Joint Press Release by the Office of the Public Auditor
and DOE Guam Education Policy Board

Auditor Declares DOE Records Unauditable!

Since taking Office in January 2001, Public Auditor Doris Flores Brooks has raised concerns that the Department of Education, the largest Government of Guam agency, has not been audited since fiscal year 1997. In late 2001, the Department of Interior Office of the Inspector General, as well as other federal agencies, expressed concern over the lack of accounting for DOE expenditures. In June of this year, Public Auditor Brooks spearheaded an initiative to bring the DOE financial reporting in line with federal requirements and Guam law.

As a first step, in May 2002, Brooks selected Deloitte Touche Tohmatsu LLP to perform an assessment of the auditability of DOE's financial records for fiscal years 1998, 1999, 2000 and 2001. The next step would be to perform audits of all federal receipts and expenditures. Then there would be an assessment of which fiscal year audits could be economically performed. Representatives of the Offices of Inspector General for the U.S. Department of Education and Department of Interior agreed to the approach in June 2002.

In November 2002, Deloitte and Touche issued a draft "auditablity assessment" of the Department of Education. The key findings in the draft report were

• Bank statements were not reconciled over the entire four years, 1998 to 2001.
• Balance sheets for 25 funds did not balance at the end of each of the fiscal years. Out of balance amounts ranged from as low as $76 to as high as $12 million.
• Net fund equity, or year-end balances, did not roll over from year to year for the majority of funds in 1999 and 2000.
• Interfund cash account balances did not reconcile. Variances were $34 million and $36 million as of September 30, 1999 and 2000 respectively.
• There is a major problem with unrecorded transactions, particularly with revenues and cash receipts. Wire transfers and interbank transfers for several years have not been recorded. .

Deloitte and Touche has opined that the DOE financial records for the years 1998, 1999, and 2000 are not auditable in their current state. Deloitte has recommended that the financial statements for 2001 should be reconstructed and then subject to a full financial audit. Brooks said that would leave in question the accountability of funds for the three previous fiscal years.

Public Auditor Brooks presented copies of the draft report to members of the Education Policy Board on Thanksgiving Eve. Since then the Board has formed a Finance Committee to deal with the accounting crisis. The Finance Committee together with OPA representatives and Deloitte and Touche representatives have been meeting to form a course of action. Among the actions to be taken are:

    • Major restructuring of DOE Business Office;
    • Recruitment of competent accounting personnel including a Chief Financial Officer;
    • Assistance by Deloitte and Touche in the reconstruction of DOE financial records; and
    • Requests for technical assistance from the Department of Interior.

Both Public Auditor Brooks and Chairperson Rosa Salas Palomo stated that getting DOE's financial house in order is the number one priority. "If our financial records are not in order Guam could lose million of dollars in federal grants for the Department. Given the General Fund's anemic condition the loss of DOE federal funding would wreak havoc over the government's finances," Brooks said. Moreover, the federal government could insist on draw downs of federal grants on a reimbursement basis which would further exacerbate the government's cash flow problems, Brooks added.

The full text of Deloitte's report can be found at the OPA website. www.guamopa.org.