Finding 2023-002 Pass-Through Entity: Federated States of Micronesia National Government Federal Agency: U.S Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No: Various Area: Allowable Costs/Cost Principles Questioned Costs: $7,326 Criteria: In accordance with allowable costs/cost principles requirements, expenditures should be necessary and reasonable for program needs, and the related financial and programmatic records supporting such should be adequately documented. Condition: The noncompliance noted are as follows: 1. For 3 or (5%) of 60 non-payroll transactions tested, from a population totaling $1,187,754 of $19,504,751 in program expenditures, we noted either: (a) no financial or programmatic records and/or grantor-approved budgets (e.g., vendor invoices, contracts, receiving reports) were available to substantiate allowability; or (b) the available procurement file documentation was insufficient to substantiate allowability, as follows: 2. For 13 or (20%) of 65 payroll transactions tested, from a population totaling $36,422 of $19,504,751 in program expenditures, no departmental timecards or timesheet documentation was provided to support compensation, taxes, and fringe benefits, as follows: 3. Of the 49 payroll transactions tested where departmental timecards or timesheet support was provided, we identified the following: a) For 1 employee, the uniform timesheet reported 16 hours of sick leave, while the departmental timesheet reported 80 hours of regular work. b) For 1 employee, the uniform timesheet was not signed by all required authorized signatories. c) For 1 employee, the uniform timesheet reported 56 regular hours, while the departmental timesheet reflected 43 regular hours; however, the employee was paid for 80 regular hours, resulting in an overpayment of approximately $76 (processed on May 2, 2023). Cause: The cause of the above-mentioned conditions cited are as follows: • For Condition 1, ineffective documentation filing and retention controls were exacerbated by the relocation of the State Treasury office during the audit period. • For Condition 2, ineffective documentation filing and retention controls existed at the departmental agency level, where timesheets or other timekeeping records were retained. • For Condition 3(a), insufficient internal controls at the departmental level failed to ensure reconciliation of departmental timesheets with uniform timesheets submitted to the State Treasury. The Treasury does not consistently receive departmental support and therefore relies on agency review and certification. • For Condition 3(b), required signatory authorization controls failed at both the departmental and treasury levels. • For Condition 3(c), existing controls failed to detect and prevent the overpayment. Effect: The State is not compliance with applicable allowable costs/cost principles requirements. Projected questioned costs exceed $25,000; therefore, the known questioned costs of $7,326 are reported. Recommendation: The State should consider the following: a. For Condition 1, the State should continue efforts to strengthen documentation filing and retention controls. b. For Conditions 2 and 3, because the State Treasury relies on departmental monitoring, the State should consider: 1. Enhancing monitoring controls at the departmental level or implementing a uniform timekeeping system to reduce reconciliation burdens. 2. Establishing policies requiring submission of departmental timekeeping reports to the State treasury to allow for secondary reconciliation. 3. Reinforcing the requirement that when changes are made affecting uniform timesheets but not departmental records, appropriate explanatory documentation be retained. Identification as a Repeat Finding: N/A View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.
Finding 2023-003 Pass-Through Entity: Federated States of Micronesia National Government Federal Agency: U.S Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No: Various Area: Procurement, Suspension, and Debarment Questioned Costs: $223,588 Criteria: The following must be adhered to comply with federal and the State’s procurement regulations: • 2 CFR 200.318 requires documentation sufficient to detail the history of each procurement transaction, including the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and basis for contract price. • 2 CFR 200.319 requires all procurement transactions under a federal award to be conducted in a manner providing full and open competition. • 2 CFR 200.320 permits small purchases without soliciting competitive quotations if the price is deemed reasonable based on research, experience, or purchase history, provided supporting documentation is maintained. • The State’s procurement regulations require that small purchases exceeding $1,000 be supported by three quotations, with the lowest quotation selected unless a waiver is documented and approved. Waiver justifications must be submitted to the State treasury for inclusion in the procurement file. Condition: For 5 (or 8%) of 60 transactions tested, test population aggregating $1,187,753 out of $19,504,751 in program expenditures, we noted based on our review of procurement files: • For test no. 15, obligation 361854 – Of 3 quotations obtained for a small purchase transaction, the highest quotation was selected, there was no documented justification to support the procurement selection. • For test no. 16, obligation 372216 – The procurement was sourced from one vendor and lacks additional quotations. There was no documented justification to support the sole-source procurement. • For test no. 17, obligation 372215 – The procurement was sourced from one vendor and lacks additional quotations. There was no documented justification to support the sole-source procurement. • For test no. 22, obligation 334914 – The procurement file included 2 quotations and a justification form that did not relate to the transaction as it cites an explanation for purchasing goods from other vendors unrelated to the actual transaction. Of the 2 vendors included, there did not appear to be a notable difference in goods/services offered, however the higher of the 2 was selected. Consequently, we could not determine the ultimate basis for vendor selection. • For test no. 30, obligation 358537 – The procurement as sourced from one vendor and lacks additional quotations. There was no documented justification for the sole-source procurement. Total questioned costs are summarized as follows: Cause: Ineffective documentation filing and retention controls, further impacted by the relocation of the State Treasury office. Effect: The State is not in compliance with federal and State procurement requirements. Known questioned costs of $223,588 are reported, with projected questioned costs exceeding $25,000. Recommendation: The State should strengthen procurement documentation controls and ensure rationales and justifications for vendor selection are retained in procurement files. Identification as a Repeat Finding: N/A View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.
