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entitled 'U.S. Insular Areas: Opportunities Exist to Improve
Interior's Grant Oversight and Reduce the Potential for Mismanagement'
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Report to the Committee on Energy and Natural Resources, U.S. Senate:
United States Government Accountability Office:
GAO:
March 2010:
U.S. Insular Areas:
Opportunities Exist to Improve Interior's Grant Oversight and Reduce
the Potential for Mismanagement:
GAO-10-347:
GAO Highlights:
Highlights of GAO-10-347, a report to the Committee on Energy and
Natural Resources, U.S. Senate.
Why GAO Did This Study:
The U.S. insular areas of American Samoa, the Commonwealth of the
Northern Mariana Islands (CNMI), Guam, and the U.S. Virgin Islands
(USVI) face serious economic and fiscal challenges and rely on federal
funding to deliver critical services. The Department of the Interior
(Interior), through its Office of Insular Affairs (OIA), provides
roughly $70 million in grant funds annually to increase insular area
self-sufficiency. GAO and others have raised concerns regarding
insular areas’ internal control weaknesses, which increase the risk of
grant fund mismanagement. GAO was asked to determine (1) whether
previously reported internal control weaknesses have been addressed
and, if not, to what extent they are prevalent among OIA grant
projects; (2) the challenges, if any, insular areas face in
implementing OIA grant projects; and (3) the extent to which OIA has
taken action to improve grant project implementation and management.
GAO reviewed a random sample of 173 OIA grant files, conducted site
visits, and interviewed OIA and insular area officials.
What GAO Found:
Internal control weaknesses previously reported by GAO and others
continue to exist, and about 40 percent of grant projects funded
through OIA have these weaknesses, which may increase their
susceptibility to mismanagement. These weaknesses, including
insufficient reporting and record-keeping discrepancies, can be
categorized into three types of activities that may increase the
possibility of mismanagement: grant recipient activities, joint
activity between grant recipients and OIA, and OIA’s grant management
activities. Weaknesses associated with grant recipient activities were
the most common issues GAO found, encompassing 62 percent of the
weaknesses exhibited by OIA grant projects. The joint activity—
redirection of grant funds, a practice by which OIA allows insular
areas to move grant funds between projects—accounts for 24 percent of
the weakness present in OIA grant projects. While project redirection
can be a helpful tool, it can contribute to project mismanagement if
not used appropriately. Weaknesses associated with OIA grant
management activities, including discrepancies in grant management
data, account for 14 percent of the weaknesses in grant projects.
Insular areas confront a number of challenges in implementing OIA
grants, which can be categorized into project planning challenges such
as frequently changing local priorities; project management challenges
such as limited local capacity for project implementation; and
external risk factors, including the declining economic conditions of
American Samoa and the CNMI. While some of these challenges are beyond
the insular areas’ control, others result from decisions made by the
insular area governments. These challenges can result in
implementation delays for grant projects.
Over the past 5 years, OIA has taken steps to improve project
implementation and management. Most notably, OIA established
incentives for financial management improvements and project
completion by tying a portion of each insular area’s annual allocation
to the insular governments’ efforts in these areas—such as their
efforts to submit financial and status reports on time. In addition,
OIA established expiration dates for grants to encourage expeditious
use of the funds. Despite these and other efforts, some insular areas
are still not completing their projects in a timely and effective
manner, and OIA faces key obstacles in compelling them to do so.
Specifically, (1) current OIA grant procedures provide few sanctions
for delayed or inefficient projects, and the office is not clear on
its authorities to modify its policies; (2) resource constraints
impede effective project completion and proactive monitoring and
oversight; (3) inconsistent and insufficiently documented project
redirection policies do little to discourage insular areas from
redirecting grant funds in ways that hinder project completion; and
(4) OIA’s current data system for tracking grants is limited and lacks
specific features that could allow for more efficient grant
management. Interior is currently phasing in an agencywide database
that is scheduled to be implemented in OIA in 2011, but to be
effective, it will require some flexibility to address OIA’s needs for
grants management.
What GAO Recommends:
GAO recommends that Interior improve OIA’s ability to effectively
manage grants by taking several actions, including clarifying its
authorities to ensure insular areas use funds more efficiently, and
developing criteria for project redirection request approvals.
Interior agreed with our recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-10-347] or key
components. For more information, contact Anu K. Mittal at (202) 512-
3841 or mittala@gao.gov.
[End of section]
Contents:
Letter:
Background:
Nearly 40 Percent of OIA Grant Projects Have Internal Control
Weaknesses That Could Increase Susceptibility to Mismanagement:
Insular Areas Face Challenges in Implementing OIA Grant Projects, as
Selected Projects Illustrate:
OIA Has Taken Actions to Improve Grant Project Implementation and
Management but Faces Several Obstacles:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Selected Examples of OIA Grant Projects That Face
Implementation Challenges:
Appendix III: Comments from the Department of the Interior:
Appendix IV: Comments from the Commonwealth of the Northern Mariana
Islands:
Appendix V: Comments from the U.S. Virgin Islands:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Breakdown of the Office of Insular Affairs' Fiscal Year 2009
Budget:
Table 2: Internal Control Weaknesses Present in OIA Grant Projects:
Table 3: OIA Competitive Allocation Criteria and Insular Areas' Scores
for Fiscal Year 2010:
Table 4: Internal Control Weaknesses We Considered and Their
Applicability to Projects in the Sample:
Table 5: Sample Disposition:
Figures:
Figure 1: Location of Four U.S. Insular Areas:
Figure 2: Distribution of Overall Internal Control Weaknesses in OIA
Grant Projects by Category of Activity:
Figure 3: Project Planning and Project Management Challenges
Experienced by Insular Areas for 24 Selected OIA Grant Projects:
Figure 4: Unused Commonwealth Health Center Dialysis Facility:
Figure 5: An Unused Saipan Power Plant Engine:
Figure 6: Rota Health Center Loading Area with Significant Mold:
Abbreviations:
CNMI: Commonwealth of the Northern Mariana Islands:
Freely Associated States: Federated States of Micronesia, Palau, and
the Republic of the Marshall Islands:
OIA: Office of Insular Affairs:
OMB: Office of Management and Budget:
USVI: U.S. Virgin Islands:
[End of section]
United States Government Accountability Office: Washington, DC 20548:
March 16, 2010:
The Honorable Jeff Bingaman:
Chairman:
The Honorable Lisa Murkowski:
Ranking Member:
Committee on Energy and Natural Resources:
United States Senate:
U.S. insular areas--which include American Samoa, the Commonwealth of
the Northern Mariana Islands (CNMI), Guam, the U.S. Virgin Islands
(USVI), and three Freely Associated States (the Federated States of
Micronesia, Palau, and the Republic of the Marshall Islands)--face
serious economic and fiscal challenges. Consequently, these insular
areas, some of which are under U.S. sovereignty, and some of which are
independent nations that have signed Compacts of Free Association with
the United States, rely on federal funding to support their local
governments and deliver critical services. The Department of the
Interior (Interior), through its Office of Insular Affairs (OIA),
provides approximately $400 million annually in financial assistance
to insular area governments--roughly $70 million of which is awarded
annually as grants to insular areas for capital improvement projects,
operations and maintenance improvement projects, technical assistance,
and other purposes, to increase the self-sufficiency of the insular
areas. For example, capital improvement project funds are used to
build roads, schools, and medical facilities; operations and
maintenance improvement project funds support basic operations of
waste treatment facilities or maintenance of school facilities; and
technical assistance funds are used to conduct feasibility studies or
train government staff. Although OIA grants are essential in
supporting insular areas' economies, we and others--including
Interior's Office of Inspector General--have had long-standing
concerns with insular area governments' internal control weaknesses,
which increase their risk of fraud, waste, abuse, and mismanagement.
[Footnote 1] In addition, several cases of misconduct and
mismanagement involving insular areas have raised additional concern
about the capacity of OIA to monitor grants and detect cases of
mismanagement. Two examples are (1) extensive delays in the
construction of a dialysis facility in the CNMI that was provided
funds in 1997 but as of August 2009 had yet to be certified and
utilized, and (2) the 2007 indictment of two high ranking American
Samoa officials charged with fraud, bribery, and obstruction
pertaining to federal grants.
Internal control is an integral component of an organization's
management that provides reasonable assurance that the following
objectives are being achieved--effectiveness and efficiency of
operations, reliability of financial reporting, and compliance with
applicable laws and regulations. Internal control also serves as the
first line of defense in safeguarding assets and preventing and
detecting errors and fraud. Under the federal standards for internal
control, federal agencies are to employ internal control activities--
the policies, procedures, techniques, and mechanisms that enforce
management's directives--that are integral to the accountability for
stewardship of government resources and achieving effective results,
and help ensure that actions are taken to address risks.[Footnote 2]
Examples of such internal control activities include accurate and
timely recording of transactions and events and controls over
information processing. If federal agencies do not use effective
internal control activities, or have weaknesses in their internal
controls, they can increase the risk of potential mismanagement or
misuse and waste of grant funds.
In this context, you asked us to determine (1) whether previously
reported internal control weaknesses have been addressed and, if not,
to what extent they are prevalent among OIA grant projects; (2) the
challenges, if any, insular areas face in implementing OIA grant
projects; and (3) the extent to which OIA has taken action to improve
grant project implementation and management.
In conducting our work for our first objective, we focused on insular
areas that receive noncompact types of grants--including American
Samoa, the CNMI, Guam, the USVI, and the Freely Associated States.
[Footnote 3] To identify key internal control weaknesses that have
been identified in the past as well as key internal controls relevant
to grant management, we first summarized the weaknesses that were
identified in our insular area related reports published between 2000-
2009, Interior Office of Inspector General reports on insular areas
over that period, and the three most recent Single Audit reports--or
audited financial statements--for American Samoa, the CNMI, Guam, and
the USVI.[Footnote 4] We also reviewed several documents outlining
policies and procedures applicable to OIA's grant management and
oversight responsibilities to determine the internal control
activities that OIA has in place, including the Standards for Internal
Control in the Federal Government, OIA and Interior-specific grant
management policies and procedures, and best practices in grant
management. From our review of these documents, we determined that the
following internal control activities are particularly relevant to
OIA: accurate and timely recording of transactions and events,
appropriate documentation of transactions and internal control, proper
execution of transactions and events, and controls over information
processing. We reviewed a random probability sample of 173 grant
project files to determine whether and the extent to which internal
control weaknesses are still prevalent. We were able to project our
sample results to the 1,771 OIA grant projects in the grant management
database as of April 27, 2009. We ranked the projects according to the
prevalence of internal control weaknesses and selected 24 of the grant
projects with the highest prevalence of internal control weaknesses to
review in more detail during our work for objectives two and three;
those grant projects were located in American Samoa, the CNMI, Guam,
and the USVI. To identify insular area challenges in implementing OIA
grants, we visited the four insular areas to follow up on the 24
selected grant projects. During these site visits, we physically
inspected grant projects whenever possible and interviewed project
managers, insular government officials, and where applicable, OIA
field representatives. To determine the extent to which OIA has taken
action to improve grant project implementation and management, we
built upon information obtained through our file reviews and site
visits by reviewing OIA policies, procedures, and other documents and
by interviewing OIA grant managers and division directors regarding
OIA's policies and procedures, grant management, and related
challenges. A more detailed description of our scope and methodology
is presented in appendix I.
We conducted this performance audit from March 2009 to March 2010, 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 insular areas of American Samoa, the CNMI, and Guam are located in
the Pacific Ocean, some 4,100 to 6,000 miles from the U.S. mainland
(see figure 1). The USVI is located about 1,000 miles southeast of
Miami in the Caribbean Sea.
Figure 1: Location of Four U.S. Insular Areas:
[Refer to PDF for image: map]
The following locations are indicated on the map:
American Samoa:
CNMI:
Guam:
U.S. Virgin Islands:
Sources: GAO and MapArt (map).
[End of figure]
American Samoa, which had a population of about 65,628 in 2009,
[Footnote 5] lies about 2,600 miles southwest of Hawaii and consists
of seven islands covering a land area of 76 square miles. The main
island of Tutuila has very little level land and is mostly rugged.
Agricultural production on the island is limited by the scarcity of
arable land, and tourism is impaired by the island's remote location
and lack of tourist-rated facilities. Most of American Samoa's
economic activity--primarily tuna canning--and government operations
take place on Tutuila in the Pago Pago Bay area. In September 2009,
one of American Samoa's two canneries closed operations.
The CNMI--a group of 14 islands with a total land area of 183 square
miles--is located in the western Pacific Ocean, just north of Guam and
5,500 miles from the U.S. mainland. Most of the CNMI's population--
51,484 in 2009[Footnote 6]--resides on the island of Saipan, with
additional residents on the islands of Rota and Tinian. Historically,
the CNMI's economy has depended on garment manufacturing and tourism.
Beginning in 1998, garment industry shipments began falling, and the
last garment factory closed in early 2009.
Guam is located about 50 miles south of the southernmost island of the
CNMI. It has long been a strategic location for the U.S. military,
which currently controls about 62 square miles of the island's total
212 square miles. By 2020, the Department of Defense plans to increase
the U.S. military presence on Guam by more than two-and-a-half times
the island's current military population of 15,000. In July 2009, the
total population of the island was estimated at 178,430.[Footnote 7]
The USVI is composed of three main islands--St. Croix, St. John, and
St. Thomas--and many other surrounding islands. Most of the insular
area's population (estimated at 109,825 in July 2009[Footnote 8])
resides in St. Thomas and St. Croix. The USVI's economy is more
diversified than other insular areas, with tourism as the primary
activity, followed by manufacturing including petroleum refining, rum
distilling, and textile manufacturing.
While the United States exercises sovereignty over these insular
areas, each administers its local government functions through
popularly elected governors. American Samoa and the CNMI are self-
governed under locally adopted constitutions, while Guam and the USVI
have not adopted local constitutions and remain under organic acts
approved by Congress.[Footnote 9]
These insular areas receive hundreds of millions of dollars in federal
grants from a variety of federal agencies, including the Departments
of Agriculture, Education, Health and Human Services, Homeland
Security, the Interior, Labor, and Transportation.[Footnote 10] The
Secretary of the Interior has administrative responsibility over the
insular areas for all matters that do not fall within the program
responsibility of another federal department or agency. OIA,
established in 1995, is responsible for carrying out the Secretary's
responsibilities for U.S. insular areas.[Footnote 11] OIA's mission is
to promote the self-sufficiency of the insular areas by providing
financial and technical assistance, encouraging private sector
economic development, promoting sound financial management practices
in the insular governments, and increasing federal responsiveness to
the unique needs of the island communities.
Much of the assistance that OIA administers to insular areas is in the
form of what it considers mandatory assistance, including compact
assistance,[Footnote 12] permanent payments to U.S. territories,
American Samoa operations funding, and capital improvement project
grants. OIA also administers discretionary assistance through, for
example, technical assistance grants and operations and maintenance
improvement program grants. The administration and management of OIA
grants is guided by OIA's Financial Assistance Manual. OIA grants
other than compact assistance are subject to Interior's Grants
Management Common Rule,[Footnote 13] relevant Office of Management and
Budget (OMB) circulars,[Footnote 14] and specific terms and conditions
that OIA outlines in each grant agreement, such as semiannual
narrative and financial reporting and grant expiration dates.
Within OIA, two divisions are largely responsible for grant
administration and management--the Budget and Grants Management
Division and the Technical Assistance Division. The Budget and Grants
Management Division, which covers capital improvement project and
operations and maintenance improvement program grants, has a director
and three grant managers.[Footnote 15] The Technical Assistance
Division, which administers several types of technical assistance, has
a director and two grant managers. A third OIA division--the Policy
and Liaison Division--also provides some staff for grant-related
tasks, including staff that focus on OIA's accountability and audit
responsibilities.[Footnote 16] The majority of OIA's budget is
directed to compact assistance and permanent fiscal payments (see
table 1). About 2 percent of OIA's budget is dedicated to
administrative costs, leaving less than 16 percent for noncompact
grants and technical assistance.
Table 1: Breakdown of the Office of Insular Affairs' Fiscal Year 2009
Budget:
Component of OIA's budget: Compact of Free Association;
Dollars in thousands: $216,795;
Percentage of OIA budget: 48.9%.
Component of OIA's budget: Permanent fiscal payments[A];
Dollars in thousands: $148,000;
Percentage of OIA budget: 33.4%.
Component of OIA's budget: Office of Insular Affairs (administrative);
Dollars in thousands: $8,850;
Percentage of OIA budget: 2.0%.
Component of OIA's budget: Noncompact grants and technical assistance:
Component of OIA's budget: American Samoa operations;
Dollars in thousands: $22,752;
Percentage of OIA budget: 5.1%.
Component of OIA's budget: Capital improvement project grants
(covenant grants);
Dollars in thousands: $27,720;
Percentage of OIA budget: 6.3%.
Component of OIA's budget: Operations and maintenance improvement
program grants;
Dollars in thousands: $2,241;
Percentage of OIA budget: 0.5%.
Component of OIA's budget: Technical assistance grants[B];
Dollars in thousands: $17,102;
Percentage of OIA budget: 3.9%.
Component of OIA's budget: Subtotal;
Dollars in thousands: $69,815;
Percentage of OIA budget: 15.7%.
Component of OIA's budget: Total;
Dollars in thousands: $443,460;
Percentage of OIA budget: 100%[C].
Source: OIA budget justifications and performance information, fiscal
year 2010.
[A] Permanent fiscal payments include payments to Guam (section 30
income taxes) and the U.S. Virgin Islands (rum excise taxes).
