AR-03-01: Commonwealth Utilities Corporation - Audit of Personnel Hiring (Issued 1/15/03)

Summary

The report presents the results of the Office of the Public Auditor’s (OPA) audit of the Commonwealth Utilities Corporation (CUC) personnel hiring from October 1, 1999, through July 15, 2001. The objectives of this audit were to determine whether: (1) CUC adopted adequate personnel policies based on a merit system mandated by law, and (2) personnel hiring practices complied with applicable personnel policies. This audit was made in accordance with Government Auditing Standards issued by the Comptroller General of the United States.

OPA found that CUC failed to develop and adopt comprehensive personnel rules and regulations based on the merit system. Thus, CUC human resources personnel frequently resort to following procedures and directives contained in internal memoranda of the former Executive Director, minutes of CUC board meetings, verbal instructions of CUC officials, and occasionally, the CNMI’s Personnel Rules and Regulations. As a result, personnel staff have no definitive guidelines for implementing and documenting procedural steps in CUC’s hiring process, and therefore, CUC cannot show that it is hiring based on merit and qualifications. Although CUC has its own personnel manual, it does not address personnel practices such as limited term and provisional appointments.

During Fiscal Years 2000 and 2001, CUC hired 88 employees, 40 of whom were hired non-competitively, namely 32 under limited term appointments and eight under provisional appointments. This means that appointed individuals were hired without the position vacancies being announced, and without going through the normal selection process that involves written examinations, interviews, and screening of applicants. Also, we found no written justification demonstrating the need for these employees. Five CUC employees who were hired non-competitively worked beyond their terms and continued to be compensated without authorized personnel actions. The move toward hiring on the basis of limited term and provisional appointments was most significant during Fiscal Year 2001 when over half of all hires were limited term and provisional appointments as shown in the bar graph below.

As a result, CUC failed to hire employees based on a merit principle system and may not have hired the best qualified employees. This is a concern because most employees hired under limited term and provisional appointments were subsequently made permanent employees.

OPA found board involvement in daily management activities contrary to the authorization given to the Executive Director to manage the operations of the corporation. More specifically, several board members directed the hiring of 17 employees, and acted as final approving officials for personnel hiring. Much of the Board’s involvement occurred during the first 10 months of Fiscal Year 2001 when CUC lacked a human resources manager. During that time, the Board was directly involved in daily hiring actions and also institutionalized the Board Chairman’s involvement through two committees. The Board apparently interpreted its role as going beyond policy and oversight to one of directly managing hiring activities. The CUC board’s involvement in hiring CUC employees has served to usurp management's role in daily operations.

Furthermore, CUC did not establish a classification and compensation scale, and therefore there is no assurance that employees were fairly compensated. We believe that the absence of a permanent human resources manager may have contributed to CUC's failure to implement a merit based personnel system.

While CUC is taking steps to adopt comprehensive personnel rules and regulations, such regulations, as currently drafted, do not address limited term appointments.

Recommendations and CUC's Response

We recommended that CUC:

1. Continue the effort to develop and adopt comprehensive personnel rules and regulations. If it determines that limited term appointment are necessary for CUC operation, it should define this practice in the proposed personnel regulations.

2. Continue the effort to develop and adopt CUC’s own Classification and Compensation Schedule and transmit it to the Legislature for review or adopt the salary scale applicable to autonomous agencies to ensure that its employees are fairly compensated.
3. Strongly consider hiring a qualified permanent human resources manager to ensure that CUC follows the merit system to help CUC implement a comprehensive personnel manual.
4. Develop a control procedure to ensure that all CUC employees receiving compensation have authorized personnel actions.

Finally, we recommended that:

5. The Chairman of the Board issue a directive to ensure that board members focus on policy matters and leave personnel hiring to the Executive Director and the human resources manager.

In its response dated December 10, 2002, CUC agreed with two of our recommendations. Based on CUC’s response, we consider Recommendations 1 and 2 resolved pending adoption of its Human Resources Policies and Procedures as well as its Classification and Compensation System. Recommendations 3, 4 and 5 are considered open as CUC did not respond to these three recommendations.

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