FAC Explorer

Audit 302110

FY End
2023-06-30
Total Expended
$25.81M
Findings
4
Programs
1
Organization: Commonwealth of Puerto Rico Department of Natural and Environmental Resources (PR)
Year: 2023 Accepted: 2024-04-01
Auditor: Galindez LLC

Organization Exclusion Status:

Findings

ID Ref Severity Repeat Requirement
391702 2023-001 Significant Deficiency - C
391703 2023-002 Significant Deficiency - A
968144 2023-001 Significant Deficiency - C
968145 2023-002 Significant Deficiency - A

Programs

ALN Program Spent Major Findings
66.458 Capitalization Grants for Clean Water State Revolving Funds $25.81M Yes 2

Contacts

Name Title Type
TPFNBF5X8UC6 Luz Laboy Auditee
7877635757 Taireli Hidalgo Auditor
No contacts on file

Notes to SEFA

Title: Note 1 - Basis of presentation Accounting Policies: a.The Schedule is prepared from the Revolving Fund’s accounting records. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures may or may not be available or may be limited as to reimbursement. b.The financial transactions are recorded by the Revolving Fund in accordance with the terms and conditions of the grants, which are consistent with accounting principles generally accepted in the United States of America. c.Expenditures are recognized in the accounting period in which the liability is incurred, if measurable, or when paid, whichever occurs first. d.The Revolving Fund has elected not to use the 10-percent de minimis indirect costs rate as allowed under the Uniform Guidance. De Minimis Rate Used: N Rate Explanation: The auditee did not use the de minimis cost rate. The Revolving Fund has elected not to use the 10-percent de minimis indirect costs rate as allowed under the Uniform Guidance. The accompanying supplementary Schedule of Expenditures of Federal Awards (the Schedule) includes the federal grant activity of Puerto Rico Water Pollution Control Revolving Loan Fund (“the Revolving Fund”) and is presented on the accrual basis of accounting. The information in the Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in the Schedule may differ from amounts presented in, or used in the preparation of, the Revolving Fund’s financial statements. Because the Schedule presents only a selected portion of the activities of the Revolving Fund, it is not intended to, and does not present the net position, changes in net position, and cash flows of the Revolving Fund.
Title: Note 2 - Summary of significant accounting policies Accounting Policies: a.The Schedule is prepared from the Revolving Fund’s accounting records. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures may or may not be available or may be limited as to reimbursement. b.The financial transactions are recorded by the Revolving Fund in accordance with the terms and conditions of the grants, which are consistent with accounting principles generally accepted in the United States of America. c.Expenditures are recognized in the accounting period in which the liability is incurred, if measurable, or when paid, whichever occurs first. d.The Revolving Fund has elected not to use the 10-percent de minimis indirect costs rate as allowed under the Uniform Guidance. De Minimis Rate Used: N Rate Explanation: The auditee did not use the de minimis cost rate. The Revolving Fund has elected not to use the 10-percent de minimis indirect costs rate as allowed under the Uniform Guidance. a.The Schedule is prepared from the Revolving Fund’s accounting records. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures may or may not be available or may be limited as to reimbursement. b.The financial transactions are recorded by the Revolving Fund in accordance with the terms and conditions of the grants, which are consistent with accounting principles generally accepted in the United States of America. c.Expenditures are recognized in the accounting period in which the liability is incurred, if measurable, or when paid, whichever occurs first. d.The Revolving Fund has elected not to use the 10-percent de minimis indirect costs rate as allowed under the Uniform Guidance.
