Audit 369939

2024-003 FEMA Working Capital Advances (NOT A MAJOR PROGRAM) Compliance Requirement Cash Management Category Material Weakness in Internal Control and Material Noncompliance ALN 97.036 Program Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Agency US Department of Homeland Security Criteria Per 2 CFR §200.305(b)(1), when advances are made by a pass-through entity, the non-federal entity must maintain procedures to minimize the time elapsing between the receipt of federal funds and their disbursement for program purposes. Funds must be disbursed timely and only to meet immediate cash needs. Condition The Authority received FEMA Working Capital Advances through the pass-through entity, Central Office for Recovery, Reconstruction and Resiliency of Puerto Rico (COR3). As of the date of this review, the funds have remained in the Authority’s bank account for over 365 days without being expended. This prolonged retention violates federal cash management requirements under the Uniform Guidance. Cause The Authority lacks sufficient back-office personnel to effectively manage and track federal funds, as well as in-house project managers with the engineering and architectural expertise necessary to efficiently execute the projects tied to the FEMA advances. Additionally, the Authority does not have adequate internal controls or segregation of duties in place to ensure compliance with FEMA program requirements and federal cash management standards. These deficiencies have contributed to delays in project implementation and the prolonged retention of federal funds. Effect The retention of federal funds for over 365 days without use constitutes noncompliance with the cash management requirements of Uniform Guidance. This may result in increased scrutiny, potential repayment obligations, and administrative burden for both the subrecipient and the pass-through entity. Questioned Costs Amount in process to be returned, $8,090,354. Recommendation We recommend that the Authority strengthen its internal controls over cash management by updating its written procedures to ensure that federal advances are disbursed based on immediate cash needs, in accordance with 2 CFR §200.305(b). The Authority should implement a cash flow forecasting process to support the timing and amount of advances, assign responsibility to specific personnel for monitoring the aging and use of federal funds, and conduct periodic internal reviews to identify and address delays in fund disbursement. Additionally, staff involved in the management of federal funds should receive training on applicable cash management requirements under Uniform Guidance to ensure consistent compliance. Views of Responsible Official (Unaudited) Refer to Corrective Action Plan.

2024-004 Reserve Account (NOT A MAJOR PROGRAM) Compliance Requirement Cash Management Category Material weakness in Internal Control and Material Noncompliance ALN 10.770 Program Water and Waste Disposal Loans and Grants (Section 306C) Agency US Department of Agriculture (Rural Development) Criteria 2 CFR § 200.303 – Internal Controls, the non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in ‘Standards for Internal Control in the Federal Government’ issued by the Comptroller General of the United States or the ‘Internal Control—Integrated Framework’ issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).” Water and Waste System Grant Agreement, Section 4, Protection and Disposition of the Funds outlines the reserve account requirements: (c) Reserve Account - From the remaining funds in the General Account, after transfers and payments required in (b) and (c), there shall be set aside into an account(s) designated as the Reserve Account(s) the sum of $1,684 each month until the sum of $201,982 is reached. With the prior written approval of the Government, funds may be withdrawn and used for such things as loan installments, emergency maintenance, extensions to facilities and replacement of short-lived assets, subject to conditions established by the Government. RUS Bulletin 1780-12, Exhibit A – Water and Waste System Grant Agreement, the grantee is required to comply with all terms and conditions of the grant agreement. Specially, Section I – Default and Termination Clause: Default by the Grantee will constitute termination of the grant thereby causing cancellation of Federal assistance under the grant. Condition The Authority has a deposit deficiency of $151,462 in the Reserve Account. The balance of the debt service reserve as of June 30, 2024, shall be $201,982. Cause Lack of oversight controls to comply with the cash management compliance requirement. Effect Default by the Authority constitutes a violation of the grant agreement and may result in termination of federal assistance under RUS Bulletin 1780-12. Additionally, under 2 CFR § 200.339, the federal awarding agency may temporarily withhold cash payments pending correction of the deficiency. The noncompliance also exposes the Authority to potential enforcement actions, including repayment of grant funds with interest and restrictions on future federal funding. Questioned Costs None Repeated Finding This finding has been present since fiscal year 2020. However, it was not disclosed in the Schedule of Prior Audit Findings included in the Single Audit reporting packages for fiscal years 2021, 2022, and 2023, as required by 2 CFR §200.511(c). The omission of this repeated finding from the reporting packages represents a departure from federal audit follow-up requirements and may hinder transparency and accountability in the entity’s corrective action process. Recommendation We recommend that management implement a formal review process to ensure that all prior year findings are properly tracked and disclosed in future Single Audit reporting packages. Additionally, we recommend that the understatement in the reserve debt account be addressed through an appropriate deposit to reconcile the balance. Views of Responsible Official (Unaudited) Refer to Corrective Action Plan

2024-005 Delayed Requests for Reimbursement of Federal Funds Compliance Requirement Cash Management Category Material Weakness in Internal Control and Material Noncompliance ALN 12.607 Program Community Economic Adjustment of Establishment, Expansion, Realignment, or Closure of a Military Installation Federal Agency US Department of Defense Criteria Per 2 CFR §200.305(b) of the Uniform Guidance, when entities are funded on a reimbursement basis, they must submit payment requests in a timely manner after incurring eligible costs to ensure proper cash management and compliance with federal requirements. Condition During our review of the Authority’s grant management practices, we noted that requests for reimbursement of federal funds under the cost reimbursement method were delayed by approximately five to seven months after the incurrence of eligible expenditures. Cause The delay appears to be due to internal administrative inefficiencies and a lack of timely coordination between program and finance personnel responsible for grant reporting and fund drawdowns. Effect Delays in requesting reimbursement may result in cash flow constraints for the entity and could potentially impact program operations. Additionally, such delays may be viewed as noncompliance with federal grant management standards, which require timely and accurate reporting and drawdown of funds. Questioned Costs None. Recommendation We recommend that the Authority implement procedures to ensure reimbursement requests are submitted within a reasonable timeframe following the incurrence of costs, typically within 30 days, depending on the Authority's internal disbursement cycle and cash flow needs. Recommended actions include establishing internal deadlines, improving interdepartmental coordination, and conducting periodic reviews of outstanding expenditures eligible for reimbursement. Views of Responsible Official (Unaudited) Refer to Corrective Action Plan

