Port Authority of New York and New JerseyLocal Government

Finding 2024-002 – Activities Allowed or Unallowed and Allowable Costs/ Cost Principles, and Procurement Program Name (ALN): Public Transportation Emergency Relief Program (ALN 20.527) Federal Agency: U.S. Department of Transportation Federal Grant Numbers and Years: NJ-44-X004-02 (Federal fiscal years 2012–2025) Statistically Valid Sample: The sample was not intended to be, and was not, a statistically valid sample Finding Type: Significant Deficiency and Noncompliance Repeat Finding: No Criteria: Activities Allowed or Unallowed and Allowable Costs/ Cost Principles Except where otherwise authorized by statute, cost must meet the following general criteria in order to be allowable under federal awards; (1) Be necessary and reasonable for the performance of the federal award and be allocable thereto under the principles in 2 CFR Part 200, Subpart E. (2) Be adequately documented. Procurement Non-Federal Entities Other than States Non-federal entities other than states, including those operating federal programs as subrecipients of states, must follow the procurement standards set out at 2 CFR sections 200.318 through 200.327. They must use their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable federal statutes and the procurement requirements identified in 2 CFR Part 200. A non-federal entity must: (1) Meet the general procurement standards in 2 CFR section 200.318, which include oversight of contractors’ performance, maintaining written standards of conduct for employees involved in contracting, awarding contracts only to responsible contractors, and maintaining records to document history of procurements. Additionally, In accordance with federal requirements, the Port Authority shall maintain internal controls over federal programs designed to provide reasonable assurance that transactions are executed in compliance with federal statutes, regulations, and the terms and conditions of the federal award that could have a direct and material effect on a federal program. Condition: The Port Authority of New York and New Jersey (the Port Authority) used funds received from the Public Transportation Emergency Relief Program (the Program) to purchase equipment to perform maintenance and inspection of the track damaged by Superstorm Sandy, repair the damage, and allow the Port Authority to be more resilient in future events. As part of our testing over the procurement requirements for the Program, we noted for one out of eleven vendors sampled subject to the Port Authority’s procurement policies for a covered transaction, the vendor was operating and incurring expenditures under a call-in contract that did not meet certain federal procurement requirements established by the Port Authority for other federal awards, with total expenditures of $23,772 for the year ended December 31, 2024. The total amount of expenditures for vendors subject to the procurement requirements of the Program and the Port Authority’s procurement policies for a covered transaction during fiscal year 2024 was $4,263,131, and the total amount of other-than-personal service costs for the Program during fiscal year 2024 was $65,782,642. We noted that the vendor was neither suspended nor debarred from receiving federal funds, and also has other procurement contracts with the Port Authority that meet federal procurement requirements. Cause: The Port Authority used the incorrect procurement contract for this vendor that did not meet certain federal procurement requirements and the error was not detected as part of the Port Authority’s established policies and procedures. Effect: The expenditures charged by the vendor to the Program under the wrong procurement contract were not allowable, as there was no awarding contract to the vendor that met all federal procurement requirements established by the Port Authority. Questioned Costs: $23,772. In addition to the known questioned costs, we have identified $338,252 as likely questioned costs, based on amounts included in our sampled items tested and the total population of other-than-personal service costs noted above. Recommendation: We recommend that the Port Authority strengthen its policies and procedures to ensure all vendors have the appropriate contracting awards in accordance with federal procurement requirements for charging allowable expenditures under the requirements of the Program. Views of Responsible Officials Although federal funds were not received for this expenditure, PATH acknowledges an internal control deficiency regarding the recognition of grant funding for work performed under standard nonfederal engineering call-in contracts. PATH will continue to work collaboratively with the Engineering and Procurement Departments to strengthen internal communications and reinforce adherence to established protocols governing capital projects that are eligible for federal funding.

