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Attachment II - Community Facilities Loans and Grants (10.766)
I. Program Objectives
As authorized by Section 306 of the Consolidated Farm and Rural Development Act of 1972, as amended (7 U.S.C. 1926), Rural Development's Community Facilities (CF) Program provides direct and guaranteed loan and grant assistance to assist eligible public body and/or not-for-profit applicants in providing essential community facilities and services to eligible rural areas These funds are made available when financing is not available from other sources at reasonable rates and terms. CF loans and grants are administered at the state and local level through the USDA Rural Development mission area.
II. Program Procedures
CF is authorized to provide direct and guaranteed loan and grant assistance to eligible applicants for essential community facilities in rural areas with populations not to exceed 20,000. Eligible applicants include:
A public body, such as a municipality, district, county authority, or other political subdivision of a state, territory or commonwealth;
A non-profit organization; and
The Agency allocates grant funds on a graduated basis. Eligible applicants located in the smallest communities with lowest populations and lowest median household incomes generally receive a higher percentage of grant funds. The total amount of grant funds, including CF funds or any other Federal grant funds provided for a facility, shall not exceed 75 percent of the cost of developing the facility, unless authorized and funded by another Federal statute.
The purpose of CF guaranteed loan assistance is to improve, develop, or finance essential community facilities in rural areas. The purpose is achieved through bolstering the existing private credit structure through the guarantee of quality loans which will provide lasting community benefits. Guaranteed loans are loans made by the lender and guaranteed by Rural Development. The processing of the loan and requirements placed on the organization receiving the loan are the lender's responsibility.
In 7 CFR Part 3052, USDA implemented the provisions of the latest revision to Office of Management and Budget (OMB) Circular No. A-133, "Audits of States, Local Governments, and Nonprofit Organizations". Subparagraph 7502 (a) (2) (A) of the Single Audit Act Amendments of 1996 (31 USC 7501, et seq.) overruled the provisions of 7 CFR 1942.17 (q) (4) by exempting some entities from applicable audit requirements contained in Federal program regulations.
III. Compliance Requirements and Audit Procedures
Entities receiving CF direct and guaranteed loan and grant assistance are subject to the audit requirements contained in 7 CFR Part 3052.200. In addition, CF audit-related guidance is also provided in RD AN No. 4159, "OMB Circular A-133, Audit Reporting Requirements, Community Facilities Direct and Guaranteed Loan Borrowers and Grant Recipients, dated March 23, 2006. RD AN 4159 may be accessed via the Rural Development website at: http://www.rurdev.usda.gov/regs/.
A. Activities Allowed or Unallowed
Compliance Requirement
Loan funds may be used to: (1) construct, enlarge, extend or otherwise improve essential community facilities; (2) to construct or relocate public buildings, roads, bridges, fences, and utilities necessary for the successful operation of authorized facilities; (3) to relocate private buildings, roads, bridges, fences, and utilities necessary for the successful operations of authorized facilities and (4) to pay certain other expenses when such costs are a necessary part of the financed facilities (7 CFR Part 1942-A, 1942.17(d)(1)).
Loan funds may not be used to finance: (1) on-site utility systems or business and industrial buildings in connection with industrial parks; (2) facilities used for recreational purposes (this restriction does not apply to guaranteed loans); (3) community antenna services; (4) electric generation or transmission facilities and telephone systems; (5) facilities which are not modest in size, design, or cost; (6) loan or grant finders' fees; (7) packagers' fees; (8) new combined sanitary and storm water sewer facilities (7 CFR Part 1942-A, 1942.17(d)(2)); (9) projects located in coastal barrier resources systems that do not qualify for an exception (7 CFR Part 3575-A, 3575.25); and (10) projects located in a mudslide hazard area.
During the disbursement of Federal assistance, the Agency must concur in all expenditures before they are made. The borrower must also monitor the use of funds in accordance with program regulations (7 CFR Part 1942-A, 1942.17(p).
Suggested Audit Procedures
Test the borrower's financial records to ascertain that loan funds were only used for eligible purposes.
The auditor must ascertain the purpose of the loan/grant funds.
The auditor must refer to the Project Summary in the case file to determine the project type (7 CFR Part 1942-A, 1942.17(d), 7 CFR Part 3575-A, 3575.24 and 3570-B, 3570.61(b)). The Project Summary is prepared by the USDA Rural Development representative.
The auditor should refer to the section in the regulation pertaining to activities allowed and unallowed. Unallowed activities are contained in 7 CFR Part 1942-A, 1942.17(d)(2), 7 CFR Part 3575-A, 3575.25, and 7 CFR Part 3570-B, 3570.63.
Review the current Balance Sheet (Form RD 442-3) to determine if Form RD 442-3 is in material agreement with the entity's accounting records.
Ascertain whether the borrower obtained prior Agency concurrence for expenditures.
Review the "Letter of Conditions" (7 CFR Part 1942-A, 1942.5(a) (1)), Letter of Intent to Meet Conditions (Form RD 1942-46), and additional documentation in the case file that supports the Agency's approval of expenditures.
