Finding No.: 2024-006 - Equipment and Real Property Management Identification of the federal program: Federal Agency: U.S. Department of the Interior AL No. and Title: 15.875 Economic, Social and Political Development of the Territories Federal Award No.: Compact of Free Association Program, As Amended Criteria or specific requirement (including statutory, regulatory or other citation): Furthermore, 2 CFR 200.303(a) states that “the recipient and subrecipient must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the 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).” 2 CFR 200.313(d) states 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: a. 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 FAIN), 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. b. A physical inventory of the property must be conducted, and the results must be reconciled with the property records at least once every two years. c. A control system must be in place to ensure safeguards for preventing property loss, damage, or theft. Any loss, damage, or theft of equipment must be investigated. The non-Federal entity must notify the Federal agency or pass-through entity of any loss, damage, or theft of equipment that will have an impact on the program. d. Regular maintenance procedures must be in place to ensure the property is in proper working condition. e. If the recipient or subrecipient is authorized or required to sell the property, proper sales procedures must be in place to ensure the highest possible return”. 2 CFR 200.313(e) states that when original or replacement equipment acquired under a federal award is no longer needed for a federal program (whether the original project or program or other activities currently or previously supported by the federal government), the non-federal entity must request disposition instructions from the federal awarding agency if required by the terms and conditions of the award. Items of equipment with a current per-unit fair market value of $5,000 or less may be retained, sold, or otherwise disposed of with no further obligation to the federal awarding agency. If the federal awarding agency fails to provide requested disposition instructions within 120 days, items of equipment with a current per-unit fair market value in excess of $5,000 may be retained or sold. The federal awarding agency is entitled to the federal interest in the equipment, which is the amount calculated by multiplying the current market value or sale proceeds by the federal agency’s participation in total project costs. Condition: The equipment records did not meet the criteria above and are not effectively maintained. Specifically, we noted the following: 1. Certain information in the equipment records are either incomplete or missing, such as the source of funding for the property (including the FAIN), who holds title, 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. An inventory of equipment has been performed on for at least once every two (2) years. However, the result of the physical inventory was not reconciled with the equipment records. 3. As equipment records are not effectively maintained, it does not appear that the College has effectively developed means to adequately safeguard equipment from loss, damage, or theft, or to reasonably investigate such occurrences. 4. Long-lived assets are not routinely evaluated for possible impairment. Cause: The College lacks adequate internal control policies and procedures over compliance with applicable federal property rules and regulations and lacks effective procedures governing property maintenance, as well as periodic assessment of asset impairment conditions. Moreover, internal control policies and procedures requiring periodic and timely performance and independent review of equipment and real property reconciliations and related general ledger accounts are not effectively implemented. Effect or potential effect: The College is in noncompliance with applicable equipment and real property management requirements. Questioned costs: Undeterminable Context: We are unable to assess the overall cumulative monetary value of the conditions noted above. However, the table below summarizes total capital outlays over the past five years: Identification as a repeat finding, if applicable: 2023-006 Recommendation: College management should establish and strengthen internal control policies and procedures over compliance with applicable federal regulations on equipment and real property management. Specifically, the equipment listing should include all the required information in 2 CFR 200.313(d). Moreover, periodic and timely performance and independent review of equipment and real property reconciliations and related general ledger accounts should be implemented. Lastly, long-lived assets should be routinely evaluated for possible impairment. Views of responsible officials: The College agrees with the finding and provides details in its Corrective Action Plan.