Compacts of Free Association: Micronesia and the Marshall Islands Face Challenges in Planning for Sustainability, Measuring Progress, and Ensuring Accountability
Published: 2006-12-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2003, the United States signed Compacts of Free Association with the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI), amending a 1986 compact with the countries. The amended compacts provide the countries with a combined total of $3.6 billion from 2004 to 2023, with the annual grants declining gradually. The assistance, targeting six sectors, is aimed at assisting the countries' efforts to promote economic advancement and budgetary self-reliance. The Department of the Interior (Interior) administers and oversees the assistance. Complying with a legislative requirement, GAO examined, for fiscal years 2004 through 2006, (1) the FSM's and the RMI's use of compact funds, (2) their efforts to assess progress toward development goals, (3) their monitoring of sector grants and accountability for compact funds, and (4) Interior's administrative oversight of the assistance. GAO visited the FSM and the RMI; reviewed reports; and interviewed officials from the FSM, RMI, and U.S. governments.
section_title: What GAO Found
paragraphs: For 2004 through 2006, compact assistance to the FSM and the RMI was allocated largely to the education, infrastructure, and health sectors, but various factors limited the countries' use of compact funds. Deterrents to the FSM's use of infrastructure funds included constraints on land use and disagreement on project implementation processes. Land use issues also hindered the RMI's use of infrastructure funds. In addition, the FSM's distribution of the grants among its four states resulted in significant differences in per-student education and per-capita health funding. Neither country has planned for long-term sustainability of the grant programs, taking into account the annual decreases in grant funding. To assess progress toward development goals, the FSM and the RMI established goals and objectives for each sector and are collecting performance data for education and health. However, a lack of complete and reliable baseline data prevents the countries from gauging progress in these sectors. Also, both countries' required quarterly performance reports contained incomplete and unreliable information, limiting the reports' utility for tracking progress. The countries' ability to measure progress is further challenged by a lack of technical capacity to collect, assemble, and analyze baseline and performance data. Although the FSM and the RMI are required to monitor day-to-day sector grant operations, their ability to meet this requirement for 2004 through 2006 was limited. According to officials in the respective governments, the responsible offices have insufficient staff, budgets, and time to monitor grant operations. In addition, both countries' single audit reports for 2004 and 2005 indicated weaknesses in their ability to account for the use of compact funds. For instance, the FSM's audit report for 2005 contained 57 findings of material weaknesses and reportable conditions in the national and state governments' financial statements for sector grants, and the RMI's report contained 2 such findings. Furthermore, both countries' single audit reports indicated noncompliance with requirements of major federal programs. For example, the FSM's audit report for 2005 contained 45 findings of noncompliance, while the RMI's audit report contained 11 findings. Interior's Office of Insular Affairs (OIA) has conducted administrative oversight of the sector grants by monitoring the countries' sector grant performance and spending, assessing their compliance with sector grant conditions, and monitoring the audit process. In response to shortcomings that it identified, OIA took several actions, such as withholding or suspending grant funding and ensuring the provision of technical assistance. However, OIA's oversight has been limited by the need to deal with challenges facing the FSM, such as its difficulty in preparing budgets, as well as by its own staffing challenges.

section_title: Letter
paragraphs: From 1987 through 2003, the United States provided $2.1 billion in  economic assistance to the Federated States of Micronesia (FSM) and the  Republic of the Marshall Islands (RMI) through a Compact of Free  Association. In 2000, we reported that the U.S., FSM, and RMI governments  had provided limited accountability over spending, and that U.S. assistance  had resulted in little economic development in both countries. In 2003, the  U.S. government approved amended compacts with the FSM and the RMI.  These compacts provide for a combined total of $3.6 billion for the two  countries between 2004 and 2023, with the Department of the Interior's  (Interior) Office of Insular Affairs (OIA) responsible for administering and  monitoring U.S. assistance. U.S. grant funding will decrease annually,  paired with increasing contributions to trust funds for the FSM and the  RMI; earnings from the trust funds are intended to provide a source of  revenue when the grants expire in 2023. The amended compacts identify  the 20 years of grant assistance as intended to assist the FSM and RMI  governments in their efforts to promote the economic advancement and  budgetary self-reliance of their people. Recently we reported that both  countries face obstacles to achieving these goals, including limited  potential for long-term growth; limited progress in economic reforms; and significant dependence on public sector funding, which is largely  supported by external assistance.
The amended compacts require the countries to target funding to six  sectors—education, health, the environment, public sector capacity  building, private sector development, and infrastructure, with priority  given to education and health. The amended compacts’ subsidiary fiscal  procedures agreements require the FSM and RMI governments to monitor  the day-to-day operations of sector grants and activities, submit periodic  performance reports and financial statements, and ensure annual financial  and compliance audits. In addition, the compacts and fiscal procedures  agreements require that the U.S. and FSM Joint Economic Management  Committee (JEMCO) and the U.S. and RMI Joint Economic Management  and Financial Accountability Committee (JEMFAC) meet at least once  annually to evaluate the progress of the FSM and the RMI, respectively, in  achieving the objectives specified in their development plans; approve  grant allocations; review required annual reports; identify problems  encountered; and recommend ways to increase the effectiveness of  compact grant assistance.
The amended compacts’ implementing legislation instructs GAO to report,  for the 3 years following the enactment of the legislation and every 5 years  thereafter, on the FSM’s and the RMI’s use and effectiveness of U.S.  financial, program, and technical assistance as well as the effectiveness of administrative oversight by the United States. This report examines, for  2004 through 2006, (1) the FSM’s and the RMI’s use of compact funds,  (2) FSM and RMI efforts to assess progress toward their stated  development and sector goals, (3) FSM and RMI monitoring of sector  grants and accountability for the use of compact funds, and (4) Interior’s  administrative oversight of the assistance provided under the compacts. In  addition, appendix II contains information about activities funded by key  federal programs. A separate correspondence providing additional  information about the FSM’s and the RMI’s use of compact funds in each of  the six sectors is forthcoming.
To address our objectives, we reviewed the U.S., FSM, and RMI annual  compact reports for 2004 and 2005; OIA grant documents for 2004 through  2006; FSM and RMI strategic planning documents, performance budgets,  and quarterly performance reports for 2004 and 2005, as available; and FSM  and RMI single audits for 2001 through 2005. We observed 2005 and 2006  JEMCO and JEMFAC meetings. In addition, we interviewed officials from  Interior and the Departments of State, Health and Human Services (HHS),  and Education. We also interviewed RMI officials and FSM national and  state officials in the six sectors receiving compact funding and visited  compact-funded facilities and activities in both countries. We determined  that the grant, program, technical assistance, and performance data  examined in this report are sufficiently reliable for our specific purposes.  However, our interviews with FSM and RMI officials revealed important  limitations in the financial and activity data in the countries’ performance  reports. We conducted our work from October 2005 to December 2006 in  accordance with generally accepted government auditing standards. (For  additional details of our objectives, scope, and methodology, see app. I.)
subsections: section_title: Background
paragraphs: U.S. relations with Micronesia and the Marshall Islands began during World  War II, when the United States ended Japanese occupation of the region.  The United States administered the region under a United Nations  trusteeship beginning in 1947. The four states of the FSM voted in a 1978  referendum to become an independent nation, while the Marshall Islands  established its constitutional government and declared itself a republic in  1979. Both locations remained subject to the authority of the United States  under the trusteeship agreement until entry into force of the compact in  1986.
The FSM is a loose federation of four states, and has a population of  approximately 108,500, scattered over many small islands and atolls. The  FSM states maintain considerable power, relative to the national  government, to allocate U.S. assistance and implement budgetary policies.
Chuuk, the largest state, has 50 percent of the FSM’s population, followed  by Pohnpei (32 percent), Yap (11 percent), and Kosrae (7 percent). The RMI  has a constitutional government, and its 29 constituent atolls have local  government authority. About two-thirds of its approximately 56,000  residents are in Majuro Atoll, the nation’s capital, and Kwajalein Atoll. The  two countries are located just north of the equator in the Pacific Ocean.  (See fig. 1.)
subsections: section_title: Compact of Free Association: 1986 through 2003
paragraphs: The United States, the FSM, and the RMI entered into the original Compact  of Free Association in 1986 after lengthy negotiations. The compact  provided a framework for the United States and the two countries to work  toward achieving the following three main goals: (1) secure  self-government for the FSM and the RMI, (2) ensure certain national  security rights for all of the parties, and (3) assist the FSM and the RMI in  their efforts to advance economic development and self-sufficiency. The  first and second goals were met; the FSM and the RMI are independent  nations, and the three countries established key defense rights, including  securing U.S. access to military facilities on Kwajalein Atoll in the RMI  through 2016. The compact’s third goal was to be accomplished primarily  through U.S. direct financial assistance to the FSM and the RMI. For the  15-year period covering 1987 to 2001, funding was provided at levels that  decreased every 5 years, with an extension for 2002 and 2003 during  negotiations to renew expiring compact provisions. For 1987 through 2003,  the FSM and the RMI are estimated to have received about $2.1 billion in  compact financial assistance. As we previously reported, economic  self-sufficiency was not achieved under the first compact.
Under the original compact, the FSM and the RMI used funds for general  government operations; capital projects, such as building roads and  investing in businesses; debt payments; and targeted sectors, such as  energy and communications. The FSM concentrated much of its spending  on government activities, while the RMI emphasized capital spending.  Compact funds to the FSM were divided among the FSM’s national  government and four states, according to a distribution agreement first  agreed to by the five governments in 1984. In 2000, we reported that  compact funds spent on general government operations maintained high  government wages and a high level of public sector employment,  discouraging private sector growth, and that compact funds used to create  and improve infrastructure likewise did not contribute to significant economic growth. Furthermore, many of the projects undertaken by the  FSM and the RMI experienced problems because of poor planning and  management, inadequate construction and maintenance, or misuse of  funds. While the compact set out specific obligations for reporting and  consultations regarding the use of compact funds, the FSM, RMI, and U.S.  governments provided little accountability over compact expenditures and  did not ensure that funds were spent effectively or efficiently. The “full  faith and credit” provision made withholding funds impracticable. In  addition, under the original compact, both nations also benefited from  numerous U.S. federal programs, while citizens of both nations exercised  their right under the compact to live and work in the United States as  “nonimmigrants” and to stay for long periods of time.
section_title: Amended Compacts of Free Association: 2004 through 2023
paragraphs: 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, with the amount of the decrements to be deposited in the trust funds  for the two nations established under the amended compacts (see table  1). Moreover, the amended compacts require the FSM and the RMI to make  one-time contributions of $30 million each to the trust funds, which both countries have done. In addition, the RMI amended compact includes an  agreement that allows the U.S. military access to certain sites in Kwajalein  Atoll until 2086 and provides $15 million annually starting in 2004, rising to  $18 million in 2014, to compensate for any impacts of the U.S. military on  the atoll.
The amended compacts and fiscal procedures agreements require that  grant funding be targeted to support the countries, in six defined sectors,  with the following general objectives:  Education: Advance the quality of the basic education system.
Health: Support and improve the delivery of preventative, curative, and  environmental care.
Environment: Increase environmental protection and engage in  environmental infrastructure planning.
Public sector capacity building: Build effective, accountable, and  transparent national, state (in the FSM), and local government and other  public sector institutions and systems.
Private sector development: Attract foreign investment and increase  indigenous business activity.
Infrastructure: Provide adequate public infrastructure, prioritizing  primary and secondary education capital projects and projects that  directly affect health and safety, with 5 percent dedicated to  maintenance.
The RMI must also target grant funding to Ebeye and other Marshallese  communities within Kwajalein Atoll: $3.1 million annually for 2004 through  2013 and $5.1 million annually for 2014 through 2023. In addition, $1.9  million is provided from annual grant funds to address special needs within  Kwajalein Atoll, with emphasis on the Kwajalein landowners. Other funds  are provided to the RMI government related to U.S. use of the atoll for  military purposes. (See app. III for Kwajalein-related compact funding  provisions.)
subsections: section_title: Implementation Framework
paragraphs: Under the amended compacts and according to the fiscal procedures  agreements, annual assistance for the six sectors in the FSM and the RMI is  to be made available in accordance with an implementation framework  with several components. Prior to the annual awarding of compact funds,  the countries must submit development plans that identify goals and  performance objectives for each sector. In addition, the countries must  submit a budget for each sector that aligns with its development plan. The  joint management and accountability committees for each country are to  approve annual sector grants and, subsequent to the awards, evaluate  sector management and progress. Finally, for each sector, the FSM and the  RMI are to prepare quarterly financial and performance reports to serve as  a mechanism for tracking progress against goals and objectives and  monitoring performance and accountability. Figure 2 shows the amended  compact implementation framework.
Both countries are to develop multiyear development plans that are  strategic in nature and continuously reviewed and updated through the  annual budget process and that address the assistance for the defined  sectors. The plans are to identify how the countries will use compact  funds to promote broad compact development goals such as economic  advancement and budgetary self-reliance. The plans are also to identify  goals and objectives for each sector.
In addition, through the annual budget process, the FSM and the RMI are to  prepare annual sector grant budget proposals that are based on the  development plans, including performance goals and indicators. U.S.  officials are to evaluate the sector budget proposals each year to ensure  that they are consistent with compact requirements and have the  appropriate objectives and indicators and that the expenditures are  adequate to achieve their stated purposes. Budget consultations between  the governments are to take place regarding the sector proposals.
Joint Management and Accountability Committees  JEMCO and JEMFAC—jointly established by the United States and,  respectively, the FSM and the RMI—are to strengthen management and  accountability and promote the effective use of compact funding. Each  five-member committee comprises three representatives from the United  States and two representatives from the country. JEMCO’s and JEMFAC’s  designated roles and responsibilities include  reviewing the budgeting and development plans from each of the  governments;   approving grant allocations and performance objectives;   attaching terms and conditions to any or all annual grant awards to  improve program performance and fiscal accountability;   evaluating progress, management problems, and any shifts in priorities  in each sector; and  reviewing audits called for in the compacts.
The FSM, the RMI, and the United States are required to provide the  necessary staff support to their representatives on the committee to enable  the parties “to monitor closely the use of assistance under the Compacts.”
FSM and RMI Grant Management  The FSM and the RMI are responsible for grant management, including  managing and monitoring the day-to-day operations and financial  administration of each sector.
Program monitoring. The FSM and RMI governments are to manage  the sector and supplemental education grants and monitor day-to-day  operations to ensure compliance with grant terms and conditions.  Monitoring also is required to ensure the achievement of performance  goals. The governments are to report quarterly to the United States,  using a uniform format that includes  a comparison of actual accomplishments to the objectives and  indicators established for the period;   any positive events that accelerate performance outcomes;   any problems or issues encountered, reasons, and impact on grant  activities and performance measures; and   additional pertinent information, including, when appropriate, an  analysis and explanation of cost overruns.
In addition, the FSM and the RMI must annually report to the U.S.  President on the use of U.S. grant assistance and other U.S. assistance  provided during the prior fiscal year, and must also report on their  progress in meeting program and economic goals.
Financial administration. The FSM and the RMI must adhere to  specific fiscal control and accounting procedures. The fiscal procedures  agreements state that the countries’ financial management systems  must meet several standards addressing financial reporting, accounting  records, internal and budget controls, allowable cost, cash management,  and source documentation. The systems must also specify applicable  procedures regarding real property, equipment, and procurement.  Quarterly financial reports are to be provided to the United States and  used to monitor the (1) general budget and fiscal performance of the  FSM and the RMI and (2) disbursement or outlay information for each  sector grant.
