Puerto Rico board says $80 million paid to nonworking education employees

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The Puerto Rico Oversight Board determined that at least $80 million was paid out inappropriately to non-working Education Department workers over the last 13 years.

The board said the payments were made to more than 17,000 employees who had resigned, are deceased, on vacation, or otherwise not working, according to the board. The payments were made because the department lacks an automated system that ensures only employees who are working get paid.

Puerto Rico Oversight Board Executive Director Natalie Jaresko
Puerto Rico Oversight Board Executive Director Natalie Jaresko said the board was looking if the problem of paying nonworking employees prevailed at departments outside of the Education Department.

The department has had “an electronic time and attendance system available since 2007, which includes functioning timeclocks and the opportunity to punch in electronically,” the board said in a written statement. “It has been paying an annual licensing fee for that system. However, those who do not punch in get paid regardless because the attendance system is not connected to [the department’s] payroll.”

Board Executive Director Natalie Jaresko said the the punched-in time and the actual payment in other Puerto Rico government departments are also not connected. She said the board was looking into the practices of other departments, with an initial focus on whether there have been significant overpayments in large departments.

The board has referred the Puerto Rico Education Department problem to appropriate law enforcement agencies. The department is trying to recover the money but so far has only pulled back 15%.

“As unbelievable as the story reads it seems to be par for the course in Puerto Rico,” said Shaun Burgess, portfolio manager and analyst at Cumberland Advisors. Cumberland holds insured Puerto Rico bonds.

“Corruption and gross mismanagement have long been issues plaguing the Commonwealth and contributed directly to their current situation,” Burgess said. “To what degree the [board] will be able to recoup the payments remains to be seen but they clearly need to correct these issues and institute reforms which address the blatant mismanagement.”

“I think this is symptomatic of the larger issue of poor financial controls and an inability to provide timely financial disclosure to various parties including bond holders,” said Howard Cure, director of municipal bond research at Evercore Wealth Management.

“This erodes the trust within the financial community and it is hope that the Financial Oversight and Management Board will examine the situation to make sure other government functions outside of the Department of Education haven’t also wasted taxpayers’ money and that steps are implemented to upgrade systems and prevent this misuse of funds.”

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Puerto Rico Commonwealth of Puerto Rico Puerto Rico Public Finance Corporation PROMESA