[Audit Report on the Guam Legislature, Government of Guam]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 97-I-591

Title: Audit Report on the Guam Legislature, Government of Guam

Date: March 24, 1997

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United States Department of the Interior
OFFICE OF INSPECTOR GENERAL
Washington, D.C. 20240

MEMORANDUM

TO:            The Secretary

FROM:          Wilma A. Lewis

SUBJECT SUMMARY:  Final Audit Report For Your Information - "Guam
Legislature, Government of Guam" No. 97-I-591)

Attached for your information is a copy of the subject final audit report. The objective of our
audit was to determine whether the Guam Legislature expended funds in accordance with
applicable laws and regulations.

We found that the Legislature: (1) expended funds for nongovernmental and questionable
activities and misclassified expenditures during fiscal years 1993, 1994, and 1995; (2) did
not prepare annual financial statements required by Guam statute; (3) purchased equipment
without complying with the Legislature's procurement rules; and (4) did not account for
office equipment and other reportable property purchased with legislative funds. These
conditions occurred because the Legislature did not have written guidelines definding
allowable and unallowable expenditures, a comprehensive accounting system, and written
procedures for implementing legislative procurement and property management rules. As
a result, the Legislature: (1) incurred almost $709,000 in questionable expenditures; (2) did
not have accountability over legislative expenditures of $51.5 million; (3) did not have
assurance that full value was received for equipment and services totaling approximately
$241,000; and (4) did not have accountability over reportable property totaling
approximately $55,000.

Based on the Legislature's response, we considered the recommendation to conduct a
physical inventory of reportable property as implemented and requested additional
information for the remaining five recommendations.

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

Attachment


N-IN-GUA-002-95
United States Department of the Interior

OFFICE OF INSPECTOR GENERAL
Washington, D.C. 20240


The Honorable Don Parkinson
Speaker
23rd Guam Legislature
155 Hesler Street
Agana, Guam 96910

Subject: Audit Report on the Guam Legislature, Government of Guam (No. 97-I-591)

Dear Speaker Parkinson:

This report presents the results of our review of encumbrances and expenditures incurred by
the Guam Legislature during fiscal years 1993, 1994, and 1995 as of September 30, 1995,
and other periods as we determined to be necessary. The objective of our audit was to
determine whether the Legislature expended funds in accordance with applicable laws and
regulations.

Our audit disclosed that the Legislature of Guam: (1) incurred costs for nongovernmental
activities and misclassified expenditures during fiscal years 1993, 1994, and 1995; (2) did
not prepare the required annual financial statements; and (3) did not obtain competition when
it purchased equipment or account for all of its property.

These conditions occurred because the Legislature did not have: (1) written guidelines
defining allowable and unallowable costs; (2) a comprehensive accounting system that was
in accordance with generally accepted accounting principles; and (3) written procedures for
implementing procurement regulations and a property management system.

As a result, the Legislature: (1) incurred questionable expenditures of $708,758; (2) did not
have accountability over legislative expenditures totaling more than $51.5 million; (3) did
not have assurance that full value was received for equipment and services totaling $240,58 1;
and (4) did not have accountability for reportable property totaling $54,745.

To correct these conditions, we recommended that the Guam Legislature: (1) issue
guidelines identifying allowable and unallowable costs for legislative funds; (2) develop and
implement a comprehensive accounting system that is in accordance with generally accepted
accounting principles; and (3) issue written procedures for implementing procurement
regulations and a property management system.

The September 23, 1996, response (Appendix 3) from the Guam Legislature indicated
concurrence with the report's six recommendations. Based on the response, we consider one
recommendation resolved and implemented and are requesting that additional information
be provided for the remaining recommendations (see Appendix 4).

 


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 May 23, 1997. The response should provide the information requested in
Appendix 4. A copy of your response should also be provided to our North Pacific Region,
238 Archbishop F.C. Flores Street, Suite 807; Pacific News Building; Agana, Guam 96910.

We appreciate the cooperation that the legislative staff extended to the auditors during the
audit.

cc: Executive Director, 23rd Guam Legislature

 
CONTENTS

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
OBJECTIVE AND SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PRIOR AUDIT COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

FINDINGS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

A. EXPENDITURE CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
B. PROCUREMENT AND PROPERTY MANAGEMENT . . . . . . . . . . . . . . . 7

APPENDICES

1. CLASSIFICATION OF MONETARY AMOUNTS . . . . . . . . . . . . . . . . ...12
2. GUAM LEGISLATURE COMPARISON OF APPROPRIATIONS
WITH EXPENDITURES - FISCAL YEARS 1993 TO 1995............13
3. GUAM LEGISLATURE RESPONSE.. . . . . . . . . . . . . . . . . . . . . . . . . . ...14
4. STATUS OF AUDIT REPORT RECOMMENDATIONS . . . . . . . . . . . ...27

 
INTRODUCTION

BACKGROUND



The Guam Legislature was established by Section 10 of the Organic Act of Guam (Title 48,
Section 1421, of the United States Code Annotated). The Legislature is composed of 21
senators elected at large every 2 years and is governed by Title 2 of the Guam Code
Annotated. The operations of the Legislature, including administrative rules and procedures,
are set forth in the Standing Rules, which are adopted at the beginning of each legislative
term. The Legislature's Committee on Rules is responsible for implementing the Standing

Officer, an accounting system and preparing annual financial statements. Under the Rules
Committee are the Central Offices, which administer personnel, payroll,

Central Ofllces maintain the Legislature's checking accounts and draw down finds against
their budget from the Department of Administration.

Although a legislative term is 2 calendar years,l funding is provided on a fiscal year basis.2
The fiscal year 1995 legislative appropriation was $16.9 million, of which $12.8 million was
for January through September 1995 (23rd Legislature). During this 9-month period of the
23rd Legislature, each majority senator was allotted (in the budget) $427,100,3 and each
minority senator was allotted $202,000.4 In addition, each senator was allotted $30,000 for
office relocation and renovation. Further, senators who occupied various positions in the
Legislature were allotted additional allowances. For example, the Speaker was allotted
$30,000 and each co-minority leader was allotted contingency funds of $8,662. Any funds
allocated to senators that are not encumbered at the end of a fiscal year are carried forward
into succeeding fiscal years until they are used except, according to the Chief Fiscal Officer,
for the office relocation and renovation finds, which expired on March31, 1995.

