[Audit Report on Federal Transit Administration Grants, Department of Public Works, Government of  the Virgin Islands]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 99-i-701

Title: Audit Report on Federal Transit Administration Grants, Department
       of Public Works, Government of  the Virgin Islands


Date:  August 2, 1999




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



AUDIT REPORT
FEDERAL TRANSIT ADMINISTRATION GRANTS,
DEPARTMENT OF PUBLIC WORKS,
GOVERNMENT OF THE VIRGIN ISLANDS



REPORT NO. 99-I-701

AUGUST 1999


MEMORANDUM

             TO:  The Secretary

           FROM:  Robert J. Williams
                  Acting Inspector General

SUBJECT SUMMARY:  Final Audit Report - "Federal Transit
                  Administration Grants, Department of
                  Public Works, Government of the Virgin
                  Islands" (No. 99-i-701)

Attached for your information is a copy of the subject final
audit report.  The objective of the review was to determine
whether (1) the Virgin Islands Department of Public Works
complied with grant terms and applicable laws and regulations;
(2) charges made against grant funds were reasonable, allowable,
and allocable pursuant to the grant agreement provisions; (3)
funds received through electronic transfers were appropriately
deposited and accounted for in the Government's Financial
Management System; and (4) drawdowns were made in accordance with
the Cash Management Improvement Act of 1990.

Although the Department of Public Works generally expended grant
funds for purposes that were allowable under the grants, the
Department did not maintain adequate administrative oversight or
financial accountability over Federal grants awarded by the
Federal Transit Administration.  As a result, the Department (1)
did not effectively utilize grant funds of about $2.8 million
that were available to provide improvements to the public
transportation system and to purchase buses for transportation
services for the elderly and disabled, (2) did not adequately
justify costs of $119,758 that we classified as unsupported costs
($97,571) or cost exceptions ($22,187), (3) did not receive
reimbursement from the Federal Transit Administration for about
$60,000 because the Department did not correctly prepare requests
for electronic transfers of Federal funds, and (4) held Federal
funds for as long as 49 days after receipt of electronic
transfers before making payments to vendors and, on some
occasions, did not request fund transfers until as many as 312
days after payments had been made to vendors.

Based on the response to the draft report, we considered 2 of the
report's 13 recommendations resolved and implemented, 5
recommendations resolved but not implemented, and 4
recommendations unresolved.  We also requested target dates for
two recommendations.

If you have any questions concerning this matter, please contact
me at (202) 208-4252.


Attachment




                                                V-IN-VIS-001-99-M


Honorable Charles W. Turnbull
Governor of the Virgin Islands
No. 21 Kongens Gade
Charlotte Amalie, Virgin Islands 00802

Subject:  Audit Report on Federal Transit Administration
          Grants, Department of Public Works, Government of 
          the Virgin Islands (No. 99-i-701)


Dear Governor Turnbull:

This report presents the results of our audit of the
administration of grants received from the Federal Transit
Administration by the Department of Public Works, Government of
the Virgin Islands.  The objective of the review was to determine
whether (1) the Department complied with grant terms and
applicable laws and regulations; (2) charges made against grant
funds were reasonable, allowable, and allocable pursuant to the
grant agreement provisions; (3) funds received through electronic
transfers were appropriately deposited and accounted for in the
Government's Financial Management System; and (4) drawdowns were
made in accordance with the Cash Management Improvement Act of
1990.

Based on our audit, we found that the Department of Public Works
did not maintain an effective grants management system within the
Office of Transportation.  This situation occurred because the
Office of Transportation did not have a financial analyst to
oversee the day-to-day administrative and accounting functions of
the grant programs and  the Associate Planner, who was
temporarily assigned these administrative and accounting duties,
was not properly trained.  In addition, the Office of
Transportation's Deputy Commissioner stated that his office did
not receive adequate administrative and accounting support from
the Department of Public Works Business Administration Division
and Federal Grants Management Unit.

Based on our audit, we concluded that, although the Department of
Public Works generally expended grant funds for purposes that
were allowable under the grants, the Department did not (1)
effectively use all available grant funds, (2) comply with grant
financial reporting requirements, and (3) ensure that funds drawn
down through electronic transfers were recorded and used in
accordance with the Cash Management Improvement Act.
Specifically, we found the following:

-  The Department of Public Works did not maintain adequate
administrative oversight over Federal grants awarded by the
Federal Transit Administration.  We found that (1) pertinent
grant award documents were not readily accessible; (2) financial
status reports had not been filed since June 1995; (3) it took
between 1 and 5 years to forward documentation to the Virgin
Islands Office of Management and Budget to set up an approved
project budget on the Government's Financial Management System;
(4) nonprofit organizations which were awarded funds to purchase
buses to transport elderly and disabled persons were requested to
identify vendors and prepare bid specifications, both functions
of the Department of Property and Procurement; and (5) grant
funds were reallocated among projects without the prior approval
of the Federal Transit Administration.  As a result, the
Department of Public Works did not effectively utilize grant
funds of about $2.8 million that were available to provide
improvements to the public transportation system and to purchase
buses for transportation services for the elderly and disabled.

-  The Department of Public Works did not maintain adequate
financial accountability over Federal grant funds.  We found that
the Department did not (1) reconcile grant activity with
information contained in the Federal Transit Administration's
Grant Management Information System and in the Government's
Financial Management System and (2) ensure that electronic
transfers of Federal funds were made in accordance with the Cash
Management Improvement Act.  As a result, we questioned costs of
$119,758: $97,571 as unsupported costs and $22,187 as cost
exceptions.  In addition, about $60,000 was not reimbursed by the
Federal Transit Administration because the Department of Public
Works did not correctly prepare requests for electronic transfers
of Federal funds.  Further, Federal funds were held for as long
as 49 days after receipt of electronic transfers before payments
to vendors were released, and on some occasions, fund transfers
were not requested until as many as 312 days after payments had
been made to vendors.

We made 13 recommendations to you, as the Governor of the Virgin
Islands, to address the deficiencies identified by the audit.  

On May 10, 1999, we transmitted the draft of this report to your
office requesting a response by June 25, 1999.  Based on the
response dated July 1, 1999, we considered two recommendations
(Nos. A.7 and B.3) resolved and implemented and five
recommendations (Nos. A.1, A.3, A.4, A.8, and B.2) resolved but
not implemented.  Accordingly, the unimplemented recommendations
will be referred to the Assistant Secretary for Policy,
Management and Budget for tracking of implementation.  Also based
on the response, we considered four recommendations (Nos. A.5,
B.1, B.4, and B.5) unresolved and requested additional
information for two recommendations (Nos. A.2 and A.6) (see
Appendix 3).

The Inspector General Act, Public Law 95-452, Section 5(a)(3), as
amended, requires semiannual reporting to the U.S. Congress on
all audit reports issued, the monetary impact of audit findings
(Appendix 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 to this report by
September 3, 1999.  The response should be addressed to our
Caribbean Office, Federal Building - Room 207, Charlotte Amalie,
Virgin Islands 00802.  The response should provide the
information requested in Appendix 3.

Sincerely,



Robert J. Williams
Acting Inspector General




CONTENTS

                                                   Page

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

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

FINDINGS AND RECOMMENDATIONS......................  5  

A.  GRANT ADMINISTRATION..........................  5  
B.  FINANCIAL ACCOUNTABILITY.......................15  

APPENDICES

1.  CLASSIFICATION OF MONETARY AMOUNTS.............23  
2.  GOVERNOR OF THE VIRGIN ISLANDS RESPONSE........24  
3.  STATUS OF AUDIT REPORT RECOMMENDATIONS.........36  


INTRODUCTION

BACKGROUND

The Virgin Islands Office of Transportation was established
within the Department of Public Works by Executive Order No.
244-1981 to (1) conduct transportation planning for
implementation by the Department of Public Works; (2) conduct a
continuing analysis of Virgin Islands transit systems and prepare
a program for transit development; (3)  implement a mass transit
study for maintaining and improving public transportation
services in the Virgin Islands; (4) prepare applications for
submission to the Urban Mass Transportation Administration (now
the Federal Transit Administration) and the Federal Highway
Administration for available Federal assistance to improve
transportation services; and (5) recommend and formulate
policies, legislation, and programs for improving and supporting
transportation systems in the Virgin Islands.

