UNITED STATES DEPARTMENT OF AGRICULTURE

Rural Utilities Service

**Staff Instruction 1700-6**

**SUBJECT: [Loan Fund and Accounting Review]{.underline}**

**TO:** RUS Staff

**EFFECTIVE DATE:** Date of Approval

**EXPIRATION DATE:** Four Years from Effective Date

**OFFICE OF PRIMARY INTEREST:** Program Accounting Services Division

**PREVIOUS INSTRUCTIONS:** This Staff Instruction replaces Staff
Instruction 1700-6, Loan Fund and Accounting Review, issued June 25,
1993.

**FILING INSTRUCTIONS:** Discard Staff Instruction 1700-6 dated June 25,
1993, and replace with this staff instruction. This staff instruction is
available to the RUS staff on the S: Drive, (S:PSRA\\SI).

**PURPOSE:** To establish the objectives and procedures to be followed
in the review of RUS borrowers\' plant accounting procedures and
construction fund transactions.

+---------------------------------------+---+----------------------------+
| /S/ Roberta D. Purcell                |   | June 17, 1998              |
+---------------------------------------+---+----------------------------+
| Assistant Administrator               |   | Date                       |
|                                       |   |                            |
| Program Accounting and Regulatory     |   |                            |
| Analysis                              |   |                            |
+---------------------------------------+---+----------------------------+

**TABLE OF CONTENTS**

1.  Purpose

2.  LFAR Objectives

3.  Financing Sources

4.  Construction Fund Activity

5.  LFAR Scheduling

6.  Preliminary Preparation for an LFAR

7.  Conducting an LFAR

8.  Preparation of Reports

9.  Submission of LFAR Documents

10. Report Processing and Review

11. Follow-Up Procedures

12. Records and Reports

Exhibit A: Review Guide (Electric)

Exhibit B: Review Guide (Telecommunications)

Exhibit C: Financial Requirement and Expenditure Statement

Exhibit D: Schedule of Reclassified Construction Fund Disbursements
(Electric)

Exhibit E: Schedule of Unapproved Construction Fund Disbursements
(Electric)

Exhibit F: Schedule of Unapproved Advances

Exhibit G: Expenditure Adjustment Report (Electric)

Exhibit H: Status of Construction Fund Receipts and Disbursements
(Electric)

Exhibit I: Schedule of Budget Purpose Adjustments Required (Electric)

Exhibit J: Sample Electric LFAR Letter Report - Disallowances Made

Exhibit K: Sample Electric LFAR Letter Report - Immaterial Amounts not
Disallowed

Exhibit L: Financial Requirement Statement

Exhibit M: Schedule of Reclassified Construction Fund Disbursements
(Telecommunications)

Exhibit N: Schedule of Unapproved Construction Fund Disbursements
(Telecommunications)

Exhibit O: Expenditure Adjustment Report (Telecommunications)

Exhibit P: Status of Construction Fund Receipts and Disbursements
(Telecommunications)

Exhibit Q: Schedule of Budget Purpose Adjustments Required
(Telecommunications)

Exhibit R: Sample Telecommunications Letter Report - Disallowances Made

Exhibit S: Sample Telecommunications LFAR Letter Report - Immaterial
Amounts not Disallowed

Exhibit T: LFAR Review Checklist

Exhibit U: LFAR Review Evaluation

Exhibit V: Sample LFAR Recommendations Follow-Up Letter

**ABBREVIATIONS**

AFUDC Allowance for Funds Used During Construction

CFC/NRUCFC National Rural Utilities Cooperative Finance Corporation

CPR Continuing Property Record

FRS/FR&ES Financial Requirement (and Expenditure) Statement

G&T Generation and Transmission

IDC Interest During Construction

LFAR Loan Fund and Accounting Review

PASD Program Accounting Services Division

RE Rural Electrification

RETRF Rural Electric and Telecommunications Revolving Fund

RUS Rural Utilities Service

RTB Rural Telephone Bank

TNI Temporary Normal Inventory

**1. PURPOSE:** The purpose of this staff instruction is to establish
the objectives of an examination of Rural Utilities Service (RUS)
borrowers\' Construction Fund - Trustee (construction fund) transactions
and the review of borrowers\' plant accounting records and procedures.
This instruction also details the reports to be prepared and the
procedures to be followed during the performance of a Loan Fund and
Accounting Review (LFAR) and in the Follow-Up to LFAR recommendations.

**2. LFAR OBJECTIVES:** The objectives of an LFAR are as follows:

**2.1** To determine whether loan funds and other construction fund
receipts, including equity collections, lease proceeds, sale of property
proceeds, and interest earned on the investment of loan funds were
accounted for properly;

**2.2** To determine, for electric borrowers only, whether advances of
loan funds were requisitioned in accordance with the provisions of 7 CFR
Part 1721, Subpart A, Electric Loans - Advance of Funds;

**2.3** To determine whether construction fund disbursements were made
in compliance with RUS policy in amounts and for purposes approved by
RUS;

**2.4** To evaluate the effectiveness of the borrower\'s internal
accounting controls over construction fund receipts, construction fund
disbursements, and plant accounting procedures;

**2.5** To evaluate the accuracy and validity of the financing-related
documents (e.g., work order inventories, special equipment summaries,
etc.,) submitted to RUS to encumber loan funds; and

**2.6** To determine whether a borrower\'s plant accounting records and
procedures are in compliance with RUS requirements and the applicable
uniform system of accounts.

**3. FINANCING SOURCES:** A number of financing sources are available to
electric and telecommunications borrowers, including:

**3.1 [RUS and Related Financing Sources]{.underline}:**

**3.1.1 [Insured Loan]{.underline}**: Loans made to electric and
telecommunications borrowers by RUS under the authority of Section 305
of the Rural Electrification (RE) Act;

**3.1.2 [Concurrent Loans]{.underline}**: Insured loans made to electric
and telecommunications borrowers by RUS concurrently with loans from
other credit sources, such as the National Rural Utilities Cooperative
Finance Corporation (NRUCFC), CoBank, or the Rural Telephone Bank (RTB).
Concurrent loans are made under the authority of Sections 307 and 408 of
the RE Act;

**3.1.3 [Guaranteed Loans]{.underline}**: Loans made to electric and
telecommunications borrowers by legally organized lending agencies, such
as the Federal Financing Bank and CoBank, and guaranteed in the full
amount by RUS under the authority of Section 306 of the RE Act;

**3.1.4 [RTB Loans]{.underline}**: Loans made to telecommunications
borrowers by the RTB under the authority of Section 408 of the RE Act;
and

**3.1.5 [Lease Proceeds]{.underline}**: Funds resulting from a
borrower\'s sale and lease back of electric and telecommunications
plant.

**3.2 [Non-RUS Financing Sources]{.underline}**:

**3.2.1 [Nonconcurrent Loans]{.underline}**: Long-term loans made to
electric and telecommunications borrowers by NRUCFC, CoBank, and other
lenders to finance facilities or services that RUS cannot or will not
finance; and

**3.2.2 [Pollution Control Bonds]{.underline}**: Sales of bonds by the
local government to finance pollution control equipment for electric
production plant.

**4. CONSTRUCTION FUND ACTIVITY:**

**4.1** Receipts and disbursements of loan funds from RUS and other
related financing sources, and other required funds, such as equity
deposits, sales of property receipts, etc., should be:

**4.1.1** Deposited and withdrawn from the construction fund account;

**4.1.2** Reported in the Expenditure Adjustment Report (RUS Form 595a
for electric borrowers and RUS Form 481a for telecommunications
borrowers); and

**4.1.3** Reported in the Status of RUS Construction Fund Receipts and
Disbursements.

**4.2** If loan funds from non-RUS financing sources have been channeled
through the construction fund account, the LFAR workpapers are to
reflect these receipts and disbursements together with an adjustment
eliminating these amounts and determining the activity of loan funds
from RUS and related financing sources.

**5. LFAR SCHEDULING**

**5.1** Each RUS Accountant will submit a proposed work program of LFARs
and other assignments to be performed during the upcoming performance
appraisal period to the Regional Accounting Branch Chief (branch chief).
The proposed work program must be submitted no later than the close of
business on May 15th. The work programs will be reviewed, modified, as
necessary, and approved by the branch chief.

**5.1.2** LFARs of electric generation and transmission (G&T)
cooperatives and affiliated telecommunications companies will be
conducted through a team approach, when deemed necessary by the branch
chief. Team members\' work programs will identify their participation in
team assignments. To permit these assignments to be included in the
proposed work program, each branch chief will give adequate advance
notice to the RUS Accountants assigned to team reviews.

**5.1.3** The RUS Accountant will determine when to perform each LFAR
listed in the approved work program except when otherwise directed by
the branch chief.

**5.2** Only active borrowers, as defined in section 5.2.1, will be
scheduled for LFARs.

**5.2.1** [An Active Borrower]{.underline} is any borrower that has
disbursed loan fund advances, equity funds, sale of property funds, or
other funds required to be deposited to the construction fund account
and to be accounted for as loan funds since the prior LFAR in amounts as
follows:

**5.2.1.1 [Electric Distribution Borrowers]{.underline}:** Disbursements
from the construction fund account equal or exceed \$25,000. For
disbursements of less than \$25,000, a LFAR will only be performed to
close a current loan when no additional loan activity is anticipated;

**5.2.1.2 [Electric G&T Borrowers]{.underline}:** Disbursements from the
construction fund account equal or exceed \$1,000,000. For disbursements
of less than \$1,000,000, an LFAR will only be performed to close a
current loan when no additional loan activity is anticipated; and

**5.2.1.3 [Telecommunications Borrowers]{.underline}:** Disbursements
from the construction fund account equal or exceed \$25,000. For
disbursements of less than \$25,000, an LFAR will only be performed to
close a current loan when no additional loan activity is anticipated.

**5.2.2** When determining the active/inactive status of a borrower, the
RUS Accountant will first determine whether the borrower has unaudited
advances equal to or in excess of \$25,000/\$1,000,000. If a borrower
does not, the RUS Accountant will contact the borrower and determine
whether the borrower has made deposits into and subsequently
disbursements from the construction fund account in an amount equal to
or in excess of \$25,000/\$1,000,000 due to sales of property or other
receipts.

**5.3** An Inactive Borrower is any borrower not meeting the criteria in
Section 5.2.1.

**5.3.1** Inactive borrowers will not be reviewed nor will they be
visited by RUS Accountants except under the following conditions:

**5.3.1.1** The borrower requests that the RUS Accountant provide
technical accounting advice and training;

**5.3.1.2** Information obtained from the audit report prepared by the
independent certified public accountant, or from the RUS Form 7,
Financial and Statistical Report; Form 12, Operating Report - Financial;
or Form 479, Financial and Statistical Report for Telephone Borrowers,
or other sources indicate serious accounting problems that may affect
the financial statements;

**5.3.1.3** The borrower has submitted a loan application that will lead
to its classification as an active borrower; or

**5.3.1.4** A pending loan application requires an adequacy of records
review at the borrower\'s office.

**6. PRELIMINARY PREPARATION FOR AN LFAR**

**6.1** After the work program for a RUS Accountant has been approved,
the respective branch will provide the RUS Accountant with the prior
LFAR workpapers for each borrower scheduled to receive an LFAR during
the fiscal year.

**6.2** Prior to beginning an LFAR, the RUS Accountant should:

**6.2.1** Review the prior LFAR workpapers. (Note amounts of unapproved
disbursements, recommendations made, and followup required to determine
borrower compliance with RUS instructions and recommendations.);

**6.2.2** Review the borrower\'s field file; and

**6.2.3** Contact the borrower to discuss scheduling of the LFAR and
other matters relating to the LFAR, such as the records, documents,
schedules, and other information that must be prepared or made ready to
begin the review.

**7. CONDUCTING AN LFAR**

**7.1 [Review Guide]{.underline}:** The RUS Accountant will use the LFAR
review guide (Exhibit A for electric borrowers or Exhibit B for
telecommunications borrowers, as appropriate) approved by the Assistant
Administrator, PARA, in the performance of each LFAR.

**7.1.1** When performing an LFAR of a telecommunications holding
company, if one of the operating or affiliated companies that comprise
the holding company has construction fund disbursements during the LFAR
period equal to or greater than \$25,000, an LFAR will be performed of
the holding company as follows:

**7.1.1.1** Based upon the RUS Accountant\'s professional judgment, a
sample of all operating or affiliated companies having construction fund
disbursements equal to or greater than \$25,000 will be selected and an
LFAR performed for each.

**7.1.1.2** For each operating or affiliated company within the holding
company not included in the sample in 7.1.1.1 and for each company that
has had construction fund disbursements during the LFAR period of less
than \$25,000, the review will include:

**7.1.1.2.1** A Schedule of Construction Fund Receipts;

**7.1.1.2.2** A Schedule of Construction Fund Disbursements;

**7.1.1.2.3** An Expenditure Adjustment Report;

**7.1.1.2.4** A borrower-prepared Financial Requirement Statement;

**7.1.1.2.5** Excerpts from the Minutes of Board of Directors\'
Meetings;

**7.1.1.2.6** Review guides for receipts and disbursements; and

**7.1.1.2.7** Work order and contract financing activity documentation
that includes a listing of RUS Form 771 and 771a and contracts approved,
reimbursed, and unreimbursed for each financing document with
verification of financing approval only.

**7.1.1.3** For each operating or affiliated company within the holding
company that has had no construction fund disbursements during the LFAR
period, no testing will be performed.

**7.1.2** When reviewing the borrower\'s internal controls over
construction fund receipts, construction fund disbursements, and plant
accounting procedures, professional judgment will be used to determine
which review tests will be performed to meet the objectives of each
review guide segment. When deemed necessary, the LFAR review guide
should be revised, using alternate and/or additional tests, to detail
the specific records and procedures used to accomplish the LFAR
objectives.

**7.1.3** The review guide should effectively cross-reference, to the
workpapers, all general tests performed and documented in schedules,
analyses, etc., prepared and/or examined by the RUS Accountant.

**7.2 [Review Standards]{.underline}:** To the extent applicable in view
of the limited scope of the LFAR, the RUS Accountant should perform the
LFAR in accordance with generally accepted auditing standards
promulgated by the American Institute of Certified Public Accountants
and with generally accepted governmental auditing standards issued by
the Comptroller General of the United States.

**7.3 [Scope Limitation]{.underline}:** If the RUS Accountant determines
that an LFAR cannot be performed due to a scope limitation imposed by
the borrower, the RUS Accountant will immediately contact his/her branch
chief who will notify the Assistant Administrator, PARA. The branch
chief and Assistant Administrator, PARA, will endeavor to resolve the
issue with the borrower.

**7.4 [Period Covered]{.underline}:** The LFAR will cover the period
from the date of the last LFAR or the date of the first advance of funds
for an \"A\" loan borrower through the end of the latest completed
accounting month. The RUS Accountant should advise the borrower that all
loan fund records should be posted through the LFAR date.

**7.4.1** A Financial Requirement (and Expenditure) Statement
(FRS/FR&ES) (Exhibit C for electric borrowers and Exhibit L for
telecommunications borrowers) will be prepared, if one is not already
available, reflecting all loan fund transactions that have occurred as
of the review date. It is not necessary for the borrower to prepare a
new Financial Requirement (and Expenditure) Statement if the last
statement submitted reflects all approvals, advances, and disbursements
through the LFAR date.

**7.4.2** If it is necessary to prepare an updated statement as of the
review date, the statement should be submitted to the appropriate
regional division (electric borrowers) or area office
(telecommunications borrowers), with a photocopy included in the LFAR
workpapers.

**7.5 [Board Minutes]{.underline}:** The RUS Accountant will review the
minutes of meetings of the board of directors, members, and stockholders
held during the LFAR period. The workpapers will indicate whether the
minutes were properly signed and will include a schedule of excerpts
indicating any information that may:

**7.5.1** Have an adverse effect on loan security;

**7.5.2** Disclose apparent mortgage/loan violations;

**7.5.3** Reflect major financial transactions or changes in property
ownership; and

**7.5.4** Be useful to the RUS Accountant (for example: sales of
property, board authorized signatures for RUS Construction Fund checks,
presentation and discussion of the annual audit report, etc.).

**7.6 [Loan Fund Transactions]{.underline}**

**7.6.1** The RUS Accountant must determine whether borrowers have
properly accounted for all proceeds received from RUS and other related
financing sources (see Section 3) and have used the funds for approved
purposes.

**7.6.2** The RUS Accountant is not responsible for reviewing and
determining whether non-RUS funds have been used for stated loan
purposes. The RUS Accountant will, however, ascertain through a cursory
review of the non-RUS loan fund receipts and disbursements that RUS loan
funds have not been used to finance facilities or services specified in
the non-RUS loan documents.

**7.6.3 [Reclassified Construction Fund Disbursements]{.underline}:**
For disbursements that have been improperly classified by primary budget
purpose, the RUS Accountant will prepare a Schedule of Reclassified
Construction Fund Disbursements (Exhibit D for electric borrowers and
Exhibit M for telecommunications borrowers).

**7.6.4 [Unapproved Construction Fund Disbursements]{.underline}:**
During the LFAR, the RUS Accountant may determine that certain
disbursements should be disallowed. RUS policy requires that all
construction fund disbursements not expended for proper RE Act purposes
or in accordance with RUS policies and procedures be disallowed unless
RUS interests are better served by not disallowing immaterial amounts.

**7.6.4.1** [In the electric program]{.underline}, improperly expended
construction fund disbursements or unapproved advances equal to or less
than \$5,000, in the aggregate, will not typically be disallowed. If
these amounts are not the result of isolated errors but are indicative
of systemic accounting procedural problems, the RUS Accountant must
expand the scope of the review to ascertain the pervasiveness of the
problem and to determine the total improper construction fund
disbursements and/or unapproved advances that occurred during the LFAR
period.

**7.6.4.2** [In the telecommunications program]{.underline}, improperly
expended construction fund disbursements equal to or less than \$5,000,
in the aggregate, will not typically be disallowed. If these amounts are
not the result of isolated errors but are indicative of systemic
accounting procedural problems, the RUS Accountant must expand the scope
of the review to ascertain the pervasiveness of the problem and to
determine the total improper construction fund disbursements and/or
unapproved advances that occurred during the LFAR period.

**7.6.4.3** Commonly occurring situations that typically require the
disallowance of loan fund disbursements include:

**7.6.4.3.1** Adequate support cannot be provided for the construction
fund disbursement;

**7.6.4.3.2** Loan funds are disbursed more than once for the same item;

**7.6.4.3.3** General funds are reimbursed for work orders that include,
as overheads, costs previously financed with loan funds (e.g.,
depreciation of vehicles, computer hardware and software, engineering or
legal fees, etc.);

**7.6.4.3.4** Loan funds are disbursed for items not eligible for RUS
financing;

**7.6.4.3.5** Loan funds are disbursed for improperly classified work
order costs;

**7.6.4.3.6** Loan funds are disbursed for construction reimbursed by
others (e.g., contributions-in-aid of construction, plant relocation
reimbursements, etc.);

**7.6.4.3.7** Loan funds are disbursed to reimburse indirect labor or
other overhead costs that are not adequately supported;

**7.6.4.3.8** Loan funds are disbursed in excess of amounts approved for
advance for any primary budget purpose (see the standard Electric Loan
Contract, Article IV, Section 4.1.(k)/Telecommunications Loan Contract,
Section 2.4);

**7.6.4.3.9** Loan funds are disbursed for items for which no budget
purpose has been established; or

**7.6.4.3.10** Loan funds are disbursed for items in Approved - No Funds
Available.

**7.6.4.4** [For amounts disallowed]{.underline}, the RUS Accountant
will prepare a Schedule of Unapproved Construction Fund Disbursements
(Exhibit E for electric borrowers and Exhibit N for telecommunications
borrowers). Disallowed amounts must also be reported as Unapproved
Expenditures - Due From General Funds in the Expenditure Adjustment
Report. The RUS Accountant will request that the borrower take
appropriate action to eliminate these unapproved disbursements.
Unapproved disbursements may be eliminated by:

**7.6.4.4.1** Drawing a general fund check to reimburse the construction
fund; or

**7.6.4.4.2** Using the offset method. The offset method may be used
only if the borrower clearly documents the transaction on a subsequent
RUS construction fund check voucher or reimbursement schedule. For
example:

Inventory of Work Orders:

No. 375 \$ 5,547.00

No. 376 [6,754.50]{.underline}

Total 12,301.50

Less: Amount of Unapproved

Disbursements per LFAR

dated July 31, (Year) [8,825.16]{.underline}

Net Total this Check (per C.F. Check #) \$ 3,476.34

**7.6.4.4.3** The elimination of an unapproved disbursement is not
accomplished by the borrower\'s withholding an amount equal to the
unapproved disbursements from a request for advance from RUS.

**7.6.4.5** Immaterial amounts not disallowed should be summarized and
documented on the detail schedule of construction fund disbursements.
Immaterial amounts not disallowed will not be reported on a separate
schedule or reported on the Expenditure Adjustment Report.

**7.6.4.6** The RUS Accountant may encounter situations that require
additional borrower action during the LFAR. If the borrower cannot
complete the required action within the LFAR time constraints, the RUS
Accountant should contact the appropriate branch chief for guidance in
resolving the situation. If the branch chief considers it appropriate
and practicable, completion of the LFAR may be delayed for a reasonable
period of time (30 to 60 days) to provide the borrower time to complete
the necessary action. If disbursements remain unsupported when the RUS
Accountant returns to finalize the LFAR, the unsupported disbursements
will be disallowed. None will be considered for suspension.

**7.6.5 [Unapproved Advances (Electric)]{.underline}:** The RUS
Accountant will prepare a Schedule of Unapproved Advances, as set forth
in Exhibit F, for those advances that have been made in violation of the
provisions of Part 1721 and Electric Operations Manual 4, Guidelines for
the Implementation of 7 CFR Part 1721.1. Any violation of these
requirements should be treated as an improper advance.

**7.6.6 [Expenditure Adjustment Report]{.underline}:** At the conclusion
of the LFAR, the RUS Accountant will prepare an Expenditure Adjustment
Report (Exhibit G for electric borrowers and Exhibit O for
telecommunications borrowers) that reflects reclassified, unapproved,
and approved disbursements. The RUS Accountant will attach any schedules
necessary to explain reclassified or unapproved amounts to the
Expenditure Adjustment Report.

**7.6.7 [Status of Construction Fund Receipts and
Disbursements]{.underline}:** At the conclusion of the LFAR, the RUS
Accountant will prepare a Status of Construction Fund Receipts and
Disbursements (Exhibit H for electric borrowers and Exhibit P for
telecommunications borrowers) that reconciles net approved disbursements
through the end of the LFAR date with the total loans made to date. A
copy of this report will be enclosed with the LFAR letter report.

**7.6.8 [Closed Budget Transactions]{.underline}:** The RUS Accountant
will indicate, on the Expenditure Adjustment Report, approved
disbursements to be transferred to Closed Budget, for electric borrowers
and Closed Budget - Audited, for telecommunications borrowers. Amounts
relating to incomplete contracts, outstanding Temporary Normal Inventory
(TNI) advances, outstanding Work Order Fund advances, and RTB stock
should not be transferred to Closed Budget/Closed Budget - Audited. A
special approved purpose, Closed Budget - Unaudited, is used by the
telecommunications program when additional space is needed on the
Financial Requirement Statement. These disbursements are reviewed
together with other budget purpose disbursements and are requested for
transfer to Closed Budget - Audited.

**7.6.9 [Other Budget Purpose Adjustments]{.underline}:** During the
course of the LFAR, items may be identified that require budget purpose
adjustments to correct amounts approved for advance by RUS. These
include:

**7.6.9.1** Duplicate items or items not eligible for financing; and

**7.6.9.2** Unsupported items.

**7.6.9.3** These adjustments are reported on the Schedule of Budget
Purpose Adjustments Required (Exhibit I for electric borrowers and
Exhibit Q for telecommunications borrowers). Adjustments required for
unapproved disbursements are also included in this schedule.

**7.6.9.4** Budget purpose adjustments may or may not be required for
immaterial amounts not disallowed, depending upon the circumstances, in
order for the borrower's loan budget records to reconcile with the RUS
loan budget records. Items for which budget adjustments are and are not
required for immaterial amounts not disallowed are as follows:

**7.6.9.4.1** In the Electric Program:

**7.6.9.4.1.1** No budget adjustment is required for immaterial amounts
not disallowed for items [previously approved for advance]{.underline}
for which a budget adjustment would ordinarily be made to reduce amounts
approved for advance if a disallowance were made. For example, no budget
adjustment is made for funds disbursed for unsupported indirect labor
(or other overhead costs) charged to construction and approved for
advance on approved work orders or funds disbursed for used equipment.

**7.6.9.4.1.2** A budget adjustment is required to increase amounts
previously approved for advance by the amount not disallowed for items
[not previously approved for advance]{.underline} for which a budget
adjustment would not ordinarily be made to reduce amounts approved for
advance if the disallowance were made. For example, a budget adjustment
is required for a duplicate reimbursement of a work order or special
equipment summary. The budget adjustment is made in the budget purpose
for which the funds were disbursed.

**7.6.9.4.2** In the Telecommunications Program:

**7.6.9.4.2.1** No budget adjustment is required for immaterial amounts
not disallowed for items [previously approved for advance]{.underline}
for which a budget adjustment would ordinarily be made to reduce amounts
approved for advance if a disallowance were made. For example, no budget
adjustment is made for funds disbursed for unsupported indirect labor
(or other overhead costs) charged to construction approved for advance
on approved work orders.

**7.6.9.4.2.2** A budget adjustment is required to increase amounts
previously approved for advance by the immaterial amounts not disallowed
for items [not previously approved for advance]{.underline} for which a
budget adjustment would not ordinarily be made to reduce amounts
approved for advance if the disallowance were made. For example, a
budget adjustment is required for funds disbursed in excess of final
amounts approved for advance for an approved contract. A budget
adjustment would be required to increase the amounts approved for
advance in an amount equal to the immaterial disallowance not made.

**7.6.9.4.2.3** A budget adjustment is also be required to establish an
approved purpose and approve funds for advance for an amount not
disallowed for items [not previously approved for advance]{.underline}
for which a budget adjustment would not ordinarily be made and no budget
item currently exists on the RUS Form 481 for this item. For example,
funds disbursed for bank service charges or a contract for a project not
approved in the current loan. A budget item would be established on the
Form 481 for this item and funds approved for advance.

**7.6.9.5** Budget purpose adjustments for amounts that can be
determined during the course of the LFAR are included in the Schedule of
Budget Purpose Adjustments Required; however, these adjustments should
not be duplicated by instructing the borrower to submit an adjusting
Inventory of Work Orders.

**7.6.10 [Sales of Property (Electric)]{.underline}:** If the LFAR
discloses sales of property during the review period, the RUS Accountant
will ascertain whether the sale required RUS approval as set forth in
Section 3.1 of the new RUS mortgage and §1717.616(f). If the sale
requires RUS approval, the RUS Accountant will determine whether the
Form 369, Request for Approval to Sell Capital Assets, was executed and
approved by RUS. The RUS Accountant will determine whether the sale
proceeds were deposited in the RUS Construction Fund and that the
appropriate regional program area was notified.

**7.6.10.1** The amount should be recorded on RUS Form 605, Primary
Budget Purpose Sheet, as a entry increasing the balance in reserve and a
decrease in the amount approved for advance. This entry will be followed
by another entry immediately decreasing the balance in reserve and
increasing the amount approved for advance to approve the use of the
funds for construction or acquisition of utility plant.

**7.6.10.2** If the funds were not deposited in the construction fund,
the RUS Accountant must include, in the LFAR letter report, a request
that such deposit be made. If the funds were deposited, but the
transactions noted above were not recorded by RUS on RUS Form 605, the
amount should be reported as a required adjustment in a Schedule of
Budget Purpose Adjustments Required.

**7.6.11 [NonLoan Funds (Telecommunications)]{.underline}:** If the LFAR
discloses that the borrower has not deposited sale of property proceeds,
equity funds, or other nonloan funds into the construction fund as
required by loan contract provisions or by RUS Bulletin 415-1, Sales of
Property by Telecommunications Borrowers, the RUS Accountant will direct
the borrower to deposit all such amounts into the construction fund
account.

