U.S. Insular Areas
Economic, Fiscal, and Financial Accountability Challenges Gao ID: GAO-07-119 December 12, 2006The 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.
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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
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Report to the Committee on Energy and Natural Resources, U.S. Senate:
United States Government Accountability Office:
GAO:
December 2006:
U.S. Insular Areas:
Economic, Fiscal, and Financial Accountability Challenges:
U.S. Insular Areas:
GAO-07-119:
GAO Highlights:
Highlights of GAO-07-119, a report to Committee on Energy and Natural
Resources, U.S. Senate
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.
Figure: Map Showing Location of Four U.S. Insular Areas (CNMI, Guam,
American Samoa, and U.S. Virgin Islands):
[See PDF for Image]
Source: GAO and MapArt(map).
[End of Figure]
What GAO Recommends:
The Secretary of the Interior should direct the Deputy Assistant
Secretary for Insular Affairs to (1) coordinate with other federal
grant-making agencies on issues related to the insular area
governments; (2) conduct periodic evaluations of the Department of the
Interior‘s Office of Insular Affairs conferences and business-
opportunities missions; (3) develop a framework for conducting site
visits to help ensure objectives are achieved, information is shared,
and monitoring is more efficient and effective; and (4) implement
procedures for evaluation of progress made by the insular areas in
resolving audit findings and set a time frame for achieving clean audit
opinions. DOI agreed with GAO‘s recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-119].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Jeanette Franzel at (202)
512-9471 or franzelj@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Scope and Methodology:
Narrow Economic Base and Intrinsic and External Factors Limit Economic
Progress in the U.S. Insular Areas:
Weakened Fiscal Condition in Three Insular Areas:
Financial Accountability Remains Weak in the U.S. Insular Areas:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Matters Leading to Qualified Audit Opinions:
Appendix II: Internal Control Weaknesses and Compliance with
Requirements Applicable to Major Federal Programs:
Appendix III: DOI Inspector General Reports on Four Insular Areas for
Calendar Years 2000--2005:
Appendix IV: Comments from the Department of the Interior:
Appendix V: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Demographic and Economic Characteristics of American Samoa,
CNMI, Guam, and USVI, 2000:
Table 2: Political Characteristics of American Samoa, CNMI, Guam, and
USVI:
Table 3: Federal Grant Expenditures of the Insular Areas for Fiscal
Year 2004:
Table 4: Fiscal Condition by Year--American Samoa:
Table 5: Fiscal Condition by Year--CNMI:
Table 6: Fiscal Condition by Year--Guam:
Table 7: Fiscal Condition by Year--USVI:
Table 8: Single Audit Act Report Submissions, Fiscal Years 1997 through
2004:
Table 9: Financial Statement Audit Opinions for Fiscal Years 1997
through 2004:
Table 10: Opinions Rendered on Compliance with Requirements for Major
Federal Programs for Fiscal Years 1997 through 2004:
Table 11: Reported Weaknesses in Internal Control over Financial
Reporting Identified in the Auditors' Reports for Fiscal Year 2004:
Table 12: Material Weaknesses and Reportable Conditions Relating to
Compliance with Requirements for Major Federal Programs for Fiscal Year
2004:
Table 13: OIA Funding for Technical Assistance from the USDA Graduate
School:
Table 14: American Samoa--Matters Leading to Qualified Audit Opinions
on the Financial Statements for Fiscal Years 2001 through 2004:
Table 15: CNMI--Matters Leading to Qualified Audit Opinions on the
Financial Statements for Fiscal Years 2001 through 2004:
Table 16: Guam--Matters Leading to the Qualified Audit Opinions on the
Financial Statements for Fiscal Years 2001 through 2004:
Table 17: USVI--Matters Leading to the Qualified Audit Opinions on the
Financial Statements for Fiscal Years 2001 through 2004:
Table 18: American Samoa--Reported Weaknesses Identified in the
Auditors' Reports for Fiscal Years 2001 through 2004:
Table 19: CNMI--Reported Weaknesses Identified in the Auditors' Reports
for Fiscal Years 2001 through 2004:
Table 20: Guam--Reported Weaknesses Identified in the Auditor's Reports
for Fiscal Years 2001 through 2004:
Table 21: USVI--Reported Weaknesses Identified in the Auditors' Reports
for Fiscal Years 2001 through 2004:
Figure:
Figure 1: Map Showing Location of Four U.S. Insular Areas:
Abbreviations:
ACC: Annual Contributions Contract:
ACF: Administration of Children and Families:
AJCA: American Jobs Creation Act:
APIPA: Association of Pacific Islands Public Auditors:
ATPA: Andean Trade Preference Act:
CDC: Centers for Disease Control and Prevention:
CHC: Commonwealth Health Center:
CNMI: Commonwealth of the Northern Mariana Islands:
DOD: Department of Defense:
DOI: Department of the Interior:
DOL: Department of Labor:
DOT: Department of Transportation:
EDC: Economic Development Commission:
EMO: Emergency Management Office:
FAC: Federal Audit Clearinghouse:
FMCSA: Federal Motor Carrier Safety Administration:
FMS: Financial Management System:
FNS: Food and Nutrition Service:
GAAP: Generally Accepted Accounting Principles:
GASB: Governmental Accounting Standards Board:
GDP: Gross Domestic Product:
GHURA: Guam Housing and Urban Renewal Authority:
HHS: Department of Health and Human Services:
HUD: Department of Housing and Urban Development:
IG: Inspector General:
IGFOA: Island Government Finance Officers Association:
IGIA: Interagency Group on Insular Areas:
JAL: Japan Airlines:
MCSAP: Motor Carrier Safety Assistance Program:
MOU: Memorandum of Understanding:
NAFTA: North American Free Trade Agreement:
OIA: Office of Insular Affairs:
OMB: Office of Management and Budget:
P&S: Division of Procurement and Supply:
PHAS: Public Housing Assessment System:
PITI: Pacific Islands Training Initiative:
SAMHSA: Substance Abuse and Mental Health Services Administration:
SARS: Severe Acute Respiratory Syndrome:
SEMAP: Section Eight Management Assessment Program:
U.S. United States:
USDA: Department of Agriculture:
USVI: U.S. Virgin Islands:
VIHA: Virgin Islands Housing Authority:
VIHFA: Virgin Islands Housing Finance Authority:
VITI: Virgin Islands Training Initiative:
WIC: Women, Infants, and Children:
WTO: World Trade Organization:
United States Government Accountability Office:
Washington, DC 20548:
December 12, 2006:
The Honorable Pete V. Domenici:
Chairman:
The Honorable Jeff Bingaman:
Ranking Member Committee on Energy and Natural Resources:
United States Senate:
The U.S. insular areas[Footnote 1] of American Samoa, Commonwealth of
the Northern Mariana Islands (CNMI), Guam, and the United States Virgin
Islands (USVI) face key economic, fiscal, and financial accountability
challenges. The three Pacific insular areas--American Samoa, CNMI, and
Guam--are between 4,100 and 6,000 miles from the U.S. mainland. The
fourth insular area, the USVI, is located in the Caribbean Sea about
1,000 miles southeast of Miami. All four governments face common
challenges to strengthening their economy, fiscal condition, and
financial accountability. As you requested, we are reporting 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, including compliance
with the Single Audit Act, as amended (Single Audit Act).[Footnote 2]
The economic and fiscal conditions of these insular areas are affected
by destructive climatic events such as typhoons, cyclones, and
hurricanes, as well as their economies' general dependence on a few key
industries and their governments' reliance on federal grants to provide
basic services to their citizens. In addition, although progress has
been made in improving financial accountability, the insular area
governments continue to have serious internal control and
accountability problems that increase their risk of fraud, waste,
abuse, and mismanagement.
Results in Brief:
The governments of the insular areas of American Samoa, CNMI, Guam, and
USVI face serious economic, fiscal, and financial accountability
challenges. The insular area governments' abilities to strengthen their
economies have been constrained by their lack of diversification in
industries, scarce natural resources, small domestic markets, limited
infrastructure, and shortages of skilled labor. The few key industries
in each area were established partially due to favorable U.S. federal
government trade and tax policies and are vulnerable to changes in
these policies that would restrict such benefits. These key industries
are also affected by various other external factors, such as
fluctuations in the economies of the nearby countries; events such as
the effect of the September 11, 2001, terrorist attacks in the United
States on tourism in these areas; and U.S. Department of Defense (DOD)
decisions to expand or reduce the number of troops at military bases,
specifically on Guam. To help diversify and strengthen their economies,
the Department of the Interior's (DOI) Office of Insular Affairs
(OIA)[Footnote 3] has in the last 3 years sponsored conferences in the
United States and business opportunities missions in the insular areas
to attract American businesses to these insular areas. However, the
effectiveness of these conferences and business opportunities missions
is uncertain due to the lack of formal evaluation of these efforts.
The governments of CNMI, Guam, and USVI experienced worsening fiscal
conditions during fiscal years 2001 to 2004,[Footnote 4] while in
American Samoa the picture was mixed, with increases in government
funds and assets during fiscal years 2001 through 2003 but a decrease
in government funds by the end of fiscal year 2004. In CNMI and Guam,
the fund balance[Footnote 5] of total governmental funds declined as
government spending rose. In CNMI, net assets[Footnote 6] declined for
fiscal years 2001-2004, and in Guam, net assets declined for fiscal
years 2001-2003. The USVI government maintained positive balances of
total government funds and reduced its negative balance of net assets
by increased borrowing during the period. American Samoa's increase in
government funds for fiscal years 2002 and 2003 was due to 2 years of
strong surpluses of revenues over expenditures, stemming from an
insurance settlement of claims from Hurricane Val, which hit the
insular area in 1991. The audited financial statements used to analyze
the fiscal condition of the four insular areas are subject to
limitations cited by their auditors, which are discussed in the
financial accountability section of this report.
The governments of the four insular areas have long-standing financial
accountability problems, including the late submission of the reports
required by the Single Audit Act, the inability to achieve unqualified
("clean") audit opinions on their financial statements, and numerous
material weaknesses in internal control over financial reporting and
compliance with laws and regulations governing federal grant awards.
Several federal agencies have designated the insular areas as high-risk
grantees due to their failure to submit the single audit reports by the
statutory deadline and serious ongoing audit findings. The findings in
the single audit reports clearly show that the insular area governments
lacked effective internal controls to provide reasonable assurance that
transactions are properly recorded; assets are safeguarded from fraud,
waste, abuse, and mismanagement; and federal funds are expended in
accordance with grant requirements. As a result, there is limited
accountability over federal grants to the insular areas. Increased
coordination between OIA officials and federal grant-making agencies on
issues of common concern related to the insular area governments--such
as late single audit reports, high-risk designations, and deficiencies
in financial management systems and practices--would increase the
effectiveness of their efforts.
Multiple federal offices oversee the insular areas' efforts to improve
their financial accountability, including the OIA and DOI's Office of
the Inspector General (IG), as well as inspectors general from other
federal agencies that provide grants. OIA provides funding for
technical assistance provided by the Graduate School of the Department
of Agriculture (USDA) to the insular area governments as well as direct
grants to these governments to obtain technical assistance. The insular
areas also have local auditing authorities that provide oversight over
the governments' activities. While multiple entities oversee the
insular areas' efforts to improve their financial accountability, there
appears to be limited coordination of financial assistance programs and
grants management across the many federal grant-making agencies.
To help the insular area governments improve their financial
accountability, we are making recommendations for increased
coordination between OIA and other federal grant-making agencies on
issues of common concern related to the insular areas, and the
implementation by OIA of formal, periodic evaluations of the
effectiveness of its efforts to improve the economy of the insular
areas. We are also making recommendations for OIA to (1) monitor the
insular areas' progress in improving financial accountability by
setting a time frame for the governments to achieve clean audit
opinions and (2) implement a framework for site visits to help ensure
that monitoring objectives are achieved.
We received written comments from DOI on a draft of this report. DOI
agreed with our conclusions and recommendations and stated that the
four recommendations are consistent with OIA's top priorities and
ongoing activities. The focus of our draft report, according to DOI's
comments, reflects OIA's top two priorities for the insular areas--
private sector economic development and accountability. DOI officials
stated that progress is not easily achieved for these two priorities.
DOI also provided examples of its current activities that it believes
are directed at making the improvements that were the focus of our
recommendations. We have reprinted DOI's comments, with our responses,
in appendix IV.
Background:
The U.S. insular areas of American Samoa, CNMI, and Guam are located in
the Pacific Ocean, between 4,100 and 6,000 miles from the U.S.
mainland. USVI is located about 1,000 miles southeast of Miami in the
Caribbean Sea, as shown in figure 1.
Figure 1: Map Showing Location of Four U.S. Insular Areas:
[See PDF for image]
Source: GAO and MapArt(map).
[End of figure]
According to U.S. Census Bureau data for 2000, the population of the
U.S. insular areas ranges from about 57,000 in American Samoa, to about
155,000 in Guam. Residents born in CNMI, Guam, and USVI are citizens of
the United States. Residents born in American Samoa are
nationals[Footnote 7] of the United States, but may become naturalized
U.S. citizens. The population of both American Samoa and CNMI, which
control their own immigration, included significant percentages of
people who were foreign nationals.
According to U.S. Census Bureau data for 2000, median household incomes
in the four insular areas ranged from less than half of the U.S. median
household income of almost $41,000 for American Samoa to nearly equal
for Guam, as shown in table 1. The percentage of individuals in poverty
ranged from a low in Guam of 23 to a high in American Samoa of 61.
Guam's 23 percent is nearly twice the rate of the continental U.S. rate
of 12 percent.
Table 1: Demographic and Economic Characteristics of American Samoa,
CNMI, Guam, and USVI, 2000:
Population;
American Samoa: 57,291;
CNMI: 69,221;
Guam: 154,805;
Virgin Islands[A]: 108,612.
Percentage who were non-U.S. citizens or nationals;
American Samoa: 35.3;
CNMI: 56.5;
Guam: 18.1;
Virgin Islands[A]: 12.0.
Median household income;
American Samoa: $18,219;
CNMI: $22,898;
Guam: $39,317;
Virgin Islands[A]: $24,704.
Per capita income;
American Samoa: $4,357;
CNMI: $9,151;
Guam: $12,722;
Virgin Islands[A]: $13,139.
Percentage of individuals in poverty;
American Samoa: 61.0;
CNMI: 46.0;
Guam: 23.0;
Virgin Islands[A]: 32.5.
Economic base;
American Samoa: Manufacturing (tuna processing);
CNMI: Manufacturing (apparel), tourism;
Guam: Military bases, tourism;
Virgin Islands[A]: Tourism, manufacturing (oil refining), business/
financial services.
Employment (percentage): Government;
American Samoa: 29.9;
CNMI: 11.7;
Guam: 26.5;
Virgin Islands[A]: 24.5.
Employment (percentage): Manufacturing;
American Samoa: 35.3;
CNMI: 40.7;
Guam: 2.0;
Virgin Islands[A]: 5.9.
Employment (percentage): Tourism[B];
American Samoa: 3.7;
CNMI: 13.6;
Guam: 18.0;
Virgin Islands[A]: 15.8.
Source: U.S. Census Bureau, "Population and Housing Profile: 2000" and
GAO analysis.
[A] The USVI Bureau of Economic Research reports per capita personal
income of $16,567 in 2000; the share of government in total employment
(nonagricultural) is estimated at approximately 30 percent; and the
share of tourism at around 20 percent. See U.S. Virgin Islands Annual
Economic and Tourism Indicators available at [Hyperlink,
http://www.usviber.org/publications.html].
[B] "Tourism" corresponds to the U.S. Census Bureau category "Arts,
entertainment, recreation, accommodation and food services." This
category is presented as a proxy for tourism's role in the insular area
economies.
[End of table]
While the United States exercises sovereignty over the insular areas,
each administers its local government functions through popularly
elected governors. As shown in table 2, American Samoa and CNMI are
self-governed under locally adopted constitutions. Guam and USVI have
not adopted local constitutions and remain under organic acts[Footnote
8] approved by Congress. Because each of the insular areas is an
unincorporated territory,[Footnote 9] its residents--although they have
many of the rights of citizens of the 50 states--cannot vote in
national elections and do not have voting representation in the final
approval of legislation by the full Congress.
Table 2: Political Characteristics of American Samoa, CNMI, Guam, and
USVI:
American Samoa;
Relationship to United States: Unorganized territory[A];
Constitutional development: Has a constitution;
Citizenship status: U.S. nationals;
Representation in Congress: Nonvoting delegate to House of
Representatives[B].
CNMI;
Relationship to United States: Commonwealth[C];
Constitutional development: Has a constitution;
Citizenship status: U.S. citizens;
Representation in Congress: Resident representative[D].
Guam;
Relationship to United States: Organized territory[E];
Constitutional development: Does not have a constitution;
Citizenship status: U.S. citizens;
Representation in Congress: Nonvoting delegate to House of
Representatives[B].
U.S. Virgin Islands;
Relationship to United States: Organized territory[E];
Constitutional development: Does not have a constitution;
Citizenship status: U.S. citizens;
Representation in Congress: Nonvoting delegate to House of
Representatives[B].
Source: Congressional Research Service, CRS Report for Congress: U.S.
Insular Areas and Their Political Development (Washington, D.C.:
Library of Congress, 1996).
[A] An unorganized territory is an unincorporated U.S. insular area for
which the U.S. Congress has not enacted an organic act.
[B] The nonvoting delegates for American Samoa, Guam, and USVI may vote
in committees and party caucuses but not on the House floor.
[C] A commonwealth is an organized U.S. insular area that has
established a more highly developed relationship--usually embodied in a
written mutual agreement--with the federal government. The agreement
between CNMI and the U.S. government was enacted by Pub. L. No. 94-241.
[D] CNMI's elected "Resident Representative to the United States,"
unlike the delegates from American Samoa, Guam, and USVI, is not a
member of Congress.
[E] An organized territory is a U.S. insular area for which Congress
has enacted an organic act. Guam and USVI are organized under,
respectively, 48 USC §§1421 et. seq. and 48 USC §§ 1541 et. seq.
[End of table]
The insular areas receive substantial amounts in federal grants from a
variety of federal agencies, as shown in table 3. Recipients that
expend $500,000 or more a year[Footnote 10] in federal awards under
more than one federal program are required by the Single Audit Act to
undergo a single audit. Single audits are audits of the recipient
organization--the government in the case of the insular areas--that
focus on the recipient's internal controls and its compliance with laws
and regulations governing federal awards.[Footnote 11] As nonfederal
entities expending more than $500,000 a year in federal awards, the
insular areas are required to submit single audit reports[Footnote 12]
each year to comply with the Single Audit Act. One of the objectives of
the act is to promote sound financial management, including effective
internal controls,[Footnote 13] with respect to federal awards
administered by nonfederal entities. Single audits also provide key
information about the federal grantee's financial management and
reporting.
Recipient organizations are required by the act to submit their single
audits reports to the Federal Audit Clearinghouse (FAC).[Footnote 14]
The single audit reporting package sent to the FAC includes (1) the
auditor's reports; (2) the entity's audited financial statements and
related notes; (3) the schedule of expenditures of federal awards,
related notes, and the auditor's report on the schedule; (4) a schedule
of findings and questioned costs; (5) reports on internal controls over
financial reporting, and compliance with laws and regulations; and (6)
a summary schedule of prior audit findings. The reporting package also
includes corrective actions for findings identified for the current
year as well as unresolved findings from prior fiscal years. Table 3
below shows the total amount of federal funds provided to each insular
area and the largest five federal grant agencies for each insular area.
Table 3: Federal Grant Expenditures of the Insular Areas for Fiscal
Year 2004:
U.S. insular area and largest grantor agencies: American Samoa;
* Department of the Interior;
* Department of Education;
* Department of Agriculture;
* Department of Transportation;
* Department of Health and Human Services;
Total federal expenditure amount (dollars in millions): $140.2.
U.S. insular area and largest grantor agencies: CNMI;
* Department of the Interior;
* Department of Agriculture;
* Department of Homeland Security;
* Department of Health and Human Services;
* Department of the Treasury;
Total federal expenditure amount (dollars in millions): $62.3.
U.S. insular area and largest grantor agencies: Guam;
* Department of Agriculture;
* Department of Health and Human Services;
* Department of Homeland Security;
* Department of Transportation;
* Department of the Interior;
Total federal expenditure amount (dollars in millions): $163.4.
U.S. insular area and largest grantor agencies: USVI;
* Department of Health and Human Services;
* Department of Education;
* Department of Agriculture (nonmonetary programs);
* Department of Labor;
* Department of Agriculture (monetary programs);
Total federal expenditure amount (dollars in millions): $158.4.
Source: Schedule of Expenditures of Federal Awards, Single Audit
Reports for fiscal year 2004 for each of the four insular areas.
[End of table]
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. DOI's OIA and
IG carry out the Secretary's responsibilities. OIA was established to
foster the efficiency and effectiveness of the insular area governments
and to provide technical and financial assistance. In this role, OIA
coordinates activities with other federal agencies in the development
and implementation of programs and policies pertaining to the insular
areas. DOI's IG has the authority to audit all insular area accounts
pertaining to revenue and receipts and all expenditures; may report all
findings of government failures to collect amounts owed; and may report
improper and illegal expenses to the Secretary.[Footnote 15] DOI's IG
has issued many audit reports covering issues on individual insular
areas. See appendix III for a list of reports on the insular areas
issued by the DOI IG between calendar years 2000 and 2005.
Scope and Methodology:
To identify the economic challenges the insular areas face, we reviewed
relevant literature dealing with economic conditions in the insular
areas, including the potential impact of recent changes in tax and
trade laws. We also interviewed officials at OIA and specialists at the
U.S. Census Bureau and analyzed various documents and studies from
these agencies, including estimates of gross domestic product (GDP). We
reviewed analyses prepared by the U.S. Department of Labor (DOL) of the
tuna industry in American Samoa and gathered military personnel data
from DOD. In addition, we obtained economic data from insular area
officials, such as CNMI plant closings, employment statistics, and
tourism indicators.
We studied the fiscal condition of each of the insular area governments
by identifying and analyzing the revenues, expenditures, government
fund balances, and net assets data, as reported in their single audit
reports issued for fiscal years 2001 through 2004. We used benchmark
estimates of 2002 GDP, prepared by the U.S. Census Bureau for each of
the insular areas, to calculate revenues and expenditures as a
percentage of GDP. After our work was completed, American Samoa, CNMI,
and Guam issued their single audit reports for fiscal year 2005. We did
not update our information on the insular areas' fiscal conditions
because the USVI single audit report for fiscal year 2005 had not been
issued.
