[Audit Report on the Division of Agriculture, Department of Economic Development and Agriculture, Government of the Virgin Islands]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 97-I-40

Title: Audit Report on the Division of Agriculture, Department
       of Economic Development and Agriculture, Government of
       the Virgin Islands

Date: October 21, 1996

                  **********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, Logistical Services Branch at (202) 219-3840.
                  ******************************

United States Department of the Interior
OFFICE OF THE INSPECTOR GENERAL

MEMORANDUM

TO:                 The Secretary

FROM:               Wilma A. Lewis
     Inspector General

SUBJECT SUMMARY:    Final Audit Report for Your Information - "Division of
     Agriculture, Department of Economic Development and
     Agriculture, Government of the Virgin Islands"
                              (No. 97-I-40)

Attached for your information is a copy of the subject final audit report. The objective of
the audit was to determine whether the Division of Agriculture: (1) adequately controlled
collections from fees for the rental of land and equipment and sale of agricultural products;
(2) adequately controlled agricultural supply inventories; and (3) had adequate resources
to carry out its program objectives.

We concluded that the Division of Agriculture (now the Department of Agriculture)
needed to: (1) ensure that farmers were issued, and complied with the terms and conditions
of, formal rental agreements for the use of Government-owned land; (2) develop and
maintain complete and accurate information on the status of leases and vacant parcels of
farmland under its jurisdiction; (3) collect all revenues due the Government for agricultural
programs; (4) purchase agricultural products in accordance with existing procurement laws
and regulations; (5) improve inventory control over agricultural products held for resale;
and (6) repair its office facilities on St. Thomas to make them safe for Division employees.
As a result of these deficiencies, the Division lost at least $90,000 in potential land rental
revenues; had about $13,000 in outstanding accounts receivable; and did not adequately
control cash collections of about $200,000 annually and inventories of agricultural
products valued at about $207,000.

Although we made eight recommendations to the Governor of the Virgin Islands to address
these issues, we did not receive a response. Therefore, the eight recommendations are
unresolved.

If you have any questions concerning this matter, please contact me at (202) 208-5745 or
Mr. Robert J. Williams, Acting Assistant Inspector General for Audits, at (202) 208-
4252.

Attachment

 V-IN-VIS-003-95
United States Department of the Interior
OFFICE OF THE INSPECTOR GENERAL
Washington, D.C. 20240

AUDIT REPORT

Honorable Roy L. Schneider
Governor of the Virgin Islands
No. 21 Kongens Gade
Charlotte Amalie, Virgin Islands 00802

Subject: Audit Report on the Division of Agriculture, Department of Economic
Development and Agriculture, Government of the Virgin Islands (No. 97-I-40)

Dear Governor Schneider:

This report represents the results of our audit of the then-Division of Agriculture,
Department of Economic Development and Agriculture. The objective of the audit was
to determine whether the Division: (1) adequately controlled collections from fees for the
rental of land and equipment and sale of agricultural products; (2) adequately controlled
agricultural supply inventories; and (3) had adequate resources to carry out its program
objectives.

Although the audit was completed and the draft report was issued prior to Hurricane
Marilyn in September 1995, we reissued the draft report after the immediate hurricane
recovery period to allow the Government the opportunity to review and respond to the
audit recommendations. Based on our reevaluation of the findings and recommendations,
we believe that, although some of the specific examples cited in the findings may now be
dated, the recommendations presented in this report are still valid. The recommendations,
if implemented, should result in long-term improvements in the operations of the
now-Department of Agriculture.

