a

GAO

United States Government Accountability Office

Report to Congressional Committees

December 2006 COMPACTS OF FREE 

ASSOCIATION

Micronesia and the 

Marshall Islands Face 

Challenges in Planning 

for Sustainability, 

Measuring Progress, 

and Ensuring 

Accountability

GAO-07-163
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2006

COMPACTS OF FREE ASSOCIATION

Micronesia and the Marshall Islands Face 

Challenges in Planning for Sustainability, 

Measuring Progress, and Ensuring 

Accountability 

Highlights of GAO-07-163, a report to 

congressional committees 

In 2003, the United States signed

Compacts of Free Association with 

the Federated States of Micronesia

(FSM) and the Republic of the 

Marshall Islands (RMI), amending a 

1986 compact with the countries.

The amended compacts provide the 

countries with a combined total of 

$3.6 billion from 2004 to 2023, with 

the annual grants declining

gradually. The assistance, targeting

six sectors, is aimed at assisting the 

countries’ efforts to promote 

economic advancement and

budgetary self-reliance. The 

Department of the Interior 

(Interior) administers and oversees 

the assistance. Complying with a

legislative requirement, GAO 

examined, for fiscal years 2004

through 2006, (1) the FSM’s and the 

RMI’s use of compact funds,

(2) their efforts to assess progress 

toward development goals, 

(3) their monitoring of sector 

grants and accountability for 

compact funds, and (4) Interior’s 

administrative oversight of the 

assistance. GAO visited the FSM 

and the RMI; reviewed reports; and 

interviewed officials from the FSM,

RMI, and U.S. governments.

What GAO Recommends

GAO recommends, among other 

things, that Interior work with the

FSM and the RMI to establish plans 

to minimize the impact of declining

assistance and to fully develop a 

reliable mechanism for measuring 

progress toward compact goals. 

Interior agreed with all of the 

recommendations.

For 2004 through 2006, compact assistance to the FSM and the RMI was 

allocated largely to the education, infrastructure, and health sectors, but 

various factors limited the countries’ use of compact funds. Deterrents to the 

FSM’s use of infrastructure funds included constraints on land use and 

disagreement on project implementation processes. Land use issues also 

hindered the RMI’s use of infrastructure funds. In addition, the FSM’s 

distribution of the grants among its four states resulted in significant 

differences in per-student education and per-capita health funding. Neither 

country has planned for long-term sustainability of the grant programs, 

taking into account the annual decreases in grant funding. 

To assess progress toward development goals, the FSM and the RMI 

established goals and objectives for each sector and are collecting 

performance data for education and health. However, a lack of complete and 

reliable baseline data prevents the countries from gauging progress in these 

sectors. Also, both countries’ required quarterly performance reports 

contained incomplete and unreliable information, limiting the reports’ utility 

for tracking progress. The countries’ ability to measure progress is further 

challenged by a lack of technical capacity to collect, assemble, and analyze 

baseline and performance data. 

Although the FSM and the RMI are required to monitor day-to-day sector 

grant operations, their ability to meet this requirement for 2004 through 2006 

was limited. According to officials in the respective governments, the 

responsible offices have insufficient staff, budgets, and time to monitor grant 

operations. In addition, both countries’ single audit reports for 2004 and 2005 

indicated weaknesses in their ability to account for the use of compact 

funds. For instance, the FSM’s audit report for 2005 contained 57 findings of 

material weaknesses and reportable conditions in the national and state 

governments’ financial statements for sector grants, and the RMI’s report 

contained 2 such findings. Furthermore, both countries’ single audit reports 

indicated noncompliance with requirements of major federal programs. 

For example, the FSM’s audit report for 2005 contained 45 findings of 

noncompliance, while the RMI’s audit report contained 11 findings. 

Interior’s Office of Insular Affairs (OIA) has conducted administrative 

oversight of the sector grants by monitoring the countries’ sector grant 

performance and spending, assessing their compliance with sector grant 

conditions, and monitoring the audit process. In response to shortcomings 

that it identified, OIA took several actions, such as withholding or 

suspending grant funding and ensuring the provision of technical assistance. 

However, OIA’s oversight has been limited by the need to deal with 

challenges facing the FSM, such as its difficulty in preparing budgets, as well

as by its own staffing challenges. 

www.gao.gov/cgi-bin/getrpt?GAO-07-163.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact David Gootnick 

at (202) 512-3149 or gootnickd@gao.gov. 
Page i GAO-07-163 Compacts of Free Association

Contents

Letter 1

Results in Brief 3

Background 6

Compact Grants Targeted Infrastructure, Education, and Health, but 

Various Issues Constrained Countries’ Use of Funds 22

FSM and RMI Have Limited Ability to Measure Progress toward 

Compact Goals 33

FSM and RMI Provided Limited Monitoring of Grant Operations, and 

FSM Accountability for Compact Funds Faced Challenges 39

Interior Took Oversight Actions but Faced Challenges 44

Conclusions 48

Recommendations for Executive Action 49

Agency Comments and Our Evaluation 50

Appendixes

Appendix I: Objectives, Scope, and Methodology 53

Appendix II: U.S. Program Assistance to the FSM and the RMI 58

Appendix III: U.S. Funds to Be Provided to the RMI Related to Kwajalein 

Atoll, 2004 through 2023 77

Appendix IV: FSM and RMI Sector Grants, 2004 through 2006 78

Appendix V: Single Audit Reports for the FSM and the RMI, 2001 through 

2005 81

Single Audits Were Not Timely, but Timeliness Improved 81

Nearly All Audit Opinions on Financial Reporting Were Qualified and 

Contained Material Weaknesses and Reportable Conditions 83

All Audit Opinions on Compliance with Requirements of Major 

Federal Programs Were Qualified and Contained Material 

Weaknesses and Reportable Conditions 87

High-Risk Designations and Other Sanctions Threatened by OIA as 

Late Reports and Other Problems Persist 88

Appendix VI: FSM Compliance with Special Sector Grant Terms and 

Conditions 92

Appendix VII: RMI Compliance with Special Sector Grant Terms and 

Conditions 102

Appendix VIII: Comments from the Department of the Interior 108

Appendix IX: Comments from the Federated States of Micronesia 111

GAO Comments 115
Contents

Page ii GAO-07-163 Compacts of Free Association

Appendix X: Comments from the Republic of the Marshall Islands 116

GAO Comments 120

Appendix XI: GAO Contact and Staff Acknowledgments 122

Related GAO Products 123

Tables Table 1: U.S. Assistance to Be Provided to the FSM and the RMI 

under the Amended Compacts, 2004 through 2023 11

Table 2: Distribution of Compact Funds to FSM States and States’ 

Percentages of FSM Population, 2006 33

Table 3: Noncompact U.S. Program Fund Expenditures for the FSM 

and the RMI, 2004 and 2005 58

Table 4: Department of the Interior OIA Technical Assistance and 

Operations and Maintenance Improvement Program 

Grants 59

Table 5: Department of Education Individuals with Disabilities 

Education Act/Special Education Program for Pacific 

Island Entities 61

Table 6: Department of Education Pell Grant Program 63

Table 7: Department of Health and Human Services Maternal and 

Child Health Block Grants Program 64

Table 8: U.S. Department of Agriculture Rural Housing Service 

Housing Loan Program 65

Table 9: U.S. Department of Agriculture Rural Utilities Services 

Telecommunications Loan Program 67

Table 10: U.S. Department of Agriculture Rural Utilities Services 

Electrical Loan Program 68

Table 11: Federal Emergency Management Agency Program/U.S. 

Agency for International Development 70

Table 12: U.S. Postal Service Program 72

Table 13: Federal Aviation Administration Program 74

Table 14: National Weather Service Program 75

Table 15: U.S. Funds to Be Provided to the RMI Related to Kwajalein 

Atoll under the Terms of the Amended Compact, 2004 

through 2023 77

Table 16: Sector Grant Allocations to the Five FSM Governments, 

2004 through 2006 78

Table 17: RMI Sector Grants, Including Kwajalein Funding, 2004 

through 2006 79
Contents

Page iii GAO-07-163 Compacts of Free Association

Table 18: Single Audit Act Report Submissions, 2001 through 

2005 82

Table 19: Financial Statement Audit Opinions for the RMI and the 

FSM, 2001 through 2005 84

Table 20: Numbers of FSM and RMI Material Weaknesses and 

Reportable Conditions in Internal Control over Financial 

Statement Reporting Identified in Single Audit Reports, 

2005 86

Table 21: Numbers of FSM and RMI Material Weaknesses and 

Reportable Conditions in Internal Control over 

Compliance with Requirements of Major Federal Programs 

Identified in Single Audit Reports, 2005 87

Table 22: Numbers of Material Weaknesses and Reportable 

Conditions Identified in Single Audit Reports for FSM 

National Government and States, 2001 through 2005 89

Table 23: Numbers of RMI Material Weaknesses and Reportable 

Conditions Identified in Single Audit Reports, 2001 through 

2005 91

Figures Figure 1: Location and Map of the Federated States of Micronesia 

and the Republic of the Marshall Islands 8

Figure 2: Amended Compact Implementation Framework 14

Figure 3: FSM Sector Grant Allocation, 2004 through 2006 23

Figure 4: RMI Sector Grant Allocation, 2004 through 2006 27
Contents

Page iv GAO-07-163 Compacts of Free Association

Abbreviations

FAC Federal Audit Clearinghouse

FSM Federated States of Micronesia

HHS Department of Health and Human Services

JEMCO Joint Economic Management Committee (FSM)

JEMFAC Joint Economic Management and Financial Accountability 

Committee (RMI)

KADA Kwajalein Atoll Development Authority

OCM Office of Compact Management (FSM)

OIA Office of Insular Affairs (Department of the Interior)

OMB Office of Management and Budget

RMI Republic of the Marshall Islands

SEG Supplemental Education Grant

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-07-163 Compacts of Free Association

United States Government Accountability Office

Washington, D.C. 20548

A

December 15, 2006 Letr

Congressional Committees

From 1987 through 2003,1 the United States provided $2.1 billion in 

economic assistance to the Federated States of Micronesia (FSM) and the 

Republic of the Marshall Islands (RMI) through a Compact of Free 

Association. In 2000, we reported that the U.S., FSM, and RMI governments 

had provided limited accountability over spending, and that U.S. assistance 

had resulted in little economic development in both countries.2

 In 2003, the 

U.S. government approved amended compacts with the FSM and the RMI.3

These compacts provide for a combined total of $3.6 billion for the two 

countries between 2004 and 2023,4

 with the Department of the Interior's 

(Interior) Office of Insular Affairs (OIA) responsible for administering and 

monitoring U.S. assistance.5

 U.S. grant funding will decrease annually, 

paired with increasing contributions to trust funds for the FSM and the 

RMI; earnings from the trust funds are intended to provide a source of 

revenue when the grants expire in 2023. The amended compacts identify 

the 20 years of grant assistance as intended to assist the FSM and RMI 

governments in their efforts to promote the economic advancement and 

budgetary self-reliance of their people. Recently we reported that both 

countries face obstacles to achieving these goals, including limited 

potential for long-term growth; limited progress in economic reforms; and

1

In this report, all annual references refer to the fiscal year rather than the calendar or 

school year, unless otherwise noted. 

2

GAO, Foreign Assistance: U.S. Funds to Two Micronesian Nations Had Little Impact on 

Economic Development, GAO/NSIAD-00-216 (Washington, D.C.: Sept. 22, 2000).

3

Whereas the original compact (approved in Pub. L. No. 99-239, Jan. 14, 1986) was one 

agreement among the U.S., FSM, and RMI governments, the amended compacts (approved 

in Pub. L. No. 108-188, Dec. 17, 2003) are separate agreements between the United States 

and each of the two countries. 

4

The $3.6 billion in assistance includes (1) compact grants; (2) trust fund contributions; (3) 

Kwajalein impact funding; (4) estimated values of compact-authorized federal services, such 

as weather, aviation, and postal services over the 20-year period; and (5) inflation 

adjustments. Services related to disaster relief have been excluded.

5

Administrative and monitoring responsibility for U.S. assistance to the FSM, the RMI, and 

the Republic of Palau is delegated to the Secretary of the Interior and carried out by OIA.
Page 2 GAO-07-163 Compacts of Free Association

significant dependence on public sector funding, which is largely 

supported by external assistance.6

The amended compacts require the countries to target funding to six 

sectors—education, health, the environment, public sector capacity 

building, private sector development, and infrastructure, with priority 

given to education and health. The amended compacts’ subsidiary fiscal 

procedures agreements7

 require the FSM and RMI governments to monitor 

the day-to-day operations of sector grants and activities, submit periodic 

performance reports and financial statements, and ensure annual financial 

and compliance audits. In addition, the compacts and fiscal procedures 

agreements require that the U.S. and FSM Joint Economic Management 

Committee (JEMCO) and the U.S. and RMI Joint Economic Management 

and Financial Accountability Committee (JEMFAC) meet at least once 

annually to evaluate the progress of the FSM and the RMI, respectively, in 

achieving the objectives specified in their development plans; approve 

grant allocations; review required annual reports; identify problems 

encountered; and recommend ways to increase the effectiveness of 

compact grant assistance.8

The amended compacts’ implementing legislation instructs GAO to report, 

for the 3 years following the enactment of the legislation and every 5 years 

thereafter, on the FSM’s and the RMI’s use and effectiveness of U.S. 

financial, program, and technical assistance as well as the effectiveness of

6

GAO, Compacts of Free Association: Development Prospects Remain Limited for 

Micronesia and the Marshall Islands, GAO-06-590 (Washington, D.C.: June 27, 2006).

7

These agreements contain detailed requirements concerning implementation of the 

amended compacts’ funding and accountability provisions. The U.S. fiscal procedures 

agreements with the FSM and the RMI are formally known as the “Agreement Concerning 

Procedures for the Implementation of United States Economic Assistance Provided in the 

Compact of Free Association, as amended, Between the Government of the United States of 

America and the Government of the Federated States of Micronesia” and the “Agreement 

Concerning Procedures for the Implementation of United States Economic Assistance 

Provided in the Compact, as amended, of Free Association Between the Government of the 

United States of America and the Government of the Republic of the Marshall Islands.” 

8

For our early assessment of implementation progress of the amended compacts, see GAO, 

Compacts of Free Association: Implementation of New Funding and Accountability 

Requirements Is Well Under Way, but Planning Challenges Remain, GAO-05-633

(Washington, D.C.: July 11, 2005). 
Page 3 GAO-07-163 Compacts of Free Association

administrative oversight by the United States.9 This report examines, for 

2004 through 2006, (1) the FSM’s and the RMI’s use of compact funds,

(2) FSM and RMI efforts to assess progress toward their stated 

development and sector goals, (3) FSM and RMI monitoring of sector 

grants and accountability for the use of compact funds, and (4) Interior’s 

administrative oversight of the assistance provided under the compacts. In 

addition, appendix II contains information about activities funded by key 

federal programs. A separate correspondence providing additional 

information about the FSM’s and the RMI’s use of compact funds in each of 

the six sectors is forthcoming.

To address our objectives, we reviewed the U.S., FSM, and RMI annual 

compact reports for 2004 and 2005; OIA grant documents for 2004 through 

2006; FSM and RMI strategic planning documents, performance budgets, 

and quarterly performance reports for 2004 and 2005, as available; and FSM 

and RMI single audits10 for 2001 through 2005. We observed 2005 and 2006 

JEMCO and JEMFAC meetings. In addition, we interviewed officials from 

Interior and the Departments of State, Health and Human Services (HHS), 

and Education. We also interviewed RMI officials and FSM national and 

state officials in the six sectors receiving compact funding and visited 

compact-funded facilities and activities in both countries. We determined 

that the grant, program, technical assistance, and performance data 

examined in this report are sufficiently reliable for our specific purposes. 

However, our interviews with FSM and RMI officials revealed important 

limitations in the financial and activity data in the countries’ performance 

reports. We conducted our work from October 2005 to December 2006 in 

accordance with generally accepted government auditing standards. (For 

additional details of our objectives, scope, and methodology, see app. I.)

Results in Brief In 2004 through 2006, the FSM and RMI governments’ allocations of 

compact grants prioritized the education and health sectors, as the 

compacts require, but the countries’ use of compact funds was constrained 

9

Pub. L. No. 108-188. The act requires us to report on political, social, and economic 

conditions in the FSM and the RMI; this information has been issued in GAO-06-590. We will 

be providing additional information on the trust funds in 2007. 

10The FSM and the RMI are required to conduct annual audits within the meaning of the 

Single Audit Act, as amended. The act, as amended, is codified in Chapter 75 of Title 31 of 

the United States Code. For the purposes of this report, we refer to the required annual 

audits as “single audits.”
Page 4 GAO-07-163 Compacts of Free Association

by several factors. Education, health, and infrastructure accounted for 34 

percent, 21 percent, and 25 percent, respectively, of the FSM’s compact 

funds and for 33 percent, 20 percent, and 40 percent of the RMI’s compact 

funds. In both countries, use of the funds was hampered by political factors 

and land use issues. In the FSM, disagreement among the national and state 

governments11 regarding project implementation and fund management 

delayed infrastructure projects, and the government’s inability to secure 

land leases hindered project implementation in Chuuk. In the RMI, political 

disagreements between the government and Kwajalein Atoll landowners 

over the management of compact fund distribution delayed the release of 

funds allocated for special needs on the island of Ebeye,12 and 

disagreements over land use prevented infrastructure projects in the 

Majuro and Kwajalein Atolls. Neither country has planned its allocation 

and use of funds for long-term sustainability in view of the planned annual 

decrements in grant funding13 and yearly inflation, for which the grants are 

only partially adjusted.14 Although representatives of both countries told us 

that increased tax revenues could replace declining compact funds, 

economic experts consider the countries’ business tax schemes to be 

inefficient. Furthermore, the FSM’s grant allocations have been distributed 

according to prescribed percentages rather than the states’ varying 

populations and needs.

Although the FSM and the RMI established mechanisms to measure grant 

performance in each sector, several factors inhibited the countries’ ability 

to assess progress toward stated goals. The FSM and the RMI each 

established development plans that contain goals and objectives for most 

sectors and are collecting data for performance indicators for education 

and health. However, incomplete or unreliable baseline data for some 

indicators limited both countries’ ability to measure progress toward sector 

goals. In addition, although both countries compiled the required quarterly 

11The FSM comprises the following four states: Chuuk, Kosrae, Pohnpei, and Yap.

12Kwajalein Atoll is the second most populated atoll in the RMI, where many residents were 

displaced within the atoll to provide space for U.S. missile testing. Many of these residents 

now reside on Ebeye Island.

13The decrement in grant funding is deposited into the FSM’s and the RMI’s trust funds. The 

RMI’s annual decrement of $500,000 began in 2004, and the FSM’s annual decrement of 

$800,000 began in 2007. 

14The compacts provide for a partial inflation adjustment of grant funding. Under the 

compacts’ implementing legislation, after 2014 the funding may be fully adjusted for 

inflation under certain U.S. inflation conditions. 
Page 5 GAO-07-163 Compacts of Free Association

performance reports, the reports have limited usefulness for assessing 

progress, owing to problematic formats in the FSM and to incomplete and 

inaccurate data on program activities in both countries. For example, 

although the RMI’s private sector development report for the fourth quarter 

of 2005 states that eight new businesses were created in 2005, officials from 

the Ministry of Resources and Development indicated that only four 

businesses had been started that year. A lack of capacity to collect, 

assemble, and analyze performance data also limited both countries’ ability 

to measure progress toward sector goals.

The FSM and RMI governments provided limited monitoring of sector grant 

operations, and their single audit reports—particularly those of the 

FSM—call into question the countries’ accountability for all compact 

funds. Although both governments designated offices responsible for 

compact management, these offices lack the capacity to conduct the 

required monitoring of day-to-day sector grant operations. The FSM’s 

Office of Compact Management (OCM), in particular, has not been fully 

staffed. In addition, both countries’ single audit reports contained findings 

and opinions that call into question the usefulness and reliability of their 

financial statements. Of the FSM’s national and state audit reports for 2004 

and 2005, only one state report showed no problems with financial 

statements. Furthermore, both countries’ audit reports contained findings 

of noncompliance with requirements of major U.S. programs—for 

example, the FSM’s 2005 reports contained 45 such findings, and the RMI’s 

2005 report contained 11. In 2006, the FSM and the RMI developed 

corrective action plans that address 60 percent and 100 percent, 

respectively, of the 2005 findings. 

OIA provided administrative oversight of the countries’ sector grants, but 

its oversight was hampered by several challenges. OIA monitored the 

countries’ sector grant performance, fiscal performance, and sector grant 

outlays and assessed the countries’ compliance with sector grant 

conditions. OIA’s efforts also included actions such as suspending or 

withholding grant payment in response to persistent shortcomings that it 

identified in the FSM. OIA’s administrative oversight of the compacts was 

constrained by the need to respond to persistent problems in the FSM as 

well as the office’s difficulty in filling staff positions. 

In this report, we recommend that the Secretary of the Interior direct the 

Deputy Assistant Secretary for Insular Affairs, as Chairman of JEMCO and 

JEMFAC, to work with the FSM and the RMI to undertake planning to 

minimize the impact of reduced future funding; fully develop mechanisms 
Page 6 GAO-07-163 Compacts of Free Association

for measuring sector grant performance; and improve the reliability of 

information used by the FSM, RMI, and U.S. governments to monitor the 

compacts. 

The Assistant Secretary of Policy, Management and Budget, Department of 

the Interior, provided written comments on a draft of this report, stating 

that the report was accurate, well balanced, and concurred with our 

recommendations (see app. VIII). The FSM also commented on a draft of 

the report, characterizing it as a balanced and fair assessment of its 

progress in planning for sustainability, measuring progress, and ensuring 

accountability. The FSM, however, defended its distribution formula for 

allocating compact funds to the national and state governments (see app. 

IX). The RMI government noted that its decisions, in light of budgeting 

constraints, to refrain from expanding ministry staffs has affected its 

capacity for performance monitoring and reporting; it also provided several 

comments regarding our discussion of the grant decrements (see app. X). 

In addition, the Departments of State, Education, and Health and Human 

Services provided technical comments, which we incorporated where 

appropriate.

Background U.S. relations with Micronesia and the Marshall Islands began during World 

War II, when the United States ended Japanese occupation of the region. 

The United States administered the region under a United Nations 

trusteeship beginning in 1947.15 The four states of the FSM voted in a 1978 

referendum to become an independent nation, while the Marshall Islands 

established its constitutional government and declared itself a republic in 

1979. Both locations remained subject to the authority of the United States 

under the trusteeship agreement until entry into force of the compact in 

1986.

The FSM is a loose federation of four states, and has a population of 

approximately 108,500,16 scattered over many small islands and atolls. The 

FSM states maintain considerable power, relative to the national 

government, to allocate U.S. assistance and implement budgetary policies. 

15The Department of the Navy began civil administration of these islands on July 18, 1947. 

This responsibility was transferred to Interior in July 1951. 

16Mark Sturton, Federated States of Micronesia: Fiscal Year 2005 Economic Review (June 

2006). 
Page 7 GAO-07-163 Compacts of Free Association

Chuuk, the largest state, has 50 percent of the FSM’s population, followed 

by Pohnpei (32 percent), Yap (11 percent), and Kosrae (7 percent). The RMI 

has a constitutional government, and its 29 constituent atolls have local 

government authority. About two-thirds of its approximately 56,00017

residents are in Majuro Atoll, the nation’s capital, and Kwajalein Atoll.18 The 

two countries are located just north of the equator in the Pacific Ocean. 

(See fig. 1.) 

17Mark Sturton, Republic of the Marshall Islands: Fiscal Year 2005 Economic Review (June 

2006). 

18Some Marshallese live under urban conditions: 1999 RMI census population density data 

show that part of Majuro Atoll has a greater density than New York City (2000), while the 

over 9,000 Marshallese who live on Ebeye Island in the Kwajalein Atoll, experience more 

than twice the population density of New York City (2000).
Page 8 GAO-07-163 Compacts of Free Association

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

Pacific 

Ocean

Guam

Hawaii

United

States

Republic of the 

Marshall Islands

Federated States

of Micronesia

China

Japan

Taiwan

Philippines

Indonesia Papua

New Guinea

Australia

Philippine 

Sea

equator

North 

Pacific 

Ocean

Enewetak Bikini

Kwajalein

Palikir,

Pohnpei

Kosrae

Chuuk

Yap

Philippine 

Sea

State of 

Yap

State of

Pohnpei

State of

Kosrae

State of

Chuuk

0 1000 miles

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

State boundary Political boundary Capital

Federated States of Micronesia

Republic of the

Marshall Islands

Majuro
Page 9 GAO-07-163 Compacts of Free Association

Compact of Free 

Association: 1986 through 

2003

The United States, the FSM, and the RMI entered into the original Compact 

of Free Association in 1986 after lengthy negotiations. The compact 

provided a framework for the United States and the two countries to work 

toward achieving the following three main goals: (1) secure 

self-government for the FSM and the RMI, (2) ensure certain national 

security rights for all of the parties, and (3) assist the FSM and the RMI in 

their efforts to advance economic development and self-sufficiency. The 

first and second goals were met; the FSM and the RMI are independent 

nations, and the three countries established key defense rights, including 

securing U.S. access to military facilities on Kwajalein Atoll in the RMI 

through 2016.19 The compact’s third goal was to be accomplished primarily 

through U.S. direct financial assistance to the FSM and the RMI. For the 

15-year period covering 1987 to 2001, funding was provided at levels that 

decreased every 5 years, with an extension for 2002 and 2003 during 

negotiations to renew expiring compact provisions. For 1987 through 2003, 

the FSM and the RMI are estimated to have received about $2.1 billion in 

compact financial assistance.20 As we previously reported,21 economic 

self-sufficiency was not achieved under the first compact. 

Under the original compact, the FSM and the RMI used funds for general 

government operations; capital projects, such as building roads and 

investing in businesses; debt payments; and targeted sectors, such as 

energy and communications. The FSM concentrated much of its spending 

on government activities, while the RMI emphasized capital spending. 

Compact funds to the FSM were divided among the FSM’s national 

government and four states, according to a distribution agreement first 

agreed to by the five governments in 1984. In 2000, we reported that 

compact funds spent on general government operations maintained high 

government wages and a high level of public sector employment, 

discouraging private sector growth, and that compact funds used to create 

and improve infrastructure likewise did not contribute to significant

19GAO, Foreign Relations: Kwajalein Atoll Is the Key U.S. Defense Interest in Two 

Micronesian Nations, GAO-02-119 (Washington, D.C.: Jan. 22, 2002). 

20This estimate represents total nominal outlays. It does not include payments for 

compact-authorized federal services or U.S. military use of Kwajalein Atoll land, nor does it 

include investment development funds provided under section 111 of Pub. L. No. 99-239. 

21GAO, Compact of Free Association: An Assessment of the Amended Compacts and 

Related Agreements, GAO-03-890T (Washington, D.C.: June 18, 2003).
Page 10 GAO-07-163 Compacts of Free Association

economic growth.22 Furthermore, many of the projects undertaken by the 

FSM and the RMI experienced problems because of poor planning and 

management, inadequate construction and maintenance, or misuse of 

funds. While the compact set out specific obligations for reporting and 

consultations regarding the use of compact funds, the FSM, RMI, and U.S. 

governments provided little accountability over compact expenditures and 

did not ensure that funds were spent effectively or efficiently. The “full 

faith and credit” provision made withholding funds impracticable. In 

addition, under the original compact, both nations also benefited from 

numerous U.S. federal programs, while citizens of both nations exercised 

their right under the compact to live and work in the United States as 

“nonimmigrants” and to stay for long periods of time.23

Amended Compacts of Free 

Association: 2004 through 

2023 

In 2003, the United States approved separate amended compacts with the 

FSM and the RMI that went into effect on June 25, 2004, and May 1, 2004, 

respectively.24 The amended compacts provide for direct financial 

assistance to the FSM and the RMI from 2004 to 2023, decreasing in most 

years, with the amount of the decrements to be deposited in the trust funds 

for the two nations established under the amended compacts25 (see table 

1). Moreover, the amended compacts require the FSM and the RMI to make 

one-time contributions of $30 million each to the trust funds, which both

22GAO/NSIAD-00-216.

23GAO, Foreign Assistance: Effectiveness and Accountability Problems Common in U.S. 

Programs to Assist Two Micronesian Nations, GAO-02-70 (Washington, D.C.: Jan. 22, 2002); 

and Foreign Relations: Migration From Micronesian Nations Has Had Significant 

Impact on Guam, Hawaii, and the Commonwealth of the Northern Mariana Islands, 

GAO-02-40 (Washington, D.C.: Oct. 5, 2001). “Nonimmigrants” is a status that typically 

signifies nonpermanent visitors, such as tourists or students.

24The amended compacts and related agreements addressed most of the recommendations 

that we had made in past reports. See GAO-03-890T.

25The amended compacts’ implementing legislation provides a continuing appropriation 

until 2023 for the financial assistance.
Page 11 GAO-07-163 Compacts of Free Association

countries have done.26 In addition, the RMI amended compact includes an 

agreement that allows the U.S. military access to certain sites in Kwajalein 

Atoll until 2086 and provides $15 million annually starting in 2004, rising to 

$18 million27 in 2014, to compensate for any impacts of the U.S. military on 

the atoll.28

Table 1: U.S. Assistance to Be Provided to the FSM and the RMI under the Amended Compacts, 2004 through 2023 

26Other donors are allowed to contribute to the trust funds as well. Taiwan has committed to 

providing $50 million to the RMI’s trust fund; the FSM has no other benefactor. While the 

United States, the FSM, and the RMI worked to set up trust fund procedures and policies, 

and engage money managers and trustees, the funds were deposited into bank accounts. 

Initial investments of the FSM and the RMI trust funds did not occur until August 2006 and 

September 30, 2005, respectively. 

27In 2014, the annual payment will be either $18 million (not adjusted for inflation) or the 

2013 amount with an inflation adjustment, whichever is greater.

28However, the RMI government has not reached an agreement with the Kwajalein 

landowners to extend their current land use agreement. Currently, the RMI continues to 

compensate the landowners under a 1982 agreement that has been extended to 2016, with 

an annual payment of $11.4 million (as of 2004). Per the requirements of the compacts’ 

implementing legislation, in the absence of a new or amended land use agreement reflecting 

the terms of the amended U.S.-RMI compact subsidiary agreement, the additional funds are 

accumulating in an RMI government escrow account. Accordingly, if a new or amended land 

use agreement is not concluded within 5 years after the enactment of the U.S. implementing 

legislation, the funds and interest earned are to be returned to the U.S. Treasury, unless the 

RMI and the United States mutually agree otherwise. (The legislation was enacted on Dec. 

17, 2003.) 

