Finding 1061071 (2022-002)

2022-002 Financial Management and Internal Controls Compliance Requirement Allowable Costs/Cost Principles Category Significant Deficiency in Internal Control and Noncompliance Federal Agency U.S. Department of the Treasury Pass-Through Entity Puerto Rico Fiscal Agency and Financial Advisory Authority ALN 21.027 Federal Program COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Criteria 2 CFR section 200.302 Financial management. (a) Each state must expend and account for the Federal award in accordance with state laws and procedures for expending and accounting for the state's own funds. In addition, the state's and the other non-Federal entity's 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 general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. (b) ….. (1) ….. (2) ….. (3) ..... (5) ….. (6) ….. (7) Written procedures for determining the allowability of costs in accordance with subpart E of this part and the terms and conditions of the Federal award. 2 CFR section 200.303 Internal controls. The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). (b) Comply with the Federal statutes, regulations, and the terms and conditions of the Federal awards. (c) Evaluate and monitor the non-Federal entity's compliance with statutes, regulations and the terms and conditions of Federal awards. (d) Take prompt action when instances of noncompliance are identified including noncompliance identified in audit findings. Condition Written Policies The Corporation has no written policies for determining the activities allowed or unallowed and the allowability of costs as described in subpart E, Cost Principles of 2 CFR Part 200. Cause It is the first year for the Corporation to be subjected to a single audit compliance requirements. However, since the Commonwealth of Puerto Rico (the Commonwealth) filed for Title III under the PROMESA, all the instrumentalities of the Commonwealth had to reduce their staff as part of the Fiscal Plan to reduce expenditures. This has disrupted the segregation of duties, which is a key control. Effect The Corporation could incurred in unallowable costs failing to comply with 2 CFR sections 200.302 and 202.305, the Corporation could then be subjected to temporarily withholding of cash payments pending correction of the deficiency and/or withholding further federal awards for the program. Questioned Costs None Recommendations We recommend the Corporation obtain a thorough understanding of the provisions of federal statutes, regulations, or the terms and conditions of federal awards to prepare the required written policies under subpart E, Cost Principles of 2 CFR Part 200. Views of responsible officials Refer to Corrective Action Plan section.