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GAO found questionable COFA-related expenditures in freely associated states

By Bryan Manabat

The U.S. Government Accountability Office has found questionable expenditures of grants awarded to the Federated States of Micronesia, the Marshall Islands and Palau under the Compact of Free Association.

In a report released Oct. 27, GAO stated that the Department of Health and Human Services and the Department of the Interior did not consistently issue management decisions for audit findings related to COFA grants within the time frame specified by federal regulation.

According to the auditing agency, HHS and Interior were late issuing decisions for more than $3 million in questioned spending in fiscal years 2015 to 2019, and couldn't show they had resolved questions about other spending.

"More than 95 percent of questioned costs identified in the single audit reports GAO reviewed were related to grants awarded by HHS and Interior." the report added.

The FSM, RMI, and Palau received grant awards from U.S. agencies and departments under COFA and other other agreements.

"Because of the amount of their grant spending, each country must obtain a single audit of its use of these funds each year and submit a report of the audit findings, including any questioned costs. Federal regulation requires the awarding agency to issue a management decision for each audit findings," GAO reported.

"Federal regulation also requires the agency to follow up on audit findings to ensure timely corrective action. If agencies do not issue decisions and conduct follow-up within 2 years, the country may potentially avoid repayment of any ineligible costs," it added.

According to the report, each country must get an annual audit of its use of these funds.


"Within six months, the granting agency must decide how the country should address any audit findings—including questions about grant spending. Then the agency must work with the country to resolve these questions. Each country must annually obtain an audit—known as a single audit—of its use of grant funds and submit a report of the findings," GAO said.

GAO said the federal health agency failed to issue seven of 11 decisions and Interior failed to issue seven of 12 decisions within the 6-month time frame.

Both agencies attributed their failure to issue timely decisions to staffing gaps.

"Taking appropriate action, such as devoting needed staffing resources, to ensure they issue management decisions in the required time frame would help the agencies reduce the risk that the countries will fail to implement timely corrective actions," the report noted.


GAO reviewed the single audit reporting packages the countries submitted for FYs 2015 through 2019—the most current reports available—and HHS and Interior documentation.

The total questioned costs associated with HHS's delayed management decision were $1.43 million and for DOI, $2 million.

GAO made six recommendations to strengthen processes for issuing management decisions and following up on questioned costs.

Among GAO's recommendations was for DOI to "establish a mechanism to track over time the results of efforts to resolve questioned costs identified in single audits" for the three nations.

GAO also recommended that the health agency "revise its guidance to specify when HHS monitoring of award recipients' corrective actions related to questioned costs should begin and how frequently it should occur."

GAO advised both departments to "take appropriate action, such as dedicating adequate staffing resources" to ensure that management decisions for questioned costs are promptly issued.

COFA's economic provisions for the FSM and the Marshall Islands expired on Sept. 30. With the renewal of new agreements still pending in the U.S. Congress, the FSM and the Marshall Islands continue to receive U.S. funds and programs under a continuing resolution.

Palau's economic provisions will expire next year.

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