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             UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
              OFFICE OF THE INSPECTOR GENERAL FOR AUDITS
                         WESTERN DIVISION
                        75 HAWTHORNE STREET
                      1»TH FLOOR. MAIL CODE M
                     SAN FRANCISCO. CA 94105-3901

                         March  31,  1997
SUBJECT:
FROM:
TO:
Audit of Idaho's State Revolving Fund
Audit Report No. E1HTF5-10-0038-7100147
Truman R. Beele 	   	
Divisional Inspector General  for Audit
Western Audit Division

Chuck Clarke
Regional Administrator
EPA Region 10
PURPOSE

The Office of Inspector General, Western Audit Division, has
completed an audit of Idaho's State  Revolving Fund {SRF).  The
purposes of the audit were to determine whether:  (i)  there was
sufficient demand from local communities to use all of the SRF
funds available; and  {ii> the State's  reporting systems were
adsquate.

SCOPE AND  METHODOLOGY

We conducted a performance audit of  selected elements of Idaho's
SRF program.  We also did a limited  test to determine whether the
amount of cash reported in Idaho's SRF financial  statements
agreed with its general ledger.  We  did not perform a financial
audit of SRF cash or other accounts.   Our audit was conducted in
accordance with Government Auditing  Standards issued by the
Comptroller General.  Our field work was conducted from March
1996 through June 1996.  The audit covered Idaho's SRF program
from its inception in fiscal 1989 through the year ended
June 30, 1995.

We discussed Idaho's SRF Program with  officials of EPA Region
10's Office of Ecosystems and Communities and Idaho's Department
of Health and Welfare, Division of Environmental  Quality  (DEQ).
                                                       Primal on Rtcycltd Paptr

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                                               Idaho's State Revolving Fund
The audit included reviews of SRF Intended Use Plans  (lUPs), SRF
Annual Reports, loan files, and the Wastewater Facility Loan
Account of the State's general ledger system.  The audit was
performed giving consideration to SRF statutes and regulations,
Idaho's program information, and discussions with EPA Office of
Water officials.  No previous performance audits of Idaho's SRF
Program had been performed.

BACKGROUND

The SRF Program was established in 1987 by Title VI of the
Federal Water Pollution Control Act {commonly referred to as the
Clean Water Act-CWA).   The intent of the SRF program was to
replace the Wastewater Treatment Facilities Construction Grants
Program with self-sustaining revolving funds in each State.  The
SRFs provide loans for construction of.wastewater treatment
facilities and other activities authorized under the Act.
Capitalization Grants were authorized to initially fund SRFs.
Annual appropriations were allotted to the States using a fixed
formula of percentages from the CWA.  As of January 1995, EPA had
awarded $11.3 billion in grants to the States.

Title VI of the CWA requires that States annually prepare JUPs
that identify the intended uses of amounts available in their
SRFs.  The lUPs include a description of the State's program
goals, a list of projects that are expected to receive funds, and
a description of the activities to be supported.

Title VI also requires that all funds be expended in an
expeditious and timely manner.  SEC. 602. (B) requires States to
enter into binding commitments to provide assistance within 1
year after the receipt of a grant payment.

Grant funds are to be obligated, made available, and loans
awarded within established time limits.

Idaho received seven SRF Capitalization grants totaling $50.4
million during the period August 1989 through April 1995.  When
combined with State matching funds,  $60.5 million in SRF funds
was available for loans to local communities and for
administrative expenses.  As of June 30, 1995, the State made

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                                               Idaho's State Revolving Fund
binding  commitments1 of $40.9 million  (68 percent)  for loans and
administrative  expenses,  and had disbursed $25 million (41
percent).

RESULTS IN BRIEF

Local demand for  loans was  not  sufficient  to use SRF funds
available during  the  first  6 years of  the  program.   A gap between
demand and available  funds  reached a high  point of  more than $25
million  at October  1, 1994.   This gap  of $25 million represented
more than double  the  largest annual grant  ever awarded to Idaho.
The gap  was reduced to $17  million at  June 30,  1995 by two large
loans totaling  $14  million.   However,  the  $17 million still
exceeded more than  double the fiscal 1995  grant.

