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Government of the United States Virgin Islands Management’s Discussion and Analysis, Financial Statements (with Independent Auditor’s Report Thereon) and Required Supplementary Information Year Ended September 30, 2019 The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee. Government of the United States Virgin Islands Management’s Discussion and Analysis, Financial Statements (With Independent Auditor’s Report Thereon) and Required Supplementary Information Year Ended September 30, 2019 Government of the United States Virgin Islands Contents 2 Independent Auditor’s Report 3-8 Management’s Discussion and Analysis 9-21 Basic Financial Statements Government-wide Financial Statements Statement of Net Position 22-23 Statement of Activities 24-25 Fund Financial Statements Balance Sheet – Governmental Funds 26 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds 27 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities – Governmental Funds 28 Statement of Net Position – Proprietary Funds 29 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Funds 30 Statement of Cash Flows – Proprietary Funds 31-32 Statement of Fiduciary Net Position 33 Statement of Changes in Fiduciary Net Position 34 Notes to Basic Financial Statements 35-136 Required Supplementary Information Schedule of Changes in Total OPEB Liability and Related Ratios 137 Schedule of Net Pension Liability 138 Schedule of Pension Contributions 139 Schedule of Revenues and Expenditures – Budget and Actual Budgetary Basis – General Fund 140 Notes to Schedule of Revenues and Expenditures – Budget and Actual Budgetary Basis – General Fund 141-142 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 3 Tel: 301-354-2500 Fax: 301-354-2501 www.bdo.com 12505 Park Potomac Ave, Suite 700 Potomac, MD 20854 Independent Auditor’s Report To the Honorable Governor of the Government of the United States Virgin Islands Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Government of the United States Virgin Islands (the Government), as of and for the year ended September 30, 2019, and the related notes to the financial statements, which collectively comprise the Government’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements. Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the following funds and/or component units:  The Virgin Islands Housing Authority (VIHA), Virgin Islands Economic Development Authority (VIEDA), Virgin Islands Waste Management Authority (VIWMA), Magens Bay Authority (MBA), Virgin Islands Government Hospital and Health Facilities Corporation (Roy L. Schneider Hospital and Governor Juan F. Luis Hospital and Medical Center), Virgin Islands Public Broadcasting System (VIPBS), and the Virgin Islands Housing Finance Authority (VIHFA), discretely-presented component units, which collectively represent 33.7%, (27.4)%, and 51.2%, respectively, of the assets, net position (deficit), and revenues of the Aggregate Discretely-Presented Component Units.  The Virgin Islands Lottery (V.I. Lottery), a nonmajor enterprise fund, which represents 1.6% and 7.5%, respectively, of the assets and revenues of the Aggregate Remaining Fund Information, and 12.1% and 25.3%, respectively, of the assets and revenues of the Business- Type Activities.  Government Employees’ Retirement System of the U.S. Virgin Islands (GERS), a fiduciary component unit (pension trust fund), which represents 74.56%, 84.7%, and 65.6%, respectively, of the assets, net position/fund balance, and revenues/additions of the Aggregate Remaining Fund Information. 4 Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinions, insofar as they relate to the amounts included for the activities, funds, and component units indicated above, are based solely on the reports of other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Because of the matters described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the Business-Type Activities, the Aggregate Remaining Fund Information, Unemployment Insurance-Enterprise Fund, and the Aggregate Discretely Presented Component Units. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Except for the matters described in the Basis for Disclaimer of Opinion on the Business-Type Activities, the Aggregate Remaining Fund Information, Unemployment Insurance-Enterprise Fund, and the Aggregate Discretely Presented Component Units paragraphs, we believe that the audit evidence we and other auditors have obtained is sufficient and appropriate to provide a basis for our audit opinions. Summary of Opinions Opinion Unit Type of Opinion Governmental Activities Qualified Business-Type Activities Disclaimer General Fund Qualified Debt Service Fund Unmodified Capital Projects Fund Unmodified Federal Grants Fund Qualified The West Indian Company Limited-Enterprise Fund Unmodified Unemployment Insurance-Enterprise Fund Disclaimer viNGN, INC.-Enterprise Fund Unmodified Government Insurance-Enterprise Fund Unmodified Aggregate Remaining Fund Information Disclaimer Aggregate Discretely Presented Component Units Disclaimer 5 Basis for Qualified Opinion on Governmental Activities The Government did not maintain the requisite documentation to support its accrued retroactive liability as of and for the year ended September 30, 2019. As such, we are unable to determine whether adjustments were required in the Governmental Activities. Further, the Government’s notes to the basic financial statements do not include the necessary information under Governmental Accounting Standards Board, Statement No. 77, Tax Abatement Disclosures. In our opinion, disclosure of this information is required by accounting principles generally accepted in the United States of America. Basis for Qualified Opinion on Governmental Activities, General Fund, and Federal Grants Fund The Government did not maintain the requisite documentation to support its determination as to the sufficiency of the design and operation of key controls surrounding the environment in which Medicaid claims are processed. As such, we were unable to determine whether adjustments were required in the General Fund, Federal Grants Fund, and in the Governmental Activities. The Government did not maintain the requisite documentation to support its due from federal government and federal grants and contributions revenues in the amount of $32.4 million as of the year ended September 30, 2019. As a result, we were unable to obtain sufficient audit evidence to determine whether adjustments were required in the Federal Grants Fund and in the Governmental Activities. Qualified Opinion In our opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraphs above, the financial statements referred to above present fairly, in all material respects, the financial position of the Governmental Activities, General Fund, and the Federal Grants Fund of the Government of the United States Virgin Islands as of September 30, 2019, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Disclaimer of Opinion on Business-Type Activities and on Aggregate Remaining Fund Information The basic financial statements do not include a liability for medical malpractice claims in the reciprocal insurance fund (a non-major enterprise fund) and, accordingly, the Government has not recorded an expense for the current period change in that liability. The Government’s records do not permit it, nor is it practical to extend our auditing procedures sufficiently to determine the extent by which the Business-Type Activities and Aggregate Remaining Fund Information as of and for the year ended September 30, 2019, may have been affected by this condition. Basis for Disclaimer of Opinion on Unemployment Insurance-Enterprise Fund and on Business- Type Activities The Government’s records were not available or contained incomplete information. As such, the records do not permit it, nor is it practical to extend our auditing procedures sufficiently to determine the extent by which the Unemployment Insurance-Enterprise Fund and Business-Type Activities as of and for the year ended September 30, 2019, may have been affected by this condition. 6 Basis for Disclaimer of Opinion on Aggregate Discretely Presented Component Units The financial statements of the University of the Virgin Islands Research and Technology Park Corporation (RTPark) and Virgin Islands Port Authority (VIPA), have not been audited, and we were not engaged to audit RTPark’s or VIPA’s financial statements as part of our audit of the Government’s basic financial statements. RTPark’s financial activities for the year ended September 30, 2019, are not included in the Government’s basic financial statements. VIPA’s financial activities are included in the Government’s basic financial statements and represent 10.2%, 61.4%, and 4.1% of the assets, net position, and revenues, respectively, of the Aggregate Discretely Presented Component Units. The report of other auditors on the 2019 financial statements of VIWMA, a discretely presented component unit, was qualified because the auditors were unable to obtain sufficient audit evidence to determine whether grants receivable, capital assets, accounts payable, grants revenue, depreciation, and certain expenditures were properly classified. Accordingly, the auditors were unable to determine whether adjustments were required. The report of other auditors on the 2019 financial statements of MBA, a discretely presented component unit, was qualified because MBA does not report net pension liability, pension expense, related deferred inflows and outflows of resources, if any, the required financial statements disclosures and the required supplementary information as required by accounting principles generally accepted in the United States of America. The Electric System of the Virgin Islands Water and Power Authority has classified a portion of its outstanding bonds and notes as long-term liabilities in its statement of net position. In our opinion, these obligations should be classified as current liabilities to conform with accounting principles generally accepted in the United States of America because at June 30, 2019, the Electric System is in default on certain covenants pertaining to its bond resolutions and the lenders may demand repayment of these obligations. If the financial statements were corrected for that departure from accounting principles generally accepted in the United States of America, total current liabilities would be increased by $255.3 million and total noncurrent liabilities would be decreased by $255.3 million as of June 30, 2019. Disclaimer of Opinion Based on our audit and the reporting of other auditors, because of the significance of the matters discussed in the Basis for Disclaimer Opinion paragraphs above, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statements of the Business-Type Activities, the Aggregate Remaining Fund Information, Unemployment Insurance-Enterprise Fund, and the Aggregate Discretely Presented Component Units of the Government of the United States Virgin Islands. Accordingly, we do not express an opinion on these financial statements. 7 Unmodified Opinions In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of each major fund, other than the General Fund, Federal Grants Fund, and Unemployment Insurance- Enterprise Fund of the Government of the United States Virgin Islands as of September 30, 2019, and the respective changes in financial position and, where applicable cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matters The accompanying financial statements have been prepared assuming the Government will continue as a going concern. As discussed in Note 16 to the financial statements, the Government reported an unrestricted net deficit in Governmental Activities and in the General Fund that raise substantial doubt about its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters are also described in Note 16. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. As discussed in Note 17, certain adjustments were applied to restate component units’ financial statements. Our opinion, based on our audit and the reports of other auditors, is not modified with respect to these matters. As also discussed in Note 18 to the financial statements, the Government may be adversely impacted by the outbreak of the novel coronavirus (COVID-19), which was declared a global pandemic by the World Health Organization in March 2020. As emergency measures are eased, the Government continues to actively monitor the evolving impact of the outbreak and continues to identify and implement various mitigation efforts. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management’s discussion and analysis and the schedules of changes in total OPEB liability and related ratios, net pension liability, pension contributions, and revenue and expenditures – budget and actual budgetary basis – General Fund on pages 9 through 21 and 137 through 142, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We and other auditors have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 8 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 30, 2021, on our consideration of the Government’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Government’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Government’s internal control over financial reporting and compliance. June 30, 2021 Management’s Discussion and Analysis Government of the United States Virgin Islands Management’s Discussion and Analysis 9 Introduction The following management’s discussion and analysis presents an overview of the financial position and activities of the Government of the United States Virgin Islands (the Government) as of and for the fiscal years ended September 30, 2019 and 2018. Government-wide Financial Statements The government-wide financial statements are designed to present an overall picture of the financial position of the Government. These statements consist of the statement of net position and the statement of activities, which are prepared using the economic resources measurement focus and the accrual basis of accounting. This means that current year’s revenues and expenses are included regardless of when cash is received or paid, producing a view of financial position and changes in financial position like that presented by most private-sector companies. The statement of net position combines and consolidates the Government’s current financial resources with capital assets and long-term obligations. Both above-mentioned financial statements have separate sections for three different types of the Government programs or activities. These three types of activities are as follows: Governmental Activities – The activities in this section are mostly supported by taxes and intergovernmental revenues (federal grants). Most services normally associated with the primary government fall into this category, including general government, public safety, health, public housing and welfare, education, transportation and communication, and culture and recreation. Business-Type Activities – These functions normally are intended to recover all or a significant portion of their costs through user fees and charges to external users of goods and services. These business-type activities of the Government include the operations of the: (i) the West Indian Company (WICO); (ii) the unemployment insurance program; (iii) viNGN, Inc. dba Virgin Islands Next Generation Network (viNGN), and (iv) the Government Insurance Fund (GIF). These programs operate with minimal assistance from the governmental activities of the Government. Discretely Presented Component Units – These are operations for which the Government has financial accountability even though they have certain independent qualities as well. For the most part, these entities operate like private sector businesses and the business-type activities described above. The Government’s discretely presented component units are presented in two categories, major and nonmajor. This separation is determined by the relative size of the entities’ assets, liabilities, revenue, and expenses in relation to the total of all component units. Fund Financial Statements Fund financial statements focus on the most significant (or major) funds of the Government. A fund is a separate accounting entity with a self-balancing set of accounts. The Government uses funds to keep track of sources of funding and spending related to specific activities. The Government uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Government of the United States Virgin Islands Management’s Discussion and Analysis 10 A major fund is a fund whose revenues, expenditures or expenses, assets, or liabilities (excluding extraordinary items) are at least 10% of the corresponding totals for all governmental or enterprise funds and at least 5% of the aggregate amount for all governmental and enterprise funds for the same item. The general fund is always considered a major fund. In addition to funds that meet the major fund criteria, any other governmental or enterprise fund that the Government believes is particularly important to the financial statements may be reported as a major fund. The funds of the Government are divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds   Governmental funds are accounted for using the modified accrual basis of accounting, which measures cash and other assets that can be readily converted to cash. The governmental funds’ statements provide a detailed short-term view of the general governmental operations and the basic services provided. The reconciliation following the fund financial statements explains the differences between the governmental activities, reported in the government-wide financial statements and the governmental funds’ financial statements. The General Fund, the PFA debt service fund, the PFA capital projects fund and the Federal grants fund are reported as major governmental funds. The General Fund is the Government’s primary operating fund. It accounts for all financial resources of the Government, except those required to be accounted for in another fund. The PFA debt service fund accounts for the resources accumulated, and payments made, for principal and interest on long-term general obligation debt issued by the Virgin Islands Public Finance Authority on behalf of the Government. The PFA capital projects fund accounts for bond proceeds of debt issued by the Virgin Islands Public Finance Authority on behalf of the Government. The bond proceeds have been designated for certain necessary public safety and capital development projects which are accounted for in this fund. The Federal grants fund accounts for proceeds and federal payments that are legally restricted for expenditures for federally specified purposes. The governmental fund activities are reported in a separate balance sheet and statement of revenues, expenditures, and changes in fund balances. Additionally, the Government presents a reconciliation of the statement of revenues, expenditures, and change in fund balances, to the statement of activities. Proprietary Funds   Services provided to outside (nongovernmental) customers are reported in enterprise funds. Enterprise funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. These are the same business-type activities reported in the government-wide financial statements. Government of the United States Virgin Islands Management’s Discussion and Analysis 11 The West Indian Company (WICO), the Unemployment Insurance Fund, viNGN, and the Government Insurance Fund are major proprietary funds. The WICO fund accounts for the activities of WICO, which owns a port facility including a cruise ship pier and manages a shopping mall complex on the island of St. Thomas. The Unemployment Insurance Fund is a federally mandated program to manage unemployment insurance. The viNGN fund accounts for the activities of viNGN, which designs, develops and manages a middle mile wholesale fiber optic network in order to make available reliable high-speed internet connections to retail internet service providers. The Government Insurance Fund (GIF) provides insurance protection for workers in the U.S. Virgin Islands in the event of job accidents. The proprietary fund activities are reported in a separate statement of net position, statement of revenues, expenses, and changes in net position and statement of cash flows. Fiduciary Funds The fiduciary activities are reported in a separate statement of fiduciary net position and a statement of changes in fiduciary net position. Financial Analysis of the Government as a Whole The Government faces the challenge of maintaining fiscal sustainability, promoting economic growth, and rebuilding infrastructure following two Category 5 hurricanes in September 2017. To promote fiscal sustainability, the Government retained an international firm to develop short and long-range cash management strategies, identify federal recovery grants, implement a recovery website, and assist with federal reporting of recovery grants. The Government has also retained the services of a national engineering firm to lead the reconstruction effort in the Virgin Islands and provide oversight of FEMA Hazard Mitigation and HUD Community Disaster grants. In the third annual progress report following the hurricanes, the Office of Disaster Recovery estimated federal recovery funding for the Virgin Islands amounted to $8.0 billion to be received over a five-year period. The Government has also participated in the Federal Emergency Management Agency’s (FEMA) Community Disaster Loan (CDL) program. The CDL program provides operational funding for local governments to continue to operate after a substantial revenue loss (greater than 5.0%) caused by a disaster. The term of the CDL loans is five (5) years and can be extended to ten (10) years. The Government’s ability to access the CDL facility allowed it to remain current in its obligations. The Government has pledged gross receipts taxes for the timely payment of the CDLs and entered into a bond agreement with FEMA in July 2018. The Government has also been the recipient of insurance recoveries and private donations. Government of the United States Virgin Islands Management’s Discussion and Analysis 12 The Government has initiated outreach programs to promote environmentally safe industries and to attract investors. During fiscal year 2018, the Government began negotiations with Limetree Bay Refining, an affiliate of Limetree Bay Terminals, LLC (Limetree) to restart oil refining on the island of St. Croix. An agreement was reached in December 2018, and Limetree will invest $1.3 billion in the St. Croix facility, with a purchase of land and improvements at the refinery for $30.0 million including a promissory note of $10.0 million to be repaid over 10 years. Also see Note 18. Financial Analysis of the Primary Government Total assets and deferred outflows of resources of the Government as of September 30, 2019 and 2018, were approximately $2.8 billion and $2.9 billion respectively. Total liabilities and deferred inflows were approximately $7.9 billion and 7.8 billion, respectively, over the same period. Liabilities exceed assets mainly due to unfunded pension and postemployment benefits such as health insurance due to retired Government employees amounting to $4.0 billion and $4.1 billion at September 30, 2019 and 2018. At September 30, 2019, the Government’s net deficit of $5.1 billion consisted of $470.1 million invested in capital assets, net of related debt; $318.0 million restricted by statute or other legal requirements that were not available to finance day-to-day operations; and an unrestricted net deficit of $5.9 billion. At September 30, 2018, the Government’s net position was a deficit of $4.9 billion consisting of $278.8 million investment in capital assets, net of related debt; $287.9 million restricted by statute or other legal requirements that were not available to finance day-to-day operations; and an unrestricted net deficit of $5.5 billion. For the fiscal year ended September 30, 2019, the primary government earned program and general revenue amounting to $2.1 billion and reported expenses of $2.3 billion, resulting in an increase in net deficit of approximately $190.5 million. For the fiscal year ended September 30, 2018, the primary government earned program and general revenue amounting to $2.1 billion, including net insurance recoveries of $124.0 million, and reported expenses of $2.2 billion resulting in an increase in net deficit of approximately $68.3 million. Overall, revenue decreased in fiscal 2019 by approximately $81.6 million, when compared to fiscal 2018, mainly due to a decrease in insurance recoveries and losses on the sale of assets recognized of $118.1 million, an increase in charges for services of $19.7 million, a decrease in federal operating and capital grant revenues of $55.9 million, offset by an increase in tax revenues of $54.4 million and increase in interest and other revenues of approximately $6.0 million. Overall expenses increased in fiscal 2019 by $40.6 million when compared to fiscal 2018, mainly due to decrease in general government of $32.2 million, increase in education expense of $124.6 million, increase in Government Insurance (workers’ compensation) of $29.5 million, increase in public safety of $21.0 million, and offset by a decrease in public housing of $84.0 million, and a decrease in unemployment insurance expense of $27.4 million. Government of the United States Virgin Islands Management’s Discussion and Analysis 13 A summary of net position and changes in net position for the primary government follows (expressed in thousands): Governmental Activities Business-Type Activities Total September 30, 2019 2018 2019 2018 2019 2018 Assets and Deferred Outflows Current assets $ 1,121,899 $ 1,223,348 $ 53,108 $ 37,507 $ 1,175,007 $ 1,260,855 Internal balances 47,778 46,902 (47,778) (46,902) - - Capital assets 915,789 745,054 120,655 127,599 1,036,444 872,653 Other assets 7,876 7,213 1,221 1,131 9,097 8,344 Deferred outflows of resources 624,460 792,112 - - 624,460 792,112 Total assets and deferred outflows 2,717,802 2,814,629 127,206 119,335 2,845,008 2,933,964 Liabilities and Deferred Inflows Long-term liabilities 6,337,149 6,524,188 95,825 74,615 6,432,974 6,598,803 Other liabilities 927,582 845,364 93,076 94,692 1,020,658 940,056 Deferred inflows of resources 471,141 284,370 - - 471,141 284,370 Total liabilities and deferred inflows 7,735,872 7,653,922 188,901 169,307 7,924,773 7,823,229 Net Position Net investment in capital assets 428,130 230,693 42,025 48,148 470,155 278,841 Restricted 305,431 282,585 12,560 5,329 317,991 287,914 Unrestricted deficit (5,751,631) (5,352,571) (116,280) (103,449) (5,867,911) (5,456,020) Total net deficit $ (5,018,070) $ (4,839,293) $ (61,695) $ (49,972) $ (5,079,765) $ (4,889,265) Government of the United States Virgin Islands Management’s Discussion and Analysis 14 Governmental Activities Business-Type Activities Total September 30, 2019 2018 2019 2018 2019 2018 Revenues Program revenue: Charges for services $ 29,471 $ 20,857 $ 69,842 $ 58,751 $ 99,313 $ 79,608 Operating grants and contributions 841,630 840,282 7,547 17,741 849,177 858,023 Capital grants and contributions 25,945 72,951 - - 25,945 72,951 General revenue: Taxes 989,050 934,577 - - 989,050 934,577 Interest and other 84,529 57,654 7,185 8,714 91,714 66,368 Payment in lieu of taxes 9,984 11,141 - - 9,984 11,141 Tobacco settlement rights 1,135 1,094 - - 1,135 1,094 Total revenues 1,981,744 1,938,556 84,574 85,206 2,066,318 2,023,762 Expenses General government 1,264,313 1,296,511 - - 1,264,313 1,296,511 Public safety 112,824 91,868 - - 112,824 91,868 Health 72,636 71,568 - - 72,636 71,568 Public housing and welfare 200,103 284,087 - - 200,103 284,087 Education 339,986 215,405 - - 339,986 215,405 Transportation and communication 53,037 48,032 - - 53,037 48,032 Culture and recreation 9,512 6,893 - - 9,512 6,893 Interest on long-term debt 101,683 102,613 - - 101,683 102,613 West Indian Company - - 11,097 12,449 11,097 12,449 Unemployment insurance - - 15,736 43,166 15,736 43,166 viNGN - - 9,588 9,806 9,588 9,806 Government insurance - - 30,339 797 30,339 797 Other - - 35,795 32,884 35,795 32,884 Total expenses 2,154,094 2,116,977 102,555 99,102 2,256,649 2,216,079 Changes in net position (deficit) before transfers and special item (172,350) (178,421) (17,981) (13,896) (190,331) (192,317) Transfers (1,000) (1,000) 1,000 1,000 - - Special item – insurance recoveries (impairment losses) on capital assets, net 672 119,240 5,258 4,756 5,930 123,996 Special item – loss on sale of capital assets (6,099) - - - (6,099) - Changes in net deficit (178,777) (60,181) (11,723) (8,140) (190,500) (68,321) Net deficit, beginning of year (4,839,293) (4,779,112) (49,972) (41,832) (4,889,265) (4,820,944) Net deficit, end of year $ (5,018,070) $ (4,839,293) $ (61,695) $ (49,972) $ (5,079,765) $ (4,889,265) Government of the United States Virgin Islands Management’s Discussion and Analysis 15 Financial Analysis of the Government’s Funds Governmental Funds Governmental Funds. The focus of governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Government’s financing requirements. In particular, the unassigned fund balance/deficit may serve as a useful measure of a government’s net resources available, or not available, for discretionary use as they represent the portion of the fund balances which has not yet been limited to use for a particular purpose by either an external party of the primary Government. At September 30, 2019, the Government’s governmental funds reported a combined fund balance of $318.5 million, a decrease of $136.0 million when compared to the prior year combined fund balance of $454.5 million. Approximately $304.5 million of this amount consists of deficit unassigned fund balances representing expenditures in governmental funds that exceeded discretionary funds available. The remainder of the fund balance is either restricted, committed, or assigned to indicate that it is: i) restricted for particular purposes ($454.8 million), ii) committed for particular purposes ($37.7 million), or iii) assigned for particular purposes ($130.4 million). The General Fund is the chief operating fund of the primary Government. At September 30, 2019, the unassigned fund deficit of the General Fund was $115.1 million while the total fund deficit of the General Fund was $94.1 million. The fund deficit of the General Fund increased by $53.3 million during the current fiscal year, mainly due to an increase in General Fund expenditures of $209.6 million, a reduction in bonds issued of $170.7 million, an increase in General Fund revenues of $65.5 million, an increase in transfers from other funds of $70.4 million, and an increase in transfers to other funds of $5.7 million. The PFA Debt Service Fund accounts for the resource accumulated, and payments made, for principal and interest on long-term general obligation debt issued by PFA on behalf of the Government. At September 30, 2019, the restricted fund balance of the PFA Debt Service Fund was $305.2 million, an increase of $22.8 million from the prior fiscal year. This increase is mainly due to an increase in tax revenue of $70.4 million, an increase in interest and other revenue of $4.9 million, an increase in transfers from other funds of $70.4 million, and a decrease in transfers to other funds of $5.7 million. The PFA Capital Projects Fund accounts for bond proceeds issued by PFA that have been designated for certain necessary public safety and capital development projects. At September 30, 2019, the restricted fund balance of the PFA Capital Projects Fund was $136.7 million, a decrease of $17.2 million from the prior fiscal year. The decrease was due to capital outlays. The Federal Grants Fund accounts for proceeds and payments that are restricted to expenditures for specified purposes. At September 30, 2019, the fund deficit of the Federal Grants Fund decreased by $42.3 million to $130.5 million. The decrease was due to federal grant expenditures exceeding federal grant revenues. Government of the United States Virgin Islands Management’s Discussion and Analysis 16 Proprietary Funds Proprietary Funds. The focus of proprietary funds is to report the same functions presented as business-type activities in the government-wide financial statements. Proprietary fund financial statements provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the West Indian Company, Ltd (WICO), Unemployment Insurance, the Virgin Islands Next Generation Network (viNGN), and the Government Insurance Fund (GIF) as these funds are considered to be major funds. At September 30, 2019, the primary Government’s proprietary funds reported a combined net deficit of $61.7 million, an increase of $11.7 million when compared to the prior year combined net deficit of $50.0 million. The deficit is the result of an unrestricted deficit in the proprietary funds ($116.3 million), offset by net investment in capital assets ($42.0 million) and restricted net position ($12.6 million). WICO owns a port facility including a cruise ship pier and manages a shopping mall complex on the island of St. Thomas. At September 30, 2019, the net position of WICO was $4.2 million, an increase of $3.0 million from the net position of the prior fiscal year. This increase was mainly due to an operating income of $1.6 million, a non-operating loss of $2.6 million, and insurance recoveries of $4.0 million. The Unemployment Insurance Fund is a federally mandated program to manage unemployment insurance. At September 30, 2019, the net deficit of the fund was $57.7 million, a decrease of $10.5 million from the deficit of the prior fiscal year. The decrease in net deficit is mainly due to a decrease in unemployment claims in the recovery following the 2017 hurricanes. viNGN designs, develops, and manages a middle mile wholesale fiber optic network in order to make available reliable high-speed interest connections to retail internet service providers. At September 30, 2019, viNGN reported net position of $28.2 million, a decrease of $4.4 million from the prior fiscal year. This decrease was mainly due to a loss on operations of $5.9 million offset by insurance recoveries of $1.3 million and grant revenues of $215,000. The Government Insurance Fund provides insurance protection for workers in the U.S. Virgin Islands in the event of job accidents. At September 30, 2019, the net deficit of the fund was $58.2 million, a decrease of $22.4 million from the prior year. This decrease was mainly due to an increase in the actuarial valuation of insurance claims as of September 30, 2019. General Fund Budgetary Highlights The Virgin Islands Office of Management and Budget prepares an annual executive budget subject to approval by the Governor and the Legislature of the Virgin Islands. The executive budget is prepared on a budgetary basis that is like the cash basis of accounting. The executive budget includes only those funds that are subject to appropriation by law. More information regarding budgetary procedures is provided in the Required Supplementary Information accompanying the basic financial statements. Government of the United States Virgin Islands Management’s Discussion and Analysis 17 A summary of the budgetary report for the General Fund of the Government, included on page 140 of the financial statements, follows (expressed in thousands): September 30, 2019 Original Budget Amended Budget Actual Variance Total revenues $ 978,434 $ 978,434 $ 762,479 $ (215,955) Total expenditures 847,734 893,339 824,342 68,997 Excess (deficiency) of revenues over expenditures 130,700 85,095 (61,863) (146,958) Other financing sources (uses), net (178,221) (69,323) 165,233 234,556 Excess (deficiency) of revenues and net other financing sources over expenditures $ (47,521) $ 15,772 $ 103,370 $ 87,598 For fiscal year 2019, the General Fund realized a favorable budgetary variance of $87.6 million mainly due to other financing sources of $234.6 million offset by a deficiency of revenues over expenditures of $147.0 million. Other financing sources increased mainly due to the issuance of the Series 2018A-1, 2018A-2, and 2018A-3 Community Disaster Loan bonds of $17.8 million and transfers from the PFA Debt Service Fund of $158.8 not restricted for debt service. The General Fund realized an unfavorable revenue variance of $216.0 million mainly due to taxes under budget by $124.2 million, charges for services revenues under budget by $55.9 million and interest and other revenues under budget by $51.9 million during the fiscal year. The General Fund realized a favorable expenditures variance of $44.7 million due to spending efficiencies in government spending as compared from budgeted amounts. Capital Assets Capital assets additions during fiscal year 2019 amounted to $246.7 million net of adjustments for governmental activities and $2.6 million for business-type activities. Capital assets additions during fiscal year 2018 amounted to $129.5 million for governmental activities and $4.5 million for business-type activities. Government of the United States Virgin Islands Management’s Discussion and Analysis 18 The Government’s capital assets include land, land improvements, buildings, building improvements, machinery and equipment, infrastructure, construction in progress, and intangibles, as follows (expressed in thousands): Governmental Activities Business-Type Activities Total September 30, 2019 2018 2019 2018 2019 2018 Land and improvements $ 227,252 $ 237,515 $ 5,526 $ 5,526 $ 232,778 $ 243,041 Building and improvements 639,584 434,918 89,904 89,060 729,488 523,978 Machinery and equipment 221,390 206,322 79,729 78,618 301,119 284,940 Infrastructure 169,993 151,348 - - 169,993 151,348 Intangible assets - - 30,774 30,774 30,774 30,774 Construction in progress 134,813 154,427 5,974 5,332 140,787 159,759 Total capital assets 1,393,032 1,184,530 211,907 209,310 1,604,939 1,393,840 Less accumulated depreciation (477,243) (439,476) (91,252) (81,711) (568,495) (521,187) Total capital assets, net $ 915,789 $ 745,054 $ 120,655 $ 127,599 $ 1,036,444 $ 872,653 Note 9 provides detailed information regarding the capital assets of the primary government and the component units of the Government. Debt Administration (General Obligation and Revenue Bonds) The Government issues both general obligation bonds and revenue bonds. The Revised Organic Act [48 U.S.C. Section 1574 (b)(ii)] restricts the principal amount of general obligation debt that the Government may issue to no greater than 10% of the aggregate assessed valuation of taxable real property in the U.S. Virgin Islands. Following is a summary of bonds outstanding as of September 30, 2019, (expressed in thousands): Bond Issue Maturity Rates (%) Balance 2018 Series A-1, A-2 & A-3 Revenue Bonds 2022-2037 2.86-3.19 $ 206,295 2015 Series Federal Highway Bonds 2016-2033 3.00-5.00 74,965 2014 Series D Revenue Bonds 2015-2033 6.03 5,035 2014 Series C Revenue and Refunding Bonds 2015-2044 4.50-5.00 226,750 2014 Series A Revenue Bonds 2015-2034 5.00 43,245 2013 Series B Revenue Refunding Bonds 2018-2024 3.00 – 5.00 41,045 2013 Series A Revenue Refunding Bonds 2018-2024 5.00 – 5.25 16,010 2012 Series C Revenue Bonds 2017-2042 3.00 – 5.00 26,530 2012 Series A & B Revenue & Refunding Bonds 2017-2032 2.25 – 5.25 154,850 2012 Series A Revenue Bonds 2022-2032 4.00 – 5.00 138,315 2010 Series A & B Revenue Bonds 2012-2029 4.00 – 5.25 382,995 2009 Series A Revenue Bonds (Cruzan) 2010-2039 3.00 – 6.00 33,350 2009 Series A1, A2, B & C Revenue and Refunding Bonds 2010-2039 3.00 – 5.00 224,550 2009 Series A Revenue Bonds (Diageo) 2017-2037 6.00 – 6.75 221,370 2006 Series A Revenue Bonds 2007-2029 3.50 – 5.00 189,745 2006 Series A, B, C & D Tobacco Turbo and Capital Appreciation Bonds 2035 6.00 – 8.00 7,290 2001 Series A Tobacco Bonds 2031 4.62 – 5.13 4,515 Total bonds outstanding 1,996,855 Plus (less): Bonds premium 40,526 Bonds discount (2,051) Bonds accretion 10,132 Net bonds outstanding $ 2,045,462 Government of the United States Virgin Islands Management’s Discussion and Analysis 19 Note 10 provides detailed information regarding all bonds of the primary government. The Government made bond principal payments on outstanding general and special revenue bonds amounting to $80.8 million during fiscal year 2019 and $77.4 million during fiscal year 2018. In December 2019, Standard & Poor’s Global Ratings revised its outlook from negative to stable and affirmed its A rating on the outstanding Series 2015A grant anticipation bonds (GARVEE bonds). In January 2020, Moody’s Investor Service affirmed the Territory’s Caa3 issuer rating and stable outlook, as well as the Caa2 rating on Matching Fund Senior Lien Bonds, and Caa3 rating on other Matching Fund Bonds. Other Liabilities of the Primary Government Other long-term outstanding liabilities of the Government include the following (expressed in thousands): September 30, 2019 2018 Governmental activities: Accrued compensated absences $ 39,042 $ 36,762 Retroactive union arbitration 195,286 195,286 Litigation 21,220 21,216 Landfill closure and post closure costs 110,708 102,135 Business-type activities: Workers compensation 59,458 35,994 Compensated absences 1,990 1,976 Loan payable – U.S. Treasury 63,375 68,590 Loan payable - WICO 41,826 42,646 Total other liabilities $ 532,905 $ 504,605 Net Pension Liabilities The Government has implemented the provisions of Governmental Accounting Standards Board Statement (GASB) No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68 and GASB Statement No. 82, Pension Issues—an amendment of GASB Statements No. 67, No. 68, and No. 73. Following is a description of the pension plan and accounting for pension expense, liabilities, and deferred outflows/inflows of resources. Following is the net pension liability reported in fiscal years 2019 and 2018 (expressed in thousands): September 30, 2019 2018 Net pension liability $ 3,246,789 $ 3,354,768 Government of the United States Virgin Islands Management’s Discussion and Analysis 20 Net Other Postemployment Benefit (OPEB) Liabilities During fiscal year 2018, the Government implemented the provisions of Governmental Accounting Standards Board Statement (GASB) No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. This standard requires the reporting and disclosure of costs and liabilities associated with postemployment benefits provided to retirees of the Government and ten (10) of the Government’s component units under a special funding arrangement. Following is the net OPEB liability reported in fiscal years 2019 and 2018 (expressed in thousands): September 30, 2019 2018 Net OPEB liability $ 774,507 $ 783,373 Significant Currently-Known Facts The Government promotes fiscal sustainability through economic development, compliance initiatives, and budgetary restraints on expenditures. The Government is also working with non- governmental organizations and Federal partners as part of its recovery efforts following the 2017 hurricanes. Revenue and Compliance Initiatives The Government has implemented several initiatives to create jobs, stimulate economic growth and promote fiscal sustainability including: entering into an agreement with Limetree Bay Terminals, LLC for an investment of $1.3 billion to reopen the HOVENSA oil refinery, continued promotion of tourism through national advertising, introducing legislation for the legal sale of cannabis for medical purposes, compliance initiatives to ensure voluntary tax filing requirements are met, and outreach to national and foreign investors. The Government continues to promote its high-tech broadband capabilities, educated workforce and tax incentive programs to management, technology, and tourism-related industries. Federal Recovery Partners Fiscal year 2018 was the first year of recovery following the 2017 hurricanes. In fiscal year 2019, the Territory established an Office of Disaster Recovery and worked with federal recovery partners including FEMA, HUD, FHWA and other agencies to establish a multi-year, multi-billion recovery plan building resiliency in managing climate change. Budgetary Control of Expenditures The Government has experienced an increase in carry-forward liabilities from prior fiscal years mainly due to landfill closure costs, post-employment benefits for retirees, and net pension liabilities in connection with the Government’s defined benefit pension plan. The Government also has carry-forward liabilities due to unpaid retroactive salary increases that accumulated following Hurricanes Hugo, Marilyn, and Bertha in the years of 1990 through 1998. At September 30, 2019 and 2018, long-term liabilities for pension and other post-employment benefits to retired government employees amounted to $4.0 billion and $4.1 billion, respectively. Government of the United States Virgin Islands Management’s Discussion and Analysis 21 The Government’s defined benefit pension plan was 15.56% and 16.18% funded as of the measurement dates of September 30, 2019 and September 30, 2018, respectively. Based on actuarial projections, the plan may not be able to meet its responsibilities by fiscal year 2024. A Pension Reform Joint Task Force has provided recommendations to the Legislature to (i) increase the retirement age of Government workers; (ii) restructure plan benefits; and (iii) to no longer allow retirees to both work and collect benefits from the Government. The retirement system increased the contribution rates of participating employers by 1% per year over the three fiscal years 2015, 2016 and 2017 and at September 30, 2018, the employer contribution rate was 20.5%. In December 2019, the employer rate was increased by 3.0% bringing the contribution rate to 23.5% effective January 1, 2020. Coronavirus COVID-19 Pandemic In December 2019, a novel strain of coronavirus, known as COVID-19, was reported which quickly spread around the globe, including the United States and its Territories. In March 2020, the Governor of the U.S. Virgin Islands declared a state of emergency due to COVID-19. The extent of the impact of COVID-19 on the operational and financial performance of the Government will depend on certain developments, including the duration and spread of the outbreak and the impact on the economy, employees, and vendors, all of which are uncertain. In April 2020, the Virgin Islands was declared a major disaster area by the President of the United States of America. The Presidential declaration enables the Territory to receive Federal funding for emergency protective measures, including direct Federal assistance. Through May 31, 2021, the Government and its blended and discretely presented component units have been awarded $732.2 million in federal pandemic recovery assistance, including the Coronavirus Relief Fund. Contacting the Government’s Financial Management This financial report is designed to provide the Government’s citizens, taxpayers, customers, and creditors with a general overview of the Government’s finances. If you have questions about this report, or need additional financial information, contact the Government of the United States Virgin Islands, Department of Finance, No. 2314 Kronprindsens Gade, St. Thomas, VI 00802.  Basic Financial Statements Assets Cash and cash equivalents 169,137 $ 33,631 $ 202,768 $ 163,422 $ Investments, at fair value 636,120 1,668 637,788 27,304 Receivables, net 148,401 5,131 153,532 530,358 Internal balances 47,778 (47,778) - - Due from federal government 32,296 118 32,414 103,453 Due from component units 125,362 - 125,362 88 Due from primary government - - - 30,335 Inventories - - - 21,116 Prepayments and other assets - - - 21,910 Restricted: Cash and cash equivalents - 12,560 12,560 90,415 Investments - - - 111,107 Other - - - 19,388 Capital assets, net 915,789 120,655 1,036,444 1,918,134 Notes receivable 10,583 - 10,583 10,971 Other assets 7,876 1,221 9,097 73,985 Total assets 2,093,342 127,206 2,220,548 3,121,986 Deferred Outflows of Resources Deferred amounts related to pension 618,697 - 618,697 183,054 Deferred charges on bond refunding 5,763 - 5,763 4,495 Deferred amounts related to OPEB – - – 552 Total deferred outflows of resources 624,460 – 624,460 188,101 Total assets and deferred outflows of resources 2,717,802 $ 127,206 $ 2,845,008 $ 3,310,087 $ See accompanying notes to financial statements. Government of the United States Virgin Islands Statement of Net Position (in thousands) September 30, 2019 Primary Government Governmental Activities Business-type Activities Total Component Units 22 Liabilities Accounts payable and accrued liabilities 373,498 $ 9,185 $ 382,683 $ 1,031,437 $ Tax refunds payable 117,573 - 117,573 - Unemployment insurance benefits - 3,257 3,257 - Customer deposits - - – 29,170 Due to primary government - - – 125,596 Due to component units 10,594 - 10,594 38 Due to federal government - - – 4,142 Interest payable 47,151 - 47,151 10,390 Unearned revenues 258,375 9,810 268,185 31,803 Other current liabilities: Line of credit – - - 32,344 Loans and notes payable 15,075 63,873 78,948 4,820 Bonds payable 94,132 - 94,132 16,401 Other liabilities 11,184 6,951 18,135 33,053 Noncurrent liabilities: Loans and notes payable 4,315 41,328 45,643 88,706 Bonds payable 1,951,330 - 1,951,330 369,291 Net pension liability 3,246,789 - 3,246,789 903,041 Other postemployment benefits liability (OPEB) 774,507 - 774,507 117,674 Interest payable 5,136 - 5,136 - Other liabilities 355,072 54,497 409,569 154,354 Total liabilities 7,264,731 188,901 7,453,632 2,952,260 Deferred Inflows of Resources Deferred amounts related to OPEB 63,569 - 63,569 13,416 Deferred amounts related to pension 407,572 - 407,572 204,825 Total liabilities and deferred inflows of resources 7,735,872 $ 188,901 $ 7,924,773 $ 3,170,501 $ Net Position (Deficit) Net investment in capital assets 428,130 $ 42,025 $ 470,155 $ 1,481,460 $ Restricted: Unemployment insurance - 5,575 5,575 - Debt service 305,173 3,964 309,137 - Capital projects 258 3,021 3,279 - Other purposes - - – 201,727 Unrestricted deficit (5,751,631) (116,280) (5,867,911) (1,543,601) Total position (deficit) (5,018,070) $ (61,695) $ (5,079,765) $ 139,586 $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) September 30, 2019 Primary Government Statement of Net Position Governmental Activities Business-type Activities Total Component Units 23 Component Total Units Functions: Primary government: Governmental activities: General government 1,264,313 $ 26,295 $ 593,142 $ 10,986 $ (633,890) $ - $ (633,890) $ - $ Public safety 112,824 426 8,020 - (104,378) - (104,378) - Health 72,636 308 19,176 - (53,152) - (53,152) - Public housing and welfare 200,103 - 176,263 - (23,840) - (23,840) - Education 339,986 - 38,515 - (301,471) - (301,471) - Transportation and communication 53,037 454 6,514 14,959 (31,110) - (31,110) - Culture and recreation 9,512 1,988 - - (7,524) - (7,524) - Interest on long-term debt 101,683 - - - (101,683) - (101,683) - Total governmental activities 2,154,094 29,471 841,630 25,945 (1,257,048) - (1,257,048) Business-type activities: WICO 11,097 9,701 166 - - (1,230) (1,230) - Unemployment insurance 15,736 19,043 7,149 - - 10,456 10,456 - viNGN 9,588 3,707 215 - - (5,666) (5,666) - Government insurance 30,339 7,895 - - - (22,444) (22,444) - Other 35,795 29,496 17 - - (6,282) (6,282) - Total business-type activities 102,555 69,842 7,547 - - (25,166) (25,166) - Total primary government 2,256,649 $ 99,313 $ 849,177 $ 25,945 $ (1,257,048) $ (25,166) $ (1,282,214) $ – $ Component units: Virgin Islands Housing Authority 56,547 $ 7,363 $ 37,895 $ 2,967 $ - $ - $ - $ (8,322) $ Virgin Islands Port Authority* 106,579 62,237 - 4,524 - - - (39,818) Virgin Islands Water and Power Authority: Electric System 323,855 241,532 - 349,195 - - - 266,872 Water System 30,647 28,124 - 3,566 - - - 1,043 Virgin Islands Government Hospital and Health Facilities Corporation: Roy L. Schneider Hospital 79,986 67,014 23,596 49 - - - 10,673 Juan F. Luis Hospital 84,251 34,374 34,370 14,730 - - - (777) University of the Virgin Islands 93,440 55,903 28,566 4,992 - - - (3,979) Other component units* 678,946 20,980 616,209 4,995 - - - (36,762) Total component units 1,454,251 $ 517,527 $ 740,636 $ 385,018 $ - $ - $ - $ 188,930 $ Total primary government and component units 188,930 $ *Virgin Islands Port Authority and Virgin Islands Research and Technology Park Corporation (unaudited) See accompanying notes to financial statements. Expenses Operating Grants and Contributions Charges for Services Governmental Activities Government of the United States Virgin Islands (in thousands) Year Ended September 30, 2019 Program Revenues Statement of Activities Business-type Activities Net Revenue (Expense) and Changes in Net Position Primary Government Capital Grants and Contributions 24 Component Units General revenue: Taxes 989,050 $ - $ 989,050 $ - $ Payment in lieu of taxes 9,984 - 9,984 - Interest and other 84,529 7,185 91,714 8,472 Tobacco settlement rights 1,135 - 1,135 - Special item - loss on sale of capital assets (6,099) - (6,099) - Special item - insurance recoveries on capital assets, net 672 5,258 5,930 34,921 Transfers – internal activities of primary government (1,000) 1,000 - - Total general revenue and other items 1,078,271 13,443 1,091,714 43,393 Changes in net position (deficit) (178,777) (11,723) (190,500) 232,323 Net deficit, beginning of year, as restated (4,839,293) (49,972) (4,889,265) (92,737) Net deficit, end of year (5,018,070) $ (61,695) $ (5,079,765) $ 139,586 $ See accompanying notes to financial statements. Primary Government Year Ended September 30, 2019 Government of the United States Virgin Islands (in thousands) Net Revenue (Expense) and Changes in Net Position Statement of Activities Total Business-type Activities Governmental Activities 25 Assets Cash and cash equivalents 9,724 $ $19,469 22,021 $ 505 $ 117,418 $ 169,137 $ Investments, at fair value 178,001 373,331 79,480 - 5,308 636,120 Receivables: Taxes, net 104,090 43,322 - - - 147,412 Other 27 - - - 117 144 Due from federal government - - - 32,296 - 32,296 Due from: Other funds 53,930 - 37,128 - 31,734 122,792 Component units, net 116,487 - - - 8,875 125,362 Total assets 462,259 $ 436,122 $ 138,629 $ 32,801 $ 163,452 $ 1,233,263 $ Liabilities Accounts payable and accrued liabilities 202,561 $ - $ 25 $ 154,497 $ 16,415 $ 373,498 $ Tax refunds payable 117,573 - - - - 117,573 Unearned revenues 146,467 108,408 - - 3,500 258,375 Due to: Other funds 23,886 - - 8,809 42,319 75,014 Component units 8,700 - 1,891 - 3 10,594 Total liabilities 499,187 108,408 1,916 163,306 62,237 835,054 Deferred Inflows of Resources Unavailable revenues 57,154 22,541 - - - 79,695 Total liabilities and deferred inflows of resources 556,341 130,949 1,916 163,306 62,237 914,749 Fund balances (deficit) Restricted - 305,173 136,713 - 12,938 454,824 Committed 20,270 - - - 17,479 37,749 Assigned 716 - - - 129,722 130,438 Unassigned (115,068) - - (130,505) (58,924) (304,497) Total fund balances (deficit) (94,082) 305,173 136,713 (130,505) 101,215 318,514 Total liabilities, deferred inflows of resources and fund balances (deficit) 462,259 $ 436,122 $ 138,629 $ 32,801 $ 163,452 $ Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and therefore, are not reported in the funds. 915,789 Expenditures identified as related to a future period are recognized as a prepaid asset in the statement of net position. 7,876 Note receivable related to the sale of capital assets therefore, not reported in the funds. 10,583 Deferred costs of refunding bonds are not financial resources and are therefore, not reported in the funds. 5,763 Other long-term assets, primarily taxes receivable, will not be available to pay for current period expenditures and therefore, are deferred in the funds. 80,540 Deferred outflows and inflows of resources of pension and postemployment benefit liabilities are not current financial resources and therefore, are not included in the funds. 147,556 Interest on long-term debt is not accrued in the funds, but rather is recognized as an expenditure when due. (52,287) Long-term pension liabilities are not due and payable in the current period and therefore, are not reported in the funds. (3,246,789) Long-term postemployment benefit liabilities are not due and payable in the current period and therefore, are not reported in the funds. (774,507) Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore, are not reported in the funds. (2,431,108) Net deficit of governmental activities (5,018,070) $ See accompanying notes to financial statements. Governmental Other Governmental Government of the United States Virgin Islands September 30, 2019 Balance Sheet - Governmental Funds General PFA Debt Service PFA Capital Projects Federal Grants (in thousands) Total 26 PFA PFA Debt Capital Federal General Service Projects Grants Revenues Taxes 680,901 $ 341,691 $ - $ - $ 17,056 $ 1,039,648 $ Payment in lieu of taxes 9,984 - - - - 9,984 Federal grants and contributions 16,066 7,576 - 835,157 8,776 867,575 Charges for services 15,367 - - - 14,104 29,471 Tobacco settlement rights - - - - 1,157 1,157 Interest and other 44,465 9,630 2,593 23 27,253 83,964 Total revenues 766,783 358,897 2,593 835,180 68,346 2,031,799 Expenditures Current: General government 590,958 161 332 529,012 32,378 1,152,841 Public safety 75,611 - - 4,388 245 80,244 Health 33,955 - - 20,843 3,047 57,845 Public housing and welfare 51,207 - - 125,343 3,218 179,768 Education 200,895 - - 33,867 15,135 249,897 Transportation and communication 19,157 - - 2,678 18,113 39,948 Culture and recreation 6,842 - - - 24 6,866 Capital outlays 17,289 - 19,298 161,372 48,758 246,717 Debt service: Principal 5,644 84,397 - - 800 90,841 Interest 1,527 96,189 - - 266 97,982 Debt issuance costs 563 - - - - 563 Total expenditures 1,003,648 180,747 19,630 877,503 121,984 2,203,512 Excess (deficiency) of revenue over expenditures (236,865) 178,150 (17,037) (42,323) (53,638) (171,713) Other financing sources (uses) Bonds issued 17,773 - - - - 17,773 Proceeds from sale of assets 18,308 - - - - 18,308 Insurance recoveries - - - - 672 672 Transfers from other funds 158,817 3,513 - - 8,465 170,795 Transfers to other funds (11,357) (158,817) (121) - (1,500) (171,795) Total other financing sources (uses), net 183,541 (155,304) (121) - 7,637 35,753 Net change in fund balances (53,324) 22,846 (17,158) (42,323) (46,001) (135,960) Fund balances (deficit), beginning of year (40,758) 282,327 153,871 (88,182) 147,216 454,474 Fund balances (deficit), end of year (94,082) $ 305,173 $ 136,713 $ (130,505) $ 101,215 $ 318,514 $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) Year Ended September 30, 2019 Statement of Revenues, Expenditures, and Changes in Fund Balances − Governmental Funds Other Governmental Total Governmental 27 Year Ended September 30, 2019 Net change in fund balances – total governmental funds (135,960) $ Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation, impairment loss, and disposals in the current year. 170,735 Income from note receivable on disposal of assets and related interest income not producing current resources. 10,583 Tax revenue in the statement of activities, which do not provide current financial resources, are not reported as revenue in the funds. (50,620) The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of the governmental funds. This is the amount by which bond proceeds of $17.8 million is less than debt repayments of $90.8 million. 73,068 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. This is the amount by which the increase in certain liabilities reported in the statement of net position of the previous year increased expenses reported in the statement of activities that do not require the use of current financial resources. (10,857) Some expenses reported as prepaid assets in the statement of net position in the current year are recognized as expenses in the following year in the statement of activities. 658 Bond premiums and discounts are reported as other financing sources and uses in the governmental funds when the bonds are issued, and are capitalized and amortized in the government-wide financial statements. This amount represents additional net interest expense reported in the statement of activities related to the amortization of premiums, discounts, deferred refunding, and accreted interest on capital appreciation bonds during the current year. 3,297 Certain interest reported in the statement of activities does not require the use of current financial resources and therefore is not reported as expenditures in the governmental funds. This amount represents the increase in interest payable reported in the statement of net position. (2,901) Certain OPEB expense reported in the statement of activities does not require the use of current financial resources and therefore is not reported as expenditures in the governmental funds. This amount represents the increase in OPEB liabilities for the allocable share of OPEB expense reported in statement of net position. (9,615) Certain pension expense reported in the statement of activities does not require the use of current financial resources and therefore is not reported as expenditures in the governmental funds. This amount represents the increase in pension liabilities for the allocable share of pension expense reported in statement of net position. (227,165) Change in net deficit of governmental activities (178,777) $ See accompanying notes to financial statements. Government of the United States Virgin Islands Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities – Governmental Funds (in thousands) 28 Government WICO viNGN Insurance Total Assets Current assets: Cash and cash equivalents 3,875 $ 2,115 $ 1,480 $ 3,548 $ 22,613 $ 33,631 $ Restricted cash - - - - - - Investments, at fair value - - - - 1,668 1,668 Receivables, net: Grants receivable 118 - - - - 118 Premiums receivable - 1,277 - - - 1,277 Other receivables 2,307 - 681 - 866 3,854 Due from other funds - - - - 299 299 Other assets 780 - 395 - 46 1,221 Total current assets 7,080 3,392 2,556 3,548 25,492 42,068 Noncurrent assets: Restricted cash and cash equivalents 6,985 5,575 - - - 12,560 Other noncurrent receivables - - - - - - Capital assets 42,645 - 62,762 - 15,248 120,655 Total noncurrent assets 49,630 5,575 62,762 - 15,248 133,215 Total assets 56,710 $ 8,967 $ 65,318 $ 3,548 $ 40,740 $ 175,283 $ Liabilities Current liabilities: Accounts payable and accrued liabilities 709 $ - $ 265 $ 1,754 $ 6,457 $ 9,185 $ Due to other funds 8,011 - 36,804 - 3,262 48,077 Unemployment insurance benefits - 3,257 - - 3,257 Workers compensation - - - 6,025 - 6,025 Loan payable to U.S. Treasury - 63,375 - - - 63,375 Unearned revenue - - - 523 9,287 9,810 Compensated absences payable 926 - - - - 926 Loans payable related to capital assets 498 - - - - 498 Total current liabilities 10,144 66,632 $37,069 8,302 19,006 141,153 Noncurrent liabilities: Workers compensation - - - 53,433 - 53,433 Compensated absences payable 1,064 - - - - 1,064 Loans payable related to capital assets 41,328 - - - - 41,328 Total noncurrent liabilities 42,392 - - 53,433 - 95,825 Total liabilities 52,536 $ 66,632 $ 37,069 $ 61,735 $ 19,006 $ 236,978 $ Net Position (Deficit) Net investment in capital assets 819 $ - $ 25,958 $ - $ 15,248 $ 42,025 $ Restricted: Unemployment insurance - 5,575 5,575 Debt service 3,964 - - - - 3,964 Capital projects 3,021 - - - - 3,021 Unrestricted (deficit) (3,630) (63,240) 2,291 (58,187) 6,486 (116,280) Total net position (deficit) 4,174 $ (57,665) $ 28,249 $ (58,187) $ 21,734 $ (61,695) $ See accompanying notes to financial statements. September 30, 2019 Business-type Activities Government of the United States Virgin Islands Statement of Net Position – Proprietary Funds (in thousands) Unemployment Insurance Other Enterprise 29 Government WICO viNGN Insurance Total Operating revenues Charges for services 9,701 $ 19,043 $ $3,707 7,895 $ 29,496 $ 69,842 $ Operating expenses Cost of services 4,940 15,736 4,544 30,339 34,449 90,008 Depreciation and amortization 3,207 - 5,044 - 1,346 9,597 Total operating expenses 8,147 15,736 9,588 30,339 35,795 99,605 Operating (loss) income 1,554 3,307 (5,881) (22,444) (6,299) (29,763) Non-operating revenues (expenses) Grants revenue 166 7,149 215 - 17 7,547 Interest and other income 184 42 4 - 6,955 7,185 Payment in lieu of taxes (700) - - - - (700) Interest expense (2,250) - - - - (2,250) Total non-operating (expenses) revenues, net (2,600) 7,191 219 - 6,972 11,782 (Loss) income before operating transfers and special item (1,046) 10,498 (5,662) (22,444) 673 (17,981) Transfers from other funds - - - - 1,000 1,000 Insurance recoveries 3,982 - 1,276 - - 5,258 Change in net position $2,936 10,498 ($4,386) (22,444) 1,673 (11,723) Net position (deficit), beginning of year 1,238 (68,163) 32,635 (35,743) 20,061 (49,972) Net position (deficit), end of year 4,174 $ (57,665) $ 28,249 $ (58,187) $ 21,734 $ (61,695) $ See accompanying notes to financial statements. Year Ended September 30, 2019 Business-type Activities (in thousands) Statement of Revenues, Expenses, and Changes in Net Position − Proprietary Funds Government of the United States Virgin Islands Unemployment Insurance Enterprise Other 30 Unemployment Government WICO viNGN Insurance Total Cash flows from operating activities Cash received from customers and users 9,283 $ 19,043 $ 4,021 $ 7,895 $ 29,339 $ 69,581 $ Cash paid to beneficiaries and suppliers (2,112) (15,736) (2,387) (6,545) (31,636) (58,416) Cash paid to employees (2,881) - (3,075) - - (5,956) Net cash provided by (used in) operating activities 4,290 3,307 (1,441) 1,350 (2,297) 5,209 Cash flows from noncapital financing activities Other income - 42 - - 6,955 6,997 Transfer from other funds - - - - 1,000 1,000 Federal grants 547 7,149 565 - 17 8,278 Contribution to the Government (38) - - - - (38) Principal paid on debt issuances, including interest - (5,215) - - - (5,215) Net cash provided by noncapital financing activities 509 1,976 565 - 7,972 11,022 Cash flows from capital and related financing activities Acquisition and construction of capital assets (398) - (805) - (1,070) (2,273) Proceeds from sale of capital assets 5 - - - - 5 Proceeds from insurance recoveries 3,982 - 1,276 - - 5,258 Principal payments on loan payable (820) - - - - (820) Interest paid (2,250) - - - - (2,250) Net cash provided by (used in) capital and related financing activities 519 - 471 - (1,070) (80) Cash flows from investing activities Interest income 41 - 4 - - 45 Purchase of investments - - - - (7) (7) Net cash provided by (used in) investing activities 41 - 4 - (7) 38 Net increase (decrease) in cash and cash equivalents 5,359 5,283 (401) 1,350 4,598 16,189 Cash and cash equivalents, beginning of year 5,501 2,407 1,881 2,198 18,015 30,002 Cash and cash equivalents, end of year 10,860 $ 7,690 $ 1,480 $ 3,548 $ 22,613 $ 46,191 $ Reconciliation of operating (loss) income to net cash provided by (used in) operating activities Operating (loss) income 1,554 $ 3,307 $ (5,881) $ (22,444) $ (6,299) $ (29,763) $ Adjustments to reconcile operating (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization 3,207 - 5,044 - 1,346 9,597 Other income 137 - - - - 137 Provision for doubtful accounts 95 - - - - 95 Change in operating assets and liabilities: Receivables, net (647) - 314 - 101 (232) Unearned revenue - - - - (258) (258) Other assets (43) - (843) (381) 30 (1,237) Accounts payable and accrued liabilities (26) - (75) 711 2,570 3,180 Compensated absences payable 16 - - - - 16 Customer deposits (3) - - - - (3) Workers compensation - - - 23,464 - 23,464 Due to other funds - - - - 213 213 Net cash provided by (used in) operating activities 4,290 $ 3,307 $ (1,441) $ 1,350 $ (2,297) $ 5,209 $ See accompanying notes to financial statements. Year Ended September 30, 2019 Business-type Activities (in thousands) Statement of Cash Flows − Proprietary Funds Government of the United States Virgin Islands Insurance Other Enterprise 31 Unemployment WICO viNGN Insurance Total Reconciliation of cash and cash equivalents to the statement of net position Cash and cash equivalents – current 3,875 $ 2,115 $ 1,480 $ 3,548 $ 22,613 $ 33,631 $ Cash and cash equivalents – restricted 6,985 5,575 - - - 12,560 Total cash and cash equivalents, end of year 10,860 $ 7,690 $ 1,480 $ 3,548 $ 22,613 $ 46,191 $ See accompanying notes to financial statements. Year Ended September 30, 2019 Insurance Enterprise Government of the United States Virgin Islands Statement of Cash Flows − Proprietary Funds (in thousands) Business-type Activities Other Government 32 Pension September 30, 2019 Trust Assets Cash and cash equivalents: Unrestricted 132,259 $ 36,681 $ Restricted 18 - Investments, at fair value: Certificate of deposits - 2,284 U.S. Government and agency obligations 19,912 - Corporate obligations 26,482 - Mortgage and asset backed securities 31,539 - Commingled and mutual funds 344,899 - Investment loans 14,883 - Limited partnerships 14,529 - Real estate 63,610 - Receivables, net: Loans and advances 49,998 - Accrued interest 1,766 - Other assets 11,457 - Total assets 711,352 $ 38,965 $ Liabilities Accounts payable and accrued liabilities - $ 38,965 $ Benefits in process of payment 2,996 - Other liabilities 30,236 - Total liabilities 33,232 38,965 Net position restricted for pension benefits 678,120 $ - $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) Statement of Fiduciary Net Position Agency 33 Pension Year Ended September 30, 2019 Trust Additions Contributions: Employer 106,184 $ Plan members 49,035 Total contributions 155,219 Investment income: Net appreciation of fair value of investments 19,068 Interest, dividends, and other, net 19,448 Real estate – net rental income 2,342 Total investment income 40,858 Less investment expense 696 Investment income, net 40,162 Other income 4,820 Total additions 200,201 Deductions Benefits paid 263,330 Refunds of contributions 12,408 Administrative and operational expenses 15,163 Total deductions 290,901 Change in net position (90,700) Net position restricted for pension benefits, beginning of year 768,820 Net position restricted for pension benefits, end of year 678,120 $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) Statement of Changes in Fiduciary Net Position 34 Government of the United States Virgin Islands Notes to Basic Financial Statements 35 1. Summary of Significant Accounting Policies The Government of the United States Virgin Islands (the Government) is an unincorporated organized territory of the United States of America. The powers of the Government are derived from and set forth in the Revised Organic Act of 1954, as amended. The Government assumes responsibility for public safety, health, public housing and welfare, education, transportation and communication, and culture and recreation. The accompanying basic financial statements of the Government have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB). The accompanying basic financial statements have been prepared primarily from accounts maintained by the Department of Finance of the Government. Additional data has been derived from reports prepared by other departments, agencies, and public corporations based on independent or subsidiary accounting systems maintained by them. Financial Reporting Entity For financial reporting purposes, the Government is a primary government (PG). The PG includes all Government departments, agencies, boards, and organizations that are not legally separate. In addition to the PG, the financial reporting entity includes blended and discretely presented component units. Component units include all legally separate organizations for which the Government’s elected officials are financially accountable and organizations for which the nature and significance of their relationship with the PG are such that exclusion would cause the reporting entity’s financial statements to be misleading. The criteria used to define financial accountability include: (i) if an organization is fiscally dependent on, and there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the PG, (ii) a government board appointed by a higher level of government, or (iii) a jointly appointed board. The financial statements of the following component units are included in the financial reporting entity either as blended or as discretely presented component units in accordance with GAAP: (a) Blended Component Units   The following public benefit corporations, while legally separate from the Government, meet the criteria to be reported as part of the PG because they provide services entirely or almost entirely to the Government: Virgin Islands Public Finance Authority (PFA) PFA was created as a public corporation and autonomous governmental instrumentality by Act No. 5365, the Government Capital Improvement Act of 1988, with the purpose of aiding the Government in the performance of its fiscal duties and in effectively carrying out its governmental responsibility of raising capital for essential public projects. Under the enabling legislation, PFA has the power, among other matters, to borrow money and issue bonds and to lend the proceeds of its bonds to the Government or any governmental instrumentality. Government of the United States Virgin Islands Notes to Basic Financial Statements 36 The powers of PFA are exercised by a board of directors consisting of the Governor (Chairperson), the Commissioner of Finance, the Director of the Office of Management and Budget, and two representatives of the private sector appointed by the Governor with the advice and consent of the Legislature (the Legislature). PFA activities are blended within the PG and are reported as major funds, except for PFA Special Revenue Fund. PFA’s blended component units, The West Indian Company Limited (WICO) and viNGN, INC. d/b/a Virgin Islands Next Generation Network (viNGN) are presented as major proprietary funds while King’s Alley Management, Inc. and Lonesome Dove Petroleum, Inc. are included in other nonmajor proprietary funds in the Government’s basic financial statements. Tobacco Settlement Financing Corporation (TSFC) TSFC was created in September 2001 under Act No. 6428 as a separate and independent corporation of the Government to purchase the rights, title, and interest in tobacco settlement litigation awards and to issue revenue bonds supported by the tobacco settlement rights. The responsibility for the operations of TSFC is vested in a board of directors composed of three members: the Governor and two independent members – one appointed by the Governor and one appointed by the president of the Legislature. The activities of TSFC are limited to activities conducted on behalf of the Government. The TSFC is reported in the other governmental funds. Complete audited financial statements of PFA and TSFC blended component units can be obtained directly by contacting their respective administrative offices: Administrative Offices of Blended Component Units Virgin Islands Public Finance Authority 5033 Kongens Gade, Government Hill St. Thomas, VI 00802 Tobacco Settlement Financing Corporation 5033 Kongens Gade, Government Hill St. Thomas, VI 00802 (b) Discretely Presented Component Units The following component units, as required by GAAP are discretely presented in the basic financial statements because of the nature of the services they provide and the Government’s ability to impose its will. The component units are reported in a separate column to emphasize that they are legally separate from the PG and governed by separate boards. Government of the United States Virgin Islands Notes to Basic Financial Statements 37 (c) Major Component Units Virgin Islands Housing Authority (VIHA) VIHA was created as a public corporation and autonomous governmental instrumentality by Act No. 903 on June 18, 1962, with the purpose of providing housing for low and moderate-income families residing in the U.S. Virgin Islands. The majority of VIHA funding is through two contractual agreements with Housing and Urban Development (HUD). VIHA is required to make payments in lieu of taxes to the PG when residual receipts are available, and whereby the PG agrees to provide municipal services and continue the tax-exempt status of VIHA projects. VIHA is governed by a board of commissioners. The governing board is autonomous and responsible to HUD. An executive director is appointed by VIHA’s Board to manage the day-to-day operations. Virgin Islands Port Authority (VIPA) VIPA was created as a public corporation and autonomous government instrumentality by Act No. 2375 on December 23, 1968, with the purposes of owning, operating, and managing air and marine terminals of the U.S. Virgin Islands. The powers of VIPA are exercised by a board of governors consisting of the Commissioner of Economic Development and Agriculture (Chairperson), the Attorney General, the Commissioner of Public Works, the Director of the Small Business Development Agency, and five other persons appointed by the Governor with the advice and consent of the Legislature. Virgin Islands Water and Power Authority (WAPA) WAPA was created as a public corporation and autonomous governmental instrumentality by Act No. 1248 on August 13, 1964, with the purpose of operating the water production and electric generation plants in the U.S. Virgin Islands. The powers of WAPA are exercised by a governing board consisting of nine members, all appointed by the Governor with the advice and consent of the Legislature, from which three are heads of cabinet-level executive departments or agencies and six other persons, who are nominated by the Legislature. WAPA is required by its bond resolutions to maintain separate audited financial statements for each system (the Electric and Water Systems). Virgin Islands Government Hospital and Health Facilities Corporation (VIGHHFC) VIGHHFC was created by Act No. 6012 on August 23, 1994 and became active on May 1, 1999, with the purpose of providing healthcare services and hospital facilities to the people of the U. S. Virgin Islands. The powers of VIGHHFC are exercised by a board of directors consisting of 15 members as follows: the Director of the Office of Management and Budget, the Commissioner of Finance, and 13 other members appointed by the Governor with the advice and consent of the Legislature. The VIGHHFC is composed of the Schneider Regional Medical Center located in St. Thomas, the Governor Juan F. Luis Hospital and Medical Center located in St. Croix, and the Schneider Regional Medical Center Foundation (the Foundation). The hospitals issue separately audited financial statements. The Schneider Regional Medical Center’s financial statements include its component units: the Myra Keating Smith Community Health Center (Health Center) of St. John and the Charlotte Kimelman Cancer Institute (Cancer Institute) on St. Thomas. The Cancer Institute has remained closed following the 2017 hurricanes. The Health Center and Cancer Institute are legally separate organizations for which the Roy L. Schneider Hospital is financially accountable. Government of the United States Virgin Islands Notes to Basic Financial Statements 38 The Foundation is a legally separate nonprofit corporation for which the Schneider Regional Medical Center is financially accountable. The Juan F. Luis Hospital and Medical Center’s financial statements include its component unit: Virgin Islands Cardiac Center at the Governor Juan F. Luis Hospital and Medical Center, Inc. (VICC Foundation). VICC Foundation is a legally separate nonprofit corporation for which the Juan F. Luis Hospital and Medical Center is financially accountable. University of the Virgin Islands (the University) The University was organized as an instrumentality of the Government under Act No. 852 on March 16, 1962, in accordance with Section 16(a) of the Revised Organic Act of 1954, as amended. The University is a higher education institution that offers four-year liberal arts degree and master’s degree programs and associates degrees in arts and occupational programs. The powers of the University are exercised by a board of trustees consisting of 17 members as follows: Chairman of the Board of Education, Commissioner of Education, and the President of the University, all serving as members ex-officio, 9 other members appointed by the Governor with the advice and consent of the Legislature, two other members elected by the board of trustees, one representative of the student body, one alumnus of the University, and another representative of the teaching faculty. The University was not organized as a self-sustaining entity and therefore receives financial and other support from the Government. The University’s financial statements include a blended and discretely presented component unit, the Foundation for the University of the Virgin Islands. This organization operates as a nonprofit corporation whose purpose is to assist and support the University in accomplishing its charitable and educational mission. The Foundation for the Reichhold Center for the Arts is also a discretely presented component unit of the University that supports the arts and provides financial assistance in operating an entertainment complex on the St. Thomas campus of the University. (d) Other Component Units (Nonmajor) Virgin Islands Economic Development Authority (EDA) EDA was created by Act No. 6390 on December 21, 2000, as a public corporation and semiautonomous instrumentality of the Government. EDA was created as an umbrella authority of the Economic Development Commission, the Small Business Development Agency, the Government Development Bank, and the Virgin Islands Industrial Development Park Corporation. The powers of EDA are exercised by a board of directors consisting of the members of the Virgin Islands Economic Development Commission, the Director of the Virgin Islands’ Bureau of Internal Revenue, and five members not employed by the Government, but appointed by the Governor with the advice and consent of the Legislature. Magens Bay Authority (MBA) MBA was created as a corporate instrumentality by Act No. 2085 on December 20, 1967, with the purpose of acquiring, improving, and operating parks and beaches. The powers of MBA are exercised by a board of directors consisting of the Governor and six members initially appointed by the Governor. The board of directors is responsible for the appointment and reappointment of subsequent board members except that the Governor, with the advice and consent of the Legislature may, by appointment, fill any vacancy on the board of directors remaining unfilled for sixty days. Government of the United States Virgin Islands Notes to Basic Financial Statements 39 Virgin Islands Housing Finance Authority (VIHFA) VIHFA was created as a public corporation and autonomous governmental instrumentality by Act No. 4636 on October 20, 1981, with the purpose of stimulating low and moderate-income housing construction and home ownership through the issuance of revenue bonds to provide low-interest mortgage loans to qualified purchasers of low and moderate-income housing. On October 31, 2008, VIHFA established the Virgin Islands Housing Management, Inc. (VIHM), a wholly owned nonprofit subsidiary that manages VIHFA’s rental properties. The financial statements of VIHM are separately issued, and not blended into the PG. The powers of VIHFA are exercised by a board of directors consisting of the Commissioner of the Department of Housing, Parks, and Recreation (the Chairman), the Director of the Office of Management and Budget, and three persons not employed by the Government appointed by the Governor with advice and consent of the Legislature. Virgin Islands Public Broadcasting System (VIPBS) VIPBS was created as a public corporation and autonomous instrumentality by Act No. 2364 on November 15, 1968, with the purpose of advancing the general welfare, education, cultural development, and awareness of public affairs of the population of the U.S. Virgin Islands as well as to provide an effective supplement to the in-school education of children. The powers of VIPBS are exercised by a board of directors consisting of the Commissioner of Education, the Chairman of the Board of Education, three members appointed by the President of the Legislature, and four members, not more than two of whom should be employed by the Government and appointed by the Governor with the advice and consent of the Legislature. In addition, the Director of the Office of Management and Budget, the President of the University of the Virgin Islands, and the General Manager of VIPBS are ex-officio members of the board who are not entitled to vote. Virgin Islands Waste Management Authority (VIWMA) VIWMA was established as an autonomous instrumentality of the Government by Act No. 6638 and approved by the Governor of the Virgin Islands on January 23, 2004. VIWMA provides environmentally sound management for the collection and disposal of solid waste in the Territory, including operation and closure of landfills and wastewater collection, treatment, and disposal. VIWMA is governed by a Board of Directors consisting of seven members. University of the Virgin Islands Research and Technology Park Corporation (RTPark) RTPark was established as an autonomous instrumentality of the Government by Act 6502 on February 21, 2002, as amended, by Act 6725, the Protected Cell Amendments Act of 2005. RTPark was organized for internet commerce and technology, providing an enabling environment for research, development, business incubation and technology-driven businesses. RTPark is governed by a Board of Directors consisting of seven members, including the Chairman of the Board of Trustees of the University, the President of the University, two trustees selected from among the Board of Trustees of the University, and three members selected by the Governor. Government of the United States Virgin Islands Notes to Basic Financial Statements 40 Complete audited financial statements of the discretely presented component units can be obtained directly by contacting their administrative offices: Administrative Offices Virgin Islands Housing Authority 9900 Oswald Harris Court St. Thomas, VI 00802 Virgin Islands Port Authority P.O. Box 301707 St. Thomas, VI 00803-1707 Virgin Islands Water and Power Authority P.O. Box 1450 St. Thomas, VI 00804-1450 Virgin Islands Government Hospital and Health Facilities Corporation 9048 Sugar Estate, 2nd floor St. Thomas, VI 00802 University of the Virgin Islands 2 John Brewer’s Bay St. Thomas, VI 00802 Virgin Islands Economic Development Authority 8000 Nisky Shopping Center, Suite 620 St. Thomas, VI 00802 Magens Bay Authority P.O. Box 10583 St. Thomas, VI 00801 Virgin Islands Housing Finance Authority 3202 Demarara Frenchtown Plaza, Suite 200 St. Thomas, VI 00802 Virgin Islands Public Broadcasting System P.O. Box 7879 St. Thomas, VI 00801 Virgin Islands Waste Management Authority 1 A&B Demarara St. Thomas, VI, 00802 University of the Virgin Islands Research and Technology Park Corporation RR1 Box 10000 Kingshill, St. Croix, VI 00850-9781 Government of the United States Virgin Islands Notes to Basic Financial Statements 41 All financial statements of the discretely presented component units have a fiscal year end of September 30, 2019, except for WAPA and VIHA which have a fiscal year-end of June 30, 2019 and December 31, 2018, respectively. (e) Fiduciary Component Unit The following public benefit corporation is legally separate from the Government, meets the definition of a blended component unit, and is presented in the fund financial statements along with other fiduciary funds of the Government. Fiduciary funds are not reported in the government- wide financial statements. Government Employees’ Retirement System of the of the U.S. Virgin Islands (GERS) GERS was created as an independent and separate agency of the Government with the purpose of administering the Government’s and the component units’ cost-sharing, multi-employer defined benefit pension plan. GERS was established on October 1, 1959. The responsibility for the operation of GERS is vested in a board of trustees composed of seven members appointed by the Governor with the advice and consent of the Legislature. Employee and employer contributions to GERS are recognized as additions to net position held in trust for employees’ pension benefits in the period in which employee services are performed, except for contributions pursuant to the Early Retirement Act of 1994, which are recorded as the cash is received. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan, except for benefits pursuant to sections 8(a) and 8(b) of the Early Retirement Act of 1994, which are recorded when the subsidy provided by the Government is receivable and payable. Complete audited financial statements of this component unit can be obtained directly by contacting its administrative office: Government Employees’ Retirement System of the U.S. Virgin Islands 3438 Kronprindsens Gade St. Thomas, VI 00802 Government of the United States Virgin Islands Notes to Basic Financial Statements 42 Government-wide and Fund Financial Statements The government-wide financial statements (that is, the statement of net position and the statement of activities) report information on all the non-fiduciary activities of the PG and its component units. The effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenue, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the PG is reported separately from certain legally separate component units for which the PG is financially accountable. The statement of net position presents the reporting entities’ non-fiduciary assets, deferred outflows of resources, liabilities and deferred inflows of resources, with the difference reported as net position. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include (i) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and (ii) grants and contributions that are restricted to meeting the operational or capital requirements of a function or segment. Taxes and other items are not included among program revenues and are appropriately reported instead, as general revenue. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (a) Government-wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting in conformity with GAAP as prescribed by the GASB. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue when eligibility requirements have been met. (b) Governmental Fund Financial Statements The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized when it is both measurable and available. Revenues are deemed available when they become susceptible to accrual and are collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Government considers most revenue to be available if collected within 90 days of the end of the current fiscal year-end. Specifically, gross receipts taxes, real property taxes, and income taxes are deemed available if collected within 30, 60, and 90 days, respectively, after the end of the current fiscal year-end. Government of the United States Virgin Islands Notes to Basic Financial Statements 43 Grant revenue is deemed available if collected within the 12 months after the end of the current fiscal year-end. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, compensated absences, debt service, other postemployment benefits and pension expenditures are recorded only when payment is due. Income taxes, gross receipts taxes, real property taxes, and grant funding are all considered to be susceptible to accrual and have been recognized as revenue of the current fiscal period to the extent they are considered available. All other revenue items are deemed measurable and available only when cash is received by the Government. (c) Proprietary Funds, Fiduciary Funds, and Discretely Presented Component Units Financial Statements The financial statements of the proprietary funds, fiduciary funds, and discretely presented component units are reported using the economic resources measurement focus and the accrual basis of accounting also used in the government-wide financial statements described above. Proprietary funds distinguish operating revenue and expenses from non-operating items. Operating revenue and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Fund Accounting The Government reports its financial position and results of operations in funds, which are considered separate accounting entities. The operations of each fund are accounted for within a set of self-balancing accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with legal, financial, and contractual provisions. Generally accepted governmental accounting principles establish criteria (percentage of the assets, liabilities, revenue, or expenditures/expenses of either fund category or the governmental and enterprise funds combined) for the determination of major funds. Indirect costs are automatically allocated and reported in the program expense for each fund. Non-major funds are combined in a single column in the fund financial statements. The Government reports the following major funds: (a) Governmental Funds The Government reports the following major governmental funds:  General Fund – The general fund is the Government’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.  PFA Debt Service Fund – PFA debt service fund accounts for the resources accumulated, and payments made, for principal and interest on long-term general obligation debt issued by PFA on behalf of the Government. Government of the United States Virgin Islands Notes to Basic Financial Statements 44  PFA Capital Projects Fund – PFA capital projects fund accounts for bond proceeds of debt issued by PFA on behalf of the Government. The bond proceeds have been designated for certain necessary public safety and capital development projects which are accounted for in this fund.  Federal Grants Fund - The federal grants fund accounts for proceeds and payments that are restricted to expenditures for specified purposes. (b) Proprietary Funds These funds account for those activities for which the intent of management is to recover, primarily through user charges, the cost of providing goods or services to the general public. The Government reports the following major proprietary funds:  The West Indian Company Limited – WICO, a blended component unit of PFA, accounts for the activities of a cruise ship pier and shopping mall complex on the island of St. Thomas.  Unemployment Insurance Fund – The unemployment insurance fund accounts for the collection of unemployment premiums from employers in the U.S. Virgin Islands, and the payment of unemployment benefits to eligible unemployed recipients.  viNGN, INC. d/b/a as Virgin Islands Next Generation Network (viNGN) – viNGN, a blended component unit of PFA, accounts for the management of a middle mile wholesale fiber optic network providing reliable high-speed internet access to retail internet service providers and public infrastructure stewards.  Government Insurance Fund – GIF provides insurance protection for workers in the U.S. Virgin Islands in the event of job accidents. (c) Fiduciary Funds Fiduciary funds are used to account for assets held by the Government in a trustee capacity, or as an agent for individuals, private organizations, and other governmental units. The following are the Government’s fiduciary funds:  Pension Trust Fund – The pension trust fund accounts for the activities of GERS, an independent and separate agency of the Government, responsible for the proper operation of the Government’s defined benefit pension plan.  Agency Fund – The agency fund is custodial in nature and does not involve measurement of the results of operations. Cash and Cash Equivalents The Government follows the practice of pooling cash. The balance in the pooled cash accounts is available to meet current operating requirements and any excess is invested in various interest-bearing accounts and time deposits with eligible depository institutions. Government of the United States Virgin Islands Notes to Basic Financial Statements 45 Cash equivalents of the proprietary funds and discretely presented component units consist of demand accounts, money market accounts, certificates of deposit with maturities of not more than 90 days from the date of acquisition, money market funds, short-term U.S. government and its agencies’ obligations, and repurchase agreements with a U.S. commercial bank maturing within three months. Cash and cash equivalents of the discretely presented component units are maintained in separate bank accounts from those of the PG, in their own names. By law, banks, or trust companies designated as depositories of public funds of the Government are to maintain corporate surety bonds or pledge collateral satisfactory to the Commissioner of Finance to secure all governmental funds deposited. The Government maintains an irrevocable stand-by letter of credit in the amount of $275.0 million with the Federal Home Loan Bank of New York to serve as pledged collateral for public fund depositories held at Banco Popular de Puerto Rico. For the purpose of the statement of cash flows, cash and cash equivalents are defined to be cash on hand, demand deposits, restricted cash and investments, and highly liquid investments with a maturity of three months or less from the date of purchase. For financial statement presentation purposes, cash and cash equivalents are shown as cash and investments and restricted cash and investments. Investments The PG and its component units follow the provisions of GAAP which establishes and modifies the following disclosure requirements related to investment risks: credit risk (including custodial credit risk and concentrations of credit risk), interest rate risk, and foreign currency risk. Investment policies of the PG, its blended component units, major funds, and major component units are as follows:  Primary Government Investment Policies – Title 33, Chapter 117 of the Virgin Islands Code (V.I. Code) authorizes the Government to invest in U.S. Government and its agencies’ obligations, mortgage-backed securities, repurchase agreements, commercial paper, local government obligations, and corporate debt and equity obligations. As of September 30, 2019, the General Fund, the Virgin Islands Lottery, and an agency fund had invested in certificates of deposit with two local banks. Another nonmajor enterprise fund had invested in a certificate of deposit with UniCredit Bank. Investments are reported at fair value at September 30, 2019.  PFA Investment Policies – Investments of PFA are reported at fair value. Various bond resolutions of PFA restrict investments to direct obligations of the U.S. Government, territories, possessions and states, specific bank obligations, investment agreements or similar funding agreements, shares or other interests in mutual funds, trusts or investment companies, corporate commercial paper, and money market portfolios consisting of any of the foregoing. PFA has retained investment managers and investments are held in trust by a commercial bank on behalf of PFA. PFA handles investments for two major governmental funds of the Government: PFA Debt Service Fund and PFA Capital Projects Fund. Government of the United States Virgin Islands Notes to Basic Financial Statements 46  Tobacco Settlement Financing Corporation Investment Policies – Various bond resolutions of this blended component unit restrict investments to direct obligations of the U.S. Government, territories, possessions and states, specific bank obligations, investment agreements or similar funding agreements, shares or other interests in mutual funds, trusts or investment companies, corporate commercial paper, and money market portfolios consisting of any of the foregoing. TSFC has retained investment managers and investments are held in trust by a commercial bank on behalf of the TSFC. Investments are reported at fair value in the non-major governmental fund of the Government.  VIHA Investment Policies – This major component unit is required by the U.S. Department of Housing and Urban Development (HUD) to invest excess funds in obligations of the United States, certificates of deposit, or any other federally insured investment. HUD requires that deposits be fully collateralized and may be held by an unaffiliated bank or trust company for the account of the VIHA.  WAPA and VIPA Investment Policies – These major component units are authorized under bond resolutions and the V.I. Code to invest in open accounts, time deposits, non-negotiable certificates of deposit, repurchase agreements, obligations of the U.S. government, and obligations of any state within the United States, mutual funds, and corporate commercial paper. Investments are reported at fair value.  VIGHHFC Investment Policies – The board of trustees of this major component unit has not developed a formal investment policy.  University Investment Policies – The board of trustees of this major component unit is responsible for the management of the University’s investments and establishes an investment policy, which is carried out by the Vice President for Administration and Finance. The University and its component unit, the Foundation for the Reichhold Center of the Arts have a formal investment policy approved by their corresponding board of trustees, which contains a requisite section on addressing risks. The University’s investments are included in the Foundation’s investment portfolio for management and investment purposes.  Pension Trust Fund Investment Policies – The board of trustees of GERS has enacted policies that limit investments in certain investment categories and provide requirements for the institutions managing investments. Under those policies, GERS may invest in U.S. Government and agencies obligations, bonds or notes of any state, territory or possession of the United States, municipal bonds and obligations, foreign bonds, bonds of domestic railroad corporations, public utility bonds, industrial corporate bonds or trust certificates, common and preferred shares of foreign and domestic corporations, mutual funds, mortgage or personal loans to GERS members or retirees, and mortgage and asset-backed securities. Investments in bonds are subject to rating restrictions of BBB and may not exceed 2% of the total GERS investment portfolio. Investments in stock of a single corporation may not exceed 1% of the market value of the fund or exceed 1% of the outstanding stock of the corporation. The aggregate amount of investments in stock may not exceed 60% of the market value of total investments of GERS. Investment in foreign stock should be limited to 10% of the market value of the total investments of GERS. Any investment of 20% or more of the aggregate value of the portfolio must be approved by two-thirds of the membership of the board of trustees. Government of the United States Virgin Islands Notes to Basic Financial Statements 47 The investments are administered by several professional investment managers and are held in trust by a commercial bank on behalf of GERS. Investments in equity securities in the GERS pension trust fund are reported at quoted market values. Shares of mutual funds are reported at the net asset value of shares held by GERS at year-end. Purchases and sales are recorded on a trade-date basis. Realized gains and losses on securities are determined by the average cost method. GERS is authorized to provide loans to businesses approved by the Board of Trustees as alternative investments. On December 8, 2009, GERS executed a loan agreement with Carambola Northwest, LLC (Carambola), a condominium, hotel, and golf resort on the island of St. Croix. The five-year term loan in the amount of $15.0 million was collateralized with all real property holdings of Carambola, with an interest rate of 10.5% per annum. Carambola subsequently went into default on the loan agreement. On May 11, 2013, GERS exercised its rights under the loan agreement and executed a preliminary Disposition Agreement with Carambola assuming management and ownership of the resort complex. On July 5, 2019, GERS sold the resort for $10.4 million. On September 24, 2013, GERS entered into a loan agreement with KAZI Foods of the Virgin Islands, Inc. in the amount of $6.0 million at an interest rate of 6.25%, and a maturity date of October 23, 2023. At September 30, 2019, the outstanding principal balance on the loan is $3.4 million. On June 30, 2014, GERS entered into a construction loan agreement with V.I. Finest Foods, LLC in the amount of up to $8.2 million at an interest rate of 6.4%, with an interest-only period of 17 months and a fully amortizing period of 103 months. The loan was subsequently modified on May 24, 2016, to provide an increase in the principal amount of the loan to $11.0 million and an extended maturity date of March 31, 2025. At September 30, 2019, the outstanding balance of the loan is $11.4 million. On March 5, 2020, GERS sold the building to the University for $8.4 million, retaining a debt obligation of $1.8 million from V.I. Finest Foods, LLC. GERS has also invested in Havensight Mall, a shopping complex on the island of St. Thomas with a fair market value of $41.0 million and the limited partnership Mesirow with a fair market value of $14.5 million at September 30, 2019. GERS owns administrative facilities on the islands of St. Thomas and St. Croix. Portions of the facilities are leased to government agencies and commercial tenants, and portions of the facilities are utilized for GERS operations. The investment in leased real estate is reported at its appraised value, and the portion used for GERS operations is reported at depreciated cost. The amount of $22.6 million was reported net of depreciation at September 30, 2019. Receivables Taxes receivable represent amounts owed by taxpayers for individual and corporate income taxes, gross receipts taxes, excise taxes, hotel occupancy taxes, and real property taxes. Federal government receivables represent amounts owed to the Government for reimbursement of expenditures/expenses incurred pursuant to federally funded programs. Accounts receivable are reported net of estimated allowances for uncollectible amounts, which are determined, based upon past collection experience and current economic conditions. Government of the United States Virgin Islands Notes to Basic Financial Statements 48 The accounts receivable from non-governmental customers of the discretely presented component units are net of estimated uncollectible amounts. These receivables arise primarily from service charges to users. Interfund and Intra-Entity Transactions The Government has the following types of transactions among funds:  Interfund Transfers – Legally required transfers are reported as interfund transfers in (out) when incurred. Transfers between the PG and its blended component units are reported as interfund transfers, except for transfers within the same fund type.  Intra-entity Transactions – These are transactions between the PG and its discretely presented component units, and among the component units. Similarly, receivables and payables between the PG and its blended component units are reported as amounts due from (to) other funds. Transfers between the PG and discretely presented component units (and among those component units) are reported separately as revenue and expenses or expenditures. Amounts owed to and from discretely presented component units by the PG are reported separately from interfund payables and receivables as due from (to) component units, net of allowance for estimated uncollectible amounts. Restricted Assets Restricted assets in the PG and discretely presented component units are set aside primarily for the payment of bonds, notes, construction funds, unemployment benefits, and other specific purposes. Capital Assets Capital assets, which include land, land improvements, buildings, building improvements, machinery and equipment, construction in progress, intangibles and infrastructure assets are reported in the applicable governmental, business-type activities, and component unit columns in the government-wide financial statements as well as in the applicable proprietary funds reported in the fund financial statements. The PG defines capital assets as assets that have an initial, individual cost and useful lives of: (i) $5,000 for personal property with a useful life of five years; (ii) $50,000 for buildings and building improvements with estimated useful lives of 40 and 20 years, respectively; (iii) $100,000 for land improvements with an estimated useful life of 20 years; (iv) $200,000 for intangibles with estimated useful lives between 2 and 15 years; and (v) $200,000 for infrastructure with an estimated useful life of 30 years. All costs of acquiring land are capitalized. Capital assets purchased or acquired are carried at historical cost or normal cost. The normal costing method to estimate cost based on replacement cost indexed by a reciprocal factor of the price increase from the appraisal date to the actual or estimated acquisition date was used to estimate the historical cost of certain land, buildings, and building improvements because invoices and similar documentation was no longer available in certain instances. Donated capital assets are recorded at acquisition value at the time of donation. Government of the United States Virgin Islands Notes to Basic Financial Statements 49 Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest costs are capitalized during the construction period only for business-type activities and proprietary component units. The costs of routine maintenance and repairs that do not add value to the assets or materially extend asset lives are expensed as incurred. Capital assets utilized in the governmental funds are recorded as expenditures in the governmental fund financial statements. Depreciation expense is recorded in the government-wide financial statements, as well as the proprietary funds and component units’ financial statements. Capital assets of the PG, excluding land and construction in progress, are depreciated on the straight-line method over the assets’ estimated useful lives. The estimated useful lives of capital assets reported by the component units are (i) 4 to 50 years for buildings and building improvements; (ii) 20 to 40 years for airports and marine terminals; (iii) 40 to 100 years for water transmission and distribution mains; and (iv) 3 to 25 years for vehicles and equipment. The PG and its component units review the carrying value of their capital assets to determine if circumstances exist indicating impairment. If facts or circumstances support the possibility of impairment, management follows the guidance in GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries. If impairment is indicated, an adjustment is made to the carrying value of the capital assets. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position reports a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents consumption of the net position that applies to future period(s) and is not recognized as an outflow of resources (expense/expenditure) until the future date occurs. The Government has three items for financial reporting in these categories, as follows:  Deferred amounts related to pension represent unrecognized items not yet charged to pension expense and contributions from the employer after the measurement date but before the end of the employer’s reporting period.  Deferred amounts related to other postemployment benefits consisting of net differences between expected and actual experience and changes in assumptions.  Deferred charges on refunding reported in the government-wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. Government of the United States Virgin Islands Notes to Basic Financial Statements 50 In addition to liabilities, the statement of net position reports a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and will not be recognized as an inflow of resources (revenue) until that time. The Government has three items for financial reporting in this category, as follows:  Deferred amounts related to pension consist of the unamortized portion of the difference between expected and actual experience, net difference between projected and actual earnings on pension plan investments, changes in assumptions, and changes in proportion and differences between contributions and proportional share of contributions.  Deferred amounts related to other postemployment benefits consisting of the unamortized portion of the changes in assumptions and other inputs.  Modified accrual basis of accounting - Unavailable revenues qualify for reporting in this category. The item, unavailable revenues, is reported only in the governmental funds’ balance sheet. The governmental funds report unavailable revenues from three sources: property taxes, gross receipts taxes, and income taxes. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Tax Refunds Payable During the calendar year, the Government collects individual income taxes through withholdings and payments from taxpayers. At September 30th, the Government estimates the amount owed to taxpayers for overpayments during the first nine months of the calendar year. These estimated amounts and the actual tax refunds claimed for prior years but not paid at year-end are recorded as tax refunds payable and as a reduction of tax revenue. Compensated Absences The vacation policy of the Government provides for the accumulation of four, six, or eight hours for each full biweekly pay period depending on the time of entry into government service. At the beginning of each calendar year, vacation leave is limited to 480 hours (60 days). However, the excess of 480 hours is considered by GERS for service credit towards the employees’ retirement. This vacation policy does not apply to professional educational personnel of the Virgin Islands Department of Education, who receive compensation during the school breaks. Upon retirement, an employee receives compensation for unused vacation leave at the employee’s base pay rate. Employees accumulate sick leave at a rate of four hours for each full biweekly pay period up to a maximum of 180 days. Separated employees do not receive payment for unused sick leave; therefore, a provision for accumulated sick leave is not required. Compensated absences accumulation policies for the blended component units and discretely presented component units vary from entity to entity, depending upon negotiated bargaining agreements and other factors agreed upon between the management of these entities and its employees. Government of the United States Virgin Islands Notes to Basic Financial Statements 51 Long-term Liabilities The liabilities reported in the government-wide financial statements include the Government’s bonds, long-term notes, pension liabilities and other long-term liabilities including: accrued compensated absences, retroactive union arbitration, litigation, landfill closure and post closure costs, postemployment benefits, and workers compensation claims. Bond premiums, discounts, and amounts deferred on capital appreciation bonds are amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premiums and discounts. Issuance costs are reported as expenses in the year incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs are reported as debt service expenditures. Net Position Net position is reported in three categories:  Net Investment in Capital Assets – This consists of capital assets, net of accumulated depreciation and amortization, and reduced by outstanding balances for bonds, notes, and other debt that are attributed to the acquisition, construction, or improvement of those assets. Debt pertaining to significant unspent debt proceeds are not included in the calculation of invested in capital assets, net of related debt. The unspent portion of the debt is presented, net of the related debt, as restricted for capital projects.  Restricted Net Position – Constraints placed on the use of assets are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions or enabling legislation.  Unrestricted Net Position – These consist of assets which do not meet the definition of the two preceding categories. When both restricted and unrestricted resources are available for use, generally it is the Government’s policy to use restricted resources first, then the unrestricted resources, as needed. Fund Balance GAAP provides a hierarchy of classifications based primarily on the extent to which the Government is bound to honor constraints on the specific purposes for which amounts in funds may be spent. Following are the fund classifications:  Restricted Fund Balance – Fund balances constrained by externally imposed constraints such as constitutional provisions, laws and regulations, debt covenants, and grantors. The Government’s policy is to consider restricted amounts to have been spent first when expenditures are incurred for which both restricted and unassigned fund balances are available. Government of the United States Virgin Islands Notes to Basic Financial Statements 52  Committed Fund Balance – Fund balances subject to constraints imposed by the Government’s highest level of decision-making authority including legislation enacted by the Legislature of the Virgin Islands and resolutions or ordinances enacted by Government elected regulatory boards and authorities. Committed fund balances may be modified or rescinded by enacted legislation, or amendment of resolutions or ordinances.  Assigned Fund Balance – Fund balances subject to budgetary constraints of the Legislature, the Office of Management and Budget, or authorizing boards of the Government, that are not restricted or committed. Budgetary authority of the Office of Management and Budget is provided by Title 2, Sections 22, 23, 26 and 27 VIC, and Executive Order No. 371-1997. The Government’s policy is to expend assigned or committed amounts, before unassigned amounts, when an expenditure is incurred.  Unassigned Fund Balance – Unassigned fund balance is the residual classification for the General Fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the General Fund. The residual deficit of the Federal Grants Fund and other governmental funds are also reported as unassigned fund balance. Risk Management With some exceptions, the Government does not carry general liability insurance coverage on its properties or the acts of its employees, relying instead on self-insurance and/or statutory liability limitations. The Government purchases commercial insurance for physical losses or damages against its property. The limit of liability for all risks, excluding earthquake, windstorm, and flood, is $1.0 million for each occurrence except for windstorm and flood losses, which has a $45.0 million limit. For physical losses arising from earthquake, the insurance policy has a limit of $100.0 million for each occurrence and in the annual aggregate. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities, and deferred inflows of resources and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. Government of the United States Virgin Islands Notes to Basic Financial Statements 53 Adoption of Accounting Pronouncements Following are statements issued by GASB that are effective in future years. In light of the COVID-19 pandemic, on May 8, 2020, the GASB issued Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance, to provide relief to governments. This Statement, which was effective upon issuance, postpones the effective dates of certain provisions in these upcoming pronouncements for one year, except for GASB Statement No. 87 which is postponed for eighteen months. GASB Statement No. Adoption Effective in Fiscal Year (as Revised) 83 Certain Asset Retirement Obligations 2020 84 Fiduciary Activities 2021 87 Leases 2022 88 Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements 2020 89 Accounting for Interest Cost Incurred Before the End of a Construction Period 2022 90 Majority Equity Interests – An Amendment of GASB Statements No. 14 and No. 61 2021 91 Conduct Debt Obligations 2023 92 Omnibus 2020 2022 93 Replacement of Interbank Offered Rates 2022 94 Public-Private and Public-Public Partnerships and Availability Payment Arrangements 2023 96 Subscription-Based Information Technology Arrangements 2023 97 Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans – an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32 2022 Certain provisions of GASB Statement No. 92 are excluded from GASB Statement No. 95. Additionally, GASB Statement No. 95 excludes provisions in GASB Statement No. 93 related to lease modifications and excludes GASB Statement No. 94 since the GASB considered the pandemic in determining effective dates. Earlier application of the standards is permitted to the extent specified in each pronouncement as originally issued. The Government is currently evaluating the impact of these statements. Government of the United States Virgin Islands Notes to Basic Financial Statements 54 2. Component Units The basic financial statements include the financial statements of the following discretely presented component units: Major Component Units  Virgin Islands Housing Authority  Virgin Islands Port Authority (unaudited)  Virgin Islands Water and Power Authority  Virgin Islands Government Hospital and Health Facilities Corporation  University of the Virgin Islands Other Component Units (Nonmajor)  Virgin Islands Economic Development Authority  Magens Bay Authority  Virgin Islands Housing Finance Authority  Virgin Islands Public Broadcasting System  Virgin Islands Waste Management Authority  University of the Virgin Islands Research and Technology Park Corporation (unaudited) Government of the United States Virgin Islands Notes to Basic Financial Statements 55 Condensed financial information as of September 30, 2019, of all discretely presented component units follows (expressed in thousands): Virgin Islands Water and Power Authority Hospital and Health Facilities Corporation Housing Authority Virgin Islands Port Authority* Electric System Water System Schneider Regional Medical Juan F. Luis Hospital University of the Virgin Islands Other Component Units* Total Component Units Assets and deferred outflows of resources Current assets $ 34,022 $ 68,375 $ 64,454 $ 12,534 $ 27,618 $ 22,930 $ 21,172 $ 501,159 $ 752,264 Due from primary government - - 21,193 4,666 - 1,044 607 2,825 30,335 Due from federal government 580 3,643 79,844 37 123 723 2,638 15,865 103,453 Restricted assets 854 25,760 57,029 2,031 1,332 3,063 74,481 56,360 220,910 Capital assets, net 53,036 214,975 1,254,179 69,690 32,658 62,493 60,251 170,852 1,918,134 Other noncurrent assets 6,280 - 37,903 - - - 13,333 39,374 96,890 Deferred outflows of resources 10,177 25,991 34,709 6,884 22,042 53,682 16,797 17,819 188,101 Total assets and deferred outflows of resources 104,949 338,744 1,549,311 95,842 83,773 143,935 189,279 804,254 3,310,087 Liabilities and deferred inflows of resources Current liabilities 3,950 30,835 513,655 14,951 24,717 78,733 10,847 499,833 1,177,521 Due to primary government - - 6,948 - 23,458 42,000 - 53,190 125,596 Due to federal government - - 4,142 - - - - - 4,142 Bonds payable - long-term - 36,458 257,833 75,000 - - - - 369,291 Notes payable - long-term - - - - - - 79,559 9,147 88,706 Due to (from) component unit - - 74,578 (74,578) - 34 - 4 38 Pension liabilities 65,683 136,326 216,281 44,299 122,172 146,262 74,921 97,097 903,041 Other postemployment benefits 25,252 23,571 48,133 9,858 - - 10,860 - 117,674 Other noncurrent liabilities 1,924 2,664 135,024 - - - 3,762 10,980 154,354 Unearned revenue - long-term - - - - - - - 11,897 11,897 Deferred inflows of resources 14,971 23,220 71,642 14,674 39,341 19,630 18,590 16,173 218,241 Total liabilities and deferred inflows of resources 111,780 253,074 1,328,236 84,204 209,688 286,659 198,539 698,321 3,170,501 Net position (deficit): Net investment in capital assets 52,011 208,139 958,802 69,690 32,658 37,482 (17,628) 151,499 1,492,653 Restricted 804 25,759 25,387 372 1,332 101 40,932 68,195 162,882 Unrestricted deficit (59,646) (148,228) (763,114) (58,424) (159,905) (180,307) (32,564) (113,761) (1,515,949) Total net position (deficit) $ (6,831) $ 85,670 $ 221,075 $ 11,638 $ (125,915) $ (142,724) $ (9,260) $ 105,933 $ 139,586 *Virgin Islands Port Authority and Virgin Islands Research and Technology Park Corporation (unaudited) Government of the United States Virgin Islands Notes to Basic Financial Statements 56 Program revenue Information on Statement of Activities Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions Total Component Units Virgin Islands Port Authority* $ 106,579 $ 62,237 $ - $ 4,524 $ (39,818) Virgin Islands Housing Authority 56,547 7,363 37,895 2,967 (8,322) Virgin Islands Water and Power Authority: Electric System 323,855 241,532 - 349,195 266,872 Water System 30,647 28,124 - 3,566 1,043 Virgin Islands Government Hospital and Health Facilities Corporation: Roy L. Schneider Hospital 79,986 67,014 23,596 49 10,673 Juan F. Luis Hospital 84,251 34,374 34,370 14,730 (777) University of the Virgin Islands 93,440 55,903 28,566 4,992 (3,979) Other component units* 678,946 20,980 616,209 4,995 (36,762) Total activities $ 1,454,251 $ 517,527 $ 740,636 $ 385,018 $ 188,930 General revenue: Interest and other $ 8,472 Insurance recoveries 34,921 Changes in net position 232,323 Net position, beginning of year (as restated) (92,737) Net position, end of year $ 139,586 *Virgin Islands Port Authority and Virgin Islands Research and Technology Park Corporation (unaudited) The summary of due to/from primary government and component units is as follows (expressed in thousands): Due from PG/ Due to PG/ Component Units Component Units Governmental funds: General fund $ 116,487 $ 8,700 PFA capital projects - 1,891 Other governmental funds 8,875 3 Discretely presented component units: WAPA – Electric System 21,193 6,948 WAPA – Water System 4,666 - Hospital and Health Facilities Corporation 1,044 65,458 University of the Virgin Islands 607 - Other component units* 2,825 53,190 $ 155,697 $ 136,190 *Virgin Islands Port Authority and Virgin Islands Research and Technology Park Corporation (unaudited) The amounts reported by the Governmental funds and the discretely presented component units may not agree due to reporting on different fiscal year-ends. Government of the United States Virgin Islands Notes to Basic Financial Statements 57 3. Cash and Cash Equivalents Primary Government At September 30, 2019, the PG reported $202.8 million in unrestricted cash and cash equivalents and $12.6 million in restricted cash and cash equivalents. All bank balances were fully collateralized, except for $7.5 million held in various bank accounts for WICO. Pension Trust Fund GERS considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. At September 30, 2019, GERS held $132.3 million in cash and cash equivalents consisting of: $104.0 million in money market accounts and $28.3 million in operational accounts. Component Units At September 30, 2019, discretely presented component units held $163.4 million in unrestricted cash and cash equivalents and $90.4 million in restricted cash and cash equivalents. 4. Investments Fair Value Measurements The Government categorizes the fair market measurements of its investments within the fair value hierarchy established by GAAP. GASB Statement No. 72, Fair Value Measurement and Application, provides the framework for measuring fair value by establishing a three-level fair value hierarchy that describes inputs that are used to measure assets and liabilities as follows: Level 1: Inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets that a government can access at the measurement date. Level 2: Inputs are other than quotes prices included within Level 1 that are observable for an asset or liability, that are either directly or indirectly observable. Level 3: Inputs are significant unobservable inputs. The fair value hierarchy gives the highest priority to Level 1 and the lowest priority to Level 3 inputs. If a price for an identical asset is not observable, a government may evaluate fair market value using another valuation technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. If the fair value of an asset is measured using inputs from more than one level of the fair market value hierarchy, the measurement is based on the lowest level input that is significant to the entire measurement. Government of the United States Virgin Islands Notes to Basic Financial Statements 58 The following section describes the valuation technique methodologies the Government is using to measure assets at fair value: Level 1: Investments classified within Level 1 are valued based on quotes obtained from active public exchanges or reported on the national market and are stated at the last reported sales price on the day of valuation. Fair value of exchange-traded contracts is based upon exchange settlement prices. Level 2: Investments classified within Level 2 are valued by pricing vendors using outside data. In determining the fair value of the investments, the pricing vendors use a market approach and pricing spreads based on the credit risk of the issuer, maturity, current yield, and other terms and conditions of each security. The commercial paper, certificates of deposit, U.S. government, agency and state obligations, U.S. Treasury notes, debt securities are classified as Level 2 instruments as their fair value is based on quoted values stated by the bank’s mark-to-market estimate using a stated fixed rate. The interest rate is observable at commonly quoted indexes for the full term of the instruments. Level 3: Investments in limited partnerships and private debt/direct lending are classified within Level 3 of the fair value hierarchy. Given the absence of market quotations, fair value is estimated using the information provided by the investment managers or general partners. The values are based on estimates that require varying degrees of judgment and, for the fund of funds investments, are primarily based on financial data supplied by the investment managers of the underlying funds. Individual holdings within alternative investments may include instruments in both nonmarketable and market-traded securities. Nonmarketable securities may include equity in private companies, real estate, thinly traded securities, and other investment vehicles. While these financial instruments contain varying degrees of risk, the Government’s exposure with respect to each such investment is limited to carrying amount (fair value as described above). Assets using net asset value per share as fair value are not required to be categorized using the fair value hierarchy levels. As of September 30, 2019, the PG’s investments included a non-negotiable certificate of deposit, which is not subject to the fair value hierarchy. Government of the United States Virgin Islands Notes to Basic Financial Statements 59 Primary Government Following are the investments of the PG categorized within the three-level fair value hierarchy: (in thousands) September 30, 2019 Level 1 Level 2 Level 3 Money market funds $ 445,455 $ 445,455 $ - $ - Investments with contractual maturities: Certificates of deposit 4,082 - 4,082 - U.S. government, agency and state obligations 75,960 - 75,960 - Portfolio investments: Commercial paper 102,068 - 102,068 - Subtotal 627,565 $ 445,455 $ 182,110 $ - Investments, at cost: Non-negotiable certificate of deposit 10,201 Others 22 Total $ 637,788 Following is a summary of the investments of the PG categorized by investment type and weighted average maturity, as of September 30, 2019, (expressed in thousands): Maturity (in years) Fair Value Less Than 1 Year 1 to 5 Years Over 5 Years Investments with contractual maturities Certificates of deposit $ 4,082 $ 4,082 $ - $ - U.S. government, agency and state obligations 75,960 35,317 40,643 - Portfolio investments Commercial paper 102,068 101,967 - 101 Other investments 22 22 - - Total investments with contractual maturities $ 182,132 $ 141,388 $ 40,643 $ 101 Investments without contractual maturities Money market funds 445,455 Certificates of deposit 10,201 Total $ 637,788 Interest Rate Risk – Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The PG does not have a formal investment policy that limits investment maturities as a means of managing such exposure. As a means of keeping the interest rate risk low, investments held by the PG are virtually less than five years in nature. Government of the United States Virgin Islands Notes to Basic Financial Statements 60 Credit Risk – The authorizing legislation of the PG does not limit investments by credit rating categories. Authorizing legislation does limit the investment choices of the PG to direct obligations or obligations guaranteed by the United States, obligations of states, territories, possessions and commonwealths of the United States, obligations of international banking institutions, repurchase agreements, investment contracts, certificates of deposit, guaranteed investment contracts, shares in mutual funds, investment companies, corporate commercial paper, money market portfolio investments, and investment pools. At September 30, 2019, the PG’s investments in money market funds were rated AAA by Standard & Poor’s, and Aaa- and Aaa by Moody’s Investors Service. The PG’s investments in commercial paper were rated A-1 and A-2 by Standard & Poor’s and P-1 and P-2 by Moody’s Investors Service. The PG’s investments in government, agency and state obligations were rated AA- to AAA by Standard & Poor’s and Aa3 to Aaa by Moody’s Investors Service. The PG’s investments in certificates of deposit was rated P-2 by Moody’s Investor Services and A-2 by Standard & Poor’s. Concentration of Credit Risk – The PG places no limit on the amount that may be invested in one issuer. At September 30, 2019, more than 5% of the PG’s investments were invested in: Goldman Financial Square Money Market #524 (49.01%), Federated Government Obligation Money Market #5, (16.95%), Ford Motors Commercial Paper (7.34%), and Chesham FIN, LLC, CPDs (6.07%). Custodial Credit Risk – The PG does not have a custodial risk policy. The custodial credit risk for investments is the risk that, in the event of the failure of a depository financial institution or other counterparty, the PG will not be able to recover the value of an investment or collateral securities that are in the possession of an outside party. At September 30, 2019, $625.9 million of investments were held in the name of the Bank of New York Trust Company, N.A, as trustee for the Government. Government of the United States Virgin Islands Notes to Basic Financial Statements 61 Pension Trust Fund Following are the investments of the Pension Trust Fund categorized within the three-level fair value hierarchy: (in thousands) September 30, 2019 Level 1 Level 2 Level 3 Debt securities: Government agency obligations $ 19,405 $ - $ 19,405 $ - Municipal obligations 507 - 507 - Corporate bond 26,482 - 26,482 - Asset-backed securities 6,510 - 6,510 - Collateralized mortgage obligations 1,681 - 1,681 - Commercial mortgaged-backed securities 3,464 - 3,464 - Residential mortgaged-backed securities 19,884 - 19,884 - Limited partnerships: Private equity funds 14,529 - - 14,529 Private lending 14,883 - - 14,883 Member loans 49,998 - - 49,998 Real estate/other real assets 63,610 - - 63,610 Subtotal 220,953 $ - $ 77,933 $ 143,020 Investment, as cost: Money market funds 103,999 Investments measured at net asset value (NAV): Commingled equity funds 92,696 Commingled bond funds 252,203 Total $ 669,851 Pension trust funds investments which are measured at NAV per share, or equivalent are presented in the table below (expressed in thousands): Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Investments measured at net asset value (NAV): Commingled equity funds $ 92,696 $ - Daily, Semi- monthly 1 – 15 days Commingled bond funds 252,203 - Daily 2 – 10 days Total $ 344,899 $ - Commingled equity and bond funds - This type includes nine commingled funds that invest in publicly traded domestic and global stocks, and domestic and global fixed income securities. The fair values of the investments in this type have been determined using the NAV per share (or its equivalent) of the investments. The total commingled funds can be liquidated daily. All the underlying securities within the commingled funds carry a recurring fair value measurement level of 2. There are no unfunded commitments for the commingled funds at September 30, 2019. Government of the United States Virgin Islands Notes to Basic Financial Statements 62 Securities lending collateral - GERS’ custodian is the agent in lending the GERS’ securities for collateral and investments which are in a commingled fund. Following is a summary of the investments of the pension trust fund, categorized by investment type and weighted average maturity, as of September 30, 2019, (expressed in thousands): Maturity (in years) Fair Value Less Than 1 Year 1 to 5 Years 6 to 10 Years More than 10 Years No Stated Maturity Investments with contractual maturities Commingled mutual funds $ 344,899 $ - $ - $ - $ - $ 344,899 Corporate obligations 26,482 1,257 13,685 4,642 6,898 - Investment loans 14,883 - 14,883 - - - Mortgage and asset backed securities 31,539 44 6,003 1,893 23,599 - Municipals 507 - - - 507 - Limited partnerships 14,529 - - - - 14,529 U.S. government and agency obligations 2,269 2,269 - - - - U.S. Treasury bonds 6,268 - - - 6,268 - U.S. Treasury notes 10,868 - 4,039 6,829 - - Total investments with contractual maturities 452,244 $ 3,570 $ 38,610 $ 13,364 $ 37,272 $ 359,428 Investments without contractual maturities Money market funds 103,999 Real estate investments: Havensight Mall - U.S. Virgin Islands 41,000 GERS Complex - U.S. Virgin Islands 22,610 Debt lending - member loans 49,998 Total $ 669,851 Interest Rate Risk – Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. GERS does not have a specific policy to manage interest rate risk, but requires investment managers to diversify by issue, maturity, sector, coupon, and geography. Investment managers retained by GERS follow specific investment guidelines and are evaluated against specific market benchmarks that represent their investment style. Any exemption from general guidelines requires approval from GERS’ board of trustees. Credit Risk – GERS investment policy is designed to minimize credit risk by restricting authorized investments to only those investments permitted by statute, subject to certain additional limitations. These additional limitations consist of prohibitions against investments in derivative securities, options, futures, or short positions. GERS investment policy allows investments in mortgage pass- through securities. Government of the United States Virgin Islands Notes to Basic Financial Statements 63 The credit ratings of GERS’ debt securities at September 30, 2019, include (expressed in thousands): Standard & Poor’s Global Ratings Moody’s Investors Service Fair Value Credit Ratings Fair Value Credit Ratings Corporate obligations $ 675 A+ - - Corporate obligations 1,615 A - - Corporate obligations 5,118 A- - - Corporate obligations 6,758 BBB+ - - Corporate obligations 8,558 BBB - - Corporate obligations 3,748 BBB- - - Corporate obligations 10 Not Available - - Corporate obligations - - 1,309 A1 Corporate obligations - - 3,302 A2 Corporate obligations - - 3,314 A3 Corporate obligations - - 4,443 Baa1 Corporate obligations - - 8,471 Baa2 Corporate obligations - - 5,355 Baa3 Corporate obligations - - 10 Not Available Corporate obligations - - 278 WR Investment loans 14,883 Not Rated 14,883 Not Rated Mortgage and asset backed securities 3,594 AAA - - Mortgage and asset backed securities 27,945 Not Available - - Mortgage and asset backed securities - - 6,756 Aaa Mortgage and asset backed securities - - 24,783 Not Available Commingled and mutual funds 344,900 Not Rated 344,900 Not Available Total $ 417,804 $ 417,804 Concentration of Credit Risk – Concentration of credit risk is the risk of loss attributed to the magnitude of GERS’ investments in a single issuer of securities. GERS’ investment policy establishes limitations on portfolio composition by investment type to limit its exposure to concentration of credit risk. There are no investments in any one issuer that represent 5.0% or more of total investments. Custodial Credit Risk – The custodial credit risk for investments is the risk that, in the event of the failure of a depository financial institution or other counterparty, GERS will not be able to recover the value of an investment or collateral securities that are in the possession of an outside party. Except for underlying securities on loans secured by noncash collateral, the System’s entire investment portfolio was held with a single third-party custodian in the System’s name as of September 30, 2019. At September 30, 2019, the System had no underlying securities on loan secured by noncash collateral. Cash collateral held for securities lending transactions is invested in a collective investment pool maintained by the securities lending agent. Foreign Currency Risk – Foreign currency risk is the risk of holding investments in foreign currencies and the risk that those foreign currencies may devalue. GERS has no general investment policy with respect to foreign currency risk. Government of the United States Virgin Islands Notes to Basic Financial Statements 64 Risks associated with foreign exchange contracts include the movement in the value of foreign currency relative to the U.S. dollar and the ability of the counterparty to perform in accordance with the terms of the contract. Changes in the market value of open and closed forward contracts are recorded with interest, dividends, and other income or losses reported at fair value. During the fiscal year ended September 30, 2019, GERS did not engage in any foreign currency exchange contracts. Securities Lending Transactions – The Government’s statutes permit GERS to participate in securities lending transactions, and GERS has, via a securities lending authorization agreement (the Agreement), authorized State Street Bank and Trust Company (the Custodian) to lend its securities to broker-dealers and banks pursuant to a form of a loan agreement. Lent securities are collateralized with cash, securities issued or guaranteed by the U.S. government, or irrevocable bank letters of credit. GERS does not have the ability to pledge or sell collateral securities delivered absent a borrower default. No restrictions were imposed during 2019 as to the amount of loans the Custodian can make on behalf of GERS. Under the terms of the Agreement, the Custodian must indemnify the Government for losses attributable to violations by the Custodian under the “standard of care” clause described in the Agreement. There were no such violations during fiscal year 2019, or losses resulting from the default of the borrowers or the Custodian. Loans are generally terminable on demand. The collateral received shall, (i) in the case of loaned securities denominated in U.S. dollars or whose primary trading market is located in the U.S. or sovereign debt issued by foreign governments, have a market value of 102% of the market value of the loaned securities; (ii) in the case of loaned securities which are not denominated in U.S. dollars or whose primary trading market is not located in the United States, have a market value of 105% of the market value of the loaned securities; or (iii) have a higher value as may be applicable in the jurisdiction in which the loaned securities are customarily traded. Such collateral should be kept, at a minimum, at 100% of the market value of the security for all borrowers throughout the outstanding period of the loans. At September 30, 2019, GERS had no credit risk exposure to borrowers because the amounts GERS owed the borrowers exceeded the amounts the borrowers owed GERS. Loans entered into through securities lending transactions were insignificant, and the difference between the fair value of the securities on loan and collateral held was insignificant. Government of the United States Virgin Islands Notes to Basic Financial Statements 65 Component Units Following are the investments of the discretely presented component units categorized within the fair value hierarchy: (in thousands) September 30, 2019 Level 1 Level 2 Level 3 Investments, at fair value: U.S. Government agencies and notes $ 35,544 $ 35,544 $ - $ - Common stocks 12,791 12,791 - - Corporate bonds 4,401 - 4,401 - Mutual funds 1,018 1,018 - - Derivative instruments 1,316 - 1,316 - Subtotal 55,070 $ 49,353 $ 5,717 $ - Investments, at cost: Certificate of deposits 20,245 Investments measured at net asset value (NAV): Alternative investments 63,096 Total $ 138,411 Following is a summary of the investments of the discretely presented component units, categorized by investment type and weighted average maturity, as of September 30, 2019, (expressed in thousands): Maturity (in years) Fair Value Less Than 1 Year 1 to 5 Years 6 to 10 Years More than 10 Years Investments with contractual maturities Certificates of deposit $ 20,245 $ 14,054 $ 6,191 $ - $ - U.S. Government agencies and notes 35,544 35,544 - - - Total investments with contractual maturities 55,789 $ 49,598 $ 6,191 $ - $ - Investments without contractual maturities Common stock 12,791 Mutual funds 1,018 Corporate bonds 4,401 Other investments 64,412 Total $ 138,411 Interest Rate Risk – Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The component units of the Government have not established formal policies which limit investment maturities as a means of managing such exposure and have some exposure to interest rate risk. Government of the United States Virgin Islands Notes to Basic Financial Statements 66 Credit Risk and Concentration of Credit Risk – The authorizing legislation of the component units does not limit investments by credit rating categories. Authorizing legislation limits the investments choices of the component units, as described in Note 1. There are no investments in any one issuer that represent 5.0% or more of total investments. Custodial Credit Risk – The custodial credit risk for investments is the risk that, in the event of the failure of a depository financial institution or other counterparty, the component units will not be able to recover the value of an investment or collateral securities that are in the possession of an outside party. The component units of the Government do not have custodial credit risk policies. Agency Fund At September 30, 2019, the agency fund had $2.3 million invested in certificates of deposit. They are classified as Level 2 instruments as their fair value is based on quoted values stated by the bank’s mark-to-market estimate using a stated fixed rate. The interest rate is observable at commonly quoted indexes for the full term of the instruments. 5. Receivables Primary Government Receivables for governmental funds at September 30, 2019, consist of the following (expressed in thousands): General PFA Debt Service Other Governmental Total Income taxes $ 190,025 $ - $ - $ 190,025 Real property taxes 145,811 - - 145,811 Hotel occupancy taxes 6,899 - - 6,899 Excise taxes 101 - - 101 Gross receipts taxes - 260,474 - 260,474 Gross taxes receivables 342,836 260,474 - 603,310 Less allowance for doubtful accounts (238,746) (217,152) - (455,898) Taxes receivables, net 104,090 43,322 - 147,412 Other $ 27 $ - $ 117 144 Tobacco settlement rights 845 Total $ 148,401 (a) Tax Receivables The Naval Appropriations Act created a separate tax structure for the U.S. Virgin Islands that mirrors the Internal Revenue Code (IRC) of 1986, as amended. Income taxes are due from every corporation, partnership, individual, association, estate, or trust that meets the filing requirements of the U.S. Internal Revenue Code. A U.S. taxpayer who is a permanent resident of the U.S. Virgin Islands satisfies his/her Virgin Islands income tax obligations by filing his/her return with and paying income taxes to the Government. Government of the United States Virgin Islands Notes to Basic Financial Statements 67 Bona fide residents of the Virgin Islands are taxed by the Virgin Islands on their world-wide income. A nonresident of the U.S. Virgin Islands pays income taxes on his/her U.S. Virgin Islands source income to the Government. The revenue is recognized in the general fund in the fiscal period for which the income tax return was filed. The revenue from income tax withholding and estimated payments are recognized in the general fund as collected, net of estimated tax refunds. Subchapter S and C corporate income tax returns are due by the 15th day of the fourth month following the close of the calendar year and become delinquent if not paid on or before the due date. Partnership income taxes are due by April 15 of the following year and trust income taxes are due by April 15 of the following year for which the income tax was levied. Trust income taxes must be paid by the tax filing date. For the tax year ended December 31, 2019, the income tax filing date for individuals, businesses and trust tax filings (and certain other tax filings) were extended to July 15, 2020 through pandemic relief provisions of the Internal Revenue Service (IRS) due to COVID-19. Property taxes are assessed each calendar year on all taxable real property located in the U.S. Virgin Islands. The receivable is recognized, net of estimated uncollectable amounts, in the general fund in the fiscal period for which the tax is assessed. The revenue is recognized in the general fund in the fiscal period for which the property tax is levied, provided the tax is collected within 60 days after fiscal year-end, unless the facts justify a period greater than 60 days. Receivables collected after that period, are recorded as unavailable property tax revenue. The Office of the Tax Assessor is responsible for the assessment of all taxable real property. Noncommercial real property subject to taxation is reassessed once every five years and commercial real property subject to taxation is reassessed biannually. The Tax Assessor prepares an annual assessment roll and schedule of collections for each parcel of real property that is used by The Office of the Tax Collector, as the basis for issuing tax bills to all taxpayers in the U.S. Virgin Islands. Property taxes are to be levied by May 15 of each year in the name of the record owner on January 15 of the same year. The taxes are due on June 30 and become delinquent if not paid by August 31. For businesses with gross receipts of $225,000 per annum or less, gross receipts taxes are levied on an annual basis based on the amount of gross receipts exceeding $9,000 per month. Businesses with annual gross receipts of more than $225,000 are levied monthly with no $9,000 per month exemption. The gross receipts tax rate is 5.0% of sales and service revenue. Monthly gross receipts tax filings are due within 30 calendar days following the last day of the calendar month collected. Annual gross receipts tax filings are due within 30 calendar days following the last day of the calendar year. Government of the United States Virgin Islands Notes to Basic Financial Statements 68 (b) Other Receivables In addition to tax receivables, the PG receives tobacco settlement right payments in connection with a Master Settlement Agreement with certain participating cigarette manufacturers. Under the terms of the agreement, the U.S. Virgin Islands receives .0173593% of annual payments made under the agreement. As of September 30, 2019, the PG reported a receivable of $845,000 for tobacco settlement right payments as included in the accompanying statement of net position. On November 14, 2011, the PG entered into a loan agreement on behalf of GERS in the amount of $13.0 million, at an interest rate of 4.9% and a maturity date of December 15, 2016. The loan was secured by pledged property tax receipts for years prior to and including 2005. The loan was not paid by the due date of December 15, 2016, and was converted to a two-year term loan to be paid with pledged property tax revenues and pledged gross receipts tax revenues. As of September 30, 2019, the outstanding balance of the loan was paid. Component Units Receivables for the discretely presented component units at September 30, 2019, consist of the following (expressed in thousands): Utility service charges* $ 27,420 Patients 20,626 Students 4,443 Port fees* 6,539 Other* 471,330 Total $ 530,358 *Virgin Islands Port Authority and Virgin Islands Research and Technology Park Corporation (unaudited) Pension Trust Fund Loans and advances to members of GERS at September 30, 2019, consist of the following (expressed in thousands): Personal loans $ 45,886 Mortgage loans 5,880 Automobile loans 3 Less allowance for losses (1,771) Total $ 49,998 Government of the United States Virgin Islands Notes to Basic Financial Statements 69 (c) Notes Receivable On July 30, 2018, the Government under an amended Terminal agreement entered into a 10 -year nontransferable promissory note receivable with Limetree Bay Terminals, LLC (Limetree) for $10.0 million secured by a purchase money lien on land, buildings, and other properties at the terminal in St. Croix. The note maturity is November 30, 2028, with an interest rate of 10.0% due on June 30 and December 31 of each year, beginning June 30, 2019. Prior to the restart of the refinery, the interest is to be added to the principal amount due. At September 30, 2019, principal and interest amounted to $10.6 million. 6. Unavailable Revenues The components of unavailable revenues of the general fund and PFA debt service fund as of September 30, 2019, consist of the following (expressed in thousands): General PFA Debt Service Total Property taxes $ 23,319 $ - $ 23,319 Income taxes 33,835 - 33,835 Gross receipts taxes - 22,541 22,541 Total $ 57,154 $ 22,541 $ 79,695 7. Interfund Transfers Interfund transfers for the year ended September 30, 2019, consist of the following (expressed in thousands): Transfer from/to General PFA Debt Service PFA Capital Projects Other Governmental Total General fund $ - $ 158,817 $ - $ - $ 158,817 PFA Debt Service 1,892 - 121 1,500 3,513 Other governmental 8,465 - - - 8,465 Other business-type 1,000 - - - 1,000 Total $ 11,357 $ 158,817 $ 121 $ 1,500 $ 171,795 Interfund transfers constitute the transfer of resources from the fund that receives the resources to the fund that utilizes them. The most significant transfer to the general fund from other governmental funds included a $158.8 million transfer from PFA debt service fund (a major governmental fund) representing gross receipt tax revenues available after bond debt service requirements. Significant transfers made from the general fund include a transfer of $1.9 million to PFA debt service fund (a major governmental fund); a transfer of $3.0 million to PFA Special Revenue Fund (a non-major governmental fund); a transfer of $2.0 million to PFA Operating Fund (a non-major governmental fund); a transfer of $2.0 million to the St. Croix Capital Improvement Fund (a non- major governmental fund); and a transfer of $1.0 million to the Crisis Intervention Fund (a non- major governmental fund). Government of the United States Virgin Islands Notes to Basic Financial Statements 70 Due From/To Other Funds Due from/to other funds General PFA Capital Projects Other Governmental Other Business Type Total General $ - $ - $ 23,587 $ 299 $ 23,886 Federal 5,754 - 3,055 - 8,809 Other governmental 39,620 - 2,699 - 42,319 Total Governmental Fund 45,374 - 29,341 299 75,014 WICO 8,011 - - - 8,011 viNGN - 36,804 - - 36,804 Other enterprise 545 324 2,393 - 3,262 Total Proprietary Funds 8,556 37,128 2,393 - 48,077 Total $ 53,930 $ 37,128 $ 31,734 $ 299 $ 123,091 The due from/to other funds includes the following amounts the general fund owes to other funds: $13.5 million to St. Croix Capital Improvement Fund for capital improvement projects, $5.0 million due to the Emergency Molasses Fund (a non-major governmental fund) for unpaid appropriations; $3.5 million due to PFA special revenue fund (a non-major governmental fund) for unpaid matching funds; and $1.8 million due to the Elected Governor Retirement Fund. The amount due from other funds reported by the general fund is mainly composed of $42.2 million due from the District Street Lighting Fund (a non-major governmental fund); $8.0 million due from West Indian Company (WICO, a major business-type fund); and $2.7 million from the Bond Proceeds Fund (a non-major governmental fund). The due to PFA Capital Projects funds includes $36.8 million due from the Virgin Islands Next Generation Network (viNGN), a major business-type fund in connection with start-up costs of the broadband project. The amount due to other governmental funds by the other enterprise includes $1.0 million due from the Virgin Islands Lottery to the Pharmaceutical Assistance to the Aged Fund; and $1.1 million due from the Virgin Islands Lottery to the Virgin Islands Educational Initiative Fund consisting primarily of 15% of revenue derived from lottery games under contract between the Virgin Islands Lottery and private contractors be transferred to these funds. 8. Restricted Assets Primary Government Restricted assets of proprietary funds and business-type activities as of September 30, 2019, include cash and cash equivalents as follows (expressed in thousands): Unemployment insurance funds $ 5,575 WICO debt service funds 6,985 Total $ 12,560 Government of the United States Virgin Islands Notes to Basic Financial Statements 71 These funds were restricted to repay loans payable to the U.S. Treasury and WICO’s loan for capital asset purchases. Component Units Restricted assets of discretely presented component units include cash and cash equivalents, investments, and receivables as follows (expressed in thousands): Cash and cash equivalents: Debt service and sinking fund requirements* $ 40,276 Endowment funds 43 HUD project funds 854 Revolving loan funds 30,927 Construction funds* 10,235 Renewal and replacement funds 518 Other 7,562 Total 90,415 Investments: Debt service and sinking fund requirements 32,537 Endowment funds 69,297 HUD Project funds 844 Revolving loan funds 6,266 Construction funds 1,962 Other 201 Total 111,107 Other: Pledged funds 19,388 Total $ 220,910 *Virgin Islands Port Authority and Virgin Islands Research and Technology Park Corporation (unaudited) Government of the United States Virgin Islands Notes to Basic Financial Statements 72 9. Capital Assets Primary Government Capital assets activity for governmental activities for the year ended September 30, 2019, is summarized as follows (expressed in thousands): Beginning Balance Additions Transfers/ Adjustment Impairment/ Disposals Ending Balance Capital assets not being depreciated: Land $ 227,558 $ 21 $ - $ (12,179) $ 215,400 Construction in progress 1 154,427 155,064 (174,354) (324) 134,813 Total capital assets not being depreciated 381,985 155,085 (174,354) (12,503) 350,213 Capital assets being depreciated and amortized: Land improvements 9,957 130 2,550 (785) 11,852 Infrastructure 151,348 8,262 10,383 - 169,993 Buildings and improvements 434,918 69,093 158,788 (23,215) 639,584 Machinery and equipment 206,322 14,148 2,633 (1,713) 221,390 Total capital assets being depreciated and amortized 802,545 91,633 174,354 (25,713) 1,042,819 Land improvements (5,210) (441) - 92 (5,559) Infrastructure (42,749) (5,339) - - (48,088) Buildings and improvements (206,984) (25,284) - 1,680 (230,588) Machinery and equipment (184,533) (10,169) - 1,694 (193,008) Total accumulated depreciation and amortization (439,476) (41,233) - 3,466 (477,243) Total capital assets being depreciated and amortized, net 363,069 50,400 174,354 (22,247) 565,577 Total Governmental activities capital assets, net $ 745,054 $ 205,485 $ - $ (34,750) $ 915,789 Depreciation and amortization expense are charged to functions of the PG for the year ended September 30, 2019, as follows (expressed in thousands): Governmental Activities: General government $ 10,031 Public safety 2,189 Health 2,683 Education 18,312 Public housing and welfare 250 Culture and recreation 326 Transportation and communication 7,442 Total $ 41,233 Government of the United States Virgin Islands Notes to Basic Financial Statements 73 Capital assets activity for business-type activities for the year ended September 30, 2019, is summarized as follows (expressed in thousands): Beginning Balance Additions Transfers/ Adjustment Impairment/ Disposals Ending Balance Capital assets not being depreciated: Land $ 5,178 $ - $ - $ - $ 5,178 Construction in progress 5,332 1,066 (424) - 5,974 Total capital assets not being depreciated 10,510 1,066 (424) - 11,152 Capital assets being depreciated and amortized: Land improvements 348 - - - 348 Buildings and improvements 89,060 666 178 - 89,904 Machinery and equipment 78,618 923 188 - 79,729 Intangible assets 30,774 - - - 30,774 Total capital assets being depreciated and amortized 198,800 1,589 366 - 200,755 Less accumulated depreciation and amortization for: Land improvements (343) (1) - - (344) Buildings and improvements (47,680) (3,633) 121 - (51,192) Machinery and equipment (26,582) (4,940) (65) - (31,587) Intangible assets (7,106) (1,023) - - (8,129) Total accumulated depreciation and amortization (81,711) (9,597) 56 - (91,252) Total capital assets being depreciated and amortized, net 117,089 (8,008) 422 - 109,503 Total Business-type activities capital assets, net $ 127,599 $ (6,942) $ (2) $ - $ 120,655 Depreciation and amortization expense are charged for the year ended September 30, 2019, as follows (expressed in thousands): Business-type Activities: WICO $ 3,207 viNGN 5,044 Other enterprise funds 1,346 Total $ 9,597 Government of the United States Virgin Islands Notes to Basic Financial Statements 74 Component Units Capital assets activity for discretely presented component units for the year ended September 30, 2019, is summarized as follows (expressed in thousands): Beginning Balance Additions Transfers Impairment/ Disposals Ending Balance* Capital assets not being depreciated: Land $ 123,442 $ 16 $ 213 $ - $ 123,671 Construction in progress 214,203 419,218 (62,480) (2,108) 568,833 Total capital assets not being depreciated 337,645 419,234 (62,267) (2,108) 692,504 Capital assets being depreciated and amortized: Buildings and improvements 2,104,500 17,454 62,267 (259) 2,183,962 Airport and marine terminal facilities 184,269 - - - 184,269 Personal property and equipment 123,361 6,473 - (473) 129,361 Intangible assets 2,919 - - - 2,919 Total capital assets being depreciated and amortized 2,415,049 23,927 62,267 (732) 2,500,511 Less accumulated depreciation and amortization for: Buildings and improvements (960,923) (62,012) - - (1,022,935) Airport and marine terminal facilities (143,825) (5,016) - - (148,841) Personal property and equipment (94,827) (6,291) - 423 (100,695) Intangible assets (2,216) (194) - - (2,410) Total accumulated depreciation and amortization (1,201,791) (73,513) - 423 (1,274,881) Total capital assets being depreciated and amortized, net 1,213,258 (49,586) 62,267 (309) 1,225,630 Total component units capital assets, net $ 1,550,903 $ 369,648 $ - $ (2,417) $ 1,918,134 *Virgin Islands Port Authority and Virgin Islands Research and Technology Park Corporation (unaudited) Depreciation and amortization expense charged by each component unit for the year ended September 30, 2019, is as follows (expressed in thousands): Virgin Islands Housing Authority $ 7,682 Virgin Islands Port Authority* 17,757 Virgin Islands Water and Power Authority: Electric System 30,384 Water System 1,229 Virgin Islands Government Hospital and Health Facilities Corporation: Schneider Regional Medical Center 3,774 Governor Juan F. Luis Hospital 1,831 University of the Virgin Islands 2,489 Other component units* 8,367 Total $ 73,513 *Virgin Islands Port Authority and Virgin Islands Research and Technology Park Corporation (unaudited) Government of the United States Virgin Islands Notes to Basic Financial Statements 75 Sale of Capital Assets On July 30, 2018, the Government amended the Limetree agreement dated December 1, 2015. As part of the new agreement, the Government agreed to sell to Limetree the land, buildings, and other properties at the terminal site in St. Croix for $30.0 million. The Government received $20.0 million at closing and a ten-year nontransferable promissory note for $10.0 million secured by a purchase money lien on the properties. At September 30, 2019, the Government recognized a special item – loss on sale of capital assets of $6.1 million. Hurricanes Irma and Maria On September 6 and 19, 2017, the United States Virgin Islands were struck by two Category 5 hurricanes. The extent and severity of the storms was unprecedented and resulted in catastrophic damage to the Territory. The PG and its component units suffered losses to office buildings and educational facilities, roads, infrastructure, and various machineries and equipment. The PG had purchased commercial insurance to cover its risk of loss from destruction of assets and realized insurance recoveries during the fiscal year ended September 30, 2019, of $672,000. The organizations evaluated their respective capital assets in accordance with GASB Statement No. 42 and realized their respective losses from impairment, net of insurance recoveries. The discretely presented component units have recognized insurance recoveries as follows (expressed in thousands): Virgin Islands Port Authority (unaudited) $ 20,141 University of the Virgin Islands 11,780 Virgin Islands Water and Power Authority 1,500 Virgin Islands Waste Management Authority 1,500 Total $ 34,921 Actual repairs to damaged capital assets are expected to far exceed the calculated impairment losses. Any insurance recoveries received have been used to offset the impairment losses, in accordance with the guidelines of GASB Statement No. 42. No impairment losses recognized during the year. The insurance recoveries received during the year, are reported as a special item in the accompanying financial statements. Government of the United States Virgin Islands Notes to Basic Financial Statements 76 10. Long-Term Liabilities Primary Government The change in long-term bonds and loans for governmental activities is as follows for the year ended September 30, 2019, (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Matching Funds Revenue Bonds Series 2013 B Revenue and Refunding Bonds $ 41,045 $ - $ - $ 41,045 $ 6,035 $ 35,010 Series 2013 A Revenue and Refunding Bonds 23,915 - 7,905 16,010 2,335 13,675 Series 2012 A Revenue Bonds 139,265 - 950 138,315 1,000 137,315 Series 2010 A and B Revenue Bonds 385,655 - 2,660 382,995 2,800 380,195 Series 2009 A Revenue Bonds (Cruzan) 34,130 - 780 33,350 820 32,530 Series 2009 A1, A2, B and C Revenue and Refunding Bonds 256,825 - 32,275 224,550 33,745 190,805 Series 2009 A Revenue Bonds (Diageo) 226,970 - 5,600 221,370 5,990 215,380 Total 1,107,805 - 50,170 1,057,635 52,725 1,004,910 Gross Receipts Revenue Bonds Series 2018 A Revenue Bonds 188,522 17,773 - 206,295 - 206,295 Series 2014 D Revenue Bonds 5,235 - 200 5,035 215 4,820 Series 2014 C Revenue and Refunding Bonds 232,260 - 5,510 226,750 5,790 220,960 Series 2014 A Revenue Bonds 44,965 - 1,720 43,245 1,810 41,435 Series 2012 A and B Revenue and Refunding Bonds 168,540 - 13,690 154,850 14,335 140,515 Series 2012 C Revenue Bonds 28,130 - 1,600 26,530 1,685 24,845 Series 2006 A Revenue Bonds 193,230 - 3,485 189,745 3,615 186,130 Total 860,882 17,773 26,205 852,450 27,450 825,000 Tobacco Settlement Bonds Series 2006 A, B, C and D Tobacco Turbo and Capital Appreciation Bonds 7,290 - - 7,290 - 7,290 Series 2001 A Tobacco Bonds 5,315 - 800 4,515 - 4,515 Total 12,605 800 11,805 11,805 Federal-Aid Highway Bonds Series 2015 Bonds 78,610 - 3,645 74,965 3,825 71,140 Total 2,059,902 17,773 80,820 1,996,855 84,000 1,912,855 Plus (less): Bonds premium 45,924 - 5,398 40,526 - 40,526 Bonds discount (2,261) - (210) (2,051) - (2,051) Bonds accretion 9,038 1,094 - 10,132 10,132 - Total bonds payable, net $ 2,112,603 $ 18,867 $ 86,008 $ 2,045,462 $ 94,132 $ 1,951,330 Government of the United States Virgin Islands Notes to Basic Financial Statements 77 Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Notes 2016 A Note $ 6,587 $ - $ 2,136 $ 4,451 $ 2,136 $ 2,315 2014 E Revenue Note 5,000 - 5,000 - - - 2014 B Revenue Notes 6,000 - 2,000 4,000 2,000 2,000 2012 A TIF Notes 11,180 - 241 10,939 10,939 - 2011 B Revenue Anticipation Notes 643 - 643 - - - Total notes payable 29,410 - 10,020 19,390 15,075 4,315 Total governmental activities bonds and notes payable $ 2,142,013 $ 18,867 $ 96,028 $ 2,064,852 $ 109,207 $ 1,955,645 The change in other long-term liabilities for governmental activities is as follows for the year ended September 30, 2019, (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Accrued compensated absences $ 36,762 $ 2,280 $ - $ 39,042 $ 10,550 $ 28,492 Retroactive union arbitration 195,286 - - 195,286 - 195,286 Litigation 21,216 805 801 21,220 634 20,586 Landfill closure and post closure 102,135 8,573 - 110,708 - 110,708 Total $ 355,399 $ 11,658 $ 801 $ 366,256 $ 11,184 $ 355,072 Accrued compensated absences, retroactive union arbitration, litigation, landfill closure and post- closure costs are generally expected to be liquidated with resources derived from the general fund. At September 30, 2019, the PG reported other post-employment benefits (OPEB) to retirees such as health insurance liability of $774.5 million. The OPEB liability is valued as of October 1, 2018, determined by an actuarial valuation as of that date. The change in OPEB liabilities for governmental activities is as follows for the year ended September 30, 2019, (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Total OPEB liability $ 783,373 $ - $ 8,866 $ 774,507 $ - $ 774,507 At September 30, 2019, the PG reported a net pension liability of $3.2 billion for its proportionate share of the net defined benefit pension liability administered by GERS. The net pension liability is valued as of September 30, 2018, determined by an actuarial valuation as of that date. Government of the United States Virgin Islands Notes to Basic Financial Statements 78 The change in pension liabilities for governmental activities is as follows for the year ended September 30, 2019, (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Net pension liability $ 3,354,768 $ - $ 107,979 $ 3,246,789 $ - $ 3,246,789 The changes in long-term liabilities for business-type activities are as follows for the year ended September 30, 2019, (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Workers compensation claims $ 35,994 $ 28,469 $ 5,005 $ 59,458 $ 6,025 $ 53,433 Loan payable – U.S. Treasury 68,590 - 5,215 63,375 63,375 - Compensated absences - WICO 1,976 227 213 1,990 926 1,064 Loan payable – WICO 42,646 - 820 41,826 498 41,328 Total $ 149,206 $ 28,696 $ 11,253 $ 166,649 $ 70,824 $ 95,825 Debt Margin Pursuant to 48 U.S.C. Section 1574(b)(i) of the Revised Organic Act, the Government may issue revenue bonds for public improvements or undertakings authorized by an act of the Legislature, without limitation as to principal amount. Such revenue bonds are payable solely from the revenue directly derived from and attributable to such public improvements or undertakings. Pursuant to 48 U.S.C. Section 1574(b)(ii), the Government is authorized to issue general obligation bonds for any public purpose provided that no such indebtedness is more than 10.0% of the aggregate assessed valuation of the taxable real property in the U.S. Virgin Islands. In addition, pursuant to 48 U.S.C. Section 1574(a) (Public Law 94-932), the U.S. Virgin Islands is authorized to issue bonds or other obligations in anticipation of the matching funds to be received from the federal government pursuant to 26 U.S.C. Section 7652(b)(3). There is no legal limit on the value of bonds that the Government may issue pursuant to 48 U.S.C. Section 1574(a). The Legislature of the U.S. Virgin Islands must authorize all bond issuances. PFA is authorized to issue bonds for financing any project or for the purpose authorized by the Legislature. Given that PFA’s powers to issue bonds are derived from 48 U.S.C. Section 1574(b), the bonds issued by PFA are subject to the limitations of said 48 U.S.C. Section 1574(b). On August 23, 1999, the Legislature amended the V.I. Code to add a Mandatory Balanced Budget Provision. Such provisions, specifically Title 2 of the V.I. Code Section 256, provide that the amount of debt of the Government existing on October 1, 2000 shall be the debt limit of the Government, exclusive of bond principal and interest that may become due. The debt limit specified under Title 2 of the V.I. Code Section 256 does not include bonds authorized by law for which a specific source of revenue is identified and committed to retiring those bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements 79 As used in Title 2 of the V.I. Code Section 256, the term “debt” means the total accumulated unpaid obligations that are due and payable, including unpaid income tax refunds, amounts owed to vendors, and current year unpaid debt service obligations, if any. As used in the statute, the term “debt” does not include that portion of principal or interest on bonds that is not yet due and payable. (a) Bonds Payable Bonds payable outstanding at September 30, 2019, are comprised of the following (expressed in thousands): Maturity Interest Rate (%) Balance Matching Funds Revenue Bonds Series 2013 B Revenue and Refunding Bonds 2018 - 2024 3.00 - 5.00 $ 41,045 Series 2013 A Revenue and Refunding Bonds 2018 - 2024 5.00 - 5.25 16,010 Series 2012 A Revenue Bonds 2022 - 2032 4.00 - 5.00 138,315 Series 2010 A and B Revenue Bonds 2012 - 2029 4.00 - 5.25 382,995 Series 2009 A Revenue Bonds (Cruzan) 2010 - 2039 3.00 - 6.00 33,350 Series 2009 A1, A2, B and C Revenue and Refunding Bonds 2010 - 2039 3.00 - 5.00 224,550 Series 2009 A Revenue Bonds (Diageo) 2014 - 2037 6.00 - 6.75 221,370 Total 1,057,635 Gross Receipts Revenue Bonds Series 2018 A Revenue Bonds 2022 - 2037 2.86 – 3.19 206,295 Series 2014 D Revenue Bonds 2015 - 2033 6.03 5,035 Series 2014 C Revenue and Refunding Bonds 2015 - 2044 4.50 – 5.00 226,750 Series 2014 A Revenue Bonds 2015 - 2034 5.00 43,245 Series 2012 A and B Revenue and Refunding Bonds 2017 - 2032 2.25 - 5.25 154,850 Series 2012 C Revenue Bonds 2017 - 2042 3.00 - 5.00 26,530 Series 2006 A Revenue Bonds 2007 - 2029 3.50 - 5.00 189,745 Total 852,450 Tobacco Settlement Bonds 2006 Series A, B, C & D Tobacco Turbo and Capital Appreciation Bonds 2035 6.00 – 8.00 7,290 2001 Series A Tobacco Bonds 2031 4.62 – 5.13 4,515 Total 11,805 Federal-Aid Highway Bonds Series 2015 Bonds 2016 - 2033 3.00 – 5.00 74,965 Total bonds payable 1,996,855 Plus (Less): Bonds premium 40,526 Bonds discount (2,051) Bonds accretion 10,132 Total bonds payable, net $ 2,045,462 Government of the United States Virgin Islands Notes to Basic Financial Statements 80 Matching Funds Revenue Bonds Series 2013 B Revenue and Refunding Bonds On October 17, 2013, PFA issued the Series 2013 B Revenue and Refunding Bonds, the proceeds of which amounted to $51,365,000. These bonds are secured by a pledge of Matching Fund Revenues, which includes certain funds established under the original indenture, the Eighth Supplemental Indenture and the Series 2013B Loan Notes issued by the Government. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The Series 2013 B Bonds were issued to: (i) refund a portion of the Series 2004 A Bonds, (ii) fund the Series 2013 B Subordinate Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2013 B Bonds. The Series 2013 B Bonds mature in 2024 at an interest rate of 3.0% to 5.0%. The proceeds of the Series 2013 B Revenue and Refunding Bonds were placed in an irrevocable trust to provide for future debt service payments on the Series 2004 A. At October 1, 2014, the outstanding principal of the Series 2004 A Bonds was defeased through a call redemption amounting to $58,835,000. Interest on the Series 2013 B Revenue and Refunding Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2013 B Revenue and Refunding Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2013 B Revenue and Refunding Bonds are not redeemable at the option of PFA. Series 2013 A Revenue and Refunding Bonds On September 19, 2013, PFA issued the Series 2013 A Revenue and Refunding Bonds, the proceeds of which amounted to $36,000,000. These bonds are secured by a pledge of Matching Fund Revenues, which includes certain funds established under the original indenture, the Eighth Supplemental Indenture and the Series 2013 A Loan Notes issued by the Government. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The Series 2013 A Bonds were issued to: (i) refund a portion of the Series 2004 A Bonds, Series 2009 A1 Bonds, and Series 2009 B Bonds, (ii) fund the Series 2013 A Subordinate Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2013 A Bonds. The Series 2013 A Bonds mature from 2018 to 2024 at an interest rate of 5.00% to 5.25%. The proceeds of the Series 2013 A Revenue and Refunding Bonds were placed in an irrevocable trust to provide for future debt service payments on the Series 2004 A, Series 2009 A1, and Series 2009 B Bonds. The economic gain obtained by this advance refunding is the difference between the present value of old debt service requirements and the new debt service. This refunding resulted in a deferred loss of approximately $10.9 million and an economic loss of approximately $1.5 million. Interest on the Series 2013 A Revenue and Refunding Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2013 A Revenue and Refunding Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. Government of the United States Virgin Islands Notes to Basic Financial Statements 81 The Series 2013 A Revenue and Refunding Bonds are not redeemable at the option of PFA. Series 2012 A Revenue Bonds On September 7, 2012, PFA issued the Series 2012 A Revenue Bonds, the proceeds of which amounted to $142,640,000. These bonds are secured by a pledge of Matching Fund Revenues, which includes certain funds established under the original indenture, the Seventh Supplemental Indenture and the Series 2012 Loan Notes issued by the Government. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The Series 2012 A Bonds were issued to: (i) finance various operating expenses and other obligations of the Government, (ii) fund the Series 2012 A Subordinate Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2012 A Bonds. The Series 2012 A Bonds mature from 2022 to 2032 at an interest rate of 4.0% to 5.0%. Interest on the Series 2012 A Revenue Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2012 A Revenue Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2012 A Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2012 A Revenue Bonds Price October 1, 2023 and thereafter 100% Series 2010 A and B Revenue Bonds On July 8, 2010, PFA issued the Series 2010 A and B Revenue Bonds, the proceeds of which amounted to $399,050,000. These bonds are secured by a pledge of Matching Fund Revenues, which includes certain funds established under the original indenture, the Sixth Supplemental Indenture and the Series 2010 Loan Notes issued by the Government. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The Series 2010 A Bonds were issued to: (i) finance various operating expenses of the Government, (ii) refinance a portion of the outstanding Series 2009 B1 and B2 Notes, (iii) fund the Series 2010 A Subordinate Lien Debt Service Reserve Account, and (iv) finance certain costs of issuance of the Series 2010 A Bonds. The Series 2010 B Bonds were issued to: (i) refinance a portion of the outstanding Series 2009 B1 and B2 Notes, (ii) fund the Series 2010 B Subordinate Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2010 B Bonds. The Series 2010 A Bonds amount to $305,000,000 and mature from 2012 to 2029 at an interest rate of 4.0% to 5.0%. The Series 2010 B Bonds amount to $94,050,000 and mature from 2020 to 2029 at an interest rate of 4.25% to 5.25%. Interest on the Series 2010 A and B Revenue Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2010 A and B Revenue Bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements 82 The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2010 A and B Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2010 A and B Revenue Bonds Price October 1, 2021 and thereafter 100% Series 2009 A Revenue Bonds (Cruzan) On December 17, 2009, PFA issued the Series 2009 A Revenue Bonds (Cruzan), amounting to $39,190,000, to finance the costs of the development, acquisition, construction, and installation of a wastewater treatment facility and to fund certain preliminary costs of the alteration, upgrade, expansion, and renovation of the Cruzan distillery on St. Croix, to establish debt service reserves, and to finance costs of issuance of the 2009 A Bonds. These bonds are special limited obligations of PFA payable from and secured by a pledge of the Cruzan Trust estate which includes certain funds established under the Subordinated Indenture and the First Supplemental Subordinate Indenture of Trust. The bonds bear interest at 3.0% to 6.0% and mature from 2010 to 2039 and are subject to an optional redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date fixed for redemption. In association with the Series 2009 A Revenue Bonds, PFA entered into an agreement with Cruzan VIRIL, Ltd. (Cruzan), on October 6, 2009. Provisions of the agreement call for payments of excess matching funds, after debt service, debt service reserve, and sinking fund redemption payments, to the Government and Cruzan of 60% - 80% and 54% - 60%, respectively. Interest on the Series 2009 A Revenue Bonds (Cruzan) is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2009 A Revenue Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2009 A Revenue Bonds (Cruzan) maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2009 A Revenue Bonds (Cruzan) Price October 1, 2019 and thereafter 100% Government of the United States Virgin Islands Notes to Basic Financial Statements 83 Series 2009 A1, A2, B and C Revenue and Refunding Bonds On October 1, 2009, PFA issued the Series 2009 A1, A2, B, and C Revenue and Refunding Bonds, the proceeds of which amounted to $458,840,000. These bonds are secured by a pledge of Matching Fund Revenues, which includes certain funds established under the original indenture, the Fourth Supplemental Indenture and the Series 2009 Loan Notes issued by the Government. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The Series 2009 A1 and A2 Revenue and Refunding Bonds were issued to: (i) finance various capital projects of the Government, (ii) fund the Series 2009 A Senior Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2009 A1 and A2 Revenue and Refunding Bonds. The Series 2009 A1 Revenue and Refunding Bonds amounted to $86,350,000 and mature from 2010 to 2039 at interest rates from 3.0% to 5.0%. The Series 2009 A2 Revenue and Refunding Bonds amount to $8,650,000 and mature from 2010 to 2011 at an interest rate of 3.0%. The Series 2009 B Revenue and Refunding Bonds were issued to: (i) refund the Series 1998 A Revenue and Refunding Bonds (Senior Lien/Refunding Bonds), (ii) fund the Series 2009 B Senior Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2009 B Revenue and Refunding Bonds. The Series 2009 B Revenue and Refunding Bonds amount to $266,330,000 and mature from 2010 to 2025 at an interest rate of 5.0%. The Series 2009 C Revenue and Refunding Bonds were issued to: (i) refund the Series 1998 E Revenue and Refunding Bonds (Subordinate Lien/Capital Program Bonds), (ii) fund the Series 2009 C Subordinate Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2009 C Revenue and Refunding Bonds. The Series 2009 C Revenue and Refunding Bonds amounted to $97,510,000 and mature from 2010 to 2022 at an interest rate of 5.0%. The Series 2009 C Revenue and Refunding Bonds are subject to optional redemption by PFA on or after October 1, 2019, at redemption price of 100% of the principal amount thereof, plus interest accrued to the date fixed for redemption. Interest on the Series 2009 A1, A2, B and C Revenue and Refunding Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2009 A1, A2, B and C Revenue and Refunding Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2009 A1, A2, B and C Revenue and Refunding Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2009 A1, A2, B and C Revenue and Refunding Bonds Price October 1, 2019 and thereafter 100% Government of the United States Virgin Islands Notes to Basic Financial Statements 84 Series 2009 A Revenue Bonds (Diageo) On July 9, 2009, PFA issued the Series 2009 A Revenue Bonds (Diageo), the proceeds of which amounted to $250,000,000. These bonds are secured by a pledge of Diageo Matching Fund Revenues (Matching Funds generated from the sale of Captain Morgan rum products), which includes certain funds established under the original indenture, the Third Supplemental Indenture and the 2009 Matching Fund Loan Note – Diageo Project, Series A issued by the Government. The bonds bear interest at 6.00% to 6.75% and mature from 2014 to 2037. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The bonds were issued to: (i) provide a grant to Diageo USVI, Inc. (“Diageo USVI”) to finance the costs of the acquisition, design, development, construction, and equipping of a rum production and maturation warehouse facility to be located on St. Croix (the Diageo Project) (ii) redeem the Subordinated Revenue Bond Anticipation Notes (Virgin Islands Matching Fund Loan Notes – Diageo Project) Series 2009 A issued to finance preliminary costs of the Diageo Project (iii) fund the Series 2009 A Senior Lien Debt Service Reserve Account, (iv) pay capitalized interest on the Series 2009 A Revenue Bonds, and (v) finance certain costs of issuance of the Series 2009 A Revenue Bonds. The Series 2009 A Bonds maturing on or after October 1, 2020 shall be subject to optional redemption on or after October 1, 2019, at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date fixed for redemption. In association with the Series 2009 A Revenue Bonds, PFA entered into an agreement with Diageo USVI, Inc. (Diageo), on June 17, 2008. Provisions of the agreement call for payments of excess matching funds, after debt service, debt service reserve, and sinking fund redemption payments, to Diageo of 49.5% - 57.0%. Interest on the Series 2009 A Revenue Bonds (Diageo) is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2009 A Revenue Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2009 A Revenue Bonds (Diageo) maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2009 A Revenue Bonds (Diageo) Price October 1, 2020 and thereafter 100% Pledged Funds The Government has pledged the Matching Funds Revenues, as described below, to the timely payment of principal and interest on the Series 2013 B Revenue and Refunding Bonds, Series 2013 A Revenue and Refunding Bonds, Series 2012 A Revenue Bonds, Series 2010 A and B Revenue Bonds, Series 2009 A Revenue Bonds (Cruzan), the Series 2009 A1, A2, B and C Revenue and Refunding Bonds, and the Series 2009 A Revenue Bonds (Diageo). Government of the United States Virgin Islands Notes to Basic Financial Statements 85 Thus, all amounts to be received by the Government from federal rum excise tax are deposited directly in a trust account from which the Bonds are paid in accordance with the Indenture of Trust. The Secretary of the United States Department of Treasury makes annually, certain transfers to the Government of substantially all excise taxes imposed and collected under the internal revenue laws of the United States in any fiscal year on certain products produced in the Virgin Islands (primarily rum) and exported to the United States from the Virgin Islands. The amount required to be remitted to the Government by the Secretary of the Treasury is an amount no greater than the total amount of local revenues (primarily taxes) collected by the Government in each fiscal year. The term “matching fund revenues” is used to denote these payments. Estimated prepayments of matching fund revenues are made to the Government prior to the beginning of each fiscal year, subject to adjustment for local revenue actually collected by the United States Department of Treasury during such year. Such adjustments are made to the estimated prepayments for a subsequent fiscal year. The rate of federal rum excise tax is determined by Congress. In November 1999, Congress increased the federal rum excise tax rate from $10.50 to $13.25 per proof gallon. Since then, Congress has extended the higher rate nine times. In December 2017, Congress retroactively extended the $13.25 per proof gallon rate from January 1, 2017 to December 31, 2022. In fiscal year 2019, pledged matching rum excise tax revenues represented 42.7% of total rum excise revenues. Payments of Matching Fund Revenue Bonds principal and interest from matching rum excise tax revenues amounted to $50.2 million and $58.3 million, respectively. Gross Receipts Revenue Bonds Series 2018 A Revenue Bonds On July 1, 2018, PFA issued the Series 2018 A Revenue Bonds in a private placement to the Federal Emergency Management Agency (FEMA). The bonds secure certain Community Disaster Loans (CDLs) drawn following Hurricanes Irma and Maria in the United States Virgin Islands in September 2017. These bonds are secured by the pledge of gross receipts tax revenue. The Series 2018 A Revenue Bonds were issued to (i) finance essential functions of the Government’s operations following the hurricanes in the amount of $145.0 million, (ii) finance the operations of the Roy L. Schneider Hospital on the island of St. Thomas in the amount of $28.0 million, (iii) finance the operations of Governor Juan F. Luis Hospital and Medical Center on the island of St. Croix in the amount of $42.0 million, and (iv) fund certain debt service reserve requirements of the bond issuance. The bonds are subject to optional redemption by PFA at any time at a redemption price of 100% of the principal amount thereof, plus interest accrued through the redemption date. Interest payments commence October 1, 2019, with interest-only payments through October 1, 2022, calculated on a 360-day year consisting of twelve 30-day months. The Series 2018 A bonds mature in 2038. Interest accruing during the deferral period, from the date of each drawdown through September 30, 2019, bear interest beginning October 1, 2019 equal to the draws on the loan. Semi-annual interest and principal payments are due April 1 and October 1. The Government may request cancellation of the repayment of the CDLs if certain financial conditions exist three fiscal years following the date of the disaster. Government of the United States Virgin Islands Notes to Basic Financial Statements 86 Interest on the Series 2018 A Revenue Bonds is payable semi-annually on April 1 and October 1, and the principal is payable commencing October 1, 2022. The Government is responsible for all principal and interest payments on the Series 2018 A Revenue Bonds. The principal and interest payments on October 1 are funded by pledged Gross Receipts Taxes and determined and deposited into the debt service reserve accounts, which are also funded by Gross Receipts Taxes. The Series 2018 A Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2018 A Revenue Bonds Price Any time prior to maturity 100% 2014 Series D Revenue Bonds On December 3, 2014, PFA issued the Series 2014 D Revenue Bonds, the proceeds of which amounted to $5,765,000. These bonds are secured by the pledge of gross receipts tax revenues, subject to the annual moderate-income housing fund deposit as well as any prior liens or pledges. The Series 2014 D Revenue Bonds were issued to (i) finance certain costs associated with the broadband expansion program, (ii) fund the debt service reserve of the Series 2014 D Bonds in an amount necessary to meet debt service requirements, and (iii) pay the costs of issuance related to the Series 2014 D Bonds accounts. The Series 2014 D Bonds mature in 2033 at an interest rate of 6.03%. Interest on the Series 2014 D Revenue Bonds is payable semi-annually on April 1 and October 1, and the principal is payable in total on October 1, 2033. The Government is responsible for all principal and interest payments on the Series 2014 D Revenue Bonds. The principal and interest payments on October 1 are funded by the Gross Receipts Taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts Taxes. The Series 2014 D Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2014 D Revenue Bonds Price Any time prior to maturity 100% Make-Whole Redemption Price Series 2014 C Revenue and Refunding Bonds On November 14, 2014, PFA issued the Series 2014 C Revenue and Refunding Bonds, the proceeds of which amounted to $247,050,000. These bonds are secured by the pledge of gross receipts tax revenues, subject to the annual moderate-income housing fund deposit as well as any prior liens or pledges. The Series 2014 C Revenue and Refunding Bonds were issued to (i) refund the outstanding Series 2003 A Bonds, (ii) finance all or a portion of the costs of certain capital projects, and (iii) pay the costs of issuance related to the Series 2014 C Bonds. The Series 2014 C Bonds mature from 2015 to 2044 at an interest rate of 4.5% to 5.0%. Government of the United States Virgin Islands Notes to Basic Financial Statements 87 The proceeds of the Series 2014 C Bonds related to the refunding were placed in a trust account to provide for all future debt service payments on the 2016 to 2034 maturities of the Series 2003 A Bonds. Approximately $235,249,196 of bond proceeds were deposited into the Escrow Fund accounts. On December 1, 2014, the Series 2003 A bonds were defeased through the exercise of call redemptions. Interest on the Series 2014 C Revenue and Refunding Bonds is payable semi-annually on April 1 and October 1, and the principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2014 C Revenue and Refunding Bonds. The principal and interest payments on October 1 are funded by the Gross Receipts Taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts Taxes. The Series 2014 C Revenue and Refunding Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2014 C Revenue and Refunding Bonds Price October 1, 2024 and thereafter 100% Series 2014 A Revenue Bonds On September 5, 2014, PFA issued the Series 2014 A Revenue Bonds, the proceeds of which amounted to $49,640,000. These bonds are secured by the pledge of gross receipts tax revenues and are subject to the annual moderate-income housing fund deposit as well as any prior liens or pledges. The bonds were issued to (i) finance all or a portion of the costs of certain capital projects, as authorized by the Virgin Islands Legislature in 2013 V.I. Act 7499, as amended by 2014 V.I. Act 7631 as further amended by 2014 V.I. Act 7637 and approved by PFA by resolution, (ii) fund the Debt Service Reserve account in an amount necessary to meet the Debt Service Reserve Requirement, and (iii) pay the costs and expenses of issuing and delivering the Series 2014 A Bonds. The Series 2014 A Revenue Bonds mature from 2015 to 2034 at an interest rate of 5.0%. Interest on the Series 2014 A Revenue Bonds is payable semi-annually on April 1 and October 1, and the principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2014 A Revenue Bonds. The principal and interest payments on October 1 are funded by the Gross Receipts Taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts Taxes. The Series 2014 A Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2014 A Revenue Bonds Price October 1, 2024 and thereafter 100% Government of the United States Virgin Islands Notes to Basic Financial Statements 88 Series 2012 A and B Revenue and Refunding Bonds On November 20, 2012, PFA issued the Series 2012 A and B Revenue and Refunding Bonds, the proceeds of which amounted to $228,805,000. These bonds are secured by the pledge of gross receipts tax revenues, subject to the annual moderate-income housing fund deposit as well as any prior liens or pledges. The Series 2012 A Revenue and Refunding Bonds were issued to (i) refund the outstanding Series 1999 A Bonds, (ii) refund the outstanding 2010 A1 and A2 Notes, (iii) pay the costs and expenses of issuing and delivering the Series 2012 A Revenue and Refunding Bonds, and (iv) fund the Debt Service Reserve account in an amount necessary to meet the Debt Service Reserve requirement related to the Series 2012 A Revenue and Refunding Bonds. The Series 2012 A Bonds mature from 2017 to 2032 at an interest rate of 2.25% to 5.00%. The Series 2012 B Revenue and Refunding Bonds were issued to (i) refinance the outstanding 2011 A Notes, which initially financed the Broadband Project, (ii) pay the costs and expenses of issuing and delivering the Series 2012 B Revenue and Refunding Bonds, and (iii) fund the Debt Service Reserve account in an amount necessary to meet the Debt Service Reserve requirement related to the Series 2012 B Revenue and Refunding Bonds. The Series 2012 B Revenue and Refunding Bonds mature in 2027 at an interest rate of 5.25%. The refunding of the Series 1999 A Bonds, on November 20, 2012, was made to obtain lower interest rates. The economic gain obtained by this current refunding is the difference between the present value of old debt service requirements and the new debt service. This refunding resulted in a debt service saving of approximately $11.9 million and an economic gain of approximately $7.7 million. Interest on the Series 2012 A and B Revenue and Refunding Bonds is payable semi-annually on April 1 and October 1, and the principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2012 A and B Revenue and Refunding Bonds. The principal and interest payments on October 1 are funded by the Gross Receipts Taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts Taxes. The 2012 Series A and B Revenue and Refunding Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2012 A and B Revenue and Refunding Bonds Price October 1, 2032 (Series 2012 A) 100% October 1, 2027 (Series 2012 B) Make-Whole Redemption Price Government of the United States Virgin Islands Notes to Basic Financial Statements 89 Series 2012 C Revenue Bonds On December 19, 2012, PFA issued the Series 2012 C Revenue Bonds, the proceeds of which amounted to $35,115,000. These bonds are secured by the pledge of gross receipts tax revenues and are subject to the annual moderate-income housing fund deposit as well as any prior liens or pledges. The bonds were issued to (i) provide a loan to the Government to be used to finance certain operating expenses and other obligations of the Government, (ii) fund capitalized interest on a portion of the Series 2012 C Bonds, and (iii) pay the costs and expenses of issuing and delivering the Series 2012 C Bonds. The Series 2012 C Revenue Bonds mature from 2017 to 2042 at an interest rate of 3.0% to 5.0%. Interest on the Series 2012 C Revenue Bonds is payable semi-annually on April 1 and October 1, and the principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2012 C Revenue Bonds. The principal and interest payments on October 1 are funded by the Gross Receipts Taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts Taxes. The Series 2012 C Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2012 C Revenue Bonds Price October 1, 2030 and thereafter 100% Series 2006 A Revenue Bonds On September 28, 2006, PFA issued the Series 2006 A Revenue Bonds, the proceeds of which amounted to $219,490,000. These bonds are secured by a pledge of the Trust estate, which includes certain funds established under the original Indenture, the Seventh Supplemental Indenture and the 2006 Gross Receipts Taxes Loan Note, Series issued by the Government. The proceeds were loaned to the Government under the same terms as the Bonds. The bonds are limited special obligations of PFA. The bonds bear interest at 3.5% to 5.0% and mature from 2007 to 2029. The proceeds of the bonds were issued to: (i) refund a portion of PFA’s Revenue Bonds, Series 1999 A, (ii) pay the cost of a termination fee in connection with an outstanding swap option agreement, (iii) fund certain capital projects, (iv) fund the Debt Service Reserve Account, (v) pay certain costs of issuing the Series 2006 A Revenue Bonds and (vi) fund a net payment reserve account for a new swap agreement. The Series 2006 A Revenue Bonds maturing on or before October 1, 2016 are not subject to optional redemption. The advance refunding of the 2024 and 2029 maturities of the Series 1999 A Bonds was made in order to obtain lower interest rates. The economic gain obtained by this advance refunding is the difference between the present value of old debt service requirements and the new debt service. This refunding resulted in a debt service saving of approximately $40.8 million and an economic gain of approximately $25.6 million. Government of the United States Virgin Islands Notes to Basic Financial Statements 90 The proceeds of the Series 2006 A Revenue Bonds related to the refunding were placed in a trust account to provide for all future debt service payments on the 2024 to 2029 maturities of the Series 1999 A Bonds. Approximately $175,125,168 of funds was deposited into the Escrow Fund accounts. At September 30, 2017, the Series 1999A Revenue Bonds were fully defeased. Interest on the Series 2006 A Revenue Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2006 A Revenue Bonds. The principal and interest payments on October 1 are funded by Gross Receipts taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts taxes. The Series 2006 A Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2006 A Revenue Bonds Price October 1, 2016 and thereafter 100% Pledged Funds The Government has pledged Gross Receipts Taxes subject to the annual moderate income housing fund deposit, as well as any prior lien or pledge, to the timely payment of the principal and interest on the Series 2018 A Revenue Bonds, Series 2016 A Notes, Series 2014 E Revenue Note, Series 2014 D Revenue Bonds, Series 2014 C Revenue and Refunding Bonds, Series 2014 B Revenue Notes, Series 2014 A Revenue Bonds, Series 2012 C Revenue Bonds, Series 2012 A and B Revenue and Refunding Bonds, and the Series 2006 A Revenue Bonds. The Government has contracted an independent certified public accounting firm to provide quarterly verification of gross receipts deposits made to the collecting agent, in accordance with bond covenants. In fiscal year 2019, pledged gross receipts tax revenues represented 28.0% of total gross receipt tax revenues. Payment of Gross Receipts Revenue Bonds and Notes principal and interest from pledged gross receipts taxes amounted to $36.2 million and $34.0 million, respectively. Tobacco Settlement Bonds 2006 Series A, B, C & D Tobacco Turbo and Capital Appreciation Bonds On March 15, 2006, TSFC issued the 2006 Tobacco Settlement Financing Corporation Asset-Backed Bonds, Subordinated Series 2006 (Turbo Capital Appreciation Bonds) amounting to $48,145,000, with an issue value of $7,290,009 net of accretion of $40,854,991. The bonds are secured and payable from collections including all Tobacco Settlement Revenues to be received by TSFC, reserves, amounts held in other accounts established by the indenture and TSFC’s rights under the purchase agreement. The proceeds have been used for the purpose of (i) to finance several capital, hospital and health development projects for the benefit of the Virgin Islands and its residents, (ii) to pay certain costs of issuing the Series 2006 Bonds, and (iii) to fund operating costs associated with the Series 2006 Bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements 91 Interest on the Series 2006 Bonds is not paid currently but accretes from the date of delivery, compounded every May 15 and November 15, commencing May 15, 2006, and is paid at maturity or upon prior redemption, provided however that the 2001 Series Bonds have been paid in full. 2001 Series A Tobacco Bonds On November 20, 2001, TSFC issued the 2001 Tobacco Settlement Financing Corporation Asset- Backed Bonds (Term and Capital Appreciation Bonds) amounting to $23,685,000, with an issue value of $21,709,862 net of accretion of $1,975,138. The bonds are secured and payable from collections including all Tobacco Settlement Revenues to be received by TSFC, reserves, amounts held in other accounts established by the indenture, and TSFC’s rights under the purchase agreement. The proceeds have been used for the purpose of (i) purchasing all rights, title, and interest in certain litigation awards under the MSA entered into by participating cigarette manufacturers, (ii) issuing Tobacco Settlement Asset-Backed Bonds to pay the purchase price for the rights, and (iii) providing funds for hospital and healthcare projects in the United States Virgin Islands. Interest on the Series 2001 Bonds is payable semi-annually on each May and November 15, beginning with May 2002 for the Term Bonds. The Corporation is responsible for all principal and interest payments on the bonds. The convertible Capital Appreciation Bonds will accrete interest prior to November 15, 2007 and will accrue interest after that date. Interest will compound on May and November 15. Federal-Aid Highway Bonds On December 15, 2015, PFA issued the Series 2015 Federal-Aid Highway Bonds (the “Series 2015 Bonds”), the proceeds of which amounted to $89,880,000. These bonds are secured by a lien on a security interest in, the Trust Estate, which includes, all rights and interests in (i) the Federal Highway Grant Revenues, (ii) subject to the limitations set forth in the Indenture, the Transportation Trust Fund and the Pledged Transportation Trust Fund Revenues, (iii) the amounts on deposit in certain funds and accounts created under the Indenture, including Debt Service Reserve Fund and (iv) the Loan Agreement and the Loan Note. The bonds are limited special obligations of PFA. The Series 2015 Bonds were issued to (i) finance costs of certain highway capital projects, (ii) establish debt service reserves, and (iii) pay the costs of issuance related to the Series 2015 Bonds. The Series 2015 Bonds mature from 2016 to 2033 at an interest rate of 3.0% to 5.0%. Interest on the Series 2015 Bonds is payable semi-annually on March 1 and September 1, and principal is payable annually on September 1. The Government is responsible for all principal and interest payments on the Series 2015 Bonds. The principal and interest payments on September 1 are funded by the Federal Highway Grant Revenues, and the required investment to meet the March 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Federal Highway Grant Revenues. The Series 2015 Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2015 Bonds Price September 1, 2025 and thereafter 100% Government of the United States Virgin Islands Notes to Basic Financial Statements 92 Pledged Funds The Government has pledged the Federal Highway Grant Revenues, as described below, to the timely payment of principal and interest on the Series 2015 Bonds. The Federal Highway Administration’s Puerto Rico Division and the Government’s Department of Public Works and PFA, have entered into a Memorandum of Understanding, dated December 9, 2015, documenting the procedures, roles, and responsibilities for (i) programming and authorizing the Approved Projects, (ii) supervising the construction of the Approved Projects, (iii) paying debt service on the Bonds and other Bond Related Charges, and (iv) establishing the funding, transfer, and disbursement process for the proceeds of the Bonds. Advance Refunding/Defeasances On June 15, 1992, PFA issued the Series 1992 Revenue Bonds. The proceeds of the Series 1992 Revenue Bonds were placed in an irrevocable trust to provide for all future debt service payments on the Series 1989 Revenue Bonds. As of September 30, 2019, the Series 1989 Revenue Bonds were defeased. Government of the United States Virgin Islands Notes to Basic Financial Statements 93 Future debt service requirements for bonds for which matching funds have been pledged are as follows (expressed in thousands): Governmental Activities – Matching Funds Revenue Bonds 2009 Series A Revenue Bonds (Diageo) 2009 Series A1 & A2 Revenue Bonds 2009 Series B Revenue Bonds 2009 Series C Revenue Bonds 2009 Series A Revenue Bonds (Cruzan) Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2020 $ 5,990 $ 14,631 $ 2,000 $ 3,481 $ 22,600 $ 5,311 $ 9,145 $ 1,555 $ 820 $ 1,973 2021 6,405 14,216 2,090 3,388 23,760 4,152 8,415 1,116 865 1,926 2022 6,845 13,777 2,195 3,286 24,975 2,934 10,345 647 920 1,872 2023 7,315 13,308 2,300 3,179 9,650 2,068 7,770 194 975 1,815 2024 7,815 12,807 2,410 3,068 1,275 1,796 - - 1,040 1,755 2025-2029 47,870 55,232 13,995 13,406 35,260 1,307 - - 6,235 7,729 2030-2034 66,825 36,279 17,960 9,436 - - - - 8,420 5,546 2035-2039 72,305 10,172 23,060 4,334 - - - - 11,365 2,560 2040-2044 - - 5,345 134 - - - - 2,710 81 Total $ 221,370 $ 170,422 $ 71,355 $ 43,712 $ 117,520 $ 17,568 $ 35,675 $ 3,512 $ 33,350 $ 25,257 Governmental Activities – Matching Funds Revenue Bonds 2010 Series A Revenue Bonds 2010 Series B Revenue Bonds 2012 Series A Revenue Bonds 2013 Series A Revenue Bond 2013 Series B Revenue Bonds Total Matching Funds Revenue Bonds Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2020 $ 2,800 $ 14,377 $ - $ 4,833 $ 1,000 $ 6,851 $ 2,335 $ 770 $ 6,035 $ 1,902 $ 52,725 $ 55,684 2021 2,955 14,233 1,050 4,811 1,100 6,809 2,460 646 6,335 1,592 55,435 52,889 2022 3,115 14,082 - 4,789 1,150 6,764 2,590 515 6,655 1,268 58,790 49,934 2023 19,890 13,507 2,705 4,721 1,250 6,716 2,725 377 6,985 926 61,565 46,811 2024 29,795 12,264 11,010 4,378 1,300 6,658 2,875 231 7,330 568 64,850 43,525 2025-2029 179,020 40,162 64,285 12,664 8,000 32,179 3,025 78 7,705 193 365,395 162,950 2030-2034 51,370 1,284 15,000 394 124,515 15,579 - - - - 284,090 68,518 2035-2039 - - - - - - - - - - 106,730 17,066 2040-2044 - - - - - - - - - - 8,055 215 Total $ 288,945 $ 109,909 $ 94,050 $ 36,590 $ 138,315 $ 81,556 $ 16,010 $ 2,617 $ 41,045 $ 6,449 $ 1,057,635 $ 497,592 Government of the United States Virgin Islands Notes to Basic Financial Statements 94 Future debt service requirements for bonds for which gross receipts taxes have been pledged are as follows (expressed in thousands): Governmental Activities – Gross Receipts Revenue Bonds 2006 Series A Revenue Bonds 2012 Series A Revenue Bonds 2012 Series B Revenue Bonds 2012 Series C Revenue Bonds 2014 Series A Revenue Bonds 2014 Series C Revenue Bonds Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2020 $ 3,615 $ 9,075 $ 12,380 $ 6,241 $ 1,955 $ 1,100 $ 1,685 $ 1,284 $ 1,810 $ 2,117 $ 5,790 $ 11,134 2021 15,865 8,667 800 5,977 2,065 995 1,770 1,198 1,900 2,024 6,065 10,838 2022 16,295 7,942 1,140 5,939 2,175 883 1,860 1,107 2,000 1,927 6,385 10,526 2023 16,895 7,113 1,430 5,887 2,290 766 1,955 1,012 2,100 1,824 6,705 10,199 2024 17,515 6,253 6,780 5,689 2,415 642 430 952 2,210 1,717 7,045 9,855 2025-2029 97,785 17,204 47,030 22,390 11,030 1,196 2,510 4,406 12,870 6,762 35,800 43,978 2030-2034 21,775 463 63,360 6,575 - - 4,170 3,624 16,525 3,106 140,630 24,784 2035-2039 - - - - - - 6,070 2,310 3,830 96 5,095 3,794 2040-2044 - - - - - - 6,080 627 - - 9,630 2,085 2045-2049 - - - - - - - - - - 3,605 81 Total $ 189,745 $ 56,717 $ 132,920 $ 58,698 $ 21,930 $ 5,582 $ 26,530 $ 16,520 $ 43,245 $ 19,573 $ 226,750 $ 127,274 Governmental Activities – Gross Receipts Revenue Bonds 2014 Series D Revenue Bonds 2018 Series A-1 Revenue Bonds 2018 Series A-2 Revenue Bonds 2018 Series A-3 Revenue Bonds Total Gross Receipts Revenue Bonds Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2020 $ 215 $ 297 $ - $ 4,189 $ - $ 574 $ - $ 1,245 $ 27,450 $ 37,256 2021 225 284 - - - - - - 28,690 29,983 2022 240 270 - 4,189 - 574 - 1,245 30,095 34,602 2023 255 255 2,983 6,655 430 877 2,033 1,821 37,076 36,409 2024 270 239 3,125 5,364 492 736 2,171 1,343 42,453 32,790 2025-2029 1,630 920 25,866 17,917 3,450 2,433 10,345 4,776 248,316 121,982 2030-2034 2,200 347 40,098 13,696 5,183 1,880 12,171 3,247 306,112 57,722 2035-2039 - - 72,928 4,322 9,740 598 15,280 944 112,943 12,064 2040-2044 - - - - - - - - 15,710 2,712 2045-2049 - - - - - - - - 3,605 81 Total $ 5,035 $ 2,612 $ 145,000 $ 56,332 $ 19,295 $ 7,672 $ 42,000 $ 14,621 $ 852,450 $ 365,601 Government of the United States Virgin Islands Notes to Basic Financial Statements 95 Future debt service requirements for bonds for which tobacco settlement revenues have been pledged are as follows (expressed in thousands): Maturity Year Principal Interest 2020 $ - $ 226 2021 - 226 2022 - 226 2023 - 226 2024 - 226 2025-2029 - 1,128 2030-2034 4,515 451 2035-2039 7,290 - Plus future accretion 10,132 - Total $ 21,937 $ 2,709 Future debt service requirements for bonds for which federal-aid highway grant revenues have been pledged are as follows (expressed in thousands): Maturity Year Principal Interest 2020 $ 3,825 $ 3,748 2021 4,015 3,557 2022 4,220 3,356 2023 4,430 3,145 2024 4,650 2,924 2025-2029 26,970 10,891 2030-2034 26,855 3,439 Total $ 74,965 $ 31,060 (b) Loans and Notes Payable 2016 A Notes On October 1, 2016, PFA issued two Subordinate Lien Revenue Notes, Series 2016 A (Virgin Islands Gross Receipts Taxes Loan Notes-Emergency First Responder Project), collectively the “Series 2016 A Notes” in an aggregate amount of up to $10,000,000 to: (i) finance the acquisition of public safety vehicles and related equipment (the Series 2016A-1 Project), and (ii) to finance certain consulting services for the improvement of public safety and security in the Virgin Islands, (the Series 2016A- 2 Project), and (iii) to pay certain costs incidental to the issuance of the Series 2016 A Notes. The Series 2016 A Notes matures in 2021 with variable interest rates based on the 90-day London Inter- bank Offered Rate (LIBOR) plus 375 basis points. The Series 2016 A Notes are subject to prepayment by PFA in whole or in part at any time upon 100% payment of the outstanding principal plus interest accrued to the prepayment date. As of September 30, 2019, the outstanding balance was $4.5 million. Government of the United States Virgin Islands Notes to Basic Financial Statements 96 Future debt service requirements for the 2016 A Notes are as follows (expressed in thousands): Maturity Year Principal Interest 2020 $ 2,136 $ 170 2021 2,137 65 2022 178 1 Total $ 4,451 $ 236 Series 2014 E Revenue Notes On December 4, 2014, PFA issued the Subordinate Lien Revenue Anticipation Notes Series 2014 E (Virgin Islands Gross Receipts Taxes Loan Note), in the aggregate amount of $40,000,000 (the 2014 E Revenue Notes). The purpose of the 2014 E Revenue Notes is to provide a loan to the Government to (i) provide funds for any purpose for which the Government is authorized to use and expend monies, including but not limited to current expenses, capital expenditures, and discharge of any obligations of the Government, and (ii) pay the costs of issuance of the Series 2014 E Revenue Notes. The Series 2014 E Revenue Notes were defeased during the year ended September 30, 2019. 2014 B Revenue Notes On September 12, 2014, PFA issued the Subordinate Lien Revenue Notes, Series 2014 B (Virgin Islands Gross Receipts Taxes Loan Note) in the aggregate amount of $14,000,000 (the 2014 B Revenue Notes). The proceeds of the Series 2014 B Revenue Notes were loaned to the Government under the same terms, for the purposes of (i) financing general obligations of the Government and (ii) paying certain costs of issuing the 2014 B Notes. Principal is payable in eighty-four (84) consecutive monthly principal installments commencing on November 1, 2014. Interest is assessed at 375 points above the 90-day LIBOR rate. As of September 30, 2019, the outstanding balance was $4.0 million. Future debt service requirements for the 2014 B Revenue Notes are as follows (expressed in thousands): Maturity Year Principal Interest 2020 $ 2,000 $ 160 2021 2,000 43 Total $ 4,000 $ 203 2012 A TIF Notes On September 25, 2009, PFA entered into a Bond Anticipation Note Purchase Agreement with a local bank. Under the terms of the Note Purchase Agreement, the bank will purchase up to $15,700,000 in federally taxable Bond Anticipation Notes (the 2009 A TIF Notes) issued by PFA. The purpose of the Series 2009 A TIF Notes is to provide a loan to the Government (the Series 2009 A Tax Increment Revenue Loan Note) to finance the development of a shopping complex on the island of St. Croix. The financing is provided under Tax Increment Financing legislation enacted in October 2008 by the Government. Both the 2009 A TIF Notes and the Series 2009 Tax Increment Revenue Loan Note have a term of three years, maturing on October 1, 2012 with interest of 300 points above the J.P. Morgan Chase Prime Rate or 6.25%, whichever is higher. Government of the United States Virgin Islands Notes to Basic Financial Statements 97 Under the terms of the 2009 A TIF Notes, PFA may issue Tax Increment Revenue Bonds to defease the debt prior to that date. The proceeds were used to: (i) fund a capitalized interest account, (ii) pay costs of issuance, and (iii) fund the first phase of the development of the shopping complex. On December 5, 2016, a redemption of $1.0 million of the Series 2012 A TIF Notes was made directly by the Government, pursuant to the Series 2012A Term Loan Indenture of Trust. On September 24, 2012, PFA authorized an extension of the maturity date on the Series 2009 A TIF Notes, from October 1, 2015 to October 1, 2017, which was then converted to the Series 2012 A term loan note (the 2012 A TIF Notes). PFA sold $13,700,000 in 2012 A TIF Notes to the local bank and loaned that amount to the Government. The Government has pledged Island Crossings Incremental Tax Revenue and proceeds of the anticipated Tax Increment Revenue Bond Anticipation Note to the timely payment of the principal and interest on the 2012 A TIF Notes. Incremental Tax Revenue will be deposited into the Island Crossing Tax Increment Trust account in accordance with the Loan Agreement. Future debt service requirements for the 2012 A TIF Notes are as follows (expressed in thousands): Maturity Year Principal Interest 2020 $ 10,939 $ 252 2011 B Revenue Anticipation Notes On November 14, 2011, PFA entered into a Property Tax Revenue Anticipation Note Loan Agreement (the 2011 B Revenue Anticipation Notes). Under the terms of the Loan Agreement, the Employees’ Retirement System of the Government will loan PFA up to $13,000,000. The purpose of the 2011 B Revenue Anticipation Notes is secured by property tax revenue up to and including tax year 2005 to provide a loan to the Government to finance (i) payments made by the Government to government employees who elected to retire under the Retirement Incentive Program, (ii) expenses incurred by the Office of the Lieutenant Governor related to processing, issuing and collecting property tax bills, and (iii) loan issuance costs. The financing is provided under the 2011 Economic Stability Act enacted in July 2011 by the Government. Surplus property tax receipts will be deposited into the Special Real Property Tax Receipts Fund account in accordance with the Loan Agreement. The 2011 B Revenue Anticipation Notes had a term of five years, with interest rate of 4.9% and a maturity date of December 15, 2016. After the five-year term of the 2011 B Revenue Anticipation Notes, the loan converted to a term loan. The 2011 B Revenue Anticipation Notes were defeased during the year ended September 30, 2019. (c) Loan Payable – U.S. Treasury In August 2009, the Territory reserve balance of the Unemployment Trust Fund (UTF) became inadequate to cover expenditures for unemployment compensation (UC) benefits. UC benefits are an entitlement program administered through the U.S. Treasury and the PG is legally liable to pay benefits even if the UTF becomes insolvent. As of September 30, 2019, the PG owed $63.4 million to the U.S. Treasury. The loan was subject to interest at federal rates of 2.2153% through December 31, 2018 and 2.3081% after January 1, 2019. During 2019, the PG paid $1.4 million in interest to the U.S. Treasury on the UTF loan. There was no additional borrowing during the year ended September 30, 2019. Government of the United States Virgin Islands Notes to Basic Financial Statements 98 (d) Loan Payable – The West Indian Company Limited In July 2017, WICO consolidated various loans with Banco Popular de Puerto Rico in the amount of $42,697,836 at a fixed interest rate of 5.25% per annum, amortized on a 25-year term with a final maturity date of July 2022. Upon maturity, should WICO stay in compliance with the current terms of the loan, it may refinance the loan for a term not to exceed twenty (20) years, subject to new terms and conditions. WICO may prepay the loan, however there is a prepayment penalty of 2.0% of the outstanding principal of the loan. Security and collateral for the loan include a first-priority security interest in WICO’s assets and a pledge of WICO’s revenues. WICO must also maintain insurance on its facilities at full replacement cost value and business interruption insurance equal to one year’s net revenues. WICO is required to pay all payments in lieu of taxes (PILOT) to PG. Future principal payments on the loan are as follows: Maturity Year Principal Interest Total 2020 $ 498,432 $ 2,219,713 $ 2,718,145 2021 758,045 2,237,251 2,995,296 2022 40,569,718 1,982,628 42,552,346 Total $ 41,826,195 $ 6,439,592 $ 48,265,787 (e) Insurance Guaranty Fund Minimum Balance Requirement Under Title 22, Chapter 10 of the VIC, the Virgin Islands Insurance Guaranty Fund is required to maintain a minimum balance of $50.0 million for claimant payments in the event of a failure of an insurance carrier. On February 10, 2012, legislation was enacted authorizing a reduction in the minimum balance to be held by the Virgin Islands Insurance Guaranty Fund from $50.0 million to $10.0 million. Effective September 30, 2019, in the event the balance in the Insurance Guaranty Fund equals or exceeds $10.0 million, amounts in excess thereof shall be deposited, at the direction of the Commissioner of Finance, into the General Fund. Government of the United States Virgin Islands Notes to Basic Financial Statements 99 Component Units Bonds payable of discretely presented component units are those liabilities that are paid out of resources pledged by such entities. Bonds payable reported at September 30, 2019, are as follows (expressed in thousands): Maturity Interest Rate (%) Balance Bonds Payable Virgin Islands Water and Power Authority (Electric System): Bond Anticipation of 2018 B 2020 5.50 $ 33,960 Bond Anticipation of 2018 C 2033 2.38 – 2.90 17,500 Bond Anticipation of 2017 A 2020 10.00 14,765 Revenue Bonds of 2012 2025 4.00 - 6.06 49,305 Revenue Bonds of 2010 2035 4.00 - 6.85 44,300 Revenue Bonds of 2007 A 2031 4.50 - 5.00 57,585 Revenue Bonds of 2003 2028 4.00 – 5.00 39,560 Rural Utilities Service Note 2035 1.62 12,007 Virgin Islands Water and Power Authority (Water System): Revenue Bonds of 2018 2033 2.30 – 2.90 75,000 Virgin Islands Port Authority*: Series A Revenue Bonds of 2014 2033 4.00 – 5.00 21,025 Series B Revenue Bonds of 2014 2044 3.00 – 5.00 12,255 Series C Revenue Bonds of 2014 2025 2.00 – 5.00 3,920 Subtotal 381,182 Plus: unamortized premium 4,510 Bonds payable, net 385,692 Less amount due within one year (16,401) Bonds payable, due in more than one year $ 369,291 *Unaudited The changes in bonds payable for discretely presented component units are as follows for the year ended September 30, 2019 (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Virgin Islands Water and Power Authority: Electric System $ 267,439 $ 51,545 $ (47,445) $ 271,539 $ 13,706 $ 257,833 Water System 75,000 - - 75,000 - 75,000 Virgin Islands Port Authority* 42,282 - (3,129) 39,153 2,695 36,458 Total $ 384,721 $ 51,545 $ (50,574) $ 385,692 $ 16,401 $ 369,291 *Unaudited Government of the United States Virgin Islands Notes to Basic Financial Statements 100 The changes in notes payable, line of credit payable, and other long-term liabilities for discretely presented component units are as follows for the year ended September 30, 2019 (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Notes payable Virgin Islands Port Authority* $ 891 $ 4,743 $ (4,753) $ 881 $ 881 $ - University of the Virgin Islands 82,128 2,798 (2,735) 82,191 2,632 79,559 Other component units* 11,038 - (584) 10,454 1,307 9,147 Total $ 94,057 $ 7,541 $ (8,072) $ 93,526 $ 4,820 $ 88,706 Line of credit payable Virgin Islands Water and Power Authority: Electric System $ 27,322 $ - $ - $ 27,322 $ 27,322 $ - Water System 2,522 - - 2,522 2,522 - Virgin Islands Waste Management Authority - 2,500 - 2,500 2,500 - Total $ 29,844 $ 2,500 $ - $ 32,344 $ 32,344 $ - *Virgin Islands Port Authority and Virgin Islands Research and Technology Park Corporation (unaudited) Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Other long-term liabilities: Virgin Islands Housing Authority $ 6,892 $ 1,910 $ (4,245) $ 4,557 $ 2,633 $ 1,924 Virgin Islands Port Authority* 3,601 1,019 (982) 3,638 974 2,664 Virgin Islands Water and Power Authority: Electric System 154,824 - (9,138) 145,686 10,662 135,024 Water System 1,559 2,673 - 4,232 4,232 - Hospital and Health Facilities Corporation: Schneider Regional Medical 3,272 311 - 3,583 3,583 - Juan F. Luis Hospital 8,718 - (164) 8,554 8,554 - University of the Virgin Islands 5,125 476 (920) 4,681 920 3,761 Other component units* 11,762 1,369 (655) 12,476 1,495 10,981 Total $ 195,753 $ 7,758 $ (16,104) $ 187,407 $ 33,053 $ 154,354 *Virgin Islands Port Authority and Virgin Islands Research and Technology Park Corporation (unaudited) Government of the United States Virgin Islands Notes to Basic Financial Statements 101 (a) Bonds Payable Virgin Islands Water and Power Authority – Electric System Bond Anticipation of 2018B & 2018C On November 14, 2018, the Electric System’s Board authorized the refinancing of the Series 2016A Subordinated BANs with its Series 2018B Senior BANs in the principal amount of $33.9 million. The Electric System is working with the Rural Utilities Service program for long-term funding, which would most likely provide the lowest cost of long-term capital, otherwise the Electric System would issue long-term bonds or “roll” or re-issue another short-term note to keep rates low until a long- term financing option is viable. The Streetlight conversion project is approximately 60.3% percent completed and all lights and solar panels were expected to be installed by August 2020. On November 28, 2018 the Electric System’s Board authorized the issuance of Bond Anticipation Notes in one of more series in a principal amount not to exceed $30.0 million, the Series 2018C Bond Anticipation Notes. The 2018C BANs are being issued to evidence the debt in respect of a Community Disaster Loan made by the United States of America, acting through FEMA. The form of the Series 2018C BANs allows for multiple draws by the Electric System. For the year-ended, June 30, 2019, the Electric System drew down $17.5 million to provide additional working capital for fuel invoices, payroll, and other critical operating expenses. The rate on the BANs was 2.38% - 2.90%, maturing July 1, 2033. Virgin Islands Water and Power Authority – Electric System Bond Anticipation of 2017 In August 2017, the Electric System closed on financing for an additional $14.8 million as part of the authorized $85.0 million BANs (Series 2017A BAN) to fund startup costs for the acquisition and construction of six high efficiency power generating units with a certain vendor. The funding provides for (1) the design, engineering, procurement, construction, startup and testing of the new power generating units (2) the financing of two centralized control rooms and operational centers on the islands of St. Thomas and St. Croix, (3) financing of capitalized interest, and (4) payment of costs of issuance. The rate on the BANs was 10.0%, maturing July 1, 2020. Virgin Islands Water and Power Authority – Electric System Bond Anticipation of 2016 In November 2016, the Electric System closed on financing for $33.9 million to fund the Streetlight conversion project (Series 2016A BAN). The funding provides for (1) acquisition, assembly, and installation of the light-emitting diode (LED) and solar panels, (2) engineering and project management, and (3) integration with the Electric System’s Tantalus "smart meter" network or automated metering infrastructure (AMI). The Electric System issued the BANs to fund the project since long term rates have trended higher with the recent rating agency downgrades. The rate on the BANs was 5.5%, maturing November 15, 2018. Virgin Islands Water and Power Authority – Electric System Revenue Bonds of 2012 In May 2012, the Electric System issued $69.1 million in bonds made up as, $17.4 million in 2012A Electric System Revenue Refunding Bonds, $19.7 million in 2012B Electric System Subordinated Revenue Bonds, and $32.0 million in 2012C Electric System Subordinated Revenue Bonds. The proceeds of the Series 2012A Bonds were used to (1) refund the Electric System’s Electric System Revenue Refunding Bonds, Series 1998 and (2) pay certain costs of issuance of the Series 2012A Bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements 102 The proceeds of the Series 2012B Bonds were used to (1) refinance a portion of the Electric System’s Electric System Term Loan, (2) make a deposit into the Subordinated Debt Service Reserve Fund sufficient to satisfy the Series 2012B Subordinated Debt Service Reserve Fund Requirement, and (3) pay certain costs of issuance of the Series 2012B Bonds. The proceeds of the Series 2012C Bonds were used to (1) refinance all or a portion of the Electric System Working Capital Lines of Credit and Overdraft Credit Facility, (2) make a deposit into the Series 2012C Subordinated Debt Service Reserve Fund sufficient to satisfy the Subordinated Debt Service Reserve Fund Requirement, and (3) pay certain costs of issuance of the Series 2012C Bonds. Virgin Islands Water and Power Authority – Electric System Revenue Bonds of 2010 In March 2010, the Electric System issued $85.3 million in bonds made up as, $39.1 million in 2010A Electric System Revenue Refunding Bonds, $8.9 million in 2010B Electric System Revenue Bonds, and $37.3 million in 2010C Electric System Revenue Bonds. The proceeds of the Series 2010A Bonds were used to (1) refund a portion of the Electric System Revenue Refunding Bonds, Series 1998 and (2) pay certain costs of issuance of the Series 2010A Bonds. The proceeds of the Series 2010B Bonds were used to finance certain capital expenditures temporarily funded through draws on a line of credit ($9.0 million) and to make certain deposits into the Debt Service Revenue Fund sufficient to satisfy the Debt Service Reserve Fund requirement. The proceeds of the Series 2010C Bonds were used to fund a portion of the costs of certain capital improvements to the Electric System and to make certain deposits into the Debt Service Revenue Fund sufficient to satisfy the Debt Service Revenue Fund Requirement. The proceeds of the three series were also used to pay certain costs of issuance of the 2010A, 2010B, and 2010C Bonds. Virgin Islands Water and Power Authority – Electric System Revenue Bonds of 2007 In June 2007, the Electric System issued $57.6 million in 2007A Electric System Subordinated Revenue Bonds. The proceeds of the Series 2007A Bonds were used to (1) finance costs of certain capital improvements, (2) refinance certain costs of capital improvements funded through draws on a Line of Credit and reinstallation of $10.0 million to the line of credit allocable to the Electric System, (3) make certain required deposits to the subordinated Debt Service Reserve Fund, and (4) pay certain costs of issuance of the Series 2007A Bonds. Virgin Islands Water and Power Authority – Electric System Revenue Bonds of 2003 In June 2003, the Electric System issued $69.9 million in Electric System Revenue Bonds, Series 2003. The proceeds from the bonds were used to finance capital improvements, repay $18.0 million of then outstanding lines of credit, cover underwriters’ costs, and establish a debt service fund. The Series 2003 Bonds maturing on or after July 1, 2013, shall be subject to redemption prior to their stated maturity date, at the option of the Electric System, on or after July 1, 2013, as a whole or in part at any time, at a redemption price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption. For the year ended June 30, 2019, the Electric System’s Debt Service Coverage ratio was 0.40 for total Debt Coverage. Section 606(2) of the Resolution provided that if the Electric System fails to achieve such 1.00 coverage in a particular year, the Electric System must “take whatever steps it can to produce the amount of net electric revenues required in the following fiscal year …” Section 701 (3) of the Resolution relates to covenant defaults and makes them an event of default if such covenant default continues for 60 days after notice unless the Electric System is proceeding with diligence to cure such default. Government of the United States Virgin Islands Notes to Basic Financial Statements 103 The Electric System has notified the Trustees regarding the non-compliance with the covenants as required under the bond resolutions. The Electric System is taking all necessary actions to comply with its rate covenant under the bond resolutions inclusive of filing a revised base rate to increase the rates combined with the implementation of the Electric System’s Transformation Plan to allow the Electric System to collect increased revenues. Since the 2017 hurricanes, the Electric System continues working diligently to cure each instance of default and anticipates that all such defaults will be cured as the Electric System’s long-term Transformation Plan is implemented. The Electric System’s revised base rate and LEAC petitions were approved on January 9, 2020. However, the Electric System cannot yet determine how long it will take to generate Electric Revenues in amounts necessary to comply with the provisions of the bond resolutions. As of June 30, 2021, the Authority had made all required debt service payments to date, and all required bond reserves are adequately funded. The Electric System Revenue Bonds are subject to mandatory redemption if (i) any significant part of the Electric System shall be damaged, destroyed, taken or condemned or (ii) any for-profit government investor shall acquire an ownership interest in some or all of the assets of the Electric System. Virgin Islands Water and Power Authority – Electric System Rural Utilities Services (RUS) Note In November 2015, the Electric System obtained a term loan with the RUS in the principal amount of S13.0 million. The proceeds of the loan were used to finance and refinance the acquisition and installation of an automated metering system and other costs related thereto. Virgin Islands Water and Power Authority – Water System Revenue Bonds of 2018 In November 2017, to fund its working capital needs in the aftermath of the hurricanes, the Water System obtained $31.0 million under the Community Disaster Loan program administered by FEMA. In March 2018, the Water System entered into another loan for $44.0 million and refinanced the existing $31.0 million for a combined loan of $75.0 million, secured now as a first lien of the Water System’s revenues. The proceeds of these loans were used to provide working capital mostly for fuel invoices, payroll, and other critical operating expenses. While the loan is reflected under the Water System, the payment of principal and interest is subject to an intercompany agreement whereby 17% will be allocated to the Water System and 83% to the Electric System. The Water System may request drawdowns periodically. The interest rate varies with each draw-down, ranging from 2.3% to 2.9%. The first interest payment was due July 1, 2019 with subsequent payments due semiannually. The first principal payment is due January 1, 2022 with subsequent payments due semiannually. Virgin Islands Port Authority – Series A, B, and C Revenue Bonds of 2014 (unaudited) In October 2014, VIPA issued the 2014 Series Revenue Bonds A, B & C amounting to $48.6 million, with an average interest rate of 4.7%. A portion of the proceeds was used to refund the outstanding bond series 2003 A and C amounting to $24.5 million, which included accrued interest as of the redemption date for October 27, 2014. The proceeds from the issuance of the 2014 Series used in the refunding were deposited in an escrow account, held by the Trustee on behalf of the holders of the refunded bonds, and applied to such redemption contemporaneously with the issuance of the Series 2014 Bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements 104 As a result, the 2003 A & C Bonds were paid off. The 2003 Series B Marine Revenue Bonds were also paid off. VIPA reduced its total debt service requirement by $1.7 million, which resulted in an economic gain (difference between the present value of the debt service payments on the old and new debt) of $2.4 million. In addition, VIPA recognized a deferred charge on debt refunding amounting to $0.4 million. The proceeds of the 2014 Bonds, together with certain other available funds of VIPA, were used for: (i) refunding $24.5 million in 2003 Series A Marine Revenue bonds and pay off the 2003 Series bonds; (ii) for the financing of various capital projects; (iii) to fund a deposit to the debt service fund; (iv) to fund a deposit to the operation, maintenance, renewal and replacement reserve account; and (v) to pay the cost of issuance of the 2014 Bonds. The 2014 bonds issued by VIPA contain certain bond indentures. The bonds’ indentures contain certain account restrictions and funding covenants to cover interest, debt service, maintenance and other costs specified in the corresponding indentures. The bonds’ indentures also specify certain debt service coverage requirements determined from Net Available Revenues (as defined) of the Marine Division. Future debt service requirements for discretely presented component units’ bonds payable are as follows (expressed in thousands) at September 30, 2019: Maturity Year Principal Interest 2020 $ 16,401 $ 16,167 2021 65,714 14,642 2022 17,781 16,720 2023 23,062 14,738 2024 25,344 11,224 2025-2029 117,673 39,376 2030-2034 98,737 15,161 2035-2039 14,220 2,191 2040-2044 2,250 274 Total 381,182 $ 130,493 Plus: unamortized premium 4,510 Bonds payable, net $ 385,692 (b) Notes Payable Virgin Islands Port Authority (unaudited) In April 2019, VIPA obtained a short-term note for $4.0 million with interest at a 4.93% annual rate. This note has a 9-month maturity and is due in December 2019. This note was used to finance VIPA’s insurance premiums. The outstanding balance of $0.9 million as of September 30, 2019, was paid off in December 2019. Government of the United States Virgin Islands Notes to Basic Financial Statements 105 University of the Virgin Islands During fiscal year 2015, UVI entered into two capital project loan agreements, the Series 2015 3-1 and Series 2015 3-2 Notes, for the construction of a medical school on the island of St. Thomas. UVI received advances amounting to $2.8 million related to the Series 2015 3-1 Note. UVI also entered into a loan agreement with First Bank of Puerto Rico for the construction of the medical school. A variable rate was assigned to all the loans. In June 2011, UVI entered into two capital project loan agreements (the Series 2011-2 and Series 2011-3 Notes) in the amounts of $44.0 million and $16.0 million, with Rice Capital Access Program, LLC. The purpose of the capital project loans was to: (i) advance refund the University’s 1999 Series A Bonds and 2004 Series A Bonds; and (ii) to pay for construction costs of a 100-bed student residence facility and other improvements on the St. Thomas and St. Croix campuses. Interest payments are due February and August. Interest on the Series 2011-2 Note is 3.48% and interest on the Series 2011-3 Note is variable and calculated from the date of each advance using the long-term U.S. Treasury Rate on that day. The Notes have maturity dates through August 1, 2040. UVI Research and Technology Park Corporation (unaudited) In February 2013, RTPark obtained a $3.0 million loan from a member. A portion of the loan proceeds were used to repay a previous loan from UVI to complete construction on 64 West Center. This loan has a 6.75% interest rate and is payable over 15 years. The loan is secured by RTPark’s tangible and intangible property. (c) Line of Credit Payable The Electric System of WAPA has available bank lines of credit for $13.0 million for capital projects and $20.0 million for working capital purposes. Interest on amounts borrowed is payable quarterly at a variable interest rate of prime plus 1%, London Interbank Offered Rate (LIBOR) plus 1.5% or 1.5% above the interest rate on three-year United States Government treasury notes. The Electric System has the option to select the variable interest rate to utilize for any borrowings on these notes. At June 30, 2019, there was $27.3 million outstanding under the lines of credit. The due dates of the lines have been extended several times. The Water System of WAPA has available bank lines of credit of $2.5 million for the Water System. Interest on amounts borrowed is payable quarterly at a variable interest rate of prime plus 1.0%, London Inter-Bank Offer Rate (LIBOR) plus 1.75%, or 175 basis points above the interest rate on three-year United States Government treasury notes. The Water System has the option to select the variable interest rate to utilize for any borrowings on these notes. The lines were extended to have maturity of July 2021. The agreements require the Water System to deliver audited financial statements within 180 days after the end of its fiscal year. The banks have granted the Water System a waiver from this requirement for the year ended June 30, 2019. At June 30, 2019, there was $2.5 million outstanding under the lines of credit for the Water System. Government of the United States Virgin Islands Notes to Basic Financial Statements 106 In December 2018, the Waste Management Authority entered into a secured credit agreement consisting of $4.0 million revolving credit facility to supplement allotments received by the PG. The credit facility bears an interest rate of 2.5% per annum and the agreement matures every 12 months. The Waste Management Authority believes it was in substantial compliance with all relevant covenants as of September 30, 2019. The aggregate borrowings and outstanding balance for the credit facility was $12.3 and $2.5 million, respectively, as of September 30, 2019. 11. General Tax Revenue For the year ended September 30, 2019, general tax revenue of the PG consisted of the following (expressed in thousands): General PFA Debt Service Other Governmental Total Income taxes $ 416,164 $ - $ - $ 416,164 Real property taxes 39,675 - 5,279 44,954 Gross receipts taxes 10,327 233,186 250 243,763 Excise taxes 148,537 108,505 5,185 262,227 Other taxes 66,198 - 6,342 72,540 $ 680,901 $ 341,691 $ 17,056 Tax revenue not recognized on the full accrual basis (50,598) Total tax revenue – government-wide $ 989,050 Government of the United States Virgin Islands Notes to Basic Financial Statements 107 12. Governmental Fund Balances Following is a detail of the aggregated fund balances presented in the Balance Sheet – Governmental Funds as of September 30, 2019, (expressed in thousands): General PFA Debt Service PFA Capital Projects Federal Funds Other Governmental Total Restricted for: Debt service $ - $ 305,173 $ - $ - $ - $ 305,173 Capital projects - - 136,713 - - 136,713 Health - - - - 3,874 3,874 Public housing and welfare - - - - 5,699 5,699 Transportation and communication - - - - 3,357 3,357 Culture and recreation - - - - 8 8 Total $ - $ 305,173 $ 136,713 $ - $ 12,938 $ 454,824 Committed to: General government $ 20,270 $ - $ - $ - $ 5,385 $ 25,655 Public safety - - - - 17 17 Public housing and welfare - - - - 175 175 Transportation and communication - - - - 11,575 11,575 Culture and recreation - - - - 327 327 Total $ 20,270 $ - $ - $ - $ 17,479 $ 37,749 Assigned to: General government $ 716 $ - $ - $ - $ 106,883 $ 107,599 Public safety - - - - 1,719 1,719 Health - - - - 3,770 3,770 Public housing and welfare - - - - 8,033 8,033 Education - - - - - - Transportation and communication - - - - 8,128 8,128 Culture and recreation - - - - 1,189 1,189 Total $ 716 $ - $ - $ - $ 129,722 $ 130,438 Unassigned $ (115,068) $ - $ - $ (130,505) $ (58,924) $ (304,497) Total Fund Balances $ (94,082) $ 305,173 $ 136,713 $ (130,505) $ 101,215 $ 318,514 The committed and assigned fund balances include approximately $132.2 million in unexpended encumbrances. Encumbrances are utilized to determine commitments related to unperformed (executor) contracts for goods and services and to prevent the over-spending of an appropriation. Government of the United States Virgin Islands Notes to Basic Financial Statements 108 13. Commitments and Contingencies Primary Government (a) Collective Bargaining Agreements Currently, the Government has union contracts with thirteen (13) distinct labor organizations representing government employees in various bargaining units. Collectively, these bargaining units have approximately thirty-six (36) collective bargaining agreements in existence. Nine (9) bargaining units have not negotiated a collective bargaining agreement with the Government. Employees in the various bargaining units are not under a single pay plan. Consequently, it is common to have employees performing the same classification of work in different departments and agencies. Of the approximately seven thousand (7,000) government workers, approximately 4,700 are union members. Virgin Islands statutes governing bargaining with unions requires arbitration in the event an impasse is reached in negotiations. Under this process, each side chooses an arbitrator and a third impartial arbitrator is selected by the chosen arbitrators. The arbitration panel investigates and reviews the issues in dispute and renders a final and binding decision. As of September 30, 2019, the Government has contractual liabilities for retroactive union arbitration salary payments estimated at $195.3 million accruing from fiscal years 1993 through 2010, as established by the Virgin Islands Retroactive Wage Commission. Under Title 24, Section 374(h) of the V.I. Code, the PG may not make any payments of retroactive salaries until there is an appropriation of funds by the Legislature. (b) Federal Assistance Programs The Government receives financial assistance from the federal government in the form of loans, grants, and entitlements. Monetary and nonmonetary federal financial assistance to governmental funds amounted to approximately $832.8 million and $45.0 million, respectively, for the year ended September 30, 2019. Receipt of grants and loss reimbursements is generally conditioned upon compliance with terms and conditions of the grant agreements and applicable federal regulations, including the expenditure of resources for eligible purposes. Substantially all grants are subject to audit under U.S. Office of Management and Budget’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Disallowance of expenses in connection with federal audits may become liabilities of the Government. As discussed in Note 18, the Government is a recipient of disaster recovery funds due to the September 2017 hurricanes. Audits of disaster recovery funds may continue for decades, and federal reimbursements may be required to be repaid as a result of federal audits. Management of the Government believes that the future outcome of any changes in federal financial assistance programs will not have a material adverse effect on the basic financial statements. Government of the United States Virgin Islands Notes to Basic Financial Statements 109 (c) U.S. Department of Education Special Conditions Since 2006, in accordance with special conditions imposed by the U.S. Department of Education (USED), the Government has contracted with a third-party fiduciary agent to ensure that the Government manages and administers USED grants in accordance with applicable federal and financial management requirements. The special conditions also require the Government to submit quarterly reports on progress in improving all aspects of the fiscal management of federal education grants. The Virgin Islands has implemented a Self-Contained Model known as the Federal Grants Specialized Processing Unit to address the special conditions and as the approach for reassuming management of the grant funds. (d) U.S. Department of Labor Designation On February 3, 2017, the Virgin Islands Department of Labor was placed on high-risk grantee status by the U.S. Department of Labor. High-risk grantee status is an administrative designation used by federal agencies to indicate unsatisfactory performance in the management of federal grants. Management is currently working with the U.S. Department of Labor to implement corrective action. (e) Legal Proceedings and Litigation Claims The Government is a defendant in numerous legal proceedings pertaining to matters incidental to the performance of routine governmental operations. Under Title 33, Section 3411(c) of the V.I. Code, no judgment shall be awarded against the Government that exceeds $25,000 for tort claims filed under Government statutes. In cases involving several survivors, each award must be construed separately for purposes of applying the limitation upon recovery imposed by the Tort Claims Act. Under Title 27, Section 166(e) of the V.I. Code, the Government’s waiver of immunity is expanded to $250,000 for medical malpractice actions, including actions for wrongful death based on malpractice. Under certain circumstances, as provided in Title 33, Section 3414 of the V.I. Code, the Government may assume the payment of a judgment entered against an officer or employee who acted reasonably and within the scope of his employment. The Government may pay up to a maximum amount of $100,000 of the settlement. With respect to pending and threatened litigation, the Government has accrued a provision for legal claims and judgments of approximately $21.2 million for awarded and anticipated unfavorable judgments as of September 30, 2019. Changes in the reported provision for legal claims during September 30, 2019, resulted from the following activity (expressed in thousands): Beginning Balance at October 1, 2018 New Claims Claims Payments and Changes in Estimates Ending Balance at September 30, 2019 Provision for legal claims $ 21,216 $ 805 $ (801) $ 21,220 Government of the United States Virgin Islands Notes to Basic Financial Statements 110 The breakdown of the provision for legal claims at September 30, 2019, as reflected in governmental activities, is as follows (expressed in thousands): Current portion $ 634 Long-term portion 20,586 $ 21,220 (f) Landfill Closure and Post-Closure Costs Federal laws and regulations, including the Clean Air Act, 42 U.S.C. § 7401 et seq. (CAA), and regulations promulgated thereunder, including the federal standards set forth in 40 C.F.R. Part 62, Subpart GGG (Federal Plan), and the National Emission Standards for Hazardous Air Pollutants for Municipal Landfill Maximum Achievable Control Technology, set forth in 40 C.F.R. Part 63, Subpart AAAA (Landfill MACT), and the Solid Waste Disposal Act, 42 U.S.C. § 6901 et seq. (RCRA), and regulations promulgated thereunder, including federal municipal solid waste landfill operating, closure, and post-closure criteria set forth in 40 C.F.R. Part 258, and three EPA administrative orders issued pursuant to RCRA § 7003(a), 42 U.S.C. § 6973(a), and Territorial laws and regulations, including V.I. Code Title 19, Chapter 56 (Solid and Hazardous Waste Management), Title 12, Chapter 9 (Air Pollution Control), and Title 12, Chapter 21 (Virgin Islands Coastal Zone Management), and regulations promulgated thereunder, require the Government to construct and operate certain environmental control systems and otherwise comply with certain requirements during operation of each of its landfill sites, properly close the site (including placement of a final landfill cover) when the landfill (or portion thereof) stops accepting waste, and perform certain post-closure maintenance and monitoring functions at the site for 30 years following closure. Compliance costs during the operational phase will be paid prior to closure. Although closure and post-closure costs will be paid only near or after the date that the landfill stops accepting waste, the Government reports a portion of these closure and post-closure care costs as an operating expense in each period based on landfill capacity used as of each statement of net position date. The $110.7 million reported as landfill compliance, closure, and post-closure care liability at September 30, 2019, represents the cumulative amount reported to date based on the use of the estimated capacity of each landfill. The Government will recognize the remaining estimated cost of closure and post-closure care as the remaining estimated capacities are filled. These amounts are based on what it would cost to perform all closure and post-closure care as of September 30, 2019. The estimated used capacity and expected closure of each of the Government landfills is as follows: Landfill Estimated Used capacity Estimated Closure date Bovoni 99% 2022 Anguilla 95% 2021 Susannaberg 100% Closed The actual cost to perform closure and post-closure may be higher due to inflation, changes in technology, or changes in regulations. The Government is required by state and federal laws and regulations to make annual contributions to a trust to finance closure and post-closure care. Government of the United States Virgin Islands Notes to Basic Financial Statements 111 The Government began making annual contributions to a trust in fiscal year 2007 to finance closure and post-closure costs. The Government expects that future inflation costs will be paid from interest earnings on these annual contributions and other financing measures. However, if interest earnings and financing measures should prove to be inadequate, or additional post-closure care requirements are determined due to changes in technology or applicable laws or regulations, these costs may need to be recovered through charges to future landfill users. (g) Wastewater Treatment Plant Consent Decree Since 1985, the Government has been subject to a consent decree issued by the Virgin Islands District Court, governing the operation of its wastewater treatment plants. The consent decree was amended in 1996 and further modified with the 2002 Stipulation to the Amended Consent Decree (the Stipulation) to establish deadlines for the construction of new secondary treatment facilities, including the replacement of the existing St. Croix and Airport Lagoon (Charlotte Amalie) wastewater treatment plants. The Stipulation required that the new St. Croix wastewater treatment plants be completed by the end of 2006 and the new Charlotte Amalie wastewater treatment plants be completed by the end of 2007. The cost of both facilities was estimated at approximately $50.0 million. In January 2004, the Government’s Legislature authorized the creation of the VIWMA for the purpose of meeting environmental requirements of wastewater treatment in the U.S. Virgin Islands. On December 2004, PFA issued revenue bonds amounting to $94.0 million for the purpose of constructing and rehabilitating wastewater treatment plants. The treatment facilities were completed in July 2007 and January 2008 at a cost of approximately $27.0 million and $29.0 million for the St. Croix and the St. Thomas treatment facilities, respectfully. The Stipulation also establishes certain interim deadlines and performance standards that must be met by the Government pending completion of the new facilities. In addition, the Stipulation establishes specified penalties for violation of any of the deadlines or performance standards set forth therein. As of the date of the basic financial statements, the Government is current on all of its outstanding obligations pursuant to the stipulation. (h) Memorandum of Understanding – EPA On August 21, 2002, the Government and the United States Environmental Protection Agency (EPA) entered into a memorandum of understanding documenting the EPA’s agreement to support the renewal of the Territorial Pollutant Discharge Elimination System (TPDES) permit for its St. Croix distillery operations provided that the Government make certain funding available to (i) conduct treatability studies regarding the Virgin Islands Rum Industries, Ltd. (Cruzan Rum) effluent and the means to mitigate its potential environmental effects in the vicinity of the discharge; (ii) identify practicable, available, reliable, and cost-effective potential mitigation measures; and (iii) implement (or assist in the implementation of) such mitigation measures in the event such measures are determined by the Virgin Islands Department of Planning and Natural Resources after consultation with EPA to be necessary and appropriate. Pursuant to the memorandum of understanding, the Government’s obligation to fund such activities is limited to $6.0 million in the aggregate, commencing on October 13, 2003. Subsequently, the Government entered into a three-year contract with a locally licensed environmental consulting firm to facilitate the Government’s commitments with the memorandum of understanding with the EPA. Government of the United States Virgin Islands Notes to Basic Financial Statements 112 At the conclusion of the MOU treatability study period, the PG agreed to reissue the TPDES permit to Cruzan Rum in 2008 with the requirement that the rum distillery design and construct a treatment facility for the rum distillery effluent within three years. PFA issued the Series 2009 Cruzan Bonds to