U.S. Insular Areas:

Opportunities Exist to Improve Interior's Grant Oversight and Reduce the Potential for Mismanagement

GAO-10-347: Published: Mar 16, 2010. Publicly Released: Mar 16, 2010.

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The U.S. insular areas of American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam, and the U.S. Virgin Islands (USVI) face serious economic and fiscal challenges and rely on federal funding to deliver critical services. The Department of the Interior (Interior), through its Office of Insular Affairs (OIA), provides roughly $70 million in grant funds annually to increase insular area self-sufficiency. GAO and others have raised concerns regarding insular areas' internal control weaknesses, which increase the risk of grant fund mismanagement. GAO was asked to determine (1) whether previously reported internal control weaknesses have been addressed and, if not, to what extent they are prevalent among OIA grant projects; (2) the challenges, if any, insular areas face in implementing OIA grant projects; and (3) the extent to which OIA has taken action to improve grant project implementation and management. GAO reviewed a random sample of 173 OIA grant files, conducted site visits, and interviewed OIA and insular area officials.

Internal control weaknesses previously reported by GAO and others continue to exist, and about 40 percent of grant projects funded through OIA have these weaknesses, which may increase their susceptibility to mismanagement. These weaknesses, including insufficient reporting and record-keeping discrepancies, can be categorized into three types of activities that may increase the possibility of mismanagement: grant recipient activities, joint activity between grant recipients and OIA, and OIA's grant management activities. Weaknesses associated with grant recipient activities were the most common issues GAO found, encompassing 62 percent of the weaknesses exhibited by OIA grant projects. The joint activity--redirection of grant funds, a practice by which OIA allows insular areas to move grant funds between projects--accounts for 24 percent of the weakness present in OIA grant projects. While project redirection can be a helpful tool, it can contribute to project mismanagement if not used appropriately. Weaknesses associated with OIA grant management activities, including discrepancies in grant management data, account for 14 percent of the weaknesses in grant projects. Insular areas confront a number of challenges in implementing OIA grants, which can be categorized into project planning challenges such as frequently changing local priorities; project management challenges such as limited local capacity for project implementation; and external risk factors, including the declining economic conditions of American Samoa and the CNMI. While some of these challenges are beyond the insular areas' control, others result from decisions made by the insular area governments. These challenges can result in implementation delays for grant projects. Over the past 5 years, OIA has taken steps to improve project implementation and management. Most notably, OIA established incentives for financial management improvements and project completion by tying a portion of each insular area's annual allocation to the insular governments' efforts in these areas--such as their efforts to submit financial and status reports on time. In addition, OIA established expiration dates for grants to encourage expeditious use of the funds. Despite these and other efforts, some insular areas are still not completing their projects in a timely and effective manner, and OIA faces key obstacles in compelling them to do so. Specifically, (1) current OIA grant procedures provide few sanctions for delayed or inefficient projects, and the office is not clear on its authorities to modify its policies; (2) resource constraints impede effective project completion and proactive monitoring and oversight; (3) inconsistent and insufficiently documented project redirection policies do little to discourage insular areas from redirecting grant funds in ways that hinder project completion; and (4) OIA's current data system for tracking grants is limited and lacks specific features that could allow for more efficient grant management. Interior is currently phasing in an agencywide database that is scheduled to be implemented in OIA in 2011, but to be effective, it will require some flexibility to address OIA's needs for grants management.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In our March 2010 report on the Department of the Interior's Office of Insular Affairs' (OIA) grant oversight and management, we found that to improve OIA's ability to require insular areas to efficiently complete projects and expend funds, the Secretary of the Interior should direct Interior's Office of the Solicitor to prepare a detailed written evaluation of OIA's existing authorities that could be used to ensure the more efficient use of funds by insular areas, and work with OIA officials to use such authorities as appropriate and to identify the need, if any, for additional authority. If the evaluation identifies the need for additional authorities, the Secretary should submit the evaluation to the Congress. The Department of the Interior noted that OIA has a listing of regulations applicable to the insular areas, but concurred with our recommendation. According to an OIA official, OIA requested that the Department's Office of the Solicitor prepare the evaluation that we recommended and, as of July 2014, the draft evaluation was under review within the Office of the Solicitor.

