[Audit Report on Hurricane-Related Contracting, Department of Education, Government of the Virgin Islands]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 98-I-384

Title: Audit Report on Hurricane-Related Contracting, Department
       of Education, Government of the Virgin Islands

     Date:  April 13, 1998

  
  
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    U.S. Department of the Interior
    Office of Inspector General

    AUDIT REPORT

    HURRICANE-RELATED CONTRACTING,
    DEPARTMENT OF EDUCATION,
    GOVERNMENT OF THE VIRGIN ISLANDS

    REPORT NO. 98-I-384
    MARCH 1998
   


     MEMORANDUM                                           APRIL 13 1993
     

     FROM:  United States Department of the Interior
            OFFICE OF INSPECTOR GENERAL
            Washington, D.C. 20240
           
       TO:  The Secretary
            Robert J. Williams :
            Acting Inspector General

     SUBJECT SUMMARY: Final Audit Report for Your Information - 
                      "Hurricane-Related Contracting,
                      Department of Education,
                      Government of the Virgin Islands" (No. 98-I-384)
  
  
     Attached for your information is a copy of the subject final
     audit report. The objective of the audit was to determine
     whether ( 1 ) construction contracts were awarded in accordance
     with applicable laws and regulations, (2) controls existed to
     ensure that construction work was performed in accordance with
     building codes and other requirements, and (3) payments to
     contractors were reasonable, allowable, and allocable in
     accordance with contract provisions. We found that the
     procurement and project management procedures used by the
     Department of Education and the Government's project management
     consultants excluded authorized Government agencies from key
     aspects of the post-hurricane construction contracting.
     Specifically, we found that (1) the Department of Public
     Works, on behalf of the Department of Education, allowed
     construction contractors to perform work on public schools
     without any formal contracts; (2) the Hurricane Recovery
     Managers used contracting procedures that excluded the
     Department of Property and Procurement and did not provide the
     level of competition required by the Virgin Islands Code; and
     (3) the Government and the Hurricane Recovery Managers did not
     maintain an adequate level of construction management oversight.
     As a result, there was little assurance that (1) the Government
     received the most favorable prices, terms, and conditions with
     regard to construction and other contractual services acquired
     at a total cost of more than $21.5 million; (2) contractors who
     received payments totaling more than $21 million performed
     construction work in accordance with the terms and conditions
     oftheir contracts; and (3) the safety of the occupants of public
     schools was adequately protected because the construction work
     did not always meet building code requirements. We made seven
     recommendations to improve the Government's procurement and
     project management practices and procedures. Based on the
     response from the Governor of the Virgin Islands, we considered
     three recommendations resolved but not implemented; requested
     additional information for three recommendations; and requested
     a response for one recommendation, which was revised based on
     the Governor's response. If you have any questions concerning
     this matter, please contact me at (202) 208-5745. Attachment 
  


   MAR 31 1998                                           V-IN-VIS-002-97
   
   United States Department of the Interior
   
   OFFICE OF INSPECTOR GENERAL
   
   Washington, D.C. 20240
   Honorable Roy L. Schneider
   Governor of the Virgin Islands
   No. 21 Kongens Gade
   Charlotte Amalie, Virgin Islands 00802

   
   Subject: Audit Report on Hurricane-Related Contracting, Department of
            Education, Government of the Virgin Islands (No. 98-I-384)


     Dear Governor Schneider: This report presents the results of our
     review of contracts awarded by or for the Virgin Islands
     Department of Education after Hurricane Marilyn in September
     1995. The objective of the audit was to determine whether (1)
     construction contracts were awarded in accordance with
     applicable laws and regulations; (2) controls existed to ensure
     that construction work was performed in accordance with building
     codes and other requirements; and (3) payments to contractors
     were reasonable, allowable, and allocable in accordance with
     contract provisions. The scope of the audit included
     construction and professional services contracts that were
     awarded during fiscal years 1996 and 1997. Our review disclosed
     that the procurement and project management procedures used by
     the Department of Education and the Government's project
     management consultants excluded authorized Governmental agencies
     from key aspects of the post-hurricane construction contracting.
     Specifically, we found that: Immediately after the hurricane,
     the Department of Public Works, on behalf of the Department of
     Education, allowed construction contractors to perform work on
     public schools without any formal contracts and issued "after
     -the-fact" purchase orders for additional services acquired on
     behalf of the Department of Education. Additionally, the
     Hurricane Recovery Managers used contracting procedures that
     excluded the Department of Property and Procurement, which has
     overall responsibility for Government contracting, and did not
     provide the level of competition required by the Virgin Islands
     Code, even though emergency conditions existed after the
     hurricane. As a result, there was little assurance that the
     Government received the most favorable prices, terms, and
     conditions with regard to construction and other contractual
     services acquired at a total cost of more than $21.5 million and
     for "after-the-fact" purchase orders totaling $164,000. The
     Government and the Hurricane Recovery Managers did not maintain
     an adequate level of construction management oversight. For
     example, construction contractors' periodic requests for payment
     were not always approved by authorized personnel; inspection 
     and progress reports were not always sufftciently detailed to
     support contractors' payment requests; and the Government did
     not adequately monitor the activities of its project management
     consultants, including the Hurricane Recovery Managers. In
     addition, building permits were not obtained for work to be
     performed on the public schools, and such work was not always
     performed in accordance with building code requirements. As a
     result, there was little assurance that contractors who received
     payments totaling more than $21 million performed construction
     work in accordance with the terms and conditions of their
     contracts and that the safety of the occupants of public schools
     was adequately protected because the construction work did not
     always meet building code requirements. In addition, a
     contractor was overpaid at least $5,418. On December 16, 1997,
     we transmitted a draft of this report to you, requesting your
     comments by January 30, 1998. On February 18, 1998, we received
     your response (Appendix 2) dated January 29, 1998, which
     generally concurred with six of the report's seven
     recommendations. Based on the response, we consider
     Recommendations A.1, A.2, and A.3 resolved but not implemented.
     Accordingly, these recommendations will be referred to the
     Assistant Secretary for Policy, Management and Budget for
     tracking of implementation. Also, additional information is
     requested for Recommendations B.1, B.2, and B.3, and a response
     is requested for Recommendation B.4, which was revised based on
     additional information in the response. (The status of all the
     recommendations is in 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 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 15, 1998. The response should be addressed to
     our Caribbean Regional Offce, Federal Building - Room 207, St.
     Thomas, Virgin Islands 00802. The response should provide the
     information requested in Appendix 3. We appreciate the
     assistance of the Commissioners and staffs of the Department of
     Education and the Department of Property and Procurement during
     the conduct of our audit. Sincerely, - . x Robert J. Williams
     Acting Inspector General 
  
  
  
     CONTENTS Page INTRODUCTION 1 BACKGROUND 1 OBJECTIVE AND SCOPE
     .... PRIOR AUDIT COVERAGE . . FINDINGS AND RECOMMENDATIONS 4 A
     CONTRACT AWARD ...... B CONTRACT OVERSIGHT . . APPENDICES 1
     CLASSIFICATION OF MONETARY AMOUNTS ....... 2. GOVERNOR OF THE
     VIRGIN ISLANDS RESPONSE . . 3. STATUS OF AUDIT REPORT
     RECOMMENDATIONS . . . 4 13 . 22 . 23 ..... 51 
  
  
  
     INTRODUCTION BACKGROUND
  
     On September 15, 1995, Hurricane Marilyn
     struck the United States Virgin Islands, causing extensive
     damage to public and private facilities. As a result, the
     President of the United States issued a major disaster
     declaration, which allowed the Federal Emergency Management
     Agency (FEMA) to provide disaster assistance funds in accordance
     with the Stafford Disaster Relief and Emergency Assistance Act,
     as amended (Public Law 100-707). FEMA provided the Government of
     the Virgin Islands with $22.7 million in disaster assistance
     funds for school repairs, consisting of $15 million for the
     acquisition of modular classrooms to be used at certain public
     schools while permanent repairs were being made, $2 million for
     repairs to public schools, and $5.7 million for an overall
     project management contract with the Hurricane Recovery
     Managers. In addition, the Department of Education received a
     total of $27.7 million from insurance proceeds and $6 million
     from local bond proceeds for the repair and reconstruction of
     public schools. During fiscal years 1996 and 1997, the
     Government awarded 41 construction contracts and 44 professional
     services contracts, totaling about $51.4 million, that related
     to the repair and reconstruction of the schools. In September
     1995, immediately after Hurricane Marilyn struck, the Government
     conducted a survey of the public school facilities to determine
     the extent of the damage. An offcial from the Department of
     Public Works was assigned as a Special Project Coordinator, with
     the responsibility to hire contractors to perform emergency
     debris removal and repair work at the schools. In December 1995,
     the Government hired a joint venture of two off-island
     architectural/ engineering firms (commonly referred to as the
     Hurricane Recovery Managers) to act as its overall project
     manager for all hurricane-related construction, including
     repairs to public schools. According to their contract, the
     Hurricane Recovery Managers were responsible for preparing
     solicitation packages for architectural/engineering and
     construction services, soliciting and evaluating proposals from
     contractors, supervising construction work, maintaining
     financial oversight control of FEMA and other funds available
     for construction work, preparing construction progress reports,
     and coordinating with vendors for the purchase and delivery of
     materials. The contract was in the amount of $5.7 million plus a
     maximum of $748,000 in additional fees. However, in June 1996,'
     the Government and the Hurricane Recovery Managers mutually
     agreed to terminate the contract, primarily because of
     disagreements concerning the quality and timeliness of the work
     performed by contractors at some public schools. In August 1996,
     the Government awarded a $1.9 million contract, effective
     retroactively to late June 1996, to a local
     architectural/engineering firm to act as the Government's
     project manager for Department of Education construction
     projects. According to the contract, the project manager's
     responsibilities included providing detailed architectural
     drawings for repair The formal termination agreement was not
     executed until June 1997. 1 
  
     work, preparing construction cost estimates, monitoring
     construction work through frequent on-site visits, ensuring that
     construction work was in accordance with the building codes,
     preparing and submitting to the Government any necessary
     construction contract change orders, and reviewing and
     recommending approval of contractor requests for progress
     payments. The contract remained in effect, with three
     extensions, through July 31, 1997. OBJECTIVE AND SCOPE The
     objective ofthe audit was to determine whether (1) construction
     contracts were awarded in accordance with applicable laws and
     regulations; (2) controls existed to ensure that construction
     work was performed in accordance with building codes and other
     requirements; and (3) payments to contractors were reasonable,
     allowable, and allocable in accordance with contract provisions.
     The scope of the audit included contracts and/or purchase orders
     for hurricane-related construction and professional services
     awarded by or for the Department of Education during fiscal
     years 1996 and 1997. We selected for review a judgmental sample
     of 18 (out of 44) professional services contracts and 30 (out of
     41) construction contracts, totaling over $49.8 million, that
     were awarded on behalf of the Department of Education. The audit
     was performed at the Departments of Property and Procurement,
     Education, and Public Works. We also made site visits to 30
     public schools to observe the construction work. Our review was
     made, as applicable, in accordance with the "Government Auditing
     Standards," issued by the Comptroller General of the United
     States. Accordingly, we included such tests of records and other
     auditing procedures that were considered necessary under the
     circumstances. As part of our review, we evaluated the
     Government's system of internal controls related to the award
     and oversight of construction contracts and the accountability
     of funds for the hurricane-related contracts. The internal
     control weaknesses we identified in these areas are addressed in
     the Findings and Recommendations section of this report. Our
     recommendations, if implemented, should improve the internal
     controls in these areas. 

     PRIOR AUDIT COVERAGE 

     The Office of
     Inspector General has issued two reports during the past 5 years
     regarding hurricane-related construction for public schools in
     the Virgin Islands. The survey report "Procurement Practices for
     Hurricane-Related Repairs to Public Schools, Government of the
     Virgin Islands" (No. 96-E-1113), dated August 1996, concluded
     that the operating officials at the Departments of Education and
     Public Works did not always comply with the procurement
     requirements and that there was no assurance that the Government
     received the most favorable prices, terms, and conditions with
     regard to emergency debris removal and repair services acquired
     at a total cost of more than $1.5 million for public schools. We
     recommended that the Governor of the Virgin Islands direct all
     Executive Branch agencies to (1) submit hurricane-related work
     requirements to the Department of Property and Procurement and
     (2) ensure that the procurement process includes the use of
     competitive proposals to the maximum extent practicable, the
     issuance of formal contracts before work 2 
  
     was started, and the maintenance of complete files documenting
     the procurement actions taken with regard to each contract. The
     audit report "Construction Contracts, Capital Improvement
     Program, Government of the Virgin Islands" (No. 94-I-1 194),
     dated September 1994, included a review of contracts awarded to
     repair damage to schools caused by Hurricane Hugo in September
     1989. With regard to procurement practices, the report concluded
     that ( l) the Department of Property and Procurement did not
     adequately document actions taken to procure construction
     services and did not ensure that competitive procedures were
     used to the maximum extent practicable and (2) the Government
     and the Program Management Consultant did not provide adequate
     oversight of construction projects. As a result, 7 contracts,
     totaling $4.5 million, were not awarded on the basis of
     competitive procedures; 4 contracts, totaling $25 million, were
     not awarded to the lowest proposers; and 14 contracts, totaling
     $18 million, did not have suffcient information in the contract
     files to determine whether competitive procurement procedures
     had been used. Additionally, the report questioned construction
     costs of about $8 million charged against a grant from the U.S.
     Department of Education and $2.7 million paid to the Project
     Management Consultant. With regard to contracts for repairs to
     public schools, we recommended that the Governor of the Virgin
     Islands ensure that (1) the Department of Property and
     Procurement complies with the competitive procurement
     requirements of the Virgin Islands Code and of Virgin Islands
     Rules and Regulations, establishes formal policies and
     procedures regarding the contents of construction contract
     files, and enforces existing policies and procedures with regard
     to the issuance of change orders and supplemental contracts; (2)
     inspectors from the Department of Public Works or other
     inspectors authorized by the Department conduct regular
     inspections at each construction site and file appropriate
     inspection reports; and (3) the Department of Education provides
     the U. S. Department of Education with supporting documentation
     for the $8 million in questioned construction costs and the $2.7
     million in questioned payments to the Project Management
     Consultant so that the funding agency can determine the
     allowability of those costs. Our current review disclosed
     procurement and contract oversight deficiencies similar to those
     identified in the two prior reports. 3 
  