According to information contained in the Government's Executive
Budget, the Office of Transportation is primarily responsible for
managing the public transit system in the Virgin Islands,
implementing the public transportation provisions of the
Americans with Disabilities Act, managing the Government's public
parking facilities, and seeking Federal funding to assist public
transportation initiatives.

For fiscal year 1998, the Office of Transportation was authorized
a budget of about $382,000 from the Government's General Fund and
the Road Fund.  Additional subsidy payments totaling about $2.1
million were made from the Government's General Fund to the
Department's Public Transit Fund to support the operations of the
public transit system in the Virgin Islands.  As of September 30,
1998, the Office of Transportation's staff included a deputy
commissioner, a senior planner, and an associate planner.  Vacant
positions included a senior transit planner, a planning
assistant, a marketing specialist, and a secretary.  The Office
of Transportation did not have a budgeted position for a
financial analyst.

During the period of April 1984 through September 1997, the
Federal Transit Administration awarded 30 grants to the Office of
Transportation for capital and planning projects, the purchase
and maintenance of mass transit buses for residents of the Virgin
Islands, and the purchase of buses for nonprofit organizations to
transport elderly and disabled persons in the Virgin Islands.
Based on grant data contained in the Federal Transit
Administration's Grant Management Information System as of
September 30, 1998, we determined that 19 Federal grants with
original award amounts totaling $16.8 million had available grant
balances totaling $6.5 million.  About $2.8 million of the $6.5
million balance was available to assist the public transit
system's operations in the Virgin Islands and for the purchase of
buses to transport elderly and disabled persons.  The remaining
$3.7 million was allocated for an intermodal terminal at the
airport on St. Croix.  In addition, 12 of the 19 grants had local
share requirements totaling $6.6 million.  During fiscal years
1997 and 1998 (October 1, 1996, to September 30, 1998), the
Office of Transportation requested $1.9 million from the Federal
Transit Administration to pay for grant-related expenditures.

OBJECTIVE AND SCOPE

The objective of this audit was to determine whether (1) the
Department of Public Works complied with grant terms and
applicable laws and regulations; (2) charges made against grant
funds were reasonable, allowable, and allocable pursuant to the
grant agreement provisions; (3) funds received through electronic
transfers were appropriately deposited and accounted for in the
Government's Financial Management System; and (4) drawdowns were
made in accordance with the Cash Management Improvement Act of
1990.  The scope of the audit included a review of grant
transactions that occurred during fiscal years 1997 and 1998 and
other periods as appropriate.

To accomplish our audit objective, we reviewed award agreements
for the 19 active grants, documentation in support of
expenditures claimed against the grants, invitations for bids
issued to select vendors to provide buses, and documentation in
support of electronic transfers of Federal funds.  The audit was
conducted from September 1998 through February 1999 at the Virgin
Islands Departments of Public Works, Property and Procurement,
and Finance and at the Virgin Islands Office of Management and
Budget.

Because Office of Transportation officials did not update their
files, the scope of our review was qualified because there was
little assurance that grant files contained accurate, current,
and complete grant data.  Also, grant files maintained by the
Office of Transportation did not include data in support of the
local share of grant funds.  The Department of Public Works
Director of Administration said that the local share was met
primarily through subsidy payments made by the Government's
General Fund to the Department of Public Works Public Transit
Fund to assist in the operations of the public transit system.
Therefore, although we identified the source of funds for the
local share, we did not audit the expenditures claimed against
the local share because supporting documentation was not in the
grant files or was not specifically identified as the local share
by the Office of Transportation.

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.

We included an evaluation of internal controls to the extent we
considered necessary to accomplish the audit objective.  The
internal control weaknesses identified were related to the
establishment of a grants management system within the Department
of Public Works to monitor the financial and compliance aspects
of the Federal Transit Administration grants.  The control
weaknesses are discussed in the Findings and Recommendations
section of this report.  The recommendations, if implemented,
should improve the internal controls in this area.

PRIOR AUDIT COVERAGE

Since September 1987, the Office of Inspector General, the Virgin
Islands Bureau of Audit and Control, the Federal Transit
Administration, and a private consulting firm have issued five
reports on the Office of Transportation, within the Department of
Public Works, as follows:

- In November 1998, a private consulting firm prepared for the
Department of Public Works the "Transit Bus Route Study."  The
"Study" was intended to identify ways to provide the highest
level and quality of public transit service on St. Thomas.  The
"Study," which was conducted during March and April 1997, stated
that the most critical need for the public transit system was an
available stock of equipment and spare parts.  Specifically, of
16 buses that should have been in operation during March and
April 1997, only 11 buses were in working order. 

- In September 1998, the Office of Inspector General issued the
report "Interfund Loans and Federal Grant Balances, Government of
the Virgin Islands" (No. 98-I-670).  Regarding the Department of
Public Works Office of Transportation, the report stated that the
Office did not maintain pertinent documents for the effective
oversight of the Federal Transit Administration grants, including
grant award documents, expenditure documents, documents to verify
the electronic transfer of Federal funds, and financial status
reports.  Regarding compliance with the Cash Management
Improvement Act, the report stated that  the Department of
Finance did not timely identify all electronic transfers of
Federal funds, did not timely record this information in the
Government's Financial Management System, and did not have a
separate bank account to segregate and account for the receipt
and disbursement of Federal funds.  To address these issues, the
report made four recommendations.  Management concurred with the
recommendations but needed to provide additional information to
resolve one recommendation.  During our current review, we found
that grant-related documents were not properly filed and that the
Department of Finance was not in compliance with the Cash
Management Improvement Act regarding the timely use of grant
funds and did not deposit Federal funds into a separate bank
account. 

- In April 1998, the Federal Transit Administration issued the
report "FY [Fiscal Year]1997 State Management Review of the
Virgin Islands Department of Public Works."  The review, which
was conducted in April and May 1997, stated that for 18 review
areas, (1) the Department was not in compliance with the
requirements in nine review areas (grants administration,
financial management,  maintenance, competitive procurement, Buy
America, debarment and suspension, restrictions on lobbying,
Federal Transit Administration Drug and Alcohol Program and
Drug-Free Workplace, and school bus protection), (2) the
Department was in compliance with the requirements in three areas
(program management, satisfactory continuing control, and civil
rights) but followup action was required, (3) the Department was
in full compliance with the requirements in five areas (selection
and eligibility of subrecipients and projects, intercity bus,
Rural Transit Assistance Program, planning and coordination, and
charter bus), and (4) compliance with requirements could not be
determined in the area of transportation services for individuals
with disabilities.

- In July 1992, the Virgin Islands Bureau of Audit and Control
issued the report "Special Audit of the St. Thomas Public
Busline's Expenditures as Support for the Subsidy Payments,
United States Virgin Islands" (No. AC-04-60-92).  The report
stated that the busline used the subsidy payments from the
Government to make intercompany transfers for reasons that could
not be determined and for loans that were not paid back and to
incur expenditures that were questionable.

- In September 1987, the Office of Inspector General issued the
report "Public Bus Transportation, Government of the Virgin
Islands" (No. V-TG-VIS-18-86).  The report stated that the
Department of Public Works and the Transportation Office did not
formulate policies and programs needed to ensure the development
of mass transportation service in the Virgin Islands as required
by Executive Order No. 244-1981.  Of the report's nine
recommendations, five recommendations required additional
information.  In June 1987, the then-Director of Transportation
(now the Deputy Commissioner) stated in his response to the audit
report, in a letter addressed to the then-Commissioner of Public
Works, "The Office of Transportation is in dire need of a
full-time Financial Analyst to address the financial aspects of
the various programs that are administered."   However, our
current review showed that the Office of Transportation did not
have a budgeted position for a financial analyst.

