Audit 351216

Finding Reference 2024-02 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Matching, Level of Effort, Earmarking Type of Finding: Significant Deficiency on Internal Control and Noncompliance Condition: From a sample of sixty federal construction projects examined, we noticed the following compliance deficiencies: 1. For two projects, the toll credit usage reported in the Authority’s Toll Credits Report differed from the amounts reported in the Federal-Aid Project Agreements as approved by the Federal Highway Administration (FHWA). 2. For one project, the Authority was unable to provide sufficient evidence for the auditors to validate the toll credit usage amount during the fiscal year. A similar finding was reported during the prior year’s single audit as finding number 2023-04. Criteria: In accordance with the signed Memorandum of Understanding (MOU) between the Authority and FHWA (signed on February 25, 2016), the Authority shall implement modifications to its processes for approving, tracking, and reconciling toll credits as identified by the FHWA and submit a report (i.e., Toll Credits Report) and a certification to FHWA ascertaining that it has implemented these modifications. FHWA shall accurately identify the amount of toll credits available for use by the Authority and identify the modifications that the Authority must make to its processes for approving, tracking, and reconciling toll credit usage, as applicable. Cause: The causes of this finding include: 1) Recordkeeping and Personnel Issues: The Authority has implemented a recordkeeping system endorsed by FHWA to monitor toll credit usage. However, it was observed that the Authority lacks sufficient personnel designated to oversight and review of the toll credits reporting process. This has resulted in the reporting procedure being conducted by a single employee without any formal oversight or review by additional staff or management, leading to a lack of checks and balances in this compliance area. 2) Lack of Adequate Internal Controls: The Authority lacks adequate internal control mechanisms in place to ensure the accuracy and completeness of the toll credit usage reporting. This includes the failure to reconcile amounts reported in the Toll Credits Report with those approved of in the Federal-Aid Project Agreements. Effect: Non-compliance with the toll credits matching requirement per the MOU requirements. In addition, the Authority could inadvertently use toll credits for a federal project that may lack toll credits balances. Questioned Costs: Could not be determined Recommendation: To address the identified compliance issues related to the discrepancies in toll credit usage reporting and the lack of sufficient evidence for certain projects, the auditors recommend the following: 1) Strengthen Internal Controls: Enhance internal control procedures to ensure accurate and compliant reporting of toll credit usage. This includes establishing clear guidelines for documentation, reporting, and verification processes related to federal construction projects such as a review by an employee that is independent of the initial reporting process to ensure objectivity. The review should verify the accuracy of the reported toll credit usage against project agreements and supporting documentation. 2) Enhance Documentation Practices: Develop and enforce rigorous documentation practices. Ensure that all relevant documents supporting the toll credit usage, such as agreements, approvals, and calculations, are systematically collected, filed, and readily available for audit purposes. 3) Training and Awareness: Conduct training sessions for staff involved in the reporting and management of federal construction projects. The training should cover the requirements for toll credit usage, the importance of accurate reporting, and the procedures for ensuring compliance with federal guidelines. 4) Regular Reconciliation: Implement regular reconciliation procedures between the toll credits reported in the Authority’s Toll Credits Report and the amounts in the Federal-Aid Project Agreements. Any discrepancies identified should be investigated and resolved promptly. 5) Leverage Technology: Consider the use of accounting or project management software that can help track and report toll credit usage accurately. Automation can reduce human errors and improve the efficiency of the reporting process. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-03 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Special Tests and Provisions – Wage Rate Requirements Type of Finding: Significant Deficiency on Internal Control and Noncompliance Condition: From a sample of twenty-five payroll periods of construction projects examined, we noticed the following: 1) For one construction project, the contractor's payroll for the week of July 3, 2023, through July 9, 2023, was certified on July 27, 2023, exceeding the weekly certification requirement outlined in the Uniform Guidance. 2) For one construction project, the subcontractor's payroll for the week of July 3, 2023, through July 9, 2023, was certified on August 4, 2023, exceeding the weekly certification requirement outlined in the Uniform Guidance. 3) For one construction project, the contractor’s payroll for the week of November 13, 2023, through November 19, 2023, was certified on November 27, 2023, exceeding the weekly certification requirement outlined in the Uniform Guidance. 