Finding Text
Federal Program 23.002 - Appalachian Area Development 14.228 - Community Development Block Grants/State's Program Award Numbers ARC-20698 ARC-20699 CDBG Subgrant: 1137-21-111-PF-01 Federal Agency U.S. Department of Housing and Urban Development (HUD) Appalachian Regional Commission (ARC) Compliance Requirement Equipment and Real Property Management- 2 CFR §200.310-316 Type of Finding Internal Control over Compliance - Material Weakness Compliance - Noncompliance Questioned Costs None Criteria Per 2 CFR §200.310-316 and the 0MB Compliance Supplement, recipients of federal awards must: Maintain detailed property records including description, serial number, acquisition date, cost, location, and condition Conduct a physical inventory at least once every two years and reconcile results Safeguard assets from loss, damage, or theft File a Notice of Federal Interest for real property acquired with federal funds Follow disposition procedures outlined in 2 CFR §200.311-313 Condition The City of Batesville did not conduct a biennial physical inventory of federally funded equipment and real property as required by 2 CFR §200.313(d)(2). Inventory records were incomplete, decentralized, and lacked key data fields such as asset condition and federal funding source. Infrastructure assets funded by CDBG and ARC grants were not classified as real property, and no Notice of Federal Interest was filed. Additionally, the City could not demonstrate that federally funded assets were safeguarded or reconciled against disposals. Cause The City lacked centralized oversight and formal policies for property management. Staff were unaware of federal requirements related to infrastructure classification and inventory procedures. No training or monitoring mechanisms were in place to ensure compliance. Effect The City is at risk of noncompliance with federal property management standards, including failure to conduct biennial inventories and file Notices of Federal Interest for real property. Although the sewer infrastructure funded by CFDA 14.228 and 23.002 is not susceptible to theft or loss due to its fixed nature, the lack of documentation and oversight represents a material weakness in internal control. No questioned costs were identified, as all expenditures were supported and the assets remain in use. Although Assistance Listing 90.201 was not selected for audit, similar deficiencies in property management were observed during preliminary review, suggesting the issue may be systemic across federal programs. Recommendation Implement a centralized inventory system with required data fields Conduct and document biennial physical inventories File Notices of Federal Interest for applicable real property Provide staff training on federal property standards Deveiop written policies for asset classification, inventory, and disposition Establish internal monitoring procedures to ensure ongoing compliance Views of Responsible Officials Management concurs with the finding. The City will implement a centralized inventory system and conduct a physical inventory by March 31, 2026. Training will be provided to relevant staff, and a formal policy will be adopted to ensure compliance with 2 CFR §200.310-316. The City will consult with HUD and ARC regarding the filing of Notices of Federal Interest for infrastructure assets. Management also acknowledges that similar issues were observed in non-audited programs and will extend corrective actions City-wide.