AUDIT

SIGNIFICANT FLAWS REVEALED IN

THE FINANCIAL MANAGEMENT AND

PROCUREMENT PRACTICES OF THE

U.S. VIRGIN ISLANDS’ PUBLIC

FINANCE AUTHORITY

This is a revised version of the report prepared for public release.

Report No.: ER-IN-VIS-0015-2014 September 2017
OFFICE OF 

INSPECTOR GENERAL 

U.S.DEPARTMENT OF THE INTERIOR 

Memorandum 

To: 

From: Mary Kendall 

Deputy Inspector Gen 

Subject: Audit Report - Significant Flaws Revealed in the Financial Management and 

Procurement Practices of the U.S. Virgin Islands' Public Finance Authority 

Report No. ER-IN-VIS-0015-2014 

This report presents the results of our audit of the U.S. Virgin Islands' Public Finance 

Authority (PFA). We examined the PF A's system of internal controls and its compliance with 

contract terms and conditions, applicable laws, and PFA board resolution. We found that PFA 

did not maintain sufficient internal controls to safeguard assets and did not provide reasonable 

assurance that financial transactions and related reports were accurate, as evidenced by the $50 

million in financial discrepancies, conflicts of interest, and the $101.1 million in questionable 

expenditures we found during our fieldwork. 

We offered 21 recommendations to help improve the PF A's operations. We provided the 

results of our audit to the U.S. Virgin Islands Governor, Kenneth Mapp, and the Virgin Islands 

Legislature's Senate President, Myron Jackson. 

The PF A's executive director provided us a copy of the PF A's response, and Senate 

President Jackson provided the Legislature's response to the draft report. Based on these July 31, 

2017 and August 21, 2017 responses, we consider eight recommendations resolved but not 

implemented and seven recommendations unresolved. We consider six recommendations 

resolved and implemented with no further action required. Appendix 5 of our report details the 

status of all 21 recommendations. 

The Office oflnsular Affairs (OIA) is the U.S. Department ofthe Interior's coordinator 

for Federal policy and activities impacting Insular Area territories and governments. As such, we 

recommend that OIA monitor and track the PF A's and the Legislature's efforts, including 

resolution and implementation of the recommendations in our audit report. 

The legislation creating the Office of Inspector General requires that we report to 

Congress semiannually on all audit, evaluation, and inspection reports issued; actions taken to 

implement our recommendations; and recommendations that have not been implemented. 

Office of Inspector General IWashington, DC 
Ifyou have any questions regarding this memorandum or the subject report, please do not 

hesitate to contact me at 202-208-5745. 

Attachment 

2 

Office of Inspector General | Washington, DC

The Honorable Kenneth Mapp 

Governor, U.S. Virgin Islands 

No. 21-22 Kongens Gade 

St. Thomas, VI 00802 

The Honorable Myron D. Jackson 

Senate President, U.S. Virgin Islands Legislature 

P.O. Box 1690 

St. Thomas, VI 00804 

Subject: Audit Report – Significant Flaws Revealed in the Financial Management and 

Procurement Practices of the U.S. Virgin Islands’ Public Finance Authority 

Report No. ER-IN-VIS-0015-2014 

Dear Governor Mapp and Senator Jackson: 

This report presents the results of our audit of the management of the U.S. Virgin Islands’ 

Public Finance Authority (PFA). We determined that PFA did not maintain sufficient internal 

controls to safeguard assets and did not provide reasonable assurance that financial transactions 

and related reports were accurate, as evidenced by the $50 million in financial reporting 

discrepancies, conflicts of interest, and the $101.1 million in questionable expenditures we found 

during our fieldwork. 

We offered 21 recommendations and requested a response by July 31, 2017. We 

appreciate your responses to the draft report (Appendixes 3 and 4 of the final report). Of the 21 

recommendations we made, we addressed 18 to PFA. PFA concurred with seven 

recommendations, partially concurred with four recommendations, and did not concur with seven 

recommendations. We addressed three recommendations to the Virgin Islands Legislature, 

which stated that it will take action on all three. 

Based on the responses we received, we considered six recommendations resolved and 

implemented, eight recommendations resolved but not implemented, and seven recommendations 

unresolved (Appendix 5). 

If you have any questions regarding this letter or the subject report, please contact me at 

202-208-5745 or Virgin Islands Inspector General Steven van Beverhoudt at 340-774-3388. 
The legislation creating the Office of Inspector General requires that we report to 

Congress semiannually on all audit, inspection, and evaluation reports issued; actions taken to 

implement our recommendations; and recommendations that have not been implemented. 

Mary L. Kendall Steven van Beverhoudt 

Deputy Inspector General Virgin Islands Inspector General 

U.S. Department of the Interior 

2 

Table of Contents

Results in Brief ....................................................................................................... 1

Introduction............................................................................................................. 2

Objective ............................................................................................................. 2

Background ......................................................................................................... 2

Prior OIG Audit Coverage .................................................................................. 3

Findings................................................................................................................... 4

PFA Did Not Maintain Sufficient Internal Controls........................................... 4

PFA Did Not Have Policies and Procedures for Basic Operations................. 4

PFA Did Not Have Sufficient Systems in Place To Control and Prevent 

Financial Discrepancies................................................................................... 6

PFA Did Not Properly Monitor Charge Card Transactions............................ 8

PFA Did Not Create Proper Segregation of Duties Over Cash Transactions 

and Fund Transfers.......................................................................................... 9

Operating Without Strong Controls Led to Multiple Potential Conflicts of 

Interest Between GVI Employees, Contractors, and Vendors ...................... 11

PFA Failed To Appropriately Manage Budgeted Funds and Bond Proceeds... 12

PFA Mishandled the Awarding and Management of Professional Service 

Agreements and Other Expenditures Paid With Budgeted Funds................. 12

PFA Mismanaged Bond Proceeds Used To Fund GVI Projects................... 21

PFA Has Not Complied With Laws and Rules for Board Membership and 

Bonds............................................................................................................. 23

Conclusion and Recommendations....................................................................... 26

Conclusion......................................................................................................... 26

Recommendations Summary............................................................................. 26

Appendix 1: Scope and Methodology................................................................... 34

Scope ................................................................................................................. 34

Methodology ..................................................................................................... 34

Appendix 2: Questionable Expenditures .............................................................. 36

Appendix 3: PFA’s Response to the Draft Report................................................ 41

Appendix 4: Legislature’s Response to the Draft Report ..................................... 58

Appendix 5: Status of Recommendations ............................................................ 60
1 

Results in Brief

Since its creation in 1988, the Board of Directors charged with oversight and 

leadership at the Government of the U.S. Virgin Islands’ (GVI) Public Finance 

Authority (PFA) has operated without proper controls that would ensure 

transparency and accountability. We audited PFA at the request of the Virgin 

Islands Legislature and found deficiencies that place millions of dollars at risk for 

fraud, waste, and mismanagement: 

PFA did not have internal controls over its operations, including written

operating policies and procedures for its employees to follow. PFA’s

failure to implement and adhere to a system of internal controls has

created an environment where errors and potential conflicts of interest

flourish.

PFA has not managed its budgeted funds and bond proceeds appropriately,

nor has it complied with current laws and regulations.

These deficiencies contributed to the issues we found during our fieldwork, which 

included $50 million in financial reporting discrepancies, potential conflicts of 

interest, and $101.1 million in questionable expenditures. 

We issued an audit report in 2002 that provided recommendations for several 

issues at PFA, but these issues still existed during our current review. In fact, 

because PFA decision makers did not implement our recommendations, some of 

the issues had worsened. Had PFA taken corrective actions after our 2002 audit, 

there would have been greater accountability for funds entrusted to it on behalf of 

the people of the Virgin Islands. 

PFA serves as a financing conduit to GVI, incurring billions of dollars in 20- to 

30-year debts and disbursing the proceeds of these debts to pay for operations, 

construction, and GVI’s day-to-day needs. Because these debts will be the burden 

of future generations of Virgin Islanders, GVI must safeguard the funds from 

misuse and ensure that they are used for their intended purposes. This audit 

presents an opportunity for the Legislature and PFA’s board to correct 

longstanding problems that keep the Virgin Islands on a path toward financial 

calamity, weakening its self-sustaining capabilities and increasing its dependency 

on the U.S. Government. We offer 21 recommendations that will help improve 

PFA’s operations and thus safeguard the funds entrusted to it. 
2

Introduction

Objective

The objective of this audit was to determine whether the U.S. Virgin Islands 

Public Finance Authority (PFA) managed its budget funds and bond proceeds by:

1. Maintaining sufficient internal controls that safeguard assets and provide 

reasonable assurance that financial transactions and related reports are 

accurate

2. Performing its duties in accordance with contract terms and conditions, the

Virgin Islands Code (V.I.C.), the U.S. Internal Revenue Code, and PFA 

board resolutions

We performed this audit at the request of the Finance Committee of the 30th

Legislature of the Virgin Islands. Our audit scope and methodology are included 

as Appendix 1.

Background

PFA, a public corporation and autonomous governmental instrumentality1 of the 

Government of the Virgin Islands (GVI), was established by Act No. 5365, also 

known as “The Government Capital Improvement Act of 1988” (29 V.I.C. 

Chapter 15). 

PFA’s main responsibility is to raise and manage capital for public projects. It

finances GVI capital improvement projects and working capital by issuing bonds

with maturity dates spanning up to 30 years. As of July 31, 2015, PFA had

22 active bond issuances with initial offerings of over $2.6 billion. As of 

September 30, 2015, PFA had a total of $515,043,605 affiliated with bond 

proceeds in 151 depository accounts at the Bank of New York Mellon Trust 

Company and Banco Popular de Puerto Rico. 

PFA disburses the bond proceeds to support GVI’s day-to-day needs, such as 

working capital, and to fund the construction of a variety of capital projects. The 

Department of Property and Procurement (DPP) is responsible for procuring all 

GVI construction projects, and the Department of Public Works (DPW) manages 

the projects. 

PFA’s annual operating budgets for fiscal years (FYs) 2010 through 2014 

averaged $6.77 million. Its operating budget is derived from a combination of a 

1 percent fee assessed against bond issuances and a matching fund, which is the 

 1 The V.I.C. (29 V.I.C. Chapter 15 § 918) states that “the debts, obligations, contracts, bonds, receipts, 

expenditures, accounts, funds, facilities and property of the Authority shall be deemed to be those of the 

Authority and not be those of the Government of the United States Virgin Islands, or any office, bureau, 

department, agency, commission, branch, agent, office or employee thereof.”
3

portion of payments issued by the U.S. Department of the Treasury for alcoholic 

beverages produced in the Virgin Islands and imported into the United States.2

PFA’s executive director has custody of all PFA funds, signs all orders and 

checks for payment under the direction of PFA’s Board of Directors, and keeps

the books of accounts showing receipts and expenditures.

Chapter 15 of 29 V.I.C. requires that PFA be governed by a seven-member board 

of directors. Three board members are required to be GVI employees, and four 

must be nongovernmental Virgin Islands residents appointed by the Governor of 

the Virgin Islands with the advice and consent of the Legislature. The legislation 

also requires the Governor to serve as the board chair and GVI’s commissioner of 

finance and director of the Virgin Islands Office of Management and Budget 

(OMB) to serve as ex officio members. 

Prior OIG Audit Coverage

In November 2002, we issued an audit titled “Public Finance Authority, 

Government of the Virgin Islands (GVI)” (Report No. 2003-I-0002), which 

reported that PFA did not effectively manage bond proceeds and funds from its 

operating budget. It specifically stated that PFA:

Allowed bond proceeds to go unused for 8.5 years and did not effectively 

use the funds in accordance with the Internal Revenue Code

Failed to adequately plan the construction of three schools, causing 

$17.3 million in cost overruns and more than 600 days in project delays

Paid expenses unrelated to its functions, such as travel and cellular phone 

expenses for employees of the Office of the Governor

Did not enforce the collection of $571,000 in interest and credit 

enhancement fees and the reimbursement of $706,000 in expenses from 

GVI’s central government

 2 The matching fund consists of rum “cover-over” revenues paid by the Treasury Department’s Trade and 

Tax Bureau and the U.S. Department of the Interior (DOI) under the Caribbean Basin Economic Recovery 

Act of 1983 (Pub. Law 98-67). The amount of the cover-over is $10.50 to $13.25 on each proof gallon of 

alcoholic beverage produced in the Virgin Islands and imported into the United States. Every year PFA 

requests an advance of these funds from DOI’s Office of Insular Affairs based on a forecast of imported rum 

production. The Treasury Department deposits the funds into an escrow account at the Bank of New York 

Mellon, which then ensures all bond obligations, such as the debt service reserve, are met. The balance of the 

funds is distributed to the two Virgin Islands-based rum companies and GVI, and the amount GVI receives is

deposited into the matching fund.
4

Findings

PFA did not maintain sufficient internal controls to safeguard assets and did not 

provide reasonable assurance that financial transactions and related reports were 

accurate, as evidenced by the $50 million in financial reporting discrepancies,

nine potential conflicts of interest, and $101.1 million in questionable 

expenditures we found during our fieldwork.3 Operating without strong internal 

controls has also contributed to longstanding deficiencies in PFA’s contracting 

practices, which have placed millions of dollars at risk for fraud, waste, and 

mismanagement. In addition, PFA did not perform its duties in accordance with 

contract terms and conditions, the V.I.C., the U.S. Internal Revenue Code, and 

PFA board resolutions.

PFA Did Not Maintain Sufficient Internal Controls

Internal controls provide reasonable assurance that a government is meeting the 

basic objectives of effectiveness, efficiency, safeguarding assets, reliable 

reporting, and compliance. PFA’s board, however, did not establish policies and 

procedures for basic operations, put sufficient systems in place to control and 

prevent financial discrepancies, properly monitor charge card transactions, or 

create proper segregation of duties over cash transactions and fund transfers. 

Compounding these issues was PFA’s failure to commit to establishing and 

adhering to internal controls, which has led to multiple potential conflicts of 

interest between GVI employees, contractors, and vendors. 

PFA Did Not Have Policies and Procedures for Basic Operations

PFA did not have any written policies and procedures to address its human 

resources, inventory, procurement, and petty cash practices. Without these 

controls, PFA has failed to provide adequate oversight over its employees’ job 

responsibilities; proper authorization, review, approval, verification, and 

reconciliation of business transactions; physical security for assets; employee 

training; and segregation of duties.

Absence of Human Resource Policies Led to Missing or Outdated Job Descriptions

None of PFA’s 11 employees had up-to-date written job descriptions, leaving 

them uncertain about their roles and responsibilities. The two written descriptions 

that did exist were dated 2008, when those employees joined PFA. 

