OFFICE
OF
THE INSPECTOR GENERAL
SOCIAL SECURITY ADMINISTRATION
SINGLE
AUDIT OF THE
COMMONWEALTH OF PUERTO RICO
DEPARTMENT OF THE FAMILY
FOR THE FISCAL YEAR ENDED
JUNE 30, 2001
March
2003
A-77-03-00011
MANAGEMENT ADVISORY REPORT
Mission
We improve SSA programs and operations and protect them against fraud, waste, and abuse by conducting independent and objective audits, evaluations, and investigations. We provide timely, useful, and reliable information and advice to Administration officials, the Congress, and the public.
Authority
The Inspector General Act created independent audit and investigative units, called the Office of Inspector General (OIG). The mission of the OIG, as spelled out in the Act, is to:
Conduct and supervise independent
and objective audits and investigations relating to agency programs and operations.
Promote economy, effectiveness, and efficiency within the agency.
Prevent and detect fraud, waste, and abuse in agency programs and operations.
Review and make recommendations regarding existing and proposed legislation
and regulations relating to agency programs and operations.
Keep the agency head and the Congress fully and currently informed of problems
in agency programs and operations.
To ensure objectivity, the IG Act empowers the IG with:
Independence to determine
what reviews to perform.
Access to all information necessary for the reviews.
Authority to publish findings and recommendations based on the reviews.
Vision
By conducting independent
and objective audits, investigations, and evaluations, we are agents of positive
change striving for continuous improvement in the Social Security Administration's
programs, operations, and management and in our own office.
MEMORANDUM
Date: March 20, 2003
To: Candace Skurnik
Acting Director Management Analysis and Audit Program Support Staff
From: Assistant Inspector General for Audit
Subject: Management Advisory Report: Single Audit of the Commonwealth of Puerto Rico, Department of the Family, for the Fiscal Year Ended June 30, 2001 (A-77-03-00011)
This report presents the Social Security Administration's (SSA) portion of the single audit of the Commonwealth of Puerto Rico, Department of the Family (DOF), for the Fiscal Year ended June 30, 2001. Our objective was to report internal control weaknesses, noncompliance issues, and unallowable costs identified in the single audit to SSA for resolution action.
Ernst & Young LLP performed the audit. Results of the desk review conducted by the Department of Health and Human Services (HHS) have not been received. We will notify you when the results are received if HHS determines the audit did not meet Federal requirements. In reporting the results of the single audit, we relied entirely on the internal control and compliance work performed by Ernst & Young LLP and the reviews performed by HHS.
For single audit purposes, the Office of Management and Budget assigns Federal programs a Catalog of Federal Domestic Assistance (CFDA) number. SSA's Disability Insurance (DI) and Supplemental Security Income (SSI) programs are identified by CFDA number 96. SSA is responsible for resolving single audit findings reported under this CFDA number.
The Puerto Rico Disability Determination Services (DDS) performs disability determinations under SSA's DI and SSI programs in accordance with Federal regulations. The DDS is reimbursed for 100 percent of allowable costs. DOF is the Puerto Rico DDS' parent agency.
The single audit reported that:
1. The Time Report of Personnel Services (SSA-4514) was not submitted timely. The corrective action plan indicated that necessary adjustments were being made to comply with the due dates for Federal reports (Attachment A, pages 1 and 2).
2. Estimated personnel costs were used on the State Agency Report of Obligations (SSA-4513), resulting in a questioned cost of $100,144. The corrective action plan indicated that the accounting records were adjusted after payroll registers with actual expense information were received from the Department of the Treasury (Treasury) and the adjustments were included in a subsequent SSA-4513 (Attachment A, pages1 and 2).
3. Evidence could not be located to support the time elapsed between the receipt and disbursement of Federal funds for the DDS program. The corrective action plan indicated that Treasury initiated a project to provide agencies with payment information on the transfer of Federal funds (Attachment A, pages 3 and 4).
4. DDS expenditures of $548 were not supported by documentation. The corrective action plan indicated a record retention system ensuring all records and documents are retained for the required period of time has been implemented (Attachment A, pages 5 and 6).
5. DOF did not maintain accurate records of acquisitions, physical location, and dispositions of property acquired with Federal funds. The corrective action plan indicated that personnel have been appointed and will be responsible for all property and equipment for the DDS program (Attachment A, pages 7 and 8).
6. Complete personnel information was not maintained in the employees files. The corrective action plan indicated that documents will be retained in the future (Attachment A, pages 9 and 10).
We recommend SSA:
1. Ensure the $100,144 in estimated personnel costs was properly adjusted on a subsequent SSA-4513, and if not, recover the unallowable costs.
2. Determine whether the $548 in undocumented expenditures was allowable and recover any unallowable costs.
The single audit also disclosed the following findings that may impact DDS operations although they were not specifically identified to SSA. Some of these findings were reported for several DOF programs indicating pervasive problems within DOF. If the finding was reported in more than one DOF program, we identify the number of times the finding was reported in parenthesis at the end of each finding. I am bringing these matters to your attention as they represent potentially serious service delivery and financial control problems for the Agency (see Attachment B).
Financial statements were not prepared in conformity with Generally Accepted Accounting Principles because of a lack of policies, procedures, and financial reporting practices. Therefore, management did not have accurate and complete financial information on a timely basis to carry out other duties (14).
DOF did not have an effective filing system.
Federal reports were not submitted accurately and timely (6).
