Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D19AP00124, D22AF00326, D20AP00054 Area: Allowable Costs/Costs Principles Questioned Costs: $64,062 Criteria: Article I of the Fiscal Procedures Agreement (FPA) says allowable costs means those necessary and reasonable costs allocable to a Grant that comply with the limitations of any agreement relating to such Grant as well as to applicable laws and regulations, are allocated to the Grant on a basis consistent with policies that apply to all activities of the Grant, are accounted for consistently and in accordance with generally accepted accounting principles, are adequately documented, and are net of all applicable credits. Article VI, Section 1(a)(2)(v) of the FPA says applicable costs principles and Grant terms shall be followed in determining the reasonableness and allowability of costs. Condition: For eight (or 20%) out of forty nonpayroll expenditures tested, aggregating to $64,064 of a total population of $79,211,846, supporting documents such as invoices and contracts were not provided. Cause: FSMNG lacks monitoring controls over adequate documentation and systematic filing of relevant documents to support program costs. Effect: FSMNG is in noncompliance with the applicable allowable costs/cost principles requirement and total question costs of $64,062 result. Recommendation: FSMNG should establish and maintain effective systematic filing of relevant documentation to support program costs and for easier retrieval of responsible personnel. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: The audit procedures were designed based on the suggested methodologies identified on Part 3 of the 2023 OMB Compliance Supplement. These procedures were provided to assist auditors in planning and performing tests of non-federal entity compliance with the requirements of each federal program. The basis of the auditor’s identification of direct and material requirements for ALN 15.875 for the audit is Part 7 of the 2023 OMB Compliance Supplement which the purpose section states that “for federal programs not covered in the compliance supplement, the auditor must use the types of compliance requirements contained in the compliance supplement.” Additionally, based on communication with the Office of Insular Affairs on December 4, 2025, if the Fiscal Procedures Agreement (FPA) is more lenient than the required federal guidelines, it is expected that the auditor follow the requirements of the CFR. Part of our procedures was also providing assessment on each applicable section of the FPA for each compliance requirement and identifying whether it mirrors the CFR to ensure that the minimum federal requirements were tested. As mentioned in our criteria, the FPA was used as a guideline for our compliance testing. The FPA describes allowable costs as necessary and reasonable costs that are allocable to the Grant and agreements and that they be adequately documented. This requirement mirrors the requirement set forth in 2 CFR Part 200, Subpart E, where costs must be necessary and reasonable for the performance of the federal award and be allocable thereto. Furthermore, costs must conform to any limitations or exclusions and be adequately documented. Noncompliance found in our Allowable Costs/ Cost Principles testing was due to lack of supporting documentation such as, but not limited to, contracts and vendor’s invoices made available to the auditors during the time of audit.
Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award Nos.: D22AF00327, D23AF00019, D21AF10232, D22AF00017, D22AF00326, D23AF00061, D21AF10013, D19AF00046, D21AF10018, D20AP00054, D19AP00124 Area: Equipment and Real Property Management Questioned Costs: Unable to be determined Criteria: 1. Article VI Section 1(f)(4)(i) of the Fiscal Procedures Agreement (FPA) says “Property records shall be maintained which include: (1) a description of the property, (2) a serial number or other identification number, (3) the source of property, (4) who holds title, (5) the acquisition date and cost of the property, (6) the percentage of the United States funding used in the purchase, (7) the location use and condition of the property, and (8) any ultimate disposition data including the date of disposal and sale price 2. Additionally, in accordance with Article VI Section 1(f)(4)(ii) of the Fiscal Procedures Agreement (FPA) says “A physical inventory of the property must be taken and the results reconciled with the property records at least once every two years”. Condition: 1. FSM National Government was not able to provide a complete listing of its capital assets for the program and the schedule of disposals during the year. No questioned costs are presented as we are not able to quantify the extent of noncompliance. 2. FSM National Government did not perform the required property and equipment inventory count for the past two fiscal years. Cause: 1) The FSM National Government did not provide sufficient and appropriate audit evidence to assist the auditors during the testing procedures for the equipment and real property management compliance requirement. 2) FSM National Government lacks monitoring procedures to ensure physical inventory counts are conducted at least once every two fiscal years Effect: The FSMNG is in noncompliance with applicable equipment and real property management requirements. Questioned costs are unknown as the FSMNG could not provide the program’s capital assets listing. See below for the cumulative dollar amount of property equipment acquired with program grant funds over the past five years. Identification as a Repeat Finding: Finding No. 2022-012 Recommendation: 1) Management should adhere to the requirement of Article VI Section 1(f)(4)(i) to comply with the requirements for Equipment and Real Property Management; and 2) Management should establish and implement effective monitoring controls to ensure property records are accurately maintained. 3) Management should establish and implement effective monitoring controls to ensure that the required physical inventory of equipment has been conducted. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: Noncompliance was due to incomplete listing of its capital assets and failure to conduct required physical inventory count as required by the FPA.
Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D22AF00327, D23AF00019, D21AF10232, D22AF00017, D22AF00326, D23AF00061, D19AF00046, D21AF10018, D20AP00054, D21AF10013 Area: Procurement and Suspension and Debarment Questioned Costs: $6,767,555 Criteria: Article VI, Section 1(j)(5) of the Fiscal Procedures Agreement requires that records shall be maintained with sufficient detail to document the history of procurement, including but not limited to the rationale for and method of procurement, the selection of contract type, contractor selection or rejection, and the basis for the contract price. Additionally, in accordance with Article VI, Section 1(h) of the FPA says the Government of the Federated States of Micronesia shall not award funds received pursuant to the Compact, as amended, to any party which is debarred, suspended or otherwise excluded from and ineligible for participation in United States assistance programs. Condition: Of 8 procurement transactions, aggregating $3,350,341 of a total population of $3,691,776 in procurement performed in fiscal year 2023, the following were noted: 1. For four (or 50%), procurement related documentation such as quotations, bid submissions, invitation-to-bid publications were not provided. 2. FSM National Government does not perform suspension and debarment monitoring for covered transactions with a total population of $6,757,381, which includes both the current and prior period procurements, that is in accordance with Article VI, Section 1(h) of the FPA. Cause: 1. FSM National Government did not provide procurement related evidence such as quotations, bid evaluations, or rationale for vendor selection. 2. FSM National Government does not have a policy and procedure in place for verification of persons or contractors prior to entering into a covered transaction that is in accordance with Article VI, Section 1(h) of the FPA. Effect: FSMNG is in noncompliance with applicable procurement and suspension and debarment requirements and questioned costs of $6,767,555 results. Identification as a Repeat Finding: 2022-010 Recommendation: 1. FSM National Government should improve its file maintenance system to help ensure documents over compliance requirements can be easily retrieved. 2. FSM National Government should establish a policy and implement formal procedures to document written evidence that, prior to entering into a covered transaction, an assessment has been performed that is in accordance with Article VI, Section 1(h) of the FPA. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: As referenced in the criteria, Fiscal Procedures Agreement was used as a guideline for compliance testing. Noncompliance was due to lack of procurement related documentation such as, but not limited to, quotes and bidding evaluations, made available to auditors during the time of audit. Additionally, FSM National Government does not perform suspension and debarment verification for covered transactions as required by the FPA.
Federal Agency: U.S. Department of Interior ALN Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00012, D23AF00013, D23AF00014, D23AF00015, D23AF00016, D23AF00017, D23AF00020, D23AF0002, D23AF00022, D22AF00155 Requirement: Subrecipient Monitoring Questioned Costs: $72,071,497 Criteria: In accordance with Article VI, Section 1(k)(1) of the Fiscal Procedures Agreement (FPA) The Government of the Federated States of Micronesia will follow its laws and procedures when awarding and administering Sub-Grants. The Governments shall ensure that: (i) Every Sub-Grant includes any clauses required by the Compact, as amended, the sector Grant awards and this Agreement; (ii) Sub Grantees are aware of requirements imposed upon them by the Compact, as amended, the sector Grant awards and this agreement; and (iii) The Sub-Grantee can meet the financial management standards of this Agreement. Additionally, Article VI, Section 1(h) requires that The Government of the Federated States of Micronesia shall not award funds received pursuant to the Compact, as amended, to any party which is debarred, suspended or otherwise excluded from and ineligible for participation in United States assistance programs under Executive Order 12549, ‘Debarment and suspension.’ issued by the President of the United States on February 18, 1986. Furthermore, Article IV, Section 5(b)(3) says the Government of the Federated States of Micronesia maintains procedures to minimize the time elapsing between transfer of funds and their disbursements. Condition: 1) The FSM National Government does not have subrecipient monitoring procedures as required by the FPA. Thus, the FSM National Government did not perform the minimum subrecipient monitoring requirements over the $72,071,497 amounts passed to subrecipients. a. Ensure that every sub-grant includes any clauses required by the Compact, as amended, the sector Grant awards and the FPA. b. Ensure Sub Grantees are aware of requirements imposed upon them by the Compact, as amended, the sector Grant awards and the FPA. c. The Sub-Grantee can meet the financial management standards of the FPA. The FSM National Government does not perform suspension and debarment monitoring for covered transactions that is in accordance with Article VI, Section 1(h) of the FPA. 2) Condition: Payments to subrecipients, with a total population of $6,197,594, were not monitored whether procedures to minimize the time elapsing between the payment to the subrecipient and the subrecipient disbursements were followed. No questioned costs are presented as amounts are questioned at Condition 1. Cause: 1) The FSM National Government does not consider amounts passed through to the State Governments as a subaward/sub-grant. 