Commonwealth of the Northern Mariana Islands: Serious Economic, Fiscal, and Accountability Challenges
Published: 2007-02-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. insular area of the Commonwealth of the Northern Mariana Islands (CNMI) is a self-governing commonwealth of the United States that comprises 14 islands in the North Pacific. In a December 2006 report--U.S. Insular Areas: Economic, Fiscal, and Financial Accountability Challenges (GAO-07-119)--regarding four insular areas including CNMI, GAO identified and reported the following: (1) economic challenges, including the effect of changing tax and trade laws on their economies; (2) fiscal condition; and (3) financial accountability, including compliance with the Single Audit Act. The Chairman of the Senate Committee on Energy and Natural Resources, which requested the December 2006 report, asked GAO to present and discuss the results as they pertain to CNMI. Our summary and conclusions are based on our work performed for our December 2006 report on U.S. insular areas. For this testimony we also had available CNMI's fiscal year 2005 audited financial statements, which we have included in our review, along with some recent developments in fiscal year 2006.
section_title: What GAO Found
paragraphs: The Commonwealth of the Northern Mariana Islands (CNMI) faces serious economic, fiscal, and financial accountability challenges. CNMI's economy depends heavily on two industries, garment manufacturing and tourism. However, recent changes in U.S. trade law have increased foreign competition for CNMI's garment industry, while other external events have negatively affected its tourism sector. CNMI's garment industry has declined in recent years with factory closings and reduced production. The value of garment shipments to the United States dropped by more than 16 percent between 2004 and 2005 and by an estimated 25 percent in 2006. Tourism in CNMI declined sharply in the late 1990s as a result of a series of external events, including the Asian financial crisis; cancellation of Korean Air service; and fears of international crises such as the SARS epidemic, terrorism, and the Iraq war. In 2005, Japan Airlines withdrew direct flights to the capital. The fiscal condition of CNMI's government has steadily weakened from fiscal year 2001 through fiscal year 2005, as government spending has exceeded revenues each year since 2002. CNMI ended fiscal year 2005 with a deficit of $84.1 million in its governmental fund balance. CNMI's liabilities also exceed its assets for its primary government. Indicators point to a severe financial crisis in fiscal year 2006. In response, the CNMI government has implemented cost-cutting and restructuring measures, including "austerity holidays," consisting of biweekly furloughs during which government workers are not paid and many government operations are closed to reduce personnel and operating costs. CNMI's long-standing financial accountability problems include the late submission of financial audit reports, inability to achieve "clean" opinions in its financial statements by the independent financial auditors, and reports showing serious internal control weaknesses over financial reporting. Many of the auditors' findings are longstanding, going back in some cases to 1987. Federal agencies and CNMI have sponsored and participated in conferences, training sessions, technical assistance, and other programs to improve CNMI's economy, fiscal condition, and accountability. During 2006, the CNMI government took steps to reverse its prior patterns of deficit spending. It will need to continue to work toward long-term sustainable solutions, with concentrated attention on the challenges facing the islands and feedback mechanisms for continuing improvement. Leadership on the part of the CNMI government and the Department of the Interior's Office of Insular Affairs is critical to providing long-term stability and prosperity for this U.S. insular area.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Commonwealth of the  Northern Mariana Islands’ (CNMI) serious challenges in strengthening its  economy, fiscal condition, and financial accountability. CNMI is a self- governing commonwealth of the United States that administers its own  local government functions under its own constitution. CNMI consists of  14 islands in the North Pacific with a total land area about 2.5 times the  size of Washington, D.C. In recent years, CNMI has experienced serious  economic and fiscal challenges, and several indicators point to a fiscal  crisis in fiscal year 2006.
Today, I will highlight our December 2006 report on the recent economic  trends in the CNMI economy, its weakening fiscal condition, and its  financial accountability challenges, which we have updated to include  information for fiscal years 2005 and 2006.