**7.6.12 [TNI Funds (Electric)]{.underline}:** A borrower may request an
advance to finance construction costs before actual construction begins.
Before funds are advanced under a TNI, the borrower identifies the
construction project(s) for which the funds are to be used. The amounts
requested are recorded in Column 7, of RUS Form 605, which decreases the
reserve balance and increases the amount approved for advance. If funds
have been advanced and disbursed and construction has been completed,
the RUS Accountant must determine whether the proper financing
instrument (RUS Form 219, Inventory of Work Orders, or the construction
contract covering owner-furnished materials) has been submitted to and
approved by RUS. If the financing instrument has been processed by RUS
without properly reducing or eliminating the TNI, the RUS Accountant
must report the required adjustment in the Schedule of Budget Purpose
Adjustments Required.

**7.6.12.1** The RUS Accountant must determine whether loan fund
disbursements for TNIs were properly supported and for proper loan
program purposes. When general funds are reimbursed, disbursements from
the general fund should be dated prior to the reimbursement to support
the expenditures.

**7.6.12.2** The RUS Accountant must determine whether the borrower
understands the proper procedure for eliminating the TNI.

**7.6.13 [Work Order Fund (Telecommunications)]{.underline}:** A
borrower may request an advance to finance construction costs before
construction begins. These funds, when approved, are advanced under the
budget purpose \"Work Order Fund\". If funds have been advanced and
disbursed and construction has been completed, the RUS Accountant must
determine whether the proper financing instrument (RUS Form 771, Summary
of Work Orders, or other financing instrument) has been submitted to and
approved by RUS. If the financing instrument has been processed by RUS
without properly reducing or eliminating the Work Order Fund, the RUS
Accountant must report the required adjustment in the Schedule of Budget
Purpose Adjustments Required.

**7.6.13.1** The RUS Accountant must determine whether loan fund
disbursements for the Work Order Fund were properly supported and for
proper loan program purposes. When general funds are reimbursed,
disbursements from the general fund should be dated prior to the
reimbursement to support the expenditures.

**7.6.13.2** The RUS Accountant must determine whether the borrower
understands the proper procedure for eliminating the Work Order Fund.

**7.7 [Workpapers]{.underline}:** The RUS Accountant will prepare
workpapers that:

**7.7.1** Document the review work performed including information
obtained from questions and observations, from a review of instructions
and directives, from an analysis of systems and processes, and from an
examination of transactions;

**7.7.2** Identify and document deficiency findings with sufficient
evidence to show the existence and extent of the deficient conditions;

**7.7.3** Document the review in an orderly fashion, indicating what has
been done and what remains to be done, and providing reasons for what
was not done;

**7.7.4** Document and support the accountant\'s conclusions relative to
the stated objectives in each review guide segment;

**7.7.5** Justify review conclusions and recommendations when
challenged, when offered as court testimony, and when used to defend the
RUS Accountant in the event of legal inquiry;

**7.7.6** Provide a basis for a supervisory review that determines the
adequacy and effectiveness of the review work performed and the
accountant\'s technical ability, skill, and working habits;

**7.7.7** Provide background and reference data for subsequent reviews;
and

**7.7.8** Meet the required content and formatting criteria, including:

**7.7.8.1** Proper headings;

**7.7.8.2** Comprehensive and specific comments on the review procedures
used (verification comments);

**7.7.8.3** Neat and legible;

**7.7.8.4** Complete and accurate;

**7.7.8.5** Logical organization that parallels the review guide;

**7.7.8.6** A legend of tick marks or other symbols;

**7.7.8.7** The date of preparation and, on team assignments, the
preparer\'s and the accountant in charge\'s initials; and

**7.7.8.8** Proper indexing and effective cross-referencing.

**7.8 [Exit Conference]{.underline}:** The RUS Accountant will arrange
with the manager or the manager\'s designee for an exit conference at
the conclusion of the review. During this conference, the RUS Accountant
will review all significant findings and recommendations resulting from
the LFAR.

**7.9 [Presentation of LFAR Findings to the Board of
Directors]{.underline}:** When LFAR findings disclose significant
deficiencies in the borrower\'s use of loan funds and/or plant
accounting procedures and when the Assistant Administrator, PARA, deems
appropriate, the RUS Accountant will present the LFAR report to the
borrower\'s board of directors. The RUS Accountant should coordinate
this presentation with the appropriate regional program general field
representative.

**8. PREPARATION OF REPORTS**

**8.1 [Letter Report]{.underline}:** At the conclusion of the LFAR, the
RUS Accountant will prepare and transmit a letter report to the
borrower\'s board president, with a copy to the manager. When
disallowances are made, the RUS Accountant will prepare a letter report
as set forth in Exhibit J for electric borrowers and Exhibit R for
telecommunications borrowers. When only immaterial disallowances are
found and not made, the RUS Accountant will prepare a letter report as
set forth in Exhibit K for electric borrowers and Exhibit S for
telecommunications borrowers. The letter report will contain all
significant review findings and recommendations including those findings
pertaining to mortgage violations, policy violations, loan security,
internal control, and construction cost allocations. All mortgage
violations will be brought to the attention of the Assistant
Administrator, PARA, who will confer with the appropriate regional
program director before finalizing the letter report. The letter report
will include the following statements/information:

**8.1.1** Period and scope of review. The scope paragraph will read:

On [(date)]{.underline} , we completed our loan fund and accounting
review of the [(name of borrower)]{.underline} for the period [(starting
date)]{.underline} , through [(\"as of\" date)]{.underline} .
Construction Fund receipts of \$ [(amount)]{.underline} and
disbursements of \$ [(amount)    ]{.underline} were reviewed for this
period. The scope of our review covered:

1.  The accounting for the RUS Construction Fund;

2.  The extent of internal accounting control over plant activities;

3.  The related accounting records and procedures;

4.  The determination of compliance with the required uniform system of
    accounts for plant accounting and other related financial records;
    and

5.  The determination that advances of loan funds were for projects
    included in an RUS-approved construction work plan, as amended, and
    were made in approved amounts. \[Electric\]

**8.1.2** The adequacy of the accounting for loan funds (receipts and
disbursements) and the propriety of the use of these funds, plus
instructions to correct any related deficiencies noted;

**8.1.2.1** The action taken by the borrower to eliminate unapproved
disbursements, followed by instructions for eliminating unapproved
disbursements that have not yet been corrected by the borrower;

**8.1.2.2** An indication of with whom these matters were discussed at
the borrower\'s office;

**8.1.3** A reference to summaries and schedules enclosed with the
letter report or given separately to borrower personnel;

**8.1.4** Specific recommendations for improvements in accounting
procedures, records, internal control, and other areas, as appropriate;

**8.1.5** A request to deposit proceeds from the sale of property to the
RUS Construction Fund;

**8.1.6** A request that the borrower review the letter report contents
with the board at its next meeting;

**8.1.7** A requirement that the borrower respond to RUS within 60 days
about action taken to eliminate unapproved disbursements, to provide the
date unapproved advances were redeposited in the Construction Fund
Trustee account \[Electric Only\], and to implement LFAR recommendations
included in the letter report. This request will read as follows:

> The Assistant Administrator, Program Accounting and Regulatory
> Analysis, Rural Utilities Service, Stop 1530, 1400 Independence Ave.
> SW, Washington, DC 20250-1530, should be notified within 60 days of
> the date of this letter of actions taken to eliminate unapproved
> disbursements, \<to provide the date unapproved advances were
> redeposited in the Construction Fund Account,\> \[Electric Only\] and
> to implement the above recommendations. Timely action on these
> recommendations is an integral part of RUS' evaluation of borrowers\'
> accounting systems and has a direct bearing on the effectiveness of
> RUS reviews.

**8.1.8** Closing remarks (i.e., appreciation for borrower\'s
cooperation and assistance, etc.);

**8.1.9** An indication that a copy of the letter report was sent to the
manager (and to NRUCFC or other supplemental lender, if applicable).
Indicate this in the \"cc\" distribution element at the bottom of the
letter report; and

**8.1.10** A reference to the Status of RUS Construction Fund Receipts
and Disbursements enclosed with the letter report.

**8.2** The significance of a weakness or deficiency is a matter of
judgment. This judgment helps determine whether a written recommendation
is necessary. During the course of the LFAR, the RUS Accountant may
provide written instructions and recommendations to the manager and the
staff on matters that are not considered significant enough to include
in a letter to the borrower. Recommendations on significant matters,
however, require a written response from the borrower and must be
included in the letter report to the president.

**8.3** The branch chief may direct the RUS Accountant to submit drafts
of the letter report to the branch before transmittal to the borrower.

**8.4** The RUS Accountant will provide a copy of all findings and
recommendations of an operational nature to the manager. A copy of these
recommendations will be forwarded to the appropriate branch chief and
general field representative.

**8.5 [Field Activities Report]{.underline}:** At the conclusion of the
LFAR, the RUS Accountant will prepare and transmit an RUS Form 9, Field
Activities Report, to the appropriate branch chief. The contents of the
Field Activities Report are subject to the requirements of Staff
Instruction 645-3, Use and Distribution of Field Activities Report, RUS
Form 9. The Field Activities Report will, at a minimum, include:

**8.5.1** The name and address of the borrower followed by the names and
titles of persons contacted;

**8.5.2** The purpose of the visit (i.e., to perform an LFAR included in
the approved 19- Work Program) and the period covered;

**8.5.3** The results of the visit including:

**8.5.3.1** Summary statements evaluating the borrower\'s accounting for
construction fund receipts, construction fund disbursements, plant
accounting procedures, etc.; and

**8.5.3.2** A statement indicating that all significant findings and
recommendations have been reported in the letter report to the
president, with a copy attached.

**8.5.4** Significant instruction, guidance, and/or recommendations, if
any, that were given but not covered in the letter report;

**8.2.**5 Recommendations, if any, on future RUS follow-through; and

**8.2.6** Any other item(s) of importance not covered above.

**9. SUBMISSION OF LFAR DOCUMENTS**

**9.1** Upon completion of each LFAR, the RUS Accountant will submit the
following documents to the Regional Accounting Branch for review and
distribution:

**9.2** Five copies (six copies for borrowers with concurrent financing)
of the letter report. One copy of the RUS Form 9 will be attached to
each copy of the letter report, except the concurrent lender\'s copy.
Copy No. 2 of the RUS Form 9 and one copy of the letter report will be
bound in the workpapers;

**9.3** The original and one copy of the Expenditure Adjustment Report.
The copy will be given to the appropriate program engineering branch.
The original will be bound in the workpapers;

**9.4** As appropriate, the original and one copy each of the following
(The originals will be bound in the workpapers. A second copy of each
schedule will be given to the borrower at the exit conference or mailed
with the manager\'s copy of the letter report.):

**9.4.1** Schedule of Reclassified Construction Fund Disbursements;

**9.4.2** Schedule of Unapproved Construction Fund Disbursements;

**9.4.3** Schedule of Budget Purpose Adjustments Required; and

**9.4.4** Schedule of Unapproved Advances;

**9.5** The LFAR workpapers, including the review guide; and

**9.6** All LFAR computer files will be compressed and the zip file
placed on the \"W\" drive of the RUS network.

**10. REPORT PROCESSING AND REVIEW**

**10.1 [Report Processing in the Regional Accounting
Branch]{.underline}:** Upon receipt of the LFAR, the Regional Accounting
Branch will:

**10.1.1** Enter into the Regional Accounting Branch database all
required information from the LFAR, the review and evaluation process,
and the followup process.

**10.1.2** Determine whether a limited or detailed review will be
performed. A detailed review will be performed on one of every six LFARs
submitted by each RUS Accountant. The branch chief may, however, decide
that more frequent detailed reviews are appropriate;

**10.1.3** When unapproved disbursements have been reported or written
recommendations made, enter the date of the letter report in the 60-day
response log;

**10.1.4** Forward two copies of the letter report and Field Activities
Report together with one copy of the Expenditure Adjustment Report,
Schedule of Unapproved Construction Fund Disbursements, Schedule of
Reclassified Construction Fund Disbursements, Schedule of Budget Purpose
Adjustments Required, and Schedule of Unapproved Advances to the
appropriate Regional Program Office;

**10.1.5** Verify that the Electric and Telephone Financial Operations
Division has been notified, in writing, of any part 1721 disallowances
requiring the borrower to return the advances to the Construction Fund
Account;

**10.1.6** Forward one copy of the letter report to the appropriate
lender if supplemental financing was obtained;

**10.1.7** Complete the review of the LFAR in accordance with the
guidelines for performing a limited or detailed review (Exhibit T).

**10.1.8** Prepare an evaluation of the RUS Accountant\'s performance
(detailed reviews only) containing supplemental comments, as necessary
(Exhibit U). Include, in the supplemental comments, a listing of the
LFARs for which a limited review was performed;

**10.1.9** Approve the staff review of the LFAR and the RUS
Accountant\'s Performance Evaluation. The branch chief will approve all
LFARs;

**10.1.10** Forward one copy of the performance evaluation to the
appropriate RUS Accountant; and

**10.1.11** File the LFAR checklist. Enter the date the review was
approved in the Regional Accounting Branch records (log).

**10.2** **[Report Processing in the Program Area Office]{.underline}**:

**10.2.1** Upon receipt of the letter report, Field Activities Report,
Expenditure Adjustment Report, Schedule of Unapproved Construction Fund
Disbursements, Schedule of Reclassified Construction Fund Disbursements,
Schedule of Budget Purpose Adjustments Required, and Schedule of
Unapproved Advances, the Regional Program Office will:

**10.2.1.1** Review the letter report and Field Activities Report for
any information that requires immediate attention or indicates a
violation of the loan contract, mortgage, or RUS policies and initiate
the appropriate action;

**10.2.1.2** Forward one copy of the letter report and Field Activities
Report to the appropriate general field representative;

**10.2.1.3** Make the required adjustments on the RUS Form 605 for
electric borrowers or RUS Form 481 for telecommunications borrowers as
of the LFAR date and provide the borrower and the Regional Accounting
Branch with a copy;

**10.2.1.4** Reflect all rescissions of loan funds on the latest
FRS/FR&ES. Copies of these revised statements must be provided to the
borrower and to the Regional Accounting Branch; and

**10.2.1.5** File one copy of the letter report and Field Activities
Report.

**11. FOLLOW-UP PROCEDURES**

**11.1 [Unapproved Disbursements, Budget Purpose Adjustments
and]{.underline} [Reclassifications of Construction Fund
Disbursements]{.underline}:** Upon receipt of the Summary of 605
Transaction Report or the adjusted RUS Form 481, the Regional Accounting
Branch will:

**11.1.1** Compare the Summary of 605 Transaction Report or adjusted RUS
Form 481 to the Schedule of Budget Purpose Adjustments Required and the
Expenditure Adjustment Report for completion and accuracy;

**11.1.2** Notify the appropriate Regional Program Office of any
corrections or additional adjustments required; and

**11.1.3** Forward the Summary of 605 Transaction Report or the adjusted
RUS Form 481 and RUS Form 600, Requisition Adjustment Report, to the
appropriate RUS Accountant.

**11.2 [LFAR Recommendations]{.underline}:** Upon expiration of the
60-day response period, the Regional Accounting Branch will prepare a
letter as set forth in Exhibit V, addressed to the board president, for
the signature of the Assistant Administrator, PARA, requesting
notification within 30 days of the action taken to implement the LFAR
recommendations and/or the elimination of unapproved disbursements.

**12. RECORDS AND REPORTS**

**12.1 [Maintenance of Records]{.underline}:** The Regional Accounting
Branch will maintain a record or listing of the following information:

**12.1.1** The date of the last LFAR, the RUS Accountant performing the
review, and the dollar amounts of reviewed disbursements and unapproved
disbursements, if any, for each borrower;

**12.1.2** LFARs performed by each RUS Accountant; and

**12.1.3** Letter reports requiring borrower responses to unapproved
disbursements or written recommendations.

**12.2 [Reports]{.underline}:**

**12.2.1** On a monthly basis, each Regional Accounting Branch will
prepare a report for the Assistant Administrator, PARA, on the status of
LFARs. The report will be arranged by RUS program to show the number of
LFARs received, released, and on hand.

**12.2.2** On a monthly basis, each Regional Accounting Branch will
prepare a cumulative report, addressed to the Assistant Administrator,
PARA, detailing the unapproved disbursements that were noted in the
LFARs received to date for the fiscal year. The report will be arranged
to show, for each borrower, the total amount of unapproved
disbursements, the reasons for disapproval, and the amounts applicable
to each reason. Data regarding improper advances or disallowances that
were not made because of technical advice or guidance provided by the
RUS Accountant should be retained in the workpapers until required.

The objectives of this review are to determine that:

+---+------------------------------------------------------------------+
| 1 | Advances of RUS loan funds are deposited promptly and intact in  |
| . | the RUS Construction Fund Trustee account (Construction Fund);   |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 2 | All other required amounts are deposited in the Construction     |
| . | Fund;                                                            |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 3 | Loan funds and other Construction Fund receipts, including those |
| . | from the sale of property and other non-loan fund deposits are   |
|   | properly accounted for on the borrower\'s general accounting and |
|   | subsidiary loan budget records;                                  |
+---+------------------------------------------------------------------+
| 4 | The accounting records and bank statements for cash receipts are |
| . | in agreement as of the Loan Fund and Accounting Review (LFAR)    |
|   | date;                                                            |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 5 | The bank statement cash balance reconciles with the cash balance |
| . | per the general ledger as of the LFAR date; and                  |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 6 | Total advances per borrower\'s records reconcile with total      |
| . | advances per the RUS Form 595, Financial Requirement and         |
|   | Expenditure Statement (FR&ES), as of the LFAR date.              |
|   |                                                                  |
+---+------------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
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|   | . |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 2 | O |                                                     |   |        |
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|   | n |                                                     |   |        |
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|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | a | Trace loan fund and other receipts from the         |   |        |
|   | . | subsidiary loan budget records to bank statements,  |   |        |
|   |   | Construction Fund cash received record, if          |   |        |
|   |   | maintained, and general ledger; and                 |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | b | Trace loan fund advances and other receipts to the  |   |        |
|   | . | FR&ES.                                              |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 3 | V |                                                     |   |        |
| \ | e |                                                     |   |        |
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|   | d |                                                     |   |        |
|   | s |                                                     |   |        |
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|   | r |                                                     |   |        |
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|   | U |                                                     |   |        |
|   | S |                                                     |   |        |
|   | \ |                                                     |   |        |
|   | B |                                                     |   |        |
|   | u |                                                     |   |        |
|   | l |                                                     |   |        |
|   | l |                                                     |   |        |
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|   | t |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | 1 |                                                     |   |        |
|   | 1 |                                                     |   |        |
|   | 5 |                                                     |   |        |
|   | - |                                                     |   |        |
|   | 1 |                                                     |   |        |
|   | . |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

  ----- --------------------------------------------------------- ---------
  4\.   Examine and identify all other transactions, exclusive of 
        disbursements and loan fund advances, affecting the       
        Construction Fund and comment on the nature and propriety 
        of these transactions.                                    

  5\.   Prepare a bank reconciliation as of the LFAR date.        

  6\.   Reconcile total loan fund advances and cash balance per   
        the accounting and subsidiary loan budget records as of   
        the LFAR date with the FR&ES prepared by the borrower as  
        of the LFAR date.                                         

  7\.   Review the borrower\'s investments, if any, of            
        Construction Funds and the accounting for interest income 
        received therefrom for compliance with the provisions of  
        RUS Bulletin 26-1.                                        

  8\.   List deficiencies in borrower\'s procedures or            
        nonconformance with RUS requirements.                     

  9\.   State conclusions.                                        
  ----- --------------------------------------------------------- ---------

ALTERNATIVE OR ADDITIONAL TESTS PERFORMED

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

[END:SEC1]{.underline}

The objectives of this review are to determine that:

+---+------------------------------------------------------------------+
| 1 | Disbursements are made for approved purposes in the proper       |
| . | amount and are supported by proper documentation;                |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 2 | Disbursements are properly recorded and accounted for on the     |
| . | borrower\'s general accounting and subsidiary loan budget        |
|   | records;                                                         |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 3 | Accounting records and bank statements for disbursements are in  |
| . | agreement as of the LFAR date; and                               |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 4 | Total disbursements per borrower\'s records reconcile with total |
| . | disbursements per the RUS Form 595, Financial Requirement and    |
|   | Expenditure Statement (FR&ES), as of the LFAR date.              |
|   |                                                                  |
+---+------------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
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+---+---+-----------------------------------------------------+---+--------+
| 2 | O |                                                     |   |        |
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|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | a | Trace Construction Fund disbursements from the      |   |        |
|   | . | subsidiary loan budget records to bank statements   |   |        |
|   |   | and general ledger;                                 |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | b | Examine paid checks for proper signatures,          |   |        |
|   | . | endorsements, bank cancellations, and prenumbering. |   |        |
|   |   | Determine that voided checks have been properly     |   |        |
|   |   | mutilated;                                          |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | c | For electronic funds transfers, examine the         |   |        |
|   | . | transfer request for authorized signature(s),       |   |        |
|   |   | payee, and amount as well as bank\'s canceled debit |   |        |
|   |   | memo ticket, or other documentation;                |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | d | Verify that reimbursements to general funds are     |   |        |
|   | . | supported by proper reimbursement schedules and are |   |        |
|   |   | properly recorded on the subsidiary loan budget     |   |        |
|   |   | records; and,                                       |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+--------+
|   | e | For payments to vendors, verify that invoice        |        |
|   | . | amounts due were paid and trace from the subsidiary |        |
|   |   | loan budget records to work in progress or other    |        |
|   |   | accounts, as appropriate.                           |        |
+---+---+-----------------------------------------------------+--------+
| 3 | I |                                                     |        |
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|   | r |                                                     |        |
|   | e |                                                     |        |
|   | p |                                                     |        |
|   | a |                                                     |        |
|   | r |                                                     |        |
|   | e |                                                     |        |
|   | a |                                                     |        |
|   | : |                                                     |        |
+---+---+-----------------------------------------------------+--------+
|   | f | \"Schedule of Unapproved Disbursements.\"           |        |
|   | . |                                                     |        |
|   |   |                                                     |        |
|   |   |                                                     |        |
+---+---+-----------------------------------------------------+--------+
|   | g | \"Schedule of Reclassified Disbursements.\"         |        |
|   | . |                                                     |        |
|   |   |                                                     |        |
|   |   |                                                     |        |
+---+---+-----------------------------------------------------+--------+
|   | h | \"Schedule of Budget Purpose Adjustments            |        |
|   | . | Required.\"                                         |        |
|   |   |                                                     |        |
|   |   |                                                     |        |
+---+---+-----------------------------------------------------+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+----+--------------------------------------------------------+--------+
| 11 | List deficiencies in borrower\'s procedures or         |        |
| .  | nonconformance with RUS requirements.                  |        |
+----+--------------------------------------------------------+--------+
| 12 | State conclusions.                                     |        |
| .  |                                                        |        |
+----+--------------------------------------------------------+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

**END:SEC2**

The objectives of this review are to determine that:

+---+------------------------------------------------------------------+
| 1 | Costs reported to RUS on RUS Form 219, Inventory of Work Orders, |
| . | are properly classified and agree with those costs reflected in  |
|   | the borrower\'s general accounting and subsidiary loan budget    |
|   | records;                                                         |
+---+------------------------------------------------------------------+
| 2 | The contract forms, and the dollar limitations applicable        |
| . | thereto, procurement methods, and closeout procedures used by    |
|   | the borrower for the construction and improvement of electric    |
|   | facilities financed by RUS loans or loan guarantees complied     |
|   | with the requirements of 7 CFR Part 1726, Electric System        |
|   | Construction Policies and Procedures;                            |
+---+------------------------------------------------------------------+
| 3 | Labor and material unit costs on contractor's progress billings  |
| . | and contract final documents are in agreement with the original  |
|   | contract as amended;                                             |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 4 | The types of plant changes reported on RUS Form 219 are eligible |
| . | for RUS/Supplemental Lender financing in accordance with the     |
|   | guidelines set forth in RUS Bulletin 1767B-2;                    |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 5 | Procedures used to unitize and distribute costs of completed     |
| . | construction are proper;                                         |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 6 | Plant retired is priced at continuing property record (CPR) unit |
| . | prices and retirement costs are properly accounted for;          |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 7 | Costs of completed construction and retirements are cleared      |
| . | promptly from the work in progress accounts to the appropriate   |
|   | electric plant in service accounts and related accumulated       |
|   | depreciation accounts;                                           |
+---+------------------------------------------------------------------+
| 8 | CPRs are maintained on a current basis and in an acceptable      |
| . | manner; and                                                      |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 9 | Contributions in aid of construction and previous approvals for  |
| . | advance are properly accounted for.                              |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
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+---+---+-----------------------------------------------------+---+--------+
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+---+---+-----------------------------------------------------+---+--------+
| 3 | S |                                                     |   |        |
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|   | d |                                                     |   |        |
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|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | a | Contract(s) in which no materials were furnished by |   |        |
|   | . | the borrower; and                                   |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | b | Materials furnished contract(s).                    |   |        |
|   | . |                                                     |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 4 | P |                                                     |   |        |
| . | e |                                                     |   |        |
|   | r |                                                     |   |        |
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|   | t |                                                     |   |        |
|   | h |                                                     |   |        |
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|   | f |                                                     |   |        |
|   | o |                                                     |   |        |
|   | l |                                                     |   |        |
|   | l |                                                     |   |        |
|   | o |                                                     |   |        |
|   | w |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | g |                                                     |   |        |
|   | g |                                                     |   |        |
|   | e |                                                     |   |        |
|   | n |                                                     |   |        |
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|   | r |                                                     |   |        |
|   | a |                                                     |   |        |
|   | l |                                                     |   |        |
|   | t |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | o |                                                     |   |        |
|   | n |                                                     |   |        |
|   | c |                                                     |   |        |
|   | o |                                                     |   |        |
|   | n |                                                     |   |        |
|   | t |                                                     |   |        |
|   | r |                                                     |   |        |
|   | a |                                                     |   |        |
|   | c |                                                     |   |        |
|   | t |                                                     |   |        |
|   | ( |                                                     |   |        |
|   | s |                                                     |   |        |
|   | ) |                                                     |   |        |
|   | s |                                                     |   |        |
|   | e |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | c |                                                     |   |        |
|   | t |                                                     |   |        |
|   | e |                                                     |   |        |
|   | d |                                                     |   |        |
|   | u |                                                     |   |        |
|   | n |                                                     |   |        |
|   | d |                                                     |   |        |
|   | e |                                                     |   |        |
|   | r |                                                     |   |        |
|   | \ |                                                     |   |        |
|   | T |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | t |                                                     |   |        |
|   | 3 |                                                     |   |        |
|   | a |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | c | Schedule payments to contractor and trace to        |   |        |
|   | . | General Fund or Construction Fund checks, as        |   |        |
|   |   | applicable, and examine supporting invoices;        |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | d | For contracts financed with RUS loans or loan       |   |        |
|   | . | guarantees, determine that the contract forms and   |   |        |
|   |   | contract procurement methods, and the dollar        |   |        |
|   |   | limitations applicable thereto, used by the         |   |        |
|   |   | borrower for the construction and improvement of    |   |        |
|   |   | electric facilities complied with the requirements  |   |        |
|   |   | of 7 CFR Part 1726, Electric System Construction    |   |        |
|   |   | Policies and Procedures;                            |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | e | Examine contractor\'s billings to verify that labor |   |        |
|   | . | and material unit prices reported in billings agree |   |        |
|   |   | with the unit prices reported in the executed       |   |        |
|   |   | contract, as amended;                               |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
| 4 | d | Verify that costs of construction and removal are   |   |        |
| . | . | charged to the appropriate work in progress         |   |        |
|   |   | account;                                            |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | e | Verify that special equipment installation labor    |   |        |
|   | . | applicable to materials furnished contracts, and    |   |        |
|   |   | special equipment removal or relocation costs       |   |        |
|   |   | applicable to all contracts, were charged to        |   |        |
|   |   | operations expense;                                 |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | f | Verify that materials furnished to the contractor   |   |        |
|   | . | were charged out at current average unit cost; and  |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | g | Verify that materials returned to stock were priced |   |        |
|   | . | at current average unit cost, or original cost for  |   |        |
|   |   | applicable substation equipment.                    |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 5 | F |                                                     |   |        |
| . | o |                                                     |   |        |
|   | r |                                                     |   |        |
|   | c |                                                     |   |        |
|   | o |                                                     |   |        |
|   | m |                                                     |   |        |
|   | p |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | t |                                                     |   |        |
|   | e |                                                     |   |        |
|   | d |                                                     |   |        |
|   | c |                                                     |   |        |
|   | o |                                                     |   |        |
|   | n |                                                     |   |        |
|   | t |                                                     |   |        |
|   | r |                                                     |   |        |
|   | a |                                                     |   |        |
|   | c |                                                     |   |        |
|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | s |                                                     |   |        |
|   | e |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | c |                                                     |   |        |
|   | t |                                                     |   |        |
|   | e |                                                     |   |        |
|   | d |                                                     |   |        |
|   | u |                                                     |   |        |
|   | n |                                                     |   |        |
|   | d |                                                     |   |        |
|   | e |                                                     |   |        |
|   | r |                                                     |   |        |
|   | T |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | t |                                                     |   |        |
|   | 3 |                                                     |   |        |
|   | b |                                                     |   |        |
|   | , |                                                     |   |        |
|   | p |                                                     |   |        |
|   | e |                                                     |   |        |
|   | r |                                                     |   |        |
|   | f |                                                     |   |        |
|   | o |                                                     |   |        |
|   | r |                                                     |   |        |
|   | m |                                                     |   |        |
|   | t |                                                     |   |        |
|   | h |                                                     |   |        |
|   | e |                                                     |   |        |
|   | f |                                                     |   |        |
|   | o |                                                     |   |        |
|   | l |                                                     |   |        |
|   | l |                                                     |   |        |
|   | o |                                                     |   |        |
|   | w |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | g |                                                     |   |        |
|   | g |                                                     |   |        |
|   | e |                                                     |   |        |
|   | n |                                                     |   |        |
|   | e |                                                     |   |        |
|   | r |                                                     |   |        |
|   | a |                                                     |   |        |
|   | l |                                                     |   |        |
|   | t |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | o |                                                     |   |        |
|   | f |                                                     |   |        |
|   | c |                                                     |   |        |
|   | o |                                                     |   |        |
|   | n |                                                     |   |        |
|   | t |                                                     |   |        |
|   | r |                                                     |   |        |
|   | a |                                                     |   |        |
|   | c |                                                     |   |        |
|   | t |                                                     |   |        |
|   | c |                                                     |   |        |
|   | l |                                                     |   |        |
|   | o |                                                     |   |        |
|   | s |                                                     |   |        |
|   | e |                                                     |   |        |
|   | o |                                                     |   |        |
|   | u |                                                     |   |        |
|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | h | Reconcile completed contract costs with costs per   |   |        |
|   | . | borrower's records;                                 |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | i | Compare actual cost of owner furnished material per |   |        |
|   | . | borrower\'s records with the cost reported on RUS   |   |        |
|   |   | Form 254c, Tabulation of Owner Furnished Material;  |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | j | Compare actual cost of material returned by the     |   |        |
|   | . | contractor per the borrower\'s records with the     |   |        |
|   |   | cost reported on RUS\                               |   |        |
|   |   | Form 254b, Summary of Materials Returned to Owner   |   |        |
|   |   | by Contractor from \"I\" Removal Units;             |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | k | Trace units installed and removed per RUS Form      |   |        |
|   | . | 254a, Construction Inventory, to the tabulation of  |   |        |
|   |   | Record Units, Unitization and Distribution to Plant |   |        |
|   |   | Accounts, and to the posting in the CPRs;           |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+-----+---+
|   | e | Compare contractor\'s unit prices for labor and     |   |     |   |
|   | . | material costs per RUS Form 254a with the           |   |     |   |
|   |   | contractor\'s unit prices in the original contract, |   |     |   |
|   |   | as amended;                                         |   |     |   |
+---+---+-----------------------------------------------------+---+-----+---+
|   | f | Compare total units installed per final documents   |   |     |   |
|   | . | with original contract, as amended. Include removal |   |     |   |
|   |   | units, if the number of units are included in the   |   |     |   |
|   |   | contract. Determine reason for any large            |   |     |   |
|   |   | discrepancies; and                                  |   |     |   |
+---+---+-----------------------------------------------------+---+-----+---+
|   | g | Trace contract closeout costs, including borrower   |   |     |   |
|   | . | costs, from work in progress accounts through the   |   |     |   |
|   |   | unitization process to the classified plant         |   |     |   |
|   |   | accounts and the CPRs.                              |   |     |   |
+---+---+-----------------------------------------------------+---+-----+---+
| 6 | F |                                                     |   |     |   |
| . | o |                                                     |   |     |   |
|   | r |                                                     |   |     |   |
|   | c |                                                     |   |     |   |
|   | o |                                                     |   |     |   |
|   | n |                                                     |   |     |   |
|   | t |                                                     |   |     |   |
|   | r |                                                     |   |     |   |
|   | a |                                                     |   |     |   |
|   | c |                                                     |   |     |   |
|   | t |                                                     |   |     |   |
|   | s |                                                     |   |     |   |
|   | s |                                                     |   |     |   |
|   | e |                                                     |   |     |   |
|   | l |                                                     |   |     |   |
|   | e |                                                     |   |     |   |
|   | c |                                                     |   |     |   |
|   | t |                                                     |   |     |   |
|   | e |                                                     |   |     |   |
|   | d |                                                     |   |     |   |
|   | u |                                                     |   |     |   |
|   | n |                                                     |   |     |   |
|   | d |                                                     |   |     |   |
|   | e |                                                     |   |     |   |
|   | r |                                                     |   |     |   |
|   | T |                                                     |   |     |   |
|   | e |                                                     |   |     |   |
|   | s |                                                     |   |     |   |
|   | t |                                                     |   |     |   |
|   | 3 |                                                     |   |     |   |
|   | , |                                                     |   |     |   |
|   | p |                                                     |   |     |   |
|   | e |                                                     |   |     |   |
|   | r |                                                     |   |     |   |
|   | f |                                                     |   |     |   |
|   | o |                                                     |   |     |   |
|   | r |                                                     |   |     |   |
|   | m |                                                     |   |     |   |
|   | t |                                                     |   |     |   |
|   | h |                                                     |   |     |   |
|   | e |                                                     |   |     |   |
|   | f |                                                     |   |     |   |
|   | o |                                                     |   |     |   |
|   | l |                                                     |   |     |   |
|   | l |                                                     |   |     |   |
|   | o |                                                     |   |     |   |
|   | w |                                                     |   |     |   |
|   | i |                                                     |   |     |   |
|   | n |                                                     |   |     |   |
|   | g |                                                     |   |     |   |
|   | f |                                                     |   |     |   |
|   | i |                                                     |   |     |   |
|   | n |                                                     |   |     |   |
|   | a |                                                     |   |     |   |
|   | n |                                                     |   |     |   |
|   | c |                                                     |   |     |   |
|   | i |                                                     |   |     |   |
|   | n |                                                     |   |     |   |
|   | g |                                                     |   |     |   |
|   | t |                                                     |   |     |   |
|   | e |                                                     |   |     |   |
|   | s |                                                     |   |     |   |
|   | t |                                                     |   |     |   |
|   | s |                                                     |   |     |   |
|   | o |                                                     |   |     |   |
|   | f |                                                     |   |     |   |
|   | c |                                                     |   |     |   |
|   | o |                                                     |   |     |   |
|   | n |                                                     |   |     |   |
|   | t |                                                     |   |     |   |
|   | r |                                                     |   |     |   |
|   | a |                                                     |   |     |   |
|   | c |                                                     |   |     |   |
|   | t |                                                     |   |     |   |
|   | a |                                                     |   |     |   |
|   | n |                                                     |   |     |   |
|   | d |                                                     |   |     |   |
|   | b |                                                     |   |     |   |
|   | o |                                                     |   |     |   |
|   | r |                                                     |   |     |   |
|   | r |                                                     |   |     |   |
|   | o |                                                     |   |     |   |
|   | w |                                                     |   |     |   |
|   | e |                                                     |   |     |   |
|   | r |                                                     |   |     |   |
|   | c |                                                     |   |     |   |
|   | o |                                                     |   |     |   |
|   | s |                                                     |   |     |   |
|   | t |                                                     |   |     |   |
|   | s |                                                     |   |     |   |
|   | : |                                                     |   |     |   |
+---+---+-----------------------------------------------------+---+-----+---+
|   | h | Determine that contract and borrower costs were     |   |     |   |
|   | . | properly reported on RUS Form 219; and              |   |     |   |
|   |   |                                                     |   |     |   |
|   |   |                                                     |   |     |   |
+---+---+-----------------------------------------------------+---+-----+---+
|   | i | Reconcile total loan funds approved, advanced, and  |   |     |   |
|   | . | disbursed with the actual cost of the contract.     |   |     |   |
|   |   |                                                     |   |     |   |
|   |   |                                                     |   |     |   |
+---+---+-----------------------------------------------------+---+-----+---+
| 7 | S |                                                     |   |     |   |
| . | e |                                                     |   |     |   |
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|   | 2 |                                                     |   |     |   |
|   | 1 |                                                     |   |     |   |
|   | 9 |                                                     |   |     |   |
|   | c |                                                     |   |     |   |
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|   | L |                                                     |   |     |   |
|   | F |                                                     |   |     |   |
|   | A |                                                     |   |     |   |
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|   | p |                                                     |   |     |   |
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|   | f |                                                     |   |     |   |
|   | o |                                                     |   |     |   |
|   | l |                                                     |   |     |   |
|   | l |                                                     |   |     |   |
|   | o |                                                     |   |     |   |
|   | w |                                                     |   |     |   |
|   | i |                                                     |   |     |   |
|   | n |                                                     |   |     |   |
|   | g |                                                     |   |     |   |
|   | g |                                                     |   |     |   |
|   | e |                                                     |   |     |   |
|   | n |                                                     |   |     |   |
|   | e |                                                     |   |     |   |
|   | r |                                                     |   |     |   |
|   | a |                                                     |   |     |   |
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|   | t |                                                     |   |     |   |
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|   | s |                                                     |   |     |   |
|   | t |                                                     |   |     |   |
|   | s |                                                     |   |     |   |
|   | : |                                                     |   |     |   |
+---+---+-----------------------------------------------------+---+-----+---+
|   | j | Verify the mathematical accuracy of the selected    |   |     |   |
|   | . | RUS\                                                |   |     |   |
|   |   | Forms 219;                                          |   |     |   |
|   |   |                                                     |   |     |   |
+---+---+-----------------------------------------------------+---+-----+---+
|   | k | Verify that costs of individual work orders         |   |     |   |
|   | . | reported on RUS\                                    |   |     |   |
|   |   | Form 219 are in agreement with work order cost      |   |     |   |
|   |   | sheets;                                             |   |     |   |
+---+---+-----------------------------------------------------+---+-----+---+
|   | l | Determine the propriety of the work order financing |   |     |   |
|   | . | classification;                                     |   |     |   |
|   |   |                                                     |   |     |   |
|   |   |                                                     |   |     |   |
+---+---+-----------------------------------------------------+---+-----+---+
|   | m | Test tabulation of record units for construction    |   |     |   |
|   | . | and retirement from work order staking sheets to    |   |     |   |
|   |   | the tabulation of record units, to unitization      |   |     |   |
|   |   | sheets, and to the CPRs;                            |   |     |   |
+---+---+-----------------------------------------------------+---+-----+---+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+--------+
|   | e | Test the procedure for unitizing and distributing   |        |
|   | . | costs of completed construction;                    |        |
|   |   |                                                     |        |
|   |   |                                                     |        |
+---+---+-----------------------------------------------------+--------+
|   | f | Verify that standard costs are being used and test  |        |
|   | . | the basis for calculating standard costs. State     |        |
|   |   | whether standard costs are maintained on a current  |        |
|   |   | basis and are appropriate;                          |        |
+---+---+-----------------------------------------------------+--------+
|   | g | Verify pricing of units retired per the CPRs. If    |        |
|   | . | CPRs have not been established, explain the method  |        |
|   |   | used in computing the cost of units of plant        |        |
|   |   | retired and whether costs appear reasonable;        |        |
+---+---+-----------------------------------------------------+--------+
|   | h | Trace the cost of construction from RUS Form 219 to |        |
|   | . | the Unitization and Distribution to Plant Accounts  |        |
|   |   | sheet to the clearing entry from the work in        |        |
|   |   | progress account to the classified plant accounts   |        |
|   |   | and CPRs;                                           |        |
+---+---+-----------------------------------------------------+--------+
|   | i | Test accounting for the net loss due to retirement. |        |
|   | . | Trace clearing entry from retirement work in        |        |
|   |   | progress account to the accumulated provision for   |        |
|   |   | depreciation, classified plant accounts and CPRs;   |        |
+---+---+-----------------------------------------------------+--------+
|   | j | Determine if costs of completed construction and    |        |
|   | . | retirement work orders are promptly cleared from    |        |
|   |   | the work in progress accounts to the classified     |        |
|   |   | plant accounts and accumulated provision for        |        |
|   |   | depreciation, and CPR's as applicable;              |        |
+---+---+-----------------------------------------------------+--------+
|   | k | Verify that contributions in aid of construction    |        |
|   | . | are properly reported on RUS Form 219 and are       |        |
|   |   | credited to the appropriate classified plant        |        |
|   |   | accounts and record units in the CPRs;              |        |
+---+---+-----------------------------------------------------+--------+
|   | l | Verify that salvage was properly reported on the    |        |
|   | . | RUS Form 219; and                                   |        |
|   |   |                                                     |        |
|   |   |                                                     |        |
+---+---+-----------------------------------------------------+--------+
|   | m | Verify that previous approvals for advance,         |        |
|   | . | including Temporary Normal Iinventory (TNI), are    |        |
|   |   | properly reported and accounted for on RUS Form     |        |
|   |   | 219.                                                |        |
+---+---+-----------------------------------------------------+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---------------------------------------------------------+--------+
| 8 | List deficiencies in borrower\'s procedures or          |        |
| . | nonconformance with RUS requirements.                   |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 9 | State conclusions.                                      |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

**END:SEC3**

The objectives of this review are to determine that:

+---+------------------------------------------------------------------+
| 1 | Special Equipment Summary costs reported to RUS are those        |
| . | reflected on the borrower\'s general accounting and subsidiary   |
|   | loan budget records;                                             |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 2 | Costs reported on Special Equipment Summaries are properly       |
| . | supported and are for items subject to financing as special      |
|   | equipment;                                                       |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 3 | Procedures used to summarize and distribute costs of purchases   |
| . | and installation costs are proper and complete; and              |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 4 | Estimated installation costs are appropriate, periodically       |
| . | updated, and maintained on a current basis.                      |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
| 1 | O |                                                     |   |        |
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|   | \ |                                                     |   |        |
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|   | s |                                                     |   |        |
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|   | . |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 2 | L |                                                     |   |        |
| . | i |                                                     |   |        |
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+---+---+-----------------------------------------------------+---+--------+
| 3 | S |                                                     |   |        |
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|   | r |                                                     |   |        |
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|   | p |                                                     |   |        |
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|   | o |                                                     |   |        |
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|   | m |                                                     |   |        |
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|   | g |                                                     |   |        |
|   | t |                                                     |   |        |
|   | h |                                                     |   |        |
|   | e |                                                     |   |        |
|   | f |                                                     |   |        |
|   | o |                                                     |   |        |
|   | l |                                                     |   |        |
|   | l |                                                     |   |        |
|   | o |                                                     |   |        |
|   | w |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | g |                                                     |   |        |
|   | t |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | a | Compare costs, quantity, and type of equipment      |   |        |
|   | . | reported on Special Equipment Summaries with the    |   |        |
|   |   | applicable general fund checks and original         |   |        |
|   |   | invoices. Verify the propriety of the               |   |        |
|   |   | classification as special equipment. No             |   |        |
|   |   | miscellaneous or used equipment should be included  |   |        |
|   |   | as special equipment items; and                     |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
|   | b | Trace the installed cost of special equipment       |   |        |
|   | . | reported on Special Equipment Summaries from the    |   |        |
|   |   | work in progress account to the classified plant    |   |        |
|   |   | accounts and continuing property records.           |   |        |
|   |   | Verification that the time devoted to installing,   |   |        |
|   |   | moving, and retiring special equipment is being     |   |        |
|   |   | properly accounted for shall be performed under     |   |        |
|   |   | Schedule F general Test 2.a.(2)(c).                 |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 4 | L |                                                     |   |        |
| . | i |                                                     |   |        |
|   | s |                                                     |   |        |
|   | t |                                                     |   |        |
|   | d |                                                     |   |        |
|   | e |                                                     |   |        |
|   | f |                                                     |   |        |
|   | i |                                                     |   |        |
|   | c |                                                     |   |        |
|   | i |                                                     |   |        |
|   | e |                                                     |   |        |
|   | n |                                                     |   |        |
|   | c |                                                     |   |        |
|   | i |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | b |                                                     |   |        |
|   | o |                                                     |   |        |
|   | r |                                                     |   |        |
|   | r |                                                     |   |        |
|   | o |                                                     |   |        |
|   | w |                                                     |   |        |
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|   | r |                                                     |   |        |
|   | \ |                                                     |   |        |
|   | ' |                                                     |   |        |
|   | s |                                                     |   |        |
|   | p |                                                     |   |        |
|   | r |                                                     |   |        |
|   | o |                                                     |   |        |
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|   | d |                                                     |   |        |
|   | u |                                                     |   |        |
|   | r |                                                     |   |        |
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|   | f |                                                     |   |        |
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|   | r |                                                     |   |        |
|   | m |                                                     |   |        |
|   | a |                                                     |   |        |
|   | n |                                                     |   |        |
|   | c |                                                     |   |        |
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|   | w |                                                     |   |        |
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|   | t |                                                     |   |        |
|   | h |                                                     |   |        |
|   | R |                                                     |   |        |
|   | U |                                                     |   |        |
|   | S |                                                     |   |        |
|   | r |                                                     |   |        |
|   | e |                                                     |   |        |
|   | q |                                                     |   |        |
|   | u |                                                     |   |        |
|   | i |                                                     |   |        |
|   | r |                                                     |   |        |
|   | e |                                                     |   |        |
|   | m |                                                     |   |        |
|   | e |                                                     |   |        |
|   | n |                                                     |   |        |
|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | . |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 5 | S |                                                     |   |        |
| . | t |                                                     |   |        |
|   | a |                                                     |   |        |
|   | t |                                                     |   |        |
|   | e |                                                     |   |        |
|   | c |                                                     |   |        |
|   | o |                                                     |   |        |
|   | n |                                                     |   |        |
|   | c |                                                     |   |        |
|   | l |                                                     |   |        |
|   | u |                                                     |   |        |
|   | s |                                                     |   |        |
|   | i |                                                     |   |        |
|   | o |                                                     |   |        |
|   | n |                                                     |   |        |
|   | s |                                                     |   |        |
|   | . |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

END:SEC4

The objectives of this review are to determine that:

+---+---+--------------------------------------------------------------+
| 1 | T |                                                              |
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|   | e |                                                              |
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|   | d |                                                              |
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|   | s |                                                              |
|   | a |                                                              |
|   | r |                                                              |
|   | e |                                                              |
|   | : |                                                              |
+---+---+--------------------------------------------------------------+
|   | a | Complete, proper, and adequate;                              |
|   | . |                                                              |
|   |   |                                                              |
|   |   |                                                              |
+---+---+--------------------------------------------------------------+
|   | b | In accordance with RUS Bulletin 1767B-1, Uniform System of   |
|   | . | Accounts - Electric; RUS Bulletin 1767B-2, Work Order        |
|   |   | Procedure (Electric); and other applicable RUS publications; |
|   |   | and                                                          |
+---+---+--------------------------------------------------------------+
| 2 | R |                                                              |
| . | e |                                                              |
|   | s |                                                              |
|   | u |                                                              |
|   | l |                                                              |
|   | t |                                                              |
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|   | n |                                                              |
|   | g |                                                              |
|   | m |                                                              |
|   | a |                                                              |
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|   | c |                                                              |
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|   | s |                                                              |
|   | t |                                                              |
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|   | i |                                                              |
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|   | t |                                                              |
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|   | i |                                                              |
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|   | n |                                                              |
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|   | w |                                                              |
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+---+---+--------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
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+---+---+-----------------------------------------------------+---+--------+
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+---+---+-----------------------------------------------------+---+--------+
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+---+---+-----------------------------------------------------+---+--------+
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+---+---+-----------------------------------------------------+---+--------+
| 4 | T |                                                     |   |        |
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|   | . |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 5 | F |                                                     |   |        |
| . | r |                                                     |   |        |
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|   | a |                                                     |   |        |
|   | c |                                                     |   |        |
|   | e |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | a | Material costs to work order cost records and       |   |        |
|   | . | general ledger Accounts 107, 108, and 154, as       |   |        |
|   |   | applicable; and                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+--------+
|   | b | Material units and costs to the perpetual inventory |        |
|   | . | records.                                            |        |
|   |   |                                                     |        |
|   |   |                                                     |        |
+---+---+-----------------------------------------------------+--------+
| 6 | T |                                                     |        |
| . | r |                                                     |        |
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|   | . |                                                     |        |
+---+---+-----------------------------------------------------+--------+
| 7 | L |                                                     |        |
| . | i |                                                     |        |
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|   | . |                                                     |        |
+---+---+-----------------------------------------------------+--------+
| 8 | S |                                                     |        |
| . | t |                                                     |        |
|   | a |                                                     |        |
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|   | n |                                                     |        |
|   | s |                                                     |        |
|   | . |                                                     |        |
+---+---+-----------------------------------------------------+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

END:SEC5

The objectives of this review are to determine that:

+---+---+--------------------------------------------------------------+
| 1 | T |                                                              |
| . | h |                                                              |
|   | e |                                                              |
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|   | d |                                                              |
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|   | a |                                                              |
|   | c |                                                              |
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|   | s |                                                              |
|   | a |                                                              |
|   | r |                                                              |
|   | e |                                                              |
|   | : |                                                              |
+---+---+--------------------------------------------------------------+
|   | a | Complete, proper, and adequate;                              |
|   | . |                                                              |
|   |   |                                                              |
|   |   |                                                              |
+---+---+--------------------------------------------------------------+
|   | b | In accordance with RUS Bulletin 1767B-1, Uniform System of   |
|   | . | Accounts - Electric; RUS Bulletin 1767B-2, Work Order        |
|   |   | Procedure (Electric); and other applicable RUS publications; |
|   |   | and                                                          |
+---+---+--------------------------------------------------------------+
| 2 | R |                                                              |
| . | e |                                                              |
|   | s |                                                              |
|   | u |                                                              |
|   | l |                                                              |
|   | t |                                                              |
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|   | g |                                                              |
|   | l |                                                              |
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|   | d |                                                              |
|   | i |                                                              |
|   | s |                                                              |
|   | t |                                                              |
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+---+---+--------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+---+-------------------------------------------------+---+--------+
| S |   |   |                                                 |   |        |
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+---+---+---+-------------------------------------------------+---+--------+
| 1 | D |   |                                                 |   |        |
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+---+---+---+-------------------------------------------------+---+--------+
|   | a | L |                                                 |   |        |
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|   |   | o |                                                 |   |        |
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+---+---+---+-------------------------------------------------+---+--------+
|   | b | O |                                                 |   |        |
|   | . | n |                                                 |   |        |
|   |   | a |                                                 |   |        |
|   |   | t |                                                 |   |        |
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|   |   | i |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | w |                                                 |   |        |
|   |   | t |                                                 |   |        |
|   |   | i |                                                 |   |        |
|   |   | m |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | s |                                                 |   |        |
|   |   | h |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | t |                                                 |   |        |
|   |   | s |                                                 |   |        |
|   |   | t |                                                 |   |        |
|   |   | o |                                                 |   |        |
|   |   | d |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | t |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | r |                                                 |   |        |
|   |   | m |                                                 |   |        |
|   |   | i |                                                 |   |        |
|   |   | n |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | i |                                                 |   |        |
|   |   | f |                                                 |   |        |
|   |   | : |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | They are being properly reviewed and initialed  |   |        |
|   |   | 1 | by the appropriate supervisor;                  |   |        |
|   |   | ) |                                                 |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Time sheets contain sufficient information to   |   |        |
|   |   | 2 | facilitate proper accounting classification;,   |   |        |
|   |   | ) | and                                             |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Time devoted to installing, moving, and         |   |        |
|   |   | 3 | retiring special equipment is being properly    |   |        |
|   |   | ) | accounted for.                                  |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
| 2 | S |                                                     |   |        |
| . | e |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | c |                                                     |   |        |
|   | t |                                                     |   |        |
|   | a |                                                     |   |        |
|   | r |                                                     |   |        |
|   | e |                                                     |   |        |
|   | p |                                                     |   |        |
|   | r |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | e |                                                     |   |        |
|   | n |                                                     |   |        |
|   | t |                                                     |   |        |
|   | a |                                                     |   |        |
|   | t |                                                     |   |        |
|   | i |                                                     |   |        |
|   | v |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | a |                                                     |   |        |
|   | m |                                                     |   |        |
|   | p |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | o |                                                     |   |        |
|   | f |                                                     |   |        |
|   | e |                                                     |   |        |
|   | m |                                                     |   |        |
|   | p |                                                     |   |        |
|   | l |                                                     |   |        |
|   | o |                                                     |   |        |
|   | y |                                                     |   |        |
|   | e |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | f |                                                     |   |        |
|   | o |                                                     |   |        |
|   | r |                                                     |   |        |
|   | t |                                                     |   |        |
|   | h |                                                     |   |        |
|   | e |                                                     |   |        |
|   | p |                                                     |   |        |
|   | u |                                                     |   |        |
|   | r |                                                     |   |        |
|   | p |                                                     |   |        |
|   | o |                                                     |   |        |
|   | s |                                                     |   |        |
|   | e |                                                     |   |        |
|   | o |                                                     |   |        |
|   | f |                                                     |   |        |
|   | p |                                                     |   |        |
|   | e |                                                     |   |        |
|   | r |                                                     |   |        |
|   | f |                                                     |   |        |
|   | o |                                                     |   |        |
|   | r |                                                     |   |        |
|   | m |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | g |                                                     |   |        |
|   | t |                                                     |   |        |
|   | h |                                                     |   |        |
|   | e |                                                     |   |        |
|   | f |                                                     |   |        |
|   | o |                                                     |   |        |
|   | l |                                                     |   |        |
|   | l |                                                     |   |        |
|   | o |                                                     |   |        |
|   | w |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | g |                                                     |   |        |
|   | t |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | a | Trace hours worked from the time sheets to the      |   |        |
|   | . | appropriate summary form(s)/printout(s);            |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | b | Determine that the proper hourly rate was used and  |   |        |
|   | . | test the calculation of gross wages, or, as         |   |        |
|   |   | appropriate, determine that flat salaries are       |   |        |
|   |   | proper; and                                         |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | c | Determine if overtime is being properly accounted   |   |        |
|   | . | for.                                                |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 3 | T |                                                     |   |        |
| . | r |                                                     |   |        |
|   | a |                                                     |   |        |
|   | c |                                                     |   |        |
|   | e |                                                     |   |        |
|   | m |                                                     |   |        |
|   | o |                                                     |   |        |
|   | n |                                                     |   |        |
|   | t |                                                     |   |        |
|   | h |                                                     |   |        |
|   | l |                                                     |   |        |
|   | y |                                                     |   |        |
|   | l |                                                     |   |        |
|   | a |                                                     |   |        |
|   | b |                                                     |   |        |
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+---+---+-----------------------------------------------------+---+--------+
| 4 | L |                                                     |   |        |
| . | i |                                                     |   |        |
|   | s |                                                     |   |        |
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|   | q |                                                     |   |        |
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|   | . |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 5 | S |                                                     |   |        |
| . | t |                                                     |   |        |
|   | a |                                                     |   |        |
|   | t |                                                     |   |        |
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|   | n |                                                     |   |        |
|   | c |                                                     |   |        |
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|   | u |                                                     |   |        |
|   | s |                                                     |   |        |
|   | i |                                                     |   |        |
|   | o |                                                     |   |        |
|   | n |                                                     |   |        |
|   | s |                                                     |   |        |
|   | . |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

END:SEC6

The objectives of this review are to determine that:

+---+---+--------------------------------------------------------------+
| 1 | T |                                                              |
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|   | e |                                                              |
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|   | a |                                                              |
|   | r |                                                              |
|   | e |                                                              |
|   | : |                                                              |
+---+---+--------------------------------------------------------------+
|   | a | Complete, proper, and adequate;                              |
|   | . |                                                              |
|   |   |                                                              |
|   |   |                                                              |
+---+---+--------------------------------------------------------------+
|   | b | In accordance with RUS Bulletin 1767B-1, Uniform System of   |
|   | . | Accounts - Electric; RUS Bulletin 1767B-2, Work Order        |
|   |   | Procedure (Electric); and other applicable RUS publications; |
|   |   | and                                                          |
+---+---+--------------------------------------------------------------+
| 2 | R |                                                              |
| . | e |                                                              |
|   | s |                                                              |
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|   | 2 |                                                              |
|   | 1 |                                                              |
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|   | d |                                                              |
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|   | p |                                                              |
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|   | a |                                                              |
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|   | c |                                                              |
|   | i |                                                              |
|   | n |                                                              |
|   | g |                                                              |
|   | . |                                                              |
+---+---+--------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
| 1 | S |                                                     |   |        |
| . | e |                                                     |   |        |
|   | l |                                                     |   |        |
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|   | c |                                                     |   |        |
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|   | a |                                                     |   |        |
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|   | 1 |                                                     |   |        |
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|   | . |                                                     |   |        |
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|   | 1 |                                                     |   |        |
|   | . |                                                     |   |        |
|   | j |                                                     |   |        |
|   | . |                                                     |   |        |
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|   | v |                                                     |   |        |
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|   | a |                                                     |   |        |
|   | d |                                                     |   |        |
|   | c |                                                     |   |        |
|   | h |                                                     |   |        |
|   | a |                                                     |   |        |
|   | r |                                                     |   |        |
|   | g |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | a | Payroll Taxes (FICA, FUTA, SUTA);                   |   |        |
|   | . |                                                     |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | b | Insurance (Workmen\'s Compensation, PL&PD);         |   |        |
|   | . |                                                     |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | c | Employee Benefits (Pension, Health, Life, Long-Term |   |        |
|   | . | Disability, Savings);                               |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   |   | *RUS will finance the capitalizable portion of the  |   |        |
|   |   | current period postretirement benefit cost only.    |   |        |
|   |   | RUS will [not]{.underline} finance any portion of   |   |        |
|   |   | the transition obligation of postretirement benefit |   |        |
|   |   | costs regardless of whether it is accounted for in  |   |        |
|   |   | the current period; deferred in accordance with the |   |        |
|   |   | provisions of Statement of Financial Accounting     |   |        |
|   |   | Standards No. 71, Accounting for the Effects of     |   |        |
|   |   | Certain Types of Regulation (Statement No. 71); or  |   |        |
|   |   | recognized on a delayed basis in accordance with    |   |        |
|   |   | Statement No. 106, Employers\' Accounting for       |   |        |
|   |   | Postretirement Benefits Other Than Pensions         |   |        |
|   |   | (Statement No. 106). Therefore, for financing       |   |        |
|   |   | purposes only, the amortizable portion of the       |   |        |
|   |   | transition obligation, resulting from either a      |   |        |
|   |   | Statement No. 71 deferral or the delayed            |   |        |
|   |   | recognition, must be deducted from the portion of   |   |        |
|   |   | the current period postretirement benefit expense   |   |        |
|   |   | that is capitalized.*                               |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+---+-------------------------------------------------+---+--------+
|   | d | C |                                                 |   |        |
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|   |   | c |                                                 |   |        |
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|   |   | s |                                                 |   |        |
|   |   | ; |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   | e | I |                                                 |   |        |
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|   |   | r |                                                 |   |        |
|   |   | ; |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
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|   |   | t |                                                 |   |        |
|   |   | ; |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   | g | S |                                                 |   |        |
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|   |   | ; |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   | h | G |                                                 |   |        |
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|   |   | n |                                                 |   |        |
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|   |   | a |                                                 |   |        |
|   |   | l |                                                 |   |        |
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|   |   | A |                                                 |   |        |
|   |   | d |                                                 |   |        |
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|   |   | r |                                                 |   |        |
|   |   | a |                                                 |   |        |
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|   |   | i |                                                 |   |        |
|   |   | v |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | E |                                                 |   |        |
|   |   | x |                                                 |   |        |
|   |   | p |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | n |                                                 |   |        |
|   |   | s |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | ; |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   | i | B |                                                 |   |        |
|   | . | o |                                                 |   |        |
|   |   | r |                                                 |   |        |
|   |   | r |                                                 |   |        |
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|   |   | w |                                                 |   |        |
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|   |   | i |                                                 |   |        |
|   |   | n |                                                 |   |        |
|   |   | g |                                                 |   |        |
|   |   | ; |                                                 |   |        |
|   |   | a |                                                 |   |        |
|   |   | n |                                                 |   |        |
|   |   | d |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   | j | O |                                                 |   |        |
|   | . | t |                                                 |   |        |
|   |   | h |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | r |                                                 |   |        |
|   |   | : |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Direct Charges to Work Orders;                  |   |        |
|   |   | 1 |                                                 |   |        |
|   |   | ) |                                                 |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Cost of permits, legal charges and transfers    |   |        |
|   |   | 2 | from\                                           |   |        |
|   |   | ) | Accounts 183, Preliminary Survey and            |   |        |
|   |   |   | Investigation Charges, and/or 186,              |   |        |
|   |   |   | Miscellaneous Deferred Debits, for engineering  |   |        |
|   |   |   | studies, work plans and computer software,      |   |        |
|   |   |   | etc., applicable to the cost of construction;   |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Interest During Construction (IDC), if included |   |        |
|   |   | 3 | in costs approved for advance by RUS. IDC may   |   |        |
|   |   | ) | be capitalized and credited to Account 427.3 in |   |        |
|   |   |   | accordance with RUS Bulletin 1767B-1. IDC is    |   |        |
|   |   |   | not acceptable for financing unless specific    |   |        |
|   |   |   | approval is obtained from RUS;                  |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Allowance for Funds Used During Construction    |   |        |
|   |   | 4 | (AFUDC), if included in costs approved for      |   |        |
|   |   | ) | advance by RUS. AFUDC may be capitalized but is |   |        |
|   |   |   | never acceptable for financing; and             |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Other (List).                                   |   |        |
|   |   | 5 |                                                 |   |        |
|   |   | ) |                                                 |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
| 2 | F |   |                                                 |   |        |
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|   | t |   |                                                 |   |        |
|   | a |   |                                                 |   |        |
|   | b |   |                                                 |   |        |
|   | l |   |                                                 |   |        |
|   | e |   |                                                 |   |        |
|   | f |   |                                                 |   |        |
|   | o |   |                                                 |   |        |
|   | r |   |                                                 |   |        |
|   | f |   |                                                 |   |        |
|   | i |   |                                                 |   |        |
|   | n |   |                                                 |   |        |
|   | a |   |                                                 |   |        |
|   | n |   |                                                 |   |        |
|   | c |   |                                                 |   |        |
|   | i |   |                                                 |   |        |
|   | n |   |                                                 |   |        |
|   | g |   |                                                 |   |        |
|   | p |   |                                                 |   |        |
|   | u |   |                                                 |   |        |
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|   | e |   |                                                 |   |        |
|   | s |   |                                                 |   |        |
|   | . |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---------------------------------------------------------+--------+
| 3 | On a test basis, trace overhead costs to the work order |        |
| . | cost records.                                           |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 4 | List deficiencies in borrower\'s procedures or          |        |
| . | nonconformance with RUS requirements.                   |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 5 | State conclusions.                                      |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

ENDSEC7

The objectives of this review are to determine that:

+---+------------------------------------------------------------------+
| 1 | Construction projects included in RUS Form 740c, Cost Estimates  |
| . | and Loan Budget for Electric Borrowers, are properly reported on |
|   | the applicable financing documents approved by RUS, in the       |
|   | proper amounts, and in accordance with 7 CFR Part 1721, Subpart  |
|   | A, Advance of Funds, and EOM-4.                                  |
+---+------------------------------------------------------------------+
| 2 | Projects exceeding 130 percent of the estimated costs in the     |
| . | workplan and reflected in the RUS 740c are supported by properly |
|   | executed approved workplan amendments;                           |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 3 | Minor construction projects (cost of construction is \$25,000 or |
| . | less and not included in an approved work plan, as amended) are  |
|   | reported on separate RUS Form 219, Inventory of Work Orders,     |
|   | that contains the required certification(s); and                 |
+---+------------------------------------------------------------------+
| 4 | Improperly requested advances of loan funds are identified by    |
| . | the RUS Accountant.                                              |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---------------------------------------------------------+--------+
| 1 | For the financing documents listing in Item 1 of        |        |
| . | Schedule C, verify that totals for approved for         |        |
|   | advance, advance and disbursed for each sub-code or     |        |
|   | line item relating to site specific codes do not exceed |        |
|   | 130 percent of the estimated costs in the applicable    |        |
|   | RUS Form 740c, unless they are supported by properly    |        |
|   | executed and approved workplan amendments. Amounts in   |        |
|   | excess of 130 percent of the estimated costs, as        |        |
|   | amended, are not acceptable for financing.              |        |
+---+---------------------------------------------------------+--------+
| 2 | Verify that the cumulative totals for approved for      |        |
| . | advance, advances and disbursements for each general    |        |
|   | category code, except for reimbursements which are      |        |
|   | excluded from the calculation of codes 700 and 1100     |        |
|   | totals, do not exceed 130 percent of the estimated      |        |
|   | costs in the applicable RUS Form 740c, unless they are  |        |
|   | supported by properly executed and approved workplan    |        |
|   | amendments. The category Reimbursement of General Funds |        |
|   | is limited to 100 percent of the amount approved for    |        |
|   | advance. Amounts in excess of 130 percent of the        |        |
|   | estimated costs, as amended, are not acceptable for     |        |
|   | financing.                                              |        |
+---+---------------------------------------------------------+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
| 3 | S |                                                     |   |        |
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|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | a | For code 100, examine the description and loan      |   |        |
|   | . | application codes on the work order log and staking |   |        |
|   |   | sheets to determine that construction is for new    |   |        |
|   |   | lines to serve consumers;                           |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | b | For codes 600, 700, and 1100, review the            |   |        |
|   | . | documentation supporting the disbursement of loan   |   |        |
|   |   | funds to determine that the items are properly      |   |        |
|   |   | classified; and                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | c | Compare the actual costs to the amounts approved,   |   |        |
|   | . | advanced, and disbursed to ensure that such amounts |   |        |
|   |   | are properly supported.                             |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 4 | S |                                                     |   |        |
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|   | t |                                                     |   |        |
|   | a |                                                     |   |        |
|   | b |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | f |                                                     |   |        |
|   | o |                                                     |   |        |
|   | r |                                                     |   |        |
|   | f |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | a |                                                     |   |        |
|   | n |                                                     |   |        |
|   | c |                                                     |   |        |
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|   | g |                                                     |   |        |
|   | . |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+--------------------------------------------------------+---+--------+
|   | 7 | Select a representative sample of minor construction   |   |        |
|   | . | work orders. The total cost of construction for each   |   |        |
|   |   | of the selected work orders should be \$25,000 or less |   |        |
|   |   | and none should be included on the approved workplan.  |   |        |
|   |   | For each of the selected work orders, verify that the  |   |        |
|   |   | total cost of construction was \$25,000 or less and    |   |        |
|   |   | that it was not listed on the approved workplan, as    |   |        |
|   |   | amended.                                               |   |        |
+---+---+--------------------------------------------------------+---+--------+
|   | 8 | Prepare a schedule, listing the amounts of RUS and     |   |        |
|   | . | supplemental lender advances deemed to be improper     |   |        |
|   |   | under the provisions of 7 CFR Part 1721, Subpart A,    |   |        |
|   |   | and related information required to compute costs      |   |        |
|   |   | incurred by the RETRF as a result of the               |   |        |
|   |   | overadvance(s).                                        |   |        |
+---+---+--------------------------------------------------------+---+--------+
|   | 9 | Advise the borrower of the improper advance(s),        |   |        |
|   | . | provide a copy of the Schedule of Unapproved Advances, |   |        |
|   |   | and explain the action necessary to eliminate the      |   |        |
|   |   | improper advance(s).                                   |   |        |
+---+---+--------------------------------------------------------+---+--------+
| 1 |   | Notify the Regional Accounting Branch, by telephone,   |   |        |
| 0 |   | of the amount of improper advance(s), the reason for   |   |        |
| . |   | the improper advance(s), and the date(s) of advance of |   |        |
|   |   | the improper advance(s). Indicate in the workpapers    |   |        |
|   |   | the date this information was provided to the Regional |   |        |
|   |   | Accounting Branch.                                     |   |        |
+---+---+--------------------------------------------------------+---+--------+
| 1 |   | List deficiencies in borrower\'s procedures or         |   |        |
| 1 |   | nonconformance with RUS requirements.                  |   |        |
| . |   |                                                        |   |        |
|   |   |                                                        |   |        |
+---+---+--------------------------------------------------------+---+--------+
| 1 |   | State conclusions.                                     |   |        |
| 2 |   |                                                        |   |        |
| . |   |                                                        |   |        |
|   |   |                                                        |   |        |
+---+---+--------------------------------------------------------+---+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

**NOTE: The general tests in this segment of the LFAR Review Guide also
apply to insured loans of generation and transmission borrowers.**

END:SEC8

The objectives of this review are to determine that:

+---+------------------------------------------------------------------+
| 1 | Advances of RUS loan funds are deposited promptly and intact in  |
| . | the RUS Construction Fund Trustee account (Construction Fund);   |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 2 | All other required amounts are deposited in the Construction     |
| . | Fund;                                                            |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 3 | Loan funds and other Construction Fund receipts, including those |
| . | from the sale of property, equity deposits, and other non-loan   |
|   | fund deposits are properly accounted for on the borrower\'s      |
|   | general accounting and subsidiary loan budget records;           |
+---+------------------------------------------------------------------+
| 4 | The accounting records and bank statements for cash receipts are |
| . | in agreement as of the Loan Fund and Accounting Review (LFAR)    |
|   | date;                                                            |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 5 | The bank statement cash balance reconciles with the cash balance |
| . | per the general ledger as of the LFAR date; and                  |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 6 | Total advances per borrower\'s records reconcile with total      |
| . | advances per the RUS Form 481, Financial Requirement Statement   |
|   | (FRS), as of the LFAR date.                                      |
|   |                                                                  |
+---+------------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
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|   | . |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 2 | O |                                                     |   |        |
| . | n |                                                     |   |        |
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|   | s |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | a | Trace loan fund and other receipts from the         |   |        |
|   | . | subsidiary loan budget records to bank statements,  |   |        |
|   |   | Construction Fund cash received record, if          |   |        |
|   |   | maintained, and general ledger;                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | b | Trace loan fund advances and other receipts to the  |   |        |
|   | . | FRS.                                                |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 3 | V |                                                     |   |        |
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|   | c |                                                     |   |        |
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|   | a |                                                     |   |        |
|   | c |                                                     |   |        |
|   | c |                                                     |   |        |
|   | o |                                                     |   |        |
|   | u |                                                     |   |        |
|   | n |                                                     |   |        |
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|   | d |                                                     |   |        |
|   | f |                                                     |   |        |
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|   | r |                                                     |   |        |
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|   | n |                                                     |   |        |
|   | a |                                                     |   |        |
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|   | d |                                                     |   |        |
|   | a |                                                     |   |        |
|   | n |                                                     |   |        |
|   | c |                                                     |   |        |
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|   | w |                                                     |   |        |
|   | i |                                                     |   |        |
|   | t |                                                     |   |        |
|   | h |                                                     |   |        |
|   | p |                                                     |   |        |
|   | r |                                                     |   |        |
|   | o |                                                     |   |        |
|   | v |                                                     |   |        |
|   | i |                                                     |   |        |
|   | s |                                                     |   |        |
|   | i |                                                     |   |        |
|   | o |                                                     |   |        |
|   | n |                                                     |   |        |
|   | s |                                                     |   |        |
|   | o |                                                     |   |        |
|   | f |                                                     |   |        |
|   | R |                                                     |   |        |
|   | U |                                                     |   |        |
|   | S |                                                     |   |        |
|   | B |                                                     |   |        |
|   | u |                                                     |   |        |
|   | l |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | t |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | 4 |                                                     |   |        |
|   | 1 |                                                     |   |        |
|   | 5 |                                                     |   |        |
|   | - |                                                     |   |        |
|   | 1 |                                                     |   |        |
|   | . |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---------------------------------------------------------+--------+
| 4 | Examine and identify all other transactions, exclusive  |        |
| . | of disbursements and loan fund advances, affecting the  |        |
|   | Construction Fund and comment on the nature and         |        |
|   | propriety of these transactions.                        |        |
+---+---------------------------------------------------------+--------+
| 5 | Prepare a bank reconciliation as of the LFAR date.      |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 6 | Reconcile total loan fund advances and cash balance per |        |
| . | the accounting and subsidiary loan budget records as of |        |
|   | the LFAR date with the FRS prepared by the borrower as  |        |
|   | of the LFAR date.                                       |        |
+---+---------------------------------------------------------+--------+
| 7 | Review the borrower\'s investments, if any, of          |        |
| . | Construction Funds and the accounting for interest      |        |
|   | income received therefrom for compliance with the       |        |
|   | provisions of 7 CFR 1744, Subpart C.                    |        |
+---+---------------------------------------------------------+--------+
| 8 | List deficiencies in borrower\'s procedures or          |        |
| . | nonconformance with RUS requirements.                   |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 9 | State conclusions.                                      |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

[END:SEC1]{.underline}

The objectives of this review are to determine that:

+---+------------------------------------------------------------------+
| 1 | Disbursements are made for approved purposes in the proper       |
| . | amount and are supported by proper documentation;                |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 2 | Disbursements are properly recorded and accounted for on the     |
| . | borrower\'s general accounting and subsidiary loan budget        |
|   | records;                                                         |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 3 | Accounting records and bank statements for disbursements are in  |
| . | agreement as of the LFAR date; and                               |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 4 | Total disbursements per borrower\'s records reconcile with total |
| . | disbursements per the RUS Form 481, Financial Requirement        |
|   | Statement (FRS), as of the LFAR date.                            |
|   |                                                                  |
+---+------------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
| 1 | F |                                                     |   |        |
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+---+---+-----------------------------------------------------+---+--------+
| 2 | O |                                                     |   |        |
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|   | n |                                                     |   |        |
|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | a | Trace Construction Fund disbursements from the      |   |        |
|   | . | subsidiary loan budget records to bank statements   |   |        |
|   |   | and general ledger;                                 |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | b | Examine paid checks for proper signatures,          |   |        |
|   | . | endorsements, bank cancellations, and prenumbering. |   |        |
|   |   | Determine that voided checks have been properly     |   |        |
|   |   | mutilated;                                          |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | c | For electronic funds transfers, examine the         |   |        |
|   | . | transfer request for authorized signature(s),       |   |        |
|   |   | payee, and amount as well as bank\'s canceled debit |   |        |
|   |   | memo ticket, or other documentation;                |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | d | Verify that reimbursements to general funds are     |   |        |
|   | . | supported by proper reimbursement schedules and are |   |        |
|   |   | properly recorded on the subsidiary loan budget     |   |        |
|   |   | records; and                                        |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+---+----------------------------------------------------+--------+
|   |   | e | For payments to vendors, verify that invoice       |        |
|   |   | . | amounts due were paid and trace from the           |        |
|   |   |   | subsidiary loan budget records to work in progress |        |
|   |   |   | or other accounts, as appropriate.                 |        |
+---+---+---+----------------------------------------------------+--------+
|   | 3 | I |                                                    |        |
|   | . | f |                                                    |        |
|   |   | c |                                                    |        |
|   |   | h |                                                    |        |
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|   |   | k |                                                    |        |
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+---+---+---+----------------------------------------------------+--------+
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+---+---+---+----------------------------------------------------+--------+
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+---+---+---+----------------------------------------------------+--------+
|   | 9 | P |                                                    |        |
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|   |   | . |                                                    |        |
+---+---+---+----------------------------------------------------+--------+
| 1 |   | A |                                                    |        |
| 0 |   | s |                                                    |        |
| . |   | n |                                                    |        |
|   |   | e |                                                    |        |
|   |   | c |                                                    |        |
|   |   | e |                                                    |        |
|   |   | s |                                                    |        |
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|   |   | a |                                                    |        |
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|   |   | , |                                                    |        |
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|   |   | p |                                                    |        |
|   |   | a |                                                    |        |
|   |   | r |                                                    |        |
|   |   | e |                                                    |        |
|   |   | a |                                                    |        |
|   |   | : |                                                    |        |
+---+---+---+----------------------------------------------------+--------+
|   |   | f | \"Schedule of Unapproved Disbursements.\"          |        |
|   |   | . |                                                    |        |
|   |   |   |                                                    |        |
|   |   |   |                                                    |        |
+---+---+---+----------------------------------------------------+--------+
|   |   | g | \"Schedule of Reclassified Disbursements.\"        |        |
|   |   | . |                                                    |        |
|   |   |   |                                                    |        |
|   |   |   |                                                    |        |
+---+---+---+----------------------------------------------------+--------+
|   |   | h | \"Schedule of Budget Purpose Adjustments           |        |
|   |   | . | Required.\"                                        |        |
|   |   |   |                                                    |        |
|   |   |   |                                                    |        |
+---+---+---+----------------------------------------------------+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+----+--------------------------------------------------------+--------+
| 11 | List deficiencies in borrower\'s procedures or         |        |
| .  | nonconformance with RUS requirements.                  |        |
+----+--------------------------------------------------------+--------+
| 12 | State conclusions.                                     |        |
| .  |                                                        |        |
+----+--------------------------------------------------------+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

**END:SEC2**

The objectives of this review are to determine that:

+---+------------------------------------------------------------------+
| 1 | Costs reported to RUS on RUS Forms 771 and 771a, Summary of Work |
| . | Orders, as applicable, are properly classified and agree with    |
|   | those costs reflected in the borrower\'s general accounting and  |
|   | subsidiary loan budget records;                                  |
+---+------------------------------------------------------------------+
| 2 | The contract forms, procurement methods, and closeout forms      |
| . | applicable thereto, used by the borrower for the construction    |
|   | and improvement of telecommunications facilities financed by RUS |
|   | loans or loan guarantees complied with the requirements of 7 CFR |
|   | Part 1753, Telecommuncations System Construction Policies and    |
|   | Procedures;                                                      |
+---+------------------------------------------------------------------+
| 3 | The minor construction policies and procedures prescribed in 7   |
| . | CFR Part 1753, Telecommunications System Construction Policies   |
|   | and Procedures, Subpart I - Minor Construction, were followed    |
|   | and funds were not advanced above the limits established in      |
|   | §1753.80(b) Minor Construction Procedures;                       |
+---+------------------------------------------------------------------+
| 4 | Labor and material unit costs on contractor's progress billings  |
| . | and contract final documents are in agreement with the original  |
|   | contract as amended;                                             |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 5 | Plant retired is priced at continuing property record (CPR) unit |
| . | prices and retirement costs are properly accounted for;          |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 6 | Costs of completed construction and retirements are cleared      |
| . | promptly from the work in progress accounts to the appropriate   |
|   | telecommunications plant in service accounts and related         |
|   | accumulated depreciation accounts;                               |
+---+------------------------------------------------------------------+
| 7 | CPRs are maintained on a current basis and in an acceptable      |
| . | manner; and                                                      |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+
| 8 | Contributions in aid of construction and previous approvals for  |
| . | advance are properly accounted for.                              |
|   |                                                                  |
|   |                                                                  |
+---+------------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
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+---+---+-----------------------------------------------------+---+--------+
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+---+---+-----------------------------------------------------+---+--------+
| 3 | S |                                                     |   |        |
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|   | 7 |                                                     |   |        |
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|   | 1 |                                                     |   |        |
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|   | F |                                                     |   |        |
|   | A |                                                     |   |        |
|   | R |                                                     |   |        |
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|   | d |                                                     |   |        |
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|   | o |                                                     |   |        |
|   | r |                                                     |   |        |
|   | t |                                                     |   |        |
|   | h |                                                     |   |        |
|   | e |                                                     |   |        |
|   | p |                                                     |   |        |
|   | u |                                                     |   |        |
|   | r |                                                     |   |        |
|   | p |                                                     |   |        |
|   | o |                                                     |   |        |
|   | s |                                                     |   |        |
|   | e |                                                     |   |        |
|   | o |                                                     |   |        |
|   | f |                                                     |   |        |
|   | p |                                                     |   |        |
|   | e |                                                     |   |        |
|   | r |                                                     |   |        |
|   | f |                                                     |   |        |
|   | o |                                                     |   |        |
|   | r |                                                     |   |        |
|   | m |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | g |                                                     |   |        |
|   | t |                                                     |   |        |
|   | h |                                                     |   |        |
|   | e |                                                     |   |        |
|   | f |                                                     |   |        |
|   | o |                                                     |   |        |
|   | l |                                                     |   |        |
|   | l |                                                     |   |        |
|   | o |                                                     |   |        |
|   | w |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | g |                                                     |   |        |
|   | g |                                                     |   |        |
|   | e |                                                     |   |        |
|   | n |                                                     |   |        |
|   | e |                                                     |   |        |
|   | r |                                                     |   |        |
|   | a |                                                     |   |        |
|   | l |                                                     |   |        |
|   | t |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | a | Verify the mathematical accuracy of the selected    |   |        |
|   | . | RUS Forms 771 or 771a;                              |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | b | Verify that costs of individual work orders         |   |        |
|   | . | reported on the RUS Forms 771 or 771a are in        |   |        |
|   |   | agreement with work order ledgers or work order     |   |        |
|   |   | cost sheets;                                        |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | c | Test tabulation of record units for construction    |   |        |
|   | . | and retirement from work order staking sheets to    |   |        |
|   |   | the tabulation of record units and to the CPRs. If  |   |        |
|   |   | staking sheets are not used, explain the method of  |   |        |
|   |   | tabulating record units and whether the method      |   |        |
|   |   | appears reasonable;                                 |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | d | Test the procedure for distributing the costs of    |   |        |
|   | . | completed construction to record units;             |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | e | Verify pricing of units retired per the CPRs. If    |   |        |
|   | . | CPRs have not been established, explain the method  |   |        |
|   |   | used in computing the cost of units of plant        |   |        |
|   |   | retired and whether costs appear to be reasonable;  |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+--------+
|   | f | Trace the total cost of construction from RUS Forms |   |        |
|   | . | 771 and 771a to the clearing entry from the work in |   |        |
|   |   | progress account to the plant account(s) and CPRs;  |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | g | Test accounting for the net loss due to retirement. |   |        |
|   | . | Trace clearing entry from retirement work in        |   |        |
|   |   | progress account to accumulated depreciation        |   |        |
|   |   | account, telecommunications plant in service        |   |        |
|   |   | account(s) and CPRs;                                |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | h | Determine if costs of completed construction and    |   |        |
|   | . | retirement work orders are promptly cleared from    |   |        |
|   |   | the work in progress accounts to the                |   |        |
|   |   | telecommunications plant in service account(s) and  |   |        |
|   |   | accumulated depreciation account, as applicable;    |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | i | Verify that salvage is properly reported on RUS     |   |        |
|   | . | Forms 771 and 771a.                                 |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | j | Verify that contributions in aid of construction    |   |        |
|   | . | are properly reported on RUS Form 771 and 771a and  |   |        |
|   |   | are credited to the appropriate plant accounts and  |   |        |
|   |   | record units in the CPRs;                           |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | k | Verify that previous approvals for advance,         |   |        |
|   | . | including Work Order Fund, are properly reported    |   |        |
|   |   | and accounted for on RUS Form 771 and 771a.         |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
| 4 | S |                                                     |   |        |
| . | e |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | c |                                                     |   |        |
|   | t |                                                     |   |        |
|   | a |                                                     |   |        |
|   | r |                                                     |   |        |
|   | e |                                                     |   |        |
|   | p |                                                     |   |        |
|   | r |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | e |                                                     |   |        |
|   | n |                                                     |   |        |
|   | t |                                                     |   |        |
|   | a |                                                     |   |        |
|   | t |                                                     |   |        |
|   | i |                                                     |   |        |
|   | v |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | a |                                                     |   |        |
|   | m |                                                     |   |        |
|   | p |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | o |                                                     |   |        |
|   | f |                                                     |   |        |
|   | c |                                                     |   |        |
|   | o |                                                     |   |        |
|   | m |                                                     |   |        |
|   | p |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | t |                                                     |   |        |
|   | e |                                                     |   |        |
|   | d |                                                     |   |        |
|   | c |                                                     |   |        |
|   | o |                                                     |   |        |
|   | n |                                                     |   |        |
|   | t |                                                     |   |        |
|   | r |                                                     |   |        |
|   | a |                                                     |   |        |
|   | c |                                                     |   |        |
|   | t |                                                     |   |        |
|   | s |                                                     |   |        |
|   | d |                                                     |   |        |
|   | u |                                                     |   |        |
|   | r |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | g |                                                     |   |        |
|   | t |                                                     |   |        |
|   | h |                                                     |   |        |
|   | e |                                                     |   |        |
|   | L |                                                     |   |        |
|   | F |                                                     |   |        |
|   | A |                                                     |   |        |
|   | R |                                                     |   |        |
|   | p |                                                     |   |        |
|   | e |                                                     |   |        |
|   | r |                                                     |   |        |
|   | i |                                                     |   |        |
|   | o |                                                     |   |        |
|   | d |                                                     |   |        |
|   | f |                                                     |   |        |
|   | o |                                                     |   |        |
|   | r |                                                     |   |        |
|   | r |                                                     |   |        |
|   | e |                                                     |   |        |
|   | v |                                                     |   |        |
|   | i |                                                     |   |        |
|   | e |                                                     |   |        |
|   | w |                                                     |   |        |
|   | . |                                                     |   |        |
|   | T |                                                     |   |        |
|   | h |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | a |                                                     |   |        |
|   | m |                                                     |   |        |
|   | p |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | s |                                                     |   |        |
|   | e |                                                     |   |        |
|   | l |                                                     |   |        |
|   | e |                                                     |   |        |
|   | c |                                                     |   |        |
|   | t |                                                     |   |        |
|   | e |                                                     |   |        |
|   | d |                                                     |   |        |
|   | s |                                                     |   |        |
|   | h |                                                     |   |        |
|   | o |                                                     |   |        |
|   | u |                                                     |   |        |
|   | l |                                                     |   |        |
|   | d |                                                     |   |        |
|   | i |                                                     |   |        |
|   | n |                                                     |   |        |
|   | c |                                                     |   |        |
|   | l |                                                     |   |        |
|   | u |                                                     |   |        |
|   | d |                                                     |   |        |
|   | e |                                                     |   |        |
|   | : |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | l | Contract(s) in which no materials were furnished by |   |        |
|   | . | the borrower;                                       |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | m | Materials furnished contract(s), Supplement \"A\"   |   |        |
|   | . | Contract(s);                                        |   |        |
|   |   |                                                     |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+
|   | n | Contract(s) included on RUS Form 771 and 771a.      |   |        |
|   | . | Tests 5.g. and 5.h. do not have to be performed     |   |        |
|   |   | when Tests 3.c. and 3.h. have been performed.       |   |        |
|   |   |                                                     |   |        |
+---+---+-----------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+--------+
| 5 | P |                                                     |        |
| . | e |                                                     |        |
|   | r |                                                     |        |
|   | f |                                                     |        |
|   | o |                                                     |        |
|   | r |                                                     |        |
|   | m |                                                     |        |
|   | t |                                                     |        |
|   | h |                                                     |        |
|   | e |                                                     |        |
|   | f |                                                     |        |
|   | o |                                                     |        |
|   | l |                                                     |        |
|   | l |                                                     |        |
|   | o |                                                     |        |
|   | w |                                                     |        |
|   | i |                                                     |        |
|   | n |                                                     |        |
|   | g |                                                     |        |
|   | g |                                                     |        |
|   | e |                                                     |        |
|   | n |                                                     |        |
|   | e |                                                     |        |
|   | r |                                                     |        |
|   | a |                                                     |        |
|   | l |                                                     |        |
|   | t |                                                     |        |
|   | e |                                                     |        |
|   | s |                                                     |        |
|   | t |                                                     |        |
|   | s |                                                     |        |
|   | o |                                                     |        |
|   | n |                                                     |        |
|   | c |                                                     |        |
|   | o |                                                     |        |
|   | n |                                                     |        |
|   | t |                                                     |        |
|   | r |                                                     |        |
|   | a |                                                     |        |
|   | c |                                                     |        |
|   | t |                                                     |        |
|   | ( |                                                     |        |
|   | s |                                                     |        |
|   | ) |                                                     |        |
|   | s |                                                     |        |
|   | e |                                                     |        |
|   | l |                                                     |        |
|   | e |                                                     |        |
|   | c |                                                     |        |
|   | t |                                                     |        |
|   | e |                                                     |        |
|   | d |                                                     |        |
|   | u |                                                     |        |
|   | n |                                                     |        |
|   | d |                                                     |        |
|   | e |                                                     |        |
|   | r |                                                     |        |
|   | T |                                                     |        |
|   | e |                                                     |        |
|   | s |                                                     |        |
|   | t |                                                     |        |
|   | 4 |                                                     |        |
|   | : |                                                     |        |
+---+---+-----------------------------------------------------+--------+
|   | a | Contract(s) included on RUS Forms 771 and 771a.     |        |
|   | . | Tests 5.g. and 5.h. do not have to be performed     |        |
|   |   | when Tests 3.c. and 3.h. have been performed;       |        |
|   |   |                                                     |        |
+---+---+-----------------------------------------------------+--------+
|   | b | Verify the borrower's compliance with minor         |        |
|   | . | construction policies and procedures prescribed in  |        |
|   |   | 7 CFR Part 1753, Subpart I - Minor Construction,    |        |
|   |   | and funds were not advanced above the limits        |        |
|   |   | established in §1753.80(b);                         |        |
+---+---+-----------------------------------------------------+--------+
|   | c | Compare contractor\'s unit prices for labor and     |        |
|   | . | material costs per RUS Form 724, Final Inventory,   |        |
|   |   | or 724a, Final Inventory Contractor's Board         |        |
|   |   | Extension, when required, with the contractor\'s    |        |
|   |   | unit prices in the original contract, as amended;   |        |
+---+---+-----------------------------------------------------+--------+
|   | d | Reconcile total contract costs billed to the        |        |
|   | . | borrower with those reported on the final closeout  |        |
|   |   | documents;                                          |        |
|   |   |                                                     |        |
+---+---+-----------------------------------------------------+--------+
|   | e | Verify the accuracy of costs of owner-furnished     |        |
|   | . | materials included on the RUS Form 281, Tabulation  |        |
|   |   | of Materials Furnished by Borrower, prepared by the |        |
|   |   | borrower\'s engineer. Note any discrepancies;       |        |
+---+---+-----------------------------------------------------+--------+
|   | f | Review and verify the account classification of     |        |
|   | . | costs on RUS Form 724, Final Inventory, and trace   |        |
|   |   | the costs to the clearing entry from the work in    |        |
|   |   | progress account to the telecommunications plant    |        |
|   |   | account(s) and CPRs;                                |        |
+---+---+-----------------------------------------------------+--------+
|   | g | Trace units from the final inventory to the posting |        |
|   | . | in the CPRs;                                        |        |
|   |   |                                                     |        |
|   |   |                                                     |        |
+---+---+-----------------------------------------------------+--------+
|   | h | Determine if costs of completed contract            |        |
|   | . | construction and retirement work are promptly       |        |
|   |   | cleared from the work in progress accounts to the   |        |
|   |   | telecommunciations plant account(s) and accumulated |        |
|   |   | depreciation account, as applicable;                |        |
+---+---+-----------------------------------------------------+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+-----------------------------------------------------+---+---+--------+
|   | i | Determine amounts previously approved and advanced  |   |   |        |
|   | . | and verify to the amounts reported to RUS;          |   |   |        |
|   |   |                                                     |   |   |        |
|   |   |                                                     |   |   |        |
+---+---+-----------------------------------------------------+---+---+--------+
|   | j | Reconcile total loan funds approved, advanced and   |   |   |        |
|   | . | disbursed with the actual cost of construction.     |   |   |        |
|   |   |                                                     |   |   |        |
|   |   |                                                     |   |   |        |
+---+---+-----------------------------------------------------+---+---+--------+
| 6 | P |                                                     |   |   |        |
| . | r |                                                     |   |   |        |
|   | e |                                                     |   |   |        |
|   | p |                                                     |   |   |        |
|   | a |                                                     |   |   |        |
|   | r |                                                     |   |   |        |
|   | e |                                                     |   |   |        |
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+---+---+-----------------------------------------------------+---+---+--------+
| 7 | L |                                                     |   |   |        |
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|   | . |                                                     |   |   |        |
+---+---+-----------------------------------------------------+---+---+--------+
| 8 | S |                                                     |   |   |        |
| . | t |                                                     |   |   |        |
|   | a |                                                     |   |   |        |
|   | t |                                                     |   |   |        |
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|   | c |                                                     |   |   |        |
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|   | n |                                                     |   |   |        |
|   | s |                                                     |   |   |        |
|   | . |                                                     |   |   |        |
+---+---+-----------------------------------------------------+---+---+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

END:SEC3

The objectives of this review are to determine that:

+---+---+--------------------------------------------------------------+
| 1 | T |                                                              |
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|   | s |                                                              |
|   | a |                                                              |
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|   | e |                                                              |
|   | : |                                                              |
+---+---+--------------------------------------------------------------+
|   | a | Complete, proper, and adequate;                              |
|   | . |                                                              |
|   |   |                                                              |
|   |   |                                                              |
+---+---+--------------------------------------------------------------+
|   | b | In accordance with RUS Bulletin 1770B-1, 47 CFR Part 32,     |
|   | . | Uniform System of Accounts, and Supplementary Accounts       |
|   |   | Required for RUS Telecommunications Borrowers; RUS Bulletin  |
|   |   | 1770-1, RUS Work Order Procedure; and other applicable RUS   |
|   |   | publications.                                                |
+---+---+--------------------------------------------------------------+
| 2 | R |                                                              |
| . | e |                                                              |
|   | s |                                                              |
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+---+---+--------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---------------------------------------------------------+--------+
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| : |                                                         |        |
+---+---------------------------------------------------------+--------+
| 1 | Trace material units and/or costs from the appropriate  |        |
| . | summary form(s)/printout(s) to material charge, credit, |        |
|   | and salvage tickets or the daily work report, as        |        |
|   | applicable.                                             |        |
+---+---------------------------------------------------------+--------+
| 2 | Trace material units from material tickets or daily     |        |
| . | work reports, as applicable, to the outside plant \"as  |        |
|   | built\" staking sheets.                                 |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 3 | Determine if material units issued, returned, and       |        |
| . | salvaged were properly priced per the perpetual         |        |
|   | inventory records and test the accuracy of extensions.  |        |
|   | If perpetual inventory records are not maintained,      |        |
|   | explain the method used; evaluate the adequacy of the   |        |
|   | method used; determine whether material units issued,   |        |
|   | returned, and salvaged are properly priced; and test    |        |
|   | the accuracy of extensions.                             |        |
+---+---------------------------------------------------------+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+---+-----------------------------------------------------+---+--------+
| 4 |   | T |                                                     |   |        |
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|   |   | . |                                                     |   |        |
+---+---+---+-----------------------------------------------------+---+--------+
| 5 |   | F |                                                     |   |        |
| . |   | r |                                                     |   |        |
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|   |   | m |                                                     |   |        |
|   |   | a |                                                     |   |        |
|   |   | r |                                                     |   |        |
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|   |   | f |                                                     |   |        |
|   |   | o |                                                     |   |        |
|   |   | r |                                                     |   |        |
|   |   | m |                                                     |   |        |
|   |   | ( |                                                     |   |        |
|   |   | s |                                                     |   |        |
|   |   | ) |                                                     |   |        |
|   |   | / |                                                     |   |        |
|   |   | p |                                                     |   |        |
|   |   | r |                                                     |   |        |
|   |   | i |                                                     |   |        |
|   |   | n |                                                     |   |        |
|   |   | t |                                                     |   |        |
|   |   | o |                                                     |   |        |
|   |   | u |                                                     |   |        |
|   |   | t |                                                     |   |        |
|   |   | ( |                                                     |   |        |
|   |   | s |                                                     |   |        |
|   |   | ) |                                                     |   |        |
|   |   | t |                                                     |   |        |
|   |   | r |                                                     |   |        |
|   |   | a |                                                     |   |        |
|   |   | c |                                                     |   |        |
|   |   | e |                                                     |   |        |
|   |   | : |                                                     |   |        |
+---+---+---+-----------------------------------------------------+---+--------+
|   |   | ( | Material costs to work order cost records and to    |   |        |
|   |   | a | general ledger Accounts 1220, 2003, and 3100, as    |   |        |
|   |   | ) | applicable, or entry to the plant accounts, if      |   |        |
|   |   |   | direct charge method is used; and                   |   |        |
+---+---+---+-----------------------------------------------------+---+--------+
|   |   | ( | Material units and costs to the perpetual inventory |   |        |
|   |   | b | records.                                            |   |        |
|   |   | ) |                                                     |   |        |
|   |   |   |                                                     |   |        |
+---+---+---+-----------------------------------------------------+---+--------+
| 6 |   | T |                                                     |   |        |
| . |   | r |                                                     |   |        |
|   |   | a |                                                     |   |        |
|   |   | c |                                                     |   |        |
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|   |   | a |                                                     |   |        |
|   |   | r |                                                     |   |        |
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|   |   | p |                                                     |   |        |
|   |   | r |                                                     |   |        |
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|   |   | s |                                                     |   |        |
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|   |   | n |                                                     |   |        |
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|   |   | . |                                                     |   |        |
+---+---+---+-----------------------------------------------------+---+--------+
| 7 | L |   |                                                     |   |        |
| . | i |   |                                                     |   |        |
|   | s |   |                                                     |   |        |
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|   | t |   |                                                     |   |        |
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|   | . |   |                                                     |   |        |
+---+---+---+-----------------------------------------------------+---+--------+
| 8 | S |   |                                                     |   |        |
| . | t |   |                                                     |   |        |
|   | a |   |                                                     |   |        |
|   | t |   |                                                     |   |        |
|   | e |   |                                                     |   |        |
|   | c |   |                                                     |   |        |
|   | o |   |                                                     |   |        |
|   | n |   |                                                     |   |        |
|   | c |   |                                                     |   |        |
|   | l |   |                                                     |   |        |
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|   | i |   |                                                     |   |        |
|   | o |   |                                                     |   |        |
|   | n |   |                                                     |   |        |
|   | s |   |                                                     |   |        |
|   | . |   |                                                     |   |        |
+---+---+---+-----------------------------------------------------+---+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

END:SEC4

The objectives of this review are to determine that:

+---+---+--------------------------------------------------------------+
| 1 | T |                                                              |
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|   | e |                                                              |
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|   | : |                                                              |
+---+---+--------------------------------------------------------------+
|   | a | Complete, proper and adequate;                               |
|   | . |                                                              |
|   |   |                                                              |
|   |   |                                                              |
+---+---+--------------------------------------------------------------+
|   | b | In accordance with RUS Bulletin 1770B-1, 47 CFR Part 32,     |
|   | . | Uniform System of Accounts, and Supplementary Accounts       |
|   |   | Required for RUS Telecommunications Borrowers; RUS Bulletin  |
|   |   | 1770-1, RUS Work Order Procedure; and other applicable RUS   |
|   |   | publications.                                                |
+---+---+--------------------------------------------------------------+
| 2 | R |                                                              |
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|   | g |                                                              |
|   | . |                                                              |
+---+---+--------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+---+-------------------------------------------------+---+--------+
| S |   |   |                                                 |   |        |
| e |   |   |                                                 |   |        |
| l |   |   |                                                 |   |        |
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| r |   |   |                                                 |   |        |
| \ |   |   |                                                 |   |        |
| ' |   |   |                                                 |   |        |
| s |   |   |                                                 |   |        |
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| . |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
| 1 | D |   |                                                 |   |        |
| . | e |   |                                                 |   |        |
|   | t |   |                                                 |   |        |
|   | e |   |                                                 |   |        |
|   | r |   |                                                 |   |        |
|   | m |   |                                                 |   |        |
|   | i |   |                                                 |   |        |
|   | n |   |                                                 |   |        |
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+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | They are being properly reviewed and initialed  |   |        |
|   |   | 1 | by the appropriate supervisor; and              |   |        |
|   |   | ) |                                                 |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Time sheets contain sufficient information to   |   |        |
|   |   | 2 | facilitate proper accounting classification.    |   |        |
|   |   | ) |                                                 |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
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|   | s |   |                                                 |   |        |
|   | : |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+---+-----------------------------------------------------+---+--------+
|   |   | ( | Trace hours worked from the time sheets to the      |   |        |
|   |   | a | appropriate summary form(s)/printout(s);            |   |        |
|   |   | ) |                                                     |   |        |
|   |   |   |                                                     |   |        |
+---+---+---+-----------------------------------------------------+---+--------+
|   |   | ( | Determine that the proper hourly rate was used and  |   |        |
|   |   | b | test the calculation of gross wages, or, as         |   |        |
|   |   | ) | appropriate, determine that flat salaries are       |   |        |
|   |   |   | proper; and                                         |   |        |
+---+---+---+-----------------------------------------------------+---+--------+
|   |   | ( | Determine if overtime is being properly accounted   |   |        |
|   |   | c | for.                                                |   |        |
|   |   | ) |                                                     |   |        |
|   |   |   |                                                     |   |        |
+---+---+---+-----------------------------------------------------+---+--------+
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|   |   | n |                                                     |   |        |
|   |   | t |                                                     |   |        |
|   |   | a |                                                     |   |        |
|   |   | c |                                                     |   |        |
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|   |   | t |                                                     |   |        |
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|   |   | , |                                                     |   |        |
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|   |   | f |                                                     |   |        |
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|   |   | e |                                                     |   |        |
|   |   | d |                                                     |   |        |
|   |   | . |                                                     |   |        |
+---+---+---+-----------------------------------------------------+---+--------+
| 4 | L |   |                                                     |   |        |
| . | i |   |                                                     |   |        |
|   | s |   |                                                     |   |        |
|   | t |   |                                                     |   |        |
|   | d |   |                                                     |   |        |
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|   | h |   |                                                     |   |        |
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|   | U |   |                                                     |   |        |
|   | S |   |                                                     |   |        |
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|   | q |   |                                                     |   |        |
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|   | n |   |                                                     |   |        |
|   | t |   |                                                     |   |        |
|   | s |   |                                                     |   |        |
|   | . |   |                                                     |   |        |
+---+---+---+-----------------------------------------------------+---+--------+
| 5 | S |   |                                                     |   |        |
| . | t |   |                                                     |   |        |
|   | a |   |                                                     |   |        |
|   | t |   |                                                     |   |        |
|   | e |   |                                                     |   |        |
|   | c |   |                                                     |   |        |
|   | o |   |                                                     |   |        |
|   | n |   |                                                     |   |        |
|   | c |   |                                                     |   |        |
|   | l |   |                                                     |   |        |
|   | u |   |                                                     |   |        |
|   | s |   |                                                     |   |        |
|   | i |   |                                                     |   |        |
|   | o |   |                                                     |   |        |
|   | n |   |                                                     |   |        |
|   | s |   |                                                     |   |        |
|   | . |   |                                                     |   |        |
+---+---+---+-----------------------------------------------------+---+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

END:SEC5

The objectives of this review are to determine that:

+---+---+--------------------------------------------------------------+
| 1 | T |                                                              |
| . | h |                                                              |
|   | e |                                                              |
|   | p |                                                              |
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|   | a |                                                              |
|   | r |                                                              |
|   | e |                                                              |
|   | : |                                                              |
+---+---+--------------------------------------------------------------+
|   | a | Complete, proper and adequate;                               |
|   | . |                                                              |
|   |   |                                                              |
|   |   |                                                              |
+---+---+--------------------------------------------------------------+
|   | b | In accordance with RUS Bulletin 1770B-1, 47 CFR Part 32,     |
|   | . | Uniform System of Accounts, and Supplementary Accounts       |
|   |   | Required for RUS Telecommunications Borrowers; RUS Bulletin  |
|   |   | 1770-1, RUS Work Order Procedure; and other applicable RUS   |
|   |   | publications.                                                |
+---+---+--------------------------------------------------------------+
| 2 | R |                                                              |
| . | e |                                                              |
|   | s |                                                              |
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|   | l |                                                              |
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|   | 7 |                                                              |
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|   | i |                                                              |
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|   | g |                                                              |
|   | . |                                                              |
+---+---+--------------------------------------------------------------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+----------------------------------------------------+---+---------+
| 1 | S |                                                    |   |         |
| . | e |                                                    |   |         |
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|   | : |                                                    |   |         |
+---+---+----------------------------------------------------+---+---------+
|   | a | Payroll Taxes (FICA, FUTA, SUTA);                  |   |         |
|   | . |                                                    |   |         |
|   |   |                                                    |   |         |
|   |   |                                                    |   |         |
+---+---+----------------------------------------------------+---+---------+
|   | b | Insurance (Workmen\'s Compensation, PL&PD);        |   |         |
|   | . |                                                    |   |         |
|   |   |                                                    |   |         |
|   |   |                                                    |   |         |
+---+---+----------------------------------------------------+---+---------+
|   | c | Employee Benefits (Pension, Health, Life,          |   |         |
|   | . | Long-Term Disability, Savings);                    |   |         |
|   |   |                                                    |   |         |
|   |   |                                                    |   |         |
+---+---+----------------------------------------------------+---+---------+
|   | d | Compensated Absences;                              |   |         |
|   | . |                                                    |   |         |
|   |   |                                                    |   |         |
|   |   |                                                    |   |         |
+---+---+----------------------------------------------------+---+---------+
|   | e | Indirect Labor;                                    |   |         |
|   | . |                                                    |   |         |
|   |   |                                                    |   |         |
|   |   |                                                    |   |         |
+---+---+----------------------------------------------------+---+---------+
|   | f | Transportation/Work Equipment;                     |   |         |
|   | . |                                                    |   |         |
|   |   |                                                    |   |         |
|   |   |                                                    |   |         |
+---+---+----------------------------------------------------+---+---------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---+---+-------------------------------------------------+---+--------+
|   | g | P |                                                 |   |        |
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|   |   | ; |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   | h | A |                                                 |   |        |
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|   |   | d |                                                 |   |        |
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|   |   | e |                                                 |   |        |
|   |   | ; |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   | i | ( | Plant Operations Administration Expense         |   |        |
|   | . | 1 | (Account 6534);                                 |   |        |
|   |   | ) |                                                 |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Borrower Engineering (Account 6535);            |   |        |
|   |   | 2 |                                                 |   |        |
|   |   | ) |                                                 |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   | j | O |                                                 |   |        |
|   | . | t |                                                 |   |        |
|   |   | h |                                                 |   |        |
|   |   | e |                                                 |   |        |
|   |   | r |                                                 |   |        |
|   |   | : |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Direct charges to work orders or plant          |   |        |
|   |   | 3 | accounts, if direct charge method is used;      |   |        |
|   |   | ) |                                                 |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Contractor engineering, legal charges, permits, |   |        |
|   |   | 4 | transfers from Account 1439, Deferred Charges,  |   |        |
|   |   | ) | applicable to the cost of construction, etc.;   |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Interest During Construction (IDC), if included |   |        |
|   |   | 5 | in costs approved for advance by RUS. IDC may   |   |        |
|   |   | ) | be capitalized and credited to Account 7340 in  |   |        |
|   |   |   | accordance with 47 CFR Part 32. IDC is not      |   |        |
|   |   |   | acceptable for financing, unless specific       |   |        |
|   |   |   | approval is obtained from RUS;                  |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Allowance for Funds Used During Construction    |   |        |
|   |   | 6 | (AFUDC), if included in costs approved for      |   |        |
|   |   | ) | advance by RUS. AFUDC must be capitalized but   |   |        |
|   |   |   | is never acceptable for financing; and          |   |        |
+---+---+---+-------------------------------------------------+---+--------+
|   |   | ( | Other (List).                                   |   |        |
|   |   | 7 |                                                 |   |        |
|   |   | ) |                                                 |   |        |
|   |   |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+
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+---+---+---+-------------------------------------------------+---+--------+
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+---+---+---+-------------------------------------------------+---+--------+
| 4 | L |   |                                                 |   |        |
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|   | R |   |                                                 |   |        |
|   | U |   |                                                 |   |        |
|   | S |   |                                                 |   |        |
|   | r |   |                                                 |   |        |
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|   | q |   |                                                 |   |        |
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|   | s |   |                                                 |   |        |
|   | . |   |                                                 |   |        |
+---+---+---+-------------------------------------------------+---+--------+

WORKPAPER

[GENERAL TESTS]{.underline} [REFERENCE]{.underline}

+---+---------------------------------------------------------+--------+
| 5 | State conclusions.                                      |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

[ALTERNATIVE OR ADDITIONAL TESTS PERFORMED]{.underline}

+---+---------------------------------------------------------+--------+
| 1 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+
| 2 |                                                         |        |
| . |                                                         |        |
|   |                                                         |        |
|   |                                                         |        |
+---+---------------------------------------------------------+--------+

END:SEC6

  -------------- ------- -------------------------------------------------------------------------- -------------- -- -- --------- -------------- -------------- -------------- -- -------------- -- -------------- -- -------------- -------------- -- -------------- --- --- ------ --------- -- -------------- -------------- -------------- -------------- ---- ------- ----- ------------ -- -- -- ----------- ---------- --------- -- ----------- ----------- -- ----------- ----------- ----------- ----------- ------------- --
  USDA - RUS                                                                                                                                                                                                                                            **FORM                                                                                                                                                                                                                                                                       
                                                                                                                                                                                                                                                        APPROVED**                                                                                                                                                                                                                                                                   

  **FINANCIAL                                                                                                                                                                                                                                           **OMB NO.                                                                                                                                                                                                                                                                    
  REQUIREMENT &                                                                                                                                                                                                                                         40-R0168**                                                                                                                                                                                                                                                                   
  EXPENDITURE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
  STATEMENT**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

  To: U.S.                                                                                                                                                                                                                                              BORROWER                                                                                                                                                                                                                                                                     
  Department of                                                                                                                                                                                                                                         DESIGNATION                                                                                                                                                                                                                                                                  
  Agriculture,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
  RUS,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
  Washington,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
  D.C. 20250                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

                         INSTRUCTIONS - Submit original and two copies to RUS. For                                                                                                                                                                                                                                                                                                                                                                                                                                     Borrower      
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Designation   

                         detailed instructions see reverse side of sheets 4 & RUS Bul.26-1.                                                                                                                                                                                                                                                                                                                                                                                                                            2\. Statement 
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       No            

                 THIS                                                                                                                                                                                                                                   5\.                                                                                                                                                                                                                                                                          
                 SPACE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
                 FOR RUS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
                 ONLY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

  Date Received                                                                                                                    Register No.                                                                                                         4\. Period                                                                                                                                                                                      5\.                                                                          
                                                                                                                                                                                                                                                        Ending (Month                                                                                                                                                                                   Effective                                                                    
                                                                                                                                                                                                                                                        & Year)                                                                                                                                                                                         Date of                                                                      

                                                                                                                                                                                                                                                        July 31,                                                                                                                                                                                        Adjusted                                                                     
                                                                                                                                                                                                                                                        (Year)                                                                                                                                                                                          Amounts                                                                      

                                                                                                                                   Consolidated                                    Amounts                                                              Total                                      Total                                                                                                Cash                                                                                               Advance                   

  Primary Budget                                                                                                                                                                   Loan Budget                         Approved For                                                   Advance                                    Expenditures                                                                                  Balance                                                                                               
  Purposes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

                                                                                                                                                                                   Advance                                                                                     To                                                                                                                                                                                                              Requested                             
                                                                                                                                                                                                                                                                               Date                                                                                                                                                                                                                                                  

                         \(1\)                                                                                                     \(2\)                                           \(3\)                                                                \(4\)                                      \(5\)                                                                                                \(6\)                                                                                              \(7\)                     

  1                      Distribution                                                               1,975,250.00                                                 1,965,640.00                                                                           1,965,529.00                                              1,960,629.00                                                                                      4,900.00                                                                                                         

