GOBIERNO MUNICIPAL DE UTUADOLocal Government

FINDING 2023-007 FEDERAL PROGRAM COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) (ASSISTANCE LISTING NO. 14.228) DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT PASS THROUGH STATE HOUSING DEPARTMENT CATEGORY INTERNAL CONTROL/COMPLIANCE- SIGNIFICANT DEFICIENCIES NONCOMPLIANCE REPORTING TOPIC SENTENCE Lack of controls over filing of quarterly financial reports. CONDITIONS As part of the evaluation of the Reporting Test we requested evidence of the filing of the Quarterly Report for the fiscal year 2022-2023. In the audit of the program, we noted the following: The quarterly reports for the following quarters had not been filed to the Puerto Rico Department of Housing: July-September 2022 October- December 2022 January-March 2023 April-June 2023 CRITERIA The delegation of funds contract signed between the Department of Housing of Puerto Rico and the Municipality establishes in its twentieth clause that the subrecipient is obliged to submit to the recipient the quarterly and annual reports for the projects developed with CDBG funds. CAUSE The Community Development Block Grant Program (CDBG) are not maintaining adequate internal controls to guarantee timely filing of quarterly reports. EFFECT The Municipality is exposed to the risk that the Puerto Rico Department of Housing halt the process of requisitioning funds from the administration line, affecting the operation of the program and the use of funds. RECOMMENDATION We recommend that the program establish internal control measures to ensure that the program's quarterly reports are submitted on time to the Puerto Rico Department of Housing. QUESTIONED COST None PRIOR YEAR Not Applicable VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTION We accept the finding RESPONSIBLE PERSON Mr. Jose González-Program Director 787-894-9191

FINDING 2022-007 FEDERAL PROGRAM HEAD START (ASSISTANCE LISTING NO. 93.600) DEPARTMENT OF HEALTH AND HUMAN SERVICES CATEGORY INTERNAL CONTROL-MATERIAL WEAKNESS NONCOMPLIANCE EQUIPMENT AND REAL PROPERTY MANAGEMENT CONDITIONS The Head Start Program is not maintaining adequate internal controls over property and equipment items acquired with Federal Funds. In testing property and equipment, we noted the following: The property records were not reliable because they did not include all the required information and they were incomplete or missing information. CRITERIA 2 CFR 200.313 (d) and the 45 CFR 75.320 (d) establishes that procedures for managing equipment will, as a minimum, meet the following requirements: (1) Property records must be maintained that include a description of the property, a serial number or other identification number, the source of property, who holds title, the acquisition date, and cost of the property, percentage of Federal participation in the cost of the property, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sale price of the property. (3) A control system must be developed to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft shall be investigated. CAUSE The Head Start Program has inadequate internal control procedures that guarantee adequate records, registering and safeguarding of property and equipment. EFFECT Due to the lack of internal controls and property accounting records, we could not validate the accuracy and completeness of equipment and property-related reports. RECOMMENDATION The Head Start Program must prepare a report including a full description of the assets, location, use, responsible person, cost, and any other pertinent data. In addition, the Program should establish a property control account and a subsidiary ledger to provide for the reconciliation of property. QUESTIONED COSTS None PRIOR YEAR 2021-004 VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTION The finding was corrected for future efforts related to the area of the property. A private company was hired to conduct the inventory. Appropriate seizures of disused equipment were carried out and an annual inventory of all existing equipment is being carried out, with ownership number, location and required information. RESPONSIBLE PERSON Mr. Angel Vélez-Program Director 787-894-9191

FINDING 2022-008 FEDERAL PROGRAM HEAD START (ASSISTANCE LISTING NO. 93.600) DEPARTMENT OF HEALTH AND HUMAN SERVICES CATEGORY INTERNAL CONTROL-MATERIAL WEAKNESS NONCOMPLIANCE CASH MANAGEMENT-BANK OVERDRAFT CONDITIONS The Head Start Program has a negative book balance of $46,490 as of June 30, 2022. CRITERIA The 45 CFR, Subpart C, §92.20 states that the grantees and subgrantees must maintain effective controls and accountability for all grant and subgrant cash, real and personal property, and other assets, sufficient to permit the tracing of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restriction and prohibitions of applicable statutes and that the financial reporting must be accurate, current, and complete disclosure of the financial results in accordance with the financial reporting requirements of the grant or subgrant. CAUSE The Program did not have sufficient cash balances to cover all the checks written and released before June 30, 2022. The Administration of the program told us that on June 27, 2022, they requested through the PMS system the disbursement of the corresponding funds, but that as of June 30, 2022, the PMS system indicated that there is a hold in the account awaiting approval. EFFECT This caused the financial statement of the Head Start program to show a bank overdraft and ran the risk of issuing checks that would not be honored by its bank. Additional bank charges may also be imposed on the program with each overdraft. RECOMMENDATION The Program and the Finance department should implement adequate internal control procedures to ensure that there are sufficient funds in the bank account before releasing the checks. QUESTIONED COSTS None PRIOR YEAR Not Applicable VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTION The finding was corrected. The payer of the Concessionaire, which has access to the system, was appointed. According to internal procedure, she does not issue payments until she is sure that the account has a budget. RESPONSIBLE PERSON Mr. Angel Vélez-Program Director 787-894-9191

