U.S. Trust Territory:

Issues Associated With Palau's Transition to Self-Government

NSIAD-89-182: Published: Jul 19, 1989. Publicly Released: Aug 21, 1989.

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Pursuant to a congressional request, GAO reviewed issues concerning the Republic of Palau's transition to self-government, focusing on: (1) the Department of the Interior's oversight of Palau; (2) Palau's financial condition and practices; (3) Palau's law enforcement system and U.S. law enforcement assistance; and (4) problems with Palau's 1987 referenda to approve a Compact of Free Association with the United States.

GAO found that: (1) Interior's 1979 decision to provide Palau with greater autonomy effectively reduced Interior's authority and responsibility for interceding in local decisions, and Interior has since not closely monitored Palau's financial situation and contract negotiations; (2) Interior's technical assistance program has been slow in achieving benefits, partly due to weaknesses in Interior's management and Palau's slowness in implementing projects; (3) Palau has not ensured that it will use compact funds as intended; (4) since 1981, Palau has experienced serious financial problems, resulting in several ill-advised contracts; and (5) Palau did not require competition for service contracts, and its draft procurement manual was deficient. GAO also found that: (1) Palau's housing policy did not provide specific guidance on housing for government officials or the extent to which government funds could be used to pay for renovations to privately owned property leased for those officials; (2) Palau has not implemented its special prosecutor law, has experienced delays in hiring a public auditor, and lacks effective conflict-of-interest legislation; (3) five Palauan officials and businessmen received questionable payments totalling $775,000 from a firm that built Palau's power plant; (4) Palau's public safety officers have improved their skills in routine law enforcement, but need U.S. assistance in more difficult cases; and (5) U.S. agencies have differing views on the applicability of U.S. laws in Palau and on U.S. authority to conduct investigations or make arrests there.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Office of Territorial and International Affairs (OTIA) has increased the monitoring of the financial situation in Palau and has requested additional funds to establish the necessary infrastructure to support a credible oversight capability.

    Recommendation: The Secretary of the Interior should require the Assistant Secretary for Territorial and International Affairs (TIA) to assign the field representative in Palau responsibility for: (1) monitoring Palau's financial situation and obtaining information on progress in competing and negotiating major contracts and agreements; and (2) identifying situations in which Interior may need to advise Palau or take other actions concerning projects or agreements that appear questionable.

    Agency Affected: Department of the Interior

  2. Status: Closed - Implemented

    Comments: OTIA has established new procedures which provide for timely financial and program status reports for each ongoing project.

    Recommendation: The Secretary of the Interior should require the Assistant Secretary for TIA to establish procedures for ensuring that technical assistance grants are routinely monitored and periodically evaluated.

    Agency Affected: Department of the Interior

  3. Status: Closed - Implemented

    Comments: The President of Palau has designated the Vice President, Minister of Administration, to serve as the central contact point for all technical assistance projects. OTIA has also clarified the responsibility of the Director, Trust Territory Office of Transition, and the Field Representative to monitor progress and implementation of all grants.

    Recommendation: The Secretary of the Interior should require the Assistant Secretary for TIA to request the President of Palau to establish a central point of contact responsible for implementing technical assistance grants on a timely basis and ensuring that project managers comply with grant requirements.

    Agency Affected: Department of the Interior

  4. Status: Closed - Not Implemented

    Comments: State believes that the terms of the existing agreement governing the investment fund are sufficient to preclude unauthorized use of the funds. GAO disagrees, however, since the question of whether the controls are adequate is a matter of opinion. GAO is closing this recommendation.

    Recommendation: To better ensure that U.S. economic assistance funds under the compact will be used as intended, the Secretary of State should negotiate with the Republic of Palau to preclude Palau from using the compact investment fund as collateral for loans.

    Agency Affected: Department of State

  5. Status: Closed - Implemented

    Comments: OTIA said that it would request IG to review the revised procurement manual and urge the Palau government to address all IG comments prior to the government's approval of the manual, and urge the establishment of competitive bidding requirements for service contracts.

    Recommendation: The Secretary of the Interior should instruct the Assistant Secretary for TIA to: (1) request Interior's Inspector General (IG) to review Palau's draft procurement manual to ensure that it includes requirements and procedures for conducting feasibility studies to assess needs, competitive bidding for major projects, recordkeeping by contractors and subcontractors, and other sound procurement principles; (2) ensure that all Inspector General comments are addressed adequately prior to the manual's completion; and (3) recommend that Palauan officials revise their procurement law to require competitive bidding for service contracts.

    Agency Affected: Department of the Interior

  6. Status: Closed - Implemented

    Comments: OTIA will advise and offer technical assistance to develop housing regulations to resolve the shortcomings noted.

    Recommendation: The Secretary of the Interior should instruct the Assistant Secretary for TIA to advise Palau to: (1) develop housing regulations that include more specific criteria defining the extent to which government funds may be used to pay for renovations to private housing rented for government officials; and (2) request Palau's Acting Public Auditor to review the propriety of funds expended to lease and renovate a residence for President Salii.

    Agency Affected: Department of the Interior

  7. Status: Closed - Implemented

    Comments: OTIA will: (1) work with the President of Palau to help recruit and hire a competent Special Prosecutor; (2) request the Special Prosecutor to investigate payments made by IPSECO to Palauan officials; and (3) work with the President to provide technical assistance to develop conflict-of-interest legislation.

    Recommendation: The Secretary of the Interior should instruct the Assistant Secretary for TIA to advise Palau's President to: (1) appoint a special prosecutor within a reasonable amount of time; (2) request the Attorney General or Special Prosecutor, if appointed in a timely manner, to investigate payments made by a firm to Palauan officials and determine whether sanctions under Palau's criminal or civil laws are warranted; and (3) develop more comprehensive conflict-of-interest legislation that includes criminal provisions, and reduces exclusions for certain categories of public officials with respect to civil provisions.

    Agency Affected: Department of the Interior

  8. Status: Closed - Not Implemented

    Comments: According to June 1991 correspondence from Justice to Chairman John Conyers, Justice believes that federal law enforcement agencies and Interior are all aware of Justice's position on federal criminal jurisdiction in Palau. Justice does not intend to take any further action.

    Recommendation: To resolve the current uncertainty about U.S. law enforcement agencies' authority in Palau until the compact is implemented, the Attorney General should finalize and formally distribute the Department of Justice's opinion on federal criminal jurisdiction in Palau to all relevant U.S. agencies.

    Agency Affected: Department of Justice

  9. Status: Closed - Not Implemented

    Comments: According to June 1991 correspondence from Justice to Chairman John Conyers, Justice differs with GAO opinion on this matter and does not intend to take any further action.

    Recommendation: The Attorney General should: (1) determine whether U.S. law enforcement agencies have authority to conduct investigations and make arrests in Palau for violations of U.S. criminal laws that specifically apply to Palau or the trust territory, such as the anti-drug laws; and (2) consider the view that U.S. law enforcement agencies other than the U.S. Attorney for Guam do have this authority.

    Agency Affected: Department of Justice

  10. Status: Closed - Not Implemented

    Comments: According to June 1991 correspondence from Justice to Chairman John Conyers, Justice believes that the FBI does not have authority to investigate Palauan crimes.

    Recommendation: The Attorney General should authorize the Federal Bureau of Investigation (FBI) to provide investigative assistance to Palau upon request from Interior, including providing the assistance requested regarding the 1987 murder.

    Agency Affected: Department of Justice

 

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