Finding Text
Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D20AF00054, D21AF00024, D23AF00047, D23AF00061 Area: Cash Management Questioned Costs: $1,643,137 Criteria: Article IV, Section 5(b)(ii) of the Fiscal Procedures Agreement (FPA) Sector Grants states that infrastructure projects shall be paid on the basis of Accrued Expenditures, provided the Government of the Federated States of Micronesia maintains procedures to minimize the time elapsing between the disbursement of funds to the Government of the Federated States of Micronesia and its payment of the Accrued Expenditure. In accordance with 31 CFR part 205.12(b)(4), a Federal Program Agency transfers the actual amount of Federal funds to a State that will be paid out by the State, in a lump sum, not more than three business days prior to the day the State issues checks. Condition: 1. FSMNG did not maintain written procedures to minimize the time elapsing between the transfer of infrastructure project funds and the disbursement of such funds. 2. Six (or 50%) out of twelve drawdowns tested, FSMNG disbursed the funds for more than three business days. Cause: FSMNG does not have established policies and procedures to minimize the time elapsing between the transfer of infrastructure project funds received from the federal agency and FSMNG’s disbursement of such funds to vendors. Effect or potential effect: FSMNG is in noncompliance with the applicable cash management requirements and a questioned cost of $1,643,137 result. The questioned costs is based on the amounts of drawdowns made. Identification of a Repeat Finding: This is not a repeat finding. Recommendation: FSMNG should establish written policies and implement procedures to minimize the time elapsing between the transfer of infrastructure project funds and the disbursement of such funds for program purposes. Management should consider the three-business day rule on cash advance funding stated in 31 CFR part 205.12(b)(4). Views of Responsible Officials: Management agrees with the finding as to the absence of a separate written procedure specifically addressing the time elapsing between the receipt of infrastructure project funds and their disbursement, but disagrees with the application of the three-business-day standard and with the questioned costs. A dedicated cash management procedure will be developed to ensure clarity, setting out the disbursement process and target timeframes consistent with Article IV, Section 5(b)(ii) of the Fiscal Procedures Agreement (FPA). Management's view is that this condition constitutes an internal control deficiency and does not warrant questioned costs. The FPA — the governing award term for these sector grants — requires only that the FSM National Government maintain procedures to minimize the time elapsing between the receipt of funds and payment of the accrued expenditure; it prescribes no specific day-count standard. All disbursements tested were made through the FSM National Government's internal wire-out approval process, which requires authorized signatories, and all were completed within the month of receipt. The deficiency identified is therefore the absence of a documented procedure — a matter of internal control design — and not a failure in the eligibility or propriety of the payments themselves. With respect to the questioned costs of $1,643,137, management notes that the amounts represent actual payments to vendors for eligible infrastructure accrued expenditures. The costs do not meet the definition of questioned costs under 2 CFR 200.1: they did not result from a violation of the terms and conditions of the Federal award, as the FPA contains no three-business-day requirement; they are fully supported by adequate documentation — management reaffirms that all transactions were vouched as completed during fieldwork, with all samples provided and cleared and no missing items; and they are not unreasonable, reflecting the actions of a prudent administration operating its required payment approval controls. Further, under paragraph (3)(i) of the questioned cost definition in 2 CFR 200.1, questioned costs are not an improper payment until reviewed and confirmed as such — and no such determination applies here, as the funds were disbursed in full for their intended grant purposes. Management accordingly requests that the finding be reported as an internal control deficiency with questioned costs of $0. Summary Schedule — Remarks (2024-010): Finding agreed as to the absence of a separate written procedure on time elapsing — dedicated cash management procedure to be developed per FPA Article IV, Section 5(b)(ii); disagreed on the three-business-day standard and the questioned costs. The FPA prescribes no day-count standard, all disbursements were within the month through the required wire approval process, and all transactions were vouched as completed during fieldwork with no missing items — per the 2 CFR 200.1 questioned cost definition, including paragraph (3)(i), questioned costs of $0 are warranted.