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1 I 18 Evaluation of Actions Taken on Colorado Water Conservation Board as of December 1999 1 at its September 27, 1999, Board meeting that addresses the auditor's creditworthiness and I financial need concerns and recommendations. Office of the State Auditor's Evaluation of Actions Taken I (December 1999): I In progress. The CWCB has developed a method for evaluating the creditworthiness and financial need of potential loan recipients. This policy requires that applicants submit specific financial information, such as financial statements and the results of applications to other lenders,with their applications. In addition,CWCB has developed a rating system that it will use as a guideline to determine creditworthiness. The rating system assesses a variety I of factors, including the ratio of operating revenues and expenses. The policy became effective October 1, 1999, and appears to address our recommendation. a Because of the policy's newness,however,we could not fully assess its use or effectiveness. II We did find, however, that at least one aspect of the policy is not being followed. As was mentioned in Recommendation No. 3, we found that applications do not contain sufficient I documentation that other financing sources have been explored. Simply instituting a new policy does not ensure compliance. The Board needs to take actions to ensure that its policies are being followed (e.g., providing training to staff, rejecting incomplete applications). I Protect the State's Interests by Obtaining Sufficient Collateral Il At the time of the 1998 audit, we found the Board's collateral p olicies and practices allowed for a p great deal of discretion when making decisions regarding the collateral required to secure a particular project loan. For example, policy and practice allowed the Board to accept anything from a III certificate of deposit for one loan payment to a deed of trust for the project itself When we reviewed 28 loans for projects completed in Fiscal Years 1997 and 1998, we found a great deal of variation in the types of collateral pledged for loans. We could not determine if the variation was reflective of differences in the relative creditworthiness of the borrowers or was the result of some other factor(s). I Recommendation No. 9 (September 1998): s rvation Board should ensure its policies and practices for obtaining collateral for The Water Conservation p p g loans adequately protect the State's interests in the event of a borrower's default on its loan obligation. This should include specifically defining what constitutes sufficient collateral given the I I 1