In addition, the FSM and the RMI are required to submit annual audit  reports, within the meaning of the Single Audit Act as amended.  According to the act, single audit reports are due within 9 months after  the end of the audited period. Single audits are focused on recipients’  internal controls over financial reporting and compliance with laws and  regulations governing U.S. federal awardees. Single audits also provide  key information about the federal grantee’s financial management and  reporting. A single audit report includes  the auditor’s opinion (or disclaimer of opinion, as appropriate)  regarding whether the financial statements are presented fairly in all  material respects in conformity with generally accepted accounting  principles, and findings about the internal controls related to  financial statements;  the entity’s audited financial reporting;  the schedule of expenditures of federal awards and the auditor’s  report on the schedule;  the auditor’s opinion (or disclaimer of opinion) regarding whether  the auditee complied with the laws, regulations, and provisions of  contracts and grant agreements (such as the compact), which could  have a direct and material effect on each major federal program, as  well as findings on internal controls related to federal programs;   a summary of findings and questioned costs for the federal program;   corrective action plans for findings identified for the current year as  well as unresolved findings from prior fiscal years.
The United States is responsible under the fiscal procedures agreements  for using the performance and financial reports to monitor, respectively,  the countries’ sector grant performance and their budget and fiscal  performance. Also, U.S. officials are responsible for monitoring compliance  with grant terms and conditions, including any special grant conditions. If  problems are found in areas such as the monitoring of sector grants or a  lack of compliance with grant terms, the United States may impose special  conditions or restrictions, including requiring the acquisition of technical  or management assistance, requiring additional reporting and monitoring,  or withholding funds.
Under the implementing legislation, the U.S. President is required to report  annually to Congress on the use and effectiveness of U.S. assistance. The  President’s report also is to include an assessment of U.S. program and  technical assistance provided to the countries and an evaluation of their  economic conditions.
According to federal policy implementing the Single Audit Act, U.S.  agencies may take actions regarding late audits to ensure that award  recipients address audit findings contained in single audit reports.  According to the grants management common rule, awarding agencies may  issue a high-risk designation to grant recipients if single audits reveal  substantial and pervasive problems.
section_title: Compact Management Units
paragraphs: In addition to establishing the joint management and accountability  committees, each of the three countries has designated units that are  responsible for compact administration.
United States. OIA has responsibility for U.S. management and  oversight of the FSM and RMI sector and supplemental education  grants. OIA’s Honolulu field office has four professional staff—  specialists in health, education, infrastructure, and financial  management—who perform various activities, such as  analyzing FSM and RMI budgets and required reports;   reviewing expenditures and performance with FSM and RMI  government officials and conducting site visits;  providing briefings and advice to OIA, HHS, and State officials  regarding progress and problems;   providing support for JEMCO and JEMFAC meetings;   monitoring the countries’ compliance with grant terms and   withholding funds from the countries for noncompliance with  requirements such as those expressed in the fiscal procedures  agreements or in grant conditions (such remedies did not exist in the  previous compact).
FSM. In 2005, the FSM established its Compact Management Board and  OCM. The board consists of seven members: two FSM national  government appointees, a member appointed by each state, and the  head of OCM. The board is responsible for actions such as formulating  guidelines for FSM JEMCO members and providing oversight of  compact implementation, including conducting investigations to ensure  compliance with all terms of the compact. OCM, which has five staff  members, is principally responsible for daily communications with  JEMCO and the United States regarding JEMCO and compact matters.  OCM is expected to undertake various actions, such as visiting the FSM  states, to monitor compliance with compact terms.
RMI. The RMI government identified the Office of the Chief Secretary as  the official point of contact for all communication and correspondence  with the U.S. government concerning compact sector grant assistance.  Among the Chief Secretary’s responsibilities are providing oversight  management and monitoring of sector grants and activities and  coordination. Its role is supported by the Economic Policy, Planning,  and Statistics Office, which works with the ministries receiving grants to  prepare the annual budget proposals; quarterly reports, including  developing performance indicators; and annual monitoring and  evaluation reports. The ministries conduct day-to-day oversight.
section_title: Supplemental Education Grant
paragraphs: In addition to receiving compact sector grants, the FSM and the RMI are  eligible for a Supplemental Education Grant (SEG). The amended  compacts’ implementing legislation authorized appropriations beginning in  2005 to the Secretary of Education to supplement the education grants  under the amended compacts. The SEG is awarded in place of grant  assistance formerly awarded to the countries under several U.S. education, health, and labor programs. Under the fiscal procedures agreements, SEG  funds are to be used to support “direct educational services at the local  school level focused on school readiness, early childhood education,  primary and secondary education, vocational training, adult and family  literacy, and the smooth transition of students from high school to  postsecondary educational pursuits or rewarding career endeavors.”  Funding for the SEG is appropriated to a Department of Education account  and transferred to an Interior account for disbursement, with Interior  responsible for ensuring that the use, administration, and monitoring of  SEG funds are in accordance with a memorandum of agreement among the  Departments of Education, HHS, Labor, and the Interior as well as with the  fiscal procedures agreements. The U.S. appointees to JEMCO and JEMFAC  are required by the compacts’ implementing legislation to “consult with the  Secretary of Education regarding the objectives, use, and monitoring of  United States financial, program, and technical assistance made available  for educational purposes.” JEMCO and JEMFAC are responsible for  approving the SEG grants annually.
section_title: Compact Grants Targeted Infrastructure, Education, and Health, but Various Issues Constrained Countries’ Use of Funds
paragraphs: JEMCO and JEMFAC approved allocations of compact grants primarily to  the infrastructure, education, and health sectors. The FSM and the RMI  also both received a new SEG, meant to support the goals and objectives in  the education sector development plans. However, the countries’ use of  compact funds has been limited by several factors, including delays in  implementing infrastructure projects in the FSM and ongoing land use  disputes with RMI landowners on both Majuro and Kwajalein. In addition,  neither country has planned for the scheduled annual decrements in  compact funding, and the FSM has not undertaken local needs assessments  to target funds.
subsections: section_title: Compact Funding Allocation in the FSM
paragraphs: The three largest FSM sectors—education, infrastructure, and  health—accounted for almost 85 percent of the compact sector grant  allocations in 2006. Of this total, education funding represented 33 percent;  infrastructure represented 31 percent, up from 23 percent in 2004; and  health represented 21 percent. The other three sectors—public sector  capacity building, private sector development, and the  environment—together accounted for less than 20 percent of the FSM’s  compact funding in 2006. Figure 3 shows the FSM sector grant allocations  for 2004 through 2006. (See app. IV for a breakout of compact funding, by  FSM state.)
In general, the funds allocated for each sector were used as follows:  Education. JEMCO approved allocations for the education sector  amounting to $79 million, or 34 percent of compact funds in 2004  through 2006. U.S. assistance is the main source of revenue for the FSM  education system. At the FSM national government level, compact  funding supports, among other things, the College of Micronesia, the  development of national education standards, the national standardized  testing program, and the college admissions test. At the state level, the  funding is principally targeted to primary and secondary education.  Compact funding levels vary among the FSM states, with Chuuk  receiving the least funding per student (approximately $500) and Yap  receiving the most (approximately $1,300). The difference in the funding  levels for these two states is directly reflected in student-to-teacher  ratios, with Chuuk having a higher student-to-teacher ratio (19:1) than  Yap (8:1). Overall, we found the condition of school facilities and the  adequacy of their supplies and equipment to be poorer in Chuuk than in  the other FSM states. The FSM is making efforts to improve teacher  qualifications through a grant from Education. Despite some progress,  FSM educational outcomes remain poor. For example, according to an  official from the FSM’s Department of Health, Education, and Social  Affairs, graduates of FSM high schools often are not qualified to take  college-level courses.
Health. JEMCO approved allocations amounting to $49 million, or 21  percent of compact funds in 2004 through 2006, for health care activities  such as medical and nursing services, dispensary services, and public  health services. According to health officials in Chuuk and Pohnpei,  funding under the amended compact provided for increased budgets for  pharmaceuticals and supplies. However, a 2005 FSM Department of  Health, Education, and Social Affairs assessment of primary care  reported that most facilities lacked an appropriate range and quantity of  medicine and supplies in each of the four FSM states. We found that  each of the states’ hospitals and primary care facilities lacked some or  all of the following: maintenance, adequately trained staff, functional  equipment, and medical and pharmaceutical supplies. In addition, health  sector allocations varied considerably across the four FSM state  governments. For example, in 2006 Yap received more than twice as  much health sector funding per person as Chuuk. During our site visits,  we observed that Chuuk’s hospital and primary care facilities were in  the poorest condition of the four states’ facilities.
Infrastructure. JEMCO approved allocations amounting to $58.7  million, or 25 percent of compact funds in 2004 through 2006, to  infrastructure. However, the FSM’s allocation of funds for 2004 and 2005  did not meet the recommendation in the compact’s implementing  legislation, which stated that it was the sense of Congress that not less  than 30 percent of annual compact sector grant assistance should be  invested in infrastructure. In addition, the FSM has not completed any  infrastructure projects. As of November 2006, OIA had approved 14 of  the FSM’s priority projects, including several schools, a wastewater  treatment facility, power and water distribution systems, and road and  airport improvements. However, construction on these projects had not  begun. Furthermore, according to an OIA official, the FSM had not met a  compact requirement to establish and fund an infrastructure  maintenance fund.
Public sector capacity building. JEMCO approved allocations for  public sector capacity building amounting to $25.6 million, or 11 percent  of compact funding in 2004 through 2006. About 12 percent of these  funds supported the operations of the public auditors’ offices in three of  the four states and the FSM national government. OIA found that this  use of the funds met the grant’s purpose. However, according to OIA,  most of the remaining funds were to be used to support basic  government operations, rather than for the grant’s intended purpose of  developing the internal expertise needed to build an effective,  accountable, and transparent government. In 2004, JEMCO required that  the FSM develop a plan to eliminate funding for such nonconforming  purposes by 2009. The FSM submitted a plan to OIA that illustrates an  annual reduction of such funding, but the plan does not detail how the  nonconforming activities, such as those supporting public safety and the  judiciary, will otherwise be funded. FSM officials told us that they plan  to replace capacity-building funds in part with local monies. However,  recent tax revenues have largely stagnated despite some  improvements.
Private sector development. JEMCO approved private sector allocations  amounting to $10.2 million, or 5 percent of compact funding in 2004  through 2006. These funds supported more than 38 different offices  throughout the FSM—including visitor bureaus, land management  offices, and marine and agriculture departments—and economic  development and foreign investment activities.
Environment. JEMCO approved allocations for the environment  amounting to $6.6 million, or 3 percent of compact funding in 2004  through 2006. These funds supported 21 offices throughout the four  states and the FSM national government, including offices responsible  for environmental protection, marine conservation, forestry, historic  preservation, public works, and solid waste management.
In addition to receiving compact sector funding, the FSM education sector  also received $24 million in SEG funds in 2005 and 2006. However, SEG funding was “off cycle” in both years. As a result, according to  Interior, the FSM did not receive its 2005 SEG funding until October 2005  and did not receive its 2006 SEG funding until September 2006, near the  end of each fiscal year. In Chuuk and Pohnpei, SEG funding mainly  supported early childhood education, while in Yap and Kosrae, the largest  portion of SEG funding went to school improvement projects that provided  supplemental instructional services, such as after-school tutoring and  professional development programs. The SEG funding also supported  vocational training, skills training, and staff development. In addition, the  FSM national government received some SEG funding for monitoring,  coordination, technical assistance, and research. The College of Micronesia  received SEG funds for financial aid for students and for training students  to be teachers through the teacher corps.
section_title: Compact Funding Allocation in the RMI
paragraphs: The three largest RMI sectors—infrastructure, education, and  health—accounted for 92 percent of the compact sector grant allocations  in 2006. Infrastructure received approximately 40 percent of the funding  between 2004 and 2006, while education received approximately 33 percent  and health received approximately 20 percent. Funding was also allocated  for Ebeye special needs; however, only a small portion had been expended  as of August 2006. As in the FSM, public sector capacity building, private  sector development, and the environment received the least compact  funding, totaling less than 4 percent between 2004 and 2006. Figure 4 shows  the sector grant allocations for the RMI for 2004 through 2006. (See app. IV  for a breakout of compact funding, by RMI sector grants.)
Education. JEMFAC approved allocations for the education sector  amounting to $34.2 million, or 33 percent of compact funds in 2004  through 2006. These funds have primarily supported the operations of  the primary and secondary schools, providing approximately $800 per  student annually. In addition, compact education funding has supported  the National Scholarship Board and the College of Marshall Islands.  Furthermore, some 2004 through 2006 funding was designated  specifically for Ebeye’s schools. The quality of school facilities varies  widely in the RMI. Although new classrooms were built with  infrastructure funds, we found that many existing classrooms remained  in poor condition. For example, in several Marshall Island High School  classrooms, ceilings had fallen in, making the classrooms too dangerous  to use. The RMI is making efforts to improve teacher qualifications  through a grant from Education. However, although improved  educational outcomes is a compact priority, standardized test scores  show that RMI educational outcomes remain poor. Moreover, according  to the College of the Marshall Islands, graduates of RMI high schools  often are not qualified to take college-level courses.
Health. JEMFAC approved allocations amounting to $20.6 million, or 20  percent of compact funds in 2004 through 2006, for health care activities  such as medical and nursing services, dispensary services, and public  health services. A large portion of this funding was allocated to hospital  service improvements, such as hiring additional staff, providing  specialized training for doctors and nurses, and purchasing equipment  in both Majuro and Ebeye.
Infrastructure. JEMFAC approved allocations amounting to $41.7  million, or 40 percent of compact funds in 2004 through 2006, for  infrastructure—thereby meeting the RMI compact requirement to  allocate at least 30 percent, and not more than 50 percent, of annual  compact sector grant assistance funds to this sector. Furthermore, the  RMI undertook and completed several infrastructure projects and  established and funded an infrastructure maintenance fund, as required.  From October 2003 to July 2006, 9 new construction projects and 17  maintenance projects in the RMI either were completed or were under  way. All of the new projects were schools where there was a clear title  or an existing long-term lease for the land.
Environment, private sector development, and public sector capacity  building. JEMFAC approved allocations of $2.6 million, or 3 percent of  compact funds in 2004 through 2006, for these three sectors. This  funding supported four entities, including the Environmental Protection  Authority; the Land Registration Authority; the Office of the Auditor  General; and Ministry of Resources and Development, which comprises  the Small Business Development Council and the Marshall Islands  Visitors’ Authority. The RMI’s Chief Secretary indicated during our  meeting in March that the RMI would no longer seek compact funds for  activities in these sectors and would instead focus all compact  resources on education, health, and infrastructure.
Ebeye. JEMFAC approved allocations amounting to $5.8 million, or  almost 6 percent of all compact funds in 2004 through 2006, for Ebeye  special needs. However, because OIA obligated none of these funds for  Ebeye during 2004 and 2005, JEMFAC approved the reallocation of the  entire amount in 2006. According to OIA, approximately $500,000 has  been used to pay for utility costs for certain Ebeye residents, while  another $500,000 has been used to support utility operations.
In addition to receiving compact sector funding, the RMI also received $12  million in SEG funding for 2005 and 2006. However, because SEG funding  was off cycle in both 2005 and 2006, according to OIA, the RMI did not  receive its 2005 SEG until August 2005 and its 2006 SEG until September  2006, near the end of each fiscal year. The SEG mainly supported early  childhood education but also supported activities at other education levels,  including the purchasing of textbooks and supplies; supporting foreign  volunteer teachers and substitute teachers; and funding the National  Vocational Training Institute, which is an alternative to the mainstream  high schools.
section_title: Several Factors Have Limited Countries’ Use of Compact Funds
paragraphs: Political factors and land use issues have hindered compact  implementation in the FSM and the RMI.