4) For one construction project, the contractor’s payroll for the week of June 24, 2024, through June 30, 2024, was certified on July 17, 2024, exceeding the weekly certification requirement outlined in the Uniform Guidance. This is a repeat finding from prior year 2023. Although this finding was originally not reported in the 2023 Single Audit Report, during the current audit, we became aware that this issue also involved 2023. Therefore, the 2023 Single Audit Report is in the process of being reissued. In the reissued 2023 Single Audit Report, the finding will be identified as No. 2023-05. Criteria: In accordance with the 2024 Compliance Supplement: Nonfederal entities shall include in their construction contracts subject to the Wage Rate Requirements (which still may be referenced as the Davis-Bacon Act) a provision that the contractor or subcontractor comply with those requirements and the DOL regulations (29 CFR Part 5, Labor Standards Provisions Applicable to Contacts Governing Federally Financed and Assisted Construction). This includes a requirement for the contractor or subcontractor to submit to the nonfederal entity weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance (certified payrolls) (29 CFR sections 5.5 and 5.6; the A-102 Common Rule (section 36(i)(5)); OMB Circular A-110 (2 CFR Part 215, Appendix A, Contract Provisions); 2 CFR Part 176, Subpart C; and 2 CFR section 200.326). Cause: The delays in the certification of payroll weeks are due to several factors, including:  Inefficient payroll processing procedures within the contractor or subcontractor's system.  Lack of oversight and monitoring by the Authority to ensure timely certification of payrolls.  Miscommunication between the contractor, subcontractor, and the Authority regarding certification deadlines. Effect: The failure to certify payrolls on a weekly basis as required by federal regulations can lead to noncompliance with federal regulations, specifically the Davis-Bacon Act and related Department of Labor (DOL) regulations and increased risk of wage underpayments or miscalculations, which may result in financial liabilities for the entity. Questioned Costs: None Recommendation: To address the identified issues, the following corrective actions are recommended:  Implement a Payroll Monitoring System: Establish automated tracking mechanisms to ensure payrolls are certified and submitted within the required weekly timeframe.  Enhance Oversight and Compliance Reviews: Designate a compliance officer or team responsible for verifying that certified payrolls are submitted on time. Perform regular internal audits to identify and correct compliance issues promptly.  Provide Training for Contractors and Subcontractors: Conduct mandatory training sessions on Davis- Bacon Act requirements and payroll certification processes. Ensure all responsible staff understand the federal regulations governing wage rate compliance.  Improve Communication Between Stakeholders: Establish clear communication channels between contractors, subcontractors, and the Authority. Require periodic status updates to ensure timely payroll submission. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-05 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) 21.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Transportation / Department of Treasury Type of Finding: Material Weakness on Internal Control and Noncompliance Condition: During the audit, management repeatedly provided inaccurate versions of the Schedule of Expenditures of Federal Awards (SEFA) to the auditors, requiring multiple revisions to correct errors in the total federal awards expended for programs 20.205 Highway Planning and Construction (Federal-Aid Highway Program) and 21.027 Coronavirus State and Local Fiscal Recovery Funds. Criteria: In accordance with 2 CFR § 200.510(b) (Financial Statements and SEFA Requirements), the auditee must: 1) Prepare an accurate SEFA that includes the total federal awards expended for the period under audit. 2) Ensure the SEFA is complete, accurate, and properly classified by fiscal year. 3) Provide sufficient information to allow auditors to test compliance with federal requirements. Cause: The recurring errors in the SEFA preparation indicate a lack of effective internal controls over preparation of the SEFA, particularly in ensuring that expenditures are accurately classified and reported within the correct fiscal year:  A lack of oversight and reconciliation procedures to ensure expenditures are reported in the correct fiscal year.  Inadequate review processes before submission of the SEFA to the auditors. Effect: The errors in the SEFA resulted in the following issues:  Increased Risk of Material Misstatements within the SEFA – The multiple revisions required to correct significant errors in reported expenditures highlight a heightened risk of material misstatements in the SEFA, which could lead to misrepresentation of federal funding received and expended.  Noncompliance with Uniform Guidance Requirements – The failure to prepare an accurate SEFA resulted in noncompliance with 2 CFR § 200.510(b), which requires the auditee to provide a complete and accurate accounting of federal expenditures for the audit. Questioned Costs: No questioned costs were identified, as the issue relates to the misclassification and misstatement of expenditures, rather than the allowability of costs. Recommendation: To ensure compliance with 2 CFR § 200.510(b) and improve internal controls over SEFA preparation, we recommend that the Authority: 1) Implement a formal review and reconciliation process to ensure federal expenditures are accurately reported in the correct fiscal year. 2) Enhance communication between finance and grant administration personnel to improve accuracy in expenditure classification. 