BACKGROUND

The Government Reorganization and Consolidation Act of 1987 merged the Department
of Commerce and the Department of Agriculture into the Department of Economic
Development and Agriculture. The Department's Division of Agriculture, with central
offices on St. Croix and branch offices on St. Thomas and St. John, is responsible for the
following: (1) stimulating, encouraging, and promoting the production and marketing of
agricultural crops, livestock, and related produce throughout the Virgin Islands and (2)
rendering technical advice and service to farmers and raisers of livestock. Among its
activities, the Division rents Government-owned land and equipment for agricultural

 


purposes and purchases for resale agricultural products, such as fertilizer, feed grain,
vegetable seedlings, and fruit trees. Approximately 2,200 acres of farmland were under
the Division's jurisdiction. As a means of promoting communication among farmers and
to increase public awareness, the Division sponsors annual agricultural food fairs to allow
farmers to exhibit their prize produce.

Revenues received by the Division of Agriculture from the rental of farmland and
equipment and the sale of agricultural products are deposited into the Agriculture
Revolving Fund and are used to purchase rental equipment and items for resale and to
employ temporary agricultural workers for planting and reaping.  Revenues from
veterinary services and slaughtering operations are deposited into the Veterinary Medicine
Fund and the General Fund, respectively. During fiscal year 1994, the Division of
Agriculture collected a total of $202,000 in revenues from all sources. The salaries of the
Division's 73 permanent employees and other operating expenses totaled $2.2 million
during fiscal year 1994 and were paid from the General Fund.

In March 1995, the Governor of the Virgin Islands proposed legislation to divide the
Department of Economic Development and Agriculture into two new organizations: the
Department of Tourism and the Department of Agriculture. The Legislature of the Virgin
Islands passed legislation that included provisions for creation of the new departments, and
the legislation was signed into law by the Governor on May 8, 1995.

SCOPE OF AUDIT

The scope of the audit included agricultural-related transactions that occurred and
procedures that were in effect during fiscal years 1993 and 1994. The audit was
performed from October 1994 through March 1995 at the Division of Agriculture,
Department of Economic Development and Agriculture, and at the Department of Finance.

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 internal controls of the Division of Agriculture
related to the following: (1) the collection of revenues; (2) the purchase and control of
items acquired for resale; and (3) the safeguarding of resources. Internal control
weaknesses disclosed by the review are addressed in the Results of Audit section of this
report. Our recommendations, if implemented, should improve the internal controls in
these areas.

2

 


PRIOR AUDIT COVERAGE

The Office of Inspector General has not reviewed the operations of the Division of
Agriculture during the past 5 years. However, prior Inspector General audit coverage
included the following reports:

  - The September 1984 report "Agriculture Revolving Fund, Government of the
Virgin Islands" (No. V-TG-VIS-16-84) concluded the following: (1) that accounting and
physical controls over supply inventories were not adequate to ensure that the Agriculture
Revolving Fund was receiving all revenues due from the sale of agricultural products; (2)
that the then-Department of Agriculture was not collecting all amounts due from the rental
of farmland and equipment; and (3) that the Department misspent $150,000 that was
appropriated from the Agriculture Revolving Fund to purchase livestock feed under an
emergency drought relief program.

  - The October 1986 report "Real Property Management, Government of the Virgin
Islands" (No. V-TG-VIS-13-85) concluded that the then-Department of Agriculture was
not effectively managing the use of about 1,600 acres of the Harvland property on St.
Croix, which was placed under its administration for agricultural purposes. Specifically,
the Department: (1) had not awarded leases for more than 1,000 acres of land, although
it had 196 valid lease applications on file; (2) lost more than $3,000 in rental revenues
over a 14-month period because of ineffective rent collection practices; and (3) allowed
unauthorized persons to occupy some of the land.

Based on our current review, we found that deficiencies identified in the two reports that
related to the collection of revenues and the control of inventory items still exist.

RESULTS OF AUDIT

We found that the Division of Agriculture did not: (1) ensure that farmers were issued,
and complied with the terms and conditions of, formal rental agreements for the use of
Government-owned land; (2) have complete and accurate information on the status of
leases and vacant parcels of farmland under its jurisdiction; (3) collect all revenues due the
Government for the rental of land and equipment, the resale of agricultural products, and
veterinary services; (4) obtain proper authorization before placing orders for agricultural
products and adequately control inventories of such items; and (5) ensure that facilities on
St. Thomas for its personnel were adequate. However, we found that the Division did
have adequate resources to carry out its program objectives.

