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entitled 'Compacts of Free Association: Micronesia's and the Marshall
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May 25, 2007:
Congressional Committees:
Subject: Compacts of Free Association: Micronesia's and the Marshall
Islands' Use of Sector Grants:
Supplementing our December 2006 report entitled Compacts of Free
Association: Micronesia and the Marshall Islands Face Challenges in
Planning for Sustainability, Measuring Progress, and Ensuring
Accountability,[Footnote 1] this report provides information on the
uses of economic assistance provided under the amended U.S. compacts
with the Federated States of Micronesia (FSM) and the Republic of the
Marshall Islands (RMI) from 2004 through 2006.
From 1987 through 2003,[Footnote 2] the United States provided $2.1
billion in economic assistance to the FSM[Footnote 3] and the RMI
through a Compact of Free Association. In 2003, the U.S. government
approved amended compacts with the FSM and the RMI,[Footnote 4]
providing a combined total of $3.6 billion for the two countries in
2004 through 2023.[Footnote 5] The amended compacts identify the 20
years of grant assistance as intended to assist the FSM and RMI
governments in promoting the economic advancement and budgetary self-
reliance of their people. Under the amended compacts, U.S. grant
funding decreases annually,[Footnote 6] paired with increasing
contributions to trust funds for the FSM and the RMI; earnings from the
trust funds are intended to provide a source of revenue when the grants
expire in 2023. In addition, the annual grant funding is partially
adjusted for inflation.[Footnote 7] The amended compacts require the
countries to target funding to six development sectors--education,
health, the environment, public sector capacity building, private
sector development, and infrastructure, with priority given to
education and health. The amended compacts also provide for a
supplemental education grant (SEG) for both countries.[Footnote 8] The
Department of the Interior's (Interior) Office of Insular Affairs (OIA)
is responsible for administering and monitoring the grants.
The amended compacts' subsidiary fiscal procedures agreements[Footnote
9] (FPA) require the FSM and RMI governments to monitor the day-to-day
operations of sector grants and activities, submit periodic performance
reports and financial statements, and ensure annual financial and
compliance audits. In addition, the compacts and fiscal procedures
agreements require the U.S. and FSM Joint Economic Management Committee
(JEMCO) and the U.S. and RMI Joint Economic Management and Financial
Accountability Committee (JEMFAC) to:
* meet at least once annually to evaluate the progress of the FSM and
the RMI, respectively, in achieving the objectives specified in their
development plans;[Footnote 10]
* approve grant allocations;
* review required annual reports;
* identify problems encountered; and:
* recommend ways to increase the effectiveness of compact grant
assistance.[Footnote 11]
Moreover, the FSM and the RMI are required to conduct annual audits
within the meaning of the Single Audit Act, as amended.[Footnote 12]
In our December 2006 report, we examined the FSM's and RMI's use of the
compact funds, their efforts to assess progress toward their stated
development and sector goals, and their monitoring of sector grants and
accountability for the use of compact funds in 2004 through
2006.[Footnote 13] The report also examined Interior's administrative
oversight of the assistance provided under the compacts. Regarding the
FSM's and RMI's use of the compact grants, our December 2006 report
observed that the countries' governments allocated the largest amounts
for education, infrastructure, and health, prioritizing health and
education as required (see fig. 1).
Figure 1: FSM and RMI Grant Allocations, Fiscal Years 2004 through
2006:
[See PDF for Image]
Source: GAO analysis of FSM and RMI 2004 through 2006 sector grant
award agreements.
[End of figure]
Our December 2006 report also noted that several factors affected the
grants' use.[Footnote 14] In the FSM, disagreement among the national
and state governments regarding project implementation and fund
management delayed infrastructure projects, and the government's
inability to secure land leases hindered project implementation in
Chuuk state. In the RMI, political disagreements between the government
and Kwajalein Atoll landowners over the management of compact fund
distribution delayed the release of funds allocated for special needs
on the island of Ebeye,[Footnote 15] and disagreements over land use
prevented infrastructure projects in the Majuro and Kwajalein Atolls.
Further, the report noted that neither country had planned its
allocation and use of funds for long-term sustainability in view of the
planned annual decrements and the partial inflation adjustments of
grant funding. Finally, the report observed that the FSM's
distributions of its grant allocations among the national and state
governments and the development sectors responded to a formula
established in FSM law rather than to the states' varying populations
and needs. To improve the countries' administration, and planning for
the use of the grants, we recommended that the Secretary of the
Interior direct the Deputy Assistant Secretary for Insular Affairs, as
Chairman of JEMCO and JEMFAC, to work with the FSM and RMI governments
to develop spending and investment plans that take into account the
annual decrement in grant funding and the partial inflation adjustment.
We also recommended that the Deputy Assistant Secretary for Insular
Affairs should work with the FSM national and state governments to
evaluate the impact of the FSM's current allocation formula on the
government's ability to meet national goals and deliver services.
To supplement our December 2006 report, enclosures II through VII of
this correspondence provide additional information on the FSM's and
RMI's use of compact funds for, respectively, each of the six
development sectors in 2004 through 2006. Enclosure I contains a
description of the scope and methodology of this review. Each enclosure
addresses the sector grant goals; the grant funding and uses of the
funding allocated for the sector; and the challenges that have
affected, or may affect, the use of the grant. A summary of the grants
and their purposes follows.
* Education. The FSM and RMI priorities for education sector grants
under the amended compacts are to advance a quality basic education
system. However, both countries face numerous challenges to improving
their education sectors such as lack of qualified teachers, teacher and
student absenteeism, and poor or inadequate classroom facilities. In
addition, because a disagreement between U.S. agencies and the FSM and
the RMI governments over some of the proposed uses of the SEG, these
grants did not become available until late in 2005 and 2006.
* Infrastructure. Both the FSM and the RMI have prioritized use of the
infrastructure grant for education-and health-related projects, in
accordance with their respective fiscal procedures agreement. However,
as of November 2006, only the RMI had used infrastructure funds to
build several projects. The FSM had not yet built any projects and has
more than $58 million in available funds, although it had made some
progress in initiating projects. In the FSM, progress was hampered by
undefined procurement processes and building standards, disagreement
within the FSM about project management, unresolved land issues,
inadequate long-term planning, lack of funding for maintenance, and
lack of technical capacity. Similarly, in the RMI, unresolved land
issues and a lack of planning, technical capacity, stakeholder buy-in,
and maintenance also present challenges.
* Health. The FSM and RMI priorities for health sector grants under the
amended compacts to improve the delivery of health care services. In
both the FSM and the RMI, the health sector received the third largest
sector grant. In the FSM, even with the focus on primary health care,
only 10 percent of the states' health care budgets targeted this goal.
Additionally, there has been little progress made to improve the
quality of care provided in hospitals in the four FSM states. In the
RMI, funding has not followed strategic goals, and the RMI faces
numerous challenges to health care service improvements including lack
of technical capacity, increased prevalence of lifestyle disease, and
unsustainable spending.
* Public sector capacity building. Under the amended compacts, public
sector capacity building (PSCB) grants are intended to support the
efforts of the FSM's and the RMI's internal capacity to build
effective, accountable, and transparent governments. According to grant
conditions, PSCB funds can be used to hire experts to advise the FSM
and RMI governments; train personnel; and develop, purchase, or upgrade
various government systems. With OIA's agreement, the FSM allocated
over 88 percent of its PSCB funds to support the ongoing operations of
the national and state governments, activities not supported by the
compact, rather than to build new skills and expertise. The RMI
accepted PSCB funds only in the past 2 years, to support the operations
of its Public Auditor's Office. Despite both countries' extensive need
of greater government capacity, PSCB has not been a priority in either
country and it is difficult to determine what if any progress has
occurred in this sector in either country.
* Private sector development. FSM and the RMI private sector
development grants are made available in part to attract foreign
investment and increase indigenous business activity. Both countries
allocated funds to their various offices, such as visitor bureaus, land
offices, and development entities, in support of their goals. However,
private sector development in both countries has been hampered by such
factors as their remote geographic location, inadequate infrastructure,
and poor business environments.
* Environment. Environmental goals in the FSM and RMI include engaging
in environmental infrastructure planning, design, construction, and
operation. Grants for the two countries' environment sectors were
allocated to several offices to support activities such as
environmental protection, marine conservation, solid waste management,
and public education. However, several challenges have limited the
achievement of both countries' goals, including lack of enforcement and
a lack of trained professionals.
We provided a draft of this report to the Departments of Education,
Health and Human Services, the Interior, and State. We also provided a
draft of the report to the Federated States of Micronesia and the
Republic of the Marshall Islands. We received technical comments from
the Department of Education which we incorporated as appropriate. The
Departments of State and Health and Human Services had no comments. The
Department of the Interior provided a letter indicating the report was
clear and informative, and indicated it continues to implement the
recommendations from our earlier report GAO-07-163 entitled Compacts of
Free Association: Micronesia and the Marshall Islands Face Challenges
in Planning for Sustainability, Measuring Progress, and Ensuring
Accountability (see enclosure VIII). The FSM's letter acknowledged,
that our findings, in this report and GAO-07-163, provided useful and
constructive criticism, and that they are committed to continued
improvement (see enclosure IX). The RMI, in its general comments,
raised concerns that we used reports from fiscal years 2004 and 2005 as
the basis for making assessments on program management, and that they
had made changes, revisions, and refocused their efforts since fiscal
year 2005, which our report did not take into account. Our field work
was conducted in March 2006. At that time, only project reporting for
the first quarter of fiscal year 2006 was available. We therefore chose
not to include those reports in our scope. However, we will review the
improved reporting during our next mandated review. The RMI also
reiterated its position that the grants under the compact should be
subject to full inflation in order to maintain service levels. The RMI
also raised concerns about the SEG and how the legislation has been
interpreted. Additionally, the RMI raised concerns about statements and
opinions which we generally attributed to RMI officials in the
education sector. To address these concerns, we have identified the
position of the person making the statements in the text, such as the
Minister of Education. We have modified this report to respond to these
comments and other matters raised by the RMI (see enclosure XI).
We are sending copies of this report to interested congressional
committees. We will also make copies available to others on request. In
addition, the report will be available at no charge on GAO's Web site
at http://www.gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. If you have any questions, please contact me at (202) 512-3149
or gootnickd@gao.gov. Key contributors to this report are listed in
enclosure VIII.
Signed by:
David Gootnick, Director:
International Affairs and Trade:
List of Committees:
The Honorable Jeff Bingaman:
Chairman:
The Honorable Pete V. Domenici:
Ranking Minority Member:
Committee on Energy and Natural Resources:
United States Senate:
The Honorable Joseph R. Biden, Jr.
Chairman:
The Honorable Richard G. Lugar:
Ranking Minority Member:
Committee on Foreign Relations:
United States Senate:
The Honorable Nick J. Rahall, II:
Chairman:
The Honorable Don Young:
Ranking Minority Member:
Committee on Natural Resources:
House of Representatives:
The Honorable Tom Lantos:
Chairman:
The Honorable Ileana Ros-Lehtinen:
Ranking Minority Member:
Committee on Foreign Affairs:
House of Representatives:
Enclosure I:
Scope and Methodology:
To identify the goals of the amended compacts, we reviewed the Compacts
of Free Association and their subsidiary agreements between the United
States and the two countries. To learn of the countries' uses of the
compact funds, we reviewed the Federated States of Micronesia's (FSM)
and the Republic of the Marshall Islands (RMI) planning and budget
documents; the U.S., FSM, and RMI annual compact reports for 2004 and
2005; and briefing documents prepared by Interior's Office of Insular
Affairs (OIA) in preparation for the annual bilateral meetings with the
two countries.
To determine the allocation of grant funding by sector, we reviewed all
2004, 2005, and 2006 grant agreements with both countries, obtained
from OIA, including special terms and conditions included in these
agreements. To compute education spending per student, we used FSM and
RMI grant data and student population statistics. To calculate the
variability in health spending per capita across the four FSM states,
we used FSM grant data and population statistics. We did not calculate
health spending per capita for the RMI due to a lack of data. We
determined that these data were sufficiently reliable for the purposes
of our report.
To identify challenges that impact the use of compact funds, we
discussed planning efforts with U.S., FSM, and RMI government officials
and identified, through our own analysis, issues that affected
planning, such as the FSM's use of its distribution formula. We
reviewed relevant documents, such as FSM and RMI legislation, and we
also reviewed documentation that the countries provided to the U.S.
government. In March 2006, we traveled to the FSM (Chuuk, Kosrae,
Pohnpei, and Yap). In addition, in Chuuk we visited the Islands of
Fanapangas, Fefan, Polle, Toll, Tonoas, Duot, Uman, Ut, and Weno. We
also traveled to the RMI, visiting Arno, Kwajalein, and Majuro Atolls.
Our field work covered the locations with the largest population,
although we also reviewed nearby sites serving rural communities. In
both countries, we visited primary and secondary schools, colleges,
hospitals, dispensaries, community health centers, farms, fisheries,
post offices, weather stations, telecommunications offices, and airport
facilities. Specifically, in the RMI we visited 7 of 75 primary and 3
of 5 secondary public schools. In the FSM, we visited 18 out 198
primary and 8 of 21 secondary public schools across the four states. We
visited both of the RMI's hospitals, in Majuro, and a health dispensary
on Arno. In the FSM, we visited each states' hospital as well as 16
dispensaries. In the Chuuk lagoon islands, we also visited dispensaries
and schools. We did not select sites using probability sampling
techniques and therefore cannot generalize to all possible sites. We
discussed compact implementation with the FSM national and state
governments, including the FSM's Office of Compact Management, and with
the RMI government, including the RMI's Chief Secretary.
We conducted our review from October 2005 through December 2006 in
accordance with generally accepted government auditing standards.
Information contained in this report was gathered primarily during our
March 2006 field work, with some information updated through interviews
with OIA staff or correspondence with FSM and RMI officials through
November 2006.
Enclosure II:
Education:
The Federated States of Micronesia (FSM) and the Republic of the
Marshall Islands (RMI) goals for education sector grants under the
amended compacts are to support and improve the educational system of
the countries with an emphasis on advancing a quality, basic education
system. The JEMCO approved allocations for the FSM education sector
amounting to $79 million, or 34 percent of compact funds; and the
JEMFAC approved allocations for the RMI education sector amounting to
$34.2 million, or 33 percent of compact funds in 2004 through
2006.TT[Footnote 16] Both countries also received Supplemental
Education Grant (SEG) funding,[Footnote 17] beginning in 2005, to
support additional direct educational services. However, both countries
face numerous challenges to improving their education sectors. In
addition, because of multiple factors, including disagreement between
U.S. agencies and the FSM and the RMI governments over some of the
proposed uses of the SEG, funding for the SEG was almost 1 year late
for both 2005 and 2006.
Education Sector Grant Priorities and Terms:
The goals for FSM's and RMI's education sector grants under the amended
compact and subsidiary fiscal procedures agreements are to:
* improve the educational system of the countries, including primary,
secondary, and post secondary education; and:
* develop the countries' human and material resources necessary to
perform these services.
Emphasis is to be placed on advancing a quality basic education system
by:
* increasing the achievement levels of students in the primary and
secondary education system based on performance standards and
assessments appropriate for the countries;
* providing secondary and vocational training;
* improving management and accountability within the educational
system;
* raising the level of staff quality, including teacher training; and:
* improving the relevance of education to the needs of the economy.
According to the fiscal procedures agreements, the SEG grant is to be
used in part to support additional direct educational services at the
local school level, with emphasis on school readiness, early childhood
education, primary and secondary education, vocational training, adult
and family literacy, and the transition from high school to
postsecondary education or career endeavors. SEG is not to be used for
school construction, remodeling, general operational costs, or teacher
salaries, except those salaries needed to carry out programs or
activities supported by the SEG.
In addition to being subject to the requirements in the amended
compacts and fiscal procedures agreements, the FSM and RMI are subject
to grant conditions imposed by the JEMCO and JEMFAC, respectively, and
by OIA. (For sector grant terms and conditions specific to the FSM and
the RMI, respectively, see GAO-07-163, app. VI and VII.)
FSM Education Sector:
Compact sector grants for the FSM education sector in 2004 through 2006
supported the operation of primary and secondary schools in addition to
other education functions and activities. The 2005-2006 SEG primarily
supported early childhood education in Chuuk and Pohnpei and education
improvement programs in Yap and Kosrae. Although Chuuk receives the
largest share of education funding, it has the lowest funding level on
a per student basis. The FSM education sector faces many challenges in
improving the quality of education.
Funding for the FSM Education Sector:
In 2004 through 2006, JEMCO approved allocations totaling about $79
million to the FSM national and state governments for the education
sector: approximately $26 million (34 percent of all compact funds) in
2004; about $27 million (36 percent of all compact funds) in 2005; and
about $26.1 million (33 percent of all compact funds) in 2006. The
largest allocations of compact funding each year went to Chuuk, the
most populous state; the smallest allocations went to Kosrae, the least
populous state (see table 1).
Table 1: FSM Education Sector Grant Allocation, by FSM Government,
Fiscal Years 2004 through 2006:
Grant recipient: National government;
2004: $4,324,122;
2005: $4,511,317;
2006: $4,159,081.
Grant recipient: Chuuk;
2004: 8,140,265;
2005: 8,804,369;
2006: 9,432,618.
Grant recipient: Kosrae;
2004: 1,883,853;
2005: 2,070,432;
2006: 2,412,498.
Grant recipient: Pohnpei;
2004: 7,373,651;
2005: 7,469,772;
2006: 6,978,447.
Grant recipient: Yap;
2004: 4,243,681;
2005: 4,249,157;
2006: 3,149,415.
Total;
2004: $25,965,572;
2005: $27,105,047;
2006: $26,132,059.
Source: Compact grant award letters.
[End of table]
The compact grant supported the operation of primary and secondary
schools in addition to other education functions and activities. At the
state level, compact grants mainly supported the operation of primary
and secondary schools. Compact grants also paid for postsecondary
scholarships and provided partial support to some private schools.
Among national institutions supported by grant funding, the College of
Micronesia-Federated States of Micronesia (COM-FSM) received $3 million
in 2004, $3.9 million in 2005, and $3.8 million in 2006.
In addition to receiving compact sector funding, the FSM education
sector received SEG from the United States--$12.1 million for 2005 and
almost $12.1 for 2006. In Chuuk and Pohnpei, 2005 and 2006 SEG
primarily supported early childhood education, while in Yap and Kosrae,
the largest portion of the SEG went to education improvement programs.