Title: Note 3 - Assistance Listing Numbers (ALN) Accounting Policies: a.The Schedule is prepared from the Revolving Fund’s accounting records. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures may or may not be available or may be limited as to reimbursement. b.The financial transactions are recorded by the Revolving Fund in accordance with the terms and conditions of the grants, which are consistent with accounting principles generally accepted in the United States of America. c.Expenditures are recognized in the accounting period in which the liability is incurred, if measurable, or when paid, whichever occurs first. d.The Revolving Fund has elected not to use the 10-percent de minimis indirect costs rate as allowed under the Uniform Guidance. De Minimis Rate Used: N Rate Explanation: The auditee did not use the de minimis cost rate. The Revolving Fund has elected not to use the 10-percent de minimis indirect costs rate as allowed under the Uniform Guidance. The Assistance Listing Numbers (ALN) included in the Schedule are determined based on the program name, review of grant contract information and the public descriptions of federal assistance listings published by the U.S. Government on sam.gov. Assistance Listing Numbers are presented for those programs for which such numbers were available.
Title: Note 4 - Capitalization grants Accounting Policies: a.The Schedule is prepared from the Revolving Fund’s accounting records. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures may or may not be available or may be limited as to reimbursement. b.The financial transactions are recorded by the Revolving Fund in accordance with the terms and conditions of the grants, which are consistent with accounting principles generally accepted in the United States of America. c.Expenditures are recognized in the accounting period in which the liability is incurred, if measurable, or when paid, whichever occurs first. d.The Revolving Fund has elected not to use the 10-percent de minimis indirect costs rate as allowed under the Uniform Guidance. De Minimis Rate Used: N Rate Explanation: The auditee did not use the de minimis cost rate. The Revolving Fund has elected not to use the 10-percent de minimis indirect costs rate as allowed under the Uniform Guidance. During the year ended June 30, 2023, loans originated with the U.S. Environmental Protection Agency ("EPA) capitalization grants amounted to $22,060,794, which represent the federal portion of loans originated. For the year ended June 30, 2023, grants disbursed amounted to $3,140,506, which represent the federal share. Grants are not subject to loan or interest charges. The balance of loans previously granted amounting to $431,142,312 is not included in the schedule since the Revolving Fund is not deemed to have continuing compliance with requirements.
Title: Note 5 - Reconciliation of the Schedule with the statement of revenues, expenses and changes in net position Accounting Policies: a.The Schedule is prepared from the Revolving Fund’s accounting records. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures may or may not be available or may be limited as to reimbursement. b.The financial transactions are recorded by the Revolving Fund in accordance with the terms and conditions of the grants, which are consistent with accounting principles generally accepted in the United States of America. c.Expenditures are recognized in the accounting period in which the liability is incurred, if measurable, or when paid, whichever occurs first. d.The Revolving Fund has elected not to use the 10-percent de minimis indirect costs rate as allowed under the Uniform Guidance. De Minimis Rate Used: N Rate Explanation: The auditee did not use the de minimis cost rate. The Revolving Fund has elected not to use the 10-percent de minimis indirect costs rate as allowed under the Uniform Guidance. The following presents a reconciliation between the Schedule with the contributions received from the EPA as presented in the statement of revenues, expenses and changes in net position: For the year ended on June 30, 2023: Amount Expenditures per Schedule of Expenditures of Federal Awards $ 25,807,203 Plus: expenditures incurred in prior years but claimed to the EPA during the the year ended June 30, 2023 341,827 Less: expenditures incurred during the year ended June 30, 2023 that have not been claimed for reimbursement to the EPA (329,499) Contributions from EPA per statement of revenues, expenses and changes in net position $ 25,819,531

