Audit 399484

Finding No. 2025-047 Prior Year Finding: 2024-053 Federal Awarding Agency: U.S. Department of Agriculture (USDA) Impact: Material Weakness, Material Noncompliance AL Number and Title: 10.551, 10.561 Supplemental Nutrition Assistance Program (SNAP) Cluster Federal Award Number: 25AK35050292301, 24AK35050292301 Applicable Compliance Requirement: Allowable Costs/Cost Principles, Special Tests and Provisions Condition: The amount of FY 25 SNAP benefits reported to USDA as issued by the State’s Electronic Benefits Transfer (EBT) contractor, Fidelity National Information Services (FIS), was $1,235,577 more than the amount of authorized benefits reported in data from the Division of Public Assistance’s (DPA) Eligibility Information System (EIS). Furthermore, FIS could not provide a reliable audit trail of issuances. Context: DPA relies on its legacy eligibility system, EIS, to determine eligibility for SNAP and calculate monthly benefit amounts. Benefit amounts are calculated based on household size, income, and other financial resources of all qualifying members of a household, less specific allowable deductions. Each day EIS transmits an issuance batch file, including authorized beneficiaries and benefit amounts, to the State’s EBT contractor, FIS, which maintains accounts for each beneficiary. When an EBT card is utilized by a beneficiary, FIS functions as the intermediary between the State’s U.S. Treasury benefit account and the retailers by settling SNAP benefit transactions with retailers before drawing down federal reimbursement. The State is required to ensure its automated data processing systems accurately and completely process and store all case file information for eligibility determinations and benefit calculations, and provide the data necessary to meet federal issuance and reconciliation reporting requirements. A reconciliation of FIS issuance records with EIS authorized beneficiaries and benefit amounts demonstrates the completeness and accuracy of the EBT process. In FY 25, the EIS benefit data provided by DPA could not be reconciled to the amount of SNAP benefits issued per FIS data or the issuance amounts reported by DPA to USDA. Furthermore, FIS could not provide a detailed list of issuances to support the monthly amounts reconciled by DPA staff and reported to USDA. Cause: DPA management and FIS staff could not identify the cause of the variances. DPA’s outdated legacy eligibility system and the lack of daily reconciliations (see Finding No. 2025-049) contributed to the deficiencies. Criteria: Title 7 CFR 274.1(h) requires that the State agency create and maintain a master issuance file that consolidates records of all certified SNAP households, record participation activity for each household, and supply all information necessary to fulfill the reporting requirements outlined in Title 7 CFR 274.4. Title 7 CFR 274.4(a) requires the State to reconcile benefits posted to household accounts on the central computer against benefits on the issuance authorization file. Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Effect: Significant discrepancies between EIS benefit data and the EBT contractor’s issuance records undermine confidence in the eligibility system and may be indicative of significant unidentified processing errors. Inadequate system controls increase the risk of incorrect or ineligible benefits. Questioned Costs: AL 10.551: $1,235,577 Recommendation: DPA’s director should identify the cause of the discrepancies between EBT contractor issuance data and the State’s eligibility system and take action necessary to ensure SNAP benefit payments are supported by eligibility and benefit data. Views of Responsible Officials: The department agrees with the finding but does not concur with the questioned costs. The Division of Public Assistance completes reconciliations between FIS daily transaction records and EBT Account Management Agent (AMA) data to ensure issuance accuracy. Auditor’s Concluding Remarks: Management concurs with the finding, but not the questioned costs. Questioned costs are defined by Title 2 CFR 200.1, which states: Questioned cost means a cost that is questioned by the auditor because of an audit finding:  Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a federal award, including for funds used to match federal funds;  Where the costs, at the time of the audit, are not supported by adequate documentation; or  Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. Based on Uniform Guidance, the SNAP benefits issued that were not supported by eligibility determinations were reported as questioned costs.

Finding No. 2025-048 Federal Awarding Agency: USDA Impact: Material Weakness, Material Noncompliance AL Number and Title: 10.551, 10.561 SNAP Cluster Federal Award Number: 25AK35050292301, 24AK35050292301 Applicable Compliance Requirement: Allowable Costs/Cost Principles, Special Tests and Provisions Condition: Testing of 72 FY 25 SNAP EBT issuances found two automated EIS benefit calculations that did not consider an increase in unearned income related to Alaska’s Senior Benefits Program. Context: SNAP benefits are calculated based on household size, income, and other financial resources of all qualifying members of a household, less specific allowable deductions. The State is required to ensure the SNAP system accurately and completely processes and stores all case file information for eligibility determinations and benefit calculations, automatically cuts off households at the end of a certification period unless recertified, and provides the data necessary to meet federal issuance and reconciliation reporting requirements. SNAP recipients aged 65 or older with low to moderate income are eligible to receive monthly payments from the Senior Benefits Program. Senior benefit amounts are based on available state funding and the number of eligible applicants. Beginning August 1, 2024, monthly benefits increased from $49 to $125. For SNAP purposes, senior benefits are classified as unearned income and the increase should have been incorporated into all SNAP recipient benefit calculations completed after August 1, 2024. Between September 2024 and June 2025, on average, 6,277 SNAP households included at least one member aged 65 or older. The EIS benefit calculation errors were systematic and potentially impacted all SNAP households that include a senior member. Likely questioned costs exceed $25,000. Cause: Management stated that the system change implemented to increase senior benefits in EIS failed to adequately include the increase on prospective SNAP benefit calculations. DPA’s information system change management and monitoring procedures were insufficient to prevent or detect the processing flaw. Criteria: Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant award. Title 7 CFR 272.10(b) requires the State to use an automated data processing system for SNAP. The system is to be used to determine eligibility and calculate benefits or validate eligibility workers’ calculations by processing and storing all case file information necessary for the eligibility determinations and benefit computations including, but not limited to, all household members’ names, addresses, dates of birth, social security numbers, individual household members earned and unearned income by source, deductions, resources, and household size. Also, the system must be used to redetermine or revalidate eligibility and benefits based on notices of change in households’ circumstances. Title 7 CFR 274.1(a) requires the State to establish issuance and accountability systems which ensure that only certified eligible households receive benefits; that program benefits are timely distributed in the correct amounts; and that benefit issuance and reconciliation activities are properly conducted and accurately reported to USDA Food and Nutrition Service (FNS). Effect: Inadequate SNAP automated data processing controls increases the risk of incorrect or ineligible benefits. Errors in SNAP benefit determinations could result in federal sanctions and/or penalties imposed on DOH. Questioned Costs: AL 10.551: $660 Recommendation: DPA’s director should strengthen SNAP automated data processing controls to ensure EIS system changes are adequately evaluated prior to implementation. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-049 Federal Awarding Agency: USDA Impact: Material Weakness, Material Noncompliance AL Number and Title: 10.551, 10.561 SNAP Cluster Federal Award Number: 25AK35050292301, 24AK35050292301 Applicable Compliance Requirement: Allowable Costs/Cost Principles, Special Tests and Provisions Condition: DOH’s information technology staff did not properly limit user access to EIS during FY 25. Context: EIS is used to determine eligibility for SNAP. The details related to this control weakness and the relevant audit criteria are being withheld from this report to prevent the weakness from being exploited. Pertinent details have been communicated to agency management in a separate confidential document. Cause: The control weakness was attributed to human error and competing priorities. Criteria: Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant award. State of Alaska Information Security Policies provide specific criteria related to the identified deficiency. Effect: The internal control weakness increases the risk of unauthorized system use, including risk of data manipulation, which may result in ineligible benefit recipients or unallowable costs. Questioned Costs: None Recommendation: DOH’s Division of Finance and Management Services director should strengthen monitoring procedures to address the control weakness. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-050 Prior Year Finding: 2024-055 Federal Awarding Agency: USDA Impact: Material Weakness, Material Noncompliance AL Number and Title: 10.551, 10.561 SNAP Cluster Federal Award Number: 25AK35050292301, 24AK35050292301 Applicable Compliance Requirement: Special Tests and Provisions Condition: Daily SNAP EBT reconciliations were not performed in FY 25. Context: A state must have a system in place to reconcile, on a daily basis, all of the funds entering into, exiting from, and remaining in the system each day with a state’s U.S. Treasury benefit account and FIS’s records. States must also have systems in place to reconcile retailer credit activity as reported into the banking system to client transactions maintained by the processor and to the funds drawn down from the EBT benefit account with the U.S. Treasury. The reconciliation process ensures that a state only draws federal funds for authorized transactions. In FY 25, required daily reconciliations were not performed. Cause: According to DPA management, daily reconciliations were not performed due to inadequate procedures, staff turnover, and the lack of trained staff. Implementation of corrective action was also delayed due to inadequate system access for new staff. Criteria: Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant award. Title 7 CFR 274.4(a) requires that State agencies account for all issuance through a reconciliation process. The EBT system must provide reports and documentation pertaining to reconciliation. Reconciliations must be conducted and records kept as follows: • Verification of retailer’s credits against deposit information entered into the automated clearinghouse network; and • Reconciliation of total funds entered into, exiting from, and remaining in the system each day. Effect: The lack of daily reconciliations increases the risk of unidentified processing errors and unallowable costs, including potential non-federal liabilities. States are responsible for efficiently and effectively administering SNAP in accordance with federal laws, regulations, and the FNS approved Plan of Operations. A determination by FNS that the State has failed to comply with any of these requirements may result in a suspension or disallowance of the federal share of the State’s administrative funds. Questioned Costs: None Recommendation: DPA’s director should develop and implement daily reconciliation and monitoring procedures and train staff to ensure daily reconciliations are conducted in accordance with federal regulations. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-072 Federal Awarding Agency: United States Department of Agriculture (USDA) Impact: Significant Deficiency AL Number and Title: 10.859 Assistance to High Energy Cost Rural Communities Federal Award Number: AK0031-E84 Applicable Compliance Requirement: Allowable Costs/Cost Principles, Special Tests and Provisions Condition: Alaska Energy Authority (AEA) did not have controls in place for review of progress reports for this program. During our testing of reports, we noted that two of the five reports sampled did not have evidence of a formal review before submission. Context: We tested a sample of five reports and found two exceptions as noted in the condition. This is a condition identified per review of AEA’s compliance with specified requirements not using a statistically valid sample. Cause: AEA did not have controls in place to ensure that progress reports were reviewed by personnel independent of the preparers prior to submission to the federal agency. Criteria: 2 CFR 200.303, Internal Controls, requires that non-federal entities receiving federal awards establish and maintain internal control designed to reasonably ensure compliance with federal statues, regulations, and the terms and conditions of the federal award. Effect: Reports may contain inaccuracies, be incomplete, or fail to comply with the requirements outlined in 2 CFR 200.329 and the federal award. Questioned Costs: None Recommendation: AEA should establish procedures requiring all reports be reviewed and approved by personnel independent of the preparer prior to submission to federal agencies. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-076 Federal Awarding Agency: U.S. Department of Commerce Impact: Material Weakness, Noncompliance AL Number and Title: 11.307 – Economic Development Cluster – COVID-19 Federal Award Number: 2021 Applicable Compliance Requirement: Reporting Condition: The Alaska Industrial Development and Export Authority’s (AIDEA) controls were not designed to detect noncompliance in program income reported in AIDEA’s annual report. During our testing of reports, we noted that the annual report tested did not report interest earned on deposit accounts. The amount of interest income not included on the annual report totaled $167,023, which represents the cumulative interest income earned for the program from deposits since inception. Context: We tested the program's sole annual report and identified the exception as noted in the condition. This is a condition identified per review of AIDEA’s compliance with specified requirements not using a statistically valid sample. Cause: AIDEA had not reported program income in prior annual reports and the individual responsible for preparing the report was not aware of the program income reporting requirements. Criteria: Title 2 CFR 200.303, Internal Controls, requires the recipient or subrecipient establish, document, and maintain effective internal control over the federal award that provides reasonable assurance that the recipient or subrecipient is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Effect: The annual report submitted did include program income as required by the program requirements. Questioned Costs: None Recommendation: AIDEA should establish procedures requiring all reports be reviewed by personnel knowledgeable of the program's requirements prior to submission to federal agencies. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-041 Federal Awarding Agency: U.S. Department of Commerce (USDOC) Impact: Significant Deficiency, Noncompliance AL Number and Title: 11.438 Pacific Coast Salmon Recovery Pacific Salmon Treaty (PCSRT) Federal Award Number: NA24NMFX438G0026 Applicable Compliance Requirement: Reporting Condition: One of six PCSRT Federal Funding Accountability and Transparency Act (FFATA) reports tested was not submitted timely. Context: FFATA requires information on federal awards to be made available to the public through USASpending.gov. The FFATA reporting tool is available for federal awardees, such as the State of Alaska, to report subaward and executive compensation data for first-tier subawards. In FY 25 there were 19 PCSRT subawards totaling $11,782,618 that were subject to FFATA reporting of which the audit tested six totaling $7,978,619. The FFATA report for one subaward totaling $5,079,825 was reported 24 days late. Cause: Competing priorities and a backlog of subawards requiring FFATA reporting resulted in the subaward not being filed timely. Supervisory review and submission procedures were insufficient to ensure FFATA reports were filed timely. Criteria: Title 2 CFR Part 170 requires federal award recipients to report subawards of $30,000 or more to SAM.gov by the end of the month following the subaward obligation. Title 2 CFR 200.303(a) requires the State to establish, document, and maintain effective internal controls over Federal awards that provide reasonable assurance that the State is managing Federal awards in compliance with federal statutes, regulations, and the terms and conditions of federal awards. Effect: Failure to comply with FFATA reporting requirements reduces transparency and may jeopardize future federal funding. Questioned Costs: None Recommendation: DFG’s Division of Administrative Services (DAS) director should strengthen FFATA reporting review and submission procedures to ensure required reports are filed timely. Views of Responsible Officials: Alaska Department of Fish & Game (ADFG) disagrees with this finding. The FFATA report for the FY2025 NOAA subaward was submitted one month late due to resource constraints while our team was actively implementing a corrective action plan (CAP) for a prior Office of Inspector General (OIG) federal audit finding related to FFATA reporting timeliness. During this period, we prioritized fulfilling the CAP requirements, which included a comprehensive reconciliation of all subawards across federal programs to ensure accuracy and compliance. This intensive remediation effort temporarily impacted our ability to meet standard reporting timelines. The delay was not the result of a new or separate control failure, but rather a timing issue directly tied to the corrective work already underway. Importantly:  The NOAA FFATA report was completed accurately as part of the same remediation workflow.  The delay occurred while addressing the previously identified issue and was resolved within the corrective action period established with the OIG.  The root cause was the same issue identified in the existing finding, and not a new or systemic breakdown.  Updated internal controls and revised procedures were implemented during this period and now apply uniformly across all programs, including NOAA.  These corrective actions have resulted in timely, comprehensive, and fully implemented processes designed to prevent recurrence. Given that the late NOAA FFATA report occurred within the active corrective action window and was resolved through the same documented process, we view this as part of the previously identified issue rather than a separate instance of noncompliance. The corrective actions were completed as planned and have strengthened our reporting controls to ensure ongoing compliance. Auditor’s Concluding Remarks: Management’s response did not persuade the auditor to revise the finding. DFG management is responsible for complying with federal reporting requirements. We reaffirm the finding.

