This is the accessible text file for GAO report number GAO-05-41 entitled 'American Samoa: Accountability for Key Federal Grants Needs Improvement' which was released on January 18, 2005. This text file was formatted by the U.S. Government Accountability Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Report to Congressional Requesters: December 2004: AMERICAN SAMOA: Accountability for Key Federal Grants Needs Improvement: GAO-05-41: GAO Highlights: Highlights of GAO-05-41, a report to congressional requesters Why GAO Did This Study: American Samoa, a U.S. territory, relies on federal funding to support government operations and deliver critical services. The Secretary of the Interior has administrative responsibility for coordinating federal policy in the territory. Under the Single Audit Act of 1996, American Samoa is required to perform a yearly single audit of federal grants and other awards to ensure accountability. To better understand the role of federal funds in American Samoa, GAO (1) examined the uses of 12 key grants in fiscal years 1999-2003, (2) identified local conditions that affected the grants, and (3) assessed accountability for the grants. What GAO Found: In fiscal years 1999-2003, 12 key federal grants supported essential services in American Samoa. These services included support for government operations, infrastructure improvements, nutrition assistance, the school system, special education, airport and highway infrastructure improvements, Medicaid, and early childhood education. A shortage of adequately trained professionals, such as accountants and teachers, as well as inadequate facilities and limited local funds hampered service delivery or slowed project completion for many of the grants. For example, American Samoa’s only hospital lacked an adequate number of U.S.-certified medical staff. Further, the hospital had persistent and serious fire-safety code deficiencies that jeopardized its ability to maintain the certification required for Medicaid funding. American Samoa’s failure to complete single audits, federal agencies’ slow reactions to this failure, and instances of theft and fraud limited accountability for the 12 grants to American Samoa. The American Samoa government did not comply with the Single Audit Act during fiscal years 1998-2003. The 1998-2000 audit reports, completed in 2003, and the 2001 audit report, completed in 2004, cited pervasive governmentwide and program-specific accountability problems. Despite the audits’ delinquency, federal agencies were slow, or failed, to communicate concern to the American Samoa government or to take corrective action. In addition, accountability for all of the grants was potentially undermined by instances of theft and fraud. For example, the American Samoa Chief Procurement Officer, whose office handles procurements for most of the grants GAO reviewed, was convicted of illegal procurement practices. Single Audit Deadlines and Completion Dates: [See PDF for image] [End of figure] What GAO Recommends: GAO recommends that the Secretary of the Interior coordinate with other granting federal agencies and the American Samoa government to resolve fire-safety issues that threaten the hospital’s continued certification to participate in Medicaid. GAO also recommends that the Secretary coordinate with the other agencies to designate the American Samoa government as a high-risk grantee at least until it has completed all delinquent single audits and to take steps designed to ensure that the American Samoa government completes its overdue, current, and future single audits in compliance with the Single Audit Act. www.gao.gov/cgi-bin/getrpt?GAO-05-41. To view the full product, including the scope and methodology, click on the link above. For more information, contact David Gootnick, (202) 512-3149, gootnickd@gao.gov. [End of section] Contents: Letter: Results in Brief: Background: Federal Grants Provided Essential Services to American Samoa: Local Conditions Limited Delivery of Services or Project Completion for Many of the Grants: Grants Had Limited Accountability, and U.S. Agencies Reacted Slowly: Conclusions: Recommendations for Executive Action: Agency Comments and Our Evaluation: Appendixes: Appendix I: Objectives, Scope, and Methodology: Appendix II: U.S. Department of the Interior Programs in American Samoa: Government Operations Grant: Capital Improvement Grants: General Technical Assistance Grants: Appendix III: U.S. Department of Agriculture Programs in American Samoa: School Lunch Program: Special Supplemental Nutrition Program for Women, Infants, and Children: Food Stamp Program: Appendix IV: U.S. Department of Education Programs in American Samoa: Innovative Programs Grants: Special Education Grants: Appendix V: U.S. Department of Transportation Programs in American Samoa: Airport Improvement Program: Federal-Aid Highway Program: Appendix VI: U.S. Department of Health and Human Services Programs in American Samoa: Medicaid: Head Start: Appendix VII: Federal Grants Process in American Samoa: Appendix VIII: Comments from the Department of the Interior: GAO Comments: Appendix IX: Comments from the Department of Health and Human Services: GAO Comment: Appendix X: Comments from the American Samoa Government: GAO Comments: Appendix XI: GAO Contact and Staff Acknowledgments: GAO Contact: Staff Acknowledgments: Tables Tables: Table 1: Key Federal Grants to American Samoa, Fiscal Years 1999-2003: Table 2: Government Operations Grant to American Samoa, Fiscal Years 1999-2003: Table 3: Capital Improvement Grants Awards to American Samoa, Fiscal Years 1999-2003: Table 4: General Technical Assistance Grant Awards to American Samoa, Fiscal Years 1999-2003: Table 5: School Lunch Program Grant Awards to American Samoa, Fiscal Years 1999-2003: Table 6: WIC Program Grant Awards to American Samoa, Fiscal Years 1999- 2003: Table 7: Food Stamp Program Grant Awards to American Samoa, Fiscal Years 1999-2003: Table 8: Innovative Programs Grant Awards to American Samoa, Fiscal Years 1999-2003: Table 9: Budget Allocation of Innovative Programs Grant Funds to American Samoa, Fiscal Year 2003: Table 10: Special Education Grant Awards to American Samoa, Fiscal Years 1999-2003: Table 11: Airport Improvement Program Grant Awards to American Samoa, Fiscal Years 1999-2003: Table 12: Federal-Aid Highway Program Grant Awards to American Samoa, Fiscal Years 1999-2003: Table 13: Federal Medicaid Funds to American Samoa, Fiscal Years 1999- 2003: Table 14: Head Start Program Grant Awards to American Samoa, Fiscal Years 1999-2003: Figures: Figure 1: Map Showing Location of American Samoa: Figure 2: Selected Federal-aid Highway Projects in American Samoa: Figure 3: LBJ Hospital's Key Revenue Sources, Fiscal Years 1998-2003: Figure 4: American Samoa Single Audit Time Line and Federal Actions, Fiscal Years 1997-2003: Figure 5: American Samoan Organizations or Sectors Receiving DOI Capital Improvement Grants, Fiscal Years 1999-2003: Figure 6: Tafuna High School Classroom Block Built with Capital Improvement Grant Funds, American Samoa: Figure 7: LBJ Hospital Laboratory Renovated with Capital Improvement Grant Funds, American Samoa: Figure 8: Airport Immigration Tracking System, American Samoa: Figure 9: School Lunch Program at Leone Midkiff Elementary School, American Samoa: Figure 10: Vendor Posting of Official Food List for American Samoa Food Stamp Program: Figure 11: New Fire Suppression Vehicle for American Samoa Airports: Figure 12: Head Start Classroom at Tafuna Early Childhood Education Center, American Samoa: Abbreviations: ASG: American Samoa government: CAFR: Comprehensive Annual Financial Report: CPI: Consumer Price Index: DOI: U.S. Department of the Interior, Office of Insular Affairs: DOT: U.S. Department of Transportation: EBT: electronic benefit transfer: ED: U.S. Department of Education: FAA: Federal Aviation Administration: FHWA: Federal Highway Administration: FNS: Food and Nutrition Service: HHS: U.S. Department of Health and Human Services: IDEA: Individuals with Disabilities Education Act: LBJ hospital: Lyndon Baines Johnson Tropical Medical Center: Medicaid: Medical Assistance Program: MOA: memorandum of agreement: MOU: memorandum of understanding: NCLBA: No Child Left Behind Act: NHS: National Highway System: OCFO: Office of the Chief Financial Officer: OMB: Office of Management and Budget: TEA-21: Transportation Equity Act for the 21ST Century: TOFR: Territorial Office of Fiscal Reform: USDA: U.S. Department of Agriculture: WIC: Special Supplemental Nutrition Program for Women, Infants and Children: Letter December 17, 2004: The Honorable Nick J. Rahall II: Ranking Minority Member: Committee on Resources: House of Representatives: The Honorable Eni F.H. Faleomavaega: House of Representatives: American Samoa, a U.S. territory,[Footnote 1] relies on federal funding to support its general government operations and deliver critical services; over the last 5 years, federal awards to the territory represented, on average, about 45 percent of the territory's operating budget.[Footnote 2] Each fiscal year, the government of American Samoa is required by the Single Audit Act of 1996 to undergo an audit of its federally funded programs within 9 months of the year's end.[Footnote 3] The Secretary of the Interior has general administrative responsibility for coordinating this and other federal policies in American Samoa, and the U.S. Department of the Interior's Office of Insular Affairs (DOI) is authorized to take appropriate action regarding the single audit.[Footnote 4] The American Samoa government, which has historically operated under deficits, has struggled to reform its financial management and decrease its dependence on federal funds by increasing local revenues. However, the territory has a limited economic base: its largest employer is the American Samoa government, and the next largest employers are two tuna canneries that benefit from federal tax incentives due to expire in 2005. We reviewed 12 key federal grants that provided about $450 million to American Samoa during fiscal years 1999-2003. In fiscal year 2000, these grants represented about three-quarters of all federal expenditures by the American Samoa government. To better understand the role of federal funds in American Samoa, we (1) examined the uses of these key federal grants to American Samoa, (2) identified local conditions that affected the grants, and (3) assessed accountability for the grants.[Footnote 5] To examine the use of the grants and the effects of local conditions, we collected and reviewed grant data from the federal and local agencies responsible for overseeing the selected programs in fiscal years 1999-2003, interviewed federal and American Samoa program officials to learn about program activities and operations, and conducted site visits in American Samoa to observe programs and projects funded by the 12 grants. To assess accountability, we reviewed legislation, regulations, and other relevant documents; monitoring reports and financial audits conducted by federal agencies; and American Samoa's single audit reports for fiscal years 1998-2001, which were completed in 2003 and 2004. We also conducted federal agency interviews and on-site observations. We performed this work between September 2003 and October 2004 according to generally accepted government auditing standards. Appendix I provides further details of our scope and methodology. Appendixes II through VI describe each federal department's use of grant funds and assess the performance and accountability for each of the 12 grants we reviewed. Results in Brief: In fiscal years 1999-2003, five federal departments provided 12 key grants to the American Samoa government to support several essential services. DOI provided grants to support government operations and infrastructure improvements. The U.S. Department of Agriculture (USDA) offered nutrition assistance to about half of the territory's population. The U.S. Department of Education (ED) provided a large share of grant funding to the American Samoa school system and supported the Special Education Program. Airport and highway grants from the U.S. Department of Transportation (DOT) supported important infrastructure improvements. The U.S. Department of Health and Human Services (HHS) supported health care services at Lyndon Baines Johnson Tropical Medical Center (LBJ Hospital), the territory's sole hospital, as well as early childhood education. Local conditions in American Samoa in fiscal years 1999-2003 limited the delivery of services or project completion for many of the 12 grants we reviewed. A shortage of adequately trained professionals in American Samoa, such as qualified accountants, technical staff, teachers, and health care specialists, hindered financial oversight for all of the grants as well as service delivery for several of the programs we reviewed. For example, LBJ Hospital lacked an adequate number of U.S.-certified medical staff. Additionally, inadequate facilities at schools and LBJ Hospital hampered the ability of the Head Start and Medicaid Programs to deliver services to their target recipients. In particular, the hospital suffered from persistent and serious fire-safety code deficiencies that jeopardized its ability to maintain the certification required for continued Medicaid funding. Limited local funds also affected the hospital's ability to hire needed staff to deliver required services as well as its ability to upgrade its facility to correct long-standing fire-safety issues. Similarly, insufficient local revenues affected the ability of American Samoa airports to complement or match federal Airport Improvement Program grant funds and slowed the completion of critical infrastructure upgrades and the acquisition of rescue equipment. In fiscal years 1998-2003, American Samoa failed to complete single audits as required, limiting accountability for the grants, and federal agencies reacted slowly to this failure; accountability may have been further weakened by incidents of theft and fraud. The American Samoa government did not comply with the Single Audit Act during fiscal years 1998-2003, compromising the accountability of all federal grants to the territory. Further, delinquent single audit reports for fiscal years 1998-2000, completed in 2003, and the 2001 single audit, completed in 2004, cited pervasive governmentwide and program-specific accountability problems. Despite the lack of single audits, most federal agencies responsible for the 12 grants that we reviewed were slow to communicate their concern to the American Samoa government or did not take corrective action, although they were authorized to do so. In August 2002, DOI, the agency responsible for audit supervision, and the American Samoa government signed a memorandum of agreement (MOA) that included a schedule for completing the delinquent audits. In September 2003, ED designated American Samoa as a high-risk grantee because of its lack of single audits. However, DOI did not coordinate with the other awarding agencies to ensure compliance with the Single Audit Act and the terms of the MOA. Furthermore, documented instances of theft and fraud undermined the accountability of most of the grants we reviewed. For example, the Chief Procurement Officer of the American Samoa Government was convicted of illegal procurement practices, potentially affecting most of the grants. Other examples of theft or fraud included bid-rigging in the American Samoa department that administers the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and the Food Stamp Program, as well as vendor fraud in WIC and theft of goods from the School Lunch Program warehouse. We are recommending that the Secretary of the Interior coordinate with other federal