FINDING REFERENCE NUMBER 2024-046 (See Finding Reference Number 2024-018) FEDERAL PROGRAMS (ALN – 93.558) TEMPORARY ASSISTANCE FOR NEEDY FAMILIES (TANF) (ALN – 93.560) PAYMENT TO TERRITORIES – ADULT U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 2022G996117 (Federal Award Year: 10/1/2021 – 9/30/2022) 2023G996117 (Federal Award Year: 10/1/2022 – 9/30/2023) 2022G9922PT (Federal Award Years: 10/1/2022 through 9/30/2025) 2301PRTABD (Federal Award Years: 10/1/2023 through 9/30/2026) ADMINISTRATION ADMINISTRATION FOR SOCIOECONOMIC DEVELOPMENT OF THE FAMILY (ADSEF, BY ITS SPANISH ACRONYM) COMPLIANCE REQUIREMENT REPORTING – FINANCIAL REPORTING TYPE OF FINDING INTERNAL CONTROL AND COMPLIANCE – MATERIAL WEAKNESS AND MATERIAL NONCOMPLIANCE CRITERIA The 2 CFR 200 §200.302, Financial Management, establishes that: “(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 funds. All recipient and subrecipient 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 the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. See § 200.450. (b) The recipient's and subrecipient's financial management system must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand. (3) 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. (4) 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. See § 200.303. … (6) Written procedures to implement the requirements of § 200.305 and (7) Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award. STATEMENT OF CONDITION As part of our audit procedures over the reporting requirements for the Temporary Assistance for Needy Families (TANF) and Payment to Territories – Adult (PTTA) programs, we reviewed two ACF-196TR reports submitted during the fiscal year under audit. Our review disclosed deficiencies related to the accuracy, support, reconciliation, and timeliness of reported expenditures. Specifically, we noted the following: • Administrative expenditures for both TANF and PTTA are recorded under the same accounting account number and Assistance Listing Number associated with TANF. As a result, the PRIFA accounting system does not segregate administrative expenditures by federal award or Assistance Listing Number, limiting the ability to identify and track expenditures attributable to each program. • Amounts reported in the ACF-196TR reports could not be reconciled to the PRIFA accounting records, particularly for administrative expenditures. Upon request, management was unable to provide supporting schedules, reconciliations, or documentation demonstrating how the reported amounts were derived. Supporting information was prepared only after it was requested during the audit. • For grant award 2023G996117, reported expenditures in the quarterly report of September 30, 2023, that did not agree with the underlying accounting records. We identified differences of $7,266.40 in Line 6A (Work-Related Activities and Expenses), $1,745,668.00 in Line 5A (Basic Assistance), $1,645,366.55 in Line 6J (Administration), $2,007,611.62 in Line 3 (Transfer to SSBG), and $103,052.41 in Line 10 (Total Expenditures). In addition, the report was submitted after the applicable due date. • For grant award 2401PRTANF, reported expenditures in the June 30, 2024 quarterly report that also differed from the accounting records. We identified differences of $12,312.07 in Line 6A (Work-Related Activities and Expenses), $1,898,639.95 in Line 6J (Administration), $3,786,696.14 in Line 3 (Transfer to SSBG), and $1,902,297.08 in Line 10 (Total Expenditures). Furthermore, the report maintained by ADSEF did not contain evidence of the submission date; therefore, we were unable to determine whether the report was submitted within the required timeframe. QUESTIONED COSTS None. PERSPECTIVE INFORMATION This is a systematic deficiency. Procedures and internal controls manuals should provide for and ensure the segregation of duties, and the reconciliation of financial information reported to Federal agencies against the accounting records used to prepare financial statements and SEFA. In addition, the financial management system should provide to account separately the administrative expenditures incurred among all Federal programs administered. ADSEF failure to support reported amounts with verifiable documentation and the absence of independent review increases the risk of inaccurate or misstated financial data being reported to the Federal awarding agency. STATEMENT OF CAUSE During our interviews and understanding of the internal controls over financial reporting, we noted that only one person prepares, submits and certifies the ACF-196TR reports. No proper segregation of duties exists, that allows for validation of all accounting data before submitting the reports. In addition, the procedures manual for preparing reports does not establish a clear process for obtaining information, validating it, recording it, preparing it, and reporting it, as well as the responsibilities and segregation of duties to ensure that the reported information is consistent with ADSEF's accounting records. PRIFAS accounting data base as configured, does not provide for the administrative expenditures incurred from the TANF and Payment to Territories – Adult programs to be segregated. ADSEF lacks internal controls that allow for the timely validation and reconciliation of financial information. Furthermore, they lack a written procedures manual detailing the processes to follow in obtaining accounting data and reporting it to the Federal government, ensuring that the responsibility does not fall on a single individual. POSSIBLE ASSERTED EFFECT ADSEF does not ensure that the reports are accurate and traceable to the accounting database used to prepare their financial reports to the Federal Agencies and their financial statement. IDENTIFICATION OF REPEAT FINDING This is a repeat of a finding reported in the prior audit as Finding Numbers is 2023-025/2023-056. RECOMMENDATIONS We recommend ADSEF to establish written procedures and internal controls manuals to provide and document the segregation of duties related to the reporting compliance requirement. Additionally, work with the Puerto Rico Department of the Treasury to provide accounting records to segregate the administrative expenditures of both programs.