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Comptroller reveals that the Municipality of Guánica did not collect $46 thousand in construction excise taxes nor remit $20 thousand in withholdings to the Department of the Treasury

The Office of the Comptroller of Puerto Rico (OCPR) issued a qualified opinion on the fiscal operations of the Municipality of Guánica. A qualified opinion is issued when the noncompliances, individually or together, are significant but not pervasive.

The Report reveals that the Municipality of Guánica did not collect the 5% excise tax from 80% of the construction projects, nor did it withhold this amount in the payments made to contractors for improvements to the city hall building, the demolition of homes affected by the earthquakes, or for the installation of pigeon control nets in several courts, among others.

Of the five construction, demolition and permanent improvement projects examined, the Municipality did not require four of them to pay $45,849 in excise taxes for the works contracted for $1.1 million between 2020 and 2023.

In addition, the project files lacked documents required by law such as: the bond to guarantee the payment of labor (payment bond), the bond for the fulfillment of the contract (performance bond), or the evidence of public liability policy.

These deficiencies leave the Municipality without a guarantee, in case of noncompliance, and hinder the oversight function.

The audit, with six findings, notes that the Municipality did not appropriate $79,761 in the budgets from 2019 to 2021 for the payment of a judgment for the collection of money from a hardware store, agreed upon by judgment of the Court of First Instance on April 18, 2017. This lack of control also caused the payment of $7,000 in penalties.

As of April 10, 2024, the Municipality did not have the audited financial statements for fiscal years 2021, 2022 and 2023. This situation does not allow for updated and reliable financial information for decision-making. In addition, it may cause the allocations of federal funds to the Municipality to be affected.

The auditors detected that the Municipality withheld $22,316 from two contractors for engineering work that it did not remit to the Department of the Treasury. A similar situation had been published in the Audit Report M-22-22 of 2022. For this noncompliance the Municipality is exposed to having to pay interest, penalties and surcharges.

The Municipality of Guánica lacks a centralized purchasing unit. For example, the informal bids for construction and improvement works were not submitted to the Purchasing Unit but to a committee appointed by the mayor that evaluated the quotations and awarded the works. In fact, in violation of the Municipal Code of 2020, that committee lacked regulations.

The OCPR was unable to verify in all its details the correctness and propriety of the disbursement of eight canceled checks for $278,488, 19 canceled checks for $84,000, nor of 31 canceled checks for $39,000. After the earthquakes, the documents were sent to the Pedro Juan Vargas Museum, but they were not organized adequately. The directors of finance in office did not maintain adequate custody of the documents.

The Report comments that the Municipality settled a lawsuit for more than $1 million, for the cancellation of a contract without arbitration in 2015, with a solid waste, debris and recycling collection company. The Municipality makes this disbursement without receiving any benefit.

For the unjustified dismissal of a municipal police officer in 2011, the Municipality had to pay him $73,540 in salaries, bonuses and vacation leaves not earned without receiving any service. In addition, as of September 12, 2023, seven lawsuits for $31.8 million were pending resolution by the courts.

From fiscal years 2019 to 2023, Guánica has had a budget of $7.8 million, $6.4 million, $5.1 million, and $7.3 million respectively. The audited financial statements from 2019 to 2021 reflected accumulated deficits of $6.5 million, $3.8 million and $3.5 million respectively.

The Municipality had accumulated deficits in the Operational Fund of 49% in 2020 and 54% in 2021. This is attributed to the overestimation of revenue, the inadequate use of municipal license tax revenue to cover operational expenses and the absence of an accounting system, among others.

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 second report covers the period from September 1, 2019 to July 31, 2023.

The Audit Report OC-25-75 can be obtained on our website: www.ocpr.gov.pr.