2) FSM National Government does not have policies and procedures that comply with Article VI, Section 1(h) and Section 1(k)(1) of the Fiscal Procedures Agreement. 3) The FSM National Government does not have established policies and procedures to minimize time elapsing between the transfer of federal funds to the subrecipient and the disbursement of such funds by the subrecipient. Effect: 1) FSM National Government is in noncompliance with applicable subrecipient monitoring requirements and questioned costs of $72,071,497, which is the total subrecipient disbursements made during the year, result. The $72,071,497 is not necessarily unallowable costs but rather funds passed through that have no monitoring. 2) The FSM National Government is in noncompliance with the applicable subrecipient cash management monitoring requirements. Identification as a Repeat Finding: 2022-014 Recommendation: 1) FSM National Government should update their established policies and procedures to be in accordance with Article VI, Section 1(k) and Section 1(h)()of the FPA to comply with the requirements for pass-through-entities. 2) The FSM National Government should establish a policy and implement formal monitoring procedures to ensure that the subrecipient complies with the requirement to minimize the time elapsing between the transfer of federal funds to the subrecipient and the disbursement of such funds for program purposes. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: Noncompliance was due to FSM National Government not having subrecipient monitoring procedures in place as required by the FPA.
Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D22AF00326 Area: Special Tests and Provisions – Annual Performance Reviews Questioned Costs: -$0- Criteria: In accordance with grant award terms and conditions, all personnel funded under Education Sector and Supplemental Education Grant (SEG) are required to undergo an annual performance evaluation which shall be maintained as part of the personnel files and made available when requested for purposes of grant oversight or audits. Condition: For eight (or 100%) employees tested, the annual performance evaluation for fiscal year 2023 was not completed. Cause: FSM National Government does not have any established policy and monitoring procedure in place over compliance with annual performance evaluations as stipulated in the grant award terms and conditions. Effect: FSM National Government is in noncompliance with the requirement. No questioned cost is identifiable as the nature of noncompliance is nonmonetary. Recommendation: Management should establish policies and implement procedures to perform the required annual evaluations of personnel who are funded under SEG and maintain the reports in each personnel’s file. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: Finding criteria was directly from Grant Award D22AF00326 special terms, requiring all personnel funded under Education Sector and Supplemental Education Grant (SEG) to undergo an annual performance evaluation. Noncompliance is due to FSM National Government not performing annual performance evaluations as required by Grant award and JEMCO Resolution 2014-6.
Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00017, D22AF00010, D23AF00010, D22AF00011, D22AF00014, D23AF00016, D22AF00012, D23AF00015 Area: Reporting Questioned Costs: $0 Criteria: In accordance with applicable reporting requirements, and Article VI, Section 1(b)(1) of the Fiscal Procedures Agreement, the FSM National Government is required to submit quarterly Federal Financial Reports (SF-425) that are accurately presented, comparable and reconcilable. Condition: Of eight SF-425 reports tested, the following were noted: 1. For two (or 25%), the total federal share of expenditure on the underlying accounting records had variances to the total reported in the SF-425 reports. 2. For 6 (or 75%), FSM National Government did not provide an SF-425 Report. Cause: 1. FSM National Government did not effectively monitor compliance with applicable reporting requirements to ensure reports are accurate and reconciled to underlying accounting records. 2. FSM National Government lacks adequate documentation and systematic filing of relevant documentation for reporting requirements. Effect: The State is in noncompliance with applicable reporting requirements. Identification as a Repeat Finding: 2022-011 Recommendation: 1. FSM National Government should strengthen and enforce compliance over the implementation of more stringent monitoring mechanisms to ensure reports are accurately presented and reconciled to the underlying accounting records. 2. FSM National Government should improve its file maintenance system to help ensure documents over compliance requirements can be easily retrieved. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: Fiscal Procedures Agreement was used from the start as a guideline for compliance testing. Noncompliance is due to lack of supporting documentation such as SF-425 reports and Fundware Reports, made available to the auditors during the time of audit.
