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In a report with an adverse opinion, the Comptroller reveals that Mayagüez failed to collect $1.2 million in loans granted for housing projects that were never carried out

The Office of the Comptroller of Puerto Rico (OCPR) issued an adverse opinion on the fiscal operations of the Municipality of Mayagüez. The tests performed and the evidence revealed that the operations related to the Loan Program were not carried out in accordance with applicable law and regulations.

The Report reveals that the Municipality did not collect $1.2 million from five loans granted from 2003 to 2010 to five companies under the Community and Economic Development Program for housing projects that, moreover, were never carried out. This Program, created in 1998, is funded by federal funds and grants loans and donations to channel incentives, stimulate the social rehabilitation of low- and middle-income sectors, and promote employment and development of the Municipality.

This situation is attributed to the fact that the then mayor did not fulfill his responsibility to recover the loans granted. If the municipal manager of Housing and Federal Programs had carried out the inspections of the projects, he would have realized the nonexistence of the housing. Because of these actions, the crime of negligence in duty and embezzlement of public funds could have been configured.

This finding was referred to the Secretary of Justice and to the US Department of Housing and Urban Development on January 16, 2025, so that they may evaluate the situations and take the corresponding actions.

In the loans granted, multiple control deficiencies were also identified, such as errors in interest percentages, contracts without expiration dates, loans without the permits to develop the project, and a $25,000 donation to a contractor to begin a project, who had an overdue debt with the Municipality.

The seven-finding audit notes that a former municipal official may have incurred a conflict of interest since his company, of which he was director and which he incorporated in 2002, obtained a $150,000 loan from the Program in 2005. This former official, while director of Housing and Federal Programs from 2000 to 2002, took steps to benefit from the loan.

This situation, contrary to the Government Ethics Act and the Code of Federal Regulations, was referred to the Secretary of Justice and to the Office of Government Ethics on January 16, 2025 for its evaluation and corresponding action.

From the examination of payments for debris removal, payments in excess of what was contracted for $9,308 were identified, and from the contracting of sound and lighting services, payments in excess of $11,400. In addition, the Municipality paid $29,267 for professional consulting services whose invoices were not approved by the municipal officials with knowledge of the services rendered.

In contravention of the 2011 Internal Revenue Code, the Municipality of Mayagüez did not withhold $8,590 in contributions from two contractors for professional services. In this regard, the Municipality may be subject to penalties for noncompliance with the provisions of the Code. 

The Report reveals that the then mayor of Mayagüez did not submit to the consideration of the Municipal Legislature the agreement to pay $40,000 to a municipal employee who won a lawsuit against the Municipality for unjustified dismissal. In this regard, the Legislature could not pass judgment on the reasonableness of the amount paid in the agreement.

The audit comments on possible violations of the Notarial Regulation and the Code of Professional Ethics by an advisor contracted by the Municipality who in 2003 acted as authorizing notary of one of the loans examined in the findings, and in 2019, representing the Municipality, sent a collection letter to one of the representatives. This situation was referred to the Chief Justice of the Supreme Court on January 16, 2025, since an authorizing notary is barred from subsequently acting as attorney for one of the granting parties to demand a counter-payment.

The Municipal Legislature authorized the mayor to settle a lawsuit for $90,000, filed by an employee in 2018. The employee had sued for persecution, harassment, political discrimination, violation of civil rights and unjustified dismissal. The Federal Court rendered judgment in accordance with the agreement in 2022.

As of December 31, 2022, 17 civil lawsuits claiming $31.4 million for damages, collection of money, and violation of civil rights, among others, were pending resolution by the courts.

Mayagüez's budget totaled $69.1 million for 2018, $61.5 million for 2019, $54.5 million for 2020, $58.4 million for 2021, $61.6 million for 2022, and $55.2 for 2023. The audited financial statements reflected accumulated deficits of $25.7 million in 2018, $22 million in 2019, $24.2 million in 2020, $14.4 million in 2021, and $1.4 million in 2022.

The Report recommends that the director of the Office of Management and Budget ensure that the Municipality of Mayagüez complies with the Corrective Action Plan established by the OCPR.

This third report on Mayagüez covers the period from July 1, 2017 to December 31, 2022.

Audit Report OC-25-94 is available on our website: www.ocpr.gov.pr.