Re: Management Response to - Section Ill - Federal Awards Findings & Questioned Costs During Fiscal Year 2022 HRDC management acknowledges that there were key changes within the organizational structure including changes to personnel within the employment & training department, as well as, various other operating changes. Included below is management's response to Section Ill - Federal Awards Findings & Questioned Costs for the Fiscal Audit ended June 30, 2022. 2022 - 001 INSURANCE COVERAGE - ALLOWABLE COSTS PRINCIPLES The agency carries adequate insurance coverage for all vehicles and property as required by the Code of Federal Regulations. The agency has a written vehicle inspection and maintenance procedure which includes detailed procedures for vehicle inspection, maintenance, reporting of problems, cleaning procedures, and recordkeeping. The agency followed its procedures for vehicle inspections and maintenance and minor observable damage was noted to the vehicle. Shortly after the inspection, key staffing changes occurred and the manager failed to follow up on the report nor continue to note the damage on subsequent monthly reports. Upon return of the leased vehicle to the dealership, the dealership noted hail damage. While the damage was noted in our inspection reports, the length of time to report such a claim to insurance had expired and would not be covered through an insurance claim. Under CFR Section 200.447 Insurance and Indemnification, losses which could have been covered by permissible insurance are unallowable, however costs incurred because of losses not covered under nominal insurance coverage provided in keeping with sound management practice, and minor losses not covered by insurance are allowable. The agency has interpreted this provision as a loss not covered under nominal insurance coverage provided in keeping with sound management practices which would be an allowable cost under CFR 200.447. The Auditors disagreed with our interpretation of the regulations. The agency will continue to inspect vehicles on a regular basis under procedures that have been in effect and are part of our control systems. In addition program managers and directors will be instructed to continue to include any damage on vehicle inspections reports until fixed. The agency believes this is an isolated instance but will continue to try to ensure that all outstanding items are resolved during any staff transition period. The agency also will consider the interpretation of CFR 200.447 for further clarification on what may be included as allowable costs from granting Agencies and federal regulations.