     FINDINGS AND RECOMMENDATIONS
 
  A. CONTRACT AWARD 
     The Government 
     did not maintain suffcient oversight of the procurement process
     to ensure that contracts related to repairs to public schools
     damaged by Hurricane Marilyn were awarded in an effective
     manner. Specifically, the Department of Public Works, on behalf
     of the Department of Education, allowed construction contractors
     on St. Thomas to perform work without competition or formal
     contracts and issued "after-the-fact" purchase orders for
     services for the Department of Education, and the Hurricane
     Recovery Managers used procurement procedures that did not
     provide the required level of competition. In addition,
     procurement files did not adequately document whether
     competitive procedures were used. The Virgin Islands Code and
     the Virgin Islands Rules and Regulations contain the
     requirements for competitive procurement. However, the
     Government did not provide adequate oversight of the procurement
     process in that the Department of Property and Procurement,
     which has overall responsibility for Government procurement, was
     generally excluded from the process and the procurement
     procedures did not allow for the active involvement of third
     parties, such as the Departments of Education and Public Works
     and the Hurricane Recovery Managers. As a result, the Government
     had little assurance that it received the most favorable prices,
     terms, -and conditions with regard to construction and other
     contractual services acquired at a total cost of more than $21.5
     million and for "after-the-fact" purchase orders totaling
     $164,000. Procurement Requirements Title 31, Section 239, ofthe
     Virgin Islands Code states that purchases may be made without
     the use of formal advertisement and competitive bidding when,
     among other exceptions, the "Governor declares in the public
     interest that a State of Emergency exists and specifies in such
     Proclamation those purchases and/or services which may be
     obtained without competitive bidding. " The emergency
     proclamation that the Governor issued after Hurricane Marilyn
     allowed Governmental agencies to procure goods and services
     without formal advertising. However, the proclamation required
     that responsible agencies "negotiate on a competitive basis" and
     "make every reasonable effort to obtain the most favorable
     prices, terms, and conditions for the Government." Title 31,
     Section 234, of the Virgin Islands Code, which was not waived by
     the Governor's emergency proclamation, states that "no purchase
     shall be made by any department or agency of the government or
     by any employee of the government for any agency of the
     government except by written order approved by the Commissioner
     of Property and Procurement. " The penalties for violation of
     this requirement include personal liability for the purchase
     price, a fine of not more than $200, and/or dismissal from
     employment. 4 
  
     Procurement Methods Used Although Title 31, Section 234, of the
     Virgin Islands Code designated the Commissioner of Property and
     Procurement as the procuring off'cial for the Government of the
     Virgin Islands, the Department of Education and the Hurricane
     Recovery Managers executed their own procurement for emergency
     debris removal and repair work at the public school facilities.
     Of the 30 construction contracts we selected for review, we
     found that 20 contracts, totaling $18 7 million, were awarded
     noncompetitively and without the involvement of the Department
     of Property and Procurement. Special Project Coordinator. After
     Hurricane Marilyn struck the Virgin Islands on September 15,
     1995, the Department of Education used a Special Project
     Coordinator from the Department of Public Works to supervise and
     coordinate the repairs to the public schools on St. Thomas and
     St. John. This occurred without coordination with the Department
     of Property and Procurement, and, as a result, the Department of
     Education allowed the Special Project Coordinator to hire
     construction contractors noncompetitively. The Department of
     Education also did not execute formal contracts with the
     contractors before work commenced, as required by the Virgin
     Islands Code, to specify the detailed scope of work, method of
     payment, procedures for inspection of work, resolution of
     disputes, and other standard contract provisions to protect the
     interests of both the Government and the contractors. After the
     hurricane, the Coordinator, through a public radio announcement,
     requested that contractors which had performed work on the
     schools during the summer restoration program provide emergency
     debris removal and repair services at the public schools damaged
     by Hurricane Marilyn. The Coordinator requested that the
     contractors submit a statement of general scope of work before
     they were assigned to perform work on the same structures they
     had worked on during the summer. However, we found 3 contracts,
     out of 30 awarded with the assistance of the Coordinator, that
     were prepared and executed after the contractors had started the
     repairs. For example: - On December 7, 1995, a construction
     contract for $1 2 million was awarded to a contractor for
     repairs to a St. Thomas elementary school. A contractor invoice
     for $347,670 showed that construction work had begun on October
     1, 1995. The Department of Property and Procurement was not
     involved in awarding this contract, which was executed after
     work had started. - On December 7, 1995, a construction contract
     for $8s0,000 was awarded for repairs to another St. Thomas
     elementary school. A contractor invoice for $140,546 showed that
     construction work had begun before October 15, 1995.
     Additionally, there was no abstract of bids or a bid evaluation
     report in the contract files to indicate whether more than one
     contractor was given the opportunity to submit a proposal for
     this contract. An October 27, 1995, transmittal memorandum from
     the Department of Education's Director of Business Affairs to
     the then-Commissioner of Education stated that a contract was
     not in place at the time that work began, inspection reports had
     not been prepared to verify that the job was satisfactorily
     completed, and approvals for payment had not been obtained from
     all s 
  
     of the appropriate Government officials. Nevertheless, a
     miscellaneous disbursement voucher for $87,869 was processed,
     and the contractor was paid. In an October 23, 1995, letter to
     the Governor, the Commissioner of Property and Procurement
     stated: Contrary to the provisions of Title 31 V.I.C. [Virgin
     Islands Code] Section 239, the procurement regulations for open
     market purchases, the Department of Property and Procurement was
     kept completely out of the process [by the Department of
     Education]. As a result, we cannot protect the government's
     interest relative to costs, terms, completion dates, and
     assessments on those contracts. In an internal memorandum dated
     October 30, 1996, an employee of the Department of Property and
     Procurement reported to the Commissioner that there were
     significant variances in the estimated costs for emergency
     construction work performed by contractors on 10 Department of
     Education projects. While the contractors submitted invoices
     totaling $6.8 million for emergency repairs performed at
     Department of Education facilities, architects/engineers
     representing the Government estimated that the work performed by
     the contractors was valued at $2.3 million, for an overall
     variance of $4.5 million. As of October 1997, these variances
     had not been resolved. We also found that, although Title 31,
     Section 234, of the Virgin Islands Code requires that purchases
     be made by written orders, the Department of Public Works
     procured services for the Department of Education without
     purchase orders. Specifically, we found that nine purchase
     orders, totaling $164,000, were prepared after the work was
     completed. The Department of Public Works sent contractors'
     invoices to the Department of Education, which prepared and
     submitted purchase orders to the Department of Property and
     Procurement for approval. We believe that the submission of the
     purchase orders to the Department of Property and Procurement
     was an "after-the-fact" process which was contrary to the
     requirements of Title 31, Section 234, of the Virgin Islands
     Code. Elurricane Recovey Managers. In December 1995, the
     Government of the Virgin Islands hired the Hurricane Recovery
     Managers, at a cost of $6.5 million, to serve as overall project
     managers for all hurricane-related construction projects. As a
     result, the Department of Property and Procurement was excluded,
     except for approving contractors recommended by the firm,
     because the firm acted independently in soliciting, evaluating,
     selecting, and negotiating with contractors for architectural,
     engineering, and construction services for structural repairs to
     be performed at public schools damaged by Hurricane Marilyn.
     Under procedures established by the Hurricane Recovery Managers,
     contractors were solicited through the local media, direct
     mailings, and personal contacts after a Department of Education
     offcial prioritized the schools requiring repair work. The
     responding contractors filled out qualification statements,
     which were submitted to the Hurricane Recovery Managers, who
     screened the contractors based on data in these statements and
     prepared a list of qualified contractors. A selection board
     comprising representatives of the 6 
  
     Hurricane Recovery Managers interviewed the contractors, asking
     questions regarding their ability to perform the work required.
     Based on the information in the qualification statements and the
     responses to the selection board's questions, the Hurricane
     Recovery Managers recommended contractors to the Commissioner of
     Property and Procurement for final approval before the Hurricane
     Recovery Managers negotiated contracts with the selected
     contractors. The Hurricane Recovery Managers used construction
     master agreements as the basic contracts and assigned and
     controlled specific projects through task orders to the
     contractors. The task orders contained a description of the
     services required, drawings and specifications as applicable,
     the time frame for performance, the agreed-upon price, and the
     terms of payment. However, the proposal, selection, and awarding
     procedures established by the Hurricane Recovery Managers
     differed from the Government's standard procurement process in
     that they did not (1) include the Department of Property and
     Procurement as an integral part of the process, (2) require the
     solicitation of competitive proposals for each contract to be
     awarded, or (3) include Governmental representatives on the
     contractor selection committees. Additionally, the Government
     did not have a system to monitor the Hurricane Recovery
     Managers' activities and to maintain adequate control over the
     construction contracts awarded by the Hurricane Recovery
     Managers. As a result, there was no opportunity for competition
     among the eligible contractors tQ ensure that the Government
     received the most favorable prices for repair work at the public
     schools, and there was little assurance that the Hurricane
     Recovery Managers and construction contractors performed work in
     accordance with their contracts. Project Manager. On August 29,
     1996, the Government, after mutually agreeing with the Hurricane
     Recovery Managers to terminate their contract, awarded a $1.9
     million professional services contract noncompetitively to a
     former employee of the Department of Education to oversee
     completion of repair and reconstruction work at the public
     schools. The contract was effective retroactively to June 24,
     1996. The contractor told us that the then-Commissioner of
     Education offered him the contract. As such, this contract was
     awarded without compliance with the competitive procurement
     requirements of Title 31, Chapter 23, of the Virgin Islands
     Code. We believe that there was little assurance that the
     Government of the Virgin Islands received the most favorable
     prices, terms, and conditions for construction and other
     contractual services acquired at a cost of more than $21.5
     million and for "after-the-fact" purchase orders totaling
     $164,000 because the Special Project Coordinator completely
     bypassed the Department of Property and Procurement in the
     process, did not solicit competitive proposals, and did not
     issue written contracts or purchase orders; the Hurricane
     Recovery Managers used procurement procedures that differed from
     the Government's standard procurement process; and the project
     manager was not selected competitively. 7 
  
     Contract Files The official contract files maintained by the
     Department of Property and Procurement were not complete and did
     not contain suffcient documentation of procurement actions taken
     for the construction and professional services contracts
     reviewed. Based on our review of the 48 contract files selected,
     we determined that all of the files were missing at least one
     key document. For example, 23 files did not contain invitations
     for bids or requests for proposals, 29 files did not contain
     copies of the original plans and specifications, 30 files did
     not contain bonding information, 21 files did not contain copies
     of the contractors' business licenses, 37 files did not contain
     abstracts of bids, 32 files did not contain evaluation committee
     reports, 17 files did not contain notices to proceed, and 29
     files did not contain building permits. Additionally, the files
     for 18 contracts, totaling $12.6 million, of the 30 construction
     contracts we reviewed did not contain suffcient documentation
     for us to determine whether competitive procurement procedures
     had been used. Because the Department of Education and the
     Hurricane Recovery Managers procured services in accordance with
     their own procedures, there was little assurance that documents
     were forwarded to the Department of Property and Procurement for
     the official contract files. Without complete contract files,
     the Government may not be able to refute claims of contractors
     who believe that they should have been awarded the contracts or
     resolve disputes by contractors over the terms, conditions, or
     prices of the contracts. At the November 25, 1997, exit meeting
     on the preliminary draft of this report, the Commissioner of
     Education stated that immediately after the hurricane, there was
     "confusion" among Government agencies as to the accepted
     procurement practices to be followed under the Governor's
     emergency proclamation but that later procurement actions were
     made using procedures which were more in compliance with the
     legal requirements. The Commissioner also stated that his
     department had developed contingency plans for procuring
     emergency debris removal and school repair services in the event
     that another hurricane strikes the Virgin Islands.
     Recommendations We recommend that the Governor of the Virgin
     Islands: 1. Ensure that the Department of Property and
     Procurement carries out its procurement responsibilities in
     accordance with Title 31, Chapter 23, of the Virgin Islands Code
     and the Virgin Islands Rules and Regulations, including the use
     of competitive procedures to the maximum extent practicable and
     the issuance of formal contracts before work begins. 2. Enforce
     Title 31, Section 234, of the Virgin Islands Code, which
     requires that purchases be made by written orders approved by
     the Department of Property and Procurement. Ensure that the
     Department of Property and Procurement maintains contract files
     which adequately document the procurement process. Specifically,
     the contract files should 8 
  
     contain, as appropriate, the invitation for bids or request for
     proposals; all bids or proposals received, including contractor
     qualification statements, evidence of bonding or other surety,
     copies of business licenses, and other documents that are
     required as part of a complete bid package; bid abstract sheets
     summarizing all bids or proposals received, including bid
     amounts; bid evaluation sheets of individual committee members
     and the final bid evaluation committee report; executed
     contracts and any subsequent amendments, supplements, or change
     orders; notices of award and notices to proceed; correspondence
     related to the contracts; progress payment requests and other
     documents related to payments to contractors; and documents
     related to actions taken with regard to any deficiencies noted,
     including the assessment of liquidated damages. Governor of the
     Virgin Islands Response and Offce of Inspector General Reply The
     January 29, 1998, response (Appendix 2) to the draft report from
     the Governor of the Virgin Islands, which we received on
     February 18, 1998, concurred with the three recommendations and
     stated that the Commissioner of Property and Procurement had
     been "directed . . . to meet all the requirements" of the
     recommendations and report to the Governor on the status of
     corrective actions within 30 days. Based on the response, we
     consider the recommendations resolved but-not implemented (see
     Appendix 3). General Comments on Finding The Governor's response
     also included comments on the finding. The Government's comments
     and our replies are as follows: Governor of the Virgin Islands
     Response. The response stated that the Department of Education
     did not agree with the statement that there were significant
     variances, totaling $4.5 million, between amounts billed by
     construction contractors and estimates of the value of the work
     prepared by architects/engineers representing the Government.
     The response stated that "in some instances the
     architect/engineer's unit prices were below normal Virgin
     Islands prices, for construction, during normal circumstances"
     and that this caused some of the unit prices to be "even more
     unreal" because the work was done "during a time of great
     emergency when material [was] being sold at a premium due to its
     scarcity and labor costs were high due to the scarcity of
     manpower. " Omce of Inspector General Reply. The intent of the
     report was to identify the existence of variances without making
     a judgment as to whether the contractors' invoices or the
     architects'/engineers' estimates were more accurate. However,
     the variances had not been resolved at the time of completion of
     our audit in October 1997. Further, we believe that the response
     statement that "in other cases such as Joseph Gomez and Evelyn
     Marcelli Elementary Schools, there was justification for
     questioning some of the prices submitted by contractors and the
     quantities of work which they claimed to have completed" would
     indicate that there were concerns about the prices and
     quantities of work billed. 9 
  
     Governor of the Virgin Islands Response.
    
