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entitled 'Compacts of Free Associations: Micronesia and the Marshall 
Islands Continue to Face Challenges Measuring Progress and Ensuring 
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United States Government Accountability Office: 
GAO: 

Report to the Committee on Energy and Natural Resources, U.S. Senate: 

September 2013: 

Compacts of Free Associations: 

Micronesia and the Marshall Islands Continue to Face Challenges 
Measuring Progress and Ensuring Accountability: 

GAO-13-675: 

GAO Highlights: 

Highlights of GAO-13-675, a report to the Committee on Energy and 
Natural Resources, U.S. Senate. 

Why GAO Did This Study: 

In 2003, the U.S. government approved amended Compacts of Free 
Association with the FSM and the RMI, providing for a total of $3.6 
billion in assistance over 20 years. Given the countries’ dependence 
on compact funding, GAO was asked to conduct a review of the use and 
accountability of these funds. This report addresses (1) the FSM’s and 
RMI’s use of compact funds in the education and health sectors; (2) 
the extent to which the FSM and RMI have made progress toward stated 
goals in education and health; and (3) the extent to which oversight 
activities by the FSM, RMI, and U.S. governments ensure accountability 
for compact funding. GAO also provided information on infrastructure 
spending and projects in the education and health sectors. GAO 
reviewed relevant documents and data, including single audit reports; 
interviewed officials from Interior, other U.S. agencies, and the FSM 
and RMI; assessed data reliability for subsets of both countries’ 
education and health indicators; and visited compact-funded education 
and health facilities in both countries. 

What GAO Found: 

In fiscal years 2007 through 2011, the Federated States of Micronesia 
(FSM) and the Republic of the Marshall Islands (RMI) spent at least 
half their compact sector funds in the education and health sectors. 
Because both countries spent significant amounts of compact funds on 
personnel in the education and health sectors, the U.S.–FSM and U.S.–
RMI joint management and accountability committees capped budgets for 
personnel in these sectors at fiscal year 2011 levels due to concerns 
about the sustainability of sector budgets as compact funding 
continues to decline through fiscal year 2023. The FSM states 
completed plans to address annual decreases in compact funding; 
however, the FSM National Government and the RMI have not submitted 
plans to address these annual decreases as required. Without plans, 
the countries may not be able to sustain essential services in the 
education and health sectors in the future. 

Data reliability issues hindered GAO’s assessment of progress by the 
FSM and RMI in the education and health sectors for fiscal years 2007 
through 2011 for the compacts as a whole. Between 2004 and 2006, both 
countries began tracking education and health indicators, establishing 
data collection systems, and collecting data for the majority of the 
indicators and have continued to track data on their indicators since 
that time. In education, GAO found 3 of 14 indicators in the subsets 
of indicators it reviewed for both countries to be sufficiently 
reliable and 1 also to be capable of demonstrating progress: the 
education level of teachers in the RMI. GAO found a variety of data 
reliability problems, such as some FSM states reporting data for both 
public and private schools while other states included only public 
schools in their data. In the health sector, GAO determined that data 
for all 5 of the subset of indicators it reviewed in the FSM were not 
sufficiently reliable to assess progress for the compacts as a whole, 
and in the RMI, 1 health indicator was sufficiently reliable and 2 
were not sufficiently reliable; for 2 other RMI health indicators, GAO 
had no basis to judge. In much of their reporting on their education 
and health indicators, the FSM and RMI have noted data reliability 
problems and some actions they have taken to address the problems. The 
U.S.–FSM and U.S.–RMI joint management and accountability committees 
have also raised concerns about the reliability of FSM’s education and 
health data and RMI’s health data and required that each country 
obtain an independent assessment and verification of these data; both 
countries have yet to meet that requirement, and, as a result, neither 
country can determine its progress in these sectors. 

The single audit reports GAO reviewed indicated challenges to ensuring 
accountability of compact and noncompact U.S. funds in the FSM and 
RMI. For example, the governments’ single audits showed repeat 
findings and persistent problems in noncompliance with U.S. program 
requirements, such as accounting for equipment. The Department of the 
Interior (Interior) has taken steps regarding accountability of 
compact funds such as establishing the Chuuk Financial Control 
Commission, but Interior has not coordinated with other U.S. agencies 
about the risk status of the FSM and RMI. Furthermore, the FSM, RMI, 
and U.S. offices responsible for compact administration faced 
limitations hindering their ability to conduct compact oversight. For 
example, Interior’s Office of Insular Affairs (OIA) experienced a 
staffing shortage that disproportionately affected compact grant 
oversight compared to other OIA activities, with 5 of 11 planned 
positions filled. 

What GAO Recommends: 

Among other actions, Interior should (1) take all necessary steps to 
ensure the reliability of FSM and RMI indicators in education and 
health, (2) assess whether to designate each country as high risk, and 
(3) take actions to correct its disproportionate staffing shortage 
related to compact grant implementation and oversight. Interior 
generally agreed with our recommendations and identified actions 
taken, ongoing, and planned. 

View [hyperlink, http://www.gao.gov/products/GAO-13-675]. For more 
information, contact David Gootnick at (202) 512-3149 or 
gootnickd@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

FSM and RMI Spending Targeted Education and Health: 

Data Inconsistencies Hindered Our Assessment of FSM and RMI Progress 
in the Education and Health Sectors: 

FSM and RMI Face Financial Accountability Challenges; Oversight Bodies 
Are Hindered by Limitations: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: FSM and RMI Infrastructure Projects Related to Education 
and Health Sectors, Fiscal Years 2007-2011: 

Appendix III: FSM and RMI Grant Assistance and Trust Fund 
Contributions under the Amended Compacts, Fiscal Years 2004-2023: 

Appendix IV: FSM and RMI Expenditures of U.S. Noncompact and Compact-
Related Grant Funds, Fiscal Years 2007-2011: 

Appendix V: Amended Compact Grant Allocations and Supplemental 
Education Grant Awards, Fiscal Years 2004-2013: 

Appendix VI: Education and Health Indicators for the FSM and the RMI, 
Fiscal Years 2007-2011: 

Appendix VII: Single Audit Reports for the FSM and the RMI, Fiscal 
Years 2006-2011: 

Appendix VIII: Office of Insular Affairs (OIA) Staffing Projections 
for Compact Oversight, Fiscal Years 2010-2013: 

Appendix IX: Comments from the U.S. Department of the Interior: 

Appendix X: Comments from the Federated States of Micronesia National 
Government: 

Appendix XI: Comments from the Government of the Republic of the 
Marshall Islands: 

Appendix XII: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Subset of 9 of the 20 Federated States of Micronesia (FSM) 
Education Indicators Reviewed, with Observations on the Reliability of 
the Data to Measure Progress for the Compact as a Whole from 2007 
through 2011: 

Table 2: Subset of 5 of the 14 Federated States of Micronesia (FSM) 
Health Indicators Reviewed, with Observations on the Reliability of 
the Data to Measure Progress for the Compact as a Whole from 2007 
through 2011: 

Table 3: Subset of 5 of the 20 Republic of the Marshall Islands (RMI) 
Education Indicators Reviewed, with Observations on the Reliability of 
the Data to Measure Progress for the Compact as a Whole from 2007 
through 2011: 

Table 4: Subset of 5 of the 26 Republic of the Marshall Islands (RMI) 
Health Indicators Reviewed, with Observations on the Reliability of 
the Data to Measure Progress for the Compact as a Whole from 2007 
through 2011: 

Table 5: Office of Insular Affairs (OIA) Staffing, Fiscal Years 2010 
through 2014: 

Table 6: Federated States of Micronesia (FSM) Expenditures of U.S. 
Noncompact and Compact-Related Grant Funds, Fiscal Years 2007 through 
2011: 

Table 7: Republic of the Marshall Islands (RMI) Expenditures of U.S. 
Noncompact and Compact-Related Grant Funds, Fiscal Years 2007 through 
2011: 

Table 8: U.S.-FSM Joint Economic Management Committee (JEMCO) Sector 
Allocations and Supplemental Education Grant Awards, Fiscal Years 2004 
through 2013: 

Table 9: U.S.-RMI Joint Economic Management and Financial 
Accountability Committee (JEMFAC) Sector Allocations and Supplemental 
Education Grant Awards, Fiscal Years 2004 through 2013: 

Table 10: Federated States of Micronesia (FSM) Education Indicators, 
Fiscal Years 2007 through 2011: 

Table 11: Federated States of Micronesia (FSM) Health Indicators, 
Fiscal Years 2007 through 2011: 

Table 12: Republic of the Marshall Islands (RMI) Education Indicators, 
Fiscal Years 2007 through 2011: 

Table 13: Republic of the Marshall Islands Health (RMI) Indicators, 
Fiscal Years 2007 through 2011: 

Table 14: Number of Months Single Audits from the Federated States of 
Micronesia (FSM) and the Republic of the Marshall Islands (RMI) Were 
Received Past Their Deadline, by Country and State, Fiscal Years 2006 
through 2011: 

Table 15: Financial Statement Audit Opinions for the Federated States 
of Micronesia (FSM) and the Republic of the Marshall Islands (RMI), 
Fiscal Years 2006 through 2011: 

Table 16: Number of Material Weaknesses and Significant Deficiencies 
Reported in Single Audit Reports for the Federated States of 
Micronesia (FSM) National Government and States, Fiscal Years 2006 
through 2011: 

Table 17: Number of Material Weaknesses and Significant Deficiencies 
Reported in Single Audit Reports for the Republic of the Marshall 
Islands (RMI), Fiscal Years 2006 through 2011: 

Figures: 

Figure 1: Location and Map of the Federated States of Micronesia and 
the Republic of the Marshall Islands: 

Figure 2: U.S. Grant Assistance and Trust Fund Contributions to Be 
Provided to the Federated States of Micronesia (FSM) and the Republic 
of the Marshall Islands (RMI) under the Amended Compacts, Fiscal Years 
2004 through 2023: 

Figure 3: Federated States of Micronesia (FSM) Sector Compact 
Expenditures and Supplemental Education Grant Expenditures, Fiscal 
Years 2007 through 2011: 

Figure 4: Federated States of Micronesia (FSM) Compact Expenditures in 
the Education and Health Sectors, Fiscal Years 2009 through 2011: 

Figure 5: Republic of the Marshall Islands (RMI) Sector Compact 
Expenditures and Supplemental Education Grant Expenditures, Fiscal 
Years 2007 through 2011: 

Figure 6: Republic of the Marshall Islands (RMI) Compact Expenditures 
in the Education and Health Sectors, Fiscal Years 2007 through 2011: 

Figure 7: Federated States of Micronesia (FSM) Infrastructure Sector 
Expenditures, Fiscal Years 2009 through 2011: 

Figure 8: Republic of the Marshall Islands (RMI) Infrastructure Sector 
Expenditures, Fiscal Years 2007 through 2011: 

Figure 9: U.S.-Federated States of Micronesia (FSM) Joint Economic 
Management Committee (JEMCO) Sector Allocations and Supplemental 
Education Grant Awards, Fiscal Year 2004 through Fiscal Year 2013: 

Figure 10: U.S.-RMI Joint Economic Management and Financial 
Accountability Committee (JEMFAC) Sector Allocations and Supplemental 
Education Grant Awards, Fiscal Year 2004 through Fiscal Year 2013: 

Figure 11: Federated States of Micronesia (FSM) Total Sector 
Allocations and Percentages, Fiscal Years 2004 through 2013: 

Figure 12: Republic of the Marshall Islands (RMI) Total Sector 
Allocations and Percentages, Fiscal Years 2004 through 2013: 

Abbreviations: 

CFCC: Chuuk Financial Control Commission: 

Education: U.S. Department of Education: 

EPPSO: Economic Policy, Planning, and Statistics Office (RMI): 

FAC: Federal Audit Clearinghouse: 

FSM: Federated States of Micronesia: 

HAFSM: U.S. Army Humanitarian Assistance Program for the FSM: 

HHS: U.S. Department of Health and Human Services: 

Interior: U.S. Department of the Interior: 

Labor: U.S. Department of Labor: 

JEMCO: Joint Economic Management Committee (FSM): 

JEMFAC: Joint Economic Management and Financial Accountability 
Committee (RMI): 

MDG: Millennium Development Goals: 

OAG: Office of the Auditor-General (RMI): 

OCI: Office of Compact Implementation (RMI): 

OIA: Office of Insular Affairs: 

OMB: Office of Management and Budget: 

ONPA: Office of the National Public Auditor (FSM): 

OPA: Office of the Public Auditor (Pohnpei State, FSM): 

PMU: Program Management Unit (FSM): 

portfolios: Ministry of Education annual portfolio budget statements 
(RMI): 

RMI: Republic of the Marshall Islands: 

SBOC: Office of Statistics, Budget and Economic Management, Overseas 
Development Assistance, and Compact Management (FSM): 

SPC: Secretariat of the Pacific Community: 

State: U.S. Department of State: 

[End of section] 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

September 20, 2013: 

The Honorable Ron Wyden: 
Chairman: 
The Honorable Lisa Murkowski: 
Ranking Member: 
Committee on Energy and Natural Resources: 
United States Senate: 

In 2003, the U.S. government approved amended Compacts of Free 
Association with the Federated States of Micronesia (FSM) and the 
Republic of the Marshall Islands (RMI).[Footnote 1] These amended 
compacts provide for a combined total of $3.6 billion in U.S. grant 
assistance for the two countries over 20 years from fiscal year 2004 
through fiscal year 2023. The first half of this 20 year grant period 
will be completed at the end of September 2013. The amended compacts 
state that the purpose of the grant funds is to assist the FSM and RMI 
governments in their efforts to promote the economic self-sufficiency 
and budgetary self-reliance of their people. Under the compacts, U.S. 
grant funding decreases annually in most years while, at the same 
time, contributions to trust funds for the FSM and the RMI increase; 
earnings from the trust funds are intended to provide an annual source 
of revenue after the grants end in 2023.[Footnote 2] 

In 2006, we reported that since enactment of the amended compacts in 
2004, the FSM and the RMI had made efforts to meet the requirements 
for implementation, performance measurement, and oversight. However, 
both countries faced challenges in planning for sustainability, 
measuring progress, and ensuring accountability.[Footnote 3] You 
requested that we conduct a review of the use and accountability of 
amended compact funds in the FSM and RMI since our prior report. In 
this report, we examine: 

1. the FSM's and RMI's use of compact funds in the education and 
health sectors; 

2. the extent to which the FSM and RMI have made progress toward 
achieving their stated goals in education and health; and: 

3. the extent to which oversight activities by the FSM, RMI, and the 
United States ensure accountability for compact funding. 

In addition we provide information on the FSM and RMI infrastructure 
sector grants in appendix II. 

To examine the countries' use of compact funds in the education and 
health sectors, we reviewed available expenditure data in the FSM and 
RMI single audits for fiscal years 2007 through 2011. To evaluate the 
extent to which the FSM and RMI have made progress toward achieving 
their stated goals in the education and health sectors, we reviewed 
subsets of FSM and RMI performance indicators that were cited in (1) 
the U.S. government's 5-year reviews of the FSM and the RMI amended 
compacts,[Footnote 4] (2) U.S.-FSM Joint Economic Management Committee 
(JEMCO) and U.S.-RMI Joint Economic Management and Financial 
Accountability Committee (JEMFAC) health-and education-related 
resolutions, or (3) the United Nations Millennium Development Goals 
performance measures.[Footnote 5] We then reviewed the data for the 
subsets of indicators in the FSM and RMI annual reports for 2007 
through 2011. To examine oversight activities, we observed the 2012 
annual meetings, the 2013 midyear meetings, and the 2013 annual 
meetings of the JEMCO and the JEMFAC, which allocate grants and 
provide oversight for the amended compacts. We also reviewed FSM and 
RMI single audits for fiscal years 2006 through 2011.[Footnote 6] In 
addition, we interviewed officials from the Departments of the 
Interior (Interior), Health and Human Services (HHS), Education 
(Education), and State (State). We also interviewed FSM national and 
state officials and RMI officials in the health, education, and 
infrastructure sectors, and we directly observed selected compact-
funded education and health facilities in Chuuk and Pohnpei states in 
the FSM and Majuro and Kwajalein Atolls in the RMI.[Footnote 7] The 
observations we made during our site visits to facilities such as 
hospitals, dispensaries, and schools in the FSM and RMI are not 
generalizable. We determined that the financial data examined in this 
report are sufficiently reliable for our purposes. However, our 
reviews of performance data from both the FSM and RMI and interviews 
with FSM and RMI officials revealed important limitations in the data 
in the countries' annual reports on education and health indicators, 
and therefore we determined that many of these data were not 
sufficiently reliable for the purpose of measuring progress for the 
compacts as a whole over our time frame. For additional details on our 
objectives, scope, and methodology, see appendix I. 

We conducted this performance audit from August 2012 to September 2013 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

The FSM and the RMI are located in the Pacific Ocean just north of the 
equator, about 3,000 miles southwest of Hawaii and about 2,500 miles 
southeast of Japan (see figure 1). The FSM is a federation of four 
semiautonomous states and has a population of approximately 103,000 
(as of 2010) scattered over many small islands and atolls. The FSM 
states maintain considerable power, relative to the FSM National 
Government, to allocate U.S. assistance and implement budgetary 
policies. Chuuk, the largest state, has 47 percent of the FSM's 
population, followed by Pohnpei (35 percent), Yap (11 percent), and 
Kosrae (6 percent).[Footnote 8] By contrast, the RMI government is 
responsible for allocating U.S. assistance in that country, though the 
RMI's 29 constituent atolls and five islands exercise local government 
authority. About three-quarters of the RMI population of approximately 
53,000 (as of 2011) live in Majuro, the nation's capital, and on Ebeye 
Island in the Kwajalein Atoll. 

Figure 1: Location and Map of the Federated States of Micronesia and 
the Republic of the Marshall Islands: 

[Refer to PDF for image: 2 maps] 

Sources: GAO presentation from Map Resources and National Oceanic and 
Atmospheric Administration (maps). 

[End of figure] 

U.S. relations with the FSM and the RMI began during World War II, 
when the United States ended Japanese occupation of the region. The 
United States administered the region under a United Nations 
trusteeship beginning in 1947.[Footnote 9] During the 1940s and 1950s 
the RMI was the site of 67 U.S. nuclear weapons tests. The four states 
of the FSM voted in a 1978 referendum to become an independent nation, 
while the RMI established its constitutional government and declared 
itself a republic in 1979. Under the trusteeship agreement, both newly 
formed nations remained subject to the authority of the United States 
until 1986. 

Compact of Free Association: 1986 through 2003: 

The United States, the FSM, and the RMI entered into the original 
Compact of Free Association in 1986 after lengthy negotiations. The 
compact provided a framework for the United States and the two 
countries to work toward achieving the following three main goals: (1) 
establish self-government for the FSM and the RMI, (2) ensure certain 
national security rights for all of the parties, and (3) assist the 
FSM and the RMI in their efforts to advance economic development and 
self-sufficiency. The compact's third goal was to be accomplished 
primarily through U.S. direct financial assistance to the FSM and the 
RMI. From 1987 through 2003, the FSM and the RMI are estimated to have 
received about $2.1 billion in compact financial assistance.[Footnote 
10] 

Under the original compact, the FSM and the RMI used funds for general 
government operations; capital projects, such as building roads and 
investing in businesses; debt payments; and targeted sectors, such as 
energy and communications. The FSM concentrated much of its spending 
on government operations at both national and state levels, while the 
RMI emphasized capital spending.[Footnote 11] While the original 
compact set out specific obligations for reporting and consultations 
regarding the use of compact funds, the FSM, RMI, and U.S. governments 
provided little accountability over compact expenditures and did not 
ensure that funds were spent effectively or efficiently.[Footnote 12] 

Amended Compacts of Free Association: 2004 through 2023: 

In 2003, the United States approved separate amended compacts with the 
FSM and the RMI that went into effect on June 25, 2004, and May 1, 
2004, respectively. 

Financial Assistance: 

The amended compacts provide for direct financial assistance to the 
FSM and the RMI from 2004 to 2023, decreasing in most years (hereafter 
referred to as the annual decrements). The amounts of the annual 
decrements are to be deposited in the trust funds established under 
the amended compacts for the two nations (see figure 2).[Footnote 13] 
For more information on compact assistance and trust fund 
contributions, see appendix III. 

Figure 2: U.S. Grant Assistance and Trust Fund Contributions to Be 
Provided to the Federated States of Micronesia (FSM) and the Republic 
of the Marshall Islands (RMI) under the Amended Compacts, Fiscal Years 
2004 through 2023: 

[Refer to PDF for image: 2 multiple line graphs] 

[Refer to PDF for image: 2 multiple line graphs] 

FSM: 

Fiscal year: 2004; 
FSM grant assistance (Section 211): $76.2 million; 
FSM trust fund contributions (Sections 215 and 216): $16 million. 

Fiscal year: 2005; 
FSM grant assistance (Section 211): $76.2 million; 
FSM trust fund contributions (Sections 215 and 216): $16 million. 

Fiscal year: 2006; 
FSM grant assistance (Section 211): $76.2 million; 
FSM trust fund contributions (Sections 215 and 216): $16 million. 

Fiscal year: 2007; 
FSM grant assistance (Section 211): $75.4 million; 
FSM trust fund contributions (Sections 215 and 216): $16.8 million. 

Fiscal year: 2008; 
FSM grant assistance (Section 211): $74.6 million; 
FSM trust fund contributions (Sections 215 and 216): $17.6 million. 

Fiscal year: 2009; 
FSM grant assistance (Section 211): $73.8 million; 
FSM trust fund contributions (Sections 215 and 216): $18.4 million. 

Fiscal year: 2010; 
FSM grant assistance (Section 211): $73 million; 
FSM trust fund contributions (Sections 215 and 216): $19.2 million. 

Fiscal year: 2011; 
FSM grant assistance (Section 211): $72.2 million; 
FSM trust fund contributions (Sections 215 and 216): $20 million. 

Fiscal year: 2012; 
FSM grant assistance (Section 211): $71.4 million; 
FSM trust fund contributions (Sections 215 and 216): $20.8 million. 

Fiscal year: 2013; 
FSM grant assistance (Section 211): $70.6 million; 
FSM trust fund contributions (Sections 215 and 216): $21.6 million. 

Fiscal year: 2014; 
FSM grant assistance (Section 211): $69.8 million; 
FSM trust fund contributions (Sections 215 and 216): $22.4 million. 

Fiscal year: 2015; 
FSM grant assistance (Section 211): $69 million; 
FSM trust fund contributions (Sections 215 and 216): $23.2 million. 

Fiscal year: 2016; 
FSM grant assistance (Section 211): $68.2 million; 
FSM trust fund contributions (Sections 215 and 216): $24 million. 

Fiscal year: 2017; 
FSM grant assistance (Section 211): $67.4 million; 
FSM trust fund contributions (Sections 215 and 216): $24.8 million. 

Fiscal year: 2018; 
FSM grant assistance (Section 211): $66.6 million; 
FSM trust fund contributions (Sections 215 and 216): $25.6 million. 

Fiscal year: 2019; 
FSM grant assistance (Section 211): $65.8 million; 
FSM trust fund contributions (Sections 215 and 216): $26.4 million. 

Fiscal year: 2020; 
FSM grant assistance (Section 211): $65 million; 
FSM trust fund contributions (Sections 215 and 216): $27.2 million. 

Fiscal year: 2021; 
FSM grant assistance (Section 211): $64.2 million; 
FSM trust fund contributions (Sections 215 and 216): $28 million. 

Fiscal year: 2022; 
FSM grant assistance (Section 211): $63.4 million; 
FSM trust fund contributions (Sections 215 and 216): $28.8 million. 

Fiscal year: 2023; 
FSM grant assistance (Section 211): $62.6 million; 
FSM trust fund contributions (Sections 215 and 216): $29.6 million. 

RMI: 

Fiscal year: 2004; 
RMI grant assistance (Section 211): $35.2 million; 
RMI trust fund contributions (Sections 215 and 216): $7 million. 

Fiscal year: 2005; 
RMI grant assistance (Section 211): $34.7 million; 
RMI trust fund contributions (Sections 215 and 216): $7.5 million. 

Fiscal year: 2006; 
RMI grant assistance (Section 211): $34.2 million; 
RMI trust fund contributions (Sections 215 and 216): $8 million. 

Fiscal year: 2007; 
RMI grant assistance (Section 211): $33.7 million; 
RMI trust fund contributions (Sections 215 and 216): $8.5 million. 

Fiscal year: 2008; 
RMI grant assistance (Section 211): $33.2 million; 
RMI trust fund contributions (Sections 215 and 216): $9 million. 

Fiscal year: 2009; 
RMI grant assistance (Section 211): $32.7 million; 
RMI trust fund contributions (Sections 215 and 216): $9.5 million. 

Fiscal year: 2010; 
RMI grant assistance (Section 211): $32.2 million; 
RMI trust fund contributions (Sections 215 and 216): $10 million. 

Fiscal year: 2011; 
RMI grant assistance (Section 211): $31.7 million; 
RMI trust fund contributions (Sections 215 and 216): $10.5 million. 

Fiscal year: 2012; 
RMI grant assistance (Section 211): $31.2 million; 
RMI trust fund contributions (Sections 215 and 216): $11 million. 

Fiscal year: 2013; 
RMI grant assistance (Section 211): $30.7 million; 
RMI trust fund contributions (Sections 215 and 216): $11.5 million. 

Fiscal year: 2014; 
RMI grant assistance (Section 211): $32.2 million; 
RMI trust fund contributions (Sections 215 and 216): $12 million. 

Fiscal year: 2015; 
RMI grant assistance (Section 211): $31.7 million; 
RMI trust fund contributions (Sections 215 and 216): $12.5 million. 

Fiscal year: 2016; 
RMI grant assistance (Section 211): $31.2 million; 
RMI trust fund contributions (Sections 215 and 216): $13 million. 

Fiscal year: 2017; 
RMI grant assistance (Section 211): $30.7 million; 
RMI trust fund contributions (Sections 215 and 216): $13.5 million. 

Fiscal year: 2018; 
RMI grant assistance (Section 211): $30.2 million; 
RMI trust fund contributions (Sections 215 and 216): $14 million. 

Fiscal year: 2019; 
RMI grant assistance (Section 211): $29.7 million; 
RMI trust fund contributions (Sections 215 and 216): $14.5 million. 

Fiscal year: 2020; 
RMI grant assistance (Section 211): $29.2 million; 
RMI trust fund contributions (Sections 215 and 216): $15 million. 

Fiscal year: 2021; 
RMI grant assistance (Section 211): $28.7 million; 
RMI trust fund contributions (Sections 215 and 216): $15.5 million. 

Fiscal year: 2022; 
RMI grant assistance (Section 211): $28.2 million; 
RMI trust fund contributions (Sections 215 and 216): $16 million. 

Fiscal year: 2023; 
RMI grant assistance (Section 211): $27.7 million; 
RMI trust fund contributions (Sections 215 and 216): $16.5 million. 

Source: Compacts of Free Association as Amended, Between the 
Government of the United States of America and the Government of the 
Federated States of Micronesia and the Government of the Republic of 
the Marshall Islands, Pub. L. No. 108-188. 

Notes: Sections 211 of the amended compacts detail grant assistance to 
the FSM and the RMI, while Sections 215 and 216 of the U.S.-FSM 
compact and sections 216 and 217 of the U.S.-RMI compact detail 
contributions to the FSM and RMI trust funds. See Pub. L. No. 108-188. 
These dollar amounts shall be adjusted each fiscal year for inflation 
by the percentage that equals two-thirds of the percentage change in 
the U.S. gross domestic product implicit price deflator, or 5 percent, 
whichever is less in any one year, using the beginning of 2004 as a 
base. Grant funding can be fully adjusted for inflation after 2014, 
under certain U.S. inflation conditions. The increase in RMI grant 
assistance from fiscal year 2013 to 2014 is due to a $2 million 
increase in payments to be made available for addressing the special 
needs of the community at Ebeye and other Marshallese communities 
within the Kwajalein Atoll. 

[End of figure] 

The amended compacts and associated fiscal procedures agreements 
[Footnote 14] require that grant funding support the countries in six 
core sectors--education, health, infrastructure, environment, private 
sector development, and public sector capacity building[Footnote 15]--
with the education and health sectors having the greatest priority. 
Within the core sector grants, the RMI must also target grant funding 
to Ebeye and other Marshallese communities within Kwajalein Atoll: 
$3.1 million annually for 2004 through 2013 and $5.1 million annually 
for 2014 through 2023 (hereafter referred to as Ebeye special needs 
funds).[Footnote 16] 

In addition to receiving compact sector grants, the FSM and the RMI 
are eligible for a supplemental education grant each year.[Footnote 
17] The amended compacts' implementing legislation authorized annual 
appropriations of about $12.2 million for the FSM and $6.1 million for 
the RMI beginning in 2005 to the U.S. Secretary of Education to 
supplement the education grants awarded under the amended compacts. 
Under the fiscal procedures agreements, permitted uses of the 
supplemental education grant funds include, among other things, 
support for direct educational services at the local school level 
focused on school readiness, early childhood education, primary and 
secondary education, vocational training, adult and family literacy, 
and the smooth transition of students from high school to 
postsecondary educational pursuits or rewarding career endeavors. 
Funding for the supplemental education grant is appropriated annually 
to Education and transferred to Interior for disbursement, with 
Interior responsible for ensuring that the use, administration, and 
monitoring of supplemental education grant funds are in accordance 
with a memorandum of agreement among Interior, Education, HHS, and the 
Department of Labor (Labor), as well as with the fiscal procedures 
agreements.[Footnote 18] 

In addition to amended compact grants, the FSM and the RMI receive 
other grants and assistance from U.S. agencies. For example, in fiscal 
years 2007 through 2011, the FSM spent about $197 million and the RMI 
spent about $46 million in noncompact grants from agencies including 
Interior, Education, HHS, Labor, and the Department of Transportation. 
See appendix IV for more information on noncompact grants awarded to 
the FSM and the RMI. 

Amended Compacts Oversight and Administration: 

The legislation and fiscal procedures agreements for the amended 
compacts established oversight mechanisms and responsibilities for the 
FSM, RMI, and the United States. 

Joint Management and Accountability Committees: 

JEMCO and JEMFAC were jointly established by the United States and, 
respectively, the FSM and the RMI to strengthen the management and 
accountability and promote the effective use of compact funding. Each 
five-member committee comprises three representatives from the United 
States government and two representatives from the corresponding 
country.[Footnote 19] The United States, the FSM, and the RMI are 
required to provide the necessary staff support to their 
representatives on the committee to enable the parties to monitor 
closely the use of assistance under the compacts. JEMCO's and JEMFAC's 
designated roles and responsibilities include the following: 

* reviewing the budget and development plans from each of the 
governments; 

* approving grant allocations and performance objectives;[Footnote 20] 

* attaching terms and conditions to any or all annual grant awards to 
improve program performance and fiscal accountability; 

* evaluating progress, management problems, and any shifts in 
priorities in each sector; and: 

* reviewing audits called for in the compacts. 

* In practice, JEMCO and JEMFAC allocate grants and attach terms and 
conditions to grant awards through resolutions, which are discussed 
and voted upon at their meetings. 

* From fiscal years 2004 through 2013, JEMCO and JEMFAC allocated 
about $1.1 billion in sector grants to the FSM and RMI under the 
amended compacts. In practice, JEMFAC has allocated Ebeye special 
needs funds as a separate grant allocation, resulting in seven 
sectors. For more detailed information on compact sector allocations, 
see appendix V. 

FSM and RMI Grant Administration: 

* The FSM national and state governments and the RMI government are to 
manage the sector and supplemental education grants and monitor day-to-
day operations to ensure compliance with grant terms and conditions. 
The governments are also required to track progress toward performance 
goals and report quarterly to the United States. The FSM and the RMI 
must annually report to the U.S. President on the use of U.S. grant 
assistance and other U.S. assistance provided during the prior fiscal 
year, and must also report on their progress in meeting program and 
economic goals.[Footnote 21] Each country has established an agency 
dedicated to providing compact oversight and ensuring compliance with 
regulations in the amended compacts, grant award terms and conditions, 
and JEMCO and JEMFAC resolutions. 

* The FSM and the RMI must adhere to specific fiscal control and 
accounting procedures and are required to submit annual audit reports, 
within the meaning of the Single Audit Act, as amended.[Footnote 22] 
Single audits are focused on recipients' internal controls over 
financial reporting and compliance with laws and regulations governing 
U.S. federal awardees and provide key information about the federal 
grantee's financial management and reporting. 

U.S. Grant Administration: 

Through its participation in the JEMCO and JEMFAC, the United States 
can require that terms and conditions be attached to any and all 
annual grant awards to improve program performance and fiscal 
accountability. Interior's Office of Insular Affairs (OIA) has 
responsibility for the administration and oversight of the FSM and RMI 
compact sector and supplemental education grants.[Footnote 23] In 
addition to headquarters staff, OIA operates a Honolulu field office 
and has staff in the FSM and RMI to conduct oversight.[Footnote 24] 
Under the fiscal procedures agreements governing the amended compacts, 
OIA is responsible for using financial reports to monitor each 
country's budget and fiscal performance, and for using performance 
reports submitted by the countries to evaluate sector grant 
performance. OIA officials are also responsible for monitoring 
compliance with grant terms and conditions. If problems are found in 
areas such as the FSM and RMI monitoring of sector grants or a lack of 
compliance with grant terms, the United States may impose special 
conditions or restrictions, including requiring the acquisition of 
technical or management assistance, requiring additional reporting and 
monitoring, or requiring additional prior approvals. Additionally, the 
United States may withhold grant funds if the countries breach the 
terms and conditions of certain sections of the amended compacts or of 
the fiscal procedures agreements, or fail to comply with the award 
conditions of a grant. 