Political factors.
In the FSM, although $58.7 million had been allocated for  infrastructure as of September 2006, no infrastructure projects were  built because of, among other issues, a lack of internal agreement  among the five FSM governments regarding project implementation  and the governments’ inability to demonstrate how the funding will  be managed in a unified and comprehensive method. For example,  one FSM state governor told us that he had refused to meet with the  FSM national government’s project management unit because he so  strongly disagreed with the unit’s management process. Such  disagreements led to delays in the national government’s  implementation of its project management unit, and, according to  OIA officials, significant challenges remain with respect to  implementing the unit.
In the RMI, the government and landowners on Kwajalein Atoll  disagreed about the management of the entity designated to use the  compact funds set aside for Ebeye special needs, with an emphasis  on the needs of Kwajalein landowners. This entity, the Kwajalein  Atoll Development Authority (KADA), had had problems accounting  for and effectively and efficiently using funds; moreover, according to  the RMI’s Chief Secretary, the RMI government developed a  restructuring plan for the authority but the plan was not fully  implemented. Moreover, Kwajalein landowners disputed the  composition of the KADA board and its role in distributing these  funds. As a result, as of September 2006, only approximately $1.0  million of the $5.8 million allocated for Ebeye special needs had been  released for the community’s benefit.
Land use issues.
In the FSM, project implementation in Chuuk was hindered by the  state’s inability to secure leases due to the lack of clear title,  established fair market values, and local revenues to pay for land  leases. Because of a lack of established fair market values, using  compact funding for land lease or purchase under the original  compact may have led to unreasonably high payment. A recent  study of land valuation practices in Chuuk found sales of  comparable land in Weno, the state’s capital, ranging from $5 per  square meter to $1,704 per square meter, with the higher payment  associated with lease agreements paid for by the compact funding.
In the RMI, land disputes prevented construction of the Uliga  Elementary School on Majuro, the country’s main atoll, while another  project site on Majuro was abandoned because a lease agreement  could not be concluded with the landowner. On Kwajalein Atoll,  construction of Kwajalein Atoll High School was delayed because of  the inability of the RMI government to secure a long-term lease from  Kwajalein landowners for a site large enough to accommodate new  facilities for up to 600 students. Similar problems delayed  construction of Ebeye Elementary School. RMI projects were built  where the land titles were clear and long-term leases were available.  However, future RMI infrastructure projects may be delayed because  of uncertainty regarding the land titles for remaining projects.
section_title: Lack of FSM and RMI Planning for Decrement Threatens Sustainability of Government Services
paragraphs: The FSM and the RMI lack concrete plans for addressing the annual  decrement in compact funding and, as a result of revenue shortfalls, will  likely be unable to sustain current levels of government services as  compact funding diminishes. In both countries, compact funding  represents a significant portion of the government  revenue—approximately 38 percent in the FSM and 27 percent in the RMI,  according to the 2005 single audits. Personnel expenses account for a  substantial share of compact funding expenditures. For example, 57  percent of the education sector grant in the FSM and 75 percent of the  grant in the RMI paid for personnel in 2006. Over the past 5 years,  government employment has grown in both countries: in the FSM, the  public sector employment level has varied since 2000 but peaked for this  period in 2005, while in the RMI, the government wage bill rose from $17  million in 2000 to $30 million in 2005. Given the countries’ current levels of  spending on government services, the decrement—$800,000 per year for  the FSM, beginning in 2007, and $500,000 per year for the RMI since  2005—will result in revenue shortfalls in both countries, absent additional  sources of revenue. In addition, in the FSM, cessation of nonconforming  uses of the public sector capacity building grant will require government  operations currently supported by compact funds to rely on a different  revenue source.
Officials in the FSM and the RMI told us that they can compensate for the  decrement in various ways, such as through the yearly partial adjustment  for inflation, provided for in the amended compacts, or through improved  tax collection. However, the partial nature of the adjustment causes the  value of the grant to fall in real terms, independent of the decrement,  thereby reducing the government’s ability to pay over time for imports,  such as energy, pharmaceutical products, and medical equipment.  Moreover, as we recently reported, although tax reform may provide  opportunities for increasing annual government revenue in the FSM and  the RMI, the International Monetary Fund, the Asian Development Bank,  and other economic experts consider both nations’ business tax schemes  to be inefficient because of a poor incentive structure and weak tax  collection. In the FSM’s and the RMI’s response to our draft report, both  countries raised the possibility that the decrement’s negative effect might  be addressed during the periodic bilateral review, which is called for every  5 years, under the compact.
section_title: FSM Sector Fund Allocation Was Not Based on Population or Informed by State Needs
paragraphs: The FSM distributed compact funding among its four states according to a  formula that did not fully account for states’ differing population sizes or  funding needs. The formula, established in an FSM law enacted in January  2005 and in force through 2006, allotted a set percentage to each state as  well as 8.65 percent to the national government. Use of the distribution  formula resulted in varying per capita compact funding among the states  (see table 2). For example, we calculated that in 2006, Yap received more  than twice as much education funding per student and health care funding  per person as Chuuk.
Both the FSM government and U.S. officials acknowledged that the funding  inequality resulted in different levels of government services across states,  with particularly low levels of services in Chuuk. For example, an FSM  health official told us that Chuuk’s low immunization rate is a result of low  per-capita health funding, and, according to a U.S. health official, HHS  immunization staff see Chuuk as vulnerable. However, as of October 2006,  neither the FSM nor JEMCO had assessed the impact of such differences  on the country’s ability to meet national goals or deliver services.
section_title: FSM and RMI Have Limited Ability to Measure Progress toward Compact Goals
paragraphs: Although the FSM and the RMI established performance measurement  mechanisms, several factors limited the countries’ ability to assess  progress toward compact goals. The FSM and the RMI development plans  contain sector goals and objectives, and the countries are collecting  performance indicators for health and education. However, neither country  can assess progress using these indicators because of incomplete and poor  quality data. Moreover, problems in the countries’ quarterly performance  reports—disorganized structure in the FSM reports as well as incomplete  and inaccurate information in both the FSM and the RMI reports—limit  their usefulness for tracking performance. A lack of technical capacity also  challenges the countries’ ability to collect performance data and measure  progress.
subsections: section_title: Countries Established Mechanisms for Measuring Performance, but Data Shortcomings Limit Ability to Assess Progress toward Goals
paragraphs: Both countries established development plans that include strategic goals  and objectives for the sectors receiving compact funds. These strategic  goals are broad—for example, both countries list improving primary health  care as a strategic goal. In addition, the development plans list various  objectives related to each strategic goal. For example, in the FSM, the  objectives related to improving primary health care include (1) increasing  by 20 percent the use of basic primary health care services provided at  dispensaries and health centers and (2) decreasing by 50 percent the use of  primary health care services provided at hospital outpatient clinics.  According to OIA, outcome measures for some sectors in the FSM were  inappropriate, absent, or poorly defined. The RMI health sector’s complex  performance hierarchy and lack of readily available baselines for many  measures initially made it difficult for the Ministry of Health to collect data.  In 2004, JEMCO and JEMFAC required the countries to submit a  streamlined and refined statement of performance measures, baseline data,  and annual targets to enable the tracking of goals and objectives for  education, the environment, health, private sector development and in  public sector capacity building. The countries have developed some  performance indicators that are intended to help demonstrate progress in  education and health, as required by JEMCO and JEMFAC, but have not  done so for the other sectors. In 2006, JEMFAC also required the RMI to  include in its reports six performance indicators for the environmental  sector and two performance indicators for private sector development.
The FSM and the RMI ministries have begun to collect performance  indicators for the education and health sectors, as required by JEMCO and  JEMFAC. However, the ministries are not yet able to assess progress with  the indicators, because baseline data for some indicators were incomplete  and the quality of some data was poor.
subsections: section_title: FSM Performance Indicators
paragraphs: Education sector. As required by JEMCO, in 2005, the FSM began  submitting data for 20 indicators to gauge progress in the education  sector. In 2005, the FSM submitted some data for 11 of the 20 required  education performance indicators. In 2006, it submitted some data for  all of the 20 indicators, with data for 5 indicators being incomplete  because some states did not submit them. For example, none of the  states submitted data for the number and percentage of high school  graduates going to college. Chuuk and Yap did not provide the required  average daily student attendance rate, and Kosrae, Pohnpei, and Yap did  not provide data to establish a baseline for dropout rates. Furthermore,  we found some of the data submitted to be of questionable quality. For  example, Chuuk’s 2006 submission of data for the 20 indicators  indicated a dropout rate of less than 1 percent. However, according to  an expert familiar with the Chuuk education system, the actual dropout  rate was much higher. Moreover, when comparing the 2005 and 2006  submissions, we identified possible problems with some of the most  basic data, such as the number of teachers, students, and schools, due to  inconsistent definitions of the indicators. For example, the student  enrollment figure reported in 2006 was for public schools only, but the  figure submitted in 2005 included both public and private schools,  according to an FSM education official. Likewise, reporting on the  number of teachers in the school system differed among states. For  example, Chuuk reported only the number of teachers, while the other  states also included nonteaching staff.
Health sector. FSM state and national health directors agreed on 14  health indicators in April 2006 as a means to gauge progress. The FSM  national government and all four states are collecting data for 9 of the 14  indicators, while data for the other 5 indicators have yet to be collected.  According to the FSM national government, delays in collecting data for  some indicators resulted from the time required to establish a common  methodology—that is, definitions and processes—among all of the  states and governments. Furthermore, we found that some of the health  data collected were ambiguous and therefore difficult to use. For  example, it was unclear whether reports on data from Yap’s outer  islands relating to 1 of the 14 health indicators, the number of  dispensary encounters, covered 1 or 2 months; according to a Yap health  official, data for this indicator may be incomplete. Likewise, OIA’s health  grant manager indicated that there are weaknesses in the FSM’s health  data.
section_title: RMI Performance Indicators
paragraphs: Education sector. As required by JEMFAC in 2005, the RMI started  tracking some of the 20 indicators as a way to gauge progress in the  education sector. The RMI submitted data for 15 of the 20 required  education performance indicators in 2005, repeating the submission in  2006 without updating the data, according to an OIA official. JEMFAC  required the RMI to submit data for the 5 indicators omitted in  2005—including staff education levels and parent involvement—but did  not receive them. In addition, some of the information reported was  outdated. For example, the 2005 submission of data for an indicator on  student proficiency was based on a test given in the RMI in 2002.
Health sector. The RMI’s Ministry of Health began identifying  performance indicators when the amended compact entered into force  in 2004. Initially, the ministry developed numerous indicators, which,  according to an OIA official, threatened to overwhelm the ministry’s  capacity for data collection and management. The ministry has since  made refinements and reduced the number of indicators to a more  manageable size. However, according to an RMI government report for  2005, it is difficult to compare the ministry’s 2004 and 2005  performances because of gaps in the data reported. For example,  limited data were available in 2004 for the outer island health care  system and Kwajalein Atoll Health Services. According to the RMI  government report, data collection improved and most needed data  were available, but some data were still missing.
section_title: Shortcomings in Performance Reports Limit Usefulness for Tracking Progress
paragraphs: Although the FSM and the RMI began compiling quarterly performance  reports beginning in 2004, as required by the fiscal procedures agreements,  the usefulness of the reports for assessing progress toward sector goals is  limited by several factors. First, the FSM’s reports had format problems,  such as a lack of uniform structure, and some FSM reports were missing.  Second, both countries’ reports contained incomplete activity-level  information. Third, in both countries’ reports, some activity-level  information, such as budget and expenditure data, were inaccurate.
Problematic format. The usefulness of the FSM quarterly performance  reports is diminished by a lack of uniform structure, excessive length,  and disorganization. In addition, some FSM reports were missing. The  five FSM governments’ quarterly 2005 performance reports that we  reviewed lacked the uniform structure required by the fiscal procedures  agreement. For example, while Kosrae combined sector and activities  into one report, Pohnpei reported on each activity separately. Moreover,  the volume of reporting was excessive. For example, the 2005 fourth-  quarter reports for the FSM education sector totaled more than 600  pages for all five governments’ quarterly submissions and more than  1,500 pages for the entire year. The reports were also disorganized. For  example, we found misfiled reports in the FSM’s submission to OIA. We  also found that 19 sector reports were missing in 2005. Noting  shortcomings similar to those we observed, officials from OIA and the  FSM stated that the performance reports could not be used as an  effective management tool.
In contrast, the RMI reports were uniformly formatted, as specified by  the fiscal procedures agreement, and all required reports were  submitted to OIA.
Incomplete information. Both countries’ quarterly reports lacked  complete information on program activities. For example, for 2005, the  FSM national government’s second-quarter health sector report lacked  information on the environmental health and food safety programs  (although its other quarterly reports included such information), and  Pohnpei’s first-quarter health sector report lacked information on 28 of  31 activities. In the fourth quarter of 2005, Kosrae did not provide  budgetary and expenditure information regarding the provision of  education and support services to individuals with disabilities.
The RMI’s statistics office gathered information from the RMI’s 2005  quarterly performance reports, which contained primarily activity-level  information, and attempted to assess progress in the various sectors.  However, because of weaknesses in information collected in 2004,  including missing information for some activities for entire quarters, the  RMI had difficulty in making comparisons and determining whether  progress was being made in many of its sectors.
Inaccurate information. Both the FSM’s and the RMI’s quarterly  performance reports contained inaccurate information on program  activities. We found that the performance reports for the five FSM  governments did not accurately track or report annual activity budgets  or expenditures. For example, a 2005 Pohnpei education performance  report stated that more than $100,000 per quarter was allocated to pay  the salaries of two cultural studies teachers. The state’s Department of Education could not explain the high salary figure but indicated that  the number was incorrect. According to FSM officials in the  departments we visited, the departments were not given an opportunity  to review the budget and expenditure data before the performance  reports were sent to OCM and OIA and were therefore unaware of the  errors.
Some of the RMI’s quarterly performance reports also contained  inaccuracies. For example, although the RMI’s private sector  development performance report for the fourth quarter of 2005 stated  that eight new businesses were created in 2005, officials from the  Ministry of Resources and Development indicated that only four  businesses were started that year. In addition, the RMI Ministry of  Health’s 2005 fourth-quarter report contained incorrect outpatient  numbers for the first three quarters, according to a hospital  administrator in Majuro. In the RMI quarterly reports for the education  sector, we found several errors in basic statistics, such as the number of  students attending school. In addition, RMI Ministry of Education  officials and officials in the other sectors told us that they had not been  given the opportunity to review final performance reports compiled by  the statistics office before the reports’ submission to OIA, and that they  were unaware of the errors until we pointed them out.
section_title: FSM and RMI Lack Capacity to Collect, Assemble, and Analyze Data to Assess Progress
paragraphs: The FSM’s ability to measure progress is limited by its lack of capacity to  collect, assemble, and analyze performance data. According to OIA, the  education sector currently lacks a reliable system for the regular and  systematic collection and dissemination of information and data. An OCM  official also stated that the lack of performance baseline data for the  private sector development and environment sectors could be attributable  to “weak capacity in performance budgeting and reporting” and that staff  lack expertise in one or both areas.
