[Audit Report on the Legislature Capital Improvement Fund, Guam Legislature, Government of Guam]
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Report No. 98-I-264

Title: Audit Report on the Legislature Capital Improvement Fund,
       Guam Legislature, Government of Guam

Date: February 20, 1998

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N-IN-GUA-001-97

United States Department of the Interior

OFFICE OF INSPECTOR GENERAL
Washington, D.C. 20240

The Honorable Antonio R. Unpingco
Speaker
Twenty-Fourth Guam Legislature
155 Hesler Drive
Agana, Guam 96910

Subject:  Audit Report on the Legislature Capital Improvement Fund, Guam Legislature,
Government of Guam (No. 98-I-264)

Dear Speaker Unpingco:

This report presents the results of our review of the Legislature Capital Improvement Fund,
which was requested by the Speaker of the 23rd Guam Legislature. The objective of the
review was to determine whether the Capital Improvement Fund (1) was used for its intended
purpose and in an effective and efficient manner and (2) was properly accounted for and
controlled in accordance with applicable laws and regulations.

We found that the Capital Improvement Fund was not used effectively and efficiently and that
in at least one instance, a contracted engineer may have been paid for services that were not
included in the contract. In addition, the Legislature did not know the status of the capital
improvement funding and did not collect interest on unexpended funds. These conditions
occurred because the Legislature (1) did not adequately plan for zoning restrictions before
contracting with the architect; (2) did not establish adequate procedures to review contractor
invoices before payment; (3) commingled the capital project appropriations and expenditures
within the Legislature Operations Fund; and (4) did not establish an interest&earing account
as required by the appropriation law. As a result, the Legislature used more than $5.7 million
of Capital Improvement Fund appropriations for work that will not be used, may have paid
$894,110 for engineering services that were not contracted for, improperly used $15,000 for
legislative operating expenses, and lost interest income of at least $19,250. In addition, the
Legislature was unaware that the Executive Branch had transferred $3.25 million Tom Capital
Improvement Fund appropriations for typhoon-related emergency expenses.

To correct these conditions, we recommended that the Speaker of the 24th Guam Legislature
(1) identify a feasible concept for a new legislative complex, taking into consideration
available funding and applicable building and zoning laws; (2) develop and implement
procedures to ensure that invoices submitted by contractors are adequately reviewed prior to
payment for allowability under the contract; (3) instruct the Legislative Legal Counsel to
evaluate the project engineer's contract in relation to the apparent overpayments and take
appropriate action; (4) account for monies appropriated to the Legislature Capital
Improvement Fund in accordance with generally accepted accounting principles and prepare

 
annual financial statements; (5) establish an interest-bearing account and deposit the remaining
Capital Improvement Fund monies into the account; (6) request that the Governor submit to
the Legislature an expenditure report showing how the $3.25 million emergency transfer was
used; and (7) instruct the Legal Counsel to determine whether the General Fund should
reimburse the Capital Improvement Fund for the $3.25 million transferred by the Executive
Branch.

On September 2, 1997, we discussed the preliminary draft of the report with officials of
the Guam Legislature, who expressed general concurrence with the findings and
recommendations.

On December 11, 1997, we transmitted a draft of this report to you, as Speaker of the
Guam Legislature, requesting your comments by January 30,1998. However, a response
to the draft report has not been provided. Therefore, since this report is being issued
without the benefit of your response, all of the recommendations are considered unresolved
(see Appendix 3).

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 l), 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 March 27, 1998. The response should be addressed to our North Pacific Region,
238 Archbishop F.C. Flores Street, Suite 807, Pacific News Building, Agana, Guam
96910. The response should provide the information requested in Appendix 3.

We appreciate your assistance and the assistance of the Chairman of the Committee on
Rules and his staff during the conduct of our audit.

