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DOC Director objects to OIG findings, recommendations

American Samoa contends that the territory, under a new administration since January last year, is now fully positioned to provide small businesses with credit assistance through the U.S. Treasury Department’s State Small Business Credit Initiative (SSBCI) program, according to local Commerce Department director Keniseli Lafaele, the designated administrator of the program.


Lafaele provided ASG’s response to the U.S. Treasury’s Office of Inspector General audit of the SSBCI program for the territory. Released last week, the audit cited findings and recommendations on actions the U.S. Treasury should take, including terminating the SSBCI program in which the territory was awarded $10.5 million.  (See yesterday’s edition for more details).


In a Mar. 17 letter, Lafafele outlined ASG’s response to Clifton Kellogg, the SSBCI director, who had been in communication and in face-to-face meetings with local officials on the SSBCI. Lafaele said ASG notes the differences between the initial draft OIG audit report — which ASG was given a chance to respond to — and the final formal audit report.


“With all the work we’ve done with the SSBCI director and staff, we were somewhat taken aback with the harshness and severity of the positions taken in the formal [final] OIG report, especially given our understanding that we had now complied with all requirements to be in compliance with SSBCI legislation, rules, regulations and program objectives,” Lafaele wrote.


Further, “we’re talking about the SSBCI grant awarded under the previous ASG administration, which [U.S] Treasury itself did not believe was viable.”


He also says that American Samoa is not aware of any other OIG recommendation to terminate a state or territory from the SSBCI program for the type of infractions listed in the OIG audit report for American Samoa.


“Every state and territory has had difficulty with their SSBCI and other lending programs given the business climate faced by the banking industry, which as everyone knows, was one of the primary reasons the initial SSBCI plan submitted by the previous [ASG] administration was not viable and had to be re-written,” Lafaele said.


Further, the OIG audit does not reflect — in part because they may not have been aware of — significant organizational issues facing the governor, which necessitated his decision with respect to the local management of this vital program.


(The OIG audit notes that management of the program had been transferred three times since 2012, when the first Allocation Agreement was signed with the U.S. Treasury.)


Based on discussions and communications with the SSBCI officials, and in the interest of meaningful, effective organizational efficiency, the governor relocated the program to DOC, which is best equipped to manage business development and jobs creation activities, Lafaele said.


Once he was given the management task, Lafaele said he took “immediate steps to engage with SSBCI on all levels to fully inform them of activities and our rationale for changes being made.”


“To the best of our knowledge, [U.S] Treasury SSBCI supported the decision made by the governor as demonstrated by the significantly improved level of positive and progressive activities and cooperation undertaken... by ASG during the past eleven months,” he said.


Lafaele went on to point out that a significant number of states have not spent half of the funds allocated to them over two years. And based on American Samoa’s new proposed plan, “we will be positioned to allocate and/or obligate the vast majority of our allocation in the areas” outlined in the SSBCI plan “with the key being ‘successful and sustainable’,” Lafaele wrote.


(Samoa News should point out that the amended American Samoa plan being proposed is not included in the audit report.)


Lafaele highlighted in his response were submissions to U.S. Treasury for consideration:


•            the quarterly report issues have been resolved and are current;


•            consistent with previous meetings, conference calls and written responses to questions, American Samoa is in a position to successfully carry out the modification of its Allocation Agreement plan when approved;


•            as far as ASG is concerned, US Treasury has approved the administration of the SSBCI program by the DOC director (OIG report says approval is pending)


•            American Samoa is in compliance with U.S. Treasury instructions not to obligate and/or expend any SSBCI funds until ASG receives written approval and authorization to do so. (Of the $10.5 million allocated to American Samoa, the first allocation of $3.5 million was sent out in 2012 and is now sitting in a separate bank account. The only money used so far by ASG is close to $50,000 for administrative costs.)


Lafaele’s response revealed that ASG has retained the service of Jack Martin, of the Certified Public Accountant firm of Chairman, Martin, Arrington, Desai & Myers. to fulfill various roles for ASG.


One of these roles is the design, development, implementation and oversight function of all SSBCI Compliance functions under the direct guidance of Lafaele. According to the letter, Martin is a former chief financial officer and acting assistant secretary of the U.S. Education Department.


According to OIG, the territory has objected to the recommendations to terminate, suspend, or reduce funding under SSBCI.


In its objections, the report notes American Samoa says it has done all necessary for the territory to meet compliance for the SSBCI program, including pushing for the U.S. Treasury to approve the program modification changes it has requested, and maintains that its SSBCI program complies with all Treasury regulations and guidance, and that it is now fully positioned to provide small businesses in the Territory with credit assistance.


In a Jan. 30, 2014 letter to OIG in response to the draft audit report, Lafaele pointed out that when the new Lolo administration learned of discrepancies in the SSBCI program — as cited in a U.S. Treasury letter Mar. 11, 2013 — it “immediately embarked on an undertaking that would both address the programmatic deficiencies and the fundamental nature of American Samoa’s SSBCI program.”


This is due to the planned departure of Bank of Hawai’i, the only U.S. based bank operating in the territory, with Australia based ANZ Amerika Samoa Samoa being the only other local financial institution, he said.


Further, American Samoa’s existing SSBCI Program only consists of a collateral support program and without financial institutions that are wiling to participate, the collateral support program could not be implemented.




In his Mar. 17 letter, Lafaele reminded the feds that the vast majority of issues raised in the OIG audit took place prior to the current administration, and the new administration “recognized the seriousness of the issues and have taken appropriate steps to rectify and correct mistakes of the previous administration and set forth plans to ensure those mistakes are not repeated.”


Further, the territory also submits that letters to the U.S. President and U.S Treasury Secretary were general purpose letters, designed to inform and in some cases request assistance as many states have done when assuming office in the midst of a national economic crisis affecting their business base, jobs, healthcare and the lives of their citizens.


(According to the OIG timeline of events of the territory’s SSBIC program, on Aug. 26, 2013 a letter from the governor “asked President Obama to forbid federal agencies from taking any adverse action against American Samoa” on the SSBCI.)


With the support and assistance of the federal SSBCI director and Outreach manager, Lafaele said ASG has significantly improved its program and substantially increased its prospects for providing support to create and sustain new and existing businesses.


The new SSBCI plan submitted by the governor “is of such unique character, that successful implementation could — as US. Treasury Deputy Assistant Secretary Graves has reflected — be used as a model for other SSBCI programs in other states across the country,” he said. “The impact on new and existing business, especially in the medical, health and health related fields could be enormous.” It was also noted that BoH has delayed its departure indefinitely.


(See in tomorrow’s edition the final story on the OIG audit dealing with expenses).