August 21, 2026
Palikir, Pohnpei—An FSM Office of the National Public Auditor review of national government construction contracting found widespread noncompliance with financial regulations, including contracts awarded without required competitive bidding, potential conflicts of interest, unauthorized contract increases, missing project records and completed projects showing defects after contractors had been fully paid.
The performance audit of the Department of Transportation, Communications and Infrastructure’s procurement of construction contracts examined projects completed between October 2021 and August 2024 throughout Pohnpei, Chuuk, Yap and Kosrae.
Auditors examined $5.3 million, or 41 percent, of $12.7 million in completed construction contracts. They identified concerns involving $3.8 million, or 73 percent, of the contracts tested because of departures from requirements of the FSM Financial Management Regulations.
The Office of the National Public Auditor said the problems included contracts awarded without required competitive bidding, project obligations and payments reaching as much as twice the original appropriation without proper justification or authorization from FSM Congress, and spending that could not be verified because project files and supporting documents were missing.
The audit also found weaknesses in the Department of Finance and Administration’s oversight of construction procurement and said matters identified during the audit have been referred to the Public Auditor’s Compliance Investigation Division for further review.
Among the cases cited was a $170,000 contract, including a change order, that auditors said was awarded without competitive bidding. The contract was originally initiated in 2018 and extended through 2022 with additional congressional appropriations. According to the audit, the contractor was known to be affiliated with a national government official, raising concerns about impartiality and compliance with conflict-of-interest requirements.
The contract was initially awarded for $70,000. It was increased by $50,000 in fiscal year 2022 and again by another $50,000 in May 2024. The increases, representing 71 percent and 42 percent respectively, were made without the independent panel review required under the Financial Management Regulations for change orders increasing an original contract price by 10 percent or more.
Auditors found another contract initially valued at $644,265 was increased by $282,162.65, or 44 percent, without the required independent panel review.
In another case, TC&I entered into a $600,000 road construction contract although the legislative appropriation identified by auditors was only $300,000. TC&I staff told auditors another $300,000 had been appropriated, but auditors said they could not trace or verify the additional amount in an appropriation law and TC&I did not provide documentation substantiating the authorization.
The audit also identified two renovation contracts totaling $761,840 that auditors said were awarded under circumstances raising potential conflicts of interest.
One $449,801 contract was awarded to a company owned by the second-in-command of the department benefiting from the project. That individual was also a close relative of a member of the bidding panel, according to the report. A second contract worth $312,039 was awarded to another close relative of the same panel member.
Two additional contracts totaling $37,000 could not be reviewed because supporting documents were missing.
Auditors also found problems extending beyond the procurement process itself.
A $50,000 contract remained incomplete well beyond its expected completion date, with no assessment of liquidated damages. The report identified that project as the Kepin Awak U Bridge.
Four completed projects totaling $1.56 million were found to have defects after completion even though full payments, including the 10 percent retainage intended to protect the government against deficient work, had already been released.
Photographs included in the audit show conditions auditors documented at the private room facilities at Pohnpei State Hospital, the Nanpohnmal-to-Sekere Road, the TC&I Annex and Parking project, and the Office of the National Public Auditor.
The report also singled out a Yap isolation unit project with an allocated budget of $187,651. Auditors said the project had “significantly deteriorated” within four years, primarily because of inadequate construction planning and ineffective project administration.
The audit found problems in TC&I’s basic handling of procurement records as well.
Auditors described widespread disorganization, poor recordkeeping, missing files and insufficient documentation needed to determine whether internal controls and legal requirements were being followed.
Many hard-copy files were disorganized or missing documents. Auditors found bidding-panel meeting minutes absent from the files they reviewed, apart from some scorecards showing how contractors were evaluated. They also found no documentation verifying bidder qualifications.
The audit said TC&I had no established procedures for dealing with situations in which only one bidder responded.
Auditors also raised concerns about the security of sealed bids, reporting that bids were stamped “received” and then left with secretaries until they were retrieved by the contracting officer.
The Public Auditor attributed the problems in part to TC&I and Finance continuing to operate under procedures and workflows that had not been updated to reflect the 2021 Financial Management Regulations. The report also attributed noncompliance to “departmental negligence.”
The audit said Finance had not consistently ensured compliance with the revised regulations before certifying contracts and approving payments. Finance also had not maintained the required current roster of pre-qualified contractors, including information identifying proven contractors as well as high-risk or unstable contractors.
A separate audit finding concluded that TC&I lacked formal policies and procedures for administering construction contracts despite a previous Public Auditor recommendation issued in September 2022.
The absence of those procedures contributed to inconsistent contract administration, documentation and oversight errors, possible project delays, increased risks to public funds, reduced construction quality assurance and inadequate accountability, the report said.
Auditors additionally found insufficient separation of duties among TC&I personnel responsible for projects.
According to the report, a single engineer could serve simultaneously as project manager, contracting officer representative and, in some cases, project inspector. Project managers and inspectors also served on bidding panels.
The Public Auditor said concentrating those functions in the same individuals increased the risk of potential conflicts of interest and biased decisions while reducing checks and balances in procurement and project administration.
The audit recommended that TC&I assign the contracting officer, project manager and project inspector functions to different people.
It also recommended that TC&I and Finance jointly strengthen procedures for open bidding, bid documentation, change orders, conflict-of-interest disclosures and contractor vetting, and develop comprehensive operating policies for construction procurement.
Both TC&I Secretary Carlson Apis and the Secretary of Finance and Administration agreed with the audit’s findings and recommendations and submitted proposed corrective actions, according to the Public Auditor.
TC&I said it was committed to developing standard operating procedures collaboratively, applying them uniformly and periodically reviewing them. The department also requested assistance from Finance and the Department of Justice in organizing joint training and capacity building to strengthen procurement and project-management practices.
The audit concluded that TC&I “did not fully comply” with Financial Management Regulations in managing and administering construction contracts, had weak internal controls over procurement and contract management, and had not implemented recommendations from the Public Auditor’s previous 2022 audit.
The complete Office of the National Public Auditor Report No. 2026-02 is available at:
http://www.fsmopa.fm/files/onpa/2025/Final%20Report%20for%20issue_11.26.2025-Revised.pdf
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