COMPACTS OF FREE 

ASSOCIATION

Micronesia and the 

Marshall Islands 

Continue to Face 

Challenges Measuring 

Progress and Ensuring 

Accountability

Report to the Committee on Energy and 

Natural Resources, U.S. Senate

September 2013

GAO-13-675

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-675, a report to the 

Committee on Energy and Natural Resources, 

U.S. Senate

September 2013

COMPACTS OF FREE ASSOCIATION

Micronesia and the Marshall Islands Continue to 

Face Challenges Measuring Progress and Ensuring 

Accountability

Why GAO Did This Study

In 2003, the U.S. government 

approved amended Compacts of Free 

Association with the FSM and the RMI, 

providing for a total of $3.6 billion in 

assistance over 20 years. Given the 

countries’ dependence on compact 

funding, GAO was asked to conduct a 

review of the use and accountability of 

these funds. This report addresses 

(1) the FSM’s and RMI’s use of 

compact funds in the education and 

health sectors; (2) the extent to which 

the FSM and RMI have made progress 

toward stated goals in education and 

health; and (3) the extent to which 

oversight activities by the FSM, RMI, 

and U.S. governments ensure 

accountability for compact funding. 

GAO also provided information on 

infrastructure spending and projects in 

the education and health sectors. GAO 

reviewed relevant documents and 

data, including single audit reports; 

interviewed officials from Interior, other 

U.S. agencies, and the FSM and RMI; 

assessed data reliability for subsets of 

both countries’ education and health 

indicators; and visited compact-funded 

education and health facilities in both 

countries.

What GAO Recommends

Among other actions, Interior should 

(1) take all necessary steps to ensure 

the reliability of FSM and RMI 

indicators in education and health, (2) 

assess whether to designate each 

country as high risk, and (3) take 

actions to correct its disproportionate 

staffing shortage related to compact 

grant implementation and oversight. 

Interior generally agreed with GAO's

recommendations and identified 

actions taken, ongoing, and planned.

What GAO Found

In fiscal years 2007 through 2011, the Federated States of Micronesia (FSM) and 

the Republic of the Marshall Islands (RMI) spent at least half their compact 

sector funds in the education and health sectors. Because both countries spent 

significant amounts of compact funds on personnel in the education and health 

sectors, the U.S.–FSM and U.S.–RMI joint management and accountability 

committees capped budgets for personnel in these sectors at fiscal year 2011 

levels due to concerns about the sustainability of sector budgets as compact 

funding continues to decline through fiscal year 2023. The FSM states completed 

plans to address annual decreases in compact funding; however, the FSM 

National Government and the RMI have not submitted plans to address these 

annual decreases as required. Without plans, the countries may not be able to 

sustain essential services in the education and health sectors in the future.

Data reliability issues hindered GAO’s assessment of progress by the FSM and 

RMI in the education and health sectors for fiscal years 2007 through 2011 for 

the compacts as a whole. Between 2004 and 2006, both countries began 

tracking education and health indicators, establishing data collection systems, 

and collecting data for the majority of the indicators and have continued to track 

data on their indicators since that time. In education, GAO found 3 of 14 

indicators in the subsets of indicators it reviewed for both countries to be 

sufficiently reliable and 1 also to be capable of demonstrating progress: the 

education level of teachers in the RMI. GAO found a variety of data reliability 

problems, such as some FSM states reporting data for both public and private 

schools while other states included only public schools in their data. In the health 

sector, GAO determined that data for all 5 of the subset of indicators it reviewed 

in the FSM were not sufficiently reliable to assess progress for the compacts as a 

whole, and in the RMI, 1 health indicator was sufficiently reliable and 2 were not 

sufficiently reliable; for 2 other RMI health indicators, GAO had no basis to judge.

In much of their reporting on their education and health indicators, the FSM and 

RMI have noted data reliability problems and some actions they have taken to 

address the problems. The U.S.–FSM and U.S.–RMI joint management and 

accountability committees have also raised concerns about the reliability of 

FSM’s education and health data and RMI’s health data and required that each 

country obtain an independent assessment and verification of these data; both 

countries have yet to meet that requirement, and, as a result, neither country can 

determine its progress in these sectors. 

The single audit reports GAO reviewed indicated challenges to ensuring 

accountability of compact and noncompact U.S. funds in the FSM and RMI. For 

example, the governments’ single audits showed repeat findings and persistent 

problems in noncompliance with U.S. program requirements, such as accounting 

for equipment. The Department of the Interior (Interior) has taken steps regarding 

accountability of compact funds such as establishing the Chuuk Financial Control 

Commission, but Interior has not coordinated with other U.S. agencies about the 

risk status of the FSM and RMI. Furthermore, the FSM, RMI, and U.S. offices 

responsible for compact administration faced limitations hindering their ability to 

conduct compact oversight. For example, Interior’s Office of Insular Affairs (OIA) 

experienced a staffing shortage that disproportionately affected compact grant 

oversight compared to other OIA activities, with 5 of 11 planned positions filled.

View GAO-13-675. For more information, 

contact David Gootnick at (202) 512-3149 or 

gootnickd@gao.gov.
Page i GAO-13-675 Compacts of Free Association

Letter 1 

Background 3

FSM and RMI Spending Targeted Education and Health 14

Data Inconsistencies Hindered Our Assessment of FSM and RMI 

Progress in the Education and Health Sectors 23

FSM and RMI Face Financial Accountability Challenges; Oversight 

Bodies Are Hindered by Limitations 39

Conclusions 53

Recommendations for Executive Action 55

Agency Comments and Our Evaluation 56

Appendix I Objectives, Scope, and Methodology 60

Appendix II FSM and RMI Infrastructure Projects Related to Education 

and Health Sectors, Fiscal Years 2007–2011 65

Appendix III FSM and RMI Grant Assistance and Trust Fund Contributions 

under the Amended Compacts, Fiscal Years 2004–2023 73

Appendix IV FSM and RMI Expenditures of U.S. Noncompact and 

Compact-Related Grant Funds, Fiscal Years 2007–2011 74

Appendix V Amended Compact Grant Allocations and Supplemental 

Education Grant Awards, Fiscal Years 2004–2013 76

Appendix VI Education and Health Indicators for the FSM and the RMI, 

Fiscal Years 2007–2011 86

Contents 
Page ii GAO-13-675 Compacts of Free Association

Appendix VII Single Audit Reports for the FSM and the RMI, Fiscal 

Years 2006–2011 89

Appendix VIII Office of Insular Affairs (OIA) Staffing Projections for 

Compact Oversight, Fiscal Years 2010–2013 100

Appendix IX Comments from the U.S. Department of the Interior 101

Appendix X Comments from the Federated States of Micronesia 

National Government 104

Appendix XI Comments from the Government of the Republic of the 

Marshall Islands 108

Appendix XII GAO Contact and Staff Acknowledgments 120

Related GAO Products 121

Tables

Table 1: Subset of 9 of the 20 Federated States of Micronesia (FSM) 

Education Indicators Reviewed, with Observations on the 

Reliability of the Data to Measure Progress for the 

Compact as a Whole from 2007 through 2011 25

Table 2: Subset of 5 of the 14 Federated States of Micronesia (FSM) 

Health Indicators Reviewed, with Observations on the 

Reliability of the Data to Measure Progress for the 

Compact as a Whole from 2007 through 2011 28
Page iii GAO-13-675 Compacts of Free Association

Table 3: Subset of 5 of the 20 Republic of the Marshall Islands 

(RMI) Education Indicators Reviewed, with Observations 

on the Reliability of the Data to Measure Progress for the 

Compact as a Whole from 2007 through 2011 31

Table 4: Subset of 5 of the 26 Republic of the Marshall Islands 

(RMI) Health Indicators Reviewed, with Observations on 

the Reliability of the Data to Measure Progress for the 

Compact as a Whole from 2007 through 2011 34

Table 5: Office of Insular Affairs (OIA) Staffing, Fiscal Years 2010 

through 2014 52

Table 6: Federated States of Micronesia (FSM) Expenditures of 

U.S. Noncompact and Compact-Related Grant Funds, 

Fiscal Years 2007 through 2011 74

Table 7: Republic of the Marshall Islands (RMI) Expenditures of 

U.S. Noncompact and Compact-Related Grant Funds, 

Fiscal Years 2007 through 2011 75

Table 8: U.S.–FSM Joint Economic Management Committee 

(JEMCO) Sector Allocations and Supplemental Education 

Grant Awards, Fiscal Years 2004 through 2013 77

Table 9: U.S.–RMI Joint Economic Management and Financial 

Accountability Committee (JEMFAC) Sector Allocations 

and Supplemental Education Grant Awards, Fiscal Years 

2004 through 2013 81

Table 10: Federated States of Micronesia (FSM) Education 

Indicators, Fiscal Years 2007 through 2011 86

Table 11: Federated States of Micronesia (FSM) Health Indicators, 

Fiscal Years 2007 through 2011 87

Table 12: Republic of the Marshall Islands (RMI) Education 

Indicators, Fiscal Years 2007 through 2011 87

Table 13: Republic of the Marshall Islands Health (RMI) Indicators, 

Fiscal Years 2007 through 2011 88

Table 14: Number of Months Single Audits from the Federated 

States of Micronesia (FSM) and the Republic of the 

Marshall Islands (RMI) Were Received Past Their 

Deadline, by Country and State, Fiscal Years 2006 through 

2011 92

Table 15: Financial Statement Audit Opinions for the Federated 

States of Micronesia (FSM) and the Republic of the 

Marshall Islands (RMI), Fiscal Years 2006 through 2011 93
Page iv GAO-13-675 Compacts of Free Association

Table 16: Number of Material Weaknesses and Significant 

Deficiencies Reported in Single Audit Reports for the 

Federated States of Micronesia (FSM) National 

Government and States, Fiscal Years 2006 through 2011 95

Table 17: Number of Material Weaknesses and Significant 

Deficiencies Reported in Single Audit Reports for the 

Republic of the Marshall Islands (RMI), Fiscal Years 2006 

through 2011 96

Figures

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

and the Republic of the Marshall Islands 5

Figure 2: U.S. Grant Assistance and Trust Fund Contributions to Be 

Provided to the Federated States of Micronesia (FSM) and 

the Republic of the Marshall Islands (RMI) under the 

Amended Compacts, Fiscal Years 2004 through 2023 8

Figure 3: Federated States of Micronesia (FSM) Sector Compact 

Expenditures and Supplemental Education Grant 

Expenditures, Fiscal Years 2007 through 2011 15

Figure 4: Federated States of Micronesia (FSM) Compact 

Expenditures in the Education and Health Sectors, Fiscal 

Years 2009 through 2011 17

Figure 5: Republic of the Marshall Islands (RMI) Sector Compact 

Expenditures and Supplemental Education Grant 

Expenditures, Fiscal Years 2007 through 2011 20

Figure 6: Republic of the Marshall Islands (RMI) Compact 

Expenditures in the Education and Health Sectors, Fiscal 

Years 2007 through 2011 21

Figure 7: Federated States of Micronesia (FSM) Infrastructure 

Sector Expenditures, Fiscal Years 2009 through 2011 65

Figure 8: Republic of the Marshall Islands (RMI) Infrastructure 

Sector Expenditures, Fiscal Years 2007 through 2011 70

Figure 9: U.S.–Federated States of Micronesia (FSM) Joint 

Economic Management Committee (JEMCO) Sector 

Allocations and Supplemental Education Grant Awards, 

Fiscal Year 2004 through Fiscal Year 2013 76

Figure 10: U.S.–RMI Joint Economic Management and Financial 

Accountability Committee (JEMFAC) Sector Allocations 

and Supplemental Education Grant Awards, Fiscal Year 

2004 through Fiscal Year 2013 80
Page v GAO-13-675 Compacts of Free Association

Figure 11: Federated States of Micronesia (FSM) Total Sector 

Allocations and Percentages, Fiscal Years 2004 through 

2013 84

Figure 12: Republic of the Marshall Islands (RMI) Total Sector 

Allocations and Percentages, Fiscal Years 2004 through 

2013 85
Page vi GAO-13-675 Compacts of Free Association

Abbreviations

CFCC Chuuk Financial Control Commission

Education U.S. Department of Education

EPPSO Economic Policy, Planning, and Statistics Office (RMI)

FAC Federal Audit Clearinghouse 

FSM Federated States of Micronesia

HAFSM U.S. Army Humanitarian Assistance Program for the FSM

HHS U.S. Department of Health and Human Services

Interior U.S. Department of the Interior

Labor U.S. Department of Labor

JEMCO Joint Economic Management Committee (FSM) 

JEMFAC Joint Economic Management and Financial Accountability 

 Committee (RMI)

MDG Millennium Development Goals

OAG Office of the Auditor-General (RMI)

OCI Office of Compact Implementation (RMI)

OIA Office of Insular Affairs

OMB Office of Management and Budget

ONPA Office of the National Public Auditor (FSM)

OPA Office of the Public Auditor (Pohnpei State, FSM) 

PMU Program Management Unit (FSM)

portfolios Ministry of Education annual portfolio budget statements 

 (RMI)

RMI Republic of the Marshall Islands

SBOC Office of Statistics, Budget and Economic Management, 

 Overseas Development Assistance, and Compact 

 Management (FSM)

SPC Secretariat of the Pacific Community

State U.S. Department of State

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Page 1 GAO-13-675 Compacts of Free Association

441 G St. N.W.

Washington, DC 20548

September 20, 2013

The Honorable Ron Wyden

Chairman

The Honorable Lisa Murkowski

Ranking Member

Committee on Energy and Natural Resources

United States Senate

In 2003, the U.S. government approved amended Compacts of Free 

Association with the Federated States of Micronesia (FSM) and the 

Republic of the Marshall Islands (RMI).1 These amended compacts 

provide for a combined total of $3.6 billion in U.S. grant assistance for the 

two countries over 20 years from fiscal year 2004 through fiscal year 

2023. The first half of this 20-year grant period will be completed at the 

end of September 2013. The amended compacts state that the purpose 

of the grant funds is to assist the FSM and RMI governments in their 

efforts to promote the economic self-sufficiency and budgetary selfreliance of their people. Under the compacts, U.S. grant funding 

decreases annually in most years while, at the same time, contributions to 

trust funds for the FSM and the RMI increase; earnings from the trust 

funds are intended to provide an annual source of revenue after the 

grants end in 2023.2

In 2006, we reported that since enactment of the amended compacts in 

2004, the FSM and the RMI had made efforts to meet the requirements 

for implementation, performance measurement, and oversight. However, 

both countries faced challenges in planning for sustainability, measuring 

progress, and ensuring accountability.3 You requested that we conduct a 

 

1

Compact of Free Association Amendments Act of 2003, Pub. L. No. 108-188 (Dec. 17, 

2003).

2

See GAO, Compacts of Free Association: Trust Funds for Micronesia and the Marshall 

Islands May Not Provide Sustainable Income, GAO-07-513 (Washington, D.C.: June 15, 

2007).

3

See GAO, Compacts of Free Association: Micronesia and the Marshall Islands Face 

Challenges in Planning for Sustainability, Measuring Progress, and Ensuring 

Accountability, GAO-07-163 (Washington, D.C.: Dec. 15, 2006). We issued this report to 

comply with a reporting mandate in the amended compacts’ implementing legislation, 

which Congress later eliminated. (Pub. L. No. 108-188, § 104(h), as amended by Pub. L. 

No. 111-68, § 1501(c), Oct. 1, 2009). 

 
 

Page 2 GAO-13-675 Compacts of Free Association

review of the use and accountability of amended compact funds in the 

FSM and RMI since our prior report. In this report, we examine

1. the FSM’s and RMI’s use of compact funds in the education and 

health sectors;

2. the extent to which the FSM and RMI have made progress toward 

achieving their stated goals in education and health; and

3. the extent to which oversight activities by the FSM, RMI, and the 

United States ensure accountability for compact funding.

In addition, we provide information on the FSM and RMI infrastructure 

sector grants in appendix II.

To examine the countries’ use of compact funds in the education and 

health sectors, we reviewed available expenditure data in the FSM and 

RMI single audits for fiscal years 2007 through 2011. To evaluate the 

extent to which the FSM and RMI have made progress toward achieving 

their stated goals in the education and health sectors, we reviewed 

subsets of FSM and RMI performance indicators that were cited in (1) the 

U.S. government’s 5-year reviews of the FSM and the RMI amended 

compacts,4 (2) U.S.–FSM Joint Economic Management Committee 

(JEMCO) and U.S.–RMI Joint Economic Management and Financial 

Accountability Committee (JEMFAC) health- and education-related 

resolutions, or (3) the United Nations Millennium Development Goals 

performance measures.5 We then reviewed the data for the subsets of 

indicators in the FSM and RMI annual reports for 2007 through 2011. To 

examine oversight activities, we observed the 2012 annual meetings, the 

2013 midyear meetings, and the 2013 annual meetings of the JEMCO 

and the JEMFAC, which allocate grants and provide oversight for the 

amended compacts. We also reviewed FSM and RMI single audits for 

 

4

According to the compacts’ implementing legislation, the United States is required to 

submit annual reports on the 5th, 10th, and 15th anniversaries of the enactment of the law 

that review the terms of the respective compacts and consider the overall nature and 

development of the U.S.–FSM and U.S.–RMI relationships.

5

The United Nations Millennium Development Goals and their respective performance 

measures aim to meet the needs of the world’s poorest individuals. All of the world’s 

countries and leading development institutions have agreed to observe and pursue these 

goals and performance measures.
 

Page 3 GAO-13-675 Compacts of Free Association

fiscal years 2006 through 2011.6 In addition, we interviewed officials from 

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

(HHS), Education (Education), and State (State). We also interviewed 

FSM national and state officials and RMI officials in the health, education, 

and infrastructure sectors, and we directly observed selected compactfunded education and health facilities in Chuuk and Pohnpei states in the 

FSM and Majuro and Kwajalein Atolls in the RMI.7 The observations we 

made during our site visits to facilities such as hospitals, dispensaries, 

and schools in the FSM and RMI are not generalizable. We determined 

that the financial data examined in this report are sufficiently reliable for 

our purposes. However, our reviews of performance data from both the 

FSM and RMI and interviews with FSM and RMI officials revealed 

important limitations in the data in the countries’ annual reports on 

education and health indicators, and therefore we determined that many 

of these data were not sufficiently reliable for the purpose of measuring 

progress for the compacts as a whole over our time frame. For additional 

details on our objectives, scope, and methodology, see appendix I.

We conducted this performance audit from August 2012 to September 

2013 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

The FSM and the RMI are located in the Pacific Ocean just north of the 

equator, about 3,000 miles southwest of Hawaii and about 2,500 miles 

southeast of Japan (see fig. 1). The FSM is a federation of four 

semiautonomous states and has a population of approximately 103,000 

(as of 2010) scattered over many small islands and atolls. The FSM 

states maintain considerable power, relative to the FSM National 

 

6

The scope for this report is generally fiscal years 2007 through 2011; however, we are 

including fiscal year 2006 because the last single audit report discussed in our prior report 

(GAO-07-163) was for fiscal year 2005.

7

In the FSM, we focused our review on the National Government and the state 

governments of Chuuk and Pohnpei. Chuuk and Pohnpei account for 82 percent of the 

total population of the FSM. We did not include in our review the state governments of 

Yap and Kosrae.

Background 
 

Page 4 GAO-13-675 Compacts of Free Association

Government, to allocate U.S. assistance and implement budgetary 

policies. Chuuk, the largest state, has 47 percent of the FSM’s population, 

followed by Pohnpei (35 percent), Yap (11 percent), and Kosrae (6 

percent).8 By contrast, the RMI government is responsible for allocating 

U.S. assistance in that country, though the RMI’s 29 constituent atolls and 

five islands exercise local government authority. About three-quarters of 

the RMI population of approximately 53,000 (as of 2011) live in Majuro, 

the nation’s capital, and on Ebeye Island in the Kwajalein Atoll.

 

8

Percentages may not add up to 100 due to rounding.
 

Page 5 GAO-13-675 Compacts of Free Association

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

Page 6 GAO-13-675 Compacts of Free Association

U.S. relations with the FSM and the RMI 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 1947.9 During the 1940s and 1950s the RMI was the site of 

67 U.S. nuclear weapons tests. The four states of the FSM voted in a 

1978 referendum to become an independent nation, while the RMI 

established its constitutional government and declared itself a republic in 

1979. Under the trusteeship agreement, both newly formed nations 

remained subject to the authority of the United States until 1986.

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) 

establish 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 selfsufficiency. The compact’s third goal was to be accomplished primarily 

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

1987 through 2003, the FSM and the RMI are estimated to have received 

about $2.1 billion in compact financial assistance.10

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 operations at both national and state levels, while the RMI 

 

9

This was the Trust Territory of the Pacific Islands, which included the island groups that 

later became the Republic of Palau and the Commonwealth of the Northern Mariana 

Islands, as well as the FSM and RMI. The Department of the Navy began civil 

administration of all these islands on July 18, 1947. This responsibility was transferred to 

Interior in July 1951. 

10This 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, the law enacting the original Compact of Free Association in 1986. 

Compact of Free 

Association: 1986 through 

2003
 

Page 7 GAO-13-675 Compacts of Free Association

emphasized capital spending.11 While the original 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.12

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.

The amended compacts provide for direct financial assistance to the FSM 

and the RMI from 2004 to 2023, decreasing in most years (hereafter 

referred to as the annual decrements). The amounts of the annual 

decrements are to be deposited in the trust funds established under the 

amended compacts for the two nations (see fig. 2).13 For more information 

on compact assistance and trust fund contributions, see appendix III.

 

11See 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). We reported that FSM and RMI 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 economic growth.

12In addition, under the original compact, the FSM and RMI also benefited from numerous 

U.S. federal programs and 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. 

Nonimmigrant status typically signifies nonpermanent visitors, such as tourists or 

students. See 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); and Compacts of Free Association: Improvements Needed to 

Assess and Address Growing Migration, GAO-12-64 (Washington, D.C.: Nov. 14, 2011). 

13The amended compacts require the FSM and the RMI to make onetime contributions of 

$30 million each to the trust funds; these initial investments occurred in August 2006 and 

September 2005, respectively. The amended compacts’ implementing legislation provides 

a continuing appropriation until 2023 for the financial assistance. 

Amended Compacts of 

Free Association: 2004 

through 2023

Financial Assistance
 

Page 8 GAO-13-675 Compacts of Free Association

Figure 2: U.S. Grant Assistance and Trust Fund Contributions to Be Provided to the 

Federated States of Micronesia (FSM) and the Republic of the Marshall Islands 

(RMI) under the Amended Compacts, Fiscal Years 2004 through 2023

Notes: Sections 211 of the amended compacts detail grant assistance to the FSM and the RMI, while 

Sections 215 and 216 of the U.S.–FSM compact and sections 216 and 217 of the U.S.–RMI compact 

detail contributions to the FSM and RMI trust funds. See Pub. L. No. 108-188. 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. The increase in RMI grant assistance from 

fiscal year 2013 to 2014 is due to a $2 million increase in payments to be made available for 

addressing the special needs of the community at Ebeye and other Marshallese communities within 

the Kwajalein Atoll.
 

Page 9 GAO-13-675 Compacts of Free Association

The amended compacts and associated fiscal procedures agreements14

require that grant funding support the countries in six core sectors—

education, health, infrastructure, environment, private sector 

development, and public sector capacity building15—with the education 

and health sectors having the greatest priority. Within the core sector 

grants, 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 

(hereafter referred to as Ebeye special needs funds).16

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

eligible for a supplemental education grant each year.17 The amended 

compacts’ implementing legislation authorized annual appropriations of 

about $12.2 million for the FSM and $6.1 million for the RMI beginning in 

2005 to the U.S. Secretary of Education to supplement the education 

grants awarded under the amended compacts. Under the fiscal 

procedures agreements, permitted uses of the supplemental education 

grant funds include, among other things, support for 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 supplemental education grant is 

appropriated annually to Education and transferred to Interior for 

 

14The agreements between the U.S. government and the FSM and RMI governments 

contain detailed requirements concerning implementation of the amended compacts’ 

funding and accountability provisions. 

15Other sectors can be established. In 2012, the United States and the FSM created the 

enhanced reporting and accountability sector and in fiscal years 2012 and 2013 supported 

it with grant funds aimed at developing and implementing systems, financial management 

procedures, and internal controls that account for and ensure reporting on the use of 

amended compact funds. This grant can only be continued by mutual agreement between 

the United States and the FSM; otherwise, the grant ends after fiscal year 2014. 

16Section 211(b)(1) of the U.S.–RMI amended compact details how grant funding should 

be allocated for Ebeye special needs. Additional assistance for the Kwajalein Atoll is 

outlined in sections 211(b)(2) and 212, which provide $1.9 million to address special 

needs, with an emphasis on Kwajalein landowners, and $15 million annually starting in 

2004, rising to $18 million in 2014, for U.S. military use and operating rights. The RMI 

government uses the funds to compensate landowners on the Kwajalein Atoll.

17The supplemental education grant is awarded in place of grant assistance formerly 

awarded to the countries under several U.S. education, health, and labor programs.
 

Page 10 GAO-13-675 Compacts of Free Association

disbursement, with Interior responsible for ensuring that the use, 

administration, and monitoring of supplemental education grant funds are 

in accordance with a memorandum of agreement among Interior, 

Education, HHS, and the Department of Labor (Labor), as well as with the 

fiscal procedures agreements.18

In addition to amended compact grants, the FSM and the RMI receive 

other grants and assistance from U.S. agencies. For example, in fiscal 

years 2007 through 2011, the FSM spent about $197 million and the RMI 

spent about $46 million in noncompact grants from agencies including 

Interior, Education, HHS, Labor, and the Department of Transportation. 

