More CNMI Corruption From the Ethically Challenged Fitial Administration

July 21, 2011

Corruption continues to ooze from the CNMI and as usual, it involves federal tax dollars. The U.S. Department of the Interior's Inspector General released a report on the investigation of a questionable $392,406 sole source contract that the Fitial Administration awarded to former Commerce Secretary Michael Ada to oversee ARRA funds.  The report stated:
Our investigation collected evidence suggesting that the contract to IPS violated multiple CNMI ethics rules, including 1 Commonwealth Code (CMC) § 8543: Post-Employment Restrictions; 1 CMC § 8531: Use of Office, Staff or Employees of Public Office; and 1 CMC § 8532: Restraint on Use of Public Position to Obtain Private Benefit; and 1 CMC § 8544: Negotiating for Nongovernment Employment. In addition, we found that the contract may have violated CNMI Procurement and Supply Regulations, Part 700, “Ethics in Public Contracting.” Under the terms and conditions, the contract is null and void if the procurement processes or execution fails to comply with CNMI Procurement and Supply Regulations. 
The U.S. Attorney’s Office for the District of Guam and the Northern Mariana Islands declined prosecution of this investigation. We conducted this investigation jointly with the CNMI Office of Public Auditor (OPA). OPA will provide its opinion separately to the CNMI Government.
The U.S. Department of Justice should issue a statement informing the public and federal tax payers why this investigation will not be prosecuted.

In October 2010 the Office of the Public Auditor announced that it was investigating the questionable sole-source contract awarded to former Secretary of Commerce Michael Ada to oversee the ARRA funds.   Ada oversaw ARRA funds as the Secretary of Commerce until he resigned on October 8, 2010. Just four days later he was awarded the $392,406 sole source contract. Not only was he already performing the same services under the Department of Commerce, but he did not even have a license for his business, Integrated Professional Services, LLC at the time the contract was awarded to him.

According to the DOI investigation, Fitial and Ada planned the transition of ARRA funds from the Department of Commerce to a business formed by Ada.  From the report:
In August 2010, Ada informed Fitial of his intent to leave the government. Ada and Fitial discussed privatizing Ada’s duties of managing CNMI’s ARRA projects and funds. During Ada’s final month in office, at Fitial’s direction, Ada prepared the service contract for management of ARRA funds for award. Ada and Fitial dispute who first brought up the idea of a private contract to manage CNMI’s ARRA projects. Both agree, however, that they developed the Integrated Professional Services (IPS) contract while Ada was in office. 
Ada resigned from his position as Secretary of Commerce on October 8, 2010. On October 12, 2010, a $392,406 service contract (Contract 525276-OC) was approved for the not-yet-formed IPS to manage CNMI’s ARRA projects and grants. The contract was officially awarded on October 13, 2010. On October 14, 2010, Ada and his business partner obtained a business license for IPS. Based on Fitial’s justification, the contract was awarded as a sole-source award. Based on another justification from Fitial, CNMI advanced IPS $78,418. The contract was funded with administrative funds from ARRA awards. 
To fund the enhanced reporting and administrative requirements placed on recipients of ARRA funds, the Act includes a provision that allows recipients to add an additional 0.5 percent to their negotiated indirect cost rates for ARRA awards. Ada explained that his former governmental ARRA oversight office was funded solely with these administrative funds. 
Attorney General Edward Buckingham and Director of Procurement and Supply Herman Sablan reviewed the determination to award the contract as a sole-source award to IPS. Buckingham acknowledged that ethics concerns existed and that Ada had a conflict of interest. He thought, however, that the need for the contract outweighed ethics concerns. Sablan said he felt that the sole source award was justified because the justification indicated that the Attorney General reviewed the document. He acknowledged that he simply relied on the Attorney General’s opinion rather than his own review of the document.
Ada's IPS business partner is Jose Padilla, a former executive at Red Rock LLC.  Red Rock was awarded an $50,000 ARRA contract by Ada.  Padilla also was awarded a contract for energy saving lights at the library, the CHC, and legislative buildings. The partnership with Padilla adds to the mix of alleged violations including violations of the Government Ethics Act of 1992.

In October 2010, the governor's press secretary, Angel Demapan claimed that the Government Ethics Law of 1992 does not apply to this contract. However, in October 2010 there were many newspaper articles and blog posts pointing out that the ARRA contract appeared to have been in violation of  The Government Ethics Act of 1992.

Section 8432. Restraints on Use of Public Position to Obtain Private Benefit states:
(a) A public official or public employee shall not use or attempt to use the public position to obtain private financial gain, contract, employment, license, or other personal or private advantage, direct or indirect, for the public official or public employee, for a relative, or for an entity in which the public official or employee has a present or potential economic interest.

