AUTONOMOUS MUNICIPALITY OF CAGUAS

FEDERAL PROGRAM (ALN 93.356) HEAD START DISASTER RECOVERY FROM HURRICANES HARVEY, IRMA, AND MARIA U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBER 02td000223 (Federal Award Year June 1, 2021 – December 31, 2025) COMPLIANCE REQUIREMENT REPORTING TYPE OF FINDING NONCOMPLIANCE AND SIGNIFICANT DEFICIENCY CRITERIA 2 CFR Section 200.302 (a) establishes that each State must expend and account for the Federal award in accordance with State laws and procedures for expending and accounting for the State's funds. All recipient and subrecipient financial management systems, 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 the terms and conditions; and tracking expenditures to establish that funds have been used in accordance with Federal statutes, regulations, and the terms and conditions of the Federal award. See § 200.450. In addition, the SF-425 Federal Financial Report requires the reporting of financial activities related to Federal awards. The accounting basis used for reporting expenditures (whether cash or accrual) must align with the accounting system employed by the recipient organization. In addition, 2 CFR §200.303 (a) establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). STATEMENT OF CONDITION As part of our audit procedures for evaluating internal controls and compliance with reporting requirements, we selected three (3) reports that were submitted during our fiscal year audit. During our review of the data related to Grant Award 02TD000223, we noted the following deficiency: the total Federal expenditure reported on line (e) of the report does not match the data provided by the client in the database, with a difference of $250,000. QUESTIONED COSTS None PERSPECTIVE INFORMATION This deficiency represents a systemic issue attributable to inadequate review procedures, which has resulted in the inaccurate reporting of Federal expenditures. STATEMENT OF CAUSE The discrepancy may be due to an error in the data collection process or a failure to properly transfer data between the database and the Federal expenditure report, or a lack of proper reconciliation between the two. POSSIBLE ASSERTED EFFECT This discrepancy could affect the accuracy of the financial reports, compromising transparency and the Municipality's compliance with Federal reporting requirements. It could also lead to misunderstandings regarding the proper use of the Federal funds awarded. IDENTIFICATION OF REPEAT FINDING This is not a repeat finding. RECOMMENDATIONS We recommend that the Municipality reviews their processes for reporting and recording Federal expenditure to ensure that the data reported on the system matches the database used during the audit. Additionally, we suggest implementing a regular reconciliation process between the reporting system and the database to prevent future errors and ensure compliance with Federal reporting requirements.

FINDING REFERENCE NUMBER:2023-001 FEDERAL PROGRAM:(ALN 14.871) SECTOIN 8 HOUSING CHOICE VOUCHERS PROGRAM U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AWARD NUMBER RQ007 COMPLIANCE REQUIREMENT ELIGIBILITY TYPE OF FINDING NONCOMPLIANCE AND SIGNIFICANT DEFICIENCY CRITERIA 24 CFR Section 982.551 (b) (1) establishes that the family must supply any information that the PHA or HUD determines is necessary in the administration of the program, including submission of required evidence of citizenship or eligible immigration status (as provided by 24 CFR part 5). “Information” includes any requested certification, release, or other documentation. In 24 CFR Section 982.553 (c) establishes the evidence of criminal activity. The PHA may terminate assistance for criminal activity by a household member as authorized in this section if the PHA determines, based on a preponderance of the evidence, that the household member has engaged in the activity, regardless of whether the household member has been arrested or convicted for such activity. In addition, the Municipal Administrative Plan establishes that the family is responsible for a breach of the HQS that is caused by any of the following: (a) the family fails to pay for any utilities that the owner is not required to pay for, but is necessary in the administration of the program, including submission of required evidence of citizenship or eligible which are to be paid by the tenant. And for the verification requirements for individual items, they must receive from a third party a letter from school to know that the children are attending school STATEMENT OF CONDITION During our audit procedures over eligibility, from our sample selected, we noted that in 4 instances, the participant didn't provide evidence of the utilities. According to the participants' contracts, the rent to the owner does not include utilities such as water and electricity, therefore the participants must provide evidence to the Municipality that they are paying the bills. In addition, one participant didn't provide the Negative Certificate of Penal Record to validate criminal record and the School Certification to validate that the children are attending school. QUESTIONED COSTS Not Applicable PERSPECTIVE INFORMATION This deficiency is a systemic problem, they have a monitor position that was created to review the HCV program for compliance with HUD requirements and make the Caguas PHA aware of any program problems, deficiency, fraud, abuse, and/or omissions, to maintain program integrity, but at this time, no person has been hired for this position affecting the effectiveness of the monitoring internal controls. The sample selected were 90 participant files. STATEMENT OF CAUSE The Municipality did not review the required information for the reexamination process prior to the approval of the contract. POSSIBLE ASSERTED EFFECT The Municipality can be providing assistance to a participant that is not complying with the program requirements, such as not paying utilities, which according to the Administrative Plan is a violation of the contract IDENTIFICATION OF REPEAT FINDING This is not a repeated Finding RECOMMENDATIONS We recommend management verify the required information for the participants in order to assure compliance with this requirement.