See appendix IV for more information on noncompact grants awarded to 

the FSM and the RMI.

The legislation and fiscal procedures agreements for the amended 

compacts established oversight mechanisms and responsibilities for the 

FSM, RMI, and the United States.

Joint Management and Accountability Committees

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

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

accountability and promote the effective use of compact funding. Each 

five-member committee comprises three representatives from the United 

States government and two representatives from the corresponding 

country.19 The United States, the FSM, and the RMI 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 

 

18The provision authorizing the supplemental education grant 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 supplemental education grants, including adjustments for 

inflation, as described in Section 105(f)(1)(B)(iii) of Pub. L. No. 108-188.” According to 

Education officials, the department has not sought the inflation increases due to budget 

constraints over the past decade.

19The three U.S. representatives serve on both JEMCO and JEMFAC and include one 

official each from Interior, State, and HHS, with the Interior representative serving as 

Chairman of both oversight bodies. 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 June 2013, according to Interior officials.

Amended Compacts Oversight 

and Administration
 

Page 11 GAO-13-675 Compacts of Free Association

under the compacts. JEMCO’s and JEMFAC’s designated roles and 

responsibilities include the following:

• reviewing the budget and development plans from each of the 

governments;

• approving grant allocations and performance objectives;20

• 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.

In practice, JEMCO and JEMFAC allocate grants and attach terms and 

conditions to grant awards through resolutions, which are discussed and 

voted upon at their meetings.

From fiscal years 2004 through 2013, JEMCO and JEMFAC allocated 

about $1.1 billion in sector grants to the FSM and RMI under the 

amended compacts. In practice, JEMFAC has allocated Ebeye special 

needs funds as a separate grant allocation, resulting in seven sectors. 

For more detailed information on compact sector allocations, see 

appendix V.

FSM and RMI Grant Administration

The FSM national and state governments and the RMI government are to 

manage the sector and supplemental education grants and monitor dayto-day operations to ensure compliance with grant terms and conditions. 

The governments are also required to track progress toward performance 

goals and report quarterly to the United States. 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 

 

20JEMCO and JEMFAC render decisions by majority vote, except those decisions 

regarding the division of RMI grants among sectors, which are made by consensus. 

JEMCO and JEMFAC are also responsible for approving the plans that form the basis for 

the use of the supplemental education grants annually. 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.” 

(Pub. L. No. 108-188, §105(f)(1)(B)(i), Dec. 17, 2003).
 

Page 12 GAO-13-675 Compacts of Free Association

goals.21 Each country has established an agency dedicated to providing 

compact oversight and ensuring compliance with regulations in the 

amended compacts, grant award terms and conditions, and JEMCO and 

JEMFAC resolutions.

The FSM and the RMI must adhere to specific fiscal control and 

accounting procedures and are required to submit annual audit reports, 

within the meaning of the Single Audit Act, as amended.22 Single audits 

are focused on recipients’ internal controls over financial reporting and 

compliance with laws and regulations governing U.S. federal awardees 

and provide key information about the federal grantee’s financial 

management and reporting.

U.S. Grant Administration

Through its participation in the JEMCO and JEMFAC, the United States 

can require that terms and conditions be attached to any and all annual 

grant awards to improve program performance and fiscal accountability. 

Interior’s Office of Insular Affairs (OIA) has responsibility for the 

administration and oversight of the FSM and RMI compact sector and 

supplemental education grants.23 In addition to headquarters staff, OIA 

operates a Honolulu field office and has staff in the FSM and RMI to 

 

21According to an official with Interior’s Office of Insular Affairs (OIA), the FSM and the 

RMI have not fulfilled their annual reporting requirements from fiscal years 2004 through 

2012. Both FSM and RMI officials expressed their concerns with the annual report due 

date because it conflicts with the preparation and availability of other reports that are 

needed to complete the annual report.

2231 U.S.C. § 7501 et seq. According to the act, single audit reports are due to the 

Federal Audit Clearinghouse within 9 months after the end of the audited period. OIA uses 

the date of filing with the clearinghouse to determine when the country has completed the 

audit process.

23Under the amended compacts’ 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 is also to include an assessment of U.S. program and technical 

assistance provided to the countries and an evaluation of their economic conditions. OIA 

officials told us they assist in drafting these annual reports, which were issued in 2004 

through 2011. Additionally, during the year of the 5th, 10th and 15th anniversaries of the 

enactments of the law, the annual reports should include a review of the terms of the 

respective compacts and consider the overall nature and development of the U.S.–FSM 

and U.S.–RMI relationships. The United States issued 5-year reviews of the FSM and RMI 

in 2012.
 

Page 13 GAO-13-675 Compacts of Free Association

conduct oversight.24 Under the fiscal procedures agreements governing 

the amended compacts, OIA is responsible for using financial reports to 

monitor each country’s budget and fiscal performance, and for using 

performance reports submitted by the countries to evaluate sector grant 

performance. OIA officials are also responsible for monitoring compliance 

with grant terms and conditions. If problems are found in areas such as 

the FSM and RMI 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 

requiring additional prior approvals. Additionally, the United States may 

withhold grant funds if the countries breach the terms and conditions of 

certain sections of the amended compacts or of the fiscal procedures 

agreements, or fail to comply with the award conditions of a grant.

As the U.S. agency with the largest grant awards to the FSM and the 

RMI, Interior is designated as the cognizant audit agency25 for FSM and 

RMI single audits and has several responsibilities, including

• providing technical advice to auditees and auditors and considering 

grant extensions to the report submission date,

• informing other affected federal agencies of any direct reporting of 

irregularities or illegal acts, and

• coordinating the federal response for audit findings that affect the 

federal program of more than one agency.26

 

24The amended compacts’ implementing legislation states that “it is the sense of 

Congress that the Secretary of the Interior shall ensure that there are personnel resources 

committed in the appropriate numbers and locations to ensure effective oversight of U.S. 

assistance.” See Pub. L. No. 108-188, §105(b)(8).

25The cognizant agency is the federal agency designated to carry out the federal 

responsibilities with regard to a single audit and is the agency that provides the 

predominant amount of direct funding to an entity, such as the FSM and the RMI. 

Grantees receiving more than $50 million in federal assistance are assigned to a 

cognizant agency for audit supervision. See Office of Management and Budget, Audits of 

States, Local Governments, and Non-Profit Organizations, OMB Circular No. A-133 

(revised 2007).

26This coordinated federal response is the “management decision” for audit findings. 

Management decision means the evaluation by the federal awarding agency of audit 

findings and corrective action plan and the issuance of a written decision as to what 

corrective action is necessary.
 

Page 14 GAO-13-675 Compacts of Free Association

Furthermore, all U.S. agencies providing noncompact grants to the FSM 

and the RMI are responsible for administering those grants in accordance 

with Office of Management and Budget (OMB) requirements27 and 

agency regulations that include the Grants Management Common Rule. 

Under the common rule, U.S. agencies may consider a grantee as “high 

risk” if the grantee has a history of unsatisfactory performance, is not 

financially stable, has a management system that does not meet required 

standards, has not conformed to the terms and conditions of previous 

awards, or is otherwise irresponsible. Single audits provide key 

information about the adequacy of a grantee’s management system. 

Federal agencies that designate a grantee as high risk may impose 

special grant conditions.28

In fiscal years 2007 through 2011, the FSM and RMI spent at least half of 

their compact sector funds in the education and health sectors. Most of 

the compact funds in these sectors paid for personnel costs and medical 

supplies and equipment. Both countries spent significant amounts of 

compact funds on personnel in the education and health sectors, which 

resulted in JEMCO and JEMFAC resolutions aimed at capping the 

budgetary levels for personnel in these sectors at fiscal year 2011 levels 

because of concerns about the sustainability of sector budgets as 

compact funding continues to decline through fiscal year 2023. While the 

four FSM states completed plans in 2012 and 2013 to address the annual 

decrements in compact sector funding through fiscal year 2023, the FSM 

National Government and the RMI have not submitted plans to address 

the decrements. As a result, the U.S. members of the JEMCO and 

JEMFAC are considering withholding certain fiscal year 2014 compact 

sector grant funds until the FSM National Government and RMI submit 

their plans. At the annual JEMCO and JEMFAC meetings in August 2013, 

 

27See Office of Management and Budget, Grants and Cooperative Agreements with State 

and Local Governments, OMB Circular No. A-102 (revised 1997).

28According 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.

FSM and RMI 

Spending Targeted 

Education and Health
 

Page 15 GAO-13-675 Compacts of Free Association

fiscal year 2014 sector grant funds were not allocated to the FSM or the 

RMI.

In fiscal years 2007 through 2011, the FSM spent about 67 percent, or 

$158 million, of sector compact funds in the education and health 

sectors.29 As seen in figure 3, of the total expenditures in all six compact 

sectors, expenditures for education represented approximately 37 percent 

and expenditures for health represented about 30 percent. Expenditures 

in the other four sectors—infrastructure, environment, private sector 

development, and public sector capacity building—together accounted for 

about 33 percent of total compact expenditures during this period. In 

addition to education sector compact funds, the FSM also spent about 

$35.7 million in supplemental education grant funds to support education 

initiatives. For information on FSM infrastructure sector compact 

expenditures, see appendix II.

Figure 3: Federated States of Micronesia (FSM) Sector Compact Expenditures and 

Supplemental Education Grant Expenditures, Fiscal Years 2007 through 2011

 

29Since we focused our review on the FSM National Government and the state 

governments of Chuuk and Pohnpei, the FSM expenditure amount includes data for these 

three governments. Data for the state governments of Kosrae and Yap are not included. 

FSM Sector Expenditures

FSM Spent Most Compact 

Funds in Education and Health, 

and Personnel Costs Were the 

Largest Component
 

Page 16 GAO-13-675 Compacts of Free Association

Compact funds in the FSM supported a significant portion of government 

expenditures in the education and health sectors. Education sector 

compact and supplemental education grant funds together constituted 

about 85 percent of total education expenditures, and health sector 

compact funds constituted about 66 percent of total health expenditures 

in fiscal year 2011.30 Other noncompact U.S. grants represented an 

additional 10 percent of the education expenditures and 25 percent of 

health expenditures in fiscal year 2011.

With regard to the use of funds, in fiscal years 2009 through 2011, the 

FSM spent about 61 percent of its education sector compact and 

supplemental education grant funds to pay personnel, and about 41 

percent of its health sector compact funds to pay personnel (see fig. 4).

 

30The reliance on compact funds as sources of government expenditures varies among 

the FSM governments, with education sector compact and supplemental education grant 

expenditures together accounting for almost 20 percent of total education expenditures in 

the National Government, 100 percent in Chuuk, and 91 percent in Pohnpei, according to 

data from the 2011 single audits. Health sector compact funds accounted for about 9 

percent of total health expenditures in the National Government, 98 percent in Chuuk, and 

72 percent in Pohnpei.
 

Page 17 GAO-13-675 Compacts of Free Association

Figure 4: Federated States of Micronesia (FSM) Compact Expenditures in the 

Education and Health Sectors, Fiscal Years 2009 through 2011

Notes: Percentages may not add up to 100 due to rounding. Because specific expenditure data for 

the FSM National Government and Chuuk were not presented in their single audits for fiscal years 

2007 and 2008, we only present specific expenditures for the three entities for fiscal years 2009 

through 2011.

a

Includes both education sector compact and supplemental education grant expenditures.

b

Includes categories defined as regular wages, overtime, fringe benefits, and other personnel costs.

The levels of expenditures in the FSM education and health sectors 

dedicated to personnel concerned JEMCO because of the potential 

effects on the sustainability of sector budgets as compact funding 

continued to decline through fiscal year 2023 because of the annual 

decrements. In September 2011, JEMCO resolved that it would not 

approve fiscal year 2013 budgets for the education and health sectors 
 

Page 18 GAO-13-675 Compacts of Free Association

until the FSM demonstrated that budgetary levels for personnel expenses 

reflected in education and health sector proposals did not exceed fiscal 

year 2011 levels.31 According to OIA, the FSM complied with this 

resolution in its fiscal year 2013 compact funding proposals.

In March 2013, the four FSM states had completed plans to address the 

annual decreases, or decrements, in compact sector funding through 

2023; however, the FSM National Government has not completed a plan 

to address the fiscal challenges facing the government because of the 

annual decrements. The states’ plans, completed in 2012 and early 2013, 

detail the proposed expenditure cuts across sector budgets intended to 

offset the annual decrements while preserving essential services in the 

education and health sectors. Absent additional revenues, proposed cuts 

are to be implemented in 2014, 2017, and 2020.

While U.S. JEMCO members expressed their satisfaction with the FSM 

states’ plans, at the March 2013 JEMCO midyear meeting, they called for 

the FSM National Government to create a plan addressing how it will 

manage the fiscal challenges facing the government and how it will 

support the states in managing annual decrements.32 An FSM official 

explained that the FSM National Government did not create a plan 

because it receives only a small portion of FSM compact funds. The 

official said the FSM National Government was focused instead on 

shifting its sector operating costs, such as for the College of Micronesia, 

to the government’s own funds, freeing up compact funds for priorities in 

the education and health sectors. The FSM official also noted the 

government’s efforts to develop an operational plan by early 2014 

outlining how the FSM government will address the budgetary and 

economic challenges it faces through 2023 and beyond. In May 2013, the 

three U.S. JEMCO members notified the FSM that the United States was 

 

31JEMCO resolution 2011-1.

32U.S. officials called for this plan on the basis of two prior JEMCO resolutions related to 

annual decrement planning: JEMCO resolution 2009-2 and JEMCO resolution 2010-2. 

JEMCO resolution 2009-2 called for the FSM national and state governments to develop 

plans for managing the annual decrements in compact funding and use those plans as the 

basis for its fiscal year 2012 budget decisions. Because the FSM did not submit national 

or state plans prior to an August 10, 2010, deadline, JEMCO resolution 2010-2 called for a 

report addressing a variety of issues relating to long-term sustainability, such as the need 

to constrain expenditures, increase revenues, and find additional contributors to increase 

compact trust fund annual contributions in order to adjust to projected budget levels after 

fiscal year 2023.

The Four FSM States 

Completed Plans to Address 

the Annual Decrements 

through 2023, but FSM National 

Government Lacks a Plan 
 

Page 19 GAO-13-675 Compacts of Free Association

considering withholding select fiscal year 2014 compact sector funds from 

the FSM National Government until it completes a plan detailing the 

concrete commitments that will be made to complement and support the 

states’ plans to address the annual decrements in compact sector 

funding. Without this plan, the FSM may not be able to sustain essential 

services in the education and health sectors in the absence of compact 

funding. The FSM National Government responded in July 2013 

indicating that to address the decrement it was considering, among other 

things, tax reform, alternative energy initiatives, an annual funding setaside, increased FSM trust fund contributions, and improved revenue 

sharing with the states. In its comments on our draft report, the FSM 

National Government mentioned the issue of revenue sharing between 

the national and state governments, noting that the FSM leadership is 

working together to arrive at a decision that will be beneficial to both 

levels of government and at the same time facilitate greater effectiveness 

in meeting the development objectives of the FSM. (See app. X for a copy 

of the FSM’s comments.) At the annual JEMCO meeting in August 2013, 

fiscal year 2014 sector grant funds were not allocated to the FSM.

In fiscal years 2007 through 2011, the RMI spent about 50 percent, or 

$89 million, of sector compact funds in the education and health sectors. 

As shown in figure 5, of the total compact expenditures within the seven 

compact sectors (including Ebeye special needs as a sector), education 

represented approximately 31 percent and health represented 

approximately 19 percent. Expenditures in the other five sectors—

infrastructure, environment, private sector development, public sector 

capacity building, and Ebeye special needs—together accounted for 

about 50 percent of total compact expenditures during this period. In 

addition to education sector compact funds, the RMI spent about $26.5 

million of supplemental education grant funds and $11.9 million of Ebeye 

special needs funds to support education initiatives. In addition to health 

sector compact funds, the RMI spent about $3 million of Ebeye special 

needs funds to support health initiatives. For information on RMI 

infrastructure sector compact expenditures, see appendix II.

RMI Sector Expenditures

RMI Spent Half of Compact 

Funds in Education and Health, 

and Personnel Costs Were the 

Largest Component
 

Page 20 GAO-13-675 Compacts of Free Association

Figure 5: Republic of the Marshall Islands (RMI) Sector Compact Expenditures and 

Supplemental Education Grant Expenditures, Fiscal Years 2007 through 2011

Compact funds in the RMI supported a significant portion of government 

expenditures in the education and health sectors. Education sector 

compact funds, supplemental education grants, and Ebeye special needs 

education funds constituted about 62 percent of total education 

expenditures in fiscal year 2011, while health sector compact funds and 

Ebeye special needs health funds constituted about 33 percent of total 

health expenditures. Other noncompact U.S. grants represented an 

additional 6 percent of education expenditures and 17 percent of health 

expenditures in fiscal year 2011.

In fiscal years 2007 through 2011, the RMI spent most education and 

health compact funds on personnel: about 54 percent of the education 

sector compact and supplemental education grant funds paid for 

personnel, while about 64 percent of the health sector compact funds 

paid for personnel (see fig. 6).
 

Page 21 GAO-13-675 Compacts of Free Association

Figure 6: Republic of the Marshall Islands (RMI) Compact Expenditures in the 

Education and Health Sectors, Fiscal Years 2007 through 2011

Notes: Percentages may not add up to 100 due to rounding. This figure does not include an analysis 

of Ebeye special needs expenditures.

a

Includes both education sector compact and supplemental education grant expenditures.

b

Includes salaries and wages.

c

Represents payments in aid to nonpublic schools and transfers out to the College of Micronesia.

d

Represents payments made to the Majuro Atoll Waste Company in accordance with grant 

agreements.

Due to interrelated concerns about the amount of funds dedicated to 

personnel costs and the sustainability of sector budgets, JEMFAC 

resolved in August 2011 that personnel-related expenses in the education 

and health sector budgets for fiscal year 2012 could not exceed fiscal 

year 2011 levels and directed that fiscal year 2012 compact funds made 

available by this change should be budgeted for direct support of 
 

Page 22 GAO-13-675 Compacts of Free Association

education and health programs and services.33 According to OIA, the RMI 

complied with this resolution.

The RMI has not updated its plan to address the annual decrements in 

compact funding.34 In March 2011, the RMI submitted a draft mediumterm budget and investment framework, which included a plan to address 

the annual decrements and provided an overview of economic 

performance, the country’s fiscal situation, and budget estimates.35

However, U.S. JEMFAC members raised concerns that the framework did 

not account for significant ongoing health sector operational costs, relied 

on reform efforts, and assumed unlikely new revenues.

While the RMI provided a draft update to its framework in July 2013,36 the 

government has not updated the plan for addressing the annual 

decrements. The RMI budget submissions for fiscal years 2012 and 2013 

 

33JEMFAC resolution 2011-1.

34JEMFAC passed two resolutions related to annual decrement planning: JEMFAC 

resolution 2009-1 and JEMFAC resolution 2010-1. JEMFAC resolution 2009-1 called for 

the RMI to develop plans for managing annual decreases in compact funding and use 

those plans as the basis for fiscal year 2012 budget decisions. Because the RMI did not 

submit plans prior to an August 10, 2010, deadline, JEMFAC passed another resolution in 

2010— JEMFAC resolution 2010-1— that called for a report addressing a variety of issues 

relating to the RMI’s fiscal challenges, such as the need to make adjustments to take into 

account the effect of the decrement in the medium term.

35In 2006, we reported that the FSM and RMI lacked concrete plans for addressing the 

annual decrements in compact funding and would likely be unable to sustain current levels 

of government services as compact funding diminishes. We recommended that Interior, in 

conjunction with JEMCO, JEMFAC, and other U.S. agencies, work with the FSM and the 

RMI to establish plans for sector spending and investment to minimize any adverse 

consequence of reduced funding. See GAO-07-163. While the FSM and the RMI provided 

draft annual decrement plans to the JEMCO and JEMFAC in 2011, JEMCO challenged 

the viability of the FSM National Government’s decrement strategy, and JEMFAC advised 

the RMI government to extend its decrement strategy beyond the medium term to mitigate 

the elimination of compact funding in 2023. 

36According to the U.S.–RMI amended compact implementing legislation, “the 

Government of the Republic of the Marshall Islands shall prepare and maintain an official 

medium-term budget and investment framework. The framework shall be strategic in 

nature, shall be continuously reviewed and updated through the annual budget process, 

and shall make projections on a multi-year rolling basis” (Pub. L. No. 108-188, §201(b), 

§211(f)). According to Article V of the fiscal procedures agreement, U.S. grant assistance 

shall be made available in accordance with annually updated implementation steps for the 

medium-term budget and investment framework, developed by the RMI in conjunction with 

its budget process.

RMI Has Not Updated Its Plan 

to Address Annual Decrements 

in Compact Funding
 

Page 23 GAO-13-675 Compacts of Free Association

did not reflect the RMI’s commitments outlined in the framework and 

failed to address JEMFAC’s ongoing concerns regarding decrement 

planning. An RMI official responded that the RMI government could not 

provide the updated framework and annual decrement plan because of 

obstacles it encountered in completing the 2011 audit and finalizing the 

2011 census. In April 2013, the three U.S. JEMFAC members notified the 

RMI that the United States was considering withholding fiscal year 2014 

compact sector funds from the RMI until the RMI submits the framework 

and an annual decrement plan. In July 2013, RMI officials submitted an 

updated framework outlining anticipated revenues in the medium term, 

but it lacked an annual decrement plan, as required. Without the annual 

decrement plan, the RMI may not be able to sustain essential services in 

the education and health sectors in the medium term. At the August 2013 

JEMFAC meeting, the RMI submitted an updated medium-term budget 

and investment framework dated August 2013 along with several budget 

portfolio statements for fiscal year 2014 including statements for the 

departments of health and education. The RMI government considers this 

to be its decrement plan. However, the information was provided to the 

U.S. members of the JEMFAC 3 days prior to the annual meeting, and 

according to these members, they did not have sufficient time to review it

and determine whether or not it meets the requirements of the JEMFAC 

resolution. At the annual JEMFAC meeting in August 2013, fiscal year 

2014 sector grant funds were not allocated to the RMI.

Data reliability issues hindered our assessment of progress by the FSM 

and RMI in both the education and health sectors for fiscal years 2007 

through 2011. Between 2004 and 2006, both countries began tracking 

education and health indicators, establishing data collection systems, and 

collecting data for the majority of the indicators and have continued to 

track data on their indicators since that time. (See app. VI for a list of all 

FSM and RMI indicators in the education and health sectors.) While both 

countries tracked annual indicators to measure progress in these sectors, 

in reviewing subsets of these indicators we determined that data for eight 

of the subset of nine education indicators we reviewed in the FSM and for 

three of the subset of five education indicators we reviewed in the RMI 

were not sufficiently reliable to assess progress for the compacts as a 

whole—for a variety of reasons, some specific to individual indicators, but 

primarily because of missing, incomplete, or inconsistent data. We found 

one RMI education indicator to be both reliable and capable of 

demonstrating progress: the education level of teachers in the RMI. The 

other reliable RMI education indicator was student enrollment. We 

determined that data for all five of the subset of FSM health indicators we 

Data Inconsistencies 

Hindered Our 

Assessment of FSM 

and RMI Progress in 

the Education and 

Health Sectors
 

Page 24 GAO-13-675 Compacts of Free Association

reviewed were not sufficiently reliable to assess progress for the 

compacts as a whole. In the RMI, of the subset of five health indicators 

we reviewed, we determined that one was sufficiently reliable and two 

were not sufficiently reliable to assess progress; for the remaining two 

indicators, we had no basis to judge the reliability of the data. In much of 

their reporting on these indicators, the FSM and RMI have noted data 

reliability problems and some actions they have taken to address the 

problems. The compacts’ joint management and accountability 

committees have also raised concerns about the reliability of the FSM’s 

education and health data and the RMI’s health data and required that 

each country obtain an independent assessment and verification of these 

data; neither country has met that requirement.

In 2004, the FSM established 20 indicators to track progress toward its 

overarching goals in education:37 to improve the educational system of 

the country, including primary, secondary, and postsecondary education, 

and to develop the country’s human and material resources necessary to 

deliver these services. However, our review of a subset of 9 of the 20 

FSM education indicators found problems with data reliability. Table 1 

provides a summary of the data reliability determinations we made in 

reviewing the subset of 9 education indicators. (For a complete list of the 

indicators the FSM has tracked and reported since fiscal year 2005, see 

app. VI.)

 

37This came in response to a 2004 JEMCO resolution requesting that the FSM National 

Government and the four state Departments of Education reconfirm the goals that would 

be tracked uniformly and consistently beginning in fiscal year 2005, to enable reporting of 

results and make comparisons possible over time and across states.

Assessment of FSM 

Progress in Education

FSM Has Tracked Annual 

Indicators in Education since 

2005, but We Found Problems 

with Data Reliability
 

Page 25 GAO-13-675 Compacts of Free Association

Table 1: Subset of 9 of the 20 Federated States of Micronesia (FSM) Education Indicators Reviewed, with Observations on the 

Reliability of the Data to Measure Progress for the Compact as a Whole from 2007 through 2011

Indicator Observations on data reliability

Sufficiently reliable to measure 

progress over time?

Yes, No, or No basis to judge

Student enrollment Inconsistent inclusion of private school enrollment 

data among FSM states.

No

8th and 12th grade 

completion/graduation rate 

Incomplete data among FSM states. No

Number of schools by grade level Yes

Education level of staff Inconsistent inclusion of private school staff 

information among FSM states.

No

Dropout rate Inconsistent definitions and data collection between 

FSM states.

No

Students at “Proficiency” level or above 

on standardized tests

Data missing for some FSM states; no individual state 

reporting for some years; and in some years and for 

some grades less than half the students in the grades 

were tested.