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,[Footnote 16] (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. We determined the timeliness of submission of the single
audit reports using the FAC's "Form Date," which is the most recent
date that a required SF-SAC data collection form[Footnote 17] or a
revised form was received by the FAC. We did note that the "Form Date"
is updated if revised SF-FACs for that same fiscal year are
subsequently filed. Our review of the contents of the single audit
reports identified the auditors' opinions on the financial statements,
matters cited by the auditors in their qualified opinions, the numbers
and nature of material weaknesses and reportable conditions reported by
the auditors, and the status of corrective actions. We interviewed OIA
officials to identify their role in assisting the insular area
governments in efforts to improve financial accountability, including
training and technical assistance funded by OIA and provided by the
USDA's Graduate School. To identify the federal and local auditing
authorities with oversight over the four insular area governments, we
reviewed the information on the authorities' Web sites and reports that
had been recently issued.
Because high-risk designations are made at the individual agency or
program level, and this information is not consolidated at the federal
government level, we contacted officials at the largest five federal
grant agencies for each insular area to determine whether they had
designated any of these four insular area governments or agencies of
these governments as high-risk grantees, and whether special conditions
had been placed on them. We used the schedules of expenditures of
federal awards included in the fiscal year 2004 single audit reports to
identify the largest five federal grant agencies for each insular area.
We conducted our work from September 2005 through August 2006 in
accordance with U.S. generally accepted government auditing standards.
Narrow Economic Base and Intrinsic and External Factors Limit Economic
Progress in the U.S. Insular Areas:
Several factors common to all four U.S. insular areas constrain their
economic potential. These factors include lack of diversification,
scarce natural resources, small domestic markets, limited
infrastructure, and shortages of skilled labor. The labor markets of
all four insular areas face competition with U.S. mainland wage levels
because natives from the insular areas are free to migrate to the
United States.[Footnote 18] Therefore, the insular areas' private and
public sectors face chronic difficulties retaining well-trained and
highly educated workers. Two of the insular areas, American Samoa and
CNMI, control their own immigration and have developed industries that
depend on foreign labor paid a minimum wage below that of the United
States. Although geographic isolation is frequently mentioned as a
factor restraining economic progress in the insular areas, it does not
appear to apply to CNMI, Guam, or USVI. CNMI and Guam are well
positioned to integrate with the regional economies of East Asia; and
USVI is surrounded by the Caribbean Basin countries and the United
States. On the other hand, American Samoa is more geographically
isolated, with Australia, more than 2,000 miles away, and New Zealand,
1,600 miles away, as the closest large economies.
Although the type of industries and extent of dependence varies, the
local economies of the insular areas rely on one or two primary
industries. The result of this dependence is economies that are
vulnerable to changes in international trade agreements, tax laws, and
other external events. For example, American Samoa's private sector is
largely based on two tuna canneries. Although these tuna canneries have
been an integral part of American Samoa's private sector for decades,
they are likely to face increased foreign competition from existing and
pending trade agreements established to advance free trade, which could
have a serious negative effect on them. Similarly, CNMI's economy is
highly dependent on the garment manufacturing industry, which is facing
the challenge of remaining internationally competitive against low-wage
nations given recent changes in trade agreements. Guam's economy
depends on two main sectors--tourism and the provision of services to
the U.S. military. Guam's tourism sector is currently stable, but has
been affected by several external events, such as the terrorist attacks
on the United States on September 11, 2001, and the Severe Acute
Respiratory Syndrome (SARS) epidemic. The stability of the sector that
provides services to the U.S. military is tied to Guam's status as a
strategic U.S. military base. USVI has a more diverse economy than
American Samoa, CNMI, or Guam, with several sources of revenue--
primarily tourism, petroleum refining, and international business and
financial services. However, USVI's tourist sector, like that of CNMI
and Guam, has experienced volatility due to the terrorist attacks on
the United States on September 11, 2001, and the impact of hurricanes.
USVI is also facing challenges resulting from recent tax law changes
that could cause a reduction in U.S. businesses operating in the
insular area.
American Samoa:
American Samoa's economy depends primarily on the tuna canning
industry.[Footnote 19] The industry is the insular area's largest
source of income and, with the government sector, one of its two
largest sources of employment. According to DOL, the two tuna canneries
in the insular area employ about one-third of the workforce, with
another one-third employed by other businesses, many of which support
the tuna industry. The government sector in American Samoa accounts for
about 20 percent of the insular area's GDP and employs around one-third
of its labor force.[Footnote 20] Noncitizens make up a large portion of
the canneries' employees, about 80 percent in 2000.[Footnote 21]
Several changes in federal trade and tax law may adversely affect the
American Samoa tuna industry, in turn affecting the insular area's
economy and government.
Trade Law Changes:
Since the 1950s, tuna canned in American Samoa has been permitted to
enter the United States duty free. However, changes scheduled to take
effect in existing free trade agreements, as well as several pending
agreements, are likely to increase competition for the tuna canneries
in American Samoa. For example, according to a DOL study,[Footnote 22]
the elimination of tuna tariffs in 2008 for Mexico under the North
American Free Trade Agreement (NAFTA) could, in concert with other
factors, result in Mexico's becoming a major exporter of canned tuna to
the United States. Likewise, the Andean Trade Preference Act (ATPA), as
amended in 2002,[Footnote 23] allows the U.S. President to exempt
Bolivia, Colombia, Ecuador, and Peru from paying U.S. tariffs on
shipments of pouched tuna, which is expected to gain market share in
the United States.[Footnote 24] According to DOL, Congress may choose
to gradually eliminate tariffs on canned tuna for these countries in
the future. In that case, Ecuador--ATPA's major tuna exporter--could
become, like Mexico, a significant supplier of canned tuna to the
United States.[Footnote 25] In addition, the U.S.-Thailand Free Trade
Agreement now being negotiated could further challenge the American
Samoa tuna industry if it grants Thailand--the biggest exporter of tuna
to the United States--the right to ship canned tuna to the United
States duty free.
Tax Law Changes:
The canneries in American Samoa have benefited from possession tax
credits under section 936 of the Internal Revenue Code,[Footnote 26]
which is designed to encourage U.S. corporations to invest in the U.S.
insular areas and create jobs by reducing the federal taxes on income
earned by qualifying U.S. corporations.[Footnote 27] However, the
credit expired for taxable years beginning after December 31, 2005.
Although the House passed legislation to extend the credit for American
Samoa for 1 year,[Footnote 28] the provision was removed in conference
and was not included in the final version of the bill, which was signed
by the President on May 17, 2006.[Footnote 29] According to the DOL
study,[Footnote 30] the loss of the federal income tax credit will
reduce the canneries' after-tax profitability and could prompt them to
move to countries with a lower minimum wage.[Footnote 31] The economic
and social impact associated with a significant downturn in its major
industry may be severe in American Samoa because the large foreign
workforce has relatively strong roots in the insular area and, as a
result, may remain in the insular area even if unemployed.[Footnote 32]
CNMI:
The CNMI economy depends on two industries, garment manufacturing and
tourism, for its employment, production, and exports. These two
industries rely heavily on a noncitizen workforce that represents more
than three quarters of the labor pool.[Footnote 33] The garment
industry, for example, uses textiles and labor imported mostly from
China. Garment manufacturing and tourism account for about 85 percent
of CNMI's total economic activity and 96 percent of its
exports.[Footnote 34] Recent estimates of CNMI's GDP suggest that, in
2002, the garment industry contributed to roughly 40 percent of CNMI's
GDP and 47 percent of payroll.[Footnote 35] The rapid growth of tourism
between 1988 and 1996, with visitor arrivals rising from over 245,000
to over 735,000, an average annual increase of 14.7 percent, fueled
economic expansion. However, recent alterations in trade law have
increased foreign competition for CNMI's garment industry and caused
its exports to fall, while other external events have negatively
impacted its tourism sector.
Trade Law Changes:
Several recent developments in international trade law have affected
CNMI's garment industry. Historically, while other garment exports
faced quotas and duties in shipping to the U.S. market, CNMI's garment
industry benefited from quota-free and duty-free access to U.S. markets
for shipments of goods in which 50 percent of the value was added in
CNMI.[Footnote 36] Recently, however, U.S. agreements with other
textile-producing countries have liberalized the textile and apparel
trade. For example, in January 2005, in accordance with one of the 1994
World Trade Organization (WTO) Uruguay Round agreements, the United
States eliminated quotas on textile and apparel imports from other
textile-producing countries, leaving CNMI's apparel industry to operate
under stiffer competition, especially from low-wage countries such as
China.[Footnote 37] With its trade advantage lessened, CNMI's garment
industry has shrunk. According to a DOI official, more than 3,800
garment jobs were lost between April 2004 and the end of July 2006,
with 10 out of 27 garment factories closing.[Footnote 38] U.S.
Department of Commerce data show that the value of CNMI shipments of
garments to the United States dropped by more than 16 percent between
2004 and 2005, from about $807 million to $677 million, and down from a
peak of $1 billion in 1999-2000. In the first 7 months of 2006, garment
exports to the United States dropped by more than 27 percent compared
to the same period in 2005, with sales declining from $419 million to
$305 million. Given that the taxes and fees from the garment industry
account for about 35 to 40 percent of the insular area's revenues,
these developments will likely have significant financial and economic
impacts, according to OIA officials.
Other Events:
Various external events have affected CNMI's tourism industry in recent
years. Due to CNMI's proximity to Asia, Asian economic trends have a
direct impact on CNMI's economy. For example, tourism in CNMI
experienced a sharp decline in the late 1990s with the Asian financial
crisis. According to the Marianas Visitors Authority, total visitor
arrivals dropped from a peak of 736,117 in 1996 to 501,788 in 1999.
After a modest recovery in 2000, tourism faltered again with the
September 11, 2001, terrorist attacks on the United States, bringing
the number of visitors to 444,284 in 2001. In 2003, according to CNMI
officials, tourism slowed--with a double-digit decline in arrivals for
several months--in reaction to the SARS epidemic, which originated in
Asia, and the war in Iraq. At the same time, CNMI has experienced an
influx of Chinese tourists in recent years, with the potential to
reenergize the industry. The Chinese share of visitors increased
significantly from 0.4 percent in 1997 to 6.5 percent in 2005. CNMI
officials are optimistic that the trend will continue in the future,
especially on the island of Tinian, which already has gambling and
hotel facilities owned and operated by Chinese interests from Hong
Kong.
Tourism in CNMI is also subject to changes in airline practices. For
example, Japan Airlines (JAL) withdrew its direct flights between Tokyo
and Saipan in October 2005, raising concerns because roughly 30 percent
of all tourists and 40 percent of Japanese tourists arrive in CNMI on
JAL flights, according to CNMI and DOI officials. The Marianas Visitors
Authority's June 2006 data show that the downward trend in Japanese
arrivals is not being offset by the growth in other tourism markets
such as China and South Korea, with the total number of foreign
visitors dropping from 43,115 in June 2005 to 38,510 a year
later.[Footnote 39] A mitigating factor is Northwest Airlines' new
daily nonstop flights between Osaka and Saipan, which are expected to
replace about 40 percent of the seats lost from JAL's action.[Footnote
40]
Guam:
Guam's economy is dominated by two sectors--tourism and government.
Tourism provided about 65 percent of business activity in 2004,
according to the Guam Economic Development and Commerce Authority
Administrator. A 2002 U.S. Census Bureau study indicates that the
government sector of Guam represented more than 36 percent of the
island's GDP.[Footnote 41] The U.S. military accounted for more than 40
percent of total government expenditures and about 90 percent of U.S.
federal expenditures in Guam.
Although Guam's tourism sector is currently stable, it has been
affected by several external events since the late 1990s. The
government sector, which is projected to grow in the near future, has
historically been sensitive to significant changes in the U.S. military
presence.
Factors Affecting Tourism:
Guam's tourism sector is vulnerable to external events. In 1997-1998,
the Asian financial crisis and a severe typhoon slowed tourist
arrivals. According to the Guam Visitors Bureau data, tourist arrivals
dropped by almost 18 percent from 1.38 million in 1997 to 1.14 million
the following year.[Footnote 42] After a modest recovery in 1999-2000,
the terrorist attacks on the United States in September 2001, two more
typhoons in 2002, and the SARS epidemic in 2003 caused further setbacks
in the tourism sector.[Footnote 43] However, in 2004, with the economic
recovery in Japan and a resulting increase in Japanese tourists--which
make up the bulk of foreign visitors--tourism on the island increased
to about 100,000 arrivals per month, according to Guam's Visitors
Bureau.
Military Decisions:
Although the number of active-duty military personnel in Guam is
currently increasing, the island's economy is vulnerable to policy
changes regarding the U.S. military presence. Even though military
personnel in Guam remained relatively stable from 1978 to 1992,
averaging around 8,400, it declined by about 60 percent between 1992
and 2002, according to DOD. A 2003 economic report[Footnote 44] states
that this decline in the numbers of military personnel may have
contributed to Guam's GDP shrinking by as much as 25 to 35 percent over
the same period. Military spending, aimed primarily at repairing aging
facilities and those damaged by typhoons, rose in 2004. In addition,
DOD, in October 2005, announced its plans to transfer 7,000 Marines
from Okinawa, Japan, to Guam over the next 6 years, a move that would
more than triple the number of military personnel and raise the amount
of DOD's spending in the insular area.
USVI:
With several sources of revenue, primarily tourism, petroleum refining,
and international business and financial services, USVI has a more
diversified economy than American Samoa, CNMI, or Guam.[Footnote 45]
Tourism accounts for more than one half of USVI's income and, according
to 2002 data from the USVI Bureau of Economic Research, over 20 percent
of USVI employment.[Footnote 46] Exports of refined petroleum, reaching
$4.8 billion in 2003, made up almost 90 percent of USVI's total
exports.[Footnote 47] Companies selling international services benefit
from a special tax incentive program established by the USVI government
in 2001. They accounted for about 29 percent of all USVI corporate and
individual income receipts in 2003, but less than 2 percent of USVI
employment.[Footnote 48]
While it is diversified, USVI's economy faces several challenges.
First, recent U.S. tax law changes may negatively affect businesses
operating in the insular area. Second, the tourism sector, which
experienced several setbacks in 2001 through 2004, may be experiencing
increased volatility as a result of local tourism trends and other
factors.
U.S. Tax Law Changes:
As a result of tax changes that ensued from the American Jobs Creation
Act of 2004 (AJCA),[Footnote 49] a growing number of U.S. businesses
are projected to suspend operations in USVI, thus reducing local
government revenues and jobs. U.S. businesses operating in USVI
calculate their income under a coordinated U.S. and USVI income tax
policy, but pay their taxes exclusively to the USVI government, if
certain requirements are met. These coordinated rules allow the USVI
government to reduce the amount of taxes payable to the USVI government
provided the businesses are bona fide USVI residents whose income is
derived from sources within USVI or is effectively connected with the
conduct of a trade or business in USVI. For example, qualifying
businesses receive a 90 percent exemption from USVI income taxes and a
100 percent exemption from property and gross receipts taxes under this
program operated by USVI's Economic Development Commission (EDC). Such
provisions are designed to encourage economic development in the
insular area. Effective January 2005, however, AJCA imposed stricter
requirements on U.S. businesses for establishing residency and limited
the types of income eligible for the program's tax exemptions, which
will likely reduce the tax incentives for U.S. businesses operating in
USVI.[Footnote 50]
Tourism Trends and Other Factors:
Security concerns and natural disasters have affected USVI's tourism
industry in the past 5 years. The total number of visitors to USVI
declined after the terrorist attacks of September 11, 2001, on the
United States, although in 2004 a record number of tourists--2.6
million--visited the islands, according to the USVI Bureau of Economic
Research. Three-quarters of these visitors in 2004 were cruise
passengers and one-quarter were overnight visitors. According to an OIA
official, cruise ship visitors are increasingly affected by problems
associated with crime, especially in St. Croix. Finally, the danger of
hurricanes threatens USVI's tourist industry each year, imposing
significant costs.[Footnote 51]
Programs to Promote Economic Development in the Insular Areas:
In the last few years, DOI has organized a number of initiatives, such
as conferences in the United States and business opportunity missions
to the four insular areas, to attract American businesses to these
insular areas.[Footnote 52] The main goal of these efforts is to
facilitate interaction and the exchange of information between U.S.
firms and top government and business officials from the insular areas,
and to spur new investment in a variety of industries. OIA recognizes
that the natural economic partners of the Pacific insular areas are
neighboring Asian and Pacific countries. However, OIA does not have a
foreign affairs component that could actively promote economic
relations between the insular areas and foreign countries in the
region. Further, OIA believes it needs to promote partnership with U.S.-
based firms before foreign ones.
In 2003, a 1-day Secretary's Investment Development Conference in
Washington, D.C. attracted approximately 500 participants, while the
second 2-day Secretary's Conference on Business Opportunities in the
Islands in 2004 drew over 1,200 participants to Los Angeles. The 2004
conference had 248 attendees from the four insular areas. About half of
the participants from USVI, Guam, and American Samoa came from
government. More than 80 percent of CNMI's participants were from
government. The largest number of participants from the U.S. mainland
came from California and Hawaii with a large majority from the private
sector, but 26 other states and the District of Columbia were also
represented. Individuals from the People's Republic of China, the
Philippines, and Australia took part as well.[Footnote 53] In addition
to the conferences, OIA organized three trade missions in the past
year.[Footnote 54] Between 11 and 14 U.S. companies, both small and
large, participated in each of these missions.
OIA notes that many mission participants from the mainland did return
to the insular areas for follow-up visits. According to OIA, several
projects and business deals resulted from contacts made at conferences
and missions. For example, OIA indicates that a California-based
company is developing a nurse-training facility in CNMI and an
entrepreneur from southern California started a software company in
American Samoa. Innovative projects such as setting up a production/
mass mailing facility in CNMI aimed at the Japanese market are reported
to be underway. Although the list does not include new large business
enterprises with significant employment impact, it appears that OIA's
initiatives have brought new firms and jobs to the insular areas,
albeit on a modest scale. While some of these business activities may
have taken place anyway, the OIA conferences and missions seem to have
helped create linkages and joint projects between the business
communities in the mainland and in the insular areas. Some of the new
firms may just be displacing local ones or are interested in selling
products and services rather than investing; however, others are likely
to benefit the insular areas' economies by building local capacity and
increasing competition and productivity if investments are realized.
Many business deals are apparently still in the planning stages, with
companies expressing interest, holding talks, and doing preliminary
work.
Whether and to what extent OIA's conferences and missions have
contributed to stronger economies in the insular areas is difficult to
discern because OIA does not carry out formal impact evaluations of its
conferences and missions. It does obtain some feedback through informal
surveys conducted with participants. But OIA would benefit from an in-
depth analysis of how effective its initiatives are in attracting
investment to the islands. Further, OIA could, by learning the extent
to which U.S. firms are partnering with foreign investors already
operating in the insular areas, discover further opportunities for
partnership. For example, many Asian-owned businesses are currently
contributing entrepreneurial skills and capital: many garment factories
in CNMI and one of the two canneries in American Samoa are Asian-owned.
Much of the insular areas' economic development may be dependent on
relationships with Asian companies, yet OIA does not actively seek to
reach firms outside of the U.S. mainland.
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. CNMI's net assets at
fiscal year-end declined for fiscal years 2001-2004. The USVI
government maintained positive balances of total government funds and
reduced its negative balance of net assets by increased borrowing
during the period. American Samoa showed an increase in government
funds until fiscal year 2004, due to 2 years of strong surpluses of
revenues over expenditures, stemming from an insurance settlement of
claims from Hurricane Val, which hit the insular area in 1991. In
fiscal year 2004, the increases in government funds reversed, although
it is not yet known if this is a new trend. American Samoa's net assets
increased during the entire 4 fiscal years.
American Samoa:
For fiscal years 2001 through 2003, American Samoa's fund balance of
total governmental funds increased steadily from a deficit of $23.1
million at the beginning of fiscal year 2001 to a positive $43.2
million at the end of fiscal year 2003 before dropping to $37.8 million
in fiscal year 2004. From 2001 to 2003, total annual revenues rose by
over $15 million, while annual spending fell by almost $12 million,
contributing to significant surpluses for fiscal years 2002 and 2003.
However, included in the revenues for 2002 and 2003 were proceeds
attributable to an insurance settlement of claims from Hurricane Val.
Without the receipt of these insurance proceeds, American Samoa's
spending would have exceeded its revenues for those years. In fiscal
year 2004, the increases in government funds apparently reversed,
although it is not yet known if this is a new trend. For fiscal year
2004, revenue fell $9 million while spending increased $22 million.
As shown in table 4, net assets almost tripled to $211 million during
fiscal years 2001 through 2004. 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. The U.S. federal
government also contributed a higher proportion of these revenues--60
percent in fiscal year 2004.
Table 4: Fiscal Condition by Year--American Samoa:
Data: Population;
American Samoa: 2001: 57,529;
American Samoa: 2002: 57,716;
American Samoa: 2003: 57,844;
American Samoa: 2004: 57,902.
Data: Population: Own source revenue;
American Samoa: 2001: 92,595,156;
American Samoa: 2002: 116,164,151;
American Samoa: 2003: 100,406,184;
American Samoa: 2004: 74,916,915.
Data: Population: Federal contributions;
American Samoa: 2001: 89,621,049;
American Samoa: 2002: 95,366,789;
American Samoa: 2003: 97,530,861;
American Samoa: 2004: 113,960,653.
Data: Total revenues;
American Samoa: 2001: $182,216,205;
American Samoa: 2002: $211,530,940;
American Samoa: 2003: $197,937,045;
American Samoa: 2004: 188,877,568.
Data: Total expenditures;
American Samoa: 2001: 182,410,239;
American Samoa: 2002: 180,541,130;
American Samoa: 2003: 170,748,872;
American Samoa: 2004: 192,421,535.
Data: Revenues less expenditures [surplus/(deficit)];
American Samoa: 2001: (194,034);
American Samoa: 2002: 30,989,810;
American Samoa: 2003: 27,188,173;
American Samoa: 2004: (3,543,967).
Data: Total net other financing[A];
American Samoa: 2001: 4,953,273;
American Samoa: 2002: 734,881;
American Samoa: 2003: 2,196,503;
American Samoa: 2004: (2,371,449).
Data: Special adjustment;
American Samoa: 2001: [Empty];
American Samoa: 2002: [Empty];
American Samoa: 2003: (1,381,333)[B];
American Samoa: 2004: 505,552[B].