Sincerely,

Robert J. Williams
Acting Inspector General

 
CONTENTS

Page

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

BACKGROUND ................................................ 1
OBJECTIVE AND SCOPE ........................................ 2
PRIOR AUDIT COVERAGE ...................................... 3

FINDINGS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A. USE OF FUNDS ............................................. 4
B. CONTROL OVER FUNDS ..................................... 9

APPENDICES

1. CLASSIFICATION OF MONETARY AMOUNTS . . . . . . . . . . . . . . . . . . 14
2. APPROPRIATIONS, EXPENDITURES, AND OTHER USES
OF THE LEGISLATURE CAPITAL IMPROVEMENT FUND
FROM JANUARY 1,1985, THROUGH DECEMBER 3 1,1996 . . . . . . . 15
3. STATUS OF AUDIT REPORT RECOMMENDATIONS . . . . . . . . . . . . . 16

 
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 comprises
21 Senators elected at-large every 2 years. 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 the overall operations of the Legislature, including establishing an annual
budget; maintaining, through a Chief Fiscal Officer, an accounting system; and preparing
annual fmancial statements.  Under the Rules Committee, an Executive Director
administers, through the Central Offices, personnel, payroll, procurement, property

annual budget, with funds allotted by the Bureau of Budget and Management Research
through the Department of Administration of the Executive Branch.

From 1947 to 1989, the Legislature conducted sessions, committee hearings, and
administrative operations at the Legislature building located in the city of Agana.
However, the Legislature building, which was erected in 1947, was in need of renovation.
On February 14, 1985, Guam Public Law 18-01 created the Legislature Capital
Improvement Fund.  Section 3 of Public Law 18-01, in part, states, "All money
appropriated for capital improvements and additions for the Legislature building and for
the provision of offices while such capital improvements and additions are being made
shall be paid directly to the fund and disbursed by the Legislature." During calendar year
1985, the Legislature appropriated $1.2 million to the Capital Improvement Fund (of
which an unencumbered balance of $536,276 was reappropriated by the Legislature in
calendar year 1986), and during calendar years 1985 and 1986, the Legislature charged
expenditures totaling $663,7242 against the Capital Improvement Fund. However, actual
work did not begin on replacing the existing building until 1989, when the 20th Legislature
established a Building Subcommittee under the Rules Committee.

the Fund (reduced by $15 million in calendar year 1993); (2) contracted with an
engineering consultant, at a contract price of $2.9 million, to provide basic engineering

Operations Fund, which was established by Title 2, Section 1121, of the Guam Code Annotated.

and 1986, we could not determine, because of the condition of the records, how the funds were
actually expended.

3Fund appropriations, expenditures, and other uses are summarized in Appendix 2.

1

 
and construction management services during the period of July 1, 1989 to December 31,
1996; and (3) contracted with an architect, at a contract price of $1.6 million, to provide
architectural and interior design services for a new building during an unspecified period
beginning on August 31, 1990. Although the Legislature's contracted engineer had
recommended that the existing Legislature building be demolished and that a new building
be constructed in its place, the Building Subcommittee decided to completely renovate the
existing building because of its historical significance, construct a new session hall, and
construct a new office building for the administrative staff and the Senators' offices. All
three of the structures would make up the overall legislative complex. During
renovation/construction of the facilities, the Legislature needed a temporary site to conduct
its normal business. Accordingly, a building was leased and remodeled to house the
Legislature's administrative offices and session hall. The first legislative session at the
temporary location was held on April 23, 1990, and all subsequent sessions through
April 30, 1997, were held in this leased building. As of May 2, 1997, construction of the
legislative complex had not been completed because of unresolved issues pertaining to
parking spaces and the office building height.

OBJECTIVE AND SCOPE

The objective of our review was to determine whether the Capital Improvement Fund
(1) was used for its intended purpose and in an effective and efficient manner and (2) was
properly accounted for and controlled in accordance with applicable laws and regulations.
To accomplish our objective, we reviewed the Legislature's financial and administrative
records and reports at the Department of Administration and the Bureau of Budget and
Management Research, as well as available documents and reports related to the Fund at
the Legislature. We also interviewed former Legislature officials and contractor personnel
concerning the use of and control over the Fund.

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. Our review covered the period of January 1985 through
December 1996, a 12-year period that included six legislative terms. However, project
accounting and administrative records were not available for October through December
1995.

