Audit 395733

FINDING REFERENCE 2025-005 FEDERAL AGENCY U.S. Department of Housing and Urban Development FEDERAL PROGRAM TITLE AND ALN: Community Development Block Grants / State’s Program and Non Entitlement Grants in Hawaii (ALN 14.228) COMPLIANCE REQUIREMENT TYPE OF FINDING Reporting – Financial Reporting (L) (MW) TYPE OF FINDING Material weaknesses in Internal Control (MW), Instance of Noncompliance (NC) CONDITION The Municipality, as a subrecipient of Community Development Block Grant (CDBG) State Program and CDBG-CV funds, did not submit any of the required quarterly financial reports titled “Relación de Ingresos y Desembolsos” to the pass-through entity during fiscal year 2024–2025. Specifically, none of the four (4) quarterly reports required for the fiscal year were submitted, despite the existence of program expenditures and financial activity subject to reporting. CRITERIA Title 2 U.S. Code of Federal Regulations (CFR) 200.328 and 200.329 require subrecipients to submit accurate, complete, and timely performance and financial reports in accordance with the terms andconditions of the Federal award. Additionally, 2 CFR 200.303 requires non-Federal entities to establish and maintain effective internal control over Federal programs to provide reasonable assurance that Federal awards are managed in compliance with Federal statutes, regulations, and the terms and conditions of the award. CAUSE OF CONDITION The program staff faced performance challenges due to a lack of staff which caused the accounting records to be delayed. EFFECT OF CONDITION Because the required quarterly financial reports were not submitted, the pass-through entity did not receive timely financial information necessary to monitor program expenditures and compliance with CDBG State Program requirements. RECOMMENDATION We recommend establishing a formal compliance calendar identifying all required CDBG quarterly reports, due dates, and responsible personnel. Also, we recommend the Municipality’s management implement proper internal controls in order to ensure that the reports are submitted timely. QUESTIONED COSTS None. PRIOR YEAR FINDING This finding is new. VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTION The Municipality provides training to personnel responsible for gran reporting, covering the preparation and timely submission of all CDBG financial reports, including proper documentation and reconciliation of program expenditures. The Municipality has assigned a staff member to monitor all grant reporting deadlines and coordinate with the pass-through entity to ensure timely report submissions. IMPLEMENTATION DATE February 23, 2026 RESPONSIBLE PERSON Mrs. Omayra Báez Caraballo Finance Department Director

FINDING REFERENCE 2025-006 FEDERAL AGENCY U.S. Department of Homeland Security FEDERAL PROGRAM TITLE AND ALN: Disaster Grants – Public Assistance (Presidentially Declared Disasters) (ALN 97.036) COMPLIANCE REQUIREMENT TYPE OF FINDING Special Test – Project Accounting (N) (MW) TYPE OF FINDING Material Weakness in Internal Control (MW), Instance of Noncompliance (NC) CONDITION During fiscal year 2024–2025, the Municipality recorded $348,107 in payroll and other program expenditures under the generic accounting code FDESPINT in its accounting system. According to Program staff, the expenditures recorded under this code relate to multiple FEMA Project Worksheets (PWs); however, the costs were not recorded and tracked individually by PW. As a result, the Municipality is unable to maintain adequate accounting and budgetary control over program expenditures at the individual PW level, limiting its ability to properly monitor costs, ensure compliance with approved funding, and support accurate financial reporting for each project. CRITERIA As established in the 2 CFR Section 200.302 (a) of the Uniform Guidance, all recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. Also, as established in 44 CFR 206.205, Payment of claims. (b) Large Projects, (1) the recipient shall make an accounting to the Regional Administrator of eligible costs for each approved large project. In submitting the accounting the recipient shall certify that reported costs were incurred in the performance of eligible work, that the approved work was completed, that the project is in compliance with the provisions of the FEMA-State Agreement, and that payments for that project have been made in accordance with 2 CFR 200.305. Each large project shall be submitted as soon as practicable after the subrecipient has completed the approved work and requested payment. CAUSE OF CONDITION The Municipality’s internal controls and procedures regarding recording, tracking and reporting on the Program’s expenditures were not followed adequately to ensure that all the FEMA transactions were accounted individually by each approved project. EFFECT OF CONDITION The Program’s financial transactions can be incorrectly recorded in the accounting records, that can lead the Municipality to be in noncompliance with the requirements established in the Federal regulation. RECOMMENDATION We recommend the Municipality to continue strengthening the internal controls and accounting procedures over the recordkeeping of the accounting transactions of the FEMA Program. QUESTIONED COSTS None. PRIOR YEAR FINDING This finding is a prior year finding identified as 2024-008. VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTION The Municipality has reclassified all expenditures to the appropriate program fund and project codes corresponding to each individual PW. In addition, the Finance Department has assigned program and accounting staff to ensure the proper recording and classification of expenditures, thereby maintaining compliance with FEMA and other funding requirements. IMPLEMENTATION DATE February 23, 2026. RESPONSIBLE PERSON Mrs. Omayra Báez Caraballo Finance Department Director