Finding Text
2022-003 Internal Control and Compliance Finding Related to Temporary Removal of Property a. Condition Our review of compliance and internal control testing in accordance with OMB 2022 Compliance Supplement for Part A. Activities Allowed or Unallowed, and Part B. Allowable Cost/Cost Principles, and Part H. Period of Performance, identified an internal control deficiency relating to temporary property removal. Direct Material costs are recorded to account number 5-3-000 ? Non-Inventory Direct Materials. We performed transaction testing for claimed direct material costs under auditable contracts. We tested thirty-two direct material transactions amounting to $872,022 or 47 percent of the FY 2022 direct material auditable universe. During the physical verification of materials, we identified materials that were shipped for contractor Demos and to other SRC locations. These transfers are subject to the policy and procedures set forth by the SRC MAT-P-540 procedure, which details how SRC employees are to request permission to temporarily remove property from the facility; track property that has been removed; and track the return of property. As a result, we performed internal control testing to ensure the contractor is in compliance with its? policy. We identified two instances where no Temporary Property Removal eForm was created to initiate the transfer of products. There were also no eForms created for the return of materials. Although the product managers were aware of the transfer of materials, there were no formal documented approvals to transfer materials since eForms were not created. Also, there were no updates in the contractor?s asset management system tool (Sunflower). The potential loss of material instigated by the lack of monitoring could result in increased contract costs. Additionally, we had determined two causes of the internal control deficiency based on the auditee's rationale: (1) The employee responsible for one of the transfers was not aware of the requirements outlined in MAT-P-540 due to not being trained or informed of the procedures; and (2) the individuals responsible for the other transfer relied on verbal discussion as a form of approval, rather than actual formal documentation of approvals in accordance with MAT-P-540 that could be reviewed and evaluated. This noncompliance pertains to all Federal Contracts under SRC's R&D cluster. b. Criteria OMB 2022 Compliance Supplement, dated April 2022, for the requirements of Part A. Activities Allowed and Unallowed and Part B. Allowable Costs/Cost Principles, requires us to plan and perform tests of internal control including control activities, which requires policies and procedures to achieve objectives and respond to risks in the internal control system which includes the entity?s information system. We performed testing to determine if: Equipment, inventories, cash, and other assets that are physically secured, periodically accounted for, and reconciled to recorded amounts. Reports and communications including relevant, accurate, and complete information is provided to appropriate individuals on a timely basis. Ongoing or recurring practices that monitor activities or results are demonstrated and evidenced by adequate documentation of the monitoring activity, the results of the monitoring, and timely communication of any actions required due to observed deficiencies or deviations. Procedures are in place to ensure that monitoring is routinely performed. Appropriate levels of management review supporting documentation to ensure accuracy of the reported or billed allowable cost. We reviewed SRC's MAT-P-540, Temporary Property Removal, revision dated August 5, 2016, which states and includes in part: This document describes the process for a SRC employee to request permission to temporarily remove property from the facility; track property that has been removed; and track the return of property. In addition, section 2.0 Roles and Responsibilities of the procedure includes the following: c. Recommendation The auditee should comply with its formal policies and procedures regarding the temporary removal of property. They should ensure the proper eForms are being filled out and approved by the appropriate personnel, and the contractor?s asset management system tool (Sunflower) is being updated when materials are being temporarily transferred from one location to another. The auditee should ensure that all responsible employees are properly trained and made aware of the requirements of its policies and procedures regarding the temporary removal of property. d. Contractor Response SRC concurs to our findings. SRC?s complete response is included in the Corrective Action Plan for Current Year Findings in Appendix 3.