Capital investment includes the following: Direct investment Purchase of equipment Purchase of land or real property Subcontractor or contract employee costs (for construction and maintenance projects only) The government did not report the value of goods received by the government in any of its financial statements for the fiscal years 2012 through 2016. Also, the government did not report the value of goods purchased by the government. Government officials told us that this information is not reported because the government uses the term “goods received” to report the value of the goods used in its day-to-day operations. As a result, government officials told us that all the goods purchased by the government are reported in both the government’s “current assets” and “other assets” sections of its balance sheet. While we saw no documentation that supports this assertion, we do not expect this to significantly affect any of the analysis in this report. The government reported the gross investment in state-owned enterprises for fiscal years 2014 and 2015 in its financial statements. For the fiscal year ending March 31, 2015, the government reported that it invested $9.5 billion in state-owned enterprises. For the fiscal year ending March 31, 2014, the government reported that it invested $7.9 billion in state-owned enterprises. When we asked government officials how they determine which assets belong to a particular enterprise and when they stop reporting investment for a particular enterprise, we were told that it is on an annual basis. Government officials did not provide any details about how they use judgment to select which government-owned assets are owned by which particular state-owned enterprise. Investments in Equipment and Software The government’s financial statements show the value of various types of equipment and software at the end of each fiscal year. In its December 2015 financial statement, the government reported that it had $10.3 billion in investments in equipment and software at the end of fiscal year 2015. When we asked how the government makes this determination, we were told that the government uses its budget to determine how much it will invest in equipment and software in the following fiscal year. The government also said that it does not have an internal capital budget, so it does not know how much it will spend on equipment or software in a particular year. The government uses its budgets to determine how much it will spend on various items over time, so the government’s budget shows the amount it will invest in equipment and software for the coming fiscal year. Because we did not see how the government makes this decision or where it figures this information, we were unable to determine if the information provided is reliable. Government Debt The government’s financial statements show the outstanding debt of each government-owned enterprise and a consolidated total of government debt for the entire government. However, government officials told us that the government does not calculate the total amount of government debt. The government officials said that it calculates the amount of debt that an individual government-owned enterprise has, but does not calculate the total amount of government debt. For the state-owned enterprises, officials provided us with a table showing the amounts of debt each has as of June 30, 2013, but this table only shows the total amount of government debt. We asked the government officials how they prepare the data on the debt in their quarterly balance sheets to show the total amount of government debt for the government. We also asked officials when this debt information is updated. The government officials explained that this debt is shown in its financial statements and reconciled balance sheets, and is updated on a yearly basis. The government does not calculate a consolidated total of all the debt held by all state-owned enterprises or government agencies each year. The government officials said that they do not know if the consolidated total of government debt is reported in some other form in its financial statements, but that it is not included in its financial statements. When we asked how the government sets the amount of debt shown on its quarterly balance sheets and how that amount is reconciled each quarter, we were told that it reconciles its balance sheet with its general ledger to determine the total amount of government debt. Government officials also told us that the debt is not reported until the government has made payments on the debt. The officials stated that, as the government purchases investments for infrastructure and programs, it establishes an obligation to make payments in the future to service these debts. They said that, as a result of this and other debt, the government must borrow money in the future, but that this new debt is not reported in the government’s financial statements because it is not a debt that is owed in the current period. We asked government officials if the government has consolidated data to show the amount of debt of each individual government-owned enterprise. We also asked government officials why the consolidated total debt is reported each year. The government officials told us that their consolidated balance sheet provides the information we requested, and that this information is available in the “financial statements” and “consolidated financial statements” sections of the government’s financial statements. The consolidated balance sheet shows the debt of each state-owned enterprise, as well as the debt of other government agencies, including the Government Development Bank of Puerto Rico (GDB), which provides the government with its credit card. The consolidated financial statements show the total amount of government debt for all the governments combined. We asked why the government does not report the consolidated total amount of debt for the government on a quarterly basis. The government officials told us that the consolidated balance sheet is updated every year, while the consolidated financial statement is only updated every three years. When we asked how the consolidated balance sheet is updated, we were told that the consolidated balance sheet is only updated when the government makes material changes to its finances. Government officials explained that when such material changes occur, the government must make such changes to its debt-to-assets ratio. Because the government is required to maintain its outstanding debt-to-assets ratio in accordance with the government’s debt restrictions, the government updates its financial statements when such a change has occurred. The consolidated financial statements do not show a total amount of debt owed by the government. They only show the total debt held by the government. Because the consolidated balance sheet does not show a total amount of government debt, we believe that it is not prudent to compare the government’s total debt and debts owed by any one government-owned enterprise. GDB Debt The government’s financial statements show the consolidated total debt of the GDB, which is reported separately from the government’s consolidated financial statements, along with a breakdown of that debt owed by the government and the state-owned enterprises. The GDB owns the debt of the Puerto Rico Infrastructure Financing Authority (Autoridad de Finanzas Públicas), which issues bonds for capital improvements. Government officials told us that the debt of the GDB is held on behalf of the state. They said that the GDB holds the debt of the ARF, which issues bonds to fund the Puerto Rico Government Development Bank Act (Act No. 109). Act No. 109 directs the ARF to develop a financing program that finances certain infrastructure and service projects in Puerto Rico. The ARF’s financing program must be submitted to the governor, and the governor must approve all projects. Any bonds issued must be guaranteed by Puerto Rico, which ensures that taxpayers will be liable for them. The government’s consolidated balance sheet for fiscal year 2014 reported that the government owed $4.2 billion to the GDB. The government’s financial statements show that the government held $2.2 billion in the GDB’s debt and $4 billion in total debt, but that it did not report the total amount of debt owed by the GDB. In fiscal year 2014, the government did not report the total amount of debt owed by the government. However, the government’s financial statements show that the government owed $2.2 billion to the GDB. In fiscal year 2015, the government owed $4.8 billion to the GDB. In fiscal year 2016, the government owed $4.8 billion to the GDB. As of July 2016, the GDB’s outstanding debt held by the government was $5.1 billion. The government’s consolidated balance sheet for fiscal year 2017 reported that the government owed $5.4 billion to the GDB. The government’s financial statements show that the government owed $5.3 billion in debt to the GDB in fiscal year 2017, which matches the amount reported on the government’s consolidated balance sheet for fiscal year 2017. However, the government’s fiscal year 2015 and 2016 balance sheets show that it owed $5.4 billion to the GDB, while the consolidated fiscal year 2017 balance sheet shows that the government owed $5.3 billion to the GDB. As with the consolidated total debt shown on the government’s financial statements, the government did not report the consolidated total amount of debt owed by the GDB each year. The government showed its total debt owed by the GDB in its consolidated balance sheet. However, as of fiscal year 2014, the government’s financial statements did not show the consolidated total amount of debt owed by the GDB, which it must report under section 4.8 of the debt covenants. While the consolidated balance sheet does not show a total amount of government debt owed by the GDB, it shows a breakdown of the total debt owed by each government-owned enterprise, including the GDB. In fiscal year 2016, the total debt owed to the GDB was $5.4 billion, while the total amount of government