type: other

jurisdiction: US

text: b"United States Department of Agriculture\nOffice of Inspector General\n\n\n\n\nThe Recovery Act - Rural Development's\nRural Business Enterprise Grants Field\nConfirmations\n\n\n\n\n Audit Report 34703-0001-31\n January 2013\n\x0c Review of the Rural Business Enterprise Grants\n Recovery Act Field Confirmations\n\n Audit Report 34703-0001-31\n\nWhat Were OIG\xe2\x80\x99s\nObjectives\nOur overall objectives were to\ndetermine if established\ncontrols were functioning as\nintended to ensure grant\nrecipients used funds for As the second stage of a multi-phase review\nauthorized purposes, met grant\nobjectives in a timely manner, of the Recovery Act\xe2\x80\x99s funding for the RBEG\nand provided the required program, OIG examined whether RBS had\nmatching funds, where appropriate oversight over project\napplicable.\n compliance.\nWhat OIG Reviewed\nTo evaluate RBS\xe2\x80\x99s controls, What OIG Found\nwe assessed a random sample\nof 47 projects from 18 States As part of the Recovery Act, Congress provided $20 million for the\nbetween March 2011 and Rural Business Enterprise Grant (RBEG) program to provide funding\nMay 2012. These grants to facilitate the development of small and emerging rural businesses.\nrepresented over $6.8 million By October 2009, Rural Development had obligated funds for\nof the total $15.3 million 145 RBEG projects, totaling over $15.3 million in Recovery Act\nawarded in Recovery Act funding.\nRBEG projects.\n Rural Business-Cooperative Service (RBS), an agency under Rural\nWhat OIG Recommends Development, is responsible for ensuring that the selected projects\n meet program objectives and requirements. We found that RBS was\nWe recommend that RBS\n not sufficiently reviewing projects for compliance. Specifically, out\nprovide personnel in charge of\n of the 47 grants we reviewed, we identified 20 where RBS personnel\noverseeing RBEG projects\n did not obtain or review required forms, 3 of which either had\nwith formal, comprehensive\n received prior unspent grants or duplicated prior RBEG projects.\ntraining, and recover RBEG\n Based on our overall sample results, we estimate that 70 grants\nRecovery Act funds for\n (49 percent) may have similar issues, with a projected total value of\nprojects that lack sufficient\n $4.6 million. RBS officials did not always ensure grant recipients\nsupport, were outside the\n submitted necessary forms and documentation or ensure that\nscope of work, or were\n recipients spent prior grant and matching funds before receiving\nawarded to grant recipients\n funding for another RBEG project. This occurred because RBS staff\nthat did not provide required\n were not trained adequately on RBEG-specific information. As a\nfunds from non-Federal\n result, RBS has disbursed improper payments and inconsistently\nsources.\n applied requirements.\n\n The agency generally agreed with four of our five recommendations,\n but further action from the agency is needed before management\n decision can be reached on the fifth recommendation.\n\x0c\x0c United States Department of Agriculture\n Office of Inspector General\n Washington, D.C. 20250\n\n\n\nDATE: January 24, 2013\n\nAUDIT\nNUMBER: 34703-0001-31\n\nTO: Lillian Salerno\n Acting Administrator\n Business and Cooperative Programs\n\nATTN: John Dunsmuir\n Acting Director\n Financial Management Division\n\nFROM: Gil H. Harden\n Assistant Inspector General for Audit\n\nSUBJECT: Rural Business Enterprise Grants Recovery Act Controls Field Confirmations\n\n\nAttached is a copy of the final report on the subject audit. Your written response to the official\ndraft report, dated December 10, 2012, is attached, with excerpts from your response and the\nOffice of Inspector General\xe2\x80\x99s (OIG) position incorporated in the relevant Finding and\nRecommendation sections of the report.\n\nBased on your response to our official draft report, we accept management decision for\nRecommendations 1, 2, 3, and 4 of the report. However, we are unable to accept management\ndecision on Recommendation 5. Documentation and/or actions needed to reach management\ndecisions for these recommendations are described in the OIG section of the report.\n\nIn accordance with Departmental Regulation 1720-1, please furnish a reply within 60 days\ndescribing the corrective actions taken or planned, and timeframes for implementing the\nrecommendation for which management decision has not been reached. Please note that the\nregulation requires management decision to be reached on all recommendations within 6 months\nfrom report issuance, and final action to be taken within 1 year of each management decision to\nprevent being listed in the Department\xe2\x80\x99s annual Performance and Accountability Report. Please\nfollow your internal agency procedures in forwarding final action correspondence to OCFO.\n\nWe appreciate the courtesies and cooperation extended to us by members of your staff during our\naudit fieldwork and subsequent discussions.\n\nAttachments\n\x0c\x0cTable of Contents\n\nBackground and Objectives ....................................................................................2\nSection 1: RBEG Compliance Issues .....................................................................4\n Finding 1: Rural Development Needs to Strengthen Oversight of RBEG\n Requirements ........................................................................................................4\n Recommendation 1 ........................................................................................9\n Recommendation 2 ......................................................................................10\n Recommendation 3 ......................................................................................10\n Recommendation 4 ......................................................................................11\n Recommendation 5 ......................................................................................11\nAbbreviations .........................................................................................................14\nExhibit A \xe2\x80\x93 Summary of Monetary Results ........................................................15\nExhibit B \xe2\x80\x93 Sampling Methodology for Rural Development Recovery Act\nRBEG Projects for Phase IIa ................................................................................16\nExhibit C \xe2\x80\x93 Listing of Projects by State and Recovery Recommendations .....21\nAgency\xe2\x80\x99s Response .................................................................................................23\n\n\n\n\n AUDIT REPORT 34703-0001-31 1\n\x0cBackground and Objectives\n\nBackground\nThe Rural Business Enterprise Grant (RBEG) program provides funding for projects that\nfacilitate the development of small and emerging rural businesses.1 Projects covered include\nacquiring or developing land, easements, or right of ways; constructing and renovating buildings,\nplants, machinery, access streets, parking areas, and utilities; capitalizing funds to establish loans\nfor start-up and working capital; providing training, technical assistance, and distance adult\nlearning for job training and placement; and improving rural transportation. Rural Business-\nCooperative Service (RBS), an agency under Rural Development (RD), is responsible for\nestablishing agency policy and procedures for the RBEG program and administering it.\n\nWith the passage of the American Recovery and Reinvestment Act of 2009 (Recovery Act),\nCongress provided $20 million in funding to the RBEG program to support business\ndevelopment in rural areas. Congress emphasized the need for accountability and transparency\nin expending these funds. Additionally, the Office of Management and Budget (OMB) and the\nGovernment Accountability Office (GAO) require oversight steps\xe2\x80\x94including internal and\nprogram controls\xe2\x80\x94beyond standard practice, and timely reporting of all spending. 2, 3, 4 On\nJuly 28, 2009, Rural Development announced that it approved 145 RBEG program projects,\ntotaling over $15.3 million in Recovery Act funding.5 By October 2, 2009, all of the grants had\nbeen obligated.\n\nAccording to Rural Development\xe2\x80\x99s Implementation Plan, Rural Development intended to use\nRecovery Act funding to ensure that Recovery Act RBEG program funds had both short and\nlong-term effects on the economy.6 Guidance issued by the Secretary of Agriculture states that\nagencies shall develop transparent, merit-based criteria that will guide their discretion in\ncommitting, obligating, or expending funds under the Recovery Act.7 Accordingly, RBEG\nprogram funding was contingent upon the grant recipient meeting the conditions of the grant\nagreement.\n\nWe reviewed the Recovery Act RBEG program in three phases. The objectives of Phase I were\nfocused on identifying whether the internal controls over Rural Development\xe2\x80\x99s Recovery Act\nRBEG program were timely and effectively implemented. For Phase II, the objectives were to\nensure that program participants met eligibility guidance, that participants complied with\nprogram requirements, and that agencies established effective compliance operations. In Phase I,\nwe reviewed the design of grant processing controls over RBEGs, such as application\n\n1\n RBEGs may be made to public bodies, private nonprofit corporations, and Federally-recognized Indian Tribal\ngroups in rural areas.\n2\n OMB, M-09-15 Updated Implementing Guidance for ARRA of 2009, April 3, 2009.\n3\n GAO, Standards for Internal Control in the Federal Government, November 1999.\n4\n OMB, A-123 Management\xe2\x80\x99s Responsibility for Internal Control, December 21, 2004.\n5\n One of these projects was later de-obligated, resulting in a universe of 144 RBEGs for a total of $15.2 million.\n6\n American Recovery and Reinvestment Act Implementation Plan, May 15, 2010.\n7\n American Recovery and Reinvestment Act Obligation Clearance Memorandum for Heads of Agencies and\nPrinciples [sic] Receiving ARRA funding, March 23, 2009.\n\n2 AUDIT REPORT 34703-0001-31\n\x0cprocessing, recipient eligibility determinations, and recipient reporting and servicing. Although\nwe found that existing controls were not always followed, we did not find any apparent control\ndeficiencies in the design of these controls.\n\nDuring Phase II, we found that RBS personnel continued to rate Recovery Act RBEG applicants\nwithout sufficient evidence, due to insufficient training. Even though RBS held training, not all\npersonnel who performed essential functions within the RBEG program were required to attend.\nRBS personnel also accepted missing or inadequate reports because they developed their own\nprocesses and relied on other criteria, such as applicant narratives, to support priority scores. We\nconcluded that documenting eligibility could help ensure that proposed projects would be able to\nmeet the goals of the Recovery Act to save and create jobs. Due to the timing of disbursement of\nRecovery Act RBEG funds, we were unable to review RBS\xe2\x80\x99 process for handling the distribution\nof funds for Recovery Act RBEG projects because only 7 percent of the obligated Recovery Act\nRBEG funds had been disbursed at the time of our audit.\n\nObjectives\nThe objectives of the field confirmation phase were to determine if established controls were\nfunctioning as intended to ensure grant recipients used grant funds for authorized purposes and\nmet objectives of the grant in a timely manner, and, where applicable, if grant recipients\nprovided the required matching funds. For revolving loan funds, we determined if existing\ncontrols ensured that third party recipients also met eligibility requirements and properly\nreported to Recovery.gov.