Pohnpei Auditor questions PTA’s ability to continue as a “going concern” after audit of 2019 Auditor says it has initiated investigation into possible criminal charges
- Category: News
- Published: Monday, 30 November -0001 00:00
- Written by Bill Jaynes
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By Bill Jaynes
The Kaselehlie Press
December 13, 2020
Pohnpei—The Pohnpei Office of the Public Auditor (POPA) issued a qualified opinion on the financial statements of the beleaguered Pohnpei Transportation Authority (PTA) for the fiscal year ended September 30, 2019. The qualified opinion was due to lack of oversight, insufficient revenues, and its inability to pay for a long overdue liability to the State Government.
“The situation indicates that a material uncertainty exists that may cast significant doubt on PTA’s ability to continue as a going concern,” it said. “Also PTA did not disclose to the auditors one of the sites where its dyke inventory were being mined/dredged. Thus the auditors did not observe and confirm the inventory of dykes, if any, at this particular time.”
PTA’s operating revenues for the year were $1,206,737, a decrease of 18 percent, or $256,564 compared to prior fiscal year of $1,463,301. At the same time, operating expenses increased by 4 percent or $63,887 from $1,742,051 to $1,805,938. 44 percent of the total operating expenses were for payroll related costs. The cost of Supplies and Materials decreased by $91,363 and Petroleum Oil and Lubricants expenses increased from $233,673 to $251,604 for the year.
The net loss for the 2019 fiscal year was $599,202, and increase of 115 percent or $320,451 compared to prior year’s loss. The amount owing to the Pohnpei State Government General Fund increased by 4 percent or $57,621 from $1,623,344 to $1,680,965.
The audit cited five findings, three of them material weaknesses in the internal control over financial reporting and two that are material non-compliances with applicable laws. In POPA’s cover letter to Midion G.
Neth, Chairman of PTA’s Board of Directors, Iso Ihlen K. Joseph, the State Public Auditor wrote that as a result of the audit POPA has initiated an investigation into allegations of possible fraud and abuse of power by PTA’s management and/or employees. “The details of the matters are deemed confidential information and therefore have been omitted from the report,” he wrote. “The case(s) have not been filed in the Pohnpei Supreme Court and the outcome is unknown.”
The findings POPA listed are significant. It entitled the first finding, “Improper Dealing and Arrangements”, saying that during the audit it found arrangements and dealings involving the use of PTA resources that were not in line with acceptable government rules, procedures, and/or good business practices.
It listed several examples:
It said that PTA entered into an arrangement with a public official who holds a dredging permit to conduct dredging activity at Sapwohn, Sokehs. No written agreement was in place. Because PTA did not disclose the arrangement with auditors it had no way to inspect that location in order to determine inventory, if any. Auditors said they found an instance where coral sand was delivered free of charge to a private individual at the instruction of the public official. A similar service would have cost a regular customer about $300.
POPA also found that though PTA did not have a valid dredging permit, it paid royalty fees of $10,326 for the months of March, April, and May of 2019.
It found that PTA had signed a Memorandum of Understanding with one local private construction company for mining and dredge services. In it they agreed that PTA would use its construction equipment and personnel to dredge, transport, and excavate dykes situated in Danpei, Sokehs in return for 50 percent of the dykes dredged from the site. PTA could not produce any documents showing that the returns it received justified the costs. The MOU was suddenly rescinded on May 29, 2020.
Newly confirmed PTA Commissioner Welsen Panuel wrote in his response that PTA is no longer dealing with privately owned dredging sites and that PTA now holds a valid dredging permit for Paliapailon, Kitti dredge site. He writes that all roads projects are supported with Advice of Allotment or Contracts, but says that in some cases, PTA proceeds with the projects while the paper work is in process. “PTA management is determined to collect all project billing in due time,” he wrote.
He wrote that PTA management has identified weaknesses in the procurement of materials and supplies and that in order to prevent losses, has designated one person to be trusted to obtain or receive supplies and services from local vendors. The supplies will be kept in the newly installed containers at PTA Palikir plant for safekeeping and will be issued only upon approval by the Commissioner. A warehouseman will be in charge of safekeeping of tools and equipment.
The second finding was that “management and internal control weaknesses resulted in serious irregularities.” It said that it found that management has not improved since earlier audits which found similar instances.
Seven fixed asset items in the total amount of $226,425 were not capitalized and included in the Property, Plant and Equipment account
Depreciation expense was not recorded for depreciable assets.
Thirty one instances of misclassification of accounts,
Payables amounting to $114,700 that were not properly authorized and recorded and were therefore not paid on time.
It found instances of improper procurement processes. Of the thirty three samples reviewed, auditors found four instances where invoices from vendors were dated before Purchase Orders. One of those was a charge of $6,257 from a bar purportedly for PTA’s Christmas party. “More than half or $3,527 of the charge was for drinks including alcoholic beverages which seems unreasonable and irresponsible spending considering PTA’s financial situation,” it said.
POPA found two instances where PTA purchased items from private individuals although supporting documents did not adequately justify the selection. If found twelve instances where invoices were not attached to the check vouchers; 22 instances where receiving reports were not prepared or attached to the check vouchers; and three instances where price quotations were not prepared or attached to the check vouchers.
Under the same second finding it found faulty processing and mishandling of cash sales. A sampling of 50 cash receipts found and an instance where a cash receipt was used twice. The first use of the receipt issued from the Department of Treasury and Administration was for a legitimate purchase. The second receipt was altered to reflect a different cash sale of coral sand. The money from that transaction was received by an employee of PTA and was never turned in or deposited at State Finance.
It found 22 instances where Job Orders were not attached to cash receipts. There were nine instances where goods or services were sold but Job Orders were not signed by the Commissioner. There were seven instances where Job Orders were not signed by the customer to evidence receipt of ordered goods or services. Several skipped and unused Pro-Forma invoices were not voided to prevent misuse.
Commissioner Panuel responded that all entries in the books of PTA were posted by Pohnpei State Finance staff members. He wrote that all PTA customers are directed to pay at Pohnpei State Finance and that he has shut down some accounts and directed that all accounting transactions must be supported with a valid and verifiable supporting document.
The third finding in the PTA audit was “Poor Management of Payroll Resulted in Unjustified and Illegitimate Payments to Employees. I found that there were no supporting documents for overtime hours. There were six instances where overtime hours paid were different from the approved time sheet. There were instances where the Commissioner verbally authorized sixteen hours of overtime bonus in the timesheets although employees did not actually work, and overtime differential pays to employees exceed the maximum rate allowed by law. There were also many discrepancies regarding annual and sick leaves resulting in overpayments to employees.
Commissioner Panuel responded that the PTA accountant is in charge of payroll processing and that he has instructed the security guard to log in the time in and out of all employees assigned at the plant and main office. He wrote that annual and sick leave hours will start upon the effective date of the contracts and that all sick leave requests will be approved by the Commissioner. He wrote that all sick leave requests for more than one day will be required to be accompanied by a doctor’s slip. The accountant is in charge of monitoring the leave balances of each employee, and that employee overtime requests must be submitted to the Commissioner for approval.
The last two findings in the audit had to do with the lack of recorded minutes for Board Meetings and many unresolved prior year’s audit findings. Commissioner Panuel assured the auditor that the matters will be resolved.