FINDINGS AND RECOMMENDATIONS


A.  GRANT ADMINISTRATION

The Department of Public Works was not effective in administering
Federal grants awarded by the Federal Transit Administration.
Specifically, (1) pertinent grant award documents were not
readily accessible, (2) financial status reports had not been
filed since June 1995, (3) it took between 1 and 5 years to
forward documentation to the Virgin Islands Office of Management
and Budget for that office to set up an approved project budget
on the Government's Financial Management System, (4)  nonprofit
organizations that were awarded funds to purchase buses to
transport elderly and disabled persons were requested to identify
vendors and prepare bid specifications, and (5) grant funds were
reallocated among projects without the prior approval of the
Federal Transit Administration.  The Code of Federal Regulations
(49 CFR 18) establishes uniform administrative rules for Federal
grants awarded by the U.S. Department of Transportation.  The
Code is incorporated into the U.S. Department of Transportation's
Master Agreement, which establishes standard terms and conditions
governing the administration of projects supported with Federal
financial assistance awarded by the Federal Transit
Administration.  However, the Office of Transportation, within
the Department of Public Works, did not have a financial analyst
to oversee the day-to-day administrative functions of the grant
programs, and the associate planner, who was temporarily assigned
these administrative duties, was not adequately trained in the
necessary record-keeping and financial reporting requirements.
In addition, the Office of Transportation's Deputy Commissioner
stated that his office did not receive adequate administrative
and accounting support from the Department of Public Works
Business Administration Division and Federal Grants Management
Unit.  As a result, the Department of Public Works did not
effectively use grant funds of about $2.8 million that were
available to provide improvements to the public transportation
system and to purchase buses for transportation services for the
elderly and disabled.

Grant Documents

Files for  grants awarded by the Federal Transit Administration
were not accurate, current, or complete.  While the grant files
that we reviewed contained the notification of grant award, the
file did not always contain the most current approved project
budget.  In addition, grant files did not contain (1) liquidation
records to summarize the costs claimed against the grant, (2)
documentation in support of all expenditures claimed against the
grant, (3) information to support the $6.6 million local share
for 12 grants that had a local matching requirement, (4)
documentation within each grant file to support requests for
electronic transfers of Federal funds to pay for expenditures
claimed against the grants, and (5) correspondence to corroborate
all activities associated with the grants.

Documentation Requirements.  The Code of Federal Regulations (49
CFR 18.20(b)(2)) states that "[g]rantees and subgrantees  must
maintain [accounting] records which adequately identify the
source and application of funds provided for financially-assisted
activities."  This section of the Code also states, "These
records must contain information pertaining to grant or subgrant
awards and authorizations, obligations, unobligated balances,
assets, liabilities, outlays or expenditures, and income."
Finally, the Code (49 CFR 18.20(b)(6)) states, "Accounting
records must be supported by such source documentation as
cancelled checks, paid bills, payrolls, time and attendance
records, contract and subgrant award documents, etc."  Similar
provisions regarding accounting records are contained in the U.S.
Department of Transportation's Master Agreement, which requires
that the grantee "establish and maintain for the Project either a
separate set of accounts, or separate accounts within the
framework of an established accounting system that can be
identified with the Project" and that "all checks, payroll,
invoices, contracts, vouchers, orders, or other accounting
documents related in whole or in part to the Project  . . .  be
clearly identified, readily accessible and available to [the
Federal Transit Administration] upon its request, and, to the
extent feasible, kept separate from documents not related to the
Project." (Emphasis added.)  In addition, with respect to the
local share, the Master Agreement states that the grantee "shall
complete all proceedings necessary to provide the local share of
the Project costs at or before the time those funds are needed to
meet Project expenses."  

Administrative Support.  The Office of Transportation's Deputy
Commissioner said that an effective grant administration system
would not be realized until he was able to hire a financial
analyst to oversee the day-to-day operations of the grants and a
secretary to file grant-related documents.  In August 1998, the
Office of Transportation's Deputy Commissioner wrote to the
Department of Public Works Comptroller in response to our
then-draft audit report on interfund loans and Federal grant
balances.  In his letter, which was not forwarded to the Office
of Inspector General for incorporation into the final report, the
Deputy Commissioner stated:

I do not agree with the report's assertion that "the
Transportation Office did not maintain pertinent documents for
the effective oversight of the [Federal Transit Administration]
grants."  The office did in fact maintain all grant documents,
but not in proper order of filing because of two important
factors; (sic) the lack of a Secretary/Filing Clerk and the lack
of a Financial Analyst.  As a result, I suspect that the [Office
of Inspector General's] search for the aforementioned documents
encountered misplaced files and misfiled information, not missing
documents as the report implies.  As far as I know, all pertinent
FTA grant documents remain at the premises of the Office of
Transportation unless removed by some  unauthorized person or
destroyed by hurricane.  However, most are probably not properly
filed.

We agree with the Deputy Commissioner that the Office of
Transportation would benefit from having the services of a
financial analyst and a secretary/filing clerk.  However, we do
not agree that the Office of Transportation maintained all
pertinent grant-related documents.  During the prior audit, we
attempted to obtain specific records needed during the audit, but
they were not available for our review.  Furthermore, because
some of the active grant files that we reviewed were up to 15
years old and did not contain all of the documents needed to
support expenditures made against the grants, we believe that it
will be difficult to conduct closeout audits of these grants. 

In August 1998, the Deputy Commissioner wrote to the Department
of Public Works Comptroller in response to the Federal Transit
Administration's State Management Review.  In his letter, the
Deputy Commissioner stated:

On her recent visit to the Virgin Islands, the [Federal
Transportation Administration's] Regional Administrator, gave her
verbal approval for [the Department of Public Works] to use
continuing planning, administrative and any other non-capital
funds available in our existing grants to contract for
professional services in the following areas: Transit Planner,
Financial Analyst, Marketing and Professional Secretary/Office
Manager.  It is important to note that the Regional Administrator
observed that in addition to the serious deficiencies created by
not having a Transit Planner and Financial person on board, the
document filing and retrieval problems created by the lack of
clerical help is hurting the program.  She also indicated that
[the Federal Transportation Administration] would be willing to
recommend qualified individuals on the mainland to fill these
positions if we can't identify them locally.

We believe that the Department of Public Works should coordinate
with the Virgin Islands Division of Personnel to develop job
specifications and job descriptions for its vacant and desired
positions and seek funding from the Federal Transit
Administration to fill these positions.

Financial Status Reports

The Department of Public Works did not comply with the
requirement in the Code of Federal Regulations (49 CFR 18.41)
that annual financial status reports should be submitted within
90 days of the end of the fiscal year.  In addition, the
Department of Public Works did not comply with the U.S.
Department of Transportation's Master Agreement requirement that
final financial status reports should be submitted timely to
close out grants.  The Master Agreement states, "Within ninety
(90) days of the Project completion date or termination by the
Federal Government, the Recipient agrees to submit a final
Financial Status Report (Standard Form 269), a certification or
summary of Project expenses, and third party audit reports, as
applicable."

Our review of the 19 active grants included in the audit scope
showed that some of the annual Financial Status Reports had not
been filed for 10 of the grants.  Specifically, the most recently
filed Financial Status Reports were as of June 30, 1995, for 2
grants; as of September 30, 1994, for 7 grants; and as of
December 31, 1993, for 1 grant.  For the remaining 9 of the 19
grants, no annual Financial Status Reports had been filed.

