Puerto Rico Highways and Transportation AuthorityState Government

Finding Reference 2025-02 Assistance Listing Number 21.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Treasury Type of Finding Material Weakness on Internal Control and Noncompliance Condition During the audit, management initially provided a Schedule of Expenditures of Federal Awards (SEFA) that required revision because the total federal expenditures reported for Program 21.027, Coronavirus State and Local Fiscal Recovery Funds, were incomplete. Specifically, expenditures totaling $1,084,942 that had already been reported to the pass-through entity were omitted from the SEFA, resulting in an understatement of total federal awards expended under the program. A similar condition was reported in the prior year’s single audit as finding No. 2024-05. Criteria In accordance with 2 CFR § 200.510(b) (Financial Statements and SEFA Requirements), the auditee must: 1. Prepare an accurate SEFA that includes the total federal awards expended for the period under audit. 2. Ensure the SEFA is complete, accurate, and properly classified by fiscal year. 3. Provide sufficient information to allow auditors to test compliance with federal requirements. Cause The errors in the preparation of the SEFA indicate deficiencies in internal controls over the financial reporting process related to federal awards. Specifically, management did not implement sufficient oversight and reconciliation procedures to ensure that all federal expenditures were accurately identified, classified, and reported within the appropriate fiscal year. In addition, the review process over the SEFA prior to submission to the auditors was not adequately designed or executed to detect and correct reporting omissions and misstatements. Effect As a result of the deficiencies in internal controls over SEFA preparation, the Schedule of Expenditures of Federal Awards was initially misstated and required revision to properly reflect total federal awards expended under Assistance Listing No. 21.027. The omission of expenditures increased the risk of material misstatement in the SEFA and could have resulted in an inaccurate representation of federal funding expended by the Authority. Additionally, the failure to initially prepare a complete and accurate SEFA resulted in noncompliance with 2 CFR § 200.510(b), which requires the auditee to provide a full and accurate accounting of federal expenditures for the period under audit. Questioned Costs No questioned costs were identified, as the issue relates to the misclassification and misstatement of expenditures, rather than the allowability of costs. Recommendation To ensure compliance with 2 CFR § 200.510(b) and improve internal controls over SEFA preparation, we recommend that the Authority: 1. Implement a formal review and reconciliation process to ensure federal expenditures are accurately reported in the correct fiscal year. 2. Enhance communication between finance and grant administration personnel to improve accuracy in expenditure classification. 3. Provide additional training to staff responsible for SEFA preparation on Uniform Guidance requirements for federal reporting. 4. Require a final, documented supervisory review of the SEFA before submission for audit to prevent reporting inaccuracies. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2025-03 Assistance Listing Number 21.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Treasury Compliance Requirement Reporting Type of Finding Significant Deficiency on Internal Control and Noncompliance Condition From a sample of eight (8) expenditure reports examined, the auditors noted that five (5) reports were submitted after the due dates established by the pass-through entity. A similar finding was reported during the prior year’s single audit as finding No. 2024-04. Criteria In compliance with the reporting requirements set by the pass-through entity, the Authority must submit expenditure reports on the first and third Friday of each month to disclose expenditures under ALN 21.027. The Uniform Guidance section 200.303 regarding internal controls requires subrecipients to establish, document, and maintain effective internal control over Federal awards that provide reasonable assurance that the management of Federal awards is in compliance with Federal statutes, regulations, and terms and conditions of the Federal awards. This includes accurate financial reporting and proper segregation of duties to prevent any individual from both preparing and reviewing the same transaction or report. Cause The Authority lacks sufficient personnel assigned to oversee, review and make sure the reports are timely issued to the passthrough entity. This process is conducted by an employee without any formal oversight or review, prior to the submission to the passthrough entity. Effect The lack of management review, oversight, and late submission of the expenditure reports increases the risk of noncompliance with federal requirements and inaccuracies in reporting over federal funds. Questioned Costs None. Recommendation To resolve these issues, the Authority should consider the following actions: Strengthen Internal Controls: Implement stronger internal control procedures to ensure accurate financial reporting and supervision. This should include establishing clear protocols for the timely preparation and review of financial reports, with distinct roles assigned to different individuals to maintain segregation of duties. Staffing Issues: Take steps to address the employee shortage, either by hiring additional staff or by training existing staff to take on multiple roles, ensuring that duties can be adequately segregated even with limited personnel. Regular Training and Awareness: Conduct regular training sessions for all relevant staff on compliance with Federal program requirements and the importance of internal controls, including the need for segregation of duties in financial reporting. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2025-04 Assistance Listing Number Transit Services Programs Cluster 20.513Enhanced Mobility of Seniors and Individuals with Disabilities 20.516Job Access and Reverse Commute Program 20.521 New Freedom Program Name of Federal Agency Department of Transportation Compliance Requirement Subrecipient Monitoring Type of Finding Significant Deficiency on Internal Control and Noncompliance Condition From a sample of nine (9) subrecipients, the auditors identified that for one (1) subrecipient, the Authority, did not perform subrecipient monitoring within the required three (3)-year cycle established in its State Management Plan, as of the audit period ended June 30, 2025. Although monitoring activities were scheduled for a subsequent period (2026), such actions occurred after the audit period and do not address the absence of compliance as of June 30, 2025. Criteria 2 CFR 200.332(d) requires pass-through entities to monitor the activities of subrecipients to ensure compliance with Federal statutes, regulations, and the terms and conditions of the subaward. 2 CFR 200.303 requires non-federal entities to establish and maintain effective internal control over Federal awards. FTA Circular 5010.1E (Chapter 5) states that federal oversight activities (e.g., inspections or reviews) do not relieve the recipient of its responsibility to manage and oversee federally funded projects. The Authority’s State Management Plan establishes a risk-based monitoring approach, including a three (3)- year monitoring cycle for subrecipients. Cause The Authority did not ensure that subrecipient monitoring procedures were performed and documented within the required three-year cycle for all subrecipients. Additionally, management relied on the FTA Triennial Review process as evidence of monitoring, which reflects a misinterpretation of federal requirements regarding the Authority’s responsibilities as a pass-through entity. Effect The failure to perform and document subrecipient monitoring within the established cycle increases the risk that noncompliance with federal requirements by subrecipients may not be identified in a timely manner. In addition, federal funds may not be used in accordance with applicable laws, regulations, and grant requirements. The Authority may be exposed to questioned costs, repayment obligations, or increased federal oversight. Questioned Costs None. Recommendation We recommend that the Authority: Ensure that subrecipient monitoring is performed and documented in accordance with its State Management Plan and within the established three-year cycle. Reinforce internal controls and training to clarify that federal reviews (e.g., FTA Triennial Review) do not replace the Authority’s monitoring responsibilities under 2 CFR 200. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2025-05 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Special Tests and Provisions – Wage Rate Requirements Type of Finding Significant Deficiency on Internal Control and Noncompliance Condition From a sample of forty (40) payroll transactions of construction projects, the following exceptions were identified: Seven (7) instances where certified payrolls were submitted more than seven (7) days after the payroll period, indicating they were not certified on a weekly basis. Four (4) instances where no supporting documentation was provided to ensure compliance with the wage rate requirements. Two (2) instances where certified payrolls were signed by the contractor but did not include a certification date, preventing verification that certification occurred within the required seven (7)-day timeframe. A similar condition was reported in the prior year’s single audit as finding No. 2024-03. Criteria 2 CFR 200 for the Highway Planning and Construction requires recipients and subrecipients to comply with Davis- Bacon and related wage rate requirements, including: Contractors and subcontractors must submit certified payrolls on a weekly basis. Certified payrolls must be complete, accurate, and properly certified, including the date of certification. The recipient must maintain adequate supporting documentation and internal controls to ensure compliance with wage rate requirements. Cause The Authority has not established or consistently implemented effective monitoring controls over contractors responsible for submitting certified payrolls in accordance with Davis-Bacon requirements. Although contractors are responsible for preparing and submitting certified payrolls through the Authority, the Authority did not implement sufficient oversight procedures to: Ensure certified payrolls were submitted timely on a weekly basis in accordance with federal requirements; Perform and document a formal review of payroll submissions for completeness and accuracy, including verification of certification dates; and Follow up on late, incomplete, or missing payroll documentation. This condition indicates that the Authority’s control framework does not clearly define and enforce its oversight responsibility as the recipient to ensure contractor compliance with wage rate requirements. As a result, monitoring activities over contractors were not performed consistently or documented adequately. Effect The Authority was not in compliance with federal wage rate requirements which causes an increased risk that laborers and mechanics may not have been paid in accordance with applicable prevailing wage rates. Lack of documentation impairs the Authority’s ability to demonstrate compliance and increases the risk of undetected errors or noncompliance. Questioned Costs None. Recommendation We recommend the Authority: 1. Strengthen internal controls over wage rate compliance by implementing procedures to: o Ensure certified payrolls are submitted and reviewed weekly; o Verify that all payrolls include complete certification, including dates; and o Maintain adequate supporting documentation for all payroll reviews. 2. Enhance monitoring procedures over contractors and subcontractors, including: o Documented review checklists; o Timeliness tracking of payroll submissions; and o Follow-up on missing or incomplete documentation. 3. Provide training to personnel and contractors on federal wage rate requirements and documentation expectations. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2025-06 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Cash Management – Memorandum of Understanding (MOU) Type of Finding Significant Deficiency on Internal Control and Noncompliance Condition Based on a sample of fifty-seven (57) disbursements tested, the auditors identified nine (9) instances in which payments to contractors were not made within the forty (40)-day timeframe established in the Memorandum of Understanding (MOU). Criteria The Memorandum of Understanding (MOU) between the Authority and the Federal Highway Administration (FHWA) requires the Authority to remit payments to contractors within forty (40) days of receipt of a proper invoice. Cause Management indicated that delays in payments were attributable to the implementation of new procedures associated with the Stewardship and Oversight Agreement and the related transition of responsibilities to the Authority. As part of this transition, the Authority assumed additional operational and oversight responsibilities, which increased administrative workload and processing demands, contributing to delays in the review, approval, and disbursement of contractor payments. Effect Failure to meet the payment requirements results in noncompliance with federal regulations and the MOU. Additionally, delayed payments may adversely affect project execution, contractor performance, and overall program efficiency. Questioned Costs None. Recommendation The Authority should strengthen internal controls over the accounts payable process to ensure timely processing and payment of contractor invoices. This may include implementing monitoring mechanisms to track invoice receipt and payment deadlines, establishing clear accountability for timely approvals, and conducting periodic reviews to ensure compliance with the MOU requirements. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-02 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Matching, Level of Effort, Earmarking Type of Finding: Significant Deficiency on Internal Control and Noncompliance Condition: From a sample of sixty federal construction projects examined, we noticed the following compliance deficiencies: 1. For two projects, the toll credit usage reported in the Authority’s Toll Credits Report differed from the amounts reported in the Federal-Aid Project Agreements as approved by the Federal Highway Administration (FHWA). 