Audit 403156

Criteria or specific requirement: In accordance with 2 CFR § 200.313(d)(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, the location, use and condition of the property, and any ultimate disposition data. Additionally, 2 CFR § 200.313(d)(2) requires that a physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. Condition: The District’s current capital asset listing does not contain the required informational elements to meet federal compliance requirements. Specifically, the listing lacks the source of funding, the percentage of federal participation, and the Federal Award Identification Number (FAIN), and no other listing of assets acquired with federal funds is maintained with this required information. Furthermore, assets acquired with federal funds were not individually tagged or identified as federal property within the District's inventory system. Cause: The District has not historically utilized federal awards for significant equipment acquisitions. Consequently, existing internal control policies and financial reporting templates were not updated to incorporate the specific data retention requirements mandated by the Uniform Guidance, nor was an alternative equipment inventory maintained for those assets acquired with Federal funds. Effect of potential effect: The District is not in compliance with federal property management standards. Failure to maintain detailed records and physical tags increases the risk that federally funded assets could be improperly disposed of, lost, or diverted to non-federal use without the required notification to the pass-through entity or federal awarding agency. Questioned costs: Known questioned costs are $162,447, representing the value of equipment with deficient records. Likely questioned costs were estimated at $248,198, based on an extrapolated error rate of 11.25% applied to total program vendor disbursements. Repeat finding: No Recommendation: We recommend the following enhancements, improvements and controls: Policy Enhancement: Management should update the District’s formal capitalization and inventory policies to explicitly include the data elements required by 2 CFR § 200.313. Process Improvement: The Finance Department should maintain a dedicated sub-ledger for equipment acquired with federal funds that includes all required reporting elements. Physical Controls: All equipment purchased with federal funds should be physically tagged with a unique identifier that correlates to the inventory listing, clearly noting the federal origin of the asset. Reconciliation: Perform a one-time retroactive update to the current inventory for all active federally funded assets to ensure all required fields are populated. Views of responsible officials: NASD will add the required tracking elements to the Capital asset listing in order to meet the federal compliance requirements. NASD will specifically add the funding source, percentage of federal participation and the Federal Award Identification Number (FAIN). NASD will also properly tag and identify the physical assets.