As part of the audit, we evaluated the accounting and management controls over
appropriations, allotments, fund transfers, expenditures, contracts, and financial
management reporting. We found major internal control weaknesses in all of these 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

During the past 5 years, the General Accounting Office has not issued any audit reports
pertaining to the Legislature Capital Improvement Fund. However, in March 1997, the
Office of Inspector General issued the audit report "Guam Legislature, Government of
Guam" (No. 97-I-591), which dealt with expenditures of the Legislature Operations Fund.
Since the Legislature commingled appropriations and expenditures of the Capital

applicable to this review. The prior audit report concluded that the Legislature (1) incurred
costs for nongovernmental activities and incorrectly charged Senators' operating
expenditures against the Senators' office renovation accounts; (2) did not prepare required
annual financial statements; (3) did not obtain competitive proposals when procuring
equipment; and (4) did not account for all of its property. Although the Legislature
concurred with the findings, we found during our current review that corrective actions
had not been taken on these deficiencies.

3

 
FINDINGS AND RECOMMENDATIONS

A. USE OF FUNDS

The Legislature Capital Improvement Fund was not used effectively and efficiently.
Specifically, the Fund paid for engineering and architectural services to develop designs
that will not be used and for engineering services that were not identified in the official
contract requirements.  These conditions occurred because the Legislature did not
adequately address parking space and building height requirements contained in Title 21,
Sections 61401 and 61531, of the Guam Code Annotated before it contracted with the
architect to design a new legislative complex and did not have adequate procedures for
reviewing contractor invoices before it made payments to the contractor. As a result,
the Legislature incurred costs of $5.8 million, which consisted of $2.6 million for
unused project management and architectural services, $1.2 million for partial renovations
to the existing Legislature building, and $2 million for rental of an alternate site for the
Legislature. The Legislature also made overpayments of $894,110 for basic engineering
and construction management services for the complex.

Legislative Complex

During the planning stage for construction of the new legislative complex, the Legislature
did not resolve two critical zoning issues prior to allowing the project engineer and the
design architect to proceed with the design of the project. Specifically, the Legislature did
not provide the minimum number of parking spaces required or obtain a building height
variance to exceed the height restriction imposed by the zoning law.  Title 21,
Section 61531, of the Guam Code Annotated provides the minimum number of off-street
parking spaces required for new business and government office buildings based on square
footage and the number of building occupants (based on the criteria in the law, this equates
to a requirement for a minimum of 375 parking spaces for the building to be constructed),
and Title 21, Section 61401, of the Code provides a building height limitation (at the site
where the legislative complex was to be constructed) of six stories, not to exceed 75 feet.

Both the parking and height restrictions were identified in July 1989 in the project
engineer's feasibility study, which, after considering the Senators' and the administrative
offices' space requirements, stated that a minimum of 375 parking spaces would be needed
(which could not be accommodated at the planned location) and that the desired 100,984
square feet of office space at the existing site would require a building of more than six
stories. According to the project engineer, the Building Subcommittee recognized the
requirement for additional parking and the height limitation but believed that it could pass
legislation which would exempt the Legislature's complex from these two requirements.
However, the Governor vetoed the two bills the Legislature passed to change the zoning
law. The frost bill (No. 470 (COR)) was passed on August 30, 1991, and the second

letter to the Speaker for the second veto, the Governor cited the overall parking problem

 
in Agana and the need to address this issue rather than waiving the requirements for the
Legislature. Regarding the height restriction, the Governor suggested in the letter that the
Legislature apply, as other builders were required to do, for a variance from the Territorial
Land Use Commission. After the second veto, the Legislature considered options such as
satellite parking, the transfer of the current design to another location, and even the
development of another design. However, none of these options were finalized, and work
on the project was stopped in February 1992.

At the time of the Governor's second veto in January 1992, the architects, who had been
hired in August 1990, had finished their design work for the legislative complex, which
included a lo-story office building and a legislative session hall, and submitted their plans
and specifications to the Department of Public Works for review. By January 1992, the
architects had been paid $1.94 million of the total of $1.99 million under the
contract. 4

During our audit, we discussed, with the Chairman, Committee on Rules, 24th Guam
Legislature, the prospects of using the design work completed by the project architect. The
Chairman stated that the Legislature "would never use the plans." Therefore, the Legislature

services before it ensured that the required changes to the zoning laws would be made.

