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FINDING 2024-006 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): 1780-12 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context The Town had not designed or implemented adequate internal controls and procedures to ensure that reports were prepared, accurate, and submitted in accordance with the applicable compliance requirements for the federal grant. The United States Department of Agriculture (USDA) requires the following reports be submitted annually: • Statement of Budget, Income, and Equity (Form RD 442-2) • Balance Sheet (Form RD 442-3) The Form RD 442-2 covers financial operations relating to the Town's sewer construction and improvement project, and the Form RD 442-3 presents the financial status of the project. In both instances, a borrower may submit the financial data on other forms, provided the forms are in a similar format and signed and dated by the organization's official to certify the correctness of the information. Alternatively, an annual audit may be submitted in lieu of the forms. INDIANA STATE BOARD OF ACCOUNTS 23 TOWN OF NEW MARKET SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The Town was required to file each report, as noted above, during the audit period; however, the reports were not filed nor was an annual audit filed by the September 30, 2025 Single Audit deadline, as the Town did not report any federal expenditures to the USDA or the Indiana State Board of Accounts. The lack of internal controls and noncompliance were systemic issues throughout the audit period. 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 The Town was unable to provide documentation to show that the Form RD 442-2 and the Form RD 442-3 reports were filed. 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, 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. INDIANA STATE BOARD OF ACCOUNTS 24 TOWN OF NEW MARKET SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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. Additionally, management should develop policies and procedures to ensure that all required reports are filed timely and accurately and ensure that federal awards are properly reported to both the federal and state regulatory agencies to ensure the federal Single Audit deadline is met. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.