[Semiannual Report No. (04-S-02)]
[From the U.S. Government Printing Office, www.gpo.gov]

Title: Semiannual Report No. (04-S-02)

 
Date:  April 30, 2002

**********DISCLAIMER**********
This file contains an ASCII representation of an OIG report. No attempt has been made to display graphic images or illustrations. Some tables may be included, but may not resemble those in the printed version. A printed copy of this report may be obtained by referring to the PDF file or by calling the Office of Inspector General, Division of Acquisition and Management Operations at (202) 219-3841.
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Subject:  Semiannual Report No. (04-S-02)

I am pleased to present the results of Office of Inspector General (OIG) 
activities during the period October 1, 2001- March 31, 2002.  This Semiannual Report to the Congress reflects the outcomes of our continued commitment to assisting the Department of the Interior (the Department or DOI) in creating solutions to its most serious management challenges and promoting excellence in the programs, operations and management of the Department.  

	Over the last six months, we completed and published results of several 
high-profile reviews.  Our comprehensive Department-wide reviews of law 
enforcement and maintenance issues provided the Department with blueprints to 
address long-standing management problems in these critical arenas.  Our audits on information security and the Department's government purchase card program, along with our investigation into allegations involving Tribal Recognition and Indian Gaming received immediate response.  

We also report on several disturbing trends this reporting period.  

First, the extensive misuse of government computers by DOI employees to view and download pornography, including child pornography, has prompted us to develop written guidance, which we provided to the Department's Chief Information Officer, on how to identify and respond when these situations are suspected.  Included with the guidance was a training syllabus, together with our offer to provide training to Systems Administrators and other Departmental staff on the proper way to handle these 
troubling matters.  We intend to work closely with the Department to aggressively pursue this effort to detect this egregious misuse and convey a message to all DOI employees that such behavior will not be tolerated, and will, in fact, be prosecuted when appropriate.  

Second, following years of frustration over the lack of responsiveness to our audit findings in the Insular Areas, we undertook an historic review of the often 
reported weaknesses plaguing the Insular Area governments.  Based on this review and findings in audits completed this reporting period, we must reluctantly conclude that the state of financial affairs in the Insular Areas is disturbing, and we call on the Department and other Federal agencies that provide funding to the Insular Areas to take aggressive action to address these longstanding concerns.  

Finally, we report on an alarming number of cases of fraud and 
embezzlement in programs operated by the Bureau of Indian Affairs (BIA) and by tribes.  Unfortunately, the breadth of these crimes does not lead to a simple 
solution.  Nonetheless, we will continue to pursue such cases with a view toward working with the Department to craft solutions to this widespread epidemic.  

Mission

The mission of the Office of Inspector General is to promote excellence in the programs, operations and management of the Department of the Interior.

Responsibilities

The OIG is responsible for independently and objectively identifying risks and vulnerabilities that directly impact, or could impact, the Department's ability to accomplish its mission.  We are required to keep the Secretary and the        Congress fully and currently informed about problems and deficiencies relating to the administration of Departmental programs and operations.  Effective 
implementation of this mandate addresses the public's demand for greater          accountability in the administration of Government programs and operations and the demand for programs that work better, cost less, and get the results Americans want.  

Activities

The OIG accomplishes its mission through conducting audits, evaluations, and investigations relating to programs and operations of the Department.  The OIG has reorganized and re-engineered its internal operations to provide higher quality products and services in areas that are of the highest priority and provide the greatest return on investment.  

As a result of the investigation by our Office of Program Integrity, three criminal violations were presented to the U.S. Attorneys Office for prosecution.  They were declined in lieu of administrative action, which is pending on the employees who remain in Federal service.  All six tribal decisions have been or are being reviewed by the current administration in light of established recognition criteria.


The OIG requested that the Department's Office of Law Enforcement and Security conduct a risk assessment of the Bureau of Reclamation (BOR) Water Quality Improvement Center Training Facility in Yuma, Arizona, after learning that the facility accepted students, U.S. citizens and foreign 
nationals, without any form of background investigations or security checks.  The facility has numerous chemicals on-hand, which could be used in the making of bombs.  In light of recent terrorist attacks, we advocated a proactive approach to prevention and security of our facilities.  The BOR conducted a prompt risk assessment of the facility.  Their comprehensive report identified a number of vulnerabilities and offered solutions to many of the problems.  

We have asked the Department to follow up on three issues, which we believe merit further inquiry.  

