Audit 407734

Finding No. 2023-010 Federal Agency: U.S. Department of Agriculture AL Program: 10.539 Nutrition Assistance Program Federal Award No.: 7NM4004NM Area: Procurement and Suspension and Debarment Questioned Costs: $684,138 Criteria: Non-federal entities other than states, including those operating federal programs as subrecipients of states, must follow the procurement standards set out at 2 CFR sections 200.318 through 200.326. They must use their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable federal statutes and the procurement requirements identified in 2 CFR Part 200. CNMI’s procurement regulations state the following: • All government procurement shall be awarded by competitive sealed bidding except under certain circumstances permitting other than full and open competition. • Bidding is not required but is encouraged for procurement of $2,500 and under $10,000. The individual with the expenditure authority must obtain price quotations from at least three vendors and should base the selection on competitive price and quality for procurement valued at $2,500 to $10,000. Any price quotations must be written, documented, and submitted to the Procurement and Supply (P&S) Director for approval. • For purchases that exceed $10,000 but which are less than or equal to $50,000, a minimum of three vendors shall be solicited to submit written or electronic quotations. If there are fewer than three vendors, the expenditure authority shall certify, in writing, to the P&S Director that fewer than three vendors responded and shall provide written proof of the request. In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Based on 2 CFR Section 200.317, when conducting procurement transactions under a Federal award, a State must follow the same policies and procedures it uses for procurement with non-Federal funds. Further, in accordance with 2 CFR 180.300, entities that enter into covered transactions must verify that the person with whom they intend to do business is not excluded or disqualified by: (a) Checking SAM.gov Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person. Lastly, according to 2 CFR 180.220(b)(1), a procurement transaction is considered a covered transaction if the contract amount is expected or to equal or exceed $25,000. Finding No. 2023-010, continued Federal Agency: U.S. Department of Agriculture AL Program: 10.539 Nutrition Assistance Program Federal Award No.: 7NM4004NM Area: Procurement and Suspension and Debarment Questioned Costs: $684,138 Condition: 1. Inconsistencies were noted in procurement regulations over local and federal funded transactions. No questioned costs are presented as the extent of noncompliance could not be quantified. 2. CNMI did not verify whether a person or a vendor is excluded or disqualified pursuant to the requirements of 2 CFR 180.300 prior to entering into a covered transaction. Finding No. 2023-010, continued Federal Agency: U.S. Department of Agriculture AL Program: 10.539 Nutrition Assistance Program Federal Award No.: 7NM4004NM Area: Procurement and Suspension and Debarment Questioned Costs: $684,138 Cause: 1. CNMI does not use the same policies and procedures for procurements under a federal award as with procurements from its non-federal funds under the small purchases method. 2. CNMI’s current policy and procedure for monitoring suspension and debarment status of persons or vendors under a covered transaction is not in accordance with the provisions identified in 2 CFR 180.300. Effect or Potential Effect: CNMI is in noncompliance with applicable procurement and suspension and debarment compliance requirements and questioned costs of $684,138 result for Condition 2. Identification as a Repeat Finding: Finding No. 2022-010 Recommendation: 1. CNMI should revisit its procurement regulations and consider updating applicable sections of the regulations to comply with federal regulations governing federal funds. 2. Responsible CNMI personnel should periodically monitor updates in federal regulations over procurement and suspension and debarment. 3. Establish and implement effective monitoring control over the verification of excluded or disqualified persons or vendors pursuant to CFR Section 180.300, prior to CNMI entering into a covered transaction. Finding No. 2023-010, continued Federal Agency: U.S. Department of Agriculture AL Program: 10.539 Nutrition Assistance Program Federal Award No.: 7NM4004NM Area: Procurement and Suspension and Debarment Questioned Costs: $684,138 Views of Responsible Officials: Condition 1 - Division of Procurement Services respectfully disagrees with this finding. Procurement Services agrees that the Commonwealth should periodically review its procurement regulations to ensure continued consistency with applicable federal requirements. However, Procurement Services notes that the procurement regulations currently establish procurement thresholds and procedures for locally funded procurements and procurements funded through a combination of local and federal funds. Procurements exceeding applicable small purchase thresholds are required to proceed through other procurement methods authorized under the procurement regulations, including competitive sealed bidding or other approved procurement methods, as applicable. Procurement Services further notes that procurements exceeding the applicable small purchase thresholds are governed by other provisions of the procurement regulations and are therefore not without regulatory direction. Accordingly, Procurement Services does not fully concur that the regulations are inconsistent as described in the finding. Condition 2 - CNMI NAP agrees with this finding. The issue occurred because the previous policies and procedures did not fully document the three allowable verification methods under 2 CFR 180.300 for covered transactions ≥ $25,000. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Condition 1 - CNMI procurement regulations for small purchases are not in accordance with 2 CFR Section 200.317, wherein a State must follow the same policies and procedures it uses for procurement with non-Federal funds when conducting procurement transactions under a Federal award. The condition remains.

Finding No. 2023-011 Federal Agency: U.S. Department of Agriculture AL Program: COVID-19 10.542 Pandemic EBT Food Benefits (P-EBT) Federal Award No.: 7NM400NM2 Area: Eligibility Questioned Costs: $16,635 Criteria: Per Section 4 of the CNMI State Plan for Pandemic EBT, a child is eligible for P-EBT benefits if two conditions are met: 1. The child would be eligible for free or reduced-price meals if the National School Lunch Program and School Breakfast Program were operating normally. This includes children who are: a. Directly certified or determined “other source categorically eligible” for SY 2021-2022, or b. Certified through submission of a household application processed by the child’s school district for SY 2021-2022, or c. Enrolled in a Community Eligibility Provision school or a school operating under Provisions 2 or 3, or d. On the School’s most current prior year list of directly certified children, children determined other source categorically eligible, or children certified by application and the school district has not made a new school meal eligibility determination for the child in SY 2021-2022. The date range covered by the State plan for children in school and children in childcare is from August 2021 to May 2022. 2. The child does not receive free or reduced-price meals at the school because the school is closed or has been operating with reduced attendance or hours for at least 5 consecutive days in the current school year. Once the minimum 5 consecutive day threshold is met, children are eligible to receive P-EBT benefits for closures or reductions in hours due to COVID-19. 3. Non-Federal entity must follow the eligibility process described in its approved State Plan. Condition: 1. Of sixty eligibility case files tested, aggregating $17,269 in total benefits paid, of a total population of $10,942,035, the following were noted: Finding No. 2023-011, continued Federal Agency: U.S. Department of Agriculture AL Program: COVID-19 10.542 Pandemic EBT Food Benefits (P-EBT) Federal Award No.: 7NM400NM2 Area: Eligibility Questioned Costs: $16,635 Condition, continued: a. For fifty-eight (or 97%), certifications from the public schools, private schools and/or childcare facilities containing the children’s specific records of days present, days absent, and days in virtual learning status, including classroom-wide and/or school-wide closures, were not provided. Finding No. 2023-011, continued Federal Agency: U.S. Department of Agriculture AL Program: COVID-19 10.542 Pandemic EBT Food Benefits (P-EBT) Federal Award No.: 7NM400NM2 Area: Eligibility Questioned Costs: $16,635 Condition, continued: b. For one (or 2%), the notice of disposition evidencing the child is a participant under the Nutrition Assistance Program (NAP), was not provided. No questioned cost is presented as the amount is questioned at Condition 1a. c. For six (or 10%), attendance data were not provided, evidencing benefit computations are only for eligible days and did not include unexcused absences. No questioned costs are presented as amounts are questioned at Condition 1a. Finding No. 2023-011, continued Federal Agency: U.S. Department of Agriculture AL Program: COVID-19 10.542 Pandemic EBT Food Benefits (P-EBT) Federal Award No.: 7NM400NM2 Area: Eligibility Questioned Costs: $16,635 Condition, continued: d. For two (or 3%), eligible days per attendance data differ from the number of eligible days used to compute benefits. No questioned costs are presented as amounts are questioned at Condition 1a. e. For one (or 2%), the child received benefit; however, was not included in the attendance data. No questioned cost is presented as the amount is questioned at Condition 1a. f. For two (or 3%), attendance data only reflected unexcused absences with no eligible days. No other documentation was provided to justify the computed benefits. No questioned costs are presented as amounts are questioned at Condition 1a. Finding No. 2023-011, continued Federal Agency: U.S. Department of Agriculture AL Program: COVID-19 10.542 Pandemic EBT Food Benefits (P-EBT) Federal Award No.: 7NM400NM2 Area: Eligibility Questioned Costs: $16,635 Condition, continued: 2. CNMI NAP did not provide instructions to its school districts to remove children on SY2019-SY2020 free and reduced-price lists who are no longer enrolled in school in SY2020–2021. Questioned costs are undeterminable as the extent of noncompliance could not be quantified. Cause: CNMI did not enforce compliance with applicable eligibility compliance requirements and lacks monitoring controls over the following: 1. Computation of benefits are based on certified school rosters and attendance data; 2. Adequate documentation and systematic filing of relevant documentation supporting eligibility determinations; and 3. Reconciliation of the data provided by PSS CNP was not evident to ensure that data is complete and proper to determine the appropriate benefits to be provided for eligible children. Effect or Potential Effect: CNMI is in noncompliance with the applicable eligibility compliance requirements and questioned costs of $16,635 result, as the projected questioned costs exceeded the $25,000 reportable threshold. Identification as a Repeat Finding: Finding No. 2022-012 Finding No. 2023-011, continued Federal Agency: U.S. Department of Agriculture AL Program: COVID-19 10.542 Pandemic EBT Food Benefits (P-EBT) Federal Award No.: 7NM400NM2 Area: Eligibility Questioned Costs: $16,635 Recommendation: CNMI should establish and implement effective monitoring internal control procedures over the following: 1. Verification over computation of benefits to ensure benefits paid are only for certified eligible participants and for eligible days; and 2. Establish and maintain effective systematic filing of relevant documentation to support eligibility compliance requirements and for easier retrieval. Views of Responsible Officials: Conditions 1 to 2 - CNMI NAP agrees with the auditor’s finding and conclusions. The issues occurred because CNMI NAP lacked effective monitoring controls and systematic filing procedures over eligibility determinations, attendance data verification, documentation retention, and reconciliation of data received from the Public School System. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-012 Federal Agency: U.S. Department of Agriculture AL Program: COVID-19 10.542 Pandemic EBT Food Benefits (P-EBT) Federal Award No.: 7NM400NM2 Area: Reporting Questioned Costs: $-0- Criteria: The Program is required to submit quarterly Federal Financial Reports (SF-425) that are accurately presented, comparable and reconcilable, no later than 30 calendar days after the reporting period. Condition: Of four SF-425 quarterly reports tested that were due for submission during the CNMI’s fiscal year ended September 30, 2023, the report for the quarter ended 09/30/22 was not provided. Cause: CNMI lacks monitoring controls over preparation and filing of the program’s reporting compliance requirements. Effect or Potential Effect: CNMI is in noncompliance with applicable reporting compliance requirements. No questioned costs are presented as the noncompliance is non-monetary in nature. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: CNMI should implement and enforce monitoring internal control procedures over adequate documentation and systematic filing of relevant reporting compliance requirements. Views of Responsible Officials: CNMI NAP agrees with the auditor’s finding and conclusions. The issue occurred because of competing priorities in our partner agencies and delays in the overall process for preparing and submitting the quarterly Federal Financial Reports (SF-425). This has been a recurring finding in prior years, including the FY23 Financial Management Review. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-013 Federal Agency: U.S. Department of Commerce AL Program: 11.307 Economic Adjustment Assistance Federal Award No.: 07-79-07645, 07-79-07631, 07-79-07562 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $3,695,208 Criteria: In accordance with 2 CFR 200.303(a), the recipient must 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. Additionally, in accordance with 2 CFR §200.403(g), non-Federal entities must maintain adequate documentation to support all charges to Federal awards. Condition: Of twenty-two nonpayroll expenditures tested, aggregating $3,695,208 of a total population of $4,435,648, the following were noted: 1. For two (or 9%), CNMI did not provide the invoices and/or contract agreements. No questioned costs are presented as amounts are questioned at Condition 2. 2. For twenty-two (or 100%), CNMI did not provide cancelled checks or related bank statements to provide evidence that payments were properly authorized, were made to eligible parties, and did not constitute improper payments for the following transactions. Finding No. 2023-013, continued Federal Agency: U.S. Department of Commerce AL Program: 11.307 Economic Adjustment Assistance Federal Award No.: 07-79-07645, 07-79-07631, 07-79-07562 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $3,695,208 Cause: CNMI did not properly enforce their record-keeping and document retention controls. Effect or Potential Effect: CNMI is in noncompliance with applicable activities allowed or unallowed and allowable costs/cost principles compliance requirements and questioned costs of $3,695,208 result for Condition 2. Identification of a Repeat Finding: This is not a repeat finding. Recommendation: CNMI should improve their record-keeping and document retention policies by properly utilizing the database functionality of their current Enterprise Resources Planning (ERP) software, which is Tyler MUNIS. Views of Responsible Officials: Condition 1 - CNMI Department of Finance respectfully disagrees with this finding related to project number FG17010001 (Economic Resiliency Center). CNMI DOF acknowledges that although supporting documentation, such as journal entries, approvals of expense transfers, sole-source justification memo and grantor approval were submitted, copies of the related invoices and/or contract agreement were not included. This omission was an oversight and resulted in a documentation-timing deficiency. Condition 2 - CNMI Department of Finance respectfully disagrees with this finding related to PA Journals 478, 360, 2137 and 335. These transactions pertain to the Department’s Economic Resiliency Center (ERC) project. Due to internal scheduling constraints and the compressed 2-day turnaround to provide supporting documentation to the auditors, the requested documents were not submitted by the specified deadline. This timing issue resulted in the finding; however, it does not reflect a lack of documentation or inadequate record-keeping. CNMI DOF maintains all relevant supporting documentation for these transactions and such documentation is available for review upon request from the Grantor. Finding No. 2023-013, continued Federal Agency: U.S. Department of Commerce AL Program: 11.307 Economic Adjustment Assistance Federal Award No.: 07-79-07645, 07-79-07631, 07-79-07562 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $3,695,208 Views of Responsible Officials, continued: The Office of Planning and Development (OPD) partially agrees with the finding. OPD reviewed the questioned transactions and supporting documentation available under its custody. Payment documentation has been identified for PA Journals 186, 142, 141, 2670, 270, 4200, 556, 4180, and 913 and is maintained by OPD for review. For PA Journals 191 and 144, OPD verified that the invoice amounts are consistent with Contract No. 32200454; however, the PA Journal effective dates and journal numbers provided in the audit schedule do not correspond with the records reflected in the Munis system. For PA Journals 1585, 1862, 2219, 1138, 197, 593, and 219, additional information is required to complete verification because the PA Journal effective dates and journal numbers differ from the Munis records available to OPD. The referenced invoice amounts alone are insufficient to identify the transactions, as they may represent portions of cost shared expenditures or partial payments associated with larger transactions. Identification of the vendor would significantly assist in locating and reconciling the transactions. Refer to CNMI’s Corrective Action Plan for additional information. Auditor response: Conditions 1 and 2 - CNMI states disagreement; however, CNMI also acknowledges that documentation supporting program costs were not provided. In addition, the program office should coordinate with the CNMI Department of Finance on identifying the PA journal effective dates, journal numbers and vendors that the program could not trace in the Munis system.

Finding No. 2023-014 Federal Agency: U.S. Department of Commerce AL Program: 11.307 Economic Adjustment Assistance Federal Award No.: 07-79-07645, 07-79-07631, 07-79-07562, ED22SEA3070013 Area: Reporting Questioned Costs: -0- Criteria: In accordance with 2 CFR 200.303(a), the recipient must 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. Based on the applicable reporting requirements outlined in the grant agreements, the program is required to submit a Federal Financial Reports (SF-425) on a semi-annual basis. In accordance with applicable reporting requirements outlined in the grant agreements, the program is required to submit SF-271 Outlay Report and Request for Reimbursement for Construction Program for the applicable reporting period. Further, in accordance with applicable reporting requirements outlined in the grant agreements, the program is required to submit Periodic Performance Report on a quarterly and semi-annual basis for the related grants. Lastly, based on 2 CFR section 200.330 Reporting on real property, the federal agency or pass-through entity must require the recipient or subrecipient to submit reports on the status of real property in which the Federal Government retains an interest. Such performance technical reports must be submitted at least annually. Condition: 1. For five (or 63%) of eight SF-425 financial reports tested, CNMI did not provide copies of the reports and supporting underlying accounting records. 2. Of eight SF-271 Outlay Reports and Requests for Reimbursement for Construction Program tested, the following were noted: Finding No. 2023-014, continued Federal Agency: U.S. Department of Commerce AL Program: 11.307 Economic Adjustment Assistance Federal Award No.: 07-79-07645, 07-79-07631, 07-79-07562, ED22SEA3070013 Area: Reporting Questioned Costs: -0- Condition, continued: a. For six (or 75%), CNMI did not provide copies of the reports and supporting underlying accounting records. b. For one (or 13%), CNMI only provided a copy of the report but not the supporting underlying accounting records. 3. Of twelve Periodic Performance Reports tested, the following were noted: a. For six (or 50%), CNMI did not provide copies of the Periodic Performance Reports. b. For one (or 8%), CNMI did not submit the Periodic Performance Report on a timely basis. Finding No. 2023-014, continued Federal Agency: U.S. Department of Commerce AL Program: 11.307 Economic Adjustment Assistance Federal Award No.: 07-79-07645, 07-79-07631, 07-79-07562, ED22SEA3070013 Area: Reporting Questioned Costs: -0- Condition, continued: 4. CNMI did not submit the annual Performance Technical Reports for the following grants: Cause: 1. CNMI does not have an established control to ensure that submitted reports are properly maintained and can be extracted in a timely manner. 2. CNMI does not have an established monitoring control to ensure that all the required reports are submitted on a timely basis. Effect or Possible Effect: CNMI is in noncompliance with applicable reporting compliance requirements. No questioned costs are presented as the noncompliance is non-monetary in nature. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: CNMI should strengthen and enforce compliance with reporting compliance requirements over the following: 1. Establish policies and procedures for recordkeeping and document retention. Finding No. 2023-014, continued Federal Agency: U.S. Department of Commerce AL Program: 11.307 Economic Adjustment Assistance Federal Award No.: 07-79-07645, 07-79-07631, 07-79-07562, ED22SEA3070013 Area: Reporting Questioned Costs: -0- Recommendation, continued: 2. Establish monitoring procedures to ensure that all the reports required to be submitted are done in a complete and timely manner. Views of Responsible Officials: Condition 1 - For project no. FG17010001 (related to the Economic Resiliency Center), CNMI Department of Finance respectfully disagrees with this finding. The Department was not aware that a documentation request had been submitted through the EY portal. This occurred because the ERC project was grouped with other OPD-related projects within the same EY portal request, resulting in the Department not receiving clear notification that additional documents were required. The Department maintains all relevant supporting documentation for these transactions and such documentation is available for review upon request from the Grantor. The Office of Planning and Development (OPD) partially disagrees with the finding related to Project No. FG26050001 and FG26050006. OPD has located the SF-425 Federal Financial Report for Project No. FG26050001 / Grant Award No. 07-79-07631 for the reporting period ending September 30, 2022, and the report is maintained by OPD and available for review. With respect to Project No. FG26050006 / Grant Award No. ED22SEA3070013, OPD has been unable to locate the referenced SF-425 reports for the reporting periods ending September 30, 2022, and March 31, 2023. However, although the grant was awarded in 2022, the project was not established until June 12, 2023, and grant activities had not commenced during the reporting periods cited in the finding. OPD will coordinate with the Department of Finance to determine whether reporting requirements applied during the referenced periods. Should additional guidance or clarification indicates that such reporting requirements were applicable, OPD will review the information provided and take appropriate action, as necessary. Correspondence from the Department of Finance confirming the project establishment date is available for review. Condition 2a - For project no. FG17010001 (related to the Economic Resiliency Center), Department of Finance respectfully disagrees with this finding. The Department was not aware that a documentation request had been submitted through the EY portal. This occurred because the ERC project was grouped with other OPD-related projects within the same EY portal request, resulting in the Department not receiving clear notification that additional documents were required. The Department maintains all relevant supporting documentation for these transactions and such documentation is available for review upon request from the Grantor. Finding No. 2023-014, continued Federal Agency: U.S. Department of Commerce AL Program: 11.307 Economic Adjustment Assistance Federal Award No.: 07-79-07645, 07-79-07631, 07-79-07562, ED22SEA3070013 Area: Reporting Questioned Costs: -0- Views of Responsible Officials, continued: OPD respectfully disagrees with the finding related to Project No. 2605210018. OPD has located the SF-271 Outlay Reports and Requests for Reimbursement for Construction Program for Project No. 2605210018 / Grant Award No. 07-79-07562 covering the periods July 1, 2022, through October 31, 2022, and November 1, 2022, through January 9, 2023. These records are maintained by OPD and are available for review. No further corrective action is proposed. OPD has located the requested SF-271 reports and confirmed that they are maintained within its grant records and available for review. OPD will continue maintaining grant records in accordance with applicable record-retention requirements. Condition 2b - OPD respectfully disagrees with the finding. OPD has located supporting accounting records associated with the SF-271 for Project No. 2605210018 / Grant Award No. 07-79-07562 covering the period August 29, 2022, through April 30, 2023, including invoices, purchase orders, and check copies. These records are maintained by OPD and are available for review. No further corrective action is proposed. The requested supporting records have been located and are maintained by OPD for review. OPD will continue maintaining supporting financial documentation in accordance with applicable record-retention requirements. Condition 3a - For project no. FG17010001 (related to the Economic Resiliency Center), Department of Finance respectfully disagrees with this finding. The Department was not aware that a documentation request had been submitted through the EY portal. This occurred because the ERC project was grouped with other OPD-related projects within the same EY portal request, resulting in the Department not receiving clear notification that additional documents were required. The Department maintains all relevant supporting documentation for these transactions and such documentation is available for review upon request from the Grantor. OPD respectfully disagrees with the finding. OPD has located the performance reports for Project No. FG26050001 / Grant Award No. 07-79-07631 and Project No. 2605210018 / Grant Award No. 07-79-07562 for the reporting period ending September 30, 2022. OPD believes the reports referenced in the finding as Periodic Performance Reports are maintained and submitted by OPD as Quarterly Progress Reports (QPRs). These records are maintained by OPD and are available for review. No further corrective action is proposed. The requested performance reports have been located and are maintained by OPD for review. OPD will continue maintaining programmatic records in accordance with applicable record-retention requirements. Finding No. 2023-014, continued Federal Agency: U.S. Department of Commerce AL Program: 11.307 Economic Adjustment Assistance Federal Award No.: 07-79-07645, 07-79-07631, 07-79-07562, ED22SEA3070013 Area: Reporting Questioned Costs: -0- Views of Responsible Officials, continued: Condition 3b - OPD agrees with the finding. The Periodic Performance Report for Project No. 2605210018 / Grant Award No. 07-79-07562 for the reporting period ending December 31, 2022, was submitted after the required due date. Although operational circumstances at the time contributed to the delay, OPD recognizes the importance of timely reporting and will strengthen internal monitoring procedures to improve tracking of reporting deadlines and support timely submission of all required reports. OPD will implement a reporting calendar and periodic internal reviews to monitor upcoming reporting deadlines and ensure timely submission of all required reports. Condition 4 - For project no. FG17010001 (related to the Economic Resiliency Center), CNMI Department of Finance respectfully disagrees with this finding. Based on the project’s Special Award Conditions, the only reporting requirements identified for this award are the submission of Project Progress Reports and Financial Reports (SF-425). No additional reporting or documentation requirements beyond those explicitly stated were communicated to the Department. Accordingly, the Department requests further clarification from the auditor regarding the specific authority or requirement that forms this basis of this finding, including where such a requirement is documented. A copy of the Special Award Conditions is maintained by the Department and is available for review upon request. OPD respectfully disagrees with the finding. OPD reviewed the grant files, including the applicable Special Award Conditions, for Project No. 2605210018 / Grant Award No. 07-79-07562 and Project No. FG26050001 / Grant Award No. 07-79-07631. OPD was unable to identify a requirement for submission of an Annual Performance Technical Report within the grant terms and conditions governing these awards. The applicable Special Award Conditions have been identified and are available for review. OPD respectfully requests clarification regarding the specific report referenced in the finding and will provide any applicable documentation should an applicable reporting requirement be identified. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Conditions 1, 2a, 2b and 3a - CNMI states disagreement; however, CNMI also acknowledges that reports and/or underlying accounting records were not provided. Finding No. 2023-014, continued Federal Agency: U.S. Department of Commerce AL Program: 11.307 Economic Adjustment Assistance Federal Award No.: 07-79-07645, 07-79-07631, 07-79-07562, ED22SEA3070013 Area: Reporting Questioned Costs: -0- Auditor Response, continued: In addition, the setup of ALN 11.307 grouping in the EY portal included the CNMI Department of Finance team, for which the portal triggers email notifications to all individuals that are part of the grouping when new requests are uploaded and/or when due dates are nearing or are overdue. Condition 4 - In accordance with 2 CFR sections 200.330 Reporting on real property, the Federal agency or pass-through entity must require the recipient or subrecipient to submit reports on the status of real property in which the Federal Government retains an interest. Such reports must be submitted at least annually. Based on our examination of the grant awards, Grant Award Nos. 07-79-07645, 07-79-07562, and 07-79-07631 are related to real property that are required to submit Performance technical Reports including Form SF-429 (Real Property Status Report). Documentation that such reporting requirement is not applicable or was waived for the CNMI, was not provided.

