The insular areas of American Samoa, the CNMI, and Guam are located in the Pacific Ocean, some 4,100 to 6,000 miles from the U.S. mainland (see fig. 1). The USVI is located about 1,000 miles southeast of Miami in the Caribbean Sea. American Samoa, which had a population of about 65,628 in 2009, lies about 2,600 miles southwest of Hawaii and consists of seven islands covering a land area of 76 square miles. The main island of Tutuila has very little level land and is mostly rugged. Agricultural production on the island is limited by the scarcity of arable land, and tourism is impaired by the island’s remote location and lack of tourist-rated facilities. Most of American Samoa’s economic activity—primarily tuna canning—and government operations take place on Tutuila in the Pago Pago Bay area. In September 2009, one of American Samoa’s two canneries closed operations. The CNMI—a group of 14 islands with a total land area of 183 square miles—is located in the western Pacific Ocean, just north of Guam and 5,500 miles from the U.S. mainland. Most of the CNMI’s population— 51,484 in 2009—resides on the island of Saipan, with additional residents on the islands of Rota and Tinian. Historically, the CNMI’s economy has depended on garment manufacturing and tourism. Beginning in 1998, garment industry shipments began falling, and the last garment factory closed in early 2009. Guam is located about 50 miles south of the southernmost island of the CNMI. It has long been a strategic location for the U.S. military, which currently controls about 62 square miles of the island’s total 212 square miles. By 2020, the Department of Defense plans to increase the U.S. military presence on Guam by more than two-and-a-half times the island’s current military population of 15,000. In July 2009, the total population of the island was estimated at 178,430. The USVI is composed of three main islands—St. Croix, St. John, and St. Thomas—and many other surrounding islands. Most of the insular area’s population (estimated at 109,825 in July 2009) resides in St. Thomas and St. Croix. The USVI’s economy is more diversified than other insular areas, with tourism as the primary activity, followed by manufacturing including petroleum refining, rum distilling, and textile manufacturing. While the United States exercises sovereignty over these insular areas, each administers its local government functions through popularly elected governors. American Samoa and the CNMI are self-governed under locally adopted constitutions, while Guam and the USVI have not adopted local constitutions and remain under organic acts approved by Congress. These insular areas receive hundreds of millions of dollars in federal grants from a variety of federal agencies, including the Departments of Agriculture, Education, Health and Human Services, Homeland Security, the Interior, Labor, and Transportation. The Secretary of the Interior has administrative responsibility over the insular areas for all matters that do not fall within the program responsibility of another federal department or agency. OIA, established in 1995, is responsible for carrying out the Secretary’s responsibilities for U.S. insular areas. OIA’s mission is to promote the self-sufficiency of the insular areas by providing financial and technical assistance, encouraging private sector economic development, promoting sound financial management practices in the insular governments, and increasing federal responsiveness to the unique needs of the island communities. Much of the assistance that OIA administers to insular areas is in the form of what it considers mandatory assistance, including compact assistance, permanent payments to U.S. territories, American Samoa operations funding, and capital improvement project grants. OIA also administers discretionary assistance through, for example, technical assistance grants and operations and maintenance improvement program grants. The administration and management of OIA grants is guided by OIA’s Financial Assistance Manual. OIA grants other than compact assistance are subject to Interior’s Grants Management Common Rule, relevant Office of Management and Budget (OMB) circulars, and specific terms and conditions that OIA outlines in each grant agreement, such as semiannual narrative and financial reporting and grant expiration dates. Within OIA, two divisions are largely responsible for grant administration and management—the Budget and Grants Management Division and the Technical Assistance Division. The Budget and Grants Management Division, which covers capital improvement project and operations and maintenance improvement program grants, has a director and three grant managers. The Technical Assistance Division, which administers several types of technical assistance, has a director and two grant managers. A third OIA division—the Policy and Liaison Division—also provides some staff for grant-related tasks, including staff that focus on OIA’s accountability and audit responsibilities. The majority of OIA’s budget is directed to compact assistance and permanent fiscal payments (see table 1). About 2 percent of OIA’s budget is dedicated to administrative costs, leaving less than 16 percent