FINDING REFERENCE NUMBER 2023-046 (See Finding Reference Number 2023-018)
FEDERAL PROGRAM ALL FEDERAL PROGRAMS ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
AWARD NUMBER ALL AWARDS
COMPLIANCE REQUIREMENT REPORTING – FINANCIAL STATEMENT ACCOUNTING RECORDS
TYPE OF FINDING MATERIAL NONCOMPLIANCE AND MATERIAL WEAKNESS
CRITERIA 2 CFR Part 200, Section 302 and 45 CFR Part 75, Section 302- Financial management and standards for financial management systems state that:
(a)
Each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award.
(b)
The recipient's and subrecipient's financial management system must provide for the following:
(1)
Identification of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number, year the Federal award was issued, and name of the Federal agency or pass-through entity.
(2)
Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements in §§ 200.328 and 200.329. When a Federal agency or pass-through entity requires reporting on an accrual basis from a recipient or subrecipient that maintains its records other than on an accrual basis, the recipient or subrecipient must not be required to establish an accrual accounting system. This recipient or subrecipient may develop accrual data for its reports based on an analysis of the documentation on hand.
(3)
Maintaining records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation.
(4)
Effective control over and accountability for all funds, property, and assets. The recipient or subrecipient must safeguard all assets and ensure they are used solely for authorized purposes.
(5)
Comparison of expenditures with budget amounts for each Federal award.
(6)
Written procedures to implement the requirements of § 200.305.
(7)
Written procedures for determining the allowability of costs in accordance with subpart E and the terms and conditions of the Federal award.
STATEMENT OF CONDITION Internal controls for creating financial reports about state and Federal funds received and spent through the Puerto Rico Integrated Financial System (PRIFAS) have not been put in place by the PRDF. The PRDF lacks an adequate system of internal controls to stop, identify, and fix errors. There was no supervision or review procedure in place to identify and allow for the correction of errors before submission and before the financial data was entered into PRIFAS. There was a delay in getting timely and correct financial information for the year under audit, and the PRDF staff had difficulties preparing and presenting the cash receipt and disbursement report, which included the schedule of federal spending for the audit. The following weaknesses were discovered when the PRDF's initial Financial Statement was reviewed:
•
Transactions that weren't related to the fiscal year being reported were included in the initial financial data.
•
The Office of the Secretariat and the four Programmatic Administrations lack uniform policies and procedures to guarantee that the amounts and disclosures in the PRDF's financial reports, financial statement notes, and necessary supplemental information are correctly recognized and reported.
•
Reports for several significant programs were prepared informally and, in some instances, only by one person, which resulted in significant mistakes in some of the programs. As a result, errors in the reports across the programs were not investigated or fixed. Additionally, we saw that for various financial reports, the PRIFAS data was not considered in the reconciliation process.
•
Several significant transactions were not entered into the PRIFAS by the Administration for Families and Children (ADFAN, by its Spanish Acronym) Finance Department, they were recorded as encumbrances, and not actual expenditures. This led to an understatement of expenditures in the PRDF's general fund of about $52,300,494. Additionally, Federal spending in one of the major programs was understated by $6,886,156.
PERSPECTIVE INFORMATION The PRDF failed to properly registered in its accounting system all transactions needed to prepared the financial statement and to produce accurate financial reports for Federal grants that they received and expended during the fiscal year. No reconciliation procedures are performed regularly to identified errors in recording transactions in PRIFAS. This cause that when the PRDF prepared cash received and disbursement financial statement and the SEFA for audit purposes was incomplete and misstated (see Finding Reference Number 2023-017).
STATEMENT OF CAUSE To make sure that all the PRDF's transactions had been accurately documented and reported, the PRDF did not thoroughly examine the financial data that was created and submitted in PRIFAS and used to prepare the financial statement and supplementary information. Due to lack of supervision or a review procedure to identify errors prior to submission, the ADFAN Finance Director recorded transactions as encumbrances, instead of actual expenditures.
POSSIBLE ASSERTED EFFECT The PRDF is unable to provide accurate, up-to-date, and comprehensive disclosure of state and Federal funds activities in compliance with the agreement's requirements due to inadequate and inconsistent financial accounting reporting methods.
IDENTIFICATION OF
REPEAT FINDING No reported as prior audit finding.
RECOMMENDATIONS To comply with the requirements of state and local agreements and enable the PRDF to monitor trustworthy financial data for use within the agency and for upcoming audits, we recommend the PRDF update its accounting practices and policies to provide for an accurate, comprehensive, and timely financial reporting system. Implementing an accounting and financial management system that enables the creation of financial data and reports needed by the various oversight organizations. The process should involve defining precise procedures for the creation and evaluation of financial reports, with different roles allocated to various people.