Denali Commission: Options Exist to Address Management Challenges
Published: 2015-03-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since establishment in 1998 by statute, the Denali Commission has awarded over $1 billion in federal grants to help develop Alaska's remote communities. The Commission has a Federal Cochair and six other commissioners.
GAO was asked to review the management of the Commission. This report examines (1) challenges the Commission has faced in fulfilling its statutory purpose and options to address them; (2) challenges that hindered the Commission's daily operations; and (3) the Commission's policies and procedures for managing grants and the extent of compliance with them. GAO reviewed key laws and policies; interviewed former and current commissioners and such stakeholders as state agencies that received grants; and analyzed a random sample of 100 projects funded by Commission grants for fiscal years 1999 through 2013.
section_title: What GAO Found
paragraphs: The Denali Commission has faced two key challenges in fulfilling its statutory purpose of providing, among other things, infrastructure and economic development services to rural communities; but options exist to address them. First, a 90 percent decrease in Commission funding from its peak in fiscal year 2007 has raised concerns about whether the Commission can sustain its current approach as primarily a grant-making agency. Given its funding challenge, stakeholders GAO interviewed identified several options for how the Commission could approach fulfilling its statutory purpose in the future, such as shifting its focus to facilitating economic development projects or maintaining existing infrastructure rather than funding new projects. Even though the Commission has taken some steps to reassess its long-term approach, such as conducting statewide listening sessions on how best to assist rural Alaskans in the future, it has not finalized such an approach in a new multiyear strategic plan. Second, the Department of Justice's 2006 determination on the applicability of the principal federal conflict-of-interest law has resulted in a Commission that is, at times, deprived of the expertise of its six commissioners. Concerns about possible criminal prosecution for conflicts of interest have resulted in commissioners regularly recusing themselves from Commission decision-making activities. Based on various sources, GAO identified four options for restructuring the Commission so that it can better leverage the expertise of its commissioners in light of the 2006 determination. Each of the options would require changes to the Denali Commission Act, which established the Commission.
The Commission has faced several challenges that have hindered its daily operations, including having periodic vacancies in the Federal Cochair position and not having an attorney. Having a vacancy in the Federal Cochair position has twice stymied the Commission because only the Federal Cochair is authorized to take certain critical actions, such as approving new grants. The Denali Commission Act does not provide for an acting Federal Cochair and does not allow the Federal Cochair to delegate authority to another person or to remain in office beyond the expiration of his or her 4-year term (holdover). In addition, even in the face of numerous complex legal questions, such as the applicability of the principal federal conflict-of-interest law, the Commission has never had a full-time attorney to provide it with legal advice and support on a routine and consistent basis. Without an attorney to help the Commission identify and navigate risks consistent with federal standards for internal control, the Commission is at increased risk for making legal mistakes.
The Commission has some key procedures in place for administering its grants, but GAO found several shortcomings in how the Commission has managed its grants. Both the Commission's internal checklists and its online grants database meet established criteria for good grant management and oversight. However, the Commission does not have documented grant-making policies in place, leading to inconsistencies in how it awards and manages grants. For example, the Commission's awarding of grants has not always been open or competitive, and its monitoring of grant and project recipients has been inconsistent. Unless it issues grant management policies, the Commission may not be setting clear expectations for grantees, making it difficult to hold them accountable for fulfilling the terms of grant agreements.
section_title: What GAO Recommends
paragraphs: Congress should consider amending the Denali Commission Act to, among other things, restructure the Commission to better leverage the commissioners' expertise, and create a delegation of authority or holdover provision for the Federal Cochair position. GAO recommends, among other things, that the Commission consider options for fulfilling its statutory purpose and finalize its approach in a new strategic plan; obtain a full-time attorney; and issue grants management policies. The Denali Commission, including its commissioners, agreed with GAO's conclusions and recommendations.

section_title: Letter
paragraphs: About 220 Alaskan communities are accessible only by air or small boat.  These remote, often isolated communities are scattered throughout the  state, and most of them are not connected to the power grid and must  generate their own electricity and provide for their own heating locally.  In 1998, the Denali Commission Act established the Denali Commission  (Commission) as a federal agency with the statutory purpose of providing  to rural areas of Alaska job training and economic development services,  rural power generation and transmission facilities, modern communication  systems, water and sewer systems, and other infrastructure needs.  By statute, there are seven members of the Commission, known as  commissioners: a federal cochairperson (Federal Cochair)—a federal  employee appointed by the Secretary of Commerce who directs  Commission staff—and six additional commissioners from the state of  Alaska and specific Alaska business, labor, academic, and native and  community organizations. The act requires the commissioners to  annually solicit proposals for projects from local governments and other  entities and organizations and develop a proposed work plan for projects  in Alaska that provides for rural and infrastructure development and  necessary job training.
Since its inception, the Commission has provided over $1 billion in federal  grants to help develop Alaska’s remote communities. Over its history, the  Commission has awarded over 800 grants to fund over 2,300 projects  across various program areas, including energy, transportation, and  health care. For example, the Commission has funded upgrades to power  generation facilities and the construction of village health clinics. In recent  years, however, the Commission’s funding has decreased 90 percent  overall from fiscal year 2007 to fiscal year 2014. In addition, the  Commission’s former Inspector General and others have raised questions  about the Commission’s oversight of its grants, such as whether the  Commission was ensuring that operators of certain facilities built with  Commission grants had set aside funds to cover the projected costs of  the facility’s major repairs, renovations, renewals, and replacement.
You asked us to review issues related to the management of the  Commission. This report examines (1) the challenges, if any, the  Commission and commissioners face in fulfilling the Commission’s  statutory purpose and options to address them; (2) the challenges, if any,  that have hindered the daily operations of the Commission; and (3) the  Commission’s policies and procedures for awarding and managing grants  and the extent to which grantees and commission officials complied with  these policies and procedures. We reported separately on the  Commission’s Office of Inspector General in September 2014.
To conduct our work, we analyzed the Denali Commission Act of 1998, as  amended, and other relevant federal laws and regulations and agency  guidance and documents. We also interviewed Commission officials and  staff, including the current Federal Cochair and other Commission  officials as well as a former Federal Cochair and selected former  Commission staff; all current commissioners and selected former  commissioners; the attorney assisting the Commission on ethics and  certain other legal matters; and several “stakeholders”—parties affected  by the Commission and its decisions, including commissioners and the  organizations they work for, program partners (generally, state agencies  or other entities that receive grants from the Commission and oversee  projects funded by those grants), other grant recipients, and residents of  rural Alaskan communities. We visited Anchorage and five selected  remote communities in Alaska, where we met with local officials  representing municipal government, tribal entities, and grant recipients,  among others. We selected these communities based on criteria including  the number and variety of Commission-funded projects, geographic  location, accessibility, and their relative proximity to each other.
To identify and assess challenges faced by the Commission and its  commissioners in fulfilling the Commission’s statutory purpose, we also  analyzed legal opinions and other information related to the role of the  commissioners, and the application of the principal conflict-of-interest law.  We analyzed the structure and function of other similar agencies, such as  the Appalachian Regional Commission and the Delta Regional  Authority, and bodies that provide advice to federal agencies, such as  regional fishery management councils, focusing on their applicable  conflict-of-interest provisions to identify different structures that would  better leverage the commissioners’ expertise.
To identify and assess specific challenges that hindered the  Commission’s daily operations, we analyzed legal opinions and other  documents and information related to, among other things, the position of  the Federal Cochair and the role played by agency attorneys. We  analyzed documents related to federal internal control standards, such as  risk management, and agency operations. We also interviewed officials  from the Department of Commerce (Commerce) and analyzed documents  related to the relationship between the Commission and Commerce.
To evaluate the Commission’s policies and procedures for awarding and  managing grants and the extent to which grantees and commission  officials complied with these policies and procedures, we selected a  random sample of 100 Commission-funded projects from fiscal years  1999 through 2013. We then analyzed project documents to determine  the extent to which grantees complied with requirements in the relevant  grant agreements and other similar documents and discussed grant  requirements and reporting with Commission officials. To assess the  reliability of the data in the Commission’s Project Database System, we  interviewed agency officials and grant managers about the data system  and elements, how the system is used, and the method of data input,  among other areas. We determined that the data we used were  sufficiently reliable for our purposes. Appendix I presents a more detailed  description of our objectives, scope, and methodology.
We conducted this performance audit from May 2013 to March 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: This section discusses the unique nature of living in remote communities  in Alaska, the history and administrative structure of the Commission, its  funding, and its annual work plan and grants program.
subsections: section_title: Unique Nature of Living in Remote Communities in Alaska
paragraphs: Alaska is the largest U.S. state—one-fifth the size of the lower  48 contiguous states combined—but with a small population, the lowest  population density in the country, and large travel distances between  cities (see fig. 1). About 700,000 people live in Alaska, nearly half of  whom reside in the three largest cities of Anchorage, Fairbanks, and the  capital of Juneau. The remainder of the population lives in smaller, often  isolated communities scattered throughout the state. Most of these  remote communities are not connected to the power grid and must  generate their own electricity and provide for their own heating locally.  In communities that burn diesel fuel to generate electricity and use  heating oil to heat their homes, these fuels must be stored in bulk fuel  tanks, and fuel delivery to some of these communities can only occur  during 3 or 4 months out of the year. In addition, Alaska’s mountain  ranges, glaciers, and vast wilderness create natural barriers to  transportation and communications, including coastal areas of the state  that are completely iced-in most of the year.
Alaska’s transportation system is different from that of the contiguous  48 states, with many Alaskan cities and villages accessible only by air or  water. Highway and rail infrastructure is primarily located in the south  central region of the state, and many communities are not connected to  the rest of the state by road or rail. Consequently, the dominant modes of  transportation around the state are air and barge services along coastal  and inland waterways. (See fig. 2 for a view of Alaska’s transportation  network.)
Many parts of Alaska have an approximately 4-month summer  construction season, due in part to the state’s extreme weather  conditions. While some types of construction can be done at other times  of year, such as excavating in permafrost—ground that is permanently  frozen year-round in Arctic regions—and bogs, other types of construction  either cannot be done or would be highly inefficient, such as erecting  steel structures. In most cases, construction materials and equipment  must be transported to the building site by sea during a brief time period  in the summer. An exception to this is in the southeast part of the state,  where shipping and construction can take place during most of the year.