for noncompact grants and technical assistance. On the basis of our review of grant files from a random probability sample of grant projects, we determined that previously reported internal control weaknesses still exist and estimate that 39 percent of the 1,771 grant projects in OIA’s grant management database demonstrate at least one internal control weakness that may increase the projects’ susceptibility to mismanagement. The eight internal control weaknesses we assessed can be grouped into three categories based on the entity responsible for the action: grant recipient actions, OIA grant management actions, or joint actions between grant recipients and OIA. As shown in figure 2, the internal control weaknesses we identified were most often associated with grant recipient activities, followed by joint activities and OIA grant ant management activities. management activities. We also determined how frequently each of the eight internal control weaknesses was found among OIA grant projects in the database (see table 2). Internal control weaknesses associated with grant recipient activities were the most common internal control weaknesses we found, accounting for 62 percent of the weaknesses exhibited by OIA grant projects. By accepting a grant, recipients agree to a set of terms and conditions that are part of OIA’s internal controls. We assessed grant recipients’ consistency in meeting requirements of the grant terms and conditions by examining project files for adherence to four key requirements that we determined are relevant to a grant management program: semiannual financial and narrative reporting, project close-out reporting, grant expiration dates, and reimbursable funding. For example, grant recipients are required to submit regular financial and status reports to OIA within a set time frame. We found that recipients in 60 percent of grant projects with semiannual reporting requirements did not submit these reports as required. In many cases, reports were submitted after the deadline had passed, but in some cases, reports were never submitted. These financial and narrative status reports are a key monitoring tool for OIA grant managers, and incomplete information can hinder OIA’s ability to identify and address any issues. In addition, we found that recipients of 58 percent of grant projects failed to submit final reports (or project close-out reports) on time. Final financial and narrative reports are required to be submitted within 90 days of grant expiration or project termination; failure to do so can delay the deobligation of any unspent grant funds from the project account. We also found that recipients of 19 percent of grant projects expect to or did actually complete the project after the grant expiration date. Grant terms and conditions state clearly that grant funds are only available until the grant expiration date, and the grant recipient should not continue to spend federal funds after they have expired. It is important to note, however, that our assessment relied on grant expiration dates as reflected in the file or database; project extensions may have been granted but not recorded. Nevertheless, situations where the grant expiration date has been or will be breached may be an indication of poor initial planning or problems with the grant project. Finally, we compared the proportion of awarded funds that had been disbursed to grant recipients with the progress made toward project completion to ensure that OIA grant recipients were requesting funds on a reimbursement basis, as required. We found that all open projects satisfied the reimbursement requirement. Of the joint activities between OIA and grant recipients, project redirection, whereby grant funds may be moved between projects, can contribute to increased susceptibility to mismanagement. This practice, which OIA refers to as “reprogramming,” accounted for 24 percent of the overall internal control weaknesses that we found in OIA grant projects. However, the presence of project redirection is not, in and of itself, an indication of weakness. As we will describe later in this report, project redirection can be used as a tool to improve timely use of federal funds and expedite project completion. However, if not used appropriately, project redirection can also impede project completion and contribute to wasted funds or prolonged holding of grant funds. Specifically, if project redirection is approved in cases where an insular area starts a project and expends funds, but then wants to redirect the funds to another project without completing the initial project, those expended funds may be wasted. In addition, frequent project redirection can result in projects that are started but do not have sufficient funds to be completed. Based on our review, project redirection occurred in 30 percent of applicable grant projects. Grant recipients generally initiate project redirection through a request to OIA. OIA policy requires that grant recipients must obtain written approval from OIA before any funds may be moved between grant projects and that technical assistance project funds may not be redirected. We did not identify any cases where these requirements were not met.