Audit 415628

Criteria Pursuant to 2 CFR §200.303, the Academy is required to establish and maintain effective internal controls over Federal awards that provide reasonable assurance that Federal awards are managed in compliance with Federal statutes, regulations, and the terms and conditions of the awards. Additionally, pursuant to 2 CFR Part 200, Subpart E, costs charged to Federal awards must be adequately documented, properly supported, accurately recorded, and allowable under applicable Federal program requirements. Management is responsible for monitoring grant activities and ensuring that third-party service providers and grant administrators perform their duties in accordance with applicable requirements. Condition During testing of 26 transactions charged to the FEMA Public Assistance Program, we identified the following exceptions: 1. The Academy transferred $30,000 from its FEMA Public Assistance bank account to its operating account as reimbursement of 2023 Single Audit costs. Although management indicated that the expenditure appears to be allowable under FEMA requirements, the Academy could not provide documentation demonstrating that the reimbursement request had been adequately supported, processed, or otherwise substantiated as of the date of our testing. 2. The Academy transferred $30,144 from its FEMA Public Assistance bank account to its operating account as an expense reimbursement. The Academy could not provide sufficient supporting documentation for the expenditure or documentation supporting the related reimbursement request. Accordingly, the amount was considered a questioned cost. 3. The Academy charged a payment of $72,756 to the FEMA Public Assistance Program and recorded the transaction as a withholding for services rendered remitted to the Puerto Rico Department of the Treasury. However, supporting documentation indicated that the amount represented construction retainage. Although the cost was allowable, the transaction was improperly classified. Management subsequently corrected the error by returning the funds to the FEMA Public Assistance account after year-end. 4. The Academy recorded two transactions totaling $130,620 as assets rather than Federal expenditures. 5. The Academy recorded duplicate entries in the accounting records for two transactions totaling $107,812 related to FEMA expenditures. However, no duplicate disbursements resulted from these duplicate entries. Context The exceptions noted represent 5 of the 26 transactions selected for testing. The deficiencies identified involved reimbursement processing, documentation retention, expenditure classification, and oversight of grant administration activities. Collectively, these exceptions indicate that management's controls over FEMA grant compliance were not operating effectively to ensure that expenditures were adequately supported, properly classified, reviewed, and recorded in accordance with applicable Federal requirements before Federal funds were drawn down or utilized. Effect The lack of effective controls over FEMA grant administration increased the risk that: • Federal expenditures may be charged to the program without adequate supporting documentation. • Reimbursements may be requested or recorded without adequate review and support. • Expenditures may be improperly classified in the accounting records. • Noncompliance with FEMA and Uniform Guidance requirements may not be detected and corrected in a timely manner. • Management may not have reliable information for monitoring and reporting Federal program activity. Cause The Academy outsourced significant FEMA grant administration activities and relied on third-party personnel to prepare reimbursement requests and manage grant compliance activities. However, management did not establish sufficient monitoring procedures to review reimbursement requests, verify supporting documentation, evaluate reimbursement activity, and ensure the proper recording of FEMA-related transactions. Additionally, personnel responsible for reviewing Federal grant transactions had limited training in FEMA grant administration and Uniform Guidance requirements. As a result, deficiencies related to documentation, reimbursement processing, and accounting classifications were not prevented or detected on a timely basis. Questioned costs Unsupported FEMA reimbursement totaling $30,144. The $30,000 reimbursement related to Single Audit costs was not reported as questioned costs because management provided documentation indicating that the underlying cost appears allowable and may be eligible for reimbursement upon proper submission and approval under FEMA requirements. Recommendation We recommend that the Academy strengthen its internal controls over FEMA grant administration by: 1. Establishing procedures to ensure that reimbursement requests are adequately supported, reviewed, approved, and submitted in accordance with FEMA requirements. 2. Maintaining complete documentation supporting all expenditures and reimbursement requests charged to Federal awards. 3. Requiring periodic reconciliation of reimbursement requests, supporting documentation, amounts received, and amounts recorded in the accounting records. 4. Implementing supervisory reviews of Federal grant expenditures and related accounting entries before transactions are processed and recorded. 5. Assigning qualified personnel to monitor and evaluate activities performed by third-party grant administrators and other service providers involved in FEMA grant administration. 6. Providing periodic training regarding FEMA Public Assistance requirements, Uniform Guidance requirements, and Federal grant management responsibilities to personnel responsible for Federal grant administration. Views of responsible officials and corrective actions Management response is reported in the “Corrective Action Plan” at the end of this report.

