Finding No. 2023-017 Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories COVID-19 15.875 Economic, Social, and Political Development of the Territories Federal Award Nos.: D18AP00130, D19AP00142, D20AP00005, D20AP00037, D20AP00040, D20AP00117, D20AP00118, D20AP00119, D20AP00120, D20AP00122, D20AP00126, D20AP00127, D20AP00170, D21AP10140, D21AP10141, D21AP10218, D21AX10059, D22AP00236, D22AP00279 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Criteria: In accordance with 2 CFR 200.303(a), the recipient and subrecipient must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Additionally, in accordance with 2 CFR Section 200.313(b), a state must use, manage, and dispose of equipment acquired under a federal award in accordance with state laws and procedures. The CNMI Property Management Policies and Procedures states that the Division of Procurement & Supply (PS) should conduct an annual inventory of property held by a designated official who has administrative control over the use of personal property within his area of jurisdiction. Also, PS shall perform random audits of property held by each accountable person to validate the integrity of the property control process. Further, in accordance with 2 CFR Section 200.313(d)(1), property records must be maintained that include a description of the property, a serial number or another identification number, the source of funding for the property (including the Federal award identification number), the title holder, the acquisition date, the cost of the property, the percentage of the Federal agency contribution towards the original purchase, the location, use and condition of the property, and any disposition data including the date of disposal and sale price of the property. Lastly, 2 CFR 200.313(d)(3) requires that adequate maintenance procedures must be developed to keep the property in good condition. Condition: 1. CNMI could not provide a capital asset listing that would clearly identify which capital assets were procured using the related federal funding. In addition, the CNMI did not provide the program’s schedule of disposals during the fiscal year. Total FY2023 federal capital assets charged to the program amounted to $680,407. No questioned costs are presented as we are not able to quantify the extent of noncompliance. Finding No. 2023-017, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories COVID-19 15.875 Economic, Social, and Political Development of the Territories Federal Award Nos.: D18AP00130, D19AP00142, D20AP00005, D20AP00037, D20AP00040, D20AP00117, D20AP00118, D20AP00119, D20AP00120, D20AP00122, D20AP00126, D20AP00127, D20AP00170, D21AP10140, D21AP10141, D21AP10218, D21AX10059, D22AP00236, D22AP00279 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Condition, continued: 2. CNMI did not conduct the annual physical inventory count for FY2023 thus, was not able to ascertain if federal capital assets are adequately safeguarded and maintained and are in good working condition. Cause: 1. CNMI lacks human resources and financial management system structure that ensures all federally funded capital assets are traceable to specific programs used to purchase the equipment or real property and that proper monitoring is done to ensure that a capital asset listing is maintained and updated accordingly. 2. CNMI does not have an established policy and procedure to ensure that an annual physical inventory count is performed to verify that federal capital assets are safeguarded and maintained in good working condition. Effect or Potential Effect: CNMI is in noncompliance with applicable equipment and real property management compliance requirements. Questioned costs is undeterminable as CNMI could not provide the program’s capital assets listing. See below for the cumulative dollar amount of property equipment acquired with program grant funds over the past five years. Identification as a Repeat Finding: Finding No. 2022-015 Finding No. 2023-017, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories COVID-19 15.875 Economic, Social, and Political Development of the Territories Federal Award Nos.: D18AP00130, D19AP00142, D20AP00005, D20AP00037, D20AP00040, D20AP00117, D20AP00118, D20AP00119, D20AP00120, D20AP00122, D20AP00126, D20AP00127, D20AP00170, D21AP10140, D21AP10141, D21AP10218, D21AX10059, D22AP00236, D22AP00279 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Recommendation: CNMI should strengthen and enforce compliance with equipment and real property management compliance requirements over the following: 1. Consider seeking technical and financial support from Federal agencies to develop human resources and a financial management system capable of effecting compliance with applicable property management policies and procedures. 2. Responsible personnel should establish and implement effective monitoring controls to ensure that property records are accurately segregated by federal funding sources and that they are structured to be in accordance with the provisions of 2 CFR 200.313 (d). 3. Implement more stringent monitoring procedures to ensure that the annual physical inventory count is conducted timely and that part of the procedures performed is to verify if the equipment is safeguarded and maintained in good work condition. Views of Responsible Officials: Condition 1 - Division of Procurement Services agrees with this finding. Improvements are needed in the way federally funded assets are tracked and reported. At present, the inventory management system is not configured to readily identify assets by specific federal award number, which makes it difficult to generate reports identifying assets purchased under individual grants. In addition, staffing limitations have affected the Commonwealth's ability to maintain and readily produce this information. Condition 2 - Procurement Services agrees with this finding. Procurement Services agrees that the annual physical inventory required for FY2023 was not completed. As a result, the existence, location, condition, and accountability of all assets could not be fully verified during the audit period. Finding No. 2023-017, continued Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories COVID-19 15.875 Economic, Social, and Political Development of the Territories Federal Award Nos.: D18AP00130, D19AP00142, D20AP00005, D20AP00037, D20AP00040, D20AP00117, D20AP00118, D20AP00119, D20AP00120, D20AP00122, D20AP00126, D20AP00127, D20AP00170, D21AP10140, D21AP10141, D21AP10218, D21AX10059, D22AP00236, D22AP00279 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Views of Responsible Officials, continued: Refer to CNMI’s Corrective Action Plan for additional information.