Interior’s Office of Insular Affairs (OIA) has responsibility for the  administration and oversight of the FSM and RMI compact sector and  supplemental education grants. FSM and RMI Prioritized Education and Health Sectors in Spending Compact Funds

In fiscal years 2007 through 2011, the FSM spent about two-thirds and  the RMI spent about half of their total compact sector funds in the  education and health sectors—$158 million for the FSM and $89 million  for the RMI. Concerned about the  sustainability of sector budgets as compact funding declines through  fiscal year 2023 due to the annual decrements, JEMCO and JEMFAC  passed resolutions in 2011, capping budgetary levels for personnel in the  education and health sectors of both countries at fiscal year 2011 levels. Without such plans, the countries may not be able to  sustain essential services in the education and health sectors. Data Inconsistencies Hindered Our Assessment of FSM and RMI Progress in the Education and Health Sectors

Data reliability issues hindered our assessment of progress by the FSM  and RMI in both the education and health sectors for fiscal years 2007  through 2011. Although both countries tracked annual indicators in these  sectors to measure progress during this period, we encountered data  reliability issues in the subsets of indicators we examined. For example, we found that the four FSM states did not use  common definitions for some indicators; consequently, the education  indicator reports we reviewed did not contain consistent data for these  indicators and comparisons could not be made across states. In the RMI,  we determined that data for three of the subset of five education  indicators we reviewed could not be used to assess education sector  progress for the compact as a whole because of issues such as lack of  data from the country’s outer islands, inconsistencies in reported data for  some years, and revisions to data with no explanation. In the RMI, of the subset of five health  indicators we reviewed, we determined one was sufficiently reliable and  two were not sufficiently reliable to assess progress because of various  issues with data collection and reporting. For the  remaining two FSM health indicators we examined, we had no basis to  judge the reliability of the data. JEMCO and JEMFAC have also raised  concerns about the reliability of the FSM’s education and health data and  the RMI’s health data and required that each country obtain an  independent assessment and verification of these data; neither country  has met that requirement. Without reliable data, the countries cannot  assess progress toward their goals in the education and health sectors  and cannot effectively use results data for setting priorities and allocating  resources aimed at improving performance. FSM and RMI Face Financial Accountability Challenges; Oversight Bodies Are Hindered by Limitations

The single audit reports we reviewed indicated challenges to ensuring  accountability of compact and noncompact U.S. funds in the FSM and  RMI. For example, the  FSM National Government’s 2011 single audit report contained several  repeat findings—problems noted in previous audits that had not been  corrected for several years—and identified problems with the extent of  noncompliance with program requirements, such as preparing required  quarterly reports. To improve financial accountability, OIA led actions that resulted in the  creation of the Chuuk Financial Control Commission, but OIA has not  coordinated with other U.S. agencies regarding the risk status of the FSM  and the RMI for noncompact funds. Moreover, other  federal agencies whose grants may be at risk have not routinely  considered designating either country as a high-risk grantee. We also found that the offices responsible for compact administration in  the FSM, RMI, and United States faced limitations hindering their ability to  conduct compact oversight. Finally, we found that OIA experienced a staffing shortage that  disproportionately affected compact grant oversight compared to other  OIA activities, with 6 of 11 planned positions unfilled in 2012 and 5 of 11  unfilled in 2013 (for details, see pages 51-53 of the report, GAO-13-675). We recommended  that Interior take all necessary steps to improve the ability of JEMCO and  JEMFAC to ensure that the FSM and RMI (1) complete satisfactory plans  to address annual decrements in compact funds, (2) produce reliable  indicator data used to track progress in education and health, and (3)  address all single audit findings in a timely manner. In order to improve financial accountability of noncompact  U.S. grant assistance provided to the FSM and the RMI, we  recommended that Interior consult with other grantor agencies to  determine whether the FSM National Government, any FSM state  government, or the RMI government meets the criteria to be designated  as a high-risk grant recipient for noncompact funds, or whether other  steps should be taken to improve accountability. To  ensure that Interior is providing appropriate resources for oversight and  monitoring of the FSM and RMI compacts, we recommended that the  Secretary of the Interior take actions to correct the disproportionate  staffing shortage related to compact grant implementation and oversight. This is a work of the U.S. government and is not subject to copyright protection in the  United States.
Why GAO Did This Study