We interviewed seven PFA employees in an effort to better understand each 

employee’s role, but even after our interviews, we were still not certain about 

their roles and responsibilities because they overlapped and did not match the 

employees’ position titles. One employee said that she was creating her own job 

description because management did not have one on file for her. Without clear 

 3 In this report, we use the term “questionable expenditures” in lieu of “questioned costs” because there is no 

expectation that PFA will resolve or recover these costs. 
5

roles and responsibilities, employees cannot effectively meet PFA’s expectations 

and PFA cannot hold employees accountable for inappropriate actions. 

PFA Had No Policies for Tracking Inventory Property

We tested PFA’s procedures for ensuring inventory accountability and found that 

PFA does not have a formal inventory system to track valuable property such as 

computers, copiers, smart devices, and office furniture. As a result, we could not 

verify the location of $12,935 in computer equipment purchased on November 29, 

2012. Without policies and procedures and a formalized inventory tracking 

system, PFA equipment and property are at risk. 

PFA Had No Policies and Procedures for Procuring Professional Services

PFA did not have policies and procedures in place to ensure that it competitively, 

fairly, and transparently procured its annual average of $5.1 million in goods and 

services to deliver the best economic value. The outcome of these deficiencies is 

discussed on p. 13, in the section titled “PFA Mishandled the Awarding and 

Management of Professional Service Agreements and other Expenditures, Paid 

with Budgeted Funds.”

Petty Cash Was Not Tracked or Protected

PFA did not always prepare monthly petty cash reports, generate reports to justify 

replenishing the petty cash account, document independent reviews of petty cash 

reports, or physically safeguard the cash. While most of the purchases we 

reviewed had supporting documentation, we found $333 in purchases that did not.

(See Appendix 2 for a table of all questionable expenditures in this report.)

Further, over half of the petty cash reports we reviewed—covering more than 

$7,000 in purchases—were not signed by an independent reviewer, and up to 

$500 in cash was stored in an unlocked file drawer. We found that PFA did not 

have a written petty cash policy; instead, it used several lax practices to replenish, 

account for, and secure petty cash. Without safeguards in place, petty cash is at 

risk for being misused or stolen. 

Recommendations

We recommend that the PFA Board of Directors:

Develop and implement operational policies and procedures to manage 

PFA’s day-to-day functions. These policies and procedures should, at a 

minimum, address human resources, inventory, procurement, 

accounting, and segregation of duties.

Create and implement petty cash policies and procedures that, at a 

minimum, provide guidance on the establishment, administration, 

appropriate uses, and safekeeping of funds. 
6

PFA Did Not Have Sufficient Systems in Place To Control and 

Prevent Financial Discrepancies

PFA invested an estimated $5.4 million to purchase, upgrade, and maintain its 

two financial accounting systems, but it did not maximize all of the functions in 

these systems. Instead, PFA employees used Excel spreadsheets to track PFA’s

administrative revenue, project expenditures, and contractor and vendor tax 

forms. 

Choosing not to ensure that all funding and business transactions were recorded in 

the systems led to several problems. PFA’s reporting was delayed, PFA paid 

$1 million to its public accountants between January 2008 and June 2015 to help 

prepare reports that the systems were capable of preparing, and one of the systems 

had over $50 million in financial discrepancies.

PFA Used Excel Spreadsheets Instead of Its Financial Accounting Systems

Instead of using its financial accounting systems, PFA used Excel spreadsheets to 

track administrative fees, bond proceed expenditures, and vendor payments. 

PFA’s compliance bond proceeds manager used an Excel spreadsheet to track 

over $34 million in administrative fees. These fees, which are revenue to PFA, 

make up 1 percent for each bond issuance and are deposited into the project fund.

Recording the project fund’s income, interest earnings, and expenditures on an 

Excel spreadsheet is an inefficient and unsecure way to track such a large amount 

of revenue; it increases the risk of reporting errors and decreases transparency. 

PFA officials used Excel to track bond proceed expenditures for the 14

construction projects we reviewed. (We discuss two of these projects starting on 

p. 12 of this report; the rest are discussed in a separate management advisory 

letter, No. ER-IN-VIS-0015-2014-A.) One of PFA’s accounting systems was 

created specifically to track bond proceed expenditures by project, but because 

PFA does not use this program, it took PFA officials 5 months to compile a report 

of projects that we had originally requested at the beginning of the audit. In 

addition, compiling the data involved multiple GVI agencies, and the report they 

eventually submitted was incomplete. 

PFA also tracked vendor payments using an Excel spreadsheet instead of entering

them into its other accounting system, thus wasting resources and leaving PFA at 

risk of misreporting tax information. This system is able to automatically 

calculate each vendor’s and contractor’s expenses for the calendar year and 

compile the information into the 1099 and 1096 returns that PFA must submit to 

U.S. Internal Revenue Service (IRS) each year, but because PFA did not enter this 

data, it had to hire public accountants—at additional cost—to prepare the IRS 

returns. The public accountants, however, were only hired to offer accounting 

assistance, not to verify the numbers from the spreadsheet.
7

In addition, PFA did not use this system’s reporting features to generate reports 

for upper management and required financial statements for submission to the 

Municipal Securities Rulemaking Board (MSRB). Instead, PFA paid its public 

accountants an additional $1 million from February 2008 to June 2015 to help 

prepare these statements and perform other services. The public accountants used

system reports, disbursement requests, checks, bank statements, trustee 

statements, and PFA bond counsel and staff correspondence to assist in preparing 

the MSRB financial statements. As with the IRS reports, the accountants were not 

required to offer assurance on the accuracy of the financial statements they 

prepared.

One possible reason that PFA staff has not used these systems to their full 

capabilities is that staff members were not trained in the systems’ basic functions. 

For example, when we requested PFA’s vendor financial summary, posting 

accounts, and transaction history reports, PFA’s accountant did not know 

anything about them and had to consult PFA’s information technology consultants 

for instructions on how to print them. After more inquiry, we learned that PFA 

employees had received only introductory training on one of the systems in 2008, 

when it launched. Instead of providing additional training to PFA staff, the former 

director of finance and administration decided to maintain an annual service 

agreement with the information technology consultants, and all questions on the 

system are routed to them. 

PFA’s Inaccurate Reporting Led to Over $50 Million in Discrepancies

We reviewed and compared PFA-provided expenditure reports to the information 

reported in PFA’s accounting system and found over $50 million in discrepancies. 

Because PFA’s financial and reporting data were unreliable, we used supporting 

documentation, such as invoices and checks, during our review. 

First, we tested PFA’s summary expenditures by comparing them to detailed 

expenditure transaction reports. Our tests found discrepancies totaling over 

$6.2 million between calendar years 2010 to 2012, with one report failing to 

disclose 137 contractors.

Second, when we compared the vendor payments reported to IRS to those

reported in PFA’s accounting information systems, we calculated a difference of 

over $50 million (see Figure 1). In some cases, vendor payments reported on 

PFA’s Form 1099 were not recorded in PFA’s accounting systems (the 

“Unrecorded Payments” column in Figure 1), or they were lower (“UnderReported Payments”) or higher (“Over-Reported Payments”) than the amounts 

reported in the systems. 
8

Figure 1. Comparison of IRS reports to PFA accounting system vendor payment (by calendar 

year).

These discrepancies occurred because PFA did not maximize the use of its

financial systems, resulting in unreliable financial information and the inability to 

generate accurate real-time reports. At the time of our review, PFA was 

negotiating a contract with its information technology consultants to upgrade 

these systems, but the millions that it has already invested will prove useless 

without training and protocols to ensure that employees use the systems as fully 

and accurately as possible.

Recommendations

We recommend that the PFA Board of Directors:

Direct PFA to use all applicable functions in its existing accounting 

financial systems and to capture its financial transactions in the systems

so that reporting is prompt, accurate, and complete.

Implement reconciliation procedures to validate data entries, confirm 

that financial transactions in the systems are complete and accurate, 

and enable accurate tax reporting. 

Direct PFA to train its employees to fully use the accounting system 

functions that are related to their duties and responsibilities.

PFA Did Not Properly Monitor Charge Card Transactions

Our charge card review, which covered September 10, 2009, to November 10, 

2014, and examined purchases totaling $230,443, revealed that 84 percent of the 

charges ($193,682) made during that period were not adequately supported by 

invoices, charge receipts, or other forms of confirmation. In addition, PFA paid 

some charge card bills in full without any supporting documentation, and the 

Year

Unrecorded 

Payments 

UnderReported

Payments 

OverReported

Payments 

Total 

Discrepancy

2010 $3,059,692 $1,595,718 $7,472,149 $12,127,559

2011 457,278 1,224,393 11,014,139 12,695,810

2012 6,086,494 228,452 5,230,375 11,545,321

2013 1,853,325 1,376,711 3,087,799 6,317,835

2014 990,168 607,029 5,783,770 7,380,967

Total $12,446,957 $5,032,303 $32,588,232 $50,067,492
then-director offinance and administrntion incmTed unsupported charges and 

used the card for personal purchases. 

Unsuppo1ied charges and personal use ofPF A charge cards occurred because 

PF A did not have any policies to manage how employees used the card, nor did it 

have an independent review process in place to catch potential improper charges. 

As an example of unsuppo1ied costs, we reviewed three charge card bills, totaling 

$35,318, that PFA paid between September and November 2009 without a single 

document to suppo1i the validi ofthe char es. As another exam le, we found a 

2010 transaction in which the charged 

$3,786 to a marine cargo shipping company; these costs were unrelated to PFA's 

mission. The- did not provide any support for the unusual transaction and 

PF A did not n:gitfur fmiher review, but PFA still paid the charge on June 3, 

2010. When we inquired about it, PFA officials did not know what the charge was 

for, and our analysis could not detennine whether it was personal or legitimate. 

The need for an inde endent review rocess was highlighted by our finding that 

the same used the PF A charge card in 

Januaiy 2011 for personal lodging and Apple online chai·ges totaling $5,399. 

Although he paid these charges a day after the due date, it is not a prndent 

business practice for PFA to allow an employee who can afready generate, 

review, and approve his or her own chai·ges to use PFA's chai·ge cai·d for personal 

pmposes. 

Recommendations 

We recommend t hat t he PFA Board of Directo rs: 

6. 	 Create and implement a charge card policy that pro hi bits PFA's official 

charge card from being used for personal expenses. The po licy should 

also note use rs' responsibilities, penalties for abuse of t he offic ial card, 

and timely payment to avoid finance charges. 

7. 	 Implement and enforce an independent review of charge card 

statements and corresponding receipts each mont h to ensure all charge 

card transactio ns are for PFA offi cial business. 

PfA Did Not Create Proper Segregation of Duties Over Cash 

Transactions and Fund Transfers 

As pait of our audit, we reviewed controls over wire transfers and check 

payments, as well as hotel transactions at one of PF A 's subsidiai·ies, King 's Alley 

Management, Inc., and found that unsegregated duties and deficient oversight left 

PF A vulnerable to abuse. PF A could have detected or avoided inegulai·ities if 

internal controls had been in place. 

9 
uired. 

Only One Signature Is Needed for Wire Transfers and Check Payments 

In J anmuy 2015, a PFA board resolution gave four board members individual 

signing authority for all 171 ofPFA's bank accounts, which had a total of 

$535 million as ofSeptember 30, 2015, and empowered the members to wire 

transfer large dollar amounts. The board did not, however, require internal 

controls- such as superviso1y reviews oftransactions, two or more signatures for 

wire transfers and checks over a certain dollar amount, or reconciling all bank 

accounts-to conect enors and prevent fraud. 

As a result, in late 2014 a PFA wired $3 .1 million from the 

matching fund to PFA 's "Adm1mstrative" account without suppo1iing 

documentation to show it was authorized by the Virgin Islands OMB as re 

When the director ofthe Virgin Islands OMB took over the 

position a month later, she recognized the transfer as an error an reverse it. 

Still, this $3 .1 million enor could have gone unnoticed because PFA did not 

establish controls to protect public funds. 

Hotel Transactions Were Exposed to Risk 

Our review of controls over hotel transactions led us to perfo1m a limited review 

ofthe hotel receipts, which revealed $17 ,846 in discrepancies. We noted that PFA 

tasked a single employee with collecting, recording, and depositing lease 

payments and hotel receipts into PFA accounts instead ofsegregating these duties 

among several employees to provide a higher level of accountability. In addition, 

PFA management neglected to provide any type of compensating internal controls 

such as closely reviewing the employee's work. 

We reviewed hotel receipts reported and deposited by this employee from Januaiy 

2014 to Mai·ch 2015 and found $4,136 in unaccounted-for cash and $13,710 in 

check transaction discrepancies. These inegularities went unnoticed because PFA 

had never created or implemented preventive and detective internal controls, such 

as superviso1y reviews and account reconciliation. The absence ofthese controls 

provides employees the opportunity to defraud PFA. 

Recommendations 

We recommend that the PFA Board of Directors: 

8. 	 Require multiple signatures on wire transfers. 

9. 	 Create and implement controls, such as adequate supervisory reviews 

and segregated responsibilities, over all collections and periodic reviews 

of monthly bank statements. 

10 
11

Operating Without Strong Controls Led to Multiple Potential 

Conflicts of Interest Between GVI Employees, Contractors, and 

Vendors

PFA’s failure to establish internal controls has impeded progress toward an 

effective control system at PFA and led to multiple potential conflicts of interest. 

Since PFA is GVI’s financing conduit, adequate controls are central to 

safeguarding billions of dollars in public funds. During our review, we found an 

unusually high occurrence of potential conflicts of interest at PFA, which 

indicates a need for a code of ethics to promote a culture of integrity and thus help 

safeguard public funds. Our review of 12 professional service contracts and 

14 construction projects revealed 9 potential conflicts of interest between PFA’s 

vendors and contractors and its board members, employees, board counsel, bond 

counsel, and elected GVI officials.

4 For example: 

PFA’s bond counsel issued a legal opinion in favor of a new bond 

issuance and later benefited from the proceeds of that bond issuance. The 

counsel collected $463,505 for legal services related to the project for 

which the bonds were issued.

The alcoholic beverage company Diageo USVI Inc. contributed $2,500 

from bond proceeds to a carnival troupe managed by a Virgin Islands 

senator who voted in favor of a $250 million Diageo bond issuance.

Diageo listed this cost on its invoice as “government contributions.”

Diageo also contributed $1,000 in bond proceeds to a “Democratic Party –

Gov. Prayer Breakfast” in 2009. 

