LOCAL AREA WORKFORCE DEVELOPMENT SOUTH CENTRAL

Finding Reference 2025-001 Federal Agency: U.S. Department of Labor Pass-through Agency: P.R. Department of Economic Development and Commerce (DDEC) Federal Program Title and Assistance Listing Number (ALN): WIOA Cluster: WIOA Adult Program (ALN 17.258) WIOA Youth Activities (ALN 17.259) WIOA Dislocated Worker Formula Grants (ALN 17.278) Compliance Requirement: Reporting (L) Type of finding: Material Weakness in Internal Control over Compliance (MW), Instance of Noncompliance (NC) This finding is similar to prior-year finding 2024-002 and 2023-002. Statement of Condition The financial information related to the quarterly accumulated expense report corresponding to the quarter ended on June 30, 2025 was not submitted on or before July 15, 2025. The closing report for June 30, 2025 was not submitted on or before July 15, 2025. The liquidation closing report for June 30, 2025 was not submitted on or before July 31, 2025. Criteria The Local Area Workforce Development must comply with the established dates by the DDEC for performing and submitting the required information. Cause of Condition The LAWD – South Central did not submit the quarterly accumulated expense report and the closing report to the quarter ended and for the fiscal year ended on June 30, 2025, to the DDEC during the required submission deadline dates. Effect of Condition The continued occurrence of this situation could result in possible significant limitations on available funds. Recommendation We recommend the LAWD – South Central implements internal control procedures to meet submission deadlines. Questioned Costs None Views of Responsible Officials and Planned Corrective Action We gave instructions to the Finance Department Director to strengthen internal procedures and controls to ensure submission of financial reports within the required timeframe. Implementation Date: July 1, 2026. Responsible Person: Mrs. Rosa J. La Torre Santiago, Executive Director

Finding Reference 2025-002 Federal Agency: U.S. Department of Labor Pass-through Agency: P.R. Department of Economic Development and Commerce (DDEC) Federal Program Title and Assistance Listing Number (ALN): WIOA Cluster: WIOA Adult Program (ALN 17.258) WIOA Youth Activities (ALN 17.259) WIOA Dislocated Worker Formula Grants (ALN 17.278) Compliance Requirement: Single Audit Act Type of finding: Significant Deficiency in Internal Control over Compliance (SD), Instance of Noncompliance (NC) Statement of Condition The LAWD – South Central did not submit, in a timely manner, to the Federal Audit Clearinghouse, the Single Audit Reporting package for the fiscal year ending on June 30, 2025. The due date for this report was no later than March 31, 2026. Criteria Uniform Guidance, Section 500.512, states that the audit must be completed, and the data collection form and reporting package must be submitted within or earlier of 30 calendar days after receipt of the auditors’ report, or nine (9) months after the end of the audit period. Cause of Condition Due to the delay in the preparation of the financial statements, the LAWD – South Central did not comply with the requirements established in the Uniform Guidance. Effect of Condition The LAWD – South Central could be sanctioned by the Federal government for the noncompliance of this requirement. Recommendation We recommend management to continue strengthening the internal controls over the accounting records to complete in a timely manner the process of preparation of the financial statements of the LAWD – South Central. Questioned Costs None Views of Responsible Officials and Planned Corrective Action The fiscal year 2024-2025 Single Audit Report will be submitted through the Federal Audit Clearinghouse (FAC) no later than April 30, 2026. In terms of the subsequent year Single Audit Report (FY 2025-2026), we engaged the audit services on March 24, 2026, and we are in the process to request professional services proposals to assist our Finance Department staff to compile the fiscal year 2025-2026 financial statements no later than December 31, 2026 to comply with fiscal year 2025-2026 Single Audit Report submission dateline. Implementation Date: March 31, 2027. Responsible Person: Mrs. Rosa J. La Torre Santiago, Executive Director

Finding Reference 2024-002 Federal Agency: U.S. Department of Labor Pass-through Agency: P.R. Department of Economic Development and Commerce (DDEC) Federal Program Title and Assistance Listing Number (ALN): WIOA Cluster: WIOA Adult Program (ALN 17.258) WIOA Youth Activities (ALN 17.259) WIOA Dislocated Worker Formula Grants (ALN 17.278) Compliance Requirement: Reporting (L) Type of finding: Material Weakness in Internal Control over Compliance (MW), Instance of Noncompliance (NC) This finding is similar to prior-year finding 2023-002. Statement of Condition The financial information related to the quarterly accumulated expense report corresponding to the quarter ended on June 30, 2024 was not submitted on or before July 15, 2024. The information was submitted on July 18, 2024. The bank reconciliation and cash journal report for June 30, 2024 were not submitted on or before the tenth (10) day of the following month. The information was submitted on July 11, 2024. Criteria The Local Workforce Development Areas must comply with the established dates by the DDEC for performed and submitted the required information. Cause of Condition The LWDA – South Central did not submit the quarterly accumulated expense report and the bank reconciliation and cash journal report to the quarter ended and for the month ended on June 30, 2024, to the DDEC during the required submission deadline dates. Effect of Condition The continued occurrence of this situation could result in possible significant limitations on available funds. Recommendation We recommend the LWDA – South Central implements internal control procedures in order to meet submission deadlines. Questioned Costs None Views of Responsible Officials and Planned Corrective Action We gave instructions to the Finance Department Director to strengthen internal procedures and controls to ensure accurate preparation and submission of financial reports within the required timeframe. Implementation Date: July 1, 2025. Responsible Person: Mrs. Rosa J. La Torre Santiago, Executive Director