As the U.S. agency with the largest grant awards to the FSM and the 
RMI, Interior is designated as the cognizant audit agency[Footnote 25] 
for FSM and RMI single audits and has several responsibilities, 
including: 

* providing technical advice to auditees and auditors and considering 
grant extensions to the report submission date, 

* informing other affected federal agencies of any direct reporting of 
irregularities or illegal acts, and: 

* coordinating the federal response for audit findings that affect the 
federal program of more than one agency.[Footnote 26] 

Furthermore, all U.S. agencies providing noncompact grants to the FSM 
and the RMI are responsible for administering those grants in 
accordance with Office of Management and Budget (OMB) requirements 
[Footnote 27] and agency regulations that include the Grants 
Management Common Rule. Under the common rule, U.S. agencies may 
consider a grantee as "high risk" if the grantee has a history of 
unsatisfactory performance, is not financially stable, has a 
management system that does not meet required standards, has not 
conformed to the 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 as high risk may impose special grant conditions. 
[Footnote 28] 

FSM and RMI Spending Targeted Education and Health: 

In fiscal years 2007 through 2011, the FSM and RMI spent at least half 
of their compact sector funds in the education and health sectors. 
Most of the compact funds in these sectors paid for personnel costs 
and medical supplies and equipment. Both countries spent significant 
amounts of compact funds on personnel in the education and health 
sectors, which resulted in JEMCO and JEMFAC resolutions aimed at 
capping the budgetary levels for personnel in these sectors at fiscal 
year 2011 levels because of concerns about the sustainability of 
sector budgets as compact funding continues to decline through fiscal 
year 2023. While the four FSM states completed plans in 2012 and 2013 
to address the annual decrements in compact sector funding through 
fiscal year 2023, the FSM National Government and the RMI have not 
submitted plans to address the decrements. As a result, the U.S. 
members of the JEMCO and JEMFAC are considering withholding certain 
fiscal year 2014 compact sector grant funds until the FSM National 
Government and RMI submit their plans. At the annual JEMCO and JEMFAC 
meetings in August 2013, fiscal year 2014 sector grant funds were not 
allocated to the FSM or the RMI. 

FSM Sector Expenditures: 

FSM Spent Most Compact Funds in Education and Health, and Personnel 
Costs Were the Largest Component: 

In fiscal years 2007 through 2011, the FSM spent about 67 percent, or 
$158 million, of sector compact funds in the education and health 
sectors.[Footnote 29] As seen in figure 3, of the total expenditures 
in all six compact sectors, expenditures for education represented 
approximately 37 percent and expenditures for health represented about 
30 percent. Expenditures in the other four sectors--infrastructure, 
environment, private sector development, and public sector capacity 
building--together accounted for about 33 percent of total compact 
expenditures during this period. In addition to education sector 
compact funds, the FSM also spent about $35.7 million in supplemental 
education grant funds to support education initiatives. For 
information on FSM infrastructure sector compact expenditures, see 
appendix II. 

Figure 3: Federated States of Micronesia (FSM) Sector Compact 
Expenditures and Supplemental Education Grant Expenditures, Fiscal 
Years 2007 through 2011: 

[Refer to PDF for image: stacked vertical bar graph] 

FSM sector compact and supplemental education grant expenditures: 

Expenditures for other compact sectors, 10%: $23.5 million; 
Infrastructure, 23%: $53.8 million; 
Health, 30%: $71.0 million; 
Education, 37%: $86.9 million. 

Supplemental education grant: $35.7 million. 

Sources: GAO analysis based on information from FSM national 
government, Chuuk, and Pohnpei single audit reports. 

[End of figure] 

Compact funds in the FSM supported a significant portion of government 
expenditures in the education and health sectors. Education sector 
compact and supplemental education grant funds together constituted 
about 85 percent of total education expenditures, and health sector 
compact funds constituted about 66 percent of total health 
expenditures in fiscal year 2011.[Footnote 30] Other noncompact U.S. 
grants represented an additional 10 percent of the education 
expenditures and 25 percent of health expenditures in fiscal year 2011. 

With regard to the use of funds, in fiscal years 2009 through 2011, 
the FSM spent about 61 percent of its education sector compact and 
supplemental education grant funds to pay personnel, and about 41 
percent of its health sector compact funds to pay personnel (see 
figure 4). 

Figure 4: Federated States of Micronesia (FSM) Compact Expenditures in 
the Education and Health Sectors, Fiscal Years 2009 through 2011: 

[Refer to PDF for image: 2 pie-charts] 

FSM education sector compact expenditures[A]: 

Total, fiscal years 2009 through 2011: $78.1 million: 
Personnel[B]: 61%; 
Scholarships and allowances: 6%; 
Contractual services: 5%; 
Office supplies and materials: 5%; 
Other expenditures (e.g., books and instructional supplies, food 
stuffs, travel and transportation): 24%. 

FSM health sector compact expenditures: 
Total, fiscal years 2009 through 2011: $47.1 million; 
Personnel[B]: 41%; 
Medical supplies and equipment: 21%; 
Utilities: 7%; 
Contractual services: 6%; 
Other expenditures (e.g., equipment, medical referrals, travel and 
transportation): 24%. 

Sources: GAO analysis based on information from FSM National 
Government, Chuuk, and Pohnpei single audit reports. 

Notes: Percentages may not add up to 100 due to rounding. Because 
specific expenditure data for the FSM National Government and Chuuk 
were not presented in their single audits for fiscal years 2007 and 
2008, we only present specific expenditures for the three entities for 
fiscal years 2009 through 2011. 

[A] Includes both education sector compact and supplemental education 
grant expenditures. 

[B] Includes categories defined as regular wages, overtime, fringe 
benefits, and other personnel costs. 

[End of figure] 

The levels of expenditures in the FSM education and health sectors 
dedicated to personnel concerned JEMCO because of the potential 
effects on the sustainability of sector budgets as compact funding 
continued to decline through fiscal year 2023 because of the annual 
decrements. In September 2011, JEMCO resolved that it would not 
approve fiscal year 2013 budgets for the education and health sectors 
until the FSM demonstrated that budgetary levels for personnel 
expenses reflected in education and health sector proposals did not 
exceed fiscal year 2011 levels.[Footnote 31] According to OIA, the FSM 
complied with this resolution in its fiscal year 2013 compact funding 
proposals. 

The Four FSM States Completed Plans to Address the Annual Decrements 
through 2023, but FSM National Government Lacks a Plan: 

In March 2013, the four FSM states had completed plans to address the 
annual decreases, or decrements, in compact sector funding through 
2023; however, the FSM National Government has not completed a plan to 
address the fiscal challenges facing the government because of the 
annual decrements. The states' plans, completed in 2012 and early 
2013, detail the proposed expenditure cuts across sector budgets 
intended to offset the annual decrements while preserving essential 
services in the education and health sectors. Absent additional 
revenues, proposed cuts are to be implemented in 2014, 2017, and 2020. 

While U.S. JEMCO members expressed their satisfaction with the FSM 
states' plans, at the March 2013 JEMCO midyear meeting, they called 
for the FSM National Government to create a plan addressing how it 
will manage the fiscal challenges facing the government and how it 
will support the states in managing annual decrements.[Footnote 32] An 
FSM official explained that the FSM National Government did not create 
a plan because it receives only a small portion of FSM compact funds. 
The official said the FSM National Government was focused instead on 
shifting its sector operating costs, such as for the College of 
Micronesia, to the government's own funds, freeing up compact funds 
for priorities in the education and health sectors. The FSM official 
also noted the government's efforts to develop an operational plan by 
early 2014 outlining how the FSM government will address the budgetary 
and economic challenges it faces through 2023 and beyond. In May 2013, 
the three U.S. JEMCO members notified the FSM that the United States 
was considering withholding select fiscal year 2014 compact sector 
funds from the FSM National Government until it completes a plan 
detailing the concrete commitments that will be made to complement and 
support the states' plans to address the annual decrements in compact 
sector funding. Without this plan, the FSM may not be able to sustain 
essential services in the education and health sectors in the absence 
of compact funding. The FSM National Government responded in July 2013 
indicating that to address the decrement it was considering, among 
other things, tax reform, alternative energy initiatives, an annual 
funding set-aside, increased FSM trust fund contributions, and 
improved revenue sharing with the states. In its comments on our draft 
report, the FSM National Government mentioned the issue of revenue 
sharing between the national and state governments, noting that the 
FSM leadership is working together to arrive at a decision that will 
be beneficial to both levels of government and at the same time 
facilitate greater effectiveness in meeting the development objectives 
of the FSM. (See appendix X for a copy of the FSM's comments.) At the 
annual JEMCO meeting in August 2013, fiscal year 2014 sector grant 
funds were not allocated to the FSM. 

RMI Sector Expenditures: 

RMI Spent Half of Compact Funds in Education and Health, and Personnel 
Costs Were the Largest Component: 

In fiscal years 2007 through 2011, the RMI spent about 50 percent, or 
$89 million, of sector compact funds in the education and health 
sectors. As shown in figure 5, of the total compact expenditures 
within the seven compact sectors (including Ebeye special needs as a 
sector), education represented approximately 31 percent and health 
represented approximately 19 percent. Expenditures in the other five 
sectors--infrastructure, environment, private sector development, 
public sector capacity building, and Ebeye special needs--together 
accounted for about 50 percent of total compact expenditures during 
this period. In addition to education sector compact funds, the RMI 
spent about $26.5 million of supplemental education grant funds and 
$11.9 million of Ebeye special needs funds to support education 
initiatives. In addition to health sector compact funds, the RMI spent 
about $3 million of Ebeye special needs funds to support health 
initiatives. For information on RMI infrastructure sector compact 
expenditures, see appendix II. 

Figure 5: Republic of the Marshall Islands (RMI) Sector Compact 
Expenditures and Supplemental Education Grant Expenditures, Fiscal 
Years 2007 through 2011: 

[Refer to PDF for image: stacked vertical bar graph] 

RMI sector compact and supplemental education grant expenditures: 
Infrastructure, 38%: $68.6 million; 
Education, 31%: $55.0 million; 
Health, 19%: $34.1 million; 
Ebeye special needs, 8%: $14.9 million; 
Expenditures for other compact sectors, 4%: $6.6 million. 

Supplemental education grant: $26.5 million. 

Sources: GAO analysis based on information from RMI single audit 
reports. 

[End of figure] 

Compact funds in the RMI supported a significant portion of government 
expenditures in the education and health sectors. Education sector 
compact funds, supplemental education grants, and Ebeye special needs 
education funds constituted about 62 percent of total education 
expenditures in fiscal year 2011, while health sector compact funds 
and Ebeye special needs health funds constituted about 33 percent of 
total health expenditures. Other noncompact U.S. grants represented an 
additional 6 percent of education expenditures and 17 percent of 
health expenditures in fiscal year 2011. 

In fiscal years 2007 through 2011, the RMI spent most education and 
health compact funds on personnel: about 54 percent of the education 
sector compact and supplemental education grant funds paid for 
personnel, while about 64 percent of the health sector compact funds 
paid for personnel (see figure 6). 

Figure 6: Republic of the Marshall Islands (RMI) Compact Expenditures 
in the Education and Health Sectors, Fiscal Years 2007 through 2011: 

[Refer to PDF for image: 2 pie-charts] 

RMI education sector compact expenditures[A]: 
Total, fiscal years 2007 through 2011: $81.5 million: 
Personnel[B]: 54%; 
Grants and subsidies[C]: 10%; 
Supplies and materials: 9%; 
Contractual services: 6%; 
Other expenditures (e.g., training and staff development, food stuffs, 
and utilities): 22%. 

RMI health sector compact expenditures: 
Total, fiscal years 2007 through 2011: $34.1 million: 
Personnel[B]: 64%; 
Utilities: 13%; 
Leased housing: 10%; 
Grants and subsidies[D]: 2%; 
Other expenditures (e.g., food stuffs, travel, and supplies and
materials): 12%. 

Sources: GAO analysis based on information from RMI single audit 
reports. 

Notes: Percentages may not add up to 100 due to rounding. This figure 
does not include an analysis of Ebeye special needs expenditures. 

[A] Includes both education sector compact and supplemental education 
grant expenditures. 

[B] Includes salaries and wages. 

[C] Represents payments in aid to nonpublic schools and transfers out 
to the College of Micronesia. 

[D] Represents payments made to the Majuro Atoll Waste Company in 
accordance with grant agreements. 

[End of figure] 

Due to interrelated concerns about the amount of funds dedicated to 
personnel costs and the sustainability of sector budgets, JEMFAC 
resolved in August 2011 that personnel-related expenses in the 
education and health sector budgets for fiscal year 2012 could not 
exceed fiscal year 2011 levels and directed that fiscal year 2012 
compact funds made available by this change should be budgeted for 
direct support of education and health programs and services.[Footnote 
33] According to OIA, the RMI complied with this resolution. 

RMI Has Not Updated Its Plan to Address Annual Decrements in Compact 
Funding: 

The RMI has not updated its plan to address the annual decrements in 
compact funding.[Footnote 34] In March 2011, the RMI submitted a draft 
medium-term budget and investment framework, which included a plan to 
address the annual decrements and provided an overview of economic 
performance, the country's fiscal situation, and budget estimates. 
[Footnote 35] However, U.S. JEMFAC members raised concerns that the 
framework did not account for significant ongoing health sector 
operational costs, relied on reform efforts, and assumed unlikely new 
revenues. 

While the RMI provided a draft update to its framework in July 2013, 
[Footnote 36] the government has not updated the plan for addressing 
the annual decrements. The RMI budget submissions for fiscal years 
2012 and 2013 did not reflect the RMI's commitments outlined in the 
framework and failed to address JEMFAC's ongoing concerns regarding 
decrement planning. An RMI official responded that the RMI government 
could not provide the updated framework and annual decrement plan 
because of obstacles it encountered in completing the 2011 audit and 
finalizing the 2011 census. In April 2013, the three U.S. JEMFAC 
members notified the RMI that the United States was considering 
withholding fiscal year 2014 compact sector funds from the RMI until 
the RMI submits the framework and an annual decrement plan. In July 
2013, RMI officials submitted an updated framework outlining 
anticipated revenues in the medium term, but it lacked an annual 
decrement plan, as required. Without the annual decrement plan, the 
RMI may not be able to sustain essential services in the education and 
health sectors in the medium term. At the August 2013 JEMFAC meeting, 
the RMI submitted an updated medium-term budget and investment 
framework dated August 2013 along with several budget portfolio 
statements for fiscal year 2014 including statements for the 
departments of health and education. The RMI government considers this 
to be its decrement plan. However, the information was provided to the 
U.S. members of the JEMFAC 3 days prior to the annual meeting, and 
according to these members, they did not have sufficient time to 
review it and determine whether or not it meets the requirements of 
the JEMFAC resolution. At the annual JEMFAC meeting in August 2013, 
fiscal year 2014 sector grant funds were not allocated to the RMI. 

Data Inconsistencies Hindered Our Assessment of FSM and RMI Progress 
in the Education and Health Sectors: 

Data reliability issues hindered our assessment of progress by the FSM 
and RMI in both the education and health sectors for fiscal years 2007 
through 2011. Between 2004 and 2006, both countries began tracking 
education and health indicators, establishing data collection systems, 
and collecting data for the majority of the indicators and have 
continued to track data on their indicators since that time. (See 
appendix VI for a list of all FSM and RMI indicators in the education 
and health sectors.) While both countries tracked annual indicators to 
measure progress in these sectors, in reviewing subsets of these 
indicators we determined that data for eight of the subset of nine 
education indicators we reviewed in the FSM and for three of the 
subset of five education indicators we reviewed in the RMI were not 
sufficiently reliable to assess progress for the compacts as a whole--
for a variety of reasons, some specific to individual indicators, but 
primarily because of missing, incomplete, or inconsistent data. We 
found one RMI education indicator to be both reliable and capable of 
demonstrating progress: the education level of teachers in the RMI. 
The other reliable RMI education indicator was student enrollment. We 
determined that data for all five of the subset of FSM health 
indicators we reviewed were not sufficiently reliable to assess 
progress for the compacts as a whole. In the RMI, of the subset of 
five health indicators we reviewed, we determined that one was 
sufficiently reliable and two were not sufficiently reliable to assess 
progress; for the remaining two indicators, we had no basis to judge 
the reliability of the data. In much of their reporting on these 
indicators, the FSM and RMI have noted data reliability problems and 
some actions they have taken to address the problems. The compacts' 
joint management and accountability committees have also raised 
concerns about the reliability of the FSM's education and health data 
and the RMI's health data and required that each country obtain an 
independent assessment and verification of these data; neither country 
has met that requirement. 

Assessment of FSM Progress in Education: 

FSM Has Tracked Annual Indicators in Education since 2005, but We 
Found Problems with Data Reliability: 

In 2004, the FSM established 20 indicators to track progress toward 
its overarching goals in education: [Footnote 37] to improve the 
educational system of the country, including primary, secondary, and 
postsecondary education, and to develop the country's human and 
material resources necessary to deliver these services. However, our 
review of a subset of 9 of the 20 FSM education indicators found 
problems with data reliability. Table 1 provides a summary of the data 
reliability determinations we made in reviewing the subset of 9 
education indicators. (For a complete list of the indicators the FSM 
has tracked and reported since fiscal year 2005, see appendix VI.) 

Table 1: Subset of 9 of the 20 Federated States of Micronesia (FSM) 
Education Indicators Reviewed, with Observations on the Reliability of 
the Data to Measure Progress for the Compact as a Whole from 2007 
through 2011: 

Indicator: Student enrollment; 
Observations on data reliability: Inconsistent inclusion of private 
school enrollment data among FSM states; 
Sufficiently reliable to measure progress over time? No. 

Indicator: 8th and 12th grade completion/graduation rate; 
Observations on data reliability: Incomplete data among FSM states; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Number of schools by grade level; 
Observations on data reliability: [Empty]; 
Sufficiently reliable to measure progress over time? Yes. 

Indicator: Education level of staff; 
Observations on data reliability: Inconsistent inclusion of private 
school staff information among FSM states; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Dropout rate; 
Observations on data reliability: Inconsistent definitions and data 
collection between FSM states; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Students at "Proficiency" level or above on standardized 
tests; 
Observations on data reliability: Data missing for some FSM 
states; no individual state reporting for some years; and in some years 
and for some grades less than half the students in the grades were 
tested; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Teacher attendance; 
Observations on data reliability: Concern about reliability of school 
sourced documents; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Parent involvement; 
Observations on data reliability: Incomplete data and inconsistent 
definitions among FSM states; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Scholarships; 
Observations on data reliability: Inconsistent reporting of required 
information among FSM states; 
Sufficiently reliable to measure progress over time? No. 

Source: GAO analysis of FSM data. 

Notes: By "sufficiently reliable," we mean that the likelihood of 
significant errors or incompleteness is minimal, and the use of the 
data would not lead to an incorrect or unintentional message. The 
indicator titles are shortened in the table; For the full indicator 
titles, see appendix VI. 

[End of table] 

We determined that the data for number of schools by grade level were 
sufficiently reliable to report on progress in the FSM education 
sector. The number of schools by grade level, by itself, does not 
necessarily demonstrate progress or lack thereof; however, it does 
provide useful information about the changes in the states' education 
systems. Both Chuuk and Pohnpei, for example, have gone through a 
process resulting in school closures, with or without consolidation of 
some schools, and the numbers of schools by grade level reflect this. 
In Chuuk, the number of schools declined from a total of 154 primary 
and secondary schools in 2007 to 85 schools in 2012, a 45 percent 
reduction.[Footnote 38] In Pohnpei, the number of schools declined 
from a total of 41 primary and secondary schools in 2007 to 34 schools 
in 2011, a 17 percent reduction. 

We determined that 8 of the subset of 9 FSM education indicators we 
reviewed could not be used to assess progress over time because of 
data reliability issues summarized above in table 1. For example, we 
found that the four FSM states did not use common definitions for some 
indicators; consequently, the education indicator reports we reviewed 
do not contain consistent data for these indicators and comparisons 
cannot be made across states. As an example, Chuuk, Pohnpei, and the 
FSM National Government each applied its own definition of dropout, 
creating inconsistencies in the data for that indicator.[Footnote 39] 
Student enrollment data provide another example: Chuuk and Kosrae 
included both public and private schools in reporting student 
enrollment data, while Pohnpei and Yap included only public schools. 
In addition to data reporting inconsistencies, we found that data in 
FSM's education indicators reports sometimes were not complete. For 
example, in 2011, average daily student attendance data for Chuuk were 
missing; for that same year, Chuuk also lacked completion and 
graduation rate data for 8th and 12th graders. 

Site-Visit Observations Relating to Progress in the FSM Education 
Sector: 

During January 2013 site visits in Chuuk, we visited 13 school sites 
selected on the basis of available time and travel constraints. This 
included 6 of 8 schools on the island of Weno and 7 schools on four 
lagoon islands.[Footnote 40] In several cases, these were school sites 
we visited in 2006. In facilities we were able to visit both in 2006 
and 2013, we noted general improvements in the overall maintenance and 
condition; however, staff we interviewed reported that a lack of 
chairs, desks, and textbooks was a concern, especially in lagoon-
island schools. In addition, we visited the Chuuk Department of 
Education warehouse where we found hundreds of cases of books and 
supplies that had not been shipped to schools in the outer islands as 
intended, according to the warehouse manager. An OIA education grant 
manager reported that the department had recently purchased and 
distributed 4,000 chairs and the distribution process had gone 
smoothly.[Footnote 41] However, as of May 2013, Chuuk did not have a 
fully implemented purchasing plan, inventory management system, or 
monitoring plan for textbooks, as required by JEMCO, according to an 
OIA official. 

In Pohnpei, we visited 8 schools (5 elementary and 3 high schools) of 
a total of 34 public elementary and high schools on the main island of 
Pohnpei, selected on the basis of available time and travel 
constraints. The school buildings we visited were generally clean. 
From what we were able to observe, they had electricity, functioning 
fans in the classrooms, and functioning windows. We observed desks, 
chairs, and textbooks in the classrooms. The newly built schools that 
we visited, which were funded through public sector infrastructure 
grants, had water tanks and new bathrooms with sinks and toilets that 
appeared to be operational. From what we observed, these schools were 
generally maintained in good condition. However, we also noted minor 
issues such as chipped paint and broken classroom doors and locks in 
some facilities. 

Assessment of FSM Progress in Health: 

FSM Has Tracked Annual Indicators in Health since 2004, but We Found 
Problems with Data Reliability: 

In 2004, the FSM began tracking data on 14 health indicators to 
measure its progress toward improving diagnostic and treatment 
capacity and ensuring the provision of services to geographically 
dispersed populations (see appendix VI for a complete list of the 
indicators). However, our review of a subset of 5 of the 14 FSM health 
indicators found problems with data reliability. We determined that 
none of these indicators could be used to assess progress because of 
data reliability issues (see table 2). 

Table 2: Subset of 5 of the 14 Federated States of Micronesia (FSM) 
Health Indicators Reviewed, with Observations on the Reliability of 
the Data to Measure Progress for the Compact as a Whole from 2007 
through 2011: 

Indicator: Infant mortality rate; 
Observations on data reliability: Underreported births and deaths, and 
lack of outer island data; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Immunization coverage (2-year olds); 
Observations on data reliability: Unreliable data in one FSM state; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Off-island medical referral costs; 
Observations on data reliability: Source of expenditure data upon 
which assessments were based is unclear; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Essential drugs; 
Observations on data reliability: Unreliable inventory records; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Diabetes-related hospitalizations; 
Observations on data reliability: Discrepancies in reported data; 
Sufficiently reliable to measure progress over time? No. 

Source: GAO analysis of FSM health indicator data for 2007-2011. 

Notes: By "sufficiently reliable," we mean that the likelihood of 
significant errors or incompleteness is minimal, and the use of the 
data would not lead to an incorrect or unintentional message. The 
indicator titles are shortened in the table; for the full indicator 
titles, see appendix VI. 

[End of table] 

We found inconsistencies in the data provided by the states compared 
with data for the same indicators included in the FSM's 14 annual 
health indicators report. For example, FSM data on immunization cannot 
be used due to issues with data in Chuuk. According to the FSM 
immunization expert, the data for that indicator were unreliable prior 
to 2011 because in Chuuk there was no registry of immunization to 
allow the computation of a coverage rate. In reviewing the Chuuk 
medical records, the immunization expert found that (1) an individual 
child might have three different immunization records in the system 
under three variations of his or her name, and (2) there was not 
appropriate consideration as to when a vaccination was medically valid 
and therefore should be counted. For an immunization to be medically 
valid, for example, a series may need to be given within certain time 
frames. The records that the expert examined showed vaccinations being 
given too early in the sequence, resulting in an incorrect dosage and 
invalidating the vaccination. Finally, the expert noted that 
immunization program documentation was bad. We also identified 
problems when reviewing how the FSM calculates the percentage of days 
when all essential drugs are in stock. Specifically, we identified 
problems with the source documents used in the calculations in Chuuk 
and Pohnpei, calling into question the reliability of the data 
presented in the health indicators report. The key documents from each 
health care facility that are used to calculate the indicator are the 
formulary (the list of the essential drugs) and each facility's 
inventory report. We attempted to verify the accuracy of the Chuuk 
hospital drug inventory report and found that the report contained 
some incorrect information. For example, the report listed 219 bottles 
of Amoxicillin 125 MG/5ML Suspension 150 ML, but the hospital's 
storage room had none. Since the inventory report is used in 
calculating the number reported for the essential drugs indicator, 
incorrect information found in the report raises questions about the 
validity and reliability of the information for this indicator in the 
health indicators report. 

Site-Visit Observations Relating to Progress in the FSM Health Sector: 

In January 2013, we visited Chuuk's only hospital, which we had 
previously visited in 2006. We noted that the hospital was generally 
better maintained than it had been on our prior visit. Moreover, 
officials told us that it now has reliable and consistent electric 
power, which was not the case in the past. Additionally, whereas 
previously Chuuk's hospital had only a small incinerator to burn 
medical waste, we observed two functioning medical waste incinerators, 
which we were told operate on a routine basis. In 2006, some of the 
selected medical equipment that we observed was not working. In 2013, 
the selected equipment that we observed, such as a digital X-ray 
machine and laboratory equipment, was being used and reported as 
functional. 

During our 2006 visit to Chuuk's hospital, many of the on-hand drugs 
that we spot checked were past their expiration days. On our 2013 
visit to the hospital, however, the majority of the on-hand drugs that 
we spot-checked were within their labeled expiration dates. We also 
spot-checked drugs in two dispensaries on Chuuk Lagoon islands and 
found most of the drugs we checked to be within their labeled 
expiration dates. We cannot comment regarding on-hand drugs at the 
three other dispensaries in Chuuk lagoon that we visited, as they were 
closed when we attempted to visit them even though their schedules 
indicated that they were supposed to be open.[Footnote 42] 

During our 2006 visit to selected Pohnpei dispensaries, we also had 
found that varying amounts of the drugs on hand that we spot checked 
were past their expiration dates. On our recent visit to three of the 
four dispensaries on the main island, however, most of the on-hand 
drugs that we spot checked in selected dispensaries were within their 
expiration dates or had an extended shelf life.[Footnote 43] 

The three dispensary buildings we selected on Pohnpei in 2013 were all 
open on the day we visited. In addition, health assistants were 
present at the time of our visits. The buildings all generally 
appeared to be in an acceptable condition and had electricity at the 
time of our visits. The three selected dispensaries also reported some 
concerns, however. For example, we found some equipment, such as 
scales and freezers that were not functioning at the time of our 
visit. We also visited Pohnpei's only public hospital during our site 
visits. However major renovation work was taking place on the day of 
our visit, which made it impossible to make any observations about its 
normal functioning. (For information on compact-funded infrastructure 
projects in the education and health sectors, see appendix II.) 

Assessment of RMI Progress in Education: 

RMI Has Tracked Annual Indicators in Education since 2004, but We 
Found Problems with Data Reliability: 

The RMI has tracked 20 indicators selected by JEMFAC in 2004 for 
monitoring progress in education and began reporting on them annually 
in 2005 in response to a JEMFAC resolution.[Footnote 44] The RMI's 
overarching education goals were to improve the educational system of 
the country, including primary, secondary, and postsecondary 
education, and to develop the country's human and material resources 
necessary to deliver these services. For a complete list of the 
indicators the RMI has tracked and reported from 2007 through 2011, 
see appendix VI. 

However, in our review of a subset of 5 of the 20 RMI education 
indicators, we found problems with data reliability (see table 3). 

Table 3: Subset of 5 of the 20 Republic of the Marshall Islands (RMI) 
Education Indicators Reviewed, with Observations on the Reliability of 
the Data to Measure Progress for the Compact as a Whole from 2007 
through 2011: 

Indicator: Student enrollment; 
Observations on data reliability: [Empty]; 
Sufficiently reliable to measure progress over time? Yes. 

Indicator: Completion/graduation rate; 
Observations on data reliability: Revision to data with no explanation; 
officials voiced concern about efficacy of data; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Education level of staff; 
Observations on data reliability: [Empty]; 
Sufficiently reliable to measure progress over time? Yes. 

Indicator: Dropout rate; 
Observations on data reliability: Lack of outer island data; missing 
data; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Students at "Proficiency" level or above on standardized 
tests; 
Observations on data reliability: Inconsistency in reported data 
for some years; number of students tested also unknown; 
Sufficiently reliable to measure progress over time? No. 

Source: GAO analysis of RMI data. 

Notes: We considered the data for education level of staff to be 
sufficiently reliable for school years 2008-2009 through 2011-2012 but 
not for 2007-2008. We excluded school year 2007-2008 because the RMI 
included private school teachers in these data and did not explain its 
inclusion, whereas in all other years the RMI is clear the data 
represent only public school teachers. By "sufficiently reliable," we 
mean that the likelihood of significant errors or incompleteness is 
minimal, and the use of the data would not lead to an incorrect or 
unintentional message. The indicator titles are shortened in the 
table; for the full indicator titles, see appendix VI. 

[End of table] 

We determined that the data for 2 indicators were sufficiently 
reliable to assess progress in the RMI's education sector: (1) total 
enrollment by grade and gender and (2) number and percentage of 
teachers by education level. Data we reviewed showed an improvement in 
the qualifications of RMI teaching staff, with the percentage of 
teachers having no degree, or a high school diploma, or a certificate 
decreasing from 57 percent in school year 2006-2007 to 42 percent in 
school year 2011-2012. Over the same time frame, the number of 
teachers holding associate's, bachelor's, or master's degrees 
increased from 43 percent to 55 percent. OIA has advised the RMI 
Ministry of Education that all uncertified teachers should be in a 
ministry-approved degree program to be individually eligible for 
salary support from sector grant, supplemental education grant, or 
Ebeye special needs funds, and that these teachers should be certified 
by school year 2015.[Footnote 45] 

We determined that data for 3 of the indicators could not be used to 
assess education sector progress for the compact as a whole because of 
data reliability problems.[Footnote 46] For example, we found that the 
RMI changed the data source for some of the indicators it reported on 
during fiscal years 2007 through 2011. In fiscal years 2007 through 
2010, the RMI reported Pacific Island Literacy Test data on student 
achievement for 4th graders, whereas in fiscal year 2011 it reported 
the Marshall Islands Standardized Test for 3rd, 6th and 8th graders, 
so year-to-year progress cannot be assessed because different grades 
and different tests were used. 

Site-Visit Observations Relating to Progress in the RMI Education 
Sector: 

In January 2013, we made site visits to 6 of 12 public educational 
facilities in Majuro Atoll and 3 of 6 public educational facilities in 
Kwajalein Atoll, selected on the basis of available time and travel 
constraints.[Footnote 47] The new and renovated classrooms that we 
visited all had desks, chairs, and chalkboards. Most of the fans and 
lighting that we observed were in working order at the time of our 
visit, as were the new bathrooms. However, many of the safety doors 
that we observed at our selected schools were either off their hinges 
and moved to one side or propped open with an object. Officials told 
us that this problem occurred because the doors had not been properly 
installed.[Footnote 48] 

When we visited the RMI in 2006, we were shown classrooms in the 
Marshall Islands High School that had collapsed ceilings. We found no 
such problems during our visit to this school in 2013. However, we did 
find that several of the water tanks at the school were not connected 
to any of the buildings.[Footnote 49] At another school that we 
visited, Laura Elementary, classrooms in the new building had desks, 
chairs, and electricity, but an old building that was still used 
lacked electricity.[Footnote 50] At Delap Elementary, the classrooms 
also had electricity. On Ebeye, we visited a school in Gugeegue that 
had consistent electricity, we were told. We observed chairs, desks, 
and textbooks on our visit. However, we were also shown one of the 
school buildings being used for classrooms though it was considered 
unsafe by the RMI's Project Management Unit.[Footnote 51] (For 
information on compact-funded infrastructure projects in the education 
and health sectors, see appendix II.) 

Assessment of RMI Progress in Health: 

RMI Has Tracked Annual Indicators in Health since 2007, but We Found 
Problems with Data Reliability: 

The RMI established 26 indicators to measure progress toward its goal 
of improving primary health care in the RMI in 2006, and tracked them 
since 2007 (see appendix VI for a list of the RMI's health 
indicators), according to the RMI's Ministry of Health.[Footnote 52] 
We found that 1 of the subset of 5 indicators that we reviewed--
tuberculosis prevalence rates--was sufficiently reliable to assess 
progress in the health sector for fiscal years 2009 through 2011 (see 
table 4).[Footnote 53] While the number of tuberculosis cases was 23 
in fiscal year 2009, the number increased to 30 cases in fiscal year 
2010 and then fell slightly to 29 in fiscal year 2011.[Footnote 54] 

Table 4: Subset of 5 of the 26 Republic of the Marshall Islands (RMI) 
Health Indicators Reviewed, with Observations on the Reliability of 
the Data to Measure Progress for the Compact as a Whole from 2007 
through 2011: 

Indicator: Immunization coverage (2-year-olds); 
Observations on data: Proper data collection, timeliness, and accuracy 
of data prior to 2013 were problematic; low coverage rates for outer 
island data; and internal RMI disagreement regarding data; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Child mortality rate; 
Observations on data: For outer islands there are ongoing problems 
with consistency collecting and reporting data; timeliness issues 
exist with reporting from Ebeye; 
Sufficiently reliable to measure progress over time? No. 

Indicator: Diabetes rate; 
Observations on data: RMI lacked the data to explain why rates are 
increasing other than increased screening; revisions to data with no 
explanation; 
Sufficiently reliable to measure progress over time? No basis to judge. 

Indicator: Eliminate leprosy; 
Observations on data: RMI lacked the data to explain why detection 
rates are increasing other than increased screening; 
Sufficiently reliable to measure progress over time? No basis to judge. 

