GAO 

United States Government Accountability Office

Report to the Committee on Energy and 

Natural Resources, U.S. Senate 

U.S. INSULAR AREAS

Opportunities Exist to 

Improve Interior’s 

Grant Oversight and 

Reduce the Potential 

for Mismanagement 

March 2010 

GAO-10-347 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 2010

U.S. INSULAR AREAS 

Opportunities Exist to Improve Interior’s Grant 

Oversight and Reduce the Potential for 

Mismanagement 

Highlights of GAO-10-347, a report to the 

Committee on Energy and Natural 

Resources, U.S. Senate 

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 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. 

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. 

View GAO-10-347 or key components.

For more information, contact Anu K. Mittal at 

(202) 512-3841 or mittala@gao.gov. 
Page i GAO-10-347 

Contents 

Letter 1

Background 4 

Nearly 40 Percent of OIA Grant Projects Have Internal Control 

Weaknesses That Could Increase Susceptibility to 

Mismanagement 9 

Insular Areas Face Challenges in Implementing OIA Grant Projects, 

as Selected Projects Illustrate 15 

OIA Has Taken Actions to Improve Grant Project Implementation 

and Management but Faces Several Obstacles 27 

Conclusions 41 

Recommendations for Executive Action 42 

Agency Comments 42 

Appendix I Objectives, Scope, and Methodology 44 

Appendix II Selected Examples of OIA Grant Projects That Face 

Implementation Challenges 51 

Appendix III Comments from the Department of the Interior 58 

Appendix IV Comments from the Commonwealth of the 

Northern Mariana Islands 62 

Appendix V Comments from the U.S. Virgin Islands 65 

Appendix VI GAO Contact and Staff Acknowledgments 70 

Tables 

Table 1: Breakdown of the Office of Insular Affairs’ Fiscal Year 

2009 Budget 8 

 Interior Grants to Insular Areas 
Table 2: Internal Control Weaknesses Present in OIA Grant 

Projects 10 

Table 3: OIA Competitive Allocation Criteria and Insular Areas’ 

Scores for Fiscal Year 2010 28 

Table 4: Internal Control Weaknesses We Considered and Their 

Applicability to Projects in the Sample 45 

Table 5: Sample Disposition 47 

Figures 

Figure 1: Location of Four U.S. Insular Areas 5 

Figure 2: Distribution of Overall Internal Control Weaknesses in 

OIA Grant Projects by Category of Activity 9 

Figure 3: Project Planning and Project Management Challenges 

Experienced by Insular Areas for 24 Selected OIA Grant 

Projects 16 

Figure 4: Unused Commonwealth Health Center Dialysis Facility 52 

Figure 5: An Unused Saipan Power Plant Engine 53 

Figure 6: Rota Health Center Loading Area with Significant Mold 55 

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 

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Page ii GAO-10-347 Interior Grants to Insular Areas
Page 1 GAO-10-347 

 

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 selfsufficiency 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.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 

1

GAO, U.S. Insular Areas: Economic, Fiscal, and Financial Accountability Challenges, 

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). 

 Interior Grants to Insular Areas 
 

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.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. 

 

2

In assessing the adequacy of internal controls, we used the criteria in GAO’s Standards for 

Internal Control in the Federal Government, 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. 

Page 2 GAO-10-347 Interior Grants to Insular Areas
 

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.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.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 

 

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, 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. 

Page 3 GAO-10-347 Interior Grants to Insular Areas
 

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. 

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 fig. 1). The USVI is located about 1,000 miles southeast of Miami in 

the Caribbean Sea. 

Background 

Page 4 GAO-10-347 Interior Grants to Insular Areas
 

Figure 1: Location of Four U.S. Insular Areas 

U.S.

Virgin

Islands

Sources: GAO and MapArt (map).

Guam

CNMI

American

Samoa

PACIFIC ATLANTIC

OCEAN OCEAN

American Samoa, which had a population of about 65,628 in 2009,5

 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 20096

—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, 

 

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. 

Page 5 GAO-10-347 Interior Grants to Insular Areas
 

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 178,430.7

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 20098

) 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.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.10 The Secretary of the Interior has 

 

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. 

10According 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. 

Page 6 GAO-10-347 Interior Grants to Insular Areas
 

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.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,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,13 relevant Office of 

Management and Budget (OMB) circulars,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 

 

11Interior 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. 

12Compact 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. 

1343 C.F.R. part 12. 

14OIA 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.” 

