Finding No.: 2024-016 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: Subrecipient Monitoring Questioned Costs: $6,795,269 Criteria: Article VIII, Section 1(a)(i) of the Fiscal Procedures Agreement (FPA) states that fiscal control and accounting procedures of RepMar, as well as its Sub-Grantees, shall be sufficient to: (a) permit the preparation of reports required by the FPA and the 2023 Amended Compact; and (b) permit the tracing of funds to a level of expenditures adequate to establish that such funds have been used in compliance with the provisions of the 2023 Amended Compact, and applicable agreements. Furthermore, Article VIII, Section 1(n)(i) of the FPA states that RepMar shall ensure that: (a) every Sub-Grant includes any clauses required by the 2023 Amended Compact, the Grant terms and condition, and the FPA; (b) Sub-Grantees are aware of requirements imposed upon them by the 2023 Amended Compact, the Grants terms and conditions and the FPA; and (c) Sub-Grantees can meet the financial management requirements of the FPA. 2 CFR 200.332(c) states that a pass-through entity (PTE) must evaluate each subrecipient’s fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring tool. 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 (4) The extent and results of any Federal agency monitoring (for example, if the subrecipient also receives Federal awards directly from the Federal agency). 2 CFR 200.332(e) states that a PTE must 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 PTE with information on their plan for corrective action and any assistance needed to resolve the situation; (3) Issue a management decision for audit findings related to the subaward, in accordance with 2 CFR §200.521; and (4) Resolve audit findings that are specifically related to the subaward. 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: RepMar did not evaluate and document each subrecipient’s fraud risk and risk of noncompliance prior to issuing subawards. In addition, RepMar did not design and implement risk‑based subrecipient monitoring procedures. As a result, RepMar lacked a defined process to identify subrecipient risk and did not tailor monitoring activities to provide reasonable assurance that subawards were administered in compliance with applicable Federal requirements. Condition 2: For 12 (or 100%) subawards tested out of 22 issued during the audit period, no documented evidence was made available to demonstrate that the Ministry of Finance, Banking and Postal Services (MOFBPS) effectively evaluated and monitored subrecipients and their activities. Consequently, we were unable to ascertain whether MOFBPS monitored subrecipient compliance with subaward agreements, Compact Agreement, grant awards, and the Fiscal Procedures Agreement (FPA). Item # Subrecipient Fund # BRV/ MOA # Sub-Grant Amount Questioned Cost 1 College of the Marshall Islands 10401, 10402, 10406, 10409 BRV-23-0227 $ 2,000,328 $ 2,000,328 2 National Training Council 10402 BRV-23-5304 18,819 18,819 3 Kora in Okrane (KIO) 10402 BRV-23-2962 15,000 15,000 4 Assumption Schools 10401 BRV-23-7258 100,000 100,000 5 Marshall Islands Scholarship 10401 BRV-25-7100 750,000 750,000 6 National Training Council 10401 BRV-23-7253 250,000 250,000 7 College of the Marshall Islands 10401 BRV-23-7180 200,000 200,000 8 Kwajalein Atoll Joint Utilities Resources 10412 BRV-23-0226 938,930 938,930 9 KalGov-Local Council Management 10412 BRV-23-3559 150,000 150,000 10 Jabro Private School 10406 BRV-23-3148 15,475 15,475 11 Father Hacker High School 10406 BRV-23-3151 12,690 12,690 12 Gem School 10406 BRV-23-3149 23,327 23,327 $ 4,474,569 $ 4,474,569 Condition 3: For 10 (or 71%) of 14 payments to subrecipients tested, aggregating $944,078 of $5,684,200 in total transactions, the following deficiencies were noted: Item # Subrecipient Fund # Payment Basis Payment Amount Questioned Cost 1 Women United Together Marshall Islands 10402 4th quarter $ 16,250 $ 16,250 2 National Training Council 10402 70% initial payment 24,742 24,742 3 KORA IN OKRANE (KIO) 10412 1st Quarter 3,750 - 4 KALGOV- Local Council Management 10412 2nd quarter 37,500 - 5 KALGOV- Local Council Management 10412 3rd quarter 37,500 - 6 KALGOV- Local Council Management 10412 4th quarter 37,500 - 7 National Training Council 10401 4th quarter 62,500 - 8 College of the Marshall Islands 10401 4th quarter 50,000 - 9 Ebeye Seventh Day Adventist 10406 1st half 33,460 33,460 10 Queen of Peace 10406 1st half 17,626 17,626 $ 320,828 $ 92,078 For item #s 1 through 6, RepMar did not ensure that costs were expended by the subrecipients prior to payment. Further, for item # 3, no expenditure documentation was provided. Accordingly, the reimbursement timing requirement under 2 CFR §200.305(b)(1) was not met. No additional questioned costs are reported for item #s 3 through 6 as these same subrecipients were previously tested under Condition 2 above and the full-related disbursed amounts were already reported as questioned costs. Accordingly, the amounts are not repeated under this condition. For items #s 7 through 10, RepMar did not implement procedures to minimize the time elapsing between the transfer of Federal funds to subrecipients and the subrecipients’ disbursement of such funds for program purposes. Accordingly, the requirement under 2 CFR §200.305(b)(1) was not met. No additional questioned costs are reported for item #s 7 and 8 as these same subrecipients were previously tested under Condition 2 and the full-related disbursed amounts were already reported as questioned costs. Accordingly, the amounts are not repeated under this condition. Condition 4: Subrecipient schedule provided by MOFBPS was incomplete. Grant assistance under award nos. D23AF000740, D24AF00030, D24AF00071, and D24AF00369 aggregating $2,228,622 was sub-granted to a subrecipient that was not included in the monitoring schedule. Further the sub-grant was prohibited by the grant award terms and conditions. Accordingly, questioned cost of $2,228,622 results. Cause: RepMar lacks comprehensive internal control policies and procedures governing subrecipient evaluation and monitoring for compliance with underlying grant awards, memoranda of agreement, and Compact provisions. Effect or Potential Effect: RepMar is in noncompliance with applicable subrecipient monitoring requirements. The reportable questioned cost is $6,795,269. Identification as a Repeat Finding: 2023-019 Recommendation: RepMar should comply with the applicable provisions of the Fiscal Procedures Agreement (FPA) and Federal subrecipient monitoring requirements and should develop, document, and implement effective subrecipient monitoring policies and procedures. Furthermore, the Ministry of Finance, Banking and Postal Services (MOFBPS) should enforce compliance with subaward agreements, including ensuring that subrecipients obtain and timely submit Single Audit reports, as applicable. Views of Responsible Officials: Condition 1. On July 31, the newly developed pre-award risk assessment tool was rolled out to all subrecipients and ministries with oversight, effective FY2027. Conditions 2-3: On July 29, July 31 and August 5, 2026, training was conducted on Majuro and Ebeye to introduce new and enhanced tools to strengthen subrecipient monitoring. Views of Responsible Officials, continued: It covered the following topics: 1. Audit findings related to subrecipient arrangements. 2. Grants Management Manual with emphasis on its scope and the Management Decision Letter (MDL). 3. Unique Entity Identifier (UEI), which is mandatory. 4. Memorandum of Agreement and the significance of each section. 5. MOA circulation process. 6. Procurement Code 2023 7. Reporting and Required Supporting Documents: - Pre-award Risk Assessment - Site Visit Checklist - Enhanced SubGrant Forms and Review Checklist (SG1/Subgrant Objectives and Budget Proposal and SG2/Performance and Financial Evaluation) - SG Forms supporting documentation (salaries & wages, fuel purchase, food purchase, vehicle rental, housing allowance, travel, etc.) 8. Conflict of Interest In September 2026, officers from the Compliance and SOE Monitoring Unit will start going out to conduct the pre-award risk assessment. Results of the assessment will determine whether the entity can sign an MOA with the MOF or not as well as the entity's risk rating, which will determine the frequency of site visits to be conducted by Compliance beginning FY2027. Condition 4 Effective 3rd quarter of FY2025, all transactions charged to the Enewetak grant go through the national procurement and payment process.