Finding Details

Finding 2023-001
Finding No. 2023-001 Cash Management – Drawdowns of funds Federal Program ALN 66.458 - Capitalization Grants for Clean Water State Revolving Funds Name of Federal Agency U.S Environmental Protection Agency Pass-through Entity Puerto Rico Department of Natural and Environmental Resources (DNER) Category Compliance/Significant Deficiency on Internal Control Compliance Requirements Cash Management – Drawdowns of funds Criteria 2 CFR Section 200.305 (b) establishes the following: For non-Federal entities other than states, payments methods must minimize the time elapsing between the transfer of funds from the United States Treasury or the pass-through entity and the disbursement by the non-Federal entity whether the payment is made by electronic funds transfer, or issuance or redemption of checks, warrants, or payment by other means. The non-Federal entity must be paid in advance, provided it maintains or demonstrates the willingness to maintain both written procedures that minimize the time elapsing between the transfer of funds and disbursement by the non-Federal entity, and financial management systems that meet the standards for fund control and accountability as established in this part. Advance payments to a non-Federal entity must be limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements of the non-Federal entity in carrying out the purpose of the approved program or project. The timing and amount of advance payments must be as close as is administratively feasible to the actual disbursements by the non-Federal entity for direct program or project costs and the proportionate share of any allowable indirect costs. The non-Federal entity must make timely payment to contractors in accordance with the contract provisions. Pursuant to § 35.3135(d) The State must agree to expend all funds in the SRF in an expenditious and timely manner. Condition found In two (2) of five (5) drawdowns selected for testing, we found that the disbursements were not transferred to the recipient in a timely manner as follows: Grant award # Date Federal portion Total Date deposited in Revolving Fund bank account Date paid to subrecipient Days elapsed C-72-051-03 10/11/2022 $ 2,723,093.00 $ 2,723,093.00 10/12/2022 10/19/2022 7 C-72-051-03 12/15/2022 1,200,151.81 1,200,151.81 12/16/2022 12/30/2022 14 Cause The delays in the transfer of funds were caused by administrative delays and lack of personnel assigned to carry out these tasks in a timely manner. Effect Advanced funds remained idle at the rotatory fund trust account for an extended amount of time. This also may result in administrative sanctions by the grantor. Questioned Cost None. Context Two (2) of five (5) drawdowns selected for testing were not transferred to the recipient in a timely manner. Identification of a repeat finding This is a not repeat finding from the immediate previous audit. Views of responsible officials and planned corrective actions The management of the Revolving Fund agrees with this finding. Please refer to the corrective action plan section on pages 49-50. Recommendation We recommend management of the Revolving Funds to establish written procedures and proper monitoring that ensure the compliance with the requirements for cash management.
Finding 2023-002
Finding No. 2023-002 -Allowable Activities-Loans repayments Federal Program CFDA 66.458 - Capitalization Grants for Clean Water State Revolving Funds Name of Federal Agency U.S Environmental Protection Agency Pass-through Entity Puerto Rico Department of Natural and Environmental Resources (DNER) Category Compliance/Internal ControlCriteria Under the Clean Water Act, the Clean Water State Revolving Fund is a federal program that provides low-interest loans to eligible entities, such as states, tribes, and municipalities, for the construction of water quality infrastructure projects. The regulations governing the Clean Water State Revolving Fund are outlined in Title 40 of the Code of Federal Regulations (40 CFR), specifically in Part 35. Under § 35.3120 Authorized types of assistance are the following: a) loans, b) refinancing existing debt obligations, c) guarantee or purchase insurance for local debt obligations, d) Guarantee SRF debt obligations, e) Loan guarantees for “sub-State revolving funds, f) Earn interest on fund accounts and g) SRF administrative expenses. Loans may be awarded only if: (i)All principal and interest payments on loans are credited directly to the SRF;(ii) The annual repayment of principal and payment of interest begins not later than one year after project completion;(iii) The loan is fully amortized not later than twenty years after project completion; and (iv) Each loan recipient establishes one or more dedicated sources of revenue for repayment of the loan. In addition, in August 18, 2020, the Puerto Rico Infrastructure Authority (PRIFA) (in its capacity as operating agent for the Revolving Fund), the Puerto Rico Department of Natural and Environmental Resources (DNER) (as administrator of the Revolving Fund) and the Puerto Rico Aqueduct and Sewer Authority (PRASA) entered into a loan agreement (the loan agreement) that authorized PRASA for the application of new loans, as set forth on the loan schedules attached to the loan agreement. As established in the Section 3.3 of the loan agreement, “PRASA shall repay each loan in principal instalments payable to