One compliance requirement area that is often overlooked and can be easily disregarded by grantees is equipment and real property management. This is largely due to a lack of understanding of the requirements relating to additions and dispositions of federally funded property and the requirements surrounding the inventory management of equipment. Here is a review of the requirements of equipment and real property management to help you avoid potential compliance and control findings.
When equipment is acquired with federal funding and added to the property records, entities must track certain characteristics: description, serial number, source of funding, acquisition date, cost, and the federal participation rate, just to name a few. These characteristics form the basis of the records the entity needs in order to be compliant when a disposition occurs. Often, all the required elements are not properly included in the property records, such as a capitalization checklist or schedule; thus, the records are not maintained in accordance with the regulations. Examine your current checklist or form that is prepared when equipment (or real property) is acquired and update your documents to ensure all the items required by 2 CFR 200.313 are included. Internal controls over compliance relating to additions should include a documented review of the additions by someone other than the preparer. This will not only largely mitigate any potential findings regarding additions, but will also help mitigate disposition issues, which will be discussed later in this article.
Another essential component for compliance is capital asset inventory management. The requirements relating to inventory management include conducting and reconciling a physical inventory once every two years with the property records, ensuring a control system is in place to adequately safeguard the property, and performing adequate maintenance to keep property in good condition. The sum of these requirements is sound inventory management. The common finding in this area is generally the lack of a physical inventory or at least the documentation of one. Most grantees will keep their assets in working order and have adequate safeguards to prevent theft, but a capital asset inventory may not always be performed. In addition, if one is performed, any variances need to be investigated and resolved. Ensure a capital asset inventory is scheduled and documentation is retained to support that an inventory was taken. Internal monitoring controls over this process should also be implemented to ensure the physical inventory occurs within the scheduled timeframe.
The last component of equipment and real property management is what I believe to be the real goal of the previous requirements imposed by the federal regulations. When assets are disposed of, the federal agency wants to be reimbursed for its share of the asset value. The actual requirement is to request disposition instructions from the federal awarding agency for any dispositions where the fair market value is expected to exceed $5,000. If the federal agency fails to respond with instructions within 120 days, the grantee is absolved of responsibility and can proceed with any action deemed appropriate. The requirements stated above in the additions section may seem excessive, but they are designed to allow for compliance with the disposition requirements. How do you know to request disposition instructions if you never identified the asset as federal in the first place? What if the original purchase was only partially funded with federal funding? The federal agency is only reimbursed for the percentage that it funded, so maintaining property records that support this allocation of federal and non-federal property and equipment (or real property) also helps entities to ensure they are not remitting excess funds back to the federal government.
Findings over this area commonly occur when entities do not request disposition instructions, which is usually a result of not knowing the asset was purchased with federal dollars. Similar to the additions checklist, update the disposal checklist to include a question asking if the asset was federally purchased. If the answer is yes, proceed to asking for further instructions. Internal controls over compliance relating to disposals should include a documented review of the disposals by someone other than the preparer.
Compliance Depends on All Three
These three components are all interrelated and work together to achieve overall compliance with equipment and real property management. A breakdown in any of these three areas will lead to findings, but with recognition of the requirements and properly designed internal controls over compliance, grantees can ensure the data is captured to allow for compliance in the future.
Should you have any questions regarding these matters, please reach out to your local Eide Bailly professional.