\n\n\n\n\n AUDIT REPORT 34703-0001-31 3\n\x0cSection 1: RBEG Compliance Issues\n\nFinding 1: Rural Development Needs to Strengthen Oversight of RBEG\nRequirements\nRBS personnel are responsible for ensuring that grant recipients submit the necessary forms and\ndocumentation to report on their projects and support expenditures for reimbursement. They are\nalso required to ensure that recipients are spending any prior grants they may have received, as\nwell as their matching funding, before receiving funding for another RBEG project. However,\nout of the 47 grants we reviewed, we identified 20 where RBS personnel did not obtain or\nreview required forms, 3 of which either had received prior unspent grants or had duplicated\nprior RBEG projects. Based on our overall sample results, we estimate that 70 grants (about\n49 percent of the universe) may have similar issues, with a projected total value of $4.6 million.8\nRBS officials did not always perform these duties because of inadequate instruction and training\nspecific to the RBEG program. As a result, RBS has disbursed improper payments and\ninconsistently applied requirements. While RBEG is a small program, its mission of stimulating\nsmall rural economies is an important one. Though all Recovery Act funding has been obligated,\nbecause RBEG is a continuing program, it is crucial that RBS continue to follow these\nrequirements in the future.\n\nRBEG recipients can only use grant funds on activities and costs for which the grant was\nawarded. According to Rural Development guidance, except for revolving loan funds, Rural\nDevelopment will disburse RBEG funds on a reimbursement basis.9 For grants to provide\nassistance to third parties through a revolving loan fund, funds are to be disbursed in accordance\nwith the United States Department of Agriculture (USDA)\xe2\x80\x99s Uniform Federal Assistance\nRegulations.10 In order for RBS officials to have sufficient oversight on project status, progress,\nand expenditures, RBEG recipients are required to state overall grant expenditures, the scope of\nthe project\xe2\x80\x99s work, how grant funding is being spent, and, if applicable, the project\xe2\x80\x99s matching\nfunding status. To do this, recipients submit a variety of forms and documentation, including:\n\n \xc2\xb7 Documentation of expenditures, such as cancelled checks, paid bills, and contracts;11\n \xc2\xb7 A notification to Rural Development should they decide to change the scope of the\n project, which must receive Rural Development\xe2\x80\x99s prior approval;12 and\n \xc2\xb7 A \xe2\x80\x9cRequest for Advance or Reimbursement\xe2\x80\x9d (form SF-270), which is submitted, as\n needed, but never more than once every 30 days.13 On this form, recipients must state\n project expenditures, any matching funds contributions, and total program outlays to date.\n This document is crucial because it is the only document grant recipients are required to\n\n8\n We are 95 percent confident that between 20 (actual number observed) and 116 (logical upper bound) grants are\nnon-compliant, based on this set of criteria, and the total value of those grants is between $2.38 million (actual\nobserved) and $6.81 million.\n9\n RD Instruction 1942-G, Attachment I, Section A.II (I).\n10\n RD Instruction 1942-G, Attachment I, Section A.II (I)(4).\n11\n 7 Code of Federal Regulations (CFR) 3015.61(g).\n12\n 7 CFR 3015.113 and RD Instruction 1942-G, Attachment 1, Section A.II (L).\n13\n RD Instruction 1942-G, Attachment 1, Section A.I (1).\n\n4 AUDIT REPORT 34703-0001-31\n\x0c submit to Rural Development for reimbursement that has the recipient\xe2\x80\x99s signature\n verifying the accuracy of the submitted information.\n\nRBS officials are not only responsible for ensuring that recipients submit the necessary forms\nand supporting documentation, but also that projects meet RBEG program requirements and that\nfunding is appropriately disbursed for suitable projects. For example, when approving RBEG\napplications, with the exception of sequential grants, RBS officials need to ensure that the\npurpose and scope of work does not duplicate project work that has already received funding. 14\nIn cases where sequential grants are allowed for the same purpose, recipients need to fully\nexpend funds from the initial grant before RBS can give the recipient another grant. RBS\nofficials also need to ensure that recipients are expending their matching funding consistent with\nRBEG policies before disbursing RBEG funds.15 Reviewing forms and supporting\ndocumentation provides RBS with necessary oversight in order to monitor RBEG project\nexpenditures and ensure that funds are being put to their intended use. Additionally, RBS\xe2\x80\x99\noversight, prior to obligating or disbursing funds, is critical in order to ensure that the selected\nprojects appropriately meet their intended purposes.\n\nHowever, we found that RBS personnel did not always check or require that recipients submit\ndocumentation necessary to ensure that funds went to those best able to meet the goals of the\nRecovery Act. Specifically, when looking at Recovery Act RBEGs, we found that, first, RBS\npersonnel did not require recipients to submit necessary forms and supporting documentation\nbefore they disbursed funds, which led to them sometimes disbursing funds for ineligible\npurposes. Second, RBS personnel did not require recipients to submit the SF-270 for\nreimbursement, which grant recipients submit to certify expenditures and verify that the\ndocumentation provided is true and accurate. Finally, RBS personnel approved grants for\nduplicate or similar purposes (see Exhibit C). This occurred because RBS personnel were not\nadequately instructed or trained specifically on the RBEG program.\n\n Supporting Documentation for Reimbursement\n\n RBS personnel need to obtain and review supporting documentation for expenditures in\n order to ensure that expenses are for eligible purposes established in the scope of the\n work.16 However, we found that RBS State and area office personnel did not always\n require Recovery Act RBEG recipients to provide adequate supporting documentation\n before releasing funds, or did not always review this documentation when provided.\n Additionally, RBS officials approved disbursements, even though the recipients revised\n the project\xe2\x80\x99s scope or budget without first obtaining written approval from RBS officials.\n\n\n\n\n14\n RD Instruction 1942-G, Attachment 1, Section B. III (T).\n15\n According to RD\xe2\x80\x99s national office, States are allowed to create their own policies on how much of the matching\nfunding should be expended prior to receiving disbursement. However, no RBEG office should permit recipients to\nexpend matching funding last.\n16\n 7CFR 3015.61(g) requires accounting records to be supported by source documentation.\n\n AUDIT REPORT 34703-0001-31 5\n\x0c As a result, nine projects in six States received $344,00017 (see Exhibit A), even though\n they either did not provide supporting documentation for expenditures, or had\n expenditures outside the scope of work. Specifically, grant recipients for two technical\n assistance projects received approximately $75,000 and $200,000 without providing\n adequate supporting documentation to ensure funds were used appropriately. Another\n project received over $18,000 without supplying adequate supporting documentation.\n\n We found these grant recipients were unmonitored and used funds on ineligible expenses.\n For example, a grant recipient improperly spent approximately $15,000 intended for\n technical assistance to train a consultant.18, 19 Because the State office personnel did not\n require documentation to support expenditures, officials were not aware of these\n ineligible purchases prior to our audit. In another State, a grant recipient used $13,325 of\n RBEG funds intended for a contractor on current employees\xe2\x80\x99 salaries and $2,678 on\n travel expenses for staff members. Another grant recipient used $339 of funds for\n supplies and miscellaneous, unapproved items, instead of on equipment, as proposed.\n\n Rural Development officials have taken steps to resolve instances where funds were\n shifted outside the scope or budget and to recover funds that were expended for ineligible\n purposes. Supporting documentation is necessary to ensure that funding is used as\n intended. Because RBS personnel did not sufficiently check or require submitted\n documentation, they provided nearly $344,000 in questionable disbursements. Based on\n our sample results, we project that 55 grants (38 percent of the universe) had\n expenditures of about $1.4 million that were either outside of the scope or unsupported.20\n\n Forms for Reimbursement: SF-270\n\n Like supporting documentation, the Request for Advance or Reimbursement form, which\n recipients must submit in order to be reimbursed, is a crucial tool in order to track the\n progress and expenditures of a project. It is the only document in which the recipient\n certifies the accuracy of the information and truthfulness of their expenditures.\n Additionally, it is the only place that matching funds are recorded and tracked. We found\n 9 of the 47 grants we sampled where RBS State and area office personnel did not require\n recipients to submit the required SF-270 when requesting reimbursement. Of these nine\n grants, officials in three States allowed recipients to submit reimbursement requests more\n frequently than allowed under the once per 30 day requirement. Based on our sample\n results, we estimate 18 grants (about 13 percent of the universe) may have similar\n\n17\n This figure is obtained by adding recommendations 1 and 2 together ($326,639+$17,309) and rounding to the\nnearest thousand.\n18\n For a complete listing of expenditures, see Exhibit C.\n19\n The proposal and budget the grant recipient submitted requested funding to provide technical assistance for the\ndevelopment of small and emerging businesses. The documentation did not include a request for funds to provide\ntraining for a consultant. If \xe2\x80\x9ctraining consultant\xe2\x80\x9d was requested in the proposal and budget, it would have been\napproved as an eligible expense.\n20\n We observed 9 instances of this condition, totaling about $344,000 in expenditures, that were either outside the\nscope of work or unsupported. We are 95 percent confident that between 9 (actual number observed) and 105 grants\n(about 73 percent of the universe) were non-compliant for the same reason and the total value of those grants is\nbetween $344,000 (actual observed) and $2.9 million.\n\n6 AUDIT REPORT 34703-0001-31\n\x0c SF-270 issues.21\n\n Specifically, we noted that the files on four grant recipients had missing SF-270s. In\n addition, for two other projects, RBS officials did not require grant recipients to submit\n the required SF-270 at all. Instead, one State allowed the grant recipient to submit\n cancelled checks and invoices. RBS officials then kept track of expenditures through a\n separate accounting system and not the SF-270.22 In the other State, RBS officials used a\n spreadsheet to track the expenditures, instead of the SF-270. In the future, they have\n agreed to track expenditures using both the spreadsheet and the SF-270.\n\n We also found that RBS officials allowed three recipients to submit reimbursement\n requests more frequently than allowed under the once per 30 day requirement\xe2\x80\x94one\n recipient violated this requirement four times. Because RBS personnel have not always\n sufficiently reviewed documentation to verify that expenditures are valid, RBS risks\n disbursing improper payments.\n\n The SF-270 is a valuable resource to monitor how funds are spent. It is also the only\n method for tracking a recipient\xe2\x80\x99s matching funding from non-Federal sources, where\n applicable. The funding for these 9 projects totaled $1,007,305 (see Exhibit A). We do\n not recommend recovery of these funds because State personnel were able to eventually\n track these funds and verify that the funds were used for eligible and appropriate\n purposes. However, we remain concerned that without consistent enforcement of\n regulations, Rural Development may be vulnerable to disbursing funds inappropriately.