The SEG also supported vocational training, skills training, and staff
development. In addition, the national government received some SEG
funding for monitoring, coordination, technical assistance,
scholarships, and research. The College of Micronesia received SEG
funds for financial aid for students and for teacher training. Figure 2
shows SEG funding to the FSM states for 2005 and 2006.
Figure 2: FSM State SEG Funding by Activity, Fiscal Years 2005 through
2006:
[See PDF for Image]
Sources: FSM 2005 and 2006 supplemental education grant award
agreements.
[End of
figure]
Combined annual U.S. assistance from the education sector compact funds
and the SEG averaged approximately $990 per student in primary and
secondary schools. However, the level of funding per student varied
widely by state: Chuuk received about $730 per student in U.S.
assistance, while Yap received about $2,050 per student. Partly as a
result of this discrepancy, Chuuk has a much higher student-to-teacher
ratio (19:1) than Yap (8:1).[Footnote 18]
Table 2: Compact and SEG Public School Available Funding Per Student (K-
12) by FSM Government, Fiscal Year 2005:
Compact;
Chuuk: $8,686,164;
Kosrae: $2,070,432;
Pohnpei: $7,067,309;
Yap: $4,203,177;
National government: $475,200;
FSM: $22,502,282.
SEG;
Chuuk: 4,216,090;
Kosrae: 1,305,546;
Pohnpei: 3,352,563;
Yap: 2,393,183;
National government: 548,932;
FSM: 11,816,314.
Total;
Chuuk: $12,902,254;
Kosrae: $3,375,978;
Pohnpei: $10,419,872;
Yap: $6,596,360;
National government: $1,024,132;
FSM: $34,318,596.
Student number;
Chuuk: 17580;
Kosrae: 2532;
Pohnpei: 11277;
Yap: 3212;
National government: n/a;
FSM: 34,601.
Funding per student;
Chuuk: $734;
Kosrae: $1,333;
Pohnpei: $924;
Yap: $2,054;
National government: n/a;
FSM: $992.
Source: Funding data are drawn from 2005 compact and SEG budgets and
award letters. Student numbers are drawn from the FSM submission of 20
education indicators in 2005 to JEMCO.
Notes: To calculate the compact and SEG funding for public primary and
secondary schools, we excluded the funding for nonpublic schools,
postsecondary schools, and some COM funding. Specifically we excluded:
$118,205 to nonpublic schools in Chuuk;
$350,000 to postsecondary scholarships and $52,463 to public libraries
in Pohnpei,;
$23,890 to St. Mary School and $22,090 to the Seventh-Day Adventist
School in Yap; and:
$3,856,067 to the College of Micronesia operation funds, $267,046 to
the college for financial aid, and $180,050 to the FSM Fisheries and
Maritime Institute.
These amounts do not include other U.S. federal program assistance for
education in the FSM.
[End of table]
Challenges in the FSM Education Sector:
The challenges facing the FSM education sector include a lack of
qualified teachers, a high level of teacher and student absenteeism,
and poor conditions at facilities.
* Lack of qualified teachers. The large number of unqualified teachers
at all education levels in the FSM is a serious impediment to improving
the quality of education in the country; addressing this challenge will
require a long-term effort. According to the FSM's 2006 submission to
the JEMCO, nearly 40 percent of the teachers nationally have no
postsecondary qualifications. The situation is particularly critical in
Yap and Chuuk, where more than half of teachers do not possess a degree
from a postsecondary institution. In 2004, the national government
began requiring that all teachers be certified[Footnote 19] and making
the possession of an associate's degree one of the certification
criteria. To help teachers achieve the required degrees, the FSM
obtained a grant from the U.S. Department of Education (ED); however,
the grant expires in 2007, and teacher training is far from complete.
The FSM reported that as of August 2006, after 4 years of teacher
training grants, 27 teachers (12 from Chuuk, 4 from Kosrae, 8 from
Pohnpei, and 3 from Yap) had attained associate degrees with the
assistance of the grants. However, more than 900 FSM teachers had no
degrees and lacked certification.
* Absenteeism. Officials at many of the schools we visited reported
absenteeism is a problem for both teachers and students. For example, a
high school we visited in Pohnpei reported a 20 percent absentee rate
for teachers in February 2006. In the event of a teacher's absence, the
schools attempt to combine classes rather than send students home.
There is also a lack of accountability in the system regarding
teachers' performance, according to Kosrae's Department of Education
Director. In response, Kosrae tried to shift teachers from holding
civil service positions to biannual contracts in order to make it
easier to terminate nonperformers. The effort was met with resistance
from the teachers, but Kosrae's Education Department nonetheless hoped
to put all teachers on contract.
* Poor conditions. Deteriorating conditions at school facilities
challenge efforts to strengthen FSM education. When we visited Kosrae
High School, we found the bathrooms in deplorable condition and we were
told that the female students avoided using them. In the Southern
Nomoneas High School on Chuuk Lagoon Island, a damaged roof caused
classes to be cancelled when it rained, because students sat on the
floors of the classrooms in the absence of chairs and desks (see fig.
2). Chuuk schools were also negatively affected by an unreliable power
supply due to the poor condition of the power system on Weno Island. As
we reported in December 2006, the FSM had not undertaken any school
facility repair projects using the infrastructure sector grant
funds.[Footnote 20] However, education sector grant carry-over funds
from 2004 were authorized by JEMCO to be used to repair schools and to
purchase desks and chairs; only in Chuuk was this funding used.
Figure 3: Poor Conditions of Classroom Facilities in the FSM:
[See PDF for image]
Source: GAO.
[End of figure]
RMI Education Sector:
Compact sector grants for the RMI education sector in 2004 through 2006
supported the operation of primary and secondary schools in addition to
other education functions and activities, such as the College of
Marshall Islands. The 2005 and 2006 SEG funding supported early
childhood education, paid for textbooks and supplies at primary and
secondary schools, and supported the National Vocational Training
Institute, an alternative to the main-stream high schools. The RMI
education sector faces many challenges in improving the quality of
education.
Funding for the RMI Education Sector:
In 2004 through 2006, JEMFAC approved grants for the RMI's education
sector that presented the second largest share of compact funding: in
2004, $10.7 million (31 percent of compact funds); in 2005, $11.6
million (33 percent of compact funds); in 2006, $11.9 million (34
percent of compact funds) (see table 3). The compact grant supported
the Ministry of Education's (MOE) operations. It also supported other
education functions and activities, such as the College of the Marshall
Islands and the National Scholarship Board.[Footnote 21]
Table 3: Compact Funding for the RMI Education Sector, by Agency,
Fiscal Years 2004 through 2006:
Grant Recipient: Ministry of Education;
2004: $8,362,932;
2005: $9,597,911;
2006: 10,174,046.
Grant Recipient: National Scholarship Board;
2004: 700,000;
2005: 900,000;
2006: 760,037.
Grant Recipient: College of the Marshall Islands;
2004: 2,036,626;
2005: 700,000;
2006: 1,000,000.
Grant Recipient: National Training Council;
2004: 186,000;
2005: 0;
2006: 0.
Total[A];
2004: $11,285,558;
2005: $11,197,911;
2006: $11,934,083.
Source: The RMI Education Budget Portfolio, 2004 through 2006.
Note: The amounts shown represent compact funding budgeted by the RMI
for each agency and differ slightly from the final awards for 2004 and
2005.
[A] The total includes Kwajalein (Ebeye) Special Needs funding of $1.1
million in 2004 and $1.6 million in 2005 as part of the education
grant. The 2006 funding included Ebeye Special Needs funding: $1
million for the education sector and $100,000 for the scholarship
board.
[End of table]
In addition to receiving compact sector funding, the RMI education
sector received SEG funding: $6.1 million for 2005, and approximately
$5.9 million for 2006 from the United States. The SEG was used
primarily to support early childhood education, as well as functions at
other education levels, such as primary and secondary schools (see fig.
4). The SEG was also used to support a wide range of additional
activities, including purchasing textbooks and supplies, hiring World
Teach/Dartmouth teachers and substitute teachers,[Footnote 22] and
funding the National Training Council and the National Vocational
Training Institute, which is an alternative to mainstream high school.
We calculate that in 2005, compact funding and the SEG provided, on
average, approximately $1,300 a year for each of the RMI's public
school students (kindergarten through 12th grade).[Footnote 23]
Figure 4: RMI Distribution of Supplemental Education Grant, Fiscal
Years 2005 through 2006:
[See PDF for Image]
Sources: RMI 2005 and 2006 supplemental education grant award
agreements.
Note: Amounts shown represent combined 2005 and 2006 SEG.
[End of figure]
Challenges in the RMI Education Sector:
Challenges facing the RMI education sector include a lack of qualified
teachers, teacher and student absenteeism, high dropout rates, the
accreditation problems at the College of Marshall Islands, and poor
classroom facilities. Some of these challenges, such as lack of
qualified teachers, are significant and will take a long time to
address.
* Lack of qualified teachers. Lack of qualified teachers presents an
obstacle to progress in the education sector. The RMI Ministry of
Education is conducting several ongoing efforts to improve teacher
quality, including the Teacher Quality Education program, with the goal
of ensuring that all teachers have associate's degrees by 2008.
However, a ministry official in charge of professional development
stated that this time frame may be unrealistic because some teachers
will have to take remedial courses, on a part time basis, before they
can enroll in courses for a degree. One teacher told us that although
he had taken summer classes towards his degree for the past 3 years,
earning the degree may require another 10 years of summer classes. A
further problem with the teacher training program is that some teachers
do not attend classes although they are paid to do so, according to one
official from the Asian Development Bank. The ministry official in
charge of professional development told us that the ministry had
recently initiated a policy of docking teachers' pay if they did not
enroll in or attend classes.
* Absenteeism. At the schools we visited, officials told us that
absenteeism was a serious problem for both students and teachers.
Personnel actions are rarely taken when teachers do not appear for
work, according to an official at the MOE. The difficulty in taking
action stems, in part, from the RMI's public service employment
practices, according to the Minister of Education. Because teachers in
the RMI are hired by the Public Service Commission, to initiate a
personnel action, the ministry must document the case and turn it over
to the commission for adjudication. The ministry does not have the
authority to impose penalties, and the commission often does not take
the personnel actions suggested by the ministry, according to ministry
officials.
* High dropout rates. According to the RMI Ministry of Education, the
dropout rate in 2005 was 23 percent at the primary school level (grades
1-8) and 38 percent for boys and 37 percent for girls at the secondary
school level (grades 9-12). The ministry estimated that less than 25
percent[Footnote 24] of the students now enrolled in first grade will
complete high school.
* Accreditation problems. The College of the Marshall Islands has
experienced accreditation problems since 2003. According to the
President of the college, the accreditation committee indicated that
the college's physical infrastructure was one of the most serious
obstacles to accreditation and that the committee would require
evidence that the facilities would be substantially upgraded before it
would change the college's "show cause" status.[Footnote 25] Through a
memorandum of understanding signed by the RMI President and the cabinet
and agreed to by OIA, from 2006 through 2010, the college will receive
$5 million per year from the infrastructure grant. However, this
initiative will significantly reduce the funding available under the
infrastructure sector grant to build and renovate primary and secondary
schools.
* Inadequate classroom facilities. Despite the use of compact
infrastructure funds to build new classrooms at six schools, many RMI
schools remain in poor condition. For example, classrooms at the
Marshall Islands High School are unsafe because ceilings have collapsed
(see fig. 5), while schools on Ebeye have no reliable electricity
because of rolling blackouts on the island. Access to secondary
education is also limited by the lack of available classroom space;
students take an entrance test to enter public secondary schools
because of limited capacity at the schools[Footnote 26]. We calculated,
based on data from the 1999 RMI census, that less than 60 percent of
the school-age population was actually enrolled in 9-1[Footnote 27]2.
The principal of Ebeye High School told us the school would not have
enough classrooms for the new school year and that they were converting
an old warehouse into classroom space.
Figure 5: Poor Classroom Facilities in the RMI:
[See PDF for Image]
Source: GAO.
[End of figure]
FSM and RMI Supplemental Education Grants:
For 2005 and 2006, SEGs were awarded near the end of the fiscal year,
whereas compact sector grants were awarded at the start of each fiscal
year. Although the SEG was approved in December 2003, the
implementation of SEG has been slowed by several factors, including (1)
the length of time it took the Departments of the Interior (DOI),
Education (ED), Health and Human Services (HHS), and Labor (DOL) to
develop a memorandum of agreement on a framework for the use and
monitoring of the SEG; (2) the FSM's and RMI's late submissions of SEG
plans, combined with a lengthy approval process involving the four U.S.
agencies; and (3) disagreements among the parties about the appropriate
use of SEG grant funds. The FSM and the RMI have expressed concern
because the grant has not received an adjustment for inflation, as was
established for compact grants, and because it was subject to a
rescission in 2005 and 2006.
* Lengthy agreement process. After the amended compact was enacted,
Interior, ED, HHS, and DOL--the four U.S. agencies involved with the
federal programs incorporated into SEG--took 19 months to develop a
memorandum of agreement (MOA) providing a framework for the use and
monitoring of the SEG.[Footnote 28] The MOA specifies that ED and HHS
are required to review the countries' SEG plans and provide feedback to
Interior. The process is dependent on the annual appropriation from the
U.S. Congress. ED seeks funding in its appropriation and transfers the
funds to Interior, and after the plans are approved, Interior disburses
the funds. According to an HHS official, problems with coordination and
planning for the transition of funding from the various federal
programs to the SEG complicated the agreement process. However,
officials from ED pointed out that the length of time it took to
develop the memorandum was due to the complexity of the task, which
marked a "complete paradigm shift" in the way funds were provided to
the FSM and RMI, including transferring oversight from the U.S.
agencies to the FSM and RMI governments. Owing partly to the fact that
the memorandum of agreement was not concluded until July 2005, 10
months into the fiscal year, the 2005 SEG was not awarded to the FSM
and RMI until October and August 2005, respectively. As a result of the
delay, both countries used their own revenue to fund early childhood
education during the transition period and were later reimbursed.
* Late submission and lengthy review of SEG plans. The required reviews
and revisions of the SEG plans also slowed SEG funding. In 2005, the
FSM and RMI submitted their plans near the beginning of the fiscal
year. Partly owing to extensive revisions, the funding was not awarded
until nearly 1 year later. In 2006, the FSM and the RMI did not submit
their plans until well into the fiscal year. An OIA official stated
that the agencies had verbally agreed to a 30-day review period;
however, in SEG's first 2 years of implementation, the reviews took
longer than 30 days.
* Disagreement over SEG uses. Disagreements between the U.S. government
and the FSM and RMI governments about the planned uses of the SEG
contributed to slowing the SEG's implementation. Because a U.S. review
found the planned use of funds inappropriate, the U.S. government
required revisions to the plans. For example, according to the U.S. ED,
because the FSM's and the RMI's SEG plans for 2006 contained many uses
not allowed under the fiscal procedures agreement accompanying the
compacts, ED and DOI questioned several of the FSM's and RMI's proposed
SEG activities.[Footnote 29] The RMI has expressed its disagreement and
frustration over the U.S. interpretation of the appropriate use of SEG
funding, stating that the compact does not state that SEG funds are to
be used for "supplemental programs" but rather to supplement programs.
For example, U.S. agencies expressed concern over the sustainability of
the RMI's early childhood education (ECE) program. According to the
agencies, SEG funds are not appropriated to replace the federal
programs under which the RMI previously received funding and the ECE
program should be supported by the education sector grant. In that way,
if the SEG funds were not available in a given year, the ECE program
would still be operational, albeit perhaps with reduced activities. The
RMI responded that the SEG was designed to replace Head Start and that
the new program meets the unique geographic and cultural needs of the
RMI. The RMI insists that funding of early childhood education through
the SEG will continue. According to ED officials, the two countries,
particularly the FSM, did not understand what activities the SEG
funding could support.
Both the FSM and the RMI have raised concerns that the U.S.
appropriation for the SEG in 2006 was smaller than the amount
anticipated by the countries and OIA officials. The country and OIA
officials had anticipated that the 2006 SEG grant would be increased by
the inflation adjustment authorized by the legislation creating the
SEG. However, ED's 2006 appropriation, the source of SEG funding, was
not available until December 30, 2005, and the amount appropriated for
the FSM and RMI combined was $182,190 less than the previous year's SEG
grant.[Footnote 30] The lower level of funding reflected no inflation
adjustment, [Footnote 31]and a general rescission imposed on all
executive branch agencies in 2006. ED officials informed us due to a
tight budget environment, the department's 2006 budget only requested
increases for those programs that could demonstrate effectiveness in
achieving their objectives or those of the highest priority. Officials
in both the FSM and the RMI voiced confusion and frustration over the
delay and reduced funding. At JEMCO and JEMFAC meetings held in August
2006, some U.S. officials argued that the inflation adjustment should
be viewed as a compact obligation and that the ED should ask for the
inflation adjustment in its budget. The ED official present responded
that because of budget constraints, including an inflation adjustment,
in the department's 2006 budget was impracticable but that inflation
adjustment might be considered for future ED budgets.
Enclosure III:
Infrastructure:
Both the Federated States of Micronesia (FSM) and the Republic of the
Marshall Islands (RMI) have prioritized education-and health-related
infrastructure projects in accordance with their respective fiscal
procedures agreement. However, as of November 2006, only the RMI has
used infrastructure funds to build several projects. The FSM has not
yet built any projects and has more than $58 million in available
funds, although it has made some progress in initiating projects.
Progress is hampered by land constraints and other issues in both
countries.
Infrastructure Sector Grant Priorities and Terms:
The amended compacts provide for grants to assist the FSM and the RMI
governments in their efforts to provide adequate public infrastructure.
The highest priority for infrastructure funding is to be given to
primary and secondary education capital projects and projects that
directly affect health and safety, including water and wastewater
projects, solid waste disposal projects, and health care facilities.
Secondary priority is to be given to economic-development-related
projects, such as airport and seaport improvements, roads, sea walls,
and energy development.
Infrastructure grant terms include the amended compacts' requirement
that 5 percent of the annual grant be set aside, with an equal
contribution from the FSM and RMI, to establish an Infrastructure
Maintenance Fund (IMF) in each nation. Further, the amended compacts'
enabling legislation indicates that it is the sense of Congress that
both countries should invest at least 30 percent of total annual sector
grants in infrastructure.[Footnote 32] Additionally, the amended
compacts' subsidiary fiscal procedures agreements require that prior to
a draw down of infrastructure assistance both countries provide the
U.S. government with (1) evidence of title, leasehold agreement, or
other legal authority for the use of land upon which a capital
improvement project is to be constructed, (2) a detailed project budget
for each capital development project, and (3) a scope of work that
describes the work to be performed and schedule from planning through
construction. The fiscal procedures agreements also require that both
countries implement infrastructure development plans (IDP).[Footnote
33] In addition, the FSM and RMI are subject to grant conditions
imposed by the JEMCO and JEMFAC, respectively, and by OIA. (For sector
grant terms and conditions specific to the FSM and the RMI,
respectively, see GAO-07-163, app. VI and VII).