fund the treatment facility which is currently operating under a 2013 TPDES permit. (i) Workers’ Compensation Liability The Government is exposed to risk of loss related to workers’ compensation claims. The Government is self-insured for this risk. Self-insured risk liabilities are reported when it is probable that a loss has occurred, and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Because actual claims liabilities depend upon such complex factors as inflation, changes in legal doctrines, and damage awards, the process used in computing claims liabilities does not necessarily result in an exact amount. Claims liabilities are reevaluated periodically to take into consideration recently settled claims, the frequency of claims, and other economic and social factors. Changes in the worker’s compensation liability amount in fiscal year 2019, as recorded in the Government Insurance Fund, are as follows (expressed in thousands): September 30, 2019 Claims payable, beginning of year $ 35,994 Incurred claims and changes in estimates 28,469 Payments for claims and adjustments expenses (5,005) Claims payable, end of year $ 59,458 (j) Bond Credit Ratings The matching funds bonds and the gross receipts tax bonds of the Government experienced credit rating downgrades in 2017 due to the financial and budgetary challenges experienced by the Government. Such downgrades are likely to negatively impact the Government’s ability to access credit markets or to access them at supportable rates in the foreseeable future. In December 2019, Standard & Poor’s Global Ratings raised the Government’s outlook from “negative” to “stable” and affirmed its “A” rating on the Series 2015A Bonds. In January 2020, Moody’s Investors Service updated its review of the Government’s bonds as “stable”, with a continued rating of “Caa3”. (k) Operating Agreement – Limetree Bay Terminals, LLC In January 2012, Hess Oil Virgin Islands Corporation (Hess Oil) announced that it would close its oil refinery on the island of St. Croix and the facility would serve as a storage terminal. The company amended tax returns for the three years before the closing, and a legal dispute arose with the Government over amounts due to, or from, the company in connection with the amended returns and other requirements of Hess Oil’s agreement with the Government. On December 1, 2015, the Government settled its dispute with Hess Oil. The company agreed to transfer to the Government 330 acres of land near the oil terminal (estimated value $21.0 million), 130 housing units at the oil terminal (estimated value $27.0 million), and a vocational school and a community center (both estimated at a value of $1.0 million) for a payment in lieu of taxes (PILOT) valued at $50.0 million. Government of the United States Virgin Islands Notes to Basic Financial Statements 113 On December 1, 2015, the Government entered into an operating agreement with the new operator of the oil terminal, Limetree Bay Terminals, LLC (Limetree). Limetree agreed to investigate refurbishing and reopening the terminal, with an investment of $125.0 million. In December 2015, Limetree paid $220.0 million as a payment in lieu of taxes, $9.0 million as a reimbursement for contingent claims, and agreed to invest $6.0 million in the construction of a bitumen tank at the facility. As part of the operating agreement Limetree receives exemption from property taxes, income taxes, and local taxes. Limetree will be subject to a concession payment of 10.0% of terminal revenues. Should the oil refinery reopen, Limetree will be required to pay concession fees of 17.5% of refinery income to the Government on a quarterly basis. If there is a change in the control of Limetree, the Government is to receive 10.0% of the transaction value of the exchange, not to be less than $25.5 million. In December 2018, Limetree obtained $1.3 billion in financing to reopen the oil refinery operation. Upon closing, the Government received $40.0 million in short-term financing and $30.0 million in payment for the 130 housing units, vocational school and community center at the oil refinery. Also see Note 18. (l) Professional Services for Recovery Efforts In November 2017, PFA entered into a professional services contract on behalf of the primary Government. The purpose of the contract was to coordinate recovery efforts with FEMA and other federal agencies following the two Category 5 hurricanes in September 2017. The initial contract provided for annual compensation not to exceed $5.0 million, a term of five years from November 30, 2017, and provisions for the parties to extend the contract in two-year increments by mutual agreement. In February 2018, the contract was amended to revise the scope of work and increase the compensation of the contract to $10.0 million annually, retroactive to November 2017. In August 2018, a second amendment was added containing provisions required by federal regulations for the Community Development Block Grants – Disaster Relief Program. In December 2018, a third amendment was added to retroactively increase the annual compensation to $16.0 million through November 30, 2018. The temporary increase of $6.0 million was due to the Government’s aggressive campaign to identify, assess, secure, and manage a larger percentage of the available resources and funding from FEMA and other federal agencies, through November 30, 2018. Effective December 1, 2018, the contract was returned to an annual amount of $10.0 million. Also, in November 2017 and on behalf of the Government, PFA entered into a second professional services contract to coordinate recovery efforts. The competitive bid contract was for a term of five (5) years following the effective date of the contract and may be extended in two (2) two-year increments for a maximum term of nine (9) years. Compensation under the agreement was capped at $15.0 million annually including out-of-pocket expenses. In April 2018, the contract was amended to increase the compensation amount to $50.0 million annually, retroactive to November 2017. The increase is described in the amendment as due to an increase in the demands of the Government’s aggressive campaign to identify, access, secure and manage a larger percentage of the available federal resources and funding from FEMA and other federal agencies. Government of the United States Virgin Islands Notes to Basic Financial Statements 114 In September 2018, the contract was amended a second time to increase the compensation amount to $80.0 million annually, retroactive to November 30, 2017. The increase is described in the amendment as due to the exhaustion of the $50.0 million, and the continuing aggressive campaign to obtain federal funding following the hurricanes. In December 2018, the contract was amended a third time to retroactively increase the contract amount temporarily to $85.0 million through November 30, 2018. Effective December 1, 2018, the contract returned to the $80.0 million specified in the second amendment. At September 30, 2019, the total amount due to the disaster recovery consultants under these contracts amounted to $104.2 million. On May 4, 2018, PFA entered into Memorandums of Understanding (MOU) with the Virgin Islands Water and Power Authority (WAPA) and with the Virgin Islands Housing Finance Authority (VIHFA), autonomous instrumentalities of the Government, for disaster recovery consulting. The MOUs terminate at the expiration of the contract between PFA and the disaster recovery consultants. Invoices from the disaster recovery consultants are received by PFA, provided to WAPA and VIHFA for approval, and remitted back to PFA for submittal to federal grantors and payment. (m) Molasses Subsidy Fund The Government maintains a program, established pursuant to law, in which it provides a subsidy to stabilize the cost of molasses to the Virgin Islands rum producers to ensure the competitive pricing of rum produced in the Virgin Islands. The effect of the molasses payments is to maintain the competitive position of the Virgin Islands rum producers relative to the rum producers in other countries in which local molasses supplies are readily available. The molasses subsidy is administered by the Commissioner of Finance through the establishment of a legislatively mandated Molasses Subsidy Fund. In the event of a deficiency in the Molasses Subsidy Fund, the Commissioner of Finance could seek legislative appropriation of additional funds, as required, from the Legislature of the Virgin Islands. The Legislature, however, is not obligated to appropriate such amounts. Notwithstanding the Government’s past financial difficulties, the Legislature of the United States Virgin Islands has not yet waived or reduced the Molasses subsidy. If such an event should occur, the rum producers could experience a decrease in their operations, and therefore result in a reduction of the federal excise taxes returned to the Government by the United States Government. The collectability of the loans receivable from the Government is highly dependent on the ability of the Government in collecting these taxes. On December 18, 2015, Congress retroactively extended the $13.25 per proof gallon rum excise tax rate from January 1, 2015 through December 31, 2016 with the Protecting Americans from Tax Hikes (“PATH”) Act. The Tax Cuts and Jobs Act passed by Congress in December 2017 retroactively extended the $13.25 per proof gallon rum excise tax rate from January 1, 2017 to December 31, 2022. Pension Trust Fund (a) Pension Reform In response to a recommendation in a September 27, 2011, audit report from the Office of the Inspector General and U.S. Department of Interior, the PG formed a Pension Reform Joint Task Force (the Task Force) to address the declining fiscal condition of the GERS. Government of the United States Virgin Islands Notes to Basic Financial Statements 115 The Office of the Inspector General’s audit report had concluded that, due to insufficient contribution levels and an unbalanced ratio of active to retired members, the retirement system of the U.S. Virgin Islands is projecting insolvency in 2024 -2025 but could be earlier depending on the market and economic conditions. The Task Force has submitted recommendations to the Legislature to: (i) increase government and employee contributions towards pension benefits; (ii) raise contribution rates for senators and judges; (iii) reduce retiree current benefits by 10 percent; (iv) increase the early retirement age from fifty (50) to fifty-five (55) and the regular retirement age from sixty (60) to sixty-five (65); (v) limit the cost of living increase; and (vi) change the formula used to calculate benefits. On February 5, 2015, GERS increased employee contribution rates by 1.0% to be implemented over a three-year period, and in 2018 increased employer contribution rates from 17.5% to 20.5%. On January 1, 2020, GERS increased employer contributions to the pension plan by an additional 3.0% from 20.5% to 23.5%. In March 2016, the Office of the Virgin Islands Inspector General issued a report on the alternative investment program administered by GERS. The report concluded that the non-traditional investments of the retirement system were subject to higher risks than other GERS assets. In September 2016, GERS sponsored a public summit to present projections of investment returns and future benefit payments for the system. The actuarial valuation and review of the pension plan as of October 1, 2019 projects GERS will be insolvent in 2024-2025 and may be unable to pay full benefits at an earlier date. Component Units (a) Virgin Islands Waste Management Authority On October 26, 2016, the VIWMA entered into a Memorandum of Understanding (MOU), to comply with a September 28, 2016 order by the District Court to establish a Landfill/Solid Waste Remediate Fund (the Fund) to pay for urgent projects at the landfills required under Consent Decrees entered into with the Environmental Protection Agency. The order by the District Court stipulates that the Fund be managed by the VIWMA through a separately established escrow account in the amount of $3.1 million, and that all landfill projects be completed on or before September 30, 2018. As of September 30, 2019, the amount remaining in the escrow account was $537,000. (b) Virgin Islands Water and Power Authority – Electric System At June 30, 2019, the WAPA Electric System recorded a liability of $4.1 million for amounts owed to FEMA related to questioned costs from Hurricane Hugo in 1989. Currently FEMA and its subrecipient, the PG, do not have a mechanism for recovering overpayment of disaster-related funds. FEMA has not made a request for repayment of the funds and in WAPA’s opinion, the matter will not have a material effect on WAPA’s changes in financial position or cash flows. In October 2008, WAPA Electric facilities were impacted by Hurricane Omar. Much of the damage was inflicted to the electric distribution system was on the island of St. Croix with minimal damage on St. Thomas, St. John, and Water Island. Government of the United States Virgin Islands Notes to Basic Financial Statements 116 The Electric System expended $2.7 million for storm cleanup and system restoration as of June 2010. The Territory was declared a federal disaster after the hurricane and was eligible for reimbursement of 75% of what was expended according to the category of the damage. At June 30, 2019, the Electric System has recorded a grant receivable from FEMA amounting to approximately $1.0 million. In August 2010, WAPA Electric facilities were damaged by Hurricane Earl. The damage was inflicted on the electric distribution system on all the islands. The Electric System expended over $2.0 million for storm clean-up and restoration, which was completed the end of October 2010. The Territory was declared a Federal disaster area after the Hurricane and was eligible for reimbursement of 75% - 80% of what was expended according to the category of the damage. At June 30, 2019, the Electric System recorded a grant receivable from FEMA amounting to approximately $1.3 million. In April 2012, WAPA leased a temporary 22-megawatt mobile power plant for $14.6 million for eighteen (18) months through October 2013. In November 2013, management and the vendor extended the original lease agreement for an additional twelve months through November 2014 for $7.8 million. The lease term was extended for an additional twenty-four months through November 2016. The lease has since been reevaluated and extended for 2 to 6-month short term periods through November 1, 2018 and was further extended through December 31, 2020. Total lease payments for the fiscal year ended June 30, 2019 were $11.4 million. During the normal course of business, the Electric System leases additional and various property and equipment to support Electric System operations. The leases are generally short term in nature and lease payments are not significant to the overall operations of the Electric System. WAPA has signed purchase power agreements with several companies to integrate a combined 18- megawatt of solar electricity into the WAPA’s electrical grid system. The agreements expire between 2022 and 2027. WAPA will not own the solar assets but will be able to purchase solar generated electricity at contracted rates. (c) Virgin Islands Water and Power Authority – Water System In 2011, the Water System of WAPA entered into two agreements with Seven Seas Corporation to build, operate and maintain two reverse osmosis facilities, one on St. Croix and one on St. Thomas, and sell the water from the facilities to WAPA. The agreements both have twenty (20) year terms expiring through 2032. The amount paid to Seven Seas Corporation by the Water System in the fiscal year ended June 30, 2019 amounted to $10.0 million. (d) Virgin Islands Port Authority (unaudited) The Federal Aviation Administration (FAA) conducted an onsite wildlife evaluation of the landfill, nearby airport, and surrounding area of the Anguilla Landfill of St. Croix. Flocks of birds nesting at the landfill had created environmental and navigational concerns at the Henry E. Rohlsen airport. FAA threatened to force VIPA to repay federal grants amounting to $9.3 million if remediation steps were not taken. The landfill is under the jurisdiction of the Virgin Islands Waste Management Authority (VIWMA). VIPA and VIWMA proposed a compliance and mitigation plan in 2013 which was accepted by FAA and VIPA is eligible for FAA grants. Government of the United States Virgin Islands Notes to Basic Financial Statements 117 (e) Governor Juan F. Luis Hospital & Medical Center The Governor Juan F. Luis Hospital and Medical Center previously held an equity ownership with a radiology practice within the hospital. The radiology practice paid rent to the hospital and the hospital paid for service to hospital patients. As of September 30, 2019, the hospital owed the radiology practice $8.6 million in unpaid invoices for hospital patients. (f) Other Various discretely presented component units are presently defendants or codefendants in various lawsuits. The financial managers of the component units have advised the PG that any adverse outcome involving a material claim is expected to be substantially covered by insurance. Government property is exempt from lien, levy, or sale due to court judgments under the V.I. Code. 14. Retirement Systems Primary Government Following is a description of the pension plan and accounting for pension expense, liabilities, and deferred outflows/inflows of resources. As required, the Government follows the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASB Statement No. 68 and GASB Statement No. 82, Pension Issues – an amendment of GASB Statements No. 67, No. 68, and No. 73. (a) Plan Description and Benefits Full time employees of the Government are members of Government Employees’ Retirement System of the U.S. Virgin Islands (GERS), a cost sharing, multiple-employer, defined benefit pension plan (the plan) established as of October 1, 1959 Title 3, Chapter 27 of the V.I. Code to provide retirement, death, and disability benefits. Benefits may be extended to beneficiaries of plan members. The plan covers all employees of the Government except employees compensated on a contract fee basis, casual, per diem or provisional and part time employees who work less than twenty (20) hours per week. Persons over the age of fifty-five (55) may opt out of the plan by providing formal notification to the plan. Vesting of benefits occurs after ten (10) years of service. Benefits may be extended to beneficiaries of plan members. There are two tiers within the plan: Tier 1: Employees hired prior to September 30, 2005 Tier 2: Employees hired on or after October 1, 2005 Regular Tier I employees who have completed thirty (30) years of credited service or have attained age sixty (60) with at least ten (10) years of credited service are eligible for a full-service retirement annuity. Regular Tier II employees who have attained age sixty-five (65) with at least ten (10) years of service are eligible for a full-service retirement annuity. Members who are considered "safety employees " as defined in the Code are eligible for full-service retirement benefits under Tier I when they have earned at least twenty (20) years of government service or have reached the age of fifty- five (55) with at least ten (10) years of credited service. Government of the United States Virgin Islands Notes to Basic Financial Statements 118 Under Tier II, safety employees are eligible for full retirement when they have earned at least twenty-five (25) years of government service and have reached age fifty-eight (58) or have reached age (60) with at least ten (10) years of service. Members of the Legislature and Judges may receive a retirement annuity when they have attained age fifty (50) and upon completion of six (6) years of credited service as a member of the legislature or at any age with at least twenty (20) years of service. Judges are eligible for full retirement benefits when they have attained age fifty (50) and have completed six (6) years of service. The monthly annuity benefit payment is determined by applying a stipulated benefit ratio to the member’s average compensation. Average compensation for regular and safety Tier I members is determined by averaging the five highest years of credited service within the last ten years of service, subject to the maximum salary limitations in effect during such service. Average compensation for regular and safety Tier II members is based on career average salary, subject to the maximum salary limitations in effect during the service. The maximum annual salary that can be used in this computation for regular and safety employees is $65,000. For members of the legislature and judges, the average compensation varies based on the year of service. In 1995, the Early Retirement Incentive Training and Promotion Act was amended by the Legislature to allow a member with a combined aggregate number of years of service and age of at least seventy-five (75) years to retire without a reduction in their annuity. Early retirement benefits provided under the Act vary depending upon age of retirement, type of employment, and credited years of service. GERS is a separate and independent agency that is included for financial reporting purposes as a blended pension trust fund of the PG. GERS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the Government Employees’ Retirement System of the U.S. Virgin Islands, 3438 Kronprindsens Gade, St. Thomas, Virgin Islands 00802. (b) Funding and Contribution Policy Contributions to GERS are established by the Board of Trustees of GERS. The Government’s required contribution for Tier 1 and Tier 2 members was 20.5% of the member’s annual salary during the fiscal year ended September 30, 2019. Effective January 1, 2020, the Government’s required contribution will increase to 23.5% of the Tier 1 and Tier 2 member’s annual salary. Employee contribution rates (as a percentage of payroll) were as follows during fiscal year 2019: Tier 1 Tier 2 Regular Employees 11.0% 11.5% Public Safety Employees 13.0% 13.625% Members of the Legislature 12.0% 14.0% Judges 15.0% 15.0% Government of the United States Virgin Islands Notes to Basic Financial Statements 119 The defined benefit pension plan administered by GERS, and the PG have a fiscal year that ends on September 30th. The following time frames are used to measure and report the PG’s pension liability: Valuation Date: October 1, 2018 Measurement Date: September 30, 2018 Measurement Period: October 1, 2017 – September 30, 2018 The PG is considered an employer of the plan with a proportionate share of 77.8087% as of September 30, 2018, which was an increase of 1.2235% from its proportionate share measured as of September 30, 2017. The PG’s percentage was estimated by management based on the average of each employer’s contributions during the period October 1, 2014 through September 30, 2018. The PG’s proportionate share of employer contributions recognized by GERS was $63.5 million for the plan’s fiscal year ended September 30, 2018. (c) Pension Liabilities, Expense, and Deferred Outflows/Inflows of Resources As of September 30, 2019, the actuarially calculated net pension liability of the PG was $3.25 billion. The net pension liability is measured as of September 30, 2018, and the total pension liability is actuarially computed as of October 1, 2018. For the year ended September 30, 2019, the Government recognized $227.2 million of pension expense, inclusive of amortization of deferred outflows of pension related items. Following is a schedule of deferred outflows and deferred inflows allocated to the Government in the computation of the net pension liability for the year ended September 30, 2019, (expressed in thousands): Governmental Activities Deferred Outflows Deferred Inflows Difference between expected and actual experience $ 75,382 $ - Net difference between projected and actual investment earnings on pension plan investments 6,131 - Changes in assumptions 381,677 404,334 Changes in proportion and differences between contributions and proportional share of contributions 71,502 3,238 Contributions made subsequent to measurement date 84,005 - Total $ 618,697 $ 407,572 Amounts reported as deferred outflows and inflows, exclusive of contributions made after the measurement date, will be recognized in pension expense as follows (expressed in thousands): Year Ending September 30, 2020 $ 170,852 2021 90,937 2022 (15,681) 2023 (14,426) 2024 (70,989) Thereafter (33,573) Total $ 127,120 Government of the United States Virgin Islands Notes to Basic Financial Statements 120 (d) Actuarial Assumptions A summary of the actuarial assumptions and methods used to calculate the total pension liability as of the measurement date at September 30, 2018, is provided below. Refer to the October 1, 2018, actuarial valuation report for a complete description of all other assumptions, which can be found on GERS’ website at http://www.usvigers.com/Benefits/ActuarialReports.aspx. September 30, 2018 Inflation Rate 2.50% Salary Increases 3.25% including inflation Actuarial Cost Method Entry age normal Expected Rate of Return 7.00% Municipal Bond Yield 4.18% Discount Rate 4.25% Mortality Table RP-2014 Blue Collar The demographic assumptions for the 2018 actuarial valuation are based on the results of an actuarial experience study for the period October 1, 2011 through September 30, 2015. (e) Investment Rate of Return The long-term expected rate of return of 7.00% on pension plan investments was determined using the building-block method in which best-estimate ranges of expected future real rates of returns (expected returns, net of pension plan investment expense, and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of the measurement date of September 30, 2018, are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return Domestic equity 29% 6.16% International equity 12% 6.71% Fixed income 27% 1.71% Cash 2% 0.91% Alternatives 30% 5.50% Total 100% Government of the United States Virgin Islands Notes to Basic Financial Statements 121 (f) Discount Rate The discount rate used to measure total pension liability was 4.25% as of September 30, 2018, which was an increase of 0.51% from the discount rate as of September 30, 2017. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate, including the future increases in the employee contribution rates legislated. Using the above assumptions, GERS fiduciary net position is not projected to be available to make all projected future benefit payments to current plan members. The plan’s long-term expected rate of return on pension plan investments of 7.00% was applied to all periods of projected benefit payments that are covered by projected assets. For periods where projected future benefit payments are not covered by projected assets, the yield on a twenty (20) year AA Municipal Bond Index was applied. As of September 30, 2018, that rate was 4.18%. (g) Sensitivity of Proportionate Share of the Net Pension Liability to Changes in the Discount Rate Following is a schedule of net pension liability for the Government calculated using the discount rate of 4.25%, as well as what the net pension liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate for the year ended September 30, 2019, (expressed in thousands): 1% Decrease (3.25%) Current Discount (4.25%) 1% Increase (5.25%) Net pension liability $ 3,734,696 $ 3,246,789 $ 2,841,400 (h) Early Retirement Incentive Program In August 1994, legislation providing an early retirement incentive was passed. The legislation was subsequently amended on October 13, 1994, December 30, 1994, and December 5, 1995. Among other matters, the legislation allows a member of GERS who has a combined aggregate number of years of credited service plus number of years of age, equal to at least seventy-five (75) years as of the date of the legislation, to retire without reduction of annuity. Members, who have attained the age of fifty (50) with at least ten (10) but less than thirty (30) years of credited service, may add an additional three (3) years to their age for this computation. Members with thirty (30) years of service or who can retire without penalty under the V.I. Code shall have their average compensation increased by 4 percentage points. For each employee electing to retire pursuant to Section 8(a) of the Early Retirement Act of 1994 (the Act), the Government contributes to GERS, on a quarterly basis, an amount equal to the employer and employee contributions that would have been made until the employee reached the age of 62 had the employee not elected to retire under this provision. For employees electing to retire under Section 8(b) of the Act, the Government contributes to GERS a sum equal to the additional contribution the employer and employee would have made had the employee received a salary 4.0% higher during the three years used to compute the employee’s average compensation figure, plus a sum of $5,000. Government of the United States Virgin Islands Notes to Basic Financial Statements 122 Based on this calculation, the amount due to GERS was $26.9 million and has been remitted to GERS. The actuaries of GERS have determined that the specific funding provided under the Act is inadequate to cover the costs of the program. GERS is seeking to recover any unfunded costs of the program under a newly enacted provision of the retirement law, which provides that the Government will compensate GERS for the costs of any special early retirement program. (i) Additional Information Regarding the Pension Plan To obtain additional information regarding the pension plan, requests for information may be submitted to GERS at www.usvigers.com. Actuarial reports of GERS are available at http://www.usvigers.com/Benefits/ActuarialReport.aspx. Detailed information about the pension plan’s fiduciary net position is available in the separately issued GERS audited financial statements available at www.usvigers.com/Reports/Audited FinancialReports.aspx. WICO Employee Retirement Plan WICO sponsors a defined contribution retirement and savings plan (the “Plan”) for its employees. Under the provisions of the Plan, employees must contribute at least 3.0% of their gross compensation but may also contribute up to 7.0%. WICO matches 3.0% of the employees’ contribution plus a non-elective distribution at the discretion of WICO, which is divided among eligible employees, proportionate to compensation. Required contributions to the pension and savings plan made and charged to operations were approximately $87,000 for the year ended September 30, 2019. WICO does not offer other post-retirement benefits to its employees. viNGN Employee Retirement Plan viNGN sponsors a defined contribution retirement plan for its employees. Employees who receive a salary of at least $5,000 are eligible to participate in the plan. viNGN matches the employee’s contribution up to a maximum of 2.0% of the eligible employee’s compensation. viNGN contributed $24,000 thousand in matching employer contributions for the year ended September 30, 2019. viNGN does not offer other post-retirement benefits to its employees. University TIAA-CREF Defined-Contribution Plan The University has two retirement plans in which all eligible employees are required to participate, the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) and GERS. The TIAA-CREF is a defined-contribution pension plan covering participating, full-time faculty members and other exempt employees, under which the contributions, including employees’ contributions, are used to purchase annuities. There are no unfunded past service costs, and vested benefits are equal to the annuities purchased under TIAA-CREF. Total contributions made by the University and plan members to TIAA-CREF for the fiscal year ended September 30, 2019, amounted to $2.65 million. Contributions to GERS by the University amounted to $1.39 million for the fiscal year ended September 30, 2019. Government of the United States Virgin Islands Notes to Basic Financial Statements 123 15. Other Postemployment Benefits In addition to the pension benefits described above, the Government provides other postemployment benefits (OPEB) of healthcare, prescription, dental and life insurance coverage. These benefits are provided in accordance with Title 3, Chapter 25, Subchapter VIII of the V.I. Code as part of a multiple employer defined benefit OPEB plan, in which most component units of the PG participate and contribute. All employees who retire from government service after attaining age fifty-five (55) with at least thirty (30) years of service, except for policemen and firemen who can retire with at least twenty (20) years of service, are eligible for these benefits. As required, the PG has adopted the provisions of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. This standard requires the reporting and disclosure of costs and liabilities associated with postemployment benefits provided to retirees of the Government, its component units, and certain eligible nonpublic corporations, other than pensions. Plan Description and Benefits The Health Insurance Board of Trustees of the PG (the Board) administers the defined benefit health and life insurance plan for eligible active and retired employees of the PG, the component units of the Government, and certain nonpublic corporations that receive allotments from the PG. The Board determines the eligibility criteria of the plan and recommends insurance contracts to the Legislature. The Group Health Insurance Office of the Department of Personnel maintains the accounting and personnel records for the health and life insurance plan. Eligible retired employees visit the Group Health Insurance Office within 30 days following retirement and complete a new insurance enrollment form. An eligible retiree is one that retires through the Government Employees’ Retirement System (GERS) or who is placed on disability and is eligible for retirement benefits. The Government’s OPEB plan is a multiple employer defined benefit plan created in accordance with Title 3, Ch. 25, Subchapter VIII of the Virgin Islands Code. The plan is a pay as-you-go, no assets have been accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement No.75, and expenses are paid as the come due. There are five participating employers in the plan: the primary Government, University of the Virgin Islands, Virgin Islands Port Authority, East End Medical Center and Frederiksted Health Care, Inc. The primary Government has a special funding arrangement with the following component units: VI Lottery, Magens Bay Authority, VI Economic Development Authority, VI Waste Management Authority, VI Housing Finance Authority, Juan Luis Hospital and Medical Center, Roy L. Schneider Medical Center, VI Public Finance Authority and the VI Public Broadcasting System. Under the special funding arrangement, the primary Government pays 100% of the employer costs. Retirees participate in the same health benefit programs as active employees until reaching Medicare eligibility. After attaining Medicare eligibility, retirees participate in a Medicare Advantage prescription drug plan and an AARP Supplemental Plan. Four types of health plans were offered to eligible participants during the fiscal year:  Group health and life insurance coverage through the Cigna Health and Life Insurance Company Government of the United States Virgin Islands Notes to Basic Financial Statements 124  Group life and accidental death and dismemberment through ALIC Life Insurance Company  Medicare Advantage and AARP Medicare Supplement through United Healthcare Insurance  Vision care through Standard Insurance Company Contributions Contribution percentages are enacted by the Legislature of the Virgin Islands based on recommendations of the Board. Changes in percentages are implemented by the Department of Personnel. Active and retired employees are responsible for 35% of the cost of group insurance costs. The employee share is withheld from salaries or pension benefits. Retirees receive a noncontributory life insurance benefit of $5,000 and may elect to increase this coverage to $75,000 at their own expense. Employees Covered by the Plan As of the valuation date of October 1, 2017, the following employees were covered by the Government’s postemployment benefits plan: Valuation Date of October 1, 2017 Primary Government Component Units Total Active employees 8,451 786 9,237 Retired employees 7,890 119 8,009 Deferred vested retirees 210 - 210 Disability retirees 226 3 229 Total 16,777 908 17,685 Primary Government 15,304 Component units included in Primary Government’s OPEB expense under special funding arrangement 1,473 Total 16,777 OPEB Liability The PG’s proportionate share of the total liability was 95.471% as of October 1, 2018, which was a decrease of 0.1368% from its proportionate share measured as of October 1, 2017, The PG’s percentage was determined based on its respective census information provided to the actuary. The PG’s total OPEB liability amounted to $774.5 million which includes the PG’s share of the component unit liabilities under the special funding arrangement of $53.8 million. Following is the total OPEB liability including component units not participating in a special funding arrangement at September 30, 2019 (expressed in thousands): September 30, 2019 Primary Government and component units with special funding arrangements $ 774,507 Component units 34,431 Total OPEB Liability $ 808,938 Government of the United States Virgin Islands Notes to Basic Financial Statements 125 Actuarial Assumptions The postemployment benefit plan is an unfunded plan. An actuarial valuation was conducted of the amount required to fund the plan, involving assumptions about the probability of the occurrence of events in the future. Actuarial assumptions used in the computation of the total OPEB liability are as follows: Valuation date: October 1, 2017 Measurement date: October 1, 2018 Report date: September 30, 2019 Actuarial cost method: Entry Age Normal Cost Method Amortization method: Recognition Period of 6 Years Salary increases: Payroll Growth of 3.25% per year Discount rate: Beginning of Year Rate of 3.35% End of Year Rate of 3.64% S&P Municipal Bond 20-Year High Grade Rate Index as of September 30, 2018 Healthcare cost trend rates: Pre-Medicare Increases of 7.00% in 2019 to 4.50% in 2023 Medicare Increases of 5.50% in 2019 to 4.50% in 2023 Dental Increases of 5.50% in 2019 to 4.50% in 2023 Inflation: 2.25% Implicit Rate in Healthcare Trend Analysis Retirees share of costs: 35% of Medical and Dental Premiums and Noncontributory Life Insurance Coverage. Retirees of UVI 403(b) plan pay 100% of coverage. Mortality: RP-2014 Blue Collar Mortality Generational Table Adjusted 110% with Scale MP-2015 for Healthy Lives. For Disability Retirees, RP-2014 Disabled Mortality Generational Table Adjusted 125% with Scale MP-2015 Marital status: Assumed 50% of Future Male Retirees and 25% of Future Female Retirees Cover Spouses in Retirement. Husbands Assumed to be 3 Years Older Than Spouse Subsidized Coverage of Spouses and Dependents Ceases Upon Death. Actuarial Experience Study The actuarial assumptions used in the October 1, 2017, valuation are based on the results of an actuarial experience study for the period October 1, 2014 – September 30, 2015 Government of the United States Virgin Islands Notes to Basic Financial Statements 126 Change in Assumption  The discount rate changed from 3.35% in the September 30, 2017 valuation to 3.64% as of September 30, 2018. Changes in Total OPEB Liability Following are the components of change in the proportionate OPEB liability for the year ended September 30, 2019 (expressed in thousands): Primary Government Component Units Total Beginning balances $ 783,373 $ 33,717 $ 817,090 Changes for the year: Service cost 26,147 1,724 27,871 Interest 26,623 1,177 27,800 Changes in assumptions or other input (31,772) (1,574) (33,346) Expected benefit payments (29,864) (613) (30,477) Net changes (8,866) 714 (8,152) Ending balances $ 774,507 $ 34,431 $ 808,938 Primary Government $ 720,665 Component units included in Primary Government’s OPEB liability under special funding arrangement 53,842 Total OPEB Liability at September 30, 2019 $ 774,507 OPEB Expense and Deferred Inflows of Resources Related to OPEB For the fiscal year ended September 30, 2019, the OPEB expense of the PG amounted to $39.5 million as follows (expressed in thousands): Primary Government Component Units Total Service cost $ 26,147 $ 1,724 $ 27,871 Interest on the total OPEB liability and net cash flow 26,623 1,177 27,800 Current period effect in change in assumptions (13,291) (647) (13,938) Total OPEB Expense $ 39,479 $ 2,254 $ 41,733 Primary Government $ 34,993 Component units included in Primary Government’s OPEB expense under special funding arrangement 4,486 Total OPEB Expense $ 39,479 Government of the United States Virgin Islands Notes to Basic Financial Statements 127 At September 30, 2019, the PG reported deferred inflows of resources related to OPEB (expressed in thousands) as follows: Primary Government Component Units Total Changes in assumptions or other inputs $ 63,569 $ 3,100 $ 66,669 Primary Government $ 57,963 Component Units Included in Primary Government’s deferred inflows of resources under special funding arrangement 5,606 Total OPEB deferred inflows $ 63,569 Amounts reported as deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows (expressed in thousands): Fiscal Year Ended September 30 Primary Government Component Units Total 2020 $ 13,291 $ 647 $ 13,938 2021 13,291 647 13,938 2022 13,291 647 13,938 2023 13,291 648 13,939 2024 8,373 410 8,783 2025 and after 2,032 101 2,133 Total OPEB Deferred Inflows $ 63,569 $ 3,100 $ 66,669 Sensitivity of OPEB Liability to Changes in the Discount Rate The following sensitivity analysis shows the impact to the total OPEB liability if the discount rate was 1.00% higher or 1.00% lower than the current discount rate (expressed in thousands): 1% Decrease 2.64% Current Discount 3.64% 1% Increase 4.64% Primary Government $ 899,517 $ 774,507 $ 670,268 Component Units 40,601 34,431 29,333 Total OPEB Liability $ 940,118 $ 808,938 $ 699,601 Sensitivity of OPEB Liability to Changes in the Healthcare Cost Trend Rates The following sensitivity analysis shows the impact of the total OPEB liability if the healthcare cost trend rates were 1.00% higher or 1.00% lower than the current healthcare cost trend rate: 1% Decrease - Health Cost Trend Rate 6.00% Current Health Cost Trend Rate 7.00% 1% Increase - Health Cost Trend rate 8.00% Primary Government $ 666,425 $ 774,507 $ 912,415 Component Units 28,793 34,431 41,745 Total OPEB Liability $ 695,218 $ 808,938 $ 954,160 Government of the United States Virgin Islands Notes to Basic Financial Statements 128 Component Units Other OPEB Plans WAPA offers a medical, dental, and vision benefit plan, and reported a net OPEB liability of $58.0 million, deferred outflows of resources of $0.6 million and deferred inflows of resources of $7.5 million as of June 30, 2019. VIHA offers certain health care benefits including healthcare and prescription drug, dental, vision and life insurance to qualified retired employees and their dependents. VIHA reported a net OPEB obligation of $25.3 million as of December 31, 2018. 16. Liquidity and Management’s Plan Primary Government At September 30, 2019, the Government reported a total net deficit in governmental activities amounting to $5.1 billion. The net deficit is mainly due to the adoption of accounting standards that required the reporting of pension and other post-employment liabilities and related expenses based on actuarial computations. Following is a summary of the Government’s unrestricted net deficit for governmental activities for fiscal years 2017 through 2019: Fiscal Year Governmental Unrestricted Net Deficit (Increase)/ Decrease 2017 $ (4,797,101) $ (549,531) 2018 (5,352,571) (555,470) 2019 (5,751,631) (399,060) Following is a summary of the general fund deficit. At September 30, 2019, the Government reported a fund deficit in the general fund of $94.1 million. This fund deficit balance represents an increase in the deficit by $53.3 million from the preceding fiscal year. Fiscal Year Committed Assigned Unassigned Total 2017 $ 16,667 $ 552 $ (225,060) $ (207,841) 2018 30,669 1,001 (72,428) (40,758) 2019 20,270 716 (115,068) (94,082) Government of the United States Virgin Islands Notes to Basic Financial Statements 129 Non-major Funds Deficit Primary Government The following non-major funds have a net fund deficit as of September 30, 2019, (expressed in thousands): Governmental Funds Rural Library Extension $ 572 Water & Electric System Projects $ 1,698 Employment Security Administration 2,145 Sewer System Fund 175 Federally Aided Education Program 9,599 District Potable Water Fund 4,962 Air & Water Pollution Control 7,092 Paternity And Child Support 10,985 Virgin Islands Planning Board Projects 3,000 District Street Light Fund 44,172 Highway Safety 4,600 Virgin Islands Law Enforcement 4,094 Virgin Islands Energy Office 3,655 Forensic Science 74 Virgin Islands National Guard Federal Vocational Rehabilitation 1,848 and State Agreement 2,760 Hurricane Hugo Insurance Claims 3,908 Food Stamp Welfare 2,434 Virgin Islands Army National Guard 2,266 Federal Programs/Department Emergency Drought Relief 149 Conservation 3,927 Outdoor Recreation Program 32 Federal Aided Community Action Agency 187 Narcotics Strike Force Forfeiture - Commission on Aging 50 Small Business Development Elementary/Secondary Education 19 Administration Managerial And Job Training Partnership Technical Assistance 8 Act Of 1983-1984 8,614 Juvenile Detention Center Fund Civil Defense Protection 849 Non-Lapsing 14 Health Information Council Assistance 18 Natural Resource Reclamation 2,205 Drug Education Training Program 123 Section 12 Bond Proceeds 24,547 Federal Health Program Not on Federal Road Fund 6,330 Letter of Credit System 489 Major Repair And Improvement 58 Boating Safety Program 584 Fishery and Wildlife Projects 27 Fish and Game 55 Disaster Relief Fund-Hugo - The Motorcycle Safety Education Program 17 WAPA Generating & Infrastructure - Net fund deficit $ 158,341 Proprietary Funds Frederiksted Small Business Fund $ 164 Altona Community Development Fund 3 Housing Construction Revolving 7,653 Emergency Housing Fund 82 Virgin Islands ID Registration Fund 19 Virgin Islands Elections Fund 192 Consumer Protection Fund 200 Government Insurance Fund 28,732 Virgin Islands Housing Finance Authority 2,898 Homestead and Home Revolving Fund 344 Net fund deficit $ 40,287 The Government expects structural deficits following the 2017 hurricanes to be offset by the economic activity related to construction and federal recovery assistance. The post-hurricane construction economy is strong as residents replace damaged property along with the influx of federal workers and construction firms. Airbnb properties have increased to replace hotel rooms damaged by the storms. The Government has successfully negotiated the direct withholding of hotel tax by Airbnb. Government of the United States Virgin Islands Notes to Basic Financial Statements 130 In fiscal years 2018 and 2019, cruise ship calls returned to near normal levels. The Government has experienced an increase in tax collections reported by the Virgin Islands Bureau of Internal Revenue. The Government has also continued to receive its annual matching fund rum excise tax advance from the U.S. Department of Interior. New sources of revenue streams expected in fiscal year 2020 include the settlement with the Secretary of the Treasury on amounts related to the Disaster Tax Relief and Airport and Airway Extension Act of 2017 and increasing revenues from the Limetree Bay Terminal concessioner. Additionally, immediately following the hurricanes of 2017, the federal government acted to provide relief to the U.S. Virgin Islands through legislation and supplemental appropriations for disaster recovery assistance. The Government expects to receive approximately $8.0 billion in federal assistance through fiscal year 2025. The Government has also participated in the Federal Emergency Management Agency’s (FEMA) Community Disaster Loan (CDL) program. The CDL program provides operational funding for local governments to continue to operate after a substantial revenue loss (greater than 5.0%) caused by a disaster. The term of the CDL loans is five (5) years and can be extended to ten (10) years. The Government’s ability to access the CDL facility allowed it to remain current in its obligations. The Government has pledged gross receipts taxes for the timely payment of the CDLs and entered into a bond agreement with FEMA in July 2018. The Government has also been the recipient of insurance recoveries and private donations. In a further effort to close potential shortfalls and to serve returning citizens, the Government continues to work closely with Federal agencies, to maximize its recovery from all available sources. While inflows of Federal and private funds continue to bolster the reconstruction activity, the eventual amount and timing for receipt of such funds cannot be predicted at this time. While the Government has certain revenues pledged for debt service on various bonds and notes, to date, revenues pledged for debt service have not been significantly impacted by the hurricanes. The Government does not anticipate the issuance of additional bonds in the immediate future. All payments on bonds and notes obligations have been remitted as required. Other significant liabilities of the Government, mainly consisting of benefits due to the Government’s workforce and landfill closure costs, represent obligations of the Government that do not require the use of current resources. The West Indian Company Limited WICO is a component unit of PFA. WICO is in a negative working capital position as of September 30, 2019, due to legislation requiring WICO to remit $700,000 annually to the primary Government as a payment in lieu of taxes (PILOT). As of September 30, 2019, WICO owes the primary Government $8.0 million in PILOT payments. viNGN, INC. d/b/a Virgin Islands Next Generation Network viNGN is also a component unit of PFA. The start-up of viNGN was funded by a loan advance from PFA amounting to $36.8 million as of September 30, 2019. As of September 30, 2019, no repayments of the loan advance have been made by viNGN. Government of the United States Virgin Islands Notes to Basic Financial Statements 131 Component Units (a) Virgin Islands Water and Power Authority – Electric System Management of the Electric System (the System) has been attempting to stabilize and solidify its financial condition. The System has successfully petitioned the Virgin Islands Legislature to increase its debt ceiling limit and is working with an external financial team to restructure debt and gain access to additional financing to sustain operations and fund capital projects. Furthermore, on January 9, 2020, the Commission approved the System’s second supplemental petition of $29.7 million in annual revenue relief. The increased rates went into effect on all bills issued on or after February 1, 2020. (b) Virgin Islands Government Hospital and Health Facilities Corporation The Schneider Regional Medical Center on St. Thomas and the Juan F. Luis Hospital and Medical Center incurred significant structural damages related to the September 2017 hurricanes. The full impact of the hurricanes continues to be evaluated as the hospitals seek grants and federal assistance to continue operations. At September 30, 2019, the Schneider Regional Medical Center’s reported payments due to the PG of $23.5 million, and an unrestricted deficit in net position of $159.9 million. The hospital is economically dependent on the continued financial support of the PG. At September 30, 2019, the Juan F. Luis Hospital and Medical Center’s current liabilities exceeded current assets by $55.8 million. The hospital reported $42.0 million due to the PG and an unrestricted net deficit in net position of $180.3 million. The hospital is economically dependent on the continued financial support of the PG. At September 30, 2019, the Schneider Regional Medical Center CDLs amounted to $19.3 million and the Juan F. Luis Hospital and Medical Center’s CDLs amounted to $42.0 million. Interest payments on both loans have been deferred by FEMA through October 1, 2022, when the first principal payment is due. The loans mature October 1, 2037 with interest rates ranging from 2.5% to 3.1%. 17. Restatement of Component Unit Financial Statements The September 30, 2019 stand-alone financial statements of the Virgin Islands Housing Finance Authority (VIHFA) have been restated in the accompanying aggregate discretely presented component units as follows (expressed in thousands): As Previously Reported Adjustments As Restated Accounts payable and accrued liabilities $ 460,199 $ 26,616 $ 486,815 General government – professional services 1,493 26,616 28,109 The adjustment to the accompanying aggregate discretely presented component units was to reconcile VIHFA’s stand-alone financial statements for amounts owed to the Virgin Islands Public Finance Authority (PFA), a blended component unit of the Government. Government of the United States Virgin Islands Notes to Basic Financial Statements 132 Additionally, beginning net position of certain aggregate discretely presented component units was restated due to the implementation of GASB Statement No. 75 and the implementation of new reporting standards for other postemployment benefits (expressed in thousands): Net Position Component Unit As Previously Reported Adjustments As Restated Virgin Islands Housing Authority $ 15,984 $ (14,597) $ 1,387 In addition, the beginning net position of the other component units’ was reduced by $16.4 million as a result of the adjustments related to unaudited amounts reported in the prior year. 18. Subsequent Events Primary Government (a) Hurricane Recovery The Government is making significant progress towards restoring its facilities which were damaged by Hurricanes Irma and Maria in September 2017. The Government continues the process of tabulating the associated costs and expenses with respect to remediation, clean-up, mitigation, and the restoration of services. To close potential shortfalls and to serve returning citizens, the Government continues to work closely with federal agencies, such as FEMA, HUD, SBA, etc. to maximize its recovery from all available sources, subject to any sub-limits and retentions. Through May 2021, the Office of Disaster Recovery has reported federal assistance awarded to the Territory of $87.2 million in FEMA Individual Assistance grants, $2.95 billion in FEMA’s Public Assistance Grant Program (PA), $59.63 million in Federal Highway grants, $85.6 million in FEMA Hazard Mitigation grants, and $1.02 billion in Community Development Block Grants for a total of $4.2 billion dollars. Other federal grants awarded by various federal agencies amounted to $169.9 million, for a total of approximately $4.36 billion. In December 2020, the Government received notice from FEMA of the results of audits related to the PA program awards. As a result, the Government received a notice of potential debt in the amount of $134.7 million. In response to the notice, in February 2021, the Government exercised its option to appeal the notice and provided additional clarification and documentation. Management believes these non-compliance instances, if any, should not materially affect the Government’s financial position. (b) Global Pandemic and Economic Relief Legislation In March 2020, the Governor of the U.S. Virgin Islands declared a state of emergency due to the coronavirus pandemic known as COVID-19. The Governor of the PG issued an executive order to close nonessential businesses, certain government offices, and schools to reduce the transmission of the disease. The state of emergency was approved by the President of the United States under the provisions of the Stafford Act and the National Emergencies Act. Government of the United States Virgin Islands Notes to Basic Financial Statements 133 The State of emergency also activated other emergency response protocols and systems to protect citizenry such as stay-at-home orders, travel restrictions, and social distancing requirements. Also, in March 2020, the Center for Disease Control and Prevention issued a No Sale Order for cruise ships. As a result of the Order and state of emergency, the Territory temporarily closed its ports and that remains in effect as of the date of this report. The Government has experienced a 7.0% reduction in taxes and other charges for services when comparing the six-month period ended March 31, 2020, to the same period ended March 31, 2021, as per the unaudited general fund statement of revenues. A federally approved state of emergency activates federal assistance to states in the form of financial, logistical, and technical assistance. In March 2020, the President of the United States signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, appropriated funds for the Coronavirus Relief Fund to be used to make payments for specified uses to state, territorial, local, and tribal governments. The Government’s allocation of the Coronavirus Relief Fund is $74.8 million. In December 2020, the Congress enacted the “Consolidated Appropriations Act of 2021”. The Act provided additional COVID assistance to states and territories, including unemployment assistance, funds for higher education, testing, contact tracing and mitigation of COVID, food stamp, and rental assistance programs. The funds will be distributed in two tranches, with 50% delivered no later than 60 days from the date of enactment, and the remainder delivered no earlier than one year later. The Treasury Department may withhold up to half of the Territory’s allocation for as long as twelve (12) months based on the unemployment rate and the submission of an updated certification of funding needs. The Act provides $4.5 billion for the U.S. territories based on each territory’s share of the combined total population as determined by the U.S. Census Bureau. In March 2021, additional COVID-19 relief was provided in the American Rescue Plan Act of 2021. This Act builds on previously enacted aid measures to aid states, counties, cities, and tribal governments to cover increased expenditures, replenish lost revenue and mitigate economic harm from the COVID-19 pandemic. State and local government recipients may use the funds to cover costs incurred through December 31, 2024. Through May 2021, the Office of Disaster Recovery has reported COVID-19 funds allocated to the Territory in the amount of $732.2 million. As the emergency measures are eased, management continues to actively monitor the evolving impact of the COVID-19 outbreak on its financial condition, including the duration of the closings, speed of recovery, impact on demand, and resumption of operations. Management also continues to identify and implement various mitigation efforts to minimize the impact on results of operations, financial position, and liquidity. (c) Court Orders Payment to GERS In April 2020, the District Court of the Virgin Islands ordered the PG to pay $63.0 million to GERS related to a dispute over unpaid funds owed to the retirement system from 1991-2009, including $43.0 million in interest. The PG appealed this decision with the Federal Appellate Court and in April 2021, the Appellate Court ruled that the interest of $43.0 million was not required to be paid. Government of the United States Virgin Islands Notes to Basic Financial Statements 134 (e) Injunction on Collection of Excise Taxes Lifted In December 2020, the District Court determined that the Government may begin collecting excise taxes, lifting an injunction previously imposed by the Third Circuit Court of Appeals. (f) Other Under a refinery operating agreement of the Limetree Bay Refinery, LLC (Refinery) with the Government dated July 2018, the Refinery is responsible for costs associated with environmental contaminants. The Government had expected the refinery to generate annual tax revenues of approximately $14.0 million. The refinery opened in February 2021 and experienced several flaring events. Flaring events are caused by machinery operating under high pressure and the release of oil droplets into the atmosphere. In April 2021, the Environmental Protection Agency issued a Notice of Violation, and in May 2021 ordered a 60-day plant closing. In June 2021, the Refinery announced the indefinite closing of its oil refining facility on the island of St. Croix and the layoff of 271 plant employees. The plant closing is not expected to impact the operations of Limetree Bay Terminals, LLC, an affiliated company operating an oil storage facility on the island of St. Croix. Management believes this instance, if any, should not materially affect the Government’s financial position. Component Units (a) Virgin Island Public Finance Authority In November 2019, PFA entered into the Series 2019 A Virgin Islands Tax Increment Revenue Loan Note-Island Crossings Shopping Center loan with a local bank in the amount of $12.0 million and the TIF Project Developer Loan Note payable to CDP, LLC in the amount of $1.6 million. The proceeds of the loans were used to: i) defease the Series 2012A TIF Notes with outstanding principal of approximately $11.0 million and accrued interest of $104,000, ii) make a settlement payment to the developer of the Island Crossings Shopping Center in the amount of $2.1 million, iii) fund certain debt service reserves, and iv) pay the costs of the issuance. In December 2019, Standard & Poor’s Global Ratings revised its outlook from negative to stable and affirmed its A rating on the outstanding grant anticipation revenue bonds (GARVEE Series 2015A bonds) of PFA. In January 2020, Moody’s Investors Service confirmed as “stable” the Caa3 rating of PFA’s bonds. In December 2020, PFA entered into the Series 2020A Virgin Islands Tax Revenue Subordinate Lien Gross Receipts Taxes loan with two local banks in the amount of $60.0 million. The proceeds of the loans were used for working capital expenses and other obligations authorized by the PG through the budgetary process. Monthly repayment installments begin in May 2021. Government of the United States Virgin Islands Notes to Basic Financial Statements 135 (b) Virgin Islands Water and Power Authority In November 2019, WAPA proposed a reduction in the Water System LEAC from $6.350 per KGAL to $5.030 per KGAL to the Public Services Commission. In its December 2019 meeting, the Commission voted to approve the reduced LEAC rates. The decreased Water System LEAC rates went into effect on all bills issued on or after January 1, 2020. On July 1, 2020, the 2017A BANs with an outstanding par value of $14.8 million were retired utilizing fuel taxes and debt service funds already on deposit with the Trustee. In October 2020, the Authority and the beneficial owners of the Series 2018B Senior BANs entered into an agreement to re-issue new BANs, Series 2020A, and extend the maturity date to no later than July 1, 2022. The 2018C BANs whose first payment was due on July 1, 2021 were further extended by FEMA with the first payment now deferred until January 1, 2024 and the final payment deferred until July 1, 2036. As of February 2021, under FEMA’s PA Program, WAPA has been approved for approximately $540.8 million in grant funding for emergency restoration work. Additionally, as of February 2021, FEMA has approved approximately $642.3 million in grant funding for permanent and hazard mitigation projects. The U.S. Department of Housing & Urban Development (HUD), through its Community Development Block Grant-Disaster Recovery (CDBG-DR) program, has obligated $95.9 million to WAPA for the Harley Expansion Project. The project will add 36MW of generation (plus battery storage) to the Randolph Harley Power Plant on St. Thomas. WAPA has also submitted applications to HUD seeking funding of $38.3 million in local cost match funding. (c) Virgin Islands Port Authority (unaudited) VIPA is restoring its facilities, which were damaged by Hurricanes Irma and Maria in September 2017. Rebuilding the air and seaports has taken precedence over other activities, and VIPA continues to tabulate the associated costs and expenses with respect to remediation, clean-up, mitigation, and the restoration of services. VIPA engaged a construction management and design-build firm to provide engineering and construction services and has received approximately $34.0 million in insurance recoveries related to the hurricanes. In March 2020, VIPA signed a settlement agreement with FAA and agreed to remit payment of a $1.5 million civil penalty in four installments. The first installment of $0.4 million was paid in March 2020. However, due to the COVID-19 pandemic, the other installment payments have been deferred. In April 2020, VIPA executed a CARES Act grant with the FAA for a total of $38.9 million. Government of the United States Virgin Islands Notes to Basic Financial Statements 136 (d) Virgin Islands Government Hospital and Health Facilities Corporation In connection with the CARES Act, the Schneider Regional Medical Center received funding in the amount of $13.4 million, and the Governor Juan F. Luis Hospital and Medical Center received funding in the amount of $5.7 million. The funding supports the detection of COVID-19 and/or prevention, diagnosis, and treatment of COVID-19, including maintaining or increasing hospital capacity and staffing levels during the COVID-19 public health emergency as outlined in the CARES Act. (e) University of the Virgin Islands In November 2019, the University refinanced a portion of its long-term debt with the U.S. Department of Education, which allowed the institution to take advantage of better interest rates. The University also purchased a building from GERS for $8.4 million as part of the refinancing. The University will convert the facility into a Research and Business Innovation Center that will support research and technology-related businesses. In February 2020, the RT Park settled a loan due to the University in the amount of $1.4 million. In August 2020, the University was selected to receive public institution deferment of its loans through the Historically Black Colleges and Universities Capital Financing Program. This resulted the University being reimbursed for loan payments made during the deferment period of October 2019 to August 2020. (f) The West Indian Company Limited In March 2020, WICO’s management agreement with GERS was terminated. As a result of the termination of the agreement, WICO reduced its workforce by thirty-eight (38) employees, resulting in a one-time separation charge of approximately $1.2 million. In May 2020, WICO was notified by Banco Popular de Puerto Rico that monthly payments on the outstanding loan payable would be deferred for 90 days as a result of the COVID-19 pandemic. In September 2020, an additional 90-day moratorium was granted to WICO with regular repayments resuming in November 2020. (g) viNGN, INC. d/b/a Virgin Islands Next Generation Network In April 2020, viNGN amended its Memorandum of Agreement (MOA) with WAPA. As part of the original agreement, viNGN has an exclusive use of certain underground fiber and infrastructure owned by WAPA. Following Hurricanes Irma and Maria in 2017, as WAPA has obtained certain federal funding for the hardening of its infrastructure, the MOA was amended to provide viNGN a continued and exclusive right to use all future telecommunications fiber and spare underground or subsea conduit owned by WAPA. Management’s Evaluation Management has evaluated events and transactions occurring after September 30, 2019, the statement of net position date, and through June 30, 2021, the date the financial statements were available to be issued and noted that there have been no additional events or transactions which would require adjustments to or disclosure in the Government’s financial statements for the year ended September 30, 2019. Required Supplementary Information Government of the United States Virgin Islands Schedule of Changes in Total OPEB Liability and Related Ratios 137 Postemployment Benefits Other Than Pensions This schedule is intended to show a 10-year trend. Additional years will be reported as they become available. Notes to Required Supplementary Information - OPEB The Government does not have assets accumulated in a trust that meets the criteria of Paragraph 4 of GASB Statement No. 75 to pay related benefits. The Primary Government, by statute, pays 100% of the employer cost-share of the postemployment health, dental, and life insurance of the retirees of the following semi-autonomous agencies: 1) Government Employee's Retirement System of the U.S. Virgin Islands, 2) Virgin Islands Economic Development Authority, 3) Virgin Islands Housing Finance Authority, 4) Juan F. Luis Hospital & Medical Center, 5) Magens Bay Authority, 6) Virgin Islands Public Broadcasting System, 7) Roy L. Schneider Hospital, and 8) Virgin Islands Waste Management Authority. The Primary Government also reports the OPEB liabilities associated with these benefits. The discount rate changed from 3.35% for the opening balance as of September 30, 2018, to the discount rate of 3.64% as of September 30, 2019. This change resulted in a decrease in total OPEB liability. The base mortality tables and mortality improvement sales were updated to RP-2014 Blue Collar Mortality table (110% adjustment) projected forward using the M-2015 scale. Future participation in the retiree health plan decreased from 100% to 85%. Measurement year ended September 30, 2019 2018 Primary Government Primary Government Total OPEB Liability: Service cost $ 26,147 $ 28,216 Interest 26,623 23,904 Changes in assumptions or other inputs (31,772) (53,422) Expected benefit payments (29,864) (28,280) Net Change in Total OPEB Liability (8,866) (29,582) Total OPEB Liability – Beginning of Fiscal Year 783,373 812,955 Total OPEB Liability – End of Fiscal Year $ 774,507 $ 783,373 Covered Payroll $ 350,409 $ 323,158 Total OPEB Liability as a Percentage of Covered Payroll 221.03% 242.41% Government of the United States Virgin Islands Schedule of Net Pension Liability 138 September 30, (in thousands) 2019 2018 2017 2016 2015 Primary Government’s proportion of the NPL 77.8087% 76.5852% 76.4171% 75.2916% 75.2803% Primary Government’s proportionate share of the NPL $ 3,246,789 $ 3,354,768 $ 3,535,517 $ 3,065,617 $ 2,323,163 Primary Government’s covered payroll $ 309,998 $ 307,132 $ 300,909 $ 277,091 $ 267,698 Primary Government’s proportionate share of the NPL as a percentage of its covered payroll 1,047% 1,092% 1,175% 1,106% 686% Plan fiduciary net position as a percentage of the total pension liability 15.56% 16.18% 16.54% 19.58% 27.26% This schedule is intended to show a 10-year trend. Additional years will be reported as they become available. The amounts presented for each fiscal year are as of the measurement date (September 30 of the previous year). Government of the United States Virgin Islands Schedule of Pension Contributions 139 September 30, (in thousands) 2019 2018 2017 2016 2015 Actuarially required contributions of the Primary Government $ 215,937 $ 205,052 $ 191,481 $ 186,089 $ 150,628 Contributions in relation to the statutorily required contributions $ 84,005 $ 77,840 $ 61,759 $ 68,291 $ 64,357 Contribution deficiency $ 131,932 $ 127,212 $ 129,722 $ 117,798 $ 86,271 Primary Government covered payroll $ 314,951 $ 309,998 $ 307,132 $ 300,909 $ 277,091 Contributions as a percentage of covered payroll 26.67% 25.11% 20.11% 22.69% 23.23% This schedule is intended to show a 10-year trend. Additional years will be reported as they become available. The amounts presented for each fiscal year are as of the latest fiscal year. Original Revised Budget Budget Actual Variance Revenues Taxes 787,959 $ 787,959 $ 663,723 $ (124,236) $ Federal grants and contributions - - 16,066 16,066 Charges for services 69,186 69,186 13,267 (55,919) Interest and other 121,289 121,289 69,423 (51,866) Total revenues 978,434 978,434 762,479 (215,955) Expenditures Current: General government 409,380 439,355 439,736 (381) Public safety 125,357 125,732 74,037 51,695 Health 97,995 110,113 82,018 28,095 Education 174,586 177,112 196,417 (19,305) Transportation and communication 25,059 25,059 17,622 7,437 Culture and recreation 15,357 15,968 6,778 9,190 Debt service: Principal - - 5,644 (5,644) Interest - - 1,527 (1,527) Loan issuance costs - - 563 (563) Total expenditures 847,734 893,339 824,342 68,997 Excess (deficiency) of revenues over expenditures 130,700 85,095 (61,863) (146,958) Other financing sources (uses) Bonds issued - - 17,773 17,773 Debt service (149,989) - - - Transfers from other funds 67,400 67,400 158,817 91,417 Transfer to other funds (63,785) - (11,357) (11,357) Transfers to component units (31,847) (136,723) - 136,723 Total other financing sources, net (178,221) (69,323) 165,233 234,556 Excess (deficiency) of revenues and net other financing sources over expenditures (47,521) $ 15,772 $ 103,370 $ 87,598 $ See accompanying notes to the Schedule. Schedule of Revenues and Expenditures – Budget and Actual Government of the United States Virgin Islands (in thousands) Year Ended September 30, 2019 Budgetary Basis − General Fund 140 Government of the United States Virgin Islands Notes to Schedule of Revenues and Expenditures - Budget and Actual Budgetary Basis – General Fund 141 1. Budgetary Process and Control The V.I. Code requires the Governor to submit an annual balanced executive budget to be adopted by the Legislature for the ensuing fiscal year. The Governor is required by law to submit to the Legislature the annual balanced executive budget no later than May 30. The annual balanced executive budget is prepared on a budgetary basis. If the annual executive budget has not been approved before the commencement of any fiscal year, then the appropriations for the preceding fiscal year, insofar as they may be applicable, are automatically deemed re-appropriated item by item. The annual balanced executive budget, which includes those funds of the Government subject to appropriation pursuant to law, is composed of all proposed expenditures and estimated revenue for the Government. The Legislature enacts the annual executive budget through passage of lump- sum appropriations for each department. The Legislature may add, change, or delete any items in the annual executive budget proposed by the Governor. Upon passage by the Legislature, the annual executive budget is submitted to the Governor, who may veto the budget partially or in its entirety and return it to the Legislature with his objections. A veto by the Governor can be overridden only by a two-thirds majority of all members of the Legislature. The Legislature is obligated by law to pass a final annual executive budget no later than September 30, the last day of the fiscal year. Supplemental budgetary appropriations bills that are signed into law may be created during the year without the identification of a specific revenue source to finance them. In August 1999, the Legislature enacted the Financial Accountability Act (Act No. 6289). The purpose of the Financial Accountability Act is to require by law that the budget of the Government be balanced each year, and the appropriations in each fiscal year not exceed a verifiable revenue source. Once the budget has been enacted, fiscal control over expenditures made pursuant thereto is exercised by the Governor through the Director of OMB. During any fiscal year in which the resources available to the Government are not sufficient to cover the appropriations approved for such year, the Governor, through the Director of OMB, may take administrative measures to reduce expenditures. The Governor may also make recommendations to the Legislature for new taxes or any other necessary action to meet the estimated deficiency. Budgetary control is exercised at the department level through an allotment process. Encumbrances and expenditures cannot exceed total allotment amounts. The Government’s department heads may make transfers of appropriations within the department. Appropriation transfers between departments and supplemental appropriations require executive and legislative branch approval. Unencumbered and unexpended appropriations, not designated, lapse at fiscal year-end. Also, encumbrances are established at fiscal year-end to pay certain expenditures for travel and utility costs payable against current year appropriation authority, but to be expended in the subsequent year. Government of the United States Virgin Islands Notes to Schedule of Revenues and Expenditures - Budget and Actual Budgetary Basis – General Fund 142 2. Budget/GAAP Reconciliation The following schedule presents a comparison of the general fund legally adopted budget with actual data on a budgetary basis. Because accounting principles applied for purposes of developing data on a budgetary basis differ significantly from those used to present financial statements in conformity with GAAP, a reconciliation of timing and entity difference of the excess (deficiency) of revenue and net other financing sources over expenditures for the year ended September 30, 2019, is presented below (expressed in thousands): Excess of revenues and net other financing sources over expenditures $ 87,598 Entity difference – deficiency of revenues and net other financing sources over expenditures – activities with budgets not legally adopted (140,922) Deficiency of revenues and net other financing sources over expenditures – GAAP basis (net change in fund balance) $ (53,324) Controls over spending in special revenue funds and non-appropriated funds are maintained at the Department of Finance by use of budgets and available resources (revenues). The Government makes appropriations to authorize expenditures for various capital projects. Budgets for capital projects normally remain available until completion of the project unless modified or rescinded. The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee. Government of the United States Virgin Islands Schedule of Expenditures of Federal Awards and Reports Required by Government Auditing Standards and the Uniform Guidance Year Ended September 30, 2019 ` Government of the United States Virgin Islands Schedule of Expenditures of Federal Awards and Reports Required by Government Auditing Standards and the Uniform Guidance Year Ended September 30, 2019 Government of the United States Virgin Islands Contents Independent Auditor’s Reports Required by Government Auditing Standards and the Uniform Guidance Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 1-3 Independent Auditor’s Report on Compliance For Each Major Federal Program, Report on Internal Control Over Compliance, and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 4-17 Schedule of Expenditures of Federal Awards 18-25 Notes to the Schedule of Expenditures of Federal Awards 26-29 Schedule of Findings and Questioned Costs 30-129 Management’s Appendices Appendix A: Status of Prior Audit Findings 130-170 Appendix B: Corrective Action Plan 171-205 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 1 Tel: 301-354-2500 Fax: 301-354-2501 www.bdo.com 12505 Park Potomac Ave, Suite 700 Potomac, MD 20854 Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To the Honorable Governor of the Government of the United States Virgin Islands We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Government of the United States Virgin Islands (the Government) as of and for the year ended September 30, 2019, and the related notes to the financial statements, which collectively comprise the Government’s basic financial statements, and have issued our report thereon dated June 30, 2021. We expressed a qualified opinion on the financial statements of the governmental activities, general fund, and federal grants fund opinion units based on the circumstances noted in our aforementioned report. In addition, we expressed a disclaimer of opinion on the financial statements of the business type activities, unemployment insurance-enterprise fund, aggregate remaining fund information, and aggregate discretely presented component units opinion units based on the circumstances described in our aforementioned report. Our aforementioned report includes references to other auditors who audited the financial statements of the Virgin Islands Housing Authority (VIHA), Virgin Islands Economic Development Authority (VIEDA), Virgin Islands Waste Management Authority (VIWMA), Magens Bay Authority (MBA), Virgin Islands Government Hospital and Health Facilities Corporation (Roy L. Schneider Hospital and Governor Juan F. Luis Hospital and Medical Center), Virgin Islands Housing Finance Authority (VIHFA), Government Employees’ Retirement System of the U.S. Virgin Islands (GERS), Virgin Islands Public Broadcasting System (VIPBS), and Virgin Islands Lottery (V.I. Lottery), as described in our report on the Government’s financial statements. This report does not include the results of the other auditors’ testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. We audited the financial statements of the Virgin Islands Water and Power Authority (WAPA), the University of the Virgin Islands (UVI), the Virgin Islands Public Finance Authority (PFA), The West Indian Company Limited (WICO), viNGN, INC. d/b/a Virgin Islands Next Generation Network (viNGN), and Tobacco Settlement Financing Corporation (TSFC). This report does not include the results of our testing of internal control over financial reporting or compliance and other matters for WAPA, UVI, PFA, WICO, viNGN, and TSFC which is reported on separately by us. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Government’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Government’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Government’s internal control. 2 Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. However, as described in greater detail in the accompanying schedule of findings and questioned costs, we did identify certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiencies identified below and described in greater detail in the accompanying schedule of findings and questioned costs to be material weaknesses. Finding # Nature of Finding 2019-001 Financial Position 2019-002 Year-End Close Process 2019-003 Revenue and Receivables 2019-004 Grants Management 2019-005 Capital Assets and Related Expenditures 2019-006 Recording of Liabilities 2019-007 Management of the Medicaid Program 2019-008 Unemployment Insurance Trust Fund 2019-009 Workers Compensation Program 2019-010 Other Postemployment Benefits Obligation 2019-011 Payroll, Related Accruals, and Other Expenditures 2019-012 Bank Accounts A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiency identified below and described in greater detail in the accompanying schedule of findings and questioned costs to be a significant deficiency. Finding # Nature of Finding 2019-013 Information Technology Environment Compliance and Other Matters As part of obtaining reasonable assurance about whether the Government’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. 3 The results of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government Auditing Standards as identified below and described in greater detail in the accompanying schedule of findings and questioned costs. Finding # Nature of Finding 2019-014 Collateral of Depository 2019-015 Landfill Consent Decrees 2019-016 Establishment of a Medical Malpractice Trust Fund 2019-017 Procurement Regulations 2019-018 Casino Control Commission The Government’s Responses to Findings The Government’s responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The Government’s responses were not subjected to the auditing procedures applied in the audit of the financial statements and accordingly, we express no opinion on them. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Government’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Government’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. June 30, 2021 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 4 Tel: 301-354-2500 Fax: 301-354-2501 www.bdo.com 12505 Park Potomac Ave, Suite 700 Potomac, MD 20854 Independent Auditor’s Report on Compliance For Each Major Federal Program, Report on Internal Control Over Compliance, and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance To the Honorable Governor of the Government of the United States Virgin Islands Report on Compliance for Each Major Federal Program We have audited the Government of the United States Virgin Islands’ (the Government) compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Compliance Supplement that could have a direct and material effect on each of the Government’s major Federal programs for the year ended September 30, 2019. The Government’s major Federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. The Government’s basic financial statements include the operations of the Virgin Islands Housing Authority (VIHA), Virgin Islands Economic Development Authority, (VIEDA), Virgin Islands Waste Management Authority (VIWMA), Magens Bay Authority (MBA), Virgin Islands Government Hospital and Health Facilities Corporation ( Roy L. Schneider Hospital and Governor Juan F. Luis Hospital and Medical Center), Virgin Islands Housing Finance Authority (VIHFA), Government Employees’ Retirement System of the U.S. Virgin Islands (GERS), Virgin Islands Public Broadcasting System (VIPBS), Virgin Islands Lottery (VI Lottery), and The University of the Virgin Islands Research and Technology Park Corporation (RTPark). The accompanying Schedule of Expenditures of Federal Awards and our audit described below do not include the Federal expenditures of these organizational units, as may be applicable. These organizational units of the Government have engaged other auditors to perform a separate independent audit in accordance with Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. The accompanying Schedule of Expenditures of Federal Awards and our audit described below also do not include the Federal expenditures of the following organizational units of the Government: Virgin Islands Water and Power Authority (WAPA), the University of the Virgin Islands (UVI), The West Indian Company Limited (WICO), viNGN, INC. d/b/a Virgin Islands Next Generation Network (viNGN), Virgin Islands Port Authority (VIPA), and Tobacco Settlement Financing Corporation (TSFC), as may be applicable, as the results of our testing of compliance is reported on separately by us. Management’s Responsibility Management is responsible for compliance with Federal statutes, regulations, and the terms and conditions of its Federal awards applicable to its Federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the Government’s major Federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). 