Economic Development Bank for Puerto Rico

FINDING NO. 2024-002: PROGRAM REPORTS AND ACCOUNTING RECORDS Repeated Finding: Yes Criteria: As more fully described in finding 2024-005, the subrecipient agreement between the Bank and the Puerto Rico Department of Housing (PRDOH), establishes in the Terms and Conditions Part IV. Performance, Monitoring and Reporting, Section B. Reporting, that the Bank as Subrecipient shall submit monthly progress reports to the PRDOH, on the form and with the content to be specified and required by the PRDOH. Also, the CDBG-DR Financial Policy of the PRDOH establishes that the Bank, as subrecipient is responsible for ensuring that separate accounting is maintained for CDBG-DR funds in its internal accounting system and records. Condition: As described in finding 2024-005: For the year ended June 30, 2024, we compared the amount of grants awarded as per the Administrative and Performance Reports submitted to the PRDOH with the amount reported in the Schedule of Expenditures and Federal Awards and noted an unreconciled difference of $25,766,191. In relation to the CDBG-DR Fund, although disbursements are recorded in a separate fund, the Bank does not present, on a monthly basis, the revenues, expenses, assets, and liabilities in the Bank’s general ledger. Instead, the Bank is recording the transactions as revenues, expenses, assets, and liabilities related to the CDBG-DR fund at year end. The CDBG-DR fund activity is monitored in another system that is maintained parallel to the Bank’s general ledger. This additional system is used for the reporting process but is not monitored and reconciled jointly with the Bank’s general ledger. Entity level controls related to monthly approvals, reconciliations, actual versus budget comparisons, and other financial reporting controls are performed in another system that does not make automatic interface with the Bank’s general ledger. We noted the following situations related to accounting records for the year ended June 30, 2024: The trial balance provided by management for audit procedures relating to CDBG-DR funds had not been reconciled with the subsidiary records for grant expenditures, including both direct and indirect costs. The Bank does not maintain accurate subsidiary records for key financial components in relation to previous and current year such as CDBG-DR receivables, payables, and inter-fund balances. The reconciliation of CDBG-DR accounts for the fiscal year ending June 30, 2024, was completed by the Bank’s management a year after closing as part of the audit process. This included the preparation of subsidiary records for the related receivables, payables, and inter-fund balances and the recording into the Bank’s general ledger. Cause: The observations noted in finding 2024-005 appear to be largely due to the effect of the lack of monthly presentation of transactions of CDBG-DR Fund transactions in the general ledger and related reconciliations of general ledger with subsidiaries and related program reports. Also, a lack of programs and data interphase communication between the Bank’s Financial and Federal Programmatic Divisions does not permit the accurate and prompt reconciliation of the CDBG-DR accounting records, reports, and subsidiaries. Effect: Refer to finding 2024-005 for the effect of this observation. This resulted in a material weakness in the internal control related to the CDBG-DR Fund transactions in general ledger and related reconciliations. Recommendation: Refer to finding 2024-005 for the recommendation for the observations associated with this finding.

FINDING NO. 2024-003 GRANT AWARDS REVIEW Repeated Finding: Yes Criteria: As more fully described in finding 2024-004, the subrecipient agreement between the Bank and the Puerto Rico Department of Housing (PRDOH), establishes in the Terms and Conditions that the Bank, as Subrecipient, shall comply with applicable PRDOH’s policies and guidelines as established in Program Guidelines and their amendments, if any, which made an integral part of the subrecipient agreement. Condition: As described in finding 2024-004, during our examination, we performed different audit testing to validate compliance with criteria described above. From a total of 974 SBF Program Recovery Grants (the grants) awarded to business applicants during the year ended June 30, 2024, in the amount of $66,108,871, we performed a grant award test to validate various compliance requirements for the grant. We selected a sample of sixty-one (61) grants awarded as follows: sixteen (16) awarded for working capital purposes, fourteen (14) awarded for working capital and equipment and thirty-one (31) grants awarded for the purchase of equipment, in total amount of $3,630,774. In addition, we performed a closeout test to validate procedures surrounding closeout of the grant. We selected a sample of sixty-one (61) cases, in the total amount of $3,598,259 from a total of 1,911 grants awarded amounting to $99,766,799 for which closeout procedures were completed during the year ended June 30, 2024. Also, we performed a recapture of funds test to validate procedures surrounding recapture of grant funds. We selected a sample of twenty-five (25) cases, in the total amount of $906,561 from a total of 318 grants awarded amounting to $11,492,282 for which recapture of funds were completed during the year ended June 30,2024. As more fully described in finding 2024-004, we noted the following: - Amount Awarded Computed Incorrectly - Incorrect Data in Grant Management System of Record for the Grants - Missing Documents in Grant Management System of Record for the Grants - Inadequate Documentation and Implementation of Procedures Cause: Management has not consistently applied procedures as described in the Bank’s policies for underwriting, duplication of benefits, expenditure review and closeout as more fully described in finding 2024-004. Effect: Refer to finding 2024-004 for the effect of this observation. Recommendation: Refer to finding 2024-004 for the recommendation for the observations associated with this finding.