2. For one project, the Authority was unable to provide sufficient evidence for the auditors to validate the toll credit usage amount during the fiscal year. A similar finding was reported during the prior year’s single audit as finding number 2023-04. Criteria: In accordance with the signed Memorandum of Understanding (MOU) between the Authority and FHWA (signed on February 25, 2016), the Authority shall implement modifications to its processes for approving, tracking, and reconciling toll credits as identified by the FHWA and submit a report (i.e., Toll Credits Report) and a certification to FHWA ascertaining that it has implemented these modifications. FHWA shall accurately identify the amount of toll credits available for use by the Authority and identify the modifications that the Authority must make to its processes for approving, tracking, and reconciling toll credit usage, as applicable. Cause: The causes of this finding include: 1) Recordkeeping and Personnel Issues: The Authority has implemented a recordkeeping system endorsed by FHWA to monitor toll credit usage. However, it was observed that the Authority lacks sufficient personnel designated to oversight and review of the toll credits reporting process. This has resulted in the reporting procedure being conducted by a single employee without any formal oversight or review by additional staff or management, leading to a lack of checks and balances in this compliance area. 2) Lack of Adequate Internal Controls: The Authority lacks adequate internal control mechanisms in place to ensure the accuracy and completeness of the toll credit usage reporting. This includes the failure to reconcile amounts reported in the Toll Credits Report with those approved of in the Federal-Aid Project Agreements. Effect: Non-compliance with the toll credits matching requirement per the MOU requirements. In addition, the Authority could inadvertently use toll credits for a federal project that may lack toll credits balances. Questioned Costs: Could not be determined Recommendation: To address the identified compliance issues related to the discrepancies in toll credit usage reporting and the lack of sufficient evidence for certain projects, the auditors recommend the following: 1) Strengthen Internal Controls: Enhance internal control procedures to ensure accurate and compliant reporting of toll credit usage. This includes establishing clear guidelines for documentation, reporting, and verification processes related to federal construction projects such as a review by an employee that is independent of the initial reporting process to ensure objectivity. The review should verify the accuracy of the reported toll credit usage against project agreements and supporting documentation. 2) Enhance Documentation Practices: Develop and enforce rigorous documentation practices. Ensure that all relevant documents supporting the toll credit usage, such as agreements, approvals, and calculations, are systematically collected, filed, and readily available for audit purposes. 3) Training and Awareness: Conduct training sessions for staff involved in the reporting and management of federal construction projects. The training should cover the requirements for toll credit usage, the importance of accurate reporting, and the procedures for ensuring compliance with federal guidelines. 4) Regular Reconciliation: Implement regular reconciliation procedures between the toll credits reported in the Authority’s Toll Credits Report and the amounts in the Federal-Aid Project Agreements. Any discrepancies identified should be investigated and resolved promptly. 5) Leverage Technology: Consider the use of accounting or project management software that can help track and report toll credit usage accurately. Automation can reduce human errors and improve the efficiency of the reporting process. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-03 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Special Tests and Provisions – Wage Rate Requirements Type of Finding: Significant Deficiency on Internal Control and Noncompliance Condition: From a sample of twenty-five payroll periods of construction projects examined, we noticed the following: 1) For one construction project, the contractor's payroll for the week of July 3, 2023, through July 9, 2023, was certified on July 27, 2023, exceeding the weekly certification requirement outlined in the Uniform Guidance. 2) For one construction project, the subcontractor's payroll for the week of July 3, 2023, through July 9, 2023, was certified on August 4, 2023, exceeding the weekly certification requirement outlined in the Uniform Guidance. 3) For one construction project, the contractor’s payroll for the week of November 13, 2023, through November 19, 2023, was certified on November 27, 2023, exceeding the weekly certification requirement outlined in the Uniform Guidance. 4) For one construction project, the contractor’s payroll for the week of June 24, 2024, through June 30, 2024, was certified on July 17, 2024, exceeding the weekly certification requirement outlined in the Uniform Guidance. This is a repeat finding from prior year 2023. Although this finding was originally not reported in the 2023 Single Audit Report, during the current audit, we became aware that this issue also involved 2023. Therefore, the 2023 Single Audit Report is in the process of being reissued. In the reissued 2023 Single Audit Report, the finding will be identified as No. 2023-05. Criteria: In accordance with the 2024 Compliance Supplement: Nonfederal entities shall include in their construction contracts subject to the Wage Rate Requirements (which still may be referenced as the Davis-Bacon Act) a provision that the contractor or subcontractor comply with those requirements and the DOL regulations (29 CFR Part 5, Labor Standards Provisions Applicable to Contacts Governing Federally Financed and Assisted Construction). This includes a requirement for the contractor or subcontractor to submit to the nonfederal entity weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance (certified payrolls) (29 CFR sections 5.5 and 5.6; the A-102 Common Rule (section 36(i)(5)); OMB Circular A-110 (2 CFR Part 215, Appendix A, Contract Provisions); 2 CFR Part 176, Subpart C; and 2 CFR section 200.326). Cause: The delays in the certification of payroll weeks are due to several factors, including:  Inefficient payroll processing procedures within the contractor or subcontractor's system.  Lack of oversight and monitoring by the Authority to ensure timely certification of payrolls.  Miscommunication between the contractor, subcontractor, and the Authority regarding certification deadlines. Effect: The failure to certify payrolls on a weekly basis as required by federal regulations can lead to noncompliance with federal regulations, specifically the Davis-Bacon Act and related Department of Labor (DOL) regulations and increased risk of wage underpayments or miscalculations, which may result in financial liabilities for the entity. Questioned Costs: None Recommendation: To address the identified issues, the following corrective actions are recommended:  Implement a Payroll Monitoring System: Establish automated tracking mechanisms to ensure payrolls are certified and submitted within the required weekly timeframe.  Enhance Oversight and Compliance Reviews: Designate a compliance officer or team responsible for verifying that certified payrolls are submitted on time. Perform regular internal audits to identify and correct compliance issues promptly.  Provide Training for Contractors and Subcontractors: Conduct mandatory training sessions on Davis- Bacon Act requirements and payroll certification processes. Ensure all responsible staff understand the federal regulations governing wage rate compliance.  Improve Communication Between Stakeholders: Establish clear communication channels between contractors, subcontractors, and the Authority. Require periodic status updates to ensure timely payroll submission. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-04 Assistance Listing Number 21.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Treasury Compliance Requirement Reporting Type of Finding: Significant Deficiency on Internal Control and Noncompliance Condition: From a sample of eight expenditure reports examined, the auditors noted that five reports were submitted after the due dates established by the pass-through entity. A similar finding was reported during the prior year’s single audit as finding number 2023-03. Criteria: In compliance with the reporting requirements set by the pass-through entity, the Authority must submit expenditure reports on the first and third Friday of each month to disclose expenditure under ALN 21.027. The Uniform Guidance section 200.303 regarding internal controls requires subrecipients to establish, document, and maintain effective internal control over Federal awards that provide reasonable assurance that the management of Federal awards is in compliance with Federal statutes, regulations, and terms and conditions of the Federal awards. This includes accurate financial reporting and proper segregation of duties to prevent any individual from both preparing and reviewing the same transaction or report. Cause: The Authority lacks sufficient personnel assigned to oversee, review and make sure the reports are timely issued to the passthrough entity. This process is conducted by an employee without any formal oversight or review, prior to the submission to the passthrough entity. Effect: The lack of management review, oversight, and late submission of the expenditure reports increases the risk of noncompliance with federal requirements and inaccuracies in reporting over federal funds. Questioned Costs: None Recommendation: To resolve these issues, the Authority should consider the following actions:  Strengthen Internal Controls: Implement stronger internal control procedures to ensure accurate financial reporting and supervision. This should include establishing clear protocols for the timely preparation and review of financial reports, with distinct roles assigned to different individuals to maintain segregation of duties.  Staffing Issues: Take steps to address the employee shortage, either by hiring additional staff or by training existing staff to take on multiple roles, ensuring that duties can be adequately segregated even with limited personnel.  Regular Training and Awareness: Conduct regular training sessions for all relevant staff on compliance with Federal program requirements and the importance of internal controls, including the need for segregation of duties in financial reporting. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-05 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) 21.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Transportation / Department of Treasury Type of Finding: Material Weakness on Internal Control and Noncompliance Condition: During the audit, management repeatedly provided inaccurate versions of the Schedule of Expenditures of Federal Awards (SEFA) to the auditors, requiring multiple revisions to correct errors in the total federal awards expended for programs 20.205 Highway Planning and Construction (Federal-Aid Highway Program) and 21.027 Coronavirus State and Local Fiscal Recovery Funds. Criteria: In accordance with 2 CFR § 200.510(b) (Financial Statements and SEFA Requirements), the auditee must: 1) Prepare an accurate SEFA that includes the total federal awards expended for the period under audit. 2) Ensure the SEFA is complete, accurate, and properly classified by fiscal year. 3) Provide sufficient information to allow auditors to test compliance with federal requirements. Cause: The recurring errors in the SEFA preparation indicate a lack of effective internal controls over preparation of the SEFA, particularly in ensuring that expenditures are accurately classified and reported within the correct fiscal year:  A lack of oversight and reconciliation procedures to ensure expenditures are reported in the correct fiscal year.  Inadequate review processes before submission of the SEFA to the auditors. Effect: The errors in the SEFA resulted in the following issues:  Increased Risk of Material Misstatements within the SEFA – The multiple revisions required to correct significant errors in reported expenditures highlight a heightened risk of material misstatements in the SEFA, which could lead to misrepresentation of federal funding received and expended.  Noncompliance with Uniform Guidance Requirements – The failure to prepare an accurate SEFA resulted in noncompliance with 2 CFR § 200.510(b), which requires the auditee to provide a complete and accurate accounting of federal expenditures for the audit. Questioned Costs: No questioned costs were identified, as the issue relates to the misclassification and misstatement of expenditures, rather than the allowability of costs. Recommendation: To ensure compliance with 2 CFR § 200.510(b) and improve internal controls over SEFA preparation, we recommend that the Authority: 1) Implement a formal review and reconciliation process to ensure federal expenditures are accurately reported in the correct fiscal year. 2) Enhance communication between finance and grant administration personnel to improve accuracy in expenditure classification. 3) Provide additional training to staff responsible for SEFA preparation on Uniform Guidance requirements for federal reporting. 4) Require a final, documented supervisory review of the SEFA before submission for audit to prevent reporting inaccuracies. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Finding Reference 2024-06 Assistance Listing Number 20.027 Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency Department of Treasury Compliance Requirement Procurement, Suspension and Debarment Type of Finding: Material Weakness on Internal Control and Material Noncompliance Condition: As part of the audit procedures for Procurement, Suspension, and Debarment, the auditors tested a sample of two procurements. One of the procurements tested involved a federally funded rehabilitation project in the Municipality of Fajardo. However, when the auditors requested procurement documentation, management provided bidding records for a different project located in the Municipality of Toa Alta. Upon reviewing the bid, contract, and supporting documentation, the auditors found no reference to the Fajardo project. Instead, the work was certified and billed to the Authority using an "extra work order" under the project number assigned to the Toa Alta project. Since the Fajardo project was not competitively procured and was improperly included under an unrelated procurement process, the Authority failed to comply with federal procurement regulations. Criteria: In accordance with 2 CFR §§ 200.318–200.327 (Procurement Standards), all non-federal entities must conduct procurement in a manner that ensures full and open competition while adhering to established procurement procedures. Cause: The Authority did not conduct a separate competitive procurement process for the rehabilitation project in the Municipality of Fajardo. Instead, they included the project as part of an existing procurement process for a different project in the Municipality of Toa Alta. This occurred due to inadequate oversight and failure to ensure that federally funded projects follow proper procurement procedures. Effect: By not competitively procuring the Fajardo project and instead billing it as an "extra work order" under an unrelated project, the Authority did not comply with federal procurement regulations. This noncompliance could result in questioned costs, potential repayment of federal funds, and increased scrutiny from oversight agencies. Questioned Costs: $421,462 Recommendation: The Authority should strengthen its procurement controls to ensure that all federally funded projects undergo a proper and independent competitive bidding process. Management should implement additional oversight mechanisms, such as enhanced review procedures and staff training, to prevent the misallocation of contracts. Views of Responsible Officials Refer to Management’s unaudited corrective action plan.