(b) A public official or public employee or a former public official or former public employee, shall not disclose or use for the public official or employee, or a former public. official or former public employee's own economic benefit, or that of another person, confidential information acquired by the public position or employment that is not generally available to the public.
The DOI investigation concluded that this rule was violated:
Our investigation discloses that as the employee responsible for CNMI’s ARRA management efforts, Ada gained a distinct advantage in obtaining the ARRA management contract. Fitial said that Ada obtained the ARRA management contract because he was indispensable to CNMI’s ARRA management efforts. Buckingham acknowledged Ada’s conflict of interest in negotiating the contract but said that the governor awarded the contract to Ada because failure to approve the contract would put millions of dollars in ARRA funds at risk. Buckingham said that in negotiating for a private ARRA management contract, Ada had CNMI at a disadvantage, and Ada used his advantage to obtain the contract. 
Ada used information not generally available to the public for his own economic benefit. Only Fitial and Ada knew of the possibility of privatizing CNMI ARRA management until after they agreed to the framework of the deal. Ada did discuss the possibility of the contract with Lieutenant Governor Eloy Enos. Ada authored a letter requesting an opinion to the Public Auditor prior to the award of the contract. Fitial signed the letter. This information, however, was not available to the public. The ARRA management contract was never advertised, and the public did not know of the privatization of ARRA management until after IPS was awarded the contract. 
Further, the sole-source justification memorandum from Fitial to the Director of Procurement and Supply, Herman Sablan, on October 6, 2010, acknowledges Ada’s advantage. It reads, “Mr. Ada has extensive historical and current knowledge, as well as non-public information of all ARRA funds. His clear advantage with the intricacies of the ARRA funds creates a distinct advantage should the CNMI Government bid out the services according to procurement regulations.”

Section 8543(b), Postemployment Restrictions states that:
No former public official or public employee shall, for a period of one year after the termination of the official’s or employee’s term of public office or public employment, assist or represent any person in any business transaction involving the Commonwealth if the official or employee participated personally and substantially in the subject matter of the transaction during his term of public legal authority. With respect to a contract, this prohibition shall be permanent as to that contract.
The DOI investigation found that this rule was violated:
Ada participated personally and substantially in CNMI’s ARRA management while he was a government official. Fitial appointed Ada to manage CNMI’s ARRA projects and said that Ada was vital to CNMI’s ARRA management because he had been “very involved” with the program since its inception. Ada applied for ARRA grant funding and secured $97 million for CNMI. 
Review of contract documents indicates that Ada represented IPS in its contract with the CNMI government. Review of business registration documents shows that he is a full partner in IPS, and the contract bears his signature. When interviewed, Ada acknowledged that he arranged the contract with the government on behalf of IPS and substantially participated in preparing the contract documents on behalf of the CNMI government. 
IPS was awarded the contract just 5 days after Ada resigned from the government, which violates the regulatory 1-year period. Ada confirmed that he officially resigned his position as Secretary of Commerce on October 9, 2010, and signed the contract on October 12, 2010. Review of the contract file showed that the Director of Procurement and Supply processed the contract and issued the notice to proceed on October 13, 2010. A $78,418 check was issued to IPS on October 15, 2010.
The report also noted violations of Sections 8544, Negotiating for Nongovernment Employment and 8531, Use of Office, Staff or Employees of Public Office. Violations of CNMI Procurement and Supply Regulations were also exposed in the investigation.

The report states that both Fitial and Buckingham acknowledge the ethical concerns.

In April 2011 a reportEvaluation of the CNMI’s Oversight and Implementation of American Recovery and Reinvestment Act Programs, conducted by the CNMI Office of the Public Auditor and the Recovery Oversight Office, Office of the Inspector General of the U.S. Department of Interior was released. The report noted problems with the CNMI's ARRA funding including:
(1) recovery funds directly awarded to autonomous agencies fall outside the central Government’s visibility and control, (2) prior audit findings and risk management tools were not utilized to identify areas of potential fraud, waste and abuse and potential noncompliance with legislation and grant requirements, (3) monitoring functions performed by the finance department were not adequate with respect to transfers and receipt of recovery funds, and (4) expenditure and award information on the CNMI’s official website for Recovery Act programs was not current and complete.
It appears that the governor, the Attorney General and current and former CNMI officials are immune from prosecution and are free to violate CNMI ethics laws whether the violations involve issuing contracts to oversee the spending of federal dollars, or involve CNMI ethics violations and federal Hatch Act violations committed by CNMI officials during elections.

Again, the U.S. Department of Justice should issue a statement informing the public and federal tax payers why this investigation will not be prosecuted.

See these previous posts for background information:
CNMI Abuses, October 26, 2010
Office of the Public Auditor Dropping the Ball? October 22, 2010
Contract Concerns Continue, October 21, 2010
OIA: "We don't want people messing with our money." October 19, 2010
Just as Suspected, October 18, 2010
Ada Steps Down as Commerce Secretary and Lands Contract From Governor, October 16, 2010

Read the DOI Report on the Investigation:


It's not your money! said...