No

Teacher attendance Concern about reliability of school sourced 

documents.

No

Parent involvement Incomplete data and inconsistent definitions among 

FSM states.

No

Scholarships Inconsistent reporting of required information among 

FSM states.

No

Source: GAO analysis of FSM data.

Notes: By “sufficiently reliable,” we mean that the likelihood of significant errors or incompleteness is 

minimal, and the use of the data would not lead to an incorrect or unintentional message. The 

indicator titles are shortened in the table; for the full indicator titles, see app. VI.

We determined that the data for number of schools by grade level were 

sufficiently reliable to report on progress in the FSM education sector. 

The number of schools by grade level, by itself, does not necessarily 

demonstrate progress or lack thereof; however, it does provide useful 

information about the changes in the states’ education systems. Both 

Chuuk and Pohnpei, for example, have gone through a process resulting 

in school closures, with or without consolidation of some schools, and the 

numbers of schools by grade level reflect this. In Chuuk, the number of 

schools declined from a total of 154 primary and secondary schools in 

2007 to 85 schools in 2012, a 45 percent reduction.38 In Pohnpei, the 

 

38The consolidation included the merger of 46 early childhood education centers with 

elementary schools, as well as the merging of 22 elementary schools with other schools in 

close proximity.
 

Page 26 GAO-13-675 Compacts of Free Association

number of schools declined from a total of 41 primary and secondary 

schools in 2007 to 34 schools in 2011, a 17 percent reduction.

We determined that 8 of the subset of 9 FSM education indicators we 

reviewed could not be used to assess progress over time because of data 

reliability issues summarized above in table 1. For example, we found 

that the four FSM states did not use common definitions for some 

indicators; consequently, the education indicator reports we reviewed do 

not contain consistent data for these indicators and comparisons cannot 

be made across states. As an example, Chuuk, Pohnpei, and the FSM 

National Government each applied its own definition of dropout, creating 

inconsistencies in the data for that indicator.39 Student enrollment data 

provide another example: Chuuk and Kosrae included both public and 

private schools in reporting student enrollment data, while Pohnpei and 

Yap included only public schools. In addition to data reporting 

inconsistencies, we found that data in FSM’s education indicators reports 

sometimes were not complete. For example, in 2011, average daily 

student attendance data for Chuuk were missing; for that same year, 

Chuuk also lacked completion and graduation rate data for 8th and 12th 

graders.

During January 2013 site visits in Chuuk, we visited 13 school sites 

selected on the basis of available time and travel constraints. This 

included 6 of 8 schools on the island of Weno and 7 schools on four 

lagoon islands.40 In several cases, these were school sites we visited in 

2006. In facilities we were able to visit both in 2006 and 2013, we noted 

general improvements in the overall maintenance and condition; however, 

 

39The FSM National Government considered students to be dropouts if they had not come 

to school for 40 days and had not requested a transcript. In Chuuk, an education official 

stated that elementary students with an individualized education program who missed 15 

consecutive days were considered dropouts, whereas high school students who had 5 

days of unexcused absence were considered dropouts. The Pohnpei Department of 

Education did not have a definition for when a student is considered a dropout; but noted it 

collected dropout data only for high school students, not for elementary students. 

According to the FSM JEMCO 20 Education Indicators Report, July 2007, the definition of 

“dropout” was revisited in a May 2007 data management workshop. Participants agreed 

that a completely reliable definition was probably unattainable, though it was stressed to 

participants that simply subtracting ending enrollment from beginning enrollment, which at 

least two states had done, was not a reliable method to calculate the dropout rate.

40The site visits we made in Chuuk and Pohnpei were intended to illustrate educational 

conditions in those states. Our observations are not generalizable to the other states or to 

the FSM as a whole.

Site-Visit Observations Relating 

to Progress in the FSM 

Education Sector
 

Page 27 GAO-13-675 Compacts of Free Association

staff we interviewed reported that a lack of chairs, desks, and textbooks 

was a concern, especially in lagoon-island schools. In addition, we visited 

the Chuuk Department of Education warehouse where we found 

hundreds of cases of books and supplies that had not been shipped to 

schools in the outer islands as intended, according to the warehouse 

manager. An OIA education grant manager reported that the department

had recently purchased and distributed 4,000 chairs and the distribution 

process had gone smoothly.41 However, as of May 2013, Chuuk did not 

have a fully implemented purchasing plan, inventory management 

system, or monitoring plan for textbooks, as required by JEMCO, 

according to an OIA official.

In Pohnpei, we visited 8 schools (5 elementary and 3 high schools) of a 

total of 34 public elementary and high schools on the main island of 

Pohnpei, selected on the basis of available time and travel constraints. 

The school buildings we visited were generally clean. From what we were 

able to observe, they had electricity, functioning fans in the classrooms, 

and functioning windows. We observed desks, chairs, and textbooks in 

the classrooms. The newly built schools that we visited, which were 

funded through public sector infrastructure grants, had water tanks and 

new bathrooms with sinks and toilets that appeared to be operational. 

From what we observed, these schools were generally maintained in 

good condition. However, we also noted minor issues such as chipped 

paint and broken classroom doors and locks in some facilities.

In 2004, the FSM began tracking data on 14 health indicators to measure 

its progress toward improving diagnostic and treatment capacity and 

ensuring the provision of services to geographically dispersed populations 

(see app. VI for a complete list of the indicators). However, our review of 

a subset of 5 of the 14 FSM health indicators found problems with data 

 

41A 2009 FSM National Government audit report covering fiscal years 2006 and 2007 also 

found that some textbooks had been sitting in Chuuk’s warehouse for up to 8 months. See 

Federated States of Micronesia, Office of the National Public Auditor, Inspection of 

Procurement Activities at Chuuk Department of Education, FY2006-2007, Report No. 

2009-02 (Palikir, Pohnpei: July 2009). Similar problems existed in 2006 when we visited. 

See GAO, Compacts of Free Association: Micronesia’s and the Marshall Islands’ Use of 

Sector Grants, GAO-07-514R (Washington, D.C.: May 25, 2007). 

Assessment of FSM 

Progress in Health

FSM Has Tracked Annual 

Indicators in Health since 2004, 

but We Found Problems with 

Data Reliability
 

Page 28 GAO-13-675 Compacts of Free Association

reliability. We determined that none of these indicators could be used to 

assess progress because of data reliability issues (see table 2).

Table 2: Subset of 5 of the 14 Federated States of Micronesia (FSM) Health Indicators Reviewed, with Observations on the 

Reliability of the Data to Measure Progress for the Compact as a Whole from 2007 through 2011

Indicator Observations on data reliability

Sufficiently reliable to measure 

progress over time?

Yes, No, or No basis to judge

Infant mortality rate Underreported births and deaths, and lack of outer 

island data.

No

Immunization coverage (2-year olds) Unreliable data in one FSM state. No

Off-island medical referral costs Source of expenditure data upon which assessments 

were based is unclear.

No

Essential drugs Unreliable inventory records. No

Diabetes-related hospitalizations Discrepancies in reported data. No

Source: GAO analysis of FSM health indicator data for 2007-2011.

Notes: By “sufficiently reliable,” we mean that the likelihood of significant errors or incompleteness is 

minimal, and the use of the data would not lead to an incorrect or unintentional message. The 

indicator titles are shortened in the table; for the full indicator titles, see app. VI.

We found inconsistencies in the data provided by the states compared 

with data for the same indicators included in the FSM’s 14 annual health 

indicators report. For example, FSM data on immunization cannot be 

used due to issues with data in Chuuk. According to the FSM 

immunization expert, the data for that indicator were unreliable prior to 

2011 because in Chuuk there was no registry of immunization to allow the 

computation of a coverage rate. In reviewing the Chuuk medical records, 

the immunization expert found that (1) an individual child might have 

three different immunization records in the system under three variations 

of his or her name, and (2) there was not appropriate consideration as to 

when a vaccination was medically valid and therefore should be counted. 

For an immunization to be medically valid, for example, a series may 

need to be given within certain time frames. The records that the expert 

examined showed vaccinations being given too early in the sequence, 

resulting in an incorrect dosage and invalidating the vaccination. Finally, 

the expert noted that immunization program documentation was bad. We 

also identified problems when reviewing how the FSM calculates the 

percentage of days when all essential drugs are in stock. Specifically, we 

identified problems with the source documents used in the calculations in 

Chuuk and Pohnpei, calling into question the reliability of the data 

presented in the health indicators report. The key documents from each 

health care facility that are used to calculate the indicator are the 

formulary (the list of the essential drugs) and each facility’s inventory 
 

Page 29 GAO-13-675 Compacts of Free Association

report. We attempted to verify the accuracy of the Chuuk hospital drug 

inventory report and found that the report contained some incorrect 

information. For example, the report listed 219 bottles of Amoxicillin 125 

MG/5ML Suspension 150 ML, but the hospital’s storage room had none. 

Since the inventory report is used in calculating the number reported for 

the essential drugs indicator, incorrect information found in the report 

raises questions about the validity and reliability of the information for this 

indicator in the health indicators report.

In January 2013, we visited Chuuk’s only hospital, which we had 

previously visited in 2006. We noted that the hospital was generally better 

maintained than it had been on our prior visit. Moreover, officials told us 

that it now has reliable and consistent electric power, which was not the 

case in the past. Additionally, whereas previously Chuuk’s hospital had 

only a small incinerator to burn medical waste, we observed two 

functioning medical waste incinerators, which we were told operate on a 

routine basis. In 2006, some of the selected medical equipment that we 

observed was not working. In 2013, the selected equipment that we 

observed, such as a digital X-ray machine and laboratory equipment, was 

being used and reported as functional.

During our 2006 visit to Chuuk’s hospital, many of the on-hand drugs that 

we spot checked were past their expiration days. On our 2013 visit to the 

hospital, however, the majority of the on-hand drugs that we spotchecked were within their labeled expiration dates. We also spot-checked 

drugs in two dispensaries on Chuuk Lagoon islands and found most of 

the drugs we checked to be within their labeled expiration dates. We 

cannot comment regarding on-hand drugs at the three other dispensaries 

in Chuuk lagoon that we visited, as they were closed when we attempted 

to visit them even though their schedules indicated that they were 

supposed to be open.42

During our 2006 visit to selected Pohnpei dispensaries, we also had 

found that varying amounts of the drugs on hand that we spot checked 

were past their expiration dates. On our recent visit to three of the four 

dispensaries on the main island, however, most of the on-hand drugs that 

 

42The closed dispensaries were the Parem Island dispensary, Tonoas’s Sapun 

dispensary, and Fefen’s Sapore dispensary. The open dispensaries were Udot’s Funomo 

dispensary and Fefen’s Messa dispensary. 

Site-Visit Observations Relating 

to Progress in the FSM Health 

Sector 
 

Page 30 GAO-13-675 Compacts of Free Association

we spot checked in selected dispensaries were within their expiration 

dates or had an extended shelf life.43

The three dispensary buildings we selected on Pohnpei in 2013 were all 

open on the day we visited. In addition, health assistants were present at 

the time of our visits. The buildings all generally appeared to be in an 

acceptable condition and had electricity at the time of our visits. The three 

selected dispensaries also reported some concerns, however. For 

example, we found some equipment, such as scales and freezers that 

were not functioning at the time of our visit. We also visited Pohnpei’s 

only public hospital during our site visits. However major renovation work 

was taking place on the day of our visit, which made it impossible to make 

any observations about its normal functioning. (For information on 

compact-funded infrastructure projects in the education and health 

sectors, see app. II.)

The RMI has tracked 20 indicators selected by JEMFAC in 2004 for 

monitoring progress in education and began reporting on them annually in 

2005 in response to a JEMFAC resolution.44 The RMI’s overarching 

education goals were to improve the educational system of the country, 

including primary, secondary, and postsecondary education, and to 

develop the country’s human and material resources necessary to deliver 

these services. For a complete list of the indicators the RMI has tracked 

and reported from 2007 through 2011, see appendix VI.

However, in our review of a subset of 5 of the 20 RMI education 

indicators, we found problems with data reliability (see table 3).

 

43The spot checks we performed were intended to provide insights into whether drugs 

were past their expiry dates. Our observations are not generalizable to all drugs in Chuuk 

and Pohnpei. 

44In 2004, the first year of the amended compact, the requirement was to submit quarterly 

performance reports with the 20 uniform indicators of education progress. The 2005 

JEMFAC resolution required the RMI to report annually on the 20 indicators.

Assessment of RMI 

Progress in Education

RMI Has Tracked Annual 

Indicators in Education since 

2004, but We Found Problems 

with Data Reliability 
 

Page 31 GAO-13-675 Compacts of Free Association

Table 3: Subset of 5 of the 20 Republic of the Marshall Islands (RMI) Education Indicators Reviewed, with Observations on the 

Reliability of the Data to Measure Progress for the Compact as a Whole from 2007 through 2011

Indicator Observations on data reliability

Sufficiently reliable to measure 

progress over time?

Yes, No, or No basis to judge

Student enrollment Yes

Completion/graduation rate Revision to data with no explanation; officials raised 

concerns about the reliability of the data.

No

Education level of staff Yes

Dropout rate Lack of outer island data; missing data. No

Students at “Proficiency” level or above 

on standardized tests

Inconsistency in reported data for some years; 

number of students tested also unknown.

No

Source: GAO analysis of RMI data.

Notes: We considered the data for education level of staff to be sufficiently reliable for school years 

2008-2009 through 2011-2012 but not for 2007-2008. We excluded school year 2007-2008 because 

the RMI included private school teachers in these data and did not explain its inclusion, whereas in all 

other years the RMI is clear the data represent only public school teachers. By “sufficiently reliable,” 

we mean that the likelihood of significant errors or incompleteness is minimal, and the use of the data 

would not lead to an incorrect or unintentional message. The indicator titles are shortened in the 

table; for the full indicator titles, see app. VI.

We determined that the data for 2 indicators were sufficiently reliable to 

assess progress in the RMI’s education sector: (1) total enrollment by 

grade and gender and (2) number and percentage of teachers by 

education level. Data we reviewed showed an improvement in the 

qualifications of RMI teaching staff, with the percentage of teachers 

having no degree, or a high school diploma, or a certificate decreasing 

from 57 percent in school year 2006-2007 to 42 percent in school year 

2011-2012. Over the same time frame, the number of teachers holding 

associate’s, bachelor’s, or master’s degrees increased from 43 percent to 

55 percent. OIA has advised the RMI Ministry of Education that all 

uncertified teachers should be in a ministry-approved degree program to 

be individually eligible for salary support from sector grant, supplemental 

education grant, or Ebeye special needs funds, and that these teachers 

should be certified by school year 2015.45

 

45JEMFAC has not made a resolution requiring teacher certification or indicating that 

funds will be withheld; however, JEMFAC recommended at its March 2013 midyear 

meeting that a grant condition be placed on the fiscal year 2014 Ministry of Education 

budget stipulating that any uncertified teacher not enrolled in a ministry-approved training 

program would be ineligible for any compact-funded salary support. 
 

Page 32 GAO-13-675 Compacts of Free Association

We determined that data for 3 of the indicators could not be used to 

assess education sector progress for the compact as a whole because of 

data reliability problems.46 For example, we found that the RMI changed 

the data source for some of the indicators it reported on during fiscal 

years 2007 through 2011. In fiscal years 2007 through 2010, the RMI 

reported Pacific Island Literacy Test data on student achievement for 4th 

graders, whereas in fiscal year 2011 it reported the Marshall Islands 

Standardized Test for 3rd, 6th and 8th graders, so year-to-year progress 

cannot be assessed because different grades and different tests were 

used.

In January 2013, we made site visits to 6 of 12 public educational facilities 

in Majuro Atoll and 3 of 6 public educational facilities in Kwajalein Atoll, 

selected on the basis of available time and travel constraints.47 The new 

and renovated classrooms that we visited all had desks, chairs, and 

chalkboards. Most of the fans and lighting that we observed were in 

working order at the time of our visit, as were the new bathrooms. 

However, many of the safety doors that we observed at our selected 

schools were either off their hinges and moved to one side or propped 

open with an object. Officials told us that this problem occurred because 

the doors had not been properly installed.48

When we visited the RMI in 2006, we were shown classrooms in the 

Marshall Islands High School that had collapsed ceilings. We found no 

such problems during our visit to this school in 2013. However, we did 

find that several of the water tanks at the school were not connected to 

 

46We contacted the RMI government and requested additional information about activities 

it took to ensure the data for education indicators were reliable. The responses we 

received did not provide sufficient information for us to determine that the data were 

reliable.

47The site visits we made in the RMI were intended to illustrate educational conditions 

under the compact at school sites we visited. Our observations are not generalizable to all 

school sites throughout the RMI.

48Commenting on a draft of this report, the RMI stated that the door at one of the 

elementary schools where we observed this problem had been repaired and that repairs 

were under way at three other elementary schools. We have not verified this information. 

(See app. XI for a copy of the RMI’s comments.)

Site-Visit Observations Relating 

to Progress in the RMI 

Education Sector
 

Page 33 GAO-13-675 Compacts of Free Association

any of the buildings.49 At another school that we visited, Laura 

Elementary, classrooms in the new building had desks, chairs, and 

electricity, but an old building that was still used lacked electricity.50 At 

Delap Elementary, the classrooms also had electricity. On Ebeye, we 

visited a school in Gugeegue that had consistent electricity, we were told. 

We observed chairs, desks, and textbooks on our visit. However, we were 

also shown one of the school buildings being used for classrooms though 

it was considered unsafe by the RMI’s Project Management Unit.

51 (For 

information on compact-funded infrastructure projects in the education 

and health sectors, see app. II.)

The RMI established 26 indicators to measure progress toward its goal of 

improving primary health care in the RMI in 2006, and tracked them since 

2007 (see app. VI for a list of the RMI’s health indicators), according to 

the RMI’s Ministry of Health.52 We found that 1 of the subset of 5 

indicators that we reviewed—tuberculosis prevalence rates—was 

sufficiently reliable to assess progress in the health sector for fiscal years 

2009 through 2011 (see table 4).53 While the number of tuberculosis 

 

49Commenting on a draft of this report, the RMI stated that Ministry of Education 

maintenance crews were currently fixing the catchment tanks, which the crews had 

intentionally disconnected for repair purposes. We have not verified this information. (See 

app. XI for a copy of the RMI’s comments.)

50Commenting on a draft of this report, the RMI indicated that all classrooms at Laura 

Elementary School are hooked up to power and that Ministry of Education Maintenance 

does not recall any complaints about the lack of power but some internal electrical 

problem might have occurred during our visit. We have not verified this information. (See 

app. XI for a copy of the RMI’s comments.)

51Commenting on a draft of this report, the RMI noted that the old building mentioned has 

been abandoned and that a new three-classroom building has been constructed at 

Kwajalein Atoll High School. We have not verified this information. (See app. XI for a copy 

of the RMI’s comments.)

52The RMI’s indicators are identical to the Millennium Development Goals health-related 

indicators and use the same definitions. The Millennium Development Goals healthrelated indicators are found under three separate categories: improving maternal health, 

reducing child mortality, and combating HIV/AIDS, malaria, and other diseases.

53In 2009, the RMI began using the Center for Disease Control’s EpiAnywhere web-based 

system to track tuberculosis cases and thus we decided not to include data from 2007 and 

2008 in our data reliability assessment.

Assessment of RMI 

Progress in Health

RMI Has Tracked Annual 

Indicators in Health since 2007, 

but We Found Problems with 

Data Reliability
 

Page 34 GAO-13-675 Compacts of Free Association

cases was 23 in fiscal year 2009, the number increased to 30 cases in 

fiscal year 2010 and then fell slightly to 29 in fiscal year 2011.54

Table 4: Subset of 5 of the 26 Republic of the Marshall Islands (RMI) Health Indicators Reviewed, with Observations on the 

Reliability of the Data to Measure Progress for the Compact as a Whole from 2007 through 2011

Indicator Observations on data

Sufficiently reliable to measure 

progress over time?

Yes, No, or No basis to judge

Immunization coverage 

(2-year-olds)

Proper data collection, timeliness, and accuracy of data prior to 

2013 were problematic; low coverage rates for outer island data; 

and internal RMI disagreement regarding data. 

No

Child mortality rate For outer islands, there are ongoing problems with consistently

collecting and reporting data; timeliness issues exist with reporting 

from Ebeye.

No

Diabetes rate RMI lacked an explanation as to why rates are increasing other 

than increased screening; revisions to data with no explanation.

No basis to judge

Eliminate leprosy RMI lacked an explanation as to why rates are increasing other 

than increased screening.

No basis to judge

Tuberculosis rate Yes

Source: GAO analysis of RMI data.

Notes: Tuberculosis data for 2007 and 2008 are not included in the data we considered. By 

“sufficiently reliable,” we mean that the likelihood of significant errors or incompleteness is minimal, 

and the use of the data would not lead to an incorrect or unintentional message. The indicator titles 

are shortened in the table; for the full indicator titles, see app. VI.

However, we determined that 2 of the subset of 5 health indicators that 

we reviewed were not sufficiently reliable because of various issues with 

data collection and reporting. For example, we determined that data 

reported for immunization coverage for 2-year-olds and the child mortality 

rate were not reliable due to the timeliness and accuracy of reporting and 

low coverage rates for data from the outer islands, all problems noted in 

the Ministry of Health’s responses to our questions on data reliability. We 

found that for 2 other health indicators we had no basis to judge their 

reliability.

During January 2013, we visited both hospitals in the RMI, one located on 

Majuro and the other on Ebeye island in the Kwajalein Atoll. We did not 

attempt to visit any health clinics in other atolls due to logistic 

considerations. During our 2006 visit to the Ebeye island hospital, we 

 

54The RMI did not provide an explanation for the increases other than that it had improved 

its detection and monitoring for the disease.

Site-Visit Observations Relating 

to Progress in the RMI Health 

Sector 
 

Page 35 GAO-13-675 Compacts of Free Association

were told that persistent problems with Ebeye’s power supply continued 

to interrupt hospital services. In 2013, however, we were told that the 

Ebeye island hospital had regular electricity, which we observed at the 

time of our visit. This facility also appeared to be clean, and the selected 

medical and laboratory equipment that we examined was functioning. On 

our visit to the hospital in Majuro, we asked whether the dispensary 

maintained a drug formulary—a list of the required drugs on hand.55 The 

hospital in Majuro provided us with a copy of its formulary, which was 

from 2007. The drugs and medical supplies that we spot-checked at the 

hospital were within their labeled expiration dates. (For information on 

compact-funded infrastructure projects in the education and health 

sectors, see app. II.)

Education. In the annual education indicators report that it submitted to 

JEMCO from 2007 through 2011,56 the FSM identified problems with the 

overall quality, and consistency, of the education data, as well as 

problems with timeliness in reporting. Additionally, the reports noted the 

need for training of the data managers and difficulties with the data 

systems.57 In March 2012, JEMCO reaffirmed the need for reliable 

 

55The RMI does not have an indicator that tracks the availability of essential drugs on 

hand in hospitals and dispensaries. Nonetheless, we visited the hospital pharmacy in 

Majuro and asked to look at the list of essential drugs; we discussed their availability and 

then checked to see whether their labeled expiration dates had passed.

56The annual reports are to be submitted by July 31 each year. The number of 

postsecondary scholarship recipients was added as an indicator in 2011, bringing the total 

number of education indicators to 21.

57The FSM Department of Education reported that staff in the state departments of 

education have been trained to enter data on education indicators into their management 

systems, and that state and National Government officials perform some checks of the 

data entered.

FSM, RMI, and Bilateral 

Oversight Committees Are 

Aware of Data Reliability 

Problems in Compact 

Indicator Reports and of 

the Effect on Their Ability 

to Evaluate Progress

FSM and JEMCO
 

Page 36 GAO-13-675 Compacts of Free Association

education data to evaluate performance in a resolution that required 

independent verification of performance indicators and data for the 

education sector, which the FSM was to communicate in a report due to 

OIA by July 1, 2013, prior to the August 2013 annual meeting.58 In April 

2013, the FSM Department of Education (National Government) 

addressed the JEMCO resolution by seeking proposals to conduct an 

independent verification of its performance indicators and data quality. 

The request for proposals stated that the project period was 

approximately 2 months, ending July 30, 2013, but it did not state whether 

a report on the results of the project would be prepared within that time 

frame.59

Health. The FSM reported on its 14 annual health indicators, 

comprehensively by state and for the National Government, in a July 

2012 report by the FSM national Department of Health and Social Affairs 

covering fiscal years 2004 through 2011. The report noted limitations with 

some of the data, for example, that not all infant deaths in the outer 

islands were included in the infant mortality data.60 In response to the 

report, JEMCO identified concerns regarding the reliability of data 

reported for the health indicators. For example, JEMCO noted concerns 

about the accuracy of the reported infant mortality rates as well as the 

reported number of encounters for primary health care services offered in 

community and dispensary settings, which the FSM tracked as a proxy 

measure of improved community-based primary health care. In its 2012 

resolution JEMCO reaffirmed the need for reliable and quantifiable health 

data to evaluate performance and also required independent verification 

of performance indicators and data for the health sector; it required the 

 

58JEMCO resolution 2012-MT-3. 

59The project period stipulated in the request for proposals was May 24, 2013, to July 30, 

2013.

60Previously, the OIA Health Fiscal Program Specialist had raised data quality concerns. 

A 2007 Compact Health Sector Performance Scorecard produced by the Health Fiscal 

Program Specialist noted that in order to measure performance accurately, the FSM’s 

Department of Health and Social Affairs would need to standardize data collection and 

tabulation methods employed by each state, establish accepted timing intervals for 

collection and reporting, and ensure that outer island information is included. According to 

Department of Health and Social Affairs officials, health indicators are collected both 

through web-based data management systems and through compiling data collected 

manually. Officials also reported some checks on particular indicators, such as system 

checks to catch data entry errors and supervisory review of some indicators.
 

