| | |
| |
Attachment IV - Intermediary Relending Program (10.767)
I. Program Objectives
The objective of Rural Development's Intermediary Relending Program (IRP) is to alleviate poverty and increase economic activity and employment in rural communities. In particular, IRP targets disadvantaged and remote communities through financing, primarily towards smaller and emerging businesses, in partnership with other public and private resources, and in accordance with state and regional strategy based on identified community needs.
II. Program Procedures
Loans are made to intermediaries that establish or recapitalize Revolving Loan Fund programs for the purpose of providing loans to ultimate recipients for business facilities and community development. The intermediary is responsible for determining eligibility, credit quality, and loan documentation for the ultimate recipient's loan. Loans must improve community facilities and employment opportunities and increase economic activity in rural areas by financing business facilities and community development.
III. Compliance Requirements and Suggested Audit Procedures
A. Types of Services Allowed or Unallowed
Compliance Requirements
Loans may be used for:
business and industrial acquisitions;
business construction, conversion, enlargement, repair, modernization, or development;
purchasing and developing land, easements, right-of-ways, buildings, facilities, leases, or materials;
purchasing equipment, leasehold improvements, machinery and supplies;
pollution control and abatement;
transportation services;
startup operating costs and working capital;
interest (including interest on interim financing) during the period before the facility becomes income producing, but not to exceed 3 years;
feasibility studies;
debt refinancing;
reasonable fees and charges;
hotels, motels, tourist homes, bed and breakfast establishments, convention centers, and other tourist and recreational facilities except as prohibited by 7 CFR Part 4274.319;
educational institutions; and
revolving lines of credit.
Compliance Requirements
Loans may not be used for:
payment for administrative costs or expenses for the intermediary;
assistance in excess of what is needed to accomplish the purpose of the ultimate recipient's project;
distribution or payment to the owner, partners, shareholders, or beneficiaries of the ultimate recipient or members of their families;
charitable institutions that would not have revenue from sales or fees to support the operation and repay the loan;
assistance to government employees, military personnel, or principals or employees of the intermediary or organizations for which such persons are directors or officers or in which they have ownership of 20 percent or more;
to an ultimate recipient that has an application pending with a loan outstanding from another intermediary involving an IRP revolving fund;
agricultural production;
transfer of ownership unless the loan will keep the business from closing or prevent the loss of employment opportunities in the area, or provide expanded job opportunities;
community antenna television services or facilities;
any illegal activity;
any project in violation of either a Federal, state, or local environmental protection law or regulation or an enforceable land use restriction unless the assistance given will result in curing or removing the violation;
lending and investment institutions and insurance companies; or
golf courses, race tracks, or gambling facilities.
The auditor is not expected to test for types of services allowed or unallowed. (7 CFR Part 4274.319).
B. Eligibility
The auditor is not expected to test for borrower eligibility.
C. Matching, Level of Effort, and/or Earmarking Requirements
There are no matching level or effort, and/or earmarking requirements.
D. Reporting Requirements
Compliance Requirements
The following financial reports must be submitted periodically for this program:
Annual audited financial statements prepared by an independent certified public accountant in accordance with GAGAS (CFR Part 4274.338(b)(4)(i)(A)).
Quarterly and semiannual reports (7 CFR Part 4274.338(b)(4)(ii)(A).
Annual proposed budget for the following year (7 CFR Part 4274.338(b)(4)(iii)).
Other reports as the Agency may require from time to time (7 CFR Part 4274.338(b)(4)(iv)).
Suggested Audit Procedures
Ascertain whether the borrower complied with any special financial reporting requirements, as contained with the loan closing documents or subsequent loan covenant modifications.
Test the accuracy of the financial reports to the borrower's financial records.
Ascertain whether the borrower submitted audited financial statements, as required.
E. Special Test and Provisions
Compliance Requirements
Loans made by the Agency shall bear interest at a fixed rate of 1 percent per annum over the 30-year term of the loan.
Interest rates charged by intermediaries to ultimate recipients on loans from the IRP revolving fund shall be negotiated by the intermediary and ultimate recipient. The rate must be within limits established by the intermediary's workplan approved by the Agency (7 CFR Part 4274.325(b)).
Security for all loans to intermediaries must be such that the repayment of the loan is reasonably assured when considered along with the intermediary's financial condition, workplan, and management ability. It is the responsibility of the intermediary to make loans to ultimate recipients in such a manner that will protect the interests of the intermediary and the Federal Government (7 CFR Part 4274.326(a)).
Suggested Audit Procedures
Test intermediary records to determine whether the interest rate charged is the lowest rate sufficient to cover the loan's proportional share of the IRP revolving fund's debt service costs, reserve for bad debts, and administrative costs.
Test other banks or financial institutions to determine if better interest rates and terms are available (7 CFR Part 4274.325(b)).
Test to determine if all reserves and other cash in the IRP revolving loan fund not immediately needed for loans to ultimate recipients or other authorized uses will be deposited in accounts in banks or other financial institutions. These accounts should be fully covered by the Federal Deposit Insurance Corporation or fully collateralized with U.S. Government obligations, and must be interest-bearing. Any interest earned thereon remains a part of the IRP revolving fund (7 CFR Part 4274.332(b)(5)).
Ascertain whether the intermediary maintains a separate ledger and segregated bookkeeping and bank accounts for IRP funds as required in 7 CFR Part 4274.332(b).
Ascertain whether the Agency's IRP loan funds are placed in the intermediary's IRP revolving fund and used by the intermediary to provide direct loans to eligible ultimate recipients (7 CFR Part 4274.314(a)).
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.
<< Table of Contents | Attachment V - Rural Economic Development Loans and Grants >>
|