The report suggested that the training certificate program be moved off-site.  Without quantifying the positive aspects and benefits the 
Government and country derive from the studies and research conducted at the facility, alternative means may satisfy security concerns without 
removing the program.  For example, background investigations as a part of basic security screening and limiting physical access to certain areas via security devices may suffice.

Although the report acknowledged that two students who failed to comply with a security policy were denied access to the facility, it was silent regarding any further investigation into the reason they failed to complete the required documentation.

The report did not address the existence of security clearances or the proper security levels for the 209 Federal employees and 63 contract employees, or whether the clearances are current.

Following a sudden increase in reported instances of  Department employees using government-owned computers to access child pornography Internet Web sites, and one instance of a DOI  employee enticing a child to engage in sex, the Office of  investigations issued guidance to the Department's Chief Information Officer on how to identify and respond when these situations are suspected.  Included with the guidance was a syllabus for training by our investigators to Systems Administrators and other Departmental staff who are confronted with these troubling allegations.  While most instances of inappropriate use of agency computers result in disciplinary action by agency 
management, the OIG is particularly concerned about child  pornography, a Federal criminal offense.  Child pornography is not a victimless crime.  As long as there is a demand for child pornography, children will be exploited and abused for this purpose.  Our office has initiated many investigations pertaining to the improper access and/or downloading of child pornographic material using government  computers, which led us to develop this important training tool.  

The following cases in which administrative action was taken, prosecution was sought and declined.  In instances where prosecution was pursued, the summary is found in the relevant Bureau section.

A Fish and Wildlife Service (FWS) employee resigned after it was determined that while using a government computer during business hours he had accessed 106 Web sites containing nude adolescent girls and pornographic stories involving children. 

A BIA employee resigned in lieu of termination after it was discovered that he was using a government computer to access  numerous Web sites containing pornographic material, including  pornographic images of young girls.  

Administrative action was taken on a National Park Service (NPS) employee for downloading child pornography on his government-owned computer.

Administrative action was taken on an FWS employee following allegations that he made sexually offensive remarks to fellow employees, showed nude photographs and computerized images to co-workers, and used his government-owned computer to access child pornography Web sites.  
Administrative action was taken on a Bureau of Land Management (BLM) employee after it was discovered that on a daily basis he accessed numerous child and adult pornography Web sites, which depicted, among other things, incest and bestiality.  

Administrative action was taken on an NPS employee for using his government-owned computer to access Web sites depicting homosexual and child pornography images.  

Administrative action was taken on a BLM employee for using his government-owned computer to access Web sites depicting child  pornography images.  

?	Two cases were initiated where it was believed that BLM employees were accessing child pornography on government-owned computers.  At the time, separate Internet Protocol (IP) addresses were not assigned to each computer, and as a result, it was impossible to determine the identity of the offenders.  After learning of the problem, the BLM took immediate steps to assign IP addresses to each computer.  


	The independent certified public accounting firm of KPMG LLP (KPMG), under contract with the Office of Inspector General, rendered an unqualified opinion on the consolidated financial statements of the Department of the Interior for fiscal year 2001.  KPMG also rendered unqualified opinions on the financial statements of eight of the nine DOI Bureaus and offices.

KPMG rendered unqualified opinions on the balance sheet and statement of custodial activity for the Minerals Management Service (MMS) but did not express an opinion on other MMS financial statements.  KPMG was not able to express an opinion on the financial statements of the U.S. Geological Survey (USGS).    

Although DOI and eight of the nine Bureaus and offices received unqualified audit opinions, longstanding weaknesses related to internal controls and compliance with laws and regulations continue to be identified.  It is imperative that DOI expeditiously correct these weaknesses to ensure that future financial statements are timely and accurate.  To 
address these longstanding weaknesses the Department, OIG and KPMG are meeting with each Bureau and office.  Based on lessons learned, these meetings have identified valuable improvements to the audit process and financial statement preparation process.  The Bureaus and offices are working aggressively to implement these improvements.

Significant weaknesses were identified in the following areas:   

General and Application Controls Over Financial  Management Systems.  DOI's lack of adequate information technology security and general controls to protect financial information systems could adversely affect its ability to prevent unauthorized changes to financial information, control electronic access to sensitive information and protect information resources.   

Timeliness of Transaction Entry and Reconciliation.  DOI spent significant time and resources at year-end recording transactions, analyzing financial records and reconciling amounts as a result of its failure to (1) consistently and timely record financial transactions and analyze financial records, and (2) consistently and routinely reconcile general ledger accounts to subsidiary ledgers or other supporting documentation. 

Controls Over Undelivered Orders and Accruals.  DOI did not consistently liquidate obligations and accrue liabilities for goods and services received prior to year-end or timely de-obligate funds no longer needed.  