Indicator: Tuberculosis rate; 
Observations on data: [Empty]; 
Sufficiently reliable to measure progress over time? Yes. 

Source: GAO analysis of RMI data. 

Notes: Tuberculosis data for 2007 and 2008 are not included in the 
data we considered. By "sufficiently reliable," we mean that the 
likelihood of significant errors or incompleteness is minimal, and the 
use of the data would not lead to an incorrect or unintentional 
message. The indicator titles are shortened in the table; for the full 
indicator titles, see appendix VI. 

[End of table] 

However, we determined that 2 of the subset of 5 health indicators 
that we reviewed were not sufficiently reliable because of various 
issues with data collection and reporting. For example, we determined 
that data reported for immunization coverage for 2-year-olds and the 
child mortality rate were not reliable due to the timeliness and 
accuracy of reporting and low coverage rates for data from the outer 
islands, all problems noted in the Ministry of Health's responses to 
our questions on data reliability. We found that for 2 other health 
indicators we had no basis to judge their reliability. 

Site-Visit Observations Relating to Progress in the RMI Health Sector: 

During January 2013, we visited both hospitals in the RMI, one located 
on Majuro and the other on Ebeye island in the Kwajalein Atoll. We did 
not attempt to visit any health clinics in other atolls due to 
logistic considerations. During our 2006 visit to the Ebeye island 
hospital, we were told that persistent problems with Ebeye's power 
supply continued to interrupt hospital services. In 2013, however, we 
were told that the Ebeye island hospital had regular electricity, 
which we observed at the time of our visit. This facility also 
appeared to be clean, and the selected medical and laboratory 
equipment that we examined was functioning. On our visit to the 
hospital in Majuro, we asked whether the dispensary maintained a drug 
formulary--a list of the required drugs on hand.[Footnote 55] The 
hospital in Majuro provided us with a copy of its formulary, which was 
from 2007. The drugs and medical supplies that we spot-checked at the 
hospital were within their labeled expiration dates. (For information 
on compact-funded infrastructure projects in the education and health 
sectors, see appendix II.) 

FSM, RMI, and Bilateral Oversight Committees Are Aware of Data 
Reliability Problems in Compact Indicator Reports and of the Effect on 
Their Ability to Evaluate Progress: 

FSM and JEMCO: 

Education. In the annual education indicators report that it submitted 
to JEMCO from 2007 through 2011,[Footnote 56] the FSM identified 
problems with the overall quality, and consistency, of the education 
data, as well as problems with timeliness in reporting. Additionally, 
the reports noted the need for training of the data managers and 
difficulties with the data systems.[Footnote 57] In March 2012, JEMCO 
reaffirmed the need for reliable education data to evaluate 
performance in a resolution that required independent verification of 
performance indicators and data for the education sector, which the 
FSM was to communicate in a report due to OIA by July 1, 2013, prior 
to the August 2013 annual meeting.[Footnote 58] In April 2013, the FSM 
Department of Education (National Government) addressed the JEMCO 
resolution by seeking proposals to conduct an independent verification 
of its performance indicators and data quality. The request for 
proposals stated that the project period was approximately 2 months, 
ending July 30, 2013, but it did not state whether a report on the 
results of the project would be prepared within that time frame. 
[Footnote 59] 

Health. The FSM reported on its 14 annual health indicators, 
comprehensively by state and for the National Government, in a July 
2012 report by the FSM national Department of Health and Social 
Affairs covering fiscal years 2004 through 2011. The report noted 
limitations with some of the data, for example, that not all infant 
deaths in the outer islands were included in the infant mortality 
data.[Footnote 60] In response to the report, JEMCO identified 
concerns regarding the reliability of data reported for the health 
indicators. For example, JEMCO noted concerns about the accuracy of 
the reported infant mortality rates as well as the reported number of 
encounters for primary health care services offered in community and 
dispensary settings, which the FSM tracked as a proxy measure of 
improved community-based primary health care. In its 2012 resolution 
JEMCO reaffirmed the need for reliable and quantifiable health data to 
evaluate performance and also required independent verification of 
performance indicators and data for the health sector; it required the 
FSM to submit a report on the health indicators by July 1, 2013. 
[Footnote 61] We inquired about the status of the FSM's effort to 
address the JEMCO resolution to conduct an independent verification of 
the health data, and the Department of Health and Social Affairs 
informed us that the FSM asked for an extension of the July deadline. 
According to OIA, the FSM did not budget sufficient funds for the 
assessment, and that is why the FSM needed an extension. 

RMI and JEMFAC: 

Education. From fiscal years 2007 through 2011, the RMI reported data 
on its annual indicators in its Ministry of Education annual portfolio 
budget statements (hereafter, portfolios). The RMI Ministry of 
Education reported that data on educational indicators are entered 
quarterly into its data management system, and that schools generally 
provide their data before the established deadlines. The RMI also 
provided us with copies of the standard forms that it uses to collect 
data on educational indicators. The RMI's portfolios containing the 
indicator data did not explicitly identify limitations associated with 
the overall data; however, the portfolios included some notes 
describing limitations for a couple of indicators. For example, one 
note indicated that student teacher ratios did not include private 
schools. JEMFAC has not sought an independent review of RMI education 
indicator data quality. 

Health. The RMI Ministry of Health issued an annual health data report 
for each year from 2007 through 2011.[Footnote 62] The RMI also noted 
in its 2011 annual health data report that immunization coverage data 
showed a significant drop because of data entry problems, mainly in 
terms of lateness in entering data and an inability to keep track of 
children moving from one locality to another. The RMI Ministry of 
Health reported it uses a number of different international databases 
to track its health indicator progress such as WebIZ for immunizations 
and EpiAnywhere for tuberculosis. The Ministry of Health reported that 
they have undertaken a couple of different data assessments to improve 
data accuracy, as well as made efforts to improve reporting from Ebeye 
and the outer islands. Among the checks the Ministry of Health 
reported that it conducts to ensure the accuracy of the tuberculosis 
rate indicator is comparing the data entered into the database with 
results from lab tests, X-rays, and clinical visits. 

In 2009, JEMFAC noted that the RMI health data were unreliable because 
of discrepancies related to outer island data and infant mortality 
rates. Other outside reports also questioned how the Ministry of 
Health handled other data on disease incidence, prevalence, and 
mortality.[Footnote 63] In 2010, JEMFAC required that the Ministry of 
Health initiate and complete an assessment of the reliability of all 
its health data-management practices by September 30, 2011. The 
ministry obtained technical assistance from a United Nations Volunteer 
to address the requirement. However, the volunteer technical expert 
only stayed 10 months, leaving in July 2012, and the position was 
still vacant as of July 2013, according to the Ministry of Health. The 
RMI had not provided JEMFAC with the required report as of June 2013. 
[Footnote 64] 

FSM and RMI Face Financial Accountability Challenges; Oversight Bodies 
Are Hindered by Limitations: 

The single audit reports[Footnote 65] we reviewed indicated challenges 
to ensuring accountability of compact and noncompact U.S. funds in the 
FSM and RMI. For example, these governments' single audits showed 
repeat findings and persistent problems in noncompliance with U.S. 
program requirements, such as accounting for equipment. The United 
States has taken steps regarding the accountability of compact funds, 
such as establishing the Chuuk Financial Control Commission, but 
Interior has not coordinated with other U.S. agencies regarding the 
risk status of the FSM and the RMI for noncompact funds. Furthermore, 
the offices responsible for compact administration in the FSM, RMI, 
and United States faced limitations hindering their ability to conduct 
compact oversight. For example, OIA experienced a staffing shortage 
that disproportionately affected compact grant oversight compared to 
other OIA activities, with 5 of 11 planned positions filled in 2012. 

Financial Accountability in the FSM Was Mixed: 

Single Audits Showed FSM National Government Faced Challenges, While 
Chuuk and Pohnpei Demonstrated Financial Accountability Improvement: 

In fiscal years 2006 through 2011,[Footnote 66] the FSM National 
Government single audit reports indicated that the government faced 
financial accountability challenges. However, the single audit reports 
for Chuuk and Pohnpei state governments demonstrated improvement in 
financial accountability: financial statement audit opinions improved 
and the number of material weaknesses[Footnote 67] and significant 
deficiencies [Footnote 68] declined. As an example of the remaining 
challenges for the FSM National Government, its 2011 single audit 
report identified problems with the extent of noncompliance with 
program requirements, such as preparing required quarterly reports. 
These reports are important because OIA uses them for oversight of the 
amended compact. Furthermore, the National Government's 2011 single 
audit report contained several repeat findings--problems noted in 
previous audits that had not been corrected for several years. For a 
detailed summary of our review of the FSM single audit reports, see 
appendix VII. 

The following briefly summarizes our analysis of the single audits for 
the FSM National Government and the state governments of Chuuk and 
Pohnpei. 

* Financial reporting: FSM National Government single audit reports 
conveyed that the government was not able to account fully for its use 
of compact or noncompact funds for fiscal years 2006 through 2008. 
Chuuk's single audit reports continued to identify financial 
accountability weaknesses, primarily because Chuuk's financial 
statements did not contain information on its land leases in fiscal 
years 2009 through 2011. For fiscal years 2006 through 2011, Pohnpei 
received an unqualified opinion[Footnote 69] on its financial 
statements included in its single audit reports. (For additional 
details, see appendix VII.) 

* Compliance with requirements of major federal programs: [Footnote 
70] The FSM National Government continued to be noncompliant with the 
terms and conditions of major federal programs in fiscal year 2011 in 
each of its three major programs. Furthermore, its fiscal year 2011 
single audit report included four material weaknesses and eight 
significant deficiencies. The FSM National Government continued to 
have findings that have not been corrected for several years. For 
example, seven findings had recurred at least three times in the 4 
years prior to 2011.[Footnote 71] In addition, the FSM National 
Government had consistently lacked the ability to prevent disbursing 
funds in excess of available funds in each year for the previous 2 
years and lacked the ability to accurately report financial 
information in each of the previous 4 years. We believe recurring 
weaknesses in internal controls increase the risk that assets are 
susceptible to misuse. In contrast, Chuuk's fiscal year 2011 single 
audit report demonstrated improvement in compliance with major federal 
programs. Whereas Chuuk previously had been considered noncompliant in 
fiscal years 2006 through 2010, it was considered materially compliant 
in fiscal year 2011. Pohnpei's single audit reports also demonstrated 
improvement, as the state government was noncompliant with the 
requirements of federal programs in fiscal years 2006 and 2007 but was 
considered materially compliant in fiscal years 2008 through 2011. See 
appendix VII for additional information. 

* Timeliness: The FSM National Government and Chuuk did not submit 
their 2006 single audit reports on time due to a delay in the 
reconciliation of accounting records.[Footnote 72] In fiscal years 
2007 through 2011, however, the FSM National Government and Chuck 
submitted their single audit reports on time. Pohnpei met the deadline 
for submitting single audit reports during the entire period, fiscal 
years 2006 through 2011. (For additional details, see appendix VII.) 

FSM Audit Offices Conducted Program Audits and Found Instances of Weak 
Internal Controls That Could Increase Risk of Waste, Fraud, and Abuse: 

The FSM has a national audit office, and Pohnpei has a Public Auditor. 
According to ONPA officials, ONPA has a staff of 15 in Pohnpei and 5 
in Chuuk.[Footnote 73] According to state officials, the Pohnpei state 
government's Office of the Public Auditor (OPA) has a professional 
staff of 8.[Footnote 74] Both the ONPA and OPA identified internal 
control weaknesses in their audits of the FSM National Government and 
state government that could lead to waste, fraud, and abuse. The 
following are examples from reports issued by the ONPA. 

* An audit report on the National Government's payroll operating 
controls for fiscal years 2010 through 2012 found overpayments to 
employees including payments to active and terminated employees and 
for hours worked but not authorized.[Footnote 75] 

* A report on the Chuuk State Department of Health Services found that 
the department did not implement a procurement and inventory control 
system ensuring the efficient use of funds and the timely distribution 
of medications to recipients. This program was funded by the amended 
compact health sector grant.[Footnote 76] 

* A report on the Chuuk Department of Education found that it failed 
to provide many students with textbooks, to hold schools and students 
accountable for lost books, and to ensure that classroom lessons 
followed the approved state curriculum. This program was funded by 
amended compact education sector grant.[Footnote 77] 

In fiscal years 2008 through 2011, the Pohnpei state government's OPA 
also conducted audits that identified findings related to internal 
control weaknesses potentially leading to waste, fraud, and abuse. 
[Footnote 78] For example, its September 2008 audit report found weak 
internal controls in the issuance of pharmaceutical and medical 
supplies from the Pohnpei Central Medical Supply Unit and other 
sections of the Department of Health Services.[Footnote 79] The 
amended compact was the primary source of funding. The report noted 
the lack of assurance that recipients actually received all items 
indicated in the receipts because there was not a reliable audit trail 
for the issuance of pharmaceutical and medical supplies. 

RMI Faced Financial Accountability Challenges: 

Single Audits in the RMI Revealed Increased Financial Accountability 
Challenges: 

RMI single audit reports for fiscal years 2006 through 2011 
demonstrated an increase in material weaknesses in noncompliance with 
the requirements of federal programs. For example, the 2006 single 
audit report identified 4 material weaknesses in compliance with 
federal awards and about $5.7 million in unresolved questioned 
costs.[Footnote 80] However, the 2011 single audit report identified 8 
material weaknesses and about $7.4 million in unresolved questioned 
costs as of September 30, 2011.[Footnote 81] While reports for fiscal 
years 2006 through 2010 were submitted on time, the 2011 single audit 
report was late. For a detailed summary of our review of the RMI 
single audit reports, see appendix VII. 

The following briefly summarizes our analysis of the RMI single audits. 

* Financial reporting: In fiscal years 2006 through 2011,[Footnote 82] 
the RMI received an unqualified audit opinion on each of its annual 
financial statements. (See appendix VII for a list of the opinions on 
financial statements in the RMI's audit reports for fiscal years 2006 
through 2011.) 

* Compliance with requirements of major federal programs: [Footnote 
83] The RMI single audit reports indicated they were noncompliant with 
the requirements of federal programs in fiscal years 2006 through 
2011. The fiscal year 2011 single audit report included eight findings 
that were considered material weaknesses. Some findings were related 
to compact grants and others to noncompact funding. Furthermore, 
several of the weaknesses were not corrected over several years. For 
example, seven of the eight material weaknesses reported in the fiscal 
year 2011 single audit recurred at least once in the 2 prior years and 
five had recurred in 3 out of the 4 previous years.[Footnote 84] For 
example, each year for 4 years prior to fiscal year 2011, the RMI was 
not able to provide supporting documentation for its expenses and an 
adequate accounting for its fixed assets to meet the requirements in 
the fiscal procedures agreement. Furthermore, we believe that 
recurring weaknesses in internal controls increase the risk that 
assets are susceptible to misuse. Also, the fiscal year 2011 RMI 
single audit report demonstrated that the RMI did not comply with some 
of the requirements of federal programs. For example, the RMI 
disbursed $1 million in compact sector grants to the Marshall Islands 
National Telecommunications Authority without an audit.[Footnote 85] 
In addition, the auditors reported that documentation supporting 
expenditures from various ministries could not be located and resulted 
in questioned costs totaling approximately $1.1 million; other 
questioned costs were also identified for various reasons in the 2011 
single audit. (For additional details, see appendix VII.) 

* Timeliness: For fiscal years 2006 through 2010, the RMI met the 
single audit report submission deadline. In July 2012, the RMI 
contacted OIA and requested an extension to file its 2011 single audit 
by September 30, 2012. OIA granted the extension, stating no adverse 
action would be taken if the single audit was completed and received 
by OIA by September 30, 2012. However, RMI submitted its fiscal year 
2011 report in February 2013, 8 months late.[Footnote 86] According to 
the RMI Ministry of Finance, the 2011 single audit report was late 
because of staff turnover, computer system issues, and late 
reconciliation of general ledger and bank accounts. As a result, the 
2011 single audit was not received by the United States until 17 
months after the end of the year in which the reported findings were 
identified; OIA took no adverse action. (For additional details, see 
appendix VII.) 

RMI Audit Office Identifies Fraud Indicators in Audit Reports: 

RMI Office of the Auditor General (OAG) officials also told us that 
previous annual single audits reported fraud indicators (e.g., 
numerous findings on noncompliance with procurement requirements) that 
were not looked into by the RMI government in office at that time. 
[Footnote 87] The current OAG indicated that if the RMI government at 
that time, including the then OAG, had investigated the reported 
procurement issues, the recent fraud cases in the Ministry of Health 
and Human Services and Ministry of Finance might have been uncovered 
earlier.[Footnote 88] (For additional details, see appendix VII). 

OIA Has Taken Some Steps to Improve FSM and RMI Financial 
Accountability: 

Compact Grants: 

Working through JEMCO and JEMFAC, OIA has led actions to improve 
financial accountability of compact funds and has recommended further 
actions. 

* The improvement in Chuuk audit reports was the result of cooperation 
between the JEMCO and Chuuk state government. For example, Chuuk's 
fiscal year 2004 single audit report included 30 findings and 
unresolved questioned costs totaling approximately $6.7 million. In 
fiscal year 2005, the JEMCO established the Chuuk Financial Control 
Commission (CFCC) to assist the Chuuk government in managing its 
finances. Consequently, Chuuk's fiscal year 2011 single audit report 
identified 5 findings with no unresolved questioned costs. According 
to a CFCC official, the CFCC has played an important role in restoring 
and maintaining the integrity of compact sector grant expenditures. 
[Footnote 89] 

* The JEMFAC reported after its review of the RMI fiscal year 2011 
single audit report that unresolved questioned costs had significantly 
increased over the previous 4 years. At the JEMFAC midyear meeting 
held on March14, 2013, discussion included the issue of the RMI's 
inability to comply with requirements regarding allowable costs, cash 
management, equipment, and real property management, among other 
issues, as well as the related unresolved questioned costs reported in 
the 2011 single audit, which totaled over $5 million. The RMI 
Secretary of Finance told OIA officials that the RMI had recently 
taken positive steps to resolve outstanding questioned costs and to 
strengthen the ministry's internal controls; nevertheless, OIA 
recommended that JEMFAC refrain from allocating unexpended grant funds 
from fiscal year 2011 and fiscal year 2012 until the RMI demonstrated 
that it had resolved all current questioned costs. At its annual 
meeting in August 2013, JEMFAC did not allocate the unexpended 2011 
and 2012 funds. 

Although OIA has authority to impose special conditions or 
restrictions for unsatisfactory performance or failure to comply with 
grant terms, OIA officials have preferred to work through the JEMCO 
and JEMFAC committees rather than take unilateral action. While no 
official "high risk" designation exists in the amended compacts or 
fiscal procedures agreements, the fiscal procedures agreements' 
provisions governing grants administration allow the same special 
conditions to be applied to amended compact grants that exist for 
other high-risk grantees receiving federal assistance. OIA officials 
told us that they treat the amended compact funds as high risk and 
provide special conditions through the JEMCO and JEMFAC resolutions, 
such as requiring the acquisition of technical or management 
assistance, requiring additional reporting and monitoring, or 
withholding funds. 

Other U.S. Noncompact Grants: 

Regarding financial accountability of noncompact grants, OIA has not 
coordinated the federal response to audit findings that affect 
programs of more than one agency. Nor have OIA or other federal 
agencies designated the FSM or the RMI as high-risk grantees, which 
would allow those agencies to impose special conditions on their 
grants such as requiring additional reporting and monitoring. 

* Single audit reports show compliance problems for compact and 
noncompact grants. For example, the 2011 FSM National Government 
single audit reported that for one special education grant, the FSM, 
unable to draw down funds from the grant account because the period of 
funds availability had closed, improperly reimbursed itself from a 
different grant account that was still open. The same single audit 
also reported that the FSM National Government submitted financial 
reports for Transportation's Airport Improvement Project grant that 
did not agree with underlying financial records. According to OIA 
officials, Interior has not coordinated the response of federal 
agencies to these audit findings because of its focus on its 
responsibility for oversight of the amended compact funding. 

* According to Interior officials, while Interior and other U.S. 
agencies may designate the FSM and the RMI as high-risk grantees for 
noncompact grants if the grantee has a history of performance 
problems, as of June 2013, no agencies have done so, potentially 
because of the lack of coordination between OIA and other grantors. 
Education officials noted that the department looks to see if there 
are systemic problems when designating a grant recipient as high risk 
but they have not formally assessed this status for the FSM or RMI. 
HHS officials believe the department's noncompact funds are at risk, 
but HHS has not conducted a systematic review of FSM and RMI audit 
results or considered whether the grantees should be considered high 
risk. OIA officials told us they have not undertaken a formal analysis 
to determine whether Interior noncompact funds should have a high-risk 
designation and have not held formal discussions with other grantor 
agencies (e.g., with Education, Transportation, or other grantors) 
regarding this issue. 

Staffing Constraints Hindered Oversight Offices in Fulfilling Their 
Oversight Responsibilities: 

FSM Compact Management Unit's Oversight Limited by Staffing 
Constraints and Lack of Authority: 

FSM officials stated in January 2013 that staff constraints in the 
Office of Statistics, Budget and Economic Management, Overseas 
Development Assistance, and Compact Management's (SBOC) Division of 
Compact Management limit the division's ability to conduct oversight. 
[Footnote 90] The Division of Compact Management is responsible for, 
among other things, day-to-day communications with JEMCO and the U.S. 
government and oversight of compact implementation, including 
coordination with recipients of compact grants to ensure effective and 
efficient use of compact funds. FSM officials told us that the 
division is currently staffed by three staff members who provide 
compact oversight for the FSM National Government and the four states 
across six sectors. However, FSM officials told us that they need 
additional staff so they can conduct more oversight activities. 

In addition to the staffing shortage, FSM officials told us that the 
Division of Compact Management is hampered by its lack of authority to 
ensure that the National Government and the four states comply with 
compact requirements. For example, while the National Government and 
any subgrantees, including the four states, are required by the 
compact's fiscal procedures agreements to provide quarterly reports 
with data and information on progress toward sector performance 
indicators, the Division of Compact Management does not have the 
authority to enforce this requirement if the National Government and 
states do not comply. In this case, FSM officials will sometimes 
request that the Department of Finance withhold quarterly allotments 
of compact funds until an entity submits the required information or, 
if necessary, identify issues for OIA to address. 

RMI Compact Management Unit's Oversight Limited by Staff Constraints 
and Lack of Authority: 

According to RMI officials, staff constraints in the Office of Compact 
Implementation (OCI) limit the office's ability to conduct oversight 
and enforce compact requirements across multiple sectors and 
operations in numerous atolls. OCI has responsibility for all issues 
related to the compact and is also responsible for preparation and 
follow-up for all JEMFAC meetings, responses to GAO reports, and 
preparations for any congressional hearings on compact-related 
matters. RMI officials told us that the office is currently staffed by 
two people--a director and a foreign service officer--who run the 
office with three divisions.[Footnote 91] RMI officials also stated 
they depended on officials from other government agencies to help them 
fulfill their responsibilities. For example, OCI uses the legal 
advisor of the Ministry of Foreign Affairs to assist with compact 
issues since the OCI's Division of Compact Legal Affairs has not 
filled its legal position. 

Additionally, OCI officials told us they are hampered by their lack of 
authority to require that the RMI ministries implementing projects 
funded by sector grants comply with compact requirements. For example, 
OCI works through the Ministry of Foreign Affairs or the Office of the 
Chief Secretary when other RMI ministries or offices have not 
submitted compact-related reports. RMI officials said the government 
has not resolved the question of who within the RMI government has the 
authority to withhold funds to ensure compliance. According to RMI 
comments on our draft report, the Office of the Chief Secretary does 
not have authority to withhold funds from ministries or offices to 
compel them to comply with compact requirements (see appendix XI). 

OIA's Compact Oversight Limited by Staff Constraints: 

From fiscal years 2011 through 2013, OIA experienced staff 
constraints, particularly in the Honolulu field office and in the FSM, 
that limited its ability to carry out its compact oversight 
responsibilities. In 2010, OIA created a plan that provided detailed 
staffing projections across OIA for fiscal years 2010 through 2014. To 
ensure effective oversight for the amended compacts, OIA projected a 
need for 8 staff in the Honolulu field office, 2 field staff in the 
FSM, and 1 field staff in the RMI for fiscal years 2011 through 2013, 
a total of 11 staff.[Footnote 92] (See appendix VIII for the plan's 
detailed staffing projections.) However, in 2011 and 2012, OIA had a 
total of 5 staff for compact oversight: 4 staff in its Honolulu field 
office and 1 field staff in the RMI. In March 2013, OIA filled 1 of 
the 2 projected FSM field staff positions. 

The OIA 2010 workforce plan projected the need for 50 staff for all of 
its divisions in fiscal years 2010 through 2014; it projected that 
existing resources would allow OIA to fund a total of 43 staff during 
this period. However, actual staffing levels were less than 43 in 2011 
and 2012. Though compact oversight staff would represent 22 percent of 
total projected staff in the plan, compact oversight staff represented 
12 percent and 14 percent, respectively, of actual OIA total staff in 
fiscal years 2011 and 2012. As a result, OIA's staffing shortage 
disproportionately affected compact grant oversight compared to other 
OIA activities. See table 5. 

Table 5: Office of Insular Affairs (OIA) Staffing, Fiscal Years 2010 
through 2014: 

Total OIA staff; 
Projected need (2010-2014): 50; 
Actual staff: 
2011: 41; 
2012: 37. 

Compact oversight staff[A]; 
Projected need (2010-2014): 11 (22%); 
Actual staff: 
2011: 5 (12%); 
2012: 5 (14%). 

Noncompact oversight staff; 
Projected need (2010-2014): 39 (78%); 
Actual staff: 2011: 
36 (88%); 
32 (87%). 

Source: GAO analysis based on OIA data. 

Notes: Percentages may not add to 100 due to rounding. Data are from 
OIA's 2010 workforce plan and OIA's 2013 and 2014 budget justification 
documents. 

[A] These figures include staff in Honolulu, the FSM, and the RMI 
directly responsible for compact oversight. Beyond these staff, 
additional OIA staff support compact oversight from Washington, D.C. 

[End of table] 

According to OIA officials, the following three factors contributed to 
the staffing shortages affecting compact oversight in fiscal years 
2011 and 2012. 

* Budget constraints and uncertainties: OIA officials said budget 
constraints and uncertainties prevented the office from hiring staff 
and filling vacant positions as outlined in the workforce plan. OIA 
noted that the plan assumed sufficient budgetary resources, and with 
enacted budgets in fiscal years 2010 through 2013, OIA could not hire 
additional staff. OIA officials also cited budget uncertainties for 
fiscal years 2012 and 2013 as a factor that kept them from filling the 
second education grants specialist position. 

* OIA priorities: OIA management did not fill compact-related 
vacancies because of other priorities, such as filling headquarters-
based positions before filling field positions. For example, an OIA 
official said that OIA management held back some available funding in 
hopes of staffing a Guam field office. 

* Lack of qualified candidates: OIA officials also noted that in 2011 
OIA posted the vacancy for the second education grants specialist 
position in Honolulu but did not receive sufficiently qualified 
candidates, which prevented the office from hiring. 

Staffing shortages, particularly those in the Honolulu field office, 
have negatively affected OIA's compact oversight in the FSM and the 
RMI. While oversight activities, site visits, and required meetings 
occurred, OIA noted the following oversight gaps: 

* In a 2010 report, Interior's Office of the Inspector General 
reported that OIA's compact oversight was hindered by the lack of an 
FSM field representative to support oversight efforts, despite the 
fact that the FSM received about $100 million in grant funds, more 
than any other insular area.[Footnote 93] Additionally, the report 
questioned whether OIA was effectively utilizing existing staff in the 
Honolulu field office. 

* One OIA official said that the Honolulu field office's staffing 
shortage hinder OIA's ability to scrutinize financial reports and 
provide feedback to both countries. This official also stated that 
without a second person working on education sector compact 
assistance, OIA cannot thoroughly analyze education budgets, which 
results in high-level recommendations to the JEMCO and JEMFAC rather 
than specific recommendations that address issues such as the 
potential misuse of funds. Noting that the RMI experienced an increase 
in unquestioned costs over a period of 3 years, the OIA official 
stated that if the Honolulu office had a second education grants 
specialist, OIA could identify these issues earlier and support the 
OIA audit liaison in following up on issues identified in the single 
audits. 

Conclusions: 

At the midpoint of the 20-year amended compact assistance term, the 
FSM and RMI face critical challenges in compact implementation. During 
the first 10 years, the FSM and the RMI spent most of their funds for 
education and health, sectors prioritized in the compact agreements. 
However, because of data reliability issues, neither country can 
demonstrate whether it has made progress toward its goals in these 
sectors. Now, with 10 years of amended compact sector funding left, 
both countries must quickly plan for reduced grant resources and 
resolve the accountability issues that have plagued them to date so 
that they can fully utilize the funds and time left to achieve their 
goals. 

Both countries must complete plans that address annual decrements in 
compact funding and determine new revenue sources that will replace 
compact grant assistance in 2023. Despite multiple JEMCO and JEMFAC 
resolutions calling for the countries to produce these plans, the FSM 
National Government has yet to develop a plan that shows how it will 
address budgetary and economic challenges through 2023 and support the 
states in adjusting to the annual decrements, while the RMI government 
has yet to develop a plan that demonstrates how it will adjust to the 
annual decrements. In the absence of these plans, JEMCO and JEMFAC 
will face challenges ensuring that annual grant assistance for both 
countries is allocated in a sustainable manner. 

Ongoing problems with data reliability exist for both countries. 
Without reliable data, the countries cannot assess progress toward 
their goals in the education and health sectors and cannot effectively 
use results data for setting priorities and allocating resources aimed 
at improving performance. The lack of reliable data also hampers the 
ability of JEMCO and JEMFAC to oversee compact expenditures and assess 
the countries' progress toward all its goals in the education and 
health sectors. 

The FSM's and RMI's single audits continue to identify long-standing 
and recurring findings, which if addressed could allow both countries 
to more effectively use U.S. resources and diminish potential losses 
that arise from fraud, waste, and abuse. Given these recurring audit 
findings, both compact and noncompact U.S. funds are at risk. 
Interventions by JEMCO were effective in Chuuk in bringing improved 
financial accountability; however, similar JEMCO and JEMFAC 
interventions have not been undertaken for the FSM National Government 
or the RMI. Furthermore, U.S. grants provided separately from the 
amended compact by multiple agencies are at risk. Although OIA has a 
lead role regarding audit matters, it has not formally coordinated 
with other U.S. agencies to address audit findings, nor has it 
assessed whether its own noncompact grants should be classified as 
high risk. Moreover, other federal agencies whose grants may be at 
risk have not routinely considered designating either country as a 
high-risk grantee. Such consideration could enable U.S. agencies to 
enforce conditions and restrictions on noncompact grant funds they 
provide, thus improving the oversight and management of the funds. 

Finally, although the majority of grants administered by OIA are 
amended compact grants, OIA's amended compact oversight function was 
disproportionally affected by staffing shortages. While budget 
constraints prevented OIA from hiring the total number of staff it 
needed to conduct oversight for all of its grants, decisions to staff 
other OIA divisions rather than hire compact oversight staff affected 
OIA's ability to ensure compact funds were efficiently and effectively 
used. 

Recommendations for Executive Action: 

We recommend that the Secretary of the Interior take the following 
five actions: 

In order to improve the ability of the U.S. agencies participating in 
the JEMCO and JEMFAC committees to conduct required oversight of 
compact funds, 

* direct the Director of Insular Affairs, as Chairman of JEMCO, to 
coordinate with other JEMCO-member U.S. agencies to have JEMCO take 
all necessary steps, or, as the administrator of compact grants, to 
directly take all necessary steps, to ensure that the FSM (1) 
completes satisfactory plans to address annual decrements in compact 
funds, (2) produces reliable indicator data used to track progress in 
education and health, and (3) addresses all single audit findings in a 
timely manner;[Footnote 94] and: 

* direct the Director of Insular Affairs, as Chairman of the JEMFAC, 
to coordinate with other JEMFAC-member U.S. agencies to have JEMFAC 
take all necessary steps, or, as the administrator of compact grants, 
to directly take all necessary steps, to ensure that the RMI (1) 
completes satisfactory plans to address annual decrements in compact 
funds, (2) produces reliable indicator data used to track progress in 
education and health, and (3) addresses all single audit findings in a 
timely manner. 

In order to improve financial accountability of noncompact U.S. grant 
assistance provided to the FSM and the RMI, 

* consult with other grantor agencies to determine whether the FSM 
National Government or any FSM states meet the criteria to be 
designated as a high-risk grant recipient for noncompact funds, or 
whether other steps should be taken to improve accountability; and: 

* consult with other grantor agencies to determine whether the RMI 
meets the criteria to be designated as a high-risk grant recipient for 
noncompact funds, or whether other steps should be taken to improve 
accountability. 

In order to ensure that Interior is providing appropriate resources 
for oversight and monitoring of the FSM and RMI compacts, 

* take actions to correct the disproportionate staffing shortage 
related to compact grant implementation and oversight. 

Agency Comments and Our Evaluation: 

We provided a draft of this report for comment to Interior, Education, 
HHS, and State and also to the FSM National Government and the 
government of the RMI. Interior, the FSM National Government, and the 
government of the RMI provided formal written comments on the draft 
report, which are reprinted in appendixes IX, X, and XI, respectively, 
and which we summarize below. Education and HHS had no comments on the 
draft report. In an e-mail received August 13, 2013, from State's GAO 
Liaison, State indicated that our report will inform its continuing 
work, mainly through its involvement in the JEMCO and JEMFAC. For 
example, State noted, the U.S. members of the JEMCO are currently 
taking steps to address decrement planning and improve the production 
of reliable indicator data in the compact priority sectors of health 
and education in the FSM. Similarly, the U.S. members of the JEMFAC 
continue to work with the RMI on its decrement plan. 