Data: Governmental funds beginning of year balanced;
American Samoa: 2001: (23,141,403);
American Samoa: 2002: (16,491,517)[C];
American Samoa: 2003: 15,233,174;
American Samoa: 2004: 43,236,519.
Data: Governmental funds end of year balance;
American Samoa: 2001: (18,382,164);
American Samoa: 2002: 15,233,174;
American Samoa: 2003: 43,236,520;
American Samoa: 2004: 37,826,655.
Data: Net assets, end of year[E];
American Samoa: 2001: 74,580,312;
American Samoa: 2002: 141,209,273;
American Samoa: 2003: 200,835,235;
American Samoa: 2004: 211,696,176.
Data: Change in net assets;
American Samoa: 2001: --;
American Samoa: 2002: 66,628,961;
American Samoa: 2003: 59,625,962;
American Samoa: 2004: 10,860,941.
Calculations:
Data: Federal contributions as a percent of revenues;
American Samoa: 2001: 49.2;
American Samoa: 2002: 45.1;
American Samoa: 2003: 49.3;
American Samoa: 2004: 60.3.
Data: Government revenue per capita;
American Samoa: 2001: $3,167;
American Samoa: 2002: $3,665;
American Samoa: 2003: $3,422;
American Samoa: 2004: $3,262.
Data: Government expenditures per capita;
American Samoa: 2001: 3,171;
American Samoa: 2002: 3,128;
American Samoa: 2003: 2,952;
American Samoa: 2004: $3,323.
Data: Government revenue as percent of GDP[F];
American Samoa: 2001: --;
American Samoa: 2002: .38;
American Samoa: 2003: --;
American Samoa: 2004: --.
Data: Government expenditures as percent of GDP;
American Samoa: 2001: --;
American Samoa: 2002: .32;
American Samoa: 2003: --;
American Samoa: 2004: --.
Source: GAO analysis of Single Audit Reports covering Fiscal Years
2001, 2002, 2003, and 2004; The estimate of GDP, in the amount of
$558,755,669, came from Final Trip Report on Benchmark Estimates of
2002 Gross Domestic Product in American Samoa, U.S. Census Bureau, Nov.
29, 2005.
[A] Other financing includes loan proceeds and transfers in and out
from other funds.
[B] Adjustments made to reflect changes in reserve for inventory.
[C] The end of year fund balance for the prior fiscal year may not
agree with the beginning of year fund balance for the succeeding fiscal
year due to amounts being restated in subsequent financial statements.
We could not readily identify explanations for these restatements
because comparative information was not always available or disclosures
were not made in subsequent financial statements.
[D] Governmental funds finance most of the basic services provided by
the government.
[E] Net assets are capital assets and other assets, such as cash and
receivables, less liabilities.
[F] GDP estimates are not available for 2001, 2003, and 2004.
[End of table]
The financial data in table 4 were extracted from American Samoa's
audited financial statements, which received qualified opinions from
the outside auditors. Therefore, these figures are subject to the
limitations cited by the auditors in their opinions and to the material
internal control weaknesses identified. These limitations and other
accountability issues are discussed in a separate section of this
report. Also, restatements of the financial statements may occur, so
the numbers shown in table 4 may be different in subsequently issued
single audit reports.
CNMI:
CNMI's total government funds balance declined from a positive $3.5
million at the beginning of 2001 to a deficit of $49.2 million by the
end of 2004 as total government spending rose more rapidly than
revenues, which, as shown in table 5, caused a decline in the
government's total net assets over the period. CNMI is distinct among
the four insular areas in that it has been stable in terms of revenue
per capita, although spending per capita has fluctuated. Like USVI, it
receives a significantly lower proportion of its revenues from the
federal government than do American Samoa or Guam.
Table 5: Fiscal Condition by Year--CNMI:
Data: Population;
Commonwealth of the Northern Mariana Islands: 2001: 71,868;
Commonwealth of the Northern Mariana Islands: 2002: 74,003;
Commonwealth of the Northern Mariana Islands: 2003: 76,129;
Commonwealth of the Northern Mariana Islands: 2004: 78,252.
Data: Own source revenue;
Commonwealth of the Northern Mariana Islands: 2001: 227,709,651;
Commonwealth of the Northern Mariana Islands: 2002: 215,650,986;
Commonwealth of the Northern Mariana Islands: 2003: 225,412,808;
Commonwealth of the Northern Mariana Islands: 2004: 235,754,891.
Data: Federal contributions;
Commonwealth of the Northern Mariana Islands: 2001: 49,348,134;
Commonwealth of the Northern Mariana Islands: 2002: 71,964,627;
Commonwealth of the Northern Mariana Islands: 2003: 57,560,034;
Commonwealth of the Northern Mariana Islands: 2004: 63,006,595.
Data: Total revenues;
Commonwealth of the Northern Mariana Islands: 2001: $277,057,785;
Commonwealth of the Northern Mariana Islands: 2002: $287,615,613;
Commonwealth of the Northern Mariana Islands: 2003: $282,972,842;
Commonwealth of the Northern Mariana Islands: 2004: $298,761,486.
Data: Total expenditures;
Commonwealth of the Northern Mariana Islands: 2001: 258,177,431;
Commonwealth of the Northern Mariana Islands: 2002: 314,985,333;
Commonwealth of the Northern Mariana Islands: 2003: 303,986,379;
Commonwealth of the Northern Mariana Islands: 2004: 352,488,419.
Data: Revenues less expenditures [surplus/(deficit)];
Commonwealth of the Northern Mariana Islands: 2001: 18,880,354;
Commonwealth of the Northern Mariana Islands: 2002: (27,369,720);
Commonwealth of the Northern Mariana Islands: 2003: (21,013,537);
Commonwealth of the Northern Mariana Islands: 2004: (53,726,933).
Data: Total net other financing[A];
Commonwealth of the Northern Mariana Islands: 2001: 6,511,003;
Commonwealth of the Northern Mariana Islands: 2002: 3,510,667;
Commonwealth of the Northern Mariana Islands: 2003: 0;
Commonwealth of the Northern Mariana Islands: 2004: 39,493,350.
Data: Governmental funds beginning year balance[C];
Commonwealth of the Northern Mariana Islands: 2001: 3,540,878;
Commonwealth of the Northern Mariana Islands: 2002: 19,609,305[B];
Commonwealth of the Northern Mariana Islands: 2003: (4,249,748);
Commonwealth of the Northern Mariana Islands: 2004: (35,011,807)[B].
Data: Governmental funds end of year balance;
Commonwealth of the Northern Mariana Islands: 2001: 17,219,852;
Commonwealth of the Northern Mariana Islands: 2002: (4,249,748);
Commonwealth of the Northern Mariana Islands: 2003: (25,263,285);
Commonwealth of the Northern Mariana Islands: 2004: (49,245,390).
Data: Net assets, end of year[D];
Commonwealth of the Northern Mariana Islands: 2001: 40,575,181;
Commonwealth of the Northern Mariana Islands: 2002: 30,760,955[E];
Commonwealth of the Northern Mariana Islands: 2003: 15,596,170;
Commonwealth of the Northern Mariana Islands: 2004: (18,656,437).
Data: Change in net assets;
Commonwealth of the Northern Mariana Islands: 2001: --;
Commonwealth of the Northern Mariana Islands: 2002: (9,814,226);
Commonwealth of the Northern Mariana Islands: 2003: (15,164,785);
Commonwealth of the Northern Mariana Islands: 2004: (34,252,607).
Data: Calculations;
Commonwealth of the Northern Mariana Islands: 2001: [Empty];
Commonwealth of the Northern Mariana Islands: 2002: [Empty];
Commonwealth of the Northern Mariana Islands: 2003: [Empty];
Commonwealth of the Northern Mariana Islands: 2004: [Empty].
Data: Federal contributions as a percent of revenues;
Commonwealth of the Northern Mariana Islands: 2001: 17.8;
Commonwealth of the Northern Mariana Islands: 2002: 25.0;
Commonwealth of the Northern Mariana Islands: 2003: 20.3;
Commonwealth of the Northern Mariana Islands: 2004: 21.1.
Data: Government revenue per capita;
Commonwealth of the Northern Mariana Islands: 2001: $3,855;
Commonwealth of the Northern Mariana Islands: 2002: $3,887;
Commonwealth of the Northern Mariana Islands: 2003: $3,717;
Commonwealth of the Northern Mariana Islands: 2004: $3,818.
Data: Government expenditures per capita;
Commonwealth of the Northern Mariana Islands: 2001: 3,592;
Commonwealth of the Northern Mariana Islands: 2002: 4,256;
Commonwealth of the Northern Mariana Islands: 2003: 3,993;
Commonwealth of the Northern Mariana Islands: 2004: 4.505.
Data: Government revenue as percent of GDP[F];
Commonwealth of the Northern Mariana Islands: 2001: --;
Commonwealth of the Northern Mariana Islands: 2002: .30;
Commonwealth of the Northern Mariana Islands: 2003: --;
Commonwealth of the Northern Mariana Islands: 2004: --.
Data: Government expenditures as percent of GDP;
Commonwealth of the Northern Mariana Islands: 2001: --;
Commonwealth of the Northern Mariana Islands: 2002: .33;
Commonwealth of the Northern Mariana Islands: 2003: --;
Commonwealth of the Northern Mariana Islands: 2004: --.
Source: GAO analysis of Single Audit Reports covering Fiscal Years
2001, 2002, 2003, and 2004; The estimate of GDP, in the amount of
$946,854,877, came from Final Trip Report on Benchmark Estimates of
2002 Gross Domestic Product in the Commonwealth of the Northern Mariana
Islands, U.S. Census Bureau, Feb. 11, 2005.
[A] Other financing includes transfers in and out from other funds.
[B] The end of year fund balance for the prior fiscal year may not
agree with the beginning of year fund balance for the succeeding fiscal
year due to amounts being restated in subsequent financial statements.
We could not readily identify explanations for these restatements
because comparative information was not always available or disclosures
were not made in subsequent financial statements.
[C] Governmental funds finance most of the basic services provided by
the government.
[D] Net assets are capital assets and other assets, such as cash and
receivables, less liabilities.
[E] Amount reported is the restated amount from 2003 Single Audit
Report, corrected because of excluded and misstated amounts.
[F] GDP estimates are not available for 2001, 2003, and 2004.
[End of table]
The financial data in table 5 were taken from the audited financial
statements, which received qualified opinions from the outside
auditors. Therefore, these figures are subject to the limitations cited
by the auditors in their opinions and to the material internal control
weaknesses identified. These limitations and other accountability
issues are discussed in a separate section of this report. Also,
restatements of the financial statements may occur, so the numbers
shown in table 5 may be different in subsequently issued single audit
reports.
Guam:
Guam's total government funds balance declined from a positive of $74.4
million at the beginning of 2001 to a deficit of $198.7 million by the
end of 2004 as total government spending rose more rapidly than
revenues. Guam's reported net assets at fiscal year-end also fell from
the amount shown in fiscal year 2001, as shown in table 6. (The
substantial drop in net assets for fiscal year 2002 reflected a
correction of previously misstated amounts.) During fiscal year 2004,
net assets increased, after decreases in fiscal years 2002 and 2003.
The federal government has contributed a smaller proportion of Guam's
total revenues than it has for American Samoa, but larger proportions
than for CNMI and USVI.
Table 6: Fiscal Condition by Year--Guam:
Data: Population;
Guam: 2001: 158,330;
Guam: 2002: 161,057;
Guam: 2003: 163,593;
Guam: 2004: 166,090.
Data: Own source revenue;
Guam: 2001: 478,700,351;
Guam: 2002: 331,879,876;
Guam: 2003: 441,437,973;
Guam: 2004: 438,980,593.
Data: Federal contributions;
Guam: 2001: 138,623,945;
Guam: 2002: 156,342,400;
Guam: 2003: 216,567,613;
Guam: 2004: 219,041,228.
Data: Total revenues;
Guam: 2001: $617,324,296;
Guam: 2002: $488,222,276;
Guam: 2003: $658,005,586;
Guam: 2004: $658,021,821.
Data: Total expenditures;
Guam: 2001: 571,537,586;
Guam: 2002: 604,745,053;
Guam: 2003: 703,708,399;
Guam: 2004: 685,336,581.
Data: Revenues less expenditures [surplus/(deficit)];
Guam: 2001: 45,786,710;
Guam: 2002: (116,522,777);
Guam: 2003: (45,702,813);
Guam: 2004: (27,314,760).
Data: Total net other financing[A];
Guam: 2001: (42,753,202);
Guam: 2002: (12,792,574);
Guam: 2003: (1,736,294);
Guam: 2004: (3,066,133).
Data: Special adjustment;
Guam: 2001: [Empty];
Guam: 2002: [Empty];
Guam: 2003: (50,000,000)[B];
Guam: 2004: 23,887,350b.
Data: Governmental funds beginning of year balance[D];
Guam: 2001: 74,424,223;
Guam: 2002: 78,493,488[C];
Guam: 2003: (94,284,682)[C];
Guam: 2004: (192,180,886).
Data: Governmental funds end of year balance;
Guam: 2001: 77,457,731;
Guam: 2002: (50,821,863);
Guam: 2003: (191,723,789);
Guam: 2004: (198,674,429).
Data: Net assets, end of year[E];
Guam: 2001: 386,002,829;
Guam: 2002: 137,005,745[F];
Guam: 2003: 39,397,026;
Guam: 2004: 88,491,287.
Data: Change in net assets;
Guam: 2001: --;
Guam: 2002: (248,997,084);
Guam: 2003: (97,608,719);
Guam: 2004: 49,094,261.
Calculations;
Data: Federal contributions as a percent of revenues;
Guam: 2001: 22.5;
Guam: 2002: 32.0;
Guam: 2003: 32.9;
Guam: 2004: 33.3.
Data: Government revenue per capita;
Guam: 2001: $3,899;
Guam: 2002: $3,031;
Guam: 2003: $4,022;
Guam: 2004: $3,962.
Data: Government expenditures per capita;
Guam: 2001: 3,610;
Guam: 2002: 3,755;
Guam: 2003: 4,302;
Guam: 2004: 4,126.
Data: Government revenue as percent of GDP[G];
Guam: 2001: --;
Guam: 2002: .14;
Guam: 2003: --;
Guam: 2004: --.
Data: Government expenditures as percent of GDP;
Guam: 2001: --;
Guam: 2002: .18;
Guam: 2003: --;
Guam: 2004: --.
Source: GAO analysis of Single Audit Reports covering Fiscal Years
2001, 2002, 2003, and 2004; The estimate of GDP, in the amount of
$3,427,882,005, came from Final Trip Report on Benchmark Estimates of
2002 Gross Domestic Product in Guam, U.S. Census Bureau, March 10,
2005.
[A] Other financing includes transfers in and out from other funds.
[B] Special adjustments made for fiscal year 2003 to reflect earned
income tax credit refunds and overprovisioning for tax refunds and gain
from tax drawback settlement in fiscal year 2004.
[C] The end of year fund balance for the prior fiscal year may not
agree with the beginning of year fund balance for the succeeding fiscal
year due to amounts being restated in subsequent financial statements.
We could not readily identify explanations for these restatements
because comparative information was not always available or disclosures
were not made in subsequent financial statements.
[D] Governmental funds finance most of the basic services provided by
the government.
[E] Net assets are capital assets and other assets, such as cash and
receivables, less liabilities.
[F] Amount reported is the restated amount from 2003 Single Audit
Report, corrected because of excluded and misstated amounts.
[G] GDP estimates are not available for 2001, 2003, and 2004.
[End of table]
The financial data in table 6 were taken from the audited financial
statements, which received qualified opinions from the outside
auditors. Therefore, these figures are subject to the limitations cited
by the auditors in their opinions and to the material internal control
weaknesses identified. These limitations and other accountability
issues are discussed in a separate section of this report. Also,
restatements of the financial statements may occur, so the numbers
shown in table 6 may be different in subsequently issued single audit
reports. For example, the figures shown for net assets as of the end of
fiscal year 2004 and the change in net assets were restated in
comparative information provided for fiscal year 2004 in Guam's fiscal
year 2005 single audit report.[Footnote 55]
USVI:
USVI's balance of total government funds remained positive throughout
the period and grew from $215.5 million at the beginning of 2001 to
$463.7 million at the end of 2004. However, this growth was made
possible only through increased government borrowing. Spending grew
more rapidly than revenues during this period and exceeded revenues by
$99.1 million in 2004. Although USVI's negative net assets figures
appear to have improved over the period, the trend is due to the
recording of assets not previously recorded. At the end of fiscal year
2004, USVI still had a significant negative value for net government
assets, as shown in table 7.
Table 7: Fiscal Condition by Year--USVI:
Data: Population;
USVI: 2001: 108,749;
USVI: 2002: 108,810;
USVI: 2003: 108,814;
USVI: 2004: 108,775.
Data: Own source revenue;
USVI: 2001: 628,466,000;
USVI: 2002: 608,535,000;
USVI: 2003: 653,573,000;
USVI: 2004: 738,388,000.
Data: Federal contributions;
USVI: 2001: 146,137,000;
USVI: 2002: 151,322,000;
USVI: 2003: 163,859,000;
USVI: 2004: 160,671,000.
Data: Total revenues;
USVI: 2001: $774,603,000;
USVI: 2002: $759,857,000;
USVI: 2003: $817,432,000;
USVI: 2004: 899,059,000.
Data: Total expenditures;
USVI: 2001: 673,254,000;
USVI: 2002: 865,733,000;
USVI: 2003: 870,807,000;
USVI: 2004: 998,122,000.
Data: Revenues less expenditures [surplus/(deficit)];
USVI: 2001: 101,349,000;
USVI: 2002: (105,876,000);
USVI: 2003: (53,375,000);
USVI: 2004: (99,063,000).
Data: Total net other financing[A];
USVI: 2001: (63,579,000);
USVI: 2002: 22,267,000;
USVI: 2003: 120,982,000;
USVI: 2004: 271,245,000.
Data: Governmental funds beginning year balance[C];
USVI: 2001: 215,547,000;
USVI: 2002: 307,532,000[B];
USVI: 2003: 223,923,000;
USVI: 2004: 291,530,000.
Data: Governmental funds end of year balance;
USVI: 2001: 253,317,000;
USVI: 2002: 223,923,000;
USVI: 2003: 291,530,000;
USVI: 2004: 463,712,000.
Data: Net assets, end of year[D];
USVI: 2001: (394,436,000);
USVI: 2002: (431,586,000);
USVI: 2003: (300,083,000);
USVI: 2004: (272,303,000).
Data: Change in net assets;
USVI: 2001: --;
USVI: 2002: (37,150,000);
USVI: 2003: 131,503,000;
USVI: 2004: 27,780,000.
Calculations;
Data: Federal contributions as a percent of revenues;
USVI: 2001: 18.9;
USVI: 2002: 19.9;
USVI: 2003: 20.0;
USVI: 2004: 17.9.
Data: Government revenue per capita;
USVI: 2001: $7,123;
USVI: 2002: $6,983;
USVI: 2003: $7,512;
USVI: 2004: $8,265.
Data: Government expenditures per capita;
USVI: 2001: 6,191;
USVI: 2002: 7.956;
USVI: 2003: 8,003;
USVI: 2004: 9,176.
Data: Government revenue as percent of GDP[E];
USVI: 2001: --;
USVI: 2002: .27;
USVI: 2003: --;
USVI: 2004: --.
Data: Government expenditures as percent of GDP;
USVI: 2001: --;
USVI: 2002: .31;
USVI: 2003: --;
USVI: 2004: --.
Source: GAO analysis of Single Audit Reports covering Fiscal Years
2001, 2002, 2003, and 2004; The estimate of GDP, in the amount of
$2,809,187,000, came from Final Trip Report on Benchmark Estimates of
2002 Gross Domestic Product in the U.S. Virgin Islands, U.S. Census
Bureau, June 1, 2005.
[A] Other financing includes: bond anticipation note issued, bonds
issued, premium on bonds issued, and transfers in and out from other
funds.
[B] The end of year fund balance for the prior fiscal year may not
agree with the beginning of year fund balance for the succeeding fiscal
year due to amounts being restated in subsequent financial statements.
We could not readily identify explanations for these restatements
because comparative information was not always available or disclosures
were not made in subsequent financial statements.
[C] Governmental funds finance most of the basic services provided by
the government.
[D] Net assets are capital assets and other assets, such as cash and
receivables, less liabilities.
[E] GDP estimates are not available for 2001, 2003, and 2004.
[End of table]
The financial data in table 7 were taken from the audited financial
statements, which received qualified opinions from the outside
auditors. Therefore, these figures are subject to the limitations cited
by the auditors in their opinions and to the material internal control
weaknesses identified. These limitations and other accountability
issues are discussed in a separate section of this report. Also,
restatements of the financial statements may occur, so the numbers
shown in table 7 may be different in subsequently issued single audit
reports.
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. The findings in the single audit reports clearly point
out that the insular area governments have lacked effective internal
controls to provide reasonable assurance that transactions are properly
recorded; assets are safeguarded from fraud, waste, abuse, and
mismanagement; and federal funds are being expended in accordance with
grant requirements. As a result, there has been limited accountability
over the use of federal funds. Multiple agencies oversee the insular
areas' efforts to improve their financial accountability and several
federal agencies have designated the insular areas as high-risk under
the Grants Management Common Rule.[Footnote 56] Under the rule, federal
grant awarding agencies may designate a grantee as high-risk if the
grantee has a history of unsatisfactory performance, is not financially
stable, has an inadequate management system, has not conformed to the
terms and conditions of previous awards, or is otherwise not properly
managing federal funds. OIA and DOI's IG, other federal inspectors
general, and local auditing authorities provide oversight and
assistance to the insular area governments.
Single Audit Reports for Fiscal Years 2001-2004 Were Not Issued on
Time:
For fiscal years 1997 through 2004, the insular areas did not submit
their single audit reports to the FAC by the due date, which is
generally no later than 9 months after the fiscal year end.[Footnote
57] As shown in table 8, American Samoa and Guam have improved on the
timeliness of their audit reports since 1997. Although they were still
unable to submit their single audit reports on time for fiscal year
2004, the last year of the review period for all four areas, American
Samoa and Guam both submitted their fiscal year 2005 single audit
reports to the FAC by the June 30, 2006, due date. The timeliness of
CNMI[Footnote 58] and USVI governments' single audit submissions did
not improve for fiscal years 1997 through 2004. However, CNMI submitted
its fiscal year 2005 single audit report to the FAC less than 1 month
late. As of September 27, 2006, the USVI government had not submitted
its fiscal year 2005 single audit report to the FAC.
