MUNICIPALITY OF CAYEYLocal Government

Finding Reference 2025-003 Federal Agency: U.S. Department of Health and Human Services Pass-through Agency: Puerto Rico Department of Family Program: Child Care and Development Block Grant (ALN 93.575) Compliance Requirement: Earmarking (G) Type of Finding: Significant Deficiency in Internal Controls (SD), Instance of Noncompliance (NC) This finding is similar to prior-year finding 2024-004 & 2023-004. Statement of Condition In our Earmarking Test, we found that the Program did not comply with the direct spending earmark limitation that requires the program to spend no less than seventy percent (70%) to fund direct services. Criteria 45 CFR, Subpart F, Section 95.50 (f) (2) states that from Discretionary amounts provided for a fiscal year, the Lead Agency shall use no less than seventy percent (70%) to fund direct services (provided by the Lead Agency). Cause of Condition The program’s budget, approved by the pass-through entity, was not distributed according to the cost limitations required for the direct services. Therefore, the amount spent per category of expenditure did not meet the minimum amount. Effect of Condition The program is not in compliance with 45 CFR, Subpart F, Section 98.50. Recommendation We recommend the Program’s Management to request to the pass-through entity a revision of the approved budgeted amounts in order to make all the required adjustments to comply with the program cost limitations. Questioned Cost None Views of Responsible Officials and Planned Corrective Action We concur with the finding. As an internal control and prevention measure, the budget sent by the Agency will be verified with the percentages (%) established in the contract. If they do not match, ACUDEN will be asked to amend the budget. Also, as part of the corrective action plan, the municipality will be moving the location of its centers in search of better accessibility for participants and to be more aggressive in providing services and spending the allocations in full. Implementation Date: During fiscal year 2025-2026. Responsible Person: Mrs. Natasha Vázquez Federal Programs Director

Finding Reference 2025-004 Federal Agency: U.S. Department of Homeland Security Pass-Through Agency: Central Office of Recovery, Reconstruction and Resiliency of Puerto Rico (COR3) Program: Disaster Grants – Public Assistance (Presidentially Declared Disaster) (ALN 97.036) Compliance Requirement: Reporting (L) Type of Finding: Significant Deficiency in Internal Controls (SD), Instance of Noncompliance (NC) It is not a prior-year finding. Statement of Condition In our Reporting Test, we evaluated the Quarterly Progress Reports of a total of five (5) projects for two quarters of fiscal year 2024-2025. During our audit procedures, we noted that the reports of two (2) projects did not agree with the accounting and project records. Criteria 2 CFR 200.302 (a) stated that the state’s and the other non-Federal entity’s financial management system, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. Also, 2 CFR 200.302 (b) (2) states that the financial management system of each non-Federal entity must provide 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. Cause of Condition The Municipality’s accounting controls and procedures fail to ensure accurate, current and complete disclosure of the financial results of federal assisted activities. Effect of Condition The expenses reported in the Quarterly Progress Reports do not agree with the accounting records. Recommendation We recommend that Program Administrators reconcile the differences between the quarterly report and the accounting records before the submission of the next submission to the pass-through entity. Questioned Cost None Views of Responsible Officials and Planned Corrective Action We concur with the finding. During the testing of reports, the Quarterly Progress Reports of five (5) projects, corresponding to two (2) quarters of fiscal year 2024-2025, were evaluated. It was found that in two (2) projects, the quarterly reports did not match the accounting records or the project documentation. Therefore, for the purposes of this audit, the municipal accounting controls and procedures did not ensure that the reported information was accurate, up-to-date, and fully reconciled with the financial records. In light of the above, the reports will be reconciled with the accounting records, and the discrepancies found will be identified, documented, and adjusted in the system where the error originated, as appropriate. Furthermore, from this point forward, once the Quarterly Reports (QPR) are issued, a copy must be sent to the Program Accountant, the Finance Director, and myself for validation and reconciliation prior to official filing, thus preventing situations like this to occur. This process will form part of the internal control required to ensure that the reported information is accurate, current, complete, and consistent with the accounting records, in accordance with applicable federal requirements. Implementation Date: From March 2026. Full implementation is expected in fiscal year 2026-2027. Responsible Person: Mrs. Natasha Vázquez Federal Programs Director