Our summary and conclusions are based on our work performed for our  December 2006 report on U.S. insular areas, which included audited  financial statements through fiscal year 2004. For this testimony we also  had available CNMI’s fiscal year 2005 audited financial statements, which  we have included in our review, along with some recent developments in  fiscal year 2006. We provided a draft of this statement to Department of  the Interior (DOI) officials who agreed with our conclusions and provided  technical comments, which we have incorporated throughout the  statement as appropriate. We conducted our work in accordance with  generally accepted government auditing standards.
subsections: section_title: Narrow Economic Base and Intrinsic and External Factors Limit Economic Progress in CNMI
paragraphs: Several factors constrain CNMI’s economic potential, including the lack of  diversification, scarce natural resources, small domestic markets, limited  infrastructure, and shortages of skilled labor. The United States exercises  sovereignty over CNMI, and, in general, federal laws apply to CNMI.  However, federal minimum wage provisions and federal immigration laws  do not apply. CNMI immigration policies and the demands for labor by the  garment manufacturing industry and tourism sector have resulted in rapid  population growth since 1980 such that the majority of the population are  non-U.S. citizens. (See fig. 1.) According to U.S. Census Bureau data for  2000, the most recent census data available, about 56 percent of the CNMI  population of 69,221 were not U.S. citizens.
According to U.S. Census Bureau data for 2000, the median household  income in CNMI was $22,898, a little more than half of the U.S. median  household income of almost $42,000 for 2000. The percentage of  individuals in poverty in 2000 was 46 percent, nearly four times the  continental U.S. rate of 12 percent in that same year.
CNMI’s economy depends on two industries, garment manufacturing and  tourism, for its employment, production, and exports. These two  industries rely heavily on a noncitizen workforce. This workforce  represents more than three quarters of the labor pool that are subject to  the CNMI minimum wage, which is lower than the U.S. minimum wage.  The garment industry, for example, uses textiles and labor imported  mostly from China. A 1999 study found that garment manufacturing and  tourism accounted for about 85 percent of CNMI’s total economic activity  and 96 percent of its exports. A 2005 estimate of CNMI’s gross domestic  product (GDP) suggest that, in 2002, the garment industry contributed to  roughly 40 percent of CNMI’s GDP and 47 percent of payroll. However,  recent changes in trade laws have increased foreign competition for  CNMI’s garment industry, while other external events have negatively  impacted its tourism sector.
subsections: section_title: Decline in Garment Industry Tied to Trade Law Changes
paragraphs: Recent developments in international trade laws have reduced CNMI’s  trade advantages, and the garment industry has declined in recent years.  Historically, while garment exporters from other countries faced quotas  and duties in shipping to the U.S. market, CNMI’s garment industry  benefited from quota-free and duty-free access to U.S. markets for  shipments of goods in which 50 percent of the value was added in CNMI.  In recent years, however, U.S. agreements with other textile-producing  countries have liberalized the textile and apparel trade. For example, in  January 2005, in accordance with one of the 1994 World Trade  Organization (WTO) Uruguay Round agreements, the United States  eliminated quotas on textile and apparel imports from other textile- producing countries, leaving CNMI’s apparel industry to operate under  stiffer competition, especially from low-wage countries such as China.  According to a DOI official, more than 3,800 garment jobs were lost  between April 2004 and the end of July 2006, with 10 out of 27 garment  factories closing. U.S. Department of Commerce data show that the value  of CNMI shipments of garments to the United States dropped by more than  16 percent between 2004 and 2005, from about $807 million to $677  million, and down from a peak of $1 billion in 1998--2000. In 2006, reported  garment exports to the United States fell further, by an estimated 25  percent compared to 2005, with exports declining to an estimated $497  million. The reported level of shipments to the United States in 2006 was  comparable to levels of sales in 1995--1996, prior to the significant build-up  of the industry. (See fig. 2.) In December 2006, the largest and oldest  garment factory closed. Given that the garment industry is significant to  CNMI’s economy, these developments will likely have a negative financial  effect on government revenue. For example, reported fees collected by the  government on garment exports fell 37 percent from $38.6 million in 2000  to $24.4 million in 2005.