Section III. Federal Awards Findings Questioned Costs Finding 2023-002: Late submission of the quarterly expense report corresponding to April, May and June 2023. Type of Finding: Material Weakness (MW), Instance of Noncompliance (NC) Assistance Listing No.: 17.258, 17.259, 17.278, 17.277 Program title: Adult Program, Youth Activities, Dislocated Worker Formula Grant, and National Dislocated Worker Formula Grant Federal Award Year: 7/1/2022 - 6/30/2023 Federal Award No.: 2023-000138, 2023-000082, 2023-001991, 2023-001927 Name of federal agency: Workforce Innovation and Opportunity Act Name of pass-through entity: PR Department of Economic Development and Commerce COVID-19 program?  Yes  No Criteria: WIOA Funding Delegation Contracts in part B "Fiscal reports that must be submitted to the Department of Economic Development and Commerce (DEDC)", specifies that the ALDL must report to DEDC finance office the total expenses incurred, accruals, obligations and available balances of the approved funds on or before the (20th) day of the following month. They must be submitted in Excel and PDF formats. Reports submitted in PDF format must be certified and signed by the Director of Finance and the Executive Director and/or those authorized persons. Statement of Condition: The financial information related to the accumulated expenses corresponding to the months of April, May and June 2023 were not submitted before July 20, 2023. The information was submitted on August 2, 2023 resulting as a systemic problem. Cause of Condition: The ALDL did not submit the quarterly expense report for the quarter ended June 30, 2023, to DEDC during the required submission deadline period. Effect of Condition: The continued occurrence of this situation could result in possible significant limitations on available funds because without the quarterly expenses the DEDC cannot ensure that the expenses incurred are necessary and essential to carry out the permitted activities. Questioned Cost: None Prior year finding: N/A Recommendation: We recommend the ALDL implements internal control procedures in order to meet the submission deadlines. Views of responsible officials and planned corrective actions: The ALDL agrees with this finding and will adhere to the corrective action plan on page 55 in this audit report. Responsible Person: Alba R. López González – Finance Director, Rosa Jazmín La Torre – Executive Director

Finding 2023-003: Late submission of single audit report package Type of Finding: Material Weakness (MW), Instance of Noncompliance (NC) Assistance Listing No.: 17.258, 17.259, 17.278, 17.277 Program title: Adult Program, Youth Activities, Dislocated Worker Formula Grant, and National Dislocated Worker Formula Grant Federal Award Year: 7/1/2022 - 6/30/2023 Federal Award No.: 2023-000138, 2023-000082, 2023-001991, 2023-001927 Name of federal agency: Workforce Innovation and Opportunity Act Name of pass-through entity: PR Department of Economic Development and Commerce COVID-19 program?  Yes  No Criteria: Title 2, Subtitle A, Chapter II, Part 200 named “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” Subpart F- Audit Requirements, under 200.512 “Report Submission” states that the audit shall be completed and the Data Collection Form described in paragraph (b) of this section and reporting package described in paragraph (c) of this section shall be submitted to the Federal Clearinghouse designated by OMB within the earlier of 30 calendar days after receipt of the auditor's reports, or nine months after the end of the audit period. Statement of Condition: The ALDL did not submit the single audit report and reporting package for the year ended June 30, 2023, to the Federal Audit Clearinghouse during the required submission deadline period. Cause of Condition: Financial information contained in the Governmental-Wide and Governmental Funds Financial Statements was not available with reasonable time to perform all audit procedures resulting as a systemic problem. Effect of Condition: The ALDL may be subject to sanctions such as: 1. Withholding a percentage of federal awards until the audit is completed satisfactorily, 2. Withholding or disallowing overhead costs, 3. Suspending federal awards until the audit is conducted, 4. Terminating the federal award. Questioned Costs: None Prior year finding: N/A Recommendation: We recommend that the ALDL should start the process of compiling and preparing the financial information to complete the Governmental-Wide and Governmental Funds Financial Statements and the Schedule of Expenditures of Federal Awards with enough time to assure that such information is available for the audit process, before March 31, and to provide it with enough time so the audit process can be completed before such due date. View of Responsible Official and Planned Corrective Action Plan: The ALDL agrees with this finding and will adhere to the corrective action plan on page 56 in this audit report. Responsible Person: Alba R. López González – Finance Director, Rosa Jazmín La Torre – Executive Director

