U.S. DEPARTMENT OF ENERGY
                   OFFICE OF INSPECTOR GENERAL
                                
                                
                                
                                
              AUDIT OF ECONOMIC DEVELOPMENT GRANTS
                                
                AND A COOPERATIVE AGREEMENT WITH
                                
           EAST TENNESSEE NOT-FOR-PROFIT ORGANIZATIONS
                                
                                
                                
                                
                                
                                
                                
                    
Report Number:   ER-B-97-01                  
Eastern Regional Audit Office
Date of Issue:   October 22, 1996 
 
              AUDIT OF ECONOMIC DEVELOPMENT GRANTS
                AND A COOPERATIVE AGREEMENT WITH
           EAST TENNESSEE NOT-FOR-PROFIT ORGANIZATIONS
                                
                                
                                
                        TABLE OF CONTENTS
                                
                                
                                                            Page
 
SUMMARY.....................................................   1
 
PART I -  APPROACH AND OVERVIEW.............................   3
 
          Introduction......................................   3
 
          Scope and Methodology.............................   3
 
          Background........................................   4
 
PART II   -    FINDINGS AND RECOMMENDATIONS .................  7
 
          1.  Payments to the East Tennessee 
              Economic Council...............................  7
 
          2.  Cash Advance to the East Tennessee 
              Economic Council .............................. 11
 
PART III  -    MANAGEMENT AND AUDITOR COMMENTS .............  13
                    
                    
                    U.S. DEPARTMENT OF ENERGY
                   OFFICE OF INSPECTOR GENERAL
                    OFFICE OF AUDIT SERVICES
                                
              AUDIT OF ECONOMIC DEVELOPMENT GRANTS
                AND A COOPERATIVE AGREEMENT WITH
           EAST TENNESSEE NOT-FOR-PROFIT ORGANIZATIONS
                                
                                
Audit Report Number:  ER-B-97-01
October 22, 1996
                                
                                
                             SUMMARY
                                
                                
     The downsizing of Department of Energy (Department)
facilities as a result of the end of the Cold War may have a
negative impact on many communities that were heavily dependent
on Departmental operations for economic stability.  To lessen the
negative effects on these communities, the Department has
encouraged the formation of local community reuse organizations.
These organizations determine and sponsor economic development
initiatives to offset the local consequences of the Department's
downsizing.  The Department provided financial assistance to
these organizations through grants and cooperative agreements.
We initiated this audit to determine whether economic development
grants and a cooperative agreement with East Tennessee not-for-
profit organizations were achieving the Department's intended
purposes.
 
     Overall, we found that a large majority of funds awarded to
East Tennessee not-for-profit organizations were being used for
their intended purposes.  However, significant amounts awarded to
the East Tennessee Economic Council (ETEC) were not.  For
example, ETEC used about  $161,000 to purchase furniture,
equipment, and services which were outside the grants' approved
scopes of work.  Also, ETEC used about $29,000 to purchase
equipment that was not held by ETEC and was not used specifically
for grant purposes.  These conditions occurred because the
Department considered certain types of costs to be allowable even
though they were outside the grants' approved scopes of work, and
because reviews of ETEC's invoices did not reveal all items that
should not have been billed or were billed in error.  As a
result, the Department reimbursed ETEC about $220,000 in
questionable costs.
 
     Also, Federal regulations require that cash advances be
limited to the minimum amount needed to meet grant recipients'
immediate cash requirements and that interest earned on cash
advances be deposited in the U.S. Treasury.  However, the
Department advanced  ETEC about $1.4 million more than ETEC
needed to establish a revolving loan fund and then allowed ETEC
to hold about $148,000 in interest earned on the advanced funds.
This occurred because the Oak Ridge Operations Office officials
responsible for awarding and administering these grants were not
familiar with Federal rules on cash advances and interest earned
on cash advances.
 
 
     Management agreed with the findings and recommendations and
will take appropriate action to correct the conditions disclosed
in the report.
 
 
 
 
 
 
                                          Office of Inspector
General
 
                             .PART I
                                
                      APPROACH AND OVERVIEW
                                
                                
INTRODUCTION
 
     As a result of the end of the Cold War, the Department of
Energy (Department) has downsized many of its facilities.  This
may have a negative impact on many communities that were heavily
dependent on Departmental operations for economic stability.  To
lessen the negative effects on these communities, the Department
has encouraged the formation of community reuse organizations
that are responsible for acting on behalf of the community to
determine and sponsor initiatives to offset the consequences of
the Department's downsizing.  One such initiative has been the
award of economic development grants and cooperative agreements.
The objective of the audit was to determine whether economic
development grants and a cooperative agreement with East
Tennessee not-for-profit organizations were achieving the
Department's intended purposes.
 
