LOCAL REVOLVING LOAN FUND (RLF)

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• LOCAL REVOLVING LOAN FUND (RLF)

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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 DCAs traditional
  approach to Revolving Loan Funds
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• 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

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Local Revolving Loan Funds

• Administered by local government with DCAs
  oversight and guidance (as needed)
• Currently 66 RLFs 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

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Local Government RLF Responsibilities

• Maintenance of an accounting and financial
  management system that complies GAAP, DCAs
  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 RLFs loan
  portfolio status and quickly identify any problem
  areas that need attention.

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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

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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

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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

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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

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OMB Circular A-133 Requirements

• Primarily to assist Local Governments auditors
• 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

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OMB Circular A-123 Requirements

• Improper Payments Information Act

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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 agencys 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.

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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

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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.

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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

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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

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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

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Things to Remember

• Local Government is responsible for ensuring
  RLFs 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

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Program Manager Contact Information

• Michael Casper RLF Program Manager
• [phone]
• michael.casper_at_dca.ga.gov
• OMB Circulars may be obtained at
• www.whitehouse.gov/omb/circulars/