Why isn't the if/else part of my program executing?

The reason that it is not working, is because of line 12.

Instead of overwriting the current upgraded variable, you create a new one in the local scope of that function.

To make it simple, remove local in that case, because the variable already exists.

After doing that, the if statement will pass because the variable was actually changed.

--

Next, implement what incapaz said. If you reference a property in a variable, it stores it's value, not the actual property.

So what you should do, is store the object itself, and only use the property inline to change it.

local block = script.Parent
local Tycoon = game.Workspace.Tycoon
local MoneyMaker = Tycoon.Foundation.Conveyor.MoneyMaker
local MoneyBlock = Tycoon.MoneyBlock
local owner = Tycoon.Owner.Value
local upgrader = Tycoon.Upgrader.MoneyUpgrader
local upgraded = false
local cash = game.Players[owner].leaderstats.Cash

local function Upgraded(hitPart)
	upgraded = true
	print("Upgraded!")
end
upgrader.Touched:Connect(Upgraded)

local function AddMoney(hitPart)
	if upgraded == true then
		print("upgrade complete!")
		cash.Value = cash.Value + 10
		MoneyBlock:Destroy()
		if upgraded == false then
			print("no upgrade!")
			cash.Value = cash.Value + 5
			MoneyBlock:Destroy()
		end
	end 
end
MoneyMaker.Touched:Connect(AddMoney)

Doing so should fix your initial problems. I am not completely sure of your system, but from here you can move on.