OBJECTIVE AND SCOPE

The objective of the audit was to determine whether the Legislature expended fimds in
accordance with applicable laws and regulations. The scope of the audit included all

lThe term for the 22nd Legislature was calendar years 1993 and 1994 and for the 23rd Legislature
was
calendar years 1995 and 1996.

2The fiscal year for the Government of Guam begins on October 1 of a year and ends on September
30 of
the succeeding year.

3Each majority semtor was allocated at least $194,000 for operations, $197,100 for community
service, and
$36,000 for office space.

4Each minority senator was allotted at least $184,000 for operations and $18,000 for office space.

1

 


encumbrances and expenditures incurred during fiscal years 1993, 1994, and 1995. Our
review was performed from February through December 1995.

The audit 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; however, our audit scope was limited because the Legislature's
accounting records were incomplete.

To accomplish the audit objective, we reviewed the Legislature's budgets, financial and
administrative records and reports, and other supporting documentation maintained by both
the Legislative and the Executive Branches of the Government of Guam. As part of the
audit, we evaluated accounting and management controls over appropriations, accounting
for encumbrances and expenditures, procurement, and property management. We found
major internal control weaknesses in all areas. The internal control weaknesses are discussed
in the Findings and Recommendations section of this report. Our recommendations, if
implemented, should improve the internal controls in these areas.

PRIOR AUDIT COVERAGE

No audit reports have been issued by the U.S. General Accounting Office during the past 5
years pertaining to the Guam Legislature. However, the Office of Inspector General has
issued two audit reports relating to the Legislature.

The first report, issued in February 1991, entitled "Personnel and Payroll Practices,
Legislative Branch and Other Elected Officials, Government of Guam" (No. 91-I-372), stated
that: (1) senators and legislative employees accrued annual leave in excess of the amount
authorized by law and improperly received lump-sum payments for such accrued leave; (2)
senators accrued sick leave, which was contrary to law; and (3) personal services contracts
were awarded without adequate competition, for questionable services, and without specific
deliverables. During our current audit, we found that the same conditions generally existed.

The second report, issued in November 1993, entitled "Travel Practices, Government of
Guam" (No. 94-I-106), stated that legislative personnel incurred unauthorized and
unsupported travel advances and expenditures. During our current review, we found that the
Legislature had implemented procedures to correct the problems identified with travel.

 
FINDINGS AND RECOMMENDATIONS

A. EXPENDITURE CONTROL

The Guam Legislature did not comply with applicable laws and legislative rules when it
expended funds.  Specifically, the Legislature expended finds for nongovernmental
activities. This occurred because, although the Guam Code Annotated and Standing Rules
provide that expenditures are to be in the public interest, the Legislature did not have written
guidelines speci~ing the propriety of different types of expenditures. In addition, the
Legislature did not expend funds for their intended purposes and did not prepare the required
annual financial statements for fiscal years 1986 through 1995. This occurred because the
Legislature did not have a system in place to control and account for financial activities in
accordance with generally accepted accounting principles. As a result, the Legislature
incurred questionable expenditures of $708,758 and did not have accountability over total
reported expenditures of $51.5 million for fiscal years 1993, 1994, and 1995.

Nongovernmental Expenditures

Title 5, Section 1701, of the Guam Code states, "It is the intent of the Legislature that the
government of Guam practice fiscal responsibility. . . in expending government finds." In
addition, Rule XXVIII, Section 28.03 (iii), of the 22nd and the 23rd Legislature's Standing
Rules states, "No member or staff employee of the Legislature shall dispense discriminatory
or special favors, or receive benefits for himself or his family that could be construed to
affect his judgement in any matter concerning the business of the Legislature, the Executive
branch or the Judicial Branch of the government." We found that legislative finds were used
to pay for various donations, meals, entertainment, and gifts that may not have been in the
public's interest. We reviewed all of the $1,123,471 of expenditures charged to the
miscellaneous cost category during the period January 1, 1993, through April 30, 1995.
Based on our review, we identified expenditures of $303,557 that did not appear to relate to
governmental activities. These expenditures consisted of $118,932 for donations; $136,220
for meals and entertainment; and $48,405 for gifts. For example, $500 was expended for a
senator's sponsorship of a beauty pageant; $1,120 was expended for a senator's gift; $2,260
was expended for golf; $528 was expended for alcoholic beverages for a senator; and $78
was expended on lunch for an individual who was visiting his daughter at college.

State Funerals

The Guam Legislature inappropriately paid surviving spouses funds of $44,676 allotted for
state funerals. Title 1, Section 419(a), of the Guam Code Annotated states that the
Legislature "shall honor with a State Funeral any person who at the time of his death or
before served as a Senator, Governor, Lieutenant Governor, Judge, Non-Voting Delegate to
Washington or any citizen who, in the opinion of the Committee on Rules of the Legislature,
has displayed exemplary service for the island and the people of Guam, if the family of the

3

 
deceased so agrees." Further, Section 419(b) states that the Government of Guam will pay
the fimeral expenses from the Legislature's operations fund, "which shall be periodically
reimbursed by appropriations from the General Fund." During the 22nd Legislature, seven
state funerals were held. In addition, a special appropriation of $30,000 was made for the
funeral of a senator of the 22nd Legislature. In each instance, after the funeral costs were
paid, funds ranging from $3,020 to $15,000 were paid to the surviving spouses. However,
neither the Guam Code nor the Standing Rules authorized such payments.

Office Renovations

During the 22nd Legislature, the 15 senators who did not have offices within the
Legislature's temporary office building were provided fwds to lease and relocate/renovate
office space. Eight majority senators were allocated $67,500 each, and seven minority
senators were allocated $50,400 each. During the 23rd Legislature, all senators were
allocated $30,000 each for office relocation/renovation, with the proviso that the
authorization to encumber the funds would expire on March 31, 1995. Expenditures totaling
$618,188 were charged for office relocationhenovation by the 22nd and the 23rd
Legislatures.