[B] Technical assistance funds in this table include funds for general
technical assistance, brown tree snake control, insular management
controls, coral reef initiative, and water and wastewater.
[C] Column does not add up to 100 percent due to rounding.
[End of table]
Nearly 40 Percent of OIA Grant Projects Have Internal Control
Weaknesses That Could Increase Susceptibility to Mismanagement:
On the basis of our review of grant files from a random probability
sample of grant projects,[Footnote 17] we determined that previously
reported internal control weaknesses still exist and estimate that 39
percent of the 1,771 grant projects in OIA's grant management database
demonstrate at least one internal control weakness that may increase
the projects' susceptibility to mismanagement.[Footnote 18] The eight
internal control weaknesses we assessed can be grouped into three
categories based on the entity responsible for the action: grant
recipient actions, OIA grant management actions, or joint actions
between grant recipients and OIA. As shown in figure 2, the internal
control weaknesses we identified were most often associated with grant
recipient activities, followed by joint activities and OIA grant
management activities.
Figure 2: Distribution of Overall Internal Control Weaknesses in OIA
Grant Projects by Category of Activity:
[Refer to PDF for image: horizontal bar graph]
Grant recipient activities: 62%;
Joint activity between grant recipients and OIA: 24%;
OIA grant management activities: 14%.
Source: GAO analysis of OIA documents.
[End of figure]
We also determined how frequently each of the eight internal control
weaknesses was found among OIA grant projects in the database (see
table 2).
Table 2: Internal Control Weaknesses Present in OIA Grant Projects:
Grant recipient activities:
Internal control weaknesses[A]: Failure to submit required status
reports in full and on time;
Percentage of applicable projects affected[B]: 60%.
Internal control weaknesses[A]: Failure to submit required final
reports on time (closed grants);
Percentage of applicable projects affected[B]: 58%[C].
Internal control weaknesses[A]: Projects' expected or actual
completion date fall after grant expiration;
Percentage of applicable projects affected[B]: 19%.
Internal control weaknesses[A]: Drawing down funds faster than project
progress (open grants);
Percentage of applicable projects affected[B]: 0.
Joint activity between grant recipients and OIA:
Internal control weaknesses[A]: Redirection of project funds;
Percentage of applicable projects affected[B]: 30%.
OIA grant management activities:
Internal control weaknesses[A]: Information in grant management
database does not match grant file[D];
Percentage of applicable projects affected[B]: 41%.
Internal control weaknesses[A]: Field representatives perform less
than half of all site visits;
Percentage of applicable projects affected[B]: 10%.
Internal control weaknesses[A]: Unexpended funds are not deobligated
(closed grants);
Percentage of applicable projects affected[B]: 0.
Source: GAO analysis of OIA documents.
Notes: Unless otherwise specified, internal control weaknesses apply
to both open and closed grant projects.
[A] See appendix I for information on how we selected the internal
control weaknesses and assessed grant projects for the presence of
those weaknesses.
[B] Not all internal control weaknesses apply to every grant project.
For example, we could only assess the field representative-related
internal control weakness for grants awarded to the two insular areas
with field representatives--American Samoa and the CNMI. Our data
analysis takes the applicability of the internal control weaknesses
into account. As a result, numbers reported for individual weaknesses
apply only to the relevant subset of projects. See appendix I for more
information.
[C] The confidence interval for this estimate is within +/-11 percent.
[D] The database contains at least one piece of information that does
not match corresponding information in the grant file.
[End of table]
Internal control weaknesses associated with grant recipient activities
were the most common internal control weaknesses we found, accounting
for 62 percent of the weaknesses exhibited by OIA grant projects. By
accepting a grant, recipients agree to a set of terms and conditions
that are part of OIA's internal controls. We assessed grant
recipients' consistency in meeting requirements of the grant terms and
conditions by examining project files for adherence to four key
requirements that we determined are relevant to a grant management
program: semiannual financial and narrative reporting, project close-
out reporting, grant expiration dates, and reimbursable funding. For
example, grant recipients are required to submit regular financial and
status reports to OIA within a set time frame. We found that
recipients in 60 percent of grant projects with semiannual reporting
requirements did not submit these reports as required. In many cases,
reports were submitted after the deadline had passed, but in some
cases, reports were never submitted.[Footnote 19] These financial and
narrative status reports are a key monitoring tool for OIA grant
managers, and incomplete information can hinder OIA's ability to
identify and address any issues. In addition, we found that recipients
of 58 percent of grant projects failed to submit final reports (or
project close-out reports) on time. Final financial and narrative
reports are required to be submitted within 90 days of grant
expiration or project termination; failure to do so can delay the
deobligation of any unspent grant funds from the project account.
[Footnote 20] We also found that recipients of 19 percent of grant
projects expect to or did actually complete the project after the
grant expiration date.[Footnote 21] Grant terms and conditions state
clearly that grant funds are only available until the grant expiration
date, and the grant recipient should not continue to spend federal
funds after they have expired. It is important to note, however, that
our assessment relied on grant expiration dates as reflected in the
file or database; project extensions may have been granted but not
recorded. Nevertheless, situations where the grant expiration date has
been or will be breached may be an indication of poor initial planning
or problems with the grant project. Finally, we compared the
proportion of awarded funds that had been disbursed to grant
recipients with the progress made toward project completion to ensure
that OIA grant recipients were requesting funds on a reimbursement
basis, as required. We found that all open projects satisfied the
reimbursement requirement.
Of the joint activities between OIA and grant recipients, project
redirection, whereby grant funds may be moved between projects, can
contribute to increased susceptibility to mismanagement. This
practice, which OIA refers to as "reprogramming," accounted for 24
percent of the overall internal control weaknesses that we found in
OIA grant projects. However, the presence of project redirection is
not, in and of itself, an indication of weakness. As we will describe
later in this report, project redirection can be used as a tool to
improve timely use of federal funds and expedite project completion.
However, if not used appropriately, project redirection can also
impede project completion and contribute to wasted funds or prolonged
holding of grant funds. Specifically, if project redirection is
approved in cases where an insular area starts a project and expends
funds, but then wants to redirect the funds to another project without
completing the initial project, those expended funds may be wasted. In
addition, frequent project redirection can result in projects that are
started but do not have sufficient funds to be completed. Based on our
review, project redirection occurred in 30 percent of applicable grant
projects. Grant recipients generally initiate project redirection
through a request to OIA. OIA policy requires that grant recipients
must obtain written approval from OIA before any funds may be moved
between grant projects and that technical assistance project funds may
not be redirected. We did not identify any cases where these
requirements were not met.[Footnote 22]
For OIA grant management activities, we found that the presence of
internal control weaknesses accounted for 14 percent of the overall
internal control weaknesses that we identified for OIA grant projects.
We assessed OIA's consistency in following its recordkeeping,
monitoring, oversight, and close-out procedures, each of which help
OIA to ensure that grant funds are being used as intended, in
accordance with relevant laws and regulations, and that the projects
will achieve the planned results. While OIA generally follows its
close-out procedures, we identified a number of concerns with OIA's
record keeping and monitoring and oversight activities:
* OIA grant managers generally use OIA's internal grant management
database as a monitoring tool to track key information about grants
they oversee; they also use the database to create reports by insular
area and grant type to respond to inquiries from Congress and others.
However, for 41 percent of OIA grants in the database, we found that
the database contains at least one piece of information that does not
match corresponding information in the grant file. For example, among
applicable grant projects, the grant expiration date was the element
most often improperly recorded in the database. We also found cases
where individual fund drawdowns were not entered into the database in
a timely manner.[Footnote 23] Such inconsistent and inaccurate data
can limit the ability of OIA grant managers to efficiently and
effectively monitor whether grant projects are being completed on time
and within budget and may increase the susceptibility of these
projects to mismanagement. OIA officials explained that procedures for
entering some data elements into the database--such as the date the
grant was awarded and redirected funds--have changed over time and may
have accounted for some of the inconsistent data we found. Some OIA
grant managers reported using tools other than the database to track
grant progress. For example, capital improvement project grant
managers use their own spreadsheets to track information such as grant
expiration dates, grant status, and when reports were last received.
However, reliance on such informal systems can also introduce internal
control risk because they are not subject to policies, procedures, or
internal controls to ensure the information maintained in them is
accurate.
* OIA also monitors capital improvement grant projects through site
visits and related oversight activities. OIA field representatives
stationed in two insular areas--American Samoa and the CNMI--can
assist grant managers in headquarters with grant monitoring and
oversight by conducting site visits of ongoing projects and advising
headquarters staff of any issues that may arise. It is important to
note that while the field representative in the CNMI has official
grant management responsibilities, the field representative in
American Samoa works for OIA's policy division and has no formal grant
management responsibilities. However, the American Samoa
representative estimates that she spends nearly half of her time
addressing issues relating to capital improvement grant projects.
Although these resources are available for oversight, we found that 10
percent of capital improvement grant projects in these insular areas
were visited more often by headquarters grant managers than by field
representatives, which raises some concerns about the effectiveness of
having field representatives in these areas.[Footnote 24] However, OIA
field representatives told us that they have informal interactions
with project managers that are not captured by site visit reports; and
our review of grant files indicates that field representative reports
may not be submitted to headquarters or included in the grant files.
[Footnote 25] This inconsistent transmission of site visit reports is
contrary to OIA policy and has the potential to impact the amount of
information that headquarters oversight staff have about the status of
various grant projects.
* OIA follows close-out procedures once grant projects are complete.
We assessed OIA's consistency in applying these procedures as an
internal control weakness. We found that unexpended grant funds were
properly deobligated from project accounts for all closed grant
projects in the database.
Insular Areas Face Challenges in Implementing OIA Grant Projects, as
Selected Projects Illustrate:
Insular areas confront both project planning and management challenges
in implementing OIA grant projects as a result of decisions made by
the insular area governments and external factors. Project planning
challenges include frequently changing local government decisions,
natural disaster impacts, and other factors. Project management
challenges include issues such as a limited local capacity for
implementing OIA projects and poor contractor performance. External
factors include issues such as declining economic conditions and
various U.S. policies. Officials in all of the four insular areas we
visited reported facing some of these challenges. These challenges
were most often noted for capital improvement projects in American
Samoa and the CNMI that we reviewed. While some of these challenges,
which influence the insular areas' abilities to effectively complete
OIA grant projects, are beyond their control, others can be overcome.
Figure 3 summarizes our analysis of the project planning and project
management challenges experienced by insular areas for the 24 selected
grant projects.
Figure 3: Project Planning and Project Management Challenges
Experienced by Insular Areas for 24 Selected OIA Grant Projects:
[Refer to PDF for image: illustrated table]
Commonwealth of the Northern Mariana Islands (CNMI):
Project: Commonwealth Health Center[B];
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: detected;
Project: Tinian Wastewater[C];
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: not detected.
Project: Tinian Elementary School;
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: not detected.
Project: Tinian Landfill[B];
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: not detected.
Project: Saipan Power Plant Rehabilitation[B];
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: detected.
Project: Tinian Dialysis Facility[D];
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding:
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: not detected.
Project: Precinct IV Road Paving;
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): not detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: not detected;
Project management challenge: Contractor issues: not detected.
Project: Ginalangan-Palie Power (1998)[B,E,F};
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: not detected.
Project: Ginalangan-Palie Power (2005)[B,E,F};
Grant type[A]: CIP;
Project not started as of the time of our site visit.
Project: Purchase incinerator for airport;
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): not detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: detected;
Project management challenge: Limited local capacity:
Project management challenge: Contractor issues: not detected.
Project: Purchase incinerator for Port of Saipan;
Grant type[A]: CIP;
Project not started as of the time of our site visit.
Project: Rota Health Center (2003)[C,E,F];
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: detected.
Project: Rota Health Center (2004)[C,E,F];
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: detected.
American Samoa:
Project: Petesa Happy Valley Village Road[G];
Grant type[A]: CIP;
Project not started as of the time of our site visit.
Project: Central Office Building, Phase II[H];
Grant type[A]: CIP;
Project not started as of the time of our site visit.
Project: Professional Training & Apprenticeship Program;
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): not detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: not detected.
Project: Micronesian Water & Wastewater Training Program;
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): not detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: not detected.
Project: Leone High School[C];
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: detected.
Project: Lyndon B. Johnson Hospital;
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): not detected;
Project planning challenge: Natural disaster impact: detected;
Project planning challenge: Limited land access: detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: detected.
Project: Manulele Tausala Elementary School Road[B];
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: not detected.
U.S. Virgin Islands:
Project: Waste Management Authority - Construction Manager;
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: not detected.
Project: Household Income & Expenditures Survey;
Grant type[A]: TA;
Project planning challenge: Frequently changing priorities (project
redirection): not detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: not detected.
Project: University Wellness Center[I];
Grant type[A]: CIP;
Project planning challenge: Frequently changing priorities (project
redirection): not detected;
Project planning challenge: Natural disaster impact: detected;
Project planning challenge: Limited land access: detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: detected.
Guam:
Project: Guam Waterworks Authority - Management Analyst;
Grant type[A]: OMIP;
Project planning challenge: Frequently changing priorities (project
redirection): not detected;
Project planning challenge: Natural disaster impact: not detected;
Project planning challenge: Limited land access: not detected;
Project planning challenge: Lack of local operations and/or
maintenance funding: not detected;
Project management challenge: Limited local capacity: detected;
Project management challenge: Contractor issues: not detected.
Source: GAO analysis of OIA grants to the insular areas.
Notes: We reviewed grant project file documents and assessed them for
the presence of each of the above listed project challenges. We also
corroborated this information, to the extent possible, with
information we obtained from insular officials during our site visits.
While extensive effort was made to be thorough, some information may
be missing and some project challenges may be present that we did not
detect because we based our analysis on records that were in some
cases incomplete. For further information on specific project
examples, see appendix II.
The table reflects challenges that insular area agencies identified
for these specific projects. Some agencies reported regularly facing
additional challenges in OIA projects.
[A] CIP = Capital improvement project; OMIP = Operations and
maintenance improvement program; TA = Technical assistance.
[B] Project received redirected funding from other OIA projects.
[C] Project's funding was redirected to other OIA projects.
[D] The project began, never progressed, and was ultimately closed due
to insufficient funding, which was caused by project fund redirection.
[E] Two funding years (provided for projects within a larger multi-
year project) were selected as part of our site visit follow-up.
[F] Many projects receive funding in multiple years and OIA tracks
each funding year separately. Years listed in parentheses indicate the
fiscal year during which project funds were awarded.
[G] Project never started largely due to land access issues.
[H] The Central Office Building project was selected as part of our
site visit follow-up, but Phase II is only a continuation of project
funding. The construction of the building (Phase I) is under way but
has experienced challenges with fund redirection out of the project
and limited local capacity.
[I] The Wellness Center is a construction project at the University of
the Virgin Islands campus on St. Thomas.
[End of figure]
Project Planning Challenges:
Many of the challenges that can contribute to OIA grant project delays
stem from local government project planning decisions:
Frequently changing priorities. Some insular area governments
regularly shift priorities and frequently redirect grant project
funds. While some changes in priorities are to be expected, when these
priorities change frequently, it can lead to project delays and wasted
resources. Of the four insular areas we reviewed, only American Samoa
has and adheres to a master plan that lists planned capital
improvement projects and categorizes them into one of three priority
areas.[Footnote 26] In contrast, as of December 2009, OIA reported
that the CNMI did not have a master plan for its capital improvement
projects or established priority areas.[Footnote 27] Without
established local government priorities, frequent priority shifts can
more easily occur that affect which projects are pursued, and in turn,
grant funds can be more frequently redirected between projects with
widely different goals, often leading to project delays or incomplete
projects. For example, in 2005 the CNMI government shifted OIA funds
from a project originally funded in 2004 updating a Tinian school
building to a project developing a wastewater system, and then in 2007
funds were again shifted from this incomplete wastewater project to a
project developing a Tinian airport instrument landing system, which
has since been suspended.[Footnote 28] To this end, OIA and the CNMI
government acknowledged that establishing and enforcing a master plan
would be helpful to guide priorities for capital improvement project
funding. OIA has taken steps to encourage the development of a CNMI
infrastructure master plan, and forward movement has been made with
the submittal of a budget and scope of work by the U.S. Army Corps of
Engineers; however, as of January 2010, the CNMI had not yet fully
identified funding sources for the plan's completion.[Footnote 29]
In contrast, OIA and American Samoa use its master plan to help guide
which projects should be funded and which project redirection requests
should be approved. As a result of the long-term planning, we found
that projects in American Samoa generally do not experience delays due
to project redirection and that funds are redirected in a way that
aids project completion. According to OIA, project redirection
generally occurs within a priority area and between projects listed in
the master plan.[Footnote 30] For example, funds were redirected from
the Petesa-Happy Valley Village Road project, where the project was
facing delays in getting access to necessary lands, to the Taputimu
Village Road project, which was then able to be completed in February
2008. In addition, American Samoa replaced the redirected sum with an
equal amount from a later fiscal year's funding for the Taputimu
Village Road project. OIA officials attributed much of American
Samoa's success in using project redirection effectively to the
insular area's leadership.
Natural disaster impacts. Natural disasters are unexpected challenges
that are beyond insular area governments' control; however, local
government project planning decisions can mitigate some of these
effects. Frequently occurring natural disasters such as typhoons,
cyclones, and hurricanes can have a significant impact on the
condition of the insular area's economy, health, and physical
infrastructure. Recovering from such disasters can demand a
considerable amount of local and federal resources to be directed to
immediate disaster recovery efforts rather than long-term future or
current economic and infrastructure development. For example, the U.S.
