Compact of Free Association: Palau's Use of and Accountability for U.S. Assistance and Prospects for Economic Self-Sufficiency

GAO-08-732 Published: Jun 10, 2008. Publicly Released: Jun 10, 2008.
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The Compact of Free Association between the Republic of Palau and the United States entered into force on October 1, 1994, with the U.S. interest of promoting Palau's self-sufficiency and economic advancement. The compact and its related subsidiary agreements provide for a 15-year term of economic assistance. In fiscal year 2009, the two governments must review the terms of the compact and related agreements and agree on any modifications. The Department of the Interior (DOI) has primary responsibility for oversight of Palau's use of compact funds. GAO was requested to report on (1) the provision of compact and other U.S. assistance to Palau in fiscal years 1995-2009; (2) Palau's and U.S. agencies' efforts to provide accountability over Palau's use of federal funds in 1995-2006; and (3) Palau's prospects for achieving economic self-sufficiency. GAO reviewed Palau's compact annual reports, financial statements and internal control reports for fiscal years 1995-2006, as well as other compact-related documentation. GAO interviewed officials from the U.S. and Palau governments and conducted fieldwork in Palau.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Department of the Interior To strengthen Palau's ability to provide accountability and meet applicable requirements for federal assistance, the Secretary of the Interior should direct the Office of Insular Affairs to (1) formally consult with the government of Palau regarding Palau's financial management challenges and (2) target future technical assistance toward building Palau's financial management capacity.
Closed – Implemented
The Department of the Interior's Office of Insular Affairs (OIA) has taken a number of actions that address GAO's recommendation. OIA officials met with the President of Palau and his staff in March 2009 to discuss Palau's financial management challenges. OIA pledged to continue its dialog with the government of Palau regarding these challenges during the formal Compact review. Through its Technical Assistance Program, OIA has funded workshops and conferences for finance, budget, and audit officials from the government of Palau. OIA also funded an executive leadership program to address management and supervisory shortages, especially in the area of finance. Two officials from Palau?s Ministry of Finance attended the 2008-2009 program. OIA officials told GAO that OIA will continue to target available resources to assist Palau in building financial management capacity.

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