FINDING NO. 2024-004 GRANT AWARDS DISBURSEMENTS Federal Agency: U.S. Department of Housing and Urban Development Federal Program:  Federal Financial Assistance Listing 14.228 Community Development Block Grants/State’s Program and Non- Entitlement Grants in Hawaii Federal Award No: B-18-DP-72-0001 Compliance Requirement: Activities Allowed or Unallowed Allowable Costs / Cost Principles Questioned Costs: None Repeated Finding: Yes Criteria: The subrecipient agreement between the Bank and the Puerto Rico Department of Housing (PRDOH), establishes in the Terms and Conditions the following: Part III. Scope of Work, Section A. Subrecipient Management Responsibilities, Number 2, that all services shall be made in accordance with PRDOH guidelines, HUD guidelines and regulations, and other applicable state and federal laws and regulations. Part X. Compliance with Federal Statutes, Regulations and the Terms and Conditions of the Federal Award and Additional PRDOH Requirements: Section A. General Compliance - that the Bank as Subrecipient shall also comply with applicable PRDOH’s policies and guidelines as established in Program Guidelines and their amendments, if any, which made an integral part of the subrecipient agreement. Section H. Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards - that the Bank as Subrecipient, shall comply with the applicable provisions in 2 C.F.R. part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards 2 C.F.R. part 200. 2 C.F.R. part 200.303 establishes that a non-Federal entity must: 2 C.F.R. 200.303 (a) - 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. 2 C.F.R. 200.303 (d) - Take prompt action when instances of noncompliance are identified in audit findings. Conditions and Context: During our examination, we performed different audit testing to validate compliance with criteria described above. From a total of 974 Small Business Financing (SBF) Program Recovery Grants (the grants) awarded to business applicants during the year ended June 30, 2024, in the amount of $66,108,871, we performed a grant award test to validate various compliance requirements for the grant. We selected a sample of sixty-one (61) grants awarded as follows: sixteen (16) awarded for working capital purposes, fourteen (14) awarded for working capital and equipment and thirty-one (31) grants awarded for the purchase of equipment, in the total amount of $3,630,774. In addition, we performed a closeout test to validate procedures surrounding closeout of the grant. We selected a sample of sixty-one (61) cases, in the total amount of $3,598,259 from a total of 1,911 grants awarded amounting to $99,766,799 for which closeout procedures were completed during the year ended June 30, 2024. Also, we performed a recapture of funds test to validate procedures surrounding recapture of grant funds. We selected a sample of twenty-five (25) cases, in the total amount of $906,561 from a total of 318 grants awarded amounting to $11,492,282 for which recapture of funds were completed during the year ended June 30, 2024. Amount Awarded Computed Incorrectly Based on the results of our grant award testing, we recomputed the amount of the grant awarded, and noted that in one (1) case, representing approximately 2% of the total sample, the amount of the award was computed incorrectly. The average quotation cost used for the acquisition of equipment, was computed in the amount of $12,163, instead of $11,622. Missing Documents in Grant Management System of Record for the Grants Based on the results of our examination, we noted certain exceptions where documents were missing in the Grant Management System of Record for the Grants (Canopy) or the document had missing information. The situations noted were as follows, classified by the test performed. Grant Award Procedures Testing: For the grants awarded for equipment, we reviewed the supporting documentation for required quotes and noted that in thirteen (13) cases, or approximately 29%, the quotes provided by the Business Applicants did not have the document date. For one (1) case, representing approximately 2% of total sample, we reviewed the support documentation required for eligible equipment and noted that for one item requested the eligible cost surpassed the $10,000 threshold for the requirement of (3) three vendors quotations. However, just one quote was obtained. For fifty-seven (57) cases, representing approximately 93% of total sample, we noted that the SBF Acknowledgement of Receipt and Certification Guidance (Task 4 for the closeout phase) was not found in Canopy. Closeout Procedures Testing: For three (3) cases, representing approximately 5% of total sample, the applicant’s duplication of benefits certification used in the Expenditure Review & Closeout Process, was not found. Instead, we found the following: the review of the bank statements (one case), a note (one case) and in other case we noted that the certification was uploaded in May 2025. For one (1) case, representing approximately 2% of total sample, no sufficient evidence was provided to validate utilities expense. Applicant submitted a letter from the landlord as a receipt without the invoice for the utilities. Expense amounted to $1,768. For two (2) cases, representing approximately 3% of total sample, the grant award agreement was not located on file. The document was found in the grant award extension file. Incorrect Data in Grant Management System of Record for the Grants As a result of our audit procedures, we noted several instances where the information in the Grant Management System of Record was inaccurate. The situations noted were as follows, classified by the test performed. Closeout Procedures Testing: For two (2) cases, representing approximately 3% of total sample, we could not validate the eligibility review start date. The data disclosed in this field on the first application was the date of the grant award extension. For two (2) cases, representing approximately 3% of total sample, the applicant did not comply with the period of reporting for the Third Low and Moderate Income (LMI) as established in the Program's Guidelines. Subsequently, we noted that the original date, that should not be changed, was changed in the Canopy file. For one (1) case, representing approximately 2% of total sample, closeout procedures were completed, but the status in Canopy appeared as "Pending Closeout Confirmation". During our evaluation of the report provided for closeout procedures, we noted that twenty-three (23) cases appeared with a Notice of Compliance Letter sent date during the period under audit (July 1, 2023 to June 30, 2024), but the disbursement date was made from June 2024 through November 2024. Notice of compliance letter should be dated after the date of disbursement. In addition, the Closeout Status was "Closing Team Case Manager (CM) Review in Progress". Recapture of Funds Testing: During our evaluation of the recapture of funds report, we noted that for one (1) case the grant amount as per the grant award agreement does not agree with the amount as included in the recapture of funds report provided for audit purpose. The difference amounted to $42,195. Inadequate Documentation and Implementation of Procedures As a result of our audit procedures, we noted several instances where the procedures were not completed or properly documented in Canopy. The situations noted were as follows, classified by the test performed. Closeout Procedures Testing: For five (5) cases, representing approximately 8% of total sample, the First LMI Form was not provided by the Applicant in the period established. The period of reporting must be during the Eligibility Review phase. For one (1) case, representing approximately 2% of total sample, the Second LMI Form was not provided by the Applicant in the period established. Period of reporting must be during the Award Coordination phase. For nine (9) cases, representing approximately 15% of total sample, the third LMI Form was not provided by the Applicant in the period established. Period of reporting must be completed during the Expenditure and Closeout phase. The Case Manager is required to comply with the following notifications to the Applicant: a) First Receipts Review Reminder; b) Subsequent Receipt Review Reminder to applicants after 30 days following disbursement date. - For forty-four (44) cases, representing approximately 72% of total sample, there was no evidence of reminder sent to the Applicant. - For thirteen (13) cases, representing approximately 21% of total sample, the reminder was sent to Applicant, but not in the first 30 days after disbursement. Recapture of Funds Testing: For four (4) cases, representing approximately 16% of total sample in which, the applicant did not return the funds within the 30-day period, did not provide adequate documentation nor request a program administrative reconsideration. The cases were not referred to PRDOH Legal Division as established in the guidelines. For one (1) case, representing approximately 4% of total sample in which, the applicant did not return the funds within the 30-day period or provided adequate documentation. Also, the program reconsideration was denied. The case was not referred to PRDOH Legal Division as established in the guidelines. Cause: Management has not consistently applied procedures as described in the Bank’s policies for underwriting, duplication of benefits, expenditure review and closeout, and recapture of funds to ensure compliance with requirements. In addition, for applications with grant award extension, the Bank requested the program administrator to duplicate files to avoid entering basic information for the same application. This matter caused the information between both applications to be mixed between first application and grant award extension. Effect: The Bank did not consistently comply with procedures of work performed as detailed in the policies and procedures to ensure amounts awarded incorrectly and missing documents in Grant Management System of Record are promptly identified and corrected. This resulted in a significant deficiency in internal controls of grant award process. In addition, the Bank needs to ensure as part of the closeout procedures that information included in the file belongs to the case being evaluated and any change in the information that does not agree with the application is properly investigated and corrected with the appropriate supporting documentation. Any change for the application needs to be properly documented in the notes for the case to ensure proper audit trail for any subsequent review. Recommendation: Management must establish internal controls that permit the proper detection of any instance of non- compliance with policies and procedures established for the underwriting, duplication of benefits, expenditure review and closeout, and recapture of funds of the grant. By doing so, the Bank will avoid falling in noncompliance with federal requirements and the terms and conditions as established in the subrecipient agreement.

