contractor's invoice from a local account in the Emergency Services Fund.

- A grant expenditure report from the financial management system and the Police Department's records both indicated that a particular vendor payment of $3,600 had been made from
the hazard mitigation grant account.  However, our review of the cancelled check showed that the $3,600 payment had been made from a local account.  The Police Department was unaware of the
change in the funding source for this payment.

- Further, although the Police Department's grant records and the financial management system showed that two other payments, of $177,382 and $2,800, had been made from the hazard
mitigation grant account, the cancelled checks showed that these amounts also had been paid from a local account.  Records at both the Police Department and the Office of Management and Budget
showed that a drawdown request had been prepared to reimburse the local account from grant funds. 

However, the drawdown request was never submitted to the Office of Insular Affairs for processing.

Therefore, a total of $467,765 was incorrectly shown as having been expended from grant funds in both the Police Department's accounting records and the financial management system.  That
amount, however, was shown in Office of Insular Affairs' records as still being available for use. 

If the grant accounting records at the Police Department and the financial management system had been reconciled to the records of the Office of Insular Affairs, Police officials would have detected the errors and been able to correct them accordingly.

The Police Department should establish and implement policies and procedures to ensure that accounting records for future grants are reconciled on a monthly basis to the Department of
Finance's financial management system and the grantor agencies' grant accounting records.

Unused Grant Funds Totaling $467,765 Were Deobligated by the Grantor Agency

The Grants Manager at the Office of Insular Affairs told us that in June 2001 the Office deobligated the unused balance of $467,765 in the hazard mitigation grant account and reprogrammed it for use by the Department of Health.  This action was taken because of delays by the Police Department in using the remaining grant funds.  According to the Grants Manager, the decision to deobligate the $467,765 balance was made after several telephone calls were made and letters were written to the Office of Management and Budget requesting that the remaining grant balance be used as quickly as possible for approved grant purposes.  For example, in a March 30, 2001 letter to the Office of Management and Budget regarding the spending of hazard mitigation grant funds, the Grants

Manager stated:

. . . as I have been saying for a long time, it is important that these grant projects get back on track and that the money gets used.

In a June 25, 2001 followup letter to the Office of Management and Budget, the Grants Manager stated:

. . . as we agreed . . . , I have deobligated the balances from the anti-crime grant, the anti-drug grant, the prison grant, and the hazard mitigation grant." (Emphasis in original.)

Despite this notification to the Office of Management and Budget, Police Department officials were not notified that the unused grant balance of $467,765 was in danger of being deobligated.  During our audit we informed them that this had already occurred.

According to the Police Department's Director of Fiscal and Property, delays in using the grant funds were related to delays in contracting for and constructing concrete bunkers that would protect the sensitive communications equipment from vandalism, theft, and hurricanes.  The contract for construction of the bunkers went through the Government's competitive procurement process.  The bunkers then had to be fabricated at a central location and moved to the remote locations where the
communications equipment was to be installed (see Figures 1 and 

2).  Bunkers were installed at three locations on St. Croix:  Recovery Hill, Christiansted; St. George's Hill, Frederiksted; and the Patrick Sweeney Police Headquarters, Orange Grove.  The communications contractor could not install the communications equipment until the bunkers had been constructed and moved to their permanent locations, and the Police Department could not use the remaining grant funds until the communications contractor completed the installation.  However, this was never communicated to the Office of Insular Affairs.  The Grants Manager at the Office of Insular Affairs told us that no one at the Office of Management and Budget explained to her the reasons for the delays in using the final $467,765 of grant funds.  She said that more effective communication between the two offices could have resulted in the Police Department being given more time to use the remaining grant balance.

Accordingly, the Office of Management and Budget should establish and implement policies and procedures to ensure that open lines of communication on the status of future grant projects are
maintained among the local grantee agency (in this case the Police Department), the Office of Management and Budget, and the Office of Insular Affairs.

Reimbursement Requests for Local Expenditures Totaling $408,000 Were Delayed by as Long as 16 Months

The Code of Federal Regulations (31 CFR 205.7) requires grantees to establish a financial management system that includes procedures to minimize the time elapsed between the transfer of
funds from the U.S. Treasury and disbursement of the funds by the grantee.  However, under the reimbursement method, "A State shall request funds only after it has paid out its own funds for
program purposes, and a Federal agency shall deposit funds in a State account the next business day after receiving a request for funds."

The Police Department was under the reimbursement method of funding for the hazard mitigation grant, whereby local funds were expended prior to requesting reimbursement drawdowns from the
Office of Insular Affairs.  However, we found that drawdown requests were not timely and, therefore, were not made in the best interest of the Government of the Virgin Islands.  Of the
$1.38 million drawn down by the Police Department during the period of 1996 to 2001, $408,000 was requested an average of eight months after local funds had been expended.  One drawdown was made 16 months after local funds had been expended.  For example:

- In October 2000, the Police Department requested reimbursement for $193,669 that had been expended from local funds about 16 months earlier.
                   
- Also in October 2000, the Police Department requested reimbursement for $32,650 that had been expended from local funds about 14 months earlier.

- In July 2001, the Police Department requested reimbursement for $48,960 that had been expended from local funds about 6.5 months earlier.

- In August 1996, the Police Department requested reimbursement for $110,000 that had been expended from local funds about 2.5 months earlier.