Controls Over Property, Plant and Equipment.  Weaknesses were reported in the areas of acquisitions and disposals; reconciliation of subsidiary ledgers to general ledgers; inventory of property, land and land rights; recording property transfers and depreciation; and accounting for construction in progress.  

Reconciliation of Intra-Departmental and Intra-Governmental Transactions.  DOI did not begin reconciling intra-departmental and intra-governmental transactions until after year-end, requiring significant time and resources to reconcile intra-departmental activity to an acceptable amount.  DOI was unable to reconcile intra-governmental balances.

Trust Fund Management Controls.  DOI did not have adequate procedures and controls to ensure that Indian trust fund activity and balances were recorded properly or timely.

In our continuing efforts to prevent credit card abuse, we reviewed a sample of DOI purchase cardholders and found that 14 percent of these cardholders had abused their card privileges by purchasing personal items and having the Government pay for them.  These abuses occurred because DOI had not established an adequate control environment when instituting the integrated charge card program.  The abuses included:  

The use of credit cards to pay monthly phone bills, purchase 
household furnishings and jewelry, or pay for repairs to personal vehicles.

The use of convenience checks to make mortgage payments.

The use of fraudulent invoices to pay monthly rent or convert cash advances, which are billed to the individual, to centrally billed items, which are billed directly to and paid for by the Government.

DOI and the affected Bureaus agreed to take corrective action on our recommendations to ensure that (1) only an appropriate number of employees have purchase authority on their charge cards, (2) credit limits are periodically reviewed and adjusted, (3) reviewing officials are  designated and trained, (4) credit card receipts and invoices are maintained and reviewed for appropriateness, and (5) ex-employee charge card 
accounts are deactivated.
Reviews conducted by our office, the General Accounting Office, and the Bureaus have revealed long-standing maintenance problems in the Department for years.  In fact, the lack of a comprehensive maintenance management capability has been identified as a mission-critical material weakness in DOI.  As of September 30, 2001, the reported maintenance backlog ranged from $8.1 to $11.4 billion.  

At the request of the Department and the Office of Management and Budget, we reviewed maintenance issues Department-wide and identified key needed actions.  We developed a broad framework of actions to build on the positive changes already being implemented by the four Bureaus reviewed (NPS, BLM, BIA, and FWS):

Appointing a Departmental Chief Maintenance Officer
Taking immediate steps to reduce the maintenance backlog
Managing facilities proactively
Establishing a single maintenance budget for DOI
Conducting standardized condition assessments
Implementing an integrated facilities management system
 
In the end, we provided the Department with a blueprint to quickly reduce the backlog and develop a comprehensive, proactive and reliable facilities maintenance management program that will help prevent recurrence of a deferred maintenance backlog.

In the second of a series of reports on the implementation of OIG audit recommendations, we reviewed nine recently closed recommendations and found that four of the recommendations had not been fully implemented.  DOI Management Control and Audit 
Follow-up officials concurred with our conclusions and reinstated all four recommendations as unimplemented.  One of the four  recommendations pertained to a Bureau material weakness, which also was reinstated in part as a result of our review.

Three former employees of the Oglala Sioux Tribe were sentenced in U.S. District Court, Rapid City, South Dakota, following their convictions on four counts of embezzlement and one count of  conspiracy.  Estelle Goings was the payroll supervisor for the Tribe.  She supervised her daughter, Vonnie Goings, who held several positions in the Tribe's accounting office.  Carol Vitalis was a payroll technician.  Estelle Goings and Carol Vitalis were both sentenced to 27 months of imprisonment, Vonnie Goings was sentenced to 15 months of imprisonment, and they were each ordered to serve 24 months of supervised release.  The Court also ordered that restitution in the amount of $99,412 be paid jointly and severally by each of the defendants.  Our Office of Investigations initiated this case when it was learned that between February 1996 and November 1999, the three women issued 362 illegal checks totaling $198,905 to themselves.  

A Federal grand jury returned a four-count indictment charging that Marvin Beartusk, a BIA housing specialist in Montana, used a government computer to access and download pornographic images of children.  The indictment charged Beartusk with two felony counts of receipt of child pornography and two felony counts of possession of child pornography.  At his initial appearance in U.S. District Court, District of Montana, Beartusk entered a plea of not guilty to the charges.  Trial and administrative action are pending.

