U.S. Insular Areas
Interior's Management and Oversight of Insular Area Grants Gao ID: GAO-10-917T July 15, 2010U.S. insular areas face serious economic and fiscal challenges and rely on federal funding to support their governments and deliver critical services. The Department of the Interior, through its Office of Insular Affairs (OIA), provides about $70 million in grants annually, including technical assistance grants, to increase insular area self-sufficiency. In the past, GAO and others have raised concerns regarding insular areas' internal control weaknesses, which increase the risk of grant fund mismanagement, fraud, and abuse. In March 2010, GAO reported on insular area grants (GAO-10-347); this testimony summarizes that report and focuses on (1) whether previously reported internal control weaknesses have been addressed and, if not, to what extent they are prevalent among OIA grant projects, including technical assistance grant projects, as of March 2010; and (2) the extent to which OIA has taken action to improve the implementation and management grant projects, as of March 2010. For the March 2010 report, GAO reviewed a random sample of 173 OIA grant project files and interviewed OIA and insular area officials. For this testimony, GAO conducted additional analysis for the 49 technical assistance grant projects included in the sample. GAO's March 2010 report contained three recommendations. Interior agreed with the recommendations. This testimony statement contains no new recommendations.
Internal control weaknesses previously reported by GAO and others continue to exist, and about 40 percent of grant projects funded through OIA have these weaknesses, which may increase their susceptibility to mismanagement. These weaknesses can be categorized into three types of activities: grant recipient activities, joint activity between grant recipients and OIA, and OIA's grant management activities. For the 49 technical assistance grant projects in GAO's sample, the most prevalent weaknesses were insufficient reporting and record-keeping discrepancies. Over the past 5 years, OIA has taken steps to improve project implementation and management. Most notably, OIA established incentives for financial management improvements and project completion by tying a portion of each insular area's annual allocation to the insular governments' efforts in these areas--such as their efforts to submit financial and status reports on time. In addition, OIA established expiration dates for grants to encourage expeditious use of the funds. Despite these and other efforts, some insular areas are still not completing their projects in a timely and effective manner, and OIA faces key obstacles in compelling them to do so. Specifically, (1) current OIA grant procedures provide few sanctions for delayed or inefficient projects, and the office is not clear on its authorities to modify its policies; (2) resource constraints impede effective project completion and proactive monitoring and oversight; (3) inconsistent and insufficiently documented project redirection policies do little to discourage insular areas from redirecting grant funds in ways that hinder project completion; and (4) OIA's current data system for tracking grants is limited and lacks specific features that could allow for more efficient grant management.
GAO-10-917T, U.S. Insular Areas: Interior's Management and Oversight of Insular Area Grants
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Testimony:
Before the Subcommittee on Insular Affairs, Oceans and Wildlife,
Committee on Natural Resources, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 2:00 p.m. EDT:
Thursday, July 15, 2010:
U.S. Insular Areas:
Interior's Management and Oversight of Insular Area Grants:
Statement of Anu K. Mittal, Director:
Natural Resources and Environment:
GAO-10-917T:
GAO Highlights:
Highlights of GAO-10-917T, a testimony before the Subcommittee on
Insular Affairs, Oceans and Wildlife, Committee on Natural Resources,
House of Representatives.
Why GAO Did This Study:
U.S. insular areas face serious economic and fiscal challenges and
rely on federal funding to support their governments and deliver
critical services. The Department of the Interior, through its Office
of Insular Affairs (OIA), provides about $70 million in grants
annually, including technical assistance grants, to increase insular
area self-sufficiency. In the past, GAO and others have raised
concerns regarding insular areas‘ internal control weaknesses, which
increase the risk of grant fund mismanagement, fraud, and abuse.
In March 2010, GAO reported on insular area grants (GAO-10-347); this
testimony summarizes that report and focuses on (1) whether previously
reported internal control weaknesses have been addressed and, if not,
to what extent they are prevalent among OIA grant projects, including
technical assistance grant projects, as of March 2010; and (2) the
extent to which OIA has taken action to improve the implementation and
management grant projects, as of March 2010.
For the March 2010 report, GAO reviewed a random sample of 173 OIA
grant project files and interviewed OIA and insular area officials.
For this testimony, GAO conducted additional analysis for the 49
technical assistance grant projects included in the sample.
GAO‘s March 2010 report contained three recommendations. Interior
agreed with the recommendations. This testimony statement contains no
new recommendations.
What GAO Found:
Internal control weaknesses previously reported by GAO and others
continue to exist, and about 40 percent of grant projects funded
through OIA have these weaknesses, which may increase their
susceptibility to mismanagement. These weaknesses can be categorized
into three types of activities: grant recipient activities, joint
activity between grant recipients and OIA, and OIA‘s grant management
activities. As shown in the table below, for the 49 technical
assistance grant projects in GAO‘s sample, the most prevalent
weaknesses were insufficient reporting and record-keeping
discrepancies.