PRIFA for credit to the Fund semi-annually on the dates set forth in the applicable Note; provided, however, that in all events in accordance with the Program requirements, (i) the first (1st) principal instalment with respect to each loan commences not later than the earlier of (A) one (1) year from the construction completion date of the applicable Projects and (B) ten (10) years following the issue date of the applicable Note, and (ii) each loan is required to be paid in full within the earlier of (A) thirty (30) years of the construction completion date of the applicable Projects and (B) forty (40) years of the issue date of the applicable Note”. Also, on August 18, 2020 and as part of the loan agreement, PRASA signed the notes payable related to the loan agreement, which stated the following: “Principal of this Note shall be paid in sixty (60) equal semi-annual installments on January 1 and July 1 of each year, beginning on the earlier of (x) the first July 1 following the date on which the Projects identified on the Loan Schedule for the loan are completed and (y) July 1, 2030”. Furthermore, the notes payable executed with the loan agreement state the following: “Interest on the outstanding principal amount of the loan shall accrue from the date of each disbursement at one percent (1%) per annum and shall be payable on January 1 and July 1 of each year (or if such day is not a business day (as such term is defined in the Trust Agreement), the next preceding business day), commencing on the first January 1 or July 1 after PRASA makes a draw on the loan in accordance with Section 3.2 of the Loan Agreement”. Moreover, 40 CFR 35.3135 (h) State accounting and procedures, establishes the following requirement: “(1) The State must agree to establish fiscal controls and accounting procedures that are sufficient to assure proper accounting for payments received by the SRF, disbursements made by the SRF, and SRF balances at the beginning and end of the accounting period”. Condition found Principal and interest has not been collected from the revolving fund on projects that were completed since before the execution of the loan agreement, which are included as part of the financial agreement dated August 18, 2020. Therefore, repayment of principal and payment of interest should have begun on their respective dates, as set forth in the loan agreement and notes payable executed thereto. In addition, interest’s billings for other projects under agreement have not been submitted and collected on a timely basis. Per the loan agreement, “Interest on the outstanding Principal Amount of the loan shall accrue from the date of each disbursement at one percent (1%) per annum and shall be payable on January 1 and July 1 of each year”. However, the invoices corresponding to the periods of December 31, 2022 and June 30, 2023 were issued and billed on February 2, 2023 and August 7, 2023, respectively. Cause Due to administrative errors and delays, the DNER, as administrator of the Revolving Fund, did not monitor or enforce financial covenants established in loan agreements. Also, accounting records keeping is in excel causing delays on billings. In addition, PRASA failed to communicate with the DNER regarding the completion of the projects, causing the non-compliance with the federal regulations and also the violation of the terms of the loan agreement. Effect Possible consequences for the non-compliance event may include fines or monetary penalties, legal actions, loss of funding, among others. Also, the non-compliance event can negatively impact the reputation of the recipient, leading to a loss of trust and credibility. As stated in 40 CFR 35.3170(a), “failure to satisfy the terms of the capitalization grant agreement, including unmet conditions or assurances or invalid certifications, is grounds for a finding of noncompliance. In addition, if the State does not manage the SRF in a financially sound manner (e.g. allows consistent and substantial failures of loan repayments), the RA may take corrective action as provided under this section”. Also, the 40 CFR 35.3170(c) establishes the following: “If within 60 days of receipt of the noncompliance notice, a State fails to take the necessary actions to obtain the results required by the RA, or to provide an acceptable plan to achieve the results required, the RA shall withhold payments to the SRF until the State has taken acceptable actions. If the State fails to take the necessary corrective action deemed adequate by the RA within twelve months of receipt of the original notice, any withheld payments shall be deobligated and reallotted to other States”. Questioned Cost None. The beginning balance of interest receivable and net position were restated in the accompanying financial statements to correct the error for the understatement of interest receivable of loans from projects completed. Also, no balance or reimbursement is owed to the U.S Environmental Protection Agency or the DNER because of this finding. Context The following table summarizes the loans completed, for which the accumulation of interests and beginning of period of collection had not been commenced on time. Interest receivable not billed or recorded on books during the correct accounting year amounted to $232,559 as of July 1, 2022. ID Proyect Description Loan Amount Final Acceptance of Completion C-72-082-11 Caguas WWTP Degritters- Caguas $ 2,734,303 October 30, 2014 C-72-082-10 Caguas WWTP Generators- Caguas 3,455,410 April 24, 2014 C-72-120-14 Road PR-309 TS Rehabilitation- Hormigueros 3,601,830 February 19, 2016 C-72-104-15 Sewer Sanitary System, Marisol Community- Toa Baja 3,920,610 October 31, 2013 C-72-119-13 Sewer Sanitary System, Las Brumas Community Cayey 269,737 February 28, 2017 $ 13,981,890 Identification of a repeat finding This is a not repeat finding from the immediate previous audit. Views of responsible officials and planned corrective actions The management of the Revolving Fund agrees with this finding. Please refer to the corrective action plan section on pages 49-50. Recommendation We recommend that the DNER and PRIFA institute policies and procedures that stipulate the administrative process and responsible officials regarding the determination of the completion of projects under the loan agreements and the beginning for the periods of repayment of principal and interests to the Revolving Fund. It is critically important that timely and accurate collections be produced to ensure that the goals and purposes of the fund have been achieved and accounted for properly. Also, the administrator of the program should establish stronger internal controls for the monitoring, supervision and enforcement of the compliance requirements on the federal regulations and on the loan agreements. It is critically important that PRASA assumes its responsibility for compliance with the federal regulations and the loan agreement and notes executed thereto, ensuring they have met all the necessary requirements and guidelines; this includes, and its not limited to, following regulations related to financial management, reporting and program implementation. PRASA and the administrator of the Revolving Fund should be proactive in understanding and fulfilling their obligations to maintain compliance. It is essential for PRASA and the administrator of the Revolving Fund to prioritize compliance with federal regulations to avoid consequences and maintain their integrity. In addition, the Revolving Fund’s current computer accounting system is inadequate for the accounting needs of the Revolving Fund. There are numerous off-the-shelf accounting packages that are far more efficient and easier to use. We strongly suggest the purchase or development of a new accounting system, which would benefit the fund in two specific ways: first, it would increase the accounting department’s ability to record daily transactions efficiently and effectively and, second, it would provide management with complete and accurate financial information on a timely basis. This investment should be very worthwhile and beneficial over the years.
Finding 2023-001
Finding No. 2023-001 Cash Management – Drawdowns of funds Federal Program ALN 66.458 - Capitalization Grants for Clean Water State Revolving Funds Name of Federal Agency U.S Environmental Protection Agency Pass-through Entity Puerto Rico Department of Natural and Environmental Resources (DNER) Category Compliance/Significant Deficiency on Internal Control Compliance Requirements Cash Management – Drawdowns of funds Criteria 2 CFR Section 200.305 (b) establishes the following: For non-Federal entities other than states, payments methods must minimize the time elapsing between the transfer of funds from the United States Treasury or the pass-through entity and the disbursement by the non-Federal entity whether the payment is made by electronic funds transfer, or issuance or redemption of checks, warrants, or payment by other means. The non-Federal entity must be paid in advance, provided it maintains or demonstrates the willingness to maintain both written procedures that minimize the time elapsing between the transfer of funds and disbursement by the non-Federal entity, and financial management systems that meet the standards for fund control and accountability as established in this part. Advance payments to a non-Federal entity must be limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements of the non-Federal entity in carrying out the purpose of the approved program or project. The timing and amount of advance payments must be as close as is administratively feasible to the actual disbursements by the non-Federal entity for direct program or project costs and the proportionate share of any allowable indirect costs. The non-Federal entity must make timely payment to contractors in accordance with the contract provisions. Pursuant to § 35.3135(d) The State must agree to expend all funds in the SRF in an expenditious and timely manner. Condition found In two (2) of five (5) drawdowns selected for testing, we found that the disbursements were not transferred to the recipient in a timely manner as follows: Grant award # Date Federal portion Total Date deposited in Revolving Fund bank account Date paid to subrecipient Days elapsed C-72-051-03 10/11/2022 $ 2,723,093.00 $ 2,723,093.00 10/12/2022 10/19/2022 7 C-72-051-03 12/15/2022 1,200,151.81 1,200,151.81 12/16/2022 12/30/2022 14 Cause The delays in the transfer of funds were caused by administrative delays and lack of personnel assigned to carry out these tasks in a timely manner. Effect Advanced funds remained idle at the rotatory fund trust account for an extended amount of time. This also may result in administrative sanctions by the grantor. Questioned Cost None. Context Two (2) of five (5) drawdowns selected for testing were not transferred to the recipient in a timely manner. Identification of a repeat finding This is a not repeat finding from the immediate previous audit. Views of responsible officials and planned corrective actions The management of the Revolving Fund agrees with this finding. Please refer to the corrective action plan section on pages 49-50. Recommendation We recommend management of the Revolving Funds to establish written procedures and proper monitoring that ensure the compliance with the requirements for cash management.
