CHUUK STATE GOVERNMENT FEDERATED STATES OF MICRONESIA REPORT

CHUUK STATE GOVERNMENT FEDERATED STATES OF MICRONESIA

____________________________________________

REPORT ON THE AUDIT OF FINANCIAL STATEMENTS IN ACCORDANCE

WITH OMB CIRCULAR A-133 ____________________________________________

YEAR ENDED SEPTEMBER 30, 2001



INDEX Page No. INDEPENDENT AUDITORS' REPORT, GENERAL PURPOSE FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION 1 - 35 INDEPENDENT AUDITORS' REPORTS ON COMPLIANCE AND ON INTERNAL CONTROL 36 - 87


Table of Contents

Year Ended September 30, 2001

Page No. I. Independent Auditors' Report 1 II. General Purpose Financial Statements:

Combined Balance Sheet - All Fund Types, Account Groups and Discretely Presented Component Units 3

Combined Statement of Revenues, Expenditures and Changes in Fund Balances

(Deficit) - All Governmental Fund Types 5 Statement of Revenues, Expenditures and Changes in Fund Balance (Deficit) -

Budget and Actual, Budgetary Basis - General Fund 6 Combined Statement of Revenues, Expenses and Changes in Fund Equity – All

Discretely Presented Component Units – Proprietary Fund Types 7 Combined Statement of Cash Flows – All Discretely Presented Component Units

– Proprietary Fund Types 8 Notes to Financial Statements 9

III. Additional Information: Combining Schedule of Expenditures by Account - All Governmental Fund Types 26 General Fund:

Statement of Revenues, Expenditures by Function and Department and Changes in Fund Balance (Deficit) 27

Special Revenue Funds: Introduction to Special Revenue Funds 29 Combining Balance Sheet 30

Combining Statement of Revenues, Expenditures by Function and Changes in Fund Balances (Deficit) 31

Combining Statement of Revenues, Expenditures by Account and Changes in Fund Balances (Deficit) 32

Discretely Presented Component Units: Combining Balance Sheet 33

Combining Statement of Revenues, Expenses and Changes in Fund Equity 34 Combining Statement of Cash Flows 35


Table of Contents, Continued


Page No. IV. Independent Auditors' Report on Compliance and on Internal Control: Independent Auditors' Report on Compliance and on Internal Control Over

Financial Reporting Based Upon the Audit Performed in Accordance with Government Auditing Standards 36

Independent Auditors' Report on Compliance and Internal Control Over

Compliance Applicable to Each Major Federal Award Program and on the Schedule of Expenditures of Federal Awards 38

Schedule of Expenditures of Federal Awards: FSM Federal Assistance Fund 40 CFSM Special Revenue Fund 41 Compact of Free Association Capital Projects Fund Section 211 (A) (2) 42 Compact of Free Association Other Grants Fund 56 Compact of Free Association Special Block Grant Fund Section 221 (B) 57 Notes to Schedule of Expenditures of Federal Awards 58 Schedule of Programs Selected for Audit in Accordance With OMB Circular A-133 61 Schedule of Findings and Questioned Costs 62 Resolution of Prior Years' Findings and Questioned Costs 87


INDEPENDENT AUDITORS' REPORT,

GENERAL PURPOSE FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION


1

INDEPENDENT AUDITORS' REPORT Honorable Ansito Walter Governor, State of Chuuk Federated States of Micronesia: We have audited the accompanying general purpose financial statements of the State of Chuuk, as set forth in Section II of the foregoing table of contents, as of September 30, 2001, and for the year then ended. These general purpose financial statements are the responsibility of the management of the State of Chuuk. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. Except as discussed in the following paragraphs, we conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall general purpose financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Chuuk State has not assessed possible leases payable that should be accrued in the general fund as of September 30, 2001. We were unable to determine the amount of payables that should be so accrued through the use of alternative auditing procedures. Property comprising the State of Chuuk's General Fixed Assets Account Group has not been inventoried as of September 30, 2001, nor have existing records been adequately assembled to permit the application of auditing procedures and verification of the detail of account balances. Accordingly, a statement of changes in general fixed assets has not been included within the accompanying general purpose financial statements. As discussed in Note 1A, the accompanying general purpose financial statements do not include the State's development authorities, which in our opinion, should be included to conform with accounting principles generally accepted in the United States of America. The development authorities would be reported as blended Component Units - Special Revenue Funds. We were unable to perform audit procedures on the Chuuk Coconut Authority (CCA) or Chuuk Public Fisheries Corporation (CFC) as of September 30, 2001, as financial statements were not provided to us for inspection. The general purpose financial statements referred to above do not include CCA or CFC, Component Units – Proprietary Funds of the State of Chuuk, which in our opinion, should be included to conform with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP 361 South Marine Drive Tamuning, Guam 96913-3911 Tel: (671)646-3884 Fax: (671)649-4932 www.dttguam.com

CHUUK STATE GOVERNMENTFEDERATED STATES OF MICRONESIA

Combined Balance Sheet - All Fund Types, Account Groups and Discretely Presented Component UnitsSeptember 30, 2001

(With Comparative Totals as of September 30, 2000)

Totals TotalsGovernmental Fund Types Account Groups Primary Discretely Reporting

General General Government Presented Entity Special Capital Fixed Long-Term (Memorandum Component (Memorandum Only)

Assets General Revenue Projects Assets Debt Only) Units 2001 2000

Cash and equivalents (note 2) $ 73,675 $ 8,079 $ - $ - $ - $ 81,754 $ 698,054 $ 779,808 $ 1,162,736 Investments (note 2) - - 8,695,774 - - 8,695,774 - 8,695,774 18,280,329 Early Retirement Trust Fund (note 2) 4,062,348 - - - - 4,062,348 - 4,062,348 3,238,260 Investments - other (note 9) - - 3,675,505 - - 3,675,505 - 3,675,505 4,064,005 Receivables from other governments (note 3) 304,183 966,077 - - - 1,270,260 - 1,270,260 4,163,716 General receivables, net 455,095 189,066 - - - 644,161 662,262 1,306,423 1,261,196 Allowance for uncollectibles (79,933) (74,864) - - - (154,797) - (154,797) (2,247,890) Advances 415,483 - - - - 415,483 - 415,483 531,113 Loans receivable, net of an allowance for doubtful accounts of $1,157,613 - - - - - - 1,313,246 1,313,246 1,037,642 Loans receivable, other (note 14) 2,817,718 - - - - 2,817,718 - 2,817,718 1,795,680 Due from other funds (note 8) - 4,021,494 764,824 - - 4,786,318 - 4,786,318 7,316,801 Other assets - - - - - - 29,170 29,170 75,565 Fixed assets, net (note 4) - - - 67,581,884 - 67,581,884 11,288,980 78,870,864 77,282,925 Amount to be provided for retirement of long-term debt - - - - 12,560,836 12,560,836 - 12,560,836 16,598,987

Total assets $ 8,048,569 $ 5,109,852 $ 13,136,103 $ 67,581,884 $ 12,560,836 $ 106,437,244 $ 13,991,712 $ 120,428,956 $ 134,561,065

See accompanying notes to financial statements.

3


Combined Balance Sheet - All Fund Types, Account Groups and Discretely Presented Component Units, ContinuedSeptember 30, 2001

(With Comparative Totals as of September 30, 2000)

Totals TotalsGovernmental Fund Types Account Groups Primary Discretely Reporting

General General Government Presented Entity Special Capital Fixed Long-Term (Memorandum Component (Memorandum Only)

Liabilities and Fund Equity General Revenue Projects Assets Debt Only) Units 2001 2000

Liabilities: Accounts payable $ 5,578,942 $ 2,500,480 $ 3,623,821 $ - $ - $ 11,703,243 $ 1,046,413 $ 12,749,656 $ 9,203,202 Bank overdraft 925,438 - - - - 925,438 - 925,438 - Accrued payroll and annual leave 375,333 242,900 - - 829,208 1,447,441 347,230 1,794,671 1,427,319 Due to other funds (note 8) 3,945,828 840,490 - - - 4,786,318 - 4,786,318 7,316,801 Payable to other governments - - - - - - - - 464,882 Notes payable (notes 5, 13 and 14) 4,296,754 - 329,179 - 5,128,335 9,754,268 3,456,478 13,210,746 14,057,396 Claims payable (note 11) - - - - 6,603,293 6,603,293 - 6,603,293 7,349,000 Deferred revenue 1,000 - - - - 1,000 50,000 51,000 278,320

Total liabilities 15,123,295 3,583,870 3,953,000 - 12,560,836 35,221,001 4,900,121 40,121,122 40,096,920

Fund equity: Investment in general fixed assets (note 4) - - - 67,581,884 - 67,581,884 - 67,581,884 67,581,884 Retained earnings (note 17) - - - - - - 9,091,591 9,091,591 9,736,587 Fund balances: Reserved for: Related assets (note 15) 6,449,400 - 3,675,505 - - 10,124,905 - 10,124,905 8,248,463 Encumbrances 836,662 286,513 1,062,311 - - 2,185,486 - 2,185,486 2,885,296 Continuing appropriations (note 6) 242,192 - 3,524,340 - - 3,766,532 - 3,766,532 6,801,783 Unreserved (14,602,980) 1,239,469 920,947 - - (12,442,564) - (12,442,564) (789,868)

Total fund equity (7,074,726) 1,525,982 9,183,103 67,581,884 - 71,216,243 9,091,591 80,307,834 94,464,145

Commitments and contingencies (notes 11, 16 and 18)

Total liabilities and fund equity $ 8,048,569 $ 5,109,852 $ 13,136,103 $ 67,581,884 $ 12,560,836 $ 106,437,244 $ 13,991,712 $ 120,428,956 $ 134,561,065


4

FEDERATED STATES OF MICRONESIA

Combined Statement of Revenues, Expenditures and Changes in Fund Balances (Deficit) -All Governmental Fund Types

Year Ended September 30, 2001(With comparative totals for the year ended September 30, 2000)

Totals

Governmental Fund Types Reporting EntitySpecial Capital (Memorandum Only)

General Revenue Projects 2001 2000

Revenues: U.S. Compact of Free Association: Section 211(a)(2) - base grant $ 8,816,000 $ - $ 6,144,000 $ 14,960,000 $ 14,960,000 Section 217 - inflation adjustment 4,936,960 - 3,440,640 8,377,600 8,078,400 Section 221(b) - base grant - 2,730,000 - 2,730,000 2,730,000 Section 216(a)(2) - base grant - 461,087 - 461,087 461,087 Section 214(c) - base grant - 949,800 - 949,800 949,800 Section 217 - inflation adjustment - 671,888 - 671,888 512,892 Section 212 - base grant - 250,000 - 250,000 385,000 FSM revenue sharing 4,319,588 - - 4,319,588 5,006,452 Other federal contributions - 1,086,816 - 1,086,816 963,856 State taxes and licenses 1,975,695 - - 1,975,695 2,339,570 Other 1,671,913 983,049 - 2,654,962 4,242,882 Investment (loss) income (note 2) (3,097,561) - - (3,097,561) 3,560,287

Total revenues 18,622,595 7,132,640 9,584,640 35,339,875 44,190,226

Expenditures: General government 7,471,140 821,518 - 8,292,658 7,102,215 Education 5,628,809 2,598,003 - 8,226,812 7,416,338 Health services 2,876,567 3,198,691 - 6,075,258 4,475,648 Economic development 1,089,741 - - 1,089,741 1,017,371 Public works and utilities 368,232 824,425 6,863,801 8,056,458 16,051,309 Public safety 1,291,923 176,479 - 1,468,402 1,068,192 Transportation 919,020 - - 919,020 891,120 Community affairs 204,628 671,967 - 876,595 462,249 Boards and commissions 959,409 - - 959,409 743,491 Special programs - - - - 1,267,926 Debt service - principal (note 5) - - 2,918,173 2,918,173 3,000,000 Debt service - interest - - - - 320,000 Acquisition of equipment 371,528 - 2,453,489 2,825,017 4,450,000 Loss on investment (note 9) - - 388,500 388,500 5,350,000 Other 5,262,739 46,098 - 5,308,837 6,416,001

Total expenditures 26,443,736 8,337,181 12,623,963 47,404,880 60,031,860

Excess (deficiency) of revenues over (under) expenditures (7,821,141) (1,204,541) (3,039,323) (12,065,005) (15,841,634)

Other financing sources (uses): Chuuk recovery loan accrual (note 5) (292,444) - - (292,444) (1,686,710) Operating transfers in (note 7) - - - - 96,140 Operating transfers out (note 7) (153,866) (1,000,000) - (1,153,866) (1,268,654) Total other financing sources (uses), net (446,310) (1,000,000) - (1,446,310) (2,859,224)

Excess (deficiency) of revenues and other financing sources over (under) expenditures and other financing uses (8,267,451) (2,204,541) (3,039,323) (13,511,315) (18,700,858) Fund balances at beginning of year, as restated (note 17) 1,192,725 3,730,523 12,222,426 17,145,674 35,846,532

Fund (deficit) balances at end of year $ (7,074,726) $ 1,525,982 $ 9,183,103 $ 3,634,359 $ 17,145,674


CHUUK STATE GOVERNMENT

5


Statement of Revenues, Expenditures and Changes in Fund Balance (Deficit) Budget and Actual, Budgetary Basis - General Fund


2001 2000Variance VarianceFavorable Favorable

Budget Actual (Unfavorable) Budget Actual (Unfavorable)Revenues: Compact of Free Association Section 211 and 217 $ 13,752,960 $ 13,752,960 $ - $ 13,576,640 $ 13,576,640 $ - Local revenue 18,159,763 4,869,635 (13,290,128) 11,900,163 12,045,332 145,169

Total revenues 31,912,723 18,622,595 (13,290,128) 25,476,803 25,621,972 145,169

Expenditures-budgetary basis: General government 6,580,431 7,349,332 (768,901) 6,630,745 6,879,226 (248,481) Health services 2,713,614 2,861,689 (148,075) 2,796,169 2,764,552 31,617 Education 5,672,451 5,628,061 44,390 5,202,154 5,171,892 30,262 Economic development 1,087,162 1,087,277 (115) 908,214 1,023,256 (115,042) Public safety 1,174,556 1,269,330 (94,774) 971,800 1,082,292 (110,492) Transportation 917,775 915,065 2,710 905,050 894,084 10,966 Public works 414,101 368,243 45,858 336,234 327,358 8,876 Community affairs 202,519 203,604 (1,085) 170,200 188,952 (18,752) Board and commissions 941,937 930,822 11,115 770,224 785,708 (15,484) Special programs/legislative external appropriations 7,841,407 5,631,088 2,210,319 7,200,339 7,665,719 (465,380) Early retirement 975,200 98,367 876,833 1,388,500 219,074 1,169,426

Total expenditures 28,521,153 26,342,878 2,178,275 27,279,629 27,002,113 277,516

Excess (deficiency) of revenues over (under) expenditures 3,391,570 (7,720,283) (11,111,853) (1,802,826) (1,380,141) 422,685

Other financing sources (uses): Chuuk recovery loan accrual (note 5) (635,680) (292,444) 343,236 (500,000) (1,686,710) (1,186,710) Operating transfers out (note 7) (152,800) (159,523) (6,723) (315,800) (267,477) 48,323 Excess (deficiency) of revenues and other financing sources over (under) expenditures and other financing uses 2,603,090 (8,172,250) (10,775,340) (2,618,626) (3,334,328) (715,702)

Fund balance (deficit) at beginning of year as restated (note 17) (4,195,287) (4,195,287) - 232,270 232,270 - Other changes in deficit: Increase in reserve for related assets - (2,264,942) (2,264,942) (1,388,500) (1,611,933) (3,000,433) Decrease in reserve for continuing appropriations - 29,499 29,499 - 518,704 518,704 Deficit at end of year $ (1,592,197) $ (14,602,980) $ (13,010,783) $ (3,774,856) $ (4,195,287) $ (3,197,431)

See accompanying notes to financial statements

6


Combined Statement of Revenues, Expenses and Changes in Fund Equity All Discretely Presented Component Units - Proprietary Fund Type


2001 2000

Operating revenues: Sales $ 3,302,118 $ 2,951,167

Total operating revenues 3,302,118 2,951,167

Operating expenses: Fuel 2,246,736 2,067,529 Payroll and personnel 1,948,031 1,700,542 Depreciation 1,283,545 1,086,123 Bad debt 586,940 427,840 Rent 9,210 2,560 Other 112,369 51,109

Total operating expenses 6,186,831 5,335,703

Operating loss (2,884,713) (2,384,536)

Nonoperating revenues: Transfers in (note 7) 1,092,475 1,082,774 Federal contributions 622,760 710,950 Capital contributions 518,099 144,599 Other income 6,383 50,000

Total nonoperating revenues, net 2,239,717 1,988,323

Net loss (644,996) (396,213)

Retained earnings at beginning of year, as restated (note 17 9,736,587 10,132,800

Retained earnings at end of year $ 9,091,591 $ 9,736,587

See accompanying notes to financial statements

7


Combined Statement of Cash Flows - All Discretely Presented Component Units - Proprietary Fund Type


Reconciliation of operating loss to net cash used for operating activities Operating loss $ (2,884,713) Adjustments to reconcile operating loss to net cash used for operating activities: Depreciation 1,283,545 Allowance for bad debts 586,940 Increase in receivables (592,228) Increase in accounts payable 171,554 Increase in other liabilities 128,727 Total adjustments 1,578,538

Net cash used for operating activities (1,306,175)

Cash flows from noncapital financing activities Operating grants received 1,851,159 FSM contribution 73,994

Net cash provided by noncapital financing activitie 1,925,153

Cash flows from capital and related financing activities Acquisition of utility plant (2,298,243) Acquisition of building (91,369) Proceeds from notes payable 1,631,430

Net cash used for capital and related financing activitie (758,182) Net change in cash and equivalents (139,204)

Cash and equivalents at beginning of year 837,258 Cash and equivalents at end of year $ 698,054 See accompanying notes to financial statements

8


Notes to Financial Statements

September 30, 2001

9

(1) Summary of Significant Accounting Policies The general purpose financial statements of the State of Chuuk (the State) have been prepared in

conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing government accounting and financial reporting principles. The more significant of the State's accounting policies are described below.

A. Reporting Entity The general purpose financial statements of the State of Chuuk have been prepared in

conformity with GAAP as applied to government units. GASB Statement No. 20, “Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting”, requires that proprietary activities apply all applicable GASB pronouncements as well as Statements and Interpretations issued by the Financial Accounting Research Bulletins of the Committee on Accounting Procedures issued on or before November 30, 1989. The State of Chuuk has implemented GASB 20 and elected not to apply FASB Statements and Interpretations issued after November 30, 1989.

As required by GAAP, the general purpose financial statements of the State of Chuuk present

the government and its component units; entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the governments' operations so data from these units are combined with data of the primary government. Discretely presented component units, on the other hand, are reported in a separate column in the general purpose financial statements to emphasize that they are legally separate from the government. Each blended and discretely presented component unit has a September 30 year end.

1. Blended Component Unit Chuuk Visitors’ Bureau

The Chuuk Visitor's Bureau (the Bureau) is used to account for all funds received by the Bureau. The Bureau was created in fiscal year 1988 by Truk State Law No. 6-39. The primary purpose of the Bureau is to improve and develop Chuuk's tourism industry. The Bureau is governed by a nine member board. Five of the Bureau's board members are appointed by the Governor and the remaining four are appointed by the Speaker of the Chuuk State Legislature. The Bureau is reported as a special revenue fund.

