Finding 1096316 (2023-003)

FINDING 2023-003 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): CY 2023 Compliance Requirement: Equipment and Real Property Management Audit Findings: Material Weakness, Other Matters Condition and Context The Town had not designed or implemented adequate internal controls and procedures to ensure that equipment purchased from the grant was included in the Town's capital asset listing. A physical inventory of equipment was not performed at least once within the last two years. The lack of internal controls and noncompliance were systemic issues throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 17 TOWN OF LAFONTAINE 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). . . ." 2 CFR 200.313(d) states in part: "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. . . ." Cause The Town was not aware of the compliance requirement. Effect Without the proper implementation of an effectively designed system of internal controls, the Town cannot ensure the required assets are included in the capital asset listing. Furthermore, 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. INDIANA STATE BOARD OF ACCOUNTS 18 TOWN OF LAFONTAINE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 capital assets purchased from the grant are included in the Town's capital asset ledger and that a physical inventory is performed every two years. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.