Testimony
At this time of dwindling local and federal funds, payless paydays, unpaid vendors, outstanding income tax refunds, and constant cash flow problems, it is imperative that the Virgin Islands Government effectively manages these limited resources. Citizens of the Virgin Islands are demanding more performance and production from the government, in addition to more accountability. In addition, the federal government is insisting that we take steps to correct our own fiscal problems. It is therefore, critical for the Virgin Islands government to have an effectiveand independent audit organization that can keep the governor, the legislature, and the citizens informed on how tax dollars are being spent.
Title 3 section 1201 (1)(c) of the Virgin Islands code requires the bureau to issue reports in accordance with standards issued by the general accounting office. The auditing standards issued by the comptroller general of the united states, state: "audit of government reporting is an essential element of public control and accountability. Auditing provides credibility to the information reported by or obtained from management through objectively acquiring and evaluating evidence."
Title 3 section 1201 (1)(m) of the Virgin Islands code requires the Virgin Islands Bureau of Audit and Control to "report to the governor and legislature . . . and recommend changes in existing law that would assist the audit bureau in performing its duties effectively."
In this light, on April 1, 1997, I submitted proposed legislation to the governor and the Legislature recommending the independence necessary for the Audit Bureau to effectively meet its mandate.
That recommendation was based on legislative history, established auditing standards and a practice considered to be the norm throughout the united states.
When one reviews the 14th legislature's debate that took place during the creation of the bureau, it is obvious that the office was intended to be an independent entity.
The late Sen. Ruby Rouss stated, "what this bill seeks to do is separate the Bureau of Audit and Control so that the (bureau) will have the freedom to audit any department of the government and cannot be called off any particular department because of pressure from any particular commissioner or from the governor's office"
Sen. Sidney Lee said "an inspector general . . . needs to be independent to speak out."
The inspector general provisions of this bill, although containing changes from the legislation that was originally proposed in 1997, are better than the current statute. With a few recommended changes, the legislation will be in basic compliance with the second general standard on independence as established by the general accounting office. In addition, it will give the office of the Virgin Islands Inspector General the investigative arm and the additional authority to fulfill its responsibilities to: investigate and report on fraud, waste and abuse; and, ensure that agencies are operating in an efficient and effective manner.
I have included in the package to each senator, a brief explanation of each of the sections of the legislation. I will today, however, briefly summarize the areas dealing with the most important issue of independence.
The second general standard, a copy of which is also included in each package, in part 3.11, states, "in all matters relating to the audit work, the audit organization and the individual auditors, whether government or public, should be free from personal and external impairments to independence, should be organizationally independent and should maintain an independent attitude and appearance."
The standard, in part 3.25, establishes three ways in which auditors can be independent. It states: "government auditors may also be presumed to be independent, assuming no personal or external impairments exists, if the audit organization's head is (a) elected by the citizens of their jurisdiction, (b) elected or appointed by a legislative body of the level of government to which they are assigned and report the results of audits to, and are accountable to the legislative body, or (c) appointed by a chief executive, but confirmed by, report the results to, and are accountable to a legislative body of the level of government to which they are assigned."
A 1996 study of 56 state audit organizations (some states have two), conducted by the National State Auditors association, entitled "auditing in the states: a summary", clearly shows the importance of independence. Of the 56 organizations reviewed, 18 or 32% are elected by the public, which is option (a) of the general accounting office standard noted above; 33 or 59% of the agency heads are appointed by the legislative body, or option (b) of the general accounting office standard; and finally, five or 9% are appointed by state officials or boards/commissions, or option (c) of the standard. Therefore, as can be seen, this legislation, although not the most widely used, is acceptable.
Regarding section 1201 (a) the appointment and removal of the Virgin Islands inspector general, detailed on page 13 of the bill, it is recommended that the ability to remove the Virgin Islands inspector general for neglect of duty and/or malfeasance in office require the consent of the governor and two-thirds of the legislature. Like the appointment, this will require the consent of both the executive and legislative branches, thereby further protecting the independence of the office. Suggested language might be: "the V.I. inspector general may be removed from office upon the recommendation of the governor and the approval of two-thirds of the legislature, but only upon the finding of neglect of duty and/or malfeasance in office."