2. Discretely Presented Component Units Chuuk State Public Utility Corporation

Chuuk State Public Utility Corporation (the Corporation) was established in 1992 by Chuuk State Law 192-12. The purpose of the Corporation is to provide electrical services to the public through the operation and the maintenance of the State’s electrical power system. The affairs of the Corporation are managed by a five-member board, consisting of members of the Chuuk State Government and the private sector. The Corporation is reported as a discretely presented Component Unit-Proprietary Fund.



September 30, 2001

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(1) Summary of Significant Accounting Policies, Continued 2. Discretely Presented Component Units, Continued

Chuuk State Housing Authority

Chuuk State Housing Authority (the Authority) was established in fiscal year 1980 by Truk State Law 3-30. The purpose of the Authority is to monitor the U.S. Department of Housing and Urban Development Section 8 and CDBG housing renovation loan program. Additionally, the Authority monitors the GLF loan fund of the State of Chuuk which provides low cost housing loans to the general public. The affairs of the Authority are managed by a five-member board, consisting of representatives of Chuuk State Government.

3. Omitted Component Units

Chuuk Coconut Authority

Chuuk Coconut Authority (the Authority) was established in 1979 by Truk State Law 1-1-12. The purpose of the Authority is to manufacture, process, buy, collect, market, sell, export and deal with, in general, all products derived from the coconut tree. The affairs of the Authority are managed by a five-member board, consisting of members of Chuuk State Government. The Authority would have been reported as a discretely presented component unit - proprietary fund.

Development Authorities The accompanying general purpose financial statements do not include the State's development authorities (component units). The majority of these entities do not present financial information concerning their operations, thus precluding presentation of financial statements for these funds. The development authorities would be reported as blended Component Units - Special Revenue Funds.

Chuuk Public Fisheries Corporation

The Corporation was established to operate a fishing vessel received in the dissolution of the State’s prior investment in a joint venture. The Corporation is governed by a five member Board of Directors who are determined pursuant to law. The Corporation would be reported as a discretely presented component unit – proprietary fund.

B. Fund Accounting and Basis of Presentation

The State of Chuuk uses funds and account groups to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain Chuuk State functions or activities.



September 30, 2001

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(1) Summary of Significant Accounting Policies, Continued

B. Fund Accounting and Basis of Presentation, Continued A fund is a separate accounting entity with a self-balancing set of accounts. An account group, on the other hand, is a financial reporting device designed to provide accountability for certain assets and liabilities that are not recorded in the funds because they do not directly affect net expendable available financial resources. They are concerned only with the measurement of financial position and are not involved with measurement of results of operations. Funds are classified into two categories: governmental and proprietary. Each category, in turn, is divided into separate "fund types." Governmental funds are used to account for all or most of government's general activities, including the collection and disbursement of earmarked monies (special revenue funds) and the acquisition or construction of general fixed assets (capital projects funds). The general fund is used to account for all activities of the general government not accounted for in some other fund. Proprietary funds are used to account for activities similar to those found in the private sector, where the determination of net income is necessary or useful to sound financial administration. Goods or services from such activities can be provided either to outside parties (enterprises funds) or to other departments or agencies primarily within the government (internal service funds).

There are two account groups. The General Fixed Assets Account Group is used to account for fixed assets not accounted for in proprietary funds. The General Long-Term Debt Account Group is used to account for general long-term debt and certain other long-term liabilities that are not specific liabilities of proprietary funds. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. Operating statements of these funds present increases and decreases (i.e., revenues and other financing uses) in net current assets. All proprietary funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the balance sheet. Proprietary fund type operating statements present increases (e.g. revenues) and decreases (e.g., expenses) in net total assets. The modified accrual basis of accounting is used by all governmental fund types. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Those revenues susceptible to accrual are FSM shared revenues for business gross receipts tax, import tax, income tax, leases and interest revenue. Fine and permit revenues are not susceptible to accrual because they are generally not measurable until received in cash.



September 30, 2001

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B. Fund Accounting and Basis of Presentation, Continued The accrual basis of accounting is utilized by proprietary fund types. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The State of Chuuk reports deferred revenue on its combined balance sheet. Deferred revenues arise when a potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period. Deferred revenues also arise when resources are received by the State of Chuuk before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the State of Chuuk has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized.

C. Budgetary Process

Legislation requires the Governor to present a proposed budget to the Legislature at the beginning of each annual session. The Legislature enacts the budget through passage of specific departmental appropriations, the sum of which may not exceed estimated revenues. Before signing the Appropriations Act, the Governor may veto or reduce any specific appropriation, subject to legislative override. Once passed and signed, the budget becomes the State's financial plan for the ensuing fiscal year.

During fiscal year 2001, supplemental appropriations were made for both operating and capital purposes, to reflect revised financial priorities of Chuuk State Government. Budgetary control is maintained at the departmental level. Budget revisions during the year, reflecting program changes or intradepartmental transfers of an administrative nature, may be effected with certain Executive and Legislative branch approval. Encumbrance accounting is utilized for budgetary control purposes. Encumbrances outstanding at year-end are reported as reservations of fund balance and will be funded as expenditures in the ensuing year. Encumbrances remain reservations of fund balance until becoming expended or canceled. If an encumbrance is subsequently canceled, the funds revert to the applicable unreserved fund balance unless otherwise required by law. Budgetary expenditures, which are on a basis other than GAAP, represent current charges against appropriations; current charges consist of all current year liquidated and unliquidated encumbrances. Budgetary expenditures are therefore determined by subtracting both current year liquidations of prior year encumbrances and unliquidated prior year encumbrances from the combined total of current year. When reviewed in relation to respective budgets, budgetary expenditures provide the principal means of evaluating current year operating performance and management stewardship. Amounts included on the Statement of Revenues, Expenditures and Changes in Deficit - Budget and Actual, Budgetary Basis - General Fund (which are presented on a non-GAAP budgetary basis) are reconciled to unreserved fund balance of the Combined Balance Sheet within the other changes in unreserved fund balance section of that statement.



September 30, 2001

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C. Budgetary Process, Continued Chuuk State does not establish budgets for the operations of its Special Revenue Funds. Accordingly, a budget to actual presentation for Special Revenue Funds is not required or presented. Unencumbered appropriations normally lapse at the end of each fiscal year unless they are designated by the Legislature as representing continuing appropriations.

D. Cash and Equivalents

Cash and equivalents include amounts in demand deposits as well as short-term investments with a maturity date within three months of the date acquired by the State of Chuuk.

E. Receivables

Receivables in the State's governmental funds primarily consist of taxes and federal revenues. Since few governmental fund revenues are susceptible to accrual prior to receipt, most taxes, licenses, fees, permits and similar revenues are recognized primarily on a cash basis.

F. Loans Receivable

Loans receivable of the component units-proprietary funds in 2001 (primarily Chuuk State Housing Authority) consisted of Community Development Block Grant (CDBG) loans and general loans extended to qualifying Federated States of Micronesia (FSM) citizens. CDBG loans are for the purpose of acquiring new homes and general loans are for the purpose of financing renovation, rehabilitation or extension of existing homes. In order to qualify for both types of loans, the citizen must own or acquire the land where the home will be located, the home or additions must be approved with regard to compliance with building codes, the applicant must fall within low-income eligibility parameters as established by the U.S. Department of Housing and Urban Development (HUD), and the applicant must exhibit the ability to repay the loans. Interest on both types of loans is charged at 4%. The loans are collateralized by land and improvements. The principal amounts of loans range between $2,000 and $75,000. Loan maturities range between 1 and 7 years.

G. Interfund Transactions

The State has three types of interfund transactions:

1. Operating appropriations/subsidies are accounted for as operating transfers in the funds involved.

2. Equity contributions are accounted for as equity transfers (additions to or deductions from beginning governmental fund balances or component unit contributed capital).

3. The majority of the State's financial operations are centrally administered, and this administration is facilitated by the use of a "pooled" cash account; for practical purposes, cash is primarily maintained in a single bank account which is considered to be an asset of the State's general fund.



September 30, 2001

14

(1) Summary of Significant Accounting Policies, Continued G. Interfund Transactions, Continued

As a result of this cash pooling practice, cash transactions normally include entries which adjust the relative balances of affected interfund asset/liability accounts; each fund's interfund balance therefore represents a net interest in the State's actual cash. Income derived from pooling of cash generally accrues to the general fund.

H. Compensated Absences

Vested or accumulated vacation leave that is liquidated with expendable available financial resources is reported as an expenditure of the general fund. Amounts of vested or accumulated vacation leave that are not expected to be liquidated with expendable available financial resources are reported in the general long-term debt account group. The liability as of September 30, 2001 is $829,208. No expenditure is reported for these amounts.

I. Fund Balance Reserves and Designations The State's fund balance reserves represent those portions of fund balance which are legally

segregated for a specific future use. Reserves for encumbrances, contracts and continuing appropriations are examples of this legal segregation.

J. Totals - Memorandum Only The "Totals - Memorandum Only" columns represents an aggregate of the individual

combined financial statements. The totals column is presented for overview informational purposes and does not represent consolidated financial information.

K. Investments Investments are recorded at fair value. Investments in the equity of companies are carried at

cost if less than twenty percent of the companies' total equity and market value cannot be determined, on the equity method if greater than twenty percent and less than fifty percent and on a consolidated basis if greater than fifty percent. (See Notes 2 and 9).

L. Estimates The preparation of financial statements in conformity with GAAP requires management to

make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates.



September 30, 2001

15

(2) Cash and Equivalents and Investments Cash and Equivalents The State considers cash and equivalents to be cash on hand, cash in checking and savings

accounts, cash on deposit with trustee, and unrestricted time certificates of deposit with initial maturities of less than ninety days.

Cash Deposits All of the State's certificates of deposit and cash-in-bank accounts are held with FDIC insured

banks. The State of Chuuk does not require collateralization of its bank accounts. Therefore $300,000 is subject to FDIC insurance with the remaining balance being uncollateralized.

At September 30, 2001, the State had deposits as follows; in each situation, cost approximated fair

value. General Fund Restricted cash in early retirement trust fund $ 4,062,348 Cash on deposit with trustee and in checking and savings accounts with FDIC insured banks 73,675 $ 4,136,023 Special Revenue Funds Cash in checking accounts with FDIC insured banks $ 8,079 Component Units Cash in checking and savings accounts with FDIC insured banks $ 698,054 Investments The State has appointed the Federated Development Authority (the Authority) as the agency to

implement the overall development goals, policies and strategies of funds received and invested pursuant to the Compact of Free Association. The Federated States of Micronesia Secretary of Finance maintains the accounting system and records necessary to account for investment funds placed with the Authority on behalf of the State.

The Authority has selected investment managers who are given authority to buy and sell securities

as follows:

A. Investment managers may invest in stocks, bonds and cash equivalents. Minimum standards of quality for investments at the time of purchase shall be:

1. Stocks - A "B" rating by a national rating service. Non-rated stocks such as banks or

insurance companies must be equal in quality or higher.



September 30, 2001

16

(2) Cash and Equivalents and Investments, Continued Investments, Continued

2. Bonds - Confined to issues rated "A" or higher by a national rating service, except in the case of U.S. Treasury or Agency Securities which are not rated.

3. Cash and equivalents - The manager may engage in all normally accepted short-term

investment practices including, but not limited to: U.S. Treasury and Agency securities, banker's acceptances, certificates of deposit, commercial paper and repurchase agreements using any of the foregoing as collateral. The following restrictions apply:

a. Commercial paper must be rated A-1/P-1 or higher by Standard & Poors Corporation

and Moodys Investor Services.

b. Certificates of deposit must be from FDIC insured banks which must have assets in excess of two billion dollars. Deposits in smaller institutions are acceptable, but must not exceed the amount of the insurance unless collateralized by U.S. Treasury Securities at 102%.

B. The equity portfolio shall be diversified among issues and industry classifications. No more

than 25% of the equity portfolio may be invested in any single classification, as described by the Standard and Poors 500 Index, unless prior approval is received from the FSM Secretary of Finance.

C. No investment may be made in a single corporate entity which exceeds 5% of the total assets

of the fund at the time of purchase without prior approval by the FSM Secretary of Finance.

Statement No. 3 of the Governmental Accounting Standards Board requires government entities to categorize investments to give an indication of the level of risk assumed by the entity at year end. Category 1 includes investments that are insured or registered or for which securities are held by the State or its agent in the name of the State. Category 2 includes uninsured and unregistered investments for which securities are held by the broker's or dealer's trust department or agent in the name of the State. Category 3 includes uninsured and unregistered investments for which the securities are held by the broker or dealer, or by its trust department or agent but not in the State's name. All of the State's investments are classified as Category 2 as all investments are held in the name of the Federated Development Authority.

Funds invested on behalf of the State as of September 30, 2001, are summarized below:

Investments Pooled investment debt and equity securities $ 8,695,774



September 30, 2001

17

(2) Cash and Equivalents and Investments, Continued Investments, Continued The State's investment income as of September 30, 2001, is summarized below:

Interest $ 521,678 Dividends 87,244 Realized gains (915,221) Unrealized gains (2,467,316) Management fees/other expenses (323,946)

$ (3,097,561)

(3) Receivables From Other Governments Amounts due from other governments include those funds which are earned and have yet to be

reimbursed by the FSM National Government for U.S. grants, U.S. Department of the Interior (DOI) grants, and those earned reimbursements resulting from Congress of the Federated States of Micronesia appropriations. Additionally, amounts due from the Office of Transition, Trust Territory Government (TTG), are for DOI Capital Projects.

Amounts due from federal agencies are those funds earned which are reimbursed directly from

United States federal agencies. (4) Fixed Assets Chuuk State did not update the balances in the General Fixed Assets Account Group during fiscal

year 2001. A summary of the general fixed assets accounted for in the General Fixed Assets Account Group

as of September 30, 2001, follows: Roads $ 10,257,016 Port facilities 6,537,700 Airport facilities 24,506,300 Public utilities 22,961,621 Other 3,319,247 $ 67,581,884



September 30, 2001

18

(4) Fixed Assets, Continued A summary of fixed assets accounted for in the component units-proprietary funds as of September

30, 2001, follows: Estimated Useful Lives General plant in service 3-7 years $ 299,916 Electric plant in service 3-20 years 14,358,391 Water and sewer in service 3-20 years 10,061,111 Buildings and improvements 3-20 years 406,110 Equipment and furniture 3-5 years 43,672 Vehicles 3-5 years 48,228 Other assets 3 years 6,755

25,224,183 Less accumulated depreciation (13,962,203)

11,261,980 Construction in progress 27,000 $ 11,288,980 (5) Notes Payable

Capital Projects Fund The State entered into a separate agreement with a contractor for payment of prior services performed. The agreement was not executed by the Attorney General's office and some amounts due are being renegotiated. Until a mutual settlement occurs, payment will not be made. The note is to be repaid from the State's Compact 211 (a)(2) Capital Projects Fund. As of September 30, 2001, the note is as follows:

Principal due in six monthly installments commencing on July 1, 1988,

with interest payments due in monthly installments at 12% per annum. $ 329,179

The State has yet to determine when or if repayments of this note will occur. General Long-Term Debt Account Group

Medium-Term Note Program: During the year ended September 30, 1993, the State undertook a single issue of notes payable under the Medium-Term Note (MTN) program entered into by the FSM National Government on behalf of itself and the four FSM states.



September 30, 2001

19

(5) Notes Payable, Continued

Medium-Term Note Program, Continued:

Payments of principal and interest are entrusted to Bankers Trust, as Trustee. The FSM has pledged, as security for payments by the Trustee, a first priority lien on, and security interest in, all Compact of Free Association payments from the U.S. Government. Upon receipt of the Compact payments, the Trustee is responsible for withdrawal of amounts necessary for payments of principal and interest. Various other restrictive covenants exist and are detailed in the Trust Agreement dated April 1, 1990, as amended by a Supplemental Trust Agreement dated March 15, 1994. Management is of the opinion that it has complied with such covenants through September 30, 2001, which included the final payment of $2,918,173 against the debt.

Chuuk Recovery Loan: During the fiscal year ended September 30, 1999, Chuuk State Government and the FSM National

Government entered into a loan agreement whereby the FSM National Government agreed to loan the State of Chuuk the sum of $5,000,000 dollars (“Chuuk Recovery Loan”). The primary purpose of this loan was to assist the State in satisfying amounts due to various vendors for payroll allotments and the principal portion of the State’s tax liabilities to the FSM Revenue and Taxation and the FSM Social Security Administration.

The loan is to be repaid in quarterly allotments of $416,667 including interest thereon beginning

October 1, 1998. Interest is at 1% per annum. The total amount outstanding on this loan at September 30, 2001 was $1,459,230. The State paid $1,700,000 against this loan during fiscal year 1999 and $500,000 in 2001, which was charged against the general fund.

Early Retirement Program: During the fiscal year ended September 30, 1998, Chuuk State Government implemented an early

retirement program for all eligible public service system employees. This program is funded through a loan from the Asian Development Bank through the FSM National Government. A total loan amount of $5,300,000 is available to the State of Chuuk for this purpose. Under the terms of its loan agreement with the FSM National Government, the State shall pay the FSM National Government a service charge at the rate of (1%) per annum calculated based on the total loan balance outstanding from time to time.

Pursuant to the terms of the financing agreement between the State of Chuuk and the FSM

National Government, the State is required to deposit into the Early Retirement Scheme Trust Account held in the name of the State within the FSM National Government’s investment portfolio, 100% of the outstanding principal balance by September 30, 2001. Funds for the repayment of the loan are expected to be derived from annual appropriations for salaries and wages earmarked for the positions abolished under the Early Retirement Scheme. The Chuuk State Legislature has authorized for appropriation from the general fund certain percentages of amounts borrowed under the loan in each fiscal year until the Early Retirement Scheme Trust Account is fully replenished in fiscal year 2001. The loan is to be repaid by the FSM National Government in semi-annual installments commencing February 1, 2008. The total amount outstanding on this loan at September 30, 2001 was $5,128,335.



September 30, 2001

20

(5) Notes Payable, Continued Early Retirement Program, Continued:

The State was not able to provide a schedule of future interest expense attendant to the debt maturities.