Finding No. 2023-015 Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D22AP00279, D21AP10223, D20AP00005 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $4,203 Criteria: In accordance with 2 CFR 200.303(a), the recipient must 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. In accordance with the grant agreement, costs may not be incurred, and work may not commence on the project until the Office of Insular Affairs (OIA) has issued an Authorization to Proceed (ATP). Based on 2 CFR 200.403(g), except where otherwise authorized by statute, costs must be adequately documented to be allowable under Federal awards. Condition: 1. Of thirty-five nonpayroll expenditures tested, aggregating $1,470,476 of a total population of $9,317,282, for four (or 11%), CNMI did not provide evidence of grantor approved ATPs. Finding No. 2023-015, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D22AP00279, D21AP10223, D20AP00005 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $4,203 Condition, continued: 2. Of five payroll expenditures tested, aggregating $10,639 of a total population of $1,285,604, for two (or 40%), CNMI did not provide employees’ timesheets for the selected pay periods, for which the corresponding directly associated costs are also questioned. Cause: 1. CNMI lacks control procedures to ensure that each office receiving federal grants provides a copy of the necessary documentation to the Office of the Grants Management. 2. CNMI did not properly enforce their record-keeping and document retention controls. Effect or potential effect: CNMI is in noncompliance with applicable activities allowed or unallowed and allowable costs/cost principles compliance requirements and questioned costs of $4,203 result, as the projected questioned costs exceeds the $25,000 reportable threshold. Finding No. 2023-015, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D22AP00279, D21AP10223, D20AP00005 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $4,203 Identification as a Repeat Finding: Finding No. 2022-013 Recommendation: 1. CNMI should improve their record-keeping and document retention policies by properly utilizing the database functionality of their current Enterprise Resources Planning (ERP) software, which is Tyler MUNIS. 2. CNMI should establish controls to ensure that the individual offices who receive grants, process the required documentation timely and upload processed files in MUNIS. Views of Responsible Officials: Condition 1 - The Office of Grants Management (OGM) disagrees with this finding and the questioned costs of $1,400. The ATP document is vested with the Division of Energy (DOE) and not OGM. The award is from OIA; however, not all awards are under the possession of OGM. In this matter, CNMI Department of Energy is the recipient. However, OGM was able to obtain a copy of the document after several phone calls to their office. Document is available for review upon request. Condition 2 - OGM disagrees with this finding and the questioned cost of $2,803. The documents were obtained for both employees and are available for review upon request. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Condition 1 - It was established during the planning stage of the audit that OGM will be responsible for all grant awards, except for CIP and Compact programs. Additionally, multiple follow up communications were sent for the submission of the ATPs but were not provided. Questioned costs are retained, as costs at the time of the audit were not supported by adequate documentation. Condition 2 - CNMI states disagreement; however, CNMI also acknowledges that documentation supporting program costs were not provided. Questioned costs are retained, as costs at the time of the audit were not supported by adequate documentation.

Finding No. 2023-016 Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00036, D22AF00299, D22AF00298 Area: Cash Management Questioned Costs: $972,335 Criteria: In accordance with 2 CFR 200.303(a), the recipient and subrecipient must 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. Based on 2 CFR 200.305(b)(3), reimbursement is the preferred method when the non-Federal entity requests payment by reimbursement. Additionally, when the reimbursement is used, 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. Condition: 1. Six (or 15%) out of forty expenditures selected for testing, the invoices were dated after the approval of the drawdown request. 2. Two (or 22%) out of nine subrecipient expenditures drawn during the year that was selected for testing, invoices were dated after the approval date of the drawdown request. Finding No. 2023-016, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00036, D22AF00299, D22AF00298 Area: Cash Management Questioned Costs: $972,335 Cause: CNMI failed to adhere to their current cash management reimbursement method procedures, and requested for the drawdown of all FY2023 Compact allocated budget, prior to incurring any expenditures for each grant, and by subrecipients. Effect or Potential Effect: CNMI is in noncompliance with applicable cash management compliance requirements and questioned costs of $972,335 result. Identification as a Repeat Finding: Finding No. 2022-014 Recommendation: CNMI should strengthen their monitoring procedures, to ensure that the cash management reimbursement process, is strictly followed, and to ensure that drawdowns are only approved when supported by invoices for transactions that were already incurred, for both their own and subrecipient expenditures. Finding No. 2023-016, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00036, D22AF00299, D22AF00298 Area: Cash Management Questioned Costs: $972,335 Views of Responsible Officials: Conditions 1 to 2 - The Office of Management and Budget (OMB) agrees with this finding. The underlying cause of this issue was the absence of succession planning and cross training, which resulted in a loss of institutional compliance knowledge during a staff transition. When the primary grant administrator unexpectedly left the organization, there was no transition plan, no cross trained backup staff, and no documented standard operating procedure in place. As a result, the departing administrator processed a drawdown request without leaving documentation of the drawdown or the corresponding vendor invoices. The untrained coverage staff, having only been informed that funds were received, subsequently processed the invoices for payment, which led to the timing discrepancy noted in the finding. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-017 Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories COVID-19 15.875 Economic, Social, and Political Development of the Territories Federal Award Nos.: D18AP00130, D19AP00142, D20AP00005, D20AP00037, D20AP00040, D20AP00117, D20AP00118, D20AP00119, D20AP00120, D20AP00122, D20AP00126, D20AP00127, D20AP00170, D21AP10140, D21AP10141, D21AP10218, D21AX10059, D22AP00236, D22AP00279 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Criteria: In accordance with 2 CFR 200.303(a), the recipient and subrecipient must 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. Additionally, in accordance with 2 CFR Section 200.313(b), a state must use, manage, and dispose of equipment acquired under a federal award in accordance with state laws and procedures. The CNMI Property Management Policies and Procedures states that the Division of Procurement & Supply (PS) should conduct an annual inventory of property held by a designated official who has administrative control over the use of personal property within his area of jurisdiction. Also, PS shall perform random audits of property held by each accountable person to validate the integrity of the property control process. Further, in accordance with 2 CFR Section 200.313(d)(1), property records must be maintained that include a description of the property, a serial number or another identification number, the source of funding for the property (including the Federal award identification number), the title holder, the acquisition date, the cost of the property, the percentage of the Federal agency contribution towards the original purchase, the location, use and condition of the property, and any disposition data including the date of disposal and sale price of the property. Lastly, 2 CFR 200.313(d)(3) requires that adequate maintenance procedures must be developed to keep the property in good condition. Condition: 1. CNMI could not provide a capital asset listing that would clearly identify which capital assets were procured using the related federal funding. In addition, the CNMI did not provide the program’s schedule of disposals during the fiscal year. Total FY2023 federal capital assets charged to the program amounted to $680,407. No questioned costs are presented as we are not able to quantify the extent of noncompliance. Finding No. 2023-017, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories COVID-19 15.875 Economic, Social, and Political Development of the Territories Federal Award Nos.: D18AP00130, D19AP00142, D20AP00005, D20AP00037, D20AP00040, D20AP00117, D20AP00118, D20AP00119, D20AP00120, D20AP00122, D20AP00126, D20AP00127, D20AP00170, D21AP10140, D21AP10141, D21AP10218, D21AX10059, D22AP00236, D22AP00279 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Condition, continued: 2. CNMI did not conduct the annual physical inventory count for FY2023 thus, was not able to ascertain if federal capital assets are adequately safeguarded and maintained and are in good working condition. Cause: 1. CNMI lacks human resources and financial management system structure that ensures all federally funded capital assets are traceable to specific programs used to purchase the equipment or real property and that proper monitoring is done to ensure that a capital asset listing is maintained and updated accordingly. 2. CNMI does not have an established policy and procedure to ensure that an annual physical inventory count is performed to verify that federal capital assets are safeguarded and maintained in good working condition. Effect or Potential Effect: CNMI is in noncompliance with applicable equipment and real property management compliance requirements. Questioned costs is undeterminable as CNMI could not provide the program’s capital assets listing. See below for the cumulative dollar amount of property equipment acquired with program grant funds over the past five years. Identification as a Repeat Finding: Finding No. 2022-015 Finding No. 2023-017, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories COVID-19 15.875 Economic, Social, and Political Development of the Territories Federal Award Nos.: D18AP00130, D19AP00142, D20AP00005, D20AP00037, D20AP00040, D20AP00117, D20AP00118, D20AP00119, D20AP00120, D20AP00122, D20AP00126, D20AP00127, D20AP00170, D21AP10140, D21AP10141, D21AP10218, D21AX10059, D22AP00236, D22AP00279 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Recommendation: CNMI should strengthen and enforce compliance with equipment and real property management compliance requirements over the following: 1. Consider seeking technical and financial support from Federal agencies to develop human resources and a financial management system capable of effecting compliance with applicable property management policies and procedures. 2. Responsible personnel should establish and implement effective monitoring controls to ensure that property records are accurately segregated by federal funding sources and that they are structured to be in accordance with the provisions of 2 CFR 200.313 (d). 3. Implement more stringent monitoring procedures to ensure that the annual physical inventory count is conducted timely and that part of the procedures performed is to verify if the equipment is safeguarded and maintained in good work condition. Views of Responsible Officials: Condition 1 - Division of Procurement Services agrees with this finding. Improvements are needed in the way federally funded assets are tracked and reported. At present, the inventory management system is not configured to readily identify assets by specific federal award number, which makes it difficult to generate reports identifying assets purchased under individual grants. In addition, staffing limitations have affected the Commonwealth's ability to maintain and readily produce this information. Condition 2 - Procurement Services agrees with this finding. Procurement Services agrees that the annual physical inventory required for FY2023 was not completed. As a result, the existence, location, condition, and accountability of all assets could not be fully verified during the audit period. Finding No. 2023-017, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories COVID-19 15.875 Economic, Social, and Political Development of the Territories Federal Award Nos.: D18AP00130, D19AP00142, D20AP00005, D20AP00037, D20AP00040, D20AP00117, D20AP00118, D20AP00119, D20AP00120, D20AP00122, D20AP00126, D20AP00127, D20AP00170, D21AP10140, D21AP10141, D21AP10218, D21AX10059, D22AP00236, D22AP00279 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Views of Responsible Officials, continued: Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-018 Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D22AF00298, D20AP10168, D17AP00132 Area: Period of Performance Questioned Costs: $-0- Criteria: In accordance with 2 CFR 200.303(a), the recipient and subrecipient must 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. Condition: 1. CNMI does not maintain any documentation or evidence that supports transactions are being reviewed to ensure that they are incurred within the period of performance. 2. CNMI does not properly monitor whether expenditures are paid prior to the end of the liquidation period. These conditions do not result in questioned costs as these are all non-monetary findings. Cause: 1. CNMI’s current policy and procedure does not include proper documentation of the review being performed to verify that the transactions are valid and still within the period of performance. Finding No. 2023-018, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D22AF00298, D20AP10168, D17AP00132 Area: Period of Performance Questioned Costs: $-0- Cause, continued: 2. CNMI does not have any policies and procedures established to monitor and ensure that payment to vendors is liquidated prior to the end of the liquidation period. Effect or Potential Effect: CNMI is in noncompliance with applicable period of performance compliance requirements. No questioned costs identified as the findings are non-monetary in nature. Identification as a Repeat Finding: Finding No. 2022-016 Recommendation: 1. CNMI should update their current policies and procedures to ensure that part of the documentation of checking the allowability of each transaction includes the verification if the expenditures are still within the period of performance. This can be done by attaching, the copy of the grant award, or a certification from the program administrator, or personnel in-charge of checking the allowability of each transaction, that the grant being charged is in compliance with compliance requirements. 2. CNMI should establish monitoring procedures to ensure that checks issued to vendors are cleared by the banks within the liquidation period. The DOF Financial Services could establish a monitoring log for all checks issued for each vendor and each office. The assigned offices should then request a copy from the DOF Financial Services of the monitoring and conduct timely follow-up to each vendor on ensuring the checks are paid. Lastly, CNMI could also adopt a purely ACH payment to ensure that payments are done real-time. Views of Responsible Officials: Conditions 1 to 2 - Capital Improvement Program (CIP) agrees with this finding that a subrecipient expending $750,000 or more in federal awards during its fiscal year was not adequately verified for compliance with Single Audit requirements, including whether corrective actions were implemented to address prior audit findings. Finding No. 2023-018, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D22AF00298, D20AP10168, D17AP00132 Area: Period of Performance Questioned Costs: $-0- Views of Responsible Officials, continued: For Grant Award No. D22AF00298 and D20AP10168, the Office of Grants Management (OGM) is unable to provide a response because the Grant Award # provided cannot be located in the current FMIS, nor does the Division of Financial Services, Federal Section, have records of their existence. Proper searches were conducted in the legacy system and in Tyler-MUNIS but were not successful. We recommend that the auditor provide additional details regarding the specific grant award so that the appropriate responsible office can be accurately identified. Furthermore, we do not know whether OGM is the responsible party to answer on behalf of these non-titled projects. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Grant award numbers D22AF00298 and D20AP10168 are indicated at the heading section of the finding, and we have incorporated the respective offices handling the awards within the condition. Further, CNMI provided copies of the grant awards for the audit.

Finding No. 2023-019 Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Award Number: D22AP00308, D22AP00292, D22AP00254, D20AP00170, D20AP00121, D16AP00084 Area: Procurement and Suspension and Debarment Questioned Costs: $270,553 Criteria: Non-federal entities other than states, including those operating federal programs as subrecipients of states, must follow the procurement standards set out at 2 CFR sections 200.318 through 200.326. They must use their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable federal statutes and the procurement requirements identified in 2 CFR Part 200. CNMI’s procurement regulations state the following: • All government procurement shall be awarded by competitive sealed bidding except under certain circumstances permitting other than full and open competition. • Bidding is not required but is encouraged for procurement of $2,500 and under $10,000. The individual with the expenditure authority must obtain price quotations from at least three vendors and should base the selection on competitive price and quality for procurement valued at $2,500 to $10,000. Any price quotations must be written, documented, and submitted to the Procurement and Supply (P&S) Director for approval. • For purchases that exceed $10,000 but which are less than or equal to $50,000, a minimum of three vendors shall be solicited to submit written or electronic quotations. If there are fewer than three vendors, the expenditure authority shall certify, in writing, to the P&S Director that fewer than three vendors responded and shall provide written proof of the request. In accordance with 2 CFR 180.300, entities that enter into covered transactions must verify that the person with whom they intend to do business is not excluded or disqualified by: (a) Checking SAM.gov Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person. Additionally, according to 2 CFR 180.220(b)(1), a procurement transaction is considered a covered transaction if the contract amount is expected to equal or exceed $25,000. Finding No. 2023-019, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Award Number: D22AP00308, D22AP00292, D22AP00254, D20AP00170, D20AP00121, D16AP00084 Area: Procurement and Suspension and Debarment Questioned Costs: $270,553 Condition: 1. Inconsistencies were noted in procurement regulations over local and federal funded transactions. No questioned costs are presented as the extent of noncompliance could not be quantified. 2. CNMI did not verify whether a person or a vendor is excluded or disqualified pursuant to the requirements of 2 CFR 180.300 prior to entering into the following covered transactions that exceeded the $25,000 threshold. Finding No. 2023-019, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Award Number: D22AP00308, D22AP00292, D22AP00254, D20AP00170, D20AP00121, D16AP00084 Area: Procurement and Suspension and Debarment Questioned Costs: $270,553 Cause: 1. CNMI does not use the same policies and procedures for procurements under a federal award as with procurements from its non-federal funds under the small purchases method. 2. CNMI does not determine, prior to entering into a covered transaction, whether the potential vendor is disbarred or suspended as required by 2 CFR 180.300. Effect or potential effect: CNMI is in noncompliance with applicable procurement and suspension and debarment compliance requirements and questioned costs of $270,553 result for Condition 2. Identification as a Repeat Finding: Finding No. 2022-017. Recommendation: 1. CNMI should revisit its procurement regulations and consider updating applicable sections of the regulations to comply with federal regulations governing federal funds. 2. Responsible CNMI personnel should periodically monitor updates in federal regulations over procurement and suspension and debarment. 3. Establish and implement effective monitoring control over the verification of excluded or disqualified persons or vendors pursuant to CFR Section 180.300, prior to the CNMI entering into a covered transaction. Finding No. 2023-019, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Award Number: D22AP00308, D22AP00292, D22AP00254, D20AP00170, D20AP00121, D16AP00084 Area: Procurement and Suspension and Debarment Questioned Costs: $270,553 Views of Auditee and Corrective Action Plan: Condition 1 - Division of Procurement Services respectfully disagrees with this finding. Procurement Services agrees that the Commonwealth should periodically review its procurement regulations to ensure continued consistency with applicable federal requirements. However, Procurement Services notes that the procurement regulations currently establish procurement thresholds and procedures for locally funded procurements and procurements funded through a combination of local and federal funds. Procurements exceeding applicable small purchase thresholds are required to proceed through other procurement methods authorized under the Procurement Regulations, including competitive sealed bidding or other approved procurement methods, as applicable. Procurement Services further notes that procurements exceeding the applicable small purchase thresholds are governed by other provisions of the procurement regulations and are therefore not without regulatory direction. Accordingly, Procurement Services does not fully concur that the regulations are inconsistent as described in the finding. Condition 2 - For TAP sample selections (FG26100012, FG26100002, 1901210068, 2001210031, and FG26100021), the Office of Grants Management (OGM) agrees with this finding and concurs that a formal procedure for verifying suspension and debarment status was not documented during FY2023, especially as this procurement aspect was not enforced by the Division of Procurement Services. However, management is not aware of any instances in which the listed contracts or subawards were issued to entities that were suspended, debarred, or otherwise excluded from participation in federally funded programs. All goods and services were received, and all expenditures were incurred for allowable program purposes. Accordingly, OGM believes the finding represents a control and compliance deficiency rather than an instance of unallowable costs. OGM has begun implementing procedures requiring SAM.gov verification and retention of supporting documentation prior to entering into covered transactions, especially due to a more recent procurement purchase. OGM kindly seeks the auditor’s discretion in changing the questioned costs to the amount of zero, due to it being more of an internal control issue rather than an allowability issue. Finding No. 2023-019, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Award Number: D22AP00308, D22AP00292, D22AP00254, D20AP00170, D20AP00121, D16AP00084 Area: Procurement and Suspension and Debarment Questioned Costs: $270,553 Views of Auditee and Corrective Action Plan, continued: For the CIP sample selection (FC26050009), Capital Improvement Program (CIP) agrees with the finding and that it did not verify if the firm in question was excluded or disqualified at the time of procurement. The Division of Procurement Services has recently begun requiring agencies to provide search results on SAM.gov Exclusions for the processing of contracts moving forward. CIP will follow this new protocol and include it in the standard documents for all construction and non-construction contracts. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Condition 1 - CNMI procurement regulations for small purchases are not in accordance with 2 CFR Section 200.317, wherein a State must follow the same policies and procedures it uses for procurement with non-Federal funds when conducting procurement transactions under a Federal award. Condition 2 - The regulations in 2 CFR part 180 restrict making Federal awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from receiving or participating in Federal awards, for which such regulations poses both an internal control and compliance finding. Questioned costs are retained, as costs at the time of the audit were not supported by adequate documentation.

