Inadequate Internal Controls Over Compliance Related to Identification and Reporting of Assistance Listing Numbers (ALNs) in Schedule of Expenditures of Federal Awards Federal Program State Energy Program ALN 81.141 Energy Efficiency and Conservation Block Grant ALN 81.128 Name of Federal Agency U.S. Department of Energy Compliance Requirement Reporting Type of Finding Internal control over compliance/non-compliance Category Significant deficiency on internal controls over compliance and Other Matter. Criteria Title 2 CFR §200.303 requires non-Federal entities to establish and maintain effective internal control over Federal awards that provides reasonable assurance that the entity is managing the awards in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Additionally, 2 CFR §200.510(b) requires the Schedule of Expenditures of Federal Awards (SEFA) to include the correct Assistance Listing Number (ALN) for each Federal program. Proper identification of ALNs is essential, as different ALNs may be subject to different compliance requirements under the Uniform Guidance and program-specific terms and conditions. Condition During our review of the Schedule of Expenditures of Federal Awards (SEFA), we noted that Federal funds received under the U.S. Department of Energy were not consistently identified and documented under the correct Assistance Listing Numbers. Specifically, expenditures related to ALNs 81.141 and 81.128 were not clearly distinguished or were incorrectly classified. The entity did not have sufficient internal controls in place to ensure that Federal awards were properly identified by ALN at the time funds were received and subsequently recorded and reported on the SEFA. Cause The condition resulted from inadequate internal controls over compliance related to: •The identification of Federal awards upon receipt of funds; •The documentation and tracking of ALNs throughout the grant lifecycle; and •The preparation and review of the SEFA to ensure accurate classification by ALN. Management relied on informal processes and did not implement a formal review or reconciliation procedure to verify that Federal expenditures were recorded under the correct Assistance Listing Numbers. Effect Failure to correctly identify and document the applicable ALN may result in noncompliance with Federal requirements, as different ALNs can carry different compliance requirements, including but not limited to: •Allowable costs and activities. •Period of performance •Reporting requirements •Special tests and provisions; and •Subrecipient monitoring requirements. Misclassification of expenditures by ALN increases the risk that the entity may apply incorrect compliance requirements to a Federal award, potentially leading to unrecognized instances of noncompliance and inaccurate reporting on the SEFA. Additionally, incorrect ALN reporting may affect the determination of major programs and the scope of Single Audit testing. Context Two (2) out of a total of fifteen (15) Federal programs were not consistently identified and documented under the correct Assistance Listing Numbers. Questioned Costs None. Identification as a Repeated Finding This is not a repeat finding from the immediate previous audit. Recommendation We recommend that management strengthen internal controls over compliance by: 1. Implementing formal procedures to identify and document the correct ALN at the time Federal funds are received. 2. Maintaining detailed grant tracking records that clearly link expenditures to the appropriate ALN. 3. Establishing a supervisory review process over the preparation of the SEFA to verify the accuracy and completeness of ALN classifications prior to submission. Views of responsible officials and planned corrective actions Management of the Department agrees with this finding. Refer to the corrective action plan on pages 114-119.
Eligibility of Individuals, Allowable Costs Federal Program Workforce Innovation and Opportunity Act Cluster ALN 17.258, 17.259, and 17.278 Name of Federal Agency U.S. Department of Labor Compliance Requirement Eligibility of Individuals Allowable Costs Type of Finding Significant deficiency in Internal Control over Compliance and Other Matter Criteria Participant eligibility for services under the Workforce Innovation and Opportunity Act (WIOA) must be determined and documented in accordance with applicable statutory and regulatory requirements. Specifically: •WIOA Section 134 (29 U.S.C. §3174) establishes eligibility requirements for individuals receiving services under the Adult program. •20 CFR §680.120 provides that individuals receiving career services under the WIOA Adult program must be 18 years of age or older. •WIOA Section 188(a)(5) requires that participation in WIOA Title I programs be limited to citizens or nationals of the United States, lawfully admitted permanent residents, refugees, asylees, parolees, or other individuals authorized to work in the United States. •20 CFR §675.300 defines participant registration as the process of collecting identifying information necessary to determine eligibility for WIOA Title I services. In addition, the contracts executed with service providers require subrecipients responsible for providing training, skills training, and On-the-Job Training (OJT) services to determine participant eligibility in accordance with WIOA requirements. As part of the Department’s internal control procedures, subrecipients must maintain an eligibility certification and supporting documentation in each participant file to demonstrate compliance with WIOA eligibility requirements. Condition During our audit procedures related to participant eligibility, we reviewed 40 participant files associated with the Special Project administered by the subrecipient EV