Finding Text
Criteria
For disaster grants funded by the U.S. Department of Homeland Security – Federal Emergency
Management Agency (FEMA), nonfederal entities must record expenditures on the schedule of
expenditures of federal awards (SEFA) when 1) FEMA has approved the nonfederal entity’s Project
Worksheet (PW) and 2) when the nonfederal entity has incurred eligible expenditures. Federal awards
expended in years subsequent to the fiscal year in which the PW is approved are to be recorded on the
nonfederal entity’s SEFA in those subsequent years.
Additionally, internal control standards require that management maintain internal controls over business
processes to reduce the risk of a material misstatement occurring in their financial statements and not
being detected by management in a timely manner. Strong internal controls establish a control environment
that is less susceptible to error and fraud.
Condition and Context
As a result of our audit procedures, the engagement team identified $115 million of expenditures not
properly reported in the SEFA for the fiscal year ended June 30, 2020. Amounts in the SEFA were
corrected by management.
Cause and Possible Asserted Effect
The cause of these errors was a lack of established controls in place to ensure that the SEFA is complete
and accurate.
Sampling
The sample was not intended to be, and was not, a statistically valid sample.
Questioned Cost
There were no questioned costs associated with the finding.
Repeat Finding
A similar finding was reported in the prior year’s audit as finding 2019-009.
Recommendation
We recommend that the Authority establish policies and procedures to ensure that SEFA is complete and
accurate and that it includes expenditures when 1) FEMA has approved the nonfederal entity’s Project
Worksheet (PW) and 2) when the nonfederal entity has incurred eligible expenditures.
Views of Responsible Officials
Management acknowledges the findings and has implemented a corrective action plan to develop Standard
Operating Procedures (SOPs) for current Grant management activities in order to assure that only
expenditures incurred in each approved Project Worksheet (PW) that are not subsequently disallowed by
the Federal Agency are included in the SEFA.
Effective June 1, 2021, the Authority transitioned the management and operation of its transmission and
distribution network as well as certain back- office functions, including billing, collections and accounting, to
a third party.
The third-party operator is reviewing operating procedures and controls within its responsibilities to make
the necessary improvements.
Management will work to address these findings with the assistance of the third-party operators, where
applicable. Also, effective July 1, 2023, the Authority transitioned the management and operation of its
generation assets as well as certain back- office functions to a third party. The third-party operator is
reviewing operating procedures and controls within its responsibilities to make the necessary
improvements. In addition, the Authority will also be implementing and monitoring corrective actions taken
by the new generation segment operator.
The estimated date of completion is expected to be in July 2025. Responsible Party - Mr. Juan Carlos
Adrover - PREPA Comptroller