Based on our review, we found that the actual relocationhenovation costs totaled only
$257,663 and that the remaining $360,525 was expended for nonrenovation supplies and
services.  The nonrenovation expenditures included items such as a $1,300 cellular
telephone; a $523 camera; $92 for a newspaper subscription; and $29 for office supplies.
The Chief Fiscal Officer for the 23rd Legislature stated that there was no written description
as to what could be charged for office relocationhenovation and that it was his understanding
that senators, whether newly elected or incumbent, could "charge anything they needed even
if they didn't actually move or renovate their office:"

Financial Statements

As of December 31, 1995, the Legislature had not issued financial statements for fiscal years
1986 through 1995, as required by the Guam Code. This occurred because of the inability
of the Legislature's manual accounting system to process and record transactions in
accordance with generally accepted accounting principles. As a result, there was no
accountability for the $51,531,392 of expenditures reported by the 22nd and the 23rd
Legislatures.

Title 2, Section 1121, of the Guam Code Annotated requires the Legislature to publish,
within 60 days after the end of each year, a report of expenditures of the Legislature's
Operations Fund, including a balance sheet, a statement of receipts, and a general description
of Fund expenses. However, from fiscal years 1986 through 1992, the Government of
Guam's independent public accountants disclaimed opinions on the Government's financial
statements, in part, they said, because they could not rely on account balances provided by
the Legislature's accounting system. For example, the report on internal controls for fiscal
year 1992 stated that the Legislature had not performed monthly reconciliations of its payroll

4

 
account since fiscal year 1985. Our review of the Legislature's year-end trial balances for
calendar years 1992, 1993, and 1994 showed that the Legislature's operating bank accounts
were overdrawn by $1.9 million, $2.5 million, and $4.1 million, respectively, and that the
payroll bank account had been overdrawn by over $1 million each year. Also, based on the
appropriation and expenditure data provided by personnel in the Legislature's Central
Offices, we determined that expenditures of the 22nd Legislature exceeded appropriations
by $6.5 million (Appendix 2).

In addition to the requirement for annual financial statements, Rule XXIII, Section 23.08,
of the 23rd Legislature's Standing Rules states:

  The accounts of the Legislature shall be kept in accordance with generally
  accepted accounting principles for governmental agencies, with complete,
  detailed, monthly reports of all expenditures to be prepared within 30 days
  of the end of each month showing the expenditures for the month and
  cumulative totals for the fiscal year and showing all accounts payable. This
  subsection shall take effect July 1, 1995 in order to allow time to bring the
  accounting system of the Legislature into conformance with this subsection.

As an interim measure to comply with the subsection, in January 1995 the Chief Fiscal
Officer set up two stand-alone personal computers with a spreadsheet program to record
expenditure transactions. In July 1995, the Chief Fiscal Officer purchased seven computers
and a local area network and began designing an integrated accounting system. However,
in November 1995, the Chief Fiscal Officer resigned before the network and the accounting
system were fully operational. As a result, the Legislature's Central Offices were unable to
produce the required monthly expenditure reports.

In addition, the Acting Chief Fiscal Officer stated that because the accounting records for the
22nd Legislature were in such "poor condition," she decided to focus on accurately recording
the transactions of the 23rd Legislature. An independent accounting firm was retained to
help the Legislature record and report on all fiscal year 1995 transactions in accordance with
generally accepted accounting principles so that financial statements could be issued.
Recommendations

We recommend that the Speaker of the Guam Legislature:

  1. Submit legislation that specifically defines allowable and unallowable
expenditures for donations, meals, entertainment, and gifts paid for with government funds.

  2. Amend the Standing Rules to specifically prohibit the use of government funds

for other than the actual costs of state funerals.

  3. Develop and implement an accounting system in
accepted accounting principles, amend the Standing Rules

accordance with generally
to include written account

5

 
 

descriptions showing the type of expenditures that should be charged to each account, and
issue the annual financial statements required by the Guam Code Annotated.

Guam Legislature Response and Office of Inspector General Reply

In its September 23, 1996, response (Appendix 3), the 23rd Guam Legislature indicated
concurrence with Recommendations 1-3, stating that specific guidelines on allowable and
unallowable expenditures for donations, meals, entertainment, gifts, and state funerals, as
well as a description of each expenditure account, had been written (see pages 10-12 of
Appendix 3). However, as of the response date, the guidelines and account descriptions were
only in drafl form and had not been officially adopted. In addition, although the Legislature
did issue financial statements as of September 30, 1995, and was installing a comprehensive
accounting system, the accounting system was not fully operational as of the response date
(see pages 10-12 of Appendix 3). Accordingly, additional information is needed for all of
the recommendations (see Appendix 4).

6

 


B. PROCUREMENT AND PROPERTY MANAGEMENT

The Legislature did not conduct its procurement activities competitively, and it issued
purchase orders after equipment was acquired. In addition, the Legislature did not
adequately account for all of its reportable property. Both the 22nd and the 23rd Guam
Legislature's Standing Rules required competitive procurement and accountability over
property purchased with legislative fimds. However, the Legislature did not have written
procedures for implementing its procurement rules and did not have a comprehensive
property management system. As a result, the Legislature did not have assurance that full
value was received for purchases of $240,581 and could not account for reportable
equipment of $54,745.