FINDING 2022-009 FEDERAL PROGRAM DISASTER GRANT-PUBLIC ASSISTANCE ( ASSISTANCE LISTING NO. 97.036) DEPARTMENT OF HOMELAND SECURITY CATEGORY INTERNAL CONTROL NONCOMPLIANCE PROCUREMENT-CONTRACT PROVISION CONDITIONS As part of our allowability test we verified if the contract contained the clauses required by FEMA. During our audit, we identified that the revised contracts did not contain the following required clauses: Retention of records for three years; Equal Employment Opportunity; Compliance with the Clean Air Act and Water Act; Compliance with Suspension and Debarment; Compliance with Byrd Anti Lobbying Amendment. CRITERIA 2 CFR, Section 200.327 states that the non-Federal entity's contracts must contain the applicable provisions described in appendix II, which includes the clauses mentioned above. CAUSE The Program Director and the City Clerk's Office failed to take internal control measures to ensure that FEMA-funded contracts included all clauses required by applicable regulations. EFFECT In case of noncompliance with the federal procurement rules, FEMA may apply a remedy, as appropriate, in accordance with its authorities found at 2 C.F.R. § 200.339 Remedies for Noncompliance. RECOMMENDATION The Program Director and the City Clerk’s Office should implement adequate internal control procedures to ensure that the contracts contain all the clauses required by FEMA. QUESTIONED COSTS None PRIOR YEAR Not Applicable VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTION Corrective action was taken on contracts 2023 and beyond. The 2023 contracts already awarded were amended to include them and the new contracts that are being formalized in 2024 are including FEMA's mandatory clauses. RESPONSIBLE PERSON Mr. Jose González-Program Director 787-894-9191

MUNICIPALITY OF UTUADO, PUERTO RICO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2021 SECTION III ? Federal Award Findings and Questioned Costs FINDING 2021-004 FEDERAL PROGRAM HEAD START (CFDA NO. 93.600) DEPARTMENT OF HEALTH AND HUMAN SERVICES CATEGORY INTERNAL CONTROL NONCOMPLIANCE EQUIPMENT AND REAL PROPERTY MANAGEMENT CONDITIONS The Head Start Program did not maintain an adequate and appropriate Accounting Record of Property and Equipment during the fiscal year 2020-21. For such reason, we could not ascertain that all capital outlays, property acquisitions and dispositions were recorded. CRITERIA 2 CFR ?200.313(d) establishes that property records must be maintained and physical inventory must be taken and reconciled with the property records, also establish procedures for managing equipment will include control system to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft shall be investigated. The 45 CFR, Subpart C, ?92.20 states that the grantees and subgrantees must maintain effective controls and accountability for all grant and subgrant cash, real and personal property, and other assets, sufficient to permit the tracing of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restriction and prohibitions of applicable statutes and that the financial reporting must be accurate, current, and complete disclosure of the financial results in accordance with the financial reporting requirements of the grant or subgrant. The 45 CFR, Subpart C, ?92.20 states that the grantees and subgrantees must maintain effective controls and accountability for all grant and subgrant cash, real and personal property, and other assets, sufficient to permit the tracing of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restriction and prohibitions of applicable statutes and that the financial reporting must be accurate, current, and complete disclosure of the financial results in accordance with the financial reporting requirements of the grant or subgrant. CAUSE The Program has not established adequate internal control procedures in order to guarantee adequate records, registering and safeguarding of property and equipment. EFFECT Due to the lack of internal controls and property accounting records, we could not validate the accuracy and completeness of equipment and property related reports. RECOMMENDATION The Program should implement adequate internal control procedures to ensure the accountability of all the equipment and property and they should reconcile on a monthly basis property general ledger accounts against subsidiary ledger. QUESTIONED COSTS None