Region 10 recognized  Idaho's problem with  loan demand in its
annual SRF reviews.  While  the  Region  has  made reasonable efforts
with Idaho to overcome the  problem,  we believe that more needs to
be done.  As noted  by the Region,  timely use of funds to high
priority water  quality projects is fundamental to the purpose for
which SRF was established.

The low  level of  demand was  primarily  due  to instances where
local communities decided to delay or  discontinue plans for SRF
loans.   The causes  for this  condition  in local community demand
included: (i) the inability  to  get authorization or support from
their citizens  to take on the debt and repayment burdens  of SRF
loans; (ii)  delays  in getting permits:  (iii)  obtaining funds for
facilities from other sources;  and (iv)  changing priorities.  We
recommend that  DEQ  increase  efforts  to ensure that  there  are a
sufficient number of qualified  loan  applicants.

Regarding the State's SRF related reporting systems,  we concluded
they were inadequate in two  respects.   First,  Idaho's annual lUPs
did not  include enoxigh projects to account  for all  of the
expected SRF funds.  To illustrate,  the fiscal  1995 IUP listed
projects in support of the $6 million  Federal grant,  but  did not
identify projects for an  additional  $14 million that  was
     i
       In Idaho,  a binding commitment is the equivalent of a loan to a local
community.

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                                               Idaho'* state Revolving Fund
 available.   Second,  amounts  reported in the  SRF financial
 statements  were not  adequately controlled by DEQ's  general  ledger
 and the cash balance reported in the fiscal  1995 financial
 statements  was  under-reported by $91,295.  To improve  DEQ's
 accountability  for the  SRF,  we recommend that the lUPs account
 for all funds and that  DEQ obtain annual audits of  the SRF
 financial statements.

 AGENCY COMMENTS and  OIQ  EVALUATION

 We  provided a draft  report to Region 10 and  DEQ on
 January 31,  1997  with a request  that the Region incorporate DEQ's
 comments into its response.   Region  10  responded on
 March 24, 1997  and its  response  is included  as APPENDIX A to this
 report.  The  Region  concurred with all  of  the recommendations and
 described corrective actions  that have  been  taken or will be
 taken by the  Region  and DEQ.   We  agree  that  those actions will
 implement the recommendations in  our report.

 ACTION REQUIRED
In its response to the draft report, Region 10 concurred with  the
recommendations and described an action plan and milestone dates
or activities which respond to all aspects of the
recommendations.  As a result, and as outlined in EPA Order 2750,
we find the Region's response to the report acceptable.
Therefore, we are closing this report in our tracking system as
of this date.  The Region should, however, track implementation
of the action plan and milestone dates in the Management Audit
Tracking System.

This report identifies corrective actions the Office of Inspector
General {OIG) recommends involving EPA's SRF program.  As such,
it represents the opinion of the OIG.  Final determinations on
matters in the report will be made by EPA managers in accordance
with established EPA audit resolution procedures.  Accordingly,
the findings described in this report do not necessarily
represent the final EPA position.

We have no objections to the further release of this report to
the public.  Should you or your staff have any questions about

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                                                  Idaho's State Revolving Fund
this report,  please contact me at  (415)  744-2445 or  Charles
Reisig, Team Leader at  (206)  553-4032.

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                                    Idaho1* State Revolving Fund
(This page left  intentionally blank.)

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                                               Idaho's State Revolving Fund
FINDINGS AMP  RECOMMENDATIONS
Lo
and has Imroved - But More
                                                    Necessar
 Ir. the  first  6 years  of  the  SRF  program demand for loans has not
 been sufficient  to  obligate  all  of  the  funds that were available.
 A chart for the  period
 July 1989 through June
 1995 shows that  the demand
 for loans  (cumulative loan
 awards and expenses)  had
 not kept up with the
 amount of available funds .
 A gap between demand  and
 available funds  increased
 to more than $17 million
 by October 1992, and
 exceeded $25 million
 during the period October
 1994 to mid-June 1995.
 The $25 million
 represented more than
 double the largest  annual
 gr£.nt that had ever been
 mace to Idaho.  While the
 gap was reduced to  $17 million at June  30, 1995 by two large
 loans totaling $14  million,  it was still sufficiently  large  to
warrant attention.  At the $17 million  dollar  level, the gap
 still was more than double the fiscal 1995 annual  SRF  grant  of
 about $7 million.

