Finding Text
FINDING 2025-003 Subject: Water and Waste Disposal System for Rural Communities - Equipment 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 Requirement: Equipment and Real Property Management Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2024-004. Condition and Context The Town had not properly designed and implemented a system of internal controls to ensure compliance with requirements related to the grant agreement and the Equipment and Real Property Management compliance requirement. A property record or capital asset listing is required to be maintained for all equipment purchased with federal grant awards to ensure adequate safeguards are in place to prevent loss or damage of items. The Town disbursed federal funds for its Sewer Construction project and added $4,394,122 to its capital asset records in 2025 noted as "Infrastructure" / "Construction Work in Progress." None of the required information, including description of the property, the source of funding for the property (including the FAIN), the title holder, the percentage of the federal agency contribution towards the original purchase, the location, etc., was included in the Town's property/asset records. 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). . . ." INDIANA STATE BOARD OF ACCOUNTS 18 TOWN OF NEW MARKET SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2 CFR 200.313(d) states: "Management requirements. Procedures for managing equipment (including replacement equipment), whether acquired in whole or in part under a Federal award, until disposition takes place will, as a minimum, meet the following requirements: (1) Property records must be maintained that include a description of the property, a serial number or other identification number, the source of funding for the property (including the FAIN), who holds title, the acquisition date, and cost of the property, percentage of Federal participation in the project costs for the Federal award under which the property was acquired, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sale price of the property. (2) A physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. (3) A control system must be developed to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft must be investigated. (4) Adequate maintenance procedures must be developed to keep the property in good condition. (5) If the non-Federal entity is authorized or required to sell the property, proper sales procedures must be established to ensure the highest possible return." Cause The Town was unsure of the requirements regarding identifying information for assets purchased with federal funds. The corrective action plan from the prior audit had not been implemented. The Clerk-Treasurer is relatively 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 internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, assets purchased with federal dollars were not properly identified in the Town's capital asset listing. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the Town. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town establish a proper system of internal controls and develop policies and procedures to ensure capital asset records include all the necessary information for assets purchased with federal funds and documented individually in the capital asset records. INDIANA STATE BOARD OF ACCOUNTS 19 TOWN OF NEW MARKET SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.