Table: Prevalence of GAO-identified Internal Control Weaknesses for 49
Technical Assistance Grant Projects Included in GAO‘s Sample of 173
OIA Grant Project Files:
Internal control weakness: Grant recipient activities: Failure to
submit required status reports in full and on time;
Number of grant projects with internal control weakness[A]: 42 out of
49.
Internal control weakness: Grant recipient activities: Failure to
submit required final reports on time (closed grants only);
Number of grant projects with internal control weakness[A]: 16 out of
30.
Internal control weakness: Grant recipient activities: Projects‘
expected or actual completion date fall after grant expiration;
Number of grant projects with internal control weakness[A]: 8 out of
49.
Internal control weakness: Grant recipient activities: Drawing down
funds faster than project progress (open grants only);
Number of grant projects with internal control weakness[A]: 0 out of
19.
Internal control weakness: Joint activity between grant recipients and
OIA: Redirection of project funds;
Number of grant projects with internal control weakness[A]: Not
applicable.
Internal control weakness: OIA grant management activities:
Information in grant management database does not match grant file;
Number of grant projects with internal control weakness[A]: 39 out of
49.
Internal control weakness: OIA grant management activities: Unexpended
funds are not deobligated (closed grants only);
Number of grant projects with internal control weakness[A]: 0 out of
30.
Internal control weakness: OIA grant management activities: Field
representatives perform less than half of all site visits;
Number of grant projects with internal control weakness[A]: Not
applicable.
Source: GAO analysis of OIA documents.
[A] Results based on GAO‘s independent review of 49 technical
assistance grant project files.
[End of table]
Over the past 5 years, OIA has taken steps to improve project
implementation and management. Most notably, OIA established
incentives for financial management improvements and project
completion by tying a portion of each insular area‘s annual allocation
to the insular governments‘ efforts in these areas”such as their
efforts to submit financial and status reports on time. In addition,
OIA established expiration dates for grants to encourage expeditious
use of the funds. Despite these and other efforts, some insular areas
are still not completing their projects in a timely and effective
manner, and OIA faces key obstacles in compelling them to do so.
Specifically, (1) current OIA grant procedures provide few sanctions
for delayed or inefficient projects, and the office is not clear on
its authorities to modify its policies; (2) resource constraints
impede effective project completion and proactive monitoring and
oversight; (3) inconsistent and insufficiently documented project
redirection policies do little to discourage insular areas from
redirecting grant funds in ways that hinder project completion; and
(4) OIA‘s current data system for tracking grants is limited and lacks
specific features that could allow for more efficient grant management.
View [hyperlink, http://www.gao.gov/products/GAO-10-917T] or key
components. For more information, contact Anu K. Mittal at (202) 512-
3481 or mittala@gao.gov.
[End of section]
Madam Chairwoman and Members of the Subcommittee:
I am pleased to be here today to participate in your hearing to
discuss technical assistance grants to the U.S. insular areas. U.S.
insular areas--which include American Samoa, the Commonwealth of the
Northern Mariana Islands (CNMI), Guam, the U.S. Virgin Islands (USVI),
and three Freely Associated States (the Federated States of
Micronesia, Palau, and the Republic of the Marshall Islands)--face
serious economic and fiscal challenges. Consequently, these insular
areas, some of which are under U.S. sovereignty, and some of which are
independent nations that have signed Compacts of Free Association with
the United States, rely on federal funding to support their
governments and deliver critical services. The Department of the
Interior, through its Office of Insular Affairs (OIA), provides
approximately $400 million annually in financial assistance to insular
area governments--roughly $70 million of which is awarded annually as
grants to insular areas for capital improvement projects, operations
and maintenance improvement projects, technical assistance, and other
purposes, to increase the self-sufficiency of the insular areas. For
example, technical assistance grants are used to conduct feasibility
studies or train government staff.
Although OIA grants are essential in supporting insular areas'
economies, we and others--including Interior's Office of Inspector
General--have had long-standing concerns with insular area
governments' internal control weaknesses, which increase the risk of
fraud, waste, abuse, and mismanagement.[Footnote 1] These internal
control weaknesses have been documented in several reports between
2000 and 2009. Internal control is an integral component of an
organization's management that provides reasonable assurance that
operations are effective and efficient, financial reporting is
reliable, and applicable laws and regulations are complied with.
Internal control also serves as the first line of defense in
safeguarding assets and preventing and detecting errors and fraud.
Under the federal standards for internal control, federal agencies are
to employ internal control activities--the policies, procedures,
techniques, and mechanisms that enforce management's directives--that
are integral to the accountability for stewardship of government
resources and achieving effective results, and help ensure that
actions are taken to address risks.[Footnote 2] Examples of such
internal control activities include accurate and timely recording of
transactions and events and controls over information processing. If
federal agencies do not use effective internal control activities, or
have weaknesses in their internal controls, they can increase the risk
of potential mismanagement or misuse and waste of grant funds.
My testimony is based on our recent March 2010 report, in which we
reviewed OIA's grant management and oversight.[Footnote 3] Based on
that report, I will discuss (1) whether long-standing internal control
weaknesses have been addressed and, if not, to what extent they were
prevalent among OIA grant projects, including technical assistance
grant projects, as of March 2010; and (2) the extent to which OIA has
taken actions to improve grant project implementation and management,
as of March 2010.