Media. Our review disclosed that one (1) participant file did not contain sufficient documentation to demonstrate that the individual met the WIOA Adult program eligibility requirements. Specifically, the participant file lacked: •Documentation supporting the participant’s age, and •Documentation supporting the participant’s citizenship, immigration status, or authorization to work in the United States, as required for participation in WIOA Title I programs. In addition, the subrecipient did not maintain the eligibility certification form required by the Department’s internal control procedures to document that the participant’s eligibility had been verified prior to receiving program services. Context From a sample of forty (40) Special Projects participants, one (1) participant (employee) eligibility documentation was not provided. Cause The deficiency occurred due to inadequate monitoring controls and insufficient supervisory review over the participant eligibility determination and documentation process. Management did not ensure that established procedures requiring the verification and retention of supporting documentation for participant eligibility were consistently followed. As a result, participant files were not always reviewed to confirm that required documentation, such as proof of age and authorization to work in the United States, was obtained and maintained prior to approving participation in the program. Effect Failure to properly document participant eligibility increases the risk that WIOA Adult program funds may be expended for individuals who do not meet program eligibility requirements, which could result in unallowable costs under federal regulations. This condition compromises the reliability of program records and participant data and weakens the Department’s ability to demonstrate compliance with WIOA requirements. If not corrected, the Federal awarding agency or pass-through entity may take enforcement actions authorized under 2 CFR §200.339, including temporarily withholding cash payments, disallowing costs, or imposing other remedies permitted under federal regulations. Questioned Costs The known questioned cost is $11,961.02, the amount in WIOA Adult funds expended on the participant whose eligibility could not be adequately supported. Identification as a Repeated Finding This is not a repeat finding from the immediate previous audit. Recommendation We recommend that the Department strengthen its internal controls over the monitoring of subrecipients (ALDLs) to ensure that participant eligibility determinations under the WIOA Adult program are properly verified and fully documented prior to enrollment and the delivery of services. The Department should require subrecipients to maintain complete supporting documentation for eligibility determinations, including evidence of age, citizenship or authorization to work in the United States, and other required eligibility criteria, in accordance with WIOA requirements. In addition, the Department should implement formal review and quality assurance procedures to verify that participant files maintained by subrecipients contain the required Recommendation documentation and that eligibility certifications are properly completed and retained. Management should also provide periodic guidance or training to subrecipient personnel on WIOA eligibility and documentation requirements and establish standardized eligibility verification checklists to promote consistent compliance across all local areas. Views of responsible officials and planned corrective actions Management of the Department agrees with this finding. Refer to the corrective action plan on pages 114-119.
Improper Calculation of Modified Total Direct Cost (MTDC) Base for Indirect Cost Allocation Federal Programs Workforce Innovation and Opportunity Act Cluster ALN 17.258, 17.259, and 17.278 Federal Agency U.S. Department of Labor (DOL) Compliance Requirement Indirect Cost Finding Type Significant deficiency in Internal Control over Compliance Criteria The Department’s indirect cost calculations were required to comply with the applicable provisions of the Uniform Guidance and the Department’s negotiated indirect cost rate agreement (“NICRA”). Specifically: 2 CFR §200.68 defines Modified Total Direct Cost (“MTDC”) as including “all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $25,000 of each subaward,” and expressly excludes “the portion of each subaward in excess of $25,000.” 2 CFR §200.403 provides that costs charged to federal awards must be necessary, reasonable, allocable to the federal award, and must conform to any limitations or exclusions set forth in the Uniform Guidance or the federal award. 2 CFR §200.414 establishes the federal framework for indirect (F&A) costs and requires the use of the negotiated indirect cost rate methodology approved by the cognizant agency. The Department’s NICRA further established the approved indirect cost base as MTDC. Accordingly, when calculating indirect costs, the Department was required to apply its negotiated indirect cost rate to an MTDC base that excluded the portion of each subaward or subcontract in excess of $25,000. Condition The Department recorded indirect cost transactions using an incorrect Modified Total Direct Cost (MTDC) base for the year ended June 30, 2025. The approved indirect cost methodology establishes the base as total direct costs excluding subawards and subcontracts in excess of $25,000. However, the Department did not apply the $25,000 limitation when calculating the MTDC base and included the full amount of certain subgrants and subcontracts in the base used to allocate indirect costs. As a result, the MTDC base used by the Department to calculate indirect costs was overstated, which affected the