B-159999-O.M. December 14, 1966

B-159999-O.M. December 14, 1966

Indorsement

Director, Civil Division

Returned. The overall purpose of section 1311 of the Supplemental Appropiation Act, 1955, as amended, 31 U.S.C. 200, is to restrict the amounts recorded and reported as "an obligation of the Government of the United States." Any statement of obligation of funds furnished by any agency to the Congress or any committee thereof shall include only valid obligations within the definitions of said section. 31 U.S.C. 200(e). Therefore, where reports on the status of funds are required to be reported to Congress, the obligations included in such reports must meet the statutory definition. Your question concerning the applicability of section 1311 to loan transactions of the Farmers Home Administration and Rural Electrification Administration are answered accordingly.

In regard to FHA loan insurance authorizations, loans may be insured aggregating not more than $450,000,000 in any one year (Pub. L. 89-240, October 7, 1965, 79 Stat. 932, substituted "$450,000,000" for $200,000,000), and any contract of insurance executed by the Secretary shall be an obligation supported by the full faith and credit of the United States. 7 U.S.C. 1928. Pursuant to administrative regulations the insurance endorsement executed at the time of the loan. 6 CFR 323.38. The insurance authorization limitation for the year the endorsement is made would then be charged with the amount of the insured loan.

Concerning the direct loan aspect of the cited case, the documents do not show that a loan agreement has been completed within the fiscal year 1964. Such being the case, the requirements of 31 U.S.C. 200 for documentary evidence of a valid loan agreement showing the amount of the loan to be made and the terms of payment had not been met and the recording of such loan amount as an obligation of funds for fiscal year 1964 would therefore be improper.

In answer to your question as to the action to be taken, this matter should be initially reported to the administrative office, and if documentation substantiating valid obligations for the fiscal year 1964 cannot be furnished, the matter may then be considered for reporting to Congress.

The facts related concerning the Rural Electrification Administration loan to the Grayson-Collin Electric Cooperative, Inc., show that the first form of written notification to the Cooperative that a loan had been approved was by telegram dated July 2, 1965. The loan agreement was signed by the Cooperative on August 10, 1965. A telegraphic notification of approval of a loan application, where the amount of loan and terms of repayment are thereby agreed upon would legally be accepted as meeting the requirements of 31 U.S.C. 200(2). Cf. 40 Comp. Gen. 147. Assuming these conditions had been included, the earliest date that an obligation meeting the requirements of 31 U.S.C. 200 could be recorded in the above circumstances would be July 2, 1965. However, no action is required to be taken other than reporting this to the administrative office as an apparent premature recording of an obligation since annual sums made available to the Rural Electrification Administration for loans, which are not obligated during the fiscal year for which they are made available, are available for loans in the following year or years. 7 U.S.C. 903(e); A-89159, September 28, 1937. They are accounted for as no-year funds under the account "12X3197 Loans, Rural Electrification Administration."

FRANK H. WELTED ASSISTANT Comptroller General of the United States

Attachments

The Comptroller General

In our review of loan programs administered by the Farmers Home Administration (FMA), and the Rural Electrification Administration (REA), Department of Agriculture, questions have arisen concerning the validity of obligations recorded against load funds or authories at the end of one fiscal year when notificatin of approval to loan applicants in the form of a written commitment did not occur until the next fiscal year. We believe that the obligation of funds in this manner may violate the following provisions of Section 1311 of the Supplemental Appropriation Act, 1955, as amended (31 U.S.C. 200(a)):

"(a) After the date of enactment hereof no amount shall be recorded as an obligation of the Government of the United States unless it is supported by documentary evidence of--* * *

(2) a valid loan agreement, showing the amount of the loan to be made and the terms of payment thereof: * * *."

We are citing below an example of a questionable obligation for each of the two agencies.

Farmers Home Administration (FHA)

On June 24, 1964, the FHA State director in Wyoming executed an obligating document (FHA Form 440-1, Payment Authorization) which charged fiscal year 1964 insured loan authority for a $787,500 grazing association loan to Eureka Pool Incorporated of Carbon Country, Wyoming (Exhibit A). The obligation was made pursuant to Section 306 and 308 of the Consolidated Farmers Home Administration Act of 1961, as amended (7 U.S.C. 1926, 1928). FHA officials informed us that the association was first notified of the commitment to make a loan by a memorandum of tentative loan approval dated August 5, 1964 (Exhibit B). This memorandum was forwarded to the association by the county supervisor on August 19, 1964, and stated, in part:

"The material forwarded with your memorandum of June 20, 1964 has been reviewed by the National Office. Loan obligating documents were executed on June 24, 1964, end the obligation for the loan was established by the National Finance Office. Inasmuch as you have not had previous experience in the making of SW (Soil and Water ) Association loans, you may be confused by the fact the Forms FHA 440-3 and FHA 440-1 were signed and funds obligated prior to receipt of tentative loan approval. This action was for the sole purpose of obligating the loan from fiscal 1964 issurance authorizations. We would suggest you dismiss and proceed on the basis of the following requirements of this memorandum." (Underscoring supplied.)