Finding No. 2023-017 Federal Agency: U.S. Department of Health and Human Services AL Program: 93.323 Epidemiology and Laboratory Capacity for Infectious Diseases Federal Award No.: NU50CK000513 Area: Equipment and Real Property Management Questioned Costs: Unable to determine Criteria: In accordance with 2 CFR Section 200.313(d)(1), property records must be maintained that include a description of the property, a serial number or another identification number, the source of funding for the property (including the Federal award identification number), the title holder, the acquisition date, the cost of the property, the percentage of the Federal agency contribution towards the original purchase, the location, use and condition of the property, and any disposition data including the date of disposal and sale price of the property. Condition: 1. FSMNG was unable to provide a comprehensive listing of its capital assets related to the federal program, nor could it supply the schedule of disposals for the year. As a result, no questioned costs are identified, as we are not able to quantify the extent of noncompliance. 2. FSMNG did not perform the required property and equipment inventory count for the past two fiscal years. Cause: FSMNG lacks controls to comply with property and equipment requirements and adherence to established policies and procedures regarding physical inventory counts of property and equipment and failure to reconcile property records. Effect: The FSM National Government is in noncompliance with applicable equipment and real property management requirements. No questioned cost because we are unable to quantify the extent of noncompliance related to the program’s capital assets. Recommendation: 1) Management should adhere to the requirement of 2 CFR Section 200.313(d)(1) to comply with the requirements for Equipment and Real Property Management; and 2) Management should establish and implement effective monitoring controls to ensure that property records are accurately maintained. Additionally, it is essential to verify that the required physical inventory of equipment has been conducted. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: In our recent meeting, we clarified that the schedule for additions provided specifically for ALN 93.323 was not reconciled with the total general ledger expenditure, we did not mention the entire Fixed Asset Register (FAR). Additionally, it is important to note that the required physical inventory of equipment was not performed, which is why reconciled schedules are lacking. To address these issues, management should establish and implement effective monitoring controls to ensure that property records are accurately maintained. This will help enhance compliance and improve asset management practices moving forward. We appreciate FSM NG's commitment to strengthening internal controls and look forward to continued collaboration to resolve these matters.
Federal Agency: U.S. Department of Health and Human Services AL Program: 93.323 Epidemiology and Laboratory Capacity for Infectious Diseases Federal Award No.: NU50CK000513 Area: Procurement and Suspension and Debarment Questioned Costs: $394,309 Criteria: In accordance with 2 CFR section 180.300, entities that enter into covered transactions must verify that the person with whom they intend to do business is not excluded or disqualified by: a. Checking SAM.gov Exclusions; or b. Collecting a certification from that person; or c. Adding a clause or condition to the covered transaction with that person. Condition: For eight (or 100%) of eight purchase orders or contracts tested, totaling $394,309 of a total population of $2,012,233, FSMNG did not perform verification whether the individual or contractor was suspended or debarred prior to entering into a covered transaction. Cause: FSMNG lacks policies and procedures for verification of persons or contractors not suspended, debarred, or otherwise excluded prior to entering into a covered transaction. Effect: FSMNG is in noncompliance with applicable procurement and suspension and debarment requirements. Questioned costs of $394,309 is reported. Recommendation: FSMNG should implement formal procedures to document written evidence that, prior to entering into a covered transaction, a search had been performed to ensure the potential individual or contractor is not suspended, debarred, or otherwise excluded. Views of Responsible Officials: Management agrees with the finding but does not agree with the associated questioned costs. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: Questioned costs remain as the FSM National Government did not perform suspension and debarment procedures prior to entering into a covered transaction with a person or company.
Federal Agency: U.S. Department of Health and Human Services AL Program: 93.323 Epidemiology and Laboratory Capacity for Infectious Diseases Federal Award No.: NU50CK000513 Area: Reporting Questioned Costs: $-0- Criteria: In accordance with applicable reporting requirements, FSM National Government is required to submit an annual Federal Financial Report (SF-425) that are accurately presented, comparable and reconcilable. Condition: Of ten SF-425 reports tested, the following were noted: 1. For two (or 20%), the SF-425 reports were not provided. 2. Of ten SF-425 reports tested, for ten (or 100%), the underlying accounting records supporting the expenditure reported in the SF-425 reports were not provided: Cause: FSM National Government did not effectively monitor compliance with applicable reporting requirements to ensure all required reports are prepared. In addition, FSM National Government lacks adequate documentation and systematic filing of underlying accounting documents for reporting requirements. Effect: FSM National Government is in noncompliance with the applicable SF-425 reporting requirements. No questioned cost because we are unable to quantify the extent of noncompliance related to the submission of form SF-425. Recommendation: FSM National Government should improve its file maintenance system to help ensure documents over compliance requirements can be easily retrieved. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: Our request for tagging the documents is for those underlying accounting records that are part of the bulk files provided. Our engagement letter included a paragraph saying our scheduled performance is dependent on client providing a reasonable level of assistance. It is not the auditor’s responsibility to go through bulk files and search for underlying accounting records, but rather, it is the responsibility of the FSMNG to provide the specific underlying accounting records supporting program costs. Further, during our audit finding resolution meeting on 12/09/25, the FSMNG management acknowledged that the cited missing documents were in fact not made available during our audit fieldwork.
