Audit 318650

FINDING 2023-001 Subject: CDBG - Entitlement Grants Cluster - Equipment and Real Property Management Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants Assistance Listings Number: 14.218 Federal Award Numbers and Year (or Other Identifying Numbers): B-18-MC-18-0001, B-19-MC-18-0001, B-20-MC-18-0001, B-21-MC-18-0001, B-22-MC-18-0001, B-23-MC-18-0001 Compliance Requirement: Equipment and Real Property Management Audit Findings: Material Weakness, Modified Opinion Condition and Context Community Development Block Grants/Entitlement Grants (CDBG) may be used to acquire real and personal property, supplies, and equipment. Equipment purchased with CDBG funds requires management, among other things, to maintain property records, complete a physical inventory, safeguard against loss, and properly maintain the equipment. A property record or capital asset listing, which would include the following attributes, is to be maintained for assets purchased.  A description of the property.  A serial number or other identification number.  The source of funding for the property (including the federal award identification number FAIN).  Who holds title.  The acquisition date.  Cost of the property.  Percentage of federal participation in the project costs for the federal award under which the property was acquired.  The location.  Use and condition of the property. Although the City maintained property records, adequate property records for assets purchased with CDBG award funds was not maintained. The one asset purchased with CDBG funds, totaling $222,333, was added to the property records, but did not include the source of funding for the property, who holds title, percentage of federal participation, and condition of the property. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.313(d) states in part: ". . . (1) Property records must be maintained that include a description of the property, a serial number or other identification number, the source of funding for the property (including the FAIN), who holds title, the acquisition date, and cost of the property, percentage of Federal participation in the project costs for the Federal award under which the property was acquired, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sale price of the property. (2) A physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. (3) A control system must be developed to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft must be investigated. (4) Adequate maintenance procedures must be developed to keep the property in good condition. . . ." Cause A proper system of internal controls was not designed by management of the City. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the City's management of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. The City did not add an improvement as they were unaware that this should be added to the property records. In addition, the property records did not include all the necessary fields as the City did not know the additional information was needed. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, not all required elements of the property record were documented for assets acquired with CDBG award funds nor were all assets added to the property records. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City establish a proper system of internal controls and develop policies and procedures to ensure property records are maintained for all assets purchased and that all required elements are included within the property records. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2023-001 Subject: CDBG - Entitlement Grants Cluster - Equipment and Real Property Management Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants Assistance Listings Number: 14.218 Federal Award Numbers and Year (or Other Identifying Numbers): B-18-MC-18-0001, B-19-MC-18-0001, B-20-MC-18-0001, B-21-MC-18-0001, B-22-MC-18-0001, B-23-MC-18-0001 Compliance Requirement: Equipment and Real Property Management Audit Findings: Material Weakness, Modified Opinion Condition and Context Community Development Block Grants/Entitlement Grants (CDBG) may be used to acquire real and personal property, supplies, and equipment. Equipment purchased with CDBG funds requires management, among other things, to maintain property records, complete a physical inventory, safeguard against loss, and properly maintain the equipment. A property record or capital asset listing, which would include the following attributes, is to be maintained for assets purchased.  A description of the property.  A serial number or other identification number.  The source of funding for the property (including the federal award identification number FAIN).  Who holds title.  The acquisition date.  Cost of the property.  Percentage of federal participation in the project costs for the federal award under which the property was acquired.  The location.  Use and condition of the property. Although the City maintained property records, adequate property records for assets purchased with CDBG award funds was not maintained. The one asset purchased with CDBG funds, totaling $222,333, was added to the property records, but did not include the source of funding for the property, who holds title, percentage of federal participation, and condition of the property. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.313(d) states in part: ". . . (1) Property records must be maintained that include a description of the property, a serial number or other identification number, the source of funding for the property (including the FAIN), who holds title, the acquisition date, and cost of the property, percentage of Federal participation in the project costs for the Federal award under which the property was acquired, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sale price of the property. (2) A physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. (3) A control system must be developed to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft must be investigated. (4) Adequate maintenance procedures must be developed to keep the property in good condition. . . ." Cause A proper system of internal controls was not designed by management of the City. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the City's management of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. The City did not add an improvement as they were unaware that this should be added to the property records. In addition, the property records did not include all the necessary fields as the City did not know the additional information was needed. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, not all required elements of the property record were documented for assets acquired with CDBG award funds nor were all assets added to the property records. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City establish a proper system of internal controls and develop policies and procedures to ensure property records are maintained for all assets purchased and that all required elements are included within the property records. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.