Assistance Listing Numbers: 20.500 Capital Investment Grants (Fixed Guideway Capital Investment Grants), 20.507 Federal Transit – Formula Grants (Urbanized Area Formula), 20.525 State of Good Repair Grants, 20.505 Metropolitan Transportation Planning Grants, and 20.513 Enhanced Mobility of Seniors and Individuals with Disabilities Federal Agency – Department of Transportation Finding Type: Significant Deficiency and Non-Compliance Condition During the audit, it was found that the auditee incorrectly classified the following: • Assistance Listing Number 20.500 Capital Investment Grants (Fixed Guideway Capital Investment Grants) – Management reported $2,455,795 as federal awards expended instead of $1,589,748, which were the amounts validated by the auditors. • Assistance Listing Number 20.507 Federal Transit – Formula Grants (Urbanized Area Formula) – Management reported $25,222,452 as federal awards expended instead of $21,372,923, which were the amounts validated by the auditors. • Assistance Listing Number 20.525 State of Good Repair Grants – Management did not report federal awards expended instead of $4,715,576, which was the amount validated by the auditors. • Assistance Listing Number 20.505 Metropolitan Transportation Planning Grants – Management reported $2,279,469 as federal awards expended instead of $2,210,082, which were the amounts validated by the auditors. • Assistance Listing Number 20.513 Enhanced Mobility of Seniors and Individuals with Disabilities – Management reported $15,848.93 as federal awards expended instead of $14,912.93, which were the amounts validated by the auditors. Criteria Under 2 CFR 200.510(b), auditees are required to prepare a Schedule of Expenditures of Federal Awards (SEFA) and must include accurate information about expenditures for each federal program, including the correct Assistance Listing number. In addition, the auditee must provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. Cause The misclassification appears to have resulted from a misunderstanding of the program guidelines and a lack of adequate internal controls to ensure the accurate reporting of federal expenditures. Effect This misclassification could result in noncompliance with federal regulations and may impact the federal agency's ability to accurately monitor and allocate funding. Furthermore, it may lead to incorrect conclusions about the auditee's compliance with specific program requirements.   Questioned Costs None Recommendation It is recommended that the auditee: • Review and revise its procedures for classifying federal expenditures to ensure accurate alignment with assistance listing numbers. • Implement additional training for staff responsible for preparing the SEFA. • Conduct a thorough review of all federal program expenditures for the current and previous years to identify and correct any similar misclassifications.