For our March 2010 report, we focused on insular areas that receive
noncompact grants--including American Samoa, the CNMI, Guam, the USVI,
and the Freely Associated States.[Footnote 4] We reviewed OIA's
policies, procedures, and other documents as well as best practices in
grant management. We interviewed OIA grant managers and division
directors regarding OIA's policies and procedures and grant
management. In addition, we also reviewed a random sample of 173 grant
project files to determine whether and the extent to which internal
control weaknesses are still prevalent. We were able to project our
sample results to the 1,771 OIA grant projects in the grant management
database as of April 27, 2009. For this testimony, using the data from
our random sample of 173 grant project files, we identified 49
technical assistance grants and conducted additional analyses.
[Footnote 5]
For the March report, we conducted our audit work from March 2009 to
March 2010, in accordance with generally accepted government auditing
standards. Appendix I of our report contains a detailed description of
our scope and methodology.
Background:
U.S. insular areas receive hundreds of millions of dollars in federal
grants from a variety of federal agencies, including the Departments
of Agriculture, Education, Health and Human Services, Homeland
Security, the Interior, Labor, and Transportation. The Secretary of
the Interior has administrative responsibility over the insular areas
for all matters that do not fall within the program responsibility of
another federal department or agency. OIA, established in 1995, is
responsible for carrying out the Secretary's responsibilities for U.S.
insular areas.[Footnote 6] OIA's mission is to promote the self-
sufficiency of the insular areas by providing financial and technical
assistance, encouraging private sector economic development, promoting
sound financial management practices in the insular governments, and
increasing federal responsiveness to the unique needs of the island
communities.
Much of the assistance that OIA administers to insular areas is in the
form of what it considers mandatory assistance, including compact
assistance,[Footnote 7] permanent payments to U.S. territories,
American Samoa operations funding, and capital improvement project
grants. OIA also administers discretionary assistance through, for
example, technical assistance grants and operations and maintenance
improvement program grants. The administration and management of OIA
grants is guided by OIA's Financial Assistance Manual. OIA grants
other than compact assistance are subject to Interior's Grants
Management Common Rule,[Footnote 8] relevant Office of Management and
Budget (OMB) circulars,[Footnote 9] and specific terms and conditions
that OIA outlines in each grant agreement, such as semiannual
narrative and financial reporting and grant expiration dates.
Within OIA, two divisions are largely responsible for grant
administration and management--the Technical Assistance Division and
the Budget and Grants Management Division. The Technical Assistance
Division, which administers general technical assistance grants in
addition to several other types of technical assistance, has a
director and two grant managers. The Budget and Grants Management
Division, which covers capital improvement project and operations and
maintenance improvement program grants, has a director and three grant
managers.[Footnote 10] A third OIA division--the Policy and Liaison
Division--also provides some staff for grant-related tasks, including
staff that focus on OIA's accountability and audit responsibilities.
[Footnote 11] The majority of OIA's budget is directed to compact
assistance and permanent fiscal payments (see table 1). About 2
percent of OIA's budget is dedicated to administrative costs, leaving
less than 16 percent for noncompact grants and technical assistance.
Table 1: Breakdown of the Office of Insular Affairs' Fiscal Year 2010
Budget:
Component of OIA's budget: Compact of Free Association;
Dollars in thousands: $218,289;
Percentage of OIA budget: 45.4%.
Component of OIA's budget: Permanent fiscal payments[A];
Dollars in thousands: $177,000;
Percentage of OIA budget: 36.8%.
Component of OIA's budget: Office of Insular Affairs (administrative);
Dollars in thousands: $9,280;
Percentage of OIA budget: 1.9%.
Component of OIA's budget: Noncompact grants and technical assistance:
American Samoa operations;
Dollars in thousands: $22,752;
Percentage of OIA budget: 4.7%.
Component of OIA's budget: Noncompact grants and technical assistance:
Capital improvement project grants (covenant grants);
Dollars in thousands: $27,720;
Percentage of OIA budget: 5.8%.
Component of OIA's budget: Noncompact grants and technical assistance:
Operations and maintenance improvement program grants;
Dollars in thousands: $2,241;
Percentage of OIA budget: 0.5%.
Component of OIA's budget: Noncompact grants and technical assistance:
Technical assistance grants;
Dollars in thousands: $21,202;
Percentage of OIA budget: 4.4%.
Component of OIA's budget: Noncompact grants and technical assistance:
Guam infrastructure grants;
Dollars in thousands: $2,000;
Percentage of OIA budget: 0.4%.
Component of OIA's budget: Subtotal;
Dollars in thousands: $75,915;
Percentage of OIA budget: 15.8%.
Component of OIA's budget: Total;
Dollars in thousands: $480,484;
Percentage of OIA budget: 100%[B].
Source: OIA budget justification and performance information, fiscal
year 2011.
[A] Permanent fiscal payments include payments to Guam (section 30
income taxes) and the U.S. Virgin Islands (rum excise taxes).