Dollars in millions

Fiscal 

year

FSM grants 

(Section 211)

FSM trust fund

(Section 215)

RMI grants

(Section 211)

RMI trust fund

(Section 216)

Kwajalein Impact

(Section 212)a

2004 $76.2 $16.0 $35.2 $7.0 $15.0

2005 76.2 16.0 34.7 7.5 15.0

2006 76.2 16.0 34.2 8.0 15.0

2007 75.4 16.8 33.7 8.5 15.0

2008 74.6 17.6 33.2 9.0 15.0

2009 73.8 18.4 32.7 9.5 15.0

2010 73.0 19.2 32.2 10.0 15.0

2011 72.2 20.0 31.7 10.5 15.0

2012 71.4 20.8 31.2 11.0 15.0

2013 70.6 21.6 30.7 11.5 15.0
Page 12 GAO-07-163 Compacts of Free Association

Source: Pub. L. No. 108-188. 

Notes: 

Within both the FSM and the RMI annual grant amounts include $200,000 to be provided directly by 

the Secretary of the Interior to the Department of Homeland Security, Federal Emergency 

Management Agency, for disaster, and emergency assistance purposes. The grant amounts do not 

include the annual audit grant, capped at $500,000 that will be provided to both countries. 

These dollar amounts shall be adjusted each fiscal year for inflation by the percentage that equals 

two-thirds of the percentage change in the U.S. gross domestic product implicit price deflator, or 5 

percent, whichever is less in any one year, using the beginning of 2004 as a base. Grant funding can 

be fully adjusted for inflation after 2014, under certain U.S. inflation conditions.

a

“Kwajalein Impact” funding is provided to the RMI government, which in turn compensates Kwajalein 

Atoll landowners for U.S. access to the atoll for military purposes. 

The amended compacts and fiscal procedures agreements require that 

grant funding be targeted to support the countries, in six defined sectors, 

with the following general objectives:

• Education: Advance the quality of the basic education system.

• Health: Support and improve the delivery of preventative, curative, and 

environmental care.

• Environment: Increase environmental protection and engage in 

environmental infrastructure planning.

• Public sector capacity building: Build effective, accountable, and 

transparent national, state (in the FSM), and local government and other 

public sector institutions and systems.

2014 69.8 22.4 32.2 12.0 18.0

2015 69.0 23.2 31.7 12.5 18.0

2016 68.2 24.0 31.2 13.0 18.0

2017 67.4 24.8 30.7 13.5 18.0

2018 66.6 25.6 30.2 14.0 18.0

2019 65.8 26.4 29.7 14.5 18.0

2020 65.0 27.2 29.2 15.0 18.0

2021 64.2 28.0 28.7 15.5 18.0

2022 63.4 28.8 28.2 16.0 18.0

2023 62.6 29.6 27.7 16.5 18.0

(Continued From Previous Page)

Dollars in millions

Fiscal 

year

FSM grants 

(Section 211)

FSM trust fund

(Section 215)

RMI grants

(Section 211)

RMI trust fund

(Section 216)

Kwajalein Impact

(Section 212)a
Page 13 GAO-07-163 Compacts of Free Association

• Private sector development: Attract foreign investment and increase 

indigenous business activity.

• Infrastructure: Provide adequate public infrastructure, prioritizing 

primary and secondary education capital projects and projects that 

directly affect health and safety, with 5 percent dedicated to 

maintenance.29

The RMI must also target grant funding to Ebeye and other Marshallese 

communities within Kwajalein Atoll: $3.1 million annually for 2004 through 

2013 and $5.1 million annually for 2014 through 2023. In addition, $1.9 

million is provided from annual grant funds to address special needs within 

Kwajalein Atoll, with emphasis on the Kwajalein landowners. Other funds 

are provided to the RMI government related to U.S. use of the atoll for 

military purposes. (See app. III for Kwajalein-related compact funding 

provisions.)

Implementation Framework Under the amended compacts and according to the fiscal procedures 

agreements, annual assistance for the six sectors in the FSM and the RMI is 

to be made available in accordance with an implementation framework 

with several components. Prior to the annual awarding of compact funds, 

the countries must submit development plans that identify goals and 

performance objectives for each sector. In addition, the countries must 

submit a budget for each sector that aligns with its development plan. The 

joint management and accountability committees for each country are to 

approve annual sector grants and, subsequent to the awards, evaluate 

sector management and progress. Finally, for each sector, the FSM and the 

RMI are to prepare quarterly financial and performance reports to serve as 

a mechanism for tracking progress against goals and objectives and 

monitoring performance and accountability. Figure 2 shows the amended 

compact implementation framework. 

29In the compacts’ implementing legislation, Congress also suggested that the FSM allocate 

at least 30 percent of its total sector grant allocation toward infrastructure improvement and 

maintenance. The RMI compact requires its infrastructure grant to be 30 to 50 percent of its 

total annual sector grants. Regarding the use of those funds, the fiscal procedures 

agreements further prioritized the use of those funds specifically toward primary and 

secondary education capital projects and projects that affect health and safety, including 

water and wastewater projects.
Page 14 GAO-07-163 Compacts of Free Association

Figure 2: Amended Compact Implementation Framework

Note: This figure does not list all of the compact or fiscal procedures agreements requirements.

Sources: Pub. L. No. 108-188 and the subsidiary fiscal procedures agreements. 

Postaward requirements

FSM and RMI grant management

U.S. grant administration

• Evaluate quarterly and annual performance and financial reports to 

determine work progress, outcomes, and compliance with grant 

terms and conditions

• Use quarterly financial reports to monitor the general budget and 

fiscal performance of the governments, and to monitor sector grant 

outlays

• Make site visits as warranted

• Under certain situations, may impose special conditions or 

restrictions, including:

 – Make payments on a reimbursable basis

 – Require additional, more frequent, or detailed financial reporting

 – Provide for additional project monitoring

 – Require acquisition of technical or management assistance

 – Temporarily withhold cash payments or wholly or partly suspend 

 or terminate the current award

Financial

administration

• Maintain fiscal control 

and accounting 

procedures

• Issue quarterly financial 

reports to be used to:

– Monitor general 

budget and fiscal 

performance

– Monitor sector outlays

• Meet procurement and 

real property 

requirements

• Complete financial and 

compliance audits

• Submit annual financial 

report to the United 

States for each sector

Program monitoring

• Monitor to ensure the achievement 

of performance goals

• Issue uniform quarterly sector 

performance reports that: 

– Compare actual accomplishments to 

the objectives and indicators

– Identify positive events that accelerate 

performance outcomes and problems

encountered and their impact on grant 

activities and performance measures

• Manage and monitor day-to-day 

operations to ensure compliance with 

grant conditions

• Submit annual report to the U.S. 

President on use of grant assistance and 

other U.S. assistance and progress in 

meeting program and economic goals

Preaward requirements

Country development plan

• Promote economic advancement and budgetary self-reliance

• Be strategic in nature, multiyear, and continually updated

• Identify sector goals and objectives

Annual sector grant budget

• FSM/RMI propose grant budgets for each sector that includes provisions

such as:

 – Expenditures, performance goals, and specific performance indicators

 – Breakdown of personnel expenditures and other costs

 – Information on U.S. federal programs and other donors

• United States evaluates the proposed sector grant budgets for:

 – Consistency with funding requirements in the compacts and related

agreements

 – Appropriateness of performance objectives and indicators

 – Adequacy of expenditures in achieving stated purposes

• United States and the FSM/RMI consult regarding the proposed budget, 

discussing any need for special terms and conditions or adjustment to 

the annual grant budgets

Joint management and accountability committees

• Evaluate progress and management problems in each sector and 

identify ways to improve the effectiveness of U.S. assistance

• Review audits called for in the compacts and review country annual 

progress reports

• Consult with other donors and U.S. program providers to coordinate the 

use of development assistance

• Receive and review proposed sector budgets and development plans: 

– Establish special grant terms and conditions to improve program

 performance and fiscal accountability, and ensure progress toward

 macroeconomic goals

 – Approve sector grant allocations and performance objectives

 (The United States awards grants)
Page 15 GAO-07-163 Compacts of Free Association

Country Development Plan

Both countries are to develop multiyear development plans that are 

strategic in nature and continuously reviewed and updated through the 

annual budget process and that address the assistance for the defined 

sectors.30 The plans are to identify how the countries will use compact 

funds to promote broad compact development goals such as economic 

advancement and budgetary self-reliance. The plans are also to identify 

goals and objectives for each sector. 

Annual Sector Grant Budget

In addition, through the annual budget process, the FSM and the RMI are to 

prepare annual sector grant budget proposals that are based on the 

development plans, including performance goals and indicators. U.S. 

officials are to evaluate the sector budget proposals each year to ensure 

that they are consistent with compact requirements and have the 

appropriate objectives and indicators and that the expenditures are 

adequate to achieve their stated purposes. Budget consultations between 

the governments are to take place regarding the sector proposals. 

Joint Management and Accountability Committees 

JEMCO and JEMFAC—jointly established by the United States and, 

respectively, the FSM and the RMI—are to strengthen management and 

accountability and promote the effective use of compact funding. Each 

five-member committee comprises three representatives from the United 

States and two representatives from the country.31 JEMCO’s and JEMFAC’s 

designated roles and responsibilities include

• reviewing the budgeting and development plans from each of the 

governments; 

30The FSM’s development plan is called the Strategic Development Plan. The RMI’s 

development plan consists of three documents: Vision 2018, Meto 2000, and its Medium 

Term Budget and Investment Framework. In addition, the annual portfolio submissions 

include strategic goals and indicators for each of the sectors. We refer collectively to all 

these of these RMI documents as the development plan. 

31The three U.S. representatives to JEMCO and JEMFAC include one official each from 

Interior, State, and HHS, with the Interior representative serving as Chairman. A revision, 

under preparation since 2003, to a 1986 executive order, outlining specific responsibilities of 

the U.S. agencies regarding compact matters had not been issued as of October 2006. 
Page 16 GAO-07-163 Compacts of Free Association

• approving grant allocations and performance objectives;32

• attaching terms and conditions to any or all annual grant awards to 

improve program performance and fiscal accountability; 

• evaluating progress, management problems, and any shifts in priorities 

in each sector; and

• reviewing audits called for in the compacts.

The FSM, the RMI, and the United States are required to provide the 

necessary staff support to their representatives on the committee to enable 

the parties “to monitor closely the use of assistance under the Compacts.”

FSM and RMI Grant Management 

The FSM and the RMI are responsible for grant management, including 

managing and monitoring the day-to-day operations and financial 

administration of each sector. 

• Program monitoring. The FSM and RMI governments are to manage 

the sector and supplemental education grants and monitor day-to-day 

operations to ensure compliance with grant terms and conditions. 

Monitoring also is required to ensure the achievement of performance 

goals. The governments are to report quarterly to the United States, 

using a uniform format that includes

• a comparison of actual accomplishments to the objectives and 

indicators established for the period; 

• any positive events that accelerate performance outcomes; 

• any problems or issues encountered, reasons, and impact on grant 

activities and performance measures; and 

• additional pertinent information, including, when appropriate, an 

analysis and explanation of cost overruns.

32JEMCO and JEMFAC render decisions by majority vote, except those decisions regarding 

the division of RMI grants among sectors, which are made by consensus.
Page 17 GAO-07-163 Compacts of Free Association

In addition, the FSM and the RMI must annually report to the U.S. 

President on the use of U.S. grant assistance and other U.S. assistance 

provided during the prior fiscal year, and must also report on their 

progress in meeting program and economic goals.

• Financial administration. The FSM and the RMI must adhere to 

specific fiscal control and accounting procedures. The fiscal procedures 

agreements state that the countries’ financial management systems 

must meet several standards addressing financial reporting, accounting 

records, internal and budget controls, allowable cost, cash management, 

and source documentation. The systems must also specify applicable 

procedures regarding real property, equipment, and procurement. 

Quarterly financial reports are to be provided to the United States and 

used to monitor the (1) general budget and fiscal performance of the 

FSM and the RMI and (2) disbursement or outlay information for each 

sector grant.

In addition, the FSM and the RMI are required to submit annual audit 

reports, within the meaning of the Single Audit Act as amended.33

According to the act, single audit reports are due within 9 months after 

the end of the audited period.34 Single audits are focused on recipients’ 

internal controls over financial reporting and compliance with laws and 

regulations governing U.S. federal awardees. Single audits also provide 

key information about the federal grantee’s financial management and 

reporting. A single audit report includes

• the auditor’s opinion (or disclaimer of opinion, as appropriate) 

regarding whether the financial statements are presented fairly in all 

material respects in conformity with generally accepted accounting 

33For the purposes of this report, our definition of a “single audit” is financial and 

compliance audits within the meaning of the Single Audit Act, as amended. (See chapter 75 

of Title 31 of the U.S.C. § 7501 et seq.) Office of Management and Budget Circular A-133, 

Audits of States, Local Governments, and Non-Profit Organizations, provides audit 

requirements for audits of nonfederal entities expending over a certain amount of federal 

awards. The due date for audits can be extended by federal agencies. While the compacts do 

not reference these policies, U.S. agencies that have programs in the FSM and the RMI 

would implement these policies with respect to single audits related to federal programs.

34The fiscal procedures agreements state that the single audits are to be completed no later 

than 6 months after the end of the fiscal year (by Apr. 1)—a period that is generally 3 months 

shorter than that specified in the Single Audit Act, as amended. However, OIA considers the 

6-month requirement in the fiscal procedures agreements to be an error and is allowing the 

FSM and the RMI 9 months to complete their audits. 
Page 18 GAO-07-163 Compacts of Free Association

principles, and findings about the internal controls related to 

financial statements;

• the entity’s audited financial reporting;

• the schedule of expenditures of federal awards and the auditor’s 

report on the schedule;

• the auditor’s opinion (or disclaimer of opinion) regarding whether 

the auditee complied with the laws, regulations, and provisions of 

contracts and grant agreements (such as the compact), which could 

have a direct and material effect on each major federal program, as 

well as findings on internal controls related to federal programs; 

• a summary of findings and questioned costs for the federal program; 

and

• corrective action plans for findings identified for the current year as 

well as unresolved findings from prior fiscal years.35

U.S. Grant Administration

The United States is responsible under the fiscal procedures agreements 

for using the performance and financial reports to monitor, respectively, 

the countries’ sector grant performance and their budget and fiscal 

performance. Also, U.S. officials are responsible for monitoring compliance 

with grant terms and conditions, including any special grant conditions. If 

problems are found in areas such as the monitoring of sector grants or a 

lack of compliance with grant terms, the United States may impose special 

conditions or restrictions, including requiring the acquisition of technical 

or management assistance, requiring additional reporting and monitoring, 

or withholding funds. 

Under the implementing legislation, the U.S. President is required to report 

annually to Congress on the use and effectiveness of U.S. assistance. The 

President’s report also is to include an assessment of U.S. program and 

35The Single Audit Act requires that recipients submit their single audit report packages to 

the Federal Audit Clearinghouse. While the fiscal procedures agreements do not address the 

filing requirement, OIA is using the date of complete filing with the clearinghouse to 

determine when the country completes the audit process.
Page 19 GAO-07-163 Compacts of Free Association

technical assistance provided to the countries and an evaluation of their 

economic conditions. 

According to federal policy implementing the Single Audit Act,36 U.S. 

agencies may take actions regarding late audits to ensure that award 

recipients address audit findings contained in single audit reports. 

According to the grants management common rule, awarding agencies may 

issue a high-risk designation to grant recipients if single audits reveal 

substantial and pervasive problems.37

Compact Management Units In addition to establishing the joint management and accountability 

committees, each of the three countries has designated units that are 

responsible for compact administration. 

• United States. OIA has responsibility for U.S. management and 

oversight of the FSM and RMI sector and supplemental education 

grants. OIA’s Honolulu field office38 has four professional staff— 

specialists in health, education, infrastructure, and financial 

management—who perform various activities, such as

• analyzing FSM and RMI budgets and required reports; 

• reviewing expenditures and performance with FSM and RMI 

government officials and conducting site visits;

• providing briefings and advice to OIA, HHS, and State officials 

regarding progress and problems; 

36Office of Management and Budget Circular A-133, Audits of States, Local Governments, 

and Non-Profit Organizations.

37According to the grants management common rule, a high-risk designation is authorized if 

a grantee has a history of unsatisfactory performance or otherwise irresponsible actions, 

such as failing to submit single audit reports in a timely manner or if single audits or other 

Inspector General investigations reveal substantial and pervasive problems. Such a 

designation allows the grantor to impose special terms and conditions or sanctions that 

could result in suspensions or terminations of federal awards. The grants management 

common rule was established in 1987 under presidential direction to adopt governmentwide 

terms and conditions for grants to state and local governments. Each federal department 

incorporates the rule in its agency regulations. 

38OIA has two additional staff located in the FSM and the RMI, one in Pohnpei and the other 

in Majuro, who are funded by, and considered part of, the Honolulu office. These staff 

provide on-the-ground monitoring and grants management follow-up. 
Page 20 GAO-07-163 Compacts of Free Association

• providing support for JEMCO and JEMFAC meetings; 

• monitoring the countries’ compliance with grant terms and 

conditions; and

• withholding funds from the countries for noncompliance with 

requirements such as those expressed in the fiscal procedures 

agreements or in grant conditions (such remedies did not exist in the 

previous compact). 

• FSM. In 2005, the FSM established its Compact Management Board and 

OCM. The board consists of seven members: two FSM national 

government appointees, a member appointed by each state, and the 

head of OCM. The board is responsible for actions such as formulating 

guidelines for FSM JEMCO members and providing oversight of 

compact implementation, including conducting investigations to ensure 

compliance with all terms of the compact. OCM, which has five staff 

members, is principally responsible for daily communications with 

JEMCO and the United States regarding JEMCO and compact matters. 

OCM is expected to undertake various actions, such as visiting the FSM 

states, to monitor compliance with compact terms.

• RMI. The RMI government identified the Office of the Chief Secretary as 

the official point of contact for all communication and correspondence 

with the U.S. government concerning compact sector grant assistance. 

Among the Chief Secretary’s responsibilities are providing oversight 

management and monitoring of sector grants and activities and 

coordination. Its role is supported by the Economic Policy, Planning, 

and Statistics Office, which works with the ministries receiving grants to 

prepare the annual budget proposals; quarterly reports, including 

developing performance indicators; and annual monitoring and 

evaluation reports. The ministries conduct day-to-day oversight. 

Supplemental Education 

Grant 

In addition to receiving compact sector grants, the FSM and the RMI are 

eligible for a Supplemental Education Grant (SEG). The amended 

compacts’ implementing legislation authorized appropriations beginning in 

2005 to the Secretary of Education to supplement the education grants 

under the amended compacts. The SEG is awarded in place of grant 

assistance formerly awarded to the countries under several U.S. education,
Page 21 GAO-07-163 Compacts of Free Association

health, and labor programs.39 Under the fiscal procedures agreements, SEG 

funds are to be used to support “direct educational services at the local 

school level focused on school readiness, early childhood education, 

primary and secondary education, vocational training, adult and family 

literacy, and the smooth transition of students from high school to 

postsecondary educational pursuits or rewarding career endeavors.” 

Funding for the SEG is appropriated to a Department of Education account 

and transferred to an Interior account for disbursement, with Interior 

responsible for ensuring that the use, administration, and monitoring of 

SEG funds are in accordance with a memorandum of agreement among the 

Departments of Education, HHS, Labor, and the Interior as well as with the 

fiscal procedures agreements. The U.S. appointees to JEMCO and JEMFAC 

are required by the compacts’ implementing legislation to “consult with the 

Secretary of Education regarding the objectives, use, and monitoring of 

United States financial, program, and technical assistance made available 

for educational purposes.” JEMCO and JEMFAC are responsible for 

approving the SEG grants annually.40

39The SEGs are awarded in place of grants formerly awarded to the FSM and the RMI under 

Part A of title I of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 6311 et 

seq.); title I of the Workforce Investment Act of 1998 (29 U.S.C. 2801 et seq.), other than 

subtitle C of that act (29 U.S.C. 2881 et seq.) (Job Corps); title II of the Workforce 

Investment Act of 1998 (20 U.S.C. 9201 et seq.; commonly known as the Adult Education and 

Family Literacy Act); title I of the Carl D. Perkins Vocational and Technical Education Act of 

1998 (20 U.S.C. 2321 et seq.); the Head Start Act (42 U.S.C. 9831 et seq.); and subpart 3 of 

Part A, and part C, of title IV of the Higher Education Act of 1965 (20 U.S.C. 1070b et seq., 42 

U.S.C. 2751 et seq.), according to Pub. L. No. 108-188.

40SEG funding is appropriated annually. The provision authorizing the SEG in the amended 

compacts’ implementing legislation authorizes to be appropriated to the Secretary of 

Education an annual amount adjusted for inflation (partial) through 2023. A memorandum 

of agreement among Interior, Education, HHS, and Labor states that Education “shall seek 

the annual appropriation of funds for the SEGs, including adjustments for inflation, as 

described in Section 105(f)(1)(B)(iii) of Pub. L. No. 108-188.”
Page 22 GAO-07-163 Compacts of Free Association

Compact Grants 

Targeted 

Infrastructure, 

Education, and Health, 

but Various Issues 

Constrained Countries’ 

Use of Funds

JEMCO and JEMFAC approved allocations of compact grants primarily to 

the infrastructure, education, and health sectors. The FSM and the RMI 

also both received a new SEG, meant to support the goals and objectives in 

the education sector development plans. However, the countries’ use of 

compact funds has been limited by several factors, including delays in 

implementing infrastructure projects in the FSM and ongoing land use 

disputes with RMI landowners on both Majuro and Kwajalein. In addition, 

neither country has planned for the scheduled annual decrements in 

compact funding, and the FSM has not undertaken local needs assessments 

to target funds. 

Compact Funding 

Allocation in the FSM

The three largest FSM sectors—education, infrastructure, and 

health—accounted for almost 85 percent of the compact sector grant 

allocations in 2006. Of this total, education funding represented 33 percent; 

infrastructure represented 31 percent, up from 23 percent in 2004; and 

health represented 21 percent. The other three sectors—public sector 

capacity building, private sector development, and the 

environment—together accounted for less than 20 percent of the FSM’s 

compact funding in 2006. Figure 3 shows the FSM sector grant allocations 

for 2004 through 2006. (See app. IV for a breakout of compact funding, by 

FSM state.)
Page 23 GAO-07-163 Compacts of Free Association

Figure 3: FSM Sector Grant Allocation, 2004 through 2006

Note: SEG funds, which started in 2005, are not included in these amounts. Additionally, in cases 

where funds were unspent and deobligated in one fiscal year, and reobligated in a subsequent fiscal 

year, we included the funds only in the fiscal year in which they were initially obligated. 

In general, the funds allocated for each sector were used as follows:

• Education. JEMCO approved allocations for the education sector 

amounting to $79 million, or 34 percent of compact funds in 2004 

through 2006. U.S. assistance is the main source of revenue for the FSM 

education system. At the FSM national government level, compact 

funding supports, among other things, the College of Micronesia, the 

development of national education standards, the national standardized 

testing program, and the college admissions test. At the state level, the 

funding is principally targeted to primary and secondary education. 

Compact funding levels vary among the FSM states, with Chuuk 

receiving the least funding per student (approximately $500) and Yap 

receiving the most (approximately $1,300). The difference in the funding 

levels for these two states is directly reflected in student-to-teacher 

ratios, with Chuuk having a higher student-to-teacher ratio (19:1) than 

Yap (8:1). Overall, we found the condition of school facilities and the 

adequacy of their supplies and equipment to be poorer in Chuuk than in 

the other FSM states. The FSM is making efforts to improve teacher 

Source: GAO analysis of FSM fiscal years 2004 through 2006 sector grant agreements.

Education, $26.0

34%

23%

20%

15%

Infrastructure, $17.1

Public sector, $11.7

Fiscal year 2004 

Dollars in millions

Total sector grant allocation = $76.0 Total sector grant allocation = $79.2

Largest sectors

Total sector grant allocation = $76.0

Fiscal year 2005 Fiscal year 2006 

5%

Private sector, $3.8

3%

Environment, $2.0

Health, $15.4

Education, $27.1

36%

23%

23%

10%

Infrastructure, $17.2

Public sector, $7.8

5%

Private sector, $4.0

5%

Private sector, $4.0

3%

Environment, $2.4

Health, $17.4

Education, $26.1

33%

31%

21%

8%

Infrastructure, $24.3

Public sector, $6.2

3%

Environment, $2.1

Health, $16.4
Page 24 GAO-07-163 Compacts of Free Association

qualifications through a grant from Education. Despite some progress, 

FSM educational outcomes remain poor. For example, according to an 

official from the FSM’s Department of Health, Education, and Social 

Affairs, graduates of FSM high schools often are not qualified to take 

college-level courses. 

• Health. JEMCO approved allocations amounting to $49 million, or 21 

percent of compact funds in 2004 through 2006, for health care activities 

such as medical and nursing services, dispensary services, and public 

health services. According to health officials in Chuuk and Pohnpei, 

funding under the amended compact provided for increased budgets for 

pharmaceuticals and supplies. However, a 2005 FSM Department of 

Health, Education, and Social Affairs assessment of primary care 

reported that most facilities lacked an appropriate range and quantity of 

medicine and supplies in each of the four FSM states. We found that 

each of the states’ hospitals and primary care facilities lacked some or 

all of the following: maintenance, adequately trained staff, functional 

equipment, and medical and pharmaceutical supplies. In addition, health 

sector allocations varied considerably across the four FSM state 

governments. For example, in 2006 Yap received more than twice as 

much health sector funding per person as Chuuk. During our site visits, 

we observed that Chuuk’s hospital and primary care facilities were in 

the poorest condition of the four states’ facilities. 

• Infrastructure. JEMCO approved allocations amounting to $58.7 

million, or 25 percent of compact funds in 2004 through 2006, to 

infrastructure. However, the FSM’s allocation of funds for 2004 and 2005 

did not meet the recommendation in the compact’s implementing 

legislation, which stated that it was the sense of Congress that not less 

than 30 percent of annual compact sector grant assistance should be 

invested in infrastructure. In addition, the FSM has not completed any 

infrastructure projects. As of November 2006, OIA had approved 14 of 

the FSM’s priority projects, including several schools, a wastewater 

treatment facility, power and water distribution systems, and road and 

airport improvements. However, construction on these projects had not 

begun. Furthermore, according to an OIA official, the FSM had not met a 

compact requirement to establish and fund an infrastructure 

maintenance fund.

• Public sector capacity building. JEMCO approved allocations for 

public sector capacity building amounting to $25.6 million, or 11 percent 

of compact funding in 2004 through 2006. About 12 percent of these 
Page 25 GAO-07-163 Compacts of Free Association

funds supported the operations of the public auditors’ offices in three of 

the four states and the FSM national government. OIA found that this 

use of the funds met the grant’s purpose. However, according to OIA, 

most of the remaining funds were to be used to support basic 

government operations, rather than for the grant’s intended purpose of 

developing the internal expertise needed to build an effective, 

accountable, and transparent government. In 2004, JEMCO required that 

the FSM develop a plan to eliminate funding for such nonconforming 

purposes by 2009. The FSM submitted a plan to OIA that illustrates an 

annual reduction of such funding, but the plan does not detail how the 

nonconforming activities, such as those supporting public safety and the 

judiciary, will otherwise be funded. FSM officials told us that they plan 

to replace capacity-building funds in part with local monies. However, 

recent tax revenues have largely stagnated despite some 

improvements.41

• Private sector development. JEMCO approved private sector allocations 

amounting to $10.2 million, or 5 percent of compact funding in 2004 

through 2006. These funds supported more than 38 different offices 

throughout the FSM—including visitor bureaus, land management 

offices, and marine and agriculture departments—and economic 

development and foreign investment activities.

• Environment. JEMCO approved allocations for the environment 

amounting to $6.6 million, or 3 percent of compact funding in 2004 

through 2006. These funds supported 21 offices throughout the four 

states and the FSM national government, including offices responsible 

for environmental protection, marine conservation, forestry, historic 

preservation, public works, and solid waste management. 

In addition to receiving compact sector funding, the FSM education sector 

also received $24 million in SEG funds in 2005 and 2006.42 However,

41GAO-06-590.

42The FSM received $12,083,360 in SEG funds for 2005, and $12,059,401 for 2006. The 2006 

SEG, which was awarded in September 2006, was not adjusted for inflation and was subject 

to a federal budget rescission.
Page 26 GAO-07-163 Compacts of Free Association

SEG funding was “off cycle”43 in both years. As a result, according to 

Interior, the FSM did not receive its 2005 SEG funding until October 2005 

and did not receive its 2006 SEG funding until September 2006, near the 

end of each fiscal year. In Chuuk and Pohnpei, SEG funding mainly 

supported early childhood education, while in Yap and Kosrae, the largest 

portion of SEG funding went to school improvement projects that provided 

supplemental instructional services, such as after-school tutoring and 

professional development programs. The SEG funding also supported 

vocational training, skills training, and staff development. In addition, the 

FSM national government received some SEG funding for monitoring, 

coordination, technical assistance, and research. The College of Micronesia 

received SEG funds for financial aid for students and for training students 

to be teachers through the teacher corps. 

Compact Funding 

Allocation in the RMI

The three largest RMI sectors—infrastructure, education, and 

health—accounted for 92 percent of the compact sector grant allocations 

in 2006. Infrastructure received approximately 40 percent of the funding 

between 2004 and 2006, while education received approximately 33 percent 

and health received approximately 20 percent. Funding was also allocated 

for Ebeye special needs; however, only a small portion had been expended 

as of August 2006. As in the FSM, public sector capacity building, private 

sector development, and the environment received the least compact 

funding, totaling less than 4 percent between 2004 and 2006. Figure 4 shows 

the sector grant allocations for the RMI for 2004 through 2006. (See app. IV 

for a breakout of compact funding, by RMI sector grants.)

43Off-cycle funds are those not received at the beginning of the fiscal year for which they 

were appropriated. Because the FSM did not receive SEG funds until the end of the fiscal 

year, domestic funding was used to cover the SEG cost. The delayed SEG funds were used 

to reimburse the expenses that had been incurred. 
Page 27 GAO-07-163 Compacts of Free Association

Figure 4: RMI Sector Grant Allocation, 2004 through 2006 

Note: SEG funds, which started in 2005, are not included in these amounts. In cases where funds 

were unspent and deobligated in one fiscal year, and reobligated in a subsequent fiscal year, we 

included the funds only in the fiscal year in which they were initially obligated. In 2006, the special 

needs grant to Ebeye for the first time consolidated amounts provided to Ebeye across the other 

sectors. In this figure, these amounts are included in the other sector allocations for consistency.