FSM Infrastructure Sector:
In 2004 through 2006,[Footnote 34] the FSM received more than $58
million in amended compact grants for infrastructure development.
However, owing to delays in meeting fiscal procedures agreement
requirements and grant terms and conditions, the grant was not used to
build any new projects during this period. FSM's infrastructure
development faces numerous challenges, such as a lack of defined
procurement processes and building standards, the need to resolve
infrastructure management issues, lack of stakeholder agreement, and
land constraints. Further, accountability issues have been raised by
the DOI Inspector General concerning the FSM's infrastructure
management.
Funding for FSM Infrastructure Sector:
In 2004 through 2006, JEMCO allocated more than $58 million in compact
funds, approximately 26 percent, to infrastructure development in the
FSM. Approximately $17 million was allocated in 2004,[Footnote 35] $17
million in 2005, and $24 million in 2006 for public infrastructure
improvements and maintenance. In addition, in 2004 through 2006, the
U.S. Federal Aviation Administration (FAA) provided the FSM nearly $24
million for airport improvement projects in the four states. Of the $58
million allocated for infrastructure from compact funds in 2004 through
2006, the FSM had obligated $48 million (83 percent) as of October
2006.[Footnote 36] These funds were intended for administration,
infrastructure maintenance, U.S. FAA airport improvement projects'
matching fund requirements, and various infrastructure projects in all
four states.
A number of infrastructure sector-related activities were initiated in
the FSM in 2005 and 2006, although no compact-funded construction
projects had been completed by October 2006. In May 2005, the FSM
national government signed a contract with a professional architectural
and engineering design firm to undertake project engineering,
management, and administration of the FSM's project management unit
(PMU).[Footnote 37] The PMU's responsibilities include (1) certifying
projects, or determining that the scope and budget of a project are
reasonable and justifiable, and (2) ensuring that projects will be
designed to a professionally acceptable standard and that the project
budget properly reflects such a standard. The PMU has certified
projects in all four FSM states as being consistent with the priorities
listed in the FSM's IDP. As of November 2006, the PMU had certified 21
projects; of these, 14 projects, with a total estimated value of $42
million, had been approved by OIA. (Table 4 shows the certified FSM
projects.) Pending projects in the FSM include schools, wastewater
treatment plants, power and water distribution systems, and road and
airport improvements.
Table 4: FSM Certified and Approved Infrastructure Projects as of June
2006:
Date certified by PMU: 9/19/2005;
Date approved by OIA: 11/17/2006;
Project name: FSM Matching Fund Share for FAA Airport Improvement
Projects;
State: FSM.
Date certified by PMU: 12/20/2005;
Date approved by OIA: 1/23/2006;
Project name: Lelu Elementary School;
State: Kosrae.
Date certified by PMU: 12/20/2005;
Date approved by OIA: 1/23/2006;
Project name: Utwe Elementary School;
State: Kosrae.
Date certified by PMU: 1/17/2006;
Date approved by OIA: 2/2/2006;
Project name: Tafunsak Elementary School;
State: Kosrae.
Date certified by PMU: 1/6/2006;
Date approved by OIA: 2/3/2006;
Project name: Weno Wastewater Collection & Treatment Facility;
State: Chuuk.
Date certified by PMU: 1/17/2006;
Date approved by OIA: 2/2/2006;
Project name: Pohnpei Water Drilling;
State: Pohnpei.
Date certified by PMU: 2/14/2006;
Date approved by OIA: 3/13/2006;
Project name: Malem/Utwe Distribution System Upgrade;
State: Kosrae.
Date certified by PMU: 3/8/2006;
Date approved by OIA: 5/12/2006;
Project name: Madolenihmw High School;
State: Pohnpei.
Date certified by PMU: 3/8/2006;
Date approved by OIA: 5/12/2006;
Project name: Kolonia Elementary School;
State: Pohnpei.
Date certified by PMU: 3/8/2006;
Date approved by OIA: 5/12/2006;
Project name: Early Childhood Education Center;
State: Yap.
Date certified by PMU: 4/11/2006;
Date approved by OIA: 6/1/2006;
Project name: Yap State Hospital Renovation;
State: Yap.
Date certified by PMU: 4/28/2006;
Date approved by OIA: 6/1/2006;
Project name: Weno Island Emergency Power Provision;
State: Chuuk.
Date certified by PMU: 4/28/2006;
Date approved by OIA: 6/1/2006;
Project name: Nanpil Hydroelectric Power Plant Rehabilitation;
State: Pohnpei.
Date certified by PMU: 6/1/2006;
Date approved by OIA: 6/1/2006;
Project name: Weno Road and Drainage Upgrade (Phase I);
State: Chuuk.
Source: FSM PMU and OIA.
Note: The table does not include PMU data on estimated project costs,
because none of the projects shown have been advertised for bidding.
[End of table]
Challenges in the FSM Infrastructure Sector:
The FSM faces a number of challenges that have hindered its initiation
of compact-funded infrastructure projects and that, if not corrected,
may affect project implementation. These challenges consist of (1) a
lack of defined procurement processes and uniform standards, (2)
disagreement about project management and implementation, (3)
persistence of unresolved land issues, (4) inadequate long-term
planning, (5) lack of funding for maintenance, and (6) lack of
technical capacity, and (7) weaknesses in accountability for
infrastructure sector grant funds.
* Undefined procurement processes and building standards. Delays in
establishing defined processes for procuring design and construction
services and implementing uniform building standards has hampered FSM
infrastructure construction and, according to an OIA official, may
result in the procurement of less than optimal design and construction
services and materials. The fiscal procedures agreement permits the FSM
to use its own procedures for procurement, provided it meets the
standards enumerated in the fiscal procedures agreement. However, the
FSM did not pass a procurement law until June 2006, and according to an
OIA official, interim procurement regulations implemented at that time
had not been finalized as of November 2006. Additionally, the national
government lacks a uniform building code, and as a result, each state
applies disparate standards that do not conform to any international
code, according to an OIA official.
* Disagreement about project management and implementation.
Disagreement between the FSM national and state governments and within
the national government about the management of infrastructure projects
has also hindered project implementation. According to state officials,
the national government has not defined the states' role in
administering infrastructure projects. Further, according to an OIA
official, FSM state officials refuse to recognize the PMU as the
central infrastructure authority because they do not want to lose
control of their own infrastructure projects. One state official
indicated that the FSM states were not consulted during the selection
of the PMU managing firm, and the governor of one state refused to even
meet with the PMU manager. In addition, state officials expressed
displeasure over the national government's delay in implementing
infrastructure projects, attributing it to centralized decision making.
* Unresolved land issues. The FSM faces long-term challenges obtaining
the clear title or long-term leasehold agreement required by the fiscal
procedures agreement. Land in Chuuk is predominantly owned by a family
or clan, and tradition requires the approval of all senior members of
the clan before land can be sold. In Weno, Chuuk's state capital, only
about 1 percent of the land is owned by the government, and much of
that is in dispute, according to a 1998 study by a land consultancy and
valuation firm funded by the Asian Development Bank.[Footnote 38] In
addition, problems with land valuation in Chuuk have further
complicated matters. The same study found that sales of comparable land
in Weno ranged from $5 per square meter to $1,704 per square meter,
although the study recognized that the higher prices may have been
influenced by the availability of compact funds.[Footnote 39] Moreover,
conflicts over land ownership have affected the ability of the Chuuk
state government to provide adequate health and education services. For
example, we visited a high school on the island of Tonoas in the Chuuk
lagoon where classroom buildings had been closed by the landowner
because the Chuuk state government had not paid the rent.[Footnote 40]
(See fig. 6.)
Figure 6: Southern Nomoneas High School, Tonoas Island, Chuuk State:
[See PDF for Image]
Source: GAO.
[End of figure]
* Inadequate long-term planning. The FSM has not adequately planned for
its long-term infrastructure needs, according to OIA. In 2002, the FSM
contracted with a U.S. firm to develop a 15-year infrastructure plan,
which estimated that meeting FSM's total infrastructure needs would
require over $2 billion dollars. According to an OIA official, the plan
employed a "cookie-cutter" approach to development, met with no
concurrence from the FSM states, and was not adopted by the FSM
Congress. Nonetheless, the national government's IDP contains portions
of this plan. Moreover, the IDP, which includes synopses of 11
different infrastructure sectors, contains long lists of projects and
estimated costs but does not provide explanations or support for the
individual projects or prioritize them as JEMCO requires. According to
an OIA official, the FSM's IDP is not based on any type of assessment
of the needs of specific areas in the FSM, and no such assessment has
been performed.
In addition, as of November 2006, the FSM had not undertaken a cost-
benefit analysis to reconcile conflicting approaches to infrastructure
design. Some FSM officials have expressed concern that the PMU's design
standards are too high and costly and that this may ultimately limit
the number of projects they can build. For example, according to an OIA
official, the PMU estimated that a standard-design school building
would cost $1.2 million, whereas the Pohnpei government had constructed
school buildings of a similar size for $275,000. However, the OIA
official added that the Pohnpei-designed school buildings did not meet
any type of recognized standards, lacking sufficient bathrooms, fire
exits, and wheelchair access, and that the PMU design represented a
higher material and construction standard. OIA also noted that the
Pohnpei school building was a shell, with no fencing, sewer systems,
walkways, furniture, fixtures, or equipment, while the PMU design is
intended to be a turn-key project.[Footnote 41]
* Lack of maintenance funding. Although OIA set aside 5 percent of the
infrastructure sector allocations in 2004 through 2006 for an FSM
infrastructure maintenance fund, per the amended compact, the FSM had
not provided the required matching amount as of November 2006.
* Lack of technical capacity. The FSM lacked the technical capacity
locally to manage its own PMU. According to OIA, the FSM national
Department of Transportation, Communication, and Infrastructure, which
houses the PMU, does not have the capacity to monitor and oversee the
PMU consulting firm's activities. The FSM has taken a step to acquire
this capacity by employing an experienced contracting officer's
representative in November 2006.[Footnote 42] However, it is not
certain that the FSM national government will have the technical
capacity locally to ensure quality control should the contracting
officer's representative cease employment.
* Weaknesses in accountability. Interior's IG and the U.S. Army Corps
of Engineers identified several accountability problems related to the
FSM's implementation of its infrastructure sector grant. In its July
2006 review,[Footnote 43] the IG concluded that its findings raised
concerns about the FSM's ability to manage the compact infrastructure
grant effectively. Specifically, the IG found that the FSM national
government (1) failed to properly plan for the timely construction of
needed health and education infrastructure projects, (2) entered into a
less than beneficial contract for the establishment of an FSM national
PMU, and (3) implemented project management regulations containing a
conflict of interest. The IG suggested the suspension of all
infrastructure sector funding to the FSM and termination of the FSM's
contract with the PMU managing firm. In addition, OIA requested the
Army Corps of Engineers to review the FSM's contract with the PMU
managing firm. The Corps' November 2005 review identified items in the
contract that were not in the FSM government's best interest, including
an open-ended scope of work and apparent conflict of interest in the
compensation structure.
RMI Infrastructure Sector:
The RMI's infrastructure sector has received the largest amount of
total available RMI compact sector funding since the beginning of the
amended compact, and the government has met amended compact and fiscal
procedures agreement requirements for prioritizing infrastructure
spending on education and health projects. Between 2004 and July 2006,
nine new construction projects and 17 maintenance projects in the RMI
were completed or, as of October 2006, were near completion. However,
the RMI faces some challenges in moving forward with future
infrastructure projects, including land constraints and a lack of
planning, technical capacity, stakeholder buy-in, and maintenance.
Further, accountability issues exist in the RMI's management structure.
Funding for the RMI Infrastructure Sector:
In 2004 through 2006, JEMFAC allocated $41.7 million to infrastructure
development in the RMI. The allocations averaged 40 percent of the
total sector grant for the past 3 years, consistent with the amended
compact requirement that between 30 percent and 50 percent of U.S.
annual compact grant assistance be directed toward infrastructure
development. In addition, of the total amount allocated to the RMI for
infrastructure since 2004, JEMFAC allocated $2 million for
infrastructure development on Kwajalein Atoll, consistent with the
amended compact requirement. In addition, in 2004 through 2006, the FAA
provided $26.1 million to the RMI for airport improvement
projects.[Footnote 44] As of July 2006, the RMI had obligated
approximately $15.5 million (37 percent) of its infrastructure sector
grant allocation, for new construction and maintenance projects, since
2004. The RMI has focused 77 percent of infrastructure development and
maintenance funding over the past 3 years on primary and secondary
education.
A number of infrastructure-related activities were initiated or
completed in the RMI in 2004 through 2006. The RMI, with the assistance
of a professional engineering and architectural consulting firm,
developed a 20-year infrastructure development maintenance plan (IDMP),
listing prioritized projects, by conducting an extensive assessment of
the RMI education and health infrastructure. In 2004, the RMI hired the
same consulting firm to manage its Project Management Unit[Footnote 45]
and to design and oversee individual infrastructure projects. As of
November 2006, nine new construction projects and 17 maintenance
projects in the RMI had been completed or were ongoing (table 5 lists
these projects). During our visit to Majuro in March 2006, we found
that there was evidence of a leasehold agreement[Footnote 46] for the
projects under way at the time, in accordance with fiscal procedures
agreement requirements.[Footnote 47]
Table 5: Status of RMI Infrastructure Projects as of August 2006:
New construction projects.
Project name (project phase or year): Rita Elementary School (phase I);
Contract value: $1,028,255;
Description: Two 4-classroom blocks;
Percentage completed: 100%.
Project name (project phase or year): Laura High School (phase I);
Contract value: 567,673;
Description: One 4-classroom block;
Percentage completed: 100.
Project name (project phase or year): Laura High School (phase II,
stage I);
Contract value: 145,234;
Description: Preparation for the second half of conversions of former
garment factory;
Percentage completed: 99.
Project name (project phase or year): Marshall Islands High School
(phase I);
Contract value: 1,180,316;
Description: One 8-classroom block;
Percentage completed: 99.
Project name (project phase or year): Northern Islands High School
(phase I);
Contract value: 872,277;
Description: Administration building and dormitory;
Percentage completed: 99.
Project name (project phase or year): Jaluit High School (phase I);
Contract value: 2,752,000;
Description: Two 8-classroom blocks and a dormitory;
Percentage completed: 90.
Project name (project phase or year): Rita Elementary School (phase
II);
Contract value: 1,400,294;
Description: Two additional classroom blocks;
Percentage completed: 47.
Project name (project phase or year): Marshall Islands High School
(phase II);
Contract value: 4,396,047;
Description: Three 8-classroom blocks and one 4-classroom block;
Percentage completed: 17.
Project name (project phase or year): Rairok Elementary School (phase
I);
Contract value: 512,853;
Description: Building structure and roofing repairs;
Percentage completed: 12.
Total new construction;
$12,854,949.
Maintenance projects.
Project name (project phase or year): Ailuk Elementary School;
Contract value: $59,000;
Description: Education maintenance project;
Percentage completed: 100%.
Project name (project phase or year): Ebeye Hospital (year 1);
Contract value: 307,502;
Description: Mechanical, electrical, and air conditioning maintenance
and architectural repairs;
Percentage completed: 100%.
Project name (project phase or year): Education III;
Contract value: 220,185;
Description: Elementary school maintenance on Jaluit and Arno atolls;
Percentage completed: 100%.
Project name (project phase or year): Health Center I;
Contract value: 198,354;
Description: Health center maintenance on Southern atolls and Arno (8
centers in total);
Percentage completed: 100%.
Project name (project phase or year): Health Center II;
Contract value: 203,587;
Description: Health center maintenance on the eastern atolls;
Percentage completed: 100%.
Project name (project phase or year): Laura Elementary School;
Contract value: 157,815;
Description: 8 classrooms and library;
Percentage completed: 100%.
Project name (project phase or year): Majuro Hospital;
Contract value: 179,925;
Description: Painting, flooring, wall repairs, seating, isolation ward
toilets, doors, and shelving repairs;
Percentage completed: 100%.
Project name (project phase or year): Majuro Hospital Emergency
repairs;
Contract value: 180,000;
Description: Rebuilding of corridors, morgue, laundry, and storage
rooms;
Percentage completed: 100%.
Project name (project phase or year): Majuro Middle School toilets;
Contract value: 28,586;
Description: Toilet repairs and renovations;
Percentage completed: 100%.
Project name (project phase or year): Marshall Islands High School
gymnasium;
Contract value: 65,594;
Description: Floor and wall repairs, and toilet construction;
Percentage completed: 100%.
Project name (project phase or year): Marshall Islands High School
painting and fence repairs;
Contract value: 99,679;
Description: Painting of two buildings and fencing of staff quarters;
Percentage completed: 100%.
Project name (project phase or year): Marshall Islands High School
toilets;
Contract value: 22,622;
Description: Toilet repairs and renovations;
Percentage completed: 100%.
Project name (project phase or year): Jaluit High School kitchen;
Contract value: 77,885;
Description: Kitchen finishes repairs, new cooking equipment, and
dining room flooring;
Percentage completed: 100%.
Project name (project phase or year): Education I;
Contract value: 130,796;
Description: Elementary school maintenance on Majuro;
Percentage completed: 100%.
Project name (project phase or year): Education IV (phase I);
Contract value: 168,388;
Description: MIHS classroom ceilings renovations and electrical work;
Percentage completed: 93.
Project name (project phase or year): Education IV (phase III);
Contract value: 179,400;
Description: MIHS classroom renovations: windows, floors, and painting;
Percentage completed: 56.
Project name (project phase or year): Ebeye Hospital (year 2);
Contract value: 307,572;
Description: Mechanical, electrical, and air conditioning maintenance
and architectural repairs;
Percentage completed: 42.
Total maintenance;
$2,596,987.
Total new construction and maintenance;
$15,451,936.
Source: RMI Infrastructure Development and Maintenance Program
Quarterly Performance Monitoring Report for the third quarter of 2006.
[End of table]
The PMU has taken steps to ensure cost efficiency. To reduce design
costs, the PMU developed a standard design for all new school buildings
(see fig. 7). The PMU's design also contains features to reduce the
cost of long-term maintenance. For example, the design minimized the
use of steel reinforcements, which eventually rust in the corrosive
ocean environment, by using fiberglass bars instead (see fig. 8). The
cost per square foot of new construction ranged between $175 to
$218.[Footnote 48] In addition, the PMU has rehabilitated existing
structures, such as an abandoned garment factory and grocery store, to
house classroom facilities. According to an OIA official, RMI's PMU
contractor is doing a good job and, at 15 percent for overhead and
profit, is appropriately compensated for the quality of services and
design.
