OVER $23 million of CNMI government funds are deposited in banks and financial institutions that are not federally insured, according to the Office of the Public Auditor.
Public Auditor Mike Sablan, in the eight-page report to the administration and the Legislature, said existing laws do not prohibit most government agencies from depositing their funds in banks that are not insured by the Federal Deposit Insurance Corp.
“The current weakened condition of the commonwealth economy has a potential to impact local banks,” Sablan said in the report.
The report, a copy of which was obtained by Variety on Friday, urged the government to “strongly consider the rigid requirements and monitoring that the FDIC imposes on its members.”
“Although the non-FDIC banks utilized by the CNMI government may have pledged security, the CNMI has no guarantee that such securities are adequate,” Sablan said.
House Speaker Heinz S. Hofschneider, R-Saipan, called for a meeting with OPA and other government agencies this week to tackle the issue.
OPA said the Government Safety Deposit Act of 1994, as amended by P.L. 12-61, should be re-visited and its benefits re-considered together with the risks to government funds.
Rep. Stanley Torres, R-Saipan and chairman of the House Ways and Means Committee, said this should be one of the priorities of the administration and the Legislature.
“We need to revisit that because given the economic conditions, we don’t want to risk public funds,” Torres said.
As of Dec. 15, 2001, over $23 million of the total $105 CNMI government deposits in banks and financial institutions were deposited in non-FDIC member banks—Bank of Saipan, Isla Financial Services, Inc., City Trust Bank, and Hong Kong & Shanghai Bank, which, under the law, is not required to obtain deposit insurance because it has assets in excess of $100 billion.
Among the government agencies with deposits in Bank of Saipan as of mid-Dec. 2001 were the Marianas Public Lands Authority, $8 million; the Retirement Fund, $5.6 million; the Commonwealth Development Authority, $962,110; the Commonwealth Government Employees’ Credit Union, $535,990; the Commonwealth Treasury, $282,720; the Marianas Visitors Authority, $250,000; and the Tinian municipal government, $115,730.
OPA said the government’s total $15.7 million deposits in Bank of Saipan represented 32 percent of the bank’s deposit liabilities of $48.6 million, and 30 percent of its total assets of $54 million.
Government agencies had deposits with City Trust Bank amounting to over $1 million as of Dec. 15, 2001. These agencies included CDA, $675,417; and Northern Marianas Housing Corp., $338,303.
OPA said the collateral pledged by City Trust Bank do not conform to the requirement of the Government Deposit Act or Public Law 9-13, and may not be acceptable because time certificates of deposits do not bear the full faith and credit of the U.S. government.
In addition to not meeting the requirements of P.L. 9-13, CDA funds may not comply with its own enabling legislation, according to OPA.
The law requires CDA to deposit reserve funds not currently needed for development activities or liquidity in investment securities, which are defined as “deposits that are fully insured by the FDIC, the Federal Savings and Loan Insurance Corp., the National Credit Union Share Insurance Fund or any other federal deposit insurance program,” OPA said.
MPLA had deposits with Isla Financial amounting to $1.5 million. OPA, however, said Isla Financial’s statements did not disclose whether bank assets were being pledged as collateral for the government deposits.
MPLA’s enabling law does not explicitly prohibit the agency from investing funds in this institution.
The Legislature, OPA said, should amend the law governing public funds to ensure that it applies to all autonomous agencies, including but not limited to those that do not currently have deposit requirements such as MPLA, the Marianas Public Land Trust, the Retirement Fund, Northern Marianas College, NMHC, the Public School System and the Tinian municipal treasurer.
OPA said the Banking Division of the Department of Commerce should also conduct a thorough financial review of non-FDIC banks holding government deposits to determine the financial health of these banks and to ensure that government deposits are adequately collateralized in the form prescribed by law.