Interior generally concurred with all five of our recommendations and 
briefly discussed each. With regard to our recommendations for actions 
involving JEMCO and JEMFAC, Interior noted examples of how it and 
other U.S. members of JEMCO and JEMFAC have worked to make 
improvements in the three areas mentioned in the recommendations: 
decrement plans, reliable indicator data to track progress in 
education and health, and addressing single audit findings. Interior 
also discussed our recommendations to determine, in consultation with 
grantor agencies, whether steps should be taken to improve 
accountability of noncompact funds to the FSM and RMI, including 
application of the high-risk designation for grant recipients. 
Interior noted that it cannot direct other agencies to take action 
with regard to any grant-specific issues and stated it was unaware of 
any precedent for federal agencies to jointly designate a grantee as 
high risk; however, Interior said it would discuss this approach with 
other federal agencies. 

Although Interior also concurred with our final recommendation, to 
take actions to correct the disproportionate staffing shortage related 
to compact grant implementation and oversight, Interior's response 
indicates that it considers corrective action to be contingent on its 
receiving funding for new positions through the annual budget process. 
However, the intent of our recommendation is to have Interior work 
with its actual funding levels, whatever they may be, to correct what 
we observed to be a misalignment in how it allocates its staff. We 
found that compact grants account for the majority of grant funds that 
OIA administers and that OIA's staffing shortage has 
disproportionately affected compact grant oversight compared with 
other OIA activities. We believe it is feasible for OIA to address 
this imbalance regardless of whether it receives funding for new 
positions. Appendix IX presents a copy of the letter from Interior. 
Interior also provided technical comments that we incorporated in the 
report where appropriate. 

In its written comments on our draft report, the FSM National 
Government focused on three areas of our reporting: (1) decrement 
planning, (2) data reliability issues for education and health 
indicators, and (3) financial accountability over compact and U.S. 
federal program funds. The FSM agreed on the importance of these three 
issues to the successful implementation of the amended compact. The 
FSM identified activities under way to plan for the decrement, such as 
the 2023 Planning Committee's efforts to identify ways to intensify 
private sector growth. Regarding data reliability, the FSM cited 
implementation of a contract to assess the national education system's 
ability to produce valid and reliable data and efforts under way to 
review the quality of health indicators with government staff. The FSM 
remarked on what it characterized as the heavy emphasis in our report 
of the possibility of achieving increased accountability over 
noncompact grant funds through a "high-risk" designation, but noted 
that it was assured because the process involved in a "high-risk" 
designation is not an arbitrary one. As some of the FSM's comments 
related to topics discussed at the August 22, 2013, JEMCO annual 
meeting, which we attended, we have updated our report to reflect 
information presented at that meeting. Appendix X presents a copy of 
the letter from the FSM National Government. 

The government of the RMI also provided written comments on our draft 
report. The RMI believes it submitted adequate plans regarding the 
medium-term budget and investment framework and the decrement, while 
at the same time noting the usefulness of the decrement plan as a 
policy guide and planning tool, rather than as a mechanism for making 
line-item budgetary decisions. Regarding data reliability, the RMI 
generally agreed with our findings of data reliability problems in 
both the education and health sectors. The RMI agreed that there were 
limitations to their education data for certain indicators, and 
reported that they faced challenges in data collection due to the 
number of schools that were spread out over a large ocean area, and 
the deficient state of their transportation and communication systems. 
In the health sector, the RMI pointed out that it has 52 health 
centers spread throughout 29 atolls, making it difficult to collect 
data in a timely manner, and that it also lacks personnel dedicated 
solely to collecting and entering health indicator data. The RMI, 
however, noted that its Ministry of Health is seeking external 
assistance to improve health data. In response to our recommendation 
that--in order to improve financial accountability of noncompact U.S. 
grant assistance provided to the RMI--the Secretary of the Interior 
should consult with other agencies to determine whether the RMI meets 
the criteria to be designated as a high-risk grant recipient for 
noncompact funds, or whether other steps should be taken to improve 
accountability, the RMI noted that internal controls are now in place 
to detect and deter fraud, waste, and noncompliance with the fiscal 
procedures agreement or other U.S. federal regulations. For that 
reason, the RMI Ministry of Finance does not believe that any special 
conditions or restrictions for unsatisfactory performance or failure 
to comply with grant terms are warranted. As some of the RMI's 
comments related to topics discussed at the August 20, 2013, JEMFAC 
meeting, which we attended, we have updated our report to reflect 
information presented at that meeting. See appendix XI for a detailed 
presentation of comments from the RMI and our responses to them. 

At both the annual JEMCO and JEMFAC meetings in August 2013, 
resolutions were passed in response to our recommendations related to 
decrement planning, data reliability, and addressing single audit 
findings. The resolutions approve the use of prior year unobligated 
funding to address one or more of the following three areas: (1) 
completing satisfactory plans to address annual decrements in compact 
funds, (2) producing reliable indicator data used to track progress in 
education and health, and (3) addressing all single audit findings in 
a timely manner. 

In addition to providing copies of this report to your offices, we 
will send copies to interested congressional committees. We will also 
provide copies of this report to the Secretaries of the Interior, 
Education, HHS, and State, as well as to the President of the 
Federated States of Micronesia and the President of the Republic of 
the Marshall Islands. In addition, the report will be available at no 
charge on the GAO website at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions regarding this report, please 
contact me at (202) 512-3149 or gootnickd@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made major 
contributions to this report are listed in appendix XII. 

Signed by: 

David Gootnick: 
Director, International Affairs and Trade: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report examines, for fiscal years 2007 through 2011, (1) the 
Federated States of Micronesia's (FSM) and the Republic of the 
Marshall Islands' (RMI) use of compact funds in the education and 
health sectors; (2) the extent to which the FSM and RMI have made 
progress toward achieving their stated goals in education and health; 
and (3) the extent to which oversight activities by the FSM, RMI, and 
the United States ensure accountability for compact funding. In 
addition we provide information on the FSM and the RMI infrastructure 
sector grants. 

To determine how the FSM and RMI used amended compact funds in the 
education and health sectors, we analyzed the single audits for the 
FSM National Government and the state governments of Chuuk and Pohnpei 
and for the RMI government for fiscal years 2007 through 2011. The 
single audits provide information on total education and health sector 
compact fund expenditures as well as total supplemental education 
grant expenditures in both countries and Ebeye special needs 
expenditures in the RMI. The single audits also provide details on 
specific expenditures within each of these sectors, such as personnel 
costs and medical supplies. However, data on specific expenditures for 
fiscal year 2007 and fiscal year 2008 were not available for the FSM 
National Government or the state of Chuuk; hence, we reported on 
specific sector expenditures for the FSM National Government, Chuuk, 
and Pohnpei for fiscal years 2009 through 2011 only. We were able, 
however, to provide specific expenditure data for the RMI for fiscal 
years 2007 through 2011. We report on the specific expenditures that 
constitute at least the top 80 percent of expenditures in the 
education and health sectors, as well as for supplemental education 
grant expenditures for both countries. Any remaining expenditure 
categories are aggregated under an "Other expenditures" category. 
Within the single audits, we also analyzed the total expenditures 
within the education and health sectors for the FSM National 
Government, Chuuk, Pohnpei, and the RMI government to determine the 
portion of sector expenditures supported by compact and noncompact 
U.S. funds. We determined that these data were sufficiently reliable 
for the purposes of our report. 

To evaluate the extent to which the FSM and RMI made progress toward 
achieving their stated goals in the education and health sectors from 
fiscal years 2007 through 2011, we identified the indicators the FSM 
and RMI developed to track progress in those sectors. In assessing FSM 
progress, we used data from Chuuk and Pohnpei since these two states 
represent 83 percent of the FSM population. As each country had 
numerous indicators,[Footnote 95] we selected a subset of the health 
and education indicators in both countries to review. We used the U.S. 
5-year reviews of the FSM and RMI; Joint Economic Management Committee 
(JEMCO) and Joint Economic Management and Financial Accountability 
Committee (JEMFAC) health and education related resolutions from 2007 
through 2012;[Footnote 96] and the Millennium Development Goals (MDG) 
performance measures as criteria to determine the subset of measures. 
We selected these criteria for the following reasons: the U.S. 5-year 
reviews and the JEMCO and JEMFAC resolutions identified indicators 
that reflected country-specific concerns, while the MDG reflected 
global standards because they were developed by international health 
and education experts and agreed upon by almost all developing 
countries. An indicator was selected to be part of the subset if it 
was included in two of the three sources listed above for the FSM, and 
listed in all three sources for the RMI. We also consulted with 
officials at the U.S. Departments of Education (Education) and Health 
and Human Services (HHS) regarding our proposed methodology. We then 
reviewed FSM and RMI annual reports tracking these indicators for 2007 
through 2011.[Footnote 97] To determine whether the data presented in 
the annual health and education indicator reports were sufficiently 
reliable to measure progress in the compacts as a whole, and in 
selected states, we reviewed the reports themselves, reviewed JEMCO 
and JEMFAC resolutions related to health and education data, and 
interviewed FSM and RMI officials responsible for collecting and 
providing the data during our site visits in January 2013. In the FSM 
and RMI, we also attempted to replicate the reported data in some of 
the education and health reports. Additionally, we sent each country a 
series of specific follow-up questions related to the subset of 
indicators to learn more about each country's data collection and 
verification activities, as well as to try to clarify discrepancies in 
the data we identified. In some instances, the responses we obtained 
did not provide sufficient information for us to determine that the 
data were reliable; in those instances we classified the indicators as 
"no basis to judge." We reported on the reliability of these 
indicators in the report. 

To identify the extent to which the FSM and RMI governments conducted 
monitoring and oversight activities, we reviewed the amended compacts 
and fiscal procedures agreements to identify specific monitoring 
responsibilities. We also reviewed the U.S. briefing documents, as 
well as the minutes and resolutions, when available, related to the 
JEMCO and JEMFAC meetings. We further reviewed FSM and RMI documents--
such as portfolios, quarterly performance reports, and annual reports, 
for fiscal years 2007-2011 as available--submitted by the FSM and RMI 
governments to the U.S. government to confirm compliance with 
accountability reporting requirements. We discussed the lack of 
required annual reporting with Department of the Interior (Interior) 
Office of Insular Affairs (OIA) officials. We obtained the single 
audit reports for the years 2006 through 2011 from the FSM Office of 
the National Auditor's website and the RMI's Office of the Auditor 
General. These reports included audits for the FSM National Government 
and the state governments of Chuuk and Pohnpei, and for the RMI 
government. In total, 24 single audit reports covered 6 years, a 
period that we considered sufficient for identifying common or 
persistent compliance and financial management problems involving U.S. 
funds (amended compact and other noncompact funds). We determined the 
timeliness of submission of the single audit reports by the insular 
area governments using the Federal Audit Clearinghouse's (FAC) "Form 
Date," which is the most recent date that the required SF-SAC data 
collection form[Footnote 98] was received by the FAC. We did note that 
the "Form Date" is updated if a revised SF-SAC for that same fiscal 
year is subsequently filed. Our review of the contents of the single 
audit reports identified the auditors' opinions on the financial 
statements, matters cited by the auditors in their qualified opinions, 
the numbers of material weaknesses and reportable conditions reported 
by the auditors, and the status of corrective actions. We did not 
independently assess the quality of the audits or the reliability of 
the audit finding information. We analyzed the audit findings to 
determine if they had recurred in successive single audits and were 
still occurring in their most recent audit and categorized the 
auditor's opinions on the financial statements and the Schedules of 
Expenditures of Federal Awards. 

To determine oversight activities conducted by the OIA Honolulu 
office, we reviewed senior management statements regarding the purpose 
and function of this office and job descriptions for OIA staff. To 
identify the staffing levels for the Honolulu office we reviewed 
Interior's 2010 workforce plan and obtained current staffing levels 
from OIA, as well as reviewed Interior congressional budget 
submissions for 2013 and 2014 for actual staffing levels in 2011 and 
2012. We discussed this information with OIA officials to ensure that 
the data were sufficiently reliable for our use. 

To provide information on the FSM and RMI infrastructure sector 
grants, we analyzed the single audits for the FSM National Government 
and the state governments of Chuuk and Pohnpei and for the RMI 
government for fiscal years 2007 through 2011. The single audits 
provide information on total infrastructure sector compact fund 
expenditures and provide details on specific expenditures within the 
infrastructure sector, such as contractual services. However, data on 
specific expenditures for fiscal year 2007 and fiscal year 2008 were 
not available for the FSM National Government or the state of Chuuk; 
hence, we reported on specific sector expenditures for the FSM 
National Government, Chuuk, and Pohnpei for fiscal years 2009 through 
2011 only. We were able, however, to provide specific expenditure data 
for the RMI for fiscal years 2007 through 2011. We report on the 
specific expenditures that constitute at least the top 80 percent of 
expenditures in the infrastructure sector. Any remaining expenditure 
categories are aggregated under an "Other expenditures" category. We 
determined that these data were sufficiently reliable for the purposes 
of our report. We also reviewed the infrastructure development and 
infrastructure maintenance plans for the FSM and RMI, interviewed 
officials in the FSM and RMI project management units, and reviewed 
progress reports submitted by the FSM and RMI. We reviewed JEMCO and 
JEMFAC minutes and resolutions related to the infrastructure sector 
and discussed the status of the infrastructure development plans and 
projects with OIA's infrastructure grant manager. Additionally, we 
visited a variety of ongoing completed projects in the FSM and RMI 
supporting the health and education sectors in January 2013. 

To address all objectives, we held interviews with officials from 
Interior (Washington, D.C.; Honolulu, Hawaii; and the RMI) and the 
Department of State (Washington, D.C.; the FSM; and the RMI). We also 
interviewed officials from the HHS (Washington, D.C., and San 
Francisco, California) and Education (Washington, D.C.). We traveled 
to the FSM (Chuuk and Pohnpei) and the RMI (Kwajalein and Majuro 
Atolls) in January 2013. In addition, in Chuuk state, we visited the 
islands of Fefen, Parem, Tonoas, Udot, and Weno. In both countries we 
visited selected primary and secondary schools, hospitals, and 
dispensaries. Our site selections were judgmental because of the 
number of facilities on the islands, logistics, and the time at our 
disposal. The facilities we visited exhibited a mix of factors, such 
as facility type (elementary and secondary schools), age (older and 
newer facilities), renovation status (those which had been renovated 
and those that had not), and logistical needs. Where possible, we 
selected facilities that we had visited in 2006 in order to draw 
comparisons, to the degree possible. During our site visits we made 
observations and performed spot checks. We used our 2006 report to 
help select aspects to observe--such as cleanliness, electrical power, 
and desks--and drug expiry dates to spot-check. These site visits were 
not designed to yield generalizable conclusions but rather to 
illustrate relevant conditions in the education and health sectors, 
including whether there was functioning equipment, in both countries. 
We discussed compact implementation with FSM (national, Chuuk, and 
Pohnpei governments, as applicable) and RMI officials from the 
attorney general, education, finance, foreign affairs, health, auditor 
general, public works, and public service commission offices. 
Furthermore, we met with the RMI's Office of Compact Implementation 
and Chief Secretary and the FSM's Office of Statistics, Budget and 
Economic Management, Overseas Development Assistance, and Compact 
Management. In Kwajalein Atoll, we met Ebeye health and education 
officials to discuss compact implementation issues. We also observed 
the 2012 annual meetings, the 2013 midyear meetings, and the 2013 
annual meetings of the JEMCO and the JEMFAC. We contacted Interior's 
Inspector General's Office in Washington, D.C., to discuss ongoing 
investigations in the FSM and RMI; however, we received no response to 
our inquiries. 

We conducted this performance audit from August 2012 to September 2013 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: FSM and RMI Infrastructure Projects Related to Education 
and Health Sectors, Fiscal Years 2007-2011: 

FSM Infrastructure Projects: 

FSM Infrastructure Sector Compact Expenditures: 

In the infrastructure sector, the FSM spent the majority of sector 
compact funds, 74 percent, on contractual services, which include 
repairing and maintaining facilities such as schools (see figure 7). 

Figure 7: Federated States of Micronesia (FSM) Infrastructure Sector 
Expenditures, Fiscal Years 2009 through 2011: 

[End of figure] 

FSM infrastructure sector compact expenditures: 
Total, fiscal years 2009 through 2011: $41.7 million: 
Contractual services: 74%; 
Architecture and design: 18%; 
Other expenditures (e.g., travel and transportation, petroleum, oil, 
and lubricant): 9%. 

Sources: GAO analysis based on information from FSM National 
Government, Chuuk, and Pohnpei single audit reports. 

Note: Percentages may not add up to 100 due to rounding. Includes 
expenditures from the Infrastructure Maintenance Fund account, which is 
intended to finance the repair and maintenance of existing 
infrastructure. 

[End of figure] 

FSM Tracked Infrastructure Project Completion: 

The FSM tracks progress in the infrastructure sector by the completion 
of projects. The FSM established an infrastructure development plan in 
2004 and infrastructure maintenance funds by 2009.[Footnote 99] As we 
reported in 2007, the infrastructure development plan proved to be 
problematic because it included synopses of 11 different 
infrastructure sectors, contained long lists of projects, and though 
its estimated costs were prepared by professional engineers, it did 
not provide explanations or support for individual projects or 
prioritize them as the Joint Economic Management Committee (JEMCO) 
required. Furthermore, the plan was not based on any type of 
assessment of the needs of specific areas in the FSM, did not meet 
with concurrence from the FSM states, and was not adopted by the FSM 
Congress.[Footnote 100] 

In fiscal year 2010, the FSM submitted an official list of priority 
infrastructure projects; JEMCO had already approved partial funding 
for 13 projects on the list at its September 2009 annual meeting. 
[Footnote 101] Of the 19 priority-one projects, 4 were school 
buildings and classrooms in Pohnpei and 2 were school buildings in 
Yap; the remaining 13 were health-care facilities or projects directly 
affecting public health and safety, including water and wastewater 
projects and a detention center. The Office of Insular Affairs (OIA) 
has used the FSM's 2010 list of 19 priority-one projects as the basis 
for funding infrastructure projects in the FSM. As of June 2013, the 
FSM National Government and state governments had not issued a revised 
infrastructure development plan, according to OIA.[Footnote 102] 

FSM infrastructure is overseen by a Program Management Unit (PMU) 
whose responsibilities include (1) certifying infrastructure projects, 
or determining that the scope and budget are reasonable and 
justifiable, and (2) ensuring that the projects will be designed to a 
professionally acceptable standard and that the project budgets 
properly reflect the costs of such as standard.[Footnote 103] The PMU 
also certifies that projects in all four FSM states are consistent 
with the priorities listed in the FSM's infrastructure development 
plan. The PMU is to provide quarterly reports on construction 
activities to OIA. The reports generally include information related 
to the phase of a project, such as whether or not professional 
engineers and design services are being sought; the type of project 
(classroom, dispensaries, etc); the type of predesign document; 
whether or not a request for fee proposal was issued; and whether task 
orders were issued. PMU reports also include comments on such details 
as whether the estimated cost is higher than budgeted for, and whether 
land title documents were provided. 

The FSM's PMU has not consistently provided quarterly progress reports 
on construction activities to OIA. According to OIA, significant 
delays, deficiencies, and project cost overruns have not been brought 
to OIA's attention in a timely manner as required by the amended 
compact's fiscal procedures agreement. OIA believes that the PMU's 
inability to ensure professional effectiveness on a continual basis 
through the services of an experienced Contracting Officer is 
hindering implementation of compact-funded infrastructure projects 
throughout the FSM. 

In 2006, the FSM's PMU hired a Contracting Officer on behalf of the 
FSM National Government to execute project planning, design, and 
construction of projects throughout the FSM. Since 2006, the PMU has 
had a succession of Contracting Officers, eight in all. In a 2011 
resolution, JEMCO stated that it would not consider approval of any 
new infrastructure project proposals until the PMU hired a 
professional Contracting Officer.[Footnote 104] In December 2012, the 
PMU's Contracting Officer quit, claiming "constant interference from 
the FSM PMU Program Manager and a corrupted decision-making 
environment within the PMU controlled by the PMU Program Manager." A 
new Contracting Officer was hired in February 2013. 

FSM Progress in Building Schools Has Been Mixed, and Use of 
Maintenance Funds Is an Issue: 

During fiscal years 2007 through 2012, the FSM completed 6 education-
related projects on the September 2009 JEMCO-approved list of 19 
priority projects, and other projects are under way. A major factor in 
determining OIA's approval of a project has been whether the 
government holds clear title to the land. 

* Chuuk. Land title disputes have been common in Chuuk, and as a 
result of this continuing problem, no new schools were built in Chuuk 
using infrastructure funds in fiscal years 2004 through 2011. However, 
according to OIA's infrastructure grant manager, because of the poor 
condition of schools in Chuuk, OIA permitted some school buildings to 
be renovated with infrastructure maintenance funds or carryover 
education sector grant funds, and these projects were not on the FSM 
list of priority infrastructure projects.[Footnote 105] According to 
Chuuk's Planning and Statistics Office, six school projects have been 
completed on Weno and islands within the Chuuk lagoon using money from 
Chuuk's infrastructure maintenance fund.[Footnote 106] According to 
the Chuuk State: School Facility Repair and Construction Master Plan, 
as of May 31, 2012, 51 primary schools and 5 secondary schools needed 
renovation, new construction, or both. 

* Pohnpei. Land title issues have been less of a problem here, and 6 
school projects were completed. Since 2009, classrooms were built at 
four elementary schools (a single project on the priority list), and 
buildings and classrooms were constructed at two high schools on the 
priority list.[Footnote 107] Designs for two College of Micronesia 
facilities were started but not completed for the Pohnpei State 
Campus, a vocational center and a learning resources center, according 
to OIA.[Footnote 108] 

FSM Progress in Building and Maintaining Health Facilities Has Been 
Limited: 

In the FSM, difficulty and delays in establishing JEMCO-approved 
priorities and unresolved land titling issues affected the 
construction and maintenance of health facilities. Dispensaries in 
Chuuk were on the OIA-approved list of FSM priority projects in fiscal 
year 2009, but these projects have not begun as of April 2013. Eight 
other projects with public health and safety aspects such as 
waterlines and sewers were also on the priority infrastructure project 
list; the majority of them are in Pohnpei. 

In addition to approving the priority projects, JEMCO also approved 
funding for the repair of Pohnpei State Hospital's roof and ceiling. 
[Footnote 109] The U.S. Army Humanitarian Assistance-FSM (HAFSM) Team 
completed the renovation project in 2013. HAFSM replaced the roof and 
undertook extensive internal repairs, including installing new dry 
wall and plumbing, as well as doing interior painting throughout the 
hospital. Repairs did not include the electrical system or air 
conditioning. Chuuk State Hospital was on the list of projects JEMCO 
approved in 2009 that got included in the 2010 list of 19 priority-one 
projects; however, it was not until June 2012 that the Chuuk state 
government's Infrastructure Planning and Implementation Committee 
finalized its revised infrastructure priorities in a plan that 
included a new hospital estimated to cost about $50 million dollars. 
The Chuuk plan also called for replacing 68 dispensaries in the outer 
islands using a common dispensary model estimated to cost $150,000 
each. OIA had not received a plan from the national government to 
replace the dispensaries, as of June 2013.[Footnote 110] 

RMI Infrastructure Projects: 

RMI Infrastructure Sector Compact Expenditures: 

In the infrastructure sector, the RMI spent the majority of compact 
sector funds, 65 percent, on capital outlay, which includes 
construction project and maintenance contracts payments for facilities 
such as schools and hospitals (see figure 8). 

Figure 8: Republic of the Marshall Islands (RMI) Infrastructure Sector 
Expenditures, Fiscal Years 2007 through 2011: 

[Refer to PDF for image: pie-chart] 

RMI infrastructure sector compact expenditures: 
Total, fiscal years 2007 through 2011: $68.6 million: 
Capital outlay: 65%; 
Architecture and design: 30%; 
Other expenditures (e.g., personnel, travel, and supplies and 
materials): 5%. 

Sources: GAO analysis based on information from RMI single audit 
reports. 

Note: Includes expenditures from the Infrastructure Maintenance Fund 
account, which is intended to finance the repair and maintenance of 
existing infrastructure. 

[End of figure] 

RMI Tracked Infrastructure Project Completion: 

The RMI tracks progress in the infrastructure sector by the completion 
of projects. The RMI expended $86.5 million dollars on infrastructure 
projects including infrastructure maintenance, from fiscal years 2004 
through 2011, according to OIA.[Footnote 111] The RMI stated it has 
constructed or renovated over 200 classroom facilities in the 
education sector and 45 projects in the health sector and has also 
conducted essential maintenance at its two hospitals.[Footnote 112] 

During fiscal years 2007 through 2011, the RMI's Project Management 
Unit was generally consistent in reporting monthly to the Office of 
Insular Affairs (OIA) on the status of construction activities, 
according to OIA. The reports included the project number and name as 
well as a brief description of the project. These reports also 
included categories such as the contract value, amount certified to 
date, estimated final cost, percentage completed, and completion date, 
and other details such project status--completed, on hold, or on-going 
for example. 

In August 2012, allegations were raised by an RMI official regarding 
the Project Management Unit's use of substandard materials and bid 
rigging. OIA proposed a review by an independent engineering firm in 
response to the allegations. OIA recommended to the Joint Economic 
Management and Fiscal Accountability Committee (JEMFAC) at its March 
2013 meeting that additional allocations of compact infrastructure 
funds to the RMI be withheld until the review was completed and the 
results submitted to JEMFAC. The RMI negotiated a contract with an 
independent professional engineering firm to undertake an assessment 
of the Project Management Unit's procedures, contract administration, 
and inspection process; the review is expected to commence in August 
2013, according to OIA. 

RMI Completed School and Health Facilities: 

The school buildings and dispensaries constructed throughout the RMI 
were built using standard designs prepared by a professional 
engineering firm. The College of the Marshall Islands Master Plan, 
initiated in 2007 with capital projects worth over $25 million, was 
almost completed when we visited in January 2013. Future 
infrastructure projects include the redevelopment plan for the 
hospital in Majuro. Various designs for the hospital project, which 
was estimated to cost between $50 million and $70 million, have been 
discussed for over 5 years. The key unresolved issue is the size of 
the new facility, which was still being discussed as of June 2013. 

The RMI has recently begun to focus on preventive maintenance of 
infrastructure facilities. For example, in its fiscal year 2013 budget 
statement for infrastructure, the RMI noted that an adequate level of 
maintenance resources was critical for the longevity of the new 
College of the Marshall Islands campus, and RMI proposed allocating 
$280,000 for this purpose. 

[End of section] 

Appendix III: FSM and RMI Grant Assistance and Trust Fund 
Contributions under the Amended Compacts, Fiscal Years 2004-2023: 

Fiscal year: 2004; 
FSM grants (Section 211): $76.2 million; 
FSM trust fund (Sections 215 and 216): $16.0 million; 
RMI grants (Section 211): $35.2 million; 
RMI trust fund (Sections 216 and 217): $7.0 million. 

Fiscal year: 2005; 
FSM grants (Section 211): $76.2 million; 
FSM trust fund (Sections 215 and 216): $16.0 million; 
RMI grants (Section 211): $34.7 million; 
RMI trust fund (Sections 216 and 217): $7.5 million. 

Fiscal year: 2006; 
FSM grants (Section 211): $76.2 million; 
FSM trust fund (Sections 215 and 216): $16.0 million; 
RMI grants (Section 211): $34.2 million; 
RMI trust fund (Sections 216 and 217): $8.0 million. 

Fiscal year: 2007; 
FSM grants (Section 211): $75.4 million; 
FSM trust fund (Sections 215 and 216): $16.8 million; 
RMI grants (Section 211): $33.7 million; 
RMI trust fund (Sections 216 and 217): $8.5 million. 

Fiscal year: 2008; 
FSM grants (Section 211): $74.6 million; 
FSM trust fund (Sections 215 and 216): $17.6 million; 
RMI grants (Section 211): $33.2 million; 
RMI trust fund (Sections 216 and 217): $9.0 million. 

Fiscal year: 2009; 
FSM grants (Section 211): $73.8 million; 
FSM trust fund (Sections 215 and 216): $18.4 million; 
RMI grants (Section 211): $32.7 million; 
RMI trust fund (Sections 216 and 217): $9.5 million. 

Fiscal year: 2010; 
FSM grants (Section 211): $73.0 million; 
FSM trust fund (Sections 215 and 216): $19.2 million; 
RMI grants (Section 211): $32.2 million; 
RMI trust fund (Sections 216 and 217): $10.0 million. 

Fiscal year: 2011; 
FSM grants (Section 211): $72.2 million; 
FSM trust fund (Sections 215 and 216): $20.0 million; 
RMI grants (Section 211): $31.7 million; 
RMI trust fund (Sections 216 and 217): $10.5 million. 

Fiscal year: 2012; 
FSM grants (Section 211): $71.4 million; 
FSM trust fund (Sections 215 and 216): $20.8 million; 
RMI grants (Section 211): $31.2 million; 
RMI trust fund (Sections 216 and 217): $11.0 million. 

Fiscal year: 2013; 
FSM grants (Section 211): $70.6 million; 
FSM trust fund (Sections 215 and 216): $21.6 million; 
RMI grants (Section 211): $30.7 million; 
RMI trust fund (Sections 216 and 217): $11.5 million. 

Fiscal year: 2014; 
FSM grants (Section 211): $69.8 million; 
FSM trust fund (Sections 215 and 216): $22.4 million; 
RMI grants (Section 211): $32.2 million; 
RMI trust fund (Sections 216 and 217): $12.0 million. 

Fiscal year: 2015; 
FSM grants (Section 211): $69.0 million; 
FSM trust fund (Sections 215 and 216): $23.2 million; 
RMI grants (Section 211): $31.7 million; 
RMI trust fund (Sections 216 and 217): $12.5 million. 

Fiscal year: 2016; 
FSM grants (Section 211): $68.2 million; 
FSM trust fund (Sections 215 and 216): $24.0 million; 
RMI grants (Section 211): $31.2 million; 
RMI trust fund (Sections 216 and 217): $13.0 million. 

Fiscal year: 2017; 
FSM grants (Section 211): $67.4 million; 
FSM trust fund (Sections 215 and 216): $24.8 million; 
RMI grants (Section 211): $30.7 million; 
RMI trust fund (Sections 216 and 217): $13.5 million. 

Fiscal year: 2018; 
FSM grants (Section 211): $66.6 million; 
FSM trust fund (Sections 215 and 216): $25.6 million; 
RMI grants (Section 211): $30.2 million; 
RMI trust fund (Sections 216 and 217): $14.0 million. 

Fiscal year: 2019; 
FSM grants (Section 211): $65.8 million; 
FSM trust fund (Sections 215 and 216): $26.4 million; 
RMI grants (Section 211): $29.7 million; 
RMI trust fund (Sections 216 and 217): $14.5 million. 

Fiscal year: 2020; 
FSM grants (Section 211): $65.0 million; 
FSM trust fund (Sections 215 and 216): $27.2 million; 
RMI grants (Section 211): $29.2 million; 
RMI trust fund (Sections 216 and 217): $15.0 million. 

Fiscal year: 2021; 
FSM grants (Section 211): $64.2 million; 
FSM trust fund (Sections 215 and 216): $28.0 million; 
RMI grants (Section 211): $28.7 million; 
RMI trust fund (Sections 216 and 217): $15.5 million. 

Fiscal year: 2022; 
FSM grants (Section 211): $63.4 million; 
FSM trust fund (Sections 215 and 216): $28.8 million; 
RMI grants (Section 211): $28.2 million; 
RMI trust fund (Sections 216 and 217): $16.0 million. 

Fiscal year: 2023; 
FSM grants (Section 211): $62.6 million; 
FSM trust fund (Sections 215 and 216): $29.6 million; 
RMI grants (Section 211): $27.7 million; 
RMI trust fund (Sections 216 and 217): $16.5 million. 

Source: Compacts of Free Association as Amended, Between the Government 
of the United States of America and the Government of the Federated 
States of Micronesia and the Government of the Republic of the Marshall 
Islands, Pub. L. No. 108-188. 

Notes: Sections 211 of the amended compacts detail grant assistance to 
the FSM and the RMI, while Sections 215 and 216 of the U.S.-FSM 
compact and sections 216 and 217 of the U.S.-RMI compact detail 
contributions to the FSM and RMI trust funds. See Pub. L. No. 188-108, 
Dec. 17, 2003. 

These dollar amounts shall be adjusted each fiscal year for inflation 
by the percentage that equals two-thirds of the percentage change in 
the U.S. gross domestic product implicit price deflator, or 5 percent, 
whichever is less in any one year, using the beginning of 2004 as a 
base. Grant funding can be fully adjusted for inflation after 2014, 
under certain U.S. inflation conditions. 

The increase in RMI grant assistance from fiscal year 2013 to 2014 is 
due to a $2 million increase in payments to be made available for 
addressing the special needs of the community at Ebeye and other 
Marshallese communities within the Kwajalein Atoll. 

[End of table] 

[End of section] 

Appendix IV: FSM and RMI Expenditures of U.S. Noncompact and Compact-
Related Grant Funds, Fiscal Years 2007-2011: 

Table 6: Federated States of Micronesia (FSM) Expenditures of U.S. 
Noncompact and Compact-Related Grant Funds, Fiscal Years 2007 through 
2011: 

Agency: U.S. Department of Transportation; 
Fiscal year: 
2007: $6,392,626; 
2008: $10,510,687; 
2009: $31,575,697; 
2010: $34,337,450; 
2011: $33,581,350; 
Total: $116,397,810. 

Agency: U.S. Department of Health and Human Services; 
Fiscal year: 
2007: $5,171,983; 
2008: $5,603,314; 
2009: $6,492,503; 
2010: $8,767,750; 
2011: $7,668,872; 
Total: $33,704,422. 

Agency: U.S. Department of Education; 
Fiscal year: 
2007: $4,696,968; 
2008: $4,119,530; 
2009: $4,620,678; 
2010: $3,916,819; 
2011: $3,692,482; 
Total: $21,046,477. 

Agency: U.S. Department of Homeland Security; 
Fiscal year: 
2007: $4,306,572; 
2008: $3,738,391; 
2009: $1,605,349; 
2010: $1,001,751; 
2011: $1,405,026; 
Total: $12,057,089. 

Agency: U.S. Department of Commerce; 
Fiscal year: 
2007: $1,096,129; 
2008: $1,218,474; 
2009: $1,277,555; 
2010: $1,360,272; 
2011: $1,401,309; 
Total: $6,353,739. 