Figure 7: Newly Constructed School in the RMI:
[See PDF for Image]
Source: GAO.
[End of figure]
Figure 8: Corroded Rebar:
[See PDF for Image]
Source: GAO.
[End of figure]
Challenges in the RMI Infrastructure Sector:
Several challenges have limited the RMI's implementation of
infrastructure projects or could affect its future efforts. These
challenges include a lack of competition for construction contracts, an
absence of stakeholder cooperation, unresolved land constraints, lack
of assessment of funding decisions, inadequate facilities maintenance,
and lack of technical capacity.
* Lack of competition. A very limited number of construction firms in
the RMI have the resources to meet bonding and scope of work
requirements for the infrastructure projects, resulting in a lack of
competition for infrastructure construction contracts. Further, in
August 2004, the DOI Inspector General found that PMU advertising
practices at the time lacked sufficient breadth to ensure maximum open
and free competition. According to an OIA official, few firms outside
the RMI have responded to its requests for bids because projects have
been marketed individually. According to the PMU manager, grouping
projects to increase the size of the total contract would likely
attract the bids of more regional and international firms.
* Absence of stakeholder engagement. Implementation of infrastructure
projects in the RMI has been limited by client ministries' lack of
engagement in the projects. According to the PMU manager, the Ministry
of Education has not conducted the long-term planning for school
infrastructure required by the PMU. Further, according to an RMI
official, the Ministry of Education has not worked diligently to
resolve constraints, such as land issues affecting education-related
infrastructure projects. Another RMI official reported that the
Ministry of Public Works remained disengaged from infrastructure
projects even though the PMU is housed in the Ministry of Public Work's
office. Further, the PMU manager told us that he had difficulty
obtaining support and concurrence from upper management of the RMI
government, which often created delays in the initiation or completion
of projects.
* Unresolved land use issues. Land use issues have hampered the
construction of infrastructure projects in the RMI and will likely
continue to do so.[Footnote 49] The projects that have been completed
or are near completion were built on land for which the government of
the RMI had long-term leasehold interest, and the design of these
initial projects was influenced by the availability of land with
secured leases. For example, because of boundary disputes with
landowners at Rita Elementary School, new school buildings had to be
constructed inside the existing school yard; at Laura High School, new
facilities had to be constructed on another site some distance from the
original facilities, effectively splitting the campus in two locations
and, according to the principal, resulting in suboptimal school
management. Other projects have been delayed by difficulty in securing
long-term leases for land with disputed titles. For example, as a
result of ongoing land disputes between the RMI government and the
landowners, the PMU developed three different designs for Uliga
Elementary School in Majuro. As of November 2006, this issue remained
unresolved, requiring the school to continue running split sessions to
accommodate all students. In addition, the construction of Kwajalein
Atoll High School has been delayed because of the inability of the RMI
government to secure a lease on a site large enough to accommodate new
facilities to meet needs. Although the RMI government could exercise
eminent domain to secure land for public infrastructure use, a high-
ranking RMI official told us that the government was not considering
using this option.
* Lack of assessment. The RMI has not assessed the effects of certain
infrastructure funding decisions on current and future projects or the
sustainability of current expenditure levels. The RMI, with OIA's
consent, dedicated $25 million in future infrastructure sector grants
($5 million dollars a year for the next 5 years) to the College of the
Marshall Islands for facility improvements, to avoid accreditation
penalties from the Western Association of Schools and Colleges.
According to OIA, the RMI has not assessed how this funding shift will
affect primary and secondary education priority projects in the RMI. In
addition, according to OIA, the RMI government has not assessed the
sustainability of its current rate of infrastructure expenditures.
Further, the RMI government has not assessed the trade-offs of the
PMU's current designs that increase longevity and reduce maintenance by
using expensive, brand-name products--as compared to designs that would
construct more buildings with less costly materials.[Footnote 50] The
PMU emphasized that its products are of high quality and built to last.
However, according to a Ministry of Health official, the PMU
contractor's current design for health dispensary facilities was far
too costly and the dispensaries could be built for half the expense.
* Inadequate maintenance. Inattention to, and insufficient funding for,
infrastructure maintenance and security could limit the sustainability
of the projects that the RMI completes. Although the government has
established a separate account and contributed the requisite matching 5
percent from local revenues to establish the infrastructure fund, as
required by the fiscal procedures agreement, it is not ensuring
adequate maintenance. For example, we visited schools in the RMI that
had been renovated in 2004 and 2005 with amended compact infrastructure
sector funds where sections of ceilings were missing and bathrooms were
in disrepair or vandalized. Moreover, officials from OIA and RMI
indicated that the amount set aside for the maintenance fund--5 percent
from the United States and 5 percent from the RMI--is not sufficient
for the maintenance needed. In addition, although the PMU managing firm
has developed 20-year maintenance plans for each of the new
infrastructure projects, the RMI has not used the maintenance fund for
these new projects. According to OIA, RMI officials agree on the
advisability of a maintenance contract for each infrastructure project
but have not allocated funding for this purpose.
* Lack of technical capacity. Unless it replaces its current PMU
manager (with professionals) after the contract with the firm expires,
the RMI may lack the technical capacity to manage the PMU. The contract
for the consulting firm that manages the RMI's PMU expired in October
2006 but was extended until September 2007 to complete ongoing
projects. As of November 2006, the RMI government decided that newly
initiated projects would be managed on a case by case basis. However,
according to OIA, the RMI currently does not have sufficient technical
capacity to manage the PMU, although the PMU contractor provided
training to selected Ministry of Public Works staff as part of its
contract requirement.
* Accountability weaknesses. Several accountability problems regarding
its PMU--inadequate oversight, impaired independence, and
noncompetitive procurement--may have affected the RMI government's
implementation of infrastructure projects.
- Inadequate oversight. According to RMI officials and the PMU manager,
the RMI conducted little oversight of the PMU. Except for the RMI
Contract Review Board, which is responsible for managing the bidding
process for each infrastructure project, no mechanisms exist to oversee
the PMU managing firm's work or ensure that the PMU has adequate
support to complete its work.
- Impaired independence. The PMU's independence was impaired by the
absence of a "firewall" between project management and design
engineering, both of which were conducted by the PMU managing firm.
According to an OIA official, this created the potential for a
disincentive to identify problems in design.
- Noncompetitive procurement. In a review of the RMI's progress in
implementing amended compact requirements, the DOI IG found that the
RMI government did not meet fiscal procedures agreement procurement
requirements when it hired the PMU contractor. The agreement allows for
noncompetitive, sole-source procurement under certain
circumstances.[Footnote 51] The DOI IG determined that none of these
circumstances existed to justify the RMI government's decision to award
the contract for PMU management on a sole-sourced, noncompetitive
basis. OIA concurred with this finding and agreed to monitor the RMI's
compliance with fiscal procedures agreement procurement requirements.
Enclosure IV:
Health:
The Federated States of Micronesia (FSM) and the Republic of the
Marshall Islands (RMI) priorities for health sector grants under the
amended compacts are to improve the delivery of health care services,
and both countries are subject to several grant conditions. The FSM
health sector received the third largest FSM sector grant, and limited
progress has been made to improve secondary health care. The RMI health
sector also received the third largest amount of RMI sector grant
funding, although funding has not always followed the goals laid out in
the country's development plans, and the RMI faces numerous challenges
to health care service improvements.
Health Sector Grant Priorities and Terms:
The goals for the FSM's and RMI's health sector grants under the
amended compact are to support and improve the delivery of
preventative, curative, and environmental care and develop the human,
financial, and material resources necessary to provide these services.
The fiscal procedures agreements for both countries emphasize the
establishment of sustainable funding mechanisms for (1) operating
community-based systems with emphasis on prevention, primary care,
mental health, and substance abuse prevention and (2) operating
hospitals to provide secondary care at appropriate levels and reduce
medical referrals abroad.
In addition to being subject to the requirements in the amended
compacts and the fiscal procedures agreements, the FSM and the RMI are
subject to grant terms imposed by the JEMCO and JEMFAC, respectively,
and by OIA. (For sector grant terms and conditions specific to the FSM
and the RMI, respectively, see GAO-07-163, app. VI and VII). Some grant
conditions that appeared in the annual health sector grants for both
countries include:
* streamlining and refining performance measures, baseline data, and
annual performance targets;
* conducting comprehensive evaluations of primary health care systems;
and:
* using carryover funding for technical assistance in performance
budgeting and measurement and for health-related infrastructure
expenditures such as facility upgrades, renovation and repair, and
fixed equipment and other capital assets.
Furthermore, because of deficiencies found in the Chuuk state health
dispensary program in the FSM, such as a lack of drugs, medical
supplies, and equipment, and weak supervisory controls, JEMCO required
the FSM national government and Chuuk state to develop a plan with
specific actions and deadlines to address those deficiencies.
FSM Health Sector:
In 2004 through 2006,[Footnote 52] the FSM's health sector received the
third largest FSM compact sector grant allocation, averaging 21 percent
of the country's total compact funding since 2004. However, allocations
varied considerably across the five FSM governments. Limited progress
was made in improving health care services provided at each of the four
FSM state hospitals, an activity the FSM identified in its development
plan as a priority, owing to a variety of challenges. Although primary
health care is identified as a priority in the FSM's development plan,
the states' health care budgets did not reflect this priority. Notably,
Chuuk's health care system was in the poorest condition and had the
greatest need for resources.
Funding for the FSM Health Sector:
In 2004 through 2006, JEMCO approved health sector allocations of more
than $49 million (21 percent) of the FSM's total compact funding (see
table 6).[Footnote 53]
Table 6: FSM Health Sector Grant Allocations, Fiscal Years 2004-2006:
Grant recipient: FSM National Government;
2004: $553,613;
2005: $763,235;
2006: $764,383.
Grant recipient: Chuuk;
2004: 4,691,707;
2005: 5,595,636;
2006: 6,292,745.
Grant recipient: Kosrae;
2004: 1,326,663;
2005: 1,674,212;
2006: 1,763,553.
Grant recipient: Pohnpei;
2004: 5,989,461;
6,200,560;
2006: 4,898,393.
Grant recipient: Yap;
2004: 2,881,672;
2005: 3,197,090;
2006: 2,675,865.
Total;
2004: $15,443,116;
2005: $17,430,733;
2006: $16,394,939.
Source: FSM health sector grant agreements, 2004 through 2006.
[End of table]
FSM health sector grant obligations primarily supported ongoing
operations. Compact funding was used for salary adjustments for some
categories of health professionals and minor repairs. In addition,
hospitals used compact funding to purchase supply inventories,
alleviating chronic shortages of drugs and other supplies, and to hire
staff to expand in-and out-patient service capacity.
The FSM distributed compact health sector funds unequally on a per
capita basis among the four states, resulting in variability in the
quality of care provided in the states (see GAO-07-163 for further
analysis). Per capita allocations for health reflected the disparity of
compact funding allocation among the states (see fig. 9) with Chuuk
being lower than the other states. By 2006 the gaps between state funds
per capita was reduced as Chuuk expanded its health sector grant and
Pohnpei and Yap reduced their grants. Still, in 2006 Chuuk received 40
percent of compact health sector funding available to the four FSM
states but had approximately 50 percent of the population. In addition,
Yap still received more than twice as much compact health sector
funding per person than Chuuk. Moreover, on the basis of our visits to
FSM state hospitals and primary care facilities, Chuuk state's health
care system was in the poorest condition and had the greatest need for
resources. In addition, the FSM national government received 5 percent
of the FSM's total health sector allocations, for health planning,
donor coordination, and providing technical and training assistance for
the FSM's health care sector.
Figure 9: FSM Per Capita Distribution of Health Sector Funds, Fiscal
Years 2004 through 2006:
[See PDF for Image]
Source: GAO analysis of FSM 2005 Economic Review data and health sector
grant award agreements for 2004 through 2006.
[End of figure]
Challenges in the FSM Health Sector:
Challenges that have limited, or may limit, the FSM's ability to reach
its compact goals include inadequate resources at state hospitals and
limited primary health care. Further, Chuuk represents the most
significant primary health care challenge.
Limited Resources at State Hospitals:
We found that limited progress has been made to improve the quality of
care provided in hospitals in the four FSM states since the amended
compact took effect. In March 2006, we visited the state-run hospitals
in Chuuk, Kosrae, Pohnpei, and Yap and found inadequate or nonexistent
maintenance in FSM hospitals and limited availability of drugs and
supplies.[Footnote 54] According to the FSM's development plan, in
order "to provide efficient, best-practice secondary and tertiary care,
it is necessary that the state hospitals:
* be well designed and maintained;
* have medical, nursing, professional laboratory and x-ray technicians
and support staff who are appropriately trained in procedures and
guidelines to enable quality control; and:
* include a working, equipped laboratory, functional x-ray equipment,
and a full-service pharmacy."
Three of the four hospitals we visited were in need of maintenance. In
the Chuuk state hospital, we found broken windows, dirty toilets, and
broken equipment throughout the facility (see fig. 10 for photos). In
addition, in 2005 the DOI Inspector General found that the Chuuk state
hospital had unsanitary waste disposal practices, including the
presence of biomedical waste such as used syringes located a few feet
from the hospital's kitchen window.[Footnote 55] In Kosrae and Pohnpei,
we found a general lack of maintenance, though considerably better than
in Chuuk. In the Pohnpei state hospital, there were ceiling tiles and
floor tiles missing, while in the Kosrae state hospital, the corners of
the floors were visibly corroded. We found the Yap state hospital to be
the best maintained of the four FSM state hospitals.
Figure 10: Broken Equipment at Chuuk State Hospital, FSM:
[See PDF for Image]
Source: GAO.
[End of figure]
Moreover, the FSM state hospitals lacked some or all of the following:
(1) sufficient personnel; (2) well-equipped laboratories; (3)
functional equipment; and (4) adequately stocked pharmacies. Officials
at all four hospitals cited a shortage of nurses and other staff.
Nursing staff in Chuuk and Yap described the frustrations of feeling
underpaid and working in consistently understaffed conditions, and said
these conditions greatly affected the quality of patient care.
Additionally, laboratories and radiology units lacked supplies and
equipment. Only Yap state hospital had a laboratory in full working
order. All the FSM states' laboratories lacked supplies of reagents,
necessary for conducting blood tests and other lab work. Some of the
laboratory, radiology, and operating room equipment in all the
hospitals was often outdated or broken. In addition, with the exception
of Yap, the hospitals lacked the technical ability to maintain and
repair equipment. All the FSM state hospitals had pharmacies with
depleted stocks or varying amounts of expired drugs.
According to an OIA official, the quality of service and organizational
enhancements over the medium and long term continue to depend on the
safety and adequacy of the health sector's physical infrastructure.
Facility repair, renovation, and construction are needed. As of August
2006, only Yap had prioritized health-related infrastructure projects
for compact infrastructure grant use, and the hospital's renovation has
been approved by OIA.
Limited Primary Health Care:
Despite the FSM's strategic goal to improve primary health care
services, historically only 10 percent of the health care budgets, on
average, in each of the four states have targeted this goal. According
to an OIA official, most funding for primary health care services in
the FSM comes from HHS. Weaknesses in the primary health care system
have led to increased costs and strain on hospitals. The primary health
care system in the FSM states includes the dispensary/health center
system and the public health personnel responsible for delivering
primary, preventive, and public health services throughout the islands.
A field mobile public health team from the public health division at
each state Department of Health is supposed to provide public health
services to municipalities and communities using the dispensaries and
health assistants. These teams are to visit dispensaries on a regular
schedule, but have seldom done so in the last few years because of
funding constraints, poor management and supervision, and lack of
supplies. The FSM reported that the secondary health care system
receives approximately 70 percent of all patients that could have been
handled at the primary health care level or who received improper,
insufficient, or inadequate primary health care services at the
dispensaries due to the lack of drugs, medical supplies, and equipment.
All states except Kosrae showed evidence of cutting primary health care
drugs, services, or both in order to increase support for hospital
services. The resulting increase in inpatient and outpatient
utilization at hospitals increased costs and overcrowding, according to
the FSM's development plan.
The FSM national government and some states are taking steps to improve
primary care by assessing need and establishing community health
centers. Recognizing the disproportionate level of care provided at
hospital-based outpatient clinics and emergency rooms, JEMCO required
that the FSM conduct an assessment of its primary health care systems
(for other grant conditions see GAO-07-163). The FSM carried out this
assessment in 2005, resulting in the targeting of certain areas for
improvement, including service delivery, procurement, and management
practices. Yap Department of Health Services initiated a community-
based project to bring primary health care services closer to the
people. The initiative involved construction and operation of community
health centers in all four districts of Yap's main island. The local
community donated the land and the facility and the Department of
Health Services runs the centers. Each center is staffed with a
physician and a nurse who are selected by the local community. Pohnpei
State has implemented a similar program, and has established a
Community Health Center in Kolonia. These programs have received HHS
Community Health grants.
Chuuk Health Care Challenges:
The FSM faces the most significant primary health care challenges in
Chuuk state. JEMCO twice applied special grant conditions to Chuuk's
share of the FSM's annual health sector allocation and required Chuuk
to develop a plan with specific actions and deadlines to address
deficiencies, including:
* many nonfunctioning dispensaries;
* severe problems in maintaining adequate drug and supply stocks;
* inconsistent drug and medical supply restocking practices and poor
inventory control;
* antiquated or nonexistent medical equipment;
* weak supervisory controls;
* poor to no regulation or regular inspection of dispensary facilities,
especially those in private homes; and:
* continued payment of wages to health assistants who fail to fulfill
their job responsibilities ("ghost employees").
The Chuuk Department of Health Services established a Dispensary Reform
Plan, per JEMCO's requirement, and met the reporting deadline.[Footnote
56] As of June 2006, the department had taken measures to discipline or
remove from the payroll nine employees who were not fulfilling their
duties, but many challenges remain to be resolved, including:
* providing adequate medical supplies and drugs to functioning
dispensaries;
* eliminating all nonfunctioning dispensaries from the books and
consolidating dispensaries where appropriate;
* training staff;
* renovating facilities; and:
* establishing appropriate supervisory mechanisms.