A former Governor who had served as the chair of PFA’s board entered 

into PFA contracts with his close relative.

A member of PFA’s board voted in favor of the Diageo bond issuance and 

later benefited from the proceeds when his company provided services for 

the project. When we interviewed him, he did not recognize his actions as 

unethical.

PFA legal counsel simultaneously represented both GVI and its opponent 

regarding a work stoppage on a GVI project in February 2013. 

A code of professional ethics at PFA would create a cohesive understanding of 

acceptable and unacceptable workplace behavior, thereby making it easier to hold 

PFA board members, administrators, employees, contractors, and other affiliates 

accountable in the event of a breach of ethics. 

 4 These potential conflicts of interest are related to some of the 14 construction projects we reviewed during 

our audit. Seven of the 9 potential conflicts occurred on construction projects that we highlight in our 

management advisory (Report No. ER-IN-VIS-0015-2014-A). We discuss them here because they are 

relevant to the management of PFA as a whole. 
12

Recommendation

We recommend that the PFA Board of Directors:

Create and enforce a comprehensive code of ethics that addresses 

conflicts of interest. 

PFA Failed To Appropriately Manage Budgeted 

Funds and Bond Proceeds

We found that PFA failed to manage over $146 million in budgeted funds and 

bond proceeds in accordance with contract terms, laws, and PFA board 

resolutions. This failure was in addition to the absence of internal controls over 

PFA’s business functions and transactions related to more than $2.6 billion in 

budgeted funds and bond proceeds for which it was responsible between FYs 

2010 and 2014.

Specifically, PFA did not have a procurement system that promoted, at a

minimum, full and open competition, oversight, monitoring, and enforcement for 

its budgeted funds. PFA mismanaged taxpayer dollars by using bond proceeds to 

finance the Charles Wesley Turnbull Regional Library construction project and 

failed to thoroughly review invoices before disbursing bond proceeds for a rum 

distillery project on St. Croix. Further, PFA did not comply with V.I.C. 

requirements governing the number of members of its Board of Directors and did 

not comply with the Internal Revenue Code or its own board’s resolutions

regarding bond proceeds. These practices led to questionable expenditures of over

$101.1 million.

As part of our audit, we reviewed the procurement processes at PFA, three other 

autonomous and semiautonomous GVI agencies, the Office of the Governor, and 

GVI’s Department of Property and Procurement (DPP). PFA directly procured its 

own 34 professional service agreements and the Turnbull Library construction 

project; it also provided funding for the Diageo rum distillery and 12 other 

projects procured by other divisions and agencies. (We report on these 12 PFAfunded projects in our management advisory.) We found multiple issues with 

PFA’s professional services agreements, the library construction, and the rum 

distillery projects; its mismanagement of bond proceeds; and its noncompliance 

with laws and rules. We discuss these problems in the following sections.

PFA Mishandled the Awarding and Management of Professional 

Service Agreements and Other Expenditures Paid With Budgeted 

Funds

We reviewed 12 of the 34 professional service agreements awarded by PFA, 

totaling $27.7 million in expenditures, as well as 9 other expenditures totaling 

almost $2.4 million. We found that many of the expenditures were mishandled, 
13

sometimes in more than one way. For example, out of the $30.1 million we

reviewed, we found that not only did PFA sole-source each of the 12 agreements, 

but it also paid $16.6 million to contractors without valid contracts, $988,102 for 

services and rent without a written agreement, $9.6 million for costs that were 

outside its mission, $6 million to contractors who submitted invoices for payment 

without adequate support, and $115,494 for services outside contract terms and 

conditions. All agreements were initiated and authorized by PFA’s executive 

director or the board chair. The agreements in our review included agreements for 

professional services, such as consulting, accounting, cleaning, lobbying, legal, 

project management and financial management, on behalf of PFA and other 

agencies, including the Governor’s Office.

PFA Habitually Awarded Sole-Source Agreements

As discussed on p. 5, PFA leadership did not develop and implement procurement 

policies and procedures for professional service agreements, thereby enabling the 

chairman of the PFA board and the executive director to handpick professional 

service contractors. PFA sole-sourced 12 professional service agreements totaling 

$27.7 million without any type of justification, leaving no assurance that PFA 

paid the most economical price for services, had access to the largest pool of 

talent and expertise, or promoted the Virgin Islands’ economy and fair 

opportunities for businesses and tradespeople (see Figure 2).

Sole-Source Contracts Amount

Legal (spanning several gubernatorial administrations) $14,341,343

Consulting Contract with Former VI Senator 808,126

Lobbying 1,764,768

Cleaning Contract 311,991

Legal Office of Economic Opportunity (OEO) Contract 497,444

Accounting Contract 739,871

Legal – Purchase of Anchor Inn 27,984

Project Management Services 120,000

Financial Advisory-Grant Writing 39,773

Network Service Management 249,478

Information Technology Consultants 5,378,493

Financial Advisory – PFA Financial Consultants 3,407,233

Total $27,686,504

Figure 2. PFA’s sole-source contracts made without justification.

As examples of this practice, we describe below the first three contracts listed in 

Figure 2. 
In our first example, in Janmuy 1999 a Virgin Island Governor awarded, without 

any documented justification, a sole-source contrnct for legal services totaling 

$14,341 ,343 for the pmpose ofrepresenting GVI to Federal regulato1y agencies 

and the coml~ em. The contractor's compensation for these services ranged 

fromllto..per hour, depending on the qualifications of assigned staff. The 

original contract period was from Januaiy 15, 1999, to December 31 , 2001 , plus 

three extensions, extending its te1m to December 2014. 

In our second example, in Febrna1y 2007, another Governor-again, without 

justification-awarded a sole-source consulting contract on behalf of PFA to a 

fo1mer Virgin Island senator for various services totaling $808,126. As 

compensation, the fo1mer senator received a retainer of- per month plus 

authorized out-of-pocket expenses. (Prior approval was reqmred for expenses 

above $2,500.) The original scope ofthe contract was Febrna1y 1, 2007, to 

December 31, 2008, but the fo1mer senator negotiated three additional contractsstill without competition- with the same services, thereby extending the period to 

June 30, 2015. 

In our last example, in March 2009 the same Governor awarded a sole-source 

financial adviso1y service contract for independent financial adviso1y services 

with payments totaling $3,407,233 without any documented justification. The 

annual compensation for the contractor's services was ' paid in monthly 

installments of ' plus a graduated fee schedule financing 

transactions (level ofboITowing). 

Recommendation 

We recommend that the PFA Board of Directors: 

I I. Develop and implement procurement po licies and procedures for 

professional services to ensure all contracts are competitively bid o r are 

properly justified for sole-source. 

PFA Paid for Services Not Under Contract 

PFA paid contractors $16.6 million without valid contracts because it continued to 

pay for services after the contracts expired and before they were renewed (see 

Figure 3). It also paid $988,102 to vendors for services without any contract at all. 

14 
15

Payments to Contractors Without a Valid 

Contract Amount

Legal (spanning several gubernatorial administrations) $11,164,425

Consulting Contract with Former VI Senator 46,151

Financial Advisory Firm (PFA financial consultants) 1,371,885

Lobbying 600,926

Legal (purchase of Anchor Inn) 27,984

Information Technology Consultants 3,339,384

Total 16,550,755

 

Figure 3. PFA’s payments made to contractors without a valid contract.

As examples of this practice, we describe below the first three payment amounts 

listed in Figure 3.

From January 2009 to December 2012, PFA paid a law firm during lapses in its 

contract. The contract spanned three gubernatorial administrations, from January 

1999 to December 2014. The original contract period was from January 14, 1999, 

to December 31, 2001, plus three extensions and one amendment. We found, 

however, that during periods when the original contract expired and subsequent 

contracts were not yet finalized, the contractor submitted invoices and received 

payments. Specifically, the third extension to the contract was not sought until 

January 2013, 7 years after the second extension expired; we found that between 

the second and third extensions, PFA paid the law firm at least $11,164,425. 

Another example is a consulting services contract PFA entered into, which was

awarded in February 2007 but did not become valid until 2 months later. During 

the period before the contract became valid, the contractor received payments 

totaling $16,166. When this contract expired on December 31, 2008, the 

contractor received $8,083 in payments before a new contract was awarded in 

early February 2009. This contract expired on December 31, 2010, and again the 

contractor received payments—this time $21,902—until the contract was renewed 

in late March 2011. Altogether, PFA paid $46,151 to this contractor without a 

valid contract.

In our final example of this practice, PFA continued to pay a financial advisory 

firm $1,371,885 after a contract expired. The firm was awarded a contract for the 

period of March 1, 2009, to February 28, 2011. After the contract expired, PFA 

continued to pay the invoices for almost 4 years—until December 30, 2014.

Next, we examined PFA’s expenditure reports covering October 2009 to 

December 2014 and found that PFA had paid five vendors a total of $988,102 

without written agreements (see Figure 4). Although PFA did not establish a 

threshold through its own policies and procedures, V.I.C. requires written 
contracts for expenditures in excess of $50,000. In addition, these vendors were 

not on the professional service contract listing that we obtained from PF A. 

Payments to Vendors Without a Written 

Contract 

Law Firm (litigation representation) 

Rent to Two Lessors 

Public Relations 

Board Counsel 

T otal 

Amount 

$ 9 1,974 

195,653 

273,39 1 

427,084 

988, 102 

Figure 4. PFA's payments made to vendors without a written contract. 

The following list describes these payments: 

• 	 PF A paid a law furn (not the same one discussed in the description for 

Figure 3) $91,974 between October 1, 2009, and December 31, 2014. The 

furn did not have an agreement with PF A; instead, we found only a June 

3, 2005 letter listing the furn's hourly rates for legal services and noting an 

oral agreement with PF A 's then-director of finance and administration to 

continue representing PF A. 

• 	 PFA paid two lessors $69,093 in FYs 2010 and 2011 and $126,560 

between October 1, 2012, and December 31, 2014, for rent on PF A's 

St. Croix office, but PF A had no written lease agreement for the monthly 

rent. 

• 	 PF A paid a public relations furn $273,391 without a valid agreement for 

services rendered in FYs 2010 and 2011 . The fam had a signed agreement 

for the period ofNovember 1, 2004, to March 31, 2005. Another 

agreement with the furn, for the period of Januaiy 1, 2006, to December 

31 , 2006, was not signed by either the Governor or PF A's director of 

finance and administrntion. 

• 	 PFA paid its board counsel $427,084 between October 1, 2010, and 

Januaiy 8, 2015, without a contrnct or agreement. In a July 8, 2013 email 

addressed to PF A's compliance bond proceeds manager, the counsel stated 

that he did not have a contract and that he billed the boai·d for requested 

services at a discounted rate of. per hour. We did not find evidence 

that PF A ever signed a written agreement or contrnct with him. 

16 
17

Recommendation

We recommend that the PFA Board of Directors:

Develop and implement procurement policies and procedures for 

professional services to ensure that valid contracts are in place before 

paying contractors and vendors. 

PFA Paid for Services That Were Outside its Mission

PFA paid $9,562,959 for services that were outside its mission (see Figure 5). 

PFA’s executive director or board chair initiated contracts for non-mission-related 

services on behalf of other government agencies, mainly for the Governor’s 

Office. PFA was not reimbursed the $9,562,959 for these services, which 

included agreements for consulting, legal, public relations, and lobbying services.

PFA also paid vendors that provided services without being under contract. As a 

result, PFA awarded contracts that did not always protect its interest and paid for 

a number of activities outside its core mission.

Payments for Services and Travel Outside Its 

Mission Amount

Legal Services (spanning several gubernatorial administrations) $5,344,824

Consulting Contract with Former VI Senator 808,126

Subcontract-Advisor to Law Firm 438,852

Public Relations Firm 273,391

Regional Governors Association 105,000

Employee Salary 791,667

Employee Travel 36,331

Lobbying 1,764,768

Total 9,562,959

Figure 5. PFA’s payments for services outside its mission. 

As examples of these practices, we describe below the payment amounts listed in 

Figure 5.

Between April 2009 and December 2014, PFA paid $5,344,824 for services that 

we determined should have been paid by the Office of the Governor instead. The 

contract provided legal services, government relations, and other professional 

services for the purpose of representing GVI to Federal regulatory agencies and

the court system. The contract stated that this representation was related to 

matters of “financial and economic recovery,” income tax systems, international 

trade, environmental protection and compliance, healthcare and welfare reform, 
18 

and other matters. The contractor submitted itemized invoices detailing attorney 

hours spent in various categories, such as economic recovery, rum taxes, landfill, 

appropriations, health care reform, and the Virgin Islands constitutional 

convention. Based on our review of the work descriptions in each of these 

categories, we determined that with the exception of services related to rum taxes 

and economic recovery, the contractor’s services fell outside PFA’s mission. 

We found that PFA also paid $808,126 for services related to expanding the 

Virgin Islands’ affiliation in the Caribbean region and crafting economic 

development policies—services that did not contribute to the overall mission and 

purpose of PFA. According to the contract, the contractor was to coordinate 

“coalition-building activities,” provide consulting services, attend meetings to 

expand GVI’s participation in “Caribbean region and regional organizations,” 

formulate economic development policies, and develop initiatives on the island of 

St. John, including building a new school and creating loan programs with the 

Government Development Bank. The contractor’s responsibilities did not align 

with PFA’s mission to aid GVI in performing its fiscal duties and to raise and 

manage capital for capital projects.

As with its contracts, PFA paid vendors that provided services unrelated to PFA’s 

mission and goals. Our review revealed $817,243 in costs that the Office of the 

Governor, not PFA, should have paid: 

PFA paid a subcontractor (an advisor to a law firm) $438,852 for services 

including negotiations with HOVENSA and assistance with the fuel 

supply for the Virgin Islands Water and Power Authority.5

 

PFA paid a public relations firm $273,391 in FYs 2010 and 2011 to 

manage breaking news and crisis communication for GVI, conduct media 

outreach for the Virgin Islands Governor and Lieutenant Governor on their 

trips to Washington, DC, and support ongoing lobbying for GVI. 

PFA paid $105,000 to a regional governors’ association from FY 2010 to 

FY 2014. The Governor is a member of this organization. 

In addition, from August 2007 to October 2014 PFA paid an employee stationed 

in Washington, DC, an annual salary of $ (an estimated total of 

$ ). The employee indicated that his job duties were to identify all Federal 

grant opportunities available to the Virgin Islands, prepare daily Federal funding 

grant reports for the Virgin Islands OMB, make sure that every agency in the 

territory was aware of its eligibility for competitive grants, and act as a liaison 

between PFA and Federal agencies. We determined, however, that these job 

duties were not related to the mission of PFA; they were related to the functions 

 

5 HOVENSA was a petroleum refinery on St. Croix that was jointly owned by Hess Corporation and

Petroleos de Venezuela. Its closure in 2012 created a crisis in the Virgin Islands, as it had been the fuel 

source for the territory’s two electrical plants. 
19

of the Office of the Governor and should have been paid from that office’s 

budget.

