U.S. Insular Areas: Economic, Fiscal, and Financial Accountability Challenges
Highlights
The U.S. insular areas of American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam, and the U.S. Virgin Islands (USVI), face long-standing economic, fiscal, and financial accountability challenges. GAO was requested to identify and report on the (1) economic challenges facing each government, including the effect of changing tax and trade laws on their economies; (2) fiscal condition of each government; and (3) financial accountability of each government, including compliance with the Single Audit Act, which applies to nonfederal entities that receive $500,000 or more a year in federal funding.
The governments of the U.S. insular areas of American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, and the U.S. Virgin Islands face serious economic, fiscal, and financial accountability challenges. The economic challenges stem from dependence on a few key industries, scarce natural resources, small domestic markets, limited infrastructure, shortages of skilled labor, and reliance on federal grants to fund basic services. To help diversify and strengthen their economies, OIA sponsors conferences and missions to the areas to attract U.S. businesses; however, there has been little formal evaluation of these efforts. After fiscal year 2001, government spending in the CNMI, Guam, and USVI exceeded revenues through fiscal year 2004 (the most recent year for which there is complete data on all four areas). As a result, their fiscal conditions weakened further during this period. CNMI and USVI ended fiscal year 2004 with negative net government assets. For American Samoa the picture was mixed, with more stability than the other areas in the period 2001 through 2003, but a downturn in the balance of governmental funds by the end of fiscal year 2004. Efforts to meet formidable fiscal challenges and build strong economies are hindered by delayed and incomplete financial reporting that does not provide timely and complete information to management and oversight officials for decision making. The insular area governments have had long-standing financial accountability problems, including the late submission of required single audits, the receipt of disclaimer or qualified audit opinions, and the reporting of many serious internal control weaknesses. These problems have resulted in numerous federal agencies designating these governments as "high-risk" grantees. The Department of the Interior and the federal agencies are working to help these governments improve their financial accountability, but greater coordination among the agencies would increase the effectiveness of their efforts.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Interior | The Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs to increase coordination activities with officials from other federal grant-making agencies on issues of common concern relating to the insular area governments, such as late single audit reports, high-risk designations, and deficiencies in financial management systems and practices. |
The OIA increased coordination activities with officials from other federal grant-making agencies on financial management issues of common concern relating to the insular area governments. Specifically, OIA utilized a June 2007 conference in San Francisco California to facilitate communication among all the participants concerning ways to address (a) federal grant program audit findings identified in audits of the territories and insular areas and (b) other financial management issues, including declarations of high-risk. Thirty-four federal government participants representing 16 federal agencies attended the conference along with financial and program managers from the insular area governments. Subsequent to the conference, OIA officials monitored insular area progress in addressing accountability issues and used 10 criteria, including compliance with Single Audit deadlines, the type of audit opinions received during financial statement audits, and resolution of Single Audit findings, to make capital improvement project allocation decisions. OIA's actions to increase coordination activities with officials from other federal grant-making agencies has helped address accountability issues of common concern in the insular areas of American Samoa, the Commonwealth of Northern Marianna Islands, Guam, and the U.S. Virgin Islands.
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| Department of the Interior | The Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs to conduct formal periodic evaluation of the Office of Insular Affairs' (OIA) conferences and business opportunities missions, assessing their impact of creating private sector jobs and increasing insular area income. |
OIA has taken action to conduct evaluations of OIA conferences and business opportunity missions. For example, in April 2009 OIA evaluated the impact of its 2009 Island Business Opportunities Conference. OIA surveyed attendees to assess whether the conference was useful for networking and gathering information about business opportunities and partnerships in the islands, and if the attendees planned to pursue leads developed at the conference. The survey also asked attendees about the usefulness of information and materials received, display tables and hospitality suites. OIA's actions to evaluate conferences and business opportunity missions has helped improve the effectiveness of these OIA activities to promote economic development.
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| Department of the Interior | The Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs to develop a framework for OIA employees to use in conducting site visits to help ensure objectives are achieved, to assure that relevant information is shared with responsible officials, and to allow more efficient and effective monitoring of issues. |
The Department of Interior (DOI) agreed with this recommendation. On May 24, 2017, DOI sent an email to its staff showing the dissemination of a new format required for completing trip reports by the staff of the Office of Insular Affairs (OIA). The new format requires staff to include travel justification (i.e., purpose/objective, location, and travel period) and trip report (i.e., meetings, site visits, results, and next steps, as applicable.) However, the intent of the recommendation was for DOI to have a broader framework that includes (1) status of required single audit reports; (2) the progress of actions to resolve reported internal control weaknesses; and (3) current needs for technical assistance, capacity building, and staff level expertise. Further, this information should be integrated into a comprehensive monitoring process. We did not see these elements included in DOI's new format. DOI officials stated that many controls within OIA were confirmed and established as needed and that discussions among management and staff occur prior to and at the conclusion of travel, and trip reports have always been a requirement. DOI requested that the recommendation be considered resolved and closed. Given (1) the age of this recommendation and (2) that DOI has indicated that it considers the objectives of this recommendation to have been achieved to its satisfaction and therefore is not planning any further related corrective actions; we are closing this recommendation as not implemented.
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| Department of the Interior | The Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs to develop and implement procedures for formal evaluations of progress made by the insular areas to resolve accountability findings and set a time frame for achieving clean audit opinions. |
In response to our recommendation, the Office of Insular Affairs (OIA) implemented procedures to evaluate progress by insular areas to resolve accountability findings and set a time frame for achieving clean audit opinions. In 2010, we reviewed OIA incentives for insular areas to make financial management improvements. In particular, we examined OIA's competitive allocation system for funds for capital improvement projects, and found that OIA used 10 criteria, including compliance with Single Audit deadlines, the type of audit opinions received during financial statement audits, and resolution of Single Audit findings, to make capital improvement project allocation decisions. According to OIA staff, insular areas are on a timetable to have clean opinions on their Single Audits by fiscal year 2011. OIA's actions to evaluate progress by the Insular Areas to resolve accountability findings and set a time frame for achieving clean audit opinions should improve OIA's ability to address long-standing insular area accountability problems.
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