After the passage of the Oil Pollution Act of 1990, which required the  issuance of regulations to establish procedures, methods, equipment, and  other requirements to prevent discharges of oil from vessels and onshore   the U.S. Coast Guard declared it would no  facilities, among other things,longer allow fuel delivery to Alaskan communities with fuel tanks that  were leaking or otherwise contaminating the soil and water. Meeting the  new requirements was well beyond the reach of many rural communities.  Nearly 100 villages were in jeopardy, facing winter without electricity or  home heating oil. In this context, the Denali Commission was established  in 1998 as a federal agency to provide, among other things, infrastructure  and economic development services to rural Alaskan communities.
The Denali Commission Act of 1998 established a 3-fold purpose for the  Commission: (1) delivering federal services in the most cost-effective  manner practicable by reducing administrative and overhead costs;  (2) providing job training and economic development services in rural  communities; and (3) promoting rural development and providing  infrastructure. Since the Commission’s inception, the act has been  amended several times, to among other things, authorize the Commission  to undertake construction of health care facilities, surface transportation  infrastructure, and waterfront development projects. Most recently, the act  was amended to authorize the Commission to accept certain transfers of  funds from other federal agencies, as well as conditional gifts or  donations for the purpose of carrying out the act.
section_title: Denali Commission Structure and Evolution
paragraphs: The Denali Commission has a Federal Cochair and six other  commissioners who are not agency employees. For these  six commissioner positions, the following individuals designated by  statute, or someone selected from nominations that they submit, may  serve:  the Governor of Alaska, who serves as the State Cochair;  the president of the University of Alaska;  the president of the Alaska Municipal League;  the president of the Alaska Federation of Natives;  the executive president of the Alaska State American Federation of  Labor and Congress of Industrial Organizations; and  the president of the Associated General Contractors of Alaska.
The Commission office is located in Anchorage, Alaska, and its staff work  at the direction of the Federal Cochair to carry out day-to-day operations.  Since the inception of the Commission, there have been three Federal  Cochairs. On April 21, 2014, the third Federal Cochair began his second  4-year term. Under the Denali Commission Act, a Federal Cochair’s term  is 4 years but the Federal Cochair can be reappointed. The act states  that any vacancy in the Commission shall not affect its powers but must  be filled in the same manner as the original appointment. To appoint a  Federal Cochair, the act establishes a two-step process. First, the  President pro tempore of the Senate and the Speaker of the House of  Representatives each submits a list of nominations to the Secretary of  Commerce. Second, the Secretary of Commerce appoints the Federal  Cochair from among the list of nominations submitted.
The act specifies that the Federal Cochair is an employee of Commerce.  Accordingly, Commerce officials review and approve his or her time card.  The act also requires the Secretary of Commerce to review the  Commission’s annual work plan, which includes programs and rural  energy projects approved for funding. According to Commerce officials,  officials in Commerce’s Economic Development Administration generally  conduct this review. In addition, the act authorizes, but does not require,  other federal agencies (including Commerce) to make personnel and  services available to the Commission upon the Commission’s request.
In October 2006, the Commission’s Federal Cochair wrote a letter to the  Department of Justice’s (Justice) Office of Legal Counsel to request  guidance about federal ethics provisions that would be applicable to the  commissioners. Specifically, the Federal Cochair wrote that he  understood he was subject to the federal statutes and regulations  governing employee ethics as a Commerce employee; however, the other  six commissioners needed guidance as to which federal ethics provisions  applied to them. In late 2006, Justice determined that the six  commissioners were special government employees for purposes of  ethics laws and regulations and therefore subject to the principal federal  criminal conflict-of-interest law. Justice based its determination, in part,  on the requirement in the Denali Commission Act that the commissioners  receive pay for their work. The principal financial conflict-of-interest law  prohibits regular and special government employees from participating  personally and substantially in an official capacity in a “particular matter”  that may have a direct and predictable effect on their financial interest.  Under the law and implementing regulations, the commissioners’ financial  interest includes the financial interest of their employers. Therefore,  commissioners are prohibited from participating in any particular matter  that has a direct and predictable effect on the organization that employs  them, unless granted a waiver by the Federal Cochair. A waiver—which  can only be granted under certain circumstances—permits an employee  to participate in a particular matter that would otherwise be prohibited  under federal law.
For purposes of this report, we refer to this third Inspector General as “the former  Inspector General.” of the designated federal entity for purposes of the Inspector General  Act.
section_title: Denali Commission Funding
paragraphs: The Commission receives direct appropriations, which are sometimes  referred to as its base funding. In addition to this base funding, the  Commission also receives statutorily directed transfers and grants from  other agencies and entities. These other agencies and entities have  varied over time and have included the following, among others:
Trans-Alaska Pipeline Liability Fund;
U.S. Department of Agriculture;
U.S. Department of Health and Human Services;
U.S. Department of Transportation;
U.S. Environmental Protection Agency;
U.S. Department of Housing and Urban Development;
U.S. Department of Labor;
U.S. Department of the Interior;
Alaska Mental Health Trust Authority; and
Alaska Department of Transportation and Public Facilities.
Funding for the Commission steadily increased until fiscal year 2005 and  peaked in fiscal year 2007 at $141 million. However, from fiscal years  2008 to 2014, funding steadily decreased, reaching a low of $14 million in  fiscal year 2014—a level below fiscal year 1999 funding and an overall  decrease of 90 percent since its peak in fiscal year 2007—with funding  decreases from nearly all of the Commission’s funding sources (see  fig. 3). For example, the Commission’s direct appropriations decreased by  more than 50 percent from fiscal years 2007 to 2008 and decreased by  nearly 50 percent from fiscal years 2008 to 2009, falling to $10 million for  fiscal year 2014. Similarly, since fiscal year 2007, funds from other  agencies and entities, which were made available to or designated for  use by the Commission, generally decreased or ceased entirely. In fiscal  years 2013 and 2014, the Commission received funds from only one  source other than its direct appropriation—the Trans-Atlantic Pipeline  Liability fund.
Until fiscal year 2010, some of the Commission’s direct appropriations  were identified for specific programs or projects. For example, in fiscal  year 2004, the appropriations conference committee directed the  Commission to spend $10 million for teacher housing in remote villages  where there is limited housing available for teachers. In 2012, the  Commission received broad authority to accept transfers of funds from  any federal agency authorized to carry out an activity within the  Commission’s authority and conditional gifts for purposes of carrying out  the Denali Commission Act. Commission funding also includes matching  funds from the state of Alaska for certain projects.
section_title: Denali Commission’s Annual Work Plan and Grants Program
paragraphs: The act requires (1) the commissioners to develop, annually, a proposed  work plan for Alaska and submit that work plan for review and approval  and (2) Commerce to review and approve the annual work plan after  providing for public review and comment. Through the work plan—which  authorizes the Federal Cochair to enter into grant agreements, award  grants and contracts, and obligate federal funds—the Commission  outlines its priorities and funding recommendations for each fiscal year.  The process of developing and adopting the work plan generally occurs  sequentially as follows:  1.  Project proposals are solicited from local government and other  2.  Commission officials draft the work plan and provide to the  3.  Commissioners forward an approved draft version of the work plan to  4.  Upon preliminary approval by the Federal Cochair, the draft work plan  is published in the Federal Register for a 30-day public comment  period and disseminated to the Commission’s program partners.  If no revisions are made, the Federal Cochair provides notice of  preliminary approval of the work plan to the commissioners, and  forwards it to the Secretary of Commerce for approval;  5.  The Secretary of Commerce, through the Economic Development  Administration, reviews and then approves, partially approves, or  disapproves the work plan (the work plan is revised as necessary to  gain approval); and  6.  The Federal Cochair awards grants and contracts based upon the  approved work plan.
Since its inception, the Commission has issued over $1 billion in grants to  help rural and remote communities in Alaska. Over 800 grants have  funded more than 2,300 projects. The Commission has sometimes  awarded large grants to “program partners” such as state agencies to  fund multiple projects. For example, the Commission used a single grant  to provide over $100 million to the Alaska Energy Authority to, among  other things, plan and construct energy generation facilities. The Alaska  Energy Authority, a public corporation created by state law, used the   The Commission has also provided  grant to fund over 200 projects.grants directly to small, village-level organizations. For example, the  Commission provided about $9,000 to the community of Quinhagak to  fund the study of an extension of the airport’s runway, among other  things.
section_title: The Commission Faces Two Key Challenges in Fulfilling Part of Its Statutory Purpose, but Several Options Exist to Address Them
paragraphs: The Commission faces two key challenges in fulfilling the statutory  purpose to promote rural development and provide for infrastructure  needs, but there are options to assist the Commission in addressing  them.making to achieve the rural development portion of its statutory purpose  in light of significant funding decreases and (2) the application of the  conflict-of-interest law which sometimes prevents commissioners—who  hold key specialized knowledge—from being actively involved in  developing the annual work plan.
subsections: section_title: The Commission’s Reliance on Grant Making May Not Be Sustainable Given Significant Funding Decreases, but Options Exist to Address This Challenge
paragraphs: Significant decreases in funding have raised questions about whether the  Commission can sustain its current approach of grant making alone to  fulfill its statutory purpose. Stakeholders have identified several key  options the Commission could take to fulfill its statutory purpose. Amid  questions about the future of the Commission, its management has  begun efforts to reassess the Commission’s approach in light of its  funding challenge.
subsections: section_title: The Commission Continues to Rely on Grant Making Even Though Its Funding Has Decreased by 90 Percent
paragraphs: In the face of a 90 percent decrease in funding from its peak in fiscal year  2007, the Commission may no longer be able to rely largely on grant  making to pursue its statutory purpose, according to Commission  management and stakeholders. One purpose of the Denali Commission  Act is to provide economic development services in rural communities,  promoting rural development, and providing infrastructure needs.  However, Commission management and several stakeholders have  raised concerns that the Commission’s current approach as primarily a  grant-making agency cannot fulfill the statutory purpose in the current  budget environment. Specifically, funding levels cannot support grant  making on the scale and pace the Commission has done in the past. In  addition, the number of program areas that the Commission has been  able to fund through grant making has also decreased. By 2013, nearly all  Commission spending went to only two program areas—transportation  and energy—and the Commission no longer funded new economic  development or health care facilities projects, among others.