Finding No. 2023-020 Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00036, D23AP00068, D22AF00299, D21AP10043, D21AP10044, D19AP00081, D17AP00132 Area: Subrecipient Monitoring Questioned Costs: $2,399,988 Criteria: In accordance with 2 CFR 200.303(a), the recipient and subrecipient must 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. As stated in 2 CFR 200.332(a), pass-through entities are required to verify that potential subrecipients are not suspended and debarred prior to awarding the agreements. The verification can be done through methods indicated in 2 CFR § 180.300 as follows: (a) Checking SAM.gov Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person. Additionally, based on 2 CFR 200.332(b), pass-through entities should ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the information provided in 2 CFR 200.322(b)(1) to (6). A pass-through entity must provide the best available information when some of the information below is unavailable. A pass-through entity must provide unavailable information when it is obtained. Further, in accordance with 2 CFR 200.332(c), a pass-through entity should evaluate each subrecipient's fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring described in 2 CFR 200.322(f). Lastly, in accordance with 2 CFR 200.332(d)(2), the pass-through entity’s monitoring of the subrecipient must include following-up to ensure that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity. Condition: 1. Of three subrecipients tested, aggregating $970,384 of a total population of $970,384, the following were noted: Finding No. 2023-020, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00036, D23AP00068, D22AF00299, D21AP10043, D21AP10044, D19AP00081, D17AP00132 Area: Subrecipient Monitoring Questioned Costs: $2,399,988 Condition, continued: a. For three (or 100%), CNMI did not verify whether the subrecipient is excluded or disqualified pursuant to the requirements of 2 CFR 180.300 prior to entering into a subaward agreement. The subaward date for D22AF00299 is unknown as the subaward agreement was not provided, as noted at Condition 1b. No questioned cost is presented for D23AP00068 as there was no subaward disbursement made during FY2023. b. For one (or 33%), CNMI did not provide the signed and approved subaward agreement. No questioned cost is presented as the amount is questioned at Condition 1a. c. For three (or 100%), CNMI did not perform the risk assessment prior to issuing the subaward agreements to the subrecipients. The subaward date for D22AF00299 is unknown as the subaward agreement was not provided, as noted at Condition 1b. No questioned costs are presented as amounts are questioned at Condition 1a for D23AF00036 and D22AF00299 and there was no subaward disbursement made during FY2023 for D23AP00068. Finding No. 2023-020, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00036, D23AP00068, D22AF00299, D21AP10043, D21AP10044, D19AP00081, D17AP00132 Area: Subrecipient Monitoring Questioned Costs: $2,399,988 2. For two (or 100%) of two subrecipients that incurred expenditures above $750,000 during the year, CNMI did not perform proper monitoring to ensure that they are subjected to single audit requirements or if they have taken appropriate actions on all deficiencies detected from previous single audits. No questioned cost is presented for D23AF00036 as the amount is questioned at Condition 1a. Cause: 1. CNMI’s current policy and procedures for monitoring the suspension and debarment status of the subrecipient prior to entering a subaward agreement is not tailored to the provisions of 2 CFR 180.300. The currently established procedure of CNMI only identifies suspension or debarment upon occurrences of violation which is an after-the-fact approach rather than a preventive process. Finding No. 2023-020, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00036, D23AP00068, D22AF00299, D21AP10043, D21AP10044, D19AP00081, D17AP00132 Area: Subrecipient Monitoring Questioned Costs: $2,399,988 Cause, continued: 2. CNMI lacks proper monitoring procedures to ensure that an agreement is executed for every new subaward between the pass-through entity and a new or existing subrecipient. 3. CNMI does not have an established subrecipient risk assessment policy and procedures prior to entering into the subaward agreement and to identify the type of monitoring procedures required to be performed for the subrecipient. 4. CNMI does not have an established policy or procedure that monitors whether a subrecipient that incurs expenditures above $750,000 during the year, has hired the services of a reputable auditor to conduct a single audit engagement and to ensure that follow-up corrective actions have been performed as regards to the deficiencies identified during the previous audits. Effect or potential effect: CNMI is in noncompliance with the subrecipient monitoring compliance requirements and questioned costs of $2,399,988 result. Identification of Repeat Finding: Finding No. 2022-019 Recommendation: CNMI should strengthen and enforce compliance with subrecipient monitoring compliance requirements over the following: 1. Establish policies and procedures for monitoring suspension and debarment status of each subrecipient prior to granting any subaward. The guidance should be reflective of the provisions set by 2 CFR 180.300. Finding No. 2023-020, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00036, D23AP00068, D22AF00299, D21AP10043, D21AP10044, D19AP00081, D17AP00132 Area: Subrecipient Monitoring Questioned Costs: $2,399,988 Recommendation, continued: 2. Improve and strengthen their monitoring procedures to ensure that all subawards are enforced with a properly accomplished agreement that is in accordance with 2 CFR 200.332(a)(1). 3. Establish policies and procedures to ensure that a risk assessment is conducted prior to entering into a subaward agreement with a subrecipient and to identify the level of monitoring required for each type of subrecipient as a result of the risk assessment. 4. Establish policies and procedures to ensure that subrecipient incurring expenditures above $750,000 are properly monitored, that they follow the single audit requirements and that the corrective actions are implemented as a result of prior year audits. Views of Responsible Officials: Condition 1a - For Grant Award Nos. D23AF00036 and D22AF00299, Office of Management and Budget (OMB) agrees with the finding and the need for a formally written policy and procedures for subrecipient monitoring. OMB has adopted the Department of Finance’s Subrecipient Monitoring Policy and Procedures effective 08/04/25 establishing a formal monitoring suspension and debarment status of each subrecipient prior to granting any subaward. The guidance is reflective of the provisions set by 2 CFR 180.300. Conditions 1a and 1c - For Grant Award No. D23AP00068, Capital Improvement Program (CIP) disagrees with this finding because the required verification was performed. Although documentation was not retained, CIP verifies that all subrecipients comply with OPA requirements before federal funds are awarded. Condition 1b - OMB agrees with the finding. OMB fully executed a subrecipient agreement with the subrecipient on 01/27/23, prior to any grant administration taking place. The adoption of the Department of Finance’s Subrecipient Monitoring Policy and Procedures effective 08/04/25 also further formalizes the process. Finding No. 2023-020, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00036, D23AP00068, D22AF00299, D21AP10043, D21AP10044, D19AP00081, D17AP00132 Area: Subrecipient Monitoring Questioned Costs: $2,399,988 Views of Responsible Officials, continued: Condition 1c - For Grant Award Nos. D23AF00036 and D22AF00299, OMB agrees with the finding and agrees with the need for a formally written policy and procedures for subrecipient monitoring. OMB has adopted the Department of Finance’s Subrecipient Monitoring Policy and Procedures effective 08/04/25 establishing a formal subrecipient risk assessment prior to entering into the subaward agreement and identifying the type of monitoring procedures to be performed for the subrecipient. Condition 2 - For Grant Award No. D23AF00036, OMB agrees with the finding and agree with the need for a formally written policy and procedures for subrecipient monitoring. OMB has adopted the Department of Finance’s Subrecipient Monitoring Policy and Procedures effective 08/04/25 to perform proper monitoring to ensure that subrecipients are in compliance with single audits. For Grant Award No. D17AP00132, D21AP10043, D19AP00081, and D21AP10044, CIP agrees with the finding that a subrecipient with expenditures exceeding $750,000 during the year was not verified for compliance with single audit requirements, including whether corrective actions were taken to address prior audit findings. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Conditions 1a and 1c - CNMI states disagreement for grant award number D23AP00068; however, CNMI also acknowledges that documentation of its verification performed were not kept on file. In accordance with 2 CFR 200.403, costs must be adequately documented to be allowable under federal awards.

Finding No. 2023-021 Federal Agency: U.S. Department of Labor AL Program: COVID-19 17.225 Unemployment Insurance (UI) Federal Award No.: UI-34837-20-55-A-69 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $224,846 Criteria: In accordance with 2 CFR 200.303(a), the recipient must 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. In accordance with 2 CFR 200.403(g), except where otherwise authorized by statute, costs must be adequately documented to be allowable under Federal awards. Condition: 1. For six (or 15%) of forty nonpayroll expenditures tested, aggregating $361,973 of total population of $3,763,528, CNMI did not provide the invoices, benefit payment summaries, and check/ACH payments supporting allowability of costs. Finding No. 2023-021, continued Federal Agency: U.S. Department of Labor AL Program: COVID-19 17.225 Unemployment Insurance (UI) Federal Award No.: UI-34837-20-55-A-69 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $224,846 Condition, continued 2. For three (or 15%) of twenty payroll expenditures tested, aggregating $34,219 of a total population of $1,817,923, CNMI failed to reflect the updated hourly rate per Personnel Action Form (PAF) on the payroll register for the weeks selected for testing. No questioned costs are presented as this relates to internal control. Cause: CNMI did not properly enforce their record-keeping and document retention controls. Effect or Potential Effect: CNMI is in noncompliance with applicable activities allowed or unallowed and allowable costs/cost principles compliance requirements and questioned costs of $224,846 result for Condition 1. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: CNMI should improve its record-keeping and document retention policies implemented by properly utilizing MUNIS as a database. Finding No. 2023-021, continued Federal Agency: U.S. Department of Labor AL Program: COVID-19 17.225 Unemployment Insurance (UI) Federal Award No.: UI-34837-20-55-A-69 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $224,846 Views of Responsible Officials: Condition 1 - CNMI Department of Labor agrees with this finding, as the supporting documents extracted from Munis were insufficient to support the referenced line items based on the documentation requested. The corresponding payment registers were uploaded on June 8, 2026, to support the entries. Condition 2 - CNMI partially agrees with this finding. The payroll records for Employee Numbers 4381 and 5600 did not reflect the adjusted hourly rates during the weeks selected for testing because the Requests for Personnel Action (RFPAs) associated with the funding awards could not be finalized until the funding was officially awarded. The funding awards tied to the employee contracts during that time were provided through funding opportunities made available under UIPL 16-20, Change 7. The initial application was due to the Employment and Training Administration (ETA) on January 6, 2023. Following submission, communication between the CNMI and ETA regarding revisions and clarifications continued through March 26, 2023. The Notices of Award (NOAs) were subsequently issued on May 19 and May 22, 2023. The budget narrative submitted to ETA included position modifications and salary adjustments intended to be effective April 1, 2023. However, because the NOAs and associated funding were received after that effective date, retroactive RFPAs were initiated beginning June 13, 2023, and were not fully completed until mid-July 2023. As a result, the updated hourly rates were not reflected in the payroll registers for the periods selected for testing. With respect to employee no. 2293, the employee was a regular Department of Labor employee whose employment contract was scheduled to expire on September 30, 2022 and was subsequently renewed to include a salary adjustment. The RFPA for this employee was initiated in September 22, 2022 but did not complete the routing process until late October 2022. As a result, the adjusted hourly rate was not reflected in the payroll registers for the period selected for testing. All employees received the difference between their adjusted salary and initial salary at a later date in the form of a retroactive lump-sum payment. Refer to CNMI’s Corrective Action Plan for additional information. Finding No. 2023-021, continued Federal Agency: U.S. Department of Labor AL Program: COVID-19 17.225 Unemployment Insurance (UI) Federal Award No.: UI-34837-20-55-A-69 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $224,846 Auditor Response: Condition 2 - We acknowledge CNMI’s explanation of the discrepancies in pay rates; however, no documentation was provided to support the difference in pay rates and that employees were retroactively paid. Further, adequate documentation is essential to support internal control procedures over the verification of pay rates, ensuring that the correct rates are paid.

Finding No. 2023-022 Federal Agency: U.S. Department of Labor AL Program: COVID-19 17.225 Unemployment Insurance (UI) Federal Award No.: UI-34837-20-55-A-69 Area: Eligibility Questioned Costs: $-0- Criteria: In accordance with 42 USC 1302b-7(d) and (e), aliens must show proof that they are authorized to work by the US Citizenship and Immigration Services (USCIS) in order to be eligible to receive a federal public benefit. Further, a nonfederal entity’s records/database should include all individuals receiving benefits during the audit period. Condition: CNMI did not provide an accurate population of program benefits for FY2023. The listing generated by the Hire Marianas (HM) portal resulted in a variance of $1,055,199 compared to the expenditures detail report, for which a reconciliation of the variance was not provided. No questioned costs are presented as we are unable to quantify the extent of noncompliance. Cause: CNMI Department of Labor (DOL) failed to provide an audit-ready benefit payments listing from the HM portal and a reconciliation of the variance. Effect or Potential Effect: There is a potential misstatement of benefits paid during the fiscal year due to lack of reconciliation between the HM benefit listing and the recorded benefits paid. Identification as a Repeat Finding: Finding No. 2022-020 Recommendation: CNMI DOL should perform reconciliations between the overall benefit payments per expenditure details and the benefit payments listing per HM portal. Finding No. 2023-022, continued Federal Agency: U.S. Department of Labor AL Program: COVID-19 17.225 Unemployment Insurance (UI) Federal Award No.: UI-34837-20-55-A-69 Area: Eligibility Questioned Costs: $-0- Views of Responsible Officials: CNMI agrees with this finding and acknowledges that a variance exists between the expenditure report details and the listing of payments from the HireMarianas Portal. CNMI is currently reviewing and reconciling both records to determine the cause of the variance. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-023 Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award No.: FY23001, FY21001 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $-0- Criteria: In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Based on test of control procedures performed over: a. the review of cost allowability, specifically, the process did not include documentation of review and approval of invoices and contracts; and b. the disbursement process of program funds, specifically, the process did not include documented review or approval demonstrating that checks and ACH disbursements were verified against supporting invoices prior to payment. As a result, controls designed to ensure the accuracy and validity of disbursements and allowability of costs, are not adequately documented or evidenced. Cause: CNMI lacks adequate documentation evidencing its monitoring and review procedures over disbursements of program funds and allowability of costs, including review and approval controls to ensure that checks and ACH payments agree with approved invoice amounts and purchase requisitions are allowed. Effect or Potential Effect: CNMI is in noncompliance with 2 CFR Section 200.303 related to internal control requirements. No questioned costs are identified as the projected questioned costs for the identified noncompliance samples is below the $25K reportable finding threshold. Finding No. 2023-023, continued Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award No.: FY23001, FY21001 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $-0- Identification of a Repeat Finding: This is not a repeat finding. Recommendation: CNMI should implement, document and consistently enforce appropriate review and approval controls over disbursements of program funds. Views of Responsible Officials: The Department of Public Works agrees with the finding. The Department of Public Works, Technical Services – Highway Branch agrees to be more vigilant in ensuring that all documents are properly reviewed and approved. DPW, TSD – Highway utilizes the Master PR20 log sheet for each fiscal year to track all Voucher for Work performed under Provisions of the Federal Aid and Federal Highway Acts as Amended (form PR20), Current Bills (drawdowns), and payments made on each. However, payments are either mailed or electronically transferred directly to the vendors by the CNMI Treasury Office. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-024 Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award Nos.: 3000013, FY10002, 3000003, FY14001 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Criteria: In accordance with 2 CFR 200.303(a), the recipient and subrecipient must 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. Additionally, in accordance with 2 CFR Section 200.313(b), a state must use, manage, and dispose of equipment acquired under a federal award in accordance with state laws and procedures. The CNMI Property Management Policies and Procedures states that the Division of Procurement & Supply (PS) should conduct an annual inventory of property held by a designated official who has administrative control over the use of personal property within his area of jurisdiction. Also, PS shall perform random audits of property held by each accountable person to validate the integrity of the property control process. Further, in accordance with 2 CFR Section 200.313(d)(1), property records must be maintained that include a description of the property, a serial number or another identification number, the source of funding for the property (including the Federal award identification number), the title holder, the acquisition date, the cost of the property, the percentage of the Federal agency contribution towards the original purchase, the location, use and condition of the property, and any disposition data including the date of disposal and sale price of the property. Lastly, 2 CFR 200.313(d)(3) requires that adequate maintenance procedures must be developed to keep the property in good condition. Condition: 1. CNMI’s capital asset listing is not prepared in accordance with 2 CFR 200.313(d)(1) and does not contain accurate information regarding the state or condition of the capital assets. Based on the physical inspection performed, some assets are already disposed but still included in the capital asset listing, resulting in the inability to ascertain the completeness of the population. In addition, CNMI did not provide the program’s schedule of disposals during the fiscal year. There was no federal capital assets charged to the program for FY2023. Finding No. 2023-024, continued Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award Nos.: 3000013, FY10002, 3000003, FY14001 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Condition, continued: 2. CNMI did not provide the result of the physical inventory count. Accordingly, we were unable to verify if all capital assets are safeguarded and maintained properly as we did not receive both a capital asset listing that is complete and accurate and a supporting physical inventory count result that would include information of all existing assets. Cause: 1. CNMI lacks human resources and financial management system structure that would ensure all federally funded capital assets are traceable to specific programs used to purchase the equipment or real property and that proper monitoring is done to ensure that a capital asset listing is maintained and updated accordingly. 2. CNMI does not have an established policy and procedure to ensure that the annual physical inventory count is performed and to verify during the count that the federal capital asset is safeguarded and maintained in good working condition. Effect of Potential Effect: CNMI is in noncompliance with applicable equipment and real property management compliance requirements. Questioned costs cannot be determined as CNMI could not provide the program’s capital assets listing. Recommendation: CNMI should strengthen and enforce compliance with equipment and real property management compliance requirements over the following: 1. Consider seeking technical and financial support from Federal agencies to develop human resources and a financial management system capable of effecting compliance with applicable property management policies and procedures. 2. Responsible personnel should establish and implement effective monitoring controls to ensure that property records are accurately segregated by federal funding sources and that it is structured to be in accordance with the provisions of 2 CFR 200.313 (d). Finding No. 2023-024, continued Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award Nos.: 3000013, FY10002, 3000003, FY14001 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Recommendation, continued: 3. Implement more stringent monitoring procedures to ensure that the annual physical inventory count is timely conducted and that part of the procedures performed is to verify if the equipment is safeguarded and maintained in good working condition. Identification as a Repeat Finding: This is not a repeat finding. Views of Responsible Officials: Condition 1 - DPW, TSD - Highway Branch agrees with this finding. Highway Branch has consistently tried to work with Procurement Services to update its yearly inventory records to remove all transferred and disposed properties from its inventory record to no avail. Additionally, Procurement Services Division agrees with this finding. Improvements are needed in the way federally funded assets are tracked and reported. At present, the inventory management system is not configured to readily identify assets by specific federal award number, which makes it difficult to generate reports identifying assets purchased under individual grants. In addition, staffing limitations have affected the Commonwealth’s ability to maintain and readily produce this information. Condition 2 - DPW, TSD - Highway Branch agrees with this finding. The Highway Branch has updated its Inventory Form to include the required information such as date acquired, item number, property/tag number, description of property, manufacturer, model, serial number, purchase order number/contract number, condition code, project number, FHWA project number, percentage of federal participation, location, person assigned and the date the inventory was conducted. Additionally, Division of Procurement Services agrees with this finding. The Division agrees that the annual physical inventory required for FY2023 was not completed. As a result, the existence, location, condition, and accountability of all assets could not be fully verified during the audit period. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-025 Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award No.: 0302301, 0103101, 0033301 Area: Procurement and Suspension and Debarment Questioned Costs: $-0- Criteria: Non-federal entities other than states, including those operating federal programs as subrecipients of states, must follow the procurement standards set out at 2 CFR sections 200.318 through 200.326. They must use their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable federal statutes and the procurement requirements identified in 2 CFR Part 200. CNMI’s procurement regulations state the following: • All government procurement shall be awarded by competitive sealed bidding except under certain circumstances permitting other than full and open competition. • Bidding is not required but is encouraged for procurement of $2,500 and under $10,000. The individual with the expenditure authority must obtain price quotations from at least three vendors and should base the selection on competitive price and quality for procurement valued at $2,500 to $10,000. Any price quotations must be written, documented, and submitted to the Procurement and Supply (P&S) Director for approval. • For purchases that exceed $10,000 but which are less than or equal to $50,000, a minimum of three vendors shall be solicited to submit written or electronic quotations. If there are fewer than three vendors, the expenditure authority shall certify, in writing, to the P&S Director that fewer than three vendors responded and shall provide written proof of the request. In accordance with 2 CFR 200.303(a), the recipient must 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. CNMI procurement regulation § 70-30.3-205(f)(5) states that the Division of Procurement Services shall prepare a written summary of each bid opening. Condition: 1. Inconsistencies were noted in procurement regulations over local and federal funded transactions. No questioned costs are presented as the extent of noncompliance could not be quantified. Finding No. 2023-025, continued Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award No.: 0302301, 0103101, 0033301 Area: Procurement and Suspension and Debarment Questioned Costs: $-0- Condition, continued: 2. For one (or 13%) of eight current year completed procurements tested, aggregating $601,371 of a total population of $641,920, CNMI did not provide the Bid Opening Summary Sheet. No questioned cost is presented as there were no expenditures incurred during FY2023 for this procurement. Cause: 1. CNMI does not use the same policies and procedures for procurements under a federal award as with procurements from its non-federal funds under the small purchases method. 2. CNMI did not properly enforce their recordkeeping and document retention policies and controls. Finding No. 2023-025, continued Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award No.: 0302301, 0103101, 0033301 Area: Procurement and Suspension and Debarment Questioned Costs: $-0- Effect or Potential Effect: CNMI is in noncompliance with applicable procurement and suspension and debarment compliance requirements. No questioned costs are presented as the extent of noncompliance for Condition 1 could not be quantified and there were no expenditures incurred during FY2023 for the procured transactions at Condition 2. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: 1. The CNMI should revisit its procurement regulations and consider updating applicable sections of the regulations to comply with federal regulations governing federal funds. 2. Responsible CNMI personnel should periodically monitor updates in federal regulations over procurement and suspension and debarment. 3. CNMI should improve their record-keeping and document retention policies implementation by properly utilizing MUNIS as a database. Views of responsible officials: Condition 1 - Division of Procurement Services respectfully disagrees with this finding. Procurement Services agrees that the Commonwealth should periodically review its procurement regulations to ensure continued consistency with applicable federal requirements. However, Procurement Services notes that the procurement regulations currently establish procurement thresholds and procedures for locally funded procurements and procurements funded through a combination of local and federal funds. Procurements exceeding applicable small purchase thresholds are required to proceed through other procurement methods authorized under the procurement regulations, including competitive sealed bidding or other approved procurement methods, as applicable. Finding No. 2023-025, continued Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award No.: 0302301, 0103101, 0033301 Area: Procurement and Suspension and Debarment Questioned Costs: $-0- Views of Responsible Officials, continued: Condition 2 - DPW, TSD-Highway Branch and the Division of Procurement Services respectfully disagrees with this finding. A review of the procurement file confirmed that the Bid Opening Summary Sheet was maintained as part of the official bid package and procurement record for this solicitation. Procurement Services has located the bid opening summary sheet and confirmed that it accurately documents the bid opening results in accordance with applicable procurement requirements. The document remains in the procurement file and is available for review. A copy has been provided for reference. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Condition 1- CNMI procurement regulations for small purchases are not in accordance with 2 CFR Section 200.317, wherein a State must follow the same policies and procedures it uses for procurement with non-Federal funds when conducting procurement transactions under a Federal award. Condition 2- CNMI states disagreement; however, CNMI also acknowledges that documentation supporting program costs were not provided.

