The Office of the Virgin Islands Inspector General has issued the audit report of contract administration at the Juan F. Luis Hospital. The objective of the audit was to determine if the Hospital solicited, awarded, and monitored contracts per its policies, applicable laws, and regulations.

We found that Hospital officials did not always follow the internal controls put in place to safeguard the procurement of goods and services. Specifically, officials did not always follow: (i) procurement procedures for competitive bidding and the approval process for purchases; and, (ii) the Board’s requirement that all expenses and contracts exceeding $100,000 be approved by the Board and any corresponding changes or amendments have the Board’s approval. In addition, the Hospital’s management between 2017 and 2019 made questionable decisions that resulted in the Hospital paying $1.4 million on a temporary operating room never utilized; a two-year delay, and lost revenue related to the temporary hospital (known as JFL North); and, paying $1.3 million for services obtained under an emergency contract that has lasted more than three years. Furthermore, the Hospital experienced a high management turnover among key positions and lacked a continuity plan to ensure limited disruption of its operations. Over five years, the Hospital saw 5 CEOs, 3 CFOs, and 3 Chief Legal Counsels, and did not have full-time staffers in the administrative/middle management positions to maintain the continuity of the Hospital’s daily operations when those key employees left.

We attribute these conditions to the Hospital management team’s (i) not following its procurement policies and regulations consistently, (ii) not fully understanding its procurement needs, and; (iii) not effectively planning and executing its scope of work and contracting needs, and (iv) not ensuring that proprietary information held by former key employees were turned over to the hospital to ensure its smooth operations, and not having adequate middle-management staff to maintain the Hospital’s operation.

As a result, officials procured goods and services outside of the normal procurement process, purchased goods, and amended contracts without proper approvals. Also, officials made decisions that significantly delayed the temporary hospital’s opening, resulting in lost revenue due to patients being sent off-island for services usually performed by the hospital.

Finally, the Hospital lost valuable time when new staff did not have access to files and electronic records established by a previous management team.

We made several recommendations to address the conditions and causes cited in the report. Our recommendations addressed the following areas: (i) following procurement procedures, (ii) payment reporting, (iii) maintaining files, (iv) obtaining professional Capital Project services, (v) adequate staffing, and (vi) continuity plan for critical management functions. To view the report, click here.

The Office of the Virgin Islands Inspector General has issued the audit report of contract administration at the Virgin Islands Waste Management Authority. The objectives of the audit were to determine if Waste Management officials: (1) followed their procurement guidelines in awarding contracts and (2) ensured that contracted services were performed in accordance with contract terms and conditions.

We found that Waste Management did not always follow its procurement policy requiring competitive bidding. Specifically, in some cases, Waste Management operated its solid waste collection services with expired contracts and verbal/informal agreements. At least ten contracts expired, and services continued on a month-to-month basis for up to six years. Also, at least two vendors provided services to Waste Management based on verbal/informal agreements. In addition, Waste Management did not adequately maintain its procurement files.

Furthermore, Waste Management officials did not (i) ensure that some of its Solid Waste contracted services were adequately monitored for compliance per contract terms; (ii) always document the results of their worksite visits; and (iii) establish uniform policies and procedures in both island districts to monitor its contractor’s work performance. In addition, Waste Management paid some contractors for billed services that were questionable and unsupported. Finally, from 2017-2019, Waste Management paid its contractors an average of 10 to 38 months late.

Waste Management’s officials did not (i) prioritize the solicitations of bids to ensure that its operations were done at the most economical cost and benefit; (ii) establish an adequate record maintenance system; (iii) establish written procedures to monitor contract services; (iv) require its responsible personnel to document when they performed worksite inspections; and (v) ensure that that contractor claimed work was reviewed and inspected for reasonableness.
Moreover, Waste Management officials did not document changes made to contract terms. In addition, they did not adequately review contractors’ bills before approval and payment. Also, Waste Management did not receive anticipated revenues from some of its funding sources, nor did they have valid contracts in place to allow the agency to anticipate its contract cost adequately.

As a result, Waste Management expended at least $15,593,860 without ensuring that it obtained the best price for its services. In addition, Waste Management could not ensure that its bin sites were adequately maintained and billed services were correct, reasonable and for work done. Also, Waste Management: (i) paid $452,762 for services that were based on a verbal agreement; (ii) paid unsubstantiated charges of at least $95,304; (iii) paid at least $23,539 for services that were not adequately supported; and (iv) could not ensure that payments to some contractors were for services that were rendered. Also, as of March 2018, Waste Management had incurred an outstanding debt of $14,193,145. This led the VI Legislature to increase its 2019 budget by $7,000,000 to pay its vendors.

We made several recommendations to address the conditions and causes cited in the report. Our recommendations addressed the following areas: (i) prioritizing soliciting bids for expired contracts, (ii) maintaining files, (iii) monitoring procedures, (iv) contractor billings, (v) utilizing scale house, and (vi) outstanding debt. To view the report, click here.

The Office of the Virgin Islands Inspector General in collaboration with WAPA’s Internal Audit Division has issued the inspection report of the Virgin Islands Water and Power Authority’s (WAPA) contract with Vitol Virgin Islands Corporation (Vitol) for the Liquefied Petroleum Gas (LPG) Conversion Project. The objectives of the inspection were to determine if: (i) the WAPA Board and management exercised due diligence in undertaking the project; (ii) the Board approved the increased project cost; (iii) WAPA officials verified the increased project cost; (iv) WAPA officials followed WAPA’s contract procurement and administration policies; and, (v) WAPA converted the power generation units they needed to burn LPG.

