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GAO Details Use of Sector Funding by Marshalls and Micronesia
The Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) have prioritized education, health, and related infrastructure projects, but progress is hampered by land constraints and other issues in both countries, according to a report released Friday by the U.S. General Accounting Office.

The new report follows-up on the GAO's December 2006 report on the challenges facing the two Freely Associated States in "planning for sustainability, measuring progress, and ensuring accountability,". Political disagreements, inability to secure land leases, and lack of planning for long-term sustainability affected the RMI's and FSM's use of U.S. sector grants from 2004 to 2006.


    * GAO - Compacts of Free Association: Micronesia's and the Marshall Islands' Use of Sector Grants


The report, entitled "Compacts of Free Association: Micronesia's and the Marshall Islands' Use of Sector Grants", focuses on each of the six development sectors. The GAO addresses the sector grant goals, the uses of the funding, and the challenges that affected, or may effect the use of the grant. It details uses of economic assistance provided under the amended U.S. compacts with the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) from 2004 through 2006.

BACKGROUND

Under the amended compact's subsidiary fiscal procedures agreements (FPA), the FSM and RMI governments are required "to monitor the day-to-day operations of sector grants and activities, submit periodic performance reports and financial statements, and ensure annual financial and compliance audits." Both nations are also required to submit annual audits within the meaning of the Single Audit Act, as amended.

With the 2003 compact, came the formation of the U.S. and FSM Joint Economic Management Committee (JEMCO) and the U.S. and RMI Joint Economic Management and Financial Accountability Committee (JEMFAC), which are responsible to:


      - meet at least once annually to evaluate the progress of the FSM and the RMI,
      respectively, in achieving the objectives specified in their development plans;
      - approve grant allocations;
      - review required annual reports;
      - identify problems encountered; and
      - recommend ways to increase the effectiveness of compact grant assistance.

FINDINGS

The six sectors reviewed were Education, Infrastructure, Health, Public Sector Capacity Building, Private Sector Development, and Environment. A brief summary of the findings, as provided in the introductory correspondence to the U.S. House Committees, follows:


      - Education. The FSM and RMI priorities for education sector grants under the
      amended compacts are to advance a quality basic education system. However,
      both countries face numerous challenges to improving their education sectors
      such as lack of qualified teachers, teacher and student absenteeism, and poor
      or inadequate classroom facilities. In addition, because a disagreement
      between U.S. agencies and the FSM and the RMI governments over some of
      the proposed uses of the SEG, these grants did not become available until late
      in 2005 and 2006.

      - Infrastructure. Both the FSM and the RMI have prioritized use of the
      infrastructure grant for education- and health-related projects, in accordance
      with their respective fiscal procedures agreement. However, as of November
      2006, only the RMI had used infrastructure funds to build several projects. The
      FSM had not yet built any projects and has more than $58 million in available
      funds, although it had made some progress in initiating projects. In the FSM,
      progress was hampered by undefined procurement processes and building
      standards, disagreement within the FSM about project management,
      unresolved land issues, inadequate long-term planning, lack of funding for
      maintenance, and lack of technical capacity. Similarly, in the RMI, unresolved
      land issues and a lack of planning, technical capacity, stakeholder buy-in, and
      maintenance also present challenges.

      - Health. The FSM and RMI priorities for health sector grants under the
      amended compacts to improve the delivery of health care services. In both the
      FSM and the RMI, the health sector received the third largest sector grant. In
      the FSM, even with the focus on primary health care, only 10 percent of the
      states' health care budgets targeted this goal. Additionally, there has been
      little progress made to improve the quality of care provided in hospitals in the
      four FSM states. In the RMI, funding has not followed strategic goals, and the
      RMI faces numerous challenges to health care service improvements including
      lack of technical capacity, increased prevalence of lifestyle disease, and
      unsustainable spending.

      - Public sector capacity building. Under the amended compacts, public sector
      capacity building (PSCB) grants are intended to support the efforts of the
      FSM's and the RMI's internal capacity to build effective, accountable, and
      transparent governments. According to grant conditions, PSCB funds can be
      used to hire experts to advise the FSM and RMI governments; train personnel;
      and develop, purchase, or upgrade various government systems. With OIA's
      agreement, the FSM allocated over 88 percent of its PSCB funds to support the
      ongoing operations of the national and state governments, activities not
      supported by the compact, rather than to build new skills and expertise. The
      RMI accepted PSCB funds only in the past 2 years, to support the operations of
      its Public Auditor's Office. Despite both countries' extensive need of greater government capacity,
      PSCB has not been a priority in either country and it is
      difficult to determine what if any progress has occurred in this sector in either country.

      - Private sector development. FSM and the RMI private sector development
      grants are made available in part to attract foreign investment and increase
      indigenous business activity. Both countries allocated funds to their various
      offices, such as visitor bureaus, land offices, and development entities, in
      support of their goals. However, private sector development in both countries
      has been hampered by such factors as their remote geographic location,
      inadequate infrastructure, and poor business environments.

      - Environment. Environmental goals in the FSM and RMI include engaging in
      environmental infrastructure planning, design, construction, and operation.
      Grants for the two countries' environment sectors were allocated to several
      offices to support activities such as environmental protection, marine
      conservation, solid waste management, and public education. However,
      several challenges have limited the achievement of both countries' goals,
      including lack of enforcement and a lack of trained professionals.



RESPONSES

The GAO provided a draft of the report to the U.S. Departments of Education, Health and Human Services, the Interior, and State, as well as to the FSM and RMI.

The FSM's response letter acknowledged the "useful and constructive criticism" of the report and noted their commitment to continued improvement.

The RMI responded that since fiscal year 2005, they had made changes, revisions, and refocused their efforts, which the new report did not take into account. They were concerned that the GAO used reports from the two previous years. The GAO responded that its field work was done in March 2006 when only the first quarter of 2006 reporting was available, and they chose not to use it in their scope.

The RMI also reiterated its position that the grants under the compact should be subject to full inflation in order to maintain service levels, and it raised concerns about the SEG and how the legislation has been interpreted.

The GAO reported that funding for the SEG was almost 1 year late for both 2005 and 2006, because of multiple factors, including disagreement between U.S. agencies and the FSM and the RMI governments over some of the proposed uses of the SEG. In its correspondence with the GAO about this matter, the RMI said that its government cannot submit its initial SEG proposal until the fiscal year is half over, because the submission and approval process does not begin until the U.S. Congress approves the annual spending bill, making delays largely beyond the control of the RMI.

RMI asked the GAO to clarify student numbers and its statement that "many RMI schools remain in poor condition," stating that progress had been made in remedying the situations since the GAO visit.

An objection was made to the GAO's use of "unattributed references to unsubstantiated opinions of officials", regarding the "lack of unqualified teachers." The GAO answered, that it was its practice to not specifically identify individuals by name." In the final report, the GAO "included the position titles of those individuals who provided us with information, including the Minister of Education, whom we believe to be an authoritative voice on the matters regarding RMI's educational system."
by Aenet Rowa, Yokwe Online, May 28, 2007