SMART Task Force Policy Review Worksheet Are We In Compliance? (Check One) Effects REGULATION OR POLICY REQUIREMENT Yes Yes BUT No Bylaws or Policy? Where in Policy or Bylaws? CFR 120.820 b -­‐ CDC Affiliation -­‐ Must be Independent X Bylaws Stipulate CFR 120.823 a -­‐ CDC Board of Directors -­‐ (NUMBER OF BOARD MEMBERS) -­‐ New regulations require no fewer than 9 and recommends no more than 25 Directors. X Amend Bylaws CFR 120.823 a, b, and c -­‐ Board must be made up of those with experience in internal controls, financial risk management, commercial lending, legal issues relating to commercial lending, and corporate governance. At least one voting Director must represent economic or community development organizations. At least two must be commercial lenders with experience satisfactory to SBA. At least two Directors with Commercial Because we were formed by the CSRA Regional Commission, state law passed in 1996 requires the RC to control the loan corporations it formed since they were responsible for our formation. See Official Code of Georgia 50-­‐8-­‐35 and Official Opinion of Attorney General of Georgia dated May 9, 1996. CSRA RC meets that test by appointing and having the ability to remove the Board Members of CSRA Resource Development Agency, Inc.; CSRA Local Development Corporation (the CDC); and, CSRA Rural Lending Authority, Inc., all of which have the same Board of Directors. The new regulations now allow this control. This appointment of the Directors needs to stay in the Bylaws rewrite. NO ACTION NEEDED Currently the bylaws as amended on February 6, 2004, state we are to have 25 members who shall also all be Directors and shall be appointed by the CSRA Regional Commission (to meet the state required control). Action Needed: Because of new requirements and certifications required by SBA of the Board and expected by SBA (such as a requirement that we meet quarterly instead of semi-­‐annually) a board of 25 is no longer practical. Also SBA will no longer allow a meeting of the Executive Committee to count as a meeting of the Board. Consider an advisory Board that meets semi-­‐annually and a smaller group of nine or more of those advisory Board members that would serve as the actual Board. The narrative in section 120.822 on the rule change noted there was nothing to prohibit a CDC from having members. IE: The current members could become the advisory Board (with some changes as required below) and the Executive Committee would become the actual Board. The previous policy of the board being made up of persons from government organizations, financial institutions, community organizations, and businesses has been eliminated in favor of those skill sets listed. Action Needed: The bulk of the current Executive Committee possess the skill sets required in the new policies. The fact we have three accountants that possess exactly the type governance and controls experience will make our ability to meet these new requirements very easy. The current Executive Committee of ten (10) would actually meet the requirements of 120.823 a., if they were to become the Board. Tat Thompson X Amend Bylaws Policies – (Insert Vote Requirements and Quorum Add to VIII B) SMART Task Force Policy Review Worksheet Are We In Compliance? (Check One) Effects REGULATION OR POLICY REQUIREMENT Yes Yes BUT No Bylaws or Policy? Where in Policy or Bylaws? lending experience other than the President or CEO must vote on each loan. No more than 50% can be commercial bankers. Only the CDC CEO may serve on the Board, no other staff person may do so. A quorum consist of 50% of the members. Attendance may be through any format allowed by law, but must be at least quarterly. One member of the Board may be from an affiliated agency. Currently employed or retired persons allowed. CFR 120.823 c 1 -­‐ 5 -­‐ Board must meet quarterly and be responsible for the actions of the CDC and any committees established by the Board. The Board may form an Executive Committee if authorized in the Bylaws and the Executive Committee may exercise the authority of the Board; however, the delegation of its authority does not relieve the Board of its responsibility imposed by law or program requirements. CFR 120.823 C 1-­‐15 -­‐ Board Responsibilities. The Board shall have and exercise all corporate powers, authority, and be responsible for all corporate actions and business. There must be no actual or appearance of conflict of interest with respect to any actions of the Board. The Board is responsible for ensuring that the structure and operation of the CDC, as set forth in the Bylaws, comply with SBA's Loan Program Requirements. Responsibilities include: 1) Approving the mission and policies of the CDC; 2) Hiring, firing, supervising and annually evaluating the CDC manager; 3) Setting the salary for the CDC manager and reviewing all salaries; is on both the RC Board currently and the Board of CSRA Business Lending's three lending