[B] Column does not add up to 100 percent due to rounding.
[End of table]
Among the random sample of 173 OIA grant project files that we
reviewed in our March 2010 report, we identified 49 OIA technical
assistance grant projects from a variety of technical assistance grant
types (see table 2).
Table 2: Breakdown of the 49 Technical Assistance Grant Projects
Included in GAO's March 2010 Report by Type of Technical Assistant
Grant Project and Whether the Grant Project Was Open or Closed as of
April 27, 2009:
Type of technical assistance grant project: General technical
assistance;
Description of grant type: To foster insular area development
economically or in other areas such as training and education, energy,
safety and health;
Number of open technical assistance grant projects: 7;
Closed technical assistance grant projects: Number: 14;
Closed technical assistance grant projects: Time span: 2004-2009.
Type of technical assistance grant project: Brown treesnake control;
Description of grant type: To control ecological and economic damage
caused by the brown treesnake on Guam and prevent dispersal to other
islands, such as the State of Hawaii;
Number of open technical assistance grant projects: 1;
Closed technical assistance grant projects: Number: 1;
Closed technical assistance grant projects: Time span: 2003-2007.
Type of technical assistance grant project: Coral reef initiative;
Description of grant type: To promote sound management and
conservation of coral reefs in insular areas;
Number of open technical assistance grant projects: 7;
Closed technical assistance grant projects: Number: 3;
Closed technical assistance grant projects: Time span: 2006-2008.
Type of technical assistance grant project: Insular management
controls;
Description of grant type: To promote and develop insular institutions
and capabilities that improve financial management and accountability;
Number of open technical assistance grant projects: 1;
Closed technical assistance grant projects: Number: 2;
Closed technical assistance grant projects: Time span: 2006-2008.
Type of technical assistance grant project: Single Audit;
Description of grant type: To assist insular areas in the preparation
of annual Single Audit reports;
Number of open technical assistance grant projects: 1;
Closed technical assistance grant projects: Number: 0;
Closed technical assistance grant projects: Time span: Not applicable.
Type of technical assistance grant project: Other technical assistance;
Description of grant type: To address other technical assistance needs
of insular areas, such as water and wastewater;
Number of open technical assistance grant projects: 2;
Closed technical assistance grant projects: Number: 10;
Closed technical assistance grant projects: Time span: 2003-2008.
Type of technical assistance grant project: Total;
Number of open technical assistance grant projects: 19;
Closed technical assistance grant projects: Number: 30;
Closed technical assistance grant projects: Time span: 2003-2009.
Source: GAO and OIA.
[End of table]
The 49 technical assistance grant projects that we reviewed in our
March 2010 report, were geographically dispersed among the insular
areas and the State of Hawaii (see table 3).[Footnote 12]
Table 3: Distribution of the 49 Technical Assistance Grant Projects in
GAO's March 2010 Report by Location:
Location: Commonwealth of the Northern Mariana Islands (CNMI);
Number of technical assistance grant projects included in our sample:
17.
Location: Palau;
Number of technical assistance grant projects included in our sample:
9.
Location: Federated States of Micronesia;
Number of technical assistance grant projects included in our sample:
5.
Location: Guam;
Number of technical assistance grant projects included in our sample:
4.
Location: U.S. Virgin Islands (USVI);
Number of technical assistance grant projects included in our sample:
3.
Location: American Samoa;
Number of technical assistance grant projects included in our sample:
2.
Location: Republic of the Marshall Islands;
Number of technical assistance grant projects included in our sample:
2.
Location: State of Hawaii;
Number of technical assistance grant projects included in our sample:
2.
Location: Other[A];
Number of technical assistance grant projects included in our sample:
5.
Location: Total;
Number of technical assistance grant projects included in our sample:
49.
Source: GAO.
[A] Location is described as "Other" when funds are granted to a non-
governmental entity, such as a non-profit or multinational
organization.
[End of table]
Nearly 40 Percent of OIA Grant Projects Have Internal Control
Weaknesses That Could Increase Susceptibility to Mismanagement:
On the basis of our review of grant files from a random sample of
grant projects,[Footnote 13] we determined that the long-standing
internal control weaknesses that we, Interior's Office of Inspector
General, and others, identified between 2000 and 2009 still exist. We
estimated that 39 percent of the 1,771 grant projects in OIA's grant
management database demonstrate at least one internal control weakness
that may increase the projects' susceptibility to mismanagement.
[Footnote 14] Of the 49 technical assistance grant projects in our
sample, 47 grant projects demonstrated one or more of the internal
control weaknesses that we assessed, which is more than double our
estimated 39 percent occurrence rate for OIA grants as a whole.
The eight internal control weaknesses that we assessed can be grouped
into three categories based on the entity responsible for the
activities: grant recipient activities, OIA grant management
activities, or joint activities between grant recipients and OIA.
Table 4 shows (1) how often we estimated each internal control
weakness would occur within the universe of OIA grants based on our
random sample, and (2) specific data on the 49 technical assistance
grants included in our sample. The most prevalent weaknesses for the
49 technical assistance grant projects were insufficient reporting and
record-keeping discrepancies.