Department of Homeland Security Federal Emergency Management Agency
disbursed, as of January 2010, roughly $22 million for individual and
household assistance to American Samoa victims of the September 2009
tsunami. In addition, the agency estimates damages to American Samoa
public infrastructure to cost roughly $80 million. Similarly, Interior
reported that the combined economic costs to the USVI for damage
caused by Hurricanes Hugo in 1989 and Marilyn in 1995 ranged from $3
billion to $4 billion.[Footnote 31] The shifting of both local and
federal efforts and resources to repair these damages can contribute
to challenges in project planning and implementation.
Insular areas' remote locations and limited natural resources can
further exacerbate the effects of natural disasters by increasing
costs and the amount of time for reconstruction. These factors can
cause project delays and contribute to OIA project budget increases
because of the difficulty in estimating fluctuating material and fuel
costs.
Limited land access. Local governments' project planning decisions
regarding how to proceed when land access issues arise can also result
in some grant project delays. Limited access to land was cited by some
insular area officials, specifically in American Samoa and the CNMI,
as a challenge they face in completing OIA capital improvement project
grants. For example, in the American Samoa Petesa Happy Valley Road
capital improvement project, land access has been a major contributor
to delays since the project was initially funded in 2003.[Footnote 32]
Although both of the insular area governments have the power of
eminent domain over their land,[Footnote 33] that authority has not
always been asserted. According to some American Samoa and CNMI
officials, communities sometimes resist government land acquisition
efforts, which can lead to project delays. When land access issues
affect project implementation, local governments can choose to address
the issue by enforcing their authority or by choosing to fund other
projects.
Lack of local operations and maintenance funding. Another project
planning challenge identified by CNMI officials is a lack of local
operations and maintenance funding--which in part is a result of the
local government's decision to not prioritize operations and
maintenance activities for local funds and to not use a portion of OIA
funds for operations and maintenance of OIA grant projects. For
example, according to the CNMI Lieutenant Governor, the CNMI
government does not provide funding specifically dedicated to
operations or maintenance of its infrastructure, including OIA capital
improvement projects. However, we believe that it is significantly
more cost effective to perform preventative maintenance rather than to
perform repairs. Further, if agencies only perform maintenance on a
reactive basis, then the critical services they provide can be
disrupted. For example, the CNMI experienced intermittent electricity
blackouts from 2006 to 2008, which were in part caused by aging power
generators that had not been properly maintained. This crisis
management approach can be disruptive to ongoing projects because
critical services may not be available as planned and local government
resources and contractors may be diverted to address the crisis.
According to OIA, because capital improvement project funding awarded
to the CNMI was required to have a significant local match, it was
more challenging for the CNMI to dedicate adequate additional funds
for project operations and maintenance. However, since fiscal year
2005, this match has not been required. In addition, according to OIA,
operation costs in the CNMI are not eligible for capital improvement
funds, but in 2008 and 2009, the office provided the CNMI with pilot
grants of $350,000 for maintenance. According to the OIA grant manager
for capital improvement projects in the CNMI, the goal of the pilot
grants was to ensure that the CNMI would spend the funds on
maintenance if OIA provided them. OIA reported that the CNMI had spent
the 2008 funds on maintenance and that if the 2009 funds were
similarly spent, the next step would be to regularly provide the CNMI
with a percentage of each grant's funding specifically for maintenance.
In contrast, the American Samoa government sets aside 5 percent of its
OIA capital improvement project grant funds for maintenance.[Footnote
34] The American Samoa government also provides a 100 percent match to
all OIA funds directed to maintenance. This maintenance set-aside
program requires specific plans from the local government for the use
of the money, as well as reporting procedures to account for this fund.
Project Management Challenges:
Several project management challenges, including the following, also
limit the ability of some insular areas to manage and implement OIA
grants:
Limited local capacity for OIA project implementation. Some insular
area officials reported that they face a shortage of skilled workers
and limited opportunities for training and education in disciplines
such as grant management. Insular governments have access to training
funds--for example, through OIA technical assistance grants. However,
as we previously reported, because citizens of insular areas are free
to migrate to the United States, it is difficult to retain highly
educated or skilled workers.[Footnote 35] Further, in the CNMI,
several officials reported a shortage of funding for staff, although
they did not provide us with data to quantify this issue. This
concentrates key knowledge in few individuals and can cause high staff
burn-out rates, increasing the likelihood that projects will encounter
delays if these staff leave before projects are completed. In the
future, access to low-cost foreign labor in the CNMI and American
Samoa could change due to the rising minimum wages.[Footnote 36] In
addition, the CNMI's access could also be affected by the transition
to the U.S. immigration system which began November 28, 2009, under
recent legislation.[Footnote 37] The effect of the legislation's
implementation on the CNMI's foreign labor pool will largely depend on
various U.S. government agency decisions regarding the provision of
foreign worker temporary permits, as we reported in March 2008.
[Footnote 38]
Contractor issues. Some insular area officials also attributed project
delays to poor performing contractors. In several of the American
Samoa and CNMI projects we reviewed, insular officials identified poor
contractor performance as a significant cause of project delays and
cost increases. In some cases, contracts had to be canceled and, in
other cases, insular area project managers had to either redesign or
expand the project. Poor contractor performance is a particular
concern when insular area governors declare a state of emergency. In
the CNMI in particular, along with an emergency declaration, a
governor may waive local standard procurement regulations. In
bypassing the standard procurement regulations, the government
increases the likelihood that poor performing contractors are hired.
For example, during the implementation of the CNMI's power plant
rehabilitation project, the Governor declared a state of emergency to
address the plant engines' inability to provide necessary power to the
island, which was caused by wear and inadequate maintenance. During
the state of emergency, the Commonwealth Utilities Corporation hired a
contractor that performed poorly, causing the agency to cancel the
contract and delay the project, which was approved in 2007 and was not
yet completed at the time of our visit in September 2009 (see appendix
II for more information). To address the issue of contractor
performance, CNMI regulations require contractors to carry payment and
performance bonds--whereby payment is ensured for all employees,
subcontractors, and suppliers involved in a project, and monetary
reparations will be made in the event of contractor nonperformance--
for construction projects in excess of $25,000. For example, the CNMI
recently imposed a $17,000 damage claim and initiated debarment
proceedings against a delinquent contractor in an OIA Commonwealth
Health Center project, according to the CNMI Capital Improvement
Project Administrator. According to the OIA grant manager responsible
for capital improvement project grants in American Samoa, American
Samoa regulations require performance bonds for contracts over
$100,000, USVI regulations allow but do not mandate the government to
require performance bonds, and Guam generally requires 100 percent
Surety Performance Bonds, but some exceptions have been made to allow
only 50 percent.
Varying effectiveness of central grant management offices. American
Samoa, the CNMI, and the USVI have central grant management agencies
that are similarly structured and act as a liaison between OIA and the
local government agencies receiving grants. However, the effectiveness
of the central grant management agencies varies, in part based on the
capacity of their staff.
In the CNMI, OIA capital improvement project grants are largely
administered through the Governor's Capital Improvement Project
office. OIA officials noted that the CNMI central management office is
more effective, particularly in comparison to American Samoa's central
grant management agencies.[Footnote 39] The OIA grant manager that
works with the CNMI office said that the staff are essential to her
efforts to monitor ongoing projects; however, a CNMI office
representative reported concerns about limited resources. A key
position, the Capital Improvement Project Administrator, is appointed
by the CNMI Governor, which makes the position subject to change when
local government administrations change. Another key position, the
Capital Improvement Project Contracting Officer, is an OIA-funded
contract employee, which means the position could be eliminated if
funding is not continued. To this end, OIA has taken action, including
awarding funds specifically for capital improvement project
administration, to ensure that the office is adequately staffed to
manage projects.
In American Samoa, the Territorial Office of Fiscal Reform and the
Capital Improvement Project Committee are primarily responsible for
OIA grant administration. OIA and American Samoa officials reported
that this central grant management arrangement has contributed to
project delays. For example, the Director of the Territorial Office of
Fiscal Reform, who is also the Chairman of the Capital Improvement
Project Committee, is responsible for overseeing efforts to adhere to
American Samoa's fiscal reform plan. In addition, he reviews and
approves all of the projects that go through the Capital Improvement
Project Committee, such as OIA grant project plans and approvals.
During the last 3 years, however, this official has been absent from
the island but has retained his responsibilities and has not delegated
them to anyone else, according to OIA and American Samoa officials. As
a result of his absence and the lack of delegation, implementation of
capital improvement projects has been delayed and the committee has
become ineffective, according to the officials we spoke with.
In the USVI, the local Office of Management and Budget is primarily
responsible for OIA grant administration. OIA officials told us that
the agency can be effective but can also delay the project
administration process, including financial and status report
submissions, because they do not always expeditiously provide reports
submitted by the agencies receiving grants to OIA. A local government
official told us that the USVI Office of Management and Budget has
become more effective in its administration of OIA grants over the
past few years.
Limited local auditing agency resources. Insular area governments have
not prioritized oversight of OIA grant projects through local auditing
agencies, which may contribute to the potential for project fraud,
waste, abuse and mismanagement by both the agencies receiving the
grants and contractors. For example, the CNMI's local audit agency has
not reviewed any federal grants for several years and the position of
the Territorial Auditor in American Samoa was vacant from 2005 until
the fall of 2009.
External Factors Likely to Affect OIA Grant Project Implementation:
The following external factors, some of which we have previously
reported on, can also contribute to project delays and inefficiencies:
Declining economic conditions. Although all insular areas we reviewed
face serious economic challenges, the CNMI and American Samoa face
particularly difficult obstacles as a result of their dependence on a
few key industries.[Footnote 40] If economic conditions further
destabilize, the CNMI and American Samoa could face difficulties in
funding local government agencies and the administrative costs
required for OIA grant project implementation, as can be seen in the
following examples:
* The CNMI relied mainly on two industries for its economic
prosperity--garment manufacturing and tourism--until early 2009 when
the last of its garment factories closed.[Footnote 41] Together both
industries had accounted for 85 percent of the CNMI's economic
activity.[Footnote 42] The CNMI now relies largely on its tourism
industry to support its economy, which is a volatile industry and is
susceptible to both local and global crises.
* American Samoa's economy depends primarily on the tuna canning
industry,[Footnote 43] which recently endured two major setbacks--the
closure of one tuna cannery and a significant reduction in workforce
at the other cannery. American Samoa also experienced a tsunami in the
fall of 2009, which caused considerable damage.
U.S. government policies. Several recent changes in U.S. government
policies may also likely contribute to OIA project implementation
challenges.
* First, as mentioned previously, the federal minimum wage in American
Samoa and the CNMI began rising in 2007 and will continue to do so
until they equal the U.S. minimum wage.[Footnote 44] This may increase
the cost of OIA-funded projects. Additionally, if the economies falter
and local revenues fall, OIA grants still requiring a local government
match may face delays or noncompletion as they become increasingly
expensive for the local government agencies to fund.
* Second, in response to U.S. legislation, the CNMI's immigration
system was federalized on November 28, 2009.[Footnote 45] Accordingly,
some of the foreign workers that made up a majority of the workforce,
as of 2005, may not be able to reside in the CNMI in the future. For
those OIA grant implementing agencies that employ foreign workers, it
is possible that the departure of these workers could disrupt project
progress and basic service provision.
* Third, the planned U.S. military buildup on Guam is expected to
challenge the island's infrastructure. According to a recent GAO
report,[Footnote 46] the U.S. Department of Defense is expected to
relocate 8,000 Marines and their estimated 9,000 dependents from
Okinawa, Japan, to Guam by 2014, and also plans to expand the
capabilities and presence of Navy, Air Force, and Army forces on Guam.
As a result, the military population, including dependents, on Guam is
expected to grow by over 160 percent, from its current population of
about 15,000 to over 39,000 by 2020. The Guam government has not yet
identified a strategy to expand the roads, power, water, wastewater
and solid waste systems to accommodate this population increase.
Furthermore, according to the OIA Budget and Grants Management
Division Director, the infrastructure development will require
significant labor, thus contractor availability may be affected for
many other U.S. insular areas.
OIA Has Taken Actions to Improve Grant Project Implementation and
Management but Faces Several Obstacles:
OIA has taken several important steps to improve grant project
implementation and management but faces several obstacles in its
efforts to compel insular areas to complete their projects in a timely
and effective manner.
OIA Has Taken Steps to Improve the Implementation and Management of
Grant Projects:
Over the past 5 years, OIA has taken steps to improve project
implementation and management, including implementing a competitive
allocation system that establishes incentives for insular areas to
make financial management improvements and complete projects;
establishing grant expiration dates; and taking steps to improve
administrative continuity in insular areas. Specifically, OIA has
taken steps in the following areas:
Competitive allocation system. In fiscal year 2005, OIA implemented a
new competitive allocation system for the $27.7 million in capital
improvement project grants that it administers to the insular areas.
[Footnote 47] This system provides incentives for financial management
improvements and project completion by tying a portion of each insular
area's annual allocation to the insular governments' efforts in these
areas--such as their efforts to submit financial and status reports on
time. Through this system, OIA scores each insular area against a set
of performance-based criteria and increases allocations to those
insular areas with higher scores, thereby lowering allocations to
insular areas with lower scores.
To date, the competitive allocation criteria have measured the insular
governments' abilities to exercise prudent financial management
practices and to meet certain federal grant requirements. As described
in OIA's Budget Justification for fiscal year 2010, there are 10
competitive criteria, which include the extent to which the applicant
is in general compliance with deadlines established under the Single
Audit Act, has complied with all grant reporting requirements, and has
properly functioning internal controls--including the presence of a
qualified independent auditor, an adequately funded office, and strong
safeguards to ensure the office's independence. (See table 3 for a
list of the 10 criteria and the insular areas' scores for fiscal year
2010.)
Table 3: OIA Competitive Allocation Criteria and Insular Areas' Scores
for Fiscal Year 2010:
Criteria and point values:
1. Single Audits--timeliness (out of 4 points); Met statutory deadline
(4 points); Met an approved extension of less than 91 days (3 points);
Met an approved extension of greater than 90 days (2 points); No
extension or extension not met (0 points);
American Samoa: 2;
Commonwealth of the Northern Mariana Islands (CNMI): 4;
Guam: 4;
U.S. Virgin Islands (USVI): 0.
Criteria and point values:
2. Financial statements--reliability (out of 8 points);
American Samoa: 0;
Commonwealth of the Northern Mariana Islands (CNMI): 1;
Guam: 8;
U.S. Virgin Islands (USVI): 0.
Criteria and point values: Unqualified--no qualifications[A] (4
points); Qualified--one material qualification (3 points);
Qualified--two to four material qualifications (2 points);
Qualified--five or more material qualifications (1 point);
Adverse opinion[B] or disclaimer of opinion[C] (0 points);
American Samoa: 0;
Commonwealth of the Northern Mariana Islands (CNMI): 1;
Guam: 4;
U.S. Virgin Islands (USVI): 0.
Criteria and point values: Each unqualified statement for the
following categories also earns 1 point, with a maximum of 4 points
earned (4 points):
Statement of net assets; Statement of activities; Balance sheet;
Statement of revenues, expenditures, and changes in fund balances;
Statement of net assets--proprietary funds; Statement of net assets--
fiduciary funds;
American Samoa: 0;
Commonwealth of the Northern Mariana Islands (CNMI): 0;
Guam: 4;
U.S. Virgin Islands (USVI): 0.
Criteria and point values:
3. Financial position of government operations[D] (out of 4 points);
Balanced/surplus (4 points); Deficit, decreasing in size (2 points);
Deficit, constant (1 point); Deficit, increasing in size (0 points);
American Samoa: 4;
Commonwealth of the Northern Mariana Islands (CNMI): 0;
Guam: 4;
U.S. Virgin Islands (USVI): 0.
Criteria and point values:
4. Single Audit findings--resolutions[E] (out of 4 points);
No outstanding questioned costs for OIA grants (earns 2 points);
No recurring findings (earns 2 points);
American Samoa: 0;
Commonwealth of the Northern Mariana Islands (CNMI): 0;
Guam: 0;
U.S. Virgin Islands (USVI): 0.
Criteria and point values:
5. Single Audit findings--responses[F] (out of 5 points);
American Samoa: 1;
Commonwealth of the Northern Mariana Islands (CNMI): 1;
Guam: 3;
U.S. Virgin Islands (USVI): 0.
Criteria and point values: OIA required actions are over 50 percent
complete (3 points); OIA actions are less than 50 percent complete (1
point);
American Samoa: 1;
Commonwealth of the Northern Mariana Islands (CNMI): 1;
Guam: 3;
U.S. Virgin Islands (USVI): 0.
Criteria and point values: Other federal actions are completed or in
satisfactory progress (earns 2 points);
American Samoa: 0;
Commonwealth of the Northern Mariana Islands (CNMI): 0;
Guam: 0;
U.S. Virgin Islands (USVI): 0.
Criteria and point values:
6. Procurement processes[G] (out of 4 points); Fully compliant;
no material issues (4 points); Substantially compliant;
no material issues (3 points); Improvements over procurement issues (2
points);
American Samoa: 0;
Commonwealth of the Northern Mariana Islands (CNMI): 0;
Guam: 2;
U.S. Virgin Islands (USVI): 0.
Criteria and point values:
7. Timely submission of capital improvement project application (out
of 2 points); Timely, includes all elements (2 points); Timely, not
all elements included (1 point); Not timely (0 points);
American Samoa: 2;
Commonwealth of the Northern Mariana Islands (CNMI): 2;
Guam: 2;
U.S. Virgin Islands (USVI): 2.