Finding Reference 2024-003 Federal Agency: U.S. Department of Health and Human Services Pass-through Agency: Puerto Rico Department of Family Program: Head Start Program Cluster (ALN 93.600 & 93.365) Compliance Requirement: Reporting - Financial Administration (L) Type of Finding: Significant Deficiency in Internal Controls (SD), Instance of Noncompliance (NC) This finding is similar to prior-year finding(s) 2023-003, 2022-003 and 2021-003 . Statement of Condition In our Reporting Test, we found the financial reports do not agree with the program accounting records. Criteria The OMB Common Rules, Subpart C, Section .20 (b) (1), states that the grantee must maintain internal control procedures that permit proper tracing of funds to the accounting records. Also, it requires accurate, current and complete disclosure of financial results. Cause of Condition The accounting system is not used as a reporting source. Adequate internal controls do not exist to ensure that the accounting system is used, and the information is reconciled with the closing reports submitted to the federal agencies. Effect of Condition The program is not in compliance with the Common Rules, Subpart C, Section .20 (b) (1). Recommendation We recommend the Program establish monitoring procedures to ensure the accuracy of accounting records and the correct completion of the closing reports. The Program fiscal area ensures that accounting records are updated at the end of each month in order to prepare accurate reports for the federal agency. Questioned Cost None Views of Responsible Officials and Planned Corrective Action The Head Start and Early Head Start Program accountant will reconcile transactions to the general ledger on a monthly basis, that is, review and compare each transaction to the IDs. After reviewing, appropriate corrections will be made if necessary. Implementation Date: During fiscal year 2024-2025. Responsible Person: Mrs. Idenisse Díaz Head Start Program Director

Finding Reference 2024-004 Federal Agency: U.S. Department of Health and Human Services Pass-through Agency: Puerto Rico Department of Family Program: Child Care and Development Block Grant (ALN 93.575) Compliance Requirement: Earmarking (G) Type of Finding: Significant Deficiency in Internal Controls (SD), Instance of Noncompliance (NC) This finding is similar to prior-year finding 2023-004. Statement of Condition In our Earmarking Test, we found that the Program did not comply with the quality earmark limitation that requires the program to spend at least nine percent (9%) of the funds on quality activities and at least an additional three percent (3%) on quality improvement for infants and toddlers on the program. Also, we found that the Program did not comply with the direct spending earmark limitation that requires the program to spend no less than seventy percent (70%) to fund direct services. Criteria 45 CFR, Subpart F, Section 98.50 (b) (1) states that of the aggregate amount of funds expended by a State or Territory, no less than seven percent in fiscal years 2016 and 2017, eight percent in fiscal years 2018 and 2019, and nine percent in fiscal year 2020 and each succeeding fiscal year shall be used for activities designed to improve the quality of child care services and increase parental options for, and access to, high-quality child care as described at 45 CFR Subpart F, Section 98.53. Section 98.50 (b) (2) states that no less than three percent in fiscal year 2017 and each succeeding fiscal year shall be used to carry out activities as such activities relate to the quality of care for infants and toddlers. Also, section 98.50 (b) (3) states that nothing in this section shall preclude the State or Territory from reserving a larger percentage of funds to carry out activities described in paragraphs (b) (1) and (2) of Section 98.50. 45 CFR, Subpart F, Section 95.50 (f) (2) states that from Discretionary amounts provided for a fiscal year, the Lead Agency shall use no less than 70 percent to fund direct services (provided by the Lead Agency). Cause of Condition The program’s budget, approved by the pass-through entity, was not distributed according to the cost limitations required for the administrative, quality and direct costs. Therefore, the amounts spent per category of expenditure did not meet the minimum amounts. Effect of Condition The program is not in compliance with 45 CFR, Subpart F, Section 98.50. Recommendation We recommend the Program’s Management to request to the pass-through entity a revision of the approved budgeted amounts in order to make all the required adjustments to comply with the program cost limitations. Questioned Cost None Views of Responsible Officials and Planned Corrective Action In this case, for the year 2024-2025 it has already been verified that ACUDEN complies with the provisions of the contract. As an internal control and prevention measure, the budget sent by the Agency will be verified with the percentages (%) established in the contract. If they do not match, ACUDEN will be asked to amend the budget. Implementation Date: During fiscal year 2024-2025. Responsible Person: Mrs. Natasha Vásquez Federal Programs Director