companies. Bylaws will need to be amended to change the qualifications to serve on the Board from the old four food groups to the newly outlined skill set in the new regulations. Need to make sure we have a broad set of skills on the Board that meet all qualifications listed in the new regulations. X X – On Some X – On Some Amend Bylaws Under our current bylaws the members appointed by the RC are also the full board and they meet semi-­‐annually (the current requirement). That group then elects an Executive Committee that has the authority to do everything except dissolve the corporation. In the past the Executive Committee Meetings have counted as a Board Meeting. Those Executive Committee Meetings will no longer count toward the quarterly meeting requirement. Combine that with the list of additional requirements listed in 120.823 d and having 25 Board members is simply not practical. Action Needed: Have the task forces recommend to the full Board a structure (number of Board Members, maybe an advisory board component) that allows us to meet all the requirements in 120.823 a, b, c, d., while operating efficiently with engaged Board. Amend Bylaws and Policies #1 – Bylaws Action Needed: Items 1 -­‐ 15 will need to be addressed in the bylaws and policies. Item #2, #3 – Policies (Add to XV) 6 the CDC Board will need to engage the auditor in addition to the RC. Item 11 (conflict #4, # 5 -­‐ Bylaws of interest) as called for in CFR 120.140 and CFR 120.851 needs to be addressed in the #6 – Audit Committee (Add XIVC) bylaws. Item 13 regarding establishing a written internal control policy needs to be #7 – Policies (Add to XIII) revised and more clearly developed in the policies and procedures. We have controls #8 – Policies (Add to XIII) that are scattered throughout the bylaws and policies of CSRA Business Lending, and #9 – Board Est. Reserve – Policies CSRA RC policies, but what we have does not meet the requirements required in CFR (Add New XVII) 120.826 and SBA's FAQ they have developed (see more detail below in section CFR #10 – Expenditures Above $2,500 120.826) on the Internal Controls Policy and what is needed and where). Item 14 -­‐ – Policies (Add to XV) Requiring the policy manual detail the credit and loan approval process is in good shape #11 – Bylaws and just needs to be reviewed. Currently the Executive Committee has that function, #12 -­‐ Bylaws but if we move away from an Executive Committee and more to a Board taking over this #13 – Policies (Amend XV and process, we will need to clarify throughout the polices the Board has those functions. Consolidate XI F (Ratings) Into That Section) SMART Task Force Policy Review Worksheet Are We In Compliance? (Check One) Effects REGULATION OR POLICY REQUIREMENT Yes Yes BUT No Bylaws or Policy? Where in Policy or Bylaws? 4) Establishing committees; 5) Ensuring the CDC's expenses are reasonable and customary; 6) Hiring directly an independent auditor to provide financial statements in accordance with Loan Program Requirements; 7) Monitoring the CDC's portfolio performance on a regular basis; 8) Reviewing semi-­‐annual report on portfolio performance from the CDC manager, which would include, but not be limited to, asset quality and industry concentration; 9) Ensuring the CDC establishes and maintains adequate reserves for operation; 10) Ensure that the CDC invests in economic development in each of the States in its area of operations; 11) Establishing a policy in the Bylaws of the CDC prohibiting an actual conflict of interest or the appearance of the same and enforcing such policy; 12) Retaining accountability for all the actions of the CDC; 13) Establish internal control policies in accordance with 120.826; 14) Establishing commercial reasonable loan approval policies, procedures, and standards which must also be set forth in detail in a policy manual and which must include that all approval of loans $2,000,000 or higher be required by the full Board); 15) All members of the Board of Directors must annually certify in writing that they understand this section, and copies of the certification must be included in the Annual Report to SBA. CFR 120.823 e – Board must maintain Directors and Officers Liability and Errors and Omissions #14 – Policies (Review VIII) #15 – Bylaws X Amend Bylaws Currently we are required to carry $2,000,000. CFO to Obtain as Part of RC Rider SMART Task Force Policy Review Worksheet Are We In Compliance? (Check One) Effects REGULATION OR POLICY REQUIREMENT Yes Yes BUT No Bylaws or Policy? Where in Policy or Bylaws? insurance in amounts established by SBA. CFR 120.830 a 1 – Reports a CDC Must Submit Audit – No real changes CFR 120.830 2, 3, 4 – Reports a CDC Must Submit – Three new requirements: 2) Report on Compensation: CDC’s are required to provide detailed information on total compensation (including salary, bonuses and expenses) paid within the CDC’s most recent tax year for current and former officers and directors, and current and former employees and independent contractors with total compensation of more than $100,000 during that period. 