Finding No. 2025-042 Federal Awarding Agency: USDOC Impact: Significant Deficiency, Noncompliance AL Number and Title: 11.438 PCSRT Federal Award Number: NA24NMF4380259, NA24NMFX438G0056 Applicable Compliance Requirement: Reporting Condition: Two of four randomly selected FY 25 PCSRT SF-425 federal financial reports tested did not include the recipient share of expenditures. Context: The SF-425 is a required semi-annual federal financial form used for reporting on the financial status of federal grant awards. Recipients of PCSRT grants must submit semi-annual SF-425 reports for all active federal awards. During FY 25, 20 grant awards were subject to SF-425 submission for a total of 37 required reports filed. Four reports were selected for testing. The audit identified that the recipient share of expenditures (line 10j) reported for two federal awards was not completed. Cause: The errors were due to DFG staff misunderstanding instructions for completing SF-425 reports. Federal guidance on whether the State must report the recipient share of expenditures changed prior to the fiscal year. DFG report preparation and review procedures were insufficient to identify the revised reporting requirements. Criteria: Per Title 2 CFR 200.328(c), the State must submit financial reports as required by the federal award. Title 2 CFR 200.303(a) requires the State to establish, document, and maintain effective internal controls over Federal awards that provide reasonable assurance that the State is managing Federal awards in compliance with federal statutes, regulations, and the terms and conditions of federal awards. Effect: Inaccurate federal reporting may impair federal decision-making and may result in the federal awarding agency imposing additional conditions or taking corrective action, including additional reporting requirements or withholding/terminating funds. Questioned Costs: None Recommendation: DFG’s DAS director should strengthen procedures for the preparation and review of the SF-425 report to ensure submitted reports are accurate. Furthermore, the DAS director should work with the federal oversight agency to revise the incomplete SF-425 reports, as needed. Views of Responsible Officials: ADFG respectfully disagrees with the audit finding regarding SF-425 reporting and recipient share. During the audit period, the federal awarding agency transitioned to a new reporting system but did not issue updated written instructions, revised award terms, or formal guidance clarifying new SF-425 fields or reporting expectations. Under 2 CFR §200.328, recipients are required to submit financial reports as specified in the Federal award, and agencies may require only OMB-approved, government-wide data elements. No updated award terms or instructions were provided to ADFG during this transition. System behavior clearly indicated that certain fields were not applicable. In Grants Online, the fields were grayed out, signaling they were not required. In contrast, eRA Commons left these fields open without any explanation or guidance. NOAA now requires these fields, but this requirement was not communicated at the time of the transition. This inconsistency demonstrates that the agency had not finalized or communicated enforceable requirements for these fields during the reporting period. DFG acted reasonably and consistently based on the information available. It would be inappropriate to penalize DFG for continuing to report under prior requirements or omitting data in fields that were not previously required. The Uniform Guidance places responsibility on awarding agencies to provide clear written guidance, transition timelines, and clarification on new reporting requirements before they become enforceable. For these reasons, DFG requests that this finding be reconsidered. Our reporting complied with the award terms and the system instructions available at the time, and any changes introduced by the agency were not formally communicated or incorporated into our award during the relevant reporting period. Auditor’s Concluding Remarks: Management’s response did not persuade the auditor to revise the finding. DFG management reports that the federal agency did not provide updated written instructions or reporting requirements when the federal awarding agency transitioned to a new reporting system. However, DFG management is responsible for complying with federal reporting requirements. We reaffirm the finding.

Finding No. 2025-043 Federal Awarding Agency: USDOC Impact: Significant Deficiency, Noncompliance AL Number and Title: 11.438 PCSRT Federal Award Number: NA24NMFX438G0056 Applicable Compliance Requirement: Subrecipient Monitoring Condition: A review of six FY 25 PCSRT subrecipients’ subaward agreements found that one did not include an accurate unique entity identifier (UEI) that matched the subrecipient’s name. Context: All federal award recipients are required to have a UEI. DFG enters into awards with subrecipients using a subaward agreement. The subaward agreement lists the federal requirements that pertain to the subaward and must identify the subrecipient’s UEI. The audit reviewed six subaward agreements, and found that one contained an incorrect UEI. Cause: The finding was caused by human error. In preparing the subaward agreement, staff copied and pasted the UEI from a different subrecipient’s information. Supervisory review procedures were insufficient to detect and correct the error. Criteria: Title 2 CFR 200.332 requires pass-through entities to ensure that every subaward includes the required information at the time of the subaward. Required information includes the subrecipient’s name, which must match the name associated with the subrecipient’s UEI. Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. Effect: Not providing the correct UEI number hampers subaward reporting and may limit federal oversight of the PCSRT program. Questioned Costs: None Recommendation: DFG’s Commercial Fisheries Division director should strengthen supervisory review procedures to ensure federally required information is accurately identified in PCSRT subaward agreements. Views of Responsible Officials: ADFG disagrees with this finding. During the audit, it was noted that the UEI listed in the subaward agreement contained a copy-and-paste error. This discrepancy was promptly corrected once identified. Under 2 CFR 170, the official compliance requirement for subaward reporting is the Federal Funding Accountability and Transparency Act (FFATA) submission through SAM.gov. In this case:  The correct UEI was verified in SAM.gov.  The FFATA report contained the correct UEI and was submitted timely.  The correct subrecipient was paid, and supporting documentation confirmed the subrecipient’ s identity. These facts demonstrate that the federal reporting requirement was met and that the error was limited to the internal agreement. The issue did not result in improper payments, misreporting to federal systems, or a breakdown in internal controls. This was an isolated clerical error that was promptly corrected during the audit. It does not represent a significant deficiency or material weakness. This seems more appropriately categorized as a minor observation or management comment regarding document review processes. Auditor’s Concluding Remarks: Management’s response did not persuade the auditor to revise the finding. DFG management asserts the unique entity identifier number incorrectly recorded in the subaward agreement was correctly reported to sam.gov. However, the reporting of the subaward to sam.gov is a reporting requirement. DFG management is responsible for complying with federalsubrecipient monitoring requirements. We reaffirm the finding.

Finding No. 2025-075 Federal Awarding Agency: HUD Impact: Material Weakness AL Number and Title: 14.195, 14.249 Section 8 Project-Based Cluster Federal Award Number: AK901SR Applicable Compliance Requirement: Special Test and Provisions Condition: In our testing of special tests and provisions, annual housing quality inspections did not occur for seven units at one of the properties operating under Section 8 during 2025. Context: A non-statistical sample of 60 units out of 384 were selected for special test and provision testing. Cause: The property where the seven exceptions occurred, is the only project externally managed, and the property manager did not perform the inspections in a timely manner. Criteria: The Public Housing Agency or owner must provide housing that is decent, safe, and sanitary. To achieve this end, the Public Housing Agency or owner must perform housing quality inspections at the time of initial occupancy and at least annually thereafter to ensure that the units are decent, safe, and sanitary (24 CFR sections 880.612, 881.601, 882.516, 882.808(n), 883.701, 884.217, 886.123, and 886.323). Effect: Annual inspections did not occur on seven units at one of the properties during 2025. Questioned Costs: None Recommendation: AHFC management and those charged with governance should implement a compensating control at an overall Corporation level that ensures annual inspections are occurring at all properties operated under Section 8. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-073 Federal Awarding Agency: U.S. Department of Housing and Urban Development (HUD) Impact: Material Weakness AL Number and Title: 14.195,14.249 Section 8 Project-Based Cluster Federal Award Number: AK901SR Applicable Compliance Requirement: Eligibility Condition: In our testing of eligibility, there were seven instances where the required documentation for the tenant was not available from the project operating under Section 8 during 2025. Context: A non-statistical sample of 60 tenants out of 384 were selected for eligibility. Cause: The documentation was not filed or not retained. Criteria: The Public Housing Agency or owner should have an internal control system in place designed to provide for the retention and review of required documents as defined in the grant agreement and compliance supplement. Effect: All documents were not retained for seven tenants at certain projects during 2025. Questioned Costs: None Recommendation: Alaska Housing Finance Corporation (AHFC) management and those charged with governance should analyze the current control system and make the decision whether to accept the degree of risk associated with this condition around document retention and review or implement enhanced controls. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-074 Federal Awarding Agency: HUD Impact: Material Weakness AL Number and Title: 14.195, 14.249 Section 8 Project-Based Cluster Federal Award Number: AK901SR Applicable Compliance Requirement: Reporting Condition: In our testing of the Federal Funding Accountability and Transparency Act (FFATA), the required report was not filed during 2025. Context: AHFC had one obligating action subject to FFATA reporting. Cause: The documentation was not filed or not retained. Criteria: AHFC is required to submit FFATA information through the FFATA Subaward Reporting System (FSRS). Federal regulations require AHFC to report subawards of $30,000 or more to FSRS by the end of the month following the month in which the award was made. The Public Housing Agency or owner should have an internal control system in place designed to provide for the retention and review of required documents as defined in the grant agreement and compliance supplement. Effect: The required report under FFATA was not submitted during 2025. Questioned Costs: None Recommendation: AHFC management and those charged with governance should analyze the current control system and make the decision whether to accept the degree of risk associated with this condition around document retention and review or implement enhanced controls. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-044 Prior Year Finding: 2024-044 Federal Awarding Agency: U.S. Department of the Interior Impact: Material Weakness AL Number and Title: 15.605, 15.611 Fish and Wildlife Cluster (FWC) Federal Award Number: Multiple Applicable Compliance Requirement: Equipment and Real Property Management Condition: Auditors could not obtain sufficient appropriate evidence to verify compliance with FWC’s equipment and real property management requirements. Context: DFG is responsible for ensuring equipment, real property, and capital improvements, acquired with FWC funds, are used for an authorized purpose, sufficiently tracked, and appropriately disposed of in accordance with federal regulations. DFG began efforts in FY 25 to address equipment and real property management weaknesses found in the prior year audit. However, at the end of FY 25, corrective action was incomplete. In FY 25, DFG did not maintain sufficient evidence to demonstrate compliance with equipment and real property management requirements. DFG equipment and real property records did not reliably catalog the universe of equipment, real property, and capital improvements funded with FWC grant monies. Equipment records were incomplete and not trackable by funding source in the accounting system. As a result, the audit was unable to determine the extent of equipment purchased with FWC funds. Real property records had not been reconciled since 2019 and could not be matched with DFG site visit logs. The audit could not identify the FWC assets to be monitored and the extent of site visits conducted during the audit period, and whether the site visits included monitoring for authorized uses. Cause: DFG management attributed the deficiencies to a lack of department-wide procedures, staff turnover, and insufficient training. Criteria: Title 2 CFR 200.303 requires the State to establish and maintain effective internal controls over the federal award that provides reasonable assurance that the State is managing the federal award in compliance with federal statutes, regulations, and terms and conditions of the federal award. Title 2 CFR 200.311 and Title 50 CFR 80.134 requires the State to use real property for the purpose authorized in the grant for as long as it is needed for that purpose. When real property is no longer needed for the originally authorized purpose, property must be disposed of in accordance with federal requirements. Title 2 CFR 200.313 requires the State to use, manage and dispose of equipment acquired under a federal award in accordance with State laws and procedures. Such equipment must be used for the project or program for which it was acquired and for as long as needed. The State agency must maintain equipment property records, perform physical inventory of equipment, develop a control system, and perform regular maintenance of equipment. Title 50 CFR 80.133 requires the State to maintain acquired or completed capital improvements under FWC grants to ensure that each capital improvement continues to serve its authorized purpose during its useful life. Effect: The lack of department-wide procedures increased the risk that FWC funded assets were not used for authorized purposes and properly disposed of when no longer needed. Inadequate equipment tracking increased the risk of loss or theft. Further, noncompliance with federal regulations may result in the federal awarding agency imposing additional conditions or taking corrective action, including additional reporting requirements or withholding/terminating funding. Questioned Costs: Indeterminate Recommendation: DFG’s commissioner should continue efforts to ensure procedures are developed and training is implemented so that FWC funded equipment, real property, and capital improvements are fully identified and are managed in compliance with federal requirements. