DOJ Cracks Down On Puerto Rico Over Financial Mismanagement

The government is $73 billion in debt.
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The Department of Justice is tightening the flow of federal money to a slew of Puerto Rican government agencies after a preliminary audit turned up irregular spending and lax internal controls.

A letter the DOJ sent Monday to Puerto Rican Gov. Alejandro García Padilla, obtained by The Huffington Post, points to the island’s inability to manage funds, describing “a substantial number of questioned costs and significant weaknesses.” Raising “serious concerns,” the letter also calls the fiscal crisis that drove the island into default earlier this month an added complication that undermines proper financial management. The DOJ didn’t describe specific concerns in the letter.

“While the DOJ recognizes the substantial efforts of your Administration to address the crisis, we are nevertheless concerned that the situation poses a substantial risk to the proper management of DOJ’s grant funds,” the letter says.

It also says that eight local government entities -- including the Puerto Rican Department of Justice, the Department of Corrections and Rehabilitation and two public university campuses -- will be classified as “high-risk grantees.”

Under that designation, these institutions have to report the grant money they spend to the DOJ on a monthly basis, provide more rigorous documentation and comply with on-site monitoring if the DOJ requests it.

Puerto Rico’s Department of Justice must now explain irregularities that came up in the DOJ audit, the letter says. Puerto Rican Secretary of Justice Cesar Miranda said he was “caught off guard” by the DOJ's request.

"We intend to appeal the designation within the coming days and file an official motion with the Department of Justice auditing division to reconsider its actions," he said in a statement emailed to HuffPost. "We believe it is unacceptable for the Department of Justice to threaten the funding, and thus, viability of programs -- such as drug court programs -- that continue to have a positive impact on the island."

Jesús Manuel Ortiz, the secretary of public affairs for the García Padilla administration, said the high-risk designation is disappointing.

“The process was atypical to the close collaboration that characterizes the work between the administration of Governor Alejandro García Padilla and the U.S. Department of Justice," he said. "It is important to stress that this does not mean a loss of federal funds. Our administration is working with the U.S. Department of Justice to ensure the proper flow of federal funds.”

Puerto Rican Resident Commissioner Pedro Pierluisi, the island’s lone, non-voting member of Congress, called the grant restrictions “a severe, shocking and shameful indictment of the Garcia Padilla administration’s ability to properly manage federal funds,” in a statement emailed to HuffPost.

“The García Padilla administration must take immediate and concrete steps to address the problems identified by USDOJ, and must clearly explain those steps to the Puerto Rico public,” Pierluisi's statement said. “As part of my oversight responsibilities, I intend to meet with senior USDOJ officials when Congress returns to session in early September. I will ask those officials to provide me with periodic updates regarding the García Padilla administration’s efforts to address the identified problems.”

Miriam Ramírez, a former Puerto Rican senator, said financial mismanagement was a longstanding issue that had plagued prior administrations as well. She said she found the DOJ’s letter “encouraging” and hoped it would prompt local politicians to rein in what she described as widespread corruption.

“Somebody is doing something -- I was excited about that,” said Ramírez. “Will we be seeing a letter similar to this for [the] Education [department]? Will we be seeing a letter like this to Transportation? Health? I really hope so. And I hope that everything they did wrong comes out in the open.”

The Puerto Rican government is no stranger tofederal scrutiny. The police department has been the subject of several DOJ investigations, which pointed to significant financial and human rights abuses. And the DOJ's letter says the department received a “high-risk” designation in March. The Puerto Rico Institute of Forensic Science was also deemed “high-risk” for financial mismanagement last August.

The federal reprimand comes as Puerto Rico struggles to pay off a crippling $73 billion debt to creditors and investors. Many politicians on the U.S. mainland have expressed skepticism that the local government can solve the island’s deepening financial crisis.

UPDATE: 11:05 p.m. -- In a statement, the Department of Justice called its policy a "management tool":

In August, the Department of Justice designated the Commonwealth of Puerto Rico and each component unit that receives grant funding as a high-risk grantee. The Department of Justice’s High-Risk Grantee Designation Policy is a management tool used the by the Department to provide additional oversight of DOJ grant recipients with significant financial management, programmatic, compliance, and/or internal control issues. DOJ provides high risk grantees with additional training, technical assistance, and financial and programmatic monitoring to ensure effective use of DOJ grant funds. The policy does not prevent recipients from receiving new grant awards, but does impose controls on the access to funds and rigorous review of requests prior to the release of funds.

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