In Chuuk, we visited 16 dispensaries in the lagoon islands, where
conditions included (1) an absent health assistant; (2) lack of medical
and pharmaceutical supplies and equipment, such as working blood
pressure cuffs, scales, and glucometers used for measuring blood sugar
levels in diabetics; (3) lack of maintenance of facilities; and (4)
lack of supervision, regulation, and monitoring. In addition, land
constraints continue to affect the department's ability to provide
adequate health services to communities. For example, we visited one
newly constructed dispensary funded by Federal Emergency Management
Agency funds on Tonoas Island in the Chuuk Lagoon that remained closed
because of a dispute with the landowner over rent payments.
RMI Health Sector:
The RMI received more than $20 million in amended compact health sector
funding from 2004 through 2006, comprising approximately one-third of
the country's total revenue available for health services. Compact
funding has supported both basic operations and improvements in
capacity at Majuro and Ebeye hospitals and the RMI's primary care
network. Despite improvements, the RMI faces several challenges
regarding health care service, such as a lack of qualified personnel.
Funding for the RMI Health Sector:
In 2004 through 2006, JEMFAC approved allocations of more than $20
million (21 percent) of amended compact funding, for the RMI health
sector. In addition, to meet the amended compact's requirement that a
portion of health sector funds go specifically for special needs on
Kwajalein Atoll,[Footnote 57] health services in the atoll have
received an average of $1.2 million annually in special health care
funding since 2004 (see table 7). Through July 2006, the RMI had
targeted an additional $4.9 million in infrastructure sector grant
funding for equipment purchases for Majuro and Ebeye hospitals,
facilities maintenance, and community health center renovation.
Table 7: RMI Health Sector Grant Funding, Fiscal Years 2004 through
2006:
Funding: Health sector grant;
2004: $ 5,894,448;
2005: $5,564,197;
2006: $5,597,181;
Cumulative total: $17,055,826.
Funding: Kwajalein Atoll health services;
2004: 1,000,000;
2005: 1,500,000;
2006: 1,085,560;
Cumulative total: 3,585,560.
Funding: Annual total;
2004: $6,894,448;
2005: $7,064,197;
2006: $6,682,741;
Cumulative total: $20,641,386.
Source: GAO analysis of RMI health sector grant agreements for 2004-
2006.
[End of table]
Compact funding was augmented by HHS federal grants, including Maternal
and Child Health, Immunizations, and Tuberculosis, that have supported
prevention and other public health services. (See GAO-07-163, app. II,
for U.S. federal programs provided in the RMI.) Amended compact and
other U.S. program assistance constituted over half of the RMI's health
care budget for 2004 through 2006 (see fig. 11).
Figure 11: Sources of RMI Health Care Funding, Fiscal Years 2004-2006:
[See PDF for Image]
Source: RMI Ministry of Health Portfolio Budget Statements and health
sector grant award agreements for 2004 through 2006.
[End of section]
Since 2004, compact funds have supported the RMI Ministry of Health's
basic operations and improvements to secondary and primary health
services. Compact funds have been used to maintain basic health care
operations, paying salaries and recurring expenses such as utilities,
rent, and supplies. Compact funds also supported needed improvements in
capacity at Majuro and Ebeye hospitals, such as hiring of new key
personnel including a radiologist, and the purchase of capital
equipment including an ambulance, a nurse call system, new beds, and
computers. With these additions, Ministry officials expected
improvements in diagnostic and treatment capacity. The RMI also
supported its primary care network of 54 community health centers using
amended compact funding to purchase new radios for the outer island
health care centers and dispensaries, to provide training to health
assistants who staff the health centers, and to make facility
improvements.[Footnote 58]
Funding for primary health care in the RMI has increased from 24
percent of the Ministry's total budget since 2004 to 30 percent in
2006, reflecting an increased focus on providing preventative and
public health services. The RMI's development plan states that primary
health care is one of the country's top health goals. In addition,
primary health care is the focus of the Ministry of Health's strategic
mission and is viewed as the principal means to improve health status.
In 2004 and 2005, hospital-based outlays outpaced expenditures for
public health, prevention, and outer island primary care services. The
2006 budget, however, shows the first noticeable shift of budgeting
priorities toward primary care. These changes, if sustained over time,
will enable the Ministry to improve the delivery of primary health care
services, according to OIA.
The findings of a comprehensive assessment of the dispensary system
conducted by the RMI, which the JEMFAC required in 2005, noted the need
to increase emphasis on primary health care. The assessment documents
various problems caused by insufficient funding to the primary health
care system including transportation and communication problems and
shortfalls in staffing, equipment, pharmaceuticals, supplies, and
facility maintenance. These problems were commonplace before the
amended compact period began, and continue to exist. Only 45 of the
RMI's 62 health centers and dispensaries were open in 2004. Some of
these facilities were closed due to personnel shortages, while other
facilities were non functional because of serious renovation and
refurbishment needs. However, the Ministry of Health has since trained
additional health assistants and completed some needed maintenance
using infrastructure sector grant funding. In 2005, the RMI's Ministry
of Health reported that there were 58 functioning health centers.
Despite improvements to the Majuro and Ebeye hospital facilities,
further health care improvements are needed. According to a former HHS
Representative to the Pacific Islands, the new Majuro hospital annex is
"a bee hive of activity that is clean and has a working laboratory."
However, even with the addition of the new annex, the existing hospital
facilities need improvement. A building assessment in the RMI's IDMP
indicated the existing Majuro hospital was in "very poor structural
condition." Moreover, in September 2005, a fire destroyed a section of
the hospital that housed the supply room. The loss was not insured. In
addition to structural damage to the hospital, RMI officials estimated
the loss of uninsured drugs and medical supplies at nearly $1 million.
Though emergency repairs were made to the existing facility and the
U.S. government donated drugs, the damage led the RMI government to
prioritize the replacement of complete wings of the hospital in its
compact infrastructure grant to begin in 2007. The need for equipment
and furniture purchases and additional personnel will likely stall the
Ministry's ability to redirect funding to prevention and primary care
in the near future.
The new Ebeye hospital, completed in 2002, opened without dedicated
maintenance funds.[Footnote 59] In January 2005 the RMI government
signed a comprehensive maintenance contract with a U.S. firm for both
hospitals, using infrastructure sector grant funding. During our visit
in March 2006, the Ebeye hospital was clean and well-maintained;
however, severe condensation problems with the hospital's air
conditioning system created potential structural problems. Furthermore,
persistent problems with Ebeye's power supply interrupted hospital
services. While Ebeye hospital is equipped with emergency generators,
the hospital relies on the local utility for its primary energy needs.
Challenges in the RMI Health Sector:
The RMI faces a number of challenges to continued improvement in the
delivery of health care services, including a lack of technical
capacity, increasing prevalence of lifestyle diseases, and
unsustainable spending.
* Lack of technical capacity. The RMI still lacks the capacity to
diagnose and treat certain diseases and trauma. For example, the number
of cases sent off-island for medical referral increased by 27 percent
between 2004 and 2005.[Footnote 60] Moreover, Ministry of Health
officials reported a persistent lack of qualified medical, nursing, and
ancillary staff in the RMI. Officials indicated that this persistent
shortage has affected the Ministry's ability to diagnose and provide
care to patients and increased its reliance on foreign labor. For
example, the Ministry purchased expensive capital equipment with
compact funds, such as a CT scan machine in 2005. However, the machine
has not been used for almost 1 year due to the lack of technical
expertise necessary to operate it, according to a Ministry official.
* Increasing prevalence of lifestyle diseases. Despite some
improvements in health management, lifestyle diseases continue to
create challenges for the RMI's health care. The incidence of diabetes,
hypertension, sexually transmitted diseases such as HIV, and other
conditions are on an upward trend.
* Unsustainable spending. The impact of annual decreases in the amount
of compact grant funding available and the pace of infrastructure
development on health sector funding warrant close attention. In
addition, while the fiscal procedures agreement calls for the
establishment of sustainable funding mechanisms, user fees comprised
only 2 percent of the Ministry of Health's revenues in 2004 through
2006. User fees are charged at the government hospitals on Majuro and
Ebeye and are $5 for outpatient services per visit and $5 for in-
patient services per day including food, medicines, and other care
provided to the patient. The RMI's development plan noted that user
fees could be substantially increased by selective increases in charges
without creating hardship to patients. According to an OIA official, if
health revenues do not keep pace with operating and infrastructure
costs, the Ministry's ability to improve health services and programs
may falter.
Enclosure V Public Sector Capacity Building:
Under the amended compacts, public sector capacity building (PSCB)
grants are intended to support the efforts of the Federated States of
Micronesia (FSM's) and the Republic of the Marshall Islands (RMI's)
internal capacity to build effective, accountable, and transparent
governments. According to grant conditions, PSCB funds can be used to
hire experts to advise the FSM and RMI governments; train personnel;
and develop, purchase, or upgrade various government systems. With
JEMCO's agreement, the FSM allocated over 88 percent of its PSCB funds
to support the ongoing operations of the national and state
governments, activities not supported by the compact, rather than to
build new skills and expertise. The RMI has only accepted PSCB funds in
the past 2 years, to support the operations of its Public Auditor's
Office. Despite both countries' extensive need of greater government
capacity, PSCB has not been a priority in either country and it is
difficult to determine what if any progress has occurred in this sector
in either country.
Public Sector Capacity Building Grant Priorities and Terms:
According to the compact, PSCB funds are made available to support the
efforts of the FSM's and the RMI's to build effective, accountable, and
transparent national and local government and other public sector
institutions and systems. PSCB priorities established in each compact's
fiscal procedures agreements are (1) financial management, (2)
improving economic planning, (3) auditing, (4) law enforcement, (5)
immigration controls, (6) the judiciary, and (7) compilation and
analysis of appropriate statistical indicators. In a June 2003
memorandum outlining implementation issues, OIA described permissible-
-that is, conforming--uses of the FSM PSCB grant, including:
* hiring teams of international experts to provide economic planning
advice to the government, and to help develop local expertise;
* training to upgrade the knowledge and skills of staff that perform
priority functions, including training for law enforcement and fire
fighting;
* purchasing or upgrading of financial management systems and various
electronic systems and data-bases for law enforcement, immigration, and
customs; and:
* developing statistics useful for economic planning.
The memorandum indicated that the FSM PSCB grant was not intended to
fund existing basic operations, including salaries for permanent
positions--OIA considered these activities to not conform with the
grant's purpose. Additionally, clarifying the grant's application to
specified priorities, the memorandum stated that the purpose of the
grant is not to cover the full operating costs needed to maintain
entities, such as law enforcement and auditing bodies in "as is"
condition, but to enhance and strengthen certain critical functions.
In addition to being subject to the requirements of the amended
compacts and fiscal procedures agreements, the FSM and RMI are subject
to grant conditions imposed by the JEMCO and JEMFAC, respectively, and
by OIA. (For sector grant terms and conditions specific to the FSM and
the RMI, respectively, see GAO-07-163, app. VI and VII.)
FSM Public Sector Capacity Building:
For 2004 through 2006,[Footnote 61]grants for FSM public sector
capacity building amounted to 11 percent of total compact funds. With
the permission of JEMCO, the FSM used the majority of these funds for
activities that did not conform to the grants purposes and that
supported the public sector. The primary challenge affecting the use of
the funds is the FSM's lack of planning to end its use of the grant for
activities that do not conform to the grant's purpose.
Funding for FSM Public Sector Capacity Building:
JEMCO approved allocations of more than $25 million for FSM public
sector capacity building in 2004 through 2006 (see table 8 for grant
allocations to the national and state governments).
Table 8: Public Sector Capacity Building Allocations to FSM
Governments, Fiscal Years 2004 through 2006:
FSM government: National;
2004: $4,287,697;
2005: $ 608,028;
2006: $0.
FSM government: Chuuk;
2004: 2,853,813;
2005: 3,001,410;
2006: 2,724,099.
FSM government: Kosrae;
2004: 1,013,866;
2005: 1,113,866;
2006: 1,346,976.
FSM government: Pohnpei;
2004: 1,676,163;
2005: 1,542,488;
2006: 759,254.
FSM government: Yap;
2004: 1,831,307;
2005: 1,520,466;
2006: 1,345,585.
Total;
2004: $11,662,846;
2005: $7,786,238;
2006: $6,175,914.
Source: GAO analysis of FSM 2004 through 2006 public sector capacity
building grant agreements.
[End of table]
In 2004, OIA agreed to allow the FSM to use the PSCB grant for basic
government operations rather than for functions supporting the sector
objectives identified in the compact and fiscal procedures agreement.
According to a senior OIA official, the FSM needed to fund basic
government operations to enable its use of other sector funds. In
allowing nonconforming uses of the grant, OIA required the FSM national
and state governments to reduce, over a 5-year period, the amounts
allocated for nonconforming purposes and to provide a schedule of their
planned reductions. As table 9 shows, the FSM national and state
governments' scheduled reductions of allocations of the PSCB for
nonconforming purposes exceed the reductions required by OIA.
Table 9: Reductions Scheduled by FSM Governments and Required by OIA
for Nonconforming Use of Public Sector Capacity Building Grant, Fiscal
Years 2005 through 2009:
(Dollars in millions):
Scheduled reductions.
FSM national government;
2005: $6.31;
2006: $5.89;
2007: $4.23;
2008: $2.12;
2009: $0.
Chuuk;
2005: 2.74;
2006: 2.65;
2007: 1.77;
2008: 0.88;
2009: 0.
Kosrae;
2005: 0.91;
2006: 0.91;
2007: 0.91;
2008: 0.46;
2009: 0.
Pohnpei;
2005: 1.31;
2006: 0.99;
2007: 0.66;
2008: 0.33;
2009: 0.
Yap;
2005: 1.35;
2006: 1.35;
2007: 0.90;
2008: 0.45;
2009: 0.
Total scheduled reductions;
2005: $12.62;
2006: $11.79;
2007: $8.47;
2008: $4.24;
2009: $0.
Total required reductions;
2005: $8.49;
2006: $6.37;
2007: $4.25;
2008: $2.12;
2009: $0.
Source: FSM Strategic Development Plan, 2004 through 2023.
[End of table]
According to OIA, in 2004 through 2006, the FSM allocated approximately
88 percent of the PSCB funds for nonconforming purposes, such as
supporting ongoing operations of the national and state offices of
public safety and finance and the states' attorneys general, rather
than for conforming purposes such as training local officials in
financial management and hiring outside experts on economic planning.
The other 12 percent of PSCB funds--approximately $3 million--was
allocated to support the basic operations of FSM states' public
auditors' offices and for accounting contracts in 2004 through 2006.
Although the funds were allocated for salaries in these
offices[Footnote 62] rather than, for example, for training, OIA
considered the use of funds by these offices to be appropriate.
Although the FSM obligated most of the allocated PSCB funds for
nonconforming purposes, a small amount--about $2 million--of the
allocation for 2004 and 2005 was not obligated (see table 10). JEMCO
directed that the FSM use the unobligated funds to support the PSCB
grant's goals. Accordingly, the FSM obligated these funds for
activities such as hiring accounting advisors for some states and their
component units and advisors for budget and procurement offices;
building capacity in performance reporting; and undertaking an economic
monitoring and capacity building project.
Table 10: FSM Unobligated Public Sector Capacity Building Funds, Fiscal
Years 2004 and 2005:
FSM: National;
2004: $293,771;
2005: $112,666.
FSM: Chuuk;
2004: 221,819;
2005: 106,371.
FSM: Kosrae;
2004: 16,129;
2005: 46,155.
FSM: Pohnpei;
2004: 200,476;
2005: 120,204.
FSM: Yap;
2004: 604,739;
2005: 303,004.
Total;
2004: $1,336,934;
2005: $688,400.
Source: Office of Insular Affairs.
[End of table]
The FSM also received approximately $3.9 million in technical
assistance from DOI in 2004 and 2005,[Footnote 63]some of which it used
for activities that conform to the PSCB grant's goals. For example, the
FSM received technical assistance funds to conduct public auditor
training and develop its financial reporting activities.
Challenges in FSM Public Sector Capacity Building:
The FSM's efforts to build public sector capacity are challenged by a
lack of planning for the replacement of grant funding with local monies
to support activities deemed nonconforming by OIA.
According to OIA, the FSM national and state governments have not yet
developed plans for replacing the funding currently used to support
"nonconforming activities" with local revenues instead of the public
sector capacity-building grant. In reviewing the states' budgets it is
clear that offices such as the Attorney General, Treasury, and
Administration and Finance will all be affected. For example, in 2006,
100 percent of Chuuk's public safety operations, including the police
and fire departments, and more than 95 percent of Kosrae's Attorney
General's Department, including its divisions of law and public safety,
were funded with public sector capacity building grant funds.
RMI Public Sector Capacity Building:
The RMI received a total of $207,000 in 2005 and 2006 for public sector
capacity building. Since 2005, the RMI has used the public sector
capacity building grant funds to support one office, using technical
assistance grants to support other capacity building needs.
Funding for RMI Public Sector Capacity Building:
In 2005 and 2006, JEMFAC allocated approximately $103,514 annually for
RMI public sector capacity building; the RMI did not request or receive
any public sector capacity building funds in 2004. The RMI's Chief
Secretary informed us in March 2006 that beginning in 2007, the RMI
would not request any funds for public sector capacity building.
The RMI used the allocated funds to support the RMI Auditor General's
office. The government also sought and received approximately $3.2
million in OIA technical assistance grants,[Footnote 64]some of which
supported public sector capacity building activities. For example, the
RMI was awarded more than $500,000 in technical assistance to help
develop performance-based budgeting and $160,000 to hire a financial
management information systems project manager in 2004 and 2005. The
RMI also received a grant totaling $111,400 for training public
auditors.
Challenges in RMI Public Sector Capacity Building:
Public sector capacity challenges remain in the RMI, although the
government did not seek the PSCB grant for 2007. Examples of the
challenges faced include, as we noted in our December 2006
report,[Footnote 65] the RMI government's limited monitoring of sector
grants, in part because of a lack of capacity in the Chief Secretary's
office and in most ministries that receive compact funds. According to
the RMI's Chief Secretary, the government does not have a plan to
address the challenges the RMI faces in public sector capacity
building.
In response to our draft report, the RMI government indicated that it
has many other sources of funding to support public sector capacity
building that reduce the need to allocate compact funding to this
sector. Even with these other sources of funding, including bilateral
donors and regional and multilateral organizations, the RMI still
believes that capacity building funds should be available from the U.S.
government outside the annual sector grant allocations. However, the
compact identifies public sector capacity building as one of the
sectors in which the annual grant assistance should be used. While
other sources of funding may be available to assist the RMI with public
sector capacity building, as noted above, funding from these other
sources is not assured.