2024-006 Performance Reporting Deadlines Compliance Requirement Reporting Category Significant Deficiency in Internal Control and Noncompliance ALN 12.607 Program Community Economic Adjustment of Establishment, Expansion, Realignment, or Closure of a Military Installation Federal Agency US Department of Defense Criteria Per 2 CFR § 200.328 and 2 CFR § 200.329, non-federal entities must submit performance and financial reports as required by the federal awarding agency or pass-through entity. These reports must be accurate, complete, and submitted timely, as outlined in the terms and conditions of the award. Condition The Authority failed to submit required federal reports in accordance with the deadlines established in the Notice of Award, with an average delay of approximately 146 days. Specifically, the Quarterly Performance Reports, Final Performance Report, and Federal Financial Report (FFR) were submitted after their respective due dates, resulting in noncompliance with federal reporting requirements. Cause The Authority did not implement adequate tracking and oversight mechanisms to ensure timely submission of required reports. This may reflect deficiencies in internal controls related to grant management and compliance monitoring. Effect Late submission of federally required reports hinders the ability of the awarding agency and pass-through entity to monitor project progress, assess financial accountability, and ensure compliance with grant terms. Continued noncompliance may result in administrative actions, including restrictions on future funding. Questioned Costs None Repeat Finding Disclosure This finding was reported in the prior year’s Single Audit and was marked as corrected. However, based on current audit procedures and documentation reviewed, the corrective action was not effectively implemented, and the condition persists. Therefore, this finding is considered repeated and unresolved. Refer to item 2022-001. Recommendation The Authority should strengthen its internal controls over grant reporting by assigning clear responsibilities for the preparation and timely submission of required reports. Additionally, relevant personnel should receive training on federal reporting requirements to ensure ongoing compliance. Views of Responsible Official (Unaudited) Refer to Corrective Action Plan

2024-007 Late Single Audit Submissions Compliance Requirement Reporting Category Material weakness in Internal Control and Material Noncompliance ALN 12.607 Program Community Economic Adjustment of Establishment, Expansion, Realignment, or Closure of a Military Installation Federal Agency US Department of Defense ALN 10.770 Program Water and Waste Disposal Loans and Grants (Section 306C) (NOT A MAJOR PROGRAM) Agency US Department of Agriculture (Rural Development) ALN 97.036 Program Disaster Grants - Public Assistance (Presidentially Declared Disasters) (NOT A MAJOR PROGRAM) Federal Agency US Department of Homeland Security ALN 21.027 (COVID-19) Program Coronavirus State and Local Fiscal Recovery Funds Federal Agency US Department of Treasury Criteria Per 2 CFR § 200.512(a), non-federal entities that expend $750,000 or more in federal awards during a fiscal year must submit the single audit report to the Federal Audit Clearinghouse within the earlier of 30 calendar days after receipt of the auditor’s report or nine months after the end of the audit period. Condition The Authority did not submit its Single Audit reports for the fiscal years ended June 30, 2021, 2022, 2023, and 2024 to the Federal Audit Clearinghouse (FAC) within the required timeframe. Specifically, the Single Audit reports for fiscal years 2021, 2022, and 2023 were submitted in July 2025, well beyond the nine-month deadline established under federal regulations. The report for fiscal year 2024 had also not been submitted as of the date of this audit. Cause The delay in submission was due to a lack of effective management control activities to ensure the timely completion and submission of the Single Audit reports in accordance with federal requirements. This includes insufficient oversight, inadequate planning, and lack of accountability mechanisms within the Authority’s financial reporting process. Effect If the Federal awarding agency or passthrough entity determines that noncompliance cannot be remedied by imposing additional conditions, the Federal awarding agency or passthrough entity may take one or more of the following actions, as appropriate in the circumstances: (a) Temporarily withhold cash payments pending correction of the deficiency by the non-Federal entity or more severe enforcement action by the Federal awarding agency or passthrough entity. (b) Disallow (that is, deny both use of funds and any applicable matching credit for) all or part of the cost of the activity or action not in compliance. (c) Wholly or partly suspend or terminate the Federal award. (d) Initiate suspension or debarment proceedings as authorized under 2 CFR part 180 and Federal awarding agency regulations (or in the case of a passthrough entity, recommend such a proceeding be initiated by a Federal awarding agency). (e) Withhold further Federal awards for the project or program. (f) Take other remedies that may be legally available. Questioned Costs None Repeat Finding Disclosure This is a repeat finding. The same condition was reported in the prior year’s audit. Although corrective action was anticipated, the Authority did not implement effective measures to ensure timely submission of the Single Audit reports. As a result, the issue remains unresolved. Refer to item 2023-001. Recommendation The Authority should implement robust internal controls and oversight procedures to ensure timely completion and submission of Single Audit reports. This includes assigning clear responsibilities, establishing internal deadlines aligned with federal requirements, and monitoring progress throughout the audit cycle. Views of Responsible Official (Unaudited) Refer to Corrective Action Plan