granting agencies and the American Samoa government to ensure the resolution of fire-safety deficiencies threatening LBJ Hospital's continued Medicare certification as well as to address the hospital's staffing and resources constraints, as warranted. To improve fiscal accountability, we are recommending that the Secretary coordinate with other federal agencies to designate the American Samoa government as a high-risk grantee, particularly until it has completed all of its overdue single audits; to take steps designed to ensure that the American Samoa government completes its overdue single audits in compliance with the Single Audit Act; and to take steps designed to ensure that current and future single audits are completed in compliance with the act. We provided a draft of this report to the Departments of the Interior, Agriculture, Education, Transportation, and Health and Human Services as well as to the government of American Samoa. We received oral comments from the Departments of Agriculture, Education, and Transportation. The Departments of Agriculture and Transportation limited their oral comments to technical corrections. The Department of Education agreed with our recommendations and provided technical corrections. We received written comments from the Departments of the Interior and Health and Human Services as well as the American Samoa government, which are reprinted in appendixes VIII, IX, and X. Both departments agreed with all but our recommendation to designate American Samoa a high-risk grantee. However, DOI agreed to consult with the other federal agencies to evaluate whether, or under what conditions, a joint declaration of American Samoa's high-risk status would be prudent and to discuss what other steps might be taken to help American Samoa come into compliance with the Single Audit Act more quickly. The American Samoa government strongly recommended against its being declared a high-risk grantee, because it believes that high-risk status would imperil future funding. We believe that a coordinated, consistent approach to a high-risk grantee across the agencies would be more productive than the agencies' current inconsistent approaches. A high-risk designation would not result in an immediate suspension of federal grants. Background: American Samoa lies 2,600 miles southwest of Hawaii and consists of seven islands,[Footnote 6] covering a land area of 76 square miles (see fig. 1). In 2003, it had a population of 57,844.[Footnote 7] The main island of Tutuila has very little level land and is mostly rugged, with four high peaks, the tallest rising over 2,000 feet. Agricultural production is limited by the scarcity of arable land, and tourism is impaired by the island's remote location and lack of tourist-rated facilities. Two tuna canneries constitute the main sources of private sector employment. Most of the economic activity and government operations on Tutuila take place in the Pago Pago Bay area. Figure 1: Map Showing Location of American Samoa: [See PDF for image] [End of figure] As an unorganized, unincorporated[Footnote 8] U.S. territory, American Samoa is not subject to the U.S. Constitution in the same manner as the 50 states. For example, some constitutional rights, such as the rights to vote in national elections and to full voting representation in the U.S. Congress, do not apply to American Samoa. Although no congressional act formally establishes a government structure in American Samoa, the territory has its own local government and constitution. Those born in American Samoa are U.S. nationals.[Footnote 9] Since 1977, a popularly elected governor has headed the American Samoan executive branch for a 4-year term, and the legislature, or Fono, has comprised 18 elected senators and 20 elected representatives. Nearly 40 American Samoan departments, offices, and other entities provide public safety, public works, education, health, commerce, and other services to American Samoans. Providing these services has proved financially challenging for the American Samoan government. After a period of relative budget growth in the early 1980s, the territory's finances rapidly deteriorated in the second half of the decade when expenditures exceeded income in American Samoa's budget. In fiscal year 1991, the government borrowed $5 million from its employee pension fund to temporarily relieve its cash flow problems. Following a GAO report in 1992, Congress directed DOI and the American Samoa government to form a joint working group to address the government's financial management problems.[Footnote 10] The working group made recommendations to the American Samoa government, which pledged to implement a financial recovery plan based on these recommendations. Beginning in fiscal year 1997, the Senate Appropriations Committee directed DOI to withhold $2 million of capital improvement funding from the territory until DOI could certify that the American Samoan government had adequately implemented the recovery plan.[Footnote 11] However, the territory's financial situation subsequently worsened and, in 1999, Congress authorized[Footnote 12] a direct federal loan to American Samoa for $18.6 million[Footnote 13] to pay debts and implement reforms. In 2001, the American Samoa government submitted an initial fiscal reform plan to DOI. DOI and the American Samoa government signed an MOA in 2002, implementing fiscal and operational reforms. The MOA was designed to bring the American Samoa government operating expenses into balance with projected revenues for fiscal years 2003 and beyond. It also outlined a schedule for American Samoa to complete all outstanding single audit reports. Five federal departments have historically provided significant grants to the American Samoa government, including one large grant from DOI to support government operations. During fiscal years 1999-2003, DOI, USDA, ED, DOT, and HHS provided about $450 million in grant funds to American Samoa through 12 key grants. Of these 12 grants, 4 were structured specifically for American Samoa, 2 were structured for all U.S. insular areas, and 6 were structured in the same manner as in the 50 U.S. states. Table 1 shows the federal awarding departments and agencies, the grants, the grant structures, and the grant award amounts for fiscal years 1999-2003. Table 1: Key Federal Grants to American Samoa, Fiscal Years 1999-2003: Dollars in millions. Awarding department, agency, and grant: Interior, Office of Insular Affairs; Government operations grant; Grant structure[A]: American Samoa; Grant award[B]: 1999: $22.8; Grant award[B]: 2000: $22.8; Grant award[B]: 2001: $22.7; Grant award[B]: 2002: $22.8; Grant award[B]: 2003: $22.7; Grant award[B]: 5-year total: $113.8. Awarding department, agency, and grant: Interior, Office of Insular Affairs; Capital improvement grants; Grant structure[A]: Insular areas; Grant award[B]: 1999: $8.2; Grant award[B]: 2000: $10.1; Grant award[B]: 2001: $12.1; Grant award[B]: 2002: $10.1; Grant award[B]: 2003: $10.1; Grant award[B]: 5-year total: $50.8. Awarding department, agency, and grant: Interior, Office of Insular Affairs; Technical assistance grants; Grant structure[A]: Insular areas; Grant award[B]: 1999: $0.3; Grant award[B]: 2000: $0.1; Grant award[B]: 2001: $0.7; Grant award[B]: 2002: $0.6; Grant award[B]: 2003: $0.1; Grant award[B]: 5-year total: $1.7. Awarding department, agency, and grant: Agriculture, Food and Nutrition Services; School Lunch Program; Grant structure[A]: American Samoa; Grant award[B]: 1999: $8.5; Grant award[B]: 2000: $9.1; Grant award[B]: 2001: $9.7; Grant award[B]: 2002: $10.5; Grant award[B]: 2003: $11.2; Grant award[B]: 5-year total: $49.0. Awarding department, agency, and grant: Agriculture, Food and Nutrition Services; Special Supplemental Nutrition Program for Women, Infants and Children (WIC); Grant structure[A]: United States; Grant award[B]: 1999: $4.9; Grant award[B]: 2000: $5.0; Grant award[B]: 2001: $5.2; Grant award[B]: 2002: $5.5; Grant award[B]: 2003: $6.1; Grant award[B]: 5-year total: $26.7. Awarding department, agency, and grant: Agriculture, Food and Nutrition Services; Food Stamp Program; Grant structure[A]: American Samoa; Grant award[B]: 1999: $5.3; Grant award[B]: 2000: $5.3; Grant award[B]: 2001: $5.3; Grant award[B]: 2002: $5.3; Grant award[B]: 2003: $5.4; Grant award[B]: 5-year total: $26.6. Awarding department, agency, and grant: Education, Office of Elementary and Secondary Education; Innovative Programs grant; Grant structure[A]: United States; Grant award[B]: 1999: $6.8; Grant award[B]: 2000: $7.0; Grant award[B]: 2001: $7.7; Grant award[B]: 2002: $15.3; Grant award[B]: 2003: $16.8; Grant award[B]: 5-year total: $53.6. Awarding department, agency, and grant: Education, Office of Special Education and Rehabilitative Services; Special Education Grants to States; Grant structure[A]: United States; Grant award[B]: 1999: $4.8; Grant award[B]: 2000: $5.0; Grant award[B]: 2001: $5.1; Grant award[B]: 2002: $5.7; Grant award[B]: 2003: $5.8; Grant award[B]: 5-year total: $26.4. Awarding department, agency, and grant: Transportation, Federal Aviation Administration; Airport Improvement Program; Grant structure[A]: United States; Grant award[B]: 1999: $9.6; Grant award[B]: 2000: $8.9; Grant award[B]: 2001: $7.5; Grant award[B]: 2002: $8.9; Grant award[B]: 2003: $4.4; Grant award[B]: 5-year total: $39.3. Awarding department, agency, and grant: Transportation, Federal Highway Administration; Federal-aid Highway Program; Grant structure[A]: United States; Grant award[B]: 1999: $5.0; Grant award[B]: 2000: $5.5; Grant award[B]: 2001: $5.8; Grant award[B]: 2002: $7.5; Grant award[B]: 2003: $6.6; Grant award[B]: 5-year total: $30.4. Awarding department, agency, and grant: Health and Human Services, Centers for Medicare & Medicaid Services; Medical Assistance Program (Medicaid); Grant structure[A]: American Samoa; Grant award[B]: 1999: $3.1; Grant award[B]: 2000: $3.2; Grant award[B]: 2001: $3.3; Grant award[B]: 2002: $3.5; Grant award[B]: 2003: $3.7; Grant award[B]: 5-year total: $16.8. Awarding department, agency, and grant: Health and Human Services, Administration for Children and Families; Head Start; Grant structure[A]: United States; Grant award[B]: 1999: $1.7; Grant award[B]: 2000: $2.7; Grant award[B]: 2001: $3.2; Grant award[B]: 2002: $3.7; Grant award[B]: 2003: $2.3; Grant award[B]: 5-year total: $13.5. Grant award total[C]; Grant award[B]: 1999: $81.0; Grant award[B]: 2000: $84.7; Grant award[B]: 2001: $88.4; Grant award[B]: 2002: $99.5; Grant award[B]: 2003: $95.2; Grant award[B]: 5-year total: $448.8. Source: GAO analysis of federal agency award data. [A] Of the 12 grants, 4 were structured specifically for American Samoa, 2 were structured for all U.S. insular areas, and 6 were structured in the same manner as in the 50 states. [B] Grant awards are shown in nominal dollars and exclude grant amendments. DOI's Government Operations grant includes general U.S. government budget rescissions. [C] Total may not correspond to the column sum because of rounding. [End of table] Federal Grants Provided Essential Services to American Samoa: In fiscal years 1999-2003, 12 federal grants, funded by five departments, provided and supported several essential services in American Samoa. DOI awarded grants that subsidized government operations, supported infrastructure improvements, and provided technical assistance. USDA awarded grants that provided nutrition assistance for which about half of the territory's population was eligible. ED awarded grant funds that supported American Samoa's education programs, including the special education program. DOT awarded grants for critical infrastructure improvements to the territory's airports and roadways. Finally, HHS awarded grants to support health care and early childhood education in American Samoa. DOI Supported Government Operations and Infrastructure Improvements: In fiscal years 1999-2003, DOI provided grants that supported government operations and infrastructure improvements in American Samoa. DOI provided, on average, about 16 percent of the American Samoa government's total budget during the period of our review, through an annual direct subsidy as well as through grants for capital improvements and technical assistance. (See app. II for more details and an assessment of the DOI grants.) Government Operations Grant: DOI provides the government operations grant as an annual direct subsidy to the American Samoa government to help fund the difference between the territory's revenues and the cost of maintaining its current government programs and services. To promote the American Samoa government's self-sufficiency, DOI has held the amount of the grant constant, without adjusting it for inflation or population growth. The grant supports general government operations, including public works, economic development, and salaries. Specific operations that the grant supports include American Samoa's Department of Education; LBJ Hospital, the territory's primary clinic and only hospital; and the High Court of American Samoa. In fiscal years 1999-2003, the American Samoa government received an average annual operations grant award of about $23 million. According to DOI officials and our analysis, the portion of the American Samoa government's budget supported by the government operations grant decreased from about 18 percent in fiscal year 1999 to about 15 percent in fiscal year 2003.