Table 8: Single Audit Act Report Submissions, Fiscal Years 1997 through
2004:
Fiscal year-end: 09/30/1997;
Number of months late[A]: American Samoa[B]: 71;
Number of months late[A]: CNMI[B]: 14;
Number of months late[A]: Guam[B]: 13;
Number of months late[A]: USVI: Not applicable[C].
Fiscal year-end: 09/30/1998;
Number of months late[A]: American Samoa[B]: 51;
Number of months late[A]: CNMI[B]: 2;
Number of months late[A]: Guam[B]: 2;
Number of months late[A]: USVI: 13.
Fiscal year-end: 09/30/1999;
Number of months late[A]: American Samoa[B]: 43;
Number of months late[A]: CNMI[B]: 4;
Number of months late[A]: Guam[B]: 6;
Number of months late[A]: USVI: 13.
Fiscal year-end: 09/30/2000;
Number of months late[A]: American Samoa[B]: 31;
Number of months late[A]: CNMI[B]: 16;
Number of months late[A]: Guam[B]: 8;
Number of months late[A]: USVI: 8.
Fiscal year-end: 09/30/2001;
Number of months late[A]: American Samoa[B]: 25;
Number of months late[A]: CNMI[B]: 11;
Number of months late[A]: Guam[B]: 9;
Number of months late[A]: USVI: 6.
Fiscal year-end: 09/30/2002;
Number of months late[A]: American Samoa[B]: 23;
Number of months late[A]: CNMI[B]: 13;
Number of months late[A]: Guam[B]: 1;
Number of months late[A]: USVI: 12.
Fiscal year-end: 09/30/2003;
Number of months late[A]: American Samoa[B]: 14;
Number of months late[A]: CNMI[B]: 12;
Number of months late[A]: Guam[B]: 5;
Number of months late[A]: USVI: 11.
Fiscal year-end: 09/30/2004;
Number of months late[A]: American Samoa[B]: 8;
Number of months late[A]: CNMI[B]: 22;
Number of months late[A]: Guam[B]: 1;
Number of months late[A]: USVI: 12.
Source: Single Audit Act, Federal Audit Clearinghouse, and GAO
analysis.
[A] Calculated based on the submission form date. The numbers of months
late were computed without regard to extensions granted to the insular
area governments or the August 2002 memorandum of agreement between OIA
and American Samoa.
[B] The Form Dates for submission of the fiscal year 2005 single audit
reports were June 30, 2006, for American Samoa and Guam, and July 19,
2006, for CNMI.
[C] For fiscal year 1997, USVI contracted for certain agreed-upon
procedures in lieu of the required single audit.
[End of table]
Single audits are a key control for the oversight and monitoring of the
insular area governments' use of federal awards. The late submission of
single audit reports means that federal government agencies have
information on the insular area governments' accountability over
federal funds that is not up to date and whose usefulness is therefore
limited.
Audit Opinions on Financial Statements and Compliance Were Disclaimed
or Qualified:
Auditors are required by OMB Circular No. A-133 to provide opinions (or
disclaimers of opinion, as appropriate) as to whether the (1) financial
statements are presented fairly in all material respects in conformity
with generally accepted accounting principles (GAAP)[Footnote 59] and
(2) auditee complied with laws, regulations, and the provisions of
contracts or grant agreements which could have a direct and material
effect on each major federal program.
When reporting on the fairness of the presentation of financial
statements, auditors can issue an unqualified opinion, a qualified
opinion, an adverse opinion, or a disclaimer of opinion. Auditors
express an unqualified ("clean") opinion on financial statements when
they have determined, based on sufficient review work, that the
financial statements are presented fairly in all material respects, in
accordance with GAAP.[Footnote 60] Auditors render a qualified opinion
when they identify one or more specific matters that impact the fair
presentation of the financial statements. The effect of a specific
matter on the auditors' qualified opinion can be significant enough to
reduce the usefulness of the financial statements. Adverse opinions are
expressed on financial statements when the auditors have sufficiently
definitive data to conclude that the financial statements are not
fairly presented in conformity with GAAP. A disclaimer of opinion
states that the auditor does not express an opinion on the financial
statements. Auditors may decline to express an opinion due to scope or
data limitations when they are unable to conclude about the fairness of
the financial statements in conformity with GAAP.
In accordance with OMB Circular No. A-133, auditors are required to
determine and express an opinion as to whether the auditee has complied
with laws, regulations, and the provisions of contracts or grant
agreements that may have a direct and material effect on each of its
major federal programs. Auditors are to identify the applicable
compliance requirements to be tested and reported on in a single audit.
OMB's Compliance Supplement lists and describes the 14 types of
compliance requirements and related audit objectives and suggested
audit procedures that auditors should consider in single audits
conducted in accordance with OMB Circular No. A-133.[Footnote 61]
Opinions on the Insular Areas' Financial Statements:
The four insular area governments have been unable to achieve
unqualified ("clean") audit opinions on their financial statements,
receiving either disclaimers or qualified opinions on the financial
statements issued for fiscal years 1997 through 2004 as shown in table
9.
Table 9: Financial Statement Audit Opinions for Fiscal Years 1997
through 2004:
Fiscal year: 1997;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Not applicable[A].
Fiscal year: 1998;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Qualified.
Fiscal year: 1999;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Qualified.
Fiscal year: 2000;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Qualified.
Fiscal year: 2001;
Type of opinion: American Samoa: Qualified;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Qualified.
Fiscal year: 2002;
Type of opinion: American Samoa: Qualified;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Qualified.
Fiscal year: 2003;
Type of opinion: American Samoa: Qualified;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Qualified[B] Disclaimer.
Fiscal year: 2004;
Type of opinion: American Samoa: Qualified;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Qualified[B] Disclaimer.
Source: SF-FAC forms and single audit reports for the insular areas
from the FAC database.
Note: American Samoa, CNMI, and Guam have submitted their fiscal year
2005 single audit reports and all three received qualified opinions on
their financial statements.
[A] For fiscal year 1997, USVI contracted certain agreed-upon
procedures in lieu of the required single audit.
[B] Auditors are permitted to express multiple opinions in a single
audit; opinions are rendered based on opinion units. Generally, the
opinion units in a government's basic financial statements include the
governmental activities, business-type activities, aggregate discretely
presented component units, and the major governmental and enterprise
funds. For fiscal year 2003, the USVI government received unqualified
opinions on its Public Financing Authority debt service fund and West
Indian Company enterprise fund; qualified opinions on its governmental
activities, discretely presented component units, general fund,
unemployment insurance enterprise fund, and aggregate remaining fund
information; and a disclaimer on its business-type activities. The
opinions rendered on USVI's fiscal year 2004 financial statements were
the same as in fiscal year 2003 with the addition of an unqualified
opinion on the Public Financing Authority capital projects fund.
[End of table]
American Samoa has made progress in reducing the number of matters that
caused the auditors to render qualified opinions on the financial
statements, but, for fiscal year 2004, the auditors could not obtain
sufficient information about the following items in the American Samoan
primary government:[Footnote 62] (1) the amount of funds owed to or
from the other funds--pooled cash;[Footnote 63] (2) the physical
inventory records; and (3) the accuracy of the beginning fund balances.
The auditors also could not obtain the information needed to attest to
the fairness of the information presented for the discretely presented
component units.[Footnote 64] Specifically, the auditors could not
obtain the information needed concerning (1) the cost of property,
plant, and equipment in accordance with U.S. generally accepted
accounting principles and the operating revenues of the American Samoa
Telecommunication Authority and (2) the financial position and activity
of the American Samoa Medical Center Authority - Lyndon B. Johnson
Tropical Medical Center.
CNMI has also made progress in addressing the matters that resulted in
the qualified opinions on its financial statements for fiscal years
2001 through 2003. However, the auditors identified the following
issues in fiscal year 2004 as matters leading to the qualified audit
opinion: (1) inadequacies in the accounting records regarding taxes
receivable and receivables from agencies, advances, accounts payable,
tax rebates payable, other liabilities and accruals, amounts owed to
component units, and the reserve for continuing appropriations and (2)
inadequacies in accounting records and internal controls regarding the
capital assets of the Northern Marianas College, and in accounting
records and internal controls in inventory, federal agencies
receivables, utility plant, accounts payable, and obligations under
capital lease of the Commonwealth Utilities Corporation.
Guam has made progress in reducing the number of matters associated
with the auditors' qualified opinions rendered on the government's
financial statements for fiscal years 2001 through 2004. The auditors
cited the following matters associated with its qualified opinion for
fiscal year 2004: (1) inability to access tax-related balances, (2)
lack of audited financial statements for Guam Memorial Hospital
Authority, and (3) lack of audited financial statements for the Guam
Visitors Bureau.
Although USVI has made progress in addressing some of the matters that
were previously cited as leading to the auditors' qualified opinions,
the auditors have identified new matters for fiscal year 2004. The
auditor's qualified opinion on the general fund, governmental
activities, and discretely presented component units was due to the
following: (1) lack of accounting records for corporate income tax
receivables for tax year 2002 in the general fund and governmental
activities, (2) failure to record a provision for landfill closure and
postclosure costs in governmental activities, and (3) inability to
determine whether capital assets and land held for sale by the Virgin
Islands Housing Authority (VIHA) and the Virgin Islands Housing Finance
Authority (VIHFA) were fairly stated. The auditors issued a disclaimer
on the USVI government's business-type activities because (1) the
financial statements as of September 30, 2003, did not include a
receivable for unemployment insurance contributions due to inadequate
records;[Footnote 65] and (2) liability for Workers' Compensation
claims was not included.
Opinions on Insular Areas' Compliance with Requirements for Major
Federal Programs:
Auditors for the four insular areas rendered qualified opinions,
disclaimers, or adverse opinions on the insular area governments'
compliance with the requirements for each major federal award program.
When auditors identify instances of noncompliance, they are required to
report whether the noncompliance could have a direct and material
effect on a major federal program.[Footnote 66] The audit opinions
rendered on the insular area governments' compliance with the
requirements for major federal programs for the fiscal years under
review are shown in table 10.
Table 10: Opinions Rendered on Compliance with Requirements for Major
Federal Programs for Fiscal Years 1997 through 2004:
Fiscal year: 1997;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Not applicable[A].
Fiscal year: 1998;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Not provided.
Fiscal year: 1999;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Qualified.
Fiscal year: 2000;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Unqualified.
Fiscal year: 2001;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Qualified.
Fiscal year: 2002;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Qualified Adverse[B].
Fiscal year: 2003;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Qualified Adverse.
Fiscal year: 2004;
Type of opinion: American Samoa: Disclaimer;
Type of opinion: CNMI: Qualified;
Type of opinion: Guam: Qualified;
Type of opinion: USVI: Unqualified Qualified Adverse.
Source: SF-FACs and single audit reports from the Federal Audit
Clearinghouse database.
[A] For fiscal year 1997, USVI contracted for certain agreed-upon
procedures to be done in lieu of the required single audit.
[B] For fiscal years 2002, 2003, and 2004, auditors for the USVI
government issued adverse opinions on compliance with requirements for
some programs,while rendering qualified opinions for the reports as a
whole. An adverse opinion, in this context, means that the USVI
government did not comply in all material respects with the compliance
requirements described in OMB Circular No. A-133.
[End of table]
Number and Significance of Reported Internal Control Weaknesses
Indicate Inadequate Internal Control over Financial Reporting and
Inadequate Compliance with Requirements for Major Federal Programs:
The large number and the significance of reported internal control
weaknesses raise serious questions about the integrity and reliability
of the insular area governments' financial statements and their
compliance with requirements of major federal programs. The auditors,
in their reports on internal control over financial reporting and on
compliance with federal requirements for major federal programs,
disclosed many internal control weaknesses.
Material Weaknesses and Reportable Conditions in Internal Control over
Financial Reporting:
The insular area governments' 29 reported internal control material
weaknesses and reportable conditions for fiscal year 2004 indicate a
lack of sound internal control over financial reporting needed to
provide adequate assurance that transactions are properly recorded,
assets are properly safeguarded, and controls are adequate to prevent
or detect fraud, waste, abuse, and mismanagement. Reportable conditions
over financial reporting are matters that come to an auditors'
attention related to significant deficiencies in the design or
operation of internal controls that could adversely affect the entity's
ability to produce financial statements that fairly represent the
entity's financial condition. Material weaknesses in financial
reporting are reportable conditions in which the design or operation of
internal controls does not reduce to a relatively low level the risk
that misstatements caused by error or fraud--material in relation to
the financial statements being audited--may occur and not be detected
in a timely period by employees in the normal course of performing
their duties. Table 11 shows the number of material weaknesses and
reportable conditions for each of the four insular areas, for fiscal
year 2004.
Table 11: Reported Weaknesses in Internal Control over Financial
Reporting Identified in the Auditors' Reports for Fiscal Year 2004:
Internal control over financial reporting: Material weaknesses;
American Samoa: 6;
CNMI: 8;
Guam: 4;
USVI: 3;
Total: 21.
Internal control over financial reporting: Reportable conditions;
American Samoa: 0;
CNMI: 5;
Guam: 3;
USVI: 0;
Total: 8.
Internal control over financial reporting: Total reported weaknesses;
American Samoa: 6;
CNMI: 13;
Guam: 7;
USVI: 3;
Total: 29.
Source: Single audit reports for the four insular areas for fiscal year
2004.
[End of table]
The reported internal control weaknesses revealed serious deficiencies
in internal controls over financial reporting. For example, auditors
for the American Samoa government reported for fiscal years 2001
through 2004 that accountants and clerks doing the general accounting
were not adequately trained and supervised. The auditors also reported
that account reconciliations, journal entries, and other basic
transactions were not adequately performed and summarized, a material
weakness that casts doubt on the integrity and reliability of the
financial information presented in the single audit report. Another
internal control weakness reported by the auditors was that the
government records had not been maintained in an organized manner due
to a lack of formal procedures for the maintenance and storage of
records. Due to this material internal control weakness, documentation
may be misplaced, lost, or destroyed without being detected.
One of the internal control weaknesses that the auditors reported for
CNMI's government for fiscal year 2004 involved liabilities recorded in
the General Fund. Due to the lack of detailed subsidiary ledgers, the
auditors could not determine the propriety of these account balances,
and whether the negative balances in the accounts, as in prior years,
also included prepaid items. The recording of prepaid items as
expenditures will cause expenditures to be overstated and the related
liabilities to be understated. One of the control activities[Footnote
67] mentioned in GAO's Standards for Internal Control in the Federal
Government[Footnote 68] is accurate and timely recording of
transactions and events. This control activity is applicable to the
entire process or life cycle of a transaction or event from the
initiation and authorization of a transaction through its final
classification in summary records. CNMI's auditors also reported as an
internal control weakness, in at least two of its single audit reports,
a Commonwealth Health Center (CHC) receivable balance that represented
accounts outstanding in excess of 120 days due to inadequate billing
and collection procedures. According to the auditors, the effect of
this weakness was a possible misstatement of CHC's receivable balances,
partially mitigated by a corresponding uncollectible account balance of
the same amount. The auditors recommended that the uncollectible
accounts be written off, and that the CHC implement procedures for
processing all billings on a timely basis and for following up on aged
accounts.
In Guam, the lack of required physical inventories of government
equipment and the lack of uniform maintenance procedures to keep
equipment in good condition were cited as material weaknesses by
auditors for fiscal years 2003 and 2004. The auditors also stated that
the government of Guam did not perform a comprehensive inventory of its
capital assets, including infrastructure.[Footnote 69] According to
Guam's single audit report for fiscal year 2004, the government was
working to tag all of its equipment with bar code property
identification labels so that it would be able to conduct a physical
inventory. Another internal control weakness was reported in the
accounts payable-trade account: accounts payable that had aged 2 or
more years remained in the accounts payable listing while more current
balances were liquidated. Moreover, the auditors reported that all nine
of the general ledger liability accounts tested included invalid
accruals. The auditors attributed these problems--which could result in
a potential misstatement of accounts payable--to poor internal control
over the filing of supporting documentation of recorded transactions.
Unreconciled differences in the combined cash balances for some
governmental funds for fiscal year 2004 were reported by the auditors.
The auditors attributed these differences to the lack of timeliness of
the performance of bank reconciliations, which does not appear to have
been monitored--the effect being a misstatement of cash balances. GAO's
Standards for Internal Control in the Federal Government highlights
reconciliation as a key control activity.
Auditors for USVI reported that the reconciliations of all USVI
government bank accounts as of September 30, 2003 (fiscal 2003 year-
end) were not completed until June 2004. The auditors stated that
performing timely and accurate reconciliation of bank accounts is a key
control over cash receipts and disbursements, and that the lack of
timely reconciliation of all bank accounts may result in errors or
irregularities in cash transactions to not be promptly detected. USVI's
auditors attributed the failure to prepare timely bank reconciliations
to a lack of established procedures. Auditors also reported this
material weakness in the single audit report for fiscal year 2004 for
USVI and stated that the reconciliations of all USVI government bank
accounts as of September 30, 2004, were not completed until July and
August of 2005. Auditors also found weaknesses in the government's
ability to quantify and record certain key financial activity, such as
a workers' compensation claims liability, due to the lack of complete
and accurate financial data. During 2004, as in previous years, the
government experienced delays in its year-end closing process and in
the preparation of complete and accurate financial statements in
accordance with GAAP. In numerous year-end closing entries that, in
some instances, represented corrections to routine transactions that
occurred throughout the year, auditors found their nature, timing, and
extent indicative of weaknesses in controls over financial reporting.
Material Weaknesses and Reportable Conditions in Compliance with
Requirements for Major Federal Programs:
Auditors reported material weaknesses and reportable conditions in the
insular area governments' compliance with requirements for major
federal programs and the internal controls intended to ensure
compliance with these requirements. In the context of compliance,
reportable conditions are matters that come to an auditor's attention
related to significant deficiencies in the design or operation of
internal controls over compliance that could adversely affect the
entity's ability to operate a major federal program within the
applicable requirements of laws, regulations, contracts, and grants.
Material weaknesses in this context are reportable conditions in which
internal controls do not reduce to a relatively low level the risk of
noncompliance with applicable requirements of laws, regulations,
contracts, and grants that would be material to the major federal
program being audited and undetected in a timely way by employees in
the normal course of performing their duties.
Table 12: Material Weaknesses and Reportable Conditions Relating to
Compliance with Requirements for Major Federal Programs for Fiscal Year
2004:
Internal control over compliance with major-program requirements:
Material weaknesses;
American Samoa: 9;
CNMI: 2;
Guam: 8;
USVI: 28;
Totals: 47.
Internal control over compliance with major-program requirements:
Reportable conditions;
American Samoa: 13;
CNMI: 31;
Guam: 17;
USVI: 3;
Totals: 64.
Internal control over compliance with major-program requirements: Total
findings;
American Samoa: 22;
CNMI: 33;
Guam: 25;
USVI: 31;
Totals: 111.
Source: Single audit reports for the four insular areas for fiscal year
2004.
[End of table]
American Samoa:
As shown in table 12, auditors reported nine material weaknesses in
compliance with requirements for major federal programs for the
American Samoa government for fiscal year 2004. One of these weaknesses
involved a receiving report that showed that an item purchased with
2004 grant funds was not received until August 31, 2005, the end of the
2005 grant year. The effect of this delay was that the government
received and expended from the 2004 grant, but did not complete the
transaction and receive the goods from the vendor until 1 year later.
The auditors attributed this weakness to the vendor's requirement of
advance payment for this purchase and lack of follow up to determine
whether the goods that had been paid for had been delivered. For fiscal
year 2004, another reported internal control weakness in compliance
with requirements for major federal programs involved delays in the
completion of the single audit, which did not occur within 9 months of
the fiscal year end, as required by the Single Audit Act. The auditors
stated that the cause of the missed single audit due date was (1) a
failure of the accounting system and (2) the lack of trained,
qualified, and competent personnel. These two factors resulted in a
delay in closing the accounting records.
CNMI:
One of the two internal control weaknesses affecting compliance with
major federal programs reported for CNMI's government for fiscal year
2004 was the failure to record expenditures for the Medical Assistance
Program when they were incurred. In one instance, the auditor
identified expenditures for billings from service providers for
services rendered in previous years. The auditors attributed this
weakness to the lack of policies and procedures regarding the timely
recognition of expenditures at the time services are rendered. 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. In
addition, actual expenditures incurred during the year are not properly
accrued and therefore, current year expenditures and unrecorded
liabilities are understated. The other internal control weakness
related to the lack of adherence to established policies and procedures
regarding physical inventory counts of property and equipment and the
lack of reconciliation between the Division of Procurement and Supply's
(P&S) master listing and the listings of several CNMI divisions and
offices. For example, CNMI's Emergency Management Office (EMO) provided
a list of equipment acquired with Office of Domestic Preparedness
grants, but the listing did not include the serial number or other
identification of the equipment or its condition. Moreover, a physical
inventory was not conducted in the past 2 years by either the EMO or
P&S. As a result, CNMI's government was not in compliance with federal
property standards and its own property management policies and
procedures.
Guam:
In prior-year single audits and the fiscal year 2004 report, Guam's
auditors stated that the government was in noncompliance with
applicable procurement requirements. The auditor noted, in the fiscal
year 2004 report, that there was insufficient documentation on file
supporting the procurement for four of seven transactions tested
related to a DOL grant. For two additional transactions, Guam's Chief
Procurement Officer determined that the lease of space from a vendor
was an unauthorized procurement because the lease agreement had
expired. The method of procurement, selection of contract type,
contractor selection or rejection, and the basis for the contract price
are to be included in the procurement records, according to applicable
procurement requirements. The auditor attributed this weakness to a
lack of internal control over compliance with applicable procurement
requirements. Noncompliance with applicable procurement requirements
was also noted for transactions related to U.S. Environmental
Protection Agency and HHS grants. The auditors also reported that the
government of Guam may have been noncompliant with earmarking
requirements associated with an HHS block grant for maternal and child
health services. According to federal law, 30 percent of the total
grant payments must be used for preventive and primary care services
for children, 30 percent must be used for services for children with
special health care needs, and not more than 10 percent of the allotted
funds can be used by a grantee for administrative expenses. The
government of Guam did not provide the auditors with documents that
demonstrated compliance with these requirements for its 2004 Maternal
and Child Health Services Block Grant. The auditors reported that they
could not determine whether the government of Guam was in compliance
with these earmarking requirements due to weak internal control over
recordkeeping.
