Federal Agency: U.S. Department of Interior ALN Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D23AF00012, D23AF00013, D23AF00014, D23AF00015, D23AF00016, D23AF00017, D23AF00020, D23AF0002, D23AF00022, D22AF00155 Requirement: Subrecipient Monitoring Questioned Costs: $72,071,497 Criteria: In accordance with Article VI, Section 1(k)(1) of the Fiscal Procedures Agreement (FPA) The Government of the Federated States of Micronesia will follow its laws and procedures when awarding and administering Sub-Grants. The Governments shall ensure that: (i) Every Sub-Grant includes any clauses required by the Compact, as amended, the sector Grant awards and this Agreement; (ii) Sub Grantees are aware of requirements imposed upon them by the Compact, as amended, the sector Grant awards and this agreement; and (iii) The Sub-Grantee can meet the financial management standards of this Agreement. Additionally, Article VI, Section 1(h) requires that The Government of the Federated States of Micronesia shall not award funds received pursuant to the Compact, as amended, to any party which is debarred, suspended or otherwise excluded from and ineligible for participation in United States assistance programs under Executive Order 12549, ‘Debarment and suspension.’ issued by the President of the United States on February 18, 1986. Furthermore, Article IV, Section 5(b)(3) says the Government of the Federated States of Micronesia maintains procedures to minimize the time elapsing between transfer of funds and their disbursements. Condition: 1) The FSM National Government does not have subrecipient monitoring procedures as required by the FPA. Thus, the FSM National Government did not perform the minimum subrecipient monitoring requirements over the $72,071,497 amounts passed to subrecipients. a. Ensure that every sub-grant includes any clauses required by the Compact, as amended, the sector Grant awards and the FPA. b. Ensure Sub Grantees are aware of requirements imposed upon them by the Compact, as amended, the sector Grant awards and the FPA. c. The Sub-Grantee can meet the financial management standards of the FPA. The FSM National Government does not perform suspension and debarment monitoring for covered transactions that is in accordance with Article VI, Section 1(h) of the FPA. 2) Condition: Payments to subrecipients, with a total population of $6,197,594, were not monitored whether procedures to minimize the time elapsing between the payment to the subrecipient and the subrecipient disbursements were followed. No questioned costs are presented as amounts are questioned at Condition 1. Cause: 1) The FSM National Government does not consider amounts passed through to the State Governments as a subaward/sub-grant. 2) FSM National Government does not have policies and procedures that comply with Article VI, Section 1(h) and Section 1(k)(1) of the Fiscal Procedures Agreement. 3) The FSM National Government does not have established policies and procedures to minimize time elapsing between the transfer of federal funds to the subrecipient and the disbursement of such funds by the subrecipient. Effect: 1) FSM National Government is in noncompliance with applicable subrecipient monitoring requirements and questioned costs of $72,071,497, which is the total subrecipient disbursements made during the year, result. The $72,071,497 is not necessarily unallowable costs but rather funds passed through that have no monitoring. 2) The FSM National Government is in noncompliance with the applicable subrecipient cash management monitoring requirements. Identification as a Repeat Finding: 2022-014 Recommendation: 1) FSM National Government should update their established policies and procedures to be in accordance with Article VI, Section 1(k) and Section 1(h)()of the FPA to comply with the requirements for pass-through-entities. 2) The FSM National Government should establish a policy and implement formal monitoring procedures to ensure that the subrecipient complies with the requirement to minimize the time elapsing between the transfer of federal funds to the subrecipient and the disbursement of such funds for program purposes. Views of Responsible Officials: Management disagrees with the finding. Refer to FSM NG’s Views of Responsible Officials for their detailed response. Auditor Response: Noncompliance was due to FSM National Government not having subrecipient monitoring procedures in place as required by the FPA.