Property and equipment management procedures were not adequate (8).
Supporting documentation and accounting records were not retained for expenditures charged to Federal funds (21).
Federal funds were disbursed prior to receiving a signed contract.
Financial Status Reports did not agree with the General Ledger (6).
Evidence to support the drawdown of Federal funds could not be located (3).
The DOF does not have an approved Cost Allocation Plan.
Please send copies of the final Audit Clearance Document to Mark Bailey in Kansas City and Paul Wood in Baltimore. If you have questions contact Mark Bailey at (816) 936 5591.
Steven L. Schaeffer
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Num. 01 73
State Agency Catalog Number Program Name
U.S. Social Security
Administration CFDA #96.001 Disability Determination Services
Topic Sentence
The Department did not submit the Financial Status Report and Cash Transactions
Report when due.
Category
Internal Control/Compliance
Compliance Requirement
Reporting
Criteria
The Department must submit the SSA 4513 and SSA 4514 no later than 30 days after
the end of each specified reporting period for quarterly and semi annual reports,
and 90 calendar days for annual and final reports.
Condition Found
In order to test compliance with the reporting deadline of the Promoting Safe
and Stable Families, we selected the four quarterly reports and noted the following:
1. The Time Report of Personnel
Services (SSA 4514) for the period ended 12 31 00 was submitted 5 days later
after the ending period.
2. The Time Report of Personnel Services (SSA 4514) for the period ended 3 31
01 was submitted 7 days late.
3. In each quarter report (SSA 4513) DDS used estimates of personnel costs.
Known Questioned, Costs
As of 9 30 00 $ (482) Personnel Expenses not requested
As of 6 30 01 100.626 Personnel Expenses requested
Net total $100,144
Underlying Cause
The accountant in charge prepared its respectively expenses reports and were
submitted later for the months mentioned above.
Effect
Inaccurate reporting prevents the federal awarding agency from monitoring the
program's financial activities, assessing the achievements of the program and
evaluating the grant award for the following year.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 73 (continued)
Recommendations
The Department should develop a tracking system which reminds staff due dates.
Adequate evidence of the submittal of all federal reports should be kept by
the Department.
Management's Response
The Department acknowledged our findings and agreed with our recommendation.
In relation to Item 1, the Department is making the necessary adjustments to
comply with the due dates. The Human Resources Division of the Department is
providing part of the information that is required for the completion of the
SSA 4514 and this process has proved to be very effective. Also the program
is in the process of automating the attendance of employees, which will allow
the program to obtain the information sooner and report on a timely manner.
Regarding the indirect cost rate, an adjustment was made subsequently in the quarterly report of December 2000, to correct the reported indirect costs.
In relation to Item 3, payroll
is processed by the Puerto Rico Treasury Department through the RHUM system.
Payroll registers with actual expense information are received late from Department
of Treasury, which obligates the program to record payroll expenses based on
the last payroll. Once the payroll information is received, the accounting records
are adjusted and this is reflected in the next SSA 4513.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 74
State Agency Catalog Number
Program Name
U.S. Social Security
Administration CFDA #96.001 Disability Determination Services
Topic Sentence
The Department could not locate evidence to support the time elapsed between
the transfer of federal funds and the disbursements of the funds.
Category
Compliance/Internal Control
Compliance Requirement
Cash Management
Criteria
31 CFR 205.6 established that the Zero balance accounting is a method of transferring
Federal funds to the State based on the actual amount of funds that are paid
out by the State. The funding technique must be auditable for internal control
purposes. Auditable means the sources of data and information for a calculation
are readily available, fully documented, and verifiable, such that the calculation
can be replicated and proven to comply with all pertinent standards.
Condition Found
In testing compliance with cash management we examined the vouchers for payments
and evaluated the procedures implemented to minimize the time elapsed between
the transfer of Federal Funds and the payment of funds for program purposes.
Upon our inspection, we were unable to perform the Cash Management test because
the Governmental Development Bank (GDB) did not provide ADFAN a list detailing
cancelled checks for which federal funds were expended. Checks cleared by GDB
are not listed in detail but included in a lump sum amount. This precludes ADFAN
from matching cleared checks with the corresponding payment and tying this to
the request for funds. This problem is between GDB and the PRIFAS system.
Known Questioned Costs
$30,305
Underlying Cause
The Governmental Development Bank was not sending Secretary's office a detail
of the cancelled checks.
Effect
The Department cannot reconcile the disbursements with their corresponding checks
for accounting purposes.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 74 (continued)
Recommendation
The Department should ascertain that adequate source documents exists to support
cash management of federal funds. The Department should also establish a record
retention system to ascertain that accounting records and documents are retained
for the time period required by applicable regulations and the provisions of
laws, contracts or grant agreements of the program.
Management's Response
This situation arises because of the lack of detailed information provided by
GDB and the PRIFAS system, which is controlled by the Puerto Rico Treasury Department.
The Treasury Department started a project in 2002 to solve this problem, which
affects no only ADFAN, but all the governmental agencies for which the Treasury
Department acts as custodian of their funds. Part of this project is identifying
all payment information and providing it to the, agencies. Once this project
is completed, this situation should be corrected.
Commonwealth of Puerto
Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 75
State Agency Catalog Number
Program Name
U.S. Social Security
Administration CFDA #96.001 Disability Determination Services
Topic Sentence
The Department could not locate evidence to support disbursements.
