Audit 376549

FINDING REFERENCE NUMBER 2024-002 (See FINDING REFERENCE NUMBER 2024-001) FEDERAL PROGRAM ALL FEDERAL PROGRAMS ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AWARD NUMBER ALL AWARDS COMPLIANCE REQUIREMENT REPORTING – SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS TYPE OF FINDING MATERIAL WEAKNESS AND MATERIAL NONCOMPLIANCE CRITERIA 2 CFR §200.510 Financial Statements, (b) states that the auditee must prepare a schedule of expenditures of federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended. At a minimum, the schedule must: (1) list individual Federal Programs by Federal agency, (2) for Federal awards received as a subrecipient, the name of the pass-through entity and identifying number assigned by the pass-through entity must be included, (3) provide total Federal awards expended for each individual Federal program and the ALN number or other identifying number when the ALN information is not available, (4) Include the total amount provided to subrecipients from each Federal program, (5) for loan or loan guarantee programs identify in the notes to the schedule the balances outstanding at the end of the audit period. This is in addition to including the total Federal awards expended for loan or loan guarantee programs in the schedule. STATEMENT OF CONDITION As part of our audit process regarding the submission of the Schedule of Expenditures of Federal Awards (SEFA), we noticed $815,055 that had been reported as part of the expenses for the Disaster Grants – Public Assistance (Presidentially Declared Disasters) program, with Assistance Listing Number (ALN) 97.036. These expenses were recognized in the Department accounting records under fund 201, which is a fund used to recognize matching funds from Federal and non-Federal programs. Upon requesting information about these expenses, we realized that part of this expenditure corresponded to funds from the Community Development Block Grant/State's Program and Non-Entitlements Grants in Hawaii program, with ALN 14.228. The total expenditure corresponding to this program is $730,341, which had initially been reported under ALN 97.036. PERSPECTIVE INFORMATION The Department had consultants who maintained control over the administration of these programs. After the contracts were canceled, no information was retained that would have allowed the Department to validate the expenditures under each program. STATEMENT OF CAUSE The Department recorded expenses related to the matching required by Federal regulation using the same project ID it uses for expenses under ALN 97.036. This resulted in the preparation of the SEFA and Financial Statements incorrectly. The Department does not have an internal control structure that allows them to identify and monitor the expenditure and requisition of Federal funds for programs under ALNs 97.036 and 14.228. POSSIBLE ASSERTED EFFECT The Department may fail to include all Federal programs and total expenditures in the SEFA causing misstatements in the SEFA, errors in the determination if a Uniform Guidance audit is required to the Department and could provoke an incorrect Major Program Determination performed by the auditor, resulting in the most likely exclusion of a Major Program for audit purpose. IDENTIFICATION OF REPEAT FINDING Not applicable. RECOMMENDATIONS We recommend the Department to maintain adequate records related to the Federal programs in order to properly identify the Federal programs/transactions when the SEFA is prepared. Once a Federal award is granted or received, the information must be shared with all personnel involved in the financial statement and SEFA preparation to provide assurance that all required program activities / expenditures are included on the SEFA. In addition, the Department must perform a regular fiscal monitoring over the Federal programs transactions in order to provide reasonable assurance that all Federal programs/transactions are properly recorded and included on the SEFA. VIEWS OF RESPONSIBLE OFFICIALS In response to the Audit finding related to maintaining adequate records the Department will implement and follow up on previous Correction Actions Plans in order to complete the requirements. 1. The Department will maintain adequate accounting records related to the federal programs and properly keep records accessible for each program. And updated SOP was drafted and is pending final review by the Federal Agency (EPA) to implement. 2. The Department drafted a new internal control implementation/Review/Monitoring process in order to resolve the systemic internal controls issues. Specific Work Plan and implementation will be started once final approvals of the aforementioned documents. IMPLEMENTATION DATE June 30, 2026 RESPONSIBLE PERSON Finance Director

FINDING REFERENCE NUMBER 2024-003 FEDERAL PROGRAMS ALL FEDERAL PROGRAMS ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AWARD NUMBER ALL AWARDS COMPLIANCE REQUIREMENT REPORTING TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA 2 CFR § 200.512 Report Submission, (a) (1) The audit must be completed and the data collection form described in paragraph (b) of this section and reporting package described in paragraph (c) of this section must be submitted within the earlier of 30 calendar days after receipt of the auditor’s report(s), or nine months after the end of the audit period. If the due date falls on a Saturday, Sunday, or Federal holiday, the reporting package is due the next business day. STATEMENT OF CONDITION The Department did not submit the Data Collection Form and Reporting Package to the Federal Audit Clearinghouse of fiscal year ending June 30, 2024, during the required period. QUESTIONED COSTS None PERSPECTIVE INFORMATION The Department was unable to provide timely financial statements and related supporting documentation to apply required audit procedures. STATEMENT OF CAUSE The Department did not have an effective accounting system and procedures to ensure that the required financial statement and supporting documentation was made available for audit purposes within the required period established to comply with the Federal regulations. POSSIBLE ASSERTED EFFECT The Department did not comply with the submission date required for the Data Collection Form and Reporting Package, this could affect the continuance and new approvals of Federal funds. In addition, for the next two (2) fiscal years the Department cannot be considered by the auditor as a low-risk auditee. IDENTIFICATION OF REPEAT FINDING This is a repeat finding (Finding Reference No. 2023-001). RECOMMENDATIONS We recommend the Department maintain adequate accounting records related to the non-Federal and Federal funds to properly prepare the financial statements accurately and in a timely manner. In addition, the Department needs to implement adequate internal controls procedures to ensure that the supporting documentation is available in a timely manner. VIEWS OF RESPONSIBLE OFFICIALS As part of the process indicated in the previous item, the Department will be in a better position to keep information in hand in a timely manner. IMPLEMENTATION DATE July 1, 2026 RESPONSIBLE PERSON Finance Director