The legislation also addresses two examples of situations cited in the auditing standards that may adversely affect an auditor's independence and objective judgement. They are identified in part 3.17(e), as; "restrictions on funds or other resources provided to the audit organization that would adversely affect the audit organization's ability to carry out its responsibility"; and in part 3.17(d), as; "interference external to the audit organization in the assignment, appointment, and promotion of audit personnel".
The potential for the bureau's independence to be compromised became apparent to me shortly after my appointment by Gov. Farrelly in 1989. Although Gov. Farrelly never attempted to inhibit an audit, we had no control then, nor do we now, over funding requests, a clear violation of the auditing standard just cited. The Office of Management and Budget establishes budget ceilings, and the budget request must be within the ceiling established. As a consequence, the bureau's budget has declined substantially from a high of $1.2 million to the 2000 budget ceiling of $742,000, less than 1/3 of 1 percent of the vi government budget. The proposed legislation corrects this by requiring the Virgin Islands inspector general to submit the annual budget directly to the legislature for that body to determine the appropriate funding level. Once approved, it also requires allotments of the appropriation in four equal installments.
Relating to external interference in personnel matters, although funds were available in previous years, staff appointments, including that of the deputy inspector general, are subject to the governor's wishes. Accordingly, as had been the practice of the previous administration, a selected hiring freeze had been in effect for more than four years for the audit bureau, while other departments and agencies were hiring. As a result, staffing levels have declined, from 22 positions to the current budget level of 16, and will be further reduced to 15 in the year 2000 proposed budget. Again, this bill corrects this situation by first having the deputy Virgin Islands inspectors general selected by the Virgin Islands inspector general, requiring the annual budget submi
ssion to include staffing levels, and authorizes the Virgin Islands inspector general to hire personnel as needed to execute the provisions of the inspector general act.
As you know, the audit bureau is the auditing arm of the Virgin Islands Government, with the responsibility of reviewing the operations of all branches of the government, with a budget approaching three quarters of a billion dollars, and several hundred government funds.
As an example, the commonwealth of the Northern Marianas Islands, with a population of approximately 60,000 people, has an audit office with 40 employees, including auditors, investigators, and attorneys. They also have a budget of 1% of the general and capital budget of that territory, or approximately $1 million.
My other concern deals with the appointment of a special prosecutor as detailed in item (i) on page 18. To whom will this special prosecutor report? How will the individual's work be funded? A special prosecutor should not be attached to the office of the Virgin Islands inspector general. There should be a separation of responsibility. The Virgin Islands inspector general should not have the authority to investigate a potential criminal offense, and also prosecute.
Finally, an editorial correction is needed on page 13, the sentence beginning with "such vote must be made. . ." should be deleted from the current proposal.
A review of the original proposed legislation conducted by Mr. Paul H. Koehler, a Nebraska-based CPA, specializing in government auditing, recommended changes to the V.I. Code. The changes, Koehler said, would:
"1. Improve accountability and fiscal responsibility for the government's financial activities.
2. Ensure that truly independent and objective financial and performance audits are conducted to promote economy and efficiency and to prevent or detect fraud, waste and abuse.
3. Increase the confidence that the citizens of the U.S.V.I.. have in their government."
In conclusion, I feel that the legislation, as proposed, will give the office the independence as required by the auditing standards. I do not profess that the office of the Virgin Islands inspector general will be the savior of the financial problems of the government. However, an effective and independent audit function can only help in providing the managers of the government some of the information that is needed for sound decision making. Those ultimate decisions will have to be made by the legislature, "the board of directors", and the governor, "the chief executive officer" of the "corporation" we know as the government of the Virgin Islands.
I thank you for the opportunity to be here today, and I am available to answer any questions that you might have relating to this section of the bill.