[Footnote 14] Capital Improvement Grants: DOI's capital improvement grants provide funds to improve the physical infrastructure of American Samoa and other U.S. insular areas. Capital improvement projects in American Samoa are prioritized and carried out according to the American Samoa government's Capital Improvements Plan. In fiscal years 1999-2003, DOI provided an average annual award for capital improvement grants of $10.2 million to the American Samoa government. During this period, about 28 percent of the funds awarded to American Samoa were allotted for water and sewer improvements; 25 percent for school improvements, including new and renovated classrooms; 16 percent for improvements to the LBJ Hospital; and 4 percent for roads. LBJ Hospital was allotted about $1.5 million for each year during that period. Technical Assistance Grants: DOI provided general technical assistance grants to all U.S. insular areas for short-term noncapital projects, such as obtaining computer hardware and software and providing training to improve the insular area's capacity to conduct government operations. In fiscal years 1999- 2003, DOI's general technical assistance grants provided American Samoa an average of about $350,000 annually. Examples of DOI's technical assistance included, in April 2001, a $200,000 grant to the American Samoa Port Authority to purchase and install a container tracking system for cargo entering and leaving American Samoa's harbor of Pago Pago and, in April 2002, a $185,000 grant to the American Samoa government to purchase and install an upgraded immigrant tracking system. LBJ Hospital also received technical assistance grants. USDA Offered Nutrition Assistance to About Half of the American Samoan Population: Three USDA programs made nutrition assistance available to about half of the American Samoan population during most of the period of our review. The School Lunch Program made free breakfast and lunch available to all school-age children. WIC provided nutrition assistance to pregnant, breast-feeding, and postpartum women and to infants and children up to 5 years of age. The Food Stamp Program in American Samoa provided nutrition assistance to the low-income elderly, the blind, and the disabled. (See app. III for a more detailed description and an assessment of the USDA grants.) School Lunch Program: USDA's School Lunch Program is funded as a special block grant and operates under a memorandum of understanding (MOU) established specifically for American Samoa in 1991 and administered by the American Samoa Department of Education. Before 1991, the program in American Samoa followed the same requirements as in the rest of the United States, providing subsidized breakfast and lunch to children in public and nonprofit schools, based on the income level of the children's households. Since 1991, the American Samoa School Lunch Program has provided free breakfast and lunch to all school-age children. Officials explained that the change in grant and program structure gave American Samoa greater flexibility to serve the needs of its children. In fiscal years 1999-2003, USDA provided an average annual grant of $9.8 million. In school year 2002-2003, the American Samoa Department of Education reported public and private school enrollment of about 19,000 students, all of whom are eligible for the program. In the same year, the School Lunch Program served about 3.2 million breakfasts and 3.6 million lunches. The program currently serves meals at 23 elementary schools, 6 high schools, 10 private schools, 55 early childhood education (Head Start) centers, and 37 day care centers. The program has no citizenship, residency, or income requirements. Special Supplemental Nutrition Program for Women, Infants, and Children: USDA's WIC Program in American Samoa follows the same requirements as the program in the 50 states, providing supplemental food and nutrition education at no cost to eligible pregnant, breast-feeding, and postpartum women and to infants and children up to 5 years of age. The American Samoa WIC Program was established in 1996 and is administered by the American Samoa Department of Human and Social Services. In fiscal years 1999-2003, USDA provided an average annual grant of $5.3 million. During fiscal years 2000-2003, an average of about 6,000 recipients were receiving monthly WIC "food instruments," or checks. Eligibility for benefits is determined on the basis of nutritional risk, income,[Footnote 15] and residency. Food Stamp Program: USDA's Food Stamp Program in American Samoa is designed specifically for the territory and operates under a MOU that allows American Samoa to provide food vouchers for the low-income elderly and for blind and disabled persons. Under the MOU, American Samoa is able to set its own eligibility standards as long as it stays within the capped block grant--in fiscal year 2003, about $5.4 million.[Footnote 16] In the 50 states, the Food Stamp Program is an entitlement program; all qualified applicants receive benefits, and funding is not capped. In American Samoa, Food Stamp recipients must meet financial and nonfinancial eligibility criteria, as specified in the MOU;[Footnote 17] however, benefits are calculated so as not to cumulatively exceed the capped grant. The maximum benefit in American Samoa for fiscal year 2004 was $132 per person per month. In fiscal years 1999-2003, USDA provided an average annual grant of $5.3 million. During fiscal years 2000-2003, the program served an average of about 2,800 recipients monthly. The program is one of the few remaining U.S. Food Stamp Programs that still uses paper food coupons; most of the other programs have implemented an electronic benefits transfer system to provide food assistance to eligible recipients. ED Supported the American Samoa School System and Special Education Students: ED's Innovative Programs grant provides a large share of funds to the American Samoa Department of Education to support its education programs, and ED's Special Education grant funds the territory's special education program. In fiscal year 2003, the two grants provided, respectively, about $16.8 million and $5.8 million. (See app. IV for a more detailed description and an assessment of the ED grants.) Innovative Programs Grant: State and local education agencies are eligible for federal grants and funds to implement numerous federal education programs. In fiscal years 1999-2003, using a consolidated grant application, American Samoa applied for and received an Innovative Programs grant to fund many of the territory's education programs. The Innovative Programs grant is designed to assist state and local education agencies in implementing education reform programs and improving student achievement. Funding under the grant can be used to implement local Innovative Programs, which may include at least 27 activities identified in the No Child Left Behind Act of 2001.[Footnote 18] For fiscal years 1999-2003, the American Samoa Department of Education reported that it implemented programs for training instructional staff, acquiring student materials, implementing technology, meeting the needs of students with limited English proficiency, and enhancing the learning ability of students who are low achievers. During the 5-year period, the annual Innovative Programs grant increased from about $6.8 million in fiscal year 1999 to about $16.8 million in fiscal year 2003. Beginning in 2002, the grant award to American Samoa more than doubled as a result of the No Child Left Behind Act of 2001, which increased appropriations for the Innovative Programs and other education programs.[Footnote 19] The grant award that the American Samoa government received in fiscal year 2003 provided about 40 percent of the American Samoa Department of Education's budget for that year. Other federal funds provided another 30 percent of American Samoa's education budget (including funds from the DOI Government Operations grant), with local funds contributing the remaining portion. Special Education Program: In fiscal years 1999-2003, ED provided an average of $5.3 million, under its Individuals with Disabilities Education Act (IDEA) grants, for American Samoa's Special Education Program. The program is required to provide a free, appropriate public education to eligible children with disabilities, regardless of nationality or citizenship. The Special Education Program in American Samoa operates under the same requirements and guidelines as special education programs in the 50 states and is almost entirely funded by its annual IDEA grant. The American Samoa Department of Education reported that, as of January 2004, its Special Education Program was providing services to slightly more than 1,100 eligible 3-to 21-year-old students with disabilities. DOT Provided Grants for Airport and Highway Infrastructure Improvements: DOT provided funds that allowed for important airport and roadway infrastructure improvements through the Airport Improvement Program and the Federal-aid Highway Program grants. (See app. V for more details and an assessment of the DOT grants.) Airport Improvement Program: In fiscal years 1999-2003, DOT, through the Federal Aviation Administration's (FAA) Airport Improvement Program, provided American Samoa an average annual grant of $7.9 million. The program operates under the same regulations in American Samoa as in the rest of the United States. American Samoa has three airports, all of which receive Airport Improvement Program grants. The main airport, Pago Pago International, has two runways, one of which can accommodate large commercial jets,[Footnote 20] and has eight commercial airline flights departing per week. Since 1998, the Airport Improvement Program grants have been used for extending runways and constructing taxiways and for rehabilitation and new overlays of existing runways, taxiways, and shoulders. Projects funded with Airport Improvement Program grants also included the construction of a rescue and firefighting training facility, new aircraft rescue and firefighting vehicles, and perimeter fencing to improve airport security. Runway safety areas at Pago Pago International Airport, the territory's main airport, were upgraded to meet FAA standards, providing additional margins of safety. These projects have benefited from the presence of an airport engineer, hired with funds from the Operations and Maintenance Improvement Program, a separate DOI grant. Federal-Aid Highway Program: DOT's Federal Highway Administration provided American Samoa an average annual grant of $6.2 million under the Federal-aid Highway Program during fiscal years 1999-2003.[Footnote 21] Although the territory's highway subprograms are funded under a separate statute,[Footnote 22] the Federal Highway Administration administers them in the same manner as programs in the other states under the Federal-aid Highway Program, with the territorial transportation agency functioning as the state highway agency. American Samoa's Five-Year Highway Division Master Plan sets forth sequenced budgets and time frames to improve and maintain Route 1, the island's main traffic corridor. The American Samoa Department of Public Works typically handles the planning and construction supervision of the highway program. Figure 2 shows a map of American Samoa and selected highway projects that we reviewed along Route 1 and other village roads.[Footnote 23] Figure 2: Selected Federal-aid Highway Projects in American Samoa: [See PDF for image] [End of figure] HHS Supported Health Care and Early Childhood Education: HHS grants supported (1) health care at LBJ Hospital under the Medicaid program and (2) early childhood education for American Samoan children under the Head Start Program. (See app. VI for more details and assessments of each grant.) Medicaid: HHS's Medicaid Program in American Samoa operates under a U.S. statutory waiver, which exempts it from most Medicaid laws and regulations;[Footnote 24] instead, it uses a plan of operations approved by HHS. A territorial statute requires American Samoa to provide free health care to its population.[Footnote 25] Virtually all care, both inpatient and outpatient, is provided by LBJ Hospital, which is managed by the LBJ Medical Center Authority. In fiscal years 1999- 2003, HHS provided the hospital an average annual reimbursement of $3.4 million; in fiscal year 2003, federal Medicaid funds represented about 13 percent of the hospital's revenues.[Footnote 26] American Samoa receives a capped amount for its Medicaid Program, like the other U.S. territories[Footnote 27] but unlike the states, where Medicaid is treated as an entitlement program with no cap on total federal funds. In American Samoa, the federal Medicaid grant is used as one of the hospital's sources of revenue to support the territory's universal health care system, rather than as support for a separate Medicaid Program with enrolled Medicaid beneficiaries as in the 50 states. Although there is no separate Medicaid enrollment in American Samoa, HHS requires the LBJ Medical Center Authority to submit an annual estimate of the population presumed to be eligible for Medicaid. This estimate of "presumed eligibility" is based on the size of the population in American Samoa and the percentage of families living below the U.S. poverty level, according to the U.S. Census.[Footnote 28] As the territory's Medicaid provider, LBJ Hospital must provide all Medicaid-required services. If these services are not available on- island, American Samoa must arrange for them to be provided off-island. Although the Medicaid grant's broadly stated goal is the provision of basic medical services, HHS officials do not require the hospital to supply data on its provision of such services. As a result, no data were available for us to determine the quality of the care or whether all required Medicaid services were provided to the eligible population. HHS officials stated that they have some assurance that a minimum standard of care is provided, because LBJ Hospital must meet Medicare certification standards to participate in Medicare and Medicaid. However, the hospital faces long-standing challenges in maintaining its Medicare certification (see app. VI). Head Start: The Head Start Program in American Samoa, referred to locally as the Early Childhood Education Program, is part of the American Samoa Department of Education. The program in American Samoa is subject to the same performance requirements as Head Start Programs in the rest of the United States and delivers most required services, according to HHS officials. In fiscal years 1999-2003, HHS provided the Early Childhood Education Program an average annual grant of $2.7 million. The grant set the enrollment level at 1,532 slots for 3-to 5-year-old children. As of March 2004, the program had 54 classrooms and 111 classroom instructors, according to American Samoa officials. Early Childhood Education officials stated that although there are more eligible children than available slots, the program serves virtually all of the children who apply for it. Program highlights include dental screening and follow-up treatment for almost all enrolled children and a literacy program emphasizing both Samoan and English. The curriculum and materials are locally designed and incorporate native culture, community, and environment, as well as family traditions. Another key program activity is the construction of several new facilities dedicated exclusively to early childhood education classrooms. In fiscal years 1999-2003, HHS provided the program about $3.8 million in additional "program improvement" grant awards for the construction of seven new facilities containing 38 classrooms. Local Conditions Limited Delivery of Services or Project Completion for Many of the Grants: Conditions in American Samoa limited the delivery of services or project completion for many of the grants we reviewed. A lack of adequately trained professionals limited financial oversight for all programs and service delivery in several programs. In addition, inadequate facilities affected the delivery of services under Head Start at Early Childhood Education Program centers and under Medicaid at LBJ Hospital. In particular, the LBJ Hospital building had persistent fire-safety deficiencies that jeopardized the hospital's ability to maintain the certification required for continued Medicaid funding. Finally, limited local resources to complement federal grants slowed the completion of critical projects at LBJ Hospital and Pago Pago International Airport. Lack of Professional Staff Limited Service Delivery: Some of the programs that we reviewed experienced a shortage of staff with adequate professional training, which limited the financial oversight of federal funds and delivery of certain services. The relatively low salaries in American Samoa and the remote location of the territory made it difficult to attract and retain individuals with specialized training. Staff shortages included the following: * In the American Samoa government, the position of Territorial Auditor remained unfilled in fiscal years 1998-2003. An official in the American Samoa Department of Treasury, the department that processes nearly all federal grants, reported that the department experiences difficulty in retaining certified public accountants, because the American Samoa government is unable to afford competitive salaries for these professionals. * In the American Samoa Department of Education, most teachers had obtained only an associate in arts degree from the American Samoa Community College. Further, according to the Special Education Division Office, the program had only one physical therapist during the period of our review and needed speech pathologists, occupational therapists, audiologists, and psychologists. In addition, the local Head Start Program was unable to comply with the federal standard to deliver mental health services to enrolled children and families, because no mental health professionals were available in the territory to work with the program. * In the American Samoa Department of Human and Social Services, the WIC and Food Stamp Programs lacked sufficient staff with technical skills to adequately maintain the databases on which the programs rely to record and process recipient transactions, reconcile transactions, and perform required monitoring and evaluation of issued benefits. * LBJ Hospital officials reported that they did not have an adequate number of U.S.