PFA also paid $36,331 for this employee to travel to St. Thomas four times to 

attend multiple State of the Territory addresses as well as for fees and travel costs 

for him to accompany the Governor to regional and national conferences. His 

travel and attendance fees to attend these conferences were paid with PFA’s 

charge card, but these were direct expenses of the Office of the Governor. 

Although the Governor serves as the chair of PFA’s board, PFA’s operating 

budget and project fund should not be exploited as an extension of the Office of 

Governor’s budget.

Recommendations

We recommend that the PFA Board of Directors:

Pay only those expenses that are related to PFA’s primary 

responsibilities as prescribed by the V.I.C.

We recommend that the Virgin Islands Legislature:

Amend the legislation that created PFA to prohibit PFA from paying 

expenses unrelated to its mission. 

PFA Paid for Unsupported Activities and Services Outside Contract Terms and 

Conditions

PFA paid contractors $6 million without properly supported invoices (see Figure 

6) and $115,494 for services outside contract terms and conditions (see Figure 7). 

Many of the contracts we reviewed did not require specific deliverables (such as 

reports on the contractor’s progress or accomplishments) other than a monthly 

invoice documenting hours worked, work performed, and expenses. Without 

support for payments, PFA is at risk for paying for non-mission-related tasks, outof-scope work, and unneeded goods and services. 

Payments Without Properly Supported Invoices Amount

Legal Services (spanning several gubernatorial administrations) $5,394,034

Consulting Contract with Former VI Senator 363,735

Lobbying 123,501

Accounting 18,113

Project Management Services 120,000

Total 6,019,383

Figure 6. Payments for unsupported activities.
20

Payments for Services Outside Contract Terms Amount

Cleaning $ 48,160

Legal (purchase of Anchor Inn) 27,984

Financial Advisory (grant writing for Office of Economic 

Recovery) 39,350

Total 115,494

Figure 7. Payments for services performed outside contract terms. 

For example, PFA paid a law firm $5,394,034 for legal services but could not 

provide us with any type of documentation to support the validity of these 

payments.

PFA also paid $363,735 to a consulting firm without the required detailed 

invoices showing the work the contractor performed. Specifically, the contract 

called for biweekly invoices showing the contractor’s hours worked, activities 

undertaken and work performed, and expenses. The contractor fulfilled this 

requirement during the first and second contracts, but circumvented it during the 

third contract by submitting one-page invoices with a line item noting “consulting 

services.” These invoices did not contain enough detail to support the contractor’s 

costs, but PFA paid the contractor anyway.

Recommendation

We recommend that the PFA Board of Directors:

Ensure that all costs are adequately supported and within agreed 

contract terms and conditions. 

Unimplemented Recommendations From 2002 Worsened Contracting Issues

Our 2002 audit report provided recommendations for many of these contract- and 

professional-service-related issues, but PFA decision makers did not implement 

the policies and procedures we recommended. Their inaction has allowed PFA’s

contracting issues to balloon. 

The 2002 audit reported six instances, valued at $8.2 million, in which PFA did 

not competitively procure professional service contracts; as mentioned above, 

none of the 12 professional services contracts we reviewed for this audit were 

competitively procured. The 2002 report also reported four professional service 

contractors that PFA paid at least $2.3 million for work that was not related to 

PFA’s primary functions; this audit reported almost $9 million paid by PFA to 

cover expenses unrelated to its primary functions, mission, or goals. 
21

Had PFA taken corrective action when we issued our first audit, there would have 

been greater accountability for the funds entrusted to it on behalf of the people of 

the Virgin Islands.

PFA Mismanaged Bond Proceeds Used To Fund GVI Projects 

In addition to the issues we found with budgeted funds, we found similar issues in 

our review of PFA’s management of bond proceeds that funded GVI projects.

6 In 

the projects we describe below, PFA paid for projects with undocumented and 

unjustified scope changes and change orders, did not properly review invoices, 

and did not collect gross receipts taxes. 

PFA Paid for Contracts With Major Change Orders, Drastically Increasing Contract 

Costs

During the construction of the Charles Wesley Turnbull Regional Library, scope 

changes and change orders caused PFA’s costs to increase by 149 percent from 

the original estimate, while the overall footprint of the library decreased by nearly 

a third. PFA ultimately paid $13.7 million more than originally estimated on the 

project. 

PFA awarded the contract to a St. Thomas construction firm for $9.2 million in 

November 2006. Approximately 6 months later, in May 2007, PFA’s director of 

finance and administration terminated the contract, claiming unacceptable 

performance by the contractor, after the contractor was paid $133,547 for 

groundbreaking and preconstruction services. The contract went back out for 

bidding in August 2008, and a different contractor received a $12.7 million 

contract in November 2008. 

Costs escalated under the new contractor with the issuance of 16 change orders, 

which increased the contract’s value to $14,461,890. In addition, PFA approved 

six addenda to the contract for various construction services without documented 

justification, further increasing the contract amount to $20,334,275. During this 

time, the size of the library facility was reduced from 57,000 square feet to 

39,000 square feet without a corresponding reduction in cost.

As of July 23, 2015, near the end of the project, the library construction payments 

totaled $22,940,102. As a result of the unjustified escalations and decreased 

footprint of the building, PFA paid $13,740,102 over the original estimate. 

PFA Did Not Properly Review Invoices Before Payment and Did Not Withhold Gross 

Receipt Taxes

PFA continued its mismanagement of bond proceeds when it funded the 

construction of the Diageo rum distillery. For this project, we found $374,169 in 

ineligible costs, $29,796,185 in unsupported costs, and $378,146 in uncollected 

tax revenues during our review of five fund requisitions worth over $42 million. 

PFA issued many more requisitions for this project—354 altogether, for a total 

 6 See our management advisory for details on the other 12 GVI projects we reviewed. 
cost of $184,382,146---therefore, the potential questionable expenditures could be 

much greater. 

GVI entered into an agreement with Diageo in June 2008 to increase rum 

production in the Virgin Islands and thus increase paiiicipation in the rum coverover program (see note on p. 3). Unlike the other 13 constrnction projects we 

reviewed, the Diageo project was not procured, managed, or constrncted through 

GVI; Diageo administered the entire project, and PF A requisitioned the fonds 

from the fiduciaiy-the Bank ofNew York Mellon Trnst Company- for Diageo. 

Under the tenns ofthe agreement, GVI: 

• Gave Diageo a grant ofup to $250 million to pay for the project 

• 

In exchange, Diageo agreed to build a distille1y in the Virgin Islands by Janua1y 

1, 2012, and produce at this distille1y all Captain Morgan-branded products to be 

sold in the United States. 

We found that $374,169 in bond proceeds designated for the constrnction ofthe 

mm distille1y was inappropriately used because the fonds went toward goods and 

services unnecessaiy for the construction ofthe facility. Ofthat amount, $145,903 

was conti·ibuted to nonprofit organizations, political campaigns, and community 

events; $116,350 was used for employee, conti·actor, and subcontl'actor perks, 

including bonuses, gift ce1iificates, jewehy , babysitting fees, and travel expenses 

for the spouse of a Diageo official; and $111,915 went toward meals, 

ente1iainment, happy hours, and social events. PF A did not adequately review 

these invoices to prevent these costs from being reimbursed. 

In addition, our review offive requisitions found that $29,796,185 in expenses 

were unsuppo1ied. PF A employees stated they never received any suppo1i for the 

first (and largest) requisition, which was valued at $29, 191,295. PF A also did not 

have a single conti·act or agreement related to the project, nor did it have 

inspection reports on the status ofthe project at any given phase. Based on this, 

we believe that PF A did not exercise due diligence in ensuring that bond proceeds 

related to the project were spent in accordance with legislation (Act No. 7012), 

and that PF A failed to safeguard funds against fraud, waste, and mismanagement. 

PF A also did not consistently withhold gross receipt taxes from the Diageo 

project's contl'actors and vendors, leading to a potential loss of $378,146 in tax 

revenues due to GVI. For example, our review of2 of the 354 requisitions 

22 
23

revealed that PFA had paid out $9,453,644 to one of the biggest contractors on the 

Diageo project, but had failed to withhold applicable gross receipt taxes as 

required by 33 V.I.C. § 44. Furthermore, a brief review of the requisition list 

disclosed that PFA did not begin withholding gross receipt taxes against Diageo 

contractors and vendors (which is also required by 33 V.I.C. § 44) until the 23rd 

requisition—after having paid out over $68 million in bond proceeds for the 

project. In addition, PFA did not withhold gross receipt taxes on the bond 

proceeds it paid directly to Diageo so that Diageo could pay the vendors and 

contractors. Thus, the overall potential loss to the GVI treasury could be 

significantly greater than $378,146. 

Recommendations

We recommend that the PFA Board of Directors:

Ensure that the commissioner of property and procurement adhere to 

all applicable laws when procuring construction services for PFA.

Direct PFA to stop administering construction contracts for GVI and to 

require all construction and capital improvement projects funded 

through bond proceeds be administered and processed through GVI’s

central procurement path. 

Direct PFA to follow the requirements of the V.I.C. regarding the 

deduction and reporting of gross receipt taxes for contractors and 

service providers.

We recommend that the Virgin Islands Legislature:

Amend the legislation that created PFA to stop PFA from administering 

construction contracts for GVI and to require all construction and 

capital improvement projects funded through bond proceeds be 

administered and processed through GVI’s central procurement path. 

PFA Has Not Complied With Laws and Rules for Board Membership 

and Bonds

In addition to its complete absence of internal controls and its serious 

mismanagement of budgeted funds and bond proceeds, PFA has not complied 

with V.I.C. laws governing the number of members of its Board of Directors. It 

also has not complied with the U.S. Internal Revenue Code or its own board’s 

resolutions regarding bond proceeds. 

PFA Does Not Have the Required Number of Board Members

On April 21, 2008, the 27th Legislature increased the mandatory number of PFA 

board members from five to seven (Act 7002), but neither of the Virgin Islands 
24

Governors elected since the legislation was enacted has complied with the V.I.C. 

by appointing two new members. As of April 2016, there were two 

nongovernmental vacancies in the St. Thomas/St. John District. These vacancies 

undermine the law’s intent to enhance impartiality and increase accountability 

over bond proceeds and budgetary funds. 

PFA Wasted Millions of Dollars in Bond Proceeds To Pay an IRS Settlement

In 2013, IRS required a $13.6 million settlement from PFA for not following 

required practices for tax-exempt bonds. When PFA issued the nontaxable gross 

receipts bonds in 2006 at the advice of legal and financial advisors, it used some 

of the bond proceeds to refund gross receipt bonds from 1999. IRS determined 

that GVI had a cash surplus at the time of the 2006 issuance and should have used 

the surplus to refund the 1999 bonds. To maintain the bonds’ tax-exempt status, 

PFA agreed to pay $13.6 million to settle the issue with IRS. PFA issued 

$14 million in bonds in 2014 to pay the $13.6 million settlement.

PFA Spent Bond Proceeds Without Proper Approval

PFA issued $13,032,474 in payments for projects funded with the Series 2003A 

gross receipt taxes bond without adequately documenting authorization for the 

disbursement by either the Legislature or the board’s own resolutions.

We reviewed the authorizations pertinent to 14 of 81 projects funded by the bond 

issuance to determine whether PFA had complied with the V.I.C. and with its 

board’s resolutions to properly fund various projects from the bond proceeds. We 

found that the following projects did not comply:

PFA disbursed $6,943,417 more than the amount documented in the board 

resolutions to acquire Lindquist Beach. 

PFA disbursed $2,738,700 for a project involving the Toro Building on St. 

Croix without documenting the funding source. 

PFA disbursed $918,161 more than the amount documented in the board 

resolutions for a project to renovate the Charles Harwood Medical Center. 

PFA disbursed $8,030,415 for a project involving the Kimmelman Cancer 

Center. The project complies with board resolutions but is $2,280,415 

more than the amount the Legislature approved.

PFA also spent earned interest without documenting appropriate approval 

for the following projects:

o Housing Finance Authority – Islands of Saint Croix, $147,000

o Island Center at Saint Croix, $4,781
25

Recommendations

We recommend that the PFA Board of Directors:

Require that PFA adhere to established laws set forth in the V.I.C. and 

the Internal Revenue Code, as well as the board’s resolutions.

We recommend that the Virgin Islands Legislature:

Amend the legislation that created PFA to provide a greater level of 

legislative scrutiny and public disclosure of day-to-day operations, such 

as ensuring the Board of Directors is impartial and requiring 

accountability for bond proceeds and budgetary funds through periodic 

reports.
26

Conclusion and Recommendations

Conclusion

Our audit findings cover a range of improper activities and serious management 

deficiencies that raise significant questions about PFA’s stewardship and 

expenditures of billions of dollars in public funds. PFA has operated haphazardly 

without any formal operating policies and procedures or an accurate accounting 

system. In addition, longstanding issues we identified in an earlier audit have 

escalated because PFA administrators did not implement our recommendations 

and failed to establish and implement basic internal controls to safeguard public 

funds.

We found $101.1 million in questionable expenditures from professional services 

and construction contracts, charge card transactions, and petty cash 

disbursements. We also found that PFA did not competitively procure contracts 

for professional services and construction, paid for costs unrelated to its primary 

function, wasted bond proceeds, did not provide adequate support for all 

expenditures, and failed to collect revenues due to GVI’s treasury. In addition, 

potential conflicts of interest compromised PFA decision makers’ objectivity 

regarding bond issuances and related transactions.

Recommendations Summary

We issued our draft version of this report for PFA and the Legislature to review 

and respond (see Appendixes 3 and 4).

Of the 21 recommendations we made, we addressed 18 to PFA. PFA concurred

with seven recommendations, partially concurred with four recommendations, and 

did not concur with seven recommendations. We consider six recommendations 

resolved and implemented, five recommendations resolved but not implemented, 

and seven recommendations unresolved (see Appendix 5).

We addressed three recommendations to the Legislature, which stated that it will 

take action on all three recommendations. We consider these recommendations

resolved but not implemented (see Appendix 5). 

We will refer 15 recommendations to the Assistant Secretary for Insular Affairs 

for tracking implementation.