In addition, we found two grants not included in our audit scope
that had insignificant amounts of remaining balances and lack of
activity.  Specifically, a grant for $75,000 (Project No.
VI-08-0006) awarded in August 1984 had an available balance of
$139, and a grant for $86,070 (Project No. VI-18-0008) awarded in
August 1991 had an available balance of $470.  Based on
information contained in the Federal Transit Administration's
Grant Management Information System, we determined that funds
were last disbursed against these grants in September 1993 and
August 1996, respectively.  Therefore, we believe that these
grants should be closed out in accordance with the terms and
conditions contained in the Master Agreement.

In his August 1998 letter to the Department's Comptroller, the
Deputy Commissioner stated that the lack of timely filing of
financial status reports occurred because the Office of
Transportation did not have a financial analyst.  According to
the Deputy Commissioner, the financial analyst position was
removed from the budget after the person who occupied that
position became the Department's Director of Administration in
1995.  However, regardless of its staffing level, we believe that
the Office of Transportation should have completed its annual
Financial Status Reports timely and closed out its inactive
grants.

Budget Information

When the Department of Public Works received notification of a
grant award from the Federal Transit Administration, the
Department was required to forward a copy of the grant award and
a copy of a Department/Agency Federal Budget Plan (Form OMB (3))
to the Department of Finance for assignment of a cost center
code.  After the cost center code was assigned, the  Department
of Public Works was required to forward a copy of the grant
award, the Federal Budget Plan, and the cost center designation
to the Virgin Islands Office of Management and Budget.  The
Office of Management and Budget would establish an approved
project budget under the designated cost center for the grant on
the Government's Financial Management System.  At the end of this
process, costs could be charged against the grant.  However, we
found that the Department of Public Works did not always forward
the grant awards, Federal Budget Plans, and cost center
designations to the Virgin Islands Office of Management and
Budget in a timely manner.  Without an approved budget,
expenditures cannot be claimed against a grant.

Based on our comparison of Project Status Reports generated by
the Federal Transit Administration's Grant Management Information
System and computer printouts of Federal Transit Administration
grant activity generated by  the Government's Financial
Management System, we determined that it took from 1 to 5 years
for the Department of Public Works to submit  the required
information to the Virgin Islands Office of Management and Budget
for that office to establish an approved project budget on the
Government's Financial Management System.

In order to conduct this review, we compared the grant obligation
date shown on the Project Status Report with the approved project
budget posting date shown on the Financial Management System
computer printouts.  For example, Project No. VI-16-0007 was
awarded by the Federal Transit Administration on June 26, 1992,
but the budget was not established on the Government's Financial
Management System until February 19, 1998, or about 5 1/2 years
after the grant obligation date. Similarly, Project No.
VI-18-X013 was awarded by the Federal Transit Administration on
September 27, 1996, but the budget was not established on the
Government's Financial Management System until August 11, 1998,
almost 2 years after the grant obligation date.  We believe that
the lack of timely budgets adversely impacted the Department of
Public Works ability to incur costs against the grants.

Vehicle Procurement

We found that when nonprofit organizations were awarded funds
from the Elderly and Persons with Disabilities Program (49 U.S.C.
5310) for the purchase of buses for transportation of the elderly
and the disabled, the nonprofit organizations were requested to
contact prospective vendors and request that the vendors provide
technical and performance specifications for the buses.  Based on
documentation sent to the nonprofit organizations by the
Commissioner of Public Works, we found that the specifications
developed by the vendors were to be used by the Department of
Property and Procurement to request formal bids.  As such, there
was no assurance that the vendors who developed the
specifications would be awarded the contracts for the desired
buses.

The Office of Transportation's Deputy Commissioner told us that
the nonprofit organizations' involvement in the procurement
process was a direct result of the lack of adequate staffing in
the Office of Transportation.  Although the Deputy Commissioner
acknowledged that his office should prepare the vehicle
specifications for submission to the Department of Property and
Procurement, he said that the Office did not have the staff to
perform this function.  We found a list of prospective vendors at
the Department of Property and Procurement that consisted of nine
stateside vendors from the "Community Transportation Reporter
1995 Buyer's Guide"  and two local vendors.  We found no
documentation to indicate whether, prior to the issuance of
invitations for bids to these vendors, the vendors had been
contacted to determine whether they could supply the buses to the
Virgin Islands because driving on the left side of the road in
the Virgin Islands required that the buses be reconfigured to
place a wheelchair accessible door on the left rather than the
right side of the vehicles.

In his August 1998 letter to the Department of Public Works
Comptroller, the Deputy Commissioner stated that "the
Government's inability to negotiate additional contracts with
suppliers of buses has not been the fault of the Office of
Transportation.  Most of the factors causing the failure of
negotiations with suppliers of buses have pertained to issues of
procurement and payment."  However, we believe that had the
Department of Public Works made a concerted effort to develop bid
specifications for the accessible vehicles and identify vendors
that were willing to reconfigure the vehicles and conduct
business with the Government of the Virgin Islands, the
procurement process could have been accomplished more efficiently
and effectively.  This opinion is supported by the two most
recent invitations for bids, which were issued by the Department
of Property and Procurement in May and September 1997.  In both
cases, there was only one responsive bidder, a local company that
subcontracted with two stateside vendors to supply the buses.

Reallocation of Program Funds

During the period of August 1991 to September 1995, the
Department of Public Works received five grant awards, totaling
about $661,000, from the Elderly and Persons with Disabilities
Program (49 U.S.C. 5310) for the purchase of 15 buses and office
equipment for nonprofit organizations.  Two of the 15 buses were
purchased from 1994 to 1996.  We determined, based on
documentation prepared by the Office of Transportation's
Associate Planner, that the Office allocated about $515,000 for
the purchase of the remaining 13 buses.  However, because of
difficulties in establishing the vehicle specifications and
obtaining a responsive bidder for two invitations for bids, the
buses were not successfully bid upon until June and October 1997.
Additionally, because the buses were purchased with grant funds
awarded during fiscal years 1991 to 1995, the cost of the buses
had increased from the $515,000 originally allocated by the
Office of Transportation to about $669,000, or $154,000 more than
was allotted.  Therefore, the Department of Public Works
requested that the nonprofit organizations contribute a portion
of their own funds toward the purchase price of the buses.  Four
of the 13 nonprofit organizations contributed a total of about
$16,521 of their own funds, three nonprofit organizations chose
not to contribute any funds and did not request the purchase of
buses for themselves, and the remaining six nonprofit
organizations were not requested by the Department of Public
Works to contribute to the cost of the buses.  Accordingly, the
Department of Public Works purchased only 10 of the originally
planned 13 buses, at a total cost of $507,000.

We found that the Office of Transportation's Associate Planner
reallocated $119,000 which had originally been allotted for the 3
nonprofit organizations that chose not to purchase buses toward
the cost of the buses purchased for the other 10 nonprofit
organizations.  The Associate Planner told us that the Grant
Action Plan, which she prepared to document the reallocation, was
reviewed and approved by the Federal Transit Administration's
Regional Administrator in New York but that a written request to
reallocate the $119,000 was not initiated by the Office of
Transportation or approved by the Federal Transit Administration.
The Code of Federal Regulations (49 CFR 18.30, "Changes") states
that "certain types of post-award changes in budgets and projects
shall require the prior written approval of the awarding agency."
For example, the Code requires that grantees obtain the prior
approval of the awarding agency for (1) "[a]ny revision which
would result in the need for additional funding" and (2)
"[u]nless waived by the awarding agency, cumulative transfers
among direct cost categories, or, if applicable, among separately
budgeted programs, projects, functions, or activities which
exceed or are expected to exceed ten percent of the current total
approved budget, whenever the awarding agency's share exceeds
$100,000."  

