Celina Roberto Babauta has started a legislative investigation into evidence-backed suspicion that at least $11 million in federal Treasury funds obligated under former Governor Ralph Torres was misused.
The senator, whose investigations as a member of the House led to the impeachment of Mr. Torres and unravelled further corruption in his misuse of $17 million in federal pandemic funds through the BOOST program, is raising questions based on an independent audit by the Office of Inspector General and monitored by the U.S. Treasury Department.
“I am writing to formally request documentation related to the $11 million dollars of questionable COVID-19 expenses identified in the recent desk audit conducted by Castro & Company, LLC, a certified independent accounting firm,” Ms. Babauta wrote in a Valentine’s Day letter to Patrick Deleon Guerrero, the governor’s authorized representative, or GAR. Mr. Guerrero also served as GAR for Mr. Torres for coronavirus relief funds.
“I am deeply troubled that the desk audit … suggests potential negligence, waste, fraud and misuse of federal funds allocated to support the CNMI during the COVID-19 pandemic,” she wrote. “As you know, the OIG found that the CNMI failed to provide adequate documentation to support the legitimacy and necessity of these expenses.”
“Castro found that the expenditures related to Contracts … did not comply with the CARES Act and Department of the Treasury’s (Treasury) Guidance, which resulted in total questioned costs of $11,146,813.35 (see attached schedule of monetary benefits),” the August 8, 2023 audit release from the OIA states. “Additionally, Castro determined that CNMI’s risk of unallowable use of funds is high.”
High-risk grantee status endangers the Commonwealth’s ability to respond with resources to medical and emergency needs. The status often triggers or sustains guidelines that will require the CNMI government to fork out local funds for a federal grant activity, then prove the funds were spent within the law before the federal government reimburses the local government for the expenses. Such a reality, compounded by the CNMI government’s cash crisis, can cripple government services and operations.
The desk review by Castro also found that the Torres administration failed to submit mandated quarterly reports of its spending of the federal grants in question for 9 out of 12 months in 2020.
According to Ms. Babauta’s letter to Mr. Guerrero, she has source information indicating at least a portion of the $11 million was spent on purchased vehicles that were stolen into private use, illegal hotel stays, questionable sanitation contracts, and the illegal use of government fuel cards paid for with federal funds.
“I have received reports that receipts for expenses for rental of rooms at Aquarius Hotel, Vestcor Village, dubious sanitation services, and copious car rental vehicles were a part of the submitted invoices for reimbursements,” Ms. Babauta wrote to Mr. Guerrero. “I have received reports that a few of these rental vehicles were shipped elsewhere at the expense of the government without any intention of returning them to the rental company in Saipan, were utilized during the Pacific Mini Games events held in Saipan, and that some of these government paid rental vehicles were subsequently registered in the name(s) of private individuals. I have also received reports that some of the rented vehicles were assigned to non-government employees, a sanitation company, and others for their use during the election campaign events throughout 2022 and were utilizing the government fuel contract with Mariana Acquisition Corporation dba IP&E (Shell) under the auspices of COVID-related activities.”
Ms. Babauta’s preliminary findings are critical beyond the federal concerns of the desk audit. For instance, the audit confirms the Torres administration used certain techniques in order to avail of procurement procedures that made it easier for certain contract awardees to be selected for federal obligations. Those techniques violate Treasury guidelines, but they also violate the Commonwealth’s procurement rules.
“§ 70-30.3-120 expressly prohibits the splitting of contracts for the purpose of avoiding full and open competition,” Ms. Babauta wrote to Mr. Guerrero, referring to local rules. “This raises serious concerns about the transparency and accountability of the CNMI’s COVID-19 relief efforts, and it is imperative that these concerns be addressed promptly and thoroughly.”
Also – for perspective – the $11 million in questioned costs were based only on a random sampling of 24 transactions, which is a relatively small fraction of total grant activities.
“At the time of fieldwork, Castro noted that CNMI had not filed their required Single Audit reports for Fiscal Years 2020, 2021 or 2022,” the August 2023 OIG report states. “CNMI’s FY2020 Single Audit report was published on February 3, 2023. In this Single Audit report, the auditor was not able to differentiate between the type of funding (Federal Emergency Management Agency or CRF) that was used for contracts and other payments.”
The total Treasury CRF expenditures by the CNMI as of December 31, 2021 was more than $36 million.
Ms. Babauta has requested from Mr. Guerrero:
- The total amount of CARES funds allocated to the CNMI under both CARES Act I and II including a breakdown of the allocation amounts for each Act and the balance of each allocation and the date of receipt of such funds.
- Any and all communication, correspondences, text messages, WhatsApp messages, emails or other platforms used for communication and coordination of COVID activities and expenditures.
- Copies of all contracts, purchase requisitions and purchase orders related to the questioned expenses, including justifications for the selection of vendors and the rationale behind the purchases and who authorized such contracts or purchase orders.
- Detailed descriptions of the expenditures: This should include the expenditure authority’s authorization, purpose of each expense, the date it was incurred, the vendor or recipient of the funds, and the amount spent.
- Supporting documentation for each expenditure: This should include invoices, contracts, receipts, purchase orders, and any other relevant paperwork that demonstrates the legitimacy, necessity of the expense and who authorized such expenditures.
- Justification for why these expenses were not reimbursed by the Federal Emergency Management Agency (FEMA): FEMA has specific guidelines for how CARES Act funds can be used, and the OIG report found that the CNMI may have violated these guidelines. Please provide a detailed explanation for why each of these expenses was not deemed eligible for reimbursement by FEMA and who authorized such expenditures.
- Invoices and receipts: Copies of all invoices and receipts for the questioned expenses.
- Payment records: Copies of all payment records associated with the questioned expenses.
- Project documentation: Any relevant documentation outlining the purpose and objectives of the projects or activities associated with the questioned expenses.
- Internal controls and audit trails: Documentation of the internal controls and audit trails used to track and monitor the questioned expenses.
- Pending transactions including, purchase requisitions, purchase orders, vendor payments, contract payments.
- An organizational chart of your agency, since you were appointed to be the Governor’s Authorized Representative, with a listing of past and present personnel, salaries, the source of funds for personnel, tangible benefits (vehicles, radios, cell phones, etc…) assigned and their duties.
- The Indirect Cost (IDC) and Administrative Cost your office has received from CARES I and CARES II Act including the balance of IDC and Administrative Cost you are currently managing.
- Any and all payments made from your IDC or Administrative Cost to include vendors, services paid and other encumbrances.
Mr. Guerrero has until February 24, 2024 to provide the documents to Ms. Babauta, who chairs the Senate’s Executive Appointments and Government Investigations committee. Inside sources say the senator will be more active in corruption investigations now that the bulk of her committee’s cabinet confirmation duties have been completed.
1 Comments
Russ Mason
02/16/2024 at 10:46 AM
Wow, that’s a tall order of possible/likely malfesance across a broad range of financial issues.
All praise to Ms. Babauta for tackling this monstrous situation.
One thing about former Gov. Torres, it’s always about the money: tons of it. What a rat.