EPA,. Region 10, has appropriately recognized a growing problem
with demand in Idaho's SRF program during its  annual program
evaluation reports  over the  last several years.   Its 1992 report
stazed:

     We are concerned that the SRF barely met  the  minimum
     Federal requirement for loan commitments  in  1992 .   The
     slowdown in loan commitments is particularly
     troublesome in the current funding environment ....   I
     urge you to take action to ensure that the SRF will  be
Cumulative Demand for SRF Funds


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" 1 i i i . 1 I [ i i 1 i i i ! i 1 i i : I I
7/B9 7/90 7/91 7/92 7/93 7/94 7/95
Date
	 	 Available Funds (Grant + State Match)


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                                              "Idaho1* State Revolving Fund
     able to meet  the minimum Federal requirements  for
     commitments as well as meet the challenges  that new
     Federal appropriations will mean....  This  weakening  of
     demand coupled with the anticipation of higher than
     expected levels of Federal funding created  concerns
     that the State should look at new strategies and
     markets for using SRF funds....  Management of the
     program to commit available funds in a timely  manner  to
     high priority water quality projects is fundamental to
     the purpose for which the SRF was established.

Region 10's 1993 report stated:

     Our review has shown that the Idaho State Program had
     serious periods of noncotnpliance regarding  commitment
     levels during SFY1993.  This unsatisfactory performance
     in the area of loan commitments and several related
     areas as detailed in our findings....  The  State and
     EPA identified several measures during the  onsite visit
     that could better ensure future compliance  with the
     commitment requirement...

Region 10's 1994 report stated:

     The Idaho SRF program showed significant improvement
     from last year by meeting the Federal Binding
     Commitment requirement during all of 1994.  However,  we
     remain concerned about the pace at which the program  is
     able to make new commitments....  Please note  that  the
     need for timely commitments extends beyond  the
     discussion of the Federal binding commitment
     requirement.  At the end of 1994 the Idaho  SRF had
     accumulated about $1.2 million in interest  revenues.
     These revenues will accumulate at an increasing rate  in
     the years to come as more and more loans begin
     repayment...

While the Region's efforts are recognized, we believe that the
$17 million of unused funds at June 30,  1995 shows  that  more
needs to be done.  In addition, as noted in the  Region's 1993
report,  Idaho failed to meet its binding commitment requirement

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                                               Idaho1* State Revolving Fund
 in  fiscal 1993.  This  is a statutory  requirement  that  can lead to
 sanctions against a State.

 The CWA establishes minimum requirements  for  the  timely award of
 loans to local communities.  Title VI, SEC. 602.  (B) states  that
 "the State will enter  into binding commitments  to provide
 assistance in accordance with the requirements  of this title in
 an  amount equal to 120 percent of the amount  of each such grant
 payment within 1 year  after the receipt of such grant  payment."

 As  shown below for 3 quarters in fiscal 1993, the total amount of
 loan awards fell below the required minimum level for  binding
 conmitments:
   Quarter-
 State Fiscal
    Year
    1-1993
    2-1993
    3-1993
 Cumulative
   Loans
$17,837,912
$17,862,912
$18,381,428
   Binding
 Commitment
Requirements
$17,868,383
$23,590,098
$23,590,098
Requirements
   Not Met
   ($30,471)
($5,727,186)
($5,208,670)
While the Region and the State identified some measures and took
som>5 actions to improve future compliance, we attempted to focus
our effort on causes for the gap between loans awarded and SRF
funds available.  We found a common cause was that several local
communities failed to follow through with their original plans  to
obtain SRF loans.  During the 6-year period covered by our audit,
there were 43 potential projects for which loans were planned.
However, of these potential project's, 16 projects  (37 percent)
totaling $15 million did not result in loans.  We interviewed
Idaho's regional project engineers to find out why these 16
planned loans had not been made.  They provided the following as
reasons:

•    Local communities could not get authorization or support
     from their citizens to take on the debt and repayment
     burdens of SRF loans (two projects totaling $2.4 million).