Category
Compliance/Internal Control
Compliance Requirement
Allowable Costs/Costs Principles
Criteria
As per OMB Circular A 102 Subpart C, Section 20 (2), grantees and sub grantees
must maintain records, which adequately identify the source and application
of funds provided for financially assisted activities. These records must contain
information pertaining to the grant or sub grant awards and authorizations,
obligations, un obligated balances, assets, liabilities, outlays or expenditures,
and income. Accounting records must be supported by such source documentation
as cancelled invoices, pre audited invoices, paid bills, payrolls, time and
attendance records, etc. Except as otherwise provided, records must be retained
for three years.
Condition Found
In testing compliance with allowable costs and cost principles we examined 18
vouchers for payments amounting to $30,304.54 and evaluated the procedures implemented
to comply with the regulations of the Federal Programs and Internal Control
for the fiscal year ended June 30, 2001. We noted the following exceptions:
Payment Voucher
Number Amount Payment Voucher Not
- Processed in System Evidence, of Payment
39796 $291.30 X X
400027 256.60 X X
$547.90
Known Questioned Costs
Questioned costs are included in Finding Number 01 74.
Underlying Cause
The Department process for accounting records of expenses is not effective.
Effect
The Department may have expended funds for unallowable activities, which could
result in disallowed costs by federal awarding agency.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 75 (continued)
Recommendation
The Department should establish a record retention system to ascertain that
accounting records and documents are retained for the time period required by
applicable regulations and the provisions of laws, contracts or grant agreements
of the program.
Management's Response
The Department acknowledged our finding and agreed with our recommendation.
Commonwealth of Puerto
Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 76
State Agency Catalog Number
Program Name
U.S. Social Security
Administration CFDA #96.001 Disability Determination Services
Topic Sentence
The Department lacks accountability over property, plant and equipment acquired
with federal funds.
Category
Internal Control/Compliance
Compliance Requirement
Equipment and Real Property Management
Criteria
As per OMB Circular A 102, every two years, at a minimum, a physical inventory
shall be conducted and the results shall be reconciled with property records
to verify the existence, current utilization, and continued need for the equipment.
Any discrepancies between quantities determined by the physical inspection with
those shown in the accounting records shall be investigated to determine the
causes of the differences. Property records shall be accurate. Property records
shall include the following for each item:
1. A description of the
equipment including manufacturer's serial numbers.
2. Identification number, such as the manufacturer's serial numbers.
3. Identification of the grant under which the recipient acquired the equipment.
4. The information needed to calculate the federal share of the cost of the
equipment.
5. Acquisition date and unit acquisition cost.
6. Location, use and condition of the equipment and the date the information
was obtained.
7. All pertinent information on the ultimate transfer, replacement, or disposal
of the equipment.
Condition Found
We noted that the Fiscal Office of DDS program has not completed the inventory
report for the fiscal year 2000 2001.
Known Questioned Costs
None
Underlying Cause
The Department does not maintain accurate records of acquisitions, physical
location and dispositions of property acquired with federal funds.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 76 (continued)
Effect
The Department is exposed to the risk of possible unauthorized use and disposition
of equipment due to the lack of internal controls and the lack of adequate property
and equipment records. The possible misappropriation of the equipment acquired
with federal funds could result in disallowed costs.
Recommendations
The Department's management should conduct periodic inventories and follow up
on inventory discrepancies. In addition, the Department's management should
review all dispositions of property to ascertain appropriate valuation and reimbursement
to federal awarding agencies.
Management's Response
In May 2002 an employee was appointed as the responsible for all property and
equipment of the program.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 77
State Agency Catalog Number
Program Name
U.S. Social Security
Administration CFDA #96.001 Disability Determination Services
Topic Sentence
The Department could not locate evidence to support disbursements related to
payroll charged to the program.
Category
Compliance/Internal Control
Compliance Requirement
Allowable Costs/Costs Principles
Criteria
As per OMB Circular A 102 Subpart C, Section 20 (2), grantees and sub grantees
must maintain records, which adequately identify the source and application
of funds provided for financially assisted activities. These records must contain
information pertaining to the grant or sub grant awards and authorizations,
obligations, unobligated balances, assets, liabilities, outlays or expenditures,
and income. Accounting records must be supported by such source documentation
as cancelled invoices, pre audited invoices, paid bills, payrolls, time and
attendance records, etc. Except as otherwise provided, records must be retained
for three years.
Condition Found
In testing the compliance of the allowable costs and cost principles, we examined
18 employee records and its related payroll information to evaluate the procedures
implemented to comply with the regulations of the Federal Programs and Internal
Control for the fiscal year ended June 30, 2001. We noted the following exceptions:
o Three cases did not have
a copy of the Social Security card in their files.
o Two cases did not have evidence of education in their files.
Known Questioned Costs
None
Underlying Cause
The Department's process for employee record retention is not effective.
Effect
The Department may have expended funds for unallowable activities, which could
result in disallowed costs by the federal awarding agency.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 77 (continued)
Recommendation
The Department should improve the process of record retention of documents required
for each employee that works for this program in order to ascertain that the
documents are retained for the time period required by applicable regulations
and the provisions of laws.
Management's Response
The Department acknowledged our finding and agreed with our recommendation.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 01
Accounting and Finance Department
Topic Sentence
The Department has significant deficiencies in its internal control structure,
accounting and financial management systems, budgetary controls and financial
reporting practices.
