Finding Text
Finding 2024 – 007: Equipment and Real Property Management (Compliance; Internal Controls Over Compliance) (Repeat Finding: 2023-007) Material Weakness – 93.U01 Title V Criteria: Non-federal entities that acquire, manage, or dispose of equipment and real property purchased with federal funds are required to establish and maintain effective internal controls and inventory procedures to ensure proper management, safeguarding, and accountability of such assets. According to 2 CFR § 200.310–200.314, non-federal entities must adequately safeguard all assets and assure that they are used solely for authorized purposes. Specifically, 2 CFR § 200.313(d) requires that property records be maintained for equipment, a physical inventory be taken at least once every two years and reconciled to the property records, and that adequate maintenance procedures be implemented to keep the property in good condition. Additionally, 2 CFR § 200.407, 200.439, 200.313, and 200.311 require non-federal entities to obtain prior written approval from the federal awarding agency or pass-through entity before using federal funds to purchase or lease equipment (with a per-unit cost of $10,000 or more), land, or buildings. Condition: The Organization was unable to provide sufficient documentation to support compliance with federal equipment and real property management requirements for purchases made under the Title V program. The general ledger did not allow for sufficient identification of transactions related to the Title V program as all expenditures were recorded through journal entries without supporting transaction-level detail. Due to this limitation, we were unable to select equipment purchases for testing or verify if capital purchases were included in the Title V budget. The Organization also does not have an adequate system of controls established to identify, mark, record, or maintain equipment and real property purchased with federal funds, and no periodic physical inventory of such assets is being performed. Questioned Costs: None. Cause: The Organization did not maintain adequate financial records to demonstrate compliance with Uniform Guidance requirements. The lack of a complete and detailed general ledger further limited the ability to track and substantiate transactions. The Organization also does not have sufficiently established control policies and procedures to ensure that prior written approval is obtained for capital expenditures as required by federal regulations and the grant contract. Lastly, the Organization lacks established control policies for identifying, marking, recording, or maintaining equipment and real property, as well as for conducting periodic inventories. Effect: Without sufficient documentation, the Organization was unable to demonstrate compliance with federal equipment purchases, increasing the risk of noncompliance and potential disallowed costs. Additionally, these expenditures may be subject to repayment or further review by the granting agency. Also the Organization is not in compliance with federal requirements for prior written approval of capital expenditures and for equipment and real property management. As a result, there is an increased risk that federal funds may be used for unallowable purposes, and the Organization may be unable to distinguish federally funded property from other property or detect if such property is misplaced or stolen. Recommendation: We recommend that management strengthen documentation and recordkeeping procedures to ensure compliance with federal record retention requirements. The Organization should implement a standardized process for tracking federal grant expenditures, ensuring proper coding within the accounting system, conduct periodic internal reviews to verify completeness and accuracy of financial records, and provide training to finance staff on Uniform Guidance requirements for grant record retention and reporting. We further recommend that the Organization becomes familiar with the requirements of 2 CFR Part 200 and establishes appropriate internal control policies and procedures to ensure that prior written approval is obtained for all capital expenditures with federal funds. Lastly we recommend that the Organization implement procedures for maintaining property records, conducting periodic physical inventories, and ensuring all staff are trained on these requirements. Views of Responsible Officials: See the corrective action plan that accompanies the schedule of findings and questioned costs.