Finding Reference 2023-003 Federal Agency: U.S. Department of Health and Human Services Pass-through Agency: Puerto Rico Department of Family Program: Head Start Program Cluster (ALN 93.600 & 93.365) Compliance Requirement: Reporting - Financial Administration (L) Type of Finding: Significant Deficiency in Internal Controls (SD), Instance of Noncompliance (NC) This finding is similar to prior-year finding(s) 2022-003, 2021-003 and 2020-004. Statement of Condition In our Reporting Test, we did not find evidence of the submission of the Federal Financial Report SF-425 to the pass-through agency and the trial balance. Also, the financial reports do not agree with the program accounting records. Alternate procedures were used to report the expense. Criteria The OMB Common Rules, Subpart C, Section .20 (b) (1), states that the grantee must maintain internal control procedures that permit proper tracing of funds to the accounting records. Also, it requires accurate, current and complete disclosure of financial results. The agreement with the pass-through entity, the Commonwealth of Puerto Rico – Department of Family (ACUDEN), Clause eight (8), Section 11, states that the utilization of the official accounting system of the program, Abila MIP Fund Accounting Software, is required. Other accounting systems will not be considered as the official accounting systems of the program for the purpose of federal, state, or local audits. All journal entries of the project should be registered in the system. Disbursement not registered in the Abila MIP Fund Accounting Software will not be processed. It is the responsibility of the grantee to keep the information up to date for it to reflect an accurate financial position of the institution. Also, the agreement with the pass-through entity states in the twentieth (20) Clause that all the files related to the federal funds received under the contract must be available to all authorized representatives of the Department of Health and Federal Human Services, the Office of General Accounting of the United States, the Commonwealth of Puerto Rico – Contralor Office, the Commonwealth of Puerto Rico - General Inspector Office and the Commonwealth of Puerto Rico – Department of Family (ACUDEN). The files must be available for ten (10) years after the end of program year, unless the Secretary of the Department of Health and Federal Human Services authorizes the destruction of documents and the Act for the Administration of Public Documents of Puerto Rico (Act No. 5, from December 8, 1995, as amended), is no violated. Cause of Condition The required accounting system is not used as a reporting source. Adequate internal controls do not exist to assure that the required accounting system is used, and the information is reconciled with the closing reports submitted to the federal agencies. Also, appropriate files are not kept documenting the compliance with the reporting requirement. Effect of Condition The program is not in compliance with the Common Rules, Subpart C, Section .20 (b) (1). Recommendation We recommend the Program to establish monitoring procedures to ensure the accuracy of accounting records and the correct completion of the closing reports. The Program fiscal area ensures that accounting records are updated at the end of each month in order to prepare accurate reports for the federal agency. In addition, the accountant must ensure that the Abila MIP Fund Accounting Software is used to present the financial position of the Program and as the reporting source as established by the pass-through entity. The Program must establish a file system to ensure that all the documents related to the program are filed and available for inspection. Questioned Cost None Views of Responsible Officials and Planned Corrective Action At the beginning of the fiscal year 2023-2024, ACUDEN authorized the use of Rock Solid’s Streamline Accounting System as the official accounting system for the Head Start Program. (Contract 2023-001904). This action corrects this finding. Regarding the delivery of the Federal Financial Report SF-425, the report was delivered to ACUDEN, although at the time of the audit evidence of its delivery could not be shown. ACUDEN was asked to send us a copy of the process sheet for the delivery of the report. Internal controls will be implemented to ensure this type of situation does not occur. Implementation Date: During fiscal year 2024-2025. Responsible Person: Mrs. Idenisse Díaz Head Start Program Director