As of January 27, 1992, work on renovating the existing Legislature building, which was not
dependent on any zoning variances, had also stopped. At that time, about $1.2 million had
been spent for engineering and architectural design work ($435,559) and for demolition,
testing, and asbestos removal ($733,837). On August 31, 1993, the project was left without
funding when the Legislature reappropriated $15 million from the Legislature Capital
Improvement Fund to earthquake recovery efforts after the island sustained a major
earthquake on August 8,1993. As of September 1997, the Legislature had not appropriated
any additional funds to continue this project. In addition, since the overall project was
halted,6 the Legislature had to spend $1,976,875 to continue renting the building used to
temporarily house the Legislature's Central Offices and session hall from January 1992
through December 1996.

4As of December 31, 1996, the Legislature had paid the architects a total of $1992,781 for
professional
services. On March 22, 1996, the architects submitted two additional bills, totaling $983,570, which
were
disputed by the Legislature. As of October 14, 1997, this issue had not been resolved.

5As of December 3 1, 1996, the Legislature had paid the project engineer a total of $1,944,5 12 for
professional
services. Of that amount, $66,045 was for construction management and $258,003 was for
architectural fees for
the renovation of the old Legislature building, $111,5 11 was for reimbursable expenses, and
$894,110 was for
additional services that we questioned. The remaining $614,843 was for engineering services related
to the new
legislative complex.

6At the time of the Governor's second veto (January 27, 1992), four options had been developed to
address the
parking and height restrictions. However, none of the options were finalized.

5

 
Payments to Project Engineer

The Guam Legislature paid its consulting project engineer $1,944,5 12 for contractual
services for the legislative complex from July 1, 1989, through December 31, 1996.
However, we determined that $894,110 was paid for services in excess of contract
provisions or for work that was not included in the contract. This occurred because the
Legislature did not have procedures to adequately review contractor invoices for
allowability in accordance with the scope of work in the contract.

The Legislature's Standing Rules state that the Executive Director is the disbursing officer
and the Chief Fiscal Officer is the certifying officer for the Legislature. Specifically,
Title 4, Section 14104(2), of the Guam Code Annotated states that the disbursing officer
"shall make such examination of vouchers as may be necessary to ascertain whether they
are in proper form, duly certified and approved, and correctly computed on the basis of
the facts certified, rr7 and Title 4, Section 14105(a)(l), of the Guam Code Annotated states
that the certifying officer "shall be held responsible for the existence and correctness of
the facts recited on the certificate or otherwise stated on the voucher or its supporting
papers and for the legality of the proposed payments under the appropriation or fund
involved. " Accordingly, both the Executive Director and the Chief Fiscal Officer are
responsible for ensuring that the Legislature's funds are disbursed only for expenditures
that are legal liabilities of the Legislature. However, during the period of June 1990
through July 1996, the Legislature approved and processed invoices submitted by the
consulting engineer without verifying that the amounts and services billed related to the
terms and conditions of the contract between the engineer and the Legislature.

Based on our review of contract payments as they pertained to the contract specifications,
we identified $894,110 for construction management ($695,340) and basic contract
services ($198,770) that were not covered by the contract. For example, Article 10,
Section lO.O4b, of the contract between the Legislature and the consulting engineer states
that compensation for the engineer during the construction phase of the project would be
at a rate of 9 percent of the total construction cost. During the period of July 1, 1991,
through March 31, 1993, the Legislature made 17 payments, totaling $415,231 ,s to the
consulting engineer for construction management services on the restoration work for the
existing Legislature building. However, based on our analysis of the project records, we
determined that renovation work totaling $733,837 had been performed as of March 3 1,
1993, which equated to earned construction management fees of !$66,045,9 thus resulting
in an overbilling of $349,186. We also found that the consulting engineer billed $346,154
for construction management on the new legislative complex, although construction on the

`A voucher is an internal control document used to
needed to process an invoice for payment.

record the verification of accounting information and approvals

*The Legislature was able to provide invoices supporting only 13 of the I7 payments made to the
engineer.
The $66,045 is 9 percent of the $733,837 for actual renovation work.

6

 
complex was never started, and $198,770 for basic services, which was in excess of the
amounts provided under the original contract and a subsequent contract amendment.