• Education. JEMFAC approved allocations for the education sector 

amounting to $34.2 million, or 33 percent of compact funds in 2004 

through 2006. These funds have primarily supported the operations of 

the primary and secondary schools, providing approximately $800 per 

student annually. In addition, compact education funding has supported 

the National Scholarship Board and the College of Marshall Islands. 

Furthermore, some 2004 through 2006 funding was designated 

specifically for Ebeye’s schools. The quality of school facilities varies 

widely in the RMI. Although new classrooms were built with 

infrastructure funds, we found that many existing classrooms remained 

in poor condition. For example, in several Marshall Island High School 

classrooms, ceilings had fallen in, making the classrooms too dangerous 

to use. The RMI is making efforts to improve teacher qualifications 

through a grant from Education. However, although improved 

educational outcomes is a compact priority, standardized test scores 

show that RMI educational outcomes remain poor. Moreover, according 

Source: GAO analysis of RMI fiscal years 2004 through 2006 sector grant agreements.

Fiscal year 2004 

Dollars in millions

Total sector grant allocation = $35.0 Total sector grant allocation = $34.9

Largest sectors

Total sector grant allocation = $35.0

Fiscal year 2005 Fiscal year 2006 

Education, $10.7

31%

42% 20%

Infrastructure, $14.7

5%

Special needs (Ebeye), 

$1.9

6%

Special needs (Ebeye), 

$2.0

5%

Special needs (Ebeye

$1.9

2%

Environment, private 

and public sectors

combined, $0.8

Health, $6.9

Education, $11.6

33%

39% 20%

Infrastructure, $13.5

2%

Environment, private 

and public sectors

combined, $0.9

3%

Environment, private 

and public sectors

combined, $0.9

Health, $7.1

Education, $11.9

34%

39% 19%

Infrastructure, $13.5

Health, $6.7
Page 28 GAO-07-163 Compacts of Free Association

to the College of the Marshall Islands, graduates of RMI high schools 

often are not qualified to take college-level courses.

• Health. JEMFAC approved allocations amounting to $20.6 million, or 20 

percent of compact funds in 2004 through 2006, for health care activities 

such as medical and nursing services, dispensary services, and public 

health services. A large portion of this funding was allocated to hospital 

service improvements, such as hiring additional staff, providing 

specialized training for doctors and nurses, and purchasing equipment 

in both Majuro and Ebeye.

• Infrastructure. JEMFAC approved allocations amounting to $41.7 

million, or 40 percent of compact funds in 2004 through 2006, for 

infrastructure—thereby meeting the RMI compact requirement to 

allocate at least 30 percent, and not more than 50 percent, of annual 

compact sector grant assistance funds to this sector. Furthermore, the 

RMI undertook and completed several infrastructure projects and 

established and funded an infrastructure maintenance fund, as required. 

From October 2003 to July 2006, 9 new construction projects and 17 

maintenance projects in the RMI either were completed or were under 

way. All of the new projects were schools where there was a clear title 

or an existing long-term lease for the land.44

• Environment, private sector development, and public sector capacity 

building. JEMFAC approved allocations of $2.6 million, or 3 percent of 

compact funds in 2004 through 2006, for these three sectors. This 

funding supported four entities, including the Environmental Protection 

Authority; the Land Registration Authority; the Office of the Auditor 

General; and Ministry of Resources and Development, which comprises 

the Small Business Development Council and the Marshall Islands 

Visitors’ Authority. The RMI’s Chief Secretary indicated during our 

meeting in March that the RMI would no longer seek compact funds for 

activities in these sectors and would instead focus all compact 

resources on education, health, and infrastructure. 

44The fiscal procedures agreements require that evidence of title, leasehold agreement, or 

other legal authority for use of land upon which a capital improvement project is to be 

constructed must be provided to the United States prior to a draw down of funds. 
Page 29 GAO-07-163 Compacts of Free Association

• Ebeye. JEMFAC approved allocations amounting to $5.8 million, or 

almost 6 percent45 of all compact funds in 2004 through 2006, for Ebeye 

special needs. However, because OIA obligated none of these funds for 

Ebeye during 2004 and 2005, JEMFAC approved the reallocation of the 

entire amount in 2006. According to OIA, approximately $500,000 has 

been used to pay for utility costs for certain Ebeye residents,46 while 

another $500,000 has been used to support utility operations.

In addition to receiving compact sector funding, the RMI also received $12 

million in SEG funding for 2005 and 2006.47 However, because SEG funding 

was off cycle in both 2005 and 2006, according to OIA, the RMI did not 

receive its 2005 SEG until August 2005 and its 2006 SEG until September 

2006, near the end of each fiscal year.48 The SEG mainly supported early 

childhood education but also supported activities at other education levels, 

including the purchasing of textbooks and supplies; supporting foreign 

volunteer teachers and substitute teachers; and funding the National 

Vocational Training Institute, which is an alternative to the mainstream 

high schools. 

Several Factors Have 

Limited Countries’ Use of 

Compact Funds 

Political factors and land use issues have hindered compact 

implementation in the FSM and the RMI.

• Political factors. 

• In the FSM, although $58.7 million had been allocated for 

infrastructure as of September 2006, no infrastructure projects were 

built because of, among other issues, a lack of internal agreement 

45The funds were supposed to be allocated to the Kwajalein Atoll Development Authority, 

which experienced problems in effectively and efficiently using funds in the past. In early 

2005, RMI legislation was passed that contained plans for KADA’s restructuring, but the 

agency was still not operating as of October 2006, according to an RMI official. Instead, the 

Marshall Island’s government allocated funds to the utility.

46Specifically, funding for utilities went to displaced midcorridor residents residing in Ebeye.

47The RMI received $6,100,000 in SEG funds for 2005, and received $5,941,769 for 2006. The 

2006 SEG, which was awarded in September 2006, was not adjusted for inflation and was 

subject to a federal budget rescission.

48Because the RMI did not receive the SEG funds until the end of the fiscal year, domestic 

funding was used to cover SEG costs. The delayed SEG funds were used to reimburse the 

expenses that had been incurred.
Page 30 GAO-07-163 Compacts of Free Association

among the five FSM governments regarding project implementation 

and the governments’ inability to demonstrate how the funding will 

be managed in a unified and comprehensive method. For example, 

one FSM state governor told us that he had refused to meet with the 

FSM national government’s project management unit because he so 

strongly disagreed with the unit’s management process. Such 

disagreements led to delays in the national government’s 

implementation of its project management unit, and, according to 

OIA officials, significant challenges remain with respect to 

implementing the unit. 

• In the RMI, the government and landowners on Kwajalein Atoll 

disagreed about the management of the entity designated to use the 

compact funds set aside for Ebeye special needs, with an emphasis 

on the needs of Kwajalein landowners. This entity, the Kwajalein 

Atoll Development Authority (KADA), had had problems accounting 

for and effectively and efficiently using funds; moreover, according to 

the RMI’s Chief Secretary, the RMI government developed a 

restructuring plan for the authority but the plan was not fully 

implemented. Moreover, Kwajalein landowners disputed the 

composition of the KADA board and its role in distributing these 

funds. As a result, as of September 2006, only approximately $1.0 

million of the $5.8 million allocated for Ebeye special needs had been 

released for the community’s benefit.

• Land use issues.

• In the FSM, project implementation in Chuuk was hindered by the 

state’s inability to secure leases due to the lack of clear title, 

established fair market values, and local revenues to pay for land 

leases.49 Because of a lack of established fair market values, using 

compact funding for land lease or purchase under the original 

compact may have led to unreasonably high payment. A recent 

study50 of land valuation practices in Chuuk found sales of 

comparable land in Weno, the state’s capital, ranging from $5 per 

49JEMCO addressed this issue in 2004, resolving that no use of compact funds for payments 

toward preexisting land purchase arrangements or leases will be allowed.

50Neil K. Darroch, Land Consultancy & Valuation – Government Leased Land Chuuk State, 

a special report requested by the Asian Development Bank on behalf of the FSM (August 

1998). 
Page 31 GAO-07-163 Compacts of Free Association

square meter to $1,704 per square meter, with the higher payment 

associated with lease agreements paid for by the compact funding. 

• In the RMI, land disputes prevented construction of the Uliga 

Elementary School on Majuro, the country’s main atoll, while another 

project site on Majuro was abandoned because a lease agreement 

could not be concluded with the landowner. On Kwajalein Atoll, 

construction of Kwajalein Atoll High School was delayed because of 

the inability of the RMI government to secure a long-term lease from 

Kwajalein landowners for a site large enough to accommodate new 

facilities for up to 600 students. Similar problems delayed 

construction of Ebeye Elementary School. RMI projects were built 

where the land titles were clear and long-term leases were available. 

However, future RMI infrastructure projects may be delayed because 

of uncertainty regarding the land titles for remaining projects.

Lack of FSM and RMI 

Planning for Decrement 

Threatens Sustainability of 

Government Services

The FSM and the RMI lack concrete plans for addressing the annual 

decrement in compact funding and, as a result of revenue shortfalls, will 

likely be unable to sustain current levels of government services as 

compact funding diminishes. In both countries, compact funding 

represents a significant portion of the government 

revenue—approximately 38 percent in the FSM51 and 27 percent in the RMI, 

according to the 2005 single audits. Personnel expenses account for a 

substantial share of compact funding expenditures. For example, 57 

percent of the education sector grant in the FSM and 75 percent of the 

grant in the RMI paid for personnel in 2006. Over the past 5 years,

government employment has grown in both countries:52 in the FSM, the 

public sector employment level has varied since 2000 but peaked for this 

period in 2005, while in the RMI, the government wage bill rose from $17 

million in 2000 to $30 million in 2005. Given the countries’ current levels of 

spending on government services, the decrement—$800,000 per year for 

the FSM, beginning in 2007, and $500,000 per year for the RMI since 

2005—will result in revenue shortfalls in both countries, absent additional 

sources of revenue. In addition, in the FSM, cessation of nonconforming 

51The reliance on compact sector funding as a source of government revenue varies, with 

compact funding accounting for 61 percent of the government revenue in Chuuk, 58 percent 

in Kosrae, 52 percent in Pohnpei, 31 percent in Yap, and 13 percent in the national 

government, according to data from the single audits. 

52GAO-06-590.
Page 32 GAO-07-163 Compacts of Free Association

uses of the public sector capacity building grant will require government 

operations currently supported by compact funds to rely on a different 

revenue source. 

Officials in the FSM and the RMI told us that they can compensate for the 

decrement in various ways, such as through the yearly partial adjustment 

for inflation, provided for in the amended compacts,53 or through improved 

tax collection. However, the partial nature of the adjustment causes the 

value of the grant to fall in real terms, independent of the decrement, 

thereby reducing the government’s ability to pay over time for imports, 

such as energy, pharmaceutical products, and medical equipment. 

Moreover, as we recently reported,54 although tax reform may provide 

opportunities for increasing annual government revenue in the FSM and 

the RMI, the International Monetary Fund, the Asian Development Bank, 

and other economic experts consider both nations’ business tax schemes 

to be inefficient because of a poor incentive structure and weak tax 

collection. In the FSM’s and the RMI’s response to our draft report, both 

countries raised the possibility that the decrement’s negative effect might 

be addressed during the periodic bilateral review, which is called for every 

5 years, under the compact. 

FSM Sector Fund Allocation 

Was Not Based on 

Population or Informed by 

State Needs

The FSM distributed compact funding among its four states according to a 

formula that did not fully account for states’ differing population sizes or 

funding needs. The formula, established in an FSM law enacted in January 

2005 and in force through 2006, allotted a set percentage to each state as 

well as 8.65 percent to the national government.55 Use of the distribution 

formula resulted in varying per capita compact funding among the states 

(see table 2). For example, we calculated that in 2006, Yap received more 

than twice as much education funding per student and health care funding 

per person as Chuuk. 

53Grant funding is partially adjusted for inflation, although it can be fully adjusted after 2014 

under certain U.S. inflation conditions. 

54GAO-06-590.

55As of 2007, absent an agreement between the chief executive of the national government 

and each state government, a revised distribution formula provides 10 percent of total grant 

funding to the FSM national government. The accordingly reduced FSM state allocations 

maintain the same proportions with respect to each other. According to OIA, the 2007 grants 

reflect the increased share for the FSM national government.
Page 33 GAO-07-163 Compacts of Free Association

Table 2: Distribution of Compact Funds to FSM States and States’ Percentages of 

FSM Population, 2006

Source: GAO analysis of FSM Public Law 13-93 and the Federated States of Micronesia: Fiscal Year 2005 Economic Review.

Note: The FSM public law distributes 8.65 percent of total compact funding to the FSM national 

government, which leaves 91.35 percent of compact funds available to the states. To compare the 

distribution of funds with the distribution of population among the four FSM states, we subtracted the 

funding allocated to the FSM national government from the total distributed. Expenditures by the 

national government, such as support for the College of Micronesia, benefit the economies of all the 

states but provide greater benefits to Pohnpei, which contains the largest of the college campuses and 

the FSM capitol. 

Both the FSM government and U.S. officials acknowledged that the funding 

inequality resulted in different levels of government services across states, 

with particularly low levels of services in Chuuk. For example, an FSM 

health official told us that Chuuk’s low immunization rate is a result of low 

per-capita health funding, and, according to a U.S. health official, HHS 

immunization staff see Chuuk as vulnerable. However, as of October 2006, 

neither the FSM nor JEMCO had assessed the impact of such differences 

on the country’s ability to meet national goals or deliver services.

FSM and RMI Have 

Limited Ability to 

Measure Progress 

toward Compact Goals

Although the FSM and the RMI established performance measurement 

mechanisms, several factors limited the countries’ ability to assess 

progress toward compact goals. The FSM and the RMI development plans 

contain sector goals and objectives, and the countries are collecting 

performance indicators for health and education. However, neither country 

can assess progress using these indicators because of incomplete and poor 

quality data. Moreover, problems in the countries’ quarterly performance 

reports—disorganized structure in the FSM reports as well as incomplete 

and inaccurate information in both the FSM and the RMI reports—limit 

their usefulness for tracking performance. A lack of technical capacity also 

challenges the countries’ ability to collect performance data and measure 

progress.

FSM state

Percentage of 

compact funds 

allotted to state

Percentage of FSM 

population in state 

(estimated)

Chuuk 42% 50%

Kosrae 12 7

Pohnpei 28 32

Yap 18 11

Total 100% 100%
Page 34 GAO-07-163 Compacts of Free Association

Countries Established 

Mechanisms for Measuring 

Performance, but Data 

Shortcomings Limit Ability 

to Assess Progress toward 

Goals

Both countries established development plans that include strategic goals 

and objectives for the sectors receiving compact funds.These strategic 

goals are broad—for example, both countries list improving primary health 

care as a strategic goal. In addition, the development plans list various 

objectives related to each strategic goal. For example, in the FSM, the 

objectives related to improving primary health care include (1) increasing 

by 20 percent the use of basic primary health care services provided at 

dispensaries and health centers and (2) decreasing by 50 percent the use of 

primary health care services provided at hospital outpatient clinics. 

According to OIA, outcome measures for some sectors in the FSM were 

inappropriate, absent, or poorly defined. The RMI health sector’s complex 

performance hierarchy and lack of readily available baselines for many 

measures initially made it difficult for the Ministry of Health to collect data. 

In 2004, JEMCO and JEMFAC required the countries to submit a 

streamlined and refined statement of performance measures, baseline data, 

and annual targets to enable the tracking of goals and objectives for 

education, the environment, health, private sector development and in 

public sector capacity building.56 The countries have developed some 

performance indicators that are intended to help demonstrate progress in 

education and health, as required by JEMCO and JEMFAC, but have not 

done so for the other sectors. In 2006, JEMFAC also required the RMI to 

include in its reports six performance indicators for the environmental 

sector and two performance indicators for private sector development.57

The FSM and the RMI ministries have begun to collect performance 

indicators for the education and health sectors, as required by JEMCO and 

JEMFAC. However, the ministries are not yet able to assess progress with 

the indicators, because baseline data for some indicators were incomplete 

and the quality of some data was poor.

FSM Performance Indicators • Education sector. As required by JEMCO, in 2005, the FSM began 

submitting data for 20 indicators to gauge progress in the education 

sector. In 2005, the FSM submitted some data for 11 of the 20 required 

education performance indicators. In 2006, it submitted some data for 

56The requirement on public capacity building only applied to the FSM.

57Since the reporting requirement was established in 2006 and the data were not available 

until the end of the fiscal year, in addition, the funding to the two sectors was small 

compared with the funding to health and education, we did not evaluate these performance 

measures. 
Page 35 GAO-07-163 Compacts of Free Association

all of the 20 indicators, with data for 5 indicators being incomplete 

because some states did not submit them. For example, none of the 

states submitted data for the number and percentage of high school 

graduates going to college. Chuuk and Yap did not provide the required 

average daily student attendance rate, and Kosrae, Pohnpei, and Yap did 

not provide data to establish a baseline for dropout rates. Furthermore, 

we found some of the data submitted to be of questionable quality. For 

example, Chuuk’s 2006 submission of data for the 20 indicators 

indicated a dropout rate of less than 1 percent. However, according to 

an expert familiar with the Chuuk education system, the actual dropout 

rate was much higher. Moreover, when comparing the 2005 and 2006 

submissions, we identified possible problems with some of the most 

basic data, such as the number of teachers, students, and schools, due to 

inconsistent definitions of the indicators. For example, the student 

enrollment figure reported in 2006 was for public schools only, but the 

figure submitted in 2005 included both public and private schools, 

according to an FSM education official. Likewise, reporting on the 

number of teachers in the school system differed among states. For 

example, Chuuk reported only the number of teachers, while the other 

states also included nonteaching staff. 

• Health sector. FSM state and national health directors agreed on 14 

health indicators in April 2006 as a means to gauge progress. The FSM 

national government and all four states are collecting data for 9 of the 14 

indicators, while data for the other 5 indicators have yet to be collected. 

According to the FSM national government, delays in collecting data for 

some indicators resulted from the time required to establish a common 

methodology—that is, definitions and processes—among all of the 

states and governments. Furthermore, we found that some of the health 

data collected were ambiguous and therefore difficult to use. For 

example, it was unclear whether reports on data from Yap’s outer 

islands relating to 1 of the 14 health indicators, the number of 

dispensary encounters, covered 1 or 2 months; according to a Yap health 

official, data for this indicator may be incomplete. Likewise, OIA’s health 

grant manager indicated that there are weaknesses in the FSM’s health 

data. 

RMI Performance Indicators • Education sector. As required by JEMFAC in 2005, the RMI started 

tracking some of the 20 indicators as a way to gauge progress in the 

education sector. The RMI submitted data for 15 of the 20 required 

education performance indicators in 2005, repeating the submission in 

2006 without updating the data, according to an OIA official. JEMFAC 
Page 36 GAO-07-163 Compacts of Free Association

required the RMI to submit data for the 5 indicators omitted in 

2005—including staff education levels and parent involvement—but did 

not receive them. In addition, some of the information reported was 

outdated. For example, the 2005 submission of data for an indicator on 

student proficiency was based on a test given in the RMI in 2002.

• Health sector. The RMI’s Ministry of Health began identifying 

performance indicators when the amended compact entered into force 

in 2004. Initially, the ministry developed numerous indicators, which, 

according to an OIA official, threatened to overwhelm the ministry’s 

capacity for data collection and management. The ministry has since 

made refinements and reduced the number of indicators to a more 

manageable size. However, according to an RMI government report for 

2005,58 it is difficult to compare the ministry’s 2004 and 2005 

performances because of gaps in the data reported. For example, 

limited data were available in 2004 for the outer island health care 

system and Kwajalein Atoll Health Services. According to the RMI 

government report, data collection improved and most needed data 

were available, but some data were still missing.

Shortcomings in 

Performance Reports Limit 

Usefulness for Tracking 

Progress

Although the FSM and the RMI began compiling quarterly performance 

reports beginning in 2004, as required by the fiscal procedures agreements, 

the usefulness of the reports for assessing progress toward sector goals is 

limited by several factors. First, the FSM’s reports had format problems, 

such as a lack of uniform structure, and some FSM reports were missing. 

Second, both countries’ reports contained incomplete activity-level 

information. Third, in both countries’ reports, some activity-level 

information, such as budget and expenditure data, were inaccurate. 

• Problematic format. The usefulness of the FSM quarterly performance 

reports is diminished by a lack of uniform structure, excessive length, 

and disorganization. In addition, some FSM reports were missing. The 

five FSM governments’ quarterly 2005 performance reports that we 

reviewed lacked the uniform structure required by the fiscal procedures 

agreement. For example, while Kosrae combined sector and activities 

into one report, Pohnpei reported on each activity separately. Moreover,

58Republic of the Marshall Islands, Office of the President, Economic Policy, Planning and 

Statistics Office, Fiscal Year 2005 Performance Monitoring Report (Majuro: July 2006). 
Page 37 GAO-07-163 Compacts of Free Association

 the volume of reporting was excessive. For example, the 2005 fourthquarter reports for the FSM education sector totaled more than 600 

pages for all five governments’ quarterly submissions and more than 

1,500 pages for the entire year. The reports were also disorganized. For 

example, we found misfiled reports in the FSM’s submission to OIA. We 

also found that 19 sector reports were missing in 2005. Noting 

shortcomings similar to those we observed, officials from OIA and the 

FSM stated that the performance reports could not be used as an 

effective management tool. 

In contrast, the RMI reports were uniformly formatted, as specified by 

the fiscal procedures agreement, and all required reports were 

submitted to OIA. 

• Incomplete information. Both countries’ quarterly reports lacked 

complete information on program activities. For example, for 2005, the 

FSM national government’s second-quarter health sector report lacked 

information on the environmental health and food safety programs 

(although its other quarterly reports included such information), and 

Pohnpei’s first-quarter health sector report lacked information on 28 of 

31 activities. In the fourth quarter of 2005, Kosrae did not provide 

budgetary and expenditure information regarding the provision of 

education and support services to individuals with disabilities. 

The RMI’s statistics office gathered information from the RMI’s 2005 

quarterly performance reports, which contained primarily activity-level 

information, and attempted to assess progress in the various sectors. 

However, because of weaknesses in information collected in 2004, 

including missing information for some activities for entire quarters, the 

RMI had difficulty in making comparisons and determining whether 

progress was being made in many of its sectors. 

• Inaccurate information. Both the FSM’s and the RMI’s quarterly 

performance reports contained inaccurate information on program 

activities. We found that the performance reports for the five FSM 

governments did not accurately track or report annual activity budgets 

or expenditures. For example, a 2005 Pohnpei education performance 

report stated that more than $100,000 per quarter was allocated to pay 

the salaries of two cultural studies teachers. The state’s Department of
Page 38 GAO-07-163 Compacts of Free Association

Education could not explain the high salary figure59 but indicated that 

the number was incorrect. According to FSM officials in the 

departments we visited, the departments were not given an opportunity 

to review the budget and expenditure data before the performance 

reports were sent to OCM and OIA and were therefore unaware of the 

errors.

Some of the RMI’s quarterly performance reports also contained 

inaccuracies. For example, although the RMI’s private sector 

development performance report for the fourth quarter of 2005 stated 

that eight new businesses were created in 2005, officials from the 

Ministry of Resources and Development indicated that only four 

businesses were started that year. In addition, the RMI Ministry of 

Health’s 2005 fourth-quarter report contained incorrect outpatient 

numbers for the first three quarters, according to a hospital 

administrator in Majuro. In the RMI quarterly reports for the education 

sector, we found several errors in basic statistics, such as the number of 

students attending school. In addition, RMI Ministry of Education 

officials and officials in the other sectors60 told us that they had not been 

given the opportunity to review final performance reports compiled by 

the statistics office before the reports’ submission to OIA, and that they 

were unaware of the errors until we pointed them out. 

FSM and RMI Lack Capacity 

to Collect, Assemble, and 

Analyze Data to Assess 

Progress 

The FSM’s ability to measure progress is limited by its lack of capacity to 

collect, assemble, and analyze performance data. According to OIA, the 

education sector currently lacks a reliable system for the regular and 

systematic collection and dissemination of information and data. An OCM 

official also stated that the lack of performance baseline data for the 

private sector development and environment sectors could be attributable 

to “weak capacity in performance budgeting and reporting” and that staff 

lack expertise in one or both areas. 

The RMI statistics office, which is the main entity tasked to collect data, 

indicated that it is not currently able to assess progress toward compact 

59According to the FSM National Department of Education, the average annual teacher 

salary in Pohnpei is approximately $10,000. 

60The fiscal procedures agreement requires quarterly construction performance reports in 

the infrastructure sector. We did not discuss the quality of the information in the reports 

with the Project Management Unit Manager. 
Page 39 GAO-07-163 Compacts of Free Association

and development plan goals because of the government’s lack of capacity 

to collect, assemble, and analyze data in all sectors. Likewise, the office’s 

own capacity is limited. Officials from the office emphasized the 

importance of building capacity in the ministries to evaluate their activities. 

In particular, they said that improvements in data collection would enable 

ministries to respond quickly to requests for information from both 

national and international sources. For example, the officials noted that the 

Ministry of Education needs to develop measures to report on the quality of 

education. The officials also noted that other offices in the ministry should 

hire more trained professionals, such as the recently hired Assistant 

Secretary of Administration with a graduate degree in public 

administration. 

FSM and RMI Provided 

Limited Monitoring of 

Grant Operations, and 

FSM Accountability for 

Compact Funds Faced 

Challenges

The FSM’s and the RMI’s required monitoring of sector grant performance 

was limited by capacity constraints, among other challenges. In addition, 

the countries’ single audit reports for 2004 and 2005, particularly the FSM’s 

reports, indicated weaknesses in the countries’ financial statements and 

compliance with the requirements of major federal programs, calling into 

question their accountability for the use of compact funds. However, the 

FSM’s timeliness in submitting its single audit reports improved from 2004 

to 2005, and the RMI submitted its single audit reports for these 2 years on 

time.61

FSM Provided Limited 

Monitoring and 

Accountability for Use of 

Compact Funds

The FSM’s monitoring of sector grant performance, required by the fiscal 

procedures agreement, was limited at the national and state levels by lack 

of capacity in the FSM’s OCM and in the state governments, among other 

factors. In addition, the FSM’s single audit reports for 2004 and 2005 

showed weaknesses in its financial statements and a lack of compliance 

with requirements of major federal programs, suggesting that the FSM has 

limited ability to account for the use of compact funds. However, the 

government’s timeliness in submitting its audit reports improved.

FSM Monitoring The FSM national government provided limited monitoring of the 

day-to-day operations of sector grants in 2004 through 2006. In addition to 

61OIA requires the countries to submit their single audit reports within 9 months after the 

end of the fiscal year, which is consistent with the requirements under the Single Audit Act, 

as amended.
Page 40 GAO-07-163 Compacts of Free Association

facilitating coordination and communication between the national 

government and the states and between the FSM and OIA, OCM is intended 

to have some responsibility for overseeing compact-funded programs. 

However, according to the office’s director, OCM has neither the staff nor 

the budget to undertake such activities. As of November 2006, OCM had 

five of its own professional staff, including the director. Prior to 2007, staff 

from other FSM national departments were assigned to the office, but only 

the economic affairs and finance departments provided detailees. One staff 

was converted to a permanent hire in OCM and it is unclear if the other 

detailee will remain at OCM or return to the Office of Economic Affairs. 

The FSM Office of the National Public Auditor had not conducted any 

performance or financial audits of compact sector grants.62

The FSM states, as subgrantees of compact funds, are required to submit 

performance reports to the FSM national government. However, the 

Director of OCM indicated that he did not know how or whether each state, 

other than Chuuk, was set up to perform day-to-day monitoring of sector 

grants. In Chuuk, a financial control commission was established in July 

2005 to address financial management and accountability requirements. 

However, while the commission had exercised a financial control function, 

it had not monitored the performance of the sector grants. In addition, the 

FSM’s Secretary of Foreign Affairs and JEMCO representative told us that 

all of the states were weak on monitoring. Although the states’ public 

auditors could conduct audits of compact performance, their efforts had 

been limited to financial audits. For example, in both Yap and Pohnpei, the 

public auditor’s office issued four audits in 2005, two of which were for 

compact-funded activities. Furthermore, in Chuuk, the public auditor 

position required by the state constitution was not filled, prompting 

JEMCO to deny the Chuuk auditor’s office state-budgeted funds. 

FSM Accountability The FSM’s single audit reports for 2004 and 2005 showed that the FSM’s 

ability to account for the use of compact funds was limited, as shown by 

weaknesses in its financial statements and lack of compliance with 

requirements of major federal programs. However, the FSM’s timeliness in 

submitting its audit reports improved during this period.

• FSM financial statements. In general, the FSM single audit reports call 

into question the reliability of the country’s financial statements. Of the 

62However, the FSM Office of the National Public Auditor conducted an audit related to the 

FSM’s trust fund. 
Page 41 GAO-07-163 Compacts of Free Association

single audit reports that the FSM national and state governments 

submitted for 2004 and 2005, only one report—Pohnpei state’s report for 

2005—contained an unqualified opinion on the financial statements, 

while the other reports contained qualified, adverse, or disclaimed 

opinions.63 (See app. V for the FSM’s single audit financial statement 

opinions.) For example, for the FSM 2005 reports, the auditors’ inability 

to obtain audited financial statements for several subgrantees led them 

in part to render qualified opinions. Chuuk reports for 2004 and 2005 

contained disclaimers of opinion related to seven and eight major 

issues, respectively, including the inability of auditors to determine the 

propriety of government expenses, fixed assets, cash, and receivables; 

the capital assets of one of its subunits; and the accounts payable and 

expenses of the Chuuk State Health Care Plan. In addition, the single 

audit reports include specific findings related to the financial 

statements. For example, the national and state governments’ 2005 

single audit reports contained 57 reportable findings of material 

weaknesses and reportable conditions64 in the governments’ financial 

statements, such as the lack of sufficient documentation for (1) the 

disposal of fixed assets, including a two-story building, and (2) 

purchases of vehicles and copiers. Fourteen of the FSM 2005 findings 

had been cited as reportable findings in previous audits. 

63“Qualified” opinions state that, except for the effects of the matter to which the 

qualifications relate, the financial statements are presented fairly, in all material respects. A 

qualified opinion is given when the auditor finds conditions, such as a lack of supporting 

evidence or a restriction on the scope of the audit. Scope limitations occur when auditors 

are not able to perform all of the procedures necessary to conduct audits in accordance with 

generally accepted auditing standards. Scope limitations can result from the timing of audit 

work; the inability to obtain sufficient, competent evidential matter; or inadequate 

accounting records. An auditor issues a “disclaimer” of opinion when unable to perform all 

of the procedures necessary to complete an audit. In these situations, the audit scope is 

limited or restricted. A disclaimer of opinion indicates that the reliability of the financial 

statements is not known, and, in issuing one, the auditor declines to express an opinion on 

the financial statements. An “adverse” opinion is given when the auditor concludes that the 

financial statements are not fairly presented. 