3) Provide additional training to staff responsible for SEFA preparation on Uniform Guidance requirements for federal reporting. 4) Require a final, documented supervisory review of the SEFA before submission for audit to prevent reporting inaccuracies. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-04 Assistance Listing Number 21.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Treasury Compliance Requirement Reporting Type of Finding: Significant Deficiency on Internal Control and Noncompliance Condition: From a sample of eight expenditure reports examined, the auditors noted that five reports were submitted after the due dates established by the pass-through entity. A similar finding was reported during the prior year’s single audit as finding number 2023-03. Criteria: In compliance with the reporting requirements set by the pass-through entity, the Authority must submit expenditure reports on the first and third Friday of each month to disclose expenditure under ALN 21.027. The Uniform Guidance section 200.303 regarding internal controls requires subrecipients to establish, document, and maintain effective internal control over Federal awards that provide reasonable assurance that the management of Federal awards is in compliance with Federal statutes, regulations, and terms and conditions of the Federal awards. This includes accurate financial reporting and proper segregation of duties to prevent any individual from both preparing and reviewing the same transaction or report. Cause: The Authority lacks sufficient personnel assigned to oversee, review and make sure the reports are timely issued to the passthrough entity. This process is conducted by an employee without any formal oversight or review, prior to the submission to the passthrough entity. Effect: The lack of management review, oversight, and late submission of the expenditure reports increases the risk of noncompliance with federal requirements and inaccuracies in reporting over federal funds. Questioned Costs: None Recommendation: To resolve these issues, the Authority should consider the following actions:  Strengthen Internal Controls: Implement stronger internal control procedures to ensure accurate financial reporting and supervision. This should include establishing clear protocols for the timely preparation and review of financial reports, with distinct roles assigned to different individuals to maintain segregation of duties.  Staffing Issues: Take steps to address the employee shortage, either by hiring additional staff or by training existing staff to take on multiple roles, ensuring that duties can be adequately segregated even with limited personnel.  Regular Training and Awareness: Conduct regular training sessions for all relevant staff on compliance with Federal program requirements and the importance of internal controls, including the need for segregation of duties in financial reporting. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-05 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) 21.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Transportation / Department of Treasury Type of Finding: Material Weakness on Internal Control and Noncompliance Condition: During the audit, management repeatedly provided inaccurate versions of the Schedule of Expenditures of Federal Awards (SEFA) to the auditors, requiring multiple revisions to correct errors in the total federal awards expended for programs 20.205 Highway Planning and Construction (Federal-Aid Highway Program) and 21.027 Coronavirus State and Local Fiscal Recovery Funds. Criteria: In accordance with 2 CFR § 200.510(b) (Financial Statements and SEFA Requirements), the auditee must: 1) Prepare an accurate SEFA that includes the total federal awards expended for the period under audit. 2) Ensure the SEFA is complete, accurate, and properly classified by fiscal year. 3) Provide sufficient information to allow auditors to test compliance with federal requirements. Cause: The recurring errors in the SEFA preparation indicate a lack of effective internal controls over preparation of the SEFA, particularly in ensuring that expenditures are accurately classified and reported within the correct fiscal year:  A lack of oversight and reconciliation procedures to ensure expenditures are reported in the correct fiscal year.  Inadequate review processes before submission of the SEFA to the auditors. Effect: The errors in the SEFA resulted in the following issues:  Increased Risk of Material Misstatements within the SEFA – The multiple revisions required to correct significant errors in reported expenditures highlight a heightened risk of material misstatements in the SEFA, which could lead to misrepresentation of federal funding received and expended.  Noncompliance with Uniform Guidance Requirements – The failure to prepare an accurate SEFA resulted in noncompliance with 2 CFR § 200.510(b), which requires the auditee to provide a complete and accurate accounting of federal expenditures for the audit. Questioned Costs: No questioned costs were identified, as the issue relates to the misclassification and misstatement of expenditures, rather than the allowability of costs. Recommendation: To ensure compliance with 2 CFR § 200.510(b) and improve internal controls over SEFA preparation, we recommend that the Authority: 1) Implement a formal review and reconciliation process to ensure federal expenditures are accurately reported in the correct fiscal year. 2) Enhance communication between finance and grant administration personnel to improve accuracy in expenditure classification. 