 
SCOPE AND METHODOLOGY
 
     The audit was performed at the Oak Ridge Operations Office
from April 10 to July 18, 1996.  To accomplish the audit objective, we:
 
     *    Evaluated Departmental guidance for economic development
          activities;
 
     *    Reviewed Federal regulations governing grants awarded to not-
          for-profit organizations;
     
     *    Examined grant files, invoices and supporting documentation;
     
     *    Conducted walk-throughs of grantee facilities; and
     
     *    Held discussions with Departmental and grantee personnel.
       
       The audit was conducted in accordance with
generally accepted Government auditing standards for
performance audits, and included tests of internal controls
and compliance with laws and regulations to the extent
necessary to satisfy the objective of the audit.  Because our
review was limited, it would not necessarily have disclosed
all internal control deficiencies that may have existed at the
time of our audit.  We did not conduct a reliability
assessment of computer-processed data because
only a very limited amount of computer-processed data was used
during the audit.
 
          We held an exit conference with the Program Development
Manager, Office of Partnerships and Program Development, Oak
Ridge Operations Office, on September 19, 1996.
 
BACKGROUND
 
    The Oak Ridge Operations Office has awarded economic
development grants and a cooperative agreement to several local
not-for-profit organizations located in East Tennessee.  In an
attempt to mitigate the impact on displaced workers and local
communities, the Department has awarded six grants and a
cooperative agreement to local not-for-profit organizations.  Our
review covered 5 of the grants and a cooperative agreement worth
$4.5 million.  The sixth grant was covered in our prior audit
report entitled "Audit of Work Force Restructuring at the Oak
Ridge Operations Office," ER-B-95-06.  The following table shows
the five grants and one cooperative agreement that were included
in this review.
 
 
GRANT OR COOPERATIVE AGREEMENT              RECIPIENT            AMOUNT
                                                                 
New business development initiative         ETEC               $2,000,000
Technology 2020 initiative                  ETEC                1,500,000
Technical reuse of Departmental facilities  ETEC                  100,000
Feasibility studies                         ETEC                  100,000
21st century jobs initiative                TRV                   750,000
Environmental technology transfer           ORWMA                  85,000
                                                                 
TOTAL                                                          $4,535,000
                                                                 
 
    As the table shows, the Department awarded grants to local
not-for-profit organizations for new business initiatives,
equipment, feasibility studies and various other programs and
activities.  Four of the five grants were awarded to the East
Tennessee Economic Council (ETEC).  The fifth grant
was awarded to Tennessee's Resource Valley (TRV).  Each of these
grants was approved by the Director of the Office of Worker and
Community Transition.  In addition to the five grants, the
Department has entered into a cooperative agreement with the Oak
Ridge Waste Management Association (ORWMA) in an effort to
enhance environmental technology transfer efforts.  Each of these
organizations and the grants or cooperative agreement they have
received from the Department are discussed below.
 
East Tennessee Economic Council
 
    ETEC was the community reuse organization established to
represent the East Tennessee region.  Departmental Guidance For
Support of Local Economic Development Activities encourages the
establishment of community reuse organizations to determine and
sponsor the actions the community may take to offset the local
consequences of the Department's downsizing.  ETEC, a division of
the Oak Ridge Chamber of Commerce, is a not-for-profit
organization of about 75 businesses and individuals.  ETEC was
replaced as the community reuse organization by the Community
Reuse Organization of East Tennessee in 1995.  However, according
to ETEC's Director of Small Business Development, as of June
1996, no Departmental grants had been awarded to the new
organization.
 
    ETEC has received a total of $3.7 million from the
Department for 4 of the economic development grants included in
our review.  Each of the four grants is discussed below.
 
     The Department awarded ETEC a $2 million grant for the New
Business Development Initiative.  The period of performance for
the grant is from September 1, 1994, through August 31,
1999.  The grant seeks to foster small business development
efforts, incubation efforts, and technology transfer from the
Department to small and medium-sized businesses.  The majority of
the funds were used to establish a $1.7 million revolving loan
fund to provide needed expansion debt capital for small
businesses in East Tennessee.  The grant also covers salaries,
wages, and other direct and indirect costs for the administration
of the grant.
 