64“Reportable” conditions are matters related to significant deficiencies in the design or 

operation of internal controls over financial reporting that could adversely affect the entity’s 

ability to produce financial statements that fairly represent the entity’s financial conditions. 

Material weaknesses are reportable conditions in which the design or operation of internal 

controls does not reduce to a relatively low level the risk that errors, fraud, or abuse in 

financial reporting—that is, material related to the financial statements being audited—may 

occur and not be detected in a timely fashion by employees in the normal course of 

performing their duties. 
Page 42 GAO-07-163 Compacts of Free Association

• FSM compliance with requirements of major federal programs. Each 

of the FSM national and state governments’ single audit reports for 2004 

and 2005 contained qualified opinions on the governments’ compliance 

with requirements of major federal programs, and the 2004 and 2005 

reports noted 47 and 45, respectively, total reported weaknesses, on 

compliance. (App. V shows the FSM single audit reports’ total numbers 

of material weaknesses and reportable conditions regarding compliance 

with requirements of major federal programs.) Four of the 2005 reports’ 

45 findings recurred from the 2004 reports. In 2006, the FSM developed 

corrective action plans that addressed 60 percent of the 2005 audit 

findings of noncompliance.

• Timeliness of audits. The timeliness of the FSM national and state 

governments’ submission of single audits reports improved from 2004 to 

2005. The national government submitted its 2004 and 2005 single audits 

in August and September 2006, 14 and 2 months, respectively, after the 

due dates. While the four FSM states submitted their 2004 single audits 

from 7 to 13 months after the due dates, three of the four states 

submitted their 2005 audits within the 9-month period allowed by OIA.

RMI Monitoring Was 

Limited, but Accountability 

Improved

The RMI government provided limited monitoring of sector grants, in part 

because of the lack of capacity in the Chief Secretary’s office and in most 

ministries that receive compact funds. The RMI’s single audit reports for 

2004 and 2005 indicated weaknesses in its financial statements and 

compliance with requirements of major federal programs. However, the 

government developed corrective action plans to address the 2005 findings 

related to such compliance. The RMI government submitted its single 

audits for 2004 and 2005 on time.

RMI Monitoring The RMI’s Chief Secretary, who is responsible for compact implementation 

and oversight, monitored sector grant operations on a limited basis. 

Day-to-day monitoring and oversight responsibilities were delegated to the 

ministries that receive compact funds. According to the RMI’s statistical 

office,65 it lacked the time and resources to devote to oversight and focused 

instead on helping the ministries to develop the annual budgets and sector 

portfolios and the quarterly and annual monitoring and performance 

reports. The office noted the ministries’ lack of personnel and skills needed 

65The Economic Policy, Planning and Statistics Office is the RMI’s statistics office.
Page 43 GAO-07-163 Compacts of Free Association

to collect, assemble, and analyze data and emphasized the importance of 

building the ministries’ capacity to monitor and evaluate their own 

compact-funded activities. (However, according to an OIA official, the 

Ministry of Health made important strides in measuring performance and 

using performance management to improve the delivery of services.) The 

RMI Auditor General’s office conducted financial audits, but no 

performance audits, of compact sector grants. The RMI, like the FSM, 

failed to submit its required annual reports in a timely manner. 

RMI Accountability The RMI’s single audit reports for 2004 and 2005 contained opinions and 

findings that indicated weaknesses in its financial statements and 

compliance with requirements of major federal programs. However, the 

government developed a corrective action plan that addressed all of the 

findings on compliance in its 2005 single audit report. The RMI submitted 

both of the single audit reports on time.

• RMI financial statements. The RMI’s single audit reports for 2004 and 

2005 contained qualified opinions on the government’s financial 

statements. (See app. V for a list of the opinions on financial statements 

in the RMI’s audit reports for 2001 through 2005.) For example, several 

of the RMI’s subgrantees, such as the Ministry of Education’s Head Start 

program and the Kwajalein Atoll Joint Utilities Resources, Inc., were 

unable to produce audited financial statements. 

In addition, the 2005 single audit found two reportable findings in the 

RMI’s financial statements. The report cited the lack of audited financial 

statements and the lack of a complete asset inventory listing in the RMI 

as material weaknesses. Both of these findings had been cited in 

previous audits.

• RMI compliance with requirements of major federal programs. Both 

of the RMI’s single audit reports for 2004 and 2005 contained qualified 

opinions on the government’s compliance with requirements of major 

federal programs. In addition, the 2005 report noted 11 reported 

weaknesses in the country’s compliance with requirements of major 

federal programs. The RMI developed corrective action plans to address 

all of these findings, 2 of which had recurred from 2004. (App. V shows 

the total number of material weaknesses and reportable conditions 

findings for the RMI for 2001 through 2005 single audit reports.)

• Timeliness of audits. The RMI submitted its 2004 and 2005 single audit 

reports within the 9-month period required by the Single Audit Act. 
Page 44 GAO-07-163 Compacts of Free Association

Interior Took Oversight 

Actions but Faced 

Challenges 

As administrator of the amended compact grants, OIA monitored the FSM’s 

and RMI’s sector grant and fiscal performance, assessed their compliance 

with compact conditions, and took action to correct persistent 

shortcomings. However, although OIA provided technical assistance to 

help the FSM improve its single audit timeliness, the office did not address 

recurrent findings and adverse opinions in the FSM and the RMI audits. 

OIA’s oversight efforts were hindered by the need to address problems in 

the FSM and by internal staffing challenges. In addition, Interior’s Office of 

Inspector General actively engaged in reviewing the countries’ 

implementation of the compact, although the office did not release its 

products to the public, and, as of October 2006, several reports remained in 

draft form.

OIA Monitored 

Performance, Assessed 

Compliance, and Acted to 

Correct FSM and RMI 

Shortcomings

OIA undertook several administrative oversight efforts including 

monitoring the countries’ sector grant performance, monitoring the 

countries’ fiscal performance and sector grant outlays, and assessing the 

countries’ compliance with sector grant conditions. OIA’s efforts also 

included actions such as suspending or withholding grant payment in 

response to persistent shortcomings that it identified. 

• Monitoring sector grant performance. OIA grant managers monitored 

the countries’ sector grant performance, using site visits and analysis of 

the quarterly sector performance reports. For example, in 2006, OIA’s 

visits and analyses led it to determine that 14 of the 61 offices in the FSM 

that receive private sector and environment sector grants were 

underperforming or nonperforming. As a remedy, OIA recommended 

and JEMCO agreed that future sector funding for these entities should 

be on a project basis. Also, in response to the shortcomings of the FSM’s 

and RMI’s performance evaluations for 2004 and 2005, JEMCO and 

JEMFAC, under OIA’s chairmanship, called for improved performance 

measurement and monitoring. In the FSM, JEMCO reprogrammed 

unused compact funds to improve capacity in this area. In addition, in 

response to recurrent lack of uniformity in the FSM’s performance 

reports, OIA rejected the first-quarter reports for 2006 (although it 

accepted nonuniform FSM reports later in the year). Although OIA had 

used the performance reports to monitor sector performance, it was 

unaware, until we notified the office, that almost 20 percent of the FSM’s 

2005 performance reports were missing.
Page 45 GAO-07-163 Compacts of Free Association

• Monitoring sector grant outlays and fiscal performance. OIA 

monitored the countries’ fiscal performance and sector grant outlays 

through analyses of the countries’ quarterly financial reports and, as 

Chair of JEMCO and JEMFAC, through reviews of the countries’ single 

audit reports. In August 2004, OIA analyses of both countries’ 

third-quarter cash transactions reports showed that some sector grant 

funding had not been spent. In response, OIA delayed payments to the 

FSM and the RMI for those sectors. 

• Reviewing single audit reports. As Chair of JEMCO and JEMFAC, OIA 

led the committees’ reviews of, and responses to, the FSM’s and the 

RMI’s single audit reports. At a March 2006 JEMCO meeting, noting that 

single audits were the most important indicator of financial stability 

provided by a grantee to a grantor, OIA’s Director of Budget and Grants 

Management said that OIA intended to “apply a remedy” for single audit 

noncompliance beginning October 1, 2006, if the FSM failed to complete 

all of its audit reports by July 1, 2006, or within 3 months of the due date. 

The Director stated that OIA’s response would include withholding cash 

payments for various grants not related to the provision of medical care, 

emergency public health, or essential public safety. The Director also 

stated that OIA would notify and seek the concurrence of other U.S. 

agencies providing financial and technical assistance in designating the 

FSM a “high-risk grantee.” Three FSM states met OIA’s July 1 deadline, 

while the national government and Chuuk missed the deadline by 2 and 

1 months, respectively. OIA ensured that the FSM received technical 

assistance to help address its single audit reports’ lack of timeliness, 

placing advisors through a third party in the state governments to 

facilitate their completion of overdue reports. In 2004, we recommended 

that OIA initiate appropriate actions to correct compact-related single 

audit findings and respond to violations of grant conditions or misuse of 

funds identified by single audits.66 Since then, OIA has provided 

technical advice and assistance to help the FSM and the RMI improve 

the quality of their financial statements and develop controls to resolve 

audit findings and prevent recurrences. 

• Assessing compliance with grant conditions. OIA assessed the FSM’s 

and the RMI’s compliance with sector grant conditions through site 

visits to the countries and reviews of the countries’ submitted 

66GAO, Compact of Free Association: Single Audits Demonstrate Accountability Problems 

over Compact Funds, GAO-04-7 (Washington, D.C.: Oct. 7, 2003).
Page 46 GAO-07-163 Compacts of Free Association

paperwork. In certain instances of the FSM’s or the RMI’s 

noncompliance with grant conditions, OIA monitored progress toward 

meeting the requirements and allowed the countries more time, while in 

other instances, OIA did not specifically address FSM or RMI 

noncompliance. (See apps. VI and VII for a list of sector grant special 

terms and conditions and their status.) However, OIA took corrective 

actions in several instances. 

• Suspended grant funding. In December 2004, OIA staff conducting a 

site visit were unable to verify that food purchased by the program had 

been received by the Chuuk Education Department or served to 

students. In response, OIA suspended the Chuuk 2005 education grant’s 

meal service program funding of almost $1 million. OIA contacted 

Interior’s Office of Inspector General for a follow-up investigation to 

determine whether Chuuk was misusing compact funds.

• Withheld grant funding. OIA withheld the FSM’s May and June 2004 

public sector capacity building and private sector development grant 

funding—approximately $2.4 million—when the FSM national 

government missed a March 2004 deadline to provide a transition plan 

for ending nonconforming use of the grant. In addition, OIA withheld 

awarded funds for the FSM infrastructure grant and the RMI Kwajalein 

special needs grant until the countries met grant terms.

After our July 2005 report, which recommended that OIA determine the 

amount of staff travel to the FSM and the RMI needed to promote 

compliance with compact and grant requirements, OIA travel to the 

countries increased.67 Whereas travel to the two countries accounted for 15 

percent of overall staff time in 2004, it rose to 20 percent in 2005 and 25 

percent for the first three quarters of 2006. However, according to an OIA 

assessment, OIA’s current budget does not support extended, detailed 

reviews of U.S. funds in the various remote islands. 

OIA Oversight Faced 

Challenges

OIA’s oversight was hampered by the need to respond to problems in the 

FSM as well as by the office’s difficulty in filling staff positions. 

67GAO-05-633.
Page 47 GAO-07-163 Compacts of Free Association

• FSM challenges. The need to respond to various challenges facing the 

FSM reduced OIA’s administrative oversight of assistance provided 

under the compact. According to the Director of OIA, the FSM’s budgets 

for 2005 through 2007 were poorly prepared, and, as a result, OIA grant 

managers were forced to spend an inordinate amount of time readying 

the budgets for the JEMCO meetings. In addition, according to OIA’s 

Director of Budget and Grants Management, the constant need to 

respond to emergent issues, such as education issues in Chuuk and land 

issues in the FSM, limited OIA’s ability to conduct oversight. 

• Staffing challenges. Although OIA increased the 2006 budget for the 

Honolulu field office so that it could increase the number of staff 

positions, those new positions remained vacant. In December 2005, an 

advertised position to be based in Guam went unfilled, while an 

education grant specialist position in Honolulu was advertised twice 

after April 2006 but remained vacant for the entire fiscal year. In 

addition, the OIA private sector development and environment 

specialist position became vacant in September 2006.

Interior’s Inspector General 

Reports Identified Problems 

but Were Not Published

Interior’s Office of Inspector General undertook compact oversight 

activities, finding deficiencies in the FSM’s and the RMI’s compact 

implementation and accountability.68 In 2005 and 2006, the Inspector 

General conducted six reviews (three remained in draft form as of October 

2006) addressing issues such as 

• environmental and public health concerns in Chuuk (draft dated June 

2005),

• student meal programs in Chuuk (draft dated June 2005),

• the RMI’s progress in implementing the amended compact (final report 

issued August 2005),

• the FSM’s progress in implementing the amended compact (draft dated 

January 2006),

68The Inspector General also has undertaken an investigation in Chuuk regarding the 

education meal service program.
Page 48 GAO-07-163 Compacts of Free Association

• the FSM’s infrastructure grant implementation (final report issued July 

2006), and 

• the FSM’s compact trust fund status (final report issued July 2006). 

Although the Inspector General distributed the three final reports to OIA 

and the FSM and the RMI governments, the final reports were not released 

to the public or disseminated widely in the FSM and the RMI. However, one 

of the draft reports circulated unofficially and was cited by the media. 

According to the Inspector General, the reports are considered advisory in 

nature and, as such, no specific response is required from OIA regarding 

the recommendations. Nonetheless, OIA officials stated that the office has 

found the recommendations useful and has made an effort to address them.

Conclusions Since enactment of the amended U.S. compacts with the FSM and the RMI, 

the two countries have made significant efforts to meet new requirements 

for implementation, performance measurement, and oversight. However, in 

attempting to meet these requirements, both countries face significant 

challenges that, unless addressed, will hamper the countries’ progress 

toward their goals of economic advancement and budgetary self-reliance 

before the annual grant assistance ends in 2023. 

In 2004 through 2006, compact grants were, for the most part, allocated 

among the countries’ six sectors as required, with emphasis on health, 

education, and infrastructure, and the countries have made progress in 

implementing the grants in most sectors. However, despite the revenue 

shortfalls they will face with the scheduled grant decrements, neither 

nation has concrete plans to raise the funds needed to maintain 

government services in the coming years. Furthermore, although the FSM’s 

allocation of funds among the states and among sectors caused significant 

inequalities in per-student support for education and per-capita funding for 

health care, neither the FSM nor JEMCO evaluated the impact of these 

differences on the country’s ability to meet national goals or deliver 

services. 

Furthermore, although the countries worked to develop the sector grant 

performance indicators required by JEMCO and JEMFAC, a lack of 

complete and reliable baseline data limited the countries’ use of the 

indicators to measure performance and evaluate progress. Moreover, 

weaknesses in the countries’ required quarterly performance 

reports—including missing and, in some cases, inaccurate activity 
Page 49 GAO-07-163 Compacts of Free Association

data—limited the reports’ usefulness. Unless the FSM and the RMI take 

steps to correct these weaknesses in performance measurement, their 

ability to use the sector grants to optimal effect will continue to be 

curtailed.

Recommendations for 

Executive Action

Given the FSM’s and the RMI’s need to maximize the benefits of compact 

assistance before the 2023 expiration of annual grants and to make steady 

progress toward the amended compact goals, we are providing the 

following seven recommendations to the Secretary of the Interior. 

To improve FSM grant administration, planning, and measurement of 

progress toward compact goals, and to ensure oversight, monitoring, and 

accountability for FSM compact expenditures, we recommend that the 

Secretary of the Interior direct the Deputy Assistant Secretary for Insular 

Affairs, as Chairman of JEMCO, to coordinate with other U.S. agencies on 

the committee in working with the FSM national government to take the 

following actions:

• establish plans for sector spending and investment by the FSM national 

and state governments to minimize any adverse consequence of reduced 

funding resulting from the annual decrement or partial inflation 

adjustment;

• evaluate the impact of the current FSM distribution between states and 

sectors on the ability of the nation to meet national goals or deliver 

services;

• fully develop the mechanism for measuring sector grant performance 

and collect complete baseline data to track progress toward 

development goals; and

• ensure that the quarterly performance reports contain reliable and 

verified program and financial information for use as a monitoring tool 

by both the FSM and the U.S. governments. 

To improve RMI grant administration, planning, and measurement of 

progress toward compact goals, and to ensure oversight, monitoring, and 

accountability for RMI compact expenditures, we recommend that the 

Secretary of the Interior direct the Deputy Assistant Secretary for Insular 

Affairs, as Chairman of JEMFAC, in coordination with other U.S. agencies 
Page 50 GAO-07-163 Compacts of Free Association

on the committee in working with the RMI government to take the 

following actions:

• establish plans for sector spending and investment that minimize any 

adverse consequence of reduced funding resulting from the annual 

decrement or partial inflation adjustment;

• fully develop the mechanism for measuring sector grant performance 

and collect complete baseline data to track progress toward 

development goals; and

• ensure that the quarterly performance reports contain reliable and 

verified program and financial information for use as a monitoring tool 

by the RMI and the U.S. governments. 

Agency Comments and 

Our Evaluation

We received comments from the Department of the Interior as well as from 

the FSM and the RMI (see app. VIII through X for detailed presentations of, 

and our responses to, these comments). We also received technical 

comments from the Departments of Education, Health and Human 

Services, and State, which we incorporated in our report as appropriate.

Interior concurred with our recommendations and stated that the report 

was accurate and well balanced. The FSM also viewed the report as a 

balanced and fair assessment of its progress in planning for sustainability, 

measuring progress, and ensuring accountability and agreed with our 

overall conclusion that it faces significant challenges in meeting the various 

amended compact requirements. The FSM, however, defended its 

distribution formula for allocating compact funds to the national and state 

governments. The RMI acknowledged that its lack of capacity has slowed 

its implementation of the compact’s monitoring and reporting 

requirements. The RMI also stated that it has refrained from expanding 

ministry staffs, given the need for budgetary restraint. 

In addition to providing copies of this report to your offices, we will send 

copies to interested congressional committees. We will also provide copies 

of this report to the Secretaries of Education, Health and Human Services, 

the Interior, and State as well as the President of the Federated States of 

Micronesia and the President of the Republic of the Marshall Islands. We 
Page 51 GAO-07-163 Compacts of Free Association

will make copies available to others on request. In addition, the report will 

be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions regarding this report, please contact 

me at (202) 512-3149 or gootnickd@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made major contributions to this report 

are listed in appendix XI.

David Gootnick

Director, International Affairs

 and Trade
Page 52 GAO-07-163 Compacts of Free Association

List of Committees

The Honorable Pete V. Domenici

Chairman

The Honorable Jeff Bingaman

Ranking Minority Member

Committee on Energy and Natural Resources

United States Senate

The Honorable Richard G. Lugar

Chairman

The Honorable Joseph R. Biden, Jr.

Ranking Minority Member

Committee on Foreign Relations

United States Senate

The Honorable Richard W. Pombo

Chairman

The Honorable Nick J. Rahall, II

Ranking Minority Member

Committee on Resources

House of Representatives

The Honorable Henry J. Hyde

Chairman

The Honorable Tom Lantos

Ranking Minority Member

Committee on International Relations

House of Representatives
Page 53 GAO-07-163 Compacts of Free Association

Appendix I

Objectives, Scope, and Methodology AAppenednxidexiIs

This report examines, for 2004 through 2006,1 (1) the Federated States of 

Micronesia’s (FSM) and the Republic of the Marshall Islands’ (RMI) use of 

compact funds; (2) FSM and RMI efforts to assess progress toward their 

stated development and sector goals; (3) FSM and RMI monitoring of 

sector grants and accountability for the use of compact funds; and (4) the 

Department of the Interior’s (Interior) administrative oversight of the 

compacts. Appendix II contains information about activities funded by key 

U.S. programs. 

To report on the FSM’s and the RMI’s use of amended compact funds, we 

reviewed the U.S., FSM, and RMI annual compact reports for 2004 and 

2005; FSM and RMI strategic planning documents and budgets; briefing 

documents prepared by Interior’s Office of Insular Affairs (OIA) in 

preparation for the annual bilateral meetings with the two countries; and 

FSM and RMI single audits for 2001 through 2005. We reviewed all 2004, 

2005, and 2006 grant agreements with both countries obtained from OIA, 

including special terms and conditions included in these agreements.2

 We 

compared and analyzed fund uses with the purposes specified in the 

amended compacts, the implementing legislation, subsidiary fiscal 

procedures agreements, and sector grant special terms and conditions. 

To identify issues that impact the use of compact funds, we discussed 

planning efforts with U.S., FSM, and RMI government officials and 

identified issues through our own analysis that affected planning, such as 

the FSM’s use of its distribution formula. We reviewed relevant documents 

such as FSM and RMI legislation, and we also reviewed documentation 

provided to the U.S. government, such as the FSM’s transition plan to 

eliminate the nonconforming spending under the public sector capacity 

building grant. To compute education spending per student, we used FSM 

and RMI grant data and student and population statistics. To calculate the 

variability in health spending per capita across the four FSM states, we 

used FSM grant data and population statistics. We did not calculate health 

spending per capita for the RMI. We determined that these data were 

sufficiently reliable for the purposes of our report.

1

In this report, all annual references refer to the fiscal year rather than the calendar or 

school year, unless otherwise stated.

2

We did not review funding provided to Kwajalein landowners in exchange for U.S. military 

access to Kwajalein Atoll. This funding is for landowner use and is not included as part of 

U.S. economic assistance that is subject to sector grant and accountability requirements.
Appendix I

Objectives, Scope, and Methodology 

Page 54 GAO-07-163 Compacts of Free Association

Although we were asked to evaluate the effectiveness of the compact 

funds, we determined it was too soon after the amended compacts’ 

implementation to do this; therefore, we report on whether the countries 

are able to measure progress. To identify FSM and RMI efforts to assess 

progress toward their stated goals, we reviewed FSM and RMI strategic 

planning documents. We evaluated the framework in place for the FSM and 

the RMI to measure the achievement of stated goals in strategic planning 

documents and compared them with the countries’ budget and quarterly 

performance documents. To determine whether the quarterly performance 

reports were being used as a tool to measure progress, we analyzed 

quarterly performance reports for 2005 consistently across five sectors and 

the accuracy of the budget information.3

 We then verified the results of our 

analyses with each office or department we interviewed in the FSM and the 

RMI in March and April 2006. We asked if they used these reports to 

measure progress and discussed discrepancies we found in the reports. To 

identify obstacles to measurement and achievement of goals, we reviewed 

the U.S. annual compact reports for 2004 and 2005, FSM and RMI annual 

compact reports for 2004 and 2005, FSM and RMI strategic planning 

documents and budgets, U.S. government briefing documents, and the 

RMI’s 2005 Performance Monitoring Report. We verified this information 

with FSM, RMI, and OIA officials.

To identify the extent to which the FSM and RMI governments conducted 

monitoring and accountability activities, we reviewed the amended 

compacts and fiscal procedures agreements to identify specific monitoring 

responsibilities. We also reviewed the U.S. government briefing documents, 

as well as the minutes and resolutions, when available, that were related to 

the Joint Economic Management Committee (JEMCO) and Joint Economic 

Management and Financial Accountability Committee (JEMFAC) meetings. 

We further reviewed FSM and RMI documents—such as budget 

justifications and portfolios, quarterly performance reports, and annual 

financial reports for 2004 through 2006, as available—submitted by the 

FSM and RMI governments to the U.S. government to confirm compliance 

with accountability reporting requirements. We discussed the sufficiency of 

quarterly performance reports with OIA officials. We obtained the single 

audit reports for 2001 through 2005 from the FSM National Auditor’s Web 

3

We did not assess the infrastructure sector performance reports for this purpose. In the 

FSM, no infrastructure sector reports were available at the time of our review because no 

infrastructure projects had been built. In the RMI, construction performance reports were 

available, although they served a different purpose than the quarterly performance reports 

in other sectors.
Appendix I

Objectives, Scope, and Methodology 

Page 55 GAO-07-163 Compacts of Free Association

site and the RMI’s Office of the Auditor General. These reports included 

audits for the FSM national government; the state governments of Chuuk, 

Kosrae, Pohnpei, and Yap; and the RMI national government. In total, the 30 

single audit reports covered 5 years, a period that we considered sufficient 

for identifying common or persistent compliance and financial 

management problems involving U.S. funds. We determined the timeliness 

of submission of the single audit reports by the governments using the 

Federal Audit Clearinghouse’s (FAC) “Form Date,” which is the most recent 

date that the required SF-SAC data collection form4

 was received by the 

FAC. We noted that the Form Date is updated if revised SF-FACs for that 

same fiscal year are subsequently filed. Our review of the contents of the 

single audit reports identified the auditors’ opinions on the financial 

statements, matters cited by the auditors in their qualified opinions, the 

numbers of material weaknesses and reportable conditions reported by the 

auditors, and the status of corrective actions. We did not independently 

assess the quality of the audits or the reliability of the audit finding 

information. We analyzed the audit findings to determine whether they had 

recurred in successive single audits and were still occurring in their most 

recent audit, and we categorized the auditors’ opinions on the financial 

statements and the Schedules of Expenditures of Federal Awards.

To determine oversight activities conducted by the OIA Honolulu office, we 

reviewed senior management statements regarding the purpose and 

function of this office and job descriptions for all staff. To identify the 

extent that the Honolulu office staff traveled to the FSM and the RMI, we 

obtained the travel records for all program specialists and discussed this 

information with OIA officials to ensure that these data were sufficiently 

reliable for our use. We calculated the percentage of time spent conducting 

on-site reviews in the two countries between 2004 and the third quarter of 

2006 and compared these data with the total available work time for the 

program specialists. 

In addition, to report on the FSM’s and the RMI’s use of noncompact federal 

funds, we updated our prior review of U.S. programs and services that GAO 

issued in 2002.5

 The prior review selected 13 programs and services, 

including those with the largest expenditures and loans over a 15-year 

4

The FSM and the RMI governments submit a SF-SAC data collection form to the FAC that 

includes information about the auditee, its federal programs, and the results of the audit.

5

GAO, Foreign Assistance: Effectiveness and Accountability Problems Common in U.S. 

Programs to Assist Two Micronesian Nations, GAO-02-70 (Washington, D.C.: Jan. 22, 2002).
Appendix I

Objectives, Scope, and Methodology 

Page 56 GAO-07-163 Compacts of Free Association

period, as well as each of the services that the U.S. government agreed to 

provide under the compact.6

 Funding for 3 of these programs was 

consolidated into the Supplemental Education Grant under the amended 

compacts and was excluded from this update.7

 Moreover, to report on OIAawarded technical assistance and operations and maintenance 

improvement program grants, we selected several projects that assisted 

compact implementation or complemented sector grant priorities, such as 

education and health, from among grants awarded to the FSM and the RMI 

for 2004 and 2005. We also requested applications and grant evaluation 

information for these projects from OIA. To determine the total amount of 

noncompact federal funding that the FSM received from the United States, 

we used the schedule of expenditures of federal awards from the 2004 and 

2005 single audit reports of the FSM national government, the four FSM 

states, and the College of Micronesia to calculate total FSM expenditures. 

For the FSM national government expenditure total, we included only 

direct expenditures and did not include funds that were passed from the 

national government to the states. We compiled the expenditure amounts 

passed directly to the four states from each of the state’s respective single 

audit reports and combined these states totals and the national government 

totals to obtain the total FSM expenditure amount. We excluded compact 

and amended compact expenditures from our calculation. For the RMI, the 

federal awards section of the RMI and College of the Marshall Islands 2004 

and 2005 single audit reports was used to calculate total RMI expenditures. 

The amount of compact funding for the FSM and the RMI was compared 

with the total amount of federal expenditures for 2004 and 2005 to get the 

percentage of noncompact U.S. federal funding.

To address all of our objectives, we held interviews with officials from 

Interior (Washington, D.C.; Honolulu, Hawaii; the FSM; and the RMI) and 

the Department of State (Washington, the FSM, and the RMI). We also 

6

These programs were (1) Head Start, (2) Special Education Program for Pacific Island 

Entities, (3) Freely Associated States Education Grants, (4) Pell Grants, 

(5) Job Training Partnership Act, (6) Maternal and Child Health Block Grants, (7) U.S. 

Department of Agriculture’s Rural Housing Service housing loans, (8) U.S. Department of 

Agriculture’s Rural Utilities Service Telecommunications loans, (9) U.S. Department of 

Agriculture’s Rural Utilities Service Electrical loans, (10) Federal Emergency Management 

Agency, (11) U.S. Postal Service, (12) Federal Aviation Administration, and (13) U.S. 

National Weather Service.

7

The three programs were (1) Head Start; (2) Freely Associated States Education Grants; 

and (3) job training for adults (Job Training Partnership Act), later known as the Workforce 

Investment Act.
Appendix I

Objectives, Scope, and Methodology 

Page 57 GAO-07-163 Compacts of Free Association

interviewed officials from the Departments of Health and Human Services 

(Washington and Honolulu); Education (Washington; San Francisco, 

California; and Seattle, Washington); and Agriculture (Washington, 

Honolulu, and Guam); the Federal Aviation Administration (Honolulu); the 

National Weather Service (Honolulu); the Federal Emergency Management 

Agency (FEMA) (San Francisco and Honolulu); and the U.S. Postal Service 

(Honolulu). We traveled to the FSM (Chuuk, Kosrae, Pohnpei, and Yap) and 

the RMI (Arno, Kwajalein, and Majuro Atolls). In addition, in Chuuk, we 

visited the islands of Fanapangas, Fefan, Polle, Toll, Tonoas, Udot, Uman, 

Ut, and Weno. In both countries, we visited primary and secondary schools, 

colleges, hospitals, dispensaries and community health centers, farms, 

fisheries, post offices, weather stations, telecommunication offices, and 

airport facilities. We discussed compact implementation with the FSM (the 

national, Chuuk, Kosrae, Pohnpei, and Yap governments) and the RMI 

officials from foreign affairs, finance, budget, health, education, public 

works, and audit agencies. Furthermore, we met with the RMI’s Chief 

Secretary and the FSM’s Office of Compact Management. In Kwajalein 

Atoll, we also met with officials from the U.S. Army Kwajalein Atoll and 

Ebeye’s Mayor, with its Ministry of Finance, and with the public utility and 

health and education officials to discuss compact implementation issues. 

We met with a representative from the FSM’s Micronesian Seminar, a 

nonprofit organization in Pohnpei that provides public education on 

current FSM events, to obtain views on compact implementation and 

development issues. We also observed 2005 and 2006 JEMCO and JEMFAC 

meetings. We met with officials from Interior’s Office of Inspector General 

(Guam, Honolulu, and Washington) to discuss ongoing investigations in the 

FSM and the RMI. 

