Compacts of Free Association:

Micronesia and the Marshall Islands Face Challenges in Planning for Sustainability, Measuring Progress, and Ensuring Accountability

GAO-07-163: Published: Dec 15, 2006. Publicly Released: Dec 15, 2006.

Additional Materials:

Contact:

David B. Gootnick
(202) 512-3149
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

In 2003, the United States signed Compacts of Free Association with the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI), amending a 1986 compact with the countries. The amended compacts provide the countries with a combined total of $3.6 billion from 2004 to 2023, with the annual grants declining gradually. The assistance, targeting six sectors, is aimed at assisting the countries' efforts to promote economic advancement and budgetary self-reliance. The Department of the Interior (Interior) administers and oversees the assistance. Complying with a legislative requirement, GAO examined, for fiscal years 2004 through 2006, (1) the FSM's and the RMI's use of compact funds, (2) their efforts to assess progress toward development goals, (3) their monitoring of sector grants and accountability for compact funds, and (4) Interior's administrative oversight of the assistance. GAO visited the FSM and the RMI; reviewed reports; and interviewed officials from the FSM, RMI, and U.S. governments.

For 2004 through 2006, compact assistance to the FSM and the RMI was allocated largely to the education, infrastructure, and health sectors, but various factors limited the countries' use of compact funds. Deterrents to the FSM's use of infrastructure funds included constraints on land use and disagreement on project implementation processes. Land use issues also hindered the RMI's use of infrastructure funds. In addition, the FSM's distribution of the grants among its four states resulted in significant differences in per-student education and per-capita health funding. Neither country has planned for long-term sustainability of the grant programs, taking into account the annual decreases in grant funding. To assess progress toward development goals, the FSM and the RMI established goals and objectives for each sector and are collecting performance data for education and health. However, a lack of complete and reliable baseline data prevents the countries from gauging progress in these sectors. Also, both countries' required quarterly performance reports contained incomplete and unreliable information, limiting the reports' utility for tracking progress. The countries' ability to measure progress is further challenged by a lack of technical capacity to collect, assemble, and analyze baseline and performance data. Although the FSM and the RMI are required to monitor day-to-day sector grant operations, their ability to meet this requirement for 2004 through 2006 was limited. According to officials in the respective governments, the responsible offices have insufficient staff, budgets, and time to monitor grant operations. In addition, both countries' single audit reports for 2004 and 2005 indicated weaknesses in their ability to account for the use of compact funds. For instance, the FSM's audit report for 2005 contained 57 findings of material weaknesses and reportable conditions in the national and state governments' financial statements for sector grants, and the RMI's report contained 2 such findings. Furthermore, both countries' single audit reports indicated noncompliance with requirements of major federal programs. For example, the FSM's audit report for 2005 contained 45 findings of noncompliance, while the RMI's audit report contained 11 findings. Interior's Office of Insular Affairs (OIA) has conducted administrative oversight of the sector grants by monitoring the countries' sector grant performance and spending, assessing their compliance with sector grant conditions, and monitoring the audit process. In response to shortcomings that it identified, OIA took several actions, such as withholding or suspending grant funding and ensuring the provision of technical assistance. However, OIA's oversight has been limited by the need to deal with challenges facing the FSM, such as its difficulty in preparing budgets, as well as by its own staffing challenges.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve RMI grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for RMI compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of JEMFAC, in coordination with other U.S. agencies on the committee in working with the RMI government to fully develop the mechanism for measuring sector grant performance and collect complete baseline data to track progress toward development goals.

    Agency Affected: Department of the Interior

    Status: Closed - Not Implemented

    Comments: As a result of the recommendation, the Department of the Interior, through the JEMFAC framework has coordinated with other U.S. agencies on the committee in working with the Republic of the Marshall Islands (RMI) national government to develop a mechanism for measuring sector grant performance and collect complete baseline data to track progress. However, Interior officials have concerns about the reliability of the data, and the extent to which RMI national government and United States government officials are using the data to assess grant performance.

    Recommendation: To improve RMI grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for RMI compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of Joint Economic Management and Financial Accountability Committee (JEMFAC), in coordination with other U.S. agencies on the committee in working with the RMI government to establish plans for sector spending and investment that minimize any adverse consequence of reduced funding resulting from the annual decrement or partial inflation adjustment.

    Agency Affected: Department of the Interior

    Status: Closed - Implemented

    Comments: As a result of our recommendation, the Department of the Interior, through the framework of the Joint Economic Management Financial and Accountability Committee, coordinated with U.S. agencies on the committee in working with the Republic of the Marshall Islands (RMI) national government to establish a decrement strategy minimizing the adverse consequences of reduced funding. In response to these efforts, the RMI national government published its Medium Term Budget and Investment Framework (MTBIF) which identifies several measures to mitigate the impact of reduced compact funding and partial inflation adjustments. The measures include increasing revenues by encouraging private sector growth and decreasing government expenditures. However, at the JEMFAC Mid-Year Conference in March 2011, JEMFAC members advised RMI national government to extend its decrement strategy beyond the medium-term of 5 years in preparation for the elimination of Compact funds.