FINDING NO. 2024-005 PROGRAM REPORTS AND ACCOUNTING RECORDS Federal Agency: U.S. Department of Housing and Urban Development Federal Program:  Federal Financial Assistance Listing 14.228 Community Development Block Grants/State’s Program and Non- Entitlement Grants in Hawaii Federal Award No: B-18-DP-72-0001 Compliance Requirement: Reporting Questioned Costs: None Repeated Finding: Yes Criteria: The subrecipient agreement between the Bank and the Puerto Rico Department of Housing (PRDOH), establishes in the Terms and Conditions Part IV. Performance, Monitoring and Reporting, Section B. Reporting, that the Bank as Subrecipient shall submit regular monthly progress reports to the PRDOH, on the form and with the content to be specified and required by the PRDOH. Moreover, the subrecipient agreement between the Bank and the PRDOH, establishes in the Terms and Conditions Section Part III-Scope of Work, sub-section A. (2), that all services shall be made in accordance with PRDOH guidelines, HUD guidelines and regulations, and other applicable state and federal laws and regulations. The CDBG-DR Financial Policy of the Puerto Rico Department of Housing, (the Financial Policy), in its Part 7 Accounting Records and Systems, Section 7.1.2 Subrecipient Accounting Records, establishes that the Bank as subrecipient is responsible for ensuring that separate accounting are maintained for CDBG-DR funds in its internal accounting system and records. These records should, to the extend possible, be developed to be consistent with PRDOH CDBG-DR general accounting and recordkeeping policies. Also, the Financial Policy in its Part 13 Reconciliations, establishes that the Bank as subrecipient, must have procedures in place to reconcile accounts and reports by comparing revenues and expenditures against disbursements for CDBG- DR funded activities. The subrecipient must:  Maintain in its accounting records the amounts budgeted for eligible activities.  Compare actual obligations and expenditures to date against planned obligations and expenditures: and  Report deviations from budget and program plans and request approval for budget and program plan revisions. The Code of Federal Regulations, 2 C.F.R., Part 200, Subpart D, Section 200.302 (b) (2), establishes that the financial management system of each non-Federal entity must provide for accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements set forth in §§ 200.328 and 200.329. Condition and Context:  Monthly Reporting The Bank uses the Grant Compliance Portal (GCP) to submit Administrative and Performance Reports to the PRDOH. The GCP is a performance reporting system created for PRDOH to monitor regular monthly progress by the subrecipient for administrative and performance activities. The GCP is independent of other systems used for the underwriting, approval, closeout and billing of the grants to PRDOH. As such, requires the manual input of the information monthly. Once the Bank completes the information in the GCP, it is reviewed by PRDOH. Review notes related to the performance of the Bank are added before finalizing the report. The signed report by all the points of contact is kept by the Bank as evidence of compliance with the submission of the Administrative and Performance Reports by the due date. We compared the amount of grants awarded as per the Administrative and Performance Reports submitted to the PRDOH with the amount reported in the Schedule of Expenditures and Federal Awards as of June 30, 2024. We noted a difference of $25,766,191 due to grants awarded from January 2024 through June 2024 were not reflected in the Administrative and Performance Reports. This caused a discrepancy in the cumulative actual total amount of grants awarded for the year that impacts the results in the monitoring of performance by PRDOH. The Bank needs to reconcile the figures with the accounting system to confirm the information for the period is properly reflected in the Administrative and Performance Reports before the submission of the report to ensure the monitoring performed by PRDOH is based on correct and reliable information.  Accounting Records and Reconciliations In relation to the CDBG-DR Fund, although disbursements are recorded in a separate fund, the Bank does not present, on a monthly basis, the revenues, expenses, assets, and liabilities in the Bank’s general ledger. Instead, the Bank is recording the transactions as revenues, expenses, assets, and liabilities related to the CDBG-DR fund at year end. The CDBG-DR fund activity is monitored in another system that is maintained parallel to the Bank’s general ledger. This additional system is used for the reporting process but is not monitored and reconciled jointly with the Bank’s general ledger. Entity level controls related to monthly approvals, reconciliations, actual versus budget comparisons, and other financial reporting controls are performed in another system that does not make automatic interface with the Bank’s general ledger.  The trial balance maintained by management for internal and external reporting related to CDBG-DR funds had not been reconciled with the subsidiary records for grant expenditures, including both direct and indirect costs. Cause: The management of the Bank has not implemented effective internal control procedures that permit the proper reconciliation of the amount of grants awarded per accounting records with the amounts disclosed in the Administrative and Performance Reports. Effect: The absence of proper internal controls in the areas of program reports and accounting records causes the Bank to fall in noncompliance with federal reporting requirements and the terms and conditions as established in the subrecipient agreement. This matter may result in material differences or errors that could not be detected and resolved on a timely basis and consequently we consider that the above conditions are material weaknesses in internal control over compliance. Recommendation: The Bank should ensure, specifically to the CDBG-DR Fund, that adequate procedures and internal controls related to monthly review, reconciliation and approval are in place to ensure that proper monthly accounting is maintained and that the awarded grants per accounting records are reconciled and agreed to the balances as disclosed in the Administrative and Performance Reports. Evidence of such reconciliations must be maintained as support for the reconciliation procedures performed.