We conducted our review from October 2005 through December 2006 in 

accordance with generally accepted government auditing standards. We 

requested written comments on a draft of this report from the Departments 

of the Interior, State, and Health and Human Services as well as the 

governments of the FSM and the RMI. All of these entities’ comments are 

discussed in the report and are reprinted in appendixes VIII through X. In 

addition, we considered all technical comments and made changes to the 

report, as appropriate.
Page 58 GAO-07-163 Compacts of Free Association

Appendix II

U.S. Program Assistance to the FSM and the 

RMI ApendxiI

In addition to compact funding, both the FSM and the RMI received 

approximately 30 percent of their total U.S. expenditures during 2004 and 

2005 from other federal agencies, including the Departments of Agriculture, 

Education, Health and Human Services, and Transportation. As part of the 

amended compacts’ subsidiary agreements with the RMI and the FSM, the 

United States agreed to extend and subsidize essential federal services, 

such as weather, aviation, and postal services that were provided under the 

original compact. The amended compacts also extend the programs and 

services of FEMA to the FSM and the RMI, but only until December 2008. 

At that time, responsibility for disaster assistance in the countries is 

transferred from FEMA to the United States Agency for International 

Development.1

U.S. program assistance is authorized by various sources, including the 

amended compacts and their implementing legislation as well as other U.S. 

legislation.

Table 3 shows the amount of noncompact U.S. program funds expended on 

the FSM and the RMI for 2004 and 2005. Details of several key U.S. 

programs2

 follow in tables 4 through 14.

Table 3: Noncompact U.S. Program Fund Expenditures for the FSM and the RMI, 

2004 and 2005

Sources: Single audit reports 2004 and 2005 from the FSM and the RMI.

1

Both countries expressed concerns with this transfer since FEMA had provided extensive 

aid to both countries, such as the $12.3 million in assistance to the FSM in 2004 after 

typhoon Sudal hit Yap in April 2004. 

2

These programs were reviewed in a previous GAO report on U.S. program assistance to the 

FSM and the RMI. See GAO-02-70. Three of these programs have been incorporated into the 

Supplemental Education Grant and are no longer under the direct oversight of the individual 

federal agencies. These programs were (1) Head Start, (2) the Freely Associated States 

Educational Grant Program, and (3) the Job Training and Partnership Act Program. We 

reviewed the remaining 10 programs and added a review of the OIA Technical Assistance 

and Operations and Maintenance Improvement program for a total of 11 programs.

Dollars in millions

Country 2004 2005

FSM $32.2 $39.0

RMI 11.0 11.8 
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 59 GAO-07-163 Compacts of Free Association

Table 4: Department of the Interior OIA Technical Assistance and Operations and Maintenance Improvement Program Grants 

Dollars in millions

Purpose and 

legislation

The FSM and the RMI continue to be eligible for the discretionary grant program of the Department of the 

Interior’s (DOI) Office of Insular Affairs (OIA), which provides both general technical assistance grants and the 

operations and maintenance improvement program (OMIP) grants. The legislative authority for these activities 

is found at 48 U.S.C. 1469d. According to OIA, the technical assistance program provides support not 

otherwise available in areas where expertise is lacking in the FSM and the RMI. The program allows each 

government to identify pressing needs and priorities and to develop plans of action to mitigate these problems. 

OIA reported that many of the technical assistance projects have a direct relationship to improving 

accountability and performance requirements under the amended compact. OMIP grants are designed to 

create and support institutions that enhance the capability of the governments of the FSM and the RMI to 

maintain their capital infrastructure. Specific areas that OIA has targeted for OMIP assistance are water, 

sewage, or power systems; solid waste disposal; roads; ports; airports; schools; and other public buildings.

U.S./FSM U.S./RMI

Funding FY2004: $1.54

FY2005: $2.33

FY2004: $0.98

FY2005: $2.22

Use of funds In the FSM, the technical assistance (TA) program 

funded about 40 projects, of which 21 were OMIP 

grants in 2004 and 2005. The TA grants supported 

more FSM governmentwide projects, while the OMIP 

grants were, in most cases, for specific projects within 

individual states. OIA stated that many of the TA 

projects have a direct relationship to improving 

accountability and performance requirements under 

the amended compact. For example, they provided 

training funds for the Public Auditor’s Offices, and 

funded a project to evaluate the overseas medical 

referral program, which was requested by the FSM 

Department of Health. Another TA project was to assist 

the College of Micronesia with its budgeting, longterm planning, and decision making through the hiring 

of a consultant.

Operations and maintenance projects were funded in 

each of the four states. For example, projects in 

Kosrae were for power plants and prepayment electric 

meters; in Pohnpei, for the Port Authority and Pohnpei 

State campus; in Yap, to assist the state college; and 

in Chuuk, to provide equipment and software for the 

public utility corporation. 

In the RMI, the TA program funded about 35 projects, 

of which 8 were OMIP grants in 2004 and 2005. OIA 

stated that many of the projects have a direct 

relationship to improving accountability and 

performance requirements under the amended 

compact. For example, they provided training funds for 

the Public Auditor’s Office, including the training of 

interns in accounting and computer operations. In 

addition, TA grants supported several large projects, 

such as purchasing a new computer system to 

improve border controls and enhance tax collection 

and customs programs, developing and implementing 

a performance- based budgeting process, and 

installing geographic information systems for support 

of economic development and landownership. OIA 

also funded a series of TA grants to assist and assess 

the College of the Marshall Islands accreditation 

project. 

The operations and maintenance projects also focused 

on addressing changing conditions that allow poor 

maintenance practices to exist and not just on making 

repairs. Examples of operations and maintenance 

projects were the writing of a landfill operations 

manual, a recycling and collection project, a project to 

improve the Majuro hospital, and assistance to the 

Kwajalein Atoll Joint Utilities Resource apprenticeship 

and management projects. 
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 60 GAO-07-163 Compacts of Free Association

Sources: GAO analysis of documents and interviews with agency officials.

Program observations OIA has conducted limited oversight over its TA program. OIA’s Financial Assistance Manual states that OIA 

field staff should conduct on-site surveys or meet periodically with the program manager and submit a Report of 

Grant Site Visit form to the grant manager. However, we found that the OIA Technical Assistance Division did 

not have any reports of visits by either OIA’s field staff or OIA grant managers who conducted monitoring 

activities on behalf of the TA division for any of the projects we selected for review. A lack of staffing and 

insufficient travel funds between 2004 and 2006 were reasons given by the Director of the TA division for the 

limited oversight activity of his office. We found, once projects were funded, there was little follow-up or 

evaluation of the projects. For example, we reviewed the consulting grant for the FSM’s and the RMI’s 

community college accreditation efforts and found that, in the FSM, the consultant never finished or delivered 

her report and that OIA never asked for a final product or report. In the RMI, the consultant completed an 

inferior product that was rejected by the College of the Marshall Islands Board and had to be redone by another 

consultant. According to RMI officials, some more ambitious projects, such as enhancing the income revenue of 

the tax division within the RMI, could not be completed within the time frames and funding levels that were 

allocated and an additional grant would be needed to complete the project. The TA grant manager said that he 

has started to ask the OIA Honolulu field staff to check on specific TA projects if he knows that staff will be 

traveling to a particular state or country. 

(Continued From Previous Page)

Dollars in millions
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 61 GAO-07-163 Compacts of Free Association

Table 5: Department of Education Individuals with Disabilities Education Act/Special Education Program for Pacific Island 

Entities

Dollars in millions

Purpose and 

legislation

The Special Education Program for Pacific Island Entities (SEPPIE) was a competitive direct grant program, provided by 

the Department of Education (DOE), to support special education and related services to children with disabilities aged 3 

through 21 years, as authorized under the 1997 Individuals with Disabilities Education Act (IDEA), as amended (Pub. L. 

No. 91-230). According to an official from the Office of Special Education Programs, following the Individuals with 

Disabilities Education Improvement Act of 2004 (Pub. L. No. 108-446), SEPPIE was phased out, and the FSM and the 

RMI began to receive grants under the IDEA Special Education Program applicable to the 50 states and the outlying 

areas. The official also stated that during the transition, the FSM and the RMI received both SEPPIE and IDEA grant 

funding for use in 2005 and that the doubling of funding was a one-time event, and funding beginning in 2006 came only 

from IDEA.

U.S./FSM U.S./RMI

Funding SEPPIE FY2004: $3.89

 FY2005: $3.89

IDEA FY2005: $3.89

 FY2006: $3.89

SEPPIE FY2004: $1.73

 FY2005: $1.73 

IDEA FY2005: $1.73

 FY2006: $1.73

Use of funds According to FSM’s Grant Performance 

Report, 2,464 FSM students received 

special education services during the 

2004-2005 school year, representing 

approximately 7 percent of the students 

enrolled in public schools in the four FSM 

states. 

The FSM had 176 special education 

instructors, of which at least 40 percent 

were not fully certified, in 2005. According 

to a FSM Special Education official, the 

FSM Special Education Program requires 

the states to collect teacher certification 

data quarterly. In addition according to a 

U.S. Special Education official, the IDEA 

program requires that all instructors have at 

least a Bachelor of Arts (BA) degree. To 

support this effort, a FSM special education 

official said that the FSM’s Special 

Education Program has allocated funding 

for 63 instructors to attain BAs with funding 

that will be available through 2007.

According to the school year 2004-2005 Grant Performance Report, special 

education services are provided to 847 students, or approximately 10 

percent of the students enrolled in RMI public schools. These services were 

available on all 24 inhabited atolls and in 72 of the 78 public elementary 

schools, as well as in all 4 public high schools.

Special education services were provided by 108 special education 

teachers and 4 support staff funded by SEPPIE. Of the 108 teachers, 2 

have BA degrees, 38 have Associate of Arts or Science degrees, and the 

remaining 68 have high school degrees or less. The Ministry of Education 

has set December 2008 as its goal for ensuring that all of its teachers have 

at least an Associates Degree. However, according to an official from the 

Office of Special Education Programs, the requirement for the IDEA 

program is for all instructors to have at least a BA. Under IDEA 

requirements the RMI’s first Annual Performance Report on meeting its 

targets is due to the U.S. Office of Special Education Programs by February 

7, 2007, and so the status of this requirement will not be available until that 

date. 
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 62 GAO-07-163 Compacts of Free Association

Sources: GAO analysis of documents and interviews with agency officials.

Program 

observations

Each country’s programs support the objectives of (1) providing direct special education and related services for eligible 

children with disabilities and (2) building the capacity to provide improved special education in the future by, for example, 

providing teacher training and training for therapists in these programs, while also improving facilities and service delivery 

through the use of vehicles such as buses and boats. However, according to FSM and RMI education officials progress 

toward achieving these goals has been slow, since (1) both countries’ school systems are staffed by a substantial number 

of underqualified teachers and (2) both countries lack skilled support personnel, such as audiologists, diagnosticians, 

speech pathologists, and physical therapists. However, the countries have better addressed their goal of increasing 

parental involvement, since both the FSM and the RMI have active organizations for parents of children with disabilities. 

DOE’s oversight has been indirect, as the Washington, D.C.-based program officer from the Office of Special Education 

has never visited the countries. However, that official noted that DOE provides technical assistance and staff training to 

country special education staff through meetings and conferences held in the United States. The official also said that the 

office plans to make site visits to both countries in October 2006 as part of DOE’s review of all education programs and, 

in 2007, intends to again visit the countries and meet with teachers in schools. The office believes it does monitor the 

Special Education Programs in both countries, but limited travel funds and the high cost of travel to the FSM and the RMI 

were noted as constraints on oversight.

During the annual single audits of federally funded programs in the FSM and the RMI, both countries’ Special Education 

Programs were found to have problems complying with federal regulations, such as not adequately documenting 

procurement procedures and failing to report financial status or track property purchased with federal funds; in addition, 

the FSM has not submitted its audits in a timely manner. For example, both the FSM’s and the RMI’s 2004 single audits 

documented problems with special education program procurement. Since the U.S. Special Education Program Office 

has not been able to visit each country because of limited travel funds, its use of the single audit is especially critical. 

However, the FSM’s late submission of its single audits hinders this effort.

(Continued From Previous Page)

Dollars in millions
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 63 GAO-07-163 Compacts of Free Association

Table 6: Department of Education Pell Grant Program

Sources: GAO analysis of documents and interviews with agency officials.

a

As of August 2006. Schools have until October 2, 2006, with a few exceptions, to submit Pell Grant 

payments.

Dollars in millions

Purpose and 

legislation

Pell Grants, from the Department of Education (DOE), are intended to provide eligible, undergraduate students with 

financial assistance for educational expenses. The Higher Education Act of 1965, as amended (Pub. L. No. 89-329), 

authorized the FSM’s and the RMI’s participation. 

U.S./FSM U.S./RMI

Funding FY2004: $7.93 

FY2005: $8.20 

FY2006: $7.02a

FY2004: $2.15 

FY2005: $2.21 

FY2006: $1.55a

Use of funds For 2005, Pell Grants provided approximately 

2,560 FSM students with grant assistance to 

attend the College of Micronesia. 

Furthermore, approximately1,200 additional 

FSM residents received Pell Grants to attend 

colleges and universities in the United States. 

The funding that these students received is 

not included in the funding listed above. 

College of Micronesia officials said that Pell 

Grants are a critical source of funds for their 

college—they represented 45 percent of the 

college’s operating expenditures in 2005.

For 2005, Pell Grants provided approximately 820 RMI students with 

grant assistant to attend the College of the Marshall Islands. 

Furthermore, approximately 260 additional RMI residents received Pell 

Grant assistance to attend colleges and universities in the United States. 

The funding that these students received is not included in the funding 

listed above.

College of Marshall Island officials said that Pell Grants are a critical 

source of funds for their college, providing about 43 percent of all federal 

award expenditures at the college for 2005.

Program 

observations

The Pell Grant Program provides grants to eligible FSM and RMI students, and, because of the low-income levels in the 

two countries relative to the United States, most students qualify for the program. One major problem students from both 

countries face is a lack of adequate primary and secondary school training to prepare them for college-level courses. For 

example, a June 2005 briefing paper by the RMI Ministry of Education, cosponsored by the Asian Development Bank, 

showed the vast majority of high school graduates entering the College of the Marshall Islands from 2002 to 2004 

qualified only for remedial courses. In math, very few students qualified for credit courses, while over half of the students 

did not even qualify for remedial courses. FSM College of Micronesia officials also stated that because of the inferior 

primary and secondary school preparation at most of the schools on the islands, most students do not pass the entrance 

exam to come to the national campus. The Pell Grant training officer said that students could take up to 30 credits of 

classes of remedial coursework and needed English as a Second Language (ESL) classes under the Pell Grant. 

However, students often use up all of their remedial course allotment and still need a significant amount of ESL courses 

before they are even able to begin taking the credit classes needed to eventually attain a degree. 

According to a DOE Institutional Review Specialist, the U.S. Federal Student Aid Office annually reviews the single audits 

of the colleges in both countries and issues a final audit determination letter to each institution. The office had advised 

the College of the Marshall Islands in its letters to the institution from 2000 through 2004 that repeat findings or failure to

resolve audit findings may lead to an adverse administrative action, which could include the imposition of a fine or the 

limitation, suspension, or termination of the eligibility of the institution to receive funds. However, according to a DOE 

Institutional Review Specialist, the number of audit findings and the number of recurring findings had decreased between 

2000 and 2004 for the RMI, and that the FSM had no findings in the 2002 and 2003 audit letters. Moreover, the fiscal year 

2005 single audits of the College of Micronesia and the College of the Marshall Islands gave unqualified “clean” opinions 

on their financial statements and listed no auditor findings; the FSM had no questioned costs and the RMI had about 

$239,000 in unresolved questioned costs from the previous year’s audits. 
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 64 GAO-07-163 Compacts of Free Association

Table 7: Department of Health and Human Services Maternal and Child Health Block Grants Program

Sources: GAO analysis of documents and interviews with agency officials.

Dollars in millions

Purpose and 

legislation

The Maternal and Child Health (MCH) Block Grants Program under the Department of Health and Human Services 

(HHS), was authorized by Title V of the 1935 Social Security Act, as amended (49 Stat. 620). MCH was intended to help 

states provide mothers and children with access to quality health services and to reduce infant mortality and the 

incidence of preventable diseases. In 1981, MCH, along with several other categorical programs, was converted to a 

block grant, which allowed states to implement the program with maximum flexibility and minimum reporting 

requirements.

U.S./FSM U.S./RMI

Funding FY2004: $0.56

FY2005: $0.56 

FY2006: $0.53 

FY2004: $0.25

FY2005: $0.25

FY2006: $0.24

Use of funds The MCH program in the four FSM states 

provided significant direct health care and 

implementing services for the maternal and 

infant population. In 2004, the FSM MCH 

program reported providing services to 

61,091 eligible mothers and children, and 

fully immunizing nearly 43 percent of the 

19- to 35-month-old children. For 2006, the 

MCH program funded 36 positions: 14 in 

Chuuk, 7 in Pohnpei, 7 in Yap, 6 in Kosrae, 

and 2 in the FSM national government. 

The MCH program in the RMI is combined with the Children with Special 

Health Care Needs Program. These programs provided and coordinated 

the full spectrum of preventive and primary health care services for mother, 

infants, children, and adolescents, both in hospital settings and health 

centers. In 2004, the program reported providing services to 33,208 eligible 

mothers and children and fully immunizing almost 50 percent of the 19- to 

35- month-old children. The RMI reported that this percentage was below 

its immunization goal of 90 percent due to several challenges, including the 

distance between islands, limited storage facilities for vaccines, and the 

lack of information and outreach about the program. The MCH/Children 

with Special Health Care Needs Programs funded 31 positions, including 

22 nurses, 7 physical assistants, 1 medical director, and 1 OB-GYN 

specialist. 

Program 

observations

FSM and RMI program officials told us they were unable to complete and were given exemptions for several of the MCH 

national performance measurements, which were required as part of the annual reports, because some of the 

performance measurements were beyond the level of services provided in both countries or were regarding support 

programs, such as Medicaid, that do not exist in these countries. Other services, such as metabolic screening or hearing 

impairment testing of newborns, were not available in both countries. 

The U.S. MCH State and Community Health Director stated that the national performance measurements are not 

“outcome measures” set by HHS for the FSM and the RMI; but that countries under the MCH program establish their own 

objectives and report on the results on the basis of meeting their own objectives. They are required to conduct a 

statewide or, in their case, countrywide needs assessments every 5 years that identifies the needs for preventive and 

primary care services for pregnant women, mothers, infants, and children. According to the Director, the countries tailor 

their targets on the basis of their own conditions, not on HHS standards.

Hospital officials in the FSM and the RMI believed that the MCH program complemented existing health services. The 

Kosrae Health Director said that the state was highly dependent on MCH funding due to a lack of support from the state’s 

general fund since 2004. The Yap Director of Health Services said that MCH funds help support primary health care 

services. In Chuuk, MCH funding was used to support outreach services to the outlying villages by funding public health 

nurses. The RMI MCH coordinator said that although the immunization rates in the RMI appear low, there were no 

incidents of children dying from the diseases for which they were immunized, and he believed the MCH program was 

overall doing a good job.
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 65 GAO-07-163 Compacts of Free Association

Table 8: U.S. Department of Agriculture Rural Housing Service Housing Loan Program

Dollars in millions

Purpose and 

legislation

The U.S. Department of Agriculture’s (USDA) Rural Development Housing programs has provided direct housing loans 

and grants for single-family dwellings, among other services. The housing programs were authorized under the Housing 

Act of 1949, as amended (63 Stat. 413). 

• Section 502 of the Housing Act of 1949, as amended, allowed loans to low-income borrowers to buy, build, 

rehabilitate, improve, or relocate modest eligible dwellings for use by the borrower as a permanent residence.

• Section 504 allowed loans and grants to very low-income homeowners to make general improvements to their homes 

as long as the dwelling remained modest and was not used for commercial purposes.

U.S./FSM U.S./RMI

Funding FY2004: $2.12 (grant and loans)

FY2005: $2.92 (grants and loans)

FY2006: $2.13 (grants and loans)

FY2004: $2.03 (grants and loans)

FY2005: $2.27 (grants and loans)

FY2006: $1.32 (grants and loans)

Use of funds USDA maintains a local development office 

in each FSM state. Two hundred ninety-nine 

loans and grants were approved totaling 

$2,916,457 in 2005. Kosrae, the state with 

the smallest population, approved the 

greatest number of loans and grants (146), 

totaling $1,497,458, or 51 percent of the 

total loan amount available in the FSM. The 

Kosrae Rural Development Manager 

explained that the office did not have the 

same type of problems, such as securing 

title to the property, that other states had, 

and that their delinquency rate was very low. 

Chuuk, the state with the largest population, 

funded the smallest number of loans (52), 

totaling $299,544, or 10 percent of the total 

loan amount available in the FSM, in 2005. A 

USDA loan official stated that this disparity 

was due to Chuuk residents having a difficult 

time obtaining title to their land, which is a 

requirement for new home construction 

loans.

In 2005, 211 loans and grants were approved in the RMI, at a value of 

$2,272,020. According to the Western Pacific Area Director, while USDA 

has not opened an office in Ebeye, the RMI government established one 

there in 2001 with the intent of expanding USDA’s housing program to the 

island’s eligible residents. He stated that the office is staffed with RMI 

government employees who are trained in USDA’s housing programs and 

supervised by the USDA manager in Majuro. He also stated that the 

office initially administered the section 504 program, but there is also 

potential to administer the section 502 construction housing program. 
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 66 GAO-07-163 Compacts of Free Association

Sources: GAO analysis of documents and interviews with agency officials.

Program 

observations

Previously, we pointed out that the applicable Department of Housing and Urban Development income limits may not 

target the neediest residents based on the basis of income levels and family size of FSM and RMI applicants (see 

GAO-02-70). The income of FSM or RMI applicants has to be “low” or “very low” as determined by the Housing and 

Urban Development’s Adjusted Income Limits for Western Pacific Islands. Moreover, according to a USDA Rural 

Development official, USDA is required by law to follow these criteria. The office managers that we interviewed did not 

see a problem in using the Western Pacific eligibility levels for FSM residents, and one manager estimated 90 percent of 

residents would qualify for the very low-income threshold due to the large family sizes and low-income levels of the 

applicants. 

At the time of our previous report, the amended compacts between the FSM and the RMI and the United States were 

not a certainty, and there were concerns about the ability of borrowers to repay their loans if there were a future 

reduction in U.S. economic assistance. The amended compact only ensures direct U.S. grants funding until 2023, and 

many of these long-term loans will be active beyond that date. However, USDA was not required to consider the effects 

that a future reduction in U.S. economic assistance could have on the ability of its borrowers to repay their loans. 

Our prior report also found that USDA Rural Development Housing Program accountability was insufficient and 

ineffective, and that the Hawaii State Office failed to exercise adequate oversight in the FSM and the RMI. According to 

USDA Rural Development, accountability has improved through the following actions: (1) the State Internal Reviews for 

the FSM’s four states and the RMI between 2001 and 2004 were conducted in accordance with agency regulations and 

guidelines, and all significant weaknesses were appropriately addressed and (2) the personnel involved with prior 

significant irregularities with the housing program in Pohnpei were terminated. 

(Continued From Previous Page)

Dollars in millions
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 67 GAO-07-163 Compacts of Free Association

Table 9: U.S. Department of Agriculture Rural Utilities Services Telecommunications Loan Program

Purpose and 

legislation

The Rural Electrification Act of 1936, as amended (49 Stat. 1363), authorized the U.S. Department of Agriculture (USDA) 

to make loans for furnishing and improving telephone service in rural areas. The loans were intended to be used to 

furnish, improve, expand, construct, and operate telephone facilities or systems in rural areas. The amended compacts 

implementing legislation authorized programs to be made available to the FSM and the RMI. USDA Rural Development 

Utilities Programs, which is the successor to the Rural Electrification Administration, made a 35-year term loan to the 

Federated State of Micronesia Telecommunications Corporation (FSMTC) and 35-year and 17-year term loans to the 

Marshall Islands National Telecommunications Authority (MINTA). 

U.S./FSM U.S./RMI

Funding According to a USDA Rural Development 

official in 1987, a USDA Rural Development 

Utilities loan was approved to FSMTC for 

$41 million. The loan’s terms were 35 years at 

5 percent interest with principle payments 

beginning in 1990. The official also stated that 

the FSMTC has been making monthly 

payments toward the completion of the loan 

and is scheduled to pay it off by 2022. 

According to a USDA Rural Development official in 1987, the Utilities loan 

was approved to the MINTA for $18.8 million. The loan’s terms were 35 

years at 5 percent interest beginning in 1990 and in 1993, a second RUS 

loan was approved in the amount of $4.0 million. The terms of the second 

loan were 17 years at 5 percent interest with principle payments 

beginning in 1996. In addition, the official stated that the MINTA has been 

making monthly payments toward the completion of the loans and is 

scheduled to pay off the loans in 2022 and 2010, respectively. 

Use of funds Our previous review found that the USDA loan 

increased telephone and communications 

availability to homes and businesses. In 1987, 

the FSMTC had 1,300 subscribers, while in 

1993 the number of subscribers increased to 

6,000 and to more than 9,870 throughout the 

FSM states in 2001. The FSMTC’s 2005 audit 

report identified a little over 10,000 customers 

of landline telephone service and 

approximately 17,380 mobile service 

customers.

Our previous review found that the USDA loan increased telephone and 

communications availability to homes and businesses. In 1987, the 

company had 653 subscribers. The MINTA’s 2005 audit report indicated it 

provided landline telephone service to 5,804 customers, 911 cellular 

customers, and 807 Internet users. The MINTA noted that this was a 

decrease in cellular subscribers from 1,198 and Internet users from 878 

in 2004 because their system on Ebeye was not operational from January 

to May 2005. 
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 68 GAO-07-163 Compacts of Free Association

Sources: GAO analysis of documents and interviews with agency officials.

Table 10: U.S. Department of Agriculture Rural Utilities Services Electrical Loan Program

Program 

observations

Both the FSMTC and the MINTA provided access to telephone service to an increasing portion of their respective 

national populations. According to World Bank Data, FSM telephone subscribers have increased from 16 out of every 

1,000 customers in 1987 to 226 per 1,000 customers in 2004. Of the 226 subscribers, mobile telephone customers were 

117 per 1,000 and landline customers were 109. RMI subscribers also grew, from 11 per 1,000 people in 1990 to 86 per 

1,000 customers in 2003. Of the 86 subscribers, mobile telephone customers were 10 per 1000 and landline were 76. 

According to officials from the FSM and RMI telecommunication agencies, both entities have been repaying their loans 

on a regular monthly basis to the USDA Rural Development Utilities Programs. At the time of our previous report, the 

amended compacts between the FSM and the RMI and the United States were not a certainty, and there were concerns 

about the ability of borrowers to repay their loans if there were a future reduction in U.S. economic assistance (see 

GAO-02-70). While the FSM and RMI governments have assumed responsibility for the secured loans if the borrowers 

are unable to pay, the dependence of the governments on U.S. funds may put such repayment at risk. However, USDA 

was not required to consider the effect a future reduction in U.S. economic assistance could have on the ability of its 

borrowers to repay their loans. 

Both countries’ telecommunication companies were subject to feasibility studies as a loan requirement, and both studies 

showed that the projects were financially viable. Each company was subject to loan fund and accounting reviews during 

construction. The FSMTC’s 2005 single audit was an unqualified “clean” on financial statements and had no reportable 

findings. The MINTA 2005 annual report, which also included the independent auditor’s report, gave an unqualified 

“clean” opinion on the financial statements with no reportable findings.

Purpose and 

legislation

USDA Rural Development Utilities Programs electrical loans, authorized under the Rural Electrification Act of 1936, as 

amended, (49 Stat. 1363), were intended to furnish and improve electrical service in rural areas and finance the 

construction of electric distribution, transmission, and generation facilities. The amended compacts implementing 

legislation authorized loans to be made available to the FSM and the RMI. USDA Rural Development Utilities Programs is 

the successor to the Rural Electrification Administration.

U.S./FSM U.S./RMI

Funding Loan application is pending from one of the 

four utility companies in the FSM.

According to an USDA Rural Development official, the Marshall Energy 

Company received a loan for about $12.0 million in 1997. The official stated 

that the loan term was 20 years at 6.9 percent interest.
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 69 GAO-07-163 Compacts of Free Association

Sources: GAO analysis of documents and interviews with agency officials.

Use of funds The Pohnpei Utilities Corporation filed its 

original loan application in 1999 with USDA 

Rural Development for $10.6 million. 

Because of problems in obtaining title to the 

property where the new power plant was to 

be built, no action was taken on the loan 

application. According to a Pohnpei Utilities 

Corporation official, the state of Pohnpei 

legislature acted to give the Ponhpei Utilities 

title to the property in 2004 and a revised 

loan application for $18 million was filed 

with the USDA Rural Development in July 

2005. USDA Rural Development requested 

additional information on a number of 

engineering, legal, and financial issues and 

is awaiting a response from the Pohnpei 

Utilities Corporation before any further 

action is taken.

The Marshall Energy Company commissioned its 12.8 megawatt 

generating station in December 1999. This plant, the island’s second, was 

built to relieve the old power plant’s five generators, all of which operated at 

peak hours with no backup. Demand for electrical power has increased in 

the RMI and the number of new businesses seeking power increased by 34 

percent between 1997 and 1999, and the number of private users 

increased by 11 percent during the same period. According to agency 

officials the Marshall Energy Company had to make three separate price 

increases in 2005 to help recoup the rising cost of oil used to operate its 

generators. The officials also stated that after each increase, use went 

down and company’s revenue did not match its expectations. The officials 

believe future government and business users will be more stable 

consumers of energy, once the schools and other infrastructure projects are 

completed on Majuro. 

Program 

observations

Our prior report detailed that both power companies were subject to engineering and financial feasibility study 

requirements (see GAO-02-70). While feasibility studies showed that the FSM project was necessary and financially 

viable, the loan application from the Pohnpei Utilities Corporation, which was first submitted in 1999 according to a USDA 

Rural Development official, has not been approved as of September 2006, because of the problems previously 

mentioned. In addition, the Pohnpei Utilities Corporation has been slow in responding to RUS requests for additional 

information related to the loan.

At the time of our previous report, the amended compacts between the FSM and the RMI and the United States were not 

a certainty, and there were concerns about the ability of borrowers to repay their loans if there were a future reduction in 

U.S. economic assistance. While the FSM and RMI governments have assumed responsibility for these secured loans if 

the borrowers are unable to pay, the dependence of the governments on U.S. funds may put such repayment at risk. The 

amended compact only ensures direct U.S. grants funding until 2023, and the Pohnpei Utilities Corporation loan, if it is 

funded, may still be active past this date. 

