The Puerto Rico Oversight Board pressed the territorial government to produce audited financial reports for fiscal year 2016 and fiscal year 2017, demanding an explanation for the delay.
“The Oversight Board is deeply concerned about the continued delays in the Commonwealth of Puerto Rico’s completion of its audited basic financial statements and required supplementary information,” Oversight Board Executive Director Natalie Jaresko said in a letter Wednesday to Puerto Rico Chief Financial Officer Raúl Maldonado Gautier and Treasury Department Secretary Teresita Fuentes Marimón.
Puerto Rico's fiscal year 2016, for example, ran from July 1, 2015 to June 30, 2016. While most municipal issuers release their audited financial statements within 10 months, Puerto Rico still hasn't released it more than 2.5 years later.
“As the Board continues to work with the government on improving its fiscal management, transparency in financial reporting is more important than ever,” Jaresko said to The Bond Buyer. “The Comprehensive Annual Financial Report (CAFR), which includes the audited financials for each component unit of the government, is necessary to reflect the most accurate assessment of revenues and expenditures of the Government of Puerto Rico.
"The report is also essential to measuring compliance with annual budgets and the certified fiscal plan," Jaresko continued. "Industry standard requires issuance no later than 180 days following the end of each fiscal year, and timely publication is critical to restoring market access.”
Observer concern about the island's tardiness in releasing the statements is long-standing. In February 2016 then-U.S. Sen. Orrin Hatch, R-Utah, asked Puerto Rico to release the fiscal year 2014 statement. The Oversight Board was formed later in 2016 to stabilize the island's economy, help manage the government's finances and guide the restructuring of Puerto Rico's debts.
Howard Cure, director of municipal bond research at Evercore, said the reports are prerequisite to addressing Puerto Rico's financial problems.
“You need to have comfort in the accuracy of basic audited statements," he said. "Continued delays in releasing this information not only makes it difficult to correct the historical mismanagement of the commonwealth, but also brings into question whether Puerto Rico has the expertise to independently manage [its] own recovery.”
On May 7 Fuentes Marimón and Maldonado Gautier told the board that they would provide the fiscal year 2015 audited financial report by June 8, the fiscal year 2016 report by Aug. 17, and the fiscal year 2017 report by Dec. 31. While they submitted the fiscal year 2015 report in June, they haven’t submitted either of the other two reports.
Jaresko told the officials that by Jan. 18 they should provide the board an explanation for the delays in the fiscal year 2016 and 2017 audits, a detailed description of the pending items for completion of the fiscal year 2016 audits, and estimated dates for completion of the fiscal year 2016, 2017, and 2018 audits.
She cited the board’s authority under section 104(c)(2) of the Puerto Rico Oversight, Management and Economic Stability act to request the information.
“The letter from Jaresko asking for explanations for the delay in the issuance of the financial statements hits the nail on the head,” tweeted Juan Zaragoza, who was secretary of the treasury from Oct. 26, 2014, to Jan. 2, 2017, under former Gov. Alexandro García Padilla. “Beginning the third year of this [gubernatorial] administration they have only issued one. The last administration issued three in four years. Another example of inability to execute.”
Fuentes Marimón and Maldonado Gautier didn't respond to a request for comment.