Title 3, Section 335, of the Virgin Islands Code defines the powers and duties of the
Department of Economic Development and Agriculture, and Title 33, Section 3018, of the
Code describes the approved sources of revenues and uses of the Agriculture Revolving
Fund. Regulations regarding the control of collections and material and supply inventories
are contained in the Government's Accounting Manual and Property Manual, respectively.
Procurement regulations are contained in Title 31, Chapter 23, of the Virgin Islands Code

3

 
and the Virgin Islands Rules and Regulations. The identified problems occurred primarily
because the Division of Agriculture did not have formal policies and procedures for some
of these activities, did not comply with existing policies and procedures for some of these
activities, or did not provide sufficient oversight of these activities. As a result, the
Division: (1) lost at least $90,000 in potential land rental revenues; (2) had about $7,500
in uncollected land rental fees and $6,500 in outstanding accounts receivable for equipment
rental fees and veterinary service charges; and (3) did not have adequate control over cash
collections, which totaled about $200,000 each year, or inventories of agricultural
products, which had a total value of at least $207,000.

Rental and Other Collection Activities

Title 31, Section 202, of the Virgin Islands Code makes the Department of Property and
Procurement responsible for the management of the Government's business and
commercial properties and the Department of Housing, Parks, and Recreation responsible
for the management of the Government's residential rental properties. However, we could
find no specific delegation of authority with respect to the management of Government
property used for agricultural purposes.  Despite this oversight, the Division of
Agriculture and its predecessor organization, the Department of Agriculture, have
traditionally managed the Government's agricultural land. This is composed of 1,661
acres at the Harvland property on St. Croix and 531 acres at two locations on St. Thomas.
Because the Division lacked formal policies and procedures for its land rental activities,
these activities were not being effectively administered.

  Land Rental Agreements. The Division was not consistent in the method it used
to authorize the use of Government-owned land for agricultural purposes.  As of
September 30, 1994, 125 farmers were authorized by the Division to conduct agricultural
activities on Government-owned land. Of these, 51 had formal lease agreements, 64 had
land use permits, and 10 had only verbal authorization. The 74 farmers who did not have
lease agreements were allowed by the Division to maintain possession of the designated
plots of land for extended time periods through annual renewal of their land use permits
and verbal authorizations. However, this practice was not in compliance with Title 31,
Section 205(c), of the Virgin Islands Code, which requires that leases or use permits for
Government-owned land for periods exceeding 1 year, including allowable extensions and
renewals, be approved by the Legislature of the Virgin Islands.

Because the Government did not always have formal lease agreements, it was difficult for
the Government to hold landholders accountable for complying with lease and land use
permit requirements imposed by the Division. For example, a St. Croix farmer erected
a permanent residential structure on Government-owned land that he had been renting from
the Division since 1988, although such nonagricultural use was prohibited by lease
agreement or land use permit. Two other St. Croix farmers who were occupying
Government-owned land under land use permits transferred use of the land to a third
farmer without obtaining prior approval from the Division. We were unable to determine
whether the two farmers who had permits for use of the land were receiving payment from

4

 
 I

the third farmer. However,
lease agreements. Further,
Division.

the subleasing of farmland would have been prohibited under
both farmers were delinquent in their rental payments to the

During fiscal year 1994, the 125 farmers who had been authorized to use Government-
owned land were assessed rental fees totaling about $24,300, at the rate of $15 per acre
per year. Although Division officials told us that they believed the $15 per acre per year
rental fee was reasonable, they could not provide documentation to support why the rate
was reduced from $50 to $15 per acre after Hurricane Hugo in 1989. There has been no
subsequent reevaluation of the rental rate by Division officials since its reduction to the
$15 per acre rate.

