FINDING 2023-003
Subject: Water and Waste Disposal System for Rural Communities - Equipment
Federal Agency: Department of Agriculture
Federal Program: Water and Waste Disposal System for Rural Communities
Assistance Listings Number: 10.760
Federal Award Number and Year (or Other Identifying Number): CY 2023
Compliance Requirement: Equipment and Real Property Management
Audit Findings: Material Weakness, Other Matters
Condition and Context
The Town had not designed or implemented adequate internal controls and procedures to ensure
that equipment purchased from the grant was included in the Town's capital asset listing. A physical
inventory of equipment was not performed at least once within the last two years.
The lack of internal controls and noncompliance were systemic issues throughout the audit period.
INDIANA STATE BOARD OF ACCOUNTS
17
TOWN OF LAFONTAINE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
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:
"Management requirements. Procedures for managing equipment (including replacement
equipment), whether acquired in whole or in part under a Federal award, until disposition takes
place will, as a minimum, meet the following requirements:
(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.
. . ."
Cause
The Town was not aware of the compliance requirement.
Effect
Without the proper implementation of an effectively designed system of internal controls, the Town
cannot ensure the required assets are included in the capital asset listing. Furthermore, 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 Town.
Questioned Costs
There were no questioned costs identified.
INDIANA STATE BOARD OF ACCOUNTS
18
TOWN OF LAFONTAINE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Recommendation
We recommended that management of the Town design and implement a proper system of internal
controls, including policies and procedures that would provide segregation of duties, to ensure capital
assets purchased from the grant are included in the Town's capital asset ledger and that a physical
inventory is performed every two years.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-004
Subject: Water and Waste Disposal System for Rual Communities - Reporting
Federal Agency: Department of Agriculture
Federal Program: Water and Waste Disposal System for Rural Communities
Assistance Listings Number: 10.760
Federal Award Number and Year (or Other Identifying Number): CY 2023
Compliance Requirement: Reporting
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
The Town had not designed or implemented adequate internal controls and procedures to ensure
that reports were prepared, accurate, and submitted in accordance with the applicable compliance
requirements for the federal grant. The United States Department of Agriculture (USDA) requires the
following reports be submitted annually:
Statement of Budget, Income, and Equity (Form RD 442-2)
Balance Sheet (Form RD 442-3)
The Form RD 442-2 covers financial operations relating to the Town's water main replacement
project and the Form RD 442-3 presents the financial status of the project. In both instances, a borrower
may submit the financial data on other forms, provided the forms are in a similar format and signed and
dated by the organization's official to certify the correctness of the information. Alternatively, an annual
audit may be submitted in lieu of the forms.
The Town was required to file each report, as noted above, during the audit period; however, the
reports were not filed.
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:
INDIANA STATE BOARD OF ACCOUNTS
19
TOWN OF LAFONTAINE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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 200.302(b) states in part:
"The financial management system of each non-Federal entity must provide for the following
. . .
(2) Accurate, current, and complete disclosure of the financial results of each Federal
award or program in accordance with the reporting requirements set forth in §§ 200.328
and 200.329. . . ."
7 CFR 1780.47 states in part:
"Borrower accounting methods, management reporting and audits. . . .
(e) Borrowers exempt from audits. All borrowers who are exempt from audits, will, within 60
days following the end of each fiscal year, furnish the RUS with annual financial statements,
consisting of a verification of the organization's balance sheet and statement of income and
expense by an appropriate official of the organization. Forms RD 442-2, 'Statement of Budget,
Income and Equity,' and 442-3 may be used.
(f) Management reports. These reports will furnish management with a means of evaluating
prior decisions and serve as a basis for planning future operations and financial strategies. In
those cases where revenues from multiple sources are pledged as security for an RUS loan,
two reports will be required; one for the project being financed by RUS and one combining the
entire operation of the borrower. In those cases where RUS loans are secured by general
obligation bonds or assessments and the borrower combines revenues from all sources, one
management report combining all such revenues is acceptable. The following management
data will be submitted by the borrower to the processing office. These reports at a minimum
will include a balance sheet and income and expense statement. . . .
(2) Annual management reports. Prior to the beginning of each fiscal year the following
will be submitted to the processing office. (If Form RD 442-2 is used as the annual
management report, enter data in column three only of Schedule 1, and complete all
of Schedule 2.)
(i) Two copies of the management reports and proposed 'Annual Budget'.
(ii) Financial information may be reported on Form RD 442-2 which includes Schedule
1, 'Statement of Budget, Income and Equity' and Schedule 2, 'Projected Cash Flow' or
information in similar format.
(iii) A copy of the rate schedule in effect at the time of submission.
INDIANA STATE BOARD OF ACCOUNTS
20
TOWN OF LAFONTAINE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(g) Substitute for management reports. When RUS loans are secured by the general
obligation of the public body or tax assessments which total 100 percent of the debt service
requirements, the State program official may authorize an annual audit to substitute for other
management reports if the audit is received within nine months after the end of the audit
period."
Cause
The Town incorrectly assumed that the reports were filed by the engineering firm coordinating the
grant.