FINDING NO. 2024-006 PROCUREMENT AND CONTRACTOR OVERSIGHT Federal Agency: U.S. Department of Housing and Urban Development Federal Program:  Federal Financial Assistance Listing 14.228 Community Development Block Grants/State’s Program and Non-Entitlement Grants in Hawaii Federal Award No: B-18-DP-72-0001 Compliance Requirement: Special Tests and Provisions Questioned Costs: None Repeated Finding: No Criteria: The subrecipient agreement between the Bank and the Puerto Rico Department of Housing (PRDOH), established in the Terms and Conditions Section Y. Conduct, Subsection 1. Contracts, under letter e. Notification, the following: “The Subrecipient shall notify and provide a copy of any and all contracts related to this agreement and CDBG-DR funds to the Contracts Administration Area of the CDBG-DR Legal Division within three (3) days of its execution”. Conditions and Context: During our audit procedures over the special tests and provisions, it was observed that the Bank entered into an agreement with a third party on June 13, 2023. The Bank submitted the agreement and its amendment to the PRDOH CDBG-DR Legal Division on September 21, 2023, three months past the execution date. Cause: Management has not consistently applied procedures as described in the “Conduct Section” to ensure compliance with special requirements. Effect: The Bank did not comply with notifying and providing a copy of the awarded subcontracts to PRDOH CDBG- DR Legal Division within the established period. Recommendation: Management must establish internal controls that permit the proper detection of any instance of non- compliance with the special requirements. By doing so, the Bank will avoid falling in noncompliance with federal requirements and the terms and conditions established in the subrecipient agreement.