Even with the reduced rental rate, many farmers did not make the required rental
payments, and the Division did not aggressively enforce collection. For example, 42 of
the 125 authorized farmers were delinquent a total of $3,900 in rental fees for fiscal years
1993 and 1994. Additional rental fees of $3,600 were still owed by farmers whose leases
had been terminated because of nonpayment. In one case, a farmer was 4 years delinquent
in paying rental fees totaling $2,300 before the Division began collection efforts. Eviction
notices were not sent to farmers until their payments were delinquent for 2 to 5 years.
However, even when such notices were issued, they were not enforced; that is, some
farmers continued to occupy and use the land. Rent collection efforts were lacking
because the Division had not assigned this responsibility to a specific employee.

We also found that the Division of Agriculture could not verify whether 62 acres of land
on St. Croix were vacant or were being utilized. Records showed that of the 1,661 acres
of the Harvland property, only 1,599 acres were leased or permitted for use by farmers.
The records did not show the status of the remaining 62 acres.

On St. Thomas, 26 farmers were allowed to cultivate 300 acres of land at Estate Bordeaux
over a period of 20 years without any formal authorization from the Division of
Agriculture. This left the Government open to competing claims for use of the land by
the 26 farmers and a livestock association that said it had an agreement with the
Government for use of a large tract of land that included 200 of the 300 acres being used
by the farmers. The intervention of the Governor, in March 1995, was required to settle
the issue.1 Further, although the farmers were considered to be "squatters" and had never
made any rental payments to the Government, over the years the Division actively
supported their farming activities by constructing wells and darns, surveying the land and
marking its boundaries, and assisting the farmers in obtaining disaster assistance from the
Federal Emergency Management Agency after Hurricane Hugo. If the 26 farmers, who
are still not making rental payments, had been given formal leases for use of the land and
had therefore been required to pay the standard $15 per acre rental fee over the 20-year

1A compromise was reached in which the farmers retained the land they were using and the livestock
association was given use of adjacent land.
              5

 
period, the Division would have collected an additional $90,000 for the Agriculture
Revolving Fund.

  Accounts Receivable. Section 310 of the Government's Accounting Manual
requires agencies to keep up-to-date records of bills issued that are pending collection and
to send delinquency notices to customers whose bills become past due, requesting payment
within 10 days. Despite these requirements, the Division of Agriculture did not maintain
complete and up-to-date accounts receivable records or issue, on a regular basis, notices
to customers whose accounts were delinquent.

During fiscal year 1994, the Division issued bills totaling $19,500 to customers for
equipment rental fees and veterinary service charges. However, the Division could not
provide us with a current list of the outstanding balances on those bills. Therefore, we
reconstructed the outstanding balances for the 1994 bills by tracing payments to the
receipts issued by the Division's cashier. We determined that for the $19,500 in bills
issued, bills totaling $6,500 were still outstanding as of February 1995. Additionally,
because the Division did not issue bills for land rental fees, the Division's records did not
show land rental fees of $7,500 that were also outstanding.

  Cash Collections. During fiscal year 1994, the Division's cashiers collected almost
$202,000 from land and equipment rentals, the resale of agricultural products, and
veterinary and slaughtering services. However, because the Division did not provide
adequate oversight of the cash collection process, there was no assurance that all amounts
owed to the Government were actually collected or that all amounts collected were
deposited into the proper accounts.

Section 310 of the Government's Accounting Manual requires all cashiers to take the
following actions: (1) issue official cashier receipts for all collections made; (2) safeguard
collections in a vault or safe; and (3) make deposits on a daily basis. However, the
cashiers did not always comply with these requirements. For example, the Division's
facilities on St. Croix are spread over a large area, and goods and services are provided
to the public at different locations within the complex. Assistant cashiers at these locations
made the collections and issued unnumbered, unofficial receipts to the customers. The
funds were later turned in to the Division's cashier, along with copies of the unofficial
receipts. The cashier then issued official receipts for the amounts received from the
assistant cashiers. This procedure did not demonstrate effective internal controls in two
ways: first, the customer should have been issued an official, prenumbered receipt at the
time of the initial transaction, and second, there was no way to ensure that the assistant
cashiers were forwarding all funds collected to the main cashier. Additionally, we found
that assistant cashiers were not stationed at all locations where agricultural products were
sold. Therefore, customers could leave the Division's complex without making any
payment for the items received instead of going to the business office to pay the main
cashier.