section_title: External Events Affect Tourism
paragraphs: CNMI’s tourism sector experienced a sharp decline in the late 1990s, and a  series of external events have further hampered the sector. Tourism  became a significant sector of economic activity in CNMI by the mid-1980s  and continued to grow into the 1990s. Due to its proximity to Asia, Asian  economic trends and other events have a direct effect on CNMI’s  economy. For example, tourism in CNMI experienced a sharp decline in  the late 1990s with the Asian financial crisis and due to the cancellation of  Korean Air service to CNMI following an airplane crash on Guam in  August 1997. (See fig. 3.) Visitors from Korea, the second largest source of  tourists, decreased by 85 percent from 1996 to 1998. After a modest  recovery in 2000, tourism faltered again with the September 11, 2001,  terrorist attacks on the United States. In 2003, according to CNMI officials,  tourism slowed—with a double-digit decline in arrivals for several  months—in reaction to the SARS epidemic and to the war in Iraq.
Tourism in CNMI is also subject to changes in airline practices. For  example, Japan Airlines (JAL) withdrew its direct flights between Tokyo  and Saipan in October 2005, raising concerns because roughly 30 percent  of all tourists and 40 percent of Japanese tourists arrive in CNMI on JAL  flights, according to CNMI and DOI officials. The Marianas Visitors  Authority’s June 2006 data show that the downward trend in Japanese  arrivals is not being offset by the growth in arrivals from other markets  such as China and South Korea, with the total number of foreign visitors  dropping from 43,115 in June 2005 to 38,510 a year later. At the same  time, CNMI has experienced increased Chinese tourists in recent years,  which offer the potential to reenergize the industry.
section_title: CNMI’s Reported Fiscal Condition Continues to Weaken
paragraphs: The fiscal condition of CNMI’s government has steadily weakened from  fiscal year 2001 through fiscal year 2005, the most recent year for which  audited financial statements for CNMI were available. In addition, several  indicators point to a severe financial crisis in fiscal year 2006. As shown in  figure 4, CNMI’s reported governmental fund balance declined from a  positive $3.5 million at the beginning of fiscal year 2001 to a deficit of $84.1  million by the end of fiscal year 2005, as CNMI’s expenditures for its  governmental activities consistently exceeded revenues in each year since  fiscal year 2002. Most of CNMI’s governmental activities, which include  basic services such as public safety, health care, general administration,  streets and parks, and security and safety, are reported in its governmental  activities, or government funds. The fund balance (or deficit) for these  activities reflects the amount of funds available at the end of the year for  spending. A significant contributing factor to the gap between  expenditures and revenues is that actual expenditures have exceeded  budgeted expenditures each fiscal year during the period 2001 through  2005.
Another measure of fiscal health is the measure of net assets for  governmental activities, which represents total assets minus total  liabilities. As shown in table 1, CNMI has experienced a negative trend in  its balance of net assets for governmental activities, going from a reported  positive $40.6 million balance at the end of fiscal year 2001 to a negative  $38 million balance at the end of fiscal year 2005. The primary difference  between the fund balance measure and net assets is that the net assets  include capital assets and long-term liabilities, whereas the fund balance  figure focuses on assets available for current period expenditures and  liabilities that are due and payable in the current period.
In order to finance its government activities in an environment where  expenditures have exceeded revenues, CNMI has increased its debt and  has not made the required contributions to its retirement fund. CNMI’s  reported balance of notes and bonds payable has increased from $83  million in fiscal year 2002 to $113 million in fiscal year 2005, representing  an increase of 36 percent. CNMI’s balance owed to its pension fund has  increased from $72 million in 2002 to $120 million in 2005, representing an  increase of 67 percent. CNMI has also been incurring penalties on the  unpaid liabilities to the pension fund. The total amount of assessed  penalties was $24 million as of September 30, 2005.
