Compacts of Free Association: Micronesia and the Marshall Islands Continue to Face Challenges Measuring Progress and Ensuring Accountability
Highlights
What GAO Found
In fiscal years 2007 through 2011, the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) spent at least half their compact sector funds in the education and health sectors. Because both countries spent significant amounts of compact funds on personnel in the education and health sectors, the U.S.-FSM and U.S.-RMI joint management and accountability committees capped budgets for personnel in these sectors at fiscal year 2011 levels due to concerns about the sustainability of sector budgets as compact funding continues to decline through fiscal year 2023. The FSM states completed plans to address annual decreases in compact funding; however, the FSM National Government and the RMI have not submitted plans to address these annual decreases as required. Without plans, the countries may not be able to sustain essential services in the education and health sectors in the future.
Data reliability issues hindered GAO's assessment of progress by the FSM and RMI in the education and health sectors for fiscal years 2007 through 2011 for the compacts as a whole. Between 2004 and 2006, both countries began tracking education and health indicators, establishing data collection systems, and collecting data for the majority of the indicators and have continued to track data on their indicators since that time. In education, GAO found 3 of 14 indicators in the subsets of indicators it reviewed for both countries to be sufficiently reliable and 1 also to be capable of demonstrating progress: the education level of teachers in the RMI. GAO found a variety of data reliability problems, such as some FSM states reporting data for both public and private schools while other states included only public schools in their data. In the health sector, GAO determined that data for all 5 of the subset of indicators it reviewed in the FSM were not sufficiently reliable to assess progress for the compacts as a whole, and in the RMI, 1 health indicator was sufficiently reliable and 2 were not sufficiently reliable; for 2 other RMI health indicators, GAO had no basis to judge. In much of their reporting on their education and health indicators, the FSM and RMI have noted data reliability problems and some actions they have taken to address the problems. The U.S.-FSM and U.S.-RMI joint management and accountability committees have also raised concerns about the reliability of FSM's education and health data and RMI's health data and required that each country obtain an independent assessment and verification of these data; both countries have yet to meet that requirement, and, as a result, neither country can determine its progress in these sectors.
The single audit reports GAO reviewed indicated challenges to ensuring accountability of compact and noncompact U.S. funds in the FSM and RMI. For example, the governments' single audits showed repeat findings and persistent problems in noncompliance with U.S. program requirements, such as accounting for equipment. The Department of the Interior (Interior) has taken steps regarding accountability of compact funds such as establishing the Chuuk Financial Control Commission, but Interior has not coordinated with other U.S. agencies about the risk status of the FSM and RMI. Furthermore, the FSM, RMI, and U.S. offices responsible for compact administration faced limitations hindering their ability to conduct compact oversight. For example, Interior's Office of Insular Affairs (OIA) experienced a staffing shortage that disproportionately affected compact grant oversight compared to other OIA activities, with 5 of 11 planned positions filled.
Why GAO Did This Study
In 2003, the U.S. government approved amended Compacts of Free Association with the FSM and the RMI, providing for a total of $3.6 billion in assistance over 20 years. Given the countries' dependence on compact funding, GAO was asked to conduct a review of the use and accountability of these funds. This report addresses (1) the FSM's and RMI's use of compact funds in the education and health sectors; (2) the extent to which the FSM and RMI have made progress toward stated goals in education and health; and (3) the extent to which oversight activities by the FSM, RMI, and U.S. governments ensure accountability for compact funding. GAO also provided information on infrastructure spending and projects in the education and health sectors. GAO reviewed relevant documents and data, including single audit reports; interviewed officials from Interior, other U.S. agencies, and the FSM and RMI; assessed data reliability for subsets of both countries' education and health indicators; and visited compact-funded education and health facilities in both countries.
Recommendations
Among other actions, Interior should (1) take all necessary steps to ensure the reliability of FSM and RMI indicators in education and health, (2) assess whether to designate each country as high risk, and (3) take actions to correct its disproportionate staffing shortage related to compact grant implementation and oversight. Interior generally agreed with GAO's recommendations and identified actions taken, ongoing, and planned.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Interior | In order to improve the ability of the U.S. agencies participating in the Joint Economic Management Committee (JEMCO) and Joint Economic Management and Financial Accountability Committee (JEMFAC) to conduct required oversight of compact funds, the Secretary of the Interior should direct the Director of Insular Affairs, as Chairman of JEMCO, to coordinate with other JEMCO-member U.S. agencies to have JEMCO take all necessary steps, or, as the administrator of compact grants, to directly take all necessary steps, to ensure that the FSM (1) completes satisfactory plans to address annual decrements in compact funds, (2) produces reliable indicator data used to track progress in education and health, and (3) addresses all single audit findings in a timely manner. |
In response to the GAO recommendation, the FSM developed education indicators but has not yet developed health indicators. According to the Department of the Interior (Interior), as of December 1, 2017, the FSM education data were neither reliable nor verifiable. As a result, after almost 5 years, Interior is unable to demonstrate that the country has met the intent of the recommendation for education. Further, given that the country still lacks health indicators, the Director of Insular Affairs, as Chairman of the JEMCO, cannot demonstrate that the FSM is meeting the intent of the recommendation. In response to the GAO recommendation that the FSM address single audit findings in a timely manner, Interior reported that as of December 1, 2017, the FSM had submitted timely audit reports and had taken steps to address single audit findings by clearing the backlogged amount of questioned costs and reducing the dollar amount of findings. However, federal compliance issues remain a concern, and JEMCO has included discussion of single audits at its meetings. For example, a U.S. government document for JEMCO's April 2017 meeting included the following statement: "The number of financial and compliance findings, material weaknesses, significant deficiencies and questioned costs in FSM Single Audits are a significant concern to the United States."