Criteria and point values:
8. Compliance with financial and narrative OIA grant reporting
requirements[H] (out of 5 points);
American Samoa: 4;
Commonwealth of the Northern Mariana Islands (CNMI): 4;
Guam: 4;
U.S. Virgin Islands (USVI): 4.
Criteria and point values: Timely (3 points); Within 10 days late (2
points); Within 11-89 days late (1 point); No report within 90 days (0
points);
American Samoa: 2;
Commonwealth of the Northern Mariana Islands (CNMI): 2;
Guam: 2;
U.S. Virgin Islands (USVI): 2.
Criteria and point values: Accuracy is greater than or equal to 75
percent (2 points); Accuracy is less than 75 percent (0 points);
American Samoa: 2;
Commonwealth of the Northern Mariana Islands (CNMI): 2;
Guam: 2;
U.S. Virgin Islands (USVI): 2.
Criteria and point values:
9. Island government audit office (out of 4 points); Qualified Public
Auditor (earns 1 point); Audit and responses process in place (earns 1
point); Audit reports completed and responses in compliance with the
insular area's audit office requirements (earns 1 point);
Recommendations resolved (earns 1 point);
American Samoa: 0;
Commonwealth of the Northern Mariana Islands (CNMI): 4;
Guam: 4;
U.S. Virgin Islands (USVI): 4.
Criteria and point values:
10. Additional financial reporting required by OIA[I] (out of 2
points); Quarterly reporting as requested (2 points);
American Samoa: 2;
Commonwealth of the Northern Mariana Islands (CNMI): 2;
Guam: 2;
U.S. Virgin Islands (USVI): 2.
Criteria and point values: Total (out of 42 points);
American Samoa: 15;
Commonwealth of the Northern Mariana Islands (CNMI): 18;
Guam: 33;
U.S. Virgin Islands (USVI): 12.
Source: OIA data.
[A] Unqualified audit opinions, or "clean" audit opinions are when the
auditor concludes that the financial statements and accompanying notes
present the information fairly in all material respects. Qualified
opinions are when, except for the effects of the matter to which the
qualification relates, the financial statements present the
information fairly, in all material respects. An auditor issues a
qualified opinion when the audit scope is limited or there is
insufficient, appropriate audit evidence or based on the audit
results, the auditor believes that a departure from generally accepted
accounting principles had a material effect on financial statements.
[B] An adverse audit opinion states that the financial statements do
not present fairly the financial statements in conformity with
generally accepted accounting principles, which is expressed on the
financial statements taken as a whole when there are material
departures from generally accepted accounting principles.
[C] For a disclaimer audit opinion, the auditor does not express an
opinion of the financial statements, which is when the audit scope is
not sufficient to enable the auditor to express such an opinion or
when there are material uncertainties involving scope limitation.
[D] Federal grants are not included in this determination.
[E] This measures the extent to which the insular area has
demonstrated prompt and effective efforts to resolve questioned costs
and internal control deficiencies identified in its Single Audits.
[F] This measures the extent to which the insular area has provided
timely and comprehensive responses to any follow-up inquiries that OIA
and other federal agencies may have regarding Single Audits, including
those related to questioned costs and those related to internal
control deficiencies.
[G] This measures the extent to which the applicant has demonstrated
effective contract administration and compliance with local statutes
and regulations regarding procurement practices and processes.
[H] Timeliness is determined by the average number of days late for
all the reports received for that area for the reporting period.
Accuracy is similarly determined by the average accuracy of these
reports.
[I] This measures the extent to which the insular area has complied
with OIA information requirements resulting from issues outside of
Single Audits.
[End of table]
The criteria have had a positive impact on insular governments'
financial management practices. For example, although the four insular
areas initially had trouble submitting their Single Audits in a timely
manner, according to Interior's fiscal year 2008 Annual Performance
and Accountability Report, as of fiscal year 2006, each of the insular
areas has been in compliance with the requirement for annual Single
Audits.[Footnote 48]
In September 2009, OIA announced it will add another criterion to the
competitive allocation criteria for fiscal year 2011 allocations to
encourage more efficient project completion and use of unspent funds.
The new criterion will measure the rate at which territories expend
funds over a 5-year period. According to OIA officials, this measure
was largely added to address the roughly $52 million unspent capital
improvement project fund balance that the CNMI currently carries, as
well as the smaller but proportionally higher balance carried by the
USVI (approximately $18 million) in comparison to American Samoa
(approximately $20 million) and Guam (approximately $10 million).
[Footnote 49]
Grant expiration dates. Beginning in 2005, to encourage expeditious
use of funds, OIA established 5-year expiration dates in the terms and
conditions of new capital improvement project grants. Beginning in
2008, OIA also notified insular area officials of expiration dates for
grant projects that had been ongoing for more than 5 years with no or
limited progress. OIA officials explained that while the expiration
dates have not yet pushed all of the insular areas to complete
projects, they have encouraged some areas to do so. The officials also
stated that the expiration dates have helped OIA grant managers
administer and manage grants--which they believe has improved
accountability--and have been useful for insular area grantees whose
agencies have high staff turnover and were unaware of the status of
older grants.
Actions to improve insular area continuity. OIA has also taken steps
to help with the continuity of grant administration at the insular
level. For example, in March 2008, OIA awarded a $770,000 grant for
capital improvement project administration in the CNMI, which provided
funding for positions in the local central grant management office in
that insular area. According to the grant manager for CNMI capital
improvement projects, the grant was given to help ensure that the
central grant management office had the staff necessary to help move
implementation of projects forward. Among other positions, the grant
funded three project manager positions; these managers have worked on
three of the projects we discuss in appendix II--the Jose T.
Villagomez Center for Public Health and Dialysis (Commonwealth Health
Center dialysis facility), the Rota Health Center, and the Tinian
Landfill Projects. Although the continuity of the office itself is
vulnerable to changes in the CNMI's administration, the grant manager
stated that OIA is hopeful that in the long term, even if the insular
area's central grant management office does dissolve, OIA will have
helped develop the capacity--in terms of knowledge and resources--that
could go back to the local agencies for continued progress.
Several Obstacles to Timely and Effective Project Completion Remain:
Despite these efforts, some insular areas are still not completing
their projects in a timely and effective manner, and OIA faces the
following key obstacles in compelling them to do so:
Lack of sanctions for delayed or inefficient projects. Current OIA
grant procedures provide few sanctions for delayed or inefficient
projects. For example, although OIA established grant expiration
dates, they have little practical effect. In theory, a grant
expiration date encourages timely completion of a project because if a
project is not completed on time, the funds are taken away from the
recipient. However, if an insular area's OIA grant funds expire, while
the funds do not remain immediately available for the project, the
insular area does not lose the funds because OIA treats its capital
improvement project grants as mandatory funding with "no-year funds,"
based on the agency's interpretation of relevant laws.[Footnote 50]
Thus, after a grant expires, OIA deobligates the funds and they are
returned to the insular area's capital improvement project account to
be reobligated for the same or other projects. Along the same lines,
OIA's application of the competitive allocation criteria can reduce an
insular area's capital improvement project allocation if the insular
area is not performing well, but reductions must stay within a range
of $2 million below or above the baseline funding that has been
established for each insular area.[Footnote 51] As indicated in OIA's
fiscal year 2010 budget justification, the office's intention for the
competitive allocation process is to allow the governments an
opportunity to compete each year for a greater portion of the
guaranteed funding rather than to signal declining performance.
Recently, OIA has taken steps to identify possible solutions and
actions that could help provide effective sanctions for insular areas
that do not efficiently complete projects and expend funds. In doing
so, OIA has faced uncertainty regarding the authorities it has to
change its current policies and practices, which are guided by many
special agreements, laws, and regulations. Accordingly, OIA has sought
an Interior Solicitor's opinion on a few discrete issues regarding its
authority to take different actions when projects are not completed,
grant funds expire, or insular areas sustain large balances of
unexpended funds. In response, an attorney with the Solicitor's office
orally advised OIA that it did not have the authority to reallocate
funds away from the insular areas whose funds expire. However, the
attorney acknowledged to us that this advice was not based on a
comprehensive review of all potentially relevant sources of law and
that there are still some unresolved questions. For example, recent
appropriations acts have appropriated funds to OIA for capital
improvement project funding for American Samoa, the CNMI, Guam, and
the USVI on the condition that these funds are provided according to
the Agreement of the Special Representatives on Future United States
Financial Assistance for the Northern Mariana Islands approved by
Public Law 104-134; however, this 1992 agreement is now
expired.[Footnote 52] The new agreement, entered in 2004, has a
different title--Section 702 Funding Agreement--and has not been
approved in any law. Unless the reference to the now-expired 1992
agreement is read to mean the 2004 agreement, then OIA may have more
discretion with respect to reallocation than it currently exercises.
The Interior Solicitor indicated this legal discrepancy has not been
resolved and that some documents, such as appendices to the 2004
agreement and legislative history of recent appropriations acts, were
not consulted. In addition, OIA is considering using a provision of
the 2004 agreement that allows OIA to deviate from the baseline
allocations under certain circumstances, including a substantial
backlog of prior years' unspent funds. Any such deviations under this
provision, however, require the approval of Congress. The Interior
Solicitor has not yet determined or advised OIA on how this approval
requirement may be met.
OIA Resource Constraints. OIA officials report that resource
constraints impede effective project completion and proactive
monitoring and oversight. Although they could not provide us with
data, numerous officials in OIA asserted that heavy workloads are a
key challenge in managing grants. The effects of insufficient
resources vary across grant type but include impacts on the ability to
maintain files, adopt a proactive oversight approach that could aid
project completion, conduct more detailed financial reviews of
projects, and conduct site visits to more projects to better ensure
that mismanagement is detected. Importantly, although grant managers
for capital improvement projects noted that the most effective action
they can take to move projects along is to conduct site visits, they
also asserted that their current workloads only afford one visit per
year. Furthermore, the grant managers explained that the duration of
the visits, and therefore the number of projects visited, is limited
to ensure that they are able to meet their requirements and
responsibilities at headquarters. In addition, the grant managers
reported that their heavy workloads make it harder for them to take a
proactive approach, including looking ahead to grants with impending
expiration dates, reaching out to determine causes for delays, and
taking earlier action to help insular areas move projects forward.
Two of the insular areas--American Samoa and the CNMI--have OIA field
representatives whose broad job descriptions include regular site
visits to projects to monitor progress. These positions are intended
to help ease the workload burden of headquarters grant managers.
According to OIA officials, the field representative in American Samoa
is effective and a critical contributor to OIA's efforts to monitor
projects. However, OIA officials noted that the American Samoa field
representative formally works for OIA's policy division and has many
other roles and responsibilities to fulfill--including acting as a
liaison between the American Samoa government and federal agencies,
including, but not limited to, Interior--resulting in more work than
they believe should be assigned to one person. In contrast, the CNMI
has two field representatives, one of whom is specifically assigned to
grants management;[Footnote 53] however, OIA officials believe that
the field representative has not been as effective as the American
Samoa representative.[Footnote 54]
Resource constraints also limit OIA's efforts to assist insular areas
in responding to Single Audit report findings, which can help address
issues that may lead to mismanagement or ineffective project
implementation. Currently, only one OIA auditor works with insular
areas to ensure they respond to Single Audit report findings and has
numerous other responsibilities, including responding to other
external audits and conducting reviews of grant managers' project
files. The auditor explained that when the insular areas were
delinquent in complying with Single Audit reporting requirements, the
workload was manageable. Now that OIA has taken steps to help improve
the timeliness of these reports and each of the insular areas is
complying and providing a timely report to meet the Single Audit
requirements, OIA officials believe that the workload associated with
assisting insular areas in responding to the findings is significantly
larger than one auditor can handle.
The support that Interior's Office of Inspector General provides
generally does not reduce OIA's oversight workloads. According to the
OIA officials we spoke with, currently, Interior's Office of Inspector
General does not typically provide much oversight support on
individual grant concerns; rather, the Inspector General's Office of
Audits, Inspections, and Evaluations and its Office of Investigations
focus their efforts on higher-priority issues that cover a broader
spectrum and pertain to more significant instances of misconduct.
Historically, the predecessor to OIA--the Office of Territorial and
International Affairs--received oversight support from federal
comptrollers located in American Samoa, the CNMI, Guam, and the USVI.
For example, in fiscal year 1982, 44 full-time positions in the
federal comptroller offices--36 of which were professional audit
staff--were responsible for auditing the territorial governments.
Then, in 1982, legislation transferred responsibility for audits from
the federal comptrollers to Interior's Office of Inspector General in
an effort to improve independence in the audit oversight of the
insular governments.[Footnote 55] Staff in the Office of Inspector
General's regional offices became responsible for performing the
functions of the insular area comptrollers by conducting audits of
property, receipts, revenues, and expenditures.[Footnote 56] The
Office of Inspector General initially had insular field offices in
American Samoa, the CNMI,[Footnote 57] Guam, and the USVI. However, by
2002, all but the USVI office was closed, despite concerns that the
move away from the territories might make it more difficult to provide
a satisfactory level of oversight.[Footnote 58] When the last of the
Pacific insular area offices closed, the Office of Inspector General
opened its Honolulu field office. According to the Office of Inspector
General's Semiannual Report to the Congress in April 2003, the Guam
office was moved to Honolulu in an effort to expand the audit and
investigation coverage of the department and to address the long-
standing challenges facing insular area governments as a whole, while
still maintaining an effective presence.[Footnote 59] Over time, these
changes, and the need for the Office of Inspector General to
prioritize its resources on broader management issues and more
significant cases of misconduct, have reduced some of the oversight
support available to OIA on individual grants. According to OIA
officials, the responsibility for detailed audits of OIA grants
currently falls primarily upon the external auditors conducting Single
Audits and the one OIA auditor responsible for following up on the
results of those audits. Moreover, because Single Audits are by design
risk-based and sample from all federal grants--not just Interior's OIA
grants--to a given insular area, they cannot provide comprehensive
coverage for every program or transaction.
Despite their concurrence that additional resources are needed, OIA
division directors confirmed that they have not formally communicated
these needs to decision makers, or higher levels within Interior, and
have not developed a workforce plan or other formal process that
demonstrates a need for additional resources. Moreover, OIA does not
track workload measures, such as the number of grants handled by each
grant manager, to show changes over time that would help justify the
need for additional resources. Interior's own Workforce Planning
Instruction Manual emphasizes that workforce planning is a fundamental
tool, critical to quality performance that will contribute to the
achievement of program objectives by providing a basis for justifying
budget allocation and workload staffing levels. As we have previously
reported, it is important for agencies to determine the critical
skills and competencies that will be needed to achieve current and
future programmatic results through workforce planning, and in doing
so, it is important to involve agency managers, supervisors, and staff
to ensure that the agency understands the need for and benefits of the
workforce plan.[Footnote 60]
Inconsistent and insufficiently documented project redirection
policies. OIA's current project redirection approval practices do
little to discourage insular areas from redirecting project funds in
ways that hinder project completion. As previously discussed, insular
areas shift priorities and frequently redirect grant project funds,
which in some cases expedites project completion and in other cases
impedes it. Currently, OIA's policies for granting project redirection
requests vary across insular areas. Specifically, in American Samoa,
project redirection is limited to changes within a priority category
because the insular area's grants are issued by priority areas.
[Footnote 61] In contrast, the other insular areas each receive grants
as one capital improvement grant and are able to redirect money
between projects with widely different purposes.
OIA's policies for granting project redirection requests are also not
well-documented. While the 2003 version of OIA's Financial Assistance
Manual contained some specific criteria regarding the level of
approval that was needed for various project redirection requests,
there are no thresholds or specified levels of approval in OIA's 2009
update to the manual. According to OIA officials, that information was
omitted because OIA's current practice is for grant managers to
approve most project redirection requests. The officials further
stated that although they believe OIA has the authority to deny
redirection requests, the office has not done so in the CNMI, even
though there have been instances when they believed requests should
have been denied, but were instead ultimately approved. For example,
as we previously discussed, in 2007, funds that had previously been
redirected (from a project updating a Tinian school building to a
project developing a wastewater system) were again shifted from the
unfinished wastewater system project to a Tinian airport instrument
landing system, which has since been suspended.[Footnote 62]
Correspondence documented in the grant file for the wastewater project
shows that some OIA officials did not believe the request should be
granted and expressed concern that the project redirection request, if
approved, would result in a significant funding shortfall in the
already underfunded Tinian wastewater project, leading to capital
improvement project funds remaining unspent for a considerable length
of time. However, this request was eventually approved. In contrast,
in American Samoa, OIA has denied project redirection requests in
cases where the insular area wanted to redirect project funds from one
priority area to another or when the new project was not on American
Samoa's master plan.
Project redirection is a particular concern in instances where a
project starts and federal money is expended but the project is never
completed, leading to the waste of both federal resources and the
local governments' limited technical capacity to implement projects.
With regard to federal resources, OIA does sometimes recover funds by
disallowing costs for projects that are not completed or by offsetting
previously obligated costs by reducing reimbursements to insular areas
for other projects. However, according to OIA officials, costs are
disallowed or offset only about 50 percent of the time such a project
redirection situation arises, and the decision as to whether to pursue
the costs depends upon the particular project and circumstances.
Importantly, OIA does not currently have established criteria to guide
these decisions. In the previously discussed example of project
redirection from the Tinian wastewater system project in the CNMI to
an airport instrument landing system project, OIA reimbursed the CNMI
approximately $53,000 for costs associated with completing an
environmental assessment for the Tinian wastewater facility, which is
expected to be canceled because the remaining funds expired on
December 30, 2009. According to OIA officials, these costs could be
disallowed, but OIA opted not to pursue them.[Footnote 63] Even in
cases where the costs are recovered, the waste of limited technical
capacity on the island may contribute to the insular area's difficulty
in efficiently completing grant projects.