Page 37 GAO-13-675 Compacts of Free Association

FSM to submit a report on the health indicators by July 1, 2013.61 We 

inquired about the status of the FSM’s effort to address the JEMCO 

resolution to conduct an independent verification of the health data, and 

the Department of Health and Social Affairs informed us that the FSM 

asked for an extension of the July deadline. According to OIA, the FSM 

did not budget sufficient funds for the assessment, and that is why the 

FSM needed an extension.

Education. From fiscal years 2007 through 2011, the RMI reported data 

on its annual indicators in its Ministry of Education annual portfolio budget 

statements (hereafter, portfolios). The RMI Ministry of Education reported 

that data on educational indicators are entered quarterly into its data 

management system, and that schools generally provide their data before 

the established deadlines. The RMI also provided us with copies of the 

standard forms that it uses to collect data on educational indicators. The 

RMI’s portfolios containing the indicator data did not explicitly identify 

limitations associated with the overall data; however, the portfolios 

included some notes describing limitations for a couple of indicators. For 

example, one note indicated that student teacher ratios did not include 

private schools. JEMFAC has not sought an independent review of RMI 

education indicator data quality.

Health. The RMI Ministry of Health issued an annual health data report 

for each year from 2007 through 2011.62 The RMI also noted in its 2011 

annual health data report that immunization coverage data showed a 

significant drop because of data entry problems, mainly in terms of 

lateness in entering data and an inability to keep track of children moving 

from one locality to another. The RMI Ministry of Health reported it uses a 

number of different international databases to track its health indicator 

progress such as WebIZ for immunizations and EpiAnywhere for 

tuberculosis. The Ministry of Health reported that they have undertaken a 

couple of different data assessments to improve data accuracy, as well as 

made efforts to improve reporting from Ebeye and the outer islands. 

Among the checks the Ministry of Health reported that it conducts to 

ensure the accuracy of the tuberculosis rate indicator is comparing the 

 

61JEMCO Resolution 2012-MT-3.

62The annual health data report for 2007 was combined with the report for 2008 and 

issued as a single report.

RMI and JEMFAC
 

Page 38 GAO-13-675 Compacts of Free Association

data entered into the database with results from lab tests, X-rays, and 

clinical visits.

In 2009, JEMFAC noted that the RMI health data were unreliable 

because of discrepancies related to outer island data and infant mortality 

rates. Other outside reports also questioned how the Ministry of Health 

handled other data on disease incidence, prevalence, and mortality.63 In 

2010, JEMFAC required that the Ministry of Health initiate and complete 

an assessment of the reliability of all its health data-management 

practices by September 30, 2011. The ministry obtained technical 

assistance from a United Nations Volunteer to address the requirement. 

However, the volunteer technical expert only stayed 10 months, leaving in 

July 2012, and the position was still vacant as of July 2013, according to 

the Ministry of Health. The RMI had not provided JEMFAC with the 

required report as of June 2013.64

 

63The OIA’s former Health Fiscal Program Specialist, who retired in December 2012, told 

us that the RMI’s Ministry of Health has no consistent framework for collecting the data, 

that record keeping is poor, and that data entry is inconsistent.

64Entities such as the RMI Economic Policy, Planning, and Statistics Office (EPPSO), the 

Secretariat of the Pacific Community (SPC), and the World Health Organization have also 

raised concerns about the quality of the health data reported by the RMI Ministry of 

Health. Both EPSSO and SPC, noting the underreporting of infant deaths in the RMI’s 

outer islands, estimated that half of all infant deaths in the RMI were not reported at all, 

which created uncertainty as to the most common causes of infant deaths. SPC and the 

World Health Organization noted that the RMI’s health statistics are outdated by 2 to 3 

years and sometimes by as much as 7 years. EPPSO found that outer island 

immunization coverage rates for children under the age of 2 were at least 30 percent 

lower in select outer island groups than official health reports indicated. A United Nations 

Millennium Development Goal specialist also discovered data problems. He reviewed data 

from the ministry’s maternal and child health program and found that his recalculated 

immunization coverage rates ranged from 48 to 67 percent for Majuro, while the rates 

computed by the ministry ranged from 80 to 90 percent.
 

Page 39 GAO-13-675 Compacts of Free Association

The single audit reports65 we reviewed indicated challenges to ensuring 

accountability of compact and noncompact U.S. funds in the FSM and 

RMI. For example, these governments’ single audits showed repeat 

findings and persistent problems in noncompliance with U.S. program 

requirements, such as accounting for equipment. The United States has 

taken steps regarding the accountability of compact funds, such as 

establishing the Chuuk Financial Control Commission, but Interior has not 

coordinated with other U.S. agencies regarding the risk status of the FSM 

and the RMI for noncompact funds. Furthermore, the offices responsible 

for compact administration in the FSM, RMI, and United States faced 

limitations hindering their ability to conduct compact oversight. For 

example, OIA experienced a staffing shortage that disproportionately 

affected compact grant oversight compared to other OIA activities, with 5 

of 11 planned positions filled in 2012. 

 

65The Single Audit Act adopted the single audit concept to help meet the needs of federal 

agencies for grantee oversight, as well as grantees’ needs for single, uniformly structured 

audits. Rather than being a detailed review of individual grants or programs, the single 

audit is an organization-wide financial statement audit that includes the audit of the 

Schedule of Expenditures of Federal Awards and also focuses on internal control and the 

recipient’s compliance with laws and regulations governing the federal financial assistance 

received. The act also required grantees to address material noncompliance and internal 

control weaknesses in a corrective action plan, which is to be submitted to appropriate 

federal officials. The act further required that single audits be performed in accordance 

with generally accepted government auditing standards issued by GAO. These standards 

provide a framework for conducting high-quality financial audits with competence, 

integrity, objectivity, and independence.

FSM and RMI Face 

Financial 

Accountability 

Challenges; Oversight 

Bodies Are Hindered 

by Limitations
 

Page 40 GAO-13-675 Compacts of Free Association

In fiscal years 2006 through 2011,66 the FSM National Government single 

audit reports indicated that the government faced financial accountability 

challenges. However, the single audit reports for Chuuk and Pohnpei 

state governments demonstrated improvement in financial accountability: 

financial statement audit opinions improved and the number of material 

weaknesses67 and significant deficiencies 68 declined. As an example of 

the remaining challenges for the FSM National Government, its 2011 

single audit report identified problems with the extent of noncompliance 

with program requirements, such as preparing required quarterly reports. 

These reports are important because OIA uses them for oversight of the 

amended compact. Furthermore, the National Government’s 2011 single 

audit report contained several repeat findings—problems noted in 

previous audits that had not been corrected for several years. For a 

detailed summary of our review of the FSM single audit reports, see 

appendix VII.

The following briefly summarizes our analysis of the single audits for the 

FSM National Government and the state governments of Chuuk and 

Pohnpei.

• Financial reporting: FSM National Government single audit reports 

conveyed that the government was not able to account fully for its use 

 

66The scope for this report is generally fiscal years 2007 through 2011; however, we are 

including fiscal year 2006 because the last single audit report discussed in our prior report 

(GAO-07-163) was for fiscal year 2005.

67American Institute of Certified Public Accountants, Statement on Auditing Standard No. 

115, “Communicating Internal Control Related Matters Identified in an Audit,” states that a 

material weakness is a deficiency, or a combination of deficiencies, in internal control 

indicating a reasonable possibility that a material misstatement of the entity’s financial 

statements will not be prevented, or detected and corrected, on a timely basis. A 

deficiency in internal control exists when the design or operation of a control does not 

allow management or employees, in the normal course of performing their assigned 

functions, to prevent, or detect and correct, misstatements on a timely basis.

68American Institute of Certified Public Accountants, Statement on Auditing Standard No. 

115, “Communicating Internal Control Related Matters Identified in an Audit,” states that a 

significant deficiency is a deficiency or a combination of deficiencies in internal control that 

is less severe than a material weakness, yet important enough to merit attention by those 

charged with governance.

Financial Accountability in 

the FSM Was Mixed

Single Audits Showed FSM 

National Government Faced 

Challenges, While Chuuk and 

Pohnpei Demonstrated 

Financial Accountability 

Improvement
 

Page 41 GAO-13-675 Compacts of Free Association

of compact or noncompact funds for fiscal years 2006 through 2008. 

Chuuk’s single audit reports continued to identify financial 

accountability weaknesses, primarily because Chuuk’s financial 

statements did not contain information on its land leases in fiscal 

years 2009 through 2011. For fiscal years 2006 through 2011, 

Pohnpei received an unqualified opinion69 on its financial statements 

included in its single audit reports. (For additional details, see app. 

VII.)

• Compliance with requirements of major federal programs:70 The FSM 

National Government continued to be noncompliant with the terms 

and conditions of major federal programs in fiscal year 2011 in each 

of its three major programs. Furthermore, its fiscal year 2011 single 

audit report included four material weaknesses and eight significant 

deficiencies. The FSM National Government continued to have 

findings that have not been corrected for several years. For example, 

seven findings had recurred at least three times in the 4 years prior to 

2011.71 In addition, the FSM National Government had consistently 

lacked the ability to prevent disbursing funds in excess of available 

funds in each year for the previous 2 years and lacked the ability to 

accurately report financial information in each of the previous 4 years. 

We believe recurring weaknesses in internal controls increase the risk 

that assets are susceptible to misuse. In contrast, Chuuk’s fiscal year 

2011 single audit report demonstrated improvement in compliance 

with major federal programs. Whereas Chuuk previously had been 

considered noncompliant in fiscal years 2006 through 2010, it was 

considered materially compliant in fiscal year 2011. Pohnpei’s single 

 

69An unqualified opinion is given when the auditor is reasonably assured that the financial 

statements are free of material misstatements.

70OMB Circular A-133 states “the auditor shall determine whether the auditee has 

complied with laws, regulations, and the provisions of contracts or grant agreements that 

may have direct and material effect on each of its major programs. The auditor uses a 

risk-based approach to determine which program is a major program. This risk-based 

approach includes consideration of current and prior audit experience, oversight by federal 

agencies, and pass-through entities, and inherent risk of the federal program.” 

71GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1, 

(Washington, D.C.: November 1999), pp. 20-21: “Managers are to (1) promptly evaluate 

findings from audits and other reviews, including those showing deficiencies and 

recommendations reported by auditors and others who evaluate agencies’ operations, (2) 

determine proper actions in response to findings and recommendations from audits and 

reviews, and (3) complete, within established time frames, all actions that correct or 

otherwise resolve the matters brought to management’s attention.” 
 

Page 42 GAO-13-675 Compacts of Free Association

audit reports also demonstrated improvement, as the state 

government was noncompliant with the requirements of federal 

programs in fiscal years 2006 and 2007 but was considered materially 

compliant in fiscal years 2008 through 2011. See appendix VII for 

additional information.

• Timeliness: The FSM National Government and Chuuk did not submit 

their 2006 single audit reports on time due to a delay in the 

reconciliation of accounting records.72 In fiscal years 2007 through 

2011, however, the FSM National Government and Chuck submitted 

their single audit reports on time. Pohnpei met the deadline for 

submitting single audit reports during the entire period, fiscal years 

2006 through 2011. (For additional details, see appendix VII.)

The FSM has a national audit office, the Office of the National Public 

Auditor (ONPA), and Pohnpei has a Public Auditor. According to ONPA 

officials, ONPA has a staff of 15 in Pohnpei and 5 in Chuuk.73 According 

to state officials, the Pohnpei state government’s Office of the Public 

Auditor (OPA) has a professional staff of 8.74 Both the ONPA and OPA 

identified internal control weaknesses in their audits of the FSM National 

Government and state government that could lead to waste, fraud, and 

abuse. The following are examples from reports issued by the ONPA.

• An audit report on the National Government’s payroll operating 

controls for fiscal years 2010 through 2012 found overpayments to 

 

72The FSM National Government’s single audit cannot be completed until the states’ 

single audits are completed. Thus, if any state is late, the FSM National Government’s 

audit will also be late. Chuuk submitted its 2006 single audit late.

73According to ONPA officials, the ONPA was established to conduct audits and 

investigations to recommend improvements in government operations, efficiency, and 

accountability for the public’s benefit. The office conducts financial and compliance, 

economy and efficiency, and program audits. 

74The 2005 Constitution of the State of Chuuk, Article VII—Finance, Section 9, requires 

the appointment of a Public Auditor by the Governor and approval by the Senate. 

According to ONPA officials, a Chuuk Public Auditor has never been appointed but Chuuk 

state will establish an independent, fully operational public auditor’s office in fiscal year 

2014, and funds have been sought under the compact to support the office.

FSM Audit Offices Conducted 

Program Audits and Found 

Instances of Weak Internal 

Controls That Could Increase 

Risk of Waste, Fraud, and 

Abuse
 

Page 43 GAO-13-675 Compacts of Free Association

employees including payments to active and terminated employees 

and for hours worked but not authorized.75

• A report on the Chuuk State Department of Health Services found that 

the department did not implement a procurement and inventory 

control system ensuring the efficient use of funds and the timely 

distribution of medications to recipients. This program was funded by 

the amended compact health sector grant.76

• A report on the Chuuk Department of Education found that it failed to 

provide many students with textbooks, to hold schools and students 

accountable for lost books, and to ensure that classroom lessons 

followed the approved state curriculum. This program was funded by 

amended compact education sector grant.77

In fiscal years 2008 through 2011, the Pohnpei state government’s OPA 

also conducted audits that identified findings related to internal control 

weaknesses potentially leading to waste, fraud, and abuse.78 For 

example, its September 2008 audit report found weak internal controls in 

the issuance of pharmaceutical and medical supplies from the Pohnpei 

 

75Office of the National Public Auditor, Audit of FSM Payroll Operating Controls, Fiscal 

Years 2010, 2011, 2012 through May, Report No. 2012-04 (Palikir, Pohnpei: Aug. 9, 

2012). Although the report’s issuance date was outside our scope (fiscal years 2006 to 

2011), the ONPA audit covered fiscal years 2010 and 2011 which are included in our 

scope. This report included 7 findings and 20 recommendations. Management provided 

corrective action plans to resolve these findings. As of June 2013, the ONPA had not 

performed a follow-up audit to ensure that appropriate corrective actions were taken.

76Office of the National Public Auditor, Audit of Chuuk State Department of Health 

Services’ Procurement and Inventory Management System, Report Number 2010-03 

(Paliker, Pohnpei: Feb. 10, 2010). This report included 8 findings and over 30 

recommendations. Management generally agreed with the findings and provided 

corrective action plans. As of June 2013, the ONPA is performing a follow-up audit to 

ensure that appropriate corrective actions were taken.

77Office of the National Public Auditor, Audit of Chuuk State Department of Education 

Textbooks and Instructional Material, Report No. 2010-01 (Paliker, Pohnpei: Feb. 9, 

2010). The report included 9 recommendations. Management did not respond to the 

findings and recommendations. As of June 2013, the ONPA is performing but has not 

completed a follow-up audit to ensure that appropriate corrective actions were taken.

78According to government officials, the Pohnpei state government’s Office of the Public 

Auditor was established in 1984. Its mission is to evaluate state and local government 

operations to provide useful and objective information to executive, legislative, 

management and citizens. 
 

Page 44 GAO-13-675 Compacts of Free Association

Central Medical Supply Unit and other sections of the Department of 

Health Services.79 The amended compact was the primary source of 

funding. The report noted the lack of assurance that recipients actually 

received all items indicated in the receipts because there was not a 

reliable audit trail for the issuance of pharmaceutical and medical 

supplies.

RMI single audit reports for fiscal years 2006 through 2011 demonstrated 

an increase in material weaknesses in noncompliance with the 

requirements of federal programs. For example, the 2006 single audit 

report identified 4 material weaknesses in compliance with federal awards 

and about $5.7 million in unresolved questioned costs.80 However, the 

2011 single audit report identified 8 material weaknesses and about $7.4 

million in unresolved questioned costs as of September 30, 2011.81 While 

reports for fiscal years 2006 through 2010 were submitted on time, the 

2011 single audit report was late. For a detailed summary of our review of 

the RMI single audit reports, see appendix VII.

 

79Office of the Public Auditor, Pohnpei State Government, Department of Health Service 

Procurement, Audit Report, No. 006-09 (Kolonia, Pohnpei: Aug. 5, 2010). Furthermore, 

the report observed that management did not review the turnover of pharmaceutical and 

medical supplies for the audit period and had not established a minimum level of stock 

that should be maintained. Consequently, the OPA made five recommendations to 

improve the accountability over inventory management at the Department of Health 

Services. An OPA audit official told us that their recommendations were implemented but, 

as of June 2013, they had not completed a follow-up audit.

80OMB Circular A-133 states that “Questioned costs are those costs questioned by an 

auditor for one of these three reasons: (1) They resulted from a violation or possible 

violation of a provision of a law, regulation, contract, grant, cooperative agreement, or 

other agreement or document governing the use of federal funds, including funds used to 

match federal funds; or (2) at the time of the audit, they are not supported by adequate 

documentation; or (3) the costs incurred appear unreasonable and do not reflect the 

actions a prudent person would take in the circumstances.”

81At the March 2013 JEMFAC midyear meeting, the OIA recommended that the 

unexpended 2011 and 2012 funds not be allocated to the RMI until these questioned 

costs are resolved. Commenting on a draft of this report, RMI officials stated that the RMI 

Secretary of Finance took steps to better manage the audit fieldwork process and reduced 

the 2012 questioned costs to approximately $35,000 and also began a detailed 

examination of all prior year questioned costs. At its 2013 annual meeting in August 2013, 

JEMFAC did not allocate the unexpended 2011 and 2012 funds.

RMI Faced Financial 

Accountability Challenges

Single Audits in the RMI 

Revealed Increased Financial 

Accountability Challenges 
 

Page 45 GAO-13-675 Compacts of Free Association

The following briefly summarizes our analysis of the RMI single audits.

• Financial reporting: In fiscal years 2006 through 2011,82 the RMI 

received an unqualified audit opinion on each of its annual financial 

statements. (See app. VII for a list of the opinions on financial 

statements in the RMI’s audit reports for fiscal years 2006 through 

2011.)

• Compliance with requirements of major federal programs: 83 The RMI 

single audit reports indicated they were noncompliant with the 

requirements of federal programs in fiscal years 2006 through 2011. 

The fiscal year 2011 single audit report included eight findings that 

were considered material weaknesses. Some findings were related to 

compact grants and others to noncompact funding. Furthermore, 

several of the weaknesses were not corrected over several years. For 

example, seven of the eight material weaknesses reported in the 

fiscal year 2011 single audit recurred at least once in the 2 prior years 

and five had recurred in 3 out of the 4 previous years.84 For example, 

each year for 4 years prior to fiscal year 2011, the RMI was not able 

to provide supporting documentation for its expenses and an 

adequate accounting for its fixed assets to meet the requirements in 

the fiscal procedures agreement. Furthermore, we believe that 

recurring weaknesses in internal controls increase the risk that assets 

are susceptible to misuse. Also, the fiscal year 2011 RMI single audit 

report demonstrated that the RMI did not comply with some of the 

requirements of federal programs. For example, the RMI disbursed $1 

million in compact sector grants to the Marshall Islands National 

 

82The scope for this report is generally fiscal years 2007 through 2011; however, we are 

including fiscal year 2006 because the last single audit report discussed in our prior report 

(GAO-07-163) was for fiscal year 2005.

83OMB Circular A-133 states, “The auditor shall determine whether the auditee has 

complied with laws, regulations, and the provisions of contracts or grant agreements that 

may have direct and material effect on each of its major programs. The auditor uses a 

risk-based approach to determine which program is a major program. This risk-based 

approach includes consideration of current and prior audit experience, oversight by federal 

agencies, and pass-through entities, and inherent risk of the federal program.” 

84GAO/AIMD-00-21.3.1, pp. 20-21: “Managers are to (1) promptly evaluate findings from 

audits and other reviews, including those showing deficiencies and recommendations 

reported by auditors and others who evaluate agencies’ operations, (2) determine proper 

actions in response to findings and recommendations from audits and reviews, and (3) 

complete, within established time frames, all actions that correct or otherwise resolve the 

matters brought to management’s attention.” 
 

Page 46 GAO-13-675 Compacts of Free Association

Telecommunications Authority without an audit.85 In addition, the 

auditors reported that documentation supporting expenditures from 

various ministries could not be located and resulted in questioned 

costs totaling approximately $1.1 million; other questioned costs were 

also identified for various reasons in the 2011 single audit. (For 

additional details, see app. VII.)

• Timeliness: For fiscal years 2006 through 2010, the RMI met the 

single audit report submission deadline. In July 2012, the RMI 

contacted OIA and requested an extension to file its 2011 single audit 

by September 30, 2012. OIA granted the extension, stating no 

adverse action would be taken if the single audit was completed and 

received by OIA by September 30, 2012. However, RMI submitted its 

fiscal year 2011 report in February 2013, 8 months late.86 According 

to the RMI Ministry of Finance, the 2011 single audit report was late 

because of staff turnover, computer system issues, and late 

reconciliation of general ledger and bank accounts. As a result, the 

2011 single audit was not received by the United States until 17 

months after the end of the year in which the reported findings were 

identified; OIA took no adverse action. (For additional details, see 

app. VII.)

RMI Office of the Auditor General (OAG) officials also told us that 

previous annual single audits reported fraud indicators (e.g., numerous 

findings on noncompliance with procurement requirements) that were not 

looked into by the RMI government in office at that time.87 The current 

OAG indicated that if the RMI government at that time, including the then 

OAG, had investigated the reported procurement issues, the recent fraud 

cases in the Ministry of Health and Human Services and Ministry of 

 

85The grant award did not undergo a separate OMB Circular A-133 audit, as required.

86The Compliance Supplement included in OMB Circular A-133 no longer allowed federal 

agencies to consider requests for a time extension to file single audit reports for fiscal 

years 2009 through 2011. 

87The OAG coordinates the RMI annual single audit and other component audits. 

Furthermore, for fiscal years 2006 through 2011, the OAG performed audits of several 

component units and performed a performance audit of the Majuro Atoll Waste Company. 

The OAG told us that it plans to perform additional performance audits in the future.

RMI Audit Office Identifies 

Fraud Indicators in Audit 

Reports
 

Page 47 GAO-13-675 Compacts of Free Association

Finance might have been uncovered earlier.88 (For additional details, see 

app. VII).

Working through JEMCO and JEMFAC, OIA has led actions to improve 

financial accountability of compact funds and has recommended further 

actions.

• The improvement in Chuuk audit reports was the result of cooperation 

between the JEMCO and Chuuk state government. For example, 

Chuuk’s fiscal year 2004 single audit report included 30 findings and 

unresolved questioned costs totaling approximately $6.7 million. In 

fiscal year 2005, the JEMCO established the Chuuk Financial Control 

Commission (CFCC) to assist the Chuuk government in managing its 

finances. Consequently, Chuuk’s fiscal year 2011 single audit report 

identified 5 findings with no unresolved questioned costs. According to 

a CFCC official, the CFCC has played an important role in restoring 

and maintaining the integrity of compact sector grant expenditures.89

• The JEMFAC reported after its review of the RMI fiscal year 2011 

single audit report that unresolved questioned costs had significantly 

increased over the previous 4 years. At the JEMFAC midyear meeting 

held on March14, 2013, discussion included the issue of the RMI’s 

inability to comply with requirements regarding allowable costs, cash 

management, equipment, and real property management, among 

other issues, as well as the related unresolved questioned costs 

reported in the 2011 single audit, which totaled over $5 million. The 

RMI Secretary of Finance told OIA officials that the RMI had recently 

taken positive steps to resolve outstanding questioned costs and to 

 

88According to RMI officials, from 2009 to 2011, there was ongoing fraud at the Ministries 

of Finance and Health. The RMI Attorney General’s Office has been prosecuting the fraud, 

which resulted in several convictions. During this time, the RMI OAG has also assisted the 

RMI Attorney General’s Office in its fraud investigation.

89See also Kevin O’Keefe, Deborah Milks, and Jeanne Yamamura, Report of 

Observations and Preliminary Recommendations to the Working Group Specified by 

Resolution JEMCO-MT-2011-7,The Role of the Chuuk Financial Control Commission 

(CFCC), (Honolulu, Hawaii: Graduate School USA, August 2011).

OIA Has Taken Some Steps 

to Improve FSM and RMI 

Financial Accountability

Compact Grants
 

Page 48 GAO-13-675 Compacts of Free Association

strengthen the ministry’s internal controls; nevertheless, OIA 

recommended that JEMFAC refrain from allocating unexpended grant 

funds from fiscal year 2011 and fiscal year 2012 until the RMI 

demonstrated that it had resolved all current questioned costs. At its 

annual meeting in August 2013, JEMFAC did not allocate the 

unexpended 2011 and 2012 funds.

Although OIA has authority to impose special conditions or restrictions for 

unsatisfactory performance or failure to comply with grant terms, OIA 

officials have preferred to work through the JEMCO and JEMFAC 

committees rather than take unilateral action. While no official “high risk” 

designation exists in the amended compacts or fiscal procedures 

agreements, the fiscal procedures agreements’ provisions governing 

grants administration allow the same special conditions to be applied to 

amended compact grants that exist for other high-risk grantees receiving 

federal assistance. OIA officials told us that they treat the amended 

compact funds as high risk and provide special conditions through the 

JEMCO and JEMFAC resolutions, such as requiring the acquisition of

technical or management assistance, requiring additional reporting and 

monitoring, or withholding funds.