In addition, the Associate Planner was not able to provide us
with documentation to support the allotment amounts included in
the Grant Action Plan and to determine whether the reallocation
amounts were applied correctly.  Therefore, we conducted an
analysis of the Grant Action Plan, which included a review of
the approved project budget contained with the Notification of
Grant Approval, to determine the dollar amount approved for the
purchase of the buses.  Based on our review, we concluded that
Federal grant funds of $511,000 were available to purchase the 10
buses at a total cost of $507,000.  Therefore, grant funds of
about $4,000 should have remained after the 10 buses were paid
for in full.  Because the $511,000 that we identified as
available from approved grant funds did not include the $16,521
contributed by four of the nonprofit organizations, we believe
that these funds should be returned to the four nonprofit
organizations which contributed their own funds.

Based on our review, we concluded that if the Department of
Public Works had had more effective record-keeping methods, it
would have been better able to use, in a more timely and
effective manner, grant funds of about $2.8 million which were
available.  Consequently, improvements to the public
transportation system were not made, and buses for transportation
services for the elderly and the disabled were not purchased.

Recommendations

We recommend that the Governor of the Virgin Islands require the
Department of Public Works to:

1. Establish and maintain, in accordance with the Code of Federal
Regulations (49 CFR 18.20), grant program files for each Federal
grant award received.  At a minimum, the files should contain
documentation of grant awards and authorizations, obligations,
outlays or expenditures, unobligated balances, income, assets,
and liabilities.  In addition, source documentation such as
canceled checks, paid bills, payrolls, time and attendance
records, contracts, and grant award documents should be available
at the appropriate central service agencies (such as the
Department of Finance) to support the accounting records.

2. Develop, in coordination with the Division of Personnel, job
specifications and job descriptions for the positions of
financial analyst and secretary and seek funding from the Federal
Transit Administration to fill these positions.

3. Prepare annual Financial Status Reports for each of the
Department's active Federal grants through the fiscal year-end of
September 30, 1998, and continue to prepare the Financial Status
Reports on an annual basis, as required by the Code of Federal
Regulations (49 CFR 18.41).

4. Prepare final Financial Status Reports for the two grants
which we classified as inactive; prepare a certification or
summary of Project expenses for each grant; and submit an
independent audit report, as applicable, in accordance with the
U.S. Department of Transportation's Master Agreement. 

5. Ensure that, immediately after notification of a grant award
from the Federal Transit Administration,  the Department/Agency
Federal Budget Plan (Form OMB (3)) is prepared and submitted with
a copy of the approved grant award to the Department of Finance
for assignment of a cost center code.  Upon receipt of the cost
center code, the Budget Plan, grant award, and cost center
designation should be forwarded to the Virgin Islands Office of
Management and Budget for the establishment of an approved
project budget within the Government's Financial Management
System.

6. Develop specifications for accessible vehicles to be purchased
for nonprofit organizations to transport elderly and disabled
persons and identify vendors who are willing to reconfigure these
vehicles for driving on the left side of the road in the Virgin
Islands.

7. Formally request in writing approval from the Federal Transit
Administration to reallocate  grant program funds from the
Elderly and Persons with Disabilities Program for grants awarded
during 1991 to 1995 in order to pay for the vehicles purchased.

8. Prepare miscellaneous disbursement vouchers for submission to
the Department of Finance to refund the appropriate amounts to
the four nonprofit organizations which contributed $16,521 of
their own funds to assist the Department in purchasing accessible
vehicles for transportation of elderly and disabled persons.

Governor of the Virgin Islands Response and Office of Inspector
General Reply

The July 1, 1999, response (Appendix 2) from the Governor of the
Virgin Islands stated concurrence with Recommendations 3, 4, 7,
and 8, and nonconcurrence with Recommendations 1, 2, 5, and 6.
Based on the response, we consider Recommendation 7 resolved and
implemented; Recommendations 1, 3, 4, and 8 resolved but not
implemented; and Recommendations 2, 5, and 6 unresolved (see
Appendix 3).

Recommendation 1.  Nonconcurrence.

Governor of the Virgin Islands Response.  The response stated
that the Government "has a dispersed financial management
function"; that grant-related documents such as canceled checks
and paid bills are maintained at the Department of Finance; that
the Department of Public Works "maintained files for each grant
in question," although certain records "might have been misfiled"
at the time of the audit; and that "it is also possible that
certain documents might have been lost through Hurricane
Marilyn."  The response stated, however, that the Acting
Commissioner of Public Works had (1) established a task force,
"under the leadership of the Director of Administration . . . to
locate, coordinate and organize the records for" the Federal
Transit Administration grants, the task of which is to be
completed within 6 months, and (2) initiated a request "for the
employment of a Financial Assistant to be assigned to the Grant
Management Office [of the Department of Public Works] to work
exclusively on financial administrative activities including
record-keeping, reconciliations, and reporting" for Federal
Transit Administration grants.

Office of Inspector General Reply.  The actions described for the
Department of Public Works to implement the recommendation
sufficiently addressed the intent of the recommendation.
Therefore, we consider the recommendation resolved but not
implemented.  Regarding canceled checks and paid bills, we
acknowledge that under the Government's decentralized financial
management system certain source documents are not maintained by
the Department of Public Works.  However, basic grant management
documents, accounting records, and financial management reports
should be maintained by the agency administering each grant, in
this case the Department of Public Works.  Source documents
should be available at the appropriate central service agencies,
such as the Department of Finance and the Department of Property
and Procurement, to support the basic grant management records
and reports.  Recommendation 1 has been changed to clarify this
point.

Regarding the maintaining of grant files, certain records for
grants  may have been misfiled at the time of the audit or may
have been destroyed by Hurricane Marilyn.  However, the primary
scope of our audit included grant transactions that occurred
during fiscal years 1997 and 1998.  Therefore, Hurricane Marilyn,
which occurred in September 1995, should not have been a factor.
Additionally, we would expect grant files for the more recent
grant periods to be complete; however, in most cases they were
not.

Recommendation 2.  Nonconcurrence.

Governor of the Virgin Islands Response.  The response stated
nonconcurrence with the recommendation because "the exact
staffing of [the Office of Transportation] and other divisions
within the [Department of Public Works] are currently under
review and will be determined by the Commissioner in consultation
with the staff and with the approval of the Governor."  However,
the response stated that the Deputy Commissioner of
Transportation "is instructed to seek [Federal Transit
Administration] funding for a general administrative support
position and a financial administrative support position" and
that until Federal funding is available, "an immediate request
has been initiated . . . to the Governor for the employment of a
Financial Assistant" to be paid from local funds.

Office of Inspector General Reply.  The actions described for the
Department of Public Works to implement the recommendation
sufficiently addressed the intent of the recommendation.
However, a target date for implementation of the recommendation
is needed (see Appendix 3).

Recommendation 5.  Nonconcurrence.

Governor of the Virgin Islands Response.  The response stated
nonconcurrence with the recommendation because the Transportation
Office "has provided documentation to show that the V.I. [Virgin
Islands] Government procedures are being followed for the
requesting of cost center codes from the [Department of Finance]
and the submission of budgets to the [Virgin Islands Office of
Management and Budget]" and that "there may have been an isolated
instance where budgets . . . might have been misplaced or lost."
The response included documentation for a budget and a request
for cost center codes for Grant No. VI-18-X013.

Office of Inspector General Reply.  The response did not address
the primary point of our finding and recommendation, which was
that grant budgets and requests for cost center codes were not
submitted timely, not that such documents were not submitted.  We
found instances, as stated in the report, where the Department of
Public Works took from 1 to 5 years to submit the required
documentation.  In fact, the documentation included with the
Governor's response instead shows that Grant No. VI-18-X013 was
awarded in September 1996 but that the Department of Public Works
did not submit the necessary documents to the Department of
Finance and the Virgin Islands Office of Management and Budget
until March 1997, or 6 months later.  Therefore, we request that
the Governor reconsider the response to the recommendation (see
Appendix 3).

Recommendation 6.  Nonconcurrence.