Category
Internal Control
Compliance Requirement
All applicable compliance requirements as stated in OMB Circular A 133.
Criteria
Auditees must prepare their financial statements in accordance with generally
accepted accounting principles (GAAP). OMB Circular A 133 section 310, states
that the auditee shall prepare financial statements that reflect its financial
position, results of operations or changes in net assets, and, where appropriate,
cash flows for the fiscal year audited.
GASB Codification section 1200, "Generally Accepted Accounting Principles and Legal Compliance," states that a governmental accounting system must make it possible, both: (a) to present fairly and with full disclosure the financial position and results of operations of the funds and account groups of the governmental unit in conformity with GAAP, and (b) to determine and demonstrate compliance with finance related legal and contractual provisions.
GASB Codification section 1300, "Fund Accounting", states that governmental accounting systems should be organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self balancing set of accounts to record cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.
GASB Codification Section 1900, states that governmental entities should prepare interim and year end financial statements and reports of financial position, operating results, and other pertinent information to facilitate management control of financial operations, legislative oversight, and for external reporting purposes.
OMB Circular A 102 Subpart
C, Section 20, states that a state must expend and account for grant funds in
accordance with state laws and procedures for expending and accounting for its
own funds. Fiscal control and accounting procedures of the state, as well as
its subgrantees and costtype contractors, must be sufficient to permit preparation
of reports required by this part and the statutes authorizing the grant, and
permit the tracing of funds to a level of expenditures adequate to establish
that such funds have not been used in violation of the restriction and prohibitions
of applicable statutes. The financial management systems must meet the following
standards:
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: O1 Ol (continued)
Criteria (continued)
Financial reporting: accurate, current, and complete disclosure of the financial
results of financially assisted activities must be made in accordance with the
financial reporting requirements of the grant or subgrant.
Accounting records: grantees and subgrantees must maintain records that adequately identify the source and application of funds provided for financially assisted activities. These records must contain information pertaining to grant or subgrant awards and authorizations, obligations, unobligated balances, assets, liabilities, outlays or expenditures, and income.
Internal control: effective control and accountability must be maintained for all grant and subgrant cash, real and personal property, and other assets. Grantees and subgrantees must adequately safeguard all such property and must assure that it is used solely for authorized purposes.
Budget control: actual expenditures or outlays must be compared with budgeted amounts for each grant or subgrant. Financial information must be related to performance or productivity data, including the development of unit cost information whenever appropriate or specifically required in the grant or subgrant agreement. If unit cost data are required, estimates based on available documentation will be accepted whenever possible.
Allowable cost: applicable OMB cost principles, agency program regulations, and the terms of grant and subgrant agreements will be followed in determining the reasonableness, allowability, and allocability of costs.
Source documentation: accounting records must be supported by such source documentation as canceled checks, paid bills, payrolls, time and attendance records, contract and subgrant award documents, etc.
Cash management: procedures for minimizing the time elapsing between the transfer of funds from the U.S. Treasury and disbursement by grantees and subgrantees must be followed whenever advance payment procedures are used. Grantees must establish reasonable procedures to ensure the receipt of reports on subgrantees' cash balances and cash disbursements in sufficient time to enable them to prepare complete and accurate cash transactions report to the awarding agency. When advances are made by letter of credit or electronic transfer of funds methods, the grantee must make drawdowns as close as possible to the time of making disbursements.
In addition to the above
requirements, the Department's internal control system must provide for reconciliation
of amounts reflected in control accounts with subsidiary records and the reconciliation
of transactions and balances between different departments and agencies.
Commonwealth of Puerto Rico Department of the Family Schedule of Findings and
Questioned Costs (continued)
Finding Number: 01 01 (continued)
Condition Found
The Department has an inadequate internal control structure and has not established
accounting policies, procedures, and financial reporting practices necessary
to conform to generally accepted accounting principles, (GAAP), as applicable
to governmental entities. Significant deficiencies noted are as follows:
There is a lack of an effective internal control structure to reasonably assure compliance with the requirements of federal laws, regulations and program compliance requirements. The Department has deficiencies in internal control such as the absence of sufficient level of control consciousness throughout all of the Department's separate administrative operations, the absence of an appropriate segregation of duties, the absence of appropriate management review and approval of transactions, accounting entries and financial and other reporting.
There are inadequate procedures for appropriately assessing and applying accounting principles, inadequate provisions for the safeguarding of assets, the absence of an accounting procedures manual and the absence of many controls considered appropriate for an entity of this size and type.
There is a lack of a self balancing set of accounts for each fund to record cash and other financial resources, together with the related liabilities, residual equities balances or fund balances, and any related changes therein. Accounts should be segregated in funds or subfunds for purposes of demonstrating the accountability of the Department while carrying on a specific activity or attaining certain objectives in accordance with special regulations, restrictions or limitations.
In addition to the general deficiencies mentioned in the preceding paragraph we found the following:
The Department did not furnish a financial statement line item budget for the Special Revenue Fund on a fiscal year basis coinciding with the Department's annual reporting period.
The Department does not reconcile federal grant revenues recorded in the Department's records, with the amounts disbursed by the Puerto Rico Treasury Department. The Treasury Department is the agency that makes all disbursements made by the Department of the Family.