Existing Requirements

Rule XXIV, Section 24.02, of the 22nd and the 23rd Legislature's Standing Rules states that
the Legislature's policy is "to procure supplies and services fi-om the lowest bidder consistent
with quality and service and to conduct procurement activities in the manner that will best
serve the public interest." Further, Section 24.05.02 states that procurement on the open
market is authorized when the cost is less than $10,000, subject to the following conditions:

24.05.02.02. Five Hundred Dollars ($500) or more but less than Two
Thousand Five Hundred Dollars ($2,500). Where the total cost of a
requisition is Five Hundred Dollars ($500) or more but less than Two
Thousand Five Hundred Dollars ($2,500), procurement may be made by
solicitation of informal written or oral quotations on the open market, except
that the Procurement Officer with the concurrence of the Purchase Agent,
may dispense with such solicitations and negotiate directly with a vendor
when in the opinion of the Chairperson of the Committee on Rules, it is
deemed more advantageous to the Legislature; [and]

24.05.02.03. Two Thousand Five Hundred Dollars ($2,500) or more but less
than Ten Thousand Dollars ($10,000). Where the cost is Two Thousand Five
Hundred Dollars ($2,500), or more but less than Ten Thousand ($10,000),
procurement may be made by solicitation of not less than three (3) informal
written quotations on the open market of which a written record shall be kept,
except that the Procurement Officer with the concurrence of the Purchasing
Agent may dispense with such quotations and negotiate directly with a
vendor when, in the opinion of the Chairperson of the Committee on Rules,
it is deemed more advantageous to the Legislature.

In addition, Section 24.05.01 states that procurement by sealed bid is "optional" for any
purchase at the discretion of the purchasing agent and the procurement officer but that it is
"mandatory" when the total cost is $10,000 or more except as otherwise provided.
Exceptions to the requirement for sealed bids are provided for in Section 24.05.03.01, which
states:

7

 
Where the total cost is Ten Thousand Dollars ($ 10,000) or more, exception
to the requirement for a sealed bid is authorized only whereat least one of the
following conditions exist and the Purchasing Agent certifies this exception
in writing:

(i) an emergency situation affecting the essential operations of the
Legislature exists which will not allow the normal delay attendant to the
sealed bid procedures;

(ii) the procurement is for supplies or services for which it is impractical
or impossible to secure competition;

(iii) the procurement is for supplies which consist of technical equipment
or component parts thereof for which procurement without sealed bids is
necessary;

(iv) the procurement is for supplies or services to be acquired from or
through a federal agency when costs are known to be lower than the
prevailing market prices; or

(v) the procurement is for supplies which are offered through bargain
sales, bankruptcy or receivership sales, or other dispositions of property at
lower than prevailing market prices.

In addition, Section 24.04 states, "Responsibility for the administration of this Rule is vested
in the executive director who shall be the purchasing agent and who may, at his own
discretion, use the services of central procurement."

Requirements for controlling and accounting for legislative property are contained in
Rule XIX, Section 19.08, of the Standing Rules of the 22nd and 23rd Legislatures, which
states:

The Committee [on Rules] is authorized and directed to make and maintain
a complete inventory of all property of the Legislature, including all property
in the possession or control of any committee. The Committee shall have
custody and control of all such property of the Legislature and shall adopt
such rules or orders as it may determine are necessary relating to the
purchase, care, custody, use or disposal thereof. No furniture, equipment or
other property shall be purchased by any committee unless prior approval is
obtained from the Committee.

In addition, Section 24.04.01 states:

 
The purchasing agent shall. . . (iii) Regulate the storage and distribution of
supplies to avoid loss and waste and account for properties and equipment
and to establish a replacement schedule to avoid costly maintenance of
obsolete equipment.

Procurement

The 22nd and the 23rd Legislatures issued 4,041 purchase orders (October 1, 1992, through
September 30, 1995), totaling $1,682,505, for supplies and equipment, from which we
selected for review 52 purchase orders, totaling $165,581, for reportable equipment. In
addition, we reviewed a $75,000 contract for the installation of a computer network. The
purpose of our review was to determine whether procurements were conducted in accordance
with the Standing Rules. Based on our review, we found that none of the 53 procurement
transactions (totaling $240,58 1) were made in compliance with the legislative requirements
for competitive procurement contained in the Standing Rules. For example, in July 1995,
the Chairman of the Rules Committee issued a $75,000 sole source contract for the design
and installation of a local area network (six computer work stations and one computer server)
at the Legislature's Central Ofilces. The installation of the network was part of an effort to
automate the Legislature's accounting fimction. The contract provided for the planning,
installation, and "troubleshooting" of the network but excluded the cost of equipment and
accounting software. As of December 31, 1995, the contractor had been paid $67,500, with
only the final inspection remaining. However, we found that the computer network was not
completely reliable and would "crash" on a daily basis. As a result, the financial transactions
entered for a particular day would have to be reentered when the network was restored.

The Chief Fiscal Officer, who was installing the accounting software on the network, stated
that he had not been involved with the selection of the contractor and was having difficulty
in getting the contractor to finish the required work. Further, the Executive Director, who
signed the contract as the Legislature's Purchasing Agent, stated that he had not been
involved in either the evaluation or the selection of the contractor. Finally, we did not find,
in the contract files, any written justification for awarding the contract on a sole source basis.

In addition, we noted that of the 52 purchase orders reviewed, 23 (totaling $72,428) had been
issued after the invoice date. For example, a senator purchased $9,615 worth of office
furnishings on January 18, 1995, but the purchase order was not issued until
February 1, 1995. Also, the purchase order file contained no documentation to indicate that
the required written price quotations had been obtained. Accordingly, there was no
assurance that the Legislature obtained the lowest price for the furniture. The Executive
Director stated that senators selected their own vendors for items they wanted and used the
Central Offices to process the paperwork for payment. The Executive Director added that
he was unable to enforce the competitive procurement requirements contained in the
Standing Rules because of "ambiguity" on how the Standing Rules on procurement should
be implemented. The Executive Director said that the Legislature therefore needs to adopt
written procedures establishing the specific procurement process to be followed through the
Legislature. The Executive Director further stated that, as the Legislature's Purchasing

9

 


Agent, he was responsible for implementing procedures to ensure that procurement activities
were in compliance with the Standing Rules and that he had begun to draft procurement
procedures which, if followed, would ensure that procurement activities would be conducted
in accordance with the Standing Rules.

Property Management

The Legislature did not adequately control and account for its reportable property. Although
Sections 19 and 24 of the Standing Rules required the Legislature to maintain a complete
inventory of all reportable property, we found that the Legislature did not have a
comprehensive property management system, including a fixed asset register. Based on a
limited review of 43 purchase orders, totaling $143,453, out of $1,054,102 (total number of
related purchase orders not available) of reported property purchases made during the 22nd
and the 23rd Legislatures, we determined that reportable property of $54,745 had not been
inventoried.