Enclosure VI Private Sector Development:
Under the amended compacts with the Federated States of Micronesia
(FSM) and the Republic of the Marshall Islands (RMI), private sector
development grants are made available in part to attract foreign
investment and increase indigenous business activity. Both countries
allocated funds to their various offices such as visitor bureaus, land
offices, and development entities. However, various factors hamper
private sector development in both countries, including their remote
geographic location, inadequate infrastructure, and poor business
environments.
Private Sector Development Priorities and Terms:
The compacts and the fiscal procedures agreements with the FSM and the
RMI name numerous goals for private sector development: attracting new
foreign investment, increasing indigenous business activity by
vitalizing the commercial environment, ensuring fair and equitable
application of the law, promoting adherence to core labor standards,
and maintaining progress toward the privatization of state-owned and
partially state-owned enterprises, as well as engaging in other
reforms. Specifically, the fiscal procedures agreements identify the
following private sector development priorities:
* advance the private development of fisheries, tourism, and
agriculture;
* employ new telecommunications technologies;
* analyze and develop new systems, laws, regulations, and policies to
foster private sector development; and:
* facilitate investment by potential private investors and develop
business and entrepreneurial skills.
The FSM's strategic development plans have broad goals, including (1)
creating a sound economic policy environment to support outward-
oriented private-sector-led growth; (2) improving the competitiveness
of the factors of production in the FSM to promote private sector
development; (3) improving the environment for direct investment and
expanding entrepreneurial and business development support services;
(4) reducing the direct role of government in the economy; and (5)
providing efficient and cost-effective economic infrastructure to
support competitive private sector development.
The RMI's development plans have broad goals such as increasing trade
and investment and small business and enterprise development, as well
as promoting private sector development through agriculture and
tourism. These goals are articulated in RMI's annual performance plans.
In addition to being subject to the requirements of the amended
compacts and fiscal procedures agreements, the FSM and RMI are subject
to grant conditions imposed by the JEMCO and JEMFAC, respectively, and
by OIA (for sector grant terms and conditions specific to the FSM and
the RMI, respectively, see GAO-07-163, app. VI and VII).
FSM Private Sector Development:
The private sector grant to the FSM, totaling about $12 million in 2004
through 2006,[Footnote 66]supported numerous offices. A variety of
challenges hamper private sector development in the FSM.
Funding for FSM Private Sector Development:
JEMCO allocated $10.2 million for FSM private sector grant development
in fiscal years 2004 through 2006. Table 11 shows the allocations to
the national and state governments in those years.
Table 11: FSM Private Sector Grant Allocations, Fiscal Years 2004
through 2006:
FSM government: FSM national government;
2004: $513,091;
2005: $0;
2006: $0.
FSM government: Chuuk;
2004: 1,338,874;
2005: 1,403,876;
2006: 1,498,616.
FSM government: Kosrae;
2004: 795,261;
2005: 988,025;
2006: 606,029.
FSM government: Pohnpei;
2004: 525,423;
2005: 657,602;
2006: 887,817.
FSM government: Yap;
2004: 613,470;
2005: 989,407;
2006: 1,046,701.
FSM government: Total;
2004: $3,786,119;
2005: $4,038,910;
2006: $4,039,163.
Source: FSM private sector grant agreements, 2004 through 2006.
[End of table]
The FSM national and state governments used these funds to support 40
different offices, including visitor bureaus, land management offices,
marine and agriculture departments, and economic development and
foreign investment activities. OIA questioned the performance of many
of these entities and indicated that in 2007, grant funding would only
be allocated on a project basis.
Challenges in FSM Private Sector Development:
As we reported in June 2006,[Footnote 67] challenges facing the FSM's
development of its private sector include the country's remote
geographic location, inadequate infrastructure, and poor business
environment. Officials at the IMF and the Asian Development Bank
informed us that legislative actions implemented by the FSM to improve
the business environment, including bankruptcy and mortgage laws, are
insufficient to stimulate investment and improve tax income. According
to these officials, these reforms must be accompanied by reforms in
taxes, land ownership, foreign investment regulations, and public
sector management. Although FSM has taken steps in some of these areas,
its progress has been slow. For example, the FSM has agreed on the
elements of tax reform but has no plan for implementation.
RMI Private Sector Development:
Several offices in the RMI are supported with private sector
development funds. However, the RMI government faces a variety of
challenges to private sector development.
Funding for RMI Private Sector Development:
JEMFAC allocated $1.1 million of amended compact funds for RMI private
sector development in 2004 through 2006: $356,620 in 2004, $361,943 in
2005, and $361,943 in 2006. The RMI government used the allocated funds
to support the Marshall Islands Visitors Authority, the Small Business
Development Center, the Departments of Resources and Development, and
the Land Registration Authority.[Footnote 68] According to the RMI
Chief Secretary, the RMI government will not request amended compact
funds for private sector development in 2007.
Challenges in RMI Private Sector Development:
Several challenges confront the RMI's efforts to achieve its private
sector development goal of attracting new foreign investment and
increasing local business activity. As we recently reported,[Footnote
69] the RMI's private sector, like the FSM's, is hampered by its remote
geographic location, inadequate infrastructure, and poor business
environment. RMI officials reported that several legislative actions
aimed at improving the business environment, such as bankruptcy and
mortgage laws, were implemented in 2004 though 2006. According to RMI
private sector representatives as well as various U.S., IMF, ADB, and
country reports, enabling the business environment in the RMI requires
substantial reforms in taxes, land ownership, and foreign investment
regulations as well as a reduction in public sector competition with
the private sector. However, progress on key policy reforms needed to
stimulate investment has been slow. For example, although discussions
on tax reform have begun in the RMI, these discussions have not yet
produced agreement on changes to the government's tax structure.
Enclosure VII:
Environment:
Environmental goals in the Federated States of Micronesia (FSM) and the
Republic of the Marshall Islands (RMI) include engaging in
environmental infrastructure planning, design, construction, and
operation. Grants for the two countries' environment sectors were
allocated to several offices to support activities such as
environmental protection, marine conservation, solid waste management,
and public education. However, several challenges have limited the
achievement of both countries' goals, including lack of enforcement and
a lack of trained professionals.
Environment Sector Grant Priorities and Terms:
Under the amended compacts, the environment grants for the FSM and RMI
are aimed in part at engaging in environmental infrastructure planning,
design, construction, and operation. The fiscal procedures agreements
between the United States and the two countries identify the following
environment sector grant goals:
* establishment and management of conservation areas;
* environmental infrastructure planning, design, construction, and
operation; and:
* involving the citizens of the respective countries in the process of
conserving their country's natural resources.
The FSM's strategic development plan contains nine goals for the
environment that closely mirror the priorities in the fiscal procedures
agreement, such as managing and protecting natural resources including
protecting, conserving, and sustainably managing the FSM's marine,
freshwater, and terrestrial ecosystems; and improving environmental
awareness and education and increasing the involvement of the citizenry
of the FSM in conserving their country's natural resources.
The RMI's annual development plan's priorities are to (1) increase the
effectiveness of environmental protection and environmental programs in
the RMI and (2) increase environmental education and awareness through
effective management of information and human resources. The RMI is
also focused on increasing environmental programs on the Kwajalein
Atoll.
The FSM and RMI are subject to special terms and conditions imposed by
JEMCO and JEMFAC. Grant conditions in the FSM and RMI included
establishing performance measures and providing baseline data in 2004
and 2005. (For sector grant terms and conditions specific to the FSM
and the RMI, respectively, see GAO-07-163, app. VI and VII).[Footnote
70]
FSM Environment Sector:
The FSM has used environment sector grants to support various
environmental activities and offices throughout the FSM's various
states. However, several factors have challenged the FSM's ability to
achieve its environment sector goals.
Funding for the FSM Environment Sector:
JEMCO allocated a total of approximately $6.6 million in amended
compact grants for the FSM's environment sector in 2004-2006.[Footnote
71] Table 12 shows the annual grants to the FSM national and state
governments.
Table 12: Environment Sector Grants to FSM National and State
Governments, Fiscal Years 2004 through 2006:
FSM government: National;
2004: $ 79,477;
2005: $ 111,421;
2006: $ 0.
FSM government: Chuuk;
2004: 378,394;
2005: 502,499;
2006: 798,428.
FSM government: Kosrae;
2004: 302,523;
2005: 296,592;
2006: 355,240.
FSM government: Pohnpei;
2004: 666,944;
2005: 688,181;
2006: 665,807.
FSM government: Yap;
2004: 595,854;
2005: 791,258;
2006: 337,977.
Total;
2004: $2,023,192;
2005: $2,389,951;
2006: $2,137,452.
See comment 2. Now on pp. 17-18.
Source: GAO analysis of FSM environmental sector grant agreements for
2004 through 2006.
[End of table]
The grants supported 21 offices in the FSM's national government and
four states, including offices responsible for environmental
protection, marine conservation, forestry, historic preservation,
public works, and solid waste management.
Challenges in the FSM Environment Sector:
The FSM has faced several challenges that have constrained its ability
to achieve its environment sector goals. These challenges include
limited enforcement of environmental regulations, a lack of trained
professionals, and constrained funding.
* Limited enforcement. Enforcement of environmental regulations in the
FSM has been limited. Environmental Protection Authorities (EPA)
throughout the FSM have issued or threatened the imposition of
citations, fines, and cease and desist orders in response to violations
such as insufficient toilet facilities and lack of running water in
schools, and faulty septic tank systems and raw sewage discharge, but
enforcement of these penalties has been limited by the authorities'
unwillingness to pursue the violators or because the judiciary has been
unwilling, or was too overburdened with other cases, to prosecute them.
An EPA official in Yap indicated that the Attorney General's office has
not supported the EPA's attempts to prosecute environmental cases, in
part because the Attorney General's office represents both the EPA and,
often, those entities the EPA is trying to prosecute, such as the
Department of Public Works. In Pohnpei, an EPA official noted that the
courts were often "overloaded" and were unable to hear their cases.
Furthermore, the official noted that although fines were levied, none
were collected. Failure to collect fines is a problem in other states
as well, and, according to an EPA official in Pohnpei, the lack of
enforcement creates an impression that violating EPA regulations or
failing to pay fines carries no consequences.
* Lack of expertise. A lack of environmental and technical expertise
throughout the FSM affects the states' ability to ensure environmental
activities' compliance with regulations. For example, in Pohnpei, the
state wanted to build a new land fill and waste water site yet lacked
the expertise to evaluate plans for such a site, according to an OIA
official. In September 2005, Yap's EPA cited a community for building
septic tank systems that did not meet general design requirements. The
noncompliant septic systems used by residents were leaking,
overflowing, and discharging sewage waste into the surrounding
environment. Yap's Public Works department agreed to build three new
facilities in the community, but as of April 2006, the facilities had
not been built; according to the Yap EPA, the Public Works department
claimed that it lacked the design capabilities to build them. Also in
Yap, the EPA's Executive Director acknowledged his lack of
environmental expertise, stating that he had tried to hire someone with
the appropriate technical skills for the position of executive director
but had not found a qualified applicant.
* Funding constraints. Funding constraints have also hindered FSM
attempts to meet environment sector goals. In Yap, the Public Works
department attributed its failure to construct the new septic systems
in part to a lack of financial resources. Other entities whose
activities have environmental consequences have also reported funding
constraints. For example, according to the Chuuk Public Utility
Corporation, it has lacked sufficient funding to adequately maintain
Chuuk's sewage system, leading to broken equipment and consequent
sewage overflows in the streets, according to Interior's Inspector
General. Likewise, according to Pohnpei's EPA, the Pohnpei public
utility has not had the resources to repair its sewer system.[Footnote
72] Chuuk reported that because of limited funds, it lacks manpower and
staff capacity to protect the reef from contamination and marine life
from illegal fishing practices.
RMI Environment Sector:
The RMI has used environment sector grants to support its environmental
protection authority. However, several challenges have impeded the
RMI's achievement of its environmental goals.
Funding for the RMI Environment Sector:
JEMFAC approved allocations of about $1.2 million for RMI environment
sector grants in 2004 through 2006: $400,000 in 2004, $408,000 in 2005,
and $408,000 in 2006. The portion of the RMI EPA's budget supplied by
compact funding grew from 42 percent in 2004 to 77 percent in 2006,
because of decreased funding from other sources.
The RMI used the environment sector grants for, among other things,
water quality testing, land and solid waste management, and public
education.
Challenges in the RMI Environment Sector:
Factors challenging the RMI's efforts to achieve its environment sector
goals have included limited enforcement, inadequate numbers of trained
professionals, and insufficient funding. Additionally, officials from
the RMI EPA noted that their environmental impact assessment process is
not effective and their regulations are outdated or inappropriate.
* Limited enforcement. Although the RMI EPA has issued citations,
fines, and cease-and-desist orders for violations of environmental
regulations, its assessments of penalties and enforcement of
regulations were limited. For example, the EPA's General Manager said
that although fines were levied for violations such as illegal
landfills, the fines have not been collected because the violators lack
the financial resources to pay them. Furthermore, according to the
EPA's General Manager, although the EPA referred to the RMI Attorney
General several cases involving RMI ministry violations of
environmental regulations, none of the cases were prosecuted.
* Lack of expertise. The RMI EPA lacks the environmental expertise
needed to develop, protect, and enforce environmental regulations. For
example, only 2 of the EPA's 20 staff members have bachelor's degrees
in environmental science. According to an EPA official, EPA applicants
are often hired on the basis of their social connections rather than
their expertise.
* Resource constraints. Funding and personnel constraints also affect
the RMI's ability to carry out its environmental protection
responsibilities. According to an EPA official, the office's work in
the lagoon is planned on a weekly basis according to fuel affordability
and boat operability. For the month of January 2006, the official said,
the EPA was unable to sample water quality in the lagoon or to monitor
fishing boats dumping solid waste, because the EPA's boat was under
repair. EPA's General Manager also indicated that a lack of financial
and personnel resources for Ebeye, the RMI's second largest population
center, has limited environmental protection activities on the island.
Enclosure VIII: Comments from the Department of Interior:
The Associate Deputy Secretary Of The Interior:
Washington, DC 20240:
MAY 3 2007:
Mr. David Gootnik:
Director:
International Affairs and Trade:
United States Government Accountability Office:
Washington, D.C. 20548:
Dear Mr. Gootnik:
Thank you for the opportunity to review and comment on the Government
Accountability Office Draft Report, number GAO-07-514R, entitled,
Compacts of Free Association: Micronesia and the Marshall Islands' Use
of Sector Grant Funds, a supplement to your December 2006 Report. The
Department of the Interior finds the Draft Report informative and clear
in its identification of the challenges faced by the Federated States
of Micronesia and the Republic of the Marshall Islands. The Department
agrees with the conclusions and recommendations of the GAO Report of
December 2006, number GAO-07-163, entitled, Compacts of Free
Association: Micronesia and the Marshall Islands Face Challenges in
Planning for Sustainability Measuring Progress, and Ensuring
Accountability.
The Department's Office of Insular Affairs is continuing actions in
line with the recommendations of the GAO Report of December 2006. The
actions are designed to improve the FSM's and the RMI's use of Compact
funds by addressing challenges such as those identified in the Draft
Report. The OIA will continue its actions and looks forward to the
final report.
Thank you again for the opportunity to comment on the Draft Report. If
you have any questions concerning the response, please contact David B.
Cohen, Deputy Assistant Secretary of the Interior for Insular Affairs,
or Nikolao Pula, Director of the Office of Insular Affairs, at (202)
208-4736.
Sincerely,
Signed by:
Jades E. Cason:
Enclosure IX: Comments from the Federated States of Micronesia:
Embassy Of The Federated States Of Micronesia:
1725 N Street. N.W.
Washington, D C 20036:
Telephone (202) 223.4383:
Telefax: (202) 223-4391:
Telex: 292003 FSME:
April 30, 2007:
Mr. David Gootnick:
Director, International Affairs and Trade:
United States Government Accountability Office:
441 G Street, NW:
Washington, D.C. 20548:
Dear Mr-Gootnick:
Once again, the Government of the Federated States of Micronesia
extends its appreciation to the GA0 for the opportunity to comment on
the latest draft Report entitled, "Compacts of Free Association:
Micronesia and the Marshall Islands' Use of Sector Grant Funds" (GAO-
07-514R). We note that this Report is essentially an informational
supplement to the December 2006 Report (GAO-07-163), "Micronesia and
the Marshall Islands Face Challenges in Planning for Sustainability,
Measuring Progress, and Ensuring Accountability."
Our comments on the December Report were submitted by letter dated
December 4, 2006, and were published by your office along with the
Report as Appendix IX. At this time we have only a few additional
comments as follows:
First, with regard to the GAO comment number 2, added by GAO in
response to our December 4 letter, where GAO states in part, "We
believe that the [FSM's distribution] formula's impact on each State's
performance and development should be continuously evaluated and the
allocation of funds revised as necessary." We agree with this
statement. It is undeniable that the FSM and the United States share a
common interest in distributing Compact assistance in the FSM in a way
that most effectively meets national goals and delivers services.
The original Compact mandated the FSM Government to certify the
distribution to the US as a "term" of the assistance. It was decided to
make the certification extend to each successive five-year period,
subject to possible recertification by the FSM at any time. The idea
was to leave open the door for periodic adjustment based on need and
equity. In fact, such a process has been followed by the FSM Government
over the years, and periodic adjustments have been made.
The point repeatedly made by GAO about the disparity in, for example,
per-student distribution of Compact education grants among the FSM
States may ultimately serve to indicate an inadequacy of Compact grants
to achieve the assigned Compact objectives.
We appreciate the discussion on pages 24 and 25 of the Draft Report on
the subject of inflation adjustment for the SEG. It is the FSM's belief
that such inflation adjustment is a Compact obligation, a conclusion
clearly home out by the language from the interdepartmental MOA quoted
in footnote 29, and, of course, by the language of Public Law 108-188.
Finally, we choose to take as useful and constructive criticism the
findings in this and earlier GAO Reports of shortcomings in the FSM's
efforts fully to meet the many requirements involved with implementing
the Amended Compact which had not perlained during the first seventeen
years of our Compact experience. We are trying very hard to improve
performance, and are gratified when you give credit to the positive
results of our effort in your reports. We are committed to continued
improvement.
The FSM Government thanks the United States Congress and the GAO for
your strong commitment to the successful implementation of the Compact
and to the advancement of the FSM.
Sincerely,
Signed by:
James A. Naich;
Charge d' Affaires Ad Interim:
Enclosure X: Comments from the Republic of the Marshall Islands:
Note: GAO Comments supplementing those in the report text appear at the
end of this enclosure.