FINDING NO. 2024-007 SINGLE AUDIT REPORT Federal Agency: U.S. Department of Housing and Urban Development Federal Program:  Federal Financial Assistance Listing 14.228 Community Development Block Grants/State’s Program and Non- Entitlement Grants in Hawaii Federal Award No: B-18-DP-72-0001 Compliance Requirement: Special Tests and Provisions Questioned Costs: None Repeated Finding: Yes Criteria: The subrecipient agreement between the Bank and the Puerto Rico Department of Housing (PRDOH), establishes in the Terms and Conditions Part X. Compliance with Federal Statutes, Regulations and the Terms and Conditions of the Federal Award and Additional PRDOH Requirements, Section P. Single Audit, that the Subrecipient must be audited as required by 2 C.F.R. part 200, subpart F when it is expected that the Subrecipient’s Federal awards expended during the respectively fiscal year equaled or exceeded the threshold set forth in section 200.501 Audit Requirements. The 2 C.F.R 200.501 (a) establishes that non-Federal entity that expends $750,000 or more during the non- Federal entity’s fiscal year in Federal awards must have a single or program-specific audit conducted for that year in accordance with the provisions of this part. The 2 C.F.R 200.512 (a) (1) establishes that the audit must be completed and the data collection form described in paragraph (b) of this section and reporting package described in paragraph (c) of this section must be submitted within the earlier of 30 calendar days after receipt of the auditor’s report(s), or nine months after the end of the audit period. If the due date falls on a Saturday, Sunday, or Federal holiday, the reporting package is due the next business day. Condition and Context: The Single Audit Report of the Bank for the fiscal year ended June 30, 2024, was not submitted on or before March 31, 2025, as required by the Uniform Guidance. The Single Audit related to such period was completed after the 9 months deadline. Cause: Information to complete the financial statements audit procedures was not available within the required period. Effect: Noncompliance with the above-mentioned requirements could lead to administrative actions by the grantor, representing a significant deficiency in internal control over compliance. Recommendation: Data collection form and single audit package shall be submitted within the required due date.

We compared the amount of grants awarded as per the Administrative and Performance Reports submitted to the PRDOH with the amount reported in the Schedule of Expenditures and Federal Awards and noted a difference of $14,966,519 that was not reconciled.

We performed different audit testing to validate compliance with the Terms and Conditions that the Bank as Subrecipient shall comply with applicable Puerto Rico Department of Housing’s policies and guidelines. From a total of 1,600 SBF Program Recovery Grants (the grants) awarded to business applicants during the year ended June 30, 2023, in the amount of $80,195,314, we performed a grant award test to validate various compliance requirements for the grant. We selected a sample of sixty-one (61) grants awarded as follows: eighteen (18) awarded for working capital purposes, thirty-four (34) awarded for working capital and equipment and nine (9) grants awarded for the purchase of equipment, in the total amount of $2,896,504. In addition, we performed a closeout test to validate procedures surrounding expenditure review and closeout of the grant. We selected a sample of sixty-one (61) cases, in the total amount of $2,942,184 from a total of 317 grants awarded amounting to $15,294,128 for which closeout procedures were completed during the year ended June 30, 2023. We noted the following: Amount Awarded Computed Incorrectly, Duplicated Grant Disbursements and Incorrect Data in Grant Management System of Record for the Grants. Management has not consistently applied procedures as described in the Bank’s policies for underwriting, duplication of benefits, expenditure review and closeout.