*    Local communities could not obtain National Pollutant
     Discharge Elimination System permits from EPA to set
     allowable waste levels (three projects totaling $4.1

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                                               Idaho'* State Revolving fund
      million).

      Local  communities  obtained  other  sources  of  funds  from block
      grants from other  governmental  agencies or self  funding
      (seven projects  totaling  $4.8 million).

      Local  communities  decided to pursue other priorities  (four
      projects totaling  $3.7 million).
Conclusions

While Idaho has made improvements in meeting the minimum  Federal
requirement for loan commitments, a significant amount of funds
was still available to fund additional projects.  Further
improvements can be made to ensure that available funds are
committed to high priority water quality projects in a timely
manner.

We encourage Region 10 to continue to focus on demand in  its
annual plan reviews of Idaho's SRF program.  In addition,  while
the causes as to why local communities do not ultimately  obtain
SRF loans may not be directly within the control of DEQ,  we
believe that DEQ should place a greater emphasis on: (i)  early
screening of potential applicants for their readiness to  proceed
for a loan; and (ii) expanding the list of potential loan
applicants so that if a potential applicant is unable to  proceed,
another can take its place.

Recommendat ions

We recommend that the Regional Administrator:

1.   Continue to focus on demand during the Region's annual
reviews of Idaho's SRF Program.

2.   Request DEQ to identify the steps that it is taking  to
ensure a sufficient number of applicants that are ready to accept
loans, and other steps it is taking to accelerate the
timely use of funds to high priority projects.
                                10

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                                               Idaho'* State Revolving Fund
Agency Comments and QIG Evaluation

Reigion 10 concurred with the recommendations  and stated that
subsequent to the audit, actions have been  taken to improve
demand and accelerate the timely use of  funds to high priority
projects.  DEQ has made several binding  commitments which
substantially reduced the gap between funds available and funds
committed to projects.  DEQ has also identified  specific steps
that it is taking to accelerate the program pace.   The Region
stated that it will continue to follow these  improvements in its
program reviews.  We are pleased at the  positive  steps that have
been taken and believe that they will result  in more timely and
effective use of SRF funds.
                               11

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                                               Idaho's State Revolving Fund
Idaho* a Reporting on Intended
                                 e PX     Was
 Idaho's  lUPs  did not  identify intended uses  for  all  available SRF
 funds  as required.  In  fiscal 1995,  Idaho's  IUP  only accounted
 for  $6 million  of the $20  million  in available SRP funds.
 Idaho's  lUPs  listed projects  for only the  amount of  Federal funds
 requested for the current  year.  The state did not identify
 projects for:  (i) the amount  of the  State's  matching funds; (ii)
 funds  available from  interest earned on SRF  funds; and (iii)  SRF
 funds  that became available as a result of canceled  projects that
 were on  prior lUPs.

 We believe that the failure to identify intended uses for  all
 available SRF funds could  be  a contributing  factor to Idaho's
 limited  success in using all  SRF funds  timely.   When we  inquired
 as to  causes  for the  above condition,  a State SRF program
 official said that they had been doing  it  the same way for years,
 and EPA  had never questioned  their approach  of only  reporting
 intended uses of  the  Federal  funds portion of the SRF.