Page 7 GAO-10-347 Interior Grants to Insular Areas
 

managers.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.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 

Dollars in 

thousands

Percentage 

of OIA 

budget

Compact of Free Association $216,795 48.9

Permanent fiscal paymentsa148,000 33.4

Office of Insular Affairs (administrative) 8,850 2.0

Noncompact grants and technical assistance 

American Samoa operations 22,752 5.1

Capital improvement project grants (covenant grants) 27,720 6.3

Operations and maintenance improvement program grants 2,241 0.5

Technical assistance grantsb 17,102 3.9

Subtotal $69,815 15.7

Total $443,460 100c

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. 

 

15In 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. 

16The division maintains a field presence in American Samoa and the CNMI. 

Page 8 GAO-10-347 Interior Grants to Insular Areas
 

On the basis of our review of grant files from a random probability sample 

of grant projects,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.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. 

ant 

Nearly 40 Percent of 

OIA Grant Projects 

Have Internal Control 

Weaknesses That 

Could Increase 

Susceptibility to 

Mismanagement 

Figure 2: Distribution of Overall Internal Control Weaknesses in OIA Grant Projects 

by Category of Activity 

Source: GAO analysis of OIA documents.

Percent

62

24

14

0 10 20 30 40 50 60 70 80 90 100

OIA grant management activities

Joint activity between 

grant recipients and OIA

Grant recipient activities

We also determined how frequently each of the eight internal control 

weaknesses was found among OIA grant projects in the database 

(see table 2). 

 

17We 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. 

18All 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. 

Page 9 GAO-10-347 Interior Grants to Insular Areas
 

Table 2: Internal Control Weaknesses Present in OIA Grant Projects 

Internal control weaknessesa

Percentage of 

applicable 

projects affectedb

Grant recipient activities 

Failure to submit required status reports in full and on time 60

Failure to submit required final reports on time (closed grants) 58c

Projects’ expected or actual completion date fall after grant 

expiration 

19

Drawing down funds faster than project progress (open grants) 0

Joint activity between grant recipients and OIA 

Redirection of project funds 30

OIA grant management activities 

Information in grant management database does not match 

grant filed

41

Field representatives perform less than half of all site visits 10

Unexpended funds are not deobligated (closed grants) 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 app. 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. 

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 

Page 10 GAO-10-347 Interior Grants to Insular Areas
 

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.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.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.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 

 

19While 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. 

20Deobligation is the process in which unused monies are canceled or unobligated from the 

project account. 

21For 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. 

Page 11 GAO-10-347 Interior Grants to Insular Areas
 

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.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 

 

22Prior 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. 

Page 12 GAO-10-347 Interior Grants to Insular Areas
 

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.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 

 

23Grant 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. 

Page 13 GAO-10-347 Interior Grants to Insular Areas
 

representatives in these areas.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.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. 

 

24Specifically, 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. 

25During 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. 

Page 14 GAO-10-347 Interior Grants to Insular Areas
 

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. 

Insular Areas Face 

Challenges in 

Implementing OIA 

Grant Projects, as 

Selected Projects 

Illustrate 

Page 15 GAO-10-347 Interior Grants to Insular Areas
 

Figure 3: Project Planning and Project Management Challenges Experienced by Insular Areas for 24 Selected OIA Grant 

Projects 

Project planning challenges

Project management 

challenges

 Commonwealth

of the Northern

Mariana Islands

(CNMI)

American

Samoa

U.S. Virgin

Islands

(USVI)

Guam

University Wellness Center

Commonwealth Health Center

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

CIP

TA

CIP

OMIP

CIP

Tinian Wastewater

Tinian Elementary School

Tinian Landfill

Saipan Power Plant Rehabilitation

Tinian Dialysis Facility

Precinct IV Road Paving

Ginalangan-Palie Power (1998) 

Ginalangan-Palie Power (2005) Project not started as of the time of our site visit

Project not started as of the time of our site visit

Project not started as of the time of our site visit

Project not started as of the time of our site visit

 Purchase incinerator for airport

 Purchase incinerator for 

 Port of Saipan

Rota Health Center (2003)

Rota Health Center (2004)

 

Petesa Happy Valley Village Road

 Central Office Building, Phase II

Professional Training & 

Apprenticeship Program

Micronesian Water & 

Wastewater Training Program

Leone High School 

Lyndon B. Johnson Hospital

Manulele Tausala

Elementary School Road

Frequently changing

priorities (project

redirection)

Natural 

disaster

impact

Limited land

access

Limited local

capacity

Contractor

issues

Lack of local 

operations and/or

maintenance

funding

Project Grant type

Waste Management Authority

Construction Manager

Household Income & 

Expenditures Survey

Guam Waterworks Authority 

Management Analyst 

Source: GAO analysis of OIA grants to the insular areas.