                         Adjusted (RUS Use)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

  2                      Transmission                                                                                              600,000.00                                      559,200.00                                                           558,757.00                                 558,757.00                                                                                           0.00                                                                                                                         

                         Adjusted (RUS Use)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

  3                      Generation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

                         Adjusted (RUS Use)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

  4                      Hdqtrs Facilities                                                                                         200,000.00                                      200,000.00                                                           200,000.00                                 120,000.00                                                                                           80,000.00                                                                                                                    

                         Adjusted (RUS Use)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

  5                      Acquisitions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

                         Adjusted (RUS Use)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

  6                      All Other                                                                                                 68,000.00                                       67,000.00                                                            66,750.00                                  66,750.00                                                                                            0.00                                                                                                                         

                         Adjusted (RUS Use)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

                         Closed Budget                                                                                             2,205,655.00                                    2,205,655.00                                                         2,205,655.00                               2,205,655.00                                                                                                                                                                                                                      

                         Adjusted (RUS Use)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

                         Under stop order or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

                         conditional agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

                         Exclusive of concurrent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

                         loan standard                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

                         conditional agreement.                                                                                    100,000.00                                                                                                                                                                                                                                                                                                                                                                                        

                         Adjusted (RUS Use)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

                         Totals                                                                                                                   5,148,905.00                                       4,997,495.00                                       4,996,691.00                                                                            4,911,791.00                                                                                84,900.00                                                      0.00                      

                         Adjusted (RUS Use)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

                         **BREAKDOWN OF AMOUNT UNDER STOP ORDER OR CONDITIONAL AGREEMENT AS SHOWN                                                                                                                                                                                                                                                                                 **TOTAL                                                                                                                                            
                         ABOVE**                                                                                                                                                                                                                                                                                                                                                  AMOUNT OF                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                  NOTES                                                                                                                                              
                                                                                                                                                                                                                                                                                                                                                                                  EXECUTED**                                                                                                                                         

                         A. Distribution \$                                                                              0                                                                                                            D.                                   0                                                                                                A.                                                                                         4,217,905                                                     
                                                                                                                                                                                                                                      Headquarters                                                                                                                          RUS                                                                                                                                                      
                                                                                                                                                                                                                                      \$                                                                                                                                    \$                                                                                                                                                       

                         B. Transmission \$                                                                              100,000                                                                                       E.                                              0                                                                                            B. FFB                                                                                                                                                           
                                                                                                                                                                                                                       Acquisitions                                                                                                                                 \$                                                                                                                                                               
                                                                                                                                                                                                                       \$                                                                                                                                                                                                                                                                                                            

                         C. Generation \$                                                                                0                                                                                             F. Other \$                                     0                                                                                            C.                                                                                                 980,000                                                       
                                                                                                                                                                                                                                                                                                                                                                    OTHER                                                                                                                                                            
                                                                                                                                                                                                                                                                                                                                                                    \$                                                                                                                                                               

                         **STATUS OF THE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
                         \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ LOAN UNDER                                                                                                                                                                                                                                                                                                                                                                                                                                     
                         WHICH THIS ADVANCE IS REQUESTED**                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

                                                                                                                                   (RUS Loan                                                                                                                                                                                                                                                                                                                                                                                         
                                                                                                                                   Designation)                                                                                                                                                                                                                                                                                                                                                                                      

                         **ITEM**                                                                                                                                                                                                                       **RUS**                                    **FFB**                                                                                              **OTHER**                                                                  **TOTAL**                                         

                         Amount of Loan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

                         Amount Under Concurrent Loan Control                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

                         Advanced To date                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

                         **CERTIFICATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

                         Balance in \"Cash-Construction Trustee\" account (total of column 6) at                                                                                                                                                                                                                                                                                                                                                                                                                                     
                         the close of the period covered by this report is \$84,900 Subject to                                                                                                                                                                                                                                                                                                                                                                                                                                       
                         approval of RUS,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

                         the corporation requests that total of column 7 be advanced under the loan                                                                                                                                                                                                                                                                                                                                                                                                                                  
                         contract. All references herein to \"Loan Contract\" shall include, in                                                                                                                                                                                                                                                                                                                                                                                                                                      
                         addition to the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

                         RUS loan contract, any Federal Financing Bank - RUS loan commitment                                                                                                                                                                                                                                                                                                                                                                                                                                         
                         agreement with related commitment notice and correspondence concerning                                                                                                                                                                                                                                                                                                                                                                                                                                      
                         loan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

                         terms and conditions. I certify that this amount is required for the                                                                                                                                                                                                                                                                                                                                                                                                                                        
                         purposes designated in accordance with provisions of said loan contract                                                                                                                                                                                                                                                                                                                                                                                                                                     
                         and that                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

                         proceeds will be deposited in the \"Cash Construction Fund-Trustee\" of                                                                                                                                                                                                                                                                                                                                                                                                                                     
                         the \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ bank which is a member                                                                                                                                                                                                                                                                                                                                                                                                                                   
                         of the FDIC and will be                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

                         disbursed only as herein specified in accordance with the provisions of                                                                                                                                                                                                                                                                                                                                                                                                                                     
                         said contract. I hereby certify that I have checked the cash balance shown                                                                                                                                                                                                                                                                                                                                                                                                                                  
                         on this                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

                         statement in column 6 with the books and records of the corporation and                                                                                                                                                                                                                                                                                                                                                                                                                                     
                         said balances are true and correct and expenditures reported in column 5                                                                                                                                                                                                                                                                                                                                                                                                                                    
                         were                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

                         used for the purposes and in the amounts authorized by the loan contract                                                                                                                                                                                                                                                                                                                                                                                                                                    
                         and previously approved Financial Requirement and Expenditure Statement.                                                                                                                                                                                                                                                                                                                                                                                                                                    

                         With respect to concurrent loan funds included in this requisition, if                                                                                                                                                                                                                                                                                                                                                                                                                                      
                         any, the total amount of funds advanced to date under this designated                                                                                                                                                                                                                                                                                                                                                                                                                                       
                         concurrent loan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

                         is as shown above and this request is now made to                                                                                                                                                                                                                                                                                                                                                                                                                                                           
                         \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_                                                                                                                                                                                                                                                                                                                                                                                                                                    
                         in accordance with the established procedure for                                                                                                                                                                                                                                                                                                                                                                                                                                                            

                         (Name of Lender)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

                         requisitioning an advancing funds under concurrent loans. All loan                                                                                                                                                                                                                                                                                                                                                                                                                                          
                         contract conditions concerning advance of funds under concurrent loans                                                                                                                                                                                                                                                                                                                                                                                                                                      
                         have been met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

                         **County Electric Cooperative Inc.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

  NAME AND                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
  ADDRESS OF                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
  BORROWER                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

                         **Signature**                                                                                                                                                                                                                  **Title -                                                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                                        Authorized                                                                                                                                                                                                                                                                   
                                                                                                                                                                                                                                                        Corporate                                                                                                                                                                                                                                                                    
                                                                                                                                                                                                                                                        Officer or                                                                                                                                                                                                                                                                   
                                                                                                                                                                                                                                                        Manager**                                                                                                                                                                                                                                                                    

                         RUS Form 595 (Rev. 2-81)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
  -------------- ------- -------------------------------------------------------------------------- -------------- -- -- --------- -------------- -------------- -------------- -- -------------- -- -------------- -- -------------- -------------- -- -------------- --- --- ------ --------- -- -------------- -------------- -------------- -------------- ---- ------- ----- ------------ -- -- -- ----------- ---------- --------- -- ----------- ----------- -- ----------- ----------- ----------- ----------- ------------- --

[Borrower Designation]{.underline}

[Sample Schedule of Reclassified Construction Fund Disbursements
(Electric)]{.underline}

[As of July 31, (Year)]{.underline}

+------+------+-------------------------------+-----+-----+---+----------+
|      | C    |                               | [   |     |   |          |
|      | heck |                               | Bud |     |   |          |
|      |      |                               | get |     |   |          |
|      |      |                               | Pu  |     |   |          |
|      |      |                               | rpo |     |   |          |
|      |      |                               | se] |     |   |          |
|      |      |                               | {.u |     |   |          |
|      |      |                               | nde |     |   |          |
|      |      |                               | rli |     |   |          |
|      |      |                               | ne} |     |   |          |
+------+------+-------------------------------+-----+-----+---+----------+
| [D   | [    | [Payee and Reason for         | [Fr | [   | [ |          |
| ate] | No.] | Reclassification]{.underline} | om] | To] | A |          |
| {.un | {.un |                               | {.u | {.u | m |          |
| derl | derl |                               | nde | nde | o |          |
| ine} | ine} |                               | rli | rli | u |          |
|      |      |                               | ne} | ne} | n |          |
|      |      |                               |     |     | t |          |
|      |      |                               |     |     | ] |          |
|      |      |                               |     |     | { |          |
|      |      |                               |     |     | . |          |
|      |      |                               |     |     | u |          |
|      |      |                               |     |     | n |          |
|      |      |                               |     |     | d |          |
|      |      |                               |     |     | e |          |
|      |      |                               |     |     | r |          |
|      |      |                               |     |     | l |          |
|      |      |                               |     |     | i |          |
|      |      |                               |     |     | n |          |
|      |      |                               |     |     | e |          |
|      |      |                               |     |     | } |          |
+------+------+-------------------------------+-----+-----+---+----------+
| 1/2  | 169  | General Funds - Reimbursement | 1   | 2   | \ |          |
| 5/XX |      | of a portion of Inventory of  |     |     | $ |          |
|      |      | Work Order No. 378 was        |     |     | 3 |          |
|      |      | improperly recorded as a      |     |     | , |          |
|      |      | disbursement under Budget     |     |     | 5 |          |
|      |      | Purpose No. 1 (Reference:     |     |     | 2 |          |
|      |      | Schedule \_\_\_\_\_).         |     |     | 9 |          |
|      |      |                               |     |     | . |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | 0 |          |
+------+------+-------------------------------+-----+-----+---+----------+
| 3/1  | 180  | General Funds - Reimbursement | 1   | 2   | 5 |          |
| 6/XX |      | of a portion of Inventory of  |     |     | , |          |
|      |      | Work Order No. 382 was        |     |     | 5 |          |
|      |      | improperly recorded as a      |     |     | 3 |          |
|      |      | disbursement under Budget     |     |     | 0 |          |
|      |      | Purpose No. 1 (Reference      |     |     | . |          |
|      |      | Schedule \_\_\_\_\_).         |     |     | 0 |          |
|      |      |                               |     |     | 0 |          |
+------+------+-------------------------------+-----+-----+---+----------+
| 5/   | 181  | General Funds - Reimbursement | 2   | 4   | [ |          |
| 2/XX |      | for payment on Contract No.   |     |     | 1 |          |
|      |      | 21 for new headquarters       |     |     | , |          |
|      |      | building was incorrectly      |     |     | 2 |          |
|      |      | recorded as a disbursement    |     |     | 0 |          |
|      |      | under Budget Purpose No. 2    |     |     | 0 |          |
|      |      | (Reference Schedule           |     |     | . |          |
|      |      | \_\_\_\_).                    |     |     | 0 |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | ] |          |
|      |      |                               |     |     | { |          |
|      |      |                               |     |     | . |          |
|      |      |                               |     |     | u |          |
|      |      |                               |     |     | n |          |
|      |      |                               |     |     | d |          |
|      |      |                               |     |     | e |          |
|      |      |                               |     |     | r |          |
|      |      |                               |     |     | l |          |
|      |      |                               |     |     | i |          |
|      |      |                               |     |     | n |          |
|      |      |                               |     |     | e |          |
|      |      |                               |     |     | } |          |
+------+------+-------------------------------+-----+-----+---+----------+
|      |      | > Total                       |     |     | \ |          |
|      |      |                               |     |     | $ |          |
|      |      |                               |     |     | 1 |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | , |          |
|      |      |                               |     |     | 2 |          |
|      |      |                               |     |     | 5 |          |
|      |      |                               |     |     | 9 |          |
|      |      |                               |     |     | . |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | 0 |          |
+------+------+-------------------------------+-----+-----+---+----------+
|      |      |                               | [To |     | [ |          |
|      |      |                               | tal |     | A |          |
|      |      |                               | Bud |     | m |          |
|      |      |                               | get |     | o |          |
|      |      |                               | Pu  |     | u |          |
|      |      |                               | rpo |     | n |          |
|      |      |                               | se] |     | t |          |
|      |      |                               | {.u |     | ] |          |
|      |      |                               | nde |     | { |          |
|      |      |                               | rli |     | . |          |
|      |      |                               | ne} |     | u |          |
|      |      |                               |     |     | n |          |
|      |      |                               |     |     | d |          |
|      |      |                               |     |     | e |          |
|      |      |                               |     |     | r |          |
|      |      |                               |     |     | l |          |
|      |      |                               |     |     | i |          |
|      |      |                               |     |     | n |          |
|      |      |                               |     |     | e |          |
|      |      |                               |     |     | } |          |
+------+------+-------------------------------+-----+-----+---+----------+
|      |      |                               | 1   |     | \ |          |
|      |      |                               |     |     | $ |          |
|      |      |                               |     |     | ( |          |
|      |      |                               |     |     | 9 |          |
|      |      |                               |     |     | , |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | 5 |          |
|      |      |                               |     |     | 9 |          |
|      |      |                               |     |     | . |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | ) |          |
+------+------+-------------------------------+-----+-----+---+----------+
|      |      |                               | 2   |     | 7 |          |
|      |      |                               |     |     | , |          |
|      |      |                               |     |     | 8 |          |
|      |      |                               |     |     | 5 |          |
|      |      |                               |     |     | 9 |          |
|      |      |                               |     |     | . |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | 0 |          |
+------+------+-------------------------------+-----+-----+---+----------+
|      |      |                               | 4   |     | [ |          |
|      |      |                               |     |     | 1 |          |
|      |      |                               |     |     | , |          |
|      |      |                               |     |     | 2 |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | . |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | ] |          |
|      |      |                               |     |     | { |          |
|      |      |                               |     |     | . |          |
|      |      |                               |     |     | u |          |
|      |      |                               |     |     | n |          |
|      |      |                               |     |     | d |          |
|      |      |                               |     |     | e |          |
|      |      |                               |     |     | r |          |
|      |      |                               |     |     | l |          |
|      |      |                               |     |     | i |          |
|      |      |                               |     |     | n |          |
|      |      |                               |     |     | e |          |
|      |      |                               |     |     | } |          |
+------+------+-------------------------------+-----+-----+---+----------+
|      |      |                               | To  |     | \ |          |
|      |      |                               | tal |     | $ |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | . |          |
|      |      |                               |     |     | 0 |          |
|      |      |                               |     |     | 0 |          |
+------+------+-------------------------------+-----+-----+---+----------+

[Borrower Designation]{.underline}

[Sample Schedule of Unapproved Construction Fund Disbursements
(Electric)]{.underline}

[As of July 31, (Year)]{.underline}

  -------------------- ------------------- ------------------------------------ ----------------------- -------------------------
                       Check                                                    Budget                  

  [Date]{.underline}   [No.]{.underline}   [Payee and Reason for                [Purpose]{.underline}   [Amount]{.underline}
                                           Disallowance]{.underline}                                    

  2/28/XX              170                 XYZ Contractors - This amount        2                       \$21,177.00
                                           represents disbursements in excess                           
                                           of the amounts approved for advance                          
                                           and advanced for Contract No. 19X                            
                                           (Reference: Schedule \_\_\_).                                

  12/5/XX\             169\                General Funds - Disbursements in     2                       7,859.00
  3/16/XX              180                 excess of advances due to                                    
                                           reclassification of disbursements                            
                                           (Reference: Schedule \_\_\_\_).                              

  5/25/XX              186                 General Funds - Reimbursements for   1                       2,325.00
                                           expenditures related to Contract No.                         
                                           18X which has been approved for                              
                                           advance but not advanced (Reference:                         
                                           Schedule \_\_\_\_).                                          

  6/22/XX              198                 General Funds - This amount          1                       [1,650.00]{.underline}
                                           represents reimbursements in excess                          
                                           of amounts approved for advance and                          
                                           advanced for Inventory of Work                               
                                           Orders No. 82 (Reference: Schedule                           
                                           \_\_\_\_).                                                   

                                           Total Disallowance                                           \$33,011.00

                                                                                [Summary]{.underline}   

                                                                                1                       \$ 3,975.00

                                                                                2                       [29,036.00]{.underline}

                                                                                Total                   \$33,011.00
  -------------------- ------------------- ------------------------------------ ----------------------- -------------------------

  --------------- -- ----------- -- ------------ -- --------- -- ------- -- -------- -- ------------- -- ---------- ------ ------------- ----------- -------- --
  Borrower                                                                                                                                                    
  Designation                                                                                                                                                 

  Sample Schedule                                                                                                                                             
  of Unapproved                                                                                                                                               
  Advances                                                                                                                                                    

  July 31, (Year)                                                                                                                                             

                                                                                                                                                              

  Advance                                                                                                           Loan                 Financing            

                                    Note            Budget       FR&ES                  Application      Document          Project                            

  Date               Amount         No.             Purpose      No.        Lender      Code             Code              Identity                  Reason   

  1/25/XX            35,000.00      02010           1            135        RUS         307              Inv. W/O          Albion Pt.                A.       
                                                                                                         4-49              (260-280)                          

                                                                                                                                                              

  3/16/XX            15,000.00      N/A             1            136        CFC         402              Ct. 64X           Noble                     B.       
                                                                                                                           substation                         

                                                                                                                                                              

  5/2/XX             20,000.00      02010           1            137        RUS         None             Inv W/O           Nuby                      C.       
                                                                                                         6-X9              Substation                         
                                                                                                                           Points                             

                                                                                                                           (450-358)                          

                     \$             Total Amount                                                                                                              
                     70,000.00      of                                                                                                                        
                                    Unapproved                                                                                                                
                                    Advances                                                                                                                  

                     15,000.00      Less: CFC                                                                                                                 
                                    Funds                                                                                                                     
                                    Disallowed                                                                                                                

                     \$             Unapproved                                                                                                                
                     55,000.00      Advances,                                                                                                                 
                                    RUS Funds,                                                                                                                
                                    Subject to                                                                                                                
                                    Interest                                                                                                                  
                                    penalty                                                                                                                   

                                                                                                                                                              

  A. The code on                                                                                                                                              
  the RUS Form                                                                                                                                                
  219 does not                                                                                                                                                
  agree with the                                                                                                                                              
  loan                                                                                                                                                        
  application                                                                                                                                                 
  code on the RUS                                                                                                                                             
  Form 740c and                                                                                                                                               
  the two-year                                                                                                                                                
  Work Plan. This                                                                                                                                             
  project was not                                                                                                                                             

  included in the                                                                                                                                             
  Work Plan and                                                                                                                                               
  no amendment                                                                                                                                                
  authorizing the                                                                                                                                             
  project could                                                                                                                                               
  be located.                                                                                                                                                 

                                                                                                                                                              

  B. The project                                                                                                                                              
  submitted to                                                                                                                                                
  RUS for                                                                                                                                                     
  approval and                                                                                                                                                
  advance                                                                                                                                                     
  exceeded 130%                                                                                                                                               
  of the                                                                                                                                                      
  estimated cost                                                                                                                                              
  approved on the                                                                                                                                             
  RUS Form 740c                                                                                                                                               
  and no                                                                                                                                                      
  amendment was                                                                                                                                               

  executed. The                                                                                                                                               
  \$15,000                                                                                                                                                    
  represents the                                                                                                                                              
  amount advanced                                                                                                                                             
  in excess of                                                                                                                                                
  130% of the                                                                                                                                                 
  740c amount.                                                                                                                                                

                                                                                                                                                              

  C. The project                                                                                                                                              
  was submitted                                                                                                                                               
  and approved by                                                                                                                                             
  RUS as Minor                                                                                                                                                
  Construction.                                                                                                                                               
  The project was                                                                                                                                             
  also included                                                                                                                                               
  as a site                                                                                                                                                   
  specific                                                                                                                                                    
  project on the                                                                                                                                              
  RUS Form 740c,                                                                                                                                              
  --------------- -- ----------- -- ------------ -- --------- -- ------- -- -------- -- ------------- -- ---------- ------ ------------- ----------- -------- --

  ----------------- --------------- -------------- --------------- ------------------------ -- --------------- ----------- --------------- -- --------------- -- ---------- --------------- ---------- -- ------------
                                    **USDA - RUS**                                             **BORROWER                                                        **LFAR                                   
                                                                                               DESIGNATION**                                                     \"AS OF\"                                
                                                                                                                                                                 (Date)**                                 

                    **EXPENDITURE                                                                                          **Borrower                                                       **July 31,    
                    ADJUSTMENT                                                                                             Designation**                                                    (Year)**      
                    REPORT**                                                                                                                                                                              

                                    (Electric)                                                                                                                                                            

                                                                   TOTAL EXPENDITURES -                                                                                                                   
                                                                   ADJUSTED                                                                                                                               

  PRIMARY           TOTAL ADVANCE   TOTAL                          UNAPPROVED                                                                                                                             
                                                                   DISBURSEMENTS/ADVANCES                                                                                                                 

  BUDGET            PER FORM 595    EXPENDITURES   RECLASSIFIED    DUE FROM GENERAL FUNDS                                                                                                                 

  PURPOSE           No. **138**     PER FORM 595   EXPENDITURES    DISBURSEMENTS                               ADVANCES                       TOTAL UNAPR\'D                APPROVED                      CASH

                                                   (Sch. Attached) (Sch. Attached)                             (Sch.                          DISB/ADVANCES                 DISBURSEMENTS                 BALANCE
                                                                                                               Attached)                                                                                  

  a\.               b\.             c\.            d\.             e\.                                         f\.                            g\.                           h\.                           i\.

  1\. Distribution  1,965,529.00    1,960,629.00   (9,059.00)      3,975.00                                    70,000.00                      73,975.00                     1,877,595.00                  13,959.00

  2\. Transmission  558,757.00      558,757.00     7,859.00        29,036.00                                                                  29,036.00                     537,580.00                    (7,859.00)

  3\. Generation                                                                                                                                                                                          

  4\. Headquarters                                                                                                                                                                                        

  Facilities        200,000.00      120,000.00     1,200.00                                                                                                                 121,200.00                    78,800.00

  5\. Acquisitions                                                                                                                                                                                        

  6\. All Other     66,750.00       66,750.00                                                                                                                               66,750.00                     0.00

  7\. Closed                                                                                                                                                                                              

  Budget            2,205,655.00    2,205,655.00                                                                                                                            2,205,654.00                  0.00

  8\. Net Totals    4,996,691.00    4,911,791.00   0.00            33,011.00                                   70,000.00                      103,011.00                    4,808,779.00                  84,900.00

  COMMENTS The                                                                                                                                                                                            
  following amounts                                                                                                                                                                                       
  may be                                                                                                                                                                                                  
  transferred to                                                                                                                                                                                          
  Closed Budget\                                                                                                                                                                                          
  Budget Purpose                                                                                                                                                                                          
  1 -                                                                                                                                                                                                     
  \$1,750,000.00\                                                                                                                                                                                         
  Budget Purpose                                                                                                                                                                                          
  2 - \$                                                                                                                                                                                                  
  537,580.00\                                                                                                                                                                                             
  Budget Purpose                                                                                                                                                                                          
  6 - \$ 66,750.00                                                                                                                                                                                        

                                                   **STATEMENT OF                                                                                                                                         
                                                   EXAMINATION**                                                                                                                                          

  The results of                                                                                                                                                                                          
  our examination                                                                                                                                                                                         
  of Construction                                                                                                                                                                                         
  Fund transactions                                                                                                                                                                                       
  of the County                                                                                                                                                                                           
  Electric                                                                                                                                                                                                
  Cooperative,                                                                                                                                                                                            
  Inc., are set                                                                                                                                                                                           
  forth above.                                                                                                                                                                                            
  Expenditures                                                                                                                                                                                            
  reported in\                                                                                                                                                                                            
  column g. are to                                                                                                                                                                                        
  be reimbursed to                                                                                                                                                                                        
  the Construction                                                                                                                                                                                        
  Fund from general                                                                                                                                                                                       
  funds.                                                                                                                                                                                                  
  Disbursements                                                                                                                                                                                           
  reported in h.                                                                                                                                                                                          
  have been                                                                                                                                                                                               
  approved;                                                                                                                                                                                               
  however, amounts                                                                                                                                                                                        
  related to                                                                                                                                                                                              
  incomplete                                                                                                                                                                                              
  projects may be                                                                                                                                                                                         
  subject to future                                                                                                                                                                                       
  adjustment.                                                                                                                                                                                             

                                                                                                                                                                                                          

                    **DATE**                                       **RUS ACCOUNTANT**                                                                                                                     

  RUS FORM 595a                                                                                                                                                                                           
  ----------------- --------------- -------------- --------------- ------------------------ -- --------------- ----------- --------------- -- --------------- -- ---------- --------------- ---------- -- ------------

[Borrower Designation]{.underline}

[Sample Status of Construction Fund]{.underline}

[Receipts and Disbursements (Electric)]{.underline}

  --------------- ------- -------------------------------- ------------------------- --------------------------
  RUS Loans                                                                          \$4,217,905.00

  NRUCFC Loans                                                                       [980,000.00]{.underline}

  Total Loans to                                                                     5,197,905.00
  Date (all under                                                                    
  note)                                                                              

                  Less:   Unadvanced Funds:                                          

                          Funds not released               \$100.000.00              

                          Unallocated Funds (Reserve)      51,411.00                 

                          Approved but not Advanced        804.00                    

                          CTC Purchases                    [49,000.00]{.underline}   [201,215.00]{.underline}

  Total Advances                                                                     4,996,690.00
  as of July 31,                                                                     
  (Year)                                                                             

                  Less:   Cash Balance                                               [84,900.00]{.underline}

  Net                                                                                4,911,790.00
  Disbursements                                                                      

                  Less:   Unapproved Advances              \$70,000.00               

                  Less:   Unapproved Disbursements         [33,011.00]{.underline}   [103,011.00]{.underline}

  Net                                                                                \$4,808,779.00
  Disbursements                                                                      
  Approved                                                                           
  through July                                                                       
  31, (Year)                                                                         
  --------------- ------- -------------------------------- ------------------------- --------------------------

[Borrower Designation]{.underline}

[Sample Schedule of Budget Purpose Adjustments Required
(Electric)]{.underline}

[As of July 31, (Year)]{.underline}

  ----------------------- -------------------------------------------- --------------------------- -------------------------
                                                                                                   [Approved]{.underline}

  Budget                                                               [Approved]{.underline}      [No Funds]{.underline}

  [Purpose]{.underline}   [Description of Adjustments]{.underline}     [for Advance]{.underline}   [Available]{.underline}

  1                       Contributions-in-aid of construction from                                \$10,525.00
                          customers (\$3,000.00) and reimbursements                                
                          from the highway department for line                                     
                          relocations (\$7,525.00) were not properly                               
                          deducted on Inventories of Work Orders                                   
                          \_\_\_ through \_\_\_\_ for which funds have                             
                          been approved no funds available.                                        

  2                       Interest during construction was not         4,850.00                    
                          deducted on Inventory of Work Orders No.                                 
                          363. These amounts have been approved for                                
                          advance, but not advanced.                                               

  1                       Project not included in the Work Plan, and   35,000.00                   
                          there was not amendment authorizing the                                  
                          project.                                                                 

  1                       Project cost approved and advanced by RUS    15,000.00                   
                          exceeds\                                                                 
                          130 percent of the estimated cost of RUS                                 
                          Form 740c, and\                                                          
                          there was no amendment executed.                                         

  1                       Project approved as minor construction but   [20,000.00]{.underline}     [2,285.00]{.underline}
                          was included in the Work Plan and in the RUS                             
                          Form 740c. Total amount of the projects was                              
                          \$22,875. The approval of the project                                    
                          eliminated the balance in reserve with the                               
                          remainder approved no funds available                                    

                          Total                                        \$74,850.00                 \$12,810.00

                          [Summary]{.underline}                                                    

                          Budget Purpose 1                             \$70,000.00                 \$12,810.00

                          Budget Purpose 2                             [   4,850.00]{.underline}   [-0.00]{.underline}

                          Total                                        \$74,850.00                 \$12,810.00
  ----------------------- -------------------------------------------- --------------------------- -------------------------

[SAMPLE ELECTRIC LFAR LETTER REPORT]{.underline}

[DISALLOWANCES MADE]{.underline}

August 29, (Year)

Mr./Ms.