As Commission funding has decreased, administrative expenses have  consumed a larger percentage of its budget, creating a challenge since  the Denali Commission Act, as amended, prohibits the Commission from  using more than 5 percent of the funds appropriated under the act’s  authority for administrative expenses. Under this cap, the amount  available to the Commission for administrative expenses, such as grants  management and oversight, has declined from approximately $7 million in  fiscal year 2007 to less than $700,000 in fiscal year 2014. In practice,  however, this cap has been waived each of the last 10 fiscal years in  appropriations laws. According to Commission management, the waiver  occurred because the Commission could not realistically safeguard the  funds in its portfolio of grants under such budgetary constraints. The  Commission’s December 2013 independent public audit highlighted the  need for the Commission to adopt practical internal controls to ensure  proper accounting and safeguarding of its funds—a key administrative  activity. In this context, the Commission obligated $3.34 million for  administrative expenses in fiscal year 2014—or 24 percent of its overall  budget—according to Commission management. We previously found  that spending caps can only work if they are realistic and that such caps  “are not likely to bind if they are seen as totally unreasonable given  current conditions.” Without a statutory change to the Denali  Commission Act to permanently eliminate the 5-percent cap, it is unlikely  that the Commission will have flexibility to plan and budget for essential  administrative activities.
According to the Federal Cochair, as of February 4, 2015, the Commission had on staff  11 permanent federal employees; six intermittent federal employees; and the Federal  Cochair, who is a Commerce employee. associated projects. Underscoring this concern, the Commission’s  December 2013 independent public audit (1) cautioned that internal  controls deficiencies would be created if the Commission was to lose any  of the three members of its finance staff and (2) raised concerns that the  Commission’s diminishing staff could impact all areas of the Commission,  including origination and monitoring of grants.
section_title: Stakeholders Identified Several Options to Address This Challenge
paragraphs: Key stakeholders we interviewed—primarily commissioners and program  partners—have identified a variety of options the Commission could take  for how to approach fulfilling its statutory purpose in the future. These  options are not mutually exclusive and could be combined in different  variations, depending on strategic priority and funding. All options  involve the Commission being more strategic in how it expends its  diminishing funds—whether by prioritizing which program areas to  continue or by increasing its nongrant activities. The options stakeholders  identified include, but are not limited to:
Retain status quo of grant making. The Commission could continue  to focus primarily on grant making, which includes funding traditional,  “shovel-ready” construction projects as well as some atypical projects  needing further Commission discussion before approval.
Limit number of grants. The Commission could limit the total  number of grants it awards each year, particularly if it continues to  primarily focus on grant making.
Limit scope of grants. The Commission could continue to narrow the  scope of the program areas (such as energy, transportation, and  training) in which it awards grants each year, particularly if it continues  to primarily focus on grant making.
Focus on facilitation. The Commission could shift its approach to act  more as a facilitator of grants. As a facilitator, the Commission could  help bring together the relevant players—including rural Alaskan  communities and potential project funders—in a coordinated effort to  help communities in need and agencies with funding capacity  effectively collaborate on infrastructure and economic development  projects, including projects that identify or address needs on a  community-wide scale. As part of this approach, the Commission  could also award small grants to use as leverage to help rural  communities obtain additional funds from other entities. The  Commission has, to a limited extent, served as a facilitator in the past.  For example, in funding the construction of health clinics, the  Commission initially brought together key players—funders,  government regulators, service providers, and community members— to determine how to address community needs.
Focus on technical assistance. The Commission could shift its  approach to serve more as a provider of technical assistance to help  better position rural Alaskan communities to compete for infrastructure  and economic development funds from other entities. Such an  approach may include a focus on predevelopment, such as helping  communities design their projects in preparation for applying for  construction and other infrastructure grants. The Commission  provides such technical assistance to a limited extent as part of its  existing predevelopment program—a collaborative effort that offers  guidance and technical resources to communities for planning new  facilities and renovating or expanding existing ones and for  developing the documentation needed for competitive funding  applications.
Maintain existing infrastructure. The Commission could shift its  focus from grants that fund new projects to grants that fund work to  help sustain and maintain the infrastructure in which the Commission  and its program partners have already invested.
section_title: Options Exist to Better Leverage Commissioner Expertise in Developing the Work Plan
paragraphs: Since Justice’s 2006 determination that commissioners were subject to  the principal federal conflict-of-interest law, Commission management  and commissioners have attempted to implement the Denali Commission  Act—which requires the Commission to develop a work plan—while also  taking steps to ensure that commissioners did not violate the conflict-of- interest law—which prohibits commissioner participation in matters that  would have a direct and predictable effect on their or their employers’  financial interests. Potential conflicts of interest are considered prior to  each Commission meeting and commissioners recuse themselves  accordingly. The Commission’s ethics official and officials from Office of  Government Ethics (OGE)—the agency responsible for developing  regulations to implement the conflict-of-interest laws and issuing guidance  on granting waivers—noted, however, that the Commission’s structure  lends itself to concerns about conflict of interests for commissioners  because the Denali Commission Act requires that officials and directors  from organizations receiving grants serve as commissioners. In addition,  the restrictions on commissioner participation resulting from the conflict- of-interest law and the act’s silence on commissioner roles have led to a  decade of frustration and concerns about the commissioners’ inability to  contribute their expertise. Based on our legal analysis and information  provided by Commission management and the attorney assisting the  Commission, we identified four options that would better leverage  commissioner expertise in developing the annual work plan.
subsections: section_title: Application of the Principal Federal Conflict-of-Interest Law Prevents Commissioners from Contributing Their Expertise, at Times, to the Development of the Annual Work Plan
paragraphs: The 2006 Justice determination that the six commissioners are subject to  the principal federal conflict-of-interest law significantly changed how  commissioners participated in Commission decision making. Prior to  this determination, according to the ethics official and several  commissioners and staff, commissioners considered each proposed  project, discussed the merits of proposed projects without reservation,  and voted on work plans. OGE concluded that, in light of the 2006  determination, commissioners needed to “significantly alter how they  participated in the Commission’s decision-making processes to avoid  violating the criminal conflict-of-interest law.” Specifically, according to  the ethics official, if commissioners’ organizations had applied for funding,  a commissioner’s acceptance or rejection of a project would have “a  direct and predictable effect” on his or her organization’s financial interest  in having its own project funded. The ethics official explained that this is a  conflict of interest, because decisions to fund one program area, such as  energy, would be at the expense of awarding grant funds to another  program area, such as transportation.
In response to OGE’s conclusion, the ethics official and the Federal  Cochair said they must determine if commissioners have a conflict of  interest on a case-by-case basis. Specifically, they have had to consider  (1) whether commissioners have a conflict of interest (or the appearance  of a conflict of interest) before discussions or votes, and, (2) if they do,  whether they must recuse themselves or qualify for a waiver from the  conflict-of-interest law. The ethics official stated that he has tried to give  the commissioners ethics advice so that they do not violate the criminal  conflict-of-interest law. In 2007, the Federal Cochair granted waivers for  all six commissioners to participate in discussions of that year’s work  plan, funding allocations, and program priorities, after consulting with  OGE. These waivers recognized, among other things, that the act  “envisions the commissioners as having a meaningful role in the direction  of the Commission” and that the act directs individuals designated for  their expertise to use this expertise to drive the Commission’s work.  Subsequently, OGE officials advised the Federal Cochair that granting  such waivers was not a viable option. Thereafter, waivers have been granted only for the State Cochair but not for other commissioners.
As a result, commissioners have had to recuse themselves periodically  from discussions and votes, so the Commission often barely has had a  quorum to conduct business, according to the ethics official. Given such  restricted participation, commissioners no longer discuss or vote on the  relative merits of individual projects, voting instead on broadly worded  work plans, according to current and former commissioners and  Commission management. Some commissioners told us that they were  unsure about the extent of allowable participation, given the conflict-of- interest law and have been advised not to participate in discussions and  votes. Furthermore, several commissioners told us their fear of criminal  prosecution—stemming in part from allegations by the former Inspector  General, prior to his resignation, that they violated the conflict-of-interest  law—has led them to substantially limit their participation and, in some  instances, disengage from the Commission. One commissioner told us  that meaningfully participating in the Commission under its current  structure would mean doing so in possible violation of conflict-of-interest  laws and is not worth the risk. Consequently, the development of the  annual work plan is sometimes deprived of commissioner expertise on  the sustainability or viability of proposed projects, according to the ethics  official and several commissioners.
The ethics official and OGE officials noted that the Commission’s  structure lends itself to concerns about conflict of interests for  commissioners because the Denali Commission Act requires that officials  and directors from named organizations receiving grants serve as  commissioners and the principal conflict-of-interest law prohibits  commissioners from participating in matters that would have a direct and  predictable effect on their employer’s financial interests. In contrast, the  Appalachian Regional Commission and the Delta Regional Authority are  not subject to the same concerns because the laws establishing them  exempt their commissioners and members, respectively, from the  principal federal conflict-of-interest law and instead subject them to an  alternative conflict-of-interest standard, which does not prohibit them from  participating personally and substantially in matters that the state—their  employer—has a financial interest.
The restrictions on commissioner participation resulting from the conflict- of-interest law and the Denali Commission Act’s silence on commissioner  roles have led to nearly a decade of frustration and concerns about the  commissioners’ inability to contribute their expertise, according to several  current and former commissioners and staff. All commissioners  acknowledged that their role since the 2006 Justice determination has  decreased, with some characterizing their role as being a “rubberstamp”  for the work plan developed by Commission staff, and others  characterizing it as being “neutered” or “muzzled” by the application of the  conflict-of-interest law. According to the Federal Cochair, the  Commission’s success depends on the shared expertise of involved  commissioners and precluding participation by experts in discussions  about which projects to fund puts the Commission at risk for making  faulty, but avoidable, funding decisions. For example, one commissioner  told us of an instance where her knowledge could have prevented a poor  Commission investment had she been able to see project-specific  information prior to approval of the work plan since the grant involved an  entity she knew to be delinquent in its taxes. Amendments to the Denali  Commission Act could enhance the ability of the commissioners to  provide their expertise with respect to the Commission's project funding  decisions.