Regarding financial accountability of noncompact grants, OIA has not 

coordinated the federal response to audit findings that affect programs of 

more than one agency. Nor have OIA or other federal agencies 

designated the FSM or the RMI as high-risk grantees, which would allow 

those agencies to impose special conditions on their grants such as 

requiring additional reporting and monitoring.

• Single audit reports show compliance problems for compact and 

noncompact grants. For example, the 2011 FSM National 

Government single audit reported that for one special education grant, 

the FSM, unable to draw down funds from the grant account because 

the period of funds availability had closed, improperly reimbursed 

itself from a different grant account that was still open. The same 

single audit also reported that the FSM National Government 

submitted financial reports for Transportation’s Airport Improvement 

Project grant that did not agree with underlying financial records. 

According to OIA officials, Interior has not coordinated the response of 

federal agencies to these audit findings because of its focus on its 

responsibility for oversight of the amended compact funding.

• According to Interior officials, while Interior and other U.S. agencies 

may designate the FSM and the RMI as high-risk grantees for 

Other U.S. Noncompact Grants
 

Page 49 GAO-13-675 Compacts of Free Association

noncompact grants if the grantee has a history of performance 

problems, as of June 2013, no agencies have done so, potentially 

because of the lack of coordination between OIA and other grantors. 

Education officials noted that the department looks to see if there are 

systemic problems when designating a grant recipient as high risk but 

they have not formally assessed this status for the FSM or RMI. HHS 

officials believe the department’s noncompact funds are at risk, but 

HHS has not conducted a systematic review of FSM and RMI audit 

results or considered whether the grantees should be considered high 

risk. OIA officials told us they have not undertaken a formal analysis 

to determine whether Interior noncompact funds should have a highrisk designation and have not held formal discussions with other 

grantor agencies (e.g., with Education, Transportation, or other 

grantors) regarding this issue.

FSM officials stated in January 2013 that staff constraints in the Office of 

Statistics, Budget and Economic Management, Overseas Development 

Assistance, and Compact Management’s (SBOC) Division of Compact 

Management limit the division’s ability to conduct oversight.90 The Division 

of Compact Management is responsible for, among other things, day-today communications with JEMCO and the U.S. government and oversight 

of compact implementation, including coordination with recipients of 

compact grants to ensure effective and efficient use of compact funds. 

FSM officials told us that the division is currently staffed by three staff 

members who provide compact oversight for the FSM National 

Government and the four states across six sectors. However, FSM 

officials told us that they need additional staff so they can conduct more 

oversight activities.

 

90Prior to 2008, the FSM’s predecessor office to SBOC, the Office of Compact 

Management, served as the FSM’s primary compact oversight office. In 2006, we reported 

that the Office of Compact Management lacked sufficient staff to oversee compact-funded 

programs. At that time, the Office of Compact Management had five staff members, 

including its director; additional staff from finance and economic affairs departments were 

detailed to the office to assist with compact-related responsibilities. See GAO-07-163. 

Staffing Constraints 

Hindered Oversight Offices 

in Fulfilling Their 

Oversight Responsibilities

FSM Compact Management 

Unit’s Oversight Limited by 

Staffing Constraints and Lack 

of Authority
 

Page 50 GAO-13-675 Compacts of Free Association

In addition to the staffing shortage, FSM officials told us that the Division 

of Compact Management is hampered by its lack of authority to ensure 

that the National Government and the four states comply with compact 

requirements. For example, while the National Government and any 

subgrantees, including the four states, are required by the compact’s 

fiscal procedures agreements to provide quarterly reports with data and 

information on progress toward sector performance indicators, the 

Division of Compact Management does not have the authority to enforce 

this requirement if the National Government and states do not comply. In 

this case, FSM officials will sometimes request that the Department of 

Finance withhold quarterly allotments of compact funds until an entity 

submits the required information or, if necessary, identify issues for OIA 

to address.

According to RMI officials, staff constraints in the Office of Compact 

Implementation (OCI) limit the office’s ability to conduct oversight and 

enforce compact requirements across multiple sectors and operations in 

numerous atolls. OCI has responsibility for all issues related to the 

compact and is also responsible for preparation and follow-up for all 

JEMFAC meetings, responses to GAO reports, and preparations for any 

congressional hearings on compact-related matters. RMI officials told us 

that the office is currently staffed by two people—a director and a foreign 

service officer—who run the office with three divisions.91 RMI officials also 

stated they depended on officials from other government agencies to help 

them fulfill their responsibilities. For example, OCI uses the legal advisor 

of the Ministry of Foreign Affairs to assist with compact issues since the 

OCI’s Division of Compact Legal Affairs has not filled its legal position.

Additionally, OCI officials told us they are hampered by their lack of 

authority to require that the RMI ministries implementing projects funded 

by sector grants comply with compact requirements. For example, OCI 

works through the Ministry of Foreign Affairs or the Office of the Chief 

Secretary when other RMI ministries or offices have not submitted 

compact-related reports. RMI officials said the government has not 

resolved the question of who within the RMI government has the authority 

to withhold funds to ensure compliance. According to RMI comments on 

 

91The three divisions are the Division of Performance Based Budgeting, the Division of 

Economic and Budget Strategy, and the Division of Compact Legal Affairs. Prior to the 

establishment of OCI within the Ministry of Foreign Affairs in 2008, the RMI Chief 

Secretary was responsible for compact implementation and oversight.

RMI Compact Management 

Unit’s Oversight Limited by 

Staff Constraints and Lack of 

Authority
 

Page 51 GAO-13-675 Compacts of Free Association

our draft report, the Office of the Chief Secretary does not have authority 

to withhold funds from ministries or offices to compel them to comply with 

compact requirements (see app. XI).

From fiscal years 2011 through 2013, OIA experienced staff constraints, 

particularly in the Honolulu field office and in the FSM, that limited its 

ability to carry out its compact oversight responsibilities. In 2010, OIA 

created a plan that provided detailed staffing projections across OIA for 

fiscal years 2010 through 2014. To ensure effective oversight for the 

amended compacts, OIA projected a need for 8 staff in the Honolulu field 

office, 2 field staff in the FSM, and 1 field staff in the RMI for fiscal years 

2011 through 2013, a total of 11 staff.92 (See app. VIII for the plan’s 

detailed staffing projections.) However, in 2011 and 2012, OIA had a total 

of 5 staff for compact oversight: 4 staff in its Honolulu field office and 1 

field staff in the RMI. In March 2013, OIA filled 1 of the 2 projected FSM 

field staff positions.

The OIA 2010 workforce plan projected the need for 50 staff for all of its 

divisions in fiscal years 2010 through 2014; it projected that existing 

resources would allow OIA to fund a total of 43 staff during this period. 

However, actual staffing levels were less than 43 in 2011 and 2012. 

Though compact oversight staff would represent 22 percent of total 

projected staff in the plan, compact oversight staff represented 12 percent 

and 14 percent, respectively, of actual OIA total staff in fiscal years 2011 

and 2012. As a result, OIA’s staffing shortage disproportionately affected 

compact grant oversight compared to other OIA activities. See table 5.

 

92For Honolulu, the plan’s eight staff positions included one lead program grants 

specialist, two education grants specialists, one health grants specialist, and four fiscal 

program specialists. In the plan, OIA stressed the need for more fiscal program specialists 

in order to strengthen oversight. According to OIA’s workforce plan, fiscal program 

specialists provide grants oversight and monitoring of projects. For example, the fiscal 

program specialist staffed to the Honolulu field office provides oversight for the 

environment, private sector development, and public sector capacity building sectors. 

OIA’s Compact Oversight 

Limited by Staff Constraints
 

Page 52 GAO-13-675 Compacts of Free Association

Table 5: Office of Insular Affairs (OIA) Staffing, Fiscal Years 2010 through 2014

Projected need

(2010-2014)

Actual staff

2011 2012

Total OIA staff 50 41 37

Compact oversight staff 11 (22%) a 5 (12%) 5 (14%)

Other staff 39 (78%) 36 (88%) 32 (87%)

Source: GAO analysis based on OIA’ data.

Notes: Percentages may not add up to 100 due to rounding. Data are from OIA’s 2010 workforce plan 

and OIA’s 2013 and 2014 budget justification documents.

a

These figures include staff in Honolulu, the FSM, and the RMI directly responsible for compact 

oversight. Additional OIA staff support compact oversight from Washington, D.C.

According to OIA officials, the following three factors contributed to the 

staffing shortages affecting compact oversight in fiscal years 2011 and 

2012.

• Budget constraints and uncertainties: OIA officials said budget 

constraints and uncertainties prevented the office from hiring staff and 

filling vacant positions as outlined in the workforce plan. OIA noted 

that the plan assumed sufficient budgetary resources, and with 

enacted budgets in fiscal years 2010 through 2013, OIA could not hire 

additional staff. OIA officials also cited budget uncertainties for fiscal 

years 2012 and 2013 as a factor that kept them from filling the second 

education grants specialist position.

• OIA priorities: OIA management did not fill compact-related vacancies 

because of other priorities, such as filling headquarters-based 

positions before filling field positions. For example, an OIA official said 

that OIA management held back some available funding in hopes of 

staffing a Guam field office.

• Lack of qualified candidates: OIA officials also noted that in 2011 OIA 

posted the vacancy for the second education grants specialist position 

in Honolulu but did not receive sufficiently qualified candidates, which 

prevented the office from hiring.

Staffing shortages, particularly those in the Honolulu field office, have 

negatively affected OIA’s compact oversight in the FSM and the RMI. 

While oversight activities, site visits, and required meetings occurred, OIA 

noted the following oversight gaps:
 

Page 53 GAO-13-675 Compacts of Free Association

• In a 2010 report, Interior’s Office of the Inspector General reported 

that OIA’s compact oversight was hindered by the lack of an FSM field 

representative to support oversight efforts, despite the fact that the 

FSM received about $100 million in grant funds, more than any other 

insular area.93 Additionally, the report questioned whether OIA was 

effectively utilizing existing staff in the Honolulu field office.

• One OIA official said that the Honolulu field office’s staffing shortage 

hinder OIA’s ability to scrutinize financial reports and provide 

feedback to both countries. This official also stated that without a 

second person working on education sector compact assistance, OIA 

cannot thoroughly analyze education budgets, which results in highlevel recommendations to the JEMCO and JEMFAC rather than 

specific recommendations that address issues such as the potential 

misuse of funds. Noting that the RMI experienced an increase in 

unquestioned costs over a period of 3 years, the OIA official stated 

that if the Honolulu office had a second education grants specialist, 

OIA could identify these issues earlier and support the OIA audit 

liaison in following up on issues identified in the single audits.

At the midpoint of the 20-year amended compact assistance term, the 

FSM and RMI face critical challenges in compact implementation. During 

the first 10 years, the FSM and the RMI spent most of their funds for 

education and health, sectors prioritized in the compact agreements. 

However, because of data reliability issues, neither country can 

demonstrate whether it has made progress toward its goals in these 

sectors. Now, with 10 years of amended compact sector funding left, both 

countries must quickly plan for reduced grant resources and resolve the 

accountability issues that have plagued them to date so that they can fully 

utilize the funds and time left to achieve their goals.

Both countries must complete plans that address annual decrements in 

compact funding and determine new revenue sources that will replace 

compact grant assistance in 2023. Despite multiple JEMCO and JEMFAC 

resolutions calling for the countries to produce these plans, the FSM 

National Government has yet to develop a plan that shows how it will 

address budgetary and economic challenges through 2023 and support 

the states in adjusting to the annual decrements, while the RMI 

 

93In March 2013, OIA hired one of two projected FSM field representatives.

Conclusions 
 

Page 54 GAO-13-675 Compacts of Free Association

government has yet to develop a plan that demonstrates how it will adjust 

to the annual decrements. In the absence of these plans, JEMCO and 

JEMFAC will face challenges ensuring that annual grant assistance for 

both countries is allocated in a sustainable manner.

Ongoing problems with data reliability exist for both countries. Without 

reliable data, the countries cannot assess progress toward their goals in 

the education and health sectors and cannot effectively use results data 

for setting priorities and allocating resources aimed at improving 

performance. The lack of reliable data also hampers the ability of JEMCO 

and JEMFAC to oversee compact expenditures and assess the countries’ 

progress toward all its goals in the education and health sectors.

The FSM’s and RMI’s single audits continue to identify long-standing and 

recurring findings, which if addressed could allow both countries to more 

effectively use U.S. resources and diminish potential losses that arise 

from fraud, waste, and abuse. Given these recurring audit findings, both 

compact and noncompact U.S. funds are at risk. Interventions by JEMCO 

were effective in Chuuk in bringing improved financial accountability; 

however, similar JEMCO and JEMFAC interventions have not been 

undertaken for the FSM National Government or the RMI. Furthermore, 

U.S. grants provided separately from the amended compact by multiple 

agencies are at risk. Although OIA has a lead role regarding audit

matters, it has not formally coordinated with other U.S. agencies to 

address audit findings, nor has it assessed whether its own noncompact 

grants should be classified as high risk. Moreover, other federal agencies 

whose grants may be at risk have not routinely considered designating 

either country as a high-risk grantee. Such consideration could enable 

U.S. agencies to enforce conditions and restrictions on noncompact grant 

funds they provide, thus improving the oversight and management of the 

funds.

Finally, although the majority of grants administered by OIA are amended 

compact grants, OIA’s amended compact oversight function was 

disproportionally affected by staffing shortages. While budget constraints 

prevented OIA from hiring the total number of staff it needed to conduct 

oversight for all of its grants, decisions to staff other OIA divisions rather 

than hire compact oversight staff affected OIA’s ability to ensure compact 

funds were efficiently and effectively used.
 

Page 55 GAO-13-675 Compacts of Free Association

We recommend that the Secretary of the Interior take the following five 

actions:

In order to improve the ability of the U.S. agencies participating in the 

JEMCO and JEMFAC committees to conduct required oversight of 

compact funds,

• direct the Director of Insular Affairs, as Chairman of JEMCO, to 

coordinate with other JEMCO-member U.S. agencies to have JEMCO 

take all necessary steps, or, as the administrator of compact grants, to 

directly take all necessary steps, to ensure that the FSM (1) 

completes satisfactory plans to address annual decrements in 

compact funds, (2) produces reliable indicator data used to track 

progress in education and health, and (3) addresses all single audit 

findings in a timely manner;94 and

• direct the Director of Insular Affairs, as Chairman of the JEMFAC, to 

coordinate with other JEMFAC-member U.S. agencies to have 

JEMFAC take all necessary steps, or, as the administrator of compact 

grants, to directly take all necessary steps, to ensure that the RMI (1) 

completes satisfactory plans to address annual decrements in 

compact funds, (2) produces reliable indicator data used to track 

progress in education and health, and (3) addresses all single audit 

findings in a timely manner.

In order to improve financial accountability of noncompact U.S. grant 

assistance provided to the FSM and the RMI,

• consult with other grantor agencies to determine whether the FSM 

National Government or any FSM states meet the criteria to be 

designated as a high-risk grant recipient for noncompact funds, or 

whether other steps should be taken to improve accountability; and

• consult with other grantor agencies to determine whether the RMI 

meets the criteria to be designated as a high-risk grant recipient for 

 

94GAO/AIMD-00-21.3.1, pp. 20-21: “Managers are to (1) promptly evaluate findings from 

audits and other reviews, including those showing deficiencies and recommendations 

reported by auditors and others who evaluate agencies’ operations, (2) determine proper 

actions in response to findings and recommendations from audits and reviews, and (3) 

complete, within established time frames, all actions that correct or otherwise resolve the 

matters brought to management’s attention.” 

Recommendations for 

Executive Action
 

Page 56 GAO-13-675 Compacts of Free Association

noncompact funds, or whether other steps should be taken to improve 

accountability.

In order to ensure that Interior is providing appropriate resources for 

oversight and monitoring of the FSM and RMI compacts,

• take actions to correct the disproportionate staffing shortage related to 

compact grant implementation and oversight.

We provided a draft of this report for comment to Interior, Education, 

HHS, and State and also to the FSM National Government and the 

government of the RMI. Interior, the FSM National Government, and the 

government of the RMI provided formal written comments on the draft 

report, which are reprinted in appendixes IX, X, and XI, respectively, and 

which we summarize below. Education and HHS had no comments on 

the draft report. In an e-mail received August 13, 2013, from State’s GAO 

Liaison, State indicated that our report will inform its continuing work, 

mainly through its involvement in the JEMCO and JEMFAC. For example, 

State noted, the U.S. members of the JEMCO are currently taking steps 

to address decrement planning and improve the production of reliable 

indicator data in the compact priority sectors of health and education in 

the FSM. Similarly, the U.S. members of the JEMFAC continue to work 

with the RMI on its decrement plan.

Interior generally concurred with all five of our recommendations and 

briefly discussed each. With regard to our recommendations for actions 

involving JEMCO and JEMFAC, Interior noted examples of how it and 

other U.S. members of JEMCO and JEMFAC have worked to make 

improvements in the three areas mentioned in the recommendations: 

decrement plans, reliable indicator data to track progress in education 

and health, and addressing single audit findings. Interior also discussed 

our recommendations to determine, in consultation with grantor agencies, 

whether steps should be taken to improve accountability of noncompact 

funds to the FSM and RMI, including application of the high-risk 

designation for grant recipients. Interior noted that it cannot direct other 

agencies to take action with regard to any grant-specific issues and 

stated it was unaware of any precedent for federal agencies to jointly 

designate a grantee as high risk; however, Interior said it would discuss 

this approach with other federal agencies.

Although Interior also concurred with our final recommendation, to take 

actions to correct the disproportionate staffing shortage related to 

Agency Comments 

and Our Evaluation
 

Page 57 GAO-13-675 Compacts of Free Association

compact grant implementation and oversight, Interior’s response indicates 

that it considers corrective action to be contingent on its receiving funding 

for new positions through the annual budget process. However, the intent 

of our recommendation is to have Interior work with its actual funding 

levels, whatever they may be, to correct what we observed to be a 

misalignment in how it allocates its staff. We found that compact grants 

account for the majority of grant funds that OIA administers and that 

OIA’s staffing shortage has disproportionately affected compact grant 

oversight compared with other OIA activities. We believe it is feasible for 

OIA to address this imbalance regardless of whether it receives funding 

for new positions. Appendix IX presents a copy of the letter from Interior. 

Interior also provided technical comments that we incorporated in the 

report where appropriate.

In its written comments on our draft report, the FSM National Government

focused on three areas of our reporting: (1) decrement planning, (2) data 

reliability issues for education and health indicators, and (3) financial 

accountability over compact and U.S. federal program funds. The FSM 

agreed on the importance of these three issues to the successful 

implementation of the amended compact. The FSM identified activities 

under way to plan for the decrement, such as the 2023 Planning 

Committee’s efforts to identify ways to intensify private sector growth. 

Regarding data reliability, the FSM cited implementation of a contract to 

assess the national education system’s ability to produce valid and 

reliable data and efforts under way to review the quality of health 

indicators with government staff. The FSM remarked on what it 

characterized as the heavy emphasis in our report of the possibility of 

achieving increased accountability over noncompact grant funds through 

a “high-risk” designation, but noted that it was assured because the 

process involved in a “high-risk” designation is not an arbitrary one. As 

some of the FSM’s comments related to topics discussed at the August 

22, 2013, JEMCO annual meeting, which we attended, we have updated 

our report to reflect information presented at that meeting. Appendix X 

presents a copy of the letter from the FSM National Government.

The government of the RMI also provided written comments on our draft 

report. The RMI believes it submitted adequate plans regarding the 

medium-term budget and investment framework and the decrement, while 

at the same time noting the usefulness of the decrement plan as a policy 

guide and planning tool, rather than as a mechanism for making line-item 

budgetary decisions. Regarding data reliability, the RMI generally agreed 

with our findings of data reliability problems in both the education and 

health sectors. The RMI agreed that there were limitations to their 
 

Page 58 GAO-13-675 Compacts of Free Association

education data for certain indicators, and reported that they faced 

challenges in data collection due to the number of schools that were 

spread out over a large ocean area, and the deficient state of their 

transportation and communication systems. In the health sector, the RMI 

pointed out that it has 52 health centers spread throughout 29 atolls, 

making it difficult to collect data in a timely manner, and that it also lacks 

personnel dedicated solely to collecting and entering health indicator 

data. The RMI, however, noted that its Ministry of Health is seeking 

external assistance to improve health data. In response to our 

recommendation that—in order to improve financial accountability of 

noncompact U.S. grant assistance provided to the RMI—the Secretary of 

the Interior should consult with other agencies to determine whether the 

RMI meets the criteria to be designated as a high-risk grant recipient for 

noncompact funds, or whether other steps should be taken to improve 

accountability, the RMI noted that internal controls are now in place to 

detect and deter fraud, waste, and noncompliance with the fiscal 

procedures agreement or other U.S. federal regulations. For that reason, 

the RMI Ministry of Finance does not believe that any special conditions 

or restrictions for unsatisfactory performance or failure to comply with 

grant terms are warranted. As some of the RMI’s comments related to 

topics discussed at the August 20, 2013, JEMFAC meeting, which we 

attended, we have updated our report to reflect information presented at 

that meeting. See appendix XI for a detailed presentation of comments 

from the RMI and our responses to them.

At both the annual JEMCO and JEMFAC meetings in August 2013, 

resolutions were passed in response to our recommendations related to 

decrement planning, data reliability, and addressing single audit findings. 

The resolutions approve the use of prior year unobligated funding to 

address one or more of the following three areas: (1) completing 

satisfactory plans to address annual decrements in compact funds, (2) 

producing reliable indicator data used to track progress in education and 

health, and (3) addressing all single audit findings in a timely manner.

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 the Interior, Education, HHS, 

and State, as well as to the President of the Federated States of 

Micronesia and the President of the Republic of the Marshall Islands. In 

addition, the report will be available at no charge on the GAO website at 

http://www.gao.gov. 
 

Page 59 GAO-13-675 Compacts of Free Association

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 XII.

David Gootnick

Director, International Affairs and Trade
Appendix I: Objectives, Scope, and 

Methodology

Page 60 GAO-13-675 Compacts of Free Association

This report examines, for fiscal years 2007 through 2011, (1) the 

Federated States of Micronesia’s (FSM) and the Republic of the Marshall 

Islands’ (RMI) use of compact funds in the education and health sectors; 

(2) the extent to which the FSM and RMI have made progress toward 

achieving their stated goals in education and health; and (3) the extent to 

which oversight activities by the FSM, RMI, and the United States ensure 

accountability for compact funding. In addition we provide information on 

the FSM and the RMI infrastructure sector grants.

To determine how the FSM and RMI used amended compact funds in the 

education and health sectors, we analyzed the single audits for the FSM 

National Government and the state governments of Chuuk and Pohnpei 

and for the RMI government for fiscal years 2007 through 2011. The 

single audits provide information on total education and health sector 

compact fund expenditures as well as total supplemental education grant 

expenditures in both countries and Ebeye special needs expenditures in 

the RMI. The single audits also provide details on specific expenditures 

within each of these sectors, such as personnel costs and medical 

supplies. However, data on specific expenditures for fiscal year 2007 and 

fiscal year 2008 were not available for the FSM National Government or 

the state of Chuuk; hence, we reported on specific sector expenditures for 

the FSM National Government, Chuuk, and Pohnpei for fiscal years 2009 

through 2011 only. We were able, however, to provide specific 

expenditure data for the RMI for fiscal years 2007 through 2011. We 

report on the specific expenditures that constitute at least the top 80 

percent of expenditures in the education and health sectors, as well as for 

supplemental education grant expenditures for both countries. Any 

remaining expenditure categories are aggregated under an “Other 

expenditures” category. Within the single audits, we also analyzed the 

total expenditures within the education and health sectors for the FSM 

National Government, Chuuk, Pohnpei, and the RMI government to 

determine the portion of sector expenditures supported by compact and 

noncompact U.S. funds. We determined that these data were sufficiently 

reliable for the purposes of our report.

To evaluate the extent to which the FSM and RMI made progress toward 

achieving their stated goals in the education and health sectors from 

fiscal years 2007 through 2011, we identified the indicators the FSM and 

RMI developed to track progress in those sectors. In assessing FSM 

progress, we used data from Chuuk and Pohnpei since these two states 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 61 GAO-13-675 Compacts of Free Association

represent 82 percent of the FSM population. As each country had 

numerous indicators,1 we selected a subset of the health and education 

indicators in both countries to review. We used the U.S. 5-year reviews of 

the FSM and RMI; Joint Economic Management Committee (JEMCO) 

and Joint Economic Management and Financial Accountability Committee 

(JEMFAC) health and education related resolutions from 2007 through 

2012;2 and the Millennium Development Goals (MDG) performance 

measures as criteria to determine the subset of measures. We selected 

these criteria for the following reasons: the U.S. 5-year reviews and the 

JEMCO and JEMFAC resolutions identified indicators that reflected 

country-specific concerns, while the MDG reflected global standards 

because they were developed by international health and education 

experts and agreed upon by almost all developing countries. An indicator 

was selected to be part of the subset if it was included in two of the three 

sources listed above for the FSM, and listed in all three sources for the 

RMI. We also consulted with officials at the U.S. Departments of 

Education (Education) and Health and Human Services (HHS) regarding 

our proposed methodology. We then reviewed FSM and RMI annual 

reports tracking these indicators for 2007 through 2011.3 To determine 

whether the data presented in the annual health and education indicator 

reports were sufficiently reliable to measure progress in the compacts as 

a whole, and in selected states, we reviewed the reports themselves, 

reviewed JEMCO and JEMFAC resolutions related to health and 

education data, and interviewed FSM and RMI officials responsible for 

collecting and providing the data during our site visits in January 2013. In 

the FSM and RMI, we also attempted to replicate the reported data in 

some of the education and health reports. Additionally, we sent each 

country a series of specific follow-up questions related to the subset of 

indicators to learn more about each country’s data collection and 

verification activities, as well as to try to clarify discrepancies in the data 

we identified. In some instances, the responses we obtained did not 

provide sufficient information for us to determine that the data were 

 

1

The FSM and RMI both have 20 education indicators; the FSM has 14 health indicators 

and the RMI has 26 health indicators.

