Finding No.: 2024-014 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: Procurement and Suspension and Debarment Questioned Costs: $268,128 Criteria: Section 200.317 of 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards states that, when procuring property and services under a Federal award, a state must follow the same policies and procedures it uses for procurements from its non-Federal funds. RepMar enacted Procurement Code Act, 2023, which took effect on October 1, 2023. RepMar’s new Procurement Code states the following: (a) Section 118 - Unless otherwise provided for in Section 119, all Government contracts shall be awarded by competitive sealed bidding. (b) Section 119(b) - A contract may be awarded for a supply, service, or construction item without competition when, under regulations, the Chief Procurement Officer, the head of a Procurement Entity, or a designee of either officer above the head of a Procurement Entity, or a designee of either officer above the level of the Procurement Officer determines in writing that there is only one source for the required supply, service, or construction item. (c) Section 119(c) - Any procurement not exceeding $50,000, or a lesser amount established by regulation, may be made in accordance with small purchase procedures promulgated in accordance with the Regulation. Ministry of Finance, Banking and Postal Services has declared that if small purchase procedures are used, price or rate quotations shall be obtained from three sources. Section 123 of the new Procurement Code stipulates that debarred, suspended, or sanctioned parties are ineligible to participate in solicitations or contract awards. Section 151 stipulates that regulations shall be issued to implement its provisions. 2 CFR 200.214 states that recipients and subrecipients are subject to the non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689, as well as 2 CFR part 180. The regulations in 2 CFR part 180 restrict making Federal awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from receiving or participating in Federal awards. Criteria, continued: 2 CFR 180.300 states that when an entity enters into a covered transaction with another person at the next lower tier, the entity must verify that the person with whom the entity intends to do business is not excluded or disqualified by doing the following: (a) Checking SAM.gov Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person. 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: To date, Regulations have not been issued as required by Section 151 of the Procurement Code. Despite the absence of finalized implementing guidance, procurement officials applied the new Procurement Code thresholds in practice without adequate supporting regulations, documented procedures, or formally approved guidance to ensure consistent and compliant implementation. Condition 2: Of 60 procurement transactions tested, aggregating $4,418,361 of $14,241,569 in total non-payroll program transactions subject to procurement requirements, the following deficiencies were noted: 1. For 9 (or 15%), supporting procurement documentation was not sufficient to substantiate compliance with applicable procurement requirements: Item # Fund # Encumbrance # Expenditure Amount Questioned Cost 1 10401 23/00000348 PORDER $ 4,889 $ 4,889 2 10401 23/00000358 PORDER 799 799 3 10401 23/00001156TRAVELMISS 508 508 4 10406 23/00001316 TRAVELMISS 3,482 3,482 5 10406 23/00002686 TRAVELMISS 508 508 6 10406 23/00002687 TRAVELMISS 508 508 7 10305 23/00002983 PORDER 40,000 40,000 8 10406 23/00003511 BRV 36,000 36,000 9 10403 23/00001396 BRV 600 600 $ 87,294 $ 87,294 2. For 4 (or 7%), the procurement documentation is insufficient to support the rationale for vendor selection in accordance with 2CFR section 200.323 and 48 CFR section 15.404-3: Item # Fund # Encumbrance # Expenditure Amount Questioned Cost 1 10403 23/00000404PORDER $ 9,150 $ 9,150 2 10401 23/00000793PORDER 403 403 3 10401 23/00002008PORDER 867 867 4 10415 23/00005212 BRV 87,240 87,240 $ 97,660 $ 97,660 Item # 4 pertains to expenditures also reported as questioned cost under Finding No. 2024-016. 3. For 9 (or 15%), supporting procurement files were not provided, as follows: Item # Fund # Encumbrance/Voucher # Expenditure Amount Questioned Cost 1 10406 23/00001108PORDER $ 4,333 $ 4,333 2 10403 23/00002692 BRV 3,253 3,253 3 10406 23/00002708 BRV 718 718 4 10406 23/00003836PORDER 1,664 1,664 5 10402 23/00004196PORDER 9,999 9,999 6 10402 23/00004275PORDER 1,140 1,140 7 10402 23/00004466PORDER 19,115 19,115 8 10402 23/00004622 BRV 25,900 25,900 9 10406 23/00014479 PV 17,052 17,052 $ 83,174 $ 83,174 Condition 3: Documented evidence of compliance with Section 123 of the RMI procurement code and 2 CFR 200.214 and 2 CFR 180.300 regarding debarred, suspended, or otherwise excluded persons or entities was not available. Cause: RepMar did not enforce adequate internal control policies and procedures over documentation of the procurement process to satisfy compliance with applicable procurement requirements. Further, RepMar lacks procurement regulations requiring verification of the status of an entity with which RepMar intends to enter into a covered transaction. Effect or Potential Effect: RepMar is in noncompliance with applicable procurement requirements. The reportable questioned cost is $268,128. Identification as a Repeat Finding: 2023-016 Recommendation: Responsible personnel should require that documentation be adequate to comply with applicable procurement requirements. Specifically, documentation should indicate the history of procurement, including the rationale for contractor or vendor selection, and verification of whether an entity or person with whom RepMar intends to do business is not excluded or disqualified. Furthermore, Procurement Regulations required by Section 151 of the Procurement Code should be issued. Views of Responsible Officials: Condition 1. The Ministry disagrees with this finding. The revised procurement threshold of $25,000 to $50,000 became effective upon adoption of the Procurement Code of 2023 on October 1, 2023, as provided under Section 119(c) Small Purchases. A Regulation is not necessary to support this change. All other provisions of the Procurement Code remained in force and continue to govern procurement activities. Furthermore, an amended Procurement Code was endorsed by Cabinet in March 2026 and will be introduced to Parliament during the August session. Upon its adoption, the corresponding Regulation will be formally issued. Condition 2-1. Items 1-2,7 The Ministry disagrees with the findings. All three purchase orders were supported by the required documentation at the time of review and prior to the issuance of the purchase orders. Items 3-6 The Ministry intends to revisit the existing travel policy and update accordingly. Item 8 The vendor was directly selected as the authorized distributor & service provider for medical equipment & supplies in the Marshall Islands. Going forward, the Ministry will ensure a signed justification letter from the Head of Department is attached to support sole-source procurements. Item 9 The Ministry will return requisitions with insufficient supporting documentation and will conduct a procurement training in October 2026 to reinforce procurement requirements. Condition 2-2 Item 1 The Ministry now requires a Request for Quotation (RFQ) form to be submitted as evidence of compliance with competitive procurement requirements. Items 2-3 The Ministry disagrees with the findings. Supporting documentations can be found on PR 23/00023360 (#2) & PR 23/00001990 (#3) Item 4 Effective in FY2025, the Enewetak/Ujelang Local Government operations were transferred to the Ministry of Finance. As a result, all procurement activities are now processed through the Ministry and are required to comply with the applicable procurement code, established regulations, and the Ministry's internal procurement policies and procedures, thereby strengthening oversight and ensuring compliance. Condition 2-3 1-7 The Ministry now requires a Request for Quotation (RFQ) form to be submitted as evidence of compliance with competitive procurement requirements 8 The Ministry of Finance will require that the PSS Hot Lunch Vendor selection Report (endorsed by the Bid Committee) be submitted with the initial payment to the Hot Lunch Vendors. 9 Once the DLS contract expires, it will be advertised for competitive bidding. Condition 3 At the start of a new fiscal year, the MOF Compliance team will perform an annual screening of all Funder/Client (Supplier) in Bisan against the SAM.gov list of debarred/suspended entities. Auditor’s Response: Condition 1: We acknowledge management’s disagreement; however, Section 151 of the Procurement Code requires adoption of Procurement Regulations, which has not occurred to date. Condition 2-1, item #s 1, 2 and 7 and Condition 2-2, item #s 2 and 3: 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.