Challenges that were detected

Challenges that were not detected

b

b,e,f

b,e,f

b

b

b

a

c

c,e,f

c,e,f

c

c

d

h

g

i

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. 

Page 16 GAO-10-347 Interior Grants to Insular Areas
 

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. 

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.26 In contrast, as of 

December 2009, OIA reported that the CNMI did not have a master plan for 

 

26The 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. 

Page 17 GAO-10-347 Interior Grants to Insular Areas
 

its capital improvement projects or established priority areas.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.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.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 

 

27While 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. 

28In 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. 

29The 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. 

Page 18 GAO-10-347 Interior Grants to Insular Areas
 

a priority area and between projects listed in the master plan.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.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. 

 

30OIA 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. 

31GAO-07-119. 

Page 19 GAO-10-347 Interior Grants to Insular Areas
 

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 2003.32 Although both of the 

insular area governments have the power of eminent domain over their 

land,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 governm

can choose to address the issue by enforcing their authority or by 

choosing to fund oth

ents 

er 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 

32However, a scope of work for this project was not approved until December 2005. 

33The Commonwealth Constitution, Article XII (2010); American Samoa Code Annotated 

Ch. 20, § 37.2001 (2007). 

Page 20 GAO-10-347 Interior Grants to Insular Areas
 

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.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.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 

 

34Pub. L. No.104-134, § 118, 48 U.S.C. § 1804(c). 

35GAO-07-119. 

Page 21 GAO-10-347 Interior Grants to Insular Areas
 

could change due to the rising minimum wages.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.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 2008.38

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 

 

36In 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). 

37The 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, GAO-08-791 (Washington, D.C.: Aug. 

4, 2008). 

38GAO, Commonwealth of the Northern Mariana Islands: Pending Legislation Would 

Apply U.S. Immigration Law to the CNMI with a Transition Period, GAO-08-466

(Washington, D.C.: Mar. 28, 2008). 

Page 22 GAO-10-347 Interior Grants to Insular Areas
 

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 app. 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.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 

 

39Several CNMI officials, from grant recipient agencies, reported that they would prefer the 

local agencies directly administer OIA grants. 

Page 23 GAO-10-347 Interior Grants to Insular Areas
 

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. 

Page 24 GAO-10-347 Interior Grants to Insular Areas
 

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.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: 

External Factors Likely 

to Affect OIA Grant 

Project Implementation 

• 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.41 Together both industries had accounted for 

85 percent of the CNMI’s economic activity.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,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 

 

40GAO-07-119 and GAO, American Samoa Accountability for Key Federal Grants Needs 

Improvement, GAO-05-41 (Washington, D.C.: Dec. 17, 2004), have provided in-depth 

assessments of insular area economies. 

41GAO, 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, GAO-09-426T (Washington, D.C.: May 19, 2009). 

42GAO, Northern Mariana Islands: Garment and Tourist Industries Play a Dominant 

Role in the Commonwealth’s Economy, GAO/RCED/GGD-00-79 (Washington, D.C.: Feb. 14, 

2000). 

43GAO-07-119. 

Page 25 GAO-10-347 Interior Grants to Insular Areas
 

they equal the U.S. minimum wage.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, 2009.45 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,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. 

 

44Pub. L. No. 110-28, § 8103 (2007). 

45Pub. L. No. 110-229, Title VII, 122 Stat. 754, 853 (2008). 

46GAO, 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, GAO-10-90R (Washington, D.C.: Nov. 13, 2009). 

Page 26 GAO-10-347 Interior Grants to Insular Areas
 

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 

Actions to Improve 

Grant Project 

Implementation and 

Management but 

Faces Several 

Obstacles 

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.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, 

 

47The 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. 

