FINDING 2024-001 Subject: Airport Improvement Program, COVID-19 Airports Programs, and Infrastructure Investment and Jobs Act Programs - Equipment and Real Property Management Federal Agency: Department of Transportation Federal Program: Airport Improvement Program, COVID-19 Airports Programs, and Infrastructure Investment and Jobs Act Programs Assistance Listings Number: 20.106 Federal Award Numbers and Years (or Other Identifying Numbers): 3-18-0061-19-2020, 3-18-0061-24-2023, 3-18-0061-25-2023, 3-18-0061-26-2023 Compliance Requirement: Equipment and Real Property Management Audit Findings: Material Weakness, Other Matters Condition and Context Airport Improvement grant funds may be used to acquire real and personal property, supplies, and equipment. Equipment purchased with Airport Improvement 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 County purchased multiple land acquisitions using the Airport Improvement Program funds, which exceeded the County's capitalization threshold, the land acquisitions were not included on an inventory listing. Additionally, the County did not complete a capital asset inventory for airport assets every two years as required. INDIANA STATE BOARD OF ACCOUNTS 14 HENRY COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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: "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 the 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 priced 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 must be investigated. . . ." Cause A proper system of internal controls was not designed by the management of the County. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the County's management of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. The County did not add the acquisitions to the property records as they were unaware that this should be added to property records. Effect Without the proper implementation of an effectively designed system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. INDIANA STATE BOARD OF ACCOUNTS 15 HENRY COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) As a result, not all required elements of the property record were documented for assets acquired with Airport Improvement funds. All assets were not added to the property records. Noncompliance with the provisions of federal regulations and the terms and conditions of the federal award could result in the loss of future federal funding to the County. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the County design and implement a proper system of internal controls, including policies and procedures that would provide segregation of duties to ensure capital assets purchased with federal funds are included on a 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.