The RMI statistics office, which is the main entity tasked to collect data,  indicated that it is not currently able to assess progress toward compact  and development plan goals because of the government’s lack of capacity  to collect, assemble, and analyze data in all sectors. Likewise, the office’s  own capacity is limited. Officials from the office emphasized the  importance of building capacity in the ministries to evaluate their activities.  In particular, they said that improvements in data collection would enable  ministries to respond quickly to requests for information from both  national and international sources. For example, the officials noted that the  Ministry of Education needs to develop measures to report on the quality of  education. The officials also noted that other offices in the ministry should  hire more trained professionals, such as the recently hired Assistant  Secretary of Administration with a graduate degree in public  administration.
section_title: FSM and RMI Provided Limited Monitoring of Grant Operations, and FSM Accountability for Compact Funds Faced Challenges
paragraphs: The FSM’s and the RMI’s required monitoring of sector grant performance  was limited by capacity constraints, among other challenges. In addition,  the countries’ single audit reports for 2004 and 2005, particularly the FSM’s  reports, indicated weaknesses in the countries’ financial statements and  compliance with the requirements of major federal programs, calling into  question their accountability for the use of compact funds. However, the  FSM’s timeliness in submitting its single audit reports improved from 2004  to 2005, and the RMI submitted its single audit reports for these 2 years on  time.
subsections: section_title: FSM Provided Limited Monitoring and Accountability for Use of Compact Funds
paragraphs: The FSM’s monitoring of sector grant performance, required by the fiscal  procedures agreement, was limited at the national and state levels by lack  of capacity in the FSM’s OCM and in the state governments, among other  factors. In addition, the FSM’s single audit reports for 2004 and 2005  showed weaknesses in its financial statements and a lack of compliance  with requirements of major federal programs, suggesting that the FSM has  limited ability to account for the use of compact funds. However, the  government’s timeliness in submitting its audit reports improved.
subsections: section_title: FSM Monitoring
paragraphs: The FSM national government provided limited monitoring of the  day-to-day operations of sector grants in 2004 through 2006. In addition to  facilitating coordination and communication between the national  government and the states and between the FSM and OIA, OCM is intended  to have some responsibility for overseeing compact-funded programs.  However, according to the office’s director, OCM has neither the staff nor  the budget to undertake such activities. As of November 2006, OCM had  five of its own professional staff, including the director. Prior to 2007, staff  from other FSM national departments were assigned to the office, but only  the economic affairs and finance departments provided detailees. One staff  was converted to a permanent hire in OCM and it is unclear if the other  detailee will remain at OCM or return to the Office of Economic Affairs.  The FSM Office of the National Public Auditor had not conducted any  performance or financial audits of compact sector grants.
The FSM states, as subgrantees of compact funds, are required to submit  performance reports to the FSM national government. However, the  Director of OCM indicated that he did not know how or whether each state,  other than Chuuk, was set up to perform day-to-day monitoring of sector  grants. In Chuuk, a financial control commission was established in July  2005 to address financial management and accountability requirements.  However, while the commission had exercised a financial control function,  it had not monitored the performance of the sector grants. In addition, the  FSM’s Secretary of Foreign Affairs and JEMCO representative told us that  all of the states were weak on monitoring. Although the states’ public  auditors could conduct audits of compact performance, their efforts had  been limited to financial audits. For example, in both Yap and Pohnpei, the  public auditor’s office issued four audits in 2005, two of which were for  compact-funded activities. Furthermore, in Chuuk, the public auditor  position required by the state constitution was not filled, prompting  JEMCO to deny the Chuuk auditor’s office state-budgeted funds.
section_title: FSM Accountability
paragraphs: The FSM’s single audit reports for 2004 and 2005 showed that the FSM’s  ability to account for the use of compact funds was limited, as shown by  weaknesses in its financial statements and lack of compliance with  requirements of major federal programs. However, the FSM’s timeliness in  submitting its audit reports improved during this period.
FSM financial statements. In general, the FSM single audit reports call  into question the reliability of the country’s financial statements. Of the  single audit reports that the FSM national and state governments  submitted for 2004 and 2005, only one report—Pohnpei state’s report for  2005—contained an unqualified opinion on the financial statements,  while the other reports contained qualified, adverse, or disclaimed  opinions. (See app. V for the FSM’s single audit financial statement  opinions.) For example, for the FSM 2005 reports, the auditors’ inability  to obtain audited financial statements for several subgrantees led them  in part to render qualified opinions. Chuuk reports for 2004 and 2005  contained disclaimers of opinion related to seven and eight major  issues, respectively, including the inability of auditors to determine the  propriety of government expenses, fixed assets, cash, and receivables;  the capital assets of one of its subunits; and the accounts payable and  expenses of the Chuuk State Health Care Plan. In addition, the single  audit reports include specific findings related to the financial  statements. For example, the national and state governments’ 2005  single audit reports contained 57 reportable findings of material  weaknesses and reportable conditions in the governments’ financial  statements, such as the lack of sufficient documentation for (1) the  disposal of fixed assets, including a two-story building, and (2)  purchases of vehicles and copiers. Fourteen of the FSM 2005 findings  had been cited as reportable findings in previous audits.
FSM compliance with requirements of major federal programs. Each  of the FSM national and state governments’ single audit reports for 2004  and 2005 contained qualified opinions on the governments’ compliance  with requirements of major federal programs, and the 2004 and 2005  reports noted 47 and 45, respectively, total reported weaknesses, on  compliance. (App. V shows the FSM single audit reports’ total numbers  of material weaknesses and reportable conditions regarding compliance  with requirements of major federal programs.) Four of the 2005 reports’  45 findings recurred from the 2004 reports. In 2006, the FSM developed  corrective action plans that addressed 60 percent of the 2005 audit  findings of noncompliance.
Timeliness of audits. The timeliness of the FSM national and state  governments’ submission of single audits reports improved from 2004 to  2005. The national government submitted its 2004 and 2005 single audits  in August and September 2006, 14 and 2 months, respectively, after the  due dates. While the four FSM states submitted their 2004 single audits  from 7 to 13 months after the due dates, three of the four states  submitted their 2005 audits within the 9-month period allowed by OIA.
section_title: RMI Monitoring Was Limited, but Accountability Improved
paragraphs: The RMI government provided limited monitoring of sector grants, in part  because of the lack of capacity in the Chief Secretary’s office and in most  ministries that receive compact funds. The RMI’s single audit reports for  2004 and 2005 indicated weaknesses in its financial statements and  compliance with requirements of major federal programs. However, the  government developed corrective action plans to address the 2005 findings  related to such compliance. The RMI government submitted its single  audits for 2004 and 2005 on time.
subsections: section_title: RMI Monitoring
paragraphs: The RMI’s Chief Secretary, who is responsible for compact implementation  and oversight, monitored sector grant operations on a limited basis.  Day-to-day monitoring and oversight responsibilities were delegated to the  ministries that receive compact funds. According to the RMI’s statistical  office, it lacked the time and resources to devote to oversight and focused  instead on helping the ministries to develop the annual budgets and sector  portfolios and the quarterly and annual monitoring and performance  reports. The office noted the ministries’ lack of personnel and skills needed  to collect, assemble, and analyze data and emphasized the importance of  building the ministries’ capacity to monitor and evaluate their own  compact-funded activities. (However, according to an OIA official, the  Ministry of Health made important strides in measuring performance and  using performance management to improve the delivery of services.) The  RMI Auditor General’s office conducted financial audits, but no  performance audits, of compact sector grants. The RMI, like the FSM,  failed to submit its required annual reports in a timely manner.
section_title: RMI Accountability
paragraphs: The RMI’s single audit reports for 2004 and 2005 contained opinions and  findings that indicated weaknesses in its financial statements and  compliance with requirements of major federal programs. However, the  government developed a corrective action plan that addressed all of the  findings on compliance in its 2005 single audit report. The RMI submitted  both of the single audit reports on time.
RMI financial statements. The RMI’s single audit reports for 2004 and  2005 contained qualified opinions on the government’s financial  statements. (See app. V for a list of the opinions on financial statements  in the RMI’s audit reports for 2001 through 2005.) For example, several  of the RMI’s subgrantees, such as the Ministry of Education’s Head Start  program and the Kwajalein Atoll Joint Utilities Resources, Inc., were  unable to produce audited financial statements.
In addition, the 2005 single audit found two reportable findings in the  RMI’s financial statements. The report cited the lack of audited financial  statements and the lack of a complete asset inventory listing in the RMI  as material weaknesses. Both of these findings had been cited in  previous audits.
RMI compliance with requirements of major federal programs. Both  of the RMI’s single audit reports for 2004 and 2005 contained qualified  opinions on the government’s compliance with requirements of major  federal programs. In addition, the 2005 report noted 11 reported  weaknesses in the country’s compliance with requirements of major  federal programs. The RMI developed corrective action plans to address  all of these findings, 2 of which had recurred from 2004. (App. V shows  the total number of material weaknesses and reportable conditions  findings for the RMI for 2001 through 2005 single audit reports.)
Timeliness of audits. The RMI submitted its 2004 and 2005 single audit  reports within the 9-month period required by the Single Audit Act.
section_title: Interior Took Oversight Actions but Faced Challenges
paragraphs: As administrator of the amended compact grants, OIA monitored the FSM’s  and RMI’s sector grant and fiscal performance, assessed their compliance  with compact conditions, and took action to correct persistent  shortcomings. However, although OIA provided technical assistance to  help the FSM improve its single audit timeliness, the office did not address  recurrent findings and adverse opinions in the FSM and the RMI audits.  OIA’s oversight efforts were hindered by the need to address problems in  the FSM and by internal staffing challenges. In addition, Interior’s Office of  Inspector General actively engaged in reviewing the countries’  implementation of the compact, although the office did not release its  products to the public, and, as of October 2006, several reports remained in  draft form.
subsections: section_title: OIA Monitored Performance, Assessed Compliance, and Acted to Correct FSM and RMI Shortcomings
paragraphs: OIA undertook several administrative oversight efforts including  monitoring the countries’ sector grant performance, monitoring the  countries’ fiscal performance and sector grant outlays, and assessing the  countries’ compliance with sector grant conditions. OIA’s efforts also  included actions such as suspending or withholding grant payment in  response to persistent shortcomings that it identified.
Monitoring sector grant performance. OIA grant managers monitored  the countries’ sector grant performance, using site visits and analysis of  the quarterly sector performance reports. For example, in 2006, OIA’s  visits and analyses led it to determine that 14 of the 61 offices in the FSM  that receive private sector and environment sector grants were  underperforming or nonperforming. As a remedy, OIA recommended  and JEMCO agreed that future sector funding for these entities should  be on a project basis. Also, in response to the shortcomings of the FSM’s  and RMI’s performance evaluations for 2004 and 2005, JEMCO and  JEMFAC, under OIA’s chairmanship, called for improved performance  measurement and monitoring. In the FSM, JEMCO reprogrammed  unused compact funds to improve capacity in this area. In addition, in  response to recurrent lack of uniformity in the FSM’s performance  reports, OIA rejected the first-quarter reports for 2006 (although it  accepted nonuniform FSM reports later in the year). Although OIA had  used the performance reports to monitor sector performance, it was  unaware, until we notified the office, that almost 20 percent of the FSM’s  2005 performance reports were missing.
Monitoring sector grant outlays and fiscal performance. OIA  monitored the countries’ fiscal performance and sector grant outlays  through analyses of the countries’ quarterly financial reports and, as  Chair of JEMCO and JEMFAC, through reviews of the countries’ single  audit reports. In August 2004, OIA analyses of both countries’  third-quarter cash transactions reports showed that some sector grant  funding had not been spent. In response, OIA delayed payments to the  FSM and the RMI for those sectors.
Reviewing single audit reports. As Chair of JEMCO and JEMFAC, OIA  led the committees’ reviews of, and responses to, the FSM’s and the  RMI’s single audit reports. At a March 2006 JEMCO meeting, noting that  single audits were the most important indicator of financial stability  provided by a grantee to a grantor, OIA’s Director of Budget and Grants  Management said that OIA intended to “apply a remedy” for single audit  noncompliance beginning October 1, 2006, if the FSM failed to complete  all of its audit reports by July 1, 2006, or within 3 months of the due date.  The Director stated that OIA’s response would include withholding cash  payments for various grants not related to the provision of medical care,  emergency public health, or essential public safety. The Director also  stated that OIA would notify and seek the concurrence of other U.S.  agencies providing financial and technical assistance in designating the  FSM a “high-risk grantee.” Three FSM states met OIA’s July 1 deadline,  while the national government and Chuuk missed the deadline by 2 and  1 months, respectively. OIA ensured that the FSM received technical  assistance to help address its single audit reports’ lack of timeliness,  placing advisors through a third party in the state governments to  facilitate their completion of overdue reports. In 2004, we recommended  that OIA initiate appropriate actions to correct compact-related single  audit findings and respond to violations of grant conditions or misuse of  funds identified by single audits. Since then, OIA has provided  technical advice and assistance to help the FSM and the RMI improve  the quality of their financial statements and develop controls to resolve  audit findings and prevent recurrences.
Assessing compliance with grant conditions. OIA assessed the FSM’s  and the RMI’s compliance with sector grant conditions through site  visits to the countries and reviews of the countries’ submitted  paperwork. In certain instances of the FSM’s or the RMI’s  noncompliance with grant conditions, OIA monitored progress toward  meeting the requirements and allowed the countries more time, while in  other instances, OIA did not specifically address FSM or RMI  noncompliance. (See apps. VI and VII for a list of sector grant special  terms and conditions and their status.) However, OIA took corrective  actions in several instances.
Suspended grant funding. In December 2004, OIA staff conducting a  site visit were unable to verify that food purchased by the program had  been received by the Chuuk Education Department or served to  students. In response, OIA suspended the Chuuk 2005 education grant’s  meal service program funding of almost $1 million. OIA contacted  Interior’s Office of Inspector General for a follow-up investigation to  determine whether Chuuk was misusing compact funds.
Withheld grant funding. OIA withheld the FSM’s May and June 2004  public sector capacity building and private sector development grant  funding—approximately $2.4 million—when the FSM national  government missed a March 2004 deadline to provide a transition plan  for ending nonconforming use of the grant. In addition, OIA withheld  awarded funds for the FSM infrastructure grant and the RMI Kwajalein  special needs grant until the countries met grant terms.
After our July 2005 report, which recommended that OIA determine the  amount of staff travel to the FSM and the RMI needed to promote  compliance with compact and grant requirements, OIA travel to the  countries increased. Whereas travel to the two countries accounted for 15  percent of overall staff time in 2004, it rose to 20 percent in 2005 and 25  percent for the first three quarters of 2006. However, according to an OIA  assessment, OIA’s current budget does not support extended, detailed  reviews of U.S. funds in the various remote islands.
section_title: OIA Oversight Faced Challenges
paragraphs: OIA’s oversight was hampered by the need to respond to problems in the  FSM as well as by the office’s difficulty in filling staff positions.
FSM challenges. The need to respond to various challenges facing the  FSM reduced OIA’s administrative oversight of assistance provided  under the compact. According to the Director of OIA, the FSM’s budgets  for 2005 through 2007 were poorly prepared, and, as a result, OIA grant  managers were forced to spend an inordinate amount of time readying  the budgets for the JEMCO meetings. In addition, according to OIA’s  Director of Budget and Grants Management, the constant need to  respond to emergent issues, such as education issues in Chuuk and land  issues in the FSM, limited OIA’s ability to conduct oversight.
Staffing challenges. Although OIA increased the 2006 budget for the  Honolulu field office so that it could increase the number of staff  positions, those new positions remained vacant. In December 2005, an  advertised position to be based in Guam went unfilled, while an  education grant specialist position in Honolulu was advertised twice  after April 2006 but remained vacant for the entire fiscal year. In  addition, the OIA private sector development and environment  specialist position became vacant in September 2006.
section_title: Interior’s Inspector General Reports Identified Problems but Were Not Published
paragraphs: Interior’s Office of Inspector General undertook compact oversight  activities, finding deficiencies in the FSM’s and the RMI’s compact  implementation and accountability. In 2005 and 2006, the Inspector  General conducted six reviews (three remained in draft form as of October  2006) addressing issues such as   environmental and public health concerns in Chuuk (draft dated June   student meal programs in Chuuk (draft dated June 2005),  the RMI’s progress in implementing the amended compact (final report  issued August 2005),  the FSM’s progress in implementing the amended compact (draft dated  January 2006),  the FSM’s infrastructure grant implementation (final report issued July   the FSM’s compact trust fund status (final report issued July 2006).
