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 $2.4 million of expenditures not properly reported in the SEFA for the fiscal year ended June 30, 2021. 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 2020-009.
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. In addition, the SEFA was amended to reflect PW expenditure in the accrual basis of accounting.
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 July 2025. Responsible Party – Nelson Morales- PREPA Chief Financial Officer.