Finding Text
Criteria
Per 2 CFR 200.302 (b)(7) a non-federal entity must establish written procedures for determining the allowability of costs in accordance with Subpart E – Cost Principles and the terms and conditions of the Federal award.
Per 2 CFR 200.303, a non-Federal entity must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with the Federal statutes, regulations, and the terms and conditions of the Federal award.
These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Article 12 of the Act 83 of May 2, 1941, as amended, establishes that the Authority must have an accounting system that provides for adequate control and statistical records of all income and expenses from, administered or controlled by the Authority.
Condition and Context
During our review of the internal controls over compliance, we noted that the following:
• Authority did not have written procedures or formal policies to ensure compliance over the Allowable Costs and Cost Principles, Period of Performance, Matching and Reporting requirements.•
During our test work over internal controls over compliance for activities allowed and cost principles requirements, we noted that the Authority implemented a system of compiling the relevant data elements, including allowed expenditures for all projects. However, there was no control addressing the completeness and accuracy of the allowed expenditures.
Cause and Possible Asserted Effect
Management did not establish proper internal controls to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal awards. Absence of formal policies and procedures could cause the Authority to fall in noncompliance with federal awards. Also, the Authority’s processes and controls are not designed to ensure proper review of supporting documentation to meet the compliance requirements of the Federal Grant.
Not having formal processes and controls caused that in multiple occasions the Grantor returned claims submitted due to lack of support documentation.
Questioned Cost
There were no questioned costs associated with the finding.
Whether the Sampling was a Statistically Valid Sample
The sample was not intended to be, and was not, a statistically valid sample.
Prior Year Repeat Finding
A similar finding was reported in the prior year’s audit as finding 2020-008.
Recommendation
Management must establish written procedures and formal policies to ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal awards.
View of Responsible Officials
Management acknowledges the findings and has implemented a corrective action plan to enhance compliance with Federal awards. This plan includes developing Standard Operating Procedures (SOPs) for grant management activities, identifying, and documenting existing internal controls, and maintaining constant communication with stakeholders to prevent material non-compliance. Additionally, PREPA will provide training to staff on the new SOPs and establish a monitoring mechanism to continuously assess and improve the effectiveness of these controls.
The corrective action plan, supervised by Mr. Ezequiel Nieves from the PREPA Disaster Funding Management Office, is expected to be completed by July 2025. Management is committed to addressing deficiencies, ensuring that processes and controls are robust and effective, and that Federal awards are managed transparently and in full compliance with all regulatory requirements. The estimated date of completion is expected to be in July 2025. Responsible Party - Mr. Ezequiel Nieves - PREPA Disaster Funding Management Office, Finance Department.
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.