The memorandum listed certain conditions which the association was to comply with prior to loan closing. On October 23, 1964, the FHA State director issued a memorandum of loan approval (Exhibit C) and the agency advanced loan funds to the association in January 1965. Even though this loan was obligated against insured loan authority, Section 309 of the Consolidated Farmers Home Administration Act of 1961, provides that loans can be made from the agency's Agricultural Credit Insurance Fund IACIF) if there is a reasonable assurance that they can be sold without undue delay. Section 309 also provides that monies needed to discharge the obligations of the ACIF may be obtained through borrowing from the Treasury.

FHA procedures require the loan applicant to sign the Payment Authorization requesting that a loan be made and that funds be released. The form is then to be forwarded to the approving official along with the loan docket. After the approving official has signed the Payment Authorization, the form is to be forwarded to the agency's Finance Office and funds are obligated. An agency official advised us that when a Payment Authorization is properly executed, it constitutes the obligating document required by section 1311 in the case of a direct loan and is the instrument supporting a charge against the annual aggregate insurance authorization in the case of an insured loan. With respect to the agency's use of a memorandum of tentative loan. With respect to the agency's use of a memorandum of tentative loan approval, the official stated that this is a procedure which was developed only to provide guidance to loan applicants and is not intended to provide the form of agreement required by section 1311. This agency official further stated that since our example did not involve appropriated funds, he questioned the applicability of section 1311 (Exhibit D).

In view of the fact that FHA did not notify the association is writing of a commitment to make a loan before the end of the fiscal year, it would seem that a valid loan agreement did not exist in fiscal year 1964. Consequently, it appears that FHA had no basis for obligating fiscal year 1964 insured loan authority for $787,500, but rather should have obligated the amount against the fiscal year 1965 insured loan authority. If the insured loans obligated under these circumstances are determined to be improper, transfer of these obligations to the proper year will result in an overobligation in fiscal year 1965, since the agency obligated the maximum amount authorized for that year.

The following questions are submitted for your decision.

1. Is section 1311 applicable to other than appropriated funds and, if so, did FHA meet the requirements of section 1311 in the case presented as well as any other insured loans which were made under similar circumstances

2. What action, if any, should be taken by us, other than reporting this matter to the congress, if ti is decided tha section 1311 has been violated

Rural Electrification Administration (REA)

On June 30, 1965, REA approved a $775,000 direct loan to the Grayson- Collin Electric Cooperative, Inc., of Van alstyne, Texas (Exhibit E), pursuant to Title I, Section 2, of the Rural Electification Act of 1936, as amended (7 U.S.C. 902). These loan funds were obligated against Title II of the Department of Agriculture and Related Agencies Appropriation Act, 1965, Public Law 88-573, approved September 2, 1964 (78 Stat, 873). On July 2, 1965, REA sent a telegram to the cooperative advising it of the loan approval (Exhibit F). Although the telegram to the cooperative is dated July 2, 1965, the loan agreement was signed by the REA Administrator on June 30, 1965 (Exhibit G).

REA officials advised us that a telegram is the first form of written notification to the cooperative that a loan commitment has been made. The REA officials further advised us that under present procedures, the REA Administrator signs the loan agreement on the date that the administrative order granting loan approval is issued and the loan funds are obligated on that date. Subsequently, the loan agreement is sent to the borrower for the signature of appropriate officials. In the case in question, the loan approval date was June 30, 1965, and a letter in the agency's files indicates that the loan agreement was forwarded to the cooperative for execution on July 14, 1965 (Exhibit H). The loan agreement was executed by the cooperative on August 10, 1965 (Exhibit I).

The Assistant General Counsel, REA, has advised us that he believes the agency's procedures for obligating appropriated funds to be legally supportable because the Rural Electrification Act of 1936, in section 3(e), expressly provides for carry-over into subsequent fiscal years of funds which were not loaned or obligated in any current fiscal year. He maintains that Comptroller General's Opinion No. A-89159, dated September 28, 1937, held that section 3(a) provides for carry-over even when the REA Appropriation Act is silent (Exhibits J and K). We question the applicability of this opinion inasmuch as our question relates to the validity of the obligation made and not to the availability of unobligated funds in subsequent years.

Since the first written notification to the cooperative of a loan commitment was not sent until July 2, 1965, we believe that obligating the $775,000 loan against fiscal year 1965 appropriations is questionable and that this loan should have bee obligated against fiscal year 1966 appropriations.

Since we have found several other REA loans which were processed under similar circumstances, we are submitting the following questions for decision.

1. Is section 1311applicable to REA's loan obligating procedures and, if so, did REA meet the requirements of section 1311 in the case presented as wellas any other loans which were made under similar circumstances?

2. What action, if any, should be taken by us, other than reporting this matter to the Congress, if it is decided that section 1311 has been violated

ARTHUR SCHOENHAUT Deputy Director

Enclosures