Finding 2023-004 Pass-Through Entity: Federated States of Micronesia National Government Federal Agency: U.S Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No: D23AF00012-01 (Education) D23AF00013-01 (Health) D22AF00326-01 (Supplemental Education) Area: Special Tests and Provisions Questioned Costs: $11,790 Criteria: 1. Pursuant to Compact Sector Health grants, assistance provided through the grant may not be used for advanced payments, except in limited circumstances and such payments must receive prior written concurrence by the office of insular affairs (OIA). 2. Pursuant to Compact Sector grants for the Education and Supplemental Education Grant (SEG) programs, all personnel funded under these grants are required annual performance evaluations for all funded personnel, with evaluations retained personnel files. Condition: 1. For 1 (or 1%) of 60 transactions tested, aggregating $1,187,753 out of $19,504,751 in program expenditures, the State made an advance payment using sector grant funds. No documentation was provided to evidence prior grantor agency concurrence to waive the specific special provision. 2. For 11 (or 23%) of 49 personnel records tested under the Compact Sector Education and Supplemental Education grants, no documentation was available to show that the annual performance evaluation had been performed. Cause: For advance payments, either concurrence was not obtained, or documentation was not retained; and a lack of familiarity with specific grant conditions may have contributed to the noncompliance. For evaluations, documentation retention controls over personnel files were inadequate. Effect: The State is not in compliance with the Compact Sector health grant program requirements; known questioned costs of $11,790 are being reported, with projected questioned costs exceeding $25,000. The State is not in compliance with the Education and Supplemental Education grant requirements for the education and supplemental education programs regarding personnel evaluation; no questioned cost were identified associated with above condition. Recommendation: The State should consider the following: 1. For the health grants, if advance payments are necessary, the State should (a) use general fund advances with later reimbursement; (b) establish a letter of credit; or (c) obtain prior OIA concurrence. 2. For the Education and Supplemental Education grants, the State should strengthen controls to ensure annual evaluations are completed and retained in personnel files. Identification as a Repeat Finding: N/A View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.
Finding 2023-005 Pass-Through Entity: Federated States of Micronesia National Government Federal Agency: U.S Department of the Interior AL Program: 15.875 Federal Award No: Various Area: Equipment and Real Property Management Questioned Costs: None Criteria: 2 CFR §200.313(d)(1) requires property records to include a description, serial number or ID number, source of funding (including FAIN), title holder, acquisition date, cost, federal participation percentage, location, use and condition, and disposition data including disposal date and sale price. Condition: The following were noted: 1. The State’s capital asset register reflected no Compact Sector–funded capitalized infrastructure additions since FY 2016, despite completed contracts during 2016 through 2021. The State was unable to provide supporting documentation evidencing capitalizable values, project ownership, or other required details. 2. Four (4) assets or batches of assets that met the State’s capitalization requirements were not capitalized until corrected through audit adjustments. Cause: For both conditions there is a lack of internal control monitoring over fixed asset capitalization. Effect: The State is not in compliance with applicable equipment and real property management requirements. The impact could not be quantified: therefore, no question costs are reported. Recommendation: The State should consider the following: 1. For Condition 1, the State should obtain documentation to support capitalizable values and confirm ownership. 2. For Condition 2, all assets related to health-sector acquisitions, the State should improve coordination between the Department of Health and Human Services and the State Treasury to ensure eligible items are capitalized at requisition or purchase order stage. Identification as a Repeat Finding: N/A View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.
