3CORE, INC.

2020-001 Name: Intermediary Loan Program CFDA #: 59.062 Federal Grantor: Small Business Administration Pass Through Entity: Direct Program Award No.: Various Year: 2019-20 Criteria The loan agreement covenants, as amended on December 31, 2018, require that annual financial statements be submitted within 60 days after the end of the fiscal year to 3CORE, Inc. Condition During our testing of four loan recipients, we noted that three of the four loan recipients had not submitted annual financial statements within the required 60 days after end of fiscal year end. Cause Although staff was monitoring and has utilized a Servicing Procedures to comply with the loan agreement covenants regarding obtaining annual financial statements, the loan recipients did not always submit the reports in a timely manner. Effect Financial statements from loan recipients were not received within the required time period. Questioned Costs No costs are questioned. Context We randomly selected four case files rom the Corporation?s loan listing to test monitoring compliance. Sampling was a statistically valid sample. This is a systemic finding. Repeat Finding This is a repeat prior year finding 2019-001. Recommendation We recommend that 3CORE, Inc. continue to utilize their Servicing Procedures to comply with the loan agreement covenants regarding the submission of financial statements and request documents as required by the loan agreement. Views of Responsible Officials and Planned Corrective Action Refer to Separate Managements' Corrective Action Plan for views of responsible officials and managements response.

MANAGEMENT'S RESPONSE: Staff concurs with the factual findings of the auditing team. 3CORE continues to utilize the Servicing Procedures and offers that this finding is not one of failure to request or receive information from the borrowers, but the amount of time it took to receive the information from the borrower being out of compliance with the number of days specified in the loan agreement. Staff would like to offer that two of the three loans that were identified as out of compliance had submission due dates during a period when the State was under a mandatory Stay at Home Order, Executive Order N-33-20, issued by the Governor on March 20, 2020. This widespread Order affected not only 3CORE stat, but all non-essential businesses including those that provide accounting services to 3CORE borrowers. This Order required that 3CORE close its offices and move staff, were possible, offsite. Due to the nature of loan servicing, and the need to have access to the loan files, staff was not able to routinely follow-up with borrowers for the purpose of timely submission of financial information. Over time, the County of Butte allowed for a relaxing of the Order, and upon being able to return to full staff in the office, two if the three borrowers were contacted, and the financial reporting requirements met within 2-5 days. Allowing for these extraordinary circumstances, this leaves only one for the four loans out of compliance. Staff sees this as an isolated event and not a material deficit. RESPONSIBLE INDIVIDUAL(S): Petty Hess and Jacqueline Byrne CORRECTIVE ACTION PLAN: In response to the audit finding, staff offers continuation of weekly servicing and requesting of information from borrowers, understanding that we have no control over the amount of time in which they provide the information. The legal options for enforcement of this requirement involve calling a default on the note. A decision not to call a technical default does not set a precedence for future requests as is stated in the No Waiver by Lender section of the loan agreement. 3CORE has a long history managing a successful loan portfolio with minimal loss. Management must have discretion to work with borrowers on a case-by-case basis. The auditor recommendation does not take into consideration the ancillary effects of the pandemic on either our business or the businesses we work with.

2019-001

2019-001 Name: Intermediary Loan Program CFDA #: 59.062 Federal Grantor: Small Business Administration Pass Through Entity: Direct Program Award No.: Various Year: 2018-19 Condition During our testing of four loan recipients, we noted that two of the four loan recipients had not submitted annual financial statements within the required 60 days after end of fiscal year end. This is a repeat of prior year finding 2018-001. Perspective Although staff was monitoring and has utilized a Servicing Procedures to comply with the loan agreement covenants regarding obtaining annual financial statements, the loan recipients did not always submit the reports in a timely manner. Criteria The loan agreement covenants, as amended on December 31, 2018, require that annual financial statements be submitted within 60 days after the end of the fiscal year to 3CORE, Inc. Effect of Condition Financial statements from loan recipients were not received within the required time period. Questioned Costs No costs are questioned. Recommendation We recommend that 3CORE, Inc. continue to utilize their Servicing Procedures to comply with the loan agreement covenants regarding the submission of financial statements and request documents as required by the loan agreement.

2019-001 Intermediary Loan Program We recommend that 3CORE, Inc. continue to utilize their Servicing Procedures to comply with the loan agreement covenants regarding the submission of financial statements and request documents as required by the loan agreement. Responsible Individual: Elke Rist Corrective Action Plan: Staff will continue to utilize Servicing Procedures in compliance with the loan agreement. It is noted that non-compliance with the loan agreement is a technical default; however, the calling due of the balance of a promissory note for the lack of timely submission of financial statements is in no way reflective of the risk of a particular loan. 3CORE will continue servicing and requesting information from our borrowers in timely manner and in compliance with the loan agreements. Management will also continue to utilize discretion in managing a strong portfolio with minimal losses. Anticipated Completion Date: Implemented

2018-001

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