Finding 2025-079 Federal Program Name Child Care Development Fund (CCDF) Cluster (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.575 and 93.596 Grant # 2101MTCDC6, 2101MTCSC6, 2301MTCCDD, 2401MTCCDD, 2501MTCCDD Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR Part 170, Appendix A(I)(a)(1) and (a)(2)(ii), requires non-federal entities to report to the Federal Funding Accountability and Transparency Act (FFATA) reporting system each action that equals or exceeds $30,000 in federal funds for a subaward to a non-federal entity. The report must be submitted no later than the end of the month following the month in which the obligation is made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During fiscal years 2024 and 2025, the department's internal controls were insufficient to ensure all CCDF obligations of $30,000 or more were accurately and completely reported to the FFATA reporting system. As a result, required CCDF obligations were not reported, and some obligation amounts were over-reported. Context: We reviewed all obligations reported during the audit period against obligations made through subaward agreements and amendments to subrecipients. The department awarded approximately $11.4 million in CCDF obligations under 2 federal awards to 10 subrecipients. Based on our audit work, 15 FFATA reports should have been filed; instead, 704 were filed across five federal awards. Of the 704 reports filed, only one matched a current audit period obligation; this report contained mismatched subaward and federal award numbers. The department did not file 14 expected FFATA reports totaling $10,227,466. As the department indicated it was working during the audit period to correct prior-year errors, we also compared current-year reports to the prior-audit recommendation support. We identified six FFATA reports matching prior-year errors. All six had amounts underreported by $216,180. Additionally, while prior-year testing expected FFATA reports be filed with amounts split across two Federal Award Identification Number (FAIN), the reports were only filed for one FAIN. This is evidence the department has not properly addressed the prior audit finding. The number of instances and corresponding dollar amounts for the reporting errors discussed are summarized in the following table. Number Dollar Amount Transactions Tested 704 $182,929,549* Subawards Not Reported 14 $ 10,227,466 Report Not Timely Unable to test Subaward Amount Incorrect 6 $ 216,180 Subaward Missing Key Elements Not Tested Reported, Duplicate Transaction 436 $124,474,269 Reported, Transaction Under $30,000 Threshold None Identified * We were not able to agree all transactions to support for subawards issued or amended, thus are unable to fully quantify the subaward amount inaccurately reported above. We did not test timeliness of the reports submitted and matched to current-year or prior-year subawards due to the column in Sam.gov data changing upon transaction modification. While the department initially identified 10 entities with award documents for the audit period, subsequent work determined there were actually six subrecipients in fiscal year 2024, of which only two continued as subrecipients in fiscal year 2025. As a result, four of the originally identified entities were not subject to FFATA reporting requirements. Our analysis was conducted using FFATA reporting system data as of July 2025. We considered each transaction submitted, or omitted, by the department and compared information against executed subaward agreements from the audit period, as provided by the department. Any corrections the department made during fiscal year 2026 were not considered in our testing for this audit but will be considered during the fiscal year 2026 audit. We did not provide our detailed analysis to the department. However, we believe the department has all necessary information in its possession, such as the FFATA reporting system data and its issued and amended subawards, to ensure necessary corrections are made to the FFATA reporting system. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included finding 2023-068, which required the department to enhance internal controls over FFATA reporting and submit reports for the CCDF program as required by federal regulations. Effect: The department is not in compliance with FFATA reporting requirements. Insufficient internal controls resulted in missing and inaccurate subaward reporting. FFATA reporting provides transparency to federal grantor agencies and the public. The errors identified could mislead users of the reported data. Cause: The department uses a central contracting system to capture obligations, which includes both subrecipient and contractor relationships. The system is used to process payments and identify which obligations require FFATA reporting. However, the CCDF program uses a separate contracting system that was not considered for FFATA reporting. As a result, the central system did not identify subrecipient relationships or contain accurate and complete CCDF contract information needed to file required FFATA reports. Department personnel responsible for FFATA reporting indicated they are working with federal program staff to implement process changes to ensure FFATA reports are captured accurately and timely for subrecipients only. Recommendation: We recommend the Department of Public Health and Human Services: A. Enhance internal controls to ensure accurate and complete submission of FFATA reports for the Child Care Development Fund program. B. Submit FFATA reports for the Child Care Development Fund program in accordance with federal regulations. Views of Responsible Officials: The department partially concurs with the recommendation. The department agrees that internal control deficiencies existed in its FFATA subaward reporting processes during FY24-FY25 and that instances of noncompliance existed. The department disagrees with the quantified extent of exceptions because they have been unable to replicate the numbers and dollars presented in the finding context and they believe the auditor has not provided sufficient detail to address the identified errors. The department also points to ongoing processes to identify and correct duplicate and inaccurate records. Rebuttal of Views of Responsible Officials: We considered the department’s partial concurrence. While the department agrees with the need to improve internal controls and errors in FFATA reporting, management disagrees with the auditor’s quantification of the errors. We believe management has sufficient detail to address the finding because it has access to its subaward agreements as well as the information currently available in the federal FFATA reporting system. As such, our recommendation stands.
Finding 2025-080 Federal Program Name CCDF Cluster (CCDF) (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services State Agency Department of Public Health and Human Services ALN # 93.575 and 93.596 Grant # 2301MTCCDD, 2301MTCCDF, 2401MTCCDD, 2401MTCCDF, 2401MTCCDM, 2501MTCCDD, 2501MTCCDF, 2501MTCCDM Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Allowable Cost Principles E. Eligibility M. Subrecipient Monitoring N. Special Tests and Provisions Type of Finding Significant Deficiency (A, B), Material Weakness (E, M, N), and Material Noncompliance (M, N) Questioned Costs No questioned costs identified Criteria: Federal regulation, 45 CFR 98.11(a)(1), (b)(4)–(6), and (b)(8), requires the department to retain overall responsibility for program administration, ensure compliance with the state plan, oversee subrecipient expenditures, and monitor programs and services. Federal regulation, 45 CFR 98.68(a), requires lead agencies to describe in their state plan the effective internal controls in place to ensure program integrity and accountability. The 2022-2024 State Plan, section 8.1.2, and the 2025-2027 State Plan, section 10.1, outlines monthly case file reviews as an integral internal control to ensure program integrity. The 2022-2024 State Plan, section 8.1.5, and the 2025-2027 State Plan, section 10.2, outlines monthly case file reviews as an integral internal control to identify and prevent fraud or intentional program violations. Federal regulation, 45 CFR 75.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's internal controls were not sufficient to ensure compliance with the state plan to complete monthly case file reviews. We identified multiple months where the reviews were not completed. Additionally, the monthly supervisor review process is not effectively designed to fulfill the department's responsibility to administer the CCDF program. Context: The department provides child care services through the Best Beginnings Scholarship program. Subrecipients determine applicant eligibility, approve payments, and assist providers. The department primarily oversees subrecipients through monthly case file reviews. As outlined in the CCDF State Plan, these reviews confirm that program policies are followed, payments are accurate, and attendance records are maintained. Results help identify errors, trends, training or technical assistance needs, and detect overpayments. During the audit period, the department conducted two types of case file reviews: supervisor reviews and performance measure reviews. Both review the same information. The key difference is that subrecipients complete supervisor reviews based on cases selected by program staff, while program staff complete performance measure reviews directly. During the 24-month audit period, the department completed supervisor reviews for only 8 months and performance measure reviews for an additional 8 months, leaving 8 months with no monthly review of any kind. Additionally, program staff do not review the supervisor reviews completed by subrecipients. As a result, for the months when only supervisor reviews were conducted, the department relied entirely on subrecipients to monitor themselves, with no independent review of results. This weakness means the supervisor review control is not designed effectively. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included finding #2023-060, which recommended the department enhance internal controls over subrecipient monitoring activities, including following monitoring procedures described in the State Plan and complying with federal regulations for fraudulent payment detection. Effect: Without adequate internal controls over completing monthly case file reviews, the department cannot ensure that eligibility and payment decisions received required supervisory review. Eligibility errors, improper payments, and noncompliance with program requirements may go undetected and uncorrected, reducing assurance that funds are administered appropriately. Additionally, without an effectively designed review process, the department also cannot provide adequate oversight of subrecipient eligibility and payment decisions. As a result, the department is not in compliance with federal regulations for subrecipient monitoring, fraudulent payment detection, and program integrity and accountability. Cause: The department did not complete monthly reviews because the federal error-rate process in federal fiscal year 2024, combined with other program changes (including changing requirements and a new system), left insufficient staff time to conduct monthly reviews. The department further believes they’ve retained their administrative responsibility through other means, such as ongoing technical assistance and training and quarterly data reviews. Recommendation: We recommend the Department of Public Health and Human Services: A. Strengthen internal controls to ensure the monthly supervisor case file review process completed by subrecipients is designed to achieve the objectives outlined in the State Plan. B. Strengthen internal controls to ensure the department consistently completes monthly case file reviews. C. Comply with federal regulations governing subrecipient monitoring, fraudulent payment detection, and program integrity. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-081 Federal Program Name CCDF Cluster (CCDF) (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.575 and 93.596 Grant # 2301MTCCDD, 2301MTCCDF, 2401MTCCDD, 2401MTCCDF, 2401MTCCDM, 2501MTCCDD, 2501MTCCDF, 2501MTCCDM Compliance Requirement H. Period of Performance Type of Finding Material Weakness and Material Noncompliance Questioned Costs $273,474 known, $17,300,599 likely Criteria: Federal regulation, 45 CFR 98.60(d)(1)–(4), outlines obligation requirements for Discretionary, Mandatory, and Matching funds. Mandatory and Matching funds must be obligated by the end of the first federal fiscal year after award and Discretionary funds by the end of the second federal fiscal year after award. Federal regulation, 45 CFR 98.60(d)(5), states that whether funds have been obligated and liquidated is determined by state or local law, or, if no such regulation exists, by 45 CFR 75.2. Section 28-1-101, MCA, defines an obligation as a legal duty that binds a person to do or not do a certain thing. Section 28-1-102, MCA, states that an obligation arises from a contract of the parties or the operation of law. Federal regulation, 45 CFR 75.309(a), states a non-Federal entity may charge to the Federal award only allowable costs incurred during the period of performance. Federal regulation, 45 CFR 75.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's internal controls were not sufficient to ensure compliance with the program's obligation requirements. We identified multiple instances where the department did not charge childcare expenditures in accordance with federal and state obligation requirements. Questioned Costs: We identified $273,474 in known questioned costs in ALN 93.596. As stated below, we identified $17,300,599 in likely questioned costs between the initial childcare payments and transfers between grant years. Context: The CCDF program receives federal funding through yearly block grants across three funding streams: Discretionary, Mandatory, and Matching funds. Each stream has specific obligation and liquidation periods. The department pays for all types of program expenses from each of these funding streams as well as from the state’s General Fund. The department delivers direct childcare services through the Best Beginnings Scholarship program, contracting with subrecipients to administer it. Subrecipients determine each child's eligibility and create authorization plans for up to 12 months of care. Scholarships are tied to the child, not the provider. Families provide scholarship documentation to providers, who invoice the program. The department pays providers directly in the month following service. The department considers Best Beginnings Scholarship expenditures obligated in the month the childcare is provided. Under this approach, childcare costs should only be charged to the current year's grant award for Mandatory and Matching funds because those are the only awards with open obligation periods. The sole exception is September childcare paid in October, which should be charged to the prior year's grant. For the Discretionary fund, the costs can only be charged to the current or most recent prior year’s grants because this fund’s obligation period is two years. We analyzed initial Best Beginnings Scholarship payments during the audit period and identified $10,777,588 across 114 instances that were not charged to grants with an open obligation period. Other Obligation Issues In addition to the issue discussed above, the department's standard processes also include moving expenditures between grant awards near grant closeout. This conflicts with the obligation requirements because obligation periods do not overlap between grant years for Matching and Mandatory funds, or beyond two years for Discretionary funds. We reviewed one instance where the department moved $273,474 of Best Beginnings Scholarship payments from the 2023 Discretionary award into the 2022 Match award. While these payments were within the liquidation period for the 2022 Match award, they were not obligated within the obligation period. We identified 12 additional journal entries totaling $6,523,011 related to these transfers during the audit period. Because of previously reported period of performance issues, program staff worked to clean up accounting codes and improve internal controls during the first part of the audit period. New processes were implemented in December 2024. However, these changes do not resolve the underlying obligation issues. We identified multiple instances throughout the audit period, including one journal entry after December 2024 for approximately $150,000, where costs were moved between grant years. Although we identified the significant obligation issues discussed above, we did not identify any liquidation period issues. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included findings 2023-061, 2023-062, and 2023-063 related to internal controls and compliance with period of performance requirements. Related findings also appeared in prior Single Audit reports for the two fiscal years ended June 30, 2021 (2021-058), and June 30, 2019 (2019-019). Effect: The department is not compliant with federal regulations related to obligating funds. We identified $273,474 in known questioned costs and $17,300,599 in likely questioned costs. Cause: Department staff stated that CCDF, as a block grant, allows multi-year funding and that costs may be moved between grant years within the applicable obligation and liquidation periods. Staff also noted that they report the full award amount as obligated on quarterly reports and have not received corrections from the federal awarding agency. However, those reports only show obligated versus unobligated amounts and do not include any narrative describing how the department obligates funds. Regarding moving costs, the department did not evaluate whether costs being moved between grant awards met the obligation date requirements for the receiving award. These issues stem from prior audit recommendations on period of performance. Program staff worked to clean up expenditure coding and improve internal controls and implemented a new process in December 2024. However, under the department's obligation approach, no Best Beginnings Scholarship payments should move between grant years, so the process change does not resolve the issue. Recommendation: We recommend the Department of Public Health & Human Services: A. Strengthen internal controls to obligate CCDF program costs within the period of performance requirements. B. Continue to strengthen internal controls to consistently apply obligation date requirements when moving costs for the CCDF program between federal grant years. C. Comply with federal period of performance requirements for the CCDF program. Views of Responsible Officials: The department partially concurs with the recommendation. Management agrees documentation did not demonstrate compliance when costs were moved between grant years in certain instances, including the known questioned costs above. Management also agrees that compliance with liquidation period requirements alone is not sufficient and that the obligation period needs to be evaluated. However, management disagrees with the likely questioned costs amount and maintains the costs were allowable, fully supported, and within the applicable liquidation period. Management further states that much of this amount was necessary corrections to ensure accuracy in financial reporting and not simply moving costs between grant awards. Rebuttal of Views of Responsible Officials: We considered the department’s partial concurrence. As stated above, more than half of the likely questioned costs stemmed from the department not recording initial payments to a grant with an open obligation period and not moving between grant years. Even if the remaining amount were entries needed to ensure accurate financial reporting, the department must comply with the period of performance requirements in making these entries. As such, our recommendation stands.
Finding 2025-082 Federal Program Name CCDF Cluster (CCDF) (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.575 and 93.596 Grant # 2401MTCCDD Compliance Requirement M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.332(a)(1), identifies fourteen required elements that must be communicated to subrecipients to properly identify a federal award. Federal regulation, 45 CFR 75.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's internal controls were insufficient to ensure all required information related to the federal award disclosures was provided to subrecipients and that it was accurate in fiscal year 2024. We identified multiple contracts with incomplete or inaccurate information. Context: The department contracts with subrecipients to administer the Best Beginnings Scholarship program, through which providers are paid for childcare services rendered to eligible children. Subrecipients determine applicant eligibility, approve payments, and support providers. Contracts outline responsibilities and are executed each fall. The department had six subrecipients through September 30, 2024, and two beginning October 1, 2024. We reviewed three contracts executed in fall 2023 and found the same missing information in all three: the Federal Award Date and the Assistance Listing Title. Additionally, the department intended to report the total federal award amount but instead reported the amount obligated to the subrecipient. Because the missing and incorrect items were consistent, we did not review the remaining three contracts from the same period. We also reviewed the two contracts executed in fall 2024. All required information was present and correct. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included recommendation 2023-059, which directed the department to implement controls to ensure all required information is communicated to subrecipients. Effect: By not providing complete and accurate information to subrecipients, the department is not in compliance with federal subrecipient monitoring requirements. Cause: Failure to provide all required information to subrecipients was the subject of prior audit recommendation 2023-059. The department developed a new contract template that included all required elements; however, it was not implemented before the fall 2023 contracts were executed. For the incorrect amounts in the contracts, the department attributed the incorrect contract amounts to human error. Because the department took corrective action and the fall 2024 contracts contained all required information, this finding should be resolved if the department continues to follow its updated process. Recommendation: We recommend the Department of Public Health and Human Services: A. Continue to follow its improved contracting process to ensure all required federal award information is provided to subrecipients as required by federal regulations. B. Comply with federal regulations by providing complete and accurate federal award information to subrecipients. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-002 Federal Program Name Child Nutrition Cluster (COVID-19) Federal Awarding Agency U.S. Department of Agriculture State Agency Office of Public Instruction (office) ALN # 10.553, 10.555, 10.556, 10.559, and 10.582 Grant # Not applicable to commodities portion of the cluster Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 7 CFR 250.12(b), requires the office to conduct a physical inventory at all storage facilities used by the office for commodities on an annual basis. The inventory must reconcile the physical and book inventories of the donated foods. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office’s controls were ineffective in documenting and resolving commodity inventory differences. The office tracks commodity inventory in the Montana Application and Payment System (MAPS). Commodity inventory is stored at a state warehouse that uses a separate inventory system. Each year, the office performs a physical count of commodity inventory. In both FY2024 and FY2025, differences existed among MAPS, the warehouse inventory system, and the physical count. These differences were not documented during the inventory process, resulting in noncompliance. Context: As shown in the table below, differences were identified among MAPS, the warehouse inventory system, and the physical count. While no items were actually missing, the physical count did not note or explain the reasons for the differences. Effect: Inadequate controls resulted in noncompliance with federal regulations. Weak controls over food inventories also increase the risk of theft and further noncompliance with federal requirements. Cause: In FY2024, the physical inventory was taken on June 3rd. The beef arrived at the warehouse on June 12th. The documentation we were provided in our testing has a date of June 30th. The office did not retain inventory reports as of the date a physical inventory was taken to support there were no differences at the time of the physical count. The office was unable to determine the cause for the differences in FY2025 and did not retain the inventory reports for this year either. Recommendation: We recommend the Office of Public Instruction: A. Enhance controls to retain the book inventory records, warehouse inventory records, and physical counts of commodities and to ensure they agree or differences are resolved. B. Reconcile the book inventory, warehouse inventory, and physical count of all commodities on hand at the time of each count. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-003 Federal Program Name Child Nutrition Cluster (COVID 19) Federal Awarding Agency U.S. Department of Agriculture State Agency Office of Public Instruction (office) ALN # 10.553, 10.555, 10.556, 10.559, and 10.582 Grant # 213MT306N1199, 223MT306N1099, 223MT306N1199, 233MT306N1199, 243MT306N1199, 253MT306N1199 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 170, Appendix A(I)(a) and (a)(2)(ii), requires non-federal entities to report to the Federal Funding Accountability and Transparency Act (FFATA) reporting system each action that equals or exceeds $30,000 in federal funds for a subaward to a non-Federal entity. The report should be submitted no later than the end of the month following the month in which the obligation was made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During FY2024 and FY2025, the office did not accurately submit required FFATA reports for subrecipients of the Child Nutrition Cluster, as required by federal regulations. Internal controls were not sufficient to ensure accurate reporting. Context: Child Nutrition payments to Local Educational Agencies (LEAs), which are mainly schools or school districts, are based on meals served monthly, not predetermined allocations, unlike other federal programs at this office. Prior single audit finding 2023-001 reported that most of FY2022 and all of FY2023 were not reported as required by the FFATA. The following page summarizes reporting activity for ALN 10.555 grants for 2021–2025. Late reporting for grants 2021, 2022, and 2023 was addressed in the prior single audit. Those years are noted below for transparency in understanding what was reported for those fiscal years and are not included in the error table, as they were already reported in tabular form in the prior audit. • 2021 grant – $115M was reported on 3/25/24. • 2022 grant – $87M was reported between 3/19/24 and 2/11/25. We estimate, in total, under-reported subawards in FY24 and FY25 is $16,676,256. For ALN 10.582, the prior audit found that no reports were submitted for school obligations exceeding $30,000. The 2022 and 2023 grants were entirely reported during the current audit period to address the prior recommendation. However, no reporting was found for the 2024 or 2025 grants, despite schools with grant obligations exceeding $30,000 during the audit period. See the chart below for a summary. Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-001 from the audit for the two fiscal years ended June 30, 2023. Effect: The office is not in compliance with FFATA reporting requirements. This limits the federal grantor agency's ability to transparently report program activity. The inaccurate reports also overstate amounts distributed to schools, which is misleading to the public. Cause: This finding repeats a prior audit recommendation. Because the recommendation was communicated partway through the current audit period, the office could not correct errors for the entire period. During the current audit period, there were prior period adjustments made after the final report was submitted, which resulted in the office data we compared not matching the federal reporting. Additionally, for ALN 10.582, the federal reporting system did not recognize the Federal Award Identification Number, so the office was unable to report that grant. Recommendation: We recommend the Office of Public Instruction: A. Enhance internal controls to ensure accurate and timely submission of FFATA reports. B. Submit FFATA reports in accordance with federal regulations. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1. • 2023 grant – $46M was reported between 3/19/24 and 2/12/25. • 2024 and 2025 grants – Auditors tested the five highest dollar subgrants (non-statistical) in FY24 and FY25. Results are in the table below.
Finding 2025-011 Federal Program Name Housing Voucher Cluster Federal Awarding Agency U.S. Department of Housing and Urban Development (HUD) State Agency Department of Commerce (department) ALN # 14.871 and 14.879 Grant # Various Compliance Requirement E. Eligibility N. Special Tests and Provisions Type of Finding Significant Deficiency (E) Material Weakness and Material Noncompliance (N) Questioned Costs No questioned costs identified Criteria: Federal regulation, 24 CFR 982.204, requires that except for special admissions, participants must be selected from the Public Housing Authority (PHA) waiting list. The PHA must select participants from the waiting list in accordance with admission policies in the PHA administrative plan. This means that families seeking assistance apply to the program and are placed on the waiting list until a spot becomes available. The PHA’s method for selecting families from the waiting list determines the order in which they receive assistance. The Department of Commerce is the PHA. The Department of Commerce administrative plan (Chapter 4 III.C. Selection Method) indicates that eligible applicants will be placed on the waiting list and selected from the waiting list first by waiting list preference, then by the waiting list date and time their complete application was received. Preferences are given to those transitioning out of institutional settings, at risk of institutionalization, and at serious risk of homelessness. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked sufficient internal controls over wait list selection to ensure applicants were chosen in the order required by federal regulations and the department's administrative manual. During the audit period, the department identified multiple individuals who were not selected in the correct order. Context: When there is an opening in the program, the field agent will notify the department that they need applicants selected from the waiting list. Department staff then select applicants and notify the field agent to begin the intake process. In state fiscal year 2024, the department reviewed 2,092 mail-in applications with an eligible status and found 29 that were pulled out of order. In fiscal year 2025, the department reviewed 1,469 applicants and identified three errors. Repeat Finding: This is a repeat finding and was reported as Single Auditing finding #2023-007 in the audit for the two fiscal years ended June 30, 2023. Effect: The department did not comply with federal regulations and its administrative plan. The potential exists that families at the top of the wait list may experience delays in receiving housing assistance. Cause: Management indicated that due to the department’s accelerated voucher issuance pace, online applicants were pulled ahead of some earlier paper applicants. The department identified this as a training issue. Errors also resulted from combining the wait lists for two separate programs, the voucher program and the Mod Rehab housing program. The department has since created a separate wait list for the Mod Rehab program. Recommendation: We recommend the Department of Commerce: A. Continue to improve internal controls over wait list selection to ensure applicants are chosen in the correct order. B. Select applicants from the wait list in accordance with the administrative plan and federal regulations. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding 2025-012 Federal Program Name Housing Voucher Cluster Federal Awarding Agency U.S. Department of Housing and Urban Development (HUD) State Agency Department of Commerce (department) ALN # 14.871 and 14.879 Grant # Various Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal guidance, OMB No. 2577-0282, requires the Public Housing Authority (PHA) to submit a report monthly through the Voucher Management System (VMS). This report includes information such as the unit months leased and the monthly housing assistance payments. The Department of Commerce is the PHA. Federal regulation, 24 CFR 115.308, requires that the agency provide the Office of Fair Housing and Equal Opportunity (FHEO) regional director reports identified in the cooperative agreement. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department’s internal controls in fiscal year 2024 were not adequate to ensure that monthly reports submitted through the VMS were complete and accurate. Additionally, we found multiple reports submitted in fiscal year 2024 that were not accurate. Context: During our review of the department’s monthly reports submitted through the VMS for fiscal year 2024, we identified errors in five out of twelve reports. The department confirmed that these errors did not impact the total expenses reported or the funding calculation used by HUD. The department implemented a control in fiscal year 2025 to ensure accuracy of the reports, in response to a prior audit recommendation. We did not test the control in fiscal year 2025, but our limited testing of the fiscal year 2025 reports did not identify any errors. Repeat Finding: This is a repeat finding and was reported as Single Auditing finding #2023-004 in the audit for the two fiscal years ended June 30, 2023. Effect: The department was not fully compliant with federal reporting requirements. Without adequate internal controls, there is an increased risk of reporting errors which undermine the integrity of the reporting process. Additionally, while the nature of the errors we identified didn’t impact program funding decisions, certain errors in this report could affect program funding calculations. Cause: In fiscal year 2024, the department lacked sufficient staffing to segregate duties between the preparer and reviewer of the VMS report. Subsequently, the department hired an additional accountant and implemented a new control in fiscal year 2025 to improve report accuracy. Recommendation: We recommend the Department of Commerce: A. Strengthen internal controls over the preparation and review of monthly Voucher Management System reports to ensure their completeness and accuracy. B. Comply with federal reporting requirements regarding the Voucher Management System reports. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding 2025-013 Federal Program Name Housing Voucher Cluster Federal Awarding Agency U.S. Department of Housing and Urban Development (HUD) State Agency Department of Commerce (department) ALN # 14.871 and 14.879 Grant # Various Compliance Requirement L. Reporting N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department’s internal controls were not appropriately designed to ensure that the Financial Assessment Subsystem (FASS) reports submitted to HUD were complete and accurate. Context: FASS reports are submitted annually. While our testing of the FASS reports submitted in fiscal years 2024 and 2025 did not identify any errors, the department’s main control over these reports is a review performed by someone other than the individual who prepared the report. This review process was not documented during the audit period, and the department cannot demonstrate that the control occurred. Effect: Without adequate internal controls, there is an increased risk that FASS reports may contain errors or be incomplete. Cause: Personnel indicated that the reporting system does not record the reviewer’s identity, and the department does not maintain any other evidence of review. Recommendation: We recommend that the Department of Commerce establish and implement controls to ensure that Financial Assessment Subsystem reports are complete and accurate prior to submission and that reviews of the reports are sufficiently documented. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding 2025-014 Federal Program Name Housing Voucher Cluster Federal Awarding Agency U.S. Department of Housing and Urban Development (HUD) State Agency Department of Commerce (department) ALN # 14.871 and 14.879 Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked sufficient internal controls to ensure that all leased units were inspected in accordance with federal regulations. Context: Federal regulations require that all leased units undergo inspections to verify compliance with Housing Quality Standards (HQS). The department contracts with field agents, including housing authorities and nonprofit organizations, to conduct these inspections. Despite delegating the inspection process, the department retains ultimate responsibility for ensuring that all units are inspected as required. In the prior audit, it was noted that the department lacked appropriate internal controls to monitor the completion of HQS inspections. In February 2025, the department implemented a new control to review a federal system report listing all required inspections and identifying overdue inspections. However, prior to this implementation, controls were insufficient. Our review of overdue inspection reports revealed seven units in fiscal year 2024 and one unit in fiscal year 2025 that were not inspected within the required timeframe. Based on the limited number of untimely inspections, we do not consider there to be material non-compliance with the federal regulations requiring timely inspections. Additionally, management indicated that the program received full points for compliance with the federal timely inspection requirement in its Section 8 Management Assessment Program reviews for fiscal years 2024 and 2025. Repeat Finding: This is a repeat finding and was reported as Single Auditing finding #2023-005 in the audit for the two fiscal years ended June 30, 2023. Effect: The absence of adequate controls increases the risk of untimely inspections as well as the risk for leased units not meeting established housing quality standards. Cause: Staff turnover contributed to a lapse in internal controls. Recommendation: We recommend the Department of Commerce develop and maintain internal controls to ensure that all required HQS inspections are completed within the time frame required by federal regulations. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding 2025-015 Federal Program Name Housing Voucher Cluster Federal Awarding Agency U.S. Department of Housing and Urban Development (HUD) State Agency Department of Commerce (department) ALN # 14.871 and 14.879 Grant # Various Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked adequate internal controls to ensure payments to field agents did not exceed the amounts specified in their contracts. Context: The department contracts with field agents to perform tasks including ensuring that unit inspections are completed as required by HUD. The department tracks these contracts on a spreadsheet to monitor payments against contract amounts. During fiscal years 2024 and 2025, several field agents received payments that exceeded their contract amounts. Although the contracts allow for modifications, the department did not amend them to increase the allowable fee amounts until we brought the issue to their attention. Effect: Without adequate controls, the department may pay field agents more than the contract amount allows. Cause: The overpayments occurred around the same time the contracts were up for renewal. Rather than amending the existing contracts to address the overages, the department chose to incorporate the adjustments into the upcoming contract renewals. Recommendation: We recommend the Department of Commerce strengthen internal controls to ensure field agent contracts are amended as needed for the Housing Voucher Cluster. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding 2025-016 Federal Awarding Agency U.S. Department of Housing and Urban Development (HUD) State Agency Department of Commerce (department) Federal Program Name Housing Voucher Cluster ALN # 14.871 and 14.879 Grant # Various Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles E. Eligibility L. Reporting N. Special Tests and Provisions Type of Finding Material Weakness Questioned Costs No questioned costs identified Criteria: Montana Operations Manual, Information Security Controls Standard, outlines baseline security controls for every state agency to implement for information technology systems they manage. Included among the baseline controls are requirements for the development and documentation of a security plan; documentation of access control policies and procedures, including periodic review of user access; and documentation of a formal change management system so that IT best practices are followed and controls over computer systems are sufficient. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department uses the Housing Assistance Payment Plan Yearly (HAPPY) system to administer the Housing Voucher Cluster program. The department's internal controls over the HAPPY system are insufficient to ensure compliance with state information security policy. Context: The department uses the HAPPY system to gather applicant data, maintain the waiting list, determine program eligibility, monitor if inspections are occurring, house inspection data, and calculate monthly housing assistance payments. The department partially implemented a prior audit recommendation related to HAPPY system controls. The following issues indicate controls still need improvement. • Access Reviews - The department did not perform a formal, documented annual review of user roles and privileges, as required by state policy. o The department could not provide descriptions for the privileges within the system, and without them, they cannot determine segregation of duties. o Approximately 185 inactive users retained system privileges, which they should not have. o The department could not provide documentation showing it restricted field agent access as recommended in prior Single Audit Recommendation #23-007. • Written Policies - The department's access control policy lacks key elements. o Because the HAPPY system allows each user a customized role, a clearly defined written policy is essential for consistent and appropriate access management. A written access policy also leads to consistent access management and appropriate access. • Staff Cross-Training - The department has no training or cross-training on access policies or procedures for granting and removing system access. o Training ensures access is managed consistently and that multiple staff can perform the task when needed. • Password Requirements - Password requirements did not meet state standards for change frequency, length, or complexity during the audit period. After the audit period, state password requirements changed and the department is now in compliance. Repeat Finding: A portion of the finding is a repeat finding and was reported as Single Auditing finding #2023-006 in the audit for the two fiscal years ended June 30, 2023. Effect: Without adequate controls meeting state standards, the department risks inappropriate system access, unintended changes to system functionality, or erroneous data that could affect program operations. Cause: Department personnel cited several reasons these issues remain unresolved: functional limitations in the system, the vendor providing only high-level responses to their questions, and limited advance notice of IT changes and updates to standards as these require time to implement. Recommendation: We recommend the Department of Commerce continue to improve controls over the HAPPY system by: A. Performing regular user access reviews, including documenting and gaining a full understanding of user privileges. B. Updating the access control policy to meet state standards. C. Training staff on access policies and procedures for granting and removing system access. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding 2025-017 Federal Program Name Housing Voucher Cluster Federal Awarding Agency U.S. Department of Housing and Urban Development (HUD) State Agency Department of Commerce (department) ALN # 14.871 and 14.879 Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 24 CFR 985.3(e)(1), requires a Public Housing Agency (PHA) supervisor or other qualified person to complete quality control inspections of a sample of units under contract during the PHA fiscal year, which meets the minimum sample size requirements specified at 24 CFR 985.2 under the PHA's quality control sample, for quality control of HQS inspections. Federal regulation, 24 CFR 985.2, includes the number of quality control inspections the department is required to complete each year based on the universe size. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked adequate internal controls to ensure the required number of quality control inspections were completed. In fiscal year 2024, the department completed only 21 of the 37 required quality control inspections, and therefore it did not comply with federal requirements. Context: Federal regulations require the department to complete supervisory reviews in several areas, including quality control inspections. The department tracks required inspections using a spreadsheet. However, this system proved ineffective in fiscal year 2024. In fiscal year 2025, the department completed more inspections than required. Effect: The department was not in compliance with federal regulations. Without completing all required quality control inspections, the department may fail to identify deficiencies in work performed by contract field agents that is intended to help ensure housing quality standards are met. Cause: Management cited significant staff turnover and extended hiring, onboarding, and training timelines as the primary reasons inspections were not completed in fiscal year 2024. Management also indicated staff had limited access to training on the housing quality inspection protocols as HUD had transitioned training offering to the new NSPIRE inspection protocol. Recommendation: We recommend the Department of Commerce: A. Strengthen internal controls to ensure all required quality control inspections are completed each fiscal year. B. Comply with federal regulations by meeting the minimum number of required quality control inspections annually. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding 2025-018 Federal Program Name Housing Voucher Cluster Federal Awarding Agency U.S. Department of Housing and Urban Development (HUD) State Agency Department of Commerce (department) ALN # 14.871 and 14.879 Grant # Various Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked sufficient internal controls to ensure Housing Assistance Payments (HAP) were made on a timely basis. Context: The department makes approximately 4,000 monthly HAP payments and reconciles its system against the state’s accounting system to verify that payments are processed correctly. In our randomly selected nonstatistical sample, in 6 of the 48 reconciliations completed for the audit period, we identified three reconciliations that were not completed. Each contained payment errors that went unaddressed, leading to three late HAP payments. After we communicated this issue, the department reviewed all reconciliations for the audit period and identified additional unaddressed payment errors. However, the total number of errors was less than 1 percent of all payments made during the audit period. Effect: Because the department did not complete its reconciliation controls, some HAP payments were not made on time. Without this control, additional late payments could have occurred. Cause: There was staff turnover in the position responsible for monitoring reconciliations. Recommendation: We recommend the Department of Commerce strengthen internal controls to ensure that reconciliations are completed to ensure that HAP payments are made on time. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding 2025-098 Federal Program Name Medicaid Cluster (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.775, 93.777, and 93.778 Grant # 2005MT5ADM, 2105MT5ADM, 2305MT5ADM, 2305MT5MAP Compliance Requirement L. Reporting Type of Finding Other Matter Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR Part 170, Appendix A(I)(a)(1) and (a)(2)(ii), requires non-federal entities to report each subaward obligation of $30,000 or more to the Federal Funding Accountability and Transparency Act (FFATA) reporting system no later than the end of the month following the month the obligation is made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During fiscal years 2024 and 2025, the department's internal controls were not sufficient to ensure that only required subrecipient actions for Medicaid of $30,000 or more were accurately, completely, and timely reported to the FFATA reporting system. Montana has no Medicaid subrecipients; however, the department submitted significant FFATA reports for the program. Context: For all major federal programs for which FFATA was applicable for testing, we reviewed all obligations reported during the audit period and compared them with subaward agreements and amendments provided by the department. Montana has no Medicaid subrecipients or subrecipient agreements. Therefore, the department should not have filed any FFATA reports for Medicaid; however, it filed 291 reports. The number of instances and corresponding dollar amounts are summarized below. Our analysis was conducted using FFATA reporting system data as of July 2025. We considered each transaction submitted, or omitted, by the department and compared information against executed subaward agreements from the audit period, as provided by the department. Any corrections the department made during fiscal year 2026 were not considered in our testing for this audit but will be considered during the fiscal year 2026 audit. Effect: FFATA reporting provides transparency to federal grantor agencies and the public. Because Montana has no Medicaid subrecipients, the 291 erroneously filed reports could mislead users of FFATA data. Cause: The department uses a central contracting system to capture obligations, which include both subrecipient and contractor relationships. The system is used to process payments and identify which agreements require FFATA reporting. However, information entered into the system did not distinguish between contractor and subrecipient relationships, was not consistently accurate and was not always entered at the time of obligation. Department personnel responsible for FFATA reporting indicated they are working with federal program staff to implement process changes to ensure FFATA reports are filed only for subrecipients and are accurate and timely. Recommendation: We recommend the Department of Public Health and Human Services: A. Enhance internal controls over FFATA reporting to ensure only required FFATA reports for the Medicaid Cluster are submitted. B. Only report required FFATA information for the Medicaid Cluster. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-107 Federal Program Name Research and Development Cluster (R&D) (COVID-19) Federal Awarding Agency Various State Agency University of Montana - Missoula (university) ALN # Various Grant # Various Compliance Requirement F. Equipment and Real Property Management Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.313 (b) states that, “A State must use, manage and dispose of equipment acquired under a Federal award in accordance with State laws and procedures.” However, 2 CFR 200.313(d) adds additional specific requirements where equipment is acquired utilizing a federal award. Federal regulation, 2 CFR 200.313(d)(2) states, “A physical inventory of the property must be conducted, and the results must be reconciled with the property records at least once every two years.” MOM policy 335 (V)(A)(3) requires all major equipment to be identified in the manner that promotes easy identification and requires property tags to be placed on plain sight on the equipment. While state policy does allow some discretion based on the physical nature of some equipment for situations where property tags may not be feasible, it does require that “whenever possible, the tag number will still be identified on the item by some means such as etching, decal, indelible ink, etc.” Federal regulation, 2 CFR 200.303 requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The university’s internal controls were insufficient to ensure a complete physical inventory was performed during the biennium or that equipment purchased with federal funds was properly tagged, as required by federal regulations and state policy. Context: During the audit period, 434 of 1,147 grant assets were not inventoried. The university tracked inventory completion by university department using a checklist; however, 47 university departments were omitted from the tracking spreadsheet. As a result of those omissions, 676 grant assets were not tracked through the university’s tracking spreadsheet. These assets would be at risk of not being inventoried as a result. In the prior audit, inventory had not been completed for 109 university departments. We performed testing on a random nonstatistical sample of 11 capital assets, drawn from 159 capital assets purchased above the $10,000 capitalization threshold with grant funds during the audit period, we found that 1 asset (a drone) was not affixed with a property tag as required by state policy. University staff affixed a tag to the drone after it was observed during audit fieldwork. In the prior audit, 4 of 8 sampled items lacked tags. Repeat Finding: This issue was first reported in the 2020–2021 Single Audit (2021-034). The prior audit (2023-077) also noted untagged equipment and an incomplete physical inventory. We noted improvements from the prior periods during this audit as in the prior audit 109 university departments did not have an inventory completed for them compared to 46 university departments with no inventory completed this period. Additionally, we noted 50% of the assets reviewed in the prior audit had no asset tag affixed, compared to 9% this audit period. Effect: The university is noncompliant with federal requirements to use and manage equipment under a federal award in accordance with state laws and procedures. Incomplete inventories and untagged assets leave equipment susceptible to misuse or theft. Cause: University staff attributed the issue to employee turnover, which disrupted the complete transition of inventory tracking information. Near the end of fiscal year 2024, the university hired a dedicated capital asset accountant but was unable to completely address the backlog of uninventoried items before the audit period was over, though substantial progress was made. Recommendation: We recommend the University of Montana - Missoula: A. Continue to use enhanced internal controls to ensure compliance with federal and state requirements governing equipment for the Research and Development Program; B. Perform a complete physical inventory of capital assets at least every two years; and C. Tag all capital assets when feasible. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-108 Federal Program Name Research & Development Cluster (R&D) (COVID-19) Federal Awarding Agency Various State Agency University of Montana - Missoula (university) ALN # Various Grant # Various Compliance Requirement A. Activities Allowed B. Allowable Costs/Cost Principles H. Period of Performance Type of Finding Material Weakness Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The university did not perform its controls over reviewing ledgers for charges made to funds to ensure they were for authorized activities and costs were allowable. Context: The university managed over 1,300 federal R&D awards during the audit period. These awards are managed by the university’s Office of Sponsored Programs (OSP), which is managed day-to-day by Principal Investigator’s (PI’s) who are usually faculty at the university. The university manages R&D grant awards in three stages: Pre-Award: A PI identifies a funding opportunity and works with OSP to document proposed funding details, including salaries, budget, and subawards. Award Management: OSP staff record award information and conduct regular financial reviews to assess whether expenses are allowed as charged to the project. While PI’s oversee the award’s progression and certify staff time charged to the grant. Post-Award: When an award ends, OSP staff use a checklist to complete close-out procedures, including reconciling expenses and performing final billing. As part of its award management phase, OSP fiscal specialists are required to review the full expense ledger for each grant at least quarterly (monthly for most awards). Our random nonstatistical sample was drawn from grant expenses charged to active awards during the audit period, covering the Pre-Award and Award Management stages. We performed testing on a random nonstatistical sample of 40 grant transactions from a population of 222,024, we found 14 instances where a quarterly review was not completed in a timely manner or was not documented at all. The grants that were missing timely reviews ranged from awards of $87,762 to $8,153,914. For example, one grant for the quarter ending December 2023 had no documented review until February 2025. Another grant had no ledger reviews from September 2023 through October 2024. These gaps create risk that unallowable or out-of-scope charges go undetected. Testing did not identify any unallowed activities or unallowable costs charged to these grants. Given the number of grants affected and the extended timeframe, this is considered a material weakness in internal control. Repeat Finding: This is a repeat finding. Finding 2023-078 from the previous single audit noted four quarterly grant expense reviews were not performed. Effect: The university is not in compliance with the federal requirement to maintain effective internal controls over federal awards. Without these controls, the university is at risk of additional noncompliance, such as charging unallowable costs to grants. Cause: The university experienced staffing turnover and performance issues, causing some employees to be unaware of which grants they were responsible for reviewing. At one point, OSP only had 5 of 12 positions filled, leading to missed reviews. Recommendation: We recommend the University of Montana – Missoula, follow established internal controls to provide reasonable assurance that federal Research and Development Program awards are managed in compliance with all applicable federal statutes and regulations. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-109 Federal Program Name Research and Development Cluster (R&D) Federal Awarding Agency Various State Agency University of Montana - Missoula (university) ALN # Various Grant # Various Compliance Requirement A. Activities Allowed/Unallowed B. Allowable Costs/Cost Principles H. Period of Performance N. Special Tests and Provisions Type of Finding Material Weakness (A, B, H) Material Noncompliance (A, B) Significant Deficiency (N) Questioned Costs 15.R&D: $34,044 15.247: $1,041 Criteria: Federal regulation, 2 CFR 200.430(g)(1)(i) states that, “Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated.” Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The university did not follow established controls to certify payrolls charged to grants. As a result, payroll expenses charged to various grants were not certified as required by federal regulations. Questioned Costs: From our sample, questioned costs were accumulated based on payrolls charged to grants that were not approved. From this, we identified known questioned costs of $35,085. $24,439 of questioned costs occurred in FY24 and $10,646 of questioned costs occurred in FY25. From review of summary-level payroll information additional payrolls were not approved, leading estimated questioned costs to be higher. Context: The Office of Sponsored Programs (OSP) at the university administers the grant, while the Principal Investigator (PI) (normally faculty) is responsible for carrying out the grant. The university manages R&D grant awards in three stages: Pre-Award: A PI identifies a funding opportunity and works with OSP to document proposed funding details, including salaries, budget, and subawards. Award Management: OSP staff record award information and conduct regular financial reviews to assess whether expenses are allowable as charged to the project. PI’s oversee the award’s progression and certify staff time on the grant. Post-Award: When an award ends, OSP staff use a checklist to complete close-out procedures, including reconciling expenses and performing final billing. Federal regulations require that salary and wage charges to federal awards be based on records that accurately reflect work performed and are supported by internal controls that provide reasonable assurance that charges are accurate, allowable, and properly allocated. The university fulfills this requirement through a Personnel Activity Report (PAR). After each pay period, employees approve their time allocations to each grant, and PIs certify both their own time and the employees’ time charged to their grant. If a PI does not act, the PAR system sends two notifications to the PI to certify payroll. After the second notification, the PAR system is to alert the OSP Director so they can follow up directly with the PI. We performed testing of a random nonstatistical sample of 15 personal services transactions from a population of 222,024 transactions, 4 transactions had not been certified. Because certification is required for costs to be allowable, these costs were deemed unallowable. Additional uncertified payroll expenses charged to federal grants were also identified during the same pay period for those employees and included in questioned costs. For example, the two payrolls that occurred under a grant in October 2023 had 4 employees whose total uncertified payroll was $7,813. A different grant for the pay periods in October 2024 had 3 employees charge time to the grant that was not certified that totaled $2,720. A broader review of PARs across the audit period indicated additional grants and payrolls may be affected where PIs had not approved payroll. Effect: The university is not in compliance with the federal requirement to maintain effective internal controls over federal awards. The university is also noncompliant with federal requirements that salaries and wages charged to federal grants be based on records that accurately reflect the work performed. Consequences may include clawback of unallowed amounts, suspension or termination of federal awards, or heightened monitoring by federal awarding agencies. Cause: The university experienced staffing turnover and performance issues, causing some employees to be unaware of which grants they were responsible for reviewing. This led to missed reviews and missing documentation in grant files. The PAR system was also not configured to notify the new OSP Director when PIs failed to approve PARs after their notifications. As a result, the OSP did not receive notifications that these payrolls had not been certified. Recommendation: We recommend the University of Montana - Missoula: A. Ensure that charges to federal awards for salaries and wages are based on records that actively reflect the work performed. B. Follow established internal controls to provide reasonable assurance that charges to federal awards for salaries and wages are accurate, allowable, and properly allocated. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-105 Federal Program Name Research and Development Cluster (R&D) (COVID-19) Federal Awarding Agency Various State Agency University of Montana - Missoula (UM) and Montana State University - Bozeman (MSU) (universities) ALN # Various Grant # Various Compliance Requirement I. Procurement and Suspension and Debarment Type of Finding Material Weakness Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The Department of Administration (DOA) did not establish delegation agreements with the University of Montana and Montana State University for the last six months of fiscal year 2025. These agreements lay out the policies and procedures departments must follow when procuring goods and services exceeding $10,000. Context: Federal regulations require the state to follow the same policies and procedures used for procurements with non-federal funds. State law authorizes the DOA to oversee all state purchasing and to delegate that authority to state agencies, including UM and MSU, through written delegation agreements. Delegation agreements are required for equipment and service contracts exceeding $10,000 and must include: • The activity or function authorized; • Limits or restrictions on the delegated authority; • Whether the authority may be further delegated; and • The duration of the delegation. UM and MSU held delegation agreements covering calendar years 2023 and 2024, but no agreements were in place for calendar year 2025. The universities receive their delegation authority through a delegation agreement between the Office of the Commissioner of Higher Education (OCHE) and the DOA. The universities requested new agreements from the DOA but were told to proceed procuring goods and services without them. Our testing indicated that both universities followed the same procurement procedures outlined in the previous delegation agreements while awaiting updated delegation agreements. This was what was communicated to the Universities by the DOA and indicated by DOA’s involvement and approval of major purchases that were above the universities’ previously delegated authority. The table below summarizes universities’ expenditures made without a delegation agreement in place. There was no indication that any of these purchases were for unallowable activities or unallowable costs. Effect: The universities are at risk of not following applicable state procedures when procuring goods and services. If the universities did not follow state procedures when procuring goods and services this could lead to noncompliance with state policies which would trigger significant questioned costs at both universities. Cause: The DOA was restructuring the state's procurement process and, during that process, chose not to execute new delegation agreements. Because the universities were able to demonstrate regular and ongoing efforts to obtain a signed delegation agreement and because they continued to follow previously applicable procurement processes, we did not classify this as material noncompliance and we did not question the costs incurred absent the signed agreement. Recommendation: We recommend the universities enhance internal controls over procurement by continuing to work with the Office of the Commissioner of Higher Education and Department of Administration to secure a delegation agreement that supports procurement transactions. Views of Responsible Officials: The universities concur with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-106 Federal Program Name Research and Development Cluster (R&D) Federal Awarding Agency Various (COVID-19) State Agency Montana State University - Bozeman (university) ALN # Various Grant # Various Compliance Requirement F. Equipment and Real Property Management Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.313(b) directs a state to, “use, manage, and dispose of equipment acquired under a Federal award by the state in accordance with state laws and procedures.” However, 2 CFR 200.313(d) adds additional specific requirements where equipment is acquired utilizing a federal award. Federal regulation, 2 CFR 200.313(d)(1) states that, “Property records must include a description of the property, a serial number or another identification number, the source of funding for the property (including the Federal Agency 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. The recipient and subrecipient are responsible for maintaining and updating property records when there is a change in the status of the property.” Federal regulation, 2 CFR 200.313(d)(2) states that, “a physical inventory of the property must be conducted, and the results must be reconciled with the property records at least once every two years.” MOM policy 335 (V)(A)(3) requires all major equipment to be identified in a manner that promotes easy identification and requires property tags to be placed in plain sight on the equipment. While state policy does allow some discretion based on the physical nature of some equipment for situations where property tags may not be feasible, it does require that “whenever possible, the tag number will still be identified on the item by some means such as etching, decal, indelible ink, etc.” Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The university did not complete a full physical inventory of equipment during the audit period as required by federal regulations. As a result, the university’s controls were not effective in updating asset locations on property records or ensuring all assets were properly tagged. Context: The university holds approximately 4,755 capital assets across all funding sources; however, only 3,545 (approximately 75%) were inventoried during the audit period. This is an improvement from the prior audit (22-02), during which only 1,055 of 4,551 assets (approximately 23%) were inventoried, but a full inventory was still not completed. We performed testing on a random nonstatistical sample of 10 out of a population of 266 assets, found that 7 were not located at the address listed on the property record, and 1 was not tagged during the audit period. Repeat Finding: This is a repeat finding from the prior single audit (2023-076). As mentioned above in the context section, significant progress has been made on the inventorying of equipment as 75% of equipment was inventoried this period compared to 23% in the prior period. Effect: The university is not in compliance with federal requirements to use and manage equipment acquired under federal awards in accordance with state laws and policies. Inaccurate property records and incomplete asset tagging leave capital assets inadequately safeguarded and susceptible to theft. Cause: The university attributed the incomplete inventory to a COVID-19-related backlog and insufficient personnel resources to inventory capital assets, tag equipment, and update property records. Recommendation: We recommend Montana State University - Bozeman: A. Continue enhancing internal controls to ensure compliance with federal and state requirements governing equipment for the Research and Development Program; B. Perform a complete physical inventory of capital assets at least every two years; and C. Tag all capital assets when feasible. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-009 Federal Program Name Section 8 Project-Based Cluster Federal Awarding Agency U.S. Department of Housing and Urban Development (HUD) State Agency Department of Commerce (department) ALN # 14.195 and 14.856 Grant # MT800CC0001 Compliance Requirement C. Cash Management Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 31 CFR Part 205, implements the Cash Management Improvement Act (CMIA). The CMIA requires the state to enter into agreements that prescribe specific methods of drawing down federal funds and making payment via Electronic Funds Transfer (EFT). The details of these methods are included in the annual Treasury State Agreement (TSA) between the state and the federal government, if federal program expenditures exceed a set threshold defined by federal regulations. The department is included in the TSA for fiscal years 2024 and 2025 for the Section 8 Project-Based Cluster. The TSA requires the department to disburse funds to landlords by EFT so that the settlement date is the first business day of the month, except for January and July when the settlement date is the second business day of the month for fiscal year 2024. For fiscal year 2025, the requirement is that the settlement date be within five business days of receiving funds from HUD. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department’s controls were insufficient to ensure that the TSA aligned with business practice and was followed in fiscal years 2024 and 2025. We noted multiple instances of non-compliance during our testing. Context: The department receives federal reimbursement for Section 8 housing assistance payments, averaging over $2 million monthly to about 86 projects. Our review showed that the department routinely missed the deadline by at least one day. In fiscal year 2024, payments missed the first business day deadline in 6 out of 12 months. In fiscal year 2025, one month had a settlement date more than five days after receiving federal funds. However, this instance was the department drawing funds late, not early. Additionally, in both fiscal years, every month had at least one payment made outside the bulk payment process. Over the entire audit period, approximately $2 million was paid out each fiscal year outside of the bulk payments made at the beginning of each month. Repeat Finding: This is a repeat finding and was reported as Single Auditing finding #2023-008 in the audit for the two fiscal years ended June 30, 2023. Effect: The department did not comply with federal regulations and TSA requirements. Additionally, the TSA does not accurately reflect business processes for payments made to landlords outside the bulk process or not at the beginning of the month. Cause: Controls over cash management were insufficient to ensure compliance with the TSA. The department indicated that payments outside the bulk process occurred when additional information was received, allowing payment release. While waiting to release payments until all necessary information was available is acceptable, it does not align with TSA requirements. Because this was a prior audit recommendation, the department did request a change in the TSA, but it did not go into effect until fiscal year 2025. In addition, after we communicated the issue regarding mid-month payments, the department did request a change to TSA to accommodate them, but the change did not go into effect until fiscal year 2026. Recommendation: We recommend the Department of Commerce: A. Strengthen internal controls to ensure payments to landlords follow the Treasury State Agreement. B. Distribute payments to landlords in accordance with the Treasury State Agreement. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding 2025-010 Federal Program Name Section 8 Project-Based Cluster Federal Awarding Agency U.S. Department of Housing and Urban Development (HUD) State Agency Department of Commerce (department) ALN # 14.195 and 14.856 Grant # MT800CC0001 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles E. Eligibility L. Reporting N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Montana Operations Manual, Information Security Controls Standard, outlines baseline security controls for every state agency to implement for information technology systems they manage. Included among the baseline controls are requirements for documenting access control policies and procedures, including periodic reviews of user access. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department controls are inadequate to ensure that a periodic review of user access to the Housing Development Services (HDS) system is completed as required by state policy. Context: The HDS system tracks all client information and interfaces with the state’s accounting system for payments. The department did not perform access reviews during the audit period. A new procedure requiring periodic access reviews was implemented on March 31, 2026. Effect: While we did not identify any errors, inadequate access controls may result in inappropriate access to the HDS system and insufficient segregation of duties for automated processes such as issuing payments to landlords. Cause: Department officials stated that turnover at the agency contributed to the lack of access reviews. Recommendation: We recommend the Department of Commerce establish internal controls over the Housing Development Services system to ensure access reviews are completed in compliance with state policy. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding 2025-001 Federal Program Name SNAP Cluster (COVID-19) Federal Awarding Agency U.S. Department of Agriculture State Agency Department of Public Health and Human Services (department) ALN # 10.551 and 10.561 Grant # 23MT35053092101, 24MT3505392101, 25MT35053092101 Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Scope Limitation Questioned Costs No questioned costs identified Criteria: Federal regulation, 7 CFR 274.8(b)(3)(i), requires the state to maintain adequate security over and documentation for unissued Electronic Benefit Transfer (EBT) cards, to prevent their theft, loss, or damage. Federal regulation, 7 CFR 274.5(c), requires the state provide minimum security and controls over the physical EBT cards that include: secure storage, access limited to authorized people, bulk inventory control records, and review of the inventory and issuance records. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department cannot demonstrate the required storage and control measures over physical security of blank, unissued EBT cards were achieved during the audit period and does not have appropriate internal controls to ensure these requirements have been met. Context: The department contracts with an EBT service provider for its SNAP program. That contractor subcontracts EBT physical card security and processing to a third party. The third party maintains physical access to blank, unissued EBT cards. The department relies on processes performed over the main contractor’s activities, including consideration of information in the contractor’s System and Organization Controls (SOC) report, as evidence that the main contractor and all of its subcontractors are appropriately processing data and complying with applicable federal regulations. While the department’s processes are appropriate for the work of the contractor, they do not address requirements handled by the subcontractor that maintains physical security for blank, unissued EBT cards. The primary C-54 contractor's SOC report does not address EBT card security or card processing and specifically excludes subcontractor controls from the scope of the SOC report’s independent auditor’s opinion. Initially, the department could not provide the subcontractor’s SOC report as the subcontractor declined to provide the report directly to the department because no direct contract exists between them. When they were unable to obtain the report, department personnel reviewed 7 CFR 274, which specifically requires a SOC report over the financial transactions which are handled by the primary contractor. Based on the department’s review of the federal regulations and the contractor’s SOC report, they determined the activity at the subcontractor was low risk and assurances were obtained through the primary contractor. While we agree federal regulations do not specifically require a SOC report for the activities of the subcontractor, absent such a report, the department had no assurances that appropriate internal controls were established over the security of the physical EBT cards residing with the subcontractor. Additionally, the department relies on the subcontractor to ensure compliance with physical card security requirements over unissued EBT cards. We discussed this with department personnel, and in July 2026, the department was able to obtain two SOC reports for the subcontractor. One report covered the subcontractor’s information systems controls and processes and the other financial transaction processing. However, neither provided any assurances over the subcontractor’s controls over physical EBT cards and their security. As a result, we were unable to test compliance with federal regulatory requirements from October 1, 2023, through June 30, 2025, resulting in a scope limitation. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included a similar finding #2023-079, which directed the department to implement internal controls to obtain and review the subcontractor's SOC report. Effect: Without evidence of the subcontractor's internal controls, usually obtained through a SOC report covering the design and operating effectiveness of the subcontractor’s internal controls, the department cannot demonstrate the necessary controls are in place over physical security for unissued EBT cards maintained by the subcontractor. Additionally, the department is unable to demonstrate full compliance with federal regulations over physical card security. Cause: The department's contract with the primary contractor does not require the contractor to share the subcontractor's SOC report. The subcontractor initially declined to provide their SOC report directly to the department, as no direct contractual relationship exists between them and the department. The department incorrectly determined the assurances provided by the primary contractor’s SOC report also provided assurances over the subcontractor’s controls. When the department subsequently received two of the subcontractor’s SOC reports, their review was insufficient to identify the assurances needed to meet federal regulatory requirements for physical security of unissued EBT cards were not included. Recommendation: We recommend the Department of Public Health and Human Services: C-55 A. Implement internal controls over physical security of unissued EBT cards. B. Comply with federal regulations over physical security of unissued EBT cards. Views of Responsible Officials: The department does not concur with the recommendation. Management believes the SOC report received from their contractor satisfies this requirement. In addition, management indicates no risk remains due to completion of reconciliations over issued and used benefits. Management further believes no correction action is required. For additional information regarding management’s position, see the Corrective Action Plan starting on page D-1. Rebuttal of Views of Responsible Officials: We considered the department’s nonconcurrence. The SOC reports provided to our office during the audit did not include assurances over the requirements of 7 CFR 274.8(b)(3)(i) which are specific to blank unissued card inventory, access and issuance. Reconciliation requirements over benefits are a separate requirement of the SNAP program. As such, our recommendation stands.
Finding 2025-060 Federal Program Name Special Education Cluster (IDEA) (COVID 19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office or OPI) ALN # 84.027A, 84.027X, 84.173A, and 84.173X Grant # H027A230096, H027A240096, H173A230099, H173A240099 Compliance Requirement G. Matching, Level of Effort, Earmarking Type of Finding Material Weakness Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office is responsible for reporting the maintenance of state financial support (MFS) to the federal government as part of its annual application for Federal Special Education funding under the Individuals with Disabilities Education Act. OPI utilizes a spreadsheet to track all sources of special education appropriations for the state. However, in fiscal years 2024 and 2025, the spreadsheets used to calculate and report MFS contained incorrect and unsupported information, resulting in the submission of inaccurate data to the federal government. Context: A review of OPI's MFS calculations identified the following specific errors attributable to the office's internal control deficiency: - FY23 budget data was used in the calculation rather than FY24 budget data. - Expenditures, rather than appropriated amounts, were used. - Amounts were not consistently sourced from the same report within the state’s accounting system, resulting in inconsistent figures across reporting periods. In several instances, accurate information was available to the office but was not utilized in the MFS calculation. Additionally, multiple requests to OPI for budget data consistently yielded either FY23 budget figures or actual expenditure data rather than the correct FY24 and FY25 appropriated amounts, requiring auditors to obtain this information from the Office of Budget and Program Planning. Despite these control failures, auditors independently obtained correct budget information, recalculated the MFS, and determined OPI complied with the federal requirement to maintain at least the same level of state financial support as the prior year. Repeat Finding: Montana’s Single Audit report for the two fiscal years ended June 30, 2023, included a recommendation (2023-044) to the office to strengthen internal controls over MFS and to ensure MFS is accurately and completely tracked to meet federal requirements. We consider the compliance portion of the recommendation implemented. Montana’s Single Audit report for the two fiscal years ended June 30, 2021, also included a recommendation (2021-041) related to internal controls over maintenance of state financial support. Effect: As a result of this control deficiency, FY24 appropriation amounts were underreported by $463,000 in the federal fiscal year (FFY) 2025 federal funding application and by $769,000 in the FFY2026 federal funding application. In addition, the FY25 appropriation amount was also underreported by $966,645 in the FFY2026 federal funding application. The office is at risk of losing Federal Special Education funding if it does not implement and consistently operate effective controls to ensure the state maintains at least the same level of state financial support for special education each year, as required by federal law. Cause: In discussions with management, they were unable to identify the specific reason the spreadsheets used for MFS reporting did not reconcile to the final amounts submitted to the federal government. The Special Education Director, or the equivalent position at the time, held responsibility for ensuring the reported MFS amount was accurate and supported prior to submission to the federal government. However, management acknowledged incorrect information was included in the MFS spreadsheets but was unable to explain why the errors occurred or why they were not detected prior to submission. Recommendation: We recommend the Office of Public Instruction establish and document enhanced internal control processes over the tracking, calculating, and reporting of the maintenance of state financial support for Special Education to ensure compliance with federal regulations. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-061 Federal Program Name Special Education Cluster (IDEA) (COVID 19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.027A, 84.027X, 84.173A, and 84.173X Grant # H027A230096, H027A240096, H173A230099, H173A240099 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs $6,149,159 Criteria: Federal regulation, 2 CFR 200.332 (d), requires pass-through entities to monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Federal regulation, 2 CFR 200.403(a) and (g), states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office reimbursed Local Education Agencies (LEAs), which are generally schools or school districts, without receiving sufficient documentation to determine whether the claimed costs were allowable under the Special Education program. The office’s internal controls did not ensure adequate documentation was on file before issuing reimbursements. Questioned Costs: We question $6,149,159 in Special Education reimbursements that were not adequately supported at the time of payment. Additional unsupported reimbursements likely exist in the populations. Context: In fiscal years 2024 and 2025, the office paid over $89 million to LEAs based on reimbursement requests for the Special Education program. We tested 20 of the largest reimbursement requests, ten from each fiscal year, from different LEAs. Nine requests in fiscal year 2024, and one request in fiscal year 2025, lacked sufficient documentation to determine the allowability of the reimbursed expenditures. Testing exceptions included an absence of dates associated with the compensation, people, or positions for which reimbursement was sought, or details on how supplies or repairs related to the Special Education program. Effect: The office reimbursed schools for Special Education costs that were not adequately supported at the time of reimbursement. The office’s subrecipient monitoring procedures were not sufficient to comply with federal regulations. As a result, the office paid at least $6,149,159 in claims that may have included unallowable costs. Cause: Prior to early 2025, the office’s cash request reviews were minimal and focused primarily on comparing requests to budget line items. While budget comparisons provide some assurance of allowability, they are not sufficient on their own. For example, they do not confirm that personal service costs are for individuals who worked on the Special Education grant, or that work occurred within the period of performance of the grant. The office implemented a new cash request review process in early 2025. However, this change occurred during the audit period and does not address Special Education reimbursements already made. If the office continues to operate under its new procedures, this recommendation should be resolved. Recommendation: We recommend the Office of Public Instruction: A. Continue to use enhanced internal controls to ensure schools submit adequate documentation with reimbursement requests prior to payment. B. Reimburse schools only when documentation is sufficient to confirm that costs are allowable under the Special Education program. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-062 Federal Program Name Special Education Cluster (IDEA) (COVID 19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.027A, 84.027X, 84.173A, and 84.173X Grant # H027A230096, H027A240096, H173A230099, H173A240099 Compliance Requirement H. Period of Performance Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office performs monthly reconciliations of Special Education grant expenditures to verify that amounts agree across the state accounting system, the office grant system, and manual tracking spreadsheets. The office uses the reconciliations to ensure Special Education funding is spent within the allowed grant period. During the audit period, reconciliations were not fully completed or adequately supported. Context: During the audit period, the office completed 44 reconciliations over the Special Education grants. We conducted a judgmentally selected nonstatistical sample and out of the six reviewed, we found four were not fully reconciled and did not agree to supporting documentation. Effect: Incomplete and unsupported reconciliations increase the risk that errors will go undetected and that funds may remain unobligated past the allowable period of performance. Cause: Staff responsible for completing and reviewing reconciliations relied on their knowledge of the reconciling items and did not record the information on the reconciliations. This resulted in undocumented differences. Recommendation: We recommend the Office of Public Instruction strengthen internal controls over grant reconciliations to ensure reconciling differences are documented and resolved in a timely manner, and all funds continue to be obligated within the applicable period of performance. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-040 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education State Agency Montana State University Billings (MSU Billings) ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Grant # Various Compliance Requirement C. Cash Management Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: MSU Billings completed monthly Direct Loan reconciliations between its system and the federal system as required by federal regulation. However, university staff did not have sufficient procedures in place to ensure the accuracy and completeness of the reconciliations, such as documenting a secondary review of the reconciliations. Context: We tested six reconciliations at MSU Billings in a nonrandom, nonstatistical sample and found none had a documented secondary review. The population was 24 reconciliations. No errors were identified in the reconciliation data itself. Effect: Without effective internal controls, differences between MSU Billing’s system data and the federal system data may go undetected and uncorrected. In addition, there is the risk of noncompliance with federal regulations if reconciliations contain errors that are not detected and corrected. Cause: The reconciliation process involves both Financial Aid and Financial Services personnel in gathering data. However, only one staff member documented the reconciliation information. Recommendation: We recommend Montana State University Billings enhance internal controls over direct loan reconciliations by documenting a secondary review. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-046 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U. S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.342 State Agency University of Montana (UM) (all campuses) Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified. Criteria: Federal regulation, 16 CFR 314.3, requires institutions subject to the Gramm-Leach-Bliley Act (GLBA) to develop, implement, and maintain a comprehensive, written information security program that includes certain specific elements outlined in 16 CFR 314.4. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The UM campuses lacked controls to ensure timely compliance with Gramm-Leach-Bliley Act (GLBA) requirements. Because the Office of Commissioner of Higher Education (OCHE) places compliance responsibility on flagship campuses, this constitutes noncompliance for all UM -affiliated campuses. Context: As a Student Financial Assistance program participant, the UM is a financial institution subject to GLBA requirements, including implementation of eight safeguards against foreseeable internal and external risks to the security, confidentiality, and integrity of customer information. The UM first authored an information security program in August 2023 and continued developing it during fiscal year 2024. The program addressed several required GLBA elements; others were addressed through UM policies. The following required policies were not in place until well into the audit period: • Data Security Standard - addresses encryption of customer information on the institution's system and when in transit; first documented April 4, 2024. • Account Security Standard- addresses multifactor authentication for anyone accessing customer information; first documented February 27, 2024. • Network Security Standard- addresses logging authorized user activity and monitoring for unauthorized access; first documented January 8, 2024. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included recommendation 2023-022 to continue developing and implementing internal controls to comply with GLBA requirements. Montana's Single Audit for the two fiscal years ended June 30, 2021, also included related recommendation 2021-023. Effect: The UM is not in compliance with federal requirements. Although we are not aware of any security concerns during the audit period, missing controls could result in the mishandling of sensitive student information, data breaches, and reputational damage. Cause: University of Montana personnel indicated that key security practices were in place but not formally documented for part of the audit period. Federal regulations require formalized policies to ensure all personnel consistently follow security practices that protect student information. Recommendation: We recommend the University of Montana: A. Continue to develop and implement internal controls to govern GLBA requirements, and B. Comply with federal regulations by maintaining policies addressing all GLBA requirements. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-047 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.342 State Agency University of Montana (UM) (all campuses) Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: UM campuses lacked sufficient controls to prevent employees from receiving compensation prohibited by federal regulations during the audit period. Context: The Montana Office of the Commissioner of Higher Education (OCHE), under the Board of Regents, oversees the Montana University System (MUS) and administers the Staff Compensation Plan. The plan covers all staff at MUS campuses, excluding student employees, faculty, coaches, and those with employment contracts or appointment letters. Staff may receive compensation adjustments, including strategic pay adjustments for retention, in-range progress reflecting increased job knowledge and duties, and lump sum bonuses. Supervisors initiate pay adjustments, which are then approved and processed by the human resources office (HR). Federal regulations prohibit UM campuses from providing commissions, bonuses, or other incentives based on securing enrollment or financial aid. The MUS Staff Compensation Plan now explicitly prohibits such payments; however, this policy change was not made until December 2024, meaning internal controls were incomplete for most of the audit period. All campuses must continue implementing this policy through their own internal control procedures to prevent enrollment-based payments to employees involved in enrollment, admissions, or financial aid. Our testing found no instances of prohibited incentive compensation. Out of a population of 59 pay adjustments, we performed testing on a nonrandom, nonstatistical sample of 16. Repeat Finding: Montana’s prior Single Audit report for the two fiscal years ended June 30, 2023, included recommendation 2023-024 to the universities to enhance internal controls to ensure employees do not receive compensation prohibited by federal regulations. Effect: Without effective internal controls, employees involved in enrollment, admissions, or financial aid remain at risk of receiving prohibited enrollment-based payments. Cause: The prior audit findings came to the attention of the Office of the Commissioner of Higher Education mid-audit period, leaving insufficient time to implement new controls for most of the audit period. If all universities implement the policy through their own internal control procedures, this issue should be resolved in the next audit. Recommendation: We recommend that all University of Montana campuses continue to enhance internal controls to ensure employees do not receive compensation prohibited by federal regulations. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-048 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S Department of Health and Human Services ALN # 93.342 State Agency University of Montana, Missoula Campus (UM Missoula) Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs Yes, amount could not be determined Criteria: Federal regulation 34 CFR 668.164(l), (3), requires that an institution return Student Financial Aid funds to the federal government no later than 240 days after the date the institution issued a check to a student or parent if the check is not cashed. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The UM Missoula lacks a process to ensure that Student Financial Aid funds from stale-dated checks are returned to the federal government. Questioned Costs: Questioned costs likely exist. UM Missoula could not estimate the amount owed to the federal government, but UM Missoula staff noted uncashed checks are rare. We cannot determine if questioned cost are more than $25,000. Questioned costs could apply to multiple ALNs. Context: UM Missoula applies the same refund process to all student and parent refunds, including Title IV Higher Education Act (HEA) funds. That process results in the transfer of HEA funds to the State as unclaimed property. These HEA funds are not returned to the federal government as required by federal regulations. Effect: UM Missoula is not returning all required federal funds to the federal government and is not adjusting affected students' accounts accordingly. As a result, students may owe more on their loans than the amount of aid they actually received. Cause: UM Missoula staff were unaware of the compliance requirement. Recommendation: We recommend the University of Montana Missoula: A. Enhance internal controls over the return of HEA funds to the federal government by documenting and following policies, and B. Comply with the federal requirement to return HEA funds from stale dated refunds no later than 240 days after the date that the institution issued a check. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-049 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.342 State Agency University of Montana, Missoula Campus (UM Missoula) Grant # Various Compliance Requirement E. Eligibility N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs $673,745 Criteria: Federal regulation 34 CFR 668.32(a) (1) requires that a student be enrolled or accepted for enrollment in an eligible program at an eligible institution to be eligible for Title IV funding. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During fiscal year 2025, the UM Missoula was victimized by identity theft fraud resulting in improper disbursements of federal Title IV Higher Education Act (HEA) funds. This type of fraud is a nationwide threat. UM Missoula's existing internal controls did not prevent or detect fraudulent enrollments in a timely manner, indicating a need to strengthen fraud detection measures. Questioned Costs: The total questioned costs are $673,745, representing HEA aid awarded to people posing as students. Approximately $30,000 of this amount relates to fiscal year 2026, which is outside of the audit period. According to university staff, $673,745 was returned to the federal government in fiscal year 2026. The known questioned cost by ALN is: • $534,627 in ALN 84.286, Federal Direct Student Loans • $3,613 in ALN 84.007, Federal Supplemental Educational Opportunity Grants • $95,002 in ALN 84.063, Federal Pell Grant Program The ALN for the approximately $30,000 in fiscal year 2026 is unknown, as is the approximate $10,000 from spring and summer of calendar year 2024. UM did not have the resources to review all activity in fiscal year 2024 and 2025. Therefore, there may be more likely questioned costs during fiscal years 2024 and 2025. Context: Between fiscal years 2024 and 2026, university staff became aware of more than 70 instances of identity theft that resulted in the disbursement of federal HEA funds under the fraud scheme. The 2026 information is included in this finding, because some of the instances of fraud found in 2026 affected disbursements during fiscal years 2024 and 2025. UM first became aware of the fraud when an individual reported that their identity had been used to enroll in online courses. UM then reviewed all students registered for the summer 2025 online session and identified 94 fraudulent enrollments, of which 63 received federal aid. Since the initial report, approximately seven individuals or loan servicers have brought additional cases to UM's attention. The disbursement periods for these cases were the summer of 2024, spring of 2024, and spring of 2026. UM staff noted that they have paid back all federal funds distributed as a result of the fraud. UM staff stated that they lack the resources to review all students across the full audit period for additional fraud. Most fraudulent enrollments were at Missoula College, which has a higher online enrollment. Based on a review of total enrollment at Missoula College, we determined that the fraud is unlikely to rise to the level of material noncompliance for the cluster as a whole. Effect: When UM returns federal funds that were obtained through fraud, it cannot recover those funds from the person posing as a student. The university's net cash loss, the amount actually disbursed during the fraud, was $377,937. The $673,745 reported above is the total amount awarded including amounts posted as tuition and fees as well as amount disbursed to student. Without stronger controls, UM faces risk of future financial loss. Additionally, the federal government may bear the cost of fraudulent loans that will never be repaid. Cause: Missoula College was likely targeted due to its higher volume of online enrollments and lower tuition costs, which result in greater cash disbursements to fraudulent enrollments after tuition and fees are deducted. Isolated incidents also occurred outside of Missoula College. UM staff reported maintaining controls during the audit period. Controls include standard federal aid eligibility verification, enrollment monitoring, and financial aid review processes. The fraud represents a national problem that the U.S. Department of Education is actively working to address. The sophistication and evolving nature of the fraud schemes exceeded the effectiveness of controls commonly used across higher education at the time. UM staff report they have since strengthened their fraud detection efforts through enhanced monitoring, increased cross-departmental review of suspicious activity, and expanded identity-verification procedures aligned with current guidance and best practices. Recommendation: We recommend the University of Montana Missoula continue to increase internal controls in an effort to ensure federal funds are awarded only to eligible students. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-050 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.342 State Agency University of Montana, Missoula Campus (UM Missoula) Grant # Various Compliance Requirement C. Cash Management Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified. Criteria: Federal regulation 34 CFR 685.300(b)(5) requires monthly reconciliations of Direct Loan funds received by the Department of Education to university records. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: UM Missoula staff did not complete all Direct Loan reconciliations as required and lacked effective controls to prevent noncompliance. Completed reconciliations were not adequately supported, and two months contained unreconciled differences. Context: We tested 6 out of 24 months of UM Missoula cash reconciliations in a nonrandom, nonstatistical sample. Two of the six months had no reconciliation completed. Of the four completed, only two included a secondary review. None of the completed reconciliations we reviewed retained support for cash balances and distributions. Two months showed an unreconciled difference of $8,251 with no explanation provided. Effect: Without effective internal controls, differences between the university’s data system and the federal data system may not be detected and corrected. Failure to complete Direct Loan reconciliations constitutes material noncompliance with federal regulations. Cause: UM Missoula experienced staff turnover during the audit period. The current Student Financial Aid director was unable to locate the two missing reconciliations. Controls to ensure reconciliations are completed, supported, and reviewed were not in place. Recommendation: We recommend the University of Montana: A. Strengthen internal controls over direct loan reconciliations, and B. Comply with direct loan reconciliation requirements. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-051 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.342 State Agency University of Montana, Missoula Campus (UM Missoula) Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation 34 CFR 668.165(a)(1) and (2) requires that before an institution disburses Title IV, HEA program funds for any award year, the institution must notify a student of the amount of funds that the student or his or her parent can expect to receive under each title IV, HEA program, and how and when those funds will be disbursed. If those funds include Direct Loan program funds, the notice must indicate which funds are from subsidized loans, which are from unsubsidized loans, and which are from PLUS loans. If an institution credits a student’s accounts for Direct Loans, Federal Perkins Loans, or TEACH Grant program funds, the institution must notify the student or parents of the right to cancel the loan. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: UM staff could not provide documentation of any required Title IV Higher Education Act (HEA) disbursement notifications for fiscal years 2024 and 2025. Context: In a sample test of 60 out of 30,162 students who received a Direct Loan and/ or a Pell grant, we tested 20 students from UM. This was a random nonstatistical sample. UM Missoula provided no evidence that required federal notifications were sent to any students tested. Staff noted that students access financial aid award and disbursement information through university systems, and that UM’s Student Financial Services publishes consumer information on Federal student aid, loan borrowing, withdrawal requirements, refund policies, and borrower responsibilities on its website. UM staff also explained that students complete federally required entrance counseling. However, UM staff acknowledged that existing communications do not fully address all disbursement notification requirements under federal regulations. Effect: Students and parents may not be aware of the total loans they are borrowing or their right to cancel those loans. Not notifying students of the specific items required by federal regulations is material noncompliance. Cause: There was staff turnover during the audit period. During the audit, university staff conducted internal inquiries of staff to determine how the notification process worked and no one was able to identify anyone who completed the required notifications. Recommendation: We recommend the University of Montana: A. Develop internal controls over the HEA disbursement notification process, and B. Comply with all notification requirements for HEA funds as required by federal regulations. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-052 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.342 State Agency University of Montana-Missoula (UM Missoula), MT Technological University, Butte (MT Tech), University of Montana Western (UM Western) and Helena College (Helena College) campuses Grant # Various Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulations, 34 CFR 675.19(b)(3), 34 CFR 674.19(d)(2), and 34 CFR 676.19(b)(3), require that regarding the Federal Work Study (FWS) program, the Federal Perkins Loans program, and the Federal Supplemental Educational Opportunity Grant (FSEOG) program, each year an institution shall submit Fiscal Operations Reports (FISAP) plus other information the Secretary of Education (Secretary) requires. The institution shall ensure the information reported is accurate and shall submit it on the form and at the time specified by the Secretary. Federal regulation, 34 CFR 668.24(e)(1)(i), requires institutions to keep the FISAP for the Federal Perkins Loan, FWS, and FSEOG programs and any records necessary to support the data contained in the FISAP for three years after the end of the award year in which the FISAP was submitted. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: UM Missoula's FISAP reports submitted during fiscal years 2024 and 2025 were unsupported, indicating that internal controls over FISAP reporting needs improvement. MT Tech was unable to provide support for one line item each year because it could not be located. UM Western’s FISAP reports in 2024 and 2025 contained line items which were not fully supported. Additionally, support provided by Helena College for the complex manual calculations used to support a significant number of lines on each report did not match the figures reported. Context: Each campus is required to complete the FISAP annually for its campus-based programs. The campuses use the Fiscal Operations Report portion of the FISAP to report expenditures and students served in the previous award year. The Application to Participate portion of the FISAP is to apply for funding for the following year. The fiscal year 2024 report covers the 2022–2023 school year, and the fiscal year 2025 report covers the 2023–2024 school year. We identified inaccuracies in the reported amounts, and estimates were used instead of actual amounts. The table below summarizes the total errors identified by campus. These issues indicate that controls over FISAP reporting were not effective. Repeat Finding: Montana’s Single Audit for the two fiscal years ended June 30, 2023, included recommendation 2023-020 for UM-Western, MT Tech, and Helena College to implement internal controls to ensure that FISAP reports submitted are accurate and supported to comply with federal regulations. UM Missoula was not included in the prior audit recommendation. Montana’s Single Audit for the two fiscal years ended June 30, 2021, included recommendation 2021-031 for UM-Western and Helena College to implement internal controls to ensure FISAP reports submitted are accurate and supported in compliance with federal regulations. UM Missoula and MT Tech were not included in this recommendation. Effect: Both reports submitted during the audit period by UM Missoula, MT Tech, UM-Western, and Helena College contained unsupported figures and inaccuracies. Inaccurate reporting to the federal government could affect the amount of future funding awarded or UM’s ability to participate in these programs. Cause: For UM, staff turnover during the audit period left current staff unable to locate all supporting documentation. For MT Tech, not all support was retained. Helena College uses a complex manual process to report a significant number of report lines, and documentation was not adequately retained to support this process. UM Western’s review process did not identify inaccurate reporting items. This indicates that controls at these campuses were not designed to be effective. Recommendation: We recommend the University of Montana Missoula, Montana Technological University, University of Montana Western, and Helena College: A. Enhance internal controls to ensure that FISAP information reported to the federal government is accurate by creating and documenting a review process that ensures reports are supported at the time reports are submitted, B. Enhance internal controls to ensure FISAP reports and support are retained in a central location, and C. Comply with federal requirements governing the Federal Perkins Loan, Federal Work-Study, and Federal Supplemental Educational Opportunity Grant programs by accurately completing FISAP reports. Views of Responsible Officials: The university concurs with the recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-053 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.342 State Agency University of Montana, Missoula campus (UM Missoula) Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 34 CFR 668.22, requires institutions of higher education to calculate the amount of Title IV, of the Higher Education Act (HEA), grant or loan assistance that must be repaid when a student who received such assistance withdraws. The calculation must include all days within the period that students are scheduled to complete, less scheduled breaks of at least five consecutive days. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Internal controls at the UM Missoula were not sufficient to ensure the calculation of unearned federal financial assistance was accurate. In our review of return calculations, we found several that did not subtract scheduled break days, resulting in overstated repayment amounts. Because UM Missoula returned more aid than required and the amount was less than $25,000, we do not consider the amount in error a questioned cost. Context: When a student receives HEA financial aid and withdraws, the university must calculate the percentage of aid earned based on the length of the term and how long the student attended, excluding scheduled breaks of five or more consecutive days. If the student attended less than 60 percent of the term, the institution must return the portion of unearned aid. Out of a population of 764 students, we tested 25. In 11 of the 25 students tested in a randomly selected nonstatistical sample, the calculation did not properly subtract scheduled break days, resulting in a higher calculated amount of aid to return. Repeat Finding: Montana’s Single Audit for the two fiscal years ended June 30, 2023, included recommendation 2023-026 to UM Missoula and affiliate campus University of Montana Western (UM Western) to enhance internal controls for accurate calculations and timely return of unearned aid, and to UM Missoula to comply with federal regulations. We determined that UM Western has fully implemented the recommendation, but that UM Missoula partially implemented the recommendation. Montana's Single Audit for the two fiscal years ended June 30, 2021, also included recommendation 2021-028 to UM Missoula and UM Western to enhance internal controls over the calculation and return of unearned HEA funds, and to comply with federal regulations. Effect: Not subtracting scheduled break days from the number of days a student attended UM Missoula resulted in errors in calculating earned HEA aid and led to inaccurate amounts of aid returned to the federal Department of Education. Cause: Staff did not consistently subtract scheduled break days from repayment calculations, indicating a weakness in internal controls over the federal aid return process.UM staff indicated that the oversite was due to turnover in the position responsible for inputting break days into the student information system used to calculate repayment amounts. Recommendation: We recommend the University of Montana Missoula: A. Strengthen internal controls to ensure scheduled break days are correctly subtracted when calculating the amount of federal aid to be returned upon student withdrawal, and B. Comply with federal regulations to accurately calculate and timely return unearned Title IV aid. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-054 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U. S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U. S. Department of Health and Human Services ALN # 93.342 State Agency University of Montana, Missoula campus (UM Missoula) Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 34 CFR 668.22(c)(4), requires institutions of higher education to document a student’s withdrawal date. Federal regulation, 34 CFR 685.309, requires institutions to report enrollment information, including withdrawals from enrollment, accurately and on time. Federal regulation, 34 CFR 668.24(c)(1)(iv)(C), requires institutions to maintain documentation of the amount, date, and basis of the institution’s calculation of any refunds or overpayments due to or on behalf of the student, or the treatments of Title IV Higher Education Act (HEA) program funds when a student withdraws. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: UM Missoula’s controls were insufficient to ensure all students, who received HEA aid and withdrew during the term they were awarded aid, were accurately reported to the National Student Loan Database System (NSLDS). Withdrawal dates differed between the two systems. Context: The federal Department of Education (ED) requires schools participating in the Direct Loan program to complete regularly scheduled enrollment reporting to NSLDS. Accurate, timely reporting allows ED to manage HEA aid, loan repayment dates, and program completion data. When a student withdraws from classes, staff record the withdrawal date in the university’s student information system, Banner, and use the National Student Clearinghouse (clearinghouse), a third-party organization, to complete enrollment reporting on behalf of the university. Staff can also manually update enrollment records, when necessary. From a nonstatistical sample population of 764 UM Missoula students, we tested 25 randomly selected students and found two students whose withdrawal dates in the federal system did not match the dates in the university's records. Montana’s Single Audit for the two fiscal years ended June 30, 2023, included recommendation 2023-027 to enhance internal controls to ensure all required students are reported to NSLDS, staff are aware of Banner programming rules, and to comply with federal requirements governing the enrollment reporting process. That recommendation was a repeat finding from Montana’s Single Audit for the two fiscal years ended June 30, 2021 (recommendation 2021-029). The cause of this reporting issue is unrelated to the prior audit recommendations. Therefore, we consider this a new audit recommendation. Effect: Inaccurate withdrawal date reporting resulted in noncompliance with Federal enrollment reporting requirements. Cause: The university's internal Student Financial Aid system, Banner, did not automatically update withdrawal dates in the NSLDS, indicating controls over system interfaces should be strengthened. UM staff stated that no formal process exists for confirming that updates to enrollment information are accurately transmitted. Also, a change in leadership during the audit period that led to inconsistencies in oversight and monitoring of the enrollment reporting process. Recommendation: We recommend the University of Montana Missoula: A. Strengthen internal controls to ensure enrollment status, including withdrawal dates, is reported accurately and timely to the National Student Loan Database System, and B. Comply with federal regulations to accurately and timely report enrollment information to the National Student Loan Database System. Views of Responsible Officials: The university partially concurs with the recommendation. Management agrees accurate and timely enrollment is essential to compliance with federal requirements and recognizes the importance of maintaining effective controls over the process. Management bases their partial concurrence on not yet completing their assessment of how the error occurred to fully correct the issue. Rebuttal of Views of Responsible Officials: We considered the university’s partial concurrence. The university plans to enhance monitoring, reconciliation, and verification procedures to support accurate and timely reporting of enrollment information, indicating they agree internal controls should be strengthened in order to comply with federal regulations. As such, our recommendation stands.
Finding 2025-056 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.342 State Agency University of Montana, Missoula campus (UM Missoula) Grant # Various Compliance Requirement E. Eligibility N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Internal controls were not sufficient to ensure all students' cost of attendance (COA) calculations are completely and accurately supported. Context: Before each academic year, the financial aid office calculates each student's estimated cost to attend UM Missoula. COAs may be adjusted on a case-by-case basis for special circumstances, and certain types of aid cannot exceed the COA. Out of 30,162 students (10,367 from UM), we tested a randomly selected nonstatistical sample of 20 UM students' COAs and found that one was less than UM Missoula’s original calculations by $1,382. Staff were unable to provide documentation explaining the difference. We tested 60 students in total, from all campuses in our rotation. We determined that the student did not receive aid for which they were not eligible, but ineffective internal controls increase the risk of awarding more aid than students are eligible for. Effect: Without effective COA controls students may qualify for aid amounts that do not reflect their eligibility. Cause: Staff could not immediately identify why the COA did not match and needed time to investigate whether an adjustment was made using professional judgment. Due to staff turnover, one employee handled nearly all audit requests. Ultimately, UM was unable to find documentation supporting the adjustment. Recommendation: We recommend the University of Montana - Missoula strengthen internal controls to ensure COA adjustments are documented and accessible to staff. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-041 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.264, 93.364, and 93.925 State Agency Montana State University (MSU) (all campuses) Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: MSU Bozeman did not designate a "qualified individual" to oversee and implement its required information security program for most of the audit period. MSU Bozeman designated a qualified individual in spring 2025. The Office of the Commissioner of Higher Education (OCHE) places the responsibility for compliance on the flagship campus. Therefore, this issue affects all MSU-affiliated campuses. Context: As a Student Financial Assistance program participant, MSU campuses are financial institutions subject to the Gramm-Leach-Bliley Act (GLBA), which has been in effect since 2003 and subject to audit since 2019. MSU campuses collect and store sensitive data, including student and employee personally identifiable information (PII). PII includes items such as names, Social Security numbers, and bank account information, as well as intellectual property and personal health information. Under its Program Participation Agreement with the Federal Department of Education, MSU campuses must comply with GLBA requirements. Federal regulations require institutions to designate a qualified individual responsible for overseeing and implementing the institution's information security program. Designating this individual was the only missing element. Therefore, this does not constitute material noncompliance for the MSU campuses. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included recommendation 2023-021 to continue developing and implementing internal controls to comply with GLBA requirements. Montana's Single Audit for the two fiscal years ended June 30, 2021, also included a related recommendation, 2021-022. Effect: Absent a designated point person to oversee and implement the information security program, the university risks mishandling sensitive student information which could lead to noncompliance. We are not aware of any security concerns during the audit period. Cause: OCHE delegated information security administration to flagship campuses, placing responsibility on MSU Bozeman. In September 2023, MSU Bozeman notified OCHE that it had identified its Chief Information Security Officer as the qualified individual but needed to formalize the designation in writing. According to university staff, the formalization was delayed because the Chief Information Security Officer position was vacant for seven months of the audit period. Recommendation: We recommend Montana State University enhance internal controls to maintain a designated qualified individual to oversee and implement its information security program, including in times of turnover. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-042 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.264, 93.364, and 93.925 State Agency Montana State University (MSU) (all campuses) Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: MSU campuses lacked sufficient controls to prevent employees from receiving compensation prohibited by federal regulations during the audit period. Context: The Montana Office of the Commissioner of Higher Education (OCHE), under the Board of Regents, oversees the Montana University System (MUS) and administers the Staff Compensation Plan. The plan covers all staff at MUS campuses, excluding student employees, faculty, coaches, and those with employment contracts or appointment letters. Staff may receive compensation adjustments, including strategic pay adjustments for retention, in-range progress reflecting increased job knowledge and duties, and lump sum bonuses. Supervisors initiate pay adjustments, which are then approved and processed by the human resources office (HR). Federal regulations prohibit MSU campuses from providing commissions, bonuses, or other incentives based on securing enrollment or financial aid. The MUS Staff Compensation Plan now explicitly prohibits such payments; however, this policy change was not made until December 2024, meaning internal controls were incomplete for most of the audit period. All campuses must continue implementing this policy through their own internal control procedures to prevent enrollment-based payments to employees involved in enrollment, admissions, or financial aid. Our testing found no instances of prohibited incentive compensation. Out of a population of 59 pay adjustments, we completed a nonrandom, nonstatistical sample of 16. Repeat Finding: Montana’s prior Single Audit report for the two fiscal years ended June 30, 2023, included a recommendation, 2023-023, to the universities to enhance internal controls to ensure employees do not receive compensation prohibited by federal regulations. Effect: Without effective internal controls, employees involved in enrollment, admissions, or financial aid remain at risk of receiving prohibited enrollment-based payments. Cause: The prior audit findings came to the attention of the Office of the Commissioner of Higher Education mid-audit period, leaving insufficient time to implement new controls for most of the audit period. If all universities implement the policy through their own internal control procedures, this issue should be resolved in the next audit. Recommendation: We recommend that all Montana State University campuses continue to enhance internal controls to ensure employees do not receive compensation prohibited by federal regulations. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-043 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.264, 93.364, and 93.925 State Agency Montana State University Bozeman (MSU Bozeman) Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: 34 CFR 668.164(l)(3), requires that an institution return Student Financial Aid funds to the Federal government no later than 240 days after the date that the institution issued a check to a student or parent if the check is not cashed. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: MSU Bozeman’s process to ensure the return of uncashed Title IV Higher Education Act (HEA) checks to the federal government was not carried out in fiscal year 2025, except for returns for Parent PLUS funds. Unreturned funds were less than $25,000, so no questioned costs were reported. Context: MSU Bozeman has a process to return Parent PLUS refunds to the federal government. The comparable process for other HEA funds was not completed during fiscal year 2025. All non-Parent PLUS HEA refunds during fiscal year 2025 were transferred to the State as unclaimed property rather than returned to the federal government. Per MSU Bozeman staff, there was a process to return uncashed checks to the federal government during fiscal year 2024. Effect: MSU Bozeman was not returning all required federal funds during fiscal years 2025 or 2026, but it will be able to return the 2026 checks within 240 days now that it is aware of the federal requirement. During fiscal year 2025, MSU Bozeman was also not adjusting affected students' accounts accordingly. As a result, there was a risk students could owe more on their loans than the amount of aid they actually received. Cause: Student refunds transitioned to a vendor around 2020. The previous Director of Student Accounts worked with the vendor to process files when a check had expired. A new director started at the beginning of 2025. The documented policies and procedures did not contain directions to process students’ expired checks, so knowledge was lost in the turnover. Recommendation: We recommend Montana State University Bozeman: A. Enhance their controls over the return of HEA funds to the federal government by documenting and following policies, and B. Comply with the requirement to return HEA funds from stale-dated refunds no later than 240 days after the date that the institution issued a check. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-044 Federal Program Name Student Financial Assistance Cluster (SFA) Federal Awarding Agency U.S. Department of Education ALN# 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN# 93.264, 93.364, and 93.925 State Agency Montana State University Bozeman (MSU Bozeman), Northern (MSU Northern), and Great Falls College – Montana State University (Great Falls College MSU) Grant # Various Compliance Requirement C. Cash Management Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 34 CFR 668.166(a), allows an institution to maintain a cash balance of any amount of Title IV Higher Education Act (HEA) funds for up to three business days before it becomes excess cash. Federal regulation, 34 CFR 668.166(b), allows an institution to maintain an excess cash tolerance of less than one percent of its prior year’s drawdowns for up to seven calendar days. The institution must immediately return any amount of excess cash over the one percent tolerance and any excess cash remaining in its account after the seven-day period. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: MSU Bozeman, MSU Northern, and Great Falls College MSU campuses lacked sufficient controls during the audit period to monitor excess cash balances of HEA funds. We identified multiple instances of excess cash at the MSU Bozeman campus. Context: We analyzed cash balances for all four Montana State University campuses throughout the audit period. At MSU Bozeman, we identified excess cash across all four SFA programs. Excess cash periods ranged from 11 to 444 days. They also varied in amount from approximately $1,000 to nearly $6 million. Specifically, we identified 3 excess cash periods for the Direct Loan program and 4 periods each for the Pell Grant, Federal Work-Study, and Federal Supplemental Educational Opportunity Grants (FSEOG) programs during the audit period. Following the prior Single Audit recommendation, MSU Northern and Great Falls College MSU implemented new daily cash monitoring controls at the start of fiscal year 2025. Before these controls took effect, one isolated instance of excess cash was identified at each campus. No additional noncompliance was identified for the remainder of the audit period, indicating the compliance portion of the prior audit recommendation is implemented for these campuses. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included recommendation 2023-025 to enhance internal controls to comply with federal regulations over cash management and excess cash. MSU Billings was part of the recommendation in the prior audit, but not in the current one. We did not find material noncompliance at MSU Northern, or Great Falls College in the current audit. Effect: MSU Bozeman did not comply with federal cash management requirements, resulting in excess cash that was not returned to the federal government. This noncompliance could affect the campus's federal funding or eligibility to participate in these programs, and could result in fines from the Department of Education. Without adequate controls, MSU Northern and Great Falls College MSU remain at risk of future cash management noncompliance. Cause: Following the prior Single Audit, MSU Bozeman began improving its cash management process but has not yet fully resolved the issue. The program activity is complex as SFA funds are constantly disbursed to students and reported to and drawn from the Department of Education. For FSEOG, federal and state match funds are deposited into the same account, making it difficult to manage federal cash separately and identify state fund disbursements. The campus also continued to earn interest on FSEOG funds, though it was unclear whether the invested money came from federal or state sources For MSU Northern and Great Falls College MSU, the prior audit recommendation was communicated, and a new daily monitoring process was developed, but implementation did not occur until halfway through the audit period. If these campuses continue to follow their new process, we expect the control portion of the prior audit recommendation will be implemented. Recommendation: We recommend: A. MSU Northern and Great Falls College MSU continue following their improved daily monitoring process to maintain compliance with federal cash management requirements. B. MSU Bozeman enhance internal controls by regularly monitoring cash balances to ensure compliance with federal cash management requirements. C. MSU Bozeman comply with federal requirements over cash management and excess cash. Views of Responsible Officials: The universities concur with this recommendation. For additional information regarding the universities’ planned corrective actions see the Corrective Action Plan starting on page D-1.
Finding 2025-045 Federal Program Name Student Financial Aid Cluster Federal Awarding Agency U.S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U.S. Department of Health and Human Services ALN # 93.264, 93.364, and 93.925 State Agency Montana State University Bozeman (MSU Bozeman) and Billings (MSU Billings) campuses Grant # Various Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulations, 34 CFR 675.19(b)(3), 34 CFR 674.19(d)(2), and 34 CFR 676.19(b)(3), require that regarding the Federal Work Study (FWS) program, the Federal Perkins Loans program, and the Federal Supplemental Educational Opportunity Grant (FSEOG) program, each year an institution shall submit Fiscal Operations Reports (FISAP) plus other information the Secretary of Education (Secretary) requires. The institution shall ensure the information reported is accurate and shall submit it on the form and at the time specified by the Secretary. Federal regulation, 34 CFR 668.24(e)(1)(i), requires institutions to keep the Fiscal Operations Report and Application to Participate (FISAP) for the Federal Perkins Loan, Federal Work-Study, and Federal Supplemental Educational Opportunity Grant (FSEOG) programs and any records necessary to support the data contained in the FISAP for three years after the end of the award year in which the FISAP was submitted. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Controls at MSU Bozeman and MSU Billings were not sufficient to ensure that the FISAP was complete and accurate in fiscal years 2024 and 2025. We identified multiple errors in the FISAP reports submitted by the two campuses. Context: Each campus is required to complete the FISAP annually for its campus-based programs. The campuses use the Fiscal Operations Report portion of the FISAP to report expenditures and students served in the previous award year. The Application to Participate portion of the FISAP is to apply for funding for the following year. The fiscal year 2024 report covers the 2022–2023 school year, and the fiscal year 2025 report covers the 2023–2024 school year. We identified inaccuracies in the reported dollar amounts, and estimates were used instead of actual amounts. The table below summarizes the total errors identified by campus. These issues indicate that controls over FISAP reporting were not effective. Repeat Finding: Montana’s Single Audit for the two fiscal years ended June 30, 2023, included a recommendation (2023-019) for MSU Bozeman, MSU Billings, and MSU Northern. Audit work over MSU Northern’s FISAP reporting did not identify any issues for fiscal years 2024 or 2025. Effect: Both reports submitted during the audit period by MSU Bozeman and MSU Billings contained unsupported figures and inaccuracies. Inaccurate reporting to the federal government could affect the amount of future funding awarded or MSU’s ability to participate in these programs. Cause: The misreported amount for Perkins cash on hand at MSU Bozeman is due to inherited historical errors on various lines in Part III of the FISAP which the reporting system requires to balance with the cash on hand line. Because of this, MSU Bozeman staff adjust the cash on hand line to submit the report, and the information reported did not agree to supporting documentation. Additionally, reviews do not catch all human errors. Internal controls should be strengthened to prevent inaccurate information from being reported to the federal government. MSU Billings can strengthen its internal controls to ensure staff use actual numbers instead of estimates. Recommendation: We recommend Montana State University Bozeman and Montana State University Billings: A. Enhance internal controls to ensure that FISAP information reported to the federal government is accurate by creating a review process that ensures reports are supported at the time reports are submitted, and B. Comply with federal requirements governing the Federal Perkins Loan, Federal Work-Study, and Federal Supplemental Educational Opportunity Grant programs by accurately completing FISAP reports. Views of Responsible Officials: MSU-Bozeman partially concurs with the recommendation. MSU-Bozeman management agrees additional efforts can be made to ensure accurate data elements are accurately reported, and indicates it has been transparent in communicating challenges validating the FISAP with Federal Student Aid going back to 2019. The university maintains the repayment and December cash on hand update is accurate for the distribution of asset calculation. MSU-Billings concurs with the recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1. Rebuttal of Views of Responsible Officials: We considered MSU-Bozeman’s partial concurrence. As discussed above, the cash on hand reported did not agree to supporting documentation. Additionally, MSU Bozeman agrees improvements can be made to FISAP reporting. As such, our recommendation stands.