Finding 2023-006 Pass-Through Entity: Federated States of Micronesia National Government Federal Agency: U.S Department of Education AL Program: 84.027 Special Education – Grants to States (IDEA, Part B) Federal Award No: H027A220005 Area: Allowable Costs/Cost Principles Questioned Costs: $18,980 Criteria: Expenditures must be necessary and reasonable for program purposes and supported by adequate financial and programmatic documentation in accordance with federal allowable cost/cost principles requirements. Condition: 1. For 4 (7%) of 60 non-payroll transactions tested, totaling $57,356 of $1,091,202 in program expenditures, no supporting financial or programmatic records (e.g., vendor invoices, contracts, receiving reports, or grantor-approved budgets) were provided for the following: 2. For 39 (65%) of 60 payroll transactions tested, totaling $28,582, no departmental timecards or timesheets were provided to support compensation, taxes, and fringe benefits for the following: 3. Of the 21 payroll transactions with timecards or timesheets: a. Two (2) cases reported fewer hours on departmental records than on the uniform timesheet. b. Three (3) cases had irreconcilable time entries due to missing or inconsistent daily records. c. Five (5) cases logged 80 regular hours on the uniform timesheet, while departmental timesheets reflected sick leave or missing hours. Cause: The causes of the above conditions are as follows; a. Condition 1: Ineffective documentation retention at treasury, exacerbated by office relocation. b. Condition 2: Ineffective retention at departmental agencies where timesheets are held. c. Conditions 3(a) and 3(c): Weak internal controls over reconciliation between departmental timesheets and treasury uniform timesheets. Treasury does not regularly obtain departmental timesheets. d. Condition 3(b): Manual timecard errors from daily stamp-based systems. Effect: The State is not in compliance with applicable allowable costs/cost principles requirements. Projected questioned costs exceed $25,000 and therefore the known amount of $18,980 is questioned. Recommendation: The State should consider the following: 1. Strengthen documentation retention controls. 2. Enhance monitoring at the departmental level or implement a uniform timekeeping system to reduce reconciliation issues. 3. Require submission of departmental timekeeping reports to treasury for secondary reconciliation. 4. Ensure explanatory documentation is retained when uniform timesheets differ from departmental records. Identification as a Repeat Finding: N/A View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.
Finding 2023-007 Federal Agency: U.S Department of Health and Human Services AL Program: 93.224 – Health Center Program (Community Health Centers, Migrant Health Center Health Care for the Homeless, and Public Housing Primary Care). Federal Award No: 5 H80CS04302-19-00 and 4 H8FCS41736-01-02 Area: Reporting Questioned Costs: None Criteria: For the federal awards cited above, the recipient of the federal award must submit an annual Federal Financial Report (FFR). The report should reflect cumulative reporting within the project period of the document number. For award(s): • 5 H80CS04302-19-00 the subject FFR was due by 03/30/2024. • 4 H8FCS41736-01-02 the subject FFR was due by 07/30/2023. Condition: For both awards, the FFR was submitted after the due date. Cause: The State’s monitoring controls over FFR reporting deadlines were ineffective. Effect: The State’s is noncompliance with the applicable reporting requirement. No questioned costs are applicable to this condition. No negative awarding agency comments were noted for each submission. Recommendation: The State should establish a tracking schedule for grant reporting deadlines upon award or extension and retain copies of all submissions and supporting expenditure reports for audit purposes. Identification as a Repeat Finding: 2022-08 View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.
Finding 2023-008 Federal Agency: U.S Department of Health and Human Services AL Program: 93.224 – Health Center Program (Community Health Centers, Migrant Health Center Health Care for the Homeless, and Public Housing Primary Care). Federal Award No: Various Area: Cash Management Questioned Costs: None Criteria: Federal cash management requirements require that drawdowns be based on actual, documented program expenditures and that entities maintain policies and procedures to ensure cash needs are properly monitored and scheduled. Condition: 1. For 2 of 2 items tested. We noted that total expenditures reported in documentary support submitted by the State for drawdown requests do not match the initial amounts requested, approved, and received by the awarding agency. We are aware that the expenditure reports furnished to us are not the originals that would have accompanied the State’s initial request for reimbursement from the awarding agency. It does not appear that the original supporting expenditure reports were retained. 2. The State does not appear to have a policy or adopted standard methodology for monitoring 93.224 programmatic cash needs and scheduling regular drawdowns. Cause: 1. The State’s documentary retention controls over programmatic drawdowns need improvement. 2. The State has not established a policy or standard operating procedure for monitoring 93.224 programmatic cash needs and scheduling regular drawdowns. Effect: 1. The State’s internal documentary retention controls for drawdowns are inadequate. 2. The lack of documented monitoring and drawdown policies may contribute to general fund cashflow shortages or in some cases lapsed opportunities for drawdowns. Recommendation: 1. The State should strengthen its controls over documentary retention for drawdowns. Retain expenditure reports for the basis of drawdowns at the time of filing and ensure there is appropriate explanatory documentation retained for any special reconciling items. 2. The State should also establish clear policies and procedures for monitoring cash needs, performing drawdowns, and retaining documentation of drawdowns. Identification as a Repeat Finding: N/A View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.