Criteria Pursuant to the award agreement, the Academy is required to submit quarterly financial and performance progress reports to the Sub-grantor on January 15, April 15, July 15, and October 15 of each year. In addition, in accordance with the award agreement and the record retention requirements of 2 CFR §200.334, subrecipients must retain all supporting documentation for a minimum of three years from the later of: (1) project completion, (2) submission of the final expenditure report, or (3) the resolution of any litigation, claim, dispute, audit, or other action involving the records. Condition We noted that, of the four quarterly reports required for FEMA Public Assistance Category Z funds, three were not submitted to the Sub-grantor by the prescribed deadlines. Similarly, three of the four quarterly reports required for FEMA Public Assistance Category E funds were not submitted on a timely basis. In addition, we were unable to verify the completeness and accuracy of the reports using documentation maintained by the Academy because management did not retain copies of all quarterly reports submitted by the Grant Manager and its support. However, this information was instead confirmed through the pass-through entity's reporting platform. Context Management relied on an external service provider to prepare and submit the required reports. In certain instances, the Academy did not maintain copies of the reports or evidence of their submission. Effect Failure to submit required reports on a timely basis and maintain supporting documentation constitutes noncompliance with the reporting and record-retention requirements established by the award agreement and applicable federal regulations. Such noncompliance may hinder monitoring activities and could increase the risk of questioned costs or other grant administration issues. Cause The Academy outsourced the administration of its federal programs and relied on the external service provider to perform grant-related activities in accordance with applicable Academy policies and federal requirements. However, the Academy did not designate an individual responsible for overseeing and monitoring the service provider's performance, including the timely submission and retention of required reports. Questioned costs None. Recommendation Management should establish and implement procedures to ensure that required financial and performance reports are prepared, reviewed, and submitted on a timely basis. Additionally, the Academy should maintain copies of all submitted reports and support evidence of submission to demonstrate compliance with federal reporting and record-retention requirements. Management must establish monitoring procedures over outsourced activities and third-party service providers involved in the administration of Federal programs. Views of Responsible Officials and Planned Corrective Actions Management response is reported in the “Corrective Action Plan” at the end of this report.

Criteria Pursuant to 2 CFR §200.327 and Appendix II to 2 CFR Part 200, all contracts entered into by a non-Federal entity under a Federal award must contain the applicable contract provisions required by Federal statutes, executive orders, and regulations, as appropriate for the type and amount of the procurement. Condition We noted that the contract executed with Eco-Logical Group, LLC did not include all applicable Federal contract provisions required by Appendix II to 2 CFR Part 200 for contracts funded with Federal awards. Context We tested three contracts entered into by the Academy with non-Federal entities to determine compliance with Federal procurement requirements. Of the three contracts tested, one contract, representing 33 percent of the sample, did not include all required Federal contract clauses. Effect The absence of required Federal contract provisions constitutes noncompliance with Federal procurement requirements. As a result, the Academy may be exposed to increased risk of disputes, enforcement challenges, or other compliance issues related to the administration of Federal awards and limit the Academy's ability to enforce Federal requirements. Cause Management did not implement adequate review procedures to ensure that contracts funded, in whole or in part, with Federal award funds contained all applicable contract clauses required by Appendix II to 2 CFR Part 200. Questioned costs None. Recommendation Management should establish and implement procedures to ensure that all contracts funded with Federal awards are reviewed prior to execution for compliance with the applicable contract provisions required by Appendix II to 2 CFR Part 200. In addition, management should maintain documentation evidencing such reviews. Views of Responsible Officials and Planned Corrective Actions Management response is reported in the “Corrective Action Plan” at the end of this report.