Finding Reference 2023-004 Federal Agency: U.S. Department of Health and Human Services Pass-through Agency: Puerto Rico Department of Family Program: Child Care and Development Block Grant (ALN 93.575) Compliance Requirement: Earmarking (G) Type of Finding: Significant Deficiency in Internal Controls (SD), Instance of Noncompliance (NC) Statement of Condition In our Earmarking Test, we found that the Program did not comply with the quality earmark limitation that requires the program to spend at least nine percent (9%) of the funds on quality activities and at least an additional three percent (3%) on quality improvement for infants and toddlers on the program. Also, we found that the Program did not comply with the direct spending earmark limitation that requires the program to spend not less than seventy percent (70%) to fund direct services. Criteria 45 CFR, Subpart F, Section 98.50 (b) (1) states that of the aggregate amount of funds expended by a State or Territory, no less than seven percent in fiscal years 2016 and 2017, eight percent in fiscal years 2018 and 2019, and nine percent in fiscal year 2020 and each succeeding fiscal year shall be used for activities designed to improve the quality of child care services and increase parental options for, and access to, high-quality child care as described at 45 CFR Subpart F, Section 98.53. Section 98.50 (b) (2) states that no less than three percent in fiscal year 2017 and each succeeding fiscal year shall be used to carry out activities as such activities relate to the quality of care for infants and toddlers. Also, section 98.50 (b) (3) states that nothing in this section shall preclude the State or Territory from reserving a larger percentage of funds to carry out activities described in paragraphs (b) (1) and (2) of Section 98.50. 45 CFR, Subpart F, Section 95.50 (f) (2) states that from Discretionary amounts provided for a fiscal year, the Lead Agency shall use not less than 70 percent to fund direct services (provided by the Lead Agency). Cause of Condition The program’s budget, approved by the pass-through entity, was not distributed according to the cost limitations required for the administrative, quality and direct costs. Therefore, the amounts spent per category of expenditure did not meet the minimum amounts. Effect of Condition The program is not in compliance with 45 CFR, Subpart F, Section 98.50. Recommendation We recommend the Program’s Management to request to the pass-through entity a revision of the approved budgeted amounts in order to make all the required adjustments to comply with the program cost limitations. Questioned Cost None Views of Responsible Officials and Planned Corrective Action In this case, for the year 2023-2024, it has already been verified that ACUDEN complies with the provisions of the contract. As an internal control and prevention measure, the budget sent by the Agency will be verified with the percentages (%) established in the contract. If they do not match, ACUDEN will be asked to amend the budget. Implementation Date: During fiscal year 2023-2024. Responsible Person: Mrs. Natasha Vásquez Federal Programs Director

Finding Reference 2023-005 Federal Agency: U.S. Department of Treasury Pass-through Agency: P.R. Department of Treasury – Puerto Rico Fiscal Agency and Financial Advisory Authority Program: Coronavirus State and Local Fiscal Recovery Funds (ALN 21.027) Compliance Requirement: Procurement Suspension & Debarment (I) Type of Finding: Significant Deficiency in Internal Controls (SD), Instance of Noncompliance (NC) Statement of Condition In our Procurement Contract Provision Test, we evaluated three (3) contract agreements. We found that the Municipality did not include all contract provisions required for non-federal entity contracts under federal awards for none of the contract agreements evaluated. Criteria 2 CFR Section 200.327 references Appendix II to Part 200, which establishes contract provisions that must be included in non-federal entity contracts under federal awards. Cause of Condition The Municipality has been disclosing the federal contract provisions in the Public Notices inviting to Bid Auctions or Request for Proposals as a requirement to be awarded for a federal award contract. However, the contract provisions have not been included in the signed agreements. Effect of Condition The program is not in compliance with the Procurement Suspension and Debarment requirements as established in 2 CFR section 200.327. Recommendation We recommend to the program administrators to include in the requisition for contracts a description of the requirements that need to be fulfilled to award a federal contract. Contracts should not be signed, and payments should not be disbursed without the required contract provisions. Questioned Cost None Views of Responsible Officials and Planned Corrective Action Although the sample selected in relation to the contracts did not contain the required federal clauses, the contracted companies did comply with the main provisions established by 2 CFR Section 200.327 in Appendix II Part 200, such as equal employment opportunity under 41 CFR Part 60, Davis-Bacon Act as amended 40 USC 3141-3148 and the Contract Work Hours and Safety Standards Act 40 USC 3701-3708. Also, for the three contracts, it was reviewed and validated that they had their SAM registration on the day prior to the formalization of the contract and/or disbursement of any payment. However, this situation has already been remedied since the federal clauses required by 2 CFR Section 200 Appendix II Part 200 were and are included in all contracts financed with federal funds. Implementation Date: During fiscal year 2023-2024. Responsible Person: Mrs. Natasha Vásquez Federal Programs Director