FEDERAL PROGRAM (ALN 14.218) COMMUNITY DEVELOPMENT BLOCK GRANTS/ENTITLEMENT GRANTS U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AWARD NUMBER B21MC72001 (Federal Award Year 2021) COMPLIANCE REQUIREMENT REPORTING TYPE OF FINDING NONCOMPLIANCE AND SIGNIFICANT DEFICIENCY CRITERIA In accordance with 2 CFR Appendix A to Part 170, I(a), unless a recipient of grants or cooperative agreements is exempt, they are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS). The non-Federal entity or Federal agency must report each obligating action to http://www.fsrs.gov. For subaward information, report no later than the end of the month following the month in which the obligation was made. STATEMENT OF CONDITION As part of our audit procedures, the Municipality include information from contractors instead of subrecipient in the report submitted June 30, 2022. QUESTIONED COSTS Not Applicable PERSPECTIVE INFORMATION We received from the Municipality the report made for the month of June 30, 2022. We noted that they included all contracts from vendors, instead of Federal awards made to a subrecipient under which the total funding is anticipated to be equal or exceed $30,000 in Federal funding. The total transactions examined were five (5) contracts with vendors in the amount of $271,032. STATEMENT OF CAUSE Municipality staff had the understanding that they must include all contracts or purchase orders greater than $30,0000 in the FFATA report. POSSIBLE ASSERTED EFFECT The Municipality is in non-compliance with the requirements to report through the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS) platform. This breach does not allow for the transparency that this report requires. IDENTIFICATION OF REPEAT FINDING This is not a repeated Finding. RECOMMENDATIONS We recommend that the Municipality provide training and technical assistance to the personnel that prepares and submits the contracts that meet the requirements to be reported on the FSRS portal. In addition, controls should be in place in order to be able to keep track of the type of contract they need to report.