Finding 2023-002
Finding No. 2023-002 -Allowable Activities-Loans repayments Federal Program CFDA 66.458 - Capitalization Grants for Clean Water State Revolving Funds Name of Federal Agency U.S Environmental Protection Agency Pass-through Entity Puerto Rico Department of Natural and Environmental Resources (DNER) Category Compliance/Internal ControlCriteria Under the Clean Water Act, the Clean Water State Revolving Fund is a federal program that provides low-interest loans to eligible entities, such as states, tribes, and municipalities, for the construction of water quality infrastructure projects. The regulations governing the Clean Water State Revolving Fund are outlined in Title 40 of the Code of Federal Regulations (40 CFR), specifically in Part 35. Under § 35.3120 Authorized types of assistance are the following: a) loans, b) refinancing existing debt obligations, c) guarantee or purchase insurance for local debt obligations, d) Guarantee SRF debt obligations, e) Loan guarantees for “sub-State revolving funds, f) Earn interest on fund accounts and g) SRF administrative expenses. Loans may be awarded only if: (i)All principal and interest payments on loans are credited directly to the SRF;(ii) The annual repayment of principal and payment of interest begins not later than one year after project completion;(iii) The loan is fully amortized not later than twenty years after project completion; and (iv) Each loan recipient establishes one or more dedicated sources of revenue for repayment of the loan. In addition, in August 18, 2020, the Puerto Rico Infrastructure Authority (PRIFA) (in its capacity as operating agent for the Revolving Fund), the Puerto Rico Department of Natural and Environmental Resources (DNER) (as administrator of the Revolving Fund) and the Puerto Rico Aqueduct and Sewer Authority (PRASA) entered into a loan agreement (the loan agreement) that authorized PRASA for the application of new loans, as set forth on the loan schedules attached to the loan agreement. As established in the Section 3.3 of the loan agreement, “PRASA shall repay each loan in principal instalments payable to PRIFA for credit to the Fund semi-annually on the dates set forth in the applicable Note; provided, however, that in all events in accordance with the Program requirements, (i) the first (1st) principal instalment with respect to each loan commences not later than the earlier of (A) one (1) year from the construction completion date of the applicable Projects and (B) ten (10) years following the issue date of the applicable Note, and (ii) each loan is required to be paid in full within the earlier of (A) thirty (30) years of the construction completion date of the applicable Projects and (B) forty (40) years of the issue date of the applicable Note”. Also, on August 18, 2020 and as part of the loan agreement, PRASA signed the notes payable related to the loan agreement, which stated the following: “Principal of this Note shall be paid in sixty (60) equal semi-annual installments on January 1 and July 1 of each year, beginning on the earlier of (x) the first July 1 following the date on which the Projects identified on the Loan Schedule for the loan are completed and (y) July 1, 2030”. Furthermore, the notes payable executed with the loan agreement state the following: “Interest on the outstanding principal amount of the loan shall accrue from the date of each disbursement at one percent (1%) per annum and shall be payable on January 1 and July 1 of each year (or if such day is not a business day (as such term is defined in the Trust Agreement), the next preceding business day), commencing on the first January 1 or July 1 after PRASA makes a draw on the loan in accordance with Section 3.2 of the Loan Agreement”. Moreover, 40 CFR 35.3135 (h) State accounting and procedures, establishes the following requirement: “(1) The State must agree to establish fiscal controls and accounting procedures that are sufficient to assure proper accounting for payments received by the SRF, disbursements made by the SRF, and SRF balances at the beginning and end of the accounting period”. Condition found Principal and interest has not been collected from the revolving fund on projects that were completed since before the execution of the loan agreement, which are included as part of the financial agreement dated August 18, 2020. Therefore, repayment of principal and payment of interest should have begun on their respective dates, as set forth in the loan agreement and notes payable executed thereto. In addition, interest’s billings for other projects under agreement have not been submitted and collected on a timely basis. Per the loan agreement, “Interest on the outstanding Principal Amount of the loan shall accrue from the date of each disbursement at one percent (1%) per annum and shall be payable