\n\n Projects with Prior or Matching Funding\n\n One of RBS\xe2\x80\x99 primary responsibilities when reviewing applications is to ensure that RBEG\n funding is granted for unique projects that do not duplicate past efforts. Additionally, it is\n important to ensure that RBEG recipients meet matching requirements, in conjunction with\n RBEG funding. However, we found that RBS personnel in area offices did not perform the\n necessary checks to ensure that applicants did not already have funding for similar\n purposes, or that they had a history of appropriately expending funding.\n\n RBS officials accepted applications for three Recovery Act projects from grant recipients\n that already had existing, unused RBEG funding.23 At the time of our audit, approximately\n 2 years after the funds had been obligated, these three grant recipients with Recovery Act\n grant awards, totaling almost $1 million24 (see Exhibit A), still had not initiated project\n activities on prior RBEG projects, totaling almost $900,000.\n\n In one State, two Recovery Act RBEG projects received revolving loan fund awards,\n\n21\n We are 95 percent confident that between 9 (actual number observed) and 29 grants (about 20 percent of the\nuniverse) had SF-270 issues. Because the statistical lower bound of the 95 percent confidence level was lower than\nthe actual number observed, we are reporting the actual observation as the lower bound.\n22\n The alternate accounting system did not have the capability to track matching funds.\n23\n These 3 projects were located in 2 of 18 sample States.\n\n\n\n AUDIT REPORT 34703-0001-31 7\n\x0c totaling $600,000, even though they had not disbursed $400,000 from previous RBEG\n awards for the same purpose. Additionally, a project located in another State received a\n Recovery Act RBEG of approximately $400,000 to help a new business locate in a\n business park, even though the recipient had not expended funds from a prior RBEG of\n approximately $500,000. This grant recipient had not met the reporting requirement for the\n prior grant and had been cited in the State Internal Review (SIR)25 for failure to provide the\n requested reports.\n\n Additionally, RBS personnel in a third State did not ensure that a recipient expended\n matching funds in conjunction with RBEG funding. This recipient received disbursements\n of approximately $100,000 and stated he would provide 50 percent in matching funds.\n However, RBS disbursed the money all at one time, even though that State had a pro-rata\n policy.26 As of yet, the recipient has not expended its required match. According to the\n Recovery Act statute, all Recovery Act funds not used must be returned to the Department\n of the Treasury. To ensure that the RBEG funds given to the grant recipient are utilized as\n required, we are recommending recovery of the almost $34,000 (see Exhibit A) provided to\n the grant recipient in error.\nRBS personnel did not perform the necessary checks to safeguard against such errors because of\na lack of training on the RBEG program. We have noted in the past that Rural Development has\nnot always offered sufficient training on RBEG program-specific policies in certain areas.27\n\nIn some instances, a lack of training resulted in personnel being unfamiliar with RBEG\nrequirements and policies. For example, one area office loan specialist dispersed funds prior to\nreceiving training on how to do so. He stated that because he was new to the position, he did not\nhave the opportunity to look closely at the requirements, which resulted in him disbursing the\nRBEG funds all at once, even though the grant recipient had pledged a 50 percent match of non-\nFederal funds.\n\nAdditionally, when we spoke to RBS officials in several States, they said that they did not know\nwhat documentation was needed to verify expenditures for specific types of grants\xe2\x80\x94such as\ntechnical assistance grants. Rural Development national officials agreed that State and area field\nofficials may not always be obtaining adequate documentation to support requests for release of\ngrant funds and agreed that these officials should be provided with training to enable them to\nproperly evaluate requests for fund disbursement. Several State office personnel have already\ntaken corrective actions. For example, during the course of our audit, a grant recipient provided\nus with a spreadsheet detailing the breakdown of the time spent by the consultant, which\n\n\n25\n SIRs are comprehensive evaluation reviews of the delivery of program and administrative functions in field\noffices and centralized program functions within a State. The SIR occurs at each field office at least once every\n5 years (Section 2006.609, RD Instruction 2006-M, May 19, 2004).\n26\n Pro-rata is defined as a method of assigning an amount to a fraction, according to its share of the whole. The State\noffice\xe2\x80\x99s informal policy is for the grant recipient to expend a percentage of its own funds before the RBEG is fully\ndisbursed.\n27\n Audits 34703-0001-KC, Controls over Recovery Act Rural Business Enterprise Grants, March 31, 2010, and\n34703-0002-KC, The Recovery Act-Rural Development\xe2\x80\x99s Controls Over Rural Business Enterprise Grants,\nSeptember 5, 2012.\n\n8 AUDIT REPORT 34703-0001-31\n\x0csupported costs for the technical assistance grant.28 RBS had never received or required this\ndocument from the grant recipient because they were unfamiliar with the type of documentation\nrequired to support technical assistance grants and did not know it would be available or useful\nto them. Since our audit, the Rural Development office in this State has used this spreadsheet as\nan example and has trained its personnel on what type of information to request from grant\nrecipients providing technical assistance.\n\nAdditionally, the lack of training on the program has resulted in personnel not performing the\nnecessary checks that would ensure that recipients are meeting these program requirements. For\nexample, though personnel knew that the SF-270 form was required, they accepted a\nspreadsheet, believing it to be a sufficient substitute. In another instance, RBS personnel did not\nappropriately review supporting documentation to ensure that expenditures fit the scope of the\nwork. RBS officials in three offices stated they were busy with other programs or that it was an\noversight on their part.\n\nRBS personnel have acknowledged that the RBEG program is a small program within RBS. For\nexample, Rural Development\xe2\x80\x99s Business and Industry program received over $930 million for\nboth fiscal years 2009 and 2010, as opposed to the $39 million received by the RBEG program\neach year. Many of the same personnel who administer these larger programs are also in charge\nof administering the RBEG program. Because of this, it does not always receive the necessary\nattention from Rural Development personnel administering the program, who focus their\nattention on other, larger programs\xe2\x80\x94several of which accomplish similar purposes.29\n\nWe remain concerned that without appropriate training, RBS personnel may continue to make\nimproper payments and select projects which may not be best suited for program purposes. Until\nRural Development takes steps to ensure that RBS personnel are aware of RBEG requirements\nand that State and area offices ensure that they have sufficient and appropriate documentation,\nthe program has a higher risk of funds being unmonitored or inappropriately spent on ineligible\nitems. Because the RBEG program is a continuing program, it is necessary that controls\nensuring the proper administration of the program are in place and followed.\n\nRecommendation 1\nRecover $326,639 in RBEG Recovery Act funds that lack sufficient support.\n\n\n\n28\n This example relates to the $15,000 technical assistance issue previously discussed within the \xe2\x80\x9csupporting\ndocumentation\xe2\x80\x9d section of the report.\n29\n RBEG\xe2\x80\x99s revolving loan fund and Intermediary Relending Program are both for the purpose of lending funds to\nalleviate poverty and increase economic activity in rural communities. Many of the other purposes for the RBEG\nprogram, such as providing technical assistance, business plans, and working capital, are also functions of the\nValue-Added Producer Grants, another RD program. RBEGs and Rural Business Opportunity Grants are used to\npromote economic development in rural communities. Additionally, in its 2012 Annual Report (GAO-12-342SP),\nthe Government Accountability Office identified the RBEG program as a program that overlaps with programs from\nthree other agencies outside of USDA.\n\n\n\n AUDIT REPORT 34703-0001-31 9\n\x0cAgency Response\nBased on RBS\xe2\x80\x99 response dated December 10, 2012, the agency recovered $14,940 and is\nreturning it to the Treasury Department. Recovery of $18,228 is not possible, as the grant\nrecipient is no longer in business. The remaining grant funds no longer need to be recovered as\nthe respective State Offices provided the necessary documentation to support the disbursement of\nthe funds.\n\nOIG Position\nWe accept management decision for this recommendation.\n\nRecommendation 2\nRecover $17,309 in RBEG Recovery Act disbursement amounts that were outside the scope of\nwork.\n\nAgency Response\nRBS\xe2\x80\x99 response stated that no recovery of funds is necessary. Documentation was provided to\nsupport eligible expenses that were within the scope of work for the $16,003 of ineligible\nexpenses. An adjustment was made to a new reimbursement request to offset the $394 ineligible\nexpense. Recovery of $573 is not possible as the grant recipient is no longer in business;\nhowever, the area office was aware of other eligible project costs that were not submitted for\nreimbursement which could have been substituted. Documentation was provided to show that\nthe scope of work was modified and approved for the $339 ineligible expense.\n\nOIG Position\nWe accept management decision for this recommendation.\n\nRecommendation 3\nProvide all State and area office personnel in charge of overseeing RBEG projects with formal,\ncomprehensive training on what constitutes adequate supporting documentation to validate\nRBEG recipients\xe2\x80\x99 requests for reimbursement, on procedures for obtaining and verifying\nSF-270s, and on how to ensure that reimbursements for expenditures are for tasks, as defined in\nthe scope of work.\n\nAgency Response\nRBS\xe2\x80\x99 response stated that, during 2012, the National Office\n and the divisions provided training to all State Office\nProgram Directors and Specialists concerning grant servicing. The training discussed the\nappropriate documentation, quarterly performance reports, and SF-270s for grants. In addition,\n\n10 AUDIT REPORT 34703-0001-31\n\x0con February 22, 2012, the National Office conducted an RBEG monitoring and servicing\nwebinar which was available nationwide. Documentation, program performance reports,\nSF-270s and changes in scopes of works were discussed during this webinar.\n\nOIG Position\nWe accept management decision for this recommendation.\n\nRecommendation 4\nProvide all RBS personnel with training on the requirements to follow when awarding a\nsequential grant.\n\nAgency Response\nRBS\xe2\x80\x99 response stated that there is no requirement in 7 CFR 1942-G that the previous grant funds\nbe expended and therefore the State Offices made correct eligibility determinations according to\nthe regulations. No further training is necessary.\n\nOIG Position\nWhen we initially discussed the issue of sequential grants with RBS national officials, they\nagreed additional grants should not have been awarded. However, due to the fact that there are\nno hard requirements in 7 CFR 1942-G that the previous grant funds be expended, we accept\nmanagement decision for this recommendation.