Dec. 4, 2002 – The Bush administration, through its top official in the Interior Department's Office of Insular Affairs, said Tuesday that federal funding from that office to each territory and free associated state will henceforth depend in part on the "strength and independence" of its public auditor's office.
And, David B. Cohen said, responsiveness in addressing issues raised in audits will be considered in the process of awarding grants to the insular entities — the Virgin Islands, Guam, American Samoa, Northern Mariana Islands, Marshall Islands, Palau and Micronesia.
Cohen, deputy assistant secretary of Interior, said ensuring that federal funds are spent properly is a "moral obligation that we all owe to the people of the islands and to the taxpayers of the United States of America."
In the Virgin Islands, the public auditing agency is the V.I. Office of Inspector General, headed by Steven van Beverhoudt. His office has oversight responsibility for all three branches of government and their instrumentalities. Its tasks include conducting audits, monitoring departmental operations and investigating suspected fraud, waste and abuse of government funds.
His office faces chronic underfunding, and one of his greatest frustrations is that government officials ignore the recommendations of audit reports.
Cohen's comments came in a speech at a meeting of the Island Governments Financial Officers Association in Honolulu, Hawaii. The territory is represented at that meeting, which continues through Friday, by Finance Commissioner Bernice Turnbull and the director of the Office of Management and Budget, Ira Mills.
Keith Parsky, Interior insular affairs spokesman, said on Wednesday that Cohen also was to address the Public Auditors Association, which is meeting in Honolulu this week as well, "and his intent was to give a similar speech." Van Beverhoudt is attending that meeting, aides said.
Parsky said Cohen's comments were directed to the local insular auditing agencies, not to the representatives of the Interior Department's own Office of Inspector General, including van Beverhoudt's brother, Arnold, the regional federal audit manager for the Virgin Islands.
Onus on local audit agencies
"The federal inspector's office also prepares audit reports," Parsky said, "but they're moving in the direction of more 'auditing the auditors.' They'll look at the work done by the local public auditors. Secretary Cohen's comments on future funds from Interior and monitoring of those funds puts the onus on the local auditor groups — which have mostly done a terrific job, especially in the Virgin Islands, where you have had a long-standing local auditor."
Van Beverhoudt, appointed in 1989 by Gov. Alexander Farrelly as the territory's first inspector general, has held the job ever since. He was nominated to a third six-year term by Gov. Charles W. Turnbull and was confirmed by the Legislature last June.
Cohen said looking at how well public auditors' offices are functioning as a factor in determining how OIA's millions of dollars of discretionary grants will be allocated is the fiscally responsible thing to to. "We consider ourselves to be investors in the islands," he said. "As such, we expect the islands to provide us with a proper investment environment. Having a strong public auditor's office is an important way to assure us that our investments will be protected from waste, fraud and abuse."
Considerations, he said, will include the answers to these questions:
– Is the public auditor's office properly funded and staffed with qualified people?
– How strong are the safeguards to its independence? Is it vulnerable to having its funding cut if it offends the government?
– Is it actively fulfilling its role as a public watchdog?
Cohen noted that OIA routinely asks local governments to address recommendations concerning internal controls and questioned costs that are reported in audits performed by federal and local public auditors and independent accounting firms. "We will look at how responsive each government is," he said. "If we are providing grants to a government, we have the right to expect that the government will respond to our concerns promptly and properly."
Federal vs. local auditing
Parsky's reference to federal auditors moving more toward "auditing the local auditors" may be a tall order in the Virgin Islands. The federal office has continued to play a major role in actual auditing, with often-scathing reports on what it has found.
Its draft report this fall on the first-ever audit of the territory's Public Finance Authority concluded that the PFA "did not effectively manage bond proceeds or funds from its own budget." And its October report on an audit of the expenditure of federal health funds found that the V.I. government squandered nearly $1 million on a never-completed clinic — so recklessly that it constituted "a case study on the inefficiencies and waste of public funds."
The V.I. Office of Inspector General, meanwhile, has issued reports in the last two years on:
– An investigation of the operations of the Division of Personnel office on St. Croix.
– An audit of the administration of the hotel room tax.
– A review of the request for lump-sum payment of leave for retired Chief Judge Verne Hodge and the government's leave policy.
– A limited review of erroneous payroll payments to specific employees.
– An audit of Property and Procurement Department collection activities in Christiansted.
– An audit of the Labor Department Unemployment Insurance Division.
– An audit of operating expenditures at the Tourism Department's Chicago office.
All of these reports can be found at the V.I. Inspector General Web site, which was launched at the end of September. Van Beverhoudt said he hopes the site "will help build confidence in people to come forward with information." People have always been reluctant supply information, he said, often "because they fear retaliation."