We discussed this issue with the 23rd Legislature's Property Officer, who agreed that all
reportable property should be controlled through a comprehensive property management
system. However, he stated that there were no existing written procedures governing this
matter. In addition, he said that the existing property records were "nothing more than a
collection of various property lists." During our audit, the Property Officer began to develop
a property management system, using a computer database program, that included assigning
all reportable property a descriptive code number, property description, and purchase order
number.

Recommendations

We recommend that the Speaker of the Legislature:

1. Develop and implement written procedures to ensure that procurement activities are
conducted in accordance with the requirements of Section 24 of the Legislature's Standing
Rules.

2. Develop and implement written procedures to ensure that all reportable property is
accounted for in accordance with Sections 19 and 24 of the Legislature's Standing Rules and
generally accepted accounting principles.

3. Conduct a physical inventory of the Legislature's reportable property and enter the
results of the inventory into a computerized property database. The disposition of any
reportable property known to have been acquired but not accounted for during the physical
inventory should also be determined.

10

 
Guam Legislature Response and Office of Inspector General Reply

In its September 23, 1996, response (Appendix 3), the 23rd Guam Legislature indicated
nonconcurrence with the section of the audit finding on property management, in which we
stated that the Legislature did not adequately control and account for its reportable property.
In that regard, the Legislature said that it had "only one item" which was unaccounted for
(see page 12 of Appendix 3). In our report, we stated that, based on a limited test, the
Legislature's inventory records did not reflect property that had been purchased prior to its
own physical inventory being performed. Therefore, at the time the report was issued, our
recommendation was valid, even though the Legislature followed up on the property
exceptions before it issued its response to the report. In addition, the actions taken since our
draft report, which included the preparation of procurement and property management
procedures (see page 13 of Appendix 3), were sufficient to meet the intent of
Recommendations 1-3. As of the response date, however, the procedures were in draft form
and had not been adopted by the Legislature.

Based on supporting information provided with the Legislature's response, as well as
additional information on subsequent corrective actions taken with respect to reportable
property, we consider Recommendations 1 and 2 resolved but not implemented and
Recommendation 3 resolved and implemented. Accordingly, additional information is
requested for Recommendations 1 and 2 (see Appendix 4).

 
                                   APPENDIX 1



CLASSIFICATION OF MONETARY AMOUNTS

       Finding Areas

Expenditure Control
Nongovernmental Expenditures
State Funerals
Office Renovations

Procurement and Property Management
Procurement
Property Management

Total

Funds To Be
Put To
Better Use*

$303,557
44,676
360,525

240,581
54.745

$1.004.084

*Amounts represent local funds.

12

 
Original
Supplemental

FY 1993

$6,580,754
2.772.135

Total

Payroll
Travel
Contractual
Supplies
Equipment
Miscellaneous

Total

Expenditures Under (Over)
Appropriations

$8,934,255
344,201
4,004,882
203,567
245,232
407.746

$14.139.883

FY 1995

$4,071,428
    0






$5,418,249
139,487
1,303,709
  55,996
  70,139
147.443

$7.135.023

   



APPENDIX 2

$12,828,831
1.835.000

$14,663.831

$7,961,811
171,440
3,542,031
200,887
559,548
171.037

$12,606.754

*Amounts as recorded in the Legislature's accounting system.

13

 
APPENDIX 3
Page 1 of 13

 

Twenty-Third
Guam Legislature

Tel: (671) 472-3461   Fax: (671) 477-1715

September 23, 1996

Mr. ROBERT WILLIAMS
Acting Assistant Inspector General for Audits
North Pacific Regional Office
238 Archbishop F.C. Flores Street
Suite 807, PDN BuiIding
Agaiia, Guam 96910

Dear Mr. Williams:

[OFFICE OF INSpECTOR GENERAL (OIG)
NOTE : ONLY INFORMATION IN THE
TWENTY-THIRD GUAM LEGISLATURE ` S
RESPONSE PERTAINING DIRECTLY TO OUR
REPORT'S FINDINGS AND RECOMMENDATIONS
HAS BEEN INCLUDED BY THIS OFFICE.
ALSO, THE LEGISLATURE'S RESPONSES TO
THE RECOMMENDATIONS ON PAGES 10-12 OF
THIS APPENDIX HAVE BEEN CROSS-REFERENCED
TO COl@fENTS ON PAGES 6 AND1l OF OUR
REPORT. ]

  The Draft Audit Report on the Guam Legislature, Government of Guam
(Assignment No: N-IN-GUA-O02-95) has been duly received by the Office of the
Speaker on August 21, 1996.

  Submitted herewith is the Twenty-Third Guam Legislature's comprehensive
response to this report as required by the Inspector General Act, Public Law 95-452,
Section 5 (a)(3).

  This response will state the Legislature's concurrence or non-concurrence
with the draft audit issued. The Legislature shall also provide information on
actions taken; of the planning, development and implementation  of fiscal
administration projects, target dates and designated Legislative officials responsible
for program implementation(s).

  Most of the problems, needs and deficit findings cited in the draft Audit have
been addressed. The majority have been resolved on/or before April 10, 1996.

  When Mr. Patrick Morissey conducted the site-based research from February
through August of 1995; he was exposed to the initial confusion, problems, needs
and frustrations of the day-to-day administration of a fragmented fiscal section.
However, he also observed the corrective actions of the Legislature's response to
upgrade the deficit areas through:

o   Human Resources Management (Training & Development/Re-
  Alignment)
o   Planning, Development and Adoption of FiscaI Policies & Procedures
o   Implementation of Fiscal Operation's Standard Operating Procedures
o   Computerization of Fiscal Administration Offices

NOTICE: THIS DRAFT IS RESTRICTED TO OFFICIAL USE ONLY
               14

 
APPENDIX 3
Page 2 of 13

o   Initial implementation of a Comprehensive Accounting System in
  accordance with generally accepted accounting principles that will be
  fully integrated within the computerized fiscal sections by October 30,
  1996.