5 Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Government’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our unmodified and modified opinions on compliance for each major Federal program. However, our audit does not provide a legal determination of the Government’s compliance. Basis for Adverse Opinions on the Four Major Federal Programs Identified in Table I As described in the accompanying schedule of findings and questioned costs, and as identified in Table I below, the Government did not comply with requirements regarding the following: Table I – Material Noncompliance Resulting in Adverse Opinions Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Allowable Costs/Cost Principles - Payroll Activities 2019-025 Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Cash Management 2019-026 Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Matching, Level of Effort, Earmarking 2019-027 Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Period of Performance 2019-028 Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Reporting 2019-029 Labor 17.225 Unemployment Insurance Activities Allowed or Unallowed 2019-033 Labor 17.225 Unemployment Insurance Matching, Level of Effort, Earmarking 2019-035 Health and Human Services 93.575 CCDF Cluster Eligibility 2019-047 Health and Human Services 93.575 CCDF Cluster Matching, Level of Effort, Earmarking 2019-048 Health and Human Services 93.575 CCDF Cluster Special Tests and Provisions – Health and Safety Requirements 2019-050 Health and Human Services 93.575 CCDF Cluster Special Tests and Provisions – Fraud Detection and Repayment 2019-051 6 Table I – Material Noncompliance Resulting in Adverse Opinions Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Health and Human Services 93.775 93.778 Medicaid Cluster Eligibility 2019-058 Health and Human Services 93.775 93.778 Medicaid Cluster Matching, Level of Effort, Earmarking 2019-059 Health and Human Services 93.775 93.778 Medicaid Cluster Reporting 2019-060 Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions - Utilization Control and Program Integrity 2019-061 Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions - Inpatient Hospital and Long-Term Care Facility Audits 2019-062 Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions - ADP Risk Analysis and System Security Review 2019-063 Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions – Provider Eligibility 2019-064 Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions - Medicaid Fraud Control Unit 2019-065 Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions - Federal Financial Participation Refunds 2019-066 Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Data Collection Form and Single Audit Reporting Package 2019-069 Labor 17.225 Unemployment Insurance Data Collection Form and Single Audit Reporting Package 2019-069 Health and Human Services 93.575 CCDF Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Health and Human Services 93.775 93.778 Medicaid Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Compliance with such requirements is necessary, in our opinion, for the Government to comply with the requirements applicable to those programs. 7 Adverse Opinions on the Four Major Federal Programs Identified in Table I In our opinion, because of the significance of the matters discussed in the Basis for Adverse Opinion paragraph, the Government did not comply in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on the major Federal programs identified in Table I for the year ended September 30, 2019. Basis for Qualified Opinions on the Seven Major Federal Programs Identified in Table II As described in the accompanying schedule of findings and questioned costs, and as identified in Table II below, the Government did not comply with requirements regarding the following: Table II – Material Noncompliance Resulting in Qualified Opinions Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Agriculture 10.551 10.561 Supplemental Nutrition Assistance Program Cluster Allowable Costs/Cost Principles - Payroll Activities 2019-019 Agriculture 10.551 10.561 Supplemental Nutrition Assistance Program Cluster Matching, Level of Effort, Earmarking 2019-020 Agriculture 10.551 10.561 Supplemental Nutrition Assistance Program Cluster Procurement/Suspension and Debarment 2019-021 Agriculture 10.551 10.561 Supplemental Nutrition Assistance Program Cluster Special Tests and Provisions – EBT Card Security 2019-022 Interior 15.875 Economic, Social, and Political Development of the Territories Cash Management 2019-030 Interior 15.875 Economic, Social, and Political Development of the Territories Equipment/Real Property Management 2019-031 Interior 15.875 Economic, Social, and Political Development of the Territories Reporting 2019-032 Environmental Protection Agency 66.468 Drinking Water State Revolving Fund Cluster Allowable Costs/Cost Principles - Payroll Activities 2019-036 Environmental Protection Agency 66.468 Drinking Water State Revolving Fund Cluster Cash Management 2019-037 Environmental Protection Agency 66.468 Drinking Water State Revolving Fund Cluster Period of Performance 2019-038 Health and Human Services 93.563 Child Support Enforcement Allowable Costs/Cost Principles - Payroll Activities 2019-041 Health and Human Services 93.563 Child Support Enforcement Allowable Costs/Cost Principles - Indirect Cost Activities 2019-042 8 Table II – Material Noncompliance Resulting in Qualified Opinions Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Health and Human Services 93.563 Child Support Enforcement Cash Management 2019-043 Health and Human Services 93.563 Child Support Enforcement Matching, Level of Effort, Earmarking 2019-044 Health and Human Services 93.667 Social Services Block Grant Cash Management 2019-053 Health and Human Services 93.667 Social Services Block Grant Reporting 2019-054 Health and Human Services 93.767 Children’s Health Insurance Program Reporting 2019-056 Homeland Security 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Allowable Costs/Cost Principles – Non-Payroll Activities 2019-067 Homeland Security 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Reporting 2019-068 Agriculture 10.551 10.561 Supplemental Nutrition Assistance Program Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Interior 15.875 Economic, Social, and Political Development of the Territories Data Collection Form and Single Audit Reporting Package 2019-069 Environmental Protection Agency 66.468 Drinking Water State Revolving Fund Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Health and Human Services 93.563 Child Support Enforcement Data Collection Form and Single Audit Reporting Package 2019-069 Health and Human Services 93.667 Social Services Block Grant Data Collection Form and Single Audit Reporting Package 2019-069 Health and Human Services 93.767 Children’s Health Insurance Program Data Collection Form and Single Audit Reporting Package 2019-069 Homeland Security 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Data Collection Form and Single Audit Reporting Package 2019-069 Compliance with such requirements is necessary, in our opinion, for the Government to comply with the requirements applicable to those programs. 9 Qualified Opinions on the Seven Major Federal Programs Identified in Table II In our opinion, except for the noncompliance described in the Basis for Qualified Opinion paragraph, the Government complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on the major Federal programs identified in Table II for the year ended September 30, 2019. Unmodified Opinions on Each of the Other Major Federal Programs In our opinion, the Government complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its other major Federal programs identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs for the year ended September 30, 2019. Other Matters The results of our auditing procedures disclosed other instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs, and as identified in Tables III, IV and V below. Our opinion on each major Federal program is not modified with respect to these matters. Table III – Other Instances of Noncompliance Noted in Programs with Adverse Opinions Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Labor 17.225 Unemployment Insurance Eligibility 2019-034 Health and Human Services 93.575 CCDF Cluster Allowable Costs/Cost Principles – Non-Payroll Activities 2019-045 Health and Human Services 93.575 CCDF Cluster Allowable Costs/Cost Principles - Payroll Activities 2019-046 Health and Human Services 93.575 CCDF Cluster Period of Performance 2019-049 Health and Human Services 93.775 93.778 Medicaid Cluster Allowable Costs/Cost Principles – Non-Payroll Activities 2019-057 Table IV – Other Instances of Noncompliance Noted in Programs with Qualified Opinions Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Health and Human Services 93.767 Children’s Health Insurance Program Activities Allowed or Unallowed 2019-055 10 Table V – Other Instances of Noncompliance Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Agriculture 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Equipment/Real Property Management 2019-023 Agriculture 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Procurement/Suspension and Debarment 2019-024 Education 84.403 Consolidated Grant to the Outlying Areas Allowable Costs/Cost Principles - Indirect Cost Activities 2019-039 Education 84.403 Consolidated Grant to the Outlying Areas Cash Management 2019-040 Health and Human Services 93.600 Head Start Equipment/Real Property Management 2019-052 Agriculture 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Data Collection Form and Single Audit Reporting Package 2019-069 Transportation 20.205 Highway Planning and Construction Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Transportation 20.500 20.507 Federal Transit Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Education 84.403 Consolidated Grant to the Outlying Areas Data Collection Form and Single Audit Reporting Package 2019-069 Education 84.938A Immediate Aid to Restart School Operations Data Collection Form and Single Audit Reporting Package 2019-069 Health and Human Services 93.600 Head Start Data Collection Form and Single Audit Reporting Package 2019-069 Homeland Security 97.030 Community Disaster Loans Data Collection Form and Single Audit Reporting Package 2019-069 11 The Government’s responses to the noncompliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs and corrective action plan. The Government’s responses were not subjected to our auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. The Government is responsible for preparing a corrective action plan to address each audit finding included in our auditor’s report. The Government’s corrective action plan was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on it. Report on Internal Control Over Compliance Management of the Government is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Government’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major Federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Government’s internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. However, as discussed below, we did identify certain deficiencies in internal control over compliance that we consider to be material weaknesses and significant deficiencies. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in internal control over compliance described in the accompanying schedule of findings and questioned costs, and as identified in Table VI below, to be material weaknesses: Table VI – Material Weaknesses in Internal Control over Compliance Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Agriculture 10.551 10.561 Supplemental Nutrition Assistance Program Cluster Allowable Costs/Cost Principles - Payroll Activities 2019-019 Agriculture 10.551 10.561 Supplemental Nutrition Assistance Program Cluster Matching, Level of Effort, Earmarking 2019-020 Agriculture 10.551 10.561 Supplemental Nutrition Assistance Program Cluster Procurement/Suspension and Debarment 2019-021 12 Table VI – Material Weaknesses in Internal Control over Compliance Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Agriculture 10.551 10.561 Supplemental Nutrition Assistance Program Cluster Special Tests and Provisions – EBT Card Security 2019-022 Agriculture 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Equipment/Real Property Management 2019-023 Agriculture 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Procurement/Suspension and Debarment 2019-024 Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Allowable Costs/Cost Principles - Payroll Activities 2019-025 Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Cash Management 2019-026 Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Matching, Level of Effort, Earmarking 2019-027 Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Period of Performance 2019-028 Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Reporting 2019-029 Interior 15.875 Economic, Social, and Political Development of the Territories Cash Management 2019-030 Interior 15.875 Economic, Social, and Political Development of the Territories Equipment/Real Property Management 2019-031 Interior 15.875 Economic, Social, and Political Development of the Territories Reporting 2019-032 Labor 17.225 Unemployment Insurance Activities Allowed or Unallowed 2019-033 Labor 17.225 Unemployment Insurance Matching, Level of Effort, Earmarking 2019-035 Environmental Protection Agency 66.468 Drinking Water State Revolving Fund Cluster Allowable Costs/Cost Principles - Payroll Activities 2019-036 Environmental Protection Agency 66.468 Drinking Water State Revolving Fund Cluster Period of Performance 2019-038 Health and Human Services 93.563 Child Support Enforcement Allowable Costs/Cost Principles - Indirect Cost Activities 2019-042 13 Table VI – Material Weaknesses in Internal Control over Compliance Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Health and Human Services 93.563 Child Support Enforcement Cash Management 2019-043 Health and Human Services 93.575 CCDF Cluster Eligibility 2019-047 Health and Human Services 93.575 CCDF Cluster Matching, Level of Effort, Earmarking 2019-048 Health and Human Services 93.575 CCDF Cluster Special Tests and Provisions - Health and Safety Requirements 2019-050 Health and Human Services 93.575 CCDF Cluster Special Tests and Provisions - Fraud Detection and Repayment 2019-051 Health and Human Services 93.600 Head Start Equipment/Real Property Management 2019-052 Health and Human Services 93.667 Social Services Block Grant Reporting 2019-054 Health and Human Services 93.767 Children’s Health Insurance Program Reporting 2019-056 Health and Human Services 93.775 93.778 Medicaid Cluster Eligibility 2019-058 Health and Human Services 93.775 93.778 Medicaid Cluster Matching, Level of Effort, Earmarking 2019-059 Health and Human Services 93.775 93.778 Medicaid Cluster Reporting 2019-060 Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions - Utilization Control and Program Integrity 2019-061 Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions - Inpatient Hospital and Long-Term Care Facility Audits 2019-062 Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions - ADP Risk Analysis and System Security Review 2019-063 14 Table VI – Material Weaknesses in Internal Control over Compliance Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions – Provider Eligibility 2019-064 Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions - Medicaid Fraud Control Unit 2019-065 Health and Human Services 93.775 93.778 Medicaid Cluster Special Tests and Provisions - Federal Financial Participation Refunds 2019-066 Homeland Security 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Allowable Costs/Cost Principles – Non-Payroll Activities 2019-067 Homeland Security 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Reporting 2019-068 Agriculture 10.551 10.561 Supplemental Nutrition Assistance Program Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Agriculture 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Data Collection Form and Single Audit Reporting Package 2019-069 Defense 12.401 National Guard Military Operations and Maintenance (O&M) Projects Data Collection Form and Single Audit Reporting Package 2019-069 Interior 15.875 Economic, Social, and Political Development of the Territories Data Collection Form and Single Audit Reporting Package 2019-069 Labor 17.225 Unemployment Insurance Data Collection Form and Single Audit Reporting Package 2019-069 Transportation 20.205 Highway Planning and Construction Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Transportation 20.500 20.507 Federal Transit Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Environmental Protection Agency 66.468 Drinking Water State Revolving Fund Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Education 84.403 Consolidated Grant to the Outlying Areas Data Collection Form and Single Audit Reporting Package 2019-069 Education 84.938A Immediate Aid to Restart School Operations Data Collection Form and Single Audit Reporting Package 2019-069 15 Table VI – Material Weaknesses in Internal Control over Compliance Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Health and Human Services 93.563 Child Support Enforcement Data Collection Form and Single Audit Reporting Package 2019-069 Health and Human Services 93.575 CCDF Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Health and Human Services 93.600 Head Start Data Collection Form and Single Audit Reporting Package 2019-069 Health and Human Services 93.667 Social Services Block Grant Data Collection Form and Single Audit Reporting Package 2019-069 Health and Human Services 93.767 Children’s Health Insurance Program Data Collection Form and Single Audit Reporting Package 2019-069 Health and Human Services 93.775 93.778 Medicaid Cluster Data Collection Form and Single Audit Reporting Package 2019-069 Homeland Security 97.030 Community Disaster Loans Data Collection Form and Single Audit Reporting Package 2019-069 Homeland Security 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disasters) Data Collection Form and Single Audit Reporting Package 2019-069 A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a Federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. We consider the deficiencies in internal control over compliance described in the accompanying schedule of findings and questioned costs, and as identified in Table VII below, to be significant deficiencies: Table VII – Significant Deficiencies in Internal Control over Compliance Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Labor 17.225 Unemployment Insurance Eligibility 2019-034 Environmental Protection Agency 66.468 Drinking Water State Revolving Fund Cluster Cash Management 2019-037 Education 84.403 Consolidated Grant to the Outlying Areas Allowable Costs/Cost Principles - Indirect Cost Activities 2019-039 Education 84.403 Consolidated Grant to the Outlying Areas Cash Management 2019-040 16 Table VII – Significant Deficiencies in Internal Control over Compliance Federal Awarding Agency CFDA Number (s) Major Program Compliance Requirement Finding Number Health and Human Services 93.563 Child Support Enforcement Allowable Costs/Cost Principles - Payroll Activities 2019-041 Health and Human Services 93.563 Child Support Enforcement Matching, Level of Effort, Earmarking 2019-044 Health and Human Services 93.575 CCDF Cluster Allowable Costs/Cost Principles – Non-Payroll Activities 2019-045 Health and Human Services 93.575 CCDF Cluster Allowable Costs/Cost Principles - Payroll Activities 2019-046 Health and Human Services 93.575 CCDF Cluster Period of Performance 2019-049 Health and Human Services 93.667 Social Services Block Grant Cash Management 2019-053 Health and Human Services 93.767 Children’s Health Insurance Program Activities Allowed or Unallowed 2019-055 Health and Human Services 93.775 93.778 Medicaid Cluster Allowable Costs/Cost Principles – Non-Payroll Activities 2019-057 The Government’s responses to the internal control over compliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs and corrective action plan. The Government’s responses were not subjected to the auditing procedures applied in the audit of compliance and accordingly, we express no opinion on the responses. The Government is responsible for preparing a corrective action plan to address each audit finding included in our auditor’s report. The Government’s corrective action plan was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on it. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. 17 Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Government of the United States Virgin Islands (the Government) as of and for the year ended September 30, 2019, and the related notes to the financial statements, which collectively comprise the Government’s basic financial statements. We issued our report thereon dated June 30, 2021, which expressed a qualified opinion on the financial statements of the governmental activities, general fund, and federal grants fund opinion units based on the circumstances noted in our aforementioned report. In addition, we expressed a disclaimer of opinion on the financial statements of the business-type activities, unemployment insurance-enterprise fund, aggregate remaining fund information, and aggregate discretely-presented component units opinion units based on the circumstances described in our aforementioned report. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, except for the effects on the Schedule of Expenditures of Federal Awards of the circumstances noted above, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. August 31, 2021 Schedule of Expenditures of Federal Awards Year ended September 30, 2019 Pass-Through Federal Entity Passed Total CFDA Identifying Through to Federal Federal Grantor/Pass-Through Grantor/Program or Cluster Title Number Number Subrecipients Expenditures U.S. Department of Agriculture Plant and Animal Disease, Pest Control, and Animal Care 10.025 87,980 $ Specialty Crop Block Grant Program - Farm Bill 10.170 55,779 $ 302,626 SNAP Cluster Supplemental Nutrition Assistance Program 10.551 45,039,244 State Administrative Matching Grants for the Supplemental Nutrition Assistance Program 10.561 2,922,339 Total SNAP Cluster 47,961,583 Child Nutrition Cluster National School Lunch Program 10.555 695,617 Summer Food Service Program for Children 10.559 151,383 Total Child Nutrition Cluster 847,000 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) 10.557 4,070,957 Child and Adult Care Food Program 10.558 862,733 State Administrative Expenses for Child Nutrition 10.560 320,374 Food Distribution Cluster Emergency Food Assistance Program (Administrative Costs) 10.568 28,887 Emergency Food Assistance Program (Food Commodities) 10.569 25,000 Total Food Distribution Cluster 53,887 WIC Farmers' Market Nutrition Program (FMNP) 10.572 16,270 WIC Grants to States (WGS) 10.578 7,118 Child Nutrition Discretionary Grants Limited Availability 10.579 32,433 Cooperative Forestry Assistance 10.664 93,805 Urban and Community Forestry Program 10.675 61,076 Forest Legacy Program 10.676 27,911 Forest Stewardship Program 10.678 64,375 Total U.S. Department of Agriculture 55,779 54,810,128 Government of the United States Virgin Islands Schedule of Expenditures of Federal Awards 18 Year ended September 30, 2019 Pass-Through Federal Entity Passed Total CFDA Identifying Through to Federal Federal Grantor/Pass-Through Grantor/Program or Cluster Title Number Number Subrecipients Expenditures Government of the United States Virgin Islands Schedule of Expenditures of Federal Awards U.S. Department of Commerce Bipartisan Budget Act of 2018 11.022 1,480 Interjudisdictional Fisheries Act of 1986 11.407 681 Coastal Zone Management Administration Awards 11.419 7,365 1,001,950 Financial Assistance for National Centers for Coastal Ocean Science 11.426 991 Marine Sanctuary Program 11.429 581 Cooperative Fishery Statistics 11.434 133,024 Southeast Area Monitoring and Assessment Program 11.435 61,916 Meteorologic and Hydrologic Modernization Development 11.467 76,391 Coral Reef Conservation Program 11.482 680,828 State and Local Implementation Grant Program 11.549 127,953 Total U.S. Department of Commerce 7,365 2,085,795 U.S. Department of Defense National Guard Military Operations and Maintenance (O&M) Projects 12.401 3,117,232 U.S. Department of the Interior Fish and Wildlife Cluster Sport Fish Restoration 15.605 799,471 Wildlife Restoration and Basic Hunter Education 15.611 584,674 Total Fish and Wildlife Cluster 1,384,145 Cooperative Endangered Species Conservation Fund 15.615 13,526 State Wildlife Grants 15.634 62,382 Economic, Social, and Political Development of the Territories 15.875 212,660 3,496,000 Historic Preservation Fund Grants-In-Aid 15.904 376,115 Total U.S. Department of the Interior 212,660 5,332,168 19 Year ended September 30, 2019 Pass-Through Federal Entity Passed Total CFDA Identifying Through to Federal Federal Grantor/Pass-Through Grantor/Program or Cluster Title Number Number Subrecipients Expenditures Government of the United States Virgin Islands Schedule of Expenditures of Federal Awards U.S. Department of Justice Juvenile Justice and Delinquency Prevention 16.540 37,120 National Criminal History Improvement Program (NCHIP) 16.554 129,875 Crime Victim Assistance 16.575 913,865 978,025 Crime Victim Compensation 16.576 2,916 Crime Victim Assistance/Discretionary Grants 16.582 44,456 44,456 Violence Against Women Formula Grants 16.588 345,115 597,841 Residential Substance Abuse Treatment for State Prisoners 16.593 5,223 Public Safety Partnership and Community Policing Grants 16.710 817,238 PREA Program: Strategic Support for PREA Implementation 16.735 25,293 Edward Byrne Memorial Justice Assistance Grant Program 16.738 355,683 964,099 Paul Coverdell Forensic Sciences Improvement Grant Program 16.742 110,734 Support for Adam Walsh Act Implementation Grant Program 16.750 229,574 Total U.S. Department of Justice 1,659,119 3,942,394 U.S. Department of Labor Labor Force Statistics 17.002 382,370 Compensation and Working Conditions 17.005 447 Employment Service Cluster Employment Service/Wagner-Peyser Funded Activities 17.207 1,500,973 Disabled Veterans' Outreach Program (DVOP) 17.801 11,489 Total Employment Service Cluster 1,512,462 Unemployment Insurance 17.225 15,740,121 Senior Community Service Employment Program 17.235 868,717 WIOA Cluster WIA/WIOA Adult Program 17.258 571,529 WIA/WIOA Youth Activities 17.259 349,916 WIA/WIOA Dislocated Worker Formula Grants 17.278 1,296,846 Total WIA/WIOA Cluster 2,218,291 Work Opportunity Tax Credit Program (WOTC) 17.271 13,861 Temporary Labor Certification for Foreign Workers 17.273 37,835 WIOA National Dislocated Worker Grants/WIA National Emergency Grants 17.277 1,098,230 Occupational Safety and Health State Program 17.503 233,520 Total U.S. Department of Labor 22,105,854 20 Year ended September 30, 2019 Pass-Through Federal Entity Passed Total CFDA Identifying Through to Federal Federal Grantor/Pass-Through Grantor/Program or Cluster Title Number Number Subrecipients Expenditures Government of the United States Virgin Islands Schedule of Expenditures of Federal Awards U.S. Department of Transportation Highway Planning and Construction Cluster Highway Planning and Construction 20.205 46,331,078 Motor Carrier Safety Assistance 20.218 266,012 Motor Carrier Safety Assistance High Priority Activities Grants and Cooperative Agreements 20.237 2,412 Federal Transit Cluster Federal Transit - Capital Investment Grants 20.500 946,988 Federal Transit - Formula Grants 20.507 3,685,289 Total Federal Transit Cluster 4,632,277 Highway Safety Cluster State and Community Highway Safety 20.600 966,108 Total U.S. Department of Transportation 52,197,887 National Endowment for the Arts Promotion of the Arts Partnership Agreements 45.025 300,380 300,380 Grants to States 45.310 125,940 Total National Endowment for the Arts 300,380 426,320 U.S. Environmental Protection Agency Surveys, Studies, Research, Investigations, Demonstrations, and Special Purpose Activities Relating to the Clean Air Act 66.034 6,360 Multipurpose Grants to States and Tribes 66.204 5,095 Construction Grants for Wastewater Treatment Works 66.418 131,766 Water Quality Management Planning 66.454 930 Nonpoint Source Implementation Grants 66.460 3,315 Drinking Water State Revolving Fund Cluster Capitalization Grants for Drinking Water State Revolving Funds 66.468 4,083,843 4,269,272 Beach Monitoring and Notification Program Implementation Grants 66.472 238,044 Performance Partnership Grants 66.605 1,553,745 Underground Storage Tank (UST) Prevention, Detection, and Compliance Program 66.804 22,921 Leaking Underground Storage Tank Trust Fund Corrective Action Program 66.805 87,248 State and Tribal Response Program Grants 66.817 1,182 Total U.S. Environmental Protection Agency 4,083,843 6,319,878 21 Year ended September 30, 2019 Pass-Through Federal Entity Passed Total CFDA Identifying Through to Federal Federal Grantor/Pass-Through Grantor/Program or Cluster Title Number Number Subrecipients Expenditures Government of the United States Virgin Islands Schedule of Expenditures of Federal Awards U.S. Department of Energy State Energy Program 81.041 246,033 Weatherization Assistance for Low-Income Persons 81.042 62,203 Total U.S. Department of Energy 308,236 U.S. Department of Education Adult Education - Basic Grants to States 84.002 442,387 Special Education Cluster (IDEA) Special Education - Grants to States (IDEA, Part B) 84.027 8,506,043 Impact Aid 84.041 18,065 Rehabilitation Services Vocational Rehabilitation Grants to States 84.126 1,702,021 Rehabilitation Services Independent Living Services for Older Individuals Who Are Blind 84.177 50,633 Special Education - Grants for Infants and Families 84.181 363,414 School Safety National Activities (formerly, Safe and Drug-Free Schools and Communities-National Programs) 84.184 542,938 Project School Emergency Response to Violence 84.184S 365,228 Supported Employment Services for Individuals with the Most Significant Disabilities 84.187 46,638 Territories and Freely Associated States Education Grant Program 84.256 147,207 Comprehensive Literacy Development 84.371 116,943 Statewide Longitudinal Data Systems 84.372 117,622 Consolidated Grant to the Outlying Areas 84.403 770,255 16,150,757 Immediate Aid to Restart School Operations 84.938A 5,582,722 Temporary Emergency Impact Aid for Displaced Students 84.938C 2,474,158 Total U.S. Department of Education 770,255 36,626,776 U.S. Election Assistance Commission 2018 HAVA Election Security Grants 90.404 243,761 U.S. Department of Health and Human Services Public Health Emergency Preparedness 93.069 20,172 Birth Defects and Developmental Disabilities - Prevention and Surveillance 93.073 32,545 Hospital Preparedness Program (HPP) and Public Health Emergency Preparedness (PHEP) Aligned Cooperative Agreements 93.074 573,108 22 Year ended September 30, 2019 Pass-Through Federal Entity Passed Total CFDA Identifying Through to Federal Federal Grantor/Pass-Through Grantor/Program or Cluster Title Number Number Subrecipients Expenditures Government of the United States Virgin Islands Schedule of Expenditures of Federal Awards U.S. Department of Health and Human Services (continued) Affordable Care Act (ACA) Personal Responsibility Education Program 93.092 78,595 Maternal and Child Health Federal Consolidated Programs 93.110 171,131 Project Grants and Cooperative Agreements for Tuberculosis Control Programs 93.116 90,645 Emergency Medical Services for Children 93.127 139,793 Cooperative Agreements to States/Territories for the Coordination and Development of Primary Care Offices 93.130 89,474 Injury Prevention and Control Research and State and Community Based Programs 93.136 41,795 Projects for Assistance in Transition from Homelessness (PATH) 93.150 48,500 Family Planning-Services 93.217 1,046,998 Substance Abuse and Mental Health Services Projects of Regional and National Significance 93.243 38,816 Early Hearing Detection and Intervention 93.251 255,977 Immunization Cooperative Agreements 93.268 757,583 Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) 93.323 2,331,328 Public Health Emergency Response: Cooperative Agreement for Emergency Response: Public Health Crisis Response 93.354 746,488 Head Start Disaster Recovery 93.356 279,916 Prevention and Control of Chronic Disease and Associated Risk Factors in the U.S. Affiliated Pacific Islands, U.S. Virgin Islands, and P. R. 93.377 129,577 Affordable Care Act (ACA) Maternal, Infant, and Early Childhood Home Visiting Program 93.505 1,536 Maternal, Infant and Early Childhood Home Visiting Grant 93.870 747,618 The Affordable Care Act: Building Epidemiology, Laboratory, and Health Information Systems Capacity in the Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) and Emerging Infections Program (EIP) Cooperative Agreements; PPHF 93.521 1,240,880 MaryLee Allen Promoting Safe and Stable Families Program 93.556 97 TANF Cluster Temporary Assistance for Needy Families 93.558 1,595,637 Payments to Territories- Adults 93.560 716,830 Child Support Enforcement 93.563 4,871,631 23 Year ended September 30, 2019 Pass-Through Federal Entity Passed Total CFDA Identifying Through to Federal Federal Grantor/Pass-Through Grantor/Program or Cluster Title Number Number Subrecipients Expenditures Government of the United States Virgin Islands Schedule of Expenditures of Federal Awards U.S. Department of Health and Human Services (continued) CCDF Cluster Child Care and Development Block Grant 93.575 2,670,243 State Court Improvement Program 93.586 56,612 Grants to States for Access and Visitation Programs 93.597 95,942 Head Start 93.600 8,578,901 Social Services Block Grant 93.667 6,850,798 Preventive Health and Health Services Block Grant funded solely with Prevention and Public Health Funds (PPHF) 93.758 44,579 Children's Health Insurance Program 93.767 13,887,311 Medicare Prescription Drug Coverage 93.770 275,734 Medicaid Cluster State Medicaid Fraud Control Units 93.775 212,021 Medical Assistance Program 93.778 83,044,038 Total Medicaid Cluster 83,256,059 Domestic Ebola Supplement to the Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) 93.815 192,806 Hospital Preparedness Program (HPP) Ebola Preparedness and Responsive Activities 93.817 26,090 National Bioterrorism Hospital Preparedness Program 93.889 10,678 Cancer Prevention and Control Programs for State, Territorial and Tribal Organizations 93.898 85,658 HIV Care Formula Grants 93.917 1,578,237 HIV Prevention Activities Health Department Based 93.940 649,374 Assistance Programs for Chronic Disease Prevention and Control 93.945 200,455 Block Grants for Community Mental Health Services 93.958 282,451 Block Grants for Prevention and Treatment of Substance Abuse 93.959 528,177 The Zika Health Care Services Program 93.966 44,466 Sexually Transmitted Diseases (STD) Prevention and Control Grants 93.977 156,944 Mental Health Disaster Assistance and Emergency Mental Health 93.982 1,161,977 Preventive Health and Health Services Block Grant 93.991 216,737 Maternal and Child Health Services Block Grant to the States 93.994 1,537,407 Total U.S. Department of Health and Human Services 138,434,306 24 Year ended September 30, 2019 Pass-Through Federal Entity Passed Total CFDA Identifying Through to Federal Federal Grantor/Pass-Through Grantor/Program or Cluster Title Number Number Subrecipients Expenditures Government of the United States Virgin Islands Schedule of Expenditures of Federal Awards Corporation for National and Community Service Retired and Senior Volunteer Program 94.002 24,571 Foster Grandparent/Senior Companion Cluster Foster Grandparent Program 94.011 145,879 Total Corporation for National and Community Service 170,450 Executive Office of the President High Intensity Drug Trafficking Areas Program 95.001 31,294 U.S. Department of Homeland Security Boating Safety Financial Assistance 97.012 416,269 Community Disaster Loans 97.030 17,773,457 17,773,457 Disaster Grants - Public Assistance (Presidentially Declared Disasters) 97.036 459,003,368 547,378,326 Hazard Mitigation Grant 97.039 2,208,000 Emergency Management Performance Grants 97.042 1,122,600 Pre-Disaster Mitigation 97.047 320 Homeland Security Grant Program 97.067 824,215 Staffing for Adequate Fire and Emergency Response (SAFER) 97.083 461,507 Total U.S. Department of Homeland Security 476,776,825 570,184,694 Total Expenditures of Federal Awards 483,866,226 $ 896,337,173 $ See accompanying notes to the Schedule of Expenditures of Federal Awards. 25 Government of the United States Virgin Islands Notes to Schedule of Expenditures of Federal Awards 26 1. Reporting Entity The Schedule of Expenditures of Federal Awards (the Schedule) includes the activity of all Federal award programs administered by the Government of the United States Virgin Islands (the Government) and the Virgin Islands Public Finance Authority (a blended component unit) as of and for the year ended September 30, 2019, except that certain organizational units (as defined previously) are excluded as they contract for separate audits in accordance with the requirements of Title 2 U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Accordingly, the accompanying Schedule presents the Federal financial assistance programs administered by the Government for the year ended September 30, 2019. Further, because the Schedule presents only a selected portion of the operations of the Government, it is not intended to and does not present the financial position and changes in net position of the Government. 2. Basis of Presentation Federal award programs include direct expenditures, monies passed through to nonstate agencies (i.e., payments to subrecipients) and nonmonetary assistance. The Schedule presents total Federal awards expended for each individual Federal program in accordance with Office of Management and Budget (OMB) Circular A-133 and the Uniform Guidance. Federal award program titles are reported as presented in the Catalog of Federal Domestic Assistance (CFDA). Federal award program titles not presented in the Catalog are identified by the Federal awarding agency’s two digit prefix (or 99) followed by (contract number or UNKNOWN). 3. Basis of Accounting The expenditures for each of the Federal award programs are presented in the Schedule on a modified accrual basis, except for nonmonetary programs, which are presented based on the fair value of the food stamps (CFDA No. 10.551 in the amount of $45,039,244) and the food cost (CFDA No. 10.557 in the amount of $2,309,861) distributed during the year. The modified accrual basis of accounting incorporates an estimation approach to determine the amount of expenditures incurred if not yet billed by a vendor. The Government’s accounting system provides the primary information from which the Schedule is prepared. 4. Matching Costs Matching costs, such as the non-federal share of certain program costs, are not included in the accompanying Schedule, except Unemployment Insurance (CFDA No. 17.225), as indicated in Note 8. 5. Indirect Cost Rate The Government has not elected to use the 10 percent de minimis indirect cost rate allowed under the Uniform Guidance. Government of the United States Virgin Islands Notes to Schedule of Expenditures of Federal Awards 27 6. Relationship to Federal Financial Reports The regulations and guidelines governing the preparation of Federal financial reports vary by Federal agency and among programs administered by the same agency. Accordingly, the amounts reported in the Federal financial reports do not necessarily agree with the amounts reported in the accompanying Schedule, which are prepared on the basis explained in Note 3. 7. Rebates from the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) During fiscal year 2019, the Government received cash rebates from infant formula manufacturers in the amount of approximately $822,365 on sales of formula to participants in the WIC program (CFDA No. 10.557), which are netted against total expenditures included in the Schedule. Rebate contracts with infant formula manufacturers are authorized by 7 CFR 246.16(m) as a cost containment measure. Rebates represent a reduction of expenditures previously incurred for WIC food benefit costs. 8. Unemployment Insurance The U.S. Department of Labor in consultation with the U.S. Office of Management and Budget officials has determined that for the purpose of audits and reporting under the Uniform Guidance, State or Territory Unemployment Insurance (UI) funds as well as Federal funds should be considered Federal awards for determining Type A programs. A State or Territory receives Federal funds for administrative purposes. State or Territory unemployment taxes must be deposited to a state (territory) account in the Federal Unemployment Trust Fund, used only to pay benefits under the Federally approved state law. State or Territory UI funds as well as Federal funds are included on the Schedule. The following table provides a breakdown of the Territory and Federal portions of the total amount expended under CFDA No. 17.225. Territory UI Benefits (Trust Fund) $ 13,464,100 Federal UI Benefits (Administration) 2,276,021 Total $ 15,740,121 9. Outstanding Loan The Government received proceeds from the Community Disaster Loans program (CFDA No. 97.030) as administered by the Federal Emergency Management Agency (FEMA). The Government passed- through $17,773,457 to the Virgin Islands Government Hospital and Health Facilities Corporation (Roy L. Schneider Hospital and Governor Juan F. Luis Hospital and Medical Center). There is a provision in the FEMA regulations that permits FEMA to cancel all or a portion of this loan. At September 30, 2019, the cumulative balance of the Community Disaster Loans program was $206,295,675, of which $61,295,675 was passed-through to the Government’s component units. Government of the United States Virgin Islands Notes to Schedule of Expenditures of Federal Awards 28 10. Research and Development Programs The Government may receive and expend Federal funding for various research and development programs. The aggregate amount of such expenditures for the year ended September 30, 2019, did not equal an amount that would constitute a major program under the guidelines of the Uniform Guidance. 11. Contingencies The Government is subject to audit examination by funding sources to determine compliance with grant conditions. In the event that expenditures would be disallowed, repayment could be required. Management believes that the impact of any disallowed grant expenditures would not have a material adverse effect on the Government’s financial position, changes in net position, or liquidity. Also see Note 12. 12. Subsequent Events Hurricane Recovery The Government is making significant progress towards restoring its facilities which were damaged by Hurricanes Irma and Maria in September 2017. The Government continues the process of tabulating the associated costs and expenses with respect to remediation, clean-up, mitigation, and the restoration of services. To close potential shortfalls and to serve returning citizens, the Government continues to work closely with federal agencies, such as FEMA, HUD, SBA, etc. to maximize its recovery from all available sources, subject to any sub-limits and retentions. Through May 2021, the Office of Disaster Recovery has reported Federal assistance awarded to the Territory of $87.2 million in FEMA Individual Assistance grants, $2.95 billion in FEMA’s Public Assistance Grant Program (PA), $59.63 million in Federal Highway grants, $85.6 million in FEMA Hazard Mitigation grants, and $1.02 billion in Community Development Block Grants for a total of $4.2 billion dollars. Other Federal grants awarded by various Federal agencies amounted to $169.9 million, for a total of approximately $4.36 billion. In December 2020, the Government received notice from FEMA of the results of audits related to the PA program awards. As a result, the Government received a notice of potential debt in the amount of $134.7 million. In response to the notice, in February 2021, the Government exercised its option to appeal the notice and provided additional clarification and documentation. Management believes these non-compliance instances, if any, should not materially affect the Government’s financial position. Global Pandemic and Economic Relief Legislation In March 2020, the Governor of the U.S. Virgin Islands declared a state of emergency due to the coronavirus pandemic known as COVID-19. Government of the United States Virgin Islands Notes to Schedule of Expenditures of Federal Awards 29 The Governor issued an executive order to close nonessential businesses, certain government offices, and schools to reduce the transmission of the disease. The state of emergency was approved by the President of the United States under the provisions of the Stafford Act and the National Emergencies Act. The State of emergency also activated other emergency response protocols and systems to protect citizenry such as stay-at-home orders, travel restrictions, and social distancing requirements. Also, in March 2020, the Center for Disease Control and Prevention issued a No Sale Order for cruise ships. As a result of the Order and state of emergency, the Territory temporarily closed its ports. The Government has experienced a 7.0% reduction in taxes and other charges for services when comparing the six-month period ended March 31, 2020, to the same period ended March 31, 2021, as per the unaudited general fund statement of revenues. A Federally approved state of emergency activates Federal assistance to states in the form of financial, logistical, and technical assistance. In March 2020, the President of the United States signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, appropriated funds for the Coronavirus Relief Fund to be used to make payments for specified uses to state, territorial, local, and tribal governments. The Government’s allocation of the Coronavirus Relief Fund is $74.8 million. In December 2020, Congress enacted the “Consolidated Appropriations Act of 2021”. The Act provided additional COVID assistance to states and territories, including unemployment assistance, funds for higher education, testing, contact tracing and mitigation of COVID, food stamp, and rental assistance programs. The funds will be distributed in two tranches, with 50% delivered no later than 60 days from the date of enactment, and the remainder delivered no earlier than one year later. The Treasury Department may withhold up to half of the Territory’s allocation for as long as twelve (12) months based on the unemployment rate and the submission of an updated certification of funding needs. The Act provides $4.5 billion for the U.S. territories based on each territory’s share of the combined total population as determined by the U.S. Census Bureau. In March 2021, additional COVID-19 relief was provided in the American Rescue Plan Act of 2021. This Act builds on previously enacted aid measures to aid states, counties, cities, and tribal governments to cover increased expenditures, replenish lost revenue, and mitigate economic harm from the COVID-19 pandemic. State and local government recipients may use the funds to cover costs incurred through December 31, 2024. Through August 2021, the Office of Disaster Recovery has reported COVID-19 funds allocated to the Territory in the amount of $738.4 million. As the emergency measures are eased, management continues to actively monitor the evolving impact of the COVID-19 outbreak on its financial condition, including the duration of the closings, speed of recovery, impact on demand, and resumption of operations. Management also continues to identify and implement various mitigation efforts to minimize the impact on results of operations, financial position, and liquidity. Schedule of Findings and Questioned Costs Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 30 Section I - Summary of Auditor’s Results Financial Statements Type of auditor’s report issued on whether the financial statements audited were prepared in accordance with generally accepted accounting principles: Governmental Activities Qualified Business-Type Activities Disclaimer General Fund Qualified Debt Service Fund Unmodified Capital Projects Fund Unmodified Federal Grants Fund Qualified The West Indian Company Limited-Enterprise Fund Unmodified Unemployment Insurance-Enterprise Fund Disclaimer viNGN, INC.-Enterprise Fund Unmodified Government Insurance-Enterprise Fund Unmodified Aggregate Remaining Fund Information Disclaimer Aggregate Discretely-Presented Component Units Disclaimer Internal control over financial reporting:  Material weakness(es) identified? X Yes No  Significant deficiency(ies) identified? X Yes None reported Noncompliance material to financial statements noted? X Yes No Federal Awards Internal control over major federal programs:  Material weakness(es) identified? X Yes No  Significant deficiency(ies) identified? X Yes None reported Type of auditor’s report issued on compliance for major federal programs: CFDA Number Name of Federal Program or Cluster Opinion 10.551, 10.561 Supplemental Nutrition Assistance Program Cluster Qualified 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Unmodified 12.401 National Guard Military Operations and Maintenance (O&M) Projects Adverse Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 31 Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? X Yes No Identification of major federal programs: CFDA Number Name of Federal Program or Cluster Opinion 15.875 Economic, Social, and Political Development of the Territories Qualified 17.225 Unemployment Insurance Adverse 20.205 Highway Planning and Construction Cluster Unmodified 20.500, 20.507 Federal Transit Cluster Unmodified 66.468 Drinking Water State Revolving Fund Cluster Qualified 84.403 Consolidated Grant to the Outlying Areas Unmodified 84.938A Immediate Aid to Restart School Operations Unmodified 93.563 Child Support Enforcement Qualified 93.575 CCDF Cluster Adverse 93.600 Head Start Unmodified 93.667 Social Services Block Grant Qualified 93.767 Children's Health Insurance Program Qualified 93.775, 93.778 Medicaid Cluster Adverse 97.030 Community Disaster Loans Unmodified 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Qualified CFDA Number Name of Federal Program or Cluster 10.551, 10.561 Supplemental Nutrition Assistance Program Cluster 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) 12.401 National Guard Military Operations and Maintenance (O&M) Projects 15.875 Economic, Social, and Political Development of the Territories 17.225 Unemployment Insurance 20.205 Highway Planning and Construction Cluster 20.500, 20.507 Federal Transit Cluster 66.468 Drinking Water State Revolving Fund Cluster 84.403 Consolidated Grant to the Outlying Areas 84.938A Immediate Aid to Restart School Operations 93.563 Child Support Enforcement 93.575 CCDF Cluster 93.600 Head Start 93.667 Social Services Block Grant 93.767 Children's Health Insurance Program 93.775, 93.778 Medicaid Cluster 97.030 Community Disaster Loans 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 32 Dollar threshold used to distinguish between Type A and Type B programs: $3,000,000 Auditee qualified as low-risk auditee? Yes X No Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 33 Section II - Financial Statement Findings Finding 2019-001: Financial Position The Government is in a difficult financial position based primarily on operating losses, outstanding debt, bond downgrades, the 2017 hurricanes, pension obligation, and other postemployment obligation issues. In addition, subsequent to September 30, 2019, the Government’s operations were impacted by the global coronavirus pandemic. In addition, management has been working to stabilize and solidify its financial position through the implementation of an aggressive multi-pronged plan which includes facets such as legislative acts addressing revenue initiatives and cost-cutting measures and proposed rate increases for employees’ contributions towards pension plans. The Government is also a recipient of significant federal assistance in connection with the 2017 hurricanes. It is further noted that as of September 30, 2019, all payments on bonds and notes obligations have been remitted as required. Deficits in Unrestricted Net Position Finding and Recommendation: For the past few years, the unrestricted net position class has incurred significant losses in its operations. This financial position has caused the financial statements to include a disclosure in the audit opinion. This situation must improve if the Government is to fund the high levels of debt, pension and other postemployment benefits obligations, and access future bond markets. Future plans and budgets should be developed to produce operating income, avoid continuing deficits, and begin to rebuild equity. Continuation of these negative financial results could have a significant impact on the financial position and cash flows of the Government. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Plan Funding Considerations Finding and Recommendation: The Government of the Virgin Islands Employees’ Retirement System (GERS or the Retirement System) is a defined benefit pension plan established by the Government to provide retirement, death, and disability benefits for its employees. The Government also provides other postemployment benefits (OPEB) for healthcare, prescriptions, dental, and life insurance coverage. We noted that the Government has not adequately funded the Retirement System and the OPEB plan for several years. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 34  As per the most recent GERS actuarial valuation report as of October 1, 2018, the Retirement System is 20.76% funded for the year ended September 30, 2019. The same report also disclosed a net pension liability of $3.2 billion which represents a long-term obligation the Government has to fund.  As per the most recent OPEB actuarial valuation report as of October 1, 2018, the OPEB plan reflects a total OPEB obligation of $774.5 million which represents the long-term medical, dental, and other obligation that the Government has to fund. Management may consider embarking on an advisory path to study other alternatives to ensure that these long-term obligations are being addressed. Additionally, the Government should consider establishing an OPEB Trust Fund which would accumulate assets in order to meet the required obligations. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government Insurance Fund Finding and Recommendation: We noted a financial strain (from claims) due to a mismatch from the Government’s employers’ premium contributions into the Government Insurance Fund. For the year ended September 30, 2019, the ratio of expenditures to income was 375%. It appears that losses since the financial crisis of 2008 have easily exceeded the premiums collected sans the impact of operational costs to run the Workers Compensation portion of the Fund. In order to maintain continued solvency, we recommend that management consider an evaluation of the claims adjudication and related processes (as an attempt to lower the costs) in lieu of making any increases to the likely mandated employer contribution formulas. Management may also consider embarking on an advisory path to consider some alternatives that could minimize the severity of any losses. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 35 Finding 2019-002: Year-End Close Process Accounting tasks, such as periodic reconciliations, play a key role in proving the accuracy of accounting data and information included in various interim financial statements and/or reports. Timeliness and Methodology of Close Process Finding and Recommendation:  We noted a significant delay in the year-end closing process and preparation of year-end financial statements. We noted that in many cases, reconciliations were finalized during the audit process, which represents a substantial delay when compared to the Government’s fiscal year-end. Therefore, detailed schedules supporting general ledger accounts did not always agree with the respective general ledger balances. Significant post-closing adjustments were provided during the audit process. Reconciliation mechanisms should be enhanced in an effort to avoid the recurrence of such errors.  We noted that post-closing adjustments are not posted in the accounting system but are maintained in a manual excel working trial balance. Considering the volume of post-closing adjustments and the manual process of reversing year-end accruals and/or other adjustments, there is continuous opportunity where items can be missed and may not be accurately and timely captured, and therefore, increasing the potential for prior period adjustments to correct balances.  During our review of the Government’s draft financial statements, we noted inconsistencies and/or omissions with the incorporation of disclosures in the footnotes to the financial statements along with inconsistencies in the incorporation of component units’ financial statements as it related to classification and reporting of account balances. In addition, we also noted certain transactions with various component units which have not been reflected accurately on the Government’s books and records. In order to prevent significant errors in the financial records and financial statements as well as prevent possible irregularities, including fraud, to exist and continue without notice, we recommend that all accounts, accruals, and reconciliations be reviewed on a periodic basis. The composition of any unreconciled differences should be determined and followed up on, and any journal entries, deemed necessary as a result, should be recorded during the fiscal year. Further strict adherence to the year-end closing schedule should be required because this will allow for the year-end work and audit preparation to be a much less time-consuming and arduous process, without sacrificing the quality of the accounting records or minimizing existing internal controls. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 36 Journal Entries Finding and Recommendation: We noted that several individuals have access rights to create, approve, and post journal entries. We understand that this represents an internal management decision with respect to access which is deemed necessary for day-to-day operations. However, in order to maintain a desirable separation of duties, we recommend that the Government continue to re-evaluate the appropriateness of this access. We also noted that adequate supporting documentation was not always readily available in the Enterprise Resource Planning (ERP) system for certain manual journal entries which had been selected for further review. Although these instances were subsequently rectified, management should ensure consistent and strict adherence to its records retention policy. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Due from Other Governments Finding and Recommendation: The Government entered into two professional services contracts through its blended component unit, the Virgin Islands Public Finance Authority (PFA), in order to coordinate recovery efforts for the Territory with the Federal Emergency Management Agency (FEMA) and various other federal agencies following two Category 5 hurricanes which occurred in September 2017. Certain services were performed on a Territory-wide basis as the professional services firm(s) sought to assess damages, set up various project worksheets, and enable the Territory to obtain and access additional recovery funding. During our procedures, we noted the following:  The Government did not have a control process in place over proper allocation of expenses incurred on behalf of the Government and the various component units.  The Government did not have a control process in place for timely reporting of expenses incurred by the various component units.  The Government did not perform timely reconciliation and communication with each component unit’s authorizing management for approval of the respective transactions. We recommend that management implement a control process for proper allocation of expenses to ensure that the due from other governments and federal expenditures are properly accounted for by the Government and its component units. Consideration must also be given to compliance with laws and regulations that are a component of any grant or contract accepted. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 37 Finding 2019-003: Revenue and Receivables The Government’s Bureau of Internal Revenue (the Bureau) is responsible for administering the internal revenue tax laws of the Virgin Islands. As such, the Bureau manages the processes over the following types of taxes: income, gross receipts, excise, highway user’s, hotel room, entertainment, and fuel taxes. Additionally, through the Government’s Division of Real Property Tax, all commercial and residential property subject to taxation in the Virgin Islands is assessed, property tax bills are prepared and mailed, and the collection of property taxes is carried out. Reconciliation of Subsidiary Registers Finding and Recommendation: The Government maintains various subsidiary registers as derived from its tax recordation systems, primarily VITAX and CAVU. However, the Government does not reconcile its subsidiary registers to its tax receivable general ledger account balances. A strong control system over receivables includes an accurate accounting system that maintains agreement between the subsidiary ledger and the general ledger. To prevent the need for major adjustments to the impacted tax receivable and revenue accounts at the end of each year, we suggest that the general ledger accounts be reconciled to the detailed records on a quarterly basis. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Optimum Usage of the Real Property Tax System Finding and Recommendation: It appears that the CAVU system, as currently designed, is not adequately meeting the financial and reporting needs of the Government. There exists a limitation to produce aged outstanding receivable, revenue and collection reports, as well as a lack of ability to generate a cut-off balance as of any given point in time. Additionally, the adjustments made in the billings as a result of the implementation of the new real property tax bill were not properly reflected in the revenue reports generated from the CAVU system. As a result, knowledge of the composition and quality of the Government’s revenue billings is significantly impaired and this has a direct effect on the accuracy of financial reporting and financial decision-making. Management may consider contacting the vendor of the CAVU system to request the development of and/or the capability of producing accurate aged receivable and revenue reports as well as a functionality or reporting tool to produce cut-off balances at any given point in time. This would assist the Government in establishing a system that produces timely and accurate financial information. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 38 Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Tax Return Processing Method Finding and Recommendation: The Government is utilizing a manual process in that returns received by the Bureau are batched by type of return and by tax year and manually entered into the tax recordation system, VITAX. The manual data entry is being reviewed on a random/sample basis and the Bureau is relying on the system’s automated edit check to capture any errors. While the system’s automated edit check identifies many errors, it does not guarantee the complete accuracy of the entered information. This poses a continued risk of data omissions, typographical errors, entry of information to incorrect fields, as well, as fraudulent data entry. The flow of transactions into a computer system is a critical aspect of the design and maintenance of a strong system of controls. We recommend the Bureau consider an evaluation of its current review procedures around the tax return processing method in an effort to minimize associated risks. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Real Property Tax Finding and Recommendation:  We noted one (1) new tax credit issued with insufficient supporting documentation. Management should recognize that the potential exists for additional discrepancies and should continue to review and evaluate its databases ensuring sufficient documentation is readily available.  We noted several tax billings issued to non-taxable properties as owned by the Government and its component units. Management should perform a review and identification of the Government’s and component unit’s properties in the tax roll listing to ensure proper tax credits are applied. Management should also recognize that the potential exists for additional discrepancies.  With respect to delinquent accounts, we noted that the property owners enter into settlement agreements with the Government which includes a fixed amount of penalties and interest. It is noted, however, that the CAVU system, continues to calculate such interest and penalties even after the actual settlement date. This has the effect of potentially inflating the calculated interest in the stand-alone CAVU system. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 39 Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Allowance for Doubtful Accounts Finding and Recommendation: Adjustments to the real property tax receivable allowance for doubtful accounts are calculated by the use of a formula. Management’s computation of the allowance places a high degree of reliance on prior years collection rate and can be greatly influenced by specific large write-offs that may occur from time to time. As a result, the allowances were understated for fiscal year 2019 and an adjustment was required during the audit process. We believe that consideration should be given in ensuring the accuracy of the underlying data used to include some accounts receivable performance measures and subsequent collections in the Government’s model for establishing the allowances required. Poor practices in this area have a direct negative impact on the Government because this affects cash flow. An updated analysis will provide management with accurate doubtful-account allowances that matches bad-debt expense with real property tax revenues. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Other Revenues Finding and Recommendation: The Government was unable to provide readily available supporting documentation for 5% of the sampled items for charges for services and 10% of the sampled items for interest and other revenues. As a result, additional time and effort was required during the audit process to locate and/or identify alternative methodologies. It is important to produce certain detailed reports and records at specific time periods, and to maintain these for possible analysis by users such as management, independent auditors, or governmental bodies. Management should consider strict adherence to or a revision of its records retention policy. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 40 Finding 2019-004: Grants Management The Government receives grant and contract funds from various funding agencies. These situations necessitate a strong accounting system to record specific grant and contract activities. Consideration must also be given to compliance with laws and regulations that are a component of any grant or contract accepted. Control Systems Over the Schedule of Expenditures of Federal Awards Finding and Recommendation: The flow of accounting transactions into the ERP system is a critical aspect of the design and maintenance of a strong system of controls over the Schedule of Expenditures of Federal Awards (SEFA). As a consequence of following certain practices, expenditures are being charged to incorrect projects, codes, and Catalog of Federal Domestic Assistance (CFDA) numbers and, it becomes critical that SEFA expenditures between the Government’s ERP system and individual agency or departmental records, where the respective Federal programs are managed and administered, are reconciled on a more consistent basis. The reconciliations should also facilitate the reporting requirements of each contract and grant. We noted the following:  Expenses had been charged to grants without sufficient grant award funding availability.  Significant transactions paid to or transferred to various departments of the Government were erroneously reported as subrecipient transactions.  Approximately $4.7 million in expenditures had erroneously been reflected as expenditures in CFDA Number 17.225, Unemployment Insurance.  Approximately $6.8 million of expenditures had erroneously been reflected in eleven (11) different federal programs and needed to be reclassified to CFDA Number 93.667, Social Services Block Grant.  Approximately $8.9 million of expenditures incurred in fiscal year 2019 related to CFDA Number 97.036, Disaster Grants – Public Assistance (Presidentially Declared Disasters), had erroneously been reflected in fiscal years 2020 and 2021. These issues also impact the roll-forward schedule for the general ledger account entitled ‘Due from Federal government.’ Communication and reconciliation mechanisms should continue to be enhanced between the centralized Government agency which is responsible for collecting the SEFA information and each individual agency which manages Federal grant programs in an effort to avoid the recurrence of such errors and misclassifications. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 41 Federal Grants and Contributions Finding and Recommendation: Based on our review of the schedule of grants and contracts, we noted the Government is not monitoring its outstanding Federal receivables on a periodic basis. We noted an improvement in record-keeping where the Government implemented a process of establishing a discrete and separate receivable balance on a per grant/project basis. However, the following key component was lacking:  A readily verifiable identification with respect to the aging and collection of prior year receivables along with its impact, if any, on the adequacy of the allowance for uncollectable accounts. Specifically, there is no documentation matching each cash receipt to the expenses and noting which period it was incurred in. This leads to difficulty in establishing individual balances of both receivables and deferrals from grants and contracts, may mask items that have been inactive for many years, and can cause confusion regarding the true level of activity. Additional time and effort was required during the audit process to rectify and reconcile the balances. We recommend that receivables should be tracked by the individual Government agency(ies) by performing the following:  Maintenance of a drawdown schedule noting the expenses making up each drawdown for each Federal program and the period in which the expenses were incurred.  A copy of each drawdown noting proper approvals should be attached in the ERP system along with the corresponding bank statement showing the receipt of funds from the Federal government.  A listing of expenses supporting the amount drawn down should be included in the ERP system. This detail should include the invoice date and/or payroll period and check date. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 42 Finding 2019-005: Capital Assets and Related Expenditures Capital assets constitute an investment of substantial amounts, thereby, requiring an excellent system of controls for the maintenance and safeguarding of these assets. While we noted the Government has taken certain preliminary steps, we recommend continued diligence with respect to the monitoring and review of capital assets and in ensuring the reconciliation of supporting registers to the primary register. Record Keeping Finding and Recommendation: The process of maintaining capital asset records (i.e. recording additions, disposals, and transfers) is a manually intensive process conducted when performing the annual financial statement close. As such, supervisory review and other checks and balances may not be timely and/or effective in all instances. We recommend that the Government evaluate the year end cut-off procedures and policies in order to monitor purchases for capitalizable assets and in order to accurately account for all open and unpaid invoices and payments subsequent to year end. During our sampled procedures over capital asset additions, we noted the following:  Twenty-eight (28) additions in fiscal year 2019 had not been reflected in the initial additions listing. Moreover, subsequent reviews of accounts payable confirmations yielded changes to the cost of twenty-one (21) capital asset additions.  Ten (10) invoices related to assets capitalized in fiscal year 2019 were incurred in fiscal year 2018. Although these items were adjusted and rectified during the audit process, we recommend an enhancement to the process by instituting a system of tagging capitalizable assets in the ERP system from the time of requisition to the time when the assets are received and paid for. Requisitions should be agreed to approved capital expenditure budgets. This also entails that requesting agencies and departments are given appropriate guidance as to the capitalization thresholds to ensure transactions are properly tagged in the ERP system. In turn, this would allow additions to be easily generated by the capital assets team via the ERP system, instead of manually scrubbing the disbursements listing at year- end. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 43 Reconciliation and Review of Subsidiary Registers Finding and Recommendation: The Government maintains a subsidiary asset register for the purpose of calculating depreciation for all assets. Based on our review of the subsidiary asset registers, we noted the following:  Subsidiary registers for land contained a significant number of properties that are grouped into only few asset numbers instead of being recorded as individual properties.  Certain machinery and equipment included in the beginning balances that had been purchased in bulk in the past was grouped together into one asset code and others did not contain tagging information to physically identify the items.  Certain depreciable assets recorded during the fiscal year in the asset registers had inaccurate depreciation start dates. To prevent the need for major adjustments at the end of each year, we recommend that the general ledger accounts be reconciled to the detailed records on a quarterly basis. This examination should be comprised of a review of acquisition dates, deprecation calculations, and asset descriptions. Additionally, unique asset numbers and sufficient tagging information should always be assigned to separately identifiable assets. Moreover, routine physical counts should be performed and reconciled with the asset registers. Additionally, asset transfers to/from the Government should be monitored on a timely basis and a thorough review of the asset custodians should be regularly performed to ensure that all central Government assets are properly accounted for and formal transfer of the title(s) has occurred, as applicable. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Construction in Progress (CIP) Monitoring Finding and Recommendation: The Government has a significant number of on-going construction projects. The necessary analysis to identify the status of projects was only completed and/or necessary adjustments were made during the audit process. Confirmation procedures should be performed in a timely manner in order to have accurate CIP information.  During our sampled procedures over the construction in progress activity, we noted the following: o Four (4) projects confirmed with project managers had inconsistent project close out dates or total project cost amounts in the CIP records. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 44 o One (1) project had been closed out and transferred to the completed asset category but was confirmed to be not yet completed. Similarly, another one (1) project had been confirmed to be completed but had not been closed out and transferred to the completed asset category. o One (1) project had recorded costs which exceeded the total balance confirmed by the project managers. This was due to duplicate invoices being recorded which then had to be reversed.  The Government adopted the method of using the ‘release of claims’ date as the date the project was placed in service. However, we noted an inconsistent application of this methodology. o In some instances, the ‘release of claims’ date did not correspond with the actual date the project was completed and placed in service as confirmed with the project managers. o In other instances, we noted that the ‘release of claims’ date was not known, and the date of the last invoice received on the project was utilized as an indicator of when the project was completed and as the depreciation start dates.  For several building and improvement projects which were completed by the Department of Education and in use as of September 30, 2019, total construction costs amounting to $126.0 million had not been reflected in the books and records. These unrecorded amounts resulted in additional cost recognition relative to two-hundred and forty-seven (247) assets in the capital asset records. With the increase in activity in the number of CIP projects due to the hurricane restoration activity, it is imperative to maintain a good system of recording project costs accurately and timely, and monitoring project status on a consistent basis with the respective project owners. It is critical that the Government reconciles these costs with the reports and records of the respective project managers, related invoices, and related contracts and amendments, ensuring agreement to contract costs and capital expenditure budgets, and applying a consistent method of determining project completion and transfer to the related depreciable asset class. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Capital Assets Impairment Process Finding and Recommendation: Governments are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. Such events or changes in circumstances that may be indicative of impairment include amongst others, evidence of physical damage. We noted the following regarding the Government’s capital assets impairment process: Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 45  While an annual impairment assessment was performed by the Department of Property and Procurement (DPP), the process to ensure completeness of the impairment assessments across the asset classes was not readily addressed. Moreover, conclusions reached by DPP should be processed and accounted for by the Department of Finance and adjustments recorded in the asset registers, as necessary.  We noted that certain vehicles were auctioned and disposed during the year. However, most of these assets were not readily traceable to the asset registers due to incomplete tagging information. This may result in improper accounting of the transaction(s) with respect to the gain/loss on the sale and the derecognition of the assets from the books.  We noted that some damage assessments for the departments and agencies were informally done, or were not performed at all, until the accounting team requested them. Further, each division or department seemed to have its own separate process or methodology. We recommend that the Government implement a standard, formal process whereby, annual impairment assessments are conducted, independent of the external audit. Further, the results of periodic physical counts should be readily available for analysis by external parties and should be compared to the detailed capital asset subsidiary ledger and communicated to the Department of Finance so that necessary adjustments can be recorded. This will help improve the tracking of assets for disposal and impairment purposes. It should also be noted that as a recipient of Federal grant funds, the Government is required to have in place an inventory management system to track items purchased with Federal funds. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Capital Assets - Business-Type Activities Finding and Recommendation: The Government is currently utilizing an excel worksheet to monitor capital assets within its business- type activities. The Government began the process of uploading additions into the ERP asset registers in fiscal year 2017. However, the asset register for the beginning balances has yet to be uploaded. We recommend the completion of the automation process for these assets and implementation of subsequent review and reconciliation procedures in order to ensure that accurate and timely information is available. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 46 Finding 2019-006: Recording of Liabilities A fundamental element of a sound system of internal controls is an effective liability calculation process. Such a process helps ensure that all liability transactions are properly recorded, appropriately supported, and subjected to supervisory review. Poor practice in this area allows for situations to occur in which accounts payable and other liabilities accrue without regard to the ability to repay the debt until they reach near crisis proportions. This kind of situation is most detrimental because it directly affects cash flow. In recent times, the Government’s financial statements have grown in complexity. The Government should consider performing a liabilities close process on a quarterly schedule in order to detect and correct on a timely basis, while at the same time, enhancing the Government’s knowledge over its financial condition. Retroactive Pay Liability Finding and Recommendation: The Government’s lack of control over its retroactive pay liability has affected the auditor’s ability to opine on certain affected opinion units.  We noted that currently there is a $195.0 million retroactive pay liability reflected on the books and records; however, the supporting schedules can only confirm $184.0 million which, in turn, is based on an analysis of collective bargaining agreements (CBAs) from the initial retroactive pay wage Commission findings.  Approximately 70% of the Government’s employees are paid varying rates, based on different CBAs. We noted that there are several CBAs that have not been evaluated, implemented, ratified, and accrued for. We recommend that management set up a master file that summarizes the pay rate from each CBA and related factors that influence the rate. Management should then periodically review the master file and compare pay rates to the authorized rates contained in personnel files to determine that the current and effective rates in usage are appropriate. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 47 Medical Malpractice Liability Finding and Recommendation: It is noted that Reciprocal Insurance Fund includes disbursements pertaining to payments of medical malpractice claims. However, we further noted that the Government has not completed the necessary analysis in order to determine the quantifiable recordation of a corresponding and estimated liability for medical malpractice claims, in accordance with generally accepted accounting principles. Due to a lack of controls around the Government’s claims data process, it has been unable to gather and generate the proper information which is needed for an actuary to compile an estimated liability at year-end. As such, the Government’s records do not permit, nor is it practical to extend audit procedures sufficiently to determine the extent by which the Business-Type Activities and the Aggregate Remaining Fund Information may have been impacted, as of and for the year ended September 30, 2019, thereby effecting the auditor’s ability to opine on said opinion units. We recommend that the Government consider allocating adequate resources to properly evaluate the necessary information which can then be provided to an actuarial service provider as it facilitates the Government in calculating the year-end liability. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Accounts Payable Finding and Recommendation: At present, the Government’s general ledger control account for accounts payable does not agree with the subsidiary ledger balances during the entire fiscal year. This is due to the fact that management establishes its accounts payable subsidiary ledger through a manually intensive process, which is based solely on subsequent events when performing the yearly financial statement close process. This practice, in turn, is based on a system functionality wherein, the accounting system does not allow for recording or accrual of invoices when the obligation is incurred, but rather when the corresponding allotment has been approved by the Office of Management and Budget (OMB). This routine also impacts the accuracy in recordation of capital assets in that any accruals for goods and services received is not properly and timely recorded in the capital asset register, resulting in capital assets being reflected in the incorrect periods. In addition, during our review and inquiry of subsequent disbursements, we noted that the accounts payable did not include accrual of invoices for services performed as of year-end. Finally, accounts payable confirmation procedures revealed over $132.0 million of invoices related to capital asset additions and disaster recovery efforts which had not been accrued properly. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 48 Overall, this generates significant adjustments during the yearly financial statement close process and a manual scrub exercise with respect to capital expenditures. Moreover, supervisory review of the accounts payable reconciliation process and estimation of accrued liabilities may not be timely and/or effective in all instances. Management may consider utilizing its ERP Accounts Payable module more regularly in order to reduce the existing manual efforts through which accounts payable are currently established. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Income Tax Refunds Payable Finding and Recommendation: We noted that the Government establishes its year-end liability for income tax refunds through a manually intensive process, which is based on consolidating two sets of reports that includes the following information (1) tax returns from various refund batches which exist, but have not been processed or paid as of year-end and (2) tax returns that were processed and paid subsequent to year-end. Based on our review of the schedules, we noted that there were several tax returns that were included in both reports. During the audit process, the Government revisited its database and a significant adjustment was required in order to establish the income tax refunds payable at year-end. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Landfill Closure and Post Closure Costs Liability Finding and Recommendation: The Government obtains various reports with respect to its closure and post closure cost estimates for the three landfills in the U.S. Virgin Islands. The post-closure cost estimates for fiscal year 2019 for all three landfills were updated by applying an inflation rate. While updating the landfill closure and post-closure cost estimates using an inflation factor is an acceptable procedure, going forward, we recommend the Government comprehensively review all reports and calculations to ensure that assumptions included are accurate. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 49 Quality of Census Data Finding and Recommendation: Maintaining current and accurate records and statistics is an important control for participant data, not to mention other compliance with employment laws and regulations. We noted that the Government’s census data, submitted to various actuarial service providers, currently requires significant adjustments and assumptions before it can be utilized to complete the necessary calculations. This introduces a greater level of uncertainty than might ordinarily apply to such calculations. Internal controls should ensure the accuracy of all active employee and retiree census data before submission for future valuations, calculations, or analysis. We recommend adequate resources be allocated to properly evaluate all census information provided to the various actuarial service providers as they facilitate the Government in calculating the related liabilities. The employee data in the census information should be accurate or it could have a material effect on the Government’s financial statements and the auditor’s ability to opine on said financial statements. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 50 Finding 2019-007: Management of the Medicaid Program Each State or Territory establishes systems for administering and providing Medicaid benefits. The Medicaid program is jointly funded by the Federal and the respective local government. The Virgin Islands Department of Human Services (the Department) is the primary agency responsible for administering the Government’s Medicaid program. Cost Report Audits and System Security Review Finding and Recommendation:  Two Government owned and operated hospitals, the Governor Juan F. Luis Hospital & Medical Center and the Roy Lester Schneider Hospital, provide Medicaid services to eligible Territory residents. Both hospitals function on a non-DRG platform, meaning that they charge through daily per diem rates based upon the number of patients serviced. The costs incurred by the hospitals, long-term care facilities and/or Federally Qualified Health Centers (FQHC) participating in the Medicaid program are to be summarized in a cost report which, in turn, is to be submitted to the Department. The cost reports are then required to be audited per the Government’s Medicaid State Plan. Based on audits of the cost reports, a receivable or a payable should be recorded for the difference between costs submitted for reimbursement and the costs actually reimbursed. We noted that the Department has not audited cost reports recently. We recommend that management evaluate and develop policies and procedures to obtain and audit the cost reports. This will allow the Government to reduce the time between Medicaid expenditures being incurred and the ultimate reimbursement from the Federal government.  The Department did not perform a risk analysis and system security review for the Virgin Islands Benefit Eligibility System (VIBES) when it was implemented in July 2017. As a result, there is no assurance that the system is working as intended. This exposes the program to possible unauthorized activity and payment to ineligible participants. The Government’s records do not permit a determination as to the sufficiency of the design and operation of key controls surrounding the environment in which the Government’s Medicaid claims reside. As such, we are unable to determine how the Governmental Activities and the General Fund information may have been impacted, as of and for the year ended September 30, 2019, thereby effecting the auditor’s ability to opine on said opinion units. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 51 Utilization Control and Medicaid Fraud Control Unit Finding and Recommendation: A State or Territory Medicaid plan must provide methods and procedures to safeguard against unnecessary utilization of care and services, including long-term care institutions. Further, States or Territories are required as part of their Medicaid State Plans to maintain a Medicaid Fraud Control Unit (MFCU), unless the United States Secretary of Health and Human Services determines that certain safeguards are met regarding fraud and abuse, and waives the requirement. We noted the V.I. Medicaid Fraud Control Unit (MFCU) was established through a Memorandum of Understanding during fiscal year 2019. However, the MFCU was not fully staffed resulting in a lack of necessary controls and procedures to safeguard against unnecessary utilization of care and services and to identify, investigate, and refer suspected fraud cases. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 52 Finding 2019-008: Unemployment Insurance Trust Fund Account Reconciliation Process Finding and Recommendation: We noted that the majority of the account reconciliations were not available during the audit process. Others contained incomplete information and/or were not in accordance with required accounting practices. As such, the Government’s records do not permit, nor is it practical to extend audit procedures sufficient to determine the extent by which the Business Type Activities and Unemployment Insurance Trust Fund may have been impacted, as of and for the year ended September 30, 2019, thereby affecting the auditor’s ability to opine on said opinion unit. Accounting tasks, such as periodic reconciliations, play a key role in proving the accuracy of accounting data and information included in various interim financial statements and/or reports. Timely preparation of complete and accurate reconciliations is also key to maintaining adequate control over both cash receipts and disbursements. In order to prevent significant errors in the financial records and financial statements as well as prevent possible irregularities, including fraud, to exist and continue without notice, we recommend that all accounts, accruals, and reconciliations be prepared and reviewed on a periodic basis. We recommend that the Government consider allocating adequate resources to properly evaluate the necessary information which can then be used to reflect the Fund’s activity at each fiscal year-end. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 53 Finding 2019-009: Workers Compensation Program The workers compensation program provides for medical costs, death benefits, and lost wages arising from work-related accidents. The program is administered by the Division of Workers’ Compensation within the Virgin Islands Department of Labor (VIDOL). Plan Valuation Methodology Finding and Recommendation: The preferred actuarial approach to determine loss and loss expense reserves is to employ a variety of reserving methods to estimate ultimate losses by accident year. Each method has advantages and disadvantages dependent on such items as the claims environment, the age of the accident year, and stability of the method. From within this range of indicated ultimate losses, a selection is made based on a review of the various methods and actuarial judgment. Also, there are delays in the payments of current and prior year claims. Since loss development factors are determined based on the assumption that a percentage of the total reported losses are paid at any given point in time, the application of the paid patterns underlying the Government’s loss triangles to the paid losses impacts the accuracy of the ultimate value. As a result and in an effort to improve the predictive value in the current year, the actuary modified the methodology to also include the accounts payables of the two major hospitals in the U.S. Virgin Islands. Based on hindsight comparisons and other calculations derived from claim counts, we were able to conclude that the actuary’s ultimate loss projections are within a range of reasonable estimates. However, actuarial estimates improve as more information becomes available at each maturity. As such, we recommend that the Government consider the following:  Initiate the development of a formal document describing the processes used in computing and reporting these liabilities in the financial statements. The Government and its actuary should consider incorporating open claims and severity models in their projections.  Provide a clear reasoning as to how the Government establishes any subjective assumptions.  Include explicit explanations for any changes made to methodologies or programs made in the current period that were not present in the prior period valuation.  Monitor the accounts payables balance(s) for the major hospitals to ensure that any relevant matters are reflected in future analyses.  For completeness, we suggest constructing a formal Risk Control Matrix and a visual flow chart relating to the valuation processes. Additionally, we noted that the actuary had concerns regarding the underlying data used in the Government’s workers compensation analysis (as detailed in the actuarial study). We recommend that the Government institute sufficient controls over the production of the input data prior to submission to an actuarial service provider. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 54 Finding 2019-010: Other Postemployment Benefits Obligation As required, the Government implemented the provisions of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. This standard required the reporting and disclosure of costs and liabilities associated with postemployment benefits provided to retirees of the Government. Administration and Recordkeeping Finding and Recommendation: The Division of Personnel, through the Virgin Islands Health Insurance Board, is responsible for administering health insurance and related benefits for retirees.  The V.I. Code states that the Government, the University of the Virgin Islands, the Virgin Islands Waste Management Authority, the Virgin Islands Port Authority, and any not-for-profit corporation which has been funded 75% or more each year from federal or local government funds, are legally responsible for providing health benefits to active and retired service personnel. It is noted that the component units and organizations referenced above have paid the aforementioned benefit costs for active employees only; the Government has accepted and assumed the responsibility for the payment of benefit costs for retirees. We recommend that the Government formalize the current practice or ensure that benefit payments for the component units and organizations referenced above include retirees.  Many of the special accounting issues for postemployment retirement plans have become increasingly complex and require extensive expertise to ensure that the accounting and reporting are accurate and in accordance with applicable standards. We recommend that the Government and/or Division of Personnel consider hiring or contracting an employee with specific accounting and plan administration knowledge, possibly even on a part-time basis, to provide the needed higher-level accounting role consistently throughout the year. We believe this change in the Division of Personnel will help clarify the transactions actually occurring, provide stronger internal controls, reduce confusion regarding the numerous transfers and transactions occurring between funds and component units along with providing articulacy when working with actuaries and insurers. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 55 Finding 2019-011: Payroll, Related Accruals, and Other Expenditures A strong and efficient system of controls over purchasing and expenditures is critically important. A strong internal control system can generally be implemented to cover potential threats of error and misappropriation with a reasonable effort. These include proper supervision, review, and separation of like-minded duties or functions. Payroll Expenditures Finding and Recommendation: As a result of the ADI Time payroll system not having been backed up before the September 2017 hurricanes, the Department of Human Services has transitioned to a manual timesheet process in lieu of system generated timesheets, for the year under review. Adequate arrangements should be made for protection of files and use of backup space. We also noted that the compensated absences schedule includes some redundant data. For instance, there are employees that should not be on the schedule that have accrued balances, negative balances, or zero balances. While deemed insignificant to the overall operations, we recommend that the Government examine the contents and eliminate such information. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Overtime Authorization Finding and Recommendation: We noted instances where there were variances between the number of hours on approved timesheets and the amount eventually paid after payroll processing. These variances ranged between three (3) and nine (9) hours based on the samples selected. Additionally, we noted multiple instances of excess payments for overtime. We recommend that the Government adhere to its established written policies and procedures related to the proper review, recording, and reporting of overtime expenditures. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 56 Formalize Emergency Payroll Procedures Finding and Recommendation: Payroll processing commences with timesheets which are approved by Department heads in the STATS system (timesheet system), which then forms the basis for payroll processing at the Payroll Division. We recommend that a formal written emergency procedures manual be developed for use by the Government in case of a major disruption to operations, such as the 2017 Hurricanes. The hurricanes resulted in a major loss of power and displacement of personnel. Employees could not attend work for days as the roads were rendered inaccessible. As a result, the recording of timesheets in the STATS system was temporarily shelved. This manual should address the processes to be performed, the key contacts or personnel, and the reconciliations that would be required in such instances. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Transactions with Personnel Finding and Recommendation: The Government has policies with respect to executive and/or other employee expense reimbursements indicating that each business expense incurred either by credit cards or advance payments must be substantiated with adequate documentation, such as statement of expense, purchase order, approved Government Travel Request (GTR), travel voucher, and receipts, which, in combination, are sufficient to establish each element of the expenditure. We noted instances where sufficient supporting documentation was not available to substantiate reimbursements. Moreover, in some instances we noted that there was no evidence of independent review or approval of expenses incurred by executives. This area can receive intense scrutiny and as a best practice, we recommend the Government consider instituting a stricter monitoring process to ensure compliance with stated policies and an independent review process for executive expenses. In addition, we recommend that the Government ensure documentation is readily available to support the purpose of and approval of employee recognition gifts purchased. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 57 Supporting Documentation and Reporting for Expenditures Finding and Recommendation:  The Government’s policies dictate that all expenditure items must have adequate support and resulting approvals, as maintained within its ERP system. During our sampled procedures, we identified thirty-one (31) items for which proper support for the expenditures was not readily available within the ERP system, yet the expenditures had been approved. While the supporting information was subsequently provided, in order to strengthen internal controls over disbursements, it is recommended that the Government adhere to its stated policies.  During our sampled procedures, we identified twenty-one (21) items in which the expenditure tested was not recorded in the proper period. It is recommended that the Government adhere to its established written policies and procedures related to the proper recording and reporting of expenditures. The timely review and reconciliation of expenditures will allow for recording expenditures in the correct period. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 58 Finding 2019-012: Bank Accounts Cash is the most liquid of assets and has the highest risk for theft, embezzlement, and misappropriation. Timely preparation of complete and accurate bank reconciliations is key to maintaining adequate control over both cash receipts and disbursements. Strengthen Controls Over Bank Reconciliations Finding and Recommendation: During fiscal year 2019, we noted some instances where the bank reconciliation variances were not properly explained or investigated. We continue to recommend that bank reconciliations be prepared and reviewed for accuracy and completeness on a timely basis. In addition, there was insufficient documentation to support the reconciliations had been reviewed. There is no capability within the accounting system to formally approve or indicate review of the bank reconciliations. We recommend that management implement a process to track when bank reconciliations are reviewed and approved. Additionally, we observed the following:  We noted a significant amount of outstanding checks, some issued as far back as 1998, which are still being carried on the reconciliations and were eventually reclassed to accounts payable at year- end. Outstanding checks and other uncleared reconciling items that are over one year old should be investigated and removed from the bank reconciliations and the original transactions should be reversed. Research should be done periodically to eliminate large numbers of old items being carried from month to month and from year to year. As an auxiliary step, consideration should also be given to the Territory’s unclaimed property laws.  In one instance, we noted a check in the outstanding check listing that had been recorded twice in the ERP system. We recommend that checks should be properly reviewed prior to the processing of check run to ensure accuracy.  In another instance, we noted a bank account that was closed in August of 2019, yet it was included in the year-end bank listing and bank reconciliations with a positive balance of over $600,000, causing an overstatement in cash balance at year-end.  We noted $21.4 million in checks that were printed in fiscal year 2019 but had not been mailed prior to year-end. These checks were properly reclassified to due to other government. It is best practice to mail checks once they have been printed to avoid confusion as to what invoices are truly outstanding. Further, checks should only be printed once there are enough funds in the account(s) to cover the requisite payment amounts. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 59 Cash Pooling and Allocation(s) Finding and Recommendation: Throughout the year, all expenditures are charged against each fund’s cash account. Due to the nature of operations, the Government’s Treasury department does not have a separate bank account for each fund and for each of the cash accounts in the general ledger. Therefore, each bank account includes activity for multiple funds. In some instances, funds "borrow" from the General Fund. At year-end, an entry is prepared to correct or "true-up" the cash balances for each fund. We recommend that management enhance the documentation provided to support the pooling and subsequent allocation of the cash accounts. More specifically, there should be a clear link between the confirmed cash account balances and the cash balance per fund presented within the year-end financial statements. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Check Sequences Finding and Recommendation: During procedures performed over the subsequent check registers, we noted several large gaps in the check sequences. We noted that the Government’s ERP system does not automatically generate check numbers. Instead, check numbers are entered and tracked manually by Government personnel. We recommend a process should be implemented where the personnel responsible for check runs, review prior and current manual check entries to detect gaps, prior to processing. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 60 Finding 2019-013: Information Technology Environment We reviewed various applications and systems which are utilized for the Government’s day-to-day processing needs. Finding and Recommendation: We noted the following during our procedures over user access:  The Oracle Programmer has root or administrative access to the Red Hat operating system, VIDOLA$ application, and Oracle database management system. In addition, some individuals were granted inappropriate administrative access to the Oracle database (including non-IT personnel).  Members of the Windows domain administration at the Bureau of Internal Revenue appear to be excessive. There are twenty-six (26) total user accounts that have this domain access.  There are no formal re-certifications of user access security rights performed for the following Windows domains and applications: Windows Domain: o Department of Finance o Department of Human Services o Bureau of Internal Revenue o Lieutenant Governor’s Office o Department of Labor Applications: o Timeforce o RawData o MUNIS o CAVU o VIDOLA$ o CAMA o VITAX o Property Information System o ScanOptics o MMIS o CARIBS o VIBES We noted the following with respect to segregation of duty conflicts:  Administrative access rights to the Windows domain at the Bureau of Internal Revenue is provided to non-IT personnel and one (1) Bureau of Internal Revenue personnel had multiple administrative accounts to AS400 operating system and VITAX. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 61 We noted the following with respect to operating system security:  The password and account lockout configurations have not been implemented to enforce strong passwords on the following operating systems and applications: Operating Systems: o Department of Finance o Department of Labor (including Red Hat) o Bureau of Internal Revenue o Lieutenant Governor’s Office o Department of Human Services Applications: o Timeforce o MMIS o VIBES o VIDOLA$ Inappropriate system modifications to applications can cause incorrect calculations and compromise functionality. The Government may consider evaluating its documentation process to mitigate the risk of any potential change being implemented without the appropriate approval(s). Further, inappropriate or excessive access may result in unauthorized data changes or transactions. The Government may consider evaluating its user access and administration (user addition, modification, and removal) controls in order to ensure that appropriate access is granted. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 62 Finding 2019-014: Collateral of Depository Finding and Recommendation: Collateralization provides an avenue of recovery in the unlikely event of the failure of a bank or financial institution holding government deposits. Collateralization of public deposits through the pledging of appropriate securities or other instruments (i.e. surety bonds or letters of credit) by depositories is an important safeguard for government deposits. Further, in the event of a failure of a bank, the Federal Deposit Insurance Corporation (FDIC) will honor the collateralization agreement if the agreement is valid and enforceable under applicable law. Virgin Islands Code Section 3304 - Collateral of depository requires depositories to pledge collateral that is satisfactory to the Commissioner of Finance, to secure governmental deposits held with that institution. It is recommended that margin levels should be at least 102%, depending on the liquidity and volatility of the collateral pledged. During our review of the Government’s collateral of depository reports, we noted that not all cash accounts of the Government and its component units are included in the report to be collateralized. Under collateralization of all cash accounts with depositories could cause a violation of the Code and potential loss of Government assets if a financial institution were to fail. We recommend that the Government implement policies and procedures to ensure all cash accounts for the Government and its component units are in compliance with the stated requirements. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 63 Finding 2019-015: Landfill Consent Decrees Finding and Recommendation: Closure and post-closure directives related to landfills are regulated by various Federal laws, including requirements by the United States Environmental Protection Agency (EPA). As such, the Government is required to construct and operate certain environmental control systems and otherwise comply with certain requirements during operation of each of its landfill sites, properly close the site (including placement of a final landfill cover) when the landfill (or portion thereof) stops accepting waste, and perform certain post-closure maintenance and monitoring functions at the site for 30 years following closure. During our procedures, we noted that there are a number of noncompliance matters with respect to EPA decrees concerning the Anguilla and Bovoni landfills. These matters are comprised of various health and safety risks, lack of submission of various required reports, and a non-completion of the groundwater monitoring system for the Anguilla landfill perimeter. We also noted that penalties associated with these noncompliance matters will continue to accrue at certain specified rates. We recommend that the Government consider budgeting funds to pay penalties already accrued. In addition, the Government should take the measures necessary to address immediate noncompliance with the consent decree time tables to avoid future penalties. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 64 Finding 2019-016: Establishment of a Medical Malpractice Trust Fund Finding and Recommendation: In lieu of the procurement of a group insurance policy as set forth in subsection (a) of Virgin Islands Code Section 27, the Commissioner of Health is authorized to self-insure health care providers against claims arising out of the rendering of, or failure to render, medical care or services, or against claims for injury or death to patients arising out of the activities of health care providers, upon compliance with the following condition (amongst others):  Establishment of a Medical Malpractice Risk Management Trust Fund to provide coverage against professional medical malpractice liability, which Fund shall be managed by a licensed broker or brokerage firm. The investment plan of such firm shall be subject to the approval of the Medical Malpractice Action Review Committee; a maximum of 1% of the proceeds of such Fund may be used by the Territorial Office of Risk Management as defined within the Code, for administrative purposes. Interest accruing on such Fund shall be retained or redeposited into such Fund. We noted that the Government has not set up a separate trust fund. We recommend that the Government continue to monitor the applicable requirements related to professional medical malpractice, to ensure the Government remains in compliance. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 65 Finding 2019-017: Procurement Regulations Finding and Recommendation: Procurement is governed by Title 31, Chapter 23, Sections 231 – 251, of the Virgin Islands Code which states the various types and requirements for procuring goods and services. The Department of Property and Procurement is the agency primarily responsible for all acquisitions of goods and services. Procurement regulations and procedures state that contract files must be maintained documenting the history of the procurement, including requisitions, purchase orders, and solicitations. Per the Procurement Manual, all requisitions must be created following the regulatory guidelines of the Department of Property and Procurement, then in effect. When creating a requisition or purchase order, all necessary supporting documentation must be attached in the ERP system; this includes the required quotes and a justification letter signed by the User Agency head and approved by the Commissioner of Property and Procurement, if required. We noted the following during our procedures:  We noted four (4) instances where the contract files did not contain the requisite documentation to provide evidence that the procurement met the stated requirements.  We noted eight (8) purchase orders from two (2) different vendors that appeared to be split purchases orders or used the same vendor quotes or invoices.  We noted that two (2) out of thirty-one (31) existing vendors selected did not have profiles created in the ERP System. Although these vendors have valid, signed supply contracts, their vendor IDs could not be retrieved from the ERP system.  We noted one (1) new vendor creation in the ERP system with a lack of sufficient supporting documentation. We recommend that the Government retain all necessary supporting documentation for purchase orders, contracts, and vendor profiles to ensure that internal policies and regulations are being adhered to. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 66 Finding 2019-018: Casino Control Commission Finding and Recommendation: Title 32, Chapter 21, Section 514 of the Virgin Islands Code states that the Chairman of the Casino Control Commission “shall submit to the Department of Finance by the 30th day of the month following the end of each quarter a report detailing the amount, nature, and the justification for each item of expenditure in the previous quarter. The report shall be accompanied by receipts and any other documentation required by the Department of Finance’s rules and regulations or other laws of the Virgin Islands. An annual financial report of the fiscal year’s expenditures from the special checking account shall be compiled by the Chairman of the Commission and submitted to the Legislature and the Department of Finance by the 30th of the month following the end of the fiscal year.” We noted that the Casino Commission is not submitting the requisite reports to the Department of Finance. It is recommended that the Department of Finance maintain proper oversight over the Casino Control Commission and obtain and review the required reports. The reviews should encompass supporting documentation for all financial transactions and a review of compliance with Virgin Islands policies and procedures. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 67 Section III – Federal Award Findings and Questioned Costs Finding Number: 2019-019 Prior Year Finding Number: 2018-019 Compliance Requirement: Allowable Costs/Cost Principles – Payroll Activities Program: Government Department/Agency: U.S. Department of Agriculture Supplemental Nutrition Assistance Program Cluster CFDA #: 10.551,10.561 Award #: 1VI400409, 1VI400408 Award Year: 10/01/2017 – 09/30/2018 10/01/2018 – 09/30/2019 Department of Human Services (DHS) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must:  Be incorporated into the organization’s official records;  Reasonably reflect the total activity for which the employee is compensated across all grant- related and non-grant related activities (100% effort); and  Support the distribution of employee salary across multiple activities or cost objectives. Condition – We sampled and selected 60 out of 1,846 payroll transactions and noted the following:  2 employee timesheets were not available for review.  2 employees had their salaries charged to a grant project that was not authorized per the Notice of Personnel Action (NOPA) form. Questioned Costs – Below reporting threshold. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Total amount of payroll expenditures charged to the program in fiscal year 2019 were $2,497,687. The salaries charged to a grant project that was not authorized per the NOPA form amounted to $3,826. Effect - DHS is not in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Cause – DHS does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and maintenance of underlying documentation. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 68 Recommendation – We recommend that DHS improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for payroll expenditures. Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages should be supported by personnel activity reports (time and attendance) or equivalent documents. Such information should also be monitored, retained, and approved by a responsible official of DHS in a timely manner. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 69 Finding Number: 2019-020 Prior Year Finding Number: 2018-023 Compliance Requirement: Matching, Level of Effort, Earmarking Program: Government Department/Agency: U.S. Department of Agriculture Supplemental Nutrition Assistance Program Cluster CFDA #: 10.551,10.561 Award #: 1VI400409, 1VI400408 Award Year: 10/01/2017 – 09/30/2018 10/01/2018 – 09/30/2019 Department of Human Services (DHS) Criteria – In accordance with the Uniform Guidance in 2 CFR Section 200.306, Cost Sharing or Matching, and the requirements of the grant agreements, the program is required to contribute matching funds through cash, in-kind contributions, and/or other non-cash support. Condition – We sampled and selected 60 out of 1,720 matching expenditures and noted that for 4 transactions, DHS was unable to provide supporting records. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. The 4 transactions amounted to $34,254. Effect – DHS is not in compliance with the stated provisions. Cause – DHS does not appear to have adequate policies and procedures in place to ensure complete compliance with the matching requirement. Recommendation – We recommend that DHS deploy resources that are given the responsibility to ensure periodic review, monitoring, and compliance of the match requirement throughout the fiscal year. Further, we recommend that DHS improve its internal controls to ensure adherence to its current retention policies. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 70 Finding Number: 2019-021 Prior Year Finding Number: 2018-025 Compliance Requirement: Procurement/Suspension and Debarment Program: Government Department/Agency: U.S. Department of Agriculture Supplemental Nutrition Assistance Program Cluster CFDA #: 10.551,10.561 Award #: 1VI400409, 1VI400408 Award Year: 10/01/2017 – 09/30/2018 10/01/2018 – 09/30/2019 Department of Human Services (DHS) Criteria – Recipients of Federal awards must have adequate policies and controls in place to ensure that the procedures are properly documented in the entity’s files, provide full and open competition supported by a cost or price analysis, provide a vendor debarment or suspension certification, provide for retention of files, and that supporting documentation corroborate compliance with these requirements. Condition – The Government’s Department of Property and Procurement (DPP) is primarily responsible for procurement transactions. In our review of 5 out of 17 procurement transactions, we noted all of the selected files did not contain sufficient supporting documents in order to verify the contractors’ exclusion from the Excluded Parties List System to validate the procurement decisions made. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Effect – DHS could inadvertently contract with or make sub-awards to parties that are suspended or debarred from doing business with the Federal government. Cause – DHS does not appear to have a process in place to adequately monitor and maintain completed contract files comprising of all supporting documents. Recommendation – We recommend that DHS and DPP improve internal controls to ensure adherence to Federal regulations relating to the procurement of goods and services and review current records retention policies. There should be timely coordination and communication amongst all Government departments and/or agencies that are responsible for handling and managing procurement tasks. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 71 Finding Number: 2019-022 Prior Year Finding Number: 2018-029 Compliance Requirement: Special Tests and Provisions – EBT Card Security Program: Government Department/Agency: U.S. Department of Agriculture Supplemental Nutrition Assistance Program Cluster CFDA #: 10.551,10.561 Award #: 1VI400409, 1VI400408 Award Year: 10/01/2017 – 09/30/2018 10/01/2018 – 09/30/2019 Department of Human Services (DHS) Criteria - Per 7 CFR Section 274.8(b)(3), System Security, as an addition to or component of the Security Program required of Automated Data Processing (ADP) systems, the State or Territory agency shall ensure that the certain electronic benefits transfer (EBT) security requirements are established. As such, DHS is required to maintain adequate security over, and documentation/records for EBT cards, to prevent their theft, embezzlement, loss damage, destruction, unauthorized transfer, negotiation, or use. Condition – DHS contracted with Fidelity National Information Service (FIS) for the issuance and security of the EBT cards; however, it is DHS’ ultimate responsibility to ensure the contractor has controls in place to maintain adequate security over, and documentation/records of EBT cards. We sampled and selected 8 out of 29 monthly card reconciliations and noted the following:  For 8 EBT card reconciliations, DHS did not have a process in place for reviews and approvals.  For 5 EBT card reconciliations, DHS did not maintain adequate records to account for the cards issued. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Effect – Without adequate internal controls to ensure compliance with EBT card security requirements, there is an increased risk that the inventory of EBT cards will not be properly maintained and accounted for. Cause – DHS does not have adequate policies and procedures in place to ensure adequate safeguarding and documentation of EBT cards. Recommendation - We recommend that DHS implement formal policies and procedures to maintain adequate security over, and documentation and records for EBT Cards. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 72 Finding Number: 2019-023 Prior Year Finding Number: 2018-036 Compliance Requirement: Equipment/Real Property Management Program: Government Department/Agency: U.S. Department of Agriculture Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) CFDA #: 10.557 Award #: 1VI700708 Award Year: 10/01/2017 – 09/30/2020 Department of Health (DOH) Criteria – Per the Uniform Guidance in 2 CFR Section 200.313, Equipment, property records must be maintained that include a description of the property, a serial number or other identification number, the source of property, who holds title, the acquisition date, cost of the property, percentage of Federal participation in the cost of the property, the location, use and conditions of the property, and any ultimate disposition data including the date of disposal and sale price of the property. Further, a physical inventory of equipment should be taken at least once every 2 years and reconciled to the equipment records along with the usage of an appropriate control system to safeguard and maintain equipment. Condition – The Government’s Department of Property and Procurement (DPP) maintains the equipment register for DOH. DPP was unable to provide complete property records which met the stated requirements. Further, no physical inventory of equipment was taken in fiscal year 2019. Questioned Costs – Not determinable. Context – This is a condition identified per review of DOH’s compliance with the specified requirements. Effect – There is a risk that inadequate recordkeeping of equipment could lead to misappropriation of assets and noncompliance with Federal regulations resulting in a return of Federal awards received. Cause – The Government does not appear to have a process in place to adequately monitor equipment acquired with Federal funds. Recommendation – We recommend that DPP and DOH improve internal controls to ensure adherence to Federal regulations related to equipment and its related maintenance. There should be timely coordination and communication amongst all Government departments and/or agencies that are responsible for handling and managing such assets. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 73 Finding Number: 2019-024 Prior Year Finding Number: 2018-037 Compliance Requirement: Procurement/Suspension and Debarment Program: Government Department/Agency: U.S. Department of Agriculture Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) CFDA #: 10.557 Award #: 1VI700708 Award Year: 10/01/2017 – 09/30/2020 Department of Health (DOH) Criteria – Recipients of Federal awards must have adequate policies and controls in place to ensure that the procedures are properly documented in the entity’s files, provide full and open competition supported by a cost or price analysis, provide a vendor debarment or suspension certification, provide for retention of files, and that supporting documentation corroborate compliance with these requirements. Condition – The Government’s Department of Property and Procurement (DPP) is primarily responsible for procurement transactions. In our review of 16 out of 155 procurement transactions, we noted 6 of the selected files did not have sufficient supporting documents to evidence that vendor checks had been performed before entering into an agreement. Questioned Costs – Not determinable. Context – This is a condition identified per review of DOH’s compliance with the specified requirements using a statistically valid sample. Effect – DOH could inadvertently contract with or make sub-awards to parties that are suspended or debarred from doing business with the Federal government as well as award contracts to vendors whose contract prices are unreasonable. In addition, contracts may be executed to unqualified vendors. Cause – DOH does not appear to have a process in place to adequately monitor and maintain completed contract files comprising of all supporting documents. Recommendation – We recommend that DOH and DPP improve internal controls to ensure adherence to federal regulations relating to the procurement of goods and services and review current records retention policies. There should be timely coordination and communication amongst all Government departments and/or agencies that are responsible for handling and managing procurement tasks. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 74 Finding Number: 2019-025 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Payroll Activities Program: Government Department/Agency: U.S. Department of Defense National Guard Military Operations and Maintenance (O&M) Projects CFDA #: 12.401 Award #: W9127P-15-2-1000 Award Year: 10/01/2016 - 09/30/2019 Office of the Adjutant General (OTAG) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must:  Be incorporated into the organization’s official records;  Reasonably reflect the total activity for which the employee is compensated across all grant- related and non-grant related activities (100% effort); and  Support the distribution of employee salary across multiple activities or cost objectives. Condition – We sampled and selected 60 out of 597 payroll transactions and noted the following:  7 employee timesheets were not available for review.  1 employee timesheet had not been reviewed and approved.  1 employee Notice of Personnel Action (NOPA) was not available for review. Questioned Costs – Not determinable. Context – This is a condition identified per review of OTAG’s compliance with the specified requirements using a statistically valid sample. Total amount of payroll expenditures charged to the program during fiscal year 2019 were $1,304,942. Effect – OTAG is not in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Cause – OTAG does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and maintenance of underlying documentation. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 75 Recommendation – We recommend that OTAG improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for payroll expenditures. Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages should be supported by personnel activity reports (time and attendance) or equivalent documents. Such information should also be monitored, retained, and approved by a responsible official of OTAG in a timely manner. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 76 Finding Number: 2019-026 Prior Year Finding Number: N/A Compliance Requirement: Cash Management Program: Government Department/Agency: U.S. Department of Defense National Guard Military Operations and Maintenance (O&M) Projects CFDA #: 12.401 Award #: W9127P-15-2-1000 Award Year: 10/01/2016 - 09/30/2019 Office of the Adjutant General (OTAG) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-Federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Condition – OTAG did not perform a reconciliation of the Federal cash drawdown transactions and cash receipts recorded in the ERP system. Questioned Costs – Not determinable. Context – This is a condition identified per review of OTAG’s compliance with the specified requirements and general compliance principles. Effect – OTAG is not in compliance with the stated provisions. Inaccurate information may have been reported to the Federal government in the absence of required reconciliations and reviews. Cause – It appears that policies and procedures, including review over cash management transactions, were not functioning as intended. Recommendation - We recommend that OTAG reevaluate its policies and procedures to ensure proper monitoring and continue to be vigilant in following internal procedures over reviews and authorizations. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 77 Finding Number: 2019-027 Prior Year Finding Number: N/A Compliance Requirement: Matching, Level of Effort, Earmarking Program: Government Department/Agency: U.S. Department of Defense National Guard Military Operations and Maintenance (O&M) Projects CFDA #: 12.401 Award #: W9127P-15-2-1000 Award Year: 10/01/2016 - 09/30/2019 Office of the Adjutant General (OTAG) Criteria – In accordance with the Uniform Guidance in 2 CFR Section 200.306, Cost Sharing or Matching, and the requirements of the grant agreements, the program is required to contribute matching funds through cash, in-kind contributions, and/or other non-cash support. Condition – We sampled and selected 60 out of 415 matching expenditures and noted the following:  10 transactions did not include evidence of appropriate reviews and approvals and the supporting records were not available for review.  1 transaction, while approved, did not have supporting records available for review.  2 transactions were incurred before the period of performance and did not contain written approval of the Federal awarding agency. Questioned Costs – Not determinable. Context – This is a condition identified per review of OTAG’s compliance with the specified requirements using a statistically valid sample. The known amount of the 2 transactions incurred before the period of performance and utilized for the matching requirement amounted to $4,648. Effect – OTAG is not in compliance with the stated provisions. Cause – OTAG does not appear to have adequate policies and procedures in place to ensure complete compliance with the matching requirement. Recommendation – We recommend that OTAG deploy resources that are given the responsibility to ensure periodic review, monitoring, and compliance of the match requirement throughout the fiscal year. Further, we recommend that OTAG improve its internal controls to ensure adherence to its current retention policies. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 78 Finding Number: 2019-028 Prior Year Finding Number: N/A Compliance Requirement: Period of Performance Program: Government Department/Agency: U.S. Department of Defense National Guard Military Operations and Maintenance (O&M) Projects CFDA #: 12.401 Award #: W9127P-15-2-1000 Award Year: 10/01/2016 - 09/30/2019 Office of the Adjutant General (OTAG) Criteria – A non-Federal entity may charge to the Federal award allowable costs incurred during the period of performance and any costs incurred before the Federal awarding agency or pass-through entity made the Federal award, only to the extent that they would have been allowable if incurred after the date of the Federal award and only with the written approval of the Federal awarding agency. Further, the Uniform Guidance in 2 CFR 200.344(b), states that unless the Federal awarding agency or pass-through entity authorized an extension, a non-Federal entity must liquidate all financial obligations incurred under the Federal award no later than 90 calendar days after the end date of the period of performance as specified in the terms and conditions of the Federal award. Condition – We sampled and selected 137 out of 578 expenditures and noted that 18 expenditures were incurred before the period of performance and did not contain written approval of the Federal awarding agency. Questioned Costs – Not determinable. Context – This is a condition identified per review of OTAG’s compliance with the specified requirements using a statistically valid sample. The known amount of the 18 transactions incurred outside the period of performance amounted to $323,023. Effect – OTAG is not in compliance in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Cause – OTAG did not appear to have adequate policies and procedures in place to ensure compliance with the required period of performance stipulations. Recommendation – We recommend that OTAG strengthen its processes with respect to setting up and charging expenditures between various grant awards. We also recommend that OTAG enhance its review process to properly determine the activities of each grant relative to the appropriate period of performance. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 79 Finding Number: 2019-029 Prior Year Finding Number: N/A Compliance Requirement: Reporting Program: Government Department/Agency: U.S. Department of Defense National Guard Military Operations and Maintenance (O&M) Projects CFDA #: 12.401 Award #: W9127P-15-2-1000 Award Year: 10/01/2016 - 09/30/2019 Office of the Adjutant General (OTAG) Criteria – Each State or Territory must file various financial, programmatic, and special reports. Additionally, the requirements necessitate that all submitted reports should be supported by the underlying performance records and presented in accordance with program requirements. Condition – During our review of the SF-270 reports, we selected 60 out of 253 submissions and noted the following:  2 reports provided did not have the necessary evidence of review and approval prior to submission.  58 of the selected reports were not available for review. Questioned Costs – Not determinable. Context – This is a condition identified per review of OTAG’s compliance with the specified requirements using a statistically valid sample. Effect – OTAG is not compliance with the stated provisions and inaccurate information may have been reported to the Federal government. Cause – It appears that policies and procedures, including review over reporting procedures were not functioning as intended. Recommendation – We recommend the OTAG reevaluate its policies and procedures to ensure proper retention, monitoring, and review of the required reports by an appropriate official who would ensure that information submitted is complete, accurate, consistent, and submitted within the required timeframe. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 80 Finding Number: 2019-030 Prior Year Finding Number: N/A Compliance Requirement: Cash Management Program: Government Department/Agency: U.S. Department of the Interior Economic, Social, and Political Development of the Territories CFDA #: 15.875 Award #: Various Award Year: Various Various Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-Federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Condition – The Government did not perform a reconciliation of the Federal cash drawdown transactions and cash receipts recorded in the ERP system. Questioned Costs – Not determinable. Context –This is a condition identified per review of the Government’s compliance with the specified requirements and general compliance principles. Total fiscal year 2019 drawdown requests were $2,625,253. Effect – The Government is not in compliance with the stated provisions. Inaccurate information may have been reported to the Federal government in the absence of required reconciliations and reviews. Cause – It appears that policies and procedures, including review over cash management transactions, were not functioning as intended. Recommendation - We recommend that the Government reevaluate its policies and procedures to ensure proper monitoring and continue to be vigilant in following internal procedures over reviews and authorizations. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 81 Finding Number: 2019-031 Prior Year Finding Number: N/A Compliance Requirement: Equipment/Real Property Management Program: Government Department/Agency: U.S. Department of the Interior Economic, Social, and Political Development of the Territories CFDA #: 15.875 Award #: Various Award Year: Various Various Criteria – Per the Uniform Guidance in 2 CFR Section 200.313, Equipment, property records must be maintained that include a description of the property, a serial number or other identification number, the source of property, who holds title, the acquisition date, cost of the property, percentage of Federal participation in the cost of the property, the location, use and conditions of the property, and any ultimate disposition data including the date of disposal and sale price of the property. Further, a physical inventory of equipment should be taken at least once every 2 years and reconciled to the equipment records along with the usage of an appropriate control system to safeguard and maintain equipment. Condition – The Government’s Department of Property and Procurement (DPP) maintains the equipment register. DPP was unable to provide complete property records which met the stated requirements. Further, no physical inventory of equipment was taken in fiscal year 2019. Questioned Costs – Not determinable. Context – This is a condition identified per review of the Government’s compliance with the specified requirements. Effect – There is a risk that inadequate recordkeeping of equipment could lead to misappropriation of assets and noncompliance with Federal regulations resulting in a return of Federal awards received. Cause – The Government does not appear to have a process in place to adequately monitor equipment acquired with Federal funds. Recommendation – We recommend that DPP improve internal controls to ensure adherence to Federal regulations related to equipment and its related maintenance. There should be timely coordination and communication amongst all Government departments and/or agencies that are responsible for handling and managing such assets. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 82 Finding Number: 2019-032 Prior Year Finding Number: N/A Compliance Requirement: Reporting Program: Government Department/Agency: U.S. Department of the Interior Economic, Social, and Political Development of the Territories CFDA #: 15.875 Award #: Various Award Year: Various Various Criteria – Each State or Territory must file various financial, programmatic, and special reports. Additionally, the requirements necessitate that all submitted reports should be supported by the underlying performance records and presented in accordance with program requirements. Condition – During our review of the SF-425 reports, we selected 6 out of 59 submissions and noted the following:  1 report was not available for review.  4 reports where sufficient supporting documentation was not available to validate that the respective financial information agreed with the underlying records.  1 report had not been submitted in a timely manner. Questioned Costs – Not determinable. Context – This is a condition identified per review of the Government’s compliance with the specified requirements using a statistically valid sample. Effect – The Government is not compliance with the stated provisions and inaccurate information may have been reported to the Federal government. Cause – It appears that policies and procedures, including review over reporting procedures were not functioning as intended. Further, the Government does not have adequate control over maintenance of the underlying documentation used in preparing various reports. Recommendation – We recommend the Government reevaluate its policies and procedures to ensure proper retention, monitoring, and review of the required reports by an appropriate official who would ensure that information submitted is complete, accurate, consistent, and submitted within the required timeframe. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 83 Finding Number: 2019-033 Prior Year Finding Number: 2018-038 Compliance Requirement: Activities Allowed or Unallowed Program: Government Department/Agency: U.S. Department of Labor Unemployment Insurance CFDA #: 17.225 Award #: Various Award Period: 10/01/2016 – 12/31/2021 Department of Labor (VIDOL) Criteria – In accordance with the Uniform Guidance in 2 CFR Section Part 200, a State or Territory must adopt its own written fiscal and administrative requirements for expending and accounting for all funds, which are consistent with the provisions of the Uniform Guidance and extend such policies to all sub-recipients. These fiscal and administrative requirements must be sufficiently specific to ensure that: funds are used in compliance with all applicable Federal statutory and regulatory provisions, costs are reasonable and necessary for operating these programs, and funds are not used for general expenses required to carry out other responsibilities of a State or Territory or its sub-recipients. Condition – VIDOL was unable to provide reconciled accounting information relating to the majority of the Unemployment Insurance Trust Fund accounts. As such, we were unable to conclude on the fiscal and administrative requirements with respect to expending and accounting for all funds related to the Unemployment Insurance program. Questioned Costs – Not determinable. Context – This is a condition identified per review of VIDOL’s compliance with the specified requirements. Effect – Accounting tasks, such as periodic reconciliations, play a key role in proving the accuracy of accounting data and information included in various interim financial statements and/or Federal reports. A lack of timely preparation of complete and accurate reconciliations results in the absence of adequate control over both cash receipts and disbursements. Cause – VIDOL does not appear to have adequate policies and procedures in an effort to adequately administer the expending and accounting for all funds. Recommendation – We recommend that VIDOL improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for all funds. In order to prevent significant errors in the financial records as well as prevent possible irregularities, including fraud, to exist and continue without notice, we recommend that all accounts, accruals, and reconciliations be reviewed on a periodic basis. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 84 Finding Number: 2019-034 Prior Year Finding Number: 2018-040 Compliance Requirement: Eligibility Program: Government Department/Agency: U.S. Department of Labor Unemployment Insurance CFDA #: 17.225 Award #: Various Award Period: 10/01/2016 – 12/31/2021 Department of Labor (VIDOL) Criteria – Public Law 112-96 Sec. 2101 requires that as a condition of eligibility for regular compensation, a claimant must be able to work, available to work, legally authorized to work in the United States, and actively seeking work. Further, the Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-Federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Condition – In our review of 60 out of 3,042 unemployment claimant files, we noted 1 instance where VIDOL was not able to provide evidence that the claimant met the criteria for participating in the UI program, but had received benefits during the year. Questioned Costs – Not determinable. Context – This is a condition identified per review of VIDOL’s compliance with the specified requirements using a statistically valid sample. Effect – Noncompliance with program requirements could result in disallowances of costs and claimants could be receiving benefits that they are not entitled to receive. Cause – VIDOL does not appear to have adequate policies and procedures in place to ensure a consistent and systematic review of the data in its claimant files. Recommendation - We recommend that VIDOL perform regular reviews of the data in its claimant files to ensure accuracy and completeness and confirming that only eligible claimants are receiving the entitled benefits. Additional levels of review by a supervisor or manager can provide more timely quality assurance oversight over the eligibility process. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 85 Finding Number: 2019-035 Prior Year Finding Number: 2018-041 Compliance Requirement: Matching, Level of Effort, Earmarking Program: Government Department/Agency: U.S. Department of Labor Unemployment Insurance CFDA #: 17.225 Award #: Various Award Period: 10/01/2016 – 12/31/2021 Department of Labor (VIDOL) Criteria – In accordance with the Uniform Guidance in 2 CFR Section 200.306, Cost Sharing or Matching, and the requirements of the grant agreements, the program is required to contribute matching funds through cash, in-kind contributions, and/or other non-cash support. Condition – VIDOL was unable to readily exhibit and provide its computation of the matching calculation or provide evidence that it was monitoring compliance with said requirement. Questioned Costs – Not determinable. Context – This is a condition identified per review of VIDOL’s compliance with the specified requirements. Effect – VIDOL is not in compliance with the stated provisions. Cause – VIDOL does not appear to have adequate policies and procedures in place to ensure complete compliance with the matching requirement. Recommendation – We recommend that VIDOL deploy resources that are given the responsibility to ensure periodic monitoring and compliance of the matching requirement throughout the fiscal year. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 86 Finding Number: 2019-036 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Payroll Activities Program: Government Department/Agency: U.S. Environmental Protection Agency Drinking Water State Revolving Fund Cluster CFDA #: 66.468 Award #: FS98235211, FS98235212, FS98235213, FS98235214, FS98235215, FS98235216, FS98235217 Award Year: 10/01/11 - 09/30/18, 03/01/2012 - 02/28/20, 10/01/12 - 09/30/19, 10/01/13 - 09/30/21, 10/01/14 - 09/30/21, 10/01/15 - 09/30/22, 10/01/16 - 09/30/23 Department of Planning and Natural Resources (DPNR) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must:  Be incorporated into the organization’s official records;  Reasonably reflect the total activity for which the employee is compensated across all grant- related and non-grant related activities (100% effort); and  Support the distribution of employee salary across multiple activities or cost objectives. Condition – We sampled and selected 14 out of 142 payroll expenditures and noted all 14 expenditures did not have the correct and/or complete project numbers in the Notice of Personnel Action (NOPA) forms. Questioned Costs – Not determinable. Context – This is a condition identified per review of DPNR’s compliance with the specified requirements using a statistically valid sample. Total amount of payroll expenditures charged to the program in fiscal year 2019 were $169,872 and the known amount of the exceptions amounted to $25,631. Effect - DPNR is not in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Cause – DPNR does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and maintenance of underlying documentation. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 87 Recommendation – We recommend that DPNR improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for payroll expenditures. Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages should be supported by personnel activity reports (time and attendance) or equivalent documents. Such information should also be monitored, retained, and approved by a responsible official of DPNR in a timely manner. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 88 Finding Number: 2019-037 Prior Year Finding Number: N/A Compliance Requirement: Cash Management Program: Government Department/Agency: U.S. Environmental Protection Agency Drinking Water State Revolving Fund Cluster CFDA #: 66.468 Award #: FS98235211, FS98235212, FS98235213, FS98235214, FS98235215, FS98235216, FS98235217 Award Year: 10/01/11 - 09/30/18, 03/01/2012 - 02/28/20, 10/01/12 - 09/30/19, 10/01/13 - 09/30/21, 10/01/14 - 09/30/21, 10/01/15 - 09/30/22, 10/01/16 - 09/30/23 Department of Planning and Natural Resources (DPNR) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with federal statues, regulations, and the terms and conditions of the federal award. Condition – We reviewed 7 out of 20 drawdowns and noted 2 drawdowns, related to payroll transactions, were settled beyond the allowed number of days per the Territory’s Cash Management Improvement Act (CMIA) agreement. Questioned Costs – Not determinable. Context – This is a condition identified per review of DPNR’s compliance with the specified requirements using a statistically valid sample. Total fiscal year 2019 drawdown requests were $4,260,856. Effect – DPNR is not in compliance with the stated provisions. Cause – DPNR does not appear to have adequate policies and procedures and effective internal controls to process, review, and approve cash drawdowns in accordance with funding techniques and clearance patterns applicable for this program. Recommendation – We recommend that DPNR comply with the provisions of the CMIA agreement and request Federal funds consistent with the CMIA agreement funding techniques and clearance patterns for this program. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 89 Finding Number: 2019-038 Prior Year Finding Number: N/A Compliance Requirement: Period of Performance Program: Government Department/Agency: U.S. Environmental Protection Agency Drinking Water State Revolving Fund Cluster CFDA #: 66.468 Award #: FS98235211, FS98235212, FS98235213, FS98235214, FS98235215, FS98235216, FS98235217 Award Year: 10/01/11 - 09/30/18, 03/01/2012 - 02/28/20, 10/01/12 - 09/30/19, 10/01/13 - 09/30/21, 10/01/14 - 09/30/21, 10/01/15 - 09/30/22, 10/01/16 - 09/30/23 Department of Planning and Natural Resources (DPNR) Criteria – A non-Federal entity may charge to the Federal award allowable costs incurred during the period of performance and any costs incurred before the Federal awarding agency or pass-through entity made the Federal award, only to the extent that they would have been allowable if incurred after the date of the Federal award and only with the written approval of the Federal awarding agency. Further, the Uniform Guidance in 2 CFR 200.344(b), states that unless the Federal awarding agency or pass-through entity authorized an extension, a non-Federal entity must liquidate all financial obligations incurred under the Federal award no later than 90 calendar days after the end date of the period of performance as specified in the terms and conditions of the Federal award. Condition – We sampled and selected 21 out of 204 expenditures and noted the following:  8 payroll related manual adjustments in the amount of $2,497 did not have supporting records available to validate whether the adjustments were associated with transactions occurring within the period of performance.  7 non-payroll obligated expenditures in the amount of $2,432,398 were liquidated beyond the allowable period without an authorized extension. Questioned Costs – Not determinable. Context – This is a condition identified per review of DPNR’s compliance with the specified requirements using a statistically valid sample totaling $3,215,131. Effect – DPNR is not in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Cause – DPNR does not appear to have adequate policies and procedures in place to ensure compliance with the required period of performance stipulations. Recommendation - We recommend that DPNR strengthen its processes with respect to setting up and charging expenditures between various grant awards. We also recommend that DPNR enhance its review process to properly determine the activities of each grant relative to the appropriate period of performance. Such information should also be monitored, retained, and approved by a responsible official of DPNR in a timely manner. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 90 Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 91 Finding Number: 2019-039 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Indirect Cost Activities Program: Government Department/Agency: U.S. Department of Education Consolidated Grant to the Outlying Areas CFDA #: 84.403 Award #: S403A150007, S403A160004, S403A170004, S403A180004 Award Periods: 07/01/2015 – 09/30/2016 07/01/2016 – 09/30/2017 07/01/2017 – 09/30/2018 07/01/2018 – 09/30/2019 Department of Education (DOE) Criteria – Actual conditions must be taken into account in selecting the base to be used in allocating the expenses in each grouping to the benefitted functions. When an allocation can be made by assignment of a cost grouping directly to the function benefitted, the allocation must be made in that manner. When the expenses in a grouping are more general in nature, the allocation should be made using a selected base which produces results that are equitable to both the Federal Government and the governmental unit. Condition – DOE did not reconcile and accurately allocate the share of indirect costs to the program. We sampled and selected 3 out of 12 months of indirect costs and noted 1 month where the base amount utilized in calculating indirect costs for the month exceeded actual expenditures recorded in the accounting system. As a result, indirect costs claimed for the period were overstated. Questioned Costs – Below reporting threshold. Context – This is a condition identified per review of DOE’s compliance with the specified requirements using a statistically valid sample. DOE has an approved indirect cost rate agreement of 6.7% for fiscal year 2019. Indirect costs claimed for the period were overstated by $10,580. Effect – Failure to properly review expenditures and allocations can result in noncompliance with laws and regulations along with loss of funding. Cause – Indirect costs were not properly calculated and captured in the accounting system. Recommendation – We recommend that DOE review and reconcile cost allocations to ensure accuracy. DOE may also consider revising its future cost allocations for any overstatements. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 92 Finding Number: 2019-040 Prior Year Finding Number: N/A Compliance Requirement: Cash Management Program: Government Department/Agency: U.S. Department of Education Consolidated Grant to the Outlying Areas CFDA #: 84.403 Award #: S403A150007, S403A160004, S403A170004, S403A180004 Award Periods: 07/01/2015 – 09/30/2016 07/01/2016 – 09/30/2017 07/01/2017 – 09/30/2018 07/01/2018 – 09/30/2019 Department of Education (DOE) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-Federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Condition – We reviewed 17 out of 157 drawdowns and noted 2 drawdowns were not in accordance with the provisions of the Territory’s Cash Management Improvement Act (CMIA) agreement. Questioned Costs – Not determinable. Context – This is a condition identified per review of DOE’s compliance with the provisions of the CMIA agreement using a statistically valid sample. Total fiscal year 2019 drawdown requests were $16,150,757. Effect – DOE is not in compliance with the stated provisions. Cause – DOE did not appear to exercise due diligence in requesting Federal funds consistent with the CMIA agreement and its actual cash needs. Recommendation – We recommend that DOE comply with provisions of CMIA agreement and request Federal funds consistent with the CMIA agreement funding techniques and clearance patterns for this program or consider applying for an exemption from the CMIA agreement. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 93 Finding Number: 2019-041 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles - Payroll Activities Program: Government Department/Agency: U.S. Department of Health and Human Services Child Support Enforcement CFDA #: 93.563 Award #: 1901VICSES, 1901VICEST Award Year: 10/01/2018 – 09/30/2019 Department of Justice (DOJ) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must:  Be incorporated into the organization’s official records;  Reasonably reflect the total activity for which the employee is compensated across all grant- related and non-grant related activities (100% effort); and  Support the distribution of employee salary across multiple activities or cost objectives. Condition – We sampled and selected 60 out of 898 payroll transactions and noted 4 transactions where the employees’ hours reported in the payroll register did not agree to the supporting timesheets. Questioned Costs – Not determinable. Context – This is a condition identified per review of DOJ’s compliance with the specified requirements using a statistically valid sample. Total amount of payroll expenditures charged to the program in fiscal year 2019 were $1,829,857. Effect – DOJ is not in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Cause – DOJ does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and maintenance of underlying documentation. Recommendation – We recommend that DOJ improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for payroll expenditures. Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages should be supported by personnel activity reports (time and attendance) or equivalent documents. Such information should also be monitored, retained, and approved by a responsible official of DOJ in a timely manner. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 94 Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 95 Finding Number: 2019-042 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Indirect Cost Activities Program: Government Department/Agency: U.S. Department of Health and Human Services Child Support Enforcement CFDA #: 93.563 Award #: 1901VICSES, 1901VICEST Award Year: 10/01/2018 – 09/30/2019 Department of Justice (DOJ) Criteria – Actual conditions must be taken into account in selecting the base to be used in allocating the expenses in each grouping to the benefitted functions. When an allocation can be made by assignment of a cost grouping directly to the function benefitted, the allocation must be made in that manner. When the expenses in a grouping are more general in nature, the allocation should be made using a selected base which produces results that are equitable to both the Federal Government and the governmental unit. Condition – DOJ did not reconcile and accurately allocate the share of indirect costs to the program. It appears that indirect costs charged to the program were overstated. Questioned Costs – $278,600. Context – This is a condition identified per review of DOJ’s compliance with the specified requirements. The known amount of the overstated charges were $278,600. Effect – Failure to properly review expenditures and allocations can result in noncompliance with laws and regulations along with loss of funding. Cause – Indirect costs were not properly calculated and captured in the accounting system. Recommendation – We recommend that DOJ review and reconcile cost allocations to ensure accuracy. DOJ may also consider revising its future cost allocations for any understatements. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 96 Finding Number: 2019-043 Prior Year Finding Number: N/A Compliance Requirement: Cash Management Program: Government Department/Agency: U.S. Department of Health and Human Services Child Support Enforcement CFDA #: 93.563 Award #: 1901VICSES, 1901VICEST Award Year: 10/01/2018 – 09/30/2019 Department of Justice (DOJ) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-Federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Condition – We reviewed 12 out of 304 drawdowns and noted 2 instances where the amount requested for drawdown exceeded the allocated cost incurred. Questioned Costs – Not determinable. Context – This is a condition identified per review of DOJ’s compliance with the specified requirements using a statistically valid sample. Total fiscal year 2019 drawdown requests were $5,095,676 and the excess amount requested for drawdown was $717,606. Effect – DOJ is not in compliance with the stated provisions. Cause – It appears that policies and procedures, including review over cash management transactions, were not functioning as intended. Recommendation - We recommend that DOJ reevaluate its policies and procedures to ensure proper monitoring and continue to be vigilant in following internal procedures to ensure compliance with stated provisions. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 97 Finding Number: 2019-044 Prior Year Finding Number: N/A Compliance Requirement: Matching, Level of Effort, Earmarking Program: Government Department/Agency: U.S. Department of Health and Human Services Child Support Enforcement CFDA #: 93.563 Award #: 1901VICSES, 1901VICEST Award Year: 10/01/2018 – 09/30/2019 Department of Justice (DOJ) Criteria – In accordance with the Uniform Guidance in 2 CFR Section 200.306, Cost Sharing or Matching, and the requirements of the grant agreements, the program is required to contribute matching funds through cash, in-kind contributions, and/or other non-cash support. Condition – We noted the local match funding requirement had not been met for the fiscal year. Questioned Costs – Not determinable. Context – This is a condition identified per review of DOJ’s compliance with the specified requirements. The local match funding requirement is 34%, while the actual for the fiscal year was 31%. Effect – DOJ is in not in compliance with the stated provisions. Cause – DOJ does not appear to have adequate policies and procedures in place to ensure complete compliance with the matching requirement. Recommendation – We recommend that DOJ deploy resources that are given the responsibility to ensure periodic monitoring and compliance of the match requirement throughout the fiscal year. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 98 Finding Number: 2019-045 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Non-Payroll Activities Program: Government Department/Agency: U.S. Department of Health and Human Services CCDF Cluster CFDA #: 93.575 Award #: 1701VICCDF, 1801VICCDF, 1901VICCDF Award Period: 10/01/2016 – 09/30/2021 Department of Human Services (DHS) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. In addition, per 2 CFR Section 200.403, Factors Affecting Allowability of Costs, “Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under federal awards: a. Be necessary and reasonable for the performance of the federal award and be allocable thereto under these principles. b. Conform to any limitations or exclusions set forth in these principles or in the federal award as to types or amounts of cost items. c. Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-federal entity. d. Be accorded consistent treatment. A cost may not be assigned to a federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the federal award as an indirect cost. e. Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. f. Not be included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period. g. Be adequately documented.” Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 99 Condition – We sampled and selected 60 out of 860 non-payroll transactions and noted the following:  1 invoice did not contain evidence of review and approval.  1 invoice did not have sufficient supporting documentation for 3 childcare vouchers. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Total amount of non-payroll expenditures charged to the program in fiscal year 2019 were $2,044,200. Effect - DHS is not in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Cause – DHS does not appear to have adequate policies and procedures in place to ensure compliance with the required cost principles such as review and approval of expenditures and maintenance of records. Recommendation – We recommend that DHS improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for non-payroll expenditures. In addition, DHS should continue to be vigilant in following internal policies over reviews and authorizations. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 100 Finding Number: 2019-046 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles - Payroll Activities Program: Government Department/Agency: U.S. Department of Health and Human Services CCDF Cluster CFDA #: 93.575 Award #: 1701VICCDF, 1801VICCDF, 1901VICCDF Award Period: 10/01/2016 – 09/30/2021 Department of Human Services (DHS) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Additionally, salaries and wages charged to Federal awards are subject to the standards of documentation as described by 2 CFR Section 200.430(i) and must be based on records that accurately reflect the work performed. These records must:  Be incorporated into the organization’s official records;  Reasonably reflect the total activity for which the employee is compensated across all grant- related and non-grant related activities (100% effort); and  Support the distribution of employee salary across multiple activities or cost objectives. Condition – We sampled and selected 25 out of 246 payroll transactions and noted the following:  1 timesheet did not contain evidence of review and approval.  1 timesheet was not available for review. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Total amount of payroll expenditures charged to the program in fiscal year 2019 were $626,043. Effect – DHS is not in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Cause – DHS does not appear to have adequate policies and procedures in place to ensure compliance with applicable cost principles and maintenance of underlying documentation. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 101 Recommendation – We recommend that DHS improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for payroll expenditures. Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages should be supported by personnel activity reports (time and attendance) or equivalent documents. Such information should also be monitored, retained, and approved by a responsible official of DHS in a timely manner. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 102 Finding Number: 2019-047 Prior Year Finding Number: N/A Compliance Requirement: Eligibility Program: Government Department/Agency: U.S. Department of Health and Human Services CCDF Cluster CFDA #: 93.575 Award #: 1701VICCDF, 1801VICCDF, 1901VICCDF Award Period: 10/01/2016 – 09/30/2021 Department of Human Services (DHS) Criteria – DHS must have in place procedures for documenting and verifying eligibility in accordance with the Federal requirements, as well as the specific eligibility requirements selected by the Territory in its approved Plan. Further, the Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-Federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Condition – DHS did not perform a reconciliation of the benefits paid to eligible participants and the expenditures recorded in the ERP system. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements and general compliance principles. Effect – Noncompliance with program requirements could result in disallowances of costs and program participants could be receiving benefits that they are not entitled to receive. Cause – It appears that policies and procedures, including review over eligibility transactions, were not functioning as intended. Recommendation - We recommend that DHS reevaluate its policies and procedures to ensure proper monitoring and continue to be vigilant in following internal procedures over reviews and authorizations. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 103 Finding Number: 2019-048 Prior Year Finding Number: N/A Compliance Requirement: Matching, Level of Effort, Earmarking Program: Government Department/Agency: U.S. Department of Health and Human Services CCDF Cluster CFDA #: 93.575 Award #: 1701VICCDF, 1801VICCDF, 1901VICCDF Award Period: 10/01/2016 – 09/30/2021 Department of Human Services (DHS) Criteria – In accordance with the Compliance Supplement, the State or Territory:  May not spend on administrative costs more than five percent of total CCDF awards expended (i.e., the total of CFDAs 93.575 and 93.596) and any State expenditures for which Matching Funds (CFDA 93.596) are claimed 42 USC 9858c(c)(3)(C); 45 CFR section 98.52).  Must spend on quality activities, in fiscal year 2018 and 2019, as provided in the State/Territorial plan, not less than eight percent of CCDF funds expended (i.e., the total of CFDAs 93.575 and 93.596 funds) and any State expenditures for which Matching Funds (CFDA 93.596) are claimed (45 CFR section 98.53).  Must spend at least an additional three percent on quality improvement for infants and toddlers (45 CFR section 98.50(b)). Condition – We noted the following:  One grant award exceeded the maximum five percent spend for administrative earmarking.  The three percent spend requirement on quality improvement for infants and toddlers was not met for all grant awards active during the fiscal year. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements. Effect – DHS in not in compliance with the stated provisions. Cause – DHS does not appear to have adequate policies and procedures and internal controls in place to ensure consistent and systematic monitoring of the requirements. Recommendation - We recommend that DHS deploy resources that are given the responsibility to ensure periodic monitoring and compliance of the requirements throughout the fiscal year. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 104 Finding Number: 2019-049 Prior Year Finding Number: N/A Compliance Requirement: Period of Performance Program: Government Department/Agency: U.S. Department of Health and Human Services CCDF Cluster CFDA #: 93.575 Award #: 1701VICCDF, 1801VICCDF, 1901VICCDF Award Period: 10/01/2016 – 09/30/2021 Department of Human Services (DHS) Criteria – A non-Federal entity may charge to the Federal award allowable costs incurred during the period of performance and any costs incurred before the Federal awarding agency or pass-through entity made the Federal award, only to the extent that they would have been allowable if incurred after the date of the Federal award and only with the written approval of the Federal awarding agency. Further, the Uniform Guidance in 2 CFR 200.344(b), states that unless the Federal awarding agency or pass-through entity authorized an extension, a non-Federal entity must liquidate all financial obligations incurred under the Federal award no later than 90 calendar days after the end date of the period of performance as specified in the terms and conditions of the Federal award. Condition – We sampled and selected 60 out of 860 expenditures and noted that 1 expenditure was incurred before the period of performance. Questioned Costs – Below reporting threshold. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. The known amount of the 1 transaction incurred outside the period of performance amounted to $2,550. Effect – DHS is not in compliance in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Cause – DHS did not appear to have adequate policies and procedures in place to ensure compliance with the required period of performance stipulations. Recommendation – We recommend that DHS strengthen its processes with respect to setting up and charging expenditures between various grant awards. We also recommend that DHS enhance its review process to properly determine the activities of each grant relative to the appropriate period of performance. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 105 Finding Number: 2019-050 Prior Year Finding Number: N/A Compliance Requirement: Special Tests and Provisions – Health and Safety Requirements Program: Government Department/Agency: U.S. Department of Health and Human Services CCDF Cluster CFDA #: 93.575 Award #: 1701VICCDF, 1801VICCDF, 1901VICCDF Award Period: 10/01/2016 – 09/30/2021 Department of Human Services (DHS) Criteria – As part of their CCDF plans, Lead Agencies must certify that procedures are in effect (e.g., monitoring and enforcement) to ensure that providers serving children who receive subsidies comply with all applicable health and safety requirements. This includes verifying and documenting that child care providers (unless they meet an exception, e.g., family members who are caregivers or individuals who object to immunization on certain grounds) serving children who receive subsidies meet requirements pertaining to health and safety. These requirements must address 11 specific areas— including first aid and CPR, safe sleeping practices, and administration of medication—and child care workers must be trained in these areas (42 USC 9858c(c)(2)(I); 45 CFR section 98.41). Condition – During our review of 7 out of 68 providers serving children who receive subsidies, DHS was unable to provide supporting records to validate that the specified requirements had been met. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Effect – DHS in not in compliance with the stated provisions. Noncompliance with program requirements could result in disallowances of costs and ineligible providers could be participating in the program. Cause – DHS does not appear to have adequate policies and procedures in place to ensure consistent and systematic monitoring of requirements. Recommendation – We recommend that DHS deploy resources that are given the responsibility to ensure periodic monitoring and compliance of the health and safety requirements throughout the fiscal year. DHS should also review its records retention policies to ensure that complete documentation is maintained, safeguarded, and available for review. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 106 Finding Number: 2019-051 Prior Year Finding Number: N/A Compliance Requirement: Special Tests and Provisions – Fraud Detection and Repayment Program: Government Department/Agency: U.S. Department of Health and Human Services CCDF Cluster CFDA #: 93.575 Award #: 1701VICCDF, 1801VICCDF, 1901VICCDF Award Period: 10/01/2016 – 09/30/2021 Department of Human Services (DHS) Criteria – Lead Agencies shall recover childcare payments that are the result of fraud. These payments shall be recovered from the party responsible for committing the fraud (45 CFR section 98.60). The Lead Agency must correctly identify and report fraud and take steps to recover payment. Condition – While DHS has a procedure for identifying and recovering payments resulting from fraud, via its internal audit process, it was unable to evidence that such audit(s) had been conducted during the fiscal year. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements. Effect – There may be prolonged, ongoing cases of unnecessary utilization and fraud that may be unnoticed and remain unreported by the program. Funds available are possibly being used inappropriately. Cause – DHS does not appear to have adequate policies and procedures in place to ensure consistent and systematic monitoring of requirements. Recommendation – We recommend that DHS deploy resources that are given the responsibility to ensure periodic monitoring and compliance with fraud detection and repayment requirements throughout the fiscal year. DHS should also review its records retention policies to ensure that complete documentation is maintained, safeguarded, and available for review. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 107 Finding Number: 2019-052 Prior Year Finding Number: 2018-049 Compliance Requirement: Equipment/Real Property Management Program: Government Department/Agency: U.S. Department of Health and Human Services Head Start CFDA #: 93.600 Award #: 02CH010576-01, 02CH010576-02 Award Year: 07/01/2018 – 06/30/2019 07/01/2019 – 06/30/2020 Department of Human Services (DHS) Criteria – Per the Uniform Guidance in 2 CFR Section 200.313, Equipment, property records must be maintained that include a description of the property, a serial number or other identification number, the source of property, who holds title, the acquisition date, cost of the property, percentage of Federal participation in the cost of the property, the location, use and conditions of the property, and any ultimate disposition data including the date of disposal and sale price of the property. Further, a physical inventory of equipment should be taken at least once every 2 years and reconciled to the equipment records along with the usage of an appropriate control system to safeguard and maintain equipment. Condition – The Government’s Department of Property and Procurement (DPP) maintains the equipment register for DHS. DPP was unable to provide complete property records which met the stated requirements. Further, no physical inventory of equipment was taken in fiscal year 2019. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements. Effect – There is a risk that inadequate recordkeeping of equipment could lead to misappropriation of assets and noncompliance with Federal regulations resulting in a return of Federal awards received. Cause – The Government does not appear to have a process in place to adequately monitor equipment acquired with Federal funds. Recommendation – We recommend that DHS and DPP improve internal controls to ensure adherence to Federal regulations related to equipment and its related maintenance. There should be timely coordination and communication amongst all Government departments and/or agencies that are responsible for handling and managing such assets. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 108 Finding Number: 2019-053 Prior Year Finding Number: N/A Compliance Requirement: Cash Management Program: Government Department/Agency: U.S. Department of Health and Human Services Social Services Block Grant CFDA #: 93.667 Award #: 1701VISOSR, 1801VISOSR, 1901VISOSR-01 Award Year: 10/10/2016 – 09/30/2018 10/01/2017 – 09/30/2019 10/01/2018 – 09/30/2020 Department of Human Services (DHS) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-Federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Condition – We reviewed 60 out of 304 drawdowns and noted the following:  3 instances where the drawdown request for fund submissions did not include evidence of review and approval.  11 instances in which the monthly drawdown reconciliations did not include evidence of review and approval. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Total fiscal year 2019 drawdown requests were $5,785,540. Effect – DHS is not in compliance with the stated provisions. Inaccurate information may have been reported to the Federal government in the absence of required reconciliations and reviews. Cause – It appears that policies and procedures, including review over cash management transactions, were not functioning as intended. Recommendation - We recommend that DHS reevaluate its policies and procedures to ensure proper monitoring and continue to be vigilant in following internal procedures over reviews and authorizations. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 109 Finding Number: 2019-054 Prior Year Finding Number: N/A Compliance Requirement: Reporting Program: Government Department/Agency: U.S. Department of Health and Human Services Social Services Block Grant CFDA #: 93.667 Award #: 1701VISOSR, 1801VISOSR, 1901VISOSR-01 Award Year: 10/10/2016 – 09/30/2018 10/01/2017 – 09/30/2019 10/01/2018 – 09/30/2020 Department of Human Services (DHS) Criteria – In accordance with the Administration for Children & Families Office of Community Services, an annual Post Expenditure report that describes how the State/Territory expended its funds for the past year must be submitted, according to a schedule set by the Office of Community Services. Condition – The post expenditure report and required supporting documents were not available for review. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements. Effect – DHS is not in compliance with the stated provisions. Failure to submit required reports can result in noncompliance with the Federal program requirement and loss of Federal funding. Cause – It appears that policies and procedures over reporting procedures were not functioning as intended. Recommendation – We recommend that DHS reevaluate its policies and procedures to ensure proper retention, monitoring, and review of the required reports by the appropriate official who would ensure that information reported is complete, accurate, consistent, and submitted within the required timeframe. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 110 Finding Number: 2019-055 Prior Year Finding Number: N/A Compliance Requirement: Activities Allowed or Unallowed Program: Government Department/Agency: U.S. Department of Health and Human Services Children’s Health Insurance Program CFDA #: 93.767 Award #: 1905VQ5R21, 1905VQ5021 Award Year: 10/01/2018 – 09/30/2019 10/01/2018 – 09/30/2020 Department of Human Services (DHS) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires the non-federal entity to establish and maintain effective internal control over Federal awards that provides reasonable assurance that the non-federal entity is managing Federal awards in compliance with Federal statutes, regulations, and other terms and conditions. Condition – We sampled and selected 60 out of 27,758 claims charged to the program and noted that 1 claim had been paid using incorrect rates. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements. Total claims paid in fiscal year 2019 were $13,877,164. Effect – Noncompliance with program requirements could result in disallowances of costs and providers could be receiving benefits that they are not entitled to receive. Cause – DHS does not appear to have adequate policies and procedures in place to ensure a consistent and systematic review of the data in its provider case files. Recommendation – We recommend that DHS perform regular reviews of the data in its provider case files to ensure accuracy and completeness. Additional levels of review by a supervisor or manager can provide more timely quality assurance oversight over the process. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 111 Finding Number: 2019-056 Prior Year Finding Number: 2018-056 Compliance Requirement: Reporting Program: Government Department/Agency: U.S. Department of Health and Human Services Children’s Health Insurance Program CFDA #: 93.767 Award #: 1905VQ5R21, 1905VQ5021 Award Year: 10/01/2018 – 09/30/2019 10/01/2018 – 09/30/2020 Department of Human Services (DHS) Criteria – In accordance with the Compliance Supplement, the State or Territory is required to submit CMS-21, Quarterly Children’s Health Insurance Program Statement of Expenditures for Title XXI for the Children’s Health Insurance Program, thirty days after the end of the quarter. Condition – We reviewed 2 out of the 4 quarterly CMS-21 reports submitted during the fiscal year and noted that the report’s financial information did not agree with the underlying records. We also noted that there was no evidence of review or approval prior to submission. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Effect – DHS is not in compliance with stated provisions and inaccurate information may have been reported to the Federal government. Cause – It appears that policies and procedures, including review over reporting procedures were not functioning as intended. Recommendation – We recommend that DHS reevaluate its policies and procedures to ensure proper monitoring and review of the required reports by an appropriate official who would ensure the information submitted is complete, accurate, consistent, and submitted within the required timeframe. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 112 Finding Number: 2019-057 Prior Year Finding Number: 2018-057 Compliance Requirement: Allowable Costs/Cost Principles – Non-Payroll Activities Program: Government Department/Agency: U.S. Department of Health and Human Services Medicaid Cluster CFDA #: 93.775, 93.778 Award #: Various Award Period: 10/01/2015 – 09/30/2022 Department of Human Services (DHS) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. In addition, per 2 CFR Section 200.403, Factors Affecting Allowability of Costs, “Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under federal awards: a. Be necessary and reasonable for the performance of the federal award and be allocable thereto under these principles. b. Conform to any limitations or exclusions set forth in these principles or in the federal award as to types or amounts of cost items. c. Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-federal entity. d. Be accorded consistent treatment. A cost may not be assigned to a federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the federal award as an indirect cost. e. Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. f. Not be included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period. g. Be adequately documented.” Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 113 Condition – We sampled and selected 60 out of 603 non-payroll transactions and noted 1 instance where DHS paid a monthly fee for a trailer to store excess furniture and other administrative items that the Medicaid staff no longer needed. Questioned Costs – Below reporting threshold. Context - This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. The exception amounted to $10,164. Effect - DHS is not in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Cause - DHS does not have adequate policies and procedures in place to ensure that expenses are reviewed and approved to ensure reasonability and necessity. Recommendation – We recommend that DHS improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for non-payroll expenditures. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 114 Finding Number: 2019-058 Prior Year Finding Number: 2018-060 Compliance Requirement: Eligibility Program: Government Department/Agency: U.S. Department of Health and Human Services Medicaid Cluster CFDA #: 93.775, 93.778 Award #: Various Award Period: 10/01/2015 – 09/30/2022 Department of Human Services (DHS) Criteria – Plan and eligibility requirements must comply with various Federal requirements. The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-Federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. Additionally, in accordance with the State Plan under Title XIX of the Social Security Act, Section 4.7, Maintenance of Records, the Medicaid agency maintains or supervises the maintenance of records necessary for the proper and efficient operation of the plan, including records regarding applications, determination of eligibility, the provisions of medical assistance, and administrative costs, statistical, fiscal and other records necessary for reporting and accountability. Condition – In our review of 60 out of 4,221 participant case files, we noted the following:  For 10 participants, there was no evidence of completed applications.  For 9 participants, the application had not been processed in a timely manner.  For 13 participants, there was no documentation in the case file supporting the verification of income requirements.  For 9 participants, there was no documentation in the case files that the applicant had provided a social security card.  For 9 participants, there was no documentation in the case files supporting verification of the citizenship or immigration status requirements.  For 31 participants, there was no evidence that a recertification had been performed within 12 months.  For 38 participants, there was no evidence that a review and approval of the eligibility determination had been performed.  DHS was unable to provide 22 participant case files for review. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Effect – Noncompliance with program requirements could result in disallowances of costs and program participants could be receiving benefits that they are not entitled to receive. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 115 Cause – DHS does not appear to have adequate policies and procedures in place to ensure a consistent and systematic review of the data in its participant case files. Recommendation – We recommend that DHS perform regular reviews of the data in its participant case files to ensure accuracy and completeness and confirming that only eligible participants are receiving the entitled benefits. Additional levels of review by a supervisor or manager can provide more timely quality assurance oversight over the eligibility process. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 116 Finding Number: 2019-059 Prior Year Finding Number: 2018-061 Compliance Requirement: Matching, Level of Effort, Earmarking Program: Government Department/Agency: U.S. Department of Health and Human Services Medicaid Cluster CFDA #: 93.775, 93.778 Award #: Various Award Period: 10/01/2015 – 09/30/2022 Department of Human Services (DHS) Criteria – In accordance with the Compliance Supplement, the State or Territory is required to pay part of the costs of providing health care to the poor and part of the costs of administering the program. Different participation rates apply to medical assistance payments. There are also different Federal financial participation rates for the different types of costs incurred in administering the entitlement program, such as administration (including administration of family planning services), training, computer, and other costs (42 CFR sections 433.10 and 433.15). Condition – We sampled and selected 2 out of 4 matching calculations from the CMS-64, Quarterly Statement of Expenditures for the Medicaid Assistance Program reports and noted that the calculations did not contain evidence of review and approval. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Effect – DHS is not in compliance with the stated provisions. Cause – DHS does not appear to exercise due diligence in following internal procedures over reviews and authorizations. Recommendation – We recommend that DHS reevaluate its policies and procedures to ensure proper monitoring and continue to be vigilant in following internal procedures over reviews and authorizations. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 117 Finding Number: 2019-060 Prior Year Finding Number: 2018-064 Compliance Requirement: Reporting Program: Government Department/Agency: U.S. Department of Health and Human Services Medicaid Cluster CFDA #: 93.775, 93.778 Award #: Various Award Period: 10/01/2015 – 09/30/2022 Department of Human Services (DHS) Criteria – In accordance with the Compliance Supplement, the State or Territory is required to submit CMS-64, Quarterly Statement of Expenditures for the Medicaid Assistance Program, thirty days after the end of the quarter. Condition – We reviewed 2 out of the 4 quarterly CMS-64 reports submitted during the fiscal year and noted that the report’s financial information did not agree with the underlying records. We also noted there was no evidence of a review or approval prior to submission. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Effect – DHS is not in compliance with stated provisions and inaccurate information may have been reported to the Federal government. Cause – It appears that policies and procedures, including review over reporting procedures were not functioning as intended. Recommendation – We recommend that DHS reevaluate its policies and procedures to ensure proper monitoring and review of the required reports by an appropriate official who would ensure the information submitted is complete, accurate, consistent, and submitted within the required timeframe. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 118 Finding Number: 2019-061 Prior Year Finding Number: 2018-065 Compliance Requirement: Special Tests and Provisions - Utilization Control and Program Integrity Program: Government Department/Agency: U.S. Department of Health and Human Services Medicaid Cluster CFDA #: 93.775, 93.778 Award #: Various Award Period: 10/01/2015 – 09/30/2022 Department of Human Services (DHS) Criteria – The State or Territory plan must provide methods and procedures to safeguard against unnecessary utilization of care and services, including long-term care institutions. The State or Territory must have: (1) methods or criteria for identifying suspected fraud cases; (2) methods for investigating these cases; and (3) procedures, developed in cooperation with legal authorities, for referring suspected fraud cases to law enforcement officials (42 CFR parts 455, 456, and 1002). Suspected fraud should be referred to the State or Territory Medicaid Fraud Control Unit (42 CFR part 1007). The State or Territory Medicaid agency must establish and use written criteria for evaluating the appropriateness and quality of Medicaid services. The agency must have procedures for the ongoing post-payment review, on a sample basis, of the need for and the quality and timeliness of Medicaid services. The State or Territory Medicaid agency may conduct this review directly or may contract with a quality improvement organization (QIO). Condition – DHS does not have the necessary controls or procedures to safeguard against unnecessary utilization of care and services and to identify, investigate, and refer suspected fraud cases. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements. Effect – There may be prolonged, ongoing cases of unnecessary utilization and fraud which may be unnoticed and remain unreported by the program. Funds available are possibly being used inappropriately, with no methodology of properly identifying or tracking the amounts. Cause – DHS does not appear to have an effective system in place to address the program’s requirements. Recommendation – DHS should reconsider whether it would like to be directly responsible for Utilization Control and Program Integrity, or if the use of a QIO would better suit current needs. Once this is decided, DHS should take the necessary steps to ensure compliance with this requirement. The written procedures should reflect the actual actions to be taken. In the event a QIO is used, DHS should be involved throughout, so that it is aware of the program’s vulnerabilities and has the opportunity to make the necessary changes for improvement in a timely manner. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 119 Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 120 Finding Number: 2019-062 Prior Year Finding Number: 2018-066 Compliance Requirement: Special Tests and Provisions - Inpatient Hospital and Long-Term Care Facility Audits Program: Government Department/Agency: U.S. Department of Health and Human Services Medicaid Cluster CFDA #: 93.775, 93.778 Award #: Various Award Period: 10/01/2015 – 09/30/2022 Department of Human Services (DHS) Criteria – The State or Territory Medicaid agency pays for inpatient hospital services and long-term care facility services through the use of rates that are reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated providers. The State or Territory Medicaid agency must provide for the filing of uniform cost reports for each participating provider. These cost reports are used to establish payment rates. The State or Territory Medicaid agency must provide for the periodic audits of financial and statistical records of participating providers. The specific audit requirements will be established by the State or Territory Plan (42 CFR section 447.253). Condition – DHS provides Medicaid services to eligible Territory residents through inpatient hospitals and long-term care facilities. These hospitals and facilities include various Territory agencies and third- party service providers. The costs incurred by these facilities are summarized in a cost report that is submitted to DHS. DHS awarded a contract in August 2017 for the audit of these cost reports; however, we noted that DHS had not received any audited cost reports for fiscal year 2019. Questioned Costs - Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements. Effect – Without timely audits of the cost reports, DHS has no assurance that the costs incurred by the medical facilities are actual costs incurred. Further, the difference between costs submitted for reimbursement and the costs actually reimbursed result in the use of local, rather than Federal, dollars to fund Medicaid expenditures. Cause – DHS does not appear to have adequate policies and procedures in place for the provision of audited cost reports of its participating providers. Recommendation – We recommend that DHS evaluate and develop policies and procedures to obtain and audit the cost reports. This will allow DHS to reduce the time between the Medicaid expenditures being incurred and the ultimate reimbursement from the Federal government. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 121 Finding Number: 2019-063 Prior Year Finding Number: 2018-067 Compliance Requirement: Special Tests and Provisions – ADP Risk Analysis and System Security Review Program: Government Department/Agency: U.S. Department of Health and Human Services Medicaid Cluster CFDA #: 93.775, 93.778 Award #: Various Award Period: 10/01/2015 – 09/30/2022 Department of Human Services (DHS) Criteria – State or Territory agencies must establish and maintain a program for conducting periodic risk analyses to ensure that appropriate, cost effective safeguards are incorporated into new and existing systems. State or Territory agencies must perform risk analyses whenever significant system changes occur. State or Territory agencies shall review the ADP system security of installations involved in the administration of HHS programs on a biennial basis. At a minimum, the reviews shall include an evaluation of physical and data security operating procedures and personnel practices. The State or Territory agency shall maintain reports on its biennial ADP system security reviews, together with pertinent supporting documentation, for HHS on-site reviews (45 CFR section 95.621). Condition – DHS did not perform the required ADP Risk Analysis and System Security Review for the Virgin Islands Benefit Eligibility System (VIBES) to support the Medicaid Program. Questioned Costs - Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements. Effect - The absence of policies to ensure these analyses and reviews are performed may lead to physical and data security issues and noncompliance with program requirements. Further, DHS’ risk of incomplete or inaccurate data processing, or worse, the risk of fraud, increases. Cause – DHS’ records do not permit a determination as to the sufficiency of the design and operation of key controls surrounding the environment in which the Medicaid claims reside. Recommendation - We recommend that management should perform and review a risk analysis and system security review for all systems that support the Medicaid program. All issues should be addressed by management. If management becomes aware that such a report will not be available, we recommend that management conduct its own review. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 122 Finding Number: 2019-064 Prior Year Finding Number: 2018-068 Compliance Requirement: Special Tests and Provisions – Provider Eligibility Program: Government Department/Agency: U.S. Department of Health and Human Services Medicaid Cluster CFDA #: 93.775, 93.778 Award #: Various Award Period: 10/01/2015 – 09/30/2022 Department of Human Services (DHS) Criteria – In order to receive Medicaid payments, providers of medical services must be licensed in accordance with Federal, State, and local laws and regulations to participate in the Medicaid program. Moreover, in accordance with the disclosure requirements of 42 CFR 455 subpart B, Disclosure of Information by Providers and Fiscal Agents, providers that are not practitioners or a group of practitioners are required to disclose certain information when applying to participate in the Medicaid program. Condition – During our review of 60 out of 1,230 providers receiving payments during the fiscal year, we noted the following:  53 providers agreement had not been reviewed and approved by the provider relations staff.  23 providers agreements had not been approved by the Commissioners of both DHS and Department of Property and Procurement.  21 providers did not have a current license on file.  13 providers agreement were not available for review.  3 providers agreements did not contain the proper financial disclosure information as required by the State Plan.  7 providers did not have documentation supporting their enrollment in the Medicaid program. Questioned Costs – Not determinable. Context – This is a condition identified per review of DHS’ compliance with the specified requirements using a statistically valid sample. Effect – DHS is not in compliance with the stated provisions. Noncompliance with program requirements could result in disallowances of costs and ineligible providers could be participating in the program. Cause - DHS does not appear to have adequate policies and procedures in place to ensure a consistent and systematic review of documentation and file maintenance. Recommendation - We recommend that DHS perform regular reviews of the data in its files to ensure accuracy and completeness. DHS should also review its records retention policies to ensure that complete documentation is maintained, safeguarded, and available for review. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 123 Finding Number: 2019-065 Prior Year Finding Number: 2018-069 Compliance Requirement: Special Tests and Provisions - Medicaid Fraud Control Unit Program: Government Department/Agency: U.S. Department of Health and Human Services Medicaid Cluster CFDA #: 93.775, 93.778 Award #: Various Award Period: 10/01/2015 – 09/30/2022 Department of Human Services (DHS) Criteria – States or Territories are required as part of their Medicaid State plans to maintain a Medicaid Fraud Control Unit, unless the Secretary of HHS determines that certain safeguards are met regarding fraud and abuse and waives the requirement. Condition - The DHS Medical Assistance Program and DOJ did not adequately staff the Medicaid Fraud Control Unit; thus, no potential fraud cases were investigated during fiscal year 2019. Further, we were not provided with a list of violations of Medicaid laws and regulations. Questioned Costs - Not determinable. Context - This is a condition identified per review of DHS’ compliance with the specified requirements. Effect - There may be prolonged, ongoing cases of fraud which may be unnoticed and remain unreported by the program. Funds available are possibly being used inappropriately, with no methodology of properly identifying or tracking the amounts. Cause - DHS does not have an effective staffing plan in place to address the program’s requirements. Recommendation – We recommend that DHS staff the Medicaid Fraud Control Unit and become fully operational to investigate potential Medicaid fraud cases. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 124 Finding Number: 2019-066 Prior Year Finding Number: 2018-070 Compliance Requirement: Special Tests and Provisions – Federal Financial Participation Refunds Program: Government Department/Agency: U.S. Department of Health and Human Services Medicaid Cluster CFDA #: 93.775, 93.778 Award #: Various Award Period: 10/01/2015 – 09/30/2022 Department of Human Services (DHS) Criteria - Title 42 CFR section 433.40(c), Refund of Federal Financial Participation (FFP) for Uncashed Checks, states that if a check remains uncashed beyond a period of 180 days from the date it was issued (i.e., the date of the check), it will no longer be regarded as an allowable program expenditure. If the State or Territory has claimed and received FFP for the amount of the uncashed check, it must refund the amount of FFP received. DHS is required to identify cancelled and uncashed checks beyond a period of 180 days of issuance at the end of each calendar quarter and refund all FFP received for uncashed checks by adjusting the CMS-64 report, Quarterly Statement of Expenditures for the Medical Assistance Program. Condition - We noted that DHS does not have a process in place to identify cancelled or uncashed checks over 180 days after issuance and refund the corresponding FFP in a timely manner. Questioned Costs – Not determinable. Context - This is a condition identified per review of DHS’ compliance with the specified requirements. Effect - DHS is not in compliance with regulations which result in untimely refunds of the FFP to the Federal government. There is also potential for disallowed costs that were never refunded due to checks remaining uncashed beyond a period of 180 days from the date of issuance. Cause - DHS does not have adequate policies and procedures in place to request and review the cancelled and uncashed check report on a quarterly basis as required. Recommendation - We recommend that DHS comply with the specified requirements and establish adequate policies and procedures to ensure that cancelled and uncashed checks over 180 days from the date of issuance are identified on a quarterly basis and all FFP received for uncashed checks are refunded to the Federal government in a timely manner. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 125 Finding Number: 2019-067 Prior Year Finding Number: N/A Compliance Requirement: Allowable Costs/Cost Principles – Non-Payroll Activities Program: Government Department/Agency: U.S. Department of Homeland Security Disaster Grants - Public Assistance (Presidentially Declared Disasters) CFDA #: 97.036 Award #: FEMA-4335-DR, FEMA-4340-DR-VI Award Periods: 09/20/2017 – 09/07/2025 09/07/2017 – 09/16/2025 Virgin Islands Territorial Emergency Management Agency (VITEMA) Criteria – The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. In addition, per 2 CFR Section 200.403, Factors Affecting Allowability of Costs, “Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under federal awards: a. Be necessary and reasonable for the performance of the federal award and be allocable thereto under these principles. b. Conform to any limitations or exclusions set forth in these principles or in the federal award as to types or amounts of cost items. c. Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-federal entity. d. Be accorded consistent treatment. A cost may not be assigned to a federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the federal award as an indirect cost. e. Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. f. Not be included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period. g. Be adequately documented.” Condition – We selected 60 out of 474 non-payroll transactions and noted 7 transactions had no documentation of the Territorial Public Assistance Officer’s review and approval. Questioned Costs – Not determinable. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 126 Context – This is a condition identified per review of VITEMA’s compliance with the specified requirements using a statistically valid sample. Total amount of non-payroll expenditures charged to the program in fiscal year 2019 were $536,929,532. Effect – VITEMA is not in compliance with the stated provisions. Failure to properly review and support expenditures can result in noncompliance with laws and regulations along with loss of funding. Cause – It appears that policies and procedures regarding the review and approval of project worksheets were not functioning as intended. Recommendation – We recommend that VITEMA improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for non-payroll expenditures. In addition, VITEMA should continue to be vigilant in following internal policies over reviews and authorizations. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 127 Finding Number: 2019-068 Prior Year Finding Number: 2018-073 Compliance Requirement: Reporting Program: Government Department/Agency: U.S. Department of Homeland Security Disaster Grants - Public Assistance (Presidentially Declared Disasters) CFDA #: 97.036 Award #: FEMA-4335-DR, FEMA-4340-DR-VI Award Periods: 09/20/2017 – 09/07/2025 09/07/2017 – 09/16/2025 Virgin Islands Territorial Emergency Management Agency (VITEMA) Criteria – In accordance with the U.S. Department of Homeland Security Federal Emergency Management Agency’s Public Assistance Program and Policy Guide, each State or Territory must file various financial and programmatic reports. Additionally, the requirements necessitate that all submitted reports should be supported by the underlying performance records and presented in accordance with program requirements. The Territorial agreement between VITEMA and FEMA regarding this federal program dictates that all performance reports must be submitted to FEMA within 30 days of the end of each quarter. Condition – We reviewed 4 out of the 16 reports submitted during the fiscal year and noted the following:  1 OMB Form 1600-0017 PA performance report had not been submitted in a timely manner.  2 OMB Form 1600-0017 PA performance reports did not agree to the underlying financial records.  2 OMB Form 1600-0017 PA progress reports did not contain evidence of review and approval prior to submission. Questioned Costs – Not determinable. Context – This is a condition identified per review of VITEMA’s compliance with the specified requirements using a statistically valid sample. Effect – VITEMA is not in compliance with stated provisions and inaccurate information may have been reported to the Federal government. Cause – It appears that policies and procedures, including review over reporting procedures were not functioning as intended. Recommendation – We recommend that VITEMA reevaluate its policies and procedures to ensure proper monitoring and review of the required reports by an appropriate official who would ensure the information submitted is complete, accurate, consistent and submitted within the required timeframe. Views of Responsible Officials – The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 128 Finding Number: 2019-069 Prior Year Finding Number: 2018-074 Compliance Requirement: Data Collection Form and Single Audit Reporting Package Program: CFDA # 10.551, 10.561 Supplemental Nutrition Assistance Program Cluster CFDA # 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) CFDA # 12.401 National Guard Military Operations and Maintenance (O&M) Projects CFDA # 15.875 Economic, Social, and Political Development of the Territories CFDA # 17.225 Unemployment Insurance CFDA # 20.205 Highway Planning and Construction Cluster CFDA # 20.500, 20.507 Federal Transit Cluster CFDA # 66.468 Drinking Water State Revolving Fund Cluster CFDA # 84.403 Consolidated Grant to the Outlying Areas CFDA # 84.938A Immediate Aid to Restart School Operations CFDA # 93.563 Child Support Enforcement CFDA # 93.575 CCDF Cluster CFDA # 93.600 Head Start CFDA # 93.667 Social Services Block Grant CFDA # 93.767 Children’s Health Insurance Program CFDA # 93.775, 93.778 Medicaid Cluster CFDA # 97.030 Community Disaster Loans CFDA # 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Criteria – The Uniform Guidance in 2 CFR Section 200.512, Report Submission, establishes that the audit shall be completed and the data collection form and reporting package shall be submitted to the Federal Audit Clearinghouse (FAC) within the earlier of 30 days after receipt of the auditor’s report or nine (9) months after the end of the audit period, unless a longer period is agreed to in advance by the cognizant or oversight agency for audit. Condition – The Government did not comply with the required submission date of the data collection form and reporting package to the FAC for the fiscal year ended September 30, 2019. Questioned Costs – Not applicable. Context – This is a condition identified per review of the Government’s compliance with the specified requirements. Effect – The Government could be exposed to a reduction or elimination of funds by the Federal awarding agencies. Cause – The Government did not have controls in place to ensure that the reporting package was submitted to the FAC within the required timeframe. Recommendation – We recommend that the Government establish controls to ensure the reporting package is submitted to the FAC annually within the required timeframe. Government of the United States Virgin Islands Schedule of Findings and Questioned Costs Year Ended September 30, 2019 129 Views of Responsible Officials - The Government concurs with the auditor’s findings and recommendations. The planned corrective actions are presented in the Government’s Corrective Action Plan attached as Appendix B to the Single Audit Report. Management’s Appendices Status of Prior Audit Findings Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 130 Section I – Financial Statement Findings Finding 2018-001, 2017-001, 2016-009, 2015-009 and 2014-009: Financial Position Deficits in Unrestricted Net Position Current Status: Repeated. Finding 2019-001. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Government is continuing with its recovery efforts of working with federal partners, attracting new industries, improving financial controls, monitoring cash flows, and rebuilding equity. Plan Funding Considerations Current Status: Repeated. Finding 2019-001. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: In prior fiscal years, the Government allocated the relevant resources to conduct comprehensive studies and recommend revisions to benefits as well as establish funding policies to ensure the minimum ARC obligations are met each year. Much of the efforts put forth are now being deliberated by the Legislature for approval and submission to the Governor. Government Insurance Fund Current Status: Repeated. Finding 2019-001. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Executive and Legislative branches of the Government will collaborate to implement various recommendations of its actuary in an effort to provide for the long-term financial viability of the Fund. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 131 Finding 2018-002, 2017-003, 2016-001, 2015-001 and 2014-001: Year-End Close Process Timeliness and Methodology of Close Process Current Status: Repeated. Finding 2019-002. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: In an effort to develop reliable and timely interim and year-end financial statements, continuous communication and trainings will be made available to all finance users on one consistent and comparable reconciliation process that will allow for any needed adjustments prior to the 13th period. In this way, all accounts, accruals, and reconciliations will be available. Any unreconciled differences will be identified and resolved, with any applicable journal entries, recorded in the financial system of the Government. The Accounting Director, with oversight from the Assistant Commissioner, will continue to enforce the closing procedures whereby all post-closing and audit adjustments maintained in the manual excel working trial balance are reviewed, ratified, and recorded in the financial management system throughout the audit engagement, such that the general ledger reflects audited balances and correct opening balances for the upcoming fiscal year. As for more detail reconciliations between accounts that are not visible on a higher reconciliation overview, such as accurate federal classifications, or incorrect postings to grants, this will require additional human resources, to include the option of contractual agreement(s) to ensure that a more detail reconciliation is being completed. The Government will begin to assess the needs and take the necessary steps to provide necessary one-on-one meetings to identify the needs. Journal Entries Current Status: Repeated. Finding 2019-002. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: In an effort to maintain a desirable separation of duties, management has updated the policy by implementing controls whereas, the individual that creates a journal entry will not approve or post that journal. This was only available to limited staff at the Department of Finance and the policy has been made effective immediately. We are continuing to find these rare occurrences and reach out to those employees to follow Munis and system permissions. We also have to work with Munis to see if the names generated in the entry and posting area indeed denote no separation of duties. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 132 Finding 2018-003, 2017-004, 2016-002, 2015-002 and 2014-003: Revenue and Receivables Reconciliation of Subsidiary Registers Current Status: Repeated. Finding 2019-003. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: For purposes of interim financial reporting, the Bureau of Internal Revenue, Office of the Lieutenant Governor, and the Department of Finance have begun quarterly reconciliation meetings to reduce end of year adjustments, reconcile NSF checks in timely manner, and implement internal safeguards to allow for more efficient reconciliation. Optimum Usage of the Real Property Tax System Current Status: Repeated. Finding 2019-003. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: Department of Finance personnel will collaborate with the Lieutenant Governor’s office to determine possible modifications to the system to achieve the necessary data for financial reporting. Real Property Tax Current Status: Repeated. Finding 2019-003. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: Department of Finance personnel will collaborate with the Office of the Lieutenant Governor to determine and consider the recommendations set forth. Other Revenues Current Status: Repeated. Finding 2019-003. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 133 Corrective Action Plan: In an effort to provide adequate supporting documentations for sampled items, the Government will ensure that the procedures to attach the documents are fully adhered to. We will conduct spot checks to ensure employees are adhering to this process. Finding 2018-004, 2017-005, 2016-003, 2015-003 and 2014-004: Grants Management Control Systems Over the Schedule of Expenditures of Federal Awards Current Status: Repeated. Finding 2019-004. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The SEFA is prepared by the Department of Finance via a customized report that extracts information from the ERP system. However, the reconciliation of grant expenditures is ostensibly decentralized at the departmental/agency level. As such, departments/agencies are primarily responsible for performing the reconciliation function between grant expenditures and federal financial reports; which, in the long run, will improve the reliability of the SEFA and reporting to grantor agencies. Therefore, in an effort to enhance the monthly reconciliation function, the Office of Management and Budget will fully implement the Grants Management Module, per the ERP system. Given that certain financial data related to the SEFA is provided to the Department of Finance by certain third-parties using separate financial systems, the Department of Finance will continue to coordinate with said parties – through the respective department/agency – in order to mitigate the prospect of duplicating entries by documenting the roles, responsibilities, and timelines associated with posting financial data onto the central Government’s ERP system. Federal Grants and Contributions Current Status: Repeated. Finding 2019-004. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: In an effort to more accurately account for Federal receivables and related transactions, a private firm was contracted to work directly with the agencies to substantiate the Federal receivables. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 134 Finding 2018-005, 2017-002, 2017-006, 2016-004, 2015-004 and 2014-005: Capital Assets and Related Expenditures Record Keeping Current Status: Repeated. Finding 2019-005. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: Department of Property and Procurement will work collaboratively with Department of Finance to provide trainings and work on the structuring of the entire process to include key personnel and policies. The Government will review and update the necessary manuals to address all of the recommendations set forth. Reconciliation and Review of Subsidiary Registers Current Status: Repeated. Finding 2019-005. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: In an effort to verify that all assets in the subsidiary register are reviewed and updated with sufficient descriptions, corrected acquisition dates, and recalculated accumulated depreciation, the Government’s Capital Assets team will be responsible for reconciling the general ledger accounts to the detailed records on a quarterly basis. Construction in Progress (CIP) Monitoring Current Status: Repeated. Finding 2019-005. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Department of Property & Procurement will spearhead the monitoring and review of the Government’s capital assets and ensure reconciliation of supporting registers to its primary register. As the lead agency for managing the property of the Government, the Department of Property & Procurement will coordinate and communicate amongst all Government departments and/or agencies that are responsible for handling and managing capital assets. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 135 Capital Assets Impairment Process Current Status: Repeated. Finding 2019-005. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: In an effort to implement a formal process whereby a periodic impairment assessment is conducted and to ensure that all disposals and retirements are consistently processed, the Government will identify key personnel from various departments and agencies to form a Capital Assets team in addition to full implementation of the fixed assets module within the ERP system. Capital Assets – Business-Type Activities Current Status: Repeated. Finding 2019-005. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Government will review the recommendations and collaborate with Benham and Hodge (B&H) to incorporate for the fiscal year 2021 audit year. Finding 2018-006, 2017-007, 2016-005, 2015-005 and 2014-006: Recording of Liabilities Retroactive Pay Liability Current Status: Repeated. Finding 2019-006. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Division of Personnel (DOP) will work with the Office of Collective Bargaining (OCB) and the Office of Management and Budget (OMB) to develop a master file that will serve as a clearinghouse for collective bargaining agreements and negotiated pay rates for unionized public sector workers. The Government’s Chief Negotiator will take the lead in developing the master file containing negotiated pay rates. OCB management will coordinate with the Division of Personnel’s staff, to include the Director and Information Technology/Records Management staff, along with senior budget analysts from OMB to first develop a firm number with regard to the Government’s retroactive obligation. This process has already started. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 136 Additionally, on a bi-annual basis, the team will meet in order to compare negotiated employee salary rates to those contained in the official personnel records within the ERP system database. It must be noted that DOP functions as a facilitator with regard to the hiring process and relies on official financial information from OCB and OMB. OCB negotiates and interprets contract language for unionized public sector workers while OMB certifies the availability of funding for the purpose of wage implementation. DOP then reviews, audits, and implements newly negotiated wages. Medical Malpractice Liability Current Status: Repeated. Finding 2019-006. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Department of Health will allocate the requisite resources to properly evaluate the necessary information, which can then be provided to an actuarial service provider for purposes of facilitating the Government in calculating the year-end medical malpractice liability. Accounts Payable Current Status: Repeated. Finding 2019-006. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: At present, the ERP system does not allow departments/agencies to enter vendor invoices unless a sufficient allotment is approved by OMB. As a result of this system functionality, certain vendor invoices are set-aside, rather than entered (or accrued for immediately), until OMB provides for a periodic allotment – which may occur several months after year-end. Therefore, given that the OMB allotment process is the underlying controlling mechanism for entering vendor invoices, the Department of Finance must perform a manually intensive review of year-end transactions that are posted in a subsequent year. The Department of Finance will proactively collaborate with the software vendor supporting its ERP Accounts Payable module to ascertain whether a reduction in the existing manual efforts can be achieved. On-going training and employee development will be made available for all users of the accounts payable module and continuous development of the standard operating policies will be enhanced. Income Tax Refunds Payable Current Status: Repeated. Finding 2019-006. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 137 Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Bureau of Internal Revenue will revise its methodology in establishing the year-end liability and will continue to monitor the reports to avoid any duplication of reporting. Landfill Closure and Post Closure Costs Liability Current Status: Repeated. Finding 2019-006. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Government will work with its consultants to implement monitoring controls and ensure that all calculations are reviewed timely. Quality of Census Data Current Status: Repeated. Finding 2019-006. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: For the past three (3) years, since the implementation of the new Benefits system (V3), the Government Employees’ Retirement System (GERS) has been allocating resources to identify and correct inaccurate member data in the census database that is provided to our actuaries. Additionally, GERS will allocate displaced employees due to the suspension of the Loan Program to assist with the due diligence on the accuracy of the member information in the census database. The Division of Personnel will coordinate with the GERS Administrator to discuss how both agencies can collaborate to effectively improve the quality of the census data. It is anticipated that GERS and the Division of Personnel will do an annual comparative analysis of the employee and retiree related data held by both entities. During this process, data will be reconciled in both databases. After the initial reconciliation is completed, an annual review will be done to ensure that relevant information is synchronized within both systems. Information Technology and Records Management personnel from both agencies will be intimately involved in these meetings. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 138 Finding 2018-007, 2017-008, 2016-006, 2015-006 and 2014-007: Management of the Medicaid Program Cost Report Audits and System Security Review Current Status: Repeated. Finding 2019-007. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: Department of Finance has already begun conversations with the Department of Human Services on how the recommendations set forth can be achieved. Utilization Control and Medicaid Fraud Control Unit Current Status: Repeated. Finding 2019-007. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: During the fiscal year, the V.I. Medicaid Fraud Control Unit (MFCU) was established through a Memorandum of Understanding. The unit is located within the Department of Justice. The MFCU has Territory-wide authority to investigate and criminally prosecute (or refer for prosecution) cases of Medicaid fraud and patient abuse or neglect in residential care facilities. The MFCU may also bring civil actions to recover false Medicaid claims. The MFCU has a memorandum of understanding with the Virgin Islands Medicaid Program which describes the agencies' working relationship. Further, as the Medicaid Fraud Control Unit has been created, the program is in the process of developing its own internal controls in an effort to prevent unnecessary utilization of care and services. The Medical Assistance Program continues to conduct clinical reviews of all inpatient stays over ten days, including a clinical review of the Patient Care Plans. Finding 2018-008, 2017-009, 2016-007, 2015-007 and 2014-008: Unemployment Insurance Trust Fund Account Reconciliation Process Current Status: Repeated. Finding 2019-008. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 139 Corrective Action Plan: The Virgin Islands Department of Labor (VIDOL) recognizes the need to properly report the activities of the Unemployment Insurance Trust Fund. VIDOL has requested and received approval from the Virgin Islands Office of Management and Budget for the hiring of accountants, whose responsibilities will be to record the activities of the Fund in accordance with generally accepted accounting practices. In addition, as part of the year-end financial reporting process related to the Government’s financial statement preparation, VIDOL will work with the Department of Finance to ensure that it receives the Unemployment Insurance Trust Fund information timely. Finding 2018-009, 2017-010, 2016-008, 2015-008 and 2014-011: Workers Compensation Program Plan Valuation Methodology Current Status: Repeated. Finding 2019-009. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: Department of Finance will collaborate with the agency to consider the recommendations set forth. Finding 2018-010: Other Postemployment Benefits Obligation Administration and Recordkeeping Current Status: Repeated. Finding 2019-010. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: Department of Finance has already began working with the Division of Personnel on this matter. Going forward, we will continue to establish a process that will address the findings noted. Finding 2018-011, 2017-002, 2017-011, 2016-011, 2015-011 and 2014-010: Payroll, Related Accruals, and Other Expenditures Payroll Expenditures Current Status: Repeated. Finding 2019-011. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 140 Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: Department of Finance will collaborate with the Department of Human Resources to determine and consider the recommendations set forth. We have begun to utilize the STATS system in fiscal year 2021. Formalize Emergency Payroll Procedures Current Status: Repeated. Finding 2019-011 Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: With infrastructure improvements due to climate change and technology advances in remote capabilities due to the pandemic, the Government has made great strides in its controls to ensure continuation of normal operating procedures under the most stressful of circumstances. Protocols for emergency payroll processing are continuously updated. Transactions with Personnel Current Status: Repeated. Finding 2019-011. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Department of Finance will coordinate with the Office of the Governor to strengthen, recommunicate, and monitor the reimbursement policy of the Government. Furthermore, we are exploring systems for automatic reconciliations and will consider hiring someone to work at the Department of Finance, specifically to handle credit card payments. Supporting Documentation and Reporting for Expenditures Current Status: Repeated. Finding 2019-011. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 141 Corrective Action Plan: We will continue to enforce the Standard of Operating Procedures and Policies (SOPP) that all invoices are attached in the ERP system and closely examine the invoice approval process. As part of the invoice approval, invoices will be closely reviewed to ensure expenditures are recorded in the proper period and are supported in the Accounts Payable module. Finding 2018-012, 2017-012, 2016-010, 2015-010 and 2014-002: Bank Accounts Strengthen Controls Over Bank Reconciliations Current Status: Repeated. Finding 2019-012. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Treasury Director, with oversight from the Assistant Commissioner will reexamine the process to include reviewing outstanding checks and other reconciling items that have not cleared a specific bank account for more than one year. Upon identifying negotiable instruments that exceed the one-year threshold, the Treasury Director will develop an annual procedure to further research and validate the status of the reconciling items in an effort to ascertain whether they can be properly removed from on-going bank reconciliations, with the original transaction(s) reversed. Cash Pooling and Allocation(s) Current Status: Repeated. Finding 2019-012. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Treasury Director, with oversight from the Assistant Commissioner, will enhance the documentation provided to support the pooling and subsequent allocation of the cash accounts. Additional human capital has been provided to ensure that bank reconciliations are prepared timely as we continue to strive to improve the link between the confirmed cash account balances and cash balance per fund presented within the year-end financial statements. Finding 2018-013, 2017-013, 2016-012, 2015-012 and 2014-012: Information Technology Environment Current Status: Repeated. Finding 2019-013. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 142 Corrective Action Plan: Several enhancements have been made in alignment with correspondences to end users. Continuation of improvements is well underway. Finding 2018-014, 2017-014, 2016-013 and 2015-013: Landfill Consent Decrees Current Status: Repeated. Finding 2019-015. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Government of the Virgin Islands is currently seeking funding, through the Virgin Islands Legislature, to address the funding concerns and to organize the work flow to timely complete reports to meet EPA decrees concerning the various issues. Finding 2018-015, 2017-015, 2016-014 and 2015-014: Establishment of a Medical Malpractice Trust Fund Current Status: Repeated. Finding 2019-016. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Department of Health will continue to closely monitor the applicable laws related to professional medical malpractice by setting up a separate trust fund to be managed by a licensed broker or brokerage firm and to set up an investment plan approved by the Medical Malpractice Action Review Committee. Finding 2018-016, 2017-016 and 2016-015: Procurement Regulations Current Status: Repeated. Finding 2019-017. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Government will continue to take necessary measures to address noncompliance and perform periodic reviews of purchase orders, contracts, and profiles to ensure that internal policies and regulations are being adhered to. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 143 Finding 2018-017 and 2017-017: Casino Control Commission Current Status: Repeated. Finding 2019-018. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Government will request reporting from the Casino Control Commission on a quarterly basis as covered by the V.I. Code. We will review, request, and establish a working document on how this process will be conducted proceeding forward. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 144 Section II - Federal Award Findings (By Program) Program: Government Department/Agency: U.S. Department of Agriculture Supplemental Nutrition Assistance Program Cluster CFDA #: 10.551, 10.561 Award #: 1VI430457, 1VI400408 Award Year: 10/01/2016 – 09/30/2018 10/01/2017 – 09/30/2018 Department of Human Services (DHS) Finding 2018-018: Allowable Costs/Cost Principles – Non-Payroll Activities Current Status: Corrective action was taken. Finding not repeated in the current year. Finding 2018-019 and 2017-025: Allowable Costs/Cost Principles – Payroll Activities Current Status: Repeated. Finding 2019-019. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: During fiscal year 2019, the Human Resources (HR) department experienced delays with updating NOPAs due to staffing constraints. A full-time HR Generalist was hired for these financial programs in October 2019. The STATS time management system is scheduled to go live in October 2021. Timesheet approvals will be electronic and vetted by the required levels of management. The NOPA process is now refined where a new NOPA is generated each fiscal year based on the changes to the grant’s project number. This will ensure that NOPAs and subsequent payroll costs are properly captured to the right cost center. Finding 2018-020 and 2017-026: Allowable Costs/Cost Principles – Indirect Cost Activities Current Status: Corrective action was taken. Finding not repeated in the current year. Finding 2018-021, 2017-027, 2016-016, 2015-017 and 2014-015: Cash Management Current Status: On-going implementation. DHS has instituted the federal receivables reconciliation to ensure the proper controls over recording and reconciling drawdowns are properly filed. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 145 Finding 2018-022, 2017-028, 2016-017, 2015-018 and 2014-016: Equipment/Real Property Management Current Status: On-going implementation. DHS continues to collaborate its efforts with DPP in ensuring Federal and Local regulations are met. The reconciliation of the asset listing is ongoing. Additional staff is being recruited to support the reconciliation process and correct these issues. Finding 2018-023: Matching, Level of Effort, Earmarking Current Status: Repeated. Finding 2019-020. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: DHS will move forward with quarterly monitoring and compliance of the match requirements in accordance with our requirements to submit our FNS 777 and 778 Federal Financial Reports. Our financial reports will show we have met the required match of the Food and Nutrition Services. Monitoring and compliance review meetings will be held between the 1st and 15th of the month following the completed quarter. Finding 2018-024 and 2017-029: Period of Performance Current Status: Corrective action was taken. Finding not repeated in the current year. Finding 2018-025, 2017-030, 2016-018: Procurement/Suspension and Debarment Current Status: Repeated. Finding 2019-021. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: There was a mandatory requirement by DPP to have all vendors register with sam.gov as of July 2019. Effective October 1, 2020, the proof of the sams.gov is now included in the ERP requisitioning module and a permanent part of each purchase order record. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 146 Finding 2018-026: Reporting Current Status: On-going implementation. DHS will enforce its policy to ensure the compilation and review of the reports are done electronically and various reports must have electronic approval and certification requirements. Finding 2018-027 and 2017-033: Special Tests and Provisions – ADP System for SNAP- Recertifications Current Status: Corrective action was taken. Finding not repeated in the current year. Finding 2018-028 and 2017-032: Special Tests and Provisions – EBT Card Reconciliation Current Status: Corrective action was taken. Finding not repeated in the current year. Finding 2018-029 and 2017-031: Special Tests and Provisions – EBT Card Security Current Status: Repeated. Finding 2019-022. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: Sufficient staff is required to ensure the requisite checks and balances required for full Federal compliance. Staff is being hired, reassigned, and cross trained to oversee the reconciliation process. The current recertification process for the SNAP Administrative program requires the case file including the eligibility requirements assessment to be performed by an eligibility specialist and approved by a supervisor. Additionally, the SNAP program will prepare an SOPP specific to the handling of the EBT cards and related monthly reconciliations. Program: Government Department/Agency: U.S. Department of Agriculture Child Nutrition Cluster CFDA #: 10.555, 10.559 Award #: 1VI300308 Award Year: 10/01/2017 – 09/30/2018 Department of Education (DOE) Finding 2018-030, 2017-019, 2016-068, 2015-068 and 2014-058: Allowable Costs/Cost Principles – Indirect Cost Activities Current Status: On-going implementation. The Special Nutrition Programs continues to monitor all indirect cost expenditures to ensure that they are paid from the correct grants timely. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 147 The internal log implementation has assisted with the tracking of indirect cost postings forwarded for payment to the Department of Finance. Any discrepancy identified is communicated timely to the responsible entity in DOE to have the adjustment(s) or other necessary action(s) made to the correct account before the respective grant award expiration and subsequent liquidation period. Finding 2018-031, 2017-020, 2016-069, 2015-069 and 2014-059: Cash Management Current Status: On-going implementation. DOE will ensure that all drawdowns are reviewed, approved, and reconciled on a monthly basis. Finding 2018-032, 2017-021, 2016-070, 2015-070 and 2014-060: Equipment/Real Property Management Current Status: On-going implementation. The Special Nutrition Programs has been in contact with DPP and is receiving updates on the upcoming changes in place to address this finding. DOE will continue to work collaboratively with DPP to ensure adherence to Federal regulations related to equipment and its related maintenance.  Finding 2018-033 and 2017-022: Matching, Level of Effort, and Earmarking Current Status: On-going implementation. The missing information was not provided due to the storage area being damaged and files destroyed during the Hurricanes occurred in 2017. The State agency will work with the appropriate division in regard to proper storage of files. Finding 2018-034, 2017-023, 2016-071: Period of Performance Current Status: On-going implementation. The Program will work with the responsible entity to ensure that all expenditures are properly reviewed prior to approval and ensure that the expenditures are occurred within the period of performance as stipulated by the applicable Grant award document. Finding 2018-035 and 2017-024: Procurement/Suspension and Debarment Current Status: On-going implementation. The Program has communicated with DPP regarding the required contract provisions. Both entities are working collaboratively to include the necessary language or changes to ensure that the required provisions are included before execution of the contracts. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 148 Program: Government Department/Agency: U.S. Department of Agriculture Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) CFDA #: 10.557 Award #: 1VI700708 Award Year: 10/01/2017 – 09/30/2018 Department of Health (DOH) Finding 2018-036 and 2017-036: Equipment/Real Property Management Current Status: Repeated. Finding 2019-023. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: DOH and the WIC program will continue having a dialogue with DPP to bring a resolution to this deficiency. Finding 2018-037 and 2017-037: Procurement/Suspension and Debarment Current Status: Repeated. Finding 2019-024. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: DOH and the WIC program will continue to work with DPP to ensure that the requisite documents are included in the procurement package prior to processing. Program: Government Department/Agency: U.S. Department of Labor Unemployment Insurance CFDA #: 17.225 Award #: Various Award Year: 10/01/2012 – 12/31/2020 Department of Labor (VIDOL) Finding 2018-038, 2017-071, 2016-057, 2015-065 and 2014-054: Activities Allowed or Unallowed Current Status: Repeated. Finding 2019-033. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 149 Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The VIDOL Unemployment Insurance program has set in place a corrective action plan to establish internal controls, and procedures for the Virgin Islands Trust Fund accounts. This action plan will set forth criteria for periodic reconciliations of the VI revenue account (clearing account) and deposits, in addition to the cash draws for benefit payments from the Trust fund to the benefit account and provide guidelines in conformity with the CMIA agreement. The agency has launched a task force and conducted its first kick off meeting in July 2020. This plan will establish policies and procedures for the accounting and monthly reconciliation of the VI Trust Fund Accounts. VIDOL, in collaboration with OMB’s Compliance Manager, drafted the policy with an anticipated completion date of November 2021. VIDOL has hired a financial analyst who will be responsible for daily monitoring of VI Trust Fund account to ensure compliance with CMIA and Social Security Act clearance and depository regulations. The agency developed a data base tool to conduct monthly reconciliations of cash activity in the Trust Fund between the cash sources (employer contributions, penalty, interest, and surcharge). The agency will develop a data base tool to conduct monthly reconciliations of cash activity in the Trust Fund between cash uses (benefits paid, reimbursements, and outlays). This data base application is expected to be finalized and in production by November 2021. Finding 2018-039, 2017-072, 2016-058: Cash Management Current Status: Corrective action was taken. Finding not repeated in the current year. Finding 2018-040, 2017-073, 2016-059 and 2015-066: Eligibility Current Status: Repeated. Finding 2019-034. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The VIDOL Unemployment Insurance program has set in place a corrective action plan to establish internal controls and procedures for the Benefits Unit and will implement a schedule for regular file review and to prevent such discrepancies. As of November 2020, the agency has launched an electronic portal that processes claimants’ filings of initial, continued, re-open, and transitional claims. The system has validation processes that provide control mechanisms for claimants to respond to all pertinent questions surrounding initial eligibility and continued eligibility as per rules and regulations for eligibility under the Social Security Act and Public Law 112-96 Sec 2101. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 150 Through claimant electronic registration, attestation, filling out of employer on record, work history, work search history (able and available criteria), and past employment records, the Virgin Islands Unemployment Insurance program can verify through system cross match processes (wage record and interstate wage record verification) if eligibility has been established. Finding 2018-041: Matching, Level of Effort, Earmarking Current Status: Repeated. Finding 2019-035. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The VIDOL Unemployment Insurance program has set in place a corrective action plan to establish internal controls and procedures. The agency has launched a task force and conducted its first kick off meeting in July 2020. As of August 2021, the agency is still executing guidelines. The agency has established policy and procedures for the accounting and monthly reconciliation of the VI Trust Fund Accounts. VIDOL in collaboration with OMB’s Senior Analyst, drafted the policy with an anticipated completion date of November 2021. Program: Government Department/Agency: U.S. Department of Transportation Highway Planning and Construction Cluster CFDA #: 20.205 Award #/Name: Territorial Highway Program Implementation and Stewardship Agreement Award Year: 10/01/2016 – 09/30/2020 Department of Public Works (DPW) Finding 2018-042, 2017-070, 2016-050 and 2015-055: Equipment/Real Property Management Current Status: On-going implementation. DPW is working with the DPP to ensure that all equipment is registered, properly tagged, and reviewed by DPP in a prescribed required timeframe. DPW is also implementing its own asset management system to facilitate the tracking of all its own assets internally. DPW has received approval from DPP to acquire its own asset management software. The contract is currently being executed with the provider to assess, set up, and implement this system during this fiscal year. Finding 2018-043, 2016-051 and 2015-056: Procurement/Suspension and Debarment Current Status: Corrective action was taken. Finding not repeated in the current year. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 151 Program: Government Department/Agency: U.S. Department of Education Special Education – Grants to States (IDEA, Part B) CFDA #: 84.027 Award #: H027A150004-15A, H027A160004, H027A170004, H027A180004 Award Periods: 07/01/2015 – 09/30/2016 07/01/2016 – 09/30/2017 07/01/2017 – 09/30/2018 07/01/2018 – 09/30/2019 Department of Education (DOE) Finding 2018-044: Matching, Level of Effort, Earmarking Current Status: The Maintenance of Effort (MOE) has been met in subsequent years. The Districts in which the MOE information is derived were able to meet the MOE for fiscal years 2019 and prior. Each year, eligibility is ensured by setting the available budget at the level of the previous year's actual expenditures. MOE should be monitored continuously to ensure that the respective Local Education Agencies (LEA) meet compliance. An amendment has been added to the current DOE Maintenance of Effort Policy. MOE will be evaluated every quarter to ensure that the LEAs can meet compliance. This process is to include a review by the fiscal office certifying that the general ledger data is accurate for the respective period under review. This review and exchange should be done via email and saved properly for analysis and or adjustments. DOE will ensure eligibility for the MOE by ensuring an adequate amount is made available each year for the LEAs. The LEAs must ensure that they maintain the appropriate levels of effort. Program: Government Department/Agency: U.S. Department of Education Consolidated Grant to the Outlying Areas CFDA #: 84.403 Award #: S403A150007, S403A160004, S403A170004, S403A180004 Award Periods: 07/01/2015 – 09/30/2016 07/01/2016 – 09/30/2017 07/01/2017 – 09/30/2018 07/01/2018 – 09/30/2019 Department of Education (DOE) Finding 2018-045: Allowable Costs/Cost Principles – Payroll Activities Current Status: Corrective action was taken. Finding not repeated in the current year. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 152 Finding 2018-046: Subrecipient Monitoring Current Status: Corrective action was taken. Finding not repeated in the current year. Program: Government Department/Agency: U.S. Department of Health and Human Services Head Start CFDA #: 93.600 Award #: 02CH3011-04, 02CH3011-05, 02CH010576-01 Award Year: 07/01/2016 – 06/30/2017 07/01/2017 – 06/30/2018 07/01/2018 – 06/30/2019 Department of Human Services (DHS) Finding 2018-047 and 2017-039: Allowable Costs/Cost Principles – Payroll Activities Current Status: Corrective action was taken. Finding not repeated in the current year. Finding 2018-048, 2017-040, 2016-020, 2015-029 and 2014-026: Cash Management Current Status: On-going implementation. DHS will continue to enforce its policy with respect to review and approval of all drawdowns and month-end reconciliations. Also, DHS has instituted agency level of controls that address proper review of journal entries and receipt of reimbursements. Finding 2018-049, 2017-041, 2016-021, 2015-030 and 2014-028: Equipment/Real Property Management Current Status: Repeated. Finding 2019-052. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Department of Human Services (DHS) in collaboration with DPP will adhere to Federal regulations related to equipment and its related maintenance. DPP has initiated new/improved procedures to fully comply with all equipment purchases, inventory listing, and disposal of assets. Finding 2018-050 and 2017-042: Matching, Level of Effort, Earmarking Current Status: Corrective action was taken. Finding not repeated in the current year. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 153 Finding 2018-051, 2017-043 and 2016-022: Period of Performance Current Status: Corrective action was taken. Finding not repeated in the current year. Finding 2018-052: Reporting Current Status: Corrective action was taken. Finding not repeated in the current year. Program: Government Department/Agency: U.S. Department of Health and Human Services Children’s Health Insurance Program CFDA #: 93.767 Award #: 1705VQ5R21, 1805VQ5R21 Award Year: 10/01/2016 – 09/30/2017 10/01/2017 – 09/30/2018 10/01/2017 – 09/30/2019 Department of Human Services (DHS) Finding 2018-053: Activities Allowed or Unallowed Current Status: Repeated. Finding 2019-055. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The provider relations Medicaid Staff will ensure regular reviews of the data and additional levels of review by a supervisor or manager will be implemented. Finding 2018-054, 2017-057 and 2016-030: Cash Management Current Status: On-going implementation. DHS will enforce its policy with respect to review and approval of all drawdowns and month-end reconciliations. Additionally, DHS will institute agency level of controls that address proper review of journal entries and receipt of reimbursements. 31 CFR Section 205.12 (4) allows advance of funds up to 3 days prior to the date the funds are issued. DHS is working with the Government to adhere to the CMIA agreement or to modify accordingly. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 154 Finding 2018-055, 2017-058 and 2016-031: Matching, Level of Effort, Earmarking Current Status: Corrective action was taken. Finding not repeated in the current year. Finding 2018-056, 2017-059 and 2016-032: Reporting Current Status: Repeated. Finding 2019-056. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The MMIS bases the claims payments categorized as CHIP on the validated and adjudicated claims. The ERP system captures paid claims submitted on a cash basis. Once the new Medicaid Fiscal and Program staff implements the oversight of the compliance requirements, the timely reconciliation of the CHIP MMIS to the ERP will be performed. Program: Government Department/Agency: U.S. Department of Health and Human Services Department of Human Services (DHS) Medicaid Cluster CFDA #: 93.778 Award #: Various Award Year: 10/01/2015 – 09/30/2022 Finding 2018-057: Allowable Costs/Cost Principles – Non-Payroll Activities Current Status: Repeated. Finding 2019-057. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: Advance payments are no longer processed. DHS anticipates ending the storage of equipment and furniture by or before June 30, 2022. Finding 2018-058: Allowable Costs/Cost Principles – Payroll Activities Current Status: Corrective action was taken. Finding not repeated in the current year. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 155 Finding 2018-059, 2017-045, 2016-023, 2015-034, 2014-031, 2013-009 and 2012-09: Cash Management Current Status: On-going implementation. DHS will enforce its policy with respect to review and approval of all drawdowns and month-end reconciliations. Additionally, DHS will institute agency level of controls that address proper review of journal entries and receipt of reimbursements. 31 CFR Section 205.12 (4) allows advance of funds up to 3 days prior to the date the funds are issued. DHS is working with the Government to adhere to the CMIA agreement or to modify accordingly. Finding 2018-060, 2017-046, 2016-024 and 2015-035: Eligibility Current Status: Repeated. Finding 2019-058. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: DHS has identified a severe staffing shortage as a major contributor to the case management and eligibility determination and redeterminations of Medicaid members during fiscal year 2019. The caseload continued to grow and existing staff had to assume increased number of clients which contributed to some of the deficiencies identified. DHS has already implemented the following:  Hiring process to add Eligibility Specialists and Eligibility Information Clerks to provide timely and accurate determinations and redeterminations of eligible participants receiving Medicaid benefits.  An Eligibility Supervisor is being added to the St. Thomas/St. John district to provide direct overview of the Eligibility Supervisors and Eligibility Information Clerks.  Quality Control Reviewers are being hired in each district who will be providing additional sampling of the Eligibility Case files on a monthly basis. Additionally, on a monthly basis, the Eligibility Supervisors will review a sample of 10 new determinations and re-determinations of Eligibility files for accuracy. A written report of the sample review will be submitted by the Eligibility Supervisors to the Director of Operations including errors identified and training plan for staff identified who made said errors or omissions. On a quarterly basis, the Director of Operations and Eligibility Supervisors will complete an analysis report identifying common errors and training and improvement plans for staff to improve accuracy and submit to the Medicaid Director. Finding 2018-061 and 2017-047: Matching, Level of Effort, Earmarking Current Status: Repeated. Finding 2019-059. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 156 Corrective Action Plan: DHS will assign resources responsible to ensure periodic monitoring and compliance of the match requirement throughout the fiscal year. Finding 2018-062: Period of Performance Current Status: Corrective action was taken. Finding not repeated in the current year. Finding 2018-063 and 2017-048: Procurement/Suspension and Debarment Current Status: On-going implementation. DHS added fiscal staff trained on the procurement procedures to the requisition workflow to ensure that the procurement rules are being followed appropriately. Finding 2018-064 and 2017-049: Reporting Current Status: Repeated. Finding 2019-060. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: A vendor has been contracted to perform data review and populate the requisite information in the quarterly financial report and ensure timely submission. Finding 2018-065, 2017-055, 2016-028, 2015-040, 2014-033, 2013-018 and 12-15: Special Tests and Provisions - Utilization Control and Program Integrity Current Status: Repeated. Finding 2019-061. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: DHS is in the process of recruiting a permanent, full-time Director of Program Integrity position who will enforce the necessary controls and procedures to safeguard against unnecessary utilization of care and services and to identify, investigate, and refer suspected fraud cases. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 157 Finding 2018-066, 2017-052, 2016-025, 2015-036, 2014-035, 2013-019 and 12-16: Special Tests and Provisions - Inpatient Hospital and Long-Term Care Facility Audits Current Status: Repeated. Finding 2019-062. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: DHS has engaged in providing viable training to the hospitals, clinics, and federally qualified health centers to increase capacity in submitting their timely cost reports which will in turn assist in the overall Territorial cost report submission. Finding 2018-067 and 2017-054: Special Tests and Provisions – ADP Risk Analysis and System Security Review Current Status: Repeated. Finding 2019-063. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Medical Assistance Program continues to work in implementing its required ADP Risk Analysis and System Security. Finding 2018-068 and 2017-051: Special Tests and Provisions – Provider Eligibility Current Status: Repeated. Finding 2019-064. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The provider agreement process has been streamlined to ensure that all approval and documents on file are timely and current. The DHS Medicaid and CHIP Division will be implementing a new computerized Provider Enrollment Application (PEA) which will address the deficiencies identified. Finding 2018-069, 2017-053, 2016-026, 2015-038, 2014-034, 2013-022 and 12-21: Special Tests and Provisions - Medicaid Fraud Control Unit Current Status: Repeated. Finding 2019-065. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 158 Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: DOJ is responsible for staffing the Medicaid Fraud Control Unit to ensure proper objective oversight and separation of duties from the Medicaid program. DOJ assigned a full time Assistant Attorney General with oversight of the Medicaid Fraud Control Unit at the end of fiscal year 2020. Additionally, a Special Agent/Investigator was added to the Unit. The Unit also receives support from DOJ’s Investigators funded with local government funds. The Medicaid Fraud Control Unit is now fully staffed. Finding 2018-070 and 2017-050: Special Tests and Provisions – Federal Financial Participation Refunds Current Status: Repeated. Finding 2019-066. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The policy of required processes to identify cancelled and uncashed checks beyond 180 days will be implemented by the first quarter of fiscal year 2022. Program: Government Department/Agency: U.S. Department of Homeland Security Community Disaster Loans CFDA #: 97.030 Award #: 1660-0083 EMN-2019-TF-4335VI02, 1660-0083 EMN-2018-TF·4335VI03, 1660-0083 EMN-2018-TF-4335VI04 Award Year: 01/03/2018 – 10/01/2037 Department of Finance (DOF) Finding 2018-071: Activities Allowed or Unallowed and Allowable Costs/Cost Principles, Period of Performance Current Status: Corrective action was taken. Finding not repeated in the current year. Finding 2018-072: Cash Management Current Status: Corrective action was taken. Finding not repeated in the current year. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 159 Program: Government Department/Agency: U.S. Department of Homeland Security Disaster Grants - Public Assistance (Presidentially Declared Disasters) CFDA #: 97.036 Award #: FEMA-4335-DR, FEMA-4340-DR-VI Award Periods: 09/20/2017 – 09/07/2025 09/07/2017 – 09/16/2025 Virgin Islands Territorial Emergency Management Agency (VITEMA) Finding 2018-073: Reporting Current Status: Repeated. Finding 2019-068. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: VITEMA’s process includes PA Employee to monitor and compare the information on the quarterly reports to the project worksheet financial records for completeness, accuracy, and consistency as well as email reminders with the due date of the quarterly reports. Program: CFDA # 10.551, 10.561 Supplemental Nutrition Assistance Program Cluster CFDA # 10.555, 10.559 Child Nutrition Cluster CFDA # 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) CFDA # 17.225 Unemployment Insurance CFDA # 20.205 Highway Planning and Construction Cluster CFDA # 84.027 Special Education – Grants to States (IDEA, Part B) CFDA # 84.403 Consolidated Grant to the Outlying Areas CFDA # 93.600 Head Start CFDA # 93.767 Children’s Health Insurance Program CFDA # 93.778 Medicaid Cluster CFDA # 97.030 Community Disaster Loans CFDA # 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) Finding 2018-074 and 2017-088: Data Collection Form and Single Audit Reporting Package Current Status: Repeated. Finding 2019-069. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 160 Corrective Action Plan: The Government fell considerably behind as a result of two Category 5 hurricanes that significantly damaged the Virgin Islands infrastructure. The Government remains committed to and is focusing its efforts towards timely submission of the Data Collection Form and Reporting Package. Program: Government Department/Agency: U.S. Department of Health and Human Services Department of Health (DOH) Epidemiology and Laboratory Capacity for Infectious Diseases CFDA #: 93.323 Award #: CK000377-03 Award Year: 08/01/2014 – 07/31/2019 Finding 2017-060: Cash Management Current Status: On-going implementation. The DOH’s Office of Federal Grants Management (OFGM) has improved its documentation and drawdown process by implementing improved Standard Procedures to outline the steps of the process. There must be a draw request sent to the Senior System Analyst from the Portfolio Representatives. The draw request documents the date the draw is requested, the grant identification, the amount of funding requested, and the explanation of the request. The request and the proof of check cut is sent into Treasury along with the draw request. The mandated turnaround on posting the drawdown is 3 days. Turnaround has improved and posting back to the DOF has improved. Finding 2017-061: Equipment/Real Property Management Current Status: On-going implementation. The DOH’s Program Directors will maintain an internal listing of all equipment purchased by Federal funds, respective to their Program(s). This listing will be shared with DPP upon their Department annual inspection. DOH will utilize the Federal forms for equipment documentation, as they are required for Program Closeout. Finding 2017-062: Reporting Current Status: On-going implementation. A standard letterhead was improved and implemented to identify the DOH’s reporting of financial, programmatic, and special reports. All programmatic correspondences, reports, and special requests are signed off by the Program Director and the Deputy Commissioners. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 161 Program: Government Department/Agency: U.S. Department of Health and Human Services Child Support Enforcement CFDA #: 93.563 Award #: 1704VICSES, 1704VICEST Award Year: 10/01/2016 – 09/30/2017 Department of Justice (DOJ) Finding 2017-063 and 2016-038: Allowable Costs/Cost Principles – Payroll Activities Current Status: Repeated. Finding 2019-041. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The fiscal staff will work closely with its Human Resources Division and DOF on the payroll allocation setup. A review of all NOPAs upon issuance will be performed to ensure all payroll codes are coded with the 66/34 federal/local match. Time certifications for all employees are completed quarterly with the employee, employee’s supervisor, and the PCSD Director signatures certifying staff worked for the program. Each employee’s timecard is approved by the employee’s supervisor and the agency head before submission to DOF. On a biweekly basis, the fiscal staff reviews all charges to its federal awards for salaries and wages to accurately reflect the work performed for each employee’s timecard. Monthly reconciliations on the payroll registers are performed and the fiscal staff work with DOF to rectify any discrepancies. Standard Operating Procedures have been amended to include these corrective actions. Review and reconciliation of corrective actions has been performed by the fiscal staff and a report is provided to the PCSD Director. Finding 2017-064: Allowable Costs/Cost Principles – Indirect Cost Activities Current Status: Repeated. Finding 2019-042. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: Monthly reconciliations will be performed on ERP’s expenditure reports and the fiscal staff is working closely with DOF to ensure reporting is accurate during the fiscal year. DOJ-PCSD will ensure all direct charges for the fiscal year are accounted for and the approved rate is utilized to calculate the indirect cost amount. The calculation along with supporting documentation will be reviewed by the PCSD Director prior to submission of reimbursement request to the Grantor. DOJ-PCSD will work closely with OMB and DOF on the recording of funds to the ERP system. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 162 Finding 2017-065, 2016-040, 2015-049 and 2014-047: Cash Management Current Status: Repeated. Finding 2019-043. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: DOJ is in the process of reviewing its internal controls and standard policies and procedures manuals for all aspects of the financial functions within the Child Support Enforcement program. Monthly reconciliations will also be performed on ERP’s expenditure reports and the fiscal staff is working closely with DOF to ensure reporting is accurate throughout the fiscal year. Finding 2017-066, 2016-041, 2015-050 and 2014-048: Equipment/Real Property Management Current Status: On-going implementation. The equipment and real property accountability is on-going. An internal procedure is being carried out by the DOJ-PCSD MIS Division. Finding 2017-067 and 2016-042: Matching, Level of Effort, Earmarking Current Status: Repeated. Finding 2019-044. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: DOJ-PCSD fiscal staff has created a matching requirement excel spreadsheet that accounts for all expenditures prior to the costs being charged to its fiscal budgets. The spreadsheet is formulated to provide the breakdown of the federal and local amounts which is monitored throughout the fiscal year. This will ensure the local matching requirement is met. Standard operating procedures along with the matching spreadsheet have been established. Finding 2017-068 and 2016-044: Reporting Current Status: On-going implementation. The policies and procedures will be put in place concerning monitoring and review of reports. When PCSD receives the report, it is reviewed by the PCSD’s fiscal staff and the PCSD Director. Also, a vendor has been hired to monitor the report process. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 163 Program: Government Department/Agency: U.S. Department of the Interior Economic, Social, and Political Development of the Territories CFDA #: 15.875 Award #: Various Award Year: Various Various Finding 2017-074, 2015-062 and 2014-051: Cash Management Current Status: Repeated. Finding 2019-030. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The Government endeavors to exercise due diligence in requesting and reconciling all Federal funds consistent with the governing requirements. Every effort is being made by the responsible parties to ensure full compliance in the future. Finding 2017-075, 2015-063 and 2014-053: Equipment/Real Property Management Current Status: Repeated. Finding 2019-031. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The OMB, in collaboration with the DPP, will adhere to Federal regulations related to equipment and its related maintenance. DPP has initiated new/improved procedures to fully comply with all equipment purchases, inventory listing, and disposal of assets. Finding 2017-076 and 2015-064: Procurement/Suspension and Debarment Current Status: Corrective action was taken. Finding not repeated in the current year. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 164 Program: Government Department/Agency: U.S. Department of Defense National Guard Military Operations and Maintenance (O&M) Projects CFDA #: 12.401 Award #: W9127P-15-2-1000 Award Year: 10/01/2016 - 09/30/2017 Office of the Adjutant General (OTAG) Finding 2017-077: Allowable Costs/Cost Principles – Payroll Activities Current Status: Repeated. Finding 2019-025. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: New policies and procedures have been created to address the payroll process of authorizing and moving grant funded personnel to the appropriate grant year. Finding 2017-078, 2016-045 and 2015-051: Cash Management Current Status: Repeated. Finding 2019-026. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: OTAG developed a new Policies and Procedures Manual to address the preparation and submission of SF-270 report. In addition, a Chief Financial Officer has been assigned to ensure separation of duties in financial reporting. Finding 2017-079, 2016-046 and 2015-052: Matching, Level of Effort, Earmarking Current Status: Repeated. Finding 2019-027. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: The master cooperative agreements through the appendices identifies the cost share and what is required by persons performing management functions. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 165 In addition, OTAG has developed a new Policies and Procedures Manual which includes tracking the match fulfilment for each expenditure. Finding 2017-080, 2016-047: Period of Performance Current Status: Repeated. Finding 2019-028. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: OTAG has developed new policies and procedures to address pre-award costs and the 90 days close out process. Finding 2017-081, 2016-048, 2015-053 and 2014-049: Reporting Current Status: Repeated. Finding 2019-029. Reason for Recurrence: The Government is focused on improving its procedures. There are areas that were addressed and other areas that are still in the process of implementing new internal controls and procedures. Further, various employee transition issues have impacted the continued progression towards completed remediation. Corrective Action Plan: OTAG developed a new Policies and Procedures Manual to address the preparation and submission of SF-270 report. In addition, a Chief Financial Officer has been assigned to ensure separation of duties in financial reporting. Program: Government Department/Agency: U.S. Environmental Protection Agency Performance Partnership Grants CFDA #: 66.605 Award #: Various Award Year: 10/01/2009 – 3/31/2018 Department of Planning and Natural Resources (DPNR) Finding 2017-082: Allowable Costs/Cost Principles – Indirect Cost Activities Current Status: On-going implementation. The program will ensure that all indirect cost agreements are forwarded to United States Environmental Protection Agency (USEPA) for approval and for any indirect agreement that is not current, DPNR will obtain USEPA written approval to utilize such rates. In addition, the calculation and allocation of all indirect costs, along with the indirect cost analysis supporting spreadsheet, for the determination of the indirect costs is reviewed by the internal auditor and Business Office Director to ensure accuracy. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 166 Finding 2017-083: Cash Management Current Status: On-going implementation. In fiscal year 2020, an accountant was hired to assist in the drawdown process and to allow for segregation of duties and effective reviews. The drawdown process per the DPNR SOP will be closely followed and the financial staff is working diligently to ensure draws are executed within 30 days after USEPA approves the SF-270 and within the grant period. Finding 2017-084: Equipment/Real Property Management Current Status: On-going implementation. Staff has been identified to work closely with the administrative staff of DPP to ensure all fixed asset purchases and the documentation are timely forwarded to the Business Office staff to ensure accurate and complete inventory records. In addition, DPNR is working closely with DPP to ensure that both agencies’ records reconcile. Finding 2017-085: Matching, Level of Effort, Earmarking Current Status: On-going implementation. A spreadsheet is prepared for all local matches to ensure an accurate calculation and allocation. These documentations are reviewed by the Program Manager, Division Director, and the Director of the Business Office. Finding 2017-086: Procurement/Suspension and Debarment Current Status: On-going implementation. All procurement transactions are conducted following the procurement laws per DPNR SOP and DPP manual. However, staff did not properly file and save the documentation that indicated whether the vendors conducting business with the Government are not suspended or debarred. Going forward, staff was mandated to file and store all of the documentation based on the debarment verification. Finding 2017-087: Reporting Current Status: On-going implementation. The Director of the Division of Environmental Protection reviews all reports before submission to USEPA. It has been mandated that all reports to all federal agencies be signed by all divisional directors throughout DPNR. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 167 Program: Government Department/Agency: U.S. Department of Health and Human Services Aging Cluster CFDA #: 93.044, 93.045, 93.053 Award #: 1601VISOSR, 1501VISOSR, 1401VISOSR Award Year: 10/01/2015 - 09/30/2018 10/01/2014 – 09/30/2017 10/01/2013 – 09/30/2016 Department of Human Services (DHS) Finding 2016-034: Cash Management Current Status: On-going implementation. Non-governmental emails are no longer being used. DHS continues to take corrective measures to resolve the cash management issue. Finding 2016-035: Eligibility Current Status: On-going implementation. DHS is committed to implementing internal policies and procedures to determine eligibility by developing a checklist of requirements and ensuring that it is consistently used. Finding 2016-037: Subrecipient Monitoring Current Status: On-going implementation. The subrecipient monitoring on subgrantees has been implemented with the requirements of reports submission and other performance requirements. Program: Government Department/Agency: U.S. Department of Labor Employment Service Cluster CFDA #: 17.207, 17.801 Award #: ES260501455A78, ES275221555A78, ES294431655A78, ES275221555A78, ES260501455A78, ES246501355A78, DV64, 266241555578 Award Year: 07/01/2014 – 09/30/2017 07/01/2015 – 09/30/2018 07/01/2016 – 07/01/2019 07/01/2015 – 09/30/2018 07/01/2014 – 09/30/2017 07/01/2013 – 09/30/2016 10/01/2015 – 09/30/2016 Department of Labor (VIDOL) Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 168 Finding 2016-064: Cash Management Current Status: On-going implementation. DOL will enforce its policy that all drawdowns are thoroughly reviewed and approved before request is submitted. Program: Government Department/Agency: U.S. Department of Health and Human Services Temporary Assistance for Needy Families Cluster CFDA #: 93.558 Award #: 1501VITANF Award Year: 10/01/2014 - 09/30/2015 Department of Human Services (DHS) Finding 2015-020 and 2014-018: Activities Allowed or Unallowed Current Status: On-going implementation. DHS continues to work with its Federal partners to rectify the issue of funding distribution. A complete historic reconciliation of the account is wrapping up as requested by our Federal partners. This will allow for the funding to be distributed according to the areas of need eliminating overspending in one area and underspending in the other. Finding 2015-023 and 2014-020: Eligibility Current Status: On-going implementation. The Department continues to reinforce policies and procedures with staff during regularly scheduled meetings. Additionally, periodic internal audits of the files are completed to ensure compliance. Finding 2015-024: Equipment/Real Property Management Current Status: On-going implementation. There was severe staff displacement. Hence, the Department of Human Services continues to move forward in implementing its corrective action plan. Finding 2015-026 and 2014-022: Special Tests and Provisions - Child Support Non-Cooperation Current Status: On-going implementation. The Department continues to reinforce policies and procedures with staff during regularly scheduled meetings. Additionally, periodic internal audits of the files are completed to ensure compliance. Finding 2015-027 and 2014-023: Special Tests and Provisions - Penalty for Refusal to Work Current Status: On-going implementation. The Department continues to reinforce policies and procedures with staff during regularly scheduled meetings. Additionally, periodic internal audits of the files are completed to ensure compliance. Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 169 Finding 2015-028, 2014-025, 2013-017 and 12-14: Special Tests and Provisions - Income Eligibility and Verification System Current Status: On-going implementation. The implementation project of the new eligibility system is restarting with expected completion in fiscal year 2021. In the interim, DHS staff are periodically retrained on policies and procedures relevant to programmatic rules and regulation. Program: Government Department/Agency: U.S. Department of Commerce Coastal Zone Management Administration Awards CFDA #: 11.419 Award #: Various Award Year: 10/01/2014 - 09/30/2015 Department of Planning and Natural Resources (DPNR) Finding 2015-042 and 2014-040: Allowable Costs/Cost Principles - Payroll Activities Current Status: On-going implementation. The Program continues to ensure that adjustment vouchers are processed on a bi-weekly basis. Finding 2015-043 and 2014-041: Equipment/Real Property Management Current Status: On-going implementation. Concerted efforts were implemented to create a record of the equipment that was lost. Despite these challenges, the Department continues to work towards updating its records and reconciling all new equipment purchases going forward. Finding 2015-045: Reporting Current Status: On-going implementation. DPNR continues to closely monitor the grantor’s electronic system for reporting, so that accessibility issues can be noted early enough to allow for a resolution that will enable timely submission of financial, programmatic, and special reports. Program: Government Department/Agency: U.S. Department of Commerce Coral Reef Conservation Program CFDA #: 11.482 Award #: NA11NOS4820004/NA13NOS4820011 Award Year: 10/01/2014 – 09/30/2015 Department of Planning and Natural Resources (DPNR) Government of the United States Virgin Islands Appendix A: Status of Prior Audit Findings Year Ended September 30, 2019 170 Finding 2015-046 and 2014-044: Allowable Costs/Cost Principles - Payroll Activities Current Status: On-going implementation. The Program’s loss of administrative staff resulted in the incomplete reports of time and effort certifications. Finding 2015-047: Equipment/Real Property Management Current Status: On-going implementation. DPNR continues to collaborate with DPP staff to reconcile all equipment purchases within the department. Finding 2015-048 and 2014-045: Matching, Level of Effort, Earmarking Current Status: On-going implementation. The Program continues to utilize the Time Distribution for the CZM Director, Accountant, and Grant Manager to track in-kind match associated with this award. Corrective Action Plan Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 171 Page Number Finding Contact Estimated Completion Date Corrective Action 33 33 34 2019-001: Financial Position  Deficits in Unrestricted Net Position  Plan Funding Considerations  Government Insurance Fund The Governor’s Financial Team The management team of the Office of the Governor, Office of Management and Budget, Department of Finance, and Government Employees’ Retirement System The Governor, President, V.I. Legislature, Commissioner, Department of Finance On-going On-going On-going The Government is continuing with its recovery efforts of working with federal partners, attracting new industries, improving financial controls, monitoring cash flows, and rebuilding equity. In prior fiscal years, the Government allocated the relevant resources to conduct comprehensive studies and recommend revisions to benefits as well as establish funding policies to ensure the minimum ARC obligations are met each year. Much of the efforts put forth are now being deliberated by the Legislature for approval and submission to the Governor. The Executive and Legislative branches of the Government will collaborate to implement various recommendations of its actuary in an effort to provide for the long-term financial viability of the Fund. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 172 Page Number Finding Contact Estimated Completion Date Corrective Action 35 2019-002: Year-End Close Process  Timeliness and Methodology of Close Process The management team of the Department of Finance; specifically, the Assistant Commissioner and the Directors of Accounting, Treasury, and Payroll Immediately In an effort to develop reliable and timely interim and year-end financial statements, continuous communication and trainings will be made available to all finance users on one consistent and comparable reconciliation process that will allow for any needed adjustments prior to the 13th period. In this way, all accounts, accruals, and reconciliations will be available. Any unreconciled differences will be identified and resolved, with any applicable journal entries, recorded in the financial system of the Government. The Accounting Director, with oversight from the Assistant Commissioner, will continue to enforce the closing procedures whereby all post-closing and audit adjustments maintained in the manual excel working trial balance are reviewed, ratified, and recorded in the financial management system throughout the audit engagement, such that the general ledger reflects audited balances and correct opening balances for the upcoming fiscal year. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 173 Page Number Finding Contact Estimated Completion Date Corrective Action 36 36  Journal Entries  Due from Other Governments Department of Finance management, specifically the Director of Accounting and Financial Reporting The management team of the Office of Disaster Recovery of the Public Finance Authority Immediately Immediately As for more detail reconciliations between accounts that are not visible on a higher reconciliation overview, such as accurate federal classifications, or incorrect postings to grants, this will require additional human resources, to include the option of contractual agreement(s) to ensure that a more detail reconciliation is being completed. The Government will begin to assess the needs and take the necessary steps to provide necessary one-on-one meetings to identify the needs. In an effort to maintain a desirable separation of duties, management has updated the policy by implementing controls whereas, the individual that creates a journal entry will not approve or post that journal. This was only available to limited staff at the Department of Finance and the policy has been made effective immediately. We are continuing to find these rare occurrences and reach out to those employees to follow Munis and system permissions. We also have to work with Munis to see if the names generated in the entry and posting area indeed denote no separation of duties. To enhance existing controls, the Government has established the Office of Disaster Recovery to report and manage disaster recovery funds, ensuring coordination between the Government and its component units. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 174 Page Number Finding Contact Estimated Completion Date Corrective Action The Government has also entered into Memorandum of Understanding (MOUs) agreements with the Virgin Islands Housing Finance Authority and the Virgin Islands Water and Power Authority establishing internal controls over the utilization of consultants under the FEMA consulting contracts. The MOUs establish procedures for the receipt and approval of invoices by the component units. 37 37 2019-003: Revenue and Receivables  Reconciliation of Subsidiary Registers  Optimum Usage of the Real Property Tax System Assistant Chief of Processing, Tax Assessor, and the designated staff in collaboration with Director of Treasury and as needed, the Director of Accounting The management team of the Department of Finance and Office of the Lieutenant Governor, specifically, the Director of Accounting, Tax Assessor, and the Chief of Staff Fiscal Year 2020 Fiscal Year 2021 For purposes of interim financial reporting, the Bureau of Internal Revenue, Office of the Lieutenant Governor, and the Department of Finance have begun quarterly reconciliation meetings to reduce end of year adjustments, reconcile NSF checks in timely manner, and implement internal safeguards to allow for more efficient reconciliation. Department of Finance personnel will collaborate with the Lieutenant Governor’s office to determine possible modifications to the system to achieve the necessary data for financial reporting. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 175 Page Number Finding Contact Estimated Completion Date Corrective Action 38 38 39 39  Tax Return Processing Method  Real Property Tax  Allowance for Doubtful Accounts  Other Revenues The management team of the Bureau of Internal Revenue; specifically, Assistant Chief of Processing The management team of the Office of the Lieutenant Governor; specifically, the Tax Collector and the Chief of Staff The management team of the Office of the Lieutenant Governor; specifically, the Tax Collector and the Chief of Staff Department of Finance management, specifically the Treasury Director and Assistant Director Immediately Immediately Immediately Immediately The Bureau recognizes there are opportunities for training and system enhancements to increase our accuracy in the data entry area and the systems monitoring area. We will re-evaluate and re-establish all formal processing procedures, re-train the staff, and review the policies and procedures of refund processing to increase accuracy and minimize errors. Department of Finance personnel will collaborate with the Office of the Lieutenant Governor to determine and consider the recommendations set forth. Department of Finance personnel will collaborate with the Office of the Lieutenant Governor to determine and consider the recommendations set forth. In an effort to provide adequate supporting documentations for sampled items, the Government will ensure that the procedures to attach the documents are fully adhered to. We will conduct spot checks to ensure employees are adhering to this process. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 176 Page Number Finding Contact Estimated Completion Date Corrective Action 40 2019-004: Grants Management  Control Systems Over the Schedule of Expenditures of Federal Awards For the Grants Management Module, the Director, Office of Management and Budget and with respect to the SEFA, the Commissioner, Department of Finance Immediately The SEFA is prepared by the Department of Finance via a customized report that extracts information from the ERP system. However, the reconciliation of grant expenditures is ostensibly decentralized at the departmental/agency level. As such, departments/agencies are primarily responsible for performing the reconciliation function between grant expenditures and federal financial reports; which, in the long run, will improve the reliability of the SEFA and reporting to grantor agencies. Therefore, in an effort to enhance the monthly reconciliation function, the Office of Management and Budget will fully implement the Grants Management Module, per the ERP system. Given that certain financial data related to the SEFA is provided to the Department of Finance by certain third-parties using separate financial systems, the Department of Finance will continue to coordinate with said parties – through the respective department/agency – in order to mitigate the prospect of duplicating entries by documenting the roles, responsibilities, and timelines associated with posting financial data onto the central Government’s ERP system. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 177 Page Number Finding Contact Estimated Completion Date Corrective Action 41  Federal Grants and Contributions The Director, Office of Management and Budget and Director of Accounting Fiscal Year 2021 In an effort to more accurately account for Federal receivables and related transactions, a private firm was contracted to work directly with the agencies to substantiate the Federal receivables. 42 43 2019-005: Capital Assets and Related Expenditures  Record Keeping  Reconciliation and Review of Subsidiary Registers The Commissioner, Department of Property & Procurement and Department of Finance Various designated individuals within the Department of Property and Procurement and the Department of Public Works to formulate a Capital Assets team, and Department of Finance Immediately Fiscal Year 2021 Department of Property and Procurement will work collaboratively with Department of Finance to provide trainings and work on the structuring of the entire process to include key personnel and policies. The Government will review and update the necessary manuals to address all of the recommendations set forth. In an effort to verify that all assets in the subsidiary register are reviewed and updated with sufficient descriptions, corrected acquisition dates, and recalculated accumulated depreciation, the Government’s Capital Assets team will be responsible for reconciling the general ledger accounts to the detailed records on a quarterly basis. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 178 Page Number Finding Contact Estimated Completion Date Corrective Action 43 44 45  Construction in Progress (CIP) Monitoring  Capital Assets Impairment Process  Capital Assets – Business-Type Activities The Commissioner, Department of Property & Procurement Various designated individuals within the Department of Property and Procurement and the Department of Public Works to formulate a Capital Assets team Department of Finance, Executive Assistant Commissioner, Director of Accounting and Financial Reporting, and Capital Asset Coordinator Immediately Immediately Fiscal Year 2021 The Department of Property & Procurement will spearhead the monitoring and review of the Government’s capital assets and ensure reconciliation of supporting registers to its primary register. As the lead agency for managing the property of the Government, the Department of Property & Procurement will coordinate and communicate amongst all Government departments and/or agencies that are responsible for handling and managing capital assets. In an effort to implement a formal process whereby a periodic impairment assessment is conducted and to ensure that all disposals and retirements are consistently processed, the Government will identify key personnel from various departments and agencies to form a Capital Assets team in addition to full implementation of the fixed assets module within the ERP system. The Government will review the recommendations and collaborate with Benham and Hodge (B&H) to incorporate for the fiscal year 2021 audit year. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 179 Page Number Finding Contact Estimated Completion Date Corrective Action 46 2019-006: Recording of Liabilities  Retroactive Pay Liability The management team of the Division of Personnel; specifically, the Information Technology Manager, Personnel Records Supervisor, OMB Director, and Senior Budget Analysts Fiscal Year 2021 The Division of Personnel (DOP) will work with the Office of Collective Bargaining (OCB) and the Office of Management and Budget (OMB) to develop a master file that will serve as a clearinghouse for collective bargaining agreements and negotiated pay rates for unionized public sector workers. The Government’s Chief Negotiator will take the lead in developing the master file containing negotiated pay rates. OCB management will coordinate with the Division of Personnel’s staff, to include the Director and Information Technology/Records Management staff, along with senior budget analysts from OMB to first develop a firm number with regard to the Government’s retroactive obligation. This process has already started. Additionally, on a bi-annual basis, the team will meet in order to compare negotiated employee salary rates to those contained in the official personnel records within the ERP system database. It must be noted that DOP functions as a facilitator with regard to the hiring process and relies on official financial information from OCB and OMB. OCB negotiates and interprets contract language for unionized public sector workers while OMB certifies the availability of funding for the purpose of wage implementation. DOP then reviews, audits, and implements newly negotiated wages. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 180 Page Number Finding Contact Estimated Completion Date Corrective Action 47 47  Medical Malpractice Liability  Accounts Payable The Commissioner, Department of Health The management team of the Department of Finance; specifically, the Assistant Commissioner and Director of Accounting Fiscal Year 2021 Immediately The Department of Health will allocate the requisite resources to properly evaluate the necessary information, which can then be provided to an actuarial service provider for purposes of facilitating the Government in calculating the year-end medical malpractice liability. At present, the ERP system does not allow departments/agencies to enter vendor invoices unless a sufficient allotment is approved by OMB. As a result of this system functionality, certain vendor invoices are set-aside, rather than entered (or accrued for immediately), until OMB provides for a periodic allotment – which may occur several months after year- end. Therefore, given that the OMB allotment process is the underlying controlling mechanism for entering vendor invoices, the Department of Finance must perform a manually intensive review of year-end transactions that are posted in a subsequent year. The Department of Finance will proactively collaborate with the software vendor supporting its ERP Accounts Payable module to ascertain whether a reduction in the existing manual efforts can be achieved. On-going training and employee development will be made available for all users of the accounts payable module and continuous development of the standard operating policies will be enhanced. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 181 Page Number Finding Contact Estimated Completion Date Corrective Action 48 48 49  Income Tax Refunds Payable  Landfill Closure and Post Closure Costs Liability  Quality of Census Data Bureau of Internal Revenue Team Waste Management Authority Management Team The management team of the Government Employees’ Retirement System and Division of Personnel; specifically, Administrator, Director, Member Services, and Director of Information Technology Fiscal Year 2021 Fiscal Year 2021 Fiscal Year 2021 The Bureau of Internal Revenue will revise its methodology in establishing the year-end liability and will continue to monitor the reports to avoid any duplication of reporting. The Government will work with its consultants to implement monitoring controls and ensure that all calculations are reviewed timely. For the past three (3) years, since the implementation of the new Benefits system (V3), the Government Employees’ Retirement System (GERS) has been allocating resources to identify and correct inaccurate member data in the census database that is provided to our actuaries. Additionally, GERS will allocate displaced employees due to the suspension of the Loan Program to assist with the due diligence on the accuracy of the member information in the census database. The Division of Personnel will coordinate with the GERS Administrator to discuss how both agencies can collaborate to effectively improve the quality of the census data. It is anticipated that GERS and the Division of Personnel will do an annual comparative analysis of the employee and retiree related data held by both entities. During this process, data will be reconciled in both databases. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 182 Page Number Finding Contact Estimated Completion Date Corrective Action After the initial reconciliation is completed, an annual review will be done to ensure that relevant information is synchronized within both systems. Information Technology and Records Management personnel from both agencies will be intimately involved in these meetings. 50 51 2019-007: Management of the Medicaid Program  Cost Report Audits and System Security Review  Utilization Control and Medicaid Fraud Control Unit The Commissioner, Department of Human Services, Chief Financial Officer, and the Program Administrator Program Administrator, Department of Human Services On-going On-going Department of Finance has already begun conversations with the Department of Human Services on how the recommendations set forth can be achieved. During the fiscal year, the V.I. Medicaid Fraud Control Unit (MFCU) was established through a Memorandum of Understanding. The unit is located within the Department of Justice. The MFCU has Territory-wide authority to investigate and criminally prosecute (or refer for prosecution) cases of Medicaid fraud and patient abuse or neglect in residential care facilities. The MFCU may also bring civil actions to recover false Medicaid claims. The MFCU has a memorandum of understanding with the Virgin Islands Medicaid Program which describes the agencies' working relationship. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 183 Page Number Finding Contact Estimated Completion Date Corrective Action Further, as the Medicaid Fraud Control Unit has been created, the program is in the process of developing its own internal controls in an effort to prevent unnecessary utilization of care and services. The Medical Assistance Program continues to conduct clinical reviews of all inpatient stays over ten days, including a clinical review of the Patient Care Plans. 52 2019-008: Unemployment Insurance Trust Fund  Account Reconciliation Process Commissioner, Virgin Islands Department of Labor Fiscal Year 2021 The Virgin Islands Department of Labor (VIDOL) recognizes the need to properly report the activities of the Unemployment Insurance Trust Fund. VIDOL has requested and received approval from the Virgin Islands Office of Management and Budget for the hiring of accountants, whose responsibilities will be to record the activities of the Fund in accordance with generally accepted accounting practices. In addition, as part of the year-end financial reporting process related to the Government’s financial statement preparation, VIDOL will work with the Department of Finance to ensure that it receives the Unemployment Insurance Trust Fund information timely. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 184 Page Number Finding Contact Estimated Completion Date Corrective Action 53 2019-009: Workers Compensation Program  Plan Valuation Methodology Executive Assistant Commissioner, Director of Accounting and Reporting, and Agency Head Fiscal Year 2021 Department of Finance will collaborate with the agency to consider the recommendations set forth. 54 2019-010: Other Postemployment Benefits Obligation  Administration and Recordkeeping Executive Assistant Commissioner, Department of Finance and Division of Personnel Fiscal Year 2021 Department of Finance has already began working with the Division of Personnel on this matter. Going forward, we will continue to establish a process that will address the findings noted. 55 2019-011: Payroll, Related Accruals, and Other Expenditures  Payroll Expenditures Management team of the Division of Personnel and Department of Finance; specifically, Director of Payroll Fiscal Year 2021 Department of Finance will collaborate with the Department of Human Resources to determine and consider the recommendations set forth. We have begun to utilize the STATS system in fiscal year 2021. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 185 Page Number Finding Contact Estimated Completion Date Corrective Action 55 56 56 57  Overtime Authorization  Formalize Emergency Payroll Procedures  Transactions with Personnel  Supporting Documentation and Reporting for Expenditures The management team of the Division of Personnel and Department of Finance; specifically, Director of Payroll The management team of the Division of Personnel and Department of Finance; specifically, Director of Payroll The management team of the Office of the Governor and Department of Finance The Department of Finance, Executive Assistant Commissioner and Director of Accounting Immediately Immediately Fiscal Year 2021 On-going The Government will work with the departments regarding the review of timesheets to the supporting data, and documentation of changes made to time entered for the processing of payroll. With infrastructure improvements due to climate change and technology advances in remote capabilities due to the pandemic, the Government has made great strides in its controls to ensure continuation of normal operating procedures under the most stressful of circumstances. Protocols for emergency payroll processing are continuously updated. The Department of Finance will coordinate with the Office of the Governor to strengthen, recommunicate, and monitor the reimbursement policy of the Government. Furthermore, we are exploring systems for automatic reconciliations and will consider hiring someone to work at the Department of Finance, specifically to handle credit card payments. We will continue to enforce the Standard of Operating Procedures and Policies (SOPP) that all invoices are attached in the ERP system and closely examine the invoice approval process. As part of the invoice approval, invoices will be closely reviewed to ensure expenditures are recorded in the proper period and are supported in the Accounts Payable module. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 186 Page Number Finding Contact Estimated Completion Date Corrective Action 58 59 59 2019-012: Bank Accounts  Strengthen Controls Over Bank Reconciliations  Cash Pooling and Allocation(s)  Check Sequences The management team of the Department of Finance; specifically, the Assistant Commissioner and Director of Treasury The management team of the Department of Finance; specifically, the Assistant Commissioner and Director of Treasury The management team of the Department of Finance; specifically, the Assistant Commissioner and Director of Treasury Fiscal Year 2021 Fiscal Year 2021 Fiscal Year 2021 The Treasury Director, with oversight from the Assistant Commissioner will reexamine the process to include reviewing outstanding checks and other reconciling items that have not cleared a specific bank account for more than one year. Upon identifying negotiable instruments that exceed the one-year threshold, Treasury Director will develop an annual procedure to research and validate the status of the reconciling items to ascertain whether they can be properly removed from on-going bank reconciliations, with the original transaction(s) reversed. The Treasury Director, with oversight from the Assistant Commissioner, will enhance the documentation provided to support the pooling and subsequent allocation of the cash accounts. Additional human capital has been provided to ensure that bank reconciliations are prepared timely as we continue to strive to improve the link between the confirmed cash account balances and cash balance per fund presented within the year-end financial statements. To ensure controls are in place over the sequence of checks, controls will be established on the check series used and check series not used. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 187 Page Number Finding Contact Estimated Completion Date Corrective Action 60 2019-013: Information Technology Environment The management team of the Bureau of Internal Revenue (including the Director of Processing and IT), Office of Lieutenant Governor, Department of Labor, specifically, the IT Director, the management team of Division of Family Assistance of the Department of Human Services, and the Department of Finance On-going Several enhancements have been made in alignment with correspondences to end users. Continuation of improvements is well underway. 62 2019-014: Collateral of Depository The management team of the Department of Finance; specifically, the Director of Accounting and Director of Treasury Fiscal Year 2021 Collateral reports are specific to the financial institution and may not include all quasi-governmental or component unit accounts if not identified as a government account when established at the financial institution. The Government will work with its banks to ensure any accounts identified are included on the collateral report of the related institution. 63 2019-015: Landfill Consent Decrees Office of the Governor, Chief of Staff and the Waste Management Authority Management Team Fiscal Year 2021 The Government of the Virgin Islands is currently seeking funding, through the Virgin Islands Legislature, to address the funding concerns and to organize the workflow to timely complete reports to meet EPA decrees concerning the various issues. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 188 Page Number Finding Contact Estimated Completion Date Corrective Action 64 2019-016: Establishment of a Medical Malpractice Trust Fund Commissioner, Department of Health and Medical Malpractice Action Review Committee Fiscal Year 2021 The Department of Health will continue to closely monitor the applicable laws related to professional medical malpractice by setting up a separate trust fund to be managed by a licensed broker or brokerage firm and to set up an investment plan approved by the Medical Malpractice Action Review Committee. 65 2019-017: Procurement Regulations Department of Property and Procurement Management Team Fiscal Year 2021 The Government will continue to take necessary measures to address noncompliance and perform periodic reviews of purchase orders, contracts, and profiles to ensure that internal policies and regulations are being adhered to. 66 2019-018: Casino Control Commission The Department of Finance, Executive Assistant Commissioner and Director of Accounting Fiscal Year 2021 The Government will request reporting from the Casino Control Commission on a quarterly basis as covered by the V.I. Code. We will review, request, and establish a working document on how this process will be conducted proceeding forward. 67 2019-019: Allowable Costs/ Cost Principles – Payroll Activities Deputy Commissioner of HR, Labor Relations and Payroll, Administrator - SNAP On-going During fiscal year 2019, the HR department experienced delays in updating NOPAs due to staffing constraints. A full-time HR Generalist was hired for these financial programs in October 2019. The STATS time management system is scheduled to go live in October 2021. Timesheet approvals will be electronic and vetted by the required levels of management. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 189 Page Number Finding Contact Estimated Completion Date Corrective Action The NOPA process is now refined where a new NOPA is generated each fiscal year based on the changes to the Grant’s project number. This will ensure that NOPAs and subsequent payroll costs are properly captured to the right cost center. 69 2019-020: Matching, Level of Effort, Earmarking Chief Financial Officer, SNAP Administrator, Deputy Commissioner of HR, Labor Relations and Payroll On-going DHS will move forward with quarterly monitoring and compliance of the match requirements in accordance with our requirements to submit our FNS 777 and 778 Federal Financial Reports. Our financial reports will show we have met the required match of the Food and Nutrition Services. Monitoring and compliance review meetings will be held between the 1st and 15th of the month following the completed quarter. 70 2019-021: Procurement/ Suspension and Debarment Program Administrators, Chief Financial Officer, Assistant Commissioners October 2020 There was a mandatory requirement by DPP to have all vendors register with sam.gov as of July 2019. Effective October 1, 2020, the proof of the sams.gov is now included in the ERP requisitioning module and a permanent part of each purchase order record. 71 2019-022: Special Tests and Provisions – EBT Card Security SNAP Administrator, Assistant Commissioner On-going Sufficient staff is required to ensure the requisite checks and balances required for full Federal compliance. Staff is being hired, reassigned, and cross trained to oversee the reconciliation process. The current recertification process for the SNAP Administrative program requires the case file including the eligibility requirements assessment to be performed by an eligibility specialist and approved by a supervisor. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 190 Page Number Finding Contact Estimated Completion Date Corrective Action Additionally, the SNAP program will prepare an SOPP specific to the handling of the EBT cards and related monthly reconciliations. 72 2019-023: Equipment/Real Property Management Chief Procurement Officer – DOH, Commissioner of Property and Procurement On-going DOH and the WIC program will continue having a dialogue with DPP to bring a resolution to this deficiency. 73 2019-024: Procurement/ Suspension and Debarment Chief Procurement Officer – DOH, Commissioner of Property and Procurement On-going DOH and the WIC program will continue to work with DPP to ensure that the requisite documents are included in the procurement package prior to processing. 74 2019-025: Allowable Costs/ Cost Principles – Payroll Activities Director of Administration and Business Management - OTAG January 2020 New policies and procedures have been created to address the payroll process of authorizing and moving grant funded personnel to the appropriate grant year. 76 2019-026: Cash Management Director of Administration and Business Management - OTAG January 2020 OTAG developed a new Policies and Procedures Manual to address the preparation and submission of SF-270 report. In addition, a Chief Financial Officer has been put in place to ensure separation of duties in financial reporting. 77 2019-027: Matching, Level of Effort, Earmarking Director of Administration and Business Management - OTAG January 2020 The master cooperative agreements through the appendices identifies the cost share and what is required by persons performing management functions. In addition, OTAG has developed a new Policies and Procedures Manual which includes tracking the match fulfillment for each expenditure. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 191 Page Number Finding Contact Estimated Completion Date Corrective Action 78 2019-028: Period of Performance Director of Administration and Business Management - OTAG January 2020 OTAG has developed new policies and procedures to address pre-award costs and the 90 days close out process. 79 2019-029: Reporting Director of Administration and Business Management - OTAG January 2020 OTAG developed a new Policies and Procedures Manual to address the preparation and submission of SF-270 report. In addition, a Chief Financial Officer has been put in place to ensure separation of duties in financial reporting. 80 2019-030: Cash Management Associate Director of Federal Grants Management Unit, Agency Heads – Various Departments and Agencies On-going The Government endeavors to exercise due diligence in requesting and reconciling all Federal funds consistent with the governing requirements. Every effort is being made by the responsible parties to ensure full compliance in the future. 81 2019-031: Equipment/Real Property Management Commissioner, Property and Procurement, Agency Heads – Various Departments and Agencies On-going The OMB, in collaboration with DPP will adhere to Federal regulations related to equipment and its related maintenance. DPP has initiated new/improved procedures to fully comply with all equipment purchases, inventory listing, and disposal of assets. 82 2019-032: Reporting Agency Heads – Various Departments and Agencies On-going The Government will monitor closely every report submitted for completeness, accuracy, dates, and consistent with specified guidelines/policies and procedures promulgated by the Cognizant Agency. 83 2019-033: Activities Allowed or Unallowed Program Director, Chief Financial Officer, Assistant Commissioner On-going The VIDOL Unemployment Insurance program has set in place a corrective action plan to establish internal controls and procedures for the Virgin Islands Trust Fund accounts. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 192 Page Number Finding Contact Estimated Completion Date Corrective Action This action plan will set forth criteria for periodic reconciliations of the VI revenue account (clearing account) and deposits, in addition to the cash draws for benefit payments from the Trust fund to the benefit account and provide guidelines in conformity with the CMIA agreement. The agency has launched a task force and conducted its first kick off meeting in July 2020. This plan will establish policy and procedures for the accounting and monthly reconciliation of the VI Trust Fund Accounts. VIDOL, in collaboration with OMB’s Compliance Manager, drafted the policy with an anticipated completion date of November 2021. VIDOL has hired a financial analyst that will be responsible for daily monitoring of VI Trust Fund account to ensure compliance with CMIA and Social Security Act clearance and depository regulations. The agency developed a database tool to conduct monthly reconciliations of cash activity in the Trust Fund between the cash sources (employer contributions, penalty, interest, and surcharge). The agency will develop a database tool to conduct monthly reconciliations of cash activity in the Trust Fund between cash uses (benefits paid, reimbursements, and outlays). This database application is expected to be finalized and in production by November 2021. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 193 Page Number Finding Contact Estimated Completion Date Corrective Action 84 2019-034: Eligibility Program Director, Assistant Commissioner On-going The VIDOL Unemployment Insurance has set in place a corrective action plan to establish internal controls, and procedures for the Benefits Unit and will implement a schedule for regular file review and to prevent such discrepancies. As of November 2020, the agency has launched an electronic portal that processes claimants’ filings of initial, continued, re-open, and transitional claims. The system has validation processes that provide control mechanisms for claimants to respond to all pertinent questions surrounding initial eligibility and continued eligibility as per rules and regulations for eligibility under the Social Security Act and Public Law 112-96 Sec 2101. Through claimant electronic registration, and attestation, filling out of employer on record, work history, work search history (able and available criteria), and past employment records, the Virgin Islands Unemployment Insurance program can verify through system cross match processes (wage record and interstate wage record verification) if eligibility has been established. 85 2019-035: Matching, Level of Effort, Earmarking Program Director, Chief Financial Officer, Assistant Commissioner On-going The VIDOL Unemployment Insurance program has set in place a corrective action plan to establish internal controls and procedures. The agency has launched a task force and conducted its first kick off meeting in July 2020. As of August 2021, the agency is still executing guidelines. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 194 Page Number Finding Contact Estimated Completion Date Corrective Action The agency established policy and procedures for the accounting and monthly reconciliation of the VI Trust Fund Accounts. VIDOL in collaboration with OMB’s Senior Analyst, drafted the policy with an anticipated completion date of November 2021. 86 2019-036: Allowable Costs/Cost Principles – Payroll Activities Personnel Relations Administrator – DPNR, Director of Business and Administrative Services – DPNR, Federal Grants Manager – DPNR-DEP, Internal Auditor – DPNR On-going DPNR has already taken steps to adhere to the federal regulations and continues to be vigilant when preparing NOPAs to ensure that all funding sources relative to the distribution of payroll expenses are included on the NOPAs. 88 2019-037: Cash Management Director of Business and Administrative Services – DPNR, Federal Grants Manager – DPNR-DEP, Internal Auditor – DPNR On-going DPNR will continue to strive to comply with the provisions of the CMIA agreement with respect to reimbursements for payroll expenses to be settled within the number of days allowed. 89 2019-038: Period of Performance Director of Business and Administrative Services – DPNR, Federal Grants Manager – DPNR-DEP, Internal Auditor – DPNR On-going DPNR will continue to exercise due diligence in ensuring that all transactions involving federal funds comply with the terms and conditions of the federal grant awards, and they are liquidated within the period of performance or within the ninety (90) days following the end of the performance period. DPNR will also ensure that all transactions are properly recorded, and the records are maintained and retained. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 195 Page Number Finding Contact Estimated Completion Date Corrective Action 91 2019-039: Allowable Costs/Cost Principles - Indirect Cost Activities Deputy Commissioner of Fiscal and Administrative Services, Internal Auditor On-going DOE’s State Federal Grants Office will work collaboratively to ensure that indirect cost is applied timely to actual expenditures incurred in the appropriate period. DOE has already revised the frequency of its indirect cost calculation and posting from monthly to weekly. This calculation is based on the prior week’s expenditures which will ensure it is based on valid expenses and recorded in the accounting system in the appropriate period. 92 2019-040: Cash Management Deputy Commissioner of Fiscal and Administrative Services, Internal Auditor On-going DOE’s payroll is processed through the primary government’s financial system and then reimbursed through the Third-Party Fiduciary’s financial system and thus does not adhere to the CMIA agreement. DOE will begin the process to be exempt from the CMIA agreement for its payroll payments. 93 2019-041: Allowable Costs/ Cost Principles – Payroll Activities PCSD Director, Fiscal and Operations Director, and Federal Grants Coordinating Specialist On-going The fiscal staff will work closely with its Human Resources Division and DOF on the payroll allocation setup. A review of all NOPAs upon issuance will be performed to ensure all payroll codes are coded with the 66/34 federal/local match. Time certifications for all employees are completed quarterly with the employee, employee’s supervisor and the PCSD Director signatures certifying staff worked for the program. Each employee’s timecard is approved by the employee’s supervisor and the agency head before submission to DOF. On a biweekly basis, the fiscal staff reviews all charges to its federal awards for salaries and wages to accurately reflect the work performed for each employee’s timecard. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 196 Page Number Finding Contact Estimated Completion Date Corrective Action Monthly reconciliations on the payroll registers are performed and the fiscal staff work with DOF to rectify any discrepancies. Standard Operating Procedures had been amended to include these corrective actions. Review and reconciliation of corrective actions has been performed by the fiscal staff and a report is provided to the PCSD Director. 95 2019-042: Allowable Costs/Cost Principles - Indirect Cost Activities PCSD Director, Fiscal and Operations Director, and Federal Grants Coordinating Specialist On-going Monthly reconciliations will be performed on ERP’s expenditure reports and the fiscal staff is working closely with DOF to ensure reporting is accurate. DOJ- PCSD will ensure all direct charges for the fiscal year are accounted for and the approved rate is utilized to calculate the indirect cost amount. The calculation along with supporting documentation will be reviewed by the PCSD Director prior to submission of reimbursement request to the Grantor. DOJ-PCSD will work closely with OMB and DOF on the recording of funds to the ERP system. 96 2019-043: Cash Management PCSD Director, Federal Grants Coordinating Specialist On-going DOJ is in the process of reviewing its internal controls and standard policies and procedures manuals for all aspects of the financial functions within the Child Support Enforcement program. Monthly reconciliations will also be performed on ERP’s expenditure reports and the fiscal staff is working closely with DOF to ensure reporting is accurate throughout the fiscal year. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 197 Page Number Finding Contact Estimated Completion Date Corrective Action 97 2019-044: Matching, Level of Effort, Earmarking PCSD Director, Fiscal and Operations Director, and Federal Grants Coordinating Specialist On-going DOJ-PCSD fiscal staff has created a matching requirement excel spreadsheet that accounts for all expenditures prior to the costs being charged to its fiscal budgets. The spreadsheet is formulated to provide the breakdown of the federal and local amounts which is monitored throughout the fiscal year. This will ensure the local matching requirement is met. Standard operating procedures along with the matching spreadsheet have been established. 98 2019-045: Allowable Costs/Cost Principles – Non- Payroll Activities Chief Financial Officer, Administrator - CCDF March 2022 DHS will ensure that all transactions are properly documented and archived with adequate notations/indicators that each transaction has been properly reviewed and approved by appropriate personnel. The review and approval process will include a thorough examination of payment documents to verify that expenditures, including internal authorizations for expenditures such as vouchers, were authorized and expenses incurred within the indicated grant period. Archived documentation will include supporting evidence of uniform review and approval process that is replicable and reliable and will be retained in accordance with applicable statutory and federal policy retention schedules. 100 2019-046: Allowable Costs/Cost Principles – Payroll Activities Chief Financial Officer, Deputy Commissioner of HR, Labor Relations and Payroll Administrator - CCDF March 2022 DHS will ensure that all transactions are properly documented and archived with adequate notations/indicators that each transaction has been properly reviewed and approved by appropriate personnel. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 198 Page Number Finding Contact Estimated Completion Date Corrective Action The STATS time management system is scheduled to go live in fiscal year 2022. Timesheet approvals will be electronic and vetted by the required levels of management. 102 2019-047: Eligibility Administrator – CCDF, Assistant Commissioner June 2022 DHS currently has policies and procedures in place to determine, document, and verify eligibility of CCDF participants in accordance with the Federal requirements, as well as the specific eligibility requirements selected by the Territory via the Territory’s approved plan. The process for determining eligibility, including the required documentation for different categories of participants, is outlined in the Office of Child Care and Regulatory Services Subsidy Resource and Referral Program Policies and Procedures Manual. The program will implement a quarterly reconciliation and review of participants’ folders to verify accuracy of eligibility determinations. The policies and procedures specific to eligibility, will be updated as appropriate to include the record retention requirements in accordance with the State Plan. 103 2019-048: Matching, Level of Effort, Earmarking Administrator – CCDF, Chief Financial Officer, Assistant Commissioner January 2022 DHS will activate all relevant account coding to allow for all transactions to be charged to the appropriate earmark category, specifically, DHS will ensure that the Infants and Toddlers account code is available so that spending in this area is accurately reflected in the account summaries and reports. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 199 Page Number Finding Contact Estimated Completion Date Corrective Action DHS will exercise appropriate internal and IT controls to ensure consistent and systematic monitoring of compliance requirements to verify that spending does not exceed all designated maximum earmark levels. 104 2019-049: Period of Performance Chief Financial Officer, Administrator - CCDF On-going DHS is constantly reviewing its policies and procedures with respect to strengthening its monitoring and review processes. This will ensure that all grant activities, including the liquidation of all allowable expenses, are performed timely and within the stipulated period of performance. 105 2019-050: Special Tests and Provisions – Health and Safety Requirements Administrator – CCDF, Assistant Commissioner January 2022 The Office of Child Care and Regulatory Services (OCCRS) is in the process of bolstering staffing to allow for robust deployment of staff with responsibility for all areas of federal compliance. Staff will be assigned to coordinate access to and ensure provider compliance with health and safety requirements through consistent monitoring. Additionally, the Quality Unit has developed a work plan to ensure that providers have options and resources to obtain the indicated federally required training and competencies. The CCDF program will generate a training schedule and checklist of competencies that address each of the 11 specific areas of health and safety requirements. The program will track completion of each competency and retain proof of completion of training to support verification of provider compliance. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 200 Page Number Finding Contact Estimated Completion Date Corrective Action 106 2019-051: Special Tests and Provisions – Fraud Detection and Repayment Administrator – CCDF, Assistant Commissioner January 2022 The Office of Child Care and Regulatory Services (OCCRS) will establish a schedule of quarterly internal audits conducted by non-OCCRS personnel to review documentation that supports subsidy eligibility and subsidy payments for the purposes of ensuring program integrity. Instances of apparent fraud will be reported for investigation and appropriate actions per OCCRS policies and procedures. In addition, appropriate OCCRS staff will receive training/retraining on the CCDF subsidy eligibility process and ongoing payment processes. 107 2019-052: Equipment/Real Property Management Commissioner, Property and Procurement, Chief Financial Officer, DHS On-going The Department of Human Services (DHS) in collaboration with DPP will adhere to Federal regulations related to equipment and its related maintenance. DPP has initiated new/improved procedures to fully comply with all equipment purchases, inventory listing, and disposal of assets. 108 2019-053: Cash Management Chief Financial Officer, DHS On-going The Government endeavors to exercise due diligence in requesting all Federal funds consistent with the governing requirements. DHS is constantly reviewing its policies and procedures with respect to strengthening its monitoring and review processes. 109 2019-054: Reporting Chief Financial Officer, DHS On-going Additional staffing is in the process of being hired which will allow for timely submissions of the required reports. DHS will ensure that all reports are properly documented and archived. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 201 Page Number Finding Contact Estimated Completion Date Corrective Action 110 2019-055: Activities Allowed or Unallowed MAP Director, Assistant Commissioner October 2021 The provider relations Medicaid Staff will ensure regular reviews of the data and additional levels of review by a supervisor or manager will be implemented. 111 2019-056: Reporting MAP Director, Chief Financial Officer December 2021 The MMIS bases the claims payments categorized as CHIP on the validated and adjudicated claims. The ERP system captures paid claims submitted on a cash basis. Once the new Medicaid Fiscal and Program staff implements the oversight of the compliance requirements, the timely reconciliation of the CHIP MMIS to the ERP will be performed. 112 2019-057: Allowable Costs/Cost Principles - Non- Payroll Activities MAP Director, Chief Financial Officer June 2022 Advance payments are no longer processed. DHS anticipates ending the storage of equipment and furniture by or before June 30, 2022. 114 2019-058: Eligibility MAP Director On-going DHS has identified a severe staffing shortage as a major contributor to the case management and eligibility determination and redeterminations of Medicaid members during fiscal year 2019. The caseload continued to grow and existing staff had to assume increased number of clients which contributed to some of the deficiencies identified. DHS has already implemented the following:  Hiring process to add Eligibility Specialists and Eligibility Information Clerks to provide timely and accurate determinations and redeterminations of eligible participants receiving Medicaid benefits. Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 202 Page Number Finding Contact Estimated Completion Date Corrective Action  An Eligibility Supervisor is being added to the St. Thomas/St. John district to provide direct overview of the Eligibility Supervisors and Eligibility Information Clerks.  Quality Control Reviewers are being hired in each district who will be providing additional sampling of the Eligibility Case files on a monthly basis. Additionally, on a monthly basis, the Eligibility Supervisors will review a sample of 10 new determinations and re-determinations of Eligibility files for accuracy. A written report of the sample review will be submitted by the Eligibility Supervisors to the Director of Operations including errors identified and training plan for staff identified who made said errors or omissions. On a quarterly basis, the Director of Operations and Eligibility Supervisors will complete an analysis report identifying common errors and training and improvement plans for staff to improve accuracy and submit to the Medicaid Director. 116 2019-059: Matching, Level of Effort, Earmarking MAP Director, Chief Financial Officer On-going DHS will assign resources responsible to ensure periodic monitoring and compliance of the match requirement throughout the fiscal year. 117 2019-060: Reporting MAP Director, Chief Financial Officer July 2021 A vendor has been contracted to perform data review and populate the requisite information in the quarterly financial report and ensure timely submission. 118 2019-061: Special Tests and Provisions - MAP Director, Chief Financial Officer August 2021 DHS is in the process of recruiting a permanent, full- time Director of Program Integrity position who will enforce the necessary controls and procedures to Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 203 Page Number Finding Contact Estimated Completion Date Corrective Action Utilization Control and Program Integrity safeguard against unnecessary utilization of care and services and to identify, investigate, and refer suspected fraud cases. 120 2019-062: Special Tests and Provisions - Inpatient Hospital and Long-Term Care Facility Audits MAP Director On-going DHS has engaged in providing viable training to the hospitals, clinics, and federally qualified health centers to increase capacity in submitting their timely cost reports which will in turn assist in the overall Territorial cost report submission. 121 2019-063: Special Tests and Provisions – ADP Risk Analysis and System Security Review MAP Director December 2021 The Medical Assistance Program continues to work in implementing its required ADP Risk Analysis and System Security. 122 2019-064: Special Tests and Provisions – Provider Eligibility MAP Director, Assistant Commissioner Fiscal Year 2022 The provider agreement process has been streamlined to ensure that all approval and documents on file are timely and current. The DHS Medicaid and CHIP Division will be implementing a new computerized Provider Enrollment Application (PEA) which will address the deficiencies identified. 123 2019-065: Special Tests and Provisions - Department of Justice Fiscal Year 2021 DOJ is responsible for staffing the Medicaid Fraud Control Unit to ensure proper objective oversight and separation of duties from the Medicaid program. DOJ assigned a Full Time Assistant Attorney General with Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 204 Page Number Finding Contact Estimated Completion Date Corrective Action Medicaid Fraud Control Unit oversight of the Medicaid Fraud Control Unit at the end of fiscal year 2020. Additionally, a Special Agent/Investigator was added to the Unit. The Unit also receives support from DOJ’s Investigators funded with local government funds. The Medicaid Fraud Control Unit is now fully staffed. 124 2019-066: Special Tests and Provisions – Federal Financial Participation Refunds Chief Financial Officer Fiscal Year 2022 The policy of required processes to identify cancelled and uncashed checks beyond 180 days will be implemented by the first quarter of fiscal year 2022. 125 2019-067: Allowable Costs/Cost Principles – Non- Payroll Activities Assistant Director of Federal Grants, Territorial Public Assistant Officer, Director - VITEMA On-going VITEMA will enforce its policies and procedures in place to ensure the review and approval of project worksheets and related transactions. 127 2019-068: Reporting Assistant Director of Federal Grants, Territorial Public Assistant Officer, Director - VITEMA Immediately VITEMA’s process includes PA Employee to monitor and compare the information on the quarterly reports to the project worksheet financial records for completeness, accuracy, and consistency as well as email reminders with the due date of the quarterly reports. 128 2019-069: Data Collection Form and Single Associate Director, OMB On-going The Government fell considerably behind as a result of two Category 5 hurricanes that significantly damaged the Virgin Islands infrastructure. The Government remains committed to and is focusing its efforts Government of the United States Virgin Islands Appendix B: Corrective Action Plan Year Ended September 30, 2019 205 Page Number Finding Contact Estimated Completion Date Corrective Action Audit Reporting Package towards timely submission of the Data Collection Form and Reporting Package.