FEDERAL PROGRAM (ALN 21.027) CORONAVIRUS STATE AND LOCAL RECOVERY FUNDS U.S. DEPARTMENT OF TREASURY AWARD NUMBER NOT AVAILABLE COMPLIANCE REQUIREMENT REPORTING TYPE OF FINDING NONCOMPLIANCE AND SIGNIFICANT DEFICIENCY CRITERIA Per the Compliance and Reporting Guidance ? Part I: General Guidance ? Section D: Uniform Administrative Requirements ? Section 10: Reporting: establishes that: All recipients of federal funds must complete financial, performance, and compliance reporting as required and outlined in Part 2 of this guidance. Expenditures may be reported on a cash or accrual basis, as long as the methodology is disclosed and consistently applied. Reporting must be consistent with the definition of expenditures pursuant to 2 CFR 200.1. Recipients should appropriately maintain accounting records for compiling and reporting accurate, compliant financial data, in accordance with appropriate accounting standards and principles. In addition, where appropriate, recipients need to establish controls to ensure completion and timely submission of all mandatory performance and/or compliance reporting. STATEMENT OF CONDITION During the performance of our audit procedures regarding reporting, we obtained copies of the reports submitted for the periods of March to December 2021, January to March 2022 and April to June 2022 for the evaluation of the reporting requirements. Due to that the reports presented accumulated information, we selected the report for the period of April to June 2022 for reporting requirement evaluation. After the evaluation of the report and its supporting documentation we noticed the following situations: 1. In one of the projects the total amount of current period and cumulative obligations does not agree with the total amounts of obligations recognized in the accounting system for the same project and period. 2. In one of the projects the total current period and cumulative expenditures does not agree with the total amounts of expenditures recognized in the accounting system for the same project and period.. QUESTIONED COSTS Not Determined. PERSPECTIVE INFORMATION Condition 1: This was an isolated case in the accounting system were the purchase order balance does not reflect the expenditures incurred. No additional information was required when preparing the report to validate the reason because the purchase order balance was the same as originally reported although expenditures were incurred during the period related to the same project. In a subsequent report the total amount of obligations will be updated. Condition 2: For the next period report the involuntary error was identified and properly corrected to reflect the correct amounts in the report in accordance with the accounting records. STATEMENT OF CAUSE Condition 1: The personnel in charge of preparing the report used a worksheet to analyze the information to include in the report and by an error of the accounting system the purchase order balance at the end of the period was the same as originally reported. When the expenditures for the period were entered in the worksheet they were considered as new obligations and not as a reduction to the original purchase order amount.Condition 2: The personnel in charge of preparing the report used a worksheet to analyze the information to include in the report and by an involuntary error entered as total expenditures the total amount of obligations for the project causing that the amount reported as expenditures be greater than the amount in the accounting system. POSSIBLE ASSERTED EFFECT The information included in the reports does not agree with the Municipality accounting records. IDENTIFICATION OF REPEAT FINDING This is not a repeated Finding. RECOMMENDATIONS We recommend that the Municipality establish an adequate procedure to verify and trace the amounts included in the report to the amounts in the accounting records of the Municipality, by using more than one type of report from the accounting system so the personnel in charge of preparing the report can trace to more than one source of information that the amounts reported are in accordance with the accounting records.

FEDERAL PROGRAM (ALN 97.036) DISASTER GRANTS ? PUBLIC ASSISTANCE (PRESIDENTIALLY DECLARED DISASTERS) PASS-THROUGH ENTITY: CENTRAL OFFICE OF RECOVERY, RECONSTRUCTION AND RESILIENCY OF PUERTO RICO (COR3) FEDERAL EMERGENCY MANAGEMENT AGENCY (FEMA) U.S. DEPARTMENT OF HOMELAND SECURITY AWARD NUMBER PA-02-PR-4339-PW-05959 (Federal Award Period 05/24/2020-09/20/2022) COMPLIANCE REQUIREMENT REPORTING TYPE OF FINDING NONCOMPLIANCE AND SIGNIFICANT DEFICIENCY CRITERIA OR SPECIFIC REQUIREMENT Uniform Guidance requirements at ?200.302 Financial management requires that the state?s and the other Non-Federal Entity?s financial management systems, 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. The Municipality established the Accounting System (SAP) as it's official accounting system for both state and Federal funds. As stated in the Public Assistance Program and Policy Guide, Non-Federal Entities must record expenditures on the Schedule of Expenditures of Federal Awards (SEFA) when (1) FEMA has approved the Non-Federal Entity?s PW, and (2) the Non-Federal Entity has incurred the eligible expenditures. Federal awards expended in years subsequent to the fiscal year in which the PW is approved are to be recorded on the Non-Federal Entity?s SEFA in those subsequent years. Also, Uniform Guidance ?200.510 Financial Statements, (b) states that the auditee must prepare a Schedule of Expenditures of Federal Awards for the period covered by the auditee's financial statements which must include the total Federal awards expended. At a minimum, the SEFA must: (1) list individual Federal Programs by Federal agency; (2) for Federal awards received as a subrecipient, the name of the Pass-Through Entity and identifying number assigned by the Pass-Through Entity must be included; (3) provide total Federal awards expended for each individual Federal program and the Assistance Listing Number (ALN) or other identifying number when the ALN information is not available; (4) Include the total amount provided to subrecipients from each Federal program; (5) for loan or loan guarantee programs identify in the notes to the SEFA the balances outstanding at the end of the audit period. This is in addition to including the total Federal awards expended for loan or loan guarantee programs in the SEFA. CONDITION During our audit procedures of the Schedule of Expenditures of Federal Awards (SEFA) prepared by the Municipality, we identified misstatements related to this program reported in the SEFA. Expenditures from the program, incurred in the audit's fiscal year and previously, were not included in the SEFA, as required by FEMA. Adjustments were proposed in order to reconcile the information included. 1. The Municipality did not recognize under the program accounting codes on SAP all transactions reported and approved by the Pass-Through Entity. During the audit, additional procedures and reports were needed to provide sufficient audit evidence related to the correct expenditures charged to the program and reported on the SEFA. 2. The financial records used by the Municipality were developed and maintained by third-parties (consultants) and the information was not kept by financial staff of the Municipality.QUESTIONED COSTS None CONTEXT The Municipality failed to identify properly in its records and/or accounting records the Federal grants that they received and expended during the fiscal year. EFFECT The Municipality has not kept proper accounting of the program activities on its accounting system as required by Federal regulations during the fiscal year under audit for this program. The determination of major programs could have been affected by transactions not properly codified in the accounting system. CAUSE The Municipality did not centralize the management and operation of the program at an appropriate level of management. As a result, program activities were managed by different operational units within the Municipality and staff was not trained on the program reporting requirements and adequate accounting of program funds/activities. IDENTIFICATION AS A REPEAT FINDING Not applicable. RECOMMENDATION We recommend that the Municipality provide adequate training on Federal program compliance requirements and reporting to the staff. Also, a formal process must be established for reconciling the official accounting record (SAP) with the Federal program reports.

