December 6th, 2007

"Accountability: Progress, Challenges, and a Call to Protect the Public Auditor's Offices"

Keynote Speech of David B. Cohen,
Deputy Assistant Secretary of the Interior
at the Joint Meeting of the Association of Pacific Islands
Public Auditors and the Island Government Finance Officers' Association
Honolulu, Hawaii

December 6, 2007

[Acknowledgements.]

Good morning.  When I spoke before the Island Government Finance Officers' Association on Tuesday, I noted that Priority 1 for the Department of the Interior's Office of Insular Affairs is promoting private sector economic development in the islands, and Priority 1-A is ensuring accountability for public funds—particularly the Federal financial assistance provided to the islands by my office and others.  On Tuesday, I spoke about Priority 1.  Today, I will speak about Priority 1-A.

We say over and over again that accountability is one of OIA's two top priorities, and we have backed up our words with deeds.  For example:

• We worked with our colleagues in the Marshall Islands and the Federated States of Micronesia to negotiate a detailed, comprehensive accountability program for funds provided under the Compacts of Free Association.
• As part of our effort to implement the Compacts, we have established an office here in Honolulu dedicated to ensuring that there is accountability for Compact funds.  We have also added personnel in the freely associated states for that purpose.
• We have revamped the way that we allocate Capital Improvement Project funds, instituting a competitive process that rewards good fiscal management.
• We have established the position of Accountability Policy Specialist at our headquarters in Washington, D.C.
• We have a longstanding contract with the USDA Graduate School to provide training for island officials, with an emphasis on financial management and improving compliance with the Single Audit Act.
• We have sponsored numerous conferences, workshops and training programs involving officials from the islands and our colleagues at other Federal agencies.
• We fund training for public auditors, including programs that enable personnel from the islands to work and train at various Interior Inspector General offices.
• We have revised our criteria for granting technical assistance to focus primarily on our top two priorities, including promoting accountability.
• We have greatly increased coordination with other Federal agencies to focus on improving the administration of Federal grant programs in the territories and freely associated states.
• We completely revamped OIA's Financial Assistance Manual for the first time in a decade.

Our efforts, together with the hard work of our colleagues from the islands and our Federal colleagues, have yielded positive results.  When I took office in 2002, not a single one of the 11 nations, states and territories that we serve was submitting timely or clean Single Audits.  Today, the record on timeliness is almost exactly the opposite:  only one of our 11 jurisdictions is not current with its Single Audits.  In addition, Palau's Single Audits have been timely and clean for the past three years, Pohnpei's have been timely and clean for the past two years, and Kosrae became the newest member of the "Timely and Clean Club" this past year.  Pohnpei is in a club of its own, having completed Single Audits for the past two years that were timely, clean and with no questioned costs.  Pohnpei will soon be the rule and not the exception, and just as we all worked together to turn the situation around with regard to timeliness of audits, we will do the same with regard to cleanliness.

Although we very much value our positive relationships with our colleagues in the islands, we have taken tough action when tough action was called for.  We have been forced to withhold grant assistance on a number of occasions.  We hate to do that, because our grants fund important programs in health, education and other crucial areas.  We recognize, however, that it is better to withhold funds and preserve them for future use than to release funds into an insecure environment, risking that they will never be properly used to address the needs of the people.

We have excellent working relationships with the governments of almost all of our island communities.  This enables us to work through some very difficult issues.  A while back, we made the very difficult decision to put American Samoa on high risk status.  We imposed a very high bar to have that status lifted:  Two consecutive timely and clean Single Audits, two consecutive balanced budgets, and sufficient progress on American Samoa's fiscal reform plan.  The plan was adopted pursuant to a Memorandum of Agreement for fiscal reform that I signed with the late Governor Tauese Sunia.  Governor Togiola Tulafono has embraced these conditions as a challenge and an opportunity for his government to greatly improve its ability to serve the people of American Samoa.  He wants American Samoa to meet those conditions and in so doing become a model for fiscal management in the islands.  For our part, we have responded with substantial technical assistance to help American Samoa develop the tools and skills necessary to effectively manage its government finances.

In Kosrae, we have supported a process, involving the new government of Kosrae, the new government of the Federated States of Micronesia and the USDA Graduate School, to address an urgent fiscal crisis.  With financial assistance from our office and the FSM National Government, Governor Robert Weilbacher, his team and the Kosrae legislature have taken painful and courageous steps to restore that state to fiscal health.

We are working with FSM President Manny Mori and Governor Wesley Simina to support a similar fiscal recovery plan that is being developed for Chuuk.  We had previously worked with the Chuuk State Government and the FSM National Government to establish the Chuuk Financial Control Commission to review and certify all transactions involving Compact funds.  OIA has placed a full time accountant in Chuuk to ensure compliance.

