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Financial Management: Impact of RUS' Electricity Loan Restructurings

AIMD-00-288 Published: Sep 29, 2000. Publicly Released: Oct 30, 2000.
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Highlights

Pursuant to a congressional request, GAO reviewed the Rural Utilities Service's (RUS) electricity loan restructurings, focusing on: (1) RUS' policies and procedures for restructuring financially troubled generation and transmission (G&T) loans and whether these are being consistently followed; (2) whether RUS properly carried out loan restructurings in accordance with criteria defined in the Federal Credit Reform Act of 1990 and Office of Management and Budget (OMB) guidance; (3) how much it cost the federal government to restructure RUS debt since enactment of its debt settlement authority; and (4) whether the costs of restructuring loans are accurately reported.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Agriculture To better secure the restructured loans and to improve RUS' process to restructure and report financially troubled borrowers' loans, the Secretary of Agriculture should direct the Administrator, RUS, and in some instances, the Under Secretary of Rural Development, to utilize member guarantees to the greatest extent possible by ensuring that such guarantees obtained remain in effect until all restructured loans are paid in full.
Closed – Implemented
RUS agrees that member guarantees are beneficial under appropriate circumstances. In January 2003, RUS revised its regulation (Section 1717.1206). The regulation requires that, in considering future loan requests, credit support for the full amount of the requested loan will be required. Such support may include, but not be limited to, guarantees of debt repayment from the applicant's members. The first opportunity RUS has had to utilize member guarantees was in the spring of 2003, when RUS opened discussions with one of its troubled borrowers (Allegheny) regarding its loan application for new capital construction. RUS, in a series of meetings, communicated to Allegheny that member guarantees or their equivalent are being considered before any RUS loans are approved. RUS expects that the member guarantees will be part of these agreements.
Department of Agriculture To better secure the restructured loans and to improve RUS' process to restructure and report financially troubled borrower's loans, the Secretary of Agriculture should direct the Administrator, RUS, and in some instances, the Under Secretary of Rural Development, to broaden procedures in its Staff Instruction document to include: (1) the program staff's coordination with accounting staff to provide all relevant information regarding the terms of the borrowers' restructured loans; and (2) procedures that identify the criteria RUS uses to determine when a borrower should be added or removed from the financially stressed list.
Closed – Implemented
RUS expanded upon and documented the criteria for assessing financially stressed borrowers in its revised Staff Instruction document. In addition, the Staff Instruction document now includes procedures that provide for coordination between program and accounting staff in the debt restructuring process. This document was issued and became effective June 18, 2001. Since December 2000, quarterly meetings with CFO and RUS program staff have taken place to discuss existing and contemplated debt restructuring actions. In addition, beginning with fiscal year 2000, the Deputy CFO of Rural Development has established a process for requesting from RUS their assessment of the collectibility of amounts due from troubled borrowers. This information is used to adjust the financial reports.
Department of Agriculture To better secure the restructured loans and to improve RUS' process to restructure and report financially troubled borrower's loans, the Secretary of Agriculture should direct the Administrator, RUS, and in some instances, the Under Secretary of Rural Development, to develop and document written procedures to estimate future loan losses for its credit program receivables in accordance with Statement of Federal Financial Accounting Standards No. 2.
Closed – Implemented
Rural Development completed and provided GAO with written procedures detailing how it computes subsidy estimates on its non-housing direct loans in January 2001. GAO has reviewed the procedures and determined them to be satisfactory.
Department of Agriculture To better secure the restructured loans and to improve RUS' process to restructure and report financially troubled borrower's loans, the Secretary of Agriculture should direct the Administrator, RUS, and in some instances, the Under Secretary of Rural Development, to adjust accounting reports to properly disclose the full costs associated with the restructured loans.
Closed – Implemented
Agency adjusted its accounting records for $7 million in interest forgiven and included the other losses GAO cited in its allowance for loss account. These actions result in the full cost of the loan restructurings being properly reflected in the agency's financial reports.

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Topics

Accounting proceduresCost analysisDebt collectionDirect loansElectric utilitiesFederal agency accounting systemsInternal controlsLoan defaultsLoan repaymentsLosses