Assistance Listing Numbers: 20.500 Capital Investment Grants (Fixed Guideway Capital Investment Grants), 20.507 Federal Transit – Formula Grants (Urbanized Area Formula), 20.525 State of Good Repair Grants, 20.505 Metropolitan Transportation Planning Grants, and 20.513 Enhanced Mobility of Seniors and Individuals with Disabilities Federal Agency – Department of Transportation Finding Type: Significant Deficiency and Non-Compliance Condition During the audit, it was found that the auditee incorrectly classified the following: • Assistance Listing Number 20.500 Capital Investment Grants (Fixed Guideway Capital Investment Grants) – Management reported $2,455,795 as federal awards expended instead of $1,589,748, which were the amounts validated by the auditors. • Assistance Listing Number 20.507 Federal Transit – Formula Grants (Urbanized Area Formula) – Management reported $25,222,452 as federal awards expended instead of $21,372,923, which were the amounts validated by the auditors. • Assistance Listing Number 20.525 State of Good Repair Grants – Management did not report federal awards expended instead of $4,715,576, which was the amount validated by the auditors. • Assistance Listing Number 20.505 Metropolitan Transportation Planning Grants – Management reported $2,279,469 as federal awards expended instead of $2,210,082, which were the amounts validated by the auditors. • Assistance Listing Number 20.513 Enhanced Mobility of Seniors and Individuals with Disabilities – Management reported $15,848.93 as federal awards expended instead of $14,912.93, which were the amounts validated by the auditors. Criteria Under 2 CFR 200.510(b), auditees are required to prepare a Schedule of Expenditures of Federal Awards (SEFA) and must include accurate information about expenditures for each federal program, including the correct Assistance Listing number. In addition, the auditee must provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. Cause The misclassification appears to have resulted from a misunderstanding of the program guidelines and a lack of adequate internal controls to ensure the accurate reporting of federal expenditures. Effect This misclassification could result in noncompliance with federal regulations and may impact the federal agency's ability to accurately monitor and allocate funding. Furthermore, it may lead to incorrect conclusions about the auditee's compliance with specific program requirements.   Questioned Costs None Recommendation It is recommended that the auditee: • Review and revise its procedures for classifying federal expenditures to ensure accurate alignment with assistance listing numbers. • Implement additional training for staff responsible for preparing the SEFA. • Conduct a thorough review of all federal program expenditures for the current and previous years to identify and correct any similar misclassifications.

Assistance Listing Number: 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Agency – Department of Treasury Compliance Requirement – Reporting Finding Type: Significant Deficiency on Internal Control Condition During the audit, it was observed that the Authority lacks sufficient personnel designated to the oversight and review of the reporting process. This has resulted in the reporting procedure being conducted by a single individual without any formal oversight or review by additional staff or management, leading to a lack of checks and balances in this compliance area. Criteria The Uniform Guidance section 200.303 regarding internal controls, requires non-Federal entities to establish and maintain effective internal control over Federal awards that provide reasonable assurance that the management of Federal awards is in compliance with Federal statutes, regulations, and terms and conditions of the Federal awards. This includes accurate financial reporting and proper segregation of duties to prevent any individual from both preparing and reviewing the same transaction or report. Cause Lack of sufficient personnel designated for oversight roles. This shortage has resulted in the absence of formal review and oversight, as there are inadequate human resources to fulfill these critical control functions. Effect The lack of management review and oversight in the reporting process increases the risk of non-compliance with federal requirements and inaccuracies in reporting over federal funds. Questioned Costs None   Recommendation To resolve these issues and prevent future occurrences, the Authority should consider the following actions: • Strengthen Internal Controls: Implement stronger internal control procedures to ensure accurate financial reporting and supervision. This should include establishing clear protocols for the preparation and review of financial reports, with distinct roles assigned to different individuals to maintain segregation of duties. • Address Staffing Issues: Take steps to address the employee shortage, either by hiring additional staff or by training existing staff to take on multiple roles, ensuring that duties can be adequately segregated even with limited personnel. • Regular Training and Awareness: Conduct regular training sessions for all relevant staff on compliance with Federal program requirements and the importance of internal controls, including the need for segregation of duties in financial reporting.

Assistance Listing Number: 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Agency – Department of Treasury Compliance Requirement – Reporting Finding Type: Significant Deficiency on Internal Control Condition During the audit, it was observed that the Authority lacks sufficient personnel designated to the oversight and review of the reporting process. This has resulted in the reporting procedure being conducted by a single individual without any formal oversight or review by additional staff or management, leading to a lack of checks and balances in this compliance area. Criteria The Uniform Guidance section 200.303 regarding internal controls, requires non-Federal entities to establish and maintain effective internal control over Federal awards that provide reasonable assurance that the management of Federal awards is in compliance with Federal statutes, regulations, and terms and conditions of the Federal awards. This includes accurate financial reporting and proper segregation of duties to prevent any individual from both preparing and reviewing the same transaction or report. Cause Lack of sufficient personnel designated for oversight roles. This shortage has resulted in the absence of formal review and oversight, as there are inadequate human resources to fulfill these critical control functions. Effect The lack of management review and oversight in the reporting process increases the risk of non-compliance with federal requirements and inaccuracies in reporting over federal funds. Questioned Costs None   Recommendation To resolve these issues and prevent future occurrences, the Authority should consider the following actions: • Strengthen Internal Controls: Implement stronger internal control procedures to ensure accurate financial reporting and supervision. This should include establishing clear protocols for the preparation and review of financial reports, with distinct roles assigned to different individuals to maintain segregation of duties. • Address Staffing Issues: Take steps to address the employee shortage, either by hiring additional staff or by training existing staff to take on multiple roles, ensuring that duties can be adequately segregated even with limited personnel. • Regular Training and Awareness: Conduct regular training sessions for all relevant staff on compliance with Federal program requirements and the importance of internal controls, including the need for segregation of duties in financial reporting.

