FINDING REFERENCE NUMBER 2024-003 FEDERAL PROGRAM (ALN – 84.938A) HURRICANE EDUCATION RECOVERY – INMMEDIATE AID TO RESTART SCHOOL OPERATIONS (RESTART) U.S. DEPARTMENT OF EDUCATION AWARD NUMBER S938A180002 (04/26/2018 – 09/30/2025) COMPLIANCE REQUIREMENTS ACTIVITIES ALLOWED OR UNALLOWED // ALLOWABLE COSTS/COSTS PRINCIPLES // EQUIPMENT AND REAL PROPERTY MANAGEMENT TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS CRITERIA 2 CFR §200.302(b)(3)(4) establishes that the recipient's and subrecipient's financial management system must provide for the following: maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. Effective control over and accountability for all funds, property, and assets. The recipient or subrecipient must safeguard all assets and ensure they are used solely for authorized purposes. 2 CFR §200.403 establishes that costs must meet the following criteria to be allowable under Federal awards: (g) be adequately documented. The Fiscal Process Guide – Program Funds Restart designed by the PRDE establishes that all movable and immovable property with a unit cost of five hundred dollars ($500.00) or more and a useful life of more than two (2) years will be capitalized. Both conditions must exist. These will be classified in the E5000 expense accounts, as appropriate. Also, indicate that capitalizable equipment (E5000) and non-capitalizable equipment (E4414) purchased with program funds will be labeled with the number assigned by the Property Registry System, as established in Section X of the "Procedure for the Control and Accounting of the Property of the Department of Education”. Also as stated in the Section 102(h)(3) of the 2018 Hurricane Relief Act, states that public control of funds and property for services provided to non-public schools must remain with a public agency, which also administers the funds and resources or contracts for services with public or private entities. STATEMENT OF CONDITION As part of our audit procedures over internal controls and compliance with the allowable activities requirement, we selected a sample of forty (40) disbursements from a population of six hundred eighty-three (683) disbursements to suppliers made during the fiscal year 2023-2024. During our testing, the following deficiencies were noted: 1. For two (2) reimbursement payments issued by the PRDE to private schools, we found that they were made based on a quotation instead of the invoice, which should have been submitted by the private school. 2. We noted three (3) reimbursement payments made by the PRDE to private schools due to equipment purchases performed that did not have the receiving reports issued by the private schools for properly validating that the equipment was incorporated as part of the private school records and its regular operations. Furthermore, the Restart Fiscal Process Guide does not contain a control that mandates the submission of a private school receiving report as part of the reimbursement process for equipment-related expenses. 3. For five (5) reimbursement payments for purchase of equipment were incorrectly recorded in account E6170 (Donations and Contributions to Private Entities) rather than in one of the E5000-series accounts designated for equipment. Also, these equipment’s were not included in the property & equipment register of the PRDE. According to the Restart Fiscal Process Guide, all the equipment purchased or reimbursed to the private schools should be recorded as part of the property list that belongs to the PRDE. In other words, PRDE must maintain ownership over the property bought with the Restart funds. QUESTIONED COSTS None. PERSPECTIVE INFORMATION During the evaluation of the supporting documents for the voucher, we observed that the invoice and receiving report were not available in SIFDE, considering that it is the accounting system designated for the evaluation of supporting documentation before the approval of any disbursement of funds. Also the codifications of these transactions were not properly reviewed in order to avoid missed codification, considering that the PRDE has the Third-Party Fiduciary Agent that had reviewed them and did not detect the missing codification and the missing documentation for the proper accounting and authorization process. STATEMENT OF CAUSE 1. The PRDE did not perform an effective review procedure over the reimbursement supporting documentation before the authorization of the payment. 2. Before reimbursements are processed, the PRDE has no established internal control or procedure requiring the private schools to submit receiving report for equipment purchases. 3. The PRDE lack of training or oversight on proper accounting practices, which leads to equipment expenses being coded incorrectly in account E6170 rather than the proper E5000 series. POSSIBLE ASSERTED EFFECT 1. If the PRDE issue reimbursement payment without the invoice, this could lead the PRDE to incur improper payments. 2. The PRDE lack of obtaining the receiving report for equipment purchases could lead to the reimbursing unallowable costs under the Federal program. Without proper documentation, it becomes difficult to verify whether the equipment purchases were legitimate and necessary for the program. 3. The PRDE incorrect accounting of equipment expenses could result in inaccurate financial reporting and a potential noncompliance issue with Federal regulations that require proper codification of expenses. IDENTIFICATION OF REPEAT FINDING Not previously reported. RECOMMENDATIONS We recommend that the PRDE review the Restart Fiscal Process Guide in order to include a requirement for private schools to submit receiving reports or equivalent documentation to substantiate equipment purchases prior to reimbursement. Provide training to all relevant personnel on the importance of accurate accounting and documentation, particularly for equipment purchases, and ensure that such expenses are properly coded. Implement a review process to verify that equipment reimbursements are supported by the required receiving report, invoice and that disbursements are coded appropriately in the accounting system (SIFDE). VIEWS OF RESPONSIBLE OFFICIALS The PRDE does not agree with the recommendation to revise the Restart Fiscal Process Guide to require private schools to submit a receiving report or equivalent documentation to substantiate equipment purchases prior to reimbursement. These transactions correspond to reimbursements, not direct purchases made by PRDE; therefore, verification is performed through proof of payment submitted by the schools. When auditors requested confirmation of receipt, PRDE obtained photographs of the equipment from the schools to provide additional verification that the items were in the school. In addition, the PRDE wants to clarify that where quotations were used instead of invoices, the private schools provided valid proof of payment that matched the quotations submitted. This evidence demonstrated that the purchases were completed and consistent with the approved documentation, meeting the requirements for allowable and verifiable costs under Federal regulations. The PRDE does not agree with the recommendation to change the accounting classification or to implement additional review procedures related to the use of account E6170, “Donations and Contributions to Private Entities.” The use of account E6170 is appropriate given the nature of the transaction, which reflects a reimbursement to a private school rather than a direct purchase by PRDE that would otherwise be recorded under account E5500. The PRDE acknowledges the deficiencies noted during the audit regarding the omission of reimbursed equipment purchases from the PRDE Property and Equipment Register. To address this, the PRDE has prepared a list of reimbursed equipment purchased by private schools under the Restart Program. This list will be provided to the personnel responsible for maintaining the register to ensure the inclusion of these items in the Property and Equipment Register, in compliance with the capitalization and accountability requirements established in the Restart Fiscal Process Guide. The corrective action is scheduled for implementation on or before the end of the current fiscal year. Auditor Comment on Management Response for Finding No. 2024-003 In relation to situation #2 comments, the PRDE didn’t have evidence of the receiving report, which is required for all other purchases of equipment for which the PRDE is the owner. Internal controls over property and equipment should be the same for all equipment for which the PRDE is the owner. In relation to situation #3, all equipment purchased and registered in this account was not included in the inventory of the PRDE, because the general ledger account used is not recognized for purchase of property and equipment, instead is a general ledger account for donations. Further, in accordance with the “Guia de Procesos Fiscales – Fondos Programa Restart”, it is established that all reimbursement of equipment should be recorded in accounts E5000 or E4414. This is because the system recognizes that an addition of equipment was made and must be capitalized. IMPLEMENTATION DATE In process. RESPONSIBLE PERSON María de los A. Lizardi Valdés Office of Federal Affairs Director Edgar Delgado Serrano Office of Federal Affairs Associate Director Hamir M. Mojica Mojica Program Coordinator