The CNMI needs an Attorney General who will a watchdog for the people, instead of a lapdog for the governor.

Wendy Doromal said...

It's not your money

It's nice to hear from you! I agree with you. I cannot remember when the CNMI had an AG that was so corrupt as AG Buckingham. So blatantly smug too.

I am also disappointed that the Guam-NMI USAG Office won't be prosecuting this. The report stated: "This report contains information that has been redacted pursuant to 5 U.S.C. §§ 552 (b)(5), (b)(6), and (b)(7)(C) of the Freedom of Information Act. Supporting documentation for this report may be obtained by sending a written request to the OIG Freedom of Information Office. Of course, I will do that, but it seems there must be a reason that the DOJ is not pursuing this. Re-reading my October 2010 blog posts it appeared clear then that there were violations. Perhaps because no federal laws were broken and the corrupt CNMI AG won't prosecute anyone hand-picked by his master.

I am sick of my tax dollars going to the CNMI to be wasted, especially when no one there pays federal income taxes and we could certainly use the money here. (We have 5,000 homeless students in our school system who are hungry every day and no funds!) How can the CHC have money problems, yet according to this report the U.S. Department of Health and Human Services (HHS) awarded $4,766,188 to the CNMI. Where did that money go? Few American tax payers object to using tax dollars to benefit people, but to be wasted or abused is another story. There is a persistent pattern of waste and corruption with federal funds awarded to the CNMI -Arts Council grant, Americorps grant, ARRA funds and on and on, but no prosecution or consequences. That is the theme of the CNMI -truth and no consequences -whether it is with a police man brutally beating a Chinese worker, an AG violating the Hatch Act during elections, improper contracts to benefit the governor's cronies or thousands of criminal employers stealing wages from foreign workers.

Even if the actions don't warrant a criminal investigation, one would think that there would be a social stigma attached to crooks and liars, but not in the CNMI! A governor takes his masseuse from prison and gets re-elected, a felon gets appointed and confirmed to a cabinet position, and an AG that violates the law holds the highest office charged with ensuring that laws are followed. Soap opera material and entertaining perhaps, but infuriating to those of us funding these scandals.

Anonymous said...

Wendy said . . .

The U.S. Department of Justice should issue a statement informing the public and federal [taxpayers] why this investigation will not be prosecuted.

The OIG report speaks for itself. All the alleged violations are of CNMI law. DoJ and its USAO are empowered to prosecute federal law. No such statement is likely to be forthcoming.

Wendy Doromal said...

Anonymous 10:03

That's what I thought, but the DOJ can and absolutely should issue a statement letting the general public know exactly that -that there is not one federal law regarding these unethical actions, if that is the case! Tell the public that ARRA funds in the CNMI (and in the U.S.) are being misused in corrupt ways because the Congress failed to create needed legislation to ensure proper oversight and spending of our tax dollars. Tell the American taxpayers that funds are filling the pockets of politically aligned cronies and that is lawful under federal law. Once again, we have weak federal oversight and no federal laws with teeth that can ensure that there is no monkey business with our federal dollars.

The joint DOI-OPA report suggests that there has been misuse of ARRA funds in the CNMI (I should post that report under the DOI report), so what does the federal government do? It keeps throwing our tax dollars at the CNMI to misuse. Here, have another $1.6 million "to study geothermal energy" and here another $1 million for business study or whatever. Wonder who will get those contracts...

Furthermore, there have been reports of discrimination at federal offices for years and nothing has been done. Is that even being investigated? Federal officials and members of Congress have been informed of that since 2007 and in 2011 the discrimination has increased! The federal government needs to step it up. They answer to us. Political leaders cannot ask the American people to "sacrifice" because of hard economic times and then think we will sit silently by and watch federal dollars be misused or used to benefit a pal of an office holder.

AG Buckingham also has to answer to the people -to the people of the CNMI and the U.S. citizens that fund these types of schemes. He should prosecute all violations of the law. Will that happen? No, because like too many elected local and federal office holders, appointed officials and government employees, he won't do anything that could jeopardize his job. Holding office and maintaining a position takes priority over advancing the goals of the community or nation. And then of course, the people are to blame also. Who elects and re-elects the corrupt and unethical leaders that allow this to happen?!

Anonymous said...

Nothing will ever happen in the NMI about any of this corruption.

I read about recall demonstrations and petition etc.

If ever there was any demonstrations for recall or anything in that area. There would be little if any "locals" in attendance as all would be so scared about their or one of their family members job.

The CW cannot vote so they would not be in attendance.
It would be all outsiders and a few elder locals (maybe)
Our people are like a bunch of Goats being led to slaughter.
The smarter ones, that can, have left the island or are planning to.
This will continue and the ones that remain will keep voting in these idiots.
I really am waiting to see what will happen this mid term elections.
Lets see if anyone "new" will step up to run for these offices.
Lets see if any of them will get elected.
If any elected, how many will actually try to do the correct thing for the people?