President

Dear Mr./Ms. :

On August 25, (Year), we completed our loan fund and accounting review
of the cooperative for the period July 1, (Year), through July 31,
(Year). Construction fund receipts of \$XXX,XXX and disbursements of
\$XXX,XXX were reviewed for this period. The scope of our review
covered:

1.  The accounting for the RUS Construction Fund;

2.  The extent of internal accounting control over plant activities;

3.  The related accounting records and procedures;

4.  The determination of compliance with the required uniform system of
    accounts for plant accounting and other related financial records;
    and

5.  The determination that advances of loan funds were for projects
    included in an RUS-approved construction work plan, as amended, and
    were made in approved amounts.

Our review of the cooperative\'s loan fund transactions indicated that
all RUS Construction Fund receipts were properly accounted for and all
RUS Construction Fund disbursements were for proper loan program
purposes except for \$33,011 of unapproved disbursements. Our review
also disclosed that \$55,000 of insured loan fund advances and \$15,000
of National Rural Utilities Cooperative Finance Corporation (NRUCFC)
advances were improperly received by the cooperative. We provided an
analysis of these unapproved advances and disbursements to Mr. R. W.
Jennings, General Manager, and discussed the items in detail with him
and the staff. A check should be drawn on the General Fund account for
\$103,011 to reimburse the RUS Construction Fund for the expenditures
that cannot be approved for loan program purposes and for the unapproved
advances.

In addition, costs incurred by the Rural Electric and Telecommunications
Revolving Fund (RETRF), as a result of the \$55,000 of improper
advances, will be billed to the cooperative after the unapproved
advances have been deposited in the Construction Fund account and the
Electric and Telephone Financial Operations Division has been notified,
in writing, of the date the funds were deposited.

A summary of RUS Construction Fund receipts and disbursements through
July 31, (Year), is enclosed. The Expenditure Adjustment Report and
accompanying schedules were given to and discussed with the general
manager.

We have discussed the need for improvements in internal accounting
control, records, and procedures, including the need for certain
required adjustments to RUS loan fund budget records with the general
manager; the Office Manager, Ms. Joan K. Thomas; and other employees of
the cooperative. These include:

> \<The RUS Accountant will insert the appropriate recommendations in
> this section of the review letter. The recommendations should include
> the specific finding together with the RUS Accountant\'s
> recommendation for corrective action.\>

We suggest that this review and the information disclosed be brought to
the attention of the board of directors at its next meeting. The
Assistant Administrator, Program Accounting and Regulatory Analysis,
Rural Utilities Service, Stop 1530, 1400 Independence Ave. SW,
Washington, DC 20250‑1530, should be notified within 60 days of the date
of this letter of actions taken to eliminate the unapproved
disbursements, and to implement the LFAR recommendations included in the
letter report. Timely action on these recommendations is an integral
part of RUS' evaluation of borrowers\' accounting systems and has a
direct bearing on the effectiveness of RUS reviews.

We appreciate the cooperation and assistance provided by the
cooperative\'s general manager and his staff during our review.

Sincerely,

RUS Accountant

Enclosures

cc:

Mr. R. W. Jennings, General Manager

NRUCFC (or other supplemental lenders)

[SAMPLE ELECTRIC LFAR LETTER REPORT]{.underline}

[IMMATERIAL AMOUNTS NOT DISALLOWED]{.underline}

August 29, (Year)

Mr./Ms.

President

Dear Mr./Ms. :

On August 25, (Year), we completed our loan fund and accounting review
of the cooperative for the period July 1, (Year), through July 31,
(Year). Construction Fund receipts of \$XXX,XXX and disbursements of
\$XXX,XXX were reviewed for this period. The scope of our review
covered:

1.  The accounting for the RUS Construction Fund;

2.  The extent of internal accounting control over plant activities;

3.  The related accounting records and procedures;

4.  The determination of compliance with the required uniform system of
    accounts for plant accounting and other related financial records;
    and

5.  The determination that advances of loan funds were for projects
    included in an RUS-approved construction work plan, as amended, and
    were made in approved amounts.

Our review of the cooperative\'s loan fund transactions indicated that
all RUS Construction Fund receipts were properly accounted for and all
RUS Construction Fund disbursements were for proper loan program
purposes.

A summary of RUS Construction Fund receipts and disbursements through
July 31, (Year), is enclosed. The Expenditure Adjustment Report and
accompanying schedules were given to and discussed with the general
manager.

We have discussed the need for improvements in internal accounting
control, records, and procedures, including the need for certain
required adjustments to RUS loan fund budget records, with the general
manager; the Office Manager, Ms. Joan K. Thomas; and other employees of
the cooperative. These include:

> \<The RUS Accountant will insert the appropriate recommendations in
> this section of the review letter. The recommendations should include
> the specific finding together with the RUS Accountant\'s
> recommendation for corrective action.\>

We suggest that this review and the information disclosed be brought to
the attention of the board of directors at its next meeting. The
Assistant Administrator, Program Accounting and Regulatory Analysis,
Rural Utilities Service, Stop 1530, 1400 Independence Ave, SW,
Washington, DC 20250‑1530, should be notified within 60 days of the date
of this letter of actions taken implement the LFAR recommendations
included in the letter report. Timely action on these recommendations is
an integral part of RUS' evaluation of borrowers\' accounting systems
and has a direct bearing on the effectiveness of RUS reviews.

We appreciate the cooperation and assistance provided by the
cooperative\'s general manager and his staff during our review.

Sincerely,

RUS Accountant

Enclosures

cc:

Mr. R. W. Jennings, General Manager

NRUCFC (or other supplemental lenders)

  ------------------------------------------------------------------------------------ ----------- ---------------- ------------------- ------------ -------------- -------------- ----------------------- ---------- ---------- ----------- ------------
  USDA-RUS                                                                                                                                                          FORM APPROVED                                                            
                                                                                                                                                                    OMB NO.                                                                  
                                                                                                                                                                    0572-0023                                                                

  **FINANCIAL REQUIREMENT STATEMENT**                                                                                                                               BORROWER                                                     STATEMENT   DATE
                                                                                                                                                                    DESIGNATION:                                                 NO.         PREPARED

  **(RUS;RTB;FFB)**                                                                                                                                                 Borrower                                                     21          July 16,
                                                                                                                                                                    Designation                                                              (Year)

  INST.-Submit original & 2 copies to RUS. See RUS Bul. 327-1.                                                                                                      BORROWER NAME                                                            
                                                                                                                                                                    AND ADDRESS                                                              

  **RUS USE ONLY**                                                                                                                                                                                                                           

  Date Received                                                                                    RUS Number                                                                                                                                

                                                                                                                                                                                                                                             

                                                                                                   Amount                                                                                                                                    
                                                                                                   Encumbered                                                                                                                                

  Approved Purposes                                                                                                                                  **RUS USE                                                                               
                                                                                                                                                     ONLY**                                                                                  

  (Use Supplemental Sheets                                                                                                                           Withheld on    Total Approved                         Total                 Advances    
                                                                                                                                                                                                           Advances              Now         

  as necessary)                                                                                                                                      Contracts      For Advance                            To Date               Requested   

                                                                                                                                                                                                                      Approved               as of
                                                                                                                                                                                                                                             6/31/XX

                                                                                                   \(1\)            \(2\)                            \(3\)                         \(4\)                              \(5\)                  \(6\)

  1.Construction                                                                                                                                                                                                                             

  a\. Line Extension Ct.                                                                                                                234,500                     234,500                                                                  

  b\. CT. #23, COE                                                                                                  3,450               38,000                      35,744                                                                   

  c\.                                                                                                                                                                                                                                        

  d\. FAP #5, O.P.                                                                                                                      355,125                     325,476                                                                  

  e\. O.P. CT. #4 (F)                                                                                                                   285,015                     285,015                                                                  

  f\. Mat. Furn. O.P. Ct. #4 (F)                                                                                                        310,115                     310,115                                                                  

  g\.                                                                                                                                                                                                                                        

  2\. Engineering a. Pre-Loan                                                                                                           2,150                       2,150                                                                    

  b\. Post Loan CT. #21E                                                                                                                120,375                     120,375                                                                  

  c\.                                                                                                                                                                                                                                        

  3\. Operating Equip. a.                                                                                                                                                                                                                    

  b\.                                                                                                                                                                                                                                        

  4\. General a.                                                                                                                                                                                                                             

  b\.                                                                                                                                                                                                                                        

  c\. RTB Stock                                                                                                     92,050                           92,050                                                                                  92,050

  5\. Operating Funds                                                                                                                                                                                                                        

  6\. Debt Retirement                                                                                                                                                                                                                        

  7\. Acquisitions a.                                                                                                                                                                                                                        

  b\.                                                                                                                                                                                                                                        

  8a. Closed Budget-Unaudited                                                                                                                                                                                                                

  b\. Closed Budget-Audited                                                                                                             487,005                     487,005                                                                  

  9\. Subtotals-All Funds                                                                                           3,450               2,834,785                   2,786,105                              0                     0           

  10\. Sale of Property                                                                                                                 (10,500)                    (10,500)                                                                 

  11\. Other-a. Req\'d. Non-Loan                                                                                                        (135,000)                   (135,000)                                                                

  b\. Interest from CDs                                                                                                                 (9,250)                     (9,250)                                                                  

  c\.                                                                                                                                                                                                                                        

  12\. Net Totals-Loan Funds                                                                                        0                   2,680,035                   2,631,355                              0                     0           

                                                                                                                    Previously                       Advanced                      17.Cash Balance Per                                       60,448
                                                                                                                                                                                   Gen.Ledger                                                

                                                                                       Total Loan  Under Note       Advanced                         This FRS                      18.Adv. not Deposited,                                    
                                                                                                                                                                                   FRS# [21]{.underline}                                     

  RUS Loan..                                                                           1,100,000   1,100,000        790,335                                                        19.Other Adjustments                                      
                                                                                                                                                                                   (specify)                                                 

  RTB Loan..                                                                           1,933,050   1,933,050        1,841,000                                                                                                                

  FFB Loan..                                                                                                                                                                       20.Total                                                  
                                                                                                                                                                                   item12,Col.6+17,18&19                                     

  Total..                                                                              3,033,050   3,033,050        2,631,335                                                      21.Funds not released                                     

                                                                                                   **UNENCUMBERED                                                                                                                            
                                                                                                   RESERVES (This                                                                                                                            
                                                                                                   Space for RUS                                                                                                                             
                                                                                                   Use Only)**                                                                                                                               

  Central Office Equipment                                                                                                                                                                                                                   

  Outside Plant & Station Equipment                                                                                                     149,565.00                  Special                                                                  
                                                                                                                                                                    Projects                                                                 

  Land and Buildings                                                                                                                                 Funds Not                                                                               
                                                                                                                                                     Deposited (CR)                                                                          

  Engineering                                                                                                                                        Total                                                                                   249,565.00
                                                                                                                                                     Unencumbered                                                                            
                                                                                                                                                     Reserves                                                                                

                                                                                                                    **CERTIFICATION**                                                                                                        

  On behalf of the designated borrower, I request that the amount set fourth as                                                                                                                                                              
  \"Advances Now Requested\" (item 12, Col. 4 above) be advanced                                                                                                                                                                             

  under the loan contract. \"Loan contract\" includes in addition to the RUS and RTB                                                                                                                                                         
  loan contracts, the Federal Financing Bank - RUS Loan                                                                                                                                                                                      

  Commitment Agreement, and the related Commitment Notice and correspondence                                                                                                                                                                 
  concerning loan terms and conditions. I certify that the amount                                                                                                                                                                            

  so requested is for a purpose or purposes which funds have either been approved for                                                                                                                                                        
  advance or for which approval is requested herewith; that the                                                                                                                                                                              

  amount advanced will be deposited in the Trustee, RUS Construction Fund account of                                                                                                                                                         
  the Corporation in the \_\_\_\_\_\_\_\_[First                                                                                                                                                                                              
  National]{.underline}\_\_\_\_\_\_\_\_\_\_\_\_                                                                                                                                                                                              

  \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_                                                                                                                                                         
  bank, which is a member of the FDIC; that loan and other funds required to be                                                                                                                                                              
  deposited in such                                                                                                                                                                                                                          

  bank account will be disbursed only for the purposes and not to exceed the amounts                                                                                                                                                         
  approved for each purpose in Column (2) \"Total Approved For                                                                                                                                                                               

  Advance\" of the Financial Requirement Statements; that the cash balance shown                                                                                                                                                             
  hereon is the balance of the Construction Fund - Trustee account                                                                                                                                                                           

  of the General Ledger as of AUGUST 31, 1993; and that the disbursements reported in                                                                                                                                                        
  column (6) were made in the amounts stated for                                                                                                                                                                                             

  each purpose; all in accordance with the provisions of the loan contract                                                                                                                                                                   

  SIGNATURE (ORIGINAL MUST APPEAR ON EACH PAGE)                                                                                                                     TITLE                                                                    
                                                                                                                                                                    (Authorized                                                              
                                                                                                                                                                    Corporate                                                                
                                                                                                                                                                    Officer or                                                               
                                                                                                                                                                    Manager)                                                                 

                                                                                                                                                     General                                                                                 
                                                                                                                                                     Manager                                                                                 

  RUS FORM 481 (Rev.6-83)                                                                                                               Copy 1 -                                                                                             
                                                                                                                                        SEND THIS                                                                                            
                                                                                                                                        COPY TO RUS                                                                                          
  ------------------------------------------------------------------------------------ ----------- ---------------- ------------------- ------------ -------------- -------------- ----------------------- ---------- ---------- ----------- ------------

  ------------------- --------- ------------ -------- ----------- -------------- ---------- ---------- ----------- -----------
  USDA-RUS                                                        FORM APPROVED                                    
                                                                  OMB NO.                                          
                                                                  0572-0023                                        

  **FINANCIAL                                                     BORROWER                             STATEMENT   DATE
  REQUIREMENT                                                     DESIGNATION:                         NO.         PREPARED
  STATEMENT**                                                                                                      

  **(RUS;RTB;FFB)**                                               Borrower                             21          July 16,
                                                                  Designation                                      (Year)

  INST.-Submit                                                    BORROWER NAME                                    
  original & 2 copies                                             AND ADDRESS                                      
  to RUS. See RUS                                                                                                  
  Bul. 327-1.                                                                                                      

  **RUS USE ONLY**                                                                                                 

  Date Received                 RUS Number                                                                         

                                                                                                                   

                                Amount                                                                             
                                Encumbered                                                                         

  Approved Purposes                                   **RUS USE                                                    **RUS USE
                                                      ONLY**                                                       ONLY**

  (Use Supplemental                                   Withheld on Total Approved Total                 Advances    Advances
  Sheets                                                                         Advances              Now         

  as necessary)                                       Contracts   For Advance    To Date               Requested   Currently

                                                                                            Approved               as of
                                                                                                                   07/31/96

                                \(1\)        \(2\)    \(3\)                      \(4\)      \(5\)                  \(6\)

  1.Construction                                                                                                   

  a\.                                                                                                              

  b\.                                                                                                              

  c\.                                                                                                              

  d..                                                                                                              

  e\.                                                                                                              

  f\.                                                                                                              

  g\.                                                                                                              

  h\. Work Order Fund                                 200,000     200,000                                          

  i\. Right of Way                                    10,000      10,000                                           

  j\. Sales Tax                                       2,000       2,000                                            

  k\.                                                                                                              

  l\.                                                                                                              

  m\. Approved Work                                   664,000     650,000                                          
  Orders                                                                                                           

  n\.                                                                                                              

  o\. Ct. #31 Toll                                    34,450      31,675                                           
  Carrier                                                                                                          

  p\.                                                                                                              

  q                                                                                                                

  r\.                                                                                                              

  s\.                                                                                                              

  t\.                                                                                                              

  u\.                                                                                                              

  v\.                                                                                                              

  w\.                                                                                                              

  x\.                                                                                                              

  y\.                                                                                                              

  z\.                                                                                                              

                                                                                                                   

                                                                                                                   

                                                                                                                   

                                                                                                                   

                                                                                                                   

                                                                                                                   

  2\. Engineering                                                                                                  

  a\.                                                                                                              

  b\.                                                                                                              

  c\.                                                                                                              

  d\.                                                                                                              

  e\.                                                                                                              

  f\.                                                                                                              

  g\.                                                                                                              

  h\.                                                                                                              

  i                                                                                                                

  j\.                                                                                                              

  k\.                                                                                                              

  l\.                                                                                                              

  m\.                                                                                                              
  ------------------- --------- ------------ -------- ----------- -------------- ---------- ---------- ----------- -----------

[Borrower Designation]{.underline}

[Sample Schedule of Reclassified Construction Fund Disbursements
(Telecommunications)]{.underline}

[As of June 30, (Year)]{.underline}

  -------------------- ------------------- -------------------------------- ---------------------- ------------------ -------------------------- -----------
                       Check                                                [Budget                                                              
                                                                            Purpose]{.underline}                                                 

  [Date]{.underline}   [No.]{.underline}   [Payee and Reason for            [From]{.underline}     [To]{.underline}   [Amount]{.underline}       
                                           Reclassification]{.underline}                                                                         

  11/21/XX             169                 [Dial Telephone Company: General 1.m.                   1.i.               \$ 500.00                  
                                           Funds]{.underline} Reimbursement                                                                      
                                           for right of way cost improperly                                                                      
                                           classified as Approved Work                                                                           
                                           Orders (Reference: Schedule                                                                           
                                           \_\_\_\_).                                                                                            

  11/23/XX             147                 [Telecommunications Supply       1.f.                   1.d.               1,988.00                   
                                           Company]{.underline}:                                                                                 
                                           Disbursement for various items                                                                        
                                           of material actually used on                                                                          
                                           Force Account Proposal No. 5                                                                          
                                           (Reference: Schedule \_\_\_\_\_)                                                                      

  1/25/XX              152                 [Dial Telephone Company -        1.d.                   1.j.               1,046.88                   
                                           General Funds]{.underline} Sales                                                                      
                                           tax is provided by separate                                                                           
                                           budget item for which                                                                                 
                                           disbursements should also be                                                                          
                                           shown (Reference Schedule                                                                             
                                           \_\_\_\_).                                                                                            

  3/30/XX              160                 [ABC Contractor]{.underline}:    1.m.                   1.e.               17,560.30                  
                                           Disbursements related to O.P.                                                                         
                                           Ct. #4 were improperly recorded                                                                       
                                           as disbursements related to                                                                           
                                           Summary of Work Order No. 275                                                                         
                                           (Reference Schedule \_\_\_\_).                                                                        

  5/11/XX              169                 [Jones Engineering               2.b.                   2.a.               [1,250.00]{.underline}     
                                           Company]{.underline}:                                                                                 
                                           Disbursements for Pre-Loan                                                                            
                                           engineering improperly                                                                                
                                           classified to Post Loan Ct. #21E                                                                      
                                           (Reference Schedule \_\_\_\_).                                                                        

                                                                                                                      \$ 22,345.18               

                                           [Summary]{.underline}                                   1.d.               \$ 941.12                  

                                                                                                   1.e.               17,560.00                  

                                                                                                   1.f.               (1,988.00)                 

                                                                                                   1.I.               500.00                     

                                                                                                   1.j.               1,046.88                   

                                                                                                   1.m.               (18,060.30)                

                                                                                                   2.a.               1,250.00                   

                                                                                                   2.b.               [(1,250.00)]{.underline}   

                                           Total                                                                      \$ 0.00                    
  -------------------- ------------------- -------------------------------- ---------------------- ------------------ -------------------------- -----------

[Borrower Designation]{.underline}

[Sample Schedule of Unapproved Construction Fund Disbursements
(Telecommunications)]{.underline}

[As of June 30, (Year)]{.underline}

+------+------+-------------------------------------+------+----------+
|      | C    |                                     | Bu   |          |
|      | heck |                                     | dget |          |
+------+------+-------------------------------------+------+----------+
| [D   | [    | [Payee and Reason for               | [    | [Amo     |
| ate] | No.] | Disallowance]{.underline}           | Purp | unt]{.un |
| {.un | {.un |                                     | ose] | derline} |
| derl | derl |                                     | {.un |          |
| ine} | ine} |                                     | derl |          |
|      |      |                                     | ine} |          |
+------+------+-------------------------------------+------+----------+
| 3/1  | 107  | [Dial Telephone Company: General    | 1.d. | \$3      |
| 5/XX |      | Funds]{.underline} This amount      |      | 5,633.19 |
|      |      | represents duplicate reimbursements |      |          |
|      |      | of costs relating to Force Account  |      |          |
|      |      | Proposal #5 (Reference: Schedule    |      |          |
|      |      | \_\_\_).                            |      |          |
+------+------+-------------------------------------+------+----------+
| 4/2  | 125  | [Dial Telephone Company: General    | 1.m. | 5        |
| 5/XX |      | Funds]{.underline} This amount      |      | 0,533.85 |
|      |      | represents the cost of foreign made |      |          |
|      |      | equipment included on Work Orders   |      |          |
|      |      | \_\_\_ on Summary No. \_\_\_        |      |          |
|      |      | (Reference Schedule \_\_\_\_).      |      |          |
+------+------+-------------------------------------+------+----------+
| Var  | Var  | [Dial Telephone Company: General    | 1.m. | 10       |
| ious | ious | Funds]{.underline} This amount      |      | 3,318.84 |
|      |      | represents refurbished equipment    |      |          |
|      |      | and associated costs not subject to |      |          |
|      |      | financing (Reference Schedule       |      |          |
|      |      | \_\_\_).\                           |      |          |
|      |      | \                                   |      |          |
|      |      | [Summary of Work                    |      |          |
|      |      | Orders]{.underline} [Amount\        |      |          |
|      |      | ]{.underline} 721 \$ 48,110.17\     |      |          |
|      |      | 742 28,800.85\                      |      |          |
|      |      | 744 [26,407.82]{.underline}\        |      |          |
|      |      | Total \$103,318.84                  |      |          |
+------+------+-------------------------------------+------+----------+
| Var  | Var  | [Dial Telephone Company: General    | 1.h. | 3        |
| ious | ious | Funds]{.underline} This amount      |      | 1,816.73 |
|      |      | represents reimbursements in excess |      |          |
|      |      | of the amounts approved for advance |      |          |
|      |      | for the Work Order Fund (Reference  |      |          |
|      |      | Schedule \_\_\_).                   |      |          |
+------+------+-------------------------------------+------+----------+
| 6/02 | 157\ | [Dial Telephone Company: General    | 1.a. | [57,541  |
| /XX\ | &\   | Funds]{.underline} This amounts     |      | .78]{.un |
| &\   | 169  | represents reimbursement of         |      | derline} |
| 6/1  |      | engineering and overhead costs      |      |          |
| 8/XX |      | associated with Line Extension Ct.  |      |          |
|      |      | #B22 that has not been approved for |      |          |
|      |      | advance by RUS (Reference Schedule  |      |          |
|      |      | \_\_\_).                            |      |          |
+------+------+-------------------------------------+------+----------+
|      |      | Total Unapproved Disbursements      |      | \$27     |
|      |      |                                     |      | 8,844.39 |
+------+------+-------------------------------------+------+----------+
|      |      | [Summary]{.underline}               | 1    | \$       |
|      |      |                                     | .a.\ | 57       |
|      |      |                                     | 1    | ,541.78\ |
|      |      |                                     | .d.\ | 35       |
|      |      |                                     | 1    | ,633.19\ |
|      |      |                                     | .h.\ | 31       |
|      |      |                                     | 1    | ,816.73\ |
|      |      |                                     | .m.\ | [153,852 |
|      |      |                                     | T    | .69]{.un |
|      |      |                                     | otal | derline} |
|      |      |                                     |      |          |
|      |      |                                     |      | \$27     |
|      |      |                                     |      | 8,844.39 |
+------+------+-------------------------------------+------+----------+

<table>
<colgroup>
<col style="width: 22%" />
<col style="width: 12%" />
<col style="width: 12%" />
<col style="width: 1%" />
<col style="width: 0%" />
<col style="width: 10%" />
<col style="width: 0%" />
<col style="width: 12%" />
<col style="width: 0%" />
<col style="width: 2%" />
<col style="width: 0%" />
<col style="width: 3%" />
<col style="width: 0%" />
<col style="width: 8%" />
<col style="width: 0%" />
<col style="width: 0%" />
<col style="width: 12%" />
<col style="width: 0%" />
<col style="width: 0%" />
<col style="width: 0%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="4"><h1 id="usda---rus">USDA - RUS</h1></td>
<td colspan="8"><h2 id="borrower-designation">BORROWER
DESIGNATION</h2></td>
<td colspan="6"><strong>LFAR "AS OF" (Date)</strong></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="4"><strong>EXPENDITURE ADJUSTMENT REPORT</strong></td>
<td colspan="8"></td>
<td colspan="6"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="5">(Telecommunications Program)</td>
<td colspan="8"><strong>Borrower Designation</strong></td>
<td colspan="5"><strong>June 30, (Year)</strong></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="17"><strong>INSTRUCTIONS</strong>: Submit original and one
copy to RUS with audit work papers and one copy to Borrower. See RUS
Staff Instruction 1700-6.</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td></td>
<td>AMOUNT APPROVED</td>
<td></td>
<td colspan="4"></td>
<td colspan="7">TOTAL DISBURSEMENTS - ADJUSTED</td>
<td colspan="4">UNDISBURSED</td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>APPROVED PURPOSES</td>
<td>FOR ADVANCE</td>
<td>TOTAL</td>
<td colspan="4">RECLASSIFIED</td>
<td></td>
<td colspan="3">TO</td>
<td colspan="4"></td>
<td colspan="3">BALANCE</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td></td>
<td>PER STATEMENT</td>
<td>DISBURSEMENTS</td>
<td colspan="4">DISBURSEMENTS</td>
<td>UNAPPROVED</td>
<td colspan="3">CB</td>
<td colspan="4">APPROVED</td>
<td colspan="3">(col. b - (e + f)</td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td>No. 21</td>
<td>(Borrowers Records)</td>
<td colspan="4">(Schedule Attached)</td>
<td>(Schedule Attached)</td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>a.</td>
<td>b.</td>
<td>c.</td>
<td colspan="4">d.</td>
<td>e.</td>
<td colspan="3"></td>
<td colspan="4">f.</td>
<td colspan="3">g.</td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>1. CONSTRUCTION</strong></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>a</strong>. Line Extension Contracts</p>
</blockquote></td>
<td>234,500.00</td>
<td>232,900.00</td>
<td colspan="4"></td>
<td>57,542.00</td>
<td colspan="3">*</td>
<td colspan="4">175,358.00</td>
<td colspan="3">1,600.00</td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>b.</strong> Contract #23, COE</p>
</blockquote></td>
<td>38,000.00</td>
<td>35,633.00</td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4">35,633.00</td>
<td colspan="3">2,367.00</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>c.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>d.</strong> Force Account#5, Outside Plant</p>
</blockquote></td>
<td>355,125.00</td>
<td>322,132.00</td>
<td colspan="4">941.00</td>
<td>35,633.00</td>
<td colspan="3"></td>
<td colspan="4">287,440.00</td>
<td colspan="3">32,052.00</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>e.</strong> Outside plant contract #4 (F)</p>
</blockquote></td>
<td>285,015.00</td>
<td>267,455.00</td>
<td colspan="4">17,560.00</td>
<td></td>
<td colspan="3">*</td>
<td colspan="4">285,015.00</td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>f.</strong> Materials Furnished O.P. Ct. #4 (F)</p>
</blockquote></td>
<td>310,115.00</td>
<td>312,103.00</td>
<td colspan="4">(1,988.00)</td>
<td></td>
<td colspan="3">*</td>
<td colspan="4">310,115.00</td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>g.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>h.</strong> Work Order Fund</p>
</blockquote></td>
<td>200,000.00</td>
<td>231,817.00</td>
<td colspan="4"></td>
<td>31,817.00</td>
<td colspan="3">*</td>
<td colspan="4">200,000.00</td>
<td colspan="3">(31,817.00)</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>i.</strong> Right-of-Way</p>
</blockquote></td>
<td>10,000.00</td>
<td>9,445.00</td>
<td colspan="4">500.00</td>
<td></td>
<td colspan="3"></td>
<td colspan="4">9,945.00</td>
<td colspan="3">55.00</td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>j.</strong> Sales Tax</p>
</blockquote></td>
<td>2,000.00</td>
<td>950.00</td>
<td colspan="4">1,047.00</td>
<td></td>
<td colspan="3"></td>
<td colspan="4">1,997.00</td>
<td colspan="3">3.00</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>k.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>l.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>m.</strong> Approved Work Orders</p>
</blockquote></td>
<td>664,000.00</td>
<td>583,621.00</td>
<td colspan="4">(18,060.00)</td>
<td>153,853.00</td>
<td colspan="3">*</td>
<td colspan="4">411,708.00</td>
<td colspan="3">98,439.00</td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>n.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>o.</strong> Contract #31, Toll Carrier</p>
</blockquote></td>
<td>34,450.00</td>
<td>31,671.00</td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4">31,671.00</td>
<td colspan="3">2,779.00</td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>p.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>q.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>2. ENGINEERING</strong></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>a.</strong> Pre-Loan</p>
</blockquote></td>
<td>2,150.00</td>
<td>825.00</td>
<td colspan="4">1,250.00</td>
<td></td>
<td colspan="3"></td>
<td colspan="4">2,075.00</td>
<td colspan="3">75.00</td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>b.</strong> Post Loan Contract #21E</p>
</blockquote></td>
<td>120,375.00</td>
<td>118,200.00</td>
<td colspan="4">(1,250.00)</td>
<td></td>
<td colspan="3"></td>
<td colspan="4">116,950.00</td>
<td colspan="3">3,425.00</td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>c.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>e.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>3. OPERATING EQUIPMENT</strong></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>a.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>b.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>4. GENERAL</strong></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><blockquote>
<p><strong>a.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><blockquote>
<p><strong>b.</strong></p>
</blockquote></td>
<td></td>
<td></td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4"></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>c. RTB STOCK</strong></td>
<td>92,050.00</td>
<td>92,050.00</td>
<td colspan="4"></td>
<td></td>
<td colspan="3"></td>
<td colspan="4">92,050.00</td>
<td colspan="3">0.00</td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>RUS FORM 481a (Rev. 2-95)</strong></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td colspan="3"></td>
<td></td>
<td colspan="6"></td>
<td colspan="2"><strong>PAGE 1 of 2</strong></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