    Recommendation: To improve OIA's ability to require insular areas to efficiently complete projects and expend funds, the Secretary of the Interior should direct Interior's Office of the Solicitor to prepare a detailed written evaluation of OIA's existing authorities that could be used to ensure the more efficient use of funds by insular areas, and work with OIA officials to use such authorities as appropriate and to identify the need, if any, for additional authority. If the evaluation identifies the need for additional authorities, the Secretary should submit the evaluation to the Congress.

    Agency Affected: Department of the Interior

  2. Status: Closed - Implemented

    Comments: In our March 2010 report on the Department of the Interior's Office of Insular Affairs' (OIA) grant oversight and management, we found that OIA officials reported that resource constraints impede effective project completion and proactive monitoring and oversight. However, OIA had not formally communicated additional resource needs to decision makers within Interior, specifically through a workforce plan or other formal process. Interior's own Workforce Planning Instruction Manual emphasizes that workforce planning is a fundamental tool, critical to quality performance that will contribute to the achievement of program objectives by providing a basis for justifying budget allocation and workload staffing levels. In order to ensure that OIA's staffing needs are clearly and accurately communicated to key decision makers, we recommended that the Secretary of the Interior direct OIA to create a workforce plan and reflect in its plan the staffing levels necessary to adopt a proactive monitoring and oversight approach. Interior's Assistant Secretary for Insular Affairs concurred with our recommendation. Based on our finding and recommendation, OIA has taken action to implement our recommendation. Specifically, in November 2010, OIA issued a 2010 Workforce Profile and Plan, which includes an assessment of OIA's current and projected workforce through 2014. It acknowledges gaps in staffing and outlines staffing solutions in order to further develop a proactive monitoring and oversight approach.

    Recommendation: To ensure that OIA's staffing needs are clearly and accurately communicated to key decision makers, the Secretary of the Interior should direct OIA to create a workforce plan and reflect in its plan the staffing levels necessary to adopt a proactive monitoring and oversight approach.

    Agency Affected: Department of the Interior

  3. Status: Closed - Implemented

    Comments: In our March 2010 report on the Department of the Interior's Office of Insular Affairs' (OIA) grant oversight and management, we found that OIA's current project redirection approval practices do little to discourage U.S. insular areas from redirecting project funds in ways that hinder project completion. Furthermore, OIA's policies for granting project redirection requests were not well documented. In order to reduce the impact that frequently shifting insular area priorities have on insular areas' incentives to complete projects and efficiently use federal funds, we recommended that the Secretary of the Interior direct OIA to develop criteria that establish when project redirection requests should be approved and when they should be denied and update its financial assistance manual with these criteria to clarify OIA policy on redirection. Interior's Assistant Secretary for Insular Affairs concurred with our recommendation. Based on our finding and recommendation, OIA has taken action to implement our recommendation. Specifically, in May 2010, OIA issued an updated financial assistance manual with criteria for redirecting project funds. The criteria include conditions upon which redirection requests will be approved and when OIA may disallow costs,which encourages project completion and a more efficient use of federal funds.

    Recommendation: To reduce the impact that frequently shifting insular area priorities have on insular areas' incentives to complete projects and efficiently use federal funds, the Secretary of the Interior should direct OIA to develop criteria that establish when project redirection requests should be approved and when they should be denied and update its financial assistance manual with these criteria to clarify OIA policy on redirection. In developing these criteria, OIA should adopt guidelines that minimize ineffective project redirection. In addition, the Secretary should direct OIA to develop criteria that establish when offset or disallowed costs should be pursued.

    Agency Affected: Department of the Interior

 

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