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| Department of the Interior | In order to improve the ability of the U.S. agencies participating in the JEMCO and JEMFAC committees to conduct required oversight of compact funds, the Secretary of the Interior should direct the Director of Insular Affairs, as Chairman of the JEMFAC, to coordinate with other JEMFAC-member U.S. agencies to have JEMFAC take all necessary steps, or, as the administrator of compact grants, to directly take all necessary steps, to ensure that the RMI (1) completes satisfactory plans to address annual decrements in compact funds, (2) produces reliable indicator data used to track progress in education and health, and (3) addresses all single audit findings in a timely manner. |
In response to the GAO recommendation, the RMI developed education and health indicators. However, according to the Department of the Interior (Interior), as of December 1, 2017, the RMI had not produced reliable or verifiable education or health data. As a result, after almost 5 years, the Director of Insular Affairs, as Chairman of the JEMCO, is unable to demonstrate that the country has met the intent of the recommendation. In response to the GAO recommendation that the RMI address single audit findings in a timely manner, Interior reported on December 1, 2017, that the RMI had submitted its 2016 single audit report on time. However, questioned costs and federal compliance issues remain problematic.
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| Department of the Interior | In order to improve financial accountability of noncompact U.S. grant assistance provided to the FSM and the RMI, the Secretary of the Interior should consult with other grantor agencies to determine whether the FSM National Government or any FSM states meet the criteria to be designated as a high-risk grant recipient for noncompact funds, or whether other steps should be taken to improve accountability. |
The Department of the Interior's Office of Insular Affairs (OIA) agreed to discuss the GAO recommendation as part of OIA's ongoing communications with other Federal agencies, both directly and through the Region IX's Federal Regional Council and its Outer Pacific Committee. However, it also noted that the Department cannot direct other agencies to take action with regard to individual grant issues, including resolution of questioned costs and other specific-grant issues. Nonetheless, OIA reported that it had consulted with other federal agencies, including Health and Human Services (HHS) and the Environmental Protection Agency (EPA), about designating the FSM and RMI high-risk grantees. GAO contacted HHS and EPA officials and confirmed that the consultations occurred. Interior has not, however, designated either the FSM or the RMI as high risk grant recipients as of April 2016. Nonetheless, other federal agencies we spoke with are aware of the FSM and RMI accountability issues. We believe the Secretary of the Interior has taken sufficient actions to address this recommendation.
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| Department of the Interior | In order to improve financial accountability of noncompact U.S. grant assistance provided to the FSM and the RMI, the Secretary of the Interior should consult with other grantor agencies to determine whether the RMI meets the criteria to be designated as a high-risk grant recipient for noncompact funds, or whether other steps should be taken to improve accountability. |
The Department of the Interior's Office of Insular Affairs (OIA) agreed to discuss the GAO recommendation as part of OIA's ongoing communications with other Federal agencies, both directly and through the Region IX's Federal Regional Council and its Outer Pacific Committee. However, it also noted that the Department cannot direct other agencies to take action with regard to individual grant issues, including resolution of questioned costs and other specific-grant issues. Nonetheless, OIA reported that it had consulted with other federal agencies, including Health and Human Services (HHS) and the Environmental Protection Agency (EPA), about designating the FSM and RMI high-risk grantees. GAO contacted HHS and EPA officials and confirmed that the consultations occurred. Interior has not, however, designated either the FSM or the RMI as high risk grant recipients as of April 2016. Nonetheless, other federal agencies we spoke with are aware of the FSM and RMI accountability issues. We believe the Secretary of the Interior has taken sufficient actions to address this recommendation.
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| Department of the Interior | In order to ensure that Interior is providing appropriate resources for oversight and monitoring of the FSM and RMI compacts, the Secretary of the Interior should take actions to correct the disproportionate staffing shortage related to compact grant implementation and oversight. |
The Department of the Interior (Interior) generally agreed with our recommendation but noted that corrective action was contingent on receiving funding for new positions through the annual budget process. We noted that the intention of the recommendation was to have Interior work with its actual funding since compact grants account for the majority of grant funds that OIA administers and that OIA's staffing shortage has disproportionally affected compact grant oversight compared with other oversight activities. In response to our report, Interior provided in July 2017 an updated staffing chart indicating that many of the previously vacant positions have now been filled and that the office considers the recommendation closed and the impetus for the staffing increases was our recommendation.
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