New audit reports question the spending of EAGLE-Net...

statements and the other on its use of federal funds. The first audit, conducted by Holscher, Mayberry & Co., looked through the project’s financial statements up through last year. That audit cites EAGLE-Net’s search for a provider to take over operations and provided additional needed money, which EAGLE-Net formally launched shortly after NTIA lifted its five-month suspension this spring, as beginning half a year ago: “Beginning in December 2012, EAGLE-Net engaged in meetings with potential network operators to explore partnership opportunities.” EAGLE-Net’s long-term debt is tied up in a revolving loan with UMB Bank Colorado, but now “there are no funds available for grant matching purposes and the line has been fully drawn,” said Holscher Mayberry. It said there was an amended agreement with the bank this April. The project started making monthly interest payments this May, it said. The second report was done by the same auditors and pointed to accounting problems from last year. “We identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and significant deficiencies,” the auditors said. “EAGLE-Net Alliance did not have adequate procedures in place to properly separate grant expenditures from non-grant expenditures within their accounting system on a contemporaneous basis. While EAGLE-Net was already in the process of taking corrective action, they were not able to track this activity through their accounting system for the 2012 fiscal year until after hiring replacement finance personnel with adequate knowledge to properly utilize the system and recreate the transaction activity. In addition, due to the amount of time required to recreate the accounting records, certain key transactions were not fully analyzed and adjusted until subsequent to year end.” The auditors said the project “needs to institute more consistent internal controls over grant and other disbursements to properly allocate costs among the various operations as they occur,” and that it “continue to maintain the transaction based spreadsheet as a reconciliation tool to be used in insure proper general ledger coding.” A problematic accounting structure caused EAGLE-Net to draw more federal funds than it needed last year, the report said. It recommended the federal government limit the window of time from when it releases funds to when they will be spent. The auditors also identified stronger needs to monitor income generated and where that money goes: “EAGLE-Net may be generating net program income that should be applied to the grant activities rather than being used to offset other operating costs.” EAGLE-Net concurred with all identified issues as well as the auditors’ recommendations, according to an EAGLE-Net corrective action plan submitted along with the auditors’ findings. The project said many of the accounting issues have been dealt with and practices changed. Its responses pointed to February 2012 as a turning point for many of those problems. “Management recognized the shortcomings of the previous system and ensured that changes were made to both correct prior entries and to properly post entries going forward,” said EAGLE-Net. That report said EAGLE-Net “complied, in all material respects, with the types of compliance requirements … that could have a direct and material effect on each of its major federal programs."