We performed different audit testing to validate compliance with the Terms and Conditions that the Bank as Subrecipient shall comply with applicable Puerto Rico Department of Housing’s policies and guidelines. We noted the following instances where the amount of the award was computed incorrectly: - We recomputed the amount of the grant awarded and noted that in one (1) case, representing 2% of the total sample, the amount of the award was computed incorrectly. The amount of over payment to the Business Applicant amounted to $308. - In one (1) case, representing 2% of the total sample, the amount of award was computed incorrectly. The amount of over payment to the Business Applicant amounted to $3,283. We noted the following instances where documents were missing in the Grant Management System of Record for the Grants (Canopy) or the document had missing information. - For the grants awarded for equipment, we reviewed the supporting documentation for required quotes and noted that in fourteen (14) cases, or 23%, the quotes provided by the Business Applicants did not have a date. - For three (3) cases, representing 5% of total sample, the grant award agreement in the documents presented in Canopy was not dully signed. Total awarded grants to these business applicants amounted to $150,000. As a result of our observation, management uploaded to Canopy the signed grant award agreements. - For one (1) case, representing 3% of total sample, the grant award agreement was not located on file. The document was found in the grant award extension file. - For two (2) cases, representing 6% of the total sample, certain documentation related to the benefits received was not located in the file. Documents were found in the grant award extension file. We noted two duplicated grant disbursements made by the Bank as follows: - On June 14, 2023, the Bank identified a duplicated grant disbursement made for $50,000 to one Business Applicant. The grant was disbursed by the Bank two times, on July 15, 2021 and July 20, 2021. The expenditure reimbursement by PRDOH was not duplicated since the funds were properly billed to PRDOH. The Bank, once the incident was identified, made the necessary arrangements and was able to recover the duplicated amount completely. - On June 26, 2023, the Bank identified a duplicated grant disbursement for $49,271 made to two different bank accounts. Due to an inadvertent error when processing the disbursement on June 28, 2020, the grant was disbursed to an incorrect account and then was later disbursed to the correct bank account. The investigation of the first disbursement was not completed by the Bank at the time of processing the second disbursement for the grant. The expenditure of the grant reimbursed by the PRDOH was not duplicated since the funds were billed properly to PRDOH. The Bank has not been able to recover the duplicated amount completely. We noted several instances where the information in the Grant Management System of Record was inaccurate. The situations noted were as follows: • While reviewing the report provided for closeout procedures, we noted differences in four (4) cases for the grant amount as per the grant award agreement and the amount included in the closeout report. The differences amounted to $112,390 and were due to cases with a grant award extension application where the Grant Management System of Record replaced the first award information with the second award. • As a result of our closeout procedures testing, we noted the following situations: - For twelve (12) cases, representing 20% of total sample, we could not validate the eligibility review start date. The data disclosed in this field on the first application was the date of the grant award extension. - In one (1) case, representing 2% of total sample, we could not obtain certain information from the Award Coordination Section in the Grant Management System of Record in relation to the application evaluated (first application) due to system problem that replaced information with the data for the extension award application for additional funds. - For five (5) cases, representing 8% of total sample, the approved grant amount as per Grant Management System of Record, does not agree with the amount disclosed in the corresponding grant award agreement nor in the grant award report provided for audit purposes due to replacement of data with information for extension award application. - In one (1) case, representing 2% of total sample, the approved grant amount as per the Grant Award Agreement does not agree with the amount in the Grant Award Report provided for audit purposes due to replacement of information with second award application in extension for additional funds. B4 - For five cases (5), representing 16% of the total sample, we could not validate the Duplication of Benefits (DOB) status updated date. The data disclosed in this field on the first application was from the grant award extension and not for the grant being evaluated. - For two cases (2), representing 6% of the total sample, some data from the DOB Section in the Grant Management System of Record was not related to the first application. The data disclosed on the first application was from the grant award extension. - For one case (1), representing 3% of the total sample, the approved grant amount as per Grant Management System of Record did not agree with the amount disclosed in the corresponding Grant Award Agreement nor in the Closeout Report provided for audit purposes. The information in the Grant Management System of Record reflected data from the grant award extension instead of data related to the first application.