 
 

In November 1994, we conducted an unannounced cash count at the Division's St. Croix
facilities. We found that the cashier kept cash in a cash pan that had a broken lock and
in different drawers of his desk. The cash count also disclosed an apparent $334 overage,
which occurred because official receipts had not been issued for all funds received by the
cashier. Further, we found that collections were being held for up to 4 days before being
deposited.

Subsequent reviews of operating procedures disclosed that the cashier was also responsible
for maintaining the Division's accounts receivable records. This violates a basic tenet of
effective internal controls, which requires that there be a segregation of duties between the
person who handles cash collections and the person who maintains the accounting records
on which those collections are based.

Procurement and Inventory Control

Title 31, Section 234, of the Virgin Islands Code requires that no purchase be made by any
department or agency without a written order approved by the Commissioner of Property
and Procurement. However, the Division routinely placed telephonic orders with vendors
and did not prepare the appropriate expenditure documentation until the items had already
been received. We found that during fiscal year 1994, the Division processed 46
miscellaneous disbursement vouchers, totaling more than $118,000, in this reamer. In
one case, a $5,000 order was placed on July 5, 1994, with an off-island vendor, but the
order documents were not prepared and processed until August 15, 1994, or 29 working
days later. Division of Agriculture officials told us that they used this method of
procurement because it was faster. However, this practice violated effective internal
controls by allowing Division officials to obligate the Government for purchases without
obtaining proper authorization from designated procurement officials.

The Government's Property Manual requires each department or agency to maintain
inventory control records and perform a complete physical inventory of material and
supply inventories at least once each year. However, the Division did not comply with
these requirements. Available financial records indicate that during fiscal year 1994, the
Division expended about $322,000 for the purchase of agricultural products for resale.
During the same period, the Division collected about $115,000 from the sale of such
products. Even without taking into account any items on hand at the beginning of the
fiscal year, at year-end the Division should have had an inventory of unsold agricultural
products valued at about $207,000. However, we found that the Division had no
inventory control records and had not performed annual physical inventories. Therefore,
agricultural products of at least $207,000 were not being adequately controlled and were
subject to loss.

Building Maintenance

The Division of Agriculture's offices on St. Thomas were located in a building at Estate
Dorothea that was a safety hazard to employees and customers. The structure was

7

 
I

significantly deteriorated and had leaks in the roof, windows that were falling off their
hinges, ceiling and wall panels that were falling off, and holes in the wooden floor. The
building, which at one time also housed the U.S. Department of Agriculture's veterinarian,
was in such a state of deterioration that the Federal agency directed the veterinarian to stop
using the building as his regular work site. We believe that immediate action should be
taken to repair this building or to move the Division of Agriculture's employees to safer
and more suitable facilities.

Recommendations

We recommend that the Governor of the Virgin Islands:

  1. Submit legislation to revise Title 31, Section 202, of the Virgin Islands Code to
specifically delegate the authority to manage Government-owned land that is designated
for agricultural purposes to the Department of Agriculture.

  2. Ensure that the Department of Agriculture establishes and implements formal
policies and procedures to provide that individuals and organizations are authorized to use
Government-owned land for agricultural purposes only upon execution of land rental
agreements, and ensure that the Department enforces the provisions of the land rental
agreements, including timely payment of land rental fees and any limitations on the use
of the Government-owned land.

  3. Ensure that the Department of Agriculture maintains up-to-date records of the
lease status of Government-owned land under its jurisdiction that is designated for
agricultural purposes.

  4. Ensure that the Department of Agriculture reevaluates the existing $15 per acre
per year land rental fee in light of current economic conditions and rental fees charged for
similar land by private owners. The results of the evaluation should be fully documented.