 To illustrate our concern  with Idaho's  approach  to identifying
 the intended use  of the SRF,  the following discussion of its  IUP
 for Federal fiscal 1995 funds  is provided.   The  IUP  reported
projects and a  reserve for administrative  expenses that totaled
 about  $6 million, the amount of the  Federal  allotment.  However,
 Idaho's SRF (Idaho's Wastewater Facilities Loan Account) had
 about  $20 million in  funds available.   Thus,  about $14 million in
 SRF funds were  not identified  to any projects.   It is noted that
 Idaho's IUP stated that its primary  purpose  "is to identify the
proposed annual  intended use of the  funds  available  in Idaho's
Wastewater Facilities Loan Account."  The  $20 million available
 in Idaho's SRF was determined  as follows:
                                12

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                                               Idaho'a State Revolving Fund
Sources of Funds:
   Federal grants  (1983 through 1995)
   State match  (1989 through  1995)
   Interest from loan repayments
   Interest on unused funds
    Total Funds Provided

Uses of Funds  (prior to the  1995 IUP):
   Reserve for administrative expenses
   Principal on outstanding loans
    Total Funds Reserved and Used

Funds Available
    As of
Jung 30. 1995

  $50,445,915
   10,089,183
    1,230,525
  	83.946
  S61.849.569
  $ 2,007,109
   40.030.918
  S42.038.Q27

  519,811.5422
Federal regulation 40 CFR H35.3150 specifies requirements  for
annual lUPs.  Under subparagraph(a), Purpose, it states  that  "The
State must prepare a plan identifying the intended uses  of the
funds in the SRF and describing how those uses support the goals
of the SRF."...  The IUP "must be prepared annually and  must be
subjected to public comment and review before being submitted to
EPA.  EPA must receive the IUP prior to the award of the
capitalization grant."  Under subparagraph(c), Amending  the IUP,
the regulation states that "The IUP project list may be  changed
during the year ... as long as the projects have been previously
identified through the public participation process."  An  EPA
Headquarters program official stated that the intent of  the
regulation was that lUPs should account for all funds in the SRF,
not just anticipated. Federal grant awards.

We asked an Idaho program official why the State's lUPs  included
projects for only the amount of the Federal allotment.   We were
told that they had been doing it the same way for years, and that
EPA had never questioned their approach of only reporting  the
     2 Of this total, $5.7 million was identified  for projects in
the 1995 IUP,  leaving a balance of $14 million not identified
with specific projects.
                                13

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                                               Idaho'* State Revolving Fund
 anticipated Federal  allotment amount.

 Conclusions

 By excluding significant  amounts  of  SRF funds  from the IXIPs,
 Idaho is not complying with  the SRF  regulations.   In our view,
 one purpose for the  requirement is to  assist EPA,  at the time of
 a new capitalization grant award, in assessing the effectiveness
 of a State's planned use  of  SRF funds.   We  also believe that  the
 failure to  identify  intended uses for  all available SRF funds
 could be a  contributing factor to Idaho's limited  success in
 using all SRF funds  timely.

 Reeommendat ion

We recommend that the Regional Administrator inform DEQ of the
 requirement  that lUPs should account for all available SRF funds
and that the  Region  include  this  requirement in its annual
reviews of  Idaho's SRF Program.

Agency Comments and OIG Evaluation

Region 10 concurred with the  recommendation and stated that DEQ
has implemented this recommendation and  that no further action is
required.   We consider this corrective action to be satisfactory.
                                14

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                                               Idaho's State Revolving Fund
 SRF Cash Was Not Properly Recorded or Reported

 DiSQ's accounting system did not have sufficient controls to
 ensure that SRF funds were recorded and reported accurately.
 Cash balances reported in SRF financial statements were from
 amounts on computer worksheets that did not agree with SRF
 general ledger cash balance maintained by the State.  The cash
 bcilance reported in the fiscal 1995 financial statements was
 under-reported by $91,295.   Additionally,  SRF funds were included
 with State funds in some general ledger accounts.