3) Provide additional training to staff responsible for SEFA preparation on Uniform Guidance requirements for federal reporting. 4) Require a final, documented supervisory review of the SEFA before submission for audit to prevent reporting inaccuracies. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-06 Assistance Listing Number 20.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Treasury Compliance Requirement Procurement, Suspension and Debarment Type of Finding: Material Weakness on Internal Control and Material Noncompliance Condition: As part of the audit procedures for Procurement, Suspension, and Debarment, the auditors tested a sample of two procurements. One of the procurements tested involved a federally funded rehabilitation project in the Municipality of Fajardo. However, when the auditors requested procurement documentation, management provided bidding records for a different project located in the Municipality of Toa Alta. Upon reviewing the bid, contract, and supporting documentation, the auditors found no reference to the Fajardo project. Instead, the work was certified and billed to the Authority using an "extra work order" under the project number assigned to the Toa Alta project. Since the Fajardo project was not competitively procured and was improperly included under an unrelated procurement process, the Authority failed to comply with federal procurement regulations. Criteria: In accordance with 2 CFR §§ 200.318–200.327 (Procurement Standards), all non-federal entities must conduct procurement in a manner that ensures full and open competition while adhering to established procurement procedures. Cause: The Authority did not conduct a separate competitive procurement process for the rehabilitation project in the Municipality of Fajardo. Instead, they included the project as part of an existing procurement process for a different project in the Municipality of Toa Alta. This occurred due to inadequate oversight and failure to ensure that federally funded projects follow proper procurement procedures. Effect: By not competitively procuring the Fajardo project and instead billing it as an "extra work order" under an unrelated project, the Authority did not comply with federal procurement regulations. This noncompliance could result in questioned costs, potential repayment of federal funds, and increased scrutiny from oversight agencies. Questioned Costs: $421,462 Recommendation: The Authority should strengthen its procurement controls to ensure that all federally funded projects undergo a proper and independent competitive bidding process. Management should implement additional oversight mechanisms, such as enhanced review procedures and staff training, to prevent the misallocation of contracts. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-02 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Matching, Level of Effort, Earmarking Type of Finding: Significant Deficiency on Internal Control and Noncompliance Condition: From a sample of sixty federal construction projects examined, we noticed the following compliance deficiencies: 1. For two projects, the toll credit usage reported in the Authority’s Toll Credits Report differed from the amounts reported in the Federal-Aid Project Agreements as approved by the Federal Highway Administration (FHWA). 2. For one project, the Authority was unable to provide sufficient evidence for the auditors to validate the toll credit usage amount during the fiscal year. A similar finding was reported during the prior year’s single audit as finding number 2023-04. Criteria: In accordance with the signed Memorandum of Understanding (MOU) between the Authority and FHWA (signed on February 25, 2016), the Authority shall implement modifications to its processes for approving, tracking, and reconciling toll credits as identified by the FHWA and submit a report (i.e., Toll Credits Report) and a certification to FHWA ascertaining that it has implemented these modifications. FHWA shall accurately identify the amount of toll credits available for use by the Authority and identify the modifications that the Authority must make to its processes for approving, tracking, and reconciling toll credit usage, as applicable. Cause: The causes of this finding include: 1) Recordkeeping and Personnel Issues: The Authority has implemented a recordkeeping system endorsed by FHWA to monitor toll credit usage. However, it was observed that the Authority lacks sufficient personnel designated to oversight and review of the toll credits reporting process. This has resulted in the reporting procedure being conducted by a single employee without any formal oversight or review by additional staff or management, leading to a lack of checks and balances in this compliance area. 2) Lack of Adequate Internal Controls: The Authority lacks adequate internal control mechanisms in place to ensure the accuracy and completeness of the toll credit usage reporting. This includes the failure to reconcile amounts reported in the Toll Credits Report with those approved of in the Federal-Aid Project Agreements. Effect: Non-compliance with the toll credits matching requirement per the MOU requirements. In addition, the Authority could inadvertently use toll credits for a federal project that may lack toll credits balances. Questioned Costs: Could not be determined Recommendation: To address the identified compliance issues related to the discrepancies in toll credit usage reporting and the lack of sufficient evidence for certain projects, the auditors recommend the following: 1) Strengthen Internal Controls: Enhance internal control procedures to ensure accurate and compliant reporting of toll credit usage. This includes establishing clear guidelines for documentation, reporting, and verification processes related to federal construction projects such as a review by an employee that is independent of the initial reporting process to ensure objectivity. The review should verify the accuracy of the reported toll credit usage against project agreements and supporting documentation. 