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I 32 Construction Fund Loan Program Performance Audit-September 1998 without a completed study where there is adequate information available to be confident that the proposed project is feasible and where the borrower demonstrates sufficient interest in completing the studies. Review and acceptance of the completed study has been specified as a final condition of the funding in these cases. Some Projects Receive Funding for Feasibility Studies The Board occasionally makes a loan to an entity for the purpose of conducting a feasibility study. The Board finances feasibility studies as a means of encouraging entities to undertake water projects. Prior to 1993, entities that received feasibility study loans were required to pay them back if the project was started within ten years. If the project did not get under way within this time frame,the entity that received the loan was under no obligation to repay--essentially turning the loan into a grant. In 1993 the Board discontinued its practice of funding feasibility studies in this manner. Funding for feasibility studies is now identified as either a grant or loan from the onset, regardless of when or if the project is built. At the time of our audit the Board could not provide us with key information on the status of 19 feasibility study loans made under the pre-1993 funding system. For example, in seven cases the Board had no information about whether recipients of these feasibility study loans had started their projects. These loans totaled$273,475. Without information about whether these projects are under way, the Board cannot take the appropriate action (e.g., begin the repayment process or reclassify the loan as a grant if ten years have passed). We also observed one instance where repayment of a $42,000 feasibility study loan should have begun in 1996 because the project was completed, but no payments have ever been received. Board records did not indicate that funding for this feasibility study was owed, and subsequently, the borrower was never billed. The Board should identify all feasibility study loans made under the pre-1993 system to determine their status and then take appropriate action to either begin repayment or reclassify the loan as a grant. I Recommendation No. 7: The Water Conservation Board should identify all feasibility study loans made before 1993 in order to determine whether these loans are payable under the ten-year clause or whether the loan has attained grant status. If payable loans are identified, the 1 • I