Under the scope and methodology section of this report (see Appendix 1), OIG 

noted audit scope limitations encountered during the audit. In response to the draft 

audit report, PFA provided information requested by auditors that was not 

provided during the fieldwork phase of the audit. We reviewed this information,

and in most instances, the information PFA provided in its response conflicted 

with information received during the fieldwork phase of the audit. We did not 
27

assess the validity of the information as that would have required additional audit 

work. We will forward the information to OIA. 

We recommend that the PFA Board of Directors:

1. Develop and implement operational policies and procedures to manage 

PFA’s day-to-day functions. These policies and procedures should, at a 

minimum, address human resources, inventory, procurement, accounting, 

and segregation of duties.

PFA Response

PFA concurred with this recommendation. In October 2015, PFA 

established financial policies to strengthen the internal control process, 

mitigate risk, and promote an ethical and transparent environment. PFA is 

in the process of formalizing the tracking and disposal of assets policy and 

performing physical inventory, which will be maintained in PFA’s

financial management system. 

OIG Reply 

We consider this recommendation resolved but not implemented.

2. Create and implement petty cash policies and procedures that, at a 

minimum, provide guidance on the establishment, administration, 

appropriate uses, and safekeeping of funds. 

PFA Response

PFA partially concurred with this recommendation. PFA has begun 

monthly reconciliations of petty cash, and now stores petty cash in a 

locked safe until needed. 

OIG Reply

We consider this recommendation resolved but not implemented. 

3. Direct PFA to use all applicable functions in its existing accounting 

financial systems and to capture its financial transactions in the systems so 

that reporting is prompt, accurate, and complete.

PFA Response

PFA did not concur with this recommendation. PFA’s current accounting 

system contains three modules: purchasing, sales, and financial; PFA does 

not use the sales module. PFA created the Financial Management 

Extension, a special feature within the purchasing module, to enable

assignment of a project and funding source to a payment. This feature is 

linked to a project tracking database where disbursement requests are 

generated and projects tracked. It will be fully implemented by September 

20, 2017.
28

OIG Reply

We consider this recommendation resolved but not implemented. 

4. Implement reconciliation procedures to validate data entries, confirm that 

financial transactions in the systems are complete and accurate, and enable 

accurate tax reporting. 

PFA Response

PFA concurred with this recommendation. PFA began tracking vendor’s 

tax liability, payments to vendors, and payments made to the Virgin 

Islands Bureau of Internal Revenue on behalf of the vendors in the 

financial management system. These transactions are now reviewed and 

approved by the controller with a second approval by the director and 

executive director of Finance and Administration. Beginning in fiscal year 

2019, the director and executive director of Finance and Administration 

will be included on Microsoft Dynamics Great Plains’ accounting 

software workflow. 

OIG Reply

We consider this recommendation unresolved because PFA did not 

address all elements of the recommendation. 

5. Direct PFA to train its employees to fully use the accounting system 

functions that are related to their duties and responsibilities.

PFA Response

PFA concurred with this recommendation. PFA directed employees to 

obtain training on the Microsoft Dynamics GP system no later than 

September 30, 2017. 

OIG Reply

We consider this recommendation resolved but not implemented.

6. Create and implement a charge card policy that prohibits PFA’s official 

charge card from being used for personal expenses. The policy should also 

note users’ responsibilities, penalties for abuse of the official card, and 

timely payment to avoid finance charges. 

PFA Response

PFA concurred with this recommendation. PFA created a cash 

management policy as part of its new operational policies and procedures.

OIG Reply

We consider this recommendation unresolved because PFA did not 

address all elements of the recommendation. 
29

7. Implement and enforce an independent review of charge card statements 

and corresponding receipts each month to ensure all charge card 

transactions are for PFA official business. 

PFA Response

PFA concurred with this recommendation. Charge card users submit a 

monthly charge card reconciliation that includes supporting 

documentation. This reconciliation is reviewed by the comptroller before

processing payment to ensure that all charges are valid. By approving 

payment, the cardholder is certifying that the charges are proper both as to 

the amount and purpose. 

OIG Reply

We consider this recommendation resolved and implemented.

8. Require multiple signatures on wire transfers. 

PFA Response

PFA concurred with this recommendation. PFA created policy that 

requires two signatures for all disbursements over $10,000. 

OIG Reply

We consider this recommendation resolved and implemented. 

9. Create and implement controls, such as adequate supervisory reviews and 

segregated responsibilities, over all collections and periodic reviews of 

monthly bank statements. 

PFA Response

PFA concurred with this recommendation. PFA created a cash 

management policy that is included in its new operational policies and 

procedures. The policy states that cash and check receipts must be 

deposited no later than the next business day. Cash receipts and bank 

deposits, including electronic fund transfers, must be recorded daily. 

Specifically in response to the hotel operations, PFA put new procedures 

in place in fiscal year 2016 to ensure segregation of duties over cash 

management, as well as to enhance the reliability of financial information, 

reduce risk, and detect irregularities. 

OIG Reply

We consider this recommendation resolved and implemented. 
30

10. Create and enforce a comprehensive code of ethics that addresses conflicts 

of interest. 

PFA Response

PFA did not concur with this recommendation. PFA, however, created and 

included a code of ethics in its financial policies and requires all current 

PFA contracts to include a conflicts-of-interest provision. 

OIG Reply

We consider this recommendation resolved and implemented.

11. Develop and implement procurement policies and procedures for 

professional services to ensure all contracts are competitively bid or are 

properly justified for sole-source.

PFA Response

PFA partially concurred with this recommendation. PFA, through its 

financial policies, has established procurement guidelines for competitive 

bidding, competitive negotiations, informal solicitations, and sole-source. 

The policies outline the general circumstances upon which process would 

be appropriate. 

OIG Reply

We consider this recommendation resolved and implemented. 

12. Develop and implement procurement policies and procedures for 

professional services to ensure that valid contracts are in place before 

paying contractors and vendors. 

PFA Response

PFA partially concurred with this recommendation. All contracts are 

currently monitored through a ticker system that provides 90-day, 60-day,

and 30-day notifications of a contract’s expiration date. In addition, all 

disbursements now require copies of a valid contract as supporting 

documentation to be approved for payment. 

OIG Reply

We consider this recommendation unresolved because PFA did not 

address all elements of the recommendation. 

13. Pay only those expenses that are related to PFA’s primary responsibilities 

as prescribed by the V.I.C. 

PFA Response

PFA did not concur with this recommendation. PFA was created in 1988 

as a public corporation and autonomous governmental instrumentality for 
31

the purposes of: aiding the Government in the performance of its fiscal 

duties, and effectively carrying out its governmental responsibility of 

raising capital for public projects. Accordingly, in paying expenditures 

associated with the duties and responsibilities of the chairman of the PFA 

Board of Directors, PFA is operating within its legislative mandate and 

assisting the Government by identifying economic opportunity, 

encouraging economic development, engaging with other agencies’

authorities and political entities in shaping national and regional 

legislation, and decision making that impacts the Virgin Islands. 

OIG Reply

We consider this recommendation unresolved because expenses 

mentioned in the report should have been paid through the Office of the 

Governor’s budget, not PFA’s. 

In addition, we recommend that the Virgin Islands Legislature:

14. Amend the legislation that created PFA to prohibit PFA from paying 

expenses unrelated to its mission. 

Virgin Islands Legislature Response

The 32nd Legislature will be crafting the necessary legislation to address 

this recommendation.

OIG Reply

We consider this recommendation resolved but not implemented. 

We also recommend that the PFA Board of Directors:

15. Ensure that all costs are adequately supported and within agreed contract 

terms and conditions. 

PFA Response

PFA did not concur with this recommendation. PFA requires source 

documentation, such as an invoice, pay application, periodical estimate, or 

contract before payments can be processed. The financial system has a 

mandatory field where a unique invoice number is required before a 

payment can be posted. 

OIG Reply

We consider this recommendation resolved and implemented.
32

16. Ensure that the commissioner of property and procurement adhere to all 

applicable laws when procuring construction services for PFA.

PFA Response

PFA partially concurred with this recommendation. All disbursement 

requests submitted for payment now require the requisite procurement 

documents, such as the bid evaluation documentation, justification letter, 

contract, and business license. By requiring these documents, PFA is 

ensuring compliance with all procurement and applicable laws.

OIG Reply

We consider this recommendation resolved but not implemented. 

17. Direct PFA to stop administering construction contracts for GVI and to 

require all construction and capital improvement projects funded through 

bond proceeds be administered and processed through GVI’s central 

procurement path. 

PFA Response

PFA did not concur with this recommendation. Generally, GVI 

construction contracts are managed and administered through the 

Department of Public Works and the Department of Property and 

Procurement.

OIG Reply

We consider this recommendation unresolved because PFA disregarded 

the recommendation.

18. Direct PFA to follow the requirements of the V.I.C. regarding the 

deduction and reporting of gross receipt taxes for contractors and service 

providers. 

PFA Response

PFA did not concur with this recommendation. PFA sought a 

determination from the Virgin Islands Bureau of Internal Revenue to 

establish if there was a tax liability. In the case of Diageo’s largest vendor, 

the Bureau of Internal Revenue determined this vendor was not subject to 

gross receipts taxes.

OIG Reply

We consider this recommendation unresolved because PFA did not 

provide evidence to support its claim in its response.
33

We further recommend that the Virgin Islands Legislature:

19. Amend the legislation that created PFA to stop PFA from administering 

construction contracts for GVI and to require all construction and capital 

improvement projects funded through bond proceeds be administered and 

processed through GVI’s central procurement path. 

Virgin Islands Legislature Response

The 32nd Legislature will be crafting the necessary legislation to address 

this recommendation.

OIG Reply

We consider this recommendation resolved but not implemented.

We also recommend that the PFA Board of Directors:

20. Require that PFA adhere to established laws set forth in the V.I.C. and the 

Internal Revenue Code, as well as the board’s resolutions.

PFA Response

PFA did not concur with this recommendation. PFA adheres to established 

laws set forth in the V.I.C. and the Internal Revenue Code, and complies 

with the PFA’s enabling legislation outlined in Title 29 V.I. Code, Chapter 

15, Section 916, et. al.

OIG Reply

We consider this recommendation unresolved because PFA did not 

provide support for all elements of this recommendation. 

Finally, we recommend that the Virgin Islands Legislature:

21. Amend the legislation that created PFA to provide a greater level of 

legislative scrutiny and public disclosure of day-to-day operations, such as 

ensuring the Board of Directors is impartial and requiring accountability 

for bond proceeds and budgetary funds through periodic reports.

Virgin Islands Legislature Response

The 32nd Legislature will be crafting the necessary legislation to address 

this recommendation.

OIG Reply

We consider this recommendation resolved but not implemented.
34

Appendix 1: Scope and Methodology

Scope

We conducted this audit in accordance with Generally Accepted Government 

Auditing Standards. Those standards require that we plan and perform the audit to

obtain sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that the 

evidence obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives.

The scope of the audit included transactions that originated at the Virgin Islands 

Public Finance Authority (PFA) during fiscal years 2009 to 2015 and other 

periods as deemed appropriate. We conducted our audit at PFA’s offices in St. 

Thomas and St. Croix. We also conducted a review of PFA’s commercial entity, 

Kings Alley Hotel, which was limited to internal controls over hotel receipts.

Methodology

To accomplish our audit objectives, we reviewed applicable laws, rules, and 

regulations; files related to 12 professional service contracts paid from PFA’s 

operating budget and 14 construction projects financed with bond proceeds; bond 

issuance statements; interest earning statements; charge card statements; petty 

cash files; financial statements; expenditure reports; 2003 bond issuance; and 

transcripts of meetings of PFA’s Board of Directors and Administrators. 

In addition to interviewing PFA’s public accountants and bond counsel, we 

interviewed officials at:

PFA

Virgin Islands Next Generation Network, Inc.

West Indian Company Limited

Office of Economic Opportunity

Department of Property and Procurement

Department of Public Works (DPW)

Magen’s Bay Authority

Virgin Islands Housing Finance Authority

Virgin Islands Waste Management Authority
35

We also conducted site visits at the Office of the Governor, Dorothea Fire Station, 

DPW office, Smith Bay Park, Fort Christian, Coki Point Boardwalk on St. 

Thomas, Kings Alley Hotel, and Fredericksted Mall on St. Croix. 

As noted in our report, PFA’s board did not establish policies and procedures for 

basic operations, put sufficient systems in place to control and prevent financial 

discrepancies, properly monitor charge card transactions, or create proper 

segregation of duties over cash transactions and fund transfers. PFA’s data proved 

inaccurate in many instances. Because PFA had no internal controls over its 

computer-generated data and was unable to provide support for a significant 

amount of its financial transactions, we were unable to rely on these data. Instead, 

we used source documentation provided by PFA to conduct our analysis and form 

conclusions for professional service, contract, charge card, petty cash, and 

expenditure reviews.
36

Appendix 2: Questionable Expenditures 

Questionable Expenditures Found During Our Policy and Procedure Review*

Transaction Type Amount

Tested

Not

Supported Discrepancies Total

Petty Cash $7,308 $333 $333

Charge Card Purchases 230,443 193,682 193,682

King’s Alley Management, Inc. (hotel 

receipts) 809,464 $17,846 17,846

* See pp. 5 through 10 of this report for explanations of our findings, as well as details about these transactions.
37

Questionable Expenditures Found During Our Review of Professional Service 

Contracts*

Contract Name Amount

Tested

Sole

Source

No

Valid

Contract

Outside 

PFA’s 

Mission

Not

Supported

Outside

Contract

Terms

Total

Legal (spanning several 

administrations) $14,341,343 $14,341,343 $11,164,425 $5,344,824 $5,394,034 $14,341,343

Consulting (former VI 

senator) 808,126 808,126 46,151 808,126 363,735 808,126

Lobbying 1,764,768 1,764,768 600,926 1,764,768 123,501 1,764,768

Cleaning 311,991 311,991 $48,160 311,991

Legal (Office of 

Economic Opportunity) 497,444 497,444 497,444

Accounting 739,871 739,871 18,113 739,871

Legal (purchase of 

Anchor Inn) 27,984 27,984 27,984 27,984 27,984

Project Management 

Services (Library) 120,000 120,000 120,000 120,000

Financial Advisory 

(grant writing for OEO) 39,773 39,773 39,350 39,773

Network Service 

Management 249,478 249,478 249,478

IT Consultants 5,378,493 5,378,493 3,339,384 5,378,493

Financial Advisory (PFA 

financial consultants) 3,407,233 3,407,233 1,371,885 3,407,233

* See pp. 13 through 21 of this report for explanations of our findings, as well as details about select contracts.
38

Questionable Expenditures Found During Our Review of Expenditures*

Contract Name Amount

Tested

No Written 

Contract

Outside PFA’s 

Mission Total

Law Firm (litigation representation) $91,974 $91,974 $91,974

Rent 1 126,560 126,560 126,560

Rent 2 69,093 69,093 69,093

Public Relations 273,391 273,391 $273,391 273,391

PFA Board Counsel 427,084 427,084 427,084

Subcontractor (advisor to law firm) 438,852 438,852 438,852

Regional Governor’s Association 105,000 105,000 105,000

Employee’s Salary 791,667 791,667 791,667

Employee’s Travel 36,331 36,331

* See pp. 16 through 20 of this report for explanations of our findings, as well as details about select expenditures.
39

Questionable Expenditures Found During Our Review of GVI Bond Proceed Projects*

Contract Name Amount

Tested

Not

Supported Wasted Ineligible UncollectedTax Revenue Total

Charles Wesley Turnbull 

Regional Library $22,940,102 $13,740,102 $13,740,102

Diageo Project (rum 

distillery, $250 million grant) 42,033,331 $29,796,185 $374,169 $378,146 30,548,500

* See pp. 22 through 24 of this report for explanations of our findings, as well as details about these projects.
40

Other Questionable Expenditures*

Transaction Type Amount

Tested Wasted ImproperApproval Total

Bond Proceeds Compliance Review

IRS Settlement $13,600,000 $13,600,000 $13,600,000

2003 Bond Issuance

Lindquist Beach $6,943,417 $6,943,417

Toro Building 2,738,700 2,738,700

Charles Harwood Medical 

Center 918,161 918,161

Kimmelman Cancer Center 2,280,415 2,280,415

Housing Finance Authority

St. Croix 147,000 147,000

Island Center St. Croix 4,781 4,781

Total Questionable Expenditures † $101,143,062

* See pp. 25 and 26 of this report for explanations of our findings, as well as details about the projects associated with these bonds.