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-063 Federal Awarding Agency: U. S. Department of Transportation (USDOT) Impact: Significant Deficiency, Noncompliance AL Number and Title: 20.205 Highway Planning and Construction (HPC) Federal Award Number: 0956(036), 0A45(034), 0851(076), 0002(514), 0617(003), 0002(488), 0A43(024), 0A43(020) Applicable Compliance Requirement: Allowable Costs/Cost Principles Condition: Three of 40 timesheets tested (eight percent) were entered into the State’s accounting system with incorrect coding. Context: DOTPF’s staff allocated personal service costs to federal programs based on program, activity, and profile codes that identify specific federal highway projects. A supervisor reviews the coding and hours in the State’s accounting system to verify the accuracy of time entered by employees. A random sample of 40 timesheets that charged personal service costs to the HPC program in FY 25 was tested. Auditors found three timesheets were entered into the accounting system using incorrect program, activity, or profile codes, resulting in incorrect federal projects being charged. Cause: Human error resulted in timesheets being entered incorrectly. Additionally, supervisory review procedures were inadequate to identify and correct miscoded timesheets. Criteria: Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Title 2 CFR 200.430 requires that charges to federal awards for salaries and wages be based on records that accurately reflect the work performed. The records must be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Furthermore, the records must comply with the entity’s established accounting procedures. Effect: Incorrect coding of personal service expenditures may result in project managers relying on misclassified information to manage and report on the status of the project. The lack of adequate controls could result in unallowable personal services expenditures. Noncompliance with federal regulations may result in the federal awarding agency imposing additional conditions or taking corrective action including withholding/terminating funding. Questioned Costs: None Recommendation: DOTPF’s Division of Administrative Services (DAS) director should provide training to staff on timesheet processing procedures and strengthen supervisory review procedures to ensure personal service expenditures are accurately charged to federal projects. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-064 Federal Awarding Agency: USDOT Impact: Significant Deficiency, Noncompliance AL Number and Title: 20.205 HPC Federal Award Number: 0956(028), 0391(017), 0920(032), 0932(055), 0003(309) Applicable Compliance Requirement: Procurement and Suspension and Debarment Condition: Four of four judgmentally selected engineering and design-related professional service procurements were not publicly noticed on the Alaska Online Public Notice System. Context: DOTPF uses AASHTOWare, a web-based application designed for States to manage preconstruction and construction processes. A platform of AASHTOWare called BidX was used by DOTPF procurement staff to advertise and award contracts via the department’s webpage. DOTPF added this method of advertising for construction-related professional services to more closely align with the construction bidding process. DOTPF’s federally approved written procedures for procuring engineering and design-related services requires that DOTPF advertise all engineering and design-related service requests on the department’s internet home page and on the State’s Online Public Notice System. Of the 31 FY 25 engineering and design-related professional services procurements, the audit reviewed four randomly selected and four judgmentally selected procurements. All four judgmentally selected procurements were from the Southcoast region. According to DOTPF procurement staff, during FY 25, Southcoast region procurements were advertised solely on BidX and were not posted on the State’s Online Public Notice System. Cause: Failure to publicly notice the procurements on the Alaska Online Public Notice System was due to human error. Additionally, the Southcoast region lacked monitoring controls to ensure professional service procurements were advertised on the State’s Online Public Notice System. Criteria: Title 23 CFR 172.5(c) requires the State to prepare and maintain federally approved written policies and procedures for the procurement, management, and administration of engineering and design related consultant services. Title 2 CFR 200.317 requires that States, when procuring property and services under a federal award, to follow the same policies and procedures it uses for procurements from its non-federal funds. The State’s procurement policies are outlined in the State Procurement Code – AS 36.30. Alaska Statute 36.30.130(a) requires the procurement officer to give adequate public notice of the invitation to bid at least 21 days before the date for the opening of bids. Notice shall be posted on the Alaska Online Public Notices System. Effect: Noncompliance with federal solicitation requirements may have prohibited qualified vendors from being considered for a contract award. Questioned Costs: None Recommendation: DOTPF’s chief contracts officer should strengthen procedures to ensure all engineering and design-related professional services solicitations are advertised on the State’s Online Public Notice System. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-065 Federal Awarding Agency: USDOT Impact: Significant Deficiency, Noncompliance AL Number and Title: 20.205 HPC Federal Award Number: Various Applicable Compliance Requirement: Procurement and Suspension and Debarment Condition: The indirect cost rate in two of 11 FY 25 consultant contracts tested (18 percent) were incorrect. Context: If an indirect cost rate has not been established by a federal cognizant agency, DOTPF staff must evaluate a consultant’s indirect cost rate and calculate an appropriate rate. Consultants submit financial information to DOTPF’s Internal Review section staff that perform an audit to establish an audited indirect cost rate. The audited indirect cost rate is sent to the consultant. The consultant may either accept or reject the rate. Once a consultant accepts the rate, the signed certificate of indirect cost rate is forwarded to DOTPF’s regional procurement staff. Regional procurement staff send an email to project managers, who are also the contract managers for the professional service procurements, informing them of the consultant’s revised indirect cost rate. Of the 31 FY 25 engineering and design-related professional services procurements, the audit reviewed four randomly selected and four judgmentally selected procurements. Indirect rates were tested for all 11 consultant contracts related to the eight procurements. For the two errors noted, the consultant’s contracts were not updated with the approved FY 25 indirect cost rate. Cause: Although project managers received notification when a consultant’s indirect cost rate was revised, DOTPF lacked procedures to ensure revised indirect cost rates were accurately billed by consultants. A new procedure to record the indirect cost rate as “on file” in contracts rather than issuing an amendment to the contract contributed to the errors. Furthermore, project manager review procedures were insufficient to ensure consultant invoices billed the correct indirect cost rates. Criteria: Title 23 CFR 172.11(b)(1) requires indirect cost rates to be updated on an annual basis in accordance with the consultant’s annual accounting period and in compliance with the federal cost principles. Once an indirect cost rate is accepted, contracting agencies must apply such indirect cost rates for the purposes of contract estimation, negotiation, administration, reporting, and contractor payments. A consultant’s accepted indirect cost rate for its one-year applicable accounting period must be applied to contracts. The federally approved Professional Services Agreement manual, dated January 2018, requires that the contract manager review consultant billings and certify that invoices are “valid and accurate.” Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. Effect: One consultant’s invoices included an indirect cost rate higher than the revised rate, resulting in the federal program being overcharged, whereas the other consultant submitted invoices that undercharged the federal program. Questioned Costs: None Recommendation: DOTPF’s regional directors should strengthen procedures to ensure project managers invoice review includes verification that the consultant’s indirect cost rate is accurate. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-066 Federal Awarding Agency: USDOT Impact: Significant Deficiency, Noncompliance AL Number and Title: 20.205 HPC Federal Award Number: 0A41(034), 0902(042), 0A31(035), 0772(001) Applicable Compliance Requirement: Special Tests and Provisions Condition: Contractor certified payrolls for four of 11 construction projects tested were not submitted during FY 25. Context: All laborers and mechanics employed by contractors or subcontractors that perform work on construction projects in excess of $2,000 financed by federal funds must be paid wages not less than the prevailing wage rates established by the Department of Labor and Workforce Development for a project’s locality. To ensure compliance with federal regulations, required provisions for federal-aid construction contracts are included in the contractors’ contract. The provision outlines the frequency and method for submission of certified payrolls to the contracting agency and requires contractors and subcontractors to submit a certified copy of payrolls for each week of contract work. Contractors and subcontractors submit payroll submissions electronically to DOTPF using AASHTOWare. Cause: DOTPF lacked adequate procedures for project staff to oversee contractors’ and subcontractors’ submission of certified payrolls to ensure federal requirements were met. According to DOTPF programming staff, AASHTOWare lacked the ability to automatically send notifications to contractors for missing certified payrolls. Although training was provided to project staff to help ensure certified payrolls were appropriately reviewed, approved, or rejected; due to competing priorities, project staff did not regularly generate payroll status reports and follow up on missing certified payrolls. Criteria: Title 29 CFR 3.4 requires that each certified payroll be delivered by the contractor or subcontractor within 7 days after the regular payment date of the payroll period. Title 2 CFR 200.318(b) requires that recipients and subrecipients maintain oversight to ensure contractors perform in accordance with the terms, conditions, and specifications of their contracts. Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. Effect: Federal agencies may suspend future payments, advances, or guarantee of future funds if a state does not comply with prevailing wage rate requirements. Questioned Costs: None Recommendation: DOTPF’s Division of Statewide Design and Engineering Services director should implement procedures and continue to provide training to ensure project staff perform timely review of contractors’ and subcontractors’ payroll submission to comply with federal requirements. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-067 Federal Awarding Agency: USDOT Impact: Significant Deficiency, Noncompliance AL Number and Title: 20.205 HPC Federal Award Number: 0711(076) Applicable Compliance Requirement: Special Tests and Provisions Condition: DOTPF’s statewide value engineering (VE) coordinator omitted one project with a VE analysis in the FFY 2025 annual VE summary report submitted to the Federal Highway Administration (FHWA). Context: State transportation departments are required to ensure that a VE analysis is performed on projects that are located on the National Highway System (NHS) with an estimated total project cost of $50 million or more that utilize federal highway funding; bridge projects located on the NHS with an estimated total cost of $40 million or more that utilize federal highway funding; and any other projects that the FHWA determined to be appropriate. DOTPF’s VE program is overseen by the State VE coordinator; however, identifying, tracking, and monitoring the VE analysis of projects is a coordinated effort between regional VE coordinators and project managers. VE data is forwarded to the State VE coordinator who prepares an annual report of projects with VE analysis, including the number of approved project recommendations. The report is forwarded to the chief engineer who signs and submits the report to FHWA. Cause: Although procedures were in place for the State VE coordinator to independently monitor projects requiring a VE analysis, human error resulted in the omission of one VE project on the annual report to FHWA. Additionally, supervisory review of the annual VE report was insufficient to identify and correct the omission. Criteria: Title 23 CFR 627.5(a) requires a VE analysis be conducted prior to the completion of final design on each applicable project that utilizes Federal-aid highway funds. Title 23 CFR 627.7(a)(5) requires the State’s VE program establish and document policies, procedures, and controls to ensure a VE analysis is conducted and the results of these analyses are included in the VE program monitoring and reporting. Title 23 CFR 627.7(c) requires the State to designate a VE program coordinator to promote and advance VE program activities and functions. The VE coordinator's responsibilities should include establishing and maintaining the State’s VE policies and procedures; ensuring VE analyses are conducted on applicable projects; monitoring, assessing, and reporting on the VE analyses conducted and VE program; submitting the required annual VE report to the FHWA; and supporting the other elements of the VE program. Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. Effect: Incomplete and/or inaccurate reporting reduces transparency, impairs decision-making, and may impair the federal oversight agency’s ability to properly oversee the program. Questioned Costs: None Recommendation: DOTPF’s Statewide Design and Engineering Services director should strengthen review procedures to ensure the annual VE report includes all projects with a VE analysis. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-068 Federal Awarding Agency: USDOT Impact: Significant Deficiency, Noncompliance AL Number and Title: 20.532 Passenger Ferry Grant Program, Electric or Low-Emitting Ferry Pilot Program, and Ferry Service for Rural Communities Program (PFG) Federal Award Number: AK-2024-005 Applicable Compliance Requirement: Allowable Costs/Cost Principles Condition: For two out of 40 timesheets tested (five percent), the employee’s hours were inaccurately recorded in the State’s accounting system. Context: Alaska Marine Highway System (AMHS) payroll costs are calculated based on regular hours worked, overtime hours worked, hazardous activities performed, and the type of work completed. These details are recorded on employee timesheets via various coding. For two AMHS employees, the amounts entered into the State accounting system did not accurately reflect overtime or the correct pay associated with the activities performed, resulting in incorrect employee compensation. Cause: Human error resulted in the incorrect entries into the State accounting system. Review procedures were insufficient to detect and correct the data entry errors. Criteria: Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Title 2 CFR 200.430 requires that charges to federal awards for salaries and wages be based on records that accurately reflect the work performed. The records must be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Furthermore, the records must comply with the entity’s established accounting procedures. Effect: Incorrect recording of employee time in the accounting system can result in unallowable compensation. Inadequate controls increase the risk of noncompliance. Noncompliance with federal regulations may lead the federal awarding agency to impose additional conditions or take corrective actions, including withholding or terminating funding. Questioned Costs: None Recommendation: DOTPF’s DAS director should provide staff training on timesheet processing and strengthen supervisory review procedures to ensure employee hours are properly input into the State’s accounting system. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-026 Federal Awarding Agency: U.S. Department of Treasury (US Treasury) Impact: Significant Deficiency AL Number and Title: 21.029 Coronavirus Capital Projects Fund (CCPF) – COVID-19 Federal Award Number: CPFFN0180 Applicable Compliance Requirement: Reporting Condition: During FY 25, DCCED did not have procedures for the preparation and submission of reports under the Federal Funding Accountability and Transparency Act (FFATA) for CCPF subrecipients. Context: FFATA mandates that information on federal awards be publicly accessible through a single, searchable website: www.usaspending.gov. The reporting process implemented by DCCED was completed by a single individual without procedures to ensure accurate reporting. Cause: DCCED staff were unsure as to why procedures were not created for FFATA reporting and stated that staff turnover was a contributing factor. Criteria: Per 2 CFR 200.303(a), the State is required to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Effect: Without procedures, inaccurate reports may be submitted thereby reducing the federal oversight agency’s ability to adequately manage the program. Questioned Costs: None Recommendation: DCCED’s Division of Community and Regional Affairs (DCRA) director should develop and implement procedures for the preparation and submission of FFATA reports. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-027 Federal Awarding Agency: US Treasury Impact: Significant Deficiency, Noncompliance AL Number and Title: 21.029 CCPF – COVID-19 Federal Award Number: CPFFN0180 Applicable Compliance Requirement: Reporting Condition: For two of two CCPF 2025 Quarterly Obligations and Expenditure Reports reviewed, key line items for current period obligation and current period expenditures were inaccurate, and actual square footage of completed projects was unsupported. Context: CCPF reporting requirements mandate that subrecipients submit Quarterly Obligations and Expenditure Reports. These reports must be supported by adequate documentation. Support was not available for the reported actual square footage of completed projects on both quarterly reports. In addition, current period obligations and current period expenditures were inaccurate for multiple projects on both quarterly reports. Cause: Due to human error and staff turnover, DCCED lacked written procedures on CCPF reporting and documentation requirements. Criteria: Per 31 CFR 35.4, recipients must provide periodic reports to the Secretary or her delegate detailing the use of funds and other requested information necessary for program administration. Per 2 CFR 200.303(a), the State is required to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Effect: Inaccurate reporting may reduce the federal oversight agency’s ability to adequately manage the program. Questioned Costs: None Recommendation: DCRA’s director should implement procedures to ensure the accurate reporting of Quarterly Obligations and Expenditure Reports and submit corrected reports. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-010 Federal Awarding Agency: General Services Administration (GSA) Impact: Significant Deficiency AL Number and Title: 39.003 Donation of Federal Surplus Personal Property Federal Award Number: Not Applicable Applicable Compliance Requirement: Eligibility Condition: Internal controls to ensure applicants were eligible to receive donations of federal surplus personal property were not consistently applied. Context: Testing a random sample of seven out of 35 donee applications received during FY 25 identified two for which Alaska State Agency for Surplus Property (AKSASP) staff did not follow established application approval procedures. The approval procedures required one employee process and review an application with a different employee responsible for secondary review and approval, both signing the application accordingly. One of the errored applications was not signed by AKSASP staff. The other errored application was signed by the AKSASP secondary reviewer; however, the secondary reviewer’s signature and the approval letter issued to the applicant were both dated prior to the signature of the initial AKSASP application processor and reviewer. Cause: The audit found a lack of AKSASP training regarding the importance of implementing and following internal control processes for managing the Donation of Federal Surplus Personal Property program. Criteria: Title 41 CFR 102-37.385 gives AKSASP the responsibility for determining applicant eligibility to participate in the program. Title 2 CFR 200.303 requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. These internal controls should be in compliance with guidance in “Standards for Internal Control in Federal Government,” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Effect: Without proper controls, ineligible applicants may be approved to participate in the program and receive federal surplus property. Questioned Costs: None Recommendation: DOA’s State Property Manager should provide training to AKSASP staff regarding the importance of, and requirements for, maintaining a proper system of internal control over processing applications for program eligibility. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-011 Federal Awarding Agency: GSA Impact: Significant Deficiency AL Number and Title: 39.003 Donation of Federal Surplus Personal Property Federal Award Number: Not Applicable Applicable Compliance Requirement: Reporting Condition: AKSASP lacked internal controls for the preparation and submission of the quarterly GSA 3040 State Agency Monthly Donation Report of Surplus Personal Property. Context: The GSA 3040 report is required to be submitted on a quarterly basis reporting federal receipts and donated surplus property amounts. The report provides information on what types of donees received federal surplus property. The reporting process implemented by AKSASP is completed by a single individual with no oversight or secondary review to ensure accurate reporting. Cause: AKSASP staff had not received training on the requirements to implement effective internal controls over federal program operations to ensure compliance with program requirements. Criteria: Title 2 CFR 200.303 requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. These internal controls should be in compliance with guidance in “Standards for Internal Control in Federal Government,” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by COSO. Effect: Without adequate internal controls, inaccurate reports may be submitted thereby reducing the federal oversight agency’s ability to adequately manage the program. Questioned Costs: None Recommendation: DOA’s State Property Manager should develop and implement internal controls over the preparation and submission of GSA 3040 reports. Furthermore, management should provide training to AKSASP staff on the importance of, and requirements for, maintaining a proper system of internal control over federal reporting requirements. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-012 Federal Awarding Agency: GSA Impact: Material Weakness, Material Noncompliance AL Number and Title: 39.003 Donation of Federal Surplus Personal Property Federal Award Number: Not Applicable Applicable Compliance Requirement: Special Tests and Provisions Condition: AKSASP staff did not conduct an annual inventory of federal surplus personal property. Context: Completing an inventory is necessary to ensure accurate records of surplus inventory. Cause: According to the agency, the state property warehouse experienced staffing shortages and prioritized available staff resources for receiving and distributing property, which delayed completion of an annual inventory in FY 25. In addition, there were no significant internal controls implemented to ensure an annual inventory was conducted in accordance with the State Plan of Operation. Criteria: AKSASP must have a State Plan of Operation approved by the GSA to comply with Title 41 CFR 102-37.135. Alaska’s State Plan of Operation includes a requirement to conduct at least one complete inventory each fiscal year of all material in possession of the AKSASP. Effect: Failure to conduct an inventory at least annually increases risk for inventory mismanagement, improper record keeping, and theft of surplus property. In addition, unrecorded inventory may not be made available to eligible recipients for donation. Questioned Costs: None Recommendation: DOA’s State Property Manager should allocate sufficient resources to conduct an inventory of federal surplus property and implement internal controls to ensure an inventory is completed at least annually. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-013 Federal Awarding Agency: GSA Impact: Material Weakness, Material Noncompliance AL Number and Title: 39.003 Donation of Federal Surplus Personal Property Federal Award Number: Not Applicable Applicable Compliance Requirement: Special Tests and Provisions Condition: In FY 25, AKSASP did not consistently conduct required utilization reviews for donated property to ensure the property was being used in compliance with the terms and conditions of the donation. Context: Testing a random sample of 24 donated items requiring a utilization review identified five items were not reviewed, or not reviewed timely, and one item was not put into service by the donee and AKSASP staff did not take action to resolve donee noncompliance. Cause: AKSASP staff did not receive training on the requirements to implement effective internal controls over federal program operations to ensure compliance with program requirements. Additionally, there were no significant internal controls implemented to ensure utilization reviews were conducted in accordance with the State Plan of Operation. Criteria: AKSASP must have a State Plan of Operation approved by the GSA in accordance with 41 CFR 102-37.135. Alaska’s State Plan of Operation includes a requirement to conduct utilization reviews of all donated assets with a federal acquisition value of $5,000 or greater. Effect: Failure to conduct utilization reviews in accordance with the State Plan may result in the misuse of federal assets, or abuse of the donation program going undetected. Questioned Costs: None Recommendation: DOA’s State Property Manager should develop and implement procedures and improve staff training to ensure compliance with performance of property utilization reviews. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-028 Federal Awarding Agency: U.S. Environmental Protection Agency (EPA) Impact: Significant Deficiency, Noncompliance AL Number and Title: 66.202 Congressionally Mandated Projects (CMP) Federal Award Number: 02J80201 Applicable Compliance Requirement: Allowable Costs/Cost Principles Condition: One of 10 employee timesheets tested did not support the charges billed to the CMP program. Context: DCCED staff log work hours on timesheets, which includes coding personal service costs to the Rural Utility Business Advisor (RUBA) program . Of the 10 timesheets tested, one timesheet indicated that only a portion of time worked was chargeable to RUBA; however, 100 percent of the employee's time was erroneously charged to the program. Cause: According to DCCED management, the unsupported charges were due to a data entry error. The data entry error was not detected by payroll processing staff due to insufficient review procedures. Criteria: Title 2 CFR 200.303 requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and terms and conditions of the grant awards. Title 2 CFR 200.430(g)(1) states that charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated; and support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one federal award; a federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. Effect: Insufficient payroll processing controls increase the risk of noncompliance and unallowable costs. Noncompliance with federal regulations may result in the federal awarding agency imposing additional conditions or taking corrective action, including reducing/terminating federal funding. Questioned Costs: $2,273 Recommendation: DCCED’s DCRA director should strengthen timesheet processing, review, and approval procedures to ensure personal service costs charged to CMP are accurate and allowable. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-059 Federal Awarding Agency: U.S. Environmental Protection Agency (EPA) Impact: Significant Deficiency, Noncompliance AL Number and Title: 66.202 Congressionally Mandated Projects (CMP) Federal Award Number: 01J83401, 02J14601 Applicable Compliance Requirement: Reporting Condition: Unliquidated obligations as reported in two of three tested SF-425 Federal Financial Reports were inaccurate. Context: Recipients of EPA grants must submit annual SF-425 Federal Financial Reports for all active federal awards. During FY 25, five grant awards were subject to SF-425 submission of which three were tested. The audit identified that the federal share of unliquidated obligations (line 10f) reported for two federal awards were overstated by $543,052 and $523,069, respectively. DEC staff inadvertently included the State’s share of unliquidated obligations in the report. Cause: The errors were due to insufficient procedures over the preparation and review of SF-425 reports. Criteria: Title 2 CFR 200.328(c) requires the State to submit financial reports as required by the federal award. Title 2 CFR 200.303(a) requires the State to establish, document, and maintain effective internal controls over Federal awards that provide reasonable assurance that the State is managing Federal awards in compliance with federal statutes, regulations, and the terms and conditions of federal awards. Effect: Inaccurate federal reporting may impair federal decision-making and may result in the federal awarding agency imposing additional conditions or taking corrective action, including additional requirements or withholding/terminating funds. Questioned Costs: None Recommendation: DEC’s DAS director should strengthen procedures for the preparation and review of the SF-425 report to ensure reports submitted to EPA are accurate. Furthermore, the DAS director should work with the federal oversight agency to revise the inaccurate SF-425 reports, as needed. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-060 Federal Awarding Agency: EPA Impact: Significant Deficiency, Noncompliance AL Number and Title: 66.202 CMP Federal Award Number: 02J40501, 02J76901, 02J80901 Applicable Compliance Requirement: Reporting Condition: DEC did not fully comply with Federal Funding Accountability and Transparency Act (FFATA) reporting requirements applicable to FY 25 CMP subawards. Context: FFATA requires information on federal awards to be made available to the public through USASpending.gov. SAM.gov is the reporting tool federal awardees, such as the State of Alaska, use to report subaward and executive compensation data for first-tier subawards. In FY 25 there were 11 CMP subawards subject to FFATA reporting of which the audit tested seven totaling $8,965,396. One subaward totaling $4,665,000 was not reported. In addition, the reported subaward action date for three subawards did not agree with the date the subaward agreement was signed. The three subawards with the inaccurate data element totaled $763,279. Cause: According to DEC management, staff turnover, legacy system (FSRS.gov) limitations, and insufficient review procedures contributed to the errors and omissions. According to DEC management, the $4.7 million subaward was not reported due to the submission inadvertently being left in draft status in SAM.gov. Once identified by auditors, management subsequently completed the reporting. Criteria: Title 2 CFR Part 170 requires recipients of federal grants or cooperative agreements to report subawards of $30,000 or more to SAM.gov by the end of the month following the subaward obligation. Title 2 CFR 200.303(a) requires the State to establish, document, and maintain effective internal controls over Federal awards that provide reasonable assurance that the State is managing Federal awards in compliance with federal statutes, regulations, and the terms and conditions of federal awards Effect: Failure to comply with FFATA reporting requirements reduces transparency and may jeopardize future federal funding. Questioned Costs: None Recommendation: DEC’s DAS director should strengthen FFATA reporting review and submission procedures to ensure required reports are filed timely and key data elements comply with federal reporting requirements. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-023 Federal Awarding Agency U.S. Department of Education Impact: Significant Deficiency AL Number and Title: 84.027, 84.173 Special Education Cluster Federal Award Number: H173A240019, H027A240016 Applicable Compliance Requirement: Matching, Level of Effort, Earmarking Condition: The Coordinated Early Intervening Services (CEIS) budgets for two Local Education Agencies (LEA) exceeded the allowable federal limit. Context: The federal Individuals with Disabilities Education Act allows LEAs to use Special Education Cluster funds to provide CEIS services to K-12 students to reduce the need for special education services. LEAs identified by DEED as having significant disproportionality in the identification, placement, or discipline of students with disabilities are required to reserve the maximum allowable amount of funds to provide CEIS services to address factors contributing to the significant disproportionality. The maximum allowable amount for CEIS services is 15 percent of the Special Education allocation. In accordance with Title 34 CFR 300.646, DEED staff conducts an annual review of LEA data to determine whether significant disproportionality exists. Two LEAs were identified as having significant disproportionality in FY 25. DEED management has implemented budgetary controls in the Grant Management System (GMS) to ensure compliance with Special Education Cluster earmarking requirements. DEED program staff perform an initial review of the LEA’s requested CEIS amounts. A separate individual performs a final review and approves the LEA budget in GMS. LEA reimbursement requests are approved by DEED grant staff based on the budget established in GMS. The audit found that both LEAs with significant disproportionality in FY 25 had GMS budgets that exceeded 15 percent of the Special Education allocation; one by $876 and one by $34,358. Cause: For the two LEAs in question, DEED grant staff incorrectly used FY 24 budget data to calculate the FY 25 CEIS budget 15 percent limit which caused the CEIS budgets in GMS to exceed the maximum allowable amounts. DEED management’s review procedures over the setup of LEA CEIS budgets were not sufficient to prevent or detect the errors. Criteria: Title 34 CFR 300.226 requires an LEA to reserve no more than 15 percent of their Special Education Cluster allocation to provide CEIS services. Per 2 CFR 200.303(a), the State is required to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Per 34 CFR 300.646(d) the State shall require any LEA identified with significant disproportionality to reserve the maximum amount of funds to provide CEIS services to address factors contributing to the significant disproportionality. Effect: Inadequate internal controls increase the risk that expenditures may be unallowable due to LEAs exceeding the federally set CEIS limit, or may result in LEAs identified as having significant disproportionality to budget for the wrong CEIS amount. Furthermore, noncompliance with federal regulations may result in the federal awarding agency imposing additional conditions or taking corrective action including adding reporting requirements or withholding/terminating funding. Questioned Costs: None Recommendation: DEED's Innovation and Education Excellence director should update procedures to ensure LEA CEIS budgets comply with federal earmarking requirements. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-051 Prior Year Finding: 2024-056 Federal Awarding Agency: U.S. Department of Health and Human Services (USDHHS) Impact: Significant Deficiency, Noncompliance AL Number and Title: 93.558 Temporary Assistance for Needy Families (TANF) Federal Award Number: 2501AKTANF, 2401AKTANF Applicable Compliance Requirement: Eligibility Condition: Five of sixty TANF recipient case files tested lacked adequate documentation to indicate that the participant met all eligibility criteria. The following errors were noted: • One case had the monthly benefit the individual calculated incorrectly causing an underpayment to the individual. • One case lacked documentation to verify if an 18 year old was attending high school and expected graduation date. • Three cases did not contain a child support cooperation form that assigns to the State the rights the family member may have for support from any other person. Context: The State is required to ensure only financially needy families consisting of a minor child living with a parent or other caretaker relatives receive TANF assistance. The State reviews applications, identifies income and financial resources, and makes a determination whether a family is eligible to receive benefits, including the amount of the benefits. As part of verifying TANF eligibility, the State is required to coordinate data exchanges when making eligibility determinations, including, but not limited to: wage information from the State Wage Information Collection Agency, IEVS, unemployment compensation information from the Department of Labor, all available information from the Social Security Administration, and information from the United States Citizenship and Immigration Services. The State’s TANF manual provides guidance on how to calculate income. Once the information is received, reviewed, and calculated, it is entered into the Eligibility Information System (EIS). EIS automatically calculates the monthly benefit amount based on the eligibility factors entered. If eligibility factors are not entered accurately, benefit amounts are paid incorrectly. DPA’s Administrative Procedures Manual, Section 109 requires that all public assistance cases have documentation that supports eligibility, ineligibility, and benefit-level determinations. The documentation must be in sufficient detail to allow a reader or reviewer to determine the reasonableness of each action taken, verification used, and contacts made using the online case note screen in EIS or on a Report of Contact sheet maintained in the hard copy case files. Cause: Turnover, staffing shortages, and inadequate training contributed to not performing and/or documenting all required components of eligibility determinations and not accurately terminating benefit amounts. Criteria: Title 45 CFR 75.303(a) requires the State to establish and maintain effective internal control over the federal award that provides reasonable assurance that the State is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the grant award. Per 42 U.S.C. § 608(a)(3), a state shall require that, as a condition of providing assistance, a member of the family assign to the state the rights the family member may have for support from any other person. This assignment may not exceed the amount of assistance provided. Per 42 U.S.C. § 608(a)(4), a state may not provide assistance to an individual who is under age 18, is unmarried, has a minor child at least twelve weeks old, and has not successfully completed high school or its equivalent unless the individual either participates in education activities directed toward attainment of a high school diploma or its equivalent, or participates in an alternative education or training program approved by the state. Title 45 CFR 75.2 defines improper payments to include payments that were made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements. Effect: Ineligible recipients may have received benefits. Questioned Costs: $ 3,702 (known questioned costs); $ 759,673 (likely questioned costs) Recommendation: DOH should improve training and monitoring of staff to ensure staff comply with TANF eligibility and document retention procedures and eligibility determinations are performed accurately and timely. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-052 Prior Year Finding: 2024-059 Federal Awarding Agency: USDHHS Impact: Significant Deficiency, Noncompliance AL Number and Title: 93.558 TANF Federal Award Number: 2401AKTANF, 2301AKTANF Applicable Compliance Requirement: Reporting, Special Tests and Provisions Condition: Sixteen of the sixty cases tested had insufficient documentation to verify work hours which resulted in these work activities being reported inaccurately in the ACF-199 report. Context: The State reports the work verification data through the quarterly ACF-199 reports. The quarterly ACF-199 report is compiled monthly from information that is either entered in EIS by an ET or interfaced into EIS through the case management system. The information is transmitted to ACF in a data file. ACF uses the transmitted data to determine whether states have met the required work participation rates and to confirm the State is meeting the earmarking requirement that no more than 20 percent of families received more than 60 months of TANF assistance. In a statistically valid sample, sixteen of sixty cases tested lacked adequate documentation to indicate if all components of the Work Verification Plan were gathered and processed correctly. Of the deficient cases (note, some cases had multiple deficiencies): • Thirteen of sixty cases tested contained insufficient work participation data and supporting documentation. • Thirteen of sixty cases contained insufficient documentation to report the amount of work hours counted and verified. • Eight of sixty cases contained insufficient documentation determining if the individual on the case was work eligible. • Sixteen of sixty cases overall lacked documentation to confirm that the case determination in EIS was appropriately documented and that the client case files contains evidence that the determinations were made in accordance with the requirements specified in the HHS approved Work Verification Plan (incorporated into the TANF State Plan ) and the State of Alaska Policy Manual. Cause: The division encountered staffing turnover and shortages that contributed to insufficient documentation and inaccuracies of work hours reported. Several division units must collaborate, cross-train, and implement corrective action which can be a time-consuming process. Criteria: Per the 2025 Office of Management and Budget (OMB) Compliance Supplement, "the state agency must maintain adequate documentation, verification, and internal control procedures to ensure the accuracy of the data used in calculating work participation rates." Title 45 CFR 265.3(a)(1) requires the State to collect on a monthly basis, and file on a quarterly basis, the data specified in the ACF-199 report. Title 45 CFR 265.7(a) and 45 CFR 265.4 further specify the State's quarterly ACF-199 must be complete, accurate, and filed within 45 days, or be subject to a penalty. Title 45 CFR 265.7(a) requires each state’s quarterly reports to be complete and accurate. Federal regulations further state a complete and accurate report means the reported data accurately reflect information available to the state in case records, financial records, and automated data systems. Title 45 CFR 261.60(a) requires a state to report the actual hours that an individual participates in an activity. Furthermore, per 45 CFR 261.61(a) a state must support each individual’s hours of participation through documentation in the case file and 45 CFR 261.62(a)(2) requires a state to ensure the accuracy of the reporting by establishing and employing procedures for determining how to count and verify reported work activities. Additionally, 45 CFR 261.62(a)(4) requires a state to establish and employ internal controls to ensure compliance with procedures. Title 45 CFR 75.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Effect: The State could be subject to a penalty if reported data is not supported by accurate documentation. Questioned Costs: None Recommendation: DOH should implement procedures to ensure supporting documentation is complete to support data reported on the ACF-199. This may require increased resources and training. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-053 Prior Year Finding: 2024-060 Federal Awarding Agency: USDHHS Impact: Material Weakness, Material Noncompliance AL Number and Title: 93.558 TANF Federal Award Number: 2501AKTANF, 2401AKTANF Applicable Compliance Requirement: Reporting Condition: The State could not provide evidence that the FFY 24 ACF-204 annual report and two ACF-196R quarterly reports were completed or submitted to the federal agency. Context: The State must complete and file an annual report containing information on the TANF program and the State’s maintenance of effort (MOE) programs for that year. The annual ACF-204 report is due 45 days after the fourth quarter end, however it had not been submitted as of the audit's conclusion. The state must complete and file quarterly reports containing financial information on the TANF Program including the state’s use of federal funds and the State’s MOE expenditures. This report replaces the standard SF-425, Federal Financial Report. Cause: DOH experienced staffing shortages and unreliable data impeded the staff’s ability to monitor compliance with federal requirements for submitting an annual ACF-204 report and quarterly ACF-196R reports. Criteria: Title 45 CFR 265.9(a) requires each state to file an annual report containing information on the TANF program and the state’s maintenance of effort program(s) for that year. Title 45 CFR 265.3(a) requires that each state must file quarterly expenditure data on the State’s use of Federal TANF Funds, State TANF Expenditures, and State Expenditures of MOE Funds in separate state programs. Title 45 CFR 75.303(c)(1) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Effect: Unreliable federal reporting limits transparency and may impair the federal oversight agency’s ability to properly oversee the program. According to 45 CFR 262.1(a)(3), the State could be subject to a penalty of four percent of the federal grant award for each quarter the State fails to submit an accurate, complete, and timely required report. Questioned Costs: None Recommendation: DOH should strengthen reporting procedures to ensure the ACF-204 report is complete and includes all programs for which the State claimed MOE expenditures. DOH should strengthen reporting procedures to ensure the quarterly ACF-196R reports are submitted and include all applicable financial reporting data. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-054 Prior Year Finding: 2024-062 Federal Awarding Agency: USDHHS Impact: Significant Deficiency, Noncompliance AL Number and Title: 93.558 TANF Federal Award Number: 2501AKTANF, 2401AKTANF Applicable Compliance Requirement: Special Tests and Provisions Condition: Per the 2025 OMB Compliance Supplement, if the state agency determines that an individual is not cooperating in regards to establishing paternity or related to a support order, "the TANF agency must (1) deduct an amount equal to not less than 25 percent from the TANF assistance that would otherwise be provided to the family of the individual, and (2) may deny the family any TANF assistance." One of eight non-cooperative cases tested lacked appropriate documentation to support "waived" penalties. One of eight non-cooperative cases lacked documentation indicating the client was aware of cooperation requirements and Appendix D of the application was not completed. Context: In a statistically valid sample, one of eight non-cooperative cases tested lacked appropriate documentation to support “waived” penalties. For one of these there was no child support information through Appendix D of the application, yet the penalty was "waived" in EIS and not applied to payments. One case lacked information alerting the client to the cooperation requirements and was missing Appendix D of the application. This case was ultimately deemed to be a good cause claim of noncooperation but lacked proper documentation. Cause: Turnover, staffing shortages, and inadequate training contributed to not performing and/or documenting all required components of child support non-cooperation provisions. Criteria: Per the 2025 OMB Compliance Supplement, if the state agency determines that an individual is not cooperating in regards to establishing paternity or related to a support order, "the TANF agency must (1) deduct an amount equal to not less than 25 percent from the TANF assistance that would otherwise be provided to the family of the individual, and (2) may deny the family any TANF assistance." Per the Alaska Temporary Assistance Program Manual “A parent or caretaker relative cannot be required to cooperate with CSED activities if the parent or caretaker relative claims and establishes good cause. If at any time a parent or caretaker relative indicates they have good cause for noncooperation, they must be given the opportunity to complete the GEN 80 or EIS notice W060. Once a good cause claim is made, the caseworker must decide whether or not to allow the claim. If the good cause claim is allowed, the parent or caretaker relative is excused from cooperation.” Effect: USDHHS may penalize a state for up to 5 percent of the State Family Assistant Grant for failure to substantially comply with this required state child support program (42 USC 608(a)(2) and 609(a)(8); 45 CFR sections 264.30 and 264.31). Questioned Costs: $ 4,650 (known questioned costs) Recommendation: DOH should improve training and supervision to ensure child support non-cooperation penalties are appropriately applied. If a penalty is determined to be unapplicable, adequate documentation should be kept to support that determination. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-070 Federal Awarding Agency: U.S. Department of Health and Human Services (USDHHS) Impact: Significant Deficiency AL Number and Title: 93.658 Foster Care - Title IV-E Federal Award Number: 2502AKFOST Applicable Compliance Requirement: Allowable Costs/Cost Principles, Eligibility Condition: An evaluation of the Office of the Children’s Services’ (OCS) Online Resources for the Children of Alaska (ORCA) system controls identified an internal control weakness. Context: ORCA is OCS’s primary information technology system used to manage foster care cases, document the delivery of child welfare services, and calculate benefit payments. The details of this control weakness and relevant audit criteria are being withheld from this report to prevent the weakness from being exploited. Pertinent details have been communicated to agency management in a separate confidential document. Cause: The internal controls were insufficient to identify the deficiency. Criteria: Title 45 CFR 75.303 and the State Information Security Policies provide specific criteria related to the identified deficiency. Effect: The internal control weakness increased the risk of noncompliance with state and federal regulations and financial statement misstatements. Questioned Costs: None Recommendation: DFCS’s OCS director should strengthen information technology controls. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-071 Federal Awarding Agency: USDHHS Impact: Significant Deficiency, Noncompliance AL Number and Title: 93.658 Foster Care - Title IV-E Federal Award Number: 2502AKFOST Applicable Compliance Requirement: Allowable Costs/Cost Principles, Special Tests and Provisions Condition: Deficiencies were identified in OCS's FY 25 foster care base rate setting methodology. Context: Foster care program base rates must be reviewed annually. Since 2013, OCS had been using a rate setting methodology recommended in a study conducted by Hornby Zeller Associates, Inc. The study was conducted for the State in response to the Mulgrew v. State of Alaska lawsuit which concluded that OCS’s foster care reimbursement system did not reflect the current financial needs of family foster homes in Alaska. The study recommended the following rate setting methodology: 1. The U.S. Department of Agriculture (USDA) report titled "Expenditures on Children by Families" should be used as a foundation for rate calculations. This data is supported by the Bureau of Labor Statistics Consumer Expenditure Survey’s actual historical costs and projections associated with caring for a child and presents data by different regions such as urban northeast, urban south, urban midwest, urban west, rural areas, and a national average. The Hornby Zeller study recommended using the national average cost data as the foundation for foster care rate setting. 2. Rates should be grouped as follows: 0 to 5 years, 6 to 11 years, and 12 years or older. 3. The USDA cost data should be adjusted for inflation using the U.S. Consumer Price Index (CPI) inflation calculator. 4. Rates should then be adjusted using the cost-of-living multiplier for Anchorage. 5. Given the large variances in the cost of living across Alaska, rates should also be adjusted using the geographic multipliers defined in the 2008 Alaska Geographical Differential Study utilized by Alaska for reimbursement of Medicaid services. In summary, the rate study recommended OCS calculate foster care base rates annually by starting with the national average table from the most recently available USDA report, adjust for inflation, apply the cost-of-living adjustment for Anchorage, and apply the geographic multipliers as appropriate for non-Anchorage communities. The audit identified that OCS’s foster care rate setting methodology for FY 25 deviated from the methodology recommended by the Hornby Zeller study and was unreasonable as follows: National multiplier used on regional cost data When calculating the FY 25 rates, OCS’s staff used the most recent USDA Expenditures on Children and Families report, which was for 2015. The report included several different cost tables such as urban northeast, urban south, urban midwest, urban west, rural areas, and the national average. OCS’s management chose to start the rate calculation by using the “urban west” cost data instead of the national average data. Auditors noted the urban west cost data was higher than the national average cost data. After adjusting for inflation, OCS management applied the Anchorage cost-of-living multiplier of 128.4 percent to the urban west data. This was not reasonable because the cost-of-living multiplier for Anchorage reflected Anchorage costs in relation to the national average. Using the multiplier with the urban west data unreasonably inflated the FY 25 rates. 2015 USDA cost data was adjusted for inflation starting from 2018 When calculating the FY 25 rates, OCS staff used the 2015 USDA cost data, which was the most current data available. However, staff then adjusted the 2015 data for inflation using CPI inflation rates beginning in 2018, which was the last time rates were adjusted. Because the USDA cost table was presented in 2015 dollars, the costs should have been adjusted to include inflation from 2016 onwards. Cause: As the FY 25 foster care base rate setting methodology was set by the Department of Law, OCS management could not explain why the national multiplier was used on regional data and why inflation was not calculated beginning in 2016. Supervisory review of the FY 25 rate setting calculations was not sufficient to identify and correct the deficiencies. Criteria: Title 45 CFR 75.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Per Title 2 CFR 200.403, to be allowable under federal awards, costs must be necessary and reasonable for the performance of the award, and be adequately documented. Per Title 2 CFR 200.404, a cost is reasonable if it does not exceed an amount that a prudent person would incur under the circumstances prevailing when the decision was made to incur the cost. In determining the reasonableness of a given cost, consideration must be given to several criteria including whether the cost is generally recognized as ordinary and necessary for the proper and efficient performance of the federal award and whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the State, the public at large, and the federal government. Effect: The rate setting deficiencies understated FY 25 foster care rates due to not fully adjusting for inflation, and overstated rates due to using a national multiplier on regional cost data. Questioned Costs: Indeterminate Recommendation: DFCS’s OCS director should ensure the foster care rate setting methodology is reasonable. Further, supervisory review procedures should be strengthened to identify and correct deficiencies. Views of Responsible Officials: DFCS disagrees with this finding. DFCS evaluated two foster care base rate proposals using the established Hornsby Zeller Methodology. The first option applied the traditional methodology and the second followed the same structure but incorporated Urban West regional expenditure data, which includes Alaska and eleven other western states as well as Hawaii. This change was implemented because Urban West data more accurately reflects Alaska’s high cost of living environment, whereas reliance on national averages has historically produced rates below Alaska’s true cost of care. Both options were reviewed with departmental legal counsel, who were involved in the original settlement, division leadership and the Commissioner’s Office. DFCS advanced the second option, resulting in an approximate 30% increase to foster care base rate stipends effective July 1,2025. DFCS disagrees with the conclusion that the cost-of-living (inflation) factor should be adjusted to include inflation from 2016 forward. When the 2018 Foster Care Base Rates were established, inflation up to that point was already incorporated into the rate calculation. The current rate-setting process correctly used the 2018 rates as the baseline, which already accounted for prior inflation. Adding inflation from 2016 again would result in doublecounting. DFCS disagrees with the conclusion that the rate-setting process did not follow the Hornsby Zeller methodology. The methodology was followed in full. As part of the rate analysis, DFCS applied the national average cost-of-living factor as outlined; however, the resulting amount did not adequately meet the needs of the children under the care and responsibility of the Department. DFCS is fiduciarily required to ensure that rates are sufficient to meet the actual needs of children in out-of-home care, and the national average input did not satisfy that obligation. To ensure the methodology produced accurate and appropriate results, DFCS utilized the Urban West index, an allowable and geographically relevant data source under the methodology. This adjustment did not change the methodology itself; it refined the underlying input to better reflect Alaska’s actual cost of living and support the intended purpose of the rate-setting process. Auditor’s Concluding Remarks: Management’s response did not persuade the auditor to revise the finding. OCS management’s response did not explain why the national multiplier was used on regional data and why inflation was not calculated beginning in 2016. We reaffirm the finding.

Finding No. 2025-055 Prior Year Finding: 2024-066 Federal Awarding Agency: USDHHS Impact: Material Weakness, Material Noncompliance AL Number and Title: 93.767 CHIP 93.775, 93.777, 93.778 Medicaid Cluster Federal Award Number: 2305AK5021, 2405AK5021, 2505AK5021, 2405AK5MAP, 2405AK5ADM, 2505AK5MAP, 2505AK5ADM Applicable Compliance Requirement: Eligibility Condition: Sixty Medicaid and sixty CHIP recipients were randomly selected for eligibility testing. Testing revealed the following errors: Medicaid – 14 of 60 cases had timing issues (note, some cases had multiple deficiencies): • Seven of the sixty cases had not gone through a renewal assessment within 12 months of the last determination. • Eleven of the sixty cases’ eligibility determinations were not done timely (i.e., within 45 days). CHIP – 26 of 60 cases had timing issues (note, some cases had multiple deficiencies): • Fifteen of sixty cases’ eligibility determinations were not done timely (i.e., within 45 days). • Eighteen of sixty cases had not gone through a renewal assessment within 12 months of the last determination. Context: The State is required to ensure applications are reviewed and eligibility determinations are made timely for Medicaid and CHIP recipients. Eligibility is redetermined at least every 12 months or when new information is provided from the recipient. In a statistically valid sample, fourteen of sixty Medicaid cases tested and twenty-six of sixty CHIP cases tested had timing issues. Issues related to renewals not happening within 12 months of the last determination, determinations not being done within 45 days of the application. Cause: Staffing and resource shortages adversely impacted application processing timeliness. Also, the State was prioritizing SNAP eligibility processing over Medicaid/CHIP. Criteria: Title 45 CFR 75.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Title 42 CFR 435.912(c) states the determination of eligibility for any application may not exceed 90 days for applicants who apply for Medicaid on the basis of disability and 45 days for all other applicants. Title 42 CFR 435.916 requires the State to periodically renew Medicaid eligibility. For renewals based on modified adjusted gross income (MAGI), a redetermination is required once every 12 months, and no more frequently than once every 12 months. Similarly, for non-MAGI beneficiaries the State is required to make a redetermination of eligibility at least every 12 months. The State is required to take action on information about changes between regular eligibility renewals and promptly redetermine eligibility. Title 42 CFR 435.916(a)(2) states that the agency must make a redetermination of eligibility without requiring information from the individual if able to do so based on reliable information contained in the individual’s account or other more current information available to the agency, including but not limited to information accessed through any databases accessed by the agency. Title 42 CFR 457.340 and 42 CFR 457.343 require the timely determination of eligibility and renewal procedures for Medicaid apply equally in administering CHIP. Effect: Failure to determine Medicaid and CHIP eligibility timely increases the risk that ineligible beneficiaries receive Medicaid and CHIP benefits. Questioned Costs: AL 93.778: $ 2,653 (known questioned costs); $712,969,620 (likely questioned costs) AL 93.767: $ 2,825 (known questioned costs); $ 5,719,575 (likely questioned costs) Recommendation: The State should dedicate the resources necessary to determine Medicaid and CHIP eligibility in a timely manner. Views of Responsible Officials: The department agrees with the finding but does not concur with the questioned costs. CMS has notified the state that financial recoveries based on eligibility errors can only be pursued when identified by programs operating under CMS’ Payment Error Rate Measurement (PERM) program, under section 1903(u) of the Social Security Act and regulations at 42 CFR Part 431, Subpart Q. Auditor’s Concluding Remarks: Management concurs with the finding, but not the questioned costs. Questioned costs are defined by Title 45 CFR 75.2, which states: Questioned cost means a cost that is questioned by the auditor because of an audit finding:  Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a federal award, including for funds used to match federal funds;  Where the costs, at the time of the audit, are not supported by adequate documentation; or  Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. Based on the Uniform Guidance, benefits paid associated with the finding are reported as questioned costs.

