Compacts of Free Association: Trust Funds for Micronesia and the Marshall Islands May Not Provide Sustainable Income

In June 2007, GAO reported (Compacts of Free Association: Trust Funds for Micronesia and the Marshall Islands May Not Provide Sustainable Income, GAO-07-513) on the Federated States of Micronesia (FSM) and Republic of Marshall Islands (RMI) trust fund committees' progress in establishing, investing, and reporting on the funds. The report noted that the FSM and RMI trust fund committees' processes for reaching consensus and obtaining administrative support contributed to the time taken to establish and invest the funds, and the committees have not yet taken steps to improve these processes. The report also noted that U.S. government employees have undertaken administrative functions for the trust funds in addition to their other duties and the trust fund committees' reliance on U.S. government staff for administrative support slowed committee processes. GAO recommended that the Secretary of the Interior direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of the committees, to work with other U.S. agencies on the committees to develop strategies to improve the timeliness of the committees' decision-making and administrative processes. As a result of the recommendation, the FSM and RMI trust fund committees hired an Executive Administrator, beginning in October 2007, to improve timeliness of decision-making and administrative processes. The duties of the Executive Administrator include (1)maintaining all official Trust Fund Committee (TFC) documents and records; (2) updating the Chairman and other TFC members on activities of the Trust Funds; (3) assisting in the hiring and supervision of the Trust Fund's counsel, trustee, investment advisers, money managers and auditors; (4) drafting written instructions on behalf of the TFC to the trustee to pay bills, purchase and liquidate investments, meet capital calls and wire funds for these purposes; (5) drafting, coordinating and sending official TFC correspondence, including responses to inquiries from the public, governments and international agencies regarding the Trust Fund; (6) drafting and coordinating resolutions, unanimous written consents and other official documents of the Trust Fund and monitoring their implementation; (7) providing records to the auditors and drafting narrative portions of audit reports; (8) scheduling meetings and reviews of investments, obtaining space, inviting participants, recording meetings and reporting on actions; (9) drafting annual reports, preparing and disseminating to the members of the TFC periodic updates of investments, performance, and actions by the investment adviser, trustee, money managers, auditors, and others. As a result of hiring an executive administrator, the trust fund committees have improved the timeliness of the committees' decision-making and administrative processes.

In response to our recommendation, in October 2007, the Federated States of Micronesia (FSM) and Republic of Marshall Islands (RMI) trust fund committees contracted with an independent study on securitization to conduct an assessment of the proposed securitization structure and its potential risks, and the probability of a net increase in the value of the trust fund corpus in 2023.