† We removed duplicative costs to calculate the total questionable expenditures. 
41

Appendix 3: PFA’s Response to the 

Draft Report

The Virgin Islands Public Finance Authority’s response begins on page 42.
 

 

 

 

July 31, 2017 

Ms. Mary L. Kendall 

DOI Deputy Inspector General 

U.S. Department of the Interior 

Office of Inspector General 

Mail Stop 4428 MIB 

1849 C Street, NW. 

Washington, DC 20240 

Mr. Steven van Beverhoudt 

V.I. Inspector General 

Office of the V.I. Inspector General 

2315 Kronprindsens Gade No. 75 

St. Thomas, U.S. Virgin Islands 00802-6468 

Re: Office of Inspector General’s Report (No. ER-IN-VIS-0015-2014) 

Dear Ms. Kendall and Mr. Van Beverhoudt: 

The Virgin Islands Public Finance Authority (“VIPFA” or “PFA”) reviewed the above-referenced 

report and offers the following comments to certain findings and conclusions contained within said 

report: 

Findings: 

(i)	 PFA Used Excel Spreadsheets Instead of its Financial Accounting Systems 

The summary excel spreadsheets are solely utilized as an informational tool by upper management 

and the Board of Directors to reflect all deposits of administrative fees, interest earnings and board 

resolutions authorizing the spending of such funds. As such, the summary excel spreadsheets are 

not used as an alternative to the VIPFA’s financial accounting system. 

(ii)	 One of PFA’s accounting systems was created specifically to track bond proceed 

expenditures by project, but because PFA does not use this program, it took PFA 

officials 5 months to compile a report of projects that we had originally requested at 

the beginning of the audit. 

P. O. Box 430, Emancipation Garden Station, Charlotte Amalie, St. Thomas, U.S. Virgin Islands, 00804-0430 Tel: 340-714-1635 

42
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt
 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014
 

Dated: July 31, 2017
 

Page | 2
 

The reason for not utilizing the Financial Management Extension System (FME), the module 

created specifically to track project related information, was because it was not fully implemented 

and updated during the audit period in question. However, during Fiscal Year 2017, the requisite 

updates, testing, report development and training relative to the financial accounting system and 

FME was conducted to ensure proper functionality and accuracy. 

While the PFA’s financial accounting system may have been able to calculate the tax liability for 

a vendor or contractor into the respective 1099 and 1096 returns, the reason for the nonutilization of this system function was not due to the PFA’s failure to enter the data into the 

financial accounting system – in fact, all financial data and transactions have been, and continue 

to be, recorded into the financial accounting system -- but was due to the system not being fully 

implemented and updated. During Fiscal Year 2016, the requisite updates, testing, report 

development and training relative to 1099 and 1096 reporting was conducted to ensure proper 

functionality and accuracy. 

(iii)	 Operating Without Strong Controls Led to Multiple Potential Conflicts of Interest 

Between GVI Employees, Contractors, and Vendors 

x	 PFA’s bond counsel issued a legal opinion in favor of a new bond issuance and later 

benefited from the proceeds of that bond issuance. The counsel collected $463,505 for 

legal services related to the project for which the bonds were issued. 

In 1998, Act No. 6227 authorized issuance of bonds secured by Matching Fund Revenues for 

several projects, including waste water treatment facilities. In 2009, Act No. 7081 authorized 

the issuance of the 2009 Matching Fund bonds for several capital projects, of which waste 

water treatment facilities was not included. However, at the time of Act No. 7081’s passage 

and the rendering of bond counsel’s legal opinion, waste water treatment facilities capital 

project was already authorized by prior legislation. Therefore, without further conclusive 

information to affirm or negate the assertion of a potential conflict of interest, it cannot be 

definitively concluded that a potential conflict of interest existed. 

x	 The alcoholic beverage company Diageo USVI Inc. contributed $2,500 from bond 

proceeds to a carnival troupe managed by a Virgin Islands senator who voted in favor of 

a $250 million Diageo bond issuance. Diageo listed this cost on its invoice as “government 

contributions.” 

Diageo is a private corporation and is not 1) an employee, 2) contractor, or 3) vendor of the 

Government of the U.S. Virgin Islands. If Diageo submitted an invoice that may have included 

43
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 3 

an improper cost from bond proceeds, the PFA will research the matter and take remedial 

actions to recoup those funds. 

x Diageo also contributed $1,000 in bond proceeds to a “Democratic Party – Gov. Prayer 

Breakfast” in 2009. 

See previous response. 

x A former Governor who had served as the chair of PFA’s board entered into PFA 

contracts with his close relative. 

The PFA entered into the contract with said vendor on behalf of the Department of Public 

Works. Without further conclusive information to affirm or negate the assertion, it cannot be 

definitively concluded that the selection of this vendor was solely at the behest of a former 

Governor. Moreover, the PFA lacks any direct information or knowledge to ascertain whether 

the vendor was a “close relative”. 

x	 A member of PFA’s board voted in favor of the Diageo bond issuance and later benefited 

from the proceeds when his company provided services for the project. When we 

interviewed him, he did not recognize his actions as unethical. 

The Board Member is not an employee of the PFA. The Diageo Agreement was ratified into 

law by Act No. 7012 and signed on July 10, 2008. The passage of Act No. 7012 was the 

legislative general authorization for the PFA to issue the bonds. Through PFA Board 

Resolution No. 08-10, the PFA Board granted specific authorization for the execution of all 

necessary bond documents, certificates, and required declarations to effectuate the bond 

issuance process in accordance with Act No. 7012. The approval of any bond issuance and/or 

designated project begins with the V.I. Legislature and not the PFA Board. Thus, the PFA 

Board’s approval of the Diageo bond issuance was a perfunctory function to commence the 

bond issuance process. Therefore, since the members of PFA’s Board of Directors are not 

Senators of the VI Legislature, no Board member voted”, or could vote in favor, of the Diageo 

bond issuance. 

x	 PFA legal counsel simultaneously represented both GVI and its opponent regarding a 

work stoppage on a GVI project in February 2013. 

There is a lack of information to sufficiently affirm or negate whether legal counsel advised 

the PFA of any possible conflict of interest and if there was any determination whether the 

nature of services to be rendered to both the PFA and the GVI’s opponent was such that the 

parties’ interests would be adverse to the other. 

44
 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 4 

(iv)	 PFA Paid for Contracts With Major Change Orders Drastically Increasing Contract 

Costs 

In 2006, the original RFP and conceptual plans was for a 57,000 SF library and record center 

for the Department of Planning and Natural Resources at the property located at Parcel Nos. 

26A, 39 and 33A Estate Charlotte Amalie, No. 3 New Quarter, St. Thomas, U.S. Virgin Islands. 

The original RFP and conceptual plans were revised. In 2008, a new RFP and conceptual plans 

was issued for a 37,000 SF library and record center. After the issuance of the construction 

contract, additional design features and amenities were added to the scope of work. All 

supplemental contracts/addendas, with justifications and corresponding documentation, were 

submitted by the architect/project manager. Additionally, the Architect/Project Manager and the 

Department of Public Works were also present at the respective Board Meetings to discuss the 

proposed supplemental contracts/addendas. The PFA Board approved six supplemental 

contracts/addendas to the original contract. Increase in costs were attributable to the following 

as described in the board resolutions: 

x Board Resolution No. 09-014 

a) Improvements to access road 

b) Sewage and drainage construction 

c) Purchase of furnishings, fixtures and equipment 

d) Construction of utilities and contingencies 

x Board Resolution No. 10-004 

a) Building and site enhancements 

b) Off site utilities enhancements 

c) Construction of a mezzanine for the children’s wing 

d) Expenses of design, engineering and construction of the DPNR Technical Wing (as 

requested by the Department of Planning and Natural Resources) 

x Board Resolution No. 10-010 

a) Architectural and Engineering Services for the design of the New Mezzanine level 

x Board Resolution No. 10-011 

a) Lighting Upgrades 

b) Rough-in of electrical needed for installation of a photo-voltaic system 

c) Installation of porcelain tile flooring 

d) Installation of additional electrical outlets to accommodate modification of the New 

Mezzanine and Children’s Reading Room 

45
V	 · l · P · F·A VIRGIN ISLANDS rusuc llNANCEAUfliORI rv 

Letter to: Ms. Mmy L. Kendall andMr. Steven van Beverhoudt 

Re: GIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page IS 

(v) PFA Did Not Properly Review Invoices Before Payment and Did Not Withhold Gross 

Receipt Taxes 

A. 	 The supporting documentation for the $29,191,295 in expenses was properly documented, 

reviewed and approved by the PFA 's Director ofFinance and Administration and its bond 

counsel. The supporting documentation, which is enclosed as a digital transmittal 

"Attachment A", included six requisitions submitted by Diageo as follows: 

Requisition No. 1 

Requisition No. 2 

Requisition No. 3 

Requisition No. 4 

Requisition No. 5 

Requisition No. 6 

dated June 8, 2009 

dated June 18, 2009 

dated June 18, 2009 

dated June 18, 2009 

dated June 18, 2009 

dated June 18, 2009 

B. 	 PFA did have a copy ofthe Diageo Agreement, dated June 17, 2008, and ratified by the 

Legislature by ActNo. 7012. 

C. 	 PFA received quarter~y construction progress reports from Diageo, which were filed with 

Digital Assurance Certification, LLC ("DAC"), as part ofthe continual disclosure for the 

2009 Matching Fund Diageo Bonds. The reports can be found at www.dacbond.com. One 

report is enclosed as a digital transmittal "Attachment B " for reference. DAC acts as 

disclosure dissemination agent for issuers of municipal bonds, electronically posting and 

transmitting information to repositories and investors. 

(vi) PFA Has Not Complied With Laws and Rules for Board Membership and Bonds 

Act No. 7002, Section 5 amended Title 29 VI. Code §919 FIFTH to increase the Virgin Islands 

Public Finance Authority's Board ofDirectors from five to seven members. Three members (the 

Governor, Commissioner ofFinance and Director ofOffice ofManagement and Budget) serve as 

ex-officio members ofthe Board, while the Governor shall appoint four additional members with 

the advice and consent ofthe Legislature. As noted, there were two vacancies for the district of 

St. Thomas I St. John nongovernmental posts. 

(vii) PFA Wasted Millions of Dollars in Bond Proceeds To Pay an IRS Settlement 

Background: Through a random audit on the Series 2006 Gross Receipts Bonds ("GRT"), the IRS 

concluded a portion ofthe Series 2006 GRT Bonds that refunded the Series 1999A GRT Bonds 

should not have been issued on the basis that the Government had surplus amounts available that 

should have been used to retire the Series 1999A GRT Bonds that were refunded. Thus, to ensure 

46 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 6 

that the holders of the Series 2006 GRT Bonds did not have their investment income recharacterized as taxable, the IRS offered a $13,635,104 settlement upon acceptance by the 

Government of the Virgin Islands. Act 7508, Section 1 appropriated $13,635,104 from the 

General Fund to pay the settlement amount of $13,635,104, which is not indicative of “wasted 

millions of dollars.” 

A. Series 1999A GRT Bonds should not have been issued on the basis that the Government had 

surplus amounts available that should have been used to retire the Series 1999A GRT Bonds 

that were refunded. Thus, to ensure that the holders of the Series 2006 GRT Bonds do not 

have their investment income re-characterized as taxable, the IRS offered a $13,635,104 

settlement upon acceptance by the Government of the Virgin Islands. Act 7508, Section 1 

appropriated $13,635,104 from the General Fund to pay the settlement amount of 

$13,635,104, which is not indicative of “wasted millions of dollars.” 

B. Through Act No. 7508, the Legislature authorized (i) the payment of the settlement amount of 

$13,635,140 from the General Fund; and (ii) the Public Finance Authority and the 

Government of the Virgin Islands to issue a limited special obligation note to secure the 

repayment of the $13,635,140 to the General Fund. 

C. The PFA Board of Directors passed Board Resolution No. 13-009 that authorized, among 

other documents, the approval and execution of a loan agreement and a loan note. 

D. Pursuant to Act No. 7508 and Board Resolution No. 13-009, Section 5, the PFA executed a 

$14,000,000 loan (and not bond proceeds) with Banco Popular de Puerto Rico for the 

repayment of $13,635,104 to the General Fund. 