Finding 2025-055 Federal Program Name Student Financial Assistance Cluster Federal Awarding Agency U. S. Department of Education ALN # 84.007, 84.033, 84.038, 84.063, and 84.268 Federal Awarding Agency U. S. Department of Health and Human Services ALN # 93.264, 93.364, and 93.925 State Agency Montana State University Bozeman (MSU Bozeman) Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 34 CFR 685.309, requires institutions to report enrollment information, including withdrawals from enrollment, accurately and on time. Federal regulation, 34 CFR 690.83, requires institutions of higher education to perform, correctly and timely, required reporting regarding Pell grants disbursed by the institution. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: MSU Bozeman’s controls were insufficient to ensure all students who received Title IV Higher Education Act (HEA) aid and withdrew in the same term were accurately reported to the National Student Loan Data System (NSLDS). Context: The federal Department of Education (ED) requires schools participating in the Direct Loan program to complete regularly scheduled enrollment reporting to NSLDS. MSU Bozeman uses the National Student Clearinghouse (clearinghouse), a third-party organization, for this reporting. MSU Bozeman staff extract data from Banner, the university's student information system, review it for errors, and send it to the clearinghouse for upload to NSLDS. If a student stops attending without completing official withdrawal paperwork, Banner does not record the withdrawal until after the semester ends. If that student is registered for the next semester, they continue to be reported as enrolled because the extract reflects the most current status and cannot capture retroactive changes. In these cases, campus staff must manually report the withdrawn status to NSLDS. From a randomly selected, nonstatistical sample of 1,673 students who received HEA aid and withdrew across multiple campuses in the Montana University System (690 from MSU Bozeman), we tested 11 MSU Bozeman students and found two whose withdrawals were not reported to NSLDS. The two students were identified as unofficial withdrawals after the semester ended and both were registered for the following semester. Effect: MSU Bozeman is noncompliant with enrollment reporting requirements for HEA aid programs. Not performing accurate, timely reporting impacts ED’s ability to manage HEA aid, loan repayment dates, and program completion information. Cause: Campus staff stated that manually updating enrollment status for students who unofficially withdraw while already registered for the next semester is time- and labor-intensive, particularly for a campus as large as MSU Bozeman. Recommendation: We recommend Montana State University Bozeman: A. Enhance internal controls to ensure all students who received HEA aid in a term and withdrew are reported to National Student Loan Database System as withdrawn in a timely manner, and B. Comply with federal requirements to complete enrollment reporting accurately and timely to the National Student Loan Database System. Views of Responsible Officials: The university concurs with this recommendation. For additional information regarding the university’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-078 Federal Program Name 1332 State Innovation Waivers Federal Awarding Agency U.S. Department of Health and Human Services State Agency Montana Office of the State Auditor (office) ALN # 93.423 Grant # SIWIW200014 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, Appendix A to Part 170, Title 2, requires pass-through entities to report each obligating action no later than the end of the month following the month in which the obligation was made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office did not have adequate internal controls to ensure timely submission of Federal Funding Accountability and Transparency Act (FFATA) reports. Context: The office passes all Innovation Waivers grant funds through to the Montana Reinsurance Association as a subrecipient. The office considers grant funds obligated upon receiving a notice of award from the federal Department of Health and Human Services, which triggers the FFATA reporting requirement. The office submitted both required FFATA reports late during the audit period: one five months late in fiscal year 2024 and one two months late in fiscal year 2025. Repeat Finding: This finding was previously reported as Single Audit Finding #2023-048 in the audit for the two fiscal years ending June 30, 2023. Effect: The office is not in compliance with FFATA reporting requirements. This limits the federal grantor agency's ability to transparently report program activity. Cause: The office receives notices of award from the Department of Health and Human Services at inconsistent times during the year. For fiscal year 2024, the office had not yet implemented new reporting procedures before the report was due, in part because the subrecipient needed to register on the Federal FFATA reporting site. For fiscal year 2025, the inconsistent timing of award notices made it difficult for the office to plan and complete the report on time. Recommendation: We recommend that the Montana Office of the State Auditor: A. Strengthen internal controls to ensure compliance with FFATA reporting requirements. B. Submit required FFATA reports no later than the end of the month following the month in which an obligation is made, as required by federal regulation. Views of Responsible Officials: The office concurs with this recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-093 Federal Program Name Adoption Assistance – Title IV-E (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.659 Grant # 2401MTADPT and 2501MTADPT Compliance Requirement B. Allowable Costs/Cost Principles Type of Finding Material Weakness and Material Noncompliance Questioned Costs $76,348 Criteria: In combination, federal regulations, 45 CFR 1356.40(b)(3) and 45 CFR 1356.60(a)(1)(ii), permit federal matching funds to be used for adoption assistance payments when the adoption assistance agreement contains certain elements, including the duration of the agreement and nature and amount of payment. Federal regulation, 2 CFR 200.403, indicates a cost is reasonable if it does not exceed an amount that a prudent person would incur under the circumstances prevailing when the decision was made to incur the cost. Federal regulation, 2 CFR 200.403(a), indicates one of the factors in determining this reasonableness is whether the cost is generally recognized as ordinary and necessary for the recipient's operation or the proper and efficient performance of the Federal award. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked internal controls to review daily subsidy rate changes when adoption agreements included multiple rates. As a result, the department overpaid adoption subsidies by more than $76,000 during the audit period. Questioned Costs: Based on the department's analysis of amount that should have been paid, we question $76,348 in federal subsidy payments made during the audit period. Additional questioned costs were identified outside the audit period. Context: The department made 74,232 subsidy payments during fiscal years 2024 and 2025, with the federal portion totaling approximately $32.2 million. We randomly selected a nonstatistical sample of 25 payments from fiscal years 2024 and 2025 and found two payments where the rate paid did not comply with the applicable adoption agreement. After we reported these errors, the department reviewed all payments made regarding 4,055 children with active subsidies during the audit period, including payments back to 2008. That review found overpayments for 37 children totaling more than $365 thousand in federal funds, and underpayments for 5 children totaling approximately $13.5 thousand. The federal portion of overpayments attributable to the audit period was approximately $76 thousand. The department returned $371 thousand dollars to the federal government in fiscal year 2026 for overpayments dating back to 2008 through 2026. Effect: The department did not comply with federal requirements to make adoption subsidy payments in accordance with signed adoption agreements. Some families were overpaid and others were underpaid, dating back to 2008. Cause: The department had no system to track instances where daily subsidy rates in adoption agreements were scheduled to change at a future date. Recommendation: We recommend the Department of Public Health and Human Services: A. Establish controls to track changes in daily subsidy rates throughout the adoption agreement period. B. Pay the daily subsidy rate in accordance with the signed adoption agreement. Views of Responsible Officials: The department concurs with the recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-022 Federal Program Name Airport Improvement Program, Infrastructure Investment and Jobs Act Programs, and COVID-19 Airports Programs (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.106 Grant # 3-30-0000-016-2020, 3-30-0000-019-2022, 3-30-0000-020-2024, 3-30-0050-009-2021, 3-30-0050-010-2021, 3-30-0050-011-2022, 3-30-0050-012-2024, 3-30-0082-022-2021, 3-30-0082-024-2021, 3-30-0082-026-2022, 3-30-0082-027-2022, 3-30-0082-028-2022, 3-30-0082-029-2023, 3-30-0082-030-2023, 3-30-0082-031-2023, 3-30-0082-032-2024, 3-30-0082-033-2025, 3-30-0082-034-2025 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.328, requires grant recipients to submit financial reports as stipulated in the terms and conditions of the federal award. The terms and conditions of Airport Improvement Program (AIP) grants require annual submission of SF-270 and SF-425 financial reports. Federal Aviation Administration (FAA) instructions for completing the SF-425 require that negative cash on hand be reported when a grant recipient has incurred eligible expenses in excess of reimbursements. If positive cash on hand is reported, the grant recipient must return the excess funds. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Department controls were insufficient to ensure financial reports were completed accurately, resulting in misreported financial information. Context: The department prepares SF-270 and SF-425 reports annually for each AIP grant, as required by grant terms and conditions. Both reports are prepared at the same time using the same financial data and are reviewed and certified by an accounting supervisor. During planning, auditors found that the department had transposed the cash receipts and cash disbursements lines on the SF-425, causing positive cash on hand to be reported. Because the department operates the Airport Improvement Program on a reimbursement basis, all cash is disbursed before FAA reimbursement is received. The department does not draw cash in advance of expenditures and should never report positive cash on hand. Auditors conducted a nonstatistical random sample of grant financial reports. Of the 18 grants requiring SF-270 and SF-425 reports during the audit period, auditors tested three and found multiple errors in two of them: • The state share of expenditures was reported as zero, even though the actual federal share was less than 100%, misstating multiple lines on both reports. • For one report, total expenditures were not supported by documentation. Effect: These reporting errors misrepresent the department's financial management of grant funds and reduce the FAA's ability to oversee their use. The transposition caused the SF-425 to show positive cash on hand, signaling to the FAA that the department held excess funds and owed a return, even though no excess funds existed. Across the reports reviewed, cash on hand was reported at amounts ranging from approximately $2,000 to $2 million. Cause: Neither the preparer nor the reviewer understood what each report line required. Report line names alone do not always make the required inputs clear, leading to incorrect entries. Recommendation: We recommend that the Montana Department of Transportation: A. Strengthen internal controls to ensure federal financial data is reported accurately. B. Work with the Federal Aviation Administration to clarify the required information for each SF-270 and SF-425 report line. C. Accurately report financial information on the SF-270 and SF-425 as required by the Federal Aviation Administration. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-023 Federal Program Name Airport Improvement Program, Infrastructure Investment and Jobs Act Programs, and COVID-19 Airports Programs (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.106 Grant # 3-30-0000-016-2020, 3-30-0000-019-2022, 3-30-0000-020-2024, 3-30-0050-009-2021, 3-30-0050-010-2021, 3-30-0050-011-2022, 3-30-0050-012-2024, 3-30-0082-022-2021, 3-30-0082-024-2021, 3-30-0082-026-2022, 3-30-0082-027-2022, 3-30-0082-028-2022, 3-30-0082-029-2023, 3-30-0082-030-2023, 3-30-0082-031-2023, 3-30-0082-032-2024, 3-30-0082-033-2025, 3-30-0082-034-2025 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: The Federal Aviation Administration (FAA) Authorization Act of 1994 (Public Law 103-305) requires commercial service airports to file annual financial reports with the FAA. Required information includes payments made to, services performed for, and land and facilities provided to governmental entities, as well as airport revenues, expenses, and other financial information. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Department controls were insufficient to ensure FAA-required financial reports were complete and accurate before submission, resulting in misreported financial information. Context: The department owns and operates West Yellowstone Airport, a commercial service airport in West Yellowstone, MT. The FAA requires the airport to submit two annual financial reports. The department, as the airport sponsor, designates an accountant to complete both reports. Neither report was reviewed for completeness or accuracy by a second staff member before submission to the FAA. The Operating and Financial Summary Report (FAA Form 5100-127) requires disclosure of funds collected and spent at the airport. We traced all financial line items in the reports submitted during the audit period to the department's financial records. Based on testing performed through August 25, 2026, of the 51 report lines reviewed, 5 line items on the fiscal year 2023 report and 6 line items on the fiscal year 2024 report differed from supported amounts by 10% or more. The Financial Government Payment Report (FAA Form 5100-126) requires disclosure of all services provided to governmental entities that are not used exclusively for airport operations and all payments over $1,000 to governmental entities. The department’s written procedures for FAA reporting contained no guidance for this form, noting only that it was unlikely to apply. As a result, the department submitted blank reports for both years of the audit period. Through review of the department’s financial records and discussions with department personnel, we identified reportable items including a land lease to a local government for a purpose unrelated to airport operations and six payments over $1,000 to governmental entities: • Three payments to a regional airport authority • One payment to a tribal government • Two payments to the U.S. Department of Agriculture Effect: By not reporting required activity accurately, the department reduced the airport’s financial and operational transparency and limited the FAA's ability to monitor the airport and verify compliance with grant requirements. The absence of a second reviewer also means additional reporting errors may exist, which could further limit the FAA's ability to detect the diversion of airport revenues. Cause: The department had not assigned anyone to review FAA reports, and no review was expected. The department's standing assumption that the Financial Government Payment Report did not apply to the airport led staff to not look for reportable activity, resulting in blank submissions. Recommendation: We recommend that the Montana Department of Transportation: A. Strengthen internal controls to ensure operating and financial data for West Yellowstone Airport is reported completely and accurately. B. Report all West Yellowstone Airport financial information as required by federal regulations. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-024 Federal Program Name Airport Improvement Program, Infrastructure Investment and Jobs Act Programs, and COVID-19 Airports Programs (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Administration (department, DOA) ALN # 20.106 Grant # 3-30-0000-016-2020, 3-30-0082-026-2022, 3-30-0082-027-2022, 3-30-0082-028-2022, 3-30-0082-029-2023, 3-30-0082-030-2023, 3-30-0082-031-2023, 3-30-0082-033-2025, 3-30-0082-034-2025 Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs Likely questioned costs exceed $25,000 Criteria: Federal regulation, 29 CFR 5.5(a)(3)(ii)(A), requires contractors to submit certified payrolls weekly for each week in which any contract work is performed. Federal regulation, 29 CFR 5.6(a)(1)(i), indicates that no payment should be made if a contractor or subcontractor is not in compliance with 29 CFR 5.5. Section §18-2-103, Montana Code Annotated (MCA), requires the department to supervise, review, and accept all construction activities costing more than $300,000 unless it delegates this responsibility to another state agency. Under its memorandum of understanding (MOU) with the Montana Department of Transportation (MDT) for the West Yellowstone Airport Terminal project, the Department of Administration retains construction administration duties. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department’s controls were insufficient to collect certified payrolls from airport terminal contractors timely during state fiscal years 2024 and 2025, resulting in noncompliance and likely questioned costs. Certified payrolls are the department's primary tool for verifying that contractors pay employees at least the prevailing wages required by the U.S. Department of Labor. Questioned Costs: We identified no known questioned costs. However, our sample found 21 payrolls certified more than 30 days late. Because contractors are paid monthly, the department likely paid contractors while out of compliance with certified payroll requirements. We believe likely questioned costs exceed $25,000. Context: During the audit period, DOA managed construction of a new terminal at the West Yellowstone Airport. MDT, as the airport sponsor, hired a consultant to help administer the project, including collecting weekly certified payrolls from contractors and subcontractors. The MOU between DOA and MDT did not specify which party was responsible for compliance with federal wage rate requirements, causing each party to assume the other was responsible. Because the MOU assigned construction administration to DOA, and collecting certified payrolls is a construction administration duty, DOA is the legally responsible party. We tested a random, nonstatistical sample of certified payrolls associated with 14 of 133 project invoices. We considered a payroll late if submitted more than 14 days after the end of the pay period, allowing contractors reasonable time to pay employees and compile payroll records. Of the 45 certified payrolls reviewed, 21 (46%) were submitted more than 30 days late. As a result, those contractors were not in compliance with payroll submission requirements when they requested payment. The project consultant withheld three of nine payments to one contractor for late payrolls. However, we also found payrolls outstanding for seven months or more without payment being withheld, and five payments were made to that same contractor during this period. Effect: By not collecting certified payrolls weekly, the department is not compliant with federal regulations and risks missing instances where contractors or subcontractors pay workers below required minimum wages. Detecting such underpayments is the core purpose of federal wage rate requirements. Cause: The department interpreted FAA guidance as requiring certified payroll collection only at project closeout and final payment. Federal guidance requires that no certified payrolls remain outstanding at the time of final payment; it does not permit the department to delay collection until then. Recommendation: We recommend the Montana Department of Administration: A. Strengthen internal controls to ensure contractors comply with weekly certified payroll requirements, and explicitly assign responsibility for federal wage rate compliance at the start of each project. B. Ensure contractors submit certified payrolls weekly and take corrective action, including withholding payment, when they do not comply, as required by federal regulation. Views of Responsible Officials: The department partially concurs with this recommendation. Management believes MDT held responsibility for certified payrolls as the agency responsible for grant administration and federal reporting, but agrees that responsibility for compliance should be explicitly stated in future projects. Rebuttal of Views of Responsible Officials: We considered the department's partial concurrence. Collecting certified payrolls is a construction administration function that requires knowing which contractors were on-site each week. As project administrator, DOA is best positioned to ensure compliance. As such, our recommendation stands.
Finding 2025-094 Federal Program Name Children’s Health Insurance Program (CHIP) (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.767 Grant # 2305MT3002, 2305MT5021, 2405MT5021, 2505MT5021 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles Type of Finding Material Weakness Questioned Costs Approximately $26,000 Criteria: Federal regulation, 2 CFR 200.403(a), requires expenditures to be necessary and reasonable for the performance of the federal award. Federal regulation, 42 CFR 457.402, defines child health assistance as payment for part or all of the cost of health benefits coverage for targeted low-income children. Federal regulation, 42 CFR 457.310(a), states that a targeted low-income child is a child who meets federal and state eligibility standards. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department did not take timely corrective action to resolve known data interface issues that were causing inaccurate eligibility information to be reported to the department’s contractor. These issues led to claims being paid for ineligible CHIP program participants. Questioned Costs: The department provided a list of payment adjustments for ineligible individuals. Using the Federal Medical Assistance Percentages (FMAP) rates in effect, we calculated the federal share of the adjustment and used that number to arrive at questioned costs of approximately $26,000. Context: The department uses a contractor to review and pay benefit claims. The contractor paid a total of $146.6 million in claims during the audit period. The contractor relies on eligibility information from the department’s system, provided through a system interface. The department found that the interface was not working properly, resulting in payments for ineligible individuals. At the end of the audit period, the interface issue was unresolved. After identifying the issue, the department reviewed claims and eligibility data to find all cases where claims were paid for ineligible individuals. They worked with the contractor to adjust these claims. In total, adjustments were made for 48 beneficiaries of approximately $26,000 in federal share. These adjustments occurred in fiscal year 2026, after the audit period. Effect: Without timely corrective action, the department risks paying claims for ineligible beneficiaries. The identified costs incurred for ineligible beneficiaries totaled about $26,000, but the amount could have been higher due to the timing of the department’s review and the nature of the issue. Cause: The department’s interface with the contractor did not function properly, resulting in payments for individuals who were not eligible for coverage. The department did annually review data to determine if benefits were paid to ineligible individuals, but it was not timely enough to resolve all issues during the audit period. Recommendation: We recommend the Department of Public Health and Human Services: A. Enhance internal controls to identify and correct payments for ineligible individuals timely. B. Continue to investigate and resolve the interface issue with the contractor to prevent future payments to ineligible individuals. Views of Responsible Officials: The department does not concur with this recommendation. The department indicates they identified an interface issue and promptly corrected the affected payments. Additionally, the department believes the errors were limited and immaterial to the financial statements, indicating if errors had been larger they would have been corrected prior to fiscal year end. The department states the interface issue was fully corrected in April 2026. Rebuttal of Views of Responsible Officials: We considered the department’s nonconcurrence with the recommendation. While the department did correct the affected payments and indicate that the interface issue was corrected, these corrections did not occur within the audit period. As such, our recommendation stands.
Finding 2025-095 Federal Program Name Children’s Health Insurance Program (CHIP) (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.767 Grant # 2305MT3002, 2305MT5021, 2405MT5021, 2505MT5021 Compliance Requirement B. Allowable Costs/Cost Principles N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs Likely questioned costs exceed $25,000 Criteria: Federal regulations, 42 CFR 455.410 and 455.412, require the department to ensure CHIP providers are licensed, screened, and enrolled in accordance with the State Plan requirements. These activities are required for a provider to receive CHIP payments. Medicaid Provider Enrollment Compendium (MPEC), section 1.5.B, indicates a state may delegate provider enrollment and screening to a third party. If screening is delegated, the state must make sure third parties are carrying out activities consistently and should make sure the third party is documenting screening. The state also remains responsible for screening activities delegated to third parties. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacks agency-level controls to ensure its contractor follows approved policies and procedures and properly documents the enrollment of CHIP-only providers, as required by federal regulations. As a result, the department cannot demonstrate compliance for any of these contractor-enrolled providers. Questioned Costs: The department pays its contractor a lump sum for all provider claims processed in a given period. Because payment data is not separated by provider, the amount paid to the 948 providers whose compliance could not be verified cannot be determined. We believe likely questioned costs exceed the $25,000 threshold due to noncompliance. Context: The department uses two processes for CHIP provider screening and enrollment. Providers who also provide Medicaid services are screened and enrolled by the department. CHIP-only providers are screened and enrolled by a contractor. Policies and procedures used by the contractor are reviewed and approved by the department when federal regulations change, when the contractor makes a change to the policies and procedures, and during contract renewals. The department’s process includes confirming that the policies and procedures are consistent with federal requirements. In fiscal year 2025, the department began receiving quarterly summary information from the contractor, showing which providers were enrolled as well as some screening and enrollment data. While the department does have discretion in determining what controls to implement to comply with federal regulation, the new information does not include details on the screening and enrollment process or documentation of the contractor’s decisions and, therefore, is not sufficient to demonstrate compliance. As such, we could not test whether CHIP-only providers were enrolled as required by federal regulations and consider the amount paid to these providers to be questioned costs and noncompliance. After we identified this issue, the department reached out to the Centers for Medicare and Medicaid Services (CMS). CMS responded on March 3, 2026, via email, and reiterated the MPEC requirements. Specifically, CMS indicated that “in the event the [department] opts to delegate screening…, the [department] should make sure third parties are carrying out activities consistently… In addition, the [department] should make sure the third party is documenting screening.” Currently, the department’s controls do ensure that the contractor has processes set up to consistently screen provider enrollments. Due to this, we consider Single Audit finding #2023-065 partially implemented because the department does not review documentation to confirm the contractor actually follows their procedures or properly conducts provider screening and enrollment. CHIP program benefits and claims for the audit period totaled $159 million, with about 54 percent paid to providers enrolled by the contractor. Of 44,813 providers, 948 were CHIP-only providers subject to contractor enrollment, for whom compliance cannot be demonstrated. Repeat Finding: This is a repeat finding, previously reported as Single Audit finding #2023-065 for the two fiscal years ended June 30, 2023. Effect: Without agency-level controls over contractor-provider enrollment, the department is not in compliance with federal regulations. Payments to providers not properly screened and enrolled are unallowable, putting the department at risk for unallowed costs. Likely questioned costs were identified for the audit period. Cause: During the audit period, the department enhanced internal controls by reviewing contractor policies and procedures and obtaining summary information. Staff believed these were sufficient controls. However, these procedures do not allow the department to determine if the contractor is following all federal requirements for contractor-enrolled providers. Recommendation: We recommend the Department of Public Health and Human Services: A. Develop and maintain internal controls to confirm that provider eligibility screening and enrollment decisions made by the department’s contractor are performed in accordance with approved policies and are documented as required by federal requirements. B. Ensure providers enrolled by the department’s contractor are licensed, screened, and enrolled, as required by federal regulations, to ensure payments are only made to the licensed and enrolled providers. Views of Responsible Officials: The department does not concur with this recommendation. The department noted that its existing screening and enrollment controls satisfy the federal requirements and the federal grantor agency reviewed those controls and closed the prior audit recommendation. The department implemented enhanced internal controls in 2025 in response to the prior audit recommendation. The department also noted that the form and manner of oversight activities remain within the state agency’s discretion. Given the federal grantor agencies review of the enhanced controls, the department believes its controls are sufficient. Rebuttal of Views of Responsible Officials: We considered the department’s nonconcurrence with the recommendation. While the department did enhance controls, this did not occur until over halfway through the audit period. Given these enhanced controls we consider the prior recommendation partially implemented. Additionally, the department does not have documentation to show that the provider eligibility screening and enrollment decisions made by the department’s contractor are documented, as required by federal requirements. As such, our recommendation stands.
Finding 2025-096 Federal Program Name Children’s Health Insurance Program (CHIP) (COVID-19) Federal Awarding Agency U.S Department of Health and Human Services (HHS) State Agency Department of Health and Human Services (department) ALN # 93.767 Grant # 2105MT5021 and 2205MT5021 Compliance Requirement L. Reporting Type of Finding Other Matter Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR Part 170, Appendix A(I)(a)(1) and (a)(2)(ii), requires non-federal entities to report each subaward obligation of $30,000 or more to the Federal Funding Accountability and Transparency Act (FFATA) reporting system no later than the end of the month following the month the obligation is made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During fiscal years 2024 and 2025, the department's internal controls were not sufficient to ensure that only required subrecipient actions for the CHIP of $30,000 or more were accurately, completely, and timely reported to the FFATA reporting system. Montana has no CHIP subrecipients; however, the department submitted significant FFATA reports for the program. Context: For all major federal programs for which FFATA was applicable for testing, we reviewed all obligations reported during the audit period and compared them with subaward agreements and amendments provided by the department. Montana has no CHIP subrecipients or subrecipient agreements. Therefore, the department should not have filed any FFATA reports for CHIP; however, it filed 12. The number of instances and corresponding dollar amounts are summarized below. Our analysis was conducted using FFATA reporting system data as of July 2025. We considered each transaction submitted, or omitted, by the department and compared information against executed subaward agreements from the audit period, as provided by the department. Any corrections the department made during fiscal year 2026 were not considered in our testing for this audit but will be considered during the fiscal year 2026 audit. Effect: FFATA reporting provides transparency to federal grantor agencies and the public. Because Montana has no CHIP subrecipients, the 12 incorrectly filed reports could mislead users of FFATA data. Cause: The department uses a central contracting system to capture obligations, which include both subrecipient and contractor relationships. The system is used to process payments and identify which agreements require FFATA reporting. However, information entered into the system did not distinguish between contractor and subrecipient relationships, was not consistently accurate and was not always entered at the time of obligation. Department personnel responsible for FFATA reporting indicated they are working with federal program staff to implement process changes to ensure FFATA reports are filed only for subrecipients and are accurate and timely. Recommendation: We recommend the Department of Health and Human Services: A. Enhance internal controls over FFATA reporting to ensure only required FFATA reports for the Children's Health Insurance Program are submitted. B. Only report required FFATA information for the Children's Health Insurance Program. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-097 State Agency Department of Public Health and Human Services (department) Federal Awarding Agency U.S Department of Health and Human Services (HHS) Federal Program Name Children’s Health Insurance Program (CHIP) (COVID-19) ALN # 93.767 Grant # 2305MT3002, 2305MT5021, 2405MT5021, 2505MT5021 Federal Program Name Medicaid Cluster (COVID-19) ALN # 93.775, 93.777, and 93.778 Grant # Various Compliance Requirement E. Eligibility Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 42 CFR 435.912(c)(3), requires non-Federal entities to, among other things, make a determination of eligibility for Medicaid within 90 calendar days for applicants who apply for Medicaid on the basis of disability and 45 calendar days for all other applicants. Federal regulation, 42 CFR 457.340(d)(1), applies the timeliness and performance standards established by 42 CFR 435.912 equally to CHIP. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked sufficient internal controls to ensure timely eligibility determinations were made for initial Medicaid and CHIP applications. During the audit period, the department did not meet the timeliness standards required by federal regulations. Context: The department accepts, enters, and processes Medicaid and CHIP applications through an eligibility system. Applications are assigned to eligibility groups, tracked by supervisors via a caseload management report, verified through system interfaces and manual follow-up, and then issued an eligibility determination. We tested a nonstatistical random sample of initial Medicaid and CHIP applications to determine whether eligibility determinations were made within the required timeframe. Testing identified multiple instances of untimely determinations, as summarized below. The department’s initial application records for the audit period indicate a similar proportion of untimely determinations are likely to exist in the overall population. Effect: The department is not compliant with federal regulations. Untimely determinations delay benefits for eligible applicants. Without stronger controls, the department risks further noncompliance. Cause: During the audit period, the department was unwinding from the COVID-19 Public Health Emergency. The expiration of expanded eligibility waivers led to a significant surge in renewals, increasing the overall workload and causing processing delays. The department indicated they prioritized making redeterminations and were unable to consistently process new applications timely due to the added volume and resource constraints. Recommendation: We recommend the Department of Public Health and Human Services: A) Strengthen internal controls to ensure eligibility determinations are made timely. B) Make eligibility determinations for the Medicaid and CHIP programs within the timeliness standards required by federal regulations. Views of Responsible Officials: The department concurs with the recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-037 Federal Program Name Coronavirus State and Local Fiscal Recovery Funds (COVID-19) (SLFRF) Federal Awarding Agency U.S. Department of the Treasury State Agency Department of Administration (department) ALN # 21.027 Grant # SLFRP1747 Compliance Requirement M. Subrecipient Monitoring Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked sufficient internal controls to ensure that total federal award amounts were communicated to all subrecipients receiving broadband funding under SLFRF grants. Context: Federal subrecipient monitoring award requirements state that pass-through entities must notify each subrecipient of the total amount of the federal award committed to the subrecipient across all subawards. The department reviewed and approved broadband subgrants all at once. Several subrecipients applied for and received multiple SLFRF subawards for different broadband projects. The department used an appendix in the subaward agreements to communicate required elements to subrecipients. However, Element 10, "Total Amount of the Federal Award Committed to the Subrecipient by the Pass-Through Entity", reflected only the individual grant total and did not account for other grants issued to the same subrecipient. The department had no other documentation showing that the cumulative total of federal award was communicated to subrecipients during the audit period. The department reported 12 unique subrecipients receiving a total of 34 SLFRF broadband subawards. In a randomly selected nonstatistical sample of six subrecipients tested, five received more than one SLFRF-funded grant without receiving specific communication from the department, as the pass-through entity, about the total federal award committed to them. Effect: Inaccurate or incomplete total federal award amounts communicated to subrecipients can result in incorrect Schedule of Expenditures of Federal Awards reporting for the subrecipient, which is used to determine when a subrecipient is required to obtain a single audit. Cause: Department personnel indicated they chose to include just the dollar amount of the individual subaward, not the total of all subawards, in Element 10 to avoid needing to update or modify agreements in the event that other subaward amounts were declined or required modification. Based on our review, however, the department signed all subawards at the same time, so could have included total amounts in Element 10. Alternatively, the department could have chosen to communicate the total amount of the federal award committed to the subrecipients separately from the individual subawards once all subaward agreements were signed, but did not do so. Recommendation: We recommend the Department of Administration strengthen internal controls to ensure all required subaward elements, including total federal award amounts, are communicated to subrecipients on a timely basis. Views of Responsible Officials: The department partially concurs with the recommendation. Management agrees the aggregate funding amount must be communicated to subrecipients. However, management claims subrecipients were formally notified of the aggregate funding amount across all projects. In addition, management indicates subrecipients have access to cumulative award amounts through access to an online portal. Rebuttal of Views of Responsible Officials: We considered the department’s partial concurrence. While the department indicates they formally notified the subrecipients of their total federal awards, evidence of this was not provided during our audit. As such, our recommendation stands.
Finding 2025-039 Federal Program Name Coronavirus State and Local Fiscal Recovery Funds (SLFRF) (COVID-19) Federal Awarding Agency U.S. Department of the Treasury (Treasury) State Agency State of Montana Governor’s Office (office) ALN # 21.027 Grant # N/A Compliance Requirement L. Reporting Type of Finding Material Noncompliance and Material Weakness Questioned Costs No questioned costs identified Criteria: Federal regulation, 31 CFR 35.4, requires recipients to provide the Secretary of the Treasury periodic applicable reports providing detailed accounting of the uses of funds. Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance Chapter 2, Section B, Part 3(b) requires that for all projects entered into the reporting portal, each project should report the current period obligations, cumulative obligations, current period expenditures, and cumulative expenditures. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The Governor's office was required to submit quarterly Project and Expenditure Reports to the Treasury. Testing found that the key line item, current obligations, was materially misstated for the quarters ending 09/30/24 and 12/31/24. The 09/30/24 misstatement also caused cumulative obligations to be misstated as of that date. The office, which administered SLFRF funds on behalf of all state agencies, lacked sufficient controls to ensure the key line item, current obligations, was accurately reported. We determined that the department had sufficient internal controls over the other key line items. Context: The state of Montana received SLFRF funds during the prior audit period. The office oversaw the administration and allocation of these funds to state agencies, including responsibility for submitting quarterly Project and Expenditure Reports to the Treasury. The required report elements include current quarter expenditures, cumulative expenditures, current quarter obligations, and cumulative obligations. Per the 2022 SLFRF Final Rule, an obligation means “an order placed for property and services and entering into contracts, subawards, and similar transactions that require payment.” In March 2024, Treasury issued new guidance clarifying how obligations could be established before the December 31, 2024 deadline, the date by which all SLFRF funds had to be obligated or returned. This new guidance allowed for interagency agreements between the office and other state agencies to constitute obligations if certain conditions were satisfied in the interagency agreements. In response, the office executed addendums to its interagency agreements with state agencies to ensure those agreements met Treasury's definition of an obligation. A review of the addenda showed that many were signed and therefore obligated for the quarter ending 09/30/24. However, the office did not report many of these as current obligations for that quarter. Instead, it reported obligations for those agencies up to their budgeted amounts in the quarter ending 12/31/24. The table below shows the quarterly misstatements identified. While the office misreported the current obligations that were made with SLFRF funds, it did not affect the cumulative obligations made by the Treasury imposed, December 31, 2024, obligation deadline. Our audit work determined that the office had insufficient controls in place to verify the accuracy of reported obligations. The office is required to report activity through the Treasury’s reporting portal. The portal has controls built into it, such as flagging errors if cumulative expenditures were greater than cumulative obligations, if cumulative obligations reported were greater than the budgeted amount for the project, and validation checks to ensure that current period entries reconciled to prior period entries. The office also required state agencies to sign Memorandum’s of Understanding (MOUs) that included budget controls and to submit project information through a standardized form. While these forms had checks in them, including requiring data to be entered into two separate forms, there was no control in place to ensure what was submitted for current obligations by an agency was supported by a contract or addenda signed with the office. Effect: Current obligations were not accurately reported, resulting in noncompliance with federal reporting requirements. By under-reporting obligations for the quarter ending 09/30/24, the federal government was not properly informed of the state's intended use of SLFRF funds. Treasury may have concluded that a significant portion of cash would be returned at the end of the obligation period. Cause: Office staff believed the Treasury reporting portal, along with the MOUs, the use of the standardized form and expense ties performed by the office provided sufficient controls to prevent material misstatement. They also believed their oversight of agency-level controls satisfied their own reporting responsibilities. Regarding the misstated obligations specifically, office personnel felt it was not practical to report obligations for addenda signed from July 2024 through September 2024, given the volume of projects and funding considerations as they approached the 12/31/24 deadline. The office also sought additional internal assurance of the MOUs to ensure they aligned with the Treasury guidance provided in March, before reporting the obligations in the Treasury portal for the quarter ended 12/31/24. Recommendation: We recommend the State of Montana Governor's Office: A. Implement internal controls to ensure the current obligations key line item is reported accurately. B. Accurately report all individual elements of the quarterly Project and Expenditure Report each quarter. Views of Responsible Officials: The office does not concur with the recommendation. Management notes that as cumulative obligations were accurately reported as of the December 2024 deadline there is no noncompliance. The office states that the controls they had in place were sufficient to prevent inaccurate reporting. Rebuttal of Views of Responsible Officials: We considered the office’s nonconcurrence. As discussed above, the office was required to submit reports quarterly. These quarterly reports are individually material to the reporting requirement. These reports include information about activity that occurred during the quarter including obligations made during the quarter. Current obligations are considered a key line item, which indicates the Treasury considered it important information. The office misconstrues our opinion that not having sufficient controls over reporting current obligations as having no controls over current obligations. As stated above, as the office did not have a control in place to ensure what was submitted as current obligations was supported by contracts/addenda signed. As such, our recommendation stands.
Finding 2025-101 Federal Program Name Disaster Grants – Public Assistance (Presidentially Declared Disasters) (COVID-19) Federal Awarding Agency U.S. Department of Homeland Security State Agency Department of Military Affairs (department) ALN # 97.036 Grant # 4508DRMTP00000001, 4608DRMTP00000001, 4623DRMTP00000001, 4655DRMTP00000001, 4726DRMTP00000001, 4745DRMTP00000001, 4801DRMTP00000001, 4813DRMTP00000001 Compliance Requirement M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.332(d), requires pass-through entities to monitor subrecipient activities. Monitoring must ensure subrecipients take timely, appropriate action on all award deficiencies and resolve related audit findings. As of October 2024, these same requirements are now in 2 CFR 200.332(e). Federal regulations, 2 CFR 200.332(d)(3) and 2 CFR 200.521, require pass-through entities to issue management decisions for audit findings applicable to Federal awards passed to subrecipients. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked sufficient internal controls to ensure it performed all required subrecipient monitoring in fiscal years 2024 and 2025. We identified multiple instances of noncompliance with subrecipient monitoring requirements during the audit period. Context: When a disaster is declared in Montana, the department subgrants federal funds to cities, counties, and nonprofits to support local recovery. Federal regulations require the department to monitor subrecipients to ensure funds are spent properly and issues are resolved promptly. During the audit period, the department paid $53,947,993 to subrecipients for 187 projects across 8 disasters. The department did not begin reviewing subrecipient audit reports until May 2025 and had not completed all reviews as of July 30, 2025. Of 24 subrecipients who should have had an audit reviewed during the audit period: • 10 were not included on the monitoring spreadsheet • 2 were listed but had no audits reviewed • 12 had only one audit reviewed Federal regulations further require the department to issue management decisions for audit findings applicable to the department’s sub-granted federal awards. We identified three subrecipients with findings tied to the Disaster Grants program. Although the department corresponded with these subrecipients about the findings, no management decisions were issued. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023 included recommendation #2023-074, directing the department to implement controls to obtain and review subrecipient audit reports and to obtain and review audit reports of entities receiving grants. Effect: Without adequate subrecipient monitoring, the department is unaware of findings related to its grants or similar federal programs. This increases the risk of misspent federal funds and the department providing additional funds to a subrecipient who has already mishandled federal funds. It also means the department cannot determine when management decisions, corrective action plans, or additional monitoring are needed to ensure subrecipient compliance. Cause: The failure to review audit reports was previously identified as recommendation #2023-074. The department began developing a review process in August 2024 following that finding, but implementation was slow, and reviews of audit reports only began in late spring 2025. Additionally, department staff knew that management decisions are required for applicable findings but were unaware of the specific required elements or deadlines and believed their email correspondence was sufficient. Recommendation: We recommend the Department of Military Affairs: A. Strengthen internal controls to ensure subrecipient monitoring is performed as required by federal regulations. B. Obtain and review audit reports for all entities receiving subgrants from the department. C. Issue management decisions for all audit findings applicable to federal awards sub-granted by the department. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-102 Federal Program Name Disaster Grants – Public Assistance (Presidentially Declared Disasters) (COVID-19) Federal Awarding Agency U.S. Department of Homeland Security State Agency Department of Military Affairs (department) ALN # 97.036 Grant # 4508DRMTP00000001, 4608DRMTP00000001, 4623DRMTP00000001, 4655DRMTP00000001, 4726DRMTP00000001, 4745DRMTP00000001, 4801DRMTP00000001, 4813DRMTP00000001 Compliance Requirement B. Allowable Costs/Cost Principles M. Subrecipient Monitoring N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs $7,814,126 in total questioned costs: $1,528,856 known and $6,285,270 likely. Criteria: Federal regulation, 2 CFR 200.403(c), requires costs to be consistent with policies and procedures applied uniformly to both federally financed and other activities of the recipient or subrecipient to be allowable. Federal regulation, 2 CFR 200.403(g), requires that costs be adequately documented to be allowable. Federal regulation, 2 CFR 200.332, requires pass-through entities to monitor subrecipient activities. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked internal controls to ensure costs were supported and documented before making payments on Disaster Grant projects. We identified multiple subrecipient projects with unsupported or inadequately documented costs. Questioned Costs: We identified $7,814,126 in total questioned costs: $1,528,856 known and $6,285,270 likely. We calculated likely questioned costs by analyzing a selection of project invoices and found that 32% were supported and 68% were not. We then projected that 68% rate to the remaining project costs. Context: During the audit period, the department paid $53,947,993 to subrecipients for 187 projects across 8 disasters. We planned to test a nonrandom, nonstatistical sample of 19 projects but stopped after finding errors in 2 of the first 5 projects tested. The first project provided emergency protective measures during the COVID-19 public health emergency, primarily temporary medical staffing. The second project repaired and replaced more than 100 miles of fencing damaged by wildfire. Across the two projects, we identified known questioned costs via the following documentation errors: • $153,240 paid with no invoices on file. • $868,709 paid when the contract lacked personnel rates needed to calculate payment. • $33,962 paid when invoices lacked sufficient detail to support the payment. • $39,920 paid over the contract limit. • $345,213 paid for materials without a required contract or other procurement documentation showing the subrecipient had followed their procurement policy. • $87,813 for Tribal Employment Rights Office fees paid twice, once by the contractors and once by the Federal Emergency Management Agency (FEMA). Additionally, $6,285,270 in likely questioned costs stemmed from the same lack of personnel rates in the contract. Effect: The department did not comply with federal regulations, resulting in more than $7.8 million in questioned costs for the program. Cause: Both projects were fully validated and closed through FEMA's large project closeout and Validate As You Go (VAYGO) processes. The department is uncertain how the documentation gaps occurred and believes the completed validation indicates costs were reviewed and deemed allowable, even if certain documents were absent from the files at the time of the audit. In the instance where no contract was executed by the subrecipient when it should have been under the subrecipient’s procurement policy, the department and subrecipient believed no contract was needed because materials were purchased as the project progressed. However, even when each of the seven purchases is considered individually, five would require at least some procurement documentation, and two would require a formal contract based on dollar amount alone. Considered together as a single project to replace 100+ miles of fence, all purchases would have required a contract under the subrecipient's procurement policy. Recommendation: We recommend the Department of Military Affairs: A. Strengthen internal controls to ensure subaward costs are adequately supported and retain supporting documents, as required by federal regulations. B. Comply with federal regulations by paying only allowable project costs to subrecipients. Views of Responsible Officials: The department partially concurs with the recommendation. Management agrees there is an opportunity to improve project documentation retention. However, they reiterate the reviewed projects were validated and deemed allowable through both the department and FEMA. Rebuttal of Views of Responsible Officials: We considered the department’s partial concurrence. While the projects were closed and validated by both the department and FEMA, we are required to include closed projects within the scope of our audit procedures, as requested and required by FEMA. Closed projects must be adequately documented. As a result, our recommendation stands.
