Audit 411732

Finding Reference 2025-001 Federal Agency: U.S. Department of Homeland Security Pass-Through Agency: Central Office of Recovery, Reconstruction and Resiliency of Puerto Rico (COR3) Program: Disaster Grants – Public Assistance (Presidentially Declared Disaster) (ALN 97.036) Compliance Requirement: Procurement and Suspension and Debarment (I) Type of Finding: Significant Deficiency in Internal Controls (SD), Instance of Noncompliance (NC) Statement of Condition During our testing of procurement and contract administration controls, we selected two (2) construction-related bids for examination. For one (1) of the two (2) bids tested, we noted that the Organization did not obtain the Builder's Risk Insurance as required in the Federal Emergency Management Agency (FEMA) award and the construction contract prior to commencement of the construction project. Criteria Section 200.303 of the Uniform Guidance states that non-federal entities must “establish, document, and maintain effective internal control over federal awards.” Section 206.253 Insurance requirements for facilities damaged by disasters other than flood. B (1) Assistance under section 406 of the Stafford Act will be approved only on the condition that the recipient obtain and maintain such types and amounts of insurance as are reasonable and necessary to protect against future loss to such property from the types of hazard which caused the major disaster. The extent of insurance to be required will be based on the eligible damage that was incurred to the damaged facility as a result of the major disaster. The Regional Administrator shall not require greater types and extent of insurance than are certified as reasonable by the State Insurance Commissioner. The Exhibit H, Section 1.3 of the Contract Agreement signed on January 7, 2025, establishes that “the Owner [ICDCPR] shall purchase and maintain, or cause to be purchased and maintained, as a project cost, “All Risk” Property and/or so-called Builder’s Risk insurance, or their equivalent, in the amount of one hundred percent (100%) of the full replacement costs of the Work, including, but not limited to, all improvements to the Project performed by the Contractor and/or its Subcontractors, without any co-insurance requirements or penalties. Cause of Condition Management did not adequately monitor compliance with contracts provisions and did not verify that all required post-award documentation had been received and reviewed prior to authorizing the commencement of work. Effect of Condition Failure to obtain the required Builder's Risk Insurance exposed the Organization to an increased risk of financial loss in the event of damage, loss, or other incidents occurring during the construction project. In addition, the lack of compliance with established procurement and contract administration procedures may weaken the effectiveness of internal controls over capital projects. Recommendation We recommend that management strengthen its procurement and contract administration procedures to ensure that all required contractual documents, including insurance certificates and policies, are obtained, reviewed, and retained before work begins. Management should complement the existing review process by developing and using a “Requested Document Form (Checklist)” to verify compliance with all contract requirements prior to contract execution and project commencement. Questioned Costs None. Prior Year Findings No. Views of Responsible Officials and Planned Corrective Action Management concurs with the findings. The required Builder’s Risk Insurance Coverage was obtained after the condition was identified and brought to management’s attention during the audit. Management considers this matter an isolated case. However, more attention will be given to the matter in all future contracts in which the Builder’s Risk Insurance Coverage is required. Accordingly, the Church will complement the existing review process by developing and using a “Requested Document Form (Checklist)” to verify compliance with all contract requirements prior to contract execution and project commencement. Implementation Date: August 2026 Responsible Person: Mr. Luis F. Sierra Galíndez Administrative Assistant