 The cash balance reported in the SRF financial statements for the
 year ended June 30,  1995 did not agree with general ledger cash
 subaccounts for the SRF under the Wastewater Facility Loan
 Account.   With the assistance of a Senior Accountant at DEQ, we
 obtained the following information on the  SRF cash balance that
 should have been reported in the financial statements.   We did
 not perform a financial audit of SRF cash  or other accounts.
    As of
June 30. 1995  Notes

  $2,080,258
      72,842     1

   1,239,235

  (1.113.14R)     2
  $2,279,187     3
      83.946     4
  52.363.133

  £2.271.838     5

  S    91.2QR
1. This account included SRF and State only funds.
The amount shown is the amount the accountant identified as the
SRF portion.
Cas;h Balance That Should Have  Been  Reported;
  SRF accounts  - Cash in Treasury
  Clearing Account - Cash  in Treasury
  £FR  (STA REV  LOAN FUND WW) - Cash in
    Treasury
  SFR  (STA REV  LOAN FUND WW) - State Only
    Loans - Cash in Treasury
  Subtotal - Cash recorded in  SRF accounts
  Interest earned on SRF fund  balance
     Total

Cash Balance Reported

Under-reported Cash
                                15

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                                               Idaho's State Revolving Fund
2. Even though the title contains "State Only Loans", the
accountant stated that this account was actually SRF.

3. This subtotal agrees with a Summary of State Revolving Fund
Loans as of June 30, 1995 prepared by DEQ which shows total loan
repayments of $2,279,187 (interest $1,230,525 and principal
$1,048,662).

4. This amount is the total interest earned on SRF funds that was
reported in the SRF financial statements.  The accountant said
that interest earned on SRF funds was recorded together with
interest on State loan funds in the State loan accounts.

5. This total came from a computer worksheet.

The problems with the recording and reporting of SRF funds
occurred because Idaho had two loan programs whose transactions
were recorded in a series of subaccounts under the State's
Wastewater Facility Loan Account.  One program was a prior State
Wastewater Facility Loan program for which payments were
currently being received.  Transactions for this State only
program and the SRF program were recorded in subaccounts under
the Wastewater Facility Loan Account.  The subaccounts were not
clearly titled,  recording errors were made and not corrected, and
some of the accounts contained commingled funds.  SRF financial
statement balances were kept on a separate computer worksheet
because the general ledger did not accurately reflect SRF
transactions.

Federal regulations under 40 CFR l35.3110(b) specify accounting
requirements for a SRF.  It states that "The SRF can be
established within a multiple-purpose State financing program.
However, the SRF must be a separate account or series of accounts
that is dedicated solely to providing loans and other forms of
financial assistance, but not grants."  A capitalization grant
agreement requirement is described in 40 CFR 1(35.3135(h)(1) which
states that "The State must agree to establish fiscal controls
and accounting procedures that are sufficient to assure proper
accounting for payments received by the SRF, disbursements made
by the SRF, and SRF balances at the beginning and end of the
accounting period."
                                16

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                                               Idaho'* State Revolving Fund
Concilia ions

The size of the SRF, in excess  of  $60 million,  requires  that
adequate fiscal controls and accounting procedures  be  established
to ensure accountability for the fund assets.   We believe that it
is; a serious internal control weakness when  the general  ledger
does not accurately reflect cash transactions and account
balances in the SRF.  Memorandum records and computer  worksheets
can be useful to expand upon or explain amounts in  the general
ledger, but they should be reconcilable to and  be controlled by
the general ledger.

The Statements on Auditing Standards state that establishing and
maintaining an internal control structure is an important
management responsibility  (ref. AUH319A.69}.  We believe that
DEQ's management could improve  internal controls by:  (i)  using a
separate series of accounts for the SRF/  (ii) making a thorough
reconciliation of the SRF to ensure that all assets are  accounted
for,- and (iii)  engaging an independent public accountant to
render an opinion on the SRF financial statements after  the above
activities have been accomplished.

Recommendat ion

We recommend that the Regional  Administrator request DEQ to
obtain annual audited financial statements of the SRF  in the
future.

