The report on the audit of the Commonwealth of the Northern Mariana Islands' financial statements in accordance with the United States Office of Management and Budget (OMB) Circular A-133 for the fiscal year ended September 30, 2002 conducted by Deloite. As of September 30, 2002, the deficit totaled $ 80,921,000. However, the unreserved fund balance totaled a negative $104,437,000.

The weaknesses in the CNMI Government’s financial condition are also reflected in the changes to its overall assets and liabilities as reported by the auditor. In FY 1997, the audited General Fund liabilities totaled $92,367,000 . This amount increased in FY 2002 to $152,085,000, a 65% increase. Correspondingly, related assets increased from $56,898,000 in FY 1997 to $71,163,000 in FY 2002, a 25% increase. This inbalance directly relates to the continuing deficit spending.

Notes to the Financial Statements

The Notes to the Financial Statements are an integral part of the audited financial statements. These notes offer details on the accounting methods used by the entity on a general basis as well as by specific accounts. These notes are inherently valuable for a reader of the financial statements to interpret the financial condition of the entity. Included within the notes to the financial statement is a section noted as Contingent Liabilities. These contingencies relate to potential claims against the assets of the CNMI Government. For FY 2002, several contingencies were listed, including the following:

Unfunded Pension Liability $488,693,000
Land Acquisition Costs           40,000,000
Total                                        $528,693,000

The combination of the accumulated General Fund deficit and the potential demands of the noted contingent liabilities, as presented by the auditor, creates a somber picture of the financial health of the CNMI Government.

Report on Internal Control and Compliance

In addition to their report and opinion on the financial statements the auditor also prepares a report and opinion on the CNMI Government’s Internal Controls and Compliance with local and federal laws and regulations. For FY 2002, the auditor reported ten findings relating to internal control weaknesses and sixteen findings related to compliance. In total this represents a decrease of three from the prior year.

Internal Controls are those procedures, regulations and oversight that insure that accounting transactions are properly recorded and that the assets of the CNMI Government are properly safeguarded. Of the ten reported findings relating to internal control, six were determined to be material weaknesses. These problem areas as noted by the auditor were:

1. Failure by CUC to complete its financial audit for inclusion in the consolidated audit of the CNMI. This also led to an audit opinion qualification.
2. The Commonwealth Health Center (CHC) records reflect an accounts receivable balance of $99,802,000. This amount had no offsetting amount for billings determined to be uncollectible. As stated by the auditor CHC has “inadequate controls over receivables”, a condition that has been reported since 1995.
3. Advances to vendors lacked adequate documentation and reconciliation which could result in a”misstatement of expenditures
   and resulted in the qualification in the opinion of the basic financial statements”.
4. No reconciliation for local construction projects was made for unexpended balances that were continuing appropriations. This could lead to a misstatement of the required reserve.
5. Insufficient controls existed relating to the eligibility of the CNMI Medicaid Program. Physical access to the data base was not controlled and no independent reviews and/or tests were performed.
6. Equipment inventories related to government grants were inadequately maintained. This condition is not in compliance with federal regulations and, if uncorrected, could lead to reimbursements to the federal agency.

It is encouraging to note that the affected Government agencies cited for these weaknesses have agreed with the findings and have pledged to diligently work to resolve and remove these findings.

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Financial Statements in Accordance with OMB Circular A-133

Internal Control and Compliance