Page 27 GAO-10-347 Interior Grants to Insular Areas
 

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 

American 

Samoa

Commonwealth 

of the Northern 

Mariana Islands 

(CNMI) Guam

U.S. Virgin 

Islands (USVI)

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) 

2 4 4 0

2. Financial statements—reliability (out of 8 points) 0 1 8 0

Unqualified—no qualificationsa (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 opinionb

 or disclaimer of opinionc (0 points) 

0 1 4 0

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 

0 0 4 0

3. Financial position of government operationsd 

(out of 4 points) 

Balanced/surplus (4 points) 

Deficit, decreasing in size (2 points) 

Deficit, constant (1 point) 

Deficit, increasing in size (0 points) 

4 0 4 0

Page 28 GAO-10-347 Interior Grants to Insular Areas
 

Criteria and point values 

American 

Samoa

Commonwealth 

of the Northern 

Mariana Islands 

(CNMI) Guam

U.S. Virgin 

Islands (USVI)

4. Single Audit findings—resolutionse

 (out of 4 points) 

No outstanding questioned costs for OIA grants 

(earns 2 points) 

No recurring findings (earns 2 points) 

0 0 0 0

5. Single Audit findings—responsesf (out of 5 points) 1 1 3 0

OIA required actions are over 50 percent complete 

(3 points) 

OIA actions are less than 50 percent complete (1 point) 

1 1 3 0

Other federal actions are completed or in satisfactory 

progress (earns 2 points) 

0 0 0 0

6. Procurement processesg (out of 4 points) 

Fully compliant; no material issues (4 points) 

Substantially compliant; no material issues (3 points) 

Improvements over procurement issues (2 points) 

0 0 2 0

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) 

2 2 2 2

8. Compliance with financial and narrative OIA grant 

reporting requirementsh

 (out of 5 points) 

4 4 4 4

Timely (3 points) 

Within 10 days late (2 points) 

Within 11-89 days late (1 point) 

No report within 90 days (0 points) 

2 2 2 2

Accuracy is greater than or equal to 75 percent (2 points) 

Accuracy is less than 75 percent (0 points) 

2 2 2 2

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) 

0 4 4 4

10. Additional financial reporting required by OIAi 

(out of 2 points) 

Quarterly reporting as requested (2 points) 

2 2 2 2

Total (out of 42 points) 15 18 33 12

Source: OIA data. 

Page 29 GAO-10-347 Interior Grants to Insular Areas
 

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. 

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.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 

 

48U.S. Department of the Interior, Fiscal Year 2008 Annual Performance and 

Accountability Report (Washington, D.C., Nov. 15, 2008). 

Page 30 GAO-10-347 Interior Grants to Insular Areas
 

$18 million) in comparison to American Samoa (approximately 

$20 million) and Guam (approximately $10 million).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. 

 

49American 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. 

Page 31 GAO-10-347 Interior Grants to Insular Areas
 

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.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.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. 

Several Obstacles to 

Timely and Effective 

Project Completion 

Remain 

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 

 

50A “no-year” appropriation is one that is available for obligation for an indefinite period, 

such as those funds appropriated as available until expended. 

51The 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. 

Page 32 GAO-10-347 Interior Grants to Insular Areas
 

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.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 

 

52See, e.g., Interior Department and Further Continuing Appropriations, Fiscal Year 2010, 

Pub. L. No. 111-88, 123 Stat. 2904, 2920 (2009). 

Page 33 GAO-10-347 Interior Grants to Insular Areas
 

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;53 however, OIA officials believe that the field representative 

has not been as effective as the American Samoa representative.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 

 

53The other field representative is assigned to the policy division and does not have grant 

management responsibilities. 

54According 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. 

Page 34 GAO-10-347 Interior Grants to Insular Areas
 

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 higherpriority 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.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.56 The Office of Inspector General initially had insular field 

offices in American Samoa, the CNMI,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.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 

 

55Pub. L. No. 97-357, §§ 104, 203, 309, 402, 96 Stat. 1705 (1982). 

56The 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). 

57The CNMI office, located on Saipan, was a suboffice of the Guam Office. 

58The American Samoa, CNMI, and Guam offices were closed in 1987, 1995, and 2002, 

respectively. 

Page 35 GAO-10-347 Interior Grants to Insular Areas
 

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.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.60

 

59U.S. Department of the Interior, Office of Inspector General, Semiannual Report to the 

Congress (Washington, D.C., April 2003). 

60GAO, Human Capital: Key Principles for Effective Strategic Workforce Planning, 

GAO-04-39 (Washington, D.C.: Dec. 11, 2003). 

Page 36 GAO-10-347 Interior Grants to Insular Areas
 

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.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 welldocumented. 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.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 

 

61OIA’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. 

62As 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. 