As shown in figure 5, CNMI’s reported debt to assets ratio has increased  significantly, from 89.8 percent in fiscal year 2002 to 113.5 percent in 2005.  In other words, at the end of fiscal year 2005, CNMI owed $1.14 for every  $1.00 in assets that it held.
Although CNMI’s audited fiscal year 2006 financial statements are not yet  available, indicators point to a severe fiscal crisis during fiscal year 2006.  In a May 5, 2006 letter to the CNMI Legislative leaders, Governor Benigno  R. Fitial stated that “the Commonwealth is facing an unsustainable  economic emergency. . . . I regret to say that the nature and extent of these  financial problems are such that there is no simple or painless solution.”  CNMI has implemented several significant cost-cutting and restructuring  measures during fiscal year 2006. For instance, in August 2006, CNMI  enacted its Public Law No. 15-24 to implement “austerity holidays”  consisting of bi-weekly furloughs, during which government employees  are not paid and many government operations are closed. This measure  was taken to help alleviate the financial crisis by saving millions of dollars  in both personnel and operational costs. The measure declared unpaid  holidays once per pay period for the remainder of fiscal years 2006 and  2007, reducing the government’s normal pay period to 72 hours every 2  weeks. In June of 2006, CNMI enacted Public Law No. 15-15 to authorize  the CNMI government to suspend the government’s employer  contributions to the retirement fund for the remainder of fiscal years 2006  and 2007. In addition, CNMI has passed laws to restructure loans among  its component units, reform the rate of compensation for members of  boards and commissions, increase the governor’s authority to reprogram  funds, extend the date for full funding of the retirement fund’s defined  benefit plan, and create a defined contribution retirement plan for  government employees hired on or after January 1, 2007. These measures  are immediate and dramatic, and are indicative of severe financial  problems that will likely call for long-term solutions.
section_title: CNMI’s Financial Accountability Remains Weak
paragraphs: CNMI has had long-standing financial accountability problems, including  the late issuance of its single audit reports, the inability to achieve  unqualified (“clean”) audit opinions on its financial statements, and  numerous material weaknesses in internal controls over financial  operations and compliance with laws and regulations governing federal  grant awards.
subsections: section_title: CNMI’s Compliance with Single Audit Requirements
paragraphs: CNMI received a reported $65.6 million in federal grants in fiscal year 2005  from a number of federal agencies. The five largest federal grantors in  2005 for CNMI included the Departments of Agriculture, Health and  Human Services, Interior, Homeland Security, and Labor. As a nonfederal  entity expending more than $500,000 a year in federal awards, CNMI is  required to submit a single audit report each year to comply with the  Single Audit Act, as amended. Single audits are audits of the recipient  organization—the government in the case of CNMI—that focus on the  recipient’s financial statements, internal controls, and compliance with  laws and regulations governing federal grants. One of the objectives of  the act is to promote sound financial management, including effective  internal controls, with respect to federal expenditures of the recipient  organization. Single audits also provide key information about the federal  grantee’s financial management and reporting and are an important  control used by federal agencies for overseeing and monitoring the use of  federal grants.
For fiscal years 1997 through 2005, CNMI did not submit its single audit  reports by the due date, which is generally no later than 9 months after the  fiscal year end. CNMI’s late submission of single audit reports means that  the federal agencies overseeing federal grants to CNMI did not have  current audited information about CNMI’s use of federal grant funds. As  shown in table 2, CNMI’s single audit submissions were significantly late  for fiscal years 1997 through 2004. However, CNMI has made significant  progress in 2005 by submitting its fiscal year 2005 single audit report less  than 1 month late.
section_title: CNMI Unable to Achieve “Clean” Audit Opinions Due to Persistent, Significant Weaknesses
paragraphs: Auditors are required by OMB Circular No. A-133 to provide opinions (or  disclaimers of opinion, as appropriate) as to whether the (1) financial  statements are presented fairly in all material respects in conformity with  generally accepted accounting principles (GAAP) and (2) auditee  complied with laws, regulations, and the provisions of contracts or grant  agreements that could have a direct and material effect on each major  federal program.
