[Audit Report "Grant for Hurricane Recovery Projects, Government of the Virgin Islands"]
[From the U.S. Government Printing Office, www.gpo.gov]
Report No. 2003-I-0032
Title: Audit Report "Grant for Hurricane Recovery Projects, Government
of the Virgin Islands"
Date: March 31, 2003
**********DISCLAIMER**********
This file contains an ASCII representation of an OIG report. No attempt has been made to display graphic images or illustrations. Some tables may be included, but may not resemble those in the printed version. A printed copy of this report may be obtained by referring to the PDF file or by calling the Office of Inspector General, Division of Acquisition and Management Operations at (202) 219-3841.
******************************
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 Hurricane Recovery Projects, Government of the Virgin Islands" (No. 2003-I-0032)
Dear Governor Turnbull:
This report presents the results of our audit of a $4.46 million grant from the Department of the Interior for hurricane recovery projects administered by the Government of the Virgin Islands.
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 the Congress.
Please provide a response to this report by April 30, 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: Commissioner of Finance
Director of Internal Revenue
Director of Management and Budget
Commissioner of Property and Procurement
March 31, 2003
Memorandum
To: David Cohen
Deputy Assistant Secretary for Insular Affairs
From: William J. Dolan, Jr., Regional Audit Manager
Subject: Final Audit Report "Grant for Hurricane Recovery Projects, Government of the Virgin Islands" (No. 2003-I-0032)
The Office of Inspector General has completed an audit of the costs incurred by the Government of the Virgin Islands under a $4.46 million grant awarded by the Office of Insular Affairs in fiscal year 1996 for hurricane recovery projects. The grant was administered by the Virgin Islands Office of Management and Budget, with expenditures being incurred by the Department of Finance, the Bureau of Internal Revenue, and the Department of Property and Procurement. By January 2001, the Virgin Islands had expended the entire $4.46 million.
The audit identifies questioned costs of $1,012,323 consisting of $756,166 that was not supported by expenditure records, $208,800 for transporting vessels donated for hurricane relief which were not used for grant-supported activities, $35,662 in overpayments to contractors, and $11,695 in duplicate charges. In addition, the audit discusses areas of noncompliance with administrative requirements pertaining to maintaining property management records for grant-funded equipment, maintaining supporting documents for grant expenditures, submitting financial and narrative progress reports, managing professional service contractors, and recording grant-related financial transactions.
We made ten recommendations to the Governor of the Virgin Islands to address the noncompliance issues. We received responses from the Commissioner of Finance, the Director of Internal Revenue, and the Commissioner of Property and Procurement, which generally agreed with six of the recommendations. However, we did not receive a response to the other four recommendations, which related primarily to the Office of Management and Budget.
Please advise us of the final disposition of the questioned costs contained in this report by June 27, 2003. 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
Property Management 4
Financial Accountability 9
RECOMMENDATIONS 14
APPENDICES
Not included in text version.
INTRODUCTION
BACKGROUND
In 1996, the U.S. Department of the Interior's Office of Insular Affairs awarded a grant of $4.46 million to assist the Government of the Virgin Islands with its financial management of disaster recovery efforts following Hurricane Marilyn in September 1995. The hurricane recovery projects included financial management improvements at the Department of Finance; the acquisition, implementation, and improvement of computer systems at the Bureau of Internal Revenue; intra-island support for Water Island; and technical assistance for the Office of Management and Budget. The grant was administered through the Office of Management and Budget.
As of January 2001, the entire $4.46 million had been expended and the grant was closed out. The Department of Finance used $3 million to develop a Government wide area network and an automated cash receipts system. The Bureau of Internal Revenue used $1.09 million to upgrade its computer system. The Government of the Virgin Islands used $399,500 ($348,000 from the Office of Insular Affairs grant and $51,500 from the Indirect Cost Fund) to transport surplus boats and motor vehicles acquired from the U.S. Army Corps of Engineers (through the U.S. General Services Administration) to the Virgin Islands. The Office of Management and Budget used $20,000 for its personnel to attend a conference and workshop on strategic planning.
OBJECTIVE AND SCOPE
The objective of the audit was to determine whether (1) the Government 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 during fiscal years 1996 through 2001, and other periods as appropriate.