In conclusion, the PFA was authorized, by both a legislative act and board resolution, to execute 

a loan agreement for the repayment of $13,635,104 to the General Fund. This was a mandatory 

action and settlement to ensure the Series 2006 GRT Bonds were not re-characterized as “taxable 

bonds” to the detriment of the Series 2006 bond holders, and ultimately to negate any negative 

impact to future bond offerings of the U.S. Virgin Islands Government. Consequently, the PFA 

did not squander (or “waste” as noted in the report) millions in bond proceeds, as bonds were 

not proffered and moreover, the settlement agreement was authorized and mandated by both the 

legislative’s and the PFA Board’s actions. Additionally, the General Fund had to be reimbursed 

to ensure the continued operations of the Government of the U.S. Virgin Islands. As such, the PFA 

strictly adhered to the legislative act and settlement agreement with the Internal Revenue Service. 

47
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 7 

(viii) PFA Spent Bond Proceeds Without Proper Approval 

The PFA did not disburse $13,032,474 without adequate documentation by either Legislative 

action or Board resolution. The respective projects, and respective sums, are listed below: 

A. Lindquist Beach $ 6,943,417 

B. Toro Building $ 2,738,700 

C. Charles Harwood Medical Center $ 918,161 

D. Kimmelman Cancer Center $ 2,280,415 

E. V.I. Housing Finance Authority – St. Croix District $ 147,000 

F. Island Center – St. Croix $ 4,781 

Total: $13,032,474 

A. Lindquist Beach Project: Through legislative acts and board resolutions, the Lindquist Beach 

Acquisition project had a total budget authorization of $12,100,000 and total expenditures of 

$8,543,416.67, leaving an unexpended authorization of $3,556,583.33 in unexpended funds. 

Thus, the PFA did not disburse $6,943,417 more than the documented board resolutions, and 

respective acts, for the acquisition of Lindquist Beach. 

The appropriated/allocated funding for the Lindquist Beach acquisition were as follows: 

Act No. 6505, Section 8 $ 3,500,000
 

Act No. 6868, Section 11 $ 4,500,000
 

Board Resolution No. 03-013 $ 2,500,000
 

Board Resolution No. 05-002 $ 1,600,000
 

Total Project Budget: $12,100,000
 

B.	 Toro Building: PFA Board Resolution No. 04-003 allocated $4,100,000 from the 2003 Gross 

Receipts Taxes (“GRT”) Bond issuance to the V.I. Department of Justice for the renovations 

of the Toro Building in Christiansted, St. Croix. The funding was clearly identified on all 

disbursed checks. A sampling of checks, totaling $2,217,119.68, of the $2,738,700 

expenditures noted by the audit, shows that every check distinctly identified both the project 

as the “Toro Building” and the Series 2003 GRT bonds as the funding source. The sampling 

copy of checks is enclosed as a digital transmittal “Attachment C”. The Series 2003 GRT 

Bonds as the funding source was documented by (i) board resolution; and (ii) all check 

disbursements. 

C. Charles Harwood Medical Center: Through board resolutions, the Charles Harwood 

Medical Center had a total budget of $7,047,840 and total expenditures of $6,861,000.65, 

leaving an available balance of $186,839.35, which was later reprogrammed through Board 

48
 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 8 

Resolution No. 15-028. The PFA did not disburse $918,161 more than the documented board 

resolutions for the renovation of the Charles Harwood Medical Center. The following are the 

board resolutions allocating funding for the project: 

Board Resolution No. 02-008 (as amended by No. 03-013) $4,000,000 

Board Resolution No. 04-003 $1,100,000 

Board Resolution No. 05-002 (Phase III) $1,800,000** 

Board Resolution No. 10-022 (Air Conditioning) $ 147,840 

Total Project Budget: $7,047,840 

**Although PFA Board Resolution No. 05-002 reads “....up to $1,800,000 shall be allocated 

to the Department of Health for Phase III of the Charles Harwood Hospital Complex on the 

island of St. Croix.....”, this was not a reduction of the original budget from $4,000,000 to 

$1,800,000. Note, the term “Phase III” was not used in the prior board resolutions. By the 

time Resolution No. 05-002 was adopted on June 10, 2005, $4,623,743.22 was expended 

from the $5.1 million approved project budget. By reference to a letter dated May 2, 2005, 

the Department of Health requested an additional $1,800,000 for Phase III. 

D. Kimmelman Cancer Center. PFA Board Resolution No. 03-013, with legislative authority 

provided via Act No. 6514, as amended, provided $5,000,000 towards the Kimmelman Cancer 

Center. Upon petition for additional funding from the Schneider Medical Regional Center 

CEO, the Board allocated an additional $3,000,000 through Resolution No. 05-006, with 

legislative authority also found through Act No. 6587, as amended. Thus, the total budgetary 

allowance for the Kimmelman Cancer Center was $8,000,000.00. 

E.	 V.I. Housing Finance Authority – St. Croix District. This project had its own respective 

account where allocated bond funds were deposited and interest was earned on the deposit. 

V.I. Housing Finance Authority: The total budgetary allowance for the Housing Finance 

Authority project was $2,500,000.00. Ten percent of the approved budget would be 

$250,000.00. However, additional interest earnings spent on the project was $147,000.00, 

less than the maximum 10% price increase allowance of $250,000.00. 

F. Island Center - St. Croix.	 This project had its own respective account where allocated bond 

funds were deposited and interest was earned on the deposit. 

49
 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 9 

Island Center – St. Croix: The total budgetary allowance for the Island Center – St. Croix 

Project was $350,000.00. Ten percent of the approved budget would be $35,000.00. However, 

additional interest earnings spent was $4,781.00, less than the maximum 10% price increase 

allowance of $35,000.00. 

Notwithstanding, our numerous disagreements with the observations and conclusions 

enumerated in the report, based on your request that we respond to each “recommendation” and 

not necessarily the findings or conclusions, we hereby comply with your request to respond to 

the recommendations as follows: 

1.	 Develop and implement operational policies and procedures to manage PFA’s day-to-day 

functions. These policies and procedures should, at a minimum, address human resources, 

inventory, procurement, accounting, and segregation of duties. 

Concur. The VIPFA Board of Directors established the enclosed financial policies (entitled 

“Financial Policies”) to strengthen the internal control process, mitigate risk and promote an 

ethical and transparent environment in October 2015. The policies addressed the following 

critical areas: 

Ethical Standards
 

Financial Management Responsibilities
 

Audit
 

Budgetary Process 

Accounting & Financial Reporting
 

Cash Management
 

Procurement
 

Debt Management
 

Credit Market
 

Risk Management
 

Record Retention 

Real Estate Leasing 

Energy and Sustainability 

VIPFA’s Director of Finance and Administration is currently in the process of performing a 

thorough job analysis for each employee within the organization to prepare job descriptions 

specific to each employee job title. Each employee will have a clear understanding of their duties 

and responsibilities, the importance of their duties and how their position contributes to the 

VIPFA’s goals, mission and objectives by the 1st quarter of Fiscal Year 2018. 

50
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 10 

As recommended, the VIPFA is in the process of formalizing the tracking and disposal of assets 

policy and performing physical inventory of valuable property to include furniture, office 

equipment and computers that are $5,000.00 or more per unit. All capital items meeting this 

threshold will be maintained in VIFPA’s financial management system (i.e., MS Dynamics GP) 

utilizing the Fixed Asset module and all assets will be tagged with a unique number for tracking 

purposes. The Fixed Asset module implementation project will be completed by March 2018, with 

inventory verification completed every two years; which will be prepared by the Chief 

Administrative Officer, verified by the Comptroller’s office and approved by the Director of 

Finance and Administration. 

2.	 Create and implement petty cash policies and procedures that, at a minimum, provide guidance 

on the establishment, administration, appropriate uses, and safekeeping of funds. 

Partially concur. Historically, petty cash was reconciled on an as needed basis. Based on the 

recommendation by OIG, petty cash is now being reconciled monthly. The reconciliation is 

prepared by the Chief Administrative Officer, reviewed by the Comptroller and approved by the 

Director of Finance and Administration. All supporting documentation is retained with the 

reconciliation and filed. Receipts that have the potential to fade are copied prior to filing in order 

that the support for those transactions remain legible. Petty Cash has always been maintained in 

a locked draw which was communicated and shown to the OIG Auditors on separate occasions 

and the auditors agreed at those specific times that having the petty cash in a locked draw 

complied with the safekeeping of funds requirements. Nevertheless, the Petty Cash is now kept in 

a locked safe until needed. 

3.	 Direct PFA to use all applicable functions in its existing accounting financial systems and to 

capture its financial transactions in the systems so that reporting is prompt, accurate, and 

complete. 

Non-concur. The modules available in the current accounting system are (1) Purchasing, (2) 

Sales and (3) Financial. VIPFA is currently using the purchasing and financial modules in the 

existing accounting system to capture and record financial data. Because VIPFA does not have 

sales, the sales module is not being utilized. A special feature within the purchasing module was 

customized specifically for VIPFA to enable assignment of a project and funding source to a 

payment where applicable. This feature is linked to a project tracking database called Financial 

Management Extension (FME). FME is VIPFA’s project tracking database where disbursement 

requests are generated and projects tracked through the efforts of the Controller and Bond 

Proceeds Manager. FME will be fully implemented by September 20, 2017 and utilized by the 

Controller and Bond Proceeds Manager as the official books and records. All reports generated 

in FME can be exported in several formats, for example PDF, Excel, Word, CSV etc. 

51
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 11 

4.	 Implement reconciliation procedures to validate data entries, confirm that financial transactions 

in the systems are complete and accurate, and enable accurate tax reporting. 

Concur. During the test period 1099s and 1096s were not prepared in house. Effective January 

1, 2016, each vendor’s tax liability was tracked in the financial management system of VIPFA 

(i.e., Microsoft Dynamics GP) and a vendor 1099 report covering calendar year 2016 was 

generated in January 2017. The financial system also captured all payments made to vendors 

and payments made to the Virgin Islands Bureau of Internal Revenue (VIBIR) on behalf of the 

vendors to give the total tax liability for each vendor. Prior to the final posting of any transaction 

in GP, it is entered by the Asst. Controller, reviewed (and approved) by the Controller, then final 

review and approval is conducted by the Director of Finance and Administration, as well as the 

Executive Director. Note that the final review/approval by the Director of Finance and 

Administration, as well as the Executive Director is currently being conducted outside of the 

system; therefore, posting can technically occur prior to said review/approval. Therefore, 

commencing Fiscal Year 2019, the Director of Finance and Administration, as well as the 

Executive Director will be included on GP’s workflow. 

5.	 Direct PFA to train its employees to fully use the accounting system functions that are related 

to their duties and responsibilities. 

Concur. VIPFA understands that employees need to replenish their knowledge and acquire new 

skills to become more efficient in their roles as this will benefit both the employees and the agency. 

At the outset of Fiscal Year 2016, employees were directed to obtain the requisite training in order 

to fully implement the Microsoft Dynamics GP system by no later than September 30, 2017. 

6.	 Create and implement a credit card policy that prohibits PFA’s official credit card from being 

used for personal expenses. The policy should also note users’ responsibilities, penalties for 

abuse of the official card, and timely payment to avoid finance charges. 

Concur. During the period tested, credit card receipts were not provided by the sole holder and 

authorized user of the VIPFA’s credit card for purchases made. The amount of $3,786.00 charged 

to a marine shipping company was determined not to be a VIPFA related charged which was 

reimbursed to the VIPFA during the next billing cycle. 

Currently VIPFA’s credit card statements are reviewed promptly by the card holder and approved 

for timely payment to the credit card company, to avoid interest charges as stated in the VIPFA’s 

financial policies. The process of review and payment is detailed in the Response to Number 7. 

52
 

 

 

 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 12 

7.	 Implement and enforce an independent review of credit card statements and corresponding 

receipts each month to ensure all credit card transactions are for PFA official business. 

Concur. Currently, the authorized user submits a monthly credit card reconciliation once the 

credit card bill is received. The credit card bill, supporting documentation and the reconciliation 

is reviewed by the comptroller prior to processing to ensure that all charges are valid and the 

payment is then processed for approval. By approving payment, the cardholder is certifying that 

the charges are proper both as to the amount and purpose. 

8.	 Require multiple signatures on wire transfers. 

Concur. 

3⁄4 VIPFA Board has resolved via Board Resolution No. 17-08, that all disbursements over 

$20,000.00 require two signatures. 

3⁄4 KAMI Board has resolved via Board Resolution 17-002, that all disbursements over 

$10,000.00 require two signatures. 

9.	 Create and implement controls, such as adequate supervisory reviews and segregated 

responsibilities, over all collections and periodic reviews of monthly bank statements. 

Concur. Cash and Check receipts must be deposited promptly no later than the next business day. 

Cash receipts and bank deposits, including electronic fund transfers must be recorded daily as 

stated in VIPFA’s cash management policy. In response to OOIG’s concerns with regards to 

Kings Alley Hotel’s cash management, please note the following: 

3⁄4 All hotel Deposits are made daily by the Hotel Manager. 

3⁄4 Deposit slips stamped received by the bank and daily hotel transaction support are given 

to and recorded by the Business Management Analyst at VIPFA St. Croix. 

3⁄4 Comptroller’s office at VIPFA St. Thomas performs a final review of daily hotel 

transactions for accuracy. 

3⁄4 All vendor invoices related to the hotel are input into the system for payment by the 

Business Management Analyst. 

3⁄4 Comptroller’s office reviews all vendor invoices, prior to processing, for final approval 

by an authorized signatory. 

53
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 13 

3⁄4 Monthly reconciliations are performed by the Comptroller’s office at VIPFA St. Thomas. 

During Fiscal Year 2016, these procedures were put in place to ensure segregation of duties over 

cash management, as well as to enhance the reliability of financial information, reduce risk and 

detect irregularities. 

10. Create and enforce a comprehensive code of ethics that addresses conflicts of interest. 

Non-concur. A Code of Ethics was one of the provisions included in the PFA’s Financial Policies. 

All current PFA contracts now include a conflicts of interest provision. Additionally, the PFA, as 

a governmental entity, is also subject to V.I. Code Title 3, Chapter 37 which codifies a conflicts 

of interest policy. However, the PFA disagrees with the cited examples as posing potential 

conflicts of interest, or deems that a potential conflict of interest cannot be established without 

further investigation into the matter. Each cited example is addressed with further clarification 

and/or information to address the question whether there exists a “potential conflict of interest”, 

as noted in pages 2-3. 

11. Develop and implement procurement policies and procedures for professional services to 

ensure all contracts are competitively bid or are properly justified for sole-source. 

Partially concur. The PFA, through its Financial Policies, has established procurement 

guidelines for competitive bidding, competitive negotiations, informal solicitations and sole 

source. The policies outline the general circumstances upon which process would be appropriate. 

