NEW YORK (Reuters) - Puerto Rico’s federally appointed financial oversight board on Friday questioned island officials about how they planned to centralize financial control after the bankrupt U.S. territory discovered nearly $7 billion in previously unreported money.
During a two-hour hearing that shed light on decades of disorganized and inconsistent accounting, the board asked about the government’s plans to consolidate a public sector that has more than 100 agencies.
“You all came in facing a blank slate and had to invent new processes,” board member Andrew Biggs said. “But building institutional strength ... so that when you pass on to a new administration, they will inherit that strength, is important”
Puerto Rico is navigating at once the largest government bankruptcy in U.S. history, with $120 billion of combined bond and pension debt, and its worst natural disaster in 90 years in September’s Hurricane Maria, which killed dozens and decimated local infrastructure.
The board, put in place by the U.S. Congress to manage the commonwealth’s finances, is investigating some $6.9 billion scattered across 800 bank accounts, which Puerto Rico revealed for the first time in December.
Natalie Jaresko, the board’s executive director, said at Friday’s hearing the board would be making an announcement “very soon” about the as-yet-unnamed forensic team that will lead the probe. The hearing was called to question current and former officials about the island’s accounting practices.
Panelist Gerardo Portela, director of the Puerto Rican financial authority known as AAFAF, stressed the severity of Puerto Rico’s liquidity crisis, noting that $4.3 billion of the found money is tied up at government agencies and unavailable to pay the island’s debt.
Portela’s comment illustrates ongoing tension between authorities concerned that Puerto Rico is overstating its financial plight, and locals who feel ignored by those authorities.
Board member Jose Gonzalez questioned Portela on whether, during a financial crisis, it was fair to deem certain accounts off-limits to creditors, particularly those whose revenues are generated through government actions like tax streams.
A panel of ex-officials, which included former Puerto Rico Treasury Secretary Juan Zaragoza Gomez, revealed a history of inefficient accounting in an unwieldy, decentralized government.
Agencies do not communicate well, he said, because of constant political turnover, and also because they use different computing software. “We’d be using Oracle 2.0 at Treasury, and Oracle 2.3 at the Department of Health, and Oracle 1.7 at Education,” he said.
In April of 2016, Zaragoza said, when he was closing accounts at the island’s then-liquidating Government Development Bank (GDB), “I honestly thought we had like 30 or 40 bank accounts.”
In fact, “we had 644 accounts at GDB,” Zaragoza said.
Reporting By Nick Brown; Editing by Daniel Bases and Richard Chang