Material Weakness Finding No. 2025-002: Subrecipient Monitoring U.S. Department of Health and Human Services Substance Abuse and Mental Health Services Federal Assistance Listing Number 93.243. U.S. Department of Health and Human Services Health Care for Native Hawaiians Federal Assistance Listing Number 93.932. Criteria Pursuant to Title 2, Subtitle A Chapter II, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance), “a non-Federal entity may concurrently receive Federal awards as a recipient, subrecipient, and a contractor, depending on the substance of its agreements with the Federal awarding agencies and pass-through entities. Therefore, a pass-through entity must make case-by-case determinations whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor.”Condition We noted that the Organization did not make case-by-case determinations of each agreement with parties to which the Organization passed through Federal program funds to determine whether they were deemed to be either subrecipients or contractors. Cause Management had not updated its policies and procedures to incorporate the relevant Uniform Guidance subrecipient monitoring and management policies. Effect The lack of subrecipient monitoring and management policies of the Uniform Guidance could result in noncompliance by the Organization with the stipulated requirements for pass-through entities, as well as noncompliance of subrecipient requirements by the entities receiving the pass-through funds from the Organization. Identification of Repeat Finding This finding was reported as a federal award finding in the immediate previous audit as Finding No. 2024-002. Recommendation We again recommend that the Organization incorporate the subrecipient monitoring and management provisions of 2 CFR §200.331 and 2 CFR §200.332 of the Uniform Guidance to their policies and procedures manual to ensure compliance with Federal standards.Views of Responsible Officials and Planned Corrective Action The Organization acknowledges 2 CFR§ 200.331 and 2 CFR §200.332 of the Uniform Guidance, and its subrecipient monitoring and management provisions emphasizing accountability and compliance in managing federal funds and subrecipients. The Organization concurs with the prior year (2024-002) and current year renumbered recommendation (2025-002) and highlights its ongoing progressive and corrective implementation of policy and process actions.For context, the Organization’s progressive and corrective actions as of the fiscal year ended (FYE) June 30, 2024 report included the following: A. Subrecipient Monitoring and Management. Implemented internal process changes, effective November 1, 2024, specifically, prospectively, and consistently the: 1. Use of a checklist, to comprehensively assess risk of determining subrecipient or contractor classification, before entering into any subrecipient agreement; 2. Provision of identification details such as CFDA number, amount of federal funds obligated, and the award period for determined subrecipient awards; 3. Submission of programmatic and financial reports as specified in the subrecipient agreement; 4. Review of a single audit in accordance with 2 CFR Part 200, Subpart F for subrecipients that expend $750,000 or more in federal funds during a fiscal year, if applicable; and 5. Review of their audit report(s) and addressing any finding(s) related to their federal award(s), including the related appropriate corrective actions, when applicable. B. Retroactive Subrecipient Portfolio Risk Assessment and Correction(s). Performed a risk assessment of the existing subrecipient portfolio to identify risks, for the audit periods July 1, 2022 – June 30, 2023, and July 1, 2023 – June 30, 2024. The objective of this risk assessment was to identify, evaluate, and prioritize risks that could adversely impact the Organization’s ability to achieve its strategic, operational, compliance and quality assurance goals. The completion of the Organization’s portfolio risk assessment resulted in correction of identified non-compliant subrecipient agreement(s). C. Subrecipient Policies and Procedures. Updated, by December 31, 2024, the implemented financial policies and procedures aligned to the subrecipient monitoring and management provision of 2 CFR §200.331 and 2 CFR §200.332 of the Uniform Guidance, including checklists, flowcharts, samples, data sheets, data sharing agreements, etc. For the year ended June 30, 2025, to the period of the audit report date, the Organization continued the prospective implementation of the above policies and processes, including the following reflective contract review work: A. Reviewed all contracts executed between July 1, 2024 to June 30, 2025. B. Discussed with respective program director(s), the implementation of initiation, consideration, decision, documentation and monitoring phased activities. C. Worked with respective program director(s) to document in memorandum(s) to file (MTF), the basis for decision and documentation on a contract-by-contract basis. D. Initiated work with respective program contract monitors to implement and document consistent Organization wide contract monitoring processes and activities (e.g., contract, term, billing, deliverables, eligible expenditures, data input, frequency).Although as of June 30, 2025 the implementation of the resolution was not completed, the implementation continues and is expected to be fully implemented by the next audit report date.