(1) As provided by 2-7-517 , MCA, if a local government entity, other than a school district or associated cooperative, is unable to file its annual financial report with the department within six months of the end of the local government entity's fiscal year as required by 2-7-503 , MCA, the department may grant an extension of time in which to file the financial report if the local government entity can demonstrate to the department that it has good cause for not submitting the report within the prescribed time.

(a) Good cause will be deemed to exist if the local government entity has exercised ordinary business care and prudence and was nevertheless unable to prepare and properly submit the annual financial report within the prescribed time.

(b) The department will determine what constitutes the exercise of ordinary business care and prudence based on the facts of each case.

(2) If a local government entity has failed to file its annual financial report with the department within six months of the end of the local government entity's fiscal year, and if the department has not granted an extension of time in which to file the financial report, the department may issue an order to all state agencies requiring each agency to withhold payment of any state financial assistance to the local government entity pending receipt of the local government entity's annual financial report.

(3) Upon receipt of the required annual financial report, the department will notify each state agency that any financial assistance withheld pursuant to the department's order is to be released to the local government entity.