OGE officials told us that OGE has not been requested to issue a formal  advisory opinion on the application of the conflict-of-interest law to the  commissioners. According to OGE officials, the commissioners’  participation will be restricted unless Congress amends the Denali  Commission Act to exempt commissioners from the principal conflict-of- interest law.
OGE officials also told us that they found people to be more receptive to the opinions of  ethics officials when the advice is provided in writing. regulations. Moreover, in 2005 guidance, OGE encourages but does not  require written advice under specific circumstances, such as when the  advice applies the criminal principal conflict-of-interest law to specific  facts—a circumstance common to advice given to Commissioners about  their participation in specific Commission matters. As of February 4, 2015,  the Commission had not developed a course of action.
section_title: Several Options Exist to Better Leverage the Commissioners’ Expertise
paragraphs: Based on our legal analysis and information provided by Commission  management and the attorney assisting the Commission, we identified  four options to restructure the Commission so that it could better leverage  the commissioners’ expertise in light of the 2006 Justice determination  (see table 1). Each of these options would require amending the Denali  Commission Act.
Additional information about the four options for restructuring the  Commission follows:
Make commissioners representatives on a FACA Advisory  Committee. Under this option, the commissioners would be  representatives on an advisory committee subject to FACA rather   Representatives on FACA  than special government employees.committees provide stakeholder advice—advice reflecting the views of  the entity or interest group they are representing, such as Alaska  Natives, municipalities, or the state—whereas special government  employees on FACA committees, like all federal employees, are  expected to provide their own best judgment in a manner free from  conflicts of interest and without acting as a stakeholder representing  any particular point of view. As representatives on a FACA committee,  commissioners would be expected to represent a particular and  known bias of the particular group that they are designated and  appointed to represent. Under this option, the commissioners’ open  and avowed interests, biases, and commitments are intended to  check and balance each other, resulting in a balanced and objective  recommendation. However, commissioners would not be subject to  the principal federal conflict-of-interest law.
Make commissioners members on Non-FACA Advisory  Committee. Under this option, the commissioners would be members  of an advisory committee that is exempt from FACA and subject to an  alternative conflict-of-interest standard rather than the principal federal  conflict-of-interest law, as in the case of the fishery management  councils established by the Magnuson-Stevens Fishery Conservation  and Management Act (Magnuson-Stevens Act) to advise the  Secretary of Commerce in developing fishery management plans,  among other things. To allow certain members of fishery  management councils with financial interests in fisheries or fishery- related activities—including the financial interests of their employers— to participate in the councils, these members are exempt from the  principal federal conflict-of-interest law when they comply with the  financial disclosure and recusal requirements in the Magnuson- Stevens Act and its implementing regulations.
Subject commissioners to alternative conflict-of-interest  standard but retain decision-making role. Under this option, the  commissioners would retain the ability to make decisions on which  projects to fund and would be subject to an alternative conflict-of- interest standard rather than the principal federal conflict-of-interest  law, which is how the Appalachian Regional Commission and Delta  Regional Authority operate. Specifically, the statutes authorizing these  other regional entities prohibit their nonfederal members from  participating personally and substantially in matters in which they or  their immediate family members—but not the state, which is their  employer—have a financial interest. Being subject to this alternative conflict-of-interest standard has allowed their nonfederal members to  vote on specific project funding with only a few conflicts of interest  arising, according to officials from the Appalachian Regional  Commission and Delta Regional Authority. For example, Appalachian  Regional Commission officials told us that commissioners do not have  to recuse themselves from discussing or voting on grants their state  agency applied for unless they are personally involved in the project,  and Delta Regional Authority officials told us that there is generally not  a conflict of interest that would prevent a member from discussing or  voting on projects involving their state agency. However, under this  option, the principal conflict-of-interest law and its implementing  regulations would not apply because the nonfederal members are not  subject to the principal federal conflict-of-interest law.
Make commissioners a Board of Directors with fiduciary duty  and retain decision-making role. Under this option, the nonfederal  commissioners would become members of a Board of Directors with a  fiduciary duty—a duty imposed by law on a person in a position of  trust to act for someone else’s benefit and not to further one’s  personal interests—and not be subject to the principal federal conflict-  of-interest law. For example, the Board of Directors of the Legal  Services Corporation—a federally funded, private nonprofit  corporation that makes grants to legal service providers who provide  free legal assistance to those who otherwise cannot afford it—has a  fiduciary duty to use a high level of care to manage the corporation to  best promote the corporation’s interest. Boards of Directors are  generally associated with corporations, but some governmental  entities also have Boards of Directors. The Farm Credit  Administration, an independent agency in the executive branch that,  among other things, regulates entities involved in the Farm Credit  System, and the National Credit Union Administration, also an  independent agency in the executive branch that regulates, charters,  and supervises credit unions, both have Boards of Directors. In  addition, the Smithsonian’s National Museum of the American Indian  is governed by a Board of Directors with a fiduciary duty. Under this  option, OGE would not have a role since the commissioners would not  be subject to the principal federal conflict-of-interest law. However, the  scope and nature of the commissioners’ fiduciary duty, such as  whether the commissioners owed a fiduciary duty to American  taxpayers generally or to Alaskans in particular and, in either case,  what actions would best promote each group’s interests—would need  to be determined.
section_title: Several Challenges Have Hindered the Denali Commission’s Daily Operations
paragraphs: The Commission has faced several challenges that have adversely  impacted its daily operations. These include periodic vacancies in the  Federal Cochair position; issues related to the implementation of Dodd- Frank; and not having a Commission attorney. In addition, the  Commission has received limited support from Commerce in trying to  resolve its operational challenges.
subsections: section_title: Vacancy in Federal Cochair Position Has Stymied the Commission
paragraphs: The Federal Cochair position has been vacant on two separate  occasions, which has stymied the Commission from fulfilling its statutory  responsibilities even though the Denali Commission Act states that any  vacancy in the Commission shall not affect its powers. The most recent  vacancy of a Federal Cochair occurred during the second quarter of the  fiscal year when the Commission typically awards new grants. Because  only the Federal Cochair is authorized to take critical actions, such as  approving new grants, no one was authorized to sign $7 million in new  grant awards or obligate these funds in time for grantees to reserve space  on barges bringing building materials to rural Alaska for the brief 2014  construction season, according to Commission management and staff.  Commission management told us that this vacancy was a key factor in  preventing the Federal Cochair from forwarding for approval a timely  fiscal year 2014 work plan, leading to its delayed publication for public  comment and subsequent approval.
In contrast to appointed officials of many other federal agencies and  commissions, the Federal Cochair is not authorized to delegate his or her  statutory responsibilities, such as publishing the draft work plan for public  comment or to remain in office beyond the expiration of his or her term for  several reasons. First, the Federal Cochair is not subject to the Federal  Vacancies Reform Act of 1998 (Federal Vacancies Act)—an act that  identifies who may temporarily perform the functions and duties in the  absence of an officer who is appointed by the President of the United  States and confirmed by the Senate—because the Federal Cochair is  appointed by the Secretary of Commerce rather than the President.  Second, the Denali Commission Act—unlike the statutes that established  the Appalachian Regional Commission and the Delta Regional  Authority—does not provide for an alternate or acting Federal Cochair.  Third, the Denali Commission Act does not contain a “holdover” provision,  which would allow the Federal Cochair to continue serving in office  beyond the expiration of his or her term. Other federal agencies—such as  the Federal Election Commission, Federal Energy Regulatory  Commission, and the Federal Communications Commission—have  holdover provisions that allow appointed members whose terms have  expired to continue to serve in office for a specified period of time or until  a successor is appointed or takes office. Furthermore, unlike enabling  legislation for other federal agencies, the act does not contain a  “delegation of authority” provision that would allow the Federal Cochair to  authorize another person to perform the Federal Cochair’s statutory  responsibilities during a vacancy that occurs at any point in the Federal   In contrast to a holdover provision, a Federal Cochair  Cochair’s term.could use a delegation of authority provision while he was in office or if he  left before the end of his term. Without amending the act to include either  a holdover or delegation of authority provision when the Federal Cochair  position is vacant, Commission operations would be stymied the next time  a vacancy occurs.
section_title: Implementation of Dodd- Frank Diverted Attention Away from Commission Operations and Resulted in Communications Breakdown with the Former Inspector General, Prior to his Resignation
paragraphs: Since the enactment of Dodd-Frank in 2010, the Federal Cochair and the  attorney assisting the Commission said they spent substantial time  discussing and seeking guidance from other agencies on whether and  how to implement Dodd-Frank, which diverted attention from day-to-day  Commission management and ethics issues. Once the Commission  implemented Dodd-Frank in May 2013—thereby making the seven  commissioners responsible for the general supervision of the  Commission’s Inspector General—concerns arose about its application.  For example, commissioners who previously advocated for the removal of  the former Inspector General were now vested with the authority under  Dodd-Frank to remove an Inspector General by a two-thirds majority vote  even if the Federal Cochair is against removal. At the same time, the  Federal Cochair could no longer take actions to appoint, supervise, or  remove an Inspector General without explicit and prior approval of the  other commissioners. The Federal Cochair and attorney assisting the  Commission raised concerns about the potential for, or appearance of,  commissioners abusing this new power to fire a Commission’s Inspector  General, while the former Inspector General, prior to his resignation,  raised concerns about his ability to carry out his duties with this  supervisory change. As a result, Commission management and the  attorney assisting the Commission said they repeatedly met with  commissioners to discuss their new role and acknowledged that the  commissioners need additional guidance and training on this topic.
This change in the commissioners’ role also exacerbated the already  contentious relationship between the Commission and the Inspector  General, according to Commission management. As a result, they told us,  the Inspector General ceased to communicate with both the Federal  Cochair and the commissioners for several months leading up to his  resignation in December 2013. In addition, the former Inspector General, prior to his resignation, did not comply with requests from the  Federal Cochair to attend meetings of the commissioners, including those  discussing the implementation of the Dodd-Frank changes. According to  Commission management, the decision by the former Inspector General,  prior to his resignation, to cease communications stemmed from his  concern that the Commission’s interpretation of Dodd-Frank and the  subsequent supervisory change impaired the independence of his  office.