Page 37 GAO-10-347 Interior Grants to Insular Areas
 

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.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 

 

63OIA 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. 

Page 38 GAO-10-347 Interior Grants to Insular Areas
 

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.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 

 

64Domestic Working Group, Grant Accountability Project, Guide to Opportunities for 

Improving Grant Accountability (October 2005). 

Page 39 GAO-10-347 Interior Grants to Insular Areas
 

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 grantmaking 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.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. 

 

65In 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. 

Page 40 GAO-10-347 Interior Grants to Insular Areas
 

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’ selfgovernance 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. 

Conclusions 

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. 

Page 41 GAO-10-347 Interior Grants to Insular Areas
 

Interior Grants to Insular Areas

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. 

Recommendations for 

Executive Action 

• 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. 

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 app. IV) and the Acting Governor of the USVI 

(see app. 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. 

Agency Comments 

Page 42 GAO-10-347 
 

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 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 

Anu K. Mittal 

report are listed in appendix VI. 

Director, Natural Resources 

 and Environment 

Page 43 GAO-10-347 Interior Grants to Insular Areas
Appendix I: Objectives, Scope, and 

Methodology 

Page 44 GAO-10-347 

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.1

 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 

 

1

We reviewed numerous past GAO reports, including U.S. Insular Areas: Economic, 

Fiscal, and Financial Accountability Challenges (GAO-07-119) and American Samoa: 

Accountability for Key Federal Grants Needs Improvement (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. 

 Interior Grants to Insular Areas 
Appendix I: Objectives, Scope, and 

Methodology 

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.2

 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 Assessment procedures Open projects

Closed 

projects Applicability 

Failure to submit required 

status reports in full and 

on time 

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 

9 9 Applicable to grants with 

requirement for semiannual 

reporting in the grant award 

document 

Failure to submit required final 

reports on time (i.e., within 

90 days of completion) 

Examined submission date of final 

report and compared this to date of 

project completion 

9 Applicable to all closed 

grant projects 

Projects’ expected completion 

date (for open grant projects) 

or actual completion date 

(for closed grant projects) 

fall after grant expirationa

For open grant projects: 

comparison of “expected 

completion date” from most recent 

narrative status report to grant 

expiration dateb

For closed grant projects: 

comparison of grant expiration 

dateb

 to date of project completion; 

if possible, used “date completed” 

from final narrative report; 

otherwise used date of final fund 

drawdown 

9 9 Applicable to all grant 

projects 

 

2

Domestic Working Group, Grant Accountability Project, Guide to Opportunities for 

Improving Grant Accountability (October 2005). 

Page 45 GAO-10-347 Interior Grants to Insular Areas
Appendix I: Objectives, Scope, and 

Methodology 

Internal control weakness Assessment procedures Open projects

Closed 

projects Applicability 

Drawing down funds faster than 

project progress (i.e., progress 

toward project completion lags 

behind expenditure of grant 

funds by at least 5 percent) 

Comparison of funds claimed by 

grantee to date (from database) to 

“percent complete” as noted in the 

most recent narrative status report 

9 Applicable to all open grant 

projects 

Redirection of project funds 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 

9 9 Applicable only to capital 

improvement projects 

Information in grant 

management database 

does not match grant file 

Thirteen database elements were 

compared with information 

contained in the grant filesc

9 9 Not applicable to capital 

improvement projects 

(where database serves as 

secondary tracking tool) 

Field representatives perform 

less than half of all site visitsd

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 

9 9 Applicable only to capital 

improvement projects in 

American Samoa and the 

CNMI 

Unexpended funds not 

deobligated 

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” 

9 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. 

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 

Page 46 GAO-10-347 Interior Grants to Insular Areas
Appendix I: Objectives, Scope, and 

Methodology 

grant management database (see table 5).3 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 o

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

f 

 selected. 

Table 5: Sample Disposition 

Strata Population size Sample size

Closed 1,323 88

Open 448 85

Total 1,771 173

Source: GAO analysis of Office of Insular Affairs (OIA) database sample. 

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 

 

3

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. 

Page 47 GAO-10-347 Interior Grants to Insular Areas
Appendix I: Objectives, Scope, and 

Methodology 

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.4

 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 

 

4

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. 

Page 48 GAO-10-347 Interior Grants to Insular Areas
Appendix I: Objectives, Scope, and 

Methodology 

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 

Page 49 GAO-10-347 Interior Grants to Insular Areas
Appendix I: Objectives, Scope, and 

Methodology 

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. 

