This letter report presents the results of our review of the maintenance and use of the Challenger, a 68 foot multi-purpose boat used by the CNMI Government for various official public purposes. Immediately after its purchase by the CNMI in September 1995, the vessel was under the control of the Department of Lands and Natural Resources (DLNR), and more recently it has been under the control of the Emergency Management Office (EMO). Our objectives were to determine whether the CNMI adequately maintained the vessel and used it properly.

Our audit indicates a lack of responsibility by CNMI officials who failed to always adhere to Commonwealth law or to put in place a sound maintenance and utilization plan. The CNMI purchased the Challenger in 1995 without authorized funding because $350,000 was improperly reprogrammed to finance the purchase. The purchase proved to be an unwise investment because a sound plan for maintenance and use was not put into place. Although such a vessel can legally be used only for official government business, it was improperly used on several occasions in 1997 to ferry passengers to and from political fund raising events, in violation of Commonwealth law. After 1997, use of the Challenger declined to the point where it made its last voyage in September 1999. The vessel has been allowed to deteriorate since its purchase in 1995, and in its current state of repair is no longer seaworthy. It has recently been put up for sale locally, but no qualifying bids have been received.

Seafaring vessels require maintenance or they rapidly deteriorate and lose their asset value; yet the Challenger has not undergone routine drydocking, where a vessel is taken out of the water, examined, and needed repairs made. For the boat to be used commercially, it would require annual inspections, and drydock examinations every two years. Neither DLNR nor EMO used a maintenance log to document whether adequate preventive maintenance was performed, and neither agency budgeted funds for maintenance of the Challenger. Since early 1998, the vessel has lacked the needed services of a mechanic/engineer to conduct preventive maintenance and to accompany it on long trips. Also, the Challenger lacked a usage plan needed to ensure that adequate funds were provided for its operation and maintenance.

When purchased by the CNMI in 1995, the Challenger had a value (for insurance purposes) of about $1.4 million. As a likely result of inadequate maintenance, its market value had decreased by about $1.1 million as of March 1999, when it was last appraised, to a value of $325,000. About $600,000 of this $1.1 million decline in value can be attributed to other than normal depreciation, with poor maintenance and use the most likely causes.

Accordingly, we recommend that: (1) the Governor issue a memo emphasizing that when government departments and agencies procure vehicles (including vessels), they must also provide a plan which includes budgetary provisions for maintenance and upkeep of those vehicles; (2) the Governor issue a memo advising heads of government departments and agencies that, according to 1 CMC § 7406(a)(5) of the Commonwealth Code, boats are to be treated as vehicles and may not, therefore, be used for other than official government business; (3) the Director of the Division of Procurement and Supply re-advertise the Challenger for sale worldwide, rather than just locally, so as to maximize the return on the sale of the vessel; (4) the Attorney General issue appropriate administrative sanctions against a former official of the Office of Management and Budget for violating the Planning and Budgeting Act; (5) the Secretary of Finance should reexamine implementation of DOF's Property Management and Accountability Policy to ensure that: (a) the Division of Procurement and Supply maintains a master inventory control over personal property and conducts an annual inventory of all such property, (b) agencies and departments properly affix a control number to all property they maintain, or (c) the Division of Procurement & Supply revise its policy to accommodate property considered integral to the primary equipment; and (6) the CNMI Legislature enact legislation, to amend 1 CMC § 7402(a)(2) of the Planning and Budgeting Act, by adding a provision to the Act that any CNMI Government employee who improperly re-programs government funds or receives illegally re-programmed funds shall be held personally liable for the amount of the re-programming action.

In his letter dated March 21, 2001, the Governor initiated needed action to Recommendations 1 and 2 when he urged agencies and departments to review their current budgets and find ways to allocate funding to adhere to preventive maintenance schedules and timely repair of assets. He urged them to include funds for the repair and maintenance of vehicles and assets when they submit their budget requests. He also advised them that the use of government boats is restricted by CNMI law, and advised them that such vessels can be used only for official government business. Also, he said that any unauthorized use would violate CNMI law and would be dealt with accordingly.

In his letter dated February 7, 2001, the Director of the Office of Procurement and Supply initiated needed action to Recommendation 3 when he advised us that they had reconsidered their decision to sell the vessel, and that they now planned to turn it over to the Division of Fish and Wildlife. He stated that he would ensure that the Division of Fish and Wildlife develop a plan for the use and maintenance of the vessel.

In a letter dated April 2, 2001, the Attorney General advised us that while this re-programming action did indeed violate the Planning and Budging Act, the Act provides no sanction or remedy for this violation, and that the Attorney General's Office is therefore unable to take appropriate action because the evidence presented did not show this re-programming action to be a clear case of waste and abuse of government funds. He, however, stated that this illegal action and our report clearly identified a defect in the Act, and he agreed to support legislative action to amend the law. We agree with the Attorney General's view that legislation should be introduced to amend the Act. Finally, the Attorney General stated that he intended to take civil action, to recover vessel operating costs, against individuals who improperly allowed this vessel to be used for political purposes.

In her letter dated February 14, 2001, the Secretary of Finance responded to Recommendation 5 stating that P&S would conduct an annual inventory and maintain a master inventory control record. The Secretary, however, believes that P&S, rather than agencies and departments, should affix control numbers to property items. We agree as long as it gets done. The Secretary also sees no need to revise its policy, and we agree that such action is unnecessary since it plans to have P&S affix control numbers to property items.

Based on the responses received from the Governor's Office, the Director for Procurement and Supply, the Attorney General, and the Secretary of Finance, we consider Recommendations 1 through 5 to be closed. However, we have added Recommendation No. 6 for the CNMI Legislature to address. The additional information or action required to close Recommendation 6 is presented in the report

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