Most of these deficiencies are “administrative in nature” and have already been addressed, while PSS works on the remaining recommendations, Commissioner of Education Dr. Alfred B. Ada said.
The audit report submitted by Burger & Comer, P.C. to the Office of the Public Auditor also includes PSS financial statements in the year ended Sept. 30, 2019, and the impact of the Covid-19 pandemic on the fiscal year 2020 budget of the school system.
Remedied
“The independent audit report was for the previous fiscal year and, for the most part, [the findings were] administrative in nature [and had been addressed already],” Ada said. “They have been remedied and will be reflected in the next audit cycle in the next fiscal year,” said Ada who became commissioner in December 2019.
As for the bank overdraft, he said: “As we all know for the most part of fiscal 2019, the CNMI suffered heavy economic losses due to Super Typhoon Yutu. As a result, it impacted the operation of PSS. The insufficiency in PSS cash balance, as cited in the audit, was basically from the delayed bank transfer from the General Fund due to the lack of local revenue.”
In FY 2020, the sharp decline in government revenue due to lockdowns in response to Covid-19 pandemic caused the central government to further cut the PSS budget to $19.2 million from $37 million. This significant reduction caused PSS to furlough most its employees, the report said.
But the CNMI received from the U.S. Department of Education $5.58 million in Governor’s Emergency Education Relief Fund, and $22.35 million in additional federal assistance for PSS.
Bank overdraft
At the end of FY 2019, PSS had a $1,631,548 bank overdraft, which the audit report describes as “significant deficiency in internal control.”
According to the report, the PSS funds in Bank of Guam had an ending balance of $2,372,912, but PSS had cumulative outstanding checks of $3,965,193 as of Sept. 30, 2019 and did issue the checks to the payees. So the material amount of outstanding checks resulted in a negative book balance of $1,631,548.
“PSS did not have sufficient cash balances to cover all the checks written and released before September 30, 2019,” the audit report stated.
It added that PSS prepared and issued checks without having adequate funds to cover those checks “because they were assured by the CNMI Department of Finance that funding would be provided shortly after the end of the fiscal year.”
This caused the financial statement to show a significant bank overdraft. The report said PSS ran the risk of issuing checks that would not be honored by its bank.
The audit report makes this recommendation: “PSS should not release checks if there is insufficient cash to cover those checks.” PSS finance department should verify that there are sufficient funds before releasing the checks, the report added.
Unliquidated travel funds
The other significant internal control deficiency that the auditing firm discovered pertains to the unliquidated travel advances of PSS.
According to the report, 61% of the 90 travel authorizations selected were not liquidated within the prescribed period. This was noted during the test of PSS compliance with the travel policies.
There was a lack of adherence to established policies and procedures regarding liquidation of travel advances, the report stated.
These unliquidated travel advances had the effect of understating PSS expenses, the report added.
If the travel is covered by a federal grant, unliquidated travel advances means that PSS has not submitted the expense for reimbursement and therefore has not collected money from the grantor for such travel, the report stated.
It added that travel advances not timely liquidated pursuant to PSS rules may be subject to tax.
The report recommends that PSS consider including as taxable compensation the travel advances issued to travelers who did not timely liquidate. Travelers might be enticed to timely liquidate their advances. In addition, the audit report recommends that PSS comply with its policies and procedures and regulations on travel advances.
Missing signatures
For the pay period of Sept.1, 2019 to Sept. 14, 2019, time cards had missing PSS employee signatures, the audit report said. For the 1.11% of the 90 payroll items selected for that pay period, the employee did not sign and verify the time card.
PSS did not adhere to policies and procedures for the maintenance of human resources records, the report said. As a result, there could be misstatements of payroll expenses, and fraud could exist and not be detected.
The report recommends that all employees must have time cards and the time cards should include the employees’ signature. PSS, the report added, should strengthen its payroll process and implement and monitor the proper procedures.