William A. Hacker, Terrance C. Walters, and Dennis Huber were indicted by a Federal grand jury in the District of South Dakota on charges of bribery concerning programs receiving Federal funds.  Hacker, while on loan from the BIA to the Crow Creek Sioux Tribe through an Intergovernmental Personnel Act agreement, allegedly received an illicit payment of $24,750 in exchange for his involvement in the placement of a $6.6 million bond obtained through the Governmental Capital Corporation (GCC) with the Tribe.  Walters, a consultant for GCC and former BIA superintendent, allegedly paid $1,000 to Hacker and $6,800 to Huber, Director, North Dakota/South Dakota Indian Business Development Center, United Tribes Technical College for their assistance in the placement of a $3.5 million bond through the GCC to the Three Affiliated Tribes.  The indictment charges Walters with two counts of paying bribes and Hacker and Huber with one count each for receiving bribes.  Trial is pending.

A Federal grand jury in the District of New Mexico indicted Ronald D. Shutiva, former Governor of Pueblo of Acoma Tribe, on charges of embezzling from the Sky City Casino, a business enterprise of the Tribe.  The two-count indictment alleges that Shutiva requested money from the general manager of the Sky City Casino to help him pay some personal creditors.  The Sky Casino general manager, Vernon Lowery, devised a plan to obtain the money for Shutiva by placing fictitious orders for slot machine parts from a gaming machine supplier in Las Vegas.  Lowery would send the supplier a Casino check as payment for the fake order.  The supplier would then deposit the Casino's check, but not supply the slot machine parts.  Rather, the supplier, in turn, wired a total of $8,000 to Shutiva's personal creditors.  Lowery was convicted and subsequently sentenced for his part in a related investigation involving the theft of additional casino funds to eight months of confinement and 36 months of supervised release.  Trial for Shutiva is pending.


A Federal grand jury in the District of Arizona returned an indictment naming two former BIA employees on fraud charges for allegedly skimming more than $60,000 from Indian education programs.  Alberta J. Bitsoi was employed at the BIA's Office of Indian Education Programs.  Rosalie B. Yazzie worked at the Seba Dalkai Boarding School.  According to the indictment, the women submitted false vouchers for stipend payments.  Stipend payments are made to BIA employees for work that is performed above and beyond their tour of duty.  Typically these payments are paid for coaching a sport or sponsoring one of the school's academic or social programs.  Neither woman allegedly did any work to earn the stipends.  Yazzie is charged with taking more than $39,000 over a three-year period.  Bitsoi is charged with taking nearly $22,000 during the same time period.  Trial is pending.




Geraldine Arviso, a bookkeeper with the Wingate Board of  Education who was accused of embezzling more than $66,000 of Federal monies intended for Wingate High School, pled guilty in U.S. District Court of New Mexico.  From 1997 through 2001, Arviso cashed checks she illegally wrote on the Wingate business account and used the money for personal gain.  Sentencing is pending.

The Office of Trust Fund Management (OTFM), Office of the Special Trustee for American Indians reported that BIA employees were improperly opening private secondary bank accounts on behalf of individual Indians to deposit monies received from other Federal agencies such as the Social Security Administration and Veterans Affairs.  Our investigation revealed that the BIA was, in fact, mishandling and improperly diverting Individual Indian Monies (IIM) to these secondary accounts.  We concluded, however, that the BIA employees involved misunderstood a portion of the Code of Federal Regulations concerning "Payments by Other Federal Agencies."  A comprehensive review of these secondary bank accounts determined that no funds were personally diverted or misused.  Nonetheless, the ramifications of this practice raised concerns about the accountability of IIM.  In response to a management implication memorandum issued by the Office of Investigations, the Deputy Commissioner of Indian Affairs advised that in accordance with our recommendations, the BIA would continue to work closely with the OTFM to educate BIA employees about regulations and proper procedures; complete a new Distribution Plan form for use in the field; establish a work group to develop a joint OTFM/BIA IIM handbook; and work closely with any office that handles trust activities, including the social services staff work 
associated with supervised IIM cases. 


Charles Kirkpatrick, former pilot for the Seminole Tribe of Florida, was sentenced in U.S. District Court, Southern District of Florida, to 13 months of imprisonment and 12 months of supervised release for his role in a scheme to embezzle tribal funds.  As reported in our October 2001 Semiannual Report, Kirkpatrick was convicted on charges that he arranged to purchase various aircraft on behalf of the Tribe.  After negotiating a purchase price with a broker, Kirkpatrick artificially increased the purchase price of each aircraft by several hundred thousand dollars and took a commission from the difference.  