     The response stated
     that the Department of Education did not agree that the
     Department of Property and Procurement was excluded from most
     aspects of the procurement process because the Hurricane
     Recovery Managers acted independently. The response stated that
     the Hurricane Recovery Managers "worked in concert" with the
     Governor's Authorized Representative and the Department of
     Property and Procurement. Offce of Inspector General Reply. Our
     statement was based on detailed descriptions of the procurement
     procedures used by the Hurricane Recovery Managers as provided
     to us by officials of the Departments of Property and
     Procurement and Education. Although the Hurricane Recovery
     Managers did interact with the Governor's Authorized
     Representative and the Department of Property and Procurement,
     that interaction did not afford that department the opportunity
     to participate in the day-to-day procurement process to the
     extent that its legal authority and responsibility as the
     Government's offcial procurement agency would require. To a
     large extent, procurement-related decisions were made by the
     Hurricane Recovery Managers that were later presented to the
     Department of Property and Procurement for approval. Governor of
     the Virgin Islands Response. The response stated that the
     Department of Education did not agree that the Government did
     not have a system to monitor the Hurricane Recovery Managers'
     activities and to maintain control over the construction
     contracts awarded by the Hurricane Recovery Managers. The
     response stated that the Department "worked closely with the
     Hurricane Recovery Managers; attended weekly staff meetings;
     received reports; manpower and construction schedules; and
     maintained oversight of their activities. " Office of Inspector
     General Reply. We believe that our statement is accurate because
     the construction contract files that were made available to us
     during the audit did not contain evidence of close interaction
     and oversight activity by the Department of Education. Despite
     our inquiries, Department officials did not provide such
     documentation. In addition, the response acknowledges that the
     files were only being assembled in January 1998. Governor of the
     Virgin Islands Response. The response stated that the Department
     of Education did not agree that there was no opportunity for
     competition among the list of contractors established by the
     Hurricane Recovery Managers to ensure that the Government
     received the most favorable prices for repair work and there was
     little assurance that the Hurricane Recovery Managers and
     construction contractors performed in accordance with their
     contracts. The response also stated that "the unit prices which
     the Hurricane Recovery Managers mandated for repair work at the
     public schools were acceptable and in the best interest of the
     Government" and that "construction contractors performed in
     accordance with their contracts. " Offce of Inspector General
     Reply. Without the existence of price proposals from various
     contractors, it is impossible to definitively state whether or
     not a particular contract price was "the most favorable" or "in
     the best interest of the Government. " As to whether contractors
     performed in accordance with their contracts, we believe that
     the examples in our 10 
  
     report of less-than-satisfactory contractor performance
     demonstrate that work was not in accordance with contracts. For
     example, Finding B cites construction deficiencies that we found
     at four schools (Ivanna Eudora Kean High School, Joseph Sibilly
     Elementary School, Arthur Richards Junior High School, and
     Alexander Henderson Elementary School) during on-site visits in
     May and June 1997. The response acknowledges that those
     deficiencies existed and states that corrective actions had been
     taken subsequent to completion of our audit. In the case of the
     Joseph Sibilly Elementary School, the response states that "the
     original contractor . . . was dismissed and a new contractor is
     presently completing the necessary repairs." Further, the
     response (pages 22 through 25) states that work performed under
     the Phase I repairs, which was not in conformance with building
     code requirements, was corrected by subsequent work under Phase
     II. We believe that these situations support our statements on
     the contractors not performing in accordance with their
     contracts. Governor of the Virgin Islands Response. The response
     stated that the Department of Education disagreed with our
     conclusions regarding the procurement methods it used.
     Specifically, the response stated that the Government "received
     the most favorable prices, terms, and conditions for
     construction and other contractual services acquired at a cost
     of more than $21.5 million and for 'after-the-fact' purchase
     orders totaling $164,000"; that although the Special Project
     Coordinator "completely bypassed" the Department of Property and
     Procurement, did not solicit competitive proposals, and did not
     issue written contracts or purchase orders, the Special Project
     Coordinator acted in good faith on behalf of the Government";
     that although the Hurricane Recovery Managers used procurement
     procedures that differed from the Government standard
     procurement process, the Hurricane Recovery Managers "operated
     in concert with the [Government Authorized Representative] and
     the Department of Property and Procurement"; and that although
     "the Commissioner of Education agrees that the Project Manager
     was not selected competitively . . . time was of the essence . .
     . and it was in the best interest of the Government to utilize
     this Project Manager" because "he possessed a thorough
     understanding of all the facets of contracting; payment
     requests; inspections and in general project oversight." Omce of
     Inspector General Reply. Although the response states that the
     Government's actions were taken because of the emergency
     conditions that occurred after Hurricane Marilyn, we have found
     and reported on similar procurement-related deficiencies in
     other prior audit reports, including the September 1994 report
     (see Prior Audit Coverage), which reported similar problems
     after Hurricane Hugo in 1989 and made recommendations for
     improving the Government's emergency-related procurement
     procedures. If, in response to the 1994 report, the Government
     had established contingency plans and procedures for procuring
     emergency repair services in the event of a future hurricane or
     other disaster, we believe that many of the problems disclosed
     in our current report could have been avoided. With regard to
     the statement in the response that "the Special Project
     Coordinator acted in good faith on behalf of the Government," we
     do not believe that "good faith" is an acceptable replacement
     for the objective price comparison that is achieved through the
     use of competitive procurement practices. 11 
     
     General Comments on Audit Report 
     
     The response stated that the
     Department of Education did not concur with our statement
     (Objective and Scope section) regarding the award of
     construction contracts. The response stated that "all contracts
     were awarded by the Department of Property and Procurement and
     the Hurricane Recover Managers. " Off'ce of Inspector General
     Reply. We believe that our statement is correct because the
     Department of Education, immediately after Hurricane Marilyn,
     issued eight purchase orders, totaling about $500,000, for
     hurricane-related repairs and debris removal at public schools.
     Although purchase orders are not formal construction contracts,
     they bind the Government to a contractual obligation with an
     outside firm for repair work to schools. The eight purchase
     orders were issued without the involvement or the approval of
     the Department of Property and Procurement. Thus, we have
     revised the wording of the Objective and Scope section to state
     that "contracts and/or purchase orders for hurricane-related
     construction and professional services were awarded by or for
     the Department of Education." (Emphasis added.) 12 
  
     B. CONTRACT OVERSIGHT

     The Government did not maintain suffcient
     oversight of construction projects to ensure that repairs to
     public schools damaged by Hurricane Marilyn were performed in
     accordance with existing requirements. Specifically,
     contractors' requests for periodic payments were not always
     approved, inspection and progress reports were not always
     suffciently detailed to support contractors' payment requests,
     and building permits were not always obtained. The Virgin
     Islands Code requires the Department of Public Works to
     supervise the construction and repair of Government buildings
     and specifies the conditions for obtaining building permits.
     However, the Government did not provide the required oversight
     of construction projects in that it allowed project management
     contractors rather than the Department of Public Works to
     supervise the construction and repair of public schools and did
     not have procedures for monitoring the activities of the project
     management contractors. As a result, there was little assurance
     that construction and professional services contractors who
     received over $21 million for work on public schools performed
     the work in accordance with their contracts or that the work
     performed on the schools was in compliance with building code
     requirements, thus creating the potential for safety
     deficiencies in the public schools. We also found that a
     contractor was overpaid by at least $5,418. Documentation of
     Oversight Activities Title 3, Section 138, of the Virgin Islands
     Code requires the Department of Public Works to supervise the
     construction and repair of all government buildings. However,
     during the period of October to December 1995, which was the
     period of time prior to the contract with the Hurricane Recovery
     Managers, the Government did not maintain documentation showing
     whether the construction projects were inspected by the
     Department of Public Works. Additionally, during the period of
     December 1995 to June 1996, the Government had the Hurricane
     Recovery Managers carry out the Government's contract oversight
     responsibilities. Specifically, the Hurricane Recovery Managers
     were required to (1) review architectural designs and plans
     prepared by contracted architects/engineers, (2) monitor design
     and construction activities, and (3) provide the Government with
     construction progress reports. However, we found no progress
     reports in the contract files to support progress payment
     requests submitted by the contractors for 27 of the 30
     construction contracts reviewed. Additionally, in a February 20,
     1996, memorandum to the Commissioner of Property and
     Procurement, the Hurricane Recovery Managers indicated that
     their contractor selection process was focused on identifying
     qualified architecturallengineering firms for four schools.
     However, during our review of the Hurricane Recovery Managers'
     files located at the Department of Education, we found no
     architectural sketches or plans for the work performed at the
     schools. Further, because there was no documentation in the
     files showing how the Hurricane Recovery Managers monitored and
     reviewed the work of contractors, there was little assurance
     that the construction firms fulfilled their contractual
     obligations. There was also no documentation in the files to
     show that the Government monitored the activities of the
     Hurricane Recovery Managers to ensure that they carried out
     their contractual obligations as the Government's overall
     project management consultant. 
  
     The project manager hired in June 1996 to replace the Hurricane
     Recovery Managers conducted joint inspections with an inspector
     from the Department of Public Works of construction work
     performed at the public schools. But the project manager's
     invoices did not provide suffcient details to support the
     quantity or quality of work he performed. For example, the
     project manager's first invoice, dated August 19, 1996, billed
     the Government $222,528 for services rendered during the period
     of June 23 to August 17, 1996. However, the supporting
     documentation attached to the invoice indicated that only
     $214,179 was owed for 3,355 hours of staff time and $2,931 was
     owed for mileage on the firm's vehicles. Therefore, the project
     manager was overpaid $5,418. Additionally, the invoice did not
     indicate which schools were visited or the type of services
     provided at each school. During May and June 1997, we made on
     -site visits to 30 public schools (12 on St. Thomas and 18 on St.
     Croix) that had been repaired or renovated after Hurricane
     Marilyn and found that construction contractors did not
     satisfactorily complete all of the work required by their
     contracts as follows: The roof of the gymnasium at the Ivanna
     Eudora Kean High School on St. Thomas leaked, and, as a result,
     the floors of the gymnasium's main entrance, teachers' offices,
     and boys' restroom flooded after heavy rains. The contract
     required the contractor to remove and replace 8,000 square feet
     of seam roofing and temporary roofing, for which the contractor
     was paid $263,000. The contract for all work to be performed at
     the High School was for an amount not to exceed $1,488,941. At
     the Joseph Sibilly Elementary School on St. Thomas, the
     contractor was required to perform repair and reconstruction
     work that included renovating the art building. However, no work
     had been done on the art building since Hurricane Marilyn, and
     the contractor was paid $481,000. The contract for all work to
     be performed at the School was for the amount of $850,000. At
     the Arthur Richards Junior High School on St. Croix, repairs had
     not been made to the roof "uttering; windows in classrooms; and
     ceiling tiles in the girls' restroom, auditorium, and kitchen.
     The contractor was required to perform the cited repairs on the
     entire school and had been paid a total of $551,000. The
     contract for all work to be performed at the Junior High School
     was for the amount of $618,427. At the Alexander Henderson
     Elementary School on St. Croix, the classroom roof leaked and
     ceiling tiles in the men's restroom still needed to be replaced.
     The contractor was paid $116,300 to make these repairs. The
     contract for all work to be performed at the School was for the
     amount of $129,257. At the November 25, 1997, exit meeting on
     the preliminary draft report, the Commissioner of Education
     stated that corrective actions had been taken on some of the
     construction deficiencies noted. Specifically, he stated that
     (1) repairs to the roof of the gymnasium at the Ivanna Eudora
     Kean High School were completed, (2) the original contractor for
     the Joseph Sibilly Elementary School was dismissed and a new
     contractor was completing the necessary repairs, and (3) repairs
     at the Arthur Richards Junior High School and the Alexander 14 
  
     Henderson Elementary School on St. Croix were in process. The
     Commissioner also stated that the ongoing repair work was
     periodically inspected by representatives of the Department of
     Education and the Department of Planning and Natural Resources
     (the agency responsible for building code enforcement). Payment
     Process. During the period of October to December 1995,
     contractors were paid $918,490, although inspections were not
     performed and invoices and periodic estimates were not approved
     by the Governmental offcials responsible for certifying that the
     work was accomplished satisfactorily. For example, in October
     1995, a payment of $87,869 was made to a contractor by means of
     a miscellaneous disbursement voucher. A memorandum from the
     Department of Education's Director of Business Affairs to the
     then-Commissioner of Education that was attached to the voucher
     stated that there were no (1) contracts in place for the
     construction work, (2) inspection reports to verify that work
     was completed satisfactorily, or (3) approvals by the authorized
     Government representatives to certify the work for payment.
     However, the voucher was certified for payment by the then-
     Commissioner of Education, and a check was issued to the
     contractor on October 27, 1995. The Hurricane Recovery Managers
     and the subsequent project manager submitted contractors'
     invoices and periodic payment requests, along with their
     recommendations for approval of payment, to the Department of
     Education. The Department then prepared the payment vouchers and
     submitted the invoices, periodic payment requests, and vouchers
     to the Department of Property and Procurement for processing.
     The invoices and periodic payment requests were to be signed by
     authorized representatives of the Departments of Property and
     Procurement, Public Works, and Education certifying that the
     work was satisfactorily completed. However, in the 48
     construction and professional services contract files that we
     reviewed, we found 65 payments (out of 154), totaling over $21
     million, that were made without all of the required approvals by
     Governmental representatives. In addition, the invoices of the
     Hurricane Recovery Managers were not properly reviewed and
     approved. For example, during the period of December 20, 1995,
     to February 21, 1997, the Hurricane Recovery Managers submitted
     10 invoices, totaling $5.7 million, to the Governor's Authorized
     Representative (GAR).2 A letter dated April 19, 1996, from the
     GAR to the Hurricane Recovery Managers which was attached to the
     miscellaneous disbursement vouchers stated that the GAR was
     giving "conditional approval" of the payments but that he had
     not performed a detailed review and verification of the
     Hurricane Recovery Managers' work. The letter further stated
     that the GAR "disavowed," at that time, the representations in
     the Certification of Authorized Government Representative but
     that the Government reserved the right, upon detailed review and
     verification, to make appropriate adjustments against future
     invoices. However, there was no documentation in the files
     indicating whether detailed reviews or payment adjustments were
     subsequently made. We believe that the OAR's disclaimers
     indicate that the correct review process was not followed with
     regard to the Hurricane Recovery Managers' invoices and that
     there was little assurance that amounts paid were reasonable and
     allowable. 2The "Governor's Authorized Representative" was the
     Virgin Islands Director of Management and Budget, who, in
     accordance with FEMA regulations, acted on the Govemor's behalf
     in administenng disaster assistance funds. 15 
  