Known Questioned Costs
None
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 01 (continued)
Underlying Cause
The Department's management has not adopted a policy of following accounting
principles generally accepted in the United States that are applicable to governmental
entities. In addition, management has not adopted and enforced internal control
policies and procedures over its accounting and financial management, budgetary
practices and financial reporting, and has not ensured that the Department is
in compliance with applicable laws, regulations and grant provisions.
Effect
The Department's ineffective internal control structure is conducive to many
deficiencies as described in the numerous findings contained in this report.
The continued existence of these deficiencies could result in significant cost
disallowances by the federal awarding agencies or ultimately; in the reduction
or elimination of federal awards received by the Department.
Recommendation
The Department should implement an internal control structure to provide reasonable
assurance that:
Transactions are properly recorded and accounted for to permit the preparation of reliable financial statements and federal reports, maintain accountability over assets; and demonstrate compliance with laws, regulations; and other compliance requirements
Transactions are executed in compliance with laws, regulations, and the provisions of contracts or grant agreements that could have a direct and material effect on a federal program.
Funds, property, and other assets are safeguarded against loss from unauthorized use or disposition.
The Department should also reorganize its accounting practices and policies to conform with GAAP. This will require a plan for the implementation of an accounting and financial management system that permits the preparation of financial statements in accordance with GAAP and of financial reports required by the different oversight entities. This plan should cover the operations of the central, regional, and district offices, consider the forthcoming changes and developments in the governmental accounting industry and their impact on the financial and operational practices of the Department, and demonstrate accountability over the federal programs and the related accounts receivable from the federal government.
In addition, the Department should be prepared to take the necessary steps for the successful future adoption of accounting developments such as statement No. 34 of the Government Accounting Standards Board.
Management's Response
The Department acknowledged our finding and agreed with our recommendation.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 02
Accounting and Finance Department
Topic Sentence
The Department does not have an effective filing system.
Category
Internal Control
Compliance Requirement
All applicable compliance requirements as stated in OMB Circular A 133.
Criteria
OMB Circular A 102, part C, Section 20 (a)(2) of the Uniform Administrative
Requirements for Grants Agreements to state and local governments establishes
that fiscal control and accounting procedures of the state must be sufficient
to permit the tracing of funds to a level of expenditures adequate to establish
that such funds have not been used in violation of the restriction and prohibitions
of applicable statutes.
Condition Found
During our audit, we noted that the procedures followed by personnel at the
Filing Division did not permit the timely retrieval of documents requested.
In addition, we observed that various payment documents processed by the different
federal program accountants and the personnel at the Payment Division are maintained
and filed at the divisions without an organized system. A substantial number
of documents requested in connection with the testing of compliance with laws,
regulations, grant requirements and testing of internal controls could not be
found.
Known Questioned Costs
None (Amounts identified are included in subsequent findings).
Underlying Cause
The Department has inadequate internal controls over record retention and the
filing of documents due to the lack of an overall control system that provides
guidance to the different agencies and divisions on the filing and retention
requirements of documents.
Effect
The Department cannot support many of the disbursements made and therefore is
unable to prove compliance with applicable laws and regulations. The continued
occurrence of this situation could result in disallowed costs by the federal
awarding agencies and the reduction or elimination of federal grant awards.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 02 (continued)
Recommendation
The Department's management should ascertain that adequate source documents
exist to support amounts and items reported as expenditures. The Department
should also establish a record retention system to ensure that accounting records
and documents are retained for the time period required by applicable requirements
and the provisions of laws, regulations, contracts or grant agreements applicable
to the program.
Management's Response
The Department acknowledged our finding and agreed with our recommendation.
Commonwealth of Puerto
Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 03
Accounting and Finance Department
Topic Sentence
The Department did not comply with the established due date for the submission
of the required Single Audit Report.
Category
Internal Control/Compliance
Compliance Requirement
All applicable compliance requirements as stated in OMB Circular A 133.
Criteria
OMB Circular A 133, Subpart C, Section 320 of the Uniform Administrative Requirements
for Grants Agreements to state and local governments establishes that all audits
shall be completed and submitted to the cognizant agency within the earlier
of 30 days after receipt of the auditor's report or nine (9) months after the
end of the audit period. However, for fiscal year beginning on or before June
30, 2000, it was submitted 13 months after the end of the audit period was permitted.
Condition Found
The Department does not have a program in place to comply with the deadlines
established by federal law for the submission of Single Audit reports. As a
result, the Department did not comply with the required submission date of the
Single Audit for the fiscal year ended June 30, 2001. The due date for this
report was no later than July 31, 2002. It should also be noted that the Single
Audit report for the fiscal year ended June 30, 2000 was submitted later than
the required due date established by federal regulations.
Known Questioned Costs
None
Underlying Cause
Due to the failure to ensure that adequate accounting records exist and that
the timely and accurate closing of books occurs, management did not comply with
the requirements established in OMB Circular A 133.
Effect
The Department could be exposed to a reduction or elimination of funding by
the federal awarding agencies.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 03 (continued)
Recommendation
The Department should establish aggressive monthly closing schedules and improve
its year end closing procedures to allow for the timely performance of the Single
Audit and enable the Department to comply with the reporting requirements established
by applicable regulations.
Management's Response
The Department acknowledged our finding and agreed with our recommendation.
Commonwealth of Puerto
Rico
Department of the Family
Schedule of Findings and
Questioned Costs (continued)
Finding Number: 01
05
State Agency Catalog Number Program Name
U.S. Department of
Agriculture CFDA #10.566 Nutrition Assistance Program for Puerto Rico
Topic Sentence
The Department has deficiencies in the execution of property management procedures.