We asked the consulting engineer about the billings, and he stated that, although the
renovation project was never completed, the billings were for additional work that was
requested by the Building Subcommittee but was not covered by the contract. The
engineer also stated that the Subcommittee told him that the additional work would be
compensated for through the 9 percent construction management fee for the renovation
project. The engineer did not document this instruction through an amendment to the
contract, a memorandum of understanding, or a notation on the invoices. Moreover, we
did not find any documentation within the Legislature's project records, such as minutes
of Subcommittee meetings, indicating that this additional work had been directed.

We asked the former Executive Director and the Chief Fiscal Officer why they approved
payments for work that did not appear to be covered under the consulting engineer's
contract or approved through supplemental records. The former Executive Director stated
that he "did not understand the contract" and "trusted" the Chief Fiscal Officer to check
the accuracy and propriety of the billings. However, the former Chief Fiscal Officer
stated that she was only "certifying that funds were available" and relied on the Executive
Director to determine the applicability and correctness of the billings for payment. During
our review of the $1.94 million of payments made to the consulting engineer, we did not
find any records to indicate that the engineer's billings were analyzed as they pertained to
the contract specifications. Specifically, the contract payment file contained a copy of

each billing statement signed by the former Executive Director and the former Chief Fiscal
Officer and a working paper showing the individual contract payments made against the
total amount obligated for the contract. The individual billings did not indicate that the
amounts billed were reviewed for mathematical accuracy or applicability under the
contract. Accordingly, we believe that the contract overpayments occurred because of the
lack of effective procedures for reviewing and approving contractors' invoices before
payment.

Recommendations

We recommend that the Speaker of the Guam Legislature:

for ftishing the renovation of the original Legislature building, taking into consideration
available funding and zoning law requirements.

  2. Develop and implement procedures to ensure that invoices submitted by
contractors are adequately reviewed prior to payment to determine that the services billed
for were performed and that the amounts billed were in accordance with contract terms and
conditions.

 
    3. Instruct the Legislative Legal Counsel to evaluate the project engineer's contract
as it pertains to the apparent overpayments identified in this report and, if appropriate,
recover any overpayments made to the project engineer.

Guam Legislature Response and Office of Inspector General Reply

The Guam Legislature did not provide a response to the draft report. Therefore, all of the
recommendations are considered unresolved (see Appendix 3).

8

 
B. CONTROL OVER FUNDS

The Guam Legislature did not adequately control the Legislature's capital improvement
funding and did not collect interest on unexpended funds. These conditions occurred
because the Legislature (1) did not account for the Capital Improvement Fund separately
from the Operations Fund and did not record all transactions related to the Fund, as
required by Guam Public Law 18-01, and (2) did not establish an interest-bearing account,
as required by Guam Public Law 20-41. As a result, the Legislature had no assurance that
expenditures of $7 million, including $15,OW specifically used for Legislature operations,
were for the intended purposes of the Capital Improvement Fund, and it lost at least
$19,250 in interest income. Also, the Legislature was unaware that the Executive Branch
had transferred $3.25 million from the Capital Improvement Fund for use in the recovery
from Typhoon Omar.

Legislature Capital Improvement Fund

Guam Public Law 18-01, Section 3, states:

There is hereby created a special fund to be known as the "Legislature
Capital Improvement Fund, " such fund to be administered by the
Legislature.  All money appropriated for capital improvements and
additions for the Legislature building and for the provision of offices while
such capital improvements and additions are being made shall be paid
directly to the fund and disbursed by the Legislature.

However, contrary to the requirement to establish a separate fund, the Legislature
commingled Capital Improvement Fund appropriations of $26.5 million and expenditures
                         As stated in our

statements were issued for the Operations Fund from 1986 through 1995, and the
accounting system was not in compliance with generally accepted accounting principles.
Because of the commingling of funds and the lack of financial statements, the Legislature
did not have adequate control of either the Operations Fund or the amounts appropriated
for the Capital Improvement Fund.

The Legislature's former Chief Fiscal Officer for the period of 1989 through 1994 stated
that she was "uncertain" why a separate fund had not been established to account for the

"As shown in Appendix 2, $26,450,000 was appropriated to the Legislature Capital Improvement
Fund, but
$15536,276 was subsequently reappropriated, $3,250,000 was transferred out of the Fund by the
Executive
Branch, and $15,000 was expended for noncapital improvement purposes, leaving a net expendable
appropriation
of $7,648,724. Of that amount, $7,019,452 was expended for the Legislature building project,
leaving an available
balance of $629,272.