All of us working together have made significant progress to improve accountability and fiscal management in the islands.  We have a tremendous way to go, however, before the overall performance of the islands in fiscal management could be called acceptable.

I am proud of the progress that we have made together to improve accountability because we have done so in the face of daunting challenges.  Each of our insular areas has small populations and educational systems that range from significantly below to very far below mainland standards.  The best and brightest often have to leave the islands to find decent job opportunities. As a result of all of these factors, each of the insular areas has a severe shortage of the type of educated talent that is necessary to ensure good fiscal management.  As you can tell by looking around this room, there are many educated and talented people in the islands.  There just are not yet enough of them.

In the islands, talent pool shortages cannot be solved by attracting people over from the next town or the next county.  The islands have to shore up deficiencies in critical skill areas by enticing people to travel thousands of miles from home.  The islands typically do not have the resources to provide a sufficient financial incentive to entice talented people to do this.

Almost all of the insular areas are made up of multiple islands, in some cases in the hundreds or thousands.  This creates the additional challenge of providing essential government services to people on several islands, some of them remote.  It requires duplication and makes it harder to achieve economies of scale.  All of this further drains resources that are needed to attract good talent.

I do not offer these observations as excuses.  However, we cannot do our jobs effectively if we do not have a proper understanding of the challenges that we face.

Are some of the islands' fiscal management problems caused by corruption?  Of course, but there is corruption all over the world, including on the U.S. mainland.  The corruption that exists in the islands only makes it harder for the islands to address the challenges that I have just described.

For all of these reasons, it has taken a great deal of work by all of us to achieve the accountability gains that we have achieved in recent years, and it will take a tremendous amount of additional work to raise ourselves up collectively to an acceptable level.  We are committed to doing that work.

One thing is clear:  Our efforts cannot succeed unless each of our island communities has a strong, active, independent, conscientious, properly staffed and properly funded public auditor's office.  The management of public funds is a complicated business, and regular, impartial review of our work is essential to ensure that good value is received for the people's money. 

OIA has taken steps to encourage each of the island governments to strengthen their public auditor's offices.  For example, we rate each of your public auditor's offices and use that in our determination of the amount of grant funding that various jurisdictions will receive.

To be frank, however, I am not satisfied.  None of us should be satisfied.  We still have jurisdictions that have not had a qualified public auditor in place for an unacceptably long period of time.  We still have public auditor's offices that do not have the staff or budget to do an effective job.  We still have public auditor's offices that are too vulnerable to political retaliation.

Protecting the auditors is always a challenge.  The problem is that auditors routinely have to be critical of those who have control over their budgets, personnel decisions and other important matters.  And, speaking for the finance officers' side of the room, there is not one of us, myself included, that has not been ticked off from time to time by the work of an auditor.  The problem is that each of us has a tendency to believe that we are perfect, and that anyone with the gall to suggest otherwise obviously does not know what they are talking about.  Or perhaps they are criticizing us out of irrational hatred or jealousy.  Why would they be jealous of us?  Because, as noted earlier, we are perfect.  Most of us, however, are able to take a deep breath and get beyond those sentiments.  Once we do so, it becomes easier to appreciate the way in which the auditors keep us on our toes and help us to do a better job of serving the people.  And just as we are not really perfect, auditors are not perfect either.  However, their imperfect attempts to do their job are essential to our ability to improve in our imperfect attempts to do our job.

Earlier, we notified each of your governments that the failure to have a public auditor's office meeting minimal standards would eventually result in a loss of eligibility for OIA technical assistance funds.  Today, I would like to start a process where we all work together to flesh out that concept.  I would like all of us—finance offices, public auditor's offices, the USDA Graduate School, Interior's Inspector General's Office, OIA—to work together to craft clear, objective and reasonable standards that must be met in order to ensure continued eligibility for technical assistance funds.  The objective will be to ensure that public auditor's offices are protected in their independence and are properly funded and properly staffed with qualified people, starting from the very top.  We will work together to establish reasonable time frames and reasonable procedures.  We have no desire to cut off technical assistance funds simply because a public auditor's office is not perfect, or does not meet the "gold standard" in terms of budget and staffing.  We simply want to ensure that public auditor's offices are not allowed to fall so far as to become irrelevant, unable to perform their role in any significant fashion.  Sadly, that has occurred in at least some of our jurisdictions, and that is the problem that we must work together to address.

We are about to spend an entire day together, and hopefully I have given us something to talk about.  To the extent that our agenda is too crowded to make significant progress on this topic today, let us resolve to carry on this conversation by email and other means as we work toward our objective.

The process that I have proposed today will be an important step in our effort to improve accountability for public funds in the islands.  We should be proud of the progress that we have made to date, and continue to be committed to making progress in the future.  We will definitely continue to make progress as long as we remember why we are here:  To make life better for the people of the islands.

Thank you.