Residents born in CNMI, Guam, and USVI are citizens of  the United States. We reviewed the financial accountability of the insular area governments  by (1) determining the timeliness of submission of the single audit reports,  (2) analyzing the contents of the single audit reports issued for fiscal years  2001-2004, (3) identifying those insular area governments designated as  high-risk grantees through U.S. federal agency contacts, (4) obtaining  information about OIA’s efforts to help the insular areas improve financial  management, and (5) identifying the relevant auditing organizations at the  federal and local levels. These factors include lack of diversification, scarce  natural resources, small domestic markets, limited infrastructure, and  shortages of skilled labor. According to OIA, several projects  and business deals resulted from contacts made at conferences and  missions. Weakened Fiscal Condition in Three Insular Areas

With the exception of American Samoa, the fiscal condition of the insular  area governments steadily weakened from fiscal year 2001 through fiscal  year 2004, the most recent year for which audited financial statements  were available for all four insular areas. In CNMI and Guam, the fund  balance of total governmental funds declined as government spending rose  faster than revenues. In fiscal year 2002, American Samoa’s  government revenues, including the U.S. federal government’s  contributions, were higher as a share of GDP, 38 percent, than the  revenues of any of the other three insular areas. At the end of fiscal year 2004, USVI still had a  significant negative value for net government assets, as shown in table 7. Financial Accountability Remains Weak in the U.S. Insular Areas

The governments of the four U.S. insular areas have had long-standing  financial accountability problems, including the late issuance of the  reports required by the Single Audit Act, inability to achieve unqualified  (“clean”) audit opinions on their financial statements, and numerous  material weaknesses in internal controls over financial operations and  compliance with laws and regulations governing federal grant awards. As a result, there has  been limited accountability over the use of federal funds. The effect of this weakness is that  expenditures reported to the grantor agency, the U.S. Department of  Health and Human Services (HHS), are based on the paid date and not, as  required, the service date. The  IG noted in describing this challenge that these governments have long- standing financial and program management deficiencies. Conclusions

American Samoa, CNMI, Guam, and USVI face daunting economic, fiscal,  and financial accountability challenges. The viability of their economies  depends on a few key industries. Efforts to meet formidable fiscal challenges and build strong economies in  the insular areas are hindered by delayed and incomplete financial  reporting that does not provide officials with the timely and complete  information they need for effective decision making. Audit Report, Saipan Harbor Improvement Project, Commonwealth  Ports Authority, Commonwealth of the Northern Mariana Islands. Audit Report, Virgin Islands Lottery, Government of the Virgin Islands.
Why GAO Did This Study

The U.S. insular areas of American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam, and the U.S. Virgin Islands (USVI), face long-standing economic, fiscal, and financial accountability challenges. GAO was requested to identify and report on the (1) economic challenges facing each government, including the effect of changing tax and trade laws on their economies; (2) fiscal condition of each government; and (3) financial accountability of each government, including compliance with the Single Audit Act, which applies to nonfederal entities that receive $500,000 or more a year in federal funding.

What GAO Found

The governments of the U.S. insular areas of American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, and the U.S. Virgin Islands face serious economic, fiscal, and financial accountability challenges. The economic challenges stem from dependence on a few key industries, scarce natural resources, small domestic markets, limited infrastructure, shortages of skilled labor, and reliance on federal grants to fund basic services. To help diversify and strengthen their economies, OIA sponsors conferences and missions to the areas to attract U.S. businesses; however, there has been little formal evaluation of these efforts. After fiscal year 2001, government spending in the CNMI, Guam, and USVI exceeded revenues through fiscal year 2004 (the most recent year for which there is complete data on all four areas). As a result, their fiscal conditions weakened further during this period. CNMI and USVI ended fiscal year 2004 with negative net government assets. For American Samoa the picture was mixed, with more stability than the other areas in the period 2001 through 2003, but a downturn in the balance of governmental funds by the end of fiscal year 2004. Efforts to meet formidable fiscal challenges and build strong economies are hindered by delayed and incomplete financial reporting that does not provide timely and complete information to management and oversight officials for decision making. The insular area governments have had long-standing financial accountability problems, including the late submission of required single audits, the receipt of disclaimer or qualified audit opinions, and the reporting of many serious internal control weaknesses. These problems have resulted in numerous federal agencies designating these governments as "high-risk" grantees. The Department of the Interior and the federal agencies are working to help these governments improve their financial accountability, but greater coordination among the agencies would increase the effectiveness of their efforts.