Review the Project Summary for appropriate signatures by the Rural Development Manager and State Director. Regulation reference (7 CFR 1942-A, Part 1942.5(a)(i)).
Test the grantee's financial management system to ensure its adequacy to meet financial reporting requirements.
Review the borrower's accounting and auditing procedures for grants. Reference 7 CFR Part 3570-B, "Community Facilities Grant Program."
Based on the audit, ascertain whether the borrower's financial management system is designed to ensure the proper use of loan funds.
Review the borrower's accounting and auditing procedures for loans. Reference 7 CFR Part 1942-A, 1942.17(q).
B. Eligibility
The auditor is not expected to test for eligibility.
C. Matching, Level of Effort, Earmarking
Compliance Requirement
Borrowers may be required to provide funds from other sources as specified in the Letter of Conditions, Grant Agreement, or Loan Note Guarantee issued by Rural Development. (7 CFR Part 1942-A, 1942.5(a)(1)(i), 7 CFR Part 3570-B, 3570.71(f), and 7 CFR Part 3775-A, and 3575.64).
Suggested Audit Procedures
Examine the Grant Agreement, Loan Note Guarantee, and Letter of Conditions to ascertain the amount of funds to be provided by the recipient.
Test the financial records to determine if matching fund requirements were met.
The auditor must ascertain the amount and source of funds. Determine whether the funds were from State or other nonfederal sources.
The CF program does not require matching funds for the CF grant program. CF can use 75 percent CF grant fund in a project. The other 25 percent has to be either CF direct loan, CF guaranteed loan, or other funds.
Test to determine if there was a Conditional Commitment of Guarantee.
D. Reporting Requirements
Compliance Requirement
The following financial or management reports must be periodically submitted to Rural Development:
Annual audited financial statements within 150 days of the entity's fiscal year-end (7 CFR Part 1942-A, 1942.17(q)(4));
Form RD 442-2, "Statement of Budget, Income and Equity" (7 CFR Part 1942-A, 1942.17(q)(5), and OMB No. 0575-0015). This report covers financial operations relating to the borrower's CF project; or
Form RD 442-3, "Balance Sheet" (7 CFR Part 1942-A, 1942.17(q)(5) and OMB No 0575-0015). This report presents the financial status of the borrower's CF project.
Suggested Audit Procedure
Review Forms RD 442-2 and 442-3, and determine whether the information presented is in agreement with the borrower's financial records.
Review prior period audited financial statements and findings to ascertain whether material deficiencies or significant changes in financial condition exist.
E. Special Tests and Provisions
Compliance Requirement
A Loan Resolution, Form RD 1942-47 (Loan Resolution, Public Bodies) will be adopted by public bodies. The following sections of the Loan Resolution restrict the financial operations of the borrower: Section 6 (sale, transfer and lease of facility); Section 7 (contacts, agreements and liabilities); Section 8 (depositories); Section 10 (revenues); and Section 12 (books and records) (7 CFR Part 1942-A, 1942.5).
Suggested Audit Procedures
Review the Loan Resolution and applicable regulations.
Review and test the financial and related records to determine compliance with the restrictions placed on CF borrowers by the Loan Resolution.
Note: The financial requirements are contained in the Letter of Conditions, applicable Loan Resolution, Grant Agreement, or Loan Note Guarantee.
Compliance Requirement
A Loan Resolution will be adopted by not-for-profit organizations (Loan Resolution Security Agreement) RD Form 1942-9. The following sections of the Loan Resolution restrict the financial operations of the borrower; Section 4 (protection and disposition of funds); Section 5c (revenues); Section 5e (books and records); Section 5h (contracts, agreements, and liabilities); and Section 5i (sale, transfer or lease of facility) (7 CFR Part 1942-A, 1942.5).
Suggested Audit Procedures
Review the Loan Resolution and applicable regulations.
Review and test the financial and related records to determine compliance with the restrictions placed on CF borrowers by the Loan Resolution.
Compliance Requirement
Section 319 of Public Law (P.L.) 101-121, the Department of Interior and Related Agencies Appropriations Act, prohibits applicants and recipients of Federal contracts, grants, and loans from using appropriated funds for lobbying the Federal Government in connection with a specific award. Section 319 also requires each individual who requests or receives a Federal contract, grant, loan, or a Federal commitment to guarantee a loan, to disclose the expenditure of any funds, other than appropriated funds, for lobbying activities.
RD Instruction 1940-Q, Restrictions on Lobbying, requires that recipients of assistance exceeding certain financial thresholds provide certifications concerning lobbying activities, and submit disclosure statements if nonappropriated funds have been used for certain purposes.
Suggested Audit Procedures
The auditor will test for compliance with the provisions of Section 319 of P.L. 101-121, by verifying that the required certifications and disclosure statements have been prepared.
The auditor must check to ensure certifications and disclosure statements are signed and dated by the appropriate officials.
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