Audit details problems leading to takeover of Shiprock Chapter

Shiprock Chapter officials failed miserably in the last three years to get their finances in order, according to an audit released this month by the Navajo Nation Office of the Auditor General.

A 2008 audit revealed serious problems managing money under the previous chapter administration, and auditors issued 19 recommended changes to bring the chapter back into compliance.

But the follow-up audit revealed that the chapter implemented only one of the reforms, so the auditor general is recommending sanctions against the chapter and its officials.

Under tribal law the sanctions include a 20 percent salary reduction for chapter officials and a 10 percent cut in chapter operating funds until the reforms are implemented.

When the audit follow-up findings surfaced last fall, the tribe put the Local Governance Support Center in Shiprock in charge of chapter administration and now allocates only small amounts of money each month to keep the chapter operating.

How bad is Shiprock Chapter's financial situation?

It's so bad, said the audit, that chapter officials no longer can be trusted to administer funds and there may not be enough money to continue programs.

Details include a missing check intended to fund youth jobs. In July 2010 the chapter received a check for $18,181 from the tribe for its summer youth employment program. The auditor could find no evidence the check was ever deposited nor cashed. The check is still missing.

Who's to blame is under discussion.

The 2008 audit period occurred while Duane "Chili" Yazzie was chapter president. Yazzie, however, said he resents "deeply the implication that the previous chapter administration was not any better than the current one."

He said that the article in the March 17, 2011, Navajo Times ("Shiprock officials furloughed for ignoring audit") implies that the financial problems currently cited "were inherited from my administration."

That's not true, he said, adding that when the audit came out his administration - which left office in January 2009 - had taken steps to implement the 2008 audit recommendations.

"There was no mention (in the Times story) that the finances under my administration were completely solvent and transparent and that we were making concerted and deliberate effort to address our audit findings," Yazzie said.

Yazzie: I'm not to blame

He added that it was not his administration's fault that the current administration failed to continue these efforts and, as a result, placed the chapter's finances in a far more serious condition than at the beginning of the current administration.

"My reputation has been injured again by Bill Donovan's incomplete, irresponsible and dangerous reporting," Yazzie said.

William Lee, Shiprock Chapter's current president, said Wednesday he didn't blame the Yazzie administration for the problems. He said most of them are minor and deal with an inability to produce supporting documents to show that the expenditures were valid.

He said this came about when the chapter's coordinator was terminated last February. Chapter officials found a lot of supporting documents missing, he said.

"We should be able to come up with the current documents but the ones from the past administration will be hard to do," Lee said.

The chapter has hired a new coordinator but it's going to take time for chapter officials to learn what needs to be done, said Lee, who took office over two years ago. He ascribed many of the negative things said about the situation and people involved to "tribal politics."

According to tribal auditors, the only recommendation from the 2008 audit that was implemented was to make sure people who receive housing funds meet eligibility requirements.

Awaiting action

Reforms that still await action include:

• Get budgets approved. "Without proper budget approval, the chapter incurred unauthorized expenditures such as financial assistance to chapter officials, stipends for advisory meetings and work sessions and contractual services. These unauthorized expenses are considered questionable costs," stated the audit.
• Establish accounting ledgers based on approved budgets. Because of the lack of ledgers, the chapter has been unable to effectively monitor $510,382 received in fiscal 2010 to fund chapter services and projects.
• Make sure all expenditures are documented. The chapter did not have support documents for $6,430 worth of expenditures reviewed by auditors so the chapter could not verify the funds were used properly.
• Make sure housing funds are used properly. Based on records, the chapter assisted 42 families in fiscal 2010 but chapter officials did not visit the project sites to make sure the work got done. "Consequently, there is a risk that chapter housing funds were used for unauthorized purposes," the audit stated.
• Monitor the records management system, advise directed at the chapter secretary-treasurer. "The chapter's current records management system is in disarray and in poor condition," stated the audit. "Chapter records were found to be lacking, incomplete, erroneous and inefficient due to duplication."
• Do a complete inventory of chapter property. Auditors found a number of computers that were not on the chapter's inventory list. They also found the list did not include serial numbers for each item.
• Provide a complete inventory of chapter property to the tribe's Office of Risk Management. That hasn't been done so the chapter's property is not insured, which could lead to significant losses in the event of a disaster.
• Keep accurate accounts of resale goods. The chapter sells hay, grain, rugs and quilts but its accounting of the sales has been very poor, said the audit. For example, the chapter had a record of hay bales sold, but the total was higher than the number of bales it had purchased.
• Maintain one set of records. The auditors found that Shiprock Chapter officials maintain more than one set of accounting records and that the accounting system is "inaccurate, incomplete and does not meet the accounting needs of the chapter."

• Reconcile monthly bank statements. The chapter has continued to lag in balancing its checkbook. For example, bank reconciliations were prepared in September 2010 for as far back as October 2008.
• Provide the Local Governance Support Center with monthly financial reports. This has not happened, leading to disagreement between the support center and chapter officials on a variety of subjects, including personnel, policy compliance, expenditure of funds and financial reporting. Relations got so bad that the tribe moved supervision of the chapter to the Fort Defiance LCSC.
• Monitor performance of responsibilities by key staff. The failure of the elected leaders to keep tabs on staff performance has led to a dire state of affairs: "Funds have been depleted to a level that may no longer be sufficient to support crucial government services and operations," the audit said.

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