    The Department awarded a $1.5 million grant to ETEC for the
Technology 2020 initiative.  The grant provided for technological
equipment to be used on the project, such as video
teleconferencing equipment, multi-media presentation and training
equipment, and internet equipment.  The grant was awarded in
February 1994 and initially covered the period February 4,
1994, to February 3, 1995.  The grant was modified twice,
extending the period through June 30, 1996.  As of July 1996,
about $900,000 of the $1.5 million was expended by the recipient.
 
     The Department awarded a $100,000 grant to ETEC to provide
technical assistance in the reuse of Departmental facilities.
The purpose of the grant was to provide funding for ETEC to hire
several consultants to conduct land surveys and study tax issues
for Oak Ridge Reservation facilities that are not being used by
the Department.
 
     The Department awarded a $100,000 grant to ETEC to study the
feasibility of a technology, trade, and exhibition center and a
regional industrial center in East Tennessee.  ETEC hired
consultants to perform each of the respective feasibility
studies.
 
Tennessee's Resource Valley
 
    TRV seeks to organize and focus both public and private
energy and resources on the strength of the East Tennessee region
to maximize economic benefit.  Further, they  seek to establish
an ongoing process of institutional evolution among the regionms
government laboratories and public and private organizations in
the wake of Federal government downsizing.
 
    The Department awarded TRV a $750,000 grant for the 21st
Century Jobs Initiative Project.  The overall purpose of the
grant was to mobilize economic leaders and stakeholders to
develop an economic strategy for East Tennessee that would reduce
dependence on Federal funding and enable the region to be self-
supporting in future years.
 
Oak Ridge Waste Management Association
 
    ORWMA is a not-for-profit organization that represents the
interests of 107 environmental concerns in Oak Ridge, Tennessee.
ORWMA was organized primarily to develop a heightened level of
awareness, both within Tennessee and in the nation, of waste
management technical capabilities that exist in the Oak Ridge
area.  ORWMA acts as a legislative liaison to Washington, D.C.,
and Nashville on behalf of the ORWMA membership.
 
    The Department has entered into an $85,000 cooperative
agreement with ORWMA to act as the principal point of contact
between the Department and ORWMA members in technology transfer
efforts.  ORWMA recently changed its name to the East Tennessee
Environmental Business Association.
 
    In our opinion, the matters discussed in this report
identified material internal control weaknesses within the
Department that should be considered when preparing the yearend
assurance memorandum on internal controls.  Detailed management
comments are contained in Part III of this report.
 
 
                             PART II
                                
                  FINDINGS AND RECOMMENDATIONS
                                
                                
1.   Payments to the East Tennessee Economic Council
 
 
FINDING
 
    Federal regulations stipulate that costs are allowable under
grants with not-for-profit organizations provided the costs are
ordinary and necessary for performance of the grantms approved
statement of work.  However, the Oak Ridge Operations Office
(Operations Office) reimbursed the East Tennessee Economic
Council (ETEC) for costs that were not ordinary and necessary for
performance of the grants' approved statements of work.  For
example, the Operations Office reimbursed ETEC for computers that
were used by the Oak Ridge Chamber of Commerce (Chamber) for
Chamber operations and for facsimile machines that were used by
Tennessee's Resource Valley (TRV) for TRV operations.
Questionable costs were reimbursed to ETEC because the Operations
Office considered certain types of costs to be reasonable and
allowable even though they were outside the approved statements
of work, and because invoice reviews did not reveal billing
errors made by ETEC.  As a result, the Department reimbursed ETEC
$219,785 in questionable costs.
 
 
RECOMMENDATIONS
 
We recommend that the Manager, Oak Ridge Operations Office:
 
       Closely scrutinize all ETEC invoices to ensure that only
     costs required for performance of approved statements of work are
     reimbursed under current and future grants;
  
       Recover $161,310 used by ETEC to purchase furniture,
     equipment, and consulting services outside the scope of the
     Technology 2020 and New Business Development Initiative grants,
     or appropriately modify the statements of work to include these
     types of cost;
  
       Recover $29,384 reimbursed to ETEC and used to purchase
     equipment for the Chamber and TRV for their operations, or ensure
     the purchased equipment is returned to Technology 2020;
  
       Recover $22,891 from ETEC for costs billed in excess of
     written contractual agreements under the feasibility studies and
     Technical Assistance in Reuse of Departmental Facilities grants,
     or require ETEC to modify the subagreements to cover the costs;
     and
  
       Recover $6,200 from ETEC for costs reimbursed twice under
     the Technology 2020 grant.
 