Finding 2025-103 Federal Program Name Disaster Grants – Public Assistance (Presidentially Declared Disasters) (COVID-19) Federal Awarding Agency U.S. Department of Homeland Security State Agency Department of Military Affairs (department) ALN # 97.036 Grant # 4508DRMTP00000001, 4608DRMTP00000001, 4623DRMTP00000001, 4655DRMTP00000001, 4726DRMTP00000001, 4745DRMTP00000001, 4801DRMTP00000001, 4813DRMTP00000001 Compliance Requirement M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.332(a)(1)(xii), requires the pass-through entity to provide the Assistance Listing Number (ALN) to each subrecipient. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked sufficient internal controls to ensure it provided the ALN to all subrecipients as required by federal regulations in fiscal years 2024 and 2025. We identified multiple instances where the ALN was not provided to subrecipients during the audit period. Context: During the first half of the audit period, the department provided the ALN to subrecipients in payment letters accompanying project payments. Recommendation #2023-074 in the prior audit determined that the ALN was not consistently included in those letters, as its inclusion depended largely on which staff member prepared the letter. Beginning with the disaster declared in July 2024, the department adopted subgrant agreements that include the ALN as standard practice. However, the department did not retroactively collect agreements for older projects. Because projects span multiple years, we focused testing on payment letters issued during the audit period for the six open disasters declared before July 2024 and the subgrant agreements for disasters declared after that point. In a nonrandom, nonstatistical sample of 19 of 187 projects, we found five projects where the ALN was missing from at least one payment letter. In three of those projects, the ALN appeared in later letters but not all. However, these items are still considered errors because subrecipients could not have known the ALN at the time of earlier disbursements. One project also had an incorrect ALN in two letters. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included recommendation #2023-074 to the department to implement controls to ensure the ALN is communicated to subrecipients when awarding grants, and to communicate the ALN to all subrecipients awarded disaster funds. Effect: By not providing the ALN to all subrecipients, the department is not in compliance with federal subrecipient monitoring requirements. Without the ALN, there is risk the subrecipients are not able to properly report the subaward in their own Schedule of Expenditure of Federal Awards. Cause: Failing to consistently provide the ALN to subrecipients was identified in the prior audit. Recommendation #2023-074 recommended the department to include the ALN in all payment letters. The department was notified of this issue on March 6, 2024, and subgrant agreements incorporating the requirement took effect in July 2024. All payment letters missing the ALN were issued before those milestones. Two letters issued after the milestones contained incorrect ALNs; however, each included at least one ALN, indicating the department had adopted the requirement but was not applying it consistently. Because the department took corrective steps and subgrant agreements we tested contained no errors, recommendation #2023-074 should be resolved if the department continues to follow its new processes, despite the noncompliance noted in the current audit period. Recommendation: We recommend the Department of Military Affairs: C. Continue to follow its improved process to ensure the ALN is provided to all subrecipients as required by federal regulations. D. Comply with federal regulations by providing the ALN to all subrecipients. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-104 Federal Program Name Disaster Grants – Public Assistance (Presidentially Declared Disasters) (COVID-19) Federal Awarding Agency U.S. Department of Homeland Security State Agency Department of Military Affairs (department) ALN # 97.036 Grant # 4608DRMTP00000001, 4623DRMTP00000001, 4655DRMTP00000001, 4726DRMTP00000001, 4801DRMTP00000001 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 170, Appendix A(I)(a) and (a)(2)(ii), requires non-Federal entities to report each subaward action of $30,000 or more to the Federal Funding Accountability and Transparency Act (FFATA) reporting system. Reports must be submitted no later than the end of the month following the month in which the obligation was made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked sufficient internal controls to ensure FFATA reporting was complete, timely, and accurate. We identified multiple instances of noncompliance with FFATA reporting requirements during the audit period. Context: When a disaster is declared in Montana, the department subgrants federal funds to cities, counties, and nonprofits for local disaster recovery. All projects over $30,000 require FFATA reporting. Because projects span multiple years, we focused testing on FFATA reporting required during the audit period. Our population included projects with initial obligation dates or obligation changes in fiscal years 2024 or 2025. For projects obligated before the audit period but amended during it, we tested only the new reports submitted during the audit period. We tested a nonrandom, nonstatistical sample of 16 out of 110 projects and identified errors in 5 projects: • One project with no FFATA report filed for an obligation change • Four projects with late FFATA reports • Three projects with incorrect amounts reported The details of these errors are summarized in the table below: The department had similar findings in the prior two Single Audits. While we saw significant improvement, material noncompliance remained throughout the current audit period. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included finding #2023-073, which recommended that the department implement controls to ensure timely and accurate FFATA reporting and submit reports in accordance with federal regulations. This issue was also reported as finding #2021-014 in the Single Audit for the two fiscal years ended June 30, 2021. Effect: The department is not in compliance with FFATA reporting requirements. FFATA reporting provides transparency to federal grantor agencies and the public. The errors identified could mislead users of the data reported through FFATA. Cause: In response to prior findings, the department took steps to improve FFATA reporting during the current audit period, including continuing a new monthly reporting control. However, these corrective actions took time to implement fully, leaving gaps in compliance during the transition. If the department continues with their improved process, this finding will likely be resolved in the next audit. Recommendation: We recommend the Department of Military Affairs: A. Continue to strengthen internal controls to ensure FFATA reporting is complete, timely, and accurate. B. Submit FFATA reports in accordance with federal regulations. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-066 Federal Program Name Education Stabilization Fund (ESF) (COVID 19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.425 Grant # S425D200006, S425U210006, S425D210006 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 170, Appendix A(I)(a) and (a)(2)(ii), requires non-federal entities to report to the Federal Funding Accountability and Transparency Act (FFATA) reporting system each action that equals or exceeds $30,000 in federal funds for a subaward to a non-Federal entity. The report should be submitted no later than the end of the month following the month in which the obligation was made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office receives ESF funds under the Elementary and Secondary School Emergency Relief (ESSER) fund portion of the grant. The prior single audit identified errors in the office’s FFATA reporting for ESSER. During the current audit, we found similar errors, as reported amounts did not agree with the office’s allocation spreadsheets. Context: We compared subaward amounts reported on SAM.gov (as of March 2026) to the office’s ESSER allocation spreadsheets for Local Education Agency (LEAs), which are generally schools or school districts, receiving more than $30,000. Of the 399 schools that received ESSER funds, 351 (ESSER II) and 364 (ESSER III) received allocations above the $30,000 reporting threshold. We were able to match SAM.gov data to allocation records for 235 schools. Of the schools we could compare, we found the ESSER II allocations were more than reported at Sam.gov by $35.5 million, and for ESSER III, allocations were $78.6 million more than reported at Sam.gov The table on the following page summarizes testing results: Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-045 from the audit for the two fiscal years ended June 30, 2023. This was originally reported as finding 2021-038 in Montana’s Single Audit report for the two fiscal years ended June 30, 2021. Effect: The office did not comply with federal FFATA reporting requirements. Inaccurate and untimely reporting limits the federal grantor agency's ability to transparently track and report program activity. Cause: The office experienced difficulties reporting accurately in the new federal reporting system. Recommendation: We recommend the Office of Public Instruction: A. Enhance internal controls to ensure the timely and accurate submission of FFATA reports, including a follow-up plan when errors occur. B. Submit FFATA reports in accordance with federal regulations, including submitting prior-year reports. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-067 Federal Program Name Education Stabilization Fund (ESF) (COVID 19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.425 Grant # S425D200006, S425U210006, S425D210006 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs $944,172 Criteria: Federal regulation, 2 CFR 200.332(e), requires pass-through entities to, “Monitor the activities of the subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The pass-through entity is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved.” Federal regulation, 2 CFR 200.403(a) and (g), states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award Condition: The office receives ESF funds under the Elementary and Secondary School Emergency Relief (ESSER) fund portion of the grant. The office reimbursed Local Education Agencies (LEAs), which are generally schools or school districts, without receiving sufficient documentation to determine whether claimed costs were allowable under the ESSER program. The office’s internal controls did not ensure adequate documentation was on file before issuing reimbursements. Questioned Costs: We question $944,172 in ESSER reimbursements we tested that were not adequately supported at the time of payment. Additional unsupported reimbursements likely exist in the populations. Context: In FY2024 and FY2025, the office paid over $230 million to schools based on reimbursement requests. We designed a randomly selected, non-statistical sample of 60 items to test controls and 40 items to test allowability. We tested the first 16 items and found 10 instances of non-compliance. Based on this error rate, we concluded there was a material weakness and material non-compliance and did not test the remaining sample items. The 10 items with errors, totaling $770,637, lacked one or more of the following: dates associated with compensation, identification of employees or positions covered, or explanation of how supplies or repairs related to the ESSER program. Absent this information, the office is unable to demonstrate the costs reimbursed are for allowable costs under the grant. The number and consistency of errors indicate a systemic problem. The office also provided funds to schools under ESSER as part of a separate Math Innovations program. Four schools were paid funds under this program during the audit period for a total of $347,095. As this program was new in the audit period, we looked at all the cash requests for the audit period and question an additional $173,535 in costs. These cash requests also lacked adequate documentation to support they were allowable under the grant. Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-032 from the audit for the two fiscal years ended June 30, 2023. This was originally reported as Single Audit finding 2021-036 in the audit for the two fiscal years ended June 30, 2021. Effect: The office reimbursed schools for ESSER costs that were not adequately supported at the time of reimbursement. The office’s subrecipient monitoring procedures were not sufficient to comply with federal regulations. As a result, the office paid at least $944,172 in claims that could have been for unallowable activities or unallowed costs. Cause: This issue was originally communicated to the office in late fiscal year 2024, leaving only part of the audit period for the office to strengthen controls. Prior to early 2025, the office’s cash request reviews were minimal and focused primarily on comparing requests to budget line items. While budget comparisons provide some assurance of allowability, they are not sufficient on their own. For example, they do not confirm that personal service costs are for individuals who worked on the ESSER grant, or that work occurred within the period of performance of the grant. The office implemented a new cash request review process in early 2025. However, this change came after the audit period and does not address ESSER reimbursements already made. If the office continues to operate under their new procedures, this recommendation should be resolved. Recommendation: We recommend the Office of Public Instruction: C. Enhance internal controls to ensure schools submit adequate documentation with reimbursement requests prior to payment. D. Reimburse schools only when documentation is sufficient to confirm that costs are allowable under the program. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-068 Federal Program Name Education Stabilization Fund (ESF) (COVID-19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.425D and 84.425U Grant # S425D200006, S425U210006, S425D210006 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.334, requires non-federal entities to retain records related to federal awards. Compliance Supplement 2025 (page 4-84.425-29) states an annual special report is required with the following key line items: • Local Education Agency’s (LEA) expenditures by the Elementary and Secondary School Emergency Relief (ESSER) subgrant fund, expenditure category, and object code • Number of specific positions supported with ESSER funds • Allocation of ESSER funds to schools and criteria used to allocate funds to schools, and • Full Time Equivalent (FTE) positions Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office receives ESF funds under the ESSER portion of the grant. The office did not have documented evidence that it reviewed the ESSER annual report before submission. No other compensating controls were in place to ensure the report was accurate and complete. Upon reviewing the report submitted during the audit period, we found multiple instances where the report did not reconcile with supporting data. Context: As the ESSER program ended, the federal Department of Education waived the annual report for 2025. As a result, only one annual report was due during the two-year audit period. We reviewed supporting data from 46 schools and found that of those schools, 43 included data that did not match what the office submitted to the federal government. Differences between the two sources ranged from approximately $400 to over $400,000. Repeat Finding: This is a repeat finding and was reported as Single Audit finding #2023-031 from the audit for the two fiscal years ended June 30, 2023. Effect: Annual ESSER reports were posted to a public website to show how ESSER funds were spent across the United States. Montana's report for the office contained information that was not supported by school data, which could mislead the public about how funds were used and create inconsistencies with data reported by other states. By reporting incomplete and/or inaccurate information, the office is not in compliance with federal regulations. Cause: The office indicated it completed a review of the annual report prior to submission. However, staff in the positions responsible for preparing and reviewing the report left the office when the program ended. Current staff could not locate documentation to support that a review occurred or explain why amounts conflicted with supporting documentation. Recommendation: We recommend the Office of Public Instruction A. Strengthen internal controls to ensure that reviews of federal reports are completed and documented prior to submission and documentation is retained in a centralized location. B. Retain supporting documentation and submit accurate federal reports, as required by federal regulation. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-069 Federal Program Name Education Stabilization Fund (ESF) (COVID-19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.425D and 84.425U Grant # S425D200006, S425U210006, S425D210006 Compliance Requirement B. Allowable Costs/Cost Principles Type of Finding Material Weakness and Material Noncompliance Questioned Costs $668,828 Criteria: Federal regulation, 2 CFR 200.403(c) and (g) states, that for costs to be allowable, they must be consistent with policies and procedures that apply uniformly to both federal-financed and other activities of the recipient. They also must be adequately documented. Federal regulation, 2 CFR 200.413(c), states that administrative and clerical staff salaries should normally be treated as indirect costs. Federal regulation, 2 CFR 200.430(g)(1) states that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. The records must be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office charged salaries to the ESSER grant as direct costs for staff whose positions are normally recovered through indirect cost collections. Supporting documentation was not available to show that these staff worked directly on the grant. The office also applied an indirect cost rate to those direct salary charges, which is not permitted under federal regulations. Questioned Costs: In total, we question $668,828 in costs calculated as described below. Context: During the audit we noted the following situations: 1. Indirect cost overcharge: When indirect costs were moved out of the office’s indirect cost account, the amounts already allocated and charged to federal programs through the indirect cost fund were not reduced. This resulted in overcharging the ESSER program by an estimated $207,363 for indirect costs. We question costs in this amount. 2. Unallowable direct salary: Personal services costs for administrative and executive positions, including a Financial Manager, Budget Analyst, Chief Operating Officer, and Chief Information Officer, were moved from a non-federal funding source directly to the ESSER grant. No time-and-effort documentation was available to support these charges. We question these costs totaling $398,096. 3. Indirect cost rate applied to unallowable salary: The indirect cost rate was also applied to the salaries in item 2 above, effectively charging the federal government twice for a portion of the same costs. We question these additional costs totaling $63,370. Effect: The office did not comply with federal regulations, resulting in $668,828 in questioned costs. Questioned costs are based on actual amounts moved to the ESSER grant as well as the auditor’s calculation to prorate the federal share for the indirect costs that were removed from the indirect cost account. Cause: The office's internal controls were not sufficient to ensure that salaries and indirect costs charged to the ESSER grant were allowable and supported by adequate documentation. While the office indicated the administrative and executive positions worked on ESSER reports, presentations to community partners, and inquiries from schools, there was no documentation that supported this time and effort. The office has implemented time and effort controls; however, it was implemented subsequent to the ending of the ESSER program. Recommendation: We recommend the Office of Public Instruction: A. Strengthen internal controls over salaries and indirect costs to ensure only allowable and supported costs are charged to federal grants. B. Track and document time and effort on grants to support both direct and indirect charges, as required by federal regulations. Views of Responsible Officials: The office partially concurs with the recommendation as they noted administrative and management staff did work on the grant. Rebuttal of Views of Responsible Officials: We considered the office’s nonconcurrence. We agree that administrative and management staff could have direct charges to the grant as allowed under federal regulations. However, no time and effort documentation was provided to support these staff members worked directly on the grant to support the costs were allowable as a direct charge. As such, our recommendation stands.
Finding 2025-070 Federal Program Name Education Stabilization Fund (ESF) (COVID-19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.425U Grant # S425D200006, S425U210006, S425D210006 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles Type of Finding Material Weakness and Material Noncompliance Questioned Costs $393,231 Criteria: Per Federal regulation, 2 CFR 200.403(a), for costs to be allowable, they must be necessary and reasonable for the performance of the Federal award. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office receives ESF funds under the Elementary and Secondary School Emergency Relief (ESSER) fund portion of the grant and contracted with the University of Montana - Western for services to recruit and retain K–12 teachers. The office paid the contractor primarily based on estimated costs rather than actual services performed. One invoice also included a cost category not authorized by the contract. When the contractor later submitted an invoice based on the number of teachers participating in the programs, it did not fully account for prior estimate-based payments, resulting in an overpayment. Questioned Costs: We question $393,231 in costs based on the amount the contract was overpaid as calculated below. Context: The contract specified a flat fee per resident teacher, up to 60 teachers, plus certain administrative costs. Payments were to be progress-based, tied to services performed. The office paid $926,894, total, including $594,469 in prepayments based on estimates. A subsequent invoice showing total actual costs of $601,663 indicates the office overpaid by $325,231. The contract authorized payments for resident teacher compensation, teacher-leader stipends, and resident teacher tuition grants. However, the contractor also billed $68,000 for "tuition other," a category not authorized by the contract. Combined, these issues total $393,231 in questioned costs. Effect: The office made payments outside the contract terms and without supporting evidence of actual contractor costs, resulting in $393,231 in questioned costs. Cause: The office's internal controls were insufficient to ensure that contractor invoices reflected services actually performed or that payments were limited to cost categories authorized by the contract. Office staff indicated the $68,000 “tuition other” category was related to the contractor billing for fringe benefits for each participant. Recommendation: We recommend the Office of Public Instruction: A. Strengthen internal controls to ensure contractor payments are supported by documentation of services performed and are consistent with contract terms. B. Pay contractor invoices only for costs and categories explicitly allowed by the contract. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-071 Federal Program Name Education Stabilization Fund (ESF) (COVID-19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.425D and 84.425U Grant # S425D200006, S425U210006, S425D210006 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles Type of Finding Material Weakness and Material Noncompliance Questioned Costs $110,075 Criteria: Per Federal regulation, 2 CFR 200.403(a), for costs to be allowable, they must be necessary and reasonable for the performance of the federal award. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office receives ESF funds under the Elementary and Secondary School Emergency Relief (ESSER) portion of the grant. Under this grant, the office recorded expenditures for payments to schools twice for the same transaction. Staff made correcting journal entries intended to reverse duplicate transactions. However, the entries re-recorded the expenditures rather than eliminating them. Because the office requests federal reimbursement based on recorded expenditures, the federal government paid the same costs twice. Questioned Costs: Based on the journal that duplicated costs, we question costs of $110,075. Context: The office accrued payments to three schools related to school expenditures for the ESSER grant. They then paid the schools and reversed the accrual, which is the expected sequence of journal entries. However, a subsequent journal entry described as a reversal, instead recorded the expenditures a second time. Effect: The office is not in compliance with federal regulations, resulting in questioned costs of $110,075. Cause: Internal controls were not sufficient to prevent the office from recording the same expenditures twice. The reversal journals were completed by two separate accountants and the reviewer of the journals did not notice they were duplicate. Recommendation: We recommend the Office of Public Instruction: A. Strengthen internal controls to ensure costs are recorded only once. B. Ensure all transactions submitted for federal reimbursement reflect actual costs incurred on the federal award. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-072 Federal Program Name Education Stabilization Fund (ESF) (COVID 19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.425D and 84.425U Grant # S425D200006, S425U210006, S425D210006 Compliance Requirement F. Equipment and Real Property Management M. Subrecipient Monitoring N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation 2 CFR 200.313(c)(1) requires prior approval from the federal government or the pass-through entity (the office), before equipment is purchased. Federal regulation, 2 CFR 200.439(b)(1) requires capital expenditures to be pre-approved by the federal government or pass-through entity. Federal regulation, 2 CFR 176.190(a) requires laborers and mechanics employed by contractors and subcontractors on projects funded directly with federal funds to be paid prevailing wages. Federal regulation, 2 CFR 200.332(e) requires the office to monitor the activities of subrecipients (schools) to ensure the subrecipient complies with federal statutes, regulations, and the terms and conditions of the subaward. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office receives ESF funds under the Elementary and Secondary School Emergency Relief (ESSER) portion of the grant. The office reimbursed Local Education Agencies (LEAs), which are generally schools or school districts, that included equipment and construction costs. The office did not have adequate controls to ensure compliance with federal regulations, such as preapproval for equipment and construction projects or that schools paid the prevailing wage rate. Additionally, monitoring tools used to ensure subrecipients complied with federal regulations were not always obtained or reviewed adequately to ensure they were fully completed. Context: In fiscal years 2024 and 2025, the office paid over $230 million to schools based on reimbursement requests. We designed a randomly selected a non-statistical sample of 60 items to test controls and 40 items to test allowability out of 3,062 LEA cash requests. We tested the first 20 items and found one or more exceptions for the different required attributes tested. Associated expenditures for these exceptions ranged from approximately $6,000 to over $420,000. Attributes tested included existence of preapproval form for equipment or construction projects, actual approval of the items, acknowledgment of prevailing wage requirements, and existence and completion of a self-assessment tool used to monitor subrecipients. As part of our testing of subrecipients, we also noted three schools with Single Audit reports that contained prevailing wage rate findings in their 2024 audit reports. Based on this error rate, we concluded there was a material weakness and material noncompliance and did not test the remaining sample items. Because we did not identify any equipment or construction that was unallowable per grant regulations, we did not question any costs. Repeat Finding: Recommendation part C of Single Audit finding 2023-032 from the audit for the two fiscal years ended June 30, 2023, is related to the monitoring of subrecipients for compliance with construction and equipment requirements. Effect: Controls were not adequate to ensure the office complied with federal regulations related to subrecipient monitoring or that schools complied with federal regulations. The office is not in compliance with federal regulations. Cause: The office required schools to complete various forms, such as a self-assessment form to ensure compliance with all ESSER federal requirements and a preapproval form if they used ESSER funds for large equipment items or construction items. While these required schools to certify they were aware of and followed prevailing wage rate requirements, it was not adequate to ensure they did. Additionally, while most schools received the self-assessment form, staff did not adequately review it or follow up to ensure all questions were answered. Because the ESSER grant program has ended, no staff members who worked on this portion of the grant were available to explain why the forms were not approved or why the self-assessments were not fully completed. Recommendation: We recommend the Office of Public Instruction: A. Enhance internal controls over monitoring to ensure subrecipients are complying with all requirements, including that construction and equipment purchases are preapproved and federal regulations related to the prevailing wage rate are followed. B. Monitor subrecipients’ compliance with construction and equipment requirements, including reviewing wage certifications for construction projects, as required by federal regulations. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-038 Federal Program Name Coronavirus State and Local Fiscal Recovery Funds (COVID-19) (SLFRF) Federal Awarding Agency U. S. Department of the Treasury State Agency Department of Administration (department) ALN # 21.027 Grant # SLFRP1747 Compliance Requirement I. Procurement, Suspension and Debarment Type of Finding Material Weakness Questioned Costs No questioned costs identified Federal Program Name Epidemiology and Laboratory Capacity for Prevention and Infectious Diseases (ELC) (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services State Agency Department of Administration (department) and Public Health and Human Services (PHHS) ALN # 93.323 Grant # NU50CK000500 Compliance Requirement I. Procurement and Suspension and Debarment Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacks internal controls to demonstrate that all contractors were verified as not suspended or debarred from receiving federal funds at the time of contract award. Context: Federal procurement rules require the department to verify that contractors awarded federally funded contracts are not suspended or debarred, and to retain documentation of those checks. Of the department’s 20 SLFRF contracts, the department could not provide suspension and debarment evidence for 14 SLFRF consultant and design-related contracts. Eleven of those SLFRF contracts were originally awarded using state funds, where no suspension and debarment check was required at award. However, the department did not conduct a review when the funding source changed to federal where the check is required. The remaining three contracts had no record of a suspension and debarment check at all. The department also manages construction for all agencies of the state, including a project for the ELC grant administered by PHHS. Of the two judgmentally selected construction contracts we tested for the ELC grant, the department could not provide the suspension and debarred certification form for one. Our audit work confirmed that the 20 SLFRF and 2 ELC contractors tested were not suspended or debarred, therefore no noncompliance was identified. Effect: Without documentation, the Department of Administration cannot demonstrate that it verified contractors’ suspended or debarred status before the award. This creates a risk that federally prohibited entities receive contract awards. Cause: The Department of Administration had no policy requiring suspension and debarment documentation for consultant-type contracts. Additionally, no control existed to track when federal funding was added to existing contracts, so contracts that predated those additions were not reviewed at the time of the change. Although the Department of Administration later asserted that documentation was maintained in the state’s contract management and procurement system, no evidence was provided for the audit period. Recommendation: We recommend the Department of Administration establish and implement internal controls to ensure suspension and debarment checks are performed and documented for all contracts funded with federal funds, including when a contract's funding source changes from state to federal. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-075 Federal Program Name (COVID-19) Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.323 Grant # NH23IP922574, NU50CK000409, NU50CK000500, NU51CK000366, NUE2EH001420 Compliance Requirement B. Allowable Costs/Cost Principles M. Subrecipient Monitoring Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: In general terms, the ELC grant helps the department find, track, and stop the spread of infectious diseases. The department was awarded specific funding under the grant for the detection and mitigation of COVID-19 in confinement facilities. Under this specific funding, the department entered into a Memorandum of Understanding (MOU) with the Montana Department of Corrections. The department obtained federal approval to change the budget of the project, however an updated MOU could not be located and costs not allowed under the approved MOU were reimbursed. The MOU has since expired, ending on July 31, 2024. Context: The department entered into an MOU with the Montana Department of Corrections. The MOU stated it could not be "enlarged, modified, or altered except upon written agreement signed by the Parties" and that the agency "must use the grant funds only in accordance with the approved budget." The department reimbursed the Department of Corrections for transport vehicles that exceeded the budgeted amounts and for a data warehouse contract that was not included in the MOU budget. While the department sought and received approval from the federal government for these changes, an updated MOU could not be located. Costs paid to the Montana Department of Corrections are not supported by the MOU. Adequate internal controls are necessary to ensure all applicable documents are updated when changes to the grant occur. Effect: By paying costs outside of the MOU, the department paid costs of $200,296, that while approved at the federal level, were outside of the written agreement with Montana Department of Corrections. In the event costs would need to be returned the federal government, the department would be the party responsible. Cause: One department employee was solely responsible for maintaining project files related to the MOU. When that employee left the position, she did not save or transfer relevant records, leaving insufficient documentation for the remaining staff. Recommendation: We recommend that Montana Department of Public Health and Human Services strengthen internal controls to ensure project documentation is maintained in a shared, accessible location so that staff can retrieve required records regardless of personnel changes. Views of Responsible Officials: The department concurs with the recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-076 Federal Program Name Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.323 Grant # NH23IP922574, NU50CK000409, NU50CK000500, NU51CK000366, NUE2EH001420 Compliance Requirement I. Procurement and Suspension and Debarment M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.332(a), (c) and (e) requires non-Federal entities to verify that subrecipients are not excluded or disqualified in SAM.gov, evaluate each subrecipient’s fraud risk and risk of noncompliance, and monitor the activities of a subrecipient to ensure the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the award. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked adequate internal controls to meet federal requirements for conducting risk assessments, verifying debarment and suspension status, and conducting financial and performance monitoring procedures for all of its grants. As a result, the department did not comply with federal regulations. Context: The department awards grants under the ELC program for activities such as wastewater surveillance and support to counties and schools during the COVID-19 pandemic. We tested a nonrandom, nonstatistical sample of 40 of 458 subrecipients that received ELC funds during the audit period. Testing revealed that the department lacked documentation of its control process over subrecipient monitoring for all subrecipients, most of which were grants awarded to counties and health care facilities for COVID-19 pandemic assistance. Based on the department’s internal control processes, for a subrecipient to be adequately monitored, we expected the department to provide the following for each subrecipient: • risk assessment for subrecipients receiving over $50,000 • certification that the subrecipient had not been suspended or debarred • task order, contract, or grant agreement which included required disclosures • approved invoices • approved Acquisition Planning and Implementation form • subrecipient monitoring checklist which included both financial and performance reviews of the subrecipient. For two entities in our sample, the department did not use their subrecipient monitoring checklist or have other controls in place for monitoring. We also noted 13 grants where there was no risk assessment documentation and 17 where there was no verification the subrecipient was not debarred or suspended. A risk assessment is necessary to ensure the proper level of monitoring is put in place for each entity. Although many of these grants are smaller amounts individually, approximately $1.5 million was spent in fiscal year 2024 and 2025 for the subrecipients tested indicating some monitoring procedures should still be in place for all entities. Repeat Finding: Montana’s Single Audit for the two fiscal years ended June 30, 2023, included findings 2023-053 and 2023-055 related to internal controls over and compliance with completing subrecipient risk assessments and conducting post-award monitoring, respectively. These issues were also reported in Montana’s Single Audit for the two fiscal years ended June 30, 2021, as 2021-052 over subrecipient disclosures, and 2021-062 and 2021-054, both of which addressed adequately monitoring and properly reimbursing subrecipients. Prior audit findings 2023-053 and 2023-055 have not been fully implemented. The department did fully implement the recommendation related to subrecipient disclosures. Effect: The department is not in compliance with federal subrecipient monitoring requirements for many ELC-funded grants, which totaled around $2.4 million in awards during the audit period. This increases the risk of awarding funds to debarred entities or high-risk subrecipients without implementing monitoring procedures to ensure federal funds are spent in accordance with regulations. Cause: The department partially implemented prior audit recommendations for county grants but did not have sufficient time to fully resolve all identified issues before the current audit period started. Some of the grants were awarded through a grant application platform that had no process for completing debarment verifications. If the department continues to operate under their new control processes this recommendation should be resolved. Recommendation: We recommend the Department of Public Health and Human Services: A. Continue to follow its improved process to ensure subrecipient monitoring processes are completed and documented for each ELC subrecipient. B. Conduct and document risk assessments for all subrecipients and verify and document that subrecipients are not debarred or suspended prior to awarding funds. C. Perform monitoring procedures to confirm subrecipients comply with grant requirements, as required by federal regulations. Views of Responsible Officials: The department concurs with the recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-077 Federal Program Name Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.323 Grant # NU50CK000500, NU51CK000366, NUE2EH001420 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR Part 170, Appendix A(I)(a)(1) and (a)(2)(ii), requires non-federal entities to report to the Federal Funding Accountability and Transparency Act (FFATA) reporting system each action that equals or exceeds $30,000 in federal funds for a subaward to a non-federal entity. The report must be submitted no later than the end of the month following the month in which the obligation is made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During fiscal years 2024 and 2025, the department's internal controls were insufficient to ensure all ELC obligations of $30,000 or more were accurately and completely reported to the FFATA reporting system. Required obligations were not reported as required by federal regulation, and the department overreported other obligation amounts. Context: We reviewed all obligations reported during the audit period against obligations made through subaward agreements and amendments to subrecipient agreements. The department obligated approximately $1.2 million in ELC funds under one federal award to 44 subrecipients subject to FFATA reporting requirements. Based on our review of the subrecipient contracts and amendments provided, 22 FFATA reports should have been filed; instead, 183 were filed across three federal awards. Of the 183 reports filed, only 5 matched current audit period obligations. Two overreported obligations; one by $68,074.90 and the other by $36,566.67. As the department indicated it was working during the audit period to correct prior-year errors, we also compared current-year reports to prior-year recommendation support. We identified 2 FFATA reports matching prior-year errors. Both were reported with amounts overreported by $892,294. This is evidence the department has not properly addressed the prior audit finding. The number of instances and corresponding dollar amounts for the reporting errors discussed are summarized in the following table. We did not test timeliness of the reports submitted and matched to current-year or prior-year subawards due to the column in Sam.gov data changing upon transaction modification. While the department provided subaward agreements for 44 entities presented as subrecipients, we determined that 11 were not subrecipients and that the department had not provided subawards for an additional 22 subrecipients. This further supports that the department's controls over subrecipient identification for FFATA reporting are insufficient to ensure complete and accurate reports. Our analysis was conducted using FFATA reporting system data as of July 2025. We considered each transaction submitted, or omitted, by the department and compared information against executed subaward agreements from the audit period, as provided by the department. Any corrections the department made during fiscal year 2026 were not considered in our testing for this audit but will be considered during the fiscal year 2026 audit. We did not provide our detailed analysis to the department. However, we believe the department has all necessary information in its possession, such as the FFATA reporting system data and its issued and amended subawards, to ensure necessary corrections are made to the FFATA reporting system. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2021, included finding #2021-066, and the report for the two fiscal years ended June 30, 2023, included finding #2023-069. Both findings recommended the department enhance internal controls over FFATA reporting and submit reports for the ELC program as required by federal regulation. Effect: The department is not in compliance with FFATA reporting requirements. Insufficient internal controls resulted in missing and inaccurate subaward reporting. FFATA reporting provides transparency to federal grantor agencies and the public. The errors identified could mislead users of the reported data. Cause: The department uses a central contracting system to capture obligations, which includes both subrecipient and contractor relationships. The system is used to process payments and identify which obligations require FFATA reporting. However, information entered into the system did not distinguish between contractor and subrecipient relationships, was not consistently accurate, and was not always entered at the time of obligation. Department personnel responsible for FFATA reporting indicated they are working with federal program staff to implement process changes to ensure FFATA reports are captured accurately and timely for subrecipients only. Recommendation: We recommend the Department of Public Health and Human Services: A. Enhance internal controls to ensure accurate and complete submission of FFATA reports for the Epidemiology and Laboratory Capacity for Infectious Diseases program. B. Submit FFATA reports for the Epidemiology and Laboratory Capacity for Infectious Diseases program in accordance with federal regulations. Views of Responsible Officials: The department partially concurs with the recommendation. The department agrees that internal control deficiencies existed in its FFATA subaward reporting processes during FY24-FY25 and that instances of noncompliance existed. The department disagrees with the quantified extent of exceptions because they have been unable to replicate the numbers and dollars presented in the finding context and they believe the auditor has not provided sufficient detail to address the identified errors. The department also points to ongoing processes to identify and correct duplicate and inaccurate records. Rebuttal of Views of Responsible Officials: We considered the department’s partial concurrence. While the department agrees with the need to improve internal controls and errors in FFATA reporting, management disagrees with the auditor’s quantification of the errors. We believe management has sufficient detail to address the finding because it has access to its subaward agreements as well as the information currently available in the federal FFATA reporting system. As such, our recommendation stands.
