2023-003 Matching Non-Federal Funds Compliance Requirement Matching Category Significant Deficiency in Internal Control and Noncompliance Federal Agency U.S. Department of Homeland Security through the Federal Emergency Management Agency Pass-Through Entity Central Office for Recovery, Reconstruction and Resiliency ALN 97.036 Federal Program Disaster Grants - Public Assistance (Presidentially Declared Disasters) Criteria 44 CFR Section 206.203 Federal Assistance. (a) ..... (b) Cost sharing. All projects approved under State disaster assistance grants will be subject to the cost sharing provisions established in the FEMA-State Agreement and the Stafford Act. Exhibit A - Scope of Work Non-Federal Match Program Puerto Rico Fine Arts Center Corporation 1. Program Overview/Background (second paragraph) - The primary partners to the Puerto Rico Department of Housing (PRDOH) in the Non-Federal Match Program (NFMP) are the Central Office for Recovery, Reconstruction, and Resilience (COR3) and subrecipients who for Hurricane Irma have a twenty-five percent cost share requirement and for Hurricane María, generally a ten percent cost share for Federal Emergency Management Agency (FEMA) Public Assistance projects. PRDOH will be providing the majority of cost share for the FEMA Project Worksheets associated with these disasters by working directly with COR3 to access data and provide the match payment and with subrecipients who will provide documentation required by the US Department of Housing and Urban Development (HUD) so that PRDOH can ensure full HUD compliance and reimburse subrecipients for their cost share. (Note: The twenty-five percent cost-share related to Hurricane Irma does not apply in this case) Condition The Corporation expended $523,590 from FEMA funds but did not meet the required cost-sharing amount of $52,359 from the Community Development Block Grant - Disaster Recovery (CDBG-DR) funds. On September 9, 2021, the Corporation signed a Community Development Block Grant – Disaster Recovery (CDBG-DR) Non-Federal Match Program Agreement with the PRDOH, to comply with FEMA's matching requirement. The Corporation only requested a reimbursement of $4,224. Cause The Corporation’s failure to request the full matching amount was due to inadequate monitoring and oversight of the matching requirement. The Corporation did not ensure that the necessary CDBG funds were allocated to meet the 10% cost-sharing requirement. Effect Noncompliance with the matching requirement can result in questioned costs amounting to $52,359. This could lead to the Corporation having to repay FEMA for the unmet matching requirement. It may also impact on the Corporation’s eligibility for future FEMA funding. Questioned Costs $47,935, net of the $4,424 requested. Recommendation The Corporation should implement procedures to ensure that all reimbursement requests align with FEMA’s matching requirements. This includes thorough review and verification processes to prevent future noncompliance. Views of responsible officials Refer to Unaudited Corrective Action Plan.
2023-002 Financial Management and Internal Controls (Continued) Compliance Requirement Allowable Costs/Cost Principles Category Significant Deficiency in Internal Control and Noncompliance Federal Agency U.S. Department of the Treasury Pass-Through Entity Puerto Rico Fiscal Agency and Financial Advisory Authority ALN 21.027 Federal Program COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Federal Agency U.S. Small Business Administration ALN 59.075 Federal Program COVID-19 - Shuttered Venue Operators Program Federal Agency U.S. Department of Homeland Security through the Federal Emergency Management Agency Pass-Through Entity Central Office for Recovery, Reconstruction and Resiliency ALN 97.036 Federal Program Disaster Grants - Public Assistance (Presidentially Declared Disasters) Cause In 2022, the Corporation became subject to Single Audit compliance requirements for the first time. However, it underestimated the complexity of navigating the intricate laws, regulations, and financial management requirements associated with federal funds. The lack of prior experience in implementing adequate internal controls, coupled with the absence of established written policies, contributed to challenges in ensuring compliance with federal cost principles and financial reporting obligations. Effect Failure to comply with 2 CFR sections 200.302 and 200.305 could result in the Corporation incurring unallowable costs. Consequently, the Corporation may face temporary withholding of cash payments until the deficiency is corrected. Additionally, continued noncompliance could lead to further sanctions, including the suspension or termination of federal funding for the program, ultimately impacting the Corporation’s ability to fulfill its obligations and sustain operations. Questioned Costs None. Repeated Item Refer to Item No. 2022-002 in the Summary Schedule of Prior Audit Findings. Recommendation The Corporation should draft written policies under subpart E, Cost Principles of 2 CFR Part 200. In addition, the staff involved with federal funds should take courses on federal awards. Views of responsible officials Refer to Unaudited Corrective Action Plan.