`l"Guam Legislature, Government of Guam" (Report No. 97-I-591), issued in March 1997.

9

 
Legislature Capital Improvement appropriations and expenditures. However, the loss of
control that resulted from the commingling of appropriations and expenditures is illustrated
as follows:

      -  In July 1989, the former Executive Director authorized the transfer of $15,000
from the Legislature building appropriation/expenditure account to an account established
for a Special Ethics Committee. Based on our review of available records, we concluded
that the Special Ethics Committee had no legislative responsibility for or involvement with
the Legislature building project. If the Legislature had established a separate fund to
account for the Capital Improvement Fund appropriations, as provided by law, the
$15,000 transfer could have been properly accounted for as a loan, which would have
resulted in a receivable in the Capital Improvement Fund with a corresponding payable in
the Legislature Operations Fund.

      -  In a May 17, 1996, letter to the Director of the Bureau of Budget and
Management Research, the Chairman of the Committee on Rules of the 23rd Guam
Legislature requested information to determine the "true and correct" status of all
appropriations, allotments, and fund transfers applicable to the Capital Improvement Fund
and the Operations Fund for the prior 5 years.  Based on the reconciliation that was
subsequently performed between the Legislature, the Bureau of Budget and Management
Research, and the Department of Administration, the Legislature found that its accounting
records had not recorded Capital Improvement Fund monies totaling $3.75 million that had
been transferred to the Legislature from the Department of Administration. The
$3.75 million error would have been detected and corrected in September or October 1992
as part of the year-end financial statement preparation process had the Legislature
separately maintained a Capital Improvement Fund and an Operations Fund and issued
the required annual financial statements for both funds.

Interest-Bearing Account

Guam Public Law 20-41, Chapter III, Section 3 (enacted on September 13, 1989),
appropriated $6 million for the Legislature Capital Improvement Fund and stated:

The said amount [$6 million] shall be placed in an interest-bearing account
or time certificate of deposit by the Committee on Rules in a bank or
savings and loan association on Guam which will pay the highest rate of
interest. . . .  All interest shall accrue to the Legislature Capital
Improvement Fund and shall be used for the construction of a new
legislative building.

However, contrary to this requirement, the interest-bearing account was not established.
The Legislature's former Chief Fiscal Officer told us that an interest-bearing account was
not established because the Department of Administration "was slow" in transferring funds
for the new legislative complex to the Legislature. As a result, expenditures were paid
from funds in the Operations Fund, and when funds specifically appropriated for capital

10

 
improvements were transferred to the Legislature, they were used to reimburse the
Operations Fund appropriations.

Based on our analysis of fund transfers and expenditures for the Legislature building, we
determined that there was a negative cash flow between fund transfers for the Capital
Improvement Fund and expenditures from the Fund for 69 out of 88 months between
September 1989, when Public Law 20-41 was enacted, through December 1996.
However, we determined that, during the periods of January through September 1990 and
March through December 1996, there was a positive cash flow between fund transfers and
expenditures that could have earned interest of $2,973 and $16,277 for the respective time
periods, for a total of $19,250.12

We also found that by delaying requests for the transfer of Capital Improvement Fund
allotments, I3 the Legislature may have contributed to the resultant negative cash flow.
Specifically,
.      funds appropriated to the Legislature were allotted by the Bureau of Budget
and Management Research and then transferred to the Legislature by the Department of
Administration after the funds were requested by the Legislature. Actual fund transfers
were also contingent on sufficient government funds being available.  We determined that
requests for the funds transfers did not coincide with the appropriations. For example, the
$6 million appropriated under Public Law 20-41 (enacted in September 1989) was
transferred to the Legislature over a 7-year period (fiscal years 1990 to 1996), with
$2.57 million transferred during fiscal years 1995 and 1996, more than 3 years after the
Governor's second veto of legislation that exempted the Legislature from zoning
requirements, which effectively stopped the construction project. In reviewing the
transfer documents for the $2.57 million at the Department of Administration, we did
not find any indication that these funds had been requested by the Legislature before
January 1995. If these funds had been requested, received, and deposited before the end
of 1994 into an account earning interest at a rate of 3 percent per year, compounded
monthly, the Legislature could have increased the interest earned by an additional $27,8 19,
for a total of $47,069.

