Federal Program: ALN 93.600 Head Start Category: Compliance/internal control significant deficiency Compliance Requirement: Equipment and real property management Criteria: 2 CFR §200.313 (d) establishes that in the management requirements of equipment that regardless of whether equipment is acquired in part or its entirety under the Federal award, the recipient or subrecipient must manage equipment (including replacement equipment) utilizing procedures that meet the following requirements: (1) Property records must include a description of the property, a serial number or another identification number, the source of funding for the property (including the Federal Award Identification Number), the title holder, the acquisition date, the cost of the property, the percentage of the Federal agency contribution towards the original purchase, the location, use and condition of the property, and any disposition data including the date of disposal and sale price of the property. The recipient and subrecipient are responsible for maintaining and updating property records when there is a change in the status of the property. As established by BGCPR's capitalization policy, all items with a unit cost exceeding $5,000 must be capitalized. As per 2 CFR §200.1 equipment means tangible personal property (including information technology systems) having a useful life of more than one year and a per-unit acquisition cost that equals or exceeds the lesser of the capitalization level established by the recipient or subrecipient for financial statement purposes, or $5,000 on June 30, 2025. Condition: BGCPR real and personal property records are not complete and did not follow the program requirements. BGCPR’s fixed asset records include assets acquired using multiple funding sources (federal, state, and private). However, the BGCPR has not implemented a mechanism to clearly identify and distinguish equipment acquired with federal funds within the fixed asset system. As a result, property records for federally funded equipment are incomplete and do not include all data elements required under 2 CFR §200.313(d)(1), including Federal Award Identification Number (FAIN), percentage of federal participation, and information related to location, use, condition, and disposition. In addition, certain equipment acquisitions that exceeded BGCPR’s capitalization threshold were not capitalized in the fixed asset records. Cause: BGCPR did not maintain essential details, such as acquisition costs, funding sources, or the federal award identification numbers. In addition, management did not consistently apply its capitalization policy. Effect or potential effect: As a result of this condition, BGCPR: • Is not in compliance with 2 CFR §200.313(d)(1); • May incur questioned or disallowed costs related to federally funded equipment • Cannot readily identify federally funded equipment for monitoring, reporting, or physical inventory purposes • Is exposed to an increased risk of loss, misuse, or inaccurate reporting of federally funded equipment, which may affect current and future federal funding. Questioned costs: Amount is below the threshold to be considered a questioned cost. Context: Upon testing a sample of twenty one (21) assets, we noted that two (2) equipment acquisitions exceeding the capitalization threshold were not capitalized, four assets lacked an Asset ID identification or tag number, and one asset lacked a serial number. Identification as a repeat finding: As of June 30, 2024, finding 2024-007 was identified under this condition. This finding is still valid for the year ended June 30, 2025. Recommendation: BGCPR must identify all properties acquired with Federal funds and maintain adequate accounting records in accordance with Federal regulations. The program must maintain an automated accounting and record keeping system adequate for effective oversight. Management should strengthen its fixed asset tracking system to ensure compliance with 2 CFR §200.313(d)(1) by: • Implementing a method to clearly identify and track equipment acquired with federal funds within the fixed asset register; • Updating property records to include all required data elements (e.g., FAIN, percentage of federal participation, location, condition, and disposition data) for federally funded equipment; • Establishing formal policies and procedures for recording, monitoring, and disposing of equipment acquired with federal funds; • Performing periodic reviews and physical inventories to ensure completeness and accuracy of federally funded equipment records. Views of officials responsible: BGCPR recognizes that it must keep and improve the asset capitalization processes and policies, particularly within the accounting system of record. It acknowledges the need to strengthen these processes to ensure accurate and compliant management of equipment acquisitions. To address this, during fiscal year 2025-26, BGCPR implemented a system capable of recording, classifying, and monitoring all capital assets in alignment with the criteria established under federal regulation 2 CFR §200. This improvement is essential to ensure that all asset capitalization activities meet regulatory standards and support greater financial transparency and accountability. As a corrective measure, BGCPR will take the following actions: a. A property and inventory coordinator was hired and is responsible for overseeing all aspects of property control and asset management. b. Full Implementation Property software to accurately all property of by BGCPR. The system includes information such as asset identification number, acquisition date, funding source, cost, useful life, depreciation, location, and other relevant details, serving as a support tool for the property records maintained in the accounting system. c. Prepare an updated Property Control Manual, which is pending final approval by senior management. Implement procedures for timely recording of acquisitions, transfers, disposals, and impairments to ensure that asset records remain current and accurate. d. Perfom and complete physical inventory for all Units and Central Office. e. All inventory counts have been entered into the system. f. All property acquired have been recorded in the property software. g. Currently we are in the process of valuation of the physical inventory to reconcile with the accounting records by December 31, 2026. h. Training was provided to personnel involved in asset management and inventory activities to ensure consistent application of established procedures. i. Perform periodic monitoring reviews by finance, compliance, or internal audits to validate adherence to property control policies and inventory requirements. Anticipated Completion Date: December 31, 2026