Saturday, April 10, 2021

Puerto Rico Treasury Assures Commonwealth is Getting its Financial Act Together

By on March 4, 2021

The Puerto Rico Treasury Department in San Juan (ESM/CB)

Works to Create CFO Entity, Expedite Overdue Audits Despite Lack of Personnel, Secretary Says 

SAN JUAN – Puerto Rico’s Treasury secretary and chief financial officer (CFO), Francisco Parés Alicea, assured on Wednesday that his agency is working on Gov. Pedro Pierluisi’s pledge to create a commonwealth office of the CFO and speed up completion of overdue commonwealth comprehensive annual financial reports (CAFRs).  

During the 25th public meeting of Puerto Rico’s Financial Oversight and Management Board (FOMB) last Friday, Gov. Pierluisi said he would be issuing “a revised executive order creating the office of the CFO in the near future.” The governor said he would follow the oversight board’s recommendations and work with John W. Hill, a former CFO for the city of Detroit and executive director of the Washington, D.C. Financial Control Board, hired last year by FOMB to implement an “enterprise resource planning system” to consolidate the commonwealth’s disparate agency accounting systems. 

Treasury Secretary Parés said Wednesday that a proposal for the office of the CFO had been proposed in an executive order issued by then-Gov. Ricardo Rosselló in 2018, which he noted is an amended version of another executive order issued by the previous Gov. Alejandro García Padilla administration.  

“Our vision, which the governor shares with us, is that a great part of the functions of a CFO correspond to those conferred through the Jones Act, the Constitution of Puerto Rico, and the plan to reorganize the Treasury…,” the Treasury chief said during a press conference at the agency’s headquarters in Old San Juan, where he discussed tax filing season matters. 

Parés acknowledged that the oversight board is requesting that legislation be filed to create the CFO office with greater authority to intervene directly in the operations of all commonwealth agencies and public corporations. However, the Treasury chief voiced his objection to the idea.  

“I do not think that is necessary. We understand that through processes under a leadership that is capable and committed, we could achieve the same objective of centralizing the management of the finances of the people of Puerto Rico,” he said. “We do not need additional laws to do this, we need leadership.” 

Meanwhile, the oversight board has urged the commonwealth to issue the overdue CAFRs for fiscal years 2018, 2019 and 2020, stressing that “best practices” call for the government’s audited statements for a given fiscal year to be issued no later than six months after the close of fiscal years on June 30. The last CAFR the government completed corresponded to fiscal year 2017, which was issued at the end of last August.  

Two weeks ago, FOMB issued notices to 36 agencies and public corporations for not submitting their audited financial statements for fiscal year 2018, calling this an impediment to the commonwealth completing its CAFR. The notices started to be issued a day after Pierluisi and New Progressive Party (NPP) lawmakers presented legislation that would order the Puerto Rico Comptroller’s Office to carry out an exhaustive, 68-year audit of commonwealth debt issues in order to invalidate certain debt in Promesa court. 

“I am embarrassed about the lack of execution in this area. Promesa requires that, among other things, the government of Puerto Rico publish its financial statements, as expected in the capital markets. Yes, this will be an absolute priority in my administration,” the governor told oversight board members last Friday, including FOMB Executive Director Natalie Jaresko, who stressed the importance of timely CAFRs for Puerto Rico to exit bankruptcy and return to the capital markets—a source of funds for key infrastructure and operational projects.  

The commonwealth government has been unable to resort to the bond market for financing since it started defaulting on its debt in 2015. The following year, the U.S. Congress passed and President Obama signed Promesa into law, which created the FOMB to restructure the island’s more than $120 billion in debt and liabilities, and repair its troubled finances.  

Parés acknowledged that many agencies have yet to even hand in drafts of their financial statements, despite assuring that the government was in “an advanced phase of completing the 2018 audit.” 

“The most substantive part is that there are still financial statements from public corporations that have not been issued. We have received drafts from some, and others have not even handed in a draft,” the Treasury chief said. “We have issued notices the past week. There have been meetings over the matter. The governor has impressed upon me the urgency of this to exit bankruptcy. We have the support of the governor and we will be executing.” 

Parés said that plans call for issuing the 2018 CAFR by June, saying this would be a move “in the right direction” because the government would be “issuing a [CAFR] every year.” He attributed the tardy audits to the “complexity of the government of Puerto Rico, which has so many public corporations with certain independence in their operations.” He also said that austerity measures limited hiring of personnel needed to complete these reports, stressing the complexities at the level of accounting, which has increased since 2015, particularly with how the pension system obligations are assessed.”  

The Treasury chief also acknowledged the obstacles posed by commonwealth agencies’ different accounting systems, despite failed efforts to synchronize them. He said that the governor’s designated Chief Innovation & Information Officer Enrique A. Volckers Nin is working with Treasury on the matter. 

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