To accomplish our audit objective, we interviewed officials and reviewed grant-related records at the Departments of Finance, Property and Procurement, Licensing and Consumer Affairs, and Public Works, and at the Bureau of Internal Revenue and the Office of Management and Budget. Further, we compiled a list of 1,642 nonexpendable equipment items purchased with grant funds by the Department of Finance, the Bureau of Internal Revenue, and the Office of Management and Budget during fiscal years 1996 through 1998, 2000, and 2001.
We performed a limited review of the control of nonexpendable equipment items at the Bureau of Internal Revenue because the Office of Inspector General conducted a related audit on the acquisition and control of computers at the Bureau in December 1998. The results of that audit are discussed in Appendix 2 of this report.
The scope of our review was also limited because Government officials were unable to provide us with supporting documents for expenditures totaling $756,166 that were included in Financial Status Reports submitted to the Office of Insular Affairs. As a result, we were unable to review these charges against the grant to determine whether they were reasonable, allowable, and allocable. We therefore classified these expenditures as unsupported costs.
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 property management and the accountability for grant funds to the extent we considered necessary to accomplish the audit objective. Internal control weaknesses identified in these areas 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 March 1999, the Office of Inspector General issued the audit report "Acquisition and Control of Computers, Bureau of Internal Revenue, Government of the Virgin Islands" (see Appendix 2).
RESULTS OF AUDIT
OVERVIEW
The Government of the Virgin Islands did not effectively manage property purchased or received for financial management improvements and disaster recovery efforts and did not maintain adequate financial accountability for the Office of Insular Affairs grant. Specifically:
? Records were not maintained to document how equipment items, valued at more than $1 million, that were purchased with grant funds were distributed to Government agencies. Therefore, we could not determine the location of many of these items.
? Costs of $208,800 relating to the transport of donated property were questioned because the property was not used for a grant-supported activity. In addition, existing guidelines for the use of surplus property donated by the Federal Government were not followed.
? Costs of $756,166 were questioned representing expenditures reported on Financial Status Reports submitted to the Office of Insular Affairs for which there was no supporting documentation.
? Costs of $35,662 were questioned pertaining to excessive payments to contractors.
? Costs of $11,695 were questioned because they were duplicate charges.
? Financial and narrative reports either were not submitted or were submitted late to the Office of Insular Affairs.
? Required documents were missing from four of six contract files reviewed.
? Drawdowns were not recorded timely to the appropriate accounts in the Government's Financial Management System.
PROPERTY MANAGEMENT
The Government did not effectively manage property acquired for financial management improvements and disaster recovery efforts because (1) the distribution of nonexpendable equipment items costing more than $1 million was not documented, and (2) surplus vessels donated by the Federal government were not put to effective use.
Nonexpendable Equipment Items Costing More Than $1 Million Were Not Property Accounted For
The Code of Federal Regulations (43 CFR 12.72(b)) requires that States "use, manage, and dispose of equipment acquired under a grant by the State in accordance with State laws and procedures." In that regard, the Property Manual issued by the Department of Property and Procurement states, "The Accountable Officer, the Head of the Department or Agency shall establish prescribed accountability records for all property acquired or entrusted to him immediately upon receipt of documents evidencing the receipt of such property." Further, the Property Manual states, "The Property Officer of each Department or Agency shall conduct a complete physical inventory of all capitalized equipment at least once biennially."
A detailed inventory list for equipment purchased with Office of Insular Affairs grant funds was not available at the time of the audit. Therefore, we used procurement documents to reconstruct a list of 1,288 items (primarily computer equipment) purchased at a total cost of $1,067,566. Of these 1,288 equipment items, 1,137 items were purchased in fiscal years 1997 and 1998 for a Government wide area network and other purposes at a cost of $1,015,804. An additional 140 items were purchased in fiscal year 1997 for the automated cash receipts system at a cost of $34,670, and 11 computers were purchased in fiscal year 2000 at a cost of $17,092.
The 140 items purchased for the automated cash receipts system and the 11 computers purchased in fiscal year 2000 were properly accounted for. However, records were not available for us to determine the distribution to Government agencies of the 1,288 items purchased for the wide area network. Department of Finance and Office of Information Technology officials told us that such distribution records were prepared at the time of the purchases. However, those records could not be located at either agency. A Finance official also told us that most of the 355 personal computers (processors and monitors), valued at $501,300, were obsolete and not in use.