The USDA Rural Development official stated that the Marshall Energy Company was that delinquent on payments to 

USDA for about 30 days, and that they are now current with all loan repayments. The RMI 2005 single audit stated that 

the Marshall Energy Company was not in compliance with certain loan coverage ratio requirements, and the Rural 

Development official confirmed that the Marshall Energy Company has not met these requirements for the last few years. 
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 70 GAO-07-163 Compacts of Free Association

Table 11: Federal Emergency Management Agency Program/U.S. Agency for International Development

Dollars in millions

Purpose and 

legislation

The Federal Emergency Management Agency (FEMA) assistance is intended to help states and localities respond to, 

plan for, recover from, and mitigate disasters. Under the original compact, disaster assistance services and programs 

were to be made available to the FSM and the RMI in the same manner as assistance was made available to a U.S. 

state. Under the amended compacts, the programs and services of FEMA are also extended to the FSM and the RMI to 

the same extent that programs and services were available in 2003, but only until December 16, 2008. The FSM, the 

RMI, and the United States agreed in the amended compacts supplemental agreements to seek to reach agreement for 

alternate assistance arrangements involving a significant role for the U.S. Agency for International Development 

(USAID). If an agreement is not reached by December 16, 2008, all emergency and disaster preparedness, response, 

and recovery assistance will be provided to the FSM and the RMI by USAID. After this date, USAID will be responsible for 

the provision of emergency and disaster relief assistance in accordance with its statutory authorities, regulations, and 

policies. According to a FEMA official, funding for USAID disaster assistance activities in the FSM and the RMI will be 

funded from FEMA’s Disaster Relief Fund. For the FSM and the RMI to secure disaster assistance from the United 

States, either currently or under the new arrangement, the FSM or the RMI can request that the President of the United 

States make an emergency or major disaster declaration. If the President declares an emergency or major disaster, the 

Department of Homeland Security (DHS), FEMA, and USAID will jointly (1) assess the damage caused by the 

emergency or disaster and (2) prepare a reconstruction plan that includes an estimate of the total amount of federal 

resources that are needed for reconstruction. 

U.S./FSM U.S./RMI

Funding FEMA FY2004: $12.36 

FEMA FY2005: $10.16

DHS FY2005: $0.05

DHS FY2006: $0.05 

FEMA FY2004: $0.05

DHS FY2005: $0.05

DHS FY2006: $0.05

Use of funds Since 2004, FEMA has provided about 

$22.5 million in disaster assistance to Yap 

in the FSM for recovery assistance when 

the island was heavily damaged by 

Typhoon Sudal in April 2004. The FSM also 

received $50,000 a year from FEMA for 

disaster preparedness in 2004. Starting in 

2005 and continuing through 2006, this 

funding will be from the DHS Emergency 

Management Performance Grants 

Program.

In 2004, FEMA funded the RMI with $50,000 a year for disaster 

preparedness. Starting in 2005 and continuing through 2006, this funding 

will be from the DHS Emergency Management Performance Grants 

Program.
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 71 GAO-07-163 Compacts of Free Association

Sources: GAO analysis of documents and interviews with agency officials.

Program 

observations

Previously, we found that the FSM and the RMI did not appear to be developing the capability for their states and 

localities to respond to, plan for, recover from, and mitigate disasters (see GAO-02-70). In our 2006 interviews with local 

agency officials, we learned the following:

• The FSM National Disaster Coordinating Officer stated that some projects on the outer islands were difficult to 

complete because of the distance and lack of proper equipment. In Chuuk, FEMA funds from the 2002 typhoons are 

still being spent to repair buildings and to build seawalls.

• The Director of the RMI’s Natural Disaster Management Office said the RMI has been more responsive in utilizing 

disaster preparedness funds in recent years, although no FEMA funds were provided when a recent fire damaged the 

Majuro hospital. Instead, the RMI received support from USAID’s Office of Foreign Disaster Assistance and the 

Department of Defense through their U.S. Army Kwajalein Atoll site.

Although both the FSM and the RMI disaster officers said that they had completed the 2004 reports that they submitted 

to FEMA, they were not able to locate or provide copies of the reports. The FSM Office of Public Auditor recently 

completed a review of files related to FEMA funds provided to the FSM to assist and recover from three 

typhoons—damaging Chuuk, Chata’an, in July 2002; Pongsona in January 2003; and Lupit in December 2003—and 

found internal control weaknesses in the disbursement of FEMA funds. These weaknesses could lead to misuse of 

FEMA funds. In addition, more than 18 percent of the vouchers the auditors requested (22 out of 115) could not be found. 

These vouchers accounted for over 40 percent of the sampled funds and represented about $444,000 of the $1,088,000 

selected for review. The auditors made four recommendations for improving internal control procedures, which the FSM 

agreed to correct.

Under the amended compacts, there is a disaster assistance emergency fund established with each government, 

whereby the United States contributes $200,000 each year. However, the U.S. funding comes out of the amended 

compact funding and not from FEMA. According to the Emergency Management and Performance Grants Program 

Manager, the FSM and RMI will continue to have access to DHS grant program funding for disaster preparedness even 

after the transition of the responsibility for disaster emergency and relief assistance goes to USAID.

(Continued From Previous Page)

Dollars in millions
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 72 GAO-07-163 Compacts of Free Association

Table 12: U.S. Postal Service Program

Dollars in millions

Purpose and 

legislation

Under the amended compacts with the FSM and the RMI, the services and programs of the U.S. Postal Service (USPS) 

are made available to the two countries as provided for in the Federal Programs and Services Agreements 

accompanying the amended compacts. In these supplemental agreements, USPS agreed to maintain a reasonable and 

cost-effective level of service for sending mail to and from the United States and mail offices of the FSM and the RMI. In 

addition, under these agreements, USPS no longer provides payment for services upon delivery (commonly called Cash 

on Delivery). According to a USPS official pursuant to the agreements, USPS also negotiated later with the countries to 

end Special Services, such as Guaranteed Express Mail and Insured Mail. This official stated that U.S. postal Money 

Order Service was also terminated on August 31, 2006. Finally, under the amended compacts supplemental 

agreements, the FSM and the RMI agreed that USPS could establish special cost-related international rates or standard 

international rates and classifications for mail to the FSM and the RMI that would be phased in over a 5-year period, 

beginning no sooner than 2006. According to this official, the change became effective with the U.S. postal rate increase 

of January 8, 2006.

U.S./FSM U.S./RMI

Funding According to USPS officials, the cost of providing transportation, administration, and technical assistance are supposed 

to be reimbursed by the Department of the Interior (DOI). However, USPS reported that under the original compact, they 

were not reimbursed their full costs. Under the supplemental agreement to the amended compact, which allows USPS 

transition to international rates to the FSM and the RMI over a phased-in period, USPS expects that the amount of their 

subsidy for this service will decline. 

USPS was unable to separate out the costs of providing services to the FSM, RMI, and Republic of Palau, but provided 

the following combined totals:

FY2004: Total costs - $3.13 Reimbursed by DOI: $2.26 Unpaid balance: $0.87 

FY2005: Total costs - $2.53 Reimbursed by DOI: $2.43 Unpaid balance: $0.10a

Use of funds USPS transports mail and parcels to and 

from the FSM and provides equipment, 

material, supplies, and technical assistance 

to the country. During 2005, the FSM 

received approximately 519,000 pounds of 

mail and sent out approximately 151,000 

pounds.

USPS transports mail and parcels to and from the RMI and gives 

equipment, material, supplies, and technical assistance to the country. 

During 2005, the RMI received approximately 385,000 pounds of mail and 

sent out approximately 73,000 pounds.
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 73 GAO-07-163 Compacts of Free Association

Sources: GAO analysis of documents and interviews with agency officials.

a

The unpaid balances do not carry over from year to year but reflect those annual costs for which 

USPS was not reimbursed by DOI.

Program 

observations

USPS provides assistance and services in accordance with the amended compact, including mail transportation and 

technical assistance. As permitted in the amended compacts supplemental agreements between both countries and the 

United States, beginning in January 2006, USPS began to phase in new international rates. According to USPS officials, 

while this has resulted in increased costs to the countries for mail sent to the FSM and the RMI, they believe this will 

increase its revenue and thus offset some of the cost that DOI does not reimburse. The change in postal rates has 

created controversy in the Marshall Islands, with government and business leaders asking that a rate hike be 

reconsidered. There has not been a similar request from the FSM. RMI per-capita in-bound mail volume is almost 44 

percent greater than the per-capital FSM in-bound mail volume. 

USPS officials reported that prior to the termination of Special Services, such as Express Mail Guarantee, Cash on 

Delivery, and insurance, USPS had paid out thousands of dollars yearly in claims to customers. 

Before postal Money Order Service was terminated in August 2006, USPS reported that it had tightened control on all 

money order transactions from the FSM and the RMI. A finance manager in USPS’s Honolulu office reviewed the 

countries’ transaction reports and reported any irregularities to the U.S. Postal Inspection Service. In the past 2 years, 

USPS reported one incident of money order irregularities that occurred in January 2006 in the RMI. In this instance, 

USPS fully collected all money due to the agency, and the employees involved were terminated.

(Continued From Previous Page)

Dollars in millions
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 74 GAO-07-163 Compacts of Free Association

Table 13: Federal Aviation Administration Program

Sources: GAO analysis of documents and interviews with agency officials.

Dollars in millions

Purpose and 

legislation

The Vision 100 – Century of Aviation Reauthorization Act (Pub. L. No.108-176) made sponsors of airports in the FSM 

and the RMI eligible for grants from the Airport Improvement Program discretionary fund and the Small Airport Fund for 

2004 through 2007. The access to these funds is new. Under the original compact, the Federal Aviation Administration 

(FAA) did not provide direct funds to the RMI and the FSM but was required to provide aviation safety services in the 

countries. Under the amended compacts’ supplemental agreements, the United States again agreed to provide aviation 

safety services to (1) foster safe and efficient air travel to the two countries and (2) facilitate the establishment of aviation 

safety authorities and aviation safety statutory and regulatory regimes in the FSM, and provide advice and guidance to 

aviation safety statutory and regulatory regimes and aviation safety authorities of the RMI. 

U.S./FSM U.S./RMI

Funding FY2004: $9.45

FY2005: $3.35

FY2006: $11.05 

FY2004: $1.50

FY2005: $11.00

FY2006: $13.50 

Use of funds The FSM submitted applications to use airport 

improvement funds in Chuuk, Kosrae, Ponhpei, 

and Yap. Construction within the four states 

was delayed due to the length of time required 

to develop and approve the FSM application, 

which included all four projects, and to the 

difficulty for the FAA of coordinating four 

separate state airport projects with staggered 

construction dates. 

The first work will be done in Yap, with Pohnpei, 

Chuuk, and Kosrae to follow. Work on the Yap 

airport, which suffered typhoon damages, 

started in January 2006 and is expected to be 

completed by January 2007. A short-term 

repair to the Pohnpei runway was completed in 

August 2006, and the permanent repair is 

scheduled to start in 2007. Bids for Aircraft 

Rescue and Fire Fighting building plans for 

each of the states were expected in November 

2006. 

The FAA also provided workshops, such as 

Airport Emergency Operations Training, to the 

personnel of each airport.

According to a RMI Port Authority official, the RMI project is well under 

way, but construction has been slow because of the need to keep their 

single runway operational. Repair work thus has been shifted to evening 

hours when there are no scheduled flights. 

The rehabilitation of the runway at the Majuro airport started in 

September 2005 and was scheduled to be completed by September 

2006. 

The FAA also provided various workshops, such as Airport Emergency 

Operations Training, to the personnel of the Majuro airport.

Program 

observations

The FAA appears to be working effectively with the RMI and FSM governments in implementing the Airport Improvement 

Program. Although officials in each country noted various delays and problems with the implementation of the projects, 

they have acknowledged that they would not have been able to fund these needed repairs on their own. 

The FAA is also addressing safety and security issues. For example, the FAA deployed a special inspection team in 

October 2005 to investigate safety and security concerns raised in a cable from the FSM U.S. Embassy. The inspection 

report addressed the issues raised in the cable and concluded that the equipment, facility, and personnel in place at the 

time of the inspection provided for safe airport operations and that the completion of the Airport Improvement Program 

projects at the Yap airport will bring them into full compliance with current FAA standards.
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 75 GAO-07-163 Compacts of Free Association

Table 14: National Weather Service Program

Dollars in millions

Purpose and 

legislation

The National Weather Service (NWS) provides weather forecasts and warnings for the United States and its territories, 

adjacent waters, and ocean areas for the protection of life and property and the enhancement of the national economy. 

The FSM and the RMI weather offices provide warnings, observations, and adaptive local forecasts as well as provide 

inputs to Guam’s weather service for its daily Western Pacific area forecasts. Under the amended compacts with the FSM 

and the RMI, the services and programs of the NWS are made available to the two countries as provided for in the 

Federal Programs and Services Agreements accompanying the amended compacts.

U.S./FSM U.S./RMI

Funding FY2004: $0.92 

FY2005: $1.05 

FY2006: $1.02a

FY2004: $0.34 

FY2005: $0.46

FY2006: $0.37a 

Use of funds The FSM weather service offices are 

located in Chuuk, Pohnpei, and Yap, and a 

weather reporting station is located in 

Kosrae. These facilities provide weather 

forecasts, limited observations, and data to 

FSM citizens. According to a NWS official, 

these offices are fully staffed by FSM 

citizens. The official said that the offices 

receive funding on a cost-reimbursable 

basis, and technical assistance, advice, and 

training through the U.S. NWS. The official 

also stated that according to NWS 

evaluations, the three weather service 

offices’ staff are as capable and as well 

trained as comparable U.S.-based weather 

service offices. 

According to a NWS official, the NWS is 

funding a new Weather Forecast Office in 

Pohnpei estimated at $2.8 million. The 

project is expected to begin in 2007.

The RMI weather service office provides weather forecasts and data to RMI 

citizens. According to a NWS official, the office is fully staffed by RMI 

citizens. He said that the office receives funding on a cost-reimbursable 

basis, and technical assistance, advice, and training through the U.S. NWS. 

The official also stated that according to NWS evaluations, the weather 

service office’s staff is as capable and as well trained as comparable 

U.S.-based weather service offices.

According to a NWS official, the NWS paid an additional $1.98 million for a 

new Weather Forecast Office in Majuro. The majority of these funds were 

obligated in 2006.
Appendix II

U.S. Program Assistance to the FSM and the 

RMI

Page 76 GAO-07-163 Compacts of Free Association

Sources: GAO analysis of documents and interviews with agency officials.

a

As of August 2006.

Program 

observations

The program provides the FSM with the 

facilities, equipment, technical assistance, 

and resources needed to operate weather 

services. 

The NWS Pacific Region Director stated 

that an example of the program’s 

effectiveness was demonstrated in Yap in 

relation to Typhoon Sudal, which struck on 

April 8-9, 2004. As a result of weather 

service outreach and education in Yap, the 

local communities responded to early 

warnings of Typhoon Sudal, one of the 

strongest storms ever to strike Yap, and 

were well prepared when it struck. Yap 

residents suffered no deaths or serious 

injuries from the storm.

The program provides the RMI with the facilities, equipment, technical 

assistance, and resources needed to operate weather services. 

The NWS Pacific Region Director stated that outreach and training 

performed on a continuing basis by both local office personnel and NWS 

personnel from Guam provide the basis for community readiness and 

response.

(Continued From Previous Page)

Dollars in millions
Page 77 GAO-07-163 Compacts of Free Association

Appendix III

U.S. Funds to Be Provided to the RMI Related 

to Kwajalein Atoll, 2004 through 2023 ApendxiI

Table 15: U.S. Funds to Be Provided to the RMI Related to Kwajalein Atoll under the Terms of the Amended Compact, 2004 

through 2023 

Source: Amended RMI compact, Pub. L. No. 108-188.

Note: The funds shown in this table are subject to inflation adjustment, as provided under section 218 

of the compact. Furthermore, the “Agreement Regarding the Military Use and Operating Rights of the 

Government of the United States in the Republic of the Marshall Islands Concluded Pursuant to 

sections 321 and 323 of the Compact of Free Association, as Amended” states that the funds 

referenced in the table shall be provided through fiscal year 2023, “and thereafter for as long as this 

agreement remains in effect.”

a

Beginning in 2014, the amount of total funding provided to the RMI will increase by $5 million. Of this 

amount, $3 million is to be allocated to “Kwajalein Impact and Use” (sec. 212), while an additional $2 

million is to be added to annual grants to address the special needs of Kwajalein Atoll (sec. 211(b)(1)).

b

Funds for this use are made available under section 211(a) that provides grant assistance for 

education, health care, the environment, public sector capacity building, and private sector 

development.

c

Within its allocation of funds for the education, health, and infrastructure sector grants, the RMI 

designated funds for Kwajalein Atoll in 2004 and 2005.

d

These funds represent a continuation of funds that had gone to the Kwajalein Atoll Development 

Authority under the original compact.

e

Within its allocation of funds for the environment sector grant, the RMI designated funds for Kwajalein 

Atoll in 2004 and 2005.

Dollars in millions

Compact reference 2004-2013 2014a

-2023 Purpose

Section 211(b)(1)b $3.1 $5.1 To address the special needs of the community at Ebeye and 

other Marshallese communities within Kwajalein Atoll.c

Section 211(b)(2)b 1.9 1.9 To address the special needs of the community at Ebeye and 

other Marshallese communities within Kwajalein Atoll, with 

emphasis on the Kwajalein landowners.d

Section 211(b)(3)b 0.2 0.2 To support increased participation of the RMI Environmental 

Protection Authority in the U.S. Army Kwajalein Atoll 

Environmental Standards Survey, and to promote the RMI 

government’s capacity for independent analysis of the 

survey’s findings and conclusions.e

Section 212 – Kwajalein Impact 

and Use

15.0 18.0 Funds are provided to the RMI government to compensate 

for any impacts of the U.S. military on the atoll. The RMI 

government uses the funds to compensate Kwajalein Atoll 

landowners for U.S. access to the atoll.
Page 78 GAO-07-163 Compacts of Free Association

Appendix IV

FSM and RMI Sector Grants, 2004 through 

2006 ApendxiIV

Table 16 lists the compact sector grant allocation to the five FSM 

governments in 2004 through 2006. Table 17 lists the compact sector grant 

allocation of the RMI, including the Kwajalein funding, in 2004 through 

2006.

Table 16: Sector Grant Allocations to the Five FSM Governments, 2004 through 2006

Section grant/recipient

2004 2005 2006

Sector grant 

amount 

Percentage of 

total sector 

grant

Sector grant 

amount 

Percentage of 

total sector 

grant 

Sector grant 

amount 

Percentage 

of total 

sector grant

Education

FSM national government $4,324,122 17% $4,511,317 17% $4,159,081 16%

Chuuk 8,140,265 31 8,804,369 32 9,432,618 36

Kosrae 1,883,853 7 2,070,432 8 2,412,498 9

Ponhpei 7,373,651 28 7,469,772 28 6,978,447 27

Yap 4,243,681 16 4,249,157 16 3,149,415 12

 Subtotal $25,965,572 100% $27,105,047 100% $26,132,059 100%

Environment

FSM national government $79,477 4% $111,421 5% $0 --

Chuuk 378,394 19 502,499 21 798,428 37%

Kosrae 302,523 15 296,592 12 335,240 16

Ponhpei 666,944 33 688,181 29 665,807 31

Yap 595,854 29 791,258 33 337,977 16

 Subtotal $2,023,192 100% $2,389,951 100% $2,137,452 100%

Health

FSM national government $553,613 4% $763,235 4% $764,383 5%

Chuuk 4,691,707 30 5,595,636 32 6,292,745 38

Kosrae 1,326,663 9 1,674,212 10 1,763,553 11

Ponhpei 5,989,461 39 6,200,560 36 4,898,393 30

Yap 2,881,672 19 3,197,090 18 2,675,865 16

 Subtotal $15,443,116 100% $17,430,733 100% $16,394,939 100%

Infrastructure $17,119,155 100% $17,249,121 100% $24,335,717 100%

 Subtotal $17,119,155 100% $17,249,121 100% $24,335,717 100%

Private sector

FSM national government $513,091 14% $0 -- $0 --

Chuuk 1,338,874 35 1,403,876 35% 1,498,616 37%

Kosrae 795,261 21 988,025 24 606,029 15
Appendix IV

FSM and RMI Sector Grants, 2004 through 

2006

Page 79 GAO-07-163 Compacts of Free Association

Source: GAO analysis of FSM 2004 through 2006 sector grant agreements.

Table 17: RMI Sector Grants, Including Kwajalein Funding, 2004 through 2006

Ponhpei 525,423 14 657,602 16 887,817 22

Yap 613,470 16 989,407 24 1,046,701 26

 Subtotal $3,786,119 100% $4,038,910 100% $4,039,163 100%

Public sector capacity 

building

FSM national government $4,287,697 37% $608,028 8% $0 --

Chuuk 2,853,813 24 3,001,410 39 2,724,099 44%

Kosrae 1,013,866 9 1,113,866 14 1,346,976 22

Ponhpei 1,676,163 14 1,542,488 20 759,254 12

Yap 1,831,307 16 1,520,446 20 1,345,585 22

 Subtotal $11,662,846 100% $7,786,238 100% $6,175,914 100%

Total $76,000,000 -- $76,000,000 -- $79,215,244 --

(Continued From Previous Page)

Section grant/recipient

2004 2005 2006

Sector grant 

amount 

Percentage of 

total sector 

grant

Sector grant 

amount 

Percentage of 

total sector 

grant 

Sector grant 

amount 

Percentage 

of total 

sector grant

2004 2005 2006

Sector grant

Sector grant 

amount

Percentage of 

total sector 

grant

Sector grant 

amount

Percentage of 

total sector 

grant

Sector grant 

amount

Percentage of 

total sector 

grant

Education $9,648,932 90% $9,541,921 86% $10,834,083 91%

Kwajalein funding 1,100,000 10 1,600,000 14 1,100,000 9

 Subtotal $10,748,932 100% $11,141,921 100% $11,934,083 100%

Environment $200,000 50% $202,360 50% $202,480 50%

Kwajalein funding 200,000 50 202,360 50 205,520 50

 Subtotal $400,000 100% $404,720 100% $408,000 100%

Health $5,894,448 85% $5,564,197 79% $5,597,181 84%

Kwajalein funding 1,000,000 15 1,500,000 21 1,085,560 16

 Subtotal $6,894,448 100% $7,064,197 100% $6,682,741 100%

Infrastructure $13,700,000 93% $13,485,745 100% $12,495,679 93%

Kwajalein funding 1,000,000 7 0 -- 1,000,000 7

 Subtotal $14,700,000 100% $13,485,745 100% $13,495,679 100%

Private sector $356,620 100% $361,943 100% $361,943 10%

 Subtotal $356,620 100% $361,943 100% $361,943 100%
Appendix IV

FSM and RMI Sector Grants, 2004 through 

2006

Page 80 GAO-07-163 Compacts of Free Association

Source: GAO analysis of RMI 2004 through 2006 sector grant agreements

2004 2005 2006

Sector grant

Sector grant 

amount

Percentage of 

total sector 

grant

Sector grant 

amount

Percentage of 

total sector 

grant

Sector grant 

amount

Percentage of 

total sector 

grant

Public sector capacity 

building $0 -- $103,512 100% $103,154 100%

 Subtotal $0 -- $103,514 100% $103,514 100%

Special Needs (Ebeye) $1,900,000 100% $1,992,420 100% $1,882,440 100%

 Subtotal $1,900,000 100% $1,992,420 100% $1,882,440 100%

Total $33,100,000 -- $32,562,040 -- $32,985,960 --

(Continued From Previous Page)
Page 81 GAO-07-163 Compacts of Free Association

Appendix V

Single Audit Reports for the FSM and the RMI, 

2001 through 2005 ApendxiV

The FSM national government and the individual states in most cases did 

not submit their required single audit reports on time for 2001 through 

2005, while the RMI has generally improved the timeliness of its single 

audits, with its last three reports submitted by the established deadlines. In 

nearly all cases, auditors rendered qualified audit opinions on both the 

financial reporting and compliance with requirements of major federal 

programs for those single audit reports that were submitted. Furthermore, 

internal control weaknesses have persisted in both countries since we last 

reported on single audits in October 2003.1

 In March 2006, JEMCO 

threatened to take action, such as withholding funds, designating the FSM 

as a high-risk grantee, or conditionally approving sector grants for 2007, if 

the FSM and its states did not submit their 2005 single audits by July 1, 

2006.2

Single Audits Were Not 

Timely, but Timeliness 

Improved

The FSM and the RMI are required to submit audit reports each year to 

comply with compact and fiscal procedures agreement requirements. The 

submitted audits are to be conducted within the meaning of the Single 

Audit Act,3

 as amended. Single audits are a key control for the oversight 

and monitoring of the FSM and RMI governments’ use of U.S. awards, and 

are due to the Federal Audit Clearinghouse4

 9 months after the end of the

1

See GAO, Compact of Free Association: Single Audits Demonstrate Accountability 

Problems over Compact Funds, GAO-04-7 (Washington, D.C.: Oct. 7, 2003). Our review of 30 

single audit reports from the FSM national government, four FSM states, and the RMI for 

1996 through 2000 identified pervasive and persistent compliance and financial-related audit 

findings. These reports contained 458 audit findings over this period and showed recurring 

audit findings, despite the corrective action plans that were meant to address these 

problems.

2

The FSM national government’s single audit cannot be completed until the states’ single 

audits have been completed. If any one state is late, the FSM national government’s audit 

becomes automatically late. Chuuk submitted both its 2004 and 2005 single audits in July 

2006, which were 13 and 1 months late, respectively. 

3

All nonfederal entities that expend $500,000 or more of federal awards in a year are 

required to obtain an annual audit in accordance with the Single Audit Act, as amended. 31 

U.S.C. Chp. 75.

4

The Federal Audit Clearinghouse is an automated database of single audit information.
Appendix V

Single Audit Reports for the FSM and the 

RMI, 2001 through 2005

Page 82 GAO-07-163 Compacts of Free Association

audited period.5 All single audit reports include the auditor’s opinion on the 

audited financial statements and a report on the internal controls related to 

financial reporting. The single audit reports also include the auditor’s 

opinion on compliance with requirements of major federal programs and a 

report on internal controls related to compliance with laws, regulations, 

and the provisions of contracts or grant agreements. The FSM national 

government and the individual states in most cases did not submit their 

single audit reports6

 on time for 2001 through 2005, while the RMI has 

generally improved the timeliness of its single audits, with its last three 

reports submitted by the established deadlines. Table 18 shows the 

timeliness of reports for the FSM and the RMI.

Table 18: Single Audit Act Report Submissions, 2001 through 2005

Sources: GAO analysis of OMB Circular A-133, auditors’ reports, and Federal Audit Clearinghouse submission dates.

Note: The deadline is 9 months after the close of entity’s fiscal year. The date received is based on the 

most recent date that the required Single Audit form is received by the Federal Audit Clearinghouse.

5

The fiscal procedures agreements specify that the audits are due 6 months after the fiscal 

year-ends, but Interior believes that was a mistake in the agreements, and, according to 

Interior officials, they have allowed the countries 9 months, which is generally the required 

time frame under the Single Audit Act. According to the act, there is generally no standard 

due date for the annual single audit. The audited entity, upon hiring the auditor, negotiates a 

due date for the audit within 9 months after the close of the entity’s fiscal year. The entity 

must have time to read the report and prepare the corrective action plan that is required to 

be included in the reporting package. 

6

Single audits generally cover the entire organization and focus on recipients’ internal 

controls over financial reporting and compliance with laws and regulations governing 

federal awards. Among other information, single audit reports include the auditor’s opinion 

on the audited financial statements; reports on internal controls related to the financial 

reporting and major programs; and reports on compliance with laws, regulations, and the 

provisions of contracts or grant agreements. 

Number of months single audits were received past deadline, by 

country

Fiscal year-end RMI

FSM national 

government Chuuk Kosrae Pohnpei Yap

2001 15 27 12 26 26 19

2002 3 26 38 11 11 12

2003 0 25 24 21 19 18

2004 0 14 13 12 7 9

2005 0 2 1 0 0 0
Appendix V

Single Audit Reports for the FSM and the 

RMI, 2001 through 2005

Page 83 GAO-07-163 Compacts of Free Association

The lack of timeliness of the single audit reports for 2001 through 2005, 

especially for the FSM and its four states, has meant that U.S. agencies 

have limited knowledge of the territorial governments’ accountability over 

U.S. funds received. In addition, the governments’ inability to prepare 

financial statements and have them audited within 9 months of the fiscal 

year-end suggests weaknesses in the underlying financial systems and 

processes needed to produce financial information to efficiently and 

effectively manage the day-to-day operations of government. 

Nearly All Audit 

Opinions on Financial 

Reporting Were 

Qualified and 

Contained Material 

Weaknesses and 

Reportable Conditions

Among the 30 audit reports on financial reporting submitted by the FSM 

national and its state governments and the RMI for 2001 through 2005, 26 

reports received qualified opinions.7

 In 2005, Pohnpei received an 

unqualified8 (“clean”) audit opinion on their financial statements. In 2004 

and 2005, Chuuk received a disclaimed9 opinion on its financial statement, 

and Yap received a qualified/adverse10 opinion on its 2004 financial 

statement. Table 19 shows the type of financial statement audit opinions 

for the FSM and the RMI from 2001 through 2005.

7

A qualified opinion is given when the auditor finds conditions such as a lack of supporting 

evidence or a restriction on the scope of the audit.

8

An unqualified opinion is given when the auditor is reasonably assured that the financial 

statements are free of material misstatements. 

9

A disclaimer is given when the auditor cannot express an opinion on the financial 

statements. 

10An adverse opinion is given when the auditor concludes that the financial statements are 

not fairly presented. In the Yap 2004 single audit report, the auditors gave an adverse 

opinion on the component units because they could not determine the propriety of fixed 

assets of the Yap Fishing Authority and Diving Seagull, Inc., and the lack of audited financial 

statements of Yap Fresh Tuna, Inc. Overall, this is considered a qualified/adverse opinion 

because the other Yap entities were given an unqualified and qualified opinion. 
Appendix V

Single Audit Reports for the FSM and the 

RMI, 2001 through 2005

Page 84 GAO-07-163 Compacts of Free Association

Table 19: Financial Statement Audit Opinions for the RMI and the FSM, 2001 through 2005

Sources: Forms SF-FACs and single audit reports in the Federal Audit Clearinghouse database.