Although the Inspector General distributed the three final reports to OIA  and the FSM and the RMI governments, the final reports were not released  to the public or disseminated widely in the FSM and the RMI. However, one  of the draft reports circulated unofficially and was cited by the media.  According to the Inspector General, the reports are considered advisory in  nature and, as such, no specific response is required from OIA regarding  the recommendations. Nonetheless, OIA officials stated that the office has  found the recommendations useful and has made an effort to address them.
section_title: Conclusions
paragraphs: Since enactment of the amended U.S. compacts with the FSM and the RMI,  the two countries have made significant efforts to meet new requirements  for implementation, performance measurement, and oversight. However, in  attempting to meet these requirements, both countries face significant  challenges that, unless addressed, will hamper the countries’ progress  toward their goals of economic advancement and budgetary self-reliance  before the annual grant assistance ends in 2023.
In 2004 through 2006, compact grants were, for the most part, allocated  among the countries’ six sectors as required, with emphasis on health,  education, and infrastructure, and the countries have made progress in  implementing the grants in most sectors. However, despite the revenue  shortfalls they will face with the scheduled grant decrements, neither  nation has concrete plans to raise the funds needed to maintain  government services in the coming years. Furthermore, although the FSM’s  allocation of funds among the states and among sectors caused significant  inequalities in per-student support for education and per-capita funding for  health care, neither the FSM nor JEMCO evaluated the impact of these  differences on the country’s ability to meet national goals or deliver  services.
Furthermore, although the countries worked to develop the sector grant  performance indicators required by JEMCO and JEMFAC, a lack of  complete and reliable baseline data limited the countries’ use of the  indicators to measure performance and evaluate progress. Moreover,  weaknesses in the countries’ required quarterly performance  reports—including missing and, in some cases, inaccurate activity  data—limited the reports’ usefulness. Unless the FSM and the RMI take  steps to correct these weaknesses in performance measurement, their  ability to use the sector grants to optimal effect will continue to be  curtailed.
section_title: Recommendations for Executive Action
paragraphs: Given the FSM’s and the RMI’s need to maximize the benefits of compact  assistance before the 2023 expiration of annual grants and to make steady  progress toward the amended compact goals, we are providing the  following seven recommendations to the Secretary of the Interior.
To improve FSM grant administration, planning, and measurement of  progress toward compact goals, and to ensure oversight, monitoring, and  accountability for FSM compact expenditures, we recommend that the  Secretary of the Interior direct the Deputy Assistant Secretary for Insular  Affairs, as Chairman of JEMCO, to coordinate with other U.S. agencies on  the committee in working with the FSM national government to take the  following actions:  establish plans for sector spending and investment by the FSM national  and state governments to minimize any adverse consequence of reduced  funding resulting from the annual decrement or partial inflation  adjustment;  evaluate the impact of the current FSM distribution between states and  sectors on the ability of the nation to meet national goals or deliver  services;  fully develop the mechanism for measuring sector grant performance  and collect complete baseline data to track progress toward  development goals; and  ensure that the quarterly performance reports contain reliable and  verified program and financial information for use as a monitoring tool  by both the FSM and the U.S. governments.
To improve RMI grant administration, planning, and measurement of  progress toward compact goals, and to ensure oversight, monitoring, and  accountability for RMI compact expenditures, we recommend that the  Secretary of the Interior direct the Deputy Assistant Secretary for Insular  Affairs, as Chairman of JEMFAC, in coordination with other U.S. agencies  on the committee in working with the RMI government to take the  following actions:  establish plans for sector spending and investment that minimize any  adverse consequence of reduced funding resulting from the annual  decrement or partial inflation adjustment;  fully develop the mechanism for measuring sector grant performance  and collect complete baseline data to track progress toward  development goals; and  ensure that the quarterly performance reports contain reliable and  verified program and financial information for use as a monitoring tool  by the RMI and the U.S. governments.
section_title: Agency Comments and Our Evaluation
paragraphs: We received comments from the Department of the Interior as well as from  the FSM and the RMI (see app. VIII through X for detailed presentations of,  and our responses to, these comments). We also received technical  comments from the Departments of Education, Health and Human  Services, and State, which we incorporated in our report as appropriate.
Interior concurred with our recommendations and stated that the report  was accurate and well balanced. The FSM also viewed the report as a  balanced and fair assessment of its progress in planning for sustainability,  measuring progress, and ensuring accountability and agreed with our  overall conclusion that it faces significant challenges in meeting the various  amended compact requirements. The FSM, however, defended its  distribution formula for allocating compact funds to the national and state  governments. The RMI acknowledged that its lack of capacity has slowed  its implementation of the compact’s monitoring and reporting  requirements. The RMI also stated that it has refrained from expanding  ministry staffs, given the need for budgetary restraint.
In addition to providing copies of this report to your offices, we will send  copies to interested congressional committees. We will also provide copies  of this report to the Secretaries of Education, Health and Human Services,  the Interior, and State as well as the President of the Federated States of  Micronesia and the President of the Republic of the Marshall Islands. We  will make copies available to others on request. In addition, the report will  be available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions regarding this report, please contact  me at (202) 512-3149 or gootnickd@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made major contributions to this report  are listed in appendix XI.
section_title: Objectives, Scope, and Methodology
paragraphs: This report examines, for 2004 through 2006, (1) the Federated States of  Micronesia’s (FSM) and the Republic of the Marshall Islands’ (RMI) use of  compact funds; (2) FSM and RMI efforts to assess progress toward their  stated development and sector goals; (3) FSM and RMI monitoring of  sector grants and accountability for the use of compact funds; and (4) the  Department of the Interior’s (Interior) administrative oversight of the  compacts. Appendix II contains information about activities funded by key  U.S. programs.
To report on the FSM’s and the RMI’s use of amended compact funds, we  reviewed the U.S., FSM, and RMI annual compact reports for 2004 and  2005; FSM and RMI strategic planning documents and budgets; briefing  documents prepared by Interior’s Office of Insular Affairs (OIA) in  preparation for the annual bilateral meetings with the two countries; and  FSM and RMI single audits for 2001 through 2005. We reviewed all 2004,  2005, and 2006 grant agreements with both countries obtained from OIA,  including special terms and conditions included in these agreements. We  compared and analyzed fund uses with the purposes specified in the  amended compacts, the implementing legislation, subsidiary fiscal  procedures agreements, and sector grant special terms and conditions.
To identify issues that impact the use of compact funds, we discussed  planning efforts with U.S., FSM, and RMI government officials and  identified issues through our own analysis that affected planning, such as  the FSM’s use of its distribution formula. We reviewed relevant documents  such as FSM and RMI legislation, and we also reviewed documentation  provided to the U.S. government, such as the FSM’s transition plan to  eliminate the nonconforming spending under the public sector capacity  building grant. To compute education spending per student, we used FSM  and RMI grant data and student and population statistics. To calculate the  variability in health spending per capita across the four FSM states, we  used FSM grant data and population statistics. We did not calculate health  spending per capita for the RMI. We determined that these data were  sufficiently reliable for the purposes of our report.
Although we were asked to evaluate the effectiveness of the compact  funds, we determined it was too soon after the amended compacts’  implementation to do this; therefore, we report on whether the countries  are able to measure progress. To identify FSM and RMI efforts to assess  progress toward their stated goals, we reviewed FSM and RMI strategic  planning documents. We evaluated the framework in place for the FSM and  the RMI to measure the achievement of stated goals in strategic planning  documents and compared them with the countries’ budget and quarterly  performance documents. To determine whether the quarterly performance  reports were being used as a tool to measure progress, we analyzed  quarterly performance reports for 2005 consistently across five sectors and  the accuracy of the budget information. We then verified the results of our  analyses with each office or department we interviewed in the FSM and the  RMI in March and April 2006. We asked if they used these reports to  measure progress and discussed discrepancies we found in the reports. To  identify obstacles to measurement and achievement of goals, we reviewed  the U.S. annual compact reports for 2004 and 2005, FSM and RMI annual  compact reports for 2004 and 2005, FSM and RMI strategic planning  documents and budgets, U.S. government briefing documents, and the  RMI’s 2005 Performance Monitoring Report. We verified this information  with FSM, RMI, and OIA officials.
To identify the extent to which the FSM and RMI governments conducted  monitoring and accountability activities, we reviewed the amended  compacts and fiscal procedures agreements to identify specific monitoring  responsibilities. We also reviewed the U.S. government briefing documents,  as well as the minutes and resolutions, when available, that were related to  the Joint Economic Management Committee (JEMCO) and Joint Economic  Management and Financial Accountability Committee (JEMFAC) meetings.  We further reviewed FSM and RMI documents—such as budget  justifications and portfolios, quarterly performance reports, and annual  financial reports for 2004 through 2006, as available—submitted by the  FSM and RMI governments to the U.S. government to confirm compliance  with accountability reporting requirements. We discussed the sufficiency of  quarterly performance reports with OIA officials. We obtained the single  audit reports for 2001 through 2005 from the FSM National Auditor’s Web  site and the RMI’s Office of the Auditor General. These reports included  audits for the FSM national government; the state governments of Chuuk,  Kosrae, Pohnpei, and Yap; and the RMI national government. In total, the 30  single audit reports covered 5 years, a period that we considered sufficient  for identifying common or persistent compliance and financial  management problems involving U.S. funds. We determined the timeliness  of submission of the single audit reports by the governments using the  Federal Audit Clearinghouse’s (FAC) “Form Date,” which is the most recent  date that the required SF-SAC data collection form was received by the  FAC. We noted that the Form Date is updated if revised SF-FACs for that  same fiscal year are subsequently filed. Our review of the contents of the  single audit reports identified the auditors’ opinions on the financial  statements, matters cited by the auditors in their qualified opinions, the  numbers of material weaknesses and reportable conditions reported by the  auditors, and the status of corrective actions. We did not independently  assess the quality of the audits or the reliability of the audit finding  information. We analyzed the audit findings to determine whether they had  recurred in successive single audits and were still occurring in their most  recent audit, and we categorized the auditors’ opinions on the financial  statements and the Schedules of Expenditures of Federal Awards.
To determine oversight activities conducted by the OIA Honolulu office, we  reviewed senior management statements regarding the purpose and  function of this office and job descriptions for all staff. To identify the  extent that the Honolulu office staff traveled to the FSM and the RMI, we  obtained the travel records for all program specialists and discussed this  information with OIA officials to ensure that these data were sufficiently  reliable for our use. We calculated the percentage of time spent conducting  on-site reviews in the two countries between 2004 and the third quarter of  2006 and compared these data with the total available work time for the  program specialists.
In addition, to report on the FSM’s and the RMI’s use of noncompact federal  funds, we updated our prior review of U.S. programs and services that GAO  issued in 2002. The prior review selected 13 programs and services,  including those with the largest expenditures and loans over a 15-year  period, as well as each of the services that the U.S. government agreed to  provide under the compact. Funding for 3 of these programs was  consolidated into the Supplemental Education Grant under the amended  compacts and was excluded from this update. Moreover, to report on OIA- awarded technical assistance and operations and maintenance  improvement program grants, we selected several projects that assisted  compact implementation or complemented sector grant priorities, such as  education and health, from among grants awarded to the FSM and the RMI  for 2004 and 2005. We also requested applications and grant evaluation  information for these projects from OIA. To determine the total amount of  noncompact federal funding that the FSM received from the United States,  we used the schedule of expenditures of federal awards from the 2004 and  2005 single audit reports of the FSM national government, the four FSM  states, and the College of Micronesia to calculate total FSM expenditures.  For the FSM national government expenditure total, we included only  direct expenditures and did not include funds that were passed from the  national government to the states. We compiled the expenditure amounts  passed directly to the four states from each of the state’s respective single  audit reports and combined these states totals and the national government  totals to obtain the total FSM expenditure amount. We excluded compact  and amended compact expenditures from our calculation. For the RMI, the  federal awards section of the RMI and College of the Marshall Islands 2004  and 2005 single audit reports was used to calculate total RMI expenditures.  The amount of compact funding for the FSM and the RMI was compared  with the total amount of federal expenditures for 2004 and 2005 to get the  percentage of noncompact U.S. federal funding.
To address all of our objectives, we held interviews with officials from  Interior (Washington, D.C.; Honolulu, Hawaii; the FSM; and the RMI) and  the Department of State (Washington, the FSM, and the RMI). We also  interviewed officials from the Departments of Health and Human Services  (Washington and Honolulu); Education (Washington; San Francisco,  California; and Seattle, Washington); and Agriculture (Washington,  Honolulu, and Guam); the Federal Aviation Administration (Honolulu); the  National Weather Service (Honolulu); the Federal Emergency Management  Agency (FEMA) (San Francisco and Honolulu); and the U.S. Postal Service  (Honolulu). We traveled to the FSM (Chuuk, Kosrae, Pohnpei, and Yap) and  the RMI (Arno, Kwajalein, and Majuro Atolls). In addition, in Chuuk, we  visited the islands of Fanapangas, Fefan, Polle, Toll, Tonoas, Udot, Uman,  Ut, and Weno. In both countries, we visited primary and secondary schools,  colleges, hospitals, dispensaries and community health centers, farms,  fisheries, post offices, weather stations, telecommunication offices, and  airport facilities. We discussed compact implementation with the FSM (the  national, Chuuk, Kosrae, Pohnpei, and Yap governments) and the RMI  officials from foreign affairs, finance, budget, health, education, public  works, and audit agencies. Furthermore, we met with the RMI’s Chief  Secretary and the FSM’s Office of Compact Management. In Kwajalein  Atoll, we also met with officials from the U.S. Army Kwajalein Atoll and  Ebeye’s Mayor, with its Ministry of Finance, and with the public utility and  health and education officials to discuss compact implementation issues.  We met with a representative from the FSM’s Micronesian Seminar, a  nonprofit organization in Pohnpei that provides public education on  current FSM events, to obtain views on compact implementation and  development issues. We also observed 2005 and 2006 JEMCO and JEMFAC  meetings. We met with officials from Interior’s Office of Inspector General  (Guam, Honolulu, and Washington) to discuss ongoing investigations in the  FSM and the RMI.
We conducted our review from October 2005 through December 2006 in  accordance with generally accepted government auditing standards. We  requested written comments on a draft of this report from the Departments  of the Interior, State, and Health and Human Services as well as the  governments of the FSM and the RMI. All of these entities’ comments are  discussed in the report and are reprinted in appendixes VIII through X. In  addition, we considered all technical comments and made changes to the  report, as appropriate.
section_title: U.S. Program Assistance to the FSM and the RMI
paragraphs: In addition to compact funding, both the FSM and the RMI received  approximately 30 percent of their total U.S. expenditures during 2004 and  2005 from other federal agencies, including the Departments of Agriculture,  Education, Health and Human Services, and Transportation. As part of the  amended compacts’ subsidiary agreements with the RMI and the FSM, the  United States agreed to extend and subsidize essential federal services,  such as weather, aviation, and postal services that were provided under the  original compact. The amended compacts also extend the programs and  services of FEMA to the FSM and the RMI, but only until December 2008.  At that time, responsibility for disaster assistance in the countries is  transferred from FEMA to the United States Agency for International  Development.
U.S. program assistance is authorized by various sources, including the  amended compacts and their implementing legislation as well as other U.S.  legislation.