     Building Code and Permits The 1994 Uniform Building Code (which
     is incorporated by reference i,-to Title 29, Chapter 5, of the
     Virgin Islands Code) requires that developers request a building
     permit before they begin construction by submitting a set of
     architectural plans to the Division of Permits of the Department
     of Planning and Natural Resources. Section 106.1 of the Building
     Code further requires that the building offcial issue a separate
     building permit for each structure erected, constructed,
     enlarged, altered, repaired, moved, converted, or demolished.
     Despite these requirements, which apply to Governmental
     facilities, the Government did not ensure that architectural
     plans were submitted for approval or that building permits were
     obtained for all repair work to the public schools. We found
     that plans and building permits were not available for 29 of 41
     school construction projects. Additionally, correspondence in
     the contract files indicated that some of the construction work
     was not in compliance with the building code requirements. For
     example: A status report prepared by the Hurricane Recovery
     Managers in May 1996 stated that repair work at the Joseph
     Sibilly, Charlotte Amalie, and Kirwan Terrace schools was not in
     compliance with the building codes and recommended that the
     Government issue stop work orders to the respective construction
     contractors. On May 21, 1996, the Department of Property and
     Procurement issued a stop work order to the contractor working
     at the Charlotte Amalie High School. However, in a June 11,
     1996, memorandum, the then-Commissioner of Education authorized
     the contractor to continue all repair work at the High School
     "that does not relate to meeting provisions of the Uniform
     Building Code or other code requirements." We found no
     documentation in the files to indicate whether followup actions
     were taken to have the contractor correct the building code
     violations that resulted in the stop work order or whether the
     Department of Education, the Hurricane Recovery Managers, or
     other representatives of the Government ensured that the
     contractor's subsequent work was in accordance with the
     Commissioner's instructions. We also did not find documentation
     in the files to indicate whether stop work orders were issued to
     the contractors at the Joseph Sibilly and Kirwan Terrace schools
     or whether the building code violations reported by the
     Hurricane Recovery Managers were corrected. In another instance,
     a new roof that was constructed at the Uller Muller School after
     Hurricane Marilyn was blown off the school by Hurricane Bertha
     in July 1996. The local media reported that an
     architect/engineer said that the new roof had not been
     constructed in accordance with building code requirements. We
     believe that substandard construction work and the resultant
     potential for unsafe public schools existed because the
     Government and its representatives did not ensure that
     architectural plans were prepared and approved, building permits
     were issued, and building code requirements were met. At the
     November 25, 1997, exit meeting on the preliminary draft report,
     the Commissioner of Education stated that repair work at almost
     all schools had subsequently been inspected by representatives
     of the Department of Education and the Department of Planning
     and Natural Resources and that, where necessary, additional work
     was performed to mitigate the 16 
  
     effects of repair work that originally was not in compliance
     with building code requirements. Specifically, he stated that
     corrective actions had been taken with regard to building code
     deficiencies at the Joseph Sibilly, Kirwan Terrace, and Uller
     Muller schools but that some problems still existed relating to
     the quality and timeliness of the repair work at the Charlotte
     Amalie High School. The Commissioner also stated that he had
     taken a "hard line" with contractors by refusing to approve
     payments in cases where the repair work was not performed in
     accordance with contract and building code requirements.
     Further, the Commissioner stated that the Department had
     obtained and compiled the contract files originally held by the
     Hurricane Recovery Managers and the subsequent project manager.
     Recommendations We recommend that the Governor of the Virgin
     Islands: 1. Direct the Department of Property and Procurement,
     in coordination with the Department of Public Works, to
     establish procedures for the contract oversight function which
     include assigning a Department of Public Works inspector to
     conduct regular inspections at each construction site and file
     appropriate inspection reports with the Department of Property
     and Procurement and to ensure that all appropriate Government
     representatives review and approve construction progress reports
     before periodic payments are made to contractors. 2. Direct the
     Department of Property and Procurement, in coordination with the
     Department of Planning and Natural Resources, to establish
     procedures which ensure that architectural plans are submitted
     and approved and building permits are issued for all Government
     construction projects. 3. Direct the Department of Public Works,
     in coordination with the Department of Planning and Natural
     Resources, to inspect all public schools which required
     construction work after Hurricane Marilyn to ensure that the
     work was performed in accordance with building code
     requirements. Any violations should be reported to the
     Department of Property and Procurement for subsequent correction
     by the contractors. 4. Direct the Department of Education to
     obtain a refund from (or make offsets against amounts that may
     be owed to) the contractor who was overpaid by $5,418. Governor
     of the Virgin Islands Response and Office of Inspector General
     Reply The January 29, 1998, response (Appendix 2) to the draft
     report from the Governor of the Virgin Islands, which we
     received on February 18, 1998, expressed concurrence with
     Recommendations 1, 2, and 3. The response also expressed
     nonconcurrence with Recommendation 4, which was revised based on
     additional information that one contractor was not overpaid
     because the contract amount was increased by an amendment. Based
     on the response, we request additional information for
     Recommendations 1, 2, and 3 and request 17 
  
     that the Governor respond to the revised Recommendation 4, which
     is unresolved (see Appendix 3). General Comments on Finding The
     Governor's response also included comments on the finding. The
     Governor's comments and our replies are as follows: Governor of
     the Virgin Islands Response. The response stated that the
     Department of Education did not agree with our statement that
     "the Government did not maintain sufficient oversight of
     construction projects to ensure that repairs to public schools .
     . . were performed in accordance with existing requirements. "
     Office of Inspector General Reply. The examples in the report
     and our comments on the response, as discussed in the following
     paragraphs, provides the basis for our conclusion. For example,
     the response expressed concurrence with our statement that
     "inspection and progress reports were not always suffciently
     detailed to support contractors' payment requests." As such, we
     believe that this concurrence further supports our overall
     conclusion because it acknowledges that contractors did not
     provide Government offcials with sufficiently detailed
     information on which to make decisions concerning the quality
     and quantity of work performed by contractors. Governor of the
     Virgin Islands Response. The response stated that the Department
     did not agree that contractors' requests for periodic payment
     "were not always approved." The response stated that the
     respective Governmental agencies approved "all requests for
     period payments" but that "the final approval signatures were
     that of the Department of Property and Procurement. " The
     response acknowledged that the files at the Departments of
     Education and Public Works did not contain documentation to show
     that all necessary approvals had been obtained. The response
     further stated that the Department of Property and Procurement
     did not provide the Departments of Education and Public Works
     with copies of the payment requests that included all approval
     signatures. Off'ce of Inspector General Reply. In addition to
     the acknowledgment in the response that files at the Departments
     of Education and Public Works did not contain documentation to
     show that the necessary approvals had been obtained, our review
     also found that such documentation was not always present in the
     offcial contract files located at the Department of Property and
     Procurement. Therefore, we believe that the statement on the
     lack of appropriate documentation in the contract files was
     correct. Governor of the Virgin Islands Response. The response
     stated that the Department did not agree that "building permits
     were not always obtained. " The response further stated that
     although "immediate reconstruction/repairs . . . identified as
     Phase I Reconstruction/Repairs . . . were performed without
     building permits," Phase II permanent reconstruction/repairs
     were performed "in full compliance with the 1994 Uniform
     Building Code," including the requirement to obtain building
     permits. The response also stated that the auditors found that
     certain documents were absent from the files at the Department
     of 18 
  
     Education and the Department of Property and Procurement
     
     "because the Project Manager had not turned these files over to
     the Department of Education" but that the pertinent files were
     to be submitted to Property and Procurement by February 27,
     1998. Omce of Inspector General Reply. We believe that these
     statements support our conclusion that the Government's offcial
     contract files were incomplete. Additionally, the response
     addresses only these missing documents that related to
     construction supervised by the Project Manager. Finding A of the
     report disclosed that at least one key document was missing from
     the files for all 48 construction projects we reviewed,
     including projects supervised by the Special Project Coordinator
     and the Hurricane Recovery Managers. Governor of the Virgin
     Islands Response. The response stated that the Department did
     not agree that the Government "did not provide the required
     oversight of construction projects in that it allowed project
     management contractors rather than the Department of Public
     Works to supervise the construction and repairs." The response
     stated that Virgin Islands Code requirement with regard to
     supervision of construction contracts "was adhered to by the
     Department of Public Works who supervised the construction and
     repair of Government buildings under the Phase II
     reconstruction/repairs. " The response further stated that "the
     Project Manager representing the Department of Education was
     authorized to provide project oversight in conjunction with the
     Department of Public Works." Off'ce of Inspector General Reply.
     The response provided information to show that construction work
     under Phase II was supervised by the Department of Public Works
     and that the Department of Education was represented by the
     Project Manager. The response did not address the lack of
     construction oversight during Phase I work or the lack oversight
     of the activities of the Special Project Coordinator and the
     Hurricane Recovery Managers. We believe that this is significant
     because most of the deficiencies discussed in the report relate
     to the activities of the Special Project Coordinator and the
     Hurricane Recovery Managers, primarily during Phase I. We
     acknowledged in the finding that the Project Manager "conducted
     joint inspections with an inspector from the Department of
     Public Works." Additionally, the only two reported deficiencies
     relating to the performance of the Project Manager did not
     address the Project Manager's oversight responsibilities but the
     fact that the firm was awarded its contract on a noncompetitive
     basis and that one of the firm's invoices contained an error
     that resulted in an overpayment of $5,418. Governor of the
     Virgin Islands Response. The response stated that the Department
     did not agree that "there was little assurance" that contractors
     who received more than $21 million [incorrectly quoted in the
     Governor's response as "421 million"] for work on public schools
     performed in accordance with their contracts or that the work
     performed on the schools was in compliance with building code
     requirements. The response stated that the Department of
     Education "closely monitored" the activities of its project
     management contractors and that, as a result, "there was
     assurance that contractors performed in accordance with their
     contracts and that building code requirements were met." Omce of
     Inspector General Reply. The response acknowledged that repairs
     during Phase I were performed without building permits, that
     inspection and progress reports were 19 
  
     not always sufficiently detailed to support contractors' payment
     requests, and that only project management activities of the
     Project Manager were closely supervised by the Department of
     Education. We believe that these acknowledgments support our
     overall conclusion that the Government "did not maintain suff
     cient oversight of construction projects. " Governor of the
     Virgin Islands Response. The response stated that the Department
     did not agree that "two contractors were overpaid a total of
     $12,363." The response stated that the Department of Public
     Works was requested to review the possible overpayment of $5,418
     to the Project Manager but that the construction contractor at
     Alexander Henderson Elementary School was not overpaid $6,945
     because the original contract (in the amount of $109,356) was
     amended by a change order dated November 19, 1996, which
     increased the contract amount by $19,901. Omce of Inspector
     General Reply. A copy of the contract change order referred to
     in the response was not in the offcial contract files during our
     audit. However, based on this additional information, we have
     revised the report to delete all references to the potential
     $6,945 overpayment, but the Department needs to take action on
     the remaining $5,418. Governor of the Virgin Islands Response.
     The response stated that the Department of Education did not
     concur that the Governor had the Hurricane Recovery Managers
     perform the Government's contract oversight responsibilities
     because the Hurricane Recovery Managers "worked in concert with
     the Department of Education" in carrying out contract oversight
     activities. Also, the response stated that the Department's
     Division of Engineering "will be directed" to research its files
     "to discover copies of all 'progress reports' which will support
     progress payment requests submitted by the contractors for 27 of
     30 construction contracts" and that the Hurricane Recovery
     Managers' files located at the Department of Education "will be
     researched to discover architectural sketches and/or plans for
     the work performed" at the schools discussed in the finding. The
     response stated that such documents would be made available by
     February 3, 1998. Omce of Inspector General Reply. The response
     acknowledged that the files at the Department of Education would
     have to be researched to locate certain documents, including
     progress reports and architectural sketches and/or plans for
     projects supervised by the Hurricane Recovery Managers, so that
     the documents can be made available. We believe that this
     statement supports that such documents were not available at the
     time of the audit (March through August 1997). During the
     review, our auditors attempted to locate pertinent contract
     management documents in the files located at the Departments of
     Property and Procurement, Education, and Public Works, including
     files of the Hurricane Recovery Managers that were in the
     custody of the Department of Education. However, as of March 12,
     1998, we had not received any of the subject documents from the
     Department of Education. Governor of the Virgin Islands
     Response. The response stated that the Department of Education
     did not agree that contractors were paid $918,490 during the
     period of October to December 1995, "although inspections were
     not performed and invoices and periodic 20 
  
     estimates were not approved by the Government officials
     responsible for certifying that the work was accomplished." The
     response stated that inspections of the work performed were
     "executed" and that invoices and periodic estimates were
     approved by the Government officials "responsible for certifying
     that the work was accomplished satisfactorily" but that the
     Department of Property and Procurement did not submit copies of
     the approved documents for the files at the Departments of
     Education and Public Works. Omce of Inspector General Reply. We
     previously noted that inspection reports and approved invoices
     and periodic estimates for progress payments were not found in
     the contract files at the Departments of Education and Public
     Works or in the official files at the Department of Property and
     Procurement. As of March 12, 1998, we had not received any of
     the subject documents from the Department of Education. Governor
     of the Virgin Islands Response. The response stated that the
     Department of Education did not agree with the "Building Code
     and Permits" section in Finding B because, although "work
     performed under Phase I reconstruction/repairs [was] performed
     without building permits," all work under Phase II "was done in
     full compliance with the 1994 Uniform Building Code; the
     required drawings and specifications were prepared . . . and the
     necessary Building Permits received." The response also stated
     that the auditors did not find these documents in the files at
     the Departments of Education and Property and Procurement
     because "the Project Manager had not turned these files over to
     the Department of Education." The response further stated that
     "all work performed under the Phase I reconstruction/repairs,
     which was not in compliance with the 1994 Uniform Building Code,
     was corrected by subsequent work performed in full compliance
     with the . . . Code." Omce of Inspector General Reply. Key
     documents relating to compliance with the building permit and
     building code requirements were not made available during the
     audit. We reviewed the official contract files at the Department
     of Property and Procurement, additional contract files at the
     Departments of Education and Public Works, and files of the
     Hurricane Recovery Managers that were in the custody of the
     Department of Education. With respect to all of the files
     reviewed, there were instances in which we could not locate
     documents to show that building permit and building code
     requirements were met. As of March 1998, we had not received any
     of the subject documents from the Department of Education. In
     addition, the response acknowledges that "work performed under
     Phase I reconstruction/ repairs [was] performed without building
     permits." Further, during a separate audit of building permit
     fees of the Department of Planning and Natural Resources (Report
     No. 98-I-191, dated December 1997), we also reviewed building
     permit files pertaining to hurricane-related repairs to
     Government buildings (including public schools). As stated in
     the report, the Permits Manager of the Department of Planning
     and Natural Resources "told us that 'most' of the 67 building
     permits issued to Government of the Virgin Islands agencies for
     reconstruction and repair work after Hurricane Marilyn were
     based on 'as built' plans, meaning that the architectural plans
     were prepared and approved after-the-fact." 21
     