USVI:
Auditors reported that for fiscal years 2003 and 2004, the USVI
government failed to provide accurate, current, and complete disclosure
of financially assisted activities as required by U.S. Department of
Agriculture (USDA) grants. In one instance, auditors found that
financial reports prepared by the USVI Department of Health for the
Women, Infants, and Children (WIC) Program did not reconcile with the
USVI government's financial management system (FMS). The auditors
identified the cause of this weakness to be due to current procedures,
which do not require a reconciliation of WIC Program records with the
FMS. This lack of reconciliation could result in incorrectly posted
transactions going undetected and uncorrected and therefore also
incorrect financial information being reported to USDA. The lack of
reconciliation between the government's records and its FMS was also
noted as a weakness related to a DOL grant for unemployment insurance.
In its fiscal year 2004 single audit report, the auditors noted that
the USVI Department of Education did not fully comply with 12 of the 18
requirements for the second year of the compliance agreement with the
U.S. Department of Education. For example, the auditors reported that
the inventory management system, which was to be fully implemented by
December 31, 2004, was not implemented by that date. According to the
auditors, failure to fully comply with the compliance agreement by the
specified deadlines was due to a lack of the necessary resources.
High-Risk Designations and Receiverships:
The late submission of single audit reports combined with ongoing,
significant audit findings, have been key reasons for the designation
of the insular area governments as high-risk grantees by several
federal agencies. Under the Grants Management Common Rule, federal
awarding agencies may designate a grantee as high-risk if the grantee
has a history of unsatisfactory performance, is not financially stable,
has an inadequate management system, has not conformed to the terms and
conditions of previous awards, or is otherwise not properly managing
federal funds. Federal agencies that designate a grantee as high-risk
may impose special conditions including (1) issuing funds on a
reimbursement basis; (2) withholding authority to proceed to the next
phase until receipt of evidence of acceptable performance within a
given funding period; (3) requiring additional, more detailed financial
reports; (4) requiring the grantee to obtain technical or management
assistance; or (5) establishing additional prior approvals for
expenditures of federal funds. Agencies, in carrying out their
regulations associated with the Grants Management Common Rule, can
place special conditions either at the agencywide level or at the
individual program level.
American Samoa:
OIA designated the government of American Samoa as a high-risk grantee
in June 2005, as GAO had recommended in its report on American Samoa's
accountability for key federal grants.[Footnote 70] In making this
designation, OIA recognized that the government of American Samoa had
made significant progress in improving its financial accountability,
and stated that the high-risk designation was to encourage other
federal agencies to support American Samoa's fiscal reform process. OIA
placed several special conditions on the American Samoan government,
including the completion of single audits by the statutory deadline and
having balanced budgets for 2 consecutive years--without considering
nonrecurring windfalls such as insurance settlements.
The American Samoa government or its agencies have also been designated
as high-risk by the departments or components of USDA, Education, HHS,
and the U.S. Department of Transportation (DOT). USDA's Food and
Nutrition Service (FNS) has also designated American Samoa as a high-
risk grantee. According to a USDA official, GAO's prior recommendation
that DOI designate American Samoa as a high-risk grantee influenced the
FNS decision in February 2006 to designate American Samoa as a high-
risk grantee for three of its programs. Some of the reasons cited by
FNS officials for the high-risk designation include delinquent audits,
noncompliance with laws and regulations, failure to resolve audit
findings or to follow up on review findings, incurring unallowable or
questionable costs, and weak systems for monitoring the programs and
managing program data. In a letter to the Governor of American Samoa,
FNS officials also stated that they were concerned that other serious
problems might exist but had not been identified due to weaknesses and
inadequate controls described in the letter. FNS officials further
stated that the additional requirements associated with a high-risk
designation would help to determine whether other serious but
unidentified problems exist.
While the U.S. Department of Education initially designated American
Samoa as a high-risk grantee in 2003 due to the lack of timely and
complete single audits, American Samoa has now submitted its single
audits through fiscal year 2005. The American Samoan government remains
a high-risk grantee for the U.S. Department of Education due to
continuing concerns about weaknesses and internal control issues
identified in the single audits. One of HHS's operating divisions, the
Substance Abuse and Mental Health Services Administration (SAMHSA),
designated American Samoa as a high-risk grantee due to the
government's delinquent single audits.[Footnote 71] The insular area
remains a high-risk grantee of SAMHSA, due to several older audits that
were late and audit issues identified in submitted single audit
reports. SAMHSA also designated American Samoa's Department of Human
and Social Services as a high-risk grantee due to the lack of
compliance of its financial management system with federal regulations.
DOT's Federal Motor Carrier Safety Administration (FMCSA) has
considered American Samoa to be a high-risk grantee for its Motor
Carrier Safety Assistance Program (MCSAP) due to past performance
problems, although no formal designation was made in writing and no
special conditions were imposed. DOT officials provided an example of a
past performance problem for American Samoa: the insular area justified
purchase of a vehicle for MCSAP purposes, but the vehicle was provided
to the Governor's office. Instead of a formal high-risk designation,
FMCSA provided additional oversight and required American Samoa to
submit additional supporting documentation for all progress and final
vouchers. American Samoa cooperated voluntarily by submitting the
documentation and accepting the disallowed costs.
CNMI:
The U.S. Department of Education designated CNMI as a high-risk grantee
in 2003 because CNMI's Department of Education was unable to provide
timely and complete single audits for 4 consecutive years. In September
2004, the U.S. Department of Education removed the high-risk
designation based on site visits and the completion of the fiscal year
2003 single audit for CNMI with few audit findings.
Guam:
Guam was designated as a high-risk grantee by the U.S. Department of
Education in 2003 because Guam's Public School System was unable to
provide timely and complete single audits for 5 consecutive years. As
of October 27, 2006, Guam remained as a high-risk grantee for the U.S.
Department of Education. Additional special conditions have been placed
by U.S. Department of Education officials on its grants to Guam
requiring them to demonstrate improved management stability and
effective fiscal controls. DOT's FMCSA has considered Guam to be a high-
risk grantee for its MCSAP due to past performance problems, although
no formal designation was made in writing and no special conditions
were imposed. DOT officials provided an example of a past performance
problem for Guam--two vehicle inspectors paid by MSCAP funds were
accepting payments for themselves in exchange for inspection decals.
Instead of a formal high-risk designation, FMCSA provided additional
oversight and required Guam to submit an action plan detailing
corrective actions. The government of Guam cooperated voluntarily by
submitting the action plan and proof that the inspectors' employment
had been terminated.
The U.S. Department of Housing and Urban Development (HUD) has
designated the Guam Housing and Urban Renewal Authority (GHURA) as a
high risk agency because of its poor performance under both the Public
Housing Assessment System (PHAS) and Section Eight Management
Assessment Program (SEMAP). HUD's Real Estate Assessment Center sent
staff to Guam in 2006 to perform a quality assurance review of the
auditor and a report of its review is expected soon. A memorandum of
agreement is being developed to set targets and strategies for
improving GHUR's performance.
USVI:
The U.S. Department of Education, HHS, and HUD have designated the USVI
government (or its components) as a high-risk grantee. The USVI
government was designated as a high-risk grantee by the U.S. Department
of Education in 1999. Although USVI was already designated as a high-
risk grantee, the U.S. Department of Education entered into a
comprehensive 3-year compliance agreement with USVI on September 23,
2002, due to serious and recurring deficiencies in USVI's
administration of the U.S. Department of Education programs. In fiscal
year 2005, U.S. Department of Education officials determined that the
USVI government would be unable to meet all of the terms of the
compliance agreement by its expiration on September 23, 2005.[Footnote
72] In a letter dated June 17, 2005, U.S. Department of Education
notified the USVI government that, in accordance with the terms of the
compliance agreement, it would apply special conditions to its grant
awards, requiring the USVI government to procure the services of a
third-party fiduciary to perform the financial management duties for
all U.S. Department of Education grant awards made to USVI. As of
August 25, 2006, all contract terms between the USVI government and the
recommended third party fiduciary had been settled, the contract had
been signed, and the fiduciary has begun work.
The Centers for Disease Control and Prevention (CDC), a component of
HHS, designated USVI's Department of Health as a high-risk grantee in
January 2006 due to the lack of compliance with financial management
standards. According to the letter to USVI's Department of Health, one
of the criteria for removing the high-risk designation is the
establishment of appropriate internal controls to safeguard federal
funds. The Administration of Children and Families (ACF), another
component of HHS, placed USVI's Department of Human Services as a high-
risk grantee in April 1997 for delinquent single audits. According to
an April 9, 1997, letter, the USVI government had not submitted single
audits, other than one received for the 2-year period beginning October
1, 1988, and ending September 30, 1990. Subsequent updates to the high-
risk listing have referred to the USVI government's chronically late
single audits.
In August 2003, HUD designated the Virgin Islands Housing Authority
(VIHA)[Footnote 73] as a high-risk grantee, and shortly thereafter
placed VIHA into receivership. VIHA had been under examination for
several years due to its failure to submit balanced budgets, a
violation of HUD financial reporting requirements, and the general
deterioration of management operations. VIHA's Board of Directors was
unable to provide adequate oversight of housing authority programs,
including the Section 8 program. VIHA also had failed to submit timely
audited financial statements for fiscal years 2001 and 2002. VIHA's
failure to submit timely verifiable financial information had adversely
affected HUD's ability to verify that federal funds were being used
properly and in accordance with program requirements and regulations. A
preliminary review done by HUD indicated that VIHA was operating under
a budget deficit of approximately $3.5 million. Moreover, HUD officials
discovered that VIHA was improperly funding a Virgin Islands government
nursing home for elderly residents in one of its public housing
developments. VIHA was also cited for providing rent rebates of $3
million annually to public housing residents in violation of HUD
regulations. In its audits of VIHA's fiscal year 2001 and 2002 single
audits, the independent public auditor found that VIHA had serious
deficiencies in financial reporting, financial analysis, and financial
management systems. For example, the auditor noted that VIHA maintained
incompatible accounting systems that precluded effective recording and
reporting processes. Therefore, VIHA's accounting records did not
reflect an accurate or complete accounting of the financial position
and, in addition, VIHA was unable to track and identify expenditures of
federal funds. According to HUD officials, serious fiscal
irregularities and ineffective VIHA Board leadership, factors such as
VIHA staff with insufficient skills, VIHA's inability to adequately
manage programs, and its failure to improve and correct other
operational problems, all pointed to a breakdown in the management of
VIHA.
On August 1, 2003, HUD notified VIHA that it was in substantial default
of Section 15 under the Annual Contributions Contract (ACC)[Footnote
74] for failure to produce reliable financial statements. Violations of
Section 15 (A) of the ACC were based on the numerous deficiencies noted
in the authority's books and records identified by VIHA's independent
auditors and late submission of financial reports. All of these actions
identified VIHA as a high-risk agency. On August 20, 2003, HUD imposed
an administrative receivership, assuming VIHA's decision-making
authority and management by sending in a recovery team to stabilize the
authority's operations. As of August 15, 2006, VIHA was still in
receivership. While HUD officials told us that no special conditions
have been placed on VIHA, HUD will look for the following actions to be
completed before ending the receivership:
* improvement in Public Housing Assessment System (PHAS) scores for a
sustained period in the areas in which the authority was failing;
* evidence that VIHA has put in place an advisory board to begin taking
management control of the authority;
* evidence that key personnel have been hired, such as an executive
director, chief financial officer, and managers in areas such as
procurement, maintenance, construction/development, information
technology, occupancy, and resident services;
* evidence that the VIHA has established policies and procedures that
conform to HUD requirements, staff has been trained in these policies
and procedures, and these policies and procedures are being followed;
* timely and accurate submission of required HUD reports; and:
* unqualified audit opinion on both the financial statements and
compliance with OMB Circular No. A-133 for major programs.
HUD is currently evaluating the conditions at VIHA and expects new PHAS
scores in early 2007. All recent required HUD reports have been
submitted by VIHA in a timely and accurate manner. In 2006, VIHA
revised its procurement policy and, according to HUD officials,
implemented the new policy successfully. VIHA has also instituted new
financial internal controls and procedures to correct the financial
oversight deficiencies that have been noted in the past. VIHA received
an unqualified financial audit for fiscal year ending December 31,
2005. In November 2006, VIHA hired a new Chief Financial Officer with a
background in housing authority finance. HUD and VIHA are considering
hiring additional experienced permanent staff for the housing authority
in 2007. Also, HUD and VIHA are currently evaluating additional changes
to various policies and procedures in order to improve oversight and
efficiency throughout the housing authority.
Efforts to Assist the Insular Areas in Improving Financial
Accountability:
DOI's OIA and IG, other federal inspectors general, and local auditing
authorities assist or oversee the insular areas' efforts to improve
their financial accountability.[Footnote 75] OIA monitors the progress
of completion and issuance of the single audit reports as well as
providing general technical assistance funds to provide training for
insular area employees and funds to enhance financial management
systems and processes. DOI's IG has audit oversight responsibilities
for federal funds in the insular areas.[Footnote 76] In addition, the
IG evaluates the effectiveness of OIA programs. Each insular area's
cognizant agency[Footnote 77] for the single audit monitors the
submissions of the insular area government's single audit report for
the insular area and considers extensions requested for submitting the
report. The insular areas' cognizant agencies for fiscal years 2001-
2005 were DOI for American Samoa and CNMI, HHS for Guam, and USDA for
USVI. According to an OMB official, DOI will be the cognizant agency
for all four insular areas for the fiscal year 2006-2010 single audits.
When the single audit report is completed, the Office of Inspector
General of the cognizant agency reviews the report to determine whether
it meets applicable reporting standards and the requirements of OMB
Circular No. A-133 for implementing the Single Audit Act. The
inspectors general of other federal grant-making agencies perform
audits of the insular area governments' implementation of federal
programs to assess whether federal funds are used for intended purposes
and effectively and efficiently. Local auditing authorities audit,
assess, and analyze the insular area governments' activities for
improving accountability, effectiveness, and efficiency of government
operations. Interagency groups, such as IGIA, and other less formal
groups also have worked to improve the financial accountability of the
insular areas.
Interior's OIA and Federal IGs:
A key part of OIA's mission is to promote sound financial management
processes in the insular area governments. To accomplish this mission,
OIA has increased its focus on bringing the insular area governments
into compliance with the Single Audit Act. For example, OIA created an
incentive for the insular areas to comply with the act by stating that
an insular area cannot receive capital funding unless its government is
in compliance with the act or has presented a plan, approved by OIA
that is designed to bring the government into compliance by a certain
date. In addition, OIA provides general technical assistance funds for
training and other direct assistance, such as grants, to help the
insular area governments comply with the act and to improve their
financial management systems and environments.
The Graduate School of the USDA has been working with OIA for over a
decade through its Pacific Islands and Virgin Islands Training
Initiatives (PITI and VITI) to provide training and technical
assistance.[Footnote 78] In fiscal year 2004, OIA began a joint program
with the Graduate School to address the long-standing problem of audit
findings and resolutions that had not been addressed by the insular
area governments. The USDA Graduate School also works with the Island
Government Finance Officers Association (IGFOA)[Footnote 79] to promote
improved financial management in the insular areas. Table 13 shows OIA
funding of USDA Graduate School activities.
Table 13: OIA Funding for Technical Assistance from the USDA Graduate
School:
Fiscal year: 2001;
PITI/VITI (dollars in millions): $1.3.
Fiscal year: 2002;
PITI/VITI (dollars in millions): 1.3.
Fiscal year: 2003;
PITI/VITI (dollars in millions): 1.3.
Fiscal year: 2004;
PITI/VITI (dollars in millions): 1.3.
Fiscal year: 2005;
PITI/VITI (dollars in millions): 1.5.
Fiscal year: 2006;
PITI/VITI (dollars in millions): 1.5.
Fiscal year: 2007 (projected);
PITI/VITI (dollars in millions): 1.5.
Source: OIA officials.
[End of table]
In addition to funding the training and other services provided by the
USDA Graduate School, OIA makes direct grants using its general
technical assistance funds. Some of these grants are targeted at the
resolution of specific financial management and reporting problems.
OIA has staff members in headquarters and field representatives in
American Samoa and CNMI who make site visits to the insular areas.
According to an OIA official, the office does not use a standard
framework to write up the results of these site visits, although staff
members do make notes while they are visiting the insular area.
Establishing a routine procedure of writing up the results of site
visits in a standard framework would help ensure that (1) all staff
members making site visits are consistent in their focus on overall
accountability objectives and (2) OIA staff has a mechanism for
recording and following up on the unique situations facing each of the
insular area governments.
DOI's IG performs the functions and duties that were once the
responsibility of government comptrollers for the four insular areas.
In this role, the IG has audit oversight responsibilities for the
insular areas. It is also responsible for reviewing and following up on
single audits for American Samoa and CNMI due to its role as the
cognizant agency for the two insular areas for the single audits for
fiscal years 2001-2005. For fiscal years 2006-2010, DOI's IG will be
responsible for reviewing and following up on the single audits for all
four insular areas because DOI will be the cognizant agency for all
four. The IG also evaluates the effectiveness of OIA's programs and has
issued three reports in 2002 and 2003 that addressed the use of federal
funds in the four insular areas. One of the reports, dated March 1,
2002,[Footnote 80] identified what the IG believed to be the top
management challenges for the U.S. insular areas and compact
states.[Footnote 81] The report included assessments for each of the
insular areas regarding the following four challenges: (1) overall
financial management, (2) internal audit capabilities, (3) audit
resolution issues, and (4) areas for improvement. In its evaluation
report of oversight and follow up on audit findings and recommendations
related to the insular area governments' use of federal funds provided
by DOI,[Footnote 82] the IG stated that the single audit report
findings were not sufficiently addressed, due to a lack of federal
control over the funds and DOI's lack of adequate audit follow-up
procedures. Noting OIA's lack of enforcement authority over subsidies
and entitlement-type funding, the IG stated that OIA should increase
its oversight of these findings by encouraging the insular areas to
address them and to monitor the implementation of corrective actions.
In September 2003,[Footnote 83] the IG issued a report about grants OIA
administers for the insular areas. The IG reported that OIA had
properly processed awards and distributed grant funds, but needed to
improve the control process used to monitor grants.
In accordance with the Reports Consolidation Act of 2000,[Footnote 84]
DOI's IG also submits annual summaries of issues that it has determined
to be the most significant management and performance challenges facing
the department. One of the challenges the IG listed, in DOI's fiscal
year 2005 performance and accountability report, related to the insular
areas.[Footnote 85] The IG noted in describing this challenge that
these governments have long-standing financial and program management
deficiencies. The IG has also issued many audit reports covering issues
on individual insular areas. Since January 2000, it has issued 2 audit
reports on American Samoa, 1 on CNMI, 8 on Guam, and 29 relating to the
government of USVI.[Footnote 86] The citations for these reports are in
appendix III.
Inspectors general of other federal agencies that provide grants also
conduct audits and evaluations on issues related to the insular areas'
use of awarded funds. The U.S. Department of Education's IG has
recently issued several reports--including reports on the USVI
government's administration of funds under Title IV of the Higher
Education Act and grant funds for the Infants and Toddlers program--as
well as the previously mentioned report on the USVI government's lack
of progress in meeting the terms of the compliance agreement.
Local Authorities:
In addition to U.S. federal government audit organizations, each of the
four insular areas has its own local auditing authorities. The USVI has
its Office of Inspector General; Guam and CNMI, the Offices of the
Public Auditor; and American Samoa, the Territorial Audit
Office.[Footnote 87] All four of these audit authorities have the
authority to review their governments' use of federal grant funds.
These audit authorities also determine whether government operations
are efficient and effective and government assets are properly
safeguarded and protected from fraud, waste, abuse, and mismanagement.
All of these local audit authorities are members of the Association of
Pacific Islands Public Auditors (APIPA), formed in January 1988 through
a memorandum of understanding (MOU) executed by the heads of the audit
organizations of five Pacific island nations.[Footnote 88] APIPA was
formed to achieve several objectives, including (1) the establishment
of an organized body to promote efficiency and accountability in the
use of public resources of emerging nations of the Pacific and (2)
sponsorship of auditing and accounting training workshops. APIPA has an
annual conference to provide continuing education for its members.
Interagency Coordination:
While multiple entities oversee the insular areas' efforts to improve
their financial accountability, in 1999 and 2003 the White House
recognized the need to improve coordination of federal programs as they
relate to insular areas and established the Interagency Group on
Insular Areas (IGIA)[Footnote 89] consisting of representatives from
several federal agencies. This group is responsible for identifying
issues that affect the insular areas and for making recommendations to
the President and other appropriate officials regarding these issues.
Executive agencies were to coordinate significant decisions or
activities relating to the insular areas with the IGIA. The most recent
meeting of the IGIA was in February 2006 to discuss ongoing issues,
such as fiscal management, and work done during 2005 in the areas of
economic and tax policy, infrastructure financing, and healthcare. We
were unable to obtain information concerning the outcome of IGIA
efforts. Furthermore, there appears to be limited joint monitoring or
coordination of financial assistance programs and grants management
across the many federal grant-making agencies as evident from
discussions held with agency officials we contacted. With increased
coordination, the federal agencies could collectively share key
information, such as high-risk designations, and work with the insular
area governments to substantially improve their financial
accountability.
Insular Areas' Corrective Action Plans:
Under the Single Audit Act and OMB Circular No. A-133, auditees, when
the audit is completed, are to prepare corrective action plans to
address each audit finding in the current year's single audit report.
Corrective actions are defined in OMB Circular No. A-133 as action
taken by the auditee that (1) corrects identified deficiencies, (2)
produces recommended improvements, or (3) demonstrates that audit
findings are invalid or do not warrant action by the auditee.[Footnote
90] The corrective action plan should provide the names of the contact
persons responsible for corrective actions, the corrective actions
planned, and the anticipated completion date.
American Samoa:
In its corrective action plan for fiscal year 2004, American Samoa
government managers acknowledged the auditor's finding that there were
significant failures in the operation of the internal control structure
related to general accounting and grants administration. Management
commented in its corrective action plan that 7 years had passed since
the implementation of the new computer system and the hiring of new
staff. According to the corrective action plan, new internal control
policies and procedures have been implemented. In this same corrective
action plan, American Samoa government managers stated that they
disagree with the finding that government records have not been
maintained in an organized manner due to the lack of formal procedures
regarding the maintenance and storage of records. According to the
plan, the American Samoan government has made progress in the Grants
Division by assigning grants analysts to specific departments to work
with the grants program administrator to ensure that expenditures are
allowable under the program.
