Laserfiche WebLink
I <br /> 38 Construction Fund Loan Program Performance Audit-September 1998 <br /> be repaid. Although we did observe a lot of variation in collateral pledged for the I <br /> loans in our sample,we could not determine whether this variation was reflective of <br /> the relative creditworthiness of the borrowers or was the result of preferential <br /> treatment. By not explicitly linking collateral requirements to measures of risk,the <br /> Board may not be adequately protecting the State's interests in the event that a <br /> borrower defaults on its loan. Further, increasing or decreasing the amount of <br /> collateral that is required to secure a loan without showing some tie to the borrower's <br /> credit position may result in the appearance of preferential treatment. <br /> Recommendation No. 9: <br /> The Water Conservation Board should ensure its policies and practices for obtaining <br /> collateral for loans adequately protect the State's interests in the event of a <br /> borrower's default on its loan obligation. This should include specifically defining <br /> what constitutes sufficient collateral given the individual financial characteristics of <br /> borrowers and applying this definition consistently among loan applicants. I <br /> Water Conservation Board Response: <br /> Agree. CWCB staff will develop a table that shows, depending upon the <br /> financial characteristics of each type of borrower, the range and type of <br /> collateral that would be"sufficient"for each category. The staff will present <br /> the proposed policy for consideration by the Board by June 30, 1999. There <br /> has been only one real default on a Construction Fund loan to date and that <br /> involved a project added by the General Assembly during the legislative <br /> process. The General Assembly also added and later forgave four project <br /> loans for oil shale projects. <br /> Certain Security Documents Should Be Filed Upon j <br /> Execution of a Contract <br /> Board staff are expected to file various security documents when a borrower pledges <br /> certain types of collateral to secure a loan. These include: <br /> • A deed of trust which is used to secure real property. This document is filed <br /> with the county clerk in the county where the property is located. <br /> • A security agreement which is used to secure contract rights(e.g.,pledges of <br /> revenue, equipment, shares of stock). Assignment of contract rights is <br />