2023-004 Inactive SAM Registration Impacting Eligibility Compliance Requirement Special Tests and Provisions Requirement Category Significant Deficiency in Internal Controls and Noncompliance Federal Agency U.S. Department of the Treasury Pass-Through Entity Puerto Rico Fiscal Agency and Financial Advisory Authority ALN 21.027 Federal Program COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Federal Agency U.S. Small Business Administration ALN 59.075 Federal Program COVID-19 - Shuttered Venue Operators Program Federal Agency U.S. Department of Homeland Security through the Federal Emergency Management Agency Pass-through Entity Central Office for Recovery, Reconstruction and Resiliency ALN 97.036 Federal Program Disaster Grants - Public Assistance (Presidentially Declared Disasters) Criteria § 25.200 Requirements for notice of funding opportunities, regulations, and application instructions. (a) …… (b) …… (1) Be registered in SAM.gov before submitting an application; (2) Maintain a current and active registration in SAM.gov at all times during which it has an active Federal award as a recipient or an application under consideration by a Federal agency. The applicant or recipient must review and update its information in SAM.gov annually from the date of initial registration or subsequent updates to ensure it is current, accurate, and complete. If applicable, this includes identifying the applicant's or recipient's immediate and highest-level owner and subsidiaries, as well as providing information on all predecessors that have received a Federal award or contract within the last three years; and Condition The Corporation’s SAM registration expired on September 6, 2023. Cause The Corporation has been unable to update the SAM’s registration due to problems with the platform to correct their physical address. Effect By not updating the SAM registration, the Corporation may become ineligible to receive federal funds, considering it is a prerequisite for receiving federal grants. In addition, the Corporation could confront that any ongoing contracts or grants may be delayed or suspended until the registration is updated, might face additional administrative burdens to rectify the lapse, which can include reapplying for registration and addressing any compliance issues, and there could be a negative impact on the Corporation's reputation with federal agencies, potentially affecting future funding opportunities. Questioned Costs None Recommendation We recommend the immediate update of the SAM registration, considering that maintaining an active and up-to-date SAM registration is crucial for ensuring continued eligibility and smooth operations with federal funding. Views of responsible officials Refer to Unaudited Corrective Action Plan (Unaudited)
2023-005 Procurement Policies and Covered Transactions Compliance Requirement Procurement, Suspension, and Debarment Category Significant Deficiency in Internal Control and Noncompliance Federal Agency U.S. Department of the Treasury Pass-Through Entity Puerto Rico Fiscal Agency and Financial Advisory Authority ALN 21.027 Federal Program COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Federal Agency U.S. Department of Homeland Security through the Federal Emergency Management Agency Pass-through Entity Central Office for Recovery, Reconstruction and Resiliency ALN 97.036 Federal Program Disaster Grants - Public Assistance (Presidentially Declared Disasters) Criteria 2 CFR section 200.318 General procurement standards. (a) The non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. The non-Federal entity's documented procurement procedures must conform to the procurement standards identified in §§ 200.317 through 200.327. 2 CFR section 180.220 Are any procurement contracts included as covered transactions? (a) Covered transactions under this part— (1) Do not include any procurement contracts awarded directly by a Federal agency; but (2) Do include some procurement contracts awarded by non-Federal participants in nonprocurement covered transactions. (b) Specifically, a contract for goods or services is a covered transaction if any of the following applies: (1) The contract is awarded by a participant in a nonprocurement transaction that is covered under § 180.210, and the amount of the contract is expected to equal or exceed $25,000. (2) The contract requires the consent of an official of a Federal agency. In that case, the contract, regardless of the amount, always is a covered transaction, and it does not matter who awarded it. For example, it could be a subcontract awarded by a contractor at a tier below a nonprocurement transaction, as shown in the appendix to this part. (3) The contract is for Federally-required audit services. (c) A subcontract also is a covered transaction if,— (1) It is awarded by a participant