allocation of indirect costs charged to the programs. Cause The deficiency occurred because the Department did not implement adequate review controls over the calculation and application of the Modified Total Direct Cost (MTDC) base used to allocate indirect costs. Specifically, the Department did not ensure that the MTDC base excluded the portion of subawards and subcontracts in excess of $25,000, as required by the Negotiated Indirect Cost Rate Agreement (NICRA) and Uniform Guidance. As a result, indirect costs were calculated using an incorrect cost base. Effect As a result of applying an incorrect Modified Total Direct Cost (MTDC) base, the Department overstated the cost base used to calculate indirect costs. This condition may have resulted in indirect costs being improperly allocated to federal programs. Consequently, amounts charged to federal awards may not comply with the limitations established in the Uniform Guidance and the Department’s Negotiated Indirect Cost Rate Agreement (NICRA). If not corrected, this condition increases the risk of misallocation of costs among programs and potential disallowance of indirect costs by the federal awarding agency. Questioned Costs The error was detected before the issuance of the basic financial statements and therefore, the transaction was adjusted and recorded correctly. Therefore, there is no questioned cost. Identification as a Repeated Finding This is not a repeat finding from the immediate previous audit. Recommendation We recommend that the Department strengthen its internal controls over the calculation and application of indirect costs to ensure compliance with the requirements of the Negotiated Indirect Cost Rate Agreement (NICRA) and Uniform Guidance. Specifically, the Department should establish procedures to verify that the Modified Total Direct Cost (MTDC) base is calculated in accordance with federal regulations, including the exclusion of the portion of subawards and subcontracts in excess of $25,000. The Department should also implement a formal supervisory review of the MTDC base and indirect cost calculations prior to charging indirect costs to federal programs. In addition, the Department should provide guidance or training to personnel responsible for grant accounting to ensure consistent application of NICRA requirements and federal cost principles. Views of responsible officials and planned corrective actions Management of the Department agrees with this finding. Refer to the corrective action plan on pages 114-119.
Untimely Submission of Report Federal Programs Coronavirus State and Local Fiscal Recovery Funds ALN 21.027 Federal Agency U.S. Department of Treasury (DOT) Compliance Requirement Reporting Finding Type Significant deficiency in Internal Control over Compliance and Other Matter Criteria As required by 2 CFR 200.328 and 31 CFR section 35.4(c) on an annual basis, the Government of Puerto Rico is required to submit a performance report detailing the progress and impact of the use of CSFRF funds. This Recovery Plan Performance Report will include descriptions of the projects funded and information on the performance indicators and objectives of each award, helping local residents understand how their governments are using the substantial resources provided by Coronavirus State and Local Fiscal Recovery Funds program. As per CSFRF Motion Picture and Video Industry in Puerto Rico Program Guidelines, to ensure timely reporting, the Government of Puerto Rico requires the Recipients to adhere to the following reporting frequency: •On a biweekly basis, the recipients will be required to submit financial reports using the reporting template provided by the Program. Upon program close, recipients will be required to submit a comprehensive final financial reconciliation report detailing the use of program funds. Condition: We found that the report that was required to be submitted on 07/05/2024, was submitted late on 07/16/2024 after a notification from AAFAF. Context From a sample of eight (8) performance reports submitted during the fiscal year ended on June 30, 2025, one (1) was filled late. Cause The condition was caused by deficiencies in internal control over compliance. Management did not establish adequate monitoring procedures to ensure required reports were prepared and submitted by the applicable deadlines. Specifically, no formal tracking mechanism or compliance calendar was maintained to monitor reporting due dates. Effect Lack of report submission or a delay on report submission may cause the Government of Puerto Rico to not have updated information to comply with report requirements. Questioned Costs None. Identification as a Repeated Finding This is not a repeat finding from the immediate previous audit. Recommendation We recommend that management strengthen internal controls over the preparation and submission of required reports to ensure compliance with applicable reporting deadlines. Specifically, the Department should establish formal procedures to monitor reporting requirements, including the development of a reporting calendar that identifies all required reports, responsible personnel, and applicable submission deadlines. In addition, management should implement supervisory review and monitoring procedures to verify that reports are prepared timely, reviewed for accuracy, and submitted in accordance with program requirements. The Department should also ensure that personnel responsible for compliance reporting receive adequate training on program reporting requirements and that responsibilities are clearly assigned to promote accountability. Views of responsible officials and planned corrective actions Management of the Department agrees with this finding. Refer to the corrective action plan on pages 114-119.