2) Enhance Documentation Practices: Develop and enforce rigorous documentation practices. Ensure that all relevant documents supporting the toll credit usage, such as agreements, approvals, and calculations, are systematically collected, filed, and readily available for audit purposes. 3) Training and Awareness: Conduct training sessions for staff involved in the reporting and management of federal construction projects. The training should cover the requirements for toll credit usage, the importance of accurate reporting, and the procedures for ensuring compliance with federal guidelines. 4) Regular Reconciliation: Implement regular reconciliation procedures between the toll credits reported in the Authority’s Toll Credits Report and the amounts in the Federal-Aid Project Agreements. Any discrepancies identified should be investigated and resolved promptly. 5) Leverage Technology: Consider the use of accounting or project management software that can help track and report toll credit usage accurately. Automation can reduce human errors and improve the efficiency of the reporting process. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-03 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Special Tests and Provisions – Wage Rate Requirements Type of Finding: Significant Deficiency on Internal Control and Noncompliance Condition: From a sample of twenty-five payroll periods of construction projects examined, we noticed the following: 1) For one construction project, the contractor's payroll for the week of July 3, 2023, through July 9, 2023, was certified on July 27, 2023, exceeding the weekly certification requirement outlined in the Uniform Guidance. 2) For one construction project, the subcontractor's payroll for the week of July 3, 2023, through July 9, 2023, was certified on August 4, 2023, exceeding the weekly certification requirement outlined in the Uniform Guidance. 3) For one construction project, the contractor’s payroll for the week of November 13, 2023, through November 19, 2023, was certified on November 27, 2023, exceeding the weekly certification requirement outlined in the Uniform Guidance. 4) For one construction project, the contractor’s payroll for the week of June 24, 2024, through June 30, 2024, was certified on July 17, 2024, exceeding the weekly certification requirement outlined in the Uniform Guidance. This is a repeat finding from prior year 2023. Although this finding was originally not reported in the 2023 Single Audit Report, during the current audit, we became aware that this issue also involved 2023. Therefore, the 2023 Single Audit Report is in the process of being reissued. In the reissued 2023 Single Audit Report, the finding will be identified as No. 2023-05. Criteria: In accordance with the 2024 Compliance Supplement: Nonfederal entities shall include in their construction contracts subject to the Wage Rate Requirements (which still may be referenced as the Davis-Bacon Act) a provision that the contractor or subcontractor comply with those requirements and the DOL regulations (29 CFR Part 5, Labor Standards Provisions Applicable to Contacts Governing Federally Financed and Assisted Construction). This includes a requirement for the contractor or subcontractor to submit to the nonfederal entity weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance (certified payrolls) (29 CFR sections 5.5 and 5.6; the A-102 Common Rule (section 36(i)(5)); OMB Circular A-110 (2 CFR Part 215, Appendix A, Contract Provisions); 2 CFR Part 176, Subpart C; and 2 CFR section 200.326). Cause: The delays in the certification of payroll weeks are due to several factors, including:  Inefficient payroll processing procedures within the contractor or subcontractor's system.  Lack of oversight and monitoring by the Authority to ensure timely certification of payrolls.  Miscommunication between the contractor, subcontractor, and the Authority regarding certification deadlines. Effect: The failure to certify payrolls on a weekly basis as required by federal regulations can lead to noncompliance with federal regulations, specifically the Davis-Bacon Act and related Department of Labor (DOL) regulations and increased risk of wage underpayments or miscalculations, which may result in financial liabilities for the entity. Questioned Costs: None Recommendation: To address the identified issues, the following corrective actions are recommended:  Implement a Payroll Monitoring System: Establish automated tracking mechanisms to ensure payrolls are certified and submitted within the required weekly timeframe.  Enhance Oversight and Compliance Reviews: Designate a compliance officer or team responsible for verifying that certified payrolls are submitted on time. Perform regular internal audits to identify and correct compliance issues promptly.  Provide Training for Contractors and Subcontractors: Conduct mandatory training sessions on Davis- Bacon Act requirements and payroll certification processes. Ensure all responsible staff understand the federal regulations governing wage rate compliance.  