Category
Internal Control/Compliance
Compliance Requirement
Equipment Management
Criteria
As per 7 CFR Part 3015, Subpart R, section 3015.169, property records shall
be accurately maintained. The records shall include, for each item of equipment,
a description of the equipment including manufacturer's serial numbers, identification
number, identification of the grant under which the recipient acquired the equipment,
the information needed to calculate the federal share of the equipment, the
acquisition date and unit acquisition cost, the location, use and condition
of the equipment and the date the information was reported and all pertinent
information on the ultimate transfer, replacement, or disposal of the equipment.
In addition, every two years, at a minimum, a physical inventory shall be conducted and the results shall be reconciled with the property records to verify the existence, current utilization, and continued need for the equipment. Any discrepancies between quantities determined by the physical inspection and those shown in the accounting records shall be investigated to determine the causes of the differences.
Condition Found
The Department does not perform a reconciliation of the physical inventory with
the accounting records. In addition, the following items are not specified in
the Department's property subsidiary ledger:
The percentage of federal
participation in the cost of the property
The grant under which the recipient acquired the equipment
All information on the ultimate transfer, replacement or disposal of the equipment
Total Nutritional Assistance Program for Puerto Rico's property and equipment additions for the fiscal year ended June 30, 2001 amounted to $42,088.
Known Questioned Costs
None
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 05 (continued)
Underlying Cause
The Department does not have procedures to maintain accurate records for acquisitions
and dispositions for property acquired with federal funds. Management does not
have knowledge of federal requirements regarding property acquired with federal
funds.
Effect
The Department is exposed to the risk of possible unauthorized use and disposition
of equipment due to the lack of internal controls and the lack of adequate property
and equipment records. The possible misappropriation of the equipment acquired
with federal funds could result in disallowed costs.
Recommendation
The Department must implement internal control procedures to ascertain that
the requirements of property acquired with federal funds are met. Management
and employees should receive trainings and written policies and procedures must
be prepared.
Management's Response
The Department acknowledged our finding and agreed with our recommendation.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding. Num. 01 07
State Agency Catalog Number Program Name
U.S. Department of The Emergency
Food Assistance Program
Agriculture CFDA #10.568 TEFAP
Topic Sentence
The Department disbursed federal funds before a signed contract.
Category
Internal Control/Compliance
Compliance Requirement
Allowable Costs/Costs Principles
Criteria
A 102 Common Rule and OMB Circular A 110 require than non Federal entities receiving
Federal awards establish and maintain internal control designed to reasonably
ensure compliance with Federal laws, regulations and program compliance requirements.
In addition, ultravires clause of the contract indicates that no service will
be rendered until the signing of the contract by both parts. This clause is
ruled by the Contract Granting Regulation for the Department of the Family.
Condition Found
We noted that the following contracts were signed after the beginning of a period
of effectiveness:
Program
Contribution Effective Questioned
Contract Number Amount Date Signed Date Costs
127 200120 $ 24,720.00
8/1/2000 9/29/2000 $ 24,720.00
127 200165 78,478.93 10/1/2000 11/3/2000 78,478.93
127 200117 800.00 7/18/2000 8/8/2000 62.50
127 200154 7,977.00 10/1/2000 10/20/2000 664.75
Total amount $111,975.93 $103,926.18
Known Questioned Costs
Questioned costs are included in Finding Number O1 08.
Underlying Cause
The Department's internal control for contract evaluation and authorization
is inadequate.
Effect
The Department may have expended funds for unallowable activities, which could
result in disallowed costs by federal awarding agency.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 07 (continued)
Recommendations
The Department should ascertain that adequate source documentation exist to
support the process for contracting goods and services. The Department should
also establish a system to ascertain that the contracts complied with requirements,
regulations and the provisions, of law and program requirements. No services
should be paid without a signed contract.
Management's Response
The Department acknowledged our finding and agreed with our recommendation.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 08
State Agency Catalog Number Program Name
U.S. Department of
Agriculture CFDA #10.568 The Emergency Food Assistance (TEFAP)
Topic Sentence
The Department could not locate evidence to support disbursements.
Category
Compliance/Internal Control
Compliance Requirement
Allowable Activities
Criteria
OMB Circular A 102, Subpart C, Section 20(2), grantees and sub grantees must
maintain records, which adequately identify the source and application of funds
provided for financially assisted activities. These records must contain information
pertaining to the grant or sub grant awards and authorizations, unobligated
balances, assets liabilities, outlays or expenditures and income. Accounting
records must be supported by such source documentation as cancelled invoices,
pre audit invoices, paid bills, payrolls, time and attendance records, etc.
Except as otherwise provided, records must be retained for three years.
A 102 Common Rule and OMB Circular A 110, require that non Federal entities receiving Federal awards establish and maintain internal control designed to reasonably ensure compliance with Federal laws, regulations and program compliance requirements.