FEDERAL PROGRAM HEAD START PROGRAM (CFDA 93.600) U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES AWARD NUMBER 02HP001903 COMPLIANCE REQUIREMENT ALLOWABLE COSTS/COSTS PRINCIPLES TYPE OF FINDING NONCOMPLIANCE AND SIGNIFICANT DEFICIENCY CRITERIA OR SPECIFIC REQUIREMENT In accordance to 45 CFR section 75.405, a cost is allocable to particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. This standard is met if the cost: (1) is incurred specifically for the Federal award; (2) benefits both the Federal award and other work of the non-Federal entity and can be distributed in proportions that may be approximated using reasonable methods; and (3) is necessary to the overall operation of the non-Federal entity and is assignable in part to the Federal in accordance with the principles in this part. CONDITION As part of our audit procedures for allowable cost, we verified the reimbursement done by the Municipality. We noted an excess of funds made by erroneously calculated amounts in electronic transfer on June 6, 2019. They made a request for funds in the amount of $1,998,792.96, corresponding to grant 02HP0019-03 that was incorrect, requesting an additional $504,270.96. This amount was reimbursed by the Municipality to the federal government on June 26, 2019. When evaluating the documentation provided by the federal program, we noted that another request of funds made on July 9, 2019 for the amount of $129,814.59 was made without considering a drawdown of $70,875.32 made on March 29, 2019. On July 10, 2019, the federal program notifies the Municipality?s Finance Department that the drawdown was incorrectly made. The Municipality reimbursed the excess of funds of $70,875.32 to the federal government on July 11, 2019. QUESTIONED COSTS None INFORMATION TO PROVIDE PROPER PERSPECTIVE The person in charge of the documentation modified it, which it may have caused the misstatement at the time of preparing, reviewing and approving the drawdown and reimbursement transaction. It was not a statistical sample. EFFECT The Municipality requested excess amounts of $504,270.96 and $70,875.32, which were transferred to the Municipality accounts. This situation could have caused that the Municipality use funds in excess of costs incurred on behalf of the program. CAUSE In the first instance, the document used by the Municipality for the request for funds included total and subtotal amounts, since the total invoice report was used instead of the subtotal of each fund; it caused an error in the requested amount. In the other transaction, the Municipality is using an analysis considering previous requested funds, although, in the worksheet analysis, the $70,875.32, which were requested on March 29, 2019, were not included reflecting the funds drawn according to PMS to be more that the amounts presented in the worksheet.IDENTIFICATION AS A REPEAT FINDING N/A RECOMMENDATION We recommend management to provide adequate training and implement internal control procedures in order to assure that the personnel from the program submit the documentation from the participants to the pass-through agency before allowing the child to receive the services from the program. In addition, ensure that the personnel verify the work certifications and document in the files the process.

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