     
     
                                                             APPENDIX l


                     CLASSIFICATION OF MONETARY AMOUNTS
   


                    Finding                            Questioned Costs
   
   B. Contract Oversight
   
      Documentation of Oversight Activities                 $5,418*
ï¿½MDNMï¿½


   *  Amount represents local funds                         



                                                             APPENDIX 2
                                                           Page 1 of 28


     THE UNITED STATES VIRGIN ISLANDS
   
     OFFICE OF THE GOVERNOR
     GOVERNMENT HOUSE
     Charlotte Amalie, V.I. 00802
     809-774-0001
  
     January 29, 1998
   
     Honorable Wilma A. Lewis
     Inspector General
     U.S. Department of the Interior
     Office of the Inspector General
     Washington, D.C. 20240
  
     Subject:    Draft Audit Report on Hurricane Related
                 Contracting, Department of Education,
                 Government of the Virgin Islands,
                 V-IN-VIS-002-97
   
     Dear Inspector General Lewis:
  
     This is to acknowledge receipt of your Draft Audit Report on
     Hurricane Related Contracting, Department of Education,
     Government of the Virgin Islands, V-IN-VIS- 002-97. The
     Following is our official response to the above-referenced Draft
     Audit Report which was prepared by our Audit Response Task Force
     in the Department of Education. BACKGROUND On September 15,
     1995, Hurricane Marilyn struck the United States Virgin Islands,
     causing extensive damage to public and private facilities. As a
     result, the President of the Unites States issued a major
     disaster declaration, which allowed the Federal Emergency
     Management Agency, (FEMA) to provide disaster assistance funds
     in accordance with the Stafford Disaster relief and Emergency
     Assistance act, as amended (Public Law 100-707). FEMA provided
     the Government of the Virgin Islands with $22.7 23 
  


                                                             APPENDIX 2
                                                           Page 2 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-REIATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 2
  
     million in disaster assistance funds for school repairs,
     consisting of $15 million for the acquisition of modular
     classrooms to be used at certain public school, and $5.7 million
     for an overall project management contract with the Hurricane
     Recovery managers. In addition, the Department of Education
     received a total of $27.7 million from insurance proceeds and $6
     million from local bond proceeds for the repair and
     reconstruction of public schools. During the f seal years 1996
     and 1997, the Government awarded 41 construction contracts and
     44 professional services contracts, totaling about $51.4
     million, that related to the repair and reconstruction of the
     schools. "The Department of Education concurs with this
     finding." In September 1995, immediately after Hurricane Marilyn
     struck the Government conducted a survey of the public school
     facilities to determine the extent of the damage. An official
     from the Department of Public Works was assigned as a Special
     Projects Coordinator, with the responsibility to hire
     contractors to perform emergency debris removal and repair work
     at the schools. "The Department of Education concurs with this
     finding." In December 1995, the Government hired a joint venture
     of two off-island architectural/engineering firms (commonly
     referred to as the Hurricane Recovery Managers) to act as its
     overall project manager for all hurricane-related construction,
     including repairs to public schools. According to their
     contract, the Hurricane Recovery Managers were responsible for
     preparing solicitation packages for architectural/engineering
     and construction services, soliciting and evaluating proposals
     from contractors, supervising construction work
     maintainingfinancial oversight control of FEMA and other funds
     available for construction work preparing construction progress
     reports, and coordinating with vendors for the purchase and
     delivery of materials. The contract was in the amount of $5.7
     million plus a maximum of $748,000 in additionalfees. However,
     in June 1996, the Government and the Hurricane Recovery Managers
     mutually agreed to terminate the contract, primarily because of
     disagreements concerning the quality and speed of work performed
     by contractors at some public schools. "The Department of
     Education concurs with this finding." In August 1996, the
     Government awarded a $1.9 million contract, effective
     retroactively to late June 1996, to a local
     architectural/engineering firm to act as the Government's
     project manager for Department of Education construction
     projects. According to the contract, the project manager's
     responsibilities included providing detailed architectural
     drawings for repair work, preparing cost estimates monitoring
     construction work through frequent on-site visits, ensuring that
     construction work was in accordance with the building codes,
     preparing and submitting to the Government any necessary
     construction contract change orders, and reviewing and
     recommending approval of contractor requests for progress
     payments. The contract remained in effect, with three extensions
     through July 31, 1997. 24 
  
  
  
                                                            APPENDIX 2
                                                          Page 3 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 3
   
    "The Department of Education concurs with this finding."

     OBJECTIVE AND SCOPE The objective of the audit was to determine
     whether: (1) construction contracts were awarded in accordance
     with applicable laws and regulations; (2) controls existed to
     ensure that construction work was performed in accordance with
     building codes and other requirements; and (3) payment to
     contractors were reasonable, allowable, and allocable in
     accordance with contract provisions; The scope of the audit
     included contracts for hurricane-related construction and
     professional services awarded by or for the Department of
     Education duringfiscal years 1996 and 1997. We selectedfor
     review a judgement sample of 18 (out of 44) professional
     services contracts and 30 (out of 41) construction contracts,
     totaling over $49.8 million, that were awarded by the Department
     of Education, "The Department of Education states a non
     -concurrence with this finding." The preceding statement
     indicates the Department of Education awarded construction
     contracts, all contracts were awarded by the Department of
     Property and Procurement and the Hurricane Recovery Managers"
     the Department of Property and Procurement, or the Hurricane
     Recovery Managers. The audit was performed at the Departments of
     Property and Procurement, Education and Public Works. We also
     made site visits to 30 public schools to observe the
     construction worlc "The Department of Education concurs with the
     contents of the latter part of the preceding paragraph." Our
     review was made, as applicable, in accordance with the
     "Government Auditing Standards, " Issued by the Comptroller
     General of the United States. Accordingly, we included such
     tests of records and other auditing procedures that were
     considered necessary under the circumstances. As part of our
     review, we evaluated the Government's system of internal
     controls related to the award and oversight of construction
     contracts and the accountability offunds for the hurricane-
     related contracts. The internal control weaknesses we identified
     in these areas are addressed in the Findings and recommendations
     section of this report, Our recommendations, if implemented,
     should improve the internal controls in these areas. PRIOR AUDIT
     COVERAGE The Office of Inspector General has issued two reports
     during the past 5 years regarding 25 
  
                                                           APPENDIX 2
                                                         Page 4 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 4

     hurricane-related construction for public schools in the Virgin
     Islands. The survey report "Procurement Practices for Hurricane
     -Related Repairs to Public Schools, Government of the Virgin
     Islands: (No. 96-E-1113), dated August 1996, concluded that the
     operating officials at the Departments of Education and Public
     Works did not always comply with the procurement requirements
     and there was no assurance that the Government received the most
     favorable prices, terms and conditions with regard to emergency
     debris removal and repair services acquired at a total cost of
     more than $1. 5 million for public schools. We recommended that
     the Governor of the Virgin Islands direct all Executive Branch
     agencies to: (1) submit hurricane-related work requirements to
     the Department of Property and Procurement and '`Hurricane
     -related work requirements will retroactively be submitted to the
     Department of Property and Procurement by March 15, 1998; (2)
     ensure that the procurement process includes the use of
     competitive proposals to the maximum extent practicable, the
     issuance offormal contracts before work was started, and the
     maintenance of complete files documenting the procurement
     actions taken with regard to each contract. "The Department of
     Education concurs with the contents of the latter part of the
     preceding paragraph." The audit report "Construction Contracts,
     Capital Improvement Program, Government of the Virgin Islands"
     (No. 94-I-1194), dated September 1994, included a review of
     contracts awarded to repair damage to schools caused by
     Hurricane Hugo in September 1989. With regard to procurement
     practices, the report concluded that: (1) the Department of
     Property and Procurement did not adequately document actions
     taken to procure construction services and did not ensure the
     competitive procedures were used to the maximum extent
     practicable and (2) the Government and the Program Management
     Consultant did not provide adeguate oversight of construction
     projects. As a result, 7 contracts, totaling $4.5 million, were
     not awarded to the lowest proposers; and 14 contracts, totaling
     $18 million, did not have sufficient information in the contract
     files to determine whether competitive procurement procedures
     had been used. Additionally, "the report questioned construction
     costs of about $8 million charged against a grant from the U.S.
     Department of Educatzon " and "$2. 7 million paid to the Project
     Management Consultant. " With regard to contracts for repairs to
     public schools, we recommended that the Governor of the Virgin
     Islands ensure that: (1) the Department of Property and
     Procurement adheres to the competitive procurement requirements
     of the Virgin Islands Code and Virgin Islands Rules and
     Regulations, establishes formal policies and procedures
     regarding the contents of construction contract files, and
     enforces existing policies and procedures with regard to the
     issuance of change orders and supplemental contracts: (2)
     inspectors from the Department of Public Works or other
     inspectors authorized by the Department conduct regular
     inspections at each construction site andfile appropriate
     inspection reports "The Department of Education 26 
  
                                                            APPENDIX 2
                                                          Page 5 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 5
  
     concurs with the contents of the preceding paragraph."; and (3)
     the Department of Education provides the U.S. Department of
     Education with supporting documentation for the $8 million in
     questioned construction costs and the $2. 7 million in
     questioned payments to the Project Management Consultant so that
     the funding agency could make a determination as to the
     allowability of those costs. "The Department of Education
     concurs with item (3) and will provide the requested supporting
     documentation by April 15, 1998; the official responsible for
     the implementation of this task is the Honorable Liston A. Davis
     Commissioner, Department of Education." Our current review
     disclosed procurement and contract oversight deficiencies
     similar to those identified in the two prior reports.
 
     FINDINGS AND RECOMMENDATIONS
    
     A. CONTRACT AWARD
     The Government did not
     maintain sufficient oversight of the procurement process to
     ensure that contracts related to repairs to public schools
     damaged by Hurricane Marilyn were awarded in an effective
     manner. Specifically, the Department of Public Works on behalf
     of the Department of Education, allowed construction contractors
     on St. Thomas to perform work without competition or formal
     contracts and issued "after-the-fact" purchase orders for
     services for the Department of Education, "The Department of
     Education concurs with this fnding." However be reminded
     accordingly, (1) following the devastating effects of Hurricane
     Marilyn it was necessary to effect repairs/construction work on
     an immediate basis to facilitate the expeditious reopening of
     the schools. The Department of Public Works in conjunction with
     the Department of Education had their focus set on early
     commencement and completion of reconstruction/repairs of the
     schools and in consequence bypassed the Department of Property
     and Procurement. Although the Department of Property and
     Procurement is charged with the procurement of services, their
     time consuming methods would have placed the school reopening
     program in jeopardy; and (2) the encumbering of contractual
     funds and preparation of contractual documents is another
     necessary but time consuming exercise which would have further
     delayed the repairs/reconstruction process ." and the Hurricane
     Recovery Managers 27 
  
  
  
                                                           APPENDIX 2
                                                         Page 6 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURR1CANE-REL.ATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 6
  
     used procurement procedures that did not provide the required
     level of competition. In addition, procurementfiles did not
     adequately document whether competitive procedures were used.
     The Virgin Islands Code and the Virgin Islands Rules and
     Regulations contain the requirements for competitive
     procurement. However, the Government did not provide adequate
     oversight of the procurement process in that the Department of
     Property and Procurement, which has overall responsibility for
     Government procurement, was excluded for the most part from the
     process and the procurement procedures did not allow for the
     active involvement of third parties, such as the Department of
     Education and Public Works and the Hurricane recovery Managers.
     As a result, the Government had little assurance that it receive
     the most favorable prices, terms, and conditions with regards to
     construction and other contractual services acquired at a total
     cost of more than $21.5 million and for "after-the-fact"
     purchase orders totaling$164,000.00 "The Department of Education
     concurs with this findings of the preceding paragraph."
     Procurement Requirements Title 31, Sectzon 239, of the Virgin
     islands Code provides that purchases may be made without the use
     of formal advertisement and competitive bidding when, among
     other exceptions, the "Governor declares in the public interest
     that a State of Emergency exists and specifies in such
     Proclamation this purchases and/or services which may be
     obtained without competitive bidding, " The emergency
     proclamation that the Governor issued after Hurricane Marilyn
     allowed Government agencies to procure goods and services
     without formal advertising "The Department of Education concurs
     with this finding." However, the proclamation required that
     responsible agencies "negotiate on a competitive basis " and
     "make every reasonable effort to obtain the most favorable
     prices, terms, and conditions for the Government. "The
     Department of Education states a concurrence with this finding."
     Title 31, Sectzon 234, of the Virgin Islands Code, which was not
     waived by the Governor's emergency proclamation, states that "no
     purchase shall be made by any department or agency of the
     government or by any employee of the government for any agency
     of the government except by written order approved by the
     Commissioner of Property and Procurement . " The penalties for
     violatzon of the requirements include personal liability for the
     purchase price, afine of not more than $200, and/or dismissal
     from employment. "The Department of Education concurs with this
     finding." Procurement Methods Used 28 
  


                                                            APPENDIX 2
                                                         Page 7 o f 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   Januarv 29, 1998
   Page 7
  
     Although Title 31, Section 234, of the Virgin Islands Code
     designated the Commissioner of Property and Procurement as the
     procuring official for the Government of the Virgin Islands, the
     Department of Education and the Hurricane Recover Managers
     executed their own procurement for emergency debris removal and
     repair work at the public school facilities; Of the 30
     construction contracts we selectedfor review, we found that 20
     contracts, totaling $18. 7 million, were awarded
     noncompetitively and without the involvement of the Department
     of Property and Procurement. "The Department of Education
     concurs with this finding." Special Project Coordinator: After
     Hurricane Marilyn struck the Virgin islands on September 15,
     1995, the Department of Education used a Special Project
     Coordinator from the Department of Public Works to supervise and
     coordinate the repairs to the public schools on St. Thomas and
     St. John. This occurred without coordination with the Department
     of Property and Procurement, and, as a result, the Department of
     Education allowed the Special Project Coordinator to hire
     construction contractors noncompetitively. The Department of
     Education also did not execute formal contracts with the
     contractors before work commenced, as required by the Virgin
     Islands Code, to specify the detailed scope of work method of
     payment, procedures for inspection of work, resolution of
     disputes, and other standard contract provisions to protect the
     interests of both the Government and the contractors. "The
     Department of Education concurs with this finding." After the
     hurricane, the Coordinator, through a public radio announcement,
     requested that contractors which had performed work on the
     schools during the summer restoration program provide emergency
     debris removal and repair services at the public schools damaged
     by Hurricane Marilyn. The Coordinator requested that the
     contractors submit a statement of general scope of work before
     they were assigned to perform work on the same structures they
     had worked during the summer. However, we found 3 contracts, out
     of 30 awarded with the assistance of the Coordinator, that were
     prepared and executed after the contractors had started repairs.
     For example: - On December 7, 1995, a construction contract for
     $1.2 million was awarded to a contractor for repairs to a St.
     Thomas elementary school Namely Edith Williams Elementary
     School." A contractor invoice for $347,670 showed that
     construction work had begun on October 1, 1995. The Department
     of Property and Procurement was not involved in awarding this
     contract, which was executed after work had started "The
     Department of Education concurs with this finding." 29 
  