From the 1,288 items, we were unable to determine the location of a sample of 251 items that were presumably distributed to agencies other than the Department of Finance. Additionally, we were unable to locate 37 items valued at $28,582 at Finance. The missing items included an overhead projector, a digital camera, and five laser printers. We also noted that eight other items did not have Government property tags. At Finance's St. Thomas office, we found 13 surplus computer monitors, in their original boxes, that were being kept as spares and a number of unserviceable computers being stored until they could be disposed of.
At the October 23, 2002 exit conference on the preliminary draft of this report, Finance officials stated that, subsequent to our audit, the unserviceable computer equipment was disposed of in accordance with the Government's standard procedures. Additionally, Finance officials showed us a binder containing detailed property control records for computer equipment assigned to that department.
At the Bureau of Internal Revenue, we attempted to locate another sample of 352 equipment items that were purchased by the Bureau in fiscal years 1996, 1997, and 2001. A Bureau official informed us that 95 personal computers (processors and monitors), valued at $130,300, which had originally been distributed among the Bureau's St. Thomas and St. Croix branch offices, had either been donated to a local school, been placed in storage, or were simply obsolete and no longer used. Of 252 items that were at the Bureau's St. Thomas office, we were unable to locate two paper shredders and one data service/channel service unit, valued at $8,026. Additionally, we noted nine items that did not have Government property tags.
The Department of Finance, the Bureau of Internal Revenue, and the Office of Information Technology should determine the location and status of all equipment items purchased with Office of Insular Affairs grant funds and, if the items are no longer needed, have them declared excess property and either discarded (if they are not operational) or donated to local schools or other nonprofit organizations (if they are operational) using the procedures prescribed in the Department of Property and Procurement's Property Manual.
Surplus Vessels Donated by the Federal Government Were Not Put to Effective Use
In May 1997 and August 1998, the U.S. Army Corps of Engineers, through the General Services Administration, donated ten vessels (six transport barges, one water-producing barge, and three support boats) to the Government of the Virgin Islands. The Government paid $399,500 ($348,000 from the Office of Insular Affairs grant and $51,500 from its Indirect Cost Fund) to transport the surplus vessels to the Virgin Islands.
We questioned the eligibility for reimbursement of $208,000 (6/10ths of $348,000) because six of the ten donated vessels had not been used for an activity covered by the grant. Projects covered by the grant consisted of financial and information management system improvements, technical assistance, and intra-island support for Water Island.
The six transport barges and two of the support boats were donated in May 1997 to assist with disaster recovery efforts on Water Island. We toured the barges in July 2002 and found that four barges were anchored at the western end of Cyril E. King Airport on St. Thomas, near the University of the Virgin Islands, and were used for spare parts to maintain the remaining two barges (see Figure 1). The two barges that had been used -- one to transport garbage from Water Island and the other to transport government supplies and equipment between St. Thomas and St. Croix -- were anchored at Krum Bay, near the Virgin Islands Water and Power Authority's power plant. In August 1998, the water-producing barge, which had two Reverse Osmosis Water Purification Units, and a support boat were donated to the Government to provide the Virgin Islands with an emergency source of potable water. Until March 2001 (32 months after being donated to the Government), the water barge remained unused and was anchored at various locations in the Virgin Islands (primarily at Hassel Island near St. Thomas and at Hurricane Hole on St. John). The water barge was broken into, vandalized, and appears to have been occupied by vagrants.
In a separate audit report of professional service contracts of the Government of the Virgin Islands (No. 2002-I-0046, issued September 2002), we commented on the process by which the water barge was leased to a for-profit company in the British Virgin Islands in March 2001 (contrary to General Services Administration regulations) and how that contract was terminated within a month after much public debate about the propriety of the contract. We stated, in the prior report, that the for-profit company had filed a claim against the Government for reimbursement of expenses totaling about $75,000 that it had incurred to repair the water barge. Our current review disclosed that, in April and May 2002, the company was paid a total of $74,797 from a local Government account in settlement of the claim.
In the meantime, in June 2001, the Virgin Islands Water and Power Authority agreed to accept temporary custody of the water barge and use it to provide a source of potable water for St. John. In December 2001, permanent custody of the water barge was transferred to the Authority by Act No. 6486. In February 2002, the Authority wrote to the Department of Property and Procurement stating that it wanted to return the water barge to the General Services Administration because it was not cost effective to keep the barge and the Authority had no use for it. However, in May 2002, the Commissioner of Property and Procurement wrote to the General Services Administration seeking approval of a plan to hire a contractor to operate the water barge to provide water for local Government agencies, such as the Department of Agriculture and the Virgin Islands Fire Service. In July 2002, the water barge was anchored at Krum Bay near the Authority's power plant with one of two desalination units operational. The support boat for the water barge needed minor repairs to become operational (see Figure 2).
