Financial Audit:

Farmers Home Administration's Losses Have Increased Significantly

AFMD-89-20: Published: Dec 20, 1988. Publicly Released: Dec 20, 1988.

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GAO examined the Farmers Home Administration's (FmHA): (1) financial statements for the year ended September 30, 1987; (2) internal accounting control system; and (3) compliance with laws and regulations.

GAO found that, although the financial statements presented fairly the FmHA financial condition, FmHA: (1) had a significantly deteriorating financial condition, with an accumulated deficit of $36 billion; (2) relies on Treasury loans to continue its operations and may require significantly increased congressional assistance to sustain operations; (3) had an operating loss of $22 billion for fiscal year (FY) 1987; and (4) owed the Treasury $85 billion, with $24 billion due in 1989. GAO also found that FmHA: (1) made loans at interest rates far below what it had to repay; (2) as a lender of last resort, made loans to individuals who were not otherwise creditworthy, resulting in a large number of delinquent loans; (3) did not record property it received by voluntary conveyance at fair-market value; (4) lacked a policy for writing off uncollectible loans and did not analyze the ultimate collectibility of its loan portfolio in accordance with Office of Management and Budget (OMB) requirements; (5) had numerous control weaknesses in its Automated Multiple Family Housing Accounting System (AMAS); (6) lacked adequate controls over the entry of guaranteed loans into its accounting system; and (7) did not reconcile its detailed property files with general ledger control accounts.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FmHA implemented a loan classification system for estimating the allowance for loan losses in 1989. However, weaknesses exist in the system which cause the data produced by the system to be unreliable. AFMD-90-37 contains recommendations on these matters.

    Recommendation: The Secretary of Agriculture should direct the Administrator, FmHA, to ensure that the procedures are fully implemented for conducting an annual risk assessment of the FmHA loan portfolio and for producing loss estimates based on these assessments, as required by Office of Management and Budget Circular A-129.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Implemented

    Comments: Operating instructions and internal control procedures are now documented based upon GAO review of internal controls during the FY 1989 audit. All AMAS borrower account activity was reconciled to the general ledger, effective October 1989.

    Recommendation: The Secretary of Agriculture should direct the Administrator, FmHA, to ensure that: (1) AMAS is thoroughly tested; (2) internal control procedures are in place to reconcile detailed AMAS files to the general ledger on a daily basis; and (3) operating instructions and internal control procedures are fully documented.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Implemented

    Comments: Report Code (RC) 532, Report of Unclosed Guaranteed Loans, is sent quarterly to field offices which requires reconciliation with Finance Office records for all guaranteed loans except for those with interest rate buydowns. All unclosed loans have been entered into GLAS effective October 1989.

    Recommendation: The Secretary of Agriculture should direct the Administrator, FmHA, to require that the unclosed loan report be reconciled against field office records and that all discrepancies be promptly resolved to ensure that all closed loan guarantees are entered into the guaranteed loan accounting system (GLAS).

    Agency Affected: Department of Agriculture

  4. Status: Closed - Implemented

    Comments: Acquired Property Tracking System modifications were implemented on February 27, 1991, including provisions for recording property at fair-market value, recognizing gains and losses, recording costs, balancing to the general ledger, and edit checks to detect unusual valuations of property. County offices completed reviewing and reconciling accounts and certifying balances in October 1991.

    Recommendation: The Secretary of Agriculture should direct the Administrator, FmHA, to complete all acquired property system modifications within reasonable time frames to ensure that: (1) all detailed files are balanced with the general ledger; (2) acquired property is recorded at fair value at the time of acquisition; and (3) gains and losses on the acquisition of property are properly recorded.

    Agency Affected: Department of Agriculture

 

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