Finding No. 2025-056 Prior Year Finding: 2024-067 Federal Awarding Agency: USDHHS Impact: Material Weakness, Material Noncompliance AL Number and Title: 93.767 CHIP 93.775, 93.777, 93.778 Medicaid Cluster Federal Award Number: 2305AK5021, 2405AK5021, 2505AK5021 2405AK5MAP, 2405AK5ADM, 2505AK5MAP, 2505AK5ADM Applicable Compliance Requirement: Eligibility Condition: Sixty Medicaid and sixty CHIP recipients were randomly selected for eligibility testing. Testing revealed the following errors: Medicaid – five of 60 cases lacked eligibility determination issues (note, some case had multiple deficiencies): • One of sixty case files lacked the proper case notes to properly maintain how the individual was determined eligible for payments. • One of sixty cases had an incorrect social security number entered into the ARIES system. In addition: • Five of sixty files lacked documentation of facts supporting the eligibility determination. • One of sixty participants did not meet income eligibility requirements. • Two of sixty cases lacked documentation to verify that the Income and Eligibility Verification System (IEVS) was used to verify income eligibility. CHIP – 17 of 60 cases lacked eligibility determination issues (note, some case had multiple deficiencies): • One of sixty case files was missing a CHIP-specific application that was signed of by the program recipient. • Three of the sixty identified cases had identified income that exceeded income limits or income was unable to be verified. • Four of sixty cases lacked documentation to verify that the Income and Eligibility Verification System (IEVS) was used to verify income eligibility. • Three of sixty cases were not properly closed after the period of eligibility to receive benefits had ended. • Four of sixty cases that had payments to programs participants that were deemed unallowable costs/activities due to multiple individual compliance issues. • Sixteen of sixty cases lacked adequate support for eligibility determinations/redeterminations. Context: In a statistically valid sample, five of sixty Medicaid cases tested and nineteen of sixty CHIP cases tested had eligibility determination issues. Issues related to missing support for eligibility determinations, ineligible individuals receiving benefits, missing social security numbers, inappropriate applications, missing IEVS verification, and insufficient case management. The State is required to ensure only financially needy individuals receive Medicaid or CHIP assistance. DPA is the primary division within DOH responsible for determining Medicaid and CHIP eligibility. DPA’s employees review applications, identify income and financial resources, obtain social security numbers and verify the numbers through a federal database, and make determinations whether the individuals are eligible to receive benefits. DPA has established internal control procedures to help staff determine eligibility in accordance with federal regulations and the State plan. Procedures are documented in the DPA Administrative Procedures Manual and the MAGI Medicaid Eligibility Manual. DPA utilizes an electronic document management system to store the documents that DPA staff obtained to verify eligibility. Cause: The deficiencies were due to staff and resource shortages, inadequate training, human error, and system errors. Criteria: Title 45 CFR 75.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Title 42 CFR 435.907(f) requires that all initial applications are signed. As a condition of eligibility Title 42 CFR 435.910 requires that each individual must furnish each of his or her Security Numbers (SSN) to be eligible for Medicaid. Financial eligibility should be based on MAGI, as described at 42 CFR 435.603, unless an individual is exempted from the use of MAGI, as described at 42 CFR 435.603(j). Title 42 CFR 435.914(a) states the agency must include in each application’s case record facts to support the agency’s decision. Title 42 CFR 435.945(g) requires agencies to report information via the income and eligibility verification system (IEVS). Effect: Failure to accurately determine eligibility and maintain complete case records for Medicaid and CHIP increases the risk that ineligible recipients receive Medicaid and CHIP benefits. Questioned Costs: AL 93.778: $ 138 (known questioned costs); $37,006,989 (likely questioned costs) AL 93.767: $ 288 (known questioned costs); $582,269 (likely questioned costs) Recommendation: The State should improve eligibility training, ensure procedures are followed for determining Medicaid and CHIP eligibility, and ensure the case management system includes all relevant documentation supporting eligibility decisions. Views of Responsible Officials: The department agrees with the finding but does not concur with the questioned costs. CMS has notified the state that financial recoveries based on eligibility errors can only be pursued when identified by programs operating under CMS’ Payment Error Rate Measurement (PERM) program, under section 1903(u) of the Social Security Act and regulations at 42 CFR Part 431, Subpart Q. Auditor’s Concluding Remarks: Management concurs with the finding, but not the questioned costs. Questioned costs are defined by Title 45 CFR 75.2, which states: Questioned cost means a cost that is questioned by the auditor because of an audit finding:  Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a federal award, including for funds used to match federal funds;  Where the costs, at the time of the audit, are not supported by adequate documentation; or  Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. Based on the Uniform Guidance, benefits paid associated with the finding are reported as questioned costs.

Finding No. 2025-032 Prior Audit Finding: 2024-038 Federal Awarding Agency: USDHS Impact: Material Weakness, Material Noncompliance AL Number and Title: 97.036 Disaster Grants Federal Award Number: 4413DRAKP00000001 Applicable Compliance Requirement: Subrecipient Monitoring Condition: DMVA management did not issue a management decision for a finding relating to one Disaster Grants subrecipient’s single audit. Context: Under federal regulations, pass-through entities are responsible for issuing a management decision for audit findings relating to federal awards provided to subrecipients. The management decisions must clearly state whether or not the audit finding is substantiated, the reason for the decision, and the adequacy of the recipient’s proposed corrective actions to address the findings. If the subrecipient has not completed corrective action, a timetable for follow-up should be given. One Disaster Grants subrecipients single audit contained a finding and DMVA management did not issue a management decision. The finding related to a subrecipient lacking evidence that a secondary review was conducted by an individual other than the preparer for required reports. Cause: DMVA had controls to ensure a management decision was issued on a subrecipient's single audit finding. However, DMVA’s procedures were insufficient to identify subrecipient’s findings requiring follow-up. DMVA staff stated that information reported on the Summary of Items for Follow-up document, provided by the Department of Administration, Division of Finance, did not specify that DMVA should follow up on the finding; therefore, no management decision was issued. However, the audit determined DMVA misinterpreted the information provided by the Division of Finance. Criteria: Title 2 CFR 200.521 requires the State to issue a management decision for audit findings that affect subawards it issues to subrecipients under a federal award. Title 2 CFR 200.1 defines a management decision as a pass-through entity’s written determination, provided to the auditee, of the adequacy of the auditee’s proposed corrective actions to address the findings, based on its evaluation of the audit findings and proposed corrective actions. Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal control over the federal award that provides reasonable assurance that the State is managing the federal awards in compliance with federal statutes, regulations, and terms and conditions of the grant awards. Effect: The lack of a management decision may result in a subrecipient not taking appropriate corrective action on findings. Noncompliance with federal regulations may result in the federal awarding agency imposing additional conditions or taking corrective action, including additional reporting requirements or withholding/terminating funding. Questioned Costs: None Recommendation: DMVA’s DAS director should strengthen procedures to ensure findings requiring follow-up are identified and management decisions are issued within six months of a subrecipient audit report’s acceptance by the federal audit clearinghouse. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-035 Prior Audit Finding: 2024-040 Federal Awarding Agency: USDHS Impact: Material Weakness, Material Noncompliance AL Number and Title: 97.036 Disaster Grants Federal Award Number: 4585DRAKP00000001, 4646DRAK000000001, 4672DRAKP00000001, 4730DRAKP00000001 Applicable Compliance Requirement: Reporting Condition: Eight of 70 FY 25 subawards tested were not filed timely in the Federal Funding Accountability and Transparency Act (FFATA) Subaward Reporting System . An additional 32 subawards requiring FFATA reporting were not filed. Context: FFATA requires information on federal awards be made available to the public through a single searchable website (www.usaspending.gov). The FFATA reporting tool is available for federal awardees, such as the State of Alaska, to report first-tier subawards. To comply with FFATA requirements, DHSEM staff responsible for Disaster Grants management obtain subawardee information from the OAD. The OAD is sent to DAS staff for data entry into the FFATA reporting tool. There were 70 Disaster Grants subawards totaling $54,169,139 that were subject to FFATA reporting during FY 25. The audit reviewed eight randomly selected subawards, totaling $1,813,371, for compliance and internal controls testing of FFATA reporting requirements. FFATA reports for all eight subawards were not filed timely. Further, the audit reviewed all 70 subawards and found 32 totaling $28,396,662 were not reported at all Cause: Staff turnover and vacancies contributed to the untimely filing of reports and reports not being filed. Supervisory review procedures were inadequate to ensure reports were filed as required. Criteria: Title 2 CFR 170 states federal award recipients are required to report each subaward that obligates $30,000 or more in federal funds. This information must be reported no later than the end of the month following the month in which the obligation was made and include information about each obligating action in accordance with submission instructions. Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal control over the federal award that provides reasonable assurance that the State is managing the federal awards in compliance with federal statutes, regulations, and terms and conditions of the grant awards. Effect: Failure to comply with FFATA reporting requirements reduces transparency and may jeopardize future federal funding. Questioned Costs: None Recommendation: DMVA's DAS director should allocate the resources necessary to comply with FFATA reporting requirements and strengthen supervisory review procedures. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-030 Prior Audit Finding: 2024-036 Federal Awarding Agency: U.S. Department of Homeland Security (USDHS) Impact: Material Weakness, Material Noncompliance AL Number and Title: 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disaster) (Disaster Grants) 97.036 Disaster Grants – COVID-19 Federal Award Number: 4413DRAKP00000001, 4533DRAKP00000001, 4585DRAKP00000001, 4672DRAKP00000001 Applicable Compliance Requirement: Allowable Costs/Cost Principles Condition: A review of 17 FY 25 Disaster Grants payments found that 15 payments (88 percent) lacked adequate supporting documentation. Context: FEMA provides public assistance funding to states for federally declared disaster mitigation and response. To be allowable under the Disaster Grants program, costs must be directly tied to the performance of eligible work, adequately documented, and necessary and reasonable to accomplish the work properly and efficiently. DMVA issues subawards to eligible applicants, including not-for-profits and local governments, and transfers funds to other State departments for disaster response. The State (DMVA) and Disaster Grants subrecipients may contract for services but must meet state and federal procurement requirements when doing so. Contracts must include the procurement provisions detailed in Title 2 CFR 200.327. Furthermore, contractors’ performance must be monitored to ensure compliance with the contract conditions. According to management within DMVA’s Division of Homeland Security and Emergency Management (DHSEM), due to the high number of State disasters and a lack of staff resources, DMVA hired contractors to help oversee the federal disaster projects by performing administrative duties typically conducted by DHSEM staff, including reviewing and approving subrecipient applications for funding, obtaining the required documents to ensure projects were administered in accordance with FEMA requirements, and processing subrecipient payment requests. There were 327 Disaster Grants payments totaling $325,318,285 during FY 25. The audit tested 17 Disaster Grant payments totaling $188,888,098, of which 15 were inadequately unsupported. Specifically, 11 payments were partially supported by procurement contracts that did not include all federal requirements and four were not fully supported by complete or signed contracts. Other errors included: one payment contained amounts for an unrelated project; five payments were not fully supported by invoices; one payment included a markup on a subcontractor’s work; one included an advance payment that lacked required supporting documentation; one payment included a completion bonus; and several payments were not identified as allowable costs in the approved project worksheets. Cause: Due to competing priorities and inadequate supervisory review procedures, DHSEM staff and contractors did not verify that the contracts issued by subrecipients included federal requirements and that documentation for the reimbursement of subrecipient costs was received. Furthermore, contracts for interagency projects were not obtained by DMVA staff or contractors to verify that the costs were within the contract scope or that the contracts included all federal requirements. The audit noted that Department of Health and Social Services (DHSS) submitted a signed Contract/Procurement Review Waiver declining to submit documentation to DMVA for review with the understanding that DHSS would assume all responsibility for the procurement and contracts. DHSEM contractors accepted the waiver and did no monitoring to ensure contracts complied with appropriate procurement processes and included all federally required clauses. Lack of adequate review of the payment requests and supporting documentation, including supervisory review, resulted in payments without adequate invoices or other source documentation. Lack of adequate project oversight resulted in a subrecipient not providing supporting documentation within the 60-day timeline for advance payments. Criteria: Title 2 CFR 200.403(g) requires costs to be adequately documented. FEMA’s guidance for administering the program is detailed in the Public Assistance Program and Policy Guide (PAPPG), which requires Disaster Grants contracts to include the procurement related provisions of Title 2 CFR 200.327 and Homeland Security Acquisition Regulation Class Deviation 15-01 clauses. PAPPG also requires costs to be adequately documented and directly tied to the performance of eligible work. Further, the PAPPG states that FEMA does not reimburse costs incurred under a cost plus a percent of cost contract. Annually, DHSEM management updates the State Administrative Plan for the federal disaster assistance program, which is a required document in each federally approved FEMA-State Agreement for presidentially declared disasters. The purpose of the plan is to identify the State’s roles, responsibilities, processes and procedures for administering FEMA’s Disaster Grants program. The plan requires DHSEM staff to obtain documentation to support all costs claimed and to perform a thorough review to ensure compliance with programmatic and eligibility requirements. The plan also outlines the requirements for advancing FEMA funds to a subrecipient; specifically, the subrecipient must report on the status of advance funds within 30 days of receipt and has up to 60 days to provide the appropriate summary forms and support cost documentation, i.e, invoices, timesheets, etc. If the summary forms and supporting documentation are not received within the time limits, the Plan requires that the State de-obligate remaining funds, recoup advance funds, and close the subrecipient’s project file. Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. Effect: Inadequate documentation may result in unallowable costs. Noncompliance with federal regulations may result in the federal awarding agency imposing additional conditions or taking corrective action, including additional reporting requirements or withholding/terminating funding. Questioned Costs: Indeterminate Recommendation: DMVA’s DHSEM director should strengthen written procedures to ensure Disaster Grants contracts are obtained and reviewed for compliance with federal requirements. Furthermore, supervisory review procedures should be strengthened to ensure DHSEM staff and contractors obtain and review cost documentation to ensure subrecipient payment requests are allowable for the project and adequately supported. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-031 Prior Audit Finding: 2024-037 Federal Awarding Agency: USDHS Impact: Material Weakness, Material Noncompliance AL Number and Title: 97.036 Disaster Grants 97.036 Disaster Grants – COVID-19 Federal Award Number: 4533DRAKP00000001, 4730DRAKP00000001 Applicable Compliance Requirement: Subrecipient Monitoring Condition: A review of 21 FY 25 Disaster Grants subrecipient obligating award documents (OAD) found that three did not include an accurate unique entity identifier (UEI) that matched the subrecipient’s name and one did not provide a UEI. Context: DMVA enters into awards with subrecipients using the OAD as the subgrant agreement. The subrecipient’s name and UEI are recorded on the OAD. An assurances and agreement form accompanies the OAD that includes additional federal requirements not included in the OAD. Subrecipients sign the OAD and the assurances and agreement forms certifying and agreeing to the federal requirements. According to DHSEM management, due to the high number of State disasters and a lack of staff resources, contractors were hired to help evaluate applicant eligibility, make subawards, conduct risk assessments, and monitor accordingly. The audit reviewed a random sample of 20 of 100 subrecipient OADs and one judgmentally selected OAD, including assurances and agreement forms, and found two OADs for one subrecipient in which the subrecipient’s name did not match the name associated with the UEI number provided; one OAD reported a UEI number that did not match the name and address when verified with the federal reporting website; and one OAD did not include a UEI number. Cause: According to DHSEM management, due to competing priorities and inadequate supervisory review procedures, DHSEM staff and contractors did not ensure subrecipient’s OADs included a UEI number or an accurate UEI number. Criteria: Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal control over the federal award that provides reasonable assurance that the State is managing the federal awards in compliance with federal statutes, regulations, and terms and conditions of the grant awards. Title 2 CFR 200.332 requires pass-through entities ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the required information at the time of the subaward. Required information includes the subrecipient’s name, which must match the name associated with the subrecipient’s UEI. Effect: Not providing the UEI number or correct UEI number hampers subaward reporting and may impact federal oversight of the Disaster Grants program. Questioned Costs: None Recommendation: DMVA’s DHSEM director should strengthen review procedures to adequately monitor contractors to ensure subrecipient information in award documents is accurate. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-033 Federal Awarding Agency: USDHS Impact: Material Weakness, Material Noncompliance AL Number and Title: 97.036 Disaster Grants 97.036 Disaster Grants – COVID-19 Federal Award Number: 4533DRAKP00000001, 4730DRAKP00000001 Applicable Compliance Requirement: Subrecipient Monitoring Condition: DMVA staff did not document a risk assessment for two Disaster Grants subrecipients. Context: DMVA receives funding applications from state, local, tribal, and private not-for-profit entities once a disaster has been presidentially declared. Prior to entering into an agreement with an applicant, DHSEM staff perform a risk assessment of the applicant to determine the extent of subrecipient monitoring. DHSEM staff evaluate the applicant by completing a risk assessment checklist, and apply safeguards if the subrecipient is considered high risk. DHSEM staff also complete a payment request checklist, prior to making subrecipient payments to confirm that risk assessments have been performed. According to DHSEM management, due to the high number of State disasters and a lack of staff resources, contractors were hired to help evaluate applicant eligibility, make subawards, conduct risk assessments, and monitor accordingly. The audit reviewed a random sample of eight of 47 subrecipients. One of the eight subrecipients did not have a risk assessment. During allowable cost testing, one additional subrecipient was identified that did not have risk assessment performed. Cause: Due to competing priorities and inadequate supervisory review procedures, DHSEM staff and contractors did not consistently obtain risk assessments and DHSEM management did not adequately monitor contractors to ensure risk assessments were performed. Criteria: Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal control over the federal award that provides reasonable assurance that the State is managing the federal awards in compliance with federal statutes, regulations, and terms and conditions of the grant awards. Title 2 CFR 200.332(c) requires the State to assess each subrecipient’s risk of noncompliance to determine the appropriate subrecipient monitoring. Effect: The lack of risk assessments may lead to inadequate monitoring of subrecipients increasing the risk of unallowable use of federal funds. Questioned Costs: None Recommendation: DMVA’s DHSEM director should strengthen supervisory review procedures to adequately monitor contractors and ensure risk assessments are performed. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-034 Prior Audit Finding 2024-039 Federal Awarding Agency: USDHS Impact: Material Weakness, Material Noncompliance AL Number and Title: 97.036 Disaster Grants 97.036 Disaster Grants – COVID-19 Federal Award Number: 4351DRAKP00000001, 4533DRAKP00000001, 4585DRAKP00000001 Applicable Compliance Requirement: Reporting Condition: Three of seven randomly selected FY 25 Disaster Grants SF-425 reports tested had the following errors: one reported incorrect recipient share required and two reported incorrect federal share of expenditures and incorrect recipient share of expenditures. Context: The SF-425 is a required quarterly federal financial form used for reporting on the financial status of federal grant awards. During FY 25, 16 disasters required quarterly SF-425 reports for a total of 64 reports filed. Seven of the 64 were selected for testing. The federal share and matching amounts for two reports were overstated and one understated total recipient share required as shown below. Cause: During FY 25, FEMA transitioned to a new grants management system. According to DMVA management, DMVA staff followed procedures to use the data in the old FEMA management system without performing any follow-up on discrepancies in previously reported amounts. Furthermore, DMVA reporting procedures were not updated to incorporate FEMA’s new grants management system for preparation and review of SF-425 reports. Criteria: Title 44 CFR 206.120(f)(2) prescribes the State shall provide financial status reports. Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal control over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. Effect: Inaccurate federal reporting may impair federal decision-making and may result in the federal awarding agency imposing additional conditions or taking corrective action, including additional reporting requirements or withholding/terminating funds. Questioned Costs: None Recommendation: DMVA's DAS director should update written procedures for the preparation and review of the SF-425 report to ensure the reports submitted to FEMA are accurate. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-079 Prior Year Finding: 2024-081 Federal Awarding Agency: U.S. National Science Foundation, U.S. Department of the Interior and U.S. Department of Agriculture (USDA) Impact: Significant Deficiency, Noncompliance AL Number and Title: 10.237 From Learning to Leading: Cultivating the Next Generation of Diverse Food and Agriculture Professionals 15.423, 47.050, 47.074, 47.078 Research and Development Cluster (RDC) Federal Award Number: 2040541-2025, 2224776-2025, 2322806-2025, M24AC00008-2025, 20237044040222-2025 Applicable Compliance Requirement: Cash Management Condition: The University did not make payments to subrecipients within 30 days after receipt of invoices. Context: During our testing we identified 11 out of 40 subrecipient payments related to four grants from the University of Alaska Fairbanks (UAF) under RDC, that did not process payment requests from the subrecipients timely. During our testing we identified two out of eight subrecipient payments related to one grant from UAF under the From Learning to Leading: Cultivating the Next Generation of Diverse Food and Agriculture Professionals Program, did not process payment requests from the subrecipients timely. Cause: UAF did not process payment requests from the subrecipients timely. Criteria: Uniform Grant Guidance (2 CFR section 200.305(b)(3)) requires that when the reimbursement method is used, the Federal awarding agency or pass-through entity must make payment within 30 calendar days after receipt of the billing, unless the Federal awarding agency or pass-through entity reasonably believes the request to be improper. Per Uniform Guidance 2 CFR 200.303, nonfederal entities receiving federal awards are required to establish and maintain internal controls designed to reasonably ensure compliance with federal laws, regulations, and program compliance requirements. Effect: Subrecipients on federal awards do not receive timely payment for federal contract work. Questioned Costs: None Recommendation: We recommend the University review and update policies and procedures to allow for more timely payment to subrecipients for work the University contracts them to perform. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-080 Federal Awarding Agency: USDA Impact: Significant Deficiency, Noncompliance AL Number and Title: 10.237 From Learning to Leading: Cultivating the Next Generation of Diverse Food and Agriculture Professionals Federal Award Number: 20237044040222 - 2025 Applicable Compliance Requirement: Reporting Condition: The University did not have documentation of the Federal Funding Accountability and Transparency Act (FFATA) reports submitted in a timely manner. Context: During our testing of two subawards from UAF that were reported to SAM.gov, we identified both reports did not have documentation of the reports being submitted by the required due date. Cause: UAF did not create a new report for the subaward amendments and replaced the information from the original subaward submission. Since the information was overwritten, there was no documentation of original submission date for the report during the fiscal year. Criteria: Uniform Grant Guidance (2 CFR 170 Appendix A(l)(2)(ii)) requires subaward information be reported no later than the end of the month following the month in which the obligation was made. Uniform Guidance 2 CFR 200.303, nonfederal entities receiving federal awards are required to establish and maintain internal controls designed to reasonably ensure compliance with federal laws, regulations, and program compliance requirements. Effect: The University was not in compliance with FFATA reporting requirements. Questioned Costs: None Recommendation: We recommend that the University review and update current procedures to ensure the program reporting requirements are completed timely. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-081 Federal Awarding Agency: US Department of Education (USED) Impact: Significant Deficiency, Noncompliance AL Number and Title: 84.063, 84.268, 84.007, 84.033 Student Financial Assistance Cluster (SFAC) Federal Award Number: P063P240010-2025, P268K250010-2025, P007A240090-2025, P033A240090-2025 Applicable Compliance Requirement: Allowable Costs/Cost Principles, Eligibility Condition: During inquiries with management, the University of Alaska identified multiple students during enrollment verification process that they determined were fictious. Context: During inquiries with management, the University identified multiple students that were awarded and disbursed Pell, Supplemental Educational Opportunity Grant (SEOG), and Direct Loans, who were subsequently determined to be ineligible for the programs. Cause: The University's internal control policies were not effectively designed to ensure funds are disbursed to eligible students. Criteria: The Code of Federal Regulation, 34 CFR 668.16(f), states the University is required to develop and apply an adequate system to identify and resolve discrepancies in the information that the institution receives from different sources with respect to a student's application for financial aid under Title IV, HEA programs. Uniform Guidance 2 CFR 200.303, non-federal entities receiving federal awards are required to establish and maintain internal controls designed to reasonable ensure compliance with federal laws, regulations, and program compliance requirements. Effect: The University disbursed Title IV funds to ineligible students, resulting in questioned costs. Questioned Costs: AL 84.007: $4,947 AL 84.063: $27,059 AL 84.268: $158,554 Recommendation: We recommend the University review their internal control procedures to ensure that students are eligible prior to funds being disbursed. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-082 Federal Awarding Agency: USED Impact: Significant Deficiency, Noncompliance AL Number and Title: 84.063, 84.268, 84.007, 84.033 SFAC Federal Award Number: P063P240010 - 2025, P268K250010 - 2025, P007A240090 - 2025, P033A240090-2025 Applicable Compliance Requirement: Special Tests and Provisions Condition: The University did not pay student's Title IV credit balance within 14 days. Context: During our testing of 40 students, we identified one student from UAF that had a credit balance refund returned later than 14 days after the credit balance occurred in student account. The refund issued after the 14 day deadline was issued on the 15th day, with only one day past the deadline. Cause: UAF was experiencing processing delays due to personnel issues. Criteria: Per 34 CFR 668.164 (h)(2), if a federal credit balance occurs (i.e., when the total Title IV aid credited to a student's account exceeds allowable charges), the institution must pay the credit balance to the student or parent no later than 14 calendar days after the date the balance occurred. Uniform Guidance 2 CFR 200.303, nonfederal entities receiving federal awards are required to establish and maintain internal controls designed to reasonably ensure compliance with federal laws, regulations, and program compliance requirements. Effect: The student did not have access to their credit balance refund timely. Questioned Costs: None Recommendation: We recommend the University review and update procedures around disbursements of credit balances and implement controls to ensure credit balances are being returned timely. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-083 Federal Awarding Agency: USED Impact: Significant Deficiency, Noncompliance AL Number and Title: 84.063, 84.268, 84.007, 84.033 SFAC Federal Award Number: P063P240010 - 2025, P268K250010 - 2025, P007A240090 - 2025, P033A240090-2025 Applicable Compliance Requirement: Special Tests and Provisions Condition: The University did not properly report student enrollment changes for students who received federal student aid to the National Student Loan Data System (NSLDS). Context: During our testing of 40 students, we identified from UAF one student that the student's enrollment status was reported after the 60-day reporting requirement and one student with effective date reported to NSLDS that did not align with institutional records. Cause: The University did not have proper procedures in place to verify students' status in NSLDS matched the institutions records accurately. Criteria: Per 34 CFR 682.610, institutions must report accurately the enrollment status of all students regardless of if they receive aid from the institution or not. Changes to said status are required to be reported within 30 days of becoming aware of the status change, or with the next scheduled transmission of statuses if the scheduled transmission is within 60 days. Uniform Guidance 2 CFR 200.303, non-federal entities receiving federal awards are required to establish and maintain internal controls designed to reasonable ensure compliance with federal laws, regulations, and program compliance requirements. Effect: The University was not in compliance with the requirements to properly report student enrollment data correctly. Incorrect dates submitted to NSLDS may be used to determine the grace period for the repayment and interest of outstanding Title IV student loans. Questioned Costs: None Recommendation: We recommend the University review current processes for reporting to NSLDS and implement procedures to ensure submissions are reported timely and accurately. Views of Responsible Officials: Management agrees with this finding.

Finding No. 2025-084 Federal Awarding Agency: USED Impact: Significant Deficiency, Noncompliance AL Number and Title: 84.044 TRIO Cluster Federal Award Number: P044A210918 - 2024 Applicable Compliance Requirement: Eligibility Condition: The University did not properly maintain documentation to demonstrate a student's intent to become a permanent resident. Context: During our testing of 40 students, we identified one student from the Talent Search program from the University of Alaska Anchorage (UAA) that did not have proper documentation of their intent to become a permanent resident. Cause: UAA did not maintain eligibility documentation prior to allowing the student to participate in TRIO Talent Search services. Criteria: Per 34 CFR 643.3(a)(1)(iii), an individual is eligible to participate in a Talent Search project if the individual is in the United States for other than a temporary purpose and provides evidence from the Immigration and Naturalization Service of his or her intent to become a permanent resident. Per Uniform Guidance 2 CFR 200.303, nonfederal entities receiving federal awards are required to establish and maintain internal controls designed to reasonably ensure compliance with federal laws, regulations, and program compliance requirements. Effect: Failure to properly maintain documentation for eligibility requirements may result in noncompliance of federal regulations. Questioned Costs: None Recommendation: We recommend the University review and update current procedures to ensure all eligibility documentation is maintained prior to TRIO services being provided. Views of Responsible Officials: Management agrees with this finding.