FINDING 2024-003 Subject: Water and Waste Disposal System for Rural Communities - Internal Controls 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): 1780-12 Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Finding: Material Weakness Condition and Context An effective internal control system, which would include segregation of duties, was not in place at the Town to ensure compliance with requirements related to the grant agreement and the following compliance requirements: Activities Allowed or Unallowed and Allowable Costs/Cost Principles. There was no documented oversight, review, or approval process in place over federal expenditures related to the grant. Although the Town Council approved grant project-related contracts, individual expenditures did not have a documented review process in place (or consistent Town Council approval) to ensure disbursements made were allowable and in accordance with contract provisions and the grant agreement. Additionally, related grant expenditures from the Town's Sewer Construction fund were not consistently or appropriately recorded in the Town's general ledger. The lack of internal controls was a systemic issue throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 18 TOWN OF NEW MARKET 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). . . ." Cause The Town relied on its Rural Development Grant Administrator to handle approvals of related expenditures, reimbursements, and other grant compliance tasks. The Clerk-Treasurer is new to the position and is still working to implement internal controls over the Town's federal grant programs. 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. It also placed the Town at risk of noncompliance with the grant agreement, as grant related disbursements without adequate review could be unallowable. Questioned Costs There were no questioned costs identified. 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 appropriate reviews, approvals, and oversight of grant related disbursements are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2024-004 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): 1780-12 Compliance Requirement: Equipment and Real Property Management Audit Findings: Material Weakness, Modified Opinion INDIANA STATE BOARD OF ACCOUNTS 19 TOWN OF NEW MARKET SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context The Town had not properly designed and implemented a system of internal controls 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 disbursed federal funds for its Sewer Construction project and added $1,600,438 to its capital asset records in 2024 noted as "Infrastructure." None of the required information, including description of the property, a serial number or another identification number, the source of funding for the property (including the FAIN), the title holder, the acquisition date, the cost of the property, the percentage of the federal agency contribution towards the original purchase, the location, etc., was included in the Town's property/asset records. 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: "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. INDIANA STATE BOARD OF ACCOUNTS 20 TOWN OF NEW MARKET SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (4) Adequate maintenance procedures must be developed to keep the property in good condition. (5) If the non-Federal entity is authorized or required to sell the property, proper sales procedures must be established to ensure the highest possible return." Cause The Town was unaware of the requirements regarding identifying information for assets purchased with federal funds. The Clerk-Treasurer is new to the position and is still working to implement internal controls over the Town's federal grant programs. 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 for assets purchased with federal funds. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2024-005 Subject: Water and Waste Disposal System for Rural Communities - Suspension and Debarment 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): 1780-12 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context An effective internal control system was not in place at the Town to ensure compliance with requirements related to the grant agreement and the suspension and debarment portion of the Procurement and Suspension and Debarment compliance requirement. INDIANA STATE BOARD OF ACCOUNTS 21 TOWN OF NEW MARKET SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Prior to entering into subawards and covered transactions with federal funds, recipients are required to verify that contractors and vendors are not suspended, debarred, or otherwise excluded from receiving those federal funds. "Covered transactions" include, but are not limited to, contracts for goods and services awarded under procurement and nonprocurement transactions (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking SAM exclusions online, collecting a certification from that vendor/contractor, or adding a clause or condition to the covered transaction with that vendor/contractor. The Town had two contracted vendors related to this project with combined federal expenditures of $1,530,838 during the audit period including its engineering and main construction firms. The Town could not provide documentation that procedures were performed to verify that each of these vendors paid from the grant were not excluded or disqualified from participation in federal programs. 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 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause Town officials were unaware of the grant's requirements regarding suspension and debarment. The Town did not have a documented federal procurement policy to ensure that the suspension and debarment status of contractors and vendors receiving federal funds was conducted prior to entering into the covered transactions or contracts. The Clerk-Treasurer is new to the position and is still working to implement internal controls over the Town's federal grant programs. INDIANA STATE BOARD OF ACCOUNTS 22 TOWN OF NEW MARKET SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without the proper implementation of an effectively designed system of internal controls, the Town cannot ensure the vendors paid with federal funds are eligible to participate in federal programs. Any program funds the Town used to pay vendors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions or 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 adopt a federal procurement policy and implement a system of internal controls to ensure that all contractors and vendors that are paid $25,000 or more, all or in-part with federal funds, are not suspended or debarred from participating in federal programs before entering into any covered transactions. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2024-006 Subject: Water and Waste Disposal Systems for Rural Communities - Reporting Federal Agency: Department of Agriculture Federal Program: Water and Waste Disposal Systems for Rural Communities Assistance Listings Number: 10.760 Federal Award Number and Year (or Other Identifying Number): 1780-12 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 sewer construction and improvement 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. INDIANA STATE BOARD OF ACCOUNTS 23 TOWN OF NEW MARKET SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The Town was required to file each report, as noted above, during the audit period; however, the reports were not filed nor was an annual audit filed by the September 30, 2025 Single Audit deadline, as the Town did not report any federal expenditures to the USDA or the Indiana State Board of Accounts. 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). . . ." 7 CFR 1780.47(e) states in part: ". . . 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." Cause The Town was unable to provide documentation to show that the Form RD 442-2 and the Form RD 442-3 reports were filed. The Clerk-Treasurer is new to the position and is still working to implement internal controls over the Town's federal grant programs. Effect Without the proper implementation of an effectively designed system of internal controls, the Town could not ensure that the required reports were filed with the awarding agency. As such, the awarding agency did 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 or 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 24 TOWN OF NEW MARKET SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that the Town's management design and implement a system of internal controls that would provide segregation of duties for the preparation and review of federal reports to ensure appropriate reviews, approvals, and oversight are taking place. Additionally, management should develop policies and procedures to ensure that all required reports are filed timely and accurately and ensure that federal awards are properly reported to both the federal and state regulatory agencies to ensure the federal Single Audit deadline is met. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.