2

2012 JEMCO and JEMFAC resolutions were included because they had 

recommendations pertaining to fiscal year 2011.

3

For education-related reports, the data are for school years, and for health-related 

reports, the data are for fiscal years.
Appendix I: Objectives, Scope, and 

Methodology

Page 62 GAO-13-675 Compacts of Free Association

reliable; in those instances we classified the indicators as “no basis to 

judge.” We reported on the reliability of these indicators in the report.

To identify the extent to which the FSM and RMI governments conducted 

monitoring and oversight activities, we reviewed the amended compacts 

and fiscal procedures agreements to identify specific monitoring 

responsibilities. We also reviewed the U.S. briefing documents, as well as 

the minutes and resolutions, when available, related to the JEMCO and 

JEMFAC meetings. We further reviewed FSM and RMI documents—such 

as portfolios, quarterly performance reports, and annual reports, for fiscal 

years 2007-2011 as available—submitted by the FSM and RMI 

governments to the U.S. government to confirm compliance with

accountability reporting requirements. We discussed the lack of required 

annual reporting with Department of the Interior (Interior) Office of Insular 

Affairs (OIA) officials. We obtained the single audit reports for the years 

2006 through 2011 from the FSM Office of the National Auditor’s website 

and the RMI’s Office of the Auditor General. These reports included 

audits for the FSM National Government and the state governments of 

Chuuk and Pohnpei, and for the RMI government. In total, 24 single audit 

reports covered 6 years, a period that we considered sufficient for 

identifying common or persistent compliance and financial management 

problems involving U.S. funds (amended compact and other noncompact 

funds). We determined the timeliness of submission of the single audit 

reports by the insular area 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 

did note that the “Form Date” is updated if a revised SF-SAC for that 

same fiscal year is 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 if they 

had recurred in successive single audits and were still occurring in their 

most recent audit and categorized the auditor’s opinions on the financial 

statements and the Schedules of Expenditures of Federal Awards.

 

4

The FSM and RMI governments submit a data collection form (SF-SAC) that includes 

information about the auditee, its federal programs, and the results of the audit. 
Appendix I: Objectives, Scope, and 

Methodology

Page 63 GAO-13-675 Compacts of Free Association

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 OIA staff. To identify the 

staffing levels for the Honolulu office we reviewed Interior’s 2010 

workforce plan and obtained current staffing levels from OIA, as well as 

reviewed Interior congressional budget submissions for 2013 and 2014 

for actual staffing levels in 2011 and 2012. We discussed this information 

with OIA officials to ensure that the data were sufficiently reliable for our 

use.

To provide information on the FSM and RMI infrastructure sector grants, 

we analyzed the single audits for the FSM National Government and the 

state governments of Chuuk and Pohnpei and for the RMI government for 

fiscal years 2007 through 2011. The single audits provide information on 

total infrastructure sector compact fund expenditures and provide details 

on specific expenditures within the infrastructure sector, such as 

contractual services. However, data on specific expenditures for fiscal 

year 2007 and fiscal year 2008 were not available for the FSM National 

Government or the state of Chuuk; hence, we reported on specific sector 

expenditures for the FSM National Government, Chuuk, and Pohnpei for 

fiscal years 2009 through 2011 only. We were able, however, to provide 

specific expenditure data for the RMI for fiscal years 2007 through 2011. 

We report on the specific expenditures that constitute at least the top 80 

percent of expenditures in the infrastructure sector. Any remaining 

expenditure categories are aggregated under an “Other expenditures” 

category. We determined that these data were sufficiently reliable for the 

purposes of our report. We also reviewed the infrastructure development 

and infrastructure maintenance plans for the FSM and RMI, interviewed 

officials in the FSM and RMI project management units, and reviewed 

progress reports submitted by the FSM and RMI. We reviewed JEMCO 

and JEMFAC minutes and resolutions related to the infrastructure sector 

and discussed the status of the infrastructure development plans and 

projects with OIA’s infrastructure grant manager. Additionally, we visited a 

variety of ongoing completed projects in the FSM and RMI supporting the 

health and education sectors in January 2013.

To address all objectives, we held interviews with officials from Interior 

(Washington, D.C.; Honolulu, Hawaii; and the RMI) and the Department 

of State (Washington, D.C.; the FSM; and the RMI). We also interviewed 

officials from the HHS (Washington, D.C., and San Francisco, California) 

and Education (Washington, D.C.). We traveled to the FSM (Chuuk and 

Pohnpei) and the RMI (Kwajalein and Majuro Atolls) in January 2013. In 

addition, in Chuuk state, we visited the islands of Fefen, Parem, Tonoas, 
Appendix I: Objectives, Scope, and 

Methodology

Page 64 GAO-13-675 Compacts of Free Association

Udot, and Weno. In both countries we visited selected primary and 

secondary schools, hospitals, and dispensaries. Our site selections were 

judgmental because of the number of facilities on the islands, logistics, 

and the time at our disposal. The facilities we visited exhibited a mix of 

factors, such as facility type (elementary and secondary schools), age 

(older and newer facilities), renovation status (those which had been 

renovated and those that had not), and logistical needs. Where possible, 

we selected facilities that we had visited in 2006 in order to draw 

comparisons, to the degree possible. During our site visits we made 

observations and performed spot checks. We used our 2006 report to 

help select aspects to observe—such as cleanliness, electrical power, 

and desks—and drug expiry dates to spot-check. These site visits were 

not designed to yield generalizable conclusions but rather to illustrate 

relevant conditions in the education and health sectors, including whether 

there was functioning equipment, in both countries. We discussed 

compact implementation with FSM (national, Chuuk, and Pohnpei

governments, as applicable) and RMI officials from the attorney general, 

education, finance, foreign affairs, health, auditor general, public works, 

and public service commission offices. Furthermore, we met with the 

RMI’s Office of Compact Implementation and Chief Secretary and the 

FSM’s Office of Statistics, Budget and Economic Management, Overseas 

Development Assistance, and Compact Management. In Kwajalein Atoll, 

we met Ebeye health and education officials to discuss compact 

implementation issues. We also observed the 2012 annual meetings, the 

2013 midyear meetings, and the 2013 annual meetings of the JEMCO 

and the JEMFAC. We contacted Interior’s Inspector General’s Office in 

Washington, D.C., to discuss ongoing investigations in the FSM and RMI; 

however, we received no response to our inquiries.

We conducted this performance audit from August 2012 to September 

2013 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: FSM and RMI Infrastructure 

Projects Related to Education and Health 

Sectors, Fiscal Years 2007–2011

Page 65 GAO-13-675 Compacts of Free Association

In the infrastructure sector, the FSM spent the majority of sector compact 

funds, 74 percent, on contractual services, which include repairing and 

maintaining facilities such as schools (see fig. 7).

Figure 7: Federated States of Micronesia (FSM) Infrastructure Sector Expenditures, 

Fiscal Years 2009 through 2011

Note: Percentages may not add up to 100 due to rounding. Includes expenditures from the 

Infrastructure Maintenance Fund account, which is intended to finance the repair and maintenance of 

existing infrastructure.

Appendix II: FSM and RMI Infrastructure 

Projects Related to Education and Health 

Sectors, Fiscal Years 2007–2011

FSM Infrastructure 

Projects 

FSM Infrastructure Sector 

Compact Expenditures
Appendix II: FSM and RMI Infrastructure 

Projects Related to Education and Health 

Sectors, Fiscal Years 2007–2011

Page 66 GAO-13-675 Compacts of Free Association

The FSM tracks progress in the infrastructure sector by the completion of 

projects. The FSM established an infrastructure development plan in 

2004 and infrastructure maintenance funds by 2009.1 As we reported in 

2007, the infrastructure development plan proved to be problematic 

because it included synopses of 11 different infrastructure sectors, 

contained long lists of projects, and though its estimated costs were 

prepared by professional engineers, it did not provide explanations or 

support for individual projects or prioritize them as the Joint Economic 

Management Committee (JEMCO) required. Furthermore, the plan was 

not based on any type of assessment of the needs of specific areas in the 

FSM, did not meet with concurrence from the FSM states, and was not 

adopted by the FSM Congress.2

In fiscal year 2010, the FSM submitted an official list of priority 

infrastructure projects; JEMCO had already approved partial funding for 

13 projects on the list at its September 2009 annual meeting.3 Of the 19 

priority-one projects, 4 were school buildings and classrooms in Pohnpei 

and 2 were school buildings in Yap; the remaining 13 were health-care 

facilities or projects directly affecting public health and safety, including 

water and wastewater projects and a detention center. The Office of 

Insular Affairs (OIA) has used the FSM’s 2010 list of 19 priority-one 

projects as the basis for funding infrastructure projects in the FSM. As of 

June 2013, the FSM National Government and state governments had 

not issued a revised infrastructure development plan, according to OIA.4

 

1

The amended compact established an infrastructure maintenance fund for the FSM 

National Government and the four state governments; it required that both the United 

States and the FSM governments contribute to the fund. However, the FSM governments 

have not consistently contributed their required share to the infrastructure maintenance 

funds. As a result, JEMCO required the FSM National Government to submit a deposit 

schedule of local cash contributions for the national government and each state 

government’s infrastructure maintenance bank account, eliminating any unfunded 

liabilities by September 30, 2011. 

2

GAO, Compacts of Free Association: Micronesia’s and the Marshall Islands’ Use of 

Sector Grants, GAO-07-514R (Washington, D.C.: May 25, 2007).

3

For the school and dispensary-related projects, JEMCO approval was for development of 

project scope, design, and construction bid package preparation. For the sanitation 

projects, JEMCO approval was for the preparation of preliminary engineering reports or 

development of preliminary cost estimates, or both.

4

At its September 2010 meeting, JEMCO called for the FSM National and state 

governments to update its infrastructure development plan in fiscal year 2011, JEMCO 

Resolution 2010-8.

FSM Tracked 

Infrastructure Project 

Completion 
Appendix II: FSM and RMI Infrastructure 

Projects Related to Education and Health 

Sectors, Fiscal Years 2007–2011

Page 67 GAO-13-675 Compacts of Free Association

FSM infrastructure is overseen by a Program Management Unit (PMU) 

whose responsibilities include (1) certifying infrastructure projects, or 

determining that the scope and budget are reasonable and justifiable, and 

(2) ensuring that the projects will be designed to a professionally 

acceptable standard and that the project budgets properly reflect the 

costs of such as standard.5 The PMU also certifies that projects in all four 

FSM states are consistent with the priorities listed in the FSM’s 

infrastructure development plan. The PMU is to provide quarterly reports 

on construction activities to OIA. The reports generally include information 

related to the phase of a project, such as whether or not professional 

engineers and design services are being sought; the type of project 

(classroom, dispensaries, etc); the type of predesign document; whether 

or not a request for fee proposal was issued; and whether task orders 

were issued. PMU reports also include comments on such details as 

whether the estimated cost is higher than budgeted for, and whether land 

title documents were provided.

The FSM’s PMU has not consistently provided quarterly progress reports 

on construction activities to OIA. According to OIA, significant delays, 

deficiencies, and project cost overruns have not been brought to OIA’s 

attention in a timely manner as required by the amended compact’s fiscal 

procedures agreement. OIA believes that the PMU’s inability to ensure 

professional effectiveness on a continual basis through the services of an 

experienced Contracting Officer is hindering implementation of compactfunded infrastructure projects throughout the FSM.

In 2006, the FSM’s PMU hired a Contracting Officer on behalf of the FSM 

National Government to execute project planning, design, and 

construction of projects throughout the FSM. Since 2006, the PMU has 

had a succession of Contracting Officers, eight in all. In a 2011 resolution, 

JEMCO stated that it would not consider approval of any new 

infrastructure project proposals until the PMU hired a professional 

Contracting Officer.6 In December 2012, the PMU’s Contracting Officer 

quit, claiming “constant interference from the FSM PMU Program 

Manager and a corrupted decision-making environment within the PMU 

 

5

Each state also has an entity responsible for providing oversight of infrastructure projects 

within the state.

6

JEMCO Resolution 2011-6.
Appendix II: FSM and RMI Infrastructure 

Projects Related to Education and Health 

Sectors, Fiscal Years 2007–2011

Page 68 GAO-13-675 Compacts of Free Association

controlled by the PMU Program Manager.” A new Contracting Officer was 

hired in February 2013.

During fiscal years 2007 through 2012, the FSM completed 6 educationrelated projects on the September 2009 JEMCO-approved list of 19 

priority projects, and other projects are under way. A major factor in 

determining OIA’s approval of a project has been whether the 

government holds clear title to the land.

• Chuuk. Land title disputes have been common in Chuuk, and as a 

result of this continuing problem, no new schools were built in Chuuk 

using infrastructure funds in fiscal years 2004 through 2011. However, 

according to OIA’s infrastructure grant manager, because of the poor 

condition of schools in Chuuk, OIA permitted some school buildings to 

be renovated with infrastructure maintenance funds or carryover 

education sector grant funds, and these projects were not on the FSM 

list of priority infrastructure projects.7 According to Chuuk’s Planning 

and Statistics Office, six school projects have been completed on 

Weno and islands within the Chuuk lagoon using money from Chuuk’s 

infrastructure maintenance fund.8 According to the Chuuk State: 

School Facility Repair and Construction Master Plan, as of May 31, 

2012, 51 primary schools and 5 secondary schools needed 

renovation, new construction, or both.

• Pohnpei. Land title issues have been less of a problem here, and 6 

school projects were completed. Since 2009, classrooms were built at 

four elementary schools (a single project on the priority list), and 

buildings and classrooms were constructed at two high schools on the 

priority list.9 Designs for two College of Micronesia facilities were 

 

7

According to OIA, it approved Chuuk’s use of its infrastructure maintenance fund for this 

purpose because the new buildings replaced facilities at the schools that were unsafe and 

in poor condition. However, an OIA official noted it would not approve such use of the 

infrastructure maintenance funds again because the construction work funded in this 

instance was substandard.

8

The school in Weno is Mwan Elementary School. In the lagoon islands, the schools are 

Nomusofo Junior High School, Southern Namoneas High School, Sino Elementary, 

Sapore Elementary, and West Fefen Elementary.

9

The elementary schools are Kolonia, Nett, Saladak, and Sapwalap; the high schools are 

Pohnlangas (Madolenihmw) and Nanpei Memorial.

FSM Progress in Building 

Schools Has Been Mixed, 

and Use of Maintenance 

Funds Is an Issue
Appendix II: FSM and RMI Infrastructure 

Projects Related to Education and Health 

Sectors, Fiscal Years 2007–2011

Page 69 GAO-13-675 Compacts of Free Association

started but not completed for the Pohnpei State Campus, a vocational 

center and a learning resources center, according to OIA.10

In the FSM, difficulty and delays in establishing JEMCO-approved 

priorities and unresolved land titling issues affected the construction and 

maintenance of health facilities. Dispensaries in Chuuk were on the OIAapproved list of FSM priority projects in fiscal year 2009, but these 

projects have not begun as of April 2013. Eight other projects with public 

health and safety aspects such as waterlines and sewers were also on 

the priority infrastructure project list; the majority of them are in Pohnpei.

In addition to approving the priority projects, JEMCO also approved 

funding for the repair of Pohnpei State Hospital’s roof and ceiling.11 The 

U.S. Army Humanitarian Assistance-FSM (HAFSM) Team completed the 

renovation project in 2013. HAFSM replaced the roof and undertook 

extensive internal repairs, including installing new dry wall and plumbing, 

as well as doing interior painting throughout the hospital. Repairs did not 

include the electrical system or air conditioning. Chuuk State Hospital was 

on the list of projects JEMCO approved in 2009 that got included in the 

2010 list of 19 priority-one projects; however, it was not until June 2012 

that the Chuuk state government’s Infrastructure Planning and 

Implementation Committee finalized its revised infrastructure priorities in 

a plan that included a new hospital estimated to cost about $50 million 

dollars. The Chuuk plan also called for replacing 68 dispensaries in the 

outer islands using a common dispensary model estimated to cost 

$150,000 each. OIA had not received a plan from the national 

government to replace the dispensaries, as of June 2013.12

 

10JEMCO suspended compact funded design and associated engineering work for various 

College of Micronesia projects in 2010, pending approval of the college’s restructuring 

plan by the Western Association of Schools and Colleges (JEMCO Resolution 2010-5). In 

fiscal year 2011, JEMCO decided that no College of Micronesia infrastructure projects 

would be considered for approval during fiscal years 2012 through 2016 (JEMCO 

Resolution 2011-2). 

11JEMCO Resolutions 2010-6 and 2011-7. 

12According to the FSM PMU, it has signed a contract to build 5 new dispensaries at a 

cost of approximately $298,400 each, a total cost of about $1.5 million. 

FSM Progress in Building 

and Maintaining Health 

Facilities Has Been 

Limited
Appendix II: FSM and RMI Infrastructure 

Projects Related to Education and Health 

Sectors, Fiscal Years 2007–2011

Page 70 GAO-13-675 Compacts of Free Association

In the infrastructure sector, the RMI spent the majority of compact sector 

funds, 65 percent, on capital outlay, which includes construction project 

and maintenance contracts payments for facilities such as schools and 

hospitals (see fig. 8).

Figure 8: Republic of the Marshall Islands (RMI) Infrastructure Sector Expenditures, 

Fiscal Years 2007 through 2011

Note: Includes expenditures from the Infrastructure Maintenance Fund account, which is intended to 

finance the repair and maintenance of existing infrastructure.

The RMI tracks progress in the infrastructure sector by the completion of 

projects. The RMI expended $86.5 million dollars on infrastructure 

projects including infrastructure maintenance, from fiscal years 2004 

through 2011, according to OIA.13 The RMI stated it has constructed or 

 

13This also includes $25 million dollars that went to projects at the College of the Marshall 

Islands.

RMI Infrastructure 

Projects 

RMI Infrastructure Sector 

Compact Expenditures

RMI Tracked 

Infrastructure Project 

Completion 
Appendix II: FSM and RMI Infrastructure 

Projects Related to Education and Health 

Sectors, Fiscal Years 2007–2011

Page 71 GAO-13-675 Compacts of Free Association

renovated over 200 classroom facilities in the education sector and 45 

projects in the health sector and has also conducted essential 

maintenance at its two hospitals.14

During fiscal years 2007 through 2011, the RMI’s Project Management 

Unit was generally consistent in reporting monthly to the Office of Insular 

Affairs (OIA) on the status of construction activities, according to OIA. The 

reports included the project number and name as well as a brief 

description of the project. These reports also included categories such as 

the contract value, amount certified to date, estimated final cost, 

percentage completed, and completion date, and other details such 

project status—completed, on hold, or on-going for example.

In August 2012, allegations were raised by an RMI official regarding the 

Project Management Unit’s use of substandard materials and bid rigging. 

OIA proposed a review by an independent engineering firm in response to 

the allegations. OIA recommended to the Joint Economic Management 

and Fiscal Accountability Committee (JEMFAC) at its March 2013 

meeting that additional allocations of compact infrastructure funds to the 

RMI be withheld until the review was completed and the results submitted 

to JEMFAC. The RMI negotiated a contract with an independent 

professional engineering firm to undertake an assessment of the Project 

Management Unit’s procedures, contract administration, and inspection 

process; the review is expected to commence in August 2013, according 

to OIA.

The school buildings and dispensaries constructed throughout the RMI 

were built using standard designs prepared by a professional engineering 

firm. The College of the Marshall Islands Master Plan, initiated in 2007 

with capital projects worth over $25 million, was almost completed when 

we visited in January 2013. Future infrastructure projects include the 

redevelopment plan for the hospital in Majuro. Various designs for the 

hospital project, which was estimated to cost between $50 million and 

$70 million, have been discussed for over 5 years. The key unresolved 

issue is the size of the new facility, which was still being discussed as of 

June 2013.

 

14The hospitals are in Majuro and Ebeye.

RMI Completed School 

and Health Facilities
Appendix II: FSM and RMI Infrastructure 

Projects Related to Education and Health 

Sectors, Fiscal Years 2007–2011

Page 72 GAO-13-675 Compacts of Free Association

The RMI has recently begun to focus on preventive maintenance of 

infrastructure facilities. For example, in its fiscal year 2013 budget 

statement for infrastructure, the RMI noted that an adequate level of 

maintenance resources was critical for the longevity of the new College of 

the Marshall Islands campus, and RMI proposed allocating $280,000 for 

this purpose.
Appendix III: FSM and RMI Grant Assistance 

and Trust Fund Contributions under the 

Amended Compacts, Fiscal Years 2004–2023

Page 73 GAO-13-675 Compacts of Free Association

Dollars in millions

Fiscal year

FSM grants

(Section 211)

FSM trust fund

(Sections 215 and 216)

RMI grants

(Section 211)

RMI trust fund

(Sections 216 and 217)

2004 $76.2 $16.0 $35.2 $7.0

2005 76.2 16.0 34.7 7.5

2006 76.2 16.0 34.2 8.0

2007 75.4 16.8 33.7 8.5

2008 74.6 17.6 33.2 9.0

2009 73.8 18.4 32.7 9.5

2010 73.0 19.2 32.2 10.0

2011 72.2 20.0 31.7 10.5

2012 71.4 20.8 31.2 11.0

2013 70.6 21.6 30.7 11.5

2014 69.8 22.4 32.2 12.0

2015 69.0 23.2 31.7 12.5

2016 68.2 24.0 31.2 13.0

2017 67.4 24.8 30.7 13.5

2018 66.6 25.6 30.2 14.0

2019 65.8 26.4 29.7 14.5

2020 65.0 27.2 29.2 15.0

2021 64.2 28.0 28.7 15.5

2022 63.4 28.8 28.2 16.0

2023 62.6 29.6 27.7 16.5

Source: Compacts 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 Government of the Republic of the Marshall Islands, Pub. L. No. 108-188.

Notes: Sections 211 of the amended compacts detail grant assistance to the FSM and the RMI, while 

Sections 215 and 216 of the U.S.–FSM compact and sections 216 and 217 of the U.S.–RMI compact 

detail contributions to the FSM and RMI trust funds. See Pub. L. No. 188-108, Dec. 17, 2003.

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.

The increase in RMI grant assistance from fiscal year 2013 to 2014 is due to a $2 million increase in 

payments to be made available for addressing the special needs of the community at Ebeye and 

other Marshallese communities within the Kwajalein Atoll.

Appendix III: FSM and RMI Grant Assistance 

and Trust Fund Contributions under the 

Amended Compacts, Fiscal Years 2004–2023
Appendix IV: FSM and RMI Expenditures of 

U.S. Noncompact and Compact-Related Grant 

Funds, Fiscal Years 2007–2011

Page 74 GAO-13-675 Compacts of Free Association

Table 6: Federated States of Micronesia (FSM) Expenditures of U.S. Noncompact and Compact-Related Grant Funds, Fiscal 

Years 2007 through 2011

Agency

Fiscal year

2007 2008 2009 2010 2011 Total

U.S. Department of Transportation 6,392,626 10,510,687 31,575,697 34,337,450 33,581,350 116,397,810 

U.S. Department of Health and Human 

Services 

5,171,983 5,603,314 6,492,503 8,767,750 7,668,872 33,704,422 

U.S. Department of Education 4,696,968 4,119,530 4,620,678 3,916,819 3,692,482 21,046,477 

U.S. Department of Homeland Security 4,306,572 3,738,391 1,605,349 1,001,751 1,405,026 12,057,089 

U.S. Department of Commerce 1,096,129 1,218,474 1,277,555 1,360,272 1,401,309 6,353,739 

U.S. Department of the Interior 2,082,664 976,180 935,753 713,596 767,784 5,475,977 

U.S. Department of Agriculture 399,486 356,145 249,136 317,556 379,316 1,701,639 

U.S. Department of Labor 517,558 0 0 0 0 517,558 

U.S. Institute of Museum and Library 

Services 0 6,621 39,230 36,260 55,068 137,179 

U.S. Small Business Administration 0 0 0 0 18,146 18,146 

Total U.S. noncompact fund expenditures 24,663,986 26,529,342 46,795,901 50,451,454 48,969,353 197,410,036 

 

Summary 

U.S. noncompact fund expenditures 

subtotal

24,663,986 26,529,342 46,795,901 50,451,454 48,969,353 197,410,036 

U.S. compact funds expenditures subtotal 66,145,614 65,498,886 69,783,324 83,663,188 85,883,762 370,974,774 

Total U.S. grant fund expenditures 90,809,600 92,028,228 116,579,225 134,114,642 134,853,115 568,384,810 

Source: GAO analysis based on information from FSM National Government and Chuuk, Kosrae, Pohnpei, and Yap single audit 

reports.

Note: U.S. compact-related grant fund expenditures include energy, communications, and 

surveillance grant funds; sector grant funds; supplemental education grant funds; and funds that 

support the yearly single audits.