The five-year restriction on selling, leasing, or otherwise disposing of the barges ended in May 2002. However, all six barges were in need of repair and had the potential for becoming environmental hazards. Further, the two support boats were no longer being used because their engines had seized. One was anchored at Krum Bay and the other was parked on a trailer on Department of Public Works property. The restriction for selling, leasing, or otherwise disposing of the water barge and support vessel will end in August 2003.
In our opinion, the donated vessels have become more of a liability than an asset to the Government. Therefore, we believe that since the restriction for the eight vessels donated in May 1997 expired in May 2002, the Government should seek to dispose of them through auction in accordance with the requirements of the Virgin Islands Code. Further, the Department of Property and Procurement should proceed with its attempts to obtain General Services Administration approval of its May 2002 plan of action for using the water barge.
We also attempted to locate 18 motor vehicles that had been donated as surplus Federal property. However, we were unable to determine the status and location of those vehicles because, according to a Property and Procurement official, the employee who handled that transaction had retired. Further, the Property and Procurement official recalled that the vehicles were in bad condition and already about seven to eight years old when received.
FINANCIAL ACCOUNTABILITY
The Government did not maintain adequate financial accountability for the grant because (1) supporting documentation was not maintained for expenditures totaling $756,166 that were included in Financial Status Reports, (2) three contractors were paid a total of $35,662 more than the contract ceilings, (3) duplicate costs of $11,695 were charged to the grant, (4) financial and progress reports were not submitted or were not timely, (5) contract files were incomplete, and (6) drawdowns were not recorded timely in the Financial Management System.
Supporting Documentation Was Not Maintained for Expenditures Totaling $756,166
The Office of Management and Budget reported to the Office of Insular Affairs that the Department of Finance had expended $2.4 million of the $3 million grant during fiscal years 1997 through 2000. To test the validity of these expenditures and the accuracy of Financial Status Reports, we attempted to match Financial Status Reports to supporting documents. However, we found that supporting documents had not been maintained by either the Office of Management and Budget or the Department of Finance for expenditures totaling $756,166.
The Code of Federal Regulations (43 CFR 12.82(b)(1) and 12.82(c)) states that records must be retained for three years starting on the day the grantee submits its final expenditure report. The financial management improvement project ended in November 2000, and the final Financial Status Report was submitted to the Office of Insular Affairs in January 2001. Therefore, the Government was required to maintain the related supporting documents at least until January 2004. We questioned the $756,166 because Government officials could not provide us with supporting documents to verify amounts included in the Financial Status Reports. The Office of Management and Budget and the Department of Finance should take the necessary steps to ensure that supporting documentation for grant expenditures are maintained for the three-year period required by the Code of Federal Regulations.
Three Contractors Were Paid $35,662 More Than the Maximum Amounts Stipulated in Their Contracts
The Government did not ensure that payments to three professional service contractors were made in accordance with contract provisions. All three contracts stated that the payment amounts specified in the contracts were not to be exceeded. However, payments to the contractors totaled $35,662 more than the amounts specified in the contracts. We do not believe it is reasonable for the Federal Government to pay for costs incurred by the Virgin Islands in excess of contractual limits. Therefore, we question the eligibility for reimbursement of the $35,662. Details follow:
- In March 1997, a six-month contract for $209,858 was awarded to a local telecommunications consulting firm to provide technical assistance and project management services to assist Bureau of Internal Revenue personnel with its computer hardware and software systems. We found that the firm was paid $236,815, which was $26,957 more than the maximum amount specified in the contract.
- Also in March 1997, a one-year contract for $60,000 was awarded to a local employment agency to provide temporary employees during the 1997 tax season to assist with tax return processing and data entry at the Bureau of Internal Revenue. We found that the agency was paid $68,292, which was $8,292 more than the maximum amount specified in the contract.
- In July 1997, the same employment agency was awarded a one-year contract for $150,000 to provide temporary employees to assist with a re-engineering program at the Department of Finance. We found that the agency was paid $150,413, which was $413 more than the maximum amount specified in the contract.
