Finding Text
Finding 2022-001 (2021-001)?Significant Deficiency?Compliance with USDA Loan Requirements Federal Program Information: Federal agency: U.S. Department of Agriculture Title: Water & Waste Disposal Systems for Rural Communities Assistance Listing No: 10.760 Award Number: 04-19-0088 Award Year: 2020 Questioned Costs: $29,833 Statement of Condition ? The Village?s water treatment plant rehabilitation project is funded through the United States Department of Agriculture?s (USDA) Rural Utilities Services (RUS) with a loan of $617,000 and a grant of $1,757,800. On September 28, 2018, the USDA wrote a letter to the Village to indicate the terms and conditions for this project?s funding. As part of the loan terms, the Village was required to create two new funds once the loan was finalized. The loan was finalized in April 2021. The two new funds are: 1) Debt Service Reserve and 2) Short-Lived Asset Reserve. Based on the loan terms, as of June 30, 2022, the Debt Service Reserve Fund should have had a balance of $7,774 and the Short-Lived Asset Reserve Fund should have had a balance of $50,666. During the fiscal year, the Village set up and funded these two funds. As of June 30, 2022, the Village?s Debt Service Reserve Fund had a balance of $23,916 and the Short-Lived Asset Reserve Fund has a balance of $20,833. The Village failed to deposit the annual requirement amount of $29,833 to the Short-Lived Asset Reserve Fund. Criteria ? Within the funding documents, Section II discusses loan terms. Number 8 within this section discussions reserves. The loan documents state, Reserves must be properly budgeted to maintain the financial viability and sustainability of any operation. Reserves are important to fund unanticipated emergency maintenance and repairs and assist with debt service should the need arise. The following reserves are required to be established as a condition of this loan: a) Short-Lived Asset Reserve ? In addition to the debt service reserve fund, you must establish a short-lived asset reserve fund. Based on the preliminary engineering report, you must deposit at least $29,833 into the short-lived asset reserve fund annually for the life of the loan to pay for repairs and/or replacement of major system assets. It is your responsibility to assess your facility?s short-lived asset needs on a regular basis and adjust the amount deposited to meet those needs. The Village failed to deposit the annual requirement amount within the Short-Lived Asset Reserve Fund. Effect ? The Village is not in compliance with 2 CFR 255, which could result in the loss or delay of future federal grant or loan awards. Cause ? Village staff misunderstood the loan terms as they believed after the two funds had been created, no additional funding was needed in either fund, unless funds were expended within either fund. Recommendation ? We recommend the Village staff to review the USDA loan/grant documents to ensure the amount within the funds meets the requirements. Further, we recommend the Village to transfer the annual funding requirements for the Short-Lived Asset Reserve Fund for this fiscal year. Finally, we recommend the Village to create a schedule of transfers to ensure the annual funding requirements is met for the Short-Lived Asset Reserve Fund.