    Recommendation: To improve FSM grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for FSM compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of JEMCO, to coordinate with other U.S. agencies on the committee in working with the FSM national government to ensure that the quarterly performance reports contain reliable and verified program and financial information for use as a monitoring tool by both the FSM and the U.S. governments.

    Agency Affected: Department of the Interior

    Status: Closed - Not Implemented

    Comments: In response to our recommendation, the Department of the Interior has coordinated through the JEMCO framework with other U.S. agencies on the committee in working with Federated States of Micronesia (FSM) national government. However, FSM's quarterly performance reports continue to be problematic i.e. they are not a useful tool for either the FSM or the USG to monitor sector performance. According to the Department of the Interior, the FSM's quarterly reports remain unreliable and unverifiable.

    Recommendation: To improve FSM grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for FSM compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of JEMCO, to coordinate with other U.S. agencies on the committee in working with the FSM national government to fully develop the mechanism for measuring sector grant performance and collect complete baseline data to track progress toward development goals.

    Agency Affected: Department of the Interior

    Status: Closed - Not Implemented

    Comments: As a result of the recommendation, the Department of the Interior, through the JEMCO framework has coordinated with other U.S. agencies on the committee in working with the Federated States of Micronesia (FSM) national government to develop a mechanism for measuring sector grant performance and collect complete baseline data to track progress. According to Interior, the FSM national government has made improvements in identifying baseline indicators for tracking progress toward development goals, however, the data are unverified and remain inconsistent.

    Recommendation: To improve FSM grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for FSM compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of JEMCO, to coordinate with other U.S. agencies on the committee in working with the FSM national government to evaluate the impact of the current FSM distribution between states and sectors on the ability of the nation to meet national goals or deliver services.

    Agency Affected: Department of the Interior

    Status: Closed - Not Implemented

    Comments: The Department of the Interior, through the JEMCO framework, has yet to coordinate with other U.S. agencies on the committee and the Federated States of Micronesia (FSM) national government to evaluate the impact of the current FSM distribution between states and sectors on the ability of the FSM to meet national goals or deliver services.

    Recommendation: To improve FSM grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for FSM compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of Joint Economic Management Committee (JEMCO), to coordinate with other U.S. agencies on the committee in working with the FSM national government to establish plans for sector spending and investment by the FSM national and state governments to minimize any adverse consequence of reduced funding resulting from the annual decrement or partial inflation adjustment.

    Agency Affected: Department of the Interior

    Status: Closed - Implemented

    Comments: As a result of our recommendation, the Department of the Interior, through the framework of the Joint Economic Management Committee, coordinated with U.S. agencies on the committee in working with the Federated States of Micronesia (FSM) national government to establish a decrement strategy focused on minimizing the adverse consequences of reduced funding. More specifically, the FSM national government published its Long Term Fiscal and Economic Framework (LTFEF), which is meant to serve as a reference tool for budgetary and economic planners, as resources continue to decline as a result of reductions in real Compact grant funding and increasing costs, such as rising public sector wages and price increases of goods and services. However, JEMCO members challenged the viability of the FSM national government's decrement strategy, as described in the LTFEF. For example, JEMCO officials raised concerns about the FSM national government's strategy of diluting health and education programs, rather than eliminating certain programs in these sectors, as Compact funds decline. JEMCO officials also expressed concerns about the willingness of the FSM national government to implement spending reductions described in the LTFEF in future budgets.

    Recommendation: To improve RMI grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for RMI compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of JEMFAC, in coordination with other U.S. agencies on the committee in working with the RMI government to ensure that the quarterly performance reports contain reliable and verified program and financial information for use as a monitoring tool by the RMI and the U.S. governments.

    Agency Affected: Department of the Interior

    Status: Closed - Not Implemented

    Comments: In response to our recommendation, the Department of the Interior has coordinated through the JEMFAC framework with other U.S. agencies on the committee in working with Republic of the Marshall Islands (RMI) national government. However, the RMI's quarterly performance reports continue to be problematic i.e. they are not a useful tool for either the RMI or the USG to monitor sector performance. According to the Department of the Interior, the RMI's reports provide little if any updated information on a quarterly basis.

    Jul 24, 2014

    Jul 21, 2014

    Jul 9, 2014

    Jul 8, 2014

    Jun 26, 2014

    Jun 25, 2014

    Looking for more? Browse all our products here