Table 4: Internal Control Weaknesses Present in OIA Grant Projects:
Internal control weakness: Grant recipient activities: Failure to
submit required status reports in full and on time;
Estimated percentage of projects with internal control weakness for
all grant types from our March 2010 report[A]: 60;
Number of technical assistance grant projects in our sample with
internal control weakness[B]: 42 out of 49.
Internal control weakness: Grant recipient activities: Failure to
submit required final reports on time (closed grants);
Estimated percentage of projects with internal control weakness for
all grant types from our March 2010 report[A]: 58[C];
Number of technical assistance grant projects in our sample with
internal control weakness[B]: 16 out of 30.
Internal control weakness: Grant recipient activities: Projects'
expected or actual completion dates fall after grant expiration;
Estimated percentage of projects with internal control weakness for
all grant types from our March 2010 report[A]: 19;
Number of technical assistance grant projects in our sample with
internal control weakness[B]: 8 out of 49.
Internal control weakness: Grant recipient activities: Drawing down
funds faster than project progress (open grants);
Estimated percentage of projects with internal control weakness for
all grant types from our March 2010 report[A]: 0;
Number of technical assistance grant projects in our sample with
internal control weakness[B]: 0 out of 19.
Internal control weakness: Joint activity between grant recipients and
OIA: Redirection of project funds[D];
Estimated percentage of projects with internal control weakness for
all grant types from our March 2010 report[A]: 30;
Number of technical assistance grant projects in our sample with
internal control weakness[B]: Not applicable.
Internal control weakness: OIA grant management activities:
Information in grant management database does not match grant file[E];
Estimated percentage of projects with internal control weakness for
all grant types from our March 2010 report[A]: 41;
Number of technical assistance grant projects in our sample with
internal control weakness[B]: 39 out of 49.
Internal control weakness: OIA grant management activities: Field
representatives perform less than half of all site visits[D];
Estimated percentage of projects with internal control weakness for
all grant types from our March 2010 report[A]: 10;
Number of technical assistance grant projects in our sample with
internal control weakness[B]: Not applicable.
Internal control weakness: OIA grant management activities: Unexpended
funds are not deobligated (closed grants);
Estimated percentage of projects with internal control weakness for
all grant types from our March 2010 report[A]: 0;
Number of technical assistance grant projects in our sample with
internal control weakness[B]: 0 out of 30.
Source: GAO analysis of OIA documents.
Notes: Unless otherwise specified, internal control weaknesses apply
to both open and closed grant projects. For additional information on
how we selected the internal control weaknesses and assessed grant
projects for the presence of those weaknesses see appendix I of our
March 2010 report, U.S. Insular Areas: Opportunities Exist to Improve
Interior's Grant Oversight and Reduce the Potential for Mismanagement,
GAO-10-347 (Washington, D.C.: Mar. 16, 2010).
[A] Not all internal control weaknesses apply to every grant project.
For example, we could only assess the field representative-related
internal control weakness for grants awarded to the two insular areas
with field representatives--American Samoa and the CNMI. Our data
analysis takes the applicability of the internal control weaknesses
into account. As a result, numbers reported for individual weaknesses
apply only to the relevant subset of projects. These percentage
estimates from the file review have margins of error at the 95 percent
confidence level within plus or minus 10 percentage points or less,
unless otherwise noted:
[B] We cannot make precise generalizable estimates for technical
assistance grant projects based on the results for the 49 technical
assistance grant project files we reviewed as part of our sample.
[C] The confidence interval for this estimate is within +/-11 percent.
[D] Two of the eight internal control weaknesses that we assessed are
not applicable to technical assistance grant projects: (1) redirection
of project funds is not allowed in discretionary technical assistance
grants; and (2) field representative site visits are not formally used
for technical assistance grant projects.
[E] The database contains at least one piece of information that does
not match corresponding information in the grant file.
[End of table]
Table 5 shows how many internal control weaknesses were demonstrated
by the 49 technical assistance grant projects in our sample.
Table 5: Number of Internal Control Weaknesses Present in 49 OIA
Technical Assistance Grant Projects:
Number of internal control weaknesses: 5;
Number of open technical assistance grant projects: Not applicable;
Number of closed technical assistance grant projects: 0.
Number of internal control weaknesses: 4;
Number of open technical assistance grant projects: 0;
Number of closed technical assistance grant projects: 5.
Number of internal control weaknesses: 3;
Number of open technical assistance grant projects: 0;
Number of closed technical assistance grant projects: 12.
Number of internal control weaknesses: 2;
Number of open technical assistance grant projects: 12;
Number of closed technical assistance grant projects: 7.
Number of internal control weaknesses: 1;
Number of open technical assistance grant projects: 5;
Number of closed technical assistance grant projects: 6.
Number of internal control weaknesses: 0;
Number of open technical assistance grant projects: 2;
Number of closed technical assistance grant projects: 0.
Number of internal control weaknesses: Total;
Number of open technical assistance grant projects: 19;
Number of closed technical assistance grant projects: 30.