-certified medical doctors or registered nurses, despite incentive programs to attract them. The hospital also had unmet needs for medical technicians, such as radiology and operating room technicians. The hospital lacks the capacity to provide the full range of Medicaid-covered services, and consequently those services that are not available must be provided off-island. For fiscal years 2001-2003, the hospital reported an average off-island medical care expenditure of about $2 million annually. Inadequate Facilities Also Affected Service Delivery: Limited facilities hampered the ability of the Head Start and Medicaid Programs to deliver services to their targeted populations. Examples are as follows: * While the Head Start Program in American Samoa made progress in constructing several new facilities to provide modern classrooms, the program continued to depend on villagers who made their homes available for Early Childhood Education classes. As of March 2004, 19 of the program's 54 classes were held in village homes, according to the local program officials. The officials stated that their first priority for the use of supplemental federal Head Start grant funds was to continue to build additional classrooms but that, as a result, no funds were available to provide adequate playgrounds or perimeter security fencing. * LBJ Hospital's poor physical infrastructure made it difficult to deliver a minimum standard of care to the population of American Samoa, including the Medicaid-eligible population. For more than a decade, the hospital suffered from persistent, serious fire-safety building code deficiencies that threatened its ability to maintain the Medicare certification required for participation in Medicare and Medicaid. In a Medicare-certification survey of the hospital conducted in November 2003, the survey team cited the hospital for a lack of "basic features of fire protection, which are fundamental to all health care facilities," such as smoke and fire detection and alarm systems, automatic sprinklers, adequate water pressure, and fire-rated smoke and fire compartmentation. Earlier Medicare certification surveys cited many of the same problems, but the hospital has failed to correct them despite HHS's threats, since at least 1993, to terminate the hospital's certification. In 2004, in response to the fire-safety deficiencies identified in the 2003 Medicare-certification survey, the hospital reprogrammed $650,000 of its fiscal year 2003 DOI capital improvement funds to install a facilitywide sprinkler system. However, hospital officials said that the project would not be completed until December 2005 and that the renovation efforts would be constrained by "a fixed barrier of time, money and space." Although the hospital depends primarily on DOI funds to bring its facility up to HHS standards, DOI and HHS did not collaborate during fiscal years 1999-2003 to identify construction needs and funding resources to ensure that common goals are met. Specifically, when awarding capital improvement grants to the America Samoa government and LBJ Hospital, DOI did not obtain information from HHS regarding deficiencies that threatened the hospital's Medicare certification. Limited Local Funds Hampered Service Delivery and Slowed Project Completion: Limited local resources also affected some of the programs in our review. LBJ Hospital's ability to upgrade its facility and hire needed staff was severely hampered by chronic budget deficits and outstanding debt. Likewise, the lack of local funds to complement Airport Improvement Program grants slowed the pace of completing critical projects, according to American Samoa officials. Examples of the effect of limited local resources on these programs include the following: * LBJ Hospital officials reported that because of persistent operating budget deficits, they were unable to hire needed staff and respond to the many infrastructure needs of its aging facility. DOI capital improvement grants, which average about $1.5 million annually for the hospital, support only one or two new construction projects per year. According to hospital officials, the hospital depends entirely on federal grant funds to support its infrastructure upgrades, including those needed to correct the fire-safety deficiencies cited by HHS hospital certification surveys.[Footnote 29] Two key sources of revenue for LBJ Hospital, from DOI and the American Samoa government, did not increase during the period of our review (see fig. 3). The hospital's annual subsidy from the government of American Samoa dropped from about $8.1 million in fiscal year 1998 to about $5.3 million in fiscal year 2003. During the same period, DOI directly provided LBJ Hospital about $7.8 million of the government operations grant annually without adjusting this amount for inflation. Although the Medicaid grant increased over time to cover the cost of inflation, HHS officials reported that the cap on the Medicaid grant resulted in a smaller federal contribution than American Samoa would have received if funded like the 50 states.[Footnote 30] A hospital official reported that patient revenues increased during fiscal years 1998-2003 but that much greater increases would be needed if the hospital could not identify other sources of revenue. The LBJ Medical Center Authority has proposed to charge service fees to patients to cover about 20 percent of the cost of their medical care. However, hospital officials believed that the local legislation needed to change such fees would be difficult to obtain, because the public views free medical care as an entitlement. Currently, the hospital charges residents a facility fee of $5 per outpatient visit and $20 per day for inpatient stays. The hospital charges nonresidents $10 for outpatient visits and $100 per day for inpatient stays. Figure 3: LBJ Hospital's Key Revenue Sources, Fiscal Years 1998-2003: [See PDF for image] [End of figure] * American Samoa airport officials reported that they lacked the local resources to complement FAA's Airport Improvement Program funds, which slowed the pace of critical airport infrastructure projects. For example, the airports had not acquired all of the rescue vehicles they needed, and upgrades of the main runway at Pago Pago International had to be phased in over several years. In August 2003, following damage to a commercial airplane from loose asphalt on the runway, the airport's main runway shut down for 2 weeks. The closure left American Samoa cut off from commercial flights to Honolulu until the pavement could be repaired. According to FAA and American Samoa airport officials, a great deal of progress was made in improving Pago Pago International Airport's infrastructure and rescue response capability during the past several years; however, it will probably not reach an acceptable standard until 2007. For most U.S. airports, including those in American Samoa, a passenger facility charge of up to $4.50 per passenger provides a key source of revenue. However, because only eight flights per week depart from Pago Pago International, the airport generates relatively little revenue and operates at a loss annually. Congress raised the cap on passenger facility charges from $3.00 to $4.50 in fiscal year 2000 in FAA's reauthorization legislation[Footnote 31] but elected not to raise it again in legislation reauthorizing FAA for fiscal years 2004- 2007.[Footnote 32] Grants Had Limited Accountability, and U.S. Agencies Reacted Slowly: A lack of required single audits, U.S. agencies' slow reactions to lack of single audits, and incidents of theft and fraud compromised the accountability of federal grants to American Samoa. The American Samoa government did not comply with the Single Audit Act[Footnote 33] during fiscal years 1998-2003. The delinquent single audit reports issued for fiscal years 1998-2001 cited governmentwide and program-specific accountability problems. However, most federal agencies responsible for programs in American Samoa did not formally express concern about the delinquent single audit reports and were slow, or failed, to set forth a plan of action to complete single audits. In addition, two grants had instances of theft and fraud, and the accountability of almost all of the grants was potentially compromised by fraud in the American Samoa Government's Office of Procurement. Lack of Single Audits Compromised Accountability, Recent Audits Cited Problems: The American Samoa government did not complete single audits for fiscal years 1998-2003 in accordance with the time frame specified in the Single Audit Act. As a result, U.S. agencies had limited knowledge of American Samoa's accountability for federal funds received during the period of our review. Specifically, they were unaware of whether grantees complied with the Davis-Bacon Act[Footnote 34] and with requirements for financial reporting and retention of and access to financial records, among other requirements. Federal agencies are responsible for ensuring that grant recipients subject to the Single Audit Act complete single audits no later than 9 months after the end of each fiscal year.[Footnote 35] An August 2002 MOA between DOI and the American Samoa government established a schedule for completing overdue single audits; however, American Samoa failed to comply with the schedule. The single audit reports for fiscal years 1998, 1999, and 2000 were completed by the auditors in August 2003. Relative to the deadlines in the MOA, the 1998 and 1999 reports were 8 months late, and the 2000 report was 3 months late. The auditors completed the 2001 single audit report in June 2004, 12 months late. The single audit reports for fiscal years 1998-2001 cited pervasive governmentwide and program-specific accountability problems. For the 1998, 1999, and 2000 single audits, the auditors did not express an opinion on the financial statements of the American Samoa government because the scope of their work did not enable them to do so.[Footnote 36] However, in the single audit report for fiscal year 2001, the auditor expressed a qualified opinion regarding American Samoa's financial statements. According to the report, the qualified opinion was issued because the limitations on the scope of the audit resulted in the auditor's inability to locate or verify physical inventory records, verify the accuracy of the beginning balance of the government's general funds, and verify the physical existence and cost of recorded fixed assets, among other items. These opinions are similar to those in American Samoa's single audits for fiscal years 1996 and 1997, indicating that federal and American Samoa officials did not resolve issues identified in prior single audit reports, as required. The reports for fiscal years 1998-2001 cited an average of 31 governmentwide and program-specific findings for each fiscal year. For example, each audit found that the American Samoa government and its entities did not maintain adequate systems of internal controls[Footnote 37] to ensure compliance with laws, regulations, contracts, and grants applicable to federal programs. The auditors reported that the American Samoa government did not comply with major federal program requirements for, among other items, financial reporting, grant payment, and retention of and access to records.[Footnote 38] The audits stated that these problems could adversely affect the American Samoan government's ability to administer federal grant programs in accordance with applicable requirements. The single audits for fiscal years 1998-2001 also reported program- specific findings each year for at least 6 of the 12 programs we reviewed.[Footnote 39] For example, the auditors reported that in fiscal year 2000, DOI's capital improvement funds for constructing toilet facilities were used to purchase computers. The 2000 report also stated that ED contract documents for $39,960 were missing. According to auditors, a number of program files were incomplete and many programs' transactions were difficult to assess because the American Samoa government maintained its records in a haphazard and open manner. In spite of document retention issues, the auditors reported about $1.3 million in questioned costs[Footnote 40] and a total of about $18 million in budget overruns from their sampling of approximately $295 million in transactions funded by federal grants in fiscal years 1998- 2001.[Footnote 41] In our sample review of 12 selected grant transactions,[Footnote 42] we found that 7 of these had inadequate supporting documentation and insufficiently detailed data to show whether program expenditures were allowable. Of 12 transaction files that we requested from the American Samoa Department of the Treasury, 3 could not be located; 4 lacked purchase orders, invoices, receiving reports, or pricing estimates; and 2--from the Food Stamp and Head Start Programs--were complete. According to an American Samoa government official, grant transaction files should contain a purchase order or request; an invoice; a pricing estimate (if applicable); a copy of a receiving report, indicating that a purchased item was received, or a copy of the check issued for payment; and an accounts payable voucher. (See app. VII for a detailed description of federal grant processing in American Samoa.) Despite Delinquent Single Audits, Most Federal Agencies Reacted Slowly: In spite of the lack of single audits in fiscal years 1998-2003, most federal agencies were slow to act. For example, DOI did not set forth a plan of action to complete single audits until 2002 and ED did not take remedial action until 2003. In order for entities, such as federal and American Samoa agencies, to administer and control the grant programs, officials must have relevant, reliable, and timely communications relating to internal and external events.