Appendix IV: FSM and RMI Expenditures of 

U.S. Noncompact and Compact-Related 

Grant Funds, Fiscal Years 2007–2011
Appendix IV: FSM and RMI Expenditures of 

U.S. Noncompact and Compact-Related Grant 

Funds, Fiscal Years 2007–2011

Page 75 GAO-13-675 Compacts of Free Association

Table 7: Republic of the Marshall Islands (RMI) Expenditures of U.S. Noncompact and Compact-Related Grant Funds, Fiscal 

Years 2007 through 2011

Agency

Fiscal year

2007 2008 2009 2010 2011 Total

U.S. Department of Health and Human Services 4,358,210 3,550,420 3,968,212 5,504,080 4,956,471 22,337,393

U.S. Department of Education 3,459,510 2,277,950 2,109,783 1,878,145 1,871,736 11,597,124

U.S. Department of the Interior 1,328,436 1,854,303 1,292,051 1,436,710 1,378,192 7,289,692

U.S. Department of Agriculture 368,891 522,230 753,294 569,770 694,014 2,908,199

U.S. Department of Commerce 348,906 387,167 349,646 379,064 324,568 1,789,351

U.S. Small Business Administration 16,278 17,199 15,620 22,409 22,174 93,680

U.S. Department of Homeland Security 58,188 10,558 1,012 2,272 0 72,030

Total U.S. noncompact grant fund expenditures 9,938,419 8,619,827 8,489,618 9,792,450 9,247,155 46,087,469

 

Summary 

U.S. noncompact grant fund expenditures 

subtotal 9,938,419 8,619,827 8,489,618 9,792,450 9,247,155 46,087,469

U.S. compact-related grant fund expenditures

subtotal 56,640,580 53,669,271 59,876,574 57,572,450 89,876,922 317,635,797

Total U.S. grant fund expenditures 66,578,999 62,289,098 68,366,192 67,364,900 99,124,077 363,723,266

Source: GAO analysis based on information from RMI single audit reports.

Note: U.S. compact-related grant fund expenditures include sector grant funds, supplemental 

education grant funds, landowners special needs grant funds, Kwajalein environment and landowners 

grant funds, and grant funds that support the yearly single audits. 
Appendix V: Amended Compact Grant 

Allocations and Supplemental Education Grant 

Awards, Fiscal Years 2004–2013

Page 76 GAO-13-675 Compacts of Free Association

From fiscal years 2004 through 2013, the U.S.–FSM Joint Economic 

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

Management and Financial Accountability Committee (JEMFAC) 

allocated about $1.1 billion in sector grants to the countries under the 

amended compacts. Additionally, about $142 million in supplemental 

education grant funds were provided to the countries during this period. 

Figures 9 and 10 show the distribution of allocations by sector for fiscal 

years 2004 through 2013 and tables 8 and 9 provide each country’s 

allocation amounts, by sector, for this period.

Figure 9: U.S.–Federated States of Micronesia (FSM) Joint Economic Management Committee (JEMCO) Sector Allocations 

and Supplemental Education Grant Awards, Fiscal Year 2004 through Fiscal Year 2013

Note: FSM allocations include data for the FSM National Government and the four states: Chuuk, 

Kosrae, Pohnpei, and Yap. Because the supplemental education grant funds lag by a year, the fiscal 

year 2004 funds were not awarded until fiscal year 2005, and the fiscal year 2013 funds will not be 

awarded until September 2013.

Appendix V: Amended Compact Grant 

Allocations and Supplemental Education 

Grant Awards, Fiscal Years 2004–2013
Appendix V: Amended Compact Grant 

Allocations and Supplemental Education Grant 

Awards, Fiscal Years 2004–2013

Page 77 GAO-13-675 Compacts of Free Association

Table 8: U.S.–FSM Joint Economic Management Committee (JEMCO) Sector Allocations and Supplemental Education Grant 

Awards, Fiscal Years 2004 through 2013

Fiscal year Sector Amount (dollars)

2004

 

 

 

 

 

 

 

Health 15,443,116 

Education 25,965,572 

Infrastructure 17,119,155 

Public sector capacity building 11,662,846 

Environment 2,023,192 

Private sector development 3,786,119 

Total sector allocations 76,000,000 

Supplemental education grant 0 

2005

 

 

 

 

 

 

 

Health 17,430,733 

Education 27,105,047 

Infrastructure 17,249,121 

Public sector capacity building 7,786,238 

Environment 2,389,951 

Private sector development 4,038,910 

Total sector allocations 76,000,000 

Supplemental education grant 12,083,360 

2006

 

 

 

 

 

 

 

Health 16,394,939 

Education 26,132,059 

Infrastructure 24,335,718 

Public sector capacity building 6,175,914 

Environment 2,137,452 

Private sector development 4,039,163 

Total sector allocations 79,215,245 

Supplemental education grant 12,059,401 

2007

 

 

 

 

 

 

 

Health 17,309,531 

Education 28,051,609 

Infrastructure 23,753,270 

Public sector capacity building 5,609,691 

Environment 1,408,631 

Private sector development 1,011,048 

Total sector allocations 77,143,780 

Supplemental education grant 12,010,680 

2008

 

 

Health 17,741,499 

Education 28,423,788 

Infrastructure 0 
Appendix V: Amended Compact Grant 

Allocations and Supplemental Education Grant 

Awards, Fiscal Years 2004–2013

Page 78 GAO-13-675 Compacts of Free Association

Fiscal year Sector Amount (dollars)

 

 

 

 

Public sector capacity building 9,505,422 

Environment 1,889,943 

Private sector development 2,506,345 

Total sector allocations 60,066,997 

Supplemental education grant 11,790,855 

2009

 

 

 

 

 

 

 

Health 20,482,050 

Education 29,013,338 

Infrastructure 48,428,760 

Public sector capacity building 600,000 

Environment 0 

Private sector development 0 

Total sector allocations 98,524,148 

Supplemental education grant 11,204,790 

2010

 

 

 

 

 

 

 

Health 21,007,869 

Education 28,774,255 

Infrastructure 24,303,552 

Public sector capacity building 2,887,816 

Environment 1,579,510 

Private sector development 2,333,638 

Total sector allocations 80,886,640 

Supplemental education grant 11,791,333 

2011

 

 

 

 

 

 

 

Health 21,925,919 

Education 28,893,733 

Infrastructure 25,086,084 

Public sector capacity building 3,764,219 

Environment 1,659,867 

Private sector development 2,618,701 

Total sector allocations 83,948,523 

Supplemental education grant 11,766,573 

2012

 

 

 

 

 

 

 

Health 19,799,593 

Education 27,229,001 

Infrastructure 24,222,240 

Public sector capacity building 2,661,097 

Environment 1,752,226 

Private sector development 2,580,211 

Enhanced reporting and accountability 908,830 

Total sector allocations 79,153,198 
Appendix V: Amended Compact Grant 

Allocations and Supplemental Education Grant 

Awards, Fiscal Years 2004–2013

Page 79 GAO-13-675 Compacts of Free Association

Fiscal year Sector Amount (dollars)

Supplemental education grant 11,751,632 

2013

 

 

 

 

 

 

 

 

Health 20,692,562 

Education 28,034,838 

Infrastructure 24,437,952 

Public sector capacity building 2,946,227 

Environment 1,718,017 

Private sector development 2,373,494 

Enhanced reporting and accountability 1,481,237 

Total sector allocations 81,684,327 

Supplemental education grant 0 

Sources: GAO analysis based on information from annual JEMCO resolutions, fiscal years 2004 through 2013. 

Notes: Allocations may differ from actual grant awards. Because the supplemental education grant 

funds lag by a year, the fiscal year 2004 funds were not awarded until fiscal year 2005, and the fiscal 

year 2013 funds will not be awarded until September 2013.
Appendix V: Amended Compact Grant 

Allocations and Supplemental Education Grant 

Awards, Fiscal Years 2004–2013

Page 80 GAO-13-675 Compacts of Free Association

Figure 10: U.S.–RMI Joint Economic Management and Financial Accountability Committee (JEMFAC) Sector Allocations and 

Supplemental Education Grant Awards, Fiscal Year 2004 through Fiscal Year 2013

Note: Because the supplemental education grant funds lag by a year, the fiscal year 2004 funds were 

not awarded until fiscal year 2005, and the fiscal year 2013 funds will not be awarded until September 

2013.
Appendix V: Amended Compact Grant 

Allocations and Supplemental Education Grant 

Awards, Fiscal Years 2004–2013

Page 81 GAO-13-675 Compacts of Free Association

Table 9: U.S.–RMI Joint Economic Management and Financial Accountability Committee (JEMFAC) Sector Allocations and 

Supplemental Education Grant Awards, Fiscal Years 2004 through 2013

Fiscal year Sector Amount (dollars)

2004

 

 

 

 

 

 

 

 

Health 6,894,448 

Education 10,748,932 

Infrastructure 14,700,000 

Public sector capacity building 0 

Environment 400,000 

Private sector development 356,620 

Ebeye Special Needs 1,900,000 

Total sector allocations 35,000,000 

Supplemental education grant 0 

2005

 

 

 

 

 

 

 

Health 7,064,097 

Education 11,141,921 

Infrastructure 13,485,745 

Public sector capacity building 103,514 

Environment 404,720 

Private sector development 361,943 

Ebeye Special Needs 1,992,420 

Total sector allocations 34,554,360 

Supplemental education grant 6,100,000 

2006

 

 

 

 

 

 

 

 

Health 6,682,741 

Education 11,934,083 

Infrastructure 13,495,679 

Public sector capacity building 103,514 

Environment 408,000 

Private sector development 361,943 

Ebeye Special Needs 1,882,440 

Total sector allocations 34,868,400 

Supplemental education grant 5,941,769 

2007

 

 

 

 

 

Health 5,815,108 

Education 11,408,682 

Infrastructure 12,573,085 

Public sector capacity building 0 

Environment 0 

Private sector development 0 
Appendix V: Amended Compact Grant 

Allocations and Supplemental Education Grant 

Awards, Fiscal Years 2004–2013

Page 82 GAO-13-675 Compacts of Free Association

Fiscal year Sector Amount (dollars)

 

 

 

Ebeye Special Needs 3,263,969 

Total sector allocations 33,060,844 

Supplemental education grant 5,990,490 

2008

 

 

 

 

 

 

 

 

Health 6,512,349 

Education 11,336,978 

Infrastructure 11,855,213 

Public sector capacity building 300,000 

Environment 0 

Private sector development 0 

Ebeye Special Needs 3,345,830 

Total sector allocations 33,350,370 

Supplemental education grant 5,895,668 

2009

 

 

 

 

 

 

 

 

Health 7,404,620 

Education 12,457,410 

Infrastructure 5,000,000 

Public sector capacity building 425,000 

Environment 0 

Private sector development 0 

Ebeye Special Needs 3,536,134 

Total sector allocations 28,823,164 

Supplemental education grant 5,886,017 

2010

 

 

 

 

 

 

 

 

Health 7,159,858 

Education 11,600,728 

Infrastructure 5,000,000 

Public sector capacity building 413,380 

Environment 0 

Private sector development 0 

Ebeye Special Needs 3,451,055 

Total sector allocations 27,625,021 

Supplemental education grant 5,895,667 

2011

 

 

 

 

 

Health 6,834,858 

Education 11,839,151 

Infrastructure 10,296,314 

Public sector capacity building 300,000 

Environment 325,000 

Private sector development 0 
Appendix V: Amended Compact Grant 

Allocations and Supplemental Education Grant 

Awards, Fiscal Years 2004–2013

Page 83 GAO-13-675 Compacts of Free Association

Fiscal year Sector Amount (dollars)

 

 

 

Ebeye Special Needs 3,486,781 

Total sector allocations 33,082,104 

Supplemental education grant 5,895,667 

2012

 

 

 

 

 

 

 

 

Health 6,834,858 

Education 11,839,151 

Infrastructure 9,958,191 

Public sector capacity building 300,000 

Environment 325,000 

Private sector development 0 

Ebeye Special Needs 3,515,400 

Total sector allocations 32,772,600 

Supplemental education grant 5,885,052 

2013

 

 

 

 

 

 

 

 

Health 6,693,788 

Education 11,598,952 

Infrastructure 9,406,891 

Public sector capacity building 0 

Environment 325,000 

Private sector development 0 

Ebeye Special Needs 3,587,010 

Total sector allocations 31,611,641 

Supplemental education grant - 

Sources: GAO analysis based on information from annual JEMFAC resolutions, fiscal years 2004 through 2013. 

Notes: Allocations may differ from actual grant awards. Because the supplemental education grant 

funds lag by a year, the fiscal year 2004 funds were not awarded until fiscal year 2005, and the fiscal 

year 2013 funds will not be awarded until September 2013.

As shown in figures 11 and 12, the education, health, and infrastructure 

sectors in both countries received the most funding during this period, 

consistent with provisions in the amended compacts legislation indicating 

that these sectors were priorities.
Appendix V: Amended Compact Grant 

Allocations and Supplemental Education Grant 

Awards, Fiscal Years 2004–2013

Page 84 GAO-13-675 Compacts of Free Association

Figure 11: Federated States of Micronesia (FSM) Total Sector Allocations and 

Percentages, Fiscal Years 2004 through 2013

Notes: Percentages may not add up to 100 due to rounding. Sum of sector allocations may not add 

up to the total due to rounding. Supplemental education grant funds are not included in this figure.
Appendix V: Amended Compact Grant 

Allocations and Supplemental Education Grant 

Awards, Fiscal Years 2004–2013

Page 85 GAO-13-675 Compacts of Free Association

Figure 12: Republic of the Marshall Islands (RMI) Total Sector Allocations and 

Percentages, Fiscal Years 2004 through 2013

Notes: Percentages may not add up to 100 due to rounding. Sum of sector allocations may not add 

up to the total due to rounding. Supplemental education grant funds are not included in this figure.
Appendix VI: Education and Health Indicators 

for the FSM and the RMI, Fiscal Years 2007–

2011

Page 86 GAO-13-675 Compacts of Free Association

Tables 10 and 11 list the education and health indicators that the 

Federated States of Micronesia (FSM) tracked during fiscal years 2007 

through 2011. Tables 12 and 13 list the education and health indicators 

that the Republic of the Marshall Islands (RMI) tracked during the same 

period.

Table 10: Federated States of Micronesia (FSM) Education Indicators, Fiscal Years 2007 through 2011

1. Student enrollment by grade level and gender

2. Completion/graduation rate for 8th and 12th grades (private and public)

3. Number of schools by grade level (elementary and secondary)

4. Number of schools by size (based on enrollment)

5. Number of schools operating half-day sessions

6. Number and percent of staff by education level (diploma, associate of arts degree, etc.)

7. Number of teachers/staff by grade level

8. Average daily student attendance rate by grade level and gender

9. Base populations by school age groups (i.e., total no. of 4-5 year olds, 6-13 year olds, 14-18, etc.)

10. Student-to-teacher ratio (private and public)

11. Percent of base school-age population in school by age groups

12. Drop-out rate by grade level and gender (use beginning and ending enrollment)

13. Number and percent of grade completers going to high school and high school graduates going to higher education

14. Number and percent of student achieving “Proficiency” level and above, at selected grade levels for standardized tests (e.g., 

SAT) or criterion-referenced tests (e.g., locally developed tests)

15. Number of student textbooks by subject areas and grade levels

16. Per pupil expenditure (annual or entire operating K-12 budget divided by enrolled student count)

17. Number of parent involvement activities per year by school and average number of parents participating

18. Student enrollment in local institutions of higher education

19. Number of institutions of higher education graduates by diploma/degree level

20. Average teacher attendance rate by grade level (elementary and secondary)

21. Scholarships

Source: Federated States of Micronesia: JEMCO 20 Education Indicators Report.

a

a

This indicator was added in 2011. During the time frame of our review, fiscal years 2007 through 

2011, there were 20 indicators, with the exception of 2011. For the purposes of this report, we refer to 

the FSM as having 20 education indicators; even the 2011 JEMCO report tracking the education data 

does this in its title, JEMCO 20 Education Indicators Report.

Appendix VI: Education and Health 

Indicators for the FSM and the RMI, Fiscal 

Years 2007–2011
Appendix VI: Education and Health Indicators 

for the FSM and the RMI, Fiscal Years 2007–

2011

Page 87 GAO-13-675 Compacts of Free Association

Table 11: Federated States of Micronesia (FSM) Health Indicators, Fiscal Years 2007 through 2011

1. Infant mortality rate is reduced to less than 16/1000 by 2015 

2. Immunization coverage of 2 year old children is increased to not less than 90% by year 2015

3. Mental illness is reduced (indicator: rate of completed suicide reduced to 10% by 2015)

4. At least 70% of 3rd graders received sealant by 2015 (2004 Baseline)

5. The average length of hospital stay is less than 7 days for each State Hospital by 2015 

6. Off-island medical referral costs in all states reduce to less than 10% of total health sector expenditures by 2015 

7. Essential drugs and supplies available (indicators: ORS, combo OCP, Amox, IV, chloramphenicol, glyburide, ethanol, and HCTZ) 

all in stock 80% of days)

8. The number of individuals enrolled under a health insurance plan is increased 10% by 2015 

9. Quality Assurance Systems Functioning (indicator: quarterly audits and improvement plans, based on written policy and 

procedure standards, are produced for specific areas in each state’s hospitals)

10. Decentralize primary care services—number of encounters provided in homes and dispensaries will increase 20% by 2015 

11. Decentralize primary care services—number of patient encounters at hospitals’ clinics will decrease by 10% by 2015 

12. Biomedical equipment is functional (indicator: Na+ K+ ALT, Bili, and Creatinin all available 80% of days)

13. Reduce incidence of diarrheal diseases by 10% by 2015 

14. Noncommunicable diseases control (indicator: reduce the incidence of diabetic hospitalization by 10% in 2015)

Source: Federated States of Micronesia, Department of Health and Social Affairs, Fourteen Health Indicators Report: 2004-2015.

Table 12: Republic of the Marshall Islands (RMI) Education Indicators, Fiscal Years 2007 through 2011

1. Total enrollment by grade and gender

2. Completion/Graduation rate for 8th and 12th grade

3. Number of schools by grade level 

4. Number of schools by enrollment size (primary and secondary)

5. Number of schools operating half-day sessions

6. Number and percent of teachers by education level (related to teacher certification and training)

7. Number of teacher/staff by grade level

8. Average daily attendance

9. Base population of school age groups

10. Student/teacher ratio by geographic area/all schools

11. Percent of base-school-age population in school by age group 

12. Drop out rate by grade level and gender

13. Number/percent of 8th-grade completers going to high school

14. Marshall Islands Standard Assessment Test (grades 3, 6,8) % student benchmark scores at “proficient and above” 

15. Number of students textbooks by subject areas and grade level

16. Per pupil expenditure

17. Number of parent involvement activities per year by school
Appendix VI: Education and Health Indicators 

for the FSM and the RMI, Fiscal Years 2007–

2011

Page 88 GAO-13-675 Compacts of Free Association

18. Student enrollment in local institution of higher education (RMI-USP Joint Education Program)a 

19. Number of higher education graduates by diploma/degree 

20. Number of staff full time

Source: Republic of the Marshall Islands, Ministry of Education, Portfolio Budget Statements.

Note: The RMI-USP Joint Education Program is a partnership in education between the RMI and the 

University of the South Pacific (USP). The joint program includes both a preliminary program and a 

subsequent foundation program; enrollment data reported here include enrollment in both the 

preliminary and foundation programs.

Table 13: Republic of the Marshall Islands Health (RMI) Indicators, Fiscal Years 2007 through 2011

1. Reduce infant mortality rate by 50% from 2004-2015/1000 live births

2. Increase immunization coverage to 95% by 2015 for 2-year-olds

3. Increase percent of total immunization coverage levels for adolescent and adults to 95% by 2015

4. Reduce cases of suicide by half by 2015

5. Improve access to dental services

6. Reduce the prevalence of cancers by 2015 by 16% per 100,000 population

7. Reduce the average length of hospital stay (days)

8. Decrease in number of referrals

9. Maintain maternal mortality ratio at <1/100,000 by 2015

10. Reduce child mortality rate by 60% from 2004 to 2015 *100,000

11. Reduce mortality rate for tuberculosis to <1/100,000 by 2015

12. Reduce the prevalence of tuberculosis by <1/100,000 by 2015

13. Reduce the prevalence of teenage pregnancy by 75% by 2015 per 100,000

14. Reduce the prevalence of HIV/STI in age 15-49 to <1/100,000 by 2015

15. Reduce the prevalence of diabetes by 16% by 2015

16. Reduce diabetes related cause of death (mortality rate by 10%)

17. Eliminate leprosy by 2010 to < 1/100,000 (country goal)

18. Reduce the diseases specific mortality rate from malnutrition by 100% from 2004 to 2015

19. Eliminate the prevalence of malnutrition in children < 5 years old from 2004 to 2015 per 100,000

20. Reduce prevalence of water borne diseases by 2015

21. Reduce the prevalence of acute rheumatic (valvular) heart diseases to 1/100,000 by 2015

22. Reduce the prevalence of noncommunicable disease by 10% by 2015 (100,000)

23. Reduce the incidence of alcohol- and substance-related injuries

24. Health-awareness activities conducted

25. Disease surveillance (lab service)

26. School-based health public on Ebeye

Source: Republic of the Marshall Islands, Ministry of Health, Overarching Health Measures.
Appendix VII: Single Audit Reports for the FSM 

and the RMI, Fiscal Years 2006–2011

Page 89 GAO-13-675 Compacts of Free Association

The National Government of the Federated States of Micronesia (FSM) 

and the individual FSM states (Chuuk and Pohnpei)1 submitted their 

required single audit reports on time for 5 of the 6 fiscal years from 2006 

through 2011. Similarly, the Republic of the Marshall Islands (RMI) 

submitted its single audit reports on time during those years except for 

fiscal year 2011. Half of the financial statement audit opinions for the FSM 

and all for the RMI were unqualified for fiscal years 2006 through 2011.2

However, 17 of 18 financial statement audits for those years from the 

FSM and all 6 from the RMI found material weaknesses and significant 

deficiencies resulting in the entities receiving qualified audit opinions3 with 

regard to internal controls over financial reporting. In most of the single 

audit reports submitted by both countries for those years, auditors also 

rendered qualified audit opinions on compliance with requirements of 

major federal programs. In addition, our review of the single audit reports 

found that internal control weaknesses have persisted in both countries 

since we last reported on their single audits in December 2006. As a 

result of persistent weaknesses in RMI’s single audit reports, in March 

2013, the Department of the Interior’s Office of Insular Affairs (OIA) 

recommended to the U.S.–RMI Joint Economic Management and 

Financial Accountability Committee (JEMFAC) that it refrain from 

allocating unexpended grant funds from fiscal year 2011 and fiscal year 

2012 until the RMI demonstrated that it had resolved all current 

questioned costs.

 

1

In the FSM, we focused our review on the National Government and the state 

governments of Chuuk and Pohnpei. We did not include in our review the state 

governments of Yap and Kosrae. See app. I for additional discussion of scope.

2

An unqualified opinion is given when the auditor is reasonably assured that the financial 

statements are free of material misstatements.

3

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.

Appendix VII: Single Audit Reports for the 

FSM and the RMI, Fiscal Years 2006–2011
Appendix VII: Single Audit Reports for the FSM 

and the RMI, Fiscal Years 2006–2011

Page 90 GAO-13-675 Compacts of Free Association

The amended compacts and their respective fiscal procedures 

agreements require the FSM and RMI to submit reports each year on 

audits conducted within the meaning of the Single Audit Act, as 

amended.4 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. A single audit report 

includes the following:

• 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 

principles, and a report on internal controls related to financial 

statements;

• the entity’s audited financial statements;

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

opinion on whether the schedule is reported fairly in relation to the 

financial statements as a whole;

• 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, and

a report on findings on internal controls related to federal programs;

• a summary of findings and any 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.

Single audits are a key control for the oversight and monitoring of the 

FSM and RMI governments’ use of U.S. awards, and the resulting audit 

reports are due at the Federal Audit Clearinghouse—which includes an 

automated public database of single audit information on the Internet—9 

 

4

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. § 7501 et seq.

Single Audits Are Key 

Control for Oversight 

and Monitoring
Appendix VII: Single Audit Reports for the FSM 

and the RMI, Fiscal Years 2006–2011

Page 91 GAO-13-675 Compacts of Free Association

months after the end of the audited period.5 For the FSM and RMI, that is 

by July 1 each year. 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 FSM National Government and Chuuk state submitted their single 

audit reports late for fiscal year 2006 but submitted them on time for fiscal 

years 2007 through 2011. The RMI submitted its single audit report on 

time for fiscal years 2006 through 2010 but submitted its report late for 

fiscal year 2011. Table 14 shows the timeliness of reports for the FSM 

and the RMI.6

 

5

The fiscal procedures agreements specify that the audits are due 6 months after the 

fiscal year ends, but the Department of the Interior (Interior) believes that the time frame of 

6 months was a mistake in the agreements. 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

Although not included in the scope of this report, the FSM National Government and 

Chuuk and Pohnpei state governments submitted their 2012 single audit reports on time; 

the RMI government did not.

Timeliness of 

Submission: Both 

Countries Submitted 

Their Single Audit 

Reports on Time for 5 

of the 6 Years 

Reviewed 
Appendix VII: Single Audit Reports for the FSM 

and the RMI, Fiscal Years 2006–2011

Page 92 GAO-13-675 Compacts of Free Association

Table 14: Number of Months Single Audits from the Federated States of Micronesia (FSM) and the Republic of the Marshall 

Islands (RMI) Were Received Past Their Deadline, by Country and State, Fiscal Years 2006 through 2011

Fiscal year 

FSM National 

Government

Chuuk

state 

Pohnpei

state RMI

2006 2 2 a 0 0 

2007 0 0 0 0 

2008 0 0 0 0 

2009 0 0 0 0 

2010 0 0 0 0 

2011 0 0 0 8 

Sources: GAO analysis of Office of Management and Budget Circular A-133, single audit reports, and Federal Audit Clearinghouse 

submission dates.

Notes: The deadline is 9 months after the close of the entity’s fiscal year. To determine whether 

reports were submitted late and, if so, by how many months, we compared the deadline for each 

report with its most recent submission date for the required Single Audit form in the Federal Audit 

Clearinghouse database.

a

The FSM National Government’s single audit cannot be completed until the states’ single audits 

have been completed. Thus, if any state is late, the FSM National Government’s audit will also be 

late. Chuuk submitted its 2006 single audit late.