  Therefore it is with great uride that the Guam Legislature submits this
Le~islative re~ort with the reauired Annual Financial Statements, the first issued in
the last ten (10) vears.

  If the Legislature can be of further assistance, please feel free contact me at
(671) 472-3463.

ficerely,

Concurred:

DON PARKINSON

Vice-Chairman, Committee on Rules

Chairman, Committee on Rules

NOTICE: THIS DRAFT IS RESTRICTED TO OFFICIAL USE ONLY

15

 
APPENDIX 3              
Page 3 of 13

23RD GUAM LEGISLATURE RESPONSE REPORT TO INSPECTOR GENERAL

  The Twenty-Third (23rd) Guam Legislature is composed of twenty-one (21) senators
elected at large for a two (2) year term commencing on January 2, 1995 and expiring on
December 31, 1996. This is the first branch of Guam Government as mandated by Title 2 of
the Guam Code Annotated.

  The Guam Legislature was established by Section 10 of the Organic Act of Guam.
(Title 48, Section 1421, of the United States Code Annotated)

  The Chairman and Vice-Chairman of the Committee on Rules (the "Committee"), have

Central Operations comprise of: Office of the Executive Director, Accounting,
Procurement/Property Control, Personnel, Payroll, Legal, Central Files, Protocol,

Services/Management Information Section.

Guam Legislature. The Executive Director is responsible for the day to day legislative
administration of

  The Chief Fiscal Officer shall be immediately responsible for fiscal matters pertaining

Legislature and its Operations Fund, and has overall responsibility for budgetary and
accounting functions. The Chief Fiscal Officer shall make a monthly (Expenditures) report to
the members and other reports as requested by the Legislators or Committee on Rules Chair.

16

 
APPENDIX 3              
Page 4 of 13

23RD GUAM LEGISLATURE RESPONSE REPORT TO INSPECTOR GENERAL

  During the 23rd Guam Legislature it should be noted that both the Executive Director
and Chief FiscalOfficer Attach6 positions were vacated. Mr. Richard Underwood resigned
as Executive Director andtransferred to the Tiyan Re-Use Committee as Superintendent on
July 22, 1995. Mr. Joaquin C. Camacho was appointed and confirmed as the Executive
Director on July 23, 1996. Mr. Michael D. Reyes, the former Chief Fiscal Officer resigned
on November 3, 1995. Miss Doreen T. Crisostomo was appointed and is presently the Acting
Chief Fiscal Officer.

CENTRAL PERSONN%L

  Central Persomel are placed into critical positions by a "lottery" draw system. The
designated number of slots, the wage grade and section assignment numbers are "pulled" at
the beginning of each legislature term by majority senators. It is the prerogative of that
senator on who will be placed into that slot.

  The Central Sections of the Office of the Executive Director, Accounting,
Procurement/Property Control, Personnel, Payroll, Legal, Protocol, Central Files,
Maintenance and Security, Office of the Suruhanu and the newly created Management
Information Services division are staffed by limited two year (2) year term GG1 personnel.

I'ROELEMMWWs/A~TIoNS NOTER

  Prior Audit (s) covered problems, needs and recommendations into legislative personnel
practices. The most recent audit conducted by the Territorial Public Auditor reiterated that...
"there are serious problems with the financial system of the Guam Legislature which dates
back to many years. There is a turnover of accounting persomel with the legislature, and no
accounting manual to train new employees. "

  Again, due to the two (2) year term employment, continuity, consistency and efficiency
of central operations are severely hampered.

17

 
                                     APPENDIX 3
                                      Page 5 of 13
23RD GUAM LEGISLATURE RESPONSE REPORT T-O INSPECTOR GENERAL



and/or central sections previously trained and skilled in.

term administration.

o Lack of Policy and Procedures and Standard Operating Procedures.

  However, aggressive steps have been issued to resolve the problems, needs and deficits
noted.

  Re-Organization, upgrading, systemization and improving a comprehensive Central
Administration Fiscal Operation Program is currently under the general supervision of the
Executive Committee, a sub-committee on the Committee on Rules as of April 10, 1996.

projects target dates later in a separate follow-up report.

A Report on Issues, Actions and Recommendations Concerning Problem Areas in Central Fiscal
Operations
(IG Assignment No. N-IN-GUA-O02-95)          Page 3              AUDRPRT/acdasb19124196

18

 
                                      APPENDIX 3
                                      Page 6 of 13
23RD GUAM LEGISLATURE RESPONSE REPORT TO INSPECTOR GENERAL

                           o          o               o      rd                 o

Research, planning, development and ratification of Fiscal
Administration Policy and Procedures.

Creation of Accounting Manual to include procedures and requirements
of the Chief Fiscal Officer and Central Fiscal Personnel.

Reconciliation of receivable, payable, cash and fixed assets to the
general ledger.

Research, planning and recommending that positions within the Central
Operations be classified positions for continuity and to insure that
qualified individuals are hired to do the work required for the
Legislature.

A Report on Issues, Actions and Recommendations Concerning Problem Areas in Central Fiscal
Operations
(IG Assignment No. N-lN-GUA-1102-95)          Page 4              AUDRPRT/acalasb/9124/96

19

 
                                      APPENDIX 3    
23RD GUAM LEGISLATURE RESPONSE REPORT TO INSPECTO~a&Ek&k

Human Resources - Maximizing of personnel resources re-alignment of
fourteen (14) staff to areas of expertise. (Accounting, Personnel and
Payroll)

Creation and recruitment of a Management Information Systems

   Coordinator and Computer Analyst/Technician.

. May 31, 1996 to Present - Executive Sub-Committee Report (s):

o

Management Information Systems staff hired.

Computerization of Fiscal Systems Network completed day to day
server oversight under Management Information Systems Section.

Chief Fiscal Officer, Accounting, Personnel, Payroll, Procurement and
Administrative Services staff upgrade training and development skills.
Formulation of GAAP Software Program. (ACCPAC, Filemaker Pro)

Civil Service Commission conducts desk audit of central personnel
positions including Fiscal Services.

