Audit 395013

Condition: Out of $263,000 in depreciation expense included in as eligible expenditures to the grant, approximately $240,000 related to vehicles purchased using MTA federal grants (80% federally funded, 20% matched). This amount was incorrectly included in the eligible cost pool, contrary to federal cost principles. Criteria: Per 2 CFR §200.436, depreciation charges must exclude any portion of the cost of buildings and equipment borne by or donated by the federal government. Cause: The inclusion of federally funded vehicle depreciation resulted from inadequate cost allocation practices and insufficient review of depreciation schedules before charging expenses to the grant. Effect: Although $263,000 of depreciation was incorrectly included, the reimbursed amount ($130,294) was fully supported by other allowable costs totaling $1.6 million. Therefore, the unallowable depreciation did not lead to improper use of federal funds or a material misstatement. This issue is isolated and does not indicate a systemic control weakness. Recommendation: Implement stronger internal controls over cost allocation and grant expense reviews, including: - Periodic reconciliation of depreciation schedules against federal funding sources. - Staff training on 2 CFR §200.436 requirements. - Pre-approval process for expenses charged to federal grants. Views of Responsible Officials and Planned Corrective Actions: Management concurs with the finding. Corrective actions will include: - Updating policies to ensure compliance with federal cost principles. - Conducting staff training sessions on allowable costs. - Implementing a review checklist for grant-related expenses to prevent recurrence.

Condition: The Organization did not conduct a physical inventory of vehicles during the audit period as required by supplemental compliance requirements. Criteria: Supplemental compliance requirements mandate that a physical inventory of assets be performed annually to confirm existence and condition. Cause: The lapse occurred due to reliance on alternative asset management controls rather than performing the required annual physical inventory during the audit period. Effect: Although the physical inventory was delayed, mitigating controls such as maintenance logs, GPS tracking, and lifecycle monitoring were in place. These controls reduce the risk of asset misstatement, loss, and operational inefficiencies. As a result, no questioned costs will be reported, and the issue does not indicate systemic weakness. Recommendation: Reinforce compliance with annual physical inventory requirements. Establish a monitoring process to ensure timely completion of physical inventories. Continue leveraging alternative controls but use them as supplements, not substitutes, for physical verification. Views of Responsible Officials and Planned Corrective Actions: Management agrees with the finding. Planned corrective actions include: - Scheduling annual physical inventories and documenting completion. - Updating internal procedures to integrate physical inventory timelines with existing asset management controls. - Assigning responsibility to asset management staff for compliance oversight.