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 own
funds.
In addition, the state's and the other non-Federal entity's 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 general and
program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate
to establish that such funds have been used according to the Federal statutes, regulations, and the
terms and conditions of the Federal award, (b) The financial management system of each non-
Federal entity must provide for the following: (1) Identification, in its accounts, of all Federal awards
received and expended and the Federal programs under which they were received.
(2) Accurate, current, and complete disclosure of the financial results of each Federal award or
program in accordance with the reporting requirements set forth in §§200.327 Financial reporting
and 200.328 Monitoring and reporting program performance. (3) Records that identifies adequately
the source and application of funds for federally funded activities. These records must contain
information pertaining to Federal awards, authorizations, obligations, unobligated balances, assets,
expenditures, income, and interest and be supported by source documentation. (4) Effective control
over, and accountability for, all funds, property, and other assets, and (5) Comparison of
expenditures with budget amounts for each Federal award. Act Number 230 of July 23, 1974, Puerto
Rico Government Accounting Law, as amended, states that the accounting system of the
instrumentalities of the Commonwealth of Puerto Rico should be designed to reflect or provide
complete and clear information related to their financial results of operations.
Condition
The Department has a weakened financial reporting system, brought on by several deficiencies
related to the accounting and financial reporting practices of the Department. The deficiencies noted
as part of our procedures are summarized as follows:
• The Department's procedure manuals contain outdated procedures which do not necessarily
reflect the current tasks and operations of the Department.
• The Department does not prepare monthly closings on a recurring and periodic basis.
• The Single Audit Report has not been submitted in a timely manner and audit procedures
are significantly delayed due to a lack of reconciliations and monthly closing procedures.
• Multiple transactions are recognized retroactively several months after occurring, as a result
of the significant delays brought forth by a weak financial reporting system.
• The Department does not have adequate procedures to reconcile, in a timely manner,
financial transactions recorded in the accounting system of the Puerto Rico Treasury
Department with the accounting records maintained by the Department.
Effect
Deficiencies in the financial reporting and accounting practices of the Department may result in the
following:
• Financial Reports which are required as part of compliance with federal programs may be
prepared with inaccurate or incomplete financial information and may not be submitted in a
timely and compliant manner.
• Sanctions, reduced funding, return of monies to federal agencies, cancellation of grants,
among other potential sanctions.
• Inconsistency between the financial information registered in the Department with financial
transactions recognized in the records of the Puerto Rico Treasury Department.
• Difficulties in accurately assessing program performance and monitoring of expenses in line
with budgeted amounts to actual amounts expended as part of program activities.
Inefficiencies and additional effort incurred by employee's part as a result of outdated or
inaccurate procedure manuals. This also results in confusion as to the proper procedures to
follow and the relevant approval and revision tasks to be performed.
• Non-compliance with federal program requirements brought forth as a result of financial
information which is inaccurate.
Cause
The Department has not implemented a uniform internal accounting process that allows all the
Department's administrations (5) to consolidate accounting information for both fiscal and program
periods and reconcile with financial information with the Treasury Department.
In addition, the Department lacks uniform internal accounting software and applications between
the administrations of the Department, which precludes them from timely and accurate consolidation
of financial information.
Recommendation
The Department needs to implement a formal monthly closing of its accounting records and
financial reporting with the purpose of ensuring accurate and timely financial information.
Monthly closing procedures would be carried out most efficiently by developing a logical order for
closing procedures and assigning responsibility for completing the procedures to specific personnel.
As the Department is composed of various administrations, a task force should be assigned to
develop procedures which detail the data-gathering information process to accumulate financial data
of the administrations in a consistent manner. In addition, financial information should be
consolidated at the Department level in order to reconcile with the financial records of the Treasury
Department.
Procedures should include, at a minimum, the following: the month-end period, a list of monthly
closing tasks (post sub ledger balances to general ledgers, post journal entries, reconcile financial
records with those of the Treasury Department, etc.), and the due date of each task (2 weeks after
month end, etc.)
It is recommended that the closing and reconciliation procedures be documented in a checklist that
indicates the responsible individual who will perform each procedure and when completion of each
procedure is due. Following are recommendations regarding the required closing procedures and
suggestions to improve the financial reporting system:
• Determine that all transactions have been recorded and posted. Transactions should be
reviewed for completeness by scanning accounts to determine any unusual balances or
fluctuations from expectations.
• Reconcile general ledger accounts to underlying records and compareireconcile this
information with the records of the Puerto Rico Treasury Department. Any differences
observed during this process should be followed up in a timely manner in order to clarify
and clear any reconciling items between the two sets of financial records.
• Accumulate pertinent information necessary for the preparation of federal reports (financial
and performance reports). In addition, a proper flowchart of procedures and revisions should
be prepared to ensure that federal reports are filed and certified within established deadlines.
• Perform a budgetary analysis by comparing expected amounts of expenditure with actual
results. This will provide a more accurate measure of performance for federal programs and
the overall efficiency in the use of funds of the Department. This will enhance the monitoring
of program performance to ensure compliance with federal regulations and State Plan
objectives.
• Proper storage and backup of Department data files as part of the closing procedure. All files
should be properly backed up before monthly closing is determined to be complete.
• Differences observed during the reconciliation and closing procedure need to be discussed
with the management personnel responsible for providing oversight over each respective
area of the financial reporting cycle. Any adjustments necessary as a result of these
procedures should be posted in a timely manner and before the closing is completed.
Internal control manuals should be evaluated to ensure that they provide a clear and
descriptive flowchart which details personnel involved, flow of information, estimated time
frames for deliverables, and other control procedures relevant to the Department's
operations. The Department should also evaluate its existing manuals to determine if they
are updated and accurately reflect the procedures the Department currently carries out and
ensure that these are in compliance with federal requirements. Updated written procedures
and instructions will prevent or reduce misunderstandings, errors, inefficiencies or wasted
efforts, enhancing the efficiency of the operations of the Department.
Questioned Costs
None
Management's Response
Refer to Grantee's Corrective Action Plan.