We performed a closeout test to validate procedures surrounding the expenditure review and closeout of the grants. We selected a sample of sixty-one (61) cases for detail testing in the total amount of $2,942,184 from a total of 317 grants awarded amounting to $15,294,128 for which closeout procedures were completed during the year ended June 30, 2023. For one (1) case out of the sixty-one (61) cases examined, representing 2% of the sample, we noted the case was identified with a duplication of benefits (DOB) in the system. Upon further review, we noted the Business Applicant received a grant from another government agency for working capital in the amount of $276,203 that was not disclosed by the Business Applicant at the time the grant was approved. The documents supporting the grant were provided by the Business Applicant during the expenditure review and closeout procedures. This grant, when considered in the calculation for DOB for the grant approved of $150,000, created a duplicative assistance. As a result, due to failure to receive additional grant information from the Business Applicant, there was no unmet need at the time the grant was approved. The expenditure review and closeout procedures for the grant were completed and confirmation of compliance was sent to the Business Applicant although the system showed a DOB in the review. No explanation was found in the notes with the evaluation to determine the benefits were not duplicated. In addition, the DOB in the system was later removed by request to the system administrator without the proper analysis and supporting documentation for the change requested.

• Monthly Reporting We compared the amount of grants awarded as per the Administrative and Performance Reports submitted to the Puerto Rico Deparment of Housing (PRDOH) with the amount reported in the Schedule of Expenditures and Federal Awards as of June 30, 2023. We noted a difference of $14,966,519 due to grants awarded in February 2023 and March 2023 that were not reflected in the Administrative and Performance Reports. This caused a discrepancy in the cumulative actual total amount of grants awarded for the year that impacts the results in the monitoring of performance by PRDOH. The Bank needs to reconcile the figures with the accounting system to confirm the information for the period is properly reflected in the Administrative and Performance Reports before the submission of the report to ensure the monitoring performed by PRDOH is based on correct and reliable information. • Accounting Records and Reconciliations In relation to the CDBG-DR Fund, although disbursements are recorded in a separate fund, the Bank does not present, on a monthly basis, the revenues, expenses, assets, and liabilities in the Bank’s general ledger. Instead, the Bank is recording the transactions as revenues, expenses, assets, and liabilities related to the CDBG-DR fund at year end. The CDBG-DR fund activity is monitored in another system that is maintained parallel to the Bank’s general ledger. This additional system is used for the reporting process but is not monitored and reconciled jointly with the Bank’s general ledger. Entity level controls related to monthly approvals, reconciliations, actual versus budget comparisons, and other financial reporting controls are performed in another system that does not make automatic interface with the Bank’s general ledger.

The Single Audit Report of the Bank for the fiscal year ended June 30, 2023, was not submitted on or before March 31, 2024, as required by the Uniform Guidance. The Single Audit related to such period was completed after the 9 months deadline.

We compared the amount of grants awarded as per the Administrative and Performance Reports submitted to the PRDOH with the amount reported in the Schedule of Expenditures and Federal Awards, and noted that the Bank did not implement procedures to validate and / or reconcile the amounts as presented in the Administrative and Performance Reports with the balances as per the Bank’s accounting records.

We noted that in two (2) cases, representing 1.65% of the total sample, the Business Applicants did not support physical damages nor economic losses and consequently do not qualify for the grant award. Total awarded grants to these business applicants amounted in the aggregate to $66,308. From a total of 213 awarded grants for which closeout procedures were completed during the year ended June 30, 2022, in the amount of $9,522,108, we selected twenty-five (25) cases, in the total amount of $1,228,590, and noted in one (1) case, representing a 4% of the total sample, the required three (3) quotes were not obtained from the Business Applicant in the aggregate amount of $39,433. During our audit procedures, we got knowledge that one (1) Business Applicant obtained two grant awards in the aggregate amount of $96,630, under two different applications.

From a total of 1,484 SBF Program Recovery Grants (the grants) awarded to business applicants during the year ended June 30, 2022, in the amount of $64,654,049, we performed various compliance tests and noted the following situations: • During our audit procedures, we got knowledge that one (1) Business Applicant obtained two (2) grant awards in the aggregate amount of $96,630, under two different applications. • We selected a sample of 121 grants awarded in the total amount of $5,301,329, to verify if the Business Applicant qualifies for the grant award under physical damages or economic losses, as required by the program’s guidelines. We noted that in two (2) cases, representing 1.65% of the total sample, the Business Applicants did not support physical damages nor economic losses and consequently do not qualify for the grant award. Total grants awarded to these business applicants amounted in the aggregate to $66,308. • We selected a sample of sixty-six (66) grants awarded as follows: twenty-seven (27) grants awarded for working capital purposes and thirty-nine (39) grants awarded for the purchase of equipment, in the total amount of $2,839,563 and noted the following situations: - For the grants awarded for equipment, we reviewed the supporting documentation for required quotes and noted that in thirteen (13) cases, or 33%, some quotes provided by the Business Applicants did not have a date and in one (1) case, or 0.03%, the quotes provided by the Business Applicant did not have a date nor supplier name. - We recomputed the amount of the grant awarded, and noted that in three (3) cases, representing 5% of the total sample, the amount of award was computed incorrectly. The amount of over payment in the aggregate was $1,150. - We noted in one (1) case, representing 2% of the total sample, that the Bank did not require to the Business Applicant evidence about the percent (%) that represents the sales of alcohol of the total Business’ sales. From a total of 213 grants awarded for which closeout procedures were completed during the year ended June 30, 2022, in the amount of $9,522,108, we selected twenty-five (25) cases, in the total amount of $1,178,590, and noted in one (1) case, representing a 4% of the total sample, the required three (3) quotes were not obtained from the Business Applicant in the aggregate amount of $39,433.