Agency: U.S. Department of the Interior; 
Fiscal year: 
2007: $2,082,664; 
2008: $976,880; 
2009: $935,783; 
2010: $713,596; 
2011: $767,784; 
Total: $5,476,707. 

Agency: U.S. Department of Agriculture; 
Fiscal year: 
2007: $399,486; 
2008: $356,145; 
2009: $249,136; 
2010: $317,556; 
2011: $379,316; 
Total: $1,701,639. 

Agency: U.S. Department of Labor; 
Fiscal year: 
2007: $517,558; 
2008: $0; 
2009: $0; 
2010: $0; 
2011: $0; 
Total: $517,558. 

Agency: U.S. Institute of Museum and Library Services; 
Fiscal year: 
2007: $0; 
2008: $6,621; 
2009: $39,230; 
2010: $36,260; 
2011: $55,068; 
Total: $137,179. 

Agency: U.S. Small Business Administration; 
Fiscal year: 
2007: $0; 
2008: $0; 
2009: $0; 
2010: $0; 
2011: $18,146; 
Total: $18,146. 

Agency: Total U.S. noncompact fund expenditures; 
Fiscal year: 
2007: $24,663,986; 
2008: $26,529,342; 
2009: $46,795,901; 
2010: $50,451,454; 
2011: $48,969,353; 
Total: $197,410,766. 

Summary: 

Agency: U.S. noncompact fund expenditures subtotal; 
Fiscal year: 
2007: $24,663,986; 
2008: $26,529,342; 
2009: $46,795,901; 
2010: $50,451,454; 
2011: $48,969,353; 
Total: $197,410,766. 

Agency: U.S. compact funds expenditures subtotal; 
Fiscal year: 
2007: $66,145,614; 
2008: $65,498,886; 
2009: $69,783,324; 
2010: $83,663,188; 
2011: $85,883,762; 
Total: $370,974,774. 

Agency: Total U.S. grant fund expenditures; 
Fiscal year: 
2007: $90,809,600; 
2008: $92,028,228; 
2009: $116,579,225; 
2010: $134,114,642; 
2011: $134,853,115; 
Total: $568,384,810. 

Source: GAO analysis based on information from FSM National Government 
and Chuuk, Kosrae, Pohnpei, and Yap single audit reports. 

Note: U.S. compact-related grant fund expenditures include energy, 
communications, and surveillance grant funds; sector grant funds; 
supplemental education grant funds; and funds that support the yearly 
single audits. 

[End of table] 

Table 7: Republic of the Marshall Islands (RMI) Expenditures of U.S. 
Noncompact and Compact-Related Grant Funds, Fiscal Years 2007 through 
2011: 

Agency: U.S. Department of Health and Human Services; 
Fiscal year: 
2007: $4,358,210; 
2008: $3,550,420; 
2009: $3,968,212; 
2010: $5,504,080; 
2011: $4,956,471; 
Total: $22,337,393. 

Agency: U.S. Department of Education; 
Fiscal year: 
2007: $3,459,510; 
2008: $2,277,950; 
2009: $2,109,783; 
2010: $1,878,145; 
2011: $1,871,736; 
Total: $11,597,124. 

Agency: U.S. Department of the Interior; 
Fiscal year: 
2007: $1,328,436; 
2008: $1,854,303; 
2009: $1,292,051; 
2010: $1,436,710; 
2011: $1,378,192; 
Total: $7,289,692. 

Agency: U.S. Department of Agriculture; 
Fiscal year: 
2007: $368,891; 
2008: $522,230; 
2009: $753,294; 
2010: $569,770; 
2011: $694,014; 
Total: $2,908,199. 

Agency: U.S. Department of Commerce; 
Fiscal year: 
2007: $348,906; 
2008: $387,167; 
2009: $349,646; 
2010: $379,064; 
2011: $324,568; 
Total: $1,789,351. 

Agency: U.S. Small Business Administration; 
Fiscal year: 
2007: $16,278; 
2008: $17,199; 
2009: $15,620; 
2010: $22,409; 
2011: $22,174; 
Total: $93,680. 

Agency: U.S. Department of Homeland Security; 
Fiscal year: 
2007: $58,188; 
2008: $10,558; 
2009: $1,012; 
$2010: $2,272; 
2011: $0; 
Total: $72,030. 

Agency: Total U.S. noncompact grant fund expenditures; 
Fiscal year: 
2007: $9,938,419; 
2008: $8,619,827; 
2009: $8,489,618; 
2010: $9,792,450; 
2011: $9,247,155; 
Total: $46,087,469. 

Summary: 

Agency: U.S. noncompact grant fund expenditures subtotal; 
Fiscal year: 
2007: $9,938,419; 
2008: $8,619,827; 
2009: $8,489,618; 
2010: $9,792,450; 
2011: $9,247,155; 
Total: $46,087,469. 

Agency: U.S. compact-related grant fund expenditures subtotal; 
Fiscal year: 
$2007: $56,640,580; 
2008: $53,669,271; 
2009: $59,876,574; 
2010: $57,572,450; 
2011: $89,876,922; 
Total: $317,635,797. 

Agency: Total U.S. grant fund expenditures; 
Fiscal year: 
2007: $66,578,999; 
2008: $62,289,098; 
2009: $68,366,192; 
2010: $67,364,900; 
2011: $99,124,077; 
Total: $363,723,266. 

Source: GAO analysis based on information from RMI single audit 
reports. 

Note: U.S. compact-related grant fund expenditures include sector 
grant funds, supplemental education grant funds, landowners special 
needs grant funds, Kwajalein environment and landowners grant funds, 
and grant funds that support the yearly single audits. 

[End of table] 

[End of section] 

Appendix V: Amended Compact Grant Allocations and Supplemental 
Education Grant Awards, Fiscal Years 2004-2013: 

From fiscal years 2004 through 2013, the U.S.-FSM Joint Economic 
Management Committee (JEMCO) and the U.S.-RMI Joint Economic 
Management and Financial Accountability Committee (JEMFAC) allocated 
about $1.1 billion in sector grants to the countries under the amended 
compacts. Additionally, about $142 million in supplemental education 
grant funds were provided to the countries during this period. Figures 
9 and 10 show the distribution of allocations by sector for fiscal 
years 2004 through 2013 and tables 8 and 9 provide each country's 
allocation amounts, by sector, for this period. 

Figure 9: U.S.-Federated States of Micronesia (FSM) Joint Economic 
Management Committee (JEMCO) Sector Allocations and Supplemental 
Education Grant Awards, Fiscal Year 2004 through Fiscal Year 2013: 

[Refer to PDF for image: stacked vertical bar graph] 

FSM JEMCO sector allocations and supplemental education grant awards 
(dollars in millions): 

Fiscal year: 2004; 
Health: $15.4 million; 
Education: $26.0 million; 
Infrastructure: $17.1 million; 
Public Sector Capacity Building: $11.7 million; 
Environment: $2.0 million; 
Private Sector: $3.8 million. 

Fiscal year: 2005; 
Health: $17.4 million; 
Education: $27.1 million; 
Infrastructure: $17.3 million; 
Public Sector Capacity Building: $7.8 million; 
Environment: $2.4 million; 
Private Sector: $4.0 million; 
Supplemental Education Grant: $12.1 million. 

Fiscal year: 2006; 
Health: $16.4 million; 
Education: $26.1 million; 
Infrastructure: $24.3 million; 
Public Sector Capacity Building: $6.2 million; 
Environment: $2.1 million; 
Private Sector: $4.0 million; 
Supplemental Education Grant: $12.1 million. 

Fiscal year: 2007; 
Health: $17.3 million; 
Education: $28.1 million; 
Infrastructure: $23.8 million; 
Public Sector Capacity Building: $5.6 million; 
Environment: $1.4 million; 
Private Sector: $1.0 million; 
Supplemental Education Grant: $12.1 million. 

Fiscal year: 2008; 
Health: $17.7 million; 
Education: $28.4 million; 
Infrastructure: $0; 
Public Sector Capacity Building: $9.5 million; 
Environment: $1.9 million; 
Private Sector: $2.5 million; 
Supplemental Education Grant: $11.8 million. 

Fiscal year: 2009; 
Health: $20.5 million; 
Education: $29.0 million; 
Infrastructure: $48.4 million; 
Public Sector Capacity Building: $0.6 million; 
Environment: $0; 
Private Sector: $0; 
Supplemental Education Grant: $11.2 million. 

Fiscal year: 2010; 
Health: $21.0 million; 
Education: $28.8 million; 
Infrastructure: $24.3 million; 
Public Sector Capacity Building: $2.9 million; 
Environment: $1.6 million; 
Private Sector: $2.3 million; 
Supplemental Education Grant: $11.8 million. 

Fiscal year: 2011; 
Health: $21.9 million; 
Education: $28.9 million; 
Infrastructure: $25.1 million; 
Public Sector Capacity Building: $3.8 million; 
Environment: $1.7 million; 
Private Sector: $2.6 million; 
Supplemental Education Grant: $11. million. 

Fiscal year: 2012; 
Health: $19.8 million; 
Education: $27.2 million; 
Infrastructure: $24.2 million; 
Public Sector Capacity Building: $2.7 million; 
Environment: $1.8 million; 
Private Sector: $2.6 million; 
Enhanced Reporting and Accountability: $0.9 million; 
Supplemental Education Grant: $11. million. 

Fiscal year: 20131; 
Health: $20.7 million; 
Education: $28.0 million; 
Infrastructure: $24.4 million; 
Public Sector Capacity Building: $3.0 million; 
Environment: $1.7 million; 
Private Sector: $2.4 million; 
Enhanced Reporting and Accountability: $1.5 million. 

Sources: GAO analysis based on information from annual JEMCO 
resolutions, fiscal year 2003 through fiscal year 2012. 

Note: FSM allocations include data for the FSM National Government and 
the four states: Chuuk, Kosrae, Pohnpei, and Yap. Because the 
supplemental education grant funds lag by a year, the fiscal year 2004 
funds were not awarded until fiscal year 2005, and the fiscal year 
2013 funds will not be awarded until September 2013. 

[End of figure] 

Table 8: U.S.-FSM Joint Economic Management Committee (JEMCO) Sector 
Allocations and Supplemental Education Grant Awards, Fiscal Years 2004 
through 2013: 

Fiscal year: 2004: 

Sector: Health; 
Amount: $15,443,116. 

Sector: Education; 
Amount: $25,965,572. 

Sector: Infrastructure; 
Amount: $17,119,155. 

Sector: Public sector capacity building; 
Amount: $11,662,846. 

Sector: Environment; 
Amount: $2,023,192. 

Sector: Private sector development; 
Amount: $3,786,119. 

Sector: Total sector allocations; 
Amount: $76,000,000. 

Sector: Supplemental education grant; 
Amount: $0. 

Fiscal year: 2005: 

Sector: Health; 
Amount: $17,430,733. 

Sector: Education; 
Amount: $27,105,047. 

Sector: Infrastructure; 
Amount: $17,249,121. 

Sector: Public sector capacity building; 
Amount: $7,786,238. 

Sector: Environment; 
Amount: $2,389,951. 

Sector: Private sector development; 
Amount: $4,038,910. 

Sector: Total sector allocations; 
Amount: $76,000,000. 

Sector: Supplemental education grant; 
Amount: $12,083,360. 

Fiscal year: 2006: 

Sector: Health; 
Amount: $16,394,939. 

Sector: Education; 
Amount: $26,132,059. 

Sector: Infrastructure; 
Amount: $24,335,718. 

Sector: Public sector capacity building; 
Amount: $6,175,914. 

Sector: Environment; 
Amount: $2,137,452. 

Sector: Private sector development; 
Amount: $4,039,163. 

Sector: Total sector allocations; 
Amount: $79,215,245. 

Sector: Supplemental education grant; 
Amount: $12,059,401. 

Fiscal year: 2007: 

Sector: Health; 
Amount: $17,309,531. 

Sector: Education; 
Amount: $28,051,609. 

Sector: Infrastructure; 
Amount: $23,753,270. 

Sector: Public sector capacity building; 
Amount: $5,609,691. 

Sector: Environment; 
Amount: $1,408,631. 

Sector: Private sector development; 
Amount: $1,011,048. 

Sector: Total sector allocations; 
Amount: $77,143,780. 

Sector: Supplemental education grant; 
Amount: $12,010,680. 

Fiscal year: 2008: 

Sector: Health; 
Amount: $17,741,499. 

Sector: Education; 
Amount: $28,423,788. 

Sector: Infrastructure; 
Amount: $0. 

Sector: Public sector capacity building; 
Amount: $9,505,422. 

Sector: Environment; 
Amount: $1,889,943. 

Sector: Private sector development; 
Amount: $2,506,345. 

Sector: Total sector allocations; 
Amount: $60,066,997. 

Sector: Supplemental education grant; 
Amount: $11,790,855. 

Fiscal year: 2009: 

Sector: Health; 
Amount: $20,482,050. 

Sector: Education; 
Amount: $29,013,338. 

Sector: Infrastructure; 
Amount: $48,428,760. 

Sector: Public sector capacity building; 
Amount: $600,000. 

Sector: Environment; 
Amount: $0. 

Sector: Private sector development; 
Amount: $0. 

Sector: Total sector allocations; 
Amount: $98,524,148. 

Sector: Supplemental education grant; 
Amount: $11,204,790. 

Fiscal year: 2010: 

Sector: Health; 
Amount: $21,007,869. 

Sector: Education; 
Amount: $28,774,255. 

Sector: Infrastructure; 
Amount: $24,303,552. 

Sector: Public sector capacity building; 
Amount: $2,887,816. 

Sector: Environment; 
Amount: $1,579,510. 

Sector: Private sector development; 
Amount: $2,333,638. 

Sector: Total sector allocations; 
Amount: $80,886,640. 

Sector: Supplemental education grant; 
Amount: $11,791,333. 

Fiscal year: 2011: 

Sector: Health; 
Amount: $21,925,919. 

Sector: Education; 
Amount: $28,893,733. 

Sector: Infrastructure; 
Amount: $25,086,084. 

Sector: Public sector capacity building; 
Amount: $3,764,219. 

Sector: Environment; 
Amount: $1,659,867. 

Sector: Private sector development; 
Amount: $2,618,701. 

Sector: Total sector allocations; 
Amount: $83,948,523. 

Sector: Supplemental education grant; 
Amount: $11,766,573. 

Fiscal year: 2012: 

Sector: Health; 
Amount: $19,799,593. 

Sector: Education; 
Amount: $27,229,001. 

Sector: Infrastructure; 
Amount: $24,222,240. 

Sector: Public sector capacity building; 
Amount: $2,661,097. 

Sector: Environment; 
Amount: $1,752,226. 

Sector: Private sector development; 
Amount: $2,580,211. 

Sector: Enhanced reporting and accountability; 
Amount: $908,830. 

Sector: Total sector allocations; 
Amount: $79,153,198. 

Sector: Supplemental education grant; 
Amount: $11,751,632. 

Fiscal year: 2013: 

Sector: Health; 
Amount: $20,692,562. 

Sector: Education; 
Amount: $28,034,838. 

Sector: Infrastructure; 
Amount: $24,437,952. 

Sector: Public sector capacity building; 
Amount: $2,946,227. 

Sector: Environment; 
Amount: $1,718,017. 

Sector: Private sector development; 
Amount: $2,373,494. 

Sector: Enhanced reporting and accountability; 
Amount: $1,481,237. 

Sector: Total sector allocations; 
Amount: $81,684,327. 

Sector: Supplemental education grant; 
Amount: $0. 

Sources: GAO analysis based on information from annual JEMCO 
resolutions, fiscal year 2003 through fiscal year 2012. 

Notes: Allocations may differ from actual grant awards. Because the 
supplemental education grant funds lag by a year, the fiscal year 2004 
funds were not awarded until fiscal year 2005, and the fiscal year 
2013 funds will not be awarded until September 2013. 

[End of table] 

Figure 10: U.S.-RMI Joint Economic Management and Financial 
Accountability Committee (JEMFAC) Sector Allocations and Supplemental 
Education Grant Awards, Fiscal Year 2004 through Fiscal Year 2013: 

[Refer to PDF for image: stacked vertical bar graph] 

RMI JEMFAC sector allocations and supplemental education grant awards: 

Fiscal year: 2004; 
Health: $6.9 million; 
Education: $10.8 million; 
Infrastructure: $14.7 million; 
Public Sector Capacity Building: $0; 
Environment: $0.4 million; 
Private Sector: $0.4 million; 
Enhanced Reporting and Accountability: $1.9 million. 

Fiscal year: 2005; 
Health: $7.1 million; 
Education: $11.1 million; 
Infrastructure: $13.5 million; 
Public Sector Capacity Building: $0.1 million; 
Environment: $0.4 million; 
Private Sector: $0.4 million; 
Enhanced Reporting and Accountability: $2.0 million; 
Supplemental Education Grant: $6.1 million. 

Fiscal year: 2006; 
Health: $6.7 million; 
Education: $11.9 million; 
Infrastructure: $13.5 million; 
Public Sector Capacity Building: $0.1 million; 
Environment: $0.4 million; 
Private Sector: $0.4 million; 
Enhanced Reporting and Accountability: $1.9 million; 
Supplemental Education Grant: $5.9 million. 

Fiscal year: 2007; 
Health: $5.8 million; 
Education: $11.4 million; 
Infrastructure: $12.6 million; 
Public Sector Capacity Building: $0; 
Environment: $0; 
Private Sector: $0; 
Enhanced Reporting and Accountability: $3.3 million; 
Supplemental Education Grant: $6.0 million. 

Fiscal year: 2008; 
Health: $6.5 million; 
Education: $11.3 million; 
Infrastructure: $11.9 million; 
Public Sector Capacity Building: $0.3 million; 
Environment: $0; 
Private Sector: $0; 
Enhanced Reporting and Accountability: $3.4 million; 
Supplemental Education Grant: $5.9 million. 

Fiscal year: 2009; 
Health: $7.4 million; 
Education: $12.5 million; 
Infrastructure: $5 million; 
Public Sector Capacity Building: $0.4 million; 
Environment: $0; 
Private Sector: $0; 
Enhanced Reporting and Accountability: $3.5 million; 
Supplemental Education Grant: $5.9 million. 

Fiscal year: 2010; 
Health: $7.2 million; 
Education: $11.6 million; 
Infrastructure: $5 million; 
Public Sector Capacity Building: $0.4 million; 
Environment: $0; 
Private Sector: $0; 
Enhanced Reporting and Accountability: $3.5 million; 
Supplemental Education Grant: $5.9 million. 

Fiscal year: 2011; 
Health: $6.8 million; 
Education: $11.8 million; 
Infrastructure: $10.3 million; 
Public Sector Capacity Building: $0.3 million; 
Environment: $0.3 million; 
Private Sector: $0; 
Enhanced Reporting and Accountability: $3.5 million; 
Supplemental Education Grant: $5.9 million. 

Fiscal year: 2012; 
Health: $6.8 million; 
Education: $11.8 million; 
Infrastructure: $10.0 million; 
Public Sector Capacity Building: $0.3 million; 
Environment: $0.3 million; 
Private Sector: $0; 
Enhanced Reporting and Accountability: $3.5 million; 
Supplemental Education Grant: $5.9 million. 

Fiscal year: 2013; 
Health: $6.7 million; 
Education: $11.6 million; 
Infrastructure: $9.4 million; 
Public Sector Capacity Building: $0; 
Environment: $0.3 million; 
Private Sector: $0; 
Enhanced Reporting and Accountability: $3.6 million. 

Sources: GAO analysis based on information from annual JEMFAC 
resolutions, fiscal year 2003 through fiscal year 2012. 

Note: Because the supplemental education grant funds lag by a year, the 
fiscal year 2004 funds were not awarded until fiscal year 2005, and the 
fiscal year 2013 funds will not be awarded until September 2013. 

[End of figure] 

Table 9: U.S.-RMI Joint Economic Management and Financial 
Accountability Committee (JEMFAC) Sector Allocations and Supplemental 
Education Grant Awards, Fiscal Years 2004 through 2013: 

Fiscal year: 2004: 

Sector: Health; 
Amount: $6,894,448. 

Sector: Education; 
Amount: $10,748,932. 

Sector: Infrastructure; 
Amount: $14,700,000. 

Sector: Public sector capacity building; 
Amount: $0. 

Sector: Environment; 
Amount: $400,000. 

Sector: Private sector development; 
Amount: $356,620. 

Sector: Ebeye Special Needs; 
Amount: $1,900,000. 

Sector: Total sector allocations; 
Amount: $35,000,000. 

Sector: Supplemental education grant; 
Amount: $0. 

Fiscal year: 2005: 

Sector: Health; 
Amount: $7,064,097. 

Sector: Education; 
Amount: $11,141,921. 

Sector: Infrastructure; 
Amount: $13,485,745. 

Sector: Public sector capacity building; 
Amount: $103,514. 

Sector: Environment; 
Amount: $404,720. 

Sector: Private sector development; 
Amount: $361,943. 

Sector: Ebeye Special Needs; 
Amount: $1,992,420. 

Sector: Total sector allocations; 
Amount: $34,554,360. 

Sector: Supplemental education grant; 
Amount: $6,100,000. 

Fiscal year: 2006: 

Sector: Health; 
Amount: %6,682,741. 

Sector: Education; 
Amount: $11,934,083. 

Sector: Infrastructure; 
Amount: $13,495,679. 

Sector: Public sector capacity building; 
Amount: $103,514. 

Sector: Environment; 
Amount: $408,000. 

Sector: Private sector development; 
Amount: $361,943. 

Sector: Ebeye Special Needs; 
Amount: $1,882,440. 

Sector: Total sector allocations; 
Amount: $34,868,400. 

Sector: Supplemental education grant; 
Amount: $5,941,769. 

Fiscal year: 2007: 

Sector: Health; 
Amount: $5,815,108. 

Sector: Education; 
Amount: $11,408,682. 

Sector: Infrastructure; 
Amount: $12,573,085. 

Sector: Public sector capacity building; 
Amount: $0. 

Sector: Environment; 
Amount: $0. 

Sector: Private sector development; 
Amount: $0. 

Sector: Ebeye Special Needs; 
Amount: $3,263,969. 

Sector: Total sector allocations; 
Amount: $33,060,844. 

Sector: Supplemental education grant; 
Amount: $5,990,490. 

Fiscal year: 2008: 
Sector: Health; 
Amount: $6,512,349. 

Sector: Education; 
Amount: $11,336,978. 

Sector: Infrastructure; 
Amount: $11,855,213. 

Sector: Public sector capacity building; 
Amount: $300,000. 

Sector: Environment; 
Amount: $0. 

Sector: Private sector development; 
Amount: $0. 

Sector: Ebeye Special Needs; 
Amount: $3,345,830. 

Sector: Total sector allocations; 
Amount: $33,350,370. 

Sector: Supplemental education grant; 
Amount: $5,895,668. 

Fiscal year: 2009: 

Sector: Health; 
Amount: $7,404,620. 

Sector: Education; 
Amount: $12,457,410. 

Sector: Infrastructure; 
Amount: $5,000,000. 

Sector: Public sector capacity building; 
Amount: $425,000. 

Sector: Environment; 
Amount: $0. 

Sector: Private sector development; 
Amount: $0. 

Sector: Ebeye Special Needs; 
Amount: $3,536,134. 

Sector: Total sector allocations; 
Amount: $28,823,164. 

Sector: Supplemental education grant; 
Amount: $5,886,017. 

Fiscal year: 2010: 

Sector: Health; 
Amount: $7,159,858. 

Sector: Education; 
Amount: $11,600,728. 

Sector: Infrastructure; 
Amount: $5,000,000. 

Sector: Public sector capacity building; 
Amount: $413,380. 

Sector: Environment; 
Amount: $0. 

Sector: Private sector development; 
Amount: $0. 

Sector: Ebeye Special Needs; 
Amount: $3,451,055. 

Sector: Total sector allocations; 
Amount: $27,625,021. 

Sector: Supplemental education grant; 
Amount: $5,895,667. 

Fiscal year: 2011: 

Sector: Health; 
Amount: $6,834,858. 

Sector: Education; 
Amount: $11,839,151. 

Sector: Infrastructure; 
Amount: $10,296,314. 

Sector: Public sector capacity building; 
Amount: $300,000. 

Sector: Environment; 
Amount: $325,000. 

Sector: Private sector development; 
Amount: $0. 

Sector: Ebeye Special Needs; 
Amount: $3,486,781. 

Sector: Total sector allocations; 
Amount: $33,082,104. 

Sector: Supplemental education grant; 
Amount: $5,895,667. 

Fiscal year: 2012: 

Sector: Health; 
Amount: $6,834,858. 

Sector: Education; 
Amount: $11,839,151. 

Sector: Infrastructure; 
Amount: $9,958,191. 

Sector: Public sector capacity building; 
Amount: $300,000. 

Sector: Environment; 
Amount: $325,000. 

Sector: Private sector development; 
Amount: $0. 

Sector: Ebeye Special Needs; 
Amount: $3,515,400. 

Sector: Total sector allocations; 
Amount: $32,772,600. 

Sector: Supplemental education grant; 
Amount: $5,885,052. 

Fiscal year: 2013: 

Sector: Health; 
Amount: $6,693,788. 

Sector: Education; 
Amount: $11,598,952. 

Sector: Infrastructure; 
Amount: $9,406,891. 

Sector: Public sector capacity building; 
Amount: $0. 

Sector: Environment; 
Amount: $325,000. 

Sector: Private sector development; 
Amount: $0. 

Sector: Ebeye Special Needs; 
Amount: $3,587,010. 

Sector: Total sector allocations; 
Amount: $31,611,641. 

Sector: Supplemental education grant; 
Amount: [Empty]. 

Sources: GAO analysis based on information from annual JEMFAC 
resolutions, fiscal year 2003 through fiscal year 2012. 

Notes: Allocations may differ from actual grant awards. Because the 
supplemental education grant funds lag by a year, the fiscal year 2004 
funds were not awarded until fiscal year 2005, and the fiscal year 
2013 funds will not be awarded until September 2013. 

[End of table] 

As shown in figures 11 and 12, the education, health, and 
infrastructure sectors in both countries received the most funding 
during this period, consistent with provisions in the amended compacts 
legislation indicating that these sectors were priorities. 

Figure 11: Federated States of Micronesia (FSM) Total Sector 
Allocations and Percentages, Fiscal Years 2004 through 2013: 

[Refer to PDF for image: pie-chart] 

FSM sector allocations: 
Total, fiscal years 2004 through 2013: $792.6 million: 
Education, $277.6 million: 35%; 
Infrastructure, $228.9 million: 29%; 
Health, $188.2 million: 24%; 
Public sector capacity building, $53.6 million: 7%; 
Other (private sector, environment, and enhanced reporting and 
accountability), $44.2: 6%. 

Sources: Annual JEMCO resolutions, fiscal years 2003 through 2012. 

Notes: Percentages may not add up to 100 due to rounding. Sum of 
sector allocations may not add up to the total due to rounding. 
Supplemental education grant funds are not included in this figure. 

[End of figure] 

Figure 12: Republic of the Marshall Islands (RMI) Total Sector 
Allocations and Percentages, Fiscal Years 2004 through 2013: 

[Refer to PDF for image: pie-chart] 

RMI sector allocations: 
Total, fiscal years 2004 through 2013: $324.7 million: 
Education, $115.9 million: 36%; 
Infrastructure, $105.8 million: 33%; 
Health, $67.9 million: 21%; 
Ebeye special needs, $30.0 million: 9%; 
Other (public sector capacity building, private sector, environment), 
$5.2 million: 2%. 

Sources: Annual JEMFAC resolutions, fiscal years 2003 through 2012. 

Notes: Percentages may not add up to 100 due to rounding. Sum of 
sector allocations may not add up to the total due to rounding. 
Supplemental education grant funds are not included in this figure. 

[End of figure] 

[End of section] 

Appendix VI: Education and Health Indicators for the FSM and the RMI, 
Fiscal Years 2007-2011: 

Tables 10 and 11 list the education and health indicators that the 
Federated States of Micronesia (FSM) tracked during fiscal years 2007 
through 2011. Tables 12 and 13 list the education and health 
indicators that the Republic of the Marshall Islands (RMI) tracked 
during the same period. 

Table 10: Federated States of Micronesia (FSM) Education Indicators, 
Fiscal Years 2007 through 2011: 

1. Student enrollment by grade level and gender. 

2. Completion/graduation rate for 8th and 12th grades (private and 
public). 

3. Number of schools by grade level (elementary and secondary). 

4. Number of schools by size (based on enrollment). 

5. Number of schools operating half-day sessions. 

6. Number and percent of staff by education level (diploma, associate 
of arts degree, etc.). 

7. Number of teachers/staff by grade level. 

8. Average daily student attendance rate by grade level and gender. 

9. Base populations by school age groups (i.e., total no. of 4-5 year 
olds, 6-13 year olds, 14-18, etc.). 

10. Student-to-teacher ratio (private and public). 

11. Percent of base school-age population in school by age groups. 

12. Drop-out rate by grade level and gender (use beginning and ending 
enrollment). 

13. Number and percent of grade completers going to high school and 
high school graduates going to higher education. 

14. Number and percent of student achieving "Proficiency" level and 
above, at selected grade levels for standardized tests (e.g., SAT) or 
criterion-referenced tests (e.g., locally developed tests). 

15. Number of student textbooks by subject areas and grade levels. 

16. Per pupil expenditure (annual or entire operating K-12 budget 
divided by enrolled student count). 

17. Number of parent involvement activities per year by school and 
average number of parents participating. 

18. Student enrollment in local institutions of higher education. 

19. Number of institutions of higher education graduates by diploma/
degree level. 

20. Average teacher attendance rate by grade level (elementary and 
secondary). 

21. Scholarships[A]. 

Source: Federated States of Micronesia: JEMCO 20 Education Indicators 
Report. 

[A] This indicator was added in 2011. During the time frame of our 
review, fiscal years 2007 through 2011, there were 20 indicators, with 
the exception of 2011. For the purposes of this report, we refer to 
the FSM as having 20 education indicators; even the 2011 JEMCO report 
tracking the education data does this in its title, JEMCO 20 Education 
Indicators Report. 

[End of table] 

Table 11: Federated States of Micronesia (FSM) Health Indicators, 
Fiscal Years 2007 through 2011: 

Table 11: Federated States of Micronesia (FSM) Health Indicators, 
Fiscal Years 2007 through 2011: 

1. Infant mortality rate is reduced to less than 16/1000 by 2015. 

2. Immunization coverage of 2 year old children is increased to not 
less than 90% by year 2015. 

3. Mental illness is reduced (indicator: rate of completed suicide 
reduced to 10% by 2015). 

4. At least 70% of 3rd graders received sealant by 2015 (2004 
Baseline). 

5. The average length of hospital stay is less than 7 days for each 
State Hospital by 2015. 

6. Off-island medical referral costs in all states reduce to less than 
10% of total health sector expenditures by 2015. 

7. Essential drugs and supplies available (indicators: ORS, combo OCP, 
Amox, IV, chloramphenicol, glyburide, ethanol, and HCTZ) all in stock 
80% of days). 

8. The number of individuals enrolled under a health insurance plan is 
increased 10% by 2015. 

9. Quality Assurance Systems Functioning (indicator: quarterly audits 
and improvement plans, based on written policy and procedure standards, 
are produced for specific areas in each state's hospitals). 

10. Decentralize primary care services--number of encounters provided 
in homes and dispensaries will increase 20% by 2015. 

11. Decentralize primary care services--number of patient encounters at 
hospitals' clinics will decrease by 10% by 2015. 

12. Biomedical equipment is functional (indicator: Na+ K+ ALT, Bili, 
and Creatinin all available 80% of days). 

13. Reduce incidence of diarrheal diseases by 10% by 2015. 

14. Noncommunicable diseases control (indicator: reduce the incidence 
of diabetic hospitalization by 10% in 2015). 

Source: Federated States of Micronesia, Department of Health and Social 
Affairs, Fourteen Health Indicators Report: 2004-2015. 

[End of table] 

Table 12: Republic of the Marshall Islands (RMI) Education Indicators, 
Fiscal Years 2007 through 2011: 

1. Total enrollment by grade and gender. 

2. Completion/Graduation rate for 8th and 12th grade. 

3. Number of schools by grade level. 

4. Number of schools by enrollment size (primary and secondary). 

5. Number of schools operating half-day sessions. 

6. Number and percent of teachers by education level (related to 
teacher certification and training). 

7. Number of teacher/staff by grade level. 

8. Average daily attendance. 

9. Base population of school age groups. 

10. Student/teacher ratio by geographic area/all schools. 

11. Percent of base-school-age population in school by age group. 

12. Drop out rate by grade level and gender. 

13. Number/percent of 8th-grade completers going to high school. 

14. Marshall Islands Standard Assessment Test (grades 3, 6,8) % student 
benchmark scores at "proficient and above". 

15. Number of students textbooks by subject areas and grade level. 

16. Per pupil expenditure. 

17. Number of parent involvement activities per year by school. 

18. Student enrollment in local institution of higher education (RMI-
USP Joint Education Program)a. 

19. Number of higher education graduates by diploma/degree. 

20. Number of staff full time. 

Source: Republic of the Marshall Islands, Ministry of Education, 
Portfolio Budget Statements. 

Note: The RMI-USP Joint Education Program is a partnership in 
education between the RMI and the University of the South Pacific 
(USP). The joint program includes both a preliminary program and a 
subsequent foundation program; enrollment data reported here include 
enrollment in both the preliminary and foundation programs. 