MUNICIPALITY OF UTUADO, PUERTO RICO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2021 SECTION III ? Federal Award Findings and Questioned Costs (continued) FINDING 2021-005 FEDERAL PROGRAM Section 8 Housing Choice Vouchers (CFDA NO. 14.871) U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CATEGORY INTERNAL CONTROL NONCOMPLIANCE CASH MANAGEMENT CONDITION Section 8 Housing Choice Voucher Program does not have adequate internal controls over the timing of disbursements once federal funds are received. We identified that during the period of July 2020 to June 2021 there was a delay between 2 to 5 months in the processing of payments to the landlord and tenant. CRITERIA The HAP contract between the Municipality and the owners requires that during the term of the contract the Program must make the monthly housing assistant payments to the owners at the beginning of each month. CAUSE The aforementioned condition is mainly due to the lack of internal control in the procedure that takes place from the moment the documentation is generated until the checks are issued to Program?s beneficiaries and lessors. Such procedure requires so many approvals and documents that it prevents payments being made on time and causes the money received by the federal government to remain in the bank accounts for a long period of time before is being disbursed. EFFECT If the recipient fails to expend those Federal assistance funds within a reasonable period or fails to establish procedures to minimize the time between the transfer and payout of funds, the Municipality could be subject to penalties from the Federal Government and be adversely affected in the benefits they are entitled to receive in the future. RECOMMENDATION The Program should implement adequate internal control procedures which allow the promptly use of federal funds received. This could be attained by evaluating the procedures followed regarding payments to participants, homeowners and Programs? providers. QUESTIONED COSTS None.

MUNICIPALITY OF UTUADO, PUERTO RICO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2021 SECTION III ? Federal Award Findings and Questioned Costs (continued) FINDING 2021-006 FEDERAL PROGRAM Section 8 Housing Choice Vouchers (CFDA NO. 14.871) U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CATEGORY COMPLIANCE NONCOMPLIANCE REPORTING CONDITIONS Section 8 Program did not submit the unaudited and audited financial statement to the Real Estate Assessment Center (REAC) for the fiscal years 2018, 2019 and 2020. CRITERIA 24 CFR 5.801 (b) state that Entities (or individuals) to which this subpart is applicable must provide to HUD such financial information as required by HUD. Such information must be provided on an annual basis. This information must be prepared in accordance with Generally Accepted Accounting Principles as further defined by HUD in supplementary guidance; and submitted electronically to HUD through the internet, or in such other electronic format designated by HUD. 24 CFR 5.801 (d) (1) state that unaudited financial statements will be required 60 days after the Municipality fiscal year end and audited financial statements will then be required no later than 9 months after the fiscal year end. CAUSE The Program did not maintain adequate internal control procedures to ensure the timeliness of the annual reports submitted to the REAC. EFFECT The continuance occurrence of this situation inhibits Federal award agencies from monitoring the programs financial performance. In addition, the Program could be sanctioned by the federal awarding agency due to the failed of filing the unaudited and audited financial statement. RECOMMENDATION The Municipality must continue efforts to submit the Financial Statement for the year 2018, 2019 and 2020 to the REAC and establish a plan and implement the corresponding internal controls to ensure the compliance with this requirement. QUESTIONED COSTS None