Finding 2025-029 Federal Program Name Formula Grants for Rural Areas and Tribal Transit Program (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.509 Grant # MT-2018-011, MT-2020-003, MT-2020-013, MT-2022-019, MT-2022-022, MT-2023-004, MT-2023-005, MT-2023-011, MT-2024-009, MT-2024-012, MT-2024-015, MT-2024-018, MT-2025-005, MT-2025-006 Compliance Requirement M. Subrecipient Monitoring Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department did not effectively design controls to assess subrecipients' risk of noncompliance. Context: The department uses a risk assessment template, incorporating factors suggested by federal regulation, to evaluate each subrecipient's risk of noncompliance. When a risk factor does not apply to a subrecipient, department staff mark it as "not applicable" and score it the same as a factor that actively reduces risk, even though it does not. For example, the template includes a factor for whether a subrecipient receives a Single Audit. A Single Audit reduces noncompliance risk by providing additional monitoring. If a subrecipient is not required to have a Single Audit, staff mark the item "not applicable" and score it as if an audit had occurred, even though no additional monitoring took place and the risk was not actually reduced. Repeat Finding: The Single Audit for the two fiscal years ended June 30, 2023, included related finding #2023-014. That finding recommended the department enhance internal controls for subrecipient monitoring, perform and document subrecipient risk assessments, and conduct enhanced monitoring in response to higher assessed risk levels. Effect: The department’s scoring method caused subrecipients to appear lower risk than they actually were, which may have led the department to conduct fewer monitoring activities than warranted. The impact was greatest for new or for-profit subrecipients, since more risk factors tend to be marked "not applicable" for those entities. Cause: Staff misunderstood certain risk assessment elements and completed the assessments incorrectly as a result. The department independently identified the issue and has already begun revising the risk assessment template for the next grant year. Recommendation: We recommend the Montana Department of Transportation continue to strengthen internal controls to ensure accurate risk assessments for each subrecipient by revising its risk assessment form to reduce a subrecipient's risk score only for factors that genuinely reduce the risk of undetected material noncompliance with federal statutes, regulations, and subaward terms and conditions. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-030 Federal Program Name Formula Grants for Rural Areas and Tribal Transit Program (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.509 Grant # MT-2018-011, MT-2020-003, MT-2020-013, MT-2022-019, MT-2022-022, MT-2023-004, MT-2023-005, MT-2023-011, MT-2024-009, MT-2024-012, MT-2024-015, MT-2024-018, MT-2025-005, MT-2025-006 Compliance Requirement M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.332, requires pass-through entities to, among other things, monitor subrecipient activities to ensure subaward funds are used for authorized purposes. This includes issuing a management decision for any audit finding related to the Federal award the pass-through entity provided to the subrecipient. Federal regulation, 2 CFR 200.521, requires that management decisions clearly state whether the audit finding is sustained, the reasons for the decision, and the expected corrective action. If the subrecipient has not completed corrective action, the decision must include a follow-up timetable. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Department controls to verify that subrecipients are audited were insufficient to detect when subrecipients required a Single Audit due to grants from multiple sources. The department also did not comply with federal management decision requirements regarding subrecipient audit findings. Context: The department monitors subrecipient Single Audits across all of its programs by obtaining audit reports from the Federal Audit Clearinghouse and evaluating grant payments it made to subrecipients. However, this process does not account for federal funds a subrecipient may have received directly from the federal government or from other pass- through entities. As a result, the department's process cannot reliably determine whether a subrecipient meets the Single Audit threshold. During the audit, auditors identified a for-profit subrecipient that received minimal grant payments from the department but also received federal subgrants from two other state pass-through entities. That subrecipient's total federal awards were approximately $1.8 million, exceeding the Single Audit threshold. Although federal regulations do not require for-profit subrecipients to obtain a Single Audit, this case demonstrates that the department's internal data alone is not sufficient to assess a subrecipient's Single Audit requirements. Reliable external data sources are available to the department, including USASpending.gov and SAM.gov for federal fund obligations, Montana and other states' government transparency websites, and direct inquiries to subrecipients. After auditors brought this issue to the department's attention, the department began revising its Single Audit monitoring process. Auditors also identified one subrecipient Single Audit report with a finding related to the Formula Grants for Rural Areas program. The department's central Single Audit review process monitors findings, but the department's response did not include the required elements of a management decision. Instead of formally accepting or rejecting the subrecipient's planned corrective action, the department only reviewed subsequent audit reports to check whether the deficiency had been corrected. Effect: The department may fail to identify all subrecipients required to obtain a Single Audit. Single Audits are an important monitoring tool for pass-through entities; without them, material noncompliance at the subrecipient level may go undetected. The department may also put federal grant money at risk by continuing to provide assistance to organizations with known, unresolved deficiencies. Without a formal management decision, the department does not take an active role in resolving subrecipient deficiencies. Timely communication of acceptance of the subrecipient’s corrective action is necessary to resolve deficiencies promptly. Without it, subrecipient control weaknesses and federal noncompliance are likely to persist longer. Cause: The department relied solely on internal data to assess whether subrecipients met the Single Audit threshold, but the information needed to make that determination is not always held internally. While the department reviews Single Audit reports centrally and notifies program staff of relevant findings, it does not issue a formal management decision to the subrecipient that includes the elements required by federal regulations. The department's process is not formally documented, creating gaps in compliance. Recommendation: We recommend that the Montana Department of Transportation: A. Incorporate external data sources when evaluating whether subrecipients meet Single Audit requirements. B. Formalize the subrecipient Single Audit review process by defining roles and responsibilities for complying with federal monitoring regulations. C. Issue formal management decisions to subrecipients that include all elements required by federal regulation. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-031 Federal Program Name Formula Grants for Rural Areas and Tribal Transit Program (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.509 Grant # MT-2018-011, MT-2020-003, MT-2020-013, MT-2022-019, MT-2022-022, MT-2023-004, MT-2023-005, MT-2023-011, MT-2024-009, MT-2024-012, MT-2024-015, MT-2024-018, MT-2025-005, MT-2025-006 Compliance Requirement F. Equipment and Real Property Management Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.313(e), requires grant recipients to request disposition instructions from the federal awarding agency when equipment acquired under a federal award is no longer needed for its original purpose. Federal regulation, 2 CFR 200.313(d)(2), requires a physical inventory of equipment acquired under a federal award, with results reconciled against property records, at least every two years. Federal regulation, 2 CFR 200.313(d)(4), requires regular maintenance procedures to ensure equipment acquired under a federal award remains in proper working condition. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's controls were insufficient to ensure equipment inventory was conducted completely and accurately. As a result, not all subrecipient equipment was disposed of as required by federal regulation, and the department's equipment records were inaccurate. Context: The department conducts a physical inventory of all subrecipient vehicles acquired with federal awards every two years. During the audit period, the department reconciled inventory results with property records and identified discrepancies but did not follow up to determine what happened to missing vehicles and did not update property records to reflect the inventory results. The department also conducted safety inspections during the physical inventory but did not confirm that vehicles with critical safety failures were repaired before returned to service. Subrecipients are required to report quarterly to the department on vehicle use; if a vehicle was not used, the subrecipient must explain why. We followed up on five vehicles at two subrecipients that were not located during the physical inventory. Each vehicle originally cost between $50,000 and $135,000. Quarterly reports showed all five vehicles were reported as not in operation for 10 to 13 consecutive quarters, yet none were listed as disposed of in property records. One subrecipient reported that the vehicles had been scrapped for parts. The department's controls did not detect the need for disposal and therefore never provided disposal instructions. Effect: The department's equipment property records are inaccurate. There is also a risk that proceeds from the disposal of federally funded vehicles are owed to the Federal Transit Administration but have not been remitted. Cause: The department was short-staffed during the audit period, causing vehicle disposals to become backlogged. With fewer resources to proactively detect when disposals were needed, the department relied on subrecipients to request disposal instructions themselves. Recommendation: We recommend the Montana Department of Transportation: A. Strengthen internal controls to detect when subrecipients have disposed of or are no longer actively using equipment acquired under the Formula Grants for Rural Areas federal program. B. Provide disposal instructions to subrecipients for all equipment acquired under the Formula Grants for Rural Areas federal program when it is no longer used for the program, as required by federal regulation. C. Update property records to reflect the results of equipment inventories, as required by federal regulation. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-033 Federal Program Name Formula Grants for Rural Areas and Tribal Transit Program (COVID-19) Federal Awarding Agency U. S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.509 Grant # MT-2018-011, MT-2020-013, MT-2022-019, MT-2023-004, MT-2023-005, MT-2024-018, MT-2025-006 Compliance Requirement I. Procurement and Suspension and Debarment Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 180.300, requires grant recipients to verify that an entity is not excluded or disqualified before entering into a covered transaction with that entity. Federal regulation, 2 CFR 200.334, requires grant recipients to retain all records related to a federal award for three years after submitting the final expenditure report. Records for federally funded equipment must be kept for three years after final disposition. State procurement policy requires agencies to maintain a complete procurement record to support compliance and auditing. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacks documentation showing it verified that vehicle suppliers were not suspended or debarred before entering into contracts. Context: The department uses term contracts with vehicle suppliers, issuing purchase orders off the master contract as needed throughout the contract period. Procurement staff follow a checklist that includes verifying a supplier is not suspended or debarred, and the department expected staff to save that verification in the procurement file. However, during the audit period the department did not document checklist completion and the department did not require a secondary review for compliance with federal requirements. We requested suspension and debarment verification documentation for two master contracts, two master contract amendments, and three purchase orders. The department could not provide contemporaneous documentation for any of the seven contracts. We confirmed that none of the contracted entities were suspended or debarred. The three purchase orders included a clause in which the supplier certifies it is not suspended or debarred, which is an allowable method of verification. However, neither the master contracts nor their amendments contained this clause. Effect: The department has no documentation confirming it verified whether vehicle suppliers were excluded or disqualified before entering into covered transactions. Without that verification, the department risks contracting with an entity ineligible to receive federal funds. Cause: The department attributes the missing documentation to a single employee who did not save verification records. That employee is no longer with the department, and the department's review found that other procurement staff appropriately document their verifications. Recommendation: We recommend the Montana Department of Transportation: A. Strengthen internal controls to ensure compliance with suspension and debarment verification requirements is documented and retained for all transit vehicle procurements. B. Document verification of exclusion or disqualification status for all covered transactions involving transit vehicles, as required by federal regulation. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-034 Federal Program Name Formula Grants for Rural Areas and Tribal Transit Program (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.509 Grant # MT-2018-011, MT-2020-003, MT-2020-013, MT-2022-022, MT-2023-004, MT-2023-005, MT-2023-011, MT-2024-009, MT-2024-015 Compliance Requirement M. Subrecipient Monitoring Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department’s controls were insufficient to communicate federal subaward requirements to subrecipients on time, preventing the department from ensuring federal awards were used in accordance with federal requirements. Context: The department relies on signed subaward agreements to communicate requirements to subrecipients, including eligible activities, reporting requirements, and applicable federal and state grant requirements. These agreements are typically signed before the subgrant period of performance begins, which coincides with the state fiscal year (SFY). The SFY 2024 subaward agreements, covering the period beginning July 1, 2023, were not signed on time. We reviewed three agreements for SFY 2024 operating assistance during audit planning and found that all three were signed between December 20, 2023, and February 11, 2024. The subgrant period was more than halfway over before requirements were formally communicated to subrecipients. Although the department withheld grant payments until agreements were signed, it still required subrecipients to submit quarterly reimbursement reports for October 2023 activity. The department reviewed and approved those reports before agreements were in place. We do not take issue with the department's decision to withhold payment. We consider it the best available option under the circumstances, even though it resulted in technically late payments under federal regulation. However, the department should have had signed agreements in place before the subgrant period began. Effect: Most subrecipients are small, rural transit providers that depend on federal funds to operate and pay employees. Because subaward agreements were not in place on time, the department could not make timely payments, delaying subrecipient reimbursements by up to three months. Approximately 37 subrecipient payments were delayed, ranging from $1,500 to $400,000. Additionally, the department reviewed quarterly reports for allowable activities and costs before those requirements had been formally communicated or agreed to in a signed subaward agreement. This means subrecipients were held to requirements they may not have been aware of, increasing the risk that ineligible activities could be reimbursed. Cause: The department's subaward agreement template was undergoing significant revision and legal review to streamline the payment process and establish clear deadlines for subrecipients. The review took longer than expected, and the updated template was not ready before the subgrant period of performance began. Recommendation: We recommend the Montana Department of Transportation strengthen internal controls to ensure all requirements imposed on subrecipients are clearly communicated before the period of performance begins. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-035 Federal Program Name Formula Grants for Rural Areas and Tribal Transit Program (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.509 Grant # MT-2018-011, MT-2020-003, MT-2020-013, MT-2022-022, MT-2023-004, MT-2023-005, MT-2023-011, MT-2024-009, MT-2024-015 Compliance Requirement B. Allowable Costs/Cost Principles M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs $ 170,922 Criteria: Federal regulation, 2 CFR 200.403, requires that costs charged to a federal award be necessary, reasonable, adequately documented, and consistent with the cost principles in 2 CFR 200 Subpart E. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department did not have adequate controls to ensure subrecipient costs charged to the Formula Grants for Rural Areas program were properly documented, resulting in payments that did not conform to federal cost principles. Questioned Costs: We identified $170,922 in known questioned costs. We questioned all project costs that appeared potentially unallowable or lacked adequate documentation based on the subrecipient’s descriptions. Of the total, $28,368 relates to nonprofit subrecipients and $142,553 relates to for-profit subrecipients. Because this was a systemic issue, additional questioned costs likely exist in reports we did not review. Context: Subrecipients report project costs to the department in quarterly financial reports, which staff review before approving reimbursement. We tested a random, nonstatistical sample of 40 of 280 nonprofit financial reports and 6 of 24 for-profit financial reports, focusing on costs that appeared potentially unallowable, miscategorized, or relatively significant in dollar amount. The sample identified inadequate documentation in five nonprofit reports and four for-profit reports. The following cost types lacked sufficient documentation to determine compliance with federal cost principles: Effect: Without adequate cost documentation, the department may have reimbursed unallowable costs with federal grant funds. Insufficient oversight also increases the risk that fraudulent expenses could be approved for payment. Cause: During the audit period, the department was short-staffed and a single employee reviewed all subrecipient financial reports. Subrecipient follow-up was handled by email or phone, and records of those communications were not retained with supporting documentation. The department began requiring subrecipients to submit supporting documentation with their financial reports in state fiscal year 2025. Recommendation: We recommend that the Montana Department of Transportation: A. Strengthen internal controls to ensure only allowable subrecipient costs are reimbursed. B. Require and retain documentation sufficient to demonstrate that subrecipient costs comply with federal cost principles. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-090 Federal Program Name Foster Care – Title IV-E (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.658 Grant # 2001MTFOST, 2101MTFOST, 2201MTFOST, 2301MTFOST, 2401MTFOST, 2501MTFOST Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR Part 170, Appendix A(I)(a)(1) and (a)(2)(ii), requires non-federal entities to report each subaward obligation of $30,000 or more to the Federal Funding Accountability and Transparency Act (FFATA) reporting system no later than the end of the month following the month the obligation is made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During fiscal years 2024 and 2025, the department's internal controls were not sufficient to ensure Foster Care obligations of $30,000 or more were accurately and completely reported to the FFATA reporting system. As a result, required obligations were not reported, and some obligation amounts were over-reported. Context: We reviewed all obligations reported during the audit period and compared them to subaward agreements and amendments provided by the department. The department reported to us that they had awarded approximately $3 million in Foster Care obligations under three federal awards to 9 subrecipients. Based on those initial agreements and subsequent amendments, 21 FFATA reports should have been filed; however, 167 reports were filed across six federal awards. Of the 167 reports: • 17 matched current audit period obligations • 6 were reported with inaccurate amounts • 1 was reported under the wrong Federal Award Identification Number (FAIN) As the department indicated it was working during the audit period to correct prior-year errors, we also compared current-year reports to the prior-audit recommendation support. Current-year data did not match prior-year support. Subaward numbers from prior-year work were compared to current-year reported subaward numbers and no matches were found. The number of instances and corresponding dollar amounts for the reporting errors discussed are summarized in the following table. We did not test timeliness of the reports submitted and matched to current-year or prior-year subawards due to the column in Sam.gov data changing upon transaction modification. The department provided subaward agreements for 9 entities, but auditors identified 13 subrecipients across the audit period. For fiscal year 2024, the department provided agreements for 2 entities while auditors identified 7 subrecipients. For fiscal year 2025, the department provided agreements for 8 subrecipients while auditors identified only 6. This suggests the department is both missing required FFATA reports and filing reports for agreements not subject to the requirement. Our analysis was conducted using FFATA reporting system data as of July 2025. We considered each transaction submitted, or omitted, by the department and compared information against executed subaward agreements from the audit period, as provided by the department. Any corrections the department made during fiscal year 2026 were not considered in our testing for this audit but will be considered during the fiscal year 2026 audit. We did not provide our detailed analysis to the department. However, we believe the department has all necessary information in its possession, such as the FFATA reporting system data and its issued and amended subawards, to ensure necessary corrections are made to the FFATA reporting system. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2021, included finding #2021-065, and the Single Audit for the two fiscal years ended June 30, 2023, included finding #2023-070, both recommending enhanced internal controls over FFATA reporting and submit reports for the Foster Care program as required by federal regulation. Effect: The department is not in compliance with FFATA reporting requirements. Inadequate internal controls resulted in unreported and inaccurate subaward reporting. FFATA reporting provides transparency to federal grantor agencies and the public. The errors identified could mislead users of FFATA data. Cause: The department uses a central contracting system to capture contract obligations, which include both subrecipient and contractor relationships. The system is used to process payments and identify which agreements require FFATA reporting. However, information entered into the system did not distinguish between contractor and subrecipient relationships, was not consistently accurate and was not always entered at the time of obligation. Department personnel responsible for FFATA reporting indicated they are working with federal program staff to implement process changes to ensure FFATA reports are filed only for subrecipients and are accurate and timely. Recommendation: We recommend the Department of Public Health and Human Services: A. Enhance internal controls to ensure accurate and complete submission of FFATA reports for the Foster Care – Title IV-E program. B. Submit FFATA reports for the Foster Care – Title IV-E program in accordance with federal regulations. Views of Responsible Officials: The department partially concurs with the recommendation. The department agrees that internal control deficiencies existed in its FFATA subaward reporting processes during FY24-FY25 and that instances of noncompliance existed. The department disagrees with the quantified extent of exceptions because they have been unable to replicate the numbers and dollars presented in the finding context and they believe the auditor has not provided sufficient detail to address the identified errors. The department also points to ongoing processes to identify and correct duplicate and inaccurate records. Rebuttal of Views of Responsible Officials: We considered the department’s partial concurrence. While the department agrees with the need to improve internal controls and errors in FFATA reporting, management disagrees with the auditor’s quantification of the errors. We believe management has sufficient detail to address the finding because it has access to its subaward agreements as well as the information currently available in the federal FFATA reporting system. As such, our recommendation stands.
Finding 2025-091 Federal Program Name Foster Care - Title IV-E (COVID-19) Federal Awarding Agency U.S. Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.658 Grant # 2401MTFOST, 2501MTFOST Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles Type of Finding Significant Deficiency Questioned Costs $63,876 Criteria: Federal regulation, 2 CFR 200.403(a) and (g), states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department reimburses subrecipients for Foster Care program administration and training expenditures. Department staff review subrecipient documentation before issuing reimbursements. In fiscal year 2024, a miscalculation was not detected through staff reviews, resulting in an overpayment to a subrecipient. Questioned Costs: Because costs were not supported, we question $63,876 in Foster Care reimbursements in fiscal year 2024 based on the mathematical error on the invoice. Context: We tested a nonstatistical random sample of 23 out of 222 transactions involving payments to subrecipients administering Title IV-E programs. One transaction included a mathematical error. This was an isolated incident. Repeat Finding: This is a repeat finding. Montana’s Single Audit reports for the two fiscal years ended June 30, 2023, finding #2023-057; for the two fiscal years ended June 30, 2021, finding #2021-061; and for the two fiscal years ended June 30, 2019, finding #2019-017 contained findings related to the allowability of subrecipient expenditures. Effect: The department's controls did not detect the calculation error before reimbursing the subrecipient, resulting in $63,876 in questioned costs in fiscal year 2024 and noncompliance with federal regulations. Cause: Per department personnel, the identified error was a mistake that was not caught by the department’s review of the supporting documentation submitted by the subrecipient. However, the department implemented new control procedures in fiscal year 2025 and no similar issues were identified in that time period. If the department continues to operate under its new procedures, this recommendation should be resolved. Recommendation: We recommend the Department of Public Health and Human Services continue applying its improved internal control procedures by consistently reviewing and approving subrecipient payment transactions in order to ensure the allowability of the reimbursements. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-092 Federal Program Name Foster Care - Title IV-E (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.658 Grant # 2401MTFOST, 2501MTFOST Compliance Requirement M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 45 CFR 75.352(b), requires the department to evaluate each subrecipient's risk of noncompliance with federal statutes. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During fiscal year 2024, the department did not have controls in place to assess the risk of subrecipient noncompliance with federal regulations. Context: Subrecipients of the department’s Foster Care program include tribal governments and institutions of higher education. During fiscal years 2024 and 2025, department subrecipients expended approximately $2.6 and $1.2 million, respectively. However, in fiscal year 2024, the department did not assess subrecipient risk to determine the appropriate level of monitoring required. The department implemented a new risk assessment process for fiscal year 2025. Repeat Finding: Montana’s Single Audit report for the two fiscal years ended June 30, 2023, contained finding 2023-056 related to internal controls over and compliance with completing subrecipient risk assessments and communicating required subrecipient disclosures. For fiscal years 2024 and 2025, the department communicated the required subrecipient disclosures. Assessing risk of subrecipient noncompliance was still an issue for fiscal year 2024, rendering the recommendation partially implemented. Effect: Without controls in place to assess risk over subrecipients, the department was not in compliance with federal subrecipient monitoring requirements for fiscal year 2024. Without assessing risk, the department could not determine the appropriate level of oversight for each subrecipient. Cause: The department did not implement the required control until partway through the audit period, as it was responding to a prior audit recommendation. If the department continues to follow the new process, this issue should be resolved. Recommendation: We recommend the Department of Public Health and Human Services: A. Continue to utilize its new internal control procedures for assessing risk of subrecipient noncompliance with federal regulations, and B. Assess the risk of noncompliance for each subrecipient. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-025 Federal Program Name Highway Planning and Construction (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.205 Grant # Various Compliance Requirement I. Procurement and Suspension and Debarment Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 23 CFR 172.7(a)(1)(v), requires agencies to document contract negotiations, including developing an independent cost estimate before receiving the consultant's cost estimate and documenting the resources used to analyze costs. Federal regulation, 2 CFR 200.214 and 23 CFR 172.7(b)(3), require agencies to verify the suspension, debarment, and eligibility status of consultants and subconsultants before entering into a contract. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department did not design controls to ensure it procured engineering and design-related consultant services in compliance with federal requirements during state fiscal years 2024 and 2025, resulting in noncompliance. Context: During audit planning, we reviewed procurement documentation for four engineering consultant contracts and found: • The department did not document that it verified suspension, debarment, and eligibility status before executing any of the four contracts. • For two contracts, the department did not document that it developed its cost estimate before receiving the consultant's cost estimate. • For the other two contracts, the department documented that it actually received the consultant's cost estimate first. • For two contracts, the department did not document the sources used to develop its cost estimate. We independently verified that all four contractors were not suspended or debarred. Because we identified errors in planning, we were not required to test additional consultant contracts. Effect: The department's control weaknesses resulted in noncompliance with federal regulations. The department also faces risk of contracting with an ineligible entity or paying more in federal funds than necessary due to a flawed negotiation process. Cause: The department's contract management software requires staff to affirm they verified a consultant's suspension, debarment, and eligibility status before generating a contract, but the system does not save a record of that affirmation, and staff were not expected to retain one. Negotiation documentation practices were inconsistent across contract managers, and the department did not review procurement files to confirm compliance with federal requirements. Recommendation: We recommend the Montana Department of Transportation: A. Strengthen internal controls by retaining documentation of suspension and debarment verifications and conducting documented reviews of procurement files for compliance with federal requirements for engineering and design-related consultant contracts. B. Prepare an independent cost estimate before receiving or reviewing a consultant's cost proposal, as required by federal regulation. C. Retain documentation of all engineering and design-related consultant procurement activities, as required by federal regulation. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-026 Federal Program Name Highway Planning and Construction (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.205 Grant # Various Compliance Requirement B. Allowable Costs/Cost Principles Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200, Appendix VII(D)(1)(d), requires indirect cost proposals to be submitted within six months after the close of the fiscal year, unless the cognizant agency for indirect costs approves an exception. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department did not have sufficient controls to ensure its indirect cost rate plan was completed on time and accurately during state fiscal years 2024 and 2025, resulting in noncompliance. Context: The department submitted its indirect cost rate plan for state fiscal year (SFY) 2025 in early June 2024 and its plan for SFY 2026 in late June 2025, approximately five and six months late, respectively. The department indicated the cognizant agency was aware of the late submissions, but no documentation of an approved exception exists. The department uses a checklist to prepare and review its indirect cost rate proposal. Accounting staff prepares the proposal and the accounting manager reviews it; both steps are documented on the checklist. However, the review of the proposal for indirect cost rates effective in SFY 2024 was not documented on the checklist. Although the undocumented manager review is designed to ensure accuracy, we did not detect any inaccuracies in the indirect cost rate plan. Effect: The late submissions constitute material noncompliance with federal regulations. Without adequate review, the department also risks proposing an indirect cost rate that draws more federal funds than allowed. Cause: The department experienced staff turnover in the positions responsible for preparing and reviewing the indirect cost rate proposal. Replacement staff needed additional time and training from the cognizant agency to complete the proposals for SFY 2024 and 2025. Documentation of the SFY 2024 proposal review was lost during the transition. The department worked closely with the cognizant agency to ensure the proposal contents were complete and accurate. However, the department has no documentation of an approved exception to the submission deadline. Recommendation: We recommend the Montana Department of Transportation: A. Strengthen internal controls to ensure the annual indirect cost rate proposal is submitted before the statutory deadline. B. Submit the annual indirect cost rate proposal to the cognizant agency within six months after state fiscal year end, or obtain and retain written documentation that the cognizant agency approved an exception, as required by federal regulation. C. Retain documentation of the department's review of the annual indirect cost rate proposal. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-027 Federal Program Name Highway Planning and Construction (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.205 Grant # Various Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Montana Operations Manual, Information Security Controls, requires user accounts to be disabled or removed within 24 hours of a user's termination. It also requires that users and user roles be reviewed for appropriateness at least every six months. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department did not have sufficient controls to ensure regular review of user access or removal of terminated employees from its highway project management information system. Context: The department's highway project management system documents compliance with key federal requirements and is the originating source for contractor payments. During our review of user access accounts, we found that more than five percent of active accounts belonged to terminated employees. Standard department procedures require removing accounts when they are no longer needed, but several were overlooked and were not removed until we brought them to the department's attention. Audit evidence confirmed that no inappropriate access occurred after any employee's termination date. During the audit period, the department did not conduct regular reviews of user access or user roles. Instead, account maintenance was handled on an ad hoc basis. Accounts were added upon request, and termination emails were monitored for removals. Many termination emails were missed, leaving those accounts active. This ad hoc process also did not account for user role changes when employees moved to different positions within the department. Effect: Without regular user access role reviews, employees may retain access that exceeds what they need to do their jobs, a concept known as the principle of least privilege. Excess access could allow employees to bypass system controls or create inadequate separation of duties, meaning a single user could have enough access to misuse the system without detection. Cause: During the audit period, the department strengthened internal controls for user access reviews of its financial information systems but did not include the highway project management system. This gap existed despite the highway project management system being the originating source for contractor payment amounts. Recommendation: We recommend the Montana Department of Transportation strengthen internal controls to ensure: A. User access reviews are conducted at least every six months, and B. User accounts are removed within 24 hours of employee termination, as required by state IT policy. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-028 Federal Program Name Highway Planning and Construction (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.205 Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs Likely questioned costs exceed $25,000 Criteria: Federal regulation, 29 CFR 5.5, requires contractors to submit certified payrolls for each week in which any contract work is performed. Federal regulation, 29 CFR 5.6, states that no payment should be made if a contractor or subcontractor is not in compliance with 29 CFR 5.5. Department policy requires contractors to submit certified payrolls within 21 days of performing work. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's controls were not designed to effectively collect certified payrolls from highway construction contractors during state fiscal years 2024 and 2025, resulting in noncompliance and likely questioned costs. Certified payrolls are the department's primary tool for verifying that contractors pay their employees at least the prevailing wages required by the U.S. Department of Labor. Questioned Costs: We did not identify any known questioned costs; however, we identified 424 certified payrolls submitted more than 30 days late. Because contractors are paid monthly, these contractors likely received payment while not in compliance with certified payroll requirements. The department withheld partial payment for only 28 of the 424 late payrolls. We therefore project likely questioned costs of more than $25,000. Determining the actual amount is not practicable, as it would require reviewing the payrolls, payments, and individual circumstances for all 424 instances. Context: We analyzed the timeliness of all certified payrolls expected to be submitted during the audit period using data from the department's highway project management software. Of the 9,622 required payrolls submitted, 1,726 (17.9%) were submitted after the department's 21-day expectation and did not result in withheld payment. Late payrolls were submitted an average of 29 days late, with a median of 11 days late. Sixteen payrolls were submitted more than one year after work was performed. Previous audits found that the department was issuing full payments to contractors not in compliance with wage rate provisions. Beginning in November 2024, the department started withholding partial payment for contractors with late outstanding certified payrolls. We analyzed construction activity and certified payroll submissions between October 2024 and June 2025 and found that, of 114 payrolls submitted more than 30 days late, the department withheld payment for only 28 (25%). The department's highway project management software tracks when construction work requires a certified payroll and allows contractors to submit payrolls directly in the system. When payments are generated, the system also produces exception reports for contracts with late outstanding certified payrolls. However, during the audit period, the system did not generate exception reports for inactive projects or inactive contractors. The department also did not require staff to document outstanding certified payrolls or contractor follow-up as part of the payment process. As a result, the department's controls were not designed effectively and did not adequately address the risk of noncompliance with wage rate requirements. Repeat Finding: This is a repeat finding and has been reported as the following Single Audit findings: In response to the most recent finding (2023-012), the department updated policy to define timely completion of daily work reports, completed the material portion of those reports within the expected timeframe, and provided training on system functionality. While these steps partially addressed the prior recommendation, the department continued to provide full payment to the material portion of noncompliant contractors. Effect: While the department is not solely responsible for contractor compliance, payment withholding is its primary enforcement tool and it is not being used consistently. During the audit period, the department did not consistently withhold payment from noncompliant contractors as required, resulting in more than $25,000 in likely questioned costs. The department also faces a risk of failing to detect instances where contractors or subcontractors pay workers less than the required minimum wages, which is the core purpose of federal wage rate requirements. Cause: During the second half of the audit period and after it ended, the department implemented several improvements: updating its project management system to flag exceptions for inactive contractors, creating new system reports to support wage rate enforcement, training department management and project managers, and updating department policies. However, these changes were made too late to affect overall compliance during the audit period. Recommendation: We recommend the Montana Department of Transportation: A. Continue to strengthen internal controls and supporting systems to withhold payment until contractors comply with weekly certified payroll requirements. B. Consistently withhold payments from contractors who do not submit weekly certified payrolls, as required by federal regulation. Views of Responsible Officials: The department partially concurs with this recommendation. Management agrees that internal controls require strengthening and that instances of noncompliance exist. However, management disagrees with the auditors' estimated noncompliance rate because the auditor used analytics to test the requirements. Rebuttal of Views of Responsible Officials: We considered the department’s partial concurrence. During the audit, we worked with the department to agree to parameters for our planned analytic approach. As noted above, our analysis indicates compliance issues exist in the population and the department agrees that instances of noncompliance exist. As such, our recommendation stands.
Finding 2025-036 Federal Program Name Homeowners Assistance Fund (COVID-19) Federal Awarding Agency U.S. Department of the Treasury State Agency Department of Commerce (department) ALN # 21.026 Grant # HAF0008 Compliance Requirement L. Reporting Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department submits the required HAF quarterly report called 1505-029 reports. We found no errors in our testing of quarterly reports submitted in fiscal years 2024 and 2025. However, the department did not have a process in place to review report contents before submission. Context: Only one staff member has permission to submit quarterly reports in the Treasury portal. The quarterly report is to collect data, plans, and compliance metrics to monitor how federal pandemic-relief funds are utilized to prevent homeowners from losing their homes. The submission does not document any consideration of the completeness or accuracy of the information reported. The department also lacks documentation demonstrating that the underlying support for reported data has been reviewed or that the data reported in the Treasury reporting system matches the support. Effect: Without adequate internal controls, the department is at increased risk that the quarterly reports may contain errors or be incomplete. Cause: The department staff indicated they relied on Treasury’s system for reasonableness checks. While the Treasury reporting system performs automated checks based on past entries, they do not constitute an internal control for the department given they are not part of the department’s process. Recommendation: We recommend the Department of Commerce establish, maintain, and document internal controls to ensure the quarterly reports are complete and accurate before submission. Views of Responsible Officials: The department concurs with the recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-073 Federal Program Name Immunization Cooperative Agreements (COVID 19) Federal Awarding Agency U.S. Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.268 Grant # NH23IP922574 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles H. Period of Performance Type of Finding Material Weakness (A, B, and H) and Material Noncompliance (A and B) Scope Limitation (H) Questioned Costs $5,346,667 Criteria: During the audit period, federal regulations, 2 CFR 200.333 and 45 CFR 75.353, allowed the department to issue fixed-amount subawards up to the Simplified Acquisition Threshold, provided certain requirements were met. Federal regulation, 48 CFR 2.101, defined the Simplified Acquisition Threshold as $250,000, with exceptions not applicable to the department’s subawards. Federal regulation, 2 CFR 200.403(g) and (h), require costs to be adequately documented and incurred during the approved budget period to be allowable. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: In fiscal years 2024 and 2025, the department issued fixed amount subawards to counties for the Immunization Cooperative Agreements Program. Five counties in 2024 and six in 2025 each received subawards exceeding the $250,000 maximum allowed by federal regulations. Internal controls did not prevent or detect this noncompliance. Because the department used fixed amount subawards above the allowed threshold, it did not obtain support for counties’ incurred costs. Payments were based on quarterly deliverable reporting and the department has no support to demonstrate that payments were only for costs incurred during the correct period of performance for the federal awards that funded the subgrants. Questioned Costs: We question the federal share of all payments to subrecipients whose subawards exceeded the maximum allowed for fixed-amount subawards. Total questioned costs are $5,346,667. Context: The department has historically used fixed-amount subawards for this program, as amounts were usually small. During the audit period, increased funding due to the COVID-19 emergency led to larger subawards. For counties with subawards exceeding $250,000: • In 2024, initial subawards were below the threshold, but amendments raised them above the limit. Subawards ranged from about $360,000 to $823,000. • In 2025, all initial subawards exceeded the threshold, ranging from about $342,000 to $781,000. After we communicated the issue, department staff consulted their Centers for Disease Control (CDC) contact and were told that the federally approved budgets showed intended spending, including the use of fixed-amount subawards. Additionally, the department noted that its 2024 federal budget review did not raise any concerns with the department using fixed-amount subawards. As part of the audit, we tried to speak with the department’s CDC contact but were told they were unauthorized to speak with us. Additionally, we could not confirm if the subaward mechanism was reviewed as part of the 2024 federal review. We found that CDC guidance allowed some flexibilities in response to COVID-19, but did not waive the dollar limitation for fixed-amount subawards. Effect: The department did not comply with federal regulations for the Immunization Cooperative Agreements program, resulting in about $5.3 million in questioned costs. When fixed-amount subawards are used, accountability is based on performance and results, and there is no expected routine monitoring of the actual costs incurred by the subrecipient. Because the department used this method for awards exceeding the allowed threshold, it cannot show that payments were limited to costs incurred during the correct period of performance for the federal awards that funded the subgrants. As a result, we cannot determine if county costs were incurred during the appropriate period of performance. Cause: The department received increased federal funds during the COVID-19 emergency. Program management stated they overlooked the maximum limit for fixed-amount subawards. indicating a need for stronger internal controls. Department management believed the CDC budget approval meant the federal limit did not apply. Recommendation: We recommend the Department of Health and Human Services: A. Strengthen internal controls for the Immunization Cooperative Agreements Program to ensure all fixed-amount subawards are within the federal maximum. B. Only issue fixed-amount subawards under the allowed maximum or obtain a documented waiver from the Centers for Disease Control. Views of Responsible Officials: The department does not concur with this recommendation. All subawards, including those referenced in the finding, were explicitly listed in the federally approved budget documents and Notice of Award. These materials contained the subaward amounts that the auditors questioned and were formally reviewed and approved by the CDC. The approval included the fixed-amount subaward methodology and the department’s planned use of funds. The department also points to the technical review conducted by CDC, which identified no findings or compliance issues, and its consultation with CDC program officials to support its position. Rebuttal of Views of Responsible Officials: We considered the department’s nonconcurrence with the recommendation. As noted above, the department's CDC contact did not respond to our inquiry during the audit. Additionally, we were unable to confirm through review of other information that the limit on fixed-amount subawards was waived. As such, our recommendation stands.