Effect
Without the proper implementation of an effectively designed system of internal controls, the Town
cannot ensure the required reports are filed with the awarding agency. As such, the USDA does not have
accurate and current information to discern the financial status of the Town's project. Furthermore,
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 Town.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the Town's management design and implement a system of internal controls
to ensure that all required reports are filed.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003
Subject: Water and Waste Disposal System for Rural Communities - Equipment
Federal Agency: Department of Agriculture
Federal Program: Water and Waste Disposal System for Rural Communities
Assistance Listings Number: 10.760
Federal Award Number and Year (or Other Identifying Number): CY 2023
Compliance Requirement: Equipment and Real Property Management
Audit Findings: Material Weakness, Other Matters
Condition and Context
The Town had not designed or implemented adequate internal controls and procedures to ensure
that equipment purchased from the grant was included in the Town's capital asset listing. A physical
inventory of equipment was not performed at least once within the last two years.
The lack of internal controls and noncompliance were systemic issues throughout the audit period.
INDIANA STATE BOARD OF ACCOUNTS
17
TOWN OF LAFONTAINE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
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:
"Management requirements. Procedures for managing equipment (including replacement
equipment), whether acquired in whole or in part under a Federal award, until disposition takes
place will, as a minimum, meet the following requirements:
(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.
. . ."
Cause
The Town was not aware of the compliance requirement.
Effect
Without the proper implementation of an effectively designed system of internal controls, the Town
cannot ensure the required assets are included in the capital asset listing. Furthermore, 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 Town.
Questioned Costs
There were no questioned costs identified.
INDIANA STATE BOARD OF ACCOUNTS
18
TOWN OF LAFONTAINE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Recommendation
We recommended that management of the Town design and implement a proper system of internal
controls, including policies and procedures that would provide segregation of duties, to ensure capital
assets purchased from the grant are included in the Town's capital asset ledger and that a physical
inventory is performed every two years.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-004
Subject: Water and Waste Disposal System for Rual Communities - Reporting
Federal Agency: Department of Agriculture
Federal Program: Water and Waste Disposal System for Rural Communities
Assistance Listings Number: 10.760
Federal Award Number and Year (or Other Identifying Number): CY 2023
Compliance Requirement: Reporting
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
The Town had not designed or implemented adequate internal controls and procedures to ensure
that reports were prepared, accurate, and submitted in accordance with the applicable compliance
requirements for the federal grant. The United States Department of Agriculture (USDA) requires the
following reports be submitted annually:
Statement of Budget, Income, and Equity (Form RD 442-2)
Balance Sheet (Form RD 442-3)
The Form RD 442-2 covers financial operations relating to the Town's water main replacement
project and the Form RD 442-3 presents the financial status of the project. In both instances, a borrower
may submit the financial data on other forms, provided the forms are in a similar format and signed and
dated by the organization's official to certify the correctness of the information. Alternatively, an annual
audit may be submitted in lieu of the forms.
The Town was required to file each report, as noted above, during the audit period; however, the
reports were not filed.
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:
INDIANA STATE BOARD OF ACCOUNTS
19
TOWN OF LAFONTAINE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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 200.302(b) states in part:
"The financial management system of each non-Federal entity must provide for the following
. . .
(2) Accurate, current, and complete disclosure of the financial results of each Federal
award or program in accordance with the reporting requirements set forth in §§ 200.328
and 200.329. . . ."
7 CFR 1780.47 states in part:
"Borrower accounting methods, management reporting and audits. . . .
(e) Borrowers exempt from audits. All borrowers who are exempt from audits, will, within 60
days following the end of each fiscal year, furnish the RUS with annual financial statements,
consisting of a verification of the organization's balance sheet and statement of income and
expense by an appropriate official of the organization. Forms RD 442-2, 'Statement of Budget,
Income and Equity,' and 442-3 may be used.
(f) Management reports. These reports will furnish management with a means of evaluating
prior decisions and serve as a basis for planning future operations and financial strategies. In
those cases where revenues from multiple sources are pledged as security for an RUS loan,
two reports will be required; one for the project being financed by RUS and one combining the
entire operation of the borrower. In those cases where RUS loans are secured by general
obligation bonds or assessments and the borrower combines revenues from all sources, one
management report combining all such revenues is acceptable. The following management
data will be submitted by the borrower to the processing office. These reports at a minimum
will include a balance sheet and income and expense statement. . . .
(2) Annual management reports. Prior to the beginning of each fiscal year the following
will be submitted to the processing office. (If Form RD 442-2 is used as the annual
management report, enter data in column three only of Schedule 1, and complete all
of Schedule 2.)
(i) Two copies of the management reports and proposed 'Annual Budget'.
(ii) Financial information may be reported on Form RD 442-2 which includes Schedule
1, 'Statement of Budget, Income and Equity' and Schedule 2, 'Projected Cash Flow' or
information in similar format.
(iii) A copy of the rate schedule in effect at the time of submission.
INDIANA STATE BOARD OF ACCOUNTS
20
TOWN OF LAFONTAINE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(g) Substitute for management reports. When RUS loans are secured by the general
obligation of the public body or tax assessments which total 100 percent of the debt service
requirements, the State program official may authorize an annual audit to substitute for other
management reports if the audit is received within nine months after the end of the audit
period."
Cause
The Town incorrectly assumed that the reports were filed by the engineering firm coordinating the
grant.
Effect
Without the proper implementation of an effectively designed system of internal controls, the Town
cannot ensure the required reports are filed with the awarding agency. As such, the USDA does not have
accurate and current information to discern the financial status of the Town's project. Furthermore,
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 Town.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the Town's management design and implement a system of internal controls
to ensure that all required reports are filed.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.