\n\nRecommendation 5\nRecover $33,660 in RBEG Recovery Act disbursements where the grant recipient did not\nprovide the required matching funds from non-Federal sources.\n\nAgency Response\nRBS\xe2\x80\x99 response stated that they will not request recovery of the $33,600 and allow the funds to\nremain in an interest bearing account to be loaned out in the future. The grant recipient informed\nRBS in a letter that the remaining $50,000 is in an interest bearing account and they are actively\npursuing other viable applications. The State Office will continue to work closely with the grant\nrecipient to ensure that these funds are loaned out in accordance with the scope of work and by\nSeptember 30, 2013, as stated in letter received from the grant recipient.\n\nOIG Position\nWe do not accept management decision for this recommendation. Since the grant recipient did\nnot provide its portion of the matching funds as required, we consider this to be an improper\npayment. In order to reach management decision, the agency needs to provide a copy of the bill\n\n AUDIT REPORT 34703-0001-31 11\n\x0cfor collection and support that the $33,600 has been entered as a receivable on the agency's\naccounting records.\n\n\n\n\n12 AUDIT REPORT 34703-0001-31\n\x0cScope and Methodology\nWe performed this audit to assess the controls in place to ensure Recovery Act RBEG recipients\nused grant funds for authorized purposes and met the objectives of the grant in a timely manner,\nand, where applicable, grant recipients provided the required matching funds. To make our\ndeterminations, we performed fieldwork from March 2011 through May 2012 at the Rural\nDevelopment national office and State and area offices in 18 States. To accomplish our\nobjectives, we statistically selected 47 projects, out of a universe of 143 projects that received\nRecovery Act RBEG awards, representing $6,806,085 of the total RBEG awards of $15,314,425,\nas of July 28, 2009. To maximize the efficient use of audit resources, we clustered projects by\nlocation.\n\nTo accomplish our overall objectives, we tested and assessed the existing controls intended to\nensure that reimbursements made to RBEG recipients from grant funds were for authorized\nexpenses. We performed the following procedures:\n\n \xc2\xb7 interviewed national office personnel to determine if any changes to the RBEG\n Implementation Plan for Recovery Act grants had been made;\n\n \xc2\xb7 reviewed RBEG files at State and area offices to confirm that program controls were in\n place and functioning as intended to ensure grant recipients met all requirements for\n disbursement of grant funds;\n\n \xc2\xb7 identified and reviewed Rural Development published guidance, instructions,\n administrative notices, and regulations that detail the controls and procedures over the\n RBEG program;\n\n \xc2\xb7 reviewed and made site visits to Rural Development State and area offices and recipients\n for a randomly selected sample of 47 projects in 18 States;\n\n \xc2\xb7 obtained and reviewed documents, such as OMB guidance, to gain an understanding of\n the provisions and requirements related to Rural Development\xe2\x80\x99s RBEG program.\n\nDuring this audit, we did not review, analyze, or verify information in the agency\xe2\x80\x99s Guaranteed\nLoan System database and make no representation of the adequacy of the system or the\ninformation generated by it.\n\nWe conducted this performance audit in accordance with generally accepted government\nauditing standards. Those standards require that we plan and perform the audit to obtain\nsufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions\nbased on our audit objectives. We believe that the evidence obtained provides a reasonable basis\nfor our findings and conclusions based on our audit objectives.\n\n\n\n\n AUDIT REPORT 34703-0001-31 13\n\x0cAbbreviations\nCFR ............................Code of Federal Regulations\nGAO ...........................Government Accountability Office\nOIG ............................Office of Inspector General\nOMB ..........................Office of Management and Budget\nPPS .............................Probability Proportional to Size\nRBEG .........................Rural Business Enterprise Grant\nRBS ............................Rural Business-Cooperative Service\nRD ..............................Rural Development\nRecovery Act .............The American Recovery and Reinvestment Act of 2009\nSIR .............................State Internal Review\nUSDA.........................United States Department of Agriculture\n\n\n\n\n14 AUDIT REPORT 34703-0001-31\n\x0cExhibit A \xe2\x80\x93 Summary of Monetary Results\nThe table below represents the monetary amounts identified in the findings and our\nrecommendations related to recovery.\n\nFinding Recommendation\nNumber Number Description Amount Monetary Results30\n Unsupported Costs,\n No supporting Recovery\n 1 1\n documentation.31 $326,639 Recommended\n Questioned Costs,\n Recovery\n 1 2\n Outside scope of work. $17,309 Recommended\n SF-270: Missing or none Questioned Costs, No\n 1 3\n used. $3,467,04832 Recovery\n Questioned Costs, No\n 1 4\n Prior RBEGs. $999,99933 Recovery\n Questioned Costs,\n Matching funds Recovery\n 1 5\n commitments. $33,660 Recommended\n Total $4,844,655\n\n\n\n\n30\n We identified two projects with multiple issues, and those projects are included in only one monetary result\ncategory.\n31\n Where supporting documentation could not be reconciled to the expenditures, the entire amount of the grant was\nrecommended for recovery.\n32\n We estimate that $3.8 million is at risk based on grants that had no supporting documentation, were out of the\nscope of work, or had an SF-270 issue. We are 95 percent confident that between $1.6 million and $6.02 million is\nat risk based on the same criteria. The amounts expected to be recovered are subtracted from the total $3.8 million\n($3,810,996 \xe2\x80\x93 326,639 \xe2\x80\x93 17,309 = $3,467,048). The actual amount observed in error is $1,007,305.\n33\n We estimate that $1,033,659 (actual amount observed) is at risk based on grants that did not have adequate\nmatching funds or grants with prior unspent funds. The amount expected to be recovered is subtracted from the total\n$1,033,659 ($1,033,659 \xe2\x80\x93 33,660 = $999,999).\n\n AUDIT REPORT 34703-0001-31 15\n\x0cExhibit B \xe2\x80\x93 Sampling Methodology for Rural Development\nRecovery Act RBEG Projects for Phase IIa\nObjective\n\nThis sample was designed to examine Rural Business Enterprise Grant (RBEG) program projects\nand their associated loans, contracts, grants, and agreements, using Recovery Act funds. The\nsample selection methodology included geographic clustering of projects and cluster selection\nprobabilities proportional to the total award value of each cluster. The design allowed projection\nof compliance-related attributes for individual projects awarded rural business enterprise grants.\n\nAudit Universe\n\nOur universe for this audit was the list of 143 RBEG projects funded under the Recovery Act as\nof July 28, 2009.34\n\nSample Design\n\nAfter considering the audit resources required for various design alternatives, the audit team and\nthe statistician chose a design option that used clustering of projects and probability proportional\nto size (PPS) with replacement. The total value of all projects in the cluster was the measure of\nsize. That design is described here.\n\nThe audit team identified the locations for each of the projects and used that information to group\nthe projects into geographically-similar locations (clusters) wherever possible. For the\n143 RBEG projects in the audit universe, the clustering resulted in a universe of 102 locations,\n14 of which included more than one project and 88 that were single projects.\n\nFor each of the 102 locations, the probability of being selected in the sample was proportional to\nthe dollar amount for all projects in the location, compared to the total of the amounts for all\nprojects; this is the PPS component of the sample selection.\n\nAdditionally, the \xe2\x80\x9cwith replacement\xe2\x80\x9d aspect means that a single cluster can be selected more than\none time, increasing efficiency in audit execution. Because of these repeats, we achieved a\nsample size of 26 clusters, with only 20 locations, as indicated in the summary table below. The\ntable also includes the associated universe and sample numbers of projects.\n\n Sample Size, Unique Sample Size, PPS\n Universe Locations with Replacement\n Locations 102 20 26\n Projects\n (Grantees) 143 47 59\n\n\n34\n The original list contained 145 projects; 2 were de-obligated prior to initiation of audit work.\n\n16 AUDIT REPORT 34703-0001-31\n\x0cResults\nInadequate Supporting Documentation\n\nBased on our sample results, we estimate that 55 projects with expenditures of about $1.4 million\nreceived awards without adequate supporting documentation. In our sample of 47 projects, we\nfound 9 projects, totaling about 344,000 in expenditures, that had no adequate support. We\nfound 38 projects with adequate support, meaning that the maximum number without support, in\nthe universe of 143 projects, was 105 projects. In this case, the actual observations constrain the\nlimits of the calculated confidence interval; therefore, we are reporting the actual values as the\nlimiting values: between 9 and 105 projects received awards without adequate supporting\ndocumentation. These results are shown in the table below, which includes the percentage\nvalues relative to the universe of 143 projects.\n\n Inadequate Supporting Documentation\n Upper limit\n Lower limit,\n of a\n based on\n Measure Estimate 95 percent\n actual\n observations confidence\n interval\n Number with inadequate supporting\n 55 9 105*\n documentation\n Percent with inadequate supporting\n documentation, in universe of 143 38.5 percent 6.3 percent 73.4 percent\n projects\n Estimated amount of questioned funds $1,409,079.26 $343,887.00** $2,866,917.97\n\n*Documentation was adequate for 38 of the sampled projects.\n** Lower limit shown is the actual amount found. The calculated statistical lower bound is\n(-$48,759.45).\n\nSF-270 Issues\n\nBased on our sample results, we estimate 18 project awards involved problems with the SF-270.\nIn our sample of 47 projects, we found 9 projects with such problems. Our actual observation of\n9 projects exceeded the calculated lower limit; therefore, we are reporting that at least 9 projects\nhad SF-270 issues. The upper limit of the 95 percent confidence interval is that there were\n29 projects with SF-270 issues. These results are shown in the table below, which includes the\npercentage values relative to the universe of 143 projects.\n\n\n\n\n AUDIT REPORT 34703-0001-31 17\n\x0c SF-270 Issues\n Upper limit of a\n Lower limit, based on 95 percent confidence\n Measure Estimate actual observations interval\n Number of\n projects with 18 9 29\n SF-270 Issues\n Percent with\n SF-270 issues, in\n 12.6 percent 6.3 percent 20.3 percent\n universe of\n 143 projects\n\nNo Supporting Documentation, Out of Scope, or an Issue with SF-270\n\nBased on our sample results, we estimate that 62 projects, with expenditures of about\n$3.8 million, received awards without adequate supporting documentation, were out of scope, or\nhad an issue with SF-270. In our sample of 47 projects, we found 16 projects, totaling about\n$1.35 million in expenditures, with no supporting documentation, were out of scope, or had an\nissue with SF-270. We found 31 projects that were compliant based on this set of criteria,\nmeaning that the maximum number without support, in the universe of 143 projects, was\n112 projects. In this case, the actual observations constrain the limits of the calculated\nconfidence interval; therefore, we are reporting the actual values as the limiting values: between\n16 and 112 projects. These results are shown in the table below, which includes the percentage\nvalues relative to the universe of 143 projects.