Source: GAO analysis of OIA documents.
Note: Of the eight internal control weaknesses that we identified in
our March 2010 report, five are applicable to closed technical
assistance grant projects and four are applicable to open technical
assistance grant projects.
[End of table]
For example, one general technical assistance grant project that we
reviewed in detail--the 2005 grant for the USVI Household Income and
Expenditures Survey (HIES) project--had 4 out of 5 applicable internal
control weaknesses. In 2005, OIA awarded a general technical
assistance grant to the Eastern Caribbean Center (ECC) at the
University of the Virgin Islands for the purpose of collecting data to
update important economic and demographic indicators for the
territory. Because of funding constraints, OIA was not able to award
the entire amount requested at that time. In addition, OIA later
reduced its financial support of the project after data collection was
underway, thereby reducing the scope of data collection efforts. The
Director of the ECC reported that OIA's decision to reduce available
funding after data collection had begun was disastrous to the
statistical integrity of the survey.
In reviewing this grant project, we found the following four internal
control weaknesses, (1) failure to submit the required status report
in full and on time, (2) failure to submit the required final reports
on time, (3) expected or actual completion dates that occurred after
grant expiration, and (4) information in OIA's grant management
database that did not match information in the grant file.[Footnote
15] These weaknesses and other problems affected project completion in
several ways, including the loss of additional funding that OIA later
awarded. In 2007, OIA granted additional funds for the HIES project to
complete tabulation of the data that had been collected. However,
because so much time had passed since the initial data collection
effort, the Director of the ECC stated that it was not possible to
complete the data collection as originally planned. Due to the lack of
activity with the grant and the fact that no narrative status reports
were submitted, OIA deobligated these additional grant funds in their
entirety in February 2009. The final HIES report also was not
completed until September 2009, more than 4 years after the initial
grant was awarded.
OIA Has Taken Actions to Improve Grant Project Implementation and
Management but Faces Several Obstacles:
OIA has taken several important steps to improve grant project
implementation and management but faces several obstacles in its
efforts to compel insular areas to complete their projects in a timely
and effective manner.
OIA Has Taken Steps to Improve the Implementation and Management of
Grant Projects:
Over the past 5 years, OIA has taken the following steps to improve
grant project implementation and management:
* Competitive allocation system. In fiscal year 2005, OIA implemented
a new competitive allocation system for the $27.7 million in capital
improvement project grants that it administers to the insular areas.
[Footnote 16] This system provides incentives for financial management
improvements and project completion by tying a portion of each insular
area's annual allocation to the insular governments' efforts in these
areas--such as their efforts to submit financial and status reports on
time. Through this system, OIA scores each insular area against a set
of performance-based criteria and increases allocations to those
insular areas with higher scores, thereby lowering allocations to
insular areas with lower scores.
* Grant expiration dates. Beginning in 2005, to encourage expeditious
use of funds, OIA established 5-year expiration dates in the terms and
conditions of new capital improvement project grants. Beginning in
2008, OIA also notified insular area officials of expiration dates for
grant projects that had been ongoing for more than 5 years with no or
limited progress. OIA officials explained that while the expiration
dates have not yet pushed all of the insular areas to complete
projects, they have encouraged some areas to do so. The officials also
stated that the expiration dates have helped OIA grant managers
administer and manage grants--which they believe has improved
accountability--and have been useful for insular area grantees whose
agencies have high staff turnover and were unaware of the status of
older grants. Technical assistance projects have shorter grant terms
than capital improvement projects, with expiration dates within 1 to 2
years; we found that OIA extended the grant expiration date at least
once for 18 of the 49 technical assistance grant projects in our
sample.
* Actions to improve insular area grant management continuity. OIA has
also taken steps to help with the continuity of grant administration
at the insular level. For example, in March 2008, OIA awarded a
$770,000 grant for capital improvement project administration in the
CNMI, which provided funding for positions in the local central grant
management office in that insular area. According to the grant manager
for CNMI capital improvement projects, the grant was given to help
ensure that the central grant management office had the staff
necessary to help move implementation of projects forward.
Several Obstacles to Timely and Effective Project Completion Remain:
Despite OIA's efforts, some insular areas are still not completing
their projects in a timely and effective manner, and OIA faces the
following key obstacles in compelling them to do so:
* Lack of sanctions for delayed or inefficient projects. Current OIA
grant procedures provide few sanctions for delayed or inefficient
projects. For example, although OIA established grant expiration
dates, they have little practical effect. In theory, a grant
expiration date encourages timely completion of a project because if a
project is not completed on time, the funds are taken away from the
recipient. However, if an insular area's OIA grant funds expire, while
the funds do not remain immediately available for the project, the
insular area does not lose the funds because OIA treats its capital
improvement project grants as mandatory funding with "no-year funds,"
based on the agency's interpretation of relevant laws.[Footnote 17]
Thus, after a grant expires, OIA deobligates the funds and they are
returned to the insular area's capital improvement project account to
be reobligated for the same or other projects. Recently, OIA has taken
steps to identify possible solutions and actions that could help
provide effective sanctions for insular areas that do not efficiently
complete projects and expend funds. In doing so, OIA has faced
uncertainty regarding the authorities it has to change its current
policies and practices, which are guided by many special agreements,
laws, and regulations.