  5. Ensure that the Department of Agriculture complies with the accounts receivable
policies and procedures contained in the Government's Accounting Manual which require
complete and accurate accounts receivable records to be maintained for amounts owed by
lessees and other customers and timely collection enforcement actions to be taken with
regard to delinquent accounts.

  6. Ensure that the Department of Agriculture complies with the cash collection
policies and procedures contained in the Government's Accounting Manual which require
official cashier receipts to be issued for all amounts collected from customers, finds to be
physically safeguarded, collections to be deposited on a daily basis, and cash collection
and accounts receivable record-keeping functions to be adequately segregated.

  7. Ensure that the Department of Agriculture complies with the procurement laws
and regulations contained in Title 31, Chapter 23, of the Virgin Islands Code and Title 31,

8

 




Chapter 23, of the Virgin Islands Rules and Regulations; and the inventory control
regulations contained in the Government's Property Manual to ensure that written purchase
orders are issued for all purchases, inventory control records are maintained for
agricultural products purchased for resale, and annual physical inventories are performed
for agricultural products in storage.

  8. Take actions to either repair the building at Estate Dorothea or move the
employees to safer and more suitable facilities.

We originally provided the draft report to the Governor of the Virgin Islands and the
Commissioner of Agriculture on August 10, 1995, and requested a response by September
29, 1995. Because of Hurricane Marilyn, we reissued the draft report on January 22,
1996, and extended the response due date to March 31, 1996. However, we had not
received a response from the Governor of the Virgin Islands as of September 30, 1996.
Therefore, we are issuing this final report without a response, and the eight
recommendations are unresolved (see Appendix 2).

The Inspector General Act, Public Law 95-452, Section 5(a)(3), as amended, requires
semiannual reporting to the U.S. Congress on all audit reports issued, the monetary impact
of audit findings (Appendix 1), actions taken to implement audit recommendations, and
identification of each significant recommendation on which corrective action has not been
taken.

In view of the above, please provide a response, as required by Public Law 97-357, to this
report by December 20, 1996. The response should be addressed to Mr. Arnold van
Beverhoudt, Director, Insular Area Audits, Caribbean Regional Office, Federal Building -
Room 207, Charlotte Amalie, Virgin Islands 00802. The response should include the
information requested in Appendix 2.

Sincerely,



Wilma A. Lewis

Inspector General

 
APPENDIX 1

CLASSIFICATION OF MONETARY AMOUNTS

  Finding

Revenue Collection
  Land Rental Agreements              $90,000*

* Amount represents local funds.

10

 


APPENDIX 2

STATUS OF AUDIT REPORT RECOMMENDATIONS

Finding/Recommendation
  Reference       Status       Action Required

1-8        Unresolved.   Provide a response to each
              recommendation. If concurrence is
              indicated, provide a plan identifying
              actions to be taken, including target
              dates and titles of officials
              responsible for implementing each
              recommendation. If nonconcurrence
              is indicated, provide specific reasons
              for the nonconcurrence.

11

 


ILLEGAL OR WASTEFUL ACTIVITIES
   SHOULD BE REPORTED TO
THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:            Calling:

      Within the Continental United States

U.S. Department of the Interior
Office of Inspector General
1550 Wilson Boulevard
Suite 402
Arlington, Virginia 22210

Our 24-hour
Telephone HOTLINE
1-800-424-5081 or
(703) 235-9399

TDD for hearing impaired
(703) 235-9403 or
1-800-354-0996

Outside the Continental United States

           Caribbean Region

U.S. Department of the Interior         (703) 235-9221
Office of Inspector General
Eastern Division - Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

           North Pacific Region

U.S. Department of the Interior
Office of Inspector General
North Pacific Region
238 Archbishop F.C. Flores Street
Suite 807, PDN Building
Agana, Guam 96910

(700) 550-7279 or
COMM 9-011-671-472-7279