Formalization and Ratification of:

- Fiscal Management Policy and Procedures Manual

- Legislature Employee Performance Standards

- Legislative Employees orientation handbook

- Updated Position Description/Specification of all Central Slots

SUPPoRTmG MUERIALS
  Relevant documents are attached as APPENDIX I, Draft Audit Report on the Guam
Legislature from the Office of the Inspector General.

A Report on Issues, Actions and Recommendations Concerning Problem Areas in Central Fiscal
Operations
(IG Assignment No. N-IN-GUA-O02-95)          Page 5              AUDRPRT/aca/asb/9/24/96

20

 
                                      APPENDIX 3       
23RD GUAM LEGISLATURE RESPONSE REPORT TO INSPECTOti&E-

          BJIKTIVE AND SCOPE

  The objective of the draft audit was to determine whether the legislature expended funds
in accordance with applicable laws and regulations.

  The scope of the audit included all encumbrances and expenditures incurred for fiscal
years 1993, 1994, and 1995.

  The records management systems in Central Administration has been radically
upgraded. The conditions cited have all been addressed. They are:

1.

2.


3.

Providing written guidelines defining allowable and unallowable costs.

The preparation and publication of the required annual financial statements,
monthly status reports of members expenditures and reports as delegated.

Stringent enforcement of the Procurement and Supply Regulations of open

     completion/sealed bid procedure.

~upP~RT~G ~
  Relevant documents are attached as APPENDIX II, Draft Audit Report on the Guam
Legislature from the Office of the Inspector General.

A Report on Issues, Actions and Recommendations Concerning Problem Areas in Central Fiscal
Operations
(IG Assignment No. N-IN-GUA-O02-95)          Page 6              AUDRPRT/acafasb/9/24/96

21

 


IJDIT COVE-

  The Office of Inspector General has issued two (2) audit reports pertaining to the Guam
Legislature. The first report issued in February 1991, entitled "Personnel and Payroll
practices, Legislative Branch and other elected officials, Government of Guam". (No. 91-1-
372).

  The issue of senators accrual of sick leave is now moot due to a bill introduced by
Senator Sonny Lujan Orsini. The bill passed and now is law. However, section 22.09.17 still
embraces that unused sick leave may be carried over to succeeding leave years without
limitations; which policy includes accumulated sick leave by members and employees of
previous legislature . . . . . . . . . this would be inclusive of the a senator elect transferring
accumulated leave from one branch of government to the legislature. The second issue of
personal services contracts is also being modified. The action plan shall be submitted
through the final report of the Executive Sub-Committee.

SWpoRTmG MMUUALS

  Relevant documents are attached as APPENDIX III, Draft Audit Report on the Guam
Legislature from the Office of the Inspector General.

A Report on Issues, Actions and Recommendations Concerning Problem Areas in Central Fiscal
Operations
(IG Assignment No. N-IN-GUA-O02-95)          Page 7              AUDRPRT/aca/asb19124/96

22

 
                                      APPENDIX 3            
                                      Page 10 of 13
23RD GUAM LEGISLATURE RESPONSE REPORT TO INSPECTOR GENEIU4L

INGW RECOMMENMXIONS

The Guam Legislature did not comply with applicable laws and legislative rules when it

expended funds. The audit discloses that this occurred because
system in place to control and account for financial activities in
accepted accounting principles.

the legislature did not have
accordance with generally

a

Relevant documents are attached as APPENDIX IV, Draft Audit Report on the Guam

Legislature from the Office of the Inspector General.

H. ~
  A.     ure Cm - The draft audit report discloses that:

    1. The Guam Legislature did not comply with applicable laws and Legislative
     Rules when it expended funds.

2. The Legislature did not have written guidelines speci@ing the propriety of

3.

. ~ of expenditures.

The Guam Legislature did not prepare the required annual financial
statements.

B.                      [OIG NoTE: PARAGRAPH B AppliCable TO
                      RECOMMENDATIONS Al, A.2, A.3, B.1,

                   B.2, and B.3. ]
The Guam Legislature has aggressively pursued implementing a comprehensive
system to control and account for financial activities in accordance with generally

accepted accounting principles.

Again, multi-management by objective levels were initiated on the following:

1. ~ of FMW1 Se_ -
    . .   .    .   including Accounting,
Procurement, Personnel, Payroll and Executive Director's Office.

[OIG NOTE: PARAGRAPH B. 1 APPLICABLE TO RECOMMENDATIONS A. 3, B. 1, B. 2,
AND B.3. ]

23

 
                                      APPENDIX 3   
                                      Page 11 of 13
23RD GUAM LEGISLATURE RESPONSE REPORT TO INSPECTOR GENERAL

2.






3.

                                .
                n Systems SectIon - A newly created section
[OIG NOTE:
PARAGRAPH B.2
APPLICABLE TO
RECOMMENDATION
A.3.]

was approved in April of1996. This section eventually willbe the
legislative hub of automated data management of the day to day
operations of the Legislature. The Management Information Systems
Coordinator has successfully completed the "networking" needs of
fiscal administration sections.
      o .
    e G~ - Under the auspices of the Executive Sub-

[OIG NOTE:
PARAGRAPH B .3
APPLICABLE TO
RECOMMENDATIONS
A.1 AND A.2. ]

Co=ittee, Legislators, the Legislative Legal Counsel, Executive
Director, Acting Chief Fiscal Officer and supervisory staff have now
created written specification (s) of propriety (allowable) types of
expenditures. The guidelines have been submitted in the format of
Legislative Resolutions, Amended Standing Rules, Legislative
Administrative Provision (s), Policy and Procedures, Standard
Operating Procedures and Ratified Legislative Law (s) (Please find
examples attached).

  The area of non-governmental expenditures, State Funerals and Office Renovations
have been addressed as specified with delineated allowable costs stated.
[OIG NOTE: SENTENCE APPLICABLE TO RECOMMENDATION A.2. ]

. . .
~ - The internal controls for the Guam Legislature have drastically
improved. The conversion of the Legislature's manual accounting system to a efficient,
timely computerized processing and records transactiotidata records management system is
now within the scope and accordance with generally accepted accounting principles.