Agency Comments and OIG ^valuation

Region 10 concurred with the recommendation  and stated that it
will include an audit requirement as a grant condition when it
awards the next capitalization grant.  We consider this
corrective action to be satisfactory.
                                17

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                                    Idaho's State Revolving Fund
(This page left  intentionally blank.)
                   18

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                                                         APPENDIX A
SUBJECT:
FROM:
TO:
   UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                    REGION 10
                  1200 Sixth Avenue
               Seattle, Washington 98101

                   MAR 2 4 t997
Comments on Draft Audit
of Idaho's State Revolving  Fund Audit
Report No. E1HTF5-10-0038-
Janet Kesler
Grants and Acquisitions Unit

Truman R. Beeler
Divisional IG for Audit
Western Division
      Thank-you for  the opportunity  to  comment on your Draft
Audit of the Idaho State Revolving Fund(Report No.  E1HTF5-10-
0033} that was transmitted  to us  by  your letter of January 31,
1997.  We have reviewed the Draft Audit internally and we have
reviewed the comments  that  were prepared by the Idaho Division of
Environmental Quality  and provided to me by letter dated February
24, 1997. Our comments on the recommendations to Region 10
contained in the Draft Audit are  based  on these reviews.  They
are as follows:

      {1} Recommendation: Continue to focus on demand during the
Region's annual reviews of  Idaho's SRF  Program.

     Response :  Concur with comment.^

     Demand was a problem during  the audit period, but subsequent
to the audit,  the S-ate made several binding commitments which
reduced substantially  the gap between funds available and funds
committed to projects. EPA has made program pace a priority in
their ongoing  communication with  Idaho  and other states in the
region.  We will continue to follow  these practices.  No further
special action  is required.

      (2) Recommendation:  Request  DEQ identify the steps that it
is teiking to ensure  a  sufficient  number of applicants are ready
to accept loans, and other  steps  it  is  taking to accelerate  the
timely use of  funds  to high priority projects.

      Response:  Concur  with  comment.

                                  19
                                                            r Prtni»a an ftocyctod P»p*r

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     DEQ has identified the steps that they are taking to
accelerate program pace in their February 24 letter.  EPA will
follow up on these in its routine reviews of the Idaho program.
No further special action is required.

     (3)  Recommendation: Regional Administrator inform DEQ of the
requirement that lUPs should account for all available SRF funds
and that the Region include this requirement in its annual
reviews of Idaho's SRF Program.

     Response:  Concur with Comment.

     DEQ has implemented this recommendation.   The 1996 IUP along
with the capitalization grant application to the EPA Region 10
contained lUPs which account for available SRF funds.  No further
special action is required.

     (4)  Recommendation: We recommend that the Regional
Administrator request DEQ obtain annual audited financial
statements of the SRF in the future.

     Response:  Concur with recommendation.

     EPA will include this requirement as a grant condition when
it awards the Idaho FY 1998 capitalization grant.

     Thank you again for the opportunity to comment on the Draft
Audit.   The directions that Idaho and EPA are taking with respect
to the SRF program are consistent with the concerns expressed in
the draft audit report.  We will continue to make these a
priority in our implementation of this program in Region 10.

     If you have specific questions on our comments on the draft
audit report for the Idaho SRF, please contact me at(206)-553-
1192 or Lee Daneker at(206)-553-1380.
cc:  Lee Daneker, SRF Coordinator, Region 10
     Charles Reisig, Team Leader, Seattle Branch
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                                               Idaho's State Revolving Fund
                                                        APPENDIX B
                        REPORT DISTRIBUTION
Office of  Inspector General

      Inspector  General  (2410)

Headquarters Offipe

     Audit Liaison,  Office  of  Water (4102)

     Director,  Office of  Wastewater Management (4201)

     Director,  Municipal  Support  Division (4204)

     Chief, State Revolving Fund  Branch  (4204)

     Agency Followup Official,  (3101), Attn:   Assistant
       Administrator for  Administration  and Resource
       Management

     Agency Followup Coordinator  (3304),  Attn:  Director,
       Resource Management  Division

     Audit Foliowup  Coordinator,  Office  of Wastewater
       Management (4201)

     Associate Administrator for  Regional Operations and
       State/Local Relations (1501)"

     Audit Liaison,   Grants Administration Division  (3903F)

Region 10
     Regional Administrator

     Director, Office of Ecosystems and Communities

     Supervisor,  Geographic Unit

     SRF Coordinator


                                21

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                                                 Idaho's State Revolving Fund
     Audit  Coordinator,  Grants Administration Unit
External
     General  Accounting Office
                                 22

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