In light of the former Inspector General’s resignation in December 2013,  it is unclear what challenges, if any, will continue to exist for the  Commission related to this issue.
section_title: The Commission Has Had Limited Legal Support, Even with Facing Complex Legal Questions
paragraphs: GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1  (Washington, D.C.: November 1999). provide mechanisms to identify and deal with any special risks  resulting from, for example, continual changes in governmental,  operating, and regulatory conditions.
However, the Commission has never had a full-time attorney providing it  with legal advice and support on a routine and consistent basis, leaving  the Commission vulnerable. As primarily a grant-making agency, the  Commission has awarded over 800 grants since its inception, many of  which Commission officials acknowledged to be complex, that did not  receive prior legal review by an attorney on behalf of the Commission.  Current and former Commission officials told us that staff drafting grant  agreements in the Commission’s early years—grants that generally  served as templates for later grants, including recently awarded grants— relied on a combination of their own experience and grant language taken  from other agencies.
The Commission has relied on other federal agencies for limited legal  support. In its early years, the Commission had a memorandum of  understanding with Commerce to provide the Commission with limited  legal services. This agreement ended in 2006, after the Commission and  Commerce were unable to reach an agreement on renewing it.  Subsequently, the Federal Cochair entered into an agreement with the  Federal Aviation Administration (FAA) for an attorney in the FAA’s  Anchorage office to provide occasional and intermittent legal services  after commissioners were determined to be special government  employees in 2006. To supplement the limited legal assistance provided  by FAA, according to Commission management, the Commission  sometimes relied on others such as OMB. The FAA attorney did not  review the legal agreements the Commission entered into but rather  served as the Commission’s designated agency ethics officer and  handled the legal questions raised by the Federal Cochair and other  Commission officials.
As previously discussed, the Commission has recently faced complex  legal issues such as the applicability of the principal federal conflict-of- interest law to the commissioners and the implementation of Dodd-Frank.  In addition, over its 15-year existence, the Commission has encountered  numerous other complex legal matters, such as the following:
Legislative proposals. The Federal Cochair, commissioners, and  attorney assisting the Commission identified key operational and  statutory challenges hindering the Commission—such as the role of  the commissioners and the vacancy of the Federal Cochair—and  considered proposals to amend the Denali Commission Act to  address some of these challenges. As a result, the Federal Cochair  and the attorney assisting the Commission had numerous discussions  with OMB and others about amending the act and developed draft  language for bills reauthorizing the Commission in 2012. The  attorney assisting the Commission characterized its demand for legal  services during this time as intensive.
Validity of, and the Commission’s liability under, certain  complicated agreements. Prior to his resignation, the former  Inspector General, in a 2012 report to Congress, raised concerns  about the validity of the Commission’s “secondary operator  agreements”—agreements that allow the Commission, under certain  circumstances, to replace the original operator of a Commission- funded project—and whether the agreements impose liability on the  Commission after a project’s completion. Similarly, the attorney assisting the Commission raised concerns about whether these  agreements and other related agreements are valid contracts and  make the Commission an owner or operator of the facility and thus  liable if, for example, there is an oil spill. Commission officials and  the attorney assisting the Commission told us that no attorney helped  draft or review these agreements on behalf of the Commission prior to  their approval.
Appropriateness of providing services to other federal agencies.  In 2013, after the Commission entered into Economy Act agreements  with three federal agencies to provide them with an electronic  database and other grants administration support, commissioners raised questions about whether the Commission had  authority to enter into such agreements and whether providing such  services was within the Commission’s statutory purpose to serve rural  Alaska. According to Commission management, however, these  agreements help to further the Commission’s statutory purpose to  deliver services of the federal government in the most cost-effective  manner practicable by reducing administrative and overhead costs,  since this purpose is not expressly limited to Alaska.helped draft or review these agreements on behalf of the  Commission.
The Economy Act provides general authority for an agency to obtain goods and services  from another agency.
As a result of these complex matters, the Federal Cochair said that he  increasingly had to focus on legal issues at the expense of other duties,  such as strategic planning. Similarly, the attorney assisting the  Commission characterized his work on such legal matters as increasingly  time-consuming and going beyond what either agency had anticipated.  For example, he initially spent about 5 hours per week on Commission  work, which increased to at least 10 hours per week as issues arose  related to the special government employee determination. Important  legal matters demanding his attention increased substantially since 2010,  according to this attorney. He spent more than half of his time addressing  and advising the Commission on such issues as the Inspector General  and Dodd-Frank, leaving no time for additional legal matters beyond the  scope of the agreement, such as reviewing the Commission’s grants and  other agreements. FAA ceased providing legal services to the  Commission at the end of fiscal year 2014 because, according to the  attorney assisting the Commission, his legal support for the Commission  had become so time-consuming.
Without an attorney to help the Commission identify and navigate risks  consistent with federal standards for internal control, the Commission is at  increased risk for making legal mistakes. For example, the attorney  assisting the Commission told us he would not have approved the  Commission’s secondary operator agreements as written because such  agreements put the federal interest at too much risk. In this context, he  recommended that the Commission obtain a full-time, in-house attorney  to help the Commission operate in what he termed a “legally murky”  environment and to help it avoid legal mistakes in grants management.  Similarly, prior to his resignation, the Commission’s former Inspector  General recommended in 2010 that the Commission acquire in-house  legal counsel. Both the Appalachian Regional Commission and the  Delta Regional Authority have full-time legal counsel from either an in- house counsel or through contract with a law firm for the equivalent of a  full-time attorney. Commission management has acknowledged that the  Commission needs legal support on a more continuous and consistent  basis, especially since the ethics officer and primary legal support is  departing.
section_title: Commerce Has Provided Limited Support to the Commission
paragraphs: Apart from carrying out its own limited responsibilities under the Denali  Commission Act, Commerce has consistently treated the Commission  as an independent agency. According to the Commerce officials we  interviewed, Commerce does not provide legal advice or guidance to the  Commission because the Commission is an independent agency, even  though its Federal Cochair is a Commerce employee. Similarly, until  recently, the Commerce Inspector General did not provide Inspector  General services to the Commission. When Commerce provided  administrative and legal services for the Commission in the past, it was  pursuant to a memorandum of understanding with the Commission.  Commerce officials told us that they served as a sounding board for the  Federal Cochair on a variety of legal matters after the memorandum of  understanding’s expiration in 2006, but they did not provide legal  guidance or advice. Commerce officials told us that they communicated  this position with Commission management as recently as 2013.
However, the Commission and commissioners have not had a clear or  consistent understanding of Commerce’s role with respect to the  Commission. The Denali Commission Act—in addition to specifying  certain responsibilities for Commerce and making the Federal Cochair a  Commerce employee—authorizes, but does not require, federal agencies  (such as Commerce) to make personnel and services available upon the  Commission’s request. Commission management told us that they do not  always know what support activities Commerce is responsible for  providing, or allowed to provide, to the Commission. Consequently,  Commission officials told us that the Commission has repeatedly, and  unsuccessfully, sought legal advice and other assistance from  Commerce.
In addition, at least one commissioner called for increased levels of  support from Commerce, specifically calling for Commerce to immediately  provide Inspector General staff to the Commission to help address  challenges stemming from the recent resignation of the Commission’s  former Inspector General. The Commerce Office of Inspector General  began providing some oversight services to the Commission pursuant to  a new interim agreement reached in May 2014 between the two agencies  for the remainder of fiscal year 2014. This agreement was recently  extended through the end of fiscal year 2015.
section_title: The Commission Has Some Administrative Grant Management Procedures, but Has Several Shortcomings in How It Has Managed Its Grants
paragraphs: The Commission has some key procedures in place for administering its  grants, but we found several shortcomings in how the Commission has  managed its grants. The rapid increase in funding during the  Commission’s early years led staff to spend their time issuing grants  rather than developing policies for how to do so. The Commission later  developed some administrative procedures for administering its grants  and has recognized the importance of developing policies to help manage  its grants. In our review of a sample of projects funded by Commission  grants, we found several shortcomings in how the Commission has  managed its grants, including not having documented policies for  awarding and managing grants; inconsistent monitoring of grant and  project recipients; and lengthy delays in closing projects, among other  things.
subsections: section_title: The Commission Has Some Administrative Grant Management Procedures
paragraphs: As it has evolved, the Commission has developed administrative  practices to help manage grants in a consistent and transparent manner.  For example, the Commission utilizes standard checklists to help ensure  that its staff take the necessary administrative steps at key points in the  grant-making process. These practices meet established criteria in the  Domestic Working Group’s 2005 Guide to Opportunities for Improving  Grant Accountability for good grant management and oversight,including having internal operating procedures in place before awarding  grants. Before the Commission awards a grant, its program staff complete  a pre-award checklist based on a conference with the grant recipient.
The checklist includes items such as discussing  the project overview and expectations;  the proposed budget and funding availability for cost overruns; and programmatic and business management requirements.
Similarly, when Commission staff close out a grant, they follow a closeout  checklist, which includes verification that  the award recipient submits a project closeout report; program staff and grants management staff review and accept the  project closeout report; and a closeout folder is routed to appropriate personnel so that any  remaining funds can be deobligated.
Figure 5, an interactive graphic, displays examples of checklists used by  the Commission. (For full-sized, printable images of these processing  checklists, see app. II.)
In addition, the Commission has maintained information about its grants  and projects in an online database—the Project Database System—that  is accessible to the public through the Commission’s website. Starting in  October 2003, the Commission required grant and project recipients to  submit certain types of reports through the Project Database System,  including quarterly reports updating the status of the project and closeout  reports at the projects’ conclusion. This database serves as a place for  grantees and project recipients to report their progress, and as a source  for the public to learn more about specific grants or projects. Such  information includes documentation regarding the following:
The intended use of grant funds: the database includes links to  financial assistance awards, which lay out the specific tasks to be  accomplished under each grant and the associated reporting  requirements; and
Status reports from grant recipients: the database includes  sections on grant and project reporting; the project reporting section  includes quarterly reports with such information as (1) how much  money was allocated to the project, (2) how much money has been  spent, (3) the projected timeline of the project, and (4) notes about the  status of the project.