Embassy Of The Republic Of The Marshall Islands:
2433 Massachusetts Avenue, N.W.,
Washington, D.C. 20008:
Tel. # (202) 234-5414:
Fax # (202) 232-3236:
May 4, 2007:
Mr. David Gootnick Director:
International Affairs and Trade:
United States Government Accountability Office:
Washington, D.C. 20548:
Dear Mr. Gootnick:
Thank you for providing the Draft GAO Report (GAO-07-154R) "Compacts of
Free Association: Micronesia and the Marshall Islands' Use of Compact
Grants" to the Government of the Republic of the Marshall Islands for
review and to make comments (please see attached).
The RMI Government welcomes GAO's input and looks forward to continuing
to work with the GAO in identifying and address issues under the
Compact of Free Association, as amended.
Sincerely,
Signed for:
Banny debrum:
Ambassador:
Government of the Republic of the Marshall Islands Comments on the GAO
Report (GAO-07-154R) "Compacts of Free Association: Micronesia and the
Marshall Islands' Use of Compact Grants"
The following comments are based on a review of the draft document. The
Republic of the Marshall Islands (RMI) would hope that the changes
stated and observations made are clarified and reflected in the final
report.[Footnote 73]
General Comments:
It is important to note that the GAO report is based on review of FY
2004 portfolios and FY 2004 quarterly and annual reports and FY 2005
quarterly reports. It should be emphasized that RMI was just beginning
performance based budgeting (PBB) and reporting, and much information
was still being collected, reviewed, redesigned and reformatted at the
time of the review. Many changes, revisions and refocusing have
occurred since FY 2005 and the GAO report takes no account of this.
Furthermore the GAO did not look at management capacity and changes in
attitudes and understanding regarding planning and reporting, but
instead focused only on areas in the reports (statistics) that were
missing or inconsistent. It should be noted that there has been
improvement in this area, especially in the last year, with some new
staff and greater understanding and use of the new formats.
The report mentions the lack of planning for decrement management.
However, the RMI's view is that this situation is made worse by the
lack of full inflation adjustment that was requested during the Compact
negotiations. RMI's position continues to be that grants under the
Compact, as amended, should be subject to full inflation adjustment to
help maintain service levels. That said, the Government manages the
decrement through its Medium-Term Budget and Investment Framework by
trying to restrict expenditures within nominal levels, while
recognizing that over time this will place pressure on services.
The Government understands the need to strengthen the taxation system
to provide growing revenues increases to offset the impact of the
annual decrement. While changes to the tax structure have been limited,
tax administration has improved significantly with improved tax
auditing and better compliance leading to tangible revenue increases.
The RMI notes that the report contains many unattributed references to
unsubstantiated opinions of officials and individuals in the RMI
Government, the US Government and other organizations. In one paragraph
alone (See: "Lack of qualified teachers", page 21-22), there are four
references to unspecified persons voicing individual opinions. Such
opinions should be attributed to the specific people or position,
supported by specific evidence or confirmed by a second source before
inclusion in the report. If the Government is answerable to individual
opinions then those individuals should be required to stand by their
comments.
Comments on Education:
The Supplemental Education Grant (SEG):
A significant portion of the report discusses the Supplemental
Education Grant. RMI wishes to make three general points regarding the
SEG.
1) Acceptable uses of the SEG: The GAO cites specific language from the
fiscal procedures agreement, which states that these funds are meant
for "direct educational services at the local school level focused on
school readiness, early childhood education, primary and secondary
education, vocational training, adult and family literacy, and the
smooth transition of students from high school to post-secondary
educational pursuits or rewarding career endeavors." In the discussion
of the SEG, GAO notes that there is disagreement between the RMI and
some federal agencies about the definition of "supplemental" and,
therefore, what types of programs are eligible to be funded with this
assistance.
The Government would request that GAO include a reference to the
specific Compact legislation (Section 105, (f), 1, B, iii), which
states that the funds are to "supplement grants under Section 211
(a)(1)" of the Compact. By any logical interpretation, this means that
the grants can be used, unless otherwise specified, for any program
allowable under the Compact education sector grant, whether it is to
supplement an existing program, launch (and entirely fund) a new
program, or fund any other allowable expenditure under the Compact. The
language does not state that the grant is meant to provide for
"supplemental programs" or even to "supplement programs." Thus,
according to the specific language in the legislation, and the fiscal
procedures agreement, the definition of "supplemental" is irrelevant.
The only consideration for eligibility of program should be whether it
meets the specific requirements set out in the fiscal procedures
agreement and adheres to the original language of the Compact.
Further, the spirit of the agreement clearly suggests that the RMI use
the funds to replace the U.S. programs such as Head Start and Workforce
Investment Act that were "cashed out." With the efficiency gains due to
not having to operate under the sometimes-restrictive conditions of the
specific grants (that are meant for implementation of programs in the
U.S. context), the RMI has been able to expand early childhood
education for less money than was used for the Head Start program.
Other programs are performing more efficiently as well, meaning that
additional funds are available for textbook purchases, staff
development, school feeding programs and other initiatives crucial to
the long-term development of the RMI. Still, the continued
misinterpretation of the Compact language by U.S. agencies hinders the
effectiveness of the Supplemental Education Grant.
The Government intends to work with the federal agencies to develop a
shared understanding, based on the language of the law, of the
allowable uses of these funds. Without a shared understanding, this
will continue to hinder effective and efficient use of this grant
assistance.
2) Inflation adjustment for the SEG: The GAO makes note that the SEG
has not yet been adjusted for inflation. Failure to do so, coupled with
the overall reduction of the grant, has hindered effective and
efficient use of this grant assistance. The Government would request
that GAO make note of the authorizing language in the Compact, which
specifically states that the grant authorization is annually adjusted
for 2/3 of U.S. inflation and further note that in its annual budget
request, the Department of Education has not requested this adjustment.
As seen in Table 1, the appropriation is now more than 7% below the
authorization, and RMI is highly concerned that the value of the SEG
has declined so sharply after only three years. The cost of textbooks,
personnel, equipment, and other items funded by SEG rises with
inflation. It is the RMI's position that the Department of Education
(DOE) requests the full authorization, with inflation adjustment, for
FY2008 and beyond. The Government recommends that GAO include a
discussion of how the failure to adjust the SEG for inflation adversely
affects delivery of services under the grant. GAO should also include a
brief examination of whether DOE requests the full amount of authorized
inflation adjustments for other programs.
Table 1: SEG Authorization vs. Appropriation:
Year: 2005;
Inflation: 3.29%;
2/3 Inflation: 2.19%;
SEG Authorization: $6,100,000;
SEG Appropriation: $6,100,000.
Year: 2006;
Inflation: 3.24%;
2/3 Inflation: 2.16%;
SEG Authorization: $6,233,793;
SEG Appropriation: $5,941,769.
Year: 2007;
Inflation: [empty];
2/3 Inflation: [empty];
SEG Authorization: $6,368,443;
SEG Appropriation: $5,990,490.
As an example of the tangible problems, this loss in value is causing,
the approximately $400,000 that would have been available had the SEG
been fully funded in FY 2007, could have been used to provide textbooks
in one subject area for five grade levels.
3) Delays in Grant Approval: GAO is correct in pointing out that in the
previous two fiscal years SEG has been significantly delayed. RMI
wishes to elaborate on some of the difficulties that arise because the
grant is subject to the annual U.S. appropriation process. The
submission and approval process does not begin until the U.S. Congress
approves the annual spending bill. As we have seen this year, this
means that RMI cannot submit its initial SEG proposal until the fiscal
year is half over. This difficulty should be noted where the report
states, on page 21, that the RMI did not submit its plan until well
into the fiscal year. In practice, this has resulted in a situation
where the SEG basically runs one fiscal year behind our regular budget.
The delays are largely beyond the control of the RMI and it is
recommended that the US Government do all in its power to streamline
the SEG appropriation process and ensure that the letter and the spirit
of the SEG agreement be fulfilled.
Below we include specific comments on passages from the GAO report,
with clarifications, factual corrections and questions about some of
the findings.
Absenteeism:
Page 21 - Absenteeism, as the report notes, is a major problem that MOE
is working to address. The Ministry has been granted the authority to
suspend teachers by PSC, and in the last year, has acted on at least
five cases. MOE still lacks the authority to terminate teachers who are
chronically absent.
High dropout rates:
Page 21 - "According to the RMI Ministry of Education, the dropout rate
in 2005 was 23 percent at the primary school level (grades 1-8) and 38
percent for boys and 37 percent for girls at the secondary school level
(grade 9-12). The ministry estimated that less than 25 percent of the
students now enrolled in first grade will complete high school."
The last sentence is not accurate since this figure is based on
recorded completion rates for students who enrolled in first grade 12
years ago. The estimate was of historical performance, not a projection
of future performance. Additionally, because the grade 1-8 completion
rate has been understated, the overall completion rate for grades 1 to
12 has been understated. Previously, Ministry of Education (MOE)
divided the number of students completing grade 8 by the number of
students enrolling in grade 1 eight years earlier. Due to the high
number of students who repeat grade 1, this overestimates the dropout
rate. Using this methodology to calculate the dropouts between grade 1
and 2 would result in a nearly 25% dropout rate, but this is simply not
true. MOE has examined the progress of a sample of grade 1 students and
found that the high number of repeaters artificially inflates the
dropout rate. Additionally, due to progress in early childhood
enrollment, student retention, and expansion of the secondary school
system, the MOE estimates the completion rate will be significantly
higher for students enrolling in first grade today. Conservatively, MOE
estimates that 50% of students who enroll in grade 1 today will
complete high school, based on 95% enrollment in kindergarten, a 90%
completion rate of 8`" grade, a 95% transition rate to secondary school
programs, and a 65% completion rate for secondary school.
Inadequate classroom facilities:
Page 22 - "Despite the use of compact infrastructure funds to build new
classrooms at 6 schools, many RMI schools remain in poor condition. For
example, classrooms at the Marshall Islands High School are unsafe
because ceilings have collapsed (see fig. 5), while schools on Ebeye
have no reliable electricity owing to rolling blackouts on the island.
Access to secondary education is also limited by the lack of available
classroom space; students take an entrance test to enter public
secondary schools because of limited capacity at the schools. We
calculated, based on data from the 1999 RMI census that current
enrollment is only about 40 percent of the secondary school-aged
population. The principal of Ebeye High School told us the school would
not have enough classrooms for the new school year and that they were
converting an old warehouse into classroom space."
In footnote 25 to this section, the report states: "We estimated RMI's
2005 secondary school-aged population at 8,583; however, the enrollment
in RMI public and private secondary schools combined for that same
period was only 3,414."
First, RMI would request that GAO clarify the second sentence of this
passage. In reading this section, it should be clear that only a few
classrooms at the time of the team's visit were in a state of disrepair
where parts of the ceiling were loose. Additionally, the RMI wishes to
update GAO on progress made with new construction at Marshall Islands
High School (MIHS). Currently, classes are moving out of the old
buildings into new ones, remedying the situation. Although these
buildings had not been constructed at the time of the team's visit, RMI
would request that GAO note that plans for remedying the situation
existed at the time of its visit, perhaps with a footnote noting that
the new buildings are now being utilized.
Second, RMI requests clarification of the calculation of the secondary
school-aged population included in the footnote. According to the
report, based on calculations from the 1999 census the secondary school
age population at the time of the report was approximately 8,583. RMI
disputes this figure. The 1999 census says that there were 7,413 10-14
year olds, or about 1,480 per year cohort. Using this figure as a basis
for a four-year secondary school population yields an estimate of just
under 6,000 students. The most accurate estimate would calculate the
number of 8-11 year olds at the time of the 1999 census, which MOE
calculates to be 5,616. This estimate assumes that two years of the
secondary school population in 2006 is made up of individuals who were
8 and 9 at the time of the 1999 census, and the other two years of the
population is made up of individuals who were 10 and 11 at the time of
the census.
If the GAO population estimate is referring to a larger age-range, the
report should clearly state this, but RMI believes that the appropriate
way to estimate school aged population is to assume one year per grade
level. If MOE calculations are correct, this would yield a 61%
enrollment rate for secondary schools.
Finally, MOE wishes to clarify that the "warehouse" discussed in the
final sentence was actually an old classroom building from the previous
school. Upon renovation, it has served the school well as a classroom
building.
Comments on Infrastructure:
Absence of stakeholder engagement.
Page 37 - During 2006 the PMU carried out extensive handover training
to MoPW personnel resulting in 3 staff members being transferred to the
PMU. The training ranged from project identification to contract
formulation and construction in the maintenance sector (upper
management RMI Government). A series of meetings has been held with key
government officials, award procedures have been revised and
information is now more forthcoming as the various departments become
more familiar with the procedures associated with the Compact.
Unresolved land issues:
Page 38 - "as a result of ongoing land disputes between the RMI
government and the landowners, the PMU developed three different
designs for Uliga Elementary School in Majuro. As of November 2006,
this issue remained unresolved, requiring the school to continue
running split sessions to accommodate all students."
The RMI Environmental Protection Authority (EPA) closed down Uliga
Elementary School and the students have been temporarily housed, with
the assistance of the PMU. A Consortium has been established to reclaim
land upon which the new Uliga Elementary School will be built. The
project is currently in the EIA stage. Split schedules are no longer in
use, and all UES students receive a full day of instruction. The school
is now located on the campus of one of the local private schools until
the construction of a new facility. Plans are moving forward to begin
this large construction effort.
Page 38-"the construction of Kwajalein Atoll High School has been
delayed because of the inability of the RMI Government to secure a
lease"
Funding for Kwajalein Atoll High School has been reprogrammed to cover
shortfalls in other projects on sites with leases.
Lack of Assessment.
Page 38 - The Government's infrastructure allocation for the College of
the Marshall Islands (CMI) was encouraged by OIA as mentioned in the
report. However, it seems somewhat contradictory for OIA to then
criticize the RMI for not assessing the impact this will have on
primary and secondary education. It also needs to be borne in mind that
the $5 million per year allocation for CMI over five years is subject
to the CMI having projects ready for implementation. The allocation is
not a blind allocation of funds to CMI for the College to then allocate
to projects as it sees fit.
Page 38 - "RMI government has not assessed the sustainability of its
current rate of infrastructure expenditures". This is unclear, unless
it refers to the lack of maintenance money being set aside to maintain
new buildings.
Page 38 - "the RMI government has not assessed the trade offs of the
PMU's current designs that increase longevity and reduce maintenance by
using expensive, brand name products". There is a long history in the
Marshall Islands of poor construction of public facilities using
inferior materials and inadequate supervision. Combined with lack of
adequate maintenance and the harsh environment, this has led to the
need to Government having to replace buildings earlier than
anticipated. The Government does not want a repeat of this. It has
assessed that better quality construction, with better materials, is
the best way to ensure the value for money from infrastructure funds.
This assessment was mindful of relative life spans of infrastructure
that would result from the use of differing quality materials.
Lack of technical capacity.
Page 39 - Under the RMI agreement with the PMU, it has trained MoPW
staff in the formulation and execution of maintenance contracts. The
Government concedes that there is a need to provide more locally
trained engineers and architects. The Government scholarships program
is trying to address this need to develop the capacity to implement the
RMI's capital building program.
Accountability Weaknesses:
Page 40 - "Noncompetitive procurement" - After the completion of the
infrastructure assessment for the entire stock of infrastructure for
education and health and after the completion of the first batch of
Project Development Plans (PDP) for the schools, the infrastructure
projects were already running behind schedule, six months after the
Compact, as Amended, came into force. All offices and agencies working
with BECA were more than pleased with the quality and quantity of work
being produced and there was a need to make sure that projects moved
forward. In addition DOI/OIA was also pleased with the quality of work
and was also concerned about the potential delays in starting projects.
In order to maintain momentum and reduce delays in construction, it was
decided that using the sole sourcing provisions of the Fiscal
Procedures Agreement was in the best interest of the RMI.
Comments on Health:
Having 54 health centers, let alone 45, scattered over an ocean area of
700,000 square miles of ocean is a realistic challenge. Transportation
and communication problems will continue, even within an atoll. In
2004, 45 of the health centers mentioned here were operational, and not
just open as stated here. The health centers that were closed were part
of the Ministry's assessment to provide added responsibilities to
health assistants to manage two health centers, especially those health
centers and communities that are in close proximity to one another and
with population of less than 50, and construct new ones. There were
communities with no health center infrastructure, but the health
assistants continue to provide primary care from their own homes.
Currently 54 health centers are in operation.
Page 51 - Majuro/Ebeye hospital facilities:
Such comments on the Majuro hospital annex do not truly reflect how
much the health facilities are appreciated and utilized, and how
important a 'working laboratory' is to diagnosing illness. It must be
noted that the Majuro Hospital laboratory is currently developing its
capabilities for histology and cytology as a referral lab. The RMI's
goal to target prevention and primary health care will not be
interrupted in the future and the MOH has already taken the initial
step to review its organizational structure to reorganize to focus even
more on prevention and primary health care at all levels of care.
Page 52-53 - Challenges in the RMI Health Sector:
Increasing prevalence of lifestyle diseases: Like any developing
country, changes in lifestyles affect the increase in both non-
communicable and communicable diseases. Increasing people's
understanding of health issues remains a challenge. MOH is taking steps
to address these problems by, among other things: (i) the establishment
of the Diabetes Wellness Center in collaboration with the Canvasback
Incorporated; (ii) development of the Non-Communicable Disease
Strategic Plan which includes physical activities, nutrition, food
safety/production; and (iii) development of the RMI National HIV
Strategic Plan.
Unsustainable spending: The user fees for outpatient clinics and
inpatient services are not the only sources of revenue for the MOH. An
$8 fee is charged for physical examinations of food handlers and taxi
drivers every six months and for students. Although fees are also
charged at the Laura Health Center at a lower fee, other than delivery
charge of the same $5, the revenues generated from the Laura Health
Center and outer islands health centers are still minimal. The MOH also
has access to the Health Fund, which is levied as a deduction from
wages and salaries. This revenue sources provided $6.2 million to the
Ministry in FY 2005.
Comments on Public Sector Capacity Building:
Page 58-59: The report is implicitly critical of the Government for not
allocating any funds to addressing Public Sector Capacity Building.
However, this is a deliberate policy of the Government in focusing its
Compact sectoral grants in the education and health sectors, the
Government's two top priorities. The view is the capacity building is
best addressed, in the long term, through the education system rather
than direct interventions in specific areas of the public sector. That
said, the Government is considering assigning funds to this sector in
order to support the implementation of Performance Based Budgeting
(PBB), which in effect it has been done in the past with unspent carry
over funds.