Two years ago, van Beverhoudt and the then-director of the V.I. Justice Department's White Collar Crime Unit won the support of Attorney General Iver Stridiron to run the Government Fraud and Corruption Task Force jointly, a streamlining of bureaucracy that he says has been highly effective. He says a significant part of what his office accomplishes amounts to "preventive measures … If they know somebody is checking, people will think twice before they do something."
When government offices follow the suggestions made in the audits, "that can be very rewarding," he said. But, in an interview for an article that appeared in the August issue of Guam Business, he noted: "The frustrating part is that sometimes it's very difficult to get government agencies to follow the recommendations. We come up with so many things that can help improve the operations of the government, but sometimes you feel like you're banging your head against a wall."
He told the interviewer: "Your integrity is basically all you have. If you build up a good reputation and the trust of the community, then the politicians really can't do too much to you. If you're doing the right things and the politicians want to get rid of you, then it's obvious that it's a political game they're playing, and the public will make noise about it."
Underfunding, understaffing, 'unresourced' work
Van Beverhoudt scored a coup this summer when he persuaded Sen. Alicia "Chucky" Hansen, chair of the Senate Finance Committee, to grant his office a lump-sum budget for FY 2003, a deviation from her insistence on line-item budgets across the board.
But the I.G.'s Office, like many other government agencies, faces funding prob
lems. Although senators strongly indicated to Van Beverhoudt that they would give him the increase he requested to fund his agency adequately and fill its vacancies, they did not do so. The agency is in critical need of three investigative agents with peace officer status, he told them: "Without funding these positions, it hampers our work. We need the ability to serve search warrants."
Van Beverhoudt said later that he remained hopeful. "Some of the senators have promised that they will act on this after the election," he said. "I'll just have to wait and see what they do."
Just this Monday, in her weekly radio address and in an interview with the Source, Sen. Lorraine L. Berry chastised the administration for not being more supportive of its own Office of Inspector General. "We need to give the entity prosecutorial powers," she said.
She noted that the 23rd Legislature passed a bill making the office an independent entity, but Gov. Charles W. Turnbull vetoed it. Then the Senate overrode his veto, she said, but now "even though we have given them this power," funds that the Legislature appropriated for the inspector general and his staff "are not being allotted to them."
Berry also said an office should be set up to implement the inspector general's recommendations. "After the audits are done, most of them sit on the shelf," she said.
That's what van Beverhoudt himself said in testimony before the Senate Rules Committee on his renomination last May: The biggest challenge his office faces is its inability, because of inadequate staffing, to follow through on the implementation of recommendations.
There were at that time 11 employees, "although 19 positions are budgeted," and there had been no staff on St. Croix since the previous auditor there retired. Berry said on Monday that St. Croix still has no staff.
Van Beverhoudt at his renomination hearing described a five-year reorganization plan to accommodate added responsibilities mandated in the Omnibus Act of 1999. It calls for gradually increasing the staff to between 27 and 30 employees, adding three each year, and increasing the V.I. Bureau of Audit and Control's annual budget from $1.1 million to $2.5 million. His top priority, he said, was to fill the eight existing vacancies.
The Web site includes the Fiscal Year 2003 plan for "resourced" audits and what is essentially a wish list for an even more ambitious list of "unresourced" audits.
The former include ongoing audits of Y2K funding, Water and Power Authority accounts receivable, the V.I. Lottery contract with Caribbean Lottery Services, the school summer maintenance program, police collection activities, Education Department imprest funds, the Breast and Cervical Cancer Coalition and the V.I. Carnival Committee. New audits scheduled include the emergency services surcharge on telephone bills and Taxi Commission and Economic Development Commission operations.
On the "unresourced" list are audits of Education operating and supplies accounts, the Anti-Litter and Beautification Commission, the Boards of Education and Vocational Education, the Small Business Development Administration, the Nurses Licensor Revolving Fund, East End Health Clinic procurement procedures, petty cash and imprest funds, and V.I. government collectors.
Island governments as allies, not enemies
Cohen stressed in his address that the relationship between the OIA and the island governments is not an adversarial one with respect to accountability. "We always start off with the assumption that the island governments are our allies, not our enemies," he said. "Ensuring that our funds are spent wisely is a difficult process that neither the federal government nor the island governments can do alone. We need to work together as partners to ensure that we're providing maximum benefit to the people of the islands and protecting the investment of the American taxpayer."
"A lot of issues facing the Virgin Islands also face the other islands," Parsky said. "We're very up to speed on all the issues. We're aware that there has been political posturing during the election. Now, it's back to business, I guess."
"The Virgin Islands is very much in our sights, because a lot of the issues are similar," Parsky emphasized. "Trying to get continued tax relief for investments is common to all the insular areas. When we focus on one, we focus on all."
Cohen is touring the Pacific territories at present, he said, but is likely to visit the Virgin Islands "around the first of the year, after the holidays."

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