Improve Communication Between Stakeholders: Establish clear communication channels between contractors, subcontractors, and the Authority. Require periodic status updates to ensure timely payroll submission. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-05 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) 21.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Transportation / Department of Treasury Type of Finding: Material Weakness on Internal Control and Noncompliance Condition: During the audit, management repeatedly provided inaccurate versions of the Schedule of Expenditures of Federal Awards (SEFA) to the auditors, requiring multiple revisions to correct errors in the total federal awards expended for programs 20.205 Highway Planning and Construction (Federal-Aid Highway Program) and 21.027 Coronavirus State and Local Fiscal Recovery Funds. Criteria: In accordance with 2 CFR § 200.510(b) (Financial Statements and SEFA Requirements), the auditee must: 1) Prepare an accurate SEFA that includes the total federal awards expended for the period under audit. 2) Ensure the SEFA is complete, accurate, and properly classified by fiscal year. 3) Provide sufficient information to allow auditors to test compliance with federal requirements. Cause: The recurring errors in the SEFA preparation indicate a lack of effective internal controls over preparation of the SEFA, particularly in ensuring that expenditures are accurately classified and reported within the correct fiscal year:  A lack of oversight and reconciliation procedures to ensure expenditures are reported in the correct fiscal year.  Inadequate review processes before submission of the SEFA to the auditors. Effect: The errors in the SEFA resulted in the following issues:  Increased Risk of Material Misstatements within the SEFA – The multiple revisions required to correct significant errors in reported expenditures highlight a heightened risk of material misstatements in the SEFA, which could lead to misrepresentation of federal funding received and expended.  Noncompliance with Uniform Guidance Requirements – The failure to prepare an accurate SEFA resulted in noncompliance with 2 CFR § 200.510(b), which requires the auditee to provide a complete and accurate accounting of federal expenditures for the audit. Questioned Costs: No questioned costs were identified, as the issue relates to the misclassification and misstatement of expenditures, rather than the allowability of costs. Recommendation: To ensure compliance with 2 CFR § 200.510(b) and improve internal controls over SEFA preparation, we recommend that the Authority: 1) Implement a formal review and reconciliation process to ensure federal expenditures are accurately reported in the correct fiscal year. 2) Enhance communication between finance and grant administration personnel to improve accuracy in expenditure classification. 3) Provide additional training to staff responsible for SEFA preparation on Uniform Guidance requirements for federal reporting. 4) Require a final, documented supervisory review of the SEFA before submission for audit to prevent reporting inaccuracies. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-04 Assistance Listing Number 21.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Treasury Compliance Requirement Reporting Type of Finding: Significant Deficiency on Internal Control and Noncompliance Condition: From a sample of eight expenditure reports examined, the auditors noted that five reports were submitted after the due dates established by the pass-through entity. A similar finding was reported during the prior year’s single audit as finding number 2023-03. Criteria: In compliance with the reporting requirements set by the pass-through entity, the Authority must submit expenditure reports on the first and third Friday of each month to disclose expenditure under ALN 21.027. The Uniform Guidance section 200.303 regarding internal controls requires subrecipients to establish, document, and maintain effective internal control over Federal awards that provide reasonable assurance that the management of Federal awards is in compliance with Federal statutes, regulations, and terms and conditions of the Federal awards. This includes accurate financial reporting and proper segregation of duties to prevent any individual from both preparing and reviewing the same transaction or report. Cause: The Authority lacks sufficient personnel assigned to oversee, review and make sure the reports are timely issued to the passthrough entity. This process is conducted by an employee without any formal oversight or review, prior to the submission to the passthrough entity. Effect: The lack of management review, oversight, and late submission of the expenditure reports increases the risk of noncompliance with federal requirements and inaccuracies in reporting over federal funds. Questioned Costs: None Recommendation: To resolve these issues, the Authority should consider the following actions:  Strengthen Internal Controls: Implement stronger internal control procedures to ensure accurate financial reporting and supervision. This should include establishing clear protocols for the timely preparation and review of financial reports, with distinct roles assigned to different individuals to maintain segregation of duties.  Staffing Issues: Take steps to address the employee shortage, either by hiring additional staff or by training existing staff to take on multiple roles, ensuring that duties can be adequately segregated even with limited personnel.  