in a procurement transaction under a nonprocurement transaction of a Federal agency that extends the coverage of paragraph (b)(1) of this section to additional tiers of contracts (see the diagram in the appendix to this part showing that optional lower tier coverage); and (2) The value of the subcontract is expected to equal or exceed $25,000. Condition General Procurement Standards - Written Policies The Corporation has an outdated institutional procurement manual approved in 2014 that lacks written policies to ascertain compliance with the provisions of federal statutes, regulations, or the terms and conditions of federal awards regarding procurement, suspension, and debarment requirements. Suspension and Debarment - Covered Transaction From a sample of eighteen disbursements, we selected eight disbursements to ascertain compliance with 2 CFR section 180.220, specifically regarding the inclusion of procurement contracts as covered transactions. We examined the procurement documents provided by the Corporation. From that sample, we identified that the Corporation did not perform the required verification process for covered transactions during the year ended June 30, 2023. Cause The Corporation lacks internal controls and policies to ensure compliance with federal procurement requirements. In addition, the Corporation relies on the procedures performed by the Administration of General Services to comply with procurement requirements. As a result, the Corporation did not maintain its own documentation. Effect Failure to comply with 2 CFR sections 200.318 and 180.220 may result in the Corporation facing temporary withholding of cash payments until the deficiency is corrected and/or suspension of future federal awards for the program. This noncompliance could also lead to the potential use of suspended or debarred suppliers. Questioned Costs None. Repeated Item Repeated, refer to Item No. 2022-003 in the Summary Schedule of Prior Audit Findings. Recommendation General Procurement Standards - Written Policies and Suspension and Debarment - Covered Transaction We recommend that the Corporation revise its internal procurement policies to align with current state statutes and regulations and create separate procurement policies that adhere to federal laws, regulations, and the terms and conditions of federal awards. These policies should incorporate the Procurement Standards outlined in 2 CFR sections 200.317 through 200.327, as applicable. Views of responsible officials Refer to Unaudited Corrective Action Plan (Unaudited)
2023-006 Single Audit Reporting Package Submission Compliance Requirement Reporting Category Significant Deficiency in Internal Controls and Noncompliance Federal Agency U.S. Department of the Treasury Pass-Through Entity Puerto Rico Fiscal Agency and Financial Advisory Authority ALN 21.027 Federal Program COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Federal Agency U.S. Small Business Administration ALN 59.075 Federal Program COVID-19 - Shuttered Venue Operators Program Federal Agency U.S. Department of Homeland Security through the Federal Emergency Management Agency Pass-through Entity Central Office for Recovery, Reconstruction and Resiliency ALN 97.036 Federal Program Disaster Grants - Public Assistance (Presidentially Declared Disasters) Criteria 2 CFR § 200.512 Report submission. (a) General. (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. Condition The Corporation did not comply with the Single Audit Reporting Package submission date requirement for the years ended June 30, 2023, and 2022. Cause Due to the Commonwealth of Puerto Rico's (the Commonwealth) filing for Title III under PROMESA, most of its instrumentalities were required to reduce staff as part of the Fiscal Plan to lower expenditures. This staff reduction resulted in a lack of personnel, which impacted key internal controls. Effect By failing to comply with 2 CFR sections 200.512 and the pass-through entity reporting guidelines, the Corporation could be subjected to the following: a. temporarily withholding of cash payments pending correction of the deficiency b. withholds further Federal awards for the project or program, and wholly or partly suspend or terminate the Federal award Questioned Costs None. Repeated Item Refer to Item No. 2022-004 in the Summary Schedule of Prior Audit Findings. However, in August 2024, the Corporation submitted the 2022 Single Audit Reporting Package, which was accepted on August 20, 2024, by the Federal Audit Clearinghouse. The Corporation should ensure that the 2024 single audit is also submitted promptly. Recommendation The Corporation must submit the Single Audit Reporting Packages for the fiscal year ended June 30, 2023, in arrears, as soon as possible. Views of Responsible Officials Refer to Unaudited Corrective Action Plan section.