FINDING REFERENCE NUMBER 2024-004 FEDERAL PROGRAM (ALN – 97.036) DISASTER GRANTS-PUBLIC ASSISTANCE (PRESIDENTIALLY DECLARED DISASTERS) PASS-THROUGH: PUERTO RICO CENTRAL OFFICE FOR RECOVERY, RECONSTRUCTION AND RESILIENCY (COR3) U.S. DEPARTMENT OF HOMELAND SECURITY AWARD NUMBER PA-02-PR-4339-PW-07254(0) (FY 2024) COMPLIANCE REQUIREMENT SPECIAL TEST AND PROVISIONS – PROJECT ACCOUNTING TYPE OF FINDING NONCOMPLIANCE AND SIGNIFICANT DEFICIENCY CRITERIA The 44 CFR Section 206.205 “Payment of Claims” state for large projects, the recipient is required to make an accounting to FEMA of eligible costs. Similarly, the subrecipient must make an accounting to the recipient. In submitting the accounting, the entity is required to certify that reported costs were incurred in performance of eligible work, that the approved work was completed, that the project is in compliance with the provisions of the FEMA-State Agreement, all grant conditions were met, and that payments for that project were made in accordance with the applicable payment provisions. For Small Projects the Subrecipient must certify that they completed the approved (State of Work) SOW, and the Recipient must certify that they made all payments in accordance with the FEMA-State/Territory/Tribe agreement. This is typically completed on a Small Project Completion Certification. Then, in addition, the Puerto Rico Central Office of Recovery, Reconstruction, and Resiliency (COR3), as a pass-through entity, requires Subrecipients to complete and submit a Quarterly Progress Report for each Project Worksheet (“PW”) through the Disaster Recovery Solution (“DRS”) Platform. This information is then submitted to the Federal Emergency Management Agency (FEMA) for ongoing and completed projects that are accounted for in accordance with the required certification. STATEMENT OF CONDITION For the testing the Special Test and Provision – Project Accounting for this program, we selected a sample of three (3) large projects from a population of twenty (20) large projects for the audit fiscal year 2023-2024. We requested the 3rd Quarterly Progress Report for the period from April – June 2024 and that was submitted for each of the sample selected. We noted for project worksheet number 7254 that the amount of $289,600 reported as expenditures incurred up to the quarter closing date had a difference of $28,960 over the amount of $260,640 reported as expenditures for this period in the Puerto Rico Integrated Financial Accounting System (PRIFAS). PRIFAS is the central financial management system used by the Commonwealth of Puerto Rico for budgeting, accounting, and managing funds, integrating with other systems like human resources (RHUM) to track expenses, payroll, and financial reporting for various government agencies, though some larger entities (component units) have separate systems, with PRIFAS acting as the backbone for overall fiscal management and cash flow reporting through the Puerto Rico Treasury Department. QUESTIONED COSTS None PERSPECTIVE INFORMATION After we received the Quarterly Progress Report we proceeded to make a comparison between this report and the Expenditures Report issued by the Puerto Rico Integrated Financial Accounting System (PRIFAS) of the Commonwealth of Puerto Rico for each of the large projects selected, in order to validate the data accuracy. We noted that the Department did not detect this discrepancy in these reports before the submission of the required Quarterly Progress Report for the project. STATEMENT OF CAUSE The Department did not have an effective internal control to ensure that the required financial information to be included as part of the preparation and submission of the Quarterly Progress Report is accurate according to the Puerto Rico Integrated Financial Accounting System (PRIFAS). POSSIBLE ASSERTED EFFECT The effect of this finding is that the pass-through entity COR3 received an incorrect amount of expenditure incurred for a large project. Also, the Federal agency FEMA received this incorrect and overstated amount of expenditure possibly affecting the continuance and new approvals of Federal funds for this program. IDENTIFICATION OF REPEAT FINDING This is not a repeat finding. RECOMMENDATIONS We recommend the Department maintain an adequate Quarterly Progress Report validation control before its submission to Federal Agency. This will avoid the incorrect inclusion of erroneous data in this Federal report. VIEWS OF RESPONSIBLE OFFICIALS We will working to establish an effective flow of communication between financial matters, including the budgetary area, and the programmatic area of infrastructure projects. This action will validate the information before submitting it to COR3. IMPLEMENTATION DATE March 31, 2026 RESPONSIBLE PERSON Budget Manager, Finance Director and Program Manager