Finding 2025-074 Federal Program Name Immunization Cooperative Agreements (COVID-19) Federal Awarding Agency U.S Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.268 Grant # NH231P922574 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR Part 170, Appendix A(I)(a)(1) and (a)(2)(ii), requires non-federal entities to report each subaward obligation of $30,000 or more to the Federal Funding Accountability and Transparency Act (FFATA) reporting system no later than the end of the month following the month the obligation is made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During fiscal years 2024 and 2025, the department's internal controls were not sufficient to ensure all Immunization obligations of $30,000 or more were accurately and completely reported to the FFATA reporting system. As a result, required obligations were not reported, and some obligation amounts were over-reported. Context: We reviewed all obligations reported during the audit period and compared them to subaward agreements and amendments provided by the department. The department awarded approximately $5.9 million in Immunization obligations under a single federal award to 41 subrecipients, which should have triggered FFATA reporting for original contract issuances or subsequent contract amendments. The department should have filed 41 reports but instead filed 106 across a single federal award. Of the 106 reports filed, 19 matched current audit period obligations; however, only one met the $30,000 reporting. As the department indicated it was working during the audit period to correct prior-year errors, we also compared current-year reports to prior-audit recommendation support. We identified 52 FFATA reports matched prior-year errors. All 52 were submitted on the same day for the full subaward amount, rather than the specific amount reported in error or not yet reported from the prior audit. Overreported amounts related to the prior audit period totaled $13,181,401. The number of instances and corresponding dollar amounts for the reporting errors discussed are summarized in the following table. We did not test timeliness of the reports submitted and matched to current-year or prior-year subawards due to the column in Sam.gov data changing upon transaction modification. Our analysis was conducted using FFATA reporting system data as of July 2025. We considered each transaction submitted, or omitted, by the department and compared information against executed subaward agreements from the audit period, as provided by the department. Any corrections the department made during fiscal year 2026 were not considered in our testing for this audit but will be considered during the fiscal year 2026 audit. We did not provide our detailed analysis to the department. However, we believe the department has all necessary information in its possession, such as the FFATA reporting system data and its issued and amended subawards, to ensure necessary corrections are made to the FFATA reporting system. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included finding #2023-072, recommending enhanced internal controls over FFATA reporting and submit reports for the Immunization program as required by federal regulations. Effect: The department is not in compliance with FFATA reporting requirements. Inadequate internal controls resulted in unreported and inaccurate subaward reporting. FFATA reporting provides transparency to federal grantor agencies and the public. The errors identified could mislead users of FFATA data. Cause: The department uses a central contracting system to capture contract obligations, which include both subrecipient and contractor relationships. The system is used to process payments and identify which agreements require FFATA reporting. However, information entered into the system did not distinguish between contractor and subrecipient relationships, was not consistently accurate and was not always entered at the time of obligation. Department personnel responsible for FFATA reporting indicated they are working with federal program staff to implement process changes to ensure FFATA reports are filed only for subrecipients and are accurate and timely. Recommendation: We recommend the Department of Public Health and Human Services: A. Enhance internal controls to ensure accurate and complete submission of FFATA reports for the Immunization Cooperative Agreements program. B. Submit FFATA reports for the Immunization Cooperative Agreements program in accordance with federal regulations. Views of Responsible Officials: The department partially concurs with the recommendation. The department agrees that internal control deficiencies existed in its FFATA subaward reporting processes during FY24-FY25 and that instances of noncompliance existed. The department disagrees with the quantified extent of exceptions because they have been unable to replicate the numbers and dollars presented in the finding context and they believe the auditor has not provided sufficient detail to address the identified errors. The department also points to ongoing processes to identify and correct duplicate and inaccurate records. Rebuttal of Views of Responsible Officials: We considered the department’s partial concurrence. While the department agrees with the need to improve internal controls and errors in FFATA reporting, management disagrees with the auditor’s quantification of the errors. We believe management has sufficient detail to address the finding because it has access to its subaward agreements as well as the information currently available in the federal FFATA reporting system. As such, our recommendation stands.
Finding 2025-089 Federal Program Name Low-Income Home Energy Assistance Program (LIHEAP) (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.568 Grant # 18BMTLIEA, 2001MTLIEA, 2101MTE5C6, 2101MTLIEA, 2201MTLIEA, 2301MTLIEA, 2401MTLIEA, 2501MTLIEA Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR Part 170, Appendix A(I)(a)(1) and (a)(2)(ii), requires non-federal entities to report to the Federal Funding Accountability and Transparency Act (FFATA) reporting system each action that equals or exceeds $30,000 in federal funds for a subaward to a non-federal entity. The report must be submitted no later than the end of the month following the month in which the obligation is made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During fiscal years 2024 and 2025, the department's internal controls were insufficient to ensure all LIHEAP obligations of $30,000 or more were accurately and completely reported to the FFATA reporting system. Required obligations were not reported as required by federal regulations, and the department overreported obligation amounts. Context: We reviewed all obligations reported during the audit period against obligations made through subaward agreements and amendments to subrecipients. The department provided subaward documents totaling approximately $17 million in LIHEAP obligations under 3 federal awards to 13 subrecipients. Based on our review of subrecipient agreements and amendments provided by the department, 69 FFATA reports should have been filed; instead, 490 were filed across eight federal awards. Of the 490 reports filed, 54 matched current audit period obligations, 30 contained inaccurate amounts. Additionally, one fell below the $30,000 reporting threshold and should not have been reported. The number of instances and corresponding dollar amounts are summarized in the table below. We did not test timeliness of the reports submitted and matched to current-year or prior-year subawards due to the column in Sam.gov data changing upon transaction modification. While the department provided contracts for 13 entities presented as subrecipients, auditors determined only 10 were actual subrecipients. The remaining 3 were not subrecipients and therefore not subject to FFATA reporting requirements. Our analysis was conducted using FFATA reporting system data as of July 2025. We considered each transaction submitted, or omitted, by the department and compared information against executed subaward agreements from the audit period, as provided by the department. Any corrections the department made during fiscal year 2026 were not considered in our testing for this audit but will be considered during the fiscal year 2026 audit. We did not provide our detailed analysis to the department. However, we believe the department has all necessary information in its possession, such as the FFATA reporting system data and its issued and amended subawards, to ensure necessary corrections are made to the FFATA reporting system. Effect: The department is not in compliance with FFATA reporting requirements. Insufficient internal controls resulted in missing and inaccurate subaward reporting. FFATA reporting provides transparency to federal grantor agencies and the public. The errors identified could mislead users of the reported data. Cause: The department uses a central contracting system to capture obligations, which includes both subrecipient and contractor relationships. The system is used to process payments and identify which obligations require FFATA reporting. However, information entered into the system did not distinguish between contractor and subrecipient relationships, was not consistently accurate and was not always entered at the time of obligation. Department personnel responsible for FFATA reporting indicated they are working with federal program staff to implement process changes to ensure FFATA reports are captured accurately and timely for subrecipients only. Recommendation: We recommend the Department of Public Health and Human Services: A. Enhance internal controls to ensure accurate and complete submission of FFATA reports for the Low-Income Home Energy Assistance program. B. Submit FFATA reports for the Low-Income Home Energy Assistance program in accordance with federal regulations. Views of Responsible Officials: The department partially concurs with the recommendation. The department agrees that internal control deficiencies existed in its FFATA subaward reporting processes during FY24-FY25 and that instances of noncompliance existed. The department disagrees with the quantified extent of exceptions because they have been unable to replicate the numbers and dollars presented in the finding context and they believe the auditor has not provided sufficient detail to address the identified errors. The department also points to ongoing processes to identify and correct duplicate and inaccurate records. Rebuttal of Views of Responsible Officials: We considered the department’s partial concurrence. While the department agrees with the need to improve internal controls and errors in FFATA reporting, management disagrees with the auditor’s quantification of the errors. We believe management has sufficient detail to address the finding because it has access to its subaward agreements as well as the information currently available in the federal FFATA reporting system. As such, our recommendation stands.
Finding 2025-006 Federal Program Name National Guard Military Operations and Maintenance (O&M) Projects Federal Awarding Agency U.S. Department of Defense State Agency Department of Military Affairs (department) ALN # 12.401 Grant # W9124V-18-2-1007, W9124V-18-2-1001, W9124V-21-2-1001, W9124V-18-2-1002, W9124V-21-2-1002, W9124V-21-2-1003, W9124V-21-2-1004, W9124V-21-2-1005, W9124V-21-2-1007, W9124V-21-2-1010, W9124V-21-2-1021, W9124V-21-2-1022, W9124V-21-2-1023, W9124V-21-2-1024, W9124V-21-2-1040, W9124V-22-2-1031 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles G. Matching, Level of Effort, Earmarking Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department’s internal controls were not sufficient to ensure that all payroll charged during fiscal year 2024 was allocated in accordance with the applicable governing agreements. Context: The department oversees Army and Air National Guard activities in Montana and receives federal funding through a master cooperative agreement with the National Guard Bureau (NGB). Each appendix to the master agreement specifies the NGB reimbursement percentage. The Centralized Personnel Plan (CPP) defines the reimbursable salary percentages for employees who provide administrative support across multiple appendices. These percentages are recalculated annually based on prior-year actual activity and are coded into the state’s accounting system to be automatically applied each pay period. During our review of payroll charged under the CPP and cooperative agreement appendices, we found three misallocation situations: 1. Five employees’ salaries were not allocated in accordance with the fiscal year 2024 CPP. Errors spanned nine consecutive pay periods beginning at the start of fiscal year 2024. We intended to test all employees under the plan, but stopped testing after five, as all five employees tested had the same error. 2. Thirty firefighters' salaries were charged to the wrong appendix in the first pay period of fiscal year 2024. 3. For one pay period in fiscal year 2024, a post engineer’s payroll was not correctly allocated between the state’s share and the amount the federal government would reimburse. The department became aware of issues with the employee’s payroll allocations during the fiscal year but did not make a journal entry to correct the allocation. Salary allocations are a routine, predictable element of program administration. The department is experienced with calculating and applying allocations under the CPP and various appendices. However, the misallocations persisted over multiple consecutive pay periods before being identified and corrected by the department. Because the department self-identified and corrected the errors, no questioned costs were identified. Nevertheless, the duration and volume of errors indicate an internal control deficiency. Effect: The department misallocated employee payroll, resulting in inaccurate federal reimbursement requests and the need for correcting journal entries. Internal controls did not detect the misallocations for multiple consecutive pay periods. Cause: The department did not make timely updates to the state accounting system to ensure the CPP allocations were correct for fiscal year 2024. The firefighter and post engineer misallocations were oversights due to human error. Recommendation: We recommend the Department of Military Affairs strengthen internal controls to prevent payroll misallocations, or to detect and correct them in a timelier manner. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-007 Federal Program Name National Guard Military Operations and Maintenance (O&M) Projects Federal Awarding Agency U.S. Department of Defense State Agency Department of Military Affairs (department) ALN # 12.401 Grant # W9124V-18-2-1007, W9124V-18-2-1001, W9124V-21-2-1001, W9124V-18-2-1002, W9124V-21-2-1002, W9124V-21-2-1003, W9124V-21-2-1004, W9124V-21-2-1005, W9124V-21-2-1007, W9124V-21-2-1010, W9124V-21-2-1021, W9124V-21-2-1022, W9124V-21-2-1023, W9124V-21-2-1024, W9124V-21-2-1040, W9124V-22-2-1031 Compliance Requirement C. Cash Management Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: National Guard Regulation 5-1, Section 3-15.c requires claims to be submitted within 60 days after the basis of the claim is known or should have been known, whichever is earlier. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked internal controls to consistently seek reimbursement for the federal portion of O&M grant expenditures within the required timeframe. We identified multiple instances of late reimbursement requests. Context: The department manages the operation and maintenance of National Guard facilities in the state as part of the O&M program. This is managed through a Master Cooperative Agreement and 12 appendices. The department spent $57,449,130 during the audit period. The department periodically requests reimbursement by submitting SF-270 forms, tracked per appendix, with each request covering multiple invoices. We reviewed reimbursement requests in two appendices and found seven instances totaling $387,514 where requests were submitted more than 60 days after transactions were posted in SABHRS. The delays ranged from 62 to 266 days. During audit planning, we also identified one invoice in another appendix submitted for reimbursement 78 days after the invoice date. During our review of the department's new expenditure process for fixed costs, we identified an additional 28 instances where more than 60 days elapsed between when a cost was recorded and paid in SABHRS and when it was coded to the applicable appendix for inclusion on a reimbursement request. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2023, included recommendation #2023-003, directing the department to enhance internal controls to ensure reimbursement requests are submitted within 60 days of expenditure and that claims are requested within 60 days of being known or paid. Effect: The department is not in compliance with federal regulations. Reimbursement requests submitted more than 60 days after the expenditure could result in the federal government denying payment. Cause: Late reimbursements occurred for several reasons. Two requests were held while the department corrected payroll allocation errors addressed in finding 2025-006. Three requests could not be submitted because the federal funding modification had not yet been signed, leaving no available funding. One request was delayed while waiting for all central technology charges from the Department of Administration under a single purchase order to be finalized. The remaining item was missed without a specific documented reason. The department implemented a new expenditure process for fixed costs during the audit period in response to slow federal approvals that ended up increasing the time between when costs are initially paid and when reimbursement is requested. Recommendation: We recommend the Department of Military Affairs: A. Enhance internal controls to ensure reimbursement requests are submitted within 60 days of the expenditure. B. Request reimbursement for expenditures within 60 days of expenditure claims being known or paid. Views of Responsible Officials: The department partially concurs with the recommendation. Management agrees they need to submit reimbursement requests timely and have taken steps to implement processes to do so. However, they reiterate they cannot submit requests until the applicable federal funding modification have been approved. Rebuttal of Views of Responsible Officials: We considered the department’s partial concurrence. We acknowledge federal funding modification delays impact the department’s ability to submit reimbursement requests. But these delays do not change the reimbursement timeline requirements. Additionally, these delays only impacted three of the exceptions we identified. As such, our recommendation stands.
Finding 2025-008 Federal Program Name National Guard Military Operations and Maintenance (O&M) Projects Federal Awarding Agency U.S. Department of Defense State Agency Department of Military Affairs (department) ALN # 12.401 Grant # W9124V-21-2-1005, W9124V-21-2-1040, W9124V-21-2- 1003, W9124V-21-2-1007, W9124V-21-2-1002, W9124V-21- 2-1001, W9124V-20-2-1001, W9124V-18-2-1002, W9124V- 18-2-1005, W9124V-18-2-1007, W9124V-18-2-1001, W9124V-21-2-1024 Compliance Requirement H. Period of Performance Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: National Guard Regulation, Section 11-10.b, requires the department to provide the United States Property and Fiscal Officer (USPFO) a final accounting of all funding and disbursements within 90 days after the end of the Federal fiscal year, or upon termination or closeout of an agreement, whichever is earlier. National Guard Bureau Grants and Cooperative Agreement Policy Letter 21-07, Section 3.e, extended this deadline to 120 days after the end of the budget period of performance or termination of the award. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's internal controls were insufficient to ensure closeout reports were submitted on time and that final accounting was accurate and supported. We identified multiple instances where closeout reports were submitted after the 120-day deadline or lacked adequate support. Context: The department manages the operation and maintenance of National Guard facilities through a Master Cooperative Agreement and 12 associated appendices as part of the O&M program. The department spent $57,449,130 during the audit period. Each appendix is funded with one-year appropriations. If unspent funds remain at year-end, the department may receive an extension to liquidate remaining obligated costs. At the end of the year, or after the extension period, the department completes the closeout report for the award, which includes the final accounting. During the audit period, the department completed 28 closeout reports. Of those, the department submitted 15 closeout reports after the 120-day deadline, ranging from 135 to 2,146 days late. Additionally, we were unable to reconcile six final closeout reports to the department's accounting records. For some items, the department provided reconciliations prepared during the closeout process. However, we could not independently verify them or agree this information to the accounting records. Effect: The department did not comply with comply with federal regulations. Noncompliance could affect the amount of future federal funding awarded. Cause: Most exceptions involved older awards that predate current department staff. Staff stated that both the department and USPFO were unaware several awards were still open. Between August and December 2024, department and USPFO staff worked together to close these awards, including submitting late closeout reports and reconstructing prior expenditures. Because historical documentation was incomplete, full reconciliation required significant effort. Additionally, because the funds had already expired, reimbursement was not available. Department staff were verbally informed that no extensions were needed for these awards. Recommendation: We recommend the Department of Military Affairs: A. Enhance internal controls to ensure closeout reports are accurate and submitted within 120 days of the end of the award period. B. Complete all future closeout reports accurately and within the required timeframe. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-110 Federal Awarding Agency U.S. Department of Defense Federal Program Name National Guard Operations and Maintenance (O&M) Projects State Agency Department of Military Affairs ALN# 12.401 Grant # W9124V-18-2-1007, W9124V-21-2-1001, W9124V-21-2-1002, W9124V-21-2-1003, W9124V-21-2-1004, W9124V-21-2-1005, W9124V-21-2-1007, W9124V-21-2-1010, W9124V-21-2-1021, W9124V-21-2-1022, W9124V-21-2-1023, W9124V-21-2-1024, W9124V-21-2-1040, W9124V-22-2-1031 Compliance Requirement C. Cash Management Type of Finding Material Noncompliance and Material Weakness Questioned Costs No questioned costs identified Federal Awarding Agency U. S. Department of Health and Human Services Federal Program Name 1332 State Innovation Waivers State Agency State Auditor’s Office ALN# 93.423 Grant # SIWIW200014 Compliance Requirement C. Cash Management Type of Finding Material Noncompliance and Material Weakness Questioned Costs No questioned costs identified Criteria: Federal regulation, 31 CFR 205.9(b), requires the Treasury State Agreement (TSA) to include federal assistance programs subject to subpart A. (If they meet the threshold calculated using Table A in 31CFR 205.5). Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The TSA is a contract between the state of Montana and the federal government explaining how often large federal programs will process draw requests. The goal is that neither party loses money to interest. State Accounting Bureau prepares the TSA, with assistance from state agencies. The TSA was incomplete for both fiscal years 2024 and 2025, indicating that internal controls over its preparation needs improvement. Context: The O&M program at the Department of Military Affairs provides support to the Army and Air National Guard. It was incorrectly excluded from the TSA in fiscal year 2024. The State Innovation Waiver program at the State Auditor’s Office provides access to high-quality, affordable health insurance. It was incorrectly excluded from the TSA in fiscal year 2025. O&M fell just below the inclusion threshold in 2025 and was appropriately excluded that year. Likewise, the State Innovation Waiver program was under the threshold in 2024 and was appropriately excluded. Effect: The incomplete TSA constitutes noncompliance with federal regulations. Cause: For the O&M program, a miscommunication between the State Accounting Bureau and the Department of Miliary Affairs led the State Accounting Bureau to believe the entire program was ending when only the COVID-related element was concluding. For the State Innovation Waiver at the State Auditor’s Office, the State Accounting Bureau incorrectly believed federal funds flowed directly to the Montana Reinsurance Association. However, funding first passes through the office before being disbursed. Recommendation: We recommend the Department of Administration: A. Strengthen internal controls over the preparation of the Treasury State Agreement by obtaining outside verification of agency-provided information, such as when a program is discontinued. B. Ensure all required programs are included in the TSA prior to federal approval as required by federal regulations. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-063 Federal Program Name Rehabilitation Services–Vocational Rehabilitation Grants to States Federal Awarding Agency U.S. Department of Education State Agency Department of Public Health & Human Services (department) ALN # 84.126 Grant # H126A220038, H126A230038, H126A240038, H126A250038 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: The Case Service Report (RSA-911) instructions require that data submissions be accurate and submitted on time. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's internal controls did not ensure data submission requirements were met for the RSA-911 Case Services Report. We identified multiple instances where reported information was not supported by underlying case documents. Context: The Vocational Rehabilitation program helps people with disabilities find and maintain employment that matches their individual strengths, interests, and goals. The department opens a case in the Madison computer system to track each participant's progress through the program. The department reports case information for over 7,000 cases on each quarterly Case Service Report. We selected 25 out of the 66,434 individual lines reported in the audit period for a nonrandom, nonstatistical sample but stopped testing after identifying errors in the first 2 reviewed. Both errors involved data element 350 – Start Date of Employment in Primary Occupation, which was blank even though the department's case management system, Madison, contained a start date. In both cases, data element 356 – Employment Status at Exit indicated employment had begun. We then analyzed the remaining population and found 954 additional items with a blank employment start date despite an employment status at exit indicating the individual was employed. Effect: The department is not compliant with program reporting requirements or the requirement to maintain effective internal control over federal awards. Inaccurate data hinders the Rehabilitation Services Administration's (RSA) ability to effectively manage the program at the federal level. Cause: The Madison system did not consistently capture data element 350 in the RSA-911 quarterly report export. This occurred when staff did not enter the program name in the program field on the Employment Verification screen. That field was not required. Additionally, neither the data validation tool on the RSA website nor the department's internal data validation tool verified that all participants with an employment status at exit also had an employment start date reported. Recommendation: We recommend the Department of Public Health and Human Services: A. Strengthen internal controls to ensure the necessary fields are completed within the Madison case management system in order to accurately complete the Start Date of Employment in Primary Occupation data element on the RSA-911 Case Service Report. B. Accurately report the Start Date of Employment in Primary Occupation case information as required by the federal reporting requirements for the Vocational Rehabilitation program. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-083 Federal Program Name Temporary Assistance for Needy Families (TANF) (COVID-19) Federal Awarding Agency U.S Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.558 Grant # 1202MTTANF, 1302MTTANF, 1402MTTANF, 1701MTTANF, 1901MTTANF, 2201MTTANF, 2301MTTANF, 2401MTTANF, 2501MTTANF Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR Part 170, Appendix A(I)(a)(1) and (a)(2)(ii), requires non-federal entities to report to the Federal Funding Accountability and Transparency Act (FFATA) reporting system each action that equals or exceeds $30,000 in federal funds for a subaward to a non-federal entity. The report must be submitted no later than the end of the month following the month in which the obligation is made. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: During fiscal years 2024 and 2025, the department's internal controls were insufficient to ensure all TANF obligations of $30,000 or more were accurately and completely reported to the FFATA reporting system. Required obligations were not reported as required by federal regulation and the department overreported obligation amounts. Context: We reviewed all obligations reported during the audit period against obligations made through subaward agreements and amendments to subrecipients. The department reported awarding approximately $24.4 million in TANF obligations under two federal awards to 18 subrecipients. Based on our audit work, 25 FFATA reports should have been filed; instead, 374 were filed across nine federal awards. Of the 374 reports, six matched current audit period obligations; one contained an inaccurate amount. As the department indicated it was working during the audit period to correct prior-year errors, we also compared current-year reports to prior-year recommendation support. We identified 29 reports that matched prior-year errors. Seventeen were reported in the prior-year and the current year report duplicated the prior report instead of correcting errors; nine did not meet the $30,000 threshold needing a report. Based on prior-year documentation all 29 reports reflected total federal and general fund obligations to the subrecipient, whereas the reporting requirement is limited to federal funds. The number of instances and corresponding dollar amounts for the reporting errors discussed are summarized in the following table. We did not test timeliness of the reports submitted and matched to current-year or prior-year subawards due to the column in Sam.gov data changing upon transaction modification. While the department provided subaward agreements for 18 entities presented as subrecipients, auditors identified 12 fiscal year 2024 subrecipients and one fiscal year 2025 subrecipient. The subaward agreements and amendments provided by the department covered fiscal year 2024 only and included six entities who were not subrecipients. Additionally, an agreement was not provided for one subrecipient. Our analysis was conducted using FFATA reporting system data as of July 2025. We considered each transaction submitted, or omitted, by the department and compared information against executed subaward agreements from the audit period, as provided by the department. Any corrections the department made during fiscal year 2026 were not considered in our testing for this audit but will be considered during the fiscal year 2026 audit. We did not provide our detailed analysis to the department. However, we believe the department has all necessary information in its possession, such as the FFATA reporting system data and its issued and amended subawards, to ensure necessary corrections are made to the FFATA reporting system. Repeat Finding: Montana's Single Audit for the two fiscal years ended June 30, 2021, included finding #2021-064, and the report for the two fiscal years ended June 30, 2023, included finding #2023-071. Both findings recommended the department enhance internal controls over FFATA reporting and submit reports for the TANF program as required by federal regulations. Effect: The department is not in compliance with FFATA reporting requirements. Insufficient internal controls resulted in missing and inaccurate subaward reporting. FFATA reporting provides transparency to federal grantor agencies and the public. The errors identified could mislead users of the reported data. Cause: The department uses a central contracting system to capture obligations, which includes both subrecipient and contractor relationships. The system is used to process payments and identify which obligations require FFATA reporting. However, information entered into the system did not distinguish between contractor and subrecipient relationships, was not consistently accurate, and was not always entered at the time of obligation. Additionally, as noted in finding #2025-085, the department’s subaward agreements with subrecipients do not identify the obligation amount by specific FAIN. This contributes to errors in FFATA reporting for the program because we are unable to determine if the correct subaward amounts by FAIN were reported. Department personnel responsible for FFATA reporting indicated they are working with federal program staff to implement process changes to ensure FFATA reports are captured accurately and timely for subrecipients only. Recommendation: We recommend the Department of Public Health and Human Services: A. Enhance internal controls to ensure accurate and complete submission of FFATA reports for the Temporary Assistance for Needy Families program. B. Submit FFATA reports for the Temporary Assistance for Needy Families program in accordance with federal regulations. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-084 Federal Program Name Temporary Assistance for Needy Families Federal Awarding Agency U.S. Public Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.558 Grant # 2301MTTANF, 2401MTTANF Compliance Requirement L. Reporting Type of Finding Material Weakness Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department’s internal controls were ineffective in preventing errors in the submission of Administration for Children and Families (ACF)-204 reports for federal fiscal years 2023 and 2024. Context: The ACF-204 is an annual report on the state’s maintenance-of-effort and contains nine key line items. Internal controls were ineffective in identifying multiple errors in the reports submitted during the audit period, as outlined below: • In the 2023 report, the department reported the "Purpose of Benefit" data on the "Financial Eligibility Criteria" line. These two lines require different information. • Federal oversight identified several discrepancies in the 2024 report and returned it to the department for correction. The department corrected and resubmitted the report accurately. • The 2023 report was initially submitted under 2024, and the 2024 report was initially submitted under 2025. The department revised the reports and resubmitted them for the correct fiscal years. Because most errors were corrected, we do not consider this to be material noncompliance. Effect: Ineffective internal controls resulted in the reporting errors described above. Inaccurate or untimely data may limit federal agencies' ability to make well-informed decisions regarding future TANF fund allocations. Cause: Department personnel indicated the errors in reporting were a combination of human error and challenges with the federal reporting system. Recommendation: We recommend the Department of Public Health and Human Services enhance internal controls to ensure accurate submission of the ACF-204 reports for the Temporary Assistance for Needy Families program. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-085 Federal Program Name Temporary Assistance for Needy Families Federal Awarding Agency U.S. Public Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.558 Grant # 1802MTTANF,1902MTTANF, 2002MTTANF,2102MTTNAF, 2202MTTANF,301MTTANF, 2401MTTANF Compliance Requirement M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal Regulation, 2 CFR 200.332(b)(1), requires pass-through entities to provide federal award identification information specific to the subaward that identifies the federal award to the subrecipient. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's internal controls did not ensure that subaward contracts included all required federal award identification elements. We identified multiple contracts with unclear elements. Context: The department issued subaward agreements and/or amendments to 13 entities during the audit period, using a standardized template designed to include all 14 federal award identification requirements. In our review, we noted that the department’s subaward agreements frequently list multiple federal awards as the funding source. While the department includes information to identify the federal awards, such as the Federal Award Identification Number (FAIN) and Assistance Listing Number (ALN), the agreements do not specify the award amount for each individual FAIN or ALN. Instead, the agreements report a single combined subaward amount. Because TANF federal awards allow an extended budget period rather than a fixed two-year period of performance, the department lists each FAIN with its award date and period of performance start date using an "until spent" end date. During the current audit period, up to six FAINs are listed per agreement, and some agreements include FAINs for both TANF and non-TANF programs. Based on our review, no subaward agreements issued during the audit period specified the award amount for individual FAINs. The total value of these agreements and amendments was $19.9 million. Effect: Without communicating amounts tied to individual FAINs, subrecipients cannot accurately track, report, or comply with the requirements of each federal award. As noted in finding 25-083, this also contributed to errors in FFATA reporting for the TANF program during the audit period. Cause: The department interpreted the open-ended nature of TANF FAINs as an exemption from the requirement to identify specific award amounts for each FAIN, which is not the case. Recommendation: We recommend the Department of Public Health and Human Services: A. Strengthen internal controls over federal award identification in TANF subaward agreements. B. Specify individual award amounts by Federal Award Identification Number (FAIN) and Assistance Listing Number (ALN) for each TANF subaward and amendment as required by federal regulation. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-086 Federal Program Name Temporary Assistance for Needy Families Federal Awarding Agency U.S. Department of Public Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.558 Grant # 2301MTTANF, 2401MTTANF, 2501MTTANF, Compliance Requirement L. Reporting Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked testable controls over the Administration for Children and Family (ACF)-199 report for most of the audit period. Context: Federal requirements require the department submit ACF-199 reports quarterly. These are data reports that relay work participation rates, program compliance, and family demographics to the federal government. The department uses its Combined Healthcare Information and Montana Eligibility System-Enterprise Architecture (CHIMES) system to determine TANF eligibility and benefit amounts. The department's contractor prepares and submits the ACF-199 TANF Data Report directly from CHIMES as a text file. Due to the nature of text files, the department was not able to document its review of the information. In December 2024, the department began receiving Excel files alongside the text files. Excel files allow the department to document its review of the information prepared by the contractor. As a result, only 3 of the 8 reports submitted during the audit period had a testable review. Our work found minor errors in the reports that could have been caught with a review. Repeat Finding: Montana’s Single Audit report for the two fiscal years ended June 30, 2021, included finding #2021-056, and the Single Audit for the two fiscal years ended June 30, 2023, included finding #2023-058, both related to controls over the ACF-199 report. Effect: Without effective controls over the ACF-199 report, errors in the report may go undetected. Federal agencies rely on this data to make decisions about future TANF funding. Inaccurate or untimely reporting could affect those funding decisions. Cause: Prior to implementing new procedures, the department considered its up-front data collection and state/federal data file validation to be sufficient controls. The department later developed internal controls to help ensure report completeness and accuracy before submission. However, these procedures were not finalized and implemented until more than halfway through the audit period. Documenting the reviews on the excel files is a good next step to improving the ACF 199 internal controls. Recommendation: We recommend the Department of Public Health and Human Services continue to strengthen internal controls over the ACF-199 reports for the Temporary Assistance for Needy Families program. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-087 Federal Program Name Temporary Assistance for Needy Families Federal Awarding Agency U.S. Department of Public Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.558 Grant # 2301MTTANF, 2401MTTANF, 2501MTTANF, Compliance Requirement A. Activities Allowed/Unallowed B. Allowable Costs/Cost Principles E. Eligibility Type of Finding Material Weakness Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Department staff can manually override benefit determinations and payment issuances in the program's Combined Healthcare Information and Montana Eligibility System-Enterprise Architecture (CHIMES) system. The department has no procedures in place to review each of these manual overrides. Context: We obtained a listing of all manual overrides in the department's information system during fiscal years 2024 and 2025, totaling 1,029 overrides. In a randomly selected nonstatistical sample, we attempted to test whether manual overrides were being reviewed. After testing 5, we saw no evidence of reviews being performed. The department confirmed that reviews are not performed on individual overrides. Department personnel indicated that they implemented an eligibility review in July of 2023 which includes overrides in the population. In the first year they sampled 15 cases and then took a 12-month break. In March of 2025, they started a process of reviewing 45 cases per month as able depending on other duties. Because the department indicated this review did not operate throughout our entire audit period, we did not test it and do not consider this a compensating control. Through the other testing in our sample, we observed one instance where benefits were incorrectly closed, one override needed to issue a payment that was never issued, and one override with no documentation explaining why it was necessary. Because of the number of overrides that happen and the possibility for errors, we consider this a material weakness. Effect: Without consistent oversight of manual overrides, the department risks ineligible individuals receiving benefits, eligible individuals having their cases incorrectly closed, and individuals receiving excessive benefit amounts. Cause: The department believes its existing sample-based review process, which includes manual overrides in the broader population, is sufficient. The department also noted that most overrides result from IT system issues, where staff work with IT to resolve the problem and then manually override to achieve the correct outcome. However, sampling this way does not guarantee they will sample an override in their sample and as our sample results demonstrate, these controls do not catch all errors. Recommendation: We recommend the Department of Public Health and Human Services improve internal controls to enhance reviews over manual overrides for the Temporary Assistance for Needy Families program. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-088 Federal Program Name Temporary Assistance for Needy Families Federal Awarding Agency U.S. Department of Public Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.558 Grant # 2301MTTANF, 2401MTTANF Compliance Requirement M. Subrecipient Monitoring Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's internal controls were insufficient to ensure that all required Single Audit reports for subrecipients were obtained and reviewed. Context: Federal requirements require the department comply with subrecipient monitoring requirements. These requirements include verifying subrecipients receive a Single Audit when their federal funds expended reach a certain threshold and performing additional monitoring as necessary based on the results of those audits. In a randomly selected, nonstatistical sample of six of the department’s 12 subrecipients, we found that the department did not obtain two Single Audit reports for one subrecipient during the audit period. Follow-up work identified a second subrecipient whose fiscal year 2024 audit report was not requested. In total, the department did not obtain or review three Single Audit reports. Because the issue was limited to two subrecipients, and two of the three errors were in the final year of the contract, we do not consider this material noncompliance. Effect: Without effective internal controls, the department is at risk of not complying with federal subrecipient monitoring requirements. During the audit period, this resulted in the noncompliance discussed above. Not reviewing the Single Audit reports means the department cannot determine whether they need to perform federally required monitoring activities such as resolving audit findings and issuing management decisions. This puts the department at risk of additional noncompliance. Cause: While the department does have procedures in place to review Single Audit reports as part of its risk assessment process for ongoing subrecipients, the department did not think it was necessary to obtain Single Audit reports for subrecipients whose contracts were ending. There was no alternative process in place to ensure that Single Audit reports were received and reviewed for subrecipients whose contracts were ending. Recommendation: We recommend the Department of Public Health and Human Services enhance internal controls to ensure all required subrecipient single audit reports are reviewed for the Temporary Assistance for Needy Families program. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-099 State Agency Department of Public Health and Human Services (department) Federal Awarding Agency U.S. Department of Agriculture Federal Program Name SNAP Cluster (COVID-19) ALN# 10.551 and 10.561 Grant # Various Compliance Requirement N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Federal Awarding Agency U.S Department of Health and Human Services (HHS) Federal Program Name Temporary Assistance for Needy Families (TANF) ALN # 93.558 Grant # 2301MTTANF, 2401MTTANF, 2501MTTANF Federal Program Name Low-Income Home Energy Assistance Program (LIHEAP) (COVID-19) ALN # 93.568 Grant # 2301MTLIEA, 2401MTLIEA, 2401MTLIEI, 2501MTLIEA, 2501MTLIEI Federal Program Name Children’s Health Insurance Program (CHIP) (COVID-19) ALN # 93.767 Grant # 2305MT3002, 2305MT5021, 2405MT5021, 2505MT5021 Federal Program Name Medicaid Cluster (COVID-19) ALN # 93.775, 93.777, and 93.778 Grant # Various Compliance Requirement A. Activities Allowed or Unallowed (TANF), B. Allowable Costs/Cost Principles (TANF), E. Eligibility (TANF, LIHEAP, CHIP, and Medicaid Cluster) N. Special Tests and Provisions (TANF) Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Section 2-15-114, Montana Code Annotated (MCA), outlines requirements for state agencies to maintain an adequate level of security for all data. This includes the requirement to implement appropriate cost-effective safeguards to reduce, eliminate, or recover from identified threats to data. Montana Operation Manual, Information Security Controls Standard, outlines baseline security controls for every state agency to implement for information technology systems they manage. Included among the baseline controls are requirements for documentation of access control policies and procedures, including periodic review of user access so that IT best practices are followed, and controls over computer systems are sufficient. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Controls over the Combined Healthcare Information and Montana Eligibility System (CHIMES) did not ensure users had appropriate access and privileges. The department lacks an accounts matrix, and some privileged business users had unnecessarily elevated security permissions. Context: The CHIMES system is used by the department to gather and make eligibility determinations for multiple federal programs. Access to the system should adhere to the principles of separation of duties and least privilege. Separation of duties is the concept that no user has enough permissions to misuse the system on their own. At the same time, the principle of least privilege ensures that users have only the minimum access required to complete their assigned duties. While the department conducts routine access reviews, it does not ensure that users have appropriate access and privileges. An account matrix is needed to clearly outline access and privileges for each user role in the system. An accounts matrix would ideally incorporate the business decisions and safeguards related to least privilege and separation of duties. It can be used to verify which user permissions are appropriate during review. Additionally, audit work found that some privileged business users had elevated security permissions and that some staff who had moved into new roles still retained access that no longer aligned with their current responsibilities. Effect: Inappropriate access to CHIMES could allow unauthorized system changes or activity, leading to incorrect data or eligibility determinations. Cause: Department staff cited data entry errors, staff oversight, and position changes as causes. Recommendation: We recommend the Department of Public Health and Human Services: A. Complete the formal development of an accounts matrix for CHIMES, and B. Include the review of user permissions to improve routine access reviews. Views of Responsible Officials: The department concurs with the recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-057 Federal Program Name Title I Grants to Local Educational Agencies Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.010A Grant # S010A220026, S010A230026, S010A240026 Compliance Requirement G. Matching, Level of Effort, Earmarking Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office lacks internal controls to ensure that Maintenance of Effort (MOE) calculations for Local Education Agencies (LEA), which are generally school districts or schools, performed in the Montana Automated Education Financial and Information Reporting System (MAEFAIRS) are accurate. Context: In fiscal year 2024, 399 schools received Title I allocations from the office and in fiscal year 2025, 398 schools received allocations. For maintenance of effort, a school may receive funds only if the office determines that the school’s combined fiscal effort per student or total state and local expenditures on free public education in the preceding year were at least 90% of those same measures from the second preceding year, unless the U.S. Department of Education grants a specific waiver. Prior to 2024, the School Finance Manager annually recalculated a sample of seven schools that were determined to meet MOE compliance to verify that MAEFAIRS calculations were correct. The office did not perform these recalculations in 2024 or 2025 and had no mitigating internal control in place to ensure the accuracy of MAEFAIRS calculations. With turnover in the School Finance Manager position, this control was not documented and not continued after turnover occurred. Effect: Without accurate MOE calculations, the office risks distributing Title I funds to schools that do not meet level-of-effort requirements in future years, resulting in noncompliance with federal regulations. Cause: The office experienced turnover in the School Finance Manager position during the audit period. Controls were not documented when the position was filled, therefore they were not aware of the practice of recalculating MOE compliance for a selection of schools and did not perform these recalculations in 2024 or 2025. Recommendation: We recommend the Office of Public Instruction enhance internal control procedures to ensure MOE confirmation calculations are conducted by staff annually, even when turnover occurs. Views of Responsible Officials: The office does not concur with the recommendation and noted they review the values provided by School Finance and tests Enrollment, Avg Daily Attendance and Average Number Belonging, to determine if the LEA is subject to a percentage of MOE reduction. Rebuttal of Views of Responsible Officials: We considered the office’s nonconcurrence. We agree the office reviews values for LEAs that are flagged for not meeting MOE. However, the office does not complete reviews of the calculations if an LEA is not flagged. Therefore, there are no controls in place to ensure the calculations are accurate for all LEAs. As such, our recommendation stands.