CNMI:
In its corrective action plan for fiscal year 2004, CNMI officials
responded to the auditor's finding that due to the lack of detailed
subsidiary ledgers, the auditors could not determine the propriety of
two liability account balances and whether the negative balances in the
accounts, as in prior years, also included prepaid items. CNMI
government officials stated that the negative balances may not have
been properly closed for prepaid items. According to the corrective
action plan, balances are being reviewed and adjusted as needed and new
procedures for receiving procurements were implemented, and
reconciliation procedures will be developed. In its corrective action
plan for the Commonwealth Health Center's (CHC) receivable balance with
accounts outstanding in excess of 120 days, management stated that they
agreed with the findings, but management also asserted that it had made
major progress in correcting the problems. According to management, the
cause of the problem is a combination of the inefficiency of the
present computer billing system, an inadequate number of staff in the
Billing and Collection Office, nonpayment of bills by the Government
Health Insurance program, and the inclusion of Medicaid expenditures
beyond the annual cap as receivables.
Guam:
In its corrective action plan for fiscal year 2004, government of Guam
officials responded to the auditor's finding of the lack of the
required physical inventories of equipment by reporting that GASB No.
34, Basic Financial Statements and Management's Discussion and Analysis
for State and Local Governments, was being adopted using a two-stage
approach. The first stage is to record all capital assets such as
buildings and infrastructure. The second stage is to compile all fixed
asset records. For the findings related to noncompliance with
procurement requirements, the government of Guam stated that GSA will
continue to improve the processes and to uphold the integrity of the
procurement activities of the government.
USVI:
In response to the auditors' repeated findings about single audit
compliance, the USVI government stated that it is committed to
completing and submitting its single audit reports within 9 months
after the end of the fiscal year in accordance with federal laws and
regulations. However, the government plans to request and obtain a
written extension from its cognizant agency if the audit cannot be
completed within the 9-month deadline. For fiscal years 2003 and 2004,
the auditor recommended that the USVI Department of Finance develop
procedures to accelerate the bank reconciliation process and establish
procedures that include the review and approval of the reconciliations
by a member of management. The government responded that it will hire
employees to assist with the reconciliation process, and it will change
its policies and procedures for recording and handling deposits. At the
2006 IGFOA Conference held in May 2006, USVI government officials
reported that with the implementation of a new Enterprise Resource
Planning System, they expect timely reporting, reconciliations,
information to decision makers, and completion of single audits, as
well as a reduction or elimination of audit findings.
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. While Guam will benefit from
DOD's decision to reassign troops from Japan to Guam, changes in
treaties, tax laws, and other external events have or will likely
negatively affect the other insular areas' key industries. OIA has a
number of initiatives underway to promote economic development in the
insular areas. OIA's efforts in helping create linkages between the
business communities in the U.S. states and the insular areas are key
to helping meet some of these challenges. Nevertheless, the islands
would benefit from formal periodic OIA evaluation of its conferences
and business-opportunity missions, including assessments of the cost
and benefit of its activities and the extent to which these efforts are
creating partnerships with the economies of other nations.
A healthy private sector can improve the insular areas' fiscal
condition by increasing local tax revenues. The fiscal condition of
three of the four insular areas generally worsened during fiscal years
2001 to 2004, with the fourth--American Samoa--showing a more stable
trend than the other insular areas.
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. Questions about
the reliability and completeness of the reporting have prevented
auditors from issuing unqualified, or "clean," opinions on the island
governments' financial statements. Auditors also identified many
weaknesses likely to have a material, detrimental effect on the insular
area governments' accountability over federal funds in their reviews of
internal controls over financial reporting and compliance with major
federal grant requirements.
OIA officials monitor the insular area governments' progress in
submitting single audit reports, and OIA provides funding to improve
financial management. Other agencies that provide funding for the
insular areas provide their own oversight, such as their monitoring of
entities with high-risk designations. Yet, progress has been slow and
inconsistent, leaving the insular areas in current economic, fiscal,
and financial difficulty. The benefit to the insular areas of past and
current assistance is unclear, as is the way toward prosperity and
fiscal stability. Federal agencies and the insular area governments
have sponsored and participated in conferences, training sessions, and
other programs to improve accountability, but knowing what has and
hasn't been effective and drawing the right lessons from this
experience is hampered by a lack of formal evaluation and data
collection, the diffusion of responsibility with little coordination
between agencies, and no central access to information. The
conscientious yet disparate efforts of many federal agencies now
individually engaged in improving the insular areas' economic
development, fiscal stability, and financial accountability could make
more efficient use of government and human resources. In a planned and
well-coordinated effort, and with feedback mechanisms for continuing
improvement of that effort, federal agencies can help the insular areas
achieve the economic, fiscal, and financial conditions expected by
nationals and citizens of a developed nation.
Recommendations for Executive Action:
We recommend that the Secretary of the Interior direct the Deputy
Assistant Secretary for Insular Affairs to:
* Increase coordination activities with officials from other federal
grant-making agencies on issues of common concern relating to the
insular area governments, such as late single audit reports, high-risk
designations, and deficiencies in financial management systems and
practices.
* Conduct formal periodic evaluation of OIA's conferences and business
opportunities missions, assessing their impact on creating private
sector jobs and increasing insular area income.
* Develop a framework for OIA employees to use in conducting site
visits to help ensure objectives are achieved, to assure that relevant
information is shared with the responsible officials, and to allow more
efficient and effective monitoring of issues.
* Develop and implement procedures for formal evaluations of progress
made by the insular areas to resolve accountability findings and set a
time frame for achieving clean audit opinions.
Agency Comments and Our Evaluation:
We received written comments on a draft of this report from DOI. In
commenting on a draft of this report, DOI officials agreed with our
conclusions and recommendations, stating that our recommendations are
consistent with OIA's top priorities and ongoing activities. DOI's
specific comments on each recommendation are summarized below.
DOI officials agreed with our recommendation to increase coordination
with officials from other federal grant-making agencies on issues of
common concern. While DOI officials noted that it currently has
processes to promote coordination with other federal agencies,
additional coordination efforts are underway. Specifically, DOI
officials stated that in fiscal year 2005, OIA began preparations for a
conference to be held in June 2007 that will bring together officials
from the federal grantor agencies and the insular areas, to coordinate
efforts to address issues related to material findings identified in
single audit reports and other financial management issues, including
high-risk designations. We encourage OIA to utilize the planned
conference to address accountability issues of common concern and use
the results of the conference as a basis for regularly scheduled
ongoing monitoring and followup on these issues.
DOI officials commented that they agree with our recommendation that
OIA conduct periodic evaluation of its conferences and business
opportunities missions because such evaluation of all federal
activities is worthwhile. DOI officials added that while these
conferences and missions are the primary activities through which OIA
pursues its top priority for the insular areas, the costs associated
with these activities are only a fraction of a percent of OIA's budget.
Nevertheless, OIA supports evaluating these activities.
DOI officials agreed with our recommendation that a framework be
developed for OIA employees to use in conducting site visits to ensure
objectives are achieved, assure that relevant information is shared
with responsible officials, and to allow more effective monitoring of
issues. In its comments, DOI officials referred to a form in its
Financial Assistance Manual, that was modified during fiscal year 2006,
to better ensure that the required grant and project information is
included in the project file after each site visit. While inclusion of
this information for individual grants or projects should be valuable,
our recommendation envisions developing a broader framework that would
include information beyond that dealing with individual OIA grants or
projects to include information about each of the insular areas'
financial accountability environments. The information to be collected
in this broader framework would include the status of required single
audit reports, the progress of actions to resolve reported internal
control weaknesses, and current needs for technical assistance,
capacity building, and staff level expertise. This information should
also be integrated into a comprehensive monitoring process.
DOI officials also agreed with our recommendation that OIA develop and
implement procedures for formal evaluations of progress made by the
insular areas to resolve accountability findings and set a time frame
for achieving clean audit opinions. In its comments, DOI officials
noted that it has a formal process for monitoring and tracking the
insular areas' resolution of audit findings in place. DOI officials
also indicated that they will consider establishing a timetable for
achieving unqualified ("clean") audit opinions after the insular areas
have had sufficient time to fully implement corrective actions to
resolve material findings identified in the fiscal year 2004 and 2005
single audits. While these actions directed at improved monitoring and
resolution of audit findings are a step in the right direction, they do
not specifically address the broader accountability issues highlighted
in our draft report. In this regard, the inability of the insular areas
to achieve unqualified audit opinions over a number of years indicates
the need for more attention and formal evaluation of progress toward to
resolving accountability problems as called for by our recommendation
in this area.
In addition to providing copies of this report to your office, we will
send copies of this report to other appropriate committees. We will
also provide copies of this report to interested Congressional
Committees and to the Secretary of the Interior as well as to the
governors and delegates of the insular areas. We will also make copies
available to other interested parties upon request. In addition, the
report will be available at no charge on the GAO Web site at
[Hyperlink, http://www.gao.gov].
If you or your staff have any questions regarding this report, please
contact Jeanette Franzel, Director, Financial Management and Assurance
at (202)512-9471 or Franzelj@gao.gov, or David Gootnick, Director,
International Affairs and Trade at (202)512-4128 or gootnickd@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 that
made major contributions to this report are listed in appendix V.
Signed by:
Jeanette Franzel:
Director:
Financial Management and Assurance:
Signed by:
David Gootnick:
Director:
International Affairs and Trade:
[End of section]
Appendix I: Matters Leading to Qualified Audit Opinions:
Table 14: American Samoa--Matters Leading to Qualified Audit Opinions
on the Financial Statements for Fiscal Years 2001 through 2004:
Description of matter: Unable to verify the accuracy of the due to/from
other funds--pooled cash due to the lack of reliance on the internal
control system;
Fiscal year: 2001: X;
Fiscal year: 2002: X;
Fiscal year: 2003: X;
Fiscal year: 2004: X.
Description of matter: Unable to verify the amount due from other
governments and advances from grantors of the Special Revenue Fund due
to the condition of the insular area's records;
Fiscal year: 2001: X;
Fiscal year: 2002: [Empty];
Fiscal year: 2003: [Empty];
Fiscal year: 2004: [Empty].
Description of matter: Unable to confirm the $182,320 due from American
Samoa Medical Center Authority--Lyndon B. Johnson Tropical Medical
Center (Medical Center) since another auditor disclaimed their opinion
on the Medical Center;
Fiscal year: 2001: X;
Fiscal year: 2002: [Empty];
Fiscal year: 2003: [Empty];
Fiscal year: 2004: [Empty].
Description of matter: Unable to verify the accuracy of the physical
inventory records;
Fiscal year: 2001: X;
Fiscal year: 2002: X;
Fiscal year: 2003: X;
Fiscal year: 2004: X.
Description of matter: Unable to ensure the physical presence and cost
of recorded fixed assets and the records were incomplete;
Fiscal year: 2001: X;
Fiscal year: 2002: [Empty];
Fiscal year: 2003: [Empty];
Fiscal year: 2004: [Empty].
Description of matter: Unable to obtain sufficient audit evidence to
determine if bank overdrafts represented held checks (accounts payable)
or actual overdrafts. No adjustments had been made to accounts payable;
Fiscal year: 2001: X;
Fiscal year: 2002: [Empty];
Fiscal year: 2003: [Empty];
Fiscal year: 2004: [Empty].
Description of matter: Unable to obtain and test detailed schedules of
the immigration deposits;
Fiscal year: 2001: X;
Fiscal year: 2002: X;
Fiscal year: 2003: X;
Fiscal year: 2004: X.
Description of matter: Unable to obtain from the Territory's Attorney
General an adequate discussion, evaluation, or estimation of pending or
threatened litigation;
Fiscal year: 2001: X;
Fiscal year: 2002: [Empty];
Fiscal year: 2003: X;
Fiscal year: 2004: [Empty].
Description of matter: Unable to obtain from the Attorney General any
information on settlement negotiations with its former workers'
compensation carrier;
Fiscal year: 2001: X;
Fiscal year: 2002: X;
Fiscal year: 2003: X;
Fiscal year: 2004: [Empty].
Description of matter: Sufficient auditing procedures could not be
performed on the compensated balances recorded as of September 30,
2001;
Fiscal year: 2001: X;
Fiscal year: 2002: [Empty];
Fiscal year: 2003: [Empty];
Fiscal year: 2004: [Empty].
Description of matter: In accordance with GASB 33, the insular area
didn't restate the beginning fund balance of the general fund for
amounts that would have been deferred as of September 30, 2000;
Fiscal year: 2001: X;
Fiscal year: 2002: [Empty];
Fiscal year: 2003: [Empty];
Fiscal year: 2004: [Empty].
Description of matter: Unable to be satisfied as to the amounts due
from other governments and advances from grantors of the Special
Revenue Fund as of September 30, 2001, due to the conditions of the
American Samoa Community College records;
Fiscal year: 2001: X;
Fiscal year: 2002: [Empty];
Fiscal year: 2003: [Empty];
Fiscal year: 2004: [Empty].
Description of matter: Unable to satisfy the validity of the amounts
due from taxpayers due to the state of the insular area's records;
Fiscal year: 2001: [Empty];
Fiscal year: 2002: X;
Fiscal year: 2003: [Empty];
Fiscal year: 2004: [Empty].
Description of matter: Accuracy of the beginning fund balance due to
noted evidence of a failure of identified controls in preventing or
detecting misstatements of accounting information and a lack of
appropriate management oversight and review and approval of
transactions;
Fiscal year: 2001: [Empty];
Fiscal year: 2002: X;
Fiscal year: 2003: X;
Fiscal year: 2004: [Empty].
Description of matter: The insular area did not record a liability for
workers' compensation claims that occurred prior to 9/30/2003;
Fiscal year: 2001: [Empty];
Fiscal year: 2002: [Empty];
Fiscal year: 2003: X;
Fiscal year: 2004: [Empty].
Description of matter: Auditors disclaimed an opinion on the American
Samoa Telecommunication Authority because the entity did not maintain
accurate inventory records and was unable to reconcile the general
ledger to the physical inventory, cost of PP&E was no longer available,
and the account receivable subsidiary records include sufficient
discrepancies causing the system to be unreliable;
Fiscal year: 2001: X;
Fiscal year: 2002: X;
Fiscal year: 2003: [Empty];
Fiscal year: 2004: [Empty].
Description of matter: In the opinion of the American Samoa
Telecommunication Authority's auditor, PP&E not recorded at cost to
conform with U.S. GAAP and the lack of evidence available to test the
beginning of the year accounts receivable balance caused the auditors
to be unable to form an opinion on the amount of operating revenues;
Fiscal year: 2001: [Empty];
Fiscal year: 2002: [Empty];
Fiscal year: 2003: X;
Fiscal year: 2004: X.
Description of matter: Auditors disclaimed an opinion on the American
Samoa Medical Center Authority--Lyndon B. Johnson Tropical Medical
Center because the entity could not locate documentation supporting
accounting records and auditors were unable to satisfy themselves
regarding inventory quantities;
Fiscal year: 2001: X;
Fiscal year: 2002: X;
Fiscal year: 2003: [Empty];
Fiscal year: 2004: [Empty].
Description of matter: The financial statements of the Medical Center
were not audited;
Fiscal year: 2001: [Empty];
Fiscal year: 2002: [Empty];
Fiscal year: 2003: X;
Fiscal year: 2004: X.
Sources: American Samoa Single Audit Reports for fiscal years 2001
through 2004.
[End of table]
Table 15: CNMI--Matters Leading to Qualified Audit Opinions on the
Financial Statements for Fiscal Years 2001 through 2004:
Description of matter: Inability to obtain response from CNMI's
Attorney General regarding litigation, claims, and assessments;
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: X;
Fiscal years: 2004: [Empty].
Description of matter: Inability to determine the propriety of fixed
assets and fund equity of the General Fixed Assets Account Group;
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Omission of the Northern Marianas College from
the university and college fund type--Higher Education Fund;
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Omission of the Public School System from the
component unit--School District;
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Omission of the Commonwealth Government
Employees Credit Union from the component unit--Governmental Fund;
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Lack of recognition of certain tax revenues as
nonexchange transactions;
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: The propriety of receivables from federal
agencies for the Fiduciary Fund Type--Agency Fund; and other
receivables and accounts payable of the Northern Mariana Islands
Government Health and Life Insurance Trust Fund. Unable to express an
opinion on the General Long-Term Debt Account Group;
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Omission of the Commonwealth Utilities
Corporation from the component units--Proprietary Funds;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Inability to determine the propriety of
receivables from federal and other agencies, advances, other
liabilities and accruals, and reserve for continuing appropriations and
their effect on the determination of revenues and expenditures for all
governmental fund types;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: X;
Fiscal years: 2004: X.
Description of matter: Inability to determine if the due to component
units was fairly stated for all government funds due to inadequacies in
the accounting records;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: X;
Fiscal years: 2003: X;
Fiscal years: 2004: X.
Description of matter: Inadequacies in the accounting records regarding
accounts payable;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: X;
Fiscal years: 2004: X.
Description of matter: Inability to determine the propriety of
inventory and capital assets of the Northern Marianas College;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Inability to determine the propriety of taxes
receivable;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: X;
Fiscal years: 2003: X;
Fiscal years: 2004: X.
Description of matter: Inability to determine the propriety of
inventory, due from grantor agencies, utility plant and obligations
under capital lease of the Commonwealth Utilities Corporation;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: X;
Fiscal years: 2004: [Empty].
Description of matter: Inadequacies in the accounting records regarding
tax rebates payable;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty];
Fiscal years: 2004: X.
Description of matter: Inadequacies in the accounting records regarding
capital assets of the Northern Marianas College and inventory, federal
agencies receivables, utility plant, accounts payable, and obligations
under capital lease of the Commonwealth Utilities Corporation;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty];
Fiscal years: 2004: X.
Sources: CNMI Single Audit Reports for fiscal years 2001 through 2004.
[End of table]
Table 16: Guam--Matters Leading to the Qualified Audit Opinions on the
Financial Statements for Fiscal Years 2001 through 2004:
Description of matter: Inability to access tax-related records or
perform procedures as to the effectiveness of the systems tax-related
balances;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: X;
Fiscal years: 2004: X.
Description of matter: Incomplete inclusion of the Guam Department of
Education within the general fund due to nonavailability of information
from the Department;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Incomplete presentation of the General Fixed
Assets Account Group or incomplete presentation of capital assets;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Accounting records inadequate to support capital
assets amounts, net of accumulated depreciation;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: X;
Fiscal years: 2004: [Empty].
Description of matter: Incomplete presentation of the General Long-Term
Debt Account Group;
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Lack of audited financial statements for the
Tourist Attraction Fund, Territorial Highway Fund, the Port Authority
of Guam, and the Guam Waterworks Authority;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Lack of audited financial statements for or
omission of the Guam Telephone Authority;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Lack of audited financial statements for or
omission of the Guam Memorial Hospital Authority;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: X;
Fiscal years: 2004: X.
Description of matter: Omission of the Pension Trust Fund or lack of
audited financial statements for the Government of Guam Retirement
Fund;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: X;
Fiscal years: 2004: [Empty].
Description of matter: Omission of the Guam Council on the Arts and
Humanities Agency, a Special Revenue Fund;
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Lack of audited financial statements for or
omission of the Guam Community College;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: X;
Fiscal years: 2004: [Empty].
Description of matter: Lack of audited financial statements for or
omission of the Guam Visitors Bureau;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: X;
Fiscal years: 2004: X.
Description of matter: Omission of the Guam Rental Corporation;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Lack of audited financial statements for or
omission of the Guam Housing Corporation;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: X;
Fiscal years: 2003: X;
Fiscal years: 2004: [Empty].
Description of matter: Lack of audited financial statements for the
Guam Economic Development and Commerce Authority;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: X;
Fiscal years: 2004: [Empty].
Description of matter: Inability to determine propriety of the General
Fund continuing appropriations balance;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Inability to determine propriety of the
inventory balance for the State Agency Surplus, an Internal Service
Fund--Proprietary Fund Type;
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Receivables recorded in the Solid Waste
Management Fund and in the Federal Grant Assistance Fund were
unsubstantiated;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty];
Fiscal years: 2004: [Empty].
Description of matter: Absence of an accrual for the closure and
postclosure costs of a solid waste landfill;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: X;
Fiscal years: 2003: X;
Fiscal years: 2004: [Empty].
Description of matter: Inability to determine the propriety of capital
assets and related amounts for accumulated depreciation and
depreciation expense;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: X;
Fiscal years: 2004: [Empty].
Sources: Guam Single Audit Reports for fiscal years 2001 through 2004.
[End of table]
Table 17: USVI--Matters Leading to the Qualified Audit Opinions on the
Financial Statements for Fiscal Years 2001 through 2004:
Description of matter: Not recording a provision for landfill closure
and postclosure costs in governmental activities or general long-term
debt account group or the effect of the exclusion of a provision on
beginning net assets;
Fiscal years: 2001: X;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: X.
Description of matter: Unable to obtain sufficient evidence that land
held for sale (amounting to about $25 million) was fairly stated;
Fiscal years: 2001: X;
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty].
Description of matter: Virgin Islands Lottery had not been audited for
business-type activities;
Fiscal years: 2001: [Empty];
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty].
Description of matter: Omission of financial data of the Roy L.
Schneider Hospital in the public benefit corporations column;
Fiscal years: 2001: X;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty].
Description of matter: Unable to determine the amount of cash on
deposit with, and due from, the U.S. Virgin Islands Department of
Finance as of September 30, 2001;
Fiscal years: 2001: X;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty].
Description of matter: Auditors of the Juan F. Luis Hospital were
unable to satisfy themselves about management's contention that the
preautonomy accounts payable not recorded as a liability as of
September 30, 2001, were the responsibility of the government;
Fiscal years: 2001: X;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty].
Description of matter: Omission of the general fixed assets account
group;
Fiscal years: 2001: X;
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty].
Description of matter: Not maintaining accounting records for income
tax receivables stated at $87 million;
Fiscal years: 2001: [Empty];
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty].
Description of matter: Auditor of the VI Government Hospital and Health
Facilities Corporation (Roy L. Schneider Hospital) was unable to
satisfy themselves as to the propriety of certain transactions recorded
in the statement of net assets;
Fiscal years: 2001: [Empty];
Fiscal years: 2001: X;
Fiscal years: 2002: [Empty];
Fiscal years: 2003: [Empty].
Description of matter: Auditor of the VI Housing Authority (VIHA) and
VI Housing Finance Authority (VIHFA) financial statements, a discretely
presented component unit, was unable to obtain sufficient evidence as
to the propriety of the revenue and expenses reported by VIHA, or to
determine whether capital assets were fairly stated;
Fiscal years: 2001: [Empty];
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty].
