1. LOCAL REVOLVING LOAN FUND (RLF)

2. Page 2 Local Revolving Loan Funds Indications that HUD and GAO will heavily monitor and audit the RLF activities HUD is finalizing rules and regulations Following primarily based on DCA’s traditional approach to Revolving Loan Funds -------------------------------------------------------------- Loan payments capitalize local RLF RLFs can be used for local economic development needs and must be CDBG-eligible RLF funds should be used first for new projects. Additional stimulus funds should be used to fill financial gaps

3. Page 3 Local Revolving Loan Funds Administered by local government with DCA’s oversight and guidance (as needed) Currently 66 RLF’s throughout Georgia, with: $33 million in RLF assets $12 million in cash $21 million in loan receivables 9,729 jobs created RLF must be used in a timely manner – at least one new loan every five (5) years [rule subject to future HUD regulations] For RLF cash balances greater than $125k, cash balance should be maintained at less than 30% of total RLF assets [rule subject to future HUD regulations]

4. Page 4 Local Government RLF Responsibilities Maintenance of an accounting and financial management system that complies GAAP, DCA’s guidelines for RLF financial management systems, and HUD regulations Maintenance of a loan servicing and monitoring capacity system to ensure that loan payments are collected, that loan covenants are enforced, and that loan secured assets are maintained [UCC filings, etc.] Maintenance of a well documented application and selection process Capacity to review and analyze funding requests to determine whether such projects represent prudent investments Maintain and structure RLF so that local administrators can assess the RLF’s loan portfolio status and quickly identify any problem areas that need attention.

5. Page 5 RLF Administrative Costs 10% per annum based on program income derived for a particular period [fiscal year, calendar year, etc] Administrative costs must be adequately documented – only eligible costs are ACTUAL costs incurred

6. Page 6 Federal OMB Circulars In absence of, in conjunction with, or complimenting HUD regulations, Local Governments RLF expenses must adhere to Federal Office of Management and Budget (OMB) Circulars: A-87 A-133 A-123

7. Page 7 OMB Circular A-87 Requirements The RLF expense must be: Necessary and reasonable for the proper and efficient performance and administration of the federal award Authorized or not prohibited under State or local laws or regulation Accorded consistent treatment Adequately documented

8. Page 8 OMB Circular A-87 Requirements What are Reasonable Costs? Costs that do not exceed that which would be incurred by a prudent person Generally recognized as ordinary and necessary Controlled by factors such as sound business practices and arms length bargaining [i.e., no conflicts of interest] Costs at market prices for comparable goods or services

9. Page 9 OMB Circular A-133 Requirements Primarily to assist Local Government’s auditors adequate internal control Local Government is charged with maintaining adequate internal control over Federal programs. The internal control exhibited by the Local Government should provide reasonable assurance that the Federal program is being managed in compliance with laws, regulations, and the provisions of contracts or grant agreements

10. Page 10 OMB Circular A-123 Requirements Improper Payments Information Act

11. Page 11 OMB Circular A-123 Requirements An improper payment includes any payment that was made to an ineligible recipient or for an ineligible service, duplicate payments, payments for services not received, and payments that are for the incorrect amount An improper payment is also defined as any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements “when an agency’s review [i.e., an audit] is unable to discern whether a payment was proper as a result of insufficient or lack of documentation, this payment must also be considered an error.”

12. Page 12 OMB Circular A-123 Requirements What may constitute an improper loan payment? Disbursements to borrowers or other third- party payments that are based on incomplete, inaccurate, or fraudulent information. These improper loan payment disbursements may include: Duplicate disbursements Disbursements in the incorrect amount Loan funds used for purposes other than those allowed by law, program regulations, or HUD/State policy

13. Page 13 OMB Circular A-123 Requirements “Agencies shall have a cost effective program of internal control to prevent, detect, and recover overpayments to contractors resulting from payment errors.”

14. Page 14 OMB Circular A-123 Requirements How can Local Government identify, eliminate, and recover improper payments? Prevention Prevention activities are proactive and made prior to payment issuance to assure payment is accurate when made Examples include: pre-payment audits, due diligence based on risk prioritization, and predictive modeling

15. Page 15 OMB Circular A-123 Requirements How can Local Government identify, eliminate, and recover improper payments? Detection Detection activities occur subsequent to payment and test the accuracy of payment processes to identify errors made during those processes. Examples include: routine payment verification, quality control reviews of a universe of payments using different criteria than used on the front-end Data matching to compare data fields or sets to confirm consistent input Data mining to detect payment patterns or anomalies for isolation and subjected to further review

16. Page 16 OMB Circular A-123 Requirements How can Local Government identify, eliminate, and recover improper payments? Recovery Recovery or collection activities refer to efforts directed toward recapturing improperly made payments. For example, Local Government can obligate contractors to assume financial responsibility for any payment errors deemed as unallowable contract costs Local Government may impose financial penalties on contractors when payment errors exceed certain thresholds Local Governments may, along with demanding repayment, impose sanctions or other punitive measures against contractors

17. Page 17 Things to Remember Local Government is responsible for ensuring RLF’s allowable costs Exercise Due Diligence and actively monitor loan status Ensure loans are for program eligible activities Document, document, document, and document! HUD and GAO will be heavily auditing HUD regulations may be amended in future

18. Page 18 Program Manager Contact Information Michael Casper – RLF Program Manager (404) 679-0594 michael.casper@dca.ga.gov OMB Circulars may be obtained at: www.whitehouse.gov/omb/circulars/