[Footnote 43] DOI, the cognizant agency[Footnote 44] for American Samoa, established a schedule for completing the delinquent single audit reports, in an MOA with the American Samoa government in August 2002 following several months of discussion. The MOA established a new completion schedule for the delinquent single audits, among other fiscal and operational reforms for the territory. Figure 4 provides a time line showing the single audits and federal actions, including OMB's regulation deadlines for the reports, the MOA's extended deadlines, the dates when American Samoa's reports were completed, and the number of months that the reports were late. Figure 4: American Samoa Single Audit Time Line and Federal Actions, Fiscal Years 1997-2003: [See PDF for image] [A] The 2003 date for the MOA deadline is before the date of the OMB deadline. [End of figure] ED reported that it sent a letter in March 2002 to the then Governor of the territory expressing concern about the late single audits and advising that the department is authorized to take various administrative actions, including interrupting grant funding. ED's Inspector General subsequently visited American Samoa and alerted its Deputy Secretary in December 2002 that inspectors had found instances of fraud, waste, and abuse that might have been detected and prevented if single audit reports had been completed and submitted on time. The memo from the Inspector General also indicated a need for ED to develop a coordinated strategy for obtaining the required Single Audits. USDA officials cited the lack of single audits in their 2003 on-site review. HHS noted the delinquency of single audit reports in on-site program reviews in 2000 and 2003; DOT reported that the last American Samoa single audit it had received was for fiscal year 1996. According to OMB Circular A-133, which implements the Single Audit Act, if a grantee has specifically failed to conduct its single audit reports, federal agencies should impose sanctions such as, but not limited to, (1) withholding a percentage of federal awards until single audits are completed satisfactorily, (2) withholding or disallowing overhead costs, (3) suspending federal awards until the single audit is conducted, or (4) terminating the federal award. None of the agencies in our review imposed any of these sanctions on American Samoa. According to the Grants Management Common Rule,[Footnote 45] federal awarding agencies may designate a grantee "high risk" if the grantee has a history of unsatisfactory performance, is not financially stable, has an inadequate management system, has not conformed to terms and conditions of previous awards, or is otherwise irresponsible. Single audits provide key information about the adequacy of a grantee's management system. Federal agencies that designate a grantee high-risk may impose special conditions including (1) issuing funds on a reimbursement basis; (2) withholding authority to proceed to the next phase until receipt of evidence of acceptable performance within a given funding period; (3) requiring additional, more detailed financial reports; (4) requiring the grantee to obtain technical or management assistance; or (5) establishing additional prior approvals. According to DOI and DOT, they have required some similar conditions for American Samoa for years. For example, both agencies issue funds to American Samoa on a reimbursement basis. However, only ED exercised its authority under the common rule, when, in September 2003, it placed American Samoa on high-risk status[Footnote 46] as a result of American Samoa's noncompliance with the Single Audit Act. ED now allows American Samoa to draw down only 50 percent of its grant funds until certain conditions defined by the department are fulfilled. Other agencies included in our review took none of the corrective actions available, under the common rule or under the OMB circular, as a result of the delinquent single audits. Specifically, although American Samoa did not comply with the agreed-on schedule for completing the outstanding single audits, the departments included in our review neither placed American Samoa on high-risk status nor withheld, disallowed, suspended, or terminated funds under any of their grants.[Footnote 47] Theft or Fraud Weakened Accountability of Most Grants: Recent instances of theft and fraud by American Samoa government officials call into question accountability for most of the grants that we reviewed. Examples of theft or fraud are as follows: * In May 2004, the Chief Procurement Officer of the American Samoa Government was found guilty of illegal procurement practices. Since this office handles the procurement activity for most of the grants that we reviewed, the accountability of the grant funds may be compromised. * In the American Samoa Department of Education, the Director of the School Lunch Program pled guilty in July 2004 to charges of stealing approximately $68,000 worth of food and goods from the School Lunch Program warehouse between October 2001 and September 2003. The former School Lunch Program Director was also charged with conspiring with others to commit offenses against the United States. The current School Lunch Director said that, while most of the employees involved in the theft had been removed, one warehouse employee remains. * In August 2004, the U.S Department of Justice filed charges against the former deputy director of the American Samoa Department of Human and Social Services (the department that operates the WIC and Food Stamp Programs) for conspiring to rig bids for contracts totaling more than $120,000 in exchange for cash kickbacks. * During the September 2003 USDA review of WIC in American Samoa, USDA officials were alerted to vendor fraud. The review found widespread evidence of WIC food checks being exchanged for cash, cigarettes, other nonfood items, and unauthorized foods at WIC-authorized grocery stores instead of for the supplemental foods prescribed by WIC and paid for with federal funds. USDA officials informed the American Samoa WIC Program that it must comply with corrective action or face fiscal sanctions. As USDA became aware of problems with theft and fraud, it took action to increase oversight of those programs. Additional accountability problems have been alleged. For example, the local press has published numerous accounts of ongoing federal investigations. The American Samoa Fono has conducted hearings and investigations of accountability problems in the territory's government. Finally, the recently hired American Samoa Comptroller, at work since March 2004, resigned as of August 2004 citing concerns over fraudulent and unethical American Samoa government practices. Conclusions: In fiscal years 1999-2003, federal grants from multiple agencies provided critical funds for essential human services and critical infrastructure improvements in American Samoa. However, the American Samoa government faced a range of local challenges to delivering services and completing infrastructure projects funded with federal grants. These challenges included a shortage of adequately trained professionals, such as accountants and teachers, as well as inadequate facilities and limited local funds. In particular, LBJ Hospital, which provides medical care for most of American Samoa's population, received multiple federal grants but struggled to overcome challenges posed by an inadequate facility and limited resources. Specifically, although it receives DOI construction grants for facility upgrades, the hospital struggled to meet HHS fire-safety standards for continued Medicare certification required for Medicaid funding. Nevertheless, in recent years federal departments, principally DOI and HHS, have not formally collaborated on the use of DOI construction grants at the hospital. In overseeing the hospital's use of capital improvement grants, DOI could benefit from information that HHS could provide regarding the hospital's ongoing efforts to maintain Medicare certification. In addition, in fiscal years 1998-2003, the American Samoa government failed to comply with the Single Audit Act, demonstrating a lack of overall accountability for federal grants. Federal agencies are responsible for ensuring that grant recipients subject to the Single Audit Act complete single audits no later than 9 months after the end of each fiscal year, yet when American Samoa failed to complete the audits, the agencies either failed to act or acted slowly to designate the American Samoa government a high-risk grantee. The agencies had no consistent response. Further, incidents of theft and fraud should have heightened federal agencies' concerns about enforcing the requirements of the Single Audit Act and the Grants Management Common Rule. The lack of federal action indicates a need for greater monitoring and reporting and a need for improved coordination among agencies to ensure the accountability of federal grants awarded to American Samoa. Recommendations for Executive Action: We recommend that the Secretary of the Interior take the following four actions: To ensure resolution of fire-safety deficiencies threatening the continued certification of the Lyndon Baines Johnson Tropical Medical Center in American Samoa and, as warranted, to address the hospital's staffing and resource constraints, we recommend that the Secretary: * coordinate with federal agencies that grant funds to the hospital and the American Samoa government to address these issues. To improve fiscal accountability of federal grants to American Samoa, we recommend that the Secretary coordinate with other federal awarding agencies to: * designate the American Samoa government as a high-risk grantee, according to the Grants Management Common Rule, at least until it has completed all overdue single audits; * take steps designed to ensure that the American Samoa government completes its overdue single audits in compliance with the Single Audit Act; and: * take steps designed to ensure that current and future single audits are completed in compliance with Single Audit Act requirements. Agency Comments and Our Evaluation: We provided a draft of this report to the Departments of the Interior, Agriculture, Education, Transportation, and Health and Human Services as well as to the government of American Samoa. We received oral comments from the Departments of Agriculture and Transportation on October 22 and Education on October 25, 2004. The Departments of Agriculture and Transportation limited their oral comments to technical corrections. The Department of Education agreed with our initial recommendations and provided technical corrections. We received written comments from the Departments of the Interior and Health and Human Services as well as the American Samoa government, which are reprinted in appendixes VIII through X. The Departments of the Interior, Health and Human Services, and Education, as well as American Samoa, agreed with our first recommendation. DOI stated that it would take appropriate action with other federal agencies to address issues that affect LBJ Hospital's certification. HHS agreed to collaborate with DOI and American Samoa on hospital infrastructure issues. The American Samoa government pointed out that it is making progress in bringing LBJ Hospital into compliance with Medicare standards. The Departments of the Interior and Health and Human Services and American Samoa disagreed with our second recommendation, and the Department of Education agreed with us. DOI raised serious concerns about declaring American Samoa a high-risk grantee but agreed to consult with the other federal agencies to evaluate whether, or under what conditions, a joint declaration of high-risk status would be prudent. DOI's concerns about imposing high-risk status for American Samoa included the possible loss of access to federal programs for American Samoa and the possible impact of such an action on the American Samoan population and eventually on other insular areas. Losing access to such programs would further limit the funds available to American Samoa to address their staffing and resource problems. Furthermore, DOI argued that many of the measures available with a high-risk declaration are already being taken by DOI in American Samoa. HHS stated that American Samoa should not be designated a high-risk grantee with respect to the Medicaid Program. In our view, the findings of the audits of the LBJ Hospital raise concerns about accountability at the hospital. The American Samoa government strongly recommended against its being declared a high-risk grantee unless it fails to meet the terms of its agreement with DOI, because it believed high-risk status would imperil future funding. As we report on pages 28-29, the American Samoa government has already failed to comply fully with the terms of the agreement with DOI. We recognize DOI's concerns about the population of American Samoa and its dependence upon federal grants for key services. We also recognize the challenges that DOI faces in balancing its activities in any individual insular area with sensitivity to the effect of those activities on other insular areas and on insular area populations. However, a declaration of high-risk status would more accurately reflect the findings of the completed single audits, specifically, the auditors' declining to express an opinion on the financial statement and citing numerous internal control problems. In addition, according to the relevant regulations, high-risk status does not require a suspension of funds. For example, ED declared American Samoa a high- risk grantee while continuing its funding to the territory and significantly improving its oversight of the funded programs. Under a coordinated high-risk designation, the federal agencies could impose a common set of improvement milestones for American Samoa to have the high-risk status removed. Under the current system, several agencies exercise different levels of heightened oversight, and only ED has declared American Samoa a high-risk grantee. We continue to believe that a coordinated, consistent approach to a high-risk grantee across the agencies would be more productive than the agencies' current inconsistent approaches. The Departments of the Interior, Education, and Health and Human Services agreed to collaborate to ensure completion of outstanding and future single audits, as per the initial wording of our third and fourth recommendations. DOI agreed to consult with other agencies to determine other steps that might be taken to help American Samoa come into compliance more quickly. However, responding to the initial wording of our third and fourth recommendations that the agencies coordinate efforts to ensure compliance with the act, DOI stated that it is unable to ensure that a grantee will comply with the Single Audit Act. In light of DOI's response to our initial recommendations, we are recommending that DOI coordinate with the other awarding agencies to take steps designed to ensure American Samoa's compliance with the act. The American Samoa government cited its progress in completing the delinquent single audits. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the date of this letter. At that time, we will send copies of this report to interested Congressional Committees and to the Secretaries of the Departments of the Interior, Agriculture, Education, Transportation, and Health and Human Services as well as to the Governor of American Samoa. We also will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at [Hyperlink, http://www.gao.gov]. If you or your staff have any questions regarding this report, please contact me at 202-512-4128 or gootnickd@gao.gov or Emil Friberg, Assistant Director, at 202-512-8990 or friberge@gao.gov. Staff acknowledgments are listed in appendix XI. Signed by: David Gootnick: Director: International Affairs and Trade: [End of section] Appendixes: Appendix I: Objectives, Scope, and Methodology: To provide information for the Ranking Minority Member of the House Resources Committee and the U.S. Delegate from American Samoa, we (1) examined the uses of key federal grants to American Samoa, (2) identified local conditions that affected the grants, and (3) assessed accountability for the grants. Identifying Key Grants to American Samoa: To address these objectives, we first analyzed available information on total federal expenditures in American Samoa. We reviewed data from the U.S. Census Consolidated Federal Funds report and the American Samoa delegate's Web site, which listed total expenditures to American Samoa in fiscal years 1995-2001 by federal department. We used these data to identify the federal departments that provided the largest grants over the 7-year period. We narrowed our scope to five federal departments-- the U.S. Department of the Interior (DOI), the U.S. Department of Agriculture (USDA), the U.S. Department of Education (ED), the U.S. Department of Health and Human Services (HHS), and the U.S. Department of Transportation (DOT)--whose aggregate grant expenditures totaled more than 80 percent of the total grants to American Samoa in fiscal years 1995-2001. To determine that the data were sufficiently reliable for the purpose of sample selection, we corroborated the ranking from the U.S. Census Consolidated Funds Report data with data from the American Samoa delegate's Web site. We found that despite discrepancies in the dollar amounts of the five departments' grants shown by the two sources, the amounts are the same when aggregated for fiscal years 1995-2001. To obtain current and original data, we met with and requested grant award data from the five federal departments for fiscal years 1999 and 2003. Each department referred us to their agencies with grants or programs to American Samoa, and these agencies provided data for a total of 61 grants. From that data, we identified the largest granting agencies across the five federal departments and selected 12 key federal grants to review that were among the largest total grant awards when aggregated for fiscal years 1999-2003. These grants primarily covered areas of government operation, infrastructure, social programs (such as health and nutrition), and education. DOI's grants for capital improvement projects and technical assistance were selected although they were smaller than some of the other large federal grants, because DOI was the largest federal grantor to American Samoa during the period of our review and because these two grants provided infrastructure assistance that helped meet funding requirements or served as support to help meet the requirements of other grants that we selected. We excluded loan grants that are not provided through local agency or government offices in American Samoa. We also excluded grants from the Departments of Justice, Commerce, and Labor and the Environmental Protection Agency because of the grants' small size. Finally, we excluded grants from the Federal Emergency Management Agency because they do not provide ongoing support for government and related operations. The scope of our report was limited to the information that we collected from the five departments and specific agencies that administer the grant funds; we cannot make statements about grants that we did not review. However, based on our analysis of data for fiscal years 1999-2003, the aggregated grant totals from the departments that we did not review were smaller, in most cases, than the largest single grants we selected. To corroborate the data for federal funds to American Samoa, we compared agency data with data in the single audit reports for fiscal years 1998-2001 and found that of the grants that we had selected, only the general technical assistance grant was not included in the single auditor's reports. However, we used the single audit data only to compare grant data from the federal agencies with total federal grant expenditures in American Samoa. We estimated that the selected grants represented about 70 percent of all federal expenditures in American Samoa in fiscal year 2000. Examining the Uses of Key Federal Grants: To examine the uses of key federal grants to American Samoa, we collected and reviewed grant data from the federal and local agencies responsible for overseeing the selected programs in fiscal years 1999- 2003; interviewed federal and American Samoa program officials to obtain knowledge of program activity and operations; conducted site visits to observe programs and projects funded by federal grants; and compared data in single audit reports for fiscal years 1998-2001 with agency data for selected grants and background on total federal grants reported by the American Samoa government. Single audit reports for years after fiscal year 2001 were not available during the time of our review. To report grant awards to American Samoa between fiscal years 1999-2003, we relied on grant data provided by federal agencies. Although we did not audit the grant data from the federal officials and are not expressing an opinion on them, we discussed the sources and limitations of the data with the appropriate officials and addressed discrepancies before reporting grant totals. We determined that the federal agency data were sufficiently reliable for the purposes of reporting grant award totals and the general use of grant funds and, to the extent possible, we corroborated these data with other information sources, including federal department (headquarters) data, single audit reports, and U.S. Census data. To describe the activities that grant funds supported, we relied on information from federal and American Samoa officials overseeing or administering the grants. We corroborated information from American Samoa officials with the information we received from federal officials. For example, we used participation rates in fiscal years 2000-2003 for the American Samoa Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and the Food Stamp Program and the total number of children enrolled during the 2000-2003 school years to estimate the percentage of the population for which nutrition assistance was made available during those years. These estimates are approximations. Although the participant populations may occasionally overlap (e.g., a WIC recipient might also have received free school lunches), the distinct target populations in American Samoa would not allow enough overlap to greatly affect our estimates. Identifying Local Conditions That Affected Grants in American Samoa: To identify local conditions that affected the uses of the selected grants, we interviewed federal and American Samoa officials, reviewed program documents, and made observations in American Samoa in March 2004. Specifically, we looked at the availability of professional staff to administer grants services or projects, the adequacy of facilities to deliver services, and the availability of funds to deliver services or complete projects as specified by program officials or supporting documents for the 12 key grants that we reviewed. Assessing Accountability for Federal Funds: To assess accountability for the grants, we identified requirements in the legislation, regulations, or other relevant documents; reviewed monitoring reports and financial audits conducted by federal agencies; reviewed the single audit reports for fiscal years 1998-2001; conducted federal agency interviews and on-site observations; discussed accountability issues with federal and local officials; and reviewed GAO reports on selected grants and programs for reviews relating to accountability issues. To further assess accountability, we randomly selected transaction data from the American Samoa Department of Treasury, the Lyndon Baines Johnson Tropical Medical Center (LBJ Hospital), and the Territorial Office of Fiscal Reform--the three American Samoa departments responsible for accounting for the 12 grants we selected. We based our selection of transactions on seven "object codes" (e.g., expenditure categories for personnel, supplies, contractual services, travel, other expenses, office equipment, and indirect costs) assigned by the Department of Treasury. To determine the reliability of the single audit data, we interviewed the external auditors who completed the single audit reports for American Samoa and confirmed that the auditors had received a peer review. We consulted with financial accountants in GAO regarding the single audit reports. We determined that the single audit data were sufficiently reliable for reporting on American Samoa governmentwide accountability and citing specific audit findings for the selected grants. We relied on federal monitoring reports to assess other accountability issues for our selected programs. We confirmed the opinions or report findings with federal officials. We determined that these data were sufficiently reliable for the purpose of assessing the overall and specific accountability of federal funds. Evaluating Grant Performance: To evaluate the performance of the selected grants, we determined whether the grants had specific program goals or performance standards that federal and American Samoa officials used for evaluation; collected and reviewed agency performance and monitoring reports; reviewed GAO reports; and consulted with GAO experts and methodologists on the selected grants. On basis of the evaluative criteria provided by federal officials overseeing the selected programs, we concluded that most agencies evaluated the grants based on program or service delivery or whether projects funded by grants were completed. We relied, for the most part, on federal agency reviews and found them to be sufficiently reliable for our purposes of describing if and how federal and American Samoa officials evaluated performance of the 12 key grants. Our findings are detailed in appendixes II through VI. We performed our work from September 2003 through October 2004 in accordance with generally accepted government auditing standards. [End of section] Appendix II: U.S. Department of the Interior Programs in American Samoa: Government Operations Grant: Purpose and Legislation: Since fiscal year 1952, the U.S. Department of the Interior (DOI) has provided the government operations grant to American Samoa as directed assistance, earmarked through the federal budget process[Footnote 48] and appearing in federal appropriations tables as a line item.[Footnote 49] The grant is divided among the American Samoa government, the Lyndon Baines Johnson Tropical Medical Center (LBJ Hospital), and the High Court of American Samoa. According to DOI, the annual grant to the American Samoa government is the only regular general operating subsidy that DOI provides to an insular area government in the form of a grant and is intended to supplement, but not substitute for, local revenues and is also intended to promote self-sufficiency. The portion of the grant allocated to LBJ Hospital is stated in the grant award documents. The portion of the grant allocated to the High Court of American Samoa is included in the budget justifications. Funding Levels: The government operations grant comprises almost $23 million each year (see table 2 for details). Table 2: Government Operations Grant to American Samoa, Fiscal Years 1999-2003: Fiscal year: 1999; Grant recipients: American Samoa government operations: $14,460,000; Grant recipients: LBJ Hospital: $7,772,000; Grant recipients: High Court: $586,000; Total grant award: $22,818,000. Fiscal year: 2000; Grant recipients: American Samoa government operations: $14,460,000; Grant recipients: LBJ Hospital: $7,772,000; Grant recipients: High Court: $563,476; Total grant award: $22,795,476. Fiscal year: 2001; Grant recipients: American Samoa government operations: $14,428,188; Grant recipients: LBJ Hospital: $7,754,902; Grant recipients: High Court: $545,797; Total grant award: $22,728,887. Fiscal year: 2002; Grant recipients: American Samoa government operations: $14,460,000; Grant recipients: LBJ Hospital: $7,772,000; Grant recipients: High Court: $568,000; Total grant award: $22,800,000. Fiscal year: 2003; Grant recipients: American Samoa government operations: $14,366,000; Grant recipients: LBJ Hospital: $7,721,000; Grant recipients: High Court: $603,000; Total grant award: $22,690,000. Fiscal year: 5-year total; Grant recipients: American Samoa government operations: $72,174,188; Grant recipients: LBJ Hospital: $38,791,902; Grant recipients: High Court: $2,866,273; Total grant award: $113,832,363. Source: U.S. Department of the Interior. Note: Grant awards are shown in nominal dollars. Variation in the annual funds results from general U.S. government budget rescissions. [End of table] Since 1998, DOI has specified that nearly $7.8 million of the grant be allotted to the budget of LBJ Hospital. Since 1952, a portion of the grant has been allotted directly to the budget of the High Court. The use of these funds is not restricted to U.S. nationals or citizens by law or regulations. Activities Supported, Target Recipients, and Basic Accomplishments: The government operations grant supports the operations of the American Samoa government, LBJ Hospital, and the High Court. In each instance, the money is deposited directly to the recipient's accounts and becomes part of the recipient's funding stream, losing its separate identity.[Footnote 50] The grant funds are drawn down from U.S. Treasury accounts in monthly allotments. During fiscal years 1999-2003, once the funds were drawn down, they were deposited in the American Samoa government accounts. The grant is allocated as follows. * Basic government operations. According to the American Samoa government annual budget for 2003, the funds allocated for basic government operations were to be spent as follows: $7.4 million to the American Samoa Department of Education, $2.7 million to the Department of Public Works, $1.4 million each to the Department of Public Safety and the American Samoa Community College, $866,500 to the Department of Legal Affairs, and $750,000 to the Port Administration. In fiscal year 2003, the grant's $14.5 million provided 6.5 percent of the American Samoa government total budget. * LBJ Hospital. The portion of the grant designated for LBJ Hospital enters the hospital's budget as a revenue source, whereupon its specific uses cannot be traced. In fiscal year 2003, the $7.7 million represented about 26 percent of LBJ Hospital's $29.3 million revenue. * High Court. According to DOI and American Samoa budget documents, the grant provides all of the High Court's budget. Performance Goals and Accountability Standards: The primary goal of the government operations grant is to provide financial assistance to help ensure that the American Samoa government is providing adequate government systems and services. DOI's secondary goal for this grant is to promote self-sufficiency for American Samoa. According to DOI, over the years American Samoa has assumed an increasing percentage of the total costs of government operations. According to DOI, since the mid-1990s, the agency's policy has been to maintain the grant at a constant level, requiring American Samoa to absorb costs associated with inflation and population growth[Footnote 51] and thereby encouraging the territory's self-sufficiency. According to DOI officials, the single audit is a major source of accountability for the portion of the grant provided to the American Samoa government. LBJ Hospital is to conduct its own audit annually. Both the American Samoa government and LBJ Hospital are also supposed to provide financial and cash transaction reports as they use the DOI grant. Performance Evaluation: According to DOI, providing the government operations grant to American Samoa is consistent with the agency's goals of serving communities by providing financial assistance to help ensure that governments provide adequate systems and services and encouraging self-sufficiency. Budget data show and DOI confirms that, generally, over the years, American Samoa has assumed an increasing portion of the total costs of government operations. However, assessing the American Samoa government's progress toward self-sufficiency is difficult because of the lack of verifiable expenditure data. Because the grant is a direct subsidy to the American Samoa government, the grant's performance in encouraging self-sufficiency must be evaluated in light of accurate revenue and expenditure information, which single audits should provide. However, because of American Samoa's failure to comply with the Single Audit Act, audited financial statements do not exist for years after fiscal year 2001,[Footnote 52] and DOI has no verifiable information on American Samoa's actual revenues and expenditures other than the financial and cash transaction reports sent to DOI by the American Samoa government. Therefore, it is difficult to determine the extent to which the American Samoa government is moving toward self- sufficiency. American Samoa government budget data show that DOI's contribution to the government's budget decreased from about 18 percent in fiscal year 1999 to about 15 percent in fiscal year 2003.