The CNMI government has been unable to achieve unqualified (“clean”)  audit opinions on its financial statements, receiving qualified opinions on  the financial statements issued for fiscal years 1997 through 2005. Auditors  render a qualified opinion when they identify one or more specific matters  that affect the fair presentation of the financial statements. The effect of  the auditors’ qualified opinion can be significant enough to reduce the  usefulness and reliability of CNMI’s financial statements.
CNMI has made some progress in addressing the matters that resulted in  the qualified opinions on its financial statements for fiscal years 2001  through 2003. However, some of the issues continued to exist in 2004 and  2005. The auditors identified the following issues in fiscal year 2005 that  resulted in the most recent qualified audit opinion: (1) inadequacies in the  accounting records regarding taxes receivable, advances, accounts  payable, tax rebates payable, other liabilities and accruals, and the reserve  for continuing appropriations, (2) inadequacies in accounting records and  internal controls regarding the capital assets of the Northern Marianas  College, and (3) the lack of audited financial statements for the  Commonwealth Utilities Corporation, which represents a significant  component unit of CNMI.
Auditors for CNMI also rendered qualified opinions on CNMI’s compliance  with the requirements for major federal award programs from 1997  through 2005. In fiscal year 2005, the auditors cited noncompliance in the  areas of allowable costs, cash management, eligibility, property  management, procurement, and other requirements.
section_title: Weaknesses over Financial Reporting and Compliance with Requirements for Major Federal Programs
paragraphs: CNMI has long-standing and significant internal control weaknesses over  financial reporting and compliance with requirements for federal grants.  Table 3 shows the number of material weaknesses and reportable  conditions for CNMI for fiscal years 2001 through 2005. The large number  and the significance of reported internal control weaknesses raise serious  questions about the integrity and reliability of CNMI’s financial statements  and its compliance with requirements of major federal programs.  Furthermore, the lack of reliable financial information hampers CNMI’s  ability to monitor programs and financial information such as revenues  and expenses and to make timely, informed decisions.
CNMI’s 13 internal control reportable conditions for fiscal year 2005, 9 of  which were material weaknesses, indicate a lack of sound internal  control over financial reporting needed to provide adequate assurance that  transactions are properly recorded, assets are properly safeguarded, and  controls are adequate to prevent or detect fraud, waste, abuse, and  mismanagement. For example, one of the material internal control  weaknesses that the auditors reported for CNMI’s government for fiscal  year 2005 was the lack of audited fiscal year 2005 financial statements of  the Commonwealth Utilities Corporation (Corporation), a significant  component unit of CNMI. Because the Corporation’s financial statements  were unaudited, the auditors could not determine the propriety of account  balances presented in the financial statements that would affect CNMI’s  basic financial statements. CNMI’s auditors also reported other significant  material internal control weaknesses that have continued from previous  years, such as improper tracking and lack of support for advances to  vendors, travel advances to employees, liabilities recorded in the General  Fund, and tax rebates payable. Due to the lack of detailed subsidiary  ledgers and other supporting evidence, the auditors could not determine  the propriety of these account balances. According to the auditors, the  effect of these weaknesses is a possible misstatement of expenditures and  related advances and liabilities, which also resulted in a qualification of  the opinion on the fiscal year 2005 CNMI financial statements.  Consequently, CNMI’s financial statements may not be reliable.
As shown in table 3, auditors also reported 38 reportable conditions in  CNMI’s compliance with requirements for major federal programs and the  internal controls intended to ensure compliance with these requirements.  Two of these reportable conditions were considered material  weaknesses.