<table>
<colgroup>
<col style="width: 21%" />
<col style="width: 0%" />
<col style="width: 12%" />
<col style="width: 12%" />
<col style="width: 0%" />
<col style="width: 1%" />
<col style="width: 0%" />
<col style="width: 10%" />
<col style="width: 12%" />
<col style="width: 3%" />
<col style="width: 0%" />
<col style="width: 3%" />
<col style="width: 0%" />
<col style="width: 8%" />
<col style="width: 0%" />
<col style="width: 0%" />
<col style="width: 1%" />
<col style="width: 11%" />
<col style="width: 0%" />
<col style="width: 0%" />
<col style="width: 0%" />
<col style="width: 0%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="6"><strong>USDA - RUS</strong></td>
<td colspan="6"><h2 id="borrower-designation-1">BORROWER
DESIGNATION</h2></td>
<td colspan="7"><strong>LFAR "AS OF" (Date)</strong></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="6"><strong>EXPENDITURE ADJUSTMENT REPORT</strong></td>
<td colspan="13"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="7">(Telecommunications Program)</td>
<td colspan="6"><h1 id="borrower-designation-2">Borrower
Designation</h1></td>
<td colspan="6"><strong>June 30, (Year)</strong></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="18"><strong>INSTRUCTIONS</strong>: Submit original and one
copy to RUS with audit work papers and one copy to Borrower. See RUS
Staff Instruction 1700-6.</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2"></td>
<td>AMOUNT APPROVED</td>
<td colspan="2"></td>
<td colspan="3"></td>
<td colspan="8">TOTAL DISBURSEMENTS - ADJUSTED</td>
<td colspan="3">UNDISBURSED</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2">APPROVED PURPOSES</td>
<td>FOR ADVANCE</td>
<td colspan="2">TOTAL</td>
<td colspan="3">RECLASSIFIED</td>
<td></td>
<td>TO</td>
<td colspan="5"></td>
<td colspan="4">BALANCE</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2"></td>
<td>PER STATEMENT</td>
<td colspan="2">DISBURSEMENTS</td>
<td colspan="3">DISBURSEMENTS</td>
<td>UNAPPROVED</td>
<td>CB</td>
<td colspan="5">APPROVED</td>
<td colspan="4">(col. b - (e + f)</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2"></td>
<td>No. 21</td>
<td colspan="2">(Borrowers Records)</td>
<td colspan="3">(Schedule Attached)</td>
<td>(Schedule Attached)</td>
<td></td>
<td colspan="5"></td>
<td colspan="4"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2">a.</td>
<td>b.</td>
<td colspan="2">c.</td>
<td colspan="3">d.</td>
<td>e.</td>
<td colspan="2"></td>
<td colspan="5">f.</td>
<td colspan="3">g.</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2"><strong>5. OPERATING FUNDS</strong></td>
<td></td>
<td colspan="2"></td>
<td colspan="3"></td>
<td></td>
<td colspan="2"></td>
<td colspan="5"></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2"><strong>6. DEBT RETIREMENT</strong></td>
<td></td>
<td colspan="2"></td>
<td colspan="3"></td>
<td></td>
<td colspan="2"></td>
<td colspan="5"></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2"><strong>7. ACQUISITIONS</strong></td>
<td></td>
<td colspan="2"></td>
<td colspan="3"></td>
<td></td>
<td colspan="2"></td>
<td colspan="5"></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2"><strong>8a. CLOSED BUDGET - Unaudited</strong></td>
<td></td>
<td colspan="2"></td>
<td colspan="3"></td>
<td></td>
<td colspan="2"></td>
<td colspan="5"></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2"><strong>8b. CLOSED BUDGET - Audited</strong></td>
<td>487,005.00</td>
<td colspan="2">487,005.00</td>
<td colspan="3"></td>
<td></td>
<td colspan="2"></td>
<td colspan="5">487,005.00</td>
<td colspan="3">0.00</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2"><strong>9. SUBTOTAL - ALL FUNDS</strong></td>
<td>2,834,785.00</td>
<td colspan="2">2,725,807.00</td>
<td colspan="3">0.00</td>
<td>278,845.00</td>
<td colspan="2"></td>
<td colspan="5">2,446,962.00</td>
<td colspan="3">108,978.00</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2"><strong>10. SALE OF PROPERTY</strong></td>
<td>(10,500.00)</td>
<td colspan="2">(10,650.00)</td>
<td colspan="3"></td>
<td></td>
<td colspan="2"></td>
<td colspan="5">(10,650.00)</td>
<td colspan="3">150.00</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2"><strong>11. OTHER</strong></td>
<td></td>
<td colspan="2"></td>
<td colspan="3"></td>
<td></td>
<td colspan="2"></td>
<td colspan="5"></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2"><blockquote>
<p><strong>a.</strong> Required Non-Loan Funds</p>
</blockquote></td>
<td>(135,000.00)</td>
<td colspan="2">(135,000.00)</td>
<td colspan="3"></td>
<td></td>
<td colspan="2"></td>
<td colspan="5">(135,000.00)</td>
<td colspan="3">0.00</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2"><blockquote>
<p><strong>b.</strong> Interest</p>
</blockquote></td>
<td>(9,250.00)</td>
<td colspan="2">(9,250.00)</td>
<td colspan="3"></td>
<td></td>
<td colspan="2"></td>
<td colspan="5">(9,250.00)</td>
<td colspan="3">0.00</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2"><strong>12. NET TOTALS</strong></td>
<td>2,680,035.00</td>
<td colspan="2">2,570,907.00</td>
<td colspan="3">0.00</td>
<td>278,845.00</td>
<td colspan="2"></td>
<td colspan="5">2,292,062.00</td>
<td colspan="3">109,128.00</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2"></td>
<td></td>
<td colspan="8"><strong>ITEM 12, COLUMN b ABOVE</strong></td>
<td colspan="5">2,680,000.00</td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2"></td>
<td><strong>LESS:</strong></td>
<td colspan="8"><strong>MINUS TOTAL ADVANCES: FRS NO</strong></td>
<td colspan="5">2,631,335.00</td>
<td colspan="3">48,680.00</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2"><strong>CASH</strong></td>
<td colspan="9"><strong>LESS: ADVANCES SUBSEQUENT TO THE AUDIT
DATE</strong></td>
<td colspan="5"></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2"></td>
<td colspan="9"><strong>OTHER ADJUSTMENTS (Specify)</strong></td>
<td colspan="5"></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2"><strong>RECONCILIATION</strong></td>
<td colspan="9"><strong>CASH BALANCE AT AUDIT DATE</strong></td>
<td colspan="5"></td>
<td colspan="3">60,448.00</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="19"><strong>COMMENTS</strong></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="19"><strong>*</strong> These budget items may be
transferred to Closed Budget - Audited. Approved Disbursements for the
remaining budget items represents expenditures for incomplete projects
for which amounts are subject to future adjustments. Consequently, those
amounts should not be transferred to closed Budget - Audited.</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="19"><strong>STATEMENT OF EXAMINATION</strong></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="19">The results of our examination of Construction Fund
transactions of the <strong>DIAL TELEPHONE COMPANY</strong> are set
forth above.<br />
Disbursements reported in column e.are to be reimbursed to the
Construction Fund from general funds. Disbursements reported in column
f. have been approved as proper expenditures; however, amounts related
to incomplete projects may be subject to future adjustment.</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="19"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="19"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><u>July 20, (Year)</u></td>
<td colspan="3"></td>
<td colspan="10"></td>
<td colspan="5"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td><strong>DATE</strong></td>
<td colspan="3"></td>
<td colspan="10"><strong>RUS ACCOUNTANT</strong></td>
<td colspan="5"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>RUS FORM 481a (Rev. 2-95)</strong></td>
<td colspan="16"></td>
<td colspan="2"><strong>PAGE 2 of 2</strong></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

[Borrower Designation]{.underline}

[Sample Status of Construction Fund]{.underline}

[Receipts and Disbursements (Telecommunications)]{.underline}

  --------------- ------- ----------------------------------- ------------------------- ----------------------------
  RUS Loans                                                                             \$1,100,000.00

  RTB Loans                                                                             [1,933,050.00]{.underline}

  Total Loans to                                                                        3,033,050.00
  Date (all under                                                                       
  note)                                                                                 

                  Less:   Unadvanced Funds:                                             

                          Funds not Released                  \$100.000.00              

                          Unencumbered Reserves               249,565.00                

                          Withheld on Contracts               3,450.00                  

                          Approved but not Advanced           [48,680.00]{.underline}   [401,695.00]{.underline}

  Total Advances                                                                        2,631,355.00
  as of June 30,                                                                        
  (Year)                                                                                

                  Plus:   Sale of Property                    \$ 10,650.00              

                          Equity Funds Provided               135,000.00                

                          Other Deposits                      [9,250.00]{.underline}    [154,900.00]{.underline}

  Total Receipts                                                                        2,786,255.00

                  Less:   Cash Balance                                                  [60,448.00]{.underline}

  Total                                                                                 2,725,807.00
  Disbursements                                                                         

                  Less:   Unapproved Disbursements                                      [278,845.00]{.underline}

  Net                                                                                   \$2,446,962.00
  Disbursements                                                                         
  Approved                                                                              
  through June                                                                          
  30, (Year)                                                                            
  --------------- ------- ----------------------------------- ------------------------- ----------------------------

[Borrower Designation]{.underline}

[Schedule of Budget Purpose Adjustments Required
(Telecommunications)]{.underline}

[As of June 30, (Year)]{.underline}

  ----------------------- ------------------------------------------------ ----------------------
  Budget                                                                   

  [Purpose]{.underline}   [Description of Adjustments]{.underline}         [Amount]{.underline}

  1.m.                    Equipment not eligible for financing was         \$ 64,183.85
                          purchased and the cost included on Summaries of  
                          Work Orders as follows:\                         
                          \                                                
                          [Summary No.]{.underline} [Work Order            
                          No.]{.underline} [Amount\                        
                          ]{.underline} 11 1466 \$17,630.85\               
                          12 1467 22,903.00\                               
                          12 1468 5,000.00\                                
                          13 1479 [5,000.00]{.underline}\                  
                          Amount Reimbursed [50,533.85\                    
                          ]{.underline} 16 1510 5,000.00\                  
                          17 1520 [8,650.00\                               
                          ]{.underline} Amount Not Yet Reimbursed          
                          [13,650.00\                                      
                          ]{.underline} Total \$64,183.85                  

  1.m.                    The cost of refurbished equipment included on    103,318.84
                          Summaries of Work Orders Nos. 721, 742, and 744, 
                          which have been reimbursed from the construction 
                          Fund. This cost is not subject to financing by   
                          RUS.                                             

  1.m.                    Contributions-in-aid of Construction not         3,000.00
                          properly deducted on Work Order Nos. \_\_\_      
                          through \_\_\_\_\_, all of which have not yet    
                          been reimbursed.                                 

  10\.                    Proceeds from the sale of property deposited in  [150.00]{.underline}
                          the Construction Fund Trustee account            

                          Total                                            \$170,652.69

                                                                           
  ----------------------- ------------------------------------------------ ----------------------

[SAMPLE TELECOMMUNICATIONS LFAR LETTER REPORT]{.underline}

[DISALLOWANCES MADE]{.underline}

August 2, (Year)

Mr./Ms.

President

Dear Mr./Ms. :

On July 28, (Year), we completed our loan fund and accounting review of
the company for the period March 1, (Year), through June 30, (Year).
Construction fund receipts of \$XXX,XXX and disbursements of \$XXX,XXX
were reviewed for this period. The scope of our review covered:

1.  The accounting for the RUS Construction Fund;

2.  The extent of internal accounting control over plant activities;

3.  The related accounting records and procedures; and

4.  The determination of compliance with the required uniform system of
    accounts for plant accounting and other related financial records.

Our review of the company\'s loan fund transactions indicated that all
RUS Construction Fund receipts were properly accounted for and all
disbursements were for proper loan program purposes except for
\$278,844.39. We provided an analysis of these unapproved disbursements
to Mr. R. W. Jennings, General Manager, and discussed the items included
with him and the staff. A check should be drawn on the General Fund
account for \$278,844.39 to reimburse the RUS Construction Fund for
expenditures that cannot be approved for loan program purposes.

A summary of RUS Construction Fund receipts and disbursements through
June 30, (Year), is enclosed. The Expenditure Adjustment Report and
accompanying schedules were given to and discussed with the general
manager.

We have discussed the need for improvements in internal accounting
control, records, and procedures, including the need for certain
required adjustments to RUS loan fund budget records, with Mr. Malloy
and the staff. These include:

> \<The RUS Accountant will insert the appropriate recommendations in
> this section of the review letter. The recommendations should include
> the specific finding together with the RUS Accountant\'s
> recommendation for corrective action.\>

We suggest that this review and the information disclosed be brought to
the attention of the board of directors at its next meeting. The
Assistant Administrator, Program Accounting and Regulatory Analysis,
Rural Utilities Service, Stop 1530, 1400 Independence Ave. SW,
Washington, DC 20250‑1530, should be notified within 60 days of the date
of this letter of actions taken to eliminate the unapproved
disbursements and to implement the LFAR recommendations included in the
letter report. Timely action on these recommendations is an integral
part of RUS' evaluation of borrowers\' accounting systems and has a
direct bearing on the effectiveness of RUS reviews.

We appreciate the cooperation and assistance provided by the company\'s
general manager and his/her staff during our review.

Sincerely,

RUS Accountant

Enclosures

cc:

Mr. R. W. Jennings, General Manager

[SAMPLE TELECOMMUNICATIONS LFAR LETTER REPORT]{.underline}

[IMMATERIAL AMOUNTS NOT DISALLOWED]{.underline}

August 2, (Year)

Mr./Ms.

President

Dear Mr./Ms. :

On July 28, (Year), we completed our loan fund and accounting review of
the company for the period March 1, (Year), through June 30, (Year).
Construction fund receipts of \$XXX,XXX and disbursements of \$XXX,XXX
were reviewed for this period. The scope of our review covered:

1.  The accounting for the RUS Construction Fund;

2.  The extent of internal accounting control over plant activities;

3.  The related accounting records and procedures; and

4.  The determination of compliance with the required uniform system of
    accounts for plant accounting and other related financial records.

Our review of the company\'s loan fund transactions indicated that all
RUS Construction Fund receipts were properly accounted for and all RUS
Construction Fund disbursements were for proper loan program purposes.

A summary of RUS Construction Fund receipts and disbursements through
June 30, (Year), is enclosed. The Expenditure Adjustment Report and
accompanying schedules were given to and discussed with the general
manager.

We have discussed the need for improvements in internal accounting
control, records, and procedures, including the need for certain
required adjustments to RUS loan fund budget records, with the manager
and his/her the staff. These include:

> \<The RUS Accountant will insert the appropriate recommendations in
> this section of the review letter. The recommendations should include
> the specific finding together with the RUS Accountant\'s
> recommendation for corrective action.\>

We suggest that this review and the information disclosed be brought to
the attention of the board of directors at its next meeting. Assistant
Administrator, Program Accounting and Regulatory Analysis, Rural
Utilities Service, Stop 1530, 1400 Independence Ave. SW, Washington, DC
20250‑1530, should be notified within 60 days of the date of this letter
of actions taken to implement the LFAR recommendations included in the
letter report. Timely action on these recommendations is an integral
part of RUS' evaluation of borrowers\' accounting systems and has a
direct bearing on the effectiveness of RUS reviews.

We appreciate the cooperation and assistance provided by the company\'s
general manager and his staff during our review.

Sincerely,

RUS Accountant

Enclosures

cc:

Mr. R. W. Jennings, General Manager

**LOAN FUND AND ACCOUNTING REVIEW**

**REVIEW CHECKLIST**

\<BORROWER DESIGNATION\>

\<RUS FIELD ACCOUNTANT\>

\<REVIEW PERIOD\>

  ----------- ------ -- -------- ------------ ------- --------------------- --
  Reviewer:                                   Date:                         

  Review                                      Date:                         
  Approved:                                                                 

                                                                            
  ----------- ------ -- -------- ------------ ------- --------------------- --

F NOTE: After completing checklist, save changes; then under the
**Tools** menu choose **Unprotect Document**. Next, click on the
**review date** and press **\<F9\>** to calculate. Save the document
with the date change. Then print as follows:

**\[FOR *LIMITED REVIEW* CHECKLISTS: PRINTS PAGE 1 ONLY \]**

**\[FOR *DETAILED REVIEW* CHECKLISTS: PRINTS ALL PAGES \]**

TYPE OF REVIEW

  ---------- --------- ------------------------------ ----------- --------- --
                                                                            

  Limited:                                            Detailed:             
  ---------- --------- ------------------------------ ----------- --------- --

**\[FOR *LIMITED REVIEWS* COMPLETE *POLICY REVIEW* SECTION ONLY\]**

**\[FOR *DETAILED REVIEWS* COMPLETE *ALL* SECTIONS\]**

<table style="width:100%;">
<colgroup>
<col style="width: 7%" />
<col style="width: 0%" />
<col style="width: 58%" />
<col style="width: 0%" />
<col style="width: 4%" />
<col style="width: 8%" />
<col style="width: 4%" />
<col style="width: 0%" />
<col style="width: 0%" />
<col style="width: 3%" />
<col style="width: 7%" />
<col style="width: 4%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="12"><u>POLICY REVIEW</u></td>
</tr>
<tr class="even">
<td><p>Item</p>
<p>#</p></td>
<td></td>
<td>Review Items</td>
<td></td>
<td colspan="4">Acceptable</td>
<td></td>
<td colspan="3"><p>Not</p>
<p>Acceptable</p></td>
</tr>
<tr class="odd">
<td>1.</td>
<td colspan="3">Field Activities Report</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>2.</td>
<td colspan="3">LFAR Letter Report</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>3.</td>
<td colspan="3">Expenditure Adjustment Report</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>4.</td>
<td colspan="3">Unapproved Disbursements [Are proper and adequately
supported]</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>5.</td>
<td colspan="3">Unapproved Advances [Are proper and adequately
supported]</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>6.</td>
<td colspan="3">Budget Adjustments [Are proper and adequately
supported]</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>7.</td>
<td colspan="3">Loan Fund and Accounting Review Recommendations<br />
[Are proper and adequately supported]</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="12"></td>
</tr>
</tbody>
</table>

F **IF A LIMITED REVIEW DETERMINES ANY OF THE ABOVE ITEMS TO BE
UNACCEPTABLE, EXPAND THE REVIEW TO A DETAILED REVIEW.**

**LOAN FUND AND ACCOUNTING REVIEW**

**REVIEW CHECKLIST**

\<BORROWER DESIGNATION\>

\<RUS FIELD ACCOUNTANT\>

\<REVIEW PERIOD\>

<table style="width:100%;">
<colgroup>
<col style="width: 7%" />
<col style="width: 0%" />
<col style="width: 58%" />
<col style="width: 0%" />
<col style="width: 4%" />
<col style="width: 8%" />
<col style="width: 4%" />
<col style="width: 0%" />
<col style="width: 0%" />
<col style="width: 3%" />
<col style="width: 7%" />
<col style="width: 4%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="12"><u>MATH REVIEW</u></td>
</tr>
<tr class="even">
<td><p>Item</p>
<p>#</p></td>
<td></td>
<td>Review Items</td>
<td></td>
<td colspan="4">Acceptable</td>
<td></td>
<td colspan="3"><p>Not</p>
<p>Acceptable</p></td>
</tr>
<tr class="odd">
<td>8.</td>
<td colspan="3">Financial information and supporting schedules are
accurately footed and crossfooted:</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td colspan="3">a. Expenditure Adjustment Report</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td></td>
<td colspan="3">b. Schedule of Unapproved Construction Fund
Disbursements</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td colspan="3">c. Schedule of Unapproved Advances</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td></td>
<td colspan="3">d. Schedule of Reclassified Construction Fund
Disbursements</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td colspan="3">e. Financial Requirement &amp; Expenditure Statement or
Financial Requirement Statement</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td></td>
<td colspan="3">f. Status Report of Construction Fund Receipts and
Disbursements</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td colspan="3">g. Schedule of Construction Fund Receipts</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td></td>
<td colspan="3">h. Schedule of Construction Fund Disbursements</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

  ----- ------------------------------------------ -- ----- -- -- ----- --
                                                                        

  ----- ------------------------------------------ -- ----- -- -- ----- --

<table style="width:100%;">
<colgroup>
<col style="width: 7%" />
<col style="width: 0%" />
<col style="width: 58%" />
<col style="width: 0%" />
<col style="width: 4%" />
<col style="width: 8%" />
<col style="width: 4%" />
<col style="width: 0%" />
<col style="width: 0%" />
<col style="width: 3%" />
<col style="width: 7%" />
<col style="width: 4%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="12"><u>SUBSTANTIVE REVIEW</u></td>
</tr>
<tr class="even">
<td><p>Item</p>
<p>#</p></td>
<td></td>
<td>Review Items</td>
<td></td>
<td colspan="4">Acceptable</td>
<td></td>
<td colspan="3"><p>Not</p>
<p>Acceptable</p></td>
</tr>
<tr class="odd">
<td>9.</td>
<td colspan="3">General tests prescribed in the appropriate Review Guide
have been performed</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>10</td>
<td colspan="3">Borrower’s procedures are adequately described</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>11.</td>
<td colspan="3">Review evidence and documentation are proper.</td>
<td></td>
<td></td>
<td></td>
<td colspan="3"></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

  ----- ------------------------------------------ -- ----- -- -- ----- --
                                                                        

  ----- ------------------------------------------ -- ----- -- -- ----- --

**LOAN FUND AND ACCOUNTING REVIEW**

**REVIEW CHECKLIST**

\<BORROWER DESIGNATION\>

\<RUS FIELD ACCOUNTANT\>

\<REVIEW PERIOD\>

+----+---+----------------------------------------------------------------+
| [A |   |                                                                |
| SP |   |                                                                |
| EC |   |                                                                |
| TS |   |                                                                |
| OF |   |                                                                |
| R  |   |                                                                |
| US |   |                                                                |
| AC |   |                                                                |
| CO |   |                                                                |
| UN |   |                                                                |
| TA |   |                                                                |
| NT |   |                                                                |
| 'S |   |                                                                |
| LF |   |                                                                |
| AR |   |                                                                |
| PE |   |                                                                |
| RF |   |                                                                |
| OR |   |                                                                |
| MA |   |                                                                |
| NC |   |                                                                |
| E\ |   |                                                                |
| DE |   |                                                                |
| TE |   |                                                                |
| RM |   |                                                                |
| IN |   |                                                                |
| ED |   |                                                                |
| TO |   |                                                                |
| BE |   |                                                                |
| N  |   |                                                                |
| OT |   |                                                                |
| A  |   |                                                                |
| CC |   |                                                                |
| EP |   |                                                                |
| TA |   |                                                                |
| BL |   |                                                                |
| E] |   |                                                                |
| {. |   |                                                                |
| un |   |                                                                |
| de |   |                                                                |
| rl |   |                                                                |
| in |   |                                                                |
| e} |   |                                                                |
+----+---+----------------------------------------------------------------+
| It |   | Deficiency                                                     |
| em |   |                                                                |
|    |   |                                                                |
| \# |   |                                                                |
+----+---+----------------------------------------------------------------+
|    |   |                                                                |
+----+---+----------------------------------------------------------------+
|    |   |                                                                |
+----+---+----------------------------------------------------------------+
|    |   |                                                                |
+----+---+----------------------------------------------------------------+
|    |   |                                                                |
+----+---+----------------------------------------------------------------+
|    |   |                                                                |
+----+---+----------------------------------------------------------------+
|    |   |                                                                |
+----+---+----------------------------------------------------------------+

+------------------------------+---------------------+----------------+
| **USDA-RUS**                 | **[BORROWER         | **[LFAR AS     |
|                              | DESIGNA             | OF]            |
|                              | TION]{.smallcaps}** | {.smallcaps}** |
|                              |                     |                |
|                              | Borrower            |                |
|                              | Designation         |                |
+------------------------------+---------------------+----------------+
| **RUS ACCOUNTANT PERFORMANCE | **[RUS              | **[REVIEWER]   |
| EVALUATION**                 | ACCOUN              | {.smallcaps}** |
|                              | TANT]{.smallcaps}** |                |
| **LOAN FUND AND ACCOUNTING   |                     |                |
| REVIEW**                     |                     |                |
+------------------------------+---------------------+----------------+
| **APPROVED**                 |                     | **DATE         |
|                              |                     | APPROVED**     |
+------------------------------+---------------------+----------------+

**[LFARs Receiving a Limited Review Since the Last LFAR
Evaluation]{.underline}**

+-----------------------------------------------------------------------+
| 1.                                                                    |
+-----------------------------------------------------------------------+
| 2.                                                                    |
+-----------------------------------------------------------------------+
| 3.                                                                    |
+-----------------------------------------------------------------------+
| 4.                                                                    |
+-----------------------------------------------------------------------+
| 5.                                                                    |
+-----------------------------------------------------------------------+

**[Summary Evaluation]{.underline}**

**Items Requiring Additional Action**

**and/or**

**[Implementation on Future LFARs]{.underline}**

+---------+---+-----------------------------------------------------------+
| **WORK  |   | **COMMENTS**                                              |
| PAPER** |   |                                                           |
|         |   |                                                           |
| **REFE  |   |                                                           |
| RENCE** |   |                                                           |
+---------+---+-----------------------------------------------------------+

[SAMPLE LFAR RECOMMENDATIONS FOLLOW-UP LETTER]{.underline}

Mr./Ms.

President

Dear Mr./Ms. :

RUS Accountant, (Mr.) (Ms.) , recently completed (his) (her) loan fund
and accounting review (LFAR) at your cooperative (company).

(Mr.) (Ms.) [                   ]{.underline}\'s letter dated requested
that our office be notified of the actions taken by your cooperative
(company) to implement the LFAR recommendations.

We have not yet received your response. Please provide us with this
information within 30 days of the date of this letter.

Sincerely,

Assistant Administrator

Program Accounting and Regulatory Analysis