Federal Agency: U.S. Department of Health and Human Services (HHS)
Pass-through Agency: N/A
Federal Programs Title: Head Start
CFDA Number: 93.600
Compliance Requirement: Property and Equipment
Type of Finding: Equipment and Real Property Management, Financial
Statement. Material Weakness
Responsible Official: Executive Director
Criteria
CFR part 75.320 Equipment:
Management requirements. Procedures for managing equipment (including
replacement equipment), when in whole or in part under a federal award, until
disposition takes place will, as a minimum, meet some of the following
requirements.
(2) A physical inventory of the property must be taken, and the result
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 shall
be investigated.
(4) Adequate maintenance procedures must be developed to keep the property
in good condition.
(5) If the grantee or sub grantee is authorized or required to sell the property,
proper sales procedures must be established to ensure the highest possible
return.
(6) Disposition. When original or replacement equipment acquired under a
federal award is no longer needed for the original project or program or for
other activities currently or previously supported by HHS awarding agency,
except as otherwise provided in Federal statues, regulations, or HHS.
Condition
The Center did not maintain adequate internal control over property and
equipment. The Center did not provide a real and personnel property record of all
the property and equipment acquired this year with Federal funds and Insurance.
Questioned Cost
None determined.
Cause
Center doesn’t have accurate property records of Federal funds to trace the
personal and real property activities that should be reported to Federal funds.
Effect
The Center does not present fairly the financial position of the financial
statements.
Identification of repeated findings:
Repeating findings were found.
Recommendation
A control system must be developed to ensure adequate safeguards to prevent
loss, damage, or theft of the property; loss, damage, of theft must be investigated.
Adequate maintenance procedures must be developed to keep the property in
good condition. The center must identify all properties acquired with Federal
funds and maintain adequate accounting records in accordance with Federal
regulations. The program must maintain an automated accounting and recordkeeping system adequate for effective oversight.
Management Response
The Center prepared a Manual of Fiscal and Administrative Matters Procedures
to ensure a complete process and that management can make decisions based on
it. The documents that we would be used to maintain control of the equipment
are the following according to the administrative and fiscal procedures manual:
Physical Inventory, Delivery report and property receipt, Maintenance Record,
and arrangements (vehicles), Capitalizable Inventory Registry (greater than
5,000), Equipment Transfers and Non-capitalizable Registry.
Also, this includes the “Equipment” Property procedures to comply with CFR
Part 75.320. This way, we guarantee internal control for registration, physical
inventory control, maintenance, and disposal. Through this process, we will
avoid the loss, damage, or theft of this by having control of the Center
equipment. On the other hand, Center acquired an Inventory Module that allows
us to manage your inventory with the help of MIP Module Fund Accounting™
Software. With this module, the Center can track and monitor your inventory in
real time and track inventory movement and lists, among others. This acquired
software will help us to keep an accounting of the equipment from its
registration, location, and depreciation in the Trial Balance and Inventory
Ledger.
Furthermore, Center performed an inventory count during 2021 for the transition
of Head Start Grants, where Center transferred the inventory, land, and
equipment to one of the new grantees. During this inventory count, Center
identified that during the previous transition of grants received by Center in 2016
and 2017, the former administration of Center did not have an inventory report.
Similarly, after Hurricane María 2017, the Center lost several inventories,
including documentation. These two major situations affect the Management of
Center to estimate an adequate amount of lost inventory, among others. At this
point, the Center evaluated the inventory at the market value, instead of the cost
since no evidence of the cost before Hurricane María and previous transitions
with Head Start was recorded. At the time of the transition with Head Start,
Center labeled all the inventory, put the market value to each item, and
depreciated according to the time the transition happened and Hurricane María
Happened. Accordingly, as of the day of this financial statement, a high amount
of inventory has been depreciated and already transferred to a new grantee
without any inventory loss, claims, etc.