Can Cooperatives Address Navajo Nation’s Audit Issues and Governance Crisis?
Audit irregularities documented in a KPMG LLP report are among the latest salvos in a governance crisis on Navajo Nation. In the December 2024 audit, audit partner Chris Ray highlighted 24 issues across 19 federally funded Navajo Nation programs. Navajo Nation controller Sean McCabe reported that the internal control failures and compliance issues have prompted KPMG to expand audit testing, extending the deadline for the audit. The Navajo Nation faces a critical timing conflict. While the December 2024 audit and the December 2026 ARPA deadline are technically separate mandates, the 24 internal control failures identified by KPMG have stalled the legislative budget process. Because the Navajo Nation Council requires a completed audit to finalize the FY2026 budget, this administrative delay risks leaving $100 million in American Rescue Plan Act (ARPA) funds unallocated and unspent, potentially forcing a massive return of capital to the U.S. Treasury.[1]
The audit irregularities documented by KPMG are less a reflection of systemic sub-recipient monitoring failures and more an indictment of the central government’s internal architecture. The findings highlight deep-seated material weaknesses within the Executive Branch, ranging from the improper application of fringe benefit rates to the persistent failure to perform timely bank and cash reconciliations. These are not merely “bookkeeping” errors; they represent a fundamental decoupling of the Nation’s financial intelligence from its massive administrative scale. Because the central government has struggled to adopt modern Governmental Accounting Standards Board (GASB) rules or maintain a stable workforce of financial professionals, it has become a self-imposed bottleneck. This internal friction prevents the Nation from providing the granular transparency required by federal regulators, effectively stalling the flow of $100 million in ARPA funds and trapping the Nation in a cycle of restrictive federal oversight.
A Systemic Problem and Decentralized Solution
The Single Audit Act[2] and other audit requirements overburden Navajo Nation which faces a shortage of CPAs and other financial professionals as well as the complexity of upgrading its financial systems. Navajo Nation administers American Rescue Plan Act (ARPA)[3] funds and hundreds of “grants and P.L. 93-638 “self-determination” contracts (638 contracts) with the Bureau of Indian Affairs (BIA) and the Indian Health Service (IHS) as well as contracts and grants with other Federal agencies. Because of the volume and complexity of these programs, Navajo Nation (which is the size of West Virginia) has never had the three years of audits without material weaknesses required to move from it from 638 contracts to the far less restrictive “self-governance compacts” under the Indian Self Determination and Education Assistance Act (ISDEAA).[4] Under the expanded authority provided by compacts compared with contracts, smaller Tribes facing a less complicated audit burden have acquired almost autonomous authority over Federal programs like law enforcement, education, and healthcare. They can redesign programs, reallocate funds to meet local needs, enjoy reduced reporting requirements, and more easily obtain regulatory waivers. Essentially a “compact” Tribe is treated as if it has received a block grant from the Federal government.[5]
[1] Navajo Nation Council Press Release dated December 5, 2025 (visited 2/20/2026); Navajo Nation Council Press Release dated January 27, 2026 (visited 2/20/2026).
[2] Single Audit Act of 1984, Pub. L. No. 98-502, 98 Stat. 2327 codified at 31 U.S.C. §§ 7501–7507 (2018).
[3] ARPA was signed into law by on March 11, 2021 and funds were received by the Navajo Nation in stages starting around May 2021, designed to mitigate COVID-19 pandemic impacts through infrastructure, water, electricity, and housing projects
[4] Indian Self-Determination and Education Assistance Act, Pub. L. No. 93-638, 88 Stat. 2203 (1975), codified at 25 U.S.C. § 5321 et seq.
[5] 25 U.S.C. § 5304(h); 25 U.S.C. § 5362(c)(3); 25 U.S.C. § 5383(c)(1)(C).
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