These practices meet established criteria for good grant management  and oversight, including providing evidence of program success.managers and staff also use the Project Database System to help  manage grants and reporting timelines. For example, the online database  includes built-in reminders to project managers to follow up on missing or  late progress reports.
section_title: Several Shortcomings Exist in How the Commission Has Managed Its Grants
paragraphs: Even with these administrative practices, we found several shortcomings  in how the agency managed grants awarded in fiscal years 1999 through  2013. Most significantly, the agency does not have documented policies  for awarding and managing its grants, leading to inconsistencies in the  awarding and monitoring of grants. In addition, the agency does not have  a process to address the findings of single audits; project closeouts have  sometimes encountered lengthy delays, and the agency does not have a  record retention policy in place, as required by federal regulations.
subsections: section_title: Not Having Documented Policies Has Led to Inconsistencies in Awarding and Monitoring Grants
paragraphs: The Commission does not have documented policies for how it awards  and manages its grants, although it has developed guidelines for the  administrative steps involved. In awarding federal grants, effective  oversight and internal control—in the form of management directives,  administrative policies, or operating manuals—is important in assuring the  proper and effective use of federal funds to achieve program goals,  according to the Domestic Working Group’s 2005 Guide to Opportunities  for Improving Grant Accountability. The guide states that effective internal  control systems provide reasonable assurance that grants are awarded  properly, recipients are eligible, and federal funds are used as intended  and in accordance with applicable laws and regulations. The  Commission’s Grants Management Guidelines, most recently updated in  January 2014, provide detailed information on the administrative steps  involved in awarding and managing grants, such as creating an  announcement for the award and issuing the award to officially obligate  the funds for the grant. However, the guidelines do not describe the  policies for how the Commission should award and manage its grants.  For example, the guidelines do not address issues that could be  addressed if the Commission documented its grant-making policies, such  as the number of projects acceptable under each grant, when it is  appropriate to use a competitive award process, and criteria for  identifying the appropriate requirements to include in the Commission’s  grant agreements.
Not having documented policies in place has hindered the Commission  from having a consistent approach to awarding grants. For example,  according to the Federal Cochair, the Commission used “monster  awards”—a single grant that funded dozens or even hundreds of  projects—during its early years, which led to an “accounting nightmare”  because of the difficulty of tracking funds associated with such grants and  projects. The Federal Cochair explained that such problematic practices  arose because, in the absence of documented policies on the number of  projects acceptable under each grant, program managers have had  discretion in managing their program areas. In addition, the Commission  has not consistently used a competitive selection process to award  grants. For example, in awarding energy projects during the early years of  the Commission, the Federal Cochair told us that Commission officials  chose certain program partners based on previous professional contact  rather than through an open and competitive selection process. In  contrast, the Commission used a competitive process in selecting  grantees for building health clinics in rural Alaska, according to  Commission management. As the Domestic Working Group’s 2005 Guide  to Opportunities for Improving Grant Accountability states, through  competition, agencies can increase assurance that grantees have the  systems and resources to efficiently and effectively use funds to meet  grant goals. A competitive process also promotes fairness and openness  in the selection of grantees. However, because the Commission does not  have documented policies regarding when a competitive award process  may or may not be appropriate, it cannot be assured that it is making  such decisions consistently and based upon the appropriate  considerations.
The Commission does not have documented policies to specify what  reporting requirements should be included in its grants and the frequency  of reporting required. Rather than issuing its own policies, the  Commission has often incorporated OMB guidance by reference in its  grant agreements even though the OMB guidance is intended for  agencies and not grant recipients. For example, the OMB guidance  indicates that agencies should require recipients to submit financial status  reports no more often than quarterly but no less often than annually.  Based on our sample, an estimated 33 percentprojects’ grant agreements incorporated this OMB guidance by reference,   of Commission-funded  and 22 of the 33 such projects in our sample did not specify how often  grant recipients’ financial status reports were due. As a result, it was  unclear how often the grantee in these 22 cases was required to report to  the Commission and difficult to determine whether these grantees met  their reporting requirement. While Commission officials told us that  program managers would have informally communicated to grant  recipients how frequently such reports were expected, not specifying  reporting requirements in written grant agreements could lead to  confusion regarding what is required of the grantee. According to the  Domestic Working Group’s 2005 Guide to Opportunities for Improving  Grant Accountability, the terms, conditions, and provisions in the award  agreement, if well designed, can render all parties more accountable for  the award. Without documented policies to specify such requirements, the  Commission may not be setting clear expectations for grantees, making it  difficult to hold them accountable for fulfilling the terms of the grant  agreement.
In addition, as a result of not having clear, documented policies related to  monitoring, the Commission has not been consistent in how it monitors  the requirements it has included in its grants. We have previously found  that once an agency has awarded grants, its monitoring of grantee  performance is important to help ensure that grantees are meeting  program and accountability requirements. Moreover, monitoring grantee  performance helps ensure that grant goals are reached, required  deliverables are completed, and potential problems can be addressed  early in the grant period.inconsistent in the following ways:   The Commission’s monitoring has been
The Commission allowed grant recipients to draw down funds without  submitting quarterly progress reports as required in the grants.  According to Commission officials, the Commission’s policy is to not  provide funds to grantees unless they submit required reports.  However, in 19 of the 38 projects where this situation could be  identified, the Commission allowed grantees to draw down about  $5.6 million during periods of inadequate progress reporting.According to Commission program officials, they rarely have withheld  payment in cases where required reporting is missing. One program  official described withholding payments from grantees as the least  viable option, since many project recipients would not have the funds  to continue the project without the Commission’s funding. The  Commission’s Grants Management Guidelines include a description  of a process that eventually cuts off funding for awards when grantees  are delinquent on their progress reports, but it does not describe  criteria for a program official to apply in deciding whether to allow a  grantee who is delinquent to continue to draw down funds. Without  clear, documented policies that describe under what circumstances  Commission officials should withhold funds, this method of enforcing  grantee compliance is less likely to function.
Not all required photographs were submitted in 51 of the 66 projects  in our sample where the Commission’s grant required photographs.  For example, for one project to construct behavioral health space  within a primary care clinic, the grant required a minimum of three  dated photographs with each quarterly report to fully establish the  before, during, and after of the project; Commission records showed  that no photographs were submitted with the quarterly progress  reports. Photographs of ongoing projects are important because of the  inaccessibility of many rural Alaskan communities and the difficulty of  having Commission officials conduct visits to observe progress of the  project, particularly given decreased funding.
While we found that the Commission specified requirements for  submission of other documentation and reports, we also found that they  did not ensure grant recipients submitted them. For example, the  Commission required Labor, Wage, and Residency reports for an  estimated 36 percent of its projects, but among the projects reviewed in  our sample, these reports were submitted for only 13 of the 36 sample  projects for which they were required. Among the documentation for  these 13 projects, 4 contained only a letter that referred to past Labor,  Wage, and Residency reports being submitted, while the content of such  reports for an additional 3 projects did not meet the Commission’s  requirements. For example, a grant recipient provided information on the  number of employees, place of primary residence, and total payroll  earnings for those employed on the project but not on their position, first  check date, last check date, and rate of pay per hour—as required by the  grant agreement. Similarly, the Commission required periodic meetings,  generally semiannually, to discuss lessons learned for an estimated  22 percent of its projects, but we did not find evidence of such meetings  occurring in Commission records for any of the 22 such projects in our  sample.requirements are appropriate to include in what types of grants would  help ensure the Commission was only requiring those reports it actually  needs to effectively monitor grantees.
Having documented policies regarding what reporting  In addition, prior to his resignation, the Commission’s former Inspector  General raised several concerns in December 2012 about the  Commission’s monitoring of certain accounts meant to fund the operation,  as well as maintenance and renewal and replacement of projects,  including whether the accounts had been created, funded, and used for their intended purpose; and whether any federal dollars were missing.For more information about these accounts, see appendix III.
section_title: The Commission Does Not Have a Process for Addressing the Findings of Federal Single Audits
paragraphs: The Commission does not have a process for obtaining, reviewing, or  acting on the results of federal single audits of its grantees. The Single  Audit Act, as amended, was enacted to promote sound financial  management, including effective internal control, with respect to federal  grant awards administered by nonfederal entities. The act requires  nonfederal entities that expend more than a certain amount in a year in  federal awards to have a single or program-specific audit conducted by  an independent auditor. As the awarding agency, the Commission is  responsible for ensuring that audits for the federal awards it makes are  completed and reports are received in a timely manner and in accordance  with OMB guidance. It is also responsible for issuing a management  decision on audit findings within 6 months after receipt of the audit report  and ensuring that the recipient takes appropriate and timely corrective  action. Among the 113 single audit reports for fiscal years 2001 through  2012 for which the Commission was the oversight agency—generally, the  agency providing the predominant amount of funding directly to the  recipient—we found that 29 had evidence of a potential problem—in  22 cases with the Commission’s funding specifically, and in 7 cases with   Commission officials stated that, in some  funding from other agencies.cases, when program staff was aware of one of these instances, they  followed up with the grantee, but follow-up did not occur in a systematic  manner. Unless the Commission takes steps to resolve the findings of  these audits, or at least the ones that are relatively recent, the  Commission risks continuing to award funds to grantees who may have  inadequate controls over their grant funds.
Under the federal internal control standard for monitoring, managers are  to (1) promptly evaluate findings from audits and other reviews, including  those showing deficiencies and recommendations reported by auditors  and others who evaluate agencies’ operations; (2) determine proper  actions in response to findings and recommendations from audits and  reviews; and (3) complete, within established time frames, all actions that  correct or otherwise resolve the matters brought to management’s  attention. Under this standard, monitoring of internal control should  include policies and procedures for ensuring that the findings of audits  and other reviews are promptly resolved, including the time frames in  which the findings of audits and other reviews are to be resolved.  However, officials acknowledged that the Commission does not have a  policy or process in place for obtaining, reviewing, or acting upon the  results of single audits. Without a documented process for ensuring that  the findings of audits and other reviews are promptly resolved, the  Commission is not likely to take action on the findings of such audits.
section_title: Project and Grant Closeouts Have Encountered Sometimes Lengthy Delays
paragraphs: Commission officials often did not perform required project and grant  closeout steps in a timely manner. As we have previously found, closeout  processes can be used for detecting problems that have occurred in  areas such as recipient financial management and program operations,  accounting for any real and personal property acquired with federal funds,  making upward or downward adjustments to the federal share of costs,  and receiving refunds that the recipient is not authorized to retain. Further, closeout procedures are intended to ensure that recipients have  met all financial requirements, provided final reports, and returned any  unused funds. When agencies do not conduct closeout procedures in a  timely manner, this increases risk that records will be lost or the grantee’s  officials may leave or not remember sufficient details, making it more  difficult for the agency to recoup unused funds.