Finding No. 2023-026 Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award Nos.: 0036004, 3000301, 0030301, 0033301, 0317101 Area: Special Tests and Provisions - Quality Assurance Program Questioned Costs: $-0- Criteria: In accordance with 2 CFR 200.303(a), the recipient must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. As stated in 23 CFR 637.205(a), each State Transportation Department (STD) shall develop a quality assurance program which will assure that materials and workmanship incorporated into each Federal-aid highway construction project on the NHS are in conformity with the requirements of the approved plans and specifications, including approved changes. The program must meet the criteria in 23 CFR 637.207. Additionally, in accordance with 23 CFR 637.207(a), each STD’s quality assurance program shall provide for an acceptance program and an independence assurance (IA) program. Further, in accordance with 23 CFR 637.207(a)(1)(i)(A), each STD’s acceptance program shall consist a frequency guide schedules for verification sampling and testing which will have general guidance to personnel responsible for the program and allow adaptation to specific project conditions and needs. Lastly, based on 23 CFR 637.207(a)(2), the IA program shall evaluate the qualified sampling and testing personnel and the testing equipment. Condition: 1. CNMI does not have a Quality Assurance (QA) program that is in accordance with 23 CFR 637.207 and approved by FHWA. 2. CNMI did not provide the listing of verification of sampling activities performed by qualified testing personnel. Accordingly, we were not able to select samples for testing. Cause: 1. CNMI does not have an established quality assurance program that is approved by the FHWA and is in accordance with the requirements of 23 CFR 637.207. Finding No. 2023-026, continued Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award Nos.: 0036004, 3000301, 0030301, 0033301, 0317101 Area: Special Tests and Provisions - Quality Assurance Program Questioned Costs: $-0- Cause, continued: 2. CNMI did not properly document the results of the verification sampling and testing by the assigned inspector to the project. Effect or Potential Effect: CNMI is in noncompliance with the special test and provisions - quality assurance program compliance requirements. No questioned costs are presented as the noncompliance is non-monetary in nature. Identification of a Repeat Finding: This is not a repeat finding. Recommendation: CNMI should strengthen and enforce compliance with special tests and provisions compliance requirements over the following: 1. Develop, document, and implement formal Quality Assurance Program policies and procedures that is in accordance with 23 CFR 637.207 and approved by FHWA. 2. Consider employing qualified personnel or train an employee and assign as designated agent to perform the verification sampling and testing of existing construction contracts that is in accordance with the Quality Assurance Program. Views of Responsible Officials: Condition 1: The Department of Public Works (DPW), Transportation Services Division (TSD) - Highway Branch agrees with the conclusions presented in this finding. In accordance with 23 CFR 637.207, the DPW, TSD – Highway Branch will develop a QA program, policies and procedures that is approved by FHWA; and train employees and assign as designated agent to perform the functions of the QA Program. Finding No. 2023-026, continued Federal Agency: U.S. Department of Transportation AL Program: 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Federal Award Nos.: 0036004, 3000301, 0030301, 0033301, 0317101 Area: Special Tests and Provisions - Quality Assurance Program Questioned Costs: $-0- Views of Responsible Officials, continued: Condition 2: DPW, TSD – Highway Branch agrees with the conclusions presented in this finding and will develop a log sheet to document the results of the sampling and testing performed to include contractor and sub-contractor (if applicable), project numbers, project titles, date and time, location, and the name of the Highway Inspector/Engineer monitoring the project. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-027 Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Criteria: 1. In accordance with 2 CFR Part 200, Subpart E, cost must be necessary and reasonable for the performance of the federal award and be allocable thereto. Further costs must conform to any limitations or exclusions and be adequately documented in order to be allowable under federal awards. 2. In accordance with the U.S. Department of the Treasury’s revised Frequently Asked Questions (FAQ 8), dated May 10, 2023, the statutes establishing ERA1 and ERA2 permit the enrollment of households for only prospective benefits. ERA2 funding does not allow for commitments for rental arrears. 3. In accordance with the U.S. Department of the Treasury’s revised FAQ 10, dated May 10, 2023, ERA1 financial assistance for prospective rent payments is limited to three months based on any application by or on behalf of the household, except that the household may receive assistance for prospective rent payments for additional months (i) subject to the availability of remaining funds currently allocated to the grantee, and (ii) based on a subsequent application for additional assistance. In no case may an eligible household receive more than 18 months of assistance under ERA1 and ERA2, combined. Condition: 1. Of thirty-six nonpayroll expenditures tested, aggregating $70,291 of a total population of $3,273,446, the following were noted: a. For twenty-five (or 69%), ERA2 financial assistance funding provided to households included rental arrears. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Condition, continued: b. For six (or 17%), ERA financial assistance funding provided to the households exceeded the maximum three months allowed for prospective rental assistance. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Condition, continued: c. For one (or 3%), the purchase requisition or equivalent documentation, evidencing approval of the expenditures by the Official with Expenditure Authority, was not provided, to substantiate the allowability of the expenditures. 2. Of four payroll expenditures tested, aggregating $10,932 of a total population of $344,616, for two (or 50%), the following were noted: a. For one (or 25%), the employee’s time sheet was not provided, for which the corresponding directly associated payroll costs are also questioned. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Condition, continued: b. For one (or 25%), no employee was selected for testing as the payroll cost was not traceable on the breakdown of payroll costs provided. Test of grant awards noted the following: 3. Cumulative expenditures of $10,413,014 exceeded the ERA 1 grant award funding limit of $10,400,669 (project numbers 2610210020 and 2610210021), resulting in an excess amount of $12,345. Documentation of any increase in funding limit was not provided, for which the excess amount of $12,345 is questioned. Cause: CNMI lacks monitoring internal controls over the following: 1. ERA 2 funding is not used for rental arrear payments; 2. Expenditures charged to grant awards are not in excess of funding limits; and 3. Inadequate documentation and systematic filing of relevant documentation supporting program costs. Effect or Potential Effect: CNMI is in noncompliance with applicable allowable costs/cost principles compliance requirements and questioned costs of $53,435 result. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Effect or Potential Effect, continued: Identification as a Repeat Finding: Finding No. 2022-022 Recommendation: CNMI should strengthen and enforce compliance with applicable allowable costs/cost principles compliance requirements and implement and enforce effective monitoring controls over the following: 1. Use of ERA 2 funding is only for allowable program costs; 2. Expenditures charged to the program are within the grant awards funding limits; and 3. Establish and maintain effective systematic filing of relevant documentation to support program costs and for easier retrieval. Views of Responsible Officials: Condition 1a - Office of Grants Management (OGM) respectfully disagrees with this finding. Under the U.S. Department of the Treasury’s Emergency Rental Assistance Program 2 (ERA2), states, territories, and other eligible grantees were expressly authorized to pay rental arrears (past-due rent) on behalf of eligible households. Treasury guidance states that ERA2 financial assistance could include current rent, rental arrears (back rent), utility and home energy costs, utility and home energy arrears, and other housing-related expenses. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Views of Responsible Officials, continued: U.S. Department of the Treasury’s FAQ further clarifies that a grantee may provide assistance for rental arrears that accrued on or after March 13, 2020. A grantee was not required to pay the full amount of arrears and could structure the program to provide partial assistance if desired. For the CNMI specifically, if ERA2 award was active during the period of performance, payment of eligible rental arrears was an allowable use of funds. However, the U.S. Department of the Treasury closed the ERA2 program on September 30, 2025, and ERA2 funds may no longer be used to provide new rental assistance, including rental arrears. As a practical matter, many ERA programs adopted policies of paying up to three months of future rent at a time, but that was often a program design choice or carried over from ERA1 administration rather than a statutory ERA2 limitation. The controlling U.S. Department of the Treasury guidance limits total assistance to 18 months combined across ERA1 and ERA2. CNMI followed the U.S. Department of the Treasury guidelines and pushed for a combined 18-month max limit, if financially needed, across ERA1 and ERA2. Therefore, the Office disagrees with the $30,336 questioned costs and is requesting that this finding be removed based on our explanation above. Condition 1b - OGM respectfully disagrees with this finding. Under the U.S. Department of the Treasury's Emergency Rental Assistance Program 2 (ERA2), states, territories, and other eligible grantees were expressly authorized to pay rental arrears (past-due rent) on behalf of eligible households. The U.S. Department of the Treasury guidance states that ERA2 financial assistance could include current rent, rental arrears (back rent), utility and home energy costs, utility and home energy arrears and other housing-related expenses. U.S. Department of the Treasury’s FAQ further clarifies that a grantee may provide assistance for rental arrears that accrued on or after March 13, 2020. A grantee was not required to pay the full amount of arrears and could structure the program to provide partial assistance if desired. For the CNMI specifically, if ERA2 award was active during the period of performance, payment of eligible rental arrears was an allowable use of funds. However, the U.S. Department of the Treasury closed the ERA2 program on September 30, 2025, and ERA2 funds may no longer be used to provide new rental assistance, including rental arrears. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Views of Responsible Officials, continued: As a practical matter, many ERA programs adopted policies of paying up to three months of future rent at a time, but that was often a program design choice or carried over from ERA1 administration rather than a statutory ERA2 limitation. The controlling U.S. Department of the Treasury guidance limits total assistance to 18 months combined across ERA1 and ERA2. Therefore, the Office disagrees with the $5,452 questioned costs and is requesting that this finding be removed based on our explanation above. Condition 1c - OGM respectfully disagrees with the findings because using the purchase requisition or purchase order methodology is not the only method of obtaining goods or services in the CNMI Government. In this situation, the Office opted to use the Invoice Central method in MUNIS. Items for purchase were specifically identified in the portal and it was approved by the Division of Financial Services. Items being purchased are allowable items (office supplies); however, the method used by the Office may not be acceptable by the auditor. Again, the Office disagrees as DOF officials approved the transaction and paid the item out with check number 619104. The invoice number for this transaction is 739384-0. If the transaction is not allowable, then DOF should update their SOPs or not allow the Invoice Entry module to be used. Again, OGM disagrees with the finding and questioned costs amounting to $3,485. Therefore, the Office disagrees with the $3,485 questioned costs and we are requesting that this finding be removed based on our explanation above. Condition 2a - OGM respectfully disagrees with this finding. After the audit inquiry, the supporting timesheet associated with the questioned payroll costs was located and is available for review. The documentation substantiates the payroll charges previously questioned. Accordingly, the Office respectfully disagrees with the questioned costs of $1,159 and requests removal of this finding. Condition 2b - OGM respectfully disagrees with this finding. The payroll costs in question are traceable within the financial management system; however, the reporting format aggregates payroll and fringe benefit expenditures in a manner that may make individual employee costs difficult to identify without familiarity with the system’s reporting structure. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Views of Responsible Officials, continued: The questioned amount of $658 can be reconciled to supporting payroll records and underlying accounting data. The Office is prepared to provide additional supporting documentation and reconciliation schedules to demonstrate the traceability of these costs. Accordingly, the Office respectfully disagrees with the questioned costs of $658 and requests removal of this finding. Condition 3 - OGM respectfully disagrees with the findings and questioned costs of $12,345. According to our records and using budgetary print template reports, the following have been spent: CCERA Program spent in total $10,398,930 out of the total award of $10,400,669, leaving an unspent balance of $1,739. This is also reported in the final submitted report to the U.S. Department of the Treasury. U.S. Department of the Treasury accepted the report and advised us to return the unused funds plus 5% interest, which changed the total owed to $1,746. This is substantiated by a notice from the U.S. Department of the Treasury to Collect for Delinquent Indebtedness under Invoice number OCAERA0411A, dated March 11, 2025. Thus, confirming that the CNMI only spent $10,398,930 under ERA1. Furthermore, there are internal controls built into the MUNIS System that will not allow us to exceed the budgeted amount, so we are not able to exceed the budgeted amount. Thus, the Office disagrees with the $12,345 questioned costs and is requesting that this finding be removed based on our explanation above. Refer to CNMI’s Corrective Action Plan for additional information. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Auditor Response: Condition 1a - Documentation that ERA2 funding can be used to provide financial assistance for rental arrears was not provided. Finding and questioned costs are retained, as costs at the time of the audit were not supported by adequate documentation. Condition 1b - In accordance with FAQ 10, prospective rent payments is limited to three months based on any application by or on behalf of the household, except that the household may receive assistance for prospective rent payments for additional months based on a subsequent application for additional assistance. Documentation evidencing excess prospective rent payments pertain to subsequent application for additional assistance was not provided. Finding and questioned costs are retained, as costs at the time of the audit were not supported by adequate documentation. Condition 1c - In accordance with the Planning and Budgeting Act or under any annual appropriation act, Official with expenditure authority is the public official who may expend, obligate, encumber, or otherwise commit public funds. Equivalent documentation evidencing approval of the expenditure by the Expenditure Authority was not provided. Finding and questioned costs are retained, as costs at the time of the audit were not supported by adequate documentation. Conditions 2a and 2b - CNMI states disagreement; however, CNMI also acknowledges that documentation supporting program costs were not provided. Finding and questioned costs are retained, as costs at the time of the audit were not supported by adequate documentation. Condition 3 - As discussed with the program personnel on 06/05/26, total cumulative expenditures as of FY2023 charged to ERA 1 grant award, exceeded the funding limit by $12,344, which were based on CNMI’s underlying accounting records provided for the audit. We also recommended for the program personnel to discuss the discrepancy between the program’s records with the CNMI SOF Team, for which no further updates were provided to evidence that ERA 1 grant award was not overcharged. Finding and questioned costs are retained, as reconciliation and/or adjusting journal entry for the $12,344 in excess program costs charged to the ERA 1 grant award were not provided.

Finding No. 2023-028 Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: ERAE0528 Area: Eligibility Questioned Costs: $99,935 Criteria: 1. 15 U.S. Code § 9058c(f)(2) defines an eligible household as one or more individuals who are obligated to pay rent on a residential dwelling to which the CNMI has determined the following: (A) One or more individuals within the household has: 1. Qualified for unemployment benefits; or 2. Experienced a reduction in household income, incurred significant costs, or experienced other financial hardship during or due, directly or indirectly, to the coronavirus pandemic; (B) One or more individuals within the household can demonstrate a risk of experiencing homelessness or housing instability; and (C) The household is a low-income family (as such term is defined in section 1437a(b) of title 42. 2. Per the U.S. Department of Treasury’s Frequently Asked Questions (FAQ 1), grantees must maintain records of their eligibility determinations. Condition: 1. Of forty eligibility case files selected for testing, aggregating $99,935 in total benefits paid of a total population of $2,957,793, the following were noted: a. For four (or 10%), documentation supporting eligibility determinations were not provided. Finding No. 2023-028, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: ERAE0528 Area: Eligibility Questioned Costs: $99,935 Condition, continued: b. For thirty-six (or 90%), approved direct financial rental assistance certifications, and corresponding invoices supporting amounts of rental assistance, were not provided. Finding No. 2023-028, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: ERAE0528 Area: Eligibility Questioned Costs: $99,935 Condition, continued: c. For twenty-three (or 58%), recertification checklists supporting eligibility redeterminations for direct financial rental assistance provided during FY2023, were not provided. No questioned costs are presented as amounts are questioned at Condition 1b. Finding No. 2023-028, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: ERAE0528 Area: Eligibility Questioned Costs: $99,935 d. For one (or 3%), the applicant’s employment verification or equivalent documentation, was not provided. No questioned cost is presented as the amount is questioned at Condition 1b. Finding No. 2023-028, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: ERAE0528 Area: Eligibility Questioned Costs: $99,935 Condition, continued: e. For seven (or 18%), eligibility determination forms (Form 3), were not provided. No questioned costs are presented as amounts are questioned at Condition 1b. Cause: CNMI did not provide complete documentation supporting eligibility determinations. Effect or Potential Effect: CNMI is in noncompliance with applicable eligibility compliance requirements and questioned costs of $99,935 result. Finding No. 2023-028, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: ERAE0528 Area: Eligibility Questioned Costs: $99,935 Identification as a Repeat Finding: Finding No. 2022-023 Recommendation: CNMI should strengthen and enforce compliance with applicable eligibility compliance requirements and implement and establish systematic filing of relevant documentation for easy retrieval. Views of Responsible Officials: Condition 1a - The Office of Grants Management (OGM) respectfully disagrees with the finding and questioned costs of $8,337 because assigned personnel were not made aware to supply supporting documents for the following questioned costs. Possible communication breakdown may exist as per OGM staff and OGM staffer reported a different request list was furnished at different times. However, OGM is pleased to provide you with copies of the documents for these questioned costs items. OGM believes that the timing played a major role with the release of this draft document, but OGM should not be penalized. OGM is requesting this finding be removed based on the explanation provided above. Condition 1b - The Office of Grants Management respectfully disagrees with the finding and questioned costs of $91,598 because assigned personnel were not made aware to supply supporting documents for the following questioned costs. Possible communication breakdown may exist as per OGM staff and OGM staffer reported a different request list was furnished at different times. However, OGM is pleased to provide you with copies of the documents for these questioned costs items. OGM believes that the timing played a major role with the release of this draft document, but OGM should not be penalized. OGM is requesting this finding be removed based on the explanation provided above. Condition 1c - The Office of Grants Management disagrees with the finding and questioned costs of $68,181 because assigned personnel were not made aware to supply supporting documents for the following questioned costs. Possible communication breakdown may exist as per OGM staff and OGM staffer reported a different request list was furnished at different times. Finding No. 2023-028, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: ERAE0528 Area: Eligibility Questioned Costs: $99,935 Views of Responsible Officials, continued: However, OGM is pleased to provide you with copies of the documents for these questioned costs items. OGM believes that the timing played a major role with the release of this draft document, but OGM should not be penalized. OGM is requesting this finding be removed based on the explanation provided above. Condition 1d - The Office of Grants Management disagrees with the finding and questioned costs of $4,500 because assigned personnel were not made aware to supply supporting documents for the following questioned costs. Possible communication breakdown may exist as per OGM staff and OGM staffer reported a different request list was furnished at different times. For this particular finding, the client was unemployed and thus could not provide an employment verification. However, OGM is pleased to provide you with copies of the documents for these questioned costs items. OGM believes that the timing played a major role with the release of this draft document, but OGM should not be penalized. OGM is requesting this finding be removed based on the explanation provided above. Condition 1e - The Office of Grants Management disagrees with the finding and questioned costs of $19,614 because assigned personnel were not made aware to supply supporting documents for the following questioned costs. Possible communication breakdown may exist as per OGM staff and OGM staffer reported a different request list was furnished at different times. However, OGM is pleased to provide you with copies of the documents for these questioned costs items. OGM believes that the timing played a major role with the release of this draft document, but OGM should not be penalized. OGM is requesting this finding be removed based on the explanation provided above. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Condition 1a, 1b, 1c, 1d, and 1e - CNMI states disagreement; however, CNMI also acknowledges that documentation supporting eligibility were not provided. Findings and questioned costs are retained, as documentation substantiating eligibility determination to support program costs at the time of the audit were not supported by adequate documentation. Finding No. 2023-028, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: ERAE0528 Area: Eligibility Questioned Costs: $99,935 Auditor Response, continued: In addition, we requested from the program to provide all documentation supporting the case files selected for eligibility compliance testing.

