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Finding 2024-004 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): 15-048-349178652 Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Condition and Context Recipients of the Water and the Waste Disposal Systems for Rural Communities award funds are required to submit the RD 442-2 (Statement of Budget, Income and Equity) and the RD 442-3 (Balance Sheet) or the annual audit may be submitted in lieu of those forms. There was no documented oversight, review, or approval process to ensure the required RD 442-2 or an annual report were completed and submitted timely and accurately to the U.S. Department of Agriculture (USDA). The Town submitted the RD 442-3 but did not submit the RD 442-2 or an annual report. The RD 442-3 that was submitted was not accurate and overstated current assets by $252,427. 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 A proper system of internal controls was not designed by the management of the Town. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the Town's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. The Town had a newly elected official as of January 1, 2024, who was not familiar with the required reports and resulted in one report being inaccurate and another report not being filed. 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. 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. Management should develop policies and procedures to ensure that all required reports are filed timely and accurately. We also recommended that the current official gain a thorough understanding of the grant requirements to ensure compliance. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.