The Office of the Comptroller of Puerto Rico issued a qualified opinion on the fiscal operations of the Children's Trust. A qualified opinion is issued when the instances of noncompliance, individually or in the aggregate, are significant but not pervasive.
The audit publishes two special comments on the Trust's compliance with Act 173-199, Children's Trust. A special comment does not necessarily imply violations of law, but it is significant to the operations of the audited entity.
The Report reveals that the Children's Trust has not fulfilled the primary purpose of the 1998 Master Settlement Agreement (Agreement) with the tobacco industry. The amendments to Act 173-199, Children's Trust, do not fulfill the purpose of creating remedies to halt advertising and marketing by the tobacco industry directed at children and youth. In addition, these amendments enacted in Act 450-2000, Act 6-2002 and Act 103-2002 do not address the purpose of reimbursing the money incurred in the treatment of diseases and conditions caused by tobacco use.
According to the financial statements from 2016 to 2021, 100% of the Agreement's income was used to pay debt service. The decline in income received under the Agreement, which guarantees debt repayment, may lead to default and require new debt to be issued or existing debt to be refinanced. In addition, having the income committed since 2016 does not allow for the development of educational initiatives on the harmful effects of tobacco on the health of youth and children.
Furthermore, since 2016 the Trust has not issued requests for proposals to entities, nor has it approved new assistance projects. In 2020, it opened a request-for-qualifications process that has not been completed.
The audit comments that the Trust had accumulated deficits of $22,682,973 in the financial statements from 2016 to 2021. This situation may result in failure to meet the obligations incurred.
The Trust was created to administer the funds derived from the lawsuit filed by the Government of Puerto Rico against the tobacco industry. The Trust is funded in perpetuity by the funds of the 1998 Master Settlement Agreement (Agreement), which provides, among other things, for the cessation of commercial practices and an educational campaign on the harms of cigarettes. The Trust's report covers the period from January 1, 2015 to December 31, 2021.
See Audit Report CP-23-03.
To see other published reports, visit our Audit Reports section.
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