The Office of the Comptroller of Puerto Rico issued a qualified opinion on the fiscal operations related to the contracts, the disbursements, and the property of the Municipality of San Juan. A qualified opinion is issued when the instances of noncompliance, individually or in the aggregate, are significant but not pervasive.
The Report reveals that the Municipality paid $218,700 to a consultant to administer the claims to the Municipality's Self-Insurance, without evidence of the work plan required in the contract. In addition, the contract with said consultant for $739,000 in 2014 did not include a breakdown of the fees for each service nor did it establish a minimum of required services, contrary to Act 81-1991 on Autonomous Municipalities.
The three-finding audit points out that the Municipality paid $26,334 in excess to a consultant for advisory work on municipal revenue collections. Another consultant performed appraisal work not authorized by the director of Legal Affairs as provided by the contract, and several contractors for the maintenance of schools did not detail, on their invoices, the service locations, the work dates, or the names of their employees.
The auditors found that the Municipality made 153 payments for $6,799,300, without the disbursement vouchers. The personnel of the Audit Unit did not evaluate the documents that justified the payments. Of these, 93.8% corresponds to the administration of the mayor and 6.2% to the former mayor. This situation makes it possible for irregularities to be committed in the disbursements.
The Municipality formalized with a corporation in 2010 two contracts for the purchase and sale of an industrial park in the Quebrada Arenas Ward in Río Piedras for $55,000,000. On the same date, the Municipality signed a contract to lease a space to said corporation for 10 years, for $23,896,950. This corporation had pleaded guilty in the United States District Court for the District of Puerto Rico in 2007, on two federal charges, for making false statements to the US Environmental Protection Agency and to the Environmental Quality Board of Puerto Rico.
The audit found that the Municipality did not require the corporation to present the sworn statement required by Act 458-2000 which must establish that the corporation has not been convicted nor has pleaded guilty to crimes against public integrity. The Municipality also did not comply with what is required in Act 84-2002 which provides that every contract must include a resolution clause in case the person who contracts with the executive agencies is convicted, in the state or federal jurisdiction, of any of the established crimes. These contracts could be void and the Municipality would have to recover the $55,000,000 disbursed in the purchase and sale of the industrial park.
The Report comments with respect to this transaction that the Municipal Legislature did not have the complete information when evaluating the issuance of debt through revenue bonds for the acquisition of the property. The then-director of Management and Budget presented a 25-year amortization table without including the operating expenses, the utilities, or the maintenance of the facilities (see photos in Annex 2 of the Report).
In addition, from 2010 to 2016, the rental income did not cover even 50% of the principal and interest payments, the operation had a revenue deficiency of $10,065,938, and the corporation had not paid the Municipality even a third of the rent payments. In fact, the Municipality filed two lawsuits for collection of money and eviction in 2015, which as of March 21, 2019, were pending resolution by the Court.
Contrary to legality, the Municipality formalized in 2013 a contract for $53,880 for improvements to the storm sewer system, with a special partnership in which one of its partners had pleaded guilty to bribery in Federal Court.
The audit also comments that a company contracted to administer the Self-Insurance Program made 152 payments for $236,855, for the payment of claims without the pre-audit and evaluation of the Municipality to determine their reasonableness and legality. The Municipality also did not perform the pre-audit on 16 payments for $975,441 that the company made in its own favor.
The Report recommends that the Office of Management and Budget ensure that the Municipality complies with the Corrective Action Plan established by the Office of the Comptroller of Puerto Rico.
This fourth report on San Juan covers the period from January 1, 2012, to June 30, 2017.
See Audit Report M-21-26.
To see other published reports, visit our Audit Reports section.
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