All of the audit opinions of the FSM national government’s financial 

statements from 2001 through 2005 were qualified. The opinions were 

qualified because of the lack of supporting evidence and restrictions on the 

scope of the audit. For example, the auditors qualified their opinion on the 

financial statements in the 2005 FSM report due to the following matters: 

• Their inability to determine (1) the propriety of cash and cash 

equivalents, receivables, advances, and amounts due to the FSM state 

governments for the governmental activities and the general fund; (2) 

receivables and amounts due to the FSM state governments for the U.S. 

Federal Grants Fund and the aggregate remaining fund information; and 

(3) cash and cash equivalents and receivables for the Asian 

Development Bank Loan Fund, and their effect on the determination of 

revenues and expenditures/expenses for government activities and the 

remaining aggregate remaining fund information.

• The lack of audited financial statements of the National Fisheries 

Corporation; Micronesia Longline Fishing Company; Yap Fishing 

Corporation; Yap Fresh Tuna Inc.; Chuuk Fresh Tuna, Inc.; and Kosrae 

Sea Venture, Inc.

In addition, all of the audit opinions of the RMIs’ financial statements 

during the 2001 through 2005 period were qualified. For example, as of 

2005, the auditors still could not determine the following: 

• the propriety of governmental activities’ capital assets,

• net assets invested in capital assets, and

Type of opinion

Year RMI

FSM national 

government Chuuk Kosrae Pohnpei Yap

2001 Qualified Qualified Qualified Qualified Qualified Qualified

2002 Qualified Qualified Qualified Qualified Qualified Qualified

2003 Qualified Qualified Qualified Qualified Qualified Qualified

2004 Qualified Qualified Disclaimed Qualified Qualified Qualified/ Adverse

2005 Qualified Qualified Disclaimed Qualified Unqualified 

“clean”

Qualified
Appendix V

Single Audit Reports for the FSM and the 

RMI, 2001 through 2005

Page 85 GAO-07-163 Compacts of Free Association

• the net of related debt and depreciation expenses.

The auditors also were unable to obtain audited financial statements for 

the following RMI component units:11

• Ministry of Education Head Start Program;

• Air Marshall Islands, Inc.;

• Kwajalein Atoll Joint Utilities Resources, Inc.; and

• Marshall Islands Development Bank.

The single audits also identified material weaknesses and reportable 

conditions related to the 2005 financial statements reports, totaling 57 for 

the FSM and 2 for the RMI (see table 20). These findings indicated a lack of 

sound internal control over financial reporting, which is needed to (1) 

adequately safeguard assets; (2) ensure that transactions are properly 

recorded; and (3) prevent or detect fraud, waste, and abuse. For example, 

in the 2005 FSM single audit report, material weaknesses included (1) the 

lack of documentation to support the amounts and disposition of fixed 

assets, (2) the lack of reconciliation of U.S. program receivables, (3) the 

lack of monitoring of receivable billing and collecting, and (4) 

unreimbursed U.S. expenditures. In the RMI 2005 single audit, the auditors 

found material weaknesses that included the use of unaudited financial 

statements from several component units and the lack of fixed asset 

inventory. 

11A component unit is a legally separate organization that a primary government is 

financially accountable for and must include as part of its financial reporting entity for fair 

presentation in conformity with generally accepted accounting practices. These component 

units also can be other organizations that due to their relationship to the primary 

government, if excluded would cause the reporting entity’s financial statements to be 

misleading or incomplete.
Appendix V

Single Audit Reports for the FSM and the 

RMI, 2001 through 2005

Page 86 GAO-07-163 Compacts of Free Association

Table 20: Numbers of FSM and RMI Material Weaknesses and Reportable Conditions 

in Internal Control over Financial Statement Reporting Identified in Single Audit 

Reports, 2005 

Sources: Single audit reports for 2005 from the FSM national government and four states and the RMI. 

Note: Material weaknesses are a subset of reportable conditions, but such weaknesses are 

considered more serious. To compute the number of reportable conditions that were not material 

weaknesses shown in this table, we subtracted the number of material weaknesses from the total 

findings.

We found that 14 of the 57 findings previously mentioned from the 2005 

FSM single audit report on financial reporting were recurring problems 

from the previous year or had been reported for several consecutive years. 

Likewise, the 2 findings from the 2005 RMI single audit report were 

recurring problems reported for several consecutive years. The FSM has 

developed corrective action plans to address about 91 percent of the 

financial statement findings in the 2005 single audits, and the RMI has 

developed plans for both of its financial statement reportable findings. For 

example, the FSM said that it would make efforts to reconcile 

intergovernmental balances and discuss this issue with all four states in 

2006, and the RMI said that it would hire a consultant qualified to conduct 

the valuation of fixed assets. 

Internal control 

over financial 

reporting RMI

FSM

total

FSM 

national 

government Chuuk Kosrae Pohnpei Yap

Material 

weaknesses 2 20 7 11 2 0 0

Reportable 

conditions 0 37 15 2 10 5 5

Total 2 57 22 13 12 5 5
Appendix V

Single Audit Reports for the FSM and the 

RMI, 2001 through 2005

Page 87 GAO-07-163 Compacts of Free Association

All Audit Opinions on 

Compliance with 

Requirements of Major 

Federal Programs Were 

Qualified and 

Contained Material 

Weaknesses and 

Reportable Conditions

In addition to the auditor’s report on financial statement findings, the 

auditors also provide a report on the countries’ compliance with 

requirements of major federal programs. All 30 of the audit reports on such 

compliance submitted by the FSM national and its state governments and 

the RMI for 2001 through 2005 received qualified opinions. Moreover, in the 

2005 single audit reports of compliance with requirements of major federal 

programs, auditors reported 45 material weaknesses and reportable 

conditions findings for the FSM and 11 for the RMI (see table 21). For 

example:

• In the FSM, findings that were material weaknesses included (1) the 

lack of internal controls over cash management requirements and (2) no 

reconciliation of U.S. grants receivable per Catalog of Federal Domestic 

Assistance number or by program number.

• In the RMI, findings that were material weaknesses included (1) a lack 

of inventory of fixed assets and (2) the lack of audit reports from 

subrecipient component units. 

Table 21: Numbers of FSM and RMI Material Weaknesses and Reportable Conditions 

in Internal Control over Compliance with Requirements of Major Federal Programs 

Identified in Single Audit Reports, 2005

Sources: Single audit reports for 2005 from the FSM national government and four states and the RMI. 

Note: Material weaknesses are a subset of reportable conditions, but such weaknesses are 

considered more serious. To compute the number of reportable conditions that were not material 

weaknesses shown in this table, we subtracted the number of material weaknesses from the total 

findings.

We found that only 4 of the 45 findings from the 2005 FSM single audit 

report, and only 2 of the 11 findings from the 2005 RMI single audit report, 

were recurring problems from the previous year or had recurred for several 

consecutive years. For the RMI, this was a significant shift from 2002, when 

8 of the 11 findings were recurring problems from the previous year or had 

recurred for several consecutive years. The FSM has developed corrective 

Internal control over 

compliance with 

federal awards RMI

FSM 

total

FSM 

national 

government Chuuk Kosrae Pohnpei Yap

Material weaknesses 6 22 2 9 11 0 0

Reportable conditions 5 23 18 0 0 2 3

Total 11 45 20 9 11 2 3
Appendix V

Single Audit Reports for the FSM and the 

RMI, 2001 through 2005

Page 88 GAO-07-163 Compacts of Free Association

action plans to address about 60 percent of the 2005 single audit’s 

reportable findings on compliance with requirements of major federal 

programs, and the RMI has developed plans for all its reportable findings 

on such compliance. For example, the FSM said that on October 1, 2005, a 

new procedure was implemented to properly monitor the drawdown of 

U.S. funds and to properly reimburse the states on time, and the RMI said 

that it would hire a consultant to assist component units in rectifying their 

accounting books and records. 

High-Risk Designations 

and Other Sanctions 

Threatened by OIA as 

Late Reports and Other 

Problems Persist

According to OMB Circular A-133, if a grantee fails to complete its single 

audit reports, U.S. agencies may impose sanctions such as, but not limited 

to, (1) withholding a percentage of federal U.S. awards until single audits 

are completed satisfactorily, (2) withholding or disallowing overhead costs, 

(3) suspending U.S. federal awards until the single audit is conducted, or 

(4) terminating the U.S. federal award. At the special March 2006 JEMCO 

meeting, the OIA Budget Director noted that single audits were the most 

important indicator of financial stability provided by a grantee to a grantor. 

He emphasized that OIA was particularly concerned about the lack of FSM 

single audits and notified FSM JEMCO participants that OIA intended to 

“apply a remedy” for single audit noncompliance beginning October 1, 

2006, that would include the possibility of withholding cash payments. OIA 

also may take necessary steps to have the FSM designated as a “high-risk” 

grantee. Finally, OIA recommended to JEMCO in the March 2006 meeting 

that if audits were not completed by July 1, 2006, that it only conditionally 

approve sector grants for 2007 so that funds may only be released to 

entities in compliance with single audit requirements. This warning 

appeared to have an impact on most of the FSM states, because Kosrae, 

Pohnpei, and Yap completed their 2005 reports on time. 

Other U.S. agencies have not designated the FSM as high risk in the past, 

even though they can assign a grantee as high risk if the grantee has a 

history of unsatisfactory performance, is not financially stable, has an 

inadequate management system, has not conformed to the terms and 

conditions of previous awards, or is otherwise irresponsible. Federal 

agencies that designate a grantee as high risk may impose special terms
Appendix V

Single Audit Reports for the FSM and the 

RMI, 2001 through 2005

Page 89 GAO-07-163 Compacts of Free Association

and conditions.12 Currently, none of the U.S. agencies providing funds to 

the FSM and the RMI have designated either country as a high-risk grantee, 

although this may be a possibility if the single audits are not completed 

within the deadlines requested by Interior. Officials from the Department of 

Education told us that, because most of the direct grant funding to the FSM 

has been subsumed by the Special Education Grant, which is administered 

by Interior, Education now has an even smaller share of the U.S. funds in 

the FSM, and therefore Interior would be in the best position to invoke a 

high-risk designation if warranted for a particular grant. Nevertheless, 

Education officials did take into account the lack of single audit 

performance when administering program funds and, in the case of funds 

for special education, had imposed additional reporting requirements.

Tables 22 and 23 show the total numbers of material weaknesses and 

reportable conditions identified in single audit reports for the FSM and the 

RMI in 2001 through 2005.

Table 22: Numbers of Material Weaknesses and Reportable Conditions Identified in Single Audit Reports for FSM National 

Government and States, 2001 through 2005

12The Grants Management Common Rule was established in 1987 under presidential 

direction to adopt governmentwide terms and conditions for grants to state and local 

governments. Each federal department incorporates the Grants Management Common Rule 

in its agency regulations. 

Reportable findings on internal control over 

financial reporting

Reportable findings on internal control 

over compliance with federal awards

Year Location

Material 

weaknesses

Reportable 

conditions only Total

Material 

weaknesses

Reportable 

conditions only Total

2001 FSM national government 5 10 15 1 1 2

Chuuk 2 16 18 2 6 8

Kosrae 15 1 16 1 4 5

Pohnpei 10 2 12 2 0 2

Yap 1 7 8 1 13 14

Total 33 36 69 7 24 31

2002 FSM national government 11 1 12 2 0 2

Chuuk 5 15 20 2 6 8

Kosrae 6 9 15 5 0 5

Pohnpei 8 7 15 5 1 6
Appendix V

Single Audit Reports for the FSM and the 

RMI, 2001 through 2005

Page 90 GAO-07-163 Compacts of Free Association

Sources: Single audit reports for 2001 through 2005 from the FSM national government and four states.

Note: Material weaknesses are a subset of reportable conditions, but such weaknesses are 

considered more serious. To compute the number of reportable conditions that were not material 

weaknesses shown in this table, we subtracted the number of material weaknesses from the total 

findings.

Year Location

Material 

weaknesses

Reportable 

conditions only Total

Material 

weaknesses

Reportable 

conditions only Total

Yap 1 6 7 1 14 15

Total 31 38 69 15 21 36

2003 FSM national government 6 2 8 3 1 4

Chuuk 2 8 10 7 0 7

Kosrae 3 4 7 2 0 2

Pohnpei 1 6 7 0 3 3

Yap 1 7 8 1 5 6

Total 13 27 40 13 9 22

2004 FSM national government 9 16 25 2 14 16

Chuuk 17 2 19 12 0 12

Kosrae 0 9 9 9 0 9

Pohnpei 0 7 7 0 5 5

Yap 1 6 7 0 5 5

Total 27 40 67 23 24 47

2005 FSM national government 7 15 22 2 18 20

Chuuk 11 2 13 9 0 9

Kosrae 2 10 12 11 0 11

Pohnpei 0 5 5 0 2 2

Yap 0 5 5 0 3 3

Total 20 37 57 22 23 45

(Continued From Previous Page)

Reportable findings on internal control over 

financial reporting

Reportable findings on internal control 

over compliance with federal awards
Appendix V

Single Audit Reports for the FSM and the 

RMI, 2001 through 2005

Page 91 GAO-07-163 Compacts of Free Association

Table 23: Numbers of RMI Material Weaknesses and Reportable Conditions Identified in Single Audit Reports, 2001 through 2005

Sources: Single audit reports for 2001 through 2005 from the RMI.

Note: Material weaknesses are a subset of reportable conditions, but such weaknesses are 

considered more serious. To compute the number of reportable conditions that were not material 

weaknesses shown in this table, we subtracted the number of material weaknesses from the total 

findings.

Reportable findings on internal control over 

financial reporting

Reportable findings on internal control over 

compliance with federal awards

Year Material weaknesses

Reportable 

conditions only Total

Material 

weaknesses

Reportable 

conditions only Total

2001 7 3 10 8 0 8

2002 9 8 17 10 1 11

2003 7 8 15 9 8 17

2004 2 1 3 6 3 9

2005 2 0 2 6 5 11
Page 92 GAO-07-163 Compacts of Free Association

Appendix VI

FSM Compliance with Special Sector Grant 

Terms and Conditions ApendxiVI

Sector Fiscal year

Special terms and conditions

in sector grants Status according to OIA

Education 2004 The FSM shall have 60 days from the date of grant 

award to realign this sector budget so that activities 

and related costs are clearly defined for each funding 

input under the grant. In doing so, the FSM should 

use a common or unified format wherever possible.

Between October and December 2003, 

OIA lacked education staff needed to 

conduct the follow-up.

The FSM shall have 60 days from the date of grant 

award to identify the amounts, sources, and the 

specific strategic focus and activities of all 

noncompact funding and direct technical assistance 

that relates to this sector.

Between October and December 2003, 

OIA lacked education staff needed to 

conduct the follow-up.

The FSM shall submit within 180 days from the date 

of grant award a streamlined and refined statement of 

outcome measures, baseline data, and annual targets 

to enable the tracking of outputs and outcomes. In 

doing so, the FSM should use a common or unified 

format wherever possible. These materials shall form 

the basis for setting measurable annual targets for the 

sector grant budget and performance plan that the 

FSM submits for 2005 funding. 

Between January and March 2004, OIA 

staff had discussions with all state directors 

of education and other sectors, expressing 

concern regarding performance-based 

budgeting and the lack of a unified format. 

OIA did not receive formal communication 

regarding these concerns from the FSM in 

2004. The new education grant manager 

placed a similar condition on the FSM in 

2005.

As a condition precedent to the drawdown of funding 

for this specific activity, Pohnpei shall provide written 

materials to justify the request for $52,463 for the 

funding of the public library from the education sector 

grant.

Written justification was not received from 

the Pohnpei Department of Education. 

However, OIA held discussions with the 

Pohnpei Director of Education during OIA’s 

first site visit in February 2004. The OIA 

education grant manager approved the use 

of education funds to support the library’s 

purchase of children’s books.

2005 The FSM shall submit within 90 days from the date of 

the grant award a streamlined and refined statement 

of national strategic goals, outcome measures, 

baseline data, and annual targets to enable the 

tracking of uniform and consistent, national, and state 

outputs and outcomes. In doing so, the FSM should 

use a common or unified format. 

The FSM did not meet the deadline. OIA 

reminded the FSM National Division of 

Education (NDOE) of the requirement 

several times, and finally indicated it would 

cut off funds to them in March 2005 if the 

submission was not received. The FSM 

provided the required submission in late 

February, but the quality of the information 

was deemed “questionable” by OIA.

The FSM shall conduct four evaluation studies and 

performance assessments.
Appendix VI

FSM Compliance with Special Sector Grant 

Terms and Conditions

Page 93 GAO-07-163 Compacts of Free Association

(1) Within 60 days from the date of the grant award, 

an analysis of school year 2004-2005 staffing 

patterns will be submitted and include, but not be 

limited to, the number of students enrolled as of 

October 1, 2004; the number of staff by category 

(principals, vice-principals, teachers, teacher 

assistants, specialists, support staff, etc.) as of 

October 1, who are full-time and part-time employees; 

changes in staffing from school year 2003-2004; the 

number of staff in each category in each school; and 

the October 1 student-to-teacher ratio.

(1) The staffing patterns report was 

submitted in a summarized form. The 

summary document did not include data on 

all of the staffing categories cited in the 

grant condition—for example, no data on 

vice- principals were received.

(2) Within 60 days from the date of the grant award, 

an inventory of textbooks and related resource 

materials for each grade in the core subjects of 

language arts, math, social studies, and science will 

be conducted and submitted.

(2) Each state completed their textbook 

inventory and submitted it to NDOE. NDOE 

transmitted the document “as is,” without a 

summary or any analysis. Yap’s report file 

could not be opened; a revision was 

received a few days later.

(3) Within 180 days from the date of the grant award, 

a national inventory of educational facilities will be 

conducted and progress to date submitted. The 

inventory will include, but not be limited to, the 

number of educational buildings, age of each, 

condition of each, list of repair needs by school, and 

date when last renovated.

(3) OIA was asked by NDOE to provide a 

sample format for the states to follow. 

NDOE was late in sending out the 

proposed format to the states. Thus, the 

four state submissions came in different 

formats, with no summary or analysis 

provided.

(4) Within 180 days from the date of the grant award, 

an evaluation of the effectiveness of the national 

student testing (NST) systems will be conducted and 

progress to date submitted. The NST and state 

testing instruments will be evaluated for validity and 

alignment to state standards and curricula.

(4) The report was completed for the FSM 

by a consultant. OIA learned later that the 

FSM hired the same consultant who had 

created the NST to evaluate it.

The FSM shall provide data of educational progress 

no less than annually, in time for submittal to JEMCO. 

At a minimum, data on the 20 indicators of 

educational progress discussed at the August 11 

JEMCO meetings will be gathered and submitted by 

state, along with a national summary, no later than 

July 30, 2005.

The FSM submitted a summary document, 

but it contained little narrative. According to 

OIA, it was difficult to decipher the meaning 

of some of the charts. The Office of 

Compact Management questioned the 

quality of the report, but it was submitted 

unchanged to OIA. A later submission 

contained a narrative analysis.

2006 The FSM shall ensure that within 90 days of the grant 

award, the FSM Department of Health, Education, 

and Social Affairs, in consultation with the four state 

departments of education and OIA, shall develop a 

national process and procedure for the procurement 

of textbooks on a 5-year purchasing cycle.

The FSM submitted the final national 

process and procedure document to OIA 

on March 16, 2006. According to OIA, the 

document was well thought out and 

included significant state input, but did not 

include the proposed purchasing cycle for 

each state. This omission will be a grant 

condition in 2007. 

(Continued From Previous Page)

Sector Fiscal year

Special terms and conditions

in sector grants Status according to OIA
Appendix VI

FSM Compliance with Special Sector Grant 

Terms and Conditions

Page 94 GAO-07-163 Compacts of Free Association

The FSM shall ensure that in 2006 through 2008, no 

less than $2.5 million of compact education sector 

funding allocated to state governments shall be used 

to purchase textbooks for the primary and secondary 

education systems and related instructional 

materials.

The states provided revised line item 

budgets, indicating their contribution to the 

$2.5 million requirement in November 

2005. OIA withheld a portion of the 

education sector grant funding in October 

and November 2005 until this requirement 

was met. 

The FSM shall provide data of educational progress 

no less than annually, in time for submittal to JEMCO. 

At a minimum, data on the 20 indicators of 

educational progress discussed at the August 11 

JEMCO meetings will be gathered and submitted by 

state, along with a national summary, no later than 

July 30, 2006.

The FSM missed the original July 30, 2006, 

deadline. However, OIA granted their 

requested extension until August 14, 2006. 

The report on the 20 indicators was 

received on that date.

SEG: The FSM shall submit, for approval by OIA, a 

written description and annual plan for the use of the 

grant funds. No funds may be disbursed until the plan 

is approved.

OIA approved the plan submitted by the 

FSM in September 2005. 

SEG: Timelines for all major objectives and activities 

must match the annual funding period. Timelines for 

the 2005 funding period are due to OIA by October 

31, 2005.

Revised timelines were received directly 

from each state, with no attempt to submit 

them as an FSM-wide deliverable.

SEG: The FSM shall submit to OIA by December 31, 

2005, a framework for each sub-grantee that 

illustrates how the programs and goals funded by the 

Special Education Grant correlate to the programs 

and goals funded by the compact education sector 

grant, and how all correlate to the FSM Strategic 

Development Plan’s education goals.

The national submission was received on 

January 30, 2006. According to OIA, it was 

obvious the national submission was 

written by one author who used little of 

what the states submitted.

Environment 2004 The FSM shall have 60 days from the date of grant 

award to realign this sector budget so that activities 

and related costs are clearly defined for each funding 

input under the grant. In doing so, the FSM should 

use a common or unified format wherever possible.

Never submitted.

The FSM shall have 60 days from the date of grant 

award to identify the amounts, sources, and the 

specific strategic focus and activities of all 

noncompact funding and direct technical assistance 

that relates to this sector.

Met.

The FSM shall submit within 180 days from the date 

of grant award a streamlined and refined statement of 

outcome measures, baseline data, and annual targets 

to enable the tracking of outputs and outcomes. In 

doing so, the FSM should use a common and unified 

format wherever possible. These materials shall form 

the basis for setting measurable annual targets for the 

sector grant budget and performance plan that the 

FSM submits for 2005 funding.

Never submitted.

(Continued From Previous Page)

Sector Fiscal year

Special terms and conditions

in sector grants Status according to OIA
Appendix VI

FSM Compliance with Special Sector Grant 

Terms and Conditions

Page 95 GAO-07-163 Compacts of Free Association

As a condition precedent to the drawdown of funding 

for this specific activity, Chuuk shall provide written 

justification to OIA for the funding of $100,990 for 

Marine Resources.

Justification was provided, and the funding 

was released.

2005 These activities listed below require additional written 

justification that they are in line with the sector grant’s 

mandated emphasis and guidelines. JEMCO 

conditionally approves the following, pending the 

submittal to OIA of sufficient information:

• National Government: Archives and Historic 

Preservation

• Chuuk: Marine Resources, Agricultural Operations, 

and Historic Preservation Office

• Yap: Roadside Maintenance and YAPCAP

Justification was submitted, and the fiscal 

procedures agreement language was 

broad enough to encompass all of the 

agencies’ core missions. Funding was 

released.

The FSM has 30 days from the date of grant award to 

submit the appropriate performance measures and 

baseline data to OIA for all approved activities. The 

measures and data are to be specific to each funded 

activity, not for the sector as a whole.

Funding was held until performance 

measures and baseline data were 

eventually submitted, the information was 

extremely poor quality. However, no 

guidance was given or requested by OIA to 

the FSM for the development of the 

information.

2006 The FSM shall not incur obligations against this grant 

until OIA has approved all proposed budget line items 

for the national government and its subgrantees.

OIA approved the budgets and released 

funds.

Health 2004 The FSM shall have 60 days from the date of grant 

award to realign this sector budget so that activities 

and related costs are clearly identified for each 

funding input under the grant. In doing so, the FSM 

should use a common or unified format wherever 

possible.

Partially met. According to OIA, while the 

numbers added up, the connection 

between activities and costs, and the 

relationship between costs to expected 

outputs—or how outputs linked back to the 

FSM’s strategic goals and stated 

performance outcomes—remained 

unclear.

The FSM shall have 60 days from the date of grant 

award to identify the amounts, sources, and specific 

strategic focus and activities of all noncompact 

funding and direct technical assistance that relates to 

this sector.

Met.

The FSM shall submit within 180 days from the date 

of grant award a streamlined and refined statement of 

outcome measures, baseline data, and annual targets 

to enable the tracking of outputs and outcomes. In so 

doing, the FSM should use a common or unified 

format wherever possible. These materials shall form 

the basis for setting measurable annual targets for the 

sector grant budget and performance plan that the 

FSM submits for 2005 funding.

Partially met. According to OIA, statements 

of outcome measures were revised and 

submitted but work was still required to 

make the FSM’s intent and targets clear. 

There were also problems related to having 

a common baseline year and using and 

providing information in a unified and 

common format. 

The FSM shall have until September 30, 2006, to 

obligate the carryover funds from 2004.

According to OIA, obligations are in 

process.

(Continued From Previous Page)

Sector Fiscal year

Special terms and conditions

in sector grants Status according to OIA
Appendix VI

FSM Compliance with Special Sector Grant 

Terms and Conditions

Page 96 GAO-07-163 Compacts of Free Association

Consistent with the resolution adopted by JEMCO on 

August 2004, funds made available through this 

award may only be used for health-related 

infrastructure expenditures and are subject to 

conditions applicable to the public infrastructure 

grant. Such allowable uses include facility upgrades, 

renovation and repair, and fixed equipment and other 

capital assets.

The list of projects and purchases received 

by OIA complied with the resolution.

The FSM Office of Compact Management shall 

compile a list of proposed related infrastructure 

expenditures identified by the FSM National 

Department of Health, Education, and Social Affairs 

and by Chuuk, Pohnpei, and Yap to be funded under 

this grant. The list shall be submitted to OIA’s 

Honolulu Field Office for review and concurrence by 

November 30, 2005. No expenditures shall be 

allowed prior to that review, unless specifically 

approved by OIA.

OIA communicated directly with Chuuk, 

Pohnpei, and Yap and notified the Office of 

Compact Management that the lists were 

acceptable. The deadline was extended 

because the grant award was not signed by 

the FSM until December 19, 2005, due to a 

technical (nonsubstantive) error. This error 

was not brought to OIA’s attention for 

correction until after the deliverable’s due 

date. 

2005 The FSM shall have 30 days from the date of grant 

award to provide information on the three health 

insurance programs in existence for national and 

state government employees. At a minimum, this 

information should include (1) a breakdown of costs 

associated with the programs in Chuuk and Pohnpei; 

(2) the numbers served by each of the three 

programs; (3) eligibility requirements; (4) the basis for 

calculating premiums and/or government subsidies; 

and (5) capitation payments to private providers, state 

hospitals, and, as applicable, off-island tertiary care 

facilities. 

The required information was provided, but 

its emphasis was on the FSM national 

government’s program. OIA asked for and 

received clarification on Chuuk and 

Pohnpei’s programs as well.

The FSM shall have until April 1, 2005, to complete a 

comprehensive evaluation of the effectiveness of 

existing primary care systems and expansion plans in 

all four states. The study shall give specific emphasis 

on dispensaries, community health centers, and rural 

health and cover the following areas: (1) dispensary 

staffing, (2) communications, (3) referrals, (4) 

infrastructure, (5) transportation, (6) the procurement 

and distribution of medicines and other essential 

supplies, and (7) new and in-service training. The 

responsible agency for the evaluation shall be the 

FSM National Department of Health, Education, and 

Social Affairs (HESA) in consultation with the four 

state departments of health.

The FSM submitted an acceptable 

evaluation of its existing primary care 

systems and expansion plans for all four 

states on time, and provided an oral report 

to JEMCO at the August 2005 meeting in 

Pohnpei.

HESA shall have 30 days from the date of grant 

award to submit an implementation plan and scope of 

work to OIA before going forward with the study. 

Deadline was extended by OIA and met by 

the FSM.

(Continued From Previous Page)

Sector Fiscal year

Special terms and conditions

in sector grants Status according to OIA
Appendix VI

FSM Compliance with Special Sector Grant 

Terms and Conditions

Page 97 GAO-07-163 Compacts of Free Association

The FSM has 30 days from the date of grant award to 

reprogram $4,391 earmarked for Chuuk’s 

Department of Education to a purpose specifically 

linked to the state’s Department of Health Services. 

Met.

The FSM has 30 days from the date of grant award to 

reprogram $11,500 earmarked for agricultural 

programs of Yap’s Department of Resources and 

Development, to either nutrition education or another 

program activity directly managed by the state’s 

Department of Health Services. 

Met.

No money shall be used by the FSM National 

Department of Health, Education, and Social Affairs 

for either building new facilities or renovating existing 

buildings. The findings of any physical assessment of 

health facilities funded under this grant shall be 

submitted to OIA no later than 90 days before the end 

of the grant period and also to the infrastructure 

development planning committees in all four FSM 

states.

Met.

By April 15, 2005, the FSM national government and 

Chuuk, in consultation with OIA, shall develop an 

outline of a plan that shall promptly address the 

deficiencies found in the Chuuk health dispensary 

program. The completed plan shall be transmitted to 

OIA by May 15, 2005.

An acceptable plan was developed in 

consultation with OIA and submitted on 

time. A verbal report on the plan’s 

implementation was accepted by JEMCO 

at its August 2005 meeting in Pohnpei.

2006 The FSM shall not incur obligations against this grant 

until OIA has approved all proposed budget line items 

from the national government and its subgrantees.

OIA gave its approval at the start of the 

fiscal year.

The FSM shall have 180 days from the date of grant 

award to submit information to OIA on (1) the 

common year selected by the National Department of 

Health, Education, and Social Affairs and all four state 

health departments that shall serve as the base for 

evaluations of sector grant performance and (2) data 

collected from that baseline year for all appropriate 

outcome measures described in the health care 

chapter of the FSM Strategic Development Plan. The 

submission shall also include 2004 data linked to 

these performance measures.

The FSM health directors met in 

September 2005 and agreed to use 2004 

as the baseline year. At that time, they 

established a process to review the 

strategic goals and outcome measures in 

the FSM’s development plan. In January 

2006, they met again and reaffirmed their 

previous selection of 10 outcome 

measures and added 4 more measures. 

The FSM national government also began 

collecting baseline data. 

The FSM shall have 180 days from the date of grant 

award to submit the appropriate actual performance 

targets for 2006 and prospectively for 2007 and 2010.

The health directors established mediumterm targets for 2010 but did not meet the 

condition to submit actual performance 

targets for 2006 or prospectively for 2007. 

According to OIA, the FSM health directors 

were confused about the requirement.

Infrastructure 2004 No grant funds may be expended or obligated before 

an infrastructure development plan (IDP) is developed 

by the FSM and submitted to OIA for review.

Not met in 2004.

