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Audit detects possible penal code violations and a collusion scheme among suppliers of the Municipality of Las Piedras

The Office of the Comptroller of Puerto Rico (OCPR) issued an adverse opinion on the fiscal operations of the Municipality of Las Piedras. The tests performed and the evidence revealed that the operations of the Purchasing and Supplies Office, with respect to the purchasing process for truck rental, were not carried out in accordance with applicable law and regulations.

The Report reveals that the former director and the interim director of Purchasing and Supplies of the Municipality of Las Piedras recurrently failed to comply with the established process for requesting and processing quotations. In violation of current law, these officials requested the service of truck rental, wagon rental, and crane services from suppliers and companies that maintained a possible collusion scheme.

From the examination performed of 36 purchase orders for $352,085 issued to supplier A, and four purchase orders for $10,085 issued to supplier B, the officials considered 108 quotations from suppliers A and B, and from companies C, D, E, and F. Company C had been revoked by the Department of State since 2014, and of company D no record whatsoever was found, nor did it include in the quotations the full name of the representative but rather a nickname.

These situations were referred to the Office of Government Ethics of Puerto Rico (OEGPR), and to the Department of Justice, on February 9, 2023. Through these actions, the crime of negligence in the performance of duty, typified in the Penal Code of Puerto Rico, could have been constituted.

The six-finding audit notes that the suppliers that competed in the awarding of the services are associated with one another, organized in a commercial or corporate manner with the objective of bidding in a concerted manner and bypassing the principle of fair competition and transparency (see diagrams in the Report).

For example, the Municipality paid $342,000 to supplier A, who is the son of the president of company C and treasurer of company C. In the process of awarding the purchases, the officials considered 32 quotations from company C, revoked by the Department of State. In this payment, 32 quotations were also considered from company D, nonexistent in the State records.

The Municipality paid $123,372 to supplier B for purchases in which quotations from supplier A and from company C were considered. In addition, they paid $4,700 to supplier B, in which a quotation from company E was considered. Supplier B and company E share the same president, the same incorporator, the same incorporating agent, and identical postal and physical addresses.

These situations were referred to the Department of Justice and to the Office of Monopolistic Affairs on February 9, 2023, so that they take the corresponding action.

The audit report notes that a municipal official of Las Piedras formalized heavy equipment rental contracts with the one identified as Other company for $1,853,024 whose vice president was his son-in-law. The same official also formalized two amendments for $120,000 with company G which also belongs to his son-in-law. A subordinate of this official was the one who formalized the four contracts for these crane and towing services for $253,500.

To formalize these contracts, the official should have notified the OEGPR and recused himself. These situations were referred on October 6, 2022, and on June 4, 2024, the OEGPR reported that it would not be presenting any administrative cause of action.

Despite the contracts formalized from 2019 to 2021 for $4,592,000 for the collection and disposal of debris and solid waste, the Municipality of Las Piedras formalized 28 purchase orders with two additional suppliers and used its own trucks for this service, which was the responsibility of the contracted company. This does not constitute a good public administration practice.

In addition, the four trucks used by the contractor to deposit garbage and debris in the Humacao landfill system were not authorized by the Department of Natural Resources nor by the Transportation Bureau. This situation was referred on August 22, 2023, to Natural Resources and to the Transportation Bureau, so that they take the measures they deem appropriate.

As of December 31, 2021, the Monthly Report of Income and Disbursements reflected economic resources of $36,924 in three funds that had remained inactive for up to five years. In addition, the Municipality has not made timely collection efforts to recover a debt of $111,327 for the rental of 63 acres of land.

The audit also notes that the Municipality improperly used the funds from the income of the business license taxes paid in advance for fiscal years 2018 to 2022. $11,365,197 was spent for operational expenses in fiscal years 2017 to 2021 without having sufficient funds for their payment.

The Municipality of Las Piedras has accumulated deficits in the Operational Fund of $2,047,175 in 2019, $2,571,026 in 2020, and $2,708,532 for 2021. In addition, it did not include in the 2022 budget the funds to cover the deficit determined in 2020 of $523,751.

In fact, the Municipality's General Fund budget was $12,562,776, $13,794,415, $11,983,571, and $13,459,082 from 2019 to 2022, respectively.

The Municipality signed an Agreement and Payment Plan for $6,893,48, in 2021 to settle a 2014 lawsuit for breach of contract with a solid waste management company. In addition, it signed another Payment Agreement with the Municipality of Juncos to pay a debt of $1,668,467 for the disposal of solid waste in the landfill.

In addition to the referrals indicated above, the Report recommends that the director of the Office of Management and Budget ensure that the Municipality complies with the Corrective Action Plan established by the OCPR.

This report covers the period from February 1, 2019, to December 31, 2021. The Audit Report OC-24-61 can be obtained on our website: www.ocpr.gov.pr.