Investment by an REA Cooperative

RCED/OSI-94-286R: Published: Aug 12, 1994. Publicly Released: Aug 22, 1994.

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Pursuant to a congressional request, GAO reviewed the investment activities of a Rural Electrification Administration (REA) cooperative. GAO noted that: (1) the cooperative invested about $5.2 million in a bankrupt local company; (2) other entities invested an additional $2 million in the company; (3) the company had two tax liens filed against it for nonpayment of payroll taxes; (4) the cooperative filed a lawsuit against the company for loan defaults; (5) the state regulatory commission found no irregularities in the cooperative's utility rates or accounting procedures, but the cooperative's write-off of the loss could eventually affect its rates and members; and (6) there was no evidence that the cooperative tried to circumvent REA investment regulations, but REA and the cooperative said that there was confusion as to how to apply the regulations on investment limits.

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