\n\n No Supporting Documentation, Out of Scope, or an Issue with SF-270\n Lower limit, Upper limit of\n based on a 95 percent\n Measure Estimate\n actual confidence\n observations interval\n Number of projects with no supporting\n documentation, out of scope, or an 62 16 112*\n issue with SF-270\n Percent with an exception in at least\n one of four criteria audited, in universe 43 percent 11 percent 78 percent\n of 143 projects\n Estimated amount of questioned funds\n based on this set of criteria $3,810,996.01 $1,597,443.07 $6,024,548.95\n\n*31 of the sampled projects were compliant based on this set of criteria.\n\n\n\n\n18 AUDIT REPORT 34703-0001-31\n\x0cNo Adequate Matching Funds or Grants with Prior Unspent Funds\n\nBased on our sample results, we estimate that 8 projects with inadequate matching funds or\ngrants with prior unspent funds received awards. In our sample of 47 projects, we found\n4 projects, totaling about $1.03 million in expenditures, with no adequate matching funds or\ngrants with prior unspent funds. We are 95 percent confident that between 4 and 20 projects\nwith the same issues received funds. These results are shown in the table below, which includes\nthe percentage values relative to the universe of 143 projects.\n\n No Adequate Matching Funds or Grants with Prior Unspent Funds\n Lower limit, Upper limit of\n based on a 95 percent\n Measure Estimate\n actual confidence\n observations interval\nNumber of projects with no adequate\nmatching funds or grants with prior 8 4 20\nunspent funds\nPercent with an exception in at least\none of four criteria audited, in universe 6 percent 3 percent 14 percent\nof 143 projects\n\nException to at Least One of the Four Criteria Audited\n\nIn addition to the criteria for which results are shown above, two other criteria revealed\nadditional exceptions. One project had an exception for failure to provide required matching\nfunds and three projects had unused funds from prior rural business enterprise grants. This\n\xe2\x80\x9coverall\xe2\x80\x9d measure combines these four exceptions with the exceptions related to the\ndocumentation and SF-270 criteria.\n\nBased on our sample results, we estimate 70 projects, with expenditures of about $4.6 million,\ninvolved problems with one or more of the four criteria. In our sample of 47 projects, we found\n20 projects with at least one exception. We found 27 projects with no exceptions, meaning that\nthe maximum number with one or more exceptions, in the universe of 143 projects, was\n116 projects. In this case, the actual observations constrain the limits of the calculated\nconfidence interval; therefore, we are reporting the actual values as the limiting values: from\n20 to 116 projects contained at an exception to at least one criterion. These results are shown in\nthe table below, which includes the percentage values relative to the universe of 143 projects.\n\n\n\n\n AUDIT REPORT 34703-0001-31 19\n\x0c Overall \xe2\x80\x93 Exception to at Least One Criterion of the Four Criteria Audited\n Lower limit, Upper limit of\n based on a 95 percent\n Measure Estimate\n actual confidence\n observations interval\n\n Overall estimate 70 20 116\n\n Percent with an exception in at least\n one of four criteria audited, in universe 49 percent 14 percent 81.1 percent\n of 143 projects\n Estimated amount of questioned funds\n based on this overall set of criteria $4,595,885.24 $2,382,115.15 $6,809,655.33\n\n\n\n\n20 AUDIT REPORT 34703-0001-31\n\x0cExhibit C \xe2\x80\x93 Listing of Projects by State and Recovery\nRecommendations\nThe table below lists States and the number of projects in each State that were identified in the\nfinding. The dollar amounts questioned for each project and the recovery recommendations are\nidentified as well as the projects without monetary problems.\n\nState Project No Unsupported Questioned Questioned Questioned Questioned\n Issues Costs, Costs, Costs, No Costs, No Costs,\n Recovery Recovery Recovery Recovery Recovery\n Recommended Recommended Recommended\nGeorgia 1 $56,000.00\nGeorgia 2 X\nGeorgia 3 $99,999.00\nGeorgia 4 $99,999.00\nGeorgia 5 $99,352.00\nGeorgia 6 X\nGeorgia 7 $18,418.73\nGeorgia 8 X\nGeorgia 9 X\nGeorgia 10 X\nGeorgia 11 X\nNew X\nMexico 1\nNew X\nMexico 2\nOklahoma 1 $399,999.00\nOklahoma 2 $99,750.00\nOklahoma 3 X\nSouth X\nDakota 1\nSouth X\nDakota 2\nSouth X\nDakota 3\nSouth X\nDakota 4\nSouth $18,288.00\nDakota 5\nSouth $14,940.80\nDakota 6\n\n\n\n AUDIT REPORT 34703-0001-31 21\n\x0cState Project No Unsupported Questioned Questioned Questioned Questioned\n Issues Costs, Costs, Costs, No Costs, No Costs,\n Recovery Recovery Recovery Recovery Recovery\n Recommended Recommended Recommended\nKentucky 1 X\nMaine 1 $16,003.00\nMaine 2 $253,000.00\nMaine 3 X\nTennessee 1 $393.97 $199,605.03\nMinnesota 1 X\nIowa 1 X\nIowa 2 $33,660.00\nSouth $75,000.00\nCarolina 1\nSouth $199,991.00 $0.00\nCarolina 2\nSouth $572.90\nCarolina 3\nIllinois 1 X\nDelaware 1 X\nMaryland 1 X\nMissouri 1 $339.05\nVirginia 1 X\nVirginia 2 $99,600.00\nVirginia 3 X\nVirginia 4 X\nOhio 1 X\nNevada 1 X\nTexas 1 X\nTexas 2 $300,000.00\nTexas 3 $300,000.00\nTexas 4 X\n 35\n Totals $326,638.53 $17,308.92 $1,007,305.03 $999,999.00 $33,660.00\n\n\n\n\n35\n In Exhibit A, these figures have been rounded to the nearest dollar amount.\n\n22 AUDIT REPORT 34703-0001-31\n\x0cAgency\xe2\x80\x99s Response\n\n\n\n\n USDA\xe2\x80\x99S\n RURAL DEVELOPMENT\xe2\x80\x99S\n RESPONSE TO AUDIT REPORT\n\n\n\n\n AUDIT REPORT 34703-0001-31 23\n\x0c\x0c United States Department of Agriculture\n Rural Development\n\n\n\n\n December 11, 2012\n\n\n\n SUBJECT: Official Draft Response \xe2\x80\x93 Rural Business\n Enterprise Grants Recovery Act Controls (Audit\n No. 34703-001-31)\n\n\n TO: Gil Harden\n Assistant Inspector General\n for Audit\n\n\nAttached for your review is the response from the Administrator\nof Rural Business-Cooperative Service to the subject official\ndraft.\n\nIf you have any questions, please contact Debby Shore of my\nstaff at 202-692-0191.\n\n\n\n/s/ John L. Dunsmuir\n\n\nJOHN L. DUNSMUIR\nActing Director\nFinancial Management Division\n\n\n\n\n 1400 Independence Ave, S.W. \xe2\x80\xa2 Washington, DC 20250-0700\n Web: http://www.rurdev.usda.gov\n\n Committed to the future of rural communities.\n\n \xe2\x80\x9cUSDA is an equal opportunity provider, employer and lender.\xe2\x80\x9d\n To file a complaint of discrimination write USDA, Director, Office of Civil Rights, 1400 Independence Avenue, S.W.,\n Washington, DC 20250-9410 or call (800) 795-3272 (voice) or (202) 720-6382 (TDD).\n\x0c United States Department of Agriculture\n Rural Development\n\n\n\n\n December 10, 2012\n\n\n\nTO: John L. Dunsmuir\n Acting Director\n Financial Management Division\n\nFrom: Lillian E. Salerno \\s\\ Lillian Salerno\n Acting Administrator\n Rural Business-Cooperative Service\n\nSUBJECT: Rural Business Enterprise Grants Recovery Act Controls,\n Audit 34703-0001-31\n\n\nThis memorandum is to present the Agency\xe2\x80\x99s responses to the recommendations of the subject\naudit. Please use Office of Inspector General (OIG) Exhibit C - Listing of Projects by State and\nRecovery Recommendations as a reference guide.\n\nRecommendation 1\n\nRecover $326,639 in Rural Business Enterprise Grant (RBEG) Recovery Act funds that lack\nsufficient support.\n\nRecommendation 1.1\n\nUnsupported Costs, Recovery Recommended - $18,418.73 from the City of Shellman (Georgia)\n\xe2\x80\x93 The grant recipient initially submitted a request for reimbursement for $99,850.40 with\nsupporting documentation for expenditures in the amount of $81,431.67. Rural Development\npersonnel did not verify the supporting document and instead reimbursed the grant recipient for\nthe requested amount. This resulted in an overpayment of $18,418.73. According to the grant\nrecipient, it was an error on their part and they did not know why the area office had reimbursed\nthem for the full amount of $99,850.40. The grant recipient has already provided a list of\nadditional expenditures with supporting documentation to cover the disputed amount, so no\nfurther recovery is necessary. In order to achieve management decision, Rural Business and\nCooperative Service (RBS) needs to provide us with details regarding recovery of the\nquestioned costs for this project and documentation of $18,418.73 in eligible expenses, or\nother corrective action taken.\n\nAgency Response\n 1400 Independence Ave., S.W. \xe2\x80\xa2 Washington, DC 20250-0700\n Web: http://www.rurdev.usda.gov\n\n Committed to the future of rural communities.\n\n \xe2\x80\x9cUSDA is an equal opportunity provider, employer and lender.\xe2\x80\x9d\n To file a complaint of discrimination write USDA, Director, Office of Civil Rights, 1400 Independence Avenue, S.W.,\n Washington, DC 20250-9410 or call (800) 795-3272 (voice) or (202) 720-6382 (TDD).\n\x0cRBEG Audit No. 34703-0001-31 2\n\n\n\nNo further recovery is necessary. The Georgia State Office has provided the National Office\nwith copies of additional receipts which add up to more than the amount in question and\ntherefore, no recovery is necessary. We have attached the backup documentation to our\nresponse.\n\nRecommendation 1.2\n\nUnsupported Costs \xe2\x80\x93 Recovery Recommended - $18,228.00 from Whetstone Valley Business\nOpportunities (South Dakota) \xe2\x80\x93 This was a technical assistance project. When requesting release\nof grant funds, the grant recipient did not provide any supporting documentation to show how the\ngrant funds were used, or what was accomplished using the grant funds. Additional\ndocumentation provided to OIG during fieldwork did not fully verify the grant funds were used\nappropriately, or that the funds were used to meet the project objectives. The project has since\ndisbanded, and we would agree that recovery is unlikely. To address this issue, the\n provided additional training for all South Dakota RBS\nspecialists on what information to obtain from any future RBEG projects that involve technical\nassistance. In order to achieve management decision, RBS needs to provide us with details of\ntheir management decision and supporting evidence regarding recovery or waiver of the\nquestioned costs for this project, or other corrective action taken.\n\nAgency Response\n\nFurther recovery of funds is not possible. Based on National Office communications with the\nSouth Dakota State Office, the Whetstone Valley Business Opportunities grantee is no longer in\nbusiness, and the organization has disbanded. Consequently, Rural Development will not be able\nto recover the amount in question. However, the has\nprovided specific training to the field specialist in regards to the required documentation and\nmatching to the scope of work, as well as quarterly reports so that no further payments for\ntechnical assistance grants will be made without total verification of funds spent and reasons for\nthe reimbursements.\n\nRecommendation 1.3\n\nUnsupported Costs \xe2\x80\x93 Recovery Recommended - $14,940.80 from National Enterprise\nDevelopment Center (South Dakota) \xe2\x80\x93 This was a technical assistance project. The grant\nrecipient submitted an RBEG \xe2\x80\x9cinformation sheet\xe2\x80\x9d with their initial request and the specialist\napproved the reimbursement request based on these documents. During our visit with the grant\nrecipient, he provided spreadsheets detailing how the Recovery Act RBEG funds were used.\nOIG provided the with copies of the spreadsheets and\n found several ineligible items, initiated corrective actions, and recovered the funds. The\n provided additional training to all staff and used this experience as an example at a\ntraining meeting for other State program directors. In order to achieve management decision,\nRBS needs to provide documentary confirmation that the unsupported costs were recovered.