[End of table] 

Table 13: Republic of the Marshall Islands Health (RMI) Indicators, 
Fiscal Years 2007 through 2011: 

1. Reduce infant mortality rate by 50% from 2004-2015/1000 live 
births. 

2. Increase immunization coverage to 95% by 2015 for 2-year-olds. 

3. Increase percent of total immunization coverage levels for 
adolescent and adults to 95% by 2015; 

4. Reduce cases of suicide by half by 2015. 

5. Improve access to dental services. 

6. Reduce the prevalence of cancers by 2015 by 16% per 100,000 
population; 

7. Reduce the average length of hospital stay (days). 

8. Decrease in number of referrals. 

9. Maintain maternal mortality ratio at <1/100,000 by 2015. 

10. Reduce child mortality rate by 60% from 2004 to 2015 *100,000. 

11. Reduce mortality rate for tuberculosis to <1/100,000 by 2015. 

12. Reduce the prevalence of tuberculosis by <1/100,000 by 2015. 

13. Reduce the prevalence of teenage pregnancy by 75% by 2015 per 
100,000. 

14. Reduce the prevalence of HIV/STI in age 15-49 to <1/100,000 by 
2015. 

15. Reduce the prevalence of diabetes by 16% by 2015. 

16. Reduce diabetes related cause of death (mortality rate by 10%). 

17. Eliminate leprosy by 2010 to < 1/100,000 (country goal). 

18. Reduce the diseases specific mortality rate from malnutrition by 
100% from 2004 to 2015. 

19. Eliminate the prevalence of malnutrition in children < 5 years old 
from 2004 to 2015 per 100,000. 

20. Reduce prevalence of water borne diseases by 2015. 

21. Reduce the prevalence of acute rheumatic (valvular) heart diseases 
to 1/100,000 by 2015. 

22. Reduce the prevalence of noncommunicable disease by 10% by 2015 
(100,000). 

23. Reduce the incidence of alcohol-and substance-related injuries. 

24. Health-awareness activities conducted. 

25. Disease surveillance (lab service). 

26. School-based health public on Ebeye. 

Source: Republic of the Marshall Islands, Ministry of Health, 
Overarching Health Measures. 

[End of table] 

[End of section] 

Appendix VII: Single Audit Reports for the FSM and the RMI, Fiscal 
Years 2006-2011: 

The National Government of the Federated States of Micronesia (FSM) 
and the individual FSM states (Chuuk and Pohnpei)[Footnote 113] 
submitted their required single audit reports on time for 5 of the 6 
fiscal years from 2006 through 2011. Similarly, the Republic of the 
Marshall Islands (RMI) submitted its single audit reports on time 
during those years except for fiscal year 2011. Half of the financial 
statement audit opinions for the FSM and all for the RMI were 
unqualified for fiscal years 2006 through 2011.[Footnote 114] However, 
17 of 18 financial statement audits for those years from the FSM and 
all 6 from the RMI found material weaknesses and significant 
deficiencies resulting in the entities receiving qualified audit 
opinions[Footnote 115] with regard to internal controls over financial 
reporting. In most of the single audit reports submitted by both 
countries for those years, auditors also rendered qualified audit 
opinions on compliance with requirements of major federal programs. In 
addition, our review of the single audit reports found that internal 
control weaknesses have persisted in both countries since we last 
reported on their single audits in December 2006. As a result of 
persistent weaknesses in RMI's single audit reports, in March 2013, 
the Department of the Interior's Office of Insular Affairs (OIA) 
recommended to the U.S.-RMI Joint Economic Management and Financial 
Accountability Committee (JEMFAC) that it refrain from allocating 
unexpended grant funds from fiscal year 2011 and fiscal year 2012 
until the RMI demonstrated that it had resolved all current questioned 
costs. 

Single Audits Are Key Control for Oversight and Monitoring: 

The amended compacts and their respective fiscal procedures agreements 
require the FSM and RMI to submit reports each year on audits 
conducted within the meaning of the Single Audit Act, as 
amended.[Footnote 116] Single audits generally cover the entire 
organization and focus on recipients' internal controls over financial 
reporting and compliance with laws and regulations governing federal 
awards. A single audit report includes the following: 

* the auditor's opinion (or disclaimer of opinion, as appropriate) 
regarding whether the financial statements are presented fairly in all 
material respects in conformity with generally accepted accounting 
principles, and a report on internal controls related to financial 
statements; 

* the entity's audited financial statements; 

* the schedule of expenditures of federal awards and the auditor's 
opinion on whether the schedule is reported fairly in relation to the 
financial statements as a whole; 

* the auditor's opinion (or disclaimer of opinion) regarding whether 
the auditee complied with the laws, regulations, and provisions of 
contracts and grant agreements (such as the compact), which could have 
a direct and material effect on each major federal program, and a 
report on findings on internal controls related to federal programs; 

* a summary of findings and any questioned costs for the federal 
program; and: 

* corrective action plans for findings identified for the current year 
as well as unresolved findings from prior fiscal years. 

Single audits are a key control for the oversight and monitoring of 
the FSM and RMI governments' use of U.S. awards, and the resulting 
audit reports are due at the Federal Audit Clearinghouse--which 
includes an automated public database of single audit information on 
the Internet--9 months after the end of the audited period.[Footnote 
117] For the FSM and RMI, that is by July 1 each year. All single 
audit reports include the auditor's opinion on the audited financial 
statements and a report on the internal controls related to financial 
reporting. 

Timeliness of Submission: Both Countries Submitted Their Single Audit 
Reports on Time for 5 of the 6 Years Reviewed: 

The FSM National Government and Chuuk state submitted their single 
audit reports late for fiscal year 2006 but submitted them on time for 
fiscal years 2007 through 2011. The RMI submitted its single audit 
report on time for fiscal years 2006 through 2010 but submitted its 
report late for fiscal year 2011. Table 14 shows the timeliness of 
reports for the FSM and the RMI.[Footnote 118] 

Table 14: Number of Months Single Audits from the Federated States of 
Micronesia (FSM) and the Republic of the Marshall Islands (RMI) Were 
Received Past Their Deadline, by Country and State, Fiscal Years 2006 
through 2011: 

Fiscal year: 2006; 
FSM National Government: 2[A]; 
Chuuk state: 2; 
Pohnpei state: 0; 
RMI: 0. 

Fiscal year: 2007; 
FSM National Government: 0; 
Chuuk state: 0; 
Pohnpei state: 0; 
RMI: 0. 

Fiscal year: 2008; 
FSM National Government: 0; 
Chuuk state: 0; 
Pohnpei state: 0; 
RMI: 0. 

Fiscal year: 2009; 
FSM National Government: 0; 
Chuuk state: 0; 
Pohnpei state: 0; 
RMI: 0. 

Fiscal year: 2010; 
FSM National Government: 0; 
Chuuk state: 0; 
Pohnpei state: 0; 
RMI: 0. 

Fiscal year: 2011; 
FSM National Government: 0; 
Chuuk state: 0; 
Pohnpei state: 0; 
RMI: 8. 

Sources: GAO analysis of Office of Management and Budget Circular A-
133, single audit reports, and Federal Audit Clearinghouse submission 
dates. 

Notes: The deadline is 9 months after the close of the entity's fiscal 
year. To determine whether reports were submitted late and, if so, by 
how many months, we compared the deadline for each report with its 
most recent submission date for the required Single Audit form in the 
Federal Audit Clearinghouse database. 

[A] The FSM National Government's single audit cannot be completed 
until the states' single audits have been completed. Thus, if any 
state is late, the FSM National Government's audit will also be late. 
Chuuk submitted its 2006 single audit late. 

[End of table] 

In 2011, FSM, except for Chuuk State, and RMI Received Unqualified 
Opinions on Their Financial Statements: 

Among the 24 audit reports submitted by the FSM national and two state 
governments and by the RMI for fiscal years 2006 through 2011, 15 
reports received unqualified opinions. For fiscal years 2006 through 
2008, the FSM National Government received qualified opinions on their 
financial statements. However, the FSM National Government improved 
its financial management reporting and received an unqualified 
("clean") audit opinion on its financial statements for fiscal years 
2009 through 2011. In 2006, Chuuk received a disclaimer of opinion, 
which is given when the auditor determines that the audit cannot be 
completed in accordance with generally accepted auditing standards and 
therefore an opinion cannot be expressed on the financial statements. 
For fiscal years 2007 through 2011, Chuuk received qualified opinions 
on its financial statements. Chuuk's 2011 financial statement audit 
opinion was qualified because the financial statements did not report 
a liability for land leases and related claims payable in the 
governmental activities and general fund or the expenditure for the 
current period reflecting the change in that liability. Table 15 shows 
the type of financial statement audit opinions for the FSM and the RMI 
for fiscal years 2006 through 2011. 

Table 15: Financial Statement Audit Opinions for the Federated States 
of Micronesia (FSM) and the Republic of the Marshall Islands (RMI), 
Fiscal Years 2006 through 2011: 

Year: 2006; 
Type of Opinion: 
FSM National Government: Qualified; 
Chuuk state: Disclaimer; 
Pohnpei state: Unqualified; 
RMI: Unqualified[A]. 

Year: 2007; 
Type of Opinion: 
FSM National Government: Qualified; 
Chuuk state: Qualified; 
Pohnpei state: Unqualified; 
RMI: Unqualified. 

Year: 2008; 
Type of Opinion: 
FSM National Government: Qualified; 
Chuuk state: Qualified; 
Pohnpei state: Unqualified; 
RMI: Unqualified. 

Year: 2009; 
Type of Opinion: 
FSM National Government: Unqualified; 
Chuuk state: Qualified; 
Pohnpei state: Unqualified; 
RMI: Unqualified. 

Year: 2010; 
Type of Opinion: 
FSM National Government: Unqualified; 
Chuuk state: Qualified; 
Pohnpei state: Unqualified; 
RMI: Unqualified. 

Year: 2011; 
Type of Opinion: 
FSM National Government: Unqualified; 
Chuuk state: Qualified; 
Pohnpei state: Unqualified; 
RMI: Unqualified. 

Source: GAO analysis of FSM and RMI single audit reports. 

[A] The Independent Auditors' Report on the financial statements of 
the governmental activities, each major fund, and the aggregate 
remaining fund information, expressed an unqualified opinion and an 
adverse opinion on the financial statement of the aggregate discretely 
presented components units due to the omission of the Kwajalein Atoll 
Joint Utilities Resources Inc. and the inability of Air Marshall 
Islands Inc. to produce audited financial statements. 

[End of table] 

All RMI and FSM Audits Found Material Weaknesses, or Significant 
Deficiencies, or Both, Relating to Internal Control over Financial 
Reporting and Compliance with Federal Programs: 

For fiscal years 2006 through 2011, 17 of 18 financial statement 
audits from the FSM National Government and the two FSM states and all 
6 from the RMI found material weaknesses,[Footnote 119] significant 
deficiencies,[Footnote 120] or both in internal control over (1) 
financial reporting and (2) compliance with the requirements of major 
federal awards. (For a detailed count of these reportable findings, 
see table 16 for the FSM and table 17 for the RMI.) 

Table 16: Number of Material Weaknesses and Significant Deficiencies 
Reported in Single Audit Reports for the Federated States of 
Micronesia (FSM) National Government and States, Fiscal Years 2006 
through 2011: 

2006: 

FSM National Government[A]; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 3; 
Significant deficiencies: 9; 
Total: 12; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 1; 
Significant deficiencies: 16; 
Total: 17. 

Chuuk; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 18; 
Significant deficiencies: 0; 
Total: 18; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 14; 
Significant deficiencies: 0; 
Total: 14. 

Pohnpei; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 0; 
Significant deficiencies: 0; 
Total: 0; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 0; 
Significant deficiencies: 6; 
Total: 6. 

Total; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 21; 
Significant deficiencies: 9; 
Total: 30; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 15; 
Significant deficiencies: 22; 
Total: 37. 

2007: 

FSM National Government[A]; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 14; 
Significant deficiencies: 0; 
Total: 14; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 0; 
Significant deficiencies: 14; 
Total: 14. 

Chuuk; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 8; 
Significant deficiencies: 4; 
Total: 12; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 5; 
Significant deficiencies: 0; 
Total: 5. 

Pohnpei; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 0; 
Significant deficiencies: 1; 
Total: 1; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 0; 
Significant deficiencies: 4; 
Total: 4. 

Total; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 22; 
Significant deficiencies: 5; 
Total: 27; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 5; 
Significant deficiencies: 18; 
Total: 23. 

2008: 

FSM National Government[A]; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 6; 
Significant deficiencies: 0; 
Total: 6; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 7; 
Significant deficiencies: 7; 
Total: 14. 

Chuuk; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 3; 
Significant deficiencies: 0; 
Total: 3; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 1; 
Significant deficiencies: 0; 
Total: 1. 

Pohnpei; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 0; 
Significant deficiencies: 1; 
Total: 1; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 0; 
Significant deficiencies: 2; 
Total: 2. 

Total; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 9; 
Significant deficiencies: 1; 
Total: 10; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 8; 
Significant deficiencies: 9; 
Total: 17. 

2009: 
FSM National Government[A]; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 5; 
Significant deficiencies: 0; 
Total: 5; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 10; 
Significant deficiencies: 10; 
Total: 20. 

Chuuk; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 3; 
Significant deficiencies: 0; 
Total: 3; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 2; 
Significant deficiencies: 0; 
Total: 2. 

Pohnpei; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 0; 
Significant deficiencies: 1; 
Total: 1; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 0; 
Significant deficiencies: 1; 
Total: 1. 

Total; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 8; 
Significant deficiencies: 1; 
Total: 9; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 12; 
Significant deficiencies: 11; 
Total: 23. 

2010: 

FSM National Government[A]; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 7; 
Significant deficiencies: 1; 
Total: 8; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 11; 
Significant deficiencies: 1; 
Total: 12. 

Chuuk; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 1; 
Significant deficiencies: 0; 
Total: 1; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 1; 
Significant deficiencies: 0; 
Total: 1. 

Pohnpei; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 0; 
Significant deficiencies: 1; 
Total: 1; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 0; 
Significant deficiencies: 1; 
Total: 1. 

Total; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 8; 
Significant deficiencies: 2; 
Total: 10; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 12; 
Significant deficiencies: 2; 
Total: 14. 

2011: 

FSM National Government[A]; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 4; 
Significant deficiencies: 3; 
Total: 7; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 4; 
Significant deficiencies: 8; 
Total: 12. 

Chuuk; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 3; 
Significant deficiencies: 2; 
Total: 5; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 0; 
Significant deficiencies: 1; 
Total: 1. 

Pohnpei; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 0; 
Significant deficiencies: 1; 
Total: 1; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 0; 
Significant deficiencies: 1; 
Total: 1. 

Total; 
Reportable findings on internal control over financial reporting: 
Material weaknesses: 7; 
Significant deficiencies: 6; 
Total: 13; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 4; 
Significant deficiencies: 10; 
Total: 14. 

Source: GAO analysis of FSM single audit reports. 

Notes: In the FSM, we focused our review on the National Government 
and the state governments of Chuuk and Pohnpei. We did not include in 
our review the state governments of Yap and Kosrae. See appendix I for 
additional discussion of scope. 

[A] Data do not include findings for the component units of the FSM 
National Government, such as the College of Micronesia. 

[End of table] 

Table 17: Number of Material Weaknesses and Significant Deficiencies 
Reported in Single Audit Reports for the Republic of the Marshall 
Islands (RMI), Fiscal Years 2006 through 2011: 

2006: 

Reportable findings on internal control over financial reporting: 
Material weaknesses: 1; 
Significant deficiencies: 0; 
Total: 1; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 4; 
Significant deficiencies: 6; 
Total: 10. 

2007: 

Reportable findings on internal control over financial reporting: 
Material weaknesses: 3; 
Significant deficiencies: 0; 
Total: 3; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 3; 
Significant deficiencies: 5; 
Total: 8. 

2008: 

Reportable findings on internal control over financial reporting: 
Material weaknesses: 2; 
Significant deficiencies: 0; 
Total: 2; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 3; 
Significant deficiencies: 4; 
Total: 7. 

2009: 

Reportable findings on internal control over financial reporting: 
Material weaknesses: 5; 
Significant deficiencies: 0; 
Total: 5; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 8; 
Significant deficiencies: 3; 
Total: 11. 

2010: 

Reportable findings on internal control over financial reporting: 
Material weaknesses: 8; 
Significant deficiencies: 0; 
Total: 8; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 7; 
Significant deficiencies: 0; 
Total: 7. 

2011: 

Reportable findings on internal control over financial reporting: 
Material weaknesses: 11; 
Significant deficiencies: 0; 
Total: 11; 
Reportable findings on internal control over compliance with federal 
awards: 
Material weaknesses: 8; 
Significant deficiencies: 0; 
Total: 8. 

Source: GAO analysis of RMI single audit reports. 

Note: Data do not include findings for the component units of the RMI 
government, such as the College of the Marshall Islands. 

[End of table] 

Internal Control over Financial Reporting: 

The single audit reports for fiscal year 2011, the most recent year 
for which reports were available during our review, identified a 
combined total of 13 material weaknesses and significant deficiencies 
which relate to the FSM's fiscal year 2011 financial statements, and a 
total of 11 for the RMI's statements (see tables 16 and 17, 
respectively). These findings indicated a lack of effective internal 
controls over collection of travel advances and the lack of ability to 
adequately safeguard assets; to ensure that transactions are properly 
recorded; and to prevent or detect fraud, waste, and abuse. For 
example, the material weaknesses reported in FSM's fiscal year 2011 
single audit report included (1) the lack of timely reconciliation of 
the Holding Bank Account,[Footnote 121] (2) the lack of adequate 
monitoring of collection of travel advances, (3) the lack of timely 
and accurate reconciliation of general ledger accounts, and (4) the 
lack of adequate reconciliation of and accounting for fixed assets. 
[Footnote 122] In RMI's fiscal year 2011 single audit report, the 
auditors found material weaknesses that included (1) the lack of 
documentation to determine whether certain costs were allowable, (2) 
lack of inventory of fixed assets, (3) lack of general ledger account 
reconciliation, and (4) lack of internal controls over bank wire 
transfers. 

We found that 6 of the 7 material weaknesses in internal control over 
financial reporting contained in the FSM's fiscal year 2011 single 
audit report were recurring problems from the previous year or had 
been reported for several years. Below are two examples: 

* General ledger account reconciliations were not performed in a 
timely manner or accurately. The lack of timely and accurate account 
reconciliations may affect accurate reporting and timely submission of 
the single audit report. 

* Fixed-asset records were not periodically reconciled and timely 
recorded. Likewise, 8 of the 11 material weakness findings in the 
RMI's fiscal year 2011 single audit report were recurring problems 
from the previous year or had been reported for several years, 
including these examples: 

* Fixed assets records were not being periodically reconciled and 
recorded in a timely manner. 

* Procurement requirements were not followed, such as the lack of the 
required three price quotations for an expenditure. 

* The FSM and RMI have developed corrective action plans to address 
financial statement findings in the 2011 single audit.[Footnote 123] 

Compliance with Requirements of Federal Awards: 

In addition to the auditor's report on financial statement findings, 
FSM and RMI auditors issuing an entity's single audit reports also 
issue an opinion on the entity's compliance with requirements of major 
federal programs. Of the 24 single audit reports submitted by the FSM 
national and state governments and the RMI for fiscal years 2006 
through 2011, 19 received qualified opinions regarding compliance with 
requirements of major federal programs. The remaining six received 
unqualified opinions; Pohnpei received 4 of the 6 unqualified opinions. 

In the 2011 single audit reports on compliance with requirements of 
major federal programs, auditors reported 14 material weaknesses and 
significant deficiencies for the FSM and 8 for the RMI (see tables 16 
and 17, respectively). For example, in the FSM, the reported material 
weaknesses included (1) the lack of internal controls over compliance 
with cash management requirements, (2) lack of funds control to 
prevent disbursements in excess of available funds, and (3) lack of 
controls over property accountability. In the RMI, findings that were 
material weaknesses included (1) a lack of fixed assets inventory 
control, (2) the lack of internal controls over compliance with cash 
management requirements, (3) the lack of internal controls over 
procurement, and (4) the lack of adequate documentation of cost 
allowability. 

We found that 13 of the 14 findings from the 2011 FSM and state 
governments' single audit reports, and 7 of the 8 findings from the 
2011 RMI single audit report, were recurring problems from the 
previous year or had recurred for several years.[Footnote 124] In 
contrast, for the FSM only 5 of the 41 findings from the 2005 single 
audit reports and, for the RMI, only 5 of the 13 findings from the 
2005 single audit report were recurring problems from the previous 
year or had recurred for several years. The FSM and RMI 2011 single 
audit reports stated that have developed corrective action plans to 
address all the 2011 single audits' reports' findings on compliance 
with requirements of major federal programs. 

As the count of single audit findings in table 17 demonstrate, 
material weaknesses related to internal controls have increased over 
the last 3 years. As we have previously reported, weaknesses in 
internal controls may lead to fraud, waste, and abuse.[Footnote 125] 
Since late 2010, 22 cases involving collusion among three employees of 
the RMI Ministry of Finance, three employees of the RMI Ministry of 
Health, and three local businesses are being prosecuted in the RMI. 
These 22 cases involve a total of approximately $550,000 in compact 
funding. According to an OIA official, this fraud was not uncovered 
through an audit; rather, it was detected when the leader of the group 
of government workers involved in the fraud tried to pick up a vendor 
payment from the RMI Ministry of Finance, raising suspicions and 
leading to an investigation. According to an OIA official, in 2012, 
two former RMI government workers were charged with 25 counts of theft 
related to 20 checks from the government valued at $350,000. They 
received fines and 5-year prison sentences. According to an RMI 
official, the investigation is ongoing, and the RMI Office of the 
Auditor General (OAG) has collaborated with the RMI Attorney General 
since the start of the investigation. Furthermore, the OAG has taken 
its own action to better detect fraud by creating a new investigation 
unit within the OAG to conduct investigations of suspected fraudulent 
activities and created a confidential fraud hotline where RMI citizens 
can contact the OAG to report instances of fraud, waste, and abuse for 
further investigation. 

According to an RMI official, over the past 5 years, the RMI Auditor 
General has focused on financial and compliance audits, including the 
single audits of RMI government agencies. The OAG also conducted its 
own audits of component units for fiscal years 2006 through 2011. 
According to the RMI Auditor General, because of insufficient staff, 
the OAG performed only 1 performance audit over the past several 
years, and additional staff would be needed to enable the office to 
address the demand for fraud investigations. Recognizing the magnitude 
of potential fraud, OIA authorized a Technical Assistance grant of 
$110,500 in 2012 to recruit a Certified Fraud Examiner for RMI. 
According to a RMI OAG official, as of June 2013, the RMI had not 
filled this position. 

[End of section] 

Appendix VIII: Office of Insular Affairs (OIA) Staffing Projections 
for Compact Oversight, Fiscal Years 2010-2013: 

Position: Lead Program Grants Specialist; 
Location: Honolulu, HI; 
Projected need: 
2010: 1; 
2011: 1; 
2012: 1; 
2013: 1; 
Actual supply: 
2010: 1; 
2011: 1; 
2012: 1; 
2013: 1; 
Shortages (as of 2013): 0. 

Position: Education Grants Specialist; 
Location: Honolulu, HI; 
Projected need: 
2010: 1; 
2011: 2; 
2012: 2; 
2013: 2; 
Actual supply: 
2010: 1; 
2011: 1; 
2012: 1; 
2013: 1; 
Shortages (as of 2013): 1. 

Position: Health Grants Specialist; 
Location: Honolulu, HI; 
Projected need: 
2010: 1; 
2011: 1; 
2012: 1; 
2013: 1; 
Actual supply: 
2010: 1; 
2011: 1; 
2012: 1; 
2013: 1; 
Shortages (as of 2013): 0. 

Position: Fiscal Program Specialist; 
Location: Honolulu, HI; 
Projected need: 
2010: 1; 
2011: 4; 
2012: 4; 
2013: 4; 
Actual supply: 
2010: 1; 
2011: 1; 
2012: 1; 
2013: 1; 
Shortages (as of 2013): 3. 

Position: Grants Specialist; 
Location: Federated States of Micronesia; 
Projected need: 
2010: 1; 
2011: 1; 
2012: 1; 
2013: 1; 
Actual supply: 
2010: 0; 
2011: 0; 
2012: 0; 
2013: 1; 
Shortages (as of 2013): 0. 

Position: Insular Policy Specialist; 
Location: Federated States of Micronesia; 
Projected need: 
2010: 1; 
2011: 1; 
2012: 1; 
2013: 1; 
Actual supply: 
2010: 0; 
2011: 0; 
2012: 0; 
2013: 0; 
Shortages (as of 2013): 1. 

Position: Grants Specialist; 
Location: Republic of the Marshall Islands; 
Projected need: 
2010: 1; 
2011: 1; 
2012: 1; 
2013: 1; 
Actual supply: 
2010: 1; 
2011: 1; 
2012: 1; 
2013: 1; 
Shortages (as of 2013): 0. 

Position: Totals; 
Projected need: 
2010: 7; 
2011: 11; 
2012: 11; 
2013: 11; 
Actual supply: 
2010: 5; 
2011: 5; 
2012: 5; 
2013: 6; 
Shortages (as of 2013): 5. 

Source: GAO analysis of OIA data. 

Note: Data are from the Department of the Interior's OIA 2010 
workforce plan and interviews with OIA officials. 

[End of table] 

[End of section] 

Appendix IX: Comments from the U.S. Department of the Interior: 

United States Department of the Interior: 
Office of The Secretary: 
Washington, DC 20240: 

August 7, 2013: 

Mr. David Gootnick: 
Director, International Affairs and Trade: 
U.S. Government Accountability Office: 
Washington, D.C. 20548: 

Dear Mr. Gootnick: 

Thank you for the opportunity to respond to the U.S. Government 
Accountability Office (GAO) draft report, entitled, "Compacts Of Free 
Association: Micronesia and the Marshall Islands Continue to Face 
Challenges Measuring Progress and Ensuring Accountability" (Report). 

The Report fairly summarizes activities and results of Compact of Free 
Association (COFA) financial assistance used in the Federated States 
of Micronesia (FSM) and the Republic of the Marshall Islands 
(RMI) in fiscal years (FY) 2007 through 2011. The Report identifies 
issues related to data reliability in reporting program outcomes in 
the health and education sectors, difficulties in providing for 
sustainable services as COFA grants decline, continuing problems with 
accountability and the difficulties of the three governments in 
providing oversight of COF A programs. The Report also notes that the 
Department of the Interior and other U.S. agencies through the Joint 
Economic Management Committee (JEMCO) and the Joint Economic 
Management and Financial Accountability Committee (JEMFAC) have 
continually pushed for improvement in these areas by the FSM and RMI. 

The Report recommends that the Secretary of the Interior take five 
actions to address the identified shortfalls. The Department of the 
Interior agrees generally with these recommendations for action and 
discusses each below. 

* Direct the AS.fislOl1t Secretary of Insular Affairs. as Chairman of 
JEMCO, to coordinate with other JEMCO member U.S. agencies to have 
JEMCO take all necessary steps, or as the administrator of compact 
grants to directly take the necessary steps, to ensure that the FSM 
(1) completes satisfactory plans to address annual decrements in 
compact funds, (2) produces reliable indicator data used to track 
progress in education and health, and (3) addresses all single audit 
findings in a timely manner. 

The Department and U.S. members of JEMCO are currently taking steps to 
address decrement planning and to improve performance. All FSM states 
have completed decrement plans that are satisfactory. JEMCO has 
requested the FSM national government to detail its plan at the August 
21, 2013, meeting. 

We will continue to work with the FSM to increase the reliability of 
its data, noting the difficulty of reconciling five different state 
and national government reporting systems. This issue will be 
discussed at the upcoming JEMCO meeting. The Department will take 
actions necessary to address audit findings in a timely manner and in 
accordance with applicable Federal regulations. It must be noted, 
however, that although OIA, in its role as Cognizant Agency for 
Audits, has responsibilities for monitoring the resolution of specific 
findings, other single audit findings may only be resolved by the 
Federal grantor agency. 

* Direct the Assistant Secretary of Insular Affairs, as Chairman of 
JEMFAC, to coordinate with other JEMFAC member U.S. agencies to have 
JEMFAC take all necessary steps, or as the administrator of compact 
grants to directly take all necessary steps, to ensure that the RMI 
(1) completes satisfactory plans to address annual decrements in 
compact funds, (2) produces reliable indicator data used to track 
progress in education and health, and (3) addresses all single audit 
findings in a timely manner. 

As with the similar recommendation related to JEMCO and the FSM, the 
Department and other U.S. JEMPAC members have worked with the RMI to 
make improvements in all three areas. As noted in the Report, the U.S. 
JEMFAC members notified the RMI in April 2013 that the United States 
was considering withholding FY 2014 funding if an adequate decrement 
plan and budget framework is not presented to the JEMFAC at its August 
20 13 meeting. Additionally, the Office of Insular Affairs (alA) 
Accountability Specialist has visited the RMI, most recently in July 
2013, to continue assistance that includes resolving single audit 
findings. OIA has also withheld reallocation of prior year compact 
funding balances until the RMI is current with single audits and 
questioned cost resolution. 

The Report makes two identical recommendations regarding 
accountability: 

* Consult with other grantor agencies to determine whether the FSM 
national government or any FSM states meet the criteria to be 
designated as a high-risk grant recipient for noncompact funds, or 
whether other steps should be taken to improve accountability. 

* Consult with other grantor agencies to determine whether the RMI 
meets the criteria to be designated as a high-risk recipient for 
noncompact funds, or whether other steps should be taken to improve 
accountability. 

Although we are unaware of any Federal interagency practice to jointly 
designate a grantee as high risk, the Department will discuss the GAO 
recommendation as part of OIA's ongoing communications with other 
Federal agencies, both directly and through the RIX's Federal Regional 
Council and its Outer Pacific Committee. OIA notes that, as part of 
the annual single audit process, independent auditors identifY whether 
the auditee may be considered a low-risk auditee, and the respective 
single audit reports made available to all Federal agencies have 
identified consistently that the RMI Government, FSM National 
Government, Chuuk State Government, FSM, and Yap State Government, 
PSM, are not low-risk auditees. The Department understands that all 
"high risk" designations are grantor agency decisions based on 
specific circumstances found in a grant program, The Department cannot 
direct other agencies to take action with regard to individual grant 
issues, including resolution of questioned costs and other grant-
specific issues. 

The final recommendation of the Report addresses staffing issues at 
the Department of the Interior: 

* Take action to correct the disproportionate staffing shortage 
related to compact grant implementation and oversight. 

The Department acknowledges that additional staffing would result in 
increased oversight of COFA actIvItIes. Unfortunately, until an annual 
budget reflecting the President's priorities is enacted, it is 
unlikely that all the necessary positions can be filled. OIA has 
considered requesting special permission to fill another Education 
Specialist position, but has decided to await notification of FY 2014 
funding levels before taking action. Any other increases in oversight 
personnel will be requested and approved through the annual budget 
process. 

Thank you for the opportunity to comment. 

Sincerely; 

Signed by: 

Thomas Bussarick, for: 

Nikola I. Pula: 
Director: 
Office of Insular Affairs: 

[End of section] 

Appendix X: Comments from the Federated States of Micronesia National 
Government: 

Embassy Of The Federated States Of Micronesia: 
1725 N St. NW:  
Washington, DC 20036: 
Tel: 202-223-4383: 
Toll Free: 1.877-730-9753: 
Fax: 202-223-4391: 

Emails: admin@farnembassydr.org; 
fsmdcl@gmail.com. 
Website: [hyperlink, http://www.fsmembassydc.org] 
                
August 30, 2013: 

David B Gootnick, PhD: 
Director: 
International Affairs & Trade: 
US Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Dr. Gootnick: 

On behalf of the FSM Government, we wish to thank the US Congress and 
the GAO for the continued support and commitment of resources to the 
FSM. We also appreciate the opportunity to provide our comments on the 
subject report. The report highlights GAO's findings on three issues, 
namely: (1) need to plan for the annual decrement in compact funding; 
(2) data reliability issues for health and education indicators; and 
(3) financial accountability over use of Compact and US Federal 
Program grants. We agree on the importance of these three issues to 
the successful implementation of the Amended Compact and offer the 
following general observations and comments on findings and 
recommendations offered in the report. 

Annual Decrement Management Plans: 

The FSM Government welcomes GAO's observations on the need for 
finalizing plans for managing the annual decrements in compact 
funding. As recognized in the report, the FSM States have completed 
difficult exercises in identifying cuts in their recurrent budgets in 
anticipation of the scheduled reductions in compact funding each year 
as well as the expected decline in the real value of the compact 
grants due to the partial inflation indexation of these grants. The 
States planning exercise has gone beyond simply creating room for the 
expected cuts in compact funding to also creating room for the 
expected reduction in real value of grants. As pointed out in the 
report, these identified budget reductions are to take effect in 
FY2014, 2017, and 2020. The FY2014 budget reductions will be 
sufficient to address annual decrements expected in FY2014, 2015, and 
2016. While the focus of the State Plans is on expenditure reductions, 
revenue-enhancing we're also endorsed to be pursued aggressively by 
the States Governments in order to alleviate the need to undertake the 
budget cuts identified for FY2017 and 2020. 

Sector budgets account for less than 20% of the National Government 
budget. Over the past two fiscal years, JEMCO has made certain 
decisions that have substantially reduced the use of sector grants for 
recurrent government budgets in the national government. Recurrent 
government budgets have been replaced with specific JEMCO supported 
projects in health and education such as 100% coverage of NMCT 
testing, School Accreditation Program, Teacher Certification, 
Specialized Medical Team, NCD funding, etc. As documented in our July 
1st, 2013 letter to US members on JEMCO, these measures combined with 
the State Plans addressing the annual decrement should suffice in 
meeting the narrower requirements on the annual decrement management 
plan. 

The broader planning issues outlined in the JEMCO resolution calling 
for the Long-Term Fiscal Framework goes beyond calling for annual 
decrement management plans. The broader planning objectives called for 
in JEMCO Resolution 2010-2 are being addressed by the FSM Government 
in the context of the 2023 Planning Committee's work initiated by the 
FSM President. One of the primary objectives of the 2023 Planning 
Committee is to identify ways to intensify private sector growth as 
part of our solution to the scheduled reductions in compact funding. 

On the issue of resource sharing between the National and States 
Governments, the FSM leadership is working together very closely to 
arrive at a decision that will be beneficial to both levels of 
government and at the same time facilitate greater effectiveness in 
meeting the development objectives of the FSM. 