Finding 2023-002 – Equipment and real property management Program Name (ALN): Public Transportation Emergency Relief Program (ALN 20.527) Federal Agency: U.S. Department of Transportation Federal Grant Numbers and Years: NJ-44-X004 (April 1, 2014 – November 5, 2023) Statistically Valid Sample: The sample was not intended to be, and was not, a statistically valid sample Prior Year Finding: Not applicable Finding Type: Material weakness and material noncompliance Criteria: Property records must be maintained that include a description of the property, a serial number or other identification number, the source of funding for the property (including the Federal award identification number), who holds title, the acquisition date, cost of the property, percentage of Federal participation in the project costs for the Federal award under which the property was acquired, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sales price of the property (2 CFR Section 200.313(d)(1)). A physical inventory of the property must be taken, and the results reconciled with the property records at least once every two years as required by 2 CFR Section 200.313(d)(2). In addition, under 2 CFR section 200.303(a), 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 federal statutes, regulations, and the terms and conditions of the federal award. Condition: The Port Authority of New York and New Jersey (the Port Authority) used the Public Transportation Emergency Relief Program to purchase equipment to perform maintenance and inspection of the track damaged by Superstorm Sandy, repair the damage, and allow the Port Authority to be more resilient in future events. We noted the Port Authority did not perform a physical inventory of the equipment within the required two-year period. Further, during our physical observation of fifteen pieces of equipment, we noted for four items, the serial numbers included on the equipment’s tag did not match the serial number included in the Port Authority’s property records. Cause: In discussing these conditions with the Port Authority’s management, they stated inadequate staffing resources due to staff turnover contributed to the finding. Effect: Failure to perform an inventory at least once every two years and maintaining accurate property records may prohibit the Port Authority from properly safeguarding and maintaining equipment in accordance with federal requirements. Questioned Costs: None. Recommendation: We recommend that the Port Authority strengthen its processes to ensure a physical inventory of equipment acquired with federal funds is performed at least once during each two-year period. Views of Responsible Officials: The Port Authority acknowledges an internal control deficiency in performing a physical equipment inventory of equipment as required under CFR 200 for the Public Transportation Emergency Relief Program 2013 49 U.S.C. 5324 (Grant award NJ-44-X004 PATH-H.) PATH successfully performed a physical inventory of equipment in 2018, the first year it was required. In 2020, the performance of a physical inventory coincided with the COVID-19 pandemic which facilitated the retirement of key personnel in PATH who were responsible for performing the physical inventory of the equipment that was federally funded. This staff transition led to a loss of PATH system expertise necessary to pick up the process previously developed, resulting in the inadvertent lapse in performing the physical inventory in 2020 and 2022. To mitigate this deficiency PATH has performed a physical inventory in 2024 and updated its procedures as they relate to performing the physical inventory of equipment and to have staffing redundancies in place to account for staff turnover. In addition, PATH updated its equipment inventory log to reflect the correct serial numbers on the four pieces of equipment that KPMG identified.

2020 001 Activities Allowed or Unallowed and Allowable Costs/ Cost Principles U.S. Department of Transportation: Airport Improvement Program COVID-19 - CARES ACT Airport Grant Agreement (CFDA #20.106) Federal Grant Number: 3-36-0066-190-2020 Statistically Valid Sample: No, and it was not intended to be Prior Year Finding: N/A Finding Type: Significant Deficiency and Noncompliance Criteria: Activities Allowed or Unallowed The specific requirements for activities allowed or unallowed are unique to each Federal program and are found in the Federal statutes, regulations and the terms and conditions of the Federal award pertaining to the program. The program specific compliance supplement states that grants can be made for planning, constructing, improving, or repairing a public use airport or portions thereof and for acquiring safety or security equipment. Eligible terminal building development is limited to non-revenue-producing public-use areas that are directly related to the movement of passengers and baggage in air carrier and commuter service terminal facilities within the boundaries of the airport. Eligible construction is limited to items of work and to the quantities listed in the grant description and/or special conditions (49 USC 47110). The grant agreement specifies that the purpose of this Grant is to maintain safe and efficient airport operations. Funds provided under this Grant Agreement must only be used for purposes directly related to the airport. Such purposes can include the reimbursement of an airport's operational and maintenance expenses or debt service payments. Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Airport Grants may be used to reimburse operational and maintenance expenses directly related to the Sponsor owned and operated Airports, incurred no earlier than January 20, 2020, and may be used to cover airport operational and maintenance expenses. CARES Act Airport Grants funds also may be used to reimburse a Sponsor's payment of debt service where such payments occur on or after March 27, 2020. Funds provided under the Grant will be governed by the same principles that govern "airport revenue." New airport development projects may not be funded with this Grant unless and until the Grant Agreement is amended or superseded by a subsequent agreement that addresses and authorizes the use of the funds for the airport development project. Allowable Costs/Cost Principles The cost principles in 2 CFR part 200, subpart E (Cost Principles), prescribe the cost accounting requirements associated with the administration of Federal awards by local governments. As provided in 2 CFR Section 200.101, the cost principles requirements apply to all Federal awards with the exception of grant agreements and cooperative agreements providing food commodities; agreements for loans, loan guarantees, interest subsidies, insurance; and programs listed in 2 CFR Section 200.101(d). The cost principles applicable to a non-Federal entity apply to all Federal awards received by the entity, regardless of whether the awards are received directly from the Federal awarding agency or indirectly through a pass-through entity. Additionally, in accordance with Federal requirements, a non-federal entity shall maintain internal controls over Federal programs designed to provide reasonable assurance that transactions are executed in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award that could have a direct and material effect on a Federal program. Condition and Context: The Port Authority was awarded a CARES ACT Airport Grant in fiscal year 2020. The grant agreement specified the types of expenditures that could be reimbursed under the grant and also specified that the expenditures may be incurred no earlier than January 20, 2020. As a result of our testwork, it was determined that expenditures totaling $44,115 were incurred and invoiced prior to January 20, 2020 and submitted as allowable expenditures under the grant. These unallowable expenditures were initially submitted in error. The Port Authority has other eligible expenditures which will be submitted as allowable replacement expenditures for the questioned costs identified as a result of the testwork. While the Port Authority has a process in place and internal controls designed to ensure that the costs charged to the grant are in accordance with the above compliance requirements, the review of these expenditures as part of the internal control over compliance was not operating effectively to ensure that the costs submitted for reimbursement were incurred no earlier than January 20, 2020. Cause: The Port Authority did not properly review expenditures charged to the grant to ensure that they were incurred and invoiced after January 20, 2020. Effect: The Port Authority applied grant funds to expenditures incurred and invoiced prior to January 20, 2020, which was not in accordance with the provisions of the grant agreement. Questioned Costs: $44,115, representing unallowable expenditures charged to the grant. The Port Authority has other eligible expenditures which will be submitted as allowable replacement expenditures for these questioned costs. Recommendation: We recommend that the Port Authority strengthen its policies and procedures over the review of the expenses that are charged to the grant to ensure that costs are in compliance with the grant agreement. We also recommend that the Port Authority ensure that internal controls in place surrounding review of the expenses are performed as designed. Views of Responsible Officials: Upon becoming aware of the inadvertent error of submitting certain invoices that had an invoice date earlier then the commencement date of January 20, 2020, the Port Authority immediately notified the Federal Aviation Administration (FAA), performed a 100% review of all invoices that were submitted for reimbursement and validated that all other invoices were eligible for reimbursement. The Port Authority also refunded the $44,115 of ineligible expenses. The Port Authority has identified $44,115 of eligible expenses that can be a substituted for the ineligible expenses. The Port Authority will also resubmit all required filings (including revised Grant Closeout Report and SF-425) which reflect the correct amount. To reduce errors in the future, the Port Authority?s Aviation Financial Division (or Project Manager) will identify the expenditures to be included in the Request for Reimbursement (RFR) and provide it to the Aviation Planning Division (APD) grant manager (Thomas Felix) to prepare the formal RFR. APD will review and approve all supporting documentation to ensure all reimbursement requests meet all eligibility criteria and special conditions stipulated in the federal award. The Storm Mitigation and Resilience Office (SMRO) will conduct a Quality Control review of the RFR before it is formally submitted to the FAA.

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