\n\nAgency Response\n\x0cRBEG Audit No. 34703-0001-31 3\n\n\n\nThe South Dakota State Office has recovered the amount in question and the funds have been\nreturned to the Finance Office to be returned to the Treasury Department.\nIn addition, the has provided specific training to the\nfield specialist in regards to the required documentation and matching to the scope of work, as\nwell as quarterly reports so that no further payments for technical assistance grants will be made\nwithout total verification of funds spent and reasons for the reimbursements.\n\nRecommendation 1.4\n\nUnsupported Costs \xe2\x80\x93 Recovery Recommended - $75,000.00 from Salkehatchie Arts (South\nCarolina) \xe2\x80\x93 Documentation stated the project was, \xe2\x80\x9cAn economic and community development\nproject using arts and tourism to increase economic development. Supports for a retail center\nproviding a retail outlet for artists from the 5 county USC Salkehatchie regions.\xe2\x80\x9d The project\ndescription stated the funds are for management and technical assistance. This project uses the\nsame personnel for technical assistance as the Western Carolina Higher Education Commission\n(WHCEC) project. The recipient did not provide detailed supporting documentation with their\nrequests for reimbursement. Based on our review of additional information subsequently\nprovided by the recipient, we found that funds were used for the salaries of the for the\naffiliated retail art outlet and . Because of the lack of supporting documentation\nshowing details of the technical assistance provided by Salkehatchie Arts, we concluded the\nRecovery Act RBEG funds were not spent for eligible Recovery Act purposes. In order to\nachieve management decision, RBS needs to provide us with details of their management\ndecision and supporting evidence regarding recovery of the questioned costs for this project.\nWe also need to receive written evidence from RBS that the State and area office personnel\nresponsible for servicing this grant recipient have been trained on the supporting\ndocumentation needed before additional RBEG funds are provided.\n\nAgency Response\n\nNo further recovery of funds is necessary. RBEG funds were used in accordance with the scope\nof work for RBEG eligible purposes. None of the $75,000 in RBEG grant funds was used to pay\nSalkehatchie Leadership Institute (SLI) staff for their technical assistance that was provided to\nthis project, but were considered in-kind contributions to the project. Based on the discussion\nbetween the National Office and the State Office personnel concerning the funds that have been\ndisbursed for these projects, the State Office can provide electronic files which contain the\nnecessary documentation, receipts and quarterly reports for the disbursement of these funds.\n\nWhile the Salkehatchie Art Center (SAC) and WCHEC projects are both technical assistance\nprojects the management of the projects are not commingled. SAC and the $75,000 ARRA\nRBEG Salkehatchie Arts project is a completely separate non-profit entity that deals specifically\nwith the SAC retail store facility. This non-profit established this retail store facility under its\nnon-profit umbrella. According to the scope of work, grant funds were used to pay the salaries\nof the and two and for supplies, operational and marketing\nexpenses of the SAC. These employees provided direct technical assistance to the 70-90\nartists/craftspeople who displayed their products for sale at the SAC. Also stated above, no grant\n\x0cRBEG Audit No. 34703-0001-31 4\n\n\nfunds from the $75,000 RBEG were used to pay any salaries of the WCHEC/SLI staff as their\ntechnical assistance to project was donated as \xe2\x80\x9cin-kind\xe2\x80\x9d services only.\n\nThe technical assistance provided by WCHEC/SLI staff to SAC consisted of providing global\noverall technical assistance for the initial establishment and location of the SAC. In addition, the\nWCHEC/SLI project provides the global marketing/tourism efforts for the Salkehatchie Lures\nand Salkehatchie Stew projects provided under the scope of work from the $199,991 ARRA\nRBEG. The WCHEC/SLI project covers the entire Salkehatchie Region and by doing so,\nindirectly benefits the SAC project by bringing more tourists into the area to review the SAC\xe2\x80\x99s\nartist work.\n\nThe National Office and\n provided specific training concerning grant servicing to the South Carolina\nState Office. The South Carolina State Office plans to provide similar training to the Area\nSpecialist within the fiscal year as time and budget permits.\n\nRecommendation 1.5\n\nUnsupported Costs \xe2\x80\x93 Recovery Recommended - $199,991.00 from WCHEC/South Carolina \xe2\x80\x93\nAs stated above, management of this project is commingled with Salkehatchie Arts and is also a\ntechnical assistance project. The recipient\xe2\x80\x99s requests for reimbursement did not provide full\ndetails of how the grant funds were used or evidence that the activities completed met the grant\nobjectives. Instead, the recipient submitted only brief spreadsheets using the project budget\ncategories. We could only verify that Recovery Act RBEG funds were used primarily to pay the\nsalaries of the WCHEC . WCHEC officials provided no verification that their\ntime charged to the Recovery Act RBEG project was spent directly on activities shown in the\nproject\xe2\x80\x99s scope of work. In order to achieve management decision, RBS needs to provide us\nwith details of their management decision and supporting evidence regarding recovery of the\nquestioned costs for this project. In addition, we need to receive evidence RBS State and area\noffice personnel responsible for servicing this grant recipient received additional training on\nthe supporting evidence they need to obtain before they provide RBEG recipients with\nadditional funds.\n\nAgency Response\n\nNo further recovery of funds is necessary. RBEG funds were used in accordance with the scope\nof work for RBEG eligible purposes.\n\nPer information taken from application received from WCHEC on this $199,991 American\nRecovery and Reinvestment Act (ARRA) RBEG grant:\n\nThe WCHEC is the fiscal agent of the University of South Carolina (USC) Salkehatchie Campus\nand they are the entity that has the authorization to apply for and receive RBEG grant funds.\nUSC Salkehatchie Leadership Institute falls under this non-profit umbrella. WCHEC was\nawarded the $199,991 ARRA RBEG Grant for the USC SLI project. The application is for\nfunding for the second year of Salkehatchie Lures and Salkehatchie Stew projects, economic\n\x0cRBEG Audit No. 34703-0001-31 5\n\n\ndevelopment and tourism efforts ongoing in the Salkehatchie region of South Carolina.\nSalkehatchie Lures is tourism development, small business assistance, and a marketing program\nthat is implementing the recommendations of the Salkehatchie Region Tourism Study performed\nby the International Tourism Research Institute at the University of South Carolina and funded\nby a Rural Business Opportunity Grant through U.S. Department of Agriculture Rural\nDevelopment. Salkehatchie Stew is a comprehensive tourism product that will be a focal point\nof the Lures efforts. Both projects are the result of community input and creative planning for\nthe Salkehatchie Region. The current phase of the Lures project is focusing on general Lures\nweb site development, development of a golf package for the region, creation of an Ambassadors\nTour that includes the Topper archaeological site, two historic churches/cemeteries, a hunting\nlodge, two local plantations, a historical library building, the Rivers Bride Revolutionary War\nsite, and the Salkehatchie Arts Center. Salkehatchie Stew is a storytelling initiative that has been\nunder development in the community for several years. It is one of the primary products\ndeveloped through Salkehatchie Lures. SLI is working with the well-known Swamp Gravy folk\nlife play organization in Colquitt, GA as well as the International Storytelling Center in\nJonesborough, TN to replicate the successes of those projects in the Salkehatchie Region. As\nplanned, Salkehatchie Stew will use stories gathered from local communities to create theatrical\nproductions in two local communities. Other communities have elected to host storytelling\nfestivals that combine local stories with performances by well-know international storytellers.\nBoth the performance-based model and the festival model will bring in outside tourists and\nregional traffic as they will also benefit from linkage to the SC Heritage Corridor. The budget\nincludes only technical assistance funds which will be used to pay salaries/fringe, travel,\nconsultants, supplies/equipment, and marketing. Project also includes a match of $421,645 (in-\nkind and cash). SLI staff working on project includes\n . Objectives included: continue implementation\nof a master plan for tourism marketing and development in the Salkehatchie Region; improve the\nbusiness and economic climate in the Salkehatchie Region; and increase interaction among\ncitizens of diverse background.\n\nThe quarterly reports provided on this project (especially the final report), document that\ntechnical assistance activities/events the SLI staff were involved in:\n\n 1. Continued to investigate the overall global potential tourism in the region.\n 2. Launched web platform and PR for Salkehatchie Region (including Facebook) and\n arranged and held press tours for travel writers in five counties which increased tourist\n traffic by 10 percent. Planned and held 6 productions of Salkehatchie Stew performances\n in Allendale/Hampton counties. Planned and held two-day storytelling festival in\n Bamberg County.\n 3. Planned and held Garden Tours in Bamberg, Colleton and Barnwell counties.\n 4. Held SBA workshop with 42 participants and planning additional small business\n workshops.\n 5. Held regular regional meetings with Salkehatchie Arts Board, SLI county and advisory\n boards to coordinate technical assistance activities.\n 6. Tourism development efforts included numerous volunteers from diverse backgrounds\n from the 5-county area.\n\x0cRBEG Audit No. 34703-0001-31 6\n\n\n 7. SLI staff also provided assistance to the Phase I Carolina Theatre project in Allendale,\n SC.\n 8. They worked with Brunson museum board to further develop its museum and the Town\n of Allendale to develop University Mile.\n 9. They have also worked with the Savannah River Challenge, a fishing tournament, and\n co-sponsored the Savannah River Challenge event with Savannah River Keepers \xe2\x80\x93\n another tourist attraction for the region.\n\nThe National Office and\nprovided specific training concerning grant servicing to the South Carolina State Office. The\nSouth Carolina State Office plans to provide similar training to the Area Specialist within the\nfiscal year as time and budget permits.\n\nOIG Position\n\nRecommendation 2\n\nRecover $17,309 in RBEG Recovery Act disbursement amounts that were outside the scope of\nwork.\n\nRecommendation 2.1\n\n$16,003.00 - Northern Forest Canoe Trail, Inc. (Maine) \xe2\x80\x93 The grant recipient used $13,325 of\nRecovery Act RBEG funds intended for a contractor on current employees\xe2\x80\x99 salaries. They also\nused $2,678 on travel expenses for staff members even though their scope of work (SOW) stated\nthat RBEG funds would not be used on travel expenses. The grant was not fully disbursed;\ntherefore, Rural Development was able to allow the grant recipient to substitute other eligible\nexpenses that were within the SOW for the ineligible expenses. The\n stated has already taken all applicable steps to address the recovery of these\nfunds. In order to achieve management decision, RBS needs to provide documentary\nconfirmation that the questioned costs were recovered.