Federal Agency: U.S. Department of Health and Human Services AL Program: 93.323 Epidemiology and Laboratory Capacity for Infectious Disease Federal Award No.: NU50CK000513 Area: Cash Management Questioned Costs: $236,426 Criteria: In accordance with 2 CFR section 200.305(b)(3), reimbursement is preferred when the requirements in paragraph (b) cannot be met, when the Federal agency sets a specific condition per section 200.208. When the reimbursement method is used, the Federal agency or pass-through entity must make payment within 30 calendar days after receipt of the payment request unless the Federal agency or pass-through entity reasonably believes the request to be improper. Condition: Of forty transactions tested, aggregating $236,426 of a total population of $3,758,311, the following were noted: For forty (or 100%) samples tested, drawdown reports were not provided to substantiate that expenditures were incurred prior to the date of the reimbursement request. Cause: The FSM National Government lacked monitoring controls over adequate documentation and systematic filing of relevant documents supporting program costs. Effect: The FSM National Government appears to be in noncompliance with applicable cash management requirements and questioned cost of $236,426 is reported. Recommendation: The FSM National Government should strengthen and enforce compliance with the applicable cash management requirements and establish and implement systematic filing of relevant documentation supporting program costs for easy retrieval. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: The finding remains as we could not locate nor find the required documentation within the files provided.
Federal Agency: U.S. Department of Health and Human Services AL Program: 93.959 Block Grants for Prevention and Treatment of Substance Abuse Federal Award No.: 1B08TI083457-01, 6B08TI083457-01M001, 6B08TI083457-01M002, 6B08TI083457-01M003, 6B08TI083457-01M004, 1B08TI084652-01, 6B08TI084652-01M001, 6B08TI084652-01M002, COVID-19 1B08TI083536-01, COVID-19 6B08TI083536-01M001, COVID-19 6B08TI083536-01M002, COVID-19 6B08TI083536-01M003, COVID-19 1B08TI083948-01, COVID-19 6B08TI083948-01M001, and COVID-19 1B08TI084588-01 Area: Allowable Costs/Costs Principles Questioned Costs: $56,808 Criteria: In accordance with 2 CFR Part 200. Subpart E, cost must be necessary and reasonable for the performance of the federal award and be allocable thereto. Furthermore, costs must conform to any limitations or exclusions and be adequately documented. Condition: Of sixty expenditures tested, aggregating $84,703 of a total population of $997,874, for twenty-four (or 40%), the FSM National Government was unable to provide supporting documents, such as purchase requisition, contracts, invoices, receiving report or equivalent documentation and cancelled checks, to support that expenditures were for allowable costs and that payments were made to eligible parties or for eligible good or services. In addition, the purchase orders for TR Numbers 422031, 421187 and 413829 were also not provided. Cause: The FSM National Government did not provide sufficient and appropriate audit evidence to substantiate the expenditures over compliance with applicable allowable costs/cost principles requirement and lacks monitoring control over adequate documentation and systematic filing of relevant documentations supporting program costs. Effect: The FSM National Government is in noncompliance with applicable allowable costs/cost principles requirements and questioned cost of $56,808 result. Recommendation: The FSM National Government should strengthen and enforce compliance with the applicable allowable costs/cost principles requirements and establish and implement systematic filing of relevant documentation supporting program costs for easy retrieval. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: Our request for tagging documents was for those underlying accounting records that are part of the bulk files provided. Our engagement letter included a paragraph saying our scheduled performance is dependent on client providing a reasonable level of assistance. It is not the auditor’s responsibility to go through bulk files and search for underlying accounting records, but rather, it is the responsibility of the FSMNG to provide the specific underlying accounting records supporting program costs. It is also the responsibility of the FSMNG to coordinate audit requests within its department agencies. Further, during our audit finding resolution meeting on 12/09/25, the FSMNG management acknowledged that the cited missing documents were in fact not made available during our audit fieldwork.
