Finding Text
2024-003 FEMA Working Capital Advances (NOT A MAJOR PROGRAM) Compliance Requirement Cash Management Category Material Weakness in Internal Control and Material Noncompliance ALN 97.036 Program Disaster Grants - Public Assistance (Presidentially Declared Disasters) Federal Agency US Department of Homeland Security Criteria Per 2 CFR §200.305(b)(1), when advances are made by a pass-through entity, the non-federal entity must maintain procedures to minimize the time elapsing between the receipt of federal funds and their disbursement for program purposes. Funds must be disbursed timely and only to meet immediate cash needs. Condition The Authority received FEMA Working Capital Advances through the pass-through entity, Central Office for Recovery, Reconstruction and Resiliency of Puerto Rico (COR3). As of the date of this review, the funds have remained in the Authority’s bank account for over 365 days without being expended. This prolonged retention violates federal cash management requirements under the Uniform Guidance. Cause The Authority lacks sufficient back-office personnel to effectively manage and track federal funds, as well as in-house project managers with the engineering and architectural expertise necessary to efficiently execute the projects tied to the FEMA advances. Additionally, the Authority does not have adequate internal controls or segregation of duties in place to ensure compliance with FEMA program requirements and federal cash management standards. These deficiencies have contributed to delays in project implementation and the prolonged retention of federal funds. Effect The retention of federal funds for over 365 days without use constitutes noncompliance with the cash management requirements of Uniform Guidance. This may result in increased scrutiny, potential repayment obligations, and administrative burden for both the subrecipient and the pass-through entity. Questioned Costs Amount in process to be returned, $8,090,354. Recommendation We recommend that the Authority strengthen its internal controls over cash management by updating its written procedures to ensure that federal advances are disbursed based on immediate cash needs, in accordance with 2 CFR §200.305(b). The Authority should implement a cash flow forecasting process to support the timing and amount of advances, assign responsibility to specific personnel for monitoring the aging and use of federal funds, and conduct periodic internal reviews to identify and address delays in fund disbursement. Additionally, staff involved in the management of federal funds should receive training on applicable cash management requirements under Uniform Guidance to ensure consistent compliance. Views of Responsible Official (Unaudited) Refer to Corrective Action Plan.