\n\nAgency Response\n\nNo recovery of funds is necessary. Based on emails and attached information provided by the\nMaine State Office, the grant recipient substituted other eligible expenses that were within the\nscope of work for the $13,325 of ineligible expenses. Additionally, the attached documentation\ndemonstrates that the Federal funds were spent for appropriate budgeted Federal items and that\nan additional $20,000 of cost which is $5,000 more than what was shown on the budget were\ncovered by the applicant. All travel expenses were paid for using applicant contribution which\nwere part of the original scope of work. The Maine State Office staff understands that grantees\nmust submit requests for changes in their scope of work and the request need to be approved by\nan Agency approving official. Additionally, the Maine State Office has provided evidence that\nthey also informed the applicant that in the future any deviations from the scope of work must be\napproved prior to expenditure of funds.\n\x0cRBEG Audit No. 34703-0001-31 7\n\n\nRecommendation 2.2\n\n$393.97 - Wayne County Government (Tennessee) \xe2\x80\x93 The Recovery Act RBEG project purpose\nwas \xe2\x80\x9cto extend the water lines from the Waynesboro water system to the Wayne County\nIndustrial Park.\xe2\x80\x9d However, the grant recipient inadvertently submitted a request for a \xe2\x80\x9cturn lane\nexhibit\xe2\x80\x9d for reimbursement. The Recovery Act RBEG project was not complete at the time of\nour review and the grant recipient stated he had inadvertently submitted the invoice for\nreimbursement. Both the area office specialist and the grant recipient agreed to correct this on\nthe next reimbursement request. In order to achieve management decision, RBS needs to\nprovide us with details of their management decision and supporting evidence regarding\nrecovery of the questioned costs for this project.\n\nAgency Response\n\nNo recovery of funds is necessary. The Tennessee Wayne County Government project indicated\nthat $393.97 was overpaid. The Tennessee State Office has provided documentation on an\nSF-270 which was requested a reimbursement of $4,500, and the State made an adjustment of\n$393.97 and reduced the reimbursement to the grantee to $4,106. This adjustment negates the\noverpayment of the $393.97 and the amount remains available for other authorized expense for\nthis project.\n\nRecommendation 2.3\n\n$572.90 - Colleton Improvement Collaborative (South Carolina) \xe2\x80\x93 This project was for technical\nassistance and teaching new job skills. The grant recipient inadvertently submitted receipts for\ntaxes and tax penalties for reimbursement. This grant was not completed at the time of our\nreview; however, the of the grant recipient stated the project would be closing\ndue to lack of funds. stated would recommend to the project board of directors that the\nineligible funds be returned. During our fieldwork, we noted there may be additional eligible\nproject costs that were not submitted for reimbursement or as in-kind matching funds, including\nlabor on behalf of the , which could take the place of the ineligible costs. In\norder to achieve management decision, RBS needs to provide us with their management\ndecision and supporting evidence regarding the recovery of the ineligible expenses or other\ncorrective action taken for this project.\n\nAgency Response\n\nFurther recovery of funds is not possible. South Carolina\xe2\x80\x99s Colleton Improvement Collaborative\nproject inadvertently submitted receipts for taxes and tax penalties in the amount of $572.90\nwere reimbursed for these expenses. The Area Office was aware of other eligible project cost\nthat was not submitted for reimbursement, but could have been submitted, the total of these costs\nis unknown. The organization is no longer in business and additional information is not\navailable nor is recovery possible.\n\nRecommendation 2.4\n\x0cRBEG Audit No. 34703-0001-31 8\n\n\n$339.05 - Missouri State University (Mountain Grove Campus) \xe2\x80\x93 The Recovery Act RBEG\nproject was to construct a demonstration project of new technology for growing fruits and\nvegetables in a \xe2\x80\x9ccrop tunnel\xe2\x80\x9d and grant funds were to be used for \xe2\x80\x9ccrop tunnel\xe2\x80\x9d equipment.\nHowever, the grant recipient included receipts for supplies and miscellaneous items in requests\nfor reimbursement. The loan specialist stated he had not been involved with very many RBEGs\nand did not realize that he needed to obtain a written request for a change to the SOW before\nreimbursing the items outside the SOW. Missouri Rural Development State Office personnel\nstated this situation was corrected. In order to achieve management decision, RBS needs to\nprovide us with their management decision and supporting evidence regarding recovery of the\nquestioned costs or other corrective action completed for this project.\n\nAgency Response\n\nRecovery of funds is not necessary. Missouri State University (Mountain Grove Campus)\nproject submitted receipts for supplies and miscellaneous items in the amount of $339.05 that\nwere not in the approved original scope of work. However, the funds were reimbursed for\nsupplies and miscellaneous items involved with making the \xe2\x80\x9ccrop tunnel\xe2\x80\x9d equipment operable.\nThis scope of work change would have been approved and expenses authorized upon the request\nfrom the grantee.\n\nThe documentation submitted by the Missouri State Office indicates that this was a management\noversight and that the scope of work was revised and approved. Additionally, this\ndocumentation contains an email from the OIG stating that no recovery would be requested.\nTherefore, since the expenses were utilized to ensure that the approved equipment purchases\nwould operate and the scope of work was modified and approved as well as the documentation\nfrom the OIG, no recovery will be requested from this grantee. If the OIG requires a copy of the\nrevised and approved scope of work, we will obtain this from the Missouri State Office.\n\nOIG Position\n\nRecommendation 3\n\nProvide all State and area office personnel in charge of overseeing RBEG projects with formal,\ncomprehensive training on what constitutes adequate supporting documentation to validate\nRBEG recipients\xe2\x80\x99 requests for reimbursement, on procedures for obtaining and verifying\nSF-270s, and on how to ensure that reimbursements for expenditures are for tasks, as defined in\nthe scope of work.\n\nRecommendation 3\n\nEach of the listed projects had one or more missing SF-270s, or submitted form SF-270 more\nfrequently than the once per 30 day requirement. However, during our review we were able to\ntrack expenditures for each cited project. The critical issue is that the SF-270 is the only\ndocument that the recipient signs verifying the accuracy of the information and truthfulness of\ntheir expenditures. Because we could verify through records that the funds were spent, we are\nnot requesting recovery. In order to achieve management decision for the recommendation,\n\x0cRBEG Audit No. 34703-0001-31 9\n\n\nwe need to receive confirmation that all State and area office personnel in charge of\noverseeing RBEG projects were provided with formal, comprehensive training on what\nconstitutes adequate supporting documentation to validate RBEG recipients\xe2\x80\x99 requests for\nreimbursement, procedures for obtaining and verifying SF-270s, and how to ensure that\nreimbursements for expenditures are for tasks as defined in the scope of work.\n\nAgency Response\n\nDuring the calendar 2012, the National Office\nand the divisions provided training to all State Offices Program\nDirectors and Specialist concerning grant servicing. During this training, the appropriate\ndocumentation, quarterly performance reports and SF-270\xe2\x80\x99s were discussed. In addition, on\nFebruary 22, 2012, the National Office conducted an RBEG grant monitoring and servicing\nwebinar which was available nationwide. Documentation, program performance reports,\nSF-270\xe2\x80\x99s and changes in scopes of works were discussed during this webinar.\n\nOIG Position\n\nRecommendation 4\n\nProvide all RBS personnel with training on the requirements to follow when awarding a\nsequential grant.\n\nRecommendation 4.1\n\n$399,999.00 - Johnston County Industrial Authority (Oklahoma) \xe2\x80\x93 The grant recipient has a prior\nRBEG for a similar purpose. In June 2007, they received a $499,999.00 RBEG for the\nconstruction of a business facility to allow an existing business to expand. The Recovery Act\nRBEG is for the construction of an industrial building located in the industrial park. Oklahoma\nRural Development State officials said the beneficiary of the Recovery Act RBEG was a related\nparty to the recipient of the 2007 RBEG. No funds had been spent on either project as of\nDecember 2011. In addition, the grant recipient had been written up in the State Internal Review\nfor failure to submit the required performance reports or respond to written inquiries regarding\nthe status of the 2007 RBEG project. In this case, we need to be informed on the status of the\n2007 grant, specifically if Rural Development recovered the funds or if the grant recipient has\nfinally used those funds since they would be expired (5 year limit according to regulations).\nAlso, we need to be informed on the status of the Recovery Act RBEG and whether the\nOklahoma Rural Development State and area officials received additional training regarding\nmaking eligibility determinations for RBEG applicants with unused funds from prior RBEGs\nand applicants that did not timely report the status of prior RBEGs.\n\nAgency Response\n\nRural Development Instruction 1942-G has no requirements that previously authorized grants be\nexpended prior to approving a new grant for either similar or different purposes to the grantee.\nThe Oklahoma State Office has provided documentation and can be verified through the\n\x0cRBEG Audit No. 34703-0001-31 10\n\n\nGuaranteed Loan System that the Johnston County Industrial Authority\xe2\x80\x99s $499,990 2007 grant\nhas been appropriately expended for the construction of a business facility to allow an existing\nbusiness to expand. This grant currently has $6,155.95 remaining to be disbursed on receipt of\nappropriate receipts and reports expected by the end of November 2012.\n\nThe Johnston County Industrial Authority\xe2\x80\x99s $399,999 2009 grant for a similar purpose have been\nappropriately utilized and disbursed as of October 30, 2012, this grant currently has $158,533.49\nundisbursed and the Oklahoma State Office expects this amount to be appropriately disbursed\nwithin the next 90 days. These funds will be fully utilized within the 5 years statute of\nlimitations.\n\nRecommendation 4.2\n\n$300,000.00 - Hidalgo Economic Development Corporation (Texas) \xe2\x80\x93 The grant recipient\nreceived a Recovery Act RBEG for use as revolving loan fund. In June 2008, the grant recipient\nwas previously awarded a $200,000 RBEG for use as a revolving loan fund project, and had not\nused any of these funds. Because the prior RBEG was not fully expended before the Recovery\nAct award recipients were selected, the grant recipient was not eligible to receive Recovery Act\nfunds. The grant recipient has since loaned out the funds from both RBEGs; therefore, we are\nnot recommending recovery of the funds. In order to achieve management decision, we need to\nbe informed whether the Texas Rural Development State and area officials received additional\ntraining regarding making eligibility determinations for RBEG applicants with unused funds\nfrom prior RBEGs.\n\nAgency Response\n\nThere is no requirement in 7 CFR 1942-G that the previous grant funds be expended and\ntherefore the Texas State Office made a correct eligibility determination according to the\nregulations and no further training is necessary.