Rod Highelk, Compliance Officer, White Earth Band of Chippewa Indians, White Earth, Minnesota, was sentenced in U.S. District Court for the District of Minnesota, following his guilty plea to charges against him in a 16-count indictment by a Federal grand jury.  The indictment alleged that in just over a year Highelk embezzled more than $70,000 from the Tribal Employment Rights Office of the Tribe.  Highelk was sentenced to 12 months of imprisonment, 3 years of  supervised release and ordered to pay restitution in the amount of $70,300. 

The Tribal Loan Program of the Lac Vieux Desert Band of Lake Superior Chippewa Indians of Watersmeet, Michigan, made over a million dollars in loans to 166 individuals, half of whom defaulted on the loans.  To date, the investigation has produced the following results:

John McGeshick, Sr., former Tribal Chairman, was indicted by a Federal grand jury in the Western District of Michigan and pled guilty to charges of embezzlement relating to more than $250,000 in fraudulent loans and undocumented travel expenses.  Sentencing is pending.



Harvey White, former Tribal Comptroller, allegedly abused the Tribal Loan Program by taking cash advances at various casinos, receiving unauthorized wire transfers while on tribal business trips and receiving loans from the Tribe that were never repaid.  White pled guilty to one count of an indictment and was sentenced to five months of imprisonment, 24 months of supervised release, fined $1,500, and ordered to pay restitution in the amount of $19,252.  

Susan Van Zile-McGeshick, former tribal receptionist, was indicted on one count of theft from an Indian tribe in the amount of $3,500.  The indictment alleges that Van Zile-McGeshick misused the Tribal Loan  Program by taking unauthorized loans and pay advances.  Trial is pending.

Rhea Reno, former tribal payroll clerk, was indicted on one count of theft from an Indian tribe in the amount of $30,500.  The indictment alleges that Reno misused the Tribal Loan Program by taking unauthorized loans and pay advances.  Trial is pending. 


Cindy Turner, Luther Turner, Jr., and James Turner allegedly cashed more than 20 fraudulent checks totaling $15,000 at the Harrah's Cherokee Tribal Casino in North Carolina.  Cindy Turner, who was a license examiner for the South Carolina Department of Public Safety, allegedly used her position to obtain fictitious drivers licenses and identification cards for her father and uncle.  Cindy Turner later admitted to investigators that the three had opened bank accounts using the false identification cards, and then cashed checks from the sham bank accounts at the Casino.  All three were charged in the Western District of North Carolina on charges of theft from gaming establishments on Indian lands.  Trials are pending.

Daniel Roller, a non-Indian, fraudulently cashed Individual Indian Monies (IIM) lease income checks issued to his minor child, an enrolled member of the Fort Peck Tribe of Indians in Montana.  A Federal grand jury in Montana returned a two-count indictment charging Roller with mail fraud and theft of government funds.  Roller pled guilty to mail fraud.  From 1992 through 1998, Roller negotiated nearly $15,000 in checks issued for the benefit of his minor child and misappropriated the money for his own personal benefit.  Sentencing is pending.



Both BIA and the Cheyenne and Arapaho Tribes underscored the need for cooperation in resolving longstanding problems with the Tribes' financial and program management systems.  The Tribes have been experiencing difficulty in complying with the terms of their Federal contracts and grants since at least 1992.

BIA classified the Tribes as a "high-risk" contractor in 1996 and limited Federal funding to a cost-reimbursable basis only.  In 2000, the Department of Health and Human Services, which also provides significant funding, placed the Tribes on a cost-reimbursable basis.  As a result, conditions have stabilized and are improving, as confirmed in our review.  We also confirmed that although the Tribes have improved their program management, significant problems remain in establishing participant eligibility for benefits from the Social Services Program.  BIA and the Tribes agreed with our recommendations for continued cooperation to improve the Tribes' financial and program management to ensure that the Tribes can once again assume responsibility for administering programs and services to their members.

We also identified Federal program funds that had been inappropriately used to pay overhead costs.  BIA and the Tribes agreed with our recommendations to determine the amounts applicable to the Federal funding agencies and to notify the agencies accordingly.  For the purpose of information and action, we sent our report to the regional offices of the Inspectors General for the Federal agencies providing significant funding.

	As we reported in our October 2001 Semiannual Report, Clive Joe, President of Pan American Geological Services, Inc., was found guilty in May of 1989 in the U.S. District Court, Eastern District of New York.  The jury found Joe guilty of conspiracy and mail fraud in an investment scam using the BLM Simultaneous Oil and Gas Lease Lottery program.  Joe was released on $100,000 bond but failed to appear for sentencing.  A bench warrant was issued for his arrest.  The bond was forfeited, and after 11 years, Joe was finally arrested.  The same judge that presided over his original trial sentenced him to 60 months of imprisonment and 24 months of supervised release for the original conviction.  The judge added an additional 8 months of  incarceration for Joe's failure to appear.

