Report of State Auditor 1998

• Year: 1998
• Title: Report of the State Auditor
• CWCB Section: Finance
• Description: Colorado Water Conservation Board Construction Fund Loan Program Department of Natural Resources Performance Audit 1998
• Publications - Doc Type: Tech Report

1
Report of The Colorado State Auditor 37
because the Board believed that assets of a more liquid nature (e.g., certificates of
deposit that could be easily converted to cash) offered them a better guaranty if the
borrower defaulted.
The Collateral Obtained for Individual
Loans Varies
As shown above,the Board's collateral policies and practices allow for a great deal
of discretion when the Board makes a decision regarding the collateral that will be
required to secure a particular project loan. For example, policy and practice allow
the Board to accept anything from a certificate of deposit for one loan payment to a
deed of trust for the project itself. Further, policy and practice allow the Board to
require a borrower to provide collateral that consists of a single asset(e.g.,a deed of
trust to the project property) or a combination of assets (e.g., a certificate of deposit
for one loan payment and security interest in a revenue stream).
To determine how the Board was applying both the written collateral policy and its
stated practice for obtaining collateral, we reviewed the collateral pledged for
28 loans for projects that were completed in Fiscal Years 1997 and 1998. The loans
for these projects totaled about $14.5 million. Collateral for 19 of the 28 loans
(68 percent) consisted of a certificate of deposit and security interest in a revenue
stream, which followed the Board's stated practice for obtaining collateral. In the
remaining nine cases, the collateral obtained did not follow the Board's stated
practice, although it did conform with the Board's collateral policy. Collateral for
these nine loans consisted of the following:
• Deeds of trust for property and pledge of interest in a revenue stream (four
cases).
• Pledges of water rights and an interest in a revenue stream(two cases).
• Security interests in a combination of various assets (e.g., water rights,
property and other assets) (one case).
• Assignment of the proceeds from a contract with another entity and a pledge
of interest in a revenue stream(one case).
• Certificate of deposit, pledge of interest in a revenue stream, and a deed of
trust for property(one case).
Variation in the amount and type of collateral that is obtained from a borrower is
expected and,to a certain extent,necessary. This is because different borrowers have
different assets available to them to pledge for security for a loan. Further, the
amount and type of collateral pledged for a loan should vary depending upon a
borrower's credit history and other measures of the relative risk that the loan will not
•
I