Collection and Accounting for Accrued Interest on Commodity Credit Corporation Producer Loans

GAO concluded a review of the financial statements of the Commodity Credit Corporation (CCC) for fiscal year 1980.

As a result of information gathered during the course of the review, GAO believed that the CCC practice of applying repayments of tobacco associations' loans first to principal and then to accrued interest was inconsistent both with CCC procedures for repaying its borrowings and with normal banking practices. CCC regulations provide that sales proceeds from 1966 and prior years' loans outstanding be applied first to loan principal and then to accrued interest. This change was recommended as a means of eliminating unproductive computations and reducing recordkeeping. The change also resulted in recording interest income on tobacco loans only when the proceeds from loan collateral dispositions exceeded the principal amount of the loans. In 1966, the low interest rates may have justified dispensing with the control over accrued interest receivables. However, the same justification does not exist today. As a result of the regulation, tobacco associations are paying interest at substantially reduced amounts because their loan principal balances are more rapidly reduced as they apply sales proceeds first to loan principal, until liquidated, and then to accrued interest. GAO believes that tightening the interest computation procedures is consistent with the new limits placed on the tobacco program and that CCC need not incur a loss on the program if other compatible program changes are made such as adjusting loan rates by grade of tobacco.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Ronald J. Points Team: General Accounting Office: Accounting and Financial Management Division Phone: (202) 275-6222