An official of the Department of Property and Procurement told us that they had no control over payments processed by user agencies for professional service contracts.
We also attempted to determine if contracts were awarded competitively. At the Bureau of Internal Revenue, we requested documentation evidencing that competitive procurement was used, but information on the method used to select the two contractors was not provided. At the Department of Finance, an official told us that a request for proposal was not issued when the employment agency was selected. Instead, the contract to provide temporary employees to assist with the re-engineering program was awarded to the employment agency because it was already doing work for the Department.
Grant Transactions of $11,695 Were Charged Twice to the Grant
The Code of Federal Regulations (43 CFR 12.60(a)(2)) states that fiscal controls and accounting procedures must be sufficient to "permit the tracing of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restrictions and prohibitions of applicable statutes." At the Department of Finance, we reviewed the Posted Transaction Report for fiscal year 1997 and found that expenditures totaling $11,695 were recorded twice in the Financial Management System and charged to the $3 million grant to the Department. Therefore, we questioned $11,695 because it was charged twice to the grant.
Financial Reports Were Missing or Untimely
The Code of Federal Regulations (43 CFR 12.81(b)(4)) states that "when [financial] reports are required on a quarterly or semiannual basis, they will be due 30 days after the reporting period." The Code also states that "final reports will be due 90 days after the expiration or termination of grant support." The Notification of Grant Award required quarterly financial reporting. Despite these requirements, we found that financial reports were not submitted or were submitted untimely. Specifically:
- For the $3 million awarded to the Department of Finance, seven Financial Status Reports (for the quarters ending September 30, 1996; June 30, 1997; December 31, 1997; and March 31, 2000 through December 31, 2000) were missing. Also, ten Federal Cash Transactions Reports (for the quarters ending September 30, 1996 through December 31, 1997 and March 31, 2000 through December 31, 2000) were missing. Further, two Financial Status Reports (for the quarters ending December 31, 1998 and 1999) covered four quarters, and eight Financial Status Reports were submitted from 12 to 30 months beyond the 30-day requirement. We also found that although the grant balance of $17,092 was not expended until September 2000 to purchase 11 computers, this expenditure was reported as being made in the quarter ending December 31, 1999. Additionally, the final Financial Status Report was submitted 10 months beyond the required 90-day reporting period.
- For the $1,092,000 awarded to the Bureau of Internal Revenue, eight Federal Cash Transactions Reports (for the quarters ending March 31, 1999 through December 31, 2000) were missing. Also, one Financial Status Report (for the quarter ending December 31, 1997) covered two quarters, and three Financial Status Reports (for the quarters ending December 31, 1998, 1999, and 2000) covered four quarters. In addition, 17 Financial Status Reports were submitted from 1 to 36 months late, and the final Financial Status Report was three months late.
- The Office of Management and Budget was responsible for submitting financial reports to the Office of Insular Affairs for the $348,000 awarded for assistance to Water Island. We found that the only Financial Status Report (for the quarter ending December 31, 1996) was submitted 46 months late. In October 2000, the Office of Insular Affairs requested the final Financial Status Report, but it was not submitted until January 2001. In addition, the Federal Cash Transactions Report was missing.
- For the $20,000 awarded to the Office of Management and Budget, we could not determine when the Financial Status Report (for the quarter ending December 31, 1996) was submitted because it was not dated. Also, we found that financial reports (for the quarter ending March 31, 1997) were one month late. Further, the final Financial Status Report (for the quarter ending June 30, 1997) was missing.
Narrative Progress Reports Were Also Missing or Untimely
The Notification of Grant Award states that a narrative progress report should be submitted with each quarter's financial reports. However, we found that, for the Department of Finance, nine progress reports were missing and eight were submitted from 16 to 31 months late. For the Bureau of Internal Revenue, 13 progress reports were missing, and we could not determine when three progress reports were submitted because they were not dated. For the Office of Management and Budget, the progress report for the $348,000 grant was submitted 45 months late. It was due in March 1997, but was not submitted until December 2000. Further, for the $20,000 grant, two progress reports (for the quarters ending March 31, 1997 and June 30, 1997) were missing. Also, we could not determine when the progress report for the quarter ending December 31, 1996, was submitted because it was not dated.
We believe that the Government of the Virgin Islands should take the necessary steps to ensure the timely submission of required financial and narrative progress reports.