Finding No. 2023-029 Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Reporting Questioned Costs: $-0- Criteria: In accordance with the Emergency Rental Assistance (ERA) program reporting guidance Version 3.4, all ERA 1 and ERA 2 Recipients (State, Local, and Territorial Recipients and all Tribe, TDHE, and the DHHL Recipients) must submit the Federal Financial Report, Standard Form 425 (SF-425) and the ERA 1 and ERA 2 Performance Reports (1505-0266 for ERA 1 and 1505-0270 for ERA 2), on a quarterly basis and a final report. Recipients must provide all required reports on each ERA 1 and ERA 2 award separately. Condition: 1. Of eight quarterly SF-425 federal financial reports for ERA 1 and ERA 2 grant awards that were due for submission during FY2023, all eight (or 100%) quarterly reports for the following reporting periods were not provided. 2. Of eight quarterly performance reports for ERA 1 and ERA 2 grant awards that were due for submission during FY2023, the following were noted: a. For four (or 50%), ERA 1 performance reports for the following reporting periods were not provided: Finding No. 2023-029, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Reporting Questioned Costs: $-0- Condition, continued: b. For one (or 13%), the ERA 2 performance report for the quarter ended 09/30/22 reporting period was not provided. c. For three (or 38%), underlying accounting records supporting the narratives reported on ERA 2 performance reports for the following reporting periods, were not provided. Cause: CNMI lacks monitoring controls over adequate documentation and systematic filing of relevant documentation supporting the program’s reporting compliance requirements. Effect or Potential Effect: CNMI is in noncompliance with applicable reporting compliance requirements. No questioned costs are presented as the noncompliance is non-monetary in nature. Identification as a Repeat Finding: Finding No. 2022-025 Recommendation: CNMI should strengthen and enforce compliance with the applicable reporting requirements and implement and establish systematic filing of relevant documentation for easy retrieval. Finding No. 2023-029, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Reporting Questioned Costs: $-0- Views of Responsible Officials: Condition 1 - Office of Grants Management (OGM) respectfully disagrees with this finding. The Office believes that it was difficult to submit accurate financial reports because expenses and final totals kept shifting with the transition of the CNMI financial management system from JD Edwards to Tyler-Munis. In addition, checks were being cancelled or returned by landlords because tenants were opting to move to better living conditions, making the financial figures fluctuate each month. OGM mentioned to EY of these movements in expenses and the shifts in the SF-425. It was only months after the closing of the fiscal year whereby the expenses stabilized. As such, OGM should not be penalized for the difference in the SF-425. OGM did provide the narrative report to EY for that reporting period. Furthermore, the Department of Finance had the responsibility in reporting of this program’s activities. OGM did not have access to the U.S. Department of the Treasury portal. This further made it more difficult to catch up with the reporting of items. Subsequently, U.S. Department of the Treasury started requesting for different metrics or evidence to which our office was not prepared because we were operating under a set of understood deliverables, making it again difficult to report succinctly and accurately for the program. OGM was tasked by the former Governor last minute to handle this program because the state housing program did not want to manage this emergency rental assistance program due to the overload in workload brought on by the CDBG-Disaster program. Furthermore, OGM did provide EY with complete listing of expenses that matched the FMIS generated ending fund balance for this business unit. Regarding ERA1, U.S, Department of the Treasury accepted the full report inclusive of SF-425. For ERA2, a final report has been provided and is under full review. Condition 2a - OGM disagrees with this finding. For ERA1 reports, U.S. Department of the Treasury has accepted the final report and has closed all matters pertaining to this grant and this is substantiated by the return of funds amounting to $1,746.41. As noted, reports are very difficult to generate without full access to real-time data and the lack of software. The immense load and pressure to execute welfare assistance can be very overwhelming. OGM asks that this finding be removed as all reports have been accepted by U.S. Department of the Treasury for ERA 1. Condition 2b - OGM disagrees with this finding. For ERA 2, reports are very difficult to generate without full access to real-time data and the lack of software. The immense load and pressure to execute welfare assistance can be very overwhelming. Finding No. 2023-029, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Reporting Questioned Costs: $-0- Views of Responsible Officials, continued: Condition 2c - OGM disagrees with this finding. OGM believes this condition is substantially related to the reporting concerns identified under Condition 2b and reflects the same underlying reporting and documentation challenges. Because the supporting accounting records and narrative reporting requirements are interconnected, the Office respectfully requests consideration of consolidating this condition with Condition 2b to avoid duplication of findings addressing the same underlying issue. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Conditions 1, 2a, 2b, and 2c - While OGM provided an explanation of the challenges on the submission of the quarterly SF-425 and performance reports, the quarterly reports and/or underlying accounting records were not provided. Accordingly, we were unable to test the accuracy of any amounts and/or data reported. Further, Conditions 2b and 2c are two separate compliance findings. Findings are retained as amounts and/or data reported, were not supported by adequate documentation.

Finding No. 2023-030 Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $17,671,782 Criteria: 1. Recipients may use the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) payments for any eligible expenses subject to the restrictions set forth in Sections 602 and 603 of the Social Security Act as added by Section 9901 of the American Rescue Plan Act of 2021 codified at 42 USC Sections 802 and 803, respectively. Recipients may also use payments subject to the restrictions set forth Division LL, Section 103 of the Consolidated Appropriations Act, 2023, U.S. Treasury’s Interim Final Rule and Final Rule at 31 CFR Part 35, and Frequently Asked Questions (FAQs). 2. SLFRF is considered “other financial assistance” per 2 CFR Section 200.1 and is administered as direct payments for specified use. The 2 CFR Part 200, Subpart E is applicable to expenditures under SLFRF unless stated otherwise; and 3. In accordance with 2 CFR Part 200, Subpart E, cost must be necessary and reasonable for the performance of the federal award and be allocable thereto. Further costs must conform to any limitations or exclusions and be adequately documented. Condition: Of thirty-two nonpayroll expenditures tested, aggregating $9,044,957 of a total population of $57,129,124, the following were noted: 1. For eleven (or 34%), travel authorizations, travel vouchers, boarding passes and trip reports were not provided. Finding No. 2023-030, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $17,671,782 Condition, continued: 2. For eight (or 25%), receipts for travel-related meals were not provided while the airline ticket for travel authorization number TA6223989 was not provided. No questioned costs are presented as amounts are questioned at Condition 1. Finding No. 2023-030, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $17,671,782 Condition, continued: 3. For fifteen (or 47%), purchase requisitions or equivalent documentation, evidencing approval of the expenditures by the Officials with Expenditure Authority, were not provided. In addition, approval of the purchase requisition by the Official with Expenditure Authority for project number Tinian, was not evident. Further, purchase orders or equivalent obligating documents for Project Account Journal Numbers 3039, 3341, 2325 and 809, were not provided. 4. For three (or 9%), invoices were not provided. No questioned costs are presented as amounts are questioned at Condition 3. Finding No. 2023-030, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $17,671,782 5. For one (or 3%), the receiving report or equivalent documentation, evidencing receipt of the item purchased, was not provided. No questioned cost is presented as the amount is questioned at Condition 3. 6. For twelve (or 38%), cancelled checks/ACH payments were not provided to evidence payments were properly authorized, made to eligible parties and did not constitute improper payments. No questioned costs are presented as amount for Project Accounting Journal Number 3039 is questioned at Condition 3 while all other transactions are questioned at Condition 1. Finding No. 2023-030, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $17,671,782 Condition, continued: Of twenty-eight payroll expenditures tested, aggregating $5,072,171 of a total population of $49,399,329, the following were noted: 7. For five (or 18%) pay periods, no employee was selected for testing as the payroll reports could not be located. The general ledger distribution payroll reports supporting the payroll costs were also not provided. Finding No. 2023-030, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $17,671,782 Condition, continued: 8. For five (or 18%), notices of personnel action forms (NOPA) were not provided. Accordingly, we could not determine whether the employees were paid with the correct pay rates, for which the corresponding directly associated costs are also questioned. 9. For two (or 7%), payroll costs are part of a journal entry amounting to $11,329,855, to transfer various general fund payroll costs to ALN 21.027. No payroll reports were provided and were only supported with a reprogramming adjustments memorandum along with a manually prepared listing of payroll costs. The listing also did not reflect the payroll periods covered or the names of employees, for which the entire amount of $11,329,855 charged to the program are questioned. Finding No. 2023-030, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $17,671,782 Condition, continued: 10. For one (or 4%), the transaction pertains to general fund expenditures related to CNMI’s employer share for group health and life insurance premiums for active employees and retirees that was transferred to ALN 21.027. The supporting invoices and payments were not provided, and the transaction was only supported with manually prepared adjusting journal entries. Tests of large transfers to program accounts noted the following: 11. Transaction pertains to general fund expenditures related to professional fees that were transferred to ALN 21.027. The supporting invoices and payments were not provided and was only supported with a list of check payments. Cause: CNMI did not enforce compliance with applicable activities allowed or unallowed and allowable costs/cost principles compliance requirements and lacks monitoring controls over adequate documentation and systematic filing of relevant documentation supporting program costs. Effect or Potential Effect: CNMI is in noncompliance with applicable activities allowed or unallowed and allowable costs/cost principles compliance requirements and questioned costs of $17,671,782 result. Finding No. 2023-030, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $17,671,782 Effect or Potential Effect, continued Identification as a Repeat Finding: Finding No. 2022-028 Recommendation: CNMI should strengthen and enforce compliance with applicable activities allowed or unallowed and allowable costs/cost principles compliance requirements, develop and implement effective monitoring controls over the following: 1. Program costs are adequately documented and supported; 2. Establish and maintain effective systematic filing of relevant documentation to support program costs and for easier retrieval; and 3. Effective monitoring controls over compliance with Sections 602 and 603 of the Social Security Act (the “Act”) requirements, 2 CFR section 200.1 and 2 CFR Part 200, Subpart E. Finding No. 2023-030, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $17,671,782 Views of Responsible Officials: Conditions 1 and 2 - CNMI Department of Finance (DOF) agrees with this finding. These transactions were subsequently closed and finalized and CNMI can provide documents upon request. CNMI was still familiarizing itself with the financial management system implemented in FY2022, as well as a new mechanism of “travel cards” for employee travel. Effective in February 2023, CNMI ceased using the travel cards as we had determined that it was difficult to maintain effective monitoring. Also, subsequently in 2025, SOPs were formally effective. Throughout the SOP development, CNMI DOF learned best practices to effectively monitor travel transactions. No further action is needed. Conditions 3 to 6 - CNMI Department of Finance agrees with this finding. Due to operational inefficiencies present in FY2023, document archives were not maintained; and effectively were not provided to auditors in the time allotted. In addition, this transaction related to a purchasing card mechanism, and the CNMI did not maintain proper controls and monitoring. CNMI DOF has since stopped using purchasing cards broadly across the CNMI government, it is allowed on a case-by-case basis so that the CNMI can monitor purchases more effectively. With standardization of processes and additional training, CNMI has since maintained its records and documents for improved financial accountability and transparency. CNMI can provide documents upon request. No action is needed at this time. Conditions 7 and 8 - CNMI Department of Finance agrees with this finding. The Payroll and HR management modules of Munis went live in October 2022, and early implementation challenges affected payroll distribution reporting and documentation gaps. CNMI worked with Munis implementation consultants to correct issues and has since implemented SOPs to ensure proper payroll documentation, reporting and reconciliation. This prevents recurrence. Conditions 9 to 11 - CNMI Department of Finance agrees with this finding. Due to the large nature of the transaction, and the limited time available during the audit review, CNMI was unable to provide details of the transaction. CNMI can provide documents upon request. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-031 Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Matching, Level of Effort, Earmarking Questioned Costs: Undeterminable Criteria: In accordance with the U.S. Treasury 2022 Final Rule and the Frequently Asked Questions (FAQ 3.1), the Final Rule offers a standard allowance for revenue loss of up to $10 million, not to exceed a recipient’s State and Local Fiscal Recovery Funds (SLFRF) award amount, allowing recipients to select between a standard amount of revenue loss or complete a full revenue loss calculation. Recipients that select the standard allowance may use that amount for government services. Recipients were able to indicate this choice in their Project and Expenditure Reports due April 30, 2022, and recipients may update their revenue loss election, as appropriate, in future reporting cycles through the April 2023 reporting period. Upon update, any prior revenue loss election will be superseded. For recipients not electing the $10 million standard allowance, recipients calculate revenue loss at four distinct points in time, either at the end of each calendar year (e.g., December 31 for years 2020, 2021, 2022, and 2023) or the end of each fiscal year of the recipient. Under the flexibility provided in the 2022 Final Rule, recipients can choose whether to use calendar or fiscal year dates but must be consistent throughout the period of performance. The CNMI Central Government elected to complete a full revenue loss calculation at the end of each of its September 30 fiscal years and also elected not to adjust actual revenue totals for the effect of tax cuts and tax increases, while the Saipan and Tinian Municipalities elected the standard allowance for revenue loss of up to $10 million, not to exceed their SLFRF award amounts. Condition: 1. CNMI did not calculate its revenue loss for the 09/30/23 calculation date. 2. Earmarking requirements for the Rota Municipality are undeterminable as documentation of the option elected was not provided. Cause: 1. Management lacked new processes to extract the necessary data to perform the earmarking revenue loss calculation after its transition from its legacy JD Edwards financial system to the Tyler Munis Financial Management Information System (FMIS) effective October 1, 2021. Finding No. 2023-031, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Matching, Level of Effort, Earmarking Questioned Costs: Undeterminable Cause, continued: 2. There are no internal control processes in place over the Rota Municipality’s earmarking compliance requirements. This is due to confusion as to who is responsible for overseeing the Municipality’s SLFRF funding, as while the Municipality separately received its own funding, such is being maintained by the CNMI Central Government and many of the processes were guided by the CNMI Department of Finance. Effect or Potential Effect: CNMI is unable to substantiate amount drawn under the revenue loss category. Questioned costs is undeterminable as the Program’s FY2023 project expenditures detail schedule did not specify which of the expenditures pertain to the revenue loss eligible use category. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: 1. CNMI should develop and have processes in place to extract the necessary data to be able to perform its earmarking revenue loss calculation. 2. CNMI and the Rota Municipality should verify their records on file and determine as to which option it elected for earmarking requirements. 3. CNMI should assist and provide necessary further guidance to the Rota Municipality, including determining as to who is responsible in overseeing the Municipality’s earmarking compliance requirements. Views of Responsible Officials: Conditions 1 and 2 - CNMI Department of Finance agrees with this finding. The issues stemmed from staff turnover and reorganization following a change in administration, which exposed gaps in internal capacity to perform required earmarking and revenue loss analyses. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-032 Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Procurement and Suspension and Debarment Questioned Costs: $4,477,879 Criteria: 1. In accordance with 2 CFR Section 200.317, when conducting procurement transactions under a Federal award, a State must follow the same policies and procedures it uses for procurements with non-Federal funds. CNMI procurement regulation states the following: • § 70-30.3-201 Requirements for Competition: (a) Officials with expenditure authority shall provide for full and open competition through use of the competitive procedure that is best suited to the circumstances of the procurement action. (b) Public Notice. (1) The Director of Procurement Services shall provide public notice of a proposed procurement that will use any of the procedures identified in subsection (a). (c) Dissemination of Public Notice. (a) For purchases estimated to exceed $25,000, public notice shall be provided by advertisement of the procurement in a newspaper of general circulation in the Commonwealth. (d) Advertisement Period. An advertisement period of at least 30 days shall be provided unless the Director of Procurement Services determines that a shorter time is reasonable and necessary. A shorter advertisement period shall afford vendors a reasonable opportunity to respond considering the circumstances of the procurement, such as its complexity and urgency. The advertisement period shall never be less than 7 days. • § 70-30.3-205 Competitive Sealed Bidding: (a) Public Notice shall be provided for in the manner prescribed by § 70-30.3-201. Finding No. 2023-032, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Procurement and Suspension and Debarment Questioned Costs: $4,477,879 Criteria, continued: (b) Award. (1) A contract shall be awarded with reasonable promptness by written notice to the responsible bidder who submitted the lowest-responsive bid. (2) A notice of award is made only by the presentation of a contract to the successful bidder that contains all required signatures. No other notice of award may be made. No acceptance of an offer may occur nor may any contract be formed until a Government contract is written and approved by all the officials required by law and regulation. (3) The Director of Procurement Services’ signature shall be the last in time to be affixed to a contract. Contracts shall contain a clause stating that the signature of the Director of Procurement Services shall be the last in time to be affixed and that no contract can be formed before the approval of all required Government officials. (c) Notice to Unsuccessful Bidders. The Director of Procurement Services shall promptly notify unsuccessful bidders in writing. Notification shall include the name of the successful bidder and the total price offered in the successful bid. • § 70-30.3-115 Contract Review, Processing and Oversight: (a) The fourth review is that of the Attorney General or his designee who shall certify the contract as to form and legal capacity. (b) The contract shall then be approved by the Governor. (c) After the Governor’s approval, the Director of Procurement Services shall forward the contract to the contractor for his approval and signature. (d) After the signature of the contractor, the Director of Procurement Services shall review the contract documents for completeness. If he is satisfied, he shall sign in the appropriate space and shall: Finding No. 2023-032, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Procurement and Suspension and Debarment Questioned Costs: $4,477,879 Criteria, continued: (1) Inform in writing the official with expenditure authority that the contract has been signed by all parties and that he may proceed with contract implementation according to the terms contained therein. • § 70-30.3-220 Small Purchases: (a) Purchases that use Government-sourced funds (local funds), or any combination of both local and federal funds, may be made according to the small purchase procedures of this subsection: (1) For purchases that do not exceed $10,000, at least one price quote shall be obtained. However, the Director of Procurement Services may require the expenditure authority to obtain more than one price quote. (2) A blanket purchase order may be used to make purchases without securing a price quote when the purchases do not exceed $1,000. The goods or services that may be purchased under a blanket purchase order must be defined (i.e. office supplies) and shall not be used for equipment. (3) For purchases that exceed $10,000, but which are less than or equal to $50,000, a minimum of three vendors shall be solicited to submit written or electronic quotations. (b) Purchases that use only federal funds may be made according to the small purchase procedures of this subsection: (1) For purchases that do not exceed $10,000, at least one price quote shall be obtained. However, the Director of Procurement Services may require the expenditure authority to obtain more than one price quote. (2) For purchases that exceed $10,000, but which are less than or equal to $250,000, a minimum of three vendors shall be solicited to submit written or electronic quotations. Finding No. 2023-032, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Procurement and Suspension and Debarment Questioned Costs: $4,477,879 Criteria, continued: (c) A purchase order may be used to make purchases from the United States General Services Administration (GSA), including purchases that exceed $250,000. When purchasing from GSA, at least one quote shall be obtained. (d) Procurement requirements shall not be artificially divided so as to constitute a small purchase. • § 70-30.3-225 Sole-Source Procurement: (a) A contract may be awarded for a supply, service, or construction without competition when: (1) The Director of Procurement Services determines in writing, after reviewing the expenditure authority’s written justification pursuant to § 70-30.3-215(b), that there is only one source for the required supply, service, or construction. (2) The purpose is to obtain legal services. (b) For any sole-source procurement pursuant to subsection (a)(1), a written justification for sole-source procurement shall be prepared by the official with expenditure authority and submitted to the Director of Procurement Services. This written justification shall contain the specific unique capabilities required; the specific unique capabilities of the contractor; the efforts made to obtain competition; and the specific considerations given to alternative sources and specific reasons why alternative sources were not selected. • § 70-30.3-760 Debarment and Suspension: (a) The official with expenditure authority may file a dispute with the Director of Procurement Services against an existing contractor for any failures of performance related to a contract governed by this subchapter. Finding No. 2023-032, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Procurement and Suspension and Debarment Questioned Costs: $4,477,879 Criteria, continued: 2. In accordance with 2 CFR §180.220 and §180.300, entities that enter into a covered transaction with another person at the next lower tier for a contract amount that is expected to equal or exceed $25,000, entities must verify that the person with whom they intend to do business is not excluded or disqualified by: (a) Checking SAM.gov Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person. Condition: Of sixty expenditures tested, aggregating $5,867,581 of a total population of $23,593,051 in nonpayroll expenditures subject to procurement, the following were noted: 1. For two (or 3%), contracts were procured through Competitive Sealed Biddings procurement, for which public notices of the Invitation for Bid for contract number 32300191 were not provided. Of the contract amount of $19,788,188, the cost share for ALN 21.027 amounted to $5,778,188. For contract number 32300062, copies of public notices of the Invitation for Bid were not sufficient to evidence that the Invitation for Bid was published in a newspaper of general circulation. Copies did not reflect the name of the newspaper company and the dates of when the notices were published. Further, the publication request was for once a week during a span of three weeks rather than the 30-day advertisement period requirement.