Some contracts are appropriate for sole source given the nature of the Authority’s operations and 

responsibilities, policy formulation, and confidential and sensitive matters. Moreover, the PFA’s 

enabling legislation, Title 29, Chapter 15, Section 919, FOURTH (H) provides: “To appoint, 

employ and contract for the services of officers, agents, employees and professional assistants 

and to pay such compensation for their services as the Authority may determine”. 

12. Develop and implement procurement policies and procedures for professional services to 

ensure that valid contracts are in place before paying contractors and vendors. 

Partially concur. All contracts are currently monitored through a ticker system that provides 90, 

60 and 30 day(s) notifications of a contract’s expiration date. Additionally, all disbursements 

now require copies of a valid contract as supporting documentation to be approved for payment. 

The PFA disagrees with the inclusion of the two rental properties within this category. There 

were valid and unexpired contracts for the two leasehold properties. The landowner filed for 

bankruptcy and the properties were placed into receivership. Consequently, the receiver bore the 

54
 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 14 

responsibility of managing and maintaining the properties, including the collection of rental 

income. The receivership does not extinguish any existing leases, but shifts control and 

management of the properties to a receiver. Thus, those leases did not expire upon the property 

going into receivership. 

13. Pay only those expenses that are related to PFA’s primary responsibilities as prescribed by the 

V.I.C. 

Non-concur. The PFA was created in 1988 via Act No. 5365, et. al., as a public corporation and 

autonomous governmental instrumentality for the purposes of: a) aiding the Government in the 

performance of its fiscal duties; and b) effectively carrying out its governmental responsibility of 

raising capital for public projects. Title 29 V.I. Code §918. Accordingly, in paying expenditures 

associated with the duties and responsibilities of the Chairman of the Board, the PFA is operating 

within its legislative mandate and assisting the Government by identifying economic opportunity, 

encouraging economic development and engaging with other agencies, authorities, political 

entities in shaping national and regional legislation, decision-making that impacts the Virgin 

Islands. 

We recommend that the Virgin Islands Legislature: 

14. Amend the legislation that created PFA to prohibit PFA from paying expenses unrelated to its 

mission. 

Non-concur. See Response to Recommendation No. 13. 

15. Ensure that all costs are adequately supported and within agreed contract terms and conditions. 

Non-concur. Before payments can be processed at the VIPFA, source documentation is required, 

whether in the form of an invoice, pay application, periodical estimate or contract. No payment 

is processed without source documentation. The financial system has a mandatory field where a 

unique invoice number is required before a payment can be posted. 

Secondly, based on the type of services being provided, reports and other deliverables are 

provided directly to the Board of Directors, and/or management, and not shared, or made a part 

of, a submittal invoice. Nevertheless, invoices are not paid until approved by an authorized 

signatory. Thus, deliverables are also reviewed for sufficiency. 

55
 

 

 

 

 

 

 

 

 

 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-0015-2014 

Dated: July 31, 2017 

Page | 15 

16. Ensure that the commissioner of property and procurement adheres to all applicable laws when 

procuring construction services for PFA. 

Partially concur. All disbursements requests submitted for payment now require the requisite 

procurement documents, i.e. bid evaluation documentation, justification letter, contract, business 

license, etc. By requiring these documents, the PFA is ensuring compliance with all procurement 

and applicable laws. 

17. Direct PFA to stop administering construction contracts for GVI and to require all construction 

and capital improvement projects funded through bond proceeds be administered and processed 

through GVI’s central procurement path. 

Non-concur. Generally, GVI construction contracts are managed and administered through the 

Department(s) of Public Works and the Department of Property and Procurement. 

18. Direct PFA to follow the requirements of the V.I.C. regarding the deduction and reporting of 

gross receipt taxes for contractors and service providers. 

Non-concur. The PFA diligently follows the requirements regarding the deduction and reporting 

of gross receipts taxes for contractors and service providers. If there is a question regarding 

whether gross receipts taxes are payable, the general course of action is to seek a determination 

from the USVI Bureau of Internal Revenue (BIR) to establish if there is a tax liability due for a 

particular vendor. BIR assesses each vendor on a case by case basis to determine gross receipts 

tax liability and provides a response in writing. In the case of Diageo’s largest vendor, the PFA 

received the enclosed letter (digital transmittal Attachment ”D”), dated November 30, 2009, 

advising that the vendor was not subject to gross receipts taxes. 

19. Amend the legislation that created PFA to stop PFA from administering construction contracts 

for GVI and to require all construction and capital improvement projects funded through bond 

proceeds be administered and processed through GVI’s central procurement path. 

Non-concur. In consideration of the response by the Legislature, it should be noted that since 

2009, administration of construction contracts are split between the GVI central procurement 

(which handles procurement, contracting, and any project management) while the PFA processes 

the necessary disbursements for that project. 

20. Require that PFA adhere to established laws set forth in the V.I.C. and the Internal Revenue 

Code, as well as the board’s resolutions. 

56
V·I·P · F·A VIRUIN IHA,...l):>io l'UKLIC..: llNANLL AUi llUtll I\ 

Letter to: Ms. Mary L. Kendall and Mr. Steven van Beverhoudt 

Re: OIG Report, Report No. ER-IN-VIS-00I5-2014 

Dated: July 31, 2017 

Page I 16 

Non-concur. As outlined above, the PFA has, and continues to, adhere to established laws set 

forth in the VIC. and the Internal Revenue Code, as well as comply with the PFA 's enabling 

legislation outlined in Title 29 VI Code, Chapter 15, Section 916, et. al. 

We recommend that the Virgin Islands Legislature: 

21. Amend the legislation that created PF A to provide a greater level of legislative scrutiny and 

public disclosure ofday-to-day operations, such as ensuring the Board ofDirectors is impartial 

and requiring accountability for bond proceeds and budgetary funds through periodic reports. 

Non-concur. In consideration of the response by the Legislature, it should be noted that on a 

quarterly basis, the PFA provides reports to the Legislature outlining fending levels of capital 

projects. On an annual basis, a listing of agreements and contracts, operational expenses, 

schedule offederal funds received, etc. are also provided. Additionally, on an annual basis, the 

PFA undergoes a mandatory independent financial audit, which has been unqualified for several 

consecutive years and is concluded with the distribution offinancial statements. 

As it pertains to the Management Advisory, we will forward copies to both the Department of 

Property and Procurement and the Department of Public Works for their respective review and 

comments, as the PF A cannot respond regarding a department's policies and operations. It would 

also be helpful ifthose agencies receive the benefit of an exit conference to pose any questions or 

concerns to the Office of the Inspector General. 

We are available to further discuss the report and our responses should you so desire. 

Sincerely, 

Valdamier 0 . Collens 

Executive Director 

cc: 	 Honorable Kenneth E. Mapp, Governor and Chairman ofthe Board, PFA 

Honorable Myron Jackson, Senate President, 32°d Legislature 

PFA Board ofDirectors 

Margaret Guarino, Director of Finance & Administration, PF A 

Yvette Ross-Edwards, Board Counsel 

Attachments 

57
58

Appendix 4: Legislature’s Response to 

the Draft Report

The Virgin Islands Legislature’s response begins on page 59.
lLegtslature of tbe li)trgtn ~slanbs CAPITOL BUILDING, P.O. BOX 1690 


ST. THOMAS, U.S. VIRGIN ISLANDS 00804 


(340) 774-0880 


The Honorable 


Myron D. Jackson 


Pre1ide11t. 3211rl Legi1/at11re 


August 11, 2017 

Ms. Mary L. Kendall 


Deputy Inspector General 


U.S. Department of the Interior 


Via E-mail: ai~ report@doioig. gov 


Mr. Steven van Beverhoudt 

Virgin Islands Inspector General 

Via E-mail: svanbeverhoudt@viig.org 

Dear Ms. Kendall and Mr. van Beverhoudt: 

My review of Report No. ER-IN-VIS-0015-2014 and ER-IN-VIS-0015-2014-A reveals the following 

recommendations for the Legislature of the Virgin Islands: 

1) 	 Amend the legislation that created the PFA to prohibit PFA from paying expenses 

unrelated to its mission. 

2) 	 Amend the legislation that created the PFA to stop PFA from administering construction 

contracts for GVI and to require all construction and capital improvement projects 

funded through bond proceeds be administered and processed through the GVI' s central 

procurement path. 

3) 	 Amend the legislation that created the PFA to provide a greater level of legislative 

scrutiny and public disclosure of day- to- day operations, such as ensuring the Board of 

Directors is impartial and requiring accountability for bond proceeds and budgetary 

funds through periodic reports. 

4) 	 Amend 31 V.I.C., Chapter 23 §236a (c & d) to include minimum thresholds for 

performance bonding requirements for preferred bidders to limit Vi's exposure to loss 

if the contractor does not perform. 

By this letter I advise you that the 32d Legislature will be crafting the necessary legislation to address the 

four recommendations enumerated above. 

Myron D. Jackson 

Senate President 

59
60

Appendix 5: Status of 

Recommendations 

 

Recommendations Status Action Required

1 Resolved but not 

implemented

Established policy does not address the 

inventory function. Please provide the 

Office of Insular Affairs (OIA) with the 

tracking and disposal of assets policy 

mentioned in the Virgin Islands Public 

Finance Authority’s (PFA’s) response. 

We are referring this recommendation

to OIA to track implementation.

2 Resolved but not 

implemented

Please provide OIA with a written 

petty cash policy that, at a minimum,

provides guidance on the 

establishment, administration, 

appropriate uses, and safekeeping of 

petty cash funds. We are referring this 

recommendation to OIA to track 

implementation.

3 Resolved but not 

implemented

Please provide OIA with evidence of 

the Financial Management Extension’s 

full implementation and supporting 

documentation to sustain PFA’s claims 

of the use of purchasing and PFA 

financial modules in existing accounting 

financial systems. We are referring this 

recommendation to OIA to track 

implementation.

4 Unresolved

Please provide OIA with reconciliation 

procedures that validate data entries, 

confirm that financial transactions in 

the systems are complete and 

accurate, and enable accurate tax 

reporting. We are referring this 

recommendation to OIA to track 

implementation.

5 Resolved but not 

implemented

Please provide OIA with the Microsoft 

Dynamics Great Plains and Financial 

Management Extension training 

certification for all employees. We are 

referring this recommendation to OIA

to track implementation.
61

Recommendations Status Action Required

6 Unresolved

PFA established operational policies 

and procedures that addresses charge

card use under its cash management 

policy. The policy, however, does not 

include language prohibiting PFA’s 

official charge card from personal use 

nor does it outline users’ 

responsibilities and penalties for abuse 

of the official card. Please provide OIA 

with the updated charge card policy. 

We are referring this recommendation

to OIA to track implementation.

7 Resolved and 

Implemented No further action is required.

8 Resolved and 

Implemented No further action is required.

9 Resolved and 

Implemented No further action is required.

10 Resolved and 

Implemented No further action is required.

11 Resolved and 

Implemented No further action is required.

12 Unresolved

PFA’s procurement policy requires a 

contract before obligations and 

commitments (disbursements) but 

does not mention controls to prevent 

payment on contracts that have 

expired. Please provide OIA with 

policy that requires valid contracts 

before disbursement for professional 

service. We are referring this 

recommendation to OIA to track 

implementation.

13 Unresolved

Please provide OIA with plans to 

discontinue the practice of paying 

expenses unrelated to its primary 

functions, mission, or goals. This 

practice has continued since 2002 

when we reported four professional 

service contractors who PFA paid at 

least $2.3 million for work that was 

not related to PFA’s primary functions. 

This audit found $9 million paid for 

unrelated expenses. We are referring 
62

Recommendations Status Action Required

this recommendation to OIA to track 

implementation.

14 Resolved but not 

implemented

Please provide OIA with the amended 

legislation prohibiting PFA from paying 

expenses unrelated to its mission. We 

are referring this recommendation to 

OIA to track implementation.

15 Resolved and 

Implemented No further action is required.

16 Resolved but not 

Implemented

Please provide OIA with evidence that 

that the new process has been 

implemented. We are referring this 

recommendation to OIA to track 

implementation.

17 Unresolved

PFA disregarded this recommendation,

stating it generally uses the 

Government of the Virgin Islands’

(GVI) acceptable procurement path. 

Our report, however, confirmed 

otherwise. Please provide OIA with a

plan to direct PFA from administering 

construction contracts. We are 

referring this recommendation to OIA

to track implementation.

18 Unresolved

Please provide OIA with evidence to 

support the claim that the vendor had 

“no presence in the Virgin Islands, no 

employees in the Virgin Islands, and 

the performance of the contract will 

be performed entirely outside of the 

Virgin Islands,” as required by the 

Virgin Islands Bureau of Internal 

Revenue determination letter. We are 

referring this recommendation to OIA

to track implementation.

19 Resolved but not 

implemented

Please provide OIA the amended 

legislation that stops PFA from 

administering construction contracts 

for GVI and require all construction 

and capital improvement projects 

funded through bond proceeds be 

administered and processed through 

GVI’s central procurement path. We 
63

Recommendations Status Action Required

are referring this recommendation to 

OIA to track implementation.

20 Unresolved

Please provide OIA with PFA’s plan to 

comply with Act 7002, which increased 

membership of the PFA Board of 

Directors from five to seven members, 

as well as the various Acts and board 

resolutions that authorized spending 

for Lindquist Beach, Toro Building, 

Charles Harwood Medical Center, 

Kimmelman Cancer Center, Housing 

Finance Authority, and Island Center 

projects. After several attempts, PFA’s 

compliance bond proceeds manager 

did not provide any documents to 

support these projects during the 

fieldwork phase of our audit. Without 

actual copies of PFA-referenced board 

resolutions, we are unable to verify 

spending approval for projects. We are 

referring this recommendation to OIA

to track implementation.

21 Resolved but not 

implemented

Please provide OIA the amended 

legislation that provides a greater level 

of legislative scrutiny and public 

disclosure of PFA’s day-to-day 

operations. We are referring this 

recommendation to OIA to track 

implementation.
Report Fraud, Waste,

and Mismanagement

Fraud, waste, and mismanagement in

Government concern everyone: Office 

of Inspector General staff, departmental 

employees, and the general public. We 

actively solicit allegations of any 

inefficient and wasteful practices, fraud, 

and mismanagement related to 

departmental or Insular Area programs 

and operations. You can report 

allegations to us in several ways.

 By Internet: www.doioig.gov

 By Phone: 24-Hour Toll Free: 800-424-5081

Washington Metro Area: 202-208-5300

 By Fax: 703-487-5402

 By Mail: U.S. Department of the Interior

Office of Inspector General

Mail Stop 4428 MIB

1849 C Street, NW.

Washington, DC 20240