(6) Continuing Appropriations Continuing appropriations are summarized as follows:

General Fund Each fiscal year, Chuuk State Legislature appropriates funds for various programs, municipal projects and other projects which are available until fully expended or until project completion. $ 242,192 Capital Projects Each fiscal year, Chuuk State appropriates funds towards Capital Projects and Economic Development Projects. These funds are available until fully expended or project completion. $ 3,524,340

(7) Operating Transfers In/Out Material General Fund, Special Revenue Fund and Component Units - Proprietary Funds transfers

in/out for the year ended September 30, 2001, are as follows: Transfers Transfers Out In General Fund: Transfers out to Component Units: Chuuk State Housing Authority $ 92,475 $ - Chuuk Coconut Authority 61,391 -

Total General Fund $ 153,866 $ - Special Revenue Funds: Transfers out to Component Units: Chuuk Public Utility Corporation $ 1,000,000 $ - Total Special Revenue Funds $ 1,000,000 $ - Transfers in to Component Units: Chuuk State Housing Authority $ - $ 92,475 Chuuk Coconut Authority - 61,391 Chuuk Public Utility Corporation - 1,000,000

Total transfers in to Component Units - 1,153,866 $ 1,153,866 $ 1,153,866



September 30, 2001

21

(8) Interfund Assets/Liabilities

The following summarizes due from/to other funds as of September 30, 2001:

Fund Receivable Payable Special Revenue Funds: Chuuk Airport Authority $ 847,028 $ - Compact - Special Block Grant 2,533,715 - Federal Grant Assistance Fund - 251,162 Compact - Other Grants Fund 640,751 - CFSM Grant Fund - 589,328 Capital Projects Funds: Compact Capital Projects Fund 764,824 - General Fund - 3,945,828 $ 4,786,318 $ 4,786,318 (9) Investments - Other

During fiscal year 1993, the State purchased $1,000,000 of common stock in the Bank of the Federated States of Micronesia. The State purchased $250,000 of common stock in fiscal year 1990 and fiscal year 1989. This represents an interest of 16.08% as of September 30, 2001. The above investment is carried at cost since there is no method of ascertaining related value. $ 1,500,000 During fiscal year 1991, the State purchased $250,000 of common stock in the Pacific Islands Development Bank (a 7.36% interest at September 30, 2001). The above investment is carried at cost since there is no method of ascertaining related value. 250,000 During fiscal year 1996, the State purchased $125,000 of common stock in a joint venture with the National Fisheries Corporation for a longline base. The State also purchased $875,000, $130,000 and $370,000 of common stock in fiscal years 1994, 1993 and 1991, respectively in the same joint venture. This represents an interest of 50% as of September 30, 2001. Under the equity method of accounting, which has been adopted for Chuuk's investment in Chuuk Fresh Tuna, Incorporated (CFTI), Chuuk State's share of earnings and losses incurred by the entity should be deducted from the carrying value. However as audited financial information was not available for this purpose, the carrying value as of September 30, 2001 does not reflect such adjustments, if any. 1,202,005 During fiscal year 1993, the State purchased $812,000 of common stock in the Bank of Guam, which represents a .007% interest as of September 30, 2001. This investment is carried at market value based on 70,000 shares at $6.05 per share as determined by closing value on the Pacific Stock Exchange. 423,500



September 30, 2001

22

(9) Investments – Other, Continued

During fiscal year 1996, Chuuk State purchased $300,000 of common stock in the FSM Development Bank (an interest of approximately 1% at September 30, 2001). The above investment is carried at cost since there is no method of ascertaining related value. 300,000 Total other investments $ 3,675,505

Since the investments are considered unavailable to finance expenditures of the ensuing fiscal

year, the investments are restricted in the reserve for related assets component of fund balance. During fiscal year 2001, it was determined that the State of Chuuk held, as an investment, 70,000

shares of bank stock. In prior years, the investment was carried at cost as there was no method of ascertaining the related market value. The stock is now listed on a national exchange and a market value has therefore been ascertained. The State recognized a loss on its carrying value of $388,500 in the Compact Capital Fund in 2001 as a result of this change in valuation.

(10) Segment Data for Component Units - Proprietary Funds The following represents key data extracted from the financial statements of the component units -

proprietary funds presented by the State as of September 30, 2001, and for the year then ended:

Chuuk Chuuk State Public Utility Housing Corporation Authority

Total assets $ 12,188,918 $ 1,802,794 Total fund equity $ 7,289,215 $ 1,802,376 Net fixed assets $ 11,044,509 $ 244,471 FY01 operating loss $ (2,618,996) $ (265,717) FY01 net loss $ (509,820) $ (135,176) FY01 operating revenues $ 3,191,846 $ 110,272 FY01 operating transfers in $ 1,000,000 $ 92,475

Federal Programs The State participates in a number of U.S. federally assisted grant programs. These programs are

subject to financial and compliance audits to ascertain if Federal laws and guidelines have been followed. Currently, $771,012 in cumulative questioned costs exist for fiscal years 1997 through 2001 grants.

If the grantor agencies ultimately disallow these costs or a portion thereof, the General Fund will

bear responsibility for reimbursing the affected agencies. Accordingly, no provision for any liability that may result from this matter has been recorded in the accompanying general purpose financial statements. Pursuant to Title I, Section 105 of United States Public Law 99-239 the Government of the Federated States of Micronesia (FSM) is no longer liable for debts to U.S. federal agencies arising prior to the date of the implementation of the Compact of Free Association. This matter has not yet been officially resolved with the U.S. Government.



September 30, 2001

23

(11) Commitments and Contingencies, Continued Federal Programs, Continued Additionally, Chuuk State wrote off approximately $464,882 of payables due to the federal

government as the amounts have been long outstanding and no communication from the affected agencies has occurred.

Sick Leave It is the policy of the State to record the cost of sick leave when leave is actually taken and a

liability is actually incurred. The accumulated estimated amount of unused sick leave at September 30, 2001, was $2,861,545.

Pending Litigation and Other Matters

The State of Chuuk is a party to various legal proceedings. The State’s Attorney General is of the opinion that a reasonable estimate of the amount of judgements against the State of Chuuk is approximately $6.6 million. However, the State is currently negotiating with judgement creditors to arrive at settlement amounts favorable to both parties. Claims must be adjudicated and are not recognized as current liabilities of the State as they cannot be paid without an underlying appropriation from the State Legislature. Additionally, no appropriation currently exists to finance these judgements. The State’s Attorney General asserts that these claims, although it is possible they will be resolved in an amount less than as adjudicated, represent valid liabilities of the State. Accordingly, the balance is recorded in the General Long-Term Debt Account Group.

(12) Fund Deficits The following represents material fund deficits as of September 30, 2001. If operation of these

funds cannot cover prior losses, the State's General Fund may have to absorb these amounts or a portion thereof:

Special Revenue Funds: CFSM Grant Fund $ 137,144

(13) Notes Payable - Component Units-Proprietary Funds

Chuuk Public Utility Corporation, as of September 30, 2001, had the following notes payable: Notes payable to a commercial bank, ninety-day terms, interest at prime plus

2.00% on a $150,000 line of credit. The loan is collateralized by a Bank of the FSM deposit and security interest in fixed assets, accounts receivable and inventories. $ 130,000

Amount drawn on a note payable with an available total of $549,743,

facilitated by Federated States of Micronesia Development Bank (FSMDB), interest at 9%, due in monthly installments of $11,412. The loan is collateralized by major machinery, equipment and assignment of income. 508,760



September 30, 2001

24

(13) Notes Payable – Component Units-Proprietary Funds, Continued Amount drawn on a note payable with an available total of $2,795,540 to the

State of Chuuk, facilitated by an Asian Development Bank loan to the FSM, interest at 6.82%, due in semi-annual principal installments commencing August 1, 2007. The loan is ultimately collateralized by a Chuuk State pledge of Compact of Free Association revenues to the FSM National Government. The State of Chuuk has not imposed collateralization on the Corporation. 2,817,718

3,456,478 Less current maturities 211,141 Long-term portion of notes payable $ 3,245,337 Notes payable mature as follows: Year ending September 30, Principal Interest

2002 $ 211,141 $ 204,348 2003 102,623 226,489 2004 112,250 216,863 2005 122,779 206,333 2006 89,967 194,997 Thereafter 2,817,718 2,919,891 $ 3,456,478 $ 3,968,921

(14) Loans Receivable - Related Parties At September 30, 2001, the State had an outstanding loan of $2,817,718 due from the Chuuk

Public Utility Corporation, a component unit of the State. The loan to the Chuuk Public Utility Corporation is facilitated through a loan from the Asian Development Bank to the FSM National Government, which in turn lent the money to the State (see note 13).

(15) Fund Balances Reserved For Related Assets Fund balance reserves for related assets are comprised of the following as of September 30, 2001: Capital General Projects Fund Funds Early Retirement Trust Fund $ 5,128,355 $ - Revenue share – 20% 480,411 - Receivables 792,000 - Other 48,634 3,675,505 $ 6,449,400 $ 3,675,505



September 30, 2001

25

(16) Risk Management

Chuuk State Government does not purchase commercial insurance to cover its potential risks. Chuuk State Government is substantially self-insured for all risks. Management is of the opinion that no material losses have been sustained as a result of this practice.

(17) Adoption of New Accounting Principle

Effective October 1, 2000, Chuuk State Government adopted GASB Statement No. 33, “Accounting and Financial Reporting for Nonexchange Transactions.” GASB No. 33 establishes uniform revenue recognition criteria and financial reporting standards regarding the timing of recognition of the results of nonexchange transactions involving cash and other financial and capital resources. The provisions of GASB No. 33 were applied to all periods presented. Implementation of GASB No. 33 impacted the 2000 financial statements as follows:

General fund balance at September 30, 2000, as previously reported $ 562,347 Correction of unallocated revenue sharing receivables 630,378 General fund balance at September 30, 2000, as restated $ 1,192,725

For component units, as a result of GASB 33, total fund equity has not been changed. However, contributed capital has been combined with retained earnings as follows: 2000 retained earnings, beginning of year, as previously report $ 1,078,627 Add contributed capital as adjusted for GASB 33 application 9,054,173 2000 retained earnings, beginning of year, as restated $ 10,132,800

(18) Subsequent Event

Subsequent to September 30, 2001, the FSM National Government imposed a lien on State revenues to recover a dated tax liability. With interest and penalties, it is represented that the total liability exceeds $3 million. The ultimate impact of this matter is uncertain, but may have a material impact on the accompanying general purpose financial statements.


Combining Schedule of Expenditures by Account-All Governmental Fund Types


Governmental Fund Types

Totals Special Capital (Memorandum Only)

General Revenue Projects 2001 2000

Expenditures: Personnel $ 16,849,581 $ 1,592,006 $ 169,695 $ 18,611,282 $ 17,018,727 Travel 1,146,098 117,814 61,990 1,325,902 1,386,324 Contractual services 885,216 673,702 2,697,625 4,256,543 8,646,521 POL 175,811 4,231 3,504 183,546 213,872 Other : Equipment 297,002 58,974 90,583 446,559 3,301,994 Medical supplies 19,982 313,094 5,775 338,851 417,789 Medical referral 300 - - 300 108,498 Supplies and materials 328,022 283,625 98,916 710,563 987,848 Scholarships 151,441 - - 151,441 145,030 Food - 399,750 - 399,750 485,960 Books 2,256 - - 2,256 3,949 All others 6,229,549 4,893,985 3,735,713 14,859,247 14,195,348 Debt service-principal - - 2,918,173 2,918,173 3,000,000 Debt service-interest - - - - 320,000 Fixed asset 358,478 - 2,453,489 2,811,967 4,450,000 Loss on investment - - 388,500 388,500 5,350,000

Total expenditures $ 26,443,736 $ 8,337,181 $ 12,623,963 $ 47,404,880 $ 60,031,860

See Accompanying Independent Auditors' Report.

26


GENERAL FUNDStatement of Revenues, Expenditures by Function and Department and Changes in Fund Balance (Deficit)


2001 2000Revenues: U.S. Compact of Free Association: Section 211(a)(2) - base grant $ 8,816,000 $ 8,816,000 Section 217 - inflation adjustment 4,936,960 4,760,640 FSM revenue sharing 4,494,871 4,376,074 Unallocated revenue sharing (175,283) 630,378 State taxes and licenses: Cigarette tax $ 52,728 $ 67,526 General sales tax 1,467,052 1,067,253 Alcohol 108,825 353,913 Hotel 143,879 135,454 Delinquent tax collections 2,408 19,686 License and fees 104,415 105,628 Other 96,388 1,975,695 590,110 2,339,570

Other revenues: Hospital and utilities collections 18,271 47,042 Transportation collections 478,190 663,938 Leases 63,533 60,541 Miscellaneous 1,111,919 1,671,913 367,502 1,139,023 Investment (loss) income (3,097,561) 3,560,287

Total revenues 18,622,595 25,621,972

Expenditures by department: General government: Executive branch: Governor and staff 1,591,084 959,580 Attorney General 239,810 245,196 State Finance 415,693 118,193 ADP 67,409 47,905 Tax and revenue 303,525 293,257 Program and budget 185,804 142,650 Property and supply 109,467 97,007 Personnel 103,921 104,141 Planning 201,535 248,587

Total executive branch 3,218,248 2,256,516

Legislative internal operations: President and members 674,723 702,472 Speakers and members 1,903,423 2,043,633 Legislative committees 228,138 93,012 Legislative legal office 277,703 273,892 Legislative administration 203,000 173,944 Legislative budget office 137,003 163,246 Chief clerks 165,062 285,475

Total legislative internal operations 3,589,052 3,735,674

Judicial operations 638,972 604,198

Office of the Public Auditor 24,868 20,029

Total general government 7,471,140 6,616,417

Education: Administration 405,306 207,616 Elementary 3,519,493 3,356,661 Secondary 1,550,553 1,430,817 Curriculum and instruction 153,457 164,899

Total education 5,628,809 5,159,993

Health services: Hospital and dispensaries 2,500,416 2,408,266 Environmental health 136,460 104,956 Dental services 239,691 230,588

Total health services 2,876,567 2,743,810


27


GENERAL FUNDStatement of Revenues, Expenditures by Function and Department and Changes in Fund Balance (Deficit), Continued


2001 2000Expenditures by department, continued: Economic development: Administration $ 122,443 $ 202,536 Land management 51,903 44,449 Marine resources 397,421 375,605 Agriculture 383,038 288,252 Labor 37,747 33,031 Historic preservation 31,839 26,182 Business and trades 65,350 47,316

Total economic development 1,089,741 1,017,371

Public works:

Operations and maintenance 368,232 327,369

Total public works 368,232 327,369

Public safety 1,291,923 1,060,062

Transportation: Administration 782,090 774,579 Airport 136,930 116,541

Total transportation 919,020 891,120

Community affairs: Division of public affairs 99,090 96,667 Division of youth affairs 20,501 21,775 Division of information and broadcast 85,037 69,070

Total community affairs 204,628 187,512 Boards and commissions: Investment board 5,803 26,433 Election commission 408,406 83,369 Education board 6,949 17,910 Recreation board 90,689 174,535 Land commission 148,104 128,682 Environmental Protection Agency 79,883 85,485 Facilities 37,278 52,091 Truk Scholarship Board 182,297 174,986 Total boards and commissions 959,409 743,491

Chuuk Early Retirement Program 98,367 219,074 Special programs 2,250,437 1,267,926 Legislative external appropriations 3,285,463 6,059,635 Total other 5,634,267 7,546,635 Total expenditures 26,443,736 26,293,780

Excess (deficiency) of revenues over (under) expenditures (7,821,141) (671,808)

Other financing sources (uses): Chuuk recovery loan accrual (292,444) (1,686,710) Operating transfers out (153,866) (268,654)

(Deficiency) excess of revenues and other financing sources (under) over expenditures and other financing uses (8,267,451) (2,627,172)

Fund balance (deficit) at beginning of year 1,192,725 3,819,897

Fund balance (deficit) at end of year $ (7,074,726) $ 1,192,725


28

29


Special Revenue Funds

September 30, 2001 Specific revenues that are legally restricted to expenditures for particular purposes are accounted for in the Special Revenue Funds. A brief discussion of the State's Special Revenue Funds as of September 30, 2001, follows: Chuuk Visitors' Bureau This fund accounts for funds received by the Visitors’ Bureau, to improve and develop Chuuk's tourism industry. Chuuk Airport Authority This fund accounts for funds received by the Airport Authority for the maintenance of Chuuk Airport. Federal Grant Assistance Fund This fund accounts for all activities of United States special federal assistance grants utilized by the State to finance general governmental operations. Federal grants are administered by the Federated States of Micronesia National Government with the State as the subrecipient. CFSM Grant Fund This fund accounts for activities received from FSM congressional appropriations utilized by the State to finance general governmental operations. Compact Other Grants Fund:

Compact Section 212 - Special Development Assistance Fund This grant is restricted for special development assistance and is granted under the Compact of Free Association with the United States. Compact 214(c) - Energy Grant Fund This fund accounts for funds, granted under the Compact of Free Association with the United States, specifically restricted for energy programs. Compact 216 (a)(2) Health and Medical Fund This fund accounts for funds granted under the Compact of Free Association with the United States, specifically restricted for health and medical programs including referrals to hospital and treatment centers. Compact Section 216(a)(3) This fund accounts for funds granted under the Compact of Free Association with the United States to the FSM National Government which are subgranted to the State and are specifically restricted for educational scholarships at U.S. and Micronesian higher education institutions.

Compact 221 (b) Special Block Grant Fund This fund accounts for funds granted under the Compact of Free Association with the United States, specifically restricted for health and education.

See Accompanying Independent Auditors’ Report.


SPECIAL REVENUE FUNDSCombining Balance Sheet

September 30, 2001(With comparative totals as of September 30, 2000

CompactChuuk Chuuk Federal Compact Special BlockVisitors' Airport Grant CFSM Other Grant Section Totals

ASSETS Bureau Authority Assistance Grant Grants 221(b) 2001 2000

Cash and equivalents $ 8,079 $ - $ - $ - $ - $ - $ 8,079 $ 11,230 Receivables: FSM National Government - - 346,922 619,155 - - 966,077 2,921,195 General, net - 189,066 - - - 189,066 12,802 Due from other funds - 847,028 - - 640,751 2,533,715 4,021,494 7,316,801 Allowance for uncollectibles - - - (74,864) - - (74,864) (2,167,957) Total assets $ 8,079 $ 847,028 $ 535,988 $ 544,291 $ 640,751 $ 2,533,715 $ 5,109,852 $ 8,094,071

LIABILITIES AND FUNDBALANCES (DEFICIT)

Liabilities: Accounts payable $ - $ - $ 92,512 $ 92,107 $ 99,766 $ 2,216,095 $ 2,500,480 $ 3,220,743 Accrued liabilities - 50,586 192,314 - - - 242,900 35,062 Due to other funds - - 251,162 589,328 - - 840,490 458,221 Payable to other governments - - - - - - - 372,202 Deferred revenue - - - - - - - 277,320

Total liabilities - 50,586 535,988 681,435 99,766 2,216,095 3,583,870 4,363,548

Fund balances (deficit) Reserved for encumbrance - 185,547 33,382 - 21,626 45,958 286,513 325,104 Unreserved 8,079 610,895 (33,382) (137,144) 519,359 271,662 1,239,469 3,405,419

Total fund balances (deficit) 8,079 796,442 - (137,144) 540,985 317,620 1,525,982 3,730,523

Total liabilities and fund balances (deficit $ 8,079 $ 847,028 $ 535,988 $ 544,291 $ 640,751 $ 2,533,715 $ 5,109,852 $ 8,094,071

See Accompanying Independent Auditors' Repor

30


SPECIAL REVENUE FUNDSCombining Statement of Revenues, Expenditures by Function and Changes in Fund Balances (Defic

Year Ended September 30, 2001(With comparative totals for the year ended September 30, 2000

CompactChuuk Chuuk Federal Compact Special BlockVisitors' Airport Grant CFSM Other Grant Section TotalsBureau Authority Assistance Grant Grants 221(b) 2001 2000

Revenues: U.S. Compact of Free Association Section 221(b)-base grant $ - $ - $ - $ - $ - $ 2,730,000 $ 2,730,000 $ 2,730,000 Section 216(a)(2)-base grant - - - - 461,087 - 461,087 461,087 Section 214(c)-base grant - - - - 949,800 - 949,800 949,800 Section 217-inflation adjustment - - - - 671,888 - 671,888 512,892 Section 212-base grant - - - - 250,000 - 250,000 385,000 Federal contributions - - 1,086,816 - - - 1,086,816 963,856 Other 44,613 366,757 - 571,679 - - 983,049 3,103,859

Total revenues 44,613 366,757 1,086,816 571,679 2,332,775 2,730,000 7,132,640 9,106,494

Expenditures: General government - - 136,740 - 578,148 106,630 821,518 485,798 Education - - 739,276 - - 1,858,727 2,598,003 2,256,345 Health services - - - - 497,892 2,700,799 3,198,691 1,731,838 Public works and utilities - 632,135 192,290 - - 824,425 3,289,126 Public safety - - 15,000 161,479 - - 176,479 8,130 Community affairs - - 3,510 410,200 258,257 - 671,967 274,737 Other 46,098 - - - - - 46,098 137,292

