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Audit reveals deficiencies in the administration of investments, contracting and internal controls of the Corporation

San Juan, Puerto Rico (August 4, 2026) — The Comptroller of Puerto Rico, CPA and Attorney Carmen Vega Fournier, reported today the results of a compliance audit of the State Insurance Fund Corporation (CFSE), during the period from July 1, 2018 to June 30, 2024.  This Report reflects an adverse opinion containing five findings resulting from the examination we performed of the audit objectives; three findings on other matters identified and two special comments.

The audit determined that the Governing Board and management authorized two investments totaling $80 million in private equity funds that were not compatible with the types of investments permitted by Act No. 45 of 1935. In addition, a lack of sufficient analysis was identified regarding risks, the liquidity of the funds and possible conflicts related to the investment advisor.

The Corporation did not present evidence that the Board's Finance Committee had previously evaluated and recommended five investments totaling $160 million, as established by internal procedures. Private funds valued at more than $137 million with zero or negative returns were also identified, with no evidence of corrective action by the Board.

The auditors detected multiple irregularities in the contracting of and payments to investment advisors. Among them, the hiring of an advisor that was not registered with the United States Securities and Exchange Commission (SEC), even though this was a requirement. In addition, the Corporation made improper payments of $14,072 to that advisor without a contract in effect. Contracts formalized without all the required documentation and invoices paid without the certifications, service descriptions or statements of absence of conflict of interest required by law and by internal regulations were also identified.

Significant deficiencies were found in the administration of the CFSE's investment contracts. It was detected that 14 investments with a value of nearly $999 million were made without contracts formalized with the fund managers. In addition, 16 contracts related to active investments, valued at more than $737 million, remained expired at the time of the audit, some for more than seven years, reflecting deficiencies in controls and in compliance with the applicable regulations.

Deficiencies were identified in the Corporation's accounting records upon detecting that transactions related to several investments were not recorded in a timely manner. The omissions include interest receivable of $6.8 million, a loss of $740,606, a capital contribution of $883,248 and a gain of $1.48 million, which affected the accuracy of the entity's financial information.

The Comptroller noted in the Report that the Corporation had not designated a public documents administrator, as required by the regulations in effect. This function is essential to guarantee the proper administration, preservation and handling of the entity's official documents.

It also revealed delays in the contracting of the external auditors responsible for certifying the Corporation's financial statements. The contracts for fiscal years 2019-20 through 2022-23 were formalized outside the term established by law, with delays of between 136 and 450 days.

In addition, deficiencies were identified in the handling of the minutes of the Governing Board meetings. The Corporation was unable to provide 29 sets of minutes corresponding to meetings held between 2019 and 2023, even though the minutes must document the decisions made by the Board and form part of the entity's administrative controls.

As a special comment, the Comptroller noted that the CFSE had not corrected deficiencies previously identified by the external auditors during fiscal years 2018-19 through 2023-24. Among the recurring situations are delays in accounting closings, financial records not maintained in a timely manner and accounting adjustments made after delivering the information to the auditors, which required additional reviews to validate the financial information.

Separately, the audit identified that the Corporation had not submitted to the Financial Oversight and Management Board (FOMB) for prior review and approval 19 investment contracts with a total value of $780 million, as required by the applicable policy for contracts of $10 million or more. The investments were made between 2019 and 2025 without completing the review process established by the FOMB.

Audit Report OC-27-13 is available at www.ocpr.gov.pr.