Governor of the Virgin Islands Response.  The response said that
"requests to participants in the Section 5310 grant program for
specifications to be used in the purchase of buses for
transportation of the elderly and disabled were intended to be
preliminary and information gathering in nature.  The said
information was then used to develop generic specifications for
buses, which were then submitted to [the Department of Property
and Procurement] for obtaining bids."  However, the response
stated that the Deputy Commissioner of Transportation "is
instructed to work with his staff to develop three standard
vehicle specifications from which to select for the purchase of
vehicles."

Office of Inspector General Reply.   The action described for the
Department of Public Works to implement the recommendation
sufficiently addressed the intent of the recommendation.
However, a target date for implementation of the recommendation
is needed (see Appendix 3).


B.  FINANCIAL ACCOUNTABILITY

Although the Department of Public Works generally made claims
against Federal Transit Administration grants for expenditures
that were reasonable and allowable in accordance with grant
provisions, we found that adequate financial accountability was
not maintained for the Federal grants.  Specifically, the
Department of Public Works did not (1) reconcile grant activity
information with information contained in the Federal Transit
Administration's Grant Management Information System[1] or the
Government's Financial Management System and (2) ensure that
Federal funds were electronically transferred in accordance with
the Cash Management Improvement Act of 1990.  Financial
administration requirements and rules and procedures to implement
the Cash Management Improvement Act are contained in the Code of
Federal Regulations.  However, the Office of Transportation did
not have a financial analyst to oversee the day-to-day accounting
functions of the grant programs, and the Associate Planner, who
was temporarily assigned these accounting duties, was not
adequately trained to perform these duties.  In addition, the
Office of Transportation's Deputy Commissioner stated that his
office did not receive adequate administrative and accounting
support from the Department of Public Works Business
Administration Division and Federal Grants Management Unit.  As a
result, we questioned costs of $119,758: $95,571 as unsupported
costs and $22,187 as cost exceptions.  In addition, we determined
that about $60,000 was not reimbursed to the Department of Public
Works by the Federal Transit Administration because the
Department of Public Works did not correctly prepare requests for
electronic transfers of Federal funds.  Further, the Department
of Finance held Federal funds for as long as 49 days after
receipt of fund transfers before payments to vendors were
released, and on some occasions, the Department of Public Works
did not request funds transfers until as many as 312 days after
payments had been made to vendors by the Department of Finance.

Grant Expenditures

We reviewed the grant files, vendor files, and other documents
maintained but not filed by the Associate Planner for a sample of
87 expenditure transactions, totaling $1.9 million, that were
claimed against the Federal Transit Administration grants during
fiscal years 1997 and 1998.  We grouped the $1.9 million in
claimed costs into four expenditure categories as follows: $1.8
million for equipment; $52,000 for  other services, which
included computer, construction, and inspection services; $25,000
for training and travel; and $23,000 for audit services.  We
considered expenditures claimed for equipment and audit services
to be allowable costs in accordance with the grant agreement
provisions.  However, we questioned costs of $119,758.


Unsupported Costs.  We classified costs of $97,571 as unsupported
as follows:

- On May 13, 1998, the Department of Public Works requested an
electronic transfer from the Federal Transit Administration
totaling $628,917.  That amount included $97,372 for a partial
payment for assembly of transit system buses under the
Nonurbanized Area Formula Program (49 U.S.C. 5311).  However, the
Department of Public Works was not able to provide us with
documents to support this claim.  Accordingly, we classified the
$97,372 as unsupported.

-  On April 23, 1998, the Department of Public Works requested an
electronic transfer from the Federal Transit Administration
totaling $181,659.  That amount included $199 payable to a
national charity.  However, the Department of Public Works was
not able to document the amount claimed.  Accordingly, we
classified the $199 as unsupported.

Cost Exceptions.  We took exception to costs of $22,187 as
follows:

-  On September 10, 1998, the Department of Public Works
requested an electronic transfer from the Federal Transit
Administration totaling $34,873.  That amount included $15,476
for in-plant inspection services for buses that were being
assembled.  While the buses were purchased under the Nonurbanized
Area Formula Program (49 U.S.C. 5311), the claim was charged
against a Section 3 Capital Assistance Grant.  In accordance with
the U.S. Department of Transportation's Master Agreement, the
in-plant inspection services (for buses under a Section 18 grant)
were not eligible costs under the Section 3 grant because these
costs were not included in the latest Approved Project Budget.
Accordingly, we took exception to costs of $15,476.   

- We found that the Department of Public Works used training and
travel funds totaling $6,701 for its Marine Division or for other
Department of Public Works employees, although these costs were
not related to Federal Transit Administration grants.  For
example, we found claims for private boat captains to attend
marine-related conferences and trade shows; for an employee of
the Marine Division to travel to Virginia to inspect a water taxi
vessel; and for an Assistant Commissioner to attend a conference
on the mainland which, according to the Deputy Commissioner, the
Assistant Commissioner did not attend.  In its application for
Federal assistance, the Department of Public Works stated that
Rural Transit Assistance Program funds would be used to support
training for the public transit system operations and Office of
Transportation staff.  Accordingly, we took exception to costs of
$6,701.

-  We found two instances, totaling $10, in which alcoholic
beverages were included in meal charges claimed against the
Federal grants.  U.S. Office of Management and Budget Circular
A-87 ("Cost Principles for State and Local Governments")
prohibits the inclusion of the cost of alcoholic beverages in
claims against Federal grants.  Accordingly, we took exception to
costs of $10.

Grant Reconciliations

The Associate Planner, to whom the administrative and financial
duties of the Office of Transportation were delegated, did not
access the  Federal Transit Administration's Grant Management
Information System to conduct grant reconciliations and did not
have access to the Government's Financial Management System.
Therefore, reconciliations of the Office's grant accounting
records to records maintained by the Federal Transit
Administration and the Virgin Islands Department of Finance were
not performed.  We found that because the reconciliations were
not performed, the Department of Public Works did not receive
reimbursement of expenditures of about $60,000 from the Federal
Transit Administration and that none of the 11 electronic
transfers of Federal funds for fiscal years 1997 and 1998,
totaling $1.89 million, were recorded in the Government's
Financial Management System.

Expenditures Not Reimbursed.  We compared the amount requested by
the Department of Public Works with the amount approved by the
Federal Transit Administration for grant-related expenditures
claimed during fiscal years 1997 and 1998.  The approved amount
was deposited  through electronic transfers into the Government's
Special and Other Funds bank account.  Our comparison showed that
the Department of Public Works made 11 requests, totaling $1.95
million, but that the Federal Transit Administration approved
only $1.89 million of that amount.  Because grant reconciliations
were not performed, the Department of Public Works was not aware
of the $60,000 difference.  

Our analysis showed that the differences occurred because, for 6
of the 11 requests for payment, the Associate Planner either
requested payment from the incorrect Financial Purpose Code[2] or
requested payment from a Financial Purpose Code that did not have
a sufficient remaining balance to pay the claimed amount.  For
example, on August 13, 1998, the Department of Public Works
requested $74,515 to pay for equipment, construction, and
travel-related expenditures.  However, the Federal Transit
Administration approved only $50,532 of that amount.  We found
that the Associate Planner charged $715 to pay for a facsimile
machine to Project No. VI-03-0004 under Financial Purpose Code
"09," which represented funds for operating assistance.  However,
the Notification of Grant Award for Project No. VI-03-0004
obligated approved funds only for Financial Purpose Code "00,"
which represented capital expenditures.  This meant that claimed
costs against the grant could be charged only to Financial
Purpose Code "00."  The Federal Transit Administration's Grant
Management Information System automatically rejected the $715
claim because it was not made against a valid Financial Purpose
Code under the grant award.

