The Office of the Comptroller of Puerto Rico issued an adverse opinion on the fiscal operations of the Municipality of Arecibo. The tests performed and the evidence demonstrate that the operations related to the purchase of goods and services, the payment of debts to government agencies and to the medical plan provider, and the measures taken in response to the fiscal situation, among others, were not carried out in all significant respects, in accordance with applicable law and regulations.
The Report reveals that from 2016 to 2019, the Municipality overestimated municipal revenues from licenses, fines, taxes and local income by up to 30%. In addition, from 2015 to 2017, it incurred accumulated deficits of up to 33%. In the 2018 budget, the Municipality did not appropriate the credits necessary to liquidate the current deficit of $5,561,204 established in the 2016 audited financial statements.
These situations contrary to current law and regulations contributed to the budget deficit, to reducing available resources, and to the accumulation and worsening of the Municipality's economic situation. In addition, the finance directors did not efficiently manage the Municipality's finances, did not consider the income certified in the audited financial statements nor the Regulation for Municipal Administration of 2016.
The five-finding audit points out that, as of 2019, the Municipality owed a total of $15,472,272 to the Retirement System, the Aqueduct and Sewer Authority, the Department of Treasury, the Electric Power Authority, the Department of Labor and the municipal employees' Medical Plan. In addition, the Municipality paid $90,181 to the Internal Revenue Service for penalties and interest for delays in the remittances of Federal Social Security contributions. These situations affect the resources of the referenced entities and worsen the Municipality's fiscal situation.
The Municipality had $7,978,189 in municipal license accounts receivable as of July 31, 2019. The auditors identified that accounts receivable more than five years old had not been reviewed to declare them uncollectible, and collection efforts for debts such as those for the lease of the three municipal parking lots had not been pursued. These deficiencies cause accounts to become uncollectible and resources to be lacking to meet budgeted obligations.
The Municipality departed from the legal and regulatory provision to obtain the required quotes in the purchase of 12 units of heavy equipment in February 2019 for $498,391 in the state of Florida. In addition, for the purchase of six units of heavy equipment in February 2018 for $235,830, the funds were not obligated until 128 days after the purchase was invoiced.
The Office of the Comptroller's auditors identified contracts that were not registered or were submitted late to the Office of the Comptroller, and delays of up to 14 months in awarding contracts to perform the audits of the financial statements.
The Report comments that the municipal inspector issued a report on August 15, 2019, regarding three transfers of funds totaling $3,600 from the Subsidized Rent Program (Section 8) to an unauthorized bank account of a Municipality clerk, who was suspended from her position in 2019. The Municipality referred this situation to the Department of Justice, the Department of Housing and the Office of the Comptroller.
The Office of the Comptroller's auditors also detected another 13 transfers of Section 8 funds totaling $11,620 that were transferred to an unauthorized bank account. This situation was referred to the Office of the Inspector General of the Federal Department of Housing and Urban Development (HUD) on October 7, 2020.
The audited financial statements from 2015 to 2017 were issued with disclaimers and qualified opinions. These opinions correspond, among others, to the lack of adequate financial documentation or to the Municipality not providing a capital asset subsidiary ledger consistent with the amounts included in the governmental activities of the financial statements.
As of July 31, 2019, the Municipality had 13 civil lawsuits for $3,466,308 pending resolution in the courts. In addition, the Municipality has not addressed collection recommendations for $293,653 from previous audit reports.
This second and final Arecibo report covers the period from July 1, 2015 to December 31, 2019.
See Audit Report M-22-09.
To see other published reports, visit our Audit Reports section.
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