Regular Training and Awareness: Conduct regular training sessions for all relevant staff on compliance with Federal program requirements and the importance of internal controls, including the need for segregation of duties in financial reporting. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-05 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) 21.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Transportation / Department of Treasury Type of Finding: Material Weakness on Internal Control and Noncompliance Condition: During the audit, management repeatedly provided inaccurate versions of the Schedule of Expenditures of Federal Awards (SEFA) to the auditors, requiring multiple revisions to correct errors in the total federal awards expended for programs 20.205 Highway Planning and Construction (Federal-Aid Highway Program) and 21.027 Coronavirus State and Local Fiscal Recovery Funds. Criteria: In accordance with 2 CFR § 200.510(b) (Financial Statements and SEFA Requirements), the auditee must: 1) Prepare an accurate SEFA that includes the total federal awards expended for the period under audit. 2) Ensure the SEFA is complete, accurate, and properly classified by fiscal year. 3) Provide sufficient information to allow auditors to test compliance with federal requirements. Cause: The recurring errors in the SEFA preparation indicate a lack of effective internal controls over preparation of the SEFA, particularly in ensuring that expenditures are accurately classified and reported within the correct fiscal year:  A lack of oversight and reconciliation procedures to ensure expenditures are reported in the correct fiscal year.  Inadequate review processes before submission of the SEFA to the auditors. Effect: The errors in the SEFA resulted in the following issues:  Increased Risk of Material Misstatements within the SEFA – The multiple revisions required to correct significant errors in reported expenditures highlight a heightened risk of material misstatements in the SEFA, which could lead to misrepresentation of federal funding received and expended.  Noncompliance with Uniform Guidance Requirements – The failure to prepare an accurate SEFA resulted in noncompliance with 2 CFR § 200.510(b), which requires the auditee to provide a complete and accurate accounting of federal expenditures for the audit. Questioned Costs: No questioned costs were identified, as the issue relates to the misclassification and misstatement of expenditures, rather than the allowability of costs. Recommendation: To ensure compliance with 2 CFR § 200.510(b) and improve internal controls over SEFA preparation, we recommend that the Authority: 1) Implement a formal review and reconciliation process to ensure federal expenditures are accurately reported in the correct fiscal year. 2) Enhance communication between finance and grant administration personnel to improve accuracy in expenditure classification. 3) Provide additional training to staff responsible for SEFA preparation on Uniform Guidance requirements for federal reporting. 4) Require a final, documented supervisory review of the SEFA before submission for audit to prevent reporting inaccuracies. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-06 Assistance Listing Number 20.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Treasury Compliance Requirement Procurement, Suspension and Debarment Type of Finding: Material Weakness on Internal Control and Material Noncompliance Condition: As part of the audit procedures for Procurement, Suspension, and Debarment, the auditors tested a sample of two procurements. One of the procurements tested involved a federally funded rehabilitation project in the Municipality of Fajardo. However, when the auditors requested procurement documentation, management provided bidding records for a different project located in the Municipality of Toa Alta. Upon reviewing the bid, contract, and supporting documentation, the auditors found no reference to the Fajardo project. Instead, the work was certified and billed to the Authority using an "extra work order" under the project number assigned to the Toa Alta project. Since the Fajardo project was not competitively procured and was improperly included under an unrelated procurement process, the Authority failed to comply with federal procurement regulations. Criteria: In accordance with 2 CFR §§ 200.318–200.327 (Procurement Standards), all non-federal entities must conduct procurement in a manner that ensures full and open competition while adhering to established procurement procedures. Cause: The Authority did not conduct a separate competitive procurement process for the rehabilitation project in the Municipality of Fajardo. Instead, they included the project as part of an existing procurement process for a different project in the Municipality of Toa Alta. This occurred due to inadequate oversight and failure to ensure that federally funded projects follow proper procurement procedures. Effect: By not competitively procuring the Fajardo project and instead billing it as an "extra work order" under an unrelated project, the Authority did not comply with federal procurement regulations. This noncompliance could result in questioned costs, potential repayment of federal funds, and increased scrutiny from oversight agencies. Questioned Costs: $421,462 Recommendation: The Authority should strengthen its procurement controls to ensure that all federally funded projects undergo a proper and independent competitive bidding process. Management should implement additional oversight mechanisms, such as enhanced review procedures and staff training, to prevent the misallocation of contracts. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.