Total expenditures 46,098 632,135 1,086,816 571,679 1,334,297 4,666,156 8,337,181 8,183,266

Excess (deficiency) of revenues over (under) expenditure (1,485) (265,378) - - 998,478 (1,936,156) (1,204,541) 923,228 Other financing sources (uses) Operating transfers in - - - - - - - 96,140 Operating transfers out - - - - (1,000,000) - (1,000,000) (1,000,000)

Total other financing sources (uses), ne - - - - (1,000,000) - (1,000,000) (903,860)

Excess (deficiency) of revenues and other financing sourc over (under) expenditures and other financing use (1,485) (265,378) - - (1,522) (1,936,156) (2,204,541) 19,368

Fund balances (deficit) at beginning of yea 9,564 1,061,820 - (137,144) 542,507 2,253,776 3,730,523 3,711,155

Fund balances (deficit) at end of yea $ 8,079 $ 796,442 $ - $ (137,144) $ 540,985 $ 317,620 $ 1,525,982 $ 3,730,523


31


SPECIAL REVENUE FUNDSCombining Statement of Revenues, Expenditures by Account and Changes in Fund Balances (Defic


Compact

Chuuk Chuuk Federal Compact Special BlockVisitors' Airport Grant CFSM Other Grant Section TotalsBureau Authority Assistance Grant Grants 221(b) 2001 2000

Revenues: U.S. Compact of Free Association Section 221(b)-base grant $ - $ - $ - $ - $ - $ 2,730,000 $ 2,730,000 $ 2,730,000 Section 216(a)(2)-base grant - - - - 461,087 - 461,087 461,087 Section 214(c)-base grant - - - - 949,800 - 949,800 949,800 Section 217-inflation adjustmen - - - - 671,888 - 671,888 512,892 Section 212-base grant - - - - 250,000 - 250,000 385,000 Federal contributions - - 1,086,816 - - - 1,086,816 963,856 Other 44,613 366,757 - 571,679 - - 983,049 3,103,859

Total revenues 44,613 366,757 1,086,816 571,679 2,332,775 2,730,000 7,132,640 9,106,494

Expenditures: Personnel 19,076 195,846 115 32,158 1,344,811 1,592,006 1,362,491 Travel - 6,892 63,805 3,247 8,686 35,184 117,814 177,005 Contractual services - - 167,115 - 353,152 153,435 673,702 3,469,395 POL - - - - - 4,231 4,231 5,143 Other : Equipment - - 53,720 5,254 - - 58,974 89,255 Medical supplies - - - - - 313,094 313,094 399,196 Supplies and materials - 7,500 229,423 - - 46,702 283,625 141,171 Food - - - - 4,966 394,784 399,750 482,175 Books - - - - - - - 369 All others 46,098 598,667 376,907 563,063 935,335 2,373,915 4,893,985 2,057,066

Total expenditures 46,098 632,135 1,086,816 571,679 1,334,297 4,666,156 8,337,181 8,183,266

Excess (deficiency) of revenues over (under) expenditure (1,485) (265,378) - - 998,478 (1,936,156) (1,204,541) 923,228 Other financing sources (uses) Operating transfers in - - - - - - - 96,140 Operating transfers out - - - - (1,000,000) - (1,000,000) (1,000,000)

Total other financing sources (uses), ne - - - - (1,000,000) - (1,000,000) (903,860)

Excess (deficiency) of revenues and other financing sourc over (under) expenditures and other financing use (1,485) (265,378) - - (1,522) (1,936,156) (2,204,541) 19,368 Fund balances (deficit) at beginning of yea 9,564 1,061,820 - (137,144) 542,507 2,253,776 3,730,523 3,711,155

Fund balances (deficit) at end of yea $ 8,079 $ 796,442 $ - $ (137,144) $ 540,985 $ 317,620 $ 1,525,982 $ 3,730,523


32


Combining Balance SheetDiscretely Presented Component Units

September 30, 2001(With Comparative Totals as of September 30, 2000)

Chuuk Public Chuuk State Utility Housing Totals

Corporation Authority 2001 2000

Assets

Cash and equivalents $ 35,909 $ 662,145 $ 698,054 $ 837,258 General receivables, net 641,422 20,840 662,262 618,016 Loans receivable, net 444,105 869,141 1,313,246 1,037,642 Fixed assets, net 11,044,509 244,471 11,288,980 9,701,041 Other assets 22,973 6,197 29,170 50,734

Total assets $ 12,188,918 $ 1,802,794 $ 13,991,712 $ 12,244,691

Liabilities and Fund EquityLiabilities: Accounts payable $ 1,045,995 $ 418 $ 1,046,413 $ 567,756 Accrued payroll and annual leave 347,230 - 347,230 115,300 Deferred income 50,000 - 50,000 - Notes payable 3,456,478 - 3,456,478 1,825,048

Total liabilities 4,899,703 418 4,900,121 2,508,104

Fund equity: Retained earnings 7,289,215 1,802,376 9,091,591 9,736,587

Total liabilities and fund equity $ 12,188,918 $ 1,802,794 $ 13,991,712 $ 12,244,691


33


Combining Statement of Revenues, Expenses and Changes in Fund EquityDiscretely Presented Component Units


Chuuk Public Chuuk State Utility Housing Totals

Corporation Authority 2001 2000Operating revenues: Sales $ 3,191,846 $ 110,272 $ 3,302,118 $ 2,951,167

Total operating revenues 3,191,846 110,272 3,302,118 2,951,167

Operating expenses: Payroll and personnel 1,847,952 100,079 1,948,031 1,700,542 Fuel 2,246,736 - 2,246,736 2,067,529 Depreciation 1,260,004 23,541 1,283,545 1,086,123 Bad debt 456,150 130,790 586,940 427,840 Rent - 9,210 9,210 2,560 Other - 112,369 112,369 51,109

Total operating expenses 5,810,842 375,989 6,186,831 5,335,703

Operating loss (2,618,996) (265,717) (2,884,713) (2,384,536)

Nonoperating revenues: Transfers in 1,000,000 92,475 1,092,475 1,082,774 Federal contributions 585,744 37,016 622,760 710,950 Contributions 518,099 - 518,099 144,599 Other income 5,333 1,050 6,383 50,000

Total nonoperating revenues, net 2,109,176 130,541 2,239,717 1,988,323

Net loss (509,820) (135,176) (644,996) (396,213)

Retained earnings at beginning of yea 7,799,035 1,937,552 9,736,587 10,132,800

Retained earnings at end of year $ 7,289,215 $ 1,802,376 $ 9,091,591 $ 9,736,587

See Accompanying Independent Auditors' Report

34


Combining Statement of Cash Flows -Discretely Presented Component Units


Chuuk Public Chuuk StateUtility Housing

Corporation Authority Totals

Reconciliation of operating loss to net cash used fo operating activities: Operating loss $ (2,618,996) (265,717) $ (2,884,713) Adjustments to reconcile operating loss to net cash used for operating activities Depreciation 1,260,004 23,541 1,283,545 Allowance for bad debts 456,150 130,790 586,940 Increase in receivables (518,238) (73,990) (592,228) Increase in accounts payable 171,554 - 171,554 (Decrease) increase in other liabilities and other assets 133,205 (4,478) 128,727 Total adjustments 1,502,675 75,863 1,578,538

Net cash used for operating activities (1,116,321) (189,854) (1,306,175)

Cash flows from noncapital financing activities Operating grants received 1,720,618 130,541 1,851,159 FSM contribution 73,994 - 73,994

Net cash provided by noncapital financing activitie 1,794,612 130,541 1,925,153

Cash flows from capital and related financing activities Acquisition of utility plan (2,298,243) - (2,298,243) Acquisition of building and equipmen - (91,369) (91,369) Proceeds from notes payable 1,631,430 - 1,631,430

Net cash used for capital and related financing activitie (666,813) (91,369) (758,182) Net change in cash and equivalents 11,478 (150,682) (139,204)

Cash and equivalents at beginning of yea 24,431 812,827 837,258 Cash and equivalents at end of year $ 35,909 662,145 $ 698,054 See Accompanying Independent Auditors' Report

35

36

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE AND ON INTERNAL

CONTROL OVER FINANCIAL REPORTING BASED UPON THE AUDIT PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Honorable Ansito Walter Governor, State of Chuuk Federated States of Micronesia: We have audited the general purpose financial statements of the State of Chuuk as of and for the year ended September 30, 2001, and have issued our report thereon dated December 17, 2002, which report was qualified due to 1) our inability to determine that accounts payable and expenditures of the Governmental Fund Types were fairly stated; 2) our inability to form an opinion on the General Fixed Assets Account Group; 3) the omission of the State’s development authorities; 4) the omission of the State’s component units - Chuuk Coconut Authority and Chuuk Public Fisheries Corporation; 5) our inability to obtain audited financial statements from an investee of the State of Chuuk supporting investments recorded in the Governmental Fund Type – Capital Projects Fund; and 6) our inability to determine that continuing appropriations of the Capital Projects Fund were fairly stated. Except as discussed in the preceding sentence, we conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the State of Chuuk’s general purpose financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed instances of noncompliance that are required to be reported under Government Auditing Standards, which are described in the accompanying Schedule of Findings and Questioned Costs (pages 62 through 86) in findings 01-01, 01-02 and 01-15. Internal Control Over Financial Reporting In planning and performing our audit, we considered the State of Chuuk’s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the State of Chuuk’s ability to record, process, summarize and report financial data consistent with the assertions of management in the general purpose financial statements. Reportable conditions are described in the accompanying Schedule of Findings and Questioned Costs as items 01-06 through 01-23.


37

A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, of the reportable conditions described above, we consider items 01-15 and 01-19 to be material weaknesses. This report is intended for the information of the management of the State of Chuuk, federal awarding agencies, pass-through entities, and the cognizant audit and other federal agencies and is not intended to be, and should not be, used by anyone other than those specified parties. December 17, 2002

38

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE AND INTERNAL CONTROL OVER COMPLIANCE APPLICABLE TO EACH MAJOR FEDERAL AWARD PROGRAM

AND ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Honorable Ansito Walter Governor, State of Chuuk Federated States of Micronesia: Compliance We have audited the compliance of the State of Chuuk with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended September 30, 2001. The State of Chuuk’s major federal programs are identified in the summary of auditor’s results section of the accompanying Schedule of Findings and Questioned Costs (pages 62 through 86). Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of State of Chuuk’s management. Our responsibility is to express an opinion on State of Chuuk’s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the State of Chuuk’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the State of Chuuk’s compliance with those requirements. As described in items 01-01 through 01-06, 01-08 and 01-15 in the accompanying Schedule of Findings and Questioned Costs, the State of Chuuk did not comply with requirements regarding allowable costs/cost principles (CFDA #15.875), procurement and suspension and debarment (CFDA #84.256A) and equipment and real property management (all programs). Compliance with such requirements is necessary, in our opinion, for State of Chuuk to comply with requirements applicable to its federal programs. In our opinion, except for the noncompliance described in the preceding paragraph, the State of Chuuk, complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended September 30, 2001.



Schedule of Expenditures of Federal AwardsFSM Federal Assistance Fund


Grantor Org./Cost CFDA

Account Title Center # I.D. # Expenditures

Direct Grants:U.S. Department of Education

School Improvement Project FG3001 84.256A $ 68,985 School Improvement Project FG3002 84.256A 453,169 School Improvement Project FG3003 84.256A 107,140 School Improvement Project TA3806 84.256A 3,163 96 School Improvement Project TA3808 84.256A 1,870

Total U.S. Department of Education $ 634,327

U.S. Department of the Interior - Office of Insular AffairsRoad Drainage Master Plan OMIP TH9507 15.875 $ 52,000 School Based Maintenance Plan TH9508 15.875 134,493 Water Quality Monitoring TH9513 15.875 9,131 Improvement of Pol. Comm/Netwk OFG03 15.875 15,000 Foreign Grant (China) Computer OFG04 15.875 19,312

Total Office of Insular Affairs (CFDA #15.875) $ 229,936

Received in a Pass through Capacity From:Pacific Resources for Education and Learning (PREL)

Vocational Education Improvement Project 3870 84.994 $ 5,970 Vocational Education Improvement Project 3872 84.994 98,979

Total Pacific Resources for Education and Learning (CFDA #84.994) $ 104,949

FSM National Government:Federal Emergency Management Agency Typhoon Owen Public Assistance TX1500 83.516 $ 1,777 Typhoon Yuri Public Assistance TX2800 83.516 19,062 El Nino Drought/Public Assistance TX8500 83.516 62,613 El Nino Drought/Sub-Grantee TX8501 83.516 17,945 El Nino Drought/Sub-Grantee TX8514 83.516 2,819

Total CFDA #83.516 104,216

Hazard Mitigation Management Cost 3864 83.519 176 HMGP/Broadcast Building TX4011 83.519 13,212

Total CFDA #83.519 13,388

Total Federal Emergency Management Agency $ 117,604

Total Federal Financial Assistance Fund $ 1,086,816

Reconciliation of the FSM Federal Assistance Fund consists of:FY 2001

Expenditures

Fund 30 - Federal Grant Assistance Fund $ 863,547 Fund 37 - Other Federal Assistance 223,269

$ 1,086,816

See accompanying notes to schedule of expenditures of federal awards.

40


Schedule of Expenditures of Federal Awards, ContinuedCFSM Special Revenue Fund


Grantor Chuuk CFDA

Account Title Org. # I.D. # Expenditures

C-FSM JOINT LAW ENFORCEMENT C9437 N/A $ 190 JOINT LAW ENFORCEMENT 101234 N/A 158,246 C-FSM JOINT LAW ENFORCEMENT C9437 N/A 3,043 COMPACT SCHOLARSHIP 252680 N/A 410,200 Total CFSM Special Revenue Fund $ 571,679

(The above grants are received in a subrecipient capacity through the FSM National Government)


41


Schedule of Expenditures of Federal Awards, ContinuedCompact of Free Association Capital Projects Fund

Section 211 (A)(2)Year Ended September 30, 2001



Section 211 (A)(2)MOEN WASTE DISPOSAL 6135 15.875 $ 17,130 MOEN DUBLON H20 IMPROVEMENT 6136 15.875 2,500 TUNUK SAPUK ROAD PROJECT 6405 15.875 5,600 PAATA SOCIAL DEVELOP. PROJ. 6525 15.875 3,675 AIRPORT TERMINAL PARKING 6619 15.875 1,722 WATER SYSTEM IMPROV.DEVELOP 6622 15.875 800 POWER GENERATION 6638 15.875 400 SEWER SYSTEM 6685 15.875 1,000 ROAD/BRIDGE UPGRADE 6708 15.875 2,000 TA AIRPORT & DOCK EXPANSION/93 C0244 15.875 41,076 ONOUN AIRSTRIP MATCHING C0424 15.875 8,220 CHUUK US/EDA WATER UPGRADE C0434 15.875 19,500 ELECTRIC & SOLAR POWER UPGRADE C0435 15.875 7,000 WATER RESERVOIR REHABILITATION C0441 15.875 5,000 PAATA COOP SUPPLEMENTAL C0675 15.875 1,995 CHUUK STATE EPA/2-94-23 STATE C0680 15.875 21,861 PURCHASE OF MEDICAL EQUIPMENT C0684 15.875 5,775 MIZPAH SCHOOL CONSTRUCTION C0839 15.875 5,541 UNKNOWN C1071 15.875 42,975 ROAD REPAVEMENT AND PAVEMENT C1073 15.875 207,175 HOSPITAL RENOVATION 4-997-10 C1092 15.875 5,250 WATER AND SANITATION 4-97-01 C1093 15.875 (130) AIRPORT REPAIR 4-97-12 C1094 15.875 320 HS DORMS RENOVATION 4-97-10 C1099 15.875 50 LM SOLAR LIGHT.SYS.EQUIP./96R C1278 15.875 5,355 S.NAMONEAS JHS LIBRARY/97R C1410 15.875 9,182 RUO/FANANU/NOMWIN COURT BLD/96 C1461 15.875 5,601 FAICHUK SEA-WALL PROJ./4-98-29 C1588 15.875 300 FAICHUK PENIETA COMM.CENTER/97 C1612 15.875 4,358 NAMUSOFO JR.HIGH SCHL./98R C1714 15.875 19,999 CHUUK STATE ROAD PAVING SUPPLE C1783 15.875 184,487 MORTLOCKS JHS. RENOV./4-99-01S C1784 15.875 9,073 CHUUK SOLIDWASTE COLLECTION/ C1829 15.875 476 CHUUK AIRPORT RUNWAY REPAIR/99 C1851 15.875 36,394 CHUUK AIRPORT RUNWAY REPAIR/98 C1857 15.875 209,176 CHUUK AIRPORT REPAIR/ONOU/99M C1896 15.875 393 CHUUK AIRPORT REPAIR/HOUK/99M C1897 15.875 89 CHUUK AIRPORT REPAIR/MAKUR/99M C1906 15.875 21,180 CHUUK AIRPORT REPAIR(NAMA)/91M C1961 15.875 581 CHUUK AIRPORT REPAIR/P. PANEU C1966 15.875 10,000 CHUUK AIRPORT REPAIR(P.PANEU) C1967 15.875 2,378 MORTLOCKS PUB.FACIL.IMPROV/96R C1986 15.875 2,859 MORTLOCKS HUMAN RES. DEVELOP C1997 15.875 10,000 MAGUR FISHING PROJ./4-98-32M C2001 15.875 53,818 CHUUK AIRPORT REP/NAMOLUK/6-81 C2012 15.875 66,024 CHUUK AIRPORT REPAIR/PAATA/87M C2016 15.875 17,974 CHUUK AIRPORT REPAIR/PAATA/96M C2017 15.875 1,208 CHUUK AIRPORT REPAIR/POLLAP/94 C2024 15.875 33,954