Steven M. Thompson, natural resources specialist, BOR, Casper, Wyoming, was indicted by a Federal grand jury in the District of Wyoming on a charge that he solicited a bribe from a potential bidder on a Bureau contract.  The indictment alleges that in exchange for $500.00, Thompson agreed to reveal the amount the Bureau budgeted for the contract project to a potential bidder.  Thompson was arrested and entered a plea of not guilty at his arraignment.  A trial is pending.

In response to several Congressional inquiries and a formal request from the Secretary of the Interior, our Office of Program Integrity investigated allegations that FWS employees tampered with the field samples in the National Interagency Canadian Lynx Survey.  The Survey was conducted in order to determine the population distribution of an animal listed as "threatened" under the Endangered Species Act.

Although criminal prosecution was declined, the Office of Program Integrity uncovered a pattern of bad judgment, such as unauthorized sample submissions by field biologists, failure of Regional and Headquarters managers to recognize the significance of the incident, and failure to execute timely and appropriate responses.  We also uncovered a lack of scientific rigor that is best illustrated by the absence of protocols regarding control samples and the failure of managers to provide adequate training to address the pervasive quality assurance concerns of field biologists.

The involved employees were given monetary awards and praised for their actions subsequent to the Lynx study incident, highlighting further poor judgment on the part of the management officials who approved the awards and refocusing attention on the liberal award policy and practices of the FWS, which has in the past been the subject of criticism by the OIG.

As a result of this investigation we made the following 
recommendations:

The Secretary (1) ask the Department's Chief Scientist to make recommendations on how to restore rigorous science to the Endangered Species Program, and (2) to design and implement a DOI Scientific Code of Ethics.

The Director of FWS revisit the issue of administrative action in this matter with a view toward considering (1) more meaningful punishment for those previously counseled, and (2) administrative action against additional FWS employees at the Regional and 
Headquarters levels.

Jerome M. Simpson, owner and President of Nu Waay Enterprises, Inc., was indicted by a Federal grand jury in the Middle District of Alabama on two counts of false statements related to claims he submitted to the FWS against a contract he held to provide certain construction functions at the Noxubee Wildlife Refuge, an FWS refuge in Brooksville, Mississippi.  According to the indictment, Simpson allegedly made false claims to the Government when he submitted a request for reimbursement of $200,000 in cash reportedly missing from the Noxubee Wildlife Refuge, and nearly $29,000 in payroll hours allegedly worked at the refuge.  The indictment alleged that Simpson intentionally submitted the claim for reimbursement of payroll, which he knew was not incurred at the refuge project.  Simpson also allegedly directed a subordinate to submit the $200,000 claim for reimbursement for missing cash and advised that if anyone questioned her about the claim to say it was a typographical error, and that it was meant to be $200.00.  Trial date is pending.

Imata Kabua, while President of the Republic of the Marshall Islands (RMI), allegedly improperly diverted $270,000 in U.S. financial assistance funds from their intended purpose to make payments on a $400,000 personal loan.  Pursuant to the Compact of Free Association with the RMI, Kabua had ultimate responsibility and oversight for funds of this type.  After local media attention, Kabua entered into an agreement to repay the RMI government.  The RMI's unwillingness to invite the OIG to 
participate in an investigation hindered the U.S. Government from 
exercising accountability over its funds.  Initial investigation suggested a full and comprehensive criminal investigation was warranted.  According to the terms of the Compact, the OIG has no enforcement authority unless invited by the RMI.  A management implication memorandum addressing these problems was provided to the Assistant Secretary, Policy, Management and Budget.  The OIG has provided the Department of State and the General Accounting Office proposed language which could be used during the renegotiation of the Compact agreement, extending expanded investigative authority to the OIG.

Juan Demapan, former Senate President of the Commonwealth of Northern Mariana Islands (CMNI) and current President of Demapan Engineering and Construction Company, and Michael Kerschner, Demapan's business associate, were charged in a 17-count indictment with wire fraud, conspiracy to commit wire fraud, money laundering and uttering false bills of lading by a Federal grand jury in the District of the Northern Marianas.  The indictment alleges that Demapan and Kerschner submitted false bills of lading to obtain a $500,000 progress payment on a $2.7 million CNMI construction contract.  The contract, which was 60% funded by the Department through Office of Insular Areas (OIA) Capital Improvement Project funds, was let to build 60 classrooms in the CNMI.  After receiving the $500,000 progress payment, the company allegedly failed to perform on the contract.  Trial is pending.