GAO-11-773T. with late closeout reports had unused funds of approximately $750,000  that sat idle for periods ranging from about 3 weeks to over 5 years.
In addition, until the projects were closed out, the grants that funded them  could not be closed out. As we previously found for federal agencies,  OMB guidance and agency regulations generally require grantees to  submit all financial and performance reports and liquidate all obligations  incurred under the grant within 90 days after the completion of the  grant. Awarding agencies must then make prompt payments to  grantees for allowable reimbursable costs for the grant being closed out.  In 2013, Commission officials were actively engaged in closing out grants.  From September 2012 to May 2013, Commission records indicate that  grants totaling about $8.7 million in unused funds were closed out, and  the funds de-obligated. However, the Commission official leading this  effort left the agency in August 2013, and Commission officials indicated  that no one took over this effort, although program managers, to the  extent they are available, have continued this work. Incomplete and late  grant closeouts have led to a substantial amount of unused Commission  funds—$6.5 million as of June 2014—not being put to other uses.  About half of these funds were from grants with award periods that ended  in 2012 or earlier. Unless the Commission enhances its efforts to close  out projects and grants and de-obligates unused but available funds in a  timelier manner, taxpayer dollars provided to the Commission may  continue to sit idle for excessively long periods of time.
section_title: The Commission Has Not Had a Record Retention Policy in Place
paragraphs: Finally, the Commission has not established a record retention policy as  required by federal regulations. This regulation requires agencies to  develop record retention policies and obtain approval from the National  Archives and Records Administration before implementing the policies,  but the Commission did not submit such a draft policy for review until  April 2013. As of June 2014, the Commission had not received a decision  on the policy; Commission management expected a decision by  December 2014.
Operating without a record retention policy has led to inconsistencies in  how the Commission’s records have been treated. Specifically, some  records for grants that have been completed and closed out for many  years have been retained. For example, among the projects we reviewed,  the Commission maintained records for an award with a performance  period that began in December 2000 and ended in September 2004, and   At the same time, according  which was closed out in December 2004.to Commission staff, the Commission does not generally retain  documentation related to unsuccessful applications for grants and  projects. Moreover, some Commission officials told us that they were  directed to dispose of certain records in the past. For example,  Commission officials told us that, at the direction of Commission  management, they disposed of bank records from project operators— information that was subsequently needed for an Inspector General  inspection. According to Commission management, having a record  retention policy in place would not have led to retaining these records  because, at the time, neither Commission management nor staff  understood what the documents were or that they were associated with  Commission-funded grants and projects. Once the Commission’s former  Inspector General, prior to his resignation, identified the bank records as  relevant documentation, the Commission began retaining such records.  Unless the Commission implements its record retention policy, once it is  approved, inconsistent record management is likely to continue in the  future.
section_title: Conclusions
paragraphs: Since its inception in 1998, the Denali Commission has funded numerous  energy, health, and infrastructure projects that have improved the lives of  many rural Alaskans. The principal conflict-of-interest law prevents  commissioners from providing their expert advice and opinions on  particular matters that would directly affect the financial interest of their  employers. Different structures for the Commission, such as the four  options identified, could better leverage commissioners’ expertise in the  development of the annual work plan.
Because the Denali Commission Act does not include holdover or  delegation of authority provisions, the Commission has been stymied for  significant periods of time after the expiration of a Federal Cochair’s term,  affecting the Commission’s day-to-day operations and the Federal  Cochair’s statutory responsibilities. Most recently, the Commission was  unable to award new grants or submit its annual work plan during a nearly  4-month vacancy in 2014. Without such provisions being enacted into  law, the risk remains that the next vacancy in the Federal Cochair position  may again bring the Commission to a standstill. Moreover, as the  Commission’s funding has decreased, administrative expenses have  consumed a more significant part of its overall budget—up to 24 percent  in fiscal year 2014. Under the existing 5 percent cap on administrative  expenditures, it is unlikely that the Commission will be able to conduct  essential administrative activities, such as oversight of its existing and  new grants portfolio. While this cap was waived in each of the last  10 fiscal years in appropriation laws, unless Congress amends the act to  modify or end it, the Commission will lack flexibility to plan and budget for  essential administrative activities.
Given the Commission’s 90-percent decrease in funding since 2007, it  may not be feasible to continue relying on grant making as its primary  approach to achieve its statutory purpose. Unless the Commission  reexamines how it operates and realigns its approach to better match its  limited budget—and clearly articulates this new approach in a strategic  plan, as it is required to do every 4 years—the Commission risks falling  into obsolescence. Without issuing a new strategic plan that clearly  articulates its approach for fulfilling its statutory purpose amidst  decreased funding, the Commission may not be prioritizing its operations  in a manner that aligns with its current budget situation. In addition, while  the Commission has faced numerous and complex legal questions, it has  never had a full-time attorney providing it legal advice and support on a  routine and consistent basis, which has led to avoidable legal mistakes.  Unless the Commission obtains a full-time attorney to provide legal  advice and serve as the Commission’s designated ethics officer, it may  find it difficult to address current and future legal matters and will remain  at risk of making costly legal mistakes.
While the Commission has awarded over $1 billion in grants to help  develop the infrastructure and economy of rural communities in Alaska, it  has done so without documented policies for how it awards and manages  its grants, resulting in inconsistencies in how the Commission awards and  monitors grants. Unless the Commission issues such policies, it risks  compromising its ability to ensure that grants are awarded properly, clear  expectations are set and all parties are accountable, and that federal  funds are used as intended and in accordance with applicable laws and  regulations. In addition, while the federal internal control standard for  monitoring requires, among other things, that the findings of audits and  other reviews are promptly resolved, the Commission does not have a  process for obtaining, reviewing, or acting on the results of federal single  audits of its grantees. Without a documented process for ensuring that  the findings of federal single audits and other reviews are promptly  resolved, the Commission is not likely to take action on the findings of  such audits. Moreover, single audits that raised potential problems could  inform the Commission’s future decisions about awarding grants. Unless  the Commission takes action to resolve the findings of these audits, at  least the recent ones, it risks continuing to award grants to grantees who  may have inadequate controls over grant funds.
Moreover, the Commission made significant progress in 2013 in closing  out expired grants with unused funds, but more work remains to be done  in this area, with over $4 million as of September 2014 not being put to  other uses. The Commission’s closeout procedures are intended to  ensure that recipients have met all financial requirements, provided final  reports, and returned any unused funds. Failing to close out grants and  de-obligate unspent funds in a timely manner means that taxpayer dollars  may sit idle, and the Commission has fewer resources to meet its  statutory purpose. Finally, although the Commission has submitted a draft  record retention policy to the National Archives and Records  Administration as required by federal regulation, it must follow through to  implement the policy once it is approved. Unless it does so, the  Commission may continue to experience problems with inconsistent  record management and retention.
section_title: Matters for Congressional Consideration
paragraphs: To better leverage the commissioners’ expertise in the development of  the annual work plan, Congress should consider amending the Denali  Commission Act, potentially with one of the identified options.
To address barriers to the operation of the Commission, Congress should  consider amending the Denali Commission Act to include either a  holdover or delegation of authority provision when the Federal Cochair  position is vacant.
To allow for greater flexibility in the Commission’s operations, Congress  should consider amending the Denali Commission Act to modify or end  the 5 percent cap on administrative expenditures.
section_title: Recommendations for Executive Action
paragraphs: To enhance the Commission’s operations, we recommend that the  Commission’s Federal Cochair direct the Commission to consider options  for fulfilling the Commission’s statutory purpose and finalize that new  approach in a new strategic plan.
To address the Commission’s legal challenges, we recommend that the  Commission’s Federal Cochair direct the Commission to obtain a full-time  attorney who would provide legal advice, including reviewing contracts  and agreements, and serve as the Commission’s designated ethics  officer.
To improve the Commission’s grants management, we recommend that  the Commission’s Federal Cochair direct the Commission to take the  following four actions:  issue Commission-specific policies for awarding and managing  grants; establish a documented process for ensuring that the findings of  single audits of grantees are promptly resolved and take action to  resolve any recent single audits that showed evidence of a potential  problem;  continue efforts to close out grants and projects, including de- obligating unspent grant funds in a timely manner; and  take steps to consistently manage and retain Commission records,  including implementing its record retention policy once it is approved.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Denali Commission and the  Department of Commerce for review and comment. Written comments  from the Federal Cochair; the State Cochair, representing the views of the  other six commissioners; and the Department of Commerce; are  reproduced in appendixes IV, V, and VI, respectively. The Federal  Cochair concurred with our conclusions and recommendations, and he  summarized the Commission’s ongoing efforts to address our  recommendations. The Federal Cochair also provided technical  comments that we incorporated, as appropriate. The other six  commissioners of the Denali Commission also concurred with our  conclusions and recommendations. The Department of Commerce did  not comment on our conclusions and recommendations. The letter from  the Deputy Secretary of Commerce reiterated that the Denali Commission  is an independent agency.
After the draft report was provided for review and comment, we received  new and updated information on the ethics issues discussed in the draft  report from Commerce, the Denali Commission, and OGE. We updated  the ethics section of the report accordingly to reflect this new information.  We also updated the draft Matter for Congressional Consideration on the  ethics issue to focus it on the question of what is the best statutory  framework to better leverage the commissioners’ expertise and we  deleted the draft Matter for Congressional Consideration on the  commissioners’ roles and responsibilities.
We discussed these subsequent changes with the Federal Cochair on  February 4, 2015. The Federal Cochair concurred with our conclusions  and revised recommendations, and he summarized the Commission’s  ongoing efforts to address our recommendations. The Federal Cochair  reiterated the need to obtain clarity on Commerce’s responsibilities vis-à- vis the Commission. In addition, we have learned that, consistent with the  recommendations in our draft report, the Commission started a new  strategic planning effort in January 2015 and has hired a full-time  attorney, who began work on January 12, 2015.