We found that WAPA’s Board and management, in choosing to expedite the Project to mitigate the high cost of energy in the Virgin Islands, prioritized time over the Project’s cost. Specifically, they agreed to forgo detailed engineering plans, which would have delayed the Project by two years. Instead, they allowed Vitol to perform a FEED Study, design the storage terminals, procure equipment, and construct the Project facilities simultaneously. Knowing that such a project implementation method came with an inherent increase in cost, WAPA officials had no added controls to mitigate the Project’s cost and monitor its cost for necessity, reasonableness, and affordability. Also, untimely payments for the infrastructure fees, and a truck rack system unknown to the Board contributed to increased infrastructure cost.

WAPA’s management did not follow WAPA’s established procedures for contracts and change orders. In addition, WAPA’s contract negotiations lacked transparency. Furthermore, WAPA officials created an apparent conflict of interest when they engaged the professional services of a firm that also worked for Vitol during a similar time period. Finally, WAPA did not achieve its goal to convert the number of power-generating units it needed to burn LPG and did not ensure that its rented units could burn LPG as stipulated in rental agreements.

As a result, the Project’s total cost has exceeded $200 million, including the Board’s construction cost limit of $160 million, $10,228,191 in other professional services rendered to bring the project to substantial completion, $31,613,305 in operation and maintenance fees, $138,500 in accounting fees, and $2.2 million for a truck rack system. Not included in this cost are added fees that may have resulted from late payments that led to a third contract amendment.

Additionally, $92 million in change orders were not approved, and over $2 million was paid for professional services without the Board’s approval. Further, WAPA was left with three of five converted units to burn LPG; WAPA invested $10 million to convert two units that were removed from service; and, WAPA incurred over $43 million in rental cost for units that could not burn LPG.

We made several recommendations to address the conditions and causes cited in the report. Our recommendations addressed the following areas: (i) Project planning, management oversight, and reporting; (ii) Project cost monitoring, and Board inaction; (iii) WAPA’s procurement policies and guidelines; and, (iv) the conversion of power-generating units.
To view the report, click here.

The Office of the Virgin Islands Inspector General has issued the inspection report of procedures to control the re-employment of retired Virgin Islands Government (Government) employees. The objectives of the inspection were to determine: (1) what controls were in place to timely identify when a Government retiree was re-employed by the Government, (2) what procedures were followed by the Government to comply with laws and regulations governing retiree re-employment and, (3) what steps the Government Employees Retirement System (GERS) took to identify retirees who return to work and its impact on the retirement system.

We found that Government officials did not always follow its return-to-work law and Executive Order. Also, Government officials did not implement adequate internal controls to identify and report to GERS when they hired a retiree. Additionally, we found that the GERS’ measures taken were not sufficient to determine when retirees returned to work or to deter violations of the law. Specifically, Government officials did not always notify GERS when it hired a member retiree. Also, Government officials failed to implement checks and balances policies and procedures to ensure compliance with the return-to-work law.

GERS has identified and is analyzing the status of 65 re-employed retirees for possible violations of the return-to-work law. As of May 28, 2020, GERS had completed the review of 37 of the 65 re-employed retirees. Consequently, GERS determined, and its report shows, that GERS paid $2,068,736 in annuities to 22 retirees who violated the return-to-work law. In addition, GERS did not collect $1,172,676 in contributions from retirees and the Government that was due to GERS when the employees exceeded the allowable period for which they could return to work without forfeiting their retirement benefit. The report shows that GERS collected $335,541 in repayment, leaving $2,905,871 owed.

As a result, when the agencies’ human resources representatives do not convey re-employed retirees’ information to GERS, the System runs the risk of overpaying the retirees’ annuity, not timely effectuating the collection of contributions from the employee and the Government, and subjecting the retirement system to lost investment income.

These issues will continue to exist if the Government, through its departments and agencies, and instrumentalities, continues to sidestep the requirements of the return-to-work law.

We made several recommendations to address the conditions and causes cited in the report. Our recommendations addressed the following areas: (i) policy and procedures (ii) adhering to the law (iii) collaboration and communication between agencies and GERS and, (iv) Legislative Revisions to the Virgin Islands Code. To view the report, click here.

The Office of the Virgin Islands Inspector General has issued the inspection of the use of loan proceeds of select projects in the GERS Alternative Investment Program: VI Finest Foods. The objectives of the inspection were to determine: (1) the total amount of the GERS loan proceeds that were disbursed to VI Finest Foods for the construction of the supermarket; (2) whether policies and procedures were followed in the management of the loan; (3) whether the proceeds were utilized in accordance with loan terms and conditions; and, (4) whether VI Finest Foods made loan payments as required in the loan agreement.

We found that GERS did not effectively manage the loan issued to VI Finest Foods under the Alternative Investment Program. Specifically, GERS: (i) did not adequately review services performed and examine expenses incurred for $2.7 million of loan proceeds issued; (ii) did not ensure that all phases of the supermarket project (the project) were monitored; (iii) failed to ensure that inspectors monitored all phases of the project while continuing to issue funds for the project; (iv) failed to follow established procedures to perform periodic analysis of project expenditures; and (v) provided an additional $2.8 million beyond the initial loan amount although VI Finest Foods never demonstrated the ability to make consistent payments per the loan requirements.

As a result: (i) the lack of oversight led to questionable contract costs, cost overruns, and incomplete contract services; (ii) at least $480,850 in loan proceeds was diverted for unauthorized purposes;(iii) VI Finest Food defaulted on the loan; and (iv) the collectability of the remaining loan balance owed to GERS remains uncertain.

We made several recommendations to address the conditions and causes cited in the report. Our recommendations addressed the following areas: (i) monitoring and (ii) due diligence. To view the report, click here.