FEDERAL PROGRAM HEAD START (CFDA NO. 93.600) DEPARTMENT OF HEALTH AND HUMAN SERVICES CATEGORY INTERNAL CONTROL/COMPLIANCE NONCOMPLIANCE EQUIPMENT AND REAL PROPERTY MANAGEMENT CONDITIONS The Head Start Program is not maintaining adequate internal controls over property and equipment items acquired with Program?s Federal Funds as follow: ? The property and equipment?s annual property report as June 30, 2020, did not include the addition during the year, also did not include the Real Property Balance. ? Property and equipment record are done manually and aren?t included in the Accounting System General Ledger. For such reason, we could not ascertain that all capital outlays and property dispositions were recorded. In addition, related annual depreciation is not being calculated and accounted for. CRITERIA 2 CFR ?200.313(d) establishes that property records must be maintained and physical inventory must be taken and reconciled with the property records, also establish procedures for managing equipment will include control system to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft shall be investigated. The 45 CFR, Subpart C, ?92.20 states that the grantees and subgrantees must maintain effective controls and accountability for all grant and subgrant cash, real and personal property, and other assets, sufficient to permit the tracing of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restriction and prohibitions of applicable statutes and that the financial reporting must be accurate, current, and complete disclosure of the financial results in accordance with the financial reporting requirements of the grant or subgrant. CAUSE The Program did not maintain an appropriate Accounting Record of Property and Equipment during the fiscal year 2019-20 and has not established adequate internal control procedures. MUNICIPALITY OF UTUADO, PUERTO RICO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2020 SECTION III ? Federal Award Findings and Questioned Costs (continued) EFFECT Due to the lack of internal controls and property accounting records, we could not validate the accuracy and completeness of equipment and property related reports against accounting general ledger accounts. RECOMMENDATION The Program should implement adequate internal control procedures to ensure the accountability of all the equipment and property and they should reconcile on a monthly basis property general ledger accounts against subsidiary ledger. QUESTIONED COSTS None MANAGEMENT RESPONSE Personnel movement is being carried out and training will be provided to staff.

FEDERAL PROGRAM HEAD START (CFDA NO. 93.600) DEPARTMENT OF HEALTH AND HUMAN SERVICES CATEGORY COMPLIANCE NONCOMPLIANCE REPORTING CONDITIONS As part of the evaluation of the Reporting Test we requested evidence of the filing of the Financial Reporting SF-425 and Special Reportig SF-429 Federal Financial Report for each Notice of Award. We were not provided with evidence that the semi-annual, annual and final SF-425 were submitted, nor was we presented with evidence that the annual SF-429 was submitted. CRITERIA The Head Start Program is required to submit the SF-425- Federal Financial Report for each Notice to Award (NOA) and each budget period they have receive. SF-425 report shall be submitted semiannually, annually and final. Also, the Program are instructed to prepare and submit SF-429 Form on an annual basis, at the same time as their annual SF-425 Federal Financial Report is Due. This annual SF-429 is required for all grantees and must indicate whether the grantee has reportable real property. The 45 CFR, Subpart C, ?92.20 states that the grantees and subgrantees must maintain effective controls and accountability for all grant and subgrant cash, real and personal property, and other assets, sufficient to permit the tracing of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restriction and prohibitions of applicable statutes and that the financial reporting must be accurate, current, and complete disclosure of the financial results in accordance with the financial reporting requirements of the grant or subgrant. CAUSE The Program did not maintain internal control procedures to assure that the Federal Financial Report are submitted as required by the Program. EFFECT The continuance occurrence of this situation inhibits Federal award agencies from monitoring the programs financial performance. In addition, the Program could be sanctioned by the federal awarding agency due to the not filing of financial reports. MUNICIPALITY OF UTUADO, PUERTO RICO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2020 SECTION III ? Federal Award Findings and Questioned Costs (continued) RECOMMENDATION The Program should establish a plan and implement the corresponding internal controls to submit the Financial Report as required. QUESTIONED COSTS None MANAGEMENT RESPONSE Monthly certifications of compliance with the preparation and sending of the reports will be requested, according to the delivery dates for compliance, to the area in charge of completing them.

FEDERAL PROGRAM Section 8 Housing Choice Vouchers (CFDA NO. 14.871) U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CATEGORY COMPLIANCE/INTERNAL CONTROL NONCOMPLIANCE CASH MANAGEMENT CONDITION Section 8 Housing Choice Voucher Program does not have adequate internal controls over the timing of disbursements once federal funds are received. We identified that during the period of July 2019 to June 2020 there was a delay between 2 to 5 months in the processing of payments to the landlord and tenant. CRITERIA The HAP contract between the Municipality and the owners requires that during the term of the contract the Program must make the monthly housing assistant payments to the owners at the beginning of each month. CAUSE The aforementioned condition is mainly due to the lack of internal control in the procedure that takes place from the moment the documentation is generated until the checks are issued to Program?s beneficiaries and lessors. Such procedure requires so many approvals and documents that it prevents payments being made on time and causes the money received by the federal government to remain in the bank accounts for a long period of time before is being disbursed. EFFECT If the recipient fails to expend those Federal assistance funds within a reasonable period or fails to establish procedures to minimize the time between the transfer and payout of funds, the Municipality could be subject to penalties from the Federal Government and be adversely affected in the benefits they are entitled to receive in the future. RECOMMENDATION The Program should implement adequate internal control procedures which allow the promptly use of federal funds received. This could be attained by evaluating the procedures followed regarding payments to participants, homeowners and Programs? providers. QUESTIONED COSTS None. MANAGEMENT RESPONSE Efforts have been made to correct this situation and we find that the cash management has improved a great deal. Nonetheless, there is always room for improvement.