on January 1 and July 1 of each year”. However, the invoices corresponding to the periods of December 31, 2022 and June 30, 2023 were issued and billed on February 2, 2023 and August 7, 2023, respectively. Cause Due to administrative errors and delays, the DNER, as administrator of the Revolving Fund, did not monitor or enforce financial covenants established in loan agreements. Also, accounting records keeping is in excel causing delays on billings. In addition, PRASA failed to communicate with the DNER regarding the completion of the projects, causing the non-compliance with the federal regulations and also the violation of the terms of the loan agreement. Effect Possible consequences for the non-compliance event may include fines or monetary penalties, legal actions, loss of funding, among others. Also, the non-compliance event can negatively impact the reputation of the recipient, leading to a loss of trust and credibility. As stated in 40 CFR 35.3170(a), “failure to satisfy the terms of the capitalization grant agreement, including unmet conditions or assurances or invalid certifications, is grounds for a finding of noncompliance. In addition, if the State does not manage the SRF in a financially sound manner (e.g. allows consistent and substantial failures of loan repayments), the RA may take corrective action as provided under this section”. Also, the 40 CFR 35.3170(c) establishes the following: “If within 60 days of receipt of the noncompliance notice, a State fails to take the necessary actions to obtain the results required by the RA, or to provide an acceptable plan to achieve the results required, the RA shall withhold payments to the SRF until the State has taken acceptable actions. If the State fails to take the necessary corrective action deemed adequate by the RA within twelve months of receipt of the original notice, any withheld payments shall be deobligated and reallotted to other States”. Questioned Cost None. The beginning balance of interest receivable and net position were restated in the accompanying financial statements to correct the error for the understatement of interest receivable of loans from projects completed. Also, no balance or reimbursement is owed to the U.S Environmental Protection Agency or the DNER because of this finding. Context The following table summarizes the loans completed, for which the accumulation of interests and beginning of period of collection had not been commenced on time. Interest receivable not billed or recorded on books during the correct accounting year amounted to $232,559 as of July 1, 2022. ID Proyect Description Loan Amount Final Acceptance of Completion C-72-082-11 Caguas WWTP Degritters- Caguas $ 2,734,303 October 30, 2014 C-72-082-10 Caguas WWTP Generators- Caguas 3,455,410 April 24, 2014 C-72-120-14 Road PR-309 TS Rehabilitation- Hormigueros 3,601,830 February 19, 2016 C-72-104-15 Sewer Sanitary System, Marisol Community- Toa Baja 3,920,610 October 31, 2013 C-72-119-13 Sewer Sanitary System, Las Brumas Community Cayey 269,737 February 28, 2017 $ 13,981,890 Identification of a repeat finding This is a not repeat finding from the immediate previous audit. Views of responsible officials and planned corrective actions The management of the Revolving Fund agrees with this finding. Please refer to the corrective action plan section on pages 49-50. Recommendation We recommend that the DNER and PRIFA institute policies and procedures that stipulate the administrative process and responsible officials regarding the determination of the completion of projects under the loan agreements and the beginning for the periods of repayment of principal and interests to the Revolving Fund. It is critically important that timely and accurate collections be produced to ensure that the goals and purposes of the fund have been achieved and accounted for properly. Also, the administrator of the program should establish stronger internal controls for the monitoring, supervision and enforcement of the compliance requirements on the federal regulations and on the loan agreements. It is critically important that PRASA assumes its responsibility for compliance with the federal regulations and the loan agreement and notes executed thereto, ensuring they have met all the necessary requirements and guidelines; this includes, and its not limited to, following regulations related to financial management, reporting and program implementation. PRASA and the administrator of the Revolving Fund should be proactive in understanding and fulfilling their obligations to maintain compliance. It is essential for PRASA and the administrator of the Revolving Fund to prioritize compliance with federal regulations to avoid consequences and maintain their integrity. In addition, the Revolving Fund’s current computer accounting system is inadequate for the accounting needs of the Revolving Fund. There are numerous off-the-shelf accounting packages that are far more efficient and easier to use. We strongly suggest the purchase or development of a new accounting system, which would benefit the fund in two specific ways: first, it would increase the accounting department’s ability to record daily transactions efficiently and effectively and, second, it would provide management with complete and accurate financial information on a timely basis. This investment should be very worthwhile and beneficial over the years.