Farmers Home Administration

The Farmers Home Administration (FmHA) has provided about $2.8 billion in debt relief to delinquent borrowers under provisions of the Agriculture Credit Act of 1987. In providing debt relief to corporations or partnerships, FmHA has neglected to obtain current financial information for individuals who cosigned promissory notes for these borrowers, resulting in the granting of more debt relief than warranted. This report (1) determines the number of business entity borrowers and the dollar value of their FmHA farm loans, entity borrowers who are delinquent and eligible for FmHA debt relief, and entity borrowers who have already received FmHA debt relief; (2) examines how FmHA county offices implemented the agency's April 1989 guidance, which clarified existing regulations on granting debt relief to business entity borrowers; and (3) determines whether FmHA recalculated the amount of debt relief provided to borrowers before issuance of the April 1989 guidance to minimize the government's losses in debt relief actions.

GAO found that: (1) as of March 31, 1991, about 44 percent of the 7,664 business entity borrowers, which held about $1.2 billion in outstanding principal on farm loans, were delinquent and eligible for FmHA debt relief; (2) when FmHA first began notifying delinquent borrowers of available debt relief options, an estimated 710 business entity borrowers received FmHA debt relief write-downs or write-offs totalling about $256 million; (3) 4 FmHA county offices, providing about $8 million in debt relief to a total of 23 business entity borrowers, did not always follow FmHA regulations or the 1989 guidance, which clarified existing regulations on granting debt relief to business entity borrowers; (4) county officials did not obtain the required financial information from all liable parties in about one-third of the 23 cases processed in those offices; (5) in two-thirds of the 23 cases, officials did not follow up or verify incomplete or conflicting data; (6) some of the reasons county officials cited for not following FmHA regulations and guidance included a lack of time, insufficient understanding of the guidance, and the belief that personal knowledge of individual financial statements was unnecessary; and (7) none of the four county offices visited issued final debt relief decisions on the estimated 74 business entity cases FmHA received before the 1989 guidance.

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.

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