Finding No.: 2023-019 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, As Amended Questioned Costs: $5,166,243 Area: Subrecipient Monitoring Criteria: 1) Article VI, Section 1(a)(1) of the Fiscal Procedures Agreement (FPA) states that fiscal control and accounting procedures of RepMar, as well as its Sub-Grantees, shall be sufficient to: (i) permit the preparation of reports required by the FPA and the Compact, as amended; and (ii) permit the tracing of funds to a level of expenditures adequate to establish that such funds have been used in compliance with the provisions of the Compact, as amended, and applicable agreements. Furthermore, Article VI, Section 1(k)(1) of the FPA states that RepMar shall ensure that: (i) every Sub-Grant includes any clauses required by the Compact, as amended, the sector Grant awards, and the FPA; (ii) Sub-Grantees are aware of the requirements imposed upon them by the Compact, as amended, the sector Grants and the FPA; and (iii) Sub-Grantees can meet the financial management standards of the FPA. 2) In accordance with applicable subrecipient monitoring requirements, the pass-through entity (PTE) must follow-up and ensure that the subrecipient takes timely and appropriate action on all deficiencies detected through audits, on-site reviews, and other means, pertaining to the Federal awards provided by the PTE to the subrecipient. Furthermore, 2 CFR 200.303(a) states that a recipient of a Federal award must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient 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. Condition 1: For 12 (or 100%) subawards tested, no documented evidence was made available to demonstrate that the Ministry of Finance, Banking and Postal Services (MOFBPS) effectively monitored subrecipient activities. Consequently, we were unable to ascertain whether MOFBPS monitored subrecipient compliance with subaward agreements, Compact Agreement, grant award, and the FPA. Item # Subrecipient Fund # Sub-Grant 1 College of the Marshall Islands 10401 $ 987,000 2 College of the Marshall Islands 10402 388,325 3 College of the Marshall Islands 10406 125,000 4 College of the Marshall Islands 10409 500,000 5 Ebeye Christian School 10406 3,984 6 Ebeye Seventh Day Adventist 10406 54,530 7 Father Hacker High School 10406 6,695 8 Kwajalein Atoll Joint Utilities Resources (FY23 allocation) 10412 275,000 9 Kwajalein Atoll Joint Utilities Resources 10412 663,930 10 Kwajalein Atoll Joint Utilities Resources (FY22 allocation) 10412 275,000 11 Marshall Islands Scholarship Board 10401 592,202 12 Marshall Islands Scholarship Board 10406 200,000 13 Queen of Peace 10406 39,279 $ 4,110,945 Other discrepancies were also noted as follows: For item #s 1 through 4, the 4th quarter financial reports were not supported by subrecipient expenditure reports, as required by MOFBPS. Further, the subrecipient’s fiscal year 2023 Uniform Guidance audit has not been issued. Accordingly, questioned cost of $2,000,325 result. For item #s 5 through 7 and 13, the subrecipients are not subject to audit; however, questioned cost of $104,488 result, due to lack of documented evidence of subrecipient monitoring. For item #s 8 and 9, funds were disbursed in one installment payment which conflicts with Section 4 of the underlying Memorandum of Agreement which stipulates quarterly disbursement of funds. Further, the subrecipient’s fiscal year 2023 Uniform Guidance audit has not been completed. Accordingly, questioned cost of $938,930 result. Item # 10 represents a subaward to the subrecipient under award no. D22AF00007-00 for which the period of performance was from 10/01/2021 to 9/30/2023. The subaward represents FY22 allocation that was accrued in fiscal year 2023 and paid in December 2023. Funds were disbursed in a manner inconsistent with the underlying Memorandum of Agreement. Finally, the subrecipient’s fiscal year 2022 Uniform Guidance audit has not been completed. Accordingly, questioned cost of $275,000 result. For item #s 11 and 12, while there is no documented evidence of subrecipient monitoring, no finding is reported in the subrecipient’s fiscal year 2023 Uniform Guidance audit related to the subaward. For item # 12, funds were disbursed semi-annually which conflicts with Section 4 of the underlying Memorandum of Agreement which stipulates quarterly disbursement of funds, and the financial reports required by MOFBPS were not made available. No questioned cost results since the subrecipient was separately audited. Condition 2: Subrecipient monitoring schedule provided by MOFBPS was incomplete. Grant assistance under award nos. D23AF00042-00 and D23AF00074-00 aggregating $1,847,500 was sub-granted to a subrecipient that was not included in the monitoring schedule. Further, the sub-grant was prohibited by the grant award terms and conditions. Accordingly, questioned costs of $1,847,500 result. Condition 3: There was no documented evidence that RepMar monitored subrecipient cash draws to ensure that the time elapsing between the transfer of Federal funds to the subrecipient and disbursement of funds for program purposes was minimized. Questioned costs, if any, that may result from this condition are not determinable. Cause: RepMar lacks effective internal control policies and procedures governing subrecipient monitoring, including compliance with underlying grant awards and memoranda of agreement and Compact provisions. Effect: RepMar is in noncompliance with applicable subrecipient monitoring requirements. As a result, questioned cost of $5,166,243 is reported. Identification as a Repeat Finding: Finding No. 2022-010 Recommendation: RepMar should comply with the applicable provisions of the FPA and subrecipient monitoring requirements and should develop and implement effective subrecipient monitoring procedures. Furthermore, MOFBPS should enforce compliance with subaward agreements, including timely Single Audits of subrecipients, as applicable. Views of Responsible Officials: RepMar’s Corrective Action Plan does not indicate disagreement and provides planned corrective action.