One of the two material internal control weaknesses affecting compliance  with federal programs reported for CNMI’s government for fiscal year 2005  included the failure to record expenditures for the Medical Assistance  Program when they were incurred. Specifically, the auditors identified  expenditures in fiscal year 2005 for billings from service providers for  services rendered in previous years. The effect of this weakness is that  expenditures reported to the grantor agency, the U.S. Department of  Health and Human Services, are based on the paid date and not, as  required, the service date. In addition, actual expenditures incurred during  the year are not properly recorded and, therefore, current year  expenditures and unrecorded liabilities are understated. The other  material weakness affecting compliance related to the lack of adherence  to established policies and procedures for managing and tracking property  and equipment purchased with federal grant funds. As a result, CNMI’s  government was not in compliance with federal property standards and its  own property management policies and procedures. The other 36  reportable conditions concerned compliance with requirements regarding  allowable costs; cash management; eligibility; equipment and property  management; matching, level of effort, and earmarking; procurement and  suspensions and debarment; reporting; subrecipient monitoring; and  special tests and provisions that are applicable to CNMI’s major federal  programs.
In CNMI’s corrective action plan for fiscal year 2005, CNMI officials agreed  with almost all of the auditors’ findings. According to its fiscal year 2005  corrective action plan, CNMI is working to get a current audit of its  component unit, the Commonwealth Utilities Corporation. Other planned  actions include properly reconciling advances to vendors; reviewing travel  advance balances and making adjustments as needed, including making  payroll deductions if expense vouchers are not filed timely; implementing  procurement receiving procedures for prepaid items; making necessary  corrections to its automated tax system to enable auditors to better review  tax returns; determining the correct balances for construction projects;  implementing controls over verifying eligibility for Medicaid and  restricting access to the related data; and ensuring proper completion of  inventories. The plan provides that most of the findings will be addressed  by the end of fiscal year 2007. It is important to note however, that many  of the auditors’ findings, particularly those categorized as material  weaknesses, are longstanding findings going back in some cases to 1987.
section_title: Efforts to Assist CNMI in Its Economic and Accountability Challenges
paragraphs: OIA has ongoing efforts to support economic development in CNMI and  assist CNMI in addressing its accountability issues. OIA has in the last 3  years sponsored conferences in the United States and business- opportunity missions in the insular areas to attract American businesses to  the insular areas. The main goal of these efforts is to facilitate interaction  and the exchange of information between U.S. firms and government and  business officials from the insular areas to spur new investment in a  variety of industries. Innovative projects such as setting up a production  and mass mailing facility in CNMI aimed at the Japanese market are  reported to be underway.
OIA’s efforts in helping to create links between the business communities  in the United States and CNMI are key to helping meet some of the  economic challenges. In our recent report, we concluded that the insular  areas would benefit from formal periodic OIA evaluation of its  conferences and business-opportunity missions, including assessments of  the cost and benefit of its activities and the extent to which these efforts  are creating partnerships with businesses in other nations. In our  December 2006 report, we recommended that OIA conduct such formal  periodic evaluations to assess the effect of these activities on creating  private sector jobs and increasing insular area income. OIA agreed with  our recommendation.
DOI’s OIA and IG, other federal inspectors general, and local auditing  authorities assist or oversee CNMI’s efforts to improve its financial  accountability. OIA monitors the progress of completion and issuance of  the single audit reports as well as providing general technical assistance  funds to provide training for insular area employees and funds to enhance  financial management systems and processes. DOI’s IG has audit oversight  responsibilities for federal funds in the insular area.
To promote sound financial management processes in the insular area  government, OIA has increased its focus on bringing the CNMI  government into compliance with the Single Audit Act. For example, OIA  created an incentive for CNMI to comply with the act by stating that an  insular area cannot receive capital funding unless its government is in  compliance with the act or has presented a plan, approved by OIA, that is  designed to bring the government into compliance by a certain date. In  addition, OIA provides general technical assistance funds for training and  other direct assistance, such as grants, to help the insular area  governments comply with the act and to improve their financial  management systems and environments. The Graduate School of the U.S.  Department of Agriculture (USDA) has been working with OIA for over a  decade through its Pacific Islands and Virgin Islands Training Initiatives  (PITI and VITI) to provide training and technical assistance.