Data Reliability: 

The report also points out JEMCO's concerns about the reliability of 
FSM's health and education indicators inhibiting our ability to 
determine progress in these two sectors. The report also found that 
the FSM has yet to comply with the JEMCO requirement to obtain an 
independent assessment and verification of health and education 
indicator data. As reported at the JEMCO Annual Meeting last week, the 
FSM National Department of Education has already contracted Mid-
continent Research for Education and Learning (McREL) to conduct the 
independent verification of performance indicators and quality data 
for the education indicators. This week, August 26-30, 2013, the McREL 
Team is in FSM carrying out the first phase of the work. The scope of 
services includes the following: 

* Conduct an assessment of the appropriateness of the nation's 
education data framework; 

* Verify the soundness of process used, whether manual or computerized; 

* Validate the reliability of inputs to documentation; and; 

* Ensure the verifiability of data at both points of entry and in 
abstracted reports. 

On the health indicator data, the FSM Government through its FSM 
Department of Health and Social Affairs issued a request for proposal, 
after consulting with 01A, following its standard bidding procedure. 
Only one proposal was received from outside the FSM. However, the 
company requested an amount much higher than the amount approved by 
01A for this activity. After a series of negotiation, the company 
declined to carry out the work. As a result, the FSM Department of 
Health and Social Affairs had initiated a project to clean and 
automate where automation is feasible; its health information 
databases and institute a web-based reporting system for the 14 health 
indicators. 

Financial Accountability: 

Our goal has been and remains to obtain unqualified opinions on both 
financial and compliance. As noted in the report, the FSM National and 
States Governments have come a long way since 2006 but we recognize 
that there is still room for improvement. In the recent FY2012 Audit, 
for the National Government the total number of findings on internal 
control over financial reporting total three, and findings on internal 
control over compliance with federal awards was nine, a decrease from 
fiscal year 2011. 

In previous years, we focused largely on resolving the qualifications 
on the FSM National Governments financial statements, which resulted 
in the unqualified opinion on its financials. With the resolution of 
all the qualifications, our objective now is to maintain the 
unqualified opinion on the financials and at the same time reduce the 
number of findings by twenty percent each fiscal year by doing the 
following: 

1. Staff Development to: (a) Understand and enforce all applicable 
federal regulations, (b) Continue to provide hands on training on 
daily operations, and (c) Improve understanding of accounting 
principles; 

2. Improve processes to ensure government expenditures are 
appropriately supported and filed; 

3. Monthly reconciliations of General Ledger Accounts; 

4. Monitoring of government fixed assets; and; 

S. Establishing a cash management/Fixed Assets Maintenance Plan. 

With the Assistance of USDA Graduate School, we have developed finance 
performance measures to gauge performance. Among these performance 
measures is the monitoring of Outstanding Travel Advances, which 
continues to be a repeat finding on the FSM National Governments 
audit. Additional measures have been put in place to encourage timely 
filing of travel vouchers. Additionally, as part of our efforts in 
resolving the cash management citations for the Airport Improvement 
Projects, the Department has submitted to the Federal Aviation 
Authority a request for an average clearance pattern and is still 
awaiting a response. 

We will continue working together with all the departments, offices 
and agencies to minimize and eventually eliminate remaining findings 
so as to achieve unqualified audit opinion on both financial and 
compliance at both National and States levels. 

Having indicated the above, we wish to register that we are surprised 
by the heavy emphasis on the possibility of achieving increased 
accountability over non-Compact grant funds through a "high-risk" 
designation. We are assured however by the knowledge that the process 
involved in a "high-risk" designation is not an arbitrary one. 

As we have observed in the past, we believe that much insight into the 
compact implementation challenges and successes can be gained by a 
mere separation of the reporting on the FSM and RMI. 

Once again, we reiterate our appreciation for the opportunity to 
present our comments on the draft report. 

Respectfully submitted, 

Signed by: 

Asterio Takesy: 
FSM Ambassador to the United States: 

[End of section] 

Appendix XI: Comments from the Government of the Republic of the 
Marshall Islands: 

Note: GAO comments in response to this letter, supplementing those in 
the report text, appear at the end of this appendix. 

Embassy Of The Republic Of The Marshall Islands:
2433 Massachusetts Avenue, N.W. 
Washington, D.C. 20008:
Tel. # (202) 234-5414: 
Fax # (202) 232-3236: 
E-mail: info@rmiembassyus.org: 

September 5, 2013: 

Mr. Emil E. Friberg, Jr. 
Assistant Director/Senior Economist at GAO: 
Washington, DC: 

Dear Mr. Friberg, 

The Embassy of the Republic of the Marshall Islands has the honor to 
forward the attached comments by the RMI Government to the draft GAO 
report entitled, "Micronesia and the Marshall Islands Continue to Face 
Challenges Measuring Progress and Ensuring Accountability", GAO report 
number, "GA0-13-675". 

Sincerely, 

Signed by: 
H.E. Mr. Charles Paul
Ambassador of the Republic of the Marshall Islands to the United 
States of America: 

cc: 
Hon. Mr. Phillip Muller, Minister of Foreign Affairs, Republic of the 
Marshall Islands: 
Kino S. Kabua, Secretary of Foreign Affairs: 

Response And Comments Of The Government Of The Republic Of The 
Marshall Islands To The U.S. Government Accountability Office Report 
“compacts Of Free Association, Micronesia And Marshall Islands 
Continue To Face Challenges Measuring Progress And Ensuring 
Accountability” 

Page numbers in draft report mentioned in the letter may differ from 
those in this report. 

The Government of the Republic of the Marshall Islands (GRMI) wishes 
to convey its appreciation to the United States Government 
Accountability Office (GAO) for extending the deadline for commenting 
to its DRAFT Report. GRMI’s comments are stated below. 

Technical Comments: 

Ministry of Finance (MOF): 

1. Single Audit (Cover Page and Pages 38-40): 

a. As noted in the GAO report, GRMI’s unresolved prior year questioned 
costs totaled $7.4 million at the end of fiscal year 2011. Before the 
commencement of the fiscal year 2012 audit, the Secretary of Finance 
took several steps to better manage the audit fieldwork process and 
reduce prior year questioned costs. These measures included greater 
supervisory oversight and follow-through on missing procurement 
documentation and preliminary questioned cost citations. As a result, 
GRMI was able to reduce its questioned costs in the fiscal year 2012 
compliance report to a record low of $35,000. Similarly, MOF staff 
began a detailed examination of all prior year audit findings and 
worked closely with the Department of the Interior (DOI) audit 
resolution official to obtain the necessary documentation to clear 
these questioned costs. Although this official’s reinstatement letter 
has not been received as of the date of these comments, the Secretary 
of Finance is now confident there will be timely resolution of all 
prior year questioned costs. [Se comment 1] 

b. MOF believes that internal controls are now in place to detect and 
deter fraud, waste or non-compliance with the Fiscal Procedures 
Agreement (FPA) or other U.S. Federal regulations. As such, it does 
not believe that any special conditions or restrictions for 
unsatisfactory performance or failure to comply with grant terms are 
warranted. Moreover, MOF does not believe that an Office of Insular 
Affairs (OIA) “intervention” is necessary or desirable for improving 
financial accountability over Compact or other U.S. Federal grants. 
Although there will always be areas in grant management that require 
special focus, MOF has actively solicited other third-party support 
for its reforms. In both fiscal years 2012 and 2013, MOF had increased 
access to financial assistance from the Asian Development Bank, World 
Bank and International Monetary Fund. Noting the decrement affecting 
Compact sector resources and recurring OIA staffing shortages to 
assist with greater financial accountability, the GRMI believes that 
utilizing these other third parties is the preferred option for better 
public management of its public finances. 

2. MTBIF (Pages 19 and 20) and Compact Grant Decrements (Cover Page, 
Pages 12, and 46): 

a. GRMI submitted plans that will address the decrements during the 
Mid-Year Joint Economic Management and Financial Accountability 
Committee (JEMFAC) meeting in March 2011 and prior to the Annual 
JEMFAC meeting in August 2013, entitled: “Decrement Strategy & MTBIF 
Policy Framework Paper, FY11-14” and “Medium Term Budget and 
Investment Framework (MTBIF), Compact Sector Report”, respectively. 
Both plans outlined initiatives that will address the decrements in 
Compact funding. [See comment 2] 

b. GRMI will address its long-term fiscal planning initiatives as part 
of an expanded narrative of its MTBIF submission. The GRMI has 
submitted its 2014 MTBIF and Fiscal Management Model to OIA prior to 
the Annual JEMFAC meeting in August 2013 and believes these documents 
address the concerns expressed by U.S. officials at various times as 
well as embed expenditure and revenue assumptions as a result of the 
decrement in compact sector funding through fiscal year 2023. It will 
continue to revise the MTBIF framework each year or at suitable 
intervals as required for clarifications or by changes in 
circumstances and further add such narrative addendums to address 
major decrement issues whenever required. MOF believes, however, that 
this document is useful as a policy guide and planning tool, not as a 
basis for micro-managing line-item adjustments in particular sub-
accounts. 

c. While acknowledging the efficacy of a MTBIF and related decrement 
study as a planning tool, the GRMI is concerned about certain scope 
elements included in the proposed JEMFAC resolution 2010-1: Long-Term 
Fiscal Planning that are no longer accurate. First of all, as 
indicated in successive single audit reports, there is no long-term 
“unsustainable growth in government wage bills,” and revenues are 
increasing significantly in many areas. Secondly, tax reform 
initiatives are on schedule and have broad-based political support. 
Moreover, commenting on subjective interpretations such as “apparent 
political obstacles” in any fiscal plan does not move the discussion 
further along with respect to more efficient tax administration, 
increasing revenues or management of US grants. Finally, economic 
activity is neither stagnant nor declining as evidenced in a recent 
report contracted by OIA. Noting these changed scope items from the 
original resolution, MOF believes the usefulness of a decrement plan 
is as a policy guide and planning tool – not as a basis for imposing 
line-item expenditure ceilings which seldom reflect broader policy 
goals. 

Ministry of Health (MOH); 

3. MOH data (Pages 20, 33, and footnote 45): 

a. MOH acknowledges the GAO's report and wish to provide the following 
feedback for further clarification on some of the points expressed. 
Furthermore, MOH agrees with the comments expressed on MOH's data 
reliability. As stated, reliability question stems from late entries 
and having multiple international databases. 

b. Currently, there are 52 health centers spread throughout the 29 
atolls and receiving the data on time is always a challenge. In 
addition, MOH lacks proper personnel to concentrate solely on data 
encoding. Health officers and/or nurses are also responsible for data 
encoding in addition to their regular duties of providing health 
services. In an effort to remedy this, MOH has requested and received 
support from some of the Federal Grants namely the Prevention & Public 
Health Fund to support for additional data entry personnel. 

c. MOH wishes to further clarify GAO’s reference to the leprosy data 
as having no basis for judgment. Prior to FY2011, there was only 1 
public Health nurse responsible for Leprosy who also had other 
responsibilities in other Public Health Programs. FY2011 was the first 
year MOH established the Leprosy Program and dedicated 5 staff solely 
for said Program. In MOH’s view, the high detection rate over the past 
2 years is a result of having the Program and the necessary personnel 
in place. 

d. In FY2011, MOH did receive assistance from United Nations 
Development Program (UNDP) to aid with the Health Information 
management improvement initiative. However, the UN Volunteer left 
prior to the contract or any of the assessments were completed. 
Following the UN Volunteer's departure, MOH resubmitted its request to 
UNDP for further assistance. Selections were made, however, the 
candidates declined later on. 

e. In April of 2013, MOH worked with the Pacific Islands Health 
Officer's Association (PIHOA) requesting for assistance with its data 
assessment but also included, as part of the request, review of the 
reporting framework. Currently, PIHOA is awaiting MOH’s request to be 
officially submitted. It is important to note that MOH intends to 
submit said proposal to PIHOA to review and update RMI’s core 
performance indicators (CPIs) to assure that they are still relevant 
and institute performance management processes for CPIs. 

Ministry of Education (MOE): 

4. MOE indicators: 

a. Page 26 - "The RMI established 20 indicators to track progress in 
education..." We believe the United States, specifically OIA, put 
forward these 20 indicators. The level of consultation with GRMI was 
not sufficient to establish adequate level of ownership of indicators. 
GRMI has been reporting on these indicators since the inception of the 
amended Compact. Some of the indicators are not useful anymore and 
should be deleted from the list while more useful indicators might 
need to be added. Moving forward, it is recommended that two sides 
revisit these set of indicators. [See comment 3] 

b. Page 27 - ..."data for 4 (indicators) could not be used... because 
of reliability problems..." We agree that data for the rest of the 
indicators are not 100% accurate; but we think they are the best we 
can provide given the large number of small schools spread out over a 
large ocean area, and the deficient state of our transportation and 
communication system (for example, no internet access on almost all 
outer islands.) 

c. Page 27 - "Dropout rate.... lack of outer island data; missing 
data" The RMI population, especially in the outer islands, is highly 
mobile in any given year, moving not only from island to island within 
an atoll, but also from outer islands to outer islands and to Majuro 
and Ebeye and back to home island, and even to the U.S. We provided 
the data we can in this area with the idea that they are approximate 
indicators. 

d. Page 28 - “... in fiscal years 2007 and 2008 RMI used the Pacific 
Island Literacy Test... whereas in 2009 it began using the Marshall 
Islands Standardized Test, so year-to year changes in the data for 
this indicator are not reliable..." Development and implementation of 
the Marshall Islands Standardized Test (MISAT) series was undertaken 
given that the Pacific Island Literacy (PIL) Test was discontinued by 
its regional provider. 

e. Page 48 – “However, because of data reliability issues, neither 
country can demonstrate whether they have made progress toward their 
goals in these sectors.” Making positive gains in student performance 
take time. Improvements have been made and are noted in teacher 
quality, student performance and facilities improvements. The report 
itself alluded to these improvements. The standards applied for 
evaluating progress are not self-evident and so a general statement 
such as the above is questionable at best. [See comment 4] 

5. Supplemental Education Grant (SEG): 

a. Regarding Page 7, it is important to note that the SEG is one year 
behind (i.e. while Compact base grants are for Fiscal Year 2014, SEG 
for fiscal year 2013 is provided in fiscal year 2014). Moreover, the 
amount of $6.1 million stated in the amended Compact has not been 
provided to the RMI. In fact, the SEG has been declining since 2005 
from $6.1 to $5.5 in 2013 and has never included inflation amounts. 
The SEG allocation for RMI in 2013 was adversely affected by the U.S. 
Government sequestration. 

b. In footnote # 17, although the amended Compact provides that the 
SEG “shall be used and monitored in accordance to an agreement” 
between DOI, Department of Education (DOE), Department of Health and 
Human Services (HHS) and the Department of Labor (DOL), the RMI has 
not received a copy despite repeated requests at JEMFAC meetings. 

c. In order to be comprehensive on the use of the SEG, the GRMI feels 
that the direct quote from the FPA in Page 7 should be expanded to 
include “Funds may also be used to provide aid to students at post-
secondary institutions based on financial need, and to design and 
develop innovative and strategic programs or activities that enable 
the education system to provide improved direct educational services 
and meet performance accountability requirements. Funds awarded under 
the Supplemental Education Grant shall not be used for school 
construction or remodeling; general operational costs (other than 
general operational costs of programs and activities funded by the 
Supplemental Educational Grant); or teacher salaries, except for the 
salaries of teachers, teaching assistants, paraprofessionals, or 
instructors who are needed to carry out programs or activities 
supported by the Supplemental Education Grant. Funds awarded under 
the Supplemental Education Grant are not to be taken into account when 
satisfying the priority to be given to education and health when 
awarding Sector Grants...” [See comment 5] 

Public Management Unit (PMU): 

6. On-site Visits: 

a. Page 28: “Many of the safety doors that we observed at our selected 
schools were either off their hinges and moved to one side or propped 
open with an object. Officials told us that this problem occurred 
because the doors had not been properly installed.” At Rairok 
Elementary School (RRES), the problem fitting the door to the wall has 
been corrected by the Contractor as the hinges were not properly 
installed at the time of inspection by GAO. We observed too that these 
safety doors, mostly on 2-storey buildings are designed & built with 
special framing, aluminum hinges & locks because of its weight and 
size. If not well taken cared by end-user on proper usage, it is 
really prone to damage. In some instances, kids are seen playing with 
these doors and damages are reported happening at Delap Elementary 
School (DES), Rita Elementary School (RES) and Laura Elementary School 
(LES) where MOE Maintenance Crew started the repairs. Outer island 
schools do not have this kind of doors. PMU will check with the 
Designer (BECA) to provide alternative replacement door using 
stainless steel hinges in lieu of the aluminum hinges and increase the 
number of hinges installed per door. [See comment 6] 

b. Page 28: “However, we did find that several of the water tanks at 
the school were not connected to any of the buildings.” MOE is 
currently fixing the catchment tanks apparently damaged by students. 
Intentionally disconnected by MOE Maintenance Crew for repair 
purposes. It is worthwhile to note that plastic catchment tanks are 
easily vandalized even with fencing as in the case of RES where the 
chain link fence is cut open by outsiders to draw water from the tanks. 
The issue of these damages are due to unsecured campuses (no fencing 
and security), which could easily be vandalized by outsiders. [See 
comment 7] 

c. Page 28: “At another school that we visited, Laura Elementary 
school, classrooms in the new building had desks, chairs, and 
electricity, but an old building that was still used lacked electricity.
” All classrooms in LES are hooked up to power (Majuro Energy Company) 
and MOE Maintenance does not recall any complaints of lack of power. 
It might be due to some internal electrical problem occurring at the 
time. [See comment 8] 

d. Page 28: “At Delap Elementary, the classrooms had electricity, we 
were informed, but running water was available only twice weekly, 
which meant that the school had to rely on a rainwater catchment 
facility for some of its needs.” DES is provided with 4-1500 gallons 
catchment for most of its needs but is also connected to the city 
water thru a by-pass valve, in case run-off is low. Majuro Water and 
Sewer Company (MWSC) rations water during dryer months where catchment 
tanks are also low or have no water. MOE at one time replaced the 
damaged pump but currently DES has no problem with water. [See comment 
9] 

e. Page 28-29: “On Ebeye, we visited a school in Gugeegue that had 
consistent electricity, we were told. We observed the chairs, desks, 
and textbooks on our visit. However, we were also shown one of the 
school buildings being used for classroom that was considered unsafe.” 
In one of our inspection in Ebeye dated November 2011, PMU had issued 
a notice to Kwajalein Atoll High School (KAHS) and MOE that for safety 
reasons, the old building at KAHS had to be abandoned. During the time 
of the GAO visit (2013), MOE & KAHS started constructing a 3-classroom 
building to replace the unsafe structure. With the concurrence of DOI, 
PMU had processed a purchase requisition to purchase construction 
materials while MOE & KAHS agreed to provide the labor component. To 
date, the old building has been abandoned and KAHS is reportedly 
occupying the new 3-classroom building. [See comment 10] 

Office of Compact Implementation (OCI): 

7. Typos: 

a. In footnote #36, instead of “JEMCO”, it should be “JEMFAC”. RMI did 
not just make verbal commitments but also in writing explaining the 
factors that would affect the development of a decrement plan which 
was provided on March 2013. 

b. In footnote # 72, instead of “.7”, it should be “7”. 

c. In Page 43, instead of “foreign policy officer”, it should be 
“foreign service officer”. 

d. Also in Page 43, instead of “RMI Chief Secretary”, it should be the 
“Office of the Chief Secretary”. 

e. In footnote #90, instead of “Ministry of Finance”, it should be the 
“Ministry of Foreign Affairs”. 

8. Clarification: 

a. In Page 43, RMI officials meant that the Office of the Chief 
Secretary did not have the authority to withhold funds but if it had 
the authority to do so, it would be the last resort. This comment is 
in relation to submissions of quarterly reports from the Compact 
Ministries and Agencies. Said submissions are to be provided to Office 
of Compact Implementation (OCI) through the Office of the Chief 
Secretary in order to receive these reports in a timely manner. [See 
comment 11] 

Additional Comments: 

Five-Year Review: 

1. There has been no action on the First Five-Year Review report 
despite recommendations from the GRMI to improve the implementation of 
the Compact, as amended. U.S. Government has not initiated the Second 
Five-Year Review although the amended Compact is now in its 10th year. 

Trust Fund: 

2. In Page 1 of the report, GRMI feels that reference to the intent of 
the RMI Trust Fund to provide an annual source of revenue post-2023 
should cite GAO’s Compacts of Free Association: Trust Funds for 
Micronesia and the Marshall Islands May Not Provide Sustainable 
Income. GAO-07-513. Washington, D.C.: June 15, 2007. 

Recommendations by GAO: 

3. With respect to the recommendations to JEMFAC in Page 48, JEMFAC 
has recently passed the JEMFAC Resolution 2013-1 to use carry-over 
funds to address one or more of the following three areas: to assist 
the GRMI to complete satisfactory plans to address annual decrements 
in Compact funds; to produce reliable indicator data used to track 
progress in education and health; and/or to address all single audit 
findings in a timely manner. 

The following are GAO's comments on the letter from the government of 
the Republic of the Marshall Islands (RMI) dated September 5, 2013. We 
comment only to note where we addressed an RMI comment by adding or 
updating information in the report, or to note areas of concern. 

GAO Comments: 

1. In its comments, the RMI stated that the RMI Minister of Finance 
took steps to better manage the audit fieldwork process and reduced 
the 2012 questioned costs to approximately $35,000 and also began a 
detailed examination of all prior year questioned costs. We added this 
information in footnote 81 on page 44. 

2. The RMI noted in its comments that it had provided the U.S.-RMI 
Joint Economic Management and Financial Accountability Committee 
(JEMFAC) with updated plans, as required, prior to the August 2013 
JEMFAC meeting. We updated our report to reflect that the RMI 
submitted an updated medium-term budget and investment framework dated 
August 2013 along with several budget portfolio statements for fiscal 
year 2014, including statements for the departments of health and 
education. On the basis of information we received at the August 2013 
JEMFAC meeting, we further noted that the RMI government considers 
this to be its decrement plan, but also that the information was 
provided to the U.S. members of the JEMFAC 3 days prior to the annual 
meeting, and according to these members, they did not have sufficient 
time to review it and determine whether or not it meets the 
requirements of the JEMFAC resolution. We added this updated 
information on page 23 of the report. 

3. In its comments, the RMI stated that it believes the United States, 
specifically the Office of Insular Affairs (OIA), put forward the 
RMI's 20 education indicators and that the level of consultation with 
the RMI government was not sufficient to establish adequate level of 
ownership of the indicators. At the August 2013 JEMFAC meeting, the 
Chairman of JEMFAC stated that the 20 education indicators were 
developed collaboratively between the U.S. and the RMI. At the same 
meeting, the Education Grant Manager of the Office of Insular Affairs 
confirmed this point. 

4. The RMI noted in its comments that improvements have been made in 
teacher quality, student performance, and facilities, which, they 
stated, the report itself alludes to. The RMI noted that making 
positive gains in student performance takes time. The standards for 
evaluating progress are the RMI's 20 education indicators, which it 
has tracked since 2005 in response to a JEMFAC resolution, as noted in 
the report. However, in order to use the indicators to assess progress 
for the compacts as a whole, we first needed to determine if the data 
supporting the indicators were reliable. As our report states, two out 
of the subset of five education indicators we examined were deemed 
sufficiently reliable to assess progress, one of which was the 
education level of staff. From 2007 through 2011, data we reviewed 
showed an improvement in the qualifications of RMI teaching staff. 
However, data for a key measure of student achievement, the indicator 
on student "proficiency" levels, were found to be unreliable, and so 
we were unable to make an assessment of student performance. Regarding 
progress in infrastructure, we noted that the RMI tracks its progress 
in the infrastructure sector by the completion of projects and that 
200 classrooms had been constructed or renovated during the period of 
our review. This accomplishment, however, is not one of the RMI's 20 
indicators of educational progress. 

5. In its comments, the RMI suggested that we provide a more 
comprehensive statement on the uses of supplemental education grants 
and quoted an extensive definition of uses found in the fiscal 
procedures agreement. We edited the relevant text on page 9 in our 
report to address this concern. 

6. In its comments regarding our site visits to various schools where 
we observed safety doors off their hinges or propped open because they 
were not properly installed, the RMI stated that the problem at Rairok 
Elementary School has been corrected, and that maintenance crews had 
started repairs at Delap, Laura, and Rita Elementary Schools. We noted 
this information on page 32. We have not verified this information. 

7. In its comments regarding our observations regarding water tanks 
that were not connected to school buildings at sites we visited, the 
RMI stated that Ministry of Education maintenance crews were currently 
fixing the catchment tanks and that the tanks were intentionally 
disconnected for repair purposes. We noted this information on page 
33. We have not verified this information. 

8. In it comments regarding our visit to Laura Elementary School and 
its lack of power in one old building still being used, the RMI 
indicated that all classrooms at Laura Elementary School are hooked up 
to power and that Ministry of Education maintenance does not recall 
any complaints about the of lack of power but that some internal 
electrical problem might have occurred during our visit. We noted this 
information on page 33. We have not verified this information. 

9. In its comments, the RMI noted that Delap Elementary School 
currently has no problem with water. It noted though that during the 
dryer months water catchment tanks are low or have no water, and that 
Majuro Water and Sewer Company rations water. The reference to the 
lack of water at Delap Elementary school was deleted from the final 
report. 

10. In its comments regarding our observation that a school building 
was being used on Ebeye though it was considered unsafe, the RMI noted 
that the building has been abandoned and that a new three-classroom 
building has been constructed at Kwajalein Atoll High School. We noted 
this information on page 33. We have not verified this information. 

11. In it comments, the RMI noted that the Office of the Chief 
Secretary did not have the authority to withhold funds, but if it had 
the authority to do so, it would do so as a last resort. We amended 
the text on page 51 of the report to reflect this information. 

12. In its comments, the RMI stated that it feels a reference to 
intent of the RMI trust fund to provide an annual source of revenue 
post-2023 should cite our 2007 trust fund report. We added the 
footnote citing our prior trust fund report, as suggested. 

[End of section] 

Appendix XII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David Gootnick, (202) 512-3149 or gootnickd@gao.gov: 

Staff Acknowledgments: 

In addition to the person named above, Emil Friberg (Assistant 
Director), Christina Bruff, Julie Hirshen, and Jeffrey Isaacs were key 
contributors to this report. Ashley Alley, David Dayton, Martin De 
Alteriis, and Etana Finkler provided technical assistance. 

[End of section] 

Related GAO Products: 

Compacts of Free Association: Improvements Needed to Assess and 
Address Growing Migration. [hyperlink, 
http://www.gao.gov/products/GAO-12-64]. Washington, D.C.: November 14, 
2011. 

Compacts of Free Association: Micronesia Faces Challenges to Achieving 
Compact Goals. [hyperlink, http://www.gao.gov/products/GAO-08-859T], 
Washington, D.C.: June 10, 2008. 

Compacts of Free Association: Implementation Activities Have 
Progressed, but the Marshall Islands Faces Challenges to Achieving 
Long-Term Compact Goals. [hyperlink, 
http://www.gao.gov/products/GAO-07-1258T]. Washington, D.C.: September 
25, 2007. 

Compacts of Free Association: Trust Funds for Micronesia and the 
Marshall Islands May Not Provide Sustainable Income. [hyperlink, 
http://www.gao.gov/products/GAO-07-513]. Washington, D.C.: June 15, 
2007. 

Compacts of Free Association: Micronesia's and the Marshall Islands' 
Use of Sector Grants. [hyperlink, 
http://www.gao.gov/products/GAO-07-514R]. Washington, D.C.: May 25, 
2007. 

Compacts of Free Association: Micronesia and the Marshall Islands Face 
Challenges in Planning for Sustainability, Measuring Progress, and 
Ensuring Accountability. [hyperlink, 
http://www.gao.gov/products/GAO-07-163]. Washington, D.C.: December 
15, 2006. 

Compacts of Free Association: Development Prospects Remain Limited for 
Micronesia and the Marshall Islands. [hyperlink, 
http://www.gao.gov/products/GAO-06-590]. Washington, D.C.: June 27, 
2006. 

Compacts of Free Association: Implementation of New Funding and 
Accountability Requirements Is Well Underway, but Planning Challenges 
Remain. [hyperlink, http://www.gao.gov/products/GAO-05-633]. 
Washington, D.C.: July 11, 2005. 

Compact of Free Association: Single Audits Demonstrate Accountability 
Problems over Compact Funds. [hyperlink, 
http://www.gao.gov/products/GAO-04-7]. Washington, D.C.: October 7, 
2003. 

Compact of Free Association: An Assessment of Amended Compacts and 
Related Agreements. [hyperlink, 
http://www.gao.gov/products/GAO-03-890T]. Washington, D.C.: June 18, 
2003. 

Compact of Free Association: An Assessment of Current U.S. Proposals 
to Extend Assistance. [hyperlink, 
http://www.gao.gov/products/GAO-02-857T]. Washington, D.C.: July 17, 
2002. 

Foreign Assistance: Effectiveness and Accountability Problems Common 
in U.S. Programs to Assist Two Micronesian Nations. [hyperlink, 
http://www.gao.gov/products/GAO-02-70]. Washington, D.C.: January 22, 
2002. 

Foreign Relations: Kwajalein Atoll Is the Key U.S. Defense Interest in 
Two Micronesian Nations. [hyperlink, 
http://www.gao.gov/products/GAO-02-119]. Washington, D.C.: January 22, 
2002. 

Compact of Free Association: Negotiations Should Address Aid 
Effectiveness and Accountability and Migrants' Impact on U.S. Areas. 
[hyperlink, http://www.gao.gov/products/GAO-02-270T]. Washington, 
D.C.: December 6, 2001. 

Foreign Relations: Migration From Micronesian Nations Has Had 
Significant Impact on Guam, Hawaii, and the Commonwealth of the 
Northern Mariana Islands. [hyperlink, 
http://www.gao.gov/products/GAO-02-40]. Washington, D.C.: October 5, 
2001. 

[End of section] 

Footnotes: 

[1] Compact of Free Association Amendments Act of 2003, Pub. L. No. 
108-188 (Dec. 17, 2003). 

[2] See GAO, Compacts of Free Association: Trust Funds for Micronesia 
and the Marshall Islands May Not Provide Sustainable Income, 
[hyperlink, http://www.gao.gov/products/GAO-07-513] (Washington, D.C.: 
June 15, 2007). 

[3] See GAO, Compacts of Free Association: Micronesia and the Marshall 
Islands Face Challenges in Planning for Sustainability, Measuring 
Progress, and Ensuring Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-07-163] (Washington, D.C.: Dec. 15, 
2006). We issued this report to comply with a reporting mandate in the 
amended compacts' implementing legislation, which Congress later 
eliminated. (Pub. L. No. 108-188, § 104(h), as amended by Pub. L. No. 
111-68, § 1501(c), Oct. 1, 2009). 

[4] According to the compacts' implementing legislation, the United 
States is required to submit annual reports on the 5th, 10th, and 15th 
anniversaries of the enactment of the law that review the terms of the 
respective compacts and consider the overall nature and development of 
the U.S.-FSM and U.S.-RMI relationships. 

[5] The United Nations Millennium Development Goals and their 
respective performance measures aim to meet the needs of the world's 
poorest individuals. All of the world's countries and leading 
development institutions have agreed to observe and pursue these goals 
and performance measures. 

[6] The scope for this report is generally fiscal years 2007 through 
2011; however, we are including fiscal year 2006 because the last 
single audit report discussed in our prior report [hyperlink, 
http://www.gao.gov/products/GAO-07-163] was for fiscal year 2005. 

[7] In the FSM, we focused our review on the National Government and 
the state governments of Chuuk and Pohnpei. Chuuk and Pohnpei account 
for 82 percent of the total population of the FSM. We did not include 
in our review the state governments of Yap and Kosrae. 

[8] Percentages may not equal 100 due to rounding. 

[9] This was the Trust Territory of the Pacific Islands, which 
included the island groups that later became the Republic of Palau and 
the Commonwealth of the Northern Mariana Islands, as well as the FSM 
and RMI. The Department of the Navy began civil administration of all 
these islands on July 18, 1947. This responsibility was transferred to 
Interior in July 1951. 

[10] This estimate represents total nominal outlays. It does not 
include payments for compact-authorized federal services or U.S. 
military use of Kwajalein Atoll land, nor does it include investment 
development funds provided under section 111 of Pub. L. No. 99-239, 
the law enacting the original Compact of Free Association in 1986. 

[11] See GAO, Foreign Assistance: U.S. Funds to Two Micronesian 
Nations Had Little Impact on Economic Development, [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-00-216] (Washington, D.C.: Sept. 
22, 2000). We reported that FSM and RMI compact funds spent on general 
government operations maintained high government wages and a high 
level of public sector employment, discouraging private sector growth, 
and that compact funds used to create and improve infrastructure 
likewise did not contribute to significant economic growth. 

[12] In addition, under the original compact, the FSM and RMI also 
benefited from numerous U.S. federal programs and citizens of both 
nations exercised their right under the compact to live and work in 
the United States as "nonimmigrants" and to stay for long periods. 
Nonimmigrant status typically signifies nonpermanent visitors, such as 
tourists or students. See GAO, Foreign Assistance: Effectiveness and 
Accountability Problems Common in U.S. Programs to Assist Two 
Micronesian Nations, [hyperlink, 
http://www.gao.gov/products/GAO-02-70] (Washington, D.C.: Jan. 22, 
2002); and Compacts of Free Association: Improvements Needed to Assess 
and Address Growing Migration, [hyperlink, 
http://www.gao.gov/products/GAO-12-64] (Washington, D.C.: Nov. 14, 
2011). 

[13] The amended compacts require the FSM and the RMI to make onetime 
contributions of $30 million each to the trust funds; these initial 
investments occurred in August 2006 and September 2005, respectively. 
The amended compacts' implementing legislation provides a continuing 
appropriation until 2023 for the financial assistance. 

[14] The agreements between the U.S. government and the FSM and RMI 
governments contain detailed requirements concerning implementation of 
the amended compacts' funding and accountability provisions. 

[15] Other sectors can be established. In 2012, the United States and 
the FSM created the enhanced reporting and accountability sector and 
in fiscal years 2012 and 2013 supported it with grant funds aimed at 
developing and implementing systems, financial management procedures, 
and internal controls that account for and ensure reporting on the use 
of amended compact funds. This grant can only be continued by mutual 
agreement between the United States and the FSM; otherwise, the grant 
ends after fiscal year 2014. 