We are sending copies of this report to the appropriate congressional  committees, the Denali Commission’s Federal Cochair and other  commissioners, the Secretary of Commerce, and other interested parties.  In addition, the report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or fennella@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 key contributions to  this report are listed in appendix VII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) the challenges, if any, the Denali Commission   (Commission) and commissioners face in fulfilling the Commission’s  statutory purpose and options to address them; (2) the challenges, if any,  that have hindered the daily operations of the Commission; and (3) the  Commission’s policies and procedures for awarding and managing grants  and the extent to which grantees and commission officials complied with  these policies and procedures. We reported separately on the Denali  Commission’s Office of Inspector General in September 2014.
To inform our review of all three objectives, we analyzed the Denali  Commission Act of 1998, as amended; relevant federal laws; regulations;  legislative history; agency guidance; and other documents and  information related to the commission’s structure and operations. To  obtain their views on our objectives, we interviewed Commission officials  and staff, including the current federal cochairperson (Federal Cochair)  and other Commission officials, as well as a former Federal Cochair and  selected former Commission staff; all current commissioners and selected  former commissioners; and the attorney assisting the Commission on  ethics and certain other legal matters. We also interviewed several  stakeholders—parties affected by the Commission and its decisions— including commissioners and the organizations they work for; program  partners (generally, state agencies or other entities that receive grants  from the Commission and oversee projects funded by those grants); other  grant recipients; and residents of rural Alaskan communities. We also  analyzed the structure and function of other similar agencies and bodies  that provide advice or direction to federal agencies, including the  Appalachian Regional Commission, Delta Regional Authority, and fishery  management councils, focusing on their organic legislation and conflict- of-interest provisions. To inform our analysis, we also conducted site  visits to Anchorage and five selected remote communities in Alaska:  Nome, Savoonga, Unalakleet, Ketchikan, and Metlakatla. We selected  these communities based on selection criteria that included the number  and variety of Commission-funded projects, geographic location,  accessibility, and their relative proximity to each other. We visited Nome,  Savoonga, and Unalakleet in one trip and Ketchikan and Metlakatla in a  second trip. In these communities, we spoke with local officials  representing municipal government, tribal entities, and grant recipients,  among others, to discuss their experiences working with the Commission.
To identify and assess specific challenges faced by the Commission and  its commissioners in fulfilling the Commission’s statutory purpose, we  also analyzed appropriation and spending data to determine how the  commission’s funding and activities have changed over time. We  collected and reviewed documents, guidance, and our prior reports  related to strategic planning and organizational change. We also  analyzed legal opinions; correspondence; and other documents and  information related to the role of the commissioners, including the  applicability of the principal conflict-of-interest law. To identify possible  options for how the Commission can operate in the future, we  synthesized information collected from semistructured interviews and  e-mails; assessed options presented by similar agencies or commissions;  and analyzed relevant evaluations of the Commission. To identify  possible options to better leverage the commissioners’ expertise, we  analyzed laws, regulations, legislative history, legal opinions,  correspondence, and other documents and information related to the role  of the commissioners, including their status as special government  employees and other more recent changes. We also analyzed the  structure and function of other similar agencies, such as the Appalachian  Regional Commission and the Delta Regional Authority, and bodies that  provide advice to federal agencies, such as regional fishery management  councils,identify possible options for the commissioners. We also interviewed  officials from the Office of Government Ethics.   focusing on their applicable conflict-of-interest provisions to  To identify and assess specific challenges that hindered the  Commission’s daily operations, we also analyzed legal opinions;  correspondence; and other documents and information related to, among  other things, the position of the Federal Cochair, the role played by  agency attorneys, and the supervision of the Inspector General. We also  analyzed the authorizing laws for other similar commissions and bodies  for when there is a vacancy of the top official, including the Appalachian  Regional Commission and the Delta Regional Authority. We collected and  analyzed documents related to internal controls, such as risk  management, and agency operations. We also interviewed officials from  the Department of Commerce (Commerce) and collected and analyzed  documents and e-mails related to the relationship between the  Commission and Commerce.
To evaluate the Commission’s policies and procedures for awarding and  managing grants and the extent to which grantees and commission  officials complied with these policies and procedures, we selected a  random sample of 100 of the approximately 2,349 Commission-funded  projects from fiscal years 1999 through 2013. This sample allowed us to  make estimates about all Commission-funded projects during this time  period. With this probability sample, each member of the study population  had a nonzero probability of being included, and that probability could be  computed for any member. Each sample element was subsequently  weighted in the analysis to account statistically for all members of the  population, including those who were not selected. Because we followed  a probability procedure based on random selections, our sample is only  one of a large number of samples that we might have drawn. Since each  sample could have provided different estimates, we express our  confidence in the precision of our particular sample’s results as a  95 percent confidence interval. This is the interval that would contain the  actual population value for 95 percent of the samples we could have  drawn. All percentage estimates from the file review have margins of error  at the 95 percent confidence level of plus or minus 10 percentage points  or less. We developed a data collection instrument to collect several  pieces of data for each project selected. To ensure the reliability of the  data we collected, multiple analysts were involved in gathering, entering,  and verifying the data in the data collection instrument. First, we obtained  documentation related to these projects from the Commission’s Project  Database System and from a review of the Commission’s paper files  conducted at the Commission’s office in Anchorage in September 2013.  We then analyzed these documents to determine the extent to which  grantees complied with requirements in the relevant grant agreements  and other similar documents. We evaluated this documentation to  determine, among other things: what reporting was required for each project, including progress  reports; Labor, Wage, and Residency reports; financial status reports;  and closeout reports, among others;  the extent to which grantees complied with these reporting  requirements, including whether reports were submitted in a timely  manner and whether their content adequately satisfied the  requirement; and whether any delays or other shortcomings in reporting contributed to  other problems, such as late closeout reports leading to unused funds  sitting idle for a period of time or payments to grantees during periods  of inadequate progress reporting.
We followed up with Commission officials to discuss particular aspects of  grant requirements and reporting to ensure our understanding was  accurate. To assess the reliability of the data in the Project Database  System, we interviewed Commission officials and grant managers about  the data system and elements, how the system is used, and the method  of data input, among other areas. In some cases, a certain amount of  judgment was required to ascertain certain aspects of projects, such as  the exact start and end date of a project; to mitigate against any  uncertainty created by these judgments, all data points that support the  analysis presented in this report underwent a confirmation process by a  second reviewer. We determined that the data we used were sufficiently  reliable for our purposes.
We conducted this performance audit from May 2013 to March 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Examples of Commission Grant Management Checklists (Corresponds to Fig. 5)
paragraphs: Appendix II: Examples of Commission Grant  Management Checklists (Corresponds to Fig.  5)
Following are the full-sized, printable versions of the Denali Commission  (Commission) grant management checklists included in figure 5 of this  report.
section_title: Appendix III: Denali Commission Oversight of Renewal and Replacement Accounts After Completion of Certain Projects
paragraphs: In September 2001, the Denali Commission (Commission) passed a  resolution outlining new sustainability guidelines for its infrastructure  projects and requiring the completion of business plans before  construction funding was awarded on most infrastructure projects.  To this end, the Commission used a number of different methods to  promote sustainability, including the following:  requiring that grantees develop a business operating plan for the  facility’s operator, which outlines how they will successfully operate  and manage the facility, prior to receiving construction funding;  requiring the primary operator of each facility, and the owner if they  were not the same entity, to sign a secondary operator agreement,  which provides that if the facility is not operated sustainably and in  accordance with the business operating plan, and such behavior  significantly threatens the long-term economic sustainability of the  facility, the Commission has the right to select a new, or secondary  operator; and  requiring that the operator commit to funding the facility through the  creation of two enterprise bank accounts, an “operations and  maintenance” account and a “renewal and replacement” account,  which were to be funded from the revenue generated by selling fuel or  electricity and not from the Commission’s grant or other federal  agency money.
However, the Commission’s Inspector General, in his Fiscal Year 2012  Second Half report, raised several concerns related to both operation and  maintenance and renewal and replacement accounts, including whether  the accounts had been created, funded, and used for their intended  purpose. In this report, the Inspector General also raised concerns about  funds missing from these accounts, which some interpreted as including  federal dollars. However, these accounts were not intended to be funded  with federal funds, but rather by the revenue generated by selling the  electricity produced by the facility or fuel stored in the facility.
According to the federal cochairperson (Federal Cochair), the  Commission has not enforced the requirement for some operators to set  aside funds to pay for project renewal and replacement costs and report  to the Commission annually on the status of these funds. Likewise, the  Commission has not followed up with operators who did not submit this  information, and, until the Inspector General’s December 2012 report, had   After the Inspector General’s report, the  not checked on these accounts.Commission hired an intermittent employee to review the status of project  recipients’ renewal and replacement accounts. The employee contacted  dozens of operators of bulk fuel facilities and rural power systems funded  by the Commission and asked about their accounts. Overall, about half of  the operators reported creating such renewal and replacement accounts,  although these operators were not required to provide documentation of  these accounts. The employee also reviewed Commission records but  found little documentation. According to at least one former Commission  official, the records that staff had been instructed to dispose of (as  discussed earlier) showed that such renewal and replacement accounts  existed.
In addition, the Inspector General questioned whether the Commission  inadvertently put itself in a position to potentially be held liable for the  facilities in perpetuity through its secondary operator agreements. As  discussed earlier, questions exist about the secondary operator  agreements and other related agreements being valid contracts and, if  valid, whether they impose liability on the Commission. At the Federal  Cochair’s request, the attorney assisting the Commission has researched  whether the agreements impose liability on the Commission. the results of his research, commissioners may make a decision on  whether to terminate, rewrite, or continue the agreements. According to  the Federal Cochair, the Commission has not tried to invoke these  secondary operator agreements.
The attorney was not asked to and did not research whether the secondary operator  agreements and the other related agreements are valid contracts.
section_title: Appendix IV: Comments from the Federal Cochair of the Denali Commission
section_title: Appendix V: Comments from the Other Denali Commission Commissioners, Consolidated by the State Cochair
section_title: Appendix VI: Comments from the Department of Commerce
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Anne-Marie Fennell, (202) 512-3841 or fennella@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Jeffery D. Malcolm (Assistant  Director), Carolyn Blocker, Mark Braza, John Delicath, Justin Fisher,  Stuart Kaufman, Armetha Liles, Josh Ormond, Christine San, Nico Sloss,  Jeanette Soares, Kiki Theodoropoulos, and Tama Weinberg made key  contributions to this report.