Finding 1074572 (2023-003)

FINDING 2023-003 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): 15-023-447249138 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context Annual reports are to be filed with the awarding agency if the entity does not report on the accrual basis of accounting. As the Town reports on the regulatory basis of accounting, the Town was required to file two reports, the RD 442-2 -Statement of Budget, Income and Equity (RD 442-2) and the RD 442-3 - Balance Sheet (RD 442-3). The RD 442-2 covers financial operations relating to the Town's water or waste disposal project. Whereas the RD 442-3 presents the financial status of the Town's water or waste disposal project. INDIANA STATE BOARD OF ACCOUNTS 18 TOWN OF KINGMAN SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The Town could not provide documentation that the RD 442-3 was submitted. As such, we could not determine the accuracy or the report. The lack of internal controls and noncompliance were isolated to the RD 442-3 report. 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 it had filed the RD 442-3 report. Effect Without the proper implementation of an effectively designed system of internal controls, the Town cannot ensure the required reports are filed with the awarding agency. As such, the awarding agency does 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. Recommendation We recommended that the Town's management strengthen its system of internal controls to ensure that all required reports are filed. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.