MANAGEMENT REACTION
 
     Management concurred with the findings and recommendations
and agreed to take corrective action.  Part III of the report
provides detailed management and auditor comments.
 
                                
                                
                       DETAILS OF FINDING
 
GRANT REGULATIONS
 
     Federal regulations stipulate that costs are allowable under
grants with not-for-profit organizations provided the costs are
ordinary and necessary for the operation of the organization
(indirect cost allocations) or for the performance of the grants'
approved statements of work (direct costs).  Office of Management
and Budget Circular A-122, Cost Principles for Nonprofit
Organizations, defines the types of costs that are allowable
under grants to not-for-profit organizations.  The circular
states that to be allowable, costs must be reasonable for the
performance of the award.  The circular states that to be
reasonable, costs should be of a type generally recognized as
ordinary and necessary for the operation of the organization or
the performance of the award.  Costs of the organization's
operations may be allocated to a Federal grant provided the costs
benefit both the grant and other work and can be distributed in
proportion to the benefits received.  In order to be necessary
for the performance of the award, costs must be consistent with
the approved statement of work for the award.
 
 
PAYMENTS TO ETEC
 
     We found that the Operations Office reimbursed ETEC $219,785
in questionable costs.  These included $161,310 for furniture,
equipment, and services outside the grants' scopes of work;
$29,384 for equipment not used by ETEC and not used specifically
for performance of the grant; $22,891 for vendor costs in excess
of written agreements, and $6,200 paid for duplicate billings.
Each of these conditions is discussed below.
 
Items Outside the Scope of Work
 
     ETEC used $141,130 in Departmental funds to purchase office
furniture, equipment, and consulting services outside the scope
of the Technology 2020 grant.  The approved statement of work for
the grant stated that ETEC would use Departmental funds to
purchase technological equipment needed to initially establish
the Technology 2020 project.  At the time the grant was awarded,
other organizations had agreed to furnish ETEC with funds needed
to construct the facility and to manage its daily operations.
Notwithstanding the Department's agreement with ETEC, the
Operations Office reimbursed ETEC $119,430 for funds used to
purchase lobby furnishings, office furniture, kitchen appliances,
and a mailing machine.  Also, ETEC was reimbursed $21,700 used to
purchase a multimedia marketing presentation prepared for TRV.
None of these items were covered under the grantms approved
statement of work.
 
     ETEC also used $20,180 in Departmental funds to purchase
furniture and office equipment under its New Business Development
Initiative grant.  The approved statement of work for this grant
provided funding to be used primarily to establish and operate a
revolving loan fund to help create new businesses.  The statement
of work did not specifically provide for Departmental funds to be
used to purchase office furniture and equipment.
 
Equipment Not Used For Grant Purposes
 
     ETEC used Departmental funds provided under its Technology
2020 grant to purchase $29,384 in equipment that was neither used
by ETEC nor used specifically for the Technology 2020 project.
Five computers and two computer modems acquired with grant funds
were located at the Oak Ridge Chamber of Commerce and were being
used for Chamber operations.  Additionally, a portable computer,
a computer upgrade, a plain paper facsimile machine, and a
facsimile-on-demand system (located at and used for TRV
operations) were acquired with ETEC grant funds.  Finally,
another computer was on loan to the Small Business Resource
Center operated by Roane State and Pellissippi State Colleges.
None of this equipment was being used for the Technology 2020
program.
 
Costs in Excess of Written Agreements
 
     ETEC also used $22,891 in funds awarded for the feasibility
studies and technical assistance grants to pay costs billed in
excess of written contractual agreements.  ETEC paid the firm
hired to study the feasibility of the technology, trade, and
exhibition center $2,000 more than the maximum amount agreed to
in the fixed-price agreement.  This $2,000 was then billed to and
paid by the Department.  Additionally, ETEC had a fixed-price
agreement for $8,500 with a consulting firm to conduct studies of
land use, infrastructure needs, and utilities under the technical
assistance grant.  However, ETEC paid the firm $20,891 in excess
of the agreed upon amount for an environmental assessment and
various other services not included in the original agreement.
Representatives of both ETEC and the consulting firm stated that
the additional work was agreed to in meetings but never
formalized in a written agreement.
 