Finding 2025-058 Federal Program Name Title I Grants to Local Educational Agencies Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.010A Grant # S010A220026, S010A230026, S010A240026 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs $174,111 Criteria: Federal regulation, 2 CFR 200.332 (d), requires pass-through entities to "Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved." Federal regulation, 2 CFR 200.403(a) and (g), states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office reimbursed Local Education Agencies (LEA), which are generally school districts or schools, without receiving and reviewing sufficient documentation to determine whether costs were allowable. The schools are subrecipients of the federal Title I funds. Internal controls were not adequate to ensure proper documentation was received before payment. Questioned Costs: We question $174,111 in Title I payments that were reimbursed without adequate support. This represents the total dollar amount of the ten sample items with errors. Based on the number of errors found, the timeframe during which the office was notified of documentation deficiencies, we project total questioned costs exceed $26 million or approximately 25% of the aggregate total for fiscal years 2024 and 2025. Context: We selected a random nonstatistical sample of 60 reimbursements. We tested the first 26 items and found ten exceptions. Because the error rate indicated material noncompliance, we did not test the remaining 34 items. The ten exceptions are mainly related to missing dates associated with when compensation and benefits were earned. The number of errors indicates a systemic problem. The office made 3,111 reimbursement payments totaling $104,414,057 to schools in fiscal years 2024 and 2025. Approximately $99 million of these requests were related to compensation and benefit costs incurred by schools. Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-038 in the audit for the two fiscal years ended June 30, 2023. Effect: The office reimbursed schools for Title I costs that were not adequately supported at the time of payment. This increases the risk that schools used Title I funds for unallowable activities or costs. Subrecipient monitoring procedures were not sufficient to comply with federal regulations. Cause: This issue was originally communicated to the office in late fiscal year 2024, leaving only part of the audit period for the office to strengthen controls. The office implemented a new cash request review process in early 2025. Prior to that change, cash request reviews were minimal and limited to comparing the approved budget categories to the school’s cash request. However, the office continues to note that not all schools submit adequate documentation. During the current period, the office continued to distribute funds to schools even when supporting documentation lacked detail to ensure the cash request was for authorized purposes and was reasonably necessary for performance of the Title I program. During testing, we noted some improvement in documentation for fiscal year 2025 salary and benefit costs. Should the office continue to obtain increased documentation for salary and benefit costs, this issue should be resolved. Recommendation: We recommend the Office of Public Instruction: A. Continue to strengthen internal controls to ensure schools submit adequate documentation with reimbursement requests before payment is made. B. Only reimburse schools when documentation is sufficient to demonstrate the cost is for an allowable purpose and was incurred within the subaward period. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-059 Federal Program Name Title I Grants to Local Educational Agencies Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (Office) ALN # 84.010A Grant # S010A220026, S010A230026, and S010A240026 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles Type of Finding Material Weakness & Material Noncompliance Questioned Costs $1,104,982 Criteria: Federal regulation 2 CFR 200.403(a) and (g) states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. Federal regulation 2 CFR 200.430 (g) states salaries and wages charged to a federal award must be based on records that accurately reflect the work performed. Paragraph 430(g)(1)(vii) (A) and (B) allows for budgeted estimates if the estimates produce reasonable approximations of the activity actually performed and significant changes are identified and entered into the records in a timely manner. Federal regulation 2 CFR 200.303 requires non-Federal entities to establish and maintain effective internal control over the Federal award that provides reasonable assurance that the entity manages the award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The Office of Public Instruction (OPI) controls were not adequate to ensure compliance with federal regulations related to personal service costs. Questioned Costs: We question $1,104,982 of costs. This is the total for personal services for Title I for the audit period, less any staff who indicated they worked all of their time on the program and further adjusted for staff time supported (that we tested) for April – June 2026 that was supported by agency records . Context: The office added a new internal control in April of 2025 requiring staff to track time for their time spent on each Federal program. However, this control was not in place for 21 months of the audit period and documentation for some staff’s work on Title I could not be provided after implementation of the control. Therefore, we question $1,104,982 of costs. Since the office was not tracking time spent on each Federal program for 21 months of the audit period and documentation for all requested staff after implementation of the new control could not be provided, this resulted in material noncompliance. Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-034 in the audit for the two fiscal years ended June 30, 2023. Effect: The office lacked controls to ensure that only salary and benefit costs for time worked on Title I were charged to the award. There is insufficient support to show that personal services costs were allocated to the federal program where the work was performed, resulting in $1,104,982 in questioned costs. Cause: Before April 2025, the office had not implemented a control requiring staff to track time spent on each federal program. Without this control, employees did not complete periodic time and effort certifications, and time was not confirmed as allocated to the correct state and Federal programs. Staff time allocations relied solely on budget estimates. Recommendation: We recommend the Office of Public Instruction: A. Continue to use enhanced internal controls to ensure personal services costs are adequately documented and reflect actual time and effort for the Title I program. B. B. Allocate personal service costs based on support for actual time and effort on the Title I program, in accordance with federal regulations. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding # 2025-019 Federal Program Name Unemployment Insurance (UI) (COVID-19) Federal Awarding Agency U.S. Department of Labor State Agency Department of Labor and Industry (department) ALN # 17.225 Grant # 24A55UI038784, UI37234225A30, 23A55UI039333, 24A55UI000047, 26A60UR000026, 24A60UR000067, 23A55UI034726 Compliance Requirement L. Reporting Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department did not have sufficient internal controls in place to ensure that various required federal reports were accurate and complete during fiscal year 2024. Context: The department submits several UI reports to the federal government. Some reports cover financial data while others cover program performance metrics. The following table represents the reports that were reviewed and issues identified: The department’s new computer system Montana Unemployment Services Environment (MUSE) went online in fall 2023. MUSE retains documentation of the reviews and approvals of the reconciliations and amounts reported on the federal reports. No instances of noncompliance were identified during the audit period. This is consistent with an isolated internal control deficiency. Repeat Finding: The portion of this finding related to UI-3 and ETA 9050 reports is a repeat finding and was reported as Single Audit finding 2023-011 in the audit for the two fiscal years ended June 30, 2023.The department addressed the previous issue related to errors in the reports, but the control portion of the recommendation continues. Effect: Without adequate controls, the department risks reporting incorrect information to the federal government. Noncompliance with federal reporting requirements could result in reduced funding or additional conditions imposed by the federal government. Cause: The department's internal control procedures did not include documentation of supervisory review and approval of reports or of complete reconciliations. Department personnel indicated these gaps were not recognized until the issue in the previous Single Audit Report. As noted above, the department’s new computer system, MUSE, addressed the internal control issues and maintains documentation to support reviews of reconciliations. Recommendation: We recommend the Department of Labor and Industry strengthen internal controls by maintaining documentation to support reviews of reconciliations of all amounts reported on federal Unemployment Insurance program reports. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding Number 2025-020 Federal Program Name Unemployment Insurance (UI) (COVID-19) Federal Awarding Agency U.S. Department of Labor State Agency Department of Labor and Industry (department) ALN # 17.225 Grant # 24A55UI038784, UI37234225A30, 23A55UI039333, 24A55UI000047, 26A60UR000026, 24A60UR000067, 23A55UI034726 Compliance Requirement N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: As part of administering the Benefit Accuracy Measurement (BAM) program, the department draws a weekly sample of paid and denied claims and conducts in-depth investigations to verify that unemployment compensation administration is consistent with state and federal law. Federal regulations specify the number of claims the department must review weekly, quarterly, and annually. Prior to April 2024, the department did not retain evidence of their monitoring of completion of claims reviews. Context: The department uses a federal reporting system to monitor the BAM review status and track progress toward required review totals.The department did not save documentation from the federal reporting system, showing that monitoring occurred. Auditors were unable to verify that monitoring was in use prior to April 2024. No instances of noncompliance were identified during the audit period. This is consistent with an isolated internal control deficiency rather than a systemic compliance failure. Repeat Finding: This is a repeat finding and was reported as Single Auditing finding 2023-009 in the audit for the two fiscal years ended June 30, 2023. Effect: Without documented evidence of monitoring, the department could not demonstrate it was identifying and correcting errors in a timely manner prior to April 2024. This also places the department out of compliance with federal regulations, which require recipients of federal funding to maintain effective internal controls over federal awards. Cause: Department personnel used the federal reporting system to track case selection and review progress, but did not recognize the need to retain documentation of that monitoring activity until the issue was raised in the prior single audit report. Recommendation: We recommend the Department of Labor and Industry continue to use a process to regularly retain and document evidence of the internal controls used to monitor completion of required BAM case reviews. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding # 2025-021 Federal Program Name Unemployment Insurance (UI) (COVID-19) Federal Awarding Agency U.S. Department of Labor State Agency Department of Labor and Industry (department) ALN # 17.225 Grant # 24A55UI038784, UI37234225A30, 23A55UI039333, 24A55UI000047, 26A60UR000026, 24A60UR000067, 23A55UI034726 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal guidance, ETA (Employment and Training Administration) 2112 Handbook, part B, requires the ETA 2112 report to reflect all money received, passed through, or paid out of the state unemployment fund. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacks sufficient internal controls to reconcile or review key line items on the monthly ETA 2112 reports. The department did not reconcile beginning or ending balances on the ETA 2112 reports for fiscal years 2024 and 2025, resulting in unresolved differences in both years. Context: The ETA 2112 Financial Transaction Summary is a monthly report accounting for all funds received in, passed through, or paid out of the state unemployment fund. The department submits this report to the federal government as part of its UI reporting obligations. We identified the following internal control deficiencies in our audit: • Prior to May 2024, the department did not reconcile federal withholding activity for the Unemployment Trust Fund account between the ETA 2112 report and state accounting system. • The department did not reconcile beginning and ending balances on the ETA 2112 to the benefits account bank statement for the duration of the audit period. • The department did not have proper documentation of reconciliations between the reported account balances and bank statements until March 2024. Additionally, our testing of eight reports revealed differences in ending and beginning balances ranging from $5.8 million to $7.5 million in FY2024 and $22.5 million to $26.2 million in FY2025. We designed a randomly selected, non-statistical sample of 8 and found differences in all 8 months. Repeat Finding: The portion of this finding relating to the reconciliations is a repeat finding and was reported in the Single Audit finding 2023-011 in the audit for the two fiscal years ended June 30, 2023. The department implemented new internal controls when its new Montana Unemployment System Environment (MUSE) system was launched in 2024. Effect: Without adequate control, the department reported incorrect information on federal reports. Noncompliance with federal reporting requirements could result in reduced funding or additional conditions imposed by the federal government. Cause: The department's internal control procedures did not include reconciliations or review and approval of reports prior to communication of the previous Single Audit findings. If the department continues to operate under their new procedures, this recommendation should be resolved. Recommendation: We recommend the Department of Labor and Industry: A. Continue to strengthen internal controls to complete and maintain sufficient documentation of reconciliations. B. Report accurate and complete data on the ETA 2112 federal report for the Unemployment Insurance program. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.
Finding 2025-004 Federal Program Name WIC Special Supplemental Nutrition Program for Women, Infants, and Children Federal Awarding Agency U.S. Department of Agriculture State Agency Department of Public Health and Human Services (department) ALN # 10.557 Grant # 243MT705W1003, 243MT705W1006, 253MT705W1003, 253MT705W1006 Compliance Requirement B. Allowable Costs/Cost Principles Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Department controls over the infant formula rebate calculation process are not sufficient, as no documentation of the review of the rebate calculation exists. Context: Each month, department staff calculate the infant formula rebate by totaling units of formula redeemed and applying the applicable rate. The same staff member prepares and sends the invoice to the manufacturer. A second staff member reviews the calculation for accuracy; however, no documentation of that review exists. In fiscal years 2024 and 2025, rebates were approximately 17% of total expenditures, or $2.7 million and $2.9 million, respectively. Effect: Without documented evidence of review, the department cannot demonstrate that a review occurred. While no errors were identified in the rebate calculations tested, if no review occurred it could result in an undetected error. An undetected error in the calculation could result in inaccurate invoices and incorrect reimbursement amounts. Cause: Staff believed a second-person review was sufficient but did not recognize the need to document it. Since this issue was identified, the department updated its process. A new tracking tool was developed, and for fiscal year 2026, the department began documenting all rebate calculation reviews. This included retroactively reviewing all fiscal year 2026 calculations. Recommendation: We recommend the Department of Public Health and Human Services enhance internal controls to maintain documented evidence that rebate calculations are reviewed prior to invoicing the manufacturer. Views of Responsible Officials: The department concurs with the recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-005 Federal Program Name WIC Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Federal Awarding Agency U.S. Department of Agriculture State Agency Department of Public Health and Human Services (department) ALN # 10.557 Grant # 243MT705W1003, 243MT705W1006, 253MT705W1003, 253MT705W1006 Compliance Requirement A. Activities Allowed/Unallowed B. Allowable Costs/Cost Principles H. Period of Performance Type of Finding Material Noncompliance and Material Weakness Questioned Costs Known questioned costs of approximately $19,260 and likely questioned costs exceeding $25,000 Criteria: Federal regulation, 2 CFR 200.403(a), (g), and (h) states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. This means the costs must be adequately documented and incurred during the approved budget period. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's internal controls were not sufficient to ensure all reimbursements paid to local agencies were fully supported. The department reimbursed some local agencies without receiving or maintaining adequate documentation to determine whether funding was used for allowable activities, allowable costs, and within the period of performance. Questioned Costs: Auditors reviewed support for selected months across tested local agencies and treated any expenditure without detailed supporting documentation retained by the department as a questioned cost. Testing was not performed to identify which costs apply to which grant award, but we estimate most of the questioned costs are administrative costs. We calculated questioned costs for 5 of the 7 selected agencies. Total known questioned costs were approximately $19,260. We estimate likely questioned costs exceed $25,000. Context: Local agencies throughout the state, such as county health departments, contract with the department to provide WIC services. The department monitors activity at local agencies through monthly expenditure reviews before reimbursement and during periodic monitoring visits. Monthly expenditure reviews are high-level and do not include requesting or reviewing support for individual expenses. Testing of these reviews found no issues. However, the documentation was not detailed enough to determine whether the expenditures were allowable and incurred within the period of performance for most of the audit period. Except for salaries, the department’s monthly expense form included budget categories only and did not require the local agency to provide additional information about the costs or when the costs were incurred. In one example the local agency sought reimbursement for expenditures a couple of months after the expense was incurred, indicating that the expenses included on the monthly expenditure form are not always for that month. The department identified the lack of detail in their monthly expense form as a control weakness, and late in the audit period adopted an updated monthly expense form that requires local agencies to provide context for all cost categories they are seeking reimbursement for. Because monthly review documentation was insufficient to verify allowability and period of performance, audit testing focused on monitoring visits. Monitoring visits, conducted at least every other year, include a more thorough review of costs, such as verifying invoices and receipts. We performed testing on a random nonstatistical sample of 7 of the 38 local agencies that had a monitoring visit during the audit period. We stopped testing after identifying errors in 5 of the 7 agencies. One subrecipient had fully supported payments. The department provided documentation for the 7th agency 6 weeks after our initial request for documentation. This agency was excluded from testing as material noncompliance had already been identified. Questioned costs are based only on agencies tested. All questioned costs are from periods before the department updated the monthly expense form. The department provided the monitoring documentation submitted by the agencies for department review. The documentation received was insufficient to provide reasonable assurance that all local agency costs incurred were for allowable costs and allowable activities, and occurred within the period of performance. Specifically: • Two agencies provided invoices and receipts for some, but not all, expenditures. Auditors could not verify whether all costs were allowable or within the period of performance. One of these agencies also received reimbursement for indirect costs despite the contract indicating indirect costs were not applicable. • Two agencies provided invoices, receipts, and a general ledger. Period of performance was verified using the general ledger; however, the ledger was not detailed enough to verify whether all costs and activities were allowable. • One agency provided no invoices, receipts, or general ledger. We could not verify period of performance, allowable costs, or allowable activities. Effect: The department did not retain detailed documentation of local agency expenditures at the time of department reimbursement, nor did the department obtain or retain additional detailed supporting documentation during its monitoring process. This increases the risk that local agencies used WIC funds for unallowable activities or costs. The department is not in compliance with federal regulations and known and likely questioned costs were identified. Cause: Some local agencies did not submit supporting documentation during the monitoring process. Although department staff noted these gaps during monitoring visits and included the lack of documentation in the department’s monitoring report, documentation retained by the department was incomplete, inaccurate, or unavailable. Department staff also indicate that they reviewed detailed documentation during their monitoring processes, but did not retain all of it due to volume. This includes some instances where local agencies submitted invoices by mail or the department reviewed the invoices and receipts while on site at the local agency, and department staff did not scan or retain the physical documents. Late in the audit period, the department did create a new monthly expense reimbursement form that requires more detailed information from the local agencies. While this was in place for only part of the audit period, it does capture detailed information missing from earlier monthly expenditure reimbursements and monitoring visits. If the department continues to use this new form it will likely obtain the level of detail necessary to support local agency expenditure reimbursements. Recommendation: We recommend the Department of Public Health and Human Services: A. Continue to implement internal controls requiring local agencies to submit detailed documentation and requiring department staff to retain detailed documentation received. B. Ensure reimbursements to local agencies are supported by documentation to confirm costs are allowable, activities are allowable, and expenditures fall within the relevant period of performance. Views of Responsible Officials: The department does not concur with this recommendation. The department noted that its monitoring framework is the level of monitoring required by federal requirements. The department further noted that the federal regulations do not require transaction level or receipt level documentation of all subrecipient expenditures as a condition of reimbursement. Extending receipt-level submission and retention to every expenditure would add substantial administrative work for the department and its local agencies. Rebuttal of Views of Responsible Officials: We considered the department’s nonconcurrence with the recommendation. Audit testing was focused on the allowability of costs and activities and period of performance and not subrecipient monitoring controls. The support available was insufficient to provide reasonable assurance that all local agency costs incurred were for allowable costs and allowable activities and that costs occurred within the period of performance. As discussed above, we believe the new monthly expense reimbursement form implemented by the department late in the audit period will likely capture the detailed information missing from earlier expenditure reimbursements. These new department processes do not obtain a receipt for every transaction at the subrecipient level, but do capture more information and details about transactions to support that the costs were for allowable costs, allowable activities, and occurred within the period of performance at the time of reimbursement. As such, our recommendation stands.
Finding 2025-100 State Agency Department of Public Health and Human Services (department) Federal Awarding Agency U. S. Department of Health and Human Services Federal Program Name Epidemiology and Laboratory Capacity for Infectious Diseases (ELC)(COVID-19) ALN # 93.323 Grant # NH23IP922574, NUCK000409, NU500CK000500, NU51CK000366, NUE2EH001420 Federal Program Name Immunization Cooperative Agreement (COVID-19) ALN # 93.268 Grant # NH23IP922574 Federal Program Name Adoption Assistance – Title IV-E ALN # 93.659 Grant # 2401MTADPT, 2501MTADPT Federal Program Name Low-Income Home Energy Assistance (LIHEAP) ALN # 93.568 Grant # 2201MTLIEI, 2201MTLIEA, 2301MTLIEI, 2301MTLIEA, 2401MTLIEI, 2401MTLIEA, 2501MTLIEI, 2501MTLIEA Federal Awarding Agency U. S. Department of Agriculture Federal Program Name Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) ALN # 10.557 Grant # 243MT705W1003, 243MT705W1006, 253MT705W1003, 253MT705W1006 Compliance Requirement C. Cash Management Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacks sufficient controls over cash draws to minimize the time between the drawdown of federal funds and their disbursement, as required by federal regulations, in the ELC, Immunization, Adoption Assistance, LIHEAP and WIC programs. Context: The prior audit identified a design deficiency in internal controls over the department's cash management process for federal cash draws. No process changes were made until partway through FY2025, and some planned changes were not implemented. The existing process did not prevent programs from accumulating excess cash. We noted isolated instances of excess cash and inconsistent draw patterns. However, there was no indication of a pattern of excess cash in the programs identified. Our analysis supports that there was no material noncompliance with the requirements to minimize time between draws and disbursement. Repeat Finding: The department has had cash management findings spanning the previous 3 single audits. The 2019-024 finding related to the WIC program, identifying material noncompliance and a control deficiency. In the single audit covering the two fiscal years ending June 30, 2021 it was determined that the prior audit recommendations had not been implemented. This is a repeat finding from the Single Audit for the two fiscal years ending June 30, 2023 (Finding 2023-052), related to the ELC and Adoption Assistance programs. The finding is new for the Immunization, LIHEAP, and WIC programs. Differing from the last three single audits, we didn’t identify material noncompliance related to cash management. Effect: Without proper cash management, the department risks failing to minimize the time between the drawdown of federal funds and disbursing them for program operations, as required by federal regulations. Cause: The department uses templates to guide draws and identify excess cash balances. However, each program has unique cash management requirements that necessitate template modifications. These tools were insufficient to prevent all periods of excess cash. The timing of the prior single audit did not allow the department adequate time to implement the prior recommendation where the department would daily monitor high-risk funds. In addition, adjustments to their processes had to be made because of Department of Governmental Efficiency changes impacting the timing of reimbursements as well as a new state law enacted near the end of FY2025 that affected the timing of inter-entity loans affected the department’s ability to adjust their process. Recommendation: We recommend the Department of Public Health and Human Services continue to enhance internal controls over cash draws to minimize the time between the drawdown of federal funds and their disbursement for federal program purposes. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-064 Federal Program Name Comprehensive Literacy Development Program (Literacy) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.371 Grant # S371C190012, S371C190012-19A, S371C190012-20, S371C190012-21 Compliance Requirement A. Activities Allowed B. Allowable Costs/Cost Principles M. Subrecipient Monitoring Type of Finding Other Matter: Questioned Costs for a Non-Major Program Questioned Costs $130,752 Criteria: Federal regulation, 2 CFR 200.332(d), requires pass-through entities to, “Monitor the activities of the subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The pass-through entity is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved.” Federal regulation, 2 CFR Part 200.403(a) and (g), requires costs to be necessary and reasonable, as well as adequately documented. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office’s subrecipient monitoring process for the Literacy program lacked sufficient documentation on cash requests throughout the audit period. The prior audit reported this issue; however, new procedures were not fully in place until partway through the audit period. Questioned Costs: We question $130,752 in costs paid to two eligible Local Education Agencies (LEAs), which are generally schools or school districts. While a third school also provided insufficient documentation for reimbursement, that school had already been identified as an ineligible school. We questioned the costs for the entire school in finding 2025-065. Those questioned costs are excluded here to prevent double counting the same expenditures as questioned costs. Context: This program was not audited as a major federal program under the Single Audit, so testing was limited to following up on the prior audit recommendation. Auditors reviewed 10 cash requests, five from each fiscal year. All five fiscal year 2025 requests were adequately documented. Three of the five fiscal year 2024 requests lacked adequate documentation as they were missing time periods, descriptions of services provided, or quantities purchased. Two of the three erroneous payments were made to eligible schools and one was made to an ineligible school. Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-039 from the audit for the two fiscal years ended June 30, 2023. Effect: Without adequate controls over cash requests, the office may have reimbursed subrecipients for unallowable, unnecessary, or unreasonable expenses. Cause: This issue was originally communicated to the office in late fiscal year 2024, leaving only part of the audit period for the office to strengthen controls. In November 2024, the office updated its procedures to require schools to submit specific details with cash requests. Several of the deficient requests were submitted before this update took effect. Additionally, the internal auditor began sampling cash requests later in the audit period, but that control was also not in place for the full period. If the office continues to operate under their new procedures, this recommendation should be resolved. Recommendation: We recommend the Office of Public Instruction: A. Continue to use enhanced internal control review procedures to ensure subrecipient payment requests are for allowable costs and activities. B. Reimburse subrecipients after obtaining and reviewing support to ensure costs are reasonable, necessary, and adequately documented, as required by federal regulations. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-065 Federal Program Name Comprehensive Literacy Development Program (Literacy) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.371 Grant # S371C190012, S371C190012-19A, S371C190012-20, S371C190012-21 Compliance Requirement B. Allowable Costs/Cost Principles E. Eligibility Type of Finding Other Matter: Questioned Costs for a Non-Major Program Questioned Costs $4,442,942 Criteria: The Elementary and Secondary Education Act of 1965 Section 2221(b)(2) defines an eligible entity as one or more local educational agencies that serve a high percentage of high needs schools and meets other criteria such as having a high percentage of children reading below grade level or a high proportion of students who are special needs, codified at 20 U.S.C. 6301 et. Seq. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office awarded Literacy funds to local education agencies (LEAs), which are generally schools or school districts, that were not eligible under federal eligibility regulations. The office inconsistently applied criteria and it did not always follow federal regulations. The prior single audit reported this issue; however, the office disagreed with the finding and continued making payments to those schools under existing subaward agreements, resulting in questioned costs in the current period. As the Department of Education has not conducted their following up to resolve this issue, we continue to report it as a finding. Questioned Costs: We question costs of $4,442,942 using actual payments to the ineligible schools identified from the office’s grant system. Context: The prior audit tested all 43 schools that received allocations from the office during fiscal years 2022 and 2023 and identified 9 schools that were not eligible for federal Literacy funds. Because Literacy is no longer a major federal program, current audit procedures focused only on following up with those 9 schools. During fiscal years 2024 and 2025, the office continued distributing federal funds to all 9 ineligible schools under subaward agreements established during the prior audit period, resulting in significant questioned costs. Although the office updated its internal control processes in late 2025, both the internal control and compliance deficiencies identified in the prior audit persisted throughout the current audit period. Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-041 from the audit for the two fiscal years ended June 30, 2023. Effect: The office is not in compliance with federal regulations. We question more than $4.4 million in Literacy subrecipient costs that were paid to schools that did not meet the federal eligibility requirements. This also confirms that the office's internal controls were not operating effectively during fiscal years 2024 and 2025. Additionally, schools that did not receive funding may have been selected had the original federal criteria been applied. The state's criteria used was broader than the federal criteria which expanded the pool of eligible applicants. Cause: As the prior audit reported, the office submitted conflicting eligibility requirements during the federal application process and could not demonstrate that it awarded funds consistent with Elementary and Secondary Education Act (ESEA) requirements. Because the grant was nearing its end when the prior audit concluded, the office did not adjust original eligibility determinations and continued reimbursing the 9 schools through the grant run-out period. For new grants, the office updated its process, and documentation now reflects all federal eligibility criteria and each school's compliance with those criteria. If the office continues to use these updated procedures, this finding should be resolved. Recommendation: We recommend the Office of Public Instruction: A. Continue to use enhanced controls implemented as of May 2025 grants to ensure only eligible subrecipients are allocated funding. B. Award subgrants only to eligible schools, as required by federal regulations. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.
Finding 2025-032 Federal Program Name Formula Grants for Rural Areas and Tribal Transit Program (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.509 Grant # MT-2018-011, MT-2020-013, MT-2022-019, MT-2023-004, MT-2023-005, MT-2024-018, MT-2025-006 Questioned Costs $2,505,563 Federal Program Name Enhanced Mobility of Seniors and Individuals with Disabilities (COVID-19) ALN # 20.513 Grant # MT-2021-006, MT-2022-028, MT-2022-029, MT-2023-007, MT-2023-019, MT-2023-020, MT-2024-018, MT-2025-006 Questioned Costs $3,149,674 Federal Program Name Buses and Bus Facilities Formula, Competitive, and Low or No Emissions Programs ALN # 20.526 Grant # MT-2022-029 Questioned Costs $507,741 Compliance Requirement I. Procurement and Suspension and Debarment Type of Finding Material Weakness, Material Noncompliance, and Other Matter Criteria: Federal regulation, 49 CFR 663.25, requires grant recipients, before signing a public transit vehicle supplier contract, to review documentation listing each vehicle part, its manufacturer, country of origin, and cost, then certify that the vehicles will meet Buy America requirements. Federal regulation, 49 CFR 663.41, requires grant recipients to keep on file a certification that they received the manufacturer's self-certification of compliance with relevant Federal Motor Vehicle Safety Standards (FMVSS) before awarding a public transit vehicle supplier contract. Federal regulation, 49 CFR 665.7, requires grant recipients to determine whether a public transit vehicle requires testing at the Bus Testing Facility. If testing is required, the grant recipient must obtain the test results and certify that the vehicle received a passing score before accepting delivery. Bus models are tested for maintainability, reliability, safety, performance, structural integrity, durability, fuel economy, noise, and emissions. Federal regulation, 2 CFR 200.334, requires grant recipients to retain all records supporting a federal award for three years after submitting the final expenditure report. Records for federally funded equipment must be retained for three years after final disposition. Montana state procurement policy requires agencies to maintain a complete record of the procurement process to ensure compliance and facilitate auditing. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's internal controls did not include reviews of vehicle procurements to verify compliance with Buy America, FMVSS, or bus testing requirements, resulting in federal noncompliance. Because the affected purchases were paid for with federal grant funds across three programs, we question costs for all affected programs: Formula Grants for Rural Areas, Enhanced Mobility of Seniors and Individuals with Disabilities, and Buses and Bus Facilities Formula, Competitive, and Low or No Emissions Programs. Questioned Costs: Vehicles funded through multiple ALNs were purchased under the noncompliant contracts. We question the federal share of all vehicles purchased under those contracts. Because vehicle deliveries span multiple audit periods, we cannot determine the exact federal expenditures within this audit period alone. Likely questioned costs exceed $25,000 in this audit period, and are also expected to exceed $25,000 in future audit periods. Context: When the department subgrants federal awards to purchase public transit vehicles, it procures the vehicles on behalf of local transit providers. Before signing a supplier contract, the department must review and document that vehicles meet safety, domestic production, and contract specification requirements. The department's procurement division is responsible for obtaining this documentation. In a randomly selected nonstatistical sample of four of the nine purchase contracts issued during the audit period, auditors found two contracts with compliance issues: Contract 1 – Buy America: The supplier did not provide the required part-by-part Buy America documentation. Instead, it provided only a general promise of future compliance. Despite this, the department’s procurement staff certified that they had reviewed the required documentation and awarded the contract. Contract 2 – FMVSS and Bus Testing: The department obtained a manufacturer statement that vehicles complied with safety standards but did not certify receipt of the required documentation, as federal regulation requires. The department also failed to determine whether full bus testing was required, did not obtain the required test results, and accepted vehicle delivery without the required documentation. Federal regulations require Buy America and FMVSS documentation and certification at both the pre-award and post-delivery stages. Documentation provided only at delivery does not satisfy the pre-award requirement. Neither contract should have been awarded without the required certifications in hand. Effect: Without part-by-part Buy America documentation, the department could not confirm the vehicles would be manufactured in compliance with Buy America requirements. Without the required FMVSS certification and bus testing results, the department could not confirm the vehicles met applicable safety, reliability, or performance standards. Cause: The supplier for the first contract told the department it does not provide detailed Buy America documentation before manufacturing vehicles. Department procurement staff accepted the supplier's promise of future compliance rather than requiring the documentation federal regulations mandate before contract award. The department also lacked a process to review procurements for compliance with pre-award federal requirements. Regarding record retention, the department contends that 49 CFR 663 does not require it to retain detailed Buy America documentation. However, both the Uniform Guidance and Montana state procurement policy require agencies to retain procurement records to demonstrate compliance. Recommendation: We recommend that the Montana Department of Transportation: A. Strengthen internal controls to ensure all federal requirements are met when procuring public transit vehicles. B. Conduct a pre-award audit before entering into any vehicle supplier contract, as required by Federal regulations. C. Obtain required bus testing documentation before accepting delivery of vehicles, as required by federal regulations. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.