Finding No.: 2022-013 Pass-Through Entity: Republic of the Marshall Islands Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social and Political Development of the Territories Federal Award No.: Compact of Free Association Program, As Amended Area: Reporting Questioned Costs: $0 Criteria: Under the terms of the sub-awards administered by RepMar under the Compact of Free Association grant awards, the College is required to submit: 1. As supporting report for the initial payment request, a duly accomplished standard Form SG1- Subgrant Objectives and Budget Proposal, accompanied by an expenditure budget breakdown; 2. As supporting report for subsequent payment requests, a duly accomplished standard Form SG2-Performance and Financial Evaluation quarterly report; 3. Duly accomplished Form SG2-Performance and Financial Evaluation final report within 30 calendar days after the end of the MOA’s term. If the organization is receiving subsidy or subgrant in the new fiscal year or new funding period, the prior year’s or prior funding period’s SG2 final report is required to be submitted together with the SG1 report, before the initial payment can be released under the new subsidy or subgrant MOA. Further, the College shall maintain an acceptable financial management system during the term of the sub-award agreement including an accurate, current and complete disclosure of financial activity of Company funds and consistency with all financial administration, program monitoring, performance reporting and enforcement provisions of the Financial Management Act. Furthermore, 2 CFR 200.303(a) states that the subrecipient must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the COSO. Conditions: 1. The expenditure budget breakdown that accompanies the Form SG1-Subgrant Objectives and Budget Proposal for the U.S. Compact Funding subaward for the Supplemental Education Grant could not be provided. 2. The College did not provide the required Form SG2- Performance and Financial Evaluation quarterly report for the quarter ended September 30, 2022 for the U.S. Compact Funding subaward for the Education Sector Grant. 3. The College did not provide the required Form SG2-Performance and Financial Evaluation final report for the U.S. Compact Funding subaward for the Education Sector, Ebeye Special Needs Adult Education, Compact Capital Fund and Supplemental Education Grant. 4. The underlying quarterly expenditures report for the following U.S. Compact Funding subaward sectors and related quarters could not be provided: Sector Quarter Supplemental Education Grant 1st Quarter ended December 31, 2021 Ebeye Special Needs Adult Education 1st Quarter ended December 31, 2021 Compact Capital Fund 2nd Quarter ended March 31, 2022 Ebeye Special Needs Adult Education 2nd Quarter ended March 31, 2022 Compact Capital Fund 3rd Quarter ended June 30, 2022 Ebeye Special Needs Adult Education 3rd Quarter ended June 30, 2022 5. Expenditures reported per the Form SG2-Performance and Financial Evaluation quarterly report did not agree to the quarterly expenditures reported in SEFA as follows: a. 1st Quarter ended December 31, 2021 Sector Amount per Form SG2- Performance and Financial Evaluation quarterly report Amount as reported in SEFA Variance Supplemental Educational Grant $339,289 $338,325 $ 964 Ebeye Special Needs – Adult Education $127,692 $125,000 $2,692 b. 2nd Quarter ended March 31, 2022 Sector Amount per Form SG2- Performance and Financial Evaluation quarterly report Amount as reported in SEFA Variance Compact Capital Fund $155,124 $60,035 $95,089 Ebeye Special Needs – Adult Education $ 37,752 $38,265 $( 513) c. 3rd Quarter ended June 30, 2022 Sector Amount per Form SG2- Performance and Financial Evaluation quarterly report Amount as reported in SEFA Variance Compact Capital Fund $448,795 $349,750 $ 95,045 Ebeye Special Needs – Adult Education $ 62,555 $ 66,536 $( 3,981) No reconciliation was provided to reconcile the quarterly expenditures reported in SEFA against the expenditures reported per the Form SG2- Performance and Financial Evaluation quarterly report. Cause: The College lacks adequate internal controls over the accurate preparation and review of required reports as stipulated in the sub-award agreements. Furthermore, the College lacks adequate internal controls regarding retaining sufficient documentation to support all reported transactions. Effect: The College appears to be in noncompliance with the applicable reporting requirements. No questioned costs are presented as the total expenditures per SEFA for the fiscal year were reconciled with the federal awards received from the RMI Government. Identified as a Repeat Finding: 2021-010 Recommendation: College management should strengthen controls so that required reports are accurately prepared and reviewed to provide evidence of compliance with the applicable reporting requirements and retain sufficient documentation to support all reported transactions. Views of Auditee and Planned Corrective Actions: The College agrees with the finding and provides details in its Corrective Action Plan.