3) Certification of members of the Board. Written annual certification by each Board member that he or she has read and understands the requirements set forth in 120.823. 4) Report on investment in economic development. Written report on investments in economic development in each State in which the CDC has an outstanding 504 loan. on their Policy X X -­‐ 4 X – 2 and 3 Amend Section XIII of Policies to Add Reference to 120.830 a 1 and 120.826 c and d on Requirements of Audit Amend Section XII of Policies to Add These Three Requirements Action Needed: The CFO will contact the insurance carrier and get a quote on increasing the dollar amount of coverage effective April 26, 2014. The new requirement is for $5,500,000 Action Needed: When we engage the auditor need to make sure they are aware of the requirements of 120.820 a 1. and 120.826 c and d. Action Needed: 2 and 3 are new and need to be added. 4 we have always sent and CSRA Direct more than meets that requirement. SMART Task Force Policy Review Worksheet Are We In Compliance? (Check One) Effects REGULATION OR POLICY REQUIREMENT Yes Yes BUT No Bylaws or Policy? Where in Policy or Bylaws? (EXPANSION OF 120.823 Requirement #13 Above) CFR 120.826 b and SBA FAQ – Internal Controls Policy – Each CDC’s Board must adopt an internal control policy which provides adequate direction to the institution for effective control over and accountability for operations, programs, and resources. The board adopted internal policy control must, at a minimum: 1) Direct management to assign the responsibility for the internal control function (covering financial, credit review, collateral, and administrative matters) to an officer or officers of the CDC; 2) Adopt and set forth procedures for maintenance and periodic review of the internal control function; 3) Direct operation of a program to review and assess the CDC’s 504-­‐related loans. For the 504 review program, the internal control policies must specify the following: i) Loan, loan-­‐related collateral, and appraisal review standards, including standards for scope of selection (for review of any such loan, loan-­‐related collateral or appraisal) and standards for work papers and supporting documentation; ii) Loan quality classification standards consistent with the standardized classification systems used by the Federal Financial Institution Regulators; iii) Specific control requirements for the CDC’s oversight of Lender Service Providers; and iv) Standards for training to implement the loan review program; GENERAL POLICIES X – On Some X – On Some X Amend Policies (Amend XV and Consolidate XI F (Ratings) Into That Section) DO POLICY SCRUB AFTER BYLAWS ARE ESTABLISHED Action Needed: Item 13 regarding establishing a written internal control policy needs to be revised and more clearly developed in the policies and procedures. We have controls that are scattered throughout the bylaws and policies of CSRA Business Lending, and CSRA RC policies, but what we have does not meet the requirements required in CFR 120.826 and SBA's FAQ they have developed. Task Force Needs to Recommend Control Policy to Full Board (Will Follow SBA Issued FAQ – Attached). Needs to contain: -­‐ Who is responsible for the Internal Control Function (President and CEO to be reviewed annually by Audit Committee). -­‐ Need to establish independent review of 504 loans (perhaps use SBA checklist for reviews covering approval review, credit, collateral/closing, servicing, financial review and follow-­‐up). -­‐ Need to review our classification (grading) system and see if we are comfortable with it. -­‐ Need to decide who will do the reviews and how many will we test (5%? – 10 regular and 2 liquidation?) -­‐ Need to establish an annual training at the time of receipt of the report with the staff. Action Needed: The policies are dated to the old model and all sections (in addition to those identified above) need to be reviewed to insure compliance. Need to address risk concentrations. SMART Task Force Policy Review Worksheet Are We In Compliance? (Check One) Effects REGULATION OR POLICY REQUIREMENT Yes Yes BUT No Bylaws or Policy? Where in Policy or Bylaws? BYLAWS OF OTHER LOAN CORPORATIONS CSRA Resource Development Agency, Inc. CSRA Rural Lending Authority, Inc. X RDA Bylaws Need to Match CSRA LDC in Terms of Membership Action Needed: Once the Task Force settles on the bylaws of CSRA LDC (the CDC), we will need to: 1) Amend the Bylaws of the other two corporations so that they continue to remain identical in terms of Board makeup (IE: The bylaws of all three CSRA Business Lending Companies need to remain the same and comply with all three agencies requirements realizing SBA is now the most stringent. 2) We will need to notify both EDA and USDA to amend our work plans to allow for the new Board and makeup.