Finding No. 2023-033 Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Reporting Questioned Costs: $-0- Criteria: In accordance with the U.S. Treasury Compliance and Reporting Guidance for State and Local Fiscal Recovery Funds (SLFRF) and the May 2023 Compliance Supplement, States and U.S. territories are required to submit quarterly Project and Expenditure Reports to the U.S. Treasury by the last day of the month following the end of the period covered and annual reports for non-entitlement units that are allocated less than $10 million in SLFRF funding. Condition: Of ten Project and Expenditure Reports selected for testing, the following were noted: 1. For three (or 30%) reports due for submission during CNMI’s fiscal year ended September 30, 2023, the reports were not submitted. 2. For six (or 60%) quarterly reports, underlying accounting records supporting the data in the Project and Expenditure Reports were not provided. CNMI (Central Government) Quarter Ended 12/31/22: Finding No. 2023-033, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Reporting Questioned Costs: $-0- Condition, continued: 3. The revenue loss calculations supporting the actual general revenue and estimated revenue loss due to COVID-19 Public Health Emergency for the 09/30/21 and 09/30/22 calculation dates were not provided. Accordingly, we are unable to verify accuracy of the amounts reported under the revenue replacement section of the Quarterly Projects and Expenditures reports. Amounts reported for the Quarters Ended 12/31/22, 03/31/23 and 06/30/23: Cause: 1. Management lacked new processes to extract the necessary data to submit the Project and Expenditure Reports after transition from its legacy JD Edwards financial system to the Tyler Munis Financial Management Information System (FMIS) effective October 1, 2021. 2. Underlying accounting records supporting the data included in the reports could not be located. 3. Inadequate documentation and systematic filing of relevant documentation supporting program costs. Finding No. 2023-033, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Reporting Questioned Costs: $-0- Cause, continued: 4. There is no internal control process in place over the Rota Municipality’s reporting requirements. This is due to confusion as to who is responsible in overseeing the Municipality’s SLFRF funding, as while the Municipality separately received its own funding, such is being maintained by the CNMI Central Government and many of the processes were guided by the CNMI Department of Finance. Further, the Municipality's access to the MUNIS system was limited and were notified by the CNMI Department of Finance that project inquiry in MUNIS was no longer to be used. Thus, the Municipality could not provide accurate accounting of its SLFRF funding. Effect or Potential Effect: CNMI is in noncompliance with the quarterly and annual Project and Expenditure reporting requirements. No questioned costs are presented as the noncompliance is non-monetary in nature. Identification as a Repeat Finding: Finding No. 2022-030 Recommendation: CNMI should establish and implement effective monitoring control procedures to ensure all required reports are submitted and ensure the following: 1. Easy retrieval of relevant documentation supporting all the data reported in the Quarterly Projects and Expenditures reports. 2. Assist and provide necessary guidance to the Rota Municipality over its reporting compliance requirements, including determining as to who is responsible in overseeing the Municipality’s reporting requirements. Finding No. 2023-033, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Reporting Questioned Costs: $-0- Views of Responsible Officials: Conditions 1 to 3 - CNMI Department of Finance agrees with this finding. Required Project and Expenditure Reports were not submitted for certain periods and supporting documentation and revenue loss calculations were unavailable for audit review. The primary cause was staff turnover and reorganization following a change in administration in FY2023, which highlighted gaps in reporting capacity. This occurred alongside issues identified in the finding, including insufficient processes following CNMI’s transition from JD Edwards to Tyler Munis, missing supporting documentation, and lack of structured reporting controls. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-034 Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Criteria: Per the U.S. Treasury Interim and Final Rules, the U.S. Treasury is aligning the definition of subrecipient in the final rule with the definition of subrecipient in the Uniform Guidance, wherein, subrecipients are entities that receive a subaward from a recipient to carry out a program or project on behalf of the recipient with the recipient’s Federal award funding but does not include an individual that is a beneficiary of such award. The recipient remains responsible for monitoring and overseeing the subrecipient’s use of State and Local Fiscal Recovery Funds (SLFRF) and other activities related to the award to ensure that the subrecipient complies with the statutory and regulatory requirements and the terms and conditions of the award. Recipients also remain responsible for reporting to the U.S. Treasury on their subrecipients’ use of payments from the SLFRF funds for the duration of the award. Accordingly, in accordance with 2 CFR §200.332, a pass-through entity (PTE) must: 1. Verify that the subrecipient is not excluded or disqualified in accordance with §180.300. Verification methods are provided in §180.300, which include confirming in SAM.gov that a potential subrecipient is not suspended, debarred, or otherwise excluded from receiving Federal funds. 2. Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the information provided below. A PTE must provide the best available information when some of the information below is unavailable. A PTE must provide the unavailable information when it is obtained. One of the required information includes: (1) Federal award identification: (i) Subrecipient’s unique entity identifier; (ii) Federal Award Identification Number (FAIN); (iii) Federal Award Date; (iv) Subaward Period of Performance Start and End Date; (v) Total Amount of Federal Funds Obligated to the subrecipient by the PTE, including the current financial obligation; Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Criteria, continued: (vi) Total Amount of the Federal Award committed to the subrecipient by the pass-through entity; (vii) Name of the Federal agency; and (viii) Assistance Listings title and number; the PTE must identify the dollar amount made available under each Federal award and the Assistance Listings Number at the time of disbursement. (2) All requirements of the subaward, including requirements imposed by Federal statutes, regulations, and the terms and conditions of the Federal award; (3) Any additional requirements that the PTE imposes on the subrecipient for the PTE to meet its responsibilities under the Federal award. This includes information and certifications (see §200.415) required for submitting financial and performance reports that the PTE must provide to the Federal agency; (4) A requirement that the subrecipient permits the PTE and auditors to access the subrecipient's records and financial statements for the PTE to fulfill its monitoring requirements; and (5) Appropriate terms and conditions concerning the closeout of the subaward. 3. Evaluate each subrecipient’s fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring described in paragraph (f) of this section. When evaluating a subrecipient’s risk, a PTE should consider the following: (1) The subrecipient’s prior experience with the same or similar subawards; (2) The results of previous audits. This includes considering whether or not the subrecipient receives a Single Audit in accordance with subpart F and the extent to which the same or similar subawards have been audited as a major program; (3) Whether the subrecipient has new personnel or new or substantially changed systems; and Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Criteria, continued: (4) The extent and results of any Federal agency monitoring (for example, if the subrecipient also receives Federal awards directly from the Federal agency). 4. If appropriate, consider implementing specific conditions in a subaward as described in §200.208 and notify the Federal agency of the specific conditions. 5. Monitor the activities of a subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The PTE is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved. In monitoring a subrecipient, a PTE must: (1) Review financial and performance reports. (2) Ensure that the subrecipient takes corrective action on all significant developments that negatively affect the subaward. Significant developments include Single Audit findings related to the subaward, other audit findings, site visits, and written notifications from a subrecipient of adverse conditions which will impact their ability to meet the milestones or the objectives of a subaward. When significant developments negatively impact the subaward, a subrecipient must provide the pass-through entity with information on their plan for corrective action and any assistance needed to resolve the situation. (3) Issue a management decision for audit findings pertaining only to the Federal award provided to the subrecipient from the PTE as required by §200.521. (4) Resolve audit findings specifically related to the subaward. However, the PTE is not responsible for resolving cross-cutting audit findings that apply to the subaward and other Federal awards or subawards. If a subrecipient has a current Single Audit report and has not been excluded from receiving Federal funding (meaning, has not been debarred or suspended), the PTE may rely on the subrecipient’s cognizant agency for audit or oversight agency for audit to perform audit follow-up and make management decisions related to cross-cutting audit findings in accordance with section § 200.513(a)(4)(viii). Such reliance does not eliminate the responsibility of the pass-through entity to issue subawards that conform to agency and award-specific requirements, to manage risk through ongoing subaward monitoring, and to monitor the status of the findings that are specifically related to the subaward. Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Criteria, continued: 6. Depending upon the pass-through entity's assessment of the risk posed by the subrecipient (as described in paragraph (c) of this section), the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals: (1) Providing subrecipients with training and technical assistance on program-related matters; (2) Performing site visits to review the subrecipient's program operations; and (3) Arranging for agreed-upon-procedures engagements as described in § 200.425. 7. Verify that a subrecipient is audited as required by subpart F of this part. 8. Consider whether the results of a subrecipient's audit, site visits, or other monitoring necessitate adjustments to the pass-through entity's records. 9. Consider taking enforcement action against noncompliant subrecipients as described in §200.339 and in program regulations. Condition: 1. Of four new subawards made during FY2023, aggregating $5,450,541 of a total population of $5,450,541, the following were noted: a. For four (or 100%), documentation of the risk assessments performed and verification as to whether the subrecipients are not suspended, debarred, or otherwise excluded from receiving Federal funds, were not provided. Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Condition, continued: b. For two (or 50%), subaward agreements provided were incomplete (pages missing). Accordingly, we could not determine if the subawards: (1) Were clearly identified to the subrecipients as subawards; (2) Included the following required information: (a) Federal award identification numbers (FAIN); (b) Federal award date; (c) Subaward period of performance start and end dates; (d) Total amount of federal funds obligated to the subrecipient by the pass-through entity including the current financial obligation for subaward number CNMI22046A/CNMI22046B, which has multiple subawards; (e) Total amount of the federal award committed to the subrecipient by the pass-through entity for subaward number CNMI22046A/CNMI22046, which has multiple subawards; (f) Name of Federal awarding agency; (g) Assistance Listing number for subaward number CNMI22046A/CNMI22046B); (h) Identification of the dollar amount made available under each Federal award at the time of disbursements; (3) Included all requirements of the subawards, including requirements imposed by Federal statutes, regulations, and the terms and conditions of the Federal award; (4) Included any additional requirements that the pass-through entity imposes on the subrecipient for the pass-through entity to meet its responsibilities under the Federal award. This includes information and certifications (see §200.415) required for submitting financial and performance reports that the pass-through entity must provide to the Federal agency; Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Condition, continued: (5) Included requirements that the subrecipients permit the pass-through entity and auditors to access the subrecipients’ records and financial statements for the pass-through entity to fulfill its monitoring requirements; and (6) Included appropriate terms and conditions concerning the closeout of the subaward. In addition, the page reflecting the award date for subaward number CNMI22051 was also not provided; thus, the award date is presented as Unknown. No questioned costs are presented as amounts are questioned at Condition 1a. c. For two (or 50%), subaward agreements did not include the following required information: (1) Subrecipients’ unique entity identifiers; (2) Federal award identification numbers (FAIN); (3) Federal award date; (4) Total amount of federal funds obligated to the subrecipient by the pass-through entity including the current financial obligation for subaward number CNMI22044A, which has two subawards; (5) Total amount of the federal award committed to the subrecipient by the pass-through entity for subaward number CNMI22044A, which has two subawards; (6) Identification of the dollar amount made available under each Federal award at the time of disbursements; (7) Appropriate terms and conditions concerning the closeout of the subaward No questioned costs are presented as amounts are questioned at Condition 1a. Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Condition, continued: 2. Of seven subrecipients tested for monitoring compliance requirements, aggregating $15,640,541 of a total population of $15,640,541, documentation on monitoring procedures performed during FY2023 for the seven (or 100%) subrecipients, including documentation of the verification as to whether the subrecipients are subject to the audit requirements, were not provided. In addition, other than Award Number CNMI22044, subaward agreements for six subrecipients were not provided; accordingly, award dates were presented as unknown. No questioned costs are presented for six subrecipients as there were no subaward disbursements made during FY2023. Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Condition, continued: 3. Of nine monitoring procedure requirements tested at the invoice/disbursement level, aggregating $16,693,880 of a total population of $16,693,880, for five (or 56%) disbursements, review and approval of either the invoices, drawdowns and/or payment requests to ensure that subrecipients used the subaward for authorized purposes in compliance with Federal statutes, regulations, and the terms and conditions of the subawards, were not evident. Cause: 1. CNMI does not have approved/adopted written subrecipient monitoring policies and procedures; 2. Documentation of the risks assessments and the monitoring procedures performed, including verifications as to whether the subrecipients are subject to the audit requirements and are not suspended, debarred, or otherwise excluded from receiving Federal funds, could not be located on file and/or were not performed; 3. CNMI failed to enforce compliance with subrecipient monitoring compliance requirements and lacks monitoring controls over the subrecipient monitoring compliance requirements. Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Cause: 4. Inadequate documentation and systematic filing of relevant documentation supporting program costs. In addition, for award numbers CNMI22044 and CNMI22044A, the Entity’s management has determined that it should be classified as a contractor under the agreement as the Entity’s role is to promote the program within CNMI, develop a marketing and promotional campaign and disburse the award to the recipients identified by the CNMI. The Entity was not involved in reviewing and deciding which grant applicant is eligible to receive the grant. CNMI’s role in the review of grant applications and eligibility determination may have caused confusion as to whether the Entity that received the funds is a subrecipient or a contractor. As of the auditor’s report date, CNMI and the Entity have yet to conclude whether the Entity received the funds in the role of a subrecipient or a contractor. Effect or Potential Effect: CNMI is in noncompliance with applicable subrecipient monitoring compliance requirements and questioned costs of $15,640,541 result. Identification as a Repeat Finding: Finding No. 2022-031 Recommendation: We recommend CNMI establish approved/adopted written subrecipient monitoring policies and procedures and an approved template that includes all required clauses needed for subrecipient agreements. In addition, CNMI should implement and enforce monitoring internal control procedures over the following: Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Recommendation, continued: 1. Verification as to whether the subrecipients are not suspended, debarred, or otherwise excluded from receiving Federal funds; 2. Evaluation over each subrecipient's fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring; 3. Monitoring procedures to ensure that all subaward agreements include the required information in accordance with 2 CFR §200.332(b)(1); 4. Monitoring activities of a subrecipient to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward; 5. Verification that subrecipients are audited as required by 2 CFR Part 200 Subpart F; and 6. Adequate documentation and systematic filing of relevant documentation supporting program costs. Views of Responsible Officials: Conditions 1 to 3 - CNMI Department of Finance agrees with this finding. During FY2023, the Department of Finance became aware that existing practices for subrecipient monitoring did not fully meet federal requirements under 2 CFR 200.331–200.332. DOF began implementing corrective actions in the latter part of FY2023 and continued strengthening procedures throughout FY2024, including improvements in documentation, SAM.gov verification, and basic risk assessment elements. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-035 Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Allowable Costs/Cost Principles Questioned Costs: $-0- Criteria: In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Based on walkthrough procedures performed over: a. the review of cost allowability, specifically, the process did not include documentation of review and approval of purchase requisitions, invoices, payment requests; and b. the disbursement process of program funds, specifically, the process did not include documented review or approval demonstrating that checks and ACH disbursements were verified against supporting invoices prior to payment. As a result, controls designed to ensure the accuracy and validity of disbursements and allowability of costs, are not adequately documented or evidenced. Cause: CNMI lacks adequate documentation evidencing its monitoring and review procedures over disbursements of program funds and allowability of costs, including review and approval controls to ensure that checks and ACH payments agree with approved invoice amounts and purchase requisitions are allowed. Effect or Potential Effect: CNMI is in noncompliance with 2 CFR Section 200.303 related to internal control requirements. No questioned costs are identified as testing did not disclose noncompliance with allowable costs/cost principles compliance requirements. Identification as a Repeat Finding: This is not a repeat finding. Finding No. 2023-035, continued Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Allowable Costs/Cost Principles Questioned Costs: $-0- Recommendation: CNMI should implement, document and consistently enforce appropriate review and approval controls over disbursements of program funds. Views of Responsible Officials: CNMI Department of Finance agrees with this finding. While approval controls are implemented within the Munis financial system and, since the FY2022 system migration, all federal expenditure approvals have been processed in Munis, the supporting evidence was provided to the auditors on April 9, 2026, after the agreed documentation deadline of February 19, 2026, resulting in evidence timing deficiency. CNMI established a Standard Operating Procedure for Internal Control for Federal Grants Management on May 1, 2025, to govern these processes, and management will ensure that going forward the expenditure workflow, not solely the journal entry workflow, is attached to documentation submitted with audit requests and will be included in the required documents checklist; documents of approval are available upon request. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-036 Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Matching, Level of Effort, Earmarking Questioned Costs: $-0- Criteria: In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Based on walkthrough procedures performed over the maintenance of effort compliance requirements, CNMI lacks documented evidence of review and approval controls over the verification and accuracy of the required financial data used in computing its maintenance of effort compliance requirements. Cause: CNMI lacks documented evidence of review and approval controls over the verification and accuracy of the financial data used in computing its maintenance of effort for compliance with program requirements, which indicates that the internal controls may not be effectively designed or implemented to ensure the accuracy and completeness of the financial data necessary for compliance. Effect or Potential Effect: CNMI is in noncompliance with 2 CFR Section 200.303 related to internal control requirements. No questioned costs are identified as testing did not disclose noncompliance with the maintenance of efforts compliance requirements. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: CNMI should implement, document and consistently enforce appropriate review and approval controls over the maintenance of efforts compliance requirements. Finding No. 2023-036, continued Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Matching, Level of Effort, Earmarking Questioned Costs: $-0- Views of Responsible Officials: CNMI Department of Finance agrees with this finding. CNMI acknowledges the absence of documented standard operating procedures and internal controls governing the review and approval of financial data used to compute maintenance of effort (MOE) requirements. Upon completion of the MOE report, CNMI worked closely with the grantor and the state educational agency to compile the required information. Because CNMI does not customarily receive this type of U.S. Department of Education award and received these funds only as part of the COVID 19 relief program, formal procedures were not previously in place. The grant covered by this finding is now closed. Should CNMI receive future awards from this grantor, CNMI will adopt and implement a formal SOP for MOE calculations and related review and approval controls prior to preparing any MOE reports. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-037 Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Reporting Questioned Costs: $-0- Criteria: Per U.S. Department of Education (ED), the OMB No. 1810-0748 or the Education Stabilization Fund - Governor's Emergency Education Relief Fund (GEER I and GEER II) Recipient Data Collection Form, which is a special annual performance report, must be submitted with data on expenditures, planned expenditures, subrecipients, and uses of funds, including for mandatory reservations. Local educational agencies (LEAs)/subrecipients must submit data to the state educational agency (SEA)/Governor for the SEA’s/Governor’s report. These annual reports are due each spring for the previous reporting period. Additionally, in accordance with 2 CFR Part 170 and the Federal Funding Accountability and Transparency Act (FFATA), recipients (i.e., direct recipients) of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more in federal funds to the FFATA Subaward Reporting System (FSRS). For subaward information, recipients are required to report no later than the end of the month following the month in which the subaward was issued. Condition: 1. For the annual performance report required to be submitted in FY2023 (covering the period October 1, 2021 through September 30, 2022), CNMI did not provide the underlying accounting records supporting the reported data. 2. For FFATA reporting requirements, CNMI did not report the subaward information for the following subawards with $30,000 or more in Federal funds to the FFATA SRS in fiscal year 2023: Finding No. 2023-037, continued Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Reporting Questioned Costs: $-0- Cause: CNMI did not effectively monitor compliance with applicable reporting compliance requirements since FY2023 is the initial year of Education Stabilization fund (ESF) implementation. Effect or Potential Effect: CNMI is in noncompliance with the reporting compliance requirements. No questioned costs are presented as the noncompliance is non-monetary in nature. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: 1. CNMI should establish and implement effective monitoring control procedures to ensure all data elements for the required reports are properly documented. 2. CNMI should establish policies and procedures to verify that the required FFATA reports are prepared and submitted to the SRS. Views of Responsible Officials: Conditions 1 and 2 - CNMI Department of Finance agrees with this finding. CNMI acknowledges that, while the ED annual performance report (APR) for FY2023 was submitted, the underlying accounting records supporting the reported data were not included, and CNMI was not fully aware of the FFATA subaward reporting requirement for this program. To address these deficiencies, CNMI will (1) ensure that all future APR submissions include the complete supporting accounting documentation and that such documentation is retained and made available to auditors upon request; and (2) incorporate FFATA/FSRS reporting requirements into the CNMI Internal Control SOP for federal grants and implement procedures to verify timely submission of all first tier subawards of $30,000 or more. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-038 Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Subrecipient Monitoring Questioned Costs: $6,641,757 Criteria: Per 2 CFR § 200.1, a subrecipient in the Uniform Guidance are entities that receive a subaward from a recipient to carry out a program or project on behalf of the recipient with the recipient’s Federal award funding but does not include an individual that is a beneficiary of such award. The U.S. Department of Education engages with non-Federal entities by awarding federal funds in the form of a subaward as an extension of its services. The recipient remains responsible for monitoring and overseeing the use of federal funds and other activities related to the award to ensure that the subrecipient complies with the statutory and regulatory requirements and the terms and conditions of the award. Recipients also remain responsible for reporting to the U.S. Department of Education on their subrecipients’ use of payments from the ESF-Governor funds for the duration of the award. Accordingly, in accordance with 2 CFR §200.332, a pass-through entity (PTE) must: (a) Verify that the subrecipient is not excluded or disqualified in accordance with §180.300. Verification methods are provided in §180.300, which include confirming in SAM.gov that a potential subrecipient is not suspended, debarred, or otherwise excluded from receiving Federal funds. (b) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the information provided below. A PTE must provide the best available information when some of the information below is unavailable. A PTE must provide the unavailable information when it is obtained. One of the required information includes: (1) Federal award identification: (i) Subrecipient’s unique entity identifier; (ii) Federal Award Identification Number (FAIN); (iii) Federal Award Date; (iv) Subaward Period of Performance Start and End Date; (v) Total Amount of Federal Funds Obligated to the subrecipient by the PTE, including the current financial obligation; Finding No. 2023-038, continued Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Subrecipient Monitoring Questioned Costs: $6,641,757 Criteria, continued: (vi) Total Amount of the Federal Award committed to the subrecipient by the pass-through entity; (vii) Name of the Federal agency; and (viii) Assistance Listings title and number; the PTE must identify the dollar amount made available under each Federal award and the Assistance Listings Number at the time of disbursement. (2) All requirements of the subaward, including requirements imposed by Federal statutes, regulations, and the terms and conditions of the Federal award; (3) Any additional requirements that the PTE imposes on the subrecipient for the PTE to meet its responsibilities under the Federal award. This includes information and certifications (see §200.415) required for submitting financial and performance reports that the PTE must provide to the Federal agency; (4) A requirement that the subrecipient permits the PTE and auditors to access the subrecipient's records and financial statements for the PTE to fulfill its monitoring requirements; and (5) Appropriate terms and conditions concerning the closeout of the subaward. (c) Evaluate each subrecipient’s fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring described in paragraph (f) of this section. When evaluating a subrecipient’s risk, a PTE should consider the following: (1) The subrecipient’s prior experience with the same or similar subawards; (2) The results of previous audits. This includes considering whether or not the subrecipient receives a Single Audit in accordance with subpart F and the extent to which the same or similar subawards have been audited as a major program; (3) Whether the subrecipient has new personnel or new or substantially changed systems; and Finding No. 2023-038, continued Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Subrecipient Monitoring Questioned Costs: $6,641,757 Criteria, continued: (4) The extent and results of any Federal agency monitoring (for example, if the subrecipient also receives Federal awards directly from the Federal agency). (d) If appropriate, consider implementing specific conditions in a subaward as described in §200.208 and notify the Federal agency of the specific conditions. (e) Monitor the activities of a subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The PTE is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved. In monitoring a subrecipient, a PTE must: (1) Review financial and performance reports. (2) Ensure that the subrecipient takes corrective action on all significant developments that negatively affect the subaward. Significant developments include Single Audit findings related to the subaward, other audit findings, site visits, and written notifications from a subrecipient of adverse conditions which will impact their ability to meet the milestones or the objectives of a subaward. When significant developments negatively impact the subaward, a subrecipient must provide the pass-through entity with information on their plan for corrective action and any assistance needed to resolve the situation. (3) Issue a management decision for audit findings pertaining only to the Federal award provided to the subrecipient from the PTE as required by §200.521. (4) Resolve audit findings specifically related to the subaward. However, the PTE is not responsible for resolving cross-cutting audit findings that apply to the subaward and other Federal awards or subawards. If a subrecipient has a current Single Audit report and has not been excluded from receiving Federal funding (meaning, has not been debarred or suspended), the PTE may rely on the subrecipient’s cognizant agency for audit or oversight agency for audit to perform audit follow-up and make management decisions related to cross-cutting audit findings in accordance with section § 200.513(a)(4)(viii). Such reliance does not eliminate the responsibility of the pass-through entity to issue subawards that conform to agency and award-specific requirements, to manage risk through ongoing subaward monitoring, and to monitor the status of the findings that are specifically related to the subaward. Finding No. 2023-038, continued Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Subrecipient Monitoring Questioned Costs: $6,641,757 Criteria, continued: (f) Depending upon the pass-through entity's assessment of the risk posed by the subrecipient (as described in paragraph (c) of this section), the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals: (1) Providing subrecipients with training and technical assistance on program-related matters; (2) Performing site visits to review the subrecipient's program operations; and (3) Arranging for agreed-upon-procedures engagements as described in § 200.425. (g) Verify that a subrecipient is audited as required by subpart F of this part. (h) Consider whether the results of a subrecipient's audit, site visits, or other monitoring necessitate adjustments to the pass-through entity's records. (i) Consider taking enforcement action against noncompliant subrecipients as described in §200.339 and in program regulations. Condition: 1. For two (or 100%) new subawards made during FY2023, aggregating $6,641,757 of a total population of $6,641,757, there was no documentation of the risk assessments performed and verification as to whether the subrecipients are not suspended, debarred, or otherwise excluded from receiving Federal funds. Finding No. 2023-038, continued Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Subrecipient Monitoring Questioned Costs: $6,641,757 Condition, continued: Further, the subaward agreements did not include the following required information: (1) Subrecipients’ unique entity identifiers; and (2) Appropriate terms and conditions concerning the closeout of the subaward. 2. For two (or 100%) subrecipients subject to monitoring compliance requirements, aggregating $6,641,757 of a total population of $6,641,757, there was no documentation on monitoring procedures performed during FY2023, and no documentation of the verification as to whether the subrecipients are subject to the audit requirements. CNMI did not provide evidence of procedures used to determine that the subrecipients (which expended more than $750,000 in Federal awards) have met the audit requirement of 2 CFR part 200, subpart F and that the required audits are completed within nine months of the end of the subrecipient’s audit period. No questioned costs are presented as amounts are questioned at Condition 1. Cause: 1. CNMI does not have an established subrecipient risk assessment policy and procedures prior to entering into the subaward agreement and to identify the type of monitoring procedures required to be performed for the subrecipient. 2. CNMI does not have an established policy or procedure that monitors whether a subrecipient that incurs expenditures above $750,000 during the year, has hired the services of a reputable auditor to conduct a single audit engagement and to ensure that follow-up corrective actions have been performed as regards to the deficiencies identified during the previous audits. 3. Inadequate documentation and systematic filing of relevant documentation supporting program costs. Finding No. 2023-038, continued Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Subrecipient Monitoring Questioned Costs: $6,641,757 Effect or Potential Effect: CNMI is in noncompliance with applicable subrecipient monitoring compliance requirements and questioned costs of $6,641,757 result for Condition 1. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: We recommend CNMI establish approved/adopted written subrecipient monitoring policies and procedures and an approved template that includes all required clauses needed for subrecipient agreements. In addition, CNMI should implement and enforce monitoring internal control procedures over the following: a. Evaluation over each subrecipient’s fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring; b. Monitoring procedures to ensure that all subaward agreements include the required information in accordance with 2 CFR §200.332(b)(1); c. Monitoring activities of a subrecipient to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward; d. Verification that subrecipients are audited as required by 2 CFR Part 200 Subpart F; and e. Adequate documentation and systematic filing of relevant documentation supporting program costs. Finding No. 2023-038, continued Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425H Education Stabilization Fund - Governors (Outlying Areas) (ESF-Governor) Federal Award No.: S425H210001 Area: Subrecipient Monitoring Questioned Costs: $6,641,757 Views of Responsible Officials: Conditions 1 and 2 - CNMI Department of Finance agrees with this finding. CNMI submitted risk assessment and monitoring compliance documentation to the auditor on February 26, 2026, after the agreed February 19, 2026 deadline, resulting in evidence timing deficiency. CNMI established Standard Operating Procedures for subrecipient monitoring effective October 28, 2026. Management will implement standardized file labeling and retention procedures in accordance with the SOP so that each subrecipient file contains the subrecipient determination, required subaward clauses, the unique entity identifier, documented SAM.gov exclusion checks, and verification of audit requirements. In alignment with 2 CFR §200.332, CNMI will review financial and performance reports quarterly, conduct an annual performance assessment using a standardized checklist (updated annually or upon project completion), maintain documentation of all monitoring activities, and verify audit status for entities subject to the Single Audit Act. The risk assessment and monitoring compliance documentation for this grant is available to the auditor upon request. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-039 Federal Agency: U.S. Department of Health and Human Services AL Program: 93.575/93.596 CCDF Cluster COVID-19 93.575/93.596 CCDF Cluster Federal Award No.: 2201MPCCDD, 2101MPCCC5, 2001MPCCDD Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $71,972 Criteria: In accordance with 2 CFR 200.303(a), the recipient must 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. Additionally, based on 2 CFR 200.403(g), except where otherwise authorized by statute, costs must be adequately documented to be allowable under Federal awards. Condition: For seven (or 18%) out of the forty nonpayroll expenditures tested, aggregating $845,463 of a total population of $18,417,064, CNMI did not provide the purchase orders, contracts, and/or invoice(s) supporting the allowability of the costs. Cause: CNMI did not properly enforce their record-keeping and document retention controls. Effect or Potential Effect: CNMI is in noncompliance with applicable activities allowed or unallowed and allowable costs/cost principles compliance requirement and questioned costs of $71,972 result. Finding No. 2023-039, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.575/93.596 CCDF Cluster COVID-19 93.575/93.596 CCDF Cluster Federal Award No.: 2201MPCCDD, 2101MPCCC5, 2001MPCCDD Area: Activities Allowed or Unallowed Allowable Costs/Cost Principles Questioned Costs: $71,972 Identification as a Repeat Finding: This is not a repeat finding. Recommendation: CNMI should improve their record-keeping and document retention policies implementation by properly utilizing the database functionality of their current Enterprise Resources Planning (ERP) software, which is Tyler MUNIS. Views of Responsible Officials: CNMI CCDF Program agrees with this finding. For seven (or 18%) out of the forty samples tested, CNMI did not provide the purchase order, contract, and/or invoice(s) supporting the allowability of the costs. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-040 Federal Agency: U.S. Department of Health and Human Services AL Program: 93.575/93.596 CCDF Cluster COVID-19 93.575/93.596 CCDF Cluster Federal Award No.: 2101MPCDC6, 2101MPCCC5, 2001MPCCC3, 2101MPCCDF, 2001MPCCDD, 1901MPCCDD Area: Eligibility Questioned Costs: $12,490 Criteria: Section 3.1.8 of the CCDF FY2023 State Plan dictates that to be eligible for childcare services, a parent must have a current and valid CW-1 permit at the time of eligibility determination/ redetermination. Further, based on Section 4.3.1 of the CCDF FY2023 State Plan, the calculation of the base payment rates applicable to each eligible child is based on their age, and the rates applied to the child depends on the age bracket they fall under. Condition: Of forty applicants tested, aggregating $217,320 of a total population of $6,140,523, the following were noted: 1. For two (or 5%), CNMI did not obtain valid work permits for the non-US citizen parents. 2. For five (or 13%), CNMI made inconsistent monthly benefit payments. The identified questioned cost is for the overpayment made to the beneficiary. No questioned costs were identified for case IDs that were undercharged as there are no excess charges to the program; however, these are identified as an internal control finding. Finding No. 2023-040, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.575/93.596 CCDF Cluster COVID-19 93.575/93.596 CCDF Cluster Federal Award No.: 2101MPCDC6, 2101MPCCC5, 2001MPCCC3, 2101MPCCDF, 2001MPCCDD, 1901MPCCDD Area: Eligibility Questioned Costs: $12,490 Cause: 1. CNMI failed to properly monitor adherence to the CCDF State Plan requirements of the required documents to support the applicant’s eligibility. 2. CNMI lacks proper monitoring controls to ensure that approved pay rates are consistently applied and paid to the applicants throughout the duration of the eligibility period. Effect or Potential Effect: CNMI is in noncompliance with applicable eligibility requirements and questioned costs of $12,490 result. Identification as a Repeat Finding: Finding No. 2022-032 Recommendation: CNMI should strengthen and enforce compliance with applicable eligibility compliance requirements over the following: 1. Improve the current monitoring procedures to ensure that responsible personnel should utilize the application checklist and review it against the applicant’s files to verify all required forms and information are completed, valid, and filed accordingly. 2. Establish monitoring and review procedures to ensure that the benefits paid for the applicants per month are in accordance with the established approved rates by CCDF and consistently applied. Finding No. 2023-040, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.575/93.596 CCDF Cluster COVID-19 93.575/93.596 CCDF Cluster Federal Award No.: 2101MPCDC6, 2101MPCCC5, 2001MPCCC3, 2101MPCCDF, 2001MPCCDD, 1901MPCCDD Area: Eligibility Questioned Costs: $12,490 Recommendation, continued: 3. CCDF can consider adopting more sophisticated software that would enable them to automatically calculate the benefits, and which has more functions that could help them streamline and improve their current procedures. Views of Responsible Officials: Condition 1 - CNMI CCDF Program respectfully disagrees with this finding. During the audit period, the CNMI CCDF State Plan for FY 2022–2024, Section 3.1.8, Employment Requirements, permitted the acceptance of a USCIS receipt notice (WAC receipt number) as documentation of employment authorization when applicable. Specifically, the State Plan states that a USCIS receipt indicating a WAC number may be requested when necessary and that additional documentation may be requested to identify applicants who meet the long-term employment criteria. Based on the policies in effect during the certification periods cited above, the CCDF Program determined eligibility using the documentation requirements established in the approved CCDF State Plan. Therefore, the questioned costs associated with these cases were incurred in accordance with the Program's established eligibility policies at that time. Condition 2 - CNMI CCDF Program agrees with this finding. During the audit period, provider payments were processed manually for approximately 1,101 children each month. The manual calculation and entry of subsidy amounts increased the risk of human error, resulting in isolated instances of overpayments and underpayments. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Condition 1 - Work permit validity dates were not reflected on the USCIS receipt notices.