Condition Found
During the testing of compliance with activities allowed for the program, we
verified 18 contracts granted for professional services, rent and goods and
services totaling $781,724.33, or 42% of the total award. The Department did
not provide us adequate supporting evidence as follow:
Attribute 1 2 3 4 5 6 7
8 9
Certification of Income Tax X
Submitted returns certification X X
Income Tax Withholding Waiver Document X X X X X
CRIM Certification
Labor Dept. Certification X X
Notarized Corporate Resolution X X X X X X X
Certificate of Incorporation oration X X X X
FSE Certification X X X X
Employer's Certification X X
Registered Signatures X X X X X
End of Year Closing Report X X X X X X
Public Responsibility Insurance X
Commonwealth of Puerto
Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 08 (continued)
Condition Found (continued)
Amount Paid as of
June 30, 2001 Contract Number Budget Amount
1 $ - 127-980045 $ 7,500.00
2 24,720 127-200120 24,720.00
3 444,135 127-200165 609,838.00
4 750 127-200117 800.00
5 4,017 122-000149 5,071.10
6 - 122-0100111 7,500.00
7 5,011 122-000148 5,010.71
8 10,751 122-0100157 22,500.00
9 642 122-0100114 720.00
$490,026 $683,659.81
Known Questioned Costs
$490,026
Underlying Cause
The Department's internal control of contract evaluation and authorization is
inadequate.
Effect
The Department may have expended funds for unallowable activities, which could
result in disallowed cost by federal awarding agency.
Recommendation
The Department should ascertain that adequate source documents exist to support
the process of contracting professional services, goods and services, etc. The
Department should also establish a record retention system to ascertain that
documents are retained for the time period required by applicable regulations
and the provisions of law, contracts or grant agreements of the program.
Management's Response
The Department acknowledged our finding and agreed with our recommendation.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 14
State Agency Catalog Number Program Name
U.S. Department of
Agriculture CFDA #10.568 The Emergency Food Assistance (TEFAP)
Topic Sentence
The Department filed Financial Status Reports that do not agree with the General
Ledger.
Category
Compliance/Internal Control
Compliance Requirement
Reporting
Criteria
As per 7 CFR Section 251.10 (d)(1) standard for financial management systems
related to internal control, effective control and accountability must be maintained
for all grants and subgrants cash, real property and other assets, and accurate
and complete disclosure of the financial results of financially assisted activities
must be made in accordance with the financial reporting requirements of the
grants and sub grants.
Condition Found
We could not agree the amounts of disbursements in the General Ledger to the
Federal Financial. Status Report. The differences presented between those reports
are as follows:
Quarterly
Ending General
Ledger Financial Status
Report Financial Status
Report Over/(Under)
9-30-2000 $ - $ 395,932.61 $395,932.12
12-31-200 68,870 65,572.88 (3,297.12)
3-31-2001 586,889 575,806.03 (11,082.97)
6-30-2001 - 339,149.69 339,149.69
Total $655,759 $1,376,461.21 $720,701.72
Known Questioned Costs
$720,701
Underlying Cause
There is inadequate control over the information used to prepare federal reports,
no personnel has been assigned to verify the accuracy and completeness of the
data and reconcile the data in the federal reports with the data in the accounting
department.
Effect
Inaccurate reporting performance prevents the federal awarding agency from monitoring
of the program's financial activities, assessing the achievements of the program
and evaluating the grant award for the following year and could result in questioned
costs.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 14 (continued)
Recommendation
The Department should conduct reviews of the Financial Status Report prior to
filing by comparing amounts to supporting records to ascertain accurate reporting
of award activities to the awarding agency. Periodic reconciliations should
be performed by the Federal Reports Department and the Accounting Department.
Differences should be analyzed and resolved.
Management's Response
The Department acknowledged our finding and agreed with our recommendation.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 27
State Agency Catalog Number Program Name
Federal Emergency
Management Agency CFDA #83.543 Individual and Family Grants
Topic Sentence
The Department had delays in the time elapsed between the transfer of federal
funds and the disbursements of the funds.
Category
Compliance/Internal Control
Compliance Requirement
Cash Management
Criteria
31 CFR 205.6 establishes that the Pre issuance funding is a method of transferring
Federal funds to the State prior to the date the State issues checks or initiates
payments. When this funding technique is applied, a state will incur an interest
liability to the Federal Government from the day the Federal funds are credited
to a state account to the day the State pays out the funds for programs purposes.
A State shall request funds not more than three days prior to the day on which
it makes a disbursement, and a Federal agency shall deposit funds in a State
account the next business day after receiving a request for funds.
Condition Found
In testing compliance with cash management, we reviewed the report of disbursements
to beneficiaries of the program and the procedures implemented to minimize the
time elapsed between the transfer of Federal Funds and the pay out of funds
for program purposes. During our testing, we noted the following:
Each request for funding was made while the fund account in the Treasury Department still had a remaining balance. The use of the funds requested begins at least a week after the request for funds. In some instances the time elapsed for using the requested funds was more than two weeks.
The Request for Funds for Federal Award 1372 was made through Smartlink and no hard copies were available.
The State has made excess draw down in the amount of $1,126,275 that needed to be returned to FEMA within 30 days, from December 20, 2001. Nonetheless, the balance of the account 222 1270000 FEMA1372DRPR 081 2001 E000 at January 24, 2002 is $377,504 for a difference of $749,071. There's no evidence of the use of the difference of the remaining balance as of January 24, 2002.
Known Questioned Costs
$1,126,275
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 27 (continued)
Underlying Cause
The Department requested funds more than three days prior to the day on which
it makes a disbursement and also request funds for unallowable activities not
related to the IFG program.
Effect
The Department may incur in an interest liability to the Federal Government
from the day the Federal funds are credited to a state account to the day the
State pays out the funds for programs purposes. Excess funds must be returned
immediately.