Federal Agency: U.S. Department of Health and Human Services AL Program: 93.959 Block Grants for Prevention and Treatment of Substance Abuse Federal Award No.: 1B08TI083457-01; 6B08TI083457-01M001; 6B08TI083457-01M002; 6B08TI083457-01M003, 6B08TI083457-01M004; 1B08TI084652-01; 6B08TI084652-01M001; 6B08TI084652-01M002; COVID-19 1B08TI083536-01; COVID-19 6B08TI083536-01M001; COVID-19 6B08TI083536-01M002; COVID-19 6B08TI083536-01M003; COVID-19 1B08TI083948-01; COVID-19 6B08TI083948-01M001; and COVID-19 1B08TI084588-01 Area: Cash Management Questioned Costs: $56,464 Criteria: FSM National Government is on a cash management reimbursement basis. Accordingly, in accordance with 31 CFR Part 205.12(b)(5), reimbursable funding means that a Federal Program Agency transfers Federal funds to a nonfederal entity after the nonfederal entity has already paid out the funds for Federal assistance program purposes. Condition: Of forty drawdowns tested, aggregating $56,464 of a total population of $357,977, the following were noted: 1. For forty (or 100%), drawdown reports were not provided to substantiate that drawdowns were made subsequent to when the expenditures were incurred and paid. 2. For eight (or 20%), invoices and related payments were not provided to substantiate the drawdowns made for these expenditures. No questioned costs are presented as the amounts are questioned at Condition 1. Cause: The FSM National Government did not provide sufficient and appropriate audit evidence to substantiate that drawdowns were made subsequent to when the expenditures were incurred and lacked monitoring controls over adequate documentation and systematic filing of relevant documents supporting program costs. Effect: The FSM National Government is in noncompliance with applicable cash management requirements and questioned cost of $56,464 result for Condition 1. Recommendation: The FSM National Government should strengthen and enforce compliance with the applicable cash management requirements and establish and implement systematic filing of relevant documentation supporting program costs for easy retrieval. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: Our request for tagging documents was for those underlying accounting records that are part of the bulk files provided. Our engagement letter included a paragraph saying our scheduled performance is dependent on client providing a reasonable level of assistance. It is not the auditor’s responsibility to go through bulk files and search for underlying accounting records, but rather, it is the responsibility of the FSMNG to provide the specific underlying accounting records supporting program costs. Further, during our audit finding resolution meeting on 12/09/25, the FSMNG management acknowledged that the cited missing documents were in fact not made available during our audit fieldwork.
Federal Agency: U.S. Department of Health and Human Services AL Program: 93.959 Block Grants for Prevention and Treatment of Substance Abuse Federal Award No.: 1B08TI084652-01, 6B08TI084652-01M001, 6B08TI084652-01M002, 1B08TI083457-01, 6B08TI083457-01M001, 6B08TI083457-01M002, 6B08TI083457-01M003 and 6B08TI083457-01M004 Area: Period of Performance Questioned Costs: $147,206 Criteria: In accordance with the grant terms and conditions, funds awarded under the grant must be obligated and expended within the project period of performance. In addition, recipients must liquidate all obligations incurred under an award not later than ninety (90) days after the end of the award obligation and expenditure project period. Condition: 1. Of twenty-four expenditures tested for grant awards 1B08TI084652-01, 6B08TI084652-01M001 and 6B08TI084652-01M002, aggregating $15,426 of a total population of $61,833, for eighteen (or 75%), the FSM National Government was unable to provide supporting documents, such as purchase orders, contracts and/or cancelled checks, to support that expenditures were obligated/incurred within the period of performance end date of 09/30/23 and that were liquidated within the 90 days liquidation period. 2. Costs amounting to $132,758 were charged to grant awards 1B08TI083457-01, 6B08TI083457-01M001, 6B08TI083457-01M002, 6B08TI083457-01M003 and 6B08TI083457-01M004 with period of performance end date of 09/30/22. Grant extension documentation was not provided, for which the amount is questioned. Cause: 1. The FSM The FSM National Government did not provide sufficient and appropriate audit evidence to substantiate the expenditures over compliance with applicable period of performance requirement; 2. Inadequate monitoring controls in place to ensure that expenditures are obligated/incurred within the period of performance and liquidated within the liquidation period; and 3. Lacks monitoring control over adequate documentation and systematic filing of relevant documentations supporting program costs. Effect: The FSM National Government is in noncompliance with applicable period of performance requirements and questioned cost of $147,206 result. Recommendation: 1. The FSM National Government should strengthen and enforce compliance with the applicable period of performance requirements. 2. Establish and implement monitoring controls over the verification of period of performance ending dates prior to incurring and charging costs to a grant award and that such verification be adequately documented. 3. Establish and implement systematic filing of relevant documentation support program costs for easy retrieval. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: In accordance with the grant terms and conditions for grant awards 1B08TI083457-01, 6B08TI083457-01M001, 6B08TI083457-01M002, 6B08TI083457-01M003 and 6B08TI083457-01M004, recipients must liquidate all obligations incurred under an award not later than ninety (90) days after the end of the award obligation and expenditure period. It further states that SAMHSA does not approve extensions to the ninety (90) day post-award, therefore, recipients are expected to complete all work and reporting within the approved project period and the aforementioned 90-day post-award reconciliation/liquidation period. The period of performance end date was on 09/30/22 while the liquidation period end date was on 12/29/22. No approved grantor extension documentation was provided. Further, during our audit finding resolution meeting on 12/09/25, the FSMNG management acknowledged that the grant expired on 09/30/22; however, they continued charging and drawing down from the expired grant as the PMS system still allowed to drawdown funds.