[16] Section 211(b)(1) of the U.S.-RMI amended compact details how 
grant funding should be allocated for Ebeye special needs. Additional 
assistance for the Kwajalein Atoll is outlined in sections 211(b)(2) 
and 212, which provide $1.9 million to address special needs, with an 
emphasis on Kwajalein landowners, and $15 million annually starting in 
2004, rising to $18 million in 2014, for U.S. military use and 
operating rights. The RMI government uses the funds to compensate 
landowners on the Kwajalein Atoll. 

[17] The supplemental education grant is awarded in place of grant 
assistance formerly awarded to the countries under several U.S. 
education, health, and labor programs. 

[18] The provision authorizing the supplemental education grant in the 
amended compacts' implementing legislation authorizes to be 
appropriated to the Secretary of Education an annual amount adjusted 
for inflation (partial) through 2023. A memorandum of agreement among 
Interior, Education, HHS, and Labor states that Education "shall seek 
the annual appropriation of funds for the supplemental education 
grants, including adjustments for inflation, as described in Section 
105(f)(1)(B)(iii) of Pub. L. No. 108-188." According to Education 
officials, the department has not sought the inflation increases due 
to budget constraints over the past decade. 

[19] The three U.S. representatives serve on both JEMCO and JEMFAC and 
include one official each from Interior, State, and HHS, with the 
Interior representative serving as Chairman of both oversight bodies. 
A revision, under preparation since 2003, to a 1986 executive order 
outlining specific responsibilities of the U.S. agencies regarding 
compact matters had not been issued as of June 2013, according to 
Interior officials. 

[20] JEMCO and JEMFAC render decisions by majority vote, except those 
decisions regarding the division of RMI grants among sectors, which 
are made by consensus. JEMCO and JEMFAC are also responsible for 
approving the plans that form the basis for the use of the 
supplemental education grants annually. The U.S. appointees to JEMCO 
and JEMFAC are required by the compacts' implementing legislation to 
"consult with the Secretary of Education regarding the objectives, 
use, and monitoring of United States financial, program, and technical 
assistance made available for educational purposes." (Pub. L. No. 108-
188, §105(f)(1)(B)(i), Dec. 17, 2003). 

[21] According to an official with Interior's Office of Insular 
Affairs (OIA), the FSM and the RMI have not fulfilled their annual 
reporting requirements from fiscal years 2004 through 2012. Both FSM 
and RMI officials expressed their concerns with the annual report due 
date because it conflicts with the preparation and availability of 
other reports that are needed to complete the annual report. 

[22] 31 U.S.C. § 7501 et seq. According to the act, single audit 
reports are due to the Federal Audit Clearinghouse within 9 months 
after the end of the audited period. OIA uses the date of filing with 
the clearinghouse to determine when the country has completed the 
audit process. 

[23] Under the amended compacts' implementing legislation, the U.S. 
President is required to report annually to Congress on the use and 
effectiveness of U.S. assistance. The President's report is also to 
include an assessment of U.S. program and technical assistance 
provided to the countries and an evaluation of their economic 
conditions. OIA officials told us they assist in drafting these annual 
reports, which were issued in 2004 through 2011. Additionally, during 
the year of the 5th, 10th and 15th anniversaries of the enactments of 
the law, the annual reports should include a review of the terms of 
the respective compacts and consider the overall nature and 
development of the U.S.-FSM and U.S.-RMI relationships. The United 
States issued 5-year reviews of the FSM and RMI in 2012. 

[24] The amended compacts' implementing legislation states that "it is 
the sense of Congress that the Secretary of the Interior shall ensure 
that there are personnel resources committed in the appropriate 
numbers and locations to ensure effective oversight of U.S. 
assistance." See Pub. L. No. 108-188, §105(b)(8). 

[25] The cognizant agency is the federal agency designated to carry 
out the federal responsibilities with regard to a single audit and is 
the agency that provides the predominant amount of direct funding to 
an entity, such as the FSM and the RMI. Grantees receiving more than 
$50 million in federal assistance are assigned to a cognizant agency 
for audit supervision. See Office of Management and Budget, Audits of 
States, Local Governments, and Non-Profit Organizations, OMB Circular 
No. A-133 (revised 2007). 

[26] This coordinated federal response is the "management decision" 
for audit findings. Management decision means the evaluation by the 
federal awarding agency of audit findings and corrective action plan 
and the issuance of a written decision as to what corrective action is 
necessary. 

[27] See Office of Management and Budget, Grants and Cooperative 
Agreements with State and Local Governments, OMB Circular No. A-102 
(revised 1997). 

[28] According to the grants management common rule, a high-risk 
designation is authorized if a grantee has a history of unsatisfactory 
performance or otherwise irresponsible actions, such as failing to 
submit single audit reports in a timely manner or if single audits or 
other Inspector General investigations reveal substantial and 
pervasive problems. Such a designation allows the grantor to impose 
special terms and conditions or sanctions that could result in 
suspensions or terminations of federal awards. The grants management 
common rule was established in 1987 under presidential direction to 
adopt government-wide terms and conditions for grants to state and 
local governments. Each federal department incorporates the rule in 
its agency regulations. 

[29] Since we focused our review on the FSM National Government and 
the state governments of Chuuk and Pohnpei, the FSM expenditure amount 
includes data for these three governments. Data for the state 
governments of Kosrae and Yap are not included. 

[30] The reliance on compact funds as sources of government 
expenditures varies among the FSM governments, with education sector 
compact and supplemental education grant expenditures together 
accounting for almost 20 percent of total education expenditures in 
the National Government, 100 percent in Chuuk, and 91 percent in 
Pohnpei, according to data from the 2011 single audits. Health sector 
compact funds accounted for about 9 percent of total health 
expenditures in the National Government, 98 percent in Chuuk, and 72 
percent in Pohnpei. 

[31] JEMCO resolution 2011-1. 

[32] U.S. officials called for this plan on the basis of two prior 
JEMCO resolutions related to annual decrement planning: JEMCO 
resolution 2009-2 and JEMCO resolution 2010-2. JEMCO resolution 2009-2 
called for the FSM national and state governments to develop plans for 
managing the annual decrements in compact funding and use those plans 
as the basis for its fiscal year 2012 budget decisions. Because the 
FSM did not submit national or state plans prior to an August 10, 
2010, deadline, JEMCO resolution 2010-2 called for a report addressing 
a variety of issues relating to long-term sustainability, such as the 
need to constrain expenditures, increase revenues, and find additional 
contributors to increase compact trust fund annual contributions in 
order to adjust to projected budget levels after fiscal year 2023. 

[33] JEMFAC resolution 2011-1. 

[34] JEMFAC passed two resolutions related to annual decrement 
planning: JEMFAC resolution 2009-1 and JEMFAC resolution 2010-1. 
JEMFAC resolution 2009-1 called for the RMI to develop plans for 
managing annual decreases in compact funding and use those plans as 
the basis for fiscal year 2012 budget decisions. Because the RMI did 
not submit plans prior to an August 10, 2010, deadline, JEMFAC passed 
another resolution in 2010--JEMFAC resolution 2010-1--that called for 
a report addressing a variety of issues relating to the RMI's fiscal 
challenges, such as the need to make adjustments to take into account 
the effect of the decrement in the medium term. 

[35] In 2006, we reported that the FSM and RMI lacked concrete plans 
for addressing the annual decrements in compact funding and would 
likely be unable to sustain current levels of government services as 
compact funding diminishes. We recommended that Interior, in 
conjunction with JEMCO, JEMFAC, and other U.S. agencies, work with the 
FSM and the RMI to establish plans for sector spending and investment 
to minimize any adverse consequence of reduced funding. See 
[hyperlink, http://www.gao.gov/products/GAO-07-163]. While the FSM and 
the RMI provided draft annual decrement plans to the JEMCO and JEMFAC 
in 2011, JEMCO challenged the viability of the FSM National 
Government's decrement strategy, and JEMFAC advised the RMI government 
to extend its decrement strategy beyond the medium term to mitigate 
the elimination of compact funding in 2023. 

[36] According to the U.S.-RMI amended compact implementing 
legislation, "the Government of the Republic of the Marshall Islands 
shall prepare and maintain an official medium-term budget and 
investment framework. The framework shall be strategic in nature, 
shall be continuously reviewed and updated through the annual budget 
process, and shall make projections on a multi-year rolling basis" 
(Pub. L. No. 108-188, §201(b), §211(f)). According to Article V of the 
fiscal procedures agreement, U.S. grant assistance shall be made 
available in accordance with annually updated implementation steps for 
the medium-term budget and investment framework, developed by the RMI 
in conjunction with its budget process. 

[37] This came in response to a 2004 JEMCO resolution requesting that 
the FSM National Government and the four state Departments of 
Education reconfirm the goals that would be tracked uniformly and 
consistently beginning in fiscal year 2005, to enable reporting of 
results and make comparisons possible over time and across states. 

[38] The consolidation included the merger of 46 early childhood 
education centers with elementary schools, as well as the merging of 
22 elementary schools with other schools in close proximity. 

[39] The FSM National Government considered students to be dropouts if 
they had not come to school for 40 days and had not requested a 
transcript. In Chuuk, an education official stated that elementary 
students with an individualized education program who missed 15 
consecutive days were considered dropouts, whereas high school 
students who had 5 days of unexcused absence were considered dropouts. 
The Pohnpei Department of Education did not have a definition for when 
a student is considered a dropout; but noted it collected dropout data 
only for high school students, not for elementary students. According 
to the FSM JEMCO 20 Education Indicators Report, July 2007, the 
definition of "dropout" was revisited in a May 2007 data management 
workshop. Participants agreed that a completely reliable definition 
was probably unattainable, though it was stressed to participants that 
simply subtracting ending enrollment from beginning enrollment, which 
at least two states had done, was not a reliable method to calculate 
the dropout rate. 

[40] The site visits we made in Chuuk and Pohnpei were intended to 
illustrate educational conditions in those states. Our observations 
are not generalizable to the other states or to the FSM as a whole. 

[41] A 2009 FSM National Government audit report covering fiscal years 
2006 and 2007 also found that some textbooks had been sitting in 
Chuuk's warehouse for up to 8 months. See Federated States of 
Micronesia, Office of the National Public Auditor, Inspection of 
Procurement Activities at Chuuk Department of Education, FY2006-2007, 
Report No. 2009-02 (Palikir, Pohnpei: July 2009). Similar problems 
existed in 2006 when we visited. See GAO, Compacts of Free 
Association: Micronesia's and the Marshall Islands' Use of Sector 
Grants, [hyperlink, http://www.gao.gov/products/GAO-07-514R] 
(Washington, D.C.: May 25, 2007). 

[42] The closed dispensaries were the Parem Island dispensary, 
Tonoas's Sapun dispensary, and Fefen's Sapore dispensary. The open 
dispensaries were Udot's Funomo dispensary and Fefen's Messa 
dispensary. 

[43] The spot checks we performed were intended to provide insights 
into whether drugs were past their expiry dates. Our observations are 
not generalizable to all drugs in Chuuk and Pohnpei. 

[44] In 2004, the first year of the amended compact, the requirement 
was to submit quarterly performance reports with the 20 uniform 
indicators of education progress. The 2005 JEMFAC resolution required 
the RMI to report annually on the 20 indicators. 

[45] JEMFAC has not made a resolution requiring teacher certification 
or indicating that funds will be withheld; however, JEMFAC recommended 
at its March 2013 midyear meeting that a grant condition be placed on 
the fiscal year 2014 Ministry of Education budget stipulating that any 
uncertified teacher not enrolled in a ministry-approved training 
program would be ineligible for any compact-funded salary support. 

[46] We contacted the RMI government and requested additional 
information about activities it took to ensure the data for education 
indicators were reliable. The responses we received did not provide 
sufficient information for us to determine that the data were reliable. 

[47] The site visits we made in the RMI were intended to illustrate 
educational conditions under the compact at school sites we visited. 
Our observations are not generalizable to all school sites throughout 
the RMI. 

[48] Commenting on a draft of this report, the RMI stated that the 
door at one of the elementary schools where we observed this problem 
had been repaired and that repairs were under way at three other 
elementary schools. We have not verified this information. (See 
appendix XI for a copy of the RMI's comments.) 

[49] Commenting on a draft of this report, the RMI stated that 
Ministry of Education maintenance crews were currently fixing the 
catchment tanks, which the crews had intentionally disconnected for 
repair purposes. We have not verified this information. (See appendix 
XI for a copy of the RMI's comments.) 

[50] Commenting on a draft of this report, the RMI indicated that all 
classrooms at Laura Elementary School are hooked up to power and that 
Ministry of Education Maintenance does not recall any complaints about 
the lack of power but some internal electrical problem might have 
occurred during our visit. We have not verified this information. (See 
appendix XI for a copy of the RMI's comments.) 

[51] Commenting on a draft of this report, the RMI noted that the old 
building mentioned has been abandoned and that a new three-classroom 
building has been constructed at Kwajalein Atoll High School. We have 
not verified this information. (See appendix XI for a copy of the 
RMI's comments.) 

[52] The RMI's indicators are identical to the Millennium Development 
Goals health-related indicators and use the same definitions. The 
Millennium Development Goals health-related indicators are found under 
three separate categories: improving maternal health, reducing child 
mortality, and combating HIV/AIDS, malaria, and other diseases. 

[53] In 2009, the RMI began using the Center for Disease Control's 
EpiAnywhere web-based system to track tuberculosis cases and thus we 
decided not to include data from 2007 and 2008 in our data reliability 
assessment. 

[54] The RMI did not provide an explanation for the increases other 
than that it had improved its detection and monitoring for the disease. 

[55] The RMI does not have an indicator that tracks the availability 
of essential drugs on hand in hospitals and dispensaries. Nonetheless, 
we visited the hospital pharmacy in Majuro and asked to look at the 
list of essential drugs; we discussed their availability and then 
checked to see whether their labeled expiration dates had passed. 

[56] The annual reports are to be submitted by July 31 each year. The 
number of postsecondary scholarship recipients was added as an 
indicator in 2011, bringing the total number of education indicators 
to 21. 

[57] The FSM Department of Education reported that staff in the state 
departments of education have been trained to enter data on education 
indicators into their management systems, and that state and National 
Government officials perform some checks of the data entered. 

[58] JEMCO resolution 2012-MT-3. 

[59] The project period stipulated in the request for proposals was 
May 24, 2013, to July 30, 2013. 

[60] Previously, the OIA Health Fiscal Program Specialist had raised 
data quality concerns. A 2007 Compact Health Sector Performance 
Scorecard produced by the Health Fiscal Program Specialist noted that 
in order to measure performance accurately, the FSM's Department of 
Health and Social Affairs would need to standardize data collection 
and tabulation methods employed by each state, establish accepted 
timing intervals for collection and reporting, and ensure that outer 
island information is included. According to Department of Health and 
Social Affairs officials, health indicators are collected both through 
web-based data management systems and through compiling data collected 
manually. Officials also reported some checks on particular 
indicators, such as system checks to catch data entry errors and 
supervisory review of some indicators. 

[61] JEMCO Resolution 2012-MT-3. 

[62] The annual health data report for 2007 was combined with the 
report for 2008 and issued as a single report. 

[63] The OIA's former Health Fiscal Program Specialist, who retired in 
December 2012, told us that the RMI's Ministry of Health has no 
consistent framework for collecting the data, that record keeping is 
poor, and that data entry is inconsistent. 

[64] Entities such as the RMI Economic Policy, Planning, and 
Statistics Office (EPPSO), the Secretariat of the Pacific Community 
(SPC), and the World Health Organization have also raised concerns 
about the quality of the health data reported by the RMI Ministry of 
Health. Both EPSSO and SPC, noting the underreporting of infant deaths 
in the RMI's outer islands, estimated that half of all infant deaths 
in the RMI were not reported at all, which created uncertainty as to 
the most common causes of infant deaths. SPC and the World Health 
Organization noted that the RMI's health statistics are outdated by 2 
to 3 years and sometimes by as much as 7 years. EPPSO found that outer 
island immunization coverage rates for children under the age of 2 
were at least 30 percent lower in select outer island groups than 
official health reports indicated. A United Nations Millennium 
Development Goal specialist also discovered data problems. He reviewed 
data from the ministry's maternal and child health program and found 
that his recalculated immunization coverage rates ranged from 48 to 67 
percent for Majuro, while the rates computed by the ministry ranged 
from 80 to 90 percent. 

[65] The Single Audit Act adopted the single audit concept to help 
meet the needs of federal agencies for grantee oversight, as well as 
grantees' needs for single, uniformly structured audits. Rather than 
being a detailed review of individual grants or programs, the single 
audit is an organization-wide financial statement audit that includes 
the audit of the Schedule of Expenditures of Federal Awards and also 
focuses on internal control and the recipient's compliance with laws 
and regulations governing the federal financial assistance received. 
The act also required grantees to address material noncompliance and 
internal control weaknesses in a corrective action plan, which is to 
be submitted to appropriate federal officials. The act further 
required that single audits be performed in accordance with generally 
accepted government auditing standards issued by GAO. These standards 
provide a framework for conducting high-quality financial audits with 
competence, integrity, objectivity, and independence. 

[66] The scope for this report is generally fiscal years 2007 through 
2011; however, we are including fiscal year 2006 because the last 
single audit report discussed in our prior report [hyperlink, 
http://www.gao.gov/products/GAO-07-163] was for fiscal year 2005. 

[67] American Institute of Certified Public Accountants, Statement on 
Auditing Standard No. 115, "Communicating Internal Control Related 
Matters Identified in an Audit," states that a material weakness is a 
deficiency, or a combination of deficiencies, in internal control 
indicating a reasonable possibility that a material misstatement of 
the entity's financial statements will not be prevented, or detected 
and corrected, on a timely basis. A deficiency in internal control 
exists when the design or operation of a control does not allow 
management or employees, in the normal course of performing their 
assigned functions, to prevent, or detect and correct, misstatements 
on a timely basis. 

[68] American Institute of Certified Public Accountants, Statement on 
Auditing Standard No. 115, "Communicating Internal Control Related 
Matters Identified in an Audit," states that a significant deficiency 
is a deficiency or a combination of deficiencies in internal control 
that is less severe than a material weakness, yet important enough to 
merit attention by those charged with governance. 

[69] An unqualified opinion is given when the auditor is reasonably 
assured that the financial statements are free of material 
misstatements. 

[70] OMB Circular A-133 states "the auditor shall determine whether 
the auditee has complied with laws, regulations, and the provisions of 
contracts or grant agreements that may have direct and material effect 
on each of its major programs. The auditor uses a risk-based approach 
to determine which program is a major program. This risk-based 
approach includes consideration of current and prior audit experience, 
oversight by federal agencies, and pass-through entities, and inherent 
risk of the federal program." 

[71] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1], 
(Washington, D.C.: November 1999), pp. 20-21: "Managers are to (1) 
promptly evaluate findings from audits and other reviews, including 
those showing deficiencies and recommendations reported by auditors 
and others who evaluate agencies' operations, (2) determine proper 
actions in response to findings and recommendations from audits and 
reviews, and (3) complete, within established time frames, all actions 
that correct or otherwise resolve the matters brought to management's 
attention." 

[72] The FSM National Government's single audit cannot be completed 
until the states' single audits are completed. Thus, if any state is 
late, the FSM National Government's audit will also be late. Chuuk 
submitted its 2006 single audit late. 

[73] According to FSM ONPA officials, the ONPA was established to 
conduct audits and investigations to recommend improvements in 
government operations, efficiency, and accountability for the public's 
benefit. The office conducts financial and compliance, economy and 
efficiency, and program audits. 

[74] The 2005 Constitution of the State of Chuuk, Article VII--
Finance, Section 9, requires the appointment of a Public Auditor by 
the Governor and approval by the Senate. According to ONPA officials, 
a Chuuk Public Auditor has never been appointed but Chuuk state will 
establish an independent, fully operational public auditor's office in 
fiscal year 2014, and funds have been sought under the compact to 
support the office. 

[75] Office of the National Public Auditor, Audit of FSM Payroll 
Operating Controls, Fiscal Years 2010, 2011, 2012 through May, Report 
No. 2012-04 (Palikir, Pohnpei: Aug. 9, 2012). Although the report's 
issuance date was outside our scope (fiscal years 2006 to 2011), the 
ONPA audit covered fiscal years 2010 and 2011 which are included in 
our scope. This report included 7 findings and 20 recommendations. 
Management provided corrective action plans to resolve these findings. 
As of June 2013, the ONPA had not performed a follow-up audit to 
ensure that appropriate corrective actions were taken. 

[76] Office of the National Public Auditor, Audit of Chuuk State 
Department of Health Services' Procurement and Inventory Management 
System, Report Number 2010-03 (Paliker, Pohnpei: Feb. 10, 2010). This 
report included 8 findings and over 30 recommendations. Management 
generally agreed with the findings and provided corrective action 
plans. As of June 2013, the ONPA is performing a follow-up audit to 
ensure that appropriate corrective actions were taken. 

[77] Office of the National Public Auditor, Audit of Chuuk State 
Department of Education Textbooks and Instructional Material, Report 
No. 2010-01 (Paliker, Pohnpei: Feb. 9, 2010). The report included 9 
recommendations. Management did not respond to the findings and 
recommendations. As of June 2013, the ONPA is performing but has not 
completed a follow-up audit to ensure that appropriate corrective 
actions were taken. 

[78] According to government officials, the Pohnpei state government's 
Office of the Public Auditor was established in 1984. Its mission is 
to evaluate state and local government operations to provide useful 
and objective information to executive, legislative, management and 
citizens. 

[79] Office of the Public Auditor, Pohnpei State Government, 
Department of Health Service Procurement, Audit Report, No. 006-09 
(Kolonia, Pohnpei: Aug. 5, 2010). Furthermore, the report observed 
that management did not review the turnover of pharmaceutical and 
medical supplies for the audit period and had not established a 
minimum level of stock that should be maintained. Consequently, the 
OPA made five recommendations to improve the accountability over 
inventory management at the Department of Health Services. An OPA 
audit official told us that their recommendations were implemented 
but, as of June 2013, they had not completed a follow-up audit. 

[80] OMB Circular A-133 states that "Questioned costs are those costs 
questioned by an auditor for one of these three reasons: (1) They 
resulted from a violation or possible violation of a provision of a 
law, regulation, contract, grant, cooperative agreement, or other 
agreement or document governing the use of federal funds, including 
funds used to match federal funds; or (2) at the time of the audit, 
they are not supported by adequate documentation; or (3) the costs 
incurred appear unreasonable and do not reflect the actions a prudent 
person would take in the circumstances." 

[81] At the March 2013 JEMFAC midyear meeting, the OIA recommended 
that the unexpended 2011 and 2012 funds not be allocated to the RMI 
until these questioned costs are resolved. Commenting on a draft of 
this report, RMI officials stated that the RMI Secretary of Finance 
took steps to better manage the audit fieldwork process and reduced 
the 2012 questioned costs to approximately $35,000 and also began a 
detailed examination of all prior year questioned costs. At its 2013 
annual meeting in August 2013, JEMFAC did not allocate the unexpended 
2011 and 2012 funds. 

[82] The scope for this report is generally fiscal years 2007 through 
2011; however, we are including fiscal year 2006 because the last 
single audit report discussed in our prior report [hyperlink, 
http://www.gao.gov/products/GAO-07-163] was for fiscal year 2005. 

[83] OMB Circular A-133 states, "The auditor shall determine whether 
the auditee has complied with laws, regulations, and the provisions of 
contracts or grant agreements that may have direct and material effect 
on each of its major programs. The auditor uses a risk-based approach 
to determine which program is a major program. This risk-based 
approach includes consideration of current and prior audit experience, 
oversight by federal agencies, and pass-through entities, and inherent 
risk of the federal program." 

[84] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1], pp. 
20-21: "Managers are to (1) promptly evaluate findings from audits and 
other reviews, including those showing deficiencies and 
recommendations reported by auditors and others who evaluate agencies' 
operations, (2) determine proper actions in response to findings and 
recommendations from audits and reviews, and (3) complete, within 
established time frames, all actions that correct or otherwise resolve 
the matters brought to management's attention." 

[85] The grant award did not undergo a separate OMB Circular A-133 
audit, as required. 

[86] The Compliance Supplement included in OMB Circular A-133 no 
longer allowed federal agencies to consider requests for a time 
extension to file single audit reports for fiscal years 2009 through 
2011. 

[87] The OAG coordinates the RMI annual single audit and other 
component audits. Furthermore, for fiscal years 2006 through 2011, the 
OAG performed audits of several component units and performed a 
performance audit of the Majuro Atoll Waste Company. The OAG told us 
that it plans to perform additional performance audits in the future. 

[88] According to RMI officials, from 2009 to 2011, there was ongoing 
fraud at the Ministries of Finance and Health. The RMI Attorney 
General's Office has been prosecuting the fraud, which resulted in 
several convictions. During this time, the RMI OAG has also assisted 
the RMI Attorney General's Office in its fraud investigation. 

[89] See also Kevin O'Keefe, Deborah Milks, and Jeanne Yamamura, 
Report of Observations and Preliminary Recommendations to the Working 
Group Specified by Resolution JEMCO-MT-2011-7,The Role of the Chuuk 
Financial Control Commission (CFCC), (Honolulu, Hawaii: Graduate 
School USA, August 2011). 

[90] Prior to 2008, the FSM's predecessor office to SBOC, the Office 
of Compact Management, served as the FSM's primary compact oversight 
office. In 2006, we reported that the Office of Compact Management 
lacked sufficient staff to oversee compact-funded programs. At that 
time, the Office of Compact Management had five staff members, 
including its director; additional staff from finance and economic 
affairs departments were detailed to the office to assist with compact-
related responsibilities. See [hyperlink, 
http://www.gao.gov/products/GAO-07-163]. 

[91] The three divisions are the Division of Performance Based 
Budgeting, the Division of Economic and Budget Strategy, and the 
Division of Compact Legal Affairs. Prior to the establishment of OCI 
within the Ministry of Foreign Affairs in 2008, the RMI Chief 
Secretary was responsible for compact implementation and oversight. 

[92] For Honolulu, the plan's eight staff positions included one lead 
program grants specialist, two education grants specialists, one 
health grants specialist, and four fiscal program specialists. In the 
plan, OIA stressed the need for more fiscal program specialists in 
order to strengthen oversight. According to OIA's workforce plan, 
fiscal program specialists provide grants oversight and monitoring of 
projects. For example, the fiscal program specialist staffed to the 
Honolulu field office provides oversight for the environment, private 
sector development, and public sector capacity building sectors. 

[93] In March 2013, OIA hired one of two projected FSM field 
representatives. 

[94] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1], pp. 
20-21: "Managers are to (1) promptly evaluate findings from audits and 
other reviews, including those showing deficiencies and 
recommendations reported by auditors and others who evaluate agencies' 
operations, (2) determine proper actions in response to findings and 
recommendations from audits and reviews, and (3) complete, within 
established time frames, all actions that correct or otherwise resolve 
the matters brought to management's attention." 

[95] The FSM and RMI both have 20 education indicators; the FSM has 14 
health indicators and the RMI has 26 health indicators. 

[96] 2012 JEMCO and JEMFAC resolutions were included because they had 
recommendations pertaining to fiscal year 2011. 

[97] For education-related reports, the data are for school years, and 
for health-related reports, the data are for fiscal years. 

[98] The FSM and RMI governments submit a data collection form (SF-
SAC) that includes information about the auditee, its federal 
programs, and the results of the audit. 

[99] The amended compact established an infrastructure maintenance 
fund for the FSM National Government and the four state governments; 
it required that both the United States and the FSM governments 
contribute to the fund. However, the FSM governments have not 
consistently contributed their required share to the infrastructure 
maintenance funds. As a result, JEMCO required the FSM National 
Government to submit a deposit schedule of local cash contributions 
for the national government and each state government's infrastructure 
maintenance bank account, eliminating any unfunded liabilities by 
September 30, 2011. 

[100] GAO, Compacts of Free Association: Micronesia's and the Marshall 
Islands' Use of Sector Grants, [hyperlink, 
http://www.gao.gov/products/GAO-07-514R] (Washington, D.C.: May 25, 
2007). 

[101] For the school and dispensary-related projects, JEMCO approval 
was for development of project scope, design, and construction bid 
package preparation. For the sanitation projects, JEMCO approval was 
for the preparation of preliminary engineering reports or development 
of preliminary cost estimates, or both. 

[102] At its September 2010 meeting, JEMCO called for the FSM National 
and state governments to update its infrastructure development plan in 
fiscal year 2011, JEMCO Resolution 2010-8. 

[103] Each state also has an entity responsible for providing 
oversight of infrastructure projects within the state. 

[104] JEMCO Resolution 2011-6. 

[105] According to OIA, it approved Chuuk's use of its infrastructure 
maintenance fund for this purpose because the new buildings replaced 
facilities at the schools that were unsafe and in poor condition. 
However, an OIA official noted it would not approve such use of the 
infrastructure maintenance funds again because the construction work 
funded in this instance was substandard. 

[106] The school in Weno is Mwan Elementary School. In the lagoon 
islands, the schools are Nomusofo Junior High School, Southern 
Namoneas High School, Sino Elementary, Sapore Elementary, and West 
Fefen Elementary. 

[107] The elementary schools are Kolonia, Nett, Saladak, and Sapwalap; 
the high schools are Pohnlangas (Madolenihmw) and Nanpei Memorial. 

[108] JEMCO suspended compact funded design and associated engineering 
work for various College of Micronesia projects in 2010, pending 
approval of the college's restructuring plan by the Western 
Association of Schools and Colleges (JEMCO Resolution 2010-5). In 
fiscal year 2011, JEMCO decided that no College of Micronesia 
infrastructure projects would be considered for approval during fiscal 
years 2012 through 2016 (JEMCO Resolution 2011-2). 

[109] JEMCO Resolutions 2010-6 and 2011-7. 

[110] According to the FSM PMU, it has signed a contract to build 5 
new dispensaries at a cost of approximately $298,400 each, a total 
cost of about $1.5 million. 

[111] This also includes $25 million dollars that went to projects at 
the College of the Marshall Islands. 

[112] The hospitals are in Majuro and Ebeye. 

[113] In the FSM, we focused our review on the National Government and 
the state governments of Chuuk and Pohnpei. We did not include in our 
review the state governments of Yap and Kosrae. See appendix I for 
additional discussion of scope. 

[114] An unqualified opinion is given when the auditor is reasonably 
assured that the financial statements are free of material 
misstatements. 

[115] A qualified opinion is given when the auditor finds conditions 
such as a lack of supporting evidence or a restriction on the scope of 
the audit. 

[116] All nonfederal entities that expend $500,000 or more of federal 
awards in a year are required to obtain an annual audit in accordance 
with the Single Audit Act, as amended. 31 U.S.C. § 7501 et seq. 

[117] The fiscal procedures agreements specify that the audits are due 
6 months after the fiscal year ends, but the Department of the 
Interior (Interior) believes that the time frame of 6 months was a 
mistake in the agreements. According to Interior officials, they have 
allowed the countries 9 months, which is generally the required time 
frame under the Single Audit Act. According to the act, there is 
generally no standard due date for the annual single audit. The 
audited entity, upon hiring the auditor, negotiates a due date for the 
audit within 9 months after the close of the entity's fiscal year. The 
entity must have time to read the report and prepare the corrective 
action plan that is required to be included in the reporting package. 

[118] Although not included in the scope of this report, the FSM 
National Government and Chuuk and Pohnpei state governments submitted 
their 2012 single audit reports on time; the RMI government did not. 

[119] American Institute of Certified Public Accountants, Statement on 
Auditing Standard No. 115, "Communicating Internal Control Related 
Matters Identified in an Audit," states that a material weakness is a 
deficiency, or a combination of deficiencies, in internal control such 
that there is a reasonable possibility that a material misstatement of 
the entity's financial statements will not be prevented, or detected 
and corrected on a timely basis. A deficiency in internal control 
exists when the design or operation of a control does not allow 
management or employees, in the normal course of performing their 
assigned functions, to prevent, or detect and correct misstatements on 
a timely basis. 

[120] American Institute of Certified Public Accountants, Statement on 
Auditing Standard No. 115, "Communicating Internal Control Related 
Matters Identified in an Audit," states that a significant deficiency 
is a deficiency, or a combination of deficiencies, in internal control 
that is less severe than a material weakness, yet important enough to 
merit attention by those charged with governance. 

[121] Compact sector grant drawdowns and deposits are made to the 
holding bank account. 

[122] The FSM National Government's 2011 Single Audit report in Note 1 
(M) of the Notes to the Financial Statements reports that fixed assets 
or capital assets include, but are not limited to, computer equipment, 
furniture, equipment, machinery and motor vehicles. 

[123] Office of Management and Budget (OMB) Circular A-133, "Audits of 
States, Local Governments, and Non-Profit Organizations," requires the 
auditee to communicate what actions will be taken to address the audit 
finding. 

[124] In October 2003, GAO reported that "The percentage of each 
auditee's single audit findings that recurred 3 or more years over the 
5-year period of our review ranged from RMI's high of 69 percent to a 
low of 17 percent for the FSM." See GAO, Compacts of Free Association: 
Single Audits Demonstrate Accountability Problems over Compact Funds, 
[hyperlink, http://www.gao.gov/products/GAO-04-7] (Washington, D.C.: 
Oct. 7, 2003). 

[125] GAO, Education Financial Management: Weak Internal Controls Led 
to Instances of Fraud and Other Improper Payments, [hyperlink, 
http://www.gao.gov/products/GAO-02-406] (Washington, D.C.: Mar. 28, 
2002). 

[126] Performance audits are defined as audits that provide findings 
or conclusions based on an evaluation of sufficient, appropriate 
evidence against criteria. Performance audits provide objective 
analysis to assist management and those charged with governance and 
oversight in using the information to improve program performance and 
operations, reduce costs, facilitate decision making by parties with 
responsibility to oversee or initiate corrective action, and 
contribute to public accountability. GAO previously reported on the 
lack of performance audits of compact sector grants. See GAO, Compacts 
of Free Association: Micronesia and the Marshall Islands Face 
Challenges in Planning for Sustainability, Measuring Progress, and 
Ensuring Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-07-163] (Washington, D.C.: Dec. 15, 
2006), p. 43. 

[End of section] 

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