Subtotal 1,111,294


42



Section 211 (A)(2), ContinuedYear Ended September 30, 2001



Balance forwarded 1,111,294

CHUUK AIRPORT REPAIR(POLOWAT) C2028 15.875 35,869 CHUUK AIRPRT REP/FANANU/191-07 C2032 15.875 57,430 CHUUK AIRPRT REP/FANANU/191-30 C2033 15.875 20,300 AIRPORT REPAIR(FEFAN)4-98-32M C2039 15.875 40,150 CHUUK AIRPORT/FEFAN/499-01M C2040 15.875 106,892 AIRPORT REPAIR/4-97-10M C2041 15.875 13,766 AIRPORT REPAIR(ONOUN)3-95-17M C2042 15.875 17,417 AIRPORT REPAIR/ROMALUM/497-10M C2044 15.875 11,500 AIRPORT REPAIR/ROMALUM/498-32M C2045 15.875 34,070 AIRPORT REPAIR/ROMALUM/4-99-01 C2046 15.875 8,315 AIRPORT REPAIR (WENO)/4-98-32M C2047 15.875 58,178 AIRPORT REPAIR(WENO)4-99-01M C2048 15.875 35,000 AIRPORT REPAIR (RUO)/191-07M C2049 15.875 21,191 AIRPORT REPAIR (RUO)/191-30M C2050 15.875 52,672 AIRPORT REPAIR(RUO)/2-93-05M C2051 15.875 17,412 CHUUK AIRPORT REPAIR(POLOWAT) C2052 15.875 70,778 CHUUK AIRPORT REPAIR/5-99-15S C2063 15.875 70,745 CHUUK AIRPORT REPAIR/LEKINIOCH C2067 15.875 15,756 CHUUK AIRPORT REPAIR/ONEOP/96M C2071 15.875 54,664 CHUUK AIRPORT REPAIR/NOMWIN/95 C2074 15.875 317 ETTAL &KUTTU WATER TANKS/96R C2107 15.875 158 NOMUSOFO MTNG. HALLS/5-99-15R C2135 15.875 1,000 N.N/SOCIAL PROJECT (MM)R C2149 15.875 14,998 FOUPO/TOL COMM. HALL(TA)R C2150 15.875 1,475 FEFAN ROAD EQUIP./599-15R/ET C2156 15.875 9,996 CHUUK WESTPAC CAPITALIZATION C2158 15.875 14,625 WENO KO-KUMI MTNG.HALL REPAIR C2190 15.875 6,426 WENO SANGKU ROAD MAINT/599-15R C2192 15.875 32,230 NN PUB.FACIL.REPAIR/599-15R/MM C2193 15.875 3,444 TONOAS CULTURAL CENTER REPAIR C2196 15.875 13,672 HALLS COMMUNIC.EQUIPMENT/00/MC C2202 15.875 2,999 MURILO TYPHOON SHELTER/96R/RM C2254 15.875 2,180 FAICHUK SWALL(MWANITIW UDOT)00 C2257 15.875 5,200 FEFAN PUB.FACIL.REPAIR/599-15R C2270 15.875 2,000 NN.PUB.FACIL.RENOV/599-15R/TK C2271 15.875 8,455 NEAUO PUB.MEETING HALL/3-15-17 C2328 15.875 9,991 PACA YOUTH COMPLEX/5-99-15 C2346 15.875 26,190 MACHEWEICHUN YOUTH PROJ. C2348 15.875 4,180 MACHEW SCHOOL WATER TANKS C2350 15.875 15,000 MACHEW ROAD UP-GRADE PROJECT C2352 15.875 26,877 FEFAN WATER PROJECT 5/00/28 C2353 15.875 4,689 UPPER MORTLOCKS WATER PROJ. C2355 15.875 49,180 N.N. WATER PROJECT/2-94-23 RR C2356 15.875 5,000 WENO SECONDARY ROAD REPAIR C2357 15.875 35,788 YONG-KU YOUTH WENO 5-00-28 C2361 15.875 16,389 SANG-KU YOUTH WENO 5-00-28 C2362 15.875 16,393 SEFIN YOUTH WENO 5-00-28 C2364 15.875 15,892

Subtotal 2,198,143


43







LOSAP MUN. SEAWALL PROJ. C2368 15.875 12,327 UM JR.HIGH SCHL.293-08 C2370 15.875 98,140 NEMA TYPHOON SHELTER 5-99-12 C2373 15.875 4,485 MID-MORTLOCK SOLAR ACQUISITION C2377 15.875 49,180 MANON TONOAS EROSION PREV. C2379 15.875 2,179 MOCH SCH. TOILET FACIL C2381 15.875 18,278 MOCH POST SECOND. SCH. SOLAR C2390 15.875 46,761 UMAN SOLAR LIGHT SYSTEM C2392 15.875 14,500 WEITO WATER TANKS/5-00-28 C2393 15.875 6,000 ONARY BASKETBALL COURT 5-00-28 C2394 15.875 8,000 WEIPAT JHS UNPAID LABOR COSTS C2395 15.875 10,000 FAICHUK SEAWALL/5-00-28 C2396 15.875 4,998 FAICHUK COMMUNITY CENTER C2399 15.875 5,000 FAICHUK UDOT OFFICE COMPLEX C2400 15.875 9,000 CHUUK GOV'T HOUSING REPAIR/ C2401 15.875 220,379 KUTTU LAND LEASE PURCHASE C2407 15.875 71,554 FANANU TYPHOON SHELTER/5-99-15 C2413 15.875 3,485 MURILO TYPHOON SHELTER/4-98-29 C2414 15.875 13,750 PAATA BOUKOCHOU LANDSLIDES WAL C2416 15.875 1,900 MOCH POST SECOND.SCH. SOLAR C2418 15.875 24,761 NN/SCH. TOILET FACIL./5-00-28 C2420 15.875 49,180 UMAN SEAWALL IMPROVE/5-00-28 C2450 15.875 3,020 CHUUK CIP REL. CLAIM & COURT J C2482 15.875 573,995 UPPER MORTLOCKS POST SECONDARY C2483 15.875 50,000 NUKAF(PPO) SEAWALL PROJECT C2498 15.875 7,679 NN WATER TANKS/5-99-15 C2504 15.875 13,783 EOT MEETING HALL/R/OS C2516 15.875 10,231 EOT DOCK SUPP. C2518 15.875 8,615 NOMUISOFO WATER PROJECT C2521 15.875 9,975 LEKINIOCH CULTURAL CENTER C2523 15.875 14,850 LOAN PAYMENT BANK OF HAWAII C2533 15.875 20,000 NN WATER PROJECT/5-00-28R/TK C2535 15.875 15,966 HALL ISLANDS JHS POWERED BOAT C2539 15.875 30,497 EOT YOUTH CENTER/5-00-28OS C2547 15.875 4,646 MACHEWEICHUN CLASSROOM RENOV. C2554 15.875 9,991 NUKANAP UMAN SEAWALL R C2556 15.875 5,148 SN WATER TANKS/R/DS C2557 15.875 21,000 SN WATER TANKS/R/WM C2577 15.875 2,218 LOWER MORTLOCKS CIP FREIGHT C2593 15.875 6,406 CHUUK ROAD MAINTENANCE FUND C2637 15.875 18,200 URBAN FORESTRY DEVELOP.PROJ/S C2646 15.875 17,343 CHUUK LAND ACQUISITION(S) C2689 15.875 30,000 NWR LAND TRANSPORTATION/98RC CS021 15.875 1,000 NORTHWEST YOUTH SOC.DEV./98R CS025 15.875 1,026 MTN DEBT REPAYMENT MTN 15.875 2,918,173 CHUUK SANITARY FACIL.CONSTRUCT C0122 15.875 12,000 WENO JR. HIGH SCHOOL RENOV. 6148 15.875 14,232

Subtotal 6,691,994


44







HALL ISLANDS AGRI./3-95-17(R) C1075 15.875 19,586 NIKUMI(TOLEISOM)FARMING PROJ. C1103 15.875 4,006 FAICHUK REGIONAL FARMING/97(R) C1169 15.875 567 PPW FARMING PROJECT C1261 15.875 690 N.NAMONEAS REG.FISHING/2-94-23 C1376 15.875 1,035 FAICHUK FARMING PROJ/96R C1386 15.875 12,900 ICHKUMI TOLEISOM FISHING/96R C1389 15.875 21,750 ICHKUMI TOL WOMEN SEWING/96R C1390 15.875 394 EQUITY INVESTMENT FSMDB/96R C1584 15.875 (50,000) SANGKUMI TOL AGRI.ORFARMING/96 C1719 15.875 1,050 HALL ISLANDS MARKET CENTER C1994 15.875 20,978 MORTLOCKS LAND ACQUISITION/R C2127 15.875 10,000 PPO REGIONAL FISHING (KN)R C2136 15.875 1,630 FAICHUK REGIONAL HOUSING/00/SP C2169 15.875 9,325 NORTHERN NAMONEAS FISHING/00AC C2191 15.875 2,500 HALLS SEWING PROJ./599-15R/MC C2197 15.875 21,788 HALLS FISHERMEN CORP. INVESTMN C2199 15.875 42,230 TOLENSOM SEWING PROJ/5-99-15KB C2201 15.875 20,001 SIIS SEWING PROJECT C2331 15.875 10,174 MACHEW FISHING PROJECT C2332 15.875 154,961 NORTHERN NAMONEAS REG. FISHING C2334 15.875 176,072 TOLENSOM FISH. PROJ. 5-99-15 C2341 15.875 4,998 MACHEWEICHUN MARKETING 5/00/28 C2347 15.875 14,961 UMAN REGIONAL FISHING PROJECT C2354 15.875 49,185 TONOAS FISHING PROJECT/5-00-28 C2358 15.875 7,490 FAICHUK REGIONAL SEWING5-00-28 C2359 15.875 23,619 FAICHUK REGIONAL FISHING C2360 15.875 25,095 PPO FISHING PROJECT/ 5-00-28 C2363 15.875 47,596 TOLENSOM FISH. PROJ. 5-00-28 C2365 15.875 32,109 TOLENSOM FARMING PROJECT C2366 15.875 15,145 UPPER MORTLOCKS SEWING PROJ. C2367 15.875 11,833 UPPER MORTLOCKS FARMING PROJ. C2369 15.875 18,990 NOMUSOFO FISHING PROJECT C2371 15.875 29,178 HALL ISLANDS SEWING PROJECT C2378 15.875 19,950 MORTLOCK ISLAND FARMING C2380 15.875 4,985 MORTLOCK FISHING PROJ. 5-00-28 C2382 15.875 27,000 UMAN SEWING PROJECT C2384 15.875 955 UMAN FISHING PROJECT C2385 15.875 16,671 TOLENSOM FISHING PROJ./5-00-28 C2386 15.875 29,174 TOLENSOM SEWING PROJECT C2387 15.875 29,978 TOLENSOM FARMING PROJECT C2388 15.875 14,174 SOUTHER NAMONEAS FISH. PROJ. C2389 15.875 9,314 NORTHWEST REGION FISHING PROJ. C2391 15.875 39,179 FAICHUK IS. FISHING PROJECT C2397 15.875 19,950 FAICHUK SEWING PROJECT C2398 15.875 6,912 NORTHERN NAMONEAS FARMING PROJ C2402 15.875 39,196 WEITO FISHING PROJECT 5-00-28 C2403 15.875 25,179

Subtotal 7,736,447


45







TOLENSOM ECON. DEV. PROJECT C2404 15.875 24,997 PIIS-EMWAR FISH. PROJECT C2408 15.875 16,495 SATOWAN EFFENG/APULA TENG.FARM C2409 15.875 6,112 NOMWIN FISHING PROJ. 4-98-29 C2419 15.875 8,000 UMAN REGIONAL FISHING/5-00-28 C2424 15.875 15,479 MORTLOCKS FISHING PROJECT C2425 15.875 42,000 SN SEWING PROJECT C2439 15.875 5,009 SN FARMING PROJECT/ 5-00-28 C2440 15.875 4,861 TONOAS SEWING PROJECT/5-00-28 C2441 15.875 9,179 TONOAS FISHING PROJECT C2442 15.875 20,002 NEMWAN FISHING PROJECT C2444 15.875 14,928 SN REGIONAL FISHING/5-99-15 C2448 15.875 9,784 SN REGIONAL FARMING/5-99-15 C2449 15.875 8,996 UPPER MORTLOCKS FARMING C2451 15.875 4,600 UPPER MORTLOCKS SEWING/5-00-28 C2452 15.875 4,988 SN FISHING PROJECT C2453 15.875 26,978 UMAN FISHING PROJECT C2454 15.875 10,000 NEPUKOS FISHING PROJ./M C2457 15.875 7,452 DOUBLE K FISHING PROJECT C2461 15.875 2,494 WENO PENIA FISHING PROJECT C2468 15.875 7,000 TONOAS SEWING PROJECT C2490 15.875 2,867 TONOAS & ETTEN FISHING PROJECT C2492 15.875 18,963 PPO SEWING PROJECT C2500 15.875 4,999 PPO FISHING PROJECT C2501 15.875 29,946 NN FISHING PROJECT R/AC C2519 15.875 10,000 NOMUISOFO FIBERGLASS SHOP C2536 15.875 8,525 TONOAS HOUSING PROJECT/R/JS C2560 15.875 20,000 NN REGIONAL PIGGERY/TK C2561 15.875 4,169 NN REGIONAL FISHING/TK C2562 15.875 15,045 NN REGIONAL SEWING/TK C2563 15.875 9,996 PATTIW REGION SEW. PROJ/ED C2623 15.875 8,400 WENO SEFIN FISHING PROJ/R/TM C2690 15.875 4,181 AGRI. SWINE, CROP DEV. PROJ. 6632 15.875 1,469 TRUK COCONUT AUTHORITY 6641 15.875 4,000 WENO FISHING PROJECT 6335 15.875 2,331 TUNUK SAPUK ROAD PROJECT 6405 15.875 3,000 SANGKUMI ARTISANAL FISH 6611 15.875 2,510 WICHAP FISHING C0098 15.875 998 WICHAP GARMENT MANUFACTURE C0099 15.875 477 EOR FISHING PROJECT C0104 15.875 295 TUNNUK FISHING PROJECT C0117 15.875 889 NEAUO FISH PROJECT C0123 15.875 648 EPINUP FISHING PROJECT C0141 15.875 266 NEAUO MARKET PROJECT C0506 15.875 106 WICHAP OFFICE BLD. W/SITE PUR C0735 15.875 92 N. NAMON. PUB. BLD. REP.&SUP. C0880 15.875 1,243 WENO FISHING DEVELOP.PRO-96 C0882 15.875 9,800

Subtotal 8,151,016


46







WICHAP WENO WATER/3-95-17(M) C1102 15.875 402 IRAS CLRM.EXPANSION/2-94-23(R) C1145 15.875 941 MECHITIW WENO SEAWALL/395-24M C1223 15.875 1,800 MECHITIW SEWING PROJ. WENO C1286 15.875 359 WENO SEWING PROJ./4-98-32 M C2120 15.875 3,324 PENIA WENO VIP TOILET/5-99-15M C2205 15.875 6,997 WENO COURTHOUSE REPAIR/599-15M C2214 15.875 4,981 WENO OFFICE COMPLX.REPAIR/00M C2219 15.875 12,802 WICHAP SEWING PROJ/5-99-15M C2224 15.875 1,508 WENO FISHING PROJ/4-98-32M C2283 15.875 5,242 SANGKUMI (WENO) SEWING PROJ C2290 15.875 6,955 WENO SEFIN WATER TANKS/599-15M C2291 15.875 6,825 WENO LAND LEASE PURCHASE C2292 15.875 6,000 WENO SCH. REPAIR/5-99-15 C2322 15.875 10,999 WENO FISHING PROJECT C2333 15.875 9,986 NEPUKOS SEWING PROJ./5-99-15 C2345 15.875 7,001 WENO SEWING PROJECT/5-99-15 C2376 15.875 14,715 WENO NEMWAN SEWING PROJECT/M C2405 15.875 3,990 WENO NEMWAN FISHING PROJECT/M C2406 15.875 2,993 WENO EOR WATER CATCHMEN C2426 15.875 7,350 MECHITIW FISHING PROJECT C2427 15.875 22,331 WENO SEFIN FISHING PROJECT C2428 15.875 7,464 WENO NEPUKOS SEWING PROJECT C2429 15.875 7,464 WENO NEAUO SEWING PROJECT C2430 15.875 4,500 EPINUP FISHING PROJECT C2431 15.875 9,944 TUNUK FISHING PROJECT/5-00-28 C2432 15.875 26,928 WENO WICHAP SEWING PROJECT C2433 15.875 7,464 WENO WINIPIS WATER PROJECT C2455 15.875 7,462 WENO WICHAP FISHING C2456 15.875 7,463 WENO SEFIN SEWING/5-00-28 C2458 15.875 7,205 PENIA WENO SEWING PROJ./M C2459 15.875 7,463 WENO PENIESENE SEWING C2466 15.875 7,464 WENO PENIA FISHING PROJECT C2468 15.875 9,865 WENO TRADITIONAL LEADERSHIP C2471 15.875 34,897 WENO NEAUO SEWING PROJECT C2472 15.875 4,998 WENO NEAUO FISHING PROJECT C2473 15.875 2,462 SEFIN WENO SEWING PROJECT C2494 15.875 7,435 SANGKUMI, WENO SEWING PROJECT C2510 15.875 9,975 NUKANAP WENO SEWING PROJECT C2531 15.875 1,995 NUKANAP WENO FISHING PROJECT C2532 15.875 4,988 SEFIN WENO WATER TANK5-00-28M C2534 15.875 1,995 SEFIN WENO FISH. PROJ.5-00-28 C2537 15.875 7,462 EPINUP SEWING PROJECT(WENO) C2541 15.875 1,995 NEINIFACH(WENO) WELL DRILL C2542 15.875 5,000 WENO FISHING PROJECT C2543 15.875 6,000 SEFIN WENO WELL DRILL/ (M) C2548 15.875 7,000 SEFIN WENO WELL DRILL C2549 15.875 5,000

Subtotal 8,500,405


47







PENIESENE FISH. PROJ.5-00-28M C2550 15.875 7,100 WENO SCHOOL REPAIR-SAPUK (M) C2552 15.875 4,979 NUKANAP WENO SEWING PROJ/M C2567 15.875 4,883 WENO SEWING PROJECT C2569 15.875 2,000 WENO NEAUO SEWING PROJECT C2571 15.875 2,964 NEMWAN WATER PROJECT C2573 15.875 1,932 P&A MECHITIW FISH. PROJ/M C2574 15.875 4,000 NEPUKOS FURNITURE MAKING PROJ. C2586 15.875 7,463 NEPUKOS WENO FISHING PROJECT C2587 15.875 4,988 RK WENO FISH.MARK.SUPPLE. C2588 15.875 2,494 TUNNUK FISHING PROJECT C2589 15.875 2,499 WENO FISHING PROJECT C2590 15.875 33,999 NEAUO WENO FISHING PROJECT C2597 15.875 1,995 EPINUP WENO SEAWALL C2609 15.875 2,499 WENO DC FISHING PROJECT C2610 15.875 5,200 WENO SMALL P" FISHING PROJ. " C2611 15.875 6,998 WENO NIKO SEWING PROJECT C2612 15.875 500 WENO AY FISHING PROJECT C2613 15.875 5,000 EOR WENO SEWING PROJECT C2615 15.875 2,000 WENO S-MEITOU FISH. PROJECT C2626 15.875 3,998 IRAS,WENO ELEM.SCHOOL REPAIR C2627 15.875 4,998 TUNNUK WENO SEAWALL/M C2628 15.875 3,000 WENO MUN.GOV'T FISH.SUPP.PROJ. C2644 15.875 20,239 NEAUO ELEM.SCHOOL REPAIR/M C2648 15.875 3,142 PENIA/PENIESENE SCHL. REPAIR/M C2652 15.875 4,722 WENO FISHING PROJECT C2667 15.875 31,062 WENO HEAVY EQUIP/SPARE PARTS C2673 15.875 14,000 MWAN SCHOOL TOILET SYSTEM/M C2676 15.875 5,000 NORTHERN NAMONEAS FISHING/98RC CR015 15.875 6,825 NORTHERN NAMONEAS SEWING/98RC CR016 15.875 3,780 NEWON DOCK REPAIR 6673 15.875 1,799 TONOAS POWER DISTRIBUTION C1060 15.875 33,159 TONOAS POWER GENERATION C1062 15.875 1,575 TONOAS WATER SYS.DEV./95(M) C1088 15.875 484 TONOAS PUB.BLDG.REP/RENO.97R C1090 15.875 536 TONOAS SEWING PROJ./3-95-24(R) C1149 15.875 1,905 NECHAP TONOAS DISPEN./2-94-23R C1448 15.875 7,366 TONOWAS FARMING PROJ/2-93-05M C1509 15.875 499 TONOWAS TRAINING PROJ./4-98-29 C1663 15.875 3,000 TONOWAS FISHING PROJ./4-98-29R C1666 15.875 1,027 TONOAS SUB-POLICE STATION/99S C1785 15.875 8,400 TONOAS ROAD UPGRADE/4-99-01 S C1914 15.875 9,500 ENIN/TONOAS BSKTBALL COURT/96R C1947 15.875 1,000 TONOAS &ETTEN FISH. P/4-98-29R C2106 15.875 11,394 ETTEN CREDIT UNION/599-15M C2288 15.875 14,500 TONOAS ELDERLY HOUSING REPAIR CR018 15.875 77 FEFAN PUBLIC ROAD UPGRADE C0091 15.875 2,000