  
  
                                                            APPENDIX 2
                                                          Page 8 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENE:RAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 8
  
     On December 7, 1995, a construction contract for $850,000 was
     awarded for repairs to another St. Thomas ,elementary school. A
     contractor invoice for $140,546 showed that construction work
     had begun before October 15, 199S ``Namely Joseph Sibilly
     Elementary School." Additionally, there was no abstract of bids
     or a bid evaluation report in the contractfiles to indicate
     whether more than one contractor was given the opportunity to
     submit a proposalfor this contract. An October 27, 1995,
     transmittal memorandum from the Department of Education's
     Director of Business Affairs to the then-Commissioner of
     Education stated that a contract was not in place at the time
     that work began, inspection reports had not been prepared to
     verify that the job was satisfactorily completed, and approvals
     for payment had not been obtainedirom all of the appropriate
     Government official. Nevertheless, a miscellaneous disbursement
     voucher for $87,869 was processed, and the contractor paid. In
     an October 23, 1995, letter to the Governor, the Commissioner of
     Property and Procurement stated: Contrary to the provisions of
     title 31 Y.I.C. [Virgin Islands Code] Section 239, the
     procurement regulations for open market purchases, the
     Department of Property and Procurement was kept completely out
     of the process [by the Department of Education/. As a result we
     cannot protect the governor's interest relative to costs, terms,
     completion dates, and assessments on those contracts; "The
     Department of Education concurs with this finding." In an
     internal memorandum dated October 30, 1996, an employee of the
     Department of Property and Procurement reported to the
     Commissioner that there were significant variances in the
     estimated costs for emergency construction work performed by the
     contractors on 10 Department of education projects. While the
     contractors submitted invoices totaling $6.8 million for
     emergency repairs performed at Department of Education
     facilities, architect/engineers representing the government
     estimated that the work performed by the contractors was valued
     at $2.3 million, for an overall variance of $4.5 million. As of
     October 1997, these variances had not been resolved. "The
     Department of Education does not concur with this finding." A
     review of some of the documents of contention, namely Addelita
     Cancryn Junior High School and the Ralph O. Wheatley Skill
     Center, it was very obvious that in some instances the
     architect/engineer's unit prices were below normal Virgin
     islands prices, for construction, during normal circumstances.
     This even made some of the unit prices even more unreal since
     the work was done 30 
  

  
                                                            APPENDIX 2
                                                          Page 9 of 28
   V-IN-VIS02-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 9
   
     during a time of great emergency when material were being sold at
     a premium due to its scarcity and labor costs were high due to
     the scarcity of manpower. However in other cases such as Joseph
     Gomez and Evelyn Marcelli Elementary Schools, there was
     justification for questioning some of the prices submitted by
     contractors and the quantities of work which they claimed to
     have completed. We also found that, although Title 31, Section
     234, of the Virgin Islands Code requires that purchases be made
     by written orders, the Department of Public Works procured
     services for the Department of Education without purchase
     orders. Specifically, we found that nine purchase orders,
     totaling $164, 000, were prepared after the work was completed.
     The Department of Public Works sent contractors' invoices to the
     Department of Education, which prepared and submitted purchase
     orders to the Department of Property and Procurement for
     approval. We believe that the submission of the purchase orders
     to the Department of Property and procurement was an "after-the
     -fact " process that was contrary to the requirements of title
     33, section 234, of the Virgin Islands Code. " The Depa.-lment
     of Education concurs with your findings, however in the interest
     of expeditious reconstruction/repairs, the Department of Public
     Works was of great assistance since they were able to acquire
     the services of contractors, who also supplied materials during
     a period when labor and materials were a scarcity. Huracane
     Recovery Managers: In December 1995, the Government of the
     Virgin Islands hired the Hurricane Recovery Managers, at a cost
     of $6. 5 million, to serve as overall project managers for all
     hurricane-related construction projects. As a result the
     Department of Property and Procurement was excluded, except for
     approving contractors recommended by the f rm, because the f rm
     acted independently in soliciting, evaluating and negotiating
     with contractors for architectural, engineering and construction
     services for szructural repairs to be performed at public
     schools damaged by Hurricane Marilyn. "The Department of
     Education does not concur w*h this finding." The Hurricane
     Recovery Managers did not operate independently of the
     Government; they worked in concert with the (OAR) and the
     Department of Property and Procurement. 
  
  
  
                                                            APPENDIX 2
                                                         Page 10 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFlICE OF INSPECI OR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF ED[JCATION
   January 29, 1998
   Page 10
  
     Under procedures established by the Hurricane Recovery Manages,
     contractors were solicited through the local media, direct
     mailings and personal contacts after a Department of Education
     official prioritized the schools requiring repair work. The
     responding contractors filled out qualification statements which
     were submitted to the Hurricane Recovery Managers, who screened
     the contractors based on data in these statements and prepared a
     list of qualified contractors. A selection board composed of
     representatives of the Hurricane Recovery Managers interviewed
     the contractors, ash'ng questions regarding their ability to
     perform the work required. Based on the information in the
     qualification statements and the responses to the selection
     boards's questions, the Hurricane Recovery Managers recommended
     contractors to the Commissioner of Property and Procurement for
     final approval before the Hurricane Recovery Managers negotiated
     contracts with the selected contractors. The Hurricane Recovery
     Managers used construction master agreements as the basic
     contracts and assigned and controlled specific projects through
     task orders to the contractors. The task orders contained a
     description of the services required, drawings and
     specifications as applicable, the time frame for performance,
     the agreed-upon price, and the terms of payment. "The Department
     of Education concur with this finding." However, the proposal,
     selection, and awarding procedures established by the Hurricane
     Recovery Managers differedirom the Government's standard
     procurement process because they did not: (1) include the
     Department of Property and Procurement as an integral part of
     the process; "The Department of Education does not concur with
     this finding.''(2) require the solicitation of competitive
     proposals for each contract to be awarded; "The Department of
     Education concurs with this finding." (3) include Governmental
     representatives on the contractor selection committee "The
     Department of Education concurs with this finding.".
     Additz'onally, the Government did not have a system to monitor
     the Hurricane Recovery Managers' activities and to maintain
     adequate control over the construction contracts awarded by the
     Hurricane Recover Managers; "The Department of Education does
     not concur with this finding." The Department of Education
     worked closely with the Hurricane Recovery Managers; attended
     weekly staff meetings; received reports; manpower and
     construction schedules; and maintained oversight of their
     activities." As a result, there was no opportunity for
     competition among the contractors in the pool to ensure that the
     Government received the most favorable prices for repair work at
     the public schools, and there was little assurance that the
     Hurricane Recovery Managers and construction contractors
     performed in accordance with their contracts."The Department of
     Education does not concur with this finding." The unit prices
     which the Hurricane 32 
  
  
  
                                                            APPENDIX 2
                                                         Page 11 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 11
  
       Recovery Managers mandated for repair work at the public schools
     were acceptable and in the best interest of the Government; and
     construction contractors performed in accordance with their
     contracts." Project Manager: On August 29, 1996, the Government,
     after mutually agreeing with the HurricaneRrecovery Managers to
     terminate their contract, awarded a $1.9 million professional
     services contract noncompetitively to a former employee of the
     Department of Educaton to oversee completion of repair and
     reconstruction work at the public schools;"The Department of
     Education concurs with this finding." The contract was effective
     retroactively to June 24, 1996. The contractor told us that the
     then-Commissioner of Education oered him the contract. As such,
     this contract was awarded without adherence to the competitive
     procurement requirements of Title 31; Chapter 23, of the Virgin
     Islands code.The Department of Education concurs with this
     finding." We believe there was little assurance that the
     Government of the Virgin Islands received the most favorable
     prices, terms, and conditions for construction and other
     contractual services acquired at a cost of more than $21.5
     million and for "after-the-fact" purchase orders totaling
     $164,000 because the Special Project Coordinator completely
     bypassed the Department of Property and Procurement, did not
     solicit competitive proposals, and did not issue written
     contracts or purchase orders; the Hurricane recovery managers
     used procurement procedures that differed from the Government
     standard procurement process, and the project manager was not
     selected competitively. "The Department of Education does not
     concur with the findings of the preceding paragraph." The
     Government of the Virgin Islands received the most favorable
     prices, terms, and conditions for construction and other
     contractual services acquired at a cost of more than $21.5
     million and for "after-the-fact" purchase orders totaling
     $164,000; it is true that the Special Project Coordinator
     completely bypassed the Department of Property and Procurement,
     did not solicit competitive proposals, and did not issue written
     contracts or purchase orders; nonetheless predicated upon the
     emergency condition which prevailed, the Special Projects
     Coordinator acted in good faith on behalf of the Government. It
     is true that the Hurricane recovery Managers used procurement
     procedures that differed from the Government standard
     procurement process, however the Hurricane Recovery Managers 33
     
  
  
                                                            APPENDIX 2
                                                         Page 12 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 12
  
     operated in concert with the GAR and the Department of Property
     and Procurement. The Commissioner of Education agrees that the
     Project Manager was not selected competitively; but time was of
     the essence and predicated upon the knowledge and experience of
     the Project Manager (an architect and ax-employee of the
     Department of Education) it was in the best interest of the
     Government to utilize this Project Manager as he possessed a
     thorough understanding of all the facets of contracting; payment
     requests; inspections and in general project oversight. Contract
     Files The of ficial contractfiles maintained by the Department
     of Property and Procurement were not complete and did not
     contain sufficient documentation of procurement actions taken
     for the construction andprofessional services contracts
     reviewed; "The Department of Education concurs with the finding.
     of the preceding paragraph" Based on our review of the 48
     contractfiles selected, we determined that all of the fifes were
     missing at least one key document. For example, 23 fifes did not
     contain invitations for bids or requests for proposals, 29files
     did not contain copies of the original plans and specifications,
     30files did not contain bonding information, 21 files did not
     contain copies of the contractor 's business licenses, 3 7files
     did not contain abstract of bids, 32 files did not contain
     evaluation committee reports, 17 fifes did not contain notices
     to proceed, and 29files did not contain building permits.
     Additionally, the fifes for 18 contracts, totaling $12. 6
     million, of the 30 construction contracts we reviewed did not
     contain sufficient documentation for us to determine whether
     competitive procurement procedures had been used; "The
     Department of Education concurs with the findings of the
     preceding paragraph." Because the Department of Education; "the
     GAR" and the Hurricane Recovery Managers procured services in
     accordance with their own procedures, there was little assurance
     that documents were forwarded to the Department of Property and
     Procurement for the official contract files. Without complete
     contractfiles, the government may not be able to defend its
     position in the event of (1) claims by unsuccessful contractors
     that they should have been awarded the contracts (2) disputes
     between the Government and successful contractors over the
     terms, conditions, or price of the contracts."The Department of
     Education concurs with this finding." At the November 25, 1997
     exit meeting on the preliminary draft report, the Commissioner
     of Education stated that in the immediate aftermath of the
     hurricane, there was "confusion" among 34 
  


                                                            APPENDIX 2
                                                         Page 13 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 13
  
     Government agencies as to the accepted procurement practices to
     be followed under the Governor's emergency proclamation but that
     later procurement actions were made using procedures which were
     more in compliance with the legal requirements. The Commissioner
     also stated that his department had developed contingency plans
     for procuring emergency debris removal and school repair
     services should another hurricane strike the Virgin Islands. The
     Department of Education concurs with the contents of the
     preceding paragraph" Recommendations We recommend that the
     Governor of.the Virgin islands: 1. Ensure that the Department of
     Property and Procurement carries out its procurement
     responsibilities in accordance with Title 31, Chapter 23 of the
     Virgin Islands Code and the Virgin islands Rules and
     regulations, including the use of competitive procedures to the
     maximum extent practicable and the issuance of formal contracts
     before work begins. 2. Enforce Title 31, Section 234 of the
     Virgin islands Code, which requires that purchases be by written
     orders approved by the Department of Property and Procurement.
     3. Ensure that the Department of Property and Procurement
     maintain contractfiles which adequately documents the
     procurement process. Specifically, the contract files should
     contain, as appropriate, the invitation for bids or request for
     proposals; all bids or proposals received, including contractor
     qualification statements, evidence of bonding or surety, copies
     of business licenses, and other documents that are required as
     part of a complete bid package; bid abstract sheets of
     individual committee members and the final bid evaluation
     committee report; executed contracts and any subsequent
     amendments, supplements, or change orders; notices of award and
     notices to proceed; correspondence related to the contracts;
     progress payment requests and other documents related to
     payments to contractors; and documents related to actions taken
     with regards to any deficiencies noted, including the assessment
     of liquidated damages. I have directed the Commissioner of
     Property and Procurement to meet all of the requirements of the
     three above recommendations and to report to me the status of
     his actions within thirty days. 2 CONTRACTOVERSIGHT 35 
  
  
  
                                                            APPENDIX 2
                                                         Page 14 of 28
   V-IN-VIS02-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 14
  