Table 3 shows the amount of noncompact U.S. program funds expended on  the FSM and the RMI for 2004 and 2005. Details of several key U.S.  programs follow in tables 4 through 14.
section_title: FSM and RMI Sector Grants, 2004 through 2006
paragraphs: Table 16 lists the compact sector grant allocation to the five FSM  governments in 2004 through 2006. Table 17 lists the compact sector grant  allocation of the RMI, including the Kwajalein funding, in 2004 through  2006.
section_title: Single Audit Reports for the FSM and the RMI, 2001 through 2005
paragraphs: The FSM national government and the individual states in most cases did  not submit their required single audit reports on time for 2001 through  2005, while the RMI has generally improved the timeliness of its single  audits, with its last three reports submitted by the established deadlines. In  nearly all cases, auditors rendered qualified audit opinions on both the  financial reporting and compliance with requirements of major federal  programs for those single audit reports that were submitted. Furthermore,  internal control weaknesses have persisted in both countries since we last  reported on single audits in October 2003. In March 2006, JEMCO  threatened to take action, such as withholding funds, designating the FSM  as a high-risk grantee, or conditionally approving sector grants for 2007, if  the FSM and its states did not submit their 2005 single audits by July 1,  2006.
subsections: section_title: Single Audits Were Not Timely, but Timeliness Improved
paragraphs: The FSM and the RMI are required to submit audit reports each year to  comply with compact and fiscal procedures agreement requirements. The  submitted audits are to be conducted within the meaning of the Single  Audit Act, as amended. Single audits are a key control for the oversight  and monitoring of the FSM and RMI governments’ use of U.S. awards, and  are due to the Federal Audit Clearinghouse 9 months after the end of the audited period. All single audit reports include the auditor’s opinion on the  audited financial statements and a report on the internal controls related to  financial reporting. The single audit reports also include the auditor’s  opinion on compliance with requirements of major federal programs and a  report on internal controls related to compliance with laws, regulations,  and the provisions of contracts or grant agreements. The FSM national  government and the individual states in most cases did not submit their  single audit reports on time for 2001 through 2005, while the RMI has  generally improved the timeliness of its single audits, with its last three  reports submitted by the established deadlines. Table 18 shows the  timeliness of reports for the FSM and the RMI.
The lack of timeliness of the single audit reports for 2001 through 2005,  especially for the FSM and its four states, has meant that U.S. agencies  have limited knowledge of the territorial governments’ accountability over  U.S. funds received. In addition, the governments’ inability to prepare  financial statements and have them audited within 9 months of the fiscal  year-end suggests weaknesses in the underlying financial systems and  processes needed to produce financial information to efficiently and  effectively manage the day-to-day operations of government.
section_title: Nearly All Audit Opinions on Financial Reporting Were Qualified and Contained Material Weaknesses and Reportable Conditions
paragraphs: Among the 30 audit reports on financial reporting submitted by the FSM  national and its state governments and the RMI for 2001 through 2005, 26  reports received qualified opinions. In 2005, Pohnpei received an  unqualified (“clean”) audit opinion on their financial statements. In 2004  and 2005, Chuuk received a disclaimed opinion on its financial statement,  and Yap received a qualified/adverse opinion on its 2004 financial  statement. Table 19 shows the type of financial statement audit opinions  for the FSM and the RMI from 2001 through 2005.
All of the audit opinions of the FSM national government’s financial  statements from 2001 through 2005 were qualified. The opinions were  qualified because of the lack of supporting evidence and restrictions on the  scope of the audit. For example, the auditors qualified their opinion on the  financial statements in the 2005 FSM report due to the following matters:   Their inability to determine (1) the propriety of cash and cash  equivalents, receivables, advances, and amounts due to the FSM state  governments for the governmental activities and the general fund; (2)  receivables and amounts due to the FSM state governments for the U.S.  Federal Grants Fund and the aggregate remaining fund information; and  (3) cash and cash equivalents and receivables for the Asian  Development Bank Loan Fund, and their effect on the determination of  revenues and expenditures/expenses for government activities and the  remaining aggregate remaining fund information.
The lack of audited financial statements of the National Fisheries  Corporation; Micronesia Longline Fishing Company; Yap Fishing  Corporation; Yap Fresh Tuna Inc.; Chuuk Fresh Tuna, Inc.; and Kosrae  Sea Venture, Inc.
In addition, all of the audit opinions of the RMIs’ financial statements  during the 2001 through 2005 period were qualified. For example, as of  2005, the auditors still could not determine the following:   the propriety of governmental activities’ capital assets,  net assets invested in capital assets, and  the net of related debt and depreciation expenses.
The auditors also were unable to obtain audited financial statements for  the following RMI component units: Ministry of Education Head Start Program;  Air Marshall Islands, Inc.;  Kwajalein Atoll Joint Utilities Resources, Inc.; and  Marshall Islands Development Bank.
The single audits also identified material weaknesses and reportable  conditions related to the 2005 financial statements reports, totaling 57 for  the FSM and 2 for the RMI (see table 20). These findings indicated a lack of  sound internal control over financial reporting, which is needed to (1)  adequately safeguard assets; (2) ensure that transactions are properly  recorded; and (3) prevent or detect fraud, waste, and abuse. For example,  in the 2005 FSM single audit report, material weaknesses included (1) the  lack of documentation to support the amounts and disposition of fixed  assets, (2) the lack of reconciliation of U.S. program receivables, (3) the  lack of monitoring of receivable billing and collecting, and (4)  unreimbursed U.S. expenditures. In the RMI 2005 single audit, the auditors  found material weaknesses that included the use of unaudited financial  statements from several component units and the lack of fixed asset  inventory.
We found that 14 of the 57 findings previously mentioned from the 2005  FSM single audit report on financial reporting were recurring problems  from the previous year or had been reported for several consecutive years.  Likewise, the 2 findings from the 2005 RMI single audit report were  recurring problems reported for several consecutive years. The FSM has  developed corrective action plans to address about 91 percent of the  financial statement findings in the 2005 single audits, and the RMI has  developed plans for both of its financial statement reportable findings. For  example, the FSM said that it would make efforts to reconcile  intergovernmental balances and discuss this issue with all four states in  2006, and the RMI said that it would hire a consultant qualified to conduct  the valuation of fixed assets.
section_title: All Audit Opinions on Compliance with Requirements of Major Federal Programs Were Qualified and Contained Material Weaknesses and Reportable Conditions
paragraphs: In addition to the auditor’s report on financial statement findings, the  auditors also provide a report on the countries’ compliance with  requirements of major federal programs. All 30 of the audit reports on such  compliance submitted by the FSM national and its state governments and  the RMI for 2001 through 2005 received qualified opinions. Moreover, in the  2005 single audit reports of compliance with requirements of major federal  programs, auditors reported 45 material weaknesses and reportable  conditions findings for the FSM and 11 for the RMI (see table 21). For  example:  In the FSM, findings that were material weaknesses included (1) the  lack of internal controls over cash management requirements and (2) no  reconciliation of U.S. grants receivable per Catalog of Federal Domestic  Assistance number or by program number.
In the RMI, findings that were material weaknesses included (1) a lack  of inventory of fixed assets and (2) the lack of audit reports from  subrecipient component units.
We found that only 4 of the 45 findings from the 2005 FSM single audit  report, and only 2 of the 11 findings from the 2005 RMI single audit report,  were recurring problems from the previous year or had recurred for several  consecutive years. For the RMI, this was a significant shift from 2002, when  8 of the 11 findings were recurring problems from the previous year or had  recurred for several consecutive years. The FSM has developed corrective  action plans to address about 60 percent of the 2005 single audit’s  reportable findings on compliance with requirements of major federal  programs, and the RMI has developed plans for all its reportable findings  on such compliance. For example, the FSM said that on October 1, 2005, a  new procedure was implemented to properly monitor the drawdown of  U.S. funds and to properly reimburse the states on time, and the RMI said  that it would hire a consultant to assist component units in rectifying their  accounting books and records.
section_title: High-Risk Designations and Other Sanctions Threatened by OIA as Late Reports and Other Problems Persist
paragraphs: According to OMB Circular A-133, if a grantee fails to complete its single  audit reports, U.S. agencies may impose sanctions such as, but not limited  to, (1) withholding a percentage of federal U.S. awards until single audits  are completed satisfactorily, (2) withholding or disallowing overhead costs,  (3) suspending U.S. federal awards until the single audit is conducted, or  (4) terminating the U.S. federal award. At the special March 2006 JEMCO  meeting, the OIA Budget Director noted that single audits were the most  important indicator of financial stability provided by a grantee to a grantor.  He emphasized that OIA was particularly concerned about the lack of FSM  single audits and notified FSM JEMCO participants that OIA intended to  “apply a remedy” for single audit noncompliance beginning October 1,  2006, that would include the possibility of withholding cash payments. OIA  also may take necessary steps to have the FSM designated as a “high-risk”  grantee. Finally, OIA recommended to JEMCO in the March 2006 meeting  that if audits were not completed by July 1, 2006, that it only conditionally  approve sector grants for 2007 so that funds may only be released to  entities in compliance with single audit requirements. This warning  appeared to have an impact on most of the FSM states, because Kosrae,  Pohnpei, and Yap completed their 2005 reports on time.
Other U.S. agencies have not designated the FSM as high risk in the past,  even though they can assign a grantee as high risk if the grantee has a  history of unsatisfactory performance, is not financially stable, has an  inadequate management system, has not conformed to the terms and  conditions of previous awards, or is otherwise irresponsible. Federal  agencies that designate a grantee as high risk may impose special terms and conditions. Currently, none of the U.S. agencies providing funds to  the FSM and the RMI have designated either country as a high-risk grantee,  although this may be a possibility if the single audits are not completed  within the deadlines requested by Interior. Officials from the Department of  Education told us that, because most of the direct grant funding to the FSM  has been subsumed by the Special Education Grant, which is administered  by Interior, Education now has an even smaller share of the U.S. funds in  the FSM, and therefore Interior would be in the best position to invoke a  high-risk designation if warranted for a particular grant. Nevertheless,  Education officials did take into account the lack of single audit  performance when administering program funds and, in the case of funds  for special education, had imposed additional reporting requirements.
Tables 22 and 23 show the total numbers of material weaknesses and  reportable conditions identified in single audit reports for the FSM and the  RMI in 2001 through 2005.
section_title: FSM Compliance with Special Sector Grant Terms and Conditions
paragraphs: Special terms and conditions  in sector grants The FSM shall have 60 days from the date of grant  award to realign this sector budget so that activities  and related costs are clearly defined for each funding  input under the grant. In doing so, the FSM should  use a common or unified format wherever possible.
Between October and December 2003,  OIA lacked education staff needed to  conduct the follow-up.
The FSM shall have 60 days from the date of grant  award to identify the amounts, sources, and the  specific strategic focus and activities of all  noncompact funding and direct technical assistance  that relates to this sector.
Between October and December 2003,  OIA lacked education staff needed to  conduct the follow-up.
The FSM shall submit within 180 days from the date  of grant award a streamlined and refined statement of  outcome measures, baseline data, and annual targets  to enable the tracking of outputs and outcomes. In  doing so, the FSM should use a common or unified  format wherever possible. These materials shall form  the basis for setting measurable annual targets for the  sector grant budget and performance plan that the  FSM submits for 2005 funding.
Between January and March 2004, OIA  staff had discussions with all state directors  of education and other sectors, expressing  concern regarding performance-based  budgeting and the lack of a unified format.  OIA did not receive formal communication  regarding these concerns from the FSM in  2004. The new education grant manager  placed a similar condition on the FSM in  2005.
As a condition precedent to the drawdown of funding  for this specific activity, Pohnpei shall provide written  materials to justify the request for $52,463 for the  funding of the public library from the education sector  grant.
Written justification was not received from  the Pohnpei Department of Education.  However, OIA held discussions with the  Pohnpei Director of Education during OIA’s  first site visit in February 2004. The OIA  education grant manager approved the use  of education funds to support the library’s  purchase of children’s books.
The FSM shall submit within 90 days from the date of  the grant award a streamlined and refined statement  of national strategic goals, outcome measures,  baseline data, and annual targets to enable the  tracking of uniform and consistent, national, and state  outputs and outcomes. In doing so, the FSM should  use a common or unified format.
The FSM did not meet the deadline. OIA  reminded the FSM National Division of  Education (NDOE) of the requirement  several times, and finally indicated it would  cut off funds to them in March 2005 if the  submission was not received. The FSM  provided the required submission in late  February, but the quality of the information  was deemed “questionable” by OIA.
The FSM shall conduct four evaluation studies and  performance assessments.
Special terms and conditions  in sector grants (1) Within 60 days from the date of the grant award,  an analysis of school year 2004-2005 staffing  patterns will be submitted and include, but not be  limited to, the number of students enrolled as of  October 1, 2004; the number of staff by category  (principals, vice-principals, teachers, teacher  assistants, specialists, support staff, etc.) as of  October 1, who are full-time and part-time employees;  changes in staffing from school year 2003-2004; the  number of staff in each category in each school; and  the October 1 student-to-teacher ratio. (1) The staffing patterns report was  submitted in a summarized form. The  summary document did not include data on  all of the staffing categories cited in the  grant condition—for example, no data on  vice- principals were received. (2) Within 60 days from the date of the grant award,  an inventory of textbooks and related resource  materials for each grade in the core subjects of  language arts, math, social studies, and science will  be conducted and submitted. (2) Each state completed their textbook  inventory and submitted it to NDOE. NDOE  transmitted the document “as is,” without a  summary or any analysis. Yap’s report file  could not be opened; a revision was  received a few days later. (3) Within 180 days from the date of the grant award,  a national inventory of educational facilities will be  conducted and progress to date submitted. The  inventory will include, but not be limited to, the  number of educational buildings, age of each,  condition of each, list of repair needs by school, and  date when last renovated. (3) OIA was asked by NDOE to provide a  sample format for the states to follow.  NDOE was late in sending out the  proposed format to the states. Thus, the  four state submissions came in different  formats, with no summary or analysis  provided. (4) Within 180 days from the date of the grant award,  an evaluation of the effectiveness of the national  student testing (NST) systems will be conducted and  progress to date submitted. The NST and state  testing instruments will be evaluated for validity and  alignment to state standards and curricula. (4) The report was completed for the FSM  by a consultant. OIA learned later that the  FSM hired the same consultant who had  created the NST to evaluate it.
The FSM shall provide data of educational progress  no less than annually, in time for submittal to JEMCO.  At a minimum, data on the 20 indicators of  educational progress discussed at the August 11  JEMCO meetings will be gathered and submitted by  state, along with a national summary, no later than  July 30, 2005.
The FSM submitted a summary document,  but it contained little narrative. According to  OIA, it was difficult to decipher the meaning  of some of the charts. The Office of  Compact Management questioned the  quality of the report, but it was submitted  unchanged to OIA. A later submission  contained a narrative analysis.
The FSM shall ensure that within 90 days of the grant  award, the FSM Department of Health, Education,  and Social Affairs, in consultation with the four state  departments of education and OIA, shall develop a  national process and procedure for the procurement  of textbooks on a 5-year purchasing cycle.
The FSM submitted the final national  process and procedure document to OIA  on March 16, 2006. According to OIA, the  document was well thought out and  included significant state input, but did not  include the proposed purchasing cycle for  each state. This omission will be a grant  condition in 2007.
Special terms and conditions  in sector grants The FSM shall ensure that in 2006 through 2008, no  less than $2.5 million of compact education sector  funding allocated to state governments shall be used  to purchase textbooks for the primary and secondary  education systems and related instructional  materials.
The states provided revised line item  budgets, indicating their contribution to the  $2.5 million requirement in November  2005. OIA withheld a portion of the  education sector grant funding in October  and November 2005 until this requirement  was met.