* OIA resource constraints. OIA officials report that resource
constraints impede effective project completion and proactive
monitoring and oversight. Although they could not provide us with
data, numerous officials in OIA asserted that heavy workloads are a
key challenge in managing grants. The effects of insufficient
resources vary across grant type but include impacts on the ability to
maintain files, adopt a proactive oversight approach that could aid
project completion, conduct more detailed financial reviews of
projects, and conduct site visits to more projects to better ensure
that mismanagement is detected. Importantly, although grant managers
for capital improvement projects noted that the most effective action
they can take to move projects along is to conduct site visits, they
also asserted that their current workloads only afford one visit per
year. Despite their concurrence that additional resources are needed,
OIA division directors confirmed that they have not formally
communicated these needs to decision makers, or higher levels within
Interior, and have not developed a workforce plan or other formal
process that demonstrates a need for additional resources. Moreover,
OIA does not track workload measures, such as the number of grants
handled by each grant manager, to show changes over time that would
help justify the need for additional resources.
* Inconsistent and insufficiently documented project redirection
policies. OIA's current project redirection approval practices do
little to discourage insular areas from redirecting project funds in
ways that hinder project completion. We found that insular areas shift
priorities and frequently redirect grant project funds, which in some
cases expedites project completion and in other cases impedes it.
Currently, OIA's policies for granting project redirection requests
vary across insular areas. Specifically, in American Samoa, project
redirection is limited to changes within a priority category because
the insular area's grants are issued by priority areas.[Footnote 18]
In contrast, the other insular areas each receive grants as one
capital improvement grant and are able to redirect money between
projects with widely different purposes. Furthermore, OIA's policies
for granting project redirection requests are also not well-
documented. Project redirection is a particular concern in instances
where a project starts and federal money is expended but the project
is never completed, leading to the waste of both federal resources and
the local governments' limited technical capacity to implement
projects.
* Inefficient grant management system. OIA's current data system for
tracking grants is limited in the data elements it contains, leading
to inconsistencies in the data that some grant managers rely on for
monitoring and oversight activities. Grant managers vary in the degree
to which they rely upon OIA's database, as well as the priority they
place on keeping information in the database up to date. While grant
managers for all grant types reported relying on the database for
information on the amount of funds drawn down from grants and for
responding to requests for data from outside parties (such as
Interior's Office of Inspector General and GAO), some told us that
they do not find OIA's database useful and therefore maintain their
own separate spreadsheets to track some information, including
expiration dates, grant status, and receipt dates for the most recent
financial and narrative reports. As reported in the Domestic Working
Group's Guide to Opportunities for Improving Grant Accountability,
consolidating information systems can enable agencies to better manage
grants.[Footnote 19] Along these lines, Interior is currently phasing
in a centralized agencywide system--the Financial and Business
Management System--that is scheduled to be implemented in OIA in 2011.
Our March 2010 report contained three recommendations to the Secretary
of the Interior designed to improve the department's management and
oversight of grants to the insular areas,[Footnote 20] including one
that would directly impact OIA's technical assistance grant programs.
Specifically, we recommended that the Secretary of the Interior direct
OIA to create a workforce plan and reflect in its plan the staffing
levels necessary to adopt a proactive monitoring and oversight
approach. Such proactive monitoring and oversight would apply to all
of OIA's grant programs, including the technical assistance programs.
OIA agreed with our report and told us that it will implement these
recommendations.
In conclusion, Madam Chairwoman, OIA has made important strides in
implementing grant reforms, particularly in its efforts to establish
disincentives for insular areas that do not complete grant projects in
a timely and effective manner. However, the unique characteristics and
situations facing insular area governments, and the need to mindfully
balance respect for insular governments' self-governance and political
processes with the desire to promote efficiency in grant project
implementation, limit as a practical matter some of the actions that
OIA can take to improve the implementation of grant projects.
Nonetheless, OIA has not exhausted all of its available opportunities
to better oversee grants and reduce the potential for mismanagement
and we will continue to monitor its implementation of our
recommendations.
Madam Chairwoman, this concludes my prepared statement. I would be
pleased to answer any questions that you or other Members of the
Subcommittee may have at this time.
GAO Contact and Staff Acknowledgments:
For further information about this testimony, please contact Anu K.
Mittal at (202) 512-3841 or mittala@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this statement. Individuals making key contributions
to this testimony include Jeffery D. Malcolm and Emil Friberg,
Assistant Directors; Elizabeth Beardsley; Keesha Egebrecht; and
Isabella Johnson.
[End of section]
Footnotes:
[1] GAO, U.S. Insular Areas: Economic, Fiscal, and Financial
Accountability Challenges, [hyperlink,
http://www.gao.gov/products/GAO-07-119] (Washington, D.C.: Dec. 12,
2006). Department of the Interior, Office of Inspector General, Report
on Grants Administered by the Office of Insular Affairs, Report No.