Among the 24 audit reports submitted by the FSM national and two state 

governments and by the RMI for fiscal years 2006 through 2011, 15 

reports received unqualified opinions. For fiscal years 2006 through 2008, 

the FSM National Government received qualified opinions on their 

financial statements. However, the FSM National Government improved 

its financial management reporting and received an unqualified (“clean”) 

audit opinion on its financial statements for fiscal years 2009 through 

2011. In 2006, Chuuk received a disclaimer of opinion, which is given 

when the auditor determines that the audit cannot be completed in 

accordance with generally accepted auditing standards and therefore an 

opinion cannot be expressed on the financial statements. For fiscal years 

2007 through 2011, Chuuk received qualified opinions on its financial 

statements. Chuuk’s 2011 financial statement audit opinion was qualified 

because the financial statements did not report a liability for land leases 

and related claims payable in the governmental activities and general 

fund or the expenditure for the current period reflecting the change in that 

liability. Table 15 shows the type of financial statement audit opinions for 

the FSM and the RMI for fiscal years 2006 through 2011.

In 2011, FSM, except 

for Chuuk State, and 

RMI Received 

Unqualified Opinions 

on Their Financial 

Statements 
Appendix VII: Single Audit Reports for the FSM 

and the RMI, Fiscal Years 2006–2011

Page 93 GAO-13-675 Compacts of Free Association

Table 15: Financial Statement Audit Opinions for the Federated States of Micronesia (FSM) and the Republic of the Marshall 

Islands (RMI), Fiscal Years 2006 through 2011

Year

Type of Opinion 

FSM National Government

Chuuk

state 

Pohnpei

state RMI

2006 Qualified Disclaimer Unqualified Unqualified

2007

a

Qualified Qualified Unqualified Unqualified

2008 Qualified Qualified Unqualified Unqualified

2009 Unqualified Qualified Unqualified Unqualified

2010 Unqualified Qualified Unqualified Unqualified

2011 Unqualified Qualified Unqualified Unqualified

Source: GAO analysis of FSM and RMI single audit reports.

a

The Independent Auditors’ Report on the financial statements of the governmental activities, each 

major fund, and the aggregate remaining fund information, expressed an unqualified opinion and an 

adverse opinion on the financial statement of the aggregate discretely presented components units 

due to the omission of the Kwajalein Atoll Joint Utilities Resources Inc. and the inability of Air Marshall 

Islands Inc. to produce audited financial statements.
Appendix VII: Single Audit Reports for the FSM 

and the RMI, Fiscal Years 2006–2011

Page 94 GAO-13-675 Compacts of Free Association

For fiscal years 2006 through 2011, 17 of 18 financial statement audits 

from the FSM National Government and the two FSM states and all 6 

from the RMI found material weaknesses,7 significant deficiencies,8 or 

both in internal control over (1) financial reporting and (2) compliance with 

the requirements of major federal awards. (For a detailed count of these 

reportable findings, see table 16 for the FSM and table 17 for the RMI.)

 

7

American Institute of Certified Public Accountants, Statement on Auditing Standard No. 

115, “Communicating Internal Control Related Matters Identified in an Audit,” states that a

material weakness is a deficiency, or a combination of deficiencies, in internal control such 

that there is a reasonable possibility that a material misstatement of the entity’s financial 

statements will not be prevented, or detected and corrected on a timely basis. A deficiency 

in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, 

to prevent, or detect and correct misstatements on a timely basis.

8

American Institute of Certified Public Accountants, Statement on Auditing Standard No. 

115, “Communicating Internal Control Related Matters Identified in an Audit,” states that a

significant deficiency is a deficiency, or a combination of deficiencies, in internal control 

that is less severe than a material weakness, yet important enough to merit attention by

those charged with governance.

All RMI and FSM 

Audits Found 

Material Weaknesses, 

or Significant 

Deficiencies, or Both, 

Relating to Internal 

Control over 

Financial Reporting 

and Compliance with 

Federal Programs
Appendix VII: Single Audit Reports for the FSM 

and the RMI, Fiscal Years 2006–2011

Page 95 GAO-13-675 Compacts of Free Association

Table 16: Number of Material Weaknesses and Significant Deficiencies Reported in Single Audit Reports for the Federated 

States of Micronesia (FSM) National Government and States, Fiscal Years 2006 through 2011

Reportable findings on internal

control over financial reporting

Reportable findings on internal control

over compliance with federal awards

Material 

weaknesses

Significant 

deficiencies Total

Material 

weaknesses

Significant 

deficiencies Total

2006 FSM National Government 3 a 9 12 1 16 17

Chuuk 18 0 18 14 0 14

Pohnpei 0 0 0 0 6 6 

Total 21 9 30 15 22 37

2007 FSM National Government 14 a 0 14 0 14 14

Chuuk 8 4 12 5 0 5 

Pohnpei 0 1 1 0 4 4 

Total 22 5 27 5 18 23

2008 FSM National Government 6 a 0 6 7 7 14

Chuuk 3 0 3 1 0 1 

Pohnpei 0 1 1 0 2 2 

Total 9 1 10 8 9 17

2009 FSM National Government 5 a 0 5 10 10 20

Chuuk 3 0 3 2 0 2 

Pohnpei 0 1 1 0 1 1 

Total 8 1 9 12 11 23

2010 FSM National Government 7 a 1 8 11 1 12

Chuuk 1 0 1 1 0 1 

Pohnpei 0 1 1 0 1 1 

Total 8 2 10 12 2 14

2011 FSM National Government 4 a 3 7 4 8 12

Chuuk 3 2 5 0 1 1 

Pohnpei 0 1 1 0 1 1 

Total 7 6 13 4 10 14

Source: GAO analysis of FSM single audit reports.

Notes: In the FSM, we focused our review on the National Government and the state 

governments of Chuuk and Pohnpei. We did not include in our review the state 

governments of Yap and Kosrae. See app. I for additional discussion of scope.

a

Data do not include findings for the component units of the FSM National Government, 

such as the College of Micronesia.
Appendix VII: Single Audit Reports for the FSM 

and the RMI, Fiscal Years 2006–2011

Page 96 GAO-13-675 Compacts of Free Association

Table 17: Number of Material Weaknesses and Significant Deficiencies Reported in Single Audit Reports for the Republic of 

the Marshall Islands (RMI), Fiscal Years 2006 through 2011

Reportable findings on internal

control over financial reporting

Reportable findings on internal control

over compliance with federal awards

Material 

weaknesses

Significant 

deficiencies Total

Material 

weaknesses

Significant 

deficiencies Total

2006 1 0 1 4 6 10

2007 3 0 3 3 5 8

2008 2 0 2 3 4 7 

2009 5 0 5 8 3 11

2010 8 0 8 7 0 7 

2011 11 0 11 8 0 8 

Source: GAO analysis of RMI single audit reports.

Note: Data do not include findings for the component units of the RMI government, such 

as the College of the Marshall Islands.

The single audit reports for fiscal year 2011, the most recent year for 

which reports were available during our review, identified a combined 

total of 13 material weaknesses and significant deficiencies which relate 

to the FSM’s fiscal year 2011 financial statements, and a total of 11 for 

the RMI’s statements (see tables 16 and 17, respectively). These findings 

indicated a lack of effective internal controls over collection of travel 

advances and the lack of ability to adequately safeguard assets; to 

ensure that transactions are properly recorded; and to prevent or detect 

fraud, waste, and abuse. For example, the material weaknesses reported 

in FSM’s fiscal year 2011 single audit report included (1) the lack of timely 

reconciliation of the Holding Bank Account,9 (2) the lack of adequate 

monitoring of collection of travel advances, (3) the lack of timely and 

accurate reconciliation of general ledger accounts, and (4) the lack of 

adequate reconciliation of and accounting for fixed assets.10 In RMI’s 

fiscal year 2011 single audit report, the auditors found material 

weaknesses that included (1) the lack of documentation to determine 

whether certain costs were allowable, (2) lack of inventory of fixed assets, 

 

9

Compact sector grant drawdowns and deposits are made to the holding bank account. 

10The FSM National Government’s 2011 Single Audit report in Note 1 (M) of the Notes to 

the Financial Statements reports that fixed assets or capital assets include, but are not 

limited to, computer equipment, furniture, equipment, machinery and motor vehicles.

Internal Control over 

Financial Reporting
Appendix VII: Single Audit Reports for the FSM 

and the RMI, Fiscal Years 2006–2011

Page 97 GAO-13-675 Compacts of Free Association

(3) lack of general ledger account reconciliation, and (4) lack of internal 

controls over bank wire transfers.

We found that 6 of the 7 material weaknesses in internal control over 

financial reporting contained in the FSM’s fiscal year 2011 single audit 

report were recurring problems from the previous year or had been 

reported for several years. Below are two examples:

• General ledger account reconciliations were not performed in a timely 

manner or accurately. The lack of timely and accurate account 

reconciliations may affect accurate reporting and timely submission of 

the single audit report.

• Fixed-asset records were not periodically reconciled and timely 

recorded. Likewise, 8 of the 11 material weakness findings in the 

RMI’s fiscal year 2011 single audit report were recurring problems 

from the previous year or had been reported for several years, 

including these examples:

• Fixed assets records were not being periodically reconciled and 

recorded in a timely manner.

• Procurement requirements were not followed, such as the lack of the 

required three price quotations for an expenditure.

The FSM and RMI have developed corrective action plans to address 

financial statement findings in the 2011 single audit.11

In addition to the auditor’s report on financial statement findings, FSM and 

RMI auditors issuing an entity’s single audit reports also issue an opinion 

on the entity’s compliance with requirements of major federal programs. 

Of the 24 single audit reports submitted by the FSM national and state 

governments and the RMI for fiscal years 2006 through 2011, 19 received 

qualified opinions regarding compliance with requirements of major 

federal programs. The remaining six received unqualified opinions; 

Pohnpei received 4 of the 6 unqualified opinions.

 

11Office of Management and Budget (OMB) Circular A-133, “Audits of States, Local 

Governments, and Non-Profit Organizations,” requires the auditee to communicate what 

actions will be taken to address the audit finding.

Compliance with 

Requirements of 

Federal Awards
Appendix VII: Single Audit Reports for the FSM 

and the RMI, Fiscal Years 2006–2011

Page 98 GAO-13-675 Compacts of Free Association

In the 2011 single audit reports on compliance with requirements of major 

federal programs, auditors reported 14 material weaknesses and 

significant deficiencies for the FSM and 8 for the RMI (see tables 16 and 

17, respectively). For example, in the FSM, the reported material 

weaknesses included (1) the lack of internal controls over compliance 

with cash management requirements, (2) lack of funds control to prevent 

disbursements in excess of available funds, and (3) lack of controls over 

property accountability. In the RMI, findings that were material 

weaknesses included (1) a lack of fixed assets inventory control, (2) the 

lack of internal controls over compliance with cash management 

requirements, (3) the lack of internal controls over procurement, and (4) 

the lack of adequate documentation of cost allowability.

We found that 13 of the 14 findings from the 2011 FSM and state 

governments’ single audit reports, and 7 of the 8 findings from the 2011 

RMI single audit report, were recurring problems from the previous year 

or had recurred for several years.12 In contrast, for the FSM only 5 of the 

41 findings from the 2005 single audit reports and, for the RMI, only 5 of 

the 13 findings from the 2005 single audit report were recurring problems 

from the previous year or had recurred for several years. The FSM and 

RMI 2011 single audit reports stated that the FSM and RMI have 

developed corrective action plans to address all the 2011 single audit 

reports’ findings on compliance with requirements of major federal 

programs.

As the count of single audit findings in table 17 demonstrate, material 

weaknesses related to internal controls have increased over the last 3 

years. As we have previously reported, weaknesses in internal controls 

may lead to fraud, waste, and abuse.13 Since late 2010, 22 cases 

involving collusion among three employees of the RMI Ministry of 

Finance, three employees of the RMI Ministry of Health, and three local 

businesses are being prosecuted in the RMI. These 22 cases involve a 

total of approximately $550,000 in compact funding. According to an OIA 

 

12In October 2003, GAO reported that “The percentage of each auditee’s single audit 

findings that recurred 3 or more years over the 5-year period of our review ranged from 

RMI’s high of 69 percent to a low of 17 percent for the FSM.” See GAO, Compacts of Free 

Association: Single Audits Demonstrate Accountability Problems over Compact Funds, 

GAO-04-7 (Washington, D.C.: Oct. 7, 2003).

13GAO, Education Financial Management: Weak Internal Controls Led to Instances of 

Fraud and Other Improper Payments, GAO-02-406 (Washington, D.C.: Mar. 28, 2002).
Appendix VII: Single Audit Reports for the FSM 

and the RMI, Fiscal Years 2006–2011

Page 99 GAO-13-675 Compacts of Free Association

official, this fraud was not uncovered through an audit; rather, it was 

detected when the leader of the group of government workers involved in 

the fraud tried to pick up a vendor payment from the RMI Ministry of 

Finance, raising suspicions and leading to an investigation. According to 

an OIA official, in 2012, two former RMI government workers were 

charged with 25 counts of theft related to 20 checks from the government 

valued at $350,000. They received fines and 5-year prison sentences. 

According to an RMI official, the investigation is ongoing, and the RMI 

Office of the Auditor General (OAG) has collaborated with the RMI 

Attorney General since the start of the investigation. Furthermore, the 

OAG has taken its own action to better detect fraud by creating a new 

investigation unit within the OAG to conduct investigations of suspected 

fraudulent activities and created a confidential fraud hotline where RMI 

citizens can contact the OAG to report instances of fraud, waste, and 

abuse for further investigation.

According to an RMI official, over the past 5 years, the RMI Auditor 

General has focused on financial and compliance audits, including the 

single audits of RMI government agencies. The OAG also conducted its 

own audits of component units for fiscal years 2006 through 2011. 

According to the RMI Auditor General, because of insufficient staff, the 

OAG performed only 1 performance audit over the past several years,14

and additional staff would be needed to enable the office to address the 

demand for fraud investigations. Recognizing the magnitude of potential 

fraud, OIA authorized a Technical Assistance grant of $110,500 in 2012 

to recruit a Certified Fraud Examiner for RMI. According to a RMI OAG 

official, as of June 2013, the RMI had not filled this position.

 

14Performance audits are defined as audits that provide findings or conclusions based on 

an evaluation of sufficient, appropriate evidence against criteria. Performance audits 

provide objective analysis to assist management and those charged with governance and 

oversight in using the information to improve program performance and operations, 

reduce costs, facilitate decision making by parties with responsibility to oversee or initiate 

corrective action, and contribute to public accountability. GAO previously reported on the 

lack of performance audits of compact sector grants. See GAO, Compacts of Free 

Association: Micronesia and the Marshall Islands Face Challenges in Planning for 

Sustainability, Measuring Progress, and Ensuring Accountability, GAO-07-163

(Washington, D.C.: Dec. 15, 2006), p. 43.
Appendix VIII: Office of Insular Affairs (OIA) 

Staffing Projections for Compact Oversight, 

Fiscal Years 2010–2013

Page 100 GAO-13-675 Compacts of Free Association

Position Location

Projected need Actual supply Shortages

2010 2011 2012 2013 2010 2011 2012 2013 (as of 2013)

Lead Program 

Grants Specialist

Honolulu, HI

1 1 1 1 1 1 1 1 0 

Education Grants 

Specialist

Honolulu, HI

1 2 2 2 1 1 1 1 1 

Health Grants 

Specialist

Honolulu, HI

1 1 1 1 1 1 1 1 0 

Fiscal Program 

Specialist

Honolulu, HI

1 4 4 4 1 1 1 1 3 

Grants Specialist Federated 

States of 

Micronesia 1 1 1 1 0 0 0 1 0 

Insular Policy 

Specialist

Federated 

States of 

Micronesia 1 1 1 1 0 0 0 0 1 

Grants Specialist Republic of the 

Marshall Islands 1 1 1 1 1 1 1 1 0 

Totals 7 11 11 11 5 5 5 6 5 

Source: GAO analysis of OIA data.

Note: Data are from the Department of the Interior’s OIA 2010 workforce plan and 

interviews with OIA officials.

Appendix VIII: Office of Insular Affairs (OIA) 

Staffing Projections for Compact Oversight, 

Fiscal Years 2010–2013
Appendix IX: Comments from the U.S. 

Department of the Interior

Page 101 GAO-13-675 Compacts of Free Association

Appendix IX: Comments from the U.S. 

Department of the Interior
Appendix IX: Comments from the U.S. 

Department of the Interior

Page 102 GAO-13-675 Compacts of Free Association
Appendix IX: Comments from the U.S. 

Department of the Interior

Page 103 GAO-13-675 Compacts of Free Association
Appendix X: Comments from the Federated 

States of Micronesia National Government

Page 104 GAO-13-675 Compacts of Free Association

Appendix X: Comments from the Federated 

States of Micronesia National Government
Appendix X: Comments from the Federated 

States of Micronesia National Government

Page 105 GAO-13-675 Compacts of Free Association
Appendix X: Comments from the Federated 

States of Micronesia National Government

Page 106 GAO-13-675 Compacts of Free Association
Appendix X: Comments from the Federated 

States of Micronesia National Government

Page 107 GAO-13-675 Compacts of Free Association
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 108 GAO-13-675 Compacts of Free Association

Appendix XI: Comments from the 

Government of the Republic of the Marshall 

Islands 

Note: GAO comments in 

response to this letter, 

supplementing those in 

the report text, appear at 

the end of this appendix.
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 109 GAO-13-675 Compacts of Free Association

Page numbers in draft 

report mentioned in the 

letter may differ from 

those in this report.

See comment 1.
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 110 GAO-13-675 Compacts of Free Association

See comment 2.
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 111 GAO-13-675 Compacts of Free Association
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 112 GAO-13-675 Compacts of Free Association

See comment 3.
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 113 GAO-13-675 Compacts of Free Association

See comment 5.

See comment 4.
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 114 GAO-13-675 Compacts of Free Association

See comment 9.

See comment 8.

See comment 7.

See comment 6.
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 115 GAO-13-675 Compacts of Free Association

See comment 11.

See comment 10.
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 116 GAO-13-675 Compacts of Free Association

See comment 12.
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 117 GAO-13-675 Compacts of Free Association

The following are GAO’s comments on the letter from the government of 

the Republic of the Marshall Islands (RMI) dated September 5, 2013. We 

comment only to note where we addressed an RMI comment by adding 

or updating information in the report, or to note areas of concern.

1. In its comments, the RMI stated that the RMI Minister of Finance took 

steps to better manage the audit fieldwork process and reduced the 

2012 questioned costs to approximately $35,000 and also began a 

detailed examination of all prior year questioned costs. We added this 

information in footnote 81 on page 44. 

2. The RMI noted in its comments that it had provided the U.S.–RMI 

Joint Economic Management and Financial Accountability Committee 

(JEMFAC) with updated plans, as required, prior to the August 2013 

JEMFAC meeting. We updated our report to reflect that the RMI 

submitted an updated medium-term budget and investment 

framework dated August 2013 along with several budget portfolio 

statements for fiscal year 2014, including statements for the 

departments of health and education. On the basis of information we 

received at the August 2013 JEMFAC meeting, we further noted that 

the RMI government considers this to be its decrement plan, but also 

that the information was provided to the U.S. members of the 

JEMFAC 3 days prior to the annual meeting, and according to these 

members, they did not have sufficient time to review it and determine 

whether or not it meets the requirements of the JEMFAC resolution. 

We added this updated information on page 23 of the report.

3. In its comments, the RMI stated that it believes the United States, 

specifically the Office of Insular Affairs (OIA), put forward the RMI’s 20 

education indicators and that the level of consultation with the RMI 

government was not sufficient to establish adequate level of 

ownership of the indicators. At the August 2013 JEMFAC meeting, the 

Chairman of JEMFAC stated that the 20 education indicators were 

developed collaboratively between the U.S. and the RMI. At the same 

meeting, the Education Grant Manager of the Office of Insular Affairs 

confirmed this point.

4. The RMI noted in its comments that improvements have been made 

in teacher quality, student performance, and facilities, which, they 

stated, the report itself alludes to. The RMI noted that making positive 

gains in student performance takes time. The standards for evaluating 

progress are the RMI’s 20 education indicators, which it has tracked 

since 2005 in response to a JEMFAC resolution, as noted in the 

GAO Comments
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 118 GAO-13-675 Compacts of Free Association

report. However, in order to use the indicators to assess progress for 

the compacts as a whole, we first needed to determine if the data 

supporting the indicators were reliable. As our report states, two out of 

the subset of five education indicators we examined were deemed 

sufficiently reliable to assess progress, one of which was the 

education level of staff. From 2007 through 2011, data we reviewed 

showed an improvement in the qualifications of RMI teaching staff. 

However, data for a key measure of student achievement, the 

indicator on student “proficiency” levels, were found to be unreliable, 

and so we were unable to make an assessment of student 

performance. Regarding progress in infrastructure, we noted that the 

RMI tracks its progress in the infrastructure sector by the completion 

of projects and that 200 classrooms had been constructed or 

renovated during the period of our review. This accomplishment, 

however, is not one of the RMI’s 20 indicators of educational 

progress.

5. In its comments, the RMI suggested that we provide a more 

comprehensive statement on the uses of supplemental education 

grants and quoted an extensive definition of uses found in the fiscal 

procedures agreement. We edited the relevant text on page 9 in our 

report to address this concern.

6. In its comments regarding our site visits to various schools where we 

observed safety doors off their hinges or propped open because they 

were not properly installed, the RMI stated that the problem at Rairok 

Elementary School has been corrected, and that maintenance crews 

had started repairs at Delap, Laura, and Rita Elementary Schools. We 

noted this information on page 32. We have not verified this 

information. 

7. In its comments regarding our observations regarding water tanks that 

were not connected to school buildings at sites we visited, the RMI 

stated that Ministry of Education maintenance crews were currently 

fixing the catchment tanks and that the tanks were intentionally 

disconnected for repair purposes. We noted this information on page 

33. We have not verified this information. 

8. In its comments regarding our visit to Laura Elementary School and its 

lack of power in one old building still being used, the RMI indicated 

that all classrooms at Laura Elementary School are hooked up to 

power and that Ministry of Education maintenance does not recall any 

complaints about the of lack of power but that some internal electrical 
Appendix XI: Comments from the Government 

of the Republic of the Marshall Islands

Page 119 GAO-13-675 Compacts of Free Association

problem might have occurred during our visit. We noted this 

information on page 33. We have not verified this information. 

9. In its comments, the RMI noted that Delap Elementary School 

currently has no problem with water. It noted though that during the 

dryer months water catchment tanks are low or have no water, and 

that Majuro Water and Sewer Company rations water. The reference 

to the lack of water at Delap Elementary school was deleted from the 

final report.

10. In its comments regarding our observation that a school building was 

being used on Ebeye though it was considered unsafe, the RMI noted 

that the building has been abandoned and that a new three-classroom 

building has been constructed at Kwajalein Atoll High School. We 

noted this information on page 33. We have not verified this 

information.

11. In its comments, the RMI noted that the Office of the Chief Secretary 

did not have the authority to withhold funds, but if it had the authority 

to do so, it would do so as a last resort. We amended the text on page 

51 of the report to reflect this information.

12. In its comments, the RMI stated that it feels a reference to intent of 

the RMI trust fund to provide an annual source of revenue post-2023 

should cite our 2007 trust fund report. We added the footnote citing 

our prior trust fund report, as suggested.
Appendix XII: GAO Contact and Staff 

Acknowledgments

Page 120 GAO-13-675 Compacts of Free Association

David Gootnick, (202) 512-3149 or gootnickd@gao.gov

In addition to the person named above, Emil Friberg (Assistant Director), 

Christina Bruff, Julie Hirshen, and Jeffrey Isaacs were key contributors to 

this report. Ashley Alley, David Dayton, Martin De Alteriis, and Etana 

Finkler provided technical assistance.

Appendix XII: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 
Related GAO Products

Page 121 GAO-13-675 Compacts of Free Association

Compacts of Free Association: Improvements Needed to Assess and 

Address Growing Migration. GAO-12-64. Washington, D.C.: November 

14, 2011.

Compacts of Free Association: Micronesia Faces Challenges to 

Achieving Compact Goals. GAO-08-859T, Washington, D.C.: June 10, 

2008.

Compacts of Free Association: Implementation Activities Have 

Progressed, but the Marshall Islands Faces Challenges to Achieving 

Long-Term Compact Goals. GAO-07-1258T. Washington, D.C.: 

September 25, 2007.

Compacts of Free Association: Trust Funds for Micronesia and the 

Marshall Islands May Not Provide Sustainable Income. GAO-07-513. 

Washington, D.C.: June 15, 2007.

Compacts of Free Association: Micronesia’s and the Marshall Islands’ 

Use of Sector Grants. GAO-07-514R. Washington, D.C.: May 25, 2007.

Compacts of Free Association: Micronesia and the Marshall Islands Face 

Challenges in Planning for Sustainability, Measuring Progress, and 

Ensuring Accountability. GAO-07-163. Washington, D.C.: December 15, 

2006.

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.

Compact of Free Association: An Assessment of Current U.S. Proposals 

to Extend Assistance. GAO-02-857T. Washington, D.C.: July 17, 2002.

Related GAO Products
Related GAO Products

Page 122 GAO-13-675 Compacts of Free Association

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.

Compact of Free Association: Negotiations Should Address Aid 

Effectiveness and Accountability and Migrants’ Impact on U.S. Areas. 

GAO-02-270T. Washington, D.C.: December 6, 2001.

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.: October 5, 

2001.

(320934)
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