Audit 393476

2025-001 Special Tests and Provisions: Debt Loan Covenants Federal Program Information: USDA Rural Development Loan Program (Assistance Listing Number 10.766 Community Facilities Loans and Grants) Condition and Criteria: The loan agreement with the U.S. Department of Agriculture (USDA) Rural Development requires the Foundation to maintain a reserve fund in a separate account at a specified balance as outlined in the loan agreement. The reserve fund is intended to ensure adequate funds are available for future debt service and related obligations. During the audit, we noted the Foundation did not maintain the required reserve fund balance as stipulated in the USDA loan agreement during the fiscal year. As of June 30, 2025, the reserve fund balance was $277,511, which was below the required balance of $301,917, resulting in a shortfall of $24,406. Prior Year Audit Finding: N/A Cause and Effect: Management indicated the reserve fund was not fully funded due to cash flow constraints during the year and the lack of monitoring procedures to ensure compliance with the reserve requirements outlined in the loan agreement. Failure to maintain the required reserve fund balance places the Foundation in noncompliance with the terms of the USDA loan agreement. Continued noncompliance could result in the lender requiring corrective action or imposing other remedies as permitted under the loan agreement. Context: The reserve fund balance was reviewed as part of the auditor’s procedures over compliance with loan agreement requirements applicable to the USDA Rural Development loan program. The required reserve balance was compared to the actual balance maintained in the reserve account at year-end. Questioned Costs: None Recommendation: We recommend implement procedures to regularly monitor the reserve fund balance and ensure that the required reserve amount is maintained in accordance with the USDA loan agreement. Management should also work with the lender to develop a plan to replenish the reserve fund to the required balance. Management’s Response: Management agrees with the finding. The Organization held the full USDA-required reserve amount as of June 30, 2025; however, due to the timing of a staffing transition between finance directors and an corresponding administrative oversight, the funds were not fully consolidated in the designated reserve account on that date. The discrepancy was identified during the annual USDA Borrower Certification process, which took place in July rather than by the end of May due to the transition in staff. The required transfer was completed on July 17, 2025, prior to certification submission. To prevent this from occurring in the future, management has implemented dual review and approval of the reserve balances at fiscal year end by the Executive Director and Finance Director. Management will request for USDA Annual Borrower Certification notifications to be directed to both the Executive Director and Finance Director for dual accountability. Lastly, formal assignment of reserve compliance responsibilities will be established.