Finding 2025-001 LSC Financial Guide § 3.6.2 Physical Inventory Grantor: Legal Services Corporation Program Name: Legal Services Corporation Basic Field Grant CFDA No.: 09.952000 Award No.: Basic Field Grant Award Year: 2025 Repeat Finding From Prior Audit? Yes Finding Type: Significant deficiency Criteria: Section 3.6.2 of the LSC Financial Guide requires recipients to perform and document a physical inventory of all capital assets recorded in the property subsidiary ledger at least once every two years. The inventory should include a physical count of assets, reconciliation of the physical count to the property subsidiary ledger, investigation and resolution of discrepancies, and appropriate approval and documentation for asset disposals or write-offs. Documentation should include the date of the inventory, personnel performing the count, evidence of supervisory review, and reconciliation of differences identified during the inventory process. Condition: During the 2025 audit, management represented that a physical inventory of capital assets was performed during 2024. However, MLSC was unable to provide sufficient documentation to support that the inventory was properly completed in accordance with the LSC Financial Guide. Specifically, we noted the following: • Documentation supporting the physical inventory performed in 2024 was incomplete and did not identify the personnel who performed the inventory, the date of the physical count, or evidence of supervisory review. • The results of the physical inventory were not reconciled to the property subsidiary ledger, and no documentation was available showing that discrepancies, if any, were investigated and resolved. Finding 2025-001 LSC Financial Guide § 3.6.2 Physical Inventory, continued • Documentation supporting asset disposals or write-offs, including management approval, was not available. • Several assets on the fixed asset listing were identified as damaged, inactive, or no longer in service; however, no supporting documentation was maintained to demonstrate that these assets had been evaluated for disposal or removed from the accounting records where appropriate. As a result, we were unable to determine whether the physical inventory performed in 2024 was complete or accurate, or whether the property records accurately reflected the capital assets owned by MLSC as of December 31, 2025. Cause : MLSC did not establish adequate procedures to document the physical inventory process or reconcile the results of the physical inventory to the property subsidiary ledger as required by the LSC Financial Guide. In addition, management did not maintain sufficient documentation to support asset disposals, write-offs, and supervisory review of the inventory process. Effect: Failure to properly perform, reconcile, and document the required physical inventory results in noncompliance with LSC Financial Guide § 3.6.2. Without a reliable and documented physical inventory, MLSC cannot adequately demonstrate the existence, completeness, and accuracy of its capital assets. This increases the risk that capital assets may be misstated, lost, stolen, damaged, or improperly disposed of without timely detection and appropriate accounting treatment. Recommendation: MLSC should strengthen its capital asset inventory procedures to ensure compliance with LSC Financial Guide § 3.6.2. At a minimum, management should: • Perform and document a complete physical inventory of capital assets at least once every two years. • Reconcile the physical inventory results to the property subsidiary ledger and investigate and resolve all differences. • Maintain documentation identifying the date of the inventory, personnel performing the count, evidence of supervisory review, and reconciliation procedures performed. • Maintain written approval and supporting documentation for all asset disposals and write-offs. Finding 2025-001 LSC Financial Guide § 3.6.2 Physical Inventory, continued Management’s Response and Corrective Action Plan: MLSC acknowledges the finding and concurs in part. In response to 2024 audit, MSLC committed to completing a future physical inventory in accordance with the corrective action plan with an expected completion date of June 30, 2026, to include the date of the count, signature of the personnel conducting the inventory, reviewer and proper documentation for any write-offs or disposals, and reconciliation with the subsidiary ledger. The physical inventory was initiated in accordance with the corrective action plan. However, implementation was significantly disrupted by two severe typhoons that impacted the island in April and early of July 2026. These events resulted in prolonged office closures, and the temporary suspension of normal operations, preventing completion of the inventory within the planned timeframe. To date, one office has completed its physical inventory, signed by the person who conducted the inventory and the reviewer, and reconciliation of the physical inventory results to the property subsidiary ledger is currently underway. Responsible person: Chief Fiscal Officer, Jocelyn Mallari Corrective action planned: Complete the physical inventory of all offices; reconcile inventory results to the property subsidiary ledger; investigate any discrepancies identified, resolved and ensure all required inventory documentation is complete, including supervisory review and approvals, is maintained. Assets determined to be missing, obsolete, or no longer in service will be processed in accordance with MLSC’s property management procedures and the Financial Guide. Anticipated completion date: August 31, 2026.