RD Instruction 1942-A
§1942.17 (q)(4)(ii) (Con.)
(A) Gross annual income of $500,000 or more and an unpaid loan balance exceeding $100,000.
(1) Local governments and Indian tribes shall have audits made in accordance with State or local law or regulation or regulatory agency requirements. If no such requirements exist, audits shall be made in accordance with OMB Circular A-110 and paragraphs (q)(4)(i)(B)(1) and (2)(iii) of this section.
(2) All other organizations shall have audits in accordance with OMB Circular A-110 and paragraph (q)(4)(i)(B)(1) and (2)(iii) of this section.
(B) Gross annual income of less than $500,000. For borrowers that have gross annual income of less than $500,000, the requirements for audits shall be at the discretion of the State Director. However, when audits are required, they shall be in accordance with paragraph (q)(4)(ii)(A) of this section. (Revised 06-30-93, PN 208.)
(2-6-85, PN 956)
§1942.17 (q) (5) RD Instruction 1942-A
(5) Borrowers exempt from audits. All borrowers who are exempt from Rural Development audit requirements and who do not otherwise have annual audits, will within 60 days following the end of each fiscal year, furnish the Rural Development District Director with annual financial statements, consisting of a verification of the organization's balance sheet and statement of income and expense by an appropriate official of the organization. Forms Rural Development 442-2 and 442-3 may be used. For borrowers using Form RD 442-2, the dual purpose of fourth quarter management reports, when required, and annual statements of income will be met with this one submission. (Revised 3-1-88, SPECIAL PN)
(r) Rural Development actions for borrower supervision and servicing.
(1) Management assistance and management reports. Management assistance will be based on such factors as observation of borrower operations and review of the periodic financial reports. The amount and type of assistance provided will be that needed to assure borrower success and compliance with its agreements with Rural Development.
(i) The District Director is responsible for obtaining all management report data from the borrower, promptly reviewing it and making any necessary recommendations to the borrower within 40 calendar days. However, after receiving management reports for borrowers whose Rural Development indebtedness exceeds $1,000,000 and for delinquent and problem case borrowers, the District Director will forward them with comments to the State Director for review. (Revised 3-1-88, SPECIAL PN.)
(ii) District Director reviews of borrower operations.
(A) A review of the borrower's total operational and management practices, including records and accounts to be maintained, will be made between the beginning of the ninth and the end of the eleventh full month of the first year of operation. A report will be made to the State Director by sending a copy of Form RD 442-4, "District Director Report." Earlier reviews will be made when needed to resolve operational and management problems that may arise.
(B) Subsequent reviews will be made for all delinquent and other borrowers having financial problems and reported to the State Director by a copy of Form RD 442-4. These borrowers will adopt a positive action plan (see Guide 22). The plan will be reviewed quarterly by the District Director until the delinquency is eliminated or other servicing actions are recommended.
(2-6-85, PN 956)
RD Instruction 1942-A
§1942.17 (r) (1) (ii) (Con.)
(C) The District Director may, after the end of the borrower's third fiscal year of operation, exempt it from submitting management reports provided it:
(1) Is current on its loan payments.
(2) Is meeting the conditions of its agreements with Rural Development.
(3) Has demonstrated its ability to successfully operate and manage the organization and has not obtained subsequent loans in the last 3 years which have significantly altered the scope of the project.
(4) Has the State Director's written concurrence for all borrowers whose Rural Development indebtedness exceeds $1,000,000. (Revised 3-1-88, SPECIAL PN.)
(D) Borrowers qualifying for this exemption will still be required to submit a copy of their audits or annual financial statements.
(E) Ordinarily an exception will not be made to the requirement for the borrower to submit a copy of its annual budget.
(F) The District Director or State Director may reinstate the requirements for submission of periodic management reports for those borrowers who became delinquent or otherwise are not carrying out their agreements with Rural Development or require more frequent submission of management reports. This requirement will be reinstated for borrowers receiving a subsequent loan which will significantly alter the scope of the project.
(G) The District Director may accept management reports which are not prepared on page 1 of Form RD 442-2 Schedule 1 but contain like information. However, page 2 of this form must be used by all borrowers required to furnish management reports.
(iii) The State Director is responsible for:
(A) The review of the District Director's submission for all borrowers whose indebtedness exceeds $1,000,000. The State Director will forward comments to the District Director in order that a response, if necessary, can be sent to the borrower within 40 calendar days after the borrower's submission of its management reports. (Revised 3-1-88, SPECIAL PN.)
§1942.17 (r)(1)(iii) (Con.) RD Instruction 1942-A
(B) The review of all delinquent and problem case borrower management reports. Ordinarily, review findings and instructions regarding further management assistance will be determined and provided to the District Office within 20 calendar days of submission for delinquent and problem borrowers. (Revised 3-1-88, SPECIAL PN.)
(C) Forwarding to the National Office copies of review findings, instructions for further assistance, and positive action plans on delinquent borrowers and borrowers experiencing financial problems at the same time the findings and instructions are provided to the District Office. (Revised 3-1-88, SPECIAL PN.)
(2) Audits and financial statements.
(i) The District Director is responsible for obtaining all audit reports and financial statements from the borrower. Those received from borrowers whose Rural Development indebtedness exceeds $1,000,000 and from delinquent and problem case borrowers will be promptly reviewed and forwarded to the State Director with appropriate comments. (Revised 3-1-88, SPECIAL PN.)
(ii) The District Director is responsible for the review of audits and financial statements and for recommendations and instructions for borrower assistance. For borrowers required to have audits, in accordance with paragraph (q)(4)(i)(A) of this section, the District Director is also responsible for any necessary follow up required because of audit resolution items received from the cognizant agencies. The borrower will be required to furnish any additional information necessary to satisfy the requirement. Guide 21 may be used in the audit review process. (Revised 3-1-88, SPECIAL PN.)
(iii) The State Director is responsible for the review of audits of borrowers whose indebtedness exceeds $1,000,000 and delinquent and problem case borrowers. The State Director may recommend to the District Director any necessary actions to be taken. (Revised 3-1-88, SPECIAL PN)
(3) Security inspections. A representative of the borrower will ordinarily accompany the District Director during each inspection.