Recommendation
The Department should ascertain that adequate source documents exist to support
the cash management of federal funds. Procedures should be established to ascertain
that the time elapsed between the receipt and use of funds is minimal. The Department
should also establish a record retention system to ascertain the compliance
with the time period required by applicable regulations and the provisions of
laws, contracts or grant agreements of the program. The state must conduct periodic
monitoring to avoid these situations.
Management's Response
The Department acknowledged our finding and agreed with our recommendation. The amounts questioned were subsequently returned to the federal government as follows:
Amount Returned Check Number
Check Date
$1,000,000.00 00743396 March 1, 2002
164,254.75 00763974 April 9, 2002
$1,164,254.75
Commonwealth of Puerto
Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 91
State Agency Catalog Number Program Name
U.S. Department of Health
and Human Services CFDA #93.600 Head Start Program
Topic Sentence
The Department does not have a cost allocation approved.
Category
Compliance
Compliance requirement
Allowable Costs/Costs Principles
Criteria
Subpart C of the Code of Federal Regulations Number 45 CFR 74.27 states that
grantees should follow costs principles under the requirements of OMB Circular
A 133. This Circular requires formal plan of allocation of costs to support
the distribution of any joint costs related to the grant program. The DHHS is
responsible for the negotiation and approval of the cost allocation plan prepared
by state agencies.
Condition Found
The Department does not have an approved Cost Allocation Plan from the Federal
Cognizant Agency for the Program year 2000 2001 to cover indirect costs for
the amount of $1,485,903 and was not included in the Financial Assistance Award
approved. The DHHS has requested this Plan updated on prior periods. The Department
presented, subsequent to the date of the accompanying financial statements,
a Plan for the federal agency's consideration.
In addition, the Department paid the amount of $685,163 to the Department of the Family to cover indirect costs. However, we reviewed the approved Head Start Program's proposal for program year 2000 2001 and this activity of indirect cost was not included in the Proposal. According to the Indirect Cost Agreement dated May 17, 2001, it is established that "if any federal contract, grant or other agreement is reimbursement indirect cost by a means other than the approved rate(s) in this agreement, the organization should (1) credit such costs to the affected programs, and (2) apply the approved rate(s) to the appropriate base to identify the proper amount of indirect costs allocable to these program." We did not find evidence that the Department followed this federal requirement.
Known Questioned Costs
$2,171,066
Underlying Cause
The Department failed to submit and have an approved Cost Allocation Plan for
the current Program Year, as required by Subpart C of the Code of Federal Regulations
Number 45 CFR 74.27 and follow the federal requirement of the agreement.
Commonwealth of Puerto Rico
Department of the Family
Schedule of Findings and Questioned Costs (continued)
Finding Number: 01 91 (continued)
Effect
The Department's Cost Allocation Plan was not approved for the Program year
00 01 and charges for indirect costs to the Program are not in compliance with
the requirement of the DHHS and agreement dated May 17, 2001.
Recommendation
We recommend the Department to obtain as soon as possible the approval of its
Cost Allocation Plan, to be in compliance with Federal Regulations and follow
the federal requirement of the agreement.
Management's Response
The Department agrees with this finding. A Corrective Action Plan will be prepared.
Overview of the Office of the Inspector General
Office of Audit
The Office of Audit (OA) conducts comprehensive financial and performance audits
of the Social Security Administration's (SSA) programs and makes recommendations
to ensure that program objectives are achieved effectively and efficiently.
Financial audits, required by the Chief Financial Officers' Act of 1990, assess
whether SSA's financial statements fairly present the Agency's financial position,
results of operations and cash flow. Performance audits review the economy,
efficiency and effectiveness of SSA's programs. OA also conducts short-term
management and program evaluations focused on issues of concern to SSA, Congress
and the general public. Evaluations often focus on identifying and recommending
ways to prevent and minimize program fraud and inefficiency, rather than detecting
problems after they occur.
Office of Executive Operations
The Office of Executive Operations (OEO) supports the Office of the Inspector
General (OIG) by providing information resource management; systems security;
and the coordination of budget, procurement, telecommunications, facilities
and equipment, and human resources. In addition, this office is the focal point
for the OIG's strategic planning function and the development and implementation
of performance measures required by the Government Performance and Results Act.
OEO is also responsible for performing internal reviews to ensure that OIG offices
nationwide hold themselves to the same rigorous standards that we expect from
SSA, as well as conducting investigations of OIG employees, when necessary.
Finally, OEO administers OIG's public affairs, media, and interagency activities,
coordinates responses to Congressional requests for information, and also communicates
OIG's planned and current activities and their results to the Commissioner and
Congress.
Office of Investigations
The Office of Investigations (OI) conducts and coordinates investigative activity
related to fraud, waste, abuse, and mismanagement of SSA programs and operations.
This includes wrongdoing by applicants, beneficiaries, contractors, physicians,
interpreters, representative payees, third parties, and by SSA employees in
the performance of their duties. OI also conducts joint investigations with
other Federal, State, and local law enforcement agencies.
Counsel to the Inspector General
The Counsel to the Inspector General provides legal advice and counsel to the
Inspector General on various matters, including: 1) statutes, regulations, legislation,
and policy directives governing the administration of SSA's programs; 2) investigative
procedures and techniques; and 3) legal implications and conclusions to be drawn
from audit and investigative material produced by the OIG. The Counsel's office
also administers the civil monetary penalty program.