SBGFC takes corrective action based on audit exceptions found by Pohnpei auditor

By Bill Jaynes

The Kaselehlie Press


November 15, 2020

Pohnpei—Pohnpei’s Office of the Public Auditor (POPA) recently released its audit of the Small Business Guarantee and Finance Corporation (SBGFC or the corporation).  They found that the corporation’s financial statements represent fairly the financial position of the corporation as of the end of last fiscal year according to accounting principles generally accepted in the United States of America. It also found made eight findings regarding control deficiencies in the accounting system and the corporation’s own policies and procedures. Since the period of the audit, several of those findings have already been resolved.

The Corporation earned revenues of $55,214 in the 2019 fiscal year (FY), a $8,539 or 13 percent decrease as compared to $63,753 in FY 2018.  FY 2019 total operating expense was $156,396, $26,097 or 20 percent higher than last year’s figure of $130,299.  The corporation’s net assets decreased by $2,774.  The loan accounts increased from a net or $534,389 in FY 2018 to a total net of $572,086 in FY 2019.  Auditors said that one contributing factor to that change is that several accounts were paid off but new loans were approved.

The first of POPA’s deficiency findings was that the corporation made a questionable transfer of $10,000 from the restricted guarantee loan fund into its operating account for a legal consultation fee.  It said that in March 2019 the corporation paid the fee in March 2019 but that the then Attorney General learned about the arrangement and advised the corporation to terminate the contract, which it did.  In August 2019, the contracted attorney returned $9,461.24 of the original amount and the corporation deposited the money into its operation account.

POPA recommends that the board should carefully consider actions to consider whether or not they are in conformity with the law and that the Executive Director should return the returned amount to the loan

guarantee fund.  The auditee’s response shows that the corporation has done so and has also sent a request to the Governor and the Speaker of the Legislature requesting that the restrictions on those funds be lifted.

The corporation concurred with the finding but said in its response that “equally important to note is the collections of outstanding (defaulted) loans”. It said they had retained the lawyer in order “to retain a special counsel to legally pursue collect from these borrowers”.

POPA’s second finding was that there was an unauthorized and questionable consolidation of employee loans.  As a result of this finding, the Board of Directors resolved to completely repeal the Incentive Scheme Program to the employees of SBGFC and has begun to take actions to collect outstanding loans by employees.  Management says that a result, this type of finding will not be able to occur in the future.

OPA’s third finding was that payroll matters were not in accord with policies and procedures.  As a result of this finding, on October 6, Executive Director Thomas Pablo rescinded previous practices on regard to payroll issuance including changing the day that payroll checks would be issued in order to reflect hours actually worked rather than hours anticipated to be worked.  “Payroll advances on unearned hours are strictly prohibited and shall not be entertained,” he memo to all employees said.

POPA found that reconciliations were not performed on a timely basis resulting in numerous adjusting entries after reconciliations were done.  “As a result 28 adjusting entries, aggregation $31,182 were proposed by the auditors. The adjusting entries if not taken up would materially misstate specific accounts of the corporation and (might have) affect(ed) its financial statements.

Again, the Executive Director of SBGFC has issued directives to make sure this audit exception does not occur in the future.

POPA found control deficiencies in the disbursement process.  It found 17 instances where invoices or supporting documents were not attached with disbursement vouchers for proper review.  There were seven instances where supporting document did not provide indication or proof of payments. There were four instances where explanation was not provided on documents to justify disbursements, and three instances where disbursements did not show evidence of approval.

Finding six was that there was a lack of proper review and documentation. It said that board meetings were held but minutes were not prepared. There were two instance where minutes of meeting could not be found in the files.  There were 17 instances of incomplete loan documentation. A traveler did not submit required supporting documents for non-per diem items but received the remaining 20 percent of the per diem. There were two instances where requests for cessation of allotment were not attached to the payroll check, and an instance where the daily cash collection report was not verified.

Finding seven was that non-capital asses were not properly maintained.  The audit revealed that the corporation’s asset register in not kept updated. They found eight assets not properly tagged, three assets that had been disposed of but were still in the asset register.  One asset is missing.  One asset in the register is not in a working condition.  One instance where an asset described in the register is different from the actual asset, and two assets not included in the asset register.

Finding eight was that management had not developed and implemented corrective measures to resolve all prior year audit findings.

Executive Director Thomas Pablo took the outcomes of the audit seriously and issued a memo to employees indicating either reversals of previous policies as they were needed but also instruction on policies to avoid these audit exceptions ever occurring again in an audit of SBGFC.

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