The FSM shall provide data of educational progress  no less than annually, in time for submittal to JEMCO.  At a minimum, data on the 20 indicators of  educational progress discussed at the August 11  JEMCO meetings will be gathered and submitted by  state, along with a national summary, no later than  July 30, 2006.
The FSM missed the original July 30, 2006,  deadline. However, OIA granted their  requested extension until August 14, 2006.  The report on the 20 indicators was  received on that date.
SEG: The FSM shall submit, for approval by OIA, a  written description and annual plan for the use of the  grant funds. No funds may be disbursed until the plan  is approved.
OIA approved the plan submitted by the  FSM in September 2005.
SEG: Timelines for all major objectives and activities  must match the annual funding period. Timelines for  the 2005 funding period are due to OIA by October  31, 2005.
Revised timelines were received directly  from each state, with no attempt to submit  them as an FSM-wide deliverable.
SEG: The FSM shall submit to OIA by December 31,  2005, a framework for each sub-grantee that  illustrates how the programs and goals funded by the  Special Education Grant correlate to the programs  and goals funded by the compact education sector  grant, and how all correlate to the FSM Strategic  Development Plan’s education goals.
The national submission was received on  January 30, 2006. According to OIA, it was  obvious the national submission was  written by one author who used little of  what the states submitted.
The FSM shall have 60 days from the date of grant  award to realign this sector budget so that activities  and related costs are clearly defined for each funding  input under the grant. In doing so, the FSM should  use a common or unified format wherever possible.
Never submitted.
The FSM shall have 60 days from the date of grant  award to identify the amounts, sources, and the  specific strategic focus and activities of all  noncompact funding and direct technical assistance  that relates to this sector.
Met.
The FSM shall submit within 180 days from the date  of grant award a streamlined and refined statement of  outcome measures, baseline data, and annual targets  to enable the tracking of outputs and outcomes. In  doing so, the FSM should use a common and unified  format wherever possible. These materials shall form  the basis for setting measurable annual targets for the  sector grant budget and performance plan that the  FSM submits for 2005 funding.
Never submitted.
Special terms and conditions  in sector grants As a condition precedent to the drawdown of funding  for this specific activity, Chuuk shall provide written  justification to OIA for the funding of $100,990 for  Marine Resources.
Justification was provided, and the funding  was released.
Justification was submitted, and the fiscal  procedures agreement language was  broad enough to encompass all of the  agencies’ core missions. Funding was  released.
Chuuk: Marine Resources, Agricultural Operations,   Yap: Roadside Maintenance and YAPCAP The FSM has 30 days from the date of grant award to  submit the appropriate performance measures and  baseline data to OIA for all approved activities. The  measures and data are to be specific to each funded  activity, not for the sector as a whole.
Funding was held until performance  measures and baseline data were  eventually submitted, the information was  extremely poor quality. However, no  guidance was given or requested by OIA to  the FSM for the development of the  information.
The FSM shall not incur obligations against this grant  until OIA has approved all proposed budget line items  for the national government and its subgrantees.
OIA approved the budgets and released  funds.
The FSM shall have 60 days from the date of grant  award to realign this sector budget so that activities  and related costs are clearly identified for each  funding input under the grant. In doing so, the FSM  should use a common or unified format wherever  possible.
Partially met. According to OIA, while the  numbers added up, the connection  between activities and costs, and the  relationship between costs to expected  outputs—or how outputs linked back to the  FSM’s strategic goals and stated  performance outcomes—remained  unclear.
The FSM shall have 60 days from the date of grant  award to identify the amounts, sources, and specific  strategic focus and activities of all noncompact  funding and direct technical assistance that relates to  this sector.
Met.
The FSM shall submit within 180 days from the date  of grant award a streamlined and refined statement of  outcome measures, baseline data, and annual targets  to enable the tracking of outputs and outcomes. In so  doing, the FSM should use a common or unified  format wherever possible. These materials shall form  the basis for setting measurable annual targets for the  sector grant budget and performance plan that the  FSM submits for 2005 funding.
Partially met. According to OIA, statements  of outcome measures were revised and  submitted but work was still required to  make the FSM’s intent and targets clear.  There were also problems related to having  a common baseline year and using and  providing information in a unified and  common format.
The FSM shall have until September 30, 2006, to  obligate the carryover funds from 2004.
According to OIA, obligations are in  process.
Special terms and conditions  in sector grants Consistent with the resolution adopted by JEMCO on  August 2004, funds made available through this  award may only be used for health-related  infrastructure expenditures and are subject to  conditions applicable to the public infrastructure  grant. Such allowable uses include facility upgrades,  renovation and repair, and fixed equipment and other  capital assets.
The list of projects and purchases received  by OIA complied with the resolution.
The FSM Office of Compact Management shall  compile a list of proposed related infrastructure  expenditures identified by the FSM National  Department of Health, Education, and Social Affairs  and by Chuuk, Pohnpei, and Yap to be funded under  this grant. The list shall be submitted to OIA’s  Honolulu Field Office for review and concurrence by  November 30, 2005. No expenditures shall be  allowed prior to that review, unless specifically  approved by OIA.
OIA communicated directly with Chuuk,  Pohnpei, and Yap and notified the Office of  Compact Management that the lists were  acceptable. The deadline was extended  because the grant award was not signed by  the FSM until December 19, 2005, due to a  technical (nonsubstantive) error. This error  was not brought to OIA’s attention for  correction until after the deliverable’s due  date.
The FSM shall have 30 days from the date of grant  award to provide information on the three health  insurance programs in existence for national and  state government employees. At a minimum, this  information should include (1) a breakdown of costs  associated with the programs in Chuuk and Pohnpei;  (2) the numbers served by each of the three  programs; (3) eligibility requirements; (4) the basis for  calculating premiums and/or government subsidies;  and (5) capitation payments to private providers, state  hospitals, and, as applicable, off-island tertiary care  facilities.
The required information was provided, but  its emphasis was on the FSM national  government’s program. OIA asked for and  received clarification on Chuuk and  Pohnpei’s programs as well.
The FSM shall have until April 1, 2005, to complete a  comprehensive evaluation of the effectiveness of  existing primary care systems and expansion plans in  all four states. The study shall give specific emphasis  on dispensaries, community health centers, and rural  health and cover the following areas: (1) dispensary  staffing, (2) communications, (3) referrals, (4)  infrastructure, (5) transportation, (6) the procurement  and distribution of medicines and other essential  supplies, and (7) new and in-service training. The  responsible agency for the evaluation shall be the  FSM National Department of Health, Education, and  Social Affairs (HESA) in consultation with the four  state departments of health.
The FSM submitted an acceptable  evaluation of its existing primary care  systems and expansion plans for all four  states on time, and provided an oral report  to JEMCO at the August 2005 meeting in  Pohnpei.
HESA shall have 30 days from the date of grant  award to submit an implementation plan and scope of  work to OIA before going forward with the study.
Deadline was extended by OIA and met by  the FSM.
Special terms and conditions  in sector grants The FSM has 30 days from the date of grant award to  reprogram $4,391 earmarked for Chuuk’s  Department of Education to a purpose specifically  linked to the state’s Department of Health Services.
Met.
The FSM has 30 days from the date of grant award to  reprogram $11,500 earmarked for agricultural  programs of Yap’s Department of Resources and  Development, to either nutrition education or another  program activity directly managed by the state’s  Department of Health Services.
Met.
No money shall be used by the FSM National  Department of Health, Education, and Social Affairs  for either building new facilities or renovating existing  buildings. The findings of any physical assessment of  health facilities funded under this grant shall be  submitted to OIA no later than 90 days before the end  of the grant period and also to the infrastructure  development planning committees in all four FSM  states.
Met.
By April 15, 2005, the FSM national government and  Chuuk, in consultation with OIA, shall develop an  outline of a plan that shall promptly address the  deficiencies found in the Chuuk health dispensary  program. The completed plan shall be transmitted to  OIA by May 15, 2005.
An acceptable plan was developed in  consultation with OIA and submitted on  time. A verbal report on the plan’s  implementation was accepted by JEMCO  at its August 2005 meeting in Pohnpei.
The FSM shall not incur obligations against this grant  until OIA has approved all proposed budget line items  from the national government and its subgrantees.
OIA gave its approval at the start of the  fiscal year.
The FSM shall have 180 days from the date of grant  award to submit information to OIA on (1) the  common year selected by the National Department of  Health, Education, and Social Affairs and all four state  health departments that shall serve as the base for  evaluations of sector grant performance and (2) data  collected from that baseline year for all appropriate  outcome measures described in the health care  chapter of the FSM Strategic Development Plan. The  submission shall also include 2004 data linked to  these performance measures.
The FSM health directors met in  September 2005 and agreed to use 2004  as the baseline year. At that time, they  established a process to review the  strategic goals and outcome measures in  the FSM’s development plan. In January  2006, they met again and reaffirmed their  previous selection of 10 outcome  measures and added 4 more measures.  The FSM national government also began  collecting baseline data.
The FSM shall have 180 days from the date of grant  award to submit the appropriate actual performance  targets for 2006 and prospectively for 2007 and 2010.
The health directors established medium- term targets for 2010 but did not meet the  condition to submit actual performance  targets for 2006 or prospectively for 2007.  According to OIA, the FSM health directors  were confused about the requirement.
No grant funds may be expended or obligated before  an infrastructure development plan (IDP) is developed  by the FSM and submitted to OIA for review.
Not met in 2004.
Special terms and conditions  in sector grants To the extent that the infrastructure priorities in the  IDP differ materially from those set forth in the FSM  Infrastructure Development Plan prepared by Nathan  Associates, Inc., written justification should be  provided to OIA for concurrence.
Not met in 2004.
An amount equal to 5 percent of the total grant must  be placed in a separate bank account (the  Infrastructure Maintenance Fund (IMF)), which upon  deposit by the FSM will be matched by OIA. Funds in  this account may be used for operations and  maintenance needs once an IMF plan has been  developed and submitted by the FSM and approved  by OIA.
Not met in 2004.
JEMCO resolves that infrastructure investment for  2005 should move toward being funded at no less  than 30 percent of annual compact grant funding,  consistent with the sense of Congress, and shall  achieve that level for 2006.
Met.
JEMCO resolves that OIA shall approve no projects  until JEMCO has granted its concurrence in compact- funded portions of the FSM’s Infrastructure  Development Plan.
Met.
JEMCO resolves that OIA shall deem approved no  projects until the FSM national government has  provided OIA with, and OIA has approved, a  consolidated list of projects in order of national priority  consistent with the IDP concurred by JEMCO.
Not met in 2005.
JEMCO resolves that as part of the justification of  each infrastructure project, the FSM national  government shall demonstrate that the project  implementation shall be professionally managed.
Met.
JEMCO allocates from the infrastructure sector the  amount of $1 million for the initial establishment of a  project management unit.
Met.
JEMCO resolves that by August 31, 2005, the FSM  national government shall conduct detailed planning  studies to determine the infrastructure requirements  of the health and education sectors.
Not met in 2005 —extended to January 31,  2006, by JEMCO resolution. Extension of  its deadline also was not met by the FSM.
An amount equal to 5 percent of the total grant must  be placed in a separate bank account, the IMF, which  upon deposit by the FSM, will be matched by OIA.  Funds in this account may be used for maintenance  needs once an IMF plan has been developed and  submitted by the FSM and approved by OIA.
Not met as of August 2006.
Special terms and conditions  in sector grants The FSM shall have 60 days from the date of grant  award to realign this sector budget so that activities  and related costs are clearly defined for each funding  input under the grant. In doing so, the FSM should  use a common or unified format wherever possible.
Never submitted.
The FSM shall have 60 days from the date of grant  award to identify the amounts, sources, and the  specific strategic focus and activities of all  noncompact funding and direct technical assistance  that relates to this sector.
Met.
The FSM shall submit within 180 days from the date  of grant award a streamlined and refined statement of  outcome measures, baseline data, and annual targets  to enable the tracking of outputs and outcomes. In  doing so, the FSM should use a common and unified  format wherever possible. These materials shall form  the basis for setting measurable annual targets for the  sector grant budget and performance plan that FSM  submits for 2005 funding.
Never submitted.
Funding under this grant shall not be used by Yap for  the Visitor’s Bureau unless OIA approves a  reprogramming request.
Yap submitted a revised budget and  received approval for funding the Visitor’s  Bureau.
Included within this grant is $888 for Yap to use for  Resources and Development.
In accordance with the condition, Yap  budgeted the funding for Resources and  Development.
As a condition precedent to the drawdown of funding  for this specific activity, Kosrae shall provide written  materials to justify the request for $152,000 for the  funding of Livestock Research/Tissue Culture.
Justification was provided, and the funding  was released.
As a condition precedent to the drawdown of funding  for this specific activity, Kosrae shall provide written  materials to justify the request for $205,000 for the  funding of the Mangrove Crab Project.
Funding was released.
The FSM contested the notion of a phase- out plan for the private sector development  grant and planned to discuss the issue  further at the next JEMCO meeting. OIA  sent a letter agreeing to release the funds,  and the issue was dropped.
Justifications were submitted. The fiscal  procedures agreements language is broad  enough to encompass all agencies’ core  missions. Funding was released.
Pohnpei: Economic Development Authority  Yap: Resources and Development The FSM has 30 days from the date of the grant  award to submit the appropriate performance  measures and baseline data to OIA for all approved  activities. The measures and data are to be specific to  each funded activity, not for the sector as a whole.
Funding was held until performance  measures and baseline data were  submitted. When performance measures  and baseline data were eventually  submitted, the information was of extremely  poor quality. However, no guidance was  given by OIA or requested from the FSM for  the development of the information.
None.
The FSM shall have 60 days from the date of the  grant award to realign its budget so that activities and  related costs are clearly defined for each funding  input. In doing so, the FSM should use a common or  unified format wherever possible.
Partially met. According to OIA, while the  numbers added up, the connection  between activities and costs, and the  relationship between costs to expected  outputs or how outputs— linked back to the  FSM’s strategic goals and stated  performance outcomes—remained  unclear.
The FSM shall have 60 days from the date of the  grant award to identify amounts, sources, and the  specific strategic focus and activities of all  noncompact funding and technical assistance that  relates to this sector.
Met.
The FSM shall submit within 180 days from the date  of the grant award a streamlined and refined  statement of outcome measures, baseline data, and  annual targets to enable the tracking of outputs and  outcomes. In doing so, the FSM should use a  common or unified format wherever possible. These  materials shall form the basis for setting measurable  annual targets for the sector grant budget and  performance plan that the FSM submits for 2005  funding.
Not met. The public sector capacity  building grant does not contain any  conforming, unified outcome measures;  baseline data; or annual targets.
As a condition precedent to the drawdown of funding  of $122,698, Chuuk shall hire a qualified public  auditor.
Chuuk has not yet hired a qualified public  auditor.
The plan was late, and funds were  temporarily withheld.
The FSM had 30 days from the date of the grant  award to submit the appropriate performance  measures and baseline data to OIA for all approved  activities. The measures and data are to be specific to  each funded activity, not for the sector as a whole.
No submittal from the FSM.
A schedule was submitted that showed the  reduction of public sector capacity building  revenues going to basic operations  funding, but not how it would be replaced  by local revenue. plan to migrate basic operations funding from the  public sector capacity building grant to local  revenues. This plan will provide for this migration to  happen over a period not to exceed 5 years.
None.
section_title: RMI Compliance with Special Sector Grant Terms and Conditions
paragraphs: Special terms and conditions  in sector grants The RMI shall have 60 days from the date of grant award  to realign its budget so that activities and related costs  are clearly defined for each funding input. The category,  “U.S. and Other Grants,” shall list components and  allowable uses.