Finding Reference: 2022-003 Federal Agency: U.S. Department of Health and Human Services Pass-through Agency: Puerto Rico Department of Family Program: Head Start Program Cluster (ALN 93.600 & 93.365) Compliance Requirement: Reporting - Financial Administration (L) Type of Finding: Significant Deficiency in Internal Controls (SD), Instance of Noncompliance (NC) This finding is similar to prior-year finding(s): 2021-003 and 2020-004. Statement of Condition: In our Reporting Test, we found differences between the amounts reported as federal expenditures in the Federal Financial Report SF-425 submitted to the federal agency and the amounts detailed in the trial balance. As result, the financial reports do not agree with the program accounting records. Alternate procedures were used to report the expense. Criteria: The OMB Common Rules, Subpart C, Section .20 (b) (1), states that the grantee must maintain internal control procedures that permits proper tracing of funds to the accounting records. Also, it requires accurate, current and complete disclosure of financial results. The agreement with the pass-through entity, the Commonwealth of Puerto Rico ? Family Department (ACUDEN), Clause eight (8), Section 11, states that the utilization of the official accounting system of the program, Abila MIP Fund Accounting Software, is required. Other accounting systems will not be considered as the official accounting systems of the program for the purpose of federal, state, or local audits. All journal entries of the project should be registered in the system. Disbursement not registered in the Abila MIP Fund Accounting Software will not be processed. It is the responsibility of the grantee to keep the information up to date for it to reflect an accurate financial position of the institution. Cause of Condition: The required accounting system is not used as reporting source. Also, adequate internal controls do not exist to assure that the required accounting system be used and the information is reconciled with the closing reports submitted to the federal agencies. Effect of Condition: The program is not in compliance with the Common Rules, Subpart C, Section .20 (b) (1). Recommendation: We recommend the Program establishes monitoring procedures to ensure the accuracy of accounting records and a correct completion of the closing reports. The Program fiscal area ensures that accounting records are updated at the end of each month in order to prepare accurate reports to the federal agency. In addition, the accountant must ensure that the Abila MIP Fund Accounting Software is used to present the financial position of the Program and as the reporting source as established by the pass-through entity. Questioned Cost: None Views of Responsible Officials and Planned Corrective Action: During the evaluated period, the Abila MIP Fund Accounting Software System was not available, so the Rock Solid System was used for federal reporting, as a corrective action, ACUDEN was requested to establish a clause in the fund delegation contract with the authorization of the use of the Rock Solid accounting system. This clause was included in the contract 2023-001904 for the 2023-2024 fiscal year. Implementation Date: During fiscal year 2023-2024. Responsible Person: Mrs. Idenisse Diaz Head Start Program Director

