Port of Houston Authority

Finding: Equipment Diesel Emissions Reduction Act (DERA) National Grants Federal Agency: U.S. Environmental Protection Agency Assistance Listing Number: 66.039 Federal Award Year: FY2025 Criteria: 2 CFR §200.313(d)(2) requires that a physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. This requirement applies to equipment acquired under a federal award, regardless of whether the entity is a state or local government, unless state law provides stricter requirements. Condition: The Authority requires a physical inventory of all equipment to be completed and documented annually. However, the Authority could not provide adequate documentation to support that a physical inventory of equipment purchased with federal grant funds was performed and that there was a reconciliation of the property records to the physical inventory listing. Cause: The condition occurred because the Authority’s physical inventory procedures do not include a requirement for positive confirmation of inventory results, and monitoring controls are not performed to ensure that a physical inventory was performed and documented in accordance with Uniform Guidance requirements. Effect or Potential Effect: Failure to perform and reconcile a physical inventory of grant-funded equipment increases the risk that equipment may be lost, stolen, or misused without timely detection. Questioned Costs: None Repeat Finding: No Recommendation: We recommend the Authority: 1. Enhance the formal procedures to include positive confirmation of the physical inventory performed by each department. 2. Retain documentation of the inventory counts and reconciliations for audit and monitoring purposes. Views of Responsible Officials and Planned Corrective Actions: Management acknowledges the audit recommendation to strengthen controls over physical inventory procedures and documentation. We agree that formalizing these processes will enhance accountability, transparency, and audit readiness. To address the first recommendation, management will update existing inventorypolicies and procedures to require formal, documented positive confirmation of physical inventory counts performed by each department. This will include signed attestations or electronic approvals from designated department representatives verifying that counts have been completed accurately and in accordance with established guidelines. Standardized templates and timelines will be implemented to ensure consistency across all departments. Regarding the second recommendation, management will establish a centralized process for retaining inventory count documentation and reconciliation records. All supporting documentation, including count sheets, variance analyses, and reconciliation summaries, will be maintained in accordance with the organization's record retention policy. This will support ongoing monitoring activities and ensure documentation is readily available for audit review. Implementation of these enhancements is expected to be completed by September 30, 2026. Management is committed to continuous improvement of internal controls and appreciates [the auditor]’ recommendations.