Finding No. 2023-041 Federal Agency: U.S. Department of Health and Human Services AL Program: 93.575/93.596 CCDF Cluster COVID-19 93.575/93.596 CCDF Cluster Federal Award No.: 2101MPCCC5, 2101MPCCDF, 1901MPCCDD Area: Period of Performance Questioned Costs: $95,367 Criteria: A non-federal entity may charge only allowable costs incurred during the approved budget period of a federal award’s period of performance and any costs incurred before the federal awarding agency or pass-through entity made the federal award that were authorized by the federal awarding agency or pass-through entity (2 CFR sections 200.308 200.309 and 200.403(h)). The Program must liquidate all financial obligations incurred under the federal award not later than two years after the end date of the period of performance as specified in the terms and conditions of the federal award. In accordance with 2 CFR 200.303(a), the recipient must 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. Condition: 1. CNMI does not have any documentation or evidence to provide support that transactions are being reviewed to ensure that they are incurred within the period of performance. This condition does not result in questioned costs as this is an internal control finding. 2. CNMI does not properly monitor whether expenditures are paid prior to the end of the liquidation period. This condition does not result in questioned costs as this is an internal control finding. 3. Of forty expenditures tested, aggregating $817,071 of a total population of $2,171,232, the following were noted: a. For four (or 10%), CNMI did not provide the purchase order or contract to support that expenditures were incurred within the period of performance end date of 09/30/23. Finding No. 2023-041, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.575/93.596 CCDF Cluster COVID-19 93.575/93.596 CCDF Cluster Federal Award No.: 2101MPCCC5, 2101MPCCDF, 1901MPCCDD Area: Period of Performance Questioned Costs: $95,367 Condition, continued: b. For ten (or 25%), CNMI did not provide a breakdown of the batch payments identified in the bank statements to identify and trace the clearance dates of each transaction, to support that the expenditures were liquidated within the liquidation period end date of 09/30/25. Cause: 1. CNMI’s current policy and procedure does not include proper documentation of the review being performed to verify that the transactions are valid and still within the period of performance. Finding No. 2023-041, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.575/93.596 CCDF Cluster COVID-19 93.575/93.596 CCDF Cluster Federal Award No.: 2101MPCCC5, 2101MPCCDF, 1901MPCCDD Area: Period of Performance Questioned Costs: $95,367 Cause, continued: 2. CNMI does not have any policies and procedures established to monitor and ensure that payments to vendors are liquidated within the end of the liquidation period. 3. CNMI did not provide sufficient and appropriate audit evidence to substantiate the expenditures over compliance with applicable period of performance compliance requirements. Effect or Potential Effect: CNMI is in noncompliance with applicable period of performance compliance requirements and questioned costs of $95,367 result. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: CNMI should strengthen and enforce compliance with period of performance compliance requirements over the following: 1. CNMI should update their current policies and procedures to ensure that part of the documentation of checking the allowability of each transaction includes the verification if the expenditures are still within the period of performance. This can be done by attaching the copy of the grant award, or a certification from the program administrator, or personnel in-charge of checking the allowability of each transaction, that the grant being charged is in compliance with the period of performance compliance requirements. Finding No. 2023-041, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.575/93.596 CCDF Cluster COVID-19 93.575/93.596 CCDF Cluster Federal Award No.: 2101MPCCC5, 2101MPCCDF, 1901MPCCDD Area: Period of Performance Questioned Costs: $95,367 Recommendation, continued: 2. CNMI should establish monitoring procedures to ensure that checks issued to vendors are cleared by the banks within the liquidation period. The DOF Financial Services could establish a monitoring log for all checks issued for each vendor and each office. The assigned offices should then request a copy from the DOF Financial Services of the monitoring and conduct timely follow-up to each vendor on ensuring the checks are paid. Lastly, CNMI could also adopt a purely ACH payment to ensure that payments are done real-time. 3. CNMI should improve their record-keeping and document retention policies implementation by properly utilizing the database functionality of their current Enterprise Resources Planning (ERP) software, which is Tyler MUNIS. Views of Responsible Officials: Conditions 1 and 3a - CNMI CCDF Program agrees with this finding. To strengthen oversight and ensure adequate accountability over Federal awards, the CNMI CCDF Program has implemented a filing system where all documents relating to a federal award are properly maintained and labeled for accessibility. This system became effective on October 1, 2025. Conditions 2 and 3b - CNMI CCDF Program agrees with this finding and acknowledges the need to strengthen internal controls to ensure that all expenditures are cleared by the bank before the end of the liquidation period. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-042 Federal Agency: U.S. Department of Health and Human Services AL Program: 93.575/93.596 CCDF Cluster COVID-19 93.575/93.596 CCDF Cluster Federal Award No.: 1901MPCCDD, 2001MPCCC3, 2001MPCCDD, 2101MPCSC6, 2101MPCDC6, 2101MPCCC5, 2101MPCCDF Area: Special Tests and Provisions – Health and Safety Requirements Questioned Costs: $-0- Criteria: In accordance with 2 CFR 200.303(a), the recipient must 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. Condition: CNMI did not maintain sufficient documentation to demonstrate that the results of the health and safety inspections for each provider were properly reviewed and approved. Cause: CNMI’s CCDF Director/Administrator did not provide documented evidence of review and approval of the submitted health and safety inspection reports. Effect or Potential Effect: CNMI’s current policies and procedures are not adequate to ensure and demonstrate that proper review and approval is consistently performed and documented. No questioned cost identified as this is an internal control deficiency. Identification as a Repeat Finding: Finding No. 2022-033 Recommendation: CNMI should implement procedures to ensure that review and approval by the CCDF Director/Administrator of the health and safety requirements inspection reports for each provider is evidenced by a signature or stamp of approval. Finding No. 2023-042, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.575/93.596 CCDF Cluster COVID-19 93.575/93.596 CCDF Cluster Federal Award No.: 1901MPCCDD, 2001MPCCC3, 2001MPCCDD, 2101MPCSC6, 2101MPCDC6, 2101MPCCC5, 2101MPCCDF Area: Special Tests and Provisions – Health and Safety Requirements Questioned Costs: $-0- Views of Responsible Officials: CNMI CCDF Program agrees with this finding. Two types of providers were tested, Licensed center-based programs and license-exempt home-based programs. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-043 Federal Agency: U.S. Department of Health and Human Services AL Program: 93.767 Children’s Health Insurance Program (CHIP) Federal Award No.: 7510515, 7520515, 75X0515 Area: Reporting Questioned Costs: $-0- Criteria: The Program is required to submit quarterly Federal Financial Reports (SF-425) and quarterly Statement of Expenditures (CMS-64) that are accurately presented, comparable and reconcilable. In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: For two (or 50%) of four CMS 64 reports tested, CNMI was not able to provide a reconciliation for the differences noted on the amounts per the submitted reports and per underlying accounting records. Cause: CNMI lacks monitoring controls to ensure that adjusting entries which support the amounts reported in the CMS-64 are tracked and properly documented. Effect or Potential Effect: CNMI has a material weakness on their reporting requirement control. No questioned costs are presented as the noncompliance is non-monetary in nature. Identification as a Repeat finding: Finding 2022-036 Finding No. 2023-043, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.767 Children’s Health Insurance Program (CHIP) Federal Award No.: 7510515, 7520515, 75X0515 Area: Reporting Questioned Costs: $-0- Recommendation: CNMI should strengthen and enforce compliance over the implementation of more stringent monitoring mechanisms to ensure reports are accurately presented and reconciled to the underlying accounting records. CNMI should establish monitoring controls to ensure that all adjusting entries are properly tracked and documented so that reported amounts in the CMS-64 are corroborated and substantiated. Views of Responsible Officials: Commonwealth Medicaid Agency (CMA) respectfully disagrees with the auditor’s finding. While the Agency acknowledges that certain supporting documentation was not provided within the timeframe requested during the audit, CMA does not agree that the reported expenditures were unsupported. The Agency experienced resource and staffing constraints that affected its ability to compile and produce all requested documentation within the audit timeline. However, the office maintains all relevant supporting documentation and is prepared to provide it upon request from the Grantor. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: CMA states disagreement; however, CMA also acknowledges that underlying accounting records supporting the variances were not provided.

Finding No. 2023-044 Federal Agency: U.S. Department of Health and Human Services AL Program: 93.767 Children’s Health Insurance Program (CHIP) Federal Award No.: 7510515 & 7520515 Area: Special Tests and Provisions - Provider Eligibility Questioned Costs: $7,808,322 Criteria: Providers who have been barred from participation by the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) exclusion list are not eligible to be enrolled in the CHIP program (42 CFR 457.990, 42 CFR 455 Subpart E). In accordance with 42 CFR 455.436, the State Medicaid agency must do all of the following: (a) Confirm the identity and determine the exclusion status of providers and any person with an ownership or control interest or who is an agent or managing employee of the provider through routine checks of Federal databases. (b) Check the Social Security Administration's Death Master File, the National Plan and Provider Enumeration System (NPPES), the List of Excluded Individuals/Entities (LEIE), the Excluded Parties List System (EPLS), and any such other databases as the Secretary may prescribe. (c) Consult appropriate databases to confirm identity upon enrollment and reenrollment; and (d) Check the LEIE and EPLS no less frequently than monthly. Condition: For thirty-nine (or 100%) new and existing service providers, CNMI did not provide documentation that monthly verification was performed to verify that the service providers are not on the OIG exclusion list. Finding No. 2023-044, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.767 Children’s Health Insurance Program (CHIP) Federal Award No.: 7510515 & 7520515 Area: Special Tests and Provisions - Provider Eligibility Questioned Costs: $7,808,322 Cause: CNMI does not have an established policy and procedure for a monthly verification of all contracted providers against the OIG exclusion list. Effect or Potential Effect: CNMI is in noncompliance with the applicable Special Tests and Provisions - Provider Eligibility compliance requirements and questioned costs of $7,808,322 result. Identification of a Repeat Finding: Finding No. 2022-037 Recommendation: CNMI should strengthen and enforce compliance with the special test and provisions - provider eligibility compliance requirements over the following: 1. Establish policies and procedures that monitor the monthly status of each provider with existing contracts during the year against the OIG exclusion list prior to processing payments for the rendered services. 2. Assign dedicated personnel that would conduct the monthly OIG exclusion list verification of providers after which, the result of the verification are reviewed by the management or the overall in-charge of the program for final approval. Views of Responsible Officials: Commonwealth Medicaid Agency (CMA) respectfully disagrees with the auditor’s finding. CMA does not believe the finding fully reflects the Agency’s efforts to comply with provider screening and exclusion requirements during the audit period. While documentation supporting certain screening activities was not readily available for auditor review, the Agency has historically performed provider eligibility and exclusion reviews as part of its enrollment and oversight processes. Refer to CNMI’s Corrective Action Plan for additional information. Finding No. 2023-044, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.767 Children’s Health Insurance Program (CHIP) Federal Award No.: 7510515 & 7520515 Area: Special Tests and Provisions - Provider Eligibility Questioned Costs: $7,808,322 Auditor Response: Documentation over the verification of service providers from the OIG exclusion list were not provided.

