local revolving loan fund (rlf). page 2 local revolving loan funds indications that hud and gao will...
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LOCAL REVOLVING LOAN
FUND (RLF)
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Local Revolving Loan Funds
Indications that HUD and GAO will heavily monitor and audit the RLF activities
HUD is finalizing rules and regulations
Following primarily based on DCA’s traditional approach to Revolving Loan Funds
--------------------------------------------------------------Loan payments capitalize local RLF
RLFs can be used for local economic development needs and must be CDBG-eligible
RLF funds should be used first for new projects. Additional stimulus funds should be used to fill financial gaps
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Local Revolving Loan Funds
Administered by local government with DCA’s oversight and guidance (as needed)
Currently 66 RLF’s throughout Georgia, with:$33 million in RLF assets
$12 million in cash$21 million in loan receivables
9,729 jobs created
RLF must be used in a timely manner – at least one new loan every five (5) years [rule subject to future HUD regulations]
For RLF cash balances greater than $125k, cash balance should be maintained at less than 30% of total RLF assets [rule subject to future HUD regulations]
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Local Government RLF ResponsibilitiesMaintenance of an accounting and financial management system that complies GAAP, DCA’s guidelines for RLF financial management systems, and HUD regulations
Maintenance of a loan servicing and monitoring capacity system to ensure that loan payments are collected, that loan covenants are enforced, and that loan secured assets are maintained [UCC filings, etc.]
Maintenance of a well documented application and selection process
Capacity to review and analyze funding requests to determine whether such projects represent prudent investments
Maintain and structure RLF so that local administrators can assess the RLF’s loan portfolio status and quickly identify any problem areas that need attention.
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RLF Administrative Costs
10% per annum based on program income derived for a particular period [fiscal year, calendar year, etc]
Administrative costs must be adequately documented – only eligible costs are ACTUAL costs incurred
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Federal OMB Circulars
In absence of, in conjunction with, or complimenting HUD regulations, Local Governments RLF expenses must adhere to Federal Office of Management and Budget (OMB) Circulars:
A-87
A-133
A-123
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OMB Circular A-87 Requirements
The RLF expense must be:
Necessary and reasonable for the proper and efficient performance and administration of the federal award
Authorized or not prohibited under State or local laws or regulation
Accorded consistent treatment
Adequately documented
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OMB Circular A-87 Requirements
What are Reasonable Costs?
Costs that do not exceed that which would be incurred by a prudent person
Generally recognized as ordinary and necessary
Controlled by factors such as sound business practices and arms length bargaining [i.e., no conflicts of interest]
Costs at market prices for comparable goods or services
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OMB Circular A-133 Requirements
Primarily to assist Local Government’s auditors
Local Government is charged with maintaining adequate internal controladequate internal control over Federal programs. The internal control exhibited by the Local Government should provide reasonable assurance that the Federal program is being managed in compliance with laws, regulations, and the provisions of contracts or grant agreements
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OMB Circular A-123 Requirements
Improper Payments Information Act
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OMB Circular A-123 Requirements
An improper payment includes any payment that was made to an ineligible recipient or for an ineligible service, duplicate payments, payments for services not received, and payments that are for the incorrect amount
An improper payment is also defined as any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements
“when an agency’s review [i.e., an audit] is unable to discern whether a payment was proper as a result of insufficient or lack of documentation, this payment must also be considered an error.”
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OMB Circular A-123 Requirements
What may constitute an improper loan payment?
Disbursements to borrowers or other third-party payments that are based on incomplete, inaccurate, or fraudulent information.
These improper loan payment disbursements may include:
Duplicate disbursementsDisbursements in the incorrect amountLoan funds used for purposes other than those allowed by law, program regulations, or HUD/State policy
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OMB Circular A-123 Requirements
“Agencies shall have a cost effective program of internal control to prevent, detect, and recover overpayments
to contractors resulting from payment errors.”
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OMB Circular A-123 Requirements
How can Local Government identify, eliminate, and recover improper payments?
Prevention Prevention activities are proactive and made prior to payment issuance to assure payment is accurate when made
Examples include: pre-payment audits, due diligence based on risk prioritization, and predictive modeling
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OMB Circular A-123 Requirements
How can Local Government identify, eliminate, and recover improper payments?
Detection
Detection activities occur subsequent to payment and test the accuracy of payment processes to identify errors made during those processes.
Examples include: routine payment verification, quality control reviews of a universe of payments using different criteria than used on the front-end
Data matching to compare data fields or sets to confirm consistent input
Data mining to detect payment patterns or anomalies for isolation and subjected to further review
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OMB Circular A-123 Requirements
How can Local Government identify, eliminate, and recover improper payments?
Recovery Recovery or collection activities refer to efforts directed toward recapturing improperly made payments.
For example, Local Government can obligate contractors to assume financial responsibility for any payment errors deemed as unallowable contract costs
Local Government may impose financial penalties on contractors when payment errors exceed certain thresholds
Local Governments may, along with demanding repayment, impose sanctions or other punitive measures against contractors
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Things to Remember • Local Government is
responsible for ensuring RLF’s allowable costs
• Exercise Due Diligence and actively monitor loan status
• Ensure loans are for program eligible activities
• Document, document, document, and document!
• HUD and GAO will be heavily auditing
• HUD regulations may be amended in future
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Program Manager Contact Information
Michael Casper – RLF Program Manager(404) 679-0594
OMB Circulars may be obtained at:
www.whitehouse.gov/omb/circulars/