Subtotal 8,802,885


48







FEFEN SPECIAL ED. PROJECT C0824 15.875 4,440 UFO EL.SCH. BASKETBALL CRT. C1013 15.875 5,046 MACHEWEICHUN FISH.PROJ/98(R) C1507 15.875 2,665 FEFAN SEAWALL PROJ/4-98-29R C1622 15.875 1,254 UNUNNO FEFAN DOCK REPAIR/98 C1839 15.875 3,330 FEFAN SANG FISHING PROJ/96M C1843 15.875 2,528 FEFAN HANDICRAFT PROJ/4-98-32M C1884 15.875 1,498 FEFAN CIP DAMAGE REL.CLAIM/00M C2223 15.875 12,500 FEFAN SAPORE FARMING/599-15M C2237 15.875 4,587 FEFAN SAPETA FARMING/5-99-15M C2259 15.875 14,604 FEFAN SAPETA FISHING/5-99-15M C2262 15.875 1,953 FEFAN UFO PIGGERY/5-99-15M C2294 15.875 6,509 FEFAN UFO FARMING/5-99-15M C2295 15.875 1,000 FEFAN LAND LEASE PURCH/599-15M C2298 15.875 6,000 FEFAN CIP-RELATED DAMAGE C2299 15.875 6,000 FANIP FEFAN FARMING C2308 15.875 13,916 SEFIN BEAUTIFICATION PROJECT C2312 15.875 4,897 MACHEW AGRICULTURE C2443 15.875 19,464 FEFAN ROAD UPGRADE/5-00-28 C2445 15.875 43,100 FEFEN CIP RELATED DAMAGE CLAIM C2598 15.875 14,800 SNJHS ANNEX/5-00-28/M C2675 15.875 10,000 FEFAN ROAD UPGRADE SUPPLE/98RC CR040 15.875 665 UMAN FISHING PROJ. 5029 15.875 11,162 UMAN FISHING PROJECT. 6016 15.875 4,024 UMAN NUKAN FISHING PROJ. 6290 15.875 9,798 UMAN MWANUKUN FISHING PROJ. C0196 15.875 1,966 UNKNOWN C0259 15.875 71,000 UMAN FISHING PROJECT C0982 15.875 13,138 UMAN EL NINO WATER/3-95-17(M) C1158 15.875 759 UMAN FISHING PROJ./2-94-23(R) C1181 15.875 4,358 UMAN ACHOCHO FISHING/3-95-24M C1258 15.875 1,240 UMAN EL NINO WATER SUPPLE/92M C1338 15.875 640 ASANGAO UMAN FISHING/193-08 C1399 15.875 9,798 SOPUTU UMAN DOCK IMPROVE/95M C1579 15.875 2,627 UMAN OXYGEN BOTTLING SUPPLE/98 C1654 15.875 4,070 UMAN ADMIN. COST./4-98-32M C1655 15.875 1,073 UMAN ADMIN. COST/4-97-10M C1656 15.875 2,116 UMAN DISPEN.SCHL.SITE PURCH/90 C1737 15.875 13,000 NEFO/NUKAN UMAN MTNG.HALLS/91M C2059 15.875 2,500 UMAN REGIONAL FISHING PRO/YF C2095 15.875 15,283 NEFONU FISHING PROJECT C2180 15.875 531 UMAN DAMAGE CLAIM & OTHER REL. C2252 15.875 151,055 INNUK UMAN FISHING/5-99-15M C2280 15.875 5,937 UMAN EPINA FISHING MARKET/94M C2282 15.875 39,964 BS SEA FOOD MINI MART/193-08 C2320 15.875 49,980 UMAN EGG HATCHING /93-08 C2321 15.875 37,433 UMAN YUAR SEWING PROJ./6-56M C2325 15.875 3,498

Subtotal 9,440,591


49







UMAN ATAMA FISHING PROJECT C2599 15.875 10,845 UMAN NEFONU SEWING PROJECT C2600 15.875 1,548 UMAN NERENONG FISHING PROJECT C2601 15.875 11,946 UMAN UNUNOU SEAWALL PROJECT C2602 15.875 1,000 UMAN TONGENIEI FISH. MARKET C2629 15.875 10,000 SOPUTIW,UMAN FISHING PROJ C2633 15.875 6,996 NESARAW PUB.FACILITY/M C2649 15.875 7,000 SANNUK UMAN PIGGERY/M C2650 15.875 2,800 MOCHON UMAN FISHING/M C2656 15.875 3,350 NUKANAP FISHING UMAN/M C2665 15.875 3,548 INNUK UMAN FISHING/M C2669 15.875 4,000 UNUN SEAWALL UMAN/M C2670 15.875 5,994 MOCHON UMAN SEWALL/M C2672 15.875 7,140 NIMENIS COMM. CENTER (UMAN) C2677 15.875 500 SAPOU & NUKAN FISHING/M C2678 15.875 19,448 SAPOU LANDSLIDE WALL/M C2680 15.875 5,354 NESARAW SEWING PROJECT/M C2681 15.875 4,000 TSIS DISPENSARY RENOVATION 6669 15.875 536 SIIS FARMING PROJECT C0526 15.875 6,606 SIIS FISHING PROJ./3-95-17M C1552 15.875 1,070 SIIS PUBLIC ROAD REPAIR/96M C1641 15.875 8,800 SIIS FISHING PROJECT/2-94-23M C1644 15.875 1,367 SIIS WATER DEVELOPMENT PROJ. C1891 15.875 2,456 SIIS NESAMO FARMING PROJ. C2339 15.875 8,577 PAREM COMMUNITY BLDG./2-93-05M C2084 15.875 2,152 SOPOTA PAREM SEWING C2138 15.875 11,906 SOPOTA PAREM SEWING/M C2326 15.875 11,805 PAREM SAPUTIW PUB. BLDG. C2327 15.875 9,989 PAREM FISHING PROJECT C2415 15.875 4,913 PAREM FISHING PROJ./M C2664 15.875 3,990 FONO SOPOTA FISHING/5-99-15M C2231 15.875 7,743 FONOTON PUB.FACIL.REPAIR C2273 15.875 12,162 FONOTON FISHERIES DEV./5-99-15 C2330 15.875 15,999 FONO FISHERIES DEV. PROJECT C2447 15.875 20,311 FONOTON PUB. TOILET C2513 15.875 415 FONOTON PUB. TOILET C2514 15.875 300 FONOTON PUBLIC TOILET C2515 15.875 4,875 FONOTON PUB.TOILET FACILITY/M C2575 15.875 31,000 FONOTON SEWING PROJ./M C2688 15.875 8,131 EOT FACILITY RENOV./4-98-32M C1934 15.875 14,760 UDOT ROAD & DOCK SUPPLEMENT C0257 15.875 3,762 UDOT WATER PROJECT SUPPLY C0543 15.875 718 UDOT ROAD CONSTRUCTION/4-99-01 C1953 15.875 5,370 UDOT MAJOR DOCKS IMPROV/98M C2078 15.875 15,120 UDOT RADIO/PHONE SYS.IMPROV/00 C2264 15.875 5,334 UDOT S.WALL/EROSION CONTROL/00 C2265 15.875 669 UDOT MUN. POLICE STATION C2506 15.875 10,000

Subtotal 9,776,896


50







UDOT SEAWALL SUPPLE PROJECT C2508 15.875 20,000 UDOT FARM/FISH MARKET C2559 15.875 7,500 ROMALUM SEAWALL 6606 15.875 2,318 ROMALUM SEAWALL/3-95-17(R) C1119 15.875 4,883 ROMANUM FISHING PROJ/96R C1425 15.875 16,522 ROMANUM FISHING PROJ/4-97-10M C2186 15.875 9,303 ROMANUM FISHING PROJECT C2340 15.875 22,486 ROMANUM FISHING PROJ./ (M) C2555 15.875 10,500 ROMANUM FUSHING PROJECT C2581 15.875 32,622 ROMALUM FISHING PROJECT C2608 15.875 7,708 TOL PUBLIC ROAD UPGRADE C0658 15.875 25,500 FARO (TOL) SEAWALL PROJECT C0759 15.875 115 WONIP DISP. PROJ. COMPLETION C0760 15.875 3,360 WONIP TOL SOLAR LIGHTING C1008 15.875 840 TOL NENNEU,FOUPO COMMUNITY CEN C1022 15.875 2,342 UNKNOWN C1040 15.875 26,850 TOL WATER TANKS PURCHASE/97(R) C1171 15.875 131 YONGKUMI SEWING PROJ.TOL/96R C1288 15.875 2,100 UNKNOWN C1361 15.875 20,230 CHUKIENU TOL SEAWALL/3-97-07R C1379 15.875 794 UNKNOWN C1387 15.875 22,035 AMACHANG TOL FISHING/4-97-10R C1444 15.875 117 TOL WONIP SANGUMI WOMEN SEW/R C1575 15.875 252 TOLENSOM FISHING PROJ./4-97-10 C1869 15.875 2,340 TOL LAND LEASE PURCHASE/6-12M C2260 15.875 23,000 TOLENSOM FISHING PROJ./6-56 C2318 15.875 58,548 TOLENSOM FISHING PROJ./6-24 C2319 15.875 34,167 TOLENSOM FISHING PROJECT C2489 15.875 21,958 LAND LEASE AGREE.TOL SANGKU C2553 15.875 42,905 WONEI MARKETING COOP 6164 15.875 3,160 WONEI FISHING PROJECT C0547 15.875 6,458 ONEISOMW SEA WALL/5-99-15M C2207 15.875 4,000 ONEISOM WINIKEP COMM.CENTER/00 C2208 15.875 500 ONEISOM SUPER DISPEN./599-15M C2210 15.875 1,500 ONEISOMW YOUTH RECREATION FACI C2211 15.875 5,035 WONEI FISHING PROJ./5-99-15 C2329 15.875 5,000 ONEISOMW FISHING PROJECT C2463 15.875 43,632 ONEISOMW LAND OUTRIGHT PURCH. C2464 15.875 15,000 ONEISOMW FARMING PROJECT C2465 15.875 9,875 ONEISOM ADMIN. COST/5-00-28 C2469 15.875 1,247 ONEISOM PAST LAND USE COMPEN C2470 15.875 15,000 WONEI SEAWALL PROJECT C2591 15.875 3,716 WONEI SAPETIW SEAWALL PROJECT C2594 15.875 10,487 WONEI SAPEIW WATER CATCHMENT C2595 15.875 4,706 WONEI SAPETIW COMM. CENTER C2596 15.875 6,187 NECHENGEK COMM.HALL/FANAPANGES C2004 15.875 1,000 FANAPANGES HOUSING REVOL/99M C2269 15.875 500

Subtotal 10,335,325


51







FANAPANGES FISHING/5-99-15M C2323 15.875 19,000 FANAPANGES HOUSING/5-99-15M C2324 15.875 10,850 FANAPANGES LAND LEASE PURCHASE C2335 15.875 16,179 FANAPANGES DEEPWELL PROJECT C2349 15.875 8,000 FANAPANGES FISHING PROJECT C2505 15.875 44,539 FANAPANGES LAND PURCHASE C2635 15.875 5,000 PAATA FISHING PROJECT 6174 15.875 1,050 PAATA MIDDLE SCHOOL PROJECT 6347 15.875 4,253 PAATA SOCIAL DEVELOP. PROJ. 6525 15.875 3,780 PAATA HOUSING PROJECT 6664 15.875 2,205 ETIEMAR DOCK REPAIR C0112 15.875 4,935 PAATA WATER PROJECT SUPPLE. C0676 15.875 10,553 PAATA SEAWALL FILD CLAIM C0724 15.875 3,675 PAATA COMMUNITY CENTERS SUPPL. C0736 15.875 1,601 PAATA FARMING PROJECT C0967 15.875 4,641 PAATA TUPUNION PIGGERY/97R C1422 15.875 1,292 NEPUOKUR PAATA COMM.CENTER/97M C1538 15.875 2,504 RENOV.PAATA MUN.BLDG./4-97-10M C1539 15.875 1,756 PAATA 1.5% ADMIN.COSTS/599-15M C2225 15.875 1,566 PAATA FISHING PROJECT C2460 15.875 27,562 PAATA DISPENSARY MAJOR REPAIR C2474 15.875 9,524 PAATA & EPIN ROAD REPAIR(M) C2475 15.875 23,479 PAATA SCHOOL MAJOR REPAIR C2476 15.875 9,999 PAATA MUNICIPAL GYMNASIUM (M) C2477 15.875 4,687 POLLE FISHING PROJECT 6494 15.875 1,515 POLLE MTNG.HALLS/V.OFF./95(M) C1142 15.875 23,033 POLLE PUBLIC BUILDING CONST. C1163 15.875 1,245 SAPOU POLLE COMM.CENTER/97R C1445 15.875 473 POLLE MUN. OFFICE C2435 15.875 37,494 POLLE DEV. PLAN PROJECT C2436 15.875 9,081 SAPOU(POLLE) ROAD & SEAWALL C2437 15.875 1,000 POLLE FISHING PROJECT C2438 15.875 5,000 MANAIO POLLE MEETING HALL C2544 15.875 4,294 NETHON POLLE MEETING HALL C2545 15.875 4,505 NEIRENOM POLLE MEETING HALL C2546 15.875 4,500 LOSAP SOLAR SYS.SUPP/2-94-23/R C1241 15.875 5,996 LOSAP FISHING PROJECT/4-98-32M C1660 15.875 1,135 LOSAP HANDICRAFT TRAINING/99M C1990 15.875 7,500 LOSAP DOCK PROJECT C1993 15.875 3,446 LOSAP DOCK TRANSP.&MOBILIZ/00M C2204 15.875 9,315 LOSAP FISHING PROJ/5-99-15M C2234 15.875 8,741 LOSAP FIBER GLASS BOAT REPAIR C2235 15.875 38,650 MIIS PISEMWAR MAJOR REPAIR/98M C1736 15.875 4,095 PIIS-EMWAR OFFICE COMPLEX/99M C1946 15.875 53,818 PIIS-EMWAR OFFICE COMPLEX/93M C2058 15.875 27,014 PIISEWMAR SEWING PROJECT C2495 15.875 19,819 PIISEMWAR FISHING PROJECT C2496 15.875 9,499

Subtotal 10,839,123


52







NEMA SCH. RENOV./4-98-32 (M) C2104 15.875 21,209 NEMA WATER IMPROVEMENT/4-98-32 C2105 15.875 18,750 UPPER MORTLOCKS JH SUPPLE. C2570 15.875 83,287 LEPOLIECH NEMA SCHL.SITE LEASE C2578 15.875 22,200 NEMA COURTHOUSE SITE LEASE C2579 15.875 25,000 NAMA FISHING PROJECT C2605 15.875 9,949 MOCH NEW BOAT ACQUISITION C0728 15.875 9,919 MOCH ICE-MAKER INITIAL OPER.CA C2467 15.875 9,999 ONEOP ICE PLANT RENOV./98/M C2250 15.875 2,000 ONEOP DOCK/ICE PLANT REPAIR CO C2342 15.875 20,000 ONEOP DOCK/ICE PLANT REPAIR CT C2343 15.875 30,000 NAMOLUK DISPENSARY C0346 15.875 696 NAMOLUK PASSENGER OR CARGO VES C1709 15.875 896 NAMOLUK CARO/PASSEN.VESSEL/98M C1911 15.875 1,680 SATOWAN FISHERIES DEVELOPMENT 6607 15.875 6,843 SATAWAN SUB POWER & FACILITY C0297 15.875 8,749 SATOWAN REAL PROPERTY SERVEY C0542 15.875 3,610 BANANA THINNING & REHAB.SATOWA C1123 15.875 530 SATOWAN PUB.TOILET SEPTIC/95R C1185 15.875 3,187 SATOWAN SCHL.PROJ.SUPPLE/89M C1924 15.875 3,866 SATOWAN PUB.FACIL.REPAIR/98M C2077 15.875 2,425 SATOWAN ROAD MAINTENACE/97M C2187 15.875 3,000 EOR SATOWAN SOLAR/5-99-15M C2261 15.875 8,000 LUKUNOR RUNWAY PROJECT C0538 15.875 9,400 LEKINIOCH GYMNASIUM SUPPL.R C1426 15.875 39,998 LEKINIOCH MTNG.HALL/3-95-17M C2073 15.875 8,941 LEKINIOCH PASSEN.&CARGO VESSEL C2183 15.875 16,426 LEKINIOCH LEASE PURCHASE/97M C2184 15.875 30,000 LEKINIOCH GYMNASIUM CONSTRUC. C2412 15.875 30,873 KUTTU PUBLIC MEETING HALL C0812 15.875 4,998 KUTTU POWER GEN./DIST./4-97-10 C1927 15.875 3,504 KUTTU POWER GENER./DIST./98M C1929 15.875 5,162 KUTTU POWER/ICE PLANT BLD/97M C1930 15.875 25,979 TA COMMUNITYCENTER/4-97-10R C1889 15.875 4,585 TA AIRPORT/RUNWAY PROJECT C2525 15.875 30,723 TA AIRPORT/RUNWAY PROJECT C2526 15.875 47,393 TA AIRPORT/RUNWAY PROJECT C2527 15.875 49,017 TA AIRPORT/RUNWAY PROJECT C2528 15.875 49,315 ONOUN EL NINO WATER/3-95-17(M) C1216 15.875 830 ONOUN TENNIS COURT/2-94-23R C1479 15.875 6,000 ONOUN FISHING PROJ./4-97-10M C1976 15.875 3,956 ONOUN FARMING PROJECT/M C2657 15.875 14,924 POLLAP SCHL.REPAIR &WATER/97R C1351 15.875 2,212 POLLAP LAND REGISTRATION/96R C1434 15.875 2,000 FUUN METAW SPARE PARTS/599-15M C2276 15.875 1,998 POLLAP TOILET FACILITY/5-99-15 C2351 15.875 29,999 POLLAP FISHING PROJECT C2479 15.875 25,054