Finding No. 2023-045 Federal Agency: U.S. Department of Health and Human Services AL Program: 93.778 Medical Assistance Program (Medicaid; Title XIX) Federal Award No.: 2305CQTMAP Area: Reporting Questioned Costs: $-0- Criteria: In accordance with 42 CFR 430.30c Reporting requirements, the State must submit Form CMS-64 (Quarterly Medicaid Statement of Expenditures for the Medical Assistance Program) to the central office (with a copy to the regional office) that are accurately presented, comparable and reconcilable. Condition: For four (or 100%) CMS-64 reports tested, CNMI was not able to provide a reconciliation for the differences noted on the amounts per the submitted reports and per underlying accounting records. Cause: CNMI did not effectively monitor the accuracy and completeness of the required reports based on underlying accounting records. Effect or Potential Effect: CNMI has a material weakness in internal control over its reporting requirements. No questioned costs are presented as the noncompliance is non-monetary in nature. Identification of a Repeat Finding: Finding No. 2022-039 Recommendation: Responsible CNMI personnel should regularly monitor reports to verify that amounts reported are supported by underlying accounting records. Finding No. 2023-045, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.778 Medical Assistance Program (Medicaid; Title XIX) Federal Award No.: 2305CQTMAP Area: Reporting Questioned Costs: $-0- Views of Responsible Officials: Commonwealth Medicaid Agency (CMA) respectfully disagrees with the auditor’s finding. While the Agency acknowledges that certain supporting documentation was not provided within the timeframe requested during the audit, CMA does not agree that the reported expenditures were unsupported. The Agency experienced resource and staffing constraints that affected its ability to compile and produce all requested documentation within the audit timeline. However, the office maintains all relevant supporting documentation and is prepared to provide it upon request from the Grantor. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: CMA states disagreement; however, CMA also acknowledges that underlying accounting records supporting the variances were not provided.

Finding No. 2023-046 Federal Agency: U.S. Department of Health and Human Services AL Program: 93.778 Medical Assistance Program (Medicaid; Title XIX) Federal Award No.: 2305CQTMAP Area: Special Tests and Provisions - ADP Risk Analysis and System Security Review Questioned Costs: Undeterminable Criteria: In accordance with 45 CFR section 95.621, State agencies must establish and maintain a program for conducting periodic risk analysis to ensure appropriate, cost-effective safeguards are incorporated into new and existing systems. State agencies must perform risk analysis whenever significant system changes occur. On a biennial basis, State agencies shall review the ADP system security installations involved in the administration of HHS programs. At a minimum, the reviews shall include an evaluation of physical and data security operating procedures, and personnel practices. The State agencies shall maintain reports on their biennial ADP system security reviews, together with pertinent supporting documentation, for HHS on-site reviews. Condition: The biennial review of the Program’s ADP system security was not performed. Cause: CNMI lacked monitoring procedures in place to determine that the biennial review of the Program’s ADP system security is being performed. Effect or Potential Effect: CNMI is in noncompliance with special tests and provisions requirements for the biennial ADP system security review. No questioned cost is presented as we are unable to quantify the extent of noncompliance. Identification as a Repeat Finding: Finding No. 2022-040 Recommendation: Responsible CNMI personnel should enforce policies and procedures over the biennial review of the Program’s ADP system security in accordance with applicable special tests and provisions compliance requirements for the ADP system security. Finding No. 2023-046, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.778 Medical Assistance Program (Medicaid; Title XIX) Federal Award No.: 2305CQTMAP Area: Special Tests and Provisions - ADP Risk Analysis and System Security Review Questioned Costs: Undeterminable Views of Responsible Officials: Commonwealth Medicaid Agency (CMA) respectfully disagrees with the auditor’s finding. CMA provided documentation supporting its ADP security and risk management activities and does not believe the finding fully reflects the Agency's efforts to comply with applicable requirements. CMA maintains policies and procedures governing ADP security and risk management and has dedicated personnel responsible for conducting and overseeing security assessments. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Documentation of the ADP risk analysis and system security review performed in FY2023 was not provided. The ADP system security risk assessment responses report provided was dated 01/05/26.

Finding No. 2023-047 Federal Agency: U.S. Department of Health and Human Services AL Program: 93.778 Medical Assistance Program (Medicaid; Title XIX) Federal Award No.: 2305CQTMAP Area: Special Tests and Provisions - Provider Eligibility (Screening and Enrollment) Questioned Costs: $28,448,121 Criteria: Providers who have been barred from participation by the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) exclusion list are not eligible to be enrolled in the Medicaid program (42 CFR 455.436). In accordance with 42 CFR § 455.436 Federal database checks, the State Medicaid agency must do all of the following: a. Confirm the identity and determine the exclusion status of providers and any person with an ownership or control interest or who is an agent or managing employee of the provider through routine checks of Federal databases. b. Check the Social Security Administration's Death Master File, the National Plan and Provider Enumeration System (NPPES), the List of Excluded Individuals/Entities (LEIE), the Excluded Parties List System (EPLS), and any such other databases as the Secretary may prescribe. c. Consult appropriate databases to confirm identity upon enrollment and reenrollment; and d. Check the LEIE and EPLS no less frequently than monthly. Condition: For one hundred-eleven (or 100%) new and existing service providers, CNMI did not conduct monthly verification of all service providers with existing contracts during the year against the OIG exclusion list. As reported at Condition 9 of Finding No. 2023-002, CNMI did not provide a reconciliation for the difference noted between the benefits payment listing and the program’s expenditures detail report. As a result, questioned costs are presented for the amount reported in the SEFA amounting to $28,448,121. Finding No. 2023-047, continued Federal Agency: U.S. Department of Health and Human Services AL Program: 93.778 Medical Assistance Program (Medicaid; Title XIX) Federal Award No.: 2305CQTMAP Area: Special Tests and Provisions - Provider Eligibility (Screening and Enrollment) Questioned Costs: $28,448,121 Cause: CNMI lacks an established policy and procedure to verify providers against the OIG exclusion list. Effect or Potential Effect: CNMI is in noncompliance with the applicable special tests and provisions compliance requirements and questioned costs of $28,448,121 result. Identification as a Repeat Finding: Finding No. 2022-041 Recommendation: 1. CNMI should establish and implement monitoring control procedures to ensure service providers are verified against the HHS OIG exclusion listing, prior to entering into or renewing service provider agreements; and 2. Responsible CNMI personnel should periodically monitor updates in federal regulations affecting the program. 3. CNMI should establish policies and procedures to monitor provider eligibility. Views of Responsible Officials: Commonwealth Medicaid Agency (CMA) respectfully disagrees with the auditor’s finding. CMA does not believe the finding fully reflects the Agency's efforts to comply with provider screening and exclusion requirements during the audit period. While documentation supporting certain screening activities was not readily available for auditor review, the Agency has historically performed provider eligibility and exclusion reviews as part of its enrollment and oversight processes. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Documentation over the verification of service providers from the OIG exclusion list were not provided.

Finding No. 2023-048 Federal Agency: U.S. Department of Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: FEMA-4396-DR, FEMA-4404-DR, FEMA-4511-DR Area: Allowable Costs/Cost Principles Questioned Costs: $305,995 Criteria: In accordance with 2 CFR Part 200, Subpart E, cost must be necessary and reasonable for the performance of the federal award and be allocable thereto. Further, costs must conform to any limitations or exclusions and be adequately documented. Condition: Of thirty-four nonpayroll expenditures tested, aggregating $15,315,821, of a total population of $32,146,059, the following were noted: 1. For one (or 3%), the check payment was not provided. 2. For one (or 3%), a check was provided; however, the payee did not match the vendor name on the invoice. Of six payroll expenditures, aggregating $9,438 of a total population of $5,617,799, the following was noted: 3. For one (or 17%), management did not approve the employee’s timesheet for pay period ended 09/09/23 for employee no. 3283 and the leave form of 2 hours was also not provided, for which the corresponding directly associated costs are also questioned. Finding No. 2023-048, continued Federal Agency: U.S. Department of Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: FEMA-4396-DR, FEMA-4404-DR, FEMA-4511-DR Area: Allowable Costs/Cost Principles Questioned Costs: $305,995 Condition, continued: 4. For three (or 50%), personnel action forms (PAF) and timesheets were not provided for the following pay periods, for which the corresponding directly associated costs are also questioned. 5. For one (or 17%), timesheet was not provided for the related payroll period, for which the corresponding directly associated costs are also questioned. Finding No. 2023-048, continued Federal Agency: U.S. Department of Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: FEMA-4396-DR, FEMA-4404-DR, FEMA-4511-DR Area: Allowable Costs/Cost Principles Questioned Costs: $305,995 Condition, continued: 6. For one (or 17%), the payroll labor distribution report was not made available. Cause: CNMI did not enforce recordkeeping and monitoring controls over compliance with applicable allowable costs/cost principles compliance requirements. Effect or Potential Effect: CNMI is in noncompliance with applicable allowable costs/cost principles compliance requirements and questioned costs of $305,995 result. Identification as a Repeat Finding: This is not a repeat finding. Finding No. 2023-048, continued Federal Agency: U.S. Department of Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: FEMA-4396-DR, FEMA-4404-DR, FEMA-4511-DR Area: Allowable Costs/Cost Principles Questioned Costs: $305,995 Recommendation: Responsible personnel should establish a recordkeeping system in which underlying support for each transaction is filed accordingly for easy retrieval to substantiate costs. Views of Responsible Officials: Condition 1 - CNMI Public Assistance Office (PAO) partially agrees with the finding and disagrees with the questioned costs. PAO acknowledges that improvements are needed to strengthen recordkeeping and document retrieval procedures to ensure supporting documentation is readily available during audits and monitoring reviews. However, PAO believes several questioned costs resulted from documentation submission and retrieval issues rather than actual unallowable expenditures. Condition 2 - PAO disagrees with this finding and questioned costs. The payment was made to the correct vendor. The vendor operates under multiple DBA names associated with the same parent company. During the Government's transition from JD Edwards (JDE) to Munis, vendor information was not consistently standardized, resulting in a discrepancy between the vendor’s name appearing on the invoice and the payee reflected on the check. The payment was nevertheless made to the intended vendor and the expenditure was incurred for an allowable public assistance purpose. Condition 3 - PAO agrees with this finding. PAO acknowledges the importance of maintaining documentation demonstrating supervisory review and approval of personnel costs charged to federal awards. Although the timesheet was maintained, documentation evidencing management approval was not available for audit review. Condition 4 - PAO agrees with the finding. PAO acknowledges the need to maintain complete personnel documentation supporting payroll expenditures charged to federal awards. Required supporting records were not available during the audit process. Finding No. 2023-048, continued Federal Agency: U.S. Department of Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: FEMA-4396-DR, FEMA-4404-DR, FEMA-4511-DR Area: Allowable Costs/Cost Principles Questioned Costs: $305,995 Views of Responsible Officials, continued: Condition 5 - PAO disagrees with this finding and questioned costs. The applicable timesheet supporting the sampled payroll transaction exists and remains in PAO custody. During the audit process, a timesheet from an incorrect pay period was inadvertently provided in response to the sample request. Therefore, PAO believes sufficient supporting documentation exists for the payroll charge and does not believe the questioned costs represents an unsupported expenditure. Condition 6 - PAO agrees with the finding that documentation was unavailable but partially disagrees with the questioned costs. The inability to produce the payroll labor distribution report resulted from issues associated with the Department of Finance's migration to the Munis financial system. The journal entry was released despite the labor distribution details not being readily distinguishable within the system. PAO notes that labor distribution reporting and payroll system administration are functions performed by the Department of Finance rather than PAO. While PAO agrees that supporting documentation was unavailable for audit review, PAO does not believe the condition necessarily indicates that the underlying payroll costs were unallowable. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Condition 1 - CNMI states partial agreement with the finding and disagrees with the questioned costs; however, CNMI also acknowledges that documentation supporting program costs were not provided. Finding and questioned costs are retained as costs at the time of the audit were not supported by adequate documentation. Condition 2 - CNMI states disagreement. While CNMI asserts that the payment was made to the correct vendor, the payee on the check did not match the registered DBA, which is essential to ensure accurate payment processing for the particular invoice in question. Finding No. 2023-048, continued Federal Agency: U.S. Department of Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: FEMA-4396-DR, FEMA-4404-DR, FEMA-4511-DR Area: Allowable Costs/Cost Principles Questioned Costs: $305,995 Auditor Response, continued: Condition 5 - CNMI states disagreement. It was pronounced on the onset of our audit engagement that CNMI/program offices are responsible in verifying completeness of all submitted documents and that missing documents will be written up as a finding. Condition 6 - CNMI states partial disagreement with the questioned costs; however, CNMI also acknowledges that documentation supporting program costs were not provided. Questioned costs are retained as costs at the time of the audit were not supported by adequate documentation.

Finding No. 2023-049 Federal Agency: U.S. Department of Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: B-4235DRMPP1SMR500, B-4396DRMPP1SMR500, B4404DRMPP1SMR500, B-4511DRMPP1SMR500 Area: Reporting Questioned Costs: $-0- Criteria: In accordance with 2 CFR Part 170 and the Federal Funding Accountability and Transparency Act (FFATA), recipients (i.e., direct recipients) of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to the FFATA Subaward Reporting System (SRS). For subaward information, recipients are required to report no later than the end of the month following the month the subaward was obligated. Condition: For all four (or 100%) disasters (4235, 4396, 4404 and 4511), CNMI did not report the subaward information to the FFATA SRS in fiscal year 2023. Cause: CNMI did not effectively monitor compliance with applicable reporting requirements. Effect or Potential Effect: CNMI is in noncompliance with applicable reporting requirements. No questioned costs are presented as the noncompliance is non-monetary in nature. Identification as a Repeat Finding: Finding No. 2022-043 Recommendation: CNMI should establish and implement suitably designed internal control processes to prevent or detect material noncompliance over reporting compliance requirements, which should include review, approval and monitoring internal control procedures. In addition, CNMI should establish policies and procedures to verify that the required FFATA reports are prepared and submitted to the SRS. Finding No. 2023-049, continued Federal Agency: U.S. Department of Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: B-4235DRMPP1SMR500, B-4396DRMPP1SMR500, B4404DRMPP1SMR500, B-4511DRMPP1SMR500 Area: Reporting Questioned Costs: $-0- Views of Responsible Officials: CNMI Public Assistance Office (PAO) agrees with the auditor’s finding and conclusion. PAO acknowledges that required FFATA first-tier subaward reports were not submitted to the FFATA Subaward Reporting System (SAM.gov) for FEMA Public Assistance disasters DR-4235-MP, DR-4396-MP, DR-4404-MP, and DR-4511-MP during Fiscal Year 2023. Refer to CNMI’s Corrective Action Plan for additional information.

Finding No. 2023-050 Federal Agency: U.S. Department of the Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: FEMA-4396-DR; FEMA-4235-DR; FEMA-4404-DR; FEMA-4511-DR Area: Subrecipient Monitoring Questioned Costs: $7,350,898 Criteria: In accordance with 2 CFR 200.332, a pass-through entity (PTE) must do the following: 1. Evaluate each subrecipient’s risk of noncompliance for purposes of determining the appropriate subrecipient monitoring related to the subaward. When evaluating subrecipient’s risk, a PTE should consider the following: (1) The subrecipient’s prior experience with the same or similar subawards; (2) The results of previous audits. This includes considering whether or not the subrecipient receives a Single Audit in accordance with subpart F and the extent to which the same or similar subawards have been audited as a major program; (3) Whether the subrecipient has new personnel or new or substantially changed systems; and (4) The extent and results of any Federal agency monitoring (for example, if the subrecipient also receives Federal awards directly from the Federal agency). 2. Monitor the activities of a subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The PTE is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved. In monitoring a subrecipient, a PTE must review financial and performance reports. 3. Verify that a subrecipient is audited as required by Subpart F when it is expected that the subrecipient’s Federal awards expended during the respective fiscal year equaled or exceeded the threshold set forth in § 200.501. Condition: 1. For five (or 100%) new subawards tested, aggregating $2,415,252, of a total population of $2,415,252, documentation was not provided to indicate that subrecipient risk assessments were performed to determine the appropriate level of subrecipient monitoring required for the subrecipient. Finding No. 2023-050, continued Federal Agency: U.S. Department of the Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: FEMA-4396-DR; FEMA-4235-DR; FEMA-4404-DR; FEMA-4511-DR Area: Subrecipient Monitoring Questioned Costs: $7,350,898 Condition, continued: Further, CNMI did not provide a subaward agreement to the subrecipient to identify the subaward as a new award and other applicable requirements, so that the federal award is used in accordance with federal statutes, regulations, and the terms and conditions of the award and any additional requirements imposed by CNMI to meet its own responsibility for the federal award. No questioned costs are presented as the amounts are questioned at Condition 2a. 2. Of eight subrecipients tested, aggregating $7,350,898, of a total population of $7,435,319, the following were noted: a. For eight (or 100%), CNMI did not provide evidence of its review of financial and programmatic reports. Finding No. 2023-050, continued Federal Agency: U.S. Department of the Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: FEMA-4396-DR; FEMA-4235-DR; FEMA-4404-DR; FEMA-4511-DR Area: Subrecipient Monitoring Questioned Costs: $7,350,898 b. For two (or 25%), CNMI did not perform appropriate review and/or follow up of the subrecipients’ audited financial statements for fiscal year 2023, dated May 7, 2025 for subrecipient identified at No. 1 and October 7, 2025 for subrecipient identified at No. 2. The Schedule of Expenditures of Federal Awards (SEFA) for subrecipient No. 1 failed to include the funding it received from the CNMI. The amount passed-through to subrecipient identified at No. 2 from the CNMI did not match the amount reported in the SEFA by $103K. No questioned costs are presented as the amounts are questioned at Condition 2a. Finding No. 2023-050, continued Federal Agency: U.S. Department of the Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: FEMA-4396-DR; FEMA-4235-DR; FEMA-4404-DR; FEMA-4511-DR Area: Subrecipient Monitoring Questioned Costs: $7,350,898 Condition, continued: c. For three (or 38%), CNMI did not provide evidence of procedures used to determine that subrecipients expending $750,000 or more in Federal awards have met the audit requirement of 2 CFR part 200, subpart F and that the required audits are completed within nine months of the end of the subrecipient’s audit period. In addition, we are aware that Single Audit Reports are due for the Commonwealth Healthcare Corporation; however, the audit is still ongoing. No questioned costs are presented as the amounts are questioned at Condition 2a. Cause: CNMI lacks adequate procedures and internal controls to properly monitor subrecipient monitoring compliance requirements. Effect or Potential Effect: CNMI is in noncompliance with applicable subrecipient monitoring compliance requirements and questioned costs of $7,350,898 result for Condition 2a. Finding No. 2023-050, continued Federal Agency: U.S. Department of the Homeland Security AL Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) COVID-19 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Award No.: FEMA-4396-DR; FEMA-4235-DR; FEMA-4404-DR; FEMA-4511-DR Area: Subrecipient Monitoring Questioned Costs: $7,350,898 Identification as a repeat finding: Finding No. 2022-044 Recommendation: CNMI should apply effective internal controls and procedures over subrecipient monitoring and consider developing a tracking system to monitor compliance with applicable subrecipient monitoring requirements. Views of Responsible Officials: Conditions 1 and 2 - CNMI Public Assistance Office (PAO) acknowledges and agrees with the compliance deficiencies identified regarding subrecipient monitoring and documentation requirements under 2 CFR §200.332 and has developed corrective actions to address these weaknesses. However, PAO respectfully disagrees with the questioned costs determination. The finding relates to deficiencies in monitoring procedures and documentation rather than the allowability, eligibility, or support for the underlying expenditures. The expenditures identified were associated with FEMA-approved projects and no specific costs were identified as unallowable, unsupported, outside the approved scope of work, or otherwise ineligible for federal participation. While PAO recognizes that monitoring documentation was insufficient to demonstrate compliance with subrecipient monitoring requirements, PAO believes the appropriate classification is a compliance finding without questioned costs. Accordingly, PAO respectfully requests consideration that questioned costs associated with this finding be reduced to $-0-. Refer to CNMI’s Corrective Action Plan for additional information. Auditor Response: Conditions 1 and 2 - CNMI states disagreement with the questioned costs; however, CNMI also acknowledges that documentation supporting subrecipient monitoring compliance requirements were not provided. Questioned costs are retained as costs at the time of the audit were not supported by adequate documentation.