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I <br /> 42 Construction Fund Loan Program Performance Audit-September 1998 <br /> and$2 million in aggregate. In addition,for contracts dated 1995 and after,the State <br /> must be named as an additional insured, which gives the Board further protection. <br /> To provide evidence that they have met insurance requirements, borrowers are <br /> required to provide the Board with a certificate of insurance including the additional <br /> insured endorsement. In addition, borrowers must provide the Board with <br /> documentation of policy renewal as needed throughout the life of the loan. We <br /> reviewed the documentation associated with insurance requirements for all of the <br /> Board's 154 active loans. For 41 loans (27 percent),there was no evidence that the <br /> borrower had obtained the required liability insurance. The outstanding balances of <br /> these loans totaled over $20 million. In addition, three loan files contained no <br /> evidence that the borrower had obtained the additional insured endorsement. These I <br /> loans totaled$3,248,000. Without proper liability insurance,project sponsors may <br /> be endangering their ability to meet their loan obligations should the cost of an <br /> accident or other liability situation negatively impact their financial position. <br /> Missing documentation appears to be attributable to the fact that the Board has no <br /> effective method for ensuring that borrowers comply with insurance requirements. <br /> Currently staff send a reminder notice to borrowers that proof of insurance and <br /> related documentation is due when their annual loan payment is due. Staff report that <br /> they follow up with noncompliers at a later date. Because of all the documentation <br /> problems we found,however,it appears that this system has not been effective. The <br /> Board should consider improvements to its system for obtaining proof that borrowers <br /> have the required liability insurance. This may include charging fees if borrowers do <br /> not provide proof of insurance in a timely manner. <br /> I <br /> Recommendation No. 11: <br /> The Water Conservation Board should ensure that borrowers comply with general <br /> liability insurance requirements. This may include charging late fees if required <br /> documentation is not provided in a timely manner. <br /> Water Conservation Board Response: <br /> Agree. CWCB staff,in cooperation with DNR,is in the process of reviewing <br /> the structure of similar programs at other public agencies(see attached letter <br /> from the Acting DNR Executive Director) and reevaluating Construction <br /> Fund Loan Program workload allocation and priorities. We may submit a <br /> decision item to add this staff capability. These reviews will be completed <br /> by June 30, 1999. <br /> 1 <br />