     The Government did not maintain sufficient oversight of
     construction projects to ensure that repairs to public schools
     damaged by Hurricane Marilyn were performed in accordance with
     existing requirements. Specifically, Contractors' requests for
     periodic payment were not always approved "The Department of
     Education does not concur with this finding." All requests for
     periodic payments were always approved by the respective
     Governmental Agencies; however, the final approval signatures
     were that of the Department of Property and Procurement. It is
     their responsibility to ensure that the other Governmental
     Approval Agencies received duly approved copies of all requests
     for payments for their files; this was not done and in
     consequence the files at the Department of Education and the
     Department of Public Works did not reflect all approval
     signatures. I will mandate that the Department of Property and
     Procurement ensure that all approval agencies be provided with
     copies of all payment requests documentation in the future."
     inspection and progress reports were not always sufficiently
     detailed to support contractors' payment requests; "The
     Department of Education concurs with this finding." and building
     permits wee not always obtained; "The Department of Education
     does not concur with this finding." Following the aftermath of
     Hurricane Marilyn, immediate reconstruction/repairs was
     performed and identified as Phase I Reconstruction/Renairs:
     buildin; work performed under the Phase I banner were performed
     without building permits. Under the Phase II banner permanent
     reconstruction/repairs were performed; all such work was done in
     full compliance with the 1994 Uniform Building Code; the
     required drawings and specifications were prepared, submitted to
     the Department of Planning and Natural Resources and the
     necessary Building Permits received. When the auditors reviewed
     the files at the Department of Education and the Department of
     Property and Procurement their findings indicated the absence of
     these documents; this was because the Project Manager had not
     turned these files over to the Department of Education. At
     present however, said documentation is at the Department of
     Education who will be transmiffing copies of said 36 



                                                           APPENDIX 2
                                                        Page 15 of 28
   V-IN-VIS02-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GEN[;RAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 15
    
     documentation to the Department of Property and Procurement for
     their files by February 27, 1998." The Virgin Islands Code
     requires the Department of Public Works to supervise the
     construction and repair of Government buildings and specifies
     the conditions for obtaining building permits. However, the
     Government did not provide the required oversight of
     construction projects in that it allowed project management
     contractors rather than the Department of Public Works to
     supervise the construction and repair of public schools and did
     not have procedures for monitoring the activities of the project
     management contractors. As a result, there was little assurance
     that construction and professional services contractors who
     received over 421 million for work on public schools performed
     the work in accordance with their contracts or that the work
     performed on the schools was in compliance with building code
     requirements, thus creating the potentialfor safety deficiencies
     in the public schools. We also found that two contractors were
     overpaid a total of $12,363. "The Department of Education does
     not concur with this finding." The requirements set forth in The
     Virgin Islands Code wa s adhered to by the Department of Public
     Works who supervised the construction and repair of Government
     buildings under the Phase II reconstruction/repairs, for which
     all building permits were obtained. The Government did provide
     the required oversight of construction projects; the project
     Manager representing the Department of Education was authorized
     to provide project oversight in conjunction with the Department
     of Public Works on the construction and repair of public
     schools. The Department of Education closely monitored the
     activities of its project management contractors. As a result,
     there was assurance that construction and professional services
     contractors who received over 421 million for work on public
     schools performed the work in accordance with their contracts
     and that all work performed on the schools under the Phase II
     reconstruction/repairs was in compliance with building code
     requirements, thus eliminating the potential for safety
     deficiencies in the public schools." We also found that two
     contractors were overpaid a total of $12,363; "The Department of
     Education does not concur with this finding." The findings
     states that two (2) contractors were overpaid a total of
     $12,363.90, which consisted of payments to the project manager,
     Caribbean Professional Consultants, and Custom 
  


                                                            APPENDIX 2
                                                         Page 16 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GEERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 16
  
     Builders. With reference to Caribbean Professional Consultants,
     this finding has been forwarded to the Department of Public
     Works for a response. Attached, please find copy of memorandum
     dated January 23, 1998 to the Commissioner of Public Works from
     the Commissioner of Education trans- mitting a copy of the draft
     report to be reviewed, investigated and responded to by that
     agency by February 4, 1998. Custom Builders was awarded contract
     No. CC-35-DE-T-96 dated July 27, 1996 in the amount of
     $109,355.83 to repair Alexander Henderson Elementary School on
     St. Croix. Subsequently, Change Order No. 1 dated November 19,
     1996 and approved by the Commissioner of Education on 2/10/97
     increasing this contract by the amount of $19,900.74, thus,
     changing the total amount of this contract to $129,256.57,
     charged to account code: 3132 -25620-000-PPE-TO3106.
     Documentation of Oversight Activities Title 3, Section 138, of
     the Virgin Islands Code requires the Department of Public Works
     to supervise the construction and repair of all government
     buildings. However, during the period of October to December
     1995, which was the period of time prior to the contract with
     the Hurricane Recovery Managers, the Government did not maintain
     documentation showing whether the construction projects were
     inspected by the Department of Public Works; "The Department of
     Education does not concur with this finding." Additionally,
     during the period of December 1995 to June 1996, the Government
     had the Hurricane Recovery Managers carry out the Government's
     contract oversight responsibilities; "The Department of
     Education does not concur with this finding." The Hurricane
     Recovery Managers worked in concert with the Department of
     Education" Specifically, the Hurricane Recovery Managers were
     required to: (1) review architectural designs and plans prepared
     by contracted architects/engineers; (2) monitor design and
     construction activities; and (3) provide the Government with
     construction progress reports. However, we found no "progress
     reports " in the contract f les to support progress payment
     requests submitted by the contractors for 27 of the 30
     construction contracts reviewed; "The Department of Education
     does not concur with this finding." The Department of Education,
     Division of Engineering, will be 38 
  
  

                                                            APPENDIX 2
                                                         Page 17 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 17
  
     directed to research their files to discover copies of all
     "progress reports" which will support progress payment requests
     submitted by the contractors for 27 of the 30 construction
     contracts reviewed, February 27, 1998. Additionally, in a
     February 20, 1996, memorandum to the Commissioner of Property
     and Procurement, the Hurricane Recovery Managers indicated that
     their contractor selection process was focused on identifying
     qualified architectural/engineering firms for four schools.
     However, during our review of the Hurricane Recovery Managers
     'files located at the Department of Education, we found no
     architectural sketches or plans for the work performed at the
     schools; "The Department of Education does not concur with this
     finding." The four schools in question were (1) Bertha C.
     Boschulte Junior High School; (2) Lockhart Elementary School;
     (3) Peace Corps Elementary School and (4) Joseph Sibilly
     Elementary School; However, the Hurricane Recovery Managers'
     files located at the Department of Education, will be researched
     to discover architectural sketches and/or plans for the work
     performed at the schools in question. Documentation was
     submitted to the Department of Education showing how the
     Hurricane Recovery Managers monitored and reviewed the work of
     contractors, there was assurance that the construction firms
     fulfilled their contractual obligations. There is also
     documentation in the files to show that the Government monitored
     the activities of the Hurricane Recovery Managers to ensure that
     they carried out their contractual obligations as the
     Government's overall project management consultant, said files
     will be made available by February 13, 1998." The project
     manager hired in June 1996 to replace the Hurricane Recovery
     Managers conducted joint inspections with an inspector from the
     Department of Public Works of construction work performed at the
     public schools; "The Department of Education does not concur
     with this finding." But the project manager's invoices did not
     provide sufficient details to support the quantity or quality of
     work he performed; The Department of Education concurs with this
     finding." For example, the project manager's first invoice,
     dated August 19, 1996, billed the Government $222,528 for services
     rendered during the period of June 23 to August 17,
     1996. However, the supporting documentation attached to the
     invoice indicated that only $214,179 was owedfor 3,355 hours of
     staff time and $2,931 was owed for mileage on the firm's 39 
  
  
  
                                                            APPENDIX 2
                                                         Page 18 of 28
   V-IN-VIS02-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 18  
  
     vehicles. Therefore, the project manager was overpaid $5,
     418;The Department of Education concurs with this finding;" and
     will correct this overpayment. Additionally, the invoice did not
     indicate which schools were visited or the type of services
     provided at each school.The Department of Education conccurs
     with this finding."" and will provide modified invoices which
     will indicate schools and the type of services provided
     respectively." During May and June 1997, we made on-site visits
     to 30 public schools (12 on St. Thomas and 18 on St. Croix) that
     had been repaired or renovated after Hurricane Marilyn and found
     that construction contractors did not satisfactorily complete
     all of the work required by their contracts as follows: The roof
     of, the gymnasium at the Ivanna Eudora Kean High School on St.
     Thomas leaked, and, as a result, the floors of the gymnasium's
     main entrance, leachers ' offices, and boys t restroom flooded
     after heavy rains. The contract required the contractor to
     remove and replace 8,000 square feet of seam roofing and
     temporary roofing, for which the contractor was paid $263, 000.
     The contract for all work to be performed at the High School was
     for an amount not to exceed $1, 488,941.; "The Department of
     Education concurs with this finding." with your fndings, however
     corrective actions has been taken and repairs to the roof of the
     gymn-asium at the Ivanna Eudora Kean High School is now
     complete. At the Joseph Sibilly Elementary School on St. Thomas,
     the contractor was required to perform repair and reconstruction
     work that included renovating the art building. However, no work
     had been done on the art building since Hurricane Marilyn, and
     the contractor was paid $481,000. The contract for all work to
     be performed at the School was in the amount of $850,000. "The
     Department of Education concurs with this fnding." Corrective
     actions has been taken. The original contractor for the Joseph
     Sibilly Elementary School was dismissed and a new contractor is
     presently completing the necessary repairs. At the Arthur
     Richards Junior High School on St. Croix, repairs had not been
     made to the roof "uttering; windows in classrooms; and ceiling
     tiles in the girls ' restroom, auditorium, and kitchen. The
     contractor was required to perform the cited repairs on the
     entire school and had been paid a total of $551,000. The
     contract for all work to be performed at the Junior High School
     was in the 40 
  
  
  
                                                          APPENDIX 2
                                                       Page 19 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 19  
  
     amount of$618 427."The Department of Education concurs with this
     finding." However, corrective actions has been taken. Repairs to
     the Arthur Richards Junior High School is presently in
     progress." At the Alexander Henderson Elementary School on St.
     Croix, the classroom roof leaked and ceiling tiles in the mens'
     restroom still needed to be replaced. The contractor was paid
     $116,300 to make these repairs. The contract for all work to be
     performed at the School was in the amount was in the amount of
     $109,355, indicating that the contractor was overpaid by $6,945.
     "The Department of Education concurs with this finding."
     However, corrective actions has been taken and repairs to the
     the Alexander Henderson Elementary School on St. Croix is
     presently in progress. Be advised however, that the repairs
     presently in progress are as specified in the contractors scope
     of work Additional repairs will be required to the school in
     question, and as such a new scope of work will be formulated and
     a contract put in place for the execution of such work. At the
     November 25, 1997, exit meeting on the preliminary draft report,
     the Commissioner of Education stated that corrective actions had
     been taken on some of the constructzon deficiencies noted.
     Specifically, he stated that: (1) repairs to the roof of the
     gymnasium at the Ivanna Eudora Kean High School was completed;
     (2) the original contractor for the Joseph Sibilly Elementary
     School was dismissed and a new contractor was completing the
     necessary repairs; and (3) repairs at the Arthur Richards Junior
     High School and the Alexander Henderson Elementary School on St.
     Croix were in process. The Commissioner also stated that the
     ongoing repair work was periodically inspected by
     representatives of the Department of Education and the
     Department of Planning and Natural Resources (the agency
     responsible for building code enforcement). Payment Process.
     During the period of October to December 1995, contractors were
     paid $918,490, although inspections were not performed and
     invoices and periodical estimates were not approved by the
     Governmental of ficials responsible for certifying that the work
     was accomplished satisfactorily; The Department of Education
     does not concur with this finding;"During the period of October
     to December 1995, contractors were paid $918,490, inspections of
     the work performed was executed and invoices and periodical
     estimates approved by the Governmental offcials responsible for
     certifying that the work was accomplished satisfactorily"; For
     Example, in October 1995, a payment of $87,868 was made to a
     contractor (Namely, Morgan 41 
  
  
  
                                                            APPENDIX 2
                                                         Page 20 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENE:RAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 20
  
     Construction) by means of a miscellaneous disbursement voucher.
     A memorandum from the Department of Education's Director of
     Business Affairs to the then-Commissioner of Education that was
     attached to the voucher stated that there were no: (1) contracts
     in place for the construcizon work; (2) inspection reports to
     verifying that work was completed satisfactorily; or (3)
     approvals by the authorized Government representatiYes to
     certify the work for payment. lIowever, the voucher was
     certifiedfor payment by the then-Commissioner of Education, and
     a check was issued to the contractor on October 27, '95; "The
     Department of Education concurs with this finding.'' The
     Hurricane Recovery Managers and the subsequent project manager
     submitted contractors' invoices and periodic payment requests,
     along with their recommendations for approval of payment, to the
     Department of Education. The Department then prepared the
     payment vouchers and submitted the invoices, periodic payment
     requests, and vouchers to the Department of Property and
     Procurement for processing. The invoices and periodic payment
     requests were to be signed by authorized representatives of the
     Departments of Property and Procurement, Public Works, and
     Education certifying that the work was satisfactorily completed.
     However, in the 48 constructzon and professional services
     contract files that we reviewed, we found 65 payment (out of
     154) totaling over $21 million, that were made without all of
     the required approvals by the Governmental representatives. "The
     Department of Education does not concur with this finding.'' All
     requests for periodic payments were always approved by the
     respective Governmental Agencies; however, the final approval
     signatures were that of the Department of Property and
     Procurement. It is their responsibility to ensure that the other
     Governmental Approval Agencies received duly approved copies of
     all requests for payments for their fles; this was not done and
     in consequence the files at the Department of Education and the
     Department of Public Works did not reflect all approval
     signatures. I will mandate that the Department of Property and
     Procurement ensure that all approval agencies be provided with
     copies of all payment requests documentation in the future."
     inspection and progress reports were not always sufficiently
     detailed to support contractors ' payment requests; "The
     Department of Education does not concur with this finding."
     Following the aftermath of Hurricane Marilyn, immediate
     reconstruction/repairs was performed and identified as Phase I
     Reconstruction/Renairs; buildine: work performed under the Phase
     I banner were performed without building permits. Under the
     Phase II banner 42 
  

