Finding Text
Finding 2025-002 LSC Compliance 45 C.F.R Part 1629 bond insurance Grantor: Legal Services Corporation Program Name: Legal Services Corporation Basic Field Grant CFDA No.: 09.952000 Award No.: Basic Field Grant Award Year: 2025 Repeat Finding From Prior Audit? No Finding Type: Significant deficiency Criteria: Pursuant to 45 C.F.R. Part 1629, recipients of Legal Services Corporation (LSC) funding are required to maintain a fidelity bond or similar insurance covering employees, officers, directors, agents, volunteers, and third-party contractors who handle LSC funds. The required coverage must protect against losses resulting from fraud, dishonesty, theft, embezzlement, forgery, misappropriation, wrongful conversion, willful misapplication, and other fraudulent or dishonest acts. In accordance with 45 C.F.R. § 1629.6, recipients are required to maintain fidelity bond or similar insurance coverage in an amount of not less than ten percent (10%) of the recipient's annualized LSC funding for the preceding year. The LSC Financial Guide also recommends that the Board of Directors annually review and ratify the organization's fidelity bond or similar insurance coverage. Condition: During our audit, we noted that MLSC's fidelity bond (or similar insurance coverage) expired during 2025 and was not renewed. As a result, MLSC was operating without the fidelity bond or similar insurance required under 45 C.F.R. Part 1629. Management informed us that it made numerous attempts to obtain replacement coverage by contacting multiple insurance providers within the Commonwealth of the Northern Mariana Islands. However, insurance carriers were either unwilling or unable to provide the required fidelity bond or similar insurance coverage. As of the date of our audit report, MLSC had not been able to secure the required coverage despite its documented efforts. Finding 2025-002 LSC Compliance 45 C.F.R Part 1629 bond insurance, continued Cause : The required fidelity bond or similar insurance was unavailable from insurance carriers contacted by MLSC. Although management made reasonable and documented efforts to obtain the required coverage, no insurer was willing or able to issue a policy meeting the requirements of 45 C.F.R. Part 1629. Effect: MLSC was not in compliance with the fidelity bond insurance requirements established by 45 C.F.R. Part 1629 during the period in which coverage was unavailable. Without the required fidelity bond or similar insurance, MLSC is exposed to an increased risk of financial loss resulting from fraudulent or dishonest acts involving individuals who handle LSC funds. In addition, continued noncompliance could result in findings by the Legal Services Corporation or other oversight agencies. Recommendation: MLSC should continue its efforts to obtain fidelity bond or similar insurance that complies with 45 C.F.R. Part 1629. Management should maintain documentation of all communications with insurance providers, including applications, quotations, declinations, and other correspondence demonstrating its efforts to obtain the required coverage. If coverage remains unavailable, MLSC should promptly notify the Legal Services Corporation in writing of the circumstances, provide documentation of its efforts to obtain coverage, and request guidance regarding acceptable alternative risk mitigation measures or other actions necessary to address the regulatory requirement. Finding 2025-002 LSC Compliance 45 C.F.R Part 1629 bond insurance, continued Management’s Response and Corrective Action Plan: MLSC concurs with the finding. The required commercial crime/fidelity bond insurance expired on November 27, 2024, after the insurance carrier declined to renew the policy due to a pending insurance claim. Since that time, MLSC has made continuous efforts to obtain replacement coverage by contacting multiple insurance providers in the CNMI and Guam. Although one insurer offered limited commercial crime coverage, the proposed policy did not satisfy the requirements of 45 C.F.R Part 1629 because it excluded one office and provided substantially lower coverage limits than required. MLSC continued to pursue alternative coverage, including submitting an application through Travelers Casualty and Surety Company for coverage that would meet LSC requirement. Effective July 1, 2026, MLSC obtained the only fidelity coverage reasonably available in the market, thereby resolving the finding. Corrective Action Taken - Secured a fidelity bond effective July 1, 2026 - Maintained documentation of all efforts to obtain replacement coverage during the period coverage was unavailable. - Continued reporting insurance procurement efforts to the Board of Directors. - Will continue to pursue broader fidelity coverage as market conditions permit. - Will monitor renewal date to ensure timely renewal before expiration and prevent future lapses in coverage. Responsible Persons: Executive Director, Lee Pliscou Completion Date: July 1, 2026