The US Office of the Inspector General (OIG) audited the USDA’s Rural Business-Cooperative Service, which administers the Rural Energy for America Program (REAP), Renewable Energy Systems (RES) and the Energy Efficiency Improvements (EEI) Guaranteed Loan and Grant Program. The programs distribute grants and loans to agricultural producers and small rural businesses like feed and grain elevators with dryers to improve energy efficiency or use of renewable energy.
“Our objective was to assess RBS’ internal controls over approving and servicing REAP loans and grants,” the auditors said. “Specifically, our objective was to determine whether loan and grant recipients and projects met eligibility requirements and whether appropriate project performance measures were established and achieved.”
The review covered REAP awards from fiscal years 2009 through 2014, said the auditors. “We examined the award data and records, conducted interviews with relevant officials, and reviewed documentation on policies and procedures for REAP execution,” they added.
Audit details were released in August. The report offered 10 recommendations for how the RBS could improve and the agency’s responses to the report’s findings.
Loan and grant program details
RES or EEI projects must have technical merit, be used at a rural small business or for an agricultural producer and be possible, said the auditors. RES projects often involve use of renewable energy sources, while EEI items predominately look to reduce energy use for a facility, with equipment or in a process.
For an RES grant the maximum is $500,000 and for an EEI grant it is $250,000, they said. A loan for RES or EEI item can account for 75% of the eligible project cost and applicants may apply for a combined loan and grant.
Once a REAP project is finished, recipients are to provide a performance report once a year for the three years, for RES items, or for two years, for an EEI project, following completion, said the auditors. The document is expected to include jobs created or saved and energy generated or use reduced by the project.
Data for sampled REAP awards checked in the guaranteed loan system (GLS) was not reliable, said the auditors. RBS officials were aware there were inaccuracies in the information but no effort had been made to correct it and the system lacked edit checks to promote valid data.
“We found, however, that the 30 REAP awards in our sample had information in GLS that was erroneous, incomplete, or unverifiable,” they said. “We attribute these errors to: (1) recipients not submitting information when they were required to do so, (2) projects with incorrect energy data, and (3) RBS not correctly entering the data in its system.”
The group found that RBS needed an effective way of ensuring yearly reports were submitted, they said. Officials with RBS said they did not have a way to compel compliance and no way of tracking missing reports.
Many projects also included inaccurate data regarding the amounts of energy made or saved, said the auditors. The most common mistake being in how the quantity of energy saved was calculated or recorded.
Although the RBS guidance includes what has to be reported, no calculation process is offered, the auditors said. RBS officials said no process had been specified because each project was different.
“Based on the results of our file reviews, we estimate that 4,338 of 5,423 project’s yearly performance reports, or 80 percent, did not have accurate energy produced or saved data in GLS,” they added.
RBS has taken steps to address the situation, but auditors found they did not offer sufficient help and that additional efforts are needed.
The application review process also had areas where data was missing or incorrect, said auditors. The GLS system does not appear to be set up in a way to promote reliable REAP information.
However, RBS officials had identified the lack of accurate data, started weekly checks to find and correct errors; were working on a data review program; and started using a commercially available software for analysis and reporting, the auditors said. These steps were considered a reasonable remedy.
The audit also determined that information on award amounts, project numbers and energy both generated or saved by those grants and loans presented to Congress was unreliable, the auditors said.
Other issues mentioned in the report, included that awards were not cross-checked with other agencies, especially the Farm Service Agency (FSA) and that controls were needed to prevent duplicate funding being offered, said the auditors. Also, some applications had priority points added without documentation.
The audit team outlined 10 recommendations for RBS to improve actions and accuracy in the future. These guidances included that the agency consult with the Office of the General Counsel to establish ways to ensure reports are turned in; establish a method to track reports and ones that have not been filed; provide templates for common EEI projects to help with calculations; provide training on calculation and reporting methods to grant or loan recipients; and use data entry edit checks to improve data accuracy at input.
Other suggestions included implementing controls to track information reported by the system to provide an audit trail and recovering funds from recipients given duplicate payments, the auditors said. Also, RBS should work with FSA to cross-check awards from both agencies; train state officials on the partnership; and establish a method to ensure that all necessary information on an application is added to the file.
The agency concurred with all findings and agreed to address issues outlined by the reviewers.
RBS responses and suggestions for improving the areas highlighted were accepted by the auditors. The agency has a year to address the concerns and take action.