Audit 414246

Departure from Generally Accepted Accounting Principles – Failure to Consolidate Related Entity Category Internal Control Over Financial Statements Criteria U.S. generally accepted accounting principles (U.S. GAAP), as set forth in ASC 958-810 Not-for-Profit Entities—Consolidation, require a not-for-profit organization to evaluate its relationship with another entity and to consolidate that entity when the applicable consolidation criteria are met, including situations in which the organization has a controlling financial interest. Condition The Organization has a controlling financial interest in a legally separate entity (the “Related Entity”) through common ownership and participation. The Organization did not consolidate the financial statements of the Related Entity with its financial statements for the year ended December 31, 2025. As a result, the Organization’s financial statements do not include the assets, liabilities, net assets, revenues, expenses, and cash flows of the Related Entity, nor do they reflect the elimination of intercompany balances and transactions between the Organization and the Related Entity. Cause Management determined that the Related Entity was a legally separate organization and, based on that determination, concluded that separate financial statement presentation was appropriate. Management did not appropriately evaluate the consolidation requirements under ASC 958-810 based on the nature of the Organization’s controlling financial interest. Effect The Organization’s financial statements are not presented in accordance with U.S. GAAP because the financial statements omit the financial position, results of operations, and cash flows of the Related Entity and do not reflect the required elimination of intercompany balances and transactions. The effect of this departure from U.S. GAAP has not been determined and is not reasonably practicable to quantify. Consequently, the amounts presented in the financial statements may be materially different from the amounts that would have been reported had the Related Entity been consolidated in accordance with U.S. GAAP. Additionally, because the Organization receives and administers federal awards, management should evaluate whether the no consolidation results in any impact on amounts, activities, or disclosures relevant to federal award reporting and the applicable compliance requirements identified in the OMB Compliance Supplement. Views of Responsible Officials Management of the Organization agrees with this finding. For details of the actions to be taken, refer to the Corrective Action Plan (CAP) section in this report. Responsible Person José Carrasquillo Delgado Finance DirectoR

Reporting Name of Federal Agency U.S. Department of Housing and Urban Development Pass-through the Puerto Rico Housing Finance Authority Federal Program Community Development Block Grant - Disaster Recovery Federal Award B-18-DP-72-0001 2025 Federal Award Year: 2020 Assistance Listing Number 14.228 Category Significant Deficiency and Noncompliance Compliance Requirement Reporting Criteria 2 CFR Part 200.329 (c)(i) established that the non-Federal entity must submit performance reports at the interval required by the Federal awarding agency or pass-through entity to best inform improvements in program outcomes and productivity. Intervals must be no less frequent than annually normore frequent than quarterly except in unusual circumstances, for example where more frequent reporting is necessary for the effective monitoring of the Federal award or could significantly affect program out comes. Reports submitted annually by the non-Federal entity and/or pass-through entity must be due nolater than 90 calendar days after the reporting period. Reports submitted quarterly or semiannually must be due no later than 30 calendar days after the reporting period. Alternatively, the Federal awarding agency or passthrough entity may require annual reports before the anniversary dates of multiple year Federal awards. As per agreement with the Organization Part IV (b) established that the Authority shall submit regular monthly progress reports to the Puerto Rico Department of Housing (PRDOH), on the form and with the content to be specified and required by the PRDOH. The PRDOH will later notify the Authority in writing the guidelines and requirements applicable to the submittal of the monthly progress reports, and such notification shall be deemed incorporated by reference to this Agreement. As defined by PRDOH, the submission of progress reports must occur within five (5) days after the end of each month. Condition During our procedures performed to determine compliance with reporting requirements, we noted that the progress reports were not submitted on time to Puerto Rico Department of Housing (PRDOH). Cause The late submission of monthly progress reports to the Puerto Rico Department of Housing (PRDOH) resulted from weaknesses in the Entity’s reporting workflow. In some instances, the Organization submitted the required progress reports after the established deadline. Additionally, PRDOH’s reporting process requires that each monthly report be reviewed and approved before the subsequent report can be submitted. As a result, when an earlier report (e.g., January) is approved several months later (e.g., in April), the next report in sequence (e.g., February) is automatically delayed. This dependency creates a chain reaction that leads to consecutive late submissions, further contributing to the systemic nature of the issue. Effect Noncompliance with the reporting requirements could lead to significant administrative actions by the grantor, including a reduction in the amounts to be awarded. In addition, it prevents the grantor from monitoring the performance of the program and could be interpreted as a failure to achieve program objectives Questioned Cost None Context The condition identified represents a recurring and systemic issue rather than an isolated instance. PRDOH requires the submission of twelve (12) monthly progress reports per fiscal year. For purposes of this audit, we examined the full universe of required reports and determined that several reports were submitted after the established due date. Because the entire population of required progress reports was reviewed, no sampling was performed, and the instances of noncompliance identified reflect the complete set of reporting activities for the year under audit. The prevalence of late submissions indicates weaknesses in the Entity’s reporting controls and affects PRDOH’s ability to perform timely oversight of program activities. This finding is a repeat of the prior year’s finding, reported as item 2024-002 Recommendation The Organization shall ensure effective supervision over its reporting processes to guarantee the timely preparation and submission of progress reports. It is advised that the Organization prioritize providing comprehensive training to personnel responsible for preparing, reviewing, and approving performance reports. This training should focus on equipping them with the necessary skills and knowledge to include all relevant data elements and adhere to deadlines consistently. Views of Responsible Officials Management of the Organization agrees with this finding. For details of the actions to be taken, refer to the Corrective Action Plan (CAP) section in this report. Responsible Person José Carrasquillo Delgado Finance Director