Finding Reference 2021-003 Federal Agency: U.S. Department of Health and Human Services Pass-through Agency: Puerto Rico Department of Family Program: Head Start Program Cluster(ALN 93.600 & 93.365) Compliance Requirement: Reporting - Financial Administration (L) Type of Finding: Significant Deficiency in Internal Controls (SD), Instance of Noncompliance (NC) This finding is similar to prior-year finding(s) 2020-004. Statement of Condition: In our Reporting Test, we found differences between the amounts reported as federal expenditures in the Federal Financial Report SF-425 submitted to the federal agency and the amounts detailed in the trial balance. As result, the financial reports do not agree with the program accounting records. Alternate procedures were used to report the expense. Criteria: The OMB Common Rules, Subpart C, Section .20 (b) (1), states that the grantee must maintain internal control procedures that permits proper tracing of funds to the accounting records. Also, it requires accurate, current and complete disclosure of financial results. The agreement with the pass-through entity, the Commonwealth of Puerto Rico ? Family Department (ACUDEN), Clause eight (8), Section 11, states that the utilization of the official accounting system of the program, Abila MIP Fund Accounting Software, is required. Other accounting systems will not be considered as the official accounting systems of the program for the purpose of federal, state, or local audits. All journal entries of the project should be registered in the system. Disbursement not registered in the Abila MIP Fund Accounting Software will not be processed. It is the responsibility of the grantee to keep the information up to date for it to reflect an accurate financial position of the institution. Cause of Condition: The required accounting system is not used as reporting source. Also, adequate internal controls do not exist to assure that the required accounting system be used and the information is reconciled with the closing reports submitted to the federal agencies. Effect of Condition: The program is not in compliance with the Common Rules, Subpart C, Section .20 (b)(1). Recommendation: We recommend the Program establishes monitoring procedures to ensure the accuracy of accounting records and a correct completion of the closing reports. The Program fiscal area ensures that accounting records are updated at the end of each month in order to prepare accurate reports to the federal agency. In addition, the accountant must ensure that the Abila MIP Fund Accounting Software is used to present the financial position of the Program and as the reporting source as established by the pass-through entity. Questioned Cost: None

Finding Reference 2020-004 Federal Agency: U.S. Department of Health and Human Services Pass-through Agency: Puerto Rico Department of Family Program: Head Start Program (CFDA. No. 93.600) Compliance Requirement: Reporting - Financial Administration (L) Type of Finding: Significant Deficiency in Internal Controls (SD), Instance of Noncompliance (NC) Statement of Condition In our Reporting Test, we found differences between the amounts reported as federal expenditures in the Federal Financial Report SF-425 submitted to the federal agency and the amounts detailed in the trial balance. As result, the financial reports do not agree with the program accounting records. Alternate procedures are used to report the expense. Criteria The OMB Common Rules, Subpart C, Section .20 (b) (1), states that the grantee must maintain internal control procedures that permits proper tracing of funds to the accounting records. Also, it requires accurate, current and complete disclosure of financial results. Cause of Condition The required accounting system is not used as reporting source. Also, adequate internal controls do not exist to assure that the required accounting system be used and the information is reconciled with the closing reports submitted to the federal agencies. Effect of Condition The program is not in compliance with the Common Rules, Subpart C, Section .20 (b) (1). Recommendation We recommend the Program establishes monitoring procedures to ensure the accuracy of accounting records and a correct completion of the closing reports. The Program fiscal area ensures that accounting records are updated at the end of each month in order to prepare accurate reports to the federal agency. In addition, the accountant must ensure that the SAGE accounting system is used to present the financial position of the Program and as the reporting source as established by the pass-through entity. Questioned Cost None

Finding Reference 2020-005 Requirement Single Audit Act Type of Finding Significance Deficiency (SD), Instance of Noncompliance (NC) Statement of Condition The Single Audit Report for the fiscal year ended June 30, 2020 was not issued within nine (9) months after the end of the audit period. Although, a waiver of six (6) months was approved by the OMB delaying the due date until September 30, 2020, the Data Collection Form and the reporting package was not submitted on a timely basis. Criteria The Single Audit Act, as amended, requires that the audit report must be submitted to the Federal Audit Clearinghouse no later than nine (9) months after the end of the audit period. Cause of Condition The Agency did not comply with the established regulation as prescribed in OMB Super Circular Uniform Guidance. Effect of Condition The Agency could lose federal grants due to the noncompliance with the Single Audit Act requirements. Recommendation Procedures should be implemented to ensure that the Agency complies with the established Federal Regulation, as prescribed by OMB Super Circular Uniform Guidance. Questioned Costs None

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