Inefficient grant management system. OIA's current data system for
tracking grants is limited in the data elements it contains, leading
to inconsistencies in the data that some grant managers rely on for
monitoring and oversight activities. Grant managers vary in the degree
to which they rely upon OIA's database, as well as the priority they
place on keeping information in the database up to date. While grant
managers for all grant types reported relying on the database for
information on the amount of funds drawn down from grants and for
responding to requests for data from outside parties (such as
Interior's Office of Inspector General and GAO), some told us that
they do not find OIA's database useful and therefore maintain their
own separate spreadsheets to track some information, including
expiration dates, grant status, and receipt dates for the most recent
financial and narrative reports. Because these grant managers do not
rely on OIA's database, they do not always keep information on their
grants in OIA's database up to date, leading to inconsistent or
incomplete information in the database. Importantly, when grant
managers do rely on the database, they may be relying on inaccurate or
unreliable data. As we previously discussed, database elements,
including grant expiration dates, were sometimes improperly recorded,
and we found cases where individual fund drawdowns were not entered
into the database in a timely manner. Such occurrences increase the
susceptibility of grant funds to mismanagement.
As reported in the Domestic Working Group's Guide to Opportunities for
Improving Grant Accountability, consolidating information systems can
enable agencies to better manage grants.[Footnote 64] Along these
lines, Interior is currently phasing in a centralized agencywide
system--the Financial and Business Management System--that is
scheduled to be implemented in OIA in 2011. By design, Interior's
system will incorporate the majority of the department's financial
management functions into one system and will eliminate over 80
departmentwide and bureau-specific systems, including OIA's grant
management system. Interior has already implemented the system in its
Bureau of Land Management, Office of Surface Mining Reclamation and
Enforcement, and Minerals Management Service. According to the
Interior officials leading this effort, the system has a financial
assistance module with a real-time interface to Interior's accounting
system and is to be used by all of Interior's grant-making
organizations and programs. Among other capabilities, the system can
receive applications electronically and conduct several postaward
tasks. Specifically, among other things, grantees will be able to
submit financial reports and status reports electronically, grant
managers will be able to set up electronic reminders for reports with
impending due dates, and drawdown requests and payments will have the
capability to be processed electronically. During our site visits,
some insular area grantees reported that a centralized electronic
database that is accessible to them, such as those used by other
federal agencies, would make it easier to meet reporting requirements
and request fund drawdowns.
However, OIA officials expressed some concern about whether the new
system will have the flexibility needed to address OIA's specific
needs for grants management. Specifically, the officials are concerned
that because Interior's goal is to standardize the system used by all
of Interior's grant-making organizations and programs, the system may
not provide for the level of detail that OIA needs. For example, OIA
is often called on to generate reports for external parties, such as
members of Congress and auditors, that are sorted by specific fields,
including fiscal year, grant type, and insular area. Because
Interior's existing agencywide financial system does not provide this
capability, OIA created its current grant management system database.
Because Interior will require that all grant-making organizations and
programs stop using other databases or spreadsheets once the Financial
and Business Management System is implemented, OIA officials want to
be sure that the capabilities of the new system will be responsive to
their particular needs. In addition to flexibility concerns, OIA
officials expressed general concern about the capabilities of the
financial assistance module, noting that Interior recently changed the
software for the module in response to issues that arose during
implementation in other bureaus.[Footnote 65] Interior officials
responsible for the conversion to the new system indicated that they
do plan to be responsive to the needs of each office and bureau and
have means to configure the software to meet any individualized
requirements.
Conclusions:
OIA has made important strides in implementing grant reforms,
particularly in its efforts to establish disincentives for insular
areas that do not complete grant projects in a timely and effective
manner. However, the unique characteristics and situations facing
insular area governments, and the need to mindfully balance respect
for insular governments' self-governance and political processes with
the desire to promote efficiency in grant project implementation,
limit as a practical matter some of the actions that OIA can take to
improve the implementation of grant projects.
Nonetheless, OIA has not exhausted its opportunities to better oversee
grants and reduce the potential for mismanagement. In light of OIA's
concerns that limited authority to withhold or reallocate unexpended
grant funds impedes the imposition of sanctions on projects that are
wasteful of government resources, it is important that the office has
a clear understanding of its available authorities and any additional
authorities that are needed to ensure that insular area project
personnel, agency heads, and administrative officials more effectively
and expeditiously utilize large balances of unexpended funds. In
addition, although OIA officials are concerned that limited resources
impede more rigorous and proactive grant project monitoring, OIA has
not formally communicated its needs to key decision makers and has not
developed a workforce plan or other formal process that demonstrates a
need for additional resources.
Inconsistency among grant managers in the way they consider project
redirection requests also raises concerns about OIA's grant management
and oversight processes. OIA lacks a uniform policy to help ensure
that insular areas are discouraged from redirecting project funds in
ways that hinder project completion. Along these lines, when federal
money is expended but projects are not completed after redirection
occurs, OIA does not have established criteria to guide decisions
regarding whether to disallow costs, leading to inconsistency in those
decisions, as well.
Recommendations for Executive Action:
We recommend that the Secretary of the Interior take the following
three actions:
* To improve OIA's ability to require insular areas to efficiently
complete projects and expend funds, we recommend that the Secretary
direct Interior's Office of the Solicitor to prepare a detailed
written evaluation of OIA's existing authorities that could be used to
ensure the more efficient use of funds by insular areas, and work with
OIA officials to use such authorities as appropriate and to identify
the need, if any, for additional authority. We recommend that if the
evaluation identifies the need for additional authorities, the
Secretary should submit the evaluation to the Congress.
* To ensure that OIA's staffing needs are clearly and accurately
communicated to key decision makers, we recommend that the Secretary
direct OIA to create a workforce plan and reflect in its plan the
staffing levels necessary to adopt a proactive monitoring and
oversight approach.
* To reduce the impact that frequently shifting insular area
priorities have on insular areas' incentives to complete projects and
efficiently use federal funds, we recommend that the Secretary direct
OIA to develop criteria that establish when project redirection
requests should be approved and when they should be denied and update
its financial assistance manual with these criteria to clarify OIA
policy on redirection. In developing these criteria, OIA should adopt
guidelines that minimize ineffective project redirection. In addition,
we recommend that the Secretary direct OIA to develop criteria that
establish when offset or disallowed costs should be pursued.
Agency Comments:
We provided a draft of this report for review and comment to the
Department of the Interior as well as the Governors of American Samoa,
the CNMI, Guam, and the USVI. Interior's Assistant Secretary for
Insular Affairs concurred with our recommendations and commented that
our report is a useful analysis. Interior's written comments are
reprinted in appendix III. We also received written comments from the
Lieutenant Governor of the CNMI (see appendix IV) and the Acting
Governor of the USVI (see appendix V). Both concurred with our
recommendations. The Lieutenant Governor of the CNMI noted that the
CNMI had recently adopted a new structure to manage OIA grant funds
that addresses many of the insular area challenges we identified. We
agree that this new structure, as well as the Capital Improvement
Project Office's efforts to address issues that have delayed ongoing
grant projects, will reduce the potential for mismanagement among OIA
grant programs in the CNMI. We did not receive comments from the
Governors of American Samoa and Guam.
We are sending copies of this report to the appropriate congressional
committees; the Secretary of the Interior; the Governors of American
Samoa, the Commonwealth of the Northern Mariana Islands, Guam, and the
U.S. Virgin Islands; and other interested parties. In addition, this
report is available at no charge on the GAO Web site at [hyperlink
http://www.gao.gov].
If you or your staff members have any questions about this report,
please contact me at (202) 512-3841 or mittala@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 VI.
Signed by:
Anu K. Mittal:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
This appendix details the methods we used to assess the Department of
the Interior's Office of Insular Affairs' (OIA) management of its
grant programs to insular areas. For this review, we determined (1)
whether previously reported internal control weaknesses have been
addressed and, if not, to what extent they are prevalent among OIA
grant projects; (2) the challenges, if any, insular areas face in
implementing OIA grants; and (3) the extent to which OIA has taken
action to improve grant project implementation and management.
For our first objective, our review focused on OIA grants that were
provided to all insular areas that receive noncompact types of grants--
including American Samoa, the Commonwealth of the Northern Mariana
Islands (CNMI), Guam, the U.S. Virgin Islands (USVI), and three Freely
Associated States (the Federated States of Micronesia, Palau, and the
Republic of the Marshall Islands). We excluded compact funds from the
review because we are required to regularly review and report on the
effectiveness of U.S. oversight of compact funds. Instead, we focused
on grants awarded for capital improvement projects, operations and
maintenance projects, technical assistance, and other purposes. Our
review covered grant projects awarded during fiscal years 1984 through
2009 that were open or had been closed for less than 3 years as of
April 27, 2009.
To identify key internal control weaknesses that have been identified
in the past, as well as key internal controls relevant to grant
management, we first summarized the weaknesses that were identified in
our insular area related reports published from 2000-2009, Interior
Office of Inspector General reports on insular areas over that period,
and the three most recent Single Audit reports for American Samoa, the
CNMI, Guam, and the USVI.[Footnote 66] We also reviewed several
documents outlining policies and procedures applicable to OIA's grant
management and oversight responsibilities to determine the internal
control activities that OIA has in place, including (1) the Standards
for Internal Control in the Federal Government, (2) OIA's Financial
Assistance Manual and Interior's Grants Management Common Rule, and
(3) best practices in grant management as identified by a working
group of federal and state audit agencies.[Footnote 67] From our
review of these documents, we determined that the following internal
control activities are particularly relevant to OIA: accurate and
timely recording of transactions and events, appropriate documentation
of transactions and internal control, proper execution of transactions
and events, and controls over information processing. Some of these
internal control weaknesses we identified do not apply to all projects
in the sample (i.e., focusing on open or closed grant projects), and
data were analyzed accordingly. See table 4 for a summary of the
internal control weaknesses we considered and their applicability to
projects in the sample.
Table 4: Internal Control Weaknesses We Considered and Their
Applicability to Projects in the Sample:
Internal control weakness: Failure to submit required status reports
in full and on time;
Assessment procedures: Grant files were reviewed for the presence and
submission date of all required financial and narrative reports, based
on reporting requirements laid out in grant award document;
Open projects: [Check];
Closed projects: [Check];
Applicability: Applicable to grants with requirement for semiannual
reporting in the grant award document.
Internal control weakness: Failure to submit required final reports on
time (i.e., within 90 days of completion);
Assessment procedures: Examined submission date of final report and
compared this to date of project completion;
Open projects: [Empty];
Closed projects: [Check];
Applicability: Applicable to all closed grant projects.
Internal control weakness: Projects' expected completion date (for
open grant projects) or actual completion date (for closed grant
projects) fall after grant expiration[A];
Assessment procedures: For open grant projects: comparison of
"expected completion date" from most recent narrative status report to
grant expiration date[B]; For closed grant projects: comparison of
grant expiration date[B] to date of project completion; if possible,
used "date completed" from final narrative report; otherwise used date
of final fund drawdown;
Open projects: [Check];
Closed projects: [Check];
Applicability: Applicable to all grant projects.
Internal control weakness: Drawing down funds faster than project
progress (i.e., progress toward project completion lags behind
expenditure of grant funds by at least 5 percent);
Assessment procedures: Comparison of funds claimed by grantee to date
(from database) to "percent complete" as noted in the most recent
narrative status report;
Open projects: [Check];
Closed projects: [Empty];
Applicability: Applicable to all open grant projects.
Internal control weakness: Redirection of project funds;
Assessment procedures: Presence of the first or both of the following
confirmed that funds were redirected: (a) official letter approving
the redirection request, (b) notation on drawdown sheet in grant file;
Open projects: [Check];
Closed projects: [Check];
Applicability: Applicable only to capital improvement projects.
Internal control weakness: Information in grant management database
does not match grant file;
Assessment procedures: Thirteen database elements were compared with
information contained in the grant files[C];
Open projects: [Check];
Closed projects: [Check];
Applicability: Not applicable to capital improvement projects (where
database serves as secondary tracking tool).
Internal control weakness: Field representatives perform less than
half of all site visits[D];
Assessment procedures: Comparison of number of site visit reports in
the grant files completed by headquarters grant managers to number of
site visit reports by field representatives;
Open projects: [Check];
Closed projects: [Check];
Applicability: Applicable only to capital improvement projects in
American Samoa and the CNMI.
Internal control weakness: Unexpended funds not deobligated;
Assessment procedures: If the project had been closed for more than 90
days, we responded "Yes" or "No";
if project was closed for less than 90 days, we responded "N/A";
Open projects: [Empty];
Closed projects: [Check];
Applicability: Applicable to all closed grant projects.
Source: GAO.
[A] This internal control weakness was assessed separately for open
and closed grants and combined during data analysis.
[B] We used the grant expiration date recorded in the database unless
the grant file contained evidence that the grant expiration date had
been extended beyond that.
[C] The 13 database elements we examined include grant number, grant
title, subproject title, amount awarded, amount of fund drawdown
(summed to obtain the total amount drawn down), date grant awarded,
fiscal year, grant expiration date, insular area, project, project
number, status, and grant type.
[D] OIA's Financial Assistance Manual requires that OIA field
representatives conduct regular site visits of ongoing projects and
meet with the insular program manager of each project at least
quarterly and submit reports to the grants manager. According to OIA
grant managers responsible for capital improvement projects in
American Samoa and the CNMI, although there is no documented
requirement, they have been told by their supervisor that they are to
conduct site visits once per year. Therefore, OIA field
representatives should be performing more site visits than
headquarters grant managers.
[End of table]
We reviewed a random probability sample of 173 grant project files to
determine whether and the extent to which internal control weaknesses
are prevalent. The sample of 173 projects, stratified by project
status (i.e., open or closed), was drawn from the 1,771 projects in
OIA's internal grant management database (see table 5).[Footnote 68]
This sample allowed us to make estimates about all projects in the
database. With this probability sample, each member of the study
population had a nonzero probability of being included, and that
probability could be computed for any member. Each sample element was
subsequently weighted in the analysis to account statistically for all
members of the population, including those who were not selected.
Table 5: Sample Disposition:
Strata: Closed;
Population size: 1,323;
Sample size: 88.
Strata: Open;
Population size: 448;
Sample size: 85.
Strata: Total;
Population size: 1,771;
Sample size: 173.
Source: GAO analysis of Office of Insular Affairs (OIA) database
sample.
[End of table]
Because we followed a probability procedure based on random
selections, our sample is only one of a large number of samples that
we might have drawn. Since each sample could have provided different
estimates, we express our confidence in the precision of our
particular sample's results as a 95 percent confidence interval (e.g.,
plus or minus 10 percentage points). This is the interval that would
contain the actual population value for 95 percent of the samples we
could have drawn. All percentage estimates from the file review have
margins of error at the 95 percent confidence level of plus or minus
10 percentage points or less, unless otherwise noted.
There are limitations to the database, including the fact that the
database does not include the full universe of closed grants. Grant
files are only retained until the project has been closed for 3 years,
after which the physical files are destroyed. In addition, the
database has only been in use for all grant types--including capital
improvement project grants, operations and maintenance improvement
program grants, and technical assistance grants--since fiscal year
2008, and only grants that were open at that time were entered into
the database. Despite these limitations, the database is the most
comprehensive source of information about OIA grants that includes
both open and closed projects.
Prior to drawing the sample of grant projects, we modified the
database to meet our needs by removing anything outside the scope of
our review, including compact funding and reimbursable agreements.
[Footnote 69] To standardize the data at our unit of analysis--
individual grant projects--we identified unique projects within the
capital improvement block grants given to insular area governments. It
was also necessary to unify multiple entries for each project,
representing partial payments to the grantees, in order to establish a
single database entry for every project that reflected the full amount
paid to grantees at the time of our review. We worked with grant
managers at OIA to explain, clarify, and correct incomplete or
possibly erroneous identification and status information in the
database file they provided to us.
To assess the reliability of the data, we interviewed agency officials
and grant managers about the data system and elements, how the system
is used, and the method of data input, among other areas. We also
corroborated the data using OIA grant files. Specifically, when
reviewing grant files for each project, we compared select data
elements from the database with information in the grant files,
corrected the data with any updates that were not reflected in the
database, and recorded any inconsistencies or inaccuracies as internal
control weaknesses that were present. This allowed us to identify
cases where the agency's electronic record keeping was not accurate
while using correct information for any analysis using the data from
OIA. We did not assess the accuracy of data in the grant files that
grant recipients submitted to OIA. We determined that the data we used
were sufficiently reliable for our purposes.
For each project in the sample we reviewed the grant files maintained
by grant managers at OIA headquarters in Washington, D.C., and
assessed every project for the presence of relevant internal control
weaknesses. Based on that initial review, we ranked the projects by
prevalence of the weaknesses. To account for the fact that grant
projects were assessed for different numbers of internal control
weaknesses, we ranked projects based on the percentage of applicable
weaknesses present. We selected 24 of the grant projects with the
highest percentages of internal control weaknesses to review in more
detail for objectives two and three; those grant projects were located
in American Samoa, the CNMI, Guam, and the USVI. During this step, we
gathered more information from OIA headquarters grant files on the
internal control weaknesses demonstrated by the 24 selected projects
and examined the grant files for any other phases or funding years of
the same project.
Follow-up to the file review addressed objectives two and three. We
traveled to American Samoa, the CNMI, Guam, and the USVI and met with
representatives for 24 projects. During these visits we interviewed
government officials and project managers for each project to follow
up on specific issues identified during file reviews, such as late
reporting or project delays. In addition, we physically inspected
sites for 10 of these projects. We also asked officials and project
managers to describe any challenges faced while implementing OIA grant
projects and their experiences interacting with OIA officials and
grant managers. In American Samoa, we reviewed 7 projects and met with
officials from the Office of the Governor, Department of Public Works,
American Samoa Power Authority, Territorial Office of Fiscal Reform,
Lyndon B. Johnson Tropical Medical Center, Department of Education,
and the OIA field representative stationed in American Samoa. In the
CNMI, we reviewed 13 projects and met with officials from the Office
of the Governor and its Capital Improvement Program Office, Department
of Public Works, Public School System, Department of Health,
Commonwealth Ports Authority, Commonwealth Utilities Corporation,
Office of the Rota Mayor, Office of the Tinian Mayor, Office of the
Public Auditor, and the OIA field representative stationed in the CNMI
who is responsible for grants. In Guam, we reviewed 1 project and met
with Guam Waterworks Authority and Office of the Public Auditor. In
the USVI, we reviewed 3 projects and met with the Virgin Islands
Office of Management and Budget, Virgin Islands' Waste Management
Authority, University of the Virgin Islands, Bureau of Economic
Research, and the Office of the Virgin Islands Inspector General.
For the second report objective, we identified common challenges that
insular area projects confront during project implementation by (1)
analyzing records of the interviews we conducted with insular area
officials and project managers to identify common challenges that
insular area projects confront during project implementation, (2)
reviewing correspondence and other documents we received from these
officials and project managers, and (3) reviewing correspondence,
project status reports, and other documents from OIA headquarters and
field office grant files.
For the third report objective, we also reviewed relevant OIA and
other documents, including OIA's Financial Assistance Manual (2003 and
2009 versions); official letters to grantees detailing changes to OIA
grant management policies and procedures; OIA Budget Justifications;
Interior's Grants Management Common Rule (as codified in 43 C.F.R.
§12); and OMB Circulars A-87, A-102, A-110, and A-133, to gather
information on policies and procedures relevant to OIA grant programs.
In addition, we interviewed OIA grant managers and division directors
to obtain information about how OIA's policies and procedures are
applied across different grant types and insular areas, any changes to
the policies and procedures, and their perspectives on any additional
changes that would improve OIA's management of grants and their
capacity to do so. We also reviewed documents, including OIA memos
detailing possible strategies to address problematic grant situations
and an intergovernmental working group's survey of best practices in
grant management across government agencies, to obtain information
about alternate approaches to grant management challenges.
Additionally, we interviewed Interior officials who are responsible
for implementing the departmentwide Financial and Business Management
System to obtain information about how the new system will affect
OIA's grant management.
We conducted this performance audit from March 2009 to March 2010 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: Selected Examples of OIA Grant Projects That Face
Implementation Challenges:
Some examples of OIA grant projects that clearly illustrate how the
previously discussed implementation challenges can contribute to
delays are discussed below.
Jose T. Villagomez Center for Public Health and Dialysis (Commonwealth
Health Center Dialysis Facility); Saipan, CNMI:
According to OIA, a capital improvement project grant was provided in
1997 for the addition of a dialysis clinic to the Commonwealth Health
Center, a public health facility on the main island of Saipan, CNMI.
The dialysis facility was scheduled to be constructed by August 2004
but was not completed until December 2007, according to OIA officials.
As of September 2009, the dialysis facility still lacked Medicare and
Medicaid certification and was not yet in use (see figure 4). The main
challenges contributing to the delay of this project's completion
include limited local capacity for design and construction, changing
local government priorities, and contractor issues. For example,
according to CNMI officials, the project implementers lacked the
technical expertise to identify a critical structural design flaw in
its early stages. When the flaw was discovered, OIA decided to
disallow, or not reimburse the CNMI for, roughly $85,000 in project
funds. The CNMI then filed a lawsuit against the contractor
responsible for the design. The project was halted while it was
redesigned, which contributed to the project's delay and cost
overruns. Changing local government priorities contributed to the
increase in scope from a dialysis clinic to a full-scale dialysis
hospital, which, according to CNMI officials, entailed important legal
and engineering distinctions. In addition, according to CNMI
officials, the Department of Public Works was without the capacity it
needed to manage the project scope expansion--all of which contributed
to a delay in implementation and a budget increase. To supplement the
increased budget, the CNMI and OIA redirected $2.9 million away from a
wastewater project in 2005, which had not been completed at the time
of our review. In addition, a contractor damaged a crucial piece of
equipment that was, according to a CNMI official, then fraudulently
certified by another.[Footnote 70]
Figure 4: Unused Commonwealth Health Center Dialysis Facility:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
Commonwealth Utilities Corporation Power Plant Rehabilitation; Saipan,
CNMI:
In May 2007, OIA approved a capital improvement project grant for the
CNMI Commonwealth Utilities Corporation's rehabilitation of its power
plant on the main island of Saipan. As of January 2010, the project
was substantially complete. The main challenges contributing to the
delay of this project's completion included contractor issues, lack of
maintenance funding, and limited local capacity. In 2006, the CNMI
Governor declared a state of emergency in response to a power crisis,
which was also when the Commonwealth Utilities Corporation hired a
contractor to address the problem. This allowed for standard
procurement regulations to be lifted. The contractor performed poorly,
as did its replacement, which resulted in project delay and cost
overruns. According to the Commonwealth Utilities Corporation's
officials, during the summer 2008, the CNMI experienced over 1,300
hours of unscheduled power outages. In the fall of 2008, the CNMI
Governor declared another state of emergency to divert resources to
repairing engines damaged by wear and lack of maintenance (see figure
5). In addition, according to CNMI officials, the Commonwealth
Utilities Corporation's operating capacity was diminished by a CNMI
immigration policy change in 2007, when 22 nonresident workers were
forced to resign their jobs at the agency.[Footnote 71] Further, the
Commonwealth Utilities Corporation reported that because roughly 70
percent of the agency's budget is spent on fuel, it is vulnerable to
rising fuel prices. This can add to the challenge of estimating
project budgets. The Commonwealth Utilities Corporation has responded
to fuel cost fluctuations in the past by diverting funds away from its
periodic maintenance and required engine overhauls, which increases
the risk for future engine failures.
Figure 5: An Unused Saipan Power Plant Engine:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
Rota Health Center; Rota, CNMI:
According to OIA, it provided a capital improvement project grant in
1989 for the construction of the Rota Health Center on the island of
Rota in the CNMI; however, construction began in 1999, then stopped
and did not resume until 2005. As of January 2010, only one of the
facility's two buildings was complete. The other is substantially
complete. At the time of our site visit in August 2009, the dental
facility was not yet open because there was no dentist to staff it,
and additional construction on the dental clinic had not been
approved. Further, the Rota Health Center has not received Medicare
and Medicaid certification due to an inadequate number of medical
staff. According to CNMI officials, several challenges contributed to
delays in the project, including contractor issues, limited technical
expertise, inadequate maintenance funding, and natural disaster
impacts.
* First, the contractor the Rota Health Center initially hired quit
before the project was complete, and the contractor it hired to
replace it went out of business and abandoned the project, which
caused further delay.
* Second, the project suffered due to lack of technical expertise.
This contributed to project delay and a budget increase. For example,
the project was delayed and the budget increased in part to redesign
the project and address issues identified by both an Interior Office
of Inspector General investigation into contractor problems and a U.S.
Army Corps of Engineers review of project costs. The latter review
resulted in a U.S. Army Corps of Engineers recommendation that OIA
disallow $400,000 in material costs.[Footnote 72] However, OIA chose
not to pursue those costs because agency officials did not believe
they could identify the appropriate amount to disallow.
* Third, at the time of our site visit in August 2009, they faced
maintenance challenges including flooding, X-ray machines that only
occasionally worked, an elevator--the only one in the building--that
had been broken for roughly 3 to 4 months, and significant mold
present in the loading area (see figure 6). There is inadequate
maintenance funding and local capacity to address these problems,
according to project stakeholders. The Rota Health Center staff had
not communicated these problems to project administrators in the
Department of Public Works or to the Governor's Capital Improvement
Project office. Despite ongoing delays, project administrators had not
visited the site in several months to check the project status.
* Fourth, the Rota Health Center project budget increased as a result
of damage caused by Typhoons Pongsona, Tingting, and Chaba.
As of January 2010, the CNMI Capital Improvement Project Administrator
reported that the CNMI took steps to address some of the Rota Health
Center project challenges, such as correcting the elevator outage and
humidity causing mold in the loading area.
Figure 6: Rota Health Center Loading Area with Significant Mold:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
Tinian Landfill Project; Tinian, CNMI:
In 2003, OIA approved a $1.7 million capital improvement project grant
for the CNMI's Department of Public Works to close a dump on the
island of Tinian that, according to CNMI officials, does not comply
with environmental regulations and build a landfill in another
location. An environmental assessment was completed in 2008, but
construction had not begun as of August 2009. The CNMI encountered
multiple challenges during this grant's implementation, including
frequently changing priorities, limited land access, and limited local
capacity. For example, project administrators experienced confusion
over whether permission was needed to develop the landfill at the
proposed site--on land leased to the U.S. military, which contributed
to the delay. Nonetheless, the Department of Public Works moved
forward and completed the environmental assessment in August 2008
that, according to an OIA official, cost roughly $500,000 and was
almost complete before OIA realized that the selected site had not
actually been secured. In 2007, roughly $190,000 was redirected into
the landfill project from the Tinian Wastewater project. As of the
time of our review in February 2010, no funds had been withdrawn since
the redirection--leaving $1.6 million in the project account. In
January 2010, the CNMI Capital Improvement Project Administrator
reported that the project's design is ready for solicitation.
Tinian Wastewater System Project; Tinian, CNMI:
In fiscal year 2003, OIA approved capital improvement project funding
for the CNMI to construct a wastewater system on the island of Tinian.
The environmental assessment was completed in June 2008, but as of
January 2010, OIA officials reported that the project had not moved
into the design phase and is expected to be canceled. OIA's grant
project file indicated that there has been no account activity since
November 2007. Fluctuating Tinian Delegation priorities and
corresponding project redirection have contributed to the project's
delay. For example, the CNMI redirected funds from a school
modernization project into the wastewater system project, then
redirected them again into a landfill, an airport instrument landing
system, and other projects. In 2007, OIA officials initially denied
the CNMI's request to redirect funds for the airport instrument
landing system. However, the request was eventually approved to
accommodate the Tinian Delegation's priorities. Of the roughly $8.3
million that was originally awarded and $34,000 that was redirected
into the wastewater system project, roughly $6.6 million has since
been redirected away from the wastewater system project. After a total
of roughly $5.6 million was redirected from the wastewater system
project into the airport instrument landing system project, the Tinian
Delegation suspended the airport landing system. Although subsequently
about $2.2 million was redirected from the airport instrument landing
system to a Tinian airport terminals project, in December 2009, the
CNMI Capital Improvement Project Administrator reported that the
recently elected Tinian Delegation would like to restart the airport
instrument landing project. However, that official reported in January
2010 that the CNMI's current priority, pursuant to the Governor's
October 2009 Declaration of Emergency, is to redirect these funds to
repair the Tinian Harbor and its deteriorating seawall.
[End of section]
Appendix III: Comments from the Department of the Interior:
United States Department of the Interior:
Office Of The Secretary:
Washington, DC 20240:
March 2, 2010:
Anu K. Mittal:
Director, Natural Resources and Environment:
U.S. Government Accountability Office:
4416 G Street, NW:
Washington, D.C. 20548:
Dear Director Mittel:
The Department of the Interior, through its Office of Insular Affairs,
has reviewed the U.S. Government Accountability Office's draft Report
entitled, U.S. Insular Areas: Opportunities Exist to Improve
Interior's Grant Oversight and Reduce the Potential for Mismanagement,
(GA0-10-347). The Report is a useful analysis, and I am pleased with
your conclusion that OIA has made important strides in implementing
grant reforms. The Department concurs with your recommendations (see
enclosure for complete response).
OIA's processes are continuously reviewed and strengthened to resolve
identified weaknesses and address the recommendations made by GAO,
Interior's Office of Inspector General, and other reviewers. Also,
through direct technical advice and financial assistance for
consultants, training and system upgrades, OIA assists insular
governments to improve their internal control processes. Additionally,
through increased coordination with other Federal agencies, OIA is
helping to assure that other Federal agencies provide assistance to
insular governments related to their respective Federal programs. It
is the combined actions of OIA and other Federal agencies that help to
prevent and to identify mismanagement and abuse of Federal funding in
the insular areas. The efforts have led to several indictments and
convictions of insular officials and private sector employers for
activities that include the mismanagement of Federal funds (e.g.
programs funded by the United States Departments of Agriculture,
Education, Health and Human Services and Homeland Security) mainly
through improper practices related to procurements and contracting.
The internal control weaknesses identified in the Report are
categorized as Grant recipient activities (62%), Joint activities
between OIA and grant recipients (24%), and OIA grant management
activities (14%). OIA will aggressively develop and implement controls
to address the identified weaknesses and continue to help ensure that
insular governments take similar action. I note that:
* Grant recipient activities (62%) relate primarily to the grantee's
reporting of the status of completion of OIA-funded projects. OIA's
processes implemented in recent years have resulted in more timely
reports from insular grantees. Also, in each subsequent year, insular
grantees have progressed closer to full compliance. Moreover, since
reports are required only every 6 months, OIA relies heavily on
information obtained from continuous communication with grantees and
reviews by OIA grant managers, field representatives and other staff.
* Joint activities between OIA and grant recipients (24%) relate to
reconsideration OIA has provided when a grantee requests to redirect
approved funding to an alternate project, i.e., reprogramming.
Although the Report identified circumstances of mismanagement that
possibly could result from reprogramming, the Report did not identify
any instances of which OIA's approval of reprogramming resulted in the
failure of a grantee to complete a final approved project. OIA
believes that the ability to reprogram funds helps to ensure that
critical projects identified from changed circumstances may be
considered. OIA does concur with the Report in that insular
governments with a completed master plan, such as American Samoa, may
have fewer instances of requests for reprogramming. Planning is a key
element, and OIA is discussing similar plans with other insular
officials.
* OIA's grant management activities (14%) relate to discrepancies
between OIA's grant management system data and grant documents on
file. OIA will revise its database for information captured and ensure
that all data are timely and accurately posted.
OIA will continue to improve its processes and also work with other
Federal agencies and insular grantees to help ensure that effective
internal controls are in place. The recommendations in the Report are
extremely helpful, and the actions of OIA that are in line with the
recommendations are described in the enclosure.
If you have any questions, please feel free to communicate with me
directly at (202) 2084709, or with Nikolao Pula, Director of the
Office of Insular Affairs, at (202) 208-4736.
Sincerely,
Signed by: [Illegible] for:
Anthony M. Babauta:
Assistant Secretary for Insular Areas:
Enclosure:
U.S. Government Accountability Office Draft Report:
U.S. Insular Areas: Opportunities Exist to Improve Interior's Grant
Oversight and Reduce the Potential for Mismanagement, GAO-10-347:
Report Recommendations:
The Report's recommendations for executive action and responses to
them are as follows:
Recommendation 1: To improve OIA's ability to require insular areas to
efficiently complete projects and expend funds, we recommend that the
Secretary direct Interior's Office of the Solicitor to prepare a
detailed, written evaluation of OIA 's existing authorities that could
be used to ensure the more efficient use of funds by insular areas,
and work with OIA officials to use such authorities as appropriate and
to identify the need, if any, for additional authority. We recommend
that if the evaluation identifies the need for additional authorities
then the Secretary submit it to the Congress.
Response: Concur. Although OIA has a listing of regulations applicable
to the insular areas, an evaluation by the Department's Office of the
Solicitor of the current authorities to ensure more efficient use of
funds by insular areas would greatly enhance the accountability of
Federal grant programs and help to prevent fraud, waste and abuse.
Title of Responsible OIA Official: Director of Policy Division.
Target Date: OIA estimates to have the details of a review and a
request to the Department's Office of the Solicitor by June 30, 2010.
Recommendation 2: To ensure that OIA's staffing needs are clearly and
accurately communicated to key decision makers, we recommend that the
Secretary direct OIA to create a workforce plan and reflect in its
plan the staffing levels necessary to adopt a proactive monitoring and
oversight approach.
Response: Concur. OIA agrees that a workforce plan is necessary to
identify staffing levels required to adopt a proactive monitoring and
oversight approach and to fulfill more effectively the
responsibilities of the office.
Title of Responsible OIA Official: Assistant Secretary for Insular Areas
Target Date: OIA estimates that a workforce plan will be completed by
September 30, 2010.
Recommendation 3: To reduce the impact that frequently shifting
insular area priorities have on insular areas' incentives to complete
projects and efficiently use, federal funds, we recommend that the
Secretary direct OIA to develop criteria that establish when
project redirection requests should be approved and when they should
he denied and update its financial assistance manual with these
criteria to clarify OIA policy on redirection. In developing these
criteria, OIA should adopt guidelines that minimize ineffective
project redirection. In addition, we recommend that the Secretary
direct OIA to develop criteria that establish when offset or
disallowed costs should he pursued.
Response: Concur. OIA will immediately begin discussion with relevant
parties and develop appropriate criteria.
Title of Responsible OIA Official: Director of Budget and Grant
Management Division.
