Summary of Major Deficiencies in the Farmers Home Administration's Business and Industrial Loan Program

GAO was asked to summarize the major deficiencies in the Farmers Home Administration's (FmHA) Business and Industrial Loan Program. GAO was also asked to base the summary on audits by GAO and the Department of Agriculture (USDA) Office of the Inspector General (OIG) and internal FmHA studies. In 1977, GAO reported on loan evaluation and servicing deficiencies in the FmHA program.

The review of OIG audits and FmHA internal assessments showed that many of the deficiencies identified in the 1977 report still exist. GAO believes that the continuing deficiencies in the FmHA program are the result of an imbalance between FmHA staffing levels and program activities and the failure of FmHA staff to follow or enforce program requirements. GAO believes that to correct the deficiencies: (1) a better balance will be needed between FmHA staffing and program activities; (2) loan-approving officials should be required to certify loan approval to some outside entity, such as OIG, for loans previously rejected at a lower review level; (3) FmHA needs to continue strengthening its monitoring capabilities; (4) periodic audits and congressional oversight should be carried out as needed to surface problems and ensure their correction; and (5) remedial training and, where appropriate, disciplinary action must be provided when program requirements are not followed. GAO found that FmHA was in the process of tightening program requirements for loans involving refinancing and that these new requirements should minimize differences in interpretations of FmHA requirements and result in approving sounder loans. GAO believes that if the new FmHA requirements do not achieve the desired results, FmHA should reconsider subjecting such loans to national office approval as previously suggested.