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Finding No: 2025-004 – Improvement required over the equipment and real property management for which the physical inventory observation over property has not been performed Federal Programs ALN 20.106, Airport Improvement Program Name of Federal Agency U.S. Department of Transportation - Federal Aviation Administration Category Internal Control/Compliance; Significant Deficiency Compliance Requirement Equipment and Real Property Management Criteria 2 CFR 200.313 (d) (1) establishes that property records must be maintained and should include a description of the property, a serial number or other identification number, the source of funding for the property, who holds the title, the acquisition date, and cost of the property, percentage of Federal participation in the project costs for the Federal award under which property was acquired, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sale price of the property. 2 CFR 200.313 (d) (2) establishes that a physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. 2 CFR 200.313 (d) (3) establishes that a control system must be developed to ensure adequate safeguard to prevent loss, damage, or theft of the property. Any loss, damage, or theft must be investigated. 2 CFR 200.313 (d) (4) establishes that adequate maintenance procedures must be developed to keep the property in good condition. Puerto Rico Ports Authority (A Component Unit of the Commonwealth of Puerto Rico) Schedule of Findings and Questioned Costs – (Continued) Year Ended June 30, 2025 - 95 - Part III – Federal Award Findings and Questioned Costs – (continued) Finding No: 2025-004 – Improvement required over the equipment and real property management for which the physical inventory observation over property has not been performed – (continued) Criteria – (continued) 2 CFR 200.313 (d) (5) establishes that if the non-Federal entity is authorized or required to sell the property, proper sales procedures must be established to ensure the highest possible return. Property Division Manual No. 500 Section .12 (A) (1) establishes that the General Services Manager together with the Property Division Supervisor will be responsible to take an annual physical inventory. Also, will be responsible for maintaining files to evidence the annual physical inventory taking. Property Division Manual No. 500 Section .12 (A) (4) establishes that Property Division Supervisor will be responsible for investigating and determining the changes that correspond to the founded differences as a result of inventory. Property Division Manual No. 500 Section .16 (1) establishes that all equipment acquired with federal funds will be properly identified and made reference of sourced funds, percentage of federal participation and number of agreement or grant, as apply. Condition While obtaining our understanding of the policies and procedures in place at the Authority’s office in relation to the management of property and equipment, management represented to us that the required physical inventory has not been performed by the Authority’s Property Division personnel during the last seven years as required. Cause The Authority’s lack of personnel has been the principal cause for not taking the physical inventory of property and equipment, as required by federal regulations. Also, due to the early retirement program established under Act No. 80 of August 3, 2020 – “Law for Incentivized Retirement Program and Justice for Our Servants” (Act No. 80), a total of 127 eligible employees of the Authority took advantage of the benefits from the incentivized program under said act. In addition, some personnel have simply resigned from their occupied position and left the Authority willingly. The significant reduction in experienced personnel, particularly in key financial functions, occurred prior to the completion of fiscal year-end closing procedures. The Authority did not have an adequate succession or transition plan to ensure continuity of operations and effective internal control during this workforce reduction. Consequently, the Authority experienced disruption in the Puerto Rico Ports Authority (A Component Unit of the Commonwealth of Puerto Rico) Schedule of Findings and Questioned Costs – (Continued) Year Ended June 30, 2025 - 96 - Part III – Federal Award Findings and Questioned Costs – (continued) Finding No: 2025-004 – Improvement required over the equipment and real property management for which the physical inventory observation over property has not been performed – (continued) Cause – (continued) performance of key financial reporting processes and became increasingly reliant on external consultants to complete certain closing entries and procedures. Effect The lack of a periodic physical inventory procedures does not allow the Authority the timely identification of issues related to federally acquired property and equipment in order to take needed actions to prevent or correct inadequate condition. The Authority is exposed to the risk of possible unauthorized use, misappropriation and disposition of property without being noticed due to the lack of internal controls and proper supporting accounting records. Such condition exposed the Authority not to take any action to recover any suffered loss as reconciliation of physical assets to accounting records could not be made. Context This finding was present in the prior year single audit report as finding 2024-004 and 2023-004. Corrective action plan from the prior year single audit report (issued September 29, 2025) stated that during fiscal year 2025‐2026 the Human Resources area will conduct an analysis and evaluation of all vacant positions to determine which ones can be hired. Once this analysis is completed, management will obtain the required approval to hire additional personnel to address the physical inventory observation and counting. Therefore, the condition is still present as of June 30, 2025. Identification of repeat finding This is a repeat finding from the immediate previous audit, Finding 2024-004. Questioned costs Could not be determined. Puerto Rico Ports Authority (A Component Unit of the Commonwealth of Puerto Rico) Schedule of Findings and Questioned Costs – (Continued) Year Ended June 30, 2025 Part III – Federal Award Findings and Questioned Costs – (continued) Finding No: 2025-004 – Improvement required over the equipment and real property management for which the physical inventory observation over property has not been performed – (continued) Recommendation We recommend management to appoint personnel to perform this task. Such personnel might come from contracting outsourced third-party providers or hiring new or training current personnel to assist in the capital assets inventory taking procedures. In addition, we recommend that management enforce the procedures to be followed by the Property Division to mitigate the risks of misappropriation. This could be denominated as a special project to be included as part of the subsequent fiscal year budget and be contracted with a third party as the benefits overweight the risk of loss. Views of responsible officials and planned corrective actions We agreed with the auditors’ finding and recommendation. See further details regarding this matter within the Corrective Action Plan provided on pages 108-114.