OIA declares American Samoa high-risk

Notwithstanding what he called “significant and commendable progress by the American Samoa government on fiscal reform,” Deputy Assistant Secretary of the Interior David B. Cohen has announced that the Department of the Interior’s Office of Insular Affairs is designating the American Samoa government as a high-risk grantee “as a tool to bring other federal agencies in to do their fair share to support the fiscal reform process.”

“American Samoa had dug itself into a deep hole in the past, and it is still working to recover,” said Cohen. “It has made significant and commendable progress, but the task is a considerable one and there is still a great deal of work to do. In particular, there is a need to control spending, balance budgets routinely, produce timely and accurate financial statements and obtain clean audit opinions on a timely basis.”

In order to be removed from high risk category, Cohen said the American Samoa government would have to satisfy three conditions:

* Firstly, the government would have to complete Single Audits by the statutory deadline, resulting in materially clean opinions, for two consecutive years.

* Secondly, American Samoa must have a balanced budget for two consecutive years, without regard for nonrecurring windfalls such as insurance settlements.

* Finally, the government would have to remain in compliance with the Memorandum of Agreement executed by then Gov. Tauese Sunia and the Department of the Interior in 2002, as well as the related fiscal reform plan.

“I would note that other insular areas also have issues with their Single Audits, and we are examining our options with respect to these other insular areas as well,” said Cohen. Single Audits are comprehensive annual audits required of federal grant recipients under the Single Audit Act of 1984, as amended.

This designation allows OIA to require American Samoa grantees to comply with special conditions for future or existing federal grants. Cohen said that the high-risk declaration should have no effect on American Samoa’s efforts to attract private sector investment.

“Investors are lining up to invest in places that are not nearly as strong as American Samoa in terms of transparency, fiscal management and protection of the rule of law,” said Cohen. “If a government had to achieve perfection in fiscal management in order to attract investment, then no one would invest anywhere. American Samoa has many competitive advantages, including the protection of the U.S. and its legal system, an excellent harbor, excellent telecommunications facilities, an educated, English-speaking work force, a dollar economy and spectacular natural beauty. I have said in the past that OIA intends to lead a Business Opportunities Mission to American Samoa, and that is still the case. I would still stake my credibility without hesitation on bringing businesses to American Samoa to consider investing there.

“Our intention is to use the high-risk declaration as a tool, not to stigmatize American Samoa,” said Cohen. “We intend to bring other federal agencies into the effort and see what positive contributions they can make in terms of improved oversight of their grants and technical assistance. We will urge these other agencies to adopt appropriate oversight measures, but to avoid adopting policies that might result in a cash flow crisis that would undermine the fiscal reform effort.”

Cohen expressed sympathy for the challenges faced by insular area governments. “American Samoa has made significant progress in its capacity to handle federal grants, although more efforts are needed to ensure complete accountability,” he said. “All of the insular areas face significant challenges in complying with the fiscal management requirements that are applicable to the States. The insular areas have small, isolated populations and have very limited means to train accountants and financial managers. Locals with good skills can typically find higher paying opportunities in the private sector or off-island. When you’re in the middle of the ocean, you can’t just bring people in from the next county or the next state the way that small stateside communities can. In order to induce qualified professionals to relocate from thousands of miles away, insular area governments generally have to offer compensation packages that are way out of proportion to what the local economy can typically support. Even then, turnover for off-island recruits is very high.”

Cohen said, however, that the special challenges faced by insular areas cannot be used as justification to waive compliance with federal requirements. “We understand the unique difficulties that the insular areas have to contend with, but we have an absolute obligation to protect taxpayer funds,” said Cohen. “The absence of timely and accurate financial information can give a few bad apples the opportunity to misuse public funds that are meant to benefit the people of the islands. We must do everything in our power to prevent that. In the end, everyone, especially the people of the islands, will be better off if we continue to expect the islands to comply with the federal standards and continue to offer our assistance to help them to succeed.” (PR)