Finding No. 2023-027 Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Criteria: 1. In accordance with 2 CFR Part 200, Subpart E, cost must be necessary and reasonable for the performance of the federal award and be allocable thereto. Further costs must conform to any limitations or exclusions and be adequately documented in order to be allowable under federal awards. 2. In accordance with the U.S. Department of the Treasury’s revised Frequently Asked Questions (FAQ 8), dated May 10, 2023, the statutes establishing ERA1 and ERA2 permit the enrollment of households for only prospective benefits. ERA2 funding does not allow for commitments for rental arrears. 3. In accordance with the U.S. Department of the Treasury’s revised FAQ 10, dated May 10, 2023, ERA1 financial assistance for prospective rent payments is limited to three months based on any application by or on behalf of the household, except that the household may receive assistance for prospective rent payments for additional months (i) subject to the availability of remaining funds currently allocated to the grantee, and (ii) based on a subsequent application for additional assistance. In no case may an eligible household receive more than 18 months of assistance under ERA1 and ERA2, combined. Condition: 1. Of thirty-six nonpayroll expenditures tested, aggregating $70,291 of a total population of $3,273,446, the following were noted: a. For twenty-five (or 69%), ERA2 financial assistance funding provided to households included rental arrears. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Condition, continued: b. For six (or 17%), ERA financial assistance funding provided to the households exceeded the maximum three months allowed for prospective rental assistance. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Condition, continued: c. For one (or 3%), the purchase requisition or equivalent documentation, evidencing approval of the expenditures by the Official with Expenditure Authority, was not provided, to substantiate the allowability of the expenditures. 2. Of four payroll expenditures tested, aggregating $10,932 of a total population of $344,616, for two (or 50%), the following were noted: a. For one (or 25%), the employee’s time sheet was not provided, for which the corresponding directly associated payroll costs are also questioned. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Condition, continued: b. For one (or 25%), no employee was selected for testing as the payroll cost was not traceable on the breakdown of payroll costs provided. Test of grant awards noted the following: 3. Cumulative expenditures of $10,413,014 exceeded the ERA 1 grant award funding limit of $10,400,669 (project numbers 2610210020 and 2610210021), resulting in an excess amount of $12,345. Documentation of any increase in funding limit was not provided, for which the excess amount of $12,345 is questioned. Cause: CNMI lacks monitoring internal controls over the following: 1. ERA 2 funding is not used for rental arrear payments; 2. Expenditures charged to grant awards are not in excess of funding limits; and 3. Inadequate documentation and systematic filing of relevant documentation supporting program costs. Effect or Potential Effect: CNMI is in noncompliance with applicable allowable costs/cost principles compliance requirements and questioned costs of $53,435 result. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Effect or Potential Effect, continued: Identification as a Repeat Finding: Finding No. 2022-022 Recommendation: CNMI should strengthen and enforce compliance with applicable allowable costs/cost principles compliance requirements and implement and enforce effective monitoring controls over the following: 1. Use of ERA 2 funding is only for allowable program costs; 2. Expenditures charged to the program are within the grant awards funding limits; and 3. Establish and maintain effective systematic filing of relevant documentation to support program costs and for easier retrieval. Views of Responsible Officials: Condition 1a - Office of Grants Management (OGM) respectfully disagrees with this finding. Under the U.S. Department of the Treasury’s Emergency Rental Assistance Program 2 (ERA2), states, territories, and other eligible grantees were expressly authorized to pay rental arrears (past-due rent) on behalf of eligible households. Treasury guidance states that ERA2 financial assistance could include current rent, rental arrears (back rent), utility and home energy costs, utility and home energy arrears, and other housing-related expenses. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Views of Responsible Officials, continued: U.S. Department of the Treasury’s FAQ further clarifies that a grantee may provide assistance for rental arrears that accrued on or after March 13, 2020. A grantee was not required to pay the full amount of arrears and could structure the program to provide partial assistance if desired. For the CNMI specifically, if ERA2 award was active during the period of performance, payment of eligible rental arrears was an allowable use of funds. However, the U.S. Department of the Treasury closed the ERA2 program on September 30, 2025, and ERA2 funds may no longer be used to provide new rental assistance, including rental arrears. As a practical matter, many ERA programs adopted policies of paying up to three months of future rent at a time, but that was often a program design choice or carried over from ERA1 administration rather than a statutory ERA2 limitation. The controlling U.S. Department of the Treasury guidance limits total assistance to 18 months combined across ERA1 and ERA2. CNMI followed the U.S. Department of the Treasury guidelines and pushed for a combined 18-month max limit, if financially needed, across ERA1 and ERA2. Therefore, the Office disagrees with the $30,336 questioned costs and is requesting that this finding be removed based on our explanation above. Condition 1b - OGM respectfully disagrees with this finding. Under the U.S. Department of the Treasury's Emergency Rental Assistance Program 2 (ERA2), states, territories, and other eligible grantees were expressly authorized to pay rental arrears (past-due rent) on behalf of eligible households. The U.S. Department of the Treasury guidance states that ERA2 financial assistance could include current rent, rental arrears (back rent), utility and home energy costs, utility and home energy arrears and other housing-related expenses. U.S. Department of the Treasury’s FAQ further clarifies that a grantee may provide assistance for rental arrears that accrued on or after March 13, 2020. A grantee was not required to pay the full amount of arrears and could structure the program to provide partial assistance if desired. For the CNMI specifically, if ERA2 award was active during the period of performance, payment of eligible rental arrears was an allowable use of funds. However, the U.S. Department of the Treasury closed the ERA2 program on September 30, 2025, and ERA2 funds may no longer be used to provide new rental assistance, including rental arrears. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Views of Responsible Officials, continued: As a practical matter, many ERA programs adopted policies of paying up to three months of future rent at a time, but that was often a program design choice or carried over from ERA1 administration rather than a statutory ERA2 limitation. The controlling U.S. Department of the Treasury guidance limits total assistance to 18 months combined across ERA1 and ERA2. Therefore, the Office disagrees with the $5,452 questioned costs and is requesting that this finding be removed based on our explanation above. Condition 1c - OGM respectfully disagrees with the findings because using the purchase requisition or purchase order methodology is not the only method of obtaining goods or services in the CNMI Government. In this situation, the Office opted to use the Invoice Central method in MUNIS. Items for purchase were specifically identified in the portal and it was approved by the Division of Financial Services. Items being purchased are allowable items (office supplies); however, the method used by the Office may not be acceptable by the auditor. Again, the Office disagrees as DOF officials approved the transaction and paid the item out with check number 619104. The invoice number for this transaction is 739384-0. If the transaction is not allowable, then DOF should update their SOPs or not allow the Invoice Entry module to be used. Again, OGM disagrees with the finding and questioned costs amounting to $3,485. Therefore, the Office disagrees with the $3,485 questioned costs and we are requesting that this finding be removed based on our explanation above. Condition 2a - OGM respectfully disagrees with this finding. After the audit inquiry, the supporting timesheet associated with the questioned payroll costs was located and is available for review. The documentation substantiates the payroll charges previously questioned. Accordingly, the Office respectfully disagrees with the questioned costs of $1,159 and requests removal of this finding. Condition 2b - OGM respectfully disagrees with this finding. The payroll costs in question are traceable within the financial management system; however, the reporting format aggregates payroll and fringe benefit expenditures in a manner that may make individual employee costs difficult to identify without familiarity with the system’s reporting structure. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Views of Responsible Officials, continued: The questioned amount of $658 can be reconciled to supporting payroll records and underlying accounting data. The Office is prepared to provide additional supporting documentation and reconciliation schedules to demonstrate the traceability of these costs. Accordingly, the Office respectfully disagrees with the questioned costs of $658 and requests removal of this finding. Condition 3 - OGM respectfully disagrees with the findings and questioned costs of $12,345. According to our records and using budgetary print template reports, the following have been spent: CCERA Program spent in total $10,398,930 out of the total award of $10,400,669, leaving an unspent balance of $1,739. This is also reported in the final submitted report to the U.S. Department of the Treasury. U.S. Department of the Treasury accepted the report and advised us to return the unused funds plus 5% interest, which changed the total owed to $1,746. This is substantiated by a notice from the U.S. Department of the Treasury to Collect for Delinquent Indebtedness under Invoice number OCAERA0411A, dated March 11, 2025. Thus, confirming that the CNMI only spent $10,398,930 under ERA1. Furthermore, there are internal controls built into the MUNIS System that will not allow us to exceed the budgeted amount, so we are not able to exceed the budgeted amount. Thus, the Office disagrees with the $12,345 questioned costs and is requesting that this finding be removed based on our explanation above. Refer to CNMI’s Corrective Action Plan for additional information. Finding No. 2023-027, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.023 Emergency Rental Assistance Program Federal Award No.: 20010001/000021, ERAE0528 Area: Allowable Costs/Cost Principles Questioned Costs: $53,435 Auditor Response: Condition 1a - Documentation that ERA2 funding can be used to provide financial assistance for rental arrears was not provided. Finding and questioned costs are retained, as costs at the time of the audit were not supported by adequate documentation. Condition 1b - In accordance with FAQ 10, prospective rent payments is limited to three months based on any application by or on behalf of the household, except that the household may receive assistance for prospective rent payments for additional months based on a subsequent application for additional assistance. Documentation evidencing excess prospective rent payments pertain to subsequent application for additional assistance was not provided. Finding and questioned costs are retained, as costs at the time of the audit were not supported by adequate documentation. Condition 1c - In accordance with the Planning and Budgeting Act or under any annual appropriation act, Official with expenditure authority is the public official who may expend, obligate, encumber, or otherwise commit public funds. Equivalent documentation evidencing approval of the expenditure by the Expenditure Authority was not provided. Finding and questioned costs are retained, as costs at the time of the audit were not supported by adequate documentation. Conditions 2a and 2b - CNMI states disagreement; however, CNMI also acknowledges that documentation supporting program costs were not provided. Finding and questioned costs are retained, as costs at the time of the audit were not supported by adequate documentation. Condition 3 - As discussed with the program personnel on 06/05/26, total cumulative expenditures as of FY2023 charged to ERA 1 grant award, exceeded the funding limit by $12,344, which were based on CNMI’s underlying accounting records provided for the audit. We also recommended for the program personnel to discuss the discrepancy between the program’s records with the CNMI SOF Team, for which no further updates were provided to evidence that ERA 1 grant award was not overcharged. Finding and questioned costs are retained, as reconciliation and/or adjusting journal entry for the $12,344 in excess program costs charged to the ERA 1 grant award were not provided.