OIA, established in 1995, is responsible for carrying out the  Secretary’s responsibilities for U.S. insular areas. Among the random sample of 173 OIA grant project files that we reviewed  in our March 2010 report, we identified 49 OIA technical assistance grant  projects from a variety of technical assistance grant types (see table 2). Nearly 40 Percent of OIA Grant Projects Have Internal Control Weaknesses That Could Increase Susceptibility to Mismanagement

On the basis of our review of grant files from a random sample of grant  projects, we determined that the long-standing internal control  weaknesses that we, Interior’s Office of Inspector General, and others,  identified between 2000 and 2009 still exist. The eight internal control weaknesses that we assessed can be grouped  into three categories based on the entity responsible for the activities:  grant recipient activities, OIA grant management activities, or joint  activities between grant recipients and OIA. The most  prevalent weaknesses for the 49 technical assistance grant projects were  insufficient reporting and record-keeping discrepancies. OIA Has Taken Steps to Improve the Implementation and Management of Grant Projects

Over the past 5 years, OIA has taken the following steps to improve grant  project implementation and management:    Competitive allocation system. This  system provides incentives for financial management improvements and  project completion by tying a portion of each insular area’s annual  allocation to the insular governments’ efforts in these areas—such as their  efforts to submit financial and status reports on time. Beginning in 2005, to encourage expeditious use  of funds, OIA established 5-year expiration dates in the terms and  conditions of new capital improvement project grants. Actions to improve insular area grant management continuity. Several Obstacles to Timely and Effective Project Completion Remain

Despite OIA’s efforts, some insular areas are still not completing their  projects in a timely and effective manner, and OIA faces the following key  obstacles in compelling them to do so:    Lack of sanctions for delayed or inefficient projects. Current OIA grant  procedures provide few sanctions for delayed or inefficient projects. OIA officials report that resource constraints  impede effective project completion and proactive monitoring and  oversight. Inconsistent and insufficiently documented project redirection policies. OIA’s current project redirection approval practices do little to discourage  insular areas from redirecting project funds in ways that hinder project  completion. OIA’s current data system for  tracking grants is limited in the data elements it contains, leading to  inconsistencies in the data that some grant managers rely on for  monitoring and oversight activities. Our March 2010 report contained three recommendations to the Secretary  of the Interior designed to improve the department’s management and  oversight of grants to the insular areas, including one that would directly  impact OIA’s technical assistance grant programs. OIA agreed with our report and told us that  it will implement these recommendations.
Why GAO Did This Study

U.S. insular areas face serious economic and fiscal challenges and rely on federal funding to support their governments and deliver critical services. The Department of the Interior, through its Office of Insular Affairs (OIA), provides about $70 million in grants annually, including technical assistance grants, to increase insular area self-sufficiency. In the past, GAO and others have raised concerns regarding insular areas' internal control weaknesses, which increase the risk of grant fund mismanagement, fraud, and abuse. In March 2010, GAO reported on insular area grants (GAO-10-347); this testimony summarizes that report and focuses on (1) whether previously reported internal control weaknesses have been addressed and, if not, to what extent they are prevalent among OIA grant projects, including technical assistance grant projects, as of March 2010; and (2) the extent to which OIA has taken action to improve the implementation and management grant projects, as of March 2010. For the March 2010 report, GAO reviewed a random sample of 173 OIA grant project files and interviewed OIA and insular area officials. For this testimony, GAO conducted additional analysis for the 49 technical assistance grant projects included in the sample. GAO's March 2010 report contained three recommendations. Interior agreed with the recommendations. This testimony statement contains no new recommendations.

What GAO Found

Internal control weaknesses previously reported by GAO and others continue to exist, and about 40 percent of grant projects funded through OIA have these weaknesses, which may increase their susceptibility to mismanagement. These weaknesses can be categorized into three types of activities: grant recipient activities, joint activity between grant recipients and OIA, and OIA's grant management activities. For the 49 technical assistance grant projects in GAO's sample, the most prevalent weaknesses were insufficient reporting and record-keeping discrepancies. Over the past 5 years, OIA has taken steps to improve project implementation and management. Most notably, OIA established incentives for financial management improvements and project completion by tying a portion of each insular area's annual allocation to the insular governments' efforts in these areas--such as their efforts to submit financial and status reports on time. In addition, OIA established expiration dates for grants to encourage expeditious use of the funds. Despite these and other efforts, some insular areas are still not completing their projects in a timely and effective manner, and OIA faces key obstacles in compelling them to do so. Specifically, (1) current OIA grant procedures provide few sanctions for delayed or inefficient projects, and the office is not clear on its authorities to modify its policies; (2) resource constraints impede effective project completion and proactive monitoring and oversight; (3) inconsistent and insufficiently documented project redirection policies do little to discourage insular areas from redirecting grant funds in ways that hinder project completion; and (4) OIA's current data system for tracking grants is limited and lacks specific features that could allow for more efficient grant management.