Assistance Listing No. 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Matching Type of Finding Significant Deficiency on Internal Control and Non-Compliance Condition: From a sample of forty federal construction projects examined, we noticed that for three projects, the toll credit usage reported in the Authority’s Toll Credits Report differed from the amounts reported in the Federal-Aid Project Agreements as approved by the Federal Highway Administration (FHWA). In addition, the Authority was unable to provide sufficient evidence for the auditors to validate the toll credit usage amounts for seven projects during the fiscal year. Furthermore, it was observed that the Authority lacks sufficient personnel designated to the oversight and review of the toll credits reporting process. This has resulted in the reporting procedure being conducted by a single individual without any formal oversight or review by additional staff or management, leading to a lack of checks and balances in this compliance area. A similar finding was reported during the prior year’s single audit as finding number 2022-02. Criteria: In accordance with the signed Memorandum of Understanding (MOU) between the Authority and FHWA (signed on February 25, 2016), the Authority shall implement modifications to its processes for approving, tracking, and reconciling toll credits as identified by the FHWA and submit a report (i.e., Toll Credits Report) and a certification to FHWA ascertaining that it has implemented these modifications. FHWA shall accurately identify the amount of toll credits available for use by the Authority and identify the modifications that the Authority must make to its processes for approving, tracking, and reconciling toll credit usage, as applicable. Cause: The causes for this finding include: 1) Recordkeeping Issues: The Authority does not have adequate recordkeeping systems for tracking toll credit usage. This could lead to discrepancies between the reported amounts in the Toll Credits Report and those in the Federal-Aid Project Agreements. 2) Lack of Adequate Internal Controls: The Authority does not have adequate internal control mechanisms in place to ensure the accuracy and completeness of the toll credit usage reporting. This includes the failure to reconcile amounts reported in the Toll Credits Report with those approved in the Federal-Aid Project Agreements. Effect: Non-compliance with the toll credits matching requirement per the MOU requirements. In addition, the Authority could inadvertently use toll credits for a federal project that may lack toll credits balances. Questioned Costs: Could not be determined. Recommendation: To address the identified compliance issues related to the discrepancies in toll credit usage reporting and the lack of sufficient evidence for certain projects, the auditors recommend the following: • Strengthen Internal Controls: Enhance internal control procedures to ensure accurate and compliant reporting of toll credit usage. This includes establishing clear guidelines for documentation, reporting, and verification processes related to federal construction projects. • Implement a Review Process: Introduce a formal review process for the toll credits reporting procedure. This review should be conducted by an individual or a team that is independent of the initial reporting process to ensure objectivity. The review should verify the accuracy of the reported toll credit usage against project agreements and supporting documentation. • Enhance Documentation Practices: Develop and enforce rigorous documentation practices. Ensure that all relevant documents supporting the toll credit usage, such as agreements, approvals, and calculations, are systematically collected, filed, and readily available for audit purposes. • Training and Awareness: Conduct training sessions for staff involved in the reporting and management of federal construction projects. The training should cover the requirements for toll credit usage, the importance of accurate reporting, and the procedures for ensuring compliance with federal guidelines, • Regular Reconciliation: Implement regular reconciliation procedures between the toll credits reported in the Authority’s Toll Credits Report and the amounts in the Federal-Aid Project Agreements. Any discrepancies identified should be investigated and resolved promptly. • Leverage Technology: Consider the use of accounting or project management software that can help track and report toll credit usage accurately. Automation can reduce human errors and improve the efficiency of the reporting process.

Assistance Listing No. 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Matching Type of Finding Significant Deficiency on Internal Control and Non-Compliance Condition: From a sample of forty federal construction projects examined, we noticed that for three projects, the toll credit usage reported in the Authority’s Toll Credits Report differed from the amounts reported in the Federal-Aid Project Agreements as approved by the Federal Highway Administration (FHWA). In addition, the Authority was unable to provide sufficient evidence for the auditors to validate the toll credit usage amounts for seven projects during the fiscal year. Furthermore, it was observed that the Authority lacks sufficient personnel designated to the oversight and review of the toll credits reporting process. This has resulted in the reporting procedure being conducted by a single individual without any formal oversight or review by additional staff or management, leading to a lack of checks and balances in this compliance area. A similar finding was reported during the prior year’s single audit as finding number 2022-02. Criteria: In accordance with the signed Memorandum of Understanding (MOU) between the Authority and FHWA (signed on February 25, 2016), the Authority shall implement modifications to its processes for approving, tracking, and reconciling toll credits as identified by the FHWA and submit a report (i.e., Toll Credits Report) and a certification to FHWA ascertaining that it has implemented these modifications. FHWA shall accurately identify the amount of toll credits available for use by the Authority and identify the modifications that the Authority must make to its processes for approving, tracking, and reconciling toll credit usage, as applicable. Cause: The causes for this finding include: 1) Recordkeeping Issues: The Authority does not have adequate recordkeeping systems for tracking toll credit usage. This could lead to discrepancies between the reported amounts in the Toll Credits Report and those in the Federal-Aid Project Agreements. 2) Lack of Adequate Internal Controls: The Authority does not have adequate internal control mechanisms in place to ensure the accuracy and completeness of the toll credit usage reporting. This includes the failure to reconcile amounts reported in the Toll Credits Report with those approved in the Federal-Aid Project Agreements. Effect: Non-compliance with the toll credits matching requirement per the MOU requirements. In addition, the Authority could inadvertently use toll credits for a federal project that may lack toll credits balances. Questioned Costs: Could not be determined. Recommendation: To address the identified compliance issues related to the discrepancies in toll credit usage reporting and the lack of sufficient evidence for certain projects, the auditors recommend the following: • Strengthen Internal Controls: Enhance internal control procedures to ensure accurate and compliant reporting of toll credit usage. This includes establishing clear guidelines for documentation, reporting, and verification processes related to federal construction projects. • Implement a Review Process: Introduce a formal review process for the toll credits reporting procedure. This review should be conducted by an individual or a team that is independent of the initial reporting process to ensure objectivity. The review should verify the accuracy of the reported toll credit usage against project agreements and supporting documentation. • Enhance Documentation Practices: Develop and enforce rigorous documentation practices. Ensure that all relevant documents supporting the toll credit usage, such as agreements, approvals, and calculations, are systematically collected, filed, and readily available for audit purposes. • Training and Awareness: Conduct training sessions for staff involved in the reporting and management of federal construction projects. The training should cover the requirements for toll credit usage, the importance of accurate reporting, and the procedures for ensuring compliance with federal guidelines, • Regular Reconciliation: Implement regular reconciliation procedures between the toll credits reported in the Authority’s Toll Credits Report and the amounts in the Federal-Aid Project Agreements. Any discrepancies identified should be investigated and resolved promptly. • Leverage Technology: Consider the use of accounting or project management software that can help track and report toll credit usage accurately. Automation can reduce human errors and improve the efficiency of the reporting process.

Finding Reference 2023-05 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Special Tests and Provisions – Wage Rate Requirements Type of Finding Significant Deficiency on Internal Control and Non-Compliance Condition: From a sample of fifteen work weeks examined, we noted that three certified payroll weeks were not certified within the required weekly period as required by federal regulations. The delays in certifications ranged from four days to thirty-three days in excess of the required weekly timeframe. Criteria: Nonfederal entities shall include in their construction contracts subject to the Wage Rate Requirements (which still may be referenced as the Davis-Bacon Act) a provision that the contractor or subcontractor comply with those requirements and the DOL regulations (29 CFR Part 5, Labor Standards Provisions Applicable to Contacts Governing Federally Financed and Assisted Construction). This includes a requirement for the contractor or subcontractor to submit to the nonfederal entity weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance (certified payrolls) (29 CFR sections 5.5 and 5.6; the A-102 Common Rule (section 36(i)(5)); OMB Circular A-110 (2 CFR Part 215, Appendix A, Contract Provisions); 2 CFR Part 176, Subpart C; and 2 CFR section 200.326). Cause: The delays in the certification of payroll weeks may be due to inefficient payroll processing procedures within the contractor or subcontractor's system. Effect: The failure to certify payrolls on a weekly basis as required by federal regulations can lead to noncompliance with federal regulations, specifically the Davis-Bacon Act and related Department of Labor (DOL) regulations. However, the fact that the Authority discharges its obligation by withholding payment to the contractor or subcontractor until the certified payroll is received and reviewed, mitigates all economic risks. Questioned Costs: None. Recommendation: To address the identified issues, the following corrective actions are recommended: • Enhance Oversight and Compliance Reviews: Designate a compliance officer or team responsible for verifying that certified payrolls are submitted timely. Include within the internal audit functions to test compliance with this requirement and recommend corrective actions promptly. • Request a non-compliance waiver from the FHWA: The Authority should request the FHWA for a 20% non-compliance waiver, as it is impracticable for the Authority to ascertain that all contractors or subcontractors comply timely with this requirement. Views of Responsible Officials Refer to Management’s unaudited corrective action plan. -

