Finding 2023-002 Pass-Through Entity: Federated States of Micronesia National Government Federal Agency: U.S Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No: Various Area: Allowable Costs/Cost Principles Questioned Costs: $7,326 Criteria: In accordance with allowable costs/cost principles requirements, expenditures should be necessary and reasonable for program needs, and the related financial and programmatic records supporting such should be adequately documented. Condition: The noncompliance noted are as follows: 1. For 3 or (5%) of 60 non-payroll transactions tested, from a population totaling $1,187,754 of $19,504,751 in program expenditures, we noted either: (a) no financial or programmatic records and/or grantor-approved budgets (e.g., vendor invoices, contracts, receiving reports) were available to substantiate allowability; or (b) the available procurement file documentation was insufficient to substantiate allowability, as follows: 2. For 13 or (20%) of 65 payroll transactions tested, from a population totaling $36,422 of $19,504,751 in program expenditures, no departmental timecards or timesheet documentation was provided to support compensation, taxes, and fringe benefits, as follows: 3. Of the 49 payroll transactions tested where departmental timecards or timesheet support was provided, we identified the following: a) For 1 employee, the uniform timesheet reported 16 hours of sick leave, while the departmental timesheet reported 80 hours of regular work. b) For 1 employee, the uniform timesheet was not signed by all required authorized signatories. c) For 1 employee, the uniform timesheet reported 56 regular hours, while the departmental timesheet reflected 43 regular hours; however, the employee was paid for 80 regular hours, resulting in an overpayment of approximately $76 (processed on May 2, 2023). Cause: The cause of the above-mentioned conditions cited are as follows: • For Condition 1, ineffective documentation filing and retention controls were exacerbated by the relocation of the State Treasury office during the audit period. • For Condition 2, ineffective documentation filing and retention controls existed at the departmental agency level, where timesheets or other timekeeping records were retained. • For Condition 3(a), insufficient internal controls at the departmental level failed to ensure reconciliation of departmental timesheets with uniform timesheets submitted to the State Treasury. The Treasury does not consistently receive departmental support and therefore relies on agency review and certification. • For Condition 3(b), required signatory authorization controls failed at both the departmental and treasury levels. • For Condition 3(c), existing controls failed to detect and prevent the overpayment. Effect: The State is not compliance with applicable allowable costs/cost principles requirements. Projected questioned costs exceed $25,000; therefore, the known questioned costs of $7,326 are reported. Recommendation: The State should consider the following: a. For Condition 1, the State should continue efforts to strengthen documentation filing and retention controls. b. For Conditions 2 and 3, because the State Treasury relies on departmental monitoring, the State should consider: 1. Enhancing monitoring controls at the departmental level or implementing a uniform timekeeping system to reduce reconciliation burdens. 2. Establishing policies requiring submission of departmental timekeeping reports to the State treasury to allow for secondary reconciliation. 3. Reinforcing the requirement that when changes are made affecting uniform timesheets but not departmental records, appropriate explanatory documentation be retained. Identification as a Repeat Finding: N/A View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.