Subtotal 11,578,205


53







POLLAP REEFER PLANT 5-00-28 C2480 15.875 21,788 POLLAP SOLAR SYS.& RADIO EQUIP C2511 15.875 15,000 HOUK AIRPORT MATCHING/2-94-23M C0929 15.875 25,000 HOUK GYMNASIUM PROJ. C1726 15.875 10,780 HOUK MUNICIPAL GYM/4-99-01M C1888 15.875 25,766 HOUK YOUTH GYMNASIUM/2-94-23M C1995 15.875 21,498 HOUK YOUTH GYMNASIUM SUPPLE C2336 15.875 19,868 HOUK YOUTH GYMNASIUM SUPPLE C2337 15.875 54,348 MS. TOKU DRYDOCKING C1006 15.875 1,134 TAMATAM MTNG.HALL EXTEN/293-05 C1141 15.875 955 TAMTATAM WATER CATCH BASIN/97M C1613 15.875 500 TAMATAM OUTRIGHT LAND PURCH.SU C1858 15.875 15,000 TAMATAM PUBLIC BLDG PROJ/92M C1938 15.875 233 TAMATAM MUNI. OFFICE/5-99-15M C2213 15.875 12,060 TAMATAM FISHING PROJECT C2497 15.875 11,000 ONOU HOUSING PROJECT C0411 15.875 427 ONOU FISHING PROJ./4-99-01M C1828 15.875 403 ONOU COMMUNITY CENTER/599-15M C2203 15.875 3,642 ONOU ICE MACHINE ACQUI/599-15M C2218 15.875 9,240 FANIP FEFAN FARMING C2308 15.875 17,421 ONOU SOLARY SYSTEM/5-00-28 C2338 15.875 34,422 ONARY COOP ASSOC. 6163 15.875 2,075 UNANU FISHING PROJECT/M C2603 15.875 3,325 UNANU FISHING PROJECT/M C2604 15.875 9,192 PIHERARH FISHING PROJ./191-07M 6400 15.875 25,779 PIHERAHR FISHING PROJECT C0334 15.875 9,461 PIHERARH FISHING SUPPLE. C0753 15.875 12,794 PIHERARH FARMING PROJ/599-15M C2274 15.875 10,000 PIHERARH FISHING PROJ/599-15M C2275 15.875 35,025 PIHERARH FARMING PROJ. C2572 15.875 9,971 PIHERARH MUN.OFF. RENOVATION C2631 15.875 11,292 PIHERARH FISHING PROJECT/M C2660 15.875 1,893 PIHERARH FISHING PROJECT/M C2671 15.875 17,990 MOKUR FISHING PROJECT/5-00-28 C2421 15.875 6,000 MOKUR CLRM JOB TRAINING C2422 15.875 4,998 MAKUR LAND LEASE PURCH C2478 15.875 5,000 MAKUR COOPERATIVE BUILDING C2502 15.875 22,296 MAKUR SOLAR PROJECT C2616 15.875 3,853 MURILO HOUSING PROJ./3-95-17M C1703 15.875 1,081 MURILO SCHOOL BUILDING/M C2655 15.875 18,275 NOMWIN SOLAR LIGHTING/5-99-15 C2512 15.875 13,184 NOMWIN COMMUNITY CENTER M C2564 15.875 37,162 NOMWIN RUO DISPENSARY PROJECT C0877 15.875 7,261 RUO DISPENSARY PROJECT C0878 15.875 2,508 RUO SEWING PROJECT/M C2640 15.875 19,284 RUO FARMING PROJECT C2641 15.875 13,658 FANANU ICE MAKER SITE LEASE CO C2144 15.875 3,890

Subtotal 12,185,937


54







FANANU ICE MAKER SITE LEASE CO C2145 15.875 (8,890) FANANU CENTRAL PUBLIC TOILET C2529 15.875 25,775 FANANU FISH. PROJ./M C2679 15.875 14,569 PIIS PANEU MEETING HALL C0602 15.875 1,094 P/PANEWU FISHING/5-99-15M C2220 15.875 18,428 PIIS-PANEU SEWING PROJECT C2487 15.875 15,409 PIIS-PANEU FISHING PROJECT C2488 15.875 8,400 PIIS PANEU SEWING PROJECT C2503 15.875 9,404 PIIS PANEU FISHING PROJ./M C2566 15.875 42,198 PIIS PANEU FISHING PROJ/95M C1380 15.875 1,164 S.NAMONEAS EL NINO REL.RELIEF CS065 15.875 400 MORTLOCKS DISASTER REL.ASSIST. CS077 15.875 (2,814)

Total Compact of Free Association Capital Projects Fund-Section 211 (A)(2) $ 12,311,074

FY 2001Expenditures

Reconciliation to Financial Statements: Expenditure balance per Combined Statement of Revenues, Expenditures and Changes in Fund Balances (page 5) $ 12,623,963 Loss on investment (388,500) Trial balance out of balance condition 50,500 Beginning fund balance difference 25,111

Balance per Schedule of Expenditures of Federal Awards $ 12,311,074

Note: These funds are made available by Title Two, Article I, Section 211 of the Compactof Free Association.

These funds are disbursed through the Office of Insular Affairs (OIA),U.S. Department of the Interior and bear CFDA #15.875. The NationalGovernment of the FSM receives all grant awards on behalf of the FSMand reallots such to the component States.


55


Schedule of Expenditures of Federal Awards, ContinuedCompact of Free Association-Other Grants Fund


Grantor Chuuk CFDA

Account Title Org. # I.D. # Expenditures

GOVERNMENT UTILITY CT2783 15.875 $ 578,149 CHUUK AIRPORT CA2815 15.875 8,257 CIVIC ACTION TEAM OM2188 15.875 250,000 CHUUK PUBLIC UTILITY CORP./ 272783 15.875 1,000,000 MEDICAL AND HEALTH 216(A)(2) HM6091 15.875 497,891

Total Compact of Free Association - Other Grants Fund $ 2,334,297



56


Schedule of Expenditures of Federal Awards, ContinuedCompact of Free Association

Special Block Grant Fund - Section 221(B)Year Ended September 30, 2001

Grantor Cost CFDAAccount Title Center # I.D. # Expenditures

GOVERNOR'S OFFICE SBG 152151 15.875 $ 106,630 CIVIC ACTION TEAM 0M2188 15.875 250,000 CIVIC ACTION TEAM OM2188 15.875 (250,000) HEALTH CARE PLAN 152099 15.875 154,299 DEFICIT REDUCTION (MED. DEBTS) TI8122 15.875 1,703,026 VOCATIONAL REHABILITION 22B TI8207 15.875 52,856 MEDICAL REFERRAL HS1241 15.875 99,390 HEALTH SERV./DOCTORS PROF.FEES T18121 15.875 6,677 MENTAL HEALTH SBG 221B TI8116 15.875 53,389 HEALTH SERV.COMMUNICABLE DISEA TI8121 15.875 204,784 MEDICAL SUPPLY 221B SBG HM6092 15.875 426,734 CHUUK AIRPORT CA2815 15.875 (356) ED. SPECIAL SERVICES/SBG T18208 15.875 2,564 FOOD SERVICES (NUTRITION) TI8205 15.875 447,152 EDUCATION SPECIAL SERV 221B TI8208 15.875 73,488 ELEMENTARY EDUCATION/SBG T18206 15.875 3,790 ELEMENTARY EDUCATION SBG 221B TI8206 15.875 779,638 ASSIST JR. HIGH SCHOOL 152153 15.875 414,342 SECONDARY EDUCATION 221B SBG TI8202 15.875 137,753

Total Compact of Free Association Block Grant Fund-Section 221(b) $ 4,666,156



57


Notes to Schedule of Expenditures of Federal Awards


58

1. Scope of Review

The State of Chuuk is one of the four States of the Federated States of Micronesia. All significant operations of the State are included in the scope of the OMB Circular A-133 audit (the "Single Audit"). The U.S. Department of the Interior has been designated as the State's cognizant agency for Single Audit.

A. Programs Subject to Single Audit

Schedules of expenditures of federal awards are presented for each federal program related to the following agencies:

• U.S. Department of Education • U.S. Department of the Interior • U.S. Federal Emergency Management Agency

2. Summary of Significant Accounting Policies

A. Basis of Accounting

For purposes of this report, certain accounting procedures were followed which help illustrate the expenditures of the individual programs. All expenses and capital outlays are reported as expenditures on the accrual method of accounting.

B. Reporting Entity

The State of Chuuk, for purposes of the general-purpose financial statements, includes all of the funds of the primary government as defined by Governmental Accounting Standards Board (GASB) Statement 14, "The Financial Reporting Entity."

C. Subgrantees

Certain program funds are passed through the State to subgrantee organizations. The Schedule of Expenditures of Federal Awards does not contain separate schedules disclosing how all the subgrantees outside of the State's control utilize these funds, with the exception of the Chuuk Utilities Corporation and the Chuuk State Housing Authority.

D. Indirect Cost Allocation

The State does not receive any indirect cost allocation and does not charge indirect costs against federal programs.

3. Component Units

The State of Chuuk’s component units are to separately satisfy the requirements of OMB Circular A-133. The following presents information concerning component units which have satisfied their A-133 requirements.




59

3. Component Units, Continued

Chuuk Public Utilities Corporation The Chuuk Public Utilities Corporation, a component unit - proprietary fund, is the recipient of various pass-through funds from Chuuk State and direct grants from the U.S. Department of the Interior. No material instances of noncompliance or questioned costs were presented in its audit reports and are therefore not contained in the accompanying Schedule of Findings and Questioned Costs. The Chuuk Public Utilities Corporation’s Schedule of Expenditures of Federal Awards is as follows:

Fiscal Year 2001 Grantor Agency/Program CFDA# Expenditures

U.S. Department of the Interior: Compact of Free Association 15.875 $ 1,000,000 Trust Territory of the Pacific Islands 15.875 330,418

Operations and Maintenance Improvement Programs (OMIP) Grants 15.875 255,326

Total expenditures $ 1,585,744 Compact of Free Association funds are received in a subrecipient capacity thru the State of Chuuk.

All other grants are received in a direct capacity.

Chuuk State Housing Authority The Chuuk State Housing Authority, a component unit - proprietary fund, is the recipient of various pass-through funds from Chuuk State and certain direct grants. The Chuuk State Housing Authority’s Schedule of Expenditures of Federal Awards is as follows:

Fiscal Year 2001 Grantor Agency/Program CFDA# Expenditures

U.S. Department of the Interior: Compact of Free Association 15.875 $ 92,475 U.S. Department of Housing and Urban Development: Section 8 Housing Program 14.156 37,016

Total expenditures $ 129,491




60

3. Component Units, Continued

Chuuk State Housing Authority, Continued

Loan Funds: As of September 30, 2001, some $1.1 million of loans previously made out of U.S. federal

financial assistance CFDA #14.219, were outstanding. The assistance provided by the U.S. Department of Housing and Urban Development was made to the State of Chuuk and passed through to the Authority. The federal requirement attendant to these funds have expired and therefore, these funds now are only subject to State requirements.

Additionally, as of September 30, 2001, the Authority administered $774,767 of loan funds

provided by the U.S. Department of the Interior, CFDA #15.875, which funds were received by the State of Chuuk and were passed through to the Authority.

61


Schedule of Programs Selected For

Audit in Accordance with OMB Circular A-133 Year Ended September 30, 2001

2001 Grantor Fiscal Year Program Title CFDA No. Expenditures U.S. Dept. of the Interior Compact of Free Association: 211(A) Capital Account 15.875 $ 12,311,074 221(B) Special Block Grants 15.875 4,666,156 221(B) Compact Energy Grants 15.875 1,578,149 Total Major Programs Under CFDA # 15.875 excluding Compact Section 211 (A) Current Account expenditures 18,555,379 U.S. Department of Education School Improvement Project 84.256A 634,327 Total U.S. Federal program expenditures selected excluding Compact Section 211 (A) Current Account expenditures $ 19,189,706 Total U.S. Federal program expenditures excluding Compact Section 211 (A) Current Account expenditures $ 20,398,343 % of total U.S. Federal expenditures covered by major programs excluding Compact Section 211 (A) Current Account expenditures 94%


Schedule of Findings and Questioned Costs


62

Part I - Summary of Auditors’ Results 1. The Independent Auditors’ Report on the financial statements expressed a qualified opinion. 2. Reportable conditions in internal control over financial reporting were identified, some of which are

considered to be material weaknesses. 3. Instances of noncompliance considered to be material to the financial statements were disclosed by

the audit. 4. Reportable conditions in internal control over compliance with requirements applicable to major

federal award programs were identified, some of which are considered to be a material weaknesses. 5. The Independent Auditors’ Report on compliance with requirements applicable to major federal

award programs expressed a qualified opinion. 6. The audit disclosed findings required to be reported by OMB Circular A-133. 7. The State’s major programs were: Name of Federal Program or Cluster CFDA Number U.S. Department of the Interior - Compact of Free Association Capital Account 15.875 U.S. Department of Education - School Improvement Project 84.256A 8. A threshold of $611,950 was used to distinguish between Type A and Type B programs as those

terms are defined in OMB Circular A-133. 9. The State did not qualify as a low-risk auditee as that term is defined in OMB Circular A-133. Part II - Financial Statement Findings Section Reference Number Findings 01-07 Documentation Supporting Expenditures 01-09 Outstanding Collections and Reimbursable Grants 01-10 Travel Advances 01-11 Timely Submission of Accounts Payable Information to the Finance Office 01-12 Maintenance of Checks Signed but not Claimed 01-13 Maintenance of Accounts Payable Subsidiary Ledgers 01-14 Maintenance of Encumbrance Detailed Listings 01-16 Timelines of Investment Information 01-17 Appropriations in Excess of Estimated Revenues 01-18 Computer Systems Support 01-19 Leases Payable 01-20 Chuuk State Housing Authority (CSHA) – Accounting for Loans 01-21 Chuuk State Housing Authority (CSHA) – Collection of Loans Receivable 01-22 Chuuk State Housing Authority (CSHA) – FHMA Deed of Trust Agreement 01-23 Reconciliation of Personnel Action Forms and Payroll Rates Applied


Schedule of Findings and Questioned Costs, Continued


63

Part III - Federal Award Findings and Questioned Cost Section Reference Number Findings Questioned Costs 01-01 School Improvement Plan Project –

Procurement and Suspension and Debarment $ 150,597 01-02 Compact of Free Association – Compact

Capital Funds – Allowable Costs/Cost Principles $ 150,000

01-03 Compact of Free Association Requirements $ 20,000 01-04 Compact of Free Association Requirements $ 20,000 01-05 Compact of Free Association Requirements $ - 01-06 Documentation Supporting Expenditures $ 12,500 01-08 Documentation Supporting Expenditures $ 16,400 01-15 Implementation of GAS 34 $ -




64

U.S. Department of Education – School Improvement Plan Project – Procurement and Suspension and Debarment Item No. CFDA No. Criteria: Questioned Costs 01-01 84.256A Competitive procurement should be performed in accordance

with applicable federal guidelines. $ 150,597

Condition: No competitive procurement procedures appear to have been performed in the administration of the program during fiscal year 2001. Out of fifty items tested aggregating $150,597 of non-payroll costs out of total program costs of $634,327, no competitive procurement activities were noted. Additionally, three instances were found where payments of phone bills were made without written justification indicating the relevance of the bills to the program. No phone logs appear to have been maintained. Therefore, in these instances, we were unable to determine the manner in which the program benefited from these expenditures. Cause: Program officials were of the opinion that the State Procurement Office was performing this function whereas the State Procurement Office does not perform this function. Effect: The effect of this condition is known questioned costs of $150,597. Additionally, it appears that additional questioned costs could arise due to noncompliance with the stated criteria. Prior Year Status: Noncompliance with the criteria was stated in the 2000 Chuuk State Single Audit report. Recommendation: The State should ensure compliance with the stated criteria. Auditee Response and Corrective Action Plan dated June 11, 2003: The State has taken corrective action. This condition was identified in the 2000 audit, which procedures were performed in the 2001 year. Therefore, corrective action did not occur until 2002. We believe this finding has been subsequently resolved.




65

U.S. Department of the Interior– Compact of Free Association – Compact Capital Funds – Allowable Costs/Cost Principles Item No. CFDA No. Criteria: Questioned Costs 01-02 15.875 Costs charged to federal programs should be appropriately

documented to substantiate the allowability of costs against the respective program. $ 150,000

Condition: A payment of $150,000 in a wrongful shooting

court judgement was made and was charged to Compact Capital account funds (reference numbers 101217901, 218801, 29280, and 1012188). The underlying funds were appropriated from Compact Capital funds by the Chuuk State Legislature and were allotted by the FSM National Government. However, the payment of litigation expenses does not appear to relate to the underlying requirements of Compact Capital account funds.

Cause: The cause of this condition appears to be that

Compact Capital account funding was the only available source of cash at that time.

Effect: The effect of this condition is that questioned costs of

$150,000 exist. Recommendation: The above matter should be reexamined

by the Chuuk State Legislature and if appropriate, this item should be charged to the general fund.

Auditee Response and Corrective Action Plan dated June 11, 2003: To resolve the finding, legislation will be submitted to charge this amount to the general fund. We will work with the FSM National Government, which authorized the transfer amount per the allotment to us, to make the necessary corrective action.




66

Compact of Free Association Requirements Item No. CFDA No. Criteria: Questioned Costs 01-03 15.875 Compliance with the terms of the Compact of Free

Association requirements for Compact Capital Account funds should be present in support of all expenditures, if not otherwise self-evident. $ 20,000

Condition: We found payments of $20,000 (APV # 101337701) for an easement that appears to have been made to assist a corporation in payment of its power bills. We were unable to determine the means used to establish conformity with the Compact of Free Association requirements. Cause: The State did not utilize the services of its Attorney General to document the basis for the expenditure. Effect: The effect of this condition is questioned costs of $20,000. Recommendation: The State should consult with the Attorney General to document the conformity of these expenditures with the Compact of Free Association requirements. Auditee Response and Corrective Action Plan dated June 11, 2003: The Director of Treasury will request the State Attorney General to review this transaction to ensure its adequacy under the Compact Capital guidelines. This legal analysis will then be submitted to the National Government for its review and concurrence.




67

Compact of Free Association Requirements Item No. CFDA No. Criteria: Questioned Costs 01-04 15.875 Compliance with the terms of the Compact of Free

Association requirements for Compact Capital Account funds should be present in support of expenditures, if not otherwise self-evident. $ 20,000 Condition: The State paid $20,000 in interest expense on a loan for acquisition of land and charged that interest expense to Compact Capital funding. The loan was not made. Therefore, the applicable interest expense does not appear to represent an eligible expense. Cause: The cause of this condition is inadequate documentation to support the expenditure as applicable to Compact Capital Account funding. Effect: The effect of this condition is questioned costs of $20,000. Recommendation: We recommend that this matter be referred to the State’s Attorney General for review. Auditee Response and Corrective Action Plan dated June 11, 2003: The FSM National Government, as grantor, will be requested to opine on this matter to advise on the appropriate method of resolving this finding. The Director of Treasury will so communicate and we trust that a response will be forthcoming to guide us in this matter.




68

Compact of Free Association Requirements (CFDA# 15.875) Finding No. 01-05 Criteria: Compliance with the terms of the Compact of Free Association requirements for Compact Capital Account funds should be present in support of expenditures, if not otherwise self-evident. Condition: Prior single audits of the State of Chuuk have raised the issue of the propriety of lease agreements as eligible charges against Compact Capital Account funding. This matter has not been resolved either by the State of Chuuk or the FSM National Government. In the current year, the State made various payments for leases in various municipalities. The leases did not appear to indicate the actual purpose served, the relationship to the Compact of Free Association funding and did not appear complete. The applicable amounts are as follows: APV # 100243901 - $10,000 APV # 100242501 $10,000 APV # 100242401 $18,277 APV # 100254801 $18,277 These costs are not questioned due to the absence of resolution of this issue by the State with the grantor agency (the FSM National Government). Cause: The cause of this condition is inadequate documentation substantiating the relevancy of the leases to the Compact of Free Association and the non-resolution of the lease issue with the grantor agency. Effect: The effect of this condition is potential noncompliance with Compact of Free Association terms and conditions. Recommendation: The relevancy of the above leases should be documented and reviewed by the grantor agency for compliance with applicable terms and conditions of the Compact of Free Association. Auditee Response and Corrective Action Plan dated June 11, 2003: This matter will be referred by the Director of Treasury to the State Attorney General to obtain the necessary review and documentation to determine whether these amounts are appropriately charged to the Compact Capital Account funding.




69

Documentation Supporting Expenditures Item No. CFDA No. Criteria: Questioned Costs 01-06 15.875 Documentation should be on file in support of the relevance

of the expenditure to the Compact of Free Association requirements. $ 12,500 Condition: A payment of $12,500 (APV # 100209701) was made for telephone bills and charged against Health and Medical Compact funds. However, no detail of the bill was traceable to this fund. Cause: The cause of this condition appears to be inadequate documentation in support of the charge. Effect: The effect of this condition is that costs of $12,500 has not been property documented. Recommendation: The Government should review the subject transaction and ensure that an adequate trail exists in support of the relevancy of this expenditure to the funding source. Auditee Response and Corrective Action Plan dated June 11, 2003: The Director of Treasury will instruct Finance and Accounting staff to have Health Services and Education enumerate and document each telephone bill to ensure that such is appropriately charged to the Compact source. Otherwise, these telephone expenses will be charged to their general fund account.