Assistance Listing Numbers: 20.500 Capital Investment Grants (Fixed Guideway Capital Investment Grants), 20.507 Federal Transit – Formula Grants (Urbanized Area Formula), 20.525 State of Good Repair Grants, 20.505 Metropolitan Transportation Planning Grants, and 20.513 Enhanced Mobility of Seniors and Individuals with Disabilities Federal Agency – Department of Transportation Finding Type: Significant Deficiency and Non-Compliance Condition During the audit, it was found that the auditee incorrectly classified the following: • Assistance Listing Number 20.500 Capital Investment Grants (Fixed Guideway Capital Investment Grants) – Management reported $2,455,795 as federal awards expended instead of $1,589,748, which were the amounts validated by the auditors. • Assistance Listing Number 20.507 Federal Transit – Formula Grants (Urbanized Area Formula) – Management reported $25,222,452 as federal awards expended instead of $21,372,923, which were the amounts validated by the auditors. • Assistance Listing Number 20.525 State of Good Repair Grants – Management did not report federal awards expended instead of $4,715,576, which was the amount validated by the auditors. • Assistance Listing Number 20.505 Metropolitan Transportation Planning Grants – Management reported $2,279,469 as federal awards expended instead of $2,210,082, which were the amounts validated by the auditors. • Assistance Listing Number 20.513 Enhanced Mobility of Seniors and Individuals with Disabilities – Management reported $15,848.93 as federal awards expended instead of $14,912.93, which were the amounts validated by the auditors. Criteria Under 2 CFR 200.510(b), auditees are required to prepare a Schedule of Expenditures of Federal Awards (SEFA) and must include accurate information about expenditures for each federal program, including the correct Assistance Listing number. In addition, the auditee must provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. Cause The misclassification appears to have resulted from a misunderstanding of the program guidelines and a lack of adequate internal controls to ensure the accurate reporting of federal expenditures. Effect This misclassification could result in noncompliance with federal regulations and may impact the federal agency's ability to accurately monitor and allocate funding. Furthermore, it may lead to incorrect conclusions about the auditee's compliance with specific program requirements.   Questioned Costs None Recommendation It is recommended that the auditee: • Review and revise its procedures for classifying federal expenditures to ensure accurate alignment with assistance listing numbers. • Implement additional training for staff responsible for preparing the SEFA. • Conduct a thorough review of all federal program expenditures for the current and previous years to identify and correct any similar misclassifications.

Assistance Listing Numbers: 20.500 Capital Investment Grants (Fixed Guideway Capital Investment Grants), 20.507 Federal Transit – Formula Grants (Urbanized Area Formula), 20.525 State of Good Repair Grants, 20.505 Metropolitan Transportation Planning Grants, and 20.513 Enhanced Mobility of Seniors and Individuals with Disabilities Federal Agency – Department of Transportation Finding Type: Significant Deficiency and Non-Compliance Condition During the audit, it was found that the auditee incorrectly classified the following: • Assistance Listing Number 20.500 Capital Investment Grants (Fixed Guideway Capital Investment Grants) – Management reported $2,455,795 as federal awards expended instead of $1,589,748, which were the amounts validated by the auditors. • Assistance Listing Number 20.507 Federal Transit – Formula Grants (Urbanized Area Formula) – Management reported $25,222,452 as federal awards expended instead of $21,372,923, which were the amounts validated by the auditors. • Assistance Listing Number 20.525 State of Good Repair Grants – Management did not report federal awards expended instead of $4,715,576, which was the amount validated by the auditors. • Assistance Listing Number 20.505 Metropolitan Transportation Planning Grants – Management reported $2,279,469 as federal awards expended instead of $2,210,082, which were the amounts validated by the auditors. • Assistance Listing Number 20.513 Enhanced Mobility of Seniors and Individuals with Disabilities – Management reported $15,848.93 as federal awards expended instead of $14,912.93, which were the amounts validated by the auditors. Criteria Under 2 CFR 200.510(b), auditees are required to prepare a Schedule of Expenditures of Federal Awards (SEFA) and must include accurate information about expenditures for each federal program, including the correct Assistance Listing number. In addition, the auditee must provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. Cause The misclassification appears to have resulted from a misunderstanding of the program guidelines and a lack of adequate internal controls to ensure the accurate reporting of federal expenditures. Effect This misclassification could result in noncompliance with federal regulations and may impact the federal agency's ability to accurately monitor and allocate funding. Furthermore, it may lead to incorrect conclusions about the auditee's compliance with specific program requirements.   Questioned Costs None Recommendation It is recommended that the auditee: • Review and revise its procedures for classifying federal expenditures to ensure accurate alignment with assistance listing numbers. • Implement additional training for staff responsible for preparing the SEFA. • Conduct a thorough review of all federal program expenditures for the current and previous years to identify and correct any similar misclassifications.

Assistance Listing Number: 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Agency – Department of Treasury Compliance Requirement – Reporting Finding Type: Significant Deficiency on Internal Control Condition During the audit, it was observed that the Authority lacks sufficient personnel designated to the oversight and review of the reporting process. This has resulted in the reporting procedure being conducted by a single individual without any formal oversight or review by additional staff or management, leading to a lack of checks and balances in this compliance area. Criteria The Uniform Guidance section 200.303 regarding internal controls, requires non-Federal entities to establish and maintain effective internal control over Federal awards that provide reasonable assurance that the management of Federal awards is in compliance with Federal statutes, regulations, and terms and conditions of the Federal awards. This includes accurate financial reporting and proper segregation of duties to prevent any individual from both preparing and reviewing the same transaction or report. Cause Lack of sufficient personnel designated for oversight roles. This shortage has resulted in the absence of formal review and oversight, as there are inadequate human resources to fulfill these critical control functions. Effect The lack of management review and oversight in the reporting process increases the risk of non-compliance with federal requirements and inaccuracies in reporting over federal funds. Questioned Costs None   Recommendation To resolve these issues and prevent future occurrences, the Authority should consider the following actions: • Strengthen Internal Controls: Implement stronger internal control procedures to ensure accurate financial reporting and supervision. This should include establishing clear protocols for the preparation and review of financial reports, with distinct roles assigned to different individuals to maintain segregation of duties. • Address Staffing Issues: Take steps to address the employee shortage, either by hiring additional staff or by training existing staff to take on multiple roles, ensuring that duties can be adequately segregated even with limited personnel. • Regular Training and Awareness: Conduct regular training sessions for all relevant staff on compliance with Federal program requirements and the importance of internal controls, including the need for segregation of duties in financial reporting.

Assistance Listing Number: 21.027 Coronavirus State and Local Fiscal Recovery Funds Federal Agency – Department of Treasury Compliance Requirement – Reporting Finding Type: Significant Deficiency on Internal Control Condition During the audit, it was observed that the Authority lacks sufficient personnel designated to the oversight and review of the reporting process. This has resulted in the reporting procedure being conducted by a single individual without any formal oversight or review by additional staff or management, leading to a lack of checks and balances in this compliance area. Criteria The Uniform Guidance section 200.303 regarding internal controls, requires non-Federal entities to establish and maintain effective internal control over Federal awards that provide reasonable assurance that the management of Federal awards is in compliance with Federal statutes, regulations, and terms and conditions of the Federal awards. This includes accurate financial reporting and proper segregation of duties to prevent any individual from both preparing and reviewing the same transaction or report. Cause Lack of sufficient personnel designated for oversight roles. This shortage has resulted in the absence of formal review and oversight, as there are inadequate human resources to fulfill these critical control functions. Effect The lack of management review and oversight in the reporting process increases the risk of non-compliance with federal requirements and inaccuracies in reporting over federal funds. Questioned Costs None   Recommendation To resolve these issues and prevent future occurrences, the Authority should consider the following actions: • Strengthen Internal Controls: Implement stronger internal control procedures to ensure accurate financial reporting and supervision. This should include establishing clear protocols for the preparation and review of financial reports, with distinct roles assigned to different individuals to maintain segregation of duties. • Address Staffing Issues: Take steps to address the employee shortage, either by hiring additional staff or by training existing staff to take on multiple roles, ensuring that duties can be adequately segregated even with limited personnel. • Regular Training and Awareness: Conduct regular training sessions for all relevant staff on compliance with Federal program requirements and the importance of internal controls, including the need for segregation of duties in financial reporting.

