Commonwealth of the Northern Mariana Islands:

Serious Economic, Fiscal, and Accountability Challenges

GAO-07-746T: Published: Apr 19, 2007. Publicly Released: Apr 19, 2007.

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The Commonwelth of the Northern Mariana Islands (CNMI) is a self-governing commonwealth of the United States that administers its own local government functions under its own constitution. CNMI consists of 14 islands in the North Pacific with a total land area about 2.5 times the size of Washington, D.C. In recent years, CNMI has experienced serious economic and fiscal challenges, and several indicators point to a fiscal crisis in fiscal year 2006. This testimony highlights the recent economic trends in the CNMI economy, its weakening fiscal condition, and its financial accountability challenges. Our conclusions are based on work performed for our December 2006 report on U.S. insular areas and our February 2007 testimony on CNMI before the Senate Committee on Energy and Natural Resources, which was updated to include audited financial information through fiscal year 2005 and some recent developments in fiscal year 2006 based on information available as of February 2007. Today, we are also including additional information on CNMI's fiscal year 2006 status recently provided to us by CNMI's Secretary of Finance. We conducted our work in accordance with generally accepted government auditing standards.

The government of CNMI has long-standing financial accountability problems, including the inability to achieve unqualified ("clean") audit opinions on its financial statements, and numerous, long-standing material weaknesses in internal control over financial reporting and compliance with laws and regulations governing federal grant awards. CNMI received $65.6 million in federal grants in fiscal year 2005, and its audited financial statements are used by federal agencies for overseeing and monitoring the use of federal grants. With CNMI's continued inability to achieve clean opinions on its financial statements and the continuing material internal control weaknesses over financial reporting, there is limited accountability over its federal grants. Furthermore, the lack of timely and reliable financial information hampers CNMI's ability to monitor programs and the reliability of financial information, such as revenues and expenditures, in order to make informed decisions. The U.S. Department of the Interior 's Office of Insular Affairs (OIA) has ongoing efforts to support economic development in CNMI and assist CNMI in addressing its accountability issues. A focused effort is called for where direct and targeted attention is concentrated on the challenges facing CNMI to help CNMI achieve economic and fiscal stability. OIA plays a key role in this effort by helping CNMI and the other insular areas improve their business climates, identify areas of potential for private sector investment, and market insular areas to potential investors. In response to our recent report, OIA expressed its commitments to continuing its comprehensive approach and to implementing other innovative ideas to assist CNMI and the other insular areas to continue to improve financial management and accountability and to support economic development.

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