Borrow from Paul to pay Peter. This appears to have been the government of Guam’s modus operandi. An audit released Tuesday revealed that GovGuam has been dipping into the Special Revenue Funds to cover the general fund deficit, siphoning a total of $45.5 million from 2013 to 2017.
The Department of Administration has tapped into a total of 49 SRFs to pay for government payroll, tax refunds and bonds, according to the Office of Public Accountability. Public Auditor Benjamin J. Cruz said 21 of the transfers were treated as permanent transfers.
While this appears to be a common practice within the government, Cruz said taking funds from an SRF defeats the purpose of creating of specials funds, which are earmarked for special projects. Because the funds were raided “SRF projects are at risk of failure if these borrowed funds will not be repaid.”
Of the 21 SRFs audited, permanent transfers from 12 of the SRFs were above $1 million.
Here are some snapshots of the transfers: $10.6 million was taken from the Recycling Revolving Fund, $4.3 million siphoned out of the
Territorial Educational Facility Fund; $4.2 million from the Guam Highway fund and $3.8 million was raided from the Enhanced E-911 Emergency Report System Fund. The funds transferred from these 12 SRFs totaled $35.4 million.
Cruz indicated in the audit that none of the transfers were made with the agency directors’ consent.
Instead, Cruz said, “the DOA director did not seek prior consent and authorization from agency directors or fund administrators before borrowing from the SRFs. DOA sent letters to the agency directors two to five months from the end of the fiscal years to inform them of the total funds borrowed and the non-availability of these borrowed funds for future SRF needs. The agency directors signed the acknowledgement letters except for all FY 2013 permanent transfers when no acknowledgment letters were sent.”
In November 2018, the public auditor sent letters to the agency directors encouraging them to refrain from acknowledging permanent transfers for FY 2018.
Earlier, Sen. James Moylan introduced a bill that would prohibit the authorization of any withdrawals or fund transfers from the territorial highway fund to the general fund for any non-prescribed purpose and to make such an act a misdemeanor.
While this bill was focused squarely on the Territorial Highway Fund, it sought to address the government’s habit of borrowing from Peter to pay Paul. However, the bill failed in the legislature last week.
The public auditor pointed out that transfers are not in compliance with provisions of the General Appropriations Act for FY 2013 through 2017. Cruz noted that SRF reprogramming was only allowed in the FY 2018 budget act.
The issue of taking money from special funds is not new. Nearly one year ago, DOA’s Finance Manager Kathy Kakigi testified before the legislature, explaining the precarious position DOA found itself in when it came down to paying the bills.
“I do acknowledge all the department’s concerns. I do speak with the auditors regularly and I do questions that. I go there is a law that we must those funds are specifically for those purposes. And they said, well, Kathy, you have a choice: do you want a qualified opinion and jeopardize your audit report? And I know this was echoed previously by (the late) senator Ben Pangelinan and Senator Cruz, requesting our director who at the time (was) Christine Baleto,” Kaikigi said. “Unfortunately, Mr. Birn, everyday a department gets hurt, they are going to accuse us of hijacking their monies. Because Gatsby 54 kicked in, the auditor said, think about it. I mean the bottom line is, which law do you want to break? Do you want to break federal law with payroll or do you want to break these special revenues?”
Adding to the conundrum, the public auditor pointed out that there are no specific policies or procedures in place to establish roles and responsibilities related to SRFs.
In response to the OPA’s audit report, DOA Director Edward Birn acknowledged the various issues associated with the SRF accounts proposing two changes to current practices.
But he isn’t suggesting keeping the fingers out of the cookie jar; instead, he wants to lay out the process for SRF “I owe you’s.”
What will this entail? First, that inter-fund borrowing would be permitted by legislation up to a limit of 50 percent of the available fund balance before such borrowing. Second, that any such borrowing be effected by a note which defines the repayment terms of the loan and which carries an interest rate based on London Inter-Bank offered rate.
“Using special revenue funds to pay for general government expenses is contrary to the purposes for which they were legally created," Cruz said in a statement following the release of the audit report. "The improper use of these funds could negatively affect the public health, public safety, and other social and economic benefits for which they were created. There could be possible legal implications, if some provisions of federal laws, which may have oversight of the funds, are not complied with."