Jesus Sablan and Sablan Construction Company, Ltd. were debarred from participating in any Federal contracts for a period of three years, effective March 1, 2002.  The debarment relied on facts developed in an OIG investigation resulting in a guilty plea in the U.S. Districts of Guam and the CNMI, to bribery charges in connection with programs receiving funds from the Department.  

The state of financial affairs of the Insular Areas is, in a word, disturbing.  In no fewer than 458 audits conducted in the Insular Areas dating back to 1982, repeated deficiencies have been detected, reported, and passed on to the various governing entities.  While a majority of the recommendations were accepted, in the end, most have gone unimplemented.  The Federal government can no longer continue to accept silence and inaction from appointed or elected officials, legislative bodies, or other responsible Insular Area entities concerning these deficiencies.

The Insular Area governments (Guam, U.S. Virgin Islands, American Samoa, Commonwealth of the Northern Mariana Islands, Republic of the Marshall Islands, Federated States of Micronesia, and the Republic of Palau) face major management challenges that in most cases are not being addressed, yet program monies and grants continue to flow.  

The tax dollars at stake are not insignificant.  Those funds aggregate to approximately three-quarters of a billion dollars annually, when Department of the Interior funded programs (FY02:  $353 million) and other non-Interior Department funding such as from the Departments of Health and Human Services, Education, and Agriculture (which totaled $405 million in FY99) are taken into account.  The Department of the Interior does not have authority over any of the program grants funded by other Federal Departments or agencies.

We believe unrealized opportunities for improvement exist in the fundamental areas of:
 
	? Financial management
	? Revenue enhancement
	? Expenditure control
	? Program operations

Selected examples of the types of deficiencies uncovered during this reporting period include:

Estimated lost potential tax revenues of $7.1 million in 
American Samoa in fiscal years 1997 through 1999 due to uncorrected long-standing deficiencies identified in five audit reports issued since 1986.  The loss, or potential loss, of as much as $65.1 million by four semi-autonomous government agencies in Guam, brought about by not following financial advice available from the Guam Economic 
Authority.

Failure to conduct required biennial fire safety inspections or collection of fire inspection fees of at least $1.1 million by the Virgin Islands Fire Service in fiscal years 1999 and 2000.

The failure by the Virgin Islands Housing Finance Authority (Authority) to (1) establish competitive procurement procedures for selection of housing development contractors, and (2) ensure that program participants met eligibility requirements.  This led to questionable payments of as much as $1.95 million to two contractors and preferential treatment to some clients as well as several interest-free loans to Authority employees.

Inadequate controls over financial operations by the Authority also led to a debt of $809,500 for loans to two housing communities and the inability to use bond proceeds of $33.7 million to provide 
mortgages to eligible participants.

There are many other examples that can be drawn from several prior audits.  The common denominator, though, is the lack of responsiveness in seeking to remove impediments to efficiency.  Legislation might be required to effectively remedy part of the problem.  The Insular Areas may also require resources and other assistance in order to overcome these obstacles.

Without implementation and enforcement of accepted business standards and improved accountability, waste and abuse in the Insular Areas will continue unabated.  It is time for OIA and the other Federal grantor agencies to assign a degree of urgency in devising and 
implementing a realistic plan that will provide assistance and bring about results.  

Unocal Corporation was the latest company to reach an agreement to resolve claims under the False Claims Act that they underpaid royalties owed for oil produced on Federal and Indian lands for more than 10 years.  The $21.5 million Unocal settlement agreement brought the total recoveries in underpayments of royalties on gas, crude oil and coal from Federal and Indian lands to more than a half a billion dollars since 1998.  In a November 2001 press release by the Department of Justice, the Assistant Attorney General lauded DOJ's highest recovery year ever in fraud recoveries, citing oil, and other minerals extracted from public lands as second only to health care in such recoveries.  This ongoing effort by the Department of Justice, Minerals Management Service and the Office of Investigations continues.  

Karrie Skinner, Employee Relations Specialist, NPS, 
Washington, D.C., waived indictment and pled guilty in U.S. District Court, Washington, DC, to a misdemeanor charge of theft of government funds after admitting that on three occasions she submitted false award certification forms totaling $2,910 to which she was not entitled.  

Skinner agreed to pay full restitution to the Government and is currently awaiting sentencing.  This case highlights the need for proper separation of duties, since Skinner was in a position to submit and process awards for herself without any checks or balances.  The Office of Investigations is issuing a Notice of Investigative Findings and Results to NPS to address this issue.

