FINDING NO. 2024-005 PROGRAM REPORTS AND ACCOUNTING RECORDS Federal Agency: U.S. Department of Housing and Urban Development Federal Program: Federal Financial Assistance Listing 14.228 Community Development Block Grants/State’s Program and Non- Entitlement Grants in Hawaii Federal Award No: B-18-DP-72-0001 Compliance Requirement: Reporting Questioned Costs: None Repeated Finding: Yes Criteria: The subrecipient agreement between the Bank and the Puerto Rico Department of Housing (PRDOH), establishes in the Terms and Conditions Part IV. Performance, Monitoring and Reporting, Section B. Reporting, that the Bank as Subrecipient shall submit regular monthly progress reports to the PRDOH, on the form and with the content to be specified and required by the PRDOH. Moreover, the subrecipient agreement between the Bank and the PRDOH, establishes in the Terms and Conditions Section Part III-Scope of Work, sub-section A. (2), that all services shall be made in accordance with PRDOH guidelines, HUD guidelines and regulations, and other applicable state and federal laws and regulations. The CDBG-DR Financial Policy of the Puerto Rico Department of Housing, (the Financial Policy), in its Part 7 Accounting Records and Systems, Section 7.1.2 Subrecipient Accounting Records, establishes that the Bank as subrecipient is responsible for ensuring that separate accounting are maintained for CDBG-DR funds in its internal accounting system and records. These records should, to the extend possible, be developed to be consistent with PRDOH CDBG-DR general accounting and recordkeeping policies. Also, the Financial Policy in its Part 13 Reconciliations, establishes that the Bank as subrecipient, must have procedures in place to reconcile accounts and reports by comparing revenues and expenditures against disbursements for CDBG- DR funded activities. The subrecipient must: Maintain in its accounting records the amounts budgeted for eligible activities. Compare actual obligations and expenditures to date against planned obligations and expenditures: and Report deviations from budget and program plans and request approval for budget and program plan revisions. The Code of Federal Regulations, 2 C.F.R., Part 200, Subpart D, Section 200.302 (b) (2), establishes that the financial management system of each non-Federal entity must provide for accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements set forth in §§ 200.328 and 200.329. Condition and Context: Monthly Reporting The Bank uses the Grant Compliance Portal (GCP) to submit Administrative and Performance Reports to the PRDOH. The GCP is a performance reporting system created for PRDOH to monitor regular monthly progress by the subrecipient for administrative and performance activities. The GCP is independent of other systems used for the underwriting, approval, closeout and billing of the grants to PRDOH. As such, requires the manual input of the information monthly. Once the Bank completes the information in the GCP, it is reviewed by PRDOH. Review notes related to the performance of the Bank are added before finalizing the report. The signed report by all the points of contact is kept by the Bank as evidence of compliance with the submission of the Administrative and Performance Reports by the due date. We compared the amount of grants awarded as per the Administrative and Performance Reports submitted to the PRDOH with the amount reported in the Schedule of Expenditures and Federal Awards as of June 30, 2024. We noted a difference of $25,766,191 due to grants awarded from January 2024 through June 2024 were not reflected in the Administrative and Performance Reports. This caused a discrepancy in the cumulative actual total amount of grants awarded for the year that impacts the results in the monitoring of performance by PRDOH. The Bank needs to reconcile the figures with the accounting system to confirm the information for the period is properly reflected in the Administrative and Performance Reports before the submission of the report to ensure the monitoring performed by PRDOH is based on correct and reliable information. Accounting Records and Reconciliations In relation to the CDBG-DR Fund, although disbursements are recorded in a separate fund, the Bank does not present, on a monthly basis, the revenues, expenses, assets, and liabilities in the Bank’s general ledger. Instead, the Bank is recording the transactions as revenues, expenses, assets, and liabilities related to the CDBG-DR fund at year end. The CDBG-DR fund activity is monitored in another system that is maintained parallel to the Bank’s general ledger. This additional system is used for the reporting process but is not monitored and reconciled jointly with the Bank’s general ledger. Entity level controls related to monthly approvals, reconciliations, actual versus budget comparisons, and other financial reporting controls are performed in another system that does not make automatic interface with the Bank’s general ledger. The trial balance maintained by management for internal and external reporting related to CDBG-DR funds had not been reconciled with the subsidiary records for grant expenditures, including both direct and indirect costs. Cause: The management of the Bank has not implemented effective internal control procedures that permit the proper reconciliation of the amount of grants awarded per accounting records with the amounts disclosed in the Administrative and Performance Reports. Effect: The absence of proper internal controls in the areas of program reports and accounting records causes the Bank to fall in noncompliance with federal reporting requirements and the terms and conditions as established in the subrecipient agreement. This matter may result in material differences or errors that could not be detected and resolved on a timely basis and consequently we consider that the above conditions are material weaknesses in internal control over compliance. Recommendation: The Bank should ensure, specifically to the CDBG-DR Fund, that adequate procedures and internal controls related to monthly review, reconciliation and approval are in place to ensure that proper monthly accounting is maintained and that the awarded grants per accounting records are reconciled and agreed to the balances as disclosed in the Administrative and Performance Reports. Evidence of such reconciliations must be maintained as support for the reconciliation procedures performed.