In addition, the Associate Planner charged $23,268 to Project No.
VI-18-0010 under Financial Purpose Code "07," which represented
training funds.  The total amount obligated to the Financial
Purpose Code was $11,850, and at the time the claim was
submitted, Financial Purpose Code "07" had an available balance
of only $4,860.  Therefore, the claimed amount exceeded both the
obligated and the available amounts.  Accordingly, the $23,268
claim was rejected by the Federal Transit Administration's Grant
Management Information System because funds were insufficient to
satisfy the full amount of the claim.  Moreover, we found that
the $23,268 claim was for construction associated with a bus
terminal on St. Croix.  Therefore, in our opinion, this was not
an allowable claim under the Financial Purpose Code for training
costs.  The claim should have been made under Financial Purpose
Code "09," which represented funds for various types of operating
assistance.

The Federal Transit Administration's Program Manager told us that
payments made against an incorrect Financial Purpose Code or a
Financial Purpose Code with insufficient funds to pay the full
amount of the claim would automatically be rejected by the
Administration's Grant Management Information System.  Therefore,
although the Department of Public Works was aware of unexpended
balances within dormant grant accounts and was making an effort
to expend these funds, we believe that the Department of Public
Works was not aware of the methodology to appropriately charge
costs against these grants because the Associate Planner was
using the incorrect financial purpose codes.

In addition, we found three instances in which the Department of
Public Works request for payment form, which it submitted
electronically to the Federal Transit Administration, did not
have the same project number as the documents in support of the
claims.  For example, on October 10, 1997, the Department of
Public Works requested $103,659 from Project No. VI-18-0011.
However, the payment documents in support of this request
indicated that the claim should have been made against Project
No. VI-18-0010.  Because Project No. VI-18-0011 had sufficient
funds, the payment request was approved by the Federal Transit
Administration.  We believe that future requests for payment from
these two projects will be affected by the differences in the
recorded grant balances unless the Department of Public Works
performs reconciliations with information maintained by the
Federal Transit Administration.

Fund Transfers Not Recorded.  We found that the Department of
Finance's Collector prepared a certificate of deposit and a
statement of remittance for only 1 of the 11 requests for funds
made by the Department of Public Works during fiscal years 1997
and 1998.  The statement of remittance is the document used by
the Department of Finance's Accounting Division to record the
electronic transfers of Federal funds (deposits) to the
Government's Financial Management System.  The Department of
Finance's Collector told us that the Department was unable to
identify the source of electronic transfers of Federal funds
unless the agency that requested the electronic transfer provided
the fund transfer information to the Department of Finance.
During fiscal year 1997, the Department of Public Works did not
inform the Department of Finance when it requested funds from the
Federal Transit Administration.  Based on documentation at the
Department of Finance, we determined that the Department of
Public Works began to inform the Department of Finance of
electronic fund transfers during May 1998.  However, the
Department of Finance's Collector did not forward any statements
of remittance for fiscal year 1998 to the Accounting Division for
recording purposes because additional processing was required.
The Department of Finance's Collector said that she needed to
manually place a tracking number on the statement of remittance
but did not have the time to complete this task.

The Department of Finance's Federal Grants Manager provided us
with the Financial Management System computer printouts for the
Office of Transportation for the fiscal years 1992 through 1998.
Based on our review of those printouts, we determined that only
one electronic transfer of Federal funds (which occurred in May
1996) was recorded in the Government's Financial Management
System during that time period.  Because the Office of
Transportation did not have access to the Government's Financial
Management System, the Office was not aware of these recording
deficiencies.

We discussed the Office of Transportation's lack of inquiry
access to the Government's Financial Management System with the
Department of Public Works Comptroller.  Based on information
that we provided to the Comptroller, he was successful in
obtaining a user identifier and password for the Associate
Planner to access the Financial Management System.  However, the
Associate Planner was not provided training by a Department of
Finance representative on the procedures to access the System and
generate reports that would be useful for performing grant
reconciliations.

Cash Management Improvement Act of 1990

We found that the Department of Public Works did not always make
timely requests for electronic transfers of Federal funds and
that the Department of Finance did not always timely release
checks in accordance with the Cash Management Improvement Act of
1990 (31 U.S.C. 6503).  The provision (31 CFR 205.7) of the Code
of Federal Regulations that implements the Act states, "A State
and a Federal agency shall minimize the time elapsing between the
transfer of funds from the United States Treasury and the pay out
of funds for program purposes by a State, whether the transfer
occurs before or after the pay out."  Furthermore, the Code (31
CFR 205.12) states, "A State will incur an interest liability to
the Federal Government if Federal funds are in a State account
prior to the day the State pays out funds for program purposes."
We found that the lack of compliance with the Cash Management
Improvement Act occurred because the Department of Public Works
had difficulty in accessing the Federal Transit Administration's
computer system during the period of March 1997 through March
1998.  In addition, the Department of Finance did not timely
record the receipt of Federal funds to its Financial Management
System and did not use available Federal funds for approved
purposes because its bank account was overdrawn on the days when
the Federal funds were received.  As a result, the Department of
Finance released checks as many as 49 days after the request for
Federal funds was received and, on some occasions, as many as 312
days before the request for Federal funds was made by the
Department of Public Works.

The Associate Planner told us that she had difficulty processing
requests for fund transfers during March 1997 to March 1998
because her computer did not work.  In addition, the Associate
Planner said that she preferred to make requests for funds for
blocks of expenditures rather than for a single expenditure.  For
example, on April 23, 1998, the Associate Planner made a request
for funds totaling $181,659 for 20 expenditures  that were paid
during the period of June 1997 through March 1998.  On April 28,
1998, the Federal Transit Administration electronically
transferred $176,658 of that amount into the Government's bank
account.  We found that 19 of the 20 checks (we were unable to
identify 1 check) to pay for these expenditures were released
from 46 to 312 days before the funds were electronically
transferred to the Government's account.

We conversely found, for example, that on January 22, 1999, the
Department of Public Works  electronically requested funds
totaling $161,647, of which $136,569 was received on January 27,
1999.  The day the funds were received, the bank account had a
negative balance of $2.6 million and the Department of Finance
did not release the check until February 8, 1999, or 8 working
days after receipt of the Federal funds despite repeated requests
from the Office of Transportation, the Public Works Commissioner,
and the vendor who was awaiting payment.

Because the Department of Finance did not timely record
electronic transfers of Federal funds in its Financial Management
System, there was no means to verify the receipt of funds or to
make timely payments in accordance with the Cash Management
Improvement Act.  Also, as of January 1999, the Government was
depositing Federal funds into its Special and Other funds bank
account, which resulted in local and Federal funds being
commingled.

Recommendations

We recommend that the Governor of the Virgin Islands require the
Department of Public Works to:

1. Provide the U.S. Department of Transportation's Federal
Transit Administration with supporting documentation for the
unsupported costs of $97,571 and the cost exceptions of $22,187
so that the grantor agency can make a final determination as to
the allowability of those costs.

2. Reconcile its grant files with information contained in the
Federal Transit Administration's Grant Management Information
System and the Government's Financial Management System.  At a
minimum, balances for each grant, based on amounts allocated by
Financial Purpose Code, should be reconciled, and those
electronic transfers not approved by the Federal Transit
Administration should be requested again in the proper format.

3. Provide the Department of Finance's Collector with information
pertaining to electronic transfers of Federal funds received
during fiscal years 1997 and 1998 and ensure that information on
future electronic transfers is provided in a timely manner.

We recommend that the Governor of the Virgin Islands require the
Department of Finance to:

4. Provide training to the Office of Transportation's Associate
Planner on the procedures needed for the Associate Planner to
access the Government's Financial Management System and to
produce reports on the financial transactions and the status of
accounts related to the Office of Transportation.

5. Record electronic transfers of Federal funds in the
Government's Financial Management System in a timely manner.

Governor of the Virgin Islands Response and Office of Inspector
General Reply

The July 1, 1999, response (Appendix 2) from the Governor of the
Virgin Islands concurred with Recommendation 2, nonconcurred with
Recommendations 1 and 3, and did not address Recommendations 4
and 5.  Based on the response, we consider Recommendation 3
resolved and implemented; Recommendation 2 resolved but not
implemented; and Recommendations 1, 4, and 5 unresolved (see
Appendix 3).