FINDING NUMBER 2019-001 FEDERAL PROGRAM WORKFORCE INNOVATION AND OPPORTUNITY ACT (WIOA) (CLUSTER) ? WIA/WIOA ADULT PROGRAM (CFDA NO. 17.258) / WIA/WIOA YOUTH ACTIVITIES (CFDA NO. 17.259) / WIA/WIOA DISLOCATED WORKER FORMULA GRANTS (CFDA NO. 17.278) U.S. DEPARTMENT OF LABOR; PASS-THROUGH ? PUERTO RICO DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT COMPLIANCE REQUIREMENT ALLOWABLE COSTS/COSTS PRINCIPLES TYPE OF FINDING NONCOMPLIANCE AND SIGNIFICANT DEFICIENCY CONDITION The Local Area issue payments that did not include all the documents that justify the disbursement. CONTEXT During my tests of 40 payments to suppliers, I observe the following situations regarding the disbursement process: ? In one payment for $3,200, regarding professional services, the invoice contains an error in its total. Also, the procurement process used by the Local Area to formalize the contract for this service for $15,000, was not in accordance with its current procurement procedures. ? Five purchase orders were not available for my review. One purchase order did not include all signatures required. ? In seven payments, the original invoice was not available for my review. Payments were processed using invoices copies. ? In one payment, the purchase order was dated before the procurement process. CRITERIA 2 CFR 200.302 (b)(3) states that the financial management system of each non-Federal entity must provide for records that identify adequately the source and application of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation.CRITERIA Nonfederal entities other than states, including those operating federal programs as subrecipients of states, must follow the procurement standards set out at 2 CFR 200 sections 200.318 through 200.326. They must use their own documented procedures, which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable federal statutes and the procurement requirements identified in 2 CFR 200. CAUSE The internal controls of the Local Area did not assure that the payments include all the documents that justify the disbursement. Also, the Local Area did not follow its internal disbursement and procurement policies and procedures. EFFECT The Local Area may not be in compliance with 2 CFR 200.302 (b)(3), and 200.318 through 200.326. RECOMMENDATION I recommend management to continue strengthening the internal controls and procedures designed to review the disbursement vouchers and the supporting documentation prior to the issuance of a payment. QUESTIONED COSTS None PRIOR YEAR FINDING 2018-003

FINDING NUMBER 2019-002 FEDERAL PROGRAM WORKFORCE INNOVATION AND OPPORTUNITY ACT (WIOA) (CLUSTER) ? WIA/WIOA ADULT PROGRAM (CFDA NO. 17.258) / WIA/WIOA YOUTH ACTIVITIES (CFDA NO. 17.259) / WIA/WIOA DISLOCATED WORKER FORMULA GRANTS (CFDA NO. 17.278) U.S. DEPARTMENT OF LABOR; PASS-THROUGH ? PUERTO RICO DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT COMPLIANCE REQUIREMENT REPORTING TYPE OF FINDING NONCOMPLIANCE AND SIGNIFICANT DEFICIENCY CONDITION The Local Area did not properly report to the pass-through entity total expenditures and accounts payable/accrued liabilities in the financial closing reports of the Program for the fiscal year ending June 30, 2019. CONTEXT During the reporting test, I noted the following deficiencies in the closing reports: ? Starting on July 2018, the Local Area implemented the holdback pay method, as requested by the Subgrantee. But, at year end (June 30, 2019), the biweekly payroll expenditures related to the working period from June 16, 2019 to June 30, 2019 were not accrued in the accounting system, and therefore the fiscal year 2018-2019 financial closing reports did not include the such payroll expenditures and related accruals ascending to $56,342, as follows: Program Administrative Program Total WIOA 2018-2019 Youth $ 5,057 $14,940 $19,997 Adult 5,198 15,360 20,558 Dislocated Workers 3,995 11,792 15,787 Total $14,250 $42,092 $56,342 ? Also, the Local Area?s trial balance as of June 30, 2019, generated from the Local Area accounting system, include accrued liabilities for a total of $33,145 that were not reclassified to the liability account identified as Vouchers Payable (Account No. 2000), as instructed by the Subgrantee. Therefore, although the expenditures related to such liabilities were included in the fiscal report, the Vouchers Payable Report List submitted to the Subgrantee as part of the fiscal year 2018-2019 financial closing report does not include such liabilities. CRITERIA 2 CFR 200.303 (a) states that the non-Federal entity must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. CAUSE The trial balances used to prepare the closing reports did not include all the necessary year-end closing adjustments. EFFECT The Expenditures Closing Reports understate fiscal year expenditures by $56,342; such expenditures were subsequently recorded (through accounting adjustments) in the Local Area?s accounting records as fiscal year 2018-2019 expenditures, and therefore, a difference will be noticed when comparing the Local Area?s accounting records and the Expenditures Closing Reports submitted to the Grantee. With respect to the Vouchers Payable Report List submitted to the Subgrantee as part of the fiscal year 2018-2019 financial closing report, such condition effect was not to report to the Grantee, recorded accrued year end liabilities by $33,145. RECOMMENDATION I recommended management to continue strengthening its internal controls to assure that financial reports submitted to the pass-through entity are accurate and correct. QUESTIONED COSTS None PRIOR YEAR FINDING 2018-004

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