• Reporting For the year ended June 30, 2022, we compared the amount of grants awarded as per the Administrative and Performance Reports submitted to the PRDOH with the amount reported in the Schedule of Expenditures and Federal Awards, and noted that the Bank did not implement procedures to validate and / or reconcile the amounts as presented in the Administrative and Performance Reports with the balances as per the Bank’s accounting records. • Accounting Records In relation to the CDBG-DR Fund, although disbursements are recorded in a separate fund, the Bank does not present, on a monthly basis, the revenues, expenses, assets, and liabilities in the Bank’s general ledger. Instead, the Bank is recording the transactions as revenues, expenses, assets, and liabilities related to the CDBG-DR fund at year end. The CDBG-DR fund activity is monitored in another system that is maintained parallel to the Bank’s general ledger. This additional system is used for reporting process but is not monitored and reconciled jointly with the Bank’s general ledger. Entity level controls related to monthly approvals, reconciliations, actual versus budget comparisons, and other financial reporting controls are performed in another system that does not make automatic interface with the Bank’s general ledger.

From a total of 1,484 SBF Program Recovery Grants (the grants) awarded to business applicants during the year ended June 30, 2022, in the amount of $64,654,049, we selected a sample of sixty-six (66) grants awarded, in the total amount of $2,839,563, to verify compliance with environmental reviews requirements and noted that in one (1) case, representing 2% of the sample, the Environmental Review Report was signed by the Business Applicant after the Grant Award Agreement’s date.

The Single Audit Report of the Bank for the fiscal year ended June 30, 2022, was not submitted on or before March 31, 2023, as required by the Uniform Guidance. The Single Audit related to such period was completed after the 9 months deadline.

The subrecipient agreement between the Bank and the Puerto Rico Department of Housing (PRDOH), establishes in the Terms and Conditions Section Part IV. Performance, Monitoring and Reporting, sub-section B. Reporting, that the Bank as subrecipient shall submit monthly progress reports to the PRDOH, on the form and with the content to be specified and required by the PRDOH. The monthly progress report should be received by PRDOH no later than the fifth day of the next month.During our review of compliance with the applicable reporting requirements by the Bank, we noted the following: ? Four (4) Monthly Administrative Reports, from a total of twelve (12), were not submitted in a timely manner as required in the terms and conditions of subrecipient agreement. ? In six (6) instances, from a total of twelve (12), the evidence of submission of the Monthly Administrative Reports, were not available to conclude about if the reports were submitted in a timely manner as required in the terms and conditions of subrecipient agreement. ? In nine (9) instances, from a total of twelve (12), the evidence of submission of the Monthly Performance Reports were not available to conclude about if the reports were submitted in a timely manner as required in the terms and conditions of subrecipient agreement. In addition, we selected the Monthly Administrative Report (the administrative report) that belongs to the month of June 2021 and that must be submitted to PRDOH as required per the subrecipient agreement, and noted that the total grants obligated from the inception of the program (March 2020 ) through June 30, 2021 per the administrative report amounted to $24,532,821. However, as per the detail provided during our audit procedures, the awarded grants from the inception of the program (March 2020) through June 30, 2021, amounted to $29,179,246.

The subrecipient agreement between the Bank and the Puerto Rico Department of Housing (PRDOH), establishes in the Terms and Conditions Section Part III-Scope of Work, sub-section A. (2), that all services be made in accordance with PRDOH guidelines, HUD guidelines and regulations, and other applicable state and federal laws and regulations. 24 C.F.R. Part 58, National Environmental Policy Act (NEPA) establishes the requirements that subrecipients must follow in carrying out all HUD environmental review requirements. From a total of 653 grants awarded to business applicants during the year ended June 30, 2021, amounting to $28,830,485, we selected a sample of twenty-six (26) awarded grants to verify compliance with environmental review requirements and noted that in nine (9) cases, representing 35% of the sample, the Environmental Review Report was signed by the Awarded Applicant after the Grant Award Agreement?s date.

The Single Audit Report of the Bank for the fiscal year ended June 30, 2021, was not submitted on March 31, 2022 as required by the Uniform Guidance. The Single Audit related to such period was completed after the 9 months deadline.

Data collection Form and Single Audit reporting package were not submitted within nine months after the end of the audit period.

The Bank sold loans from the revolving loan portfolio without the prior approval from EDA.

Data collection form and single audit report were not submitted in a timely manner as required by the Uniform Guidance.

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