Finding Text
Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D19AP00124, D22AF00326, D20AP00054 Area: Allowable Costs/Costs Principles Questioned Costs: $64,062 Criteria: Article I of the Fiscal Procedures Agreement (FPA) says allowable costs means those necessary and reasonable costs allocable to a Grant that comply with the limitations of any agreement relating to such Grant as well as to applicable laws and regulations, are allocated to the Grant on a basis consistent with policies that apply to all activities of the Grant, are accounted for consistently and in accordance with generally accepted accounting principles, are adequately documented, and are net of all applicable credits. Article VI, Section 1(a)(2)(v) of the FPA says applicable costs principles and Grant terms shall be followed in determining the reasonableness and allowability of costs. Condition: For eight (or 20%) out of forty nonpayroll expenditures tested, aggregating to $64,064 of a total population of $79,211,846, supporting documents such as invoices and contracts were not provided. Cause: FSMNG lacks monitoring controls over adequate documentation and systematic filing of relevant documents to support program costs. Effect: FSMNG is in noncompliance with the applicable allowable costs/cost principles requirement and total question costs of $64,062 result. Recommendation: FSMNG should establish and maintain effective systematic filing of relevant documentation to support program costs and for easier retrieval of responsible personnel. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: The audit procedures were designed based on the suggested methodologies identified on Part 3 of the 2023 OMB Compliance Supplement. These procedures were provided to assist auditors in planning and performing tests of non-federal entity compliance with the requirements of each federal program. The basis of the auditor’s identification of direct and material requirements for ALN 15.875 for the audit is Part 7 of the 2023 OMB Compliance Supplement which the purpose section states that “for federal programs not covered in the compliance supplement, the auditor must use the types of compliance requirements contained in the compliance supplement.” Additionally, based on communication with the Office of Insular Affairs on December 4, 2025, if the Fiscal Procedures Agreement (FPA) is more lenient than the required federal guidelines, it is expected that the auditor follow the requirements of the CFR. Part of our procedures was also providing assessment on each applicable section of the FPA for each compliance requirement and identifying whether it mirrors the CFR to ensure that the minimum federal requirements were tested. As mentioned in our criteria, the FPA was used as a guideline for our compliance testing. The FPA describes allowable costs as necessary and reasonable costs that are allocable to the Grant and agreements and that they be adequately documented. This requirement mirrors the requirement set forth in 2 CFR Part 200, Subpart E, where costs must be necessary and reasonable for the performance of the federal award and be allocable thereto. Furthermore, costs must conform to any limitations or exclusions and be adequately documented. Noncompliance found in our Allowable Costs/ Cost Principles testing was due to lack of supporting documentation such as, but not limited to, contracts and vendor’s invoices made available to the auditors during the time of audit.