Target Date: Estimate development of criteria by June 30, 2010, and
inclusion in the financial assistance manual shortly thereafter.
Additional Information:
Closures of the recommendations are assigned to Marina Tinitali, OIA's
Senior Policy Specialist: 202-208-5920, marina_tinitali@ios.doi.gov.
[End of section]
Appendix IV: Comments from the Commonwealth of the Northern Mariana
Islands:
Commonwealth Of The Northern Mariana Islands:
Benigno R. Fitial, Governor:
Eloy S. Inns, Lt. Governor:
Caller Box 10007:
Saipan, MP 96950:
Telephone: (670) 664-2200/2201:
Facsimile: (670) 664-2211:
February 23, 2010:
Anu K. Mittal, Director:
United States Government Accountability Office:
441 G Street, NW:
Washington DC 20548:
Dear Director Mittal:
This communication presents the comments of the Commonwealth of the
Northern Mariana Islands in regards to the draft report entitled
"Opportunities Exist to Improve Interior's Grant Oversight and Reduce
the Potential for Mismanagement" (GAO-10-347) ("Grant Management
Report"). Overall, it is the opinion of the Commonwealth that the
Grant Management Report is well-written; balanced in its analysis; and
makes positive suggestions for improving grant implementation. In the
sections that follow, we have provided some specific comments on the
report's analysis and conclusions.
I. Internal Control Weaknesses:
The Commonwealth agrees that all projects must be properly monitored
and that the submission of accurate and timely reports by the grantee
is a critical component of this structure. However, it is questionable
reporting requirements should be considered a critical factor in
evaluating effective management. Reporting requirements must be
balanced against limitations of grantee resources and may not be an
indicator of internal control weaknesses. Since the percentage of
internal control weaknesses is so high (i.e., 60%), this may be an
indicator that the reporting requirements are inappropriate (e.g., too
burdensome; complex).
II. Project Monitoring - Site Visits:
The Commonwealth agrees that proper monitoring of projects requires
field visits and oversight activities. The Commonwealth and OIA have
incorporated direct involvement of the Field representative in all
project management meetings and monthly teleconference status reports
to headquarters. This increase in direct communication has been
beneficial to both OIA and the Commonwealth as it facilitates an open
exchange of issues and the development of a teamwork approach in
project implementation. It is the Commonwealth's position that direct
involvement of OIA field staff in project development and
implementation should be encouraged as it benefits both parties,
improves monitoring, and has the potential to increase program
effectiveness.
III. Insular Area Challenges — Shifting Priorities and Grants
Management:
The Commonwealth agrees that the changing of priorities and
ineffective management has affected performance. However, these
results were symptomatic of the previous grant management structure
which has recently been revised.
Under the previous structure, any Commonwealth agency could apply for
OIA grant funds. The diversity of government agency interests led to
the funding of a wide variety of projects. Additionally, many of these
agencies had little or no grant administrative capabilities. Finally,
the lack of an expiration date on awarded grants removed any incentive
to agencies for timely implementation. This combination of factors led
to significant delays in project implementation, and as personnel
changed over time, new stakeholders sought to redirect OIA funds.
All of these issues have been addressed in the new program structure
that has recently been adopted. Under the new structure grant
applications are limited to six OIA priorities that were chosen
because they address critical infrastructure needs of the Commonwealth
(i.e., water; wastewater; solid waste; education; health; and
previously funded programs). Additionally, all grant responsibility
was shifted to the Office of the Governor— Capital Improvement
Program, which was provided funds to retain staff with specialized
skills in grant administration. Finally, all grants now include a five-
year expiration period which provides both an incentive for
implementation and a simple method to deactivate ineffective
programs.
It is the position of the Commonwealth that the recent changes in
grant program structure will significantly reduce past problems in
shifting priorities and reprogramming. The increased capability of
this structure has been evidenced in recent improvements in grant
administration and responsiveness to implementation problems. These
capabilities have allowed the Commonwealth to impose the $17,000 in
liquidated damages on underperforming contractors and initiation of
disbarment procedures on under-performing contractors and resolution
of problems associated with contracts at the Rota Health Center.
IV. Competitive Allocation System:
The Commonwealth agrees that past performance should be used in
evaluating future grant awards. However, it is felt that performance
should be evaluated based on the immediately preceding fiscal year and
that the criteria used should be focused on effective implementation
not financial stability of the government.
The principal objective of the OIA grant program should coincide with
the agreement established in the Covenant o Establish a Commonwealth
of the Northern Marians Islands in Political Union with the United
States of America, which was to provide direct grant assistance to
assist in establishing a progressively higher standard of living for
the People of the Commonwealth. Covenant, art. VII § 701 (48 U.S.C. §
1801). The evaluation criteria of Circular A-123 should be used to
evaluate progress in reaching this objective, not the Competitive
Allocation Structure being used by OIA.
The Competitive Allocation Structure used by OIA focuses on compliance
with Single Audit Act; and grant reporting. The Commonwealth agrees
that these elements are all important factors in establishing
financial accountability and fiscal management, however there is no
consideration of the effectiveness of grant programs in addressing
critical health, safety, and welfare of the people of the insular
areas which is the primary objective of the grant program. This
evaluation structure will naturally reward those governments that have
greater resources and more established financial structures, however
this has nothing to do with measuring the effectiveness of programs at
addressing critical infrastructure associated with health systems,
utilities, and education. Therefore, this structure seems
inappropriate in light of the primary objective of these grant funds
and requirements of Circular A-123.
Finally, the Commonwealth has concerns in regards to the five-year
period for evaluating agency effectiveness. Significant changes in
agency effectiveness can be implemented within one fiscal year period
and these changes should be recognized in any evaluation structure.
Establishment of a five-year period for evaluation minimizes any
changes and is biased towards government that have well-developed
financial systems.
In closing, the Commonwealth wishes to state that we sincerely
appreciate all of the assistance that the Office of Insular Affairs
has provided to the People of the Mariana Islands. This long standing
relationship grows stronger each day and it is felt that recent
changes in the OIA grants program are having a significant positive
effect. We have developed a close working relationship with both OIA
headquarters and field representatives and this is benefiting both
agencies. The comments we have provided are meant to strengthen this
relationship. We appreciate the opportunity presented by the United
States Government Accountability Office to present our views.
[End of section]
Appendix V: Comments from the U.S. Virgin Islands:
The United States Virgin Islands:
Office Of The Governor:
Government House:
Charlotte Amalie, V.I. 00802:
340-774-0001:
March 1, 2010:
Ms. Ann K. Mittal:
Director:
Natural Resources and Environment:
Government Accountability Office:
441 G St. NW:
Washington. DC 20548:
Dear Ms. Mittal:
Thank you and your Government Accountability Offices' (GAO) team for
the opportunity to provide comments on the draft report of the U.S.
Insular Areas entitled' Opportunities Exist to Improve Interior's
Grant Oversight and Reduce the Potential for Mismanagement (GA0-10-
347). The Government of the Virgin Islands (CVI) appreciates your tune
and efforts in this process, which will culminate in greater
accountability and transparency ha the citizens of this nation.
Overall, GVI concurs with your assessment of the management and
administration of Department of the Interior grants awarded to the
Territory of the States Virgin Islands. Specific comments regarding
the findings and/or recommendations are included in the accompanying
Attachment I.
While there is always room for growth, professional development and
improvement to ant process, GVI. is pleased to have worked
collaboratively with DOI-OIA over the years towards this end. We are
thankful to DOI-OIA for its insight, knowledge, oversight and
monitoring and commit to continuing to collaborate with this agency to
address the concerns raised in your report.
Once again, thank you for your time and cooperation during this
process.
Sincerely,
Signed by:
Gregory R. Francis:
Acting Governor:
Attachment I:
Government of the Virgin Islands' Response to Draft Report to the
Committee on Energy and Natural Resources, U.S. Senate:
By the U.S. Government Accountability Office (GAO) of the U.S.
Insular Areas Opportunities Exist to improve Interior's Grant
Oversight and Reduce the Potential for Mismanagement, GAO-10-347,
February 2010:
Finding #1: Internal Control Weaknesses:
Previously reported internal control weaknesses still exist for three
categories:
(1) Grant recipients actions involving:
a) Submission of timely status reports,
b) Submission of final close-out reports,
c) Grant expiration dates, and,
d) Reimbursable funding;
(2) OIA grants management actions; and;
(3) Joint grant recipients and OIA actions,
a) Project redirection.
Recommendations:
The recommendations provided are for executive action by the
Department of the Interior MOO. There are no recommendations specific
to the U. S. Virgin Islands or any of the other insular areas.
However, the draft report recommends that DOI do the following:
1) Require insular areas to efficiently complete projects and expend
funds; and;
2) Minimize insular areas ineffective project redirection to
facilitate completing projects and effectively using federal funds.
Government's Response:
In general, the Government of the Virgin Islands (GVI) concurs with
the findings, and provides the following specific comments that are
intended to facilitate DOI's response to the GAO recommendations.
1) Efficient project completion and fund expenditure — GVI agrees that
projects should be completed efficiently and in a timely manner, i.e.
on schedule or as close to schedule (original and/or amended) as
possible. However, as a condition of funding and a prerequisite to
receiving a Notice to Proceed, GVI is mandated to comply with the
National Environmental Protection Agency (NEPA) requirements, which
can take a considerable amount of time, and thus delay commencement of
a project and ultimately project completion. GVI is cognizant of the
importance of NEPA and the benefits that NEPA compliance can afford,
but it is definitely a factor in delaying projects. GVI is also
appreciative of the training provided by the OIA in this area (e.g.,
NEPA compliance) and looks forward to continuing education, as needed,
especially for new staff coming on board. OIA should take into
consideration the schedule impacts of NEPA compliance in assessing the
efficiency of completion and fund expenditure.
2) Ineffective project redirection — Project redirection or fund
reprogramming in and of itself is not necessarily ineffective.
Effectiveness depends on the facts and circumstances in each case.
There are times when reprogramming facilitates expedited expenditure
of federal funds. For example, reprogramming of funds to a project
that has been determined to be a more critical use than for the
original purpose (such as disaster assistance) can, in fact, result in
effective use of funds. The GVI concurs in the draft GAO
recommendation that written criteria should be developed to evaluate
when and whether to approve redirection or reprogramming.
3) Timely reporting (status reports) — GVI agrees that the timeliness
of reports to the grantor agency (the U.S. Department of the Interior)
is essential, as is the accuracy of this financial data and
information. As the grantee for certain OIA grants, the V. I. Office
of Management and Budget (VIOMB) sends reminder notices to its OIA sub-
grantees to encourage and monitor timely submission of financial
reports and project status reports to VIOMB, for review and then
subsequent submission to OIA. VIOMB and OIA have communicated (e.g.,
through site visits) concerning the level of review required of VIOMB
and the applicable requisite approvals. Such consultation and
collaboration helps to enhance the grant reporting and administration
process.
For the record, the GVI further notes that, at least with respect to
one of the grants reviewed by GAO, the GVI submitted reports that were
on average only one to three days late.
4) Timely reporting (final close-out reports) — For the record, the
GVI further notes that at least one of the GVI grants included in
GAO's review has been closed out, and the final report was timely
submitted.
5) Grant expiration dates - If GVI anticipates that a project will not
be completed by the expiration of the grant award period, an extension
is requested from CIA on behalf of the sub-grantee, which is then
notified of the new expiration date and also reminded of same. For the
record, one of the grants received a three-month extension, and this
also facilitated closure of the grant. No expenditures occurred
subsequent to that period.
6) Reimbursable funding — While this item may have been previously
reported as an internal control weakness for the insular areas (and is
listed in the current draft report under internal control weaknesses),
page 11 of the draft report (last sentence of the section above the
first paragraph on that page) states the following: "Finally, we
compared the proportion of awarded funds that had been disbursed to
grant recipients with the progress made toward project completion to
ensure that CIA grant recipients were requesting funds on a
reimbursement basis, as required. We found that all open projects
satisfied the reimbursement requirement."
Corrective Measure:
While the V.I. Office of Management and Budget (VIOMB) is more
efficient in its management of CIA grants, VIOMB will establish a
formal policy to facilitate timely submission of reports to CIA
through VIOMB, as applicable, and communicate this policy to all sub-
grantees. This policy will also address other related matters raised
in this report.
Finding #2: Challenges Confront Insular Areas In Implementing OIA
Grants:
Insular areas face challenges (both project planning and management
challenges) in implementing OIA grant projects as a result of
decisions made by the insular area governments and external factors.
Recommendations:
None or Not Applicable.
Government's Response:
In general, GVI concurs with the findings. GVI agrees that a master
plan prioritizing planned capital improvement projects would be
beneficial to this process, and the long-range planning efforts of the
Territory. GVI does have a plan for capital improvement projects that
looks holistically at all such projects irrespective of funding
sources. GVI will update the Territory's plan to develop updated
timelines based on updates to funding and other factors. However, as
noted on page 19 of the GAO report, natural disasters and the cost of
recovery efforts can adversely impact the long-term infrastructure and
economic development of insular area governments. This has certainly
been an issue for the Virgin Islands, where over an approximate twenty-
year period beginning with 1989, the U. 5. Virgin Islands has
experienced at least eight hurricane/tropical storms, including
Hurricanes Hugo and Marilyn, which necessitated Presidential disaster
declarations and, as noted in the draft report, caused upwards of $5
billion in damages.
In addition, to address some of the challenges identified in the draft
report, which confront the insular areas, the GVI submits that
Congress should double the amount of Technical Assistance funds for
insular areas from $11 million a year to at least $22 million a year.
Further, in order to ensure the funds are equitably allocated among
each of the insular areas, Technical Assistance funding should be
allocated as follows: 50 percent of the total amount appropriated each
year should be allocated on an equal or proportionate (by population)
basis among the insular areas (with a reallocation provision for any
unused amounts), and the balance (the other 50 percent) should be
allocated on a competitive needs basis (perhaps with statutory
criteria). Not only would this allocation be more equitable, it would
also provide a reasonably predicable minimum stream of funding to each
insular area and thereby minimize and mitigate the effect of any year-
to-year changes in the amount of competitive grants each insular area
receives.
Corrective Measure:
The GVI will update the Territory's capital improvement plan.
Finding #3: OIA Has Taken Steps To Improve Project Implementation And
Management:
Over the past five (5) years, OIA has taken steps to improve project
implementation and management, including implementing a competitive
allocation system for a portion of capital improvement project funds
to establish incentives for insular areas to make financial management
improvements and complete projects; establishing grant expiration
dates; and taking steps to improve administrative continuity in
insular areas.
Recommendations:
N/A for GVI.
Government's Response:
GVI concurs that over the years OIA has continually improved its grant
management processes and has communicated these improvements to the
Government of the Virgin Islands, These process improvements have been
implemented by OIA, and more site visits coupled with increased
communication have also occurred, to ensure proactive and timely
monitoring of grantee and sub-grantee activities. This will ultimately
ensure the steady progress of capital projects, training, and
technical assistance to better serve the people and the Government of
the United States Virgin Islands.
The GVI submits that the competitive criteria for Covenant grant
funding for Capital Improvement Projects ("CIP"), which are used to
adjust the CIP base amount for an insular area, are intended to
measure the ability of each eligible government to exercise prudent
financial management practices and to meet Federal grant requirements.
While laudable in intent, the criteria, as a practical matter, do not
adequately take into account the actual infrastructure needs of each
eligible insular area. For example, the Virgin Islands is under
several EPA administrative orders requiring the Territory to expend
resources it does not have to improve its solid waste facilities.
Covenant grant funding is thus an essential resource for financing the
improvements required to comply with the orders and protect human
health and the environment. The GVI submits that the competitive
criteria used to adjust the base amount should be broadened to better
reflect actual needs for Covenant grant funds.
Corrective Measures:
The GVI will further review and revisit OIA's new requirement relative
to expenditure rate in order to develop a plan of action (grantor,
GVI's grantee & sub-grantees) to address this requirement. With
respect to the up to $18 million of funds identified on pages 30-31 of
the draft report as being unspent, many of the projects for which
these funds were obligated were delayed due to NEPA requirements,
litigation, and other factors outside the control of the GVI. In any
event, the GVI is taking concerted action to spend these and other
funds within the time frames required by OIA.
While there are no questioned costs for single audits for GVI's OIA
funding, the GVI will continue on-going procedures to preclude
recurrence of audit findings, and will provide grants administration
and related updated/continuing education training to applicable new
and existing staff, respectively.
The GVI will thoroughly review OIA's competitive allocation criteria
to address actions needed to improve the Territory's overall
rating/score. For example, GVI is aggressively working on its Single
Audits to ensure compliance with the Single Audit Act of 1984 within
the statutory deadline and/or approved extensions granted.
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Anu K. Mittal, (202) 512-3841 or mittala@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Jeffery D. Malcolm, Assistant
Director; Elizabeth Beardsley; Keesha Egebrecht; Justin Fisher; Laura
Gatz; and Isabella Johnson made key contributions to this report. Also
contributing to the report were Mark Braza, Emil Friberg, and Alison
O'Neill.
[End of section]
Footnotes:
[1] GAO, U.S. Insular Areas: Economic, Fiscal, and Financial
Accountability Challenges, [hyperlink,
http://www.gao.gov/products/GAO-07-119] (Washington, D.C.: Dec. 12,
2006). Department of the Interior, Office of Inspector General, Report
on Grants Administered by the Office of Insular Affairs, Report No.
2003-I-0071 (Washington, D.C.: September 2003).