Description of matter: VIHA did not report an equity interest in a
joint venture because it had not been able to determine its carrying
value;
Fiscal years: 2001: [Empty];
Fiscal years: 2001: [Empty];
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty].
Description of matter: Unable to determine the extent to which the
unemployment insurance fund (a major fund) may have been affected by
the exclusion of a receivable for unemployment insurance contributions
due to inadequate records;
Fiscal years: 2001: [Empty];
Fiscal years: 2001: X;
Fiscal years: 2002: X;
Fiscal years: 2003: X.
Description of matter: Not maintaining accounting records for corporate
income tax receivables related to tax year 2002 in the general fund and
governmental activities;
Fiscal years: 2001: [Empty];
Fiscal years: 2001: [Empty];
Fiscal years: 2002: X;
Fiscal years: 2003: [Empty].
Description of matter: Unable to determine the extent to which the
revenue, change in fund balance/net assets of the general fund and the
governmental activities may have been affected by the exclusion of a
receivable for corporate income taxes pertaining to tax year 2002 in
the beginning net assets due to inadequate records;
Fiscal years: 2001: [Empty];
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: X.
Description of matter: Government Employees' Retirement System (GERS),
a fiduciary component unit (pension trust fund), is not recording
contributions pursuant to the Early Retirement Act of 1994, had asset
valuation issues, and adjustments that may have been necessary to
reflect certain balances with the USVI government's Department of
Finance;
Fiscal years: 2001: [Empty];
Fiscal years: 2001: [Empty];
Fiscal years: 2002: X;
Fiscal years: 2003: X.
Description of matter: Unable to determine the effects of adjustments
that might have been necessary if the other auditors had obtained
sufficient audit evidence as to whether capital assets and land held
for sale were fairly stated in the financial statements of VIHA and
VIHFA, respectively;
Fiscal years: 2001: [Empty];
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: X.
Description of matter: Omission of a liability for workers'
compensation claims from the basic financial statements;
Fiscal years: 2001: [Empty];
Fiscal years: 2001: [Empty];
Fiscal years: 2002: [Empty];
Fiscal years: 2003: X.
Sources: USVI Single Audit Reports for fiscal years 2001 through 2004.
[End of table]
[End of section]
Appendix II: Internal Control Weaknesses and Compliance with
Requirements Applicable to Major Federal Programs:
American Samoa:
The American Samoan government has seen decreases in the number of
material weaknesses and reportable conditions that auditors reported
for internal control over financial reporting. The following table
shows the numbers of material weaknesses and reportable conditions
reported for internal control over reporting and compliance with
requirements applicable to each major federal program, for fiscal years
2001-2004.
Table 18: American Samoa--Reported Weaknesses Identified in the
Auditors' Reports for Fiscal Years 2001 through 2004:
Fiscal year: 2001;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses[A]: 8;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 0;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 8;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Material weaknesses[B]: 11;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Reportable conditions[C]: 6;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Total number of findings: 17.
Fiscal year: 2002;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses[A]: 6;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 0;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 6;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Material weaknesses[B]: 13;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Reportable conditions[C]: 9;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Total number of findings: 22.
Fiscal year: 2003;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses[A]: 6;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 0;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 6;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Material weaknesses[B]: 14;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Reportable conditions[C]: 10;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Total number of findings: 24.
Fiscal year: 2004;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses[A]: 6;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 0;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 6;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Material weaknesses[B]: 9;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Reportable conditions[C]: 13;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal award): Total number of findings: 22.
Sources: American Samoa Single Audit Reports for Fiscal Years 2001
through 2004.
[A] Material weaknesses in internal control over financial reporting
are reportable conditions in which the design or operation of internal
controls does not reduce to a relatively low level the risk that
misstatements caused by error or fraud--material in relation to the
financial statements being audited--may occur and not be detected in a
timely period by employees in the normal course of performing their
duties.
[B] Material weaknesses in this context are reportable conditions in
which internal controls do not reduce to a relatively low level the
risk of noncompliance with applicable requirements of laws,
regulations, contracts, and grants that would be material to the major
federal program being audited and undetected in a timely way by
employees in the normal course of performing their duties.
[C] Reportable conditions in this context are matters that come to an
auditor's attention related to significant deficiencies in the design
or operation of internal controls over compliance that could adversely
affect the entity's ability to operate a major federal program within
the applicable requirements of laws, regulations, contracts, and
grants.
Note: The numbers of total findings can be equated with the total
number of reportable conditions. To compute the numbers of reportable
conditions that were not material weaknesses, we subtracted the number
of material weaknesses from the total findings.
[End of table]
CNMI:
In examining the internal controls the government of CNMI uses to
provide reasonable assurance that it is properly recording financial
transactions and safeguarding public funds, the auditors found 10 or
more problems significant enough to warrant reporting. Most of these
problems were material weaknesses in internal control over financial
reporting. As shown in table 19, the auditors also reported numerous
problems in compliance with the requirements for major federal
programs.
Table 19: CNMI--Reported Weaknesses Identified in the Auditors' Reports
for Fiscal Years 2001 through 2004:
Fiscal year: 2001;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 10;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 0;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Total: 10;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material weaknesses: 4;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 13;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total: 17.
Fiscal year: 2002;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 9;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 1;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Total: 10;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material weaknesses: 2;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 14;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total: 16.
Fiscal year: 2003;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 10;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 2;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Total: 12;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material weaknesses: 1;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 15;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total: 16.
Fiscal year: 2004;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 8;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 5;
Internal Control over financial reporting in accordance with government
auditing standards (report on financial statements): Total: 13;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material weaknesses: 2;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 31;
Compliance with requirements applicable to each major federal program
and internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total: 33.
Sources: CNMI Single Audit Reports for Fiscal Years 2001 through 2004.
Note: The numbers of total findings can be equated with the total
number of reportable conditions. To compute the numbers of reportable
conditions that were not material weaknesses, we subtracted the number
of material weaknesses from the total findings.
[End of table]
Guam:
The numerous material weaknesses reported by Guam's auditors reveal the
lack of sound internal controls needed to ensure that (1) transactions
are properly recorded, (2) assets are adequately safeguarded, and (3)
federal funds are administered in accordance with the applicable
requirements of laws, regulations, contracts, and grants. Table 20
shows the total number of findings from the financial statement audit
as reported by the auditors on compliance with (1) internal controls
over financial reporting and (2) with requirements applicable to each
major federal program.
Table 20: Guam--Reported Weaknesses Identified in the Auditor's Reports
for Fiscal Years 2001 through 2004:
Fiscal: year: 2001;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 21;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 59;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 80;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material Weaknesses: 23;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 43;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total number of findings: 66.
Fiscal: year: 2002;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 41;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 56;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 97;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material Weaknesses: 30;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 14;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total number of findings: 44.
Fiscal: year: 2003;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 8;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 11;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 19;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material Weaknesses: 7;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 16;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total number of findings: 23.
Fiscal: year: 2004;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 4;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 3;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 7;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material Weaknesses: 8;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 17;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total number of findings: 25.
Sources: Guam Single Audit Reports for Fiscal Years 2001 through 2004.
Note: The number of total findings can be equated with the total number
of reportable conditions. To compute the numbers of reportable
conditions that were not material weaknesses, we subtracted the number
of material weaknesses from the total findings.
[End of table]
USVI:
USVI audit findings (material weaknesses and reportable conditions) for
both internal controls over financial reporting and compliance with
requirements for major federal programs ranged from a total of 31 to 61
for fiscal years 2001 through 2003, as shown in table 21.
Table 21: USVI--Reported Weaknesses Identified in the Auditors' Reports
for Fiscal Years 2001 through 2004:
Fiscal year: 2001;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 2;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 0;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 2;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material weaknesses: 41;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 20;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total number of findings: 61.
Fiscal year: 2002;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 2;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 0;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 2;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material weaknesses: 38;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 9;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total number of findings: 47.
Fiscal year: 2003;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 3;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 0;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 3;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material weaknesses: 43;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 10;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total number of findings: 53.
Fiscal year: 2004;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Material
weaknesses: 3;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Reportable
conditions: 0;
Internal control over financial reporting in accordance with government
auditing standards (report on financial statements): Total number of
findings: 3;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Material weaknesses: 28;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Reportable conditions: 3;
Compliance with requirements applicable to each major federal program
and on internal control over compliance with OMB Circular No. A-133
(report on federal awards): Total number of findings: 31.
Sources: USVI Single Audit Reports for Fiscal Years 2001 through 2004.
Note: The numbers of total findings can be equated with the total
number of reportable conditions. To compute the numbers of reportable
conditions that were not material weaknesses, we subtracted the number
of material weaknesses from the total findings.
[End of table]
[End of section]
Appendix III :DOI Inspector General Reports on Four Insular Areas for
Calendar Years 2000--2005:
American Samoa:
Audit Report, Assessment and Collection of Taxes, American Samoa
Government. No. 2002-I-0003. Guam: November 15, 2001.
Audit Report, U.S. Fish and Wildlife Service Federal Assistance Grants
Administered by the American Samoa Government, Department of Marine and
Wildlife Resources, from October 1, 2001, through September 30, 2003.
No. R-GR-FWS-0013-2004. Reston, Va.: March 31, 2005.
CNMI:
Audit Report, Saipan Harbor Improvement Project, Commonwealth Ports
Authority, Commonwealth of the Northern Mariana Islands. No. 2003-I-
0073. Washington, D.C.: September 30, 2003.
Guam:
Audit Report, U.S. Department of Defense Contract Funds, Department of
Education, Government of Guam. No. 00-I-172. Washington, D.C.: January
10, 2000.
Survey Report, Guam U.S. Passport Office, Government of Guam. No. 00-I-
332. Washington, D.C.: April 14, 2000.
Audit Report, Loan Programs, Guam Economic Development Authority,
Government of Guam. No. 01-I-417. Guam: September 21, 2001.
Audit Report, Qualifying Certificate Program, Guam Economic Development
Authority, Government of Guam. No. 01-I-419. Guam: September 30, 2001.
Audit Report, Bond Services, Lease Operations and Trust Fund
Activities, Guam Economic Development Authority, Government of Guam.
No. 2002-I-0016. Guam: March 28, 2002.
Audit Report, Management of Federal Grants, Department of Mental Health
and Substance Abuse, Government of Guam. No. 2002-I-0036. Guam: August
19, 2002.
Audit Report, Guam Waterworks Authority, Government of Guam. No. 2003-
I-0072. Washington, D.C.: September 30, 2003.
Audit Report, U.S. Fish and Wildlife Service Federal Assistance Grants
Administered by the Government of Guam, Department of Agriculture,
Division of Aquatic and Wildlife Resources from October 1, 1999, to
September 30, 2000. No. R-GR-FWS-0029-2004. Reston, Va.: March 4, 2004.
USVI:
Audit Report, Internal Controls over Cashier Operations, Government of
the Virgin Islands. No. 00-I-166. Washington, D.C.: January 3, 2000.
Audit Report, Administration of Federal Grants, University of the
Virgin Islands. No. 00-I-216. Washington, D.C.: February 16, 2000.
Audit Report, Head Start Program Grants, Department of Human Services,
Government of the Virgin Islands. No. 00-I-499. Washington, D.C.: June
14, 2000.
Audit Report, Low Income Housing Program Grants, Virgin Islands Housing
Authority. No. 00-I-625. Washington, D.C.: August 24, 2000.
Audit Report, Environmental Protection Agency Grants, Department of
Public Works, Government of the Virgin Islands. No. 00-I-696.
Washington, D.C.: September 2000.
Audit Report, Administrative Functions, Legislature of the Virgin
Islands. No. 01-I-107. Washington, D.C.: December 29, 2000.
Audit Report, Administration and Collection of Excise Taxes, Bureau of
Internal Revenue, Government of the Virgin Islands. No. 01-I-291.
Washington, D.C.: March 30, 2001.
Audit Report, Billing and Collection Functions, Virgin Islands Port
Authority, Government of the Virgin Islands. No. 01-I-303. Washington,
D.C.: March 30, 2001.
Audit Report, Virgin Islands Lottery, Government of the Virgin Islands.
No. 01-I-290. Washington, D.C.: May 11, 2001.
Audit Report, Payroll Operations, Department of Education, Government
of the Virgin Islands. No. 01-I-330. Washington, D.C.: May 14, 2001.
Audit Report, Virgin Islands Fire Service, Government of the Virgin
Islands. No. 2002-I-0001. (Virgin Islands: October 30, 2001).
Audit Report, Job Training Partnership Act Programs, Department of
Labor, Government of the Virgin Islands. No. 2002-I-0002. (Virgin
Islands: November 7, 2001).
Audit Report, Virgin Islands Housing Finance Authority, Government of
the Virgin Islands. No. 2002-I-0009. Virgin Islands: December 31, 2001.
Audit Report, Administrative Functions, Virgin Islands Police
Department, Government of the Virgin Islands. No. 2002-I-0010. Virgin
Islands: February 13, 2002.
Audit Report, Federal Highway Grants, Department of Public Works,
Government of the Virgin Islands. No. 2002-I-0042. Virgin Islands:
August 16, 2002.
Audit Report, Grants for the Construction of Health Care Facilities,
Department of Health, Government of the Virgin Islands. No. 2002-I-
0043. Virgin Islands: September 20, 2002.
Audit Report, Professional Service Contracts, Government of the Virgin
Islands. No. 2002-I-0046. Virgin Islands: September 30, 2002.
Audit Report, Public Finance Authority, Government of the Virgin
Islands. No. 2003-I-0002. Washington, D.C.: November 22, 2002.
Audit Report, Compliance with the Memorandum of Understanding Between
the Governor of the Virgin Islands and the Secretary of the Interior.
No. 2003-I-0003. Virgin Islands: November 27, 2002.
Audit Report, Grant for Solid Waste and Wastewater Disposal Projects,
Department of Public Works, Government of the Virgin Islands. No. 2003-
I-0012. Herndon, Va.: March 31, 2003.
Audit Report, Grant for Hazard Mitigation Projects, Virgin Islands
Police Department, Government of the Virgin Islands. No. 2003-I-0031.
Herndon, Va.: March 31, 2003.
Audit Report, Grant for Hurricane Recovery Projects, Government of the
Virgin Islands. No. 2003-I-0032. Herndon, Va.: March 31, 2003.
Audit Report, Follow-up of Recommendations Relating to Internal Revenue
Taxes, Bureau of Internal Revenue, Government of the Virgin Islands.
No. 2003-I-0059. Herndon, Va.: August 29, 2003.
Audit Report, Emergency Services Surcharge Collections by Innovative
Telephone Corporation on Behalf of the Government of the Virgin
Islands. No. 2003-I-0067. Herndon, Va.: September 26, 2003.
Audit Report, Use of Official Credit Cards, Government of the Virgin
Islands. No. V-IN-VIS-0104-2003. Herndon, Va.: August 27, 2004.
Audit Report, Financial Arrangements Between the Government of the
Virgin Islands and Financial Institutions. No. V-IN-VIS-0069-2004.
Herndon, Va.: September 30, 2004.
Audit Report, Procurement Practices, Virgin Islands Port Authority,
Government of the Virgin Islands. No. V-IN-VIS-0001-2004. Washington,
D.C.: March 28, 2005.
Audit Report, Grants for Waste Disposal Projects, Department of Public
Works, Government of the Virgin Islands. No. V-IN-VIS-0072-2004.
Washington, D.C.: May 11, 2005.
Audit Report, Indirect Cost Fund, Government of the Virgin Islands. No.
V-IN-VIS-0110-2003. Washington, D.C.: June 22, 2005.
[End of section]
Appendix IV: Comments from the Department of the Interior:
United States Department Of The Interior:
Office Of The Assistant Secretary Policy, Management And Budget:
Washington, DC 20240:
Take Pride In America:
DEC 05 2006:
Norma Samuel:
Assistant Director:
Financial Management and Assurance:
United States Government Accountability Office:
Washington, D.C. 20548:
Dear Ms. Samuel:
Thank you for the opportunity to review and comment on the U.S. Office
of Government Accountability (GAO) Draft Report No. GAO-07-119, dated
November 2006, entitled "U.S. Insular Areas: Economic, Fiscal, and
Financial Accountability Challenges" (Draft Report). The Department of
the Interior (Department) agrees with the four recommendations
presented in the Report and is pleased that the GAO recommendations
validate the ongoing activities of the Department's Office of Insular
Affairs (OIA), which carries out the Secretary of the Interior's
responsibilities with respect to the U.S. territories and freely
associated states.
We find the GAO's review of the U.S. territories of American Samoa, the
Commonwealth of the Northern Mariana Islands (CNMI), Guam and the U.S.
Virgin Islands (USVI) to be mostly accurate and well balanced. The
focus of the Draft Report lines up well with OIA's top two priority
areas for the insular areas: private sector economic development and
accountability. As the Draft Report makes clear, progress is not easily
achieved in either of these two priority areas.
Private sector economic development is OIA's top priority because of
the insular areas' economic challenges and urgent public needs in
health, education, infrastructure, environmental protection, financial
management, and several other areas.
Transforming the insular areas from public-sector-dominated economies
to healthy, diverse, private-sector-led economies is an enormous task.
Many of the reasons for this are identified in the Draft Report. This
transformation cannot succeed unless it is adopted as a top priority by
the insular area governments themselves. OIA can, however, provide a
crucial leadership role and can provide important technical assistance
to help the insular areas improve their business climates, identify
areas of potential for private sector investment, and market insular
areas to potential investors. This is what OIA has been doing.
OIA's other major priority for the insular areas has been to improve
accountability for Federal financial assistance. For many years there
was no source of comprehensive financial information for each of the
insular areas, as each was several years delinquent in completing
required annual single audits. Since Fiscal Year (FY) 2004, OIA has
implemented processes and provided funding for projects to help the
insular areas to produce more timely and accurate financial
information. OIA's comprehensive approach includes: funding for
training conferences and workshops to increase local capacity; funding
for financial experts and consultants to work in the islands; assigning
OIA staff to provide critical technical advice and aggressively monitor
and evaluate the fiscal management and reporting activities of insular
area governments; communicating with other Federal agencies regarding
systemic issues related to the insular areas' administration of Federal
grant programs; and developing rating processes to allocate OIA grant
funds based upon the progress of the insular areas in improving
financial management and accountability for Federal funds. To date,
this comprehensive approach has contributed to the completion of 17
audits by the insular areas covered by the Draft Report. All of the
insular areas have made progress in developing and implementing
corrective actions to resolve material audit findings and clear audit
opinion qualifications. Three of the four insular areas covered in the
Draft Report American Samoa, the CNMI and Guam-are current on their
single audits and are developing systems to allow them to continue to
complete audits in a timely manner. The remaining insular area, the
USVI, is one audit delinquent. However, the Department is not the
cognizant agency for audits for the USVI and, therefore, OIA's ability
to assist the USVI to improve the timeliness and accuracy of its single
audits is limited.
In addition to the single audits, OIA receives other financial
information from the insular areas in the form of quarterly financial
reports, financial reviews (e.g., Performeter Reports), OIA grant
administrative reports (Financial Cash Status Reports, Narrative Status
Reports, cost documents) and audit reports completed by the
Department's Office of the Inspector General, GAO and insular area
audit offices. Also, OIA staff meets with insular area officials at
workshops held every May, June and December, and OIA staff performs on-
site reviews. Since FY 2003, the workshops have centered on compliance
with Federal audit requirements and the improvement of the insular
areas' administration of Federal grant programs.
As noted in the Draft Report, the insular areas face serious challenges
with limited resources. As the insular areas complete the task of
catching up on their delinquent single audits, they will be able to
target more resources to resolving material deficiencies.
This in turn will help to resolve audit opinion qualifications and put
the insular areas on the path to "clean" opinions.
OIA's accountability efforts are of course not limited to the insular
areas covered in the Draft Report; they also extend to the insular
areas that are affiliated with, but not part of, the U.S. In this
regard, we would note that Palau has submitted clean single audits in a
timely fashion for the past three fiscal years, and that the most
recent single audit for the State of Pohnpei, FSM, was timely, clean,
and with no questioned costs.
The Department will continue its comprehensive approach and will
implement other innovative ideas, as resources permit, to assist the
insular areas to continue to improve financial management and
accountability.
GAO Recommendations:
We concur with the recommendations to the Secretary of the Interior for
actions by the Deputy Assistant Secretary for Insular Affairs and are
pleased that the GAO recommendations mirror actions already implemented
by the Department. The recommendations are discussed below:
1) Increase coordination activities with officials from other federal
grant-making agencies on issues of common concern relating to the
insular area governments, such as late single audit reports, high-risk
designations, and deficiencies in financial management systems and
practices.
The Department agrees with this recommendation, but notes that OIA
already utilizes a number of processes to promote this type of
coordination with other Federal agencies. The Draft Report mentions the
Interagency Group on Insular Areas (IGIA), which brings together
representatives of nearly 30 Federal agencies for the purpose of
coordinating policy with respect to the insular areas covered by the
Draft Report. In August 2004, OIA convened a working group of Federal
grantor agencies that award material amounts of Federal funding to the
insular areas. Within both of these groups OIA addresses material
issues affecting the insular areas and Federal grant programs. In
addition, in FY 2005 OIA began preparations for a conference that will
bring together Federal grantor agencies and insular area officials to
address (a) issues related to material findings identified in single
audit reports and (b) other financial management issues, including
declarations of high-risk. The conference is scheduled for June 2007 in
coordination with the semiannual OIA workshop held for insular area
officials responsible for finance, budget and procurement.
2) Conduct formal periodic evaluation of OIA's 's conferences and
business opportunities missions, assessing their impact on creating
private sector jobs and increasing insular area income.
The Department agrees with this recommendation because periodic
evaluation of all Federal activities is a good thing. We would note,
however, that the conferences and missions are the primary activities
through which OIA pursues its top priority for the insular areas, yet
they account for only a fraction of a percent of OIA's budget. The
participants in the conferences and mission pay their own expenses.
Given the successes that have already come out of these efforts, and
those that are currently in process, these activities are among the
most cost-effective that OIA engages in. We support evaluating these
activities so that we can make them even more effective.
We would note that a number of indirect benefits flow from the
conferences and missions. For example, all of the insular areas have a
strong incentive to make a good impression at the conferences and
missions. This motivates the insular areas to polish their self-
marketing efforts, and to consider business climate reforms that might
improve their attractiveness to outside investors. When OIA promotes
the conferences and missions, it engages in extensive outreach to
private sector companies. This enables a large number of businesses to
learn about the competitive advantages offered by some or all of the
insular areas. We are aware of companies that have pursued important
opportunities in the insular areas solely on the basis of our pre-
conference or pre-mission marketing efforts.