Duplicate Reimbursements
 
     ETEC overbilled $6,200 in expenditures under the Technology
2020 grant.  Equipment acquired for $1,669 was invoiced
individually and in aggregate, resulting in double billing.  We
also found that a projection screen acquired for $197 and
equipment installation charges of $282 were paid twice.  Finally,
ETEC billed the Department $4,052 for a damaged computer that was
also paid for by TRV's insurance company.
 
OPERATIONS OFFICE REVIEW
 
     Questionable costs were reimbursed under ETEC's grants
because the Operations Office considered certain types of costs
to be reasonable and allowable even though they were outside the
approved statements of work, and because invoice reviews did not
reveal errors made by ETEC.  When ETEC invoiced the Department
for lobby furnishings, office furniture, and kitchen appliances
purchased with grant funds, the Operations Office determined that
the items were outside the grants' approved statements of work,
but they also determined that the costs were reasonable.
Therefore, the Operations Office allowed the invoices to be paid
even though some of the items were outside the grants' scopes of
work.  Further, the Operations Office's review of ETECms invoices
did not identify the items mentioned in this report that either
should not have been billed or were billed in error.  The billing
errors were not obvious and were not easily detectable.
 
 
QUESTIONABLE  EXPENDITURES
 
  As a result of these conditions, the Department reimbursed ETEC
$219,785 in questionable costs.  Questionable costs included
$161,310 for furniture, equipment, and services outside the
approved statements of work; $29,384 for equipment not used by
ETEC and not used specifically for grant performance; $22,891 for
costs billed in excess of cost ceilings; and $6,200 for items
that were reimbursed more than once.
 
2.   Cash Advance to the East Tennessee Economic Council
 
 
FINDING
 
     Federal regulations require that cash advances be limited to
the minimum amount needed to meet grant recipients' immediate
cash requirements and that interest earned on cash advances be
deposited in the U.S. Treasury.  However, the Department advanced
ETEC more than the minimum funds needed to meet immediate cash
requirements and allowed ETEC to keep interest on the funds
advanced.  This occurred because the Operations Office officials
responsible for awarding and administering this grant were not
familiar with Federal rules regarding cash advances.  As a
result, ETEC received $1.4 million more than it needed and
retained about $148,000 in interest due the U.S. Treasury.
 
 
RECOMMENDATIONS
 
We recommend that the Manager, Oak Ridge Operations Office:
 
       1.Ensure that any cash advances made under economic
       development grants are needed for immediate disbursement,
       and that any interest earned on advance funds is returned
       to the Department for remittance to the U.S. Treasury;
       and
 
       2.Recover all interest earned on funds advanced to ETEC
       to establish the revolving loan fund under the New
       Business Development Initiative grant and remit the
       recovered interest to the U.S. Treasury.
 
 
MANAGEMENT REACTION
 
     Management concurred with the findings and recommendations
and agreed to take corrective action.  Part III of the report
provides detailed management and auditor comments.
 
 
 
                       DETAILS OF FINDING
                                
                                
REQUIREMENT FOR CASH ADVANCES AND INTEREST EARNED
 
     Section 600.122, Title 10, of the Code of Federal
Regulations (Title 10) establishes rules to be followed by the
Department in providing cash advances to grantees and in
recovering interest earned on cash advances.  Title 10 requires
that cash advances be limited to the minimum amount needed by the
receiving organization in carrying out the purpose of the program
or project.  The timing and amount of cash advances are to be as
close as is administratively feasible to the actual disbursements
by the recipient organization for program or project purposes.
Further, Title 10 requires that recipients maintain advances of
Federal funds in interest bearing accounts, and that interest
earned on the advances be promptly remitted to the U.S. Treasury.
 
 
CASH ADVANCED AND INTEREST EARNED
 
     The Department gave ETEC a  $1.7 million cash advance
without requiring ETEC to justify that the entire amount was
needed immediately for program outlays.  Additionally, the
Department did not require ETEC to remit interest earned on the
account to the U.S. Treasury.
 
     ETEC requested and received $1.7 million from the
Department, the majority of which was to be used to establish a
revolving loan fund to provide expansion debt capital for small
businesses in East Tennessee.  However, ETEC did not justify the
advance of  $1.7 million and did not propose specifically how or
when the funds would be disbursed.  The Department did not
require ETEC to show that the funds were needed for immediate
disbursement before giving the funds to ETEC.  Although ETEC
received the entire amount in a lump sum payment in December
1994, only $310,000 had been disbursed for loan commitments by
December 1995.
 