Page 50 GAO-10-347 Interior Grants to Insular Areas
Appendix II: Se

Projects Th

C

lected Examples of OIA Grant 

at Face Implementation 

hallenges 

Page 51 GAO-10-347 

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. 

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 fig. 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.1

Jose T. Villagomez 

Center for Public 

Health and Dialysis 

(Commonwealth 

Health Center 

Dialysis Facility); 

Saipan, CNMI 

 

1

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). 

 Interior Grants to Insular Areas 
Appendix II: Selected Examples of OIA Grant 

Projects That Face Implementation 

Challenges 

Figure 4: Unused Commonwealth Health Center Dialysis Facility 

Source: GAO.

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 fig. 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 

Commonwealth 

Utilities Corporation 

Power Plant 

Rehabilitation; 

Saipan, CNMI 

Page 52 GAO-10-347 Interior Grants to Insular Areas
Appendix II: Selected Examples of OIA Grant 

Projects That Face Implementation 

Challenges 

their jobs at the agency.2 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. 

s, which 

Figure 5: An Unused Saipan Power Plant Engine 

Source: GAO.

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 

Rota Health Center; 

Rota, CNMI 

 

2

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. 

Page 53 GAO-10-347 Interior Grants to Insular Areas
Appendix II: Selected Examples of OIA Grant 

Projects That Face Implementation 

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.3

 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 fig. 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. 

 

3

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). 

Page 54 GAO-10-347 Interior Grants to Insular Areas
Appendix II: Selected Examples of OIA Grant 

Projects That Face Implementation 

Challenges 

Figure 6: Rota Health Center Loading Area with Significant Mold 

Source: GAO.

Page 55 GAO-10-347 Interior Grants to Insular Areas
Appendix II: Selected Examples of OIA Grant 

Projects That Face Implementation 

Challenges 

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. 

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 

Tinian Landfill 

Project; 

Tinian, CNMI 

Tinian Wastewater 

System Project; 

Tinian, CNMI 

Page 56 GAO-10-347 Interior Grants to Insular Areas
Appendix II: Selected Examples of OIA Grant 

Projects That Face Implementation 

Challenges 

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. 

Page 57 GAO-10-347 Interior Grants to Insular Areas
Appendix III: Comments from the Department Appendix III: Comments from the of the Interior 

Department of the Interior 

Page 58 GAO-10-347 Interior Grants to Insular Areas 
Appendix III: Comments from the Department 

of the Interior 

Page 59 GAO-10-347 Interior Grants to Insular Areas
Appendix III: Comments from the Department 

of the Interior 

Page 60 GAO-10-347 Interior Grants to Insular Areas
Appendix III: Comments from the Department 

of the Interior 

Page 61 GAO-10-347 Interior Grants to Insular Areas
Appendix IV: Comments from the 

Commonwealth of the Northern Mariana Appendix IV: Comments from the Islands 

Commonwealth of the Northern Mariana 

Islands 

Page 62 GAO-10-347 Interior Grants to Insular Areas 
Appendix IV: Comments from the 

Commonwealth of the Northern Mariana 

Islands 

Page 63 GAO-10-347 Interior Grants to Insular Areas
Appendix IV: Comments from the 

Commonwealth of the Northern Mariana 

Islands 

Page 64 GAO-10-347 Interior Grants to Insular Areas
Appendix V: Comments from the U.S. Virgin Appendix V: Comments from the U.S. Virgin Islands 

Islands 

Page 65 GAO-10-347 Interior Grants to Insular Areas 
Appendix V: Comments from the U.S. Virgin 

Islands 

Page 66 GAO-10-347 Interior Grants to Insular Areas
Appendix V: Comments from the U.S. Virgin 

Islands 

Page 67 GAO-10-347 Interior Grants to Insular Areas
Appendix V: Comments from the U.S. Virgin 

Islands 

Page 68 GAO-10-347 Interior Grants to Insular Areas
Appendix V: Comments from the U.S. Virgin 

Islands 

Page 69 GAO-10-347 Interior Grants to Insular Areas
Appendix VI: 

A

GAO Contact and Staff 

cknowledgments 

Page 70 GAO-10-347 

Appendix VI: GAO Contact and Staff 

Acknowledgments 

Anu K. Mittal, (202) 512-3841 or mittala@gao.gov

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. 

 Interior Grants to Insular Areas 

GAO Contact 

Staff 

Acknowledgments 

(361042) 
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