(Continued From Previous Page)

Sector Fiscal year

Special terms and conditions

in sector grants Status according to OIA
Appendix VI

FSM Compliance with Special Sector Grant 

Terms and Conditions

Page 98 GAO-07-163 Compacts of Free Association

To the extent that the infrastructure priorities in the 

IDP differ materially from those set forth in the FSM 

Infrastructure Development Plan prepared by Nathan 

Associates, Inc., written justification should be 

provided to OIA for concurrence.

Not met in 2004.

An amount equal to 5 percent of the total grant must 

be placed in a separate bank account (the 

Infrastructure Maintenance Fund (IMF)), which upon 

deposit by the FSM will be matched by OIA. Funds in 

this account may be used for operations and 

maintenance needs once an IMF plan has been 

developed and submitted by the FSM and approved 

by OIA.

Not met in 2004.

2005 JEMCO resolves that infrastructure investment for 

2005 should move toward being funded at no less 

than 30 percent of annual compact grant funding, 

consistent with the sense of Congress, and shall 

achieve that level for 2006.

Met.

JEMCO resolves that OIA shall approve no projects 

until JEMCO has granted its concurrence in compactfunded portions of the FSM’s Infrastructure 

Development Plan.

Met.

JEMCO resolves that OIA shall deem approved no 

projects until the FSM national government has 

provided OIA with, and OIA has approved, a 

consolidated list of projects in order of national priority 

consistent with the IDP concurred by JEMCO.

Not met in 2005.

JEMCO resolves that as part of the justification of 

each infrastructure project, the FSM national 

government shall demonstrate that the project 

implementation shall be professionally managed. 

Met.

JEMCO allocates from the infrastructure sector the 

amount of $1 million for the initial establishment of a 

project management unit.

Met.

JEMCO resolves that by August 31, 2005, the FSM 

national government shall conduct detailed planning 

studies to determine the infrastructure requirements 

of the health and education sectors. 

Not met in 2005 —extended to January 31, 

2006, by JEMCO resolution. Extension of 

its deadline also was not met by the FSM.

2006 An amount equal to 5 percent of the total grant must 

be placed in a separate bank account, the IMF, which 

upon deposit by the FSM, will be matched by OIA. 

Funds in this account may be used for maintenance 

needs once an IMF plan has been developed and 

submitted by the FSM and approved by OIA.

Not met as of August 2006.

(Continued From Previous Page)

Sector Fiscal year

Special terms and conditions

in sector grants Status according to OIA
Appendix VI

FSM Compliance with Special Sector Grant 

Terms and Conditions

Page 99 GAO-07-163 Compacts of Free Association

Private Sector 

Development

2004 The FSM shall have 60 days from the date of grant 

award to realign this sector budget so that activities 

and related costs are clearly defined for each funding 

input under the grant. In doing so, the FSM should 

use a common or unified format wherever possible.

Never submitted.

The FSM shall have 60 days from the date of grant 

award to identify the amounts, sources, and the 

specific strategic focus and activities of all 

noncompact funding and direct technical assistance 

that relates to this sector.

Met.

The FSM shall submit within 180 days from the date 

of grant award a streamlined and refined statement of 

outcome measures, baseline data, and annual targets 

to enable the tracking of outputs and outcomes. In 

doing so, the FSM should use a common and unified 

format wherever possible. These materials shall form 

the basis for setting measurable annual targets for the 

sector grant budget and performance plan that FSM 

submits for 2005 funding.

Never submitted.

Funding under this grant shall not be used by Yap for 

the Visitor’s Bureau unless OIA approves a 

reprogramming request.

Yap submitted a revised budget and 

received approval for funding the Visitor’s 

Bureau.

Included within this grant is $888 for Yap to use for 

Resources and Development.

In accordance with the condition, Yap 

budgeted the funding for Resources and 

Development.

As a condition precedent to the drawdown of funding 

for this specific activity, Kosrae shall provide written 

materials to justify the request for $152,000 for the 

funding of Livestock Research/Tissue Culture.

Justification was provided, and the funding 

was released.

As a condition precedent to the drawdown of funding 

for this specific activity, Kosrae shall provide written 

materials to justify the request for $205,000 for the 

funding of the Mangrove Crab Project.

Funding was released.

Within 6 months, the FSM will develop a transition 

plan to migrate basic operations funding from 

compact sector grants to local revenues. This plan will 

provide for this migration to happen over a period not 

to exceed 5 years and in amounts no less than 20 

percent of the totals in each year, unless otherwise 

mutually agreed. The following amounts will be 

included in the transition plan: 

• Chuuk: $918,242

• Kosrae: $240,132

• Pohnpei: $335,781

• Yap: $319,136

The FSM contested the notion of a phaseout plan for the private sector development 

grant and planned to discuss the issue 

further at the next JEMCO meeting. OIA 

sent a letter agreeing to release the funds, 

and the issue was dropped.

(Continued From Previous Page)

Sector Fiscal year

Special terms and conditions

in sector grants Status according to OIA
Appendix VI

FSM Compliance with Special Sector Grant 

Terms and Conditions

Page 100 GAO-07-163 Compacts of Free Association

2005 JEMCO approves the following grants once adequate 

written justification is provided to OIA. The grants 

were for: 

• Chuuk: Commerce and Industry, Marine Resources, 

and Agriculture

• Pohnpei: Economic Development Authority

• Yap: Resources and Development

Justifications were submitted. The fiscal 

procedures agreements language is broad 

enough to encompass all agencies’ core 

missions. Funding was released.

The FSM has 30 days from the date of the grant 

award to submit the appropriate performance 

measures and baseline data to OIA for all approved 

activities. The measures and data are to be specific to 

each funded activity, not for the sector as a whole.

Funding was held until performance 

measures and baseline data were 

submitted. When performance measures 

and baseline data were eventually 

submitted, the information was of extremely 

poor quality. However, no guidance was 

given by OIA or requested from the FSM for 

the development of the information. 

2006 None.

Public Sector 

Capacity Building

2004 The FSM shall have 60 days from the date of the 

grant award to realign its budget so that activities and 

related costs are clearly defined for each funding 

input. In doing so, the FSM should use a common or 

unified format wherever possible.

Partially met. According to OIA, while the 

numbers added up, the connection 

between activities and costs, and the 

relationship between costs to expected 

outputs or how outputs— linked back to the 

FSM’s strategic goals and stated 

performance outcomes—remained 

unclear.

The FSM shall have 60 days from the date of the 

grant award to identify amounts, sources, and the 

specific strategic focus and activities of all 

noncompact funding and technical assistance that 

relates to this sector.

Met.

The FSM shall submit within 180 days from the date 

of the grant award a streamlined and refined 

statement of outcome measures, baseline data, and 

annual targets to enable the tracking of outputs and 

outcomes. In doing so, the FSM should use a 

common or unified format wherever possible. These 

materials shall form the basis for setting measurable 

annual targets for the sector grant budget and 

performance plan that the FSM submits for 2005 

funding.

Not met. The public sector capacity 

building grant does not contain any 

conforming, unified outcome measures; 

baseline data; or annual targets.

As a condition precedent to the drawdown of funding 

of $122,698, Chuuk shall hire a qualified public 

auditor.

Chuuk has not yet hired a qualified public 

auditor.

(Continued From Previous Page)

Sector Fiscal year

Special terms and conditions

in sector grants Status according to OIA
Appendix VI

FSM Compliance with Special Sector Grant 

Terms and Conditions

Page 101 GAO-07-163 Compacts of Free Association

Sources: FSM sector grant agreements for 2004 through 2006 and OIA compliance updates.

Within 6 months, the FSM will develop a transition 

plan to migrate basic operations funding from the 

public sector capacity building sector grant to local 

revenues. The plan will provide for this migration to 

happen over a period not to exceed 5 years and in 

amounts not less than 20 percent of the totals in each 

year, unless otherwise mutually agreed. The following 

amounts will be included in the transition plan:

• Chuuk: $2,741,115

• Kosrae: $909,187

• Pohnpei: $1,457,080

• Yap: $1,726,367

• National government: $3,782,175

The plan was late, and funds were 

temporarily withheld.

2005 The FSM had 30 days from the date of the grant 

award to submit the appropriate performance 

measures and baseline data to OIA for all approved 

activities. The measures and data are to be specific to 

each funded activity, not for the sector as a whole.

No submittal from the FSM.

JEMCO confirms the decision by the Anticipatory 

Task Force in August 2003 to require a transition plan 

of nonconforming expenses out of the public sector 

capacity building grant over a 5-year period and 

agrees, except to the extent otherwise provided by 

the foregoing resolution, to the schedule to which the 

FSM government has committed from the 

implementation of that transition plan for all five FSM 

governments. The schedule is as follows:

• Within 6 months, the FSM will develop a transition 

plan to migrate basic operations funding from the 

public sector capacity building grant to local 

revenues. This plan will provide for this migration to 

happen over a period not to exceed 5 years.

A schedule was submitted that showed the 

reduction of public sector capacity building 

revenues going to basic operations 

funding, but not how it would be replaced 

by local revenue.

2006 None.

(Continued From Previous Page)

Sector Fiscal year

Special terms and conditions

in sector grants Status according to OIA
Page 102 GAO-07-163 Compacts of Free Association

Appendix VII

RMI Compliance with Special Sector Grant 

Terms and Conditions ApendxiVI

Sector

Fiscal 

year

Special terms and conditions

in sector grants Status according to OIA

Education 2004 The RMI shall have 60 days from the date of grant award 

to realign its budget so that activities and related costs 

are clearly defined for each funding input. The category, 

“U.S. and Other Grants,” shall list components and 

allowable uses.

Met.

The RMI shall submit within 180 days from the date of 

grant award a streamlined and refined statement of 

performance measures, baseline data, and annual 

targets to enable the tracking of goals and objectives. 

These materials shall form the basis for setting 

measurable annual targets for the sector grant budget 

and performance plan that the RMI submits for 2005 

funding.

Met.

2005 The RMI shall conduct three evaluation studies and

performance assessments. 

(1) Within 60 days from the date of the grant award, an 

inventory of textbooks and related resource materials for 

each grade in the core subjects of language arts, math, 

social studies, and science will be conducted and 

submitted.

(2) Within 180 days from the date of the grant award, an 

analysis of school year 2004-2005 staffing patterns will 

be submitted and include, but not be limited to, the 

number of students enrolled as of October 1, 2004; the 

number of staff by category (principals, vice-principals, 

teachers, teacher assistants, specialists, support staff, 

etc.) as of October 1, who are full-time and part-time 

employees; changes in staffing from school year 2003-

2004; the number of staff in each category in each 

school; and the October 1 student-to-teacher ratio.

(3) Within 180 days from the date of the grant award, an 

evaluation of the effectiveness of the national student 

testing systems will be conducted and progress to date 

submitted. The third and sixth grade national testing 

instruments will be evaluated for validity and alignment to 

national standards and curricula. An eighth grade testing 

instrument will be designed.

(1) An extension was requested. The 

deliverable was extended to 2006. An 

inventory of 71 of 80 schools was 

received on July 21, 2006. The 

remaining 9 schools’ inventory is 

required in the first quarter of 2007.

(2) A summary document was received. 

A revision was requested to meet the 

requirement for select data by school, 

not in summary format. The revision was 

received in the Fall of 2005.

(3) An extension was requested, and 

was granted. The deliverable was 

extended to 2006.
Appendix VII

RMI Compliance with Special Sector Grant 

Terms and Conditions

Page 103 GAO-07-163 Compacts of Free Association

The RMI shall provide data of educational progress no 

less than annually, in time for submittal to JEMFAC. At a 

minimum, data on the 20 indicators of educational 

progress discussed at the August 13th JEMFAC 

meetings will be gathered and submitted no later than 

July 1, 2005. Quarterly performance reports must 

include completed data charts, effective immediately, 

and incorporate the 20 indicators of educational 

progress no later than July 1, 2005.

The majority of the 20 indicators were 

submitted on time. The outstanding 5 

indicators were requested but not 

received.

The RMI shall routinely submit to the OIA Honolulu Field 

Office one copy of all educational studies, surveys, and 

performance evaluations completed with education 

sector or Supplemental Education Grant funds.

Some locally developed reports are 

routinely submitted to OIA. Other reports 

are not routinely submitted but are 

identified in quarterly reports, which OIA 

then requests. 

2006 Quarterly financial and performance reports shall 

include completed data charts, data on Ebeye Special 

Needs expenditures and activities, and copies of all 

reports completed with education sector or 

Supplemental Education Grant funds.

The quarterly reports were received on 

time and included information specific to 

Ebeye. However, data charts embedded 

in the RMI format were often incomplete. 

Other reports completed with compact or 

Supplemental Education Grant funds are 

occasionally but not routinely transmitted 

to OIA.

All 20 indicators of educational progress shall be 

reported by July 1st annually.

Received July 28, 2006.

The Government of the Republic of the Marshall Islands 

shall complete the textbook and staffing inventories by 

October 31, 2005. 

(1) An extension was requested for the 

textbook inventory. 

(2) The staffing inventory was received 

by the deadline.

The Government of the Republic of the Marshall Islands 

shall spend those monies required, up to $100,000, to 

conduct the mandated national evaluation of the 

effectiveness of the national student testing systems by 

a reputable testing and evaluation expert within 180 days 

of the grant award, and to conduct other evaluations and 

assessments as needed. These monies shall come from 

the education sector grant award, unless available from 

other sources.

According to OIA, the national student 

testing system is in near final form. The 

RMI brought in a consultant to review 

and validate its new testing system. The 

consultant provided a minimal 

assessment of the testing system to the 

RMI. The RMI shared with OIA. OIA 

requested a more thorough analysis, but 

the RMI did not provide this by the end of 

school year 2005-2006. This grant 

condition will continue into 2007.

Environment 2004 The RMI shall have 60 days from the date of grant award 

to realign its budget so that activities and related costs 

are clearly defined for each funding input. The category, 

“U.S. and Other grants,” shall list components and 

allowable uses.

Never submitted.

(Continued From Previous Page)

Sector

Fiscal 

year

Special terms and conditions

in sector grants Status according to OIA
Appendix VII

RMI Compliance with Special Sector Grant 

Terms and Conditions

Page 104 GAO-07-163 Compacts of Free Association

The RMI shall submit within 180 days from the date of 

the grant award a streamlined and refined statement of 

performance measures, baseline data, and annual 

targets to enable the tracking of goals and objectives.

Never submitted.

2005 The RMI shall deliver to OIA the appropriate 

performance measures and baseline data for all 

approved activities by November 30, 2004.

The RMI submitted revised portfolios.

2006 The grantee shall submit a written explanation of each 

budgeted activity no later than 30 days after the date of 

grant award.

The RMI submitted revised portfolios.

The following performance measures shall be reported 

on quarterly:

• Percentage of safe public water supply in Majuro

• Percentage of coastal water tests deemed safe

• Total conservation areas in the Republic of the 

Marshall Islands

• Percentage of safe outer island water supply

• Percentage of dead and endangered reef areas

• Total number of solid waste violation per quarter

The deadline is the end pf 2006. 

According to OIA’s environmental grant 

manager, the RMI is expected to submit 

all 6 indicators by the deadline. 

Health 2004 The RMI shall have 60 days from the date of the grant 

award to realign its budget so that activities and related 

costs are clearly defined for each funding input. The 

category, “U.S. and Other Grants,” shall list component 

and allowable uses.

Partially met. Soon after the grant was 

awarded, OIA worked closely with the 

RMI’s consultant on performance 

budgeting, and with the RMI’s Economic, 

Policy Planning Statistics Office and 

Ministry of Health, on addressing the 

grant’s budget realignment requirements. 

The results were evident in 

improvements to the first and 

subsequent quarterly reports in 2004 

and the 2005 budget submitted to OIA. 

Although the requirement was directed to 

the Ministry of Health, the condition had 

a beneficial spillover effect in improving 

reporting and performance budgeting for 

all compact grant sectors. In retrospect, 

the deadline imposed in the grant may 

have been premature since the 

realignment process required time and 

effort beyond the 60-day framework and 

is still continuing.

(Continued From Previous Page)

Sector

Fiscal 

year

Special terms and conditions

in sector grants Status according to OIA
Appendix VII

RMI Compliance with Special Sector Grant 

Terms and Conditions

Page 105 GAO-07-163 Compacts of Free Association

The RMI shall submit within 180 days from the date of 

grant award a streamlined and refined statement of 

performance measures, baseline data, and annual 

targets to enable the tracking of goals and objectives. 

These materials shall form the basis for setting 

measurable annual targets for the sector grant budget 

and performance plan that the RMI submits for its 2005 

funding. 

Partially met. The RMI reduced the 

number of performance measures it 

tracks to those that primarily relate to 

effectiveness and efficiency, and ensured 

its annual targets were output oriented. 

In retrospect, the deadline imposed in 

the grant may have been premature 

since the realignment process required 

time and effort beyond the 180-day 

framework and is still continuing.

Insofar as possible, performance measures should apply 

equally to both Majuro and Ebeye health subsystems, 

and baselines should reflect differences in health status 

and service levels in the two urban centers. Measures of 

disease incidence or prevalence should also be 

developed to gauge the impact of environmental and 

infrastructure improvements on health status. 

Soon after the grant was awarded, OIA 

worked with the RMI’s consultant on 

performance budgeting and with RMI’s 

statistics office to improve the 

consistency of performance budgeting 

between Ebeye and Majuro. According to 

OIA, the reporting has improved and is 

reflected in the 2005 and 2006 budgets 

submitted to OIA. Measures of disease 

incidence and prevalence, however, still 

do not adequately track environmental 

conditions. The RMI, however, is working 

to improve its health status statistics. 

Education and health infrastructure 

projects were the RMI’s priority in 2004 

and 2005.

2005 The RMI shall have 90 days before the end of the grant 

period to complete a comprehensive evaluation of the 

effectiveness of its existing primary health care system 

and expansion plans. No less than 1 percent of the total 

grant award shall be set aside for this purpose.

Met.

The RMI shall have 30 days to submit an implementation 

plan and scope of work to OIA before implementing the 

study.

Met.

Up to a maximum of $100,000 in carryover funding from 

the 2004 health sector grant shall be used to continue 

the provision of technical assistance in performance 

budgeting and measurement. The scope of work shall 

focus on refining outcome statements, measures, and 

baselines that demonstrate the effectiveness or 

efficiency of the Ministry of Health’s interim outputs.

The 2004 carryover grant awarded to the 

RMI provided funds to continue the 

provision of technical assistance to build 

performance budgeting and monitoring 

capacity.

No grant funds may be used by agencies outside the 

health sector or for general government administrative 

costs, unless specifically justified and preapproved by 

JEMFAC.

This condition was meant to prohibit any 

further levying of a percentage cost for 

the Office of the Auditor General as was 

done (and not disclosed) by the RMI 

during 2004.

(Continued From Previous Page)

Sector

Fiscal 

year

Special terms and conditions

in sector grants Status according to OIA
Appendix VII

RMI Compliance with Special Sector Grant 

Terms and Conditions

Page 106 GAO-07-163 Compacts of Free Association

The Ministry of Health shall have 30 days from the date 

of grant award to submit a list to OIA’s Honolulu Field 

Office that describes the specific uses of funding 

provided under CSG-RMI-2006-C. Funds may not be 

used for recurring salaries and may not be used for other 

operating costs, except as approved by OIA.

Partially met. The Ministry of Health 

notified OIA of its intent to use most of its 

carryover funds to support the 

continuation of performance budgeting 

technical assistance. This notification 

was within the 30-day time frame. The 

remaining funds were to go to Majuro 

Hospital, but specific uses were not 

identified until August 2006.

2006 None.

Infrastructure 2004 The RMI shall submit a formal infrastructure 

development and maintenance plan to OIA prior to the 

expenditure of sector grant funds for construction 

activities.

Met.

Funds designated for Infrastructure Maintenance Funds 

will be deposited after the RMI has transmitted its 2004 

infrastructure maintenance plan to OIA for its 

concurrence in writing.

Met.

2005 The RMI government shall formulate a project 

development plan, consistent with the Infrastructure 

Development Maintenance Plan format for the project 

entitled “Ebeye Hospital Repair.”

No plan formulated as of September 13, 

2006.

2006 None.

Private Sector 

Development

2004 The RMI shall have 60 days from the date of grant award 

to realign its budget so that activities and related costs 

are clearly defined for each funding input. The category, 

“U.S. and Other grants,” shall list components and 

allowable uses.

Never submitted.

The RMI shall submit within 180 days from the date of 

grant award a streamlined and refined statement of 

performance measures, baseline data, and annual 

targets to enable the tracking of goals and objectives. 

These materials shall form the basis for setting 

measurable annual targets for the sector grant budget 

and performance plan that the RMI submits for 2005 

funding.

Never submitted.

2005 The RMI shall deliver to OIA the appropriate 

performance measures and baseline data for all 

approved activities by November 30, 2004.

The RMI submitted revised portfolios.

(Continued From Previous Page)

Sector

Fiscal 

year

Special terms and conditions

in sector grants Status according to OIA
Appendix VII

RMI Compliance with Special Sector Grant 

Terms and Conditions

Page 107 GAO-07-163 Compacts of Free Association

Sources: RMI sector grant agreements for 2004 through 2006 and OIA compliance updates.

2006 The following performance measures shall be reported 

on quarterly:

(1) Dollar amount of export revenues from local 

products. (Baseline will be established in 2006, and this 

measure will be used in future years to determine 

program development.)

(2) Number of international tourist arrivals.

Never submitted.

Public Sector 

Capacity Building

2004 None.

2005 The RMI shall deliver to OIA the appropriate 

performance measures and baseline data for all 

approved activities by November 30, 2004.

Never submitted.

2006 The RMI shall deliver to OIA an audit work plan and audit 

schedule for 2006 by October 31, 2005.

Submitted late.

(Continued From Previous Page)

Sector

Fiscal 

year

Special terms and conditions

in sector grants Status according to OIA
Page 108 GAO-07-163 Compacts of Free Association

Appendix VIII

Comments from the Department of the 

Interior ApendxiVI
Appendix VIII

Comments from the Department of the 

Interior

Page 109 GAO-07-163 Compacts of Free Association
Appendix VIII

Comments from the Department of the 

Interior

Page 110 GAO-07-163 Compacts of Free Association
Page 111 GAO-07-163 Compacts of Free Association

Appendix IX

Comments from the Federated States of 

Micronesia ApendxiIX

Note: GAO comments 

supplementing those in 

the report text appear 

at the end of this 

appendix.
Appendix IX

Comments from the Federated States of 

Micronesia

Page 112 GAO-07-163 Compacts of Free Association

See comment 1.
Appendix IX

Comments from the Federated States of 

Micronesia

Page 113 GAO-07-163 Compacts of Free Association

See comment 2.
Appendix IX

Comments from the Federated States of 

Micronesia

Page 114 GAO-07-163 Compacts of Free Association

See comment 3.
Appendix IX

Comments from the Federated States of 

Micronesia

Page 115 GAO-07-163 Compacts of Free Association

The following are GAO’s comments on the Federated States of Micronesia’s 

letter dated December 4, 2006.

GAO Comments 1. As we noted in both our June 2006 report1

 and this report, the FSM’s 

efforts to address the decrement to date have not yielded the financial 

changes, including significant tax reforms, required to address the 

decrement. Therefore, we reiterate our position that the FSM needs to 

develop a plan to address the decrement. If the FSM fails to address the 

decrement, the federal and states’ budgets will likely be reduced, 

making it difficult to maintain current personnel levels.

2. We recognize that the FSM established its 70:30 formula according to its 

stated goal of providing for certain needs common to each state, 

regardless of population size, such as the need for airports and 

seaports. However, the differences in per-capita funding resulting from 

use of the formula may have contributed to disparate conditions among 

the FSM states, especially in health and education, that cannot be 

ignored. These differences have also been identified by a Department of 

Health and Human Services official and in the FSM’s own development 

plans as well as in a study by the Asian Development Bank. We believe 

that the formula’s impact on each state’s performance and development 

should be continuously evaluated and the allocation of funds revised as 

necessary. As we observe in this report, such an assessment requires 

the full development of the mechanism for measuring sector grant 

performance and collecting complete baseline data.

3. We testified three times in 2003, before the House and the Senate, 

regarding our assessment of the new arrangements and requirements of 

the amended compacts.2

1

GAO, Compacts of Free Association: Development Prospects Remain Limited for 

Micronesia and the Marshall Islands, GAO-06-590 (Washington, D.C.: June 27, 2006).

2

GAO, Compact of Free Association: An Assessment of Amended Compacts and Related 

Agreements, GAO-03-890T (Washington, D.C.: June 18, 2003).
Page 116 GAO-07-163 Compacts of Free Association

Appendix X

Comments from the Republic of the Marshall 

Islands ApendxiX

Note: GAO comments 

supplementing those in 

the report text appear 

at the end of this 

appendix.
Appendix X

Comments from the Republic of the Marshall 

Islands

Page 117 GAO-07-163 Compacts of Free Association

See comment 1.

Now on p. 14.

Now on p. 31.

See comment 2.
Appendix X

Comments from the Republic of the Marshall 

Islands

Page 118 GAO-07-163 Compacts of Free Association

See comment 2.

Now on p. 34.
Appendix X

Comments from the Republic of the Marshall 

Islands

Page 119 GAO-07-163 Compacts of Free Association
Appendix X

Comments from the Republic of the Marshall 

Islands

Page 120 GAO-07-163 Compacts of Free Association

The following are GAO’s comments on the Republic of the Marshall Islands’ 

letter dated December 4, 2006.

GAO Comments 1. Throughout the report, we differentiate between the FSM and the RMI 

when discussing findings specific to each country. For example, when 

addressing land issues that have delayed projects in the countries, we 

discuss the issues and projects in each country separately. However, 

when findings were the same for both countries, we discussed the 

findings jointly. For example, we discuss planning for the decrement 

jointly because both the FSM and the RMI face the same issue.

2. The RMI projects that the annual inflation adjustment will allow the 

nominal value of annual grants to increase.1

 However, using the 

Congressional Budget Office’s projections on the GDP Implicit Price 

Deflator, we found that for most years, the nominal value of the grants 

for the RMI declines each year from the previous years.2

 We believe that 

the RMI response does not capture the true impact of the decrement 

and the urgent need for sector grant planning to take it into account.

The combined impact of the decrement and partial inflation creates 

difficult challenges. First, absent full adjustment of the grants for 

inflation, the grants’ real value declines, leading to reduced sector 

resources and creating challenges in recruiting and retaining agency 

staff. 

• RMI government agencies will not be able to maintain the current levels 

of imported resources when the real value of grants decline. Imported 

items needed for the education and health sectors, such as textbooks 

and pharmaceuticals, are subject to rising external prices. Likewise, 

increasing costs of imported building supplies may reduce the 

purchasing power of the infrastructure grant. 

1

Because of the difference between the FSM’s and the RMI’s decrements, although the 

nominal value of the RMI’s grants generally drops each year from the previous year, the 

nominal value of the FSM’s grants rises in most years. 

2

However, the RMI experiences a spike in funding in 2014, which temporarily increases the 

nominal value of the grants.
Appendix X

Comments from the Republic of the Marshall 

Islands

Page 121 GAO-07-163 Compacts of Free Association

• In the RMI, personnel expenses are the largest area of government 

expenditures. Recruiting and retaining staff will be difficult if salaries 

are not fully adjusted for inflation. Furthermore, because RMI citizens 

can move to the United States to work, and many have done so, finding 

qualified personnel may become more difficult. A recent assessment of 

Marshallese emigration concluded that about one quarter of Marshallese 

now live abroad.3

Second, although the RMI states in its letter that it expects import duties to 

increase with external inflation, the inflation increase will not fully 

compensate for the decrements without aggressive growth in import 

duties. 

3

Ben Graham, “Marshallese Out-Migration Intensifies,” Pacific Islands Report Website of the 

East-West Center, University of Hawaii (available at 

http://archives.pireport.org/archive/2006/November/graham_report.pdf).
Page 122 GAO-07-163 Compacts of Free Association

Appendix XI

GAO Contact and Staff Acknowledgments ApendxiXI

GAO Contact David Gootnick, 202 512-3149

Staff 

Acknowledgments

In addition to the individual named above, Emil Friberg, Assistant Director; 

Julie Hirshen; Ming Chen; Tracy Guerrero; Emmy Rhine; and Eddie 

Uyekawa made key contributions to this report. Joe Carney, Etana Finkler, 

Mary Moutsos, and Reid Lowe provided technical assistance.
Page 123 GAO-07-163 Compacts of Free Association

Related GAO Products

Compacts of Free Association: Development Prospects Remain Limited 

for Micronesia and the Marshall Islands. GAO-06-590. Washington, D.C.: 

June 27, 2006. 

Compacts of Free Association: Implementation of New Funding and 

Accountability Requirements Is Well Underway, but Planning Challenges 

Remain. GAO-05-633. Washington, D.C.: July 11, 2005. 

Compact of Free Association: Single Audits Demonstrate Accountability 

Problems over Compact Funds. GAO-04-7. Washington, D.C.: October 7, 

2003. 

Compact of Free Association: An Assessment of Amended Compacts and 

Related Agreements. GAO-03-890T. Washington, D.C.: June 18, 2003. 

Foreign Assistance: Effectiveness and Accountability Problems Common 

in U.S. Programs to Assist Two Micronesian Nations. GAO-02-70. 

Washington, D.C.: January 22, 2002. 

Foreign Relations: Kwajalein Atoll Is the Key U.S. Defense Interest in 

Two Micronesian Nations. GAO-02-119. Washington, D.C.: January 22, 

2002.

Foreign Relations: Migration From Micronesian Nations Has Had 

Significant Impact on Guam, Hawaii, and the Commonwealth of the 

Northern Mariana Islands. GAO-02-04. Washington, D.C.: October 5, 2001. 

Foreign Assistance: Lessons Learned From Donors’ Experiences in the 

Pacific Region. GAO-01-808. Washington, D.C.: August 17, 2001.

Foreign Assistance: U.S. Funds to Two Micronesian Nations Had Little 

Impact on Economic Development. GAO/NSIAD-00-216. Washington, D.C.: 

September 22, 2000. 

Foreign Relations: Better Accountability Needed Over U.S. Assistance to 

Micronesia and the Marshall Islands. GAO/RCED-00-67. Washington, D.C.: 

May 31, 2000. 

(320368)
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

Obtaining Copies of 

GAO Reports and 

Testimony

The fastest and easiest way to obtain copies of GAO documents at no cost 

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To 

have GAO e-mail you a list of newly posted products every afternoon, go to 

www.gao.gov and select “Subscribe to Updates.”

Order by Mail or Phone The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to:

U.S. Government Accountability Office

441 G Street NW, Room LM

Washington, D.C. 20548

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Congressional 

Relations

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548

Public Affairs Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548