\n\nIn June 2008, the Texas Hidalgo Economic Development Corporation (HEDC) was awarded a\ngrant of $200,000 for revolving loan fund purposes. This grant was awarded based upon loan\napplications on hand and expected applications to be received. Once the grant was awarded, the\nloan applicant\xe2\x80\x99s financial and economic conditions changed which made it difficult to close these\nloans. However, other applicants in economically distressed areas of HEDC\xe2\x80\x99s service area had\nbeen received as well as more were anticipated, therefore, it was determined that the grantee was\neligible under the Recovery Act for the additional $300,000 requested for revolving loan fund\npurposes. Subsequently, the loan applicant\xe2\x80\x99s financial conditions were resolved and this grantee\nhas loaned both the $200,000 and the $300,000 grant funds to appropriate applicants.\n\nRecommendation 4.3\n\n$300,000.00 - Development Corporation of Mercedes (Texas) \xe2\x80\x93 The grant recipient received a\nRecovery Act RBEG for use as a revolving loan fund. In June 2008, they were the recipients of\na previous $200,000 RBEG for use as a revolving loan fund. The grant recipient had not\ndisbursed any of the funds from the 2008 RBEG; therefore, they were not eligible to receive the\n\x0cRBEG Audit No. 34703-0001-31 11\n\n\nRecovery Act RBEG. The grant recipient also received a $750,000 Intermediary Relending\nProgram award in 2009 (not from Recovery Act funds). The grant recipient has since loaned out\nthe funds from both RBEGs; therefore, we are not recommending recovery of the funds. In\norder to achieve management decision, we need to be informed whether the Texas Rural\nDevelopment State and area officials received additional training regarding making eligibility\ndeterminations for RBEG applicants with unused funds from prior RBEGs.\n\nAgency Response\n\nThere is no requirement in 7 CFR 1942-G that the previous grant funds be expended and\ntherefore the Texas State Office made a correct eligibility determination according to the\nregulations and no further training is necessary.\n\nIn June 2008, the Texas Development Corporation of Mercedes was awarded a grant of $200,000\nfor revolving loan fund purposes. This grant was awarded based upon loan applications on hand\nand expected applications to be received. Once the grant was awarded, the loan applicant\xe2\x80\x99s\nfinancial and economic conditions changed which made it difficult to close these loans.\nHowever, other applicants in economically distressed areas of the Development Corporation of\nMercedes service area had been received as well as more were anticipated, therefore, it was\ndetermined that the grantee was eligible under the Recovery Act for the additional $300,000\nrequested for revolving loan fund purposes. Subsequently, the loan applicant\xe2\x80\x99s financial\nconditions were resolved and this grantee has loaned both the $200,000 and the $300,000 grant\nfunds to appropriate applicants\n\nOIG Position\n\nRecommendation 5\n\nRecover $33,660 in RBEG Recovery Act disbursements where the grant recipient did not\nprovide the required matching funds from non-Federal sources.\n\nRecommendation 5\n\n$33,660.001 - Maquoketa Industrial Development Assistance Services (Iowa) \xe2\x80\x93 This Recovery\nAct RBEG was for use as a revolving loan fund. The RBEG was for $99,000 and the grant\nrecipient agreed to provide $50,000 in matching funds. The $99,000 was disbursed in February\n2011 to one revolving loan fund applicant but the matching funds were not used. We believe if\nthe grant recipient had been making an effort to re-loan the funds, it would not be an issue.\nHowever the grant recipient stated to OIG that they were not actively looking for additional\n\n\n\n1\n Most States utilize a pro-rata allocation of RBEG funds and matching funds when disbursing funds. Our\ncomputation was as follows\n 1. $50,000 +$99,000 = $149,000.\n 2. $50,000/$149,000 equals to 34 percent.\n 3. 34 percent*$99,000 = $33,660 or the amount we are requesting be returned to Rural Development\n to be placed in their RBEG account.\n\x0cRBEG Audit No. 34703-0001-31 12\n\n\nrecipients. Since this is in direct contrast to the purpose of the grant, corrective action needs to\nbe taken.\n\nIn addition, the stated that their normal policy is to provide only a\npercentage of the funds requested when matching funds are involved. Therefore, the recipient\nshould have been given only 66 percent of the requested funds since the matching funds of\n$50,000 equals 34 percent of the total amount. This would have forced the grant recipient to\nprovide their matching funds. Rural Development national officials agreed with us that their\nnormal policy is either to use a pro-rata calculation or obtain matching funds up front and neither\nwas done in this case.\n\nOur proposed solutions are: 1) close a revolving loan using the entire $149,000 or 2) return\nthe $33,660 of matching funds not provided in the first loan. If the funds are not loaned out by\nSeptember 30, 2013, all unused Recovery Act funds return to the Treasury Department. Our\nconcern is that the funds may be sitting in MIDAS\xe2\x80\x99s account at that time and they will be\noverlooked and not recovered. In order to achieve management decision on this project, RBS\nneeds to provide us with the details of their management decision and supporting evidence\nregarding recovery of the questioned costs or alternative corrective actions completed.\n\nAgency Response\n\nThe Iowa Maquoketa Industrial Development Assistance Services (MIDAS) received a $99,000\ngrant and agreed to provide $50,000 in matching funds for a total revolving fund of $149,000.\nAn initial loan of $99,000 was made to one ultimate recipient. Based on a letter provided by the\n , the remaining $50,000 is in an interest bearing account and that the City is\nactively pursuing other viable applications. Based on the statement\nthat they either require matching funds to be used up front or on a pro-rata basis, Rural\nDevelopment\xe2\x80\x99s position is that the remaining $50,000 is either all RBEG grant funds or that\n$33,600 is Rural Development RBEG grant funds and $16,400 is the City\xe2\x80\x99s matching funds.\nSince the has stated in a letter that they are actively pursuing loan applications and\nthe purpose of the rural development enterprise grant is to create and save jobs in rural America,\nRural Development\xe2\x80\x99s position is that the funds will remain in the interest bearing account and\nwill be loaned out in the near future. Therefore, Rural Development is not going to request\n$33,600 recovery amount requested by the Office of the Inspector General. The Iowa State\nOffice will continue to work closely with MIDAS to ensure that these funds are loaned out in\naccordance with the scope of work and by September 30, 2013, as stated in letter received from\nthe .\n\x0cRBEG Audit No. 34703-0001-31 13\n\n\n\nExhibit C \xe2\x80\x93 Listing of Projects by State and Recovery Recommendations\n\nThe table below lists States and the number of projects in each State that were identified in the\nfinding. The dollar amounts questioned for each project and the recovery recommendations are\nidentified as well as the projects without monetary problems.\n\nState Project No Unsupported Questioned Questioned Questioned Questioned\n Issues Costs, Costs, Costs, No Costs, No Costs,\n Recovery Recovery Recovery Recovery Recovery\n Recommended Recommended Recommended\nGeorgia 1 $56,000.00\nGeorgia 2 X\nGeorgia 3 $99,999.00\nGeorgia 4 $99,999.00\nGeorgia 5 $99,352.00\nGeorgia 6 X\nGeorgia $18,418.73\n 7 (1.1)\nGeorgia 8 X\nGeorgia 9 X\nGeorgia 10 X\nGeorgia 11 X\nNew X\nMexico 1\nNew X\nMexico 2\nOklahoma $399,999.00\n 1 (4.1)\nOklahoma 2 $99,750.00\nOklahoma 3 X\nSouth X\nDakota 1\nSouth X\nDakota 2\nSouth X\nDakota 3\nSouth X\nDakota 4\nSouth $18,288.00\nDakota 5 (1.2)\nSouth $14,940.80\nDakota 6 (1.3)\nKentucky 1 X\nMaine $16,003.00\n 1 (2.1)\nMaine 2 $253,000.00\nMaine 3 X\nTennessee 1 $393.97 (2.2) $199,605.03\nMinnesota 1 X\nIowa 1 X\nIowa 2 $33,660.00 (5)\nSouth 1 $75,000.00\n\x0cRBEG Audit No. 34703-0001-31 14\n\n\nState Project No Unsupported Questioned Questioned Questioned Questioned\n Issues Costs, Costs, Costs, No Costs, No Costs,\n Recovery Recovery Recovery Recovery Recovery\n Recommended Recommended Recommended\nCarolina (1.4)\nSouth $199,991.00 $0.00\nCarolina 2 (1.5)\nSouth $572.90 (2.3)\nCarolina 3\nIllinois 1 X\nDelaware 1 X\nMaryland 1 X\nMissouri 1 $339.05(2.4)\nVirginia 1 X\nVirginia 2 $99,600.00\nVirginia 3 X\nVirginia 4 X\nOhio 1 X\nNevada 1 X\nTexas 1 X\nTexas $300,000.00\n 2 (4.2)\nTexas $300,000.00\n 3 (4.3)\nTexas 4 X\n Totals2 $326,638.53 $17,308.92 $1,007,305.03 $999,999.00 $33,660.00\n\n\n\n\n2\n In Exhibit A, these figures have been rounded to the nearest dollar amount.\n\x0cRBEG Audit No. 34703-0001-31 15\n\n\nThe Agency has reissued the RBEG Servicing AN, AN 4610 (1951-E) Rural Business Enterprise\nGrant Program Servicing Clarifications, dated December 16, 2011. The AN was reissued and\nupdated to clarify the monitoring and reporting requirements for the RBEG program.\n\nThe Agency conducted two nation-wide RBEG Servicing training sessions through webinars on\nFebruary 23, 2012, (The second session was a repeat session of the first session.) All Rural\nDevelopment field office staff working in the RBEG program were invited to participate. The\nwebinars were recorded and the transcripts and PowerPoint presentations posted to Agency\xe2\x80\x99s\nSharePoint for future reference and access by all field staff.\n\nThe Agency conducted 10 regional training sessions in FY 2012. The sessions were attended by\nall State Office Program Directors and a limited number of Loan Specialists. Training sessions\nincluded grant servicing\xe2\x80\x94disbursement, monitoring, and reporting requirements, and the use of\nthe Guaranteed Loan System for tracking and monitoring receipt of quarterly performance and\nfinancial reports. The training presentations are posted to the Agency\xe2\x80\x99s SharePoint for use for\nfield staff training.\n\nThe Agency developed RBEG Servicing\xe2\x80\x94Disbursements and Monitoring Frequently Asked\nQuestions which were last updated and posted to the Agency\xe2\x80\x99s SharePoint on June 4, 2012.\n\nThe Agency will continue to provide training and guidance on an on-going basis.\n\nIf you need further information, please contact Virginia Gilchrist, Oversight Coordination Staff\nat (202) 690-3805 or via email at Virginia.Gilchrist@wdc.usda.gov.\n\x0cInformational copies of this report have been distributed to:\n\nGovernment Accountability Office\n\nOffice of Management and Budget\n\nOffice of the Chief Financial Officer\n Attn: Director, OCFO, Planning and Accountability Division\n\x0c To learn more about OIG, visit our website at\n www.usda.gov/oig/index.htm\n How To Report Suspected Wrongdoing in USDA Programs\n\n Fraud, Waste and Abuse\n e-mail: USDA.HOTLINE@oig.usda.gov\n phone: 800-424-9121\n fax: 202-690-2474\n\n Bribes or Gratuities\n 202-720-7257 (24 hours a day)\n\n\n\n\nThe U.S. Department of Agriculture (USDA) prohibits discrimination in all of its programs and activities on\nthe basis of race, color, national origin, age, disability, and where applicable, sex (including gender identity\nand expression), marital status, familial status, parental status, religion, sexual orientation, political beliefs,\ngenetic information, reprisal, or because all or part of an individual\xe2\x80\x99s income is derived from any public\nassistance program. (Not all prohibited bases apply to all programs.) Persons with disabilities who require\nalternative means for communication of program information (Braille, large print, audiotape, etc.) should\ncontact USDA\xe2\x80\x99s TARGET Center at (202) 720-2600 (voice and TDD).\nTo file a complaint of discrimination, write to USDA, Assistant Secretary for Civil Rights, Office of the Assistant\nSecretary for Civil Rights, 1400 Independence Avenue, S.W., Stop 9410, Washington, DC 20250-9410, or call\ntoll-free at (866) 632-9992 (English) or (800) 877-8339 (TDD) or (866) 377-8642 (English Federal-relay) or\n(800) 845-6136 (Spanish Federal relay).USDA is an equal opportunity provider and employer.\n\x0c"