Pass-Through Entity: Federated States of Micronesia National Government Federal Agency: U.S. Department of the Interior Assistance Listing: 15.875 Economic, Social, and Political Development of the Territories Federal Award No.: D24AF00340, D24AF00341, D23AF00263, D20AP00054, D24AF00350 Area: Allowable Costs/Cost Principles Questioned Costs: $27,217 Criteria: Article VI, section 1(a)(ii) of the FSM-U.S. Fiscal Procedures Agreement requires accounting records sufficient to support the source and application of grant funds, including canceled checks, paid bills, payroll and time-and-attendance records, contracts, subaward documents, and other financial data. Under 2 CFR 200.403, costs charged to a federal award must be necessary, reasonable, allocable, and adequately documented. Under 2 CFR 200.430(g), salary and wage charges must be supported by records that accurately reflect the work performed. Condition: The instances of noncompliance were as follows: 1) For 5 (8%) of 65 nonpayroll transactions tested, from a sample totaling $1,303,256 and a population totaling $24,317,028, the State did not provide sufficient financial or programmatic records, such as vendor invoices, contracts, receiving reports, or approved budgets, to establish allowability:2) For 22 (37%) of 60 payroll transactions tested, from a sample totaling $36,422 and a population totaling $24,317,028, the State either (a) did not provide uniform or departmental timecards or timesheets supporting compensation, taxes, and fringe benefits; (b) provided departmental records supporting fewer hours than the uniform timesheet; (c) had unexplained differences between regular and leave hours in the two records; or (d) did not provide underlying support for retroactive regular pay, as follows:2) For 22 (37%) of 60 payroll transactions tested, from a sample totaling $36,422 and a population totaling $24,317,028, the State either (a) did not provide uniform or departmental timecards or timesheets supporting compensation, taxes, and fringe benefits; (b) provided departmental records supporting fewer hours than the uniform timesheet; (c) had unexplained differences between regular and leave hours in the two records; or (d) did not provide underlying support for retroactive regular pay, as follows: Cause: Documentation-retention controls at the State Treasury and responsible departments were not operating effectively. Departmental and uniform timekeeping records were not consistently reconciled, and supporting personnel records were not consistently retained. • For Conditions 1, 2(a), and 2(d), disbursement and timekeeping records were not consistently filed and retained by the State Treasury and responsible departments. • For Conditions 2(b) and 2(c), departmental controls did not ensure reconciliation of departmental timesheets to the uniform timesheets submitted to the State Treasury. The Treasury did not consistently receive departmental support and relied on agency review and certification. Cause: (continued) • For Conditions 3(a) and 3(b), personnel-record retention controls were not operating effectively. Effect: The State did not comply with applicable allowable-cost and compensation requirements. Unsupported expenditures constitute known questioned costs of $27,217. Likely questioned costs exceeded $25,000 based on projection of the sample results. Recommendation: The State should: • Strengthen centralized documentation filing and retention controls for disbursement, payroll, and personnel records. • Because the State Treasury relies on departmental monitoring, the State should: 1. Enhance monitoring at the departmental level or implement a uniform timekeeping system. 2. Require departments to submit timekeeping reports to the State Treasury for secondary reconciliation. 3. Require retention of explanations and approvals for changes affecting uniform timesheets that are not reflected in departmental records. Identification as a Repeat Finding: 2023-002 View of Responsible Officials: The State’s response and corrective action plan addressing this finding is included in the accompanying corrective action plan.