[Footnote 53] According to DOI officials and American Samoa's Department of Treasury, local revenues accounted for about 60 percent of all government revenue for fiscal year 2003, an increase of about 5 percent since fiscal year 1999.[Footnote 54] Grant Accountability: Because the American Samoa government did not complete single audits for fiscal years 1998-2003 within the time frame specified in the Single Audit Act, overall accountability for the government operations grant was limited. DOI officials asserted that the unique nature of the grant--that is, as a subsidy to the American Samoa government--implies limited accountability and that Congress designed the grant as such. Except for standard grant reporting requirements, the government operations grant is entirely dependent on the single audits for assurance of accountability. In the single audits of the American Samoa government for fiscal years 1998-2001, the auditors stated no opinion about the reliability of the financial statements or the allowability of claimed costs. They found significant failure in the internal controls structure.[Footnote 55] The single audits for fiscal years 2002-2003 remain uncompleted. Accountability for LBJ Hospital is likewise limited. Independent audits of the LBJ Medical Center Authority[Footnote 56] for fiscal years 1998- 2001 found significant problems with the LBJ Hospital accounts.[Footnote 57] For the relevant years, LBJ Hospital declined to present the auditor a statement of cash flows, summarizing its operating, investing, and financing activities as required by generally accepted accounting principles. Because of this and other matters, the auditor was unable to express an opinion on the financial statements printed in the audit. In reviewing compliance with internal controls, the auditors found instances of noncompliance as well as several reportable conditions and material weaknesses. Audits of later years were not available as of November 2004. Capital Improvement Grants: Purpose and Legislation: Capital improvement grants to American Samoa are among the covenant grants authorized by the 1976 Covenant to Establish a Commonwealth of the Northern Mariana Islands.[Footnote 58] As such, they are mandatory, subject to annual appropriations. Although a specific amount of covenant grants is reserved for the Northern Mariana Islands, capital improvement grants are provided for all other territories, including American Samoa. DOI's budget justifications list the intended recipient territory and the projects to be funded each year. Before 1996, American Samoa received an annual discretionary grant for capital improvement needs. These grants averaged approximately $5 million annually and came from the Assistance to the Territories appropriation. According to DOI officials, during that time period, American Samoa fell further behind the infrastructure needs of its rapidly growing population. As a consequence, according to DOI, the people of the territory faced increasing hardship and risk with regard to basic needs such as drinking water, medical services, and education. In fiscal year 1996, Congress enacted legislation directing that some of the mandatory covenant funds be used to pay for critical infrastructure in American Samoa.[Footnote 59] The legislation also required the Secretary of the Interior to develop a multiyear capital plan with American Samoa and to update it annually. DOI and the American Samoa government together developed the Capital Improvements Plan, which established the following priorities for capital improvement projects: * First-order priorities include health, safety, education, and utilities. * Second-order priorities include ports and roads. * Third-order priorities include industry, shoreline protection, parks and recreation facilities, and other government facilities. DOI awards capital improvement grants on the basis of a ranked list of proposed projects submitted by the American Samoa government based on the plan. Independent American Samoa authorities also received capital improvement grants. Funding Levels: In fiscal years 1999-2003, American Samoa was awarded $50.8 million for capital improvements, an average amount of $10.2 million annually. According to DOI, the use of these funds is not restricted to U.S. nationals or citizens, and construction projects are not limited to U.S. companies by law or regulation. Table 3 shows the annual grant award. Table 3: Capital Improvement Grants Awards to American Samoa, Fiscal Years 1999-2003: Fiscal year: 1999; Grant award: $8,240,000. Fiscal year: 2000; Grant award: $10,140,000. Fiscal year: 2001; Grant award: $12,140,000. Fiscal year: 2002; Grant award: $10,140,000. Fiscal year: 2003; Grant award: $10,140,000. Fiscal year: 5-year total; Grant award: $50,800,000. Source: U.S. Department of the Interior, Office of Insular Affairs. Note: Grant awards are shown in nominal dollars and exclude grant amendments. [End of table] In fiscal year 2005, DOI will implement a new competitive allocation system for the $27.72 million in mandatory covenant grants.[Footnote 60] Activities Supported, Target Recipients, and Basic Accomplishments: Of the $50.8 million in capital improvement projects awarded to American Samoa in fiscal years 1999-2003, the American Samoa Power Authority received about $14 million; the American Samoa Department of Education received about $12.6 million; health care services, including LBJ Hospital, received about $8.3 million; the Department of Port Administration received about $4.6 million; and the Department of Public Works received about $1.8 million for village road construction. An operations and maintenance fund receives 5 percent of each capital improvement grant, accruing about $2.7 million in fiscal years 1999- 2003.[Footnote 61] (See fig. 5 for percentages.) Other recipients of capital improvement grants include the American Samoa Community College, the Department of Public Safety, and a fuel storage facility for rehabilitation, among others. Figure 5: American Samoan Organizations or Sectors Receiving DOI Capital Improvement Grants, Fiscal Years 1999-2003: [See PDF for image] [End of figure] Although the American Samoa government compiles the list and awards grants with DOI approval, many American Samoa agencies either manage their own projects or arrange for another agency to manage them. Both the American Samoa Power Authority and LBJ Hospital use their own contract management to control grant funds and obtain desired services. Also, the American Samoa Departments of Education and Port Administration use the Territorial Office of Fiscal Reform to oversee and manage their capital improvement grants. According to agency officials, the American Samoa agencies have established separate contract management systems because the regular American Samoa Treasury administrative process for project design, contracting, construction, and vendor payment is extremely slow. As a result, several American Samoa agencies have developed parallel payment systems. (See app. VII for a diagram showing this payment process.) The American Samoa Department of Education received about $2.5 million per year on average--approximately 25 percent of all capital improvement grants in fiscal years 1999-2003. According to American Samoa officials, the American Samoa Department of Education used its grants to: * construct almost 120 new rooms, including classrooms (see fig. 6), school offices, and science labs; * purchase 16 new buses for $1 million; * construct new toilet facilities at several schools and hire bathroom monitors at 21 schools to clean and guard the new toilets; * renovate classrooms and office buildings by improving electrical systems with lights and fans, as well as installing new window screens, new doors and locks, and roofs; and: * provide new classroom furniture in many of the new and renovated buildings. Figure 6: Tafuna High School Classroom Block Built with Capital Improvement Grant Funds, American Samoa: [See PDF for image] [End of figure] LBJ Hospital, built in 1968, has used its $1.5 million average annual capital improvement grants to renovate its aging facility and obtain specific medical devices. Until 1999, few improvements had been made since the building's construction. In fiscal years 1999-2003, the total of $7.4 million in capital improvement grants allowed the hospital to: * expand the existing hospital laboratory and renovate of the old laboratory space (see fig. 7); * construct an ear, nose, and throat clinic and public restrooms; * purchase and install five dialysis machines; * purchase and install a new medical records filing system; and: * replace hospital core area air-conditioning chillers. Figure 7: LBJ Hospital Laboratory Renovated with Capital Improvement Grant Funds, American Samoa: [See PDF for image] [End of figure] The Department of Public Works receives $361,000 annually to build village roads, which are not eligible for funds from the Federal Highway Administration's programs. Village roads run from the main connector road into a population center or to a school. Performance Goals and Accountability Standards: DOI reported that capital improvement projects in American Samoa are consistent with its goal of improving infrastructure in American Samoa. These grants are the only direct financial assistance for infrastructure in DOI's budget. According to DOI officials, project completion is the main criterion for assessing performance of capital improvement grants. The agency does not have a staff engineer to conduct technical reviews of construction projects; instead, it has a standing agreement with the U.S. Army Corps of Engineers in Hawaii to conduct reviews on an "as needed basis." Accountability arises from the inclusion of large projects in the single audits; on-site monitoring by federal officials, including the resident DOI representative; and financial reports. Performance Evaluation: We selected and reviewed several completed projects constructed with capital improvement grant funds. According to DOI, the resident DOI representative visits projects as she determines necessary or when requested by DOI. About once each year, DOI officials from headquarters visit American Samoa, review project files, and inspect the projects. American Samoa Department of Education. We toured several recently constructed classroom buildings, which featured handicapped-accessible classrooms for about 30 students, furnished with new desk chairs, electric lights and ceiling fans, and sinks. We also visited renovated classroom buildings. Generally, these buildings had no peeling paint, and no plaster or drywall was falling from the walls. According to a principal at a newly built facility, a number of postconstruction problems remained unaddressed by the contractor or the Departments of Education and Public Works. These problems included failure to clean and restore playground areas to a safe standard for the returning children, office spaces built without provision for telephone lines, and improperly welded stair railings. We also toured several new and renovated toilet facilities on the school campuses. Generally, these toilets were clean and functional, although we found instances of blocked drains, tiles missing from walls, and disconnected power lines into a new building. LBJ Hospital. We visited the new lab facility, air-conditioned with new equipment and updated workstations, and the new ear, nose, and throat clinic, which also had air-conditioned facilities. We were also shown new wards with private rooms and oxygen piped to bedsides rather than provided in tanks as in the older wards. We saw many pieces of new equipment, including equipment for mammography, magnetic resonance imaging, sonograms, X-ray, and X-ray developing. We visited the new file room for maintaining medical records. In contrast, the older parts of the hospital had no air-conditioning and poor ceiling ventilation. The hospital has had persistent fire-safety problems, including inflammable building materials and lack of sprinkler systems in older wards. During the period of our review, the inflammable materials were being replaced as wards were renovated; however, sprinklers remained inadequate. Grant Accountability: Because the American Samoa government did not complete single audits for fiscal years 1998-2003 within the time frame specified in the Single Audit Act, overall accountability for the capital improvement grants was limited. According to DOI officials, the accountability of these grants is no less than for other federally funded construction grants to the states and local governments. However, in American Samoa's single audits for fiscal years 1998-2001, which include the grants, the auditors disclaim any opinion about the reliability of the territory's financial statements, the allowability of claimed costs, and the effectiveness of internal controls. The single audits for fiscal years 2002 and 2003 remained uncompleted as of November 2004. The audits for LBJ Hospital for fiscal years 1998-2001 found significant problems with the hospital accounts. For fiscal years 1998- 2000, LBJ Hospital declined to present a statement of cash flows summarizing the operating, investing, and financing activities as required by generally accepted accounting principles. As a result, the auditor was unable to express an opinion regarding the financial statements printed in the audit. For fiscal year 2001, the auditors found the hospital unable to locate supporting documents for its accounting records. The auditors expressed no opinion on the hospital's financial statements for 2001. The auditors found several instances of noncompliance as well as several reportable conditions and material weaknesses in internal controls. Audits for fiscal years 2002-2003 were not available as of November 2004. General Technical Assistance Grants: Purpose and Legislation: Each year, Congress appropriates money for technical assistance grants in the territories. Significant portions of this appropriation have been used for specific projects, such as the Coral Reef Initiative; Brown Tree Snake Control, focused on Guam; Maintenance Assistance, also known as the Operations and Maintenance Improvement Program; and the Insular Management Control Initiative. The annual appropriation also provides for general technical assistance to support short-term, noncapital projects. General technical assistance is not designated for any specific purpose, unlike the other forms of technical assistance, and is not intended to supplant local funding of regular operating expenses. DOI allocates these funds as it deems appropriate through an application process. Funding Levels: The number of grants funded annually varies. For example, in fiscal year 2001, general technical assistance funding of $665,600 (see table 4) comprised 10 separate grants, the largest of which was $200,000 for a container tracking system for the Port Administration. General technical assistance grants must be spent in the year that they are obligated; however, DOI sometimes provides another year of funding to a project with the understanding that funding for the following year will depend on the availability of funds. Table 4: General Technical Assistance Grant Awards to American Samoa, Fiscal Years 1999-2003: Fiscal year: 1999; Grant award: $320,367. Fiscal year: 2000; Grant award: $82,215. Fiscal year: 2001; Grant award: $665,600. Fiscal year: 2002; Grant award: $614,625. Fiscal year: 2003; Grant award: $63,000. Fiscal year: 5-year total; Grant award: $1,745,807. [End of table] Source: U.S. Department of the Interior, Office of Insular Affairs. Note: Grant awards are shown in nominal dollars and