FINDING 2022-003 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Equipment and Real Property Management Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): CY 2022 Compliance Requirement: Equipment and Real Property Management Audit Findings: Material Weakness, Noncompliance Condition and Context State and Local Fiscal Recovery Funds (SLFRF) may be used to acquire real and personal property, supplies, and equipment. Equipment purchased with SLFRF funds requires management, among other things, to maintain property records, complete a physical inventory, safeguard against loss, and properly maintain the equipment. A property record or capital asset listing which would 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, and use and condition of the property is to be maintained for assets purchased. The County did not maintain adequate property records for assets purchased with SLFRF award funds. A population of 23 assets, totaling $812,524, paid from SLFRF funds during the audit period was identified. A sample of 5 assets, totaling $329, 394, were selected for testing. Of the 5 assets tested, 2 were not added to the property records and 3, while added to the property records, did not have the appropriate identifying information to show the assets were purchased with federal grant funds. Assets purchased with SLFRF award funds are to be used for the originally authorized purpose as long as needed for that purpose, during which time the County must not dispose of or encumber its title or other interests. If the real property is no longer needed for the originally authorized purpose instructions from the federal awarding agency that provide for one of three alternatives are required. The alternatives include retaining title after compensating the federal awarding agency, selling the property and compensating the federal awarding agency or transferring title to the federal awarding agency or to a third-party designated/approved by the federal awarding agency. During the audit period, the County had one disposal. The disposal was a building that was originally purchased with SLFRF grant funds in 2021 for $201,631. At the time of purchase, the County did not obtain the required appraisals, as such the purchase was considered a questioned cost in the prior audit. In 2022, the County had an agreement to sell the building to a non-profit organization for $200,000. However, the County did not adhere to the agreement, nor request instruction from the federal awarding agency. Instead, the County gave the building, without approval from the federal awarding agency, to the non-profit organization. As such, the County did not follow proper protocol for the disposition of real property. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) 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). . . ." 2 CFR 200.313 states in part: ". . . (d) 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 CFR 200.311 states in part: ". . . (c) Disposition. When real property is no longer needed for the originally authorized purpose, the non-Federal entity must obtain disposition instructions from the Federal awarding agency or pass-through entity. The instructions must provide for one of the following alternatives: (1) Retain title after compensating the Federal awarding agency. The amount paid to the Federal awarding agency will be computed by applying the Federal awarding agency's percentage of participation in the cost of the original purchase (and costs of any improvements) to the fair market value of the property. However, in those situations where the non-Federal entity is disposing of real property acquired or improved with a Federal award and acquiring replacement real property under the same Federal award, the net proceeds from the disposition may be used as an offset to the cost of the replacement property. (2) Sell the property and compensate the Federal awarding agency. The amount due to the Federal awarding agency will be calculated by applying the Federal awarding agency's percentage of participation in the cost of the original purchase (and cost of any improvements) to the proceeds of the sale after deduction of any actual and reasonable selling and fixing-up expenses. If the Federal award has not been closed out, the net proceeds from sale may be offset against the original cost of the property. When the non-Federal entity is directed to sell property, sales procedures must be followed that provide for competition to the extent practicable and result in the highest possible return. (3) Transfer title to the Federal awarding agency or to a third party designated/approved by the Federal awarding agency. The non-Federal entity is entitled to be paid an amount calculated by applying the non-Federal entity's percentage of participation in the purchase of the real property (and cost of any improvements) to the current fair market value of the property." Cause A proper system of internal controls was not designed by management of the County. Embedded within a properly designed and implemented internal control system should be controls consisting of policies and procedures. Policies reflect the County's management of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, not all required elements of the property record were documented for assets acquired with SLFRF award funds, nor was an asset properly disposed of. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the County. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the County establish a proper system of internal controls and develop policies and procedures to ensure property records contain all required elements and that assets are properly disposed of. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.