  
                                                           APPENDIX 2
                                                        Page 21 of 28
   V-IN-VIS02-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENE,RAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTR\CTING - DEPARTMENT OF EDUCATION
   January 29, 1 998
   Page 21
  
     permanent reconstruction/repairs were performed; all such work
     was done in full compliance with the 1994 Uniform Building Code;
     the required drawings and specifications were prepared,
     submitted to the Department of Planning and Natural Resources
     and the necessary Building Permits received. When the auditors
     reviewed the fles at the Department of Education and the
     Department of Property and Procurement their fndings indicated
     the absence of these documents; this was because the Project
     Manager had not turned these files over to the Department of
     Education. At present however, said documentation is at the
     Department of Education who will be transmitting copies of said
     documentation to the Department of Property and Procurement for
     their files by February 13, 1998." In additzon, the invoices of
     the Hurricane Recovery Managers were not properly reviewed and
     approved. For example, during the period of December 20, 1995,
     to February 21, 1997, the Hurricane Recovery Managers submitted
     10 invoices, totaling $5.7 million, to the Governor's Authorized
     Representative (GAR). A letter dated April 19, 1996, from the
     GAR to the Hurricane Recovery Managers which was attached to the
     miscellaneous disbursement vouchers stated that the GAR was
     giving "conditional approval" of the payments but that he had
     not performed a detailed review and verificatzon of the
     Hurricane Recovery Managers ' work The letter further stated
     that the GAR "disavowed, " at that time, the representations in
     the Certification of Authorized Government Representative but
     that the Government reserved the right, upon detailed review and
     verification, to make appropriate adjustments against future
     invoices. However, there was no documentatzon in the files
     indicatzng whether detailed reviews or payment adl ustments were
     subsequently made. We believe that the GAR 's disclaimers
     indicate that the correct review process was not followed with
     regard tot he Hurricane Recovery Managers ' irrvoices and that
     there was little assurance that amounts paid were reasonable and
     allowable. "The Department of Education concurs with this
     finding." "The Audit Response Task Force" will investigate this
     outstanding matter in conjunction with the "GAR," to verify the
     10 invoices totaling $5.7 million, which the Hurricane Recovery
     Managers submitted to the "OAR" for approval during the period
     of December 20, 1995, to February 21, 1997. The extenuating
     circumstances surrounding the conditional approval of the
     invoices by the "OAR" will be researched and subject to detailed
     review and verification. The "GAR's" files will be researched to
     ascertain whether 43 
  
  

                                                            APPENDIX 2
                                                         Page 22 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GEERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 22  
  
     or not detailed reviews or payment adjustments were ever made;
     and if they were reasonable and allowable. The target completion
     date for this task will March 6, 1998. Building Code and Permits
     The 1994 Uniform Building Code (which is incorporated by the
     reference into Title 29, Chapter 5, of the Virgin Islands Code)
     requires that developers request a building permit before they
     begin construction by submitting a set of architectural plans to
     the Division of Permits of the Department of Planning and
     Natural Resources. Section 106.1 of the Building Code further
     requires that the building official issue a separate building
     permit for each structure erected, constructed, enlarged,
     altered, repaired, moved, converted, or demolished. Despite
     these requirements, which apply to Governmental facilities, the
     Government did not ensure that architectural plans were
     submitted for approval or that building permits were obtained
     for all repair work to the public schools. We found that plans
     and building permits were not available for 29 of 41 school
     construction projects. "The Department of Education does not
     concur with this finding." Following the aftermath of Hurricane
     Marilyn, immediate reconstruction/repairs was performed and
     identified as Phase I Reconstruction/Repairs: buildin: work
     performed under the Phase I reconstruction/repairs were
     performed without building permits. Under the Phase II
     reconstruction/repairs permanent reconstruction/repairs were
     performed; all such work was done in full compliance with the
     1994 Uniform Building Code; the required drawings and
     specifications were prepared, submitted to the Department of
     Planning and Natural Resources and the necessary Building
     Permits received. When the auditors reviewed the files at the
     Department of Education and the Department of Property and
     Procurement their findings indicated the absence of these
     documents; this was because the Project Manager had not turned
     these files over to the Department of Education. At present
     however, said documentation is at the Department of Education
     which will be transmitting copies of said documentation to the
     Department of Property and Procurement for their files by
     February 13, 1998." Additionally, correspondence in the
     contractfiles indicated that some of the construction worlc was
     not in compliance with the building code requirements. "The 44 
  
  
  
                                                            APPENDIX 2
                                                         Page 23 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GEERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 23
    
     Department of Education does not concur with this finding." All
     work performed under the Phase I reconstruction/repairs. which
     was not in compliance with the 1994 Uniform Building Code, was
     corrected by subsequent work performed in full compliance with
     the 1994 Uniform Building Code, under the Phase II Phase I
     reconstruction/repairs. For example: A status report prepared by
     the Hurricane Recovery Managers in May 1996 stated that repair
     work at the Joseph Sibilly, Charlotte Amalie, and Kirwan Terrace
     schools was not in compliance with the building codes and
     recommended that the Government issue stop work orders to the
     respective construction contractors. "The Department of
     Education does not concur with this finding." All work performed
     under the Phase I reconstruction/repairs. which was not in
     compliance with the 1994 Uniform Building Code, was corrected by
     subsequent work performed in full compliance with the 1994
     Uniform Building Code, under the Phase II
     reconstruction/repairs. On May 21, 1996, the Department of
     Property and Procurement issued a stop work order to the
     contractor working at the Charlotte Amalie High School. However,
     in a June 11, 1996, memorandum, the then- Commissioner of
     Education authorized the contractor to continue all repair work
     at the High School "that does not relate to meeting provisions
     of the Uniform Building Code or other code requirements;. "The
     Department of Education does not concur with this fnding". All
     work performed under the Phase I reconstruction/repairs. which
     was not in compliance with the 1994 Uniform Building Code, was
     corrected by subsequent work performed in full compliance with
     the 1994 Uniform Building Code, under the Phase II
     reconstruction/repairs. We found no documentation in the files
     to indicate whether follow up actions were taken to have the
     contractor correct the building code violations that resulted in
     the stop work order or whether the Department of Education, the
     Hurricane Recovery Managers, or other representatives of the
     Government ensured that the contractor's subsequent work was in
     accordance with the Commissioner's instrucoons. We also did
     notfind documentation in thefiles to indicate whether stop work
     orders were issued to the contractors at the Joseph Sibilly and
     Kirwan Terrace schools or whether the building code violations
     reported by the Hurricane Recovery Managers were corrected. "The
     Department of Education does not concur with this finding." All
     work performed under the Phase I reconstruction/repairs. which
     was not in 
  
  
  
                                                          APPENDIX 2
                                                       Page 24 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OF17ICE OF INSPECTOR GEN1::R\L
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 24  
  
     compliance with the 1994 Uniform Building Code, was corrected by
     subsequent work performed in full compliance with the 1994
     Uniform Building Code, under the Phase II
     reconstruction/repairs. In another instance, a new roof that was
     constructed at the Ulla Muller Elementary School after Hurricane
     Marilyn was blown off the school by Hurricane Bertha in July
     1996. An architect/engineer alleged to the press that the new
     roof had not been constructed in accordance with the building
     code requirements. "The Department of Education does not concur
     with this finding." All work performed under the Phase I
     reconstruction/repairs. which was not in compliance with the
     1994 Uniform Building Code, was corrected by subsequent work
     performed in full compliance with the 1994 Uniform Building
     Code, under the Phase II reconstruction/repairs. We believe that
     substandard construction work and the resultant potential for
     unsafe public schools existed because the Government and its
     representatives did not ensure that architectural plans were
     prepared and approved, building permits were issued, and
     building code requirements were met "The Department of Education
     does not concur with this fnding." All work performed under the
     Phase I reconstruction/repairs. which was not in compliance with
     the 1994 Uniform Building Code, was corrected by subsequent work
     performed in full compliance with the 1994 Uniform Building
     Code, under the Phase II reconstruction/repairs. At the November
     25, 1997, exit meeting on the preliminary draft report, the
     Commissioner of Education stated that repair work at almost all
     schools had subsequently been inspected by representatives of
     the Department of Education and the Department of Planning and
     Natural Resources and that, where necessary, additionally work
     was performed to mitigate the effects of repair work that
     originally was not in compliance with building code
     requirements. Specifically, he stated that corrective actions
     had been taken with regard to building code deficiencies at the
     Joseph Sibilly, Kirwan Terrace, and Ulla Muller schools but that
     some problems still existed relating to the quality and
     timeliness of the repair work at the Charlotte Amalie High
     School. The Commissioner also stated that he had
     taken a "hard line " with contractors by refusing to approve
     payments in cases where the repair work was not performed in
     accordance with contract and building code requirements.
     Further, the Commissioner stated that the Department had
     obtained and compiled that contractfiles originally held by the
     Hurricane Recovery Managers and the subsequent project manager.
     46 
  

     
                                                           APPENDIX 2
                                                        Page 25 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 25  
  
     Recommendations We recommend that the Governor of the Virgin
     Islands: 1. Direct the Department of Property and Procurement,
     in coordination with the Department of Public Works, to
     establish procedures for the contract oversight function which
     include assigning a Department of Public Works inspector to
     conduct regular inspections at each construction site and file
     appropriate inspection reports with the Department of Property
     and Procurement and to ensure that all appropriate Government
     representatives review and approve construction progress reports
     before periodic payments are made to contractors; We concur with
     this recommendation. I have directed my Commissioners of the
     Departments of Property and Procurement and Public Works to
     coordinate an effort to establish appropriate procedures for
     contract oversight. I have been informed that many of these
     procedures have already been put in place. 2. Direct the
     Department of Property and Procurement, in coordination with the
     Department of Planning and Natural Resources, to establish
     procedures which ensure that architectural plans are submitted
     and approved and building permits are issued for all government
     construction projects; The Commissioner of the Department of
     Planning and Natural Resources is working with the Commissioner
     of the Department of Property and Procurement to ensure that
     architectural plans for all government construction projects are
     submiffed and approved by that Department. Newly established
     procedures require that the appropriate building permits be
     issued before construction of these projects begin. 3. Direct
     the Department of Public works, in conjunction with the
     Department of Planning and Natural Resources, to inspect all
     public schools which required construction work after Hurncane
     Marilyn to ensure that the work was performed in accordance with
     building code requirements. Any violations should be reported to
     the Department of Property and Procurement for subsequent
     correction by the contractors. The Commissioner of Public Works
     and Planning and Natural Resources have been directed to conduct
     inspections of all public school construction work performed
     after hurricanes Marilyn to ensure that this work was performed
     in accordance with new building code requirements. Any
     discovered violations will be reported to the Department of
     Property and Procurement for subsequent correction by the
     contractors. This matter will be given top priority by my
     administration. 47 
  
  

                                                            APPENDIX 2
                                                         Page 26 of 28
   V-IN-VIS02-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 26
  
     4. Drect the Deparunent of Education to obtain refunds from (or
     make offsets against amounts that may be owed to) the two
     conuactors who were overpad a total of $12,363.00. "The
     Department of Education does not concur with this finding." (See
     Documentation of Oversight Activities $12,363) CLASSIFICATION OF
     MONETARY AMOUNTS Findina B. Contract Oversight Questioned Costs
     DocuTrentation of Oversight Activities $12,363 "The Department
     of Education does not concur with this finding." The fndings
     states that two (2) contractors were overpaid a total of
     $12,363.90, which consisted of payments to the project manager,
     Caribbean Professional Consultants, and Custom Builders. With
     reference to Caribbean Professional Consultants, this fnding has
     been forwarded to the Department of Public Works for a response.
     Attached, please find copy of memorandum dated 1/23/98 to the
     Commissioner of Public Works from the Commissioner of Education
     transmiffing a copy of the draft report to be reviewed,
     investigated and responded to by that agency. Custom Builders
     was awarded contract No. CC-35-DE-T-96 dated July 27, 1996 in
     the amount of $109,355.83 to repair Alexander Henderson
     Elementary School on St. Croix. Subsequently, Change Order No. 1
     dated November 19, 1996 and approved by the Commissioner of
     Education on 2/10/97 increasing this contract by the amount of
     $19,900.74, thus, changing the total amount of this contract to
     $129,256.57, charged to account code: 3132-2S620-000-PPE-TO3106.
     At the time of this audit review the following payments were
     being 48 
  
  
  
                                                            APPENDIX 2 
                                                         Page 27 of 28 
     V-IN-VIS-002-97 
     U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
     RESPONSE TO DRAFT AUDIT REPORT
     HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
     January 29, 1998
     Page 27 
     
     processed: PERIODICAL
     ESTIMATE NO. 1 Periodical Estimate in the amount of $98,420.25
     was paid from two (2) different funding sources under: ACCOUNT
     CODE: 3132-25620-000-PPE-TO3106. Periodical Estimate No. 1
     Payment ............... PERIODICAL ESTIMATE NO. 2. Payment
     ................................................................................. Sub Total
     ...................... .................................................................................. $ 98,420.25 $ 78,068.50 $ 17,910.66 $ 95,979.16 PAYMENT WAS PAID AGAINST ACCOUNT CODE: 9340-95250-000-02M-FD9340
     Balance of Per. Estimate No. 1 $ 20,351.75 Grant Total to
     Contractor $ 116,330.91 49 
  
  
  
                                                            APPENDIX 2
                                                         Page 28 of 28
   V-IN-VIS-002-97
   U. S. DEPARTMENT OF THE INTERIOR - OFFICE OF INSPECTOR GENERAL
   RESPONSE TO DRAFT AUDIT REPORT
   HURRICANE-RELATED CONTRACTING - DEPARTMENT OF EDUCATION
   January 29, 1998
   Page 28
  
     We have outlined in detail a response to your Draft Audit Report.
     Should you have any further questions relating to our responses,
     please feel free to contact my office. ' Gove Enclosure cc: Mr.
     Arnold E. vnReverhoudt, Jr., Director of Insular Area Audits
     Honorable Liston A..Davis, Commissioner of Education Mr. Elmo D.
     Roebuck, Special Asst. for Audit & Policy Evaluation 50 
  
  
  
     APPENDIX 3 STATUS OF AUDIT REPORT RECOMMENDATIONS
     
     Finding/Recommendation Reference A.1-A.3 B.1-B.3 B.4 Status
     Action Required Resolved; No further response to the Office of
     not implemented. Management concurs; additional information
     needed. Inspector General is required. The recommendations will
     be referred to the Assistant Secretary for Policy, Management
     and Budget for tracking of implementation. Provide target dates
     for completion of corrective actions. Upon completion,
     appropriate supporting documentation should be provided to our
     Caribbean Regional Offtce. Unresolved. Respond to the revised
     recommendation, and provide a response indicating concurrence or
     nonconcurrence. If concurrence is indicated, provide an action
     plan that includes target dates and titles of the offcials
     responsible for implementation. If nonconcurrence is indicated,
     provide specific reasons for the nonconcurrence. 51 
  
  
  

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    INSPECTOR GENERAL BY:

    Sending written documents to:                 



    Within the Continental United States
    
    U.S. Department of the Interior
    Office of Inspector General 
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    Mail Stop 5341
    Washington, D.C. 20240

    Calling:

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    1-800-424-5081 or
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    TDD for hearing impaired                                                  
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    Outside the Continental United States

    
    Caribbean Region
    
    U.S. Department of the Interior
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    Calling:
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    North Pacific Region

    U.S. Department of the Interior
    Office of Inspector General
    North Pacific Region
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    Calling:
    (700) 550-7428 or 
    COMM 9-011-671-472-7279