Finding Text
Federal Program: ALN 14.218-CDBG-DR/Entitlement Grant Category: Compliance/internal control significant deficiency Compliance requirement: Equipment and real property management Criteria: BGCPR Finance Policies to administer CDBG-DR funds, established by the Puerto Rico Department of Housing in Chapter 15, Section 2, require that sub-recipients must capitalize property and equipment with a cost of $500 or more. Condition: The capitalization threshold used for property and equipment acquired with CDBG funds is not in compliance with Finance Policies to administer CDBG-DR funds, as established by the Puerto Rico Department of Housing. Cause: The capitalization policy followed by BGCPR, with the exception of CDBG funds, is to capitalize property and equipment with a cost of $5,000 or more. Questioned costs: Amount is below the threshold to be considered a questioned cost. Effect or potential effect: Property and equipment acquired with CDBG-DR funds is being expensed instead of capitalized. Context: Two (2) instances of property and equipment acquired with CDBG-DR funds were not recorded in the equipment details, resulting in the assets being expensed instead of capitalized as required by the Finance Policies to administer CDBG-DR funds. Identification as a repeat finding: As of June 30, 2024 and June 30, 2023, this condition was associated with findings 2024-009 and 2023-002. Recommendation: We recommend that management updates its capitalization policy to include this specific requirement for property and equipment acquired with CDBG-DR funds. Views of officials responsible: BGCPR acknowledges a significant oversight in the financial management of assets acquired with Community Development Block Grant – Disaster Recovery (CDBG-DR) funds. Specifically, it has been identified that certain property and equipment purchased using these funds were not properly recorded in the equipment detail ledger. As a result of this omission, these assets were incorrectly treated as expenses in the financial records, rather than being capitalized in accordance with BGCPR’s established financial policies and the federal guidelines governing the administration of CDBG-DR funds. This misclassification not only affects the accuracy of BGCPR’s financial statements but also represents a deviation from required asset management practices, which mandate the capitalization and tracking of equipment to ensure accountability, proper depreciation, and compliance with grant conditions. As a corrective measure, BGCPR will take the following actions: a. BGCPR will implement a corrective action plan to strengthen accounting processes related to account registration and equipment capitalization related to the CDBG-DR; b. Procurement procedures for requesting, approving, and accepting goods and services, Include agency consultation; c. Ensure accuracy in financial records that Maintain compliance with applicable regulations; d. Account for taxes and support service costs (e.g., installation, delivery); e. Ensure all purchases align with federal regulations. Anticipated Completion Date: December 31, 2026