Assistance Listing No. 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Matching Type of Finding Significant Deficiency on Internal Control and Non-Compliance Condition: From a sample of forty federal construction projects examined, we noticed that for three projects, the toll credit usage reported in the Authority’s Toll Credits Report differed from the amounts reported in the Federal-Aid Project Agreements as approved by the Federal Highway Administration (FHWA). In addition, the Authority was unable to provide sufficient evidence for the auditors to validate the toll credit usage amounts for seven projects during the fiscal year. Furthermore, it was observed that the Authority lacks sufficient personnel designated to the oversight and review of the toll credits reporting process. This has resulted in the reporting procedure being conducted by a single individual without any formal oversight or review by additional staff or management, leading to a lack of checks and balances in this compliance area. A similar finding was reported during the prior year’s single audit as finding number 2022-02. Criteria: In accordance with the signed Memorandum of Understanding (MOU) between the Authority and FHWA (signed on February 25, 2016), the Authority shall implement modifications to its processes for approving, tracking, and reconciling toll credits as identified by the FHWA and submit a report (i.e., Toll Credits Report) and a certification to FHWA ascertaining that it has implemented these modifications. FHWA shall accurately identify the amount of toll credits available for use by the Authority and identify the modifications that the Authority must make to its processes for approving, tracking, and reconciling toll credit usage, as applicable. Cause: The causes for this finding include: 1) Recordkeeping Issues: The Authority does not have adequate recordkeeping systems for tracking toll credit usage. This could lead to discrepancies between the reported amounts in the Toll Credits Report and those in the Federal-Aid Project Agreements. 2) Lack of Adequate Internal Controls: The Authority does not have adequate internal control mechanisms in place to ensure the accuracy and completeness of the toll credit usage reporting. This includes the failure to reconcile amounts reported in the Toll Credits Report with those approved in the Federal-Aid Project Agreements. Effect: Non-compliance with the toll credits matching requirement per the MOU requirements. In addition, the Authority could inadvertently use toll credits for a federal project that may lack toll credits balances. Questioned Costs: Could not be determined. Recommendation: To address the identified compliance issues related to the discrepancies in toll credit usage reporting and the lack of sufficient evidence for certain projects, the auditors recommend the following: • Strengthen Internal Controls: Enhance internal control procedures to ensure accurate and compliant reporting of toll credit usage. This includes establishing clear guidelines for documentation, reporting, and verification processes related to federal construction projects. • Implement a Review Process: Introduce a formal review process for the toll credits reporting procedure. This review should be conducted by an individual or a team that is independent of the initial reporting process to ensure objectivity. The review should verify the accuracy of the reported toll credit usage against project agreements and supporting documentation. • Enhance Documentation Practices: Develop and enforce rigorous documentation practices. Ensure that all relevant documents supporting the toll credit usage, such as agreements, approvals, and calculations, are systematically collected, filed, and readily available for audit purposes. • Training and Awareness: Conduct training sessions for staff involved in the reporting and management of federal construction projects. The training should cover the requirements for toll credit usage, the importance of accurate reporting, and the procedures for ensuring compliance with federal guidelines, • Regular Reconciliation: Implement regular reconciliation procedures between the toll credits reported in the Authority’s Toll Credits Report and the amounts in the Federal-Aid Project Agreements. Any discrepancies identified should be investigated and resolved promptly. • Leverage Technology: Consider the use of accounting or project management software that can help track and report toll credit usage accurately. Automation can reduce human errors and improve the efficiency of the reporting process.

Assistance Listing No. 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Matching Type of Finding Significant Deficiency on Internal Control and Non-Compliance Condition: From a sample of forty federal construction projects examined, we noticed that for three projects, the toll credit usage reported in the Authority’s Toll Credits Report differed from the amounts reported in the Federal-Aid Project Agreements as approved by the Federal Highway Administration (FHWA). In addition, the Authority was unable to provide sufficient evidence for the auditors to validate the toll credit usage amounts for seven projects during the fiscal year. Furthermore, it was observed that the Authority lacks sufficient personnel designated to the oversight and review of the toll credits reporting process. This has resulted in the reporting procedure being conducted by a single individual without any formal oversight or review by additional staff or management, leading to a lack of checks and balances in this compliance area. A similar finding was reported during the prior year’s single audit as finding number 2022-02. Criteria: In accordance with the signed Memorandum of Understanding (MOU) between the Authority and FHWA (signed on February 25, 2016), the Authority shall implement modifications to its processes for approving, tracking, and reconciling toll credits as identified by the FHWA and submit a report (i.e., Toll Credits Report) and a certification to FHWA ascertaining that it has implemented these modifications. FHWA shall accurately identify the amount of toll credits available for use by the Authority and identify the modifications that the Authority must make to its processes for approving, tracking, and reconciling toll credit usage, as applicable. Cause: The causes for this finding include: 1) Recordkeeping Issues: The Authority does not have adequate recordkeeping systems for tracking toll credit usage. This could lead to discrepancies between the reported amounts in the Toll Credits Report and those in the Federal-Aid Project Agreements. 2) Lack of Adequate Internal Controls: The Authority does not have adequate internal control mechanisms in place to ensure the accuracy and completeness of the toll credit usage reporting. This includes the failure to reconcile amounts reported in the Toll Credits Report with those approved in the Federal-Aid Project Agreements. Effect: Non-compliance with the toll credits matching requirement per the MOU requirements. In addition, the Authority could inadvertently use toll credits for a federal project that may lack toll credits balances. Questioned Costs: Could not be determined. Recommendation: To address the identified compliance issues related to the discrepancies in toll credit usage reporting and the lack of sufficient evidence for certain projects, the auditors recommend the following: • Strengthen Internal Controls: Enhance internal control procedures to ensure accurate and compliant reporting of toll credit usage. This includes establishing clear guidelines for documentation, reporting, and verification processes related to federal construction projects. • Implement a Review Process: Introduce a formal review process for the toll credits reporting procedure. This review should be conducted by an individual or a team that is independent of the initial reporting process to ensure objectivity. The review should verify the accuracy of the reported toll credit usage against project agreements and supporting documentation. • Enhance Documentation Practices: Develop and enforce rigorous documentation practices. Ensure that all relevant documents supporting the toll credit usage, such as agreements, approvals, and calculations, are systematically collected, filed, and readily available for audit purposes. • Training and Awareness: Conduct training sessions for staff involved in the reporting and management of federal construction projects. The training should cover the requirements for toll credit usage, the importance of accurate reporting, and the procedures for ensuring compliance with federal guidelines, • Regular Reconciliation: Implement regular reconciliation procedures between the toll credits reported in the Authority’s Toll Credits Report and the amounts in the Federal-Aid Project Agreements. Any discrepancies identified should be investigated and resolved promptly. • Leverage Technology: Consider the use of accounting or project management software that can help track and report toll credit usage accurately. Automation can reduce human errors and improve the efficiency of the reporting process.

