FINDING 2024-001 Subject: Community Development Block Grants/State's program and Non-Entitlement Grants in Hawaii - Equipment and Real Property Management Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/State's program and Non-Entitlement Grants in Hawaii Assistance Listings Number: 14.228 Federal Award Number and Year (or Other Identifying Number): B22DC180001 Pass-Through Entity: Indiana Office of Community and Rural Affairs Compliance Requirement: Equipment and Real Property Management Audit Findings: Material Weakness, Other Matters Condition and Context The Town had not properly designed a system of internal controls in order to ensure compliance with requirements related to the grant agreement and the Equipment and Real Property Management compliance requirement. A property record or capital asset listing is required to be maintained for all equipment purchased with federal grant awards to ensure adequate safeguards are in place to prevent loss or damage of items. The Town used federal funds to pay for renovation work on the North Lift Station Building costing $1,064,127. The building renovations were included in the capital asset listing of the Town; however, it did not include the required property identifying information. The Towns's capital asset listing did not include the following required information: • The use and condition of the property • The percentage of federal participation in the project costs for the federal award under which the property was acquired. • Source of funding for the property (including the federal award identification number [the FAIN]) • The location 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). . . ." INDIANA STATE BOARD OF ACCOUNTS 14 TOWN OF UPLAND SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 The Town did not have adequate internal controls in place to ensure personnel were aware of the federal requirements for assets. The Town was unaware of the requirements regarding identifying information for assets purchased with federal funds. 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, assets purchased with federal dollars were not properly identified in the Town's asset listing. 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 management of the Town establish a proper system of internal controls and develop policies and procedures to ensure asset records include all the necessary information. We also recommended the Town ensure it has a proper understanding of all grant requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.