Finding 400957 (2023-002)

Finding 2023-002: Preparation and Maintenance of Equipment Population Program Name: National Railroad Passenger Corporation Grants COVID-19 National Railroad Passenger Corporation Grants Assistance Listing No. 20.315 Federal Award No.: FR-AMT-0020-20 FR-AMT-0022-21 FR-AMT-0026-22 FR-AMT-0028-22 Federal Agency: U.S. Department of Transportation Criteria The code of federal regulations – 2 CFR 200.1 provides the following definition of Equipment: - Equipment means tangible personal property (including information technology systems) having a useful life of more than one year and a per-unit acquisition cost which equals or exceeds the lesser of the capitalization level established by the non-Federal entity for financial statement purposes, or $5,000. The code of federal regulations – 2 CFR 200.313 Equipment requires that: - 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 federal award identification number), who holds title, the acquisition date, 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 sales price of the property (2 CFR 200.313(d)(1)). The code of federal regulations – 2 CFR 200.303 – Internal Controls requires that non-Federal entities must: - 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). Condition The following exceptions to the criteria were observed during the performance of the audit procedures as it relates to completeness and accuracy of equipment population: 1. In reviewing the equipment population provided to EY as part of the audit for FY23, we noted the Company mapped FY23 equipment activity relating to FR-AMT-0020-20, FR-AMT-0022-21 and FR-AMT-0026-22 grants to older funding sources. Per inquiry of management, FY23 Overhauled equipment activity was originally mapped incorrectly to prior year grant awards and fund source years. 2. Population contained an asset that could not be observed as the nature of the purchased equipment was a combination of tools with each individually costing less than $5,000. 3. Population contained an asset that had been replaced in 2021, and as such should not have been included in the equipment listing. Questioned Costs None. Context Population of single audit equipment records is manually prepared each period where funding sources are assigned to each asset based on the unique asset identifier. The data source used by the Capital Accounting team did not take into consideration overhaul activity during the FY23 period that was undertaken over equipment assets acquired in 2014-2016 fiscal years. (Condition 1) One of the 60 selections made for testing could not be observed, as the underlying equipment maintenance systems did not have a record of this item due to the fact that items purchased consisted of tools that were individually less than $5,000 and as such did not meet the definition of Equipment as defined by 2 CFR 200.1. The population provided to EY incorrectly included an exception as described in the Condition section above, indicating that following internal control was not functioning as designed: “Monthly, Lead Accountant, Capital Accounting exports equipment data from PP into an Excel spreadsheet (the Equipment Spreadsheet) and manually determines the eligibility of the equipment. The determination is subsequently reviewed by the Senior Manager, Capital Accounting.” (Condition 2) In the initial population provided, we noted that one of the assets had been retired and replaced in 2021 and should have not been included within the population. This was an error that was not corrected during timely updates of the maintenance records. (Condition 3) Effect Amtrak’s control procedures in place as it relates to the preparation of equipment population were not designed in such a manner that would timely identify the conditions noted. Cause The exception from the criteria noted is attributed to the following cause: 1. Highly manual process required to reconcile data between multiple systems in order to maintain a complete and accurate record for each equipment asset. 2. Internal control procedures as designed are not detailed enough to review equipment purchases to be able to determine eligibility of the asset to be classified as equipment under 2 CFR equipment valuation thresholds. Identification as a Repeat Finding Not a repeat finding. Recommendation To address the Condition identified above, we recommend Amtrak to continue integration of the systems in such a way that appropriate funding source would be tagged to each asset automatically and that required property records would automatically be consolidated into one system of record and updated in that system. Ensure that adequate IT interface and business process application controls over the completeness, accuracy, validity, confidentiality, and availability of transactions and data during application processing (input, processing, output, etc.) are in place. Additionally, management should consider breaking out large purchase orders containing multiple items of equipment and tools under one purchase request, by creating separate level 2 WBSE codes in order to distinguish between different types of items being acquired, in order to be able to provide more appropriate classification.  Views of Responsible Officials Amtrak agrees with the finding related to the equipment population and believes that strengthening procedures around the preparation and review of the population is needed to prevent errors in future populations. Amtrak recognizes that remediation of this finding will require enhancing documentation around the preparation of the population and documenting a set of procedures to follow for reviewing the population. Some of these efforts have already been enacted while others will be developed and implemented prior to September 30, 2024.