Finding Text
2025-001 – 09.610050 Legal Services Corporation – LSC Section 1631 – Physical Inventory Noncompliance Compliance Requirement: Uniform Guidance – Special Tests and Provisions; LSC Audit Guide – Section 1631 Purchasing and Property Management Criteria: 45 C.F.R. § 1631 requires that a physical inventory of capitalized furniture, fixtures, and equipment be conducted at least once every two years for both LSC and non-LSC related assets and reconciled to the general ledger. These controls are necessary to ensure proper safeguarding and accountability over assets, consistent with governmental internal control principles. Condition: While the Organization kept a live tracking of technology-related inventory, they did not comply with the physical inventory requirement of non-technology inventory, as 7 of 9 locations had not completed a physical inventory within the required two-year period as of fiscal year-end. While two locations completed inventories within the required time frame, the remaining locations had inventory dates of November 2023 or earlier and had not been updated within the required timeframe. Cause: The delay in completing physical inventories was due to (1) staffing limitations, as the responsibility was assigned to a single individual, and (2) that individual being unavailable due to personal leave, with no alternative personnel available to perform the inventories. Additionally, external factors (hurricanes impacting operations late 2024) contributed to delays; however, the absence of backup personnel or control procedures prevented timely completion thereafter. Effect: Failure to perform timely physical inventories increases the risk that (1) capital assets may be lost, stolen or misstated without detection, (2) asset records may not be accurate or complete, and (3) the Organization is not in compliance with LSC property management requirements. Recommendation: We recommend that the Organization (1) ensure controls are functioning, and physical inventories are completed at least biennially for all locations, (2) assign backup personnel or cross-training staff to perform required physical inventories when the primary individual is unavailable, and (3) establish a formal schedule and monitoring process to track completion across all locations, and implement management review procedures to ensure compliance with internal policies and regulatory requirements.