Transfer of Funds

Title 5, Section 22402, of the Guam Code Annotated ("Emergency Expenses") authorizes
the Governor of Guam to

12The potential interest income of $19,250 was computed based on the Capital Improvement funds
being deposited
into a savings account at a Guam bank earning 3 percent per year compounded monthly.

13An "appropriation" is a legal authorization by a legislative body (the Guam Legislature) to spend
money within
specified restrictions, such as amount, time period, or purpose. An "allotment" is an administrative
release by a
budget control agency (the Guam Bureau of Budget and Management Research) of a portion of
funds that were
previously appropriated. Allotments are usually made on a quarterly basis and are used to control
the amount and
timing of obligations and expenditures during a fiscal year.

11

 
utilize any part or portion, not to exceed Two Hundred Fifty Thousand
Dollars [$250,000] of outstanding appropriations within the General Fund
for expenses caused by civil defense, public safety or health emergencies.
Whenever this authorization is used by the Governor, he shall report the
expenditure thereunder to the Legislature within five days.

As a result of damage caused by Typhoon Omar, on August 28, 1992, the Governor used
this provision of the law to transfer a total of $3.25 million of appropriations for the
Capital Improvement Fund through the issuance of 13 Executive Orders on August 29,
1992. Each Executive Order authorized the transfer of $250,000 to various agencies and
departments of the Government of Guam for debris cleanup, typhoon damage repair, or
emergency services to the public.  This amount was in addition to the $15 million
transferred from the Capital Improvement Fund appropriations by the Legislature for
earthquake recovery efforts.

The Acting Chief Fiscal Officer of the 23rd Guam Legislature told us that the
$3.25 million transfer was not recorded in the Legislature's accounting records and that
she only became aware of the transfer in 1995 (more than 2 years after the transfer took
place) when her staff was trying to determine how much money the Legislature had and
was informed by the Department of Administration of the transfer. The Controller,
Department of Administration, told us that he did not think that the required expenditure
report on how the $3.25 million was spent had been prepared and submitted to the
Legislature. We believe that the combined effect of commingling the Capital Improvement
Fund appropriations, allotments, and expenditures with the Operations Fund and the lack
of annual financial statements for the two funds contributed to a general loss of control
over the Capital Improvement Fund appropriations, which allowed the emergency transfer
to occur without the Legislature's knowledge.

The Governor's 13 Executive Orders were issued on August 29, 1992. However, we were
unable to determine whether the use of multiple Executive Orders to transfer the
$3.25 million from appropriations of the Capital Improvement Fund was appropriate; that
is, whether the Governor had the authority to transfer more than $250,000 at any one time.
On September 3, 1992, Guam Public Law 21435 was enacted to authorize the Governor
to use up to $10 million of appropriations available in fiscal years 1992 and 1993 for
disaster relief from Typhoon Omar. The Public Law further stated that if any of the funds
expended from the appropriation were subsequently reimbursed by the Federal
Government, the reimbursement was to be deposited to the General Fund and be available
for appropriation. According to the Controller of the Department of Administration, the
Government of Guam received approximately $9.1 million from the Federal Emergency
Management Agency (FEMA) for damage caused by Typhoon Omar. Therefore, we
believe that the Legislature should address whether the $3.25 million should be repaid to
the Capital Improvement Fund because of the FEMA reimbursement and/or the lack of
Executive transfer authority.

12

 
Recommendations

We recommend that the Speaker of the Guam Legislature:

  1. Account for monies appropriated to the Legislature Capital Improvement Fund
and Operations Fund in accordance with generally accepted accounting principles and
prepare annual financial statements for the funds as of December 31, 1996.

  2. Establish an interest-bearing account and deposit all available Legislature
Capital Improvement Fund monies into the account.

  3. Request that the Governor submit to the Legislature an expenditure report
showing how the $3.25 million emergency transfer was used.

