As part of a larger ongoing audit, the Office of the Public Auditor has conducted a survey of Commonwealth government deposits in banks and financial institutions as of December 15, 2001. Our survey indicates that over $23 million of government funds are deposited by a number of government agencies in non-federally insured banks and financial institutions. This could place the CNMI government at potential financial risk if these non-federally insured banks do not have adequate alternative insurance.

Existing laws do not prohibit most CNMI government agencies from depositing their funds in non-FDIC member banks. The current weakened condition of the Commonwealth economy has a potential to impact local banks. The CNMI should strongly consider the rigid requirements and monitoring that the Federal Deposit Insurance Corporation 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. To address these concerns, we urge the following measures be taken to address possible unwarranted risk to the CNMI Government.

Consequently, OPA recommends that the Legislature as well as the Administration revisit the existing laws governing deposits of government funds. Specifically, OPA recommends the following:

1. The Legislature and the Administration should revisit the Government Safety Deposit Act of 1994, as amended by Public Law 12-61, and weigh the benefits of the Act against the risk to CNMI government funds.
2. The Legislature amend the law governing public funds to ensure that it applies to all autonomous agencies, including but not limited to those who do not currently have deposit requirements such as Marianas Public Land Authority, Marianas Public Land Trust, Northern Mariana Islands Retirement Funds, Northern Marianas College, Northern Marianas Housing Corporation, Public School System, and the Tinian Municipal Treasurer.
3. The Banking Division of the Department of Commerce be directed to 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.

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