Farmers Home Administration's Farm Loan Programs

Many GAO audit reports have spotlighted the effect of management failures in the federal government--waste, inefficiency, and even scandal. Political leaders have been forced to spend too much time reacting to surprises like the Department of Housing and Urban Development debacle rather than doing the work the agencies were created to do. GAO began its high-risk program to identify those high-dollar government programs most vulnerable to fraud, waste, abuse, and mismanagement. This report is part of the program's high-risk series of reports, which examine the federal government's efforts to identify and correct problems in 17 especially vulnerable areas, fall into three main categories: lending and insuring, contracting, and accountability. Many of the root causes of the problems afflicting these government programs are traceable to the absence of fundamental processes and systems. GAO urges that future congressional oversight focus on the agency reports and audited financial statements required by the Chief Financial Officers Act, agency management's progress in correcting material weaknesses in program internal control and accounting systems, and federal agency efforts to develop and implement performance standards. The Comptroller General summarized the high-risk series in testimony before Congress; see: Government Management--Report on 17 High-Risk Areas, by Charles A. Bowsher, Comptroller General of the United States, before the Senate Committee on Governmental Affairs. GAO/T-OCG-93-2, Jan. 8, 1993 (22 pages).

GAO found that: (1) FmHA attempted to provide high-risk farmers with temporary credit until they were able to secure commercial credit and protect the taxpayers' investment; (2) 70 percent of the $20 billion in outstanding FmHA loans were either delinquent or restructured to prevent delinquency; (3) FmHA reduced $7.6 billion in delinquent debt due to loan defaults; (4) repeated loan servicing worsened borrowers' financial conditions by increasing their debt and reducing equity; (5) FmHA field offices often failed to follow their own standards for making loans, servicing loans, and managing property; (6) FmHA and congressional loan making, loan-servicing, and inventory management policies increased FmHA and taxpayers' vulnerability to losses; and (7) FmHA and Congress need to establish a system to ensure that FmHA field offices follow loan standards and enact policy and program changes to reduce the loan programs' exposure to risk.