Finding Reference 2023-05 Assistance Listing Number 20.205 Highway Planning and Construction (Federal-Aid Highway Program) Name of Federal Agency Department of Transportation Compliance Requirement Special Tests and Provisions – Wage Rate Requirements Type of Finding Significant Deficiency on Internal Control and Non-Compliance Condition: From a sample of fifteen work weeks examined, we noted that three certified payroll weeks were not certified within the required weekly period as required by federal regulations. The delays in certifications ranged from four days to thirty-three days in excess of the required weekly timeframe. Criteria: Nonfederal entities shall include in their construction contracts subject to the Wage Rate Requirements (which still may be referenced as the Davis-Bacon Act) a provision that the contractor or subcontractor comply with those requirements and the DOL regulations (29 CFR Part 5, Labor Standards Provisions Applicable to Contacts Governing Federally Financed and Assisted Construction). This includes a requirement for the contractor or subcontractor to submit to the nonfederal entity weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance (certified payrolls) (29 CFR sections 5.5 and 5.6; the A-102 Common Rule (section 36(i)(5)); OMB Circular A-110 (2 CFR Part 215, Appendix A, Contract Provisions); 2 CFR Part 176, Subpart C; and 2 CFR section 200.326). Cause: The delays in the certification of payroll weeks may be due to inefficient payroll processing procedures within the contractor or subcontractor's system. Effect: The failure to certify payrolls on a weekly basis as required by federal regulations can lead to noncompliance with federal regulations, specifically the Davis-Bacon Act and related Department of Labor (DOL) regulations. However, the fact that the Authority discharges its obligation by withholding payment to the contractor or subcontractor until the certified payroll is received and reviewed, mitigates all economic risks. Questioned Costs: None. Recommendation: To address the identified issues, the following corrective actions are recommended: • Enhance Oversight and Compliance Reviews: Designate a compliance officer or team responsible for verifying that certified payrolls are submitted timely. Include within the internal audit functions to test compliance with this requirement and recommend corrective actions promptly. • Request a non-compliance waiver from the FHWA: The Authority should request the FHWA for a 20% non-compliance waiver, as it is impracticable for the Authority to ascertain that all contractors or subcontractors comply timely with this requirement. Views of Responsible Officials Refer to Management’s unaudited corrective action plan. -

Condition From a sample of sixteen federal construction projects examined, we noticed that for three projects, the toll credit usage reported in the Authority?s Toll Credits Report differed from the amounts reported in the Federal-Aid Project Agreements as approved by FHWA. Criteria In accordance with the signed Memorandum of Understanding (MOU) between the Authority and FHWA (signed on February 25, 2016), the Authority shall implement modifications to its processes for approving, tracking, and reconciling toll credits as identified by the FHWA and submit a report (i.e., Toll Credits Report) and a certification to FHWA ascertaining that it has implemented these modifications. FHWA shall accurately identify the amount of toll credits available for use by the Authority and identify the modifications that the Authority must make to its processes for approving, tracking, and reconciling toll credit usage, as applicable. Cause A deficiency in internal control related to the approval, tracking, and reconciling of toll credits usage, probably caused by employee turnover during FY 2022. Effect Non-compliance with the toll credits matching requirement per the MOU requirements. In addition, the Authority could inadvertently use toll credits for a federal project that may lack toll credits balances. Questioned Costs None Recommendation The Authority's management should strengthen its internal control structure over the approval, tracking, and reconciliation process of toll credits usage to ascertain compliance with the MOU requirements. This should include, among other, assigning the reconciliation process to an employee with the technical knowledge to understand toll credits management. Furthermore, we recommend management should strengthen its review and approval process over the toll credits report to timely identify any errors and/or discrepancies.

Finding Reference 2019-003 Compliance Requirement Reporting Federal Program CFDA 20.516 - Job Access and Reverse Commute Program Federal Grantor: U.S. Department of Transportation Federal Transit Administration (FTA) Type of Finding Significant Deficiency and Non-Compliance in relation to a Compliance Requirement Condition The Authority expended funds in excess of $25,000 to several subrecipients and no FFATA sub-award report was submitted. Criteria As per the Federal Funding Accountability and Transparency Act of 2006 (hereinafter, ?FFATA?), as amended, any sub-recipient who receives a Federal grant greater than or equal to $25,000 after October 1, 2010 is subject to FFATA sub-award reporting requirements as outlined in the Office of Management and Budget. The prime awardee (in this case, the Authority) is required to file a FFATA sub-award report by the end of the month following the month in which the prime recipient awards any sub-grant greater than or equal to $25,000. The FFATA Sub-award Reporting System (?FSRS?) is the reporting tool Federal prime awardees use to capture and report sub-award and executive compensation data regarding their first-tier sub-awards to meet the FFATA reporting requirements. Prime contract awardees will report against sub-contracts awarded and prime grant awardees will report against sub-grants awarded. Prime grant recipients must submit FFATA required data into FSRS by the end of the month, plus 30 days, in which the award or award amendment is made. FTA Circular 9030 page 77 stated the following: Sub-recipients. FTA and their grantees must comply with the Federal Funding Accountability and Transparency Act (FFATA) of 2006, Pub. L. 109?282, enacted September 26, 2006, as amended by Section 6202 of Public Law 110- 252 and implemented by 2 CFR part 170. To comply with these requirements, grant recipients must provide FTA with the following information for any sub-recipient: the name of the entity receiving the award, the amount of the award, the location of the entity receiving the award and the primary location of performance under the award, including the city, state, and congressional district. The grant recipient is required to submit this information and may choose to submit this information as a separate attachment in the FTA electronic award management system or include the information in the POP. Cause Possible lack of knowledge of applicable reporting requirements. Effect Non-compliance with the FFATA reporting requirements. Questioned Costs None Recommendation The Authority's management should strengthen its internal control structure over the preparation, review, and submission of required federal reports to ascertain compliance. This should include, among other, the assignment of an employee to oversee the Authority's compliance over the timely filing of applicable reports even if the filing responsibility falls into different departments within the Authority. Also, the internal audit department may be considered to carry these functions. Management could develop a checklist as a useful tool to maintain control of reporting due dates.

Finding Reference 2019-004 Compliance Requirement Reporting Federal Program All federal programs Federal Grantor: U.S. Department of Transportation - Federal Transit Administration (FTA) /Highway Planning and Construction (FHWA) Type of Finding Significant Deficiency and Non-Compliance in relation to a Compliance Requirement Condition The Authority did not submit the Data Collection Form and Reporting Package to the Federal Audit Clearinghouse for the audit ending June 30, 2019 before the required date: March 31, 2020. In addition, the OMB issued Memorandum M-20-17, which extends the filing period for an additional six-month period ending on September 30, 2020. However, the Authority did not meet the extension deadline either. Criteria As per the 2 CFR 200.512 - Report Submission: The audit must be completed, and the Data Collection Form and reporting package must be submitted within the earlier of 30 calendar days after receipt of the auditor's report, or nine months after the end of the audit period. If the due date falls on a Saturday, Sunday, or Federal holiday, the reporting package is due the next business day. As per Appendix A of OMB Issued Memorandum M-20-17: Awarding agencies, in their capacity as cognizant or oversight agencies for audit, should allow recipients and subrecipients that have not yet filed their single audits with the Federal Audit Clearinghouse as of the date of the issuance of this memorandum that have fiscal year-ends through June 30, 2020, to delay the completion and submission of the Single Audit reporting package, as required under Subpart F of 2 CFR 200.501 - Audit Requirements, to six months beyond the normal due date. Cause On March 15, 2020, the Governor of Puerto Rico took measures to control the COVID-19 Pandemic such as mass closures of non-essential businesses and lockdown periods for the general public. These measures have caused longterm disruptions in the Authority's day to day operations. As of the date this report was issued, the Authority has not been able to fully return to pre-pandemic conditions. Therefore, the financial and compliance audits were not completed as of the Data Collection form and compliance package due date. Effect Noncompliance with the Data Collection form and Compliance reporting package deadlines could result in delays regarding approvals of additional federal funding and/or administrative sanctions. Questioned Costs None Recommendation The Authority should inform its federal cognizant agency about an estimated submission date of the Data Collection Form and compliance reporting package and evaluate compliance with fiscal year 2020 audit deadlines. The Authority should keep monitoring its compliance with the filing deadlines in order to mitigate future noncompliance.

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