Addison Fair, former NPS Maintenance Worker, Sharpsburg, Maryland, was sentenced in U.S. District Court, Washington, D.C., to 4 months of imprisonment, 4 months of home detention, 3 years of supervised release, and ordered to make restitution of more than $50,000.  As reported in our October 2001 Semiannual Report, Fair pled guilty to charges that he improperly received disability retirement benefits under the Department of Labor, Office of Worker's Compensation Program (OWCP).  Fair, who was allegedly injured while on the job at NPS, submitted false reports to the DOI that he was not working and earned no income when, in fact, he was employed as a limousine driver.  In addition, our investigation revealed that Fair had falsified his application for employment to the NPS by certifying that he had not been convicted of a crime, when, in fact, he had a previous conviction for fraudulent OWCP claims in 1994.


As reported in the October 2001 Semiannual Report, Ivan Jones, former NPS Maintenance Worker, National Capital Parks East in Washington, D.C., stole government funds by submitting false trial subpoenas to his supervisor to corroborate receiving paid leave.  For nearly two years, Jones submitted a series of fabricated trial witness subpoenas from the Superior Court of the District of Columbia to his supervisor at the NPS.  Jones was subsequently granted more than six weeks of paid administrative court leave to which he was not entitled.  Jones was sentenced in U.S. District Court, District of Columbia, to 2 months of home confinement with electronic monitoring, 36 months of supervised release and to pay restitution in the amount of $3,500.

Patricia Paul, former NPS administrative officer at John Day Fossil Beds National Monument in Grant, Oregon, was sentenced in U.S. District Court for the District of Oregon, to 6 months of home confinement, 36 months of supervised release and ordered to pay restitution in the amount of $21,983.  Paul's sentence followed her guilty plea to one felony count of embezzlement relating to unauthorized personal purchases on her government-issued credit card totaling $12,683 and falsely claimed overtime and holiday pay of $12,752.


We took exception to $779,274 of $3.5 million billed by a contractor working at the Steamtown National Historic Site in Scranton, Pennsylvania.  NPS awarded a 10-year contract to a Pennsylvania firm to construct a central heating and cooling utility system and to distribute heating and cooling service to the Site.  We took exception to the costs billed in excess of the actual costs of operating the system.  NPS is resolving the cost exceptions with the contractor.

We took exception to about $30,000 of a $1.1 million settlement proposal for an Office of Special Trustee (OST) contract to create an electronic archive of images for trust accounts administered by OST.  OST terminated the $3.2 million contract for the convenience of the Government and directed the contractor to prepare a termination 
settlement proposal.  The contractor, in turn, terminated its subcontract and asked the subcontractor to prepare a settlement proposal.  The settlement proposal submitted by the contractor and subcontractor included about $30,000 in cost-of-money expenses, which are not allowed under the Federal Acquisition Regulation.  OST is resolving the cost exceptions with the contractors.  

Timothy E. Ruble, USGS research geologist, Denver, Colorado, was indicted by a Federal grand jury on ten counts of receipt and possession of child pornography, and one count of criminal forfeiture for receiving child pornography that had been transported in interstate or foreign commerce by use of a computer.  During September and October 2001 Ruble allegedly used his USGS computer to access and download child pornography depicting images of the sexual exploitation of small children he obtained through his paid subscription to an Internet news service.  Ruble was arrested and entered a plea of not guilty at his arraignment.  A trial is pending.

Ronald D. Macklberg, USGS physical science technician, Denver, Colorado, pled guilty to a felony charge of enticing a child for the purpose of sex, and a misdemeanor charge of unlawful sexual contact following a sting operation by the Douglas County sheriff's office, which targeted individuals sexually preying on minor children.  Macklberg used an Internet chat room for more than two weeks (on government time, using a government-owned computer) to arrange a lunchtime meeting with an undercover policewoman who posed as a 14-year old child.  Macklberg was arrested when he arrived for the rendezvous.  Following Macklberg's guilty plea, he was sentenced in Douglas County District Court to a four year deferred judgment and probation.  Among the conditions of his probation are that he register as a sex offender, undergo sex offense-specific treatment and stay away from children younger than 18 years of age.  


Maria A. Carter, former budget analyst in the Water Resources Division, USGS, Menlo Park, California, was arrested on charges that for more than two years she allegedly made personal purchases of more than $12,000 on her government-issued credit card and to a 
government-issued credit card belonging to a colleague.  Among the alleged fraudulent purchases were several airline ticket purchases for Carter and a family member.  Trial is pending.