GAO Report Details Compact Fund Spending For FSM, RMI

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Over $200 million spent on infrastructure from 2004-2013

By Alexie Villegas Zotomayor

MAJURO, Marshall Islands (Marianas Variety, Jan. 10, 2014) – The Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) spent $106 million and $95 million respectively on infrastructure projects out of their $229 million and $106 million in Compact funds allocated for infrastructure, according to a Jan. 7 Government Accountability Office (GAO) report to the U.S. Congress.

From 2004-2013, FSM was allocated $792.6 million.

Out of these $792.6 million in Compact funds, 29 percent went to infrastructure or $228.9 million; 24 percent or $188.2 million to health; 35 percent or $277.6 million to education; 7 percent or $53.6 million to public sector capacity building; and 6 percent $44.2 million for other purposes.

The Marshalls received $324.7 million in Compact funds during the same period: 33 percent or $105.8 million went to infrastructure; 36 percent or $115.9 million to education; 21 percent or $67.9 million to health; 9 percent or $30 million for Ebeye special needs; and 2 percent or $5.2 million for other purposes.

GAO issued the report in connection with its examination of how the U.S. assistance to FSM and the Marshalls is being used.

The U.S. government entered into amended Compacts of Free Association with FSM and the Marshalls in 2003 that will provide a total of $3.6 billion in assistance until 2023.

The original Compact agreement was signed in 1986 and from 1987 to 2003, FSM and the Marshalls were been given $2.1 billion in compact financial assistance.

GAO stated in its report that this estimate of the Compact funds received by FSM and the Marshalls "represents total nominal outlays" and does not include payments for compact-authorized federal services or U.S. military use of Kwajalein.

It also does not include investment development funds under Section 111 of the P.L. 99-239.

As to the infrastructure projects, the Office of Insular Affairs noted that the Compact funds spent by FSM and the Republic of the Marshall Islands were for education and health, water and road-related projects, among other things.

The GAO report said, "Delays in establishing JEMCO-approved priorities and unresolved land-titling issues affected the construction and maintenance of some health and education facilities in the FSM."

JEMCO is the U.S.-FSM Joint Economic Management Committee. Its counterpart for the Marshalls is the U.S.-RMI Joint Economic Management and Financial Accountability Committee or JEMFAC.

These committees allocate grants and provide oversight for the amended compacts.

GAO noted that FSM had completed six education-related projects on the JEMCO-approved list of 19 priority projects.

Approximately $229 million and $106 million in Compact funds were allocated to infrastructure in FSM and RMI.

The Marshalls is reported to have constructed or renovated over 200 classroom facilities and 45 projects in the health sector.

According to GAO, both FSM and RMI spent at least half their compact sector funds in the education and health sectors.

Owing to these countries’ significant expenditure of funds on personnel in these sectors, GAO said the joint management and accountability committees capped budgets for personnel at fiscal-year 2011 levels due to concerns about the sustainability of sector budgets as compact funding continues to decline through 2023.

In fiscal year 2011 alone, of the $83.95 million in total sector allocations for FSM, $21.93 million went to health while $28.89 million went to the education sector.

RMI spent $6.83 million for health and $11.84 million for the education sector in fiscal year 2011.

GAO said that as of Aug. 2013, the FSM national government and the Marshalls had not submitted plans to address the annual decreases in funding.

"Without such plans, the countries may not be able to sustain essential services in the education and health sectors," GAO said.

Of the $78.1 million in Compact funds spent on education from 2009 to 2011 in FSM, 61 percent went to personnel; 6 percent to scholarships; 5 percent for contractual services; 5 percent for office materials and 24 percent for other expenses.

Of the $47.1 million spent in the health sector, 41 percent was spent on personnel; 21 percent on medical supplies and equipment; 7 percent on utilities; 6 percent on contractual services; and 24 percent on all others.

For the RMI, it spent 54 percent of its $81.5 million in Compact funds from 2007 through 2011 on personnel in the education sector.

In the health sector, it spent 64 percent of the $34.1 million in Compact funds from FY’07-11.

Back in May 2013, GAO reported that the U.S. was considering withholding certain fiscal year 2014 grant funds for FSM and RMI pending the submission of their plans to address the annual decreases.

During the August 2013 JEMCO meeting, FSM was not allocated its fiscal year 2014 sector funds.

JEMFAC has similar concerns with RMI for its failure to update its plan for addressing the decrements.

Although RMI provided an updated medium-term budget and investment framework, the committee did not have ample time to review these documents that led to RMI not getting its fiscal year 2014 sector grant funds.

Last fiscal year 2013, RMI had $31,611,641 in Compact sector allocations while FSM had $81.684 million.

In the latest GAO report to the U.S. Congress, it was noted that it found data-reliability issues that hinder its assessment of FSM’s and RMI’s progress in the education and health sectors.

The report further said that the audit reports reviewed by GAO showed challenges to ensuring accountability for U.S. funding.

With no new recommendations, GAO reiterated that the Department of the Interior should take all necessary steps to ensure reliability of FSM, RMI indicators in education and health.

It also suggested that it assess whether to designate each country a high risk.

It recommended that Interior take action to correct the staffing shortage related to compact grant implementation and oversight.

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