  4. Instruct the Legislative Legal Counsel to determine whether the General Fund
should reimburse the Legislature Capital Improvement Fund for all or part of the
$3.25 million transferred by the Executive Branch.

Guam Legislature Response and Office of Inspector General Reply

The Guam Legislature did not provide a response to the draft report. Therefore, all of the
recommendations are considered unresolved (see Appendix 3).

13

 
APPENDIX 1

CLASSIFICATION OF MONETARY AMOUNTS

          .   .
    Fmdmg Areas

A. Use of Funds
Legislative Complex
Payments to Project Engineer

Funds To Be Put
To Better Use*   Lost Revenues*


$5,753,895
  894,110

B. Control Over Funds
Legislature Capital Improvement
    Fund
Interest-Bearing Account
Transfer of Funds

15,000
         $19,250
3.250.000

Total              $9.913$05     $19.250

*Amounts represent local funds.

14

 
APPENDIX 2

APPROPRIATIONS, EXPENDITURES, AND OTHER USES OF THE
     LEGISLATURE CAPITAL IMPROVEMENT FUND
FROM JANUARY 1, 1985, THROUGH DECEMBER 31,1996

Cal. 1


Calendar
Year





1985


1986


1987


1988


1989


1990


1991


1992


1993


1994


1995


1996


TOTAL

Cal. 2       Cal. 3       Cal. 4        Cal. 5        Cal. 6       Cal. 7       Cal. 8       Cob 9
                                                               Total
Beginning   Appropriations  Appropriations    Total Funds                   Expenditures    Ending
Balance      To Fund     From Fund     Available    Expenditures   Other Uses *    & Other    Balanci
                       (Cols. 2+3 - 4)                       Uses      (Cols. 5 - 8)
                                                   (Cols. 6 + 7)

      0    $1,2~,~          0    $1,2oo,ooo     $273,457          0    $273,457    $926,543

$926,543          0    ($536,276)      390,267      390,267          0     390,267         0


      0          0          0           0           0          0          0         0


      0          0          0           0           0          0          0         0


      0     6,050,OOO          0     6,050,OOO      269,476     $15,000     284,476    5765,524

5,765,524    19,200,OOO          0     24,965,524     1,319,872          0    1,319,872   23645,652

23645,652           0          0     23645,652     3,598,913          0    3,598,913   20,046,739

20,046,739          0          0     20,046,739      687,626    3,250,OOO    3,937,626   16,109,113

16,109,113          0   (ls,~,~)     1,109,113      353,355          0     353,355     755,758

755,758          0          0      755,758      43,813          0      43,813     711,945

711,945          0          0      711,945       5,806          0      5,806     706,139

706,139          0          0      706,139       76.867          0      76.867     629,272

        $26.45O.OOQ  ($15536,2761              $7.019.452    $3.265.000 $10.284.452

* The $15,000 was used to fund an Ethics Committee, and the $3.25 million was an emergency
transfer of funds to assist in the recovery after Typhoon Omar.

o

15

 
APPENDIX 3

STATUS OF AUDIT REPORT RECOMMENDATIONS

Finding/Recommendation
  Reference

status        Action Required

A. l-A.3 and B. l-B.4

Unresolved.  Provide a response to each
     recommendation indicating concurrence or
     nonconcurrence. If concurrence is
     indicated, provide an action plan that
     identifies the target date and the title of the
     offke responsible for implementation. If
     nonconcurrence is indicated, provide
     specific reasons for the nonconcurrence.

16

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

Sending written documents to:            Calling:

Mrlthin the Continental United States

U.S. Department of the Interior
Office of Inspector General
1849 C Street, N.W.
Mail Stop 5341
Washington, D.C. 20240

Our 240hour
Telephone HOTLINE
l-800-424-5081 or
(202) 208-5300

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

Outside the Continental United States

Caribbean Region

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

North Pacific Retion

(703) 235-9221

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

(700) 550-7428 or
COMM: 9-011-671-472-7279

 
Toll Free iNumbers:
1-800-424-5081
TDD l-800-354-0996

FWCommerciai Numbers:
(202) 208-5300
TDD (202) 208-2420

HOTLINE

1849 C Streeh NW.
Mail Stop 5341
Washington. D.C. 20240

`i
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