As a result, the following improvements and required responses are noted.

A. The published Annual Financial Statements including the following:

[OIG NOTE:
PARAGRAPH A
APPLICABLE TO  1.
RECOMMENDATION
A.3. ]     2.

[OIG NOTE:
PARAGRAPH B   3.
APPLICABLE TO
RECOMMENDATION
A.3. ]       4.

Report of expenditures of the Legislature's Operations Fund

Balance Sheet

Statement of Receipts

General Descriptions of Fund Expenditures

B. Timely release of the required monthly expenditure
been consistently released since September of 1995

budget status report has

       -.
A Report C. n Issues. Actions and Recommendations Concerning Problem Areas in Central Fiscal
Operations
(IG Assignment No. N-lN-GUA4M)2-95)          Page 9              AUDRPRT/acih.sb/9/24/96

24

 
                                      APPENDIX 3
                                      Page 12 of 13
23RD GUAM LEGISLATURE RESPONSE REPORT TO INSPECTOR GENERAL

c.

Human Resources Maximized - Persomel have been re-aligned and have

access to training and development programs in the Fiscal Administration
Sections. Efficiency and productivity has increased dramatically. Day to
day operations are conducted more expeditiously with fewer errors or

network system.

    computer "glitches" in the
co~w
The Guam Legislature has taken the draft audit reports recommendations under

advisement. For the record may the Legislature state that the majority of actions were
initiated _ the release of the audit.
           [OIG NoTE: NOS. 1,3, AND 4 APPLICABLE TO RECOMENDATIONS A. 3,
SPECIFICAJJ.Y   A. 2, AND A. 1, RESPECTIVELY. ]

1.

2.

3.

4.

Guam Legislature Annual Financial Statement Released.

Senatorial Sick leave accrual abolished.

State Funeral expenditures limited to the actual costs of

Standing Rules amended to validate and specify written

   expenditures for each account.
PROC~.~ ~ PROPE.HY MANAGRMEIYE

State Funerals.

guidelines for eliminated

  A Report c:? Issues, Actions and Recommendations Concerning Problem Areas in Central Fiscal
Operations
(IG Assignment No. N-IN-GUA-O02-95)          Page 10             AUDRPRT/acahsb/9124196

25

 
                                      APPENDIX 3      .
                                      Page 13 of 13      
23RD GUAM LEGISLATURE RESPONSE REPORT TO INSPECTOR GENERAL
   1. Mr. Joaquin C. Carnacho - Executive Director

2. Miss Doreen T. Crisostomo - Chief Fiscal Officer

3. Mrs. Arlene Aguon-Castro - Special Projects Coordinator

4. Mrs. Maria Reyes - Senior Accountant

5. Mr.

6. Ms.

7. Mr.

8. Mr.

Mark Guerrero - Senior Accountant

Geraldine Q. Flores - Accountant

Romeo Bejerana - Payroll Officer

John Tim Tolentino - Procurement/Property Control

9. Administrative Support /Logistical Staff Services:
  Miss Adrienne S. Benavente
  Mrs. Maryann R. Aguilar
  Mrs. Frances S. Lizama

    10. Mr. Johnny S. Sablan - Technical Advisor
[OIG NOTE: FOLLOWING TWO PARAGRAPHS APPLICABLE TO RECOMMENDATIONS
B. 1 AND B. 2.1
  The Fiscal Task Force met three (3) times a week for six (6) weeks to research develop
and create a comprehensive accounting procedures manual. The first portion of the manual
was approved by the Committee on Rules. The second portion was submitted to the
Executive Sub-Committee in May of 1996 and subsequently ratified.

w, segments include procurement and property control guidelines and procedures.

  Relevant documents are attached as APPENDIX V, Draft Audit Report on the Guam
Legislature from the Office of the Inspector General.

A Report on Issues, Actions and Recommendations Concerning Problem Areas in Central Fiscal
Operations
(IG Assignment No. N-IN-GUA-002-95)          Page 11             AUDRPRT/aca/asb/9/24/96

26

 
                       APPENDIX 4

STATUS OF AUDIT REPORT RECOMMENDATIONS

Finding/Recommendation
  Reference       Status

A. 1      Management
       concurs;
       additional
       information
       needed.

A.2

A.3

B.1 and B.2

B.3

Management
concurs;
additional
information
needed.

Management
concurs;
additional
information
needed.

Management
concurs;
additional
information
needed.

Implemented.

    Action Reauired

Provide the target date and the title of the
official responsible for monitoring passage
of the legislative resolutions pertaining to
allowable and unallowable expenditures
for donations, meals, entertainment, and
gifts.

Provide the target date and the title of the
official responsible for monitoring passage
of the legislative resolution that defines
allowable state funeral expenses.

Provide the target date and the title of the
official responsible for implementing the
accounting system and written account
descriptions.

Provide the target date and the title of the
official responsible for issuing the finalized
procurement and property management
procedures.

No further action is required.

27

 
Sending written documents to:             Calling:

Within the Continental United States

U.S. Department of the Interior         Our 24-hour
Office of Inspector General          Telephone HOTLINE
1849 C Street, N.W.             1-800-424-5081 or
Mail Stop 5341               (202) 208-5300
Washington, D.C. 20240

TDD for hearing impaired
(202) 208-2420 or
1-800-354-0996

Outside the Continental United States

Caribbean Redon

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 Redon

U.S. Department of the Interior         (700) 550-7428 or
Office of Inspector General          COMM 9-011-671-472-7279
North Pacific Region
238 Archbishop F.C. Flores Street
Suite 807, PDN Building
Agana, Guam 96910

 
:

w
: -

Toll Free Numbers:
1-800-424-5081
TDD 1-800-354-0996
lTS/Commercial Numbers:
(202) 208-5300
TDD (202) 208-2420

1849 C Street N.W.
Mail Stop 5341
Washington, D.C. 20240