Finding No.: 2024-010 Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: Compact of Free Association, As Amended Area: Activities Allowed or Unallowed Area: Allowable Costs/Cost Principles Questioned Costs: $2,307,732 Criteria: Federal program expenditures should be necessary and reasonable for the performance of the Federal award, in accordance with activities allowed or unallowed and allowable costs/cost principles requirements, and be directly related to, and in accordance with, program intent and objectives. Furthermore, 2 CFR 200.303(a) states that a recipient of a Federal award must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition 1: For 2 (or 9%) of 22 payroll transactions tested, aggregating $13,560 of $17,799,660 in total payroll program expenditures, leave hours were not supported by an approved leave form for the following: Item # Employee # PPE Hours Expenditure Amount Questioned Cost 1 4216312 9/21/2024 8 $ 57 $ 57 2 4244959 7/27/2024 2.60 16 16 $ 73 $ 73 Condition 2: For 6 (or 16%) of 38 non-payroll transactions tested, aggregating $4,498,991 of $30,128,050 in total non-payroll program expenditures, cost was not adequately documented due to lack of supporting vendor invoice or internship program timesheet for the following: Item # Fund # Encumbrance # Account Expenditure Amount Questioned Cost 1 10401 23/00002464TRAVELMISS Repatriation and Home Leave $ 525 $ 525 2 10402 23/00001606 BRV Contractual Services (internship) 216 216 3 10402 23/00001575 BRV Contractual Services (internship) 240 240 4 10402 23/00001486 BRV Contractual Services (internship) 221 221 5 10403 23/00000485TRAVELMISS Travel – Domestic 1,550 1,550 6 10409 23/00002363 BRV Construction In Progress 76,285 76,285 $ 79,037 $ 79,037 Condition 3: The terms and conditions for grant award nos. D23AF000740, D24AF00030, D24AF00071, and D24AF00369 state that assistance under the awards may not be sub-granted or transferred. However, $2,228,622 of the grant assistance was disbursed directly to the Enewetak/Ujelang Local Government (EULGOV) and a subgrant agreement with EULGOV was not available. Accordingly, reportable questioned cost results. This item is also reported as a matter of noncompliance within Finding No. 2024-016, including associated questioned costs. Cause: RepMar did not effectively maintain documentation to support expenditures charged to federal programs and did not effectively monitor the validity and allowability of expenditures. Furthermore, RepMar lacks adequate internal control policies and procedures to facilitate adherence with grant terms and conditions. Effect or Potential Effect: RepMar is in noncompliance with activities allowed or unallowed and allowable costs/cost principles requirements. The reportable questioned cost is $2,307,732. Identification as a Repeat Finding: 2023-011 Recommendation: Documents supporting expenditures should be maintained. Further, RepMar management should strengthen monitoring controls so that expenditures are verified for validity and allowability. Finally, RepMar should adopt adequate internal control policies and procedures to facilitate adherence with grant terms and conditions. Views of Responsible Officials: Condition 1: Effective FY2025, all ministries submit leave forms for all annual and sick leave taken, regardless of the number of days. The Ministry of Finance issued a clarifying memorandum on July 29, 2025. Condition 2: Item 1. MOF to set a policy providing a repatriation allowance of $500 to expatriates who have completed their employment contracts and exiting for good, and receipt is not required. Item 2-4. During the second year of FMIS implementation, limited staffing and scanning equipment prevented the timely upload of supporting documents. The Ministry has since improved its staffing and equipment, and in FY2025 all supporting documentation is uploaded to FMIS before payment processing. Item 5. The Ministry disagrees with the finding. The per diem and transportation expenses are accounted for in the liquidation supporting documents. The Government accepts acknowledgment receipts as supporting documentation for transportation services provided in neighboring islands due to the vendors' limited resources and inability to issue invoices or printed receipts. Views of Responsible Officials, continued: Item 6. The Laura Elementary School PDP & Detailed Design contract was an old/completed project originally funded under expired grant D21AF102130 and was subsequently regranted under FY2024 grant D24AF00024 along with three other projects. The payment was supported by a PMU letter identifying the contractor's total outstanding unpaid invoices. Condition 3. Effective 3rd quarter of FY2025, all transactions charged to the Enewetak grant go through the national procurement and payment process. Auditor’s Response: Condition 2, item # 5: We acknowledge management’s disagreement; however, supporting documentation was not provided by the agreed-upon deadline. Accordingly, based on the evidence available at the time of audit conclusion, the finding remains unchanged.