Finding Text
Criteria: Under the terms of the Loan Resolution Security Agreement (Form RD 1942-9, Section 4) executed with the U.S. Department of Agriculture (“USDA”) Rural Development, the County is required to establish and maintain a Reserve Account (either through a separate restricted bank account or a designated bookkeeping account) by making required monthly transfers until a specified target balance is accumulated. Non-Federal entities must comply with all provisions, terms, and conditions of Federal loan agreements. Condition: During our testing of special tests and provisions, it was noted that the County did not track, record, or establish the required reserve balances or general ledger bookkeeping accounts associated with its active USDA loans. Context: The County has active loans under Assistance Listing #10.766. During compliance testing, auditors noted that no restricted bank accounts or designated bookkeeping entries were maintained to track cumulative reserve deposits. However, testing confirmed that the County maintained sufficient general unassigned cash balances to cover the required reserve amounts. Cause: Management oversight and lack of awareness regarding the specific continuing compliance and reserve tracking requirements outlined in the USDA loan resolution agreements. Effects: The County was not in compliance with the debt service reserve tracking provisions of the loan agreement. Questioned Costs: None. Recommendations: We recommend that the County carefully review all active USDA loan agreement documents to identify required reserve amounts and establish dedicated general ledger restricted cash/fund balance accounts (or separate bank accounts) to track and report required reserve balances in accordance with USDA covenants. Views of Responsible Officials and Planned Corrective Action: We concur with the finding. Management was unaware of the specific reserve tracking requirement. Because the County maintains sufficient overall cash balances to satisfy the required reserve, management will immediately establish the necessary general ledger accounts to properly track and segregate the reserve balances for all active USDA loans going forward.