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Well The moderator must be in the moderators group to start. Sounds like the settings are all set correctly from one I see except one thing you did not meantion. In Admin =-> Edit Usergroups you set moderators usergroup to have moderators access. Therefore every mod will have mod access and with mod not global then the program will let them do what you want in there specific categories. As long as they are given mod access in admin usergroups editor they should have mod access provided they exist in the mod usergroup.
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