Finding Text
Information on the federal program:
Subject: Head Start Cluster – Equipment
Federal Agency: Department of Health and Human Services
Federal Program: Head Start Cluster
Assistance Listing Number: 93.600
Compliance Requirement: Equipment
Audit Finding: Material Weakness, Modified Opinion, Noncompliance
Criteria: 45 CFR 75.308(c)(1) states in part:
"For non-construction Federal awards, recipients must request prior approval from HHS
awarding agencies for one or more of the following program or budget-related reasons: . . .
(xi) The recipient wishes to dispose of, replace, or encumber title to real property,
equipment, or intangible property that are acquired or improved with a Federal award.
. . ."
45 CFR 75.323 states:
"Real property, equipment, and intangible property, that are acquired or improved with a
Federal award must be held in trust by the non-Federal entity as trustee for the beneficiaries
of the project or program under which the property was acquired or improved. The HHS
awarding agency may require the non-Federal entity to record liens or other appropriate notices
of record to indicate that personal or real property has been acquired or improved with a
Federal award and that use and disposition conditions apply to the property."
2 CFR 200.313(d) states in part:
"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. . . ."
ELKHART AND ST. JOSEPH COUNTIES HEAD START CONSORTIUM
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
June 30, 2020
20.
Section III – Federal Award Findings and Questioned Costs (Continued)
Condition: An effective internal control system was not in place at the Unit to ensure compliance with
requirements related to the grant agreement and the equipment compliance requirements.
Cause: The Unit's management had not developed a system of internal controls to ensure compliance with
the equipment requirements.
Effect: The failure to establish an effective internal control system allowed noncompliance with the grant
agreement and the compliance requirements. A lack of segregation of duties within an internal control
system could have also allowed the misuse and mismanagement of federal funds and assets by not having
proper oversight, reviews, and approvals over the activities of the programs.
Questioned Costs: None.
Context: During testing, we noted the Unit purchased eight buses in FY20 that each exceeded the $5,000
federal equipment threshold. However, the Unit did not perform any of the required federal compliance
steps for equipment in FY20 (getting approval before making the purchase, adding the buses to the capital
asset listing, and performing an inventory of the buses). The total cost of the buses, excluding interest costs
on the loan, was approximately $649,000. The total annual payments, including interest from the loans, on
the buses is approximately $177,000.
The Unit initially believed the bus purchases were rental agreements which would not fall under federal
compliance requirement. However, the purchases were loan agreements to purchases the buses. The Unit
will own the buses after the final payment is made.
Identification as a repeat finding, if applicable: No.
Recommendation: We recommend that the Unit perform the required steps to maintain compliance with
the federal equipment compliance requirements.
Views of Responsible Officials and Planned Corrective Actions: Management agrees with the finding
and has prepared a corrective action plan.