The Police Department official responsible for preparing drawdown requests told us that, initially, he was not aware that he had to prepare drawdown requests for reimbursement.  He was under the
impression that the funds were "sitting in an account" in the Virgin Islands and the transfers would be made automatically once the checks for payments to contractors were prepared by the Department of Finance.  He said that he started preparing the drawdown requests after the Senior Grants Analyst
at the Office of Management and Budget informed him that he needed to prepare them.  However, even then, we found that reimbursement requests were sometimes delayed.  The Police official stated that these delays occurred because there was lag time between the date when payments to vendors were disbursed by the Department of Finance and the date when he received  notification of such disbursements.

Although the Code of Federal Regulations did not provide a specific time period for reimbursement requests, we believe that prudent business practice would dictate that a minimal amount of time be allowed to transpire between the date of disbursement of local funds and the date of reimbursement from Federal grant funds.  For this reason, we believe that the Virgin Islands Office of Management and Budget should establish and implement policies and procedures that require local Government
agencies to request grant reimbursements no later than one week after local funds are expended.

CONTRACT ADMINISTRATION

The Code of Federal Regulations (43 CFR 12.76) allows a state to follow the same policies and procedures it uses for procurement of its non-Federal funds when procuring property and services
under a grant, provided the policies and procedures conform to applicable Federal laws and regulations.  The Virgin Islands Code (31 V.I.C. Chapter 23) contains the procurement requirements
to ensure that all Government purchases and contracts for supplies, materials, equipment, and contractual services are based on competitive bids.

In most instances, the Police Department (through the Department of Property and Procurement) awarded grant-related contracts competitively and administered them in accordance with applicable
laws and regulations.  Competitive bidding requirements were followed in the selection of the communications contractor and the contractor who constructed the concrete communications
bunkers.  

However, in 1996, the Police Department did not use competitive bidding to purchase five motor vehicles that were approved under the grant by the Office of Insular Affairs.  The five vehicles were purchased on a sole source basis from a local automobile dealer at a total cost of $110,000.  We found no documentation in the procurement or grant files that competitive bidding was  utilized in this instance.  The only document in the files supporting the purchase of the vehicles was an April
1996 price quotation provided by the local automobile dealer.  This price quotation was also used as the invoice for payment purposes.  

We asked the official responsible for procurement activities at the Police Department about the use of noncompetitive procurement.  The official said that competitive bids were not obtained because the vehicles were needed as quickly as possible.  The Virgin Islands Code has specific exemptions from competitive procurement, along with specific documentation requirements that must be followed  for each type of exemption. However, these documentation requirements were not complied with.

The Police Department should ensure that existing laws, regulations, policies, and procedures regarding the use of competitive procurement are followed.  In doing so, the Government would more likely obtain the best possible product or service at the best possible price.


RECOMMENDATIONS


TO THE GOVERNOR OF THE VIRGIN ISLANDS

We recommend that the Governor of the Virgin Islands direct the Commissioner of Police to:

1.  Establish and implement policies and procedures to ensure that internal accounting records for future grants are reconciled on a monthly basis to the Department of Finance's financial
management system and the grantor agencies' grant accounting records.

2.  Ensure that existing laws, regulations, policies, and procedures regarding the use of competitive procurement are followed, so that the Government obtains the best possible product or service at the best possible price.

We recommend that the Governor of the Virgin Islands direct the Director of Management and Budget to:

3.  Establish and implement policies and procedures  to ensure that open lines of communication on the status of future grant projects are maintained among the local grantee agency,
the Office of Management and Budget, and the Office of Insular Affairs or other Federal grantor agency.

     4.   Establish and implement policies and procedures to ensure that local Government agencies request grant reimbursements for future grants no later than one week after local funds have been expended for grant purposes.


AUDITEE RESPONSE

The November 29, 2002 response (Appendix 3) to the draft report from the Police Commissioner expressed concurrence with the recommendations.  However, the response did not provide target
dates for implementation of corrective actions.  Additionally, we did not receive a response from the Office of Management and Budget with regard to Recommendations 3 and 4.  Therefore, we have requested additional information concerning a corrective action plan (see Appendix 4).


APPENDIX 1 - MONETARY IMPACT

FINDING AREA

Financial Accountability: Deobligated Funds - Total Funds To Be Put To Better Use $467,765* Amount represents Federal funds.

APPENDIX 2 - PRIOR AUDIT REPORT

OFFICE OF INSPECTOR GENERAL REPORT

The February 2002 audit report "Administrative Functions, Virgin Islands Police Department, Government of the Virgin Islands" (No.  2002-I-0010) stated that the Police Department did not have
adequate physical control over police firearms and evidentiary material and accounting control over Federal grants; the Narcotics Strike Force used funds from a confidential account for purposes that were of a questionable value to undercover work; and the Law Enforcement Planning Commission did not adequately manage Federal grants.  Our current audit disclosed that deficiencies related to the management of Federal funds existed with regard to the hazard mitigation grant.

APPENDIX 3 - RESPONSE TO DRAFT REPORT

Not included in text version.

APPENDIX 4 - STATUS OF RECOMMENDATIONS

Management concurs; additional information required.
     
For each of the four recommendations, provide a corrective action plan that includes the target date and title of the official responsible for implementation.