Contract Files Were Incomplete
The Virgin Islands Code (31 V.I.C. Chapter 23) and the Property and Procurement Manual contain the requirements for documenting the acquisition of contractual services. Despite these requirements, we found that contract files were not sufficiently complete to document procurement actions taken. For fiscal years 1996 through 1998, we reviewed a sample of six contract files at the Department of Property and Procurement and found that one contract file, three recommendations of contract award, two letters of justification, and one verified miscellaneous encumbrance document were missing. Additionally, we could not determine the method used to select three contractors.
We believe that the Government should take the necessary steps to ensure that contractors are paid in accordance with contract provisions and that contract files are sufficient to document all procurement actions taken.
Drawdowns Were Not Recorded Timely in the Financial Management System
We attempted to trace, to the official financial records of the Department of Finance, 14 drawdowns totaling $4.46 million that were made during the period of September 24, 1996 to January 11, 2001. We were unable to determine if nine of the drawdowns, totaling $3.09 million, were recorded in the Financial Management System because the Statement of Remittance forms used to record electronic fund transfers could not be located at Finance. For the remaining five drawdowns totaling $1.37 million, we determined that it took Finance from 135 to 281 days (9 months 11 days) to record them in the System.
At the October 23, 2002 exit conference on the draft of this report, the Commissioner of Finance informed us that she had implemented new procedures to ensure that grant transactions are recorded accurately and drawdowns are recorded promptly in the appropriate accounts in the Financial Management System. We will follow-up at a later time to verify that the new procedures have been effective.
RECOMMENDATIONS
TO THE GOVERNOR OF THE VIRGIN ISLANDS
We recommend that the Governor of the Virgin Islands ensure that:
1. The Department of Finance, the Bureau of Internal Revenue, and the Office of Information Technology take the steps necessary to determine the location and status of all equipment purchased with Office of Insular Affairs grant funds. Equipment that is no longer needed should be declared excess property and either discarded (if not serviceable) or donated to local schools or other nonprofit organizations (if serviceable), in accordance with procedures contained in the Code of Federal Regulations and the Virgin Islands Property Manual.
2. Government agencies comply with the provisions of the Virgin Islands Property Manual that require the maintenance of property control records and performance of biennial physical inventories of equipment.
3. The Department of Property and Procurement takes the steps necessary to dispose of the six transport barges and two support boats that are no longer serviceable, in accordance with General Services Administration and Property and Procurement requirements. The Department should also proceed with the May 2002 plan of action for using the water barge and related support boat.
4. The Department of Property and Procurement determines the status of the 18 motor vehicles that were donated by the General Services Administration. If they are no longer needed, the Department should declare them excess property and dispose of them in accordance with General Services Administration and Property and Procurement requirements.
5. The Office of Management and Budget and the Department of Finance maintain supporting documents for Office of Insular Affairs grant expenditures included in Financial Status Reports in accordance with requirements contained in the Code of Federal Regulations. Specifically, for each Financial Status Report, the supporting expenditure documents should be clearly referenced and maintained for a period of at least three years after submission of the final Financial Status Report for each grant.
6. For future grants, the Department of Finance, the Bureau of Internal Revenue, and the Office of Management and Budget prepare and submit required Financial Status Reports, Federal Cash Transaction Reports, and narrative progress reports within the timeframes specified in the Code of Federal Regulations.
7. The Office of Management and Budget submits to the Office of Insular Affairs the final Financial Status Report for the $20,000 grant awarded to the Office of Management and Budget.
8. The Department of Finance and the Bureau of Internal Revenue establish procedures to ensure that contractors are not paid amounts in excess of the maximum payment amounts specified in their contracts.
9. The Department of Property and Procurement ensures that contract files contain the documents required by the Department's internal policies.
10. The Office of Management and Budget submits to the Office of Insular Affairs any additional support or justification related to the questioned costs of $208,800 for vessel transport, $756,166 for unsupported expenditures, $35,662 for overpaid contractors, and $11,695 for duplicate charges (see Appendix 1) so that the Office of Insular Affairs can make a final determine on the allowability of costs.
AUDITEE RESPONSES
We received separate responses to the draft report from the Commissioner of Finance and the Commissioner of Property and Procurement.
The December 17, 2002 response (Appendix 3) from the Commissioner of Finance disagreed with certain aspects of the finding related to property management, but expressed general concurrence with Recommendations 1, 2, and 6. The response incorporated additional comments from the Bureau of Internal Revenue, which also expressed general concurrence with Recommendations 1, 2, and 6.
