Financial Audit:

Farmers Home Administration's Financial Statements for 1988 and 1987

AFMD-90-37: Published: Jan 25, 1990. Publicly Released: Jan 25, 1990.

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GAO examined the Farmers Home Administration's (FmHA) consolidated statements of its financial position as of September 30, 1988 and 1987, and the related statements of operations and cash flows for the fiscal years then ended.

GAO found that: (1) the statements presented fairly the FmHA financial position as of September 30, 1988 and 1987, and the related statements of operations and cash flows for the years then ended, in conformity with generally accepted accounting principles; (2) although FmHA implemented the Acquired Property Tracking System (APTS) in response to internal accounting deficiencies, the system did not conform to federal agency policies and procedures; (3) FmHA had not completed system modifications which would allow it to properly record acquired property or integrated APTS data with the related general ledger control accounts; (4) APTS contained inaccurate and incomplete information from FmHA field offices, since the software did not include parameter checks to detect unreasonable property values; (5) FmHA field supervisors did not establish market values for collateral in order to project loan losses; and (6) FmHA did not have an appropriate methodology for determining the necessary property holding and disposition costs to ensure reasonable loan loss estimates and acquired property balances.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: A memo from the Administrator, in March 1990, was sent to all county offices to correct the problem and implement the GAO recommendation. Action was completed by October 1990. Systems edit checks and staff training in February 1991 also were implemented.

    Recommendation: The Secretary of Agriculture should direct the Administrator, FmHA, to ensure that field office supervisors follow instructions when calculating the estimated loan losses, particularly the procedures regarding the consideration of prior liens in loss calculations, and the proper application of liquidation costs. One possible approach would be to provide periodic training on loan classification procedures.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Implemented

    Comments: The agency has implemented procedures to reconcile losses effective August 31, 1990, and recorded by October 1990.

    Recommendation: The Secretary of Agriculture should direct the Administrator, FmHA, to reconcile estimated loan losses between the field office files and the automated files at the finance office as of fiscal yearend.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Implemented

    Comments: A memo was sent to FmHA county offices on September 7, 1990, requiring review of all loan collateral. Systems modifications for single family housing programs were implemented on November 2, 1991. Collateral values were corrected by September 22, 1992, and are used to develop loan loss estimates.

    Recommendation: The Secretary of Agriculture should direct the Administrator, FmHA, to ensure that field office supervisors use market values of collateral as close to the end of the fiscal year as practicable to estimate loan losses in the loan classification system.

    Agency Affected: Department of Agriculture

  4. Status: Closed - Implemented

    Comments: APTS modifications were implemented on February 27, 1991, including provisions for reporting 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 ensure that all county offices receive APTS reports, require periodic reconciliations of APTS report information with the detailed acquired property files as of fiscal yearend, and develop appropriate internal controls to detect the recording of unreasonable dollar values for inventory properties.

    Agency Affected: Department of Agriculture

  5. Status: Closed - Not Implemented

    Comments: FmHA provides an allowance of 20 percent of the acquired property's value for holding and disposition costs and does not intend to take further action on this recommendation. The amount of acquired property has been significantly reduced and therefore should be dropped.

    Recommendation: The Secretary of Agriculture should direct the Administrator, FmHA, to develop a sound methodology for determining holding and disposition cost factors applied to loan collateral and acquired property by considering historical repair and maintenance costs, as well as current estimates of taxes, insurance, and cost of capital.

    Agency Affected: Department of Agriculture

 

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