Federal Agency: U.S. Department of Health and Human Services AL Program: 93.959 Block Grants for Prevention and Treatment of Substance Abuse Federal Award No.: 1B08TI083457-01, 6B08TI083457-01M001, 6B08TI083457-01M002, 6B08TI083457-01M003, 6B08TI083457-01M004, COVID-19 1B08TI083536-01, COVID-19 6B08TI083536-01M001, COVID-19 6B08TI083536-01M002, COVID-19 6B08TI083536-01M003, 1B08TI085814-01, 1B08TI084652-01, 6B08TI084652-01M001, 6B08TI084652-01M002, COVID-19 1B08TI083948-01 and COVID-19 1B08TI084588-01 Area: Reporting Questioned Costs: $-0- Criteria: 1. The recipient is required to submit a Federal Financial Report (SF-425), ninety (90) days after the close of the statutory grant period (45 CFR § 96.30) that are accurately presented, comparable and reconcilable. The SF-425 shall report total funds obligated and total funds expended by the grantee. 2. In accordance with grant terms and conditions, a grantee must report each action that obligates $25,000 or more in federal funds that does not include recovery funds (as defined in § 1512(a)(2) of the American Recovery and Reinvestment Act of 2009, Public Law 111-5) for a subaward to an entity. A grantee is exempt from Federal Financial Accountability and Transparency (FFATA) reporting requirements if in the previous year the grantee had gross income, from all sources, under $300,000. Condition: 1. Of two SF-425 reports tested, for two (or 100%), the underlying accounting records supporting the cash receipts and cash disbursements reported in the SF-425 reports were not provided: 2. FSM National Government had income for the prior fiscal year ended September 30, 2022 in excess of the $300,000 gross income exemption; however, the FSM National Government did not file the required reports in accordance with FFATA requirements. The following are the obligation actions in the amount of $25,000 or more in federal funds to subrecipients during FY2023: Cause: 1. FSM National Government lacks monitoring control in ensuring data included in the SF-425 reports are supported with underlying accounting records; and 2. FSM National Government lacks internal controls over the preparation and submission of the required FFATA reporting requirements as stipulated in the grant terms and conditions. Effect: FSM National Government is in noncompliance with the applicable SF-425 and FFATA reporting requirements. Identification as a Repeat Finding: Finding No. 2022-013. Recommendation: 1. FSM National Government should strengthen and enforce compliance over applicable reporting requirements; 2. Establish and implement monitoring controls over the preparation and submission of the required FFATA reports; and 3. Establish and implement systematic filing of relevant documentation for easy retrieval. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: Our request for tagging documents was for those underlying accounting records that are part of the bulk files provided. Our engagement letter included a paragraph saying our scheduled performance is dependent on client providing a reasonable level of assistance. It is not the auditor’s responsibility to go through bulk files and search for underlying accounting records, but rather, it is the responsibility of the FSMNG to provide the specific underlying accounting records supporting program costs. Further, during our audit finding resolution meeting on 12/09/25, the FSMNG management acknowledged that the cited missing documents were in fact not made available during our audit fieldwork.