The conferences themselves, of course, give the insular areas an
invaluable opportunity to market themselves before a wide audience of
potential investors at minimal cost. The missions are also quite cost-
effective for the insular areas, because they bring to the islands
groups of businesspeople who have demonstrated significant interest in
opportunities there.
We would also note that we agree with GAO's suggestion that more effort
should be made to promote non-U.S. investment in the insular areas. OIA
participated in outreach efforts to potential investors in Tokyo in
2003 and in Auckland, New Zealand this year, and funded American
Samoa's participation in trade shows in New Zealand and Hong Kong this
year. We agree that more of these efforts are needed.
3) Develop a framework for OIA employees to use in conducting site
visits to help ensure objectives are achieved, to assure that relevant
information is shared with the responsible officials, and to allow more
efficient and effective monitoring of issues.
The Department agrees with this recommendation, and notes that OIA's
Financial Assistance Manual, as revised in FY 2003, provides a form to
be used to structure and summarize on-site visits. The form was
modified during FY 2006, and OIA staff is ensuring that the required
information is included in the project file after each site-visit that
pertains to a material issue.
4) Develop and implement procedures for formal evaluations of progress
made by the insular areas to resolve accountability findings and set a
time frame for achieving clean audit opinions.
The Department agrees with this recommendation. In addition to the
ongoing activities discussed above, we note that in FY 2004, OIA
developed a formal process for monitoring and tracking the insular
areas' resolution of audit findings. The process was developed as part
of the Corrective Action Plans that were reviewed and accepted by the
Department's Office of Financial Management. In addition, the
information is used in OIA's process for allocating grant funding for
both the Capital Improvement Program and the Technical Assistance grant
program.
The insular areas' progress on resolving material issues will also
contribute to the resolution of audit opinion qualifications. OIA
intends to consider a timetable for achieving "clean" audit opinions
after the insular areas have had adequate time to fully implement
corrective actions to resolve material findings identified in the
single audits of FY 2004 and 2005.
Thank you again for the opportunity to comment on the Draft Report. If
you have any questions concerning the response, please contact David B.
Cohen, Deputy Assistant Secretary of the Interior-Insular Affairs, or
Nikolao Pula, Director of the Office of Insular Affairs, at (202) 208-
4736.
Sincerely,
Signed by:
R. Thomas Weimer:
Assistant Secretary:
[End of section]
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Jeanette Franzel at (202) 512-9471 or FranzelJ@gao.gov:
David Gootnick at (202) 512-3149 or GootnickD@gao.gov:
Staff Acknowledgments:
The following individuals made important contributions to this report:
Norma Samuel, Emil Friberg, Jr., James Wozny, Maxine Hattery, Gina
Ross, Sandra Silzer, Seyda Wentworth, and Elwood White.
FOOTNOTES
[1] These four insular areas are the subject of this report. Not
included in the scope of this report are Puerto Rico and nine smaller
insular areas of the United States, Navassa Island in the Caribbean
Sea, and Baker Island, Howland Island, Kingman Reef, Jarvis Island,
Johnston Atoll, Midway Atoll, Palmyra Atoll, and Wake Island in the
Pacific Ocean.
[2] 31 U.S.C. Chp. 75.
[3] OIA's mission is to promote sound financial management processes,
boost economic development, and increase the federal government's
responsiveness to the unique needs of the insular areas.
[4] The most recent year for which audited financial statements were
available for all four insular areas was fiscal year 2004.
[5] Fund balance is the difference between assets and liabilities
reported in the governmental fund. A fund is a separate self-balancing
set of accounts used to account for resources that are segregated for
specific purposes in accordance with special regulations, restrictions,
or limitations.
[6] Net assets are the remaining amount after liabilities have been
subtracted from assets. Revenues are changes in resources that increase
net assets whereas expenses are changes in resources that reduce net
assets. Financial statements describe how assets, liabilities, and net
assets change over the course of a reporting period, such as a fiscal
year.
[7] A U.S. national is either a citizen or someone who "owes permanent
allegiance to the United States." 8 U.S.C. § 1101 (a) (21), (22).
Citizenship is derived either from the Fourteenth Amendment to the
Constitution ("All persons born or naturalized in the United States,
and subject to the jurisdiction thereof, are citizens of the United
States") or from a specific statute that confers citizenship on the
inhabitants of an area that, although not a state, is under the
sovereignty of the United States. No such legislation conferring
citizenship has been enacted for American Samoa.
[8] Organic acts are federal laws that serve as the constitution or
basic charter of the territory, thereby conferring the powers of
government upon a territory. The organic acts of the insular areas
usually include a bill of rights and provide for the establishment of
the insular areas' tripartite government.
[9] An unincorporated territory is a U.S. territory or insular area to
which Congress has determined that only selected parts of the U.S.
Constitution apply.
[10] For fiscal years ending before December 31, 2003, the threshold
that triggered the requirement for a single audit was expenditures of
$300,000 or more in federal awards a year.
[11] Office of Management and Budget (OMB) Circular No. A-133, Audits
of States, Local Governments, and Non-Profit Organizations, establishes
policies for federal agencies to use in implementing the Single Audit
Act and provides an administrative foundation for consistent and
uniform audit requirements for nonfederal entities administering
federal awards.
[12] The single audit replaces multiple grant audits with one audit of
an entity as a whole.
[13] Internal control is an integral component of an organization's
management that provides reasonable assurance that the following
objectives are being achieved--effectiveness and efficiency of
operations, reliability of financial reporting, and compliance with
applicable laws and regulations. Internal control also serves as the
first line of defense in safeguarding assets and preventing and
detecting errors and fraud.
[14] The Single Audit Act Amendments of 1996 resulted in the
establishment of an automated database of single audit information at
the Federal Audit Clearinghouse (FAC), the organization designated by
the Office of Management and Budget to receive single audit reports
from federal award recipients.
[15] Pub. L. No. 97-357, 96 Stat. 1705 (Oct. 19, 1982).
[16] Reports for these fiscal years were generally available to be
downloaded from the FAC.
[17] The insular area governments submit a data collection form (SF-
SAC) that includes information about the auditee, its federal programs,
and the results of the audit.
[18] For example, U.S. Census Bureau data show that in 2000 there were
over 55,000 people in the United States who reported ancestry from Guam
and CNMI, as compared to about 81,000 native born residents in Guam and
25,000 in CNMI. There were also over 85,000 Samoans in the United
States--from American Samoa, Western Samoa, and elsewhere--compared to
32,500 born and living in American Samoa.
[19] According to DOI officials, the tuna industry generated directly
or indirectly about 85 percent of the territory's private sector
activity in 2004. A DOL study indicates that the two canneries, owned
by Starkist and Chicken of the Sea, supply more than 60 percent of the
canned tuna consumed in the United States. For details, see [Hyperlink,
http://www.dol.gov/esa/whd/AS].
[20] M. Rubin, Final Trip Report on Benchmark Estimates of 2002 Gross
Domestic Product in American Samoa (Washington, D.C.: U.S. Census
Bureau, 2005).
[21] Impact of Rapid Population Growth in American Samoa: A Call for
Action, May 2000, by the Governor's Task Force on Population Growth,
Pago Pago, American Samoa.
[22] Department of Labor, American Samoa Economic Report 2005, Section
VI, "Economic Factors for Consideration that May Favor Minimum Wage
Increases," [Hyperlink, http://www.dol.gov/esa/whd/AS/sec6.htm].
[23] 19 U.S.C. §§ 3201, 3202(b)(1), 3203(b)(3),(4).
[24] According to DOL, pouched tuna, an alternative new technology in
tuna packaging, is becoming popular among consumers. American Samoa
Economic Report 2005, Section III, "The Tuna Processing Industry."
[25] American Samoa Economic Report 2005, Section VI, "Economic Factors
for Consideration That May Favor Minimum Wage Increases." The U.S.
Census Bureau estimates that the majority of profits generated by the
tuna canneries are repatriated. Income payments going abroad represent
almost 25 percent of GDP.
[26] 26 U.S.C. § 936. The possessions tax credits originated in the
1920s as a tax incentive for businesses in the U.S. possessions.
[27] According to an Interior official, the canneries also benefit from
several local tax exemptions and subsidies related to water and rent
that, combined with duty-free access to the United States, provide
other important advantages to the canneries. However, the value of
these exemptions and subsidies is not publicly available.
[28] H.R. 4297, 109th Cong. § 111 (2005).
[29] Pub. L. No. 109-222, 120 Stat. 345 (May 17, 2006). On December 7,
2006, the House introduced another measure extending possession tax
credits for American Samoa's canneries for 2 years. H.R. 6408, 109th
Cong. § 119 (2006). This language of section 119 was subsequently
rolled into H.R. 6111, which ultimately passed the House and Senate,
and was sent to the President for signature on December 9, 2006. As of
the date of this report, no action had been taken by the President.
[30] American Samoa Economic Report 2005, Section VI, "Economic Factors
for Consideration That May Favor Minimum Wage Increases."
[31] Although the minimum wage in American Samoa is below that of the
contiguous United States ($3.26 per hour versus $5.15), the lower labor
rates in countries such as the Philippines and Thailand--about $.67 and
$.66, respectively--makes such locations attractive to corporations
seeking lower labor costs.
[32] As in CNMI, a large number of noncitizens live and work in
American Samoa, representing over 35 percent of the population,
according to the 2000 U.S. Census. However, unlike the situation in
CNMI, about half of American Samoa's foreigners have been living on the
island for a relatively long time, with the other half entering after
1990. Western Samoans represent the majority of noncitizens. Also, many
American Samoans emigrate to the United States.
[33] The 2000 U.S. Census shows that noncitizens, predominantly Chinese
and Filipinos, make up over half of CNMI's population. Almost all of
these temporary foreign workers came to CNMI after 1990.
[34] An Economic Study for the Commonwealth of the Northern Mariana
Islands, Business Development Center, Northern Marianas College, with
funding provided by the Office of Insular Affairs, U.S. Department of
the Interior, October 1999.
[35] See M. Rubin and S. Sawaya, Final Trip Report on Benchmark
Estimates of 2002 Gross Domestic Product in the Commonwealth of the
Northern Mariana Islands (Washington, D.C.: U.S. Census Bureau, 2005).
Many businesses, including the garment factories, are owned and
operated by foreigners. As in American Samoa, profits generated by
foreign-owned businesses are often repatriated.
[36] According to the U.S. Harmonized Tariff Schedule, certain items of
which at least 50 percent of the value was added in a U.S. possession
are eligible for duty-free shipment to the United States.
[37] GAO, U.S.-China Trade: Textile Safeguard Procedures Should be
Improved, GAO-05-296 (Washington, D.C.: Apr. 4, 2005.)
[38] The burden of this job loss on the government may be mitigated to
some extent by the fact that garment industry workers are almost
exclusively foreigners on temporary guest visas. Also, data we obtained
from the U.S. Census Bureau indicate that foreign workers send much of
their earnings back to their countries of origin in the form of
remittances; the remainder, which is spent on local goods and services,
is relatively small, and as a result, has limited effect on local
economic activity. Remittances were estimated at about $80 million for
2002, roughly 10 percent of GDP, and at over $100 million in 2005.
[39] China Southern Airlines' August 2006 decision to suspend its
flights from Guangzhou City in China to Saipan in September because of
low load factor, high fuel costs, and low yield in fares is likely to
slow the growth of Chinese visitors and hinder CNMI's efforts to
attract more tourists from China.
[40] Northwest Airlines has flights from Nagoya, Japan to Saipan as
well, and is planning to add flights between Tokyo and Saipan.
[41] M. Rubin and S. Sawaya, Final Trip Report on Benchmark Estimates
of 2002 Gross Domestic Product in Guam (Washington, D.C.: U.S. Census
Bureau, 2005).
[42] [Hyperlink, http://www.visitguam.org/members/?pg=research].
[43] The number of visitors declined from 1,286,807 in 2000 to
1,159,071 in 2001; 1,058,704 in 2002;
and 909,506 in 2003.
[44] Guam Economic Report 2003, Bank of Hawaii and East-West Center,
available at [Hyperlink,
http://www.eastwestcenter.org/stored/pdfs/OsmanGuamEconomicReport2003.pd
f]. The report indicates that total payroll employment decreased from
around 70,000 to 56,000 between 1992- 2002, with most of the losses
taking place in the private sector and national defense.
[45] Rum distillation is another source of income for USVI. The watch
industry, once relatively important for the USVI economy, has been
declining over the past 10 years. Watch exports decreased from over
1,000,000 before 1997 to about 320,000 in 2004, with shipments going
down further in 2005, according to the USVI Bureau of Economic
Research.
[46] The USVI Bureau of Economic Research 2002 data report 8,910 total
tourism-related jobs in the following four categories: hotels and other
lodging places; gift shops; eating and drinking places; and
transportation by air. Nonagricultural wage and salary employment in
2002 was 43,129.
[47] The USVI Economic Review and Industry Outlook indicates that
refined petroleum exports grew to $6.7 billion in 2004.
[48] This may be due to the fact that to qualify for tax benefits,
businesses need to employ only 10 USVI residents. Eligible businesses
in the service category (category IIA or Designated Services Businesses
(DSBs)) include business investment managers and advisors, research and
development, business and management consultants, software developers,
e-commerce, call centers, high technology, international public
relations firms, international trading and distributions, and other
businesses serving clients outside of USVI.
[49] Pub. L. No. 108-357, 118 Stat. 1418 (Oct. 22, 2004).
[50] The U.S. Congress passed AJCA partly in response to reported
abuses of the EDC program as a tax shelter or evasion scheme. While the
aim of the act was to eliminate loopholes that some businesses had
exploited, USVI authorities are concerned that AJCA is also driving
away legitimate companies, undermining their effort to attract U.S.
firms providing international services.
[51] DOI reports that the combined economic costs to USVI of Hurricanes
Hugo in 1989 and Marilyn in 1995 ranged from $3 to $4 billion. FEMA and
the U.S. Small Business Administration are reported to have provided
grants and loans of more than $200 million.
[52] DOI organized one trade mission to Guam, Palau, and CNMI in 2005;
one to American Samoa and one to USVI in 2006.
[53] The data come from preregistered participants. A third Conference
on Business Opportunities in the Islands took place on November 13-14,
2006 in Hawaii.
[54] Other agencies, such as the Department of Commerce, the Overseas
Private Investment Corporation, and the Small Business Administration
provided managerial and organizational support for these missions.
[55] The amount for net assets as of the end of fiscal year 2004 was
reported in the fiscal year 2004 single audit report as $47,193,817,
and the change in net assets figure was $7,796,791.
[56] The Grants Management Common Rule was established in 1987 under
presidential direction to adopt governmentwide terms and conditions for
grants to state and local governments. Federal departments incorporate
the Grants Management Common Rule in their own agency regulations.
Among the many provisions in the regulations, the Grants Management
Common Rule provides authority to designate a grantee as high-risk.
[57] Under the Single Audit Act, the single audit reporting package is
generally required to be submitted to the FAC either 30 days after the
receipt of the auditor's report or 9 months after the end of the period
under audit. The audited entity, upon hiring the auditor, negotiates a
due date for the audit within 9 months after the close of the entity's
fiscal year. The entity must have time to read the report and prepare
the corrective action plan that is required to be in the reporting
package.
[58] DOI granted CNMI an extension until February 28, 2006, for
submitting its fiscal year 2004 single audit report.
[59] Generally accepted accounting principles are the conventions,
rules, and procedures that provide the norm for fair presentation of
financial statements.
[60] Accounting information is material when an omission or
misstatement of accounting information would, in the light of
surrounding circumstances, make it probable that the judgment of a
reasonable person, relying on the information, would have changed or
been influenced by the omission or misstatement.
[61] The 14 types are (1) activities allowed or unallowed; (2)
allowable costs/cost principles; (3) cash management; (4) Davis-Bacon
Act; (5) eligibility; (6) equipment and real property management; (7)
matching, level of effort, and earmarking; (8) period of availability
of federal funds; (9) procurement, suspension and debarment; (10)
program income; (11) real property acquisition and relocation
assistance; (12) reporting, (13) subrecipient monitoring; and (14)
special tests and provisions.
[62] The primary government is the state or local government. Primary
governments have separately elected governing bodies and are legally
separate and fiscally independent of other state and local governments.
[63] All cash not legally required to be in separate accounts is pooled
to provide greater internal control over cash, and to maximize the
amount available for investment, thereby increasing investment
revenues.
[64] A discretely presented component unit is an organization that is
not part of the primary government but for which the nature and
significance of their relationship with a primary government are such
that excluding the organization would cause the reporting entity's
statements to be misleading or incomplete.
[65] The receivable for unemployment insurance contributions as of
September 30, 2003, is needed because it affects the determination of
revenue and changes in net assets for the year ended September 30,
2004.
[66] OMB Circular No. A-133 requires auditors to report on compliance
that includes an opinion (or disclaimer of opinion) as to whether the
entity being audited complied with laws, regulations, and provisions of
contracts or grant agreements which could have a direct and material
effect on the federal program.
[67] Internal control activities help ensure that management's
directives are carried out and should be effective and efficient in
accomplishing control objectives.
[68] GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
[69] A detailed inventory of capital assets is needed to conform to the
financial presentation required by Statement No. 34 of the Governmental
Accounting Standards Board (GASB). Statement No. 34, Basic Financial
Statements--and Management's Discussion and Analysis--for State and
Local Governments, establishes new requirements for the annual
financial reports of state and local governments. One of the new
requirements is that state and local governments report infrastructure
and depreciate their capital assets.
[70] GAO, American Samoa: Accountability for Key Federal Grants Needs
Improvement, GAO-05-41 (Washington, D.C.: Dec. 17, 2004).
[71] In a letter dated November 24, 1999, a SAMHSA grants officer
stated that American Samoa would remain in the high-risk status until
its delinquent audit reports had been submitted and accepted. At that
time, the fiscal year 1995 financial statements had been submitted, but
not the single audit reports for fiscal years 1995, 1996, 1997, and
1998.
[72] Department of Education, Office of Inspector General, The Virgin
Islands Is at Risk of Not Meeting the Goals of the September 2002
Compliance Agreement, ED-OIG/A02-D0028 (New York Audit Region: Feb. 15,
2005).
[73] The Virgin Islands Housing Authority (VIHA) is a public housing
corporation established in 1949 with the responsibility for planning,
financing, constructing, maintaining, and managing public housing
development within the territorial boundaries of the U.S. Virgin
Islands (St. Thomas, St. John, and St. Croix).
[74] Annual contributions contracts, made between HUD and a housing
authority, specify what the authority must do to receive funding from
HUD during the contract year. HUD may declare a housing authority in
substantial default or in breach of its annual contributions contract
with HUD.
[75] Although the insular areas receive grants from many federal
agencies, one of the grant-making agencies is designated as the
cognizant agency for purposes of the Single Audit Act. The cognizant
agencies have specific responsibilities under OMB Circular No. A-133.
The cognizant agency is usually the agency that provides the
predominant amount of funding.
[76] Pub. L. No. 97-357, 96 Stat. 1705 (Oct. 19, 1982). The 1982 Act
transferred the functions, powers, and duties once vested in the
government comptroller for Guam (for the islands of Guam and CNMI),
Virgin Islands, and American Samoa to the Inspector General, Department
of the Interior, for the purpose of establishing an organization which
will maintain a satisfactory level of independent audit oversight of
the respective territory government.
[77] All federal awarding agencies are responsible for ensuring that
single audit reports are completed, are in accordance with OMB Circular
No. A-133, and are received in a timely manner. Cognizant agencies,
among other duties, have the additional responsibilities of
coordinating management decisions for audit findings that affect the
audit programs of more than one agency and considering auditee requests
for extensions to the due dates of the reports.
[78] The Pacific Islands Training Initiative (PITI) was established in
1991 through an Interagency Agreement between the Graduate School,
USDA's International Institute, and OIA.
[79] OIA and financial management officials from the insular areas
formed IGFOA in 1999 to promote improved financial management in the
insular areas. All four insular areas belong to the IGFOA and the
organization holds two conferences each year--one conference is held in
one of the insular areas and the other is held right after the
Government Finance Officers Association's annual meeting in the United
States.
[80] Office of Inspector General, U.S. Department of the Interior,
Management Challenges for Insular Area Governments: An Opportunity for
Improvement, No. 2002-I-0017 (Washington, D.C.: March 2002).
[81] The compact states are the Republic of the Marshall Islands,
Republic of Palau, and the Federated States of Micronesia.
[82] Office of Inspector General, U.S. Department of the Interior,
Evaluation Report, Oversight and Follow-up on Audit Findings and
Recommendations, Pertaining to the Insular Area Governments' Use of
Federal Funding, No. 2003-I-0011 (Arlington, Va.: Feb. 28, 2003).
[83] Office of the Inspector General, U.S. Department of the Interior,
Report on Grants Administered by the Office of Insular Affairs, No.
2003-I-0071 (Herndon, Va.: Sept. 30, 2003).
[84] Pub. L. No. 106-531, 114 Stat. 2537 (Nov. 22, 2000).
[85] These annual summaries of the top challenges facing DOI are
published in the department's performance and accountability report.
[86] These numbers exclude the IG's semiannual reports that present the
results and accomplishments of the Office for the previous 6 months and
may include information about the four insular areas. Also excluded are
advisory reports and financial audits of the Department of the
Interior.
[87] As of August 10, 2006, the Territorial Auditor position, the head
of the Office, remained unfilled.
[88] The founding parties to the 1988 MOU were the Public Auditor of
the Federated States of Micronesia, the Public Auditor of the Republic
of Palau, the Public Auditor of the Commonwealth of the Northern
Mariana Islands, the Territorial Auditor of American Samoa, and the
Auditor General of the Republic of the Marshall Islands. APIPA has
expanded to include Public Auditors from Pohnpei, Yap, Chuuk, Kosrae,
Guam, Western Samoa, and USVI.
[89] The IGIA, established in 1999 and reestablished in 2003, is
charged with working with the Secretary of the Interior to identify
insular area issues and to make recommendations to the President
concerning federal government policies and programs. Federal agencies
are to coordinate significant decisions and activities affecting the
insular areas with the IGIA.
[90] If the auditee does not agree with the audit findings or believes
corrective actions are not required, the corrective action plan in the
single audit should include an explanation and specific reasons of why
the plan is not required.
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