[2] In assessing the adequacy of internal controls, we used the
criteria in GAO's 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). These standards, issued pursuant to the requirements
of the Federal Managers' Financial Integrity Act of 1982 (FMFIA),
provide the overall framework for establishing and maintaining
internal control in the federal government. Also pursuant to FMFIA,
the Office of Management and Budget issued Circular A-123, revised
December 21, 2004, to provide the specific requirements for assessing
the reporting on internal controls. Internal control standards and the
definition of internal control in Circular A-123 are based on GAO's
Standards for Internal Control in the Federal Government.
[3] Noncompact grants include those provided for capital improvement
projects, operations and maintenance improvement projects, technical
assistance and other purposes. The seven insular areas listed above
receive at least some noncompact grant funding. Compact funding is the
assistance the United States provides to the Federated States of
Micronesia, the Republic of the Marshall Islands, and Palau through
Compacts of Free Association. We specifically excluded compact funds
from this review because GAO is required to review and report on the
effectiveness of U.S. oversight of compact funds on a regular basis.
For example, we recently reported on compact assistance to the
Federated States of Micronesia and the Republic of the Marshall
Islands. 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).
[4] Under the Single Audit Act, certain entities, including the
insular areas of American Samoa, the CNMI, Guam, and the USVI,
expending $500,000 or more in awards, including grants and other
assistance under more than one federal program in a fiscal year, are
required to obtain an annual "Single Audit," which includes an audit
of the entity's financial statements and a schedule of the expenditure
of federal awards, and review of related internal controls.
[5] U.S. Census Bureau, International Data Base. American Samoa's
local population estimate, as reported by American Samoa's Department
of Commerce, was 70,100 in 2009.
[6] U.S. Census Bureau, International Data Base. CNMI's local
population estimate, as reported by the CNMI's Department of Labor, is
similar--52,000 in 2009.
[7] U.S. Census Bureau, International Data Base.
[8] U.S. Census Bureau, International Data Base.
[9] Organic acts are federal laws that serve as the constitution or
basic charter of the territory, thereby conferring the powers of
government upon a territory. The organic acts of the insular areas
usually include a bill of rights and provide for the establishment of
the insular areas' tripartite government.
[10] According to the Schedule of Expenditures of Federal Awards in
the Single Audit Reports for fiscal year 2008 for American Samoa, the
CNMI, and Guam, the total federal expenditure amounts in millions for
that fiscal year were $114.4, $51.5, and $200.6, respectively.
According to the Schedule of Expenditures of Federal Awards for the
USVI's most recent Single Audit--covering fiscal year 2005--the total
expenditure amount in millions was $171.8. We note that some of these
estimates do not include federal funds provided to certain component
units that are audited separately.
[11] Interior underwent restructuring in 1995. It eliminated the
Office of Territorial and International Affairs, which previously
carried out Interior's insular responsibilities, and created the
Office of Insular Affairs.
[12] Compact funding is the assistance the United States provides to
the Federated States of Micronesia, the Republic of the Marshall
Islands, and Palau through Compacts of Free Association.
[13] 43 C.F.R. part 12.
[14] OIA grants, as applicable, are subject to OMB Circulars A-102,
"Grants and Cooperative Agreements with State and Local Governments";
A-110, "Grants and Other Agreements with Institutions of Higher
Education, Hospitals, and Other Non-Profit Organizations"; A-87, "Cost
Principles for State and Local Governments"; A-21, "Cost Principles
for Educational Institutions"; A-122, "Cost Principles for Non-Profit
Organizations"; and A-133, "Audits of States, Local Governments, and
Non-Profit Organizations."
[15] In addition, the division maintains an office in Hawaii for
compact oversight in the Federated States of Micronesia and the
Republic of the Marshall Islands and has a field presence in the CNMI,
the Federated States of Micronesia, Palau, and the Republic of the
Marshall Islands.
[16] The division maintains a field presence in American Samoa and the
CNMI.
[17] We reviewed a random sample of 173 OIA grant projects, selected
from 1,771 grant projects in OIA's grant management database as of
April 27, 2009.
[18] All percentage estimates from the file review have margins of
error at the 95 percent confidence level of plus or minus 10
percentage points or less, unless otherwise noted.
[19] While we did not systematically assess how late reports were for
all 173 grant projects in our sample, we did assess this information
for the 24 grant projects selected for follow-up. Of these 24
projects, 6 had late reports, ranging from being a few days to several
months late. Five of these were submitted at least 2 months late. In
addition, 18 of the 24 grant projects' files did not include all
required reports. We did not determine whether these reports had been
submitted but not included in the grant project files.
[20] Deobligation is the process in which unused monies are canceled
or unobligated from the project account.
[21] For open grant projects we determined if the expected completion
date is after the grant expiration date. For closed grant projects we
determined if the completion date was after the grant expiration date.
This figure combines the two categories. See appendix I for more
information.
[22] Prior to May 2009, OIA's Financial Assistance Manual required
that the OIA Deputy Assistant Secretary approve all project
redirection requests, but this requirement is no longer in place. We
assessed individual files for the presence of an official approval
letter but did not assess which level within OIA granted the approval.
However, we did find at least one instance where the then-required OIA
Deputy Assistant Secretary approval was not documented in the file.
[23] Grant recipients initiate a drawdown of grant funds by making a
request to OIA for funds to reimburse payments the grant recipient has
already incurred on the grant project. We found four cases where
individual drawdowns were not entered into the database in a timely
manner; the delays in entering the information ranged from 6 days to
over 2 years.
[24] Specifically, we found that the grant files maintained at OIA
headquarters for these projects contained more site visit reports
completed by OIA grant managers than field representatives. Field
representatives prepare reports to document their site visits and
submit these site visit reports to the relevant grant manager in
headquarters, and the reports are required to be included in the
official grant files.
[25] During our review of field representatives' grant files, we
located several reports of site visits conducted by field
representatives that were not included in the headquarters grant files
related to those projects.
[26] The Omnibus Consolidated Rescissions and Appropriations Act of
1996, Pub. L. No. 104-134, §118(c)(3), authorized OIA to provide
covenant grant funding to American Samoa for capital improvement
projects. The law requires that specific projects to be funded in
American Samoa be established in a 5-year capital improvement plan to
be developed by OIA in consultation with the American Samoan
government, and updated annually; and that Interior indicate the
highest priority projects, among other items, in its annual budget
request. In implementing this requirement, OIA has categorized
projects into three general priority areas. First tier priorities
include health, safety, education, and utilities. Second tier
priorities include ports and roads. Third tier priorities include
industry, shoreline protection, parks and recreation and other
government facilities.
[27] While the CNMI previously had a master plan, OIA officials told
us it was subject to political influences, was not particularly
effective, and is no longer used. One reason the CNMI's plan was
particularly subject to political influence is that, until 2004, the
insular area was required to provide matching funds to receive OIA
covenant funding, which required legislative approval and allowed
legislators to influence the prioritization of projects.
[28] In December 2009, the CNMI official responsible for administering
capital improvement project grants reported that the recently elected
Tinian Delegation would like to restart the airport instrument landing
project. However, that official reported in January 2010 that the
CNMI's current priority, pursuant to the Governor's October 2009
Declaration of Emergency, is to redirect these funds to repair the
Tinian Harbor and its deteriorating seawall.
[29] The U.S. Army Corps of Engineers is involved in various ways in
the insular areas. The Honolulu District provides project management,
design, construction management, and cost engineering services, among
other things. Generally, these services are provided and the U.S. Army
Corps of Engineers is reimbursed. OIA also uses their services to
provide engineering expertise in its review and oversight of capital
improvement project grants in the Pacific insular areas.
[30] OIA reported that exceptions are made to its project redirection
practice for American Samoa when a project exhibits immediate need and
is given high priority by the Governor, such as a project associated
with disaster recovery.
[31] [hyperlink, http://www.gao.gov/products/GAO-07-119].
[32] However, a scope of work for this project was not approved until
December 2005.
[33] The Commonwealth Constitution, Article XII (2010); American Samoa
Code Annotated Ch. 20, § 37.2001 (2007).
[34] Pub. L. No.104-134, § 118, 48 U.S.C. § 1804(c).
[35] [hyperlink, http://www.gao.gov/products/GAO-07-119].
[36] In response to U.S. legislative changes, the federal minimum wage
in American Samoa and the CNMI began rising in 2007 and will continue
to do so until they equal the U.S. minimum wage. Pub. L. No. 110-28, §
8103 (May 25, 2007).
[37] The Consolidated Natural Resources Act of 2008, Pub. L. No. 110-
229, Title VII, 122 Stat. 754, 853 (2008), applies federal immigration
law in the CNMI through a transition program. CNMI immigration law was
in effect until the start of the transition period on November 28,
2009. However, federal restrictions on the total number of foreign
workers in the CNMI applied immediately. On August 4, 2008, we
reported that although the legislation and the CNMI government have
stated goals of preparing CNMI residents to replace foreign workers,
factors such as the limited number of available CNMI residents may
impede these efforts' effectiveness. See GAO, Commonwealth of the
Northern Mariana Islands: Managing Potential Economic Impact of
Applying U.S. Immigration Law Requires Coordinated Federal Decisions
and Additional Data, [hyperlink,
http://www.gao.gov/products/GAO-08-791] (Washington, D.C.: Aug. 4,
2008).
[38] GAO, Commonwealth of the Northern Mariana Islands: Pending
Legislation Would Apply U.S. Immigration Law to the CNMI with a
Transition Period, [hyperlink, http://www.gao.gov/products/GAO-08-466]
(Washington, D.C.: Mar. 28, 2008).
[39] Several CNMI officials, from grant recipient agencies, reported
that they would prefer the local agencies directly administer OIA
grants.
[40] [hyperlink, http://www.gao.gov/products/GAO-07-119] and GAO,
American Samoa Accountability for Key Federal Grants Needs
Improvement, [hyperlink, http://www.gao.gov/products/GAO-05-41]
(Washington, D.C.: Dec. 17, 2004), have provided in-depth assessments
of insular area economies.
[41] GAO, Commonwealth of the Northern Mariana Islands: Coordinated
Federal Decisions and Additional Data Are Needed to Manage Potential
Economic Impact of Applying U.S. Immigration Law, [hyperlink,
http://www.gao.gov/products/GAO-09-426T] (Washington, D.C.: May 19,
2009).
[42] GAO, Northern Mariana Islands: Garment and Tourist Industries
Play a Dominant Role in the Commonwealth's Economy, [hyperlink,
http://www.gao.gov/products/GAO/RCED/GGD-00-79] (Washington, D.C.:
Feb.14, 2000).
[43] [hyperlink, http://www.gao.gov/products/GAO-07-119].
[44] Pub. L. No. 110-28, § 8103 (2007).
[45] Pub. L. No. 110-229, Title VII, 122 Stat. 754, 853 (2008).
[46] GAO, Defense Infrastructure: Guam Needs Timely Information from
DOD to Meet Challenges in Planning and Financing Off-Base Projects and
Programs to Support a Larger Military Presence, [hyperlink,
http://www.gao.gov/products/GAO-10-90R] (Washington, D.C.: Nov. 13,
2009).
[47] The Section 702 Funding Agreement between the Government of the
United States and the Government of the CNMI, entered June 21, 2004,
established a system for OIA's allocation of capital improvement
project funds among the eligible territories and provided that a
portion of such funds would be allocated using competitive criteria.
Previous agreements between the governments regarding the capital
improvement project funds did not allow for such a process but set
fixed amounts.
[48] U.S. Department of the Interior, Fiscal Year 2008 Annual
Performance and Accountability Report (Washington, D.C., Nov. 15,
2008).
[49] American Samoa and the CNMI have typically received similar
amounts of capital improvement project funding (the allocated amount
for fiscal year 2009 for each of these areas was approximately $9
million and $11 million, respectively). Guam and the USVI have
typically received smaller amounts of capital improvement project
funding (the allocated amounts for fiscal year 2009 were approximately
$5 million and $2 million, respectively). The USVI's balance is
therefore high in proportion to its typical allocation.
[50] A "no-year" appropriation is one that is available for obligation
for an indefinite period, such as those funds appropriated as
available until expended.
[51] The base levels of capital improvement project funding used to
determine allocations for fiscal year 2010 were as follows: American
Samoa ($10 million), CNMI ($11 million), Guam ($3.36 million), and
USVI ($3.36 million). The Section 702 Funding Agreement between the
Government of the United States and the Government of the CNMI,
entered June 21, 2004, established baseline funding amounts for fiscal
years 2005-2010 for each of the insular areas and a formula to
determine baseline funding thereafter.
[52] See, e.g., Interior Department and Further Continuing
Appropriations, Fiscal Year 2010, Pub. L. No. 111-88, 123 Stat. 2904,
2920 (2009).
[53] The other field representative is assigned to the policy division
and does not have grant management responsibilities.
[54] According to the CNMI field representative's supervisor, he has
communicated his concerns about the field representative's
effectiveness and output to him and now requires that he submit weekly
reports.
[55] Pub. L. No. 97-357, §§ 104, 203, 309, 402, 96 Stat. 1705 (1982).
[56] The Interior Office of Inspector General also has audit
responsibilities in the Federated States of Micronesia, the Republic
of the Marshall Islands, and the Republic of Palau pursuant to the
Compact of Free Association Act of 1985 as implemented by Executive
Order No. 12569 §6(d) (1986) (48 U.S.C.A. § 1901 note).
[57] The CNMI office, located on Saipan, was a suboffice of the Guam
Office.
[58] The American Samoa, CNMI, and Guam offices were closed in 1987,
1995, and 2002, respectively.
[59] U.S. Department of the Interior, Office of Inspector General,
Semiannual Report to the Congress (Washington, D.C., April 2003).
[60] GAO, Human Capital: Key Principles for Effective Strategic
Workforce Planning, [hyperlink, http://www.gao.gov/products/GAO-04-39]
(Washington, D.C.: Dec. 11, 2003).
[61] OIA's unique policy for American Samoa stems in part from the law
authorizing capital improvement project grants, which places
particular conditions, such as the requirement for a master plan
identifying priorities, on grants to this insular area.
[62] As previously discussed, the CNMI official responsible for
administering capital improvement project grants reported in January
2010 that the CNMI's current priority, pursuant to the Governor's
Declaration of Emergency, is to redirect these funds to repair the
Tinian Harbor.
[63] OIA determined that the costs should not be disallowed because
the CNMI leaders who initially proposed the project had every
intention of seeing the project through, and the current leadership,
while supportive of the project, determined that they needed to
prioritize Tinian's limited funding on one large-scale project.
Accordingly, the leaders decided that a Tinian landfill project was a
more pressing need than the wastewater facility. OIA decided that
while the funds expended for the environmental assessment were not an
ideal use of federal funds, disallowing the costs was not necessary
given the circumstances.
[64] Domestic Working Group, Grant Accountability Project, Guide to
Opportunities for Improving Grant Accountability (October 2005).
[65] In November 2009, officials leading the Financial and Business
Management System implementation told us that the financial assistance
module would soon be changing. According to these officials, the
previous software, and the company adapting it for Interior's use, had
trouble keeping up with changes Interior needed, such as changes to
reporting forms.
[66] We reviewed numerous past GAO reports, including U.S. Insular
Areas: Economic, Fiscal, and Financial Accountability Challenges
[hyperlink, http://www.gao.gov/products/GAO-07-119] and American
Samoa: Accountability for Key Federal Grants Needs Improvement
[hyperlink, http://www.gao.gov/products/GAO-05-41]. We also reviewed
several reports by Interior's Office of Inspector General, including
Report on Grants Administered by the Office of Insular Affairs (No.
2003-I-0071) and its semiannual reports to Congress from 2001-2008. In
addition, we reviewed the internal control portion of the Single Audit
reports, focusing on fiscal years 2005-2007 for American Samoa, the
CNMI, and Guam, and fiscal years 2003-2005 for the USVI. The USVI has
been behind on its Single Audit reporting but is expected to be on
time in submitting its 2008 Single Audit report, which is due in
February 2010.
[67] Domestic Working Group, Grant Accountability Project, Guide to
Opportunities for Improving Grant Accountability (October 2005).
[68] We initially drew a sample of 174 grant projects. In the course
of our review, we suspected that OIA had provided us with the
incorrect file for one of those projects. We raised this concern in
June 2009, but the OIA grant manager assured us that it was the
correct file. However, after further discussions on this matter in
January 2010, OIA agreed that they had provided us with the wrong
file. Because this occurred well after our file review had been
completed, we opted to remove the project from our sample and data
analysis.
[69] OIA enters into reimbursable agreements with other federal
agencies to provide assistance to insular areas. Reimbursable
agreements (or reimbursable support agreements) are not categorized as
grants and, therefore, outside the scope of this review.
[70] A 2003 U.S. Army Corps of Engineers study reported many of the
CNMI capital improvement project contracts awarded went to contractors
who were known to have previously performed poorly and that
procurement regulations were conflicting. U.S. Army Corps of
Engineers, Honolulu District, Review of the Operation and Management
of the Capital Improvement Program for the Commonwealth of the
Northern Mariana Islands (Mar. 31, 2003).
[71] The Commonwealth of the Northern Mariana Islands Pub. L. No. 14-
91 (2005). The law allowed some CNMI agencies to employ foreign
workers for a 2-year period, which expired on September 30, 2007.
[72] Department of the Interior, Office of Inspector General, Report
on Grants Administered by the Office of Insular Affairs, Report No.
2003-I-0071 (Herndon, VA: September 2003). U.S. Army Corps of
Engineers, Honolulu District, Review of the Operation and Management
of the Capital Improvement Program for the Commonwealth of the
Northern Mariana Islands (Mar. 31, 2003).
[End of section]
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