Finding No. 2023-034 Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Criteria: Per the U.S. Treasury Interim and Final Rules, the U.S. Treasury is aligning the definition of subrecipient in the final rule with the definition of subrecipient in the Uniform Guidance, wherein, subrecipients are entities that receive a subaward from a recipient to carry out a program or project on behalf of the recipient with the recipient’s Federal award funding but does not include an individual that is a beneficiary of such award. The recipient remains responsible for monitoring and overseeing the subrecipient’s use of State and Local Fiscal Recovery Funds (SLFRF) and other activities related to the award to ensure that the subrecipient complies with the statutory and regulatory requirements and the terms and conditions of the award. Recipients also remain responsible for reporting to the U.S. Treasury on their subrecipients’ use of payments from the SLFRF funds for the duration of the award. Accordingly, in accordance with 2 CFR §200.332, a pass-through entity (PTE) must: 1. Verify that the subrecipient is not excluded or disqualified in accordance with §180.300. Verification methods are provided in §180.300, which include confirming in SAM.gov that a potential subrecipient is not suspended, debarred, or otherwise excluded from receiving Federal funds. 2. Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the information provided below. A PTE must provide the best available information when some of the information below is unavailable. A PTE must provide the unavailable information when it is obtained. One of the required information includes: (1) Federal award identification: (i) Subrecipient’s unique entity identifier; (ii) Federal Award Identification Number (FAIN); (iii) Federal Award Date; (iv) Subaward Period of Performance Start and End Date; (v) Total Amount of Federal Funds Obligated to the subrecipient by the PTE, including the current financial obligation; Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Criteria, continued: (vi) Total Amount of the Federal Award committed to the subrecipient by the pass-through entity; (vii) Name of the Federal agency; and (viii) Assistance Listings title and number; the PTE must identify the dollar amount made available under each Federal award and the Assistance Listings Number at the time of disbursement. (2) All requirements of the subaward, including requirements imposed by Federal statutes, regulations, and the terms and conditions of the Federal award; (3) Any additional requirements that the PTE imposes on the subrecipient for the PTE to meet its responsibilities under the Federal award. This includes information and certifications (see §200.415) required for submitting financial and performance reports that the PTE must provide to the Federal agency; (4) A requirement that the subrecipient permits the PTE and auditors to access the subrecipient's records and financial statements for the PTE to fulfill its monitoring requirements; and (5) Appropriate terms and conditions concerning the closeout of the subaward. 3. Evaluate each subrecipient’s fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring described in paragraph (f) of this section. When evaluating a subrecipient’s risk, a PTE should consider the following: (1) The subrecipient’s prior experience with the same or similar subawards; (2) The results of previous audits. This includes considering whether or not the subrecipient receives a Single Audit in accordance with subpart F and the extent to which the same or similar subawards have been audited as a major program; (3) Whether the subrecipient has new personnel or new or substantially changed systems; and Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Criteria, continued: (4) The extent and results of any Federal agency monitoring (for example, if the subrecipient also receives Federal awards directly from the Federal agency). 4. If appropriate, consider implementing specific conditions in a subaward as described in §200.208 and notify the Federal agency of the specific conditions. 5. Monitor the activities of a subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The PTE is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved. In monitoring a subrecipient, a PTE must: (1) Review financial and performance reports. (2) Ensure that the subrecipient takes corrective action on all significant developments that negatively affect the subaward. Significant developments include Single Audit findings related to the subaward, other audit findings, site visits, and written notifications from a subrecipient of adverse conditions which will impact their ability to meet the milestones or the objectives of a subaward. When significant developments negatively impact the subaward, a subrecipient must provide the pass-through entity with information on their plan for corrective action and any assistance needed to resolve the situation. (3) Issue a management decision for audit findings pertaining only to the Federal award provided to the subrecipient from the PTE as required by §200.521. (4) Resolve audit findings specifically related to the subaward. However, the PTE is not responsible for resolving cross-cutting audit findings that apply to the subaward and other Federal awards or subawards. If a subrecipient has a current Single Audit report and has not been excluded from receiving Federal funding (meaning, has not been debarred or suspended), the PTE may rely on the subrecipient’s cognizant agency for audit or oversight agency for audit to perform audit follow-up and make management decisions related to cross-cutting audit findings in accordance with section § 200.513(a)(4)(viii). Such reliance does not eliminate the responsibility of the pass-through entity to issue subawards that conform to agency and award-specific requirements, to manage risk through ongoing subaward monitoring, and to monitor the status of the findings that are specifically related to the subaward. Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Criteria, continued: 6. Depending upon the pass-through entity's assessment of the risk posed by the subrecipient (as described in paragraph (c) of this section), the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals: (1) Providing subrecipients with training and technical assistance on program-related matters; (2) Performing site visits to review the subrecipient's program operations; and (3) Arranging for agreed-upon-procedures engagements as described in § 200.425. 7. Verify that a subrecipient is audited as required by subpart F of this part. 8. Consider whether the results of a subrecipient's audit, site visits, or other monitoring necessitate adjustments to the pass-through entity's records. 9. Consider taking enforcement action against noncompliant subrecipients as described in §200.339 and in program regulations. Condition: 1. Of four new subawards made during FY2023, aggregating $5,450,541 of a total population of $5,450,541, the following were noted: a. For four (or 100%), documentation of the risk assessments performed and verification as to whether the subrecipients are not suspended, debarred, or otherwise excluded from receiving Federal funds, were not provided. Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Condition, continued: b. For two (or 50%), subaward agreements provided were incomplete (pages missing). Accordingly, we could not determine if the subawards: (1) Were clearly identified to the subrecipients as subawards; (2) Included the following required information: (a) Federal award identification numbers (FAIN); (b) Federal award date; (c) Subaward period of performance start and end dates; (d) Total amount of federal funds obligated to the subrecipient by the pass-through entity including the current financial obligation for subaward number CNMI22046A/CNMI22046B, which has multiple subawards; (e) Total amount of the federal award committed to the subrecipient by the pass-through entity for subaward number CNMI22046A/CNMI22046, which has multiple subawards; (f) Name of Federal awarding agency; (g) Assistance Listing number for subaward number CNMI22046A/CNMI22046B); (h) Identification of the dollar amount made available under each Federal award at the time of disbursements; (3) Included all requirements of the subawards, including requirements imposed by Federal statutes, regulations, and the terms and conditions of the Federal award; (4) Included any additional requirements that the pass-through entity imposes on the subrecipient for the pass-through entity to meet its responsibilities under the Federal award. This includes information and certifications (see §200.415) required for submitting financial and performance reports that the pass-through entity must provide to the Federal agency; Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Condition, continued: (5) Included requirements that the subrecipients permit the pass-through entity and auditors to access the subrecipients’ records and financial statements for the pass-through entity to fulfill its monitoring requirements; and (6) Included appropriate terms and conditions concerning the closeout of the subaward. In addition, the page reflecting the award date for subaward number CNMI22051 was also not provided; thus, the award date is presented as Unknown. No questioned costs are presented as amounts are questioned at Condition 1a. c. For two (or 50%), subaward agreements did not include the following required information: (1) Subrecipients’ unique entity identifiers; (2) Federal award identification numbers (FAIN); (3) Federal award date; (4) Total amount of federal funds obligated to the subrecipient by the pass-through entity including the current financial obligation for subaward number CNMI22044A, which has two subawards; (5) Total amount of the federal award committed to the subrecipient by the pass-through entity for subaward number CNMI22044A, which has two subawards; (6) Identification of the dollar amount made available under each Federal award at the time of disbursements; (7) Appropriate terms and conditions concerning the closeout of the subaward No questioned costs are presented as amounts are questioned at Condition 1a. Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Condition, continued: 2. Of seven subrecipients tested for monitoring compliance requirements, aggregating $15,640,541 of a total population of $15,640,541, documentation on monitoring procedures performed during FY2023 for the seven (or 100%) subrecipients, including documentation of the verification as to whether the subrecipients are subject to the audit requirements, were not provided. In addition, other than Award Number CNMI22044, subaward agreements for six subrecipients were not provided; accordingly, award dates were presented as unknown. No questioned costs are presented for six subrecipients as there were no subaward disbursements made during FY2023. Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Condition, continued: 3. Of nine monitoring procedure requirements tested at the invoice/disbursement level, aggregating $16,693,880 of a total population of $16,693,880, for five (or 56%) disbursements, review and approval of either the invoices, drawdowns and/or payment requests to ensure that subrecipients used the subaward for authorized purposes in compliance with Federal statutes, regulations, and the terms and conditions of the subawards, were not evident. Cause: 1. CNMI does not have approved/adopted written subrecipient monitoring policies and procedures; 2. Documentation of the risks assessments and the monitoring procedures performed, including verifications as to whether the subrecipients are subject to the audit requirements and are not suspended, debarred, or otherwise excluded from receiving Federal funds, could not be located on file and/or were not performed; 3. CNMI failed to enforce compliance with subrecipient monitoring compliance requirements and lacks monitoring controls over the subrecipient monitoring compliance requirements. Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Cause: 4. Inadequate documentation and systematic filing of relevant documentation supporting program costs. In addition, for award numbers CNMI22044 and CNMI22044A, the Entity’s management has determined that it should be classified as a contractor under the agreement as the Entity’s role is to promote the program within CNMI, develop a marketing and promotional campaign and disburse the award to the recipients identified by the CNMI. The Entity was not involved in reviewing and deciding which grant applicant is eligible to receive the grant. CNMI’s role in the review of grant applications and eligibility determination may have caused confusion as to whether the Entity that received the funds is a subrecipient or a contractor. As of the auditor’s report date, CNMI and the Entity have yet to conclude whether the Entity received the funds in the role of a subrecipient or a contractor. Effect or Potential Effect: CNMI is in noncompliance with applicable subrecipient monitoring compliance requirements and questioned costs of $15,640,541 result. Identification as a Repeat Finding: Finding No. 2022-031 Recommendation: We recommend CNMI establish approved/adopted written subrecipient monitoring policies and procedures and an approved template that includes all required clauses needed for subrecipient agreements. In addition, CNMI should implement and enforce monitoring internal control procedures over the following: Finding No. 2023-034, continued Federal Agency: U.S. Department of the Treasury AL Program: COVID-19 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Award No.: COVID-19 Area: Subrecipient Monitoring Questioned Costs: $15,640,541 Recommendation, continued: 1. Verification as to whether the subrecipients are not suspended, debarred, or otherwise excluded from receiving Federal funds; 2. Evaluation over each subrecipient's fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring; 3. Monitoring procedures to ensure that all subaward agreements include the required information in accordance with 2 CFR §200.332(b)(1); 4. Monitoring activities of a subrecipient to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward; 5. Verification that subrecipients are audited as required by 2 CFR Part 200 Subpart F; and 6. Adequate documentation and systematic filing of relevant documentation supporting program costs. Views of Responsible Officials: Conditions 1 to 3 - CNMI Department of Finance agrees with this finding. During FY2023, the Department of Finance became aware that existing practices for subrecipient monitoring did not fully meet federal requirements under 2 CFR 200.331–200.332. DOF began implementing corrective actions in the latter part of FY2023 and continued strengthening procedures throughout FY2024, including improvements in documentation, SAM.gov verification, and basic risk assessment elements. Refer to CNMI’s Corrective Action Plan for additional information.