The December 11, 2002 response (Appendix 4) from the Commissioner of Property and Procurement expressed concurrence with Recommendations 2, 3, 4, and 9, and provided information on proposed corrective actions.
Neither response adequately addressed Recommendations 5, 7, 8, and 10.
OFFICE OF INSPECTOR GENERAL REPLY
Based on the responses received, we consider Recommendations 4 and 9 resolved and implemented; Recommendation 3 resolved but not implemented; and Recommendations 5, 7, 8, and 10 unresolved. We requested additional information for Recommendations 1, 2, and 6 (see Appendix 5).
The Commissioner of Finance made specific comments in her response to the draft report, which are presented in the following paragraphs along with our replies.
General Comments.
Commissioner of Finance Response. The Commissioner of Finance objected to our inclusion, in the draft report, of two photographs showing unused computer monitors and unserviceable computers that were being stored at the offices of the Department of Finance on St. Thomas. The Commissioner stated that she was concerned about security and called our taking of the photographs a "breach of confidentiality in an area as sensitive as the MIS division at Finance." She also stated we should have requested her express written consent prior to taking the photographs.
Office of Inspector General Reply. While we are sensitive to security concerns, we disagree with the Commissioner's comments. We will continue to photograph, as part of our audits, activities or situations that demonstrate questionable performance. In this regard, during a tour of the Department's facilities, we photographed (1) a stack of unused computer monitors still in their original boxes and (2) a stack of unserviceable computer monitors and processor units awaiting disposal. The photographs were taken with the full knowledge and in the presence of a Department of Finance employee and did not show any sensitive facilities within the Department in that they were limited to small corner areas of two unidentified rooms.
Taking photographs to document conditions encountered during an audit is a widely accepted practice within the audit profession. The Office of Inspector General routinely includes photographs in audit reports on programs and activities of the Government of the Virgin Islands, the other insular area governments, and the Department of the Interior in order to give the reader a clearer understanding of conditions described in the audit findings. Nevertheless, we have removed the two photographs from this final report because they were not critical to a full understanding of the finding on property management.
Recommendation 1. Concurrence indicated.
Commissioner of Finance Response. The Commissioner of Finance stated, "It should be noted that the normal period of technical obsolescence in the area of information technology and related equipment is much shorter than the period between the grant expenditures and your audit (in some cases a span of over six years). It is unreasonable to assume that this outdated equipment will still be functional and in use."
Office of Inspector General Reply. We fully acknowledge that the useful life of information technology equipment is short and that many of the items purchased with grant funds may no longer be in use. However, in accordance with basic grant management principles and the provisions of the Virgin Islands Property Manual, property management records should be in place to document when equipment becomes unserviceable, or otherwise unusable, and is disposed of. During the audit, we were not provided with records documenting the status or disposal of unserviceable or otherwise unusable equipment. Neither were such records provided as part of the Department of Finance response.
Management Information Systems Division Response. The response from the Commissioner of Finance incorporated a supplemental response from the Management Information Systems (MIS) Division of the Department of Finance. The MIS response stated that "a detailed inventory of items purchased with the Office of Insular Affairs grant ... was created for items acquired for the Government wide network." The response also explained that when the Office of Information Technology (OIT) was centralized under the Office of the Governor, all related files were transferred from Finance to OIT. The MIS response further stated that Finance "has been unable to locate the inventory control listing after multiple investigations at the offices of OIT and diligent inquiry."
The MIS response also suggested wording changes to clarify the status of computer equipment assigned specifically for use within the Department of Finance. Additionally, the MIS response presented information regarding the status of specific items that we were unable to locate during the audit.
Office of Inspector General Reply. The MIS response supports our finding that records were not available during the audit to document the distribution of computer equipment valued at more than $1 million that was purchased for the Government's wide area network. Although the Department of Finance had property management records for equipment within its control, property management records were not available for equipment that was assigned to other agencies of the Government.
Further, although the MIS response included generalized statements that items of equipment we were unable to locate at the Department of Finance "are fully accounted for," the response did not include documentation to indicate the specific location and operational status of the items in question.
Lastly, we made minor revisions to the report to clarify the status of computer equipment in the different purchases that were the subject of our review.
Appendices were not included in text version.