Auditor questions $650,000 payments

By Kathy Helms
Diné Bureau

WINDOW ROCK — A preliminary special audit of Navajo Nation payments to OnSat Network Communications, the Nation's satellite and wireless provider, claims circumventing of controls has led to more than $650,000 in questionable and improper payments.

The Independent obtained a copy of the preliminary report, which has not yet been released to the public pending final review.

In its summary of findings, the Navajo Office of the Auditor General said that established controls were circumvented in processing payments to OnSat.

Navajo officials, however, claim the audit is incomplete and based on partial and inaccurate documents. They point to a second audit and the strict requirements and controls of the E-rate program as validation of their claims.

"The audit that was done by KPMG, it's one of the cleanest audits they have here in the whole United States as far as applying E-rate funds to bring library services to the whole area of the Navajo Nation," said Navajo Telecommunications Regulatory Commission Executive Director Ernest Franklin, who also is the Navajo E-rate representative.

Nonetheless, the audit claims Navajo programs obtaining goods and services, and the Office of the Controller that processed payments, did not effectively review and validate OnSat invoices before payment. The lack of effective review led to over-billing, unnecessary purchases, and payments for inadequately supported invoices, or for goods and services not rendered, amounting to more than $650,000, the report states.

Representatives from the Independent met Wednesday with OnSat CEO David Stephens, Chief of Staff PatrickSandoval and Communications Director George Hardeen from the Office of the President/Vice President, Public Safety Executive Director Samson Cowboy, Acting Auditor General Elizabeth Begay, attorney Jim Fitting, and Franklin to discuss the report.

"We think there are some discrepancies," Sandoval said, "discrepancies in the way that there's more to the audit. We think it would be unfair to us, and I don't think it would be good reporting, if you ran a story just based on the information that currently exists."

"This is an internal report. We have no idea how it got into the hands of the Gallup Independent, and that's our problem. Whatever controls that we don't have, that's our problem, and maybe we'll work it out in the future," he said.

Begay, a certified internal auditor, said the audit was conducted at the request of the Office of the Prosecutor.

"It's a good audit, based on the information that we analyzed," she said. Begay met Wednesday morning with parties mentioned in the report. She said her office has agreed to give them additional time to provide further documentation before the report is presented to the Navajo Nation government's oversight committees.

"But I stated earlier with them, we conducted our audit in accordance with government auditing standards. We based all our findings here, our conclusions, on the documentation we verified. We gathered documentation from the Office of the Controller. Government auditing standardsrequire we base our conclusions and findings on reasonable basis, so we have a reasonable basis in reporting this," she said.

The affected parties have until May 9 to provide documents to the Auditor General's Office.

Wasted resources
The second finding in the audit claims the Nation did not effectively manage its contract with OnSat. Cumulative contract costs were not monitored and accurately reported, programs contracting with OnSat did not effectively evaluate the merit of contract costs, and equipment obtained from OnSat was not accounted for adequately, according to the preliminary audit.

"The nonimplementation of established controls in managing OnSat contracts made the Navajo Nation highly vulnerable to make inappropriate payments, as those noted in Finding I," the review states.

The third finding shows that although the Navajo Nation has a Department of Information Technology to implement the government's overall computer information strategy, Navajo programs that contracted with OnSat did not involve DIT in their information technology investment decision-making.

"This contributed to Navajo Nation IT resources not being managed appropriately, leading to hundreds of thousands of dollars of wasted resources," the review states.

Stephens said because of sensitive personal information transmitted by Public Safety and Head Start, the Department of Information Technology's services could not be utilized.

The fourth finding shows that Federal Communications Commission rules require OnSat to pass on to the Nation E-rate reimbursements received.

"OnSat did not credit the Navajo Nation for the full amount of E-rate reimbursements; the Navajo Nation has yet to receive $389,130 credit from the E-rate reimbursed to OnSat for funding year 2003."

Further, the review states that FCC rules require competitive bidding in the selection of an Internet service provider but that there is no evidence the Nation complied with competitive bidding in its selection of OnSat.

"Assuming that we took $300,000 too much from E-rate, assuming that was the case, we would not give it back to the Navajo Nation. We would have to give it back to E-rate," Stephens said, adding that a KPMG audit paid for by E-rate and completed in 2005 said OnSat actually was shorted $27,000.

"Now, I can't go back and get it, but if I had owed them the $300,000 they would have came back and nailed me. But they said, 'No, you got $27,000 too little. We're really sorry. We should have calculated the percentage a little different, so we shorted you $27,000.' "

If there had been any problem with what OnSat has done with E-rate, he said, they would not have gotten a grant for $2 million to put videoconferencing in every chapter house, an initiative expected to begin in mid-July.

