8 most common ways to flunk the Single Audit on Inventory System
Do you have an upcoming Single Audit that includes the Inventory System? Each year the Federal Government provides over $400 billion in grants to State, local and tribal governments, colleges, universities and other non-profit organizations (non-Federal entities). Any organization that expends $750,000 or more of federal assistance in a year is required to undertake an OMB A-133 audit (Single Audit) completed by an independent Certified Public Accountant (CPA). The scope of the audit is conducted in accordance with CFR §200.514.
Inventory/asset management is often overlooked. Failure to meet the Single Audit requirements could result in having to repay grant monies and/or losing access to future Federal funding. According to the Office of the Inspector General, below are the 8 most common findings of the Single Audit when reviewing inventory systems:
1. Inability to account for property and equipment
Effective control and accountability must be maintained for all property and equipment. The organization must be able to account for all pieces of equipment purchased from federal funds. Procedures should be in place to be sure all newly purchased equipment is added promptly to the inventory system.
2.Failure to maintain an equipment inventory with required components.
A federal regulation is very specific as to the required components of an inventory. The following items are required for all inventories: description, date of purchase, vendor, funding source (including FAIN), serial number, unit cost, location, use, title, and condition and disposition information.
3. Lack of sufficient documentation to support purchases
The requisition for purchase of equipment should follow the entities internal control procedures. Procedures should be in place to ensure prior approval of all purchases and provide specifications for the acceptance and issuing the equipment to the proper locations.
4. Insufficient, outdated or no property management procedures or policies
Organizations must have policies or procedures in place for inventory management. These procedures must include equipment use for departments, including those operating a targeted assistance program, and/or neglected and delinquent facilities. The inventory management procedures must include provisions for purchasing of equipment, adding the equipment to the inventory, properly labeling the equipment, adequate safeguards related to the loss, damage, or theft of the equipment, maintenance procedures, and process for conducting a physical inventory and disposition procedures.
5. No physical inventory conducted or not properly documented
A physical inventory of equipment purchased with federal funds shall be taken and the results reconciled with the equipment records at least once every two years. This physical inventory is conducted on all equipment (not just a random sample) to verify the existence of the equipment, determine how the equipment is being used, and the current condition. Documentation shall be maintained of the date and the person conducting the physical inventory. It should be obvious to the monitor or auditor that a physical inventory has been conducted. Any irregularities in the use, location, and/or condition of the equipment should be dealt with and properly documented.
6. Alternate use of equipment (equipment was placed in non-allowable area)
All equipment purchased with federal funds must be in accordance with the regulations of the funding source. The equipment purchased must also be reasonable and necessary for the purpose of the program. Conducting of a physical inventory will ensure that equipment is being used for the purpose in which in which it was purchased.
7. Improper disposal of equipment
The disposition of items that may be lost, stolen, transferred, sold as surplus, or discarded should be so noted on the equipment inventory maintained by the recipient. The recipient should include the date of disposal and sales price or the method used to determine current fair market value. Records must be maintained documenting the serial number or other information identifying the specific item sold, the sale price, and any reimbursement to the federal program. The records also should describe whether the items that were not sold were repurposed, retained or discarded. A record of the date, reason, and method of disposal or sale must be maintained with the equipment inventory.
8. Instances of fraud, waste and abuse
Fraud, waste or abuse could be a potential problem that can drain funds and resources. The legal definition for fraud is any acts, omissions, or concealment involving a breach of legal or equitable duty. Waste and abuse refers to extravagant, careless or needless expenditure of funds or abuse of state resources or property. Waste does not necessarily involve private use or personal gain, but it almost always signifies poor management decisions, practices, or controls. Some possible indicators of equipment and inventory fraud, waste and abuse could be:
- One person in control
- No separation of duties
- Lack of internal controls
- Unexplained or missing documentation
- Altered records
- Non-serial number transactions
- Inventories and financial records not reconciled
- Unauthorized transactions
- Purchasing unneeded supplies or equipment
- Purchasing goods at inflated prices
The Single Audit does not need to be a scary annual event. It should be a proud moment that demonstrates your organization is responsibly managing assets purchased with Federal funds. Asset management systems like eQuip! out-of-the-box conform to the CFR requirements and include tools like the eQuip! Mobile app to help organizations efficiently control the inventory. Give us a call at 866-845-2416 or go here to request a demo of eQuip!.