SECTION III ? FEDERAL AWARD FINDINGS AND QUESTIONED COSTS _____________________________________________________________________________________________________________________ FINDING NUMBER 2022-008 FEDERAL PROGRAM HEAD START CLUSTER (ASSISTANCE LISTING NUMBER 93.356/ 93.600) PASS-THROUGH PUERTO RICO ADMINISTRATION FOR THE CHILDHOOD CARE AND INTEGRAL DEVELOPMENT U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBERS 241-2022-000653/ 241-2021-000444/ 241-2021-000226/ 241-2020- 000139 TYPE OF FINDING COMPLIANCE AND INTERNAL CONTROL COMPLIANCE REQUIREMENT REPORTING CONDITION During the reporting test, a sample was selected of the monthly disbursement reports, including the Federal Financial Report (SF-425) and the final liquidation reports of the program year 2021-2022 of the Head Start/ Early Head Start grants and found the following situations: 1) For the Head Start/ Early Head Start programs, I selected a sample of the monthly disbursement reports, including the Federal Financial Report (SF-425), of November 2021 and February 2022 and the final liquidation reports of the program year 2021-2022 and noted that; a) for the monthly reports of November 2021 and February 2022, the Program did not provide evidence of the date in which the reports were submitted to the pass-through entity; b) certain differences in the revenues and expenditures were noted between the SF-425 and the accounting records of the Programs; c) the Program did not provide evidence of the preparation and submission of the final liquidation report of the program year 2021-2022 to the pass-through entity. 2) For the Head Start Disaster Recovery program, I selected for evaluation the Federal Financial Report (SF-425) of February 2022, related to the final liquidation report of the grant and noted that; 1) the Program did not provide evidence of the date in which the reports were submitted to the pass-through entity; b) certain differences were noted between the final liquidation report submitted to the passthrough entity and the accounting records of the Program; 3) as of June 30, 2022, the bank account of the Program maintain a cash balance of $3,288,516, which has not been return to the pass-through entity. 3) For the Head Start Cares Act program, I selected the Federal Financial Report (SF-425), of August 2021, related to the final liquidation report of the grant and noted that the Program did not provide evidence of the date in which the final liquidation report was submitted to the pass-through entity. 4) The Programs? accounting personnel did not maintain complete and adequate set of accounting records of the financial transactions of the Programs, that permits the tracing to the monthly and closing reports submitted to the pass-through entity. CRITERIA As established in the Uniform Guidance, 2 CFR Section 200.302, Financial Management, (a) the 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. In addition, clause Eight of the grant agreement between the passthrough entity and the Municipality establish that the Municipality should submit the monthly disbursements report on or before the first ten (10) days of the next month. Also, clause Eight states that after the closing of the program year, the Municipality should submit the following documents and reports: 1) a trial balance and a statement of revenues and expenditures on or before the first fifteen (15) days after the closing of the program; 2) a Federal Financial Report (SF-425) on or before the first fifteen (15) days after the closing of the program; and 3) a liquidation funds report at the closing of the fiscal operations must be submitted on or before the first fifteen (15) days after the closing of the program year and at the end of the term of the ninety (90) days to liquidate the outstanding obligations. CAUSE Adequate internal controls and monitoring procedures do not exist to ensure the timely submission and correctness of the monthly reports and the Federal Financial Reports (SF-425) submitted to the pass-through entity. EFFECT The Municipality and the Programs? accountants has not kept proper accounting records of the financial transactions of the Programs as required by Federal regulations and the grant agreements. Also, the Municipality was not in compliance with the accounting and reporting requirements and reporting deadlines established in the grant agreements with the pass-through entity. RECOMMENDATION I recommend that technical training must be provided to the accounting staff to improve the recordkeeping of the financial transactions of the Programs in order to maintain complete and accurate accounting records. QUESTIONED COSTS None PRIOR YEAR FINDING This finding is a prior year audit finding identified as 2021-004. VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTION On May 3, 2021, the Grantee inform the Municipality about the determination to temporarily submit to a partial protective intervention the programmatic and administrative function of the delegated agency of Pe?uelas. As a direct consequence of such a determination, since May 3, 2021, up to July 31, 2022 (grant termination date), two employees of the Grantee had interference in all fiscal and programmatic transactions of the delegated agency, requiring their authorization for fiscal or programmatic transactions to be carried out. During this timeframe, key personnel of the delegated agency, such as the Program Director, the Program Accountant, the Property Manager, among others, resigned or were required to be replaced by the Grantee?s representatives, altering the programmatic and fiscal operations of the delegated agency. About the program year 2021-2022 closing, the Municipality of Pe?uelas return the funds surplus after the end of the period of liquidation of obligations, including the $3,288,516 related to Head Start Disaster Recovery program retained in the Program restricted cash account as instructed by a Grantee?s representative. Related to the program year prematurely terminated by the Grantee (program year 2022-2023), the Municipality?s Finance Department staff reconciled the program fiscal transactions registered in the Municipality?s computerized accounting system, with the grant awards, as amended, and prepare a liquidation report of each grant award. Such reports will be submitted to the Grantee to discuss the steps for liquidation of obligations with third parties, and the reimbursement of payroll and other expenditures financed by the Municipality?s General Fund.