Recommendation 1.  Nonconcurrence.

Governor of the Virgin Islands Response.  The response
nonconcurred with the recommendation and provided documentation
that was not available during the audit to support charges of
$97,372 that we had classified as unsupported costs.  The
response also stated that charges of $15,476 that we had
classified as cost exceptions had been "charged in error to the
wrong grant account" and that an adjustment voucher would be
processed to correct the charge.  The response further stated
that the Department of Public Works was still researching a
charge of $199 that we had classified as unsupported costs and
that additional charges of $6,701 that we had classified as cost
exceptions were for training related to marine transportation
systems and attendance at conferences that the Department
believes are allowable under Federal Transit Administration
guidelines.

Office of Inspector General Reply.  Based on our review of the
additional documentation provided with the response, we believe
that the Department of Public Works should provide all pertinent
supporting documents to the Federal Transit Administration for a
final determination as to allowability of the questioned costs as
follows:

- The documentation and the information provided in the response
for the charges of $97,372 show that  the expenditures were not
properly allocated to the two related grant accounts.
Specifically, although the drawdown documents that we reviewed
during the audit and the response stated that the $97,372 was to
be allocated 50-50 to Grant Nos. VI-18-0010 and VI-18-0011
($48,686 to each grant), the expenditure documents provided with
the response show that $64,914.50 was charged to Grant No.
VI-18-0010 and $32,457.25 was charged to Grant No. VI-18-0011.
Therefore, the Department of Public Works should process an
adjustment to properly charge the grant accounts in the amounts
for which the funds were originally drawn down.

- The response stated that the $199 was for the registration fee
for a Department official to attend a training conference on the
Americans with Disabilities Act.  The Department should provide
documentation supporting this charge when it has been found.

- The Department should provide documentation to show that the
adjustment for the expenditures of $15,476 has been processed.

-  The response did not include any documents supporting the
expenditures of $6,701.  Additionally, in the report, we stated,
"In its application for Federal assistance, the Department of
Public Works stated that Rural Transit Assistance Program funds
would be used to support training for the public transit system
operations and Office of Transportation staff."  The application
did not make reference to training related to marine operations
or attendance at trade shows and conferences.  Accordingly, the
Department should provide documentation to support the
expenditures.

- The response did not address the additional cost exception of
$10 for alcoholic beverages, which is unallowable in accordance
with Circular A-87.

Recommendation 3.  Nonconcurrence.

Governor of the Virgin Islands Response.  The response
nonconcurred with the recommendation and included documents
indicating that information pertaining to electronic fund
transfers was provided to the Department of Finance during the
period of May 1998 through April 1999.  The response also stated
that documentation of drawdowns for fiscal years 1997 and 1998
would be submitted to the Department of Finance by July 15, 1999.

Office of Inspector General Reply.  The documentation provided
with the response supports our finding that prior to May 1998,
the Department of Public Works did not submit grant drawdown
information to the Department of Finance.  However, based on the
target date provided in the response for submitting such
information for fiscal years 1997 and 1998, we consider the
recommendation resolved and implemented.


**FOOTNOTES**

[1]:According to the Federal Transit Administration's Program
Manager, the Grant Management Information System was replaced in
November 1998 by the Transportation Electronic Award and
Management System.  In August 1998, the Department of Public
Works Director of Administration and Director of Computer
Operations and the Office of Transportation's Associate Planner
were provided training on the new system.  For purposes of this
report, we refer to the System as the Grant Management
Information System. 

[2]:The grant awards contained a "program of projects," for which
funds were apportioned based on Financial Purpose Codes.  For
example, grants awarded to the Department of Public Works to
purchase vehicles for nonprofit organizations to provide
transportation to elderly and disabled persons were apportioned
to Financial Purpose Code "00," which represented capital
expenditures.  Similarly, grants awarded to provide assistance to
the Territory's public transit system were apportioned to the
following Financial Purpose Codes: "06," which represented State
Administration funds to cover financial audits and to pay for
operating supplies and office equipment; "07," which represented
Rural Transit Assistance Program funds to cover training for the
Territory's public transit system bus drivers and Office of
Transportation staff; and "09," which represented Operating
Assistance funds to support the public transit system in the
Territory.

APPENDIX 1

CLASSIFICATION OF MONETARY AMOUNTS

Questioned Costs          Funds To Be Put   Unsupported  Cost      
Finding Area              To Better Use*      Costs*    

Exceptions*

A.  Grant Administration $2,800,000    

B.  Financial Accountability                  $97,571   $22,187   

Total       $2,800,000                        $97,571   $22,187   

__________

*The amounts represent Federal funds.


APPENDIX 2
Page 1 of 12


GOVERNOR OF THE VIRGIN ISLANDS RESPONSE

APPENDIX 3
Page 1 of 2


STATUS OF AUDIT REPORT RECOMMENDATIONS

-----------------------------------------------------------
Finding/Recommendation   Action   Reference    Status    Required

A.1 Resolved; The recommendation will be not referred to
the Assistant implemented.Secretary for Policy, Management and
Budget for tracking of implementation. When completed,
documentation should be provided showing that the
Department of Public Works taskforce has completed its project

A.2of locating, coordinating, and Management compiling grant
files for concurs; Federal Transit Administration
additional grants information needed. Provide a target date for

A.3 seeking Federal funding for Resolved; financial support staff
for the not Office of Transportation,implemented.Department of
Public Works.The recommendation will be referred to the Assistant

A.4 Secretary for Policy, Management and Budget for tracking of
Resolved; implementation. When not completed, documentation
should implemented.be provided showing that Financial Status
Reports for active Federal Transit Administration grants have
been

A.5 prepared and submitted to the
grantor agency. Unresolved.The recommendation will be referred to
the Assistant Secretary for Policy, Management and Budget for
tracking of implementation.   When completed, documentation
should be provided showing that inactive Federal Transit
Administration grants have been closed out, including final
independent audits.

Reconsider the recommendation.If concurrence is indicated, a
plan of action should be provided, including the target
date and title of the official responsible for ensuring that
grant drawdown information and grant budget requests are
submitted to the Department of Finance and the Virgin Islands
Office of Management and Budget on a timely basis.

-----------------------------------------------------------

APPENDIX 3
Page 2 of 2
-----------------------------------------------------------
Finding/Recommendation
Action          Reference         Status      Required     

A.6 Management Provide a target date for concurs;   developing
standard vehicle additional specifications for buses to be
information used for transportation of the needed. elderly and
the disabled.

A.7 Implemented.

A.8 Resolved; No further action is required.not implemented.The
recommendation will be referred to the Assistant Secretary for
Policy, Management and Budget for tracking of implementation.
When completed, documentation should be provided showing that
refunds

B.1 have been paid to nonprofit Unresolved.organizations which
contributed funds to assist in the purchase of vehicles for
transportation of the elderly and the disabled. Reconsider the
recommendation.If concurrence is indicated, provide a plan of
action,

B.2 including the target date and Resolved;  the title of the
official not responsible for submitting implemented.supporting
documents for unsupported costs and costs exceptions to the
Federal Transit Administration for final determination as to
their allowability.

B.3 The recommendation will be referred to the Assistant

B.4 and B.5 Implemented.Secretary for Policy, Management and
Budget for tracking of Unresolved.implementation.   When
completed, documentation should be provided showing that the
Department of Public Works has finished reconciling Federal
Transit Administration grant information to the Government's
Financial Management System and has made the necessary adjusting
entries. No further action is required.

Respond to the recommendations. If concurrence is indicated,
provide a plan of action, including target dates and titles of
officials responsible for implementation.  If nonconcurrence is
indicated, provide reasons for the nonconcurrence.
-----------------------------------------------------------




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