Finding 1191758 (2025-003)

Significant Deficiency – Debt Service Reserve Fund – Special Tests & Provisions Federal Awards 10.766 – Community Facilities Loans and Grants Condition The loan agreement with the USDA requires a debt service reserve fund equal to at least 10% of one annual loan installment that accumulates at the rate of 10% of one annual payment per year for ten years or until the balance is equal to one annual loan payment. Funds cannot be disbursed from the debt service reserve fund without the approval of USDA beforehand. Criteria During our audit, we noted the College disbursed funds from the debt service reserve fund without the approval of USDA. Cause The College set up the fund to make annual principal payments. They did not understand that the fund was for future reserves. Effect The College was not in compliance with the loan agreement. Recommendation We recommend the College not disburse funds from the debt service reserve fund without the approval of USDA in accordance with the loan agreement. Views of Responsible Officials and Planned Corrective Actions The USDA loan was paid in full on December 10, 2025. Indication of Repeat Finding This is a repeat of finding 2024-002.