Met.
The RMI shall submit within 180 days from the date of  grant award a streamlined and refined statement of  performance measures, baseline data, and annual  targets to enable the tracking of goals and objectives.  These materials shall form the basis for setting  measurable annual targets for the sector grant budget  and performance plan that the RMI submits for 2005  funding.
Met.
The RMI shall conduct three evaluation studies and performance assessments.  (1) Within 60 days from the date of the grant award, an  inventory of textbooks and related resource materials for  each grade in the core subjects of language arts, math,  social studies, and science will be conducted and  submitted. (1) An extension was requested. The  deliverable was extended to 2006. An  inventory of 71 of 80 schools was  received on July 21, 2006. The  remaining 9 schools’ inventory is  required in the first quarter of 2007. (2) Within 180 days from the date of the grant award, an  analysis of school year 2004-2005 staffing patterns will  be submitted and include, but not be limited to, the  number of students enrolled as of October 1, 2004; the  number of staff by category (principals, vice-principals,  teachers, teacher assistants, specialists, support staff,  etc.) as of October 1, who are full-time and part-time  employees; changes in staffing from school year 2003- 2004; the number of staff in each category in each  school; and the October 1 student-to-teacher ratio. (2) A summary document was received.  A revision was requested to meet the  requirement for select data by school,  not in summary format. The revision was  received in the Fall of 2005. (3) Within 180 days from the date of the grant award, an  evaluation of the effectiveness of the national student  testing systems will be conducted and progress to date  submitted. The third and sixth grade national testing  instruments will be evaluated for validity and alignment to  national standards and curricula. An eighth grade testing  instrument will be designed. (3) An extension was requested, and  was granted. The deliverable was  extended to 2006.
Special terms and conditions  in sector grants The RMI shall provide data of educational progress no  less than annually, in time for submittal to JEMFAC. At a  minimum, data on the 20 indicators of educational  progress discussed at the August 13th JEMFAC  meetings will be gathered and submitted no later than  July 1, 2005. Quarterly performance reports must  include completed data charts, effective immediately,  and incorporate the 20 indicators of educational  progress no later than July 1, 2005.
The majority of the 20 indicators were  submitted on time. The outstanding 5  indicators were requested but not  received.
The RMI shall routinely submit to the OIA Honolulu Field  Office one copy of all educational studies, surveys, and  performance evaluations completed with education  sector or Supplemental Education Grant funds.
Some locally developed reports are  routinely submitted to OIA. Other reports  are not routinely submitted but are  identified in quarterly reports, which OIA  then requests.
Quarterly financial and performance reports shall  include completed data charts, data on Ebeye Special  Needs expenditures and activities, and copies of all  reports completed with education sector or  Supplemental Education Grant funds.
The quarterly reports were received on  time and included information specific to  Ebeye. However, data charts embedded  in the RMI format were often incomplete.  Other reports completed with compact or  Supplemental Education Grant funds are  occasionally but not routinely transmitted  to OIA.
All 20 indicators of educational progress shall be  reported by July 1st annually.
Received July 28, 2006.
The Government of the Republic of the Marshall Islands  shall complete the textbook and staffing inventories by  October 31, 2005. (1) An extension was requested for the  textbook inventory.  (2) The staffing inventory was received  by the deadline.
The Government of the Republic of the Marshall Islands  shall spend those monies required, up to $100,000, to  conduct the mandated national evaluation of the  effectiveness of the national student testing systems by  a reputable testing and evaluation expert within 180 days  of the grant award, and to conduct other evaluations and  assessments as needed. These monies shall come from  the education sector grant award, unless available from  other sources.
According to OIA, the national student  testing system is in near final form. The  RMI brought in a consultant to review  and validate its new testing system. The  consultant provided a minimal  assessment of the testing system to the  RMI. The RMI shared with OIA. OIA  requested a more thorough analysis, but  the RMI did not provide this by the end of  school year 2005-2006. This grant  condition will continue into 2007.
The RMI shall have 60 days from the date of grant award  to realign its budget so that activities and related costs  are clearly defined for each funding input. The category,  “U.S. and Other grants,” shall list components and  allowable uses.
Never submitted.
Special terms and conditions  in sector grants The RMI shall submit within 180 days from the date of  the grant award a streamlined and refined statement of  performance measures, baseline data, and annual  targets to enable the tracking of goals and objectives.
Never submitted.
The RMI shall deliver to OIA the appropriate  performance measures and baseline data for all  approved activities by November 30, 2004.
The RMI submitted revised portfolios.
The grantee shall submit a written explanation of each  budgeted activity no later than 30 days after the date of  grant award.
The RMI submitted revised portfolios.
The deadline is the end pf 2006.  According to OIA’s environmental grant  manager, the RMI is expected to submit  all 6 indicators by the deadline.
Percentage of safe outer island water supply  Percentage of dead and endangered reef areas  Total number of solid waste violation per quarter The RMI shall have 60 days from the date of the grant  award to realign its budget so that activities and related  costs are clearly defined for each funding input. The  category, “U.S. and Other Grants,” shall list component  and allowable uses.
Partially met. Soon after the grant was  awarded, OIA worked closely with the  RMI’s consultant on performance  budgeting, and with the RMI’s Economic,  Policy Planning Statistics Office and  Ministry of Health, on addressing the  grant’s budget realignment requirements.  The results were evident in  improvements to the first and  subsequent quarterly reports in 2004  and the 2005 budget submitted to OIA.  Although the requirement was directed to  the Ministry of Health, the condition had  a beneficial spillover effect in improving  reporting and performance budgeting for  all compact grant sectors. In retrospect,  the deadline imposed in the grant may  have been premature since the  realignment process required time and  effort beyond the 60-day framework and  is still continuing.
Special terms and conditions  in sector grants The RMI shall submit within 180 days from the date of  grant award a streamlined and refined statement of  performance measures, baseline data, and annual  targets to enable the tracking of goals and objectives.  These materials shall form the basis for setting  measurable annual targets for the sector grant budget  and performance plan that the RMI submits for its 2005  funding.
Partially met. The RMI reduced the  number of performance measures it  tracks to those that primarily relate to  effectiveness and efficiency, and ensured  its annual targets were output oriented.  In retrospect, the deadline imposed in  the grant may have been premature  since the realignment process required  time and effort beyond the 180-day  framework and is still continuing.
Insofar as possible, performance measures should apply  equally to both Majuro and Ebeye health subsystems,  and baselines should reflect differences in health status  and service levels in the two urban centers. Measures of  disease incidence or prevalence should also be  developed to gauge the impact of environmental and  infrastructure improvements on health status.
Soon after the grant was awarded, OIA  worked with the RMI’s consultant on  performance budgeting and with RMI’s  statistics office to improve the  consistency of performance budgeting  between Ebeye and Majuro. According to  OIA, the reporting has improved and is  reflected in the 2005 and 2006 budgets  submitted to OIA. Measures of disease  incidence and prevalence, however, still  do not adequately track environmental  conditions. The RMI, however, is working  to improve its health status statistics.  Education and health infrastructure  projects were the RMI’s priority in 2004  and 2005.
The RMI shall have 90 days before the end of the grant  period to complete a comprehensive evaluation of the  effectiveness of its existing primary health care system  and expansion plans. No less than 1 percent of the total  grant award shall be set aside for this purpose.
Met.
The RMI shall have 30 days to submit an implementation  plan and scope of work to OIA before implementing the  study.
Met.
Up to a maximum of $100,000 in carryover funding from  the 2004 health sector grant shall be used to continue  the provision of technical assistance in performance  budgeting and measurement. The scope of work shall  focus on refining outcome statements, measures, and  baselines that demonstrate the effectiveness or  efficiency of the Ministry of Health’s interim outputs.
The 2004 carryover grant awarded to the  RMI provided funds to continue the  provision of technical assistance to build  performance budgeting and monitoring  capacity.
No grant funds may be used by agencies outside the  health sector or for general government administrative  costs, unless specifically justified and preapproved by  JEMFAC.
This condition was meant to prohibit any  further levying of a percentage cost for  the Office of the Auditor General as was  done (and not disclosed) by the RMI  during 2004.
Special terms and conditions  in sector grants The Ministry of Health shall have 30 days from the date  of grant award to submit a list to OIA’s Honolulu Field  Office that describes the specific uses of funding  provided under CSG-RMI-2006-C. Funds may not be  used for recurring salaries and may not be used for other  operating costs, except as approved by OIA.
Partially met. The Ministry of Health  notified OIA of its intent to use most of its  carryover funds to support the  continuation of performance budgeting  technical assistance. This notification  was within the 30-day time frame. The  remaining funds were to go to Majuro  Hospital, but specific uses were not  identified until August 2006.
None.
The RMI shall submit a formal infrastructure  development and maintenance plan to OIA prior to the  expenditure of sector grant funds for construction  activities.
Met.
Funds designated for Infrastructure Maintenance Funds  will be deposited after the RMI has transmitted its 2004  infrastructure maintenance plan to OIA for its  concurrence in writing.
Met.
The RMI government shall formulate a project  development plan, consistent with the Infrastructure  Development Maintenance Plan format for the project  entitled “Ebeye Hospital Repair.”
No plan formulated as of September 13,  2006.
None.
The RMI shall have 60 days from the date of grant award  to realign its budget so that activities and related costs  are clearly defined for each funding input. The category,  “U.S. and Other grants,” shall list components and  allowable uses.
Never submitted.
The RMI shall submit within 180 days from the date of  grant award a streamlined and refined statement of  performance measures, baseline data, and annual  targets to enable the tracking of goals and objectives.  These materials shall form the basis for setting  measurable annual targets for the sector grant budget  and performance plan that the RMI submits for 2005  funding.
Never submitted.
The RMI shall deliver to OIA the appropriate  performance measures and baseline data for all  approved activities by November 30, 2004.
The RMI submitted revised portfolios.
Never submitted. (1) Dollar amount of export revenues from local  products. (Baseline will be established in 2006, and this  measure will be used in future years to determine  program development.) (2) Number of international tourist arrivals.
None.
The RMI shall deliver to OIA the appropriate  performance measures and baseline data for all  approved activities by November 30, 2004.
Never submitted.
The RMI shall deliver to OIA an audit work plan and audit  schedule for 2006 by October 31, 2005.
Submitted late.
section_title: Comments from the Department of the Interior
section_title: Comments from the Federated States of Micronesia
paragraphs: The following are GAO’s comments on the Federated States of Micronesia’s  letter dated December 4, 2006.
subsections: section_title: GAO Comments
paragraphs: 1. As we noted in both our June 2006 report and this report, the FSM’s  efforts to address the decrement to date have not yielded the financial  changes, including significant tax reforms, required to address the  decrement. Therefore, we reiterate our position that the FSM needs to  develop a plan to address the decrement. If the FSM fails to address the  decrement, the federal and states’ budgets will likely be reduced,  making it difficult to maintain current personnel levels. 2. We recognize that the FSM established its 70:30 formula according to its  stated goal of providing for certain needs common to each state,  regardless of population size, such as the need for airports and  seaports. However, the differences in per-capita funding resulting from  use of the formula may have contributed to disparate conditions among  the FSM states, especially in health and education, that cannot be  ignored. These differences have also been identified by a Department of  Health and Human Services official and in the FSM’s own development  plans as well as in a study by the Asian Development Bank. We believe  that the formula’s impact on each state’s performance and development  should be continuously evaluated and the allocation of funds revised as  necessary. As we observe in this report, such an assessment requires  the full development of the mechanism for measuring sector grant  performance and collecting complete baseline data. 3. We testified three times in 2003, before the House and the Senate,  regarding our assessment of the new arrangements and requirements of  the amended compacts.
section_title: Comments from the Republic of the Marshall Islands
paragraphs: The following are GAO’s comments on the Republic of the Marshall Islands’  letter dated December 4, 2006.
subsections: section_title: GAO Comments
paragraphs: 1. Throughout the report, we differentiate between the FSM and the RMI  when discussing findings specific to each country. For example, when  addressing land issues that have delayed projects in the countries, we  discuss the issues and projects in each country separately. However,  when findings were the same for both countries, we discussed the  findings jointly. For example, we discuss planning for the decrement  jointly because both the FSM and the RMI face the same issue. 2. The RMI projects that the annual inflation adjustment will allow the  nominal value of annual grants to increase. However, using the  Congressional Budget Office’s projections on the GDP Implicit Price  Deflator, we found that for most years, the nominal value of the grants  for the RMI declines each year from the previous years. We believe that  the RMI response does not capture the true impact of the decrement  and the urgent need for sector grant planning to take it into account.
The combined impact of the decrement and partial inflation creates  difficult challenges. First, absent full adjustment of the grants for  inflation, the grants’ real value declines, leading to reduced sector  resources and creating challenges in recruiting and retaining agency  staff.
RMI government agencies will not be able to maintain the current levels  of imported resources when the real value of grants decline. Imported  items needed for the education and health sectors, such as textbooks  and pharmaceuticals, are subject to rising external prices. Likewise,  increasing costs of imported building supplies may reduce the  purchasing power of the infrastructure grant.
In the RMI, personnel expenses are the largest area of government  expenditures. Recruiting and retaining staff will be difficult if salaries  are not fully adjusted for inflation. Furthermore, because RMI citizens  can move to the United States to work, and many have done so, finding  qualified personnel may become more difficult. A recent assessment of  Marshallese emigration concluded that about one quarter of Marshallese  now live abroad.
Second, although the RMI states in its letter that it expects import duties to  increase with external inflation, the inflation increase will not fully  compensate for the decrements without aggressive growth in import  duties.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Emil Friberg, Assistant Director;  Julie Hirshen; Ming Chen; Tracy Guerrero; Emmy Rhine; and Eddie  Uyekawa made key contributions to this report. Joe Carney, Etana Finkler,  Mary Moutsos, and Reid Lowe provided technical assistance.
section_title: Related GAO Products
paragraphs: Compacts of Free Association: Development Prospects Remain Limited  for Micronesia and the Marshall Islands. GAO-06-590. Washington, D.C.:  June 27, 2006.
Compacts of Free Association: Implementation of New Funding and  Accountability Requirements Is Well Underway, but Planning Challenges  Remain. GAO-05-633. Washington, D.C.: July 11, 2005.
Compact of Free Association: Single Audits Demonstrate Accountability  Problems over Compact Funds. GAO-04-7. Washington, D.C.: October 7,  2003.
Compact of Free Association: An Assessment of Amended Compacts and  Related Agreements. GAO-03-890T. Washington, D.C.: June 18, 2003.
Foreign Assistance: Effectiveness and Accountability Problems Common  in U.S. Programs to Assist Two Micronesian Nations. GAO-02-70.  Washington, D.C.: January 22, 2002.
Foreign Relations: Kwajalein Atoll Is the Key U.S. Defense Interest in  Two Micronesian Nations. GAO-02-119. Washington, D.C.: January 22,  2002.
Foreign Relations: Migration From Micronesian Nations Has Had  Significant Impact on Guam, Hawaii, and the Commonwealth of the  Northern Mariana Islands. GAO-02-04. Washington, D.C.: October 5, 2001.
Foreign Assistance: Lessons Learned From Donors’ Experiences in the  Pacific Region. GAO-01-808. Washington, D.C.: August 17, 2001.
Foreign Assistance: U.S. Funds to Two Micronesian Nations Had Little  Impact on Economic Development. GAO/NSIAD-00-216. Washington, D.C.:  September 22, 2000.
Foreign Relations: Better Accountability Needed Over U.S. Assistance to  Micronesia and the Marshall Islands. GAO/RCED-00-67. Washington, D.C.:  May 31, 2000.