OPA contracted with Deloitte & Touche to conduct a financial audit of the CNMI Government for the Fiscal Year Ended 9/30/04. General Fund revenues increased by nearly $10 Million over the prior year. This increase, however, was insufficient to offset the $35.6 Million in expenditures over the same period. According to the audit, the CNMI’s cumulative deficit grew to $153 Million, a four-fold increase over the last ten years.

Cumulative Deficit Quadrupled Between FYEs 1995 and 2004

The combined effects of the overall economic decline and excessive government expenditures were readily apparent in the CNMI Government’s audited financial statements. Most notable was the one year $34 million increase of the CNMI General Fund’s unreserved fund balance deficit (“deficit”). This increased the CNMI’s cumulative deficit to $153 million from the prior year’s deficit of $118.4 million. Over the ten year period from FYE 1995 through FYE 2004, the cumulative deficit increased from $40.0 million to $153 million.

The Single Audit report further shows that the CNMI Government’s deficit was funded primarily by the failure of the General Fund to pay employee retirement contributions totaling over $111 million. The seriousness of this situation has resulted in the assessment and recording of $19 million in penalties and interest due from the General Fund to the Northern Mariana Islands Retirement Fund.

General Fund Expenditures Increased $35.6 Million in FYE 2004

General Fund revenues in FYE 2004 increased by nearly $10 million over the prior year. While significant, this increase was $2.3 million below projected revenues. In addition, the increase in revenues was insufficient to offset an increase in government expenditures totaling $35.6 million over the same period from FYE 2003 to FYE 2004. The largest increase in expenditures related to salaries and wages which increased by $7.7 million (7.1%) over the prior year.

Expenditures Exceeded Budget by $33.7 Million - Penalty for NMIRF Contributions Largest Expense Item

Government expenditures in FYE 2004 exceeded the approved spending levels by $33.7million. Agencies and programs with the largest over-expenditures included:

Audit Findings Increased from 27 to 44; $2.7 Million in Questioned Costs

The significant increase in the cumulative deficit was not the only negative item reported in the Single Audit report. Audit findings, which represent known violations of accounting principles and compliance and/or weaknesses in internal controls increased from 27 reported findings in FYE 2003, to a total of 44 in FYE 2004. Of these findings, 21 represented uncorrected findings from the previous year. Among the major findings were:

• Bank reconciliations for five major accounts were not performed on a timely basis.
• The Commonwealth Health Center’s large receivable balance ($99.3 million) and the backlog of billing files all reflect inadequate billing and collection procedures.
• Advances to vendors totaling $2.3 million were not properly supported, recorded or liquidated.
• Of the $2.3 million in recorded travel advances, over $860,000 remained unchanged from the prior year. Further, the travel records of six individuals were not made available to the auditors despite repeated requests.
• $713,000 of questioned costs relating to Federal grants was created by a failure to obtain grantor approval to sole-source purchases in excess of $100,000.
• The CNMI was substantially in violation of the Federal cash management requirements for drawdowns and release of funds relating to the Medical Assistance Program (five of six items tested) and the Capital Improvement Program (44 of 50 items tested).

Unfunded Pension Liability Reaches $517 Million - a Major Contingent Liability for the Government

In addition to Federal questioned costs, other major contingent liabilities disclosed by the auditors related to the closure of the Puerto Rico dump and the unfunded pension liability at the Northern Marianas Islands Retirement Fund. The CNMI government’s liability for future costs associated with closing the Puerto Rico dump site in accordance with US-EPA requirements was not determinable. With respect to the NMIRF’s unfunded pension liability, the latest actuarial valuation report (dated October 1, 2003) estimated the liability at $516,968,120. This amount represented a future claim of current and retired governmental workers. It also represented the forecasted shortfall between existing retirements assets, future earnings and contributions against future benefits which must be paid.

Not shown in the contingent liabilities is the amount related to “unprocessed medical claims” of the Government Health and Life Insurance Fund which total an estimated $24 million. To the extent that these monies are owed to the CHC, there would be an offsetting receivable to the General Fund. However, amounts owed to third party providers (primarily off-island hospitals) represent potential claims against the General Fund.

Deloitte Issued ‘Qualified” Opinion for FYE 2004 Financial Statements

For FYE 2004, the auditors could only attest to a “qualified” audit opinion. This was due primarily to “inadequacies in the accounting records over financial reporting, we [the auditors] were unable to form an opinion regarding the amount at which taxes receivable, advances, accounts payable, tax rebates payable, other liabilities and accruals, due to other component units and reserve for continuing appropriations are recorded in the Governmental Fund Balance Sheet.”

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Download/view CNMI Audited Financial Statements FY 2004

Download/view CNMI Internal Controls & Compliance FY 2004