exclude grant amendments. Activities Supported, Target Recipients, and Basic Accomplishments: All territories and freely associated states may compete for general technical assistance grants. DOI staff assess whether the applications adequately address the problems cited in the applications. According to DOI officials, DOI helps the insular governments structure their grant applications to address applicants' needs and capacity--for example, whether a requested computer system is sufficient and appropriate for the designated purpose. The 23 general technical assistance grants to American Samoa in fiscal years 1999-2003 totaled $1.75 million, and included $7,790 for Medicare Coverage Training and $350,000 for computers for the American Samoa government. Several technical assistance grants, totaling about $390,000, were to be used to improve operations at LBJ Hospital. In April 2001, DOI granted the American Samoa Department of Port Administration $200,000 to purchase and install a container tracking system for cargo entering and leaving American Samoa's harbor of Pago Pago. The system was designed to maintain complete information about the status of all containers arriving in American Samoa and to improve the accuracy of the billing procedures for the containers. According to the pier superintendent, the system allows ships at sea to radio their container tracking numbers and contents to the port authority, allowing for better revenue collection and more timely handling of the containers. In May 2002, DOI granted the American Samoa government $185,000 to purchase and install an immigrant tracking system upgrade (see fig. 8). According to DOI documents, the new system maintains a database of visitors entering the territory and presents a daily list of those whose visitation has expired or is about to expire. The system also keeps a digital photograph of visitors' passports. Figure 8: Airport Immigration Tracking System, American Samoa: [See PDF for image] [End of figure] In 1999, DOI provided $285,000 and, later in 2001, $300,000 more to the Pacific Basin Development Council in Honolulu for organizing the American Samoa Economic Advisory Commission. The commission was chartered to make recommendations to the President through the Secretary of the Interior regarding the economic future of American Samoa and to analyze the history of, and prospects for, economic development in American Samoa. The commission was also to recommend policies, actions, and time frames to achieve a secure and self- sustaining economy for American Samoa. Finally, the commission was to comment on the related appropriate role of the federal government. In 2002, the commission issued a four-volume report that targeted four potential growth industries: fisheries, agriculture, and aquaculture; telecommunications and technology: information; manufacturing; and tourism.[Footnote 62] The report recommended creating: * a public-private working group in American Samoa to define and set up a process, structure, and timetable and to manage and oversee the implementation of the plan explained in the report; and: * a federal-territorial task force to coordinate activities and resolve pressing and potential problems and conflicts by seeking workable solutions. An interim report from 2001 by the commission summarized its findings and cited skepticism within the American Samoan population about the federal government's long history of commissioning studies that yielded no tangible or sustainable results. DOI officials told us that no one in the American Samoa government had taken responsibility for pursuing the commission' s recommendations. The commission included the then Lieutenant Governor, who became Governor of the territory in March 2003. According to DOI officials, the American Samoa government responded to these recommendations by promoting an e-commerce development corporation for which it had already requested DOI funds. Performance Goals and Accountability Standards: No performance goals have been established for this program. Performance Evaluation: According to the DOI official responsible for administering the program, DOI works to structure the general technical assistance grants according to the American Samoa government's needs. However, according to DOI, once the grant is structured, the funds provided, and the training or project completed, DOI does not follow up to evaluate performance unless prompted by a complaint from the government or recipient. [End of section] Appendix III: U.S. Department of Agriculture Programs in American Samoa: School Lunch Program: Purpose and Legislation: The U.S. Department of Agriculture (USDA) provides grant funds for the American Samoa School Lunch Program.[Footnote 63] The purpose of the program in American Samoa is to provide nutrition assistance to residents of American Samoa, with priority given to school-age children. The current program is funded by a special block grant that operates according to a memorandum of understanding (MOU) and provides free breakfast and lunch to all school age children. From 1962 to 1991, the School Lunch Program in American Samoa followed the same regulations, policy, and procedures as the National School Lunch Program in the 50 states.[Footnote 64] In 1991, USDA converted the amount paid under the original program to the Child Nutrition block grant, which has been adjusted for inflation annually since the transition.[Footnote 65] According to the MOU, the governor of American Samoa is charged with administering the program in American Samoa. The American Samoa Department of Education has been designated as the grant coordinator. According to federal officials, this transition caused no break in program services to the children in American Samoa. Officials explained that the change in grant and program structure was intended to provide American Samoa with greater flexibility to serve the needs of its children. In addition, given American Samoa's remoteness and unique needs, funding the program with the block grant allowed American Samoa to better meet those needs than would the national USDA child nutrition programs (National School Lunch Program, School Breakfast Program, State Administrative Expense Funds, and Nutrition Education and Training Program). Another reason cited for the change, according to federal officials, was that the management and oversight responsibilities for the traditional child nutrition programs in American Samoa were costly and severely disproportionate to the overall level of federal assistance provided to American Samoa; in contrast, the block grant reduced USDA's oversight responsibilities and administrative investment. Funding Levels: School Lunch Program grants to the American Samoa government are made on a federal fiscal year basis. Since fiscal year 1991, USDA's Food and Nutrition Service (FNS) has provided grant funds on a quarterly basis, with each year's grant contingent on the availability of funds and FNS's approval of American Samoa's fiscal year Plan of Operations and completion of the Drugfree Workplace Certification and Lobbying Certification.[Footnote 66] On August 15 of each year, American Samoa is required to submit a Plan of Operations to FNS that describes how funds will be used, the targeted population to be served, and how often food or other services will be made available to program recipients. The plan also must include a budget for program expenditures. Grants are calculated with a fiscal year 1989 grant calculation methodology that was amended in 1992 and includes a yearly inflation adjustment.[Footnote 67] After adjusting for base year funds, FNS adds funding for the Nutrition Education Training Program, as authorized by Section 19 of the Child Nutrition Act of 1966 (42 U.S.C. §1788). Funds that are obligated by FNS to American Samoa in a given fiscal year are available for obligation and expenditure by the School Lunch Program in the following fiscal year, or 2 years from the date of disbursement. Table 5 shows the grant award amount for fiscal years 1999-2003. Table 5: School Lunch Program Grant Awards to American Samoa, Fiscal Years 1999-2003: Fiscal year: 1999; Grant award: $8,485,224. Fiscal year: 2000; Grant award: $9,096,081. Fiscal year: 2001; Grant award: $9,727,818. Fiscal year: 2002; Grant award: $10,464,902. Fiscal year: 2003; Grant award: $11,230,206. Fiscal year: 5-year total; Grant award: $49,004,231. Source: USDA, FNS Western Region. Note: Grant awards are shown in nominal dollars and exclude grant amendments. [End of table] Activities Supported, Target Recipients, and Basic Accomplishments: The American Samoa School Lunch Program uses grant funds to provide free breakfast and lunch to children attending public or private schools and early education centers (see fig. 9). As of July 2004, the program was serving meals at 23 public elementary schools, 6 public high schools, 10 private schools, 55 early childhood education centers, and 37 day care centers. Figure 9: School Lunch Program at Leone Midkiff Elementary School, American Samoa: [See PDF for image] [End of figure] Although the School Lunch Program in American Samoa is not held to the same nutritional requirements as in the 50 states, the MOU requires that meals be nutritious and include a variety of foods. FNS encourages the use of foods native to the Samoan Islands, as well as other nutritious foods acceptable to the groups being served. FNS also encourages menu planning to keep fat, sugar, and salt at moderate levels and to keep the menu consistent with dietary guidelines published by USDA and the U.S. Department of Health and Human Services. According to FNS officials, the American Samoa School Lunch Program develops its own menu, and the nutritionist works with the schools' cooks to ensure that the menu is being followed. FNS provides as much advice as possible on the development and nutrition quality of the meals. In addition to funding the delivery of meal services and program administration, the block grant includes funds earmarked specifically for nutrition education. The National School Lunch Program is not legislatively required to provide, and does not receive funding specifically for, nutrition education. However, training funds are included in the grant portion for nutrition education. The American Samoa School Lunch Program Director told us that he is committed to seeking training for his employees and that, following our fieldwork, several of his staff attended training in the continental United States. He reported that, in April 2004, he sent four employees to attend the USDA School Meals Initiative conference held in Phoenix, Arizona. This conference addressed areas of concern for school meals initiatives, with particular focus on the advancement of research and technology to improve services. The Director explained that his staff acquired updated knowledge of school food services techniques and methods for improving the American Samoa program. Three other employees received training in Sacramento, California, and visited the FNS offices in San Francisco. The Director reported that the staff returned with fresh enthusiasm about improving menu planning for nutritious student meals and assisting the field school food coordinators in improving their job performance. Performance Goals and Accountability Standards: The American Samoa School Lunch Program does not have specific program goals, but language in the MOU states that in developing its Plan of Operations, the program should give priority consideration to the needs of its preschool and school-age children; meals should be appealing and nutritious; and the program should work toward serving meals that meet the current dietary guidelines for Americans, contain nutrients at Recommended Dietary Allowances, and conform to the Food Guide Pyramid. To assess accountability, the annual Plan of Operations requires the American Samoa government to identify program activities and administrative areas that it funds with the grant. The plan should identify the number of schools where services will be provided and estimate the number of students who will be served both breakfast and lunch. It should also provide details of administration expenses and nutrition education expenses. According to federal officials, there is no requirement that the American Samoa School Lunch Program "buy America" or that the American Samoa government hire U.S. citizens. Program and financial information is provided to federal officials annually and quarterly in a series of reports.[Footnote 68] FNS also relies on annual single audit reports to assess accountability for American Samoa School Lunch Program funds. In addition, according to USDA headquarters officials, FNS program and financial management staff are required to conduct program and financial reviews every 3 years to ensure that American Samoa is complying with the terms and conditions in the MOU. However, FNS program staff reported that although they would like to conduct reviews more frequently, cuts in the travel budget make this difficult. Because the American Samoa School Lunch Program is funded by a special block grant, FNS program officials have discretion in the criteria they use to evaluate and monitor the program. FNS further explained that funds allocated to American Samoa are much smaller than those allocated to mainland programs and that the agency focuses its limited resources where attention is needed most. FNS said that the programs in American Samoa and the Commonwealth of the Northern Mariana Islands were converted to block grants to enable the FNS to save on administrative and oversight costs, among other reasons.[Footnote 69] FNS conducted program reviews in American Samoa in September 1998, September 2001, and January 2004, and it conducted financial management reviews in September 1997 and January 2004. Performance Evaluation: The American Samoa School Lunch Program is meeting its purpose of delivering breakfast and lunch to schoolchildren. Federal program officials reported that they review meal service based on information that the American Samoa government submits in the FNS required quarterly performance reports, which contain the number of meals served in that period of the grant. Federal officials evaluate the program on the basis of its effectiveness in delivering services, and they identify areas where American Samoa can improve management effectiveness and efficiency to achieve quality management practices. Following are some of the findings that the officials reported, based on FNS program reviews in September 2001 and January 2004: In September 2001: * FNS reported that the American Samoa School Lunch Program was doing a good job of using grant funds to feed children in schools and day care centers; however, FNS expressed concern about the maintenance of refrigeration equipment, health and sanitation, and the availability of fresh fruit and vegetables in the menus. In January 2004: * FNS reported that the American Samoa School Lunch Program staff had made significant improvements in program operations and administration under the new School Lunch Program Director. These improvements followed charges and a guilty plea of the former School Lunch Program Director owing to the mishandling and theft of department food supplies and materials. * Regarding program delivery, FNS reported that the warehouse is the only area where staffing is short and that food collection for distribution to day care centers consumes considerable staff time. * The American Samoa School Lunch Program includes meal service to day care centers. FNS reported its concern that supporting the day care centers may limit the administrative ability of program staff to provide food to all other schools. Since