MUNICIPALITY OF CULEBRA

MUNICIPALITY OF CULEBRA, PUERTO RICO SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2023 SECTION III – Federal Award Finding and Questioned Costs FINDING 2023-004 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

FINDING 2022-004 FEDERAL PROGRAM COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) (CFDA NO. 14.228) DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT PASS THROUGH STATE HOUSING DEPARTMENT CATEGORY INTERNAL CONTROL/COMPLIANCE NONCOMPLIANCE EQUIPMENT AND REAL PROPERTY MANAGEMENT TOPIC SENTENCE Lack of controls over property and equipment acquired with Federal Funds. CONDITIONS The Municipality and the Community Development Block Grant Program (CDBG) are 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 do not indicate, among other things the source of the property, who holds title, the acquisition date, cost of the property, percentage of Federal participation in the cost of the property, use and condition of the property, and any ultimate disposition data including the date of disposal. ? The CDBG Program did not count with a general ledger or a property subsidiary ledger where all property and equipment transactions are registered. 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 24 CFR 85.32(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. MUNICIPALITY OF CULEBRA, PUERTO RICO 24 CFR 85.20 (b)(3), establishes that effective control and accountability must be maintained for all grant and subgrant cash, real and personal property, and other assets. Grantees and subgratees must adequately safeguard all such property and must assure that it is used solely for authorized purposes. CAUSE The CDBG 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 the annual physical inventory report and any other related report against an accounting general ledger accounts. The Municipality is exposed to the risk of possible unauthorized use and disposition of equipment due to the lack of internal controls and property records. In addition, sanctions could be imposed by the Lead Agency State CDBG Program or the federal awarding agency. RECOMMENDATION The Property Division must require each office, department and federal program that acquires property and equipment to submit a report including a full description of the assets, location, use, responsible person, cost, and any other pertinent data. In addition, the CDBG Program and the Accounting Department should establish a property control account and a subsidiary ledger to provide for the reconciliation of property. QUESTIONED COST: None

FINDING 2021-003 FEDERAL PROGRAM COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) (CFDA NO. 14.228) DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT PASS THROUGH STATE HOUSING DEPARTMENT CATEGORY INTERNAL CONTROL/COMPLIANCE NONCOMPLIANCE EQUIPMENT AND REAL PROPERTY MANAGEMENT TOPIC SENTENCE Lack of controls over property and equipment acquired with Federal Funds. CONDITIONS The Municipality and the Community Development Block Grant Program (CDBG) are not maintaining adequate internal controls over property and equipment items acquired with Federal Funds. In testing property and equipment, we noted the following: ? As of June 30, 2021 a physical inventory of all property and equipment had not been conducted, the last inventory was dated December 17, 2020. ? The property records do not indicate, among other things the source of the property, who holds title, the acquisition date, cost of the property, percentage of Federal participation in the cost of the property, use and condition of the property, and any ultimate disposition data including the date of disposal. ? The CDBG Program did not count with a general ledger or a property subsidiary ledger where all property and equipment transactions are registered. 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 24 CFR 85.32(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. FINDING 2021-003 (continued) 24 CFR 85.20 (b)(3), establishes that effective control and accountability must be maintained for all grant and subgrant cash, real and personal property, and other assets. Grantees and subgratees must adequately safeguard all such property and must assure that it is used solely for authorized purposes. CAUSE The CDBG 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 the annual physical inventory report and any other related report against an accounting general ledger accounts. The Municipality is exposed to the risk of possible unauthorized use and disposition of equipment due to the lack of internal controls and property records. In addition, sanctions could be imposed by the Lead Agency State CDBG Program or the federal awarding agency. RECOMMENDATION The Property Division must require each office, department and federal program that acquires property and equipment to submit a report including a full description of the assets, location, use, responsible person, cost, and any other pertinent data. In addition, the CDBG Program and the Accounting Department should establish a property control account and a subsidiary ledger to provide for the reconciliation of property. A physical inventory of the Municipality?s property should be performed as soon as possible for all departments and all differences should be investigated, adjusted and reconciled with the property records maintained by the Municipality?s federal program offices. QUESTIONED COST: None MANAGEMENT RESPONSE We concur with the finding