2003-I-0071 (Washington, D.C.: September 2003).
[2] In assessing the adequacy of internal controls, we used the
criteria in GAO's Standards for Internal Control in the Federal
Government, [hyperlink,
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.:
November 1999). These standards, issued pursuant to the requirements
of the Federal Managers' Financial Integrity Act of 1982 (FMFIA),
provide the overall framework for establishing and maintaining
internal control in the federal government. Also pursuant to FMFIA,
the Office of Management and Budget issued Circular A-123, revised
December 21, 2004, to provide the specific requirements for assessing
the reporting on internal controls. Internal control standards and the
definition of internal control in Circular A-123 are based on GAO's
Standards for Internal Control in the Federal Government.
[3] U.S. Insular Areas: Opportunities Exist to Improve Interior's
Grant Oversight and Reduce the Potential for Mismanagement, GAO-10-347
(Washington, D.C.: Mar. 16, 2010).
[4] Noncompact grants include those provided for capital improvement
projects, operations and maintenance improvement projects, technical
assistance and other purposes. The seven insular areas listed above
receive at least some noncompact grant funding. Compact funding is the
assistance the United States provides to the Federated States of
Micronesia, the Republic of the Marshall Islands, and Palau through
Compacts of Free Association. We specifically excluded compact funds
from this review because GAO is required to review and report on the
effectiveness of U.S. oversight of compact funds on a regular basis.
For example, we recently reported on compact assistance to the
Federated States of Micronesia and the Republic of the Marshall
Islands. See GAO, Compacts of Free Association: Micronesia and the
Marshall Islands Face Challenges in Planning for Sustainability,
Measuring Progress, and Ensuring Accountability, [hyperlink,
http://www.gao.gov/products/GAO-07-163] (Washington, D.C.: Dec. 15,
2006).
[5] Our random sample of 173 grant project files included 49 technical
assistance grant projects. The sample was designed to make
generalizable estimates about the entire population of OIA grant
projects; however, because the number of technical assistance grant
projects in the sample was small, we did not use the data from these
grant projects to make precise generalizable estimates about technical
assistance grant projects.
[6] Interior underwent restructuring in 1995. It eliminated the Office
of Territorial and International Affairs, which previously carried out
Interior's insular responsibilities, and created the Office of Insular
Affairs.
[7] Compact funding is the assistance the United States provides to
the Federated States of Micronesia, the Republic of the Marshall
Islands, and Palau through Compacts of Free Association.
[8] 43 C.F.R. part 12.
[9] OIA grants, as applicable, are subject to OMB Circulars A-102,
"Grants and Cooperative Agreements with State and Local Governments";
A-110, "Grants and Other Agreements with Institutions of Higher
Education, Hospitals, and Other Non-Profit Organizations"; A-87, "Cost
Principles for State and Local Governments"; A-21, "Cost Principles
for Educational Institutions"; A-122, "Cost Principles for Non-Profit
Organizations"; and A-133, "Audits of States, Local Governments, and
Non-Profit Organizations."
[10] In addition, the division maintains an office in Hawaii for
compact oversight in the Federated States of Micronesia and the
Republic of the Marshall Islands and has a field presence in the CNMI,
the Federated States of Micronesia, Palau, and the Republic of the
Marshall Islands.
[11] The division maintains a field presence in American Samoa and the
CNMI.
[12] Interior is authorized to provide technical assistance--research,
planning assistance, studies, and demonstration projects--to the
insular areas through OIA staff time, reimbursements to other federal
agencies, grants to or cooperative agreements with state or local
governments, or the employment of private individuals or companies. In
some instances, OIA may provide such technical assistance through work
that is conducted at locations, such as Hawaii, other than insular
areas.
[13] We reviewed a random sample of 173 OIA grant projects, selected
from 1,771 grant projects in OIA's grant management database as of
April 27, 2009. Our sample included 49 technical assistance grants.
[14] All percentage estimates for the entire universe of OIA grant
projects have margins of error at the 95 percent confidence level
within plus or minus 10 percentage points or less, unless otherwise
noted.
[15] Information refers to one or more database elements.
[16] The Section 702 Funding Agreement between the Government of the
United States and the Government of the CNMI, entered June 21, 2004,
established a system for OIA's allocation of capital improvement
project funds among the eligible territories and provided that a
portion of such funds would be allocated using competitive criteria.
Previous agreements between the governments regarding the capital
improvement project funds did not allow for such a process but set
fixed amounts.
[17] A "no-year" appropriation is one that is available for obligation
for an indefinite period, such as those funds appropriated as
available until expended.
[18] OIA's unique policy for American Samoa stems in part from the law
authorizing capital improvement project grants, which places
particular conditions, such as the requirement for a master plan
identifying priorities, on grants to this insular area.
[19] Domestic Working Group, Grant Accountability Project, Guide to
Opportunities for Improving Grant Accountability (October 2005).
[20] [hyperlink, http://www.gao.gov/products/GAO-10-347].
[End of section]
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