70

Documentation Supporting Expenditures Finding No. 01-07 Criteria: Adequate documentation in support of expenditures should be on hand. Condition: Payments are made on a quarterly basis to the Chuuk House, a facility based in Honolulu that assists in facilitating medical referrals in that area. However, the detail of the expenditures is not on file in support of the advances. Therefore, we were not able to ensure the relevance of the expenditures to the funding source or that all applicable funds were expended as of year end. Cause: The cause of this condition is that the account is not being treated as an imprest fund. Effect: The effect of this condition may be unsupported expenditures. Recommendation: The Chuuk House should be established as an imprest fund and all underlying expenditure documentation should be ultimately filed in the Chuuk Finance Office. Auditee Response and Corrective Action Plan dated June 11, 2003: The Director of Treasury will communicate with the Chuuk House and ensure that such account is established on an imprest account basis, with all original expenditure documents being housed in Chuuk State Finance.




71

Documentation Supporting Expenditures Item No. CFDA No. Criteria: Questioned Costs 01-08 15.875 Documentation should be on file to support the relevancy of

payments to the underlying terms and conditions of the Compact of Free Association requirements. $ 16,400 Condition: Payments were made to cover funeral costs for ten individual services in the amount of $16,400 (APV # 101232601). Funeral costs do not appear to be an eligible cost under the Health and Medical component of the Compact of Free Association. Cause: Inadequate documentation exists with respect to ensuring the conformity of the underlying expenditure with grant requirements. Effect: The effect of this condition is questioned costs in the amount of $16,400. Recommendation: This matter should be referred to the State Attorney General and the grantor agency for resolution. Auditee Response and Corrective Action Plan dated June 11, 2003: The Director of Treasury will ask the State Attorney General for a legal opinion with respect to this matter. This is a legal issue and we will then request the FSM National Government to ratify that opinion. Depending on the outcome of the opinion, appropriate adjustment may have to be made to charge this amount to the general fund. If such is the case, appropriate legislation will be submitted to the Chuuk State Legislature.




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Outstanding Collections of Reimbursable Grants Finding No. 01-09 Criteria: Reimbursable grants should be collected in a timely manner. Condition: As of September 30, 2001, financial records indicate that Chuuk is owed approximately $742,000 that was not collected in fiscal year 2002. The breakdown is as follows: Reimbursable Federal grants $166,000 Other reimbursable grants $189,000 Congress of the FSM grants $387,000 Cause: The cause of this condition appears to be the non-collection of the recorded receivables. Effect: The effect of this condition is an increase in the reserve for related assets and the deficit as of September 30, 2001. Recommendation: The above receivables should be analyzed and presented for collection. The collection attempts should be documented in writing. It appears that the majority of the above receivables are due from the FSM National Government. Auditee Response and Corrective Action Plan dated June 11, 2003: The Director of Treasury will correspond with the FSM National Government and the FSM National Public Auditor to attempt to speed up the reimbursement process to the State. We believe that this finding is really directed at that entity. However, the State must document its collection attempts better. The Director of Treasury will instruct his staff to ensure that reminder notices will be sent bi-monthly documenting the status of outstanding collections.




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Travel Advances Finding No. 01-10 Criteria: Travel advances should be properly accounted for and collected in a timely manner. Condition: The following conditions were apparent in the Chuuk State accounting records for the year ended September 30, 2001. a. It is not possible to differentiate between individuals on travel status, those who have returned from

travel status but who failed to submit a travel voucher, and travelers who submitted a travel voucher or didn’t travel and must repay Chuuk State.

b. The detail travel advance subsidiary ledger has not been reconciled with the general ledger balance as of September 30, 2001.

c. It is not possible to segregate encumbrances related to outstanding travel advances to determine the net impact on the deficit.

Cause: The cause of this condition is that necessary reconciliations are not performed on a recurring basis throughout the year. Effect: We believe that the effect of the above conditions is not material to the general purpose financial statements. However, the possibility of a material misstatement occurring in the financial statements and remaining undetected appears to be a possibility as a result of this condition. Recommendation: Chuuk State should reconcile the travel advance subsidiary to the general ledger on a monthly basis. The balances for travelers who actually owe the State should be segregated from the rest of travel advances to allow more effective monitoring. A separate general ledger account should be established for this purpose. Finally, travelers who fail to file timely travel vouchers should be informed of this requirement and if failure continues, payroll deductions should occur. Auditee Response and Corrective Action Plan dated June 11, 2003: Based on the discussion that occurred during your audit process, we believe that we have already instituted processes correcting the noted deficiencies. We believe that you will be able to see these corrective actions in the conduct of your 2002 audit procedures.




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Timely Submission of Accounts Payable Information to the Finance Office Finding No. 01-11 Criteria: Departments should forward information relating to accounts payable to the Finance Office on a timely basis. Condition: In September 2002, audit inquiries led to the discovery of a material amount of medical referral billings held at the Hospital and not provided Finance. The billings were both for fiscal year 2001 and 2002. Cause: The cause of this condition is that the Hospital failed to provide necessary data to Finance. Effect: The effect of this condition was a material understatement of accounts payable and related medical referral expenditures. This condition was corrected in the audit process. Recommendation: Departments should be precluded from withholding financial data that should be transmitted to the Finance Office. The Chuuk Legislature should consider whether withholding such information represents a basis of civil or criminal violations. Auditee Response and Corrective Action Plan dated June 11, 2003: The Director of Treasury has instructed his staff to periodically visit the Department in question and search for and obtain medical referral related accounting information. We believe that this finding has therefore been subsequently resolved.




75

Maintenance of Checks Signed but Not Claimed Finding No. 01-12 Criteria: From time to time, checks will be prepared and unclaimed. Undistributed checks should be controlled and reconciled to the applicable general ledger control account. Additionally, the holder of the checks should not be the same as the person who maintains the general ledger control account. Condition: The same person holds the undistributed checks and maintains the general ledger control account. Cause: The cause of this condition is that the controls over undistributed checks have not been adequately addressed. Effect: The effect of this condition is that controls surrounding undistributed checks are not adequate. Recommendation: The incompatible duties of holding undistributed checks and controlling the applicable general ledger account should be segregated. Auditee Response and Corrective Action Plan dated June 11, 2003: The Director of Treasury will separate the incompatible functions cited in your audit. The Treasury personnel will prepare the necessary reconciliations and Finance and Accounting personnel will reconcile such with the general ledger balance.




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Maintenance of Accounts Payable Subsidiary Ledgers Finding No. 01-13 Criteria: The accounts payable subsidiary ledger should be periodically reconciled with the general ledger control account, should be reviewed for possible erroneous items and should be periodically reconciled to underlying source payable information. Condition: The accounts payable has not been periodically reconciled with the general ledger control account, has not been reviewed for possible erroneous items and has not been periodically reconciled to underlying source payable information. Cause: The cause of this condition appears to be the absence of specific policies and procedures that would guide the reconciliation effort. Effect: The effect of this condition is that material errors could exist and go undetected as related to accounts payable. Recommendation: The State should initiate and implement policies and procedures that require the periodic reconciliation of the general ledger control account, require the periodic review for erroneous items require the periodic matching of accounts payable subsidiary ledger balances with underlying vendor statements. Auditee Response and Corrective Action Plan dated June 11, 2003: We believe that to some degree, our problem is a system related one and we have not had the necessary technical support for the FOCUS system over the past several years. We, working through working with the auditors, have commenced our standard practice of reviewing detail accounts payable and removing erroneous balances. However, such is being removed from the general ledger and not from the subsidiary, due to the aforementioned problem. We will continue to seek assistance from the FSM National Government Secretary or Finance who is also responsible for our FOCUS system.




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Maintenance of Encumbrance Detailed Listings Finding No. 01-14 Criteria: The detailed encumbrance subsidiary ledger should be periodically reconciled with the general ledger control account, reviewed for possible erroneous items and periodically reconciled to underlying source encumbrance documents. Condition: The detailed encumbrance subsidiary ledger has not been periodically reconciled with the general ledger control account, has not been periodically reviewed for erroneous items and has not been periodically matched with underlying source encumbrance documents. However, this exercise was undertaken to some extent to satisfy audit requirements. We additionally noted that certain 2000 encumbrances were not carried forward in to the 2001 subsidiary ledger. Cause: The cause of this condition is the procedures have not been implemented to require compliance with the criteria. Effect: The effect of this condition is the possibility that material misstatements may exist and be undetected in the general purpose financial statements. Recommendation: Policies and procedures should be implemented to ensure that compliance with the criteria occurs. If an encumbrance is not carried forward in to the succeeding year, the reasons therefore should be documented and the applicable encumbrance should be essentially cancelled. Auditee Response and Corrective Action Plan dated June 11, 2003: Our response and corrective action plan parallels that of finding 13 as the same issues are involved. Since the process we went through in the 2001 audit, we have continued our review of encumbrance detail to ensure that incorrect balances are eliminated. However, the reconciliation process is being hampered due to the conditions specified above. Therefore, again, we must obtain programming assistance related to our FOCUS system from the National Government.




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Implementation of GAS 34 Finding No. 01-15 Criteria: The provisions of GAS 34 should be implemented in fiscal year 2003. The provisions include capitalization and depreciation of all long-lived assets, including infrastructure, MD & A requirements, significant footnote changes, among others. Condition: The State has not made substantive progress in detailing an inventory of capital assets, inclusive of infrastructure, to allow for the financial presentation required by GAS 34. Cause: The cause of this condition is that the State has yet to assign duties and responsibilities associated with compliance with GAS 34 requirements. Effect: The effect of this condition is the potential inability of the State of Chuuk to conform to the GAS 34 presentation and disclosure requirements. Prior Year Status: The absence of an inventory of capital assets, including noncompliance with equipment and real property management, was reported as a finding in prior year Single Audit reports. Recommendation: The State should detail an action plan to allow for the timely implementation of GAS 34 requirements. If insufficient resources exist in the State to formulate and implement such a plan, the resources should be obtained through outside sources. Auditee Response and Corrective Action Plan dated June 11, 2003: We have requested that this matter be directed by the FSM National Government since it affects all States equally. We are hopeful that the Secretary of Finance has opel1ed communication to obtain necessary technical assistance from OIA or elsewhere. Therefore, we are aware of this problem, but inventorying and costing our infrastructure is an issue that we will require assistance on.




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Timeliness of Investment Information Finding No. 01-16 Criteria: Investment results should be obtained in a timely manner to allow for correct presentation in the general purpose financial statements. Condition: Financial investment results for fiscal year 2001 were obtained in September, 2002. Cause: The cause of this condition is the non-timely receipt of financial information from the FSM National Government. Effect: The effect of this condition a delay in the determination of the State’s financial position. Recommendation: Financial information should be obtained in a timely manner. If such is not the case, the State should take whatever means necessary to allow for obtaining such information. Auditee Response and Corrective Action Plan dated June 11, 2003: We concur and believe that this finding should be directed to the Secretary of Finance since the National Government bears responsibility for the accounting for investments through the FDA.




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Appropriations in Excess of Estimated Revenues Finding No. 01-17 Criteria: Appropriations should not exceed estimated revenues and estimated revenues should be based on a balance reasonably related to actual revenues. Condition: During fiscal year 2001, estimated revenues appear to have exceeded actual revenues by some $13 million. Actual revenues were less than expenditures by approximately $8.1 million. Cause: The cause of this condition appears to be that estimated revenues did not correlate with actual revenues. Effect: The effect of this condition is an approximate $8.1 million increase in the deficit. We note that a portion of this condition may be attributable to the $3.1 million investment loss experienced in 2001 (versus investment income of $3.6 million in 2000). Additionally, appropriations were not made to cover the State’s obligation under the Early Retirement Loan. As a result, the deficit in 2001 also increased by $2,265,000 for this obligation. Recommendation: The State should ensure that estimated revenues do not materially exceed actual revenues. The State should consider establishing an independent commission comprised of executive and legislative branch members and private citizen groups, such as the Chamber of Commerce, to establish the estimated revenue ceiling. The State should also review its procedures for the issuance of allotments as no expenditures, even if appropriated, can be incurred without an allotment. Auditee Response and Corrective Action Plan dated June 11, 2003: This matter has been broached with the Governor and the Legislature and is being considered. We are hopeful that through these discussions, a better method of tracking and estimating revenues will result.




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Computer Systems Support Finding No. 01-18 Criteria: Computer systems utilized should be maintained in an appropriate manner. Condition: The accounting systems utilized by the State of Chuuk appear to be supported by an adjunct of the National Government. State management has gone on record expressing assistance to resolve various technical matters that have resulted in account imbalances, subledger variances when compared with general ledger totals, and other matters of concern involving payroll and other accounting systems. No response to the State’s requests has been forthcoming through the conclusion of our audit fieldwork. Cause: The cause of this condition appears to be inadequate levels of assistance from the State’s service provider. Effect: The effect of this condition is the potential for material errors in the State’s financial statements. Recommendation: The State should ensure that it receives the required systems support. Otherwise, the State should explore an alternative provider. Auditee Response and Corrective Action Plan dated June 11, 2003: The programming aspect or the FOCUS system is controlled by the National Government. We have requested assistance repeatedly from the Secretary of Finance to no avail. We therefore believe that this finding should be directed to the National Government.




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Leases Payable Finding No. 01-19 Criteria: Leases payable should be appropriately recorded in the financial statements. Condition: The State is party to numerous leases. A summary of the lease terms and conditions has not been provided for inclusion in the general purpose financial statements, if required. Cause: The documentation has not been provided Finance to allow consideration of required accounting adjustments and disclosures, if applicable. Effect: The effect of this condition is a qualification of the State’s general purpose financial statements. Recommendation: The applicable lease information should be furnished Finance to allow for appropriate disclosure and accounting in the general purpose financial statements. Auditee Response and Corrective Action Plan dated June 11, 2003: The Director of Treasury will communicate with the Director of Land Management to determine the issue. We understand that there has been a lot of turnover in the department and that could be hampering the State's ability to prepare an appropriate inventory of all leases. We cannot commit to a specific timetable for corrective action until we determine the root issue and therefore, we will ask that you again look at this matter in the 2002 audit.




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Chuuk State Housing Authority (CSHA) – Accounting for Loans Finding No. 01-20 Criteria: CSHA should possess an accounting system that accounts for its financial activities and its loans in a complete and timely manner. Condition: The CSHA employs a manual system of accounting that is prone to error that does not account for its activities in a timely manner. Additionally, the system does not facilitate timely communication of transaction histories with borrowers Cause: The CSHA has not made an investment in its accounting system. Effect: The effect of this condition is untimely and inaccurate financial information is being produced. Prior Year Status: The above condition was reported as a finding in the Single Audit of Chuuk State Government for the fiscal year ended September 30, 2000. Recommendation: The CSHA should consider alternative accounting systems. Alternatives could be a stand-alone system, contracting out the maintenance of the loan subsidiary ledgers or some combination of the two. Auditee Response and Corrective Action Plan: Previously, CSHA had purchased an accounting program (PeachTree) from a vendor and at the time contracted the vendor to conduct training for CSHA employees on the use of the program. Unfortunately, the contractor only conducted one training session and one of the employees is able to be familiar with the use and features of the program. I am confident that if enough training hours are provided we could be able to utilize the program. I have already approach some individuals who could at least recommend and conduct trainings on a loan program in addition to the accounting program that is already installed. We hope that the date needed for FY ’01 audit could be entered on such programs to make the next year easier.




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Chuuk State Housing Authority (CSHA) – Collection of Loans Receivable Finding No. 01-21 Criteria: CSHA management is charged with the responsibility of collecting loans receivable. Condition: It is evident that more and more borrowers are discontinuing allotments and are not repaying their loans. However, the CSHA has not initiated foreclosure proceedings and has not otherwise aggressively utilized remedies set forth in the loan agreements to ensure collection. Cause: The cause of this condition is unknown. Effect: The effect of this condition is that inadequate cash flows result, which prevents the financing of additional loans. Prior Year Status: The above condition was reported as a finding in the Single Audit of Chuuk State Government for the fiscal year ended September 30, 2000. Recommendation: The CSHA management should aggressively take steps to ensure collection of loans and document those steps that it will take to achieve this end. Auditee Response and Corrective Action Plan: CSHA management is mindful of the non-payment of loans. The Early Retirement Program has contributed to the high delinquent rate due to the fact that people are immigrating to the U.S. and its territories. At any rate, we are not neglecting this obligation but aggressively making collections and compile enough documents to be used as evidence in legal proceedings including foreclosures.




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Chuck State Housing Authority (CSHA) – FMHA Deed of Trust Agreement Finding No. 01-22 Criteria: Loan guarantees are to be disclosed by the CSHA in its financial statements and depending on the condition of the underlying loans, provision for an allowance for doubtful loans should be made in the financial statements. Condition: The CSHA management is not receiving adequate information under the FMHA Deed of Trust Agreement to make the necessary disclosure and adjustment in its financial statements, if required. Cause: The cause of this condition is that the necessary information has not been requested or obtained from the FMHA office in Chuuk. Effect: The effect of this condition is that inadequate provisions may be made in the CSHA financial statements. Prior Year Status: The above condition was reported as a finding in the Single Audit of Chuuk State Government for the fiscal year ended September 30, 2000. Recommendation: We recommend that the aforementioned information be obtained from the FMHA office on at least a semi-annual basis. Auditee Response and Corrective Action Plan: CSHA management will take this recommendation that periodic information on loan guarantee is to be acquired from FMHA in order to reflect accurate adjustments on its financial statements.




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Reconciliation of Personnel Action Forms and Payroll Rates Applied Finding No. 01-23 Criteria: Pay rates recorded in the system should agree with rates specified on personnel action files. Condition: As in the prior year, certain instances were noted where differences existed between the pay rates set up in the system and rates per the applicable personnel action form. We note however that the State made improvement with respect to this condition in fiscal year 2001 as the number of exceptions was substantially lower than in fiscal year 2000. Cause: The cause of this condition appears to be the speed with which pay increments are formalized in revised personnel action forms. Effect: There does not appear to be a material effect of the financial statements as a result of this condition. Prior Year Status: This finding was present in the 2000 Single Audit Report. Recommendation: The State should review the timeframe in which personnel action forms are updated and ensure that such forms coincide with system pay rates. Auditee Response and Corrective Action Plan dated June 11, 2003: We agree that we have made much improvement in this area and believe that such is a coordination issue with the Personnel Office. PAF's are processed slowly; and we have not instituted a tracking system to determine and reach resolution concerning the differences noted in the audit process. However, based on your finding, it is evident that corrective action has been occurring and we will continue to make improvements in this area.


Resolution of Prior Years’ Findings and Questioned Costs


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For the year ended September 30, 2001, the following questioned costs were noted and prior questioned costs resolved:

Questioned Costs Questioned Set Forth in Costs Resolved Prior Audit Report in Fiscal Year Questioned Costs at 2000 2001 September 30, 2001 Unresolved Questioned Costs FY 97 $ 16,125 $ - $ 16,125 Unresolved Questioned Costs FY 98 54,882 - 54,882 Unresolved Questioned Costs FY 99 28,619 - 28,619 Unresolved Questioned Costs FY 00 301,889 - 301,889 Unresolved Questioned Costs FY 01 - - 369,497 $ 401,515 $ - $ 771,012

CHUUK STATE GOVERNMENT FEDERATED STATES OF MICRONESIA REPORT

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