Federal Agency: U.S. Department of Health and Human Services AL Program: 93.959 Block Grants for Prevention and Treatment of Substance Abuse Federal Award No.: 1B08TI084652-01; 6B08TI084652-01M001; 6B08TI084652-01M002; 1B08TI083457-01; 6B08TI083457-01M001; 6B08TI083457-01M002; 6B08TI083457-01M003; and 6B08TI083457-01M004 Area: Subrecipient Monitoring Questioned Costs: $639,897 Criteria: In accordance with 45 CFR § 75.352, pass-through entity (PTE) must: a. Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the following information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward. Required information includes: (1) Federal Award Identification; (2) All requirements imposed by the pass-through entity on the subrecipient so that the Federal award is used in accordance with Federal statutes, regulations and the terms and conditions of the Federal award; (3) Any additional requirements that the pass-through entity imposes on the subrecipient in order for the pass-through entity to meet its own responsibility to the U.S. Department of Health and Human Services (HHS) awarding agency including identification of any required financial and performance reports; (4) An approved federally recognized indirect cost rate negotiated between the subrecipient and the Federal Government or, if no such rate exists, either a rate negotiated between the pass-through entity and the subrecipient (in compliance with this part), or a de minimis indirect cost rate as defined in § 75.414(f); (5) A requirement that the subrecipient permit the pass-through entity and auditors to have access to the subrecipient's records and financial statements as necessary for the pass-through entity to meet the requirements of this part; and (6) Appropriate terms and conditions concerning closeout of the subaward. b. Evaluate each subrecipient's risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring described in paragraphs (d) and (e) of this section, which may include consideration of such factors as: (1) The subrecipient's prior experience with the same or similar subawards; (2) The results of previous audits including whether or not the subrecipient receives a Single Audit in accordance with subpart F, and the extent to which the same or similar subaward has been audited as a major program; (3) Whether the subrecipient has new personnel or new or substantially changed systems; and (4) The extent and results of HHS awarding agency monitoring (e.g., if the subrecipient also receives Federal awards directly from a HHS awarding agency). c. Consider imposing specific subaward conditions upon a subrecipient if appropriate as described in § 75.207. d. Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Pass-through entity monitoring of the subrecipient must include: (1) Reviewing financial and performance reports required by the pass-through entity. (2) Following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity detected through audits, on-site reviews, and other means. (3) Issuing a management decision for audit findings pertaining to the Federal award provided to the subrecipient from the pass-through entity as required by § 75.521. e. Depending upon the pass-through entity's assessment of risk posed by the subrecipient (as described in paragraph (b) of this section), the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals: (1) Providing subrecipients with training and technical assistance on program-related matters; and (2) Performing on-site reviews of the subrecipient's program operations; (3) Arranging for agreed-upon-procedures engagements as described in § 75.425. f. Verify that every subrecipient is audited as required by subpart F of this part when it is expected that the subrecipient's Federal awards expended during the respective fiscal year equaled or exceeded the threshold set forth in § 75.501. g. Consider whether the results of the subrecipient's audits, on-site reviews, or other monitoring indicate conditions that necessitate adjustments to the pass-through entity's own records. h. Consider taking enforcement action against noncompliant subrecipients as described in § 75.371 and in program regulations. Condition: 1. Of four subrecipients tested, aggregating $639,897 of a total population of $639,897, the following were noted for the four (or 100%) subawards that were made during FY2023: a. Risk assessments were not performed to evaluate each subrecipient's risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward; b. Subrecipient agreements were not provided to substantiate that every subaward is clearly identified to the subrecipient as a subaward and includes the required information at the time of the subaward; c. Monitoring activities were not performed to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved; and d. Verification that subrecipient required to be audited is audited as required by Subpart F were not performed. Total FY2023 subrecipient expenditures for all four subrecipients amounted to $639,897, for which the amount is questioned. 2. Of twelve (100%) subrecipient expenditures tested, aggregating $125,061 of a total population of $639,897, no evidence was provided to substantiate that payments, made by subrecipients to vendors, were done prior to the date FSM National Government made reimbursements to the subrecipient. In addition, reimbursement payments made to the subrecipients were not provided.. No questioned costs are presented as amounts are questioned at Condition 1. Cause: The FSM National Government does not have approved/adopted written subrecipient monitoring policies and procedures. In addition, the FSM National Government failed to enforce compliance with subrecipient monitoring requirements and lacks monitoring controls over the following: 1. Risk assessments and monitoring activities of a subrecipient to evaluate each subrecipient’s risk of noncompliance and to ensure that each subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward; and 2. Adequate documentation and systematic filing of relevant documentation supporting program costs. Effect: The FSM National Government is in noncompliance with applicable subrecipient monitoring requirements and questioned costs of $639,897 result for Condition 1. Recommendation: We recommend the FSM National Government establish an approved/adopted written subrecipient monitoring policies and procedures. In addition, the FSM National Government should implement monitoring internal control procedures over the following: 1. Evaluate each subrecipient's risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring described in paragraphs (d) and (e) of 45 CFR § 75.352; 2. Monitoring activities of a subrecipient to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward; 3. Verification that subrecipients are audited as required by subpart F; and 4. Adequate documentation and systematic filing of relevant documentation to support program costs. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: The audit conducted is at the FSM National Government level and not at the subrecipients level. Accordingly, as the pass-though entity, the FSM National Government must maintain adequate documentation of the required monitoring activities of its subrecipient. Further, in accordance with 2 CFR 200.1, questioned cost means an amount, expended or received from a Federal award, that in the auditor's judgment: (i) is noncompliant or suspected noncompliant with Federal statutes, regulations, or the terms and conditions of the Federal award; (ii) at the time of the audit, lacked adequate documentation to support compliance; or (iii) appeared unreasonable and did not reflect the actions a prudent person would take in the circumstances. Accordingly, as the FSM National Government was in noncompliance with the applicable subrecipient monitoring requirements and lacked adequate documentation to support compliance, questioned costs are retained.