FEDERAL PROGRAM Section 8 Housing Choice Vouchers (CFDA NO. 14.871) U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CATEGORY COMPLIANCE NONCOMPLIANCE REPORTING CONDITIONS Section 8 Program did not submit the unaudited and audited financial statement to the Real Estate Assessment Center (REAC) for the fiscal years 2017, 2018 and 2019. CRITERIA 24 CFR 5.801 (b) state that Entities (or individuals) to which this subpart is applicable must provide to HUD such financial information as required by HUD. Such information must be provided on an annual basis. This information must be prepared in accordance with Generally Accepted Accounting Principles as further defined by HUD in supplementary guidance; and submitted electronically to HUD through the internet, or in such other electronic format designated by HUD. 24 CFR 5.801 (d) (1) state that unaudited financial statements will be required 60 days after the Municipality fiscal year end and audited financial statements will then be required no later than 9 months after the fiscal year end. CAUSE The Program did not maintain adequate internal control procedures to ensure the timeliness of the annual reports submitted to the REAC. EFFECT The continuance occurrence of this situation inhibits Federal award agencies from monitoring the programs financial performance. In addition, the Program could be sanctioned by the federal awarding agency due to the failed of filing the unaudited and audited financial statement. RECOMMENDATION The Municipality should submit the Financial Statement for the year 2017, 2018 and 2019 to the REAC and establish a plan and implement the corresponding internal controls to ensure the compliance with this requirement. QUESTIONED COSTS None MANAGEMENT RESPONSE Efforts to submit and bring to date the unaudited and audited financial reports are in effect.

FEDERAL PROGRAM Section 8 Housing Choice Vouchers (CFDA NO. 14.871) U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CATEGORY COMPLIANCE/INTERNAL CONTROL NONCOMPLIANCE CASH MANAGEMENT TYPE OF FINDING INSTANCE OF NONCOMPLIANCE CONDITION Section 8 Housing Choice Voucher Program does not have adequate internal controls over the timing of disbursements once federal funds are received. We identified that during the period of July 2018 to June 2019 there was a delay between 2 to 5 months in the processing of payments to the landlord and tenant. CRITERIA The HAP contract between the Municipality and the owners requires that during the term of the contract the Program must make the monthly housing assistant payments to the owners at the beginning of each month. CAUSE The aforementioned condition is mainly due to the lack of internal control in the procedure that takes place from the moment the documentation is generated until the checks are issued to Program?s beneficiaries and lessors. Such procedure requires so many approvals and documents that it prevents payments being made on time and causes the money received by the federal government to remain in the bank accounts for a long period of time before is being disbursed. EFFECT If the recipient fails to expend those Federal assistance funds within a reasonable period, or fails to establish procedures to minimize the time between the transfer and payout of funds, the Municipality could besubject to penalties from the Federal Government and be adversely affected in the benefits they are entitled to receive in the future. RECOMMENDATION The Program should implement adequate internal control procedures which allow the promptly use of federal funds received. This could be attained by evaluating the procedures followed regarding payments to participants, homeowners and Programs? providers. QUESTIONED COSTS None. MANAGEMENT RESPONSE Efforts have been made to correct this situation and we find that the cash management has improved a great deal. Nonetheless, there is always room for improvement.

FEDERAL PROGRAM SECTION 8 HOUSING CHOICE VOUCHERS (CFDA NO. 14.871) U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CATEGORY COMPLIANCE NONCOMPLIANCE REPORTING TYPE OF FINDING INSTANCE OF NONCOMPLIANCE CONDITIONS Reported monthly HAP expenditures through the VMS Data Collection Report did not agree to general ledger HAP expenditures account balances as follows:(See Schedule of Findings and Questioned Costs for chart/table) CRITERIA As specified in 2 CFR 200.302 (b)(2) 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. CAUSE This condition is mainly due to the fact that the amounts reported in the VMS report are obtained from HAP?s monthly register prepared by the Program?s Accountant according to monthly contracted amounts to the lessors. However, the amounts recorded in the general ledger are obtained from the monthly check register prepared by the Finance department once checks are issued. The check register is not reconciled against the HAP register on a monthly basis. EFFECT The continuance occurrence of this situation inhibits Federal award agencies from monitoring the programs financial performance. In addition, the Program could be sanctioned by the federal awarding agency due to the inaccurate filing of financial reports. RECOMMENDATION The Municipality should establish a plan and implement the corresponding internal controls to reconcile general ledger accounts on a monthly basis and ensure that all Program?s transactions and activities are properly recorded on a timely basis before reports are prepared. QUESTIONED COSTS None MANAGEMENT RESPONSE We will be revising al HAP expenditures account balances so that they coincide with the General Ledger before reporting to VMS