     In addition, the Department did not require ETEC to return
interest accumulated on the revolving loan fund for remittance to
the U.S. Treasury.  Instead, the terms and conditions of the
grant allowed ETEC to add interest earned on the advance to the
general loan fund balance available to be loaned out to small
businesses.
 
 
UNFAMILIARITY WITH REQUIREMENTS
 
     This condition occurred because the Operations Office was
not familiar with Federal rules governing cash advances and
interest earned on cash advances.  Management stated that this
was the first grant the Operations Office had awarded to
establish a revolving loan fund and the requirements were
unclear.  Therefore, the Operations Office was not sure how to
handle the fund.  The cost and price analysis of the grant
proposal raised several questions regarding how the revolving
loan fund should be handled.  However, the questions were never
resolved.
 
 
FUNDS DUE THE U.S. TREASURY
 
     As a result, ETEC was advanced $1.4 million more than it
needed to establish a revolving loan fund, and retained more than
$148,000 in interest due the U.S. Treasury.  ETEC received $1.7
million in December 1994, and as of December 1995, had only
disbursed $310,000 from the fund.  Also, through the end of May
1996, ETEC had accumulated $148,465 in interest on the $1.7
million advanced for the revolving loan fund.
                            
                            PART III
                                
                 MANAGEMENT AND AUDITOR COMMENTS
                                
                                
     Oak Ridge Operations Office concurred with the findings and
recommendations and agreed to take corrective actions.
Management also agreed with the estimated monetary impact of the
report.  We consider management's comments to be responsive to
our recommendations. Management's specific comments follow.
 
 
  Finding 1. - Payments to the East Tennessee Economic Council
 
     Recommendation 1.  Closely scrutinize all ETEC invoices to
ensure that only costs required for performance of approved
statements of work are reimbursed under current and future
grants.
 
     Management Comments.  Management concurred and stated they
have an ongoing process to ensure invoices will be scrutinized to
determine that costs incurred and payable are explicitly
described in the statements of work.
 
     Recommendation 2.   Recover $161,310 used by ETEC to
purchase furniture, equipment, and consulting services outside
the scope of the Technology 2020 and New Business Development
Initiative grants, or appropriately modify the statements of work
to include these types of cost.
 
     Management Comments.   Management concurred.  The Department
plans to modify the statements of work by November 1, 1996, to
include this type of cost.
 
     Recommendation 3.   Recover $29,384 reimbursed to ETEC and
used to purchase equipment for the Chamber and TRV for their
operations, or ensure the purchased equipment is returned to
Technology 2020.
 
     Management Comments.  Management concurred.  Oak Ridge
Operations Office will direct that ETEC have the equipment
returned to Technology 2020 by December 1, 1996.
 
     Recommendation 4.   Recover $22,891 from ETEC for costs
billed in excess of written contractual agreements under the
feasibility studies and Technical Assistance in Reuse of
Departmental Facilities grants, or require ETEC to modify the
subagreements to cover the costs.
 
     Management Comments.   Management concurred.  The Department
will direct ETEC to modify their subagreements to reflect actual
costs by November 15, 1996.
 
 
 
     Recommendation 5.   Recover $6,200 from ETEC for costs
reimbursed twice under the Technology 2020 grant.
 
     Management Comments.   Management concurred.  The Department
will direct an adjustment for $2,148 in double billing and $4,052
for damaged computer reimbursement after the indirect rate audit
and final settlement.  The adjustments will be completed by
November 30, 1996.
 
 Finding 2 - Cash Advance to the East Tennessee Economic Council
 
     Recommendation 1.   Ensure that any cash advances made under
economic development grants are needed for immediate
disbursement, and that any interest earned on advance funds is
returned to the Department for remittance to the U.S. Treasury.
 
     Management Comments.   Management concurred and stated that
written direction will be provided to clarify requirements for
immediate disbursements and need for remittance of interest
earned on advance funds and revolving fund loans by November 1,
1996.
 
     Recommendation 2.   Recover all interest earned on funds
advanced to ETEC to establish the revolving loan fund under the
New Business Development Initiative grant and remit the recovered
interest to the U.S. Treasury.
 
     Management Comments.   Management concurred.  The Department
will seek reimbursement from ETEC for the exact amount of
interest earned from the $1.7 million advance revolving loan by
November 30, 1996.
                                   
                                   IG Report No.      ER-B-97-01
 
 
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