By Emmanuel T. Erediano
emmanuel@mvariety.com
Variety News Staff
THE Office of the Public Auditor and the Department of Finance on Thursday released the CNMI single audit report, which found $257.4 million in questioned costs after examining federal funds spent by the Commonwealth government from fiscal years 2020 to 2022.
The report, according to Gov. David M. Apatang, places the Commonwealth at serious financial risk, meaning the CNMI government may be required to repay the funds to federal grantors if the issues are not resolved.
In reviewing the records of federal monies received by the CNMI government, OPA and Finance cited major findings that include unallowable costs, weaknesses in procurement, and problems with monitoring federal funds given to subrecipients.
The audit shows a significant number of findings in fiscal years 2020, 2021 and 2022. Questioned costs amounted to $44.1 million in FY 2020, $50.2 million in FY 2021 and $163.1 million in FY 2022.
OPA and Finance found that in spending American Rescue Plan Act and Coronavirus Aid, Relief, and Economic Security Act funds alone, the Torres administration incurred a total of $165.5 million in questioned costs — $110.8 million in ARPA funds and $54.7 million in CARES Act funds.
During a press conference, Apatang told reporters that his administration “inherited these challenges, but we take full responsibility for addressing them.” Completing the audit, he said, is a difficult but necessary step toward transparency and accountability.
“Now, our focus turns to solutions. We are developing corrective action plans, strengthening financial controls, and working closely with our federal partners to fix these issues and prevent them from happening again. To the people of the CNMI, I want you to know that we take this seriously. We will be transparent. We will be accountable. We will do the hard work to restore trust and protect our island’s financial future,” Apatang said.
Finance Secretary Tracy B. Norita said the results of the audit, “completed after extensive effort by Finance and the Apatang administration,” are “deeply concerning.”
The audit, she said, identified approximately $257.4 million in questioned costs. She said it confirms what the Palacios-Apatang administration has been communicating to stakeholders — “we entered this administration in financial disarray,” adding that the CNMI is facing unprecedented financial noncompliance. She said Finance has been communicating the situation and providing information to OPA, the Office of the Attorney General, and, for the past three years, to the White Collar Crime Task Force.
She said she welcomes further joint efforts to investigate the questioned costs.
The outcome of the single audit, Norita said, places the CNMI at severe financial risk, which signifies “we could potentially be required to repay large amounts of federal funds, and that collection process has begun with CARES Act funds of $11 million spent in 2020 to 2022, and we are being asked to return [them] voluntarily.”
She said Finance will appeal the determination and work to avoid paying the funds back.
She noted that the audit outcome affects the CNMI’s ability to access bond markets, which is essential to address the government’s pension obligations.
“These findings represent a significant challenge for our government moving forward. The effect of questioned costs can delay federal reimbursements, increase grant requirements, or terminate grants altogether. The worst-case scenario is that federal agencies move to collect these funds automatically, in which the U.S. Treasury will collect directly from money reimbursed to us for other grants. This will disrupt federal programs and increase the cash burden on our local funds,” she said.
Norita added, “We are now fully focused on developing corrective action plans, strengthening internal controls, and working closely with our federal partners to resolve these issues in order to stabilize federally funded operations.
“This is difficult news,” she said, “but it is also a turning point — one that gives us the opportunity to fix what’s broken, improve our processes and move forward with greater responsibility and integrity.”
She also recognized Finance’s audit team members: Ryan Camacho, lead on financials, and Jerry Deleon Guerrero, lead on compliance and questioned costs.