In 2003, the U.S. government approved amended Compacts of Free Association with the FSM and the RMI, providing for a total of $3.6 billion in assistance over 20 years. This testimony draws from GAO's September 2013 report on the use and accountability of these funds to review (1) the FSM's and RMI's use of compact funds in the education and health sectors; (2) the extent to which the FSM and RMI have made progress toward stated goals in education and health; and (3) the extent to which oversight activities by the FSM, RMI, and U.S. governments ensure accountability for compact funding. Like the report, this testimony also provides information on infrastructure spending in the education and health sectors. GAO reviewed relevant documents and data, including single audit reports; interviewed officials from Interior, other U.S. agencies, and the FSM and RMI; assessed data reliability for subsets of both countries' education and health indicators; and visited compact-funded education and health facilities in both countries.

What GAO Found

In fiscal years 2007 through 2011, the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) spent at least half their compact sector funds in the education and health sectors. Because both countries spent significant amounts of compact funds on personnel in those sectors, the U.S.-FSM and U.S.-RMI joint management and accountability committees capped budgets for personnel in those sectors at fiscal year 2011 levels due to concerns about the sustainability of sector budgets as compact funding continues to decline through fiscal year 2023. As required by the committees, the FSM states completed plans to address annual decreases in compact funding; however, as of August 2013, the FSM National Government and the RMI had not submitted plans to address the annual decreases. Without such plans, the countries may not be able to sustain essential services in the education and health sectors.
Data reliability issues hindered GAO's assessment of each country's progress in the education and health sectors for fiscal years 2007 through 2011. Although both countries tracked annual indicators in these sectors during this period, GAO determined that many of these data were not sufficiently reliable for the purpose of measuring progress for the compacts as a whole over the time frame. In education, GAO found 3 of 14 indicators in the subsets of indicators it reviewed for both countries to be sufficiently reliable. GAO found a variety of education data reliability problems; for example, the four FSM states did not use common definitions for some indicators, resulting in inconsistent data for those indicators, and in the RMI some indicators lacked data from the outer islands. In the health sector, GAO determined that data for all 5 of the subset of indicators it reviewed in the FSM were not sufficiently reliable, and in the RMI, 1 health indicator was sufficiently reliable, 2 were not sufficiently reliable, and for 2 others, GAO had no basis to judge due to insufficient information. The joint management and accountability committees have raised concerns about the reliability of FSM's education and health data and RMI's health data and required each country to obtain an independent assessment and verification of these data; both countries have yet to meet that requirement. Without reliable data, the countries cannot assess progress toward their goals in the education and health sectors.
The single audit reports GAO reviewed indicated challenges to ensuring accountability of U.S. funds in the FSM and RMI. For example, the governments' single audits showed repeat findings and persistent problems in noncompliance with U.S. program requirements, such as accounting for equipment. The Department of the Interior (Interior) has taken steps regarding accountability of compact funds, such as establishing a financial control commission in one FSM state, but Interior has not coordinated with other U.S. agencies about the risk status of the FSM and RMI and whether to designate either country as a high-risk grantee. Furthermore, the FSM, RMI, and U.S. offices responsible for compact administration faced limitations hindering their ability to conduct compact oversight. For example, Interior's Office of Insular Affairs (OIA) experienced a staffing shortage that disproportionately affected compact grant oversight compared to other OIA activities, leaving 6 of 11 planned positions for compact oversight unfilled as of 2012 and 5 of 11 still unfilled as of 2013.

What GAO Recommends

GAO is not making new recommendations. In its September 2013 report, GAO recommended that, among other actions, Interior should (1) take all necessary steps to ensure the reliability of FSM and RMI indicators in education and health, (2) assess whether to designate each country as high risk, and (3) take actions to correct its disproportionate staffing shortage related to compact grant implementation and oversight. Interior generally agreed with the recommendations and identified actions taken, ongoing, and planned.