Gates Foundation
In 2000, each of the 110 chapters of the Navajo Nation was awarded a grant from the Bill and Melinda Gates Foundation's Native American Access to Technology Program. The grant was designed to provide computer and Internet access to Native people living on federally recognized reservations in the Four Corners area.

Each tribal entity that applied received the grant, which provided computing packages that included workstations, servers, laser printers, and digital cameras, as well as detailed preparatory work, installation, training, technical support and Internet services.

The Nation was granted funding for the installation of dedicated connections, from T1 and frame relay to wireless and satellite. The isolation of most Navajo chapters from existing infrastructure presented significant challenges to the Gates Foundation as it tried to establish Internet services.

Most Internet services require telephone connections, however, only 22 percent of Navajo households have telephone service. Also, the telephone service connections were at a dial-up transfer rate insufficient for acceptable Internet connection, meaning that many chapters could be connected only by satellite.

The Gates Foundation awarded $6.2 million to Navajo, which included approximately $5 million for equipment and a $1.2 million cash grant. Of the $1.2 million, OnSat received $826,955 to provide Internet services to the 110 chapters.

On Nov. 30, 2001, the Navajo Division of Community Development entered into a master agreement with OnSat to provide Internet and transmission services via satellite to the Nation's chapters.

The satellite connections also provided an opportunity for wireless Internet services for the Head Start centers, and on June 7, 2002, the Navajo Head Start Program also contracted with OnSat to install satellite systems and establish Internet services between the central office, five agency offices, and the Head Start centers across the Navajo Nation.

Contract modified
The initial $1.9 million Navajo Nation master agreement with OnSat was modified 10 times from the time it was executed in 2001 by Community Development. The last modification was made in January 2006, bringing the total modified amount to around $32 million.

The modifications were made to expand OnSat's statement of work and allow other programs, namely Public Safety and the Office of the President/Vice President, to obtain goods and services from OnSat, the audit states. The Office of the Controller executed a new contract with OnSat while other programs issued purchase orders or requests for direct payments.

The preliminary audit found the Division of Community Development paid OnSat around $1.2 million of which approximately $830,000 came from the Gates Foundation grant and $370,000 from Community Development's general fund budget and Chapter Claims Trust Fund.

The Division of Public Safety and Head Start used their federal funds to pay OnSat. Public Safety spent $1.5 million, while Head Start kicked in another $2.4 million. The initial Head Start contract of $225,000 executed in June 2002 has been modified eight times. The last modification was in 2006, bringing the contract amount to $1.6 million, though auditors said actual payments totaled $2.4 million.

The Office of the President/Vice President and the Controller's Office used money from their operating budgets to pay OnSat $143,964 and $21,360, respectively.

Other programs made payments to OnSat through purchase orders and requisitions. Those include: Risk Management, $49,368; Special Diabetes, $10,623; Parks and Recreation, $3,832; Window Rock Library, $3,000;Department of Agriculture, $2,493; Abandoned Mine Lands, $2,163; Office of Special Education, $1,881; and Fort Defiance Child Care Center, $793.

Based on Office of the Controller records, total payments to OnSat amount to $5,283,805. DPS and OPVP payments were made through a combination of contract and purchase orders, the report states

E-Rate
The Schools and Libraries Program of the Universal Service Fund, commonly known as "E-rate," provides discounts to help schools, libraries and consortia obtain affordable telecommunications and Internet access. The program is administered by the Universal Service Administrative Co. under the direction of the FCC.

The Nation was approved for E-rate support for funding years 2003 and 2004, which covered the Internet service period between July 1, 2003, and June 30, 2005. The E-rate support went to the 110 chapters' service provider, OnSat, which according to FCC rules, was to pass on the E-rate support to the Nation by providing discounts to the chapters for Internet access fees.

According to the report, OnSat received E-rate reimbursements for the discounts provided to the chapters. Navajo was approved for E-rate support at 85 percent of the costs of Internet access.

To receive E-rate support, an FCC Form 470, which includes description of services requested and a certification form, must be filed to open the competitive bidding process required under the E-rate program.

The FCC requires the form be posted on USAC's schools and libraries division Web site for at least 28 days before selection of a service provider and execution of a contract. However, the Auditor General's Office found that OnSat was selected as the service provider five days after the posting.

The Auditor General's Office said OnSat has yet to give Navajo $389,130 in E-rate credit. The auditor's report also states there is no evidence the Nation complied with FCC competitive bidding requirements or Navajo procurement law in its selection of OnSat.

'Nobody understands what we're trying to do here," Stephens said. "I think about how things appear in the paper. What happens is when the word OnSat goes out, and those things go out there, all of the sudden, whatever you say is going to sound like, 'Well, OnSat's crooks, because these things weren't done right.'

'We did everything we're supposed to right. There are some internal issues they've (the Navajo Nation) got to deal with," he said.