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FINDING 2024-003 Subject: Water and Waste Disposal System for Rural Communities - Internal Controls 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): 1780-12 Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Finding: Material Weakness Condition and Context An effective internal control system, which would include segregation of duties, was not in place at the Town to ensure compliance with requirements related to the grant agreement and the following compliance requirements: Activities Allowed or Unallowed and Allowable Costs/Cost Principles. There was no documented oversight, review, or approval process in place over federal expenditures related to the grant. Although the Town Council approved grant project-related contracts, individual expenditures did not have a documented review process in place (or consistent Town Council approval) to ensure disbursements made were allowable and in accordance with contract provisions and the grant agreement. Additionally, related grant expenditures from the Town's Sewer Construction fund were not consistently or appropriately recorded in the Town's general ledger. The lack of internal controls was a systemic issue throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 18 TOWN OF NEW MARKET 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). . . ." Cause The Town relied on its Rural Development Grant Administrator to handle approvals of related expenditures, reimbursements, and other grant compliance tasks. The Clerk-Treasurer is new to the position and is still working to implement internal controls over the Town's federal grant programs. Effect Without the proper implementation of an effectively designed system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. It also placed the Town at risk of noncompliance with the grant agreement, as grant related disbursements without adequate review could be unallowable. Questioned Costs There were no questioned costs identified. 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 appropriate reviews, approvals, and oversight of grant related disbursements are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.