OIA staff members make site visits to CNMI as part of its oversight  activities. In our December 2006 report, we recommended that OIA  develop a standardized framework for its site visits to improve the  effectiveness of its monitoring. We also recommended that OIA develop  and implement procedures for formal evaluation of progress made by the  insular areas to resolve accountability findings and set a time frame for  achieving clean audit opinions. OIA agreed with our recommendations and  noted that it had already made some progress during fiscal year 2006.  Establishing a routine procedure of documenting the results of site visits  in a standard framework would help ensure that (1) all staff members  making site visits are consistent in their focus on overall accountability  objectives and (2) OIA staff has a mechanism for recording and following  up on the unique situations facing CNMI.
section_title: Conclusions
paragraphs: CNMI faces daunting economic, fiscal, and financial accountability  challenges. CNMI’s economic and fiscal conditions are affected by its  economy’s general dependence on two key industries. In addition,  although progress has been made in improving financial accountability,  CNMI continues to have serious internal control and accountability  problems that increase its risk of fraud, waste, abuse, and  mismanagement.
Efforts to meet formidable fiscal challenges in CNMI are exacerbated by  delayed and incomplete financial reporting that does not provide officials  with the timely and complete information they need for effective decision  making. Timely and reliable financial information is especially important  as CNMI continues to take actions to deal with its fiscal crisis.
OIA has ongoing efforts to assist CNMI in addressing its accountability  issues and to support economic development in CNMI. OIA officials  monitor CNMI’s progress in submitting single audit reports, and OIA  provides funding to improve financial management. Yet, progress has been  slow and inconsistent. The benefit to CNMI of past and current assistance  is unclear. Federal agencies and CNMI have sponsored and participated in  conferences, training sessions, and other programs to improve  accountability, but knowing what has and has not been effective and  drawing the right lessons from this experience is hampered by a lack of  formal evaluation and data collection.
Strong leadership is needed for CNMI to weather its current crisis and  establish a sustainable and prosperous path for the future. During 2006,  the CNMI government took dramatic steps to reverse prior patterns of  deficit spending. The CNMI government will need to continue to work  toward long-term sustainable solutions. A focused effort is called for in  which direct and targeted attention is concentrated on the challenges  facing CNMI, with feedback mechanisms for continuing improvement to  help CNMI achieve economic, fiscal, and financial stability. OIA plays a  key role in this effort. In its comments on our December 2006 report, OIA  pointed out that it provides “a crucial leadership role and can provide  important technical assistance” to help CNMI and the other insular areas  improve their business climates, identify areas of potential for private  sector investment, and market insular areas to potential investors. It also  noted that improving accountability for federal financial assistance for  CNMI and other insular areas is a major priority. OIA has stated its  commitment to continuing its comprehensive approach and to  implementing other innovative ideas to assist CNMI and the other insular  areas in continuing to improve financial management and accountability.  Leadership on the part of the CNMI government and OIA is critical to  addressing the challenges CNMI faces and to providing long-term stability  and prosperity for this insular area.
Mr. Chairman and Members of the Committee, this concludes my  statement. I would be pleased to answer any questions that you and other  Members of the Committee may have at this time.
section_title: GAO Contacts
paragraphs: For further information about this testimony, please contact Jeanette  Franzel, Director, Financial Management and Assurance at (202) 512-9471  or franzelj@gao.gov, or David Gootnick, Director, International Affairs and  Trade at (202) 512-4128 or gootnickd@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this testimony. The following individuals made important  contributions to this report: Norma Samuel, Cheryl Clark, Anh Dang, Meg  Mills, Maxine Hattery, and Emil Friberg, Jr.
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