FEDERAL PROGRAM Section 8 Housing Choice Vouchers (CFDA NO. 14.871) U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT CATEGORY COMPLIANCE NONCOMPLIANCE REPORTING TYPE OF FINDING INSTANCE OF NONCOMPLIANCE CONDITIONS Section 8 Program did not submit the unaudited and audited financial statement to the Real Estate Assessment Center (REAC) for the fiscal years 2015, 2016, 2017 and 2018. CRITERIA 24 CFR 5.801 (b) state that Entities (or individuals) to which this subpart is applicable must provide to HUD such financial information as required by HUD. Such information must be provided on an annual basis. This information must be prepared in accordance with Generally Accepted Accounting Principles as further defined by HUD in supplementary guidance; and Submitted electronically to HUD through the internet, or in such other electronic format designated by HUD. 24 CFR 5.801 (d) (1) state that unaudited financial statements will be required 60 days after the Municipality fiscal year end, and audited financial statements will then be required no later than 9 months after the fiscal year end. CAUSE The Program did not maintain adequate internal control procedures to ensure the timeliness of the annual reports submitted to the REAC and lack of willingness to comply with the requirement. EFFECT The continuance occurrence of this situation inhibits Federal award agencies from monitoring the programs financial performance. In addition, the Program could be sanctioned by the federal awarding agency due to the failed of filing the unaudited and audited financial statement. RECOMMENDATION The Municipality should submit the Financial Statement for the year 2015, 2016, 2017 and 2018 to the REAC and establish a plan and implement the corresponding internal controls to ensure the compliance with this requirement. QUESTIONED COSTS None MANAGEMENT RESPONSE None

FEDERAL PROGRAM HEAD START (CFDA NO. 93.600) DEPARTMENT OF HEALTH AND HUMAN SERVICES CATEGORY INTERNAL CONTROL/COMPLIANCE NONCOMPLIANCE EQUIPMENT AND REAL PROPERTY MANAGEMENT TYPE OF FINDING INSTANCE OF NONCOMPLIANCE CONDITIONS The Head Start Program is not maintaining adequate internal controls over property and equipment items acquired with Program?s Federal Funds as follow: ? The property and equipment?s subsidiary ledger balance did not agree to annual property report as June 30, 2019. ? Property and equipment record are done manually and aren?t included in the Accounting System General Ledger. For such reason, we could not ascertain that all capital outlays and property dispositions were recorded. In addition, related annual depreciation is not being calculated and accounted for. CRITERIA 2 CFR ?200.313(d) establishes that procedures for managing equipment will include control system to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft shall be investigated. The 45 CFR, Subpart C, ?92.20 states that the subgrantees must maintain effective controls and accountability for all grant and subgrant cash, real and personal property, and other assets, sufficient to permit the tracing of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restriction and prohibitions of applicable statutes and that the financial reporting must be accurate, current, and complete disclosure of the financial results in accordance with the financial reporting requirements of the grant or subgrant. CAUSE The Program did not maintain an appropriate Accounting Record of Property and Equipment during the fiscal year 2018-2019 and has not established adequate internal control procedures. EFFECT Due to the lack of internal controls and property accounting records, we could not validate the accuracy and completeness of equipment and property related reports against accounting general ledger accounts. RECOMMENDATION The Program should implement adequate internal control procedures to ensure the accountability of all the equipment and property and they should reconcile on a monthly basis property general ledger accounts against subsidiary ledger. QUESTIONED COSTS None MANAGEMENT RESPONSE The Grantee continues to provide the detailed information and documentation to our acquired electronic accounting system, but these updates have not been reflected in our system as of now. Notwithstanding we continue to maintain our internal records manually as a safe recordkeeping in case of total electronic system failure. The depreciation process is completed in the general parameters permitted by the established local law.

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION