Finding Text
2025-003 – Significant Deficiency in Internal Control over Subrecipient Monitoring and Noncompliance Identification of federal programs: United States Department of Commerce (DOC) ALN 11.463 - Habitat Conservation Grant Award NA25NMFX463C0022 Criteria: Part 3 Compliance Supplement Under 2 CFR §200.332, pass-through entities are responsible for monitoring the activities of subrecipients as necessary to ensure that federal awards are used for authorized purposes, comply with applicable federal statutes, regulations, and the terms and conditions of the subaward, and that performance goals are achieved. Monitoring activities may include reviewing financial and performance reports, performing follow-up on identified deficiencies, and issuing management decisions when applicable. Additionally, pass-through entities are required to verify whether subrecipients that expend $750,000 or more in federal awards obtain the required Single Audit, review audit reports for findings related to the federal program, issue management decisions on applicable findings, and ensure timely corrective action. Condition: The Organization issued one subaward under ALN 11.463 during the fiscal year. The Organization performed a risk assessment of the subrecipient and maintained ongoing communication regarding project activities. However, the Organization did not establish or perform sufficient monitoring procedures to fully demonstrate compliance with Uniform Guidance subrecipient monitoring requirements. Specifically: • The Organization did not require or obtain formal financial reports sufficient to monitor the subrecipient's use of federal funds after subaward funds were advanced. • The Organization did not obtain formal performance reports documenting progress toward program objectives. • The Organization did not document procedures to determine whether the subrecipient was subject to Single Audit requirements. • The Organization did not review applicable Single Audit reports. • The Organization did not document follow-up procedures or management decisions related to audit findings affecting the subrecipient, if applicable. Cause: At the time the subaward was issued and monitored during fiscal year 2025, the Organization had not established procedures addressing all Uniform Guidance subrecipient monitoring requirements. Management adopted revised subrecipient monitoring policies in December 2025; however, the monitoring procedures required by those policies were not fully applied to the subaward issued during the fiscal year. Effect or potential effect: Although the Organization maintained oversight of the subrecipient through risk assessment procedures, project deliverable reviews, ongoing communications, and project management activities, the Organization did not perform and document all monitoring procedures required under 2 CFR 200.332. As a result, the Organization cannot fully demonstrate compliance with all pass-through entity monitoring requirements, increasing the risk that subrecipient compliance issues may not be identified, evaluated, and resolved in a timely manner. Questioned Costs: None. Context: The Organization issued one subaward under ALN 11.463 during fiscal year 2025. Audit procedures identified that required monitoring procedures were not performed or documented for the subaward issued during fiscal year 2025. Although the Organization adopted revised subrecipient monitoring policies in December 2025, the procedures were not applied retrospectively to the subaward under audit. Identification of Repeat Finding: N/A Recommendations: We recommend that management continue implementation of its revised subrecipient monitoring policies and ensure that monitoring procedures are performed and documented for all current and future subawards and well as ensuring those monitoring requirements are communicated to the subrecipient. Monitoring activities should include review of financial and performance reporting, verification of Single Audit requirements, review of applicable audit reports, and documented follow-up of audit findings when required. Views of Responsible Officials: Management agrees with this finding. See Corrective Action Plan.