The Government has many other sources of funding to support public
sector capacity building that reduces the need to allocate funding to
this sector. The fact that funds are not allocated to this sector out
of Compact sectoral grants does not necessarily mean the Government
places a low priority on this area. There are other sources of funding
from bilateral donors, regional and multilateral organizations to
address these capacity building needs and these are often approached
before consideration is given to reallocating funds from the other
priority sectors. Despite this, capacity building funds should be
available from the US Government outside of the sectoral grant
allocation.
Comments on the Environment Sector:
Page 69 - Limited Enforcement: The report singled out lack of
enforcement of the regulations as one of the issues to overcome at the
Environmental Sector, however this responsibility falls on not just
Environmental Protection Authority but also the Attorney General's
Office, Local Council, etc.
The following are GAO's comments on the Republic of the Marshall
Islands letter dated May 4, 2007.
1. GAO conducted its field work in March 2006. At that time, only
project reporting for the first quarter of fiscal year 2006 was
available. We therefore chose not to include those reports in our
scope. However, we will review the improved reporting during our next
mandated review.
2. GAO's practice is to not specifically identify individuals by name.
However, regarding the specific section, "Lack of Qualified Teachers"
the RMI identified as an example of having unsubstantiated opinions, we
have included the position titles of those individuals who provided us
with information, including the Minister of Education, whom we believe
to be an authoritative voice on the matters regarding RMI's educational
system.
3. The RMI contends that about 50 percent of the students enrolling in
first grade today will graduate high school, instead of the 25 percent
we reported, which was in the Ministry of Education's 2005-2006
Portfolio document. The RMI told us that the 25 percent figure in the
2005-2006 Portfolio document was outdated and inaccurate.
4. Per the RMI's request we added a footnote indicating that the new
buildings are now being utilized. However, we did corroborate this fact
and therefore attribute the statement to the government of the RMI.
5. GAO's initial estimate of 8,583 was based on secondary schools
including grades 7 through 12 (a 6 year period), whereas the RMI
estimate based it's figure on secondary schools including only grades 9
through 12 (a 4 year period). To reconcile the difference in
timeframes, GAO's new figure of approximately 6,000 students is based
on the same 4 year period used by the RMI.
6. Concerns about the lack of an assessment by the RMI of its current
rate of infrastructure expenditures were raised by OIA. The concerns
relate to the overall sustainability of infrastructure as well as the
lack of money being set aside for maintenance.
7. The compact identifies public sector capacity building as one of the
sectors in which the annual grant assistance should be used. The RMI's
continued reliance on external sources of funding to support public
sector capacity building leaves it vulnerable to the decisions of
donors and regional and multilateral organizations.
Enclosure XI: GAO Contact and Staff Acknowledgments:
GAO Contact:
David Gootnick (202) 512-3149:
Staff Acknowledgments:
In addition to the person named above, Emil Friberg (Assistant
Director), Ming Chen, Tracy Guerrero, and Julie Hirshen were key
contributors to this correspondence. Joe Carney, Etana Finkler, Reid
Lowe, and Mary Moutsos provided technical assistance.
(320466):
FOOTNOTES
[1] GAO, Compacts of Free Association: Micronesia and the Marshall
Islands Face Challenges in Planning for Sustainability, Measuring
Progress, and Ensuring Accountability, GAO-07-163 (Washington, D.C.:
Dec. 15, 2006).
[2] In this report, all years cited are fiscal years (Oct. 1-Sept. 30)
unless otherwise indicated.
[3] The FSM comprises four states: Chuuk, Kosrae, Pohnpei, and Yap.
[4] Whereas the original compact was a single agreement among the U.S.,
FSM, and RMI governments, the amended compacts (approved in Pub. L. No.
108-188, Dec. 17, 2003) are separate agreements between the United
States and each of the two countries.
[5] The $3.6 billion in assistance includes (1) compact grants; (2)
trust fund contributions; (3) Kwajalein impact funding; (4) estimated
values of compact-authorized federal services, such as weather,
aviation, and postal services over the 20-year period; and (5)
inflation adjustments. Services related to disaster relief have been
excluded.
[6] The decrement in grant funding is deposited into the FSM's and the
RMI's trust funds. The RMI's annual decrement of $500,000 began in
2004, and the FSM's annual decrement of $800,000 began in 2007.
[7] The amended compacts provide for a partial annual inflation
adjustment of grant funding. Under the compacts' implementing
legislation, the funding may be fully adjusted for inflation after 2014
under certain U.S. inflation conditions.
[8] The amended compacts' implementing legislation authorized
appropriations, beginning in 2005, to the Secretary of Education to
supplement the compact grants for the education sector. Under the
fiscal procedures agreements, SEG funds are to be used to support
"direct educational services at the local school level focused on
school readiness, early childhood education, primary and secondary
education, vocational training, adult and family literacy, and the
smooth transition of students from high school to postsecondary
educational pursuits or rewarding career endeavors." JEMCO and JEMFAC
are responsible for approving the SEG grants annually.
[9] These agreements contain detailed requirements concerning
implementation of the amended compacts' funding and accountability
provisions. The U.S. fiscal procedures agreements with the FSM and the
RMI are formally known as the "Agreement Concerning Procedures for the
Implementation of United States Economic Assistance Provided in the
Compact of Free Association, as amended, Between the Government of the
United States of America and the Government of the Federated States of
Micronesia" and the "Agreement Concerning Procedures for the
Implementation of United States Economic Assistance Provided in the
Compact, as amended, of Free Association Between the Government of the
United States of America and the Government of the Republic of the
Marshall Islands."
[10] The FSM's development plan is called the Strategic Development
Plan. The RMI's development plan consists of three documents: Vision
2018, Meto 2000, and its Medium Term Budget and Investment Framework.
In addition, the annual portfolio submissions include strategic goals
and indicators for each of the sectors. We refer collectively to all of
these RMI documents as the RMI's development plan.
[11] GAO, Compacts of Free Association: Implementation of New Funding
and Accountability Requirements Is Well Under Way, but Planning
Challenges Remain, GAO-05-633 (Washington, D.C., July 11, 2005).
[12] The Single Audit Act, as amended, is codified in Chapter 75 of
Title 31 of the United States Code.
[13] The amended compacts' implementing legislation instructs GAO to
report, for the 3 years following the legislation's enactment and every
5 years thereafter, on the FSM's and the RMI's use, and on the
effectiveness of U.S. financial, program, and technical assistance as
well as the effectiveness of administrative oversight by the United
States.
[14] The report included appendixes detailing the countries'
allocations in each sector and the terms, contained in fiscal
procedures agreements, controlling the use of the grants.
[15] Numerous RMI residents were displaced within Kwajalein Atoll, the
RMI's second most populated atoll, to provide space for U.S. missile
testing. Many of these residents now reside on Ebeye Island.
[16] In this report, all years cited are fiscal years (Oct. 1-Sept. 30)
unless otherwise indicated.
[17] Funding for the SEG is appropriated to the U.S. Department of
Education (ED) account and transferred to an Interior account for
disbursement, with Interior responsible for ensuring that the use,
administration, and monitoring of SEG funds are in accordance with a
memorandum of agreement among ED, the Department of Labor, Health and
Human Services, and Interior, as well as with the fiscal procedures
agreements. JEMCO and JEMFAC are responsible for approving the SEG
grants annually. The SEGs are awarded in place of grants formerly
awarded to the FSM and RMI under Part A of title I of the Elementary
and Secondary Education Act of 1965 (20 U.S.C. 6311 et seq.); title I
of the Workforce Investment Act of 1998 (29 U.S.C. 2801 et seq.), other
than subtitle C of that Act (29 U.S.C. 2881 et seq.)(Job Corps); title
II of the Workforce Investment Act of 1998 (20 U.S.C. 9201 et seq;
commonly known as the Adult Education and Family Literacy Act); title I
of the Carl D. Perkins Vocational and Technical Education Act of 1998
(20 U.S.C. 2321 et seq.); the Head Start Act (42 U.S.C. 9831 et seq.);
and subpart 3 of Part A, and part C, of title IV of the Higher
Education Act of 1965 (20 U.S.C. 1070b et seq., 42U.S.C. 2751 et seq.),
according to Pub. L. 108-188.
[18] According to the FSM, each state's distinct geographic features
also affect the student-to-teacher ratio; for example, outer island
schools tend to be smaller in size and have a lower student teacher
ratio. The funding disparity does not appear to have affected the
reported quality of education. For example, the percentage of students
who were deemed not proficient in math was the same in Yap and in Chuuk
in 2005, and the percentage of teachers lacking at least an associate
degree is similar in the two states.
[19] To obtain the certification, teachers are required to pass a
national test, have at least an associate (2-year) degree, and
demonstrate to classroom observers core teaching competencies.
[20] GAO-07-163.
[21] The RMI education system comprises five agencies: (1) the Ministry
of Education, (2) the College of the Marshall Islands, (3) the
Scholarship Grant and Loan Board, (4) the National Training Council,
and (5) the Atoll Feeding Program.
[22] To enable regular teachers to attend training, the RMI used SEG
funding to support World Teach and Dartmouth volunteer teachers
($217,936 in 2005) and to hire substitute teachers ($132,000).
[23] This amount includes SEG funding but does not include other U.S.
federal programs. We also excluded from this calculation, compact
funding for the College of the Marshall Islands and the National
Scholarship Board as well as SEG funding for the National Training
Council, the National Scholarship Board, and adult education from this
calculation. Because the budget does not give information on the amount
of U.S. assistance to private schools, this number may overstate the
level of funding to public school students.
[24] According to the RMI's response to our draft report, the 25
percent figure was out dated. The new estimate is 50 percent of the
students enrolling in first grade will complete high school. The 25
percent figure, however, was reported in the Ministry of Education's
Portfolio document for 2005-2006.
[25] According to the Western Association of Schools and Colleges
Accreditation Handbook, an order to "Show Cause" is a decision by the
Commission to terminate the accreditation of the institution
within a maximum period of 1 year of the date of the order, unless the
institution can show
cause why this action should not take effect. Such an order is
typically issued when an institution,
having been placed on warning or probation for 1 year, has been found
not to have made sufficient
progress to come into compliance with Commission standards. The
institution has the burden of
proof to demonstrate why its candidacy or accreditation should not be
terminated. The institution
must demonstrate that it has responded satisfactorily to Commission
concerns, that it has come into
compliance with all Commission standards, and will likely be able to
sustain its compliance.
[26] According to the RMI, in response to our draft report, the RMI
noted that progress has been made on new construction at the Marshall
Islands High School, and classes are moving into the new buildings.
[27] On the basis of the 1999 Census, the RMI had a population of
approximately 6,000 who would reach secondary school age (grade 9 to
grade 12) by 2005. The enrollment in the RMI public and private
secondary schools combined for the 2005-2006 school year was 3,414.
[28] The agreement was required by the amended compacts' enabling
legislation P.L. 108-188.
[29] The FPA does not allow the SEGs to be used for school construction
or remodeling, general operational costs, or teacher salaries, except
for the salaries of the teaching professionals who carry out activities
supported by the SEG.
[30] The 2005 SEG was $18,183,360 and the 2006 SEG was $18,001,170.
[31] The provision authorizing the SEG in the amended compacts'
implementing legislation authorizes an annual appropriation to the
Secretary of Education that is adjusted for inflation (partial) through
2023. The MOA states Education "shall seek the annual appropriation of
funds for the SEGs, including adjustments for inflation, as described
in Section 105(f)(1)(B)(iii) of Pub. L. No. 108-188."
[32] The RMI amended compact required it to allocate between 30 and 50
percent of its annual grant assistance to infrastructure.
[33] The RMI's plan is called an infrastructure development and
maintenance plan (IDMP) while the FSM's is called an infrastructure
development plan (IDP). In addition, while the fiscal procedures
agreements for both countries require costs to be included in these
plans, only the agreement with the FSM requires the IDP to include an
implementation schedule.
[34] In this report, all years cited are fiscal years (Oct. 1-Sept. 30)
unless otherwise indicated.
[35] At the time that funding was allocated in August 2004, JEMCO had
not concurred with FSM's Infrastructure Development Plan. The
concurrence came on March 11, 2005, during a special JEMCO meeting but
only insofar as the plan involved the use of compact infrastructure
sector funds for projects within the priorities established in the
Fiscal Procedures Agreement.
[36] Unobligated funds remain available for use in subsequent years.
[37] As a condition for spending infrastructure funds, JEMCO required
that the national government ensure that the projects be professionally
managed. The FSM contracted with an architectural and engineering
consulting firm based in Honolulu, Hawaii. Further, OIA required the
FSM to create a centralized PMU within the national government in
accordance with the FSM's IDP, which stated the need for a centralized
PMU. Additionally, OIA requires the FSM to seek its approval for
individual infrastructure projects.
[38] Neil K. Darroch, Land Consultancy & Valuation - Government Leased
Land Chuuk State, a special report requested by the Asian Development
Bank on behalf of the FSM, August 1998.
[39] JEMCO first addressed this issue in 2004, resolving that no use of
compact funds for payments toward preexisting land purchase
arrangements or leases would be allowed. JEMCO further expressed its
concern regarding issues related to the purchase or lease of land
including problems with determining fair market value, obtaining clear
title, and avoiding real or apparent conflicts of interest However, the
FSM fiscal procedures agreement does not prohibit the purchase of real
property with amended compact funds and, in fact, establishes terms for
its titling, use, and disposition. OIA indicated in May 2006 that if
fair land values are established and land-ownership issues are
clarified, compact funds may be considered for land purchase in the
FSM.
[40] This issue was raised at the March 2006 mid-term JEMCO meeting,
where an FSM JEMCO member indicated that the school closure situation
had been resolved by using the "renovated" dormitories as temporary
classrooms until the land dispute is mediated. JEMCO members accepted
this explanation. However, we observed no evidence of "renovation" of
the dormitories as indicated by the FSM official.
[41] "Turn-key" means that projects completed will be fully furnished,
fully equipped with fixtures and equipment, and ready to move in upon
completion.
[42] A contracting officer's representative serves as a liaison between
the government and the contractor to monitor the contractor's
performance.
[43] Department of Interior, Office of Inspector General, Memorandum:
Compact Infrastructure Grant Poor Planning and Questionable Contracting
(FSM) (Washington, D.C.: July 31, 2006).
[44] The FAA grants are intended to provide 95 percent of project
funding, with a 5 percent local contribution requirement. The RMI has
used compact funds, with OIA's approval, to meet this matching
requirement.
[45] The RMI contracted with a New Zealand-based architectural and
engineering consulting firm. This was also the same firm that prepared
the RMI's IDMP.
[46] The RMI government has no public land and instead must lease all
land used for public purposes.
[47] The standard lease agreement for Majuro and Ebeye is for 25-
years,with an option to renew for an additional 25 years.
[48] Total costs also include the cost of furniture, fixtures,
equipment and service connections, landscaping, paths, entrances, and
fences.
[49] Land disputes are a common problem in the RMI because of
traditional land ownership practices and the limited amount of land--
only about 70 square miles. In the RMI, the paramount chiefs (iroij)
possess certain rights over each land parcel that is held in tandem
with the rights of the land manager (alab) and the people living on the
land (drijerbal). Any leasehold agreement requires the signatures of
all three groups of stakeholders, according to a nonprofit research
organization based in the FSM.
[50] Contracts and bid documents allowed builders to substitute
products of equivalent or higher quality from other sources, including
U.S. materials. However, for some products there are no alternatives.
[51] The fiscal procedures agreement allows for noncompetitive, sole-
source procurement when the award of a contract is infeasible under
either procedures for small purchase, sealed bids, or competitive
proposals and when one of the following circumstances applies: (1) the
item is available only from a single source, (2) a public exigency or
emergency will not permit a delay resulting from competitive
solicitation, and (3) competition is determined to be inadequate after
the solicitation of a number of sources.
[52] In this report, all years cited are fiscal years (Oct. 1-Sept. 30)
unless otherwise indicated.
[53] In addition, HHS federal grants, including Maternal and Child
Health, Immunization, and Family Planning augmented compact funding to
support prevention and other public health services. (See GAO-07-16,
app. II for U.S. federal programs provided in the FSM.) Other revenue
sources included a basic social services loan from the Asian
Development Bank, targeted foreign assistance, health insurance
reimbursement, and nominal service fees.
[54] These findings were similar to our observations from 2000 (GAO-
NSIAD-00-216).
[55] When we visited the Chuuk state hospital in March 2006, we found
that the Chuuk Department of Health had rectified this situation.
[56] The deadline was May 15, 2005.
[57] Kwajalein Atoll is the second most populated atoll in the RMI,
where many residents were displaced within the atoll to provide space
for U.S. missile testing. Many of these residents now reside on Ebeye
Island.
[58] In addition, a new Majuro hospital annex, funded by the government
of Japan, was opened in January 2006. The new annex houses
administration; laboratories; and public health, dental, and outpatient
services. RMI and OIA officials told us that the new annex has improved
health care services.
[59] The Department of the Interior funded the initial construction of
the hospital, which began in 1994. However, because of cost overruns,
that funding source was depleted considerably before the project's
completion. Subsequently, the RMI government secured a loan from the
Asian Development Bank to complete the project.
[60] In the Ministry of Health's Annual Report for 2005, this increase
was also attributed to the lifting of previously implemented off-island
medical referral restrictions. Despite this increase, the RMI reduced
its expenses from $5.5 million in 2000 to $1.5 million in 2005 by
sending more patients to hospitals in the Philippines, where medical
care costs are significantly less than the cost of medical care in the
United States.
[61] In this report, all years cited are fiscal years (Oct. 1-Sept. 30)
unless otherwise indicated.
[62] The FSM's national audit office did not use PSCB funds to pay
salaries, according to OIA.
[63] Funding for technical assistance includes Operations and
Maintenance Improvement Grant funds.
[64] Funding for technical assistance includes operations and
maintenance improvement grant funds.
[65] GAO-07-163.
[66] In this report, all years cited are fiscal years (Oct. 1-Sept. 30)
unless otherwise indicated.
[67] GAO's Compacts of Free Association: Development Prospects Remain
Limited for Micronesia and Marshall Islands, GAO-05-66 (Washington,
D.C; June 27, 2006)
[68] The Land Registration Authority stopped receiving compact funding
in 2006.
[69] GAO-05-633.
[70] See GAO-07-163, appendixes VI and VII for details of the grant
conditions and their status.
[71] In this report, all years cited are fiscal years (Oct. 1-